アルファアンドオメガセミコンダクターの四半期報告

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________

FORM 10-Q

_________________________________

(MARK ONE)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission file number 001-34717

__________________________

Alpha and Omega Semiconductor Limited

(Exact name of Registrant as Specified in its Charter)


Bermuda			77-0553536
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification Number)

Clarendon House, 2 Church Street

Hamilton HM 11, Bermuda

(Address of Principal Registered

Offices including Zip Code)

(408) 830-9742

(Registrant's Telephone Number, Including Area Code)

__________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

(Do not check if a smaller reporting company)

Smaller reporting company

☐

Emerging growth company

☐

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


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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of common shares outstanding as of April 30, 2023: 27,488,76125,770,998

Alpha and Omega Semiconductor Limited

Form 10-Q

Fiscal Second Quarter Ended March 31, 2023

TABLE OF CONTENTS


		Page
Part I.	FINANCIAL INFORMATION
Item 1.	Financial Statements:	1
	Condensed Consolidated Balance Sheets as of March 31, 202 3 and June 30, 2022 (Unaudited)	1
	Condensed Consolidated Statements of Income (Loss) for the Three and Nine Months Ended March 31, 202 3 and 202 2 (Unaudited)	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended March 31, 202 3 and 202 2 (Unaudited)	3
	Condensed Consolidated Statements of Changes in Equity for the Three and Nine Months Ended March 31, 202 3 and 202 2 (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 202 3 and 202 2 (Unaudited)	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	47
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3.	Defaults Upon Senior Securities	50
Item 4.	Mine Safety Disclosures	50
Item 5.	Other Information	50
Item 6.	Exhibits	51
	Signatures	52

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)
	March 31, 2023		June 30, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	265,946	$	314,352
Restricted cash	218		299
Accounts receivable, net	19,434		65,681

Inventories	179,783		158,040

Other current assets	9,969		11,220
Total current assets	475,350		549,592
Property, plant and equipment, net	358,157		318,666
Operating lease right-of-use assets	22,962		23,674
Intangible assets, net	7,577		10,050

Equity method investment	368,042		378,378
Deferred income tax assets	561		592

Other long-term assets	20,658		17,677
Total assets	$	1,253,307	$	1,298,629
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	54,689	$	87,377
Accrued liabilities	90,029		116,893
Payable related to equity investee, net	18,393		28,989
Income taxes payable	6,651		4,248
Short-term debt	24,877		25,563
Deferred revenue	14,370		—
Finance lease liabilities	851		802
Operating lease liabilities	4,457		3,850
Total current liabilities	214,317		267,722
Long-term debt	41,237		42,486
Income taxes payable - long-term	2,261		2,158
Deferred income tax liabilities	27,764		28,757
Finance lease liabilities - long-term	3,439		3,932
Operating lease liabilities - long-term	19,332		20,878
Other long-term liabilities	57,699		78,603
Total liabilities	366,049		444,536
Commitments and contingencies (Note 12)
Equity:
Preferred shares, par value $0.002 per share:
Authorized: 10,000 shares; issued and outstanding: none at March 31, 2023 and June 30, 2022	—		—
Common shares, par value $0.002 per share:
Authorized: 100,000 shares; issued and outstanding: 34,575 shares and 27,858 shares, respectively at March 31, 2023 and 33,988 shares and 27,371 shares, respectively at June 30, 2022	69		68
Treasury shares at cost: 6,717 shares at March 31, 2023 and 6,617 shares at June 30, 2022	(68,605)		(66,000)
Additional paid-in capital	321,548		288,951
Accumulated other comprehensive income (loss)	(9,156)		1,080
Retained earnings	643,402		629,994


Total equity	887,258		854,093
Total liabilities and equity	$	1,253,307	$	1,298,629

See accompanying notes to these condensed consolidated financial statements.

Table of Contents

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited, in thousands except per share data)



	Three Months Ended March 31,				Nine Months Ended March 31,
	2023		2022		2023		2022
Revenue	$	132,560	$	203,239	$	529,796	$	583,593
Cost of goods sold	101,774		130,837		374,841		378,259
Gross profit	30,786		72,402		154,955		205,334
Operating expenses
Research and development	22,578		16,545		65,435		50,873
Selling, general and administrative	22,610		24,625		69,603		70,563

Total operating expenses	45,188		41,170		135,038		121,436
Operating income (loss)	(14,402)		31,232		19,917		83,898

Other income (loss), net	(513)		263		(1,432)		720
Interest income (expense), net	5		(308)		(1,000)		(3,025)
Gain on deconsolidation of the JV Company	—		—		—		399,093
Gain (loss) on changes of equity interest in the JV Company, net	—		4,501		—		(3,140)
Net income (loss) before income taxes	(14,910)		35,688		17,485		477,546

Income tax expense	2,517		2,902		5,550		38,318
Net income (loss) before income (loss) from equity method investment	(17,427)		32,786		11,935		439,228
Equity method investment income (loss) from equity investee	(1,480)		(1,136)		1,533		(1,136)
Net income (loss)	(18,907)		31,650		13,468		438,092
Net loss attributable to noncontrolling interest	—		—		—		20
Net income (loss) attributable to Alpha and Omega Semiconductor Limited	$	(18,907)	$	31,650	$	13,468	$	438,072

Net income (loss) per common share attributable to Alpha and Omega Semiconductor Limited
Basic	$	(0.68)	$	1.18	$	0.49	$	16.47
Diluted	$	(0.68)	$	1.11	$	0.46	$	15.58
Weighted average number of common shares attributable to Alpha and Omega Semiconductor Limited used to compute net income (loss) per share
Basic	27,710		26,829		27,537		26,596
Diluted	27,710		28,423		29,576		28,116

See accompanying notes to these condensed consolidated financial statements.

Table of Contents

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, in thousands)


	Three Months Ended March 31,				Nine Months Ended March 31,
	2023		2022		2023		2022
Net income (loss) including noncontrolling interest	$	(18,907)	$	31,650	$	13,468	$	438,092
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment	3,748		162		(10,236)		1,649
Cumulative translation adjustment removal due to deconsolidation of the JV Company	—						(3,642)

Comprehensive income (loss)	(15,159)		31,812		3,232		436,099
Less: Noncontrolling interest	—		—				(1,080)
Comprehensive income (loss) attributable to Alpha and Omega Semiconductor Limited	$	(15,159)	$	31,812	$	3,232	$	437,179

See accompanying notes to these condensed consolidated financial statements.

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		Retained Earnings		Total AOS Shareholders' Equity		Noncontrolling Interest		Total Equity
























Balance, December 31, 2021	$	67	$	(66,046)	$	275,410	$	1,260	$	583,299	$	793,990	$	—	$	793,990
Exercise of common stock options and release of restricted stock units	—		—		558		—		—		558		—		558
Reissuance of treasury stock upon exercise of common stock options and release of RSUs	—		40		—		—		(40)		—		—		—
Withholding tax on restricted stock units	—		—		(7,732)		—		—		(7,732)		—		(7,732)


Share-based compensation	—		—		8,273		—		—		8,273		—		8,273

Net income including noncontrolling interest	—		—		—		—		31,650		31,650		—		31,650
Foreign currency translation adjustment	—		—		—		162		—		162		—		162



Balance, March 31, 2022	$	67	$	(66,006)	$	276,509	$	1,422	$	614,909	$	826,901	$	—	$	826,901

	Common Shares		Treasury Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total AOS Shareholders' Equity		Noncontrolling Interest		Total Equity















Balance, June 30, 2021	$	66	$	(66,064)	$	259,993	$	2,315	$	176,895	$	373,205	$	143,120	$	516,325
Exercise of common stock options and release of restricted stock units	—		—		859		—		—		859		—		859
Reissuance of treasury stock upon exercise of common stock options and release of RSUs	—		58		—		—		(58)		—		—		—
Withholding tax on restricted stock units	—		—		(8,354)		—		—		(8,354)		—		(8,354)
Issuance of shares under ESPP	1		—		2,422		—		—		2,423		—		2,423

Share-based compensation	—		—		21,189		—		—		21,189		—		21,189
Restricted stock units settlement in connection with service	—		—		400		—		—		400		—		400
Net income including noncontrolling interest through December 1, 2021	—		—		—		—		438,072		438,072		20		438,092
Foreign currency translation adjustment	—		—		—		900		—		900		749		1,649

Deconsolidation of noncontrolling interest	—		—		—		(1,793)		—		(1,793)		(143,889)		(145,682)

Balance, March 31, 2022	$	67	$	(66,006)	$	276,509	$	1,422	$	614,909	$	826,901	$	—	$	826,901

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited, in thousands)


	Common Shares		Treasury Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total AOS Shareholders' Equity		Noncontrolling Interest		Total Equity
























Balance, December 31, 2022	$	68	$	(65,990)	$	316,141	$	(12,904)	$	662,359	$	899,674	$	—	$	899,674
Exercise of common stock options and release of restricted stock units	1		—		531		—		—		532		—		532
Reissuance of treasury stock upon exercise of common stock options and release of RSUs	—		50		—		—		(50)		—		—		—
Withholding tax on restricted stock units	—		—		(5,556)		—		—		(5,556)		—		(5,556)

Repurchase of common shares under shares repurchase program	—		(2,665)		—		—		—		(2,665)		—		(2,665)
Share-based compensation	—		—		10,432		—		—		10,432		—		10,432

Net loss	—		—		—		—		(18,907)		(18,907)		—		(18,907)
Foreign currency translation adjustment, net of tax	—		—		—		3,748		—		3,748		—		3,748


Balance, March 31, 2023	$	69	$	(68,605)	$	321,548	$	(9,156)	$	643,402	$	887,258	$	—	$	887,258


	Common Shares		Treasury Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total AOS Shareholders' Equity		Noncontrolling Interest		Total Equity
Balance, June 30, 2022	$	68	$	(66,000)	$	288,951	$	1,080	$	629,994	$	854,093	$	—	$	854,093
Exercise of common stock options and release of restricted stock units	1		—		550		—		—		551		—		551
Reissuance of treasury stock upon exercise of common stock options and release of RSUs	—		60		—		—		(60)		—		—		—
Withholding tax on restricted stock units	—		—		(6,152)		—		—		(6,152)		—		(6,152)
Issuance of shares under ESPP	—		—		4,080		—		—		4,080		—		4,080
Repurchase of common shares under shares repurchase program	—		(2,665)		—		—		—		(2,665)		—		(2,665)
Share-based compensation	—		—		34,119		—		—		34,119		—		34,119

Net income	—		—		—		—		13,468		13,468		—		13,468
Foreign currency translation adjustment, net of tax	—		—		—		(10,236)		—		(10,236)		—		(10,236)


Balance, March 31, 2023	$	69	$	(68,605)	$	321,548	$	(9,156)	$	643,402	$	887,258	$	—	$	887,258

See accompanying notes to these condensed consolidated financial statements.

Table of Contents

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


	Nine Months Ended March 31,
	2023		2022
Cash flows from operating activities
Net income including noncontrolling interest through December 1, 2021	13,468		$	438,092
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on deconsolidation of the JV Company	—		(399,093)
Loss on changes of equity interest in the JV Company, net	—		3,140
Deferred income tax on deconsolidation and changes of equity interest in the JV Company	—		29,973
Depreciation and amortization	31,162		34,263
Loss (income) from equity investment	(1,533)		1,136

Share-based compensation expense	34,119		21,454
Deferred income taxes, net	(962)		2,182
Loss on disposal of property and equipment	387		57

Changes in operating assets and liabilities
Accounts receivable	46,247		(3,610)
Inventories	(21,744)		(42,914)
Other current and long-term assets	(7,824)		(10,078)
Accounts payable	(21,581)		15,608
Net payable, equity investee	(10,595)		34,375
Income taxes payable	2,506		(1)
Income taxes payable on deconsolidation and changes of equity interest in the JV Company	—		3,490
Increase in deferred revenue	14,370		—
Accrued and other liabilities	(29,366)		65,122
Net cash provided by operating activities	48,654		193,196
Cash flows from investing activities
Proceeds from sale of equity interest in the JV Company	—		26,347
Deconsolidation of cash and cash equivalents of the JV Company	—		(20,734)
Purchases of property and equipment	(91,261)		(98,006)




Proceeds from sale of property and equipment	27		9

Government grant related to equipment	631		1,242
Net cash used in investing activities	(90,603)		(91,142)
Cash flows from financing activities
Withholding tax on restricted stock units	(6,152)		(8,354)
Proceeds from exercise of stock options and ESPP	4,631		3,282

Payment for repurchases of common shares	(2,665)		—
Proceeds from borrowings	8,632		59,262
Repayments of borrowings	(10,260)		(33,663)
Principal payments on finance leases	(603)		(4,176)
Net cash provided by (used in) financing activities	(6,417)		16,351
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(121)		152
Net increase (decrease) in cash, cash equivalents and restricted cash	(48,487)		118,557
Cash, cash equivalents and restricted cash at beginning of period	314,651		204,813
Cash, cash equivalents and restricted cash at end of period	$	266,164	$	323,370

Supplemental disclosures of non-cash investing and financing information:
Property and equipment purchased but not yet paid	$	17,298	$	25,565

Table of Contents

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)




	March 31, 2023		March 31, 2022
Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents	$	265,946	$	323,134
Restricted cash	218		236

Total cash, cash equivalents, and restricted cash	$	266,164	$	323,370

See accompanying notes to these condensed consolidated financial statements.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. The Company and Significant Accounting Policies

The Company

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

Basis of Preparation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Article 10 of Securities and Exchange Commission Regulation S-X, as amended. They do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with U.S. GAAP for complete financial statements. These Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022. 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 nine months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2023 or any other interim period. The consolidated balance sheet at June 30, 2022 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, 2022.

Reclassification

The Company has reclassified certain amounts previously reported in its financial statements to conform to the current presentation. See Note 11.

Joint Venture

On March 29, 2016, the Company entered into a joint venture contract (the “JV Agreement”) with two investment funds owned by the Municipality of Chongqing (the “Chongqing Funds”), pursuant to which the Company and the Chongqing Funds formed a joint venture, (the “JV Company”), for the purpose of constructing and operating a power semiconductor packaging, testing and 12-inch wafer fabrication facility in the Liangjiang New Area of Chongqing, China (the “JV Transaction”). As of December 1, 2021, the Company owned 50.9%, and the Chongqing Funds owned 49.1%, of the equity interest in the JV Company. The Joint Venture was accounted under the provisions of the consolidation guidance since the Company had controlling financial interest until December 1, 2021. As of December 2, 2021, the Company ceased having control over the JV Company. Therefore, the Company deconsolidated the JV Company as of that date. Subsequently, the Company has accounted for its investment in the JV Company using the equity method of accounting. As of March 31, 2023, the percentage of outstanding JV equity interest beneficially owned by the Company was reduced to 42.2%. Such reduction reflects (i) the sale by the Company of approximately 2.1% of the outstanding JV equity interest which resulted in the deconsolidation of the JV Company, (ii) additional sale by the Company of approximately 1.1% of outstanding JV equity interest in December 2021, (iii) the adoption of an employee equity incentive plan and the issuance of additional equity interest equivalent to 3.99% of the JV Company to investors in exchange for cash in December 2021, and (iv) issuance of additional equity interest of JV to investors in January 2022.

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

During the first half of calendar year 2022, the Company's operations were negatively impacted by China’s zero-Covid policy that resulted in factory shutdowns and supply chain shortages, including the temporary suspension of its factory operations in Shanghai from April to June 2022. In December 2022, the Chinese government issued new guidelines easing some of its strict zero-COVID policies, including the relaxation of testing requirements and travel restrictions. The change of COVID-policy and reopening of commercial activities resulted in a significant increase of COVID infections in China, which may adversely affect the Company’s operations in China.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

During the three months ended March 31, 2023, as China and other parts of the world in which we conduct our business have ended pandemic restriction have largely returned to normal. In general, our business operations are no longer affected by the COVID-19 pandemic.

Use of Estimates

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

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities and long-term operating lease liabilities on the Company's Condensed Consolidated Balance Sheets. Finance leases are included in property, plant and equipment, finance lease liabilities and long-term finance leases liabilities on the Condensed Consolidated Balance Sheets.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The Company uses an estimate of its incremental borrowing rate based on the information available at the lease commencement date. The operating lease ROU assets also include any lease payments made and exclude lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Operating lease expense is generally 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 60 days.

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

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

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

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Packaging and testing services revenue is recognized at a point in time upon shipment of serviced products to the customer.

License and Development Revenue Recognition

In February 2023, the Company entered into a license agreement with a customer to license the Company’s proprietary SiC technology and to provide 24-month engineering and development services for a total fee of $45 million, consisting of an upfront fee of $18 million paid to the Company in March 2023, and the remaining amount to be paid upon the achievement of specified engineering services and product milestones. The license and development fee is determined to be one performance obligation and is recognized over the 24 months when the Company performs the engineering and development services. The Company uses the input method to measure progression, representing a faithful depiction of the transfer of services. During the three months ended March 31, 2023, the Company recorded $3.6 million of license and development revenue. The amount of contract liability is recorded as deferred revenue on the balance sheets.

In addition, the Company also entered an accompanying supply agreement to provide limited wafer supply to the customer. Material right to the customer is presented due to the commitment of limited wafer supply after the development period; however, deemed to be insignificant to the transaction price.

