ALPHA & OMEGA SEMICONDUCTOR Ltd 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)), as of the end of the period covered by this report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures were not effective as of June 30, 2023, as a result of a material weakness in our internal control over financial reporting as described in more detail below . The material weakness described herein did not result in any identified misstatements to the financial statements, and there were no changes to our historical financial statements. Notwithstanding such material weakness, our financial statements and other financial information included in this Annual Report on Form 10-K fairly present in all material respects our financial condition, results of operations, and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States. Management’s Annual Report on Internal Control over Financial Reporting Our management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), as amended from time to time. Based on the assessment, our management concluded that the Company's internal control over financial reporting was not effective as of June 30, 2023 as a result of the material weakness as described below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. In connection with management’s evaluation of the effectiveness of our internal control over financial reporting described above, management identified a material weakness in our internal control over financial reporting due to the fact that we did not: (1) design and maintain effective information technology general controls in the areas of user access, and segregation of duties for one of the information technology systems that supports the Company’s financial reporting over inventory (work in process and finished goods) in costing; and (ii) identify and test controls to ensure the reliability of the costing of inventory (work in process and finished goods). The effectiveness of the Company’s internal control over financial reporting as of June 30, 2023 has been audited by Baker Tilly US, LLP, an independent registered public accounting firm, as stated in their report, included on page 68 . REMEDIATION PLAN Our management, with oversight from our Audit Committee, is in the process of developing and implementing remediation plans in response to the identified material weakness described above. Specifically, we are designing and 63 implementing additional measures to further improve information technology general controls in the areas of user access in order to ensure segregation of duties for our system that supports financial reporting over inventory (work in process and finished goods) in costing, and to identify and test control to ensure reliability of costing of inventory (work in process and finished goods). The material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. The material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We believe the measures described above will remediate the control deficiencies we have identified and strengthen our internal control over financial reporting. We are committed to continuing to improve our internal control processes and will continue to review, optimize and enhance our financial reporting controls and procedures. The process of designing and implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations. As we continue to evaluate and take actions to improve our internal control over financial reporting, we may determine to take additional actions to address control deficiencies or determine to modify certain of the remediation measures described above. Limitation on the Effectiveness of Controls While our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance that their respective objectives will be met, we do not expect that our disclosure controls and procedures or our internal control over financial reporting are or will be capable of preventing or detecting all errors and all fraud. Any control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Changes in Internal Control Over Financial Reporting As required by Rule 13a-15(d) under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated our internal control over financial reporting to determine whether any changes occurred during the fourth fiscal quarter covered by this Form 10-K that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there has been no such change during the fourth fiscal quarter of 2023 other than the material weakness and related remediation measures as described above. 64 Item 9B. Other Information Trading Plans or Rule 10b5-1 Trading Plans The table below summarizes the material terms of trading arrangements adopted by any of our executive officers or directors during the June 2023 quarter. All of the trading arrangements listed below are intended to satisfy the affirmative defense of Rule 10b5-1(c). Name Title Date of Adoption End Date 1 Aggregate number of shares common shares to be sold pursuant to 10b5-1 trading agreements Mike Chang Executive Chairman and Director May 26, 2023 March 15, 2024 180,000 Yifan Liang Chief Financial Officer May 24, 2023 August 15, 2024 80,000 1 Each plan will expire on the earlier of the end date and the completion of all transactions under the trading arrangement. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not Applicable. 65 PART III 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 “2023 Proxy Statement”), no later than 120 days after the end of fiscal year 2023, and certain information to be included in the 2023 Proxy Statement is incorporated herein by reference. Item 10. Directors, Executive Officers and Corporate Governance The information required by this item concerning our directors, executive officers, Section 16 compliance and corporate governance matters is contained in part under the caption “Business - Executive Officers” in Part I of this report, and the remainder is incorporated by reference to the information set forth in the sections titled “Election of Directors” and “Delinquent Section 16(a) Reports” in the 2023 Proxy Statement. Item 11. Executive Compensation The information required by this item regarding executive compensation is incorporated by reference from the information set forth under the captions “Compensation of Non-Employee Directors” and “Executive Compensation,” in the 2023 Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item regarding security ownership of certain beneficial owners and management is incorporated by reference to the information set forth in the section titled “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the 2023 Proxy Statement. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this item regarding related party transactions and director independence is incorporated by reference from the information set forth under the captions “Board of Directors and Committees of the Board” and “Related Party Transactions” in the 2023 Proxy Statement. Item 14. Principal Accountant Fees and Services The information required by this item regarding principal accountant fees and services is incorporated by reference from the information set forth under the caption “Principal Accounting Fees and Services” in the 2023 Proxy Statement. 