UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(MARK ONE)
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2017September 30, 2021


OR
o☐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)
Bermuda77-0553536
(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  x☒    No  o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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  x☒     No  o☐
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 filero
☐
Accelerated filerx
☒
Non-accelerated filero☐
(Do not check if a smaller reporting company)
Smaller reporting companyo
☐
Emerging growth companyo☐


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. o☐


Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common SharesAOSLThe 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  o☐    No  x☒
Number of common shares outstanding as of January 31, 2018: 23,948,076October 22, 2021: 26,377,51925,770,998





Alpha and Omega Semiconductor Limited
Form 10-Q
Fiscal First Quarter Ended December 31, 2017September 30, 2021
TABLE OF CONTENTS
 
Page
Part I.
    Item 1.
1
1
2
3
4
45
56
    Item 2.
1928
    Item 3.
3141
    Item 4.
3141
Part II.
    Item 1.
3242
    Item 1A.
3242
    Item 2.
3444
    Item 3.
3545
    Item 4.
3545
    Item 5.
3545
    Item 6.
3646
3747








PART I. FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS


ALPHA AND OMEGA SEMICONDUCTOR LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands except par value per share)
 September 30,
2021		June 30,
2021
ASSETS
Current assets:
Cash and cash equivalents$252,453 $202,412 
Restricted cash342 233 
Accounts receivable, net39,317 35,789 
Inventories163,437 154,293 
Other current assets17,518 14,595 
Total current assets473,067 407,322 
Property, plant and equipment, net441,279 436,977 
Operating lease right-of-use assets, net33,437 34,660 
Intangible assets, net12,570 13,410 
Deferred income tax assets5,216 5,167 
Restricted cash - long-term2,168 2,168 
Other long-term assets23,941 18,869 
Total assets$991,678 $918,573 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable$81,681 $80,699 
Accrued liabilities92,207 69,494 
Income taxes payable3,004 2,604 
Short-term debt57,955 58,030 
Finance lease liabilities16,722 16,724 
Operating lease liabilities5,537 5,679 
Total current liabilities257,106 233,230 
Long-term debt75,991 77,990 
Income taxes payable - long-term1,332 1,319 
Deferred income tax liabilities3,136 2,448 
Finance lease liabilities - long-term8,516 12,698 
Operating lease liabilities - long-term29,342 30,440 
Other long-term liabilities74,265 44,123 
Total liabilities449,688 402,248 
Commitments and contingencies (Note 10)00
Equity:
Preferred shares, par value $0.002 per share:
Authorized: 10,000 shares; issued and outstanding: none at September 30, 2021 and June 30, 2021— — 
Common shares, par value $0.002 per share:
Authorized: 100,000 shares; issued and outstanding: 32,996 shares and 26,373 shares, respectively at September 30, 2021 and 32,975 shares and 26,350 shares, respectively at June 30, 202166 66 
Treasury shares at cost: 6,623 shares at September 30, 2021 and 6,625 shares at June 30, 2021(66,052)(66,064)
Additional paid-in capital264,321 259,993 
Accumulated other comprehensive income2,229 2,315 
Retained earnings200,307 176,895 
Total Alpha and Omega Semiconductor Limited shareholder's equity400,871 373,205 
Noncontrolling interest141,119 143,120 
Total equity541,990 516,325 
Total liabilities and equity$991,678 $918,573 
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands except par value per share)
 December 31,
2017		 June 30,
2017
ASSETS   
Current assets:   
Cash and cash equivalents$146,209
 $115,708
Restricted cash192
 221
Accounts receivable, net24,283
 28,410
Inventories85,672
 76,254
Other current assets8,942
 4,883
Total current assets265,298
 225,476
Property, plant and equipment, net193,253
 148,191
Intangible assets, net14,599
 282
Deferred income tax assets - long-term4,600
 4,594
Other long-term assets42,801
 19,865
Total assets$520,551
 $398,408
LIABILITIES AND EQUITY   
Current liabilities:   
Accounts payable$70,521
 $63,134
Accrued liabilities51,238
 28,386
Income taxes payable1,280
 1,748
Deferred margin1,386
 814
Capital leases846
 828
Total current liabilities125,271
 94,910
Income taxes payable - long-term941
 922
Deferred income tax liabilities442
 2,659
Capital leases - long-term449
 866
Other long-term liabilities396
 502
Total liabilities127,499
 99,859
Commitments and contingencies (Note 10)
 
Equity:   
Preferred shares, par value $0.002 per share:   
Authorized: 10,000 shares, issued and outstanding: none at December 31, 2017 and June 30, 2017—
 —
Common shares, par value $0.002 per share:   
Authorized: 100,000 shares, issued and outstanding: 29,856 shares and 23,908 shares, respectively at December 31, 2017 and 29,600 shares and 23,992 shares, respectively at June 30, 201760
 59
Treasury shares at cost, 5,948 shares at December 31, 2017 and 5,608 shares at June 30, 2017(55,799) (49,836)
Additional paid-in capital212,771
 206,332
Accumulated other comprehensive income2,455
 306
Retained earnings120,023
 113,909
Total Alpha and Omega Semiconductor Limited shareholder's equity279,510
 270,770
Noncontrolling interest113,542
 27,779
Total equity393,052
 298,549
Total liabilities and equity$520,551
 $398,408


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 September 30,
 20212020
Revenue$187,035 $151,551 
Cost of goods sold122,468 109,028 
Gross profit64,567 42,523 
Operating expenses
Research and development17,812 14,691 
Selling, general and administrative21,806 17,505 
Total operating expenses39,618 32,196 
Operating income24,949 10,327 
Interest expense and other income (loss), net(2,192)(549)
Income before income taxes22,757 9,778 
Income tax expense1,320 1,011 
Net income including noncontrolling interest21,437 8,767 
Net loss attributable to noncontrolling interest(1,987)(807)
Net income attributable to Alpha and Omega Semiconductor Limited$23,424 $9,574 
Net income per common share attributable to Alpha and Omega Semiconductor Limited
Basic$0.89 $0.38 
Diluted$0.85 $0.36 
Weighted average number of common shares attributable to Alpha and Omega Semiconductor Limited used to compute net income per share
Basic26,365 25,340 
Diluted27,638 26,314 

 Three Months Ended December 31, Six Months Ended December 31,
 2017 2016 2017 2016
Revenue$103,896
 $94,687
 $208,754
 $192,049
Cost of goods sold75,814
 72,593
 153,142
 148,011
Gross profit28,082
 22,094
 55,612
 44,038
Operating expenses       
Research and development9,102
 7,284
 17,427
 14,303
Selling, general and administrative15,756
 11,974
 30,371
 23,157
Total operating expenses24,858
 19,258
 47,798
 37,460
Operating income3,224
 2,836
 7,814
 6,578
Interest income and other loss, net(160) (70) (120) (119)
Interest expense(14) (24) (31) (50)
Net income before income taxes3,050
 2,742
 7,663
 6,409
Income tax expense (benefit)(2,072) 1,085
 (798) 2,322
Net income including noncontrolling interest5,122
 1,657
 8,461
 4,087
Net loss attributable to noncontrolling interest(1,669) (1,190) (3,130) (2,067)
Net income attributable to Alpha and Omega Semiconductor Limited$6,791
 $2,847
 $11,591
 $6,154
Net income per common share attributable to Alpha and Omega Semiconductor Limited       
Basic$0.28
 $0.12
 $0.48
 $0.26
Diluted$0.27
 $0.11
 $0.46
 $0.25
Weighted average number of common shares attributable to Alpha and Omega Semiconductor Limited used to compute net income per share       
Basic23,925
 23,481
 23,973
 23,256
Diluted25,033
 24,977
 24,997
 24,695

















See accompanying notes to these condensed consolidated financial statements.



2
Table of Contents

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



Three Months Ended September 30,
20212020
Net income including noncontrolling interest$21,437 $8,767 
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment(100)5,703 
Comprehensive income21,337 14,470 
Less: Noncontrolling interest(2,001)1,915 
Comprehensive income attributable to Alpha and Omega Semiconductor Limited$23,338 $12,555 
 Three Months Ended December 31, Six Months Ended December 31,
 2017 2016 2017 2016
Net income including noncontrolling interest$5,122
 $1,657
 8,461
 4,087
Other comprehensive income, net of tax       
Foreign currency translation adjustment3,347
 (2,326) 4,048
 (2,256)
Comprehensive income (loss)8,469
 (669) 12,509
 1,831
Noncontrolling interest(104) (2,234) (1,231) (3,132)
Comprehensive income attributable to Alpha and Omega Semiconductor Limited$8,573
 $1,565
 $13,740
 $4,963






























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' EquityNoncontrolling InterestTotal Equity
Balance, June 30, 2020$64 $(66,184)$246,103 $(5,127)$118,833 $293,689 $138,199 $431,888 
Reissuance of treasury stock upon exercise of common stock options and release of RSUs— 13 — — (13)— — — 
Withholding tax on restricted stock units— — (412)— — (412)— (412)
Share-based compensation— — 2,276 — — 2,276 — 2,276 
Restricted stock units settlement in connection with service— — 1,000 — — 1,000 — 1,000 
Net income (loss) including noncontrolling interest— — — — 9,574 9,574 (807)8,767 
Foreign currency translation adjustment— — — 2,981 — 2,981 2,722 5,703 
Balance, September 30, 2020$64 $(66,171)$248,967 $(2,146)$128,394 $309,108 $140,114 $449,222 
Common SharesTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Retained EarningsTotal AOS Shareholders' EquityNoncontrolling InterestTotal Equity
Balance, June 30, 2021$66 $(66,064)$259,993 $2,315 $176,895 $373,205 $143,120 $516,325 
Reissuance of treasury stock upon exercise of common stock options and release of RSUs— 12 — — (12)— — — 
Withholding tax on restricted stock units— — (174)— — (174)— (174)
Share-based compensation— — 4,502 — — 4,502 — 4,502 
Net income (loss) including noncontrolling interest— — — — 23,424 23,424 (1,987)21,437 
Foreign currency translation adjustment— — — (86)— (86)(14)(100)
Balance, September 30, 2021$66 $(66,052)$264,321 $2,229 $200,307 $400,871 $141,119 $541,990 


See accompanying notes to these condensed consolidated financial statements.

4
Table of Contents
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)


Three Months Ended September 30,
20212020
Cash flows from operating activities
Net income including noncontrolling interest$21,437 $8,767 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization13,722 12,489 
Share-based compensation expense4,635 2,876 
Deferred income taxes, net638 17 
Loss on disposal of property and equipment28 47 
Changes in operating assets and liabilities:
Accounts receivable(3,528)(13,044)
Inventories(9,145)(2,172)
Other current and long-term assets(2,561)(1,011)
Accounts payable2,081 1,930 
Income taxes payable414 749 
Accrued and other liabilities52,886 (800)
Net cash provided by operating activities80,607 9,848 
Cash flows from investing activities
Purchases of property and equipment excluding JV Company(16,642)(7,944)
Purchases of property and equipment in JV Company(8,351)(3,393)
Government grant related to equipment1,082 — 
Net cash used in investing activities(23,911)(11,337)
Cash flows from financing activities
Withholding tax on restricted stock units(174)(412)
Proceeds from borrowings7,550 11,300 
Repayments of borrowings(9,735)(11,085)
Principal payments on finance leases(4,176)(3,989)
Net cash used in financing activities(6,535)(4,186)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(11)1,997 
Net increase (decrease) in cash, cash equivalents and restricted cash50,150 (3,678)
Cash, cash equivalents and restricted cash at beginning of period204,813 162,704 
Cash, cash equivalents and restricted cash at end of period$254,963 $159,026 
Supplemental disclosures of non-cash investing and financing information:
Property and equipment purchased but not yet paid$11,285 $6,877 

 Six Months Ended December 31,
 2017 2016
Cash flows from operating activities   
Net income$8,461
 $4,087
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization14,386
 13,263
Share-based compensation expense6,017
 2,870
Deferred income taxes, net(2,224) 6,581
Loss (Gain) on disposal of property and equipment55
 (370)
Changes in assets and liabilities:   
Accounts receivable, net4,127
 2,112
Inventories(9,418) (1,391)
Other current and long-term assets(9,081) (7,032)
Accounts payable1,877
 (4,605)
Income taxes payable(448) 257
Accrued and other liabilities8,102
 2,297
Net cash provided by operating activities21,854
 18,069
Cash flows from investing activities   
Purchases of property and equipment excluding JV Company(23,192) (11,371)
Purchases of property and equipment in JV Company(41,576) (3,632)
Purchases of land use rights in JV Company—
 (8,737)
Purchase of intangible assets(10,384) —
Proceeds from sale of property and equipment—
 411
(Increase) decrease in restricted cash29
 (135)
Net cash used in investing activities(75,123) (23,464)
Cash flows from financing activities   
Proceeds from investment by noncontrolling interest86,994
 33,000
Withholding tax on restricted stock units(249) (348)
Proceeds from exercise of stock options and ESPP2,205
 8,729
Payment for repurchases of common shares(6,022) —
Principal payments on capital leases(399) (408)
Net cash provided by financing activities82,529
 40,973
Effect of exchange rate changes on cash and cash equivalents1,241
 (559)
Net increase in cash and cash equivalents30,501
 35,019
Cash and cash equivalents at beginning of period115,708
 87,774
Cash and cash equivalents at end of period$146,209
 $122,793
    
Supplemental disclosures of non-cash investing and financing information:   
Property and equipment purchased but not yet paid$43,235
 $5,153
Re-issuance of treasury stock$3
 $59



See accompanying notes to these condensed consolidated financial statements.

5
4
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"“Company”, “AOS”, “we” or "us"“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, LED lighting,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, Taiwan, Korea, Germany and Japan.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, 2017.2021. 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 sixthree months ended December 31, 2017September 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2018.2022 or any other interim period. The condensed consolidated balance sheet at June 30, 20172021 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, 2017.2021.


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.

Joint Venture


InOn March 29, 2016, the Company executed an agreemententered into a joint venture contract (the “JV Agreement”) with two strategic investment funds owned by the Municipality of Chongqing China (the "Chongqing Funds"“Chongqing Funds”), pursuant to formwhich the Company and the Chongqing Funds formed a joint venture, (the “JV Company”), for the purpose of constructing and operating a new state-of-the-art power semiconductor packaging, testing and 12-inch wafer fabrication facility (“Fab”) in Liangjiangthe LiangJiang New Area of Chongqing, China (the "Joint Venture"“JV Transaction”). The initial capitalizationFab is being built in phases.  As of September 30, 2021, the Joint Venture under the agreement is $330.0 million, which includes cash contributions from the Chongqing Funds and contributions of cash, equipment and intangible assets from the Company. The Company ownsowned 51%, and the Chongqing Funds ownowned 49% of the equity interest ofin the Joint Venture.JV Company. The Joint Venture is accounted under the provisions of the consolidation guidance since the Company has a controlling financial interest. If both parties agree that the termination of the JV Company is the best interest of each party or the JV Company is bankrupt or insolvent where either party may terminate early, after paying the debts of the JV Company, the remaining assets of the JV Company shall be paid to the Chongqing Funds to cover the principal of its total paid-in contributions plus interest at 10% simple annual rate prior to distributing the balance of the JV Company’s assets to the Company. The JV Company has reached its targeted production in assembly and testing and completed the ramp on its Phase I of the 12-inch wafer fabrication.