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

The Company maintains restricted cash in connection with cash balances temporarily restricted for regular business operations. 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 March 31, 2023 and June 30, 2022, the amount of restricted cash was $0.2 million and $0.3 million, respectively.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Equity method investment

The Company uses the equity method of accounting when it has the ability to exercise significant influence, but not control, as determined in accordance with generally accepted accounting principles, over the operating and financial policies of the investee. Effective December 2, 2021, the Company reduced its equity interest in the JV Company and no longer controls of the JV Company. As a result, beginning December 2, 2021, the Company records its investment under the equity method of accounting. Since the Company is unable to obtain accurate financial information from the JV Company in a timely manner, the Company records its share of earnings or losses of such affiliate on a one quarter lag. The Company discloses and recognizes intervening events at the JV Company in the lag period that could materially affect our consolidated financial statements, if applicable.

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

Valuation of inventories

The Company carries inventories at the lower of cost (determined on a first-in, first-out basis) or net realizable value. Cost primarily consists of semiconductor wafers and raw materials, labor, depreciation expenses and other manufacturing expenses and overhead, and packaging and testing fees paid to third parties if subcontractors are used. Valuation of inventories is based on its periodic review of inventory quantities on hand as compared with its sales forecasts, historical usage, aging of inventories, production yield levels and current product selling prices. If actual market conditions are less favorable than those forecasted by the Company, additional future inventory write-downs may be required that could adversely affect its operating results. Adjustments to inventory, once established are not reversed until the related inventory has been sold or scrapped. If actual market conditions are more favorable than expected and the products that have previously been written down are sold, our gross margin would be favorably impacted.

Fair Value of Financial Instruments

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

Government Grants

The Company occasionally receives government grants that provide financial assistance for certain eligible expenditures in China. These grants include reimbursements on interest expense on bank borrowings, payroll tax credits, credit for property, plant and equipment in a particular geographical location, employment credits, as well as business expansion credits. Government grants are not recognized until there is reasonable assurance that the Company will comply with the conditions attaching to it, and that the grant will be received. The Company records such grants either as a reduction of the related expense, a reduction of the cost of the related asset, or as other income depending upon the nature of the grant. As a result of such grants, during the three and nine months ended March 31, 2023, the Company reduced property, plant and equipment by nil and $0.6 million, and operating expenses by $0.0 million and $0.1 million, respectively. During the three and nine months ended March 31, 2022, the Company reduced interest expense by nil and $0.9 million, property, plant and equipment by nil and $1.2 million, and operating expenses by $0.0 million and $0.2 million, respectively.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Accounting for income taxes

Income tax expense or benefit is based on income or loss before income taxes. Deferred tax assets and liabilities are recognized principally for the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts.

The Company is subject to income taxes in a number of jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company establishes accruals for certain tax contingencies based on estimates of whether additional taxes may be due. While the final tax outcome of these matters may differ from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Significant management judgment is also required in determining whether deferred tax assets will be realized in full or in part. When it is more likely than not that all or some portion of specific deferred tax assets such as net operating losses or research and development tax credit carryforwards will not be realized, a valuation allowance must be established for the amount of the deferred tax assets that cannot be realized. The Company considers all available positive and negative evidence on a jurisdiction-by-jurisdiction basis when assessing whether it is more likely than not that deferred tax assets are recoverable. The Company considers evidence such as our past operating results, the existence of cumulative losses in recent years and our forecast of future taxable income.

The Financial Accounting Standards Board (FASB), issued guidance which clarifies the accounting for income taxes by prescribing a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely to be realized upon ultimate settlement. Although the guidance on the accounting for uncertainty in income taxes prescribes the use of a recognition and measurement model, the determination of whether an uncertain tax position has met those thresholds will continue to require significant judgment by management. If the ultimate resolution of tax uncertainties is different from what is currently estimated, a material impact on income tax expense could result.

The Company's provision for income taxes is subject to volatility and could be adversely impacted by changes in earnings or tax laws and regulations in various jurisdictions. The Company is subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of changes to reserves, as well as the related net interest and penalties.

Long-lived Assets

The Company reviews all long-lived assets whenever events or changes in circumstance indicate that these assets may not be recoverable. When evaluating long-lived assets, if the Company concludes that the estimated undiscounted cash flows attributable to the assets are less than their carrying value, the Company recognizes an impairment loss based on the excess of the carrying amount of the assets over their respective fair values, which could adversely affect its results of operations.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Comprehensive Income

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

Recent Accounting Pronouncements

Recently Issued Accounting Standards not yet adopted

In September 2022, the FASB issued ASU No. 2022-04, "Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations". This ASU was issued in response to requests from financial statement users for increased transparency surrounding the use of supplier finance programs. The amendments in ASU 2022-04 require that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. The amendments in this ASU do not affect the recognition, measurement, or financial statement presentation of obligations covered by supplier finance programs. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance.

Recently Adopted Accounting Standards

In November 2021, the FASB issued Accounting Standards Update (ASU) No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This ASU requires business entities to make annual disclosures about transactions with a government they account for by analogizing to a grant or contribution accounting model under ASC 958-605. The adoption of ASU 2021-10 had no impact on the Company's Consolidated Financial Statements.

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which, among other things, provides guidance on how to account for contracts on an entity’s own equity. This ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. Specifically, the ASU eliminated the need for the Company to assess whether a contract on the entity’s own equity (1) permits settlement in unregistered shares, (2) whether counterparty rights rank higher than shareholder’s rights, and (3) whether collateral is required. In addition, the ASU requires incremental disclosure related to contracts on the entity’s own equity and clarifies the treatment of certain financial instruments accounted for under this ASU on earnings per share. The adoption of ASU 2020-06 had no impact on the Company's Consolidated Financial Statements.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2. Equity Method Investment in Equity Investee

On December 1, 2021 (the “Effective Date”), Alpha & Omega Semiconductor (Shanghai) Ltd. (“AOS SH”) and Agape Package Manufacturing (Shanghai) Limited (“APM SH” and, together with AOS SH, the “Sellers”), each a wholly-owned subsidiary of the Company, entered into a share transfer agreement ("STA") with a third-party investor to sell a portion of the Company's equity interest in the JV Company which consists of a power semiconductor packaging, testing and 12-inch wafer fabrication facility in Chongqing, China (the “Transaction”). The Transaction closed on December 2, 2021 (the “Closing Date”), which reduced the Company’s equity interest in the JV Company from 50.9% to 48.8%. Also, the Company’s right to designate directors on the board of JV Company was reduced to three (3) out of seven (7) directors, from four (4) directors prior to the Transaction. As a result of the Transaction and other factors, the Company no longer has a controlling financial interest in the JV Company and has determined that the JV Company was deconsolidated from the Company’s Consolidated Financial Statements effective as of the Closing Date.

On December 24, 2021, the Company entered into a share transfer agreement with another third-party investor, pursuant to which the Company sold to this investor 1.1% of outstanding equity interest held by the Company in the JV Company. In addition, the JV Company adopted an employee equity incentive plan and issued an equity interest equivalent to 3.99% of the JV Company in exchange to cash. As a result of these two transactions, the Company owned 45.8% of the equity interest in the JV Company as of December 31, 2021.

On January 26, 2022, the JV Company completed a financing transaction pursuant to a corporate investment agreement (the “Investment Agreement”) between the JV Company and certain third-party investors (the “New Investors”). Under the Investment Agreement, the New Investors purchased newly issued equity interest of the JV Company, representing approximately 7.82% of post-transaction outstanding equity interests of the JV Company, for a total purchase price of RMB 509 million (or approximately USD 80 million based on the currency exchange rate as of January 26, 2022) (the “Investment”). Following the closing of the Investment and as of June 30, 2022, the percentage of outstanding JV equity interest beneficially owned by the Company was reduced to 42.2%.

The Company accounts for its investment in the JV Company as an equity method investment and reports its equity in earnings or loss of the JV Company on a three-month lag due to an inability to timely obtain financial information of the JV Company. During the three and nine months ended March 31, 2023, the Company recorded a $1.5 million in loss and a $1.5 million income of its equity share of the JV Company, respectively, using lag reporting. As of March 31, 2023, the percentage of outstanding JV equity interest beneficially owned by the Company was 42.2%.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3. Related Party Transactions

As of March 31, 2023, the Company owned 42.2% equity interest in the JV Company, which, by definition, is a related party to the Company. The JV Company supplies 12-inch wafers and provides assembly and testing services to AOS. AOS previously sold 8-inch wafers to the JV Company for further assembly and testing services until January 1, 2023, when it changed to consign the 8-inch wafers to the JV Company. Due to the right of offset of receivables and payables with the JV Company, as of March 31, 2023, AOS recorded the net amount of $18.4 million presented as payable related to equity investee, net, in the Condensed Consolidated Balance Sheet. The purchases by AOS for the three and nine months ended March 31, 2023 were $20.2 million and $106.1 million, respectively, and the sales by AOS for the three and nine months ended March 31, 2023 were $4.0 million and $34.4 million, respectively. The purchases by AOS for the three and nine months ended March 31, 2022 were $45.8 million and $61.4 million, respectively, and the sales by AOS for the three and nine months ended March 31, 2022 were $14.2 million and $18.4 million, respectively.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4. Net Income (Loss) Per Common Share Attributable to Alpha and Omega Semiconductor Limited

The following table presents the calculation of basic and diluted net income (loss) per share attributable to common shareholders:


	Three Months Ended March 31,				Nine Months Ended March 31,
	2023		2022		2023		2022
	(in thousands, except per share data)
Numerator:
Net income (loss) attributable to Alpha and Omega Semiconductor Limited	$	(18,907)	$	31,650	$	13,468	$	438,072

Denominator:
Basic:
Weighted average number of common shares used to compute basic net income (loss) per share	27,710		26,829		27,537		26,596
Diluted:
Weighted average number of common shares used to compute basic net income (loss) per share	27,710		26,829		27,537		26,596
Effect of potentially dilutive securities:
Stock options, RSUs and ESPP shares	—		1,594		2,039		1,520
Weighted average number of common shares used to compute diluted net income (loss) per share	27,710		28,423		29,576		28,116
Net income (loss) per share attributable to Alpha and Omega Semiconductor Limited:
Basic	$	(0.68)	$	1.18	$	0.49	$	16.47
Diluted	$	(0.68)	$	1.11	$	0.46	$	15.58

The following potential dilutive securities were excluded from the computation of diluted net income (loss) per share as their effect would have been anti-dilutive:


	Three Months Ended March 31,		Nine Months Ended March 31,
	2023	2022	2023	2022
	(in thousands)		(in thousands)
Employee stock options and RSUs	3,152	2	281	171
ESPP	767	19	279	27
Total potential dilutive securities	3,919	21	560	198

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. Concentration of Credit Risk and Significant Customers

The Company manages its credit risk associated with exposure to distributors and direct customers on outstanding accounts receivable through the application and review of credit approvals, credit ratings and other monitoring procedures. In some instances, the Company also obtains letters of credit from certain customers.

Credit sales, which are mainly on credit terms of 30 to 60 days, are only made to customers who meet the Company's credit requirements, while sales to new customers or customers with low credit ratings are usually made on an advance payment basis. The Company considers its trade accounts receivable to be of good credit quality because its key distributors and direct customers have long-standing business relationships with the Company and the Company has not experienced any significant bad debt write-offs of accounts receivable in the past. The Company closely monitors the aging of accounts receivable from its distributors and direct customers, and regularly reviews their financial positions, where available.

Summarized below are individual customers whose revenue or accounts receivable balances were 10% or higher than the respective total consolidated amounts:


	Three Months Ended March 31,				Nine Months Ended March 31,
Percentage of revenue	2023		2022		2023		2022
Customer A	21.0	%	24.2	%	21.7	%	24.8	%
Customer B	28.7	%	38.8	%	35.5	%	38.7	%
Customer C	17.9	%	*		14.1	%	*


	March 31, 2023		June 30, 2022
Percentage of accounts receivable
Customer A	*		24.6	%
Customer B	*		36.4	%

Customer C	46.0	%	12.0	%
Customer D	21.9	%	*

* Less than 10%

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

6. Balance Sheet Components

Accounts receivable, net:


	March 31, 2023		June 30, 2022
	(in thousands)
Accounts receivable	$	54,269	$	84,442
Less: Allowance for price adjustments	(34,805)		(18,731)
Less: Allowance for doubtful accounts	(30)		(30)
Accounts receivable, net	$	19,434	$	65,681

Inventories:


	March 31, 2023		June 30, 2022
	(in thousands)
Raw materials	$	86,490	$	67,960
Work-in-process	69,905		80,720
Finished goods	23,388		9,360
	$	179,783	$	158,040

Other current assets:


	March 31, 2023		June 30, 2022
	(in thousands)
Value-added tax receivable	$	179	$	737
Other prepaid expenses	3,950		3,954
Prepaid insurance	751		2,590
Prepaid maintenance	1,092		826
Prepayment to supplier	71		257
Prepaid income tax	2,176		2,086
Interest receivable	172		25


Other receivables	1,578		745

	$	9,969	$	11,220

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Property, plant and equipment, net:


	March 31, 2023		June 30, 2022
	(in thousands)
Land	$	4,877	$	4,877

Building	26,243		16,691
Manufacturing machinery and equipment	320,087		287,574
Equipment and tooling	31,428		28,052
Computer equipment and software	49,425		46,758
Office furniture and equipment	3,175		2,820
Leasehold improvements	38,051		35,254

	473,286		422,026
Less: accumulated depreciation	(261,814)		(233,340)
	211,472		188,686
Equipment and construction in progress	146,685		129,980
Property, plant and equipment, net	$	358,157	$	318,666

Intangible assets, net:


	March 31, 2023		June 30, 2022
	(in thousands)
Patents and technology rights	$	18,037	$	18,037
Trade name	268		268
Customer relationships	1,150		1,150
	19,455		19,455
Less: accumulated amortization	(12,147)		(9,674)
	7,308		9,781
Goodwill	269		269
Intangible assets, net	$	7,577	$	10,050

Estimated future minimum amortization expense of intangible assets is as follows (in thousands):


Year ending June 30,
2023 (Remaining)	$	812
2024	3,249
2025	3,247



	$	7,308

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Other long-term assets:


	March 31, 2023		June 30, 2022
	(in thousands)
Prepayments for property and equipment	$	1,013	$	6,890
Investment in a privately held company	100		100



Customs deposit	2,118		1,708
Deposit with supplier	13,040		6,396
Other long-term deposits	33		18
Office leases deposits	1,243		1,012
Other	3,111		1,553
	$	20,658	$	17,677

Accrued liabilities:


	March 31, 2023		June 30, 2022
	(in thousands)
Accrued compensation and benefits	$	18,750	$	34,681


Warranty accrual	3,815		2,650
Stock rotation accrual	4,081		4,798
Accrued professional fees	2,407		2,659


Accrued inventory	1,322		2,491
Accrued facilities related expenses	2,285		2,421

Accrued property, plant and equipment	6,531		20,485
Other accrued expenses	4,160		5,159
Customer deposits	43,314		40,578
ESPP payable	3,364		971
	$	90,029	$	116,893

Short-term customer deposits are payments received from customers for securing future product shipments. As of March 31, 2023, $12.5 million were from Customer A and $10.2 million were from Customer B, and $20.6 million were from other customers. As of June 30, 2022, $12.5 million were from Customer A and $16.2 million were from Customer B, and $11.9 million were from other customers.

The activities in the warranty accrual, included in accrued liabilities, are as follows:


	Nine Months Ended March 31,
	2023		2022
	(in thousands)
Beginning balance	$	2,650	$	2,795
Additions	2,915		949

Utilization	(1,750)		(1,261)
Ending balance	$	3,815	$	2,483

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The activities in the stock rotation accrual, included in accrued liabilities, are as follows:


	Nine Months Ended March 31,
	2023		2022
	(in thousands)
Beginning balance	$	4,798	$	3,917
Additions	9,187		3,030
Utilization	(9,904)		(2,740)
Ending balance	$	4,081	$	4,207

Other long-term liabilities:


	March 31, 2023		June 30, 2022
	(in thousands)

Customer deposits	$	51,926	$	70,301
Computer software liabilities	5,773		8,302

Other long-term liabilities	$	57,699	$	78,603

Customer deposits are payments received from customers for securing future product shipments. As of March 31, 2023, $22.0 million were from Customer A and $13.7 million were from Customer B, and $16.2 million were from other customers. As of June 30, 2022, $34.5 million were from Customer A and $21.9 million were from Customer B, and $13.9 million were from other customers.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

7. Bank Borrowings

Short-term borrowings

In January 2023, one of the Company's subsidiaries in China entered into a line of credit facility with Bank of Communications Limited in China. The purpose of the credit facility is to provide working capital borrowings. The Company could borrow up to approximately RMB 140 million or $20.6 million based on currency exchange rate between RMB and U.S. Dollar on January 31, 2023 with a maturity date of December 1, 2023. As of March 31, 2023, there was no outstanding balance for this 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 March 31, 2023, the Borrower was in compliance with these covenants. As of March 31, 2023, there was no outstanding balance and the Company had unused credit of approximately $8.0 million.