66 PART IV Item 15. Exhibits and Financial Statement Schedules (a) The following documents are filed as part of this annual report: (1) Consolidated Financial Statements. The index to the consolidated financial statements is below. Item Page Report of Independent Registered Public Accounting Firm (Baker Tilly US, LLP - PCAOB Firm ID No. 23 ) 68 Report of Independent Registered Public Accounting Firm (BDO USA, LLP - PCAOB Firm ID No. 243 ) 71 Consolidated Balance Sheets 72 Consolidated Statements of Operations 74 Consolidated Statements of Comprehensive Income (Loss ) 73 Consolidated Statements of Equity 75 Consolidated Statements of Cash Flows 76 Notes to the Consolidated Financial Statements 78 (2) Financial Statement Schedules. Schedule II - Valuation and Qualifying accounts 112 (b) Exhibits The exhibits listed on the accompanying Index to Exhibits in Item 15(b) below are filed as part of, or hereby incorporated by reference into, this Annual Report on Form 10-K. 67 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Alpha and Omega Semiconductor Limited Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheet of Alpha and Omega Semiconductor Limited (the "Company") as of June 30, 2023, the related consolidated statements of operations, comprehensive income, equity, and cash flows, for the year then ended, and the related notes and schedule (collectively referred to as the "consolidated financial statements"). We also have audited the Company’s internal control over financial reporting as of June 30, 2023, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2023, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of June 30, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because a material weakness in internal control over financial reporting existed as of that date as the Company did not: (i) design and maintain effective information technology general controls in the areas of user access, and segregation of duties for one of the information technology systems that supports the Company’s financial reporting over inventory (work in process and finished goods) in costing; and (ii) identify and test controls to ensure the reliability of the costing of inventory (work in process and finished goods). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in Management’s Annual Report on Internal Control Over Financial Reporting included in Item 9A of this Annual Report on Form 10-K. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting included in Item 9A of this Annual Report on Form 10-K. Our responsibility is to express an opinion on the Company's consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud and whether effective internal control over financial reporting was maintained in all material respects. Our audit of the financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and 68 dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate . Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the 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 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 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 . Excess and Obsolete Inventory Reserve The Company’s inventory, net totaled $183 million as of June 30, 2023, representing approximately 15% of total assets. As described in Notes 1 and 6 to the consolidated financial statements, the Company assesses the valuation of its inventory on a periodic basis and provides an allowance based on several factors including inventory quantities on hand as compared with its sales forecasts, historical usage, aging of inventories, production yield levels and current product selling prices. We identified the provision for excess and obsolete inventory as a critical audit matter because the determination of excess and obsolete inventory reserves is judgmental and considers several factors that are affected by market and economic conditions, such as company forecasts, dynamic pricing environments, and industry supply and demand. How the critical audit matter was addressed in the audit Our audit procedures related to management’s estimates used in the valuation of inventory included the following, among others: • We evaluated and tested the design and operating effectiveness of the Company's internal controls over the costing of inventory, the calculation of lower of cost or net realizable value reserves including related estimated costs and selling prices, and the determination of demand forecasts and related application against on hand inventory. • We reviewed the reasonableness of the Company’s methodology for estimating the valuation of inventories by evaluating factors including excess units on hand based on ending inventory quantities compared to forecasted shipment quantities. • We tested the significant assumptions, including product demand forecasts, and the underlying data used in management's inventory valuation assessment. • We evaluated management’s ability to accurately estimate forecasted demand by comparing estimates made in prior periods to the historical actual results for those same periods. Allowance for Price Adjustments The Company recorded allowance for price adjustments of $40 million as of June 30, 2023. As described in Notes 1 and 6, the Company provides special pricing to certain distributors, primarily based on volume, to encourage resale of the Company's products and records a reduction of revenue and a corresponding allowance for price adjustments against accounts receivable on the consolidated balance sheet. Estimating the allowance for price adjustments requires management to make certain assumptions including historical customer ship and debit credit rates and credit lag times on such revenues. These assumptions could be affected by current and future economic and market conditions. We identified the allowance for price adjustments as a critical audit matter because auditing management’s estimate of the allowance for price adjustments was complex and judgmental due to the significant estimation required by management. How the critical audit matter was addressed in the audit Our audit procedures included the following, among others: 69 • We evaluated and tested the design and operating effectiveness of the Company's internal controls over the measurement of the allowance for price adjustments, including testing controls over management’s review of the allowance calculation and the underlying assumptions used to develop the estimate. • We confirmed the quantity of select distributor inventories. • We vouched revenues and allowance for price adjustments to supporting documents. • We evaluated the reasonableness of management’s assumptions by comparing the significant assumptions (ship and debit claims percentage history and the relevant cycle time period between when sales are made by distributors to their end customers and when ship and debit credit memos are issued by the Company to distributors) used to historical customer trends, including testing the completeness and accuracy of the underlying data. /s/ Baker Tilly US, LLP We have served as the Company's auditor since 2022. Mountain View, California August 29, 2023 70 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and Board of Directors Alpha & Omega Semiconductor Limited Sunnyvale, California Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of Alpha & Omega Semiconductor Limited (the “Company”) as of June 30, 2022, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the two 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 the results of its operations and its cash flows for each of the two years in the period ended June 30, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ BDO USA, LLP