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

The COVID-19 pandemic has had and continues to have a negative impact on business and economic activities across the globe. As a result of the COVID-19 pandemic and the global economic downturn and changing consumer behaviors due to various restrictions imposed by governments, the Company has experienced shifting market trends, including an increasing demand in the markets for notebooks, PCs and gaming devices and decreasing demand for mobile phone and industrial products, as more consumers are staying at and working from home. While the Company has recently benefited from the increasing demand of PC related products, there is no guarantee that this trend will continue, and such increasing demand may
6
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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; 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.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 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
7
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 5). In addition, the Company maintains restricted cash in connection with cash balances temporarily restricted for regular business operations, including the possibility of a dispute with a vendor. These balances have been excluded from the Company’s cash and cash equivalents balance and are classified as restricted cash in the Company’s condensed consolidated balance sheets. As of September 30, 2021 and June 30, 2021, the amount of restricted cash was $2.5 million and $2.4 million, respectively.
Fair Value of Financial Instruments

The fair valuesvalue of cash equivalents are based on observable market prices and have beenis categorized in Level 1 in the fair value hierarchy. Cash equivalents consist primarily of short termshort-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.
Comprehensive Income (Loss)

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 months ended September 30, 2021, the Company reduced the carrying value of property, plant and equipment by $1.1 million. During the three months ended September 30, 2020, the Company reduced interest expense by $0.8 million, and operating expenses by $1.9 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
5
8
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 financial forecasts by referencing to historical data, supplemented by current and anticipated market conditions, estimated product growth rates and management's plans. These estimated future cash flows were consistent with those the Company uses in its internal planning. The result of the recoverability test indicated that the sum of the expected future cash flows (undiscounted and without interest charges) was greater than the carrying amount of the long-lived assets. Therefore, the Company concluded that the carrying amount of the long-lived assets is recoverable as of June 30, 2021.

Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company's accumulated other comprehensive income (loss) consists of cumulative foreign currency translation adjustments. Total comprehensive income (loss) is presented in the condensed consolidated statements of comprehensive income (loss).


Recent Accounting Pronouncements
    
Recently Issued Accounting Standards not yet adopted

In May 2017,August 2020, the FASBFinancial Accounting Standards Board (FASB) issued Accounting Standard Updates ("ASU") ASU 2017-09, "Compensation -Stock Compensation: Scope of ModificationStandards Update (ASU) No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting ("ASU 2017-09"). ASU 2017-09 isfor Convertible Instruments and Contracts in an updateEntity’s Own Equity, which, among other things, provides guidance on how to the existing guidance to clarify when modification accounting would be appliedaccount for a change to the terms or conditions of a share-based award. Under this new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of the change in terms or conditions.contracts on an entity’s own equity. This ASU will be effectivesimplifies the accounting for annual periods,certain financial instruments with characteristics of liabilities and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. The Company does not regularly modifyequity. Specifically, the terms and conditions of its share-based awards and does not expectASU eliminated the adoption of this guidance to have a significant impact on its financial statements.

In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows: Restricted Cash ("ASU 2016-18"). ASU 2016-18 requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amountsneed for the periods shownCompany to assess whether a contract on the statemententity’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 cash flows. Thiscertain financial instruments accounted for under this ASU will beon earnings per share. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2017,2021, and interim periods within those fiscal years, with early adoption permitted and requires retrospective adoption.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 August 2016,January 2020, the FASB issued ASU No. 2016-15, "Statement2020-01, “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 Cash Flows (Topic 230): Classificationthe 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 Certain Cash Receipts and Cash Payments ("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. ASU 2016-15"). ASU 2016-15 identifies how certain cash receipts and cash payments are presented and classified in2020-01 had no material impact on the Statement of Cash Flows under Topic 230. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted.  Upon adoption, entities must apply the guidance retrospectively to all periods presented. The Company is currently evaluating the impact the adoption of ASU 2016-15 will have on itsCompany's consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases. This guidance requires a dual approach for lessee accounting under which a lessee will account for leases as finance leases or operating leases. Both finance and operating leases will result in the lessee recognizing a right-of-use asset and a corresponding liability on its balance sheet, with differing methodology for income statement recognition. This guidance is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. A modified retrospective approach is required for all leases existing or entered into after the beginning of the earliest comparative period in the consolidated financial statements. The Company is currently assessing the impact that adoption of this guidance will have on its consolidated financial statements.

In May 2014,2019, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The standard provides companies with a single model2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when control of the goods or services transfersIncome Taxes ("ASU 2019-12") by removing certain exceptions to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer under the existing revenue guidance.general principles. The Company will adopt the new revenue standards in its first quarteradopted ASU 2019-12 as of fiscal year 2019 utilizing the modified retrospective method. The Company is still in the process of completing its analysisJuly 1, 2021. ASU 2019-12 had no material impact on the transition of all revenue from distributors from sell-through to the sell-in basis of accounting, as well as impact of related disclosures and its internal controls overCompany's consolidated financial reporting.statements.



6
9
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2. 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 September 30,
 20212020
(in thousands, except per share data)
Numerator:
Net income attributable to Alpha and Omega Semiconductor Limited$23,424 $9,574 
Denominator:
Basic:
Weighted average number of common shares used to compute basic net income per share26,365 25,340 
Diluted:
Weighted average number of common shares used to compute basic net income per share26,365 25,340 
Effect of potentially dilutive securities:
Stock options, RSUs and ESPP shares1,273 974 
Weighted average number of common shares used to compute diluted net income per share27,638 26,314 
Net income per share attributable to Alpha and Omega Semiconductor Limited:
Basic$0.89 $0.38 
Diluted$0.85 $0.36 
 Three Months Ended December 31, Six Months Ended December 31,
 2017 2016 2017 2016
 (in thousands, except per share data)
Numerator:       
Net income attributable to Alpha and Omega Semiconductor Limited$6,791
 $2,847
 $11,591
 $6,154
        
Denominator:       
Basic:       
Weighted average number of common shares used to compute basic net income per share23,925
 23,481
 23,973
 23,256
Diluted:       
Weighted average number of common shares used to compute basic net income per share23,925
 23,481
 23,973
 23,256
Effect of potentially dilutive securities:       
Stock options, RSUs and ESPP shares1,108
 1,496
 1,024
 1,439
Weighted average number of common shares used to compute diluted net income per share25,033
 24,977
 24,997
 24,695
Net income per share attributable to Alpha and Omega Semiconductor Limited:       
Basic$0.28
 $0.12
 $0.48
 $0.26
Diluted$0.27
 $0.11
 $0.46
 $0.25
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 September 30,
 20212020
(in thousands)
Employee stock options and RSUs510 124 
ESPP33 233 
Total potential dilutive securities543 357 
 Three Months Ended December 31, Six Months Ended December 31,
 2017 2016 2017 2016
 (in thousands) (in thousands)
Employee stock options and RSUs165
 —
 169
 123
ESPP—
 16
 45
 8
Total potential dilutive securities165
 16
 214
 131



7
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3. Concentration of Credit Risk and Significant Customers
The Company manages its credit risk associated with exposure to distributors and direct customers on outstanding accounts receivable through the application and review of credit approvals, credit ratings and other monitoring procedures. In some instances, the Company also obtains letters of credit from certain customers.
Credit sales, which are mainly on credit terms of 30 to 60 days,, are only made to customers who meet the Company's credit requirements, while sales to new customers or customers with low credit ratings are usually made on an advance payment basis. The Company considers its trade accounts receivable to be of good credit quality because its key distributors and direct customers have long-standing business relationships with the Company and the Company has not experienced any significant bad debt write-offs of accounts receivable in the past. The Company closely monitors the aging of accounts receivable from its distributors and direct customers, and regularly reviews their financial positions, whenwhere available.
Summarized below are individual customers whose revenue or accounts receivable balances were more10% or higher than10% of the respective total consolidated amounts:
10
 Three Months Ended December 31, Six Months Ended December 31,
Percentage of revenue2017 2016 2017 2016
Customer A30.8% 27.0% 29.2% 25.6%
Customer B33.7% 35.8% 33.8% 36.2%
Customer C*
 10.7% *
 12.3%
* Less than 10%

 December 31,
2017		 June 30,
2017
Percentage of accounts receivable 
Customer A35.7% 33.2%
Customer B19.1% 13.2%
Customer C12.6% 16.4%


8
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

4. Balance Sheet Components
Accounts receivable, net:
 December 31,
2017		 June 30,
2017
 (in thousands)
Accounts receivable$45,438
 $48,039
Less: Allowance for price adjustments(21,125) (19,599)
Less: Allowance for doubtful accounts(30) (30)
Accounts receivable, net$24,283
 $28,410

Inventories:
 December 31,
2017		 June 30,
2017
 (in thousands)
Raw materials$39,198
 $32,118
Work in-process34,994
 36,081
Finished goods11,480
 8,055
 $85,672
 $76,254
Property, plant and equipment, net:
 December 31,
2017		 June 30,
2017
 (in thousands)
Land$4,877
 $4,877
Building4,325
 4,325
Manufacturing machinery and equipment241,206
 215,275
Equipment and tooling14,641
 13,549
Computer equipment and software25,066
 24,346
Office furniture and equipment2,055
 1,935
Leasehold improvements29,507
 29,136
Land use rights9,242
 8,849
 330,919
 302,292
Less: accumulated depreciation(212,058) (194,882)
 118,861
 107,410
Equipment and construction in progress74,392
 40,781
Property, plant and equipment, net$193,253
 $148,191

Intangible assets, net:

9
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Three Months Ended September 30,
Percentage of revenue20212020
Customer A27.4 %28.8 %
Customer B36.6 %33.1 %

 September 30,
2021		June 30,
2021
Percentage of accounts receivable
Customer A16.0 %12.4 %
Customer B17.3 %22.1 %
Customer C18.2 %21.9 %


11
 December 31,
2017		 June 30,
2017
 (in thousands)
License fees$15,584
 $1,248
Trade name268
 268
Customer relationships1,150
 1,150
 17,002
 2,666
Less: accumulated amortization(2,672) (2,653)
 14,330
 13
Goodwill269
 269
Intangible assets, net$14,599
 $282
ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Intangible assets of license fees are primarily related to a license agreement that the Company entered into with STMicroelectronics International N.V. (“STMicro”) on September 5, 2017, pursuant to which STMicro granted the Company a world-wide, royalty-free and fully-paid license to use its technologies to develop, market and distribute certain digital multi-phase controller products, which have been offered by STMicro.  This agreement allows the Company to develop and market products in a new market, primarily in the computer server segment. Under the license agreement, the Company agreed to pay a total price in cash of $17.0 million based on the payment schedule of, approximately $10.1 million, $6.7 million, $0.2 million in calendar year 2017, 2018 and 2019, respectively. As of December 31, 2017, the Company recorded $13.8 million in intangible assets, of which $9.8 million in cash was paid to STMicro. The Company begins amortizing such license fees when the technology has met the Company's qualification.(Unaudited)

4. Balance Sheet Components
Accounts receivable, net:
 September 30,
2021		June 30,
2021
(in thousands)
Accounts receivable$53,017 $48,234 
Less: Allowance for price adjustments(13,670)(12,415)
Less: Allowance for doubtful accounts(30)(30)
Accounts receivable, net$39,317 $35,789 

Inventories:
 September 30,
2021		June 30,
2021
(in thousands)
Raw materials$71,881 $68,900 
Work in-process72,969 68,824 
Finished goods18,587 16,569 
 $163,437 $154,293 

Other long-termcurrent assets:
September 30,
2021		June 30,
2021
(in thousands)
VAT receivable$2,542 $1,539 
Other prepaid expenses2,768 1,465 
Prepaid insurance3,453 2,615 
Prepaid maintenance2,251 1,670 
Prepayment to supplier1,434 2,540 
Prepaid income tax2,233 2,221 
Interest receivable2,206 2,207 
Customs deposit561 270 
Other receivables70 68 
$17,518 $14,595 
 December 31,
2017		 June 30,
2017
 (in thousands)
Prepayments for property and equipment$36,359
 $12,964
Investment in a privately held company700
 700
Prepaid income tax—
 4,377
Long-term deposits5,386
 1,608
Other356
 216
 $42,801
 $19,865

Accrued liabilities:

12
 December 31,
2017		 June 30,
2017
 (in thousands)
Accrued compensation and benefits$21,963
 $13,727
Warranty accrual767
 1,866
Stock rotation accrual1,611
 1,871
Accrued professional fees1,856
 2,500
Accrued inventory1,008
 410
Accrued facilities related expenses1,820
 1,501
Accrued property, plant and equipment16,321
 2,241
Other accrued expenses5,892
 4,270
 $51,238
 $28,386
The activities in the warranty accrual, included in accrued liabilities, are as follows:

10
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Property, plant and equipment, net:
 September 30,
2021		June 30,
2021
(in thousands)
Land$4,877 $4,877 
Building71,576 71,454 
Manufacturing machinery and equipment519,732 515,320 
Equipment and tooling27,500 27,017 
Computer equipment and software41,949 41,518 
Office furniture and equipment3,941 3,814 
Leasehold improvements75,178 74,733 
Land use rights9,317 9,319 
 754,070 748,052 
Less: accumulated depreciation(360,510)(348,749)
 393,560 399,303 
Equipment and construction in progress47,719 37,674 
Property, plant and equipment, net$441,279 $436,977 

Intangible assets, net:
September 30,
2021		June 30,
2021
(in thousands)
Patents and technology rights$18,037 $18,037 
Trade name268 268 
Customer relationships1,150 1,150 
19,455 19,455 
Less: accumulated amortization(7,154)(6,314)
12,301 13,141 
Goodwill269 269 
Intangible assets, net$12,570 $13,410 

Estimated future minimum amortization expense of intangible assets is as follows (in thousands):
Year ending June 30,
2022 (Remaining)$2,520 
20233,286 
20243,249 
20253,246 
$12,301 
13
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Six Months Ended December 31,
 2017 2016
 (in thousands)
Beginning balance$1,866
 $1,495
Additions (Reductions)(1,063)*1,040
Utilization(36) (153)
Ending balance$767
 $2,382
Other long-term assets:
* Released a specific
September 30,
2021		June 30,
2021
(in thousands)
Prepayments for property and equipment$20,099 $14,882 
Investment in a privately held company100 100 
Customs deposit1,146 1,120 
Other long-term deposits926 927 
Office leases deposits1,022 1,100 
Other648 740 
 $23,941 $18,869 
Accrued liabilities:
September 30,
2021		June 30,
2021
(in thousands)
Accrued compensation and benefits$43,775 $32,756 
Warranty accrual2,824 2,795 
Stock rotation accrual3,782 3,917 
Accrued professional fees3,467 3,017 
Accrued inventory1,204 1,138 
Accrued facilities related expenses2,751 2,536 
Accrued property, plant and equipment8,473 8,688 
Other accrued expenses6,524 6,793 
Customer deposit17,137 7,139 
ESPP payable2,270 715 
 $92,207 $69,494 
The activities in the warranty reserve of approximately $1.0 million due to expired warranty period.accrual, included in accrued liabilities, are as follows:
Three Months Ended September 30,
20212020
(in thousands)
Beginning balance$2,795 $709 
Additions139 71 
Utilization(110)(73)
Ending balance$2,824 $707 
The activities in the stock rotation accrual, included in accrued liabilities, are as follows:
Three Months Ended September 30,
20212020
(in thousands)
Beginning balance$3,917 $3,358 
Additions701 3,016 
Utilization(836)(2,631)
Ending balance$3,782 $3,743 
14
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Six Months Ended December 31,
 2017 2016
 (in thousands)
Beginning balance$1,871
 $1,988
Additions992
 3,008
Utilization(1,252) (3,289)
Ending balance$1,611
 $1,707
Other long-term liabilities:

 September 30,
2021		June 30,
2021
(in thousands)
Deferred payroll taxes$1,219 $1,219 
Customer deposits72,592 42,000 
Other454 904 
Other long-term liabilities$74,265 $44,123 

Customer deposits are payments received from customers for securing future product shipments. As of September 30, 2021, $57.0 million were from Customer A and Customer B, and $15.6 million were from other customers. As of June 30, 2021, $42.0 million were from Customer A and Customer B.
15
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. DebtBank 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 September 30, 2021, the outstanding balance of this loan was $7.7 million at an interest rate of 3.49% per annum.