Debt financing

In September 2021, Jireh Semiconductor Incorporated (“Jireh”), one of the wholly-owned subsidiaries, entered into a financing arrangement agreement with a company (“Lender”) for the lease and purchase of a machinery equipment manufactured by a supplier. This agreement has a 5 years term, after which Jireh has the option to purchase the equipment for $1. The implied interest rate was 4.75% per annum which was adjustable based on every five basis point increase in 60-month U.S. Treasury Notes, until the final installation and acceptance of the equipment. The total purchase price of this equipment was euro 12.0 million. In April 2021, Jireh made a down payment of euro 6.0 million, representing 50% of the total purchase price of the equipment, to the supplier. In June 2022, the equipment was delivered to Jireh after Lender paid 40% of the total purchase price, for euro 4.8 million, to the supplier on behalf of Jireh. In September 2022, Lender paid the remaining 10% payment for the total purchase price and reimbursed Jireh for the 50% down payment, after the installation and configuration of the equipment. The title of the equipment was transferred to Lender following such payment. The agreement was amended with fixed implied interest rate of 7.51% and monthly payment of principal and interest effective in October 2022. Other terms remain the same. In addition, Jireh purchased hardware for the machine under this financing arrangement. The purchase price of this hardware was $0.2 million. The financing arrangement is secured by this equipment and other equipment which had the carrying amount of $13.1 million as of March 31, 2023. As of March 31, 2023, the outstanding balance of this debt financing was $12.5 million.

Long-term bank borrowings

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 the Company is required to maintain. Jireh drew down $45.0 million on February 16, 2022 with the first payment of principal beginning in October 2022. As of March 31, 2023, Jireh was in compliance with these covenants and the outstanding balance of this loan was $40.5 million.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 March 31, 2023. As of March 31, 2023, the outstanding balance of the term loan was $13.5 million. The Company paid this loan in full on May 1, 2023.

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


Year ending June 30,
2023 (Remaining)					$	16,339
2024					11,472
2025					11,664
2026					11,871
2027					14,344
Thereafter					536
Total principal					66,226
Less: debt issuance costs					(112)
Total principal, less debt issuance costs					$	66,114

	Short-term Debt		Long-term Debt		Total
Principal amount	$	24,925	$	41,301	$	66,226
Less: debt issuance costs	(48)		(64)		(112)
Total debt, less debt issuance costs	$	24,877	$	41,237	$	66,114

8. Leases

The Company evaluates contracts for lease accounting at contract inception and assesses lease classification at the lease commencement date. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities and operating lease liabilities - long-term on the Company's Condensed Consolidated Balance Sheets. Finance leases are included in property, plant and equipment, finance lease liabilities and finance lease liabilities-long-term on the Condensed Consolidated Balance Sheets. The Company recognizes a ROU asset and corresponding lease obligation liability at the lease commencement date where the lease obligation liability is measured at the present value of the minimum lease payments. As most of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate at lease commencement. The Company uses an interest rate commensurate with the interest rate to borrow on a collateralized basis over a similar term with an amount equal to the lease payments. Operating leases are primarily related to offices, research and development facilities, sales and marketing facilities, and manufacturing facilities. In addition, long-term supply agreements to lease gas tank equipment and purchase industrial gases are accounted for as operating leases. Lease agreements frequently include renewal provisions and require the Company to pay real estate taxes, insurance and maintenance costs. For operating leases, the amortization of the ROU asset and the accretion of its lease obligation liability result in a single straight-line expense recognized over the lease term. The finance lease is related to the $5.1 million of a machinery lease financing with a vendor. In September 2022, the lease was amended to make a monthly payment of principal and interest as a fixed amount effective in October 2022. Other terms remain the same. The amendment was accounted for as a debt modification and no gain or loss was recognized. In addition, the finance lease related to the RMB 400.0 million of lease financing of the JV Company with YinHai Leasing Company and The Export-Import Bank of China was not included in the Company’s unaudited Condensed Consolidated Balance Sheet at March 31, 2023 due to the deconsolidation of the JV Company on December 2, 2021. The Company does not record leases on the Condensed Consolidated Balance Sheets with a term of one year or less.

The Company’s unaudited Condensed Consolidated Statements of Income for the nine months ended March 31, 2022 include the JV Company's results for the period preceding the deconsolidation on December 2, 2021. The components of the Company’s operating and finance lease expenses are as follows for the periods presented (in thousands):

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Three Months Ended March 31,				Nine Months Ended March 31,
	2023		2022		2023		2022
Operating leases:
Fixed rent expense	$	1,385	$	1,479	$	4,298	$	4,955
Variable rent expense	279		126		757		741
Finance lease:
Amortization of equipment	128		15		393		787
Interest	83		11		227		692
Short-term leases
Short-term lease expenses	133		38		300		144
Total lease expenses	$	2,008	$	1,669	$	5,975	$	7,319

Supplemental balance sheets information related to the Company’s operating and finance leases is as follows (in thousands, except lease term and discount rate):


	March 31, 2023			June 30, 2022
Operating Leases:
ROU assets associated with operating leases	$	22,962		$	23,674
Finance Lease:
Property, plant and equipment, gross	$	5,133		$	4,831
Accumulated depreciation	(529)			(136)
Property, plant and equipment, net	$	4,604		$	4,695

Weighted average remaining lease term (in years)
Operating leases	6.65			7.42
Finance lease	4.50			5.00

Weighted average discount rate
Operating leases	4.39		%	4.27		%
Finance lease	7.51		%	4.76		%

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


	Nine Months Ended March 31,
	2023		2022
Cash paid from amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	4,418	$	4,965
Operating cash flows from finance lease	$	227	$	421
Financing cash flows from finance lease	$	603	$	4,176

Non-cash investing and financing information:
Operating lease right-of-use assets obtained in exchange for lease obligations	$	2,859	$	5,901

Future minimum lease payments are as follows as of March 31, 2023 (in thousands):

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


Year ending June 30,	Operating Leases		Finance Leases
The remainder of fiscal 2023	$	1,481	$	286
2024	5,006		1,144
2025	4,133		1,144
2026	3,441		1,144
2027	3,264		1,145
Thereafter	10,301		191
Total minimum lease payments	27,626		5,054
Less amount representing interest	(3,837)		(764)
Total lease liabilities	$	23,789	$	4,290

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

9. Shareholders' Equity and Share-based Compensation

Share Repurchase

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

During the three months ended March 31, 2023, the Company repurchased an aggregate of 106,863 shares from the open market, for a total cost of $2.7 million, excluding fees and related expenses, at an average price of $24.9 per share. Since the inception of the program, the Company repurchased an aggregate of 6,891,511 shares for a total cost of $70.0 million, at an average price of $10.16 per share, excluding fees and related expenses. No repurchased shares have been retired. Of the 6,891,511 repurchased shares, 174,724 shares with a weighted average repurchase price of $9.98 per share, were reissued at an average price of $4.79 per share pursuant to option exercises and vested restricted share units (“RSU”). As of March 31, 2023, approximately $10.8 million remained available under the Repurchase Program.

Time-based Restricted Stock Units (“TRSU”)

The following table summarizes the Company's TRSU activities for the nine months ended March 31, 2023:


	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, 2022	1,169,609	$	34.03	1.73	$	38,994,764
Granted	625,080	$	28.14
Vested	(418,269)	$	28.90
Forfeited	(35,025)	$	31.34
Nonvested at March 31, 2023	1,341,395	$	32.96	1.89	$	36,150,595

Market-based Restricted Stock Units (“MSU”)

In December 2021, the Company granted 1.0 million market-based restricted stock units ("MSUs") to certain personnel. The number of shares to be earned at the end of performance period is determined based on the Company’s achievement of specified stock prices and revenue thresholds during the performance period from January 1, 2022 to December 31, 2024 as well as the recipients remaining in continuous service with the Company through such period. The MSU vests in four equal annual installments after the end of performance period. The Company estimated the grant date fair values of its MSU with derived service periods of 4.1 to 7.1 years using a Monte-Carlo simulation model with the following assumptions: Risk-free interest rate of 1.0%, expected term of 3.1 years, expected volatility of 62.8% and dividend yield of 0%. The Company recorded $2.1 million and $6.2 million of expenses for these MSUs during the three and nine months ended March 31, 2023, respectively, and $2.0 million and $2.5 million of expenses during the three and nine months ended March 31, 2022.

During the quarter ended September 30, 2018, the Company granted 1.3 million MSUs to certain personnel. The number of shares to be earned at the end of performance period is determined based on the Company’s achievement of specified stock prices and revenue thresholds during the performance period from January 1, 2019 to December 31, 2021 as well as the recipients remaining in continuous service with the Company through such period. The MSUs vest in four equal annual installments after the end of the performance period. The Company estimated the grant date fair values of its MSUs using a Monte-Carlo simulation model. On August 31, 2020, the Compensation Committee of the Board approved a modification of the terms of MSU to (i) extend the performance period through December 31, 2022 and (ii) change the commencement date for the four-year time-based service period to January 1, 2023. The fair value of these MSUs was recalculated to reflect the change as of August 31, 2020 and the unrecognized compensation amount was adjusted to reflect the increase in fair value. The Company recorded $0.3 million and $3.6 million of expenses for MSUs during the three and nine months ended March 31, 2023, respectively, and $0.4 million and $1.2 million of expenses for MSUs during the three and nine months ended March 31, 2022, respectively.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Performance-based Restricted Stock Units (“PRSUs”)

In March each year since year 2017, the Company granted PRSUs to certain personnel. The number of shares to be earned under the PRSUs is determined based on the level of attainment of predetermined financial goals. The PRSUs vest in four equal annual installments from the first anniversary date after the grant date if certain predetermined financial goals were met. The Company recorded approximately $1.4 million and $4.1 million of expense for these PRSUs during the three and nine months ended March 31, 2023, respectively, and approximately $1.0 million and $3.0 million during the three and nine months ended March 31, 2022.

The following table summarizes the Company’s PRSUs activities for the nine months ended March 31, 2023:


	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, 2022	389,375	$	36.56	1.85	$	12,981,763
Granted	264,214	$	25.70
Vested	(116,132)	$	30.54
Forfeited	(10,743)	$	48.65
Nonvested at March 31, 2023	526,714	$	32.19	2.03	$	14,194,942

Stock Options

The Company did not grant any stock options during the nine months ended March 31, 2023 and 2022. The following table summarizes the Company's stock option activities for the nine months ended March 31, 2023:


				Weighted
		Weighted		Average
		Average		Remaining
	Number of	Exercise Price		Contractual	Aggregate
	Shares	Per Share		Term (in years)	Intrinsic Value
Outstanding at June 30, 2022	389,875	$	7.70	1.53	$	9,997,364

Exercised	(65,500)	$	8.42		$	1,442,646

Outstanding at March 31, 2023	324,375	$	7.55	0.96	$	6,292,088
Options vested and expected to vest	324,375	$	7.55	0.96	$	6,292,088
Exercisable at March 31, 2023	324,375	$	7.55	0.96	$	6,292,088

Employee Share Purchase Plan (“ESPP”)

The assumptions used to estimate the fair values of common shares issued under the ESPP were as follows:



			Nine Months Ended March 31,
			2023
Volatility rate			70.5%
Risk-free interest rate			4.5%
Expected term			1.3 years
Dividend yield			0%

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Share-based Compensation Expense

On September 8, 2022, the Compensation Committee of the Board approved modifications to the terms of equity awards granted to a former officer who was a board member of the Company. The modifications waived the four-year time based service performance of his MSU allowing continuing vesting of his TRSU and PRSU according to the original awards' vesting schedule after his termination as a board member. The incremental expenses for these equity shares resulting from the modification were $3.9 million. During the three and nine months ended March 31, 2023, the Company recorded nil and $3.1 million, respectively, net of reversal of prior recorded expenses, of shared-based compensation for these equity shares.

The total share-based compensation expense recognized in the Condensed Consolidated Statements of Income for the periods presented was as follows:


	Three Months Ended March 31,				Nine Months Ended March 31,
	2023		2022		2023		2022
	(in thousands)				(in thousands)
Cost of goods sold	$	1,723	$	1,282	$	5,259	$	3,560
Research and development	2,987		1,814		8,808		4,769
Selling, general and administrative	5,722		5,177		20,052		13,125
	$	10,432	$	8,273	$	34,119	$	21,454

As of March 31, 2023, total unrecognized compensation cost under the Company's equity plans was $77.5 million, which is expected to be recognized over a weighted-average period of 2.8 years.

10. Income Taxes

The Company recognized income tax expense of approximately $2.5 million and $2.9 million for the three months ended March 31, 2023 and 2022, respectively. The income tax expense of $2.5 million for the three months ended March 31, 2023 included a $0.03 million discrete tax expense. The income tax expense of $2.9 million for the three months ended March 31, 2022 included a $0.7 million discrete tax expense related to the Company’s $4.5 million of gain related to the revaluation of the Company's equity interest in a joint venture. Excluding the discrete income tax items, the income tax expense for the three months ended March 31, 2023 and 2022 was $2.5 million and $2.2 million, respectively, and the effective tax rate for the three months ended March 31, 2023 and 2022 was (15.2)% and 7.4%, respectively. Excluding the effects of the discrete tax expense recorded in the three months ended March 31, 2023 and 2022, the changes in the tax expense and effective tax rate between the periods resulted primarily from changes in the mix of earnings in various geographic jurisdictions between the current year and the same period of last year as well as from reporting pretax book loss of $16.4 million for the three months ended March 31, 2023 as compared to $30.0 million of pretax book income (excluding the $4.5 million of gain related ot the revaluation of the Company's equity interest in a joint venture) for the three months ended March 31, 2022.

The Company recognized income tax expense of approximately $5.6 million and $38.3 million for the nine months ended March 31, 2023 and 2022, respectively. The income tax expense of $5.6 million for the nine months ended March 31, 2023 included a $0.1 million discrete tax expense. The income tax expense of $38.3 million for the nine months ended March 31, 2022 included a $33.5 million discrete tax expense related to the Company’s $396.0 million of income from the sale of equity interest in a joint venture and the related deconsolidation gain as the Company switches from the consolidation method of accounting to the equity method of accounting related to this investment and no longer asserts permanent reinvestment related to the Company’s investment in the joint venture as well as $0.1 million for other discrete income tax items. Excluding the discrete income tax items, income tax expense for the nine months ended March 31, 2023 and 2022 was $5.4 million and $4.7 million, respectively, and the effective tax rate for the nine months ended March 31, 2023 and 2022 was 28.4% and 6.0%, respectively. Excluding the effects of the discrete tax expense recorded in the nine months ended March 31, 2023 and 2022, the changes in the tax expense and effective tax rate between the periods resulted primarily from changes in the mix of earnings in various geographic jurisdictions between the current year and the same period of last year as well as from the Company reporting a pretax book income of $19.0 million for the nine months ended March 31, 2023 as compared to pretax book income of $80.4 million of pretax book income (excluding the $396.0 million of income from the sale of equity interest in a joint venture and the related deconsolidation gain) for the nine months ended March 31, 2022.

The Company files its income tax returns in the United States and in various foreign jurisdictions. The tax years 2001 to 2022 remain open to examination by U.S. federal and state tax authorities. The tax years 2014 to 2022 remain open to examination by foreign tax authorities.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 March 31, 2023, the gross amount of unrecognized tax benefits was approximately $8.7 million, of which $5.7 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.

“The Chip and Science Act of 2022”, Enacted August 2, 2022

In August 2022 the U.S. enacted the Chip and Science Act of 2022 (the Chips Act). The Chips Act provides incentives to semiconductor chip manufacturers in the United States, including providing a 25% manufacturing investment credits for investments in semiconductor manufacturing property placed in service after December 31, 2022, for which construction begins before January 1, 2027. Property investments qualify for the 25% credit if, among other requirements, the property is integral to the operation of an advanced manufacturing facility, defined as having a primary purpose of manufacturing semiconductors or semiconductor manufacturing equipment. Currently, we are evaluating the impact of the Chips Act to us.

“The Inflation Reduction Act”, Enacted August 16, 2022

In August 2022 the United States enacted tax legislation through the Inflation Reduction Act (IRA). The IRA introduces a 15% corporate alternative minimum tax (CAMT) for corporations whose average annual adjusted financial statement income (AFSI) for any consecutive three-tax-year period preceding the applicable tax year exceeds $1 billion. The CAMT is effective for tax years beginning after December 31, 2022. The CAMT is currently not applicable to the Company.

Altera Litigation

On July 27, 2015, in Altera Corp. v. Commissioner, the U.S. Tax Court issued an opinion related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. In the July 2015 ruling, the Tax Court concluded that the sharing of the cost of employee stock compensation in a company’s cost-sharing arrangement was invalid under the U.S. Administrative Procedures Act. In June 2019, a panel of the Ninth Circuit of the U.S. Court of Appeals reversed this decision. In July 2019, Altera petitioned U.S. Court of Appeals for the Ninth Circuit to hold an en banc rehearing of the case. The petition was subsequently denied by the Ninth Circuit. Altera appealed the case to the U.S. Supreme Court in February 2020, but the U.S. Supreme Court declined to hear the case in June 2020, leaving intact the U.S. Court of Appeals for the Ninth Circuit’s decision. AOS has not recorded any benefit related to the Altera Corporation Tax Court decision in any period through December 2022. The Company will continue to monitor ongoing developments and potential impact to its financial statements.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11. Segment and Geographic Information

The Company is organized as, and operates in, one operating segment: the design, development and supply of power semiconductor products for computing, consumer electronics, communication and industrial applications. The chief operating decision-makers are the Executive Chairman and the Chief Executive Officer. The financial information presented to the Company’s Executive Chairman and Chief Executive Officer is on a consolidated basis, accompanied by information about revenue by customer and geographic region, for purposes of evaluating financial performance and allocating resources. The Company has one business segment, and there are no segment managers who are held accountable for operations, operating results and plans for products or components below the consolidated unit level. Accordingly, the Company reports as a single operating segment.

