What changed in this filing

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Item 9A. Controls and Procedures

2022-09-20 compared with 2021-08-30 · 347 added, 428 removed, 1159 unchanged (40% of the section changed)

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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 June 30, 2021 have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC'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.

Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of June 30, 2022 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’ 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.

Management’s Annual Report on Internal Control over Financial Reporting

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2022, based on the COSO criteria .

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of June 30, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended June 30, 2021, and the related notes and schedules and our report dated August 30, 2021 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of June 30, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the three years in the period ended June 30, 2022, and the related notes and schedule and our report dated September 19, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting.

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Annual Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

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San Jose, California

August 30, 2021

September 19, 2022

Other Information

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not Applicable.

Certain information required by Part III is omitted from this Annual Report on Form 10-K because we intend to file our definitive proxy statement for our next annual general meeting of shareholders, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended (the “2022 Proxy Statement”), no later than 120 days after the end of fiscal year 2022, and certain information to be included in the 2022 Proxy Statement is incorporated herein by reference.

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The index to the consolidated financial statements is below.

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm Auditor Firm ID 243

Consolidated Balance Sheets

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(2) Financial Statement Schedules.

Schedule I - Condensed Financial Information of Registrant

Schedule II - Valuation and Qualifying accounts

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Alpha and Omega Semiconductor Limited (a Bermuda Corporation) (the “Company”) as of June 30, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended June 30, 2021, and the related notes and schedules (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of Alpha and Omega Semiconductor Limited (the “Company”) as of June 30, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the three years in the period ended June 30, 2022, and the related notes and schedule (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2022 , in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of June 30, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated August 30, 2021 expressed an unqualified opinion thereon.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its accounting method for accounting for leases in fiscal year 2020 due to the adoption of Topic 842:

Leases , using a modified retrospective approach.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated September 19, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

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

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

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

Valuation of Inventories

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We identified the valuation of inventories as a critical audit matter due to the significant judgment and estimates required by Management.

Determining whether a decline in value has occurred requires Management’s complex judgments related to (i) sales forecasts based on historical sales and expected future orders, and (ii) obsolescence of certain products based on changes in technology and demand.

Determining whether a decline in value has occurred requires Management’s complex judgments related to sales forecasts based on historical sales, demand and expected future orders.

Auditing these judgments is especially challenging and involved subjective auditor judgment due to fluctuations in sales trends and evolving customer demands.

The primary procedures we performed to address this critical audit matter included:

• Evaluating the completeness and accuracy of data used in the determination of the valuation of inventories by testing the completeness of the inventories analyzed, the inputs used in the analysis, and recalculating the estimated valuation of inventories based on management’s stated methodology.

• Analyzing the reasonableness of the methodology management uses to estimate the valuation of inventories by evaluating quantitative and qualitative factors considered by management in estimating the inventory reserve.

• Evaluating the reasonableness of Management's assumptions related to future demand by (i) performing retrospective review of the Company’s prior year estimates to actual results, (ii) evaluating the reasonableness of sales forecasts by comparing to current backlog and historical sales data used in the analysis, and (iii) considering additional facts and circumstances that could impact the determination of the valuation of inventories including, assessing changes in macroeconomic conditions.

• Testing the design and operating effectiveness of automated application controls relating to the inputs used in the analysis.

• Analyzing the reasonableness of the methodology Management uses to estimate the valuation of inventories by evaluating quantitative and qualitative factors including excess units on hand based on ending inventory quantities compared to forecasted shipment quantities.

Accounting for Equity Method Investment

As described in Notes 1 and 2 to the consolidated financial statements, on December 2, 2021, the Company sold 2.1% of its ownership interest in the JV Company to a third party for approximately $16.9 million contemporaneously with a change in governance of the JV Company that reduced the Company’s Board of Directors representation from four to three seats.

Management evaluated the sale and determined that the JV Company was not a variable interest entity and that the Company no longer held voting control, resulting in the deconsolidation of the JV Company from the consolidated financial statements and recognition of a gain on the transaction in the amount of $399.1 million.

Subsequent to the deconsolidation, the Company had significant influence and ownership requiring the application of equity method accounting for its remaining ownership interest.

We identified the accounting for the sale of the ownership interest and the accounting for the remaining ownership interest and the related disclosures as a critical audit matter.

Identifying and applying complex generally accepted accounting principles, specifically the application of the variable interest model, to the fact pattern of the sale and the remaining ownership interest require significant management judgment.

Auditing these elements involved especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters, including the extent of specialized skills or knowledge needed.

The primary procedures we performed to address the critical audit matter included:

• Analyzing applicable agreements and evaluating the applicable accounting standards relevant to the fact pattern of the sale, specifically focusing on management’s evaluation of whether its remaining ownership interest and board representation were determinative of control over the JV Company pursuant to the variable interest model.

• Utilizing personnel with specialized skill and knowledge to assist in evaluating management’s technical accounting analysis relating to application of the variable interest model to the fact pattern of the sale.

Fair Value Determination of Basis Difference in Equity Method Investment

As described in Notes 1 and 2 to the consolidated financial statements, the Company deconsolidated the JV Company subsequent to the sale of the 2.1% equity interest in the JV Company.

Management was required to determine the basis difference in the retained ownership interest in the JV Company as of December 2, 2021, as a significant component of accounting for the retained interest in the JV Company pursuant to the equity method.

We identified the determination of the difference between the carrying value of the investment in the JV Company and the Company’s underlying equity in the net assets of the JV Company as a critical audit matter.

As part of determining this basis difference, management applied significant judgment in determining the appropriate valuation methodology and the unobservable inputs used in calculating the fair value of intellectual property owned by the JV Company, including projected revenues, discount factor, terminal factor, present value factor and tax amortization benefit.

Auditing this element involved especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters, including the extent of specialized skill or knowledge needed.

The primary procedures we performed to address the critical audit matter included:

• Assessing the reasonableness of the forecasts of future revenue by evaluating historical inputs and challenging the revenue growth rate.

• Utilizing personnel with specialized knowledge and skills in valuation to perform procedures to assist in (i) evaluating the valuation methodology used and (ii) assessing the reasonableness of the discount factor, terminal factor, present value factor and tax amortization benefit incorporated in the valuation model.

/s/ BDO USA, LLP

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San Jose, California

August 30, 2021

September 19, 2022

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

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Intangible assets, net 10,050 13,410

Equity method investment 378,378 —

Deferred income tax assets 592 5,167

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Accrued liabilities 116,893 69,494

Payable related to equity investee, net 28,989 —

Income taxes payable 4,248 2,604

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Additional paid-in capital 288,951 259,993

Accumulated other comprehensive income (loss) 2,315 ( 5,127 )

Accumulated other comprehensive income 1,080 2,315

Retained earnings 629,994 176,895

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Operating income (loss) 102,038 64,076 ( 13,937 )

Interest expense and other income (loss), net ( 3,852 ) ( 3,972 ) ( 6,362 )

Other income (loss), net 999 2,456 ( 1,229 )

Interest expenses, net ( 3,920 ) ( 6,308 ) ( 2,743 )

Gain on deconsolidation of the JV Company 399,093 — —

Loss on changes of equity interest in the JV Company, net ( 3,140 ) — —

Net income (loss) before income taxes 495,070 60,224 ( 17,909 )

Income tax expense 39,258 3,935 348

Net income (loss) including noncontrolling interest 56,289 ( 18,257 ) ( 14,638 )

Net loss attributable to noncontrolling interest ( 1,827 ) ( 11,661 ) ( 16,499 )

Net income (loss) before loss from equity method investment 455,812 56,289 ( 18,257 )

Equity method investment loss from equity investee 2,629 — —

Net income (loss) 453,183 56,289 ( 18,257 )

Net income (loss) attributable to noncontrolling interest 20 ( 1,827 ) ( 11,661 )

Net income (loss) attributable to Alpha and Omega Semiconductor Limited $ 453,163 $ 58,116 $ ( 6,596 )

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Foreign currency translation adjustment 1,307 14,190 ( 4,839 )

Cumulative translation adjustment removal due to deconsolidation of the JV Company ( 3,642 ) — —

Comprehensive income (loss) 450,848 70,479 ( 23,096 )

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Withholding tax on restricted stock units — — ( 181 ) — — — ( 1,509 ) — — ( 1,509 ) — ( 1,509 )

Issuance of common shares under Employee Stock Purchase Plan — — 329 — — — 2,908 — — 2,908 — 2,908

Repurchase of common shares under share repurchase program — — — — ( 112 ) ( 1,501 ) — — — ( 1,501 ) — ( 1,501 )

Issuance of shares under Employee Stock Purchase Plan — — 400 1 — — 3,324 — — 3,325 — 3,325

Share-based compensation expense — — — — — — 9,854 — — 9,854 — 9,854

Net income (loss) including noncontrolling interest — — — — — — — — 1,861 1,861 ( 16,499 ) ( 14,638 )

Impact on retained earnings related to ASC 606 adoption — — — — — — — 1,036 1,036 — 1,036

Net loss including noncontrolling interest

— — — — — — — — ( 6,596 ) ( 6,596 ) ( 11,661 ) ( 18,257 )

Foreign currency translation adjustment — — — — — — — ( 2,434 ) — ( 2,434 ) ( 2,405 ) ( 4,839 )