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. On June 16, 2021 and June 24, 2021, the JV Company borrowed $4.2 million and $3.5 million at interest rate of 2.7% per annum, and repaid in full during the quarter ended September 30, 2021. On August 17, 2021 and September 22, 2021, the JV Company also borrowed $4.2 million and $3.4 million at interest rate of 2.7% per annum, with principal due on November 9, 2021 and December 12, 2021, respectively. As of September 30, 2021, the total outstanding balance of these loans was $15.3 million.

On November 13, 2020, the JV Company entered into a one-year loan agreement with China Merchant Bank in China. The JV Company can borrow up to RMB 50.0 million, or $7.6 million, based on the currency exchange rate between RMB and U.S. Dollar on November 13, 2020. The loan's interest rates are based on the 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 September 30, 2021, the outstanding balance of this loan was $7.7 million.

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. As of September 30, 2021, there was no outstanding balance under the loan.

On November 16, 2018, the Company's subsidiary in China entered into a line of credit facility with Industrial and Commercial Bank of China. 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. As of September 30, 2021, there was 0 outstanding balance under the loan.


Accounts Receivable Factoring Agreement

On August 9, 2019, one of the Company's wholly-owned subsidiaries (the “Borrower”) entered into a factoring agreement with the Hongkong and Shanghai Banking Corporation Limited (“HSBC”), whereby the Borrower assigns certain of its accounts receivable with recourse. This factoring agreement allows the Borrower to borrow up to 70% of the net amount of its eligible accounts receivable of the Borrower with a maximum amount of $30.0 million. The interest rate is based on one month London Interbank Offered Rate (“LIBOR”) plus 1.75% per annum. The Company is the guarantor for this agreement. The Company is accounting for this transaction as a secured borrowing under the Transfers and Servicing of Financial Assets guidance. In addition, any cash held in the restricted bank account controlled by HSBC has a legal right of offset against the borrowing. This agreement, with certain financial covenants required, has no expiration date. 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 September 30, 2021, the Borrower was in compliance with these covenants. As of September 30, 2021, there was no outstanding balance and the Company had unused credit of approximately $8.0 million.

Credit Facilities
16
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 September 30, 2021, the outstanding balance of the Lease Financing of 163.0 million RMB (equivalent of $25.2 million based on the currency exchange rate as of September 30, 2021) was recorded under short-term and long-term finance lease liabilities on balance sheets and summarized in the future minimum lease payment table for finance lease liabilities in Note 6.

Long-term debt

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 September 30, 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 $111.7 million as of September 30, 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 September 30, 2021, the outstanding balance of the loan was $34.1 million.

In December 2019, the JV Company entered into a loan agreement with China Development Bank in the amount of $24.0 million. The obligation under the loan agreement is secured by certain assets of the JV Company with a carrying value of $111.7 million as of September 30, 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 September 30, 2021, the outstanding balance of the loan was$19.2 million.

On March 12, 2019, the JV Company entered into a loan agreement with The Export-Import Bank of China in the aggregate principal amount of RMB 200.0 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 loan withdraw window expired on February 28, 2020. The interest is accrued based on the China Base Rate multiplied by 1.1, or 5.39%. The loan requires quarterly interest payments. The principal payments are required to be paid every 6 months over the term of loan commencing in October 2019. This loan is secured by the buildings and certain equipment owned by the JV Company with a carrying value of $88.1 million as of September 30, 2021. As a condition of the loan arrangement, 14.0 million RMB (approximately $2.0
17
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 September 30, 2021, the outstanding balance of the loan was 184.0 million RMB (equivalent of $28.5 million based on the currency exchange rate as of September 30, 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 September 30, 2021. As of September 30, 2021, the outstanding balance of the term loan was $14.8 million.

On August 15, 2017, the Company's Oregon subsidiary, Jireh Semiconductor Incorporated (“Jireh”), entered into a credit agreement with a financial institution (the “Bank”)the Bank that providesprovided a term loan in an amount up to $30.0 million for the purpose of purchasing certain equipment for ourthe 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. OnIn January 12,2018 and July 2018, Jireh drew down the loan in the amount of $13.2 million.million and $16.7 million, respectively. Beginning of Septemberin 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 London Interbank Offered Rate ("LIBOR")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 September 30, 2021. As of December 31, 2017,September 30, 2021, the Company recorded approximately $0.1 millionoutstanding balance of transaction costs.the term loan was $7.5 million.



Maturities of short-term debt and long-term debt were as follows (in thousands):

Year ending June 30,
2022 (Remaining)$56,278 
202338,440 
202424,335 
202515,715 
Total principal134,768 
Less: debt issuance costs(822)
Total principal, less debt issuance costs$133,946 
Short-term DebtLong-term DebtTotal
Principal amount$58,359 $76,409 $134,768 
Less: debt issuance costs(404)(418)(822)
Total debt, less debt issuance costs$57,955 $75,991 $133,946 

11
18
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

6. Leases
6. Joint Venture

On March 29, 2016,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 entered intouses its incremental borrowing rate at lease commencement. The Company uses an interest rate commensurate with the interest rate to borrow on a joint venture contract (the “JV Agreement”)collateralized basis over a similar term with two investment funds owned byan amount equal to the Municipality of Chongqing (the “Chongqing Funds”), pursuantlease payments. Operating leases are primarily related to whichoffices, 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 Chongqing Funds formedaccretion of its lease obligation liability result in a joint venture, (the “JV Company”), forsingle straight-line expense recognized over the purposelease term. The finance lease is related to the RMB 400.0 million of constructing and operating a power semiconductor packaging, testing and 12-inch wafer fabrication facility in the Liangjiang New Area of Chongqing, China (the “JV Transaction”). The total initial capitalizationlease financing of the JV Company is $330.0 million (the “Initial Capitalization”), which includes cash contribution from the Chongqing Fundswith YinHai Leasing Company and contributionsThe Export-Import Bank of cash, equipment and intangible assets from the Company.  The Initial Capitalization is expected to be completed in stages.China. See Note 5 - Bank Borrowings for details. The Company owns 51%, anddoes not record leases on the Chongqing Funds own 49%,condensed consolidated balance sheets with a term of one year or less.

The components of the equity interest inCompany’s operating and finance lease expenses are as follows for the JV Company. If both parties agree that the termination of the JV Company is in the best interest of each party or the JV Company is bankrupt or insolvent where either party may terminate early, after paying the debts of the JV Company, the remaining assets of the JV Company shall be paid to the Chongqing Funds to cover the principal of its total paid-in contributions plus interest at 10% simple annual rate prior to distributing the balance of the JV Company's assets to the Company. The Company expects the JV Company to commence initial production in mid-calendar year 2018.periods presented (in thousands):


There is no private land ownership in China. Individuals and companies are permitted to acquire land use rights for specific purpose. In September 2016, the JV Company paid approximately $8.7 million for land use rights to build the manufacturing facility. In March 2017, the JV Company received the necessary land use right certificate from the PRC government. The land use rights will expire on November 30, 2066.
Three Months Ended September 30,
20212020
Operating leases:
     Fixed rent expense$1,801 $1,688 
     Variable rent expense298 203 
Finance lease:
     Amortization of equipment468 559 
     Interest410 615 
Short-term leases
     Short-term lease expenses54 58 
               Total lease expenses$3,031 $3,123 
As part of the JV Transaction, the JV Company entered into an Engineering, Procurement and Construction Contract (the “EPC Contract”) with The IT Electronics Eleventh Design & Research Institute Scientific and Technological Engineering Corporation Limited (the “Contractor”), effective as of January 10, 2017 (the "Effective Date"), pursuant which the Contractor was engaged to construct the manufacturing facility contemplated under the JV Agreement. Under the EPC Contract, the Contractor’s obligations include, but are not limited to: (i) the development of conceptual design, initial design, construction drawing design and optimization, and submission of such designs to the JV Company for examination and confirmation; and (ii) the construction of the assembly and wafer fabrication facilities and related procurement services, including the selection and engagement of subcontractors, in accordance with a construction schedule agreed upon by the parties. The total price payable under the EPC Contract is Chinese Renminbi (RMB) 540.0 million, or approximately $78.0 million based on the currency exchange rate between RMB and U.S. Dollars on the Effective Date, which consists of $2.8 million (RMB 19.5 million) of design fees (“Design Fees”) and $75.2 million (RMB 520.5 million) of construction and procurement fees (including compliance with safety and aesthetic requirements) (“Construction Fees”). The payment is subject to volatility as a result of exposure to fluctuations in RMB foreign exchange rates. The Design Fees and Construction Fees are paid by the JV Company pursuant to a payment schedule based on the progress of the construction and the achievements of specified milestones. As of December 31, 2017, the JV Company paid approximately $37.0 million (RMB 243.8 million), and expects to pay the remaining of $44.9 million (RMB 296.2 million) in calendar year 2018.




12
19
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):
The changes in total stockholders' equity
September 30,
2021		June 30,
2021
Operating Leases:
     ROU assets associated with operating leases$33,437 $34,660 
Finance Lease:
     Property, plant and equipment, gross$114,389 $114,404 
     Accumulated depreciation(96,809)(96,470)
          Property, plant and equipment, net$17,580 $17,934 
Weighted average remaining lease term (in years)
     Operating leases8.308.44
     Finance lease1.471.72
Weighted average discount rate
     Operating leases4.68 %4.67 %
     Finance lease5.46 %5.46 %

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


Three Months Ended September 30,
20212020
Cash paid from amounts included in the measurement of lease liabilities:
     Operating cash flows from operating leases$1,811 $1,642 
     Operating cash flows from finance lease$410 $615 
     Financing cash flows from finance lease$4,176 $3,989 
Non-cash investing and financing information:
    Operating lease right-of-use assets obtained in exchange for lease obligations$164 $137 

Future minimum lease payments are as follows as of September 30, 2021 (in thousands):

Year ending June 30,Operating LeasesFinance Leases
The remainder of fiscal 2022$5,481 $13,413 
20236,132 13,050 
20244,729 — 
20253,765 — 
20263,743 — 
Thereafter18,849 — 
Total minimum lease payments42,699 26,463 
Less amount representing interest(7,820)(1,225)
Total lease liabilities$34,879 $25,238 


20
  Total AOS Stockholders' Equity Noncontrolling Interest Total Equity
Balance, June 30, 2017 $270,770
 $27,779
 $298,549
Exercise of common stock options and release of RSUs 827
 —
 827
Reissuance of treasury stock upon exercise of common stock options and release of RSUs (61) —
 (61)
Withholding tax on restricted stock units (249) —
 (249)
Issuance of shares under ESPP 1,439
 —
 1,439
Repurchase of common shares under shares repurchase program (6,022) —
 (6,022)
     Stock-based compensation expense 4,546
 —
 4,546
     Net income (loss) 11,591
 (3,130) 8,461
Deferred tax asset related to ASU 2016-16 adoption (5,480) —
 (5,480)
     Cumulative translation adjustment 2,149
 1,899
 4,048
     Contributions from noncontrolling interest —
 86,994
 86,994
Balance, December 31, 2017 $279,510
 $113,542
 $393,052
ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

7. Shareholders' Equity and Share-based Compensation
Share Repurchase


In September 2017, the Board of Directors terminated the repurchase program that was previously approved in 2015 and approved a new repurchase program (the “Repurchase Program”), which allows 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'sCompany’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 sixthree months ended December 31, 2017,September 30, 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 346,6216,784,648 shares from the open market, for a total cost of $6.0$67.3 million, at an average price of $17.34 per share. Since the inception of the prior repurchase program in 2010, the Company repurchased an aggregate of 6,069,714 shares from the open market including shares purchased in a dutch tender offer for a total cost of $56.8 million, at an average price of $9.35$9.92 per share, excluding fees and related expenses.  No repurchased shares have been retired. Of the 6,069,7146,784,648 repurchased shares, 122,154 161,145 shares with a weighted average repurchase price of $10.70$10.13 per share, were reissued at an average price of $6.06$5.19 per share pursuant to option exercises and vested restricted share units.units (“RSU”). As of December 31, 2017,September 30, 2021, approximately $24.0$13.4 million remained available under the RepurchaseRepurchase Program.