The Company sells its products primarily to distributors in the Asia Pacific region, who in turn sell these products to end customers. Because the Company’s distributors sell their products to end customers which may have a global presence, revenue by geographical location is not necessarily representative of the geographical distribution of sales to end user markets.

The revenue by geographical location in the following tables is based on the country or region in which the products were shipped to:


	Three Months Ended March 31,				Nine Months Ended March 31,
	2023		2022		2023		2022
	(in thousands)				(in thousands)
Hong Kong	$	106,940	$	164,555	$	438,537	$	472,399
China	14,360		31,883		58,104		91,958
South Korea	1,083		2,745		7,622		8,862
United States	4,245		3,534		16,701		9,004
Other countries	5,932		522		8,832		1,370
	$	132,560	$	203,239	$	529,796	$	583,593

The Company has classified certain amounts previously reported in revenue of power discrete and power IC to conform to the current presentation. The following is a summary of revenue by product type:


	Three Months Ended March 31,				Nine Months Ended March 31,
	2023		2022		2023		2022
	(in thousands)				(in thousands)
Power discrete	$	80,962	$	140,027	$	363,117	$	404,902
Power IC	47,416		60,904		159,708		169,115
Packaging and testing services	552		2,308		3,341		9,576
License and development services	3,630		—		3,630		—
	$	132,560	$	203,239	$	529,796	$	583,593

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Long-lived assets, net consisting of property, plant and equipment and operating lease right-of-use assets, net by geographical area are as follows:


	March 31, 2023		June 30, 2022
	(in thousands)
China	$	115,944	$	105,326
United States	261,142		232,731
Other countries	4,033		4,283
	$	381,119	$	342,340

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

12. Commitments and Contingencies

Purchase Commitments

As of March 31, 2023 and June 30, 2022, the Company had approximately $120.6 million and $89.9 million, respectively, of outstanding purchase commitments primarily for purchases of semiconductor raw materials, wafers, spare parts, packaging and testing services and others.

As of March 31, 2023 and June 30, 2022, the Company had approximately $11.9 million and $63.4 million, respectively, of capital commitments for the purchase of property and equipment.

Other Commitments

See Note 7 and Note 8 of the Notes to the Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for descriptions of commitments including bank borrowings and leases.

Contingencies and Indemnities

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

In December 2019, the U.S. Department of Justice (“DOJ”) commenced an investigation into the Company's compliance with export control regulations relating to its business transactions with Huawei and its affiliates (“Huawei”), which were added to the “Entity List” maintained by the Department of Commerce (“DOC”) on May 16, 2019. The Company is cooperating fully with federal authorities in the investigation, including responding to requests for documents, information and interviews from DOJ in connection with the investigation. The Company has maintained an export control compliance program and has been committed to comply fully with all applicable laws and regulations. In connection with this investigation, DOC requested the Company to suspend shipments of its products to Huawei, and the Company complied with such request, and the Company has not shipped any product to Huawei after December 31, 2019. The Company is currently working with DOC to resolve this issue. Given the case is in still ongoing and neither DOJ nor DOC have provided the Company with any clear indication of the timing and schedule for the investigation, the Company cannot estimate the reasonably possible loss or range of loss that may occur. Also, the Company is unable to predict the duration, scope, result or related costs of the investigation, although the Company expects to incur additional professional fees as a result of this matter. In addition, the Company is unable to predict what, if any, further action that may be taken by the government in connection with the investigation, or what, if any, penalties, sanctions or remedial actions may be sought.

The Company is a party to a variety of agreements that it has contracted with various third parties. Pursuant to these agreements, the Company may be obligated to indemnify another party to such an agreement with respect to certain matters. Typically, these obligations arise in the context of contracts entered into by the Company, under which the Company customarily agrees to hold the other party harmless against losses arising from a breach of representations and covenants related to such matters as title to assets sold, certain intellectual property rights, specified environmental matters and certain income taxes. In these circumstances, payment by the Company is customarily conditioned on the other party making a claim pursuant to the procedures specified in the particular contract, which procedures typically allow the Company to challenge the other party's claim. Further, the Company's obligations under these agreements may be limited in time and/or amount, and in some instances, the Company may have recourse against third parties for certain payments made by it under these agreements. The Company has not historically paid or recorded any material indemnifications, and no accrual was made at March 31, 2023 and June 30, 2022.

The Company has agreed to indemnify its directors and certain employees as permitted by law and pursuant to its Bye-laws, and has entered into indemnification agreements with its directors and executive officers. The Company has not recorded a liability associated with these indemnification arrangements, as it historically has not incurred any material costs associated with such indemnification obligations. Costs associated with such indemnification obligations may be mitigated by insurance coverage that the Company maintains. However, such insurance may not cover any, or may cover only a portion of, the amounts the Company may be required to pay. In addition, the Company may not be able to maintain such insurance coverage at reasonable cost, if at all, in the future.

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, 2022, filed with the Securities and Exchange Commission on September 19, 2022.

Overview

We are a designer, developer and global supplier of a broad portfolio of power semiconductors. Our portfolio of power semiconductors includes approximately 2,500 products, and has grown significantly with the introduction of over 130 new products in the fiscal year ended June 30, 2022, and over 160 new products in each of the fiscal years ended June 30, 2021 and 2020, respectively. During the nine months ended March 31, 2023, we introduced an additional 56 new products. Our teams of scientists and engineers have developed extensive intellectual property and technical knowledge that encompass major aspects of power semiconductors, which we believe enables us to introduce and develop innovative products to address the increasingly complex power requirements of advanced electronics. We have an extensive patent portfolio that consists of 910 patents and 52 patent applications in the United States as of March 31, 2023. We also have a total of 971 foreign patents, which were based primarily on our research and development efforts through March 31, 2023. 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 computers, graphic cards, game consoles, flat panel TVs, home appliances, power tools, smart phones, battery packs, consumer and industrial motor controls and power supplies for TVs, computers, servers and telecommunications equipment.

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

During the fiscal quarter ended March 31, 2023, we continued our product diversification program by developing new silicon and packaging platforms to expand our serviceable available market, or SAM and offer higher performance products. Our metal-oxide-semiconductor field-effect transistors, or MOSFET, and power IC product portfolio also expanded.

On March 29, 2016, we formed a joint venture (the “JV Company”) with two investment funds owned by the Municipality of Chongqing (the “Chongqing Funds”), for the purpose of constructing and operating a power semiconductor packaging, testing and 12-inch wafer fabrication facility (“Fab”) in the LiangJiang New Area of Chongqing, China. The Fab is being built in phases. As of December 1, 2021, we owned 50.9%, and the Chongqing Funds owned 49.1% of the equity interest in the JV Company. The Joint Venture was accounted under the provisions of the consolidation guidance since we had controlling financial interest until December 1, 2021.

The Transaction closed on December 2, 2021 (the “Closing Date”), which reduced the Company’s equity interest in the JV Company from 50.9% to 48.8%. Also, the Company’s right to designate directors on the board of JV Company was reduced to three (3) out of seven (7) directors, from four (4) directors prior to the Transaction. As a result of the Transaction and other factors, the Company no longer has a controlling financial interest in the JV Company and has determined that the JV Company was deconsolidated from the Company’s Consolidated Financial Statements effective as of the Closing Date.

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

On January 26, 2022, the JV Company completed a financing transaction pursuant to a corporate investment agreement (the “Investment Agreement”) between the JV Company and certain third-party investors (the “New Investors”). Under the Investment Agreement, the New Investors purchased newly issued equity interest of the JV Company, representing approximately 7.82% of post-transaction outstanding equity interests of the JV Company, for a total purchase price of RMB 509 million (or approximately USD 80 million based on the currency exchange rate as of January 26, 2022) (the “Investment”). Following the closing of the January 26, 2022 Investment, the percentage of outstanding JV equity interest beneficially owned by the Company was reduced to 42.2% at both June 30, 2022 and March 31, 2023.

We reduced our ownership of the JV Company to below 50% to increase the flexibility of the JV Company to raise capital to fund its future expansion. The JV Company is also contemplating an eventual listing on the Science and Technology Innovation Board, or STAR Market, of the Shanghai Stock Exchange. The reduction of our ownership assists the JV Company in meeting certain regulatory listing requirements. A potential STAR Market listing may take several years to consummate and there is no guarantee that such listing by the JV Company will be successful or will be completed in a timely manner, or at all. In addition, the JV Company will continue to provide us with significant level of foundry capacity to enable us to develop and manufacture our products. On July 12, 2022, the current shareholders of the JV Company entered into a shareholders contract, pursuant to which the JV Company provided us with a monthly wafer production capacity guarantee, subject to future increase when the JV Company’s production capacity reaches certain specified level.

Impact of COVID-19 Pandemic to our Business

During the first half of calendar year 2022, our operations were negatively impacted by China’s zero-Covid policy that resulted in factory shutdowns and supply chain shortages, including the temporary suspension of our factory operations in Shanghai from April to June 2022. In December 2022, the Chinese government issued new guidelines easing some of its strict zero-COVID policies, including the relaxation of testing requirements and travel restrictions. However, the change of COVID-policy and reopening of commercial activities resulted in a significant increase of COVID infections in China. While the rising infection rates affected some of our workers in our facilities in China, the infection rate has stabilized or decrease over time and we do not expect COVID pandemic in China or elsewhere will have a material impact on our business operations and financial results. See “Other Factors affecting our performance—Manufacturing costs and capacity availability”

Other Factors affecting our performance

The global, regional economic and PC market conditions: Because our products primarily serve consumer electronic applications, any significant change in global and regional economic conditions could materially affect our revenue and results of operations. A significant amount of our revenue is derived from sales of products in the PC markets, such as notebooks, motherboards and notebook battery packs, therefore a substantial decline or downturn in the PC market could have a material adverse effect on our revenue and results of operations. The PC markets have experienced a modest global decline in recent years due to continued growth of demand in tablets and smart phones, worldwide economic conditions and the industry inventory correction which had and may continue to have a material impact on the demand for our products. A decline of the PC market may have a negative impact on our revenue, factory utilization, gross margin, our ability to resell excess inventory, and other performance measures. We have executed and continue to execute strategies to diversify our product portfolio, penetrate other market segments, including the consumer, communications and industrial markets, and improve gross margins and profit by implementing cost control measures. While making efforts to reduce our reliance on the computing market, we continue to support our computing business and capitalize on the opportunities in this market with a more focused and competitive PC product strategy to gain market share.

Manufacturing costs and capacity availability: Our gross margin is affected by a number of factors including our manufacturing costs, utilization of our manufacturing facilities, the product mixes of our sales, pricing of wafers from third party foundries and pricing of semiconductor raw materials.

Capacity utilization affects our gross margin because we have certain fixed costs at our Shanghai facilities and our Oregon Fab. If we are unable to utilize our manufacturing facilities at a desired level, our gross margin may be adversely affected. In addition, from time to time, we may experience wafer capacity constraints, particularly at third party foundries, that may prevent us from meeting fully the demand of our customers. For example, the recent global shortage of semiconductor manufacturing capacity has provided us with both challenges and opportunities in the market, and highlighted the importance of maintaining sufficient and independent in-house manufacturing capabilities to meet increasing customer demands. While we can mitigate these constraints by increasing and re-allocating capacity at our own fab, we may not be able to do so quickly or at sufficient level, which could adversely affect our financial conditions and results of operations. In addition, we enhanced the manufacturing capability and capacity of our Oregon Fab by investing in new equipment and expanding our factory facilities, which we expect will have a positive impact on our future new product development and revenue, particularly during the period of global shortage of capacity. We also rely substantially on the JV Company to provide foundry capacity to manufacture our products, therefore it is critical that we maintain continuous access to such capacity, which may not be available at sufficient level or at a pricing terms favorable to us because of lack of control over the JV Company’s operation. As a result of sales of our JV Company equity interests and issuance of additional equity interests by the JV Company to third-party investors in financing transactions, our equity interest in the JV Company was reduced to 42.2%, which reduced our control and influence over the JV Company. We continue to maintain a business relationship with the JV Company to ensure uninterrupted supply of manufacturing capacity. On July 12, 2022, we entered into an agreement with the JV Company, pursuant to which the JV Company agrees to provide us with a monthly wafer production capacity guarantee, subject to future increase when the JV Company’s production capacity reaches certain specified level. Because we continue to rely on the JV Company to provide us with manufacturing capacity, if the JV Company take actions or make decisions that prevents us from accessing required capacity, our operations may be adversely affected.

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

Product introductions and customers’ product requirements: Our success depends on our ability to introduce products on a timely basis that meet or are compatible with our customers' specifications and performance requirements. Both factors, timeliness of product introductions and conformance to customers' requirements, are equally important in securing design wins with our customers. As we accelerate the development of new technology platforms, we expect to increase the pace at which we introduce new products and seek and acquire design wins. If we were to fail to introduce new products on a timely basis that meet customers’ specifications and performance requirements, particularly those products with major OEM customers, and continue to expand our serviceable markets, then we would lose market share and our financial performance would be adversely affected.

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

Principal line items of condensed consolidated statements of income

The following describes the principal line items set forth in our Condensed Consolidated Statements of Income:

Revenue

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

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

In February 2023, we entered into a license agreement with a customer to license our proprietary SiC technology and to provide 24-month engineering and development services for a total fee of $45 million, consisting of an upfront fee of $18 million paid to us in March 2023, and the remaining amount to be paid upon the achievement of specified engineering services and product milestones. The license and development fee is determined to be one performance obligation and is recognized over the 24 months when we perform the engineering and development services. We use the input method to measure progression, representing a faithful depiction of the transfer of services. In addition, we also entered an accompanying supply agreement to provide limited wafer supply to the customer. Material right to the customer is presented due to the commitment of limited wafer supply after the development period; however, deemed to be insignificant to the transaction price.

Cost of goods sold

Our cost of goods sold primarily consists of costs associated with semiconductor wafers, packaging and testing, personnel, including share-based compensation expense, overhead attributable to manufacturing, operations and procurement, and costs associated with yield improvements, capacity utilization, warranty and valuation of inventories. As the volume of sales increases, we expect cost of goods sold to increase. While our utilization rates cannot be immune to the market conditions, our goal is to make them less vulnerable to market fluctuations. We believe our market diversification strategy and product growth will drive higher volume of manufacturing which will improve our factory utilization rates and gross margin in the long run.

Operating expenses

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

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

Selling, general and administrative expenses. Our selling, general and administrative expenses consist primarily of salaries, bonuses, benefits, share-based compensation expense, product promotion costs, occupancy costs, travel expenses, expenses related to sales and marketing activities, amortization of software, depreciation of equipment, maintenance costs and other expenses for general and administrative functions as well as costs for outside professional services, including legal, audit and accounting services.

We expect our selling, general and administrative expenses to fluctuate in the near future as we continue to exercise cost control measures.

Income tax expense

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

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

“The Chip and Science Act of 2022”, Enacted August 2, 2022

“The Inflation Reduction Act”, Enacted August 16, 2022

Altera Litigation

Equity method investment income/loss from equity investee

We use the equity method of accounting when we have the ability to exercise significant influence, but we do not have control, as determined in accordance with generally accepted accounting principles, over the operating and financial policies of the company. Effective December 2, 2021, we reduced our equity interest in the JV Company below 50% of outstanding equity ownership and experienced a loss of control of the JV Company. As a result, we record our investment under equity method of accounting. Since we are unable to obtain accurate financial information from the JV Company in a timely manner, we record our share of earnings or losses of such affiliate on a one quarter lag.

We record our interest in the net earnings of the equity method investee, along with adjustments for unrealized profits or losses on intra-entity transactions and amortization of basis differences, within earnings or loss from equity interests in the Consolidated Statements of Income. Profits or losses related to intra-entity sales with the equity method investee are eliminated until realized by the investor or investee. Basis differences represent differences between the cost of the investment and the underlying equity in net assets of the investment and are generally amortized over the lives of the related assets that gave rise to them. Equity method goodwill is not amortized or tested for impairment. Instead the total equity method investment balance, including equity method goodwill, is tested for impairment. We review for impairment whenever factors indicate that the carrying amount of the investment might not be recoverable. In such a case, the decrease in value is recognized in the period the impairment occurs in the Consolidated Statement of Income.

Results of Operations

The following tables set forth statements of income, also expressed as a percentage of revenue, for the three and nine months ended March 31, 2023 and 2022. Our historical results of operations are not necessarily indicative of the results for any future period.