Contributions by noncontrolling interest — — — — — — — — — — 24,000 24,000

Balance, June 30, 2020 — — 31,944 64 ( 6,639 ) ( 66,184 ) 246,103 ( 5,127 ) 118,833 293,689 138,199 431,888

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Withholding tax on restricted stock units — — ( 225 ) — — — ( 6,924 ) — — ( 6,924 ) — ( 6,924 )

Issuance of common shares under Employee Stock Purchase Plan — — 400 1 — — 3,324 — — 3,325 — 3,325

Issuance of shares under Employee Stock Purchase Plan — — 399 1 — — 3,326 — — 3,327 — 3,327

Share-based compensation expense — — — — — — 12,190 — — 12,190 — 12,190

Net loss including noncontrolling interest

— — — — — — — — ( 6,596 ) ( 6,596 ) ( 11,661 ) ( 18,257 )

Restricted stock units settlement in connection with service — — — — — — 3,600 — — 3,600 — 3,600

Net income (loss) including noncontrolling interest — — — — — — — — 58,116 58,116 ( 1,827 ) 56,289

Foreign currency translation adjustment — — — — — — — 7,442 — 7,442 6,748 14,190

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Withholding tax on restricted stock units — — ( 183 ) — — — ( 8,641 ) — — ( 8,641 ) — ( 8,641 )

Issuance of common shares under Employee Stock Purchase Plan — — 399 1 — — 3,326 — — 3,327 — 3,327

Issuance of shares under Employee Stock Purchase Plan — — 544 1 — — 5,244 — — 5,245 — 5,245

Share-based compensation expense — — — — — — 31,058 — — 31,058 — 31,058

Restricted stock units settlement in connection with service — — — — — — 400 — — 400 — 400

Net income (loss) including noncontrolling interest — — — — — — — — 58,116 58,116 ( 1,827 ) 56,289

Net income (loss) including noncontrolling interest through December 1, 2021 — — — — — — — — 453,163 453,163 20 453,183

Foreign currency translation adjustment — — — — — — — 558 — 558 749 1,307

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

Balance, June 30, 2022 — $ — 33,988 $ 68 ( 6,617 ) $ ( 66,000 ) $ 288,951 $ 1,080 $ 629,994 $ 854,093 $ — $ 854,093

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Adjustments to reconcile net income (loss) 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 42,851 52,685 45,090

Loss on equity investment 2,629 — —

Share-based compensation expense 31,324 15,324 10,454

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Other current and long-term assets ( 9,408 ) ( 5,843 ) 27,306

Payable related to equity investee, net 48,192 — —

Accounts payable 23,755 ( 528 ) ( 1,777 )

Income taxes payable ( 1,687 ) 1,660 ( 270 )

Income taxes payable on deconsolidation and changes of equity interest in the JV Company 3,490 — —

Accrued and other liabilities 76,407 48,462 10,955

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Cash flows from investing activities

Purchases of property and equipment excluding JV Company ( 22,715 ) ( 42,389 ) ( 36,002 )

Purchases of property and equipment in JV Company ( 49,985 ) ( 20,009 ) ( 76,049 )

Purchases of intangible assets — — ( 405 )

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 ( 138,014 ) ( 72,700 ) ( 62,398 )

Proceeds from sale of property and equipment 135 42 295

Government grant related to equipment in JV Company 119 1,254 —

Government grant related to equipment 1,444 119 1,254

Net cash used in investing activities ( 130,822 ) ( 72,539 ) ( 60,849 )

Cash flows from financing activities

Proceeds from investment by noncontrolling interest — — 24,000

Withholding tax on restricted stock units ( 8,641 ) ( 6,924 ) ( 1,509 )

Proceeds from exercise of stock options and ESPP 6,143 5,092 3,350

Payments for repurchase of common shares — — ( 1,501 )

Proceeds from borrowings 64,276 65,876 96,232

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Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 59 ) 4,895 ( 708 )

Net increase (decrease) in cash, cash equivalents and restricted cash 42,109 38,409 ( 7,429 )

Net increase in cash, cash equivalents and restricted cash 109,838 42,109 38,409

Cash, cash equivalents and restricted cash at beginning of year 204,813 162,704 124,295

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Reissuance of treasury stock $ 64 $ 120 $ 56

Reconciliation of cash, cash equivalents, and restricted cash:

Cash and cash equivalents $ 314,352 $ 202,412 $ 158,536

Restricted cash 299 233 2,190

Restricted cash - long-term — 2,168 1,978

Total cash, cash equivalents, and restricted cash $ 314,651 $ 204,813 $ 162,704

The accompanying notes are an integral part of these consolidated financial statements.

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Basis of Preparation

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and a subsidiary in which it has a controlling interest after elimination of inter-company balances and transactions.

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and a subsidiary in which it had a controlling interest until December 1, 2021.

As of December 2, 2021, the Company ceased having control over this subsidiary.

Therefore, the Company deconsolidated this subsidiary as of that date.

Subsequently, the Company has accounted for it using the equity method of accounting.

All intercompany account balances and transactions have been eliminated.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S.

Reclassification

Certain reclassifications of prior period presentation to conform to current period presentation have been made with no changes made to balance sheet, income statement or statement of cash flows subtotals.

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 June 30, 2021, the Company owns 51 %, and the Chongqing Funds own 49 %, of the equity interest in the JV Company.

The Joint Venture is accounted under the provisions of the consolidation guidance since the Company has controlling financial interest.

As of December 1, 2021, the Company owned 51 %, and the Chongqing Funds owned 49 %, 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.

If both parties agree that the termination of the JV Company is the best interest of each party or the JV Company is bankrupt or insolvent where either party may terminate early, after paying the debts of the JV Company, the remaining assets of the JV Company shall be paid to the Chongqing Funds to cover the principal of its total paid-in contributions plus interest at 10 % simple annual rate prior to distributing the balance of the JV Company's assets to the Company.

The JV Company has reached its targeted production of assembly and testing.

Effective December 1, 2021, the Company entered into a share transfer agreement (the “STA”) with a third-party investor (the “Investor”), pursuant to which the Company sold to the Investor approximately 2.1 % of outstanding equity interest held by the Company in the JV Company for an aggregate purchase price of RMB 108 million or approximately $ 16.9 million (the “Transaction”).

The Transaction was closed on December 2, 2021 (the “Closing Date”).

As a result of the Transaction, as of the Closing Date, the Company’s equity interest in the JV Company decreased from 50.9 % to 48.8 %.

Also, the Company’s right to designate directors on the board of JV Company was reduced to three (3) out of seven (7) directors from four (4) directors prior to the Transaction.

As a result of the Transaction, AOS no longer had a controlling financial interest in the JV Company under generally accepted accounting principles.

Loss of control is deemed to have occurred when, among other things, a parent company owns less than a majority of the outstanding equity interest in the subsidiary, lacks a controlling financial interest in the subsidiary and, is unable to unilaterally control the subsidiary through other means such as having, or the ability to obtain or represent, a majority of the subsidiary’s board of directors.

Because of these factors, as of December 2, 2021, the Company ceased having control over the JV Company.

Therefore, the Company deconsolidated the financial statements of the JV Company as of that date.

Subsequently, the Company has accounted for its investment in the JV Company using the equity method of accounting.

On December 24, 2021, the Company entered into a share transfer agreement with another third-party investor, pursuant to which the Company sold to this investor 1.1 % of outstanding equity interest held by the Company in the JV Company for an aggregate purchase price of RMB 60 million, or approximately $ 9.4 million.

In addition, on December 30, 2021, 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, the Company owned 45.8 % of the equity interest in the JV Company as of December 31, 2021.

On January 26, 2022, the JV Company completed a financing transaction pursuant to a corporate financing agreement (the “Financing Agreement”) between the JV Company and certain third-party investors (the “New Investors”).

Under the Financing Agreement, the New Investors purchased newly issued equity interest of the JV Company for a total purchase price of RMB 509 million (or approximately $ 80 million based on the currency exchange rate as of January 26, 2022) (the “Investment”).

Immediately following the closing of the Investment, the percentage of outstanding JV Company equity interest beneficially owned by the Company was further reduced to 42.2 %.

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

The COVID-19 pandemic has had and continues to have a negative impact on business and economic activities across the globe.

As a result of the COVID-19 pandemic and the global economic downturn and changing consumer behaviors due to various restrictions imposed by governments, the Company has experienced shifting market trends, including an increasing demand in the markets for notebooks, PCs, gaming devices and other products.

While the Company has recently benefited from the increasing demand of PC related products, there is no guarantee that this trend will continue, and such increasing demand may discontinue or decline as government authorities relax COVID-19 related restrictions and consumer behaviors change.

While the Company has recently benefited from the increasing demand of consumer electronics and PC related products, there is no guarantee that this trend will continue, and such increasing demand may discontinue or decline as government authorities relax and terminate COVID-19 related restrictions and consumer behaviors change.

Furthermore, as the COVID-19 pandemic continues and global economic downturn and high unemployment persists, consumer spending may slow down substantially, in which case the Company may experience a significant decline of customer orders for its products, including those designed for PC-related applications, and such decline will adversely affect its financial conditions and results of operations.

The extent to which the COVID-19 pandemic may impact the Company's business will depend on future developments which are uncertain, such as the duration of the outbreak, travel restrictions, governmental mandates issued to mitigate the spread of the disease, business closures, economic disruptions, and the effectiveness of actions taken to contain and treat the virus.