We have served as the Company's auditor from 2018 to 2022. San Jose, California September 19, 2022 71 ALPHA AND OMEGA SEMICONDUCTOR LIMITED CONSOLIDATED BALANCE SHEETS (in thousands, except par value per share) June 30, 2023 2022 ASSETS Current assets: Cash and cash equivalents $ 195,188 $ 314,352 Restricted cash 415 299 Accounts receivable, net 22,420 65,681 Inventories 183,247 158,040 Other current assets 22,666 11,220 Total current assets 423,936 549,592 Property, plant and equipment, net 357,831 318,666 Operating lease right-of-use assets, net 24,349 23,674 Intangible assets, net 6,765 10,050 Equity method investment 366,617 378,378 Deferred income tax assets 536 592 Other long-term assets 19,703 17,677 Total assets $ 1,199,737 $ 1,298,629 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 50,775 $ 87,377 Accrued liabilities 79,533 116,893 Payable related to equity investee, net 11,950 28,989 Income taxes payable 5,546 4,248 Short-term debt 11,434 25,563 Deferred revenue 8,073 — Finance lease liabilities 867 802 Operating lease liabilities 4,383 3,850 Total current liabilities 172,561 267,722 Long-term debt 38,360 42,486 Income taxes payable - long-term 2,817 2,158 Deferred income tax liabilities 27,283 28,757 Finance lease liabilities - long-term 3,216 3,932 Operating lease liabilities - long-term 20,544 20,878 Other long-term liabilities 51,037 78,603 Total liabilities 315,818 444,536 Commitments and contingencies (Note 15) Equity: Preferred shares, par value $ 0.002 per share: Authorized: 10,000 shares; issued and outstanding: none at June 30, 2023 and 2022 — — Common shares, par value $ 0.002 per share: Authorized: 100,000 shares; issued and outstanding: 34,811 shares and 27,654 shares, respectively at June 30, 2023 and 33,988 shares and 27,371 shares, respectively at June 30, 2022 70 68 Treasury shares at cost; 7,157 shares at June 30, 2023 and 6,617 shares at June 30, 2022 ( 79,365 ) ( 66,000 ) Additional paid-in capital 329,034 288,951 Accumulated other comprehensive income (loss) ( 8,111 ) 1,080 Retained earnings 642,291 629,994 Total Alpha and Omega Semiconductor Limited shareholders’ equity 883,919 854,093 Total liabilities and equity $ 1,199,737 $ 1,298,629 The accompanying notes are an integral part of these consolidated financial statements. 72 ALPHA AND OMEGA SEMICONDUCTOR LIMITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) Year ended June 30, 2023 2022 2021 Net income including noncontrolling interest $ 12,364 $ 453,183 $ 56,289 Other comprehensive income, net of tax Foreign currency translation adjustment ( 9,191 ) 1,307 14,190 Cumulative translation adjustment removal due to deconsolidation of the JV Company — ( 3,642 ) — Comprehensive income 3,173 450,848 70,479 Less: Noncontrolling interest — ( 1,080 ) 4,921 Comprehensive income attributable to Alpha and Omega Semiconductor Limited $ 3,173 $ 451,928 $ 65,558 The accompanying notes are an integral part of these consolidated financial statements. 73 ALPHA AND OMEGA SEMICONDUCTOR LIMITED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Year Ended June 30, 2023 2022 2021 Revenue $ 691,321 $ 777,552 $ 656,902 Cost of goods sold 491,785 508,996 452,359 Gross profit 199,536 268,556 204,543 Operating expenses: Research and development 88,146 71,259 62,953 Selling, general and administrative 88,861 95,259 77,514 Total operating expenses 177,007 166,518 140,467 Operating income 22,529 102,038 64,076 Other income (loss), net ( 1,730 ) 999 2,456 Interest expense, net ( 1,087 ) ( 3,920 ) ( 6,308 ) Gain on deconsolidation of the JV Company — 399,093 — Loss on changes of equity interest in the JV Company, net — ( 3,140 ) — Net income before income taxes 19,712 495,070 60,224 Income tax expense 5,937 39,258 3,935 Net income before loss from equity method investment 13,775 455,812 56,289 Equity method investment loss from equity investee ( 1,411 ) ( 2,629 ) — Net income 12,364 453,183 56,289 Net income (loss) attributable to noncontrolling interest — 20 ( 1,827 ) Net income attributable to Alpha and Omega Semiconductor Limited $ 12,364 $ 453,163 $ 58,116 Net income per common share attributable to Alpha and Omega Semiconductor Limited Basic $ 0.45 $ 16.93 $ 2.25 Diluted $ 0.42 $ 16.07 $ 2.13 Weighted average number of common share attributable to Alpha and Omega Semiconductor Limited used to compute net income per share: Basic 27,552 26,764 25,786 Diluted 29,528 28,203 27,272 The accompanying notes are an integral part of these consolidated financial statements. 74 ALPHA AND OMEGA SEMICONDUCTOR LIMITED CONSOLIDATED STATEMENTS OF EQUITY (in thousands) Preferred Shares Common Shares Treasury Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (loss) Retained Earnings Total AOS Shareholders' Equity Noncontrolling Interest Total Equity Shares Amount Shares Amount Shares Amount Balance, June 30, 2020 — $ — 31,944 $ 64 ( 6,639 ) $ ( 66,184 ) $ 246,103 $ ( 5,127 ) $ 118,833 $ 293,689 $ 138,199 $ 431,888 Exercise of common stock options and release of RSUs — — 857 1 — — 1,698 — — 1,699 — 1,699 Reissuance of treasury stock upon exercise of common stock options and release of RSUs — — — — 14 120 — — ( 54 ) 66 — 66 Withholding tax on restricted stock units — — ( 225 ) — — — ( 6,924 ) — — ( 6,924 ) — ( 6,924 ) 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 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 Balance, June 30, 2021 — — 32,975 66 ( 6,625 ) ( 66,064 ) 259,993 2,315 176,895 373,205 143,120 516,325 Exercise of common stock options and release of RSUs — — 652 1 — — 897 — — 898 — 898 Reissuance of treasury stock upon exercise of common stock options and release of RSUs — — — — 8 64 — — ( 64 ) — — — Withholding tax on restricted stock units — — ( 183 ) — — — ( 8,641 ) — — ( 8,641 ) — ( 8,641 ) 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 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 Exercise of common stock options and release of RSUs — — 715 1 — — 550 — — 551 — 551 Reissuance of treasury stock upon exercise of common stock options and release of RSUs — — — — 8 67 — — ( 67 ) — — — Withholding tax on restricted stock units — — ( 242 ) — — — ( 6,381 ) — — ( 6,381 ) — ( 6,381 ) Issuance of shares under Employee Stock Purchase Plan — — 350 1 — — 8,426 — — 8,427 — 8,427 Repurchase of common shares under share repurchase program — — ( 548 ) ( 13,432 ) — — — ( 13,432 ) — ( 13,432 ) Share-based compensation expense — — — — — — 37,488 — — 37,488 — 37,488 Net income — — — — — — — — 12,364 12,364 — 12,364 Foreign currency translation adjustment — — — — — — — ( 9,191 ) — ( 9,191 ) — ( 9,191 ) Balance, June 30, 2023 — $ — 34,811 $ 70 ( 7,157 ) $ ( 79,365 ) $ 329,034 $ ( 8,111 ) $ 642,291 $ 883,919 $ — $ 883,919 The accompanying notes are an integral part of these consolidated financial statements. 