Time-based Restricted Stock OptionsUnits (“TRSU”)
The Company did not grant any stock options duringfollowing table summarizes the sixCompany's TRSU activities for the three months ended December 31, 2017.September 30, 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, 20211,053,524 $21.60 1.73$32,016,594 
Granted52,500 $27.38 
Vested(28,853)$16.48 
Forfeited(25,125)$22.29 
Nonvested at September 30, 20211,052,046 $22.01 1.56$33,002,683 

Market-based Restricted Stock Units (“MSU”)

During the quarter ended September 30, 2018, the Company granted 1.3 million MSUs to certain personnel. The number of options expectedshares 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 $0.2 million of expenses for MSUs during the three months ended September 30, 2021 and 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 resultlevel of applyingattainment of predetermined financial goals. The PRSUs vest in four equal annual installments from the pre-vesting forfeiture rate assumption to total outstanding options.

first anniversary date after the grant date if certain predetermined financial goals were met. The Company recorded approximately $1.0 million and $0.4 million of expense for these PRSUs during the three months ended September 30, 2021 and 2020, respectively.
13
21
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 September 30, 2021 and June 30, 2021, the Company recorded $0.2 million and $0.1 million such expenses in the other current liabilities, respectively. During the three months ended September 30, 2021 and 2020, the Company recorded $0.1 million and $0.6 million such non-cash compensation expense, respectively. As of September 30, 2021, the Company granted RSUs valued at $3.6 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 three months ended September 30, 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, 2021353,824 $22.69 1.74$10,752,711 
Forfeited(250)$16.22 
Nonvested at September 31, 2021353,574 $22.69 1.48$11,091,616 
Stock Options
The Company did not grant any stock options during the three months ended September 30, 2021 and 2020. The following table summarizes the Company's stock option activities for the six months ended December 31, 2017:
     Weighted  
   Weighted Average  
   Average Remaining  
 Number of Exercise Price Contractual Aggregate
 Shares Per Share Term (in years) Intrinsic Value
Outstanding at June 30, 20171,053,367
 $10.98
 4.43 $6,212,660
Granted—
 $—
    
Exercised(64,521) $11.85
   $344,085
Canceled or forfeited—
 $—
    
Outstanding at December 31, 2017988,846
 $10.92
 4.17 $5,646,519
Options vested and expected to vest988,473
 $10.92
 4.16 $5,643,340
Exercisable at December 31, 2017953,428
 $11.04
 4.09 $5,337,845
Restricted Stock Units ("RSU")
The following table summarizes the Company's RSU activities for the six months ended December 31, 2017:
 
Number of Restricted Stock
Units
 
Weighted Average
Grant Date Fair
Value Per Share
 
Weighted Average
Remaining
Recognition
Period (Years)
 Aggregate Intrinsic Value
Nonvested at June 30, 20171,144,865
 $14.11
 1.76 $19,084,900
Granted93,907
 $17.25
    
Vested(64,312) $14.20
    
Forfeited(17,900) $14.03
    
Nonvested at December 31, 20171,156,560
 $14.36
 1.36 $18,921,322
RSUs vested and expected to vest1,050,575
   1.28 $17,187,413
The fair value of RSU is based on the market price of the Company's share on the date of grant.

In March 2017, the Company granted 170,000 performance-based RSUs (“PRSUs”) to its key personnel. The number shares to be issued under the PRSU will be determined based on the level of attainment of predetermined financial goals. The PRSU will vest in four equal annual installments from March 15, 2018 if certain predetermined financial goals were met. The Company recorded approximately $0.5 million and $0.7 million of expenses for these PRSUs during the three and six months ended December 31, 2017.

The Board previously approved the incentive cash bonus plan (the “Plan”) for the calendar year commencing January 1, 2017 pursuant to which each executive officer of the Company who continues in service through the end of the calendar year will be eligible to receive an incentive award, payable solely in cash, based on the level of attainment of certain specified Company performance goals. On November 15, 2017, the Board approved an amendment to the Plan that permits the Company to pay up to 50% of such incentive awards in common shares of the Company. The Company recorded $1.5 million of such RSUs expenses in the three months ended December 31, 2017. The expenses are reported in the accrued liabilities line in the condensed consolidated balance sheet as the total amount of bonus is to be settled in variable number of shares. Such non-cash compensation expenses are recorded as part of stock-based compensation expense in the condensed consolidated statements of operations.September 30, 2021:

Weighted
WeightedAverage
AverageRemaining
Number ofExercise PriceContractualAggregate
SharesPer ShareTerm (in years)Intrinsic Value
Outstanding at June 30, 2021487,875 $7.99 2.32$10,928,653 
Outstanding at September 30, 2021487,875 $7.99 2.07$11,406,770 
Options vested and expected to vest487,875 $7.99 2.07$11,406,770 
Exercisable at September 30, 2021487,875 $7.99 2.07$11,406,770 

Employee Share Purchase Plan ("ESPP"(“ESPP”)

14
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The assumptions used to estimate the fair values of common shares issued under the ESPP were as follows:
SixThree Months Ended December 31,End September 30,
20172021
Volatility rate45.32%68.5%
Risk-free interest rate1.4% - 1.7%0.1%
Expected term1.3 years
Dividend yield0%
22
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Share-based Compensation Expense
The total share-based compensation expense related to stock options, RSUs and ESPP described above, recognized in the condensed consolidated statements of operations for the periods presented was as follows:
Three Months Ended September 30,
20212020
(in thousands)
Cost of goods sold$569 $385 
Research and development1,043 1,080 
Selling, general and administrative3,023 1,411 
$4,635 $2,876 
 Three Months Ended December 31, Six Months Ended December 31,
 2017 2016 2017 2016
 (in thousands) (in thousands)
Cost of goods sold$415
 $205
 $731
 $400
Research and development617
 383
 979
 743
Selling, general and administrative2,977
 966
 4,307
 1,727
 $4,009
 $1,554
 $6,017
 $2,870

As of December 31, 2017,September 30, 2021, total unrecognized compensation cost under the Company's equity plans was $9.7was $24.5 million, which is expected to be recognized over a weighted-average period of 1.21.9 years.


8. Income Taxes
For the three months ended December 31, 2017, the Company recognized income tax benefit of approximately $2.1 million, which included a discrete tax benefit of $2.7 million related to re-measuring the Company’s U.S. deferred tax assets and liabilities following enactment of the 2017 U.S. Tax Cut and Jobs Act in December 2017. For the three months ended December 31, 2016, the
The Company recognized income tax expense of approximately $1.1 million.$1.3 million and $1.0 million for the three months ended September 30, 2021 and 2020, respectively. The income tax expense of $1.3 million for the three months ended September 30, 2021 included a $0.09 million discrete tax expense. The income tax expense of $1.0 million for the three months ended September 30, 2020 included a $0.03 million discrete tax benefit. Excluding the discrete income tax items, the estimated effective tax rate for the three months ended December 31, 2017September 30, 2021 and 2020 was 31.4% compared to 39.1% for the three months ended December 31, 2016.5.4% and 10.7%, respectively. The changes in the effective tax rate and tax expense between the periods resulted primarily from the reduction in the U.S. corporate tax rate following the enactmentCompany reporting pretax book income of the 2017 U.S. Tax Cut and Jobs Act along with changes in the mix of earnings in various geographic jurisdictions between the current year and the same period of last year.
For the six months ended December 31, 2017, the Company recognized an income tax benefit of approximately $0.8$22.8 million which included a discrete tax benefit of $2.7 million related to remeasuring the Company’s U.S. deferred tax assets and liabilities following enactment of the 2017 U.S. Tax Cut and Jobs Act in December 2017. For the six months ended December 31, 2016, the Company recognized income tax expense of approximately $2.3 million. Excluding the discrete income tax items, the estimated effective tax rate for the sixthree months ended December 31, 2017 was 24.0% compared to 35.6% for the six months ended December 31, 2016. The changes in the effective tax rate and tax expense between the periods resulted primarily from the reduction in the U.S. corporate tax rate following the enactment of the 2017 U.S. Tax Cut and Jobs Act along with changes in the mix of earnings in various geographic jurisdictions between the current year and the same period of last year.
During the quarter ended September 30, 2016,2021 as compared to a pretax book income of $9.8 million for the Company contributed certain packaging equipment as required by the JV Agreement by transferring the legal titles of such equipment to the JV Company. As a result of the transfer, the Company reduced its deferred tax assets by $6.6 million and recorded a $6.6 million in prepaid tax asset, which was amortized to tax expense over the useful life of the assets. As of Junethree months ended September 30, 2017, the prepaid tax asset was amortized down to $5.5 million, of which $1.1 million and $4.4 million were included in prepaid and other current assets and other long-term assets on the Company's balance sheet, respectively. On July 1, 2017, the Company adopted ASU 2016-16, Intra-Entity Transfers of Assets other than Inventory, which resulted in a de-recognition of a prepaid tax asset of $5.5 million related to the prior period intra-2020.

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

entity asset transfer with the JV Company, with an offsetting reduction to retained earnings.  Because the JV Company has a full valuation allowance, there was no change to the Company’s net deferred tax assets.
The Company files its income tax returns in the United States and in various foreign jurisdictions. The tax years 20022001 to 20172021 remain open to examination by U.S. federal and state tax authorities. The tax years 20102013 to 20172021 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, 2017,September 30, 2021, the gross amount of unrecognized tax benefits was approximately $6.8$7.7 million, of which $4.1$4.7 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.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 share-basedstock-based compensation expense in an intercompany cost-sharing arrangement. A final decision has yet to be issued byIn the July 2015 ruling, the Tax Court dueconcluded that the sharing of the cost of employee stock compensation in a company’s cost-sharing arrangement was invalid under the U.S.
23
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 other outstanding issues relatedhold an en banc rehearing of the case. The petition was subsequently denied by the Ninth Circuit. Altera appealed the case to the case. At this time,U.S. Supreme Court in February 2020, but the U.S. DepartmentSupreme Court declined to hear the case in June 2020, leaving intact the U.S. Court of Appeals for the Treasury has not withdrawn the requirement to include share-based compensation from its regulations. Due to the uncertainty surrounding the status of the current regulations, questions related to the scope of potential benefits, and the risk of the Tax Court’s decision being overturned upon appeal, the CompanyNinth Circuit’s decision. AOS has not recorded any benefit as of December 31, 2017.related to the Altera Corporation Tax Court decision in any period through September 2021. The Company will continue to monitor ongoing developments and potential impactsimpact to its financial statements.


24
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Segment and Geographic Information

The Company is organized as, and operates in, one1 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'sCompany’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 one1 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'sCompany’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 toin which the products were shipped to:
Three Months Ended September 30,
 20212020
(in thousands)
Hong Kong$148,655 $125,508 
China32,840 23,263 
South Korea2,854 1,174 
United States2,305 1,456 
Other countries381 150 
 $187,035 $151,551 
 Three Months Ended December 31, Six Months Ended December 31,
 2017 2016 2017 2016
 (in thousands) (in thousands)
Hong Kong$82,440
 $78,253
 $167,670
 $161,088
China19,153
 14,383
 36,273
 26,825
South Korea301
 393
 588
 759
United States1,314
 798
 2,692
 1,692
Other Countries688
 860
 1,531
 1,685
 $103,896
 $94,687
 $208,754
 $192,049


During the three months ended September 30, 2021, the Company corrected an immaterial error to reduce revenues in Hong Kong by $1.1 million, to increase the revenues in China and South Korea by $54,000 and $1.0 million, respectively, for the three months ended September 30, 2020.

The following is a summary of revenue by product type:
Three Months Ended September 30,
 20212020
 (in thousands)
Power discrete$130,688 $119,375 
Power IC52,330 29,455 
Packaging and testing services4,017 2,721 
 $187,035 $151,551 


16
25
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following is a summary of revenue by product type:
 Three Months Ended December 31, Six Months Ended December 31,
 2017 2016 2017 2016
 (in thousands) (in thousands)
Power discrete$85,094
 $69,822
 $168,772
 $141,250
Power IC15,758
 21,859
 33,855
 44,857
Packaging and testing services3,044
 3,006
 6,127
 5,942
 $103,896
 $94,687
 $208,754
 $192,049
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,
2017		 June 30,
2017		 September 30,
2021		June 30,
2021
(in thousands)(in thousands)
China$123,885
 $85,691
China$353,844 $350,387 
United States68,701
 61,787
United States118,160 118,756 
Other Countries667
 713
Other countriesOther countries2,712 2,494 
$193,253
 $148,191
 $474,716 $471,637 




17
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

10. Commitments and Contingencies
Purchase Commitments
As of December 31, 2017September 30, 2021 and June 30, 2017,2021, the Company had approximately $34.7$86.7 million and $25.7$81.8 million, respectively, of outstanding purchase commitments primarily for purchases of semiconductor raw materials, wafers, spare parts, and packaging and testing services and others.
As of September 30, 2021 and June 30, 2021, the Company had approximately $128.7$128.2 million and $69.2$90.0 million, primarily for the Jireh and JV Company, respectively, of capital commitments for the purchase of property and equipment and EPC construction.equipment.
Other Commitments
See Note 4,1, Note 5 and Note 6 of the Notes to the Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for descriptions of commitments including STMicro license, debtJoint Venture, bank borrowings and Joint Venture.leases.
Contingencies and Indemnities
The Company is currently not a party to any pending material legal proceedings. 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
26
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 Company anticipates that the matter will be dismissed with prejudice.
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 has beenwas made at December 31, 2017September 30, 2021 and June 30, 2017.2021.
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.future under favorable terms or at all.



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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, 2017,2021, filed with the Securities and Exchange Commission on September 5, 2017.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 1,7002,400 products, and has grown significantly with the introduction of 80over 160 new products duringin the fiscal years ended June 30, 2021 and 2020, respectively, and 200 new products in the fiscal year ended June 30, 2017, and over 90 new products during each of the fiscal years ended June 30, 2016 and 2015.2019, respectively. During the sixthree months ended December 31, 2017,September 30, 2021, we introduced an additional 9317 new products. Our teams of scientists and engineers have developed extensive intellectual properties and technical knowledge that encompass major aspects of power semiconductors, which we believe enables us to introduce and develop innovative products to address the increasingly complex power requirements of advanced electronics. We have an extensive patent portfolio that consists of 703870 patents and 11656 patent applications in the United States as of December 31, 2017.September 30, 2021. We also hadhave a total of 635907 foreign patents, which substantially were based primarily on our research and development efforts as of December 31, 2017.through September 30, 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, LED lighting,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 a 200mman 8-inch wafer fabrication facility located in Hillsboro, Oregon, or the Oregon fab, which is critical for us to accelerate proprietary technology development, and new product introduction as well as toand improve our financial performance in the long run.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.