Accordingly, the COVID-19 pandemic may have a negative impact on the Company's sales and results of operations, the size and duration of which is difficult to predict.

The full extent of the future impact of the COVID-19 pandemic on the Company’s operational and financial performance is uncertain and will depend on many factors outside the Company’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic;

the availability, distribution and effectiveness of vaccines;

the spread of new variants of COVID-19;

the continued or renewed imposition of protective public safety measures and government mandates;

the continuing disruption of global supply chain affecting the semiconductor industry;

and the impact of the pandemic on the global economy and demand for consumer products.

In April 2022, the operations of our two packaging and testing facilities in Shanghai, China were suspended due to a strict lockdown of the city imposed by the local government in response to surging COVID cases.

Our facilities in Shanghai were required to be shut down and production was halted beginning in early April.

Transportation suspension in and out of Shanghai also interrupted the shipping of raw materials and finished parts to and from our facilities.

We received permission to reopen our facilities partially in early May.

We gradually ramped up production at these facilities in May and returned to normal operation in June 2022.

The suspension of our Shanghai facilities, and the subsequent partial resumption of production, reduced our ability to complete orders from our customers in a timely manner, which adversely affected our revenue and results of operation for the three months ended June 30, 2022.

Risks and Uncertainties

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The Company believes changes in any of the following areas could have a material adverse effect on the Company's future financial position or results of operations or cash flows:

new product development, including market receptiveness, operation of in-house manufacturing facilities, operation of the JV Company, litigation or claims against the Company based on intellectual property, patent, product regulatory or other factors,

competition from other products, general economic conditions, the ability to attract and retain qualified employees, the ability to successfully operate joint venture and ultimately to sustain profitable operations, risks associated with doing business in China, and ability to diversify products and develop digital business;

the timing and success of new product development, including market receptiveness, operation of in-house manufacturing facilities, litigation or claims against the Company based on intellectual property, patent, product regulatory or other factors, competition from other products, general economic conditions, the inability to attract and retain qualified employees, lack of control to the JV Company and ultimately to sustain profitable operations, risks associated with doing business in China, and ability to diversify products and develop digital business;

the general state of the U.S., China and world economies;

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disruptions of the supply chain of components needed for our products;

ability to obtain additional financing;

inability to obtain additional financing;

inability to meet certain debt covenants;

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Additional risks and uncertainties that the Company is unaware of, or that the Company currently believes are not material, may also become important factors that adversely affect its business.

The semiconductor industry is characterized by rapid technological change, competition, competitive pricing pressures and cyclical market patterns.

The Company's financial results are affected by a wide variety of factors, including general economic conditions specific to the semiconductor industry and the Company's particular market, such as the PC markets, the timely implementation of new products, new manufacturing process technology and the ability to safeguard patents and intellectual property in a rapidly evolving market.

In addition, the semiconductor market has historically been cyclical and subject to significant economic downturns.

As a result, the Company may experience significant period-to-period fluctuations in operating results due to the factors mentioned above or other factors.

The Company's business model allocates its wafer manufacturing requirements to both in-house capacity and selected third-party foundries.

The Company also deploys and implements its proprietary power discrete processes and equipment at third-party foundries to maximize the performance and quality of its products.

The Company's revenue may be impacted by its ability to utilize wafer production and packaging and testing capacity from its in-house facilities and obtain adequate wafer supplies from third-party foundries.

The Company's revenue limited by its ability to utilize wafer production and packaging and testing capacity from its in-house facilities and obtain adequate wafer supplies from third-party foundries.

The Company recently entered into a new agreement with the JV Company pursuant to which the JV Company agrees to provide us with a guaranteed supply of a fixed number of wafers until December 2023.

Currently the Company's main third-party foundry is Shanghai Hua Hong Grace Electronic Company Limited, or HHGrace, located in Shanghai, China.

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HHGrace manufactured approximately 10.3 %, 11.5 % and 12.7 % of the wafers used in the Company's products for the fiscal years ended June 30, 2022, 2021 and 2020, respectively.

Although the Company believes that its volume of production allows the Company to secure favorable pricing and priority in allocation of capacity in its third-party foundries, if the foundries' capacities are constrained due to market demands, HHGrace, together with other foundries from which the Company purchases wafers, may not be willing or able to satisfy all of the Company's manufacturing requirements on a timely basis and/or at favorable prices.

Although the Company believes that its volume

of production allows the Company to secure favorable pricing and priority in allocation of capacity in its third-party foundries, if the foundries' capacities are constrained due to market demands, HHGrace, together with other foundries from which the Company purchases wafers, may not be willing or able to satisfy all of the Company's manufacturing requirements on a timely basis and/or at favorable prices.

The Company is also subject to the risks of service disruptions and raw material shortages by its foundries.

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Foreign exchange gains and losses, resulting from the settlement of such transactions and from the re-measurement of monetary assets and liabilities denominated in foreign currencies using exchange rates at balance sheet date and non-monetary assets and liabilities using historical exchange rates, are recognized in the consolidated statements of operations.

For the Company's subsidiaries which use the local currency as their functional currency, including the JV Company, their results and financial position are translated into U.S.

dollars using exchange rates at balance sheet dates for assets and liabilities

and using average exchange rates for income and expenses items.

For the Company's subsidiaries which use the local currency as their functional currency, their results and financial position are translated into U.S.

dollars using exchange rates at balance sheet dates for assets and liabilities and using average exchange rates for income and expenses items.

The resulting translation differences are presented as a separate component of accumulated other comprehensive income (loss) and noncontrolling interest in the consolidated statements of equity.

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however, these deposits typically may be redeemed upon demand and, therefore, bear minimal risk.

As a condition of the loan arrangements, the Company is required to keep a compensating balance at the issuing bank (see Note 5).

In addition, the Company maintains restricted cash in connection with cash balances temporarily restricted for regular business operations, including the possibility of a dispute with a vendor.

The Company maintains restricted cash in connection with cash balances temporarily restricted for regular business operations, including the possibility of a dispute with a vendor.

These balances have been excluded from the Company’s cash and cash equivalents balance and are classified as restricted cash in the Company’s consolidated balance sheets.

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Cost includes semiconductor wafer 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 are based on the Company's 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.

Valuation of inventories are based on the Company's 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 management, additional future inventory write-downs may be required that could adversely affect the Company's operating results.

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Depreciation is provided for on a straight-line basis over the estimated useful lives of the related assets as follows:

Building 20 to 30 years

Building 20 years

Manufacturing machinery and equipment 8 to 10 years

Equipment and tooling 5 years

Equipment and tooling 3 to 5 years

Computer hardware and software 3 to 5 years

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Leasehold and building improvements 2 to 20 years

Land use rights 50 years

There is no private land ownership in China.

Individuals and companies are permitted to acquire land use rights for a specific purpose.

In March 2017, the JV Company received the necessary land use right certificate from the PRC government.

The land use rights will expire on November 30, 2066.

Vehicle 5 years

Equipment and construction in progress represent equipment received but the necessary installation has not been fully performed or building construction and leasehold improvements have been started but not yet completed.

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During the fiscal year ended June 30, 2021, the Company reduced interest expense by $ 3.0 million, property, plant and equipment by $ 0.1 million, and operating expenses by $ 3.7 million.

During the fiscal year ended June 30, 2019, the Company reduced interest expenses by $ 0.3 million.

During the fiscal year ended June 30, 2020, the Company reduced interest expenses by $ 6.1 million, property, plant and equipment by $ 1.3 million, and operating expenses by $ 4.7 million.

Long-lived Assets

The Company evaluates its long-lived assets for impairment whenever events or changes indicate that the carrying amount of such assets may not be recoverable.

Due to the COVID-19 pandemic, the Company assessed the changes in circumstances that occurred during the March and June 2020 quarters.

These factors included continued operating losses, a decrease in the Company's share price in February and March of 2020, which reduced its market capitalization, expectation of lower business growth for the coming quarters, increased and prolonged economic and regulatory uncertainty in the global economies, and the expectation of higher supply chain costs and increased competition.

Therefore, the Company performed a recoverability test by comparing the sum of the estimated undiscounted future cash flows of its long-lived assets to their carrying amount as of June 30, 2020.

Some of the more significant assumptions used in the estimated future cash flows involve net sales, cost of goods sold, operating expenses, working capital, capital expenditures, income tax rates, long-term growth rates that appropriately reflect the risks inherent in the future cash flow stream and terminal value.

The Company selected the assumptions used in the financial forecasts by referencing to historical data, supplemented by current and anticipated market conditions, estimated product growth rates and management's plans.

These estimated future cash flows were consistent with those the Company uses in its internal planning.

The result of the recoverability test indicated that the sum of the expected future cash flows (undiscounted and without interest charges) was greater than the carrying amount of the long-lived assets.

Therefore, the Company concluded that the carrying amount of the long-lived assets is recoverable.

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 our results of operations.

There was no impairment of long-lived assets for fiscal years 2022, 2021 and 2020.

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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 recognizes product revenue at a point in time when product is shipped to the customer, as determined by the agreed upon shipping terms, net of estimated stock rotation returns and price adjustments that it expects to provide to certain distributors.

The Company presents revenue net of sales taxes and any similar assessments.

Our standard payment terms range from 30 to 90 day s.

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.

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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 records an allowance for stock rotation returns based on historical returns, current expectations, 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.

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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 Company determined 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.

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.

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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, or 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 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.