75 ALPHA AND OMEGA SEMICONDUCTOR LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended June 30, 2023 2022 2021 Cash flows from operating activities Net income including noncontrolling interest $ 12,364 $ 453,183 $ 56,289 Adjustments to reconcile net income to net cash provided by operating activities: Gain on deconsolidation of the JV Company — ( 399,093 ) — Loss on changes of equity interest in the JV Company, net — 3,140 — Deferred income tax on deconsolidation and changes of equity interest in the JV Company — 29,973 — Depreciation and amortization 43,207 42,851 52,685 Equity method investment loss from equity investee 1,411 2,629 — Share-based compensation expense 37,488 31,324 15,324 Deferred income taxes, net ( 1,418 ) 1,592 1,551 Loss on disposal of property and equipment 182 18 426 Changes in assets and liabilities: Accounts receivable 43,262 ( 30,085 ) ( 22,517 ) Inventories ( 25,207 ) ( 57,416 ) ( 18,765 ) Other current and long-term assets ( 18,695 ) ( 9,408 ) ( 5,843 ) Payable related to equity investee, net ( 17,038 ) 48,192 — Accounts payable ( 19,568 ) 23,755 ( 528 ) Income taxes payable 1,957 ( 1,687 ) 1,660 Income taxes payable on deconsolidation and changes of equity interest in the JV Company — 3,490 — Increase in deferred revenue 8,073 — — Accrued and other liabilities ( 45,545 ) 76,407 48,462 Net cash provided by operating activities 20,473 218,865 128,744 Cash flows from investing activities Proceeds from sale of equity interest in the JV Company — 26,347 — Deconsolidation of cash and cash equivalents of the JV Company — ( 20,734 ) — Purchases of property and equipment ( 110,428 ) ( 138,014 ) ( 72,700 ) Proceeds from sale of property and equipment 167 135 42 Government grant related to equipment 631 1,444 119 Net cash used in investing activities ( 109,630 ) ( 130,822 ) ( 72,539 ) Cash flows from financing activities Withholding tax on restricted stock units ( 6,381 ) ( 8,641 ) ( 6,924 ) Proceeds from exercise of stock options and ESPP 8,978 6,143 5,092 Payments for repurchase of common shares ( 13,432 ) — — Proceeds from borrowings 8,632 64,276 65,876 Repayments of borrowings ( 26,598 ) ( 35,748 ) ( 66,584 ) Principal payments on capital leases ( 810 ) ( 4,176 ) ( 16,451 ) Net cash provided by (used in) financing activities ( 29,611 ) 21,854 ( 18,991 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 280 ) ( 59 ) 4,895 Net increase (decrease) in cash, cash equivalents and restricted cash ( 119,048 ) 109,838 42,109 Cash, cash equivalents and restricted cash at beginning of year 314,651 204,813 162,704 Cash, cash equivalents and restricted cash at end of year $ 195,603 $ 314,651 $ 204,813 76 ALPHA AND OMEGA SEMICONDUCTOR LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended June 30, 2023 2022 2021 Supplemental disclosures of cash flow information: Cash paid for interest $ 3,711 $ 3,404 $ 5,641 Cash paid for income taxes $ 1,537 $ 5,768 $ 970 Supplemental disclosures of non-cash investing and financing information: Property and equipment purchased but not yet paid $ 12,715 $ 62,165 $ 20,204 Reissuance of treasury stock $ 67 $ 64 $ 120 Reconciliation of cash, cash equivalents, and restricted cash: Cash and cash equivalents $ 195,188 $ 314,352 $ 202,412 Restricted cash 415 299 233 Restricted cash - long-term — — 2,168 Total cash, cash equivalents, and restricted cash $ 195,603 $ 314,651 $ 204,813 The accompanying notes are an integral part of these consolidated financial statements. 77 ALPHA AND OMEGA SEMICONDUCTOR LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. The Company and Significant Accounting Policies The Company Alpha and Omega Semiconductor Limited and its subsidiaries (the “Company”, “AOS”, “we” or “us”) design, develop and supply a broad range of power semiconductors. The Company's portfolio of products targets high-volume applications, including personal computers, graphic cards, flat panel TVs, home appliances, smart phones, battery packs, quick chargers, home appliances, consumer and industrial motor controls and power supplies for TVs, computers, servers and telecommunications equipment. The Company conducts its operations primarily in the United States of America (“USA”), Hong Kong, China, and South Korea. Basis of Preparation The 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. GAAP”). Joint Venture On March 29, 2016, the Company entered into a joint venture contract (the “JV Agreement”) with two investment funds owned by the Municipality of Chongqing (the “Chongqing Funds”), pursuant to which the Company and the Chongqing Funds formed a joint venture, (the “JV Company”), for the purpose of constructing and operating a power semiconductor packaging, testing and 12-inch wafer fabrication facility in the Liangjiang New Area of Chongqing, China (the “JV Transaction”). As of December 1, 2021, the Company owned 50.9 %, and the Chongqing Funds owned 49.1 %, of the equity interest in the JV Company. The Joint Venture was accounted under the provisions of the consolidation guidance since the Company had controlling financial interest until December 1, 2021. As of December 2, 2021, the Company ceased having control over the JV Company. Therefore, the Company deconsolidated the JV Company as of that date. Subsequently, the Company has accounted for its investment in the JV Company using the equity method of accounting. As of June 30, 2023, the percentage of outstanding JV equity interest beneficially owned by the Company was reduced to 42.2 %. Such reduction reflects (i) the sale by the Company of approximately 2.1 % of the outstanding JV equity interest which resulted in the deconsolidation of the JV Company, (ii) additional sale by the Company of approximately 1.1 % of outstanding JV equity interest in December 2021, (iii) the adoption of an employee equity incentive plan and the issuance of additional equity interest equivalent to 3.99 % of the JV Company to investors in exchange for cash in December 2021, and (iv) issuance of additional equity interest of JV to investors in January 2022. Certain Significant Risks and Uncertainties Related to Outbreak of Coronavirus Disease 2019 (“COVID-19”) During the first half of calendar year 2022, the Company's operations were negatively impacted by China’s zero-Covid policy that resulted in factory shutdowns and supply chain shortages, including the temporary suspension of our factory operations in Shanghai from April to June 2022. In December 2022, the Chinese government issued new guidelines easing some of its strict zero-COVID policies, including the relaxation of testing requirements and travel restrictions. During the three months ended March 31, 2023, China and other parts of the world in which we conduct our business have ended pandemic restriction and have largely returned to normal. In general, our business operations are no longer affected by the COVID-19 pandemic. Risks and Uncertainties The Company is subject to certain risks and uncertainties. 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: the macroeconomic condition and cyclical nature of the semiconductor industry; 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; the loss of any of its larger customers; restrictions on the 78 Company’s ability to sell to foreign customers due to trade laws, regulations and requirements; disruptions of the supply chain of components needed for our products; inability to obtain additional financing; inability to meet certain debt covenants; fundamental changes in the technology underlying the Company’s products; successful and timely completion of product design efforts; and new product design introductions by competitors. 