On March 29, 2016, we 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 we and the Chongqing Funds formed a joint venture, (the “JV Company”), for the purpose of constructingWe operate a power semiconductor packaging, testing and wafer fabrication facility in the Liangjiang New Area of Chongqing, China through our joint venture (the “JV Transaction”Company”). The total initial capitalization of the JV Company is $330.0 million (the “Initial Capitalization”), which will be completed in stages. As of December 31, 2017, the Chongqing Funds contributed a total of $120.0 million of initial capital in cash and we contributed $10.0 million in cash and certain intangible assets, as well as certain packaging equipment as required with two investment funds owned by the JV Agreement by transferring the legal titlesMunicipality of such equipment to the JV Company.Chongqing (the “Chongqing Funds”). We currently own 51%, and the Chongqing Funds own 49%, of the equity interest in the JV Company. If both parties agree that the termination ofWhile the JV Company is our consolidated subsidiary for purpose of financial reporting, it operates as an independent and separate legal entity. As a result, the best interest of each party orJV Company’s assets and liabilities are segregated from our company's assets and liabilities. For example, the JV Company is bankruptincurs debt through its own financing and bank loan agreements, and our parent company and other subsidiaries are not parties to these agreements and do not provide any guarantee or insolvent where either party may terminate early, after paying the debts ofsecurity for the JV Company, the remaining assetsCompany’s debt, nor do we have direct access to any cash proceeds borrowed from such loan agreements. As part of the JV Company shall be paid to the Chongqing Funds to cover the principal of its total paid-in contributions plus interest at 10% simple annual rate prior to distributing the balance of the JV Company's assets to us. We expectour strategic plan, we formed the JV Company to commence initialfulfill growing customer demand. The JV Company has reached its targeted production of assembly and testing, and has ramped up its Phase I target run rate of the 12-inch wafer fabrication in mid-calendar year 2018.the quarter ended September 30, 2021. During the three and six months ended December 31, 2017,September 30, 2021, we recorded $1.7 million and $3.1$2.0 million in net loss attributable to the noncontrolling interest representing 49% of the net loss incurred in the JV Company, which was attributable to operating expenses and depreciation expenses offset by equipment lease income and interest income. In the long-term,Company. The additional capacity at the JV

Company contributed significantly to meeting the increasing demand for our products. However, the financial performance of the JV Company is
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affected by various factors, including the impact of the global COVID-19 pandemic and related economic downturn, intensified geopolitical tensions between China and U.S., logistical difficulties, the JV Company’s ability to obtain financing and other risk factors beyond our control. We will continue to monitor and evaluate market conditions closely and react quickly to the changing environment as necessary to achieve an optimal production level at the JV Company. In addition, the JV Company plansis currently pursuing various financing options to constructfund its future expansion and operate a 12-inch wafer fabrication facility forrepay its debt obligations, and there is no guarantee that the production of power semiconductors.JV Company will be able obtain such financing with favorable terms, or at all. We expect the joint venture to deliver significant cost savings, andprovide important capacity to support our future growth, enhance our market positions in China, and drive meaningful improvements in working capital expenditures.

During the fiscal quarter ended September 30, 2021, we continued our diversification program by developing new silicon and capital expenditures.

As part of the JV Transaction, the JV Company entered into an Engineering, Procurementpackaging platforms to expand our serviceable available market, or SAM and Construction Contract (the “EPC Contract”)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 The IT Electronics Eleventh Design & Research Institute Scientificour OEM and Technological Engineering Corporation Limited (the “Contractor”), effective as of January 10, 2017 (the "Effective Date"), pursuant which the Contractor was engaged to construct the manufacturing facility contemplated under the JV Agreement. Under the EPC Contract, the Contractor’s obligations include, but are not limited to: (i) the development of conceptual design, initial design, construction drawing design and optimization, and submission of such designsODM customers have contributed to the JV Companyachievement of our record high quarterly revenue of $187.0 million for examinationthe three months ended September 30, 2021, a 23.4% growth compared to the same quarter last year.

Impact of COVID-19 Pandemic to our Business

Our business operations have been impacted by the global COVID-19 pandemic and confirmation; and (ii) the construction of the assembly and wafer fabrication facilities and related procurement services,resulting economic downturn. Numerous governmental jurisdictions, including the selectionStates of California, Oregon and engagementTexas in the U.S. and countries throughout the Asia Pacific region have imposed “stay-at-home” orders, quarantines, travel bans and similar governmental orders and restrictions to control the spread of subcontractors,COVID-19. Such orders and restrictions have resulted in accordance with a construction schedule agreed upon bybusiness closures, work stoppages, slowdowns and delays in commercial activities, unprecedented and widespread unemployment, disruptions to ports and other shipping infrastructure, border closures, and other travel or health-related restrictions, thereby negatively impacting our customers, suppliers, distributors, employees, offices, and the parties. The total price payable under the EPC Contract is Chinese Renminbi (RMB) 540.0 million, or approximately $78.0 million, based on the currency exchange rate between RMB and U.S. Dollars on the Effective Date, which consists of $2.8 million (RMB 19.5 million) of design fees (“Design Fees”) and $75.2 million (RMB 520.5 million) of construction and procurement fees (including compliance with safety and aesthetic requirements) (“Construction Fees”). The payment is subject to volatility asentire semiconductor ecosystem.

As a result of exposurethe COVID-19 pandemic and changing consumer behaviors due to fluctuationsvarious government restrictions, including “stay-at-home” orders, we have experienced shifting market trends, including an increasing demand in RMB foreign exchange rates. The Design Feesmarkets for notebooks, PCs, gaming devices and Construction Fees are paid byother products. While we have recently benefited from the JV Company pursuantincreasing 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 a payment schedule based on the progressreopening of certain economic activities. In an effort to protect the constructionhealth and safety of our employees and to comply with various government and regulatory guidelines, we took proactive actions to adopt policies and protocols at our locations around the achievementsworld, including social distancing guidelines, working from home, limiting the number of specified milestones. Asemployees attending meetings, reducing the number of December 31, 2017,people in our sites at any one time, and suspending employee travel, and these measures may result in difficulties and logistical challenges in our business operations.

Since the JV Company paid approximately $37.0 million (RMB 243.8 million), and expects to pay the remainingstart of $44.9 million (RMB 296.2 million) in calendar year 2018. The payment is subject to volatility as a result of exposure to fluctuations in RMB foreign exchange rates.

On September 5, 2017, we entered into a license agreement with STMicroelectronics International N.V. (“STMicro”), pursuant to which STMicro granted us a world-wide, royalty-free and fully-paid license to use its technologies to develop, market and distribute certain digital multi-phase controller products, which have been previously offered by STMicro.  Under the license agreement, we agreed to pay a total price in cash of $17.0 million based on the payment schedule as set forth in the agreement of approximately $10.1 million, $6.7 million and $0.2 million in calendar year 2017, 2018 and 2019, respectively. As of December 31, 2017, we recorded $13.8 million of such intangible assets, of which $9.8 million in cash was paid to STMicro.

During the second quarter of fiscal year2021, there have been increasing availability and administration of 2018, we introduced AONR21357, which usesvaccines against COVID-19, as well as an easing of restrictions on social, business, travel, and government activities and functions, and a gradual resumption of economic activities and consumer spending in our industries. On the improved P-Channel MOSFET processother hand, infection rates continue to achieve low power lossfluctuate in various regions and reliable startup. This new P-Channel MOSFET is ideal for load switch applications in Notebook Adapter-In/ Battery In sockets. We also released AONS66916 production utilizingstrains of the latest Alpha Shield Gate Technology Generation 2 (AlphaSGT2), which attributes enable higher efficiency and robustness to critical high density telecom and server applications. During the first quarter of fiscal year of 2018, we released OTF190A60L, the first product in the new αMOS5TMHV MOSFET platform.  This device provides high-efficiency performance in an easy-to-use solution optimized for server power supplies, high-end computers, charging stations and other high-performance applications.  We also introduced AOZ5131QI, the latest generation of power modules. The new device enables high power-density voltage regulator solutions ideal for CPU and GPU power regulation in notebook PCs, servers, and graphic cards.virus remain a risk. 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. 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 expandedare unable to predict the full impact and duration of the COVID-19 pandemic on our recently launched fast turn-off switched 650V H-series IGBT family with a 1200V rating. The new AOK40B120H1has been developedbusiness, we are actively managing our business operations and financial expenditures in response to address needs of industrial welding and high-frequency converters with 3-phase ac or high voltage dc input. The device offers excellent performance in high switching frequency applications, which can be a perfect fit for high voltage industrial welding machine. continued uncertainty.

29


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


CostsThe 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 JV Company and digital power business: We expectoperations. For example, because a significant amount of our operating expenses to increaserevenue is derived from sales of products in the short termpersonal computing (“PC”) markets, such as notebooks, motherboards and notebook battery packs, 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 additional costs associated with ramping up pre-production activitiesimpact of the JV Company, as well as the initial startup work to developCOVID-19 pandemic and establish our new digital power business. As the JV Company is expected to complete on schedule the construction of its assemblyresulting shift in market trend and testing facilities during the quarter ending March 31, 2018, the pre-production costsconsumer behaviors. We cannot predict whether and how long this trend will increase significantly, including costs relatingcontinue due to the installationuncertainty and unpredictability of equipment; performance of qualification process; increased demand for electrical power and utility; increased headcounts as a result of hiring of additional personnel, staff and operators; and establishment of administrative and management functions and systems. In addition, a portion of these pre-production costs cannot be capitalized under GAAP accounting. Furthermore, following the executionCOVID-19 pandemic. A decline of the STMicro license agreement in September 2017, we are accelerating the development ofPC market may have a negative impact on our digital power businessrevenue, factory utilization, gross margin, our ability to design and distribute a full suite of advanced low-voltage power IC products. We expect to incur additional costs, including costs relating to recruiting and hiring of qualified engineers and technical staffresell excess inventory, and other researchperformance measures. We have executed and developmentcontinue to execute strategies to diversify our product portfolio, penetrate other market segments, including the consumer, communications and management activities asindustrial markets, and improve gross margins and profit by implementing cost control measures. While making efforts to reduce our reliance on the computing market, we startcontinue to buildsupport our computing business and capitalize on the opportunities in this nmarket with a more focused and competitive PC product strategy to gain market share.


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ew business. In the short term, we will not be able to generate sufficient amount of revenue from either of these two business initiatives to offset the increase costs, which will likely negatively impact our results of operations.

Manufacturing costs and capacity availability:  Our gross margin may beis affected by a number of factors including our manufacturing costs, including utilization of our manufacturing facilities, the product mixes of our sales, pricing of wafers from third party foundries and pricing of semiconductor raw materials, which may fluctuate from time to time largely due to the market demand and supply.materials. Capacity utilization affects our gross margin because we have certain fixed costs associated withat our packaging and testingShanghai facilities, our Oregon fab and our Oregon fab.Chongqing fabrication facility operated by the JV Company. If we are unable to utilize our manufacturing facilities at a desired level, our gross margin may be adversely affected. In addition, we expect that in the long term our joint venture agreement with the Chongqing Funds will reduce our costs of manufacturing. However, our manufacturing costs may increase in the short term prior to the commencement of operation of the JV Company, because we may be required to incur additional costs to acquire packaging and testing capacity in order make up for the reduced capacity during the period in which we transfer our equipment from Shanghai to Chongqing. Furthermore, from time to time, we may experience wafer capacity constraints, particularly at third party foundries, that may prevent us from meeting fully meeting 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 suchthese 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 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 if our control over the JV Company’s operation is diminished. Our control may be reduced if the JV Company completes an equity financing or/and issues more shares that dilute our equity interests in the JV Company, or if the management of the JV Company operates more independently without our supervision.


Erosion and fluctuation of average selling price: Erosion of average selling prices of established products is typical in our industry. Consistent with this historical trend, we expect our average selling prices of existing products to decline in the future. However, in the normal course of business, we seek to offset the effect of declining average selling price by introducing new and higher value products, expanding existing products for new applications and new customers and reducing the manufacturing cost of existing products.

The global, regional economic and PC market conditions: Because These strategies may cause the average selling price of our products primarily serve consumer electronic applications, a deterioration of the globalto fluctuate significantly from time to time, thereby affecting our financial performance and regional economic conditions could materially affect our revenue and results of operations. In particular, because a significant amount of our revenue is derived from sales of products in the personal computing ("PC") markets, such as notebooks, motherboards and notebook battery packs, a significant decline or downturn in the PC market can have a material adverse effect on our revenue and results of operations.  Our revenue from the PC market accounted for approximately 42.6% and 38.4% of our total revenue for the three months ended December 31, 2017 and 2016, respectively, and 40.7% and 37.2% of our total revenue for the six months ended December 31, 2017 and 2016, respectively. In the past, we have experienced a significant global decline in the PC markets 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 negative impact on the demand for our products, revenue, factory utilization, gross margin, our ability to resell excess inventory, and other performance measures.profitability.

We have executed and continue to execute strategies to diversify our product portfolio, penetrate into other market segments, including the consumer, communications and industrial markets, and improve gross margins and profit by implementing cost control measures. While making progress in reducing 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. However, if the rate of decline in the PC markets is faster than we expect, or if we cannot successfully diversify or introduce new products to keep pace with the declining PC markets, we may not be able to alleviate its negative impact on our results of operations.

Product introductions and customers'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 obtainseek and acquire design wins. Our failureIf we were to fail to introduce new products on a timely basis that meet customers'customers’ specifications and performance requirements, particularly those products with major OEM customers, and our inability to continue to expand our serviceable markets, could adversely affectthen we would lose market share and our financial performance including loss of market share.would be adversely affected. We believe that the JV Transaction will increase and diversify our customer base, particularly in China, in the long term. We expectHowever, the ramp-activities and production schedule of our JV Company to commence initial production in mid-calendar year 2018. However, there is no guarantee thathave been impacted by the JV Company will commence timely or at all,COVID-19 pandemic and we may experience delays in the construction of the facility.related events, as discussed above. Even if we are able to commenceramp up the operation of the JV operation,Company timely, we may not be successful in acquiring or maintaining a sufficient number of new customers to offset the additional costs due to various factors, including but are not limited to, competition from other semiconductor companies in the region, our lack
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of history and prior relationships with customers as a new entrant, difficulties in executing our joint venture strategies lack of control over our operations and the general economic conditions in Chongqing and China.

Distributor ordering patterns, customer demand and seasonality: Our distributors place purchase orders with us based on their forecasts of end customer demand, and this demand may vary significantly depending on the sales outlook and market and

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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 threethree-year to five yearfive-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-partiesthird parties through one of our subsidiaries.


Our product revenue includesis 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"(“ODMs”) or original equipment manufacturers ("OEMs"(“OEMs”), we may elect to grant special pricing that is below the prices at which we sold our products to the distributors. In these situations, we will grant price adjustments to the distributors reflecting such special pricing. We estimate the price adjustments for inventory at the distributors based on factors such as distributor inventory levels, pre-approved future distributor selling prices, distributor margins and demand for our products.
Cost of goods sold


Our cost of goods sold primarily consists of costs associated with semiconductor wafers, packaging and testing, personnel, including share-based compensation expense, overhead attributable to manufacturing, operations and procurement, and costcosts associated with yield improvements, capacity utilization, warranty and inventory reserves.valuation of inventories. As the volume of sales increases, we expect cost of goods sold to increase. We implemented a processcontinued to improveramp up the 12-inch fab at the JV Company to meet the increasing demand on our factory capacity utilization rates by transferring more wafer production to our Oregon fab and reducing our reliance on outside foundries.products. While our utilization rates cannot be immune to the market conditions, our goal is to make such ratesthem less vulnerable to market fluctuations. We believe our market diversification strategy and product growth will drive higher volumesvolume of manufacturing which will improve our factory utilization rates and gross margin in the long run.
Operating expenses
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Our operating expenses consist of research and development, selling, general and administrative expenses.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.