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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 Black-Scholes option valuation model requires the input of subjective assumptions, including the expected term and stock price volatility.

In addition, judgment is also required in estimating the number of stock-based awards that are expected to be forfeited.

Forfeitures are estimated based on historical experience at the time of grant.

Changes in estimated forfeitures are recognized in the period of change and impact the amount of stock compensation expenses to be recognized in future periods, which could be material if actual results differ significantly from estimates.

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.

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Recently Issued Accounting Standards not yet adopted

In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

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 ASU is effective for all entities within their scope for financial statements issued for annual periods

beginning after December 15, 2021.

The adoption will not have any impacts on the Company's consolidated financial position, results of operations or cash flows.

In August 2020, the FASB issued ASU No.

2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

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The Company does not expect the adoption of this guidance will have a material impact on its consolidated financial position, results of operations or cash flows.

Recently Adopted Accounting Standards

In January 2020, the FASB issued ASU No.

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Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting.

For public business entities, the amendments in the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

The Company does not expect the adoption of this guidance will have a material impact on its consolidated financial position, results of operations or cash flows.

The adoption of ASU 2020-01 on July 1, 2021 had no material impact on the Company's Consolidated Financial Statements.

In December 2019, the FASB issued ASU No.

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Simplifying the Accounting for Income Taxes (“ASU 2019-12”) by removing certain exceptions to the general principles.

The amendments will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

Early adoption of the amendments is permitted.

Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis.

The Company is currently evaluating the impacts of adoption of the new guidance to its consolidated financial statements.

Recently Adopted Accounting Standards

In August 2018, the FASB issued ASU 2018-15 “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract" ("ASU 2018-15").

These amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contact with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).

The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments.

ASU 2018-15 had no material impact on the Company's consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820):

Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13”).

ASU 2018-13 amends existing fair value measurement disclosure requirements by adding, changing, or removing certain disclosures.

The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption.

All other amendments should be applied retrospectively to all periods presented upon their effective date.

The Company adopted ASU 2019-12 as of July 1, 2021.

ASU 2019-12 had no material impact on the Company's Consolidated Financial Statements.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326).

Topic 326 adds to U.S.

GAAP the current expected credit loss ("CECL") model, a measurement model based on expected losses rather than incurred losses.

Under this new standard, an entity recognizes its estimate of expected credit losses as an allowance.

The new standard is also intended to reduce the complexity of U.S.

GAAP by decreasing the number of credit loss models that entities use to account for debt instruments.

The new guidance significantly changes the accounting for credit losses.

The Company adopted

ASU 2016-13 using the modified-retrospective approach in the first quarter of fiscal 2021 with no impact to its consolidated financial statements.

The adoption of Topic 326 did not significantly change the Company's approach to the valuation of trade receivables.

The Company determines whether there is an expected loss on its accounts receivable by reviewing all available data, including its customers' latest available financial statements, their credit standing and historical collection experience, as well as current and future market and economic conditions.

As of June 30, 2021, the allowance for credit losses on the Company's trade receivables remained immaterial.

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”), each a wholly-owned subsidiary of the Company, entered into a share transfer agreement (“STA”) with a third-party investor to sell a portion of the Company's equity interest in the JV Company which consists of a power semiconductor packaging, testing and 12-inch wafer fabrication facility in Chongqing, China (the “Transaction”).

The Transaction closed on December 2, 2021 (the “Closing Date”), which reduced the Company’s equity interest in the JV Company from 50.9 % to 48.8 %.

Also, the Company’s right to designate directors on the board of JV Company was reduced to three ( 3 ) out of seven ( 7 ) directors, from four ( 4 ) directors prior to the Transaction.

As a result of the Transaction and other factors, the Company no longer has a controlling financial interest in the JV Company and has determined that the JV Company was deconsolidated from the Company’s Consolidated Financial Statements effective as of the Closing Date.

In connection with the deconsolidation and in accordance with ASC 810, the Company recorded a gain on deconsolidation of $ 399.1 million during the fiscal year ended June 30, 2022 in the Consolidated Statements of Income.

The gain on deconsolidation of the JV Company was calculated as follows:

(in thousands)

Cash received for sales of shares in the JV Company

Fair value of retained equity method investment

Carrying amount of non-controlling interest

Cumulative translation adjustment removal

Carrying amount of net assets of the JV Company at December 1, 2021

Gain on deconsolidation of the JV Company

The Company retained significant influence over the operating and financial policies of the JV Company and measured the fair value of the retained investment based on their share of the fair value of the JV Company, which was calculated using the market approach based on the Transaction.

In addition, on December 30, 2021, 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 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 Company equity interest beneficially owned by the Company was reduced to 42.2 %.

The net loss associated with these sales of JV Company equity interest held by the Company were recorded in the fiscal year ended June 30, 2022 as follows:

(in thousands)

Gain on 1.1% equity interest sold

Loss on diluted equity interest from issuance of shares under the employee equity incentive plan

Gain on 7.82% equity interest sold 4,501

Loss on changes on equity interest of the JV Company, net

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 fiscal year ended June 30, 2022, the Company recorded $ 2.6 million of its equity in loss of the JV Company, using lag reporting.

Summarized Financial Information

The following table presents summarized financial information for the JV Company as of and for the period from December 2, 2021 through March 31, 2022, using lag reporting (in thousands):

As of March 31, 2022

Current assets $ 198,323

Non-current assets $ 364,777

Current liabilities $ 251,988

Non-current liabilities $ 76,207

For the periods of December 2, 2021 to March 31, 2022

Revenue $ 68,972

Gross loss $ 870

Operating expenses $ 2,280

Net loss $ 6,197

Related Party Transactions

As of June 30, 2022, 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 for 8-inch wafer products to AOS.

Due to the right of offset of receivables and payables with the JV Company, as of June 30, 2022, AOS recorded the net amount of $ 29.0 million as a payable related to equity investee, net, in the Consolidated Balance Sheet.

Since the December 2, 2021 deconsolidation of the JV Company and through the fiscal year ended June 30, 2022, the Company purchased finished goods and services of $ 117.6 million from the JV Company and AOS provided the JV Company with $ 36.4 million of 8-inch wafers.

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

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The Company closely monitors the aging of accounts receivable from its distributors and direct customers, and regularly reviews their financial positions, where available.

In the past, the Company shipped its product indirectly to Huawei and its affiliates (collectively, “Huawei”) through distributors.

Typically, the Company sold its products to distributors who then sold to original design manufacturers (“ODMs”) that incorporated our products into end applications that were then shipped to Huawei.

While distributor point of sale reports summarize distributor sales to ODMs, the Company must make certain assumptions and estimates in order to determine the amount of revenues attributed to indirect shipment to Huawei.

During the fiscal year ended June 30, 2019, the estimated revenues attributed to indirect shipment to Huawei were approximately 2 % of total revenues.

During the period from May 2019 to December 2019, estimated revenues earned by the Company from shipments indirectly made to Huawei were in the range of $ 11 million to $ 13 million.

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

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Customer D 12.0 % *

Customer E * 20.1 %

Customer F * 10.4 %

Customer G * 10.3 %

* Less than 10%

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Total depreciation expense was $ 39.9 million, $ 49.3 million and $ 43.9 million for fiscal year 2022, 2021 and 2020, respectively.

The gross amount of computer software recorded under capital leases was $ 13.7 million and $ 13.7 million and the related accumulated depreciation was $ 11.9 million and $ 10.1 million, respectively, at June 30, 2021 and 2020.

The Company capitalized $ 0.3 million, $ 0.3 million and $ 1.0 million of software development costs during the fiscal year 2022, 2021 and 2020, respectively.

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Unamortized capitalized software development costs in each of the periods presented at June 30, 2022 and 2021 were $ 0.8 million and $ 1.2 million, respectively.

There is no private land ownership in China.

Individuals and companies are permitted to acquire land use rights for specific purpose.

In March 2017, the JV Company received the necessary land use right certificate from the PRC government.

The land use rights will expire on November 30, 2066.

Other long-term assets

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Customs deposit 1,708 1,120

Deposit with supplier 6,396 —

Other long-term deposits 18 927

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accumulated amortization ( 9,674 ) ( 6,314 )

13,141 16,501

Goodwill 269 269

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Computer software liabilities 8,302 —

Other 904 826

Other long-term liabilities $ 78,603 $ 44,123

* Customer deposit from our customer A and customer B for securing future shipment from the Company.

Bank borrowings

Short-term borrowing

On June 29, 2021, the JV Company entered into a one-year loan agreement with China Citic Bank in China to borrow a maximum of $ 7.7 million.

Interest payments are due on the 20th of each quarter starting September 20, 2021, and the entire principal is due on June 29, 2022.

As of June 30, 2021, the outstanding balance of this loan was $ 7.7 million at an interest rate of 3.49 % per annum.

On April 19, 2021, the JV Company entered into a loan agreement with China Everbright Bank in China to borrow a maximum of Chinese Renminbi ("RMB") 100 million.

The borrowing can be in RMB or U.S.

Dollar ("USD").

The loan consists of RMB 50 million for working capital borrowings in Chinese yuan and RMB 50 million for borrowing in USD.

The loan is collateralized by eligible accounts receivable.

On April 19, 2021, the JV Company borrowed RMB 50.0 million, or $ 7.7 million based on the currency exchange rate between RMB and USD on April 19, 2021, at an interest rate of 5.1 % annum.