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 Company's revenue is 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 entered into an agreement with the JV Company pursuant to which the JV Company agrees to provide the Company 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. HHGrace has been manufacturing wafers for the Company since 2002. HHGrace manufactured approximately 9.6 %, 10.3 % and 11.5 % of the wafers used in the Company's products for the fiscal years ended June 30, 2023, 2022 and 2021, 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. In addition, manufacturing facilities' capacity affects the Company's gross margin because the Company has certain fixed costs associated with its Oregon Fab as well as in-house packaging and testing facilities. If the Company fails to utilize its manufacturing facilities' capacity at a desirable level, its financial condition and results of operations will be adversely affected. Use of Estimates The preparation of the consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. To the extent there are material differences between these estimates and actual results, the Company's consolidated financial statements will be affected. On an ongoing basis, the Company evaluates the estimates, judgments and assumptions including those related to stock rotation returns, price adjustments, allowance for doubtful accounts, inventory reserves, warranty accrual, income taxes, leases, share-based compensation, recoverability of and useful lives for property, plant and equipment and intangible assets, as well as the economic implications of the COVID-19 pandemic. Foreign Currency Transactions and Translation Most of the Company's principal subsidiaries use U.S. dollars as their functional currency because their transactions are primarily conducted and settled in U.S. dollars. All of their revenues and a significant portion of their operating expenses are denominated in U.S. dollars. The functional currencies for the Company's in-house packaging and testing facilities in China are U.S. dollars, and a majority of their capital expenditures are denominated in U.S. dollars. Foreign currency transactions are translated into the functional currencies using the exchange rates prevailing at the dates of the transactions. 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, 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. Cash, Cash Equivalents and Restricted Cash Cash and cash equivalents primarily consist of cash on hand and short-term bank deposits with original maturities of three months or less. Cash equivalents are highly liquid investments with stated maturities of three months or less as of the dates of purchase. The carrying amounts reported for cash and cash equivalents are considered to approximate fair values based upon their short maturities. Cash and cash equivalents are maintained with reputable major financial institutions. If, due to current economic conditions or other factors, one or more of the financial institutions with which the Company maintains deposits fails, the Company's cash and cash equivalents may be at risk. Deposits with these banks may exceed the amount of insurance provided on such deposits; however, these deposits typically may be redeemed upon demand and, therefore, bear minimal risk. 79 The Company maintains restricted cash in connection with cash balances temporarily restricted for regular business operations. These balances have been excluded from the Company’s cash and cash equivalents balance and are classified as restricted cash in the Company’s consolidated balance sheets. As of June 30, 2023 and 2022, the amount of restricted cash was $ 0.4 million and $ 0.3 million, respectively. Accounts Receivable, net The allowance for doubtful accounts is based on assessment of the collectability of accounts receivable from customers. The Company reviews the allowance by considering factors such as historical collection experience, credit quality, age of the accounts receivable balances and current economic conditions that may affect a customer's ability to pay. The Company writes off a receivable and charges against its recorded allowance when it has exhausted its collection efforts without success. Fair Value Measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following: • Level 1 - Quoted prices in active markets for identical assets or liabilities. • Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Fair Value of Financial Instruments The fair value of cash equivalents is based on observable market prices and have been categorized in Level 1 in the fair value hierarchy. Cash equivalents consist primarily of short-term bank deposits. The carrying values of financial instruments such as cash and cash equivalents, accounts receivable and accounts payable approximate their carrying values due to their short-term maturities. The carrying value of the Company's debt is considered a reasonable estimate of fair value which is estimated by considering the current rates available to the Company for debt of the same remaining maturities, structure and terms of the debts. Inventories The Company carries inventories at the lower of cost (determined on a first-in, first-out basis) or net realizable value. 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. 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. Adjustments to inventory once established are not reversed until the related inventory has been sold or scrapped. If actual market conditions are more favorable than expected and the products that have previously been written down are sold, our gross margin would be favorably impacted. Property, Plant and Equipment Property, plant and equipment are stated at historical cost less accumulated depreciation. Historical cost includes expenditures that are directly attributable to the acquisition of the items and the costs incurred to make the assets ready for their intended use. Depreciation is provided for on a straight-line basis over the estimated useful lives of the related assets as follows: 80 81 Building and building improvements 20 years Manufacturing machinery and equipment 7 to 10 years Equipment and tooling 3 to 5 years Computer hardware and software 3 to 5 years Office furniture and equipment 3 to 5 years Leasehold improvements 2 to 15 years 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. Equipment and construction in progress are stated at cost and transferred to respective asset class when fully completed and ready for their intended use. Internal-use software development costs are capitalized to the extent that the costs are directly associated with the development of identifiable and unique software products controlled by the Company that will probably generate economic benefits beyond one year. Costs incurred during the application development stage are required to be capitalized. The application development stage is characterized by software design and configuration activities, coding, testing and installation. Training costs and maintenance are expensed as incurred, while upgrades and enhancements are capitalized if it is probable that such expenditures will result in additional functionality. Costs include employee costs incurred and fees paid to outside consultants for the software development and implementation. Internally developed software is amortized over its estimated useful life of three to five years starting from the date when it is ready for its intended use. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized as selling, general and administrative expenses in the consolidated statements of operations. Costs of maintenance and repairs that do not improve or extend the lives of the respective assets are expensed as incurred. Government Grants The Company occasionally receives government grants that provide financial assistance for certain eligible expenditures in China. These grants include reimbursements on interest expense on bank borrowings, payroll tax credits, credit for property, plant and equipment in a particular geographical location, employment credits as well as business expansion credits. Government grants are not recognized until there is reasonable assurance that the Company will comply with the conditions attaching to it, and that the grant will be received. The Company records such grants either as a reduction of the related expense, a reduction of the cost of the related asset, or as other income depending upon the nature of the grant. As a result of such grants, during the fiscal year ended June 30, 2023, the Company reduced property, plant and equipment by $ 0.6 million and operating expenses by $ 0.1 million. During the fiscal year ended June 30, 2022, the Company reduced interest expense by $ 0.9 million, property, plant and equipment by $ 1.4 million, and operating expenses by $ 0.2 million. During the fiscal year ended June 30, 2021, the Company reduced interest expenses by $ 3.0 million, property, plant and equipment by $ 0.1 million, and operating expenses by $ 3.7 million. Long-lived Assets The Company reviews all long-lived assets whenever events or changes in circumstance indicate that these assets may not be recoverable. When evaluating long-lived assets, if the Company concludes that the estimated undiscounted cash flows attributable to the assets are less than their carrying value, the Company recognizes an impairment loss based on the excess of the carrying amount of the assets over their respective fair values, which could adversely affect our results of operations. There was no impairment of long-lived assets for fiscal years 2023, 2022 and 2021. Revenue Recognition The Company determines revenue recognition through the following steps: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, a performance obligation is satisfied. The Company recognizes product revenue at a point in time when product is shipped to the customer, as determined by the agreed upon shipping terms, net of estimated stock rotation returns and price adjustments that it 82 expects to provide to certain distributors. The Company presents revenue net of sales taxes and any similar assessments. Our standard payment terms range from 30 to 60 days. The Company sells its products primarily to distributors, who in turn sell the products globally to various end customers. The Company allows stock rotation returns from certain distributors. Stock rotation returns are governed by contract and are limited to a specified percentage of the monetary value of products purchased by distributors during a specified period. The Company records an allowance for stock rotation returns based on historical returns, 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. Allowance for price adjustments is recorded against accounts receivable and the provision for stock rotation rights is included in accrued liabilities on the consolidated balance sheets. The Company's performance obligations relate to contracts with a duration of less than one year. The Company elected to apply the practical expedient provided in ASC 606, “Revenue from Contracts with Customers”. Therefore, the Company is not required to disclose the aggregate amount of transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The Company recognizes the incremental direct costs of obtaining a contract, which consist of sales commissions, when control over the products they relate to transfers to the customer. Applying the practical expedient, the Company recognizes commissions as expense when incurred, as the amortization period of the commission asset the Company would have otherwise recognized is less than one year. Packaging and testing services revenue is recognized at a point in time upon shipment of serviced products to the customer. License and Development Services Revenue Recognition In February 2023, the Company entered into a license agreement with a customer to license the Company’s proprietary SiC technology and to provide 24-months of engineering and development services for a total fee of $ 45 million, consisting of an upfront fee of $ 18 million and $ 6.8 million paid to the Company in March 2023 and July 2023, respectively, with the remaining amount to be paid upon the achievement of specified engineering services and product milestones. The license and development fee is determined to be one performance obligation and is recognized over the 24 months when the Company performs the engineering and development services. The Company uses the input method to measure progression, representing a faithful depiction of the transfer of services. During the fiscal year ended June 30, 2023, the Company recorded $ 9.9 million of license and development revenue. The amount of contract liability is recorded as deferred revenue on the consolidated balance sheets. In addition, the Company also entered an accompanying supply agreement to provide limited wafer supply to the customer. Leases The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities and long-term operating lease liabilities on the Company's consolidated balance sheets. Finance leases are included in property, plant and equipment, finance lease liabilities and long-term finance leases liabilities on the consolidated balance sheets. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The Company 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. Variable lease payments are expensed as incurred and are not included within the operating lease ROU asset and lease liability calculation. The Company does not record leases on the consolidated balance sheet with a term of one year or less. The Company elected to combine its lease and non-lease components as a single lease component for all asset classes. Product Warranty The Company provides a standard one-year warranty for the products from the date of purchase by the end customers. The Company accrues for estimated warranty costs at the time revenue is recognized. The Company's warranty obligation is affected by product failure rates, labor and material costs for replacing defective parts, related freight costs for failed parts and other quality assurance costs. The Company monitors its product returns for warranty claims and maintains warranty reserves based on historical experiences and anticipated warranty claims known at the time of estimation. 