	Three Months Ended March 31,								Nine Months Ended March 31,
	2023		2022		2023		2022		2023		2022		2023		2022
	(in thousands)				(% of revenue)				(in thousands)				(% of revenue)
Revenue	$	132,560	$	203,239	100.0	%	100.0	%	$	529,796	$	583,593	100.0	%	100.0	%
Cost of goods sold	101,774		130,837		76.8	%	64.4	%	374,841		378,259		70.8	%	64.8	%
Gross profit	30,786		72,402		23.2	%	35.6	%	154,955		205,334		29.2	%	35.2	%
Operating expenses
Research and development	22,578		16,545		17.0	%	8.1	%	65,435		50,873		12.4	%	8.7	%
Selling, general and administrative	22,610		24,625		17.1	%	12.1	%	69,603		70,563		13.1	%	12.1	%

Total operating expenses	45,188		41,170		34.1	%	20.2	%	135,038		121,436		25.5	%	20.8	%
Operating income (loss)	(14,402)		31,232		(10.9)	%	15.4	%	19,917		83,898		3.7	%	14.4	%

Other income (loss), net	(513)		263		(0.4)	%	0.2	%	(1,432)		720		(0.3)	%	0.1	%
Interest income (expense), net	5		(308)		—	%	(0.2)	%	(1,000)		(3,025)		(0.2)	%	(0.5)	%
Gain on deconsolidation of the JV Company	—		—		—	%	—	%	—		399,093		—	%	68.4	%
Gain (loss) on changes of equity interest in the JV Company, net	—		4,501		—	%	2.2	%	—		(3,140)		—	%	(0.5)	%
Net income (loss) before income taxes	(14,910)		35,688		(11.3)	%	17.6	%	17,485		477,546		3.2	%	81.9	%
Income tax expense	2,517		2,902		1.9	%	1.4	%	5,550		38,318		1.0	%	6.6	%
Net income (loss) before income (loss) from equity method investment	(17,427)		32,786		(13.2)	%	16.2	%	11,935		439,228		2.2	%	75.3	%
Equity method investment income (loss) from equity investee	(1,480)		(1,136)		(1.1)	%	(0.6)	%	1,533		(1,136)		0.3	%	(0.2)	%
Net income (loss)	(18,907)		31,650		(14.3)	%	15.6	%	13,468		438,092		2.5	%	75.1	%
Net loss attributable to noncontrolling interest	—		—		—	%	—	%	—		20		—	%	—	%
Net income (loss) attributable to Alpha and Omega Semiconductor Limited	$	(18,907)	$	31,650	(14.3)	%	15.6	%	$	13,468	$	438,072	2.5	%	75.1	%

Share-based compensation expense was recorded as follows:


	Three Months Ended March 31,								Nine Months Ended March 31,
	2023		2022		2023		2022		2023		2022		2023		2022
	(in thousands)				(% of revenue)				(in thousands)				(% of revenue)
Cost of goods sold	$	1,723	$	1,282	1.3	%	0.6	%	$	5,259	$	3,560	1.0	%	0.6	%
Research and development	2,987		1,814		2.3	%	0.9	%	8,808		4,769		1.7	%	0.8	%
Selling, general and administrative	5,722		5,177		4.3	%	2.5	%	20,052		13,125		3.8	%	2.2	%
Total	$	10,432	$	8,273	7.9	%	4.0	%	$	34,119	$	21,454	6.5	%	3.6	%

Three and Nine Months Ended March 31, 2023 and 2022

Revenue

The following is a summary of revenue by product type:


	Three Months Ended March 31,								Nine Months Ended March 31,
	2023		2022		Change				2023		2022		Change
	(in thousands)				(in thousands)		(in percentage)		(in thousands)				(in thousands)		(in percentage)
Power discrete	$	80,962	$	140,027	$	(59,065)	(42.2)	%	$	363,117	$	404,902	$	(41,785)	(10.3)	%
Power IC	47,416		60,904		(13,488)		(22.1)	%	159,708		169,115		(9,407)		(5.6)	%
Packaging and testing services	552		2,308		(1,756)		(76.1)	%	3,341		9,576		(6,235)		(65.1)	%
License and development services	3,630		—		3,630		100.0	%	3,630		—		3,630		100.0	%
	$	132,560	$	203,239	$	(70,679)	(34.8)	%	$	529,796	$	583,593	$	(53,797)	(9.2)	%

The following is a summary of revenue by end market:



	Three Months Ended March 31,								Nine Months Ended March 31,
	2023		2022		2023		2022		2023		2022		2023		2022
	(in thousands)				(% of revenue)				(in thousands)				(% of revenue)
Computing	$	38,062	$	89,939	28.7	%	44.3	%	$	191,205	$	256,371	36.1	%	43.9	%
Consumer	44,568		44,316		33.6	%	21.8	%	137,017		124,001		25.9	%	21.2	%
Communication	19,273		29,070		14.5	%	14.3	%	86,002		80,449		16.2	%	13.8	%
Power Supply and Industrial	26,475		37,606		20.1	%	18.5	%	108,601		113,196		20.5	%	19.5	%
Packaging and testing services	552		2,308		0.4	%	1.1	%	3,341		9,576		0.6	%	1.6	%
License and development services	3,630		—		2.7	%	—	%	3,630		—		0.7	%	—	%
	$	132,560	$	203,239	100.0	%	100.0	%	$	529,796	$	583,593	100.0	%	100.0	%

Total revenue was $132.6 million for the three months ended March 31, 2023, a decrease of $70.7 million, or 34.8%, as compared to $203.2 million for the same quarter last year. The decrease was primarily due to a decrease of $59.1 million and $13.5 million in sales of power discrete products and power IC products, respectively. The decrease in power discrete and power IC product sales was primarily due to a 49.1% decrease in unit shipments, offset by a 25.4% increase in average selling price as compared to same quarter last year due to a shift in product mix. The decrease in revenues was primarily driven by the significant decrease in the computing market, reflecting weaker demand for computers and inventory correction by our customers, partially offset by increased sales in the consumer markets, particularly in gaming products. The decrease in revenue of packaging and testing services for the three months ended March 31, 2023, as compared to same quarter last year, was primarily due to decreased demand. The increase in license and development services for the three months ended March 31, 2023 was related to the license agreement with a customer to license our proprietary SiC technology and to provide 24-month engineering and development services in February 2023.

Total revenue was $529.8 million for the nine months ended March 31, 2023 a decrease of $53.8 million, or 9.2%, as compared to $583.6 million for the same period last year. The decrease was primarily due to a decrease of $41.8 million and $9.4 million in sales of power discrete products and sales of power IC products, respectively. The decrease in power discrete and power IC product sales was primarily due to a 30.2% decrease in unit shipments, offset by a 30.9% increase in average selling price as compared to same period last year due to a shift in product mix. The decrease in revenues was primarily driven by a decrease in computing market, reflecting weaker demand for computers, partially offset by an increase in communications and consumer markets, particularly in gaming products. The decrease in revenue of packaging and testing services for the nine months ended March 31, 2023, as compared to same period last year, was primarily due to decreased demand. The increase in license and development services for the nine months ended March 31, 2023 was related to the license agreement with a customer to license our proprietary SiC technology and to provide 24-month engineering and development services in February 2023.

Cost of goods sold and gross profit


	Three Months Ended March 31,										Nine Months Ended March 31,
	2023			2022			Change				2023			2022			Change
	(in thousands)						(in thousands)		(in percentage)		(in thousands)						(in thousands)		(in percentage)
Cost of goods sold	$	101,774		$	130,837		$	(29,063)	(22.2)	%	$	374,841		$	378,259		$	(3,418)	(0.9)	%
Percentage of revenue	76.8		%	64.4		%					70.8		%	64.8		%

Gross profit	$	30,786		$	72,402		$	(41,616)	(57.5)	%	$	154,955		$	205,334		$	(50,379)	(24.5)	%
Percentage of revenue	23.2		%	35.6		%					29.2		%	35.2		%

Cost of goods sold was $101.8 million for the three months ended March 31, 2023, a decrease of $29.1 million, or 22.2%, as compared to $130.8 million for the same quarter last year. The decrease was primarily due to 34.8% decrease in revenue. Gross margin decreased by 12.4 percentage points to 23.2% for the three months ended March 31, 2023, as compared to 35.6% for the same quarter last year. The decrease in gross margin was primarily due to higher material costs and lower unit shipments during the three months ended March 31, 2023.

Cost of goods sold was $374.8 million for the nine months ended March 31, 2023, a decrease of $3.4 million, or 0.9%, as compared to $378.3 million for the same period last year. The decrease was primarily due to 9.2% decrease in revenue. Gross margin decreased by 6.0 percentage points to 29.2% for the nine months ended March 31, 2023, as compared to 35.2% for the same period last year. The decrease in gross margin was primarily due to higher material costs and less unit shipment during the periods. In addition, the JV Company was deconsolidated from our Condensed Consolidated Statements of Operations effective as of December 2, 2021.

Research and development expenses


	Three Months Ended March 31,								Nine Months Ended March 31,
	2023		2022		Change				2023		2022		Change
	(in thousands)				(in thousands)		(in percentage)		(in thousands)				(in thousands)		(in percentage)
Research and development expenses	$	22,578	$	16,545	$	6,033	36.5	%	$	65,435	$	50,873	$	14,562	28.6	%

Research and development expenses were $22.6 million for the three months ended March 31, 2023, an increase of $6.0 million, or 36.5%, as compared to $16.5 million for the same quarter last year. The increase was primarily attributable to $1.1 million increase in employee compensation and benefit expense mainly due to increased headcount and higher medical insurance expenses, partially offset by lower vacation accrual and lower bonus accrual, a $1.2 million increase in share-based compensation expense due to the an increase in stock awards granted, a $1.0 million increase in depreciation expenses, and a $1.9 million increase in product prototyping engineering expense as a result of increased engineering activities.

Research and development expenses were $65.4 million for the nine months ended March 31, 2023, an increase of $14.6 million, or 28.6%, as compared to $50.9 million for the same period last year. The increase was primarily attributable to a $3.1 million increase in employee compensation and benefit expense mainly due to increased headcount and higher medical insurance expenses, partially offset by lower vacation accrual and lower bonus accrual, a $4.0 million increase in share-based compensation expense due to an increase in stock awards granted, a $2.6 million increase in depreciation expense, as well as $3.8 million increase in product prototyping engineering expense as a result of increased engineering activities.

Selling, general and administrative expenses


	Three Months Ended March 31,								Nine Months Ended March 31,
	2023		2022		Change				2023		2022		Change
	(in thousands)				(in thousands)		(in percentage)		(in thousands)				(in thousands)		(in percentage)
Selling, general and administrative	$	22,610	$	24,625	$	(2,015)	(8.2)	%	$	69,603	$	70,563	$	(960)	(1.4)	%

Selling, general and administrative expenses were $22.6 million for the three months ended March 31, 2023, a decrease of $2.0 million, or 8.2%, as compared to $24.6 million for the same quarter last year. The decrease was primarily due to a $1.7 million decrease in employee compensation and benefits expenses primarily due to lower bonus expenses accrual and lower vacation accrual, partially offset by increased headcount, higher medical and business insurance expenses, as well as a $1.5 million decrease in cyber security incident, offset by a $0.5 million increase in share-based compensation expense due to an increase in stock awards granted, and $0.5 million increase in legal costs.

Selling, general and administrative expenses were $69.6 million for the nine months ended March 31, 2023, a decrease of $1.0 million, or 1.4%, as compared to $70.6 million for the same period last year. The decrease was primarily attributable to a $7.7 million decrease in employee compensation and benefits expenses mainly due to lower bonus expenses accrual and lower vacation accrual, partially offset by increased headcount, higher medical and business insurance expenses, as well as a $1.5 million decrease in cyber security incident, partially offset by a $6.9 million increase in share-based compensation expense due to an increase in stock award granted and the incremental expenses for one of our former officers' equity shares resulting from the modification, a $0.2 million increase in legal expenses, a $0.4 million increase in recruiting and consulting fees, a $0.3 million increase in marketing demo and trade shows costs, and a $0.5 million increase in employee business expenses.

Other income (loss), net


	Three Months Ended March 31,								Nine Months Ended March 31,
	2023		2022		Change				2023		2022		Change
	(in thousands)				(in thousands)		(in percentage)		(in thousands)				(in thousands)		(in percentage)
Other income (loss), net	$	(513)	$	263	$	(776)	(295.1)	%	$	(1,432)	$	720	$	(2,152)	(298.9)	%

Other income (loss), net was decreased in the three and nine months ended March 31, 2023 as compared to the same periods last year primarily due to increase in foreign currency exchange loss as a result of the depreciation of RMB against USD.

Interest income (expense), net


	Three Months Ended March 31,								Nine Months Ended March 31,
	2023		2022		Change				2023		2022		Change
	(in thousands)				(in thousands)		(in percentage)		(in thousands)				(in thousands)		(in percentage)
Interest income (expense), net	$	5	$	(308)	$	313	(101.6)	%	$	(1,000)	$	(3,025)	$	2,025	(66.9)	%

Interest income (expense), net increased by $0.3 million during the three months ended March 31, 2023 as compared to the same quarter last year primarily due to a $1.2 million increase in interest income as a result of higher interest rates, partially offset by a $0.9 million increase in interest expense as a result of an increase in bank borrowings.

Interest expense, net decreased by $2.0 million during the nine months ended March 31, 2023 as compared to the same period last year was primarily due to a $2.5 million increase in interest income as a result of higher interest rates, offset by a $0.5 million increase in interest expense as a result of an increase in bank borrowings during the periods. The net increase offset by less interest expense in JV Company due to deconsolidation.

Income tax expense


	Three Months Ended March 31,								Nine Months Ended March 31,
	2023		2022		Change				2023		2022		Change
	(in thousands)				(in thousands)		(in percentage)		(in thousands)				(in thousands)		(in percentage)
Income tax expense	$	2,517	$	2,902	$	(385)	(13.3)	%	$	5,550	$	38,318	$	(32,768)	(85.5)	%

The Company recognized income tax expense of approximately $2.5 million and $2.9 million for the three months ended March 31, 2023 and 2022, respectively. The income tax expense of $2.5 million for the three months ended March 31, 2023 included a $0.03 million discrete tax expense. The income tax expense of $2.9 million for the three months ended March 31, 2022 included a $0.7 million discrete tax expense related to the Company’s $4.5 million of gain related to the revaluation of the Company’s equity interest in a joint venture. Excluding the discrete income tax items, the income tax expense for the three months ended March 31, 2023 and 2022 was $2.5 million and $2.2 million, respectively, and the effective tax rate for the three months ended March 31, 2023 and 2022 was (15.2)% and 7.4%, respectively. Excluding the effects of the discrete tax expense recorded in the three months ended March 31, 2023 and 2022, the changes in the tax expense and effective tax rate between the periods resulted primarily from changes in the mix of earnings in various geographic jurisdictions between the current year and the same period of last year as well as from reporting pretax book income of $16.4 million for the three months ended March 31, 2023 as compared to $30.0 million of pretax book income excluding the $4.5 million of gain related to the revaluation of the Company’s equity interest in a joint venture for the three months ended March 31, 2022.

The Company recognized income tax expense of approximately $5.6 million and $38.3 million for the nine months ended March 31, 2023 and 2022, respectively. The income tax expense of $5.6 million for the nine months ended March 31, 2023 included a $0.1 million discrete tax expense. The income tax expense of $38.3 million for the nine months ended March 31, 2022 included a $33.5 million discrete tax expense related to the Company’s $396.0 million of income from the sale of equity interest in a joint venture and the related deconsolidation gain as the Company switches from the consolidation method of accounting to the equity method of accounting related to this investment and no longer asserts permanent reinvestment related to the Company’s investment in the joint venture as well as $0.1 million of other discrete income tax items. Excluding the discrete income tax items, income tax expense for the nine months ended March 31, 2023 and 2022 was $5.4 million and $4.7 million, respectively, and the effective tax rate for the nine months ended March 31, 2023 and 2022 was 28.4% and 6.0%, respectively. Excluding the effects of the discrete tax expense recorded in the nine months ended March 31, 2023 and 2022, the changes in the tax expense and effective tax rate between the periods resulted primarily from changes in the mix of earnings in various geographic jurisdictions between the current year and the same period of last year as well as from the Company reporting a pretax book income of $19.0 million for the nine months ended March 31, 2023 as compared to pretax book income of $80.4 million of pretax book income (excluding the $396.0 million of income from the sale of equity interest in a joint venture and the related deconsolidation gain) for the nine months ended March 31, 2022.

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 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.

Liquidity and Capital Resources

Our principal need for liquidity and capital resources is to maintain sufficient working capital to support our operations and to invest adequate capital expenditures to grow our business. To date, we finance our operations and capital expenditures primarily through funds generated from operations and borrowings under our term loans, financing lease and other debt agreements.

On February 6, 2023, we entered into a license and engineering service agreement with a leading power semiconductor automotive supplier related to our Silicon Carbide (SiC) MOSFET and diode technology. Pursuant to the agreement, we license and provide 24-month engineering support for our proprietary SiC technology to the supplier for a total fee of $45 million, consisted of an upfront fees of $18 million paid to us in March 2023, and the remaining amount to be paid upon our achievements of specified business and product milestones. In addition, we entered an accompanying supply agreement with the supplier to provide it with limited wafer supply.

In January 2023, one of the Company's subsidiaries in China entered into a line of credit facility with Bank of Communications Limited in China. The purpose of the credit facility is to provide working capital borrowings. The Company could borrow up to approximately RMB 140 million or $20.6 million based on currency exchange rage between RMB and U.S. Dollar on January 31, 2023 with a maturity date of December 1, 2023. As of March 31, 2023, there was no outstanding balance for this loan.

In September 2021, Jireh Semiconductor Incorporated (“Jireh”), one of the wholly-owned subsidiaries, entered into a financing arrangement agreement with a company (“Lender”) for the lease and purchase of equipment manufactured by a supplier. This agreement has a 5 years term, after which Jireh has the option to purchase the equipment for $1. The implied interest rate was 4.75% per annum which was adjustable based on every five basis point increase in 60-month U.S. Treasury Notes, until the final installation and acceptance of the machine. The total purchase price of this equipment was euro 12.0 million. In April 2021, Jireh made a down payment of euro 6.0 million, representing 50% of the total purchase price of the equipment, to the supplier. In June 2022, the equipment was delivered to Jireh after Lender paid 40% of the total purchase price, for euro 4.8 million, to the supplier on behalf of Jireh. In September 2022, Lender paid the remaining 10% payment for the total purchase price and reimbursed Jireh for the 50% down payment, after the installation and configuration of the equipment. The title of the equipment was transferred to Lender following such payment. The agreement was amended with fixed implied interest rate of 7.51% and monthly payment of principal and interest effective in October 2022. Other terms remain the same. In addition, Jireh purchased hardware for the machine under this financing arrangement. The purchase price of this hardware was $0.2 million. The financing arrangement is secured by this equipment and the hardware which had the carrying amount of $13.1 million as of March 31, 2023. As of March 31, 2023, the outstanding balance of this debt financing was $12.5 million.