The interest payments are due quarterly with the entire principal due no later than May 19, 2022.

On June 16, 2021 and June 24, 2021, the JV Company also borrowed $ 4.2 million and $ 3.5 million at interest rate of 2.7 % per annum, with principal due on August 18, 2021 and September 9, 2021, respectively.

As of June 30, 2021, the total outstanding balance of these loans was $ 15.4 million.

On November 13, 2020, the JV Company entered into a one-year loan agreement with China Merchant Bank in China.

The JV Company can borrow up to Chinese Renminbi ("RMB") 50.0 million, or $ 7.6 million, based on the currency exchange rate between RMB and U.S.

Dollar on November 13, 2020.

The loan's interest rates are based on the China one-year loan prime rate ("LPR") plus 1.4 % per annum.

Interest payments are due quarterly with the entire principal due not later than November 19, 2021.

During the three months ended December 31, 2020, the JV Company borrowed RMB 50.0 million at a n interest rate of 5.25 % per annum.

As of June 30, 2021, the outstanding balance of this loan was $ 7.7 million.

On April 15, 2020, the JV Company entered into a one-year loan agreement with China Everbright Bank in China to borrow a maximum of RMB 100 million (approximately $ 14.3 million based on the currency exchange rate between RMB and U.S.

Dollar on April 15, 2020), in the amount in RMB or USD.

Interest payments were due on the 20th of each month, and the entire principal was due on April 16, 2021.

The loan consisted of RMB 20 million for working capital borrowing in Chinese yuan and RMB 80 million for borrowing in US dollars that was collateralized by eligible accounts receivable.

As of June 30, 2021, this loan was expired and there was no outstanding balance under the loan.

Customer deposits are payments received from customers for securing future product shipments.

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.

As of June 30, 2021, $ 21.0 million were from Customer A and $ 21.0 million were from Customer B.

Short-term bank borrowing

In October 2019, the Company's subsidiary in China entered into a line of credit facility with Bank of Communications Limited in China.

This line of credit was scheduled to mature on February 14, 2021 and is based on the China Base Rate multiplied by 1.05 , or 4.99 % on October 31, 2019.

This line of credit matured on February 14, 2021 and was based on the China Base Rate multiplied by 1.05 , or 4.99 % on October 31, 2019.

The purpose of the credit facility is to provide short-term borrowings.

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Dollar on October 31, 2019.

In October 2020, this line of credit was renewed with the same terms and a maturity date of April 21, 2022.

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

On November 29 and December 4, 2018, the JV Company entered into two, one-year loan agreements with China Merchant Bank and Chongqing LiangJiang New District China Merchants Group Limited Company in China to provide loans for RMB 80 million and RMB 20 million, respectively, or $ 14.5 million in total based on the currency exchange rate between RMB and U.S.

Dollar on December 31, 2018, at varying interest rates.

On January 20, 2020, the JV Company renewed the loan agreements with the same terms.

Interest payments are due monthly and quarterly with the entire principal due not later than January 21, 2021.

As of June 30, 2021, these two loans were expired and there was no outstanding balance under the loans.

On November 16, 2018, the Company's subsidiary in China entered into a line of credit facility with Industrial and Commercial Bank of China, which expired on September 30, 2019.

In September 2021, this line of credit was renewed with maximum borrowings up to RMB 140.0 million with the same terms and a maturity date of September 18, 2022.

During the three months ended December 31, 2021, the Company borrowed RMB 11.0 million, or $ 1.6 million, at an interest rate of 3.85 % per annum, with principal due on November 18, 2022.

As of June 30, 2022, there was $ 1.6 million outstanding balance under the loan.

On November 16, 2018, the Company's subsidiary in China entered into a line of credit facility with Industrial and Commercial Bank of China.

The purpose of the credit facility was to provide short-term borrowings.

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Dollar on November 16, 2018.

In December 2020, this line of credit was renewed with the same terms and a maturity date of December 31, 2021.

As of June 30, 2021, there was no outstanding balance under the line of credit.

The RMB 72.0 million consists of RMB 27.0 million for trade borrowings with a maturity date of December 31, 2021, and RMB 45.0 million for working capital borrowings or trade borrowings with a maturity date of September 13, 2022.

During the three months ended December 31, 2021, the Company borrowed RMB 5.0 million, or $ 0.8 million, at an interest rate of 3.7 % per annum, with principal due on September 12, 2022.

As of June 30, 2022, the total outstanding balance of this loan was $ 0.5 million.

Accounts Receivable Factoring Agreement

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This agreement, with certain financial covenants required, has no expiration date.

The Borrower was in compliance with these covenants as of June 30, 2021.

During the fiscal year ended June 30, 2021 and 2020, the Company borrowed $ 56.7 million and $ 20.0 million, respectively, and repaid it in full.

As of June 30, 2021, there was no outstanding balance and the Company had unused credit of approximately $ 30.0 million.

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.

Credit Facilities

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

Pursuant to the Agreements, the Lenders agree to provide an aggregate of RMB 400.0 million, or $ 62.8 million based on the currency exchange rate between RMB and U.S.

Dollar on the Effective Date, of financing to the JV Company (the “Lease Financing”).

In exchange for the Lease Financing, the JV Company agrees to transfer title of its assembly and testing equipment to the Lenders, and the Lenders lease such equipment to the JV Company under a five-year lease arrangement, pursuant to which the JV Company makes quarterly lease payments to the Lenders consisting of principal and interest based on a repayment schedule mutually agreed by the parties.

The interest under the Lease Financing is accrued based on the China Base Rate multiplied by 1.15 , or 5.4625 % on the Effective Date.

Under the Agreements, at the end of the five-year lease term, the Lenders agree to sell such equipment back to the JV Company for a nominal amount (RMB 1 ).

The JV Company’s obligations under the Lease Financing are secured by the land and building owned by the JV Company (the “Collateral”).

The proceeds from the Lease Financing will be used primarily for the acquisition and installation of the 12-inch fabrication equipment and other expenses of the JV Company relating to the completion of the fabrication facility located in Chongqing.

The Agreements contain customary representation, warranties and covenants, including restrictions on the transfer of the Collateral.

The Agreements also contain customary events of default, including but are not limited to, failure to make payments and breach of material terms under the Agreements.

On June 28, 2020, the parties entered into a modification to this agreement as a result of a change in the bank reference rate, pursuant to which the interest rate was changed to be the five-year loan prime rate in China plus 0.8125 %, or 5.4625 %.

Other terms of this agreement remain the same.

As of June 30, 2021, the outstanding balance of the Lease Financing of 190.0 million RMB (equivalent of $ 29.4 million based on the currency exchange rate as of June 30, 2021) was recorded under short-term and long-term finance lease liabilities.

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

Long-term debt

On April 26, 2020, the JV Company entered into a loan agreement with China Development Bank, Agricultural Bank of China, China Merchants Bank and Chongqing Rural Commercial Bank (collectively, "the Banks") in the aggregate principal amount of RMB 250 million (approximately $ 35.7 million based on the currency exchange rate between RMB and U.S.

Dollar on April 26, 2020).

The obligation under the loan agreement is secured by certain assets of the JV Company with a carrying value of $ 114.0 million as of June 30, 2021.

Beginning December 18, 2020, the JV Company is required to make consecutive semi-annual payments of principal until December 8, 2024.

Interest payment is due on March 20, June 20, September 20 and December 20 of each year based on China one-year loan prime rate ("LPR") plus 1.3 %.

The JV Company drew down RMB 250 million (approximately $ 35.3 million based on the currency exchange rate between RMB and U.S.

Dollar on June 30, 2020) in April 2020.

As of June 30, 2021, the outstanding balance of the loan was $ 34.1 million.

In December 2019, the JV Company entered into a loan agreement with China Development Bank in the amount of $ 24.0 million.

The obligation under the loan agreement is secured by certain assets of the JV Company with a carrying value of $ 114.0 million as of June 30, 2021.

Beginning December 18, 2020, the JV Company will make consecutive semi-annual payments of principal until December 8, 2024.

The interest is accrued based on the LIBOR rate plus 2.8 %.

The interest is required to be paid on March 21 and September 21 each year.

As of June 30, 2021, the outstanding balance of the loan was $ 19.2 million.

On March 12, 2019, the JV Company entered into a loan agreement with The Export-Import Bank of China in the aggregate principal amount of RMB 200 million (approximately $ 29.8 million based on currency exchange rate between RMB

Dollar on March 31, 2019).

The loan will mature on February 20, 2025.

The JV Company drew down RMB 190 million and RMB 10 million in March 2019 and December 2019, respectively.

The loan withdraw window expired on February 28, 2020.

The interest is accrued based on the China Base Rate multiplied by 1.1 , or 5.39 %.

The loan requires quarterly interest payments.

The principal payments are required to be paid every 6 months over the term of loan commencing in October 2019.

This loan is secured by the buildings and certain equipment owned by the JV Company with a carrying value of $ 89.1 million as of June 30, 2021.

As a condition of the loan arrangements, 14 million RMB (approximately $ 2.0 million) of cash is held as restricted cash by the JV Company as a compensating balance at the JV Company's bank until the principal is paid.

On June 24, 2020, a modification of this loan was signed as a result of a change in the bank reference rate, pursuant to which the interest rate was changed to be based on the five-year loan prime rate in China plus 0.74 %, or 5.39 %.