83 Shipping and Handling Costs Shipping and handling costs are included in cost of goods sold. Research and Development Research and development costs are expensed as incurred. Provision for Income Taxes Income tax expense or benefit is based on income or loss before taxes. Deferred tax assets and liabilities are recognized principally for the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts. The Company is subject to income taxes in a number of jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company establishes accruals for certain tax contingencies based on estimates of whether additional taxes may be due. While the final tax outcome of these matters may differ from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. Significant management judgment is also required in determining whether deferred tax assets will be realized in full or in part. When it is more likely than not that all or some portion of specific deferred tax assets such as net operating losses or research and experimentation tax credit carryforwards will not be realized, a valuation allowance must be established for the amount of the deferred tax assets that cannot be realized. The Company considers all available positive and negative evidence on a jurisdiction-by-jurisdiction basis when assessing whether it is more likely than not that deferred tax assets are recoverable. The Company considers evidence such as our past operating results, the existence of cumulative losses in recent years and our forecast of future taxable income. The Company has concluded that it should report a full valuation allowance on its state research and development (R&D) tax credit carryforwards as the Company annually generates more state R&D tax credits than it could use based on its forecasts. The Financial Accounting Standards Board (FASB), issued guidance which clarifies the accounting for income taxes by prescribing a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely to be realized upon ultimate settlement. Although the guidance on the accounting for uncertainty in income taxes prescribes the use of a recognition and measurement model, the determination of whether an uncertain tax position has met those thresholds will continue to require significant judgment by management. If the ultimate resolution of tax uncertainties is different from what is currently estimated, a material impact on income tax expense could result. The Company's provision for income taxes is subject to volatility and could be adversely impacted by changes in earnings or tax laws and regulations in various jurisdictions. The Company is subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of changes to reserves, as well as the related net interest and penalties. Share-based Compensation Expense The Company maintains an equity-settled, share-based compensation plan to grant restricted share units and stock options. The Company recognizes expense related to share-based compensation awards that are ultimately expected to vest based on estimated fair values on the date of grant. The fair value of restricted share units is based on the fair value of the Company's common share on the date of grant. For restricted stock awards subject to market conditions, the fair value of each restricted stock award is estimated at the date of grant using the Monte-Carlo pricing model. The fair value of stock options is estimated on the date of grant using the Black-Scholes option valuation model. Share-based compensation expense is recognized on the accelerated attribution basis over the requisite service period of the award, which generally equals the vesting period. The 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 84 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. Advertising Advertising expenditures are expensed as incurred. Advertising expense was $ 0.5 million, $ 0.2 million and $ 0.4 million in the fiscal years ended June 30, 2023, 2022, and 2021, respectively. Comprehensive Income (Loss) Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company's accumulated other comprehensive income (loss) consists of cumulative foreign currency translation adjustments. Recent Accounting Pronouncements Recently Issued Accounting Standards not yet adopted In September 2022, the FASB issued ASU No. 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. This ASU was issued in response to requests from financial statement users for increased transparency surrounding the use of supplier finance programs. The amendments in ASU 2022-04 require that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. The amendments in this ASU do not affect the recognition, measurement, or financial statement presentation of obligations covered by supplier finance programs. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance. Recently Adopted Accounting Standards In November 2021, the FASB issued Accounting Standards Update (ASU) No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This ASU requires business entities to make annual disclosures about transactions with a government they account for by analogizing to a grant or contribution accounting model under ASC 958-605. The adoption of ASU 2021-10 in the fiscal year ended June 30, 2023 on a prospective basis had no impact on the Company's Consolidated Financial Statements. In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which, among other things, provides guidance on how to account for contracts on an entity’s own equity. This ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. Specifically, the ASU eliminated the need to assess whether a contract on the entity’s own equity (1) permits settlement in unregistered shares, (2) whether counterparty rights rank higher than shareholder’s rights, and (3) whether collateral is required. In addition, the ASU requires incremental disclosure related to contracts on the entity’s own equity and clarifies the treatment of certain financial instruments accounted for under this ASU on earnings per share. The adoption of ASU 2020-06 had no impact on the Company's Consolidated Financial Statements. 85 2. Equity Method Investment in Equity Investee On December 1, 2021 (the “Effective Date”), Alpha & Omega Semiconductor (Shanghai) Ltd. (“AOS SH”) and Agape Package Manufacturing (Shanghai) Limited (“APM SH”), 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 the 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 Condensed 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 $ 16,924 Fair value of retained equity method investment 393,124 Carrying amount of non-controlling interest 143,889 Cumulative translation adjustment removal 1,793 Carrying amount of net assets of the JV Company at December 1, 2021 ( 156,637 ) Gain on deconsolidation of the JV Company $ 399,093 On December 24, 2021, the Company entered into a share transfer agreement with another third-party investor, pursuant to which the Company sold to this investor 1.1 % of outstanding equity interest held by the Company in the JV Company. In addition, the JV Company adopted an employee equity incentive plan and issued an equity interest equivalent to 3.99 % of the JV Company in exchange to cash. As a result of these two transactions, the Company owned 45.8 % of the equity interest in the JV Company as of December 31, 2021. On January 26, 2022, the JV Company completed a financing transaction pursuant to a corporate investment agreement (the “Investment Agreement”) between the JV Company and certain third-party investors (the “New Investors”). Under the Investment Agreement, the New Investors purchased newly issued equity interest of the JV Company, representing approximately 7.82 % of post-transaction outstanding equity interests of the JV Company, for a total purchase price of RMB 509 million (or approximately USD 80 million based on the currency exchange rate as of January 26, 2022) (the “Investment”). Following the closing of the Investment and as of June 30, 2022, the percentage of outstanding JV equity interest beneficially owned by the Company was reduced to 42.2 %. The 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 $ 475 Loss on diluted equity interest from issuance of shares under the employee equity incentive plan ( 8,116 ) Gain on 7.82% equity interest sol 4,501 Loss on changes on equity interest of the JV Company, net $ ( 3,140 ) 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, 2023 and 2022, the Company recorded $ 1.4 million and $ 2.6 million of its equity in loss of the JV Company, respectively, using lag reporting. As of June 30, 2023, the percentage of outstanding JV equity interest beneficially owned by the Company was 42.2 %. 