Other terms remain the same. As of March 31, 2023, the Borrower was in compliance with these covenants. As of March 31, 2023, there was no outstanding balance and the Company had unused credit of approximately $8.0 million.

On May 1, 2018, Jireh entered into a loan agreement with the Bank that provided a term loan in the amount of $17.8 million. The obligation under the loan agreement is secured by certain real estate assets of Jireh and guaranteed by the Company. The loan has a five-year term. 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 March 31, 2023. As of March 31, 2023, the outstanding balance of the term loan was $13.5 million. The Company paid this loan in full on May 1, 2023.

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 addition, we commenced an investment plan to expand the manufacturing capacity and upgrade the operational capabilities of our Oregon Fab. We intend to fund the costs by a combination of cash reserve, bank loans and equipment leases. 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.

Cash, cash equivalents and restricted cash

As of March 31, 2023 and June 30, 2022, we had $266.2 million and $314.7 million of cash, cash equivalents and restricted cash, respectively. Our cash, cash equivalents and restricted cash primarily consist of cash on hand, restricted cash, and short-term bank deposits with original maturities of three months or less. Of the $266.2 million and $314.7 million cash, cash equivalents and restricted cash, $188.7 million and $212.6 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:


	Nine Months Ended March 31,
	2023		2022
	(in thousands)
Net cash provided by operating activities	$	48,654	$	193,196
Net cash used in investing activities	(90,603)		(91,142)
Net cash provided by (used in) financing activities	(6,417)		16,351
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(121)		152

Net increase (decrease) in cash, cash equivalents and restricted cash	$	(48,487)	$	118,557

Cash flows from operating activities

Net cash provided by operating activities of $48.7 million for the nine months ended March 31, 2023 resulted primarily from net income of $13.5 million and non-cash expenses of $63.2 million, partially offset by net changes in assets and liabilities using cash of $28.0 million, The non-cash expenses of $63.2 million primarily included $34.1 million of share-based compensation expense, $31.2 million of depreciation and amortization expenses, $0.4 million of loss on disposal of property and equipment, $1.5 million of income from equity investment and $1.0 million of deferred income taxes. The net changes in assets and liabilities of $28.0 million were primarily due to a $10.6 million decrease in net payable from equity investee, a $21.6 million decrease in accounts payable due to timing of payments, a $21.7 million increase in inventories as a result of our inventories built up for preparation of uncertainty of supply chains, $7.8 million increase in other current and long-term assets due to increase in advance payments to vendors, and a $29.4 million decrease in accrued and other liabilities, partially offset by a $46.2 million decrease in accounts receivable as a result of timing of the shipments and payments collected, a $14.4 million increase in deferred revenue, and a $2.5 million increase in income taxes payable.

Net cash provided by operating activities of $193.2 million for the nine months ended March 31, 2022 resulted primarily from net income of $438.1 million and net changes in assets and liabilities using cash of $62.0 million, partially offset by non-cash expenses of $306.9 million. The non-cash expenses of $306.9 million primarily included $399.1 million of gain on deconsolidation of the JV Company, partially offset by $3.1 million of loss on changes of equity interest in the JV Company, $30.0 million of deferred income tax on deconsolidation and changes of equity interest in the JV Company, $34.3 million of depreciation and amortization expenses, $1.1 million of loss on equity investment, $21.5 million of share-based compensation expense, and $2.2 million of deferred income taxes. The net changes in assets and liabilities of $62.0 million were primarily due to a $65.1 million increase in accrued and other liabilities, a $3.5 million increase in income taxes payable on deconsolidation and changes of equity interest in the JV Company, a $15.6 million increase in accounts payable due to timing of payments, and a $34.4 million increase in net other payable from equity investee, partially offset by a $3.6 million increase in accounts receivable as a result of timing of the shipments and payments collected, a $42.9 million increase in inventories as a result of our inventories built up for preparation of uncertainty of supply chains, a $10.1 million increase in other current and long-term assets due to increase in advance payments to vendors.

Cash flows from investing activities

Net cash used in investing activities of $90.6 million for the nine months ended March 31, 2023 was primarily attributable to $91.3 million purchases of property and equipment, partially offset by $0.6 million government grants related to fixed assets.

Net cash used in investing activities of $91.1 million for the nine months ended March 31, 2022 was primarily attributable to cash of the JV Company of $20.7 million no longer under the control of the Company, purchases of property and equipment of $15.0 million for the JV Company, and purchases of property and equipment of $83.0 million for other than the JV Company, partially offset by proceeds from the sale of equity interest in the JV Company of $26.3 million and government grants related to fixed assets of $1.2 million.

Cash flows from financing activities

Net cash used in financing activities of $6.4 million for the nine months ended March 31, 2023 was primarily attributable to $10.3 million in repayments of borrowings, $0.6 million in payment of finance lease obligations, $6.2 million in common shares acquired to settle withholding tax related to vesting of restricted stock units, and $2.7 million payment for repurchases of common shares, partially offset by $8.6 million proceeds from borrowings and $4.6 million of proceeds from exercise of stock options and ESPP.

Net cash used in financing activities of $16.4 million for the nine months ended March 31, 2022 was primarily attributable to $59.3 million proceeds from borrowings, and $3.3 million of proceeds from exercise of stock options and ESPP, partially offset by $33.7 million in repayments of borrowings, $4.2 million in payment of finance lease obligations, and $8.4 million in common shares acquired to settle withholding tax related to vesting of restricted stock units.

Commitments

See Note 12 of the Notes to the Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for a description of commitments.

Off-Balance Sheet Arrangements

As of March 31, 2023, we had no off-balance sheet 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, 2022.

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.

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, 2022, filed with the SEC on September 19, 2022.

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 March 31, 2023 have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the nine months ended March 31, 2023 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.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As previously disclosed, the DOJ commenced an investigation into the Company’s compliance with export control regulations relating to its business transactions with Huawei and its affiliates (“Huawei”), which were added to the “Entity List” by the DOC in May 2019. The Company is cooperating fully with federal authorities in the investigation. The Company has continued to respond to inquiries and requests from DOJ for documents and information relating to the investigation, and the matter is currently pending at DOJ, and DOJ has not provided the Company with any specific timeline or indication as to when the investigation will be concluded or resolved. In connection with this investigation, DOC previously requested the Company to suspend shipments of its products to Huawei. The Company complied with such request, and the Company has not shipped any product to Huawei after December 31, 2019. The Company continues to work with DOC to resolve this issue. 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 complete its review.

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, 2022, filed with the SEC on September 19, 2022, contains risk factors identified by the Company, which were updated on the Quarterly Reports on Form 10-Q filed on November 7, 2022 and February 8, 2023. 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.

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

In September 2017, the Board of Directors approved a repurchase program (the “Repurchase Program”) that allowed us to repurchase our common shares from the open market pursuant to a pre-established Rule 10b5-1 trading plan or through privately negotiated transactions up to an aggregate of $30.0 million. The amount and timing of any repurchases under the Repurchase Program depend on a number of factors, including but not limited to, the trading price, volume and availability of our common shares. There is no guarantee that such repurchases under the Repurchase Program will enhance the value of our shares. Shares repurchased under this program are accounted for as treasury shares and the total cost of shares repurchased is recorded as a reduction of shareholders' equity. As of March 31, 2023, approximately $10.8 million remained available under the Repurchase Program.

The following table sets forth the share repurchases under this program during the third fiscal quarter ended March 31, 2023.


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
January 1, 2023 to January 31, 2023	—	$	—	—
February 1, 2023 to February 28, 2023	—	$	—	—
March 1, 2023 to March 31, 2023	106,863	$	24.9	106,863
Total repurchase during the three months ended March 31, 2023	106,863	$	24.9	106,863	$	10,770,000

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS


10.1*			Executive Chairman Employment Agreement
10.2*			Chief Executive Officer Employment Agreement
31.1			Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2			Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1			Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS			Inline XBRL Instance
101.SCH			Inline XBRL Taxonomy Extension Schema
101.CAL			Inline XBRL Taxonomy Extension Calculation
101.DEF			Inline XBRL Taxonomy Extension Definition
101.LAB			Inline XBRL Taxonomy Extension Labels
101.PRE			Inline XBRL Taxonomy Extension Presentation
104			Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

* Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request. Portions of these exhibits have been redacted in compliance with Regulation S-K Item 601(b)(10).

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.

May 8, 2023


ALPHA AND OMEGA SEMICONDUCTOR LIMITED

By:			/s/ YIFAN LIANG
			Yifan Liang
			Chief Financial Officer and Corporate Secretary
			(Principal Financial Officer)

EX-10.1 2 ex101executivechairmanempl.htm EX-10.1 Q3'23 Document

Exhibit 10.1

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into effective as of the 23rd day of February, 2023 by and between Alpha and Omega Semiconductor Limited, a company incorporated and existing under the laws of the Islands of Bermuda (the “Company”), and Mike F. Chang (the “Executive”).

WHEREAS, the Executive is currently serving as the Company’s Chief Executive Officer and Chairman of the Board of Directors (the “Board”).

WHEREAS, the Company and the Executive have entered into an employment agreement dated as of April 28, 2010 as amended by the First Amendment thereto dated as of May 6, 2021, setting forth the terms and conditions of the Executive’s employment by the Company as its Chief Executive Officer (the “Original Employment Agreement”).

WHEREAS, the Board and the Executive have mutually determined that the Executive shall transition to the role of Executive Chairman of the Company, effective as of March 1, 2023 (the “Effective Date”).

WHEREAS, between the date hereof and the Effective Date, the Executive shall continue to serve as Chief Executive Officer of the Company and shall continue to be eligible to receive the salary and cash and non-cash benefits provided to the Executive as of the date hereof in accordance with the terms and conditions of the Original Employment Agreement.

WHEREAS, the Company and the Executive wish to enter into this Agreement for the purpose of setting forth the terms and conditions of the Executive’s employment by the Company in the role as Executive Chairman of the Company.

NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein, the parties agree as follows:

ARTICLE 1. TERM OF EMPLOYMENT

1.1 Term of Employment. The Company hereby agrees to employ the Executive and the Executive hereby accepts such employment upon the terms and conditions set forth in this Agreement. This Agreement shall have an initial term of one (1) year unless sooner terminated in accordance with Article 5. The term of this Agreement shall be automatically renewed for successive one (1) year periods unless sooner terminated in accordance with Article 5 or unless either party delivers written notice of non-renewal to the other at least sixty (60) days prior to the next scheduled expiration date of this Agreement. The period during which the Executive is in fact employed by the Company pursuant to this Agreement shall constitute the “Employment Period” hereunder.

ARTICLE 2. EMPLOYMENT DUTIES AND COMPENSATION

2.1 Title/Responsibilities. Effective as of and subject to the Executive’s continued employment through the Effective Date, the Executive shall continue to be employed by the Company as Executive Chairman of the Company and shall cease to be the Chief Executive Officer of the Company. The Executive shall have such duties typically associated with such title and as may otherwise be assigned to him by the Company. While serving as Executive Chairman, the Executive shall report to the Board.

2.2 Efforts. The Executive shall devote the Executive’s full business time and attention to the business and affairs of the Company during the Employment Period. The Executive shall not engage in any other business, job or consulting activity during the Employment Period without the prior written permission of the Board.

2.3 Location. The Executive’s principal place of employment shall be the Company’s principal offices in Sunnyvale, California, but the Executive may be required from time to time to travel to other geographic locations in connection with the performance of the Executive’s duties hereunder.

2.4 Good Reason Waiver. The Executive acknowledges and agrees that the Executive’s appointment as Executive Chairman of the Company and resignation as the Chief Executive Officer shall not constitute Good Reason (as defined in the Original Employment Agreement) or a similar term of like meaning for purposes of any employee benefit plans, programs, agreements, or arrangements of the Company.

ARTICLE 3. COMPENSATION AND BENEFITS

3.1 Salary. The Executive shall be paid a base salary at the annualized rate of Four Hundred Ninety Thousand Dollars ($490,000). Such rate shall be subject to annual review by the Board and may be adjusted in the Board’s discretion. Base salary shall be paid at periodic intervals in accordance with the Company’s payroll practices for salaried employees.

3.2 Bonus. For each calendar year during the Employment Period, commencing with calendar year 2023, the Executive shall be eligible to receive a cash bonus based on the attainment of individual and corporate performance goals and continued service requirements established by the Compensation Committee (“Annual Bonus”) with a target bonus of 100% of Base Salary. The actual bonus payable for each calendar year will be based on the Compensation Committee’s determination of the level of achievement of the applicable performance goals and service requirements for the year. Any bonus awarded to the Executive shall be paid by the 15th day of the third calendar month following the close of the calendar year for which such bonus is earned.

3.3 Fringe Benefits. The Executive shall, throughout the Employment Period, be eligible to participate in all employee benefit plans and programs, such as group term life insurance and group medical plans, which are made available to the Company’s full-time employees and for which the Executive qualifies. The Executive shall accrue paid vacation benefits during the Employment Period at the rate of three weeks annually, in accordance with the vacation policies of the Company, and may take any accrued vacation at such time or times as are mutually convenient to the Company and the Executive.

3.4 Expense Reimbursement. The Executive shall be entitled, in accordance with the Company’s reimbursement policies in effect from time to time, to receive reimbursement from the Company for all business expenses incurred by the Executive in the performance of the Executive’s duties hereunder.

3.5 Withholding. The Company shall deduct and withhold from the compensation payable to the Executive hereunder any and all applicable federal, state and local income and employment withholding taxes and any other amounts required to be deducted or withheld by the Company under applicable statutes, regulations, ordinances or orders governing or requiring the withholding or deduction of amounts otherwise payable as compensation or wages to employees.

ARTICLE 4. CONFIDENTIALITY AND RESTRICTIVE COVENANTS

4.1 Confidential Information and Inventions Assignment Agreement. The Executive shall continue to remain subject to the terms and conditions of the Employee Confidential Information and Inventions Assignment Agreement with the Company dated as of December 22, 2006 (the “CIIA”) throughout the Employment Period and thereafter, in accordance with its terms. A copy of such agreement is attached hereto as Exhibit A.

4.2 Restrictive Covenants. During the Employment Period and for the entire period during which the Executive is to receive salary continuation payments under Paragraph 5.3 or Paragraph 5.4 below, whether or not those salary continuation payments are delayed pursuant to Paragraph 6.1, the Executive shall not:

(i) anywhere in the United States render any services or provide any advice, assistance or support to any Competing Business, whether as an employee, agent, representative, consultant, partner, officer, director or stockholder or in any other capacity; provided, however, that the Company acknowledges and agrees that the Executive may make a passive investment representing an interest of less than five percent (5%) of an outstanding class of publicly-traded securities of any corporation or other enterprise which may constitute a Competing Business hereunder;

(ii) contact, solicit or call upon any customer of the Company on behalf of any person or entity other than the Company for the purpose of selling any products or providing or performing any services of the type normally sold, provided or performed by the Company;

(iii) induce or attempt to induce any person or entity to curtail or cancel any business or contracts which such person or entity has with the Company;

(iv) directly or indirectly encourage or solicit any employee, consultant or independent contractor to leave the employment or service of the Company (or any affiliated company) for any reason or interfere in any other manner with any employment or service relationships at the time existing between the Company (or any affiliated company) and its employees, consultants and independent contractors; or

(v) directly or indirectly solicit any vendor, supplier, licensor, licensee or other business affiliate of the Company (or any affiliated company) or directly or indirectly induce any such person to terminate its existing business relationship with the Company (or affiliated company) or interfere in any other manner with any existing business relationship between the Company (or any affiliated company) and any such vendor, supplier, licensor, licensee or other business affiliate.

ARTICLE 5. TERMINATION

5.1 Termination of Employment. The Executive’s employment pursuant to this Agreement may be terminated in accordance with the following provisions:

A. The Executive’s employment under this Agreement shall terminate on the date that the Executive is no longer serving as a member of the Board (as such membership may be renewed with the approval of the Board or the Company’s shareholders).

B. The Executive’s employment under this Agreement shall terminate immediately upon the Executive’s death or Incapacity during the Employment Period.

C. The Company may terminate the Executive’s employment under this Agreement (other than a Termination for Cause) at any time upon thirty (30) days prior written notice of such termination to the Executive. If such termination notice is given to the Executive, the Company may, if it so desires, immediately relieve Executive of some or all of the Executive’s duties.

D. The Company may at any time, upon written notice, discharge the Executive from employment with the Company hereunder pursuant to a Termination for Cause. Such termination shall be effective immediately upon such notice.

E. The Executive may terminate the Executive’s employment under this Agreement for Good Reason in accordance with the requirements of such termination or for any other reason at any time upon thirty (30) days prior written notice of such termination to the Company.