Other terms of this loan remain the same.

As of June 30, 2021, the outstanding balance of the loan was 184 million RMB (equivalent of $ 28.5 million based on the currency exchange rate as of June 30, 2021).

On May 1, 2018, Jireh Semiconductor Incorporated (“Jireh”), a wholly-owned subsidiary of the Company, entered into a loan agreement with a financial institution (the "Bank") that provided a term loan in an amount of $ 17.8 million.

The Borrower was in compliance with these covenants as of June 30, 2022.

As of June 30, 2022, 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”) entered into a financing arrangement agreement with a company (“Lender”) for the lease and purchase of a machinery equipment manufactured by a supplier.

The total purchase price of this machinery equipment was euro 12.0 million, or $ 12.8 million based on the currency exchange rate between the euro and U.S.

Dollar on June 30, 2022.

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.

Based on the terms of the agreement between Jireh and Lender, after the installation and configuration of the equipment for its intended use, Lender will make the remaining 10 % payment for the total purchase price and reimburse Jireh for the down payment made to the supplier.

By that time, the title of the equipment will be transferred to Lendor.

This agreement has a 5 years term, after which Jireh has the option to purchase the equipment for $ 1 .

Jireh is required to make a monthly payment of interest at an implied interest rate of 4.75 % per annum to Lessor.

Principal payment is required to be paid monthly after the completion of the title transfer.

The financing arrangement is secured by this machneray equipment which had the carrying amount of $ 12.8 million as of June 30, 2022.

As of June 30, 2022, the outstanding balance of this debt financing was $ 5.0 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 years 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.

As of June 30, 2022, Jireh was in compliance with these covenants and the outstanding balance of this loan was $ 45.0 million.

On May 1, 2018, Jireh entered into a loan agreement with the Bank that provided a term loan in an 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.

3 unchanged sentences

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 June 30, 2022.

7 unchanged sentences

The credit agreement contains customary restrictive covenants and includes certain financial covenants that require the Company to maintain, on a consolidated basis, specified financial ratios and fixed charge coverage ratio.

The 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 June 30, 2022.

As of June 30, 2022, the outstanding balance of the term loan was $ 1.9 million.

The obligation under the loan agreement 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 will make consecutive quarterly payments of principal and interest.

The loan accrues interest based on adjusted LIBOR plus the applicable margin based on the outstanding balance of the loan.

This agreement contains customary restrictive covenants and includes certain financial covenants that require the Company to maintain.

At June 30, 2022, maturities of short-term debt and long-term debt were as follows (in thousands):

1 unchanged sentence

2023 $ 25,638

Thereafter 234

Total principal of debt 68,218

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For operating leases, the amortization of the ROU asset and the accretion of its lease obligation liability result in a single straight-line expense recognized over the lease term.

The finance lease is related to the RMB 400.0 million of lease financing of the JV Company with YinHai Leasing Company and The Export-Import Bank of China.

See Note 5 - Bank Borrowings for details.

The finance lease is related to the machinery lease financing with a vendor.

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 Consolidated Balance Sheet at June 30, 2022 due to the deconsolidation of the JV Company on December 2, 2021.

The Company does not record leases on the consolidated balance sheet with a term of one year or less.

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2024 4,053 1,083

2025 3,222 1,083

2026 3,176 1,083

2027 3,147 1,076

Thereafter 10,337 —

16 unchanged sentences

During fiscal year 2022, 2021 and 2020, the Company did no t repurchase any shares pursuant to the repurchase program.

During fiscal year 2019, the Company repurchased an aggregate of 111,509 shares, from the open market for a total cost of approximately $ 1.5 million, excluding fees and related expenses, at an average price of $ 13.43 per share.

As of June 30, 2022, the Company had repurchased an aggregate of 6,784,648 shares for a total cost of $ 67.3 million, at an average price of $ 9.92 per share, excluding fees and related expenses, since inception of the program.

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Outstanding shares under the 2018 Plan and awards granted under the 2009 Plan that expire, are forfeited or cancelled or terminate prior to the issuance of the shares subject to those awards or are settled in cash will be available for subsequent issuance under the 2018 Plan.

At the annual general meeting of shareholders in November 2021, the 2018 Plan was approved to increase by 1,000,000 shares to a total of 3,065,000 shares.

As of June 30, 2022, 537,260 shares were available for grant under the 2018 Plan.

Beginning with the 2014 Annual Shareholders Meeting, on the date of each annual shareholders meeting, each individual who commences service as a non-employee Board member by reason of his or her election to the Board at such annual meeting and each individual who is to continue to serve as a non-employee Board member, whether or not that individual is standing for re-election to the Board at that particular annual meeting, will automatically be granted an award in the form of restricted share units covering that number of common shares determined by dividing ninety-five thousand dollars ($ 95,000 ) by the average fair market value per share for the ninety ( 90 )-day period preceding the grant date.

Beginning with the 2014 Annual Shareholders Meeting, on the date of each annual shareholders meeting, each individual who commences service as a non-employee Board member by reason of his or her election to the Board at such annual meeting and each individual who is to continue to serve as a non-employee Board member, whether or not that individual is standing for re-election to the Board at that particular annual meeting, will automatically be granted an award in the form of restricted share units covering that number of common shares determined by dividing one hundred twenty-five thousand dollars ($ 125,000 ) by the average fair market value per share for the ninety ( 90 )-day period preceding the grant date, up to a maximum of 10,000 shares.

Under the 2018 Plan, incentive share options and RSU are to be granted at a price that is not less than 100 % and nonstatutory share options are to be granted at not less than 85 % of the fair value of the common shares, at the date of grant for employees and consultants.

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The PRSU vests 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 $ 2.3 million, $ 1.5 million and $ 2.8 million of expenses for these PRSUs during the years ended June 30, 2021, 2020 and 2019, respectively.

The Company recorded $ 4.6 million, $ 2.3 million and $ 1.5 million of expenses for these PRSUs during the years ended June 30, 2022, 2021 and 2020, respectively.

During the quarter ended June 30, 2019, the Company announced an incentive program.

3 unchanged sentences

Such non-cash compensation expense was recorded as part of share-based compensation expense in the condensed consolidated statements of operations.

As of June 30, 2021 and 2020, the Company recorded $ 0.1 million and $ 0.6 million such expenses in the other current liabilities, respectively.

During the fiscal years ended June 30, 2021 and 2020, the Company recorded $ 3.1 million and $ 0.6 million of non-cash compensation expense, respectively.

As of June 30, 2022 and 2021, the Company recorded nil and $ 0.1 million such expens es in the other current liabilities, respectively.

During the fiscal years ended June 30, 2022, 2021 and 2020, the Company recorded $ 0.3 million, $ 3.1 million and $ 0.6 million of non-cash compensation expense, respectively.

As of June 30, 2022, the Company granted RSUs valued at $ 4.0 million to participants, which were fully vested due to achievement of certain objective measures.

19 unchanged sentences

Market-based Restricted Stock Units (“MSUs”)

In December 2021, the Company granted 1.0 million market-based restricted stock units (“MSUs”) to its certain personnel.

The number of shares to be earned at the end of performance period is determined based on the Company’s achievement of specified stock prices and revenue thresholds during the performance period from January 1, 2022 to December 31, 2024 as well as the recipients remaining in continuous service with the Company through such period.

The MSU vests in four equal annual installments after the end of performance period.

The Company estimated the grant date fair values of its MSU with derived service periods of 4.1 to 7.1 years using a Monte-Carlo simulation model with the following assumptions:

Risk-free interest rate of 1.0 %, expected term of 3.1 years, expected volatility of 62.8 % and dividend yield of 0 %.

The Company recorded approximately $ 4.5 million expenses for these MSUs during the fiscal year ended June 30, 2022.

During the quarter ended September 30, 2018, the Company granted 1.3 million market-based restricted stock units (“MSUs”) to certain personnel.

2 unchanged sentences

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 modified MSUs was valued immediately before and after the modification, using Morte Carlo simulation pricing model.

The modified MSUs were valued immediately before and after the modification, using Morte Carlo simulation pricing model.

The Morte Carlo simulation pricing model applied the following assumptions for pre-modification conditions:

3 unchanged sentences

The fair value of these MSUs was recalculated to reflect the change as of August 31, 2020 and the unrecognized compensation amount was adjusted to reflect the increase in fair value.

The incremental expenses for the fiscal year ended June 30, 2021 were immaterial.

The Company recorded approximately $ 1.6 million, $ 1.2 million and $ 0.6 million of expense for these MSUs during the years ended June 30, 2022, 2021 and 2020, respectively.

22 unchanged sentences

At the annual general meeting of shareholders in November 2018, the 2018 Employee Share Purchase Plan (“Purchase Plan” or “ESPP”) Plan was approved, under which 1,430,000 common shares are available for issuance.

The ESPP Plan does not include an evergreen authorization, therefore the Company is not permitted to increase the number of shares reserved in the share pool without obtaining further shareholder approval.

The Purchase Plan does not include an evergreen authorization, therefore the Company is not permitted to increase the number of shares reserved in the share pool without obtaining further shareholder approval.

At the general meeting of shareholders in November 2021, the ESPP Plan was approved to increase from 1,430,000 shares to 2,500,000 shares.

The Purchase Plan provided for a series of overlapping offering periods with a duration of 24 months, generally beginning on May 15 and November 15 of each year.