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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 in response to the declining PC market..
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.

During the quarter ended September 30, 2016, we contributed certain packaging equipment as required by the JV Agreement by transferring the legal title of such equipment to the JV Company. As a result of the transfer, we reduced our deferred tax assets by $6.6 million and recorded a $6.6 million in prepaid tax asset, which was amortized to tax expense over the useful life of the assets. As of June 30, 2017, the prepaid tax asset was amortized down to $5.5 million, of which $1.1 million and $4.4 million were included in prepaid and other current assets and other long-term assets on our balance sheet, respectively. On July 1, 2017, we adopted ASU 2016-16, Intra-Entity Transfers of Assets other than Inventory, which resulted in a de-recognition of a prepaid tax asset of $5.5 million related to the prior period intra-entity asset transfer with the JV Company, with an offsetting reduction to retained earnings.  Because the JV Company has a full valuation allowance, there was no change to our net deferred tax assets.
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 moveshift from a worldwide tax system to a territorial system, (3) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized, (4) bonus depreciation that will allow for full expensing of qualified property, (5) creating a new limitation on deductible interest expense and (6) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.


The SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118")company is not currently subject to the Base Erosion and Anti-Abuse ( BEAT) tax , which provides guidanceis a tax imposed on accounting forcertain entities who make payments to their non US affiliates, where such payments reduce the US tax effectsbase . 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 Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under Accounting Standards Codification Topic 740 ("ASC 740"). In accordance with SAB 118, a company must reflect thecorporate income tax effects of those aspects ofand 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 Taxeffective tax rate and cash taxes.

“U.S. Consolidated Appropriations Act, for2021” (“CAA 2021”), Enacted December 27, 2020
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On December 27, 2020, the United States enacted the Consolidated Appropriations Act, 2021, which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain incomemade changes to existing U.S. tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisionslaws. There was no material impact of the tax law that werechanges included in effect immediately before the enactmentConsolidated Appropriations Act, 2021 to the Company.

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

On March 11, 2021, the Tax Act.

In connection with our initial analysisUnited States enacted the American Rescue Plan Act of the2021, which made changes to existing U.S. tax laws. There was no material impact of the Taxtax law changes included in the American Rescue Plan Act we reported a second quarter of fiscal year 2018 discrete tax benefit of $2.7 million related2021 to the re-measurement of certain deferred tax assets and liabilities. In addition, we are using a

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28% U.S. federal tax rate to measure our U.S. federal income tax expense for fiscal year 2018, down from the 34% U.S. federal income tax rate used in first quarter of fiscal year 2018.

Our accounting for the impact of the Tax Act is complete for provisions of the Act that could impact our fiscal year 2018 financial statements.  We are still analyzing the provisions of the Act that may impact future periods.  Our management expects the Act to favorably impact our net income, diluted earnings per share, and cash flows in future periods, due primarily to the reduction in the federal corporate tax rate from 35% to 21% effective for periods beginning January 1, 2018. Our management currently estimates that our blended consolidated effective income tax rate (“tax rate”) for full-year fiscal 2018 will approximate 27% before discrete items, compared with nearly 33% for the prior year.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, 2017September 30, 2021 and 2016.2020. Our historical results of operations are not necessarily indicative of the results for any future period.
Three Months Ended September 30,
 2021202020212020
(in thousands)(% of revenue)
Revenue$187,035 $151,551 100.0 %100.0 %
Cost of goods sold122,468 109,028 65.5 %71.9 %
Gross profit64,567 42,523 34.5 %28.1 %
Operating expenses
Research and development17,812 14,691 9.5 %9.7 %
Selling, general and administrative21,806 17,505 11.7 %11.6 %
Total operating expenses39,618 32,196 21.2 %21.3 %
Operating income24,949 10,327 13.3 %6.8 %
Interest expense and other income (loss), net(2,192)(549)(1.3)%(0.3)%
Income before income taxes22,757 9,778 12.0 %6.5 %
Income tax expense1,320 1,011 0.7 %0.7 %
Net income including noncontrolling interest21,437 8,767 11.3 %5.8 %
Net loss attributable to noncontrolling interest(1,987)(807)(1.1)%(0.5)%
Net income attributable to Alpha and Omega Semiconductor Limited$23,424 $9,574 12.4 %6.3 %

 Three Months Ended December 31, Six Months Ended December 31,
 2017 2016 2017 2016 2017 2016 2017 2016
 (in thousands) (% of revenue) (in thousands) (% of revenue)
Revenue$103,896
 $94,687
 100.0 % 100.0 % $208,754
 $192,049
 100.0 % 100.0 %
Cost of goods sold75,814
 72,593
 73.0 % 76.7 % 153,142
 148,011
 73.4 % 77.1 %
Gross profit28,082
 22,094
 27.0 % 23.3 % 55,612
 44,038
 26.6 % 22.9 %
Operating expenses               
Research and development9,102
 7,284
 8.8 % 7.7 % 17,427
 14,303
 8.3 % 7.4 %
Selling, general and administrative15,756
 11,974
 15.2 % 12.6 % 30,371
 23,157
 14.5 % 12.1 %
Total operating expenses24,858
 19,258
 24.0 % 20.3 % 47,798
 37,460
 22.8 % 19.5 %
Operating income3,224
 2,836
 3.0 % 3.0 % 7,814
 6,578
 3.8 % 3.4 %
Interest income and other loss, net(160) (70) (0.2)% (0.1)% (120) (119) (0.1)% (0.1)%
Interest expense(14) (24) — % — % (31) (50) — % — %
Net income before income taxes3,050
 2,742
 2.8 % 2.9 % 7,663
 6,409
 3.7 % 3.3 %
Income tax expense (benefit)(2,072) 1,085
 (2.0)% 1.1 % (798) 2,322
 (0.4)% 1.2 %
Net income including noncontrolling interest5,122
 1,657
 4.8 % 1.8 % 8,461
 4,087
 4.1 % 2.1 %
Net loss attributable to noncontrolling interest(1,669) (1,190) (1.6)% (1.3)% (3,130) (2,067) (1.5)% (1.1)%
Net income attributable to Alpha and Omega Semiconductor Limited$6,791
 $2,847
 6.4 % 3.1 % $11,591
 $6,154
 5.6 % 3.2 %
Share-based compensation expense was allocatedrecorded as follow:
follows:
Three Months Ended September 30,
 2021202020212020
(in thousands)(% of revenue)
Cost of goods sold$569 $385 0.3 %0.3 %
Research and development1,043 1,080 0.6 %0.7 %
Selling, general and administrative3,023 1,411 1.6 %0.9 %
Total$4,635 $2,876 2.5 %1.9 %
 Three Months Ended December 31, Six Months Ended December 31,
 2017 2016 2017 2016 2017 2016 2017 2016
 (in thousands) (% of revenue) (in thousands) (% of revenue)
Cost of goods sold$415
 $205
 0.4% 0.2% $731
 $400
 0.4% 0.2%
Research and development617
 383
 0.6% 0.4% 979
 743
 0.5% 0.4%
Selling, general and administrative2,977
 966
 2.9% 1.0% 4,307
 1,727
 2.1% 0.9%
Total$4,009
 $1,554
 3.9% 1.6% $6,017
 $2,870
 3.0% 1.5%

The Board previously approved the incentive cash bonus plan (the “Plan”) for the calendar year commencing January 1, 2017 pursuant to which each our executive officer who continues in service through the end of the calendar year will be eligible


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to receive an incentive award, payable solely in cash, based on the level of attainment of certain specified our performance goals. On November 15, 2017, the Board approved an amendment to the Plan that permits the Company to pay up to 50% of such incentive awards in the common shares of the Company. We recorded $1.5 million of such stock-based expenses in the three month ended December 31, 2017. The expenses are reported in the accrued liabilities line in the condensed consolidated balance sheet as the total amount of bonus is to be settled in variable number of common shares. Such non-cash compensation expenses are recorded as part of stock-based compensation expense in the condensed consolidated statements of operations.
Three And Six Months Ended December 31, 2017September 30, 2021 and 20162020
Revenue
The following is a summary of revenue by product type:
Three Months Ended September 30,
20212020Change
(in thousands)(in thousands)(in percentage)
Power discrete$130,688 $119,375 $11,313 9.5 %
Power IC52,330 29,455 22,875 77.7 %
Packaging and testing services4,017 2,721 1,296 47.6 %
$187,035 $151,551 $35,484 23.4 %
 Three Months Ended December 31, Six Months Ended December 31,
 2017 2016 Change 2017 2016 Change
 (in thousands) (in thousands) (in percentage) (in thousands) (in thousands) (in percentage)
Power discrete$85,094
 $69,822
 $15,272
 21.9 % $168,772
 $141,250
 $27,522
 19.5 %
Power IC15,758
 21,859
 (6,101) (27.9)% 33,855
 44,857
 (11,002) (24.5)%
Packaging and testing services3,044
 3,006
 38
 1.3 % 6,127
 5,942
 185
 3.1 %
 $103,896
 $94,687
 $9,209
 9.7 % $208,754
 $192,049
 $16,705
 8.7 %


Total revenue was $103.9was $187.0 million forfor the three months ended December 31, 2017,September 30, 2021, an increase of $9.2$35.5 million, or 9.7%23.4%, as compared to $94.7$151.6 million for the same quarter last year.The increase was primarily due to an increase of $15.3 $11.3 million and $22.9 million in sales of power discrete products partially offset by a decrease of $6.1 million inand sales of power IC products. products, respectively. The net increase in power discrete and power IC product sales was primarily due to a 4.3%39.7% increase in unit shipments, as well as a 5.6% increasepartially offset by an 8.4% decrease in average selling price as compared to the same quarter last year due to a shift in product mix. The revenue of packaging and testing services revenue for the three months ended December 31, 2017 and 2016 remained flat.

Total revenue was $208.8 million for the six months ended December 31, 2017, an increase of $16.7 million, or 8.7%, as compared to $192.0 million for the same period last year. The increase primarily due to $27.5 million in sales of power discrete products, partially offset by $11.0 million in power IC products. The net increase in product revenue, including power discrete and power IC product was primarily due to a 4.6% increase in unit shipments, as well as a 4.1% increase in average selling price as compared to the same period of last year mainly due to a shift in product mix. The increase in revenue of packaging and testing services for the sixthree months ended December 31, 2017September 30, 2021, as compared to the same periodquarter last year, was primarily due to increased demand.

Cost of goods sold and gross profit
Three Months Ended September 30,
 20212020Change
 (in thousands)(in thousands)(in percentage)
Cost of goods sold$122,468 $109,028 $13,440 12.3 %
  Percentage of revenue65.5 %71.9 %
Gross profit$64,567 $42,523 $22,044 51.8 %
  Percentage of revenue34.5 %28.1 %
 Three Months Ended December 31, Six Months Ended December 31,
 2017 2016 Change 2017 2016 Change
 (in thousands) (in thousands) (in percentage) (in thousands) (in thousands) (in percentage)
Cost of goods sold$75,814
 $72,593
 $3,221
 4.4% $153,142
 $148,011
 $5,131
 3.5%
  Percentage of revenue73.0% 76.7% 

   73.4% 77.1%    
                
Gross profit$28,082
 $22,094
 $5,988
 27.1% $55,612
 $44,038
 $11,574
 26.3%
  Percentage of revenue27.0% 23.3% 

   26.6% 22.9%    


Cost of goods sold was $75.8$122.5 million for the three months ended December 31, 2017,September 30, 2021, an increase of $3.2$13.4 million, or 4.4%12.3%, as compared to $72.6$109.0 million for the same quarter last year. The increase was primarily due to increased unit shipments.23.4% increase in revenue. Gross margin increased by 3.76.4 percentage points to 27.0%34.5% for the three months ended December 31, 2017September 30, 2021, as compared to 23.3%28.1% for the same quarter last year. The increase in gross margin was primarily due to increased average selling prices due to a shift in product mix and approximately $1.0 million of specific reserve was released Our JV Company continued its ramp during the three months ended December 31, 2017.

Cost of goods sold was $153.1 million for the six months ended December 31, 2017,September 30, 2021, which resulted in an increase of $5.1 million, or 3.5%, as comparedin the capacity utilization and contributed to $148.0 million for the same period last year, primarily due to increased unit shipments. Gross margin increased

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by 3.7 percentage point to 26.6% for the six months ended December 31, 2017 as compared to 22.9% for the same period last year. The increase in gross margin was primarily due to a shift in product mix and approximately $1.0 million of specific reserve was released during the current period.three months ended September 30, 2021.
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Research and development expenses
Three Months Ended September 30,
 20212020Change
 (in thousands)(in thousands)(in percentage)
$17,812 $14,691 $3,121 21.2 %
 Three Months Ended December 31, Six Months Ended December 31,
 2017 2016 Change 2017 2016 Change
 (in thousands) (in thousands) (in percentage) (in thousands) (in thousands) (in percentage)
Research and development$9,102
 $7,284
 $1,818
 25.0% $17,427
 $14,303
 $3,124
 21.8%
Research and development expenses were $9.1$17.8 million for the three months ended December 31, 2017,September 30, 2021, an increase of $1.8$3.1 million, or 25.0%21.2%, as compared to $7.3$14.7 million for the same quarter last year. The increase was primarily attributable to a $0.4$2.7 million increase in employee compensation and benefitbenefits expense mainly due to increased headcount and higher bonus expenses,bonuses accrual, a $0.9$0.2 million increase in product prototyping engineering expense as a result of increased engineering activities, a $0.2 million increase in share-based compensation expense as a result of an increase of stock awards granted, and a $0.1 million increase in recruiting fee indepreciation expenses during the current quarter.
ResearchSelling, general and developmentadministrative expenses
Three Months Ended September 30,
 20212020Change
 (in thousands)(in thousands)(in percentage)
Selling, general and administrative$21,806 $17,505 $4,301 24.6 %