5.2 Payments Due Upon Any Termination. Upon any termination of the Executive’s employment during the Employment Period, the Company shall provide to the Executive (or the Executive’s estate): (i) any unpaid base salary or Annual Bonus earned under Paragraph 3 for services rendered through the date of termination and (ii) the dollar value of all accrued and unused vacation benefits based upon the Executive’s most recent level of base salary. All vesting of the Executive’s outstanding equity awards granted under the Plan shall cease at the time of the Executive’s termination of employment and the remaining terms of the equity awards shall be in accordance with the terms of the agreements evidencing the awards. In addition, the Executive shall be eligible for the payments and other benefits provided under Paragraph 5.3 or Paragraph 5.4 below of this Agreement, to the extent the Executive qualifies for those payments and benefits in accordance with the applicable provisions of this Agreement.

5.3 Severance Benefits Upon Involuntary Termination Without Change in Control. Should the Executive’s employment pursuant to this Agreement terminate by reason of an Involuntary Termination at any time other than during the Change in Control Severance Period, then the Executive shall become eligible to receive the severance payments and benefits described below provided that there is compliance with the following requirements (the “Severance Benefits Conditions”):

(i) The Executive shall, within twenty-one (21) days (or within forty-five (45) days if such longer period is required under applicable law) following such Involuntary Termination, execute and deliver to the Company a general release in substantially the form attached hereto as Exhibit B which becomes effective in accordance with applicable law following the expiration of any applicable revocation period. This requirement shall hereinafter be referred to as the “Release Condition.”

(ii) The Executive shall have complied with, and shall continue to comply with all of the Executive’s obligations under the CIIA.

(iii) The Executive shall have complied with, and shall continue to comply with the restrictive covenants set forth in Paragraph 4.2.

In the event that the Executive violates the CIIA, or elects to engage or otherwise engages in any of the activities precluded by the restrictive covenants set forth in Paragraph 4.2, the Executive shall not be entitled, after the date of such violation or activity (as the case may be), to receive any payments or benefits under this Paragraph 5.3.

The severance payments and benefits to which the Executive may become entitled under this Paragraph 5.3 shall consist of the following:

(a) Salary Continuation Payments. The Executive shall be eligible to receive the Executive’s base salary for up to a total period of twelve (12) months at the annualized rate in effect under Paragraph 3 at the time of the Executive’s Involuntary Termination. The first such payment shall be made on the sixtieth (60th) day following the Executive’s Separation from Service due to such Involuntary Termination provided the requisite Release Condition is satisfied and subsequent salary continuation payments shall be made at periodic intervals in accordance with the Company’s payroll practices for salaried employees.

(b) Health Care Coverage. Provided the Executive and the Executive’s spouse and eligible dependents elect to continue medical care coverage under the Company’s group health care plans pursuant to the applicable COBRA provisions, the Company shall provide continued medical care coverage for the Executive, the Executive’s spouse and the Executive’s eligible dependents until the earliest to occur of (i) the expiration of the twelve (12)-month period measured from the first day of the calendar month following the calendar month in which the Executive’s Involuntary Termination occurs, (ii) the first date on which the Executive and the Executive’s spouse and eligible dependents are covered under another employer’s health benefit program without exclusion for any pre-existing medical condition or (iii) the first date on which the Executive elects to engage or otherwise engages in any of the activities precluded by the restrictive covenants of Paragraph 4.2. Any additional medical care coverage to which the Executive and the Executive’s spouse and eligible dependents may be entitled under COBRA, following the period of such Company-paid coverage, shall be at the Executive’s sole expense. Notwithstanding the foregoing, the Company reserves the right to restructure the continued medical coverage arrangement described in this subsection (b) in any manner necessary or appropriate to avoid fines, penalties or negative tax consequences to the Company or the Executive (including, without limitation, to avoid any penalty imposed for violation of the nondiscrimination requirements under the Patient Protection and Affordable Care Act or the guidance issued thereunder), as determined by the Company in its sole and absolute discretion.

The foregoing benefits shall be in lieu of any other severance benefits for which the Executive might otherwise be eligible by reason of the Executive’s termination of employment under the circumstances specified in this Paragraph 5.3

5.4 Change in Control Severance Benefits. Should the Executive’s employment pursuant to this Agreement terminate by reason of an Involuntary Termination within the Change in Control Severance Period, then the Executive shall become eligible to receive the following payments and benefits provided there is compliance with the same Severance Benefit Conditions set forth in Paragraph 5.3:

(a) Salary Continuation Payments. The Executive shall be eligible to receive the Executive’s base salary for up to a total period of twenty-four (24) months at the annualized rate in effect under Paragraph 3 at the time of the Executive’s Involuntary Termination. The first such payment shall be made on the sixtieth (60th) day following the Executive’s Separation from Service due to such Involuntary Termination provided the requisite Release Condition is satisfied and subsequent salary continuation payments shall be made at periodic intervals in accordance with the Company’s payroll practices for salaried employees.

(b) Target Bonus. The Company shall pay the Executive two hundred percent (200%) of the Executive’s target bonus for the year of termination. Any bonus payable in accordance with this Paragraph 5.4(b) shall be paid in twenty-four (24) equal installments at the same time that salary continuation payments are paid to the Executive under Paragraph 5.4(a).

(c) Health Care Coverage. Provided the Executive and the Executive’s spouse and eligible dependents elect to continue medical care coverage under the Company’s group health care plans pursuant to the applicable COBRA provisions, the Company shall provide continued medical care coverage for the Executive, the Executive’s spouse and the Executive’s eligible dependents until the earliest to occur of (i) the expiration of the twenty-four (24)-month period measured from the first day of the calendar month following the calendar month in which the Executive’s Involuntary Termination occurs, (ii) the first date on which the Executive and the Executive’s spouse and eligible dependents are covered under another employer’s health benefit program without exclusion for any pre-existing medical condition or (iii) the first date on which the Executive elects to engage or otherwise engages in any of the activities precluded by the restrictive covenants of Paragraph 4.2. Any additional medical care coverage to which the Executive and the Executive’s spouse and eligible dependents may be entitled under COBRA, following the period of such Company-paid coverage, shall be at the Executive’s sole expense. Notwithstanding the foregoing, the Company reserves the right to restructure the continued medical coverage arrangement described in this subsection (c) in any manner necessary or appropriate to avoid fines, penalties or negative tax consequences to the Company or the Executive (including, without limitation, to avoid any penalty imposed for violation of the nondiscrimination requirements under the Patient Protection and Affordable Care Act or the guidance issued thereunder), as determined by the Company in its sole and absolute discretion.

(d) Equity Award Acceleration. Each outstanding option, restricted share unit award, performance restricted share unit award (other than the market performance share unit awards (“MRSUs”)) and other equity award granted under the Plan held by the Executive at the time of the Executive’s Involuntary Termination and that, following the Change in Control are subject to vesting based solely upon continued service with the Company shall immediately vest in full upon the Executive’s Involuntary Termination with respect to the number of Common Shares subject to the award as determined in accordance with the agreement evidencing the award. Any options so accelerated and all other vested options held by the Executive shall remain outstanding until the earlier of (i) the expiration date of the maximum option term or (ii) the expiration of the six (6)-month period following the Executive’s Separation from Service. The Common Shares underlying any restricted share unit and performance restricted share unit awards that vest under this subparagraph 5.4(d) shall be issued on the date of the Executive’s Separation from Service or as soon as reasonably practicable thereafter, but in no event later than the end of the calendar year in which the Executive’s termination date occurs. The remaining terms of the equity awards shall be in accordance with the agreements evidencing the awards. The treatment of any MRSUs granted to the Executive will be in accordance with the terms of the agreement evidencing the award.

The severance payments and benefits provided under this Paragraph 5.4 shall be in lieu of any other severance benefits for which the Executive might otherwise, by reason of the termination of the Executive’s employment during the Change in Control Severance Period.

In no event shall the Executive be entitled to benefits and payments under both Paragraphs 5.3 and 5.4 of this Agreement.

5.5 Benefit Limit. The benefit limitations of this Paragraph 5.5 shall be applicable in the event the Executive receives any benefits under this Agreement that are deemed to constitute parachute payments under Code Section 280G.

In the event that any payments to which the Executive becomes entitled in accordance with the provisions of this Agreement would otherwise constitute a parachute payment under Code Section 280G, then such payments will be subject to reduction to the extent necessary to assure that the Executive receives only the greater of (i) the amount of those payments which would not constitute such a parachute payment or (ii) the amount which yields the Executive the greatest after-tax amount of benefits after taking into account any excise tax imposed on the payments provided to the Executive under this Agreement (or on any other benefits to which the Executive may become entitled in connection with any change in control or ownership of the Company or the subsequent termination of the Executive’s employment with the Company) under Code Section 4999.

Notwithstanding the foregoing, in determining whether the benefit limitation of this Paragraph 5.5 has been exceeded, a reasonable determination shall be made as to the value of the restrictive covenants to which the Executive will be subject under Paragraph 4.2, and the amount of the Executive’s potential parachute payment shall accordingly be reduced by the value of those restrictive covenants to the extent consistent with Code Section 280G and the Treasury Regulations thereunder.

Should a reduction in benefits be required to satisfy the benefit limit of this Paragraph 5.5, then the Executive’s salary and bonus continuation payments under Paragraph 5.3 or 5.4, as applicable, shall accordingly be reduced (with such reduction to be effected pro-rata to each payment) to the extent necessary to comply with such benefit limit. Should such benefit limit still be exceeded following such reduction, then the number of shares as to which the equity award would otherwise vest on an accelerated basis in accordance with Paragraph 5.4 shall be reduced (based on the value of the parachute payment attributable to such equity award under Code Section 280G), to the extent necessary to eliminate such excess.

5.6 Resignation as an Officer. Upon any termination of the Executive’s employment, for any reason or no reason, the Executive shall be deemed to have resigned, to the extent applicable, as an officer of the Company and any of its affiliates and as a fiduciary of any Company or affiliate benefit plan. On or immediately following the date of any termination of the Executive’s employment, the Executive shall confirm the foregoing by submitting to the Company in writing a confirmation of the Executive’s resignation(s).

ARTICLE 6. MISCELLANEOUS PROVISIONS

6.1 Section 409A.

A. It is the intention of the parties that the provisions of this Agreement comply with the requirements of Section 409A of the Code and the Treasury Regulations thereunder (“Section 409A”). Accordingly, to the extent there is any ambiguity as to whether one or more provisions of this Agreement would otherwise contravene the applicable requirements or limitations of Code Section 409A, then those provisions shall be interpreted and applied in a manner that does not result in a violation of the applicable requirements or limitations of Code Section 409A and the Treasury Regulations thereunder. With respect to payments that are subject to Section 409A, (i) in no event may the Executive, directly or indirectly, designate the calendar year of a payment, (ii) such amounts will only be paid in a manner and upon an event permitted by Section 409A, (iii) any such amounts that are payable upon the Executive’s termination of employment, if any, may only be made upon a “separation from service” under Section 409A, and (iv) the right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments and each payment shall be treated as a separate payment. Notwithstanding any provision of this Agreement to the contrary, in no event shall the timing of the Executive’s execution of a release of claims, directly or indirectly, result in the Executive designating the calendar year of payment of any amounts of deferred compensation subject to Section 409A, and if a payment that is subject to execution of a release of claims could be made in more than one taxable year, payment shall be made in the later taxable year.

B. All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A, including, where applicable, the requirement that (i) any reimbursement is for expenses incurred during the period of time specified in this Agreement, (ii) the amount of expenses eligible for reimbursement, or in kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in kind benefits to be provided, in any other calendar year, (iii) the reimbursement of an eligible expense will be made no later than the last day of the calendar year following the year in which the expense is incurred, and (iv) the right to reimbursement or in kind benefits is not subject to liquidation or exchange for another benefit.

C. Notwithstanding any provision to the contrary in this Agreement, no payments or benefits to which the Executive becomes entitled under Paragraph 5.3 or 5.4 of this Agreement shall be made or paid to the Executive prior to the earlier of (i) the first business day of the seventh month following the date of the Executive’s Separation from Service or (ii) the date of the Executive’s death, if (a) the Executive is deemed at the time of such Separation from Service a “specified employee” within the meaning of that term under Section 409A of the Code, (b) the stock of the Company or any successor entity is publicly traded on an established market and (c) such delayed commencement is otherwise required in order to avoid a prohibited distribution under Code Section 409A(a)(2). Upon the expiration of the applicable deferral period, all payments deferred pursuant to this Paragraph 6.1 shall be paid in a lump sum to the Executive, and any remaining payments, benefits or reimbursements due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein.

If the Executive is, at any time during the twelve-month period ending on the last day of any calendar year, deemed to be a “key employee” within the meaning of that term under Code Section 416(i), then the Executive shall be deemed to be a specified employee subject to the delayed payment provisions of this Paragraph 6.1 for the period beginning on the April 1 of the following calendar year and ending on the March 31 of the next year thereafter.

6.2 No Entitlement to Benefits. In no event shall the Executive be entitled to any benefits under Paragraph 5.3 or 5.4 of this Agreement if the Executive’s employment ceases by reason of a Termination for Cause, death or Incapacity or if the Executive voluntarily resigns other than for a reason which qualifies as Good Reason.

6.3 Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and shall be binding upon, (i) the Company and its successors and assigns, including any successor entity by merger, consolidation or transfer of all or substantially all of the Company’s assets (whether or not such transaction constitutes a Change in Control), and (ii) the Executive, the personal representative of the Executive’s estate and the Executive’s heirs and legatees.

6.4 Notices.

A. Any and all notices, demands or other communications required or desired to be given hereunder by any party shall be in writing and shall be validly given or made to another party if delivered either personally or if deposited in the United States mail, certified or registered, postage prepaid, return receipt requested. If such notice, demand or other communication shall be delivered personally, then such notice shall be conclusively deemed given at the time of such personal delivery.

B. If such notice, demand or other communication is given by mail, such notice shall be conclusively deemed given forty-eight (48) hours after deposit in the United States mail addressed to the party to whom such notice, demand or other communication is to be given as hereinafter set forth:

To the Company:

Alpha and Omega Semiconductor Limited

c/o Alpha and Omega Semiconductor Incorporated

475 Oakmead Parkway, Sunnyvale

California, USA 94085

To the Executive:

Mike F. Chang

[*]

C. Any party hereto may change its address for the purpose of receiving notices, demands and other communications as herein provided by a written notice given in the manner aforesaid to the other party hereto.

6.5 General Creditor Status. The benefits to which the Executive may become entitled under Article 5 of this Agreement shall be paid, when due, from the Company’s general assets, and no trust fund, escrow arrangement or other segregated account shall be established as a funding vehicle for such payments. Accordingly, the Executive’s right (or the right of the executors or administrators of the Executive’s estate) to receive such benefits shall at all times be that of a general creditor of the Company and shall have no priority over the claims of other general creditors.

6.6 Governing Documents. This Agreement, together with (i) the agreements evidencing the Executive’s outstanding equity awards and any future equity awards and (ii) the CIIA, shall constitute the entire agreement and understanding of the Company and the Executive with respect to the terms and conditions of the Executive’s employment with the Company and the payment of severance benefits and shall supersede all prior and contemporaneous written or verbal agreements and understandings between the Executive and the Company relating to such subject matter including, without limitation, the Original Employment Agreement. Any and all prior agreements, understandings or representations relating to the Executive’s employment with the Company (including, without limitation, the Original Employment Agreement), other than (i) the agreements evidencing the Executive’s currently outstanding equity awards and (ii) the CIIA, are hereby terminated and cancelled in their entirety and are of no further force or effect.

6.7 Governing Law. The provisions of this Agreement shall be construed and interpreted under the laws of the State of California applicable to agreements executed and wholly performed within the State of California. If any provision of this Agreement as applied to any party or to any circumstance should be adjudged by a court of competent jurisdiction or determined by an arbitrator to be void or unenforceable for any reason, the invalidity of that provision shall in no way affect (to the maximum extent permissible by law) the application of such provision under circumstances different from those adjudicated by the court or determined by the arbitrator, the application of any other provision of this Agreement, or the enforceability or invalidity of this Agreement as a whole. Should any provision of this Agreement become or be deemed invalid, illegal or unenforceable by reason of the scope, extent or duration of its coverage, then such provision shall be deemed amended to the extent necessary to conform to applicable law so as to be valid and enforceable and consistent with the intent of the Parties hereto. If such provision cannot be so amended without altering the intention of the parties, then such provision, including any consideration specifically tied to such provision, will be stricken and the remainder of this Agreement shall continue in full force and effect. It is the express intent of the Parties that should any of the Severance Benefit Conditions of Paragraph 5.3 or 5.4 be void or unenforceable as written herein then Executive shall not be entitled to any additional severance payments or benefits under Paragraph 5.3 or under Paragraph 5.4 (as the case may be).

6.8 Arbitration.

A. Each party agrees that any and all disputes which arise out of or relate to the Executive’s employment, the termination of the Executive’s employment or the terms of this Agreement shall be resolved through final and binding arbitration. Such arbitration shall be in lieu of any trial before a judge and/or jury, and the Executive and Company expressly waive all rights to have such disputes resolved through trial before a judge and/or jury. Such disputes shall include, without limitation, claims for breach of contract or of the covenant of good faith and fair dealing, claims of discrimination, claims under any federal, state or local law or regulation now in existence or hereinafter enacted and as amended from time to time concerning in any way the subject of the Executive’s employment with the Company or its termination.