2 unchanged sentences

After such accumulation period, common shares will be purchased at a price equal to 85 % of the fair market value per share on either the first day of the offering period or the last date of the accumulation period, whichever is less.

The maximum number of shares that may be purchased by a participant on any purchase date may not exceed 875 shares for a total of 3,500 shares per a 24-month offering period.

The maximum number of shares that may be purchased by a participant on any purchase date may not exceed 875 shares for a total of 3,500 shares per a 24-

month offering period.

In addition, no participant may purchase more than $ 25,000 worth of common stock in any one calendar year period.

27 unchanged sentences

The employer's contribution is discretionary.

The Company had no t made any contributions for eligible employees as of June 30, 2021.

Effective from April 1, 2022, the Company begins to match 50 % of employee contribution up to 4 % of eligible compensation for a 2 % maximum match.

During the fiscal year ended June 30, 2022, the Company made employer match contributions of $ 0.3 million.

The Company makes mandatory contributions for its employees to the respective local governments in terms of retirement, medical insurance and unemployment insurance, where applicable, according to labor and social security laws and regulations of the countries and areas in which the Company operates.

19 unchanged sentences

Foreign taxes, net ( 14.3 ) ( 14.4 ) ( 36.1 )

Outside basis difference on equity method investment 1.2 — —

Research and development credit ( 0.3 ) ( 2.4 ) 8.0

1 unchanged sentence

Tax Act deferred tax re-measurement — — 6.2

Foreign Derived Intangible Income Deduction ( 0.3 ) — —

Other 0.1 ( 0.2 ) —

24 unchanged sentences

Right of use assets ( 5,579 ) ( 6,968 )

Accruals and reserves — ( 83 )

Investments ( 29,619 ) —

Total deferred tax liabilities ( 54,107 ) ( 24,161 )

Net deferred tax assets $ 2,719 $ 4,270

Net deferred tax assets/(liabilities)

$ ( 28,165 ) $ 2,719

The breakdown between deferred tax assets and liabilities is as follows:

2 unchanged sentences

Long-term deferred tax liabilities ( 28,757 ) ( 2,448 )

Net deferred tax assets $ 2,719 $ 4,270

Net deferred tax assets/(liabilities) $ ( 28,165 ) $ 2,719

The Company’s valuation allowance related to deferred income taxes as reflected in the consolidated balance sheets was $ 5.8 million and $ 41.5 million as of June 30, 2022 and 2021, respectively.

The change in valuation allowance for June 30, 2021 and 2020 was an increase of $ 3.6 million and $ 2.4 million, respectively.

At June 30, 2021 and 2020, the Company provided a valuation allowance for its state research and development credit carryforward deferred tax assets of $ 5.8 million and $ 5.4 million, respectively, as it generated more state tax credits each year than it can utilize.

The Company intends to maintain a partial valuation allowance equal to the state research and development credit carryforwards in excess of the state net deferred tax liabilities on all other state book/tax differences and net operating loss carryforward.

Furthermore, the Company provided a valuation allowance mainly for the net operating loss, fixed asset and intangible asset related to deferred tax assets of the JV Company totaling $ 35.7 million and $ 32.4 million as of June 30, 2021 and 2020, respectively.

The Company intends to maintain a valuation allowance equal to the JV Company’s net deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance.

At June 30, 2021, the Company had federal net operating loss and research and development tax credit carryforwards of approximately $ 7.7 million and $ 9.5 million, respectively.

The federal net operating losses begin to expire in 2038 and the tax credits begin to expire in 2026, if not utilized.

The change in valuation allowance for June 30, 2022 and 2021 was a decrease of $ 35.7 million and an increase of $ 3.6 million, respectively.

At June 30, 2022 and 2021, the Company provided a valuation allowance for its state research and development credit carryforward deferred tax assets of $ 5.8 million for both years, as it generated more state tax credits each year than it can utilize.

The Company intends to maintain a valuation allowance equal to the state research and development credit carryforwards in excess of the state net deferred tax liabilities on all other state book/tax differences and net operating loss carryforward.

At June 30, 2021, the Company provided a valuation allowance mainly for the net operating loss, fixed asset and intangible asset related to deferred tax assets of the JV Company totaling $ 35.7 million.

The valuation allowance related to the deferred tax assets of the JV Company was reduced to $ 0 at June 30, 2022 as a result of the deconsolidation of the JV Company in December 2021.

At June 30, 2022, the Company had federal research and development tax credit carryforwards of approximately $ 8.9 million.

The federal tax credits begin to expire in 2030, if not utilized.

At June 30, 2022, the Company had $ 0.9 million of state net operating loss carryforwards and had tax credit carryforwards of approximately $ 7.8 million.

Approximately $ 0.3 million of the state tax credits begin to expire in 2022, if not utilized.

Approximately $ 0.2

million of the state tax credits begin to expire in 2023, if not utilized.

The remaining $ 7.6 million of the state tax credits carryforward indefinitely.

June 30, 2021, the JV Company had $ 139.1 million of net operating loss carryforwards which begin to expire in 2021, if not utilized.

The Company has not provided for withholding taxes on the undistributed earnings of its foreign subsidiaries because it intends to reinvest such earnings indefinitely.

However, we have recorded a deferred tax liability of $ 29.6 million at June 30, 2022 related to our investment in the JV Company.

As of June 30, 2022, the cumulative amount of undistributed earnings of its foreign entities considered permanently reinvested is $ 314.7 million.

51 unchanged sentences

There was no material impact of the tax law changes included in the American Rescue Plan Act of 2021 to the Company.

“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.

Altera Litigation

34 unchanged sentences

$ 777,552 $ 656,902 $ 464,909

During the fiscal year ended June 30, 2021, the Company corrected an immaterial error to reduce revenues relating to South Korea and to increase the revenues relating to Hong Kong by $ 7.1 million for the fiscal year ended June 30, 2020.

During the fiscal year ended June 30, 2022, the Company corrected an immaterial error to reduce revenues in Hong Kong by $0.5 million, and to increase the revenues in China by $0.5 million for the fiscal year ended June 30, 2021.

The following is a summary of revenue by product type:

21 unchanged sentences

As of June 30, 2022 and 2021, the Company had approximately $ 89.9 million and $ 81.8 million, respectively, of outstanding purchase commitments primarily for purchases of semiconductor raw materials, wafers, spare parts, packaging and testing services and others.

As of June 30, 2021 and 2020, the Company had approximately $ 90.0 million, and $ 18.0 million primarily for the JV Company, respectively, of capital commitments for the purchase of property and equipment.

As of June 30, 2022 and 2021, the Company had approximately $ 63.4 million, and $ 90.0 million, respectively, of commitments for the purchase of property and equipment.

Other commitments

See Notes 1, 5 and 6 to the Consolidated Financial Statements contained in this annual Report on Form 10-K for descriptions of commitments including Joint Venture, bank borrowings and leases.

See Notes 1, 7 and 8 to the Consolidated Financial Statements contained in this annual Report on Form 10-K for descriptions of commitments including Joint Venture, debt and leases.

Contingencies and indemnities

2 unchanged sentences

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.

As previously disclosed, the U.S.

Department of Justice ("DOJ") commenced an investigation into the Company's compliance with export control regulations relating to its business transactions with Huawei and its affiliates (“Huawei”), which were added to the “Entity List” maintained by the Department of Commerce (“DOC”) on May 16, 2019.

The Company is cooperating fully with federal authorities in the investigation, including responding to requests for documents and information from DOJ in connection with the investigation.

The Company has maintained an export control compliance program and has been committed to comply fully with all applicable laws and regulations.

In connection with this investigation, DOC requested the Company to suspend shipments of its products to Huawei, and the Company complied with such request, and the Company has not shipped any product to Huawei after December 31, 2019 (see Note 3).

The Company is currently working with DOC to resolve this issue.

As previously disclosed, U.S.

Department of Justice (“DOJ”) commenced an investigation into the Company’s compliance with export control regulations relating to its business transactions with Huawei and its affiliates (“Huawei”), which were added to the “Entity List” by the Department of Commerce (“DOC”) in May 2019.

The Company is cooperating fully with federal authorities in the investigation.

The Company has continued to respond to inquiries and requests from DOJ for documents and information relating to the investigation, and the matter is currently pending at DOJ, and DOJ has not provided the Company with any specific timeline or indication as to when the investigation will be concluded or resolved.

In connection with this investigation, DOC previously requested the Company to suspend shipments of its products to Huawei.

The Company complied with such request, and the Company has not shipped any product to Huawei after December 31, 2019.

The Company continues to work with DOC to resolve this issue and requested DOC to grant permission to reinstate the Company’s shipments to Huawei.

As part of this process and in response to DOC’s request, the Company provided certain documents and materials relating to the Company’s supply chain and shipment process to DOC, and DOC is currently reviewing this matter.

DOC has not informed the Company of any specific timeline or schedule under which DOC will provide a response to the Company’s request.

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.

1 unchanged sentence

In addition, the Company is unable to predict what, if any, further action that may be taken by the government in connection with the investigation, or what, if any, penalties, sanctions or remedial actions may be sought.

On March 19, 2020, Darryl Gray, a stockholder of the Company (the “Plaintiff”), filed a putative class action complaint in the United States District Court for the Southern District of New York (the “Gray Action”), alleging that the Company and its management members made material misstatements or omissions regarding the Company’s business and operations, including its export control practices relating to business transactions with Huawei and its affiliates.