Selling, general and administrative expenses were $17.4$21.8 million for the sixthree months ended December 31, 2017,September 30, 2021, an increase of $3.1$4.3 million, or 21.8%24.6%, as compared to $14.3$17.5 million for the same periodquarter last year.year. The increase was primarily attributable to a $1.2 million increase in employee compensation expenses mainly due to increased headcount and higher bonus expenses, a $1.3 million increase in product prototyping engineering expense as a result of increased engineering activities, as well as a $0.2 million increase in share-based compensation expense as a result of an increase of stock awards, and $0.1 million in recruiting fee during the current period as compared to the same period last year.
Selling, general and administrative expenses
 Three Months Ended December 31, Six Months Ended December 31,
 2017 2016 Change 2017 2016 Change
 (in thousands) (in thousands) (in percentage) (in thousands) (in thousands) (in percentage)
Selling, general and administrative$15,756
 $11,974
 $3,782
 31.6% $30,371
 $23,157
 $7,214
 31.2%
Selling, general and administrative expenses were $15.8 million for the three months ended December 31, 2017, an increase of $3.8 million, or 31.6%, as compared to $12.0 million for the same quarter last year. The increase was primarily attributable to a $1.5$4.2 million increase in employee compensation and benefitbenefits expenses mainly due to increased headcount and higher bonus expenses a $2.0accrual and increased business insurance expenses, as well as $1.6 million increase in share-based compensation expense due to increased grant of equity awards, andhigher stock rewards price. The increase was partially offset by a $0.7 million decrease in legal expense related to the government investigation, a $0.2 million increasedecrease in employee business expenses due to increased travel expensesmarketing demo and trade shows costs as a result of the COVID-19 pandemic, and a $0.5 million decrease in audit and tax consulting fees during the current quarter.
Selling, generalInterest expense and administrative expenses were $30.4other income (loss), net
Three Months Ended September 30,
 20212020Change
 (in thousands)(in thousands)(in percentage)
Interest expense and other income (loss), net$(2,192)$(549)$(1,643)299.3 %

Interest expense was primarily related to bank borrowings. Interest expense increased by $0.5 million forduring the sixthree months ended December 31, 2017, an increase of $7.2 million, or 31.2%,September 30, 2021 as compared to $23.2 million for the same period last year. The increaseyear was primarily attributable to a $4.1 million increase in employee compensation and benefits expenses primarily due to increased headcount and higher bonus expenses, a $2.6 millionan increase in share-based compensation expense due to increased grant of equity awards, and a $0.3 million increasebank borrowings, as well as an interest refund from the Chinese government in employee business expenses due to increased travel expenses during the current period as compared toJV Company in the same period last year.
Interest income and others net
 Three Months Ended December 31, Six Months Ended December 31,
 2017 2016 Change 2017 2016 Change
 (in thousands) (in thousands) (in percentage) (in thousands) (in thousands) (in percentage)
Interest income and other loss, net$(160) $(70) $(90) 128.6% $(120) $(119) $(1) 0.8%

26



Interest income and others, net waswere primarily related to interest earned from cash and cash equivalents, as well as foreign exchange gains (losses). The decrease in interestInterest income and other loss,others, net decreased by $1.1 million during the three months ended December 31, 2017September 30, 2021 as compared to the same period last year was primarily due to higherlower foreign currency exchange lossesgains as a result of recentthe depreciation of USDRMB against RMB, partially offset by higher interest income as a result of an increase in average cash balances.USD.
Income tax expense
Three Months Ended September 30,
 20212020Change
 (in thousands)(in thousands)(in percentage)
Income tax expense$1,320 $1,011 $309 30.6 %

 Three Months Ended December 31, Six Months Ended December 31,
 2017 2016 Change 2017 2016 Change
 (in thousands) (in thousands) (in percentage) (in thousands) (in thousands) (in percentage)
Income tax expense (benefit)$(2,072) $1,085
 $(3,157) (291.0)% $(798) $2,322
 $(3,120) (134.4)%

For the three months ended December 31, 2017, we recognized income tax benefit of approximately $2.1 million, which included a discrete tax benefit of $2.7 million related to re-measuring the Company’s U.S. deferred tax assets and liabilities following enactment of the 2017 U.S. Tax Cut and Jobs Act in December 2017. For the three months ended December 31, 2016, weThe Company recognized income tax expense of $1.1 million.approximately $1.3 million and $1.0 million for the three months ended September 30, 2021 and 2020, respectively. The income tax expense of $1.3 million for the three months ended September 30,
35


2021 included a $.09 million discrete tax expense. The income tax expense of $1.0 million for the three months ended September 30, 2020 included a $0.03 million discrete tax benefit. Excluding the discrete income tax expense,items, the estimated effective tax rate for the three months ended December 31, 2017September 30, 2021 and 2020 was 31.4% compared to 39.1% for the three months ended December 31, 2016.5.4% and 10.7%, respectively. The changes in the effective tax rate and tax expense between the periods resulted primarily from the reduction inCompany reporting pretax book income of $22.8 million for the U.S. corporate tax rate following the enactment of the 2017 U.S. Tax Cut and Jobs Act along with changes in the mix of earnings in various geographic jurisdictions between the current year and the same period of last year.

For the sixthree months ended December 31, 2017, we recognized anSeptember 30, 2021 as compared to a pretax book income tax benefit of approximately $0.8$9.8 million which included a discrete tax benefit of $2.7 million largely related to re-measuring our U.S. deferred tax assets and liabilities following enactment offor the 2017 U.S. Tax Cut and Jobs Act in December 2017. For the sixthree months ended December 31, 2016, we recognized income tax expense of approximately $2.3 million. Excluding the discrete income tax items, the estimated effective tax rate for the six months ended December 31, 2017 was 24.0% compared to 35.6% for the six months ended December 31, 2016. The changes in the effective tax rate and tax expense between the periods resulted primarily from the reduction in the U.S. corporate tax rate following the enactment of the 2017 U.S. Tax Cut and Jobs Act along with changes in the mix of earnings in various geographic jurisdictions between the current year and the same period of last year.September 30, 2020.





27



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 of our business. To date, we finance our operations and capital expenditures primarily through funds generated from operations and borrowingborrowings under our term loan.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 September 30, 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. As of September 30, 2021, there was no outstanding balance under the loan.
On November 16, 2018, the Company's subsidiary in China entered into a line of credit facility with Industrial and Commercial Bank of China. 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. As of September 30, 2021, there was no outstanding balance under the loan.

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 covenants required. Other terms remain the same. As of September 30, 2021, the Borrower was in compliance with these covenants. As of September 30, 2021, there was no outstanding balance and the Company had unused credit of approximately $8.0 million.

On May 1, 2018, Jireh Semiconductor Incorporated ("Jireh"), a wholly-owned subsidiary of the Company, entered into a loan agreement with a financial institution (the "Bank") that provided a term loan in the amount of $17.8 million. The obligation under the loan agreement is secured by certain real estate assets of Jireh and guaranteed by the Company.  The loan has a five-year term and matures on June 1, 2023. Beginning June 1, 2018, Jireh made consecutive monthly payments of principal and interest to the Bank. The outstanding principal accrues interest at a fixed rate of 5.04% per annum on the basis of a 360-day year. The loan agreement contains customary restrictive covenants and includes certain financial covenants that require the Company to maintain, on a consolidated basis, specified financial ratios. 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
36


was recognized. The Company was in compliance with these covenants as of September 30, 2021. As of September 30, 2021, the outstanding balance of the term loan was $14.8 million.

On August 15, 2017, our Oregon subsidiary, Jireh Semiconductor Incorporated (“Jireh”), entered into a credit agreement with a financial institution (the “Bank”)the Bank that providesprovided a term loan in an amount up to $30.0 million for the purpose of purchasing certain equipment for ourthe 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. OnIn January 12,2018 and July 2018, Jireh drew down the loan in the amount of $13.2 million and as of January 31, 2018, the total outstanding balance under the loan was $13.2 million.$16.7 million, respectively. Beginning of Septemberin 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 London Interbank Offered Rate ("LIBOR")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 includingand includes certain financial covenants that require the Company to maintain, on a consolidated basis, specified financial ratios and fixed charge coverage ratio. We areIn 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.

In March 2016, we entered intocovenants as of September 30, 2021. As of September 30, 2021, the JV Agreement with an initial capitalization of $330.0 million. By December 31, 2017, the Chongqing Funds contributed a total of $120.0 million of initial capital in cash, and we contributed $10.0 million in cash and certain intangible assets, as well as certain packaging equipment as required by the JV Agreement by transferring the legal titles of such equipment to the JV Company. We expect the JV Company to commence initial production in mid-calendar year 2018. Over the long-term, the JV Company plans to construct and operate a 12-inch wafer fabrication facility for the manufacturing or semiconductor products. If both parties agree that the termination of the JV Company is the best interest of each party or the JV Company is bankrupt or insolvent where either party may terminate early, after paying the debts of the JV Company, the remaining assets of the JV Company shall be paid to the Chongqing Funds to cover the principal of its total paid-in contributions plus the interest at 10% simple annual rate prior to distributing theoutstanding balance of the JV Company's assets to us.term loan was $7.5 million.


In January 2017, the JV Company entered into the EPC Contract. The total price payable by the JV Company under the EPC Contract is Chinese Renminbi (RMB) 540.0 million, or approximately $78.0 million based on the currency exchange rate between RMB and U.S. Dollars on the Effective Date, which consists of $2.8 million (RMB 19.5 million) of design fees and $75.2 million (RMB 520.5 million) of construction and procurement fees. These fees will be paid by the JV Company pursuant to a payment schedule based on the progress of the construction and the achievements of specified milestones. The payment is subject to volatility as a result of exposure to fluctuations in RMB foreign exchange rates. The Design Fees and Construction Fees are paid by the JV Company pursuant to a payment schedule based on the progress of the construction and the achievements of specified milestones. As of December 31, 2017, the JV Company paid approximately $37.0 million (RMB 243.8 million), and expect to pay the remaining of $44.9 million (RMB 296.2 million) in calendar year 2018. In addition, we expect that during the fiscal quarter ending March 31, 2018, the Chongqing Funds will make additional cash contribution to the JV Company pursuant to the terms of the JV Agreement, primarily to cover the remaining costs of the building construction and a portion of the purchase of equipment.  Notwithstanding such contribution, we expect the JV Company will be required to obtain additional financing in order to fund the remaining portion of the acquisition of equipment necessary to commence production at the facility.  However, there is no guarantee that the JV Company will be able to secure the required amount of financing from the lenders, or if such financing will be available on terms favorable to us.  If the JV Company cannot secure sufficient financing, we may use a portion of our cash reserve to further capitalize and finance the JV Company.

In September 2017, the Board of Directors terminated our prior repurchase program that was approved in 2015 and approved a new repurchase program (the “Repurchase Program”). The Repurchase Program allows 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'shareholders’ equity. There is no guarantee that such repurchases underWe did not repurchase any shares pursuant to the Purchase Program will enhance the value of our shares.

DuringRepurchase Plan during the three and six months ended December 31, 2017,September 30, 2021. Since the inception of the program, we repurchased 346,621an aggregate of 6,784,648 shares from the open market, for a total cost of $6.0$67.3 million, at an average price of $17.34 per share, under the share repurchase program. Since the inception of the prior repurchase program in 2010, we repurchased an aggregate of 6,069,714 shares from the open market including shares purchased in the Tender Offer for a total cost of $56.8 million, at an average price of $9.35$9.92 per share, excluding fees and related expenses.  As of December 31, 2017,September 30, 2021, of the 6,069,7146,784,648 repurchased shares, 122,154161,145 shares with a weighted average repurchase

28



price of $10.70$10.13 per share, were reissued at an average price of $6.06$5.19 per share pursuant to option exercises and vested restricted share units. We had $24.0$13.4 million remained available under the Repurchase Program as of December 31, 2017.September 30, 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.

JV Company Financing Transactions

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

On May 9, 2018 (the “Effective Date”), the JV Company entered into a lease finance agreement and a security agreement (the “Agreements”) with YinHai Leasing Company and China Import/Export Bank (the “Lenders”).  Pursuant to the Agreements, the Lenders 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
37


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 September 30, 2021, the outstanding balance of the Lease Financing of 163.0 million RMB (equivalent of $25.2 million based on the currency exchange rate as of September 30, 2021) was recorded under short-term and long-term finance lease liabilities.

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 loan withdraw window expired on February 28, 2020. The interest is accrued based on the China Base Rate multiplied by 1.1, or 5.39%. The loan requires quarterly interest payments. The principal payments are required to be paid every 6 months over the term of loan commencing in October 2019. This loan is secured by the buildings and certain equipment owned by the JV Company with a carrying value of $88.1 million as of September 30, 2021. As a condition of the loan arrangement, RMB 14.0 million (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 September 30, 2021, the outstanding balance of the loan was RMB 184.0 million(equivalent of $28.5 million based on the currency exchange rate as of September 30, 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 $111.7 million as of September 30, 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 September 30, 2021, the outstanding balance of the loan was$19.2 million.

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 $111.7 million as of September 30, 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 September 30, 2021, the outstanding balance of the loan was $34.1 million.

On November 13, 2020, the JV Company entered into a one-year loan agreement with China Merchant Bank in China. The JV Company can borrow up to RMB 50.0 million, or $7.6 million, based on the currency exchange rate between RMB and U.S. Dollar on November 13, 2020. The loan's interest rates are based on the 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 September 30, 2021, the outstanding balance of this loan was $7.7 million.

On April 19, 2021, the JV Company entered into a loan agreement with China Everbright Bank in China to borrow a maximum of 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. On June 16, 2021 and June 24, 2021, the JV Company borrowed $4.2 million and $3.5 million at interest rate of 2.7% per annum, and repaid in full during the quarter ended September 30, 2021. On August 17, 2021 and September 22, 2021, the JV Company also borrowed $4.2 million and $3.4 million at interest rate of 2.7% per annum, with principal due on November 9, 2021 and December 12, 2021, respectively. As of September 30, 2021, the total outstanding balance of these loans was $15.3 million.