B. Arbitration shall be held in Santa Clara County, California and conducted in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association (“AAA Rules”), provided, however, that the arbitrator shall allow the discovery authorized by California Code of Civil Procedure section 1282, et seq., or any other discovery required by applicable law in arbitration proceedings. To the extent that any of the AAA Rules conflict with applicable law, the arbitration procedures required by applicable law shall govern.

C. During the course of the arbitration, the Company will pay the arbitrator’s fee and any other type of expense or cost that the Executive would not otherwise be required to bear if he were free to bring the dispute or claim in court and any other expense or cost that is unique to arbitration. The Company and the Executive shall each bear its or his own respective attorneys’ fees incurred in connection with the arbitration.

D. The arbitrator shall issue a written award that sets forth the essential findings of fact and conclusions of law on which the award is based. The arbitrator shall have the authority to award any relief authorized by law in connection with the asserted claims or disputes. The arbitrator’s award shall be subject to correction, confirmation, or vacation, as provided by applicable law setting forth the standard of judicial review of arbitration awards. Judgment upon the arbitrator’s award may be entered in any court having jurisdiction thereof.

6.9 Legal Representation. The Executive acknowledges that the Executive has had the right to consult with counsel and is fully aware of the Executive’s rights and obligations under this Agreement.

6.10 Counterparts. This Agreement may be executed in more than one counterpart, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument.

ARTICLE 7. DEFINITIONS

For purposes of this Agreement, the following definitions shall be in effect:

Board means the Company’s Board of Directors.

Change in Control means a change in control of the Company effected through any of the following transactions:

(i) a merger, consolidation or other reorganization approved by the Company’s shareholders, unless securities representing more than fifty percent (50%) of the total combined voting power of the voting securities of the successor Company are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Company’s outstanding voting securities immediately prior to such transaction, or

(ii) a shareholder-approved sale, transfer or other disposition of all or substantially all of the Company’s assets in liquidation or dissolution of the Company, or

(iii) the acquisition, directly or indirectly by any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities pursuant to a tender or exchange offer made directly to the Company’s shareholders, or

office at the time the Board approved such election or nomination; provided that any individual who becomes a Board member subsequent to the beginning of such period and whose election or nomination was approved by two-thirds of the Board members then comprising the Incumbent Directors will be considered an Incumbent Director.

Change in Control Severance Period means the period commencing with the Company’s execution of the definitive agreement for a Change in Control transaction and continuing until the end of the twelve (12)-month period measured from the closing date of that Change in Control.

Code means the Internal Revenue Code of 1986, as amended.

Common Share means the Company’s common share.

Competing Business means any business which is or, to the best of the Executive’s knowledge, is expected to become, competitive with the business or any contemplated business of the Company, or any direct or indirect subsidiaries of the Company or any of their affiliates.

Employment Period means the Employment Period as defined in Paragraph 1 of this Agreement.

Good Reason means the Executive’s voluntary resignation within ninety (90) days following one or more of the following events that occur without the Executive’s written consent: (A) a material diminution in the Executive’s authority, duties or responsibilities under Paragraph 2.1, (B) a material reduction in the Executive’s base compensation, with a reduction of fifteen percent (15%) or more to be deemed material for such purpose, (C) a material relocation of the Executive’s principal place of employment, with a relocation that is more than fifty (50) miles from the location of the Executive’s principal office in Sunnyvale, California to be deemed material for such purpose, or (D) a material breach by the Company of any of its obligations under this Agreement; provided, however, that none of the events specified above shall constitute Good Reason unless the Executive first provides written notice to the Company describing the applicable event within thirty (30) days following the occurrence of that event and the Company fails to cure such event within thirty (30) days after receipt of such written notice.

Incapacity means the inability of the Executive, by reason of any injury or illness, to properly perform the Executive’s normal duties and responsibilities under this Agreement.

Involuntary Termination means (i) the Company’s termination of the Executive’s employment for any reason other than a Termination for Cause or (ii) the Executive’s voluntary resignation for Good Reason.

An Involuntary Termination shall not include the termination of the Executive’s employment by reason of death or Incapacity or non-renewal of this Agreement by the Executive.

1934 Act means the U.S. Securities Exchange Act of 1934, as amended.

Plan means (i) the Company’s 2009 Share Option/Share Issuance Plan, (ii) the Company’s 2018 Omnibus Incentive Plan as amended or restated from time to time, and (iii) any successor equity or incentive plan subsequently implemented by the Company.

Separation from Service means the Executive’s cessation of Employee status and shall be deemed to occur at such time as the level of the bona fide services the Executive is to perform in Employee status (or as a consultant or other independent contractor) permanently decreases to a level that is not more than twenty percent (20%) of the average level of services the Executive rendered in Employee status during the immediately preceding thirty-six (36) months (or such shorter period for which the Executive may have rendered such service). Any such determination as to Separation from Service, however, shall be made in accordance with the applicable standards of the Treasury Regulations issued under Code Section 409A. For purposes of determining whether the Executive has incurred a Separation from Service, the Executive will be deemed to continue in “Employee” status for so long as he remains in the employ of one or more members of the Employer Group, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. “Employer Group” means the Company and any other corporation or business controlled by, controlling or under common control with, the Company as determined in accordance with Sections 414(b) and (c) of the Code and the Treasury Regulations thereunder, except that in applying Sections 1563(a)(1), (2) and (3) for purposes of determining the controlled group of corporations under Section 414(b), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in such sections and in applying Section 1.414(c)-2 of the Treasury Regulations for purposes of determining trades or businesses that are under common control for purposes of Section 414(c), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in Section 1.414(c)-2 of the Treasury Regulations. In addition to the foregoing, a Separation from Service will not be deemed to have occurred while the Executive is on a sick leave or other bona fide leave of absence if the period of such leave does not exceed six (6) months or any longer period for which the Executive is provided with a right to reemployment with the Company by either statute or contract; provided, however, that in the event of a leave of absence due to any medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of not less than six (6) months and that causes the Executive to be unable to perform the Executive’s duties as an Employee, no Separation from Service shall be deemed to occur during the first twenty-nine (29) months of such leave. If the period of leave exceeds six (6) months (or twenty-nine (29) months in the event of disability as indicated above) and the Executive is not provided with a right to reemployment by either statute or contract, then the Executive will be deemed to have Separated from Service on the first day immediately following the expiration of the applicable six (6)-month or twenty-nine (29)-month period.

Termination for Cause means the termination of the Executive’s employment due to (i) the commission of any act of fraud, embezzlement or dishonesty by the Executive or the Executive’s conviction of a felony, (ii) any unauthorized use or disclosure by the Executive of confidential information or trade secrets of the Company (or any parent or subsidiary), (iii) any other misconduct by the Executive adversely affecting the business or affairs of the Company in a material manner, (iv) the Executive’s failure to cure any breach of the Executive’s obligations under this Agreement or the CIIA after written notice of such breach from the Company and a reasonable cure period of at least thirty (30) days or (v) the Executive’s breach of any of the Executive’s fiduciary duties as an officer or director of the Company. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Company (or any parent or subsidiary) may consider as grounds for the dismissal or discharge of the Executive or any other individual in the service of the Company (or any parent or subsidiary), but a dismissal for such other acts or omissions shall not constitute a Termination for Cause for purposes of this Agreement unless otherwise described above.

IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the dates indicated below.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

By: /s/ Michael J. Salameh

Name: Michael J. Salameh

Title: Director

THE EXECUTIVE

/s/ Mike F. Chang

Mike F. Chang

EX-10.2 3 ex102chiefexecutiveofficer.htm EX-10.2 Q3'23 Document

Exhibit 10.2

EMPLOYMENT AGREEMENT

WHEREAS, the Executive is currently serving as the Company’s President.

WHEREAS, the Executive will serve as the Company’s Chief Executive Officer effective as of March 1, 2023 (the “Effective Date”).

WHEREAS, between the date hereof and the Effective Date, the Executive shall continue to serve as the President of the Company and shall continue to be eligible to receive the salary and cash and non-cash benefits provided to the Executive as of the date hereof in accordance with the terms and conditions thereof.

WHEREAS, the Company and the Executive wish to enter into this Agreement for the purpose of setting forth the terms and conditions of the Executive’s employment by the Company in such capacity.

NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein, the parties agree as follows:

ARTICLE 1. TERM OF EMPLOYMENT

ARTICLE 2. EMPLOYMENT DUTIES AND COMPENSATION

2.1 Title/Responsibilities. Until the Effective Date and subject to the Executive’s continued employment, the Executive shall continue to serve as the President of the Company. Effective as of and subject to the Executive’s continued employment through the Effective Date, the Executive shall serve as the Chief Executive Officer of the Company and shall cease to be the President of the Company. The Executive shall also serve in officer positions with one or more subsidiaries or affiliates of the Company as requested by the Board. The Executive shall perform such duties as are usual and customary for such positions and shall report directly to the Board.

2.4 Good Reason Waiver. The Executive acknowledges and agrees that the Executive’s appointment as the Chief Executive Officer and resignation as the President of the Company shall not constitute Good Reason (as defined in the Retention Agreement) or a similar term of like meaning for purposes of any employee benefit plans, programs, agreements, or arrangements of the Company.

ARTICLE 3. COMPENSATION AND BENEFITS

3.1 Salary. Prior to the Effective Date and subject to the Executive’s continued employment as the President, the Company shall continue to pay the Executive the base salary as in effect for the Executive as of the date hereof. Effective as of the Effective Date and subject to the Executive’s continued employment as the Chief Executive Officer, the Executive shall be paid a base salary at the annualized rate of Four Hundred Ninety Thousand Dollars ($490,000). Such rate shall be subject to annual review by the Board and may be adjusted in the Board’s discretion. Base salary shall be paid at periodic intervals in accordance with the Company’s payroll practices for salaried employees.

Company under applicable statutes, regulations, ordinances or orders governing or requiring the withholding or deduction of amounts otherwise payable as compensation or wages to employees.

ARTICLE 4. CONFIDENTIALITY AND RESTRICTIVE COVENANTS

4.1 Confidential Information and Inventions Agreement. The Executive shall continue to remain subject to the terms and conditions of the Employee Confidential Information and Inventions Assignment Agreement with the Company dated as of August 30, 2004 (the “CIIA”) throughout the Employment Period and thereafter, in accordance with its terms. A copy of such agreement is attached hereto as Exhibit A.

(iii) induce or attempt to induce any person or entity to curtail or cancel any business or contracts which such person or entity has with the Company;

ARTICLE 5. TERMINATION

5.1 Termination of Employment. The Executive’s employment pursuant to this Agreement may be terminated in accordance with the following provisions:

A. The Executive’s employment under this Agreement shall terminate immediately upon the Executive’s death or Incapacity during the Employment Period.

B. The Company may terminate the Executive’s employment under this Agreement (other than a Termination for Cause) at any time upon thirty (30) days prior written notice of such termination to the Executive. If such termination notice is given to the Executive, the Company may, if it so desires, immediately relieve Executive of some or all of the Executive’s duties.

C. The Company may at any time, upon written notice, discharge the Executive from employment with the Company hereunder pursuant to a Termination for Cause. Such termination shall be effective immediately upon such notice.

D. The Executive may terminate the Executive’s employment under this Agreement for Good Reason in accordance with the requirements of such termination or for any other reason at any time upon thirty (30) days prior written notice of such termination to the Company.

(ii) The Executive shall have complied with, and shall continue to comply with all of the Executive’s obligations under the CIIA.

(iii) The Executive shall have complied with, and shall continue to comply with the restrictive covenants set forth in Paragraph 4.2.

The severance payments and benefits to which the Executive may become entitled under this Paragraph 5.3 shall consist of the following:

In no event shall the Executive be entitled to benefits and payments under both Paragraphs 5.3 and 5.4 of this Agreement.

ARTICLE 6. MISCELLANEOUS PROVISIONS

6.1 Section 409A.

6.4 Notices.

To the Company:

Alpha and Omega Semiconductor Limited

c/o Alpha and Omega Semiconductor Incorporated

475 Oakmead Parkway, Sunnyvale

California, USA 94085

To the Executive:

Stephen C. Chang

6.6 Governing Documents. This Agreement, together with (i) the agreements evidencing the Executive’s outstanding equity awards and any future equity awards and (ii) the CIIA, shall constitute the entire agreement and understanding of the Company and the Executive with respect to the terms and conditions of the Executive’s employment with the Company and the payment of severance benefits and shall supersede all prior and contemporaneous written or verbal agreements and understandings between the Executive and the Company relating to such subject matter including, without limitation, the Retention Agreement. Any and all prior agreements, understandings or representations relating to the Executive’s employment with the Company and the payment of severance benefits (including, without limitation, the Retention Agreement), other than (i) the agreements evidencing the Executive’s currently outstanding equity awards and (ii) the CIIA, are hereby terminated and cancelled in their entirety and are of no further force or effect.

6.8 Arbitration.

6.9 Legal Representation. The Executive acknowledges that the Executive has had the right to consult with counsel and is fully aware of the Executive’s rights and obligations under this Agreement.

6.10 Counterparts. This Agreement may be executed in more than one counterpart, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument.

ARTICLE 7. DEFINITIONS

For purposes of this Agreement, the following definitions shall be in effect:

Board means the Company’s Board of Directors.

Change in Control means a change in control of the Company effected through any of the following transactions:

(ii) a shareholder-approved sale, transfer or other disposition of all or substantially all of the Company’s assets in liquidation or dissolution of the Company, or

(iv) a change in the composition of the Board over a period of twelve (12) consecutive months or less such that a majority of the Board members ceases to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period (“Incumbent Directors”) or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Incumbent Directors who were still in office at the time the Board approved such election or nomination; provided that any individual who becomes a Board member subsequent to the beginning of such period and whose election or nomination was approved by two-thirds of the Board members then comprising the Incumbent Directors will be considered an Incumbent Director.

Code means the Internal Revenue Code of 1986, as amended.

Common Share means the Company’s common share.

Employment Period means the Employment Period as defined in Paragraph 1 of this Agreement.

Incapacity means the inability of the Executive, by reason of any injury or illness, to properly perform the Executive’s normal duties and responsibilities under this Agreement.

An Involuntary Termination shall not include the termination of the Executive’s employment by reason of death or Incapacity or non-renewal of this Agreement by the Executive.

1934 Act means the U.S. Securities Exchange Act of 1934, as amended.

Retention Agreement means that certain letter agreement dated May 6, 2021, setting for the terms of severance payments and benefits payable to the Executive upon certain terminations of employment.

Any such determination as to Separation from Service, however, shall be made in accordance with the applicable standards of the Treasury Regulations issued under Code Section 409A. For purposes of determining whether the Executive has incurred a Separation from Service, the Executive will be deemed to continue in “Employee” status for so long as he remains in the employ of one or more members of the Employer Group, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. “Employer Group” means the Company and any other corporation or business controlled by, controlling or under common control with, the Company as determined in accordance with Sections 414(b) and (c) of the Code and the Treasury Regulations thereunder, except that in applying Sections 1563(a)(1), (2) and (3) for purposes of determining the controlled group of corporations under Section 414(b), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in such sections and in applying Section 1.414(c)-2 of the Treasury Regulations for purposes of determining trades or businesses that are under common control for purposes of Section 414(c), the phrase “at least 50 percent” shall be used instead of “at least 80 percent” each place the latter phrase appears in Section 1.414(c)-2 of the Treasury Regulations. In addition to the foregoing, a Separation from Service will not be deemed to have occurred while the Executive is on a sick leave or other bona fide leave of absence if the period of such leave does not exceed six (6) months or any longer period for which the Executive is provided with a right to reemployment with the Company by either statute or contract; provided, however, that in the event of a leave of absence due to any medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of not less than six (6) months and that causes the Executive to be unable to perform the Executive’s duties as an Employee, no Separation from Service shall be deemed to occur during the first twenty-nine (29) months of such leave. If the period of leave exceeds six (6) months (or twenty-nine (29) months in the event of disability as indicated above) and the Executive is not provided with a right to reemployment by either statute or contract, then the Executive will be deemed to have Separated from Service on the first day immediately following the expiration of the applicable six (6)-month or twenty-nine (29)-month period.

IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the dates indicated below.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

By: /s/ Michael J. Salameh

Name: Michael J. Salameh

Title: Director

THE EXECUTIVE

/s/ Stephen C. Chang

Stephen C. Chang

EX-31.1 4 ex311-aosl03312023q3202310q.htm EX-31.1 Q3'23 Document

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13a-14(a) and 15d-14(a), AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Stephen C. Chang, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Alpha and Omega Semiconductor Limited (the "registrant");

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 8, 2023


/s/ Stephen C. Chang
Stephen C. Chang Chief Executive Officer

EX-31.2 5 ex312-aosl03312023q3202310q.htm EX-31.2 Q3'23 Document

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13a-14(a) and 15d-14(a), AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Yifan Liang, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Alpha and Omega Semiconductor Limited (the "registrant");

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 8, 2023


/s/ Yifan Liang
Yifan Liang Chief Financial Officer and Corporate Secretary

EX-32.1 6 ex321-aosl03312023q3202310q.htm EX-32.1 Q3'23 Document

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

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

a.the Quarterly Report of the Company on Form 10-Q for the fiscal quarter ended March 31, 2023 (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

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

Date: May 8, 2023


/s/ Stephen C. Chang
Stephen C. Chang Chief Executive Officer

EX-32.2 7 ex322-aosl03312023q3202310q.htm EX-32.2 Q3'23 Document

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

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

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

Date: May 8, 2023


/s/ Yifan Liang
Yifan Liang Chief Financial Officer and Corporate Secretary