The Gray Action asserts claims under Section 10(b) of the Exchange Act against the Company, its Chief Executive Officer and Chief Financial Officer (collectively, the Defendants”), as well as claims under Section 20(a) of the Exchange Act against the Chief Executive Officer and Chief Financial Officer.

Among other remedies, the Gray Action seeks to recover compensatory and other damages as well as attorney’s fees and costs.

On May 18, 2020, Plaintiff moved for an order appointing him as Lead Plaintiff pursuant to Section 21D of the Exchange Act and approving Glancy Prongay & Murray LLP as Lead Counsel for the putative class (the “Motion”).

On July 1, 2020, the Court entered an order granting the Motion and requiring that:

(i) Lead Plaintiff file an amended complaint or designate the current complaint as operative within sixty days;

(ii) Defendants answer the complaint or otherwise move within sixty days of such filing or designation;

(iii) Lead Plaintiff file an opposition, if any, within forty-five days;

and (iv) Defendants file a reply, if any, forty-five days thereafter.

On August 28, 2020, Plaintiff filed an amended complaint asserting the same claims against the Defendants, and adding the Company’s Executive Vice President of Product Line as a defendant on both claims.

On October 27, 2020, the Defendants moved to dismiss the action in its entirety.

Plaintiff filed his opposition on December 11, 2020 and Defendants filed their reply brief on January 25, 2021.

The Company believes the claims in the Gray Action are without merit and intends to vigorously defend this litigation.

Given the case is still on going, the Company cannot estimate the reasonably possible loss or range of loss that may occur.

The Company is a party to a variety of agreements that it has contracted with various third parties.

1 unchanged sentence

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.

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.

11 unchanged sentences

However, it is possible that additional environmental issues may arise in the future, which the Company cannot currently predict.

Subsequent Event

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 will make consecutive quarterly payments of principal and interest.

The loan accrues interest based on adjusted LIBOR plus the applicable margin based on the outstanding balance of the loan.

This agreement contains customary restrictive covenants and includes certain financial covenants that require the Company to maintain.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED (PARENT COMPANY BASIS)

CONDENSED UNCONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

Year Ended June 30,

2021 2020 2019

Revenue $ — $ 1,334 $ 4,292

Cost of revenue — — —

Gross profit — 1,334 4,292

Operating expenses:

General and administrative 8,419 1,745 4,599

Total operating expenses 8,419 1,745 4,599

Operating loss ( 8,419 ) ( 411 ) ( 307 )

Interest expense and other income (loss), net ( 1 ) ( 1 ) 3

Income (loss) on equity investment in subsidiaries 64,709 ( 17,845 ) ( 14,334 )

Net income (loss) including noncontrolling interest 56,289 ( 18,257 ) ( 14,638 )

Net loss attributable to noncontrolling interest ( 1,827 ) ( 11,661 ) ( 16,499 )

Net income attributable to Alpha and Omega Semiconductor Limited $ 58,116 $ ( 6,596 ) $ 1,861

The accompanying notes to Schedule I are an integral part of these financial statements

ALPHA AND OMEGA SEMICONDUCTOR LIMITED (PARENT COMPANY BASIS)

CONDENSED UNCONSOLIDATED BALANCE SHEETS

(in thousands, except par value per share)

Current assets:

Cash and cash equivalents $ 9,752 $ 4,538

Other current assets 191 220

Total current assets 9,943 4,758

Property, plant and equipment, net 32 44

Other long-term assets 114 160

Investment in subsidiaries 540,425 446,415

Total assets $ 550,514 $ 451,377

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable and accrued liabilities $ 786 $ 4,816

Accounts payable - Intercompany 33,403 14,673

Total liabilities 34,189 19,489

Preferred shares, par value $ 0.002 per share:

10,000 shares;

Issued and outstanding:

none at June 30, 2021 and 2020

Common shares, par value $ 0.002 per share:

100,000 shares;

issued and outstanding:

32,975 shares and 26,350 shares, respectively at June 30, 2021 and 31,944 shares and 25,305 shares, respectively at June 30, 2020

Treasury shares at cost;

6,625 shares at June 30, 2021 and 6,639 shares at June 30, 2020

( 66,064 ) ( 66,184 )

Additional paid-in capital 259,993 246,103

Accumulated other comprehensive income 2,315 ( 5,127 )

Retained earnings 176,895 118,833

Total Alpha and Omega Semiconductor Limited shareholder's equity 373,205 293,689

Noncontrolling interest 143,120 138,199

Total equity 516,325 431,888

Total liabilities and equity $ 550,514 $ 451,377

The accompanying notes to Schedule I are an integral part of these financial statements.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED (PARENT COMPANY BASIS)

CONDENSED UNCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

Year ended June 30,

2021 2020 2019

Net income (loss) including noncontrolling interest $ 56,289 $ ( 18,257 ) $ ( 14,638 )

Other comprehensive income (loss), net of tax

Foreign currency translation adjustment 14,190 ( 4,839 ) ( 5,937 )

Comprehensive income (loss) 70,479 ( 23,096 ) ( 20,575 )

Noncontrolling interest 4,921 ( 14,066 ) ( 19,303 )

Comprehensive income (loss) attributable to Alpha and Omega Semiconductor Limited $ 65,558 $ ( 9,030 ) $ ( 1,272 )

The accompanying notes to Schedule I are an integral part of these financial statements.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED (PARENT COMPANY BASIS)

CONDENSED UNCONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Year Ended June 30,

2021 2020 2019

Cash flows from operating activities

Net income (loss) including noncontrolling interest $ 56,289 $ ( 18,257 ) $ ( 14,638 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation 12 76 274

Share-based compensation expense 683 450 432

Equity in net (income) loss of subsidiaries ( 64,709 ) 17,845 14,334

Changes in assets and liabilities:

Accounts receivable - intercompany — — 3,937

Other current assets 75 187 134

Accounts payable and accrued liabilities ( 4,034 ) 3,953 121

Accounts payable - intercompany 18,730 ( 6,841 ) 21,514

Net cash provided by (used in) operating activities 7,046 ( 2,587 ) 26,108

Cash flows from investing activities

Purchases of property and equipment — — ( 51 )

Investment in subsidiaries — — ( 25,000 )

Net cash used in investing activities — — ( 25,051 )

Cash flows from financing activities

Withholding tax on restricted stock units ( 6,924 ) ( 1,509 ) ( 2,028 )

Proceeds from exercise of stock options and ESPP 5,092 3,350 3,018

Payments for repurchases of common shares — — ( 1,501 )

Net cash provided by (used in) financing activities ( 1,832 ) 1,841 ( 511 )

Net increase (decrease) in cash and cash equivalents 5,214 ( 746 ) 546

Cash and cash equivalents at beginning of year 4,538 5,284 4,738

Cash and cash equivalents at end of year $ 9,752 $ 4,538 $ 5,284

The accompanying notes to Schedule I are an integral part of these financial statements.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED (PARENT COMPANY BASIS)

NOTES TO THE CONDENSED UNCONSOLIDATED FINANCIAL STATEMENTS

Basis of Presentation

Alpha and Omega Semiconductor Limited is the parent company of all Alpha and Omega Semiconductor subsidiaries.

It was incorporated in Bermuda on September 27, 2000 as an exempted limited liability company.

The address of its registered office is Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.

The accompanying condensed parent company financial statements have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X, as the restricted net assets of its subsidiaries exceed 25 % of the consolidated net assets of Alpha and Omega Semiconductor Limited and its subsidiaries (the “Company”).

The parent company records its investment in subsidiaries under the equity method of accounting.

Such investment is presented on the balance sheet as "Investment in subsidiaries" and the subsidiaries' net income (loss) are recognized based on the effective shareholding percentage as income on equity investment in subsidiaries on the statement of operations.

Intercompany balances and transactions have not been eliminated.

The revenue recorded represents intercompany administrative service fees charged by the parent company starting in fiscal year 2013.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S.

GAAP have been condensed or omitted.

The footnote disclosures contain supplemental information relating to the operations of the Company and, as such, these statements should be read in conjunction with the notes to the consolidated financial statements of the Company.

Restricted net assets of subsidiaries

For a discussion of the Company’s restricted net assets of subsidiaries, see Note 12 of the Company’s consolidated financial statements.

Commitments and contingencies

For a discussion of the Company’s commitments and contingencies, see Note 13 to the Company’s consolidated financial statements.

Cybersecurity Incident

In April 2022, the Company became aware of a cybersecurity incident involving unauthorized access to one email account at the Company, which caused the Company to make payments to unauthorized bank accounts.

As a result, the Company recorded a loss of $ 1.5 million due to the incident for the three months ended March 31, 2022.

The financial impact of this incident was not material, and there were no changes to previously released financial results or financial statements.

Immediately following the discovery, the Company commenced an investigation, contained the incident and implemented additional protective measures and internal control policies and procedures.

The Company has also retained a professional cybersecurity investigation firm to conduct a full forensic analysis of the incident, and concluded that there were no evidence of malware, persistence mechanisms or other compromised exchange on-premises accounts within the Company's environment.

In addition, there was no evidence to suggest that these accounts were accessed via the user agent that has the capability to synchronize or download email messages to the user’s local host.

This incident appears to be isolated and its financial impact identified to date was not material.

The Company believes that it had not incurred other damages and losses based on the conclusion of the full investigation.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

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