On June 29, 2021, the JV Company entered into a P1Y-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
38


entire principal is due on June 29, 2022. As of September 30, 2021, the outstanding balance of this loan was $7.7 million at an interest rate of 3.49% per annum.
Cash, and cash equivalents and restricted cash
As of December 31, 2017September 30, 2021 and June 30, 2017,2021, we had $146.2had $255.0 million and $115.7 and $204.8 million of cash, and cash equivalents and restricted cash, respectively. Our cash, and 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 $146.2 $255.0 million and $115.7$204.8 million cash, and cash equivalents $130.5and restricted cash, $225.8 million and $73.9$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,
 2017 2016
 (in thousands)
Net cash provided by operating activities$21,854
 $18,069
Net cash used in investing activities(75,123) (23,464)
Net cash provided by financing activities82,529
 40,973
Effect of exchange rate changes on cash and cash equivalents1,241
 (559)
    
Net increase in cash and cash equivalents$30,501
 $35,019
    
 Three Months Ended September 30,
 20212020
 (in thousands)
Net cash provided by operating activities$80,607 $9,848 
Net cash used in investing activities(23,911)(11,337)
Net cash used in financing activities(6,535)(4,186)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(11)1,997 
Net increase (decrease) in cash, cash equivalents and restricted cash$50,150 $(3,678)
  
Cash flows from operating activities

Net cash provided by operating activities of $21.9$80.6 million for the sixthree months ended December 31, 2017September 30, 2021 resulted primarily from net income of $8.5$21.4 million and non-cash expenses of $18.2$19.0 million, partially offset by net changes in assets and liabilities using cash of $4.8$40.1 million. The non-cash expenses of $18.2$19.0 million primarily included a $14.4$13.7 million of depreciation and amortization expenses, a $6.0$4.6 million of share-based compensation expense, and a $(2.2)$0.7 million of deferred income taxes. The net changes in assets and liabilities of $4.8$40.1 million were primarily due to a 9.4$52.9 million increase in accrued and other liabilities, a $2.1 million increase in accounts payable due to timing of payments, and a $0.4 million increase in income taxes payable, partially offset by a $3.5 million increase in accounts receivable as a result of higher revenue, a $9.1 million increase in inventories due to a $9.1continued ramp of the JV Company, and a $2.6 million increase in other current and long termlong-term assets due to increase in advance payments to suppliers.
Net cash provided by operating activities of $9.8 million for the three months ended September 30, 2020 resulted primarily from net income of $8.8 million and non-cash expenses of $15.4 million, partially offset by net changes in assets and liabilities using net cash of $14.3 million. The non-cash expenses of $15.4 million primarily included $12.5 million of depreciation and amortization expenses and $2.9 million of share-based compensation expense. The net changes in assets and liabilities using cash of $14.3 million were primarily due to a $13.0 million increase in accounts receivable as a result of better-than-expected revenue, a $2.2 million increase in inventories due to a continued ramp of the JV Company, and a $1.0 million increase in other current and long-term assets due to increase in advance payments to vendors, and a $0.4$0.8 million decrease in income taxes payable, partially offset by a $4.1 million decrease in accounts receivable from timing of billings and collection of payments, a $8.1 million increase in accrued and other liabilities, andpartially offset by a $1.9 million increase in accounts payable due to timing of payment.
Net cash provided by operating activities of $18.1 million for the six months ended December 31, 2016 resulted primarily from net income of $4.1 million and non-cash expenses of $22.3 million, offset by net changes in assets and liabilities of $8.4 million. The non-cash expenses of $22.3 million include a $13.3 million of depreciation and amortization expenses, a $2.9 million of share-based compensation expense, a $0.4 million of gain on disposal of property and equipment,payments, and a $6.6 million of deferred income taxes. The net changes in assets and liabilities of $8.4 million were primarily due to a $7.0 million increase in other current and long term assets due to increase in advance payments to vendors, a $4.6 million decrease in accounts payable due to timing of payment, a $1.4 million increase in inventories, partially offset by $2.1 million decrease in accounts receivable from timing of billings and collection of payments, a $2.3 million increase in accrued and other liabilities and $0.3$0.7 million increase in income taxes payable.
Cash flows from investing activities
Net cash used in investing activities of $23.9 million for the three months ended September 30, 2021 was primarily attributable to purchases of property and equipment of $8.4 million for the JV Company and purchases of property and equipment of $16.6 million for other than the JV Company, net of government grants of $1.1 million.

Net cash used in investing activities of $75.1$11.3 million for the sixthree months ended December 31, 2017September 30, 2020 was primarily attributable to $64.8$11.3 million purchases of property and equipment, including $41.6$3.4 million purchase inpurchased by the Joint Venture Company and $10.4 million in purchases of intangible asset during the quarter.

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Net cash used in investing activities of $23.5 million for the six months ended December 31, 2016 was primarily attributable to $23.7 million purchases of property and equipment and land to increase our in-house production capacity and to support the Joint Venture Company, as well as $0.1 million increase in restricted cash, partially offset by $0.4 million proceeds from sale of certain equipment.JV Company.
Cash flows from financing activities
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Net cash used in financing activities of $82.5$6.5 million for the sixthree months ended December 31, 2017September 30, 2021 was primarily attributable to $87.0$9.7 million proceeds from investment by noncontrolling interest and $2.2 millionin repayments of proceeds from exercise of stock options and issuance of shares und the ESPP, partially offset by $6.0 million for repurchase of our common shares under the repurchase program, $0.4borrowings, $4.2 million in payment of capitalfinance lease obligations, and $0.2 million in common shares acquired to settle withholding tax related to vesting of restricted stock units.units, partially offset by $7.6 million proceeds from borrowings.

Net cash used in financing activities of $41.0$4.2 million for the sixthree months ended December 31, 2016September 30, 2020 was primarily attributable to $33.0$11.1 million proceeds from investment by noncontrolling interest and $8.7 millionin repayments of proceeds from exercise of stock options and issuance of shares under the ESPP, partially offset by $0.4borrowings, $4.0 million in payment of capitalfinance lease obligations, and $0.3$0.4 million in common shares acquired to settle withholding tax related to vesting of restricted stock units.units, partially offset by $11.3 million proceeds from borrowings.
Capital expenditures

Capital expenditures were $64.8 million and $23.7 million for the six months ended December 31, 2017 and 2016, respectively. The increase in capital expenditure was primarily due to EPC construction payment in connection with the JV Transaction, additional purchase of equipment and assets, and investment in R&D to improve our technology and support our new product introductions. In general, our capital expenditures primarily consists of purchases of equipment for our packaging and testing services and for our Oregon fab, purchases of equipment and construction payment in Chongqing for the Joint Venture Company, investment in new technology as well as for upgrading our operational and financial systems. We expect that our capital expenditures will continue to increase in order to support the JV Transaction, including additional costs associated with pre-production activities of the JV Company. We also expect capital expenditure to increase as we accelerate the development of our new digital power business.
Commitments
See Note 10 of the Notes to the Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for a description of commitments.
Off-Balance Sheet Arrangements
As of December 31, 2017,September 30, 2021, we had no material off-balance sheet arrangements as defined in Regulation S-K 303(a)(4)(ii) arrangements.
Contractual Obligations

There were no material changes outside of our ordinary course of business in our contractual obligations from those disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2017.2021.


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, 2017,2021, filed with the SEC on September 5, 2017.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, 2017September 30, 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'sSEC’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 three months ended December 31, 2017September 30, 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
We are
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 partyresponse 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, material legal proceedings. 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, 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 Company anticipates that the matter will be dismissed with prejudice.

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, 2017,2020, filed with the SEC on September 5, 2017,August 30, 2021, contains risk factors identified by the Company. Except as set forthnoted 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.


WeDisruptions, damages or destructions to our manufacturing facilities, machinery and equipment may not be able to fully realizematerially and adversely affect our business operations

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The success of our business depends on the anticipated benefitscontinuing operations of our Oregon fab and advantages from our joint venture with the Chongqing government.

In March 2016, we entered into a joint venture contract (the “JV Agreement”) with two investment funds ownedfabrication facility operated by the municipalities of Chongqing, China (the “Chongqing Funds”), pursuant to which we and the Chongqing Funds formed a joint venture (the “JV Company”) for the purpose of constructing a power semiconductor packaging/testing and wafer fabrication facility. The total initial capitalization of the JV Company is $330.0 million (the “Initial Capitalization”), which consists of (i) a total of $162.0 million of cash contribution from the Chongqing Funds; (ii) $74.0 million of existing packaging and testing equipment owned by us located in Shanghai, China; (iii) certain intellectual property rights, including patents, held by us relating to the manufacturing technology valued at $84.0 million; and (iv) $10.0 million of cash contribution by us.  We own 51%, and the Chongqing Funds owns 49%, of the equity interest in the JV Company. The Initial Capitalization will be completed in stages.

As the JV Company is completing the constructionoperations of its assembly and waferour fabrication facilities we anticipatemay be affected by various factors, including: (i) fire, flood or power failure at our production facilities or the pre-production costsbuildings adjacent to our production sites; (ii) breakdown of the facilities will increase significantly in the short term, including costs relating to the installation of equipment; the performance of qualification procedures; increased demand for electrical powermachinery and utility; increased headcounts as a result of hiring additional personnel, staff and operators; and establishment of additional administrative and management functions and systems. In the short term, we may not be able to generate sufficient revenue to offset these costs, and in the long term, the JV Company may not succeed in producing the anticipated level of revenue, in which case these increased costs will negatively impactequipment at our results of operations.

We expect the JV Company to commence initial packaging production upon the achievement of certain milestones set forth in the JV Agreement, including construction and funding milestones. Over the long-term, the JV Company expects to construct a 12-inch wafer fabrication facility for the production of power semiconductors. We may encounter unanticipated difficulties and obstacles that may delayfacilities; or prevent the commencement of the JV Company's operation, some of which are outside(iii) scheduled maintenance of our control. These difficultiesmachinery and equipment. The occurrence of any unanticipated or prolonged disruptions, damage or destruction to our production facilities and machinery and equipment may include unexpected costsaffect our ability to produce and delaysdeliver products to our customers in transferring our assembly and testing operations to the new facility; inability to coordinate and integrate the labor forces; failure of the Chongqing Funds to meet their obligations under the JV Agreement, such as delays in capitalizing the JV Company based on our original timeline; inability to secure sufficient financing from third parties to fund the operation and capital expenditure of the JV Company; and inability to provide customers with required services. In addition, we may not be able to fully utilize our packaging and testing capacity during the period when our facilities are being transferred from Shanghai to Chongqing,a timely manner, which may negatively impact our business and results of operations.


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Even if the joint venture is able to commence operation, we may not fully realize the anticipated benefits of the project, such as cost savings, improvement in working capital, increased gross margin, revenue and profitability, enhanced market share for our products; and increased diversification of our products and customers.  The establishment and operation of a new manufacturing facility involve significant risks and challenges, including, but are not limited to, the following:

Inability to gain or sustain sufficient new customers and market shares to offset the additional costs of building and operating a new facility;
Lack of sufficient control over the operation and finances of the joint venture;
Insufficient personnel with requisite expertise and experiences to operate a 12-in fabrication facility;
Inability to fully integrate the joint venture with our existing fabrication facility in Oregon, and inability to fully utilize both fabrication facilities;
Failure of Chongqing Funds to meet its obligations under the JV Agreement;
Difficulties in protecting and enforcing our intellectual property rights;
Difficulties in maintaining international communications and coordination between our locations in the U.S. and China;
Inability to take advantage of the expected tax savings;
Changes or uncertainties in economic, legal, regulatory, social and political conditions in China, and lack of transparency and certainty in the Chinese regulatory process;
Labor disputes and difficulties in recruiting new employees; and
Additional costs and complexity with compliance of local and state regulations of Chongqing. 

In January 2017, we entered into the EPC Contract with the Contractor for the purpose of constructing the manufacturing facility contemplated under the JV Agreement. The EPC Contract requires us to make payments to the Contractor pursuant to a schedule based on the progress of the construction and the achievements of specified milestones. However, we do not have full control over the work performed by the Contractor. If the Contractor is not able to complete its work in accordance with the schedule we initially agreed, or if the quality of work performed by the Contractor fails to meet our standard, or a dispute occurs between us and the Contractor regarding such work, the JV Transaction will be delayed, which will have an adverse effect onadversely affect our business operation and financial conditions. Furthermore,results.

Our operations at our Chongqing fabrication facility operated by the EPC Contract contemplates a specified designJV Company are subject to operational risks, including but not limited to disruption of water or power supply and architecture forbreakdown or malfunction of our machinery, which could result in delay, temporary suspension, permanent, partial or complete shut-downs of our production. For example, the manufacturingrecent electric power shortage in China prompted some local government to impose rationing of power supply that may result in factory shutdown due lack of continuous supply of electrical power. Additionally, local governments in certain provinces in China have raised prices or extended peak-demand periods during which prices are higher to address the issue and others have announced plans to do so in the future, which could increase the cost of power supplies.

Although our Chongqing fabrication facility basedhas not experienced significant power supply disruption and is currently not subject to rationing of power supply, we cannot assure you that the government authorities will not enforce power restriction or shutdowns on our current projection. As the construction proceeds,facility in the future. In the event that we or the Contractor may encounter difficulties or unexpected events that would require us to make material modificationsbecome subject to such design and architecture,restrictions, we may be required to suspend or cease the production activities which will increase our costs significantly and delay the progress of the JV Transaction.

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

We may not be able to successfully develop our digital power business.

In September 2017, we entered into a license agreement with STMicro, which allows us to develop and market certain digital multi-phase controller products and enter into a new market, primarily in the computer server segment. We are in the process of developing this new digital power business and expect to incur significant startup costs, including costs relating to recruiting and hiring of qualified engineers and technical staff; development of marketing and sales infrastructure, particularly in the computer server market; and other research and development and management activities. We do not expect this new business to generate sufficient revenue to offset our costs in the short term, and there is no guarantee that our attempt to develop a profitable digital business will ultimately succeed. The success of our new digital power business depends on a number of factors, including the following:

competition from other companies with greater resources;
the availability of and our ability to recruit and attract qualified personnel;
our lack of experience in the digital power market;
difficulties in designing products acceptable to customers; and
sales and marketing capability.

Any one of these factors may negatively impact our ability to create a successful digital power business, which will adversely affect our production schedule and the ability to fulfill the customer’s orders which in turn, adversely affect our business and financial conditioncondition. In addition, as a result of disruption to our operations, our production volume and resultsthe utilization rate of operation.our production plants may be affected, which may result in a drop in our gross profit margin and profitability.



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


In September 2017, the Board of Directors terminated our prior repurchase program that was approved in 2015 and approved a new repurchase program (the “Repurchase Program”), which allows 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. There is no guarantee that such repurchasesDuring the three months ended September 30, 2021, we did not repurchase any shares under the Repurchase Program will enhance the value of our shares.Program. As of December 31, 2017,September 30, 2021, approximately $24.0 $13.4 million remained available under the Repurchase Program.

The following table sets for the share repurchases under this program during the second fiscal quarter ended December 31, 2017.








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Period Total Number of Shares (or Units) Purchased Average Price Paid per Share (or Unit) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Be Purchased Under the Plans or Programs
October 1, 2017 to October 31, 2017 171,023
   $17.27
   171,023
       
November 1, 2017 to November 30, 2017 58,469
   $17.47
   58,469
       
December 1, 2017 to December 31, 2017 117,129
   $17.38
   117,129
       
Total repurchase during the three months ended December 31, 2017 346,621
   $17.34
   346,621
   $23,989,000
  








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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.


ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.


ITEM 5. OTHER INFORMATION

Not applicable.

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ITEM 6. EXHIBITS


3.110.1

10.1(+)
Amended and Restated 2017 Executive Incentive Plan(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Commission on November 21, 2017)Director Compensation Policy
31.1
31.2
32.1
32.2
101.INSInline XBRL Instance
101.SCHInline XBRL Taxonomy Extension Schema
101.CALInline XBRL Taxonomy Extension Calculation
101.DEFInline XBRL Taxonomy Extension Definition
101.LABInline XBRL Taxonomy Extension Labels
101.PREInline XBRL Taxonomy Extension Presentation
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
(+) Indicates management contract or compensatory plan or arrangement.












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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
February 8, 2018
November 5, 2021
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
By:
By:/s/  YIFAN LIANG
Yifan Liang
Chief Financial Officer and Corporate Secretary
(Principal Financial Officer)


 



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