86 Summarized Financial Information The following table presents summarized financial information for the JV Company as of and for the period from April 1, 2022 through March 31, 2023 and December 2, 2021 through March 31, 2022, using lag reporting (in thousands): As of March 31, 2023 As of March 31, 2022 Current assets $ 122,324 $ 198,323 Non-current assets $ 333,165 $ 364,777 Current liabilities $ 122,340 $ 251,988 Non-current liabilities $ 36,525 $ 76,207 For the period of April 1, 2022 to March 31, 2023 For the period of December 2, 2021 to March 31, 2022 Revenue $ 178,974 $ 68,972 Gross loss (income) $ ( 4,502 ) $ 870 Operating expenses $ 5,939 $ 2,280 Net loss $ 4,906 $ 6,197 3. Related Party Transactions As of June 30, 2023, the Company owned 42.2 % equity interest in the JV Company, which, by definition, is a related party to the Company. The JV Company supplies 12-inch wafers and provides assembly and testing services to AOS. AOS previously sold 8-inch wafers to the JV Company for further assembly and testing services until January 1, 2023, when it changed to consign the 8-inch wafers to the JV Company. Due to the right of offset of receivables and payables with the JV Company, as of June 30, 2023 and 2022, AOS recorded the net amount of $ 12.0 million and $ 29.0 million, respectively, as a payable related to equity investee, net, on 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. The purchases by AOS for the fiscal year ended June 30, 2023 were $ 127.8 million and the sales by AOS for the fiscal year ended June 30, 2023 were $ 35.6 million. 87 4. Net Income Per Common Share Attributable to Alpha and Omega Semiconductor Limited Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted-average number of common shares outstanding, plus potential shares of common stock during the period. Potential shares of common stock include dilutive shares attributable to the assumed exercise of share options, ESPP shares and vesting of RSUs using the treasury stock method and contingent issuances of common shares related to convertible preferred shares, if dilutive. Under the treasury stock method, potential common shares outstanding are not included in the computation of diluted net income per share if their effect is anti-dilutive. The following table presents the calculation of basic and diluted net income per share attributable to common shareholders: Year Ended June 30, 2023 2022 2021 (in thousands, except per share data) Numerator: Net income attributable to Alpha and Omega Semiconductor Limited $ 12,364 $ 453,163 $ 58,116 Denominator: Basic: Weighted average number of common shares used to compute basic net income per share 27,552 26,764 25,786 Diluted: Weighted average number of common shares used to compute basic net income per share 27,552 26,764 25,786 Effect of potentially dilutive securities: Stock options, RSUs and ESPP shares 1,976 1,439 1,486 Weighted average number of common shares used to compute diluted net income per share 29,528 28,203 27,272 Net income per share attributable to Alpha and Omega Semiconductor Limited: Basic $ 0.45 $ 16.93 $ 2.25 Diluted $ 0.42 $ 16.07 $ 2.13 The following potential dilutive securities were excluded from the computation of diluted net income per share as their effect would have been anti-dilutive: Year Ended June 30, 2023 2022 2021 (in thousands) Employee stock options and RSUs 310 277 193 ESPP 309 21 71 Total potential dilutive securities 619 298 264 88 5. Concentration of Credit Risk and Significant Customers The Company manages its credit risk associated with exposure to distributors and direct customers on outstanding accounts receivable through the application of credit approvals, credit ratings and other monitoring procedures. In some instances, the Company also obtains letters of credit from certain customers. Credit sales, which are mainly on credit terms of 30 to 60 days, are only made to customers who meet the Company's credit standards, while sales to new customers or customers with low credit ratings are usually made on an advance payment basis. The Company considers its trade accounts receivable to be of good credit quality because its key distributors and direct customers have long-standing business relationships with the Company and the Company has not experienced any significant bad debt write-offs of accounts receivable in the past. The Company closely monitors the aging of accounts receivable from its distributors and direct customers, and regularly reviews their financial positions, where available. Summarized below are individual customers whose revenue or accounts receivable balances were 10% or higher than the respective total consolidated amounts: Year Ended June 30, Percentage of revenue 2023 2022 2021 Customer A 21.6 % 24.6 % 28.7 % Customer B 35.6 % 39.7 % 35.4 % Customer D 14.0 % * * June 30, Percentage of accounts receivable 2023 2022 Customer A 15.3 % 24.6 % Customer B 17.6 % 36.4 % Customer C 13.3 % * Customer D 30.9 % 12.0 % * Less than 10% 89 6. Balance Sheet Components Accounts receivable, net June 30, 2023 2022 (in thousands) Accounts receivable $ 62,426 $ 84,442 Less: Allowance for price adjustments ( 39,976 ) ( 18,731 ) Less: Allowance for doubtful accounts ( 30 ) ( 30 ) Accounts receivable, net $ 22,420 $ 65,681 Inventories June 30, 2023 2022 (in thousands) Raw materials $ 86,620 $ 67,960 Work in-process 69,426 80,720 Finished goods 27,201 9,360 $ 183,247 $ 158,040 Other current assets June 30, 2023 2022 (in thousands) VAT receivable $ 275 $ 737 Other prepaid expenses 3,863 3,954 Prepaid insurance 4,162 2,590 Prepaid maintenance 1,697 826 Prepayments to supplier 10,689 257 Prepaid income tax 707 2,086 Interest receivable 135 25 Other receivables 1,138 745 $ 22,666 $ 11,220 90 Property, plant and equipment, net June 30, 2023 2022 (in thousands) Land $ 4,877 $ 4,877 Building and building improvements 26,478 16,691 Manufacturing machinery and equipment 398,757 287,574 Equipment and tooling 32,737 28,052 Computer equipment and software 49,890 46,758 Office furniture and equipment 3,087 2,820 Leasehold improvements 38,787 35,254 554,613 422,026 Less: accumulated depreciation ( 272,503 ) ( 233,340 ) 282,110 188,686 Equipment and construction in progress 75,721 129,980 Property, plant and equipment, net $ 357,831 $ 318,666 Total depreciation expense was $ 40.4 million, $ 39.9 million and $49.3 million for fiscal year 2023, 2022 and 2021, respectively. The Company capitalized $ 0.5 million, $ 0.3 million and $ 0.3 million of software development costs during the fiscal year 2023, 2022 and 2021, respectively. Amortization of capitalized software development costs was $ 0.4 million in fiscal year 2023, $ 0.4 million in fiscal year 2022 and $ 0.5 million in fiscal year 2021. Unamortized capitalized software development costs in each of the periods presented at June 30, 2023 and 2022 were $ 0.9 million and $ 0.8 million, respectively. Other long-term assets June 30, 2023 2022 (in thousands) Prepayments for property and equipment $ 1,717 $ 6,890 Investment in privately held companies 100 100 Customs deposit 931 1,708 Deposit with supplier 12,290 6,396 Other long-term deposits 37 18 Office leases deposits 1,274 1,012 Other 3,354 1,553 $ 19,703 $ 17,677 91 Intangible assets, net June 30, 2023 2022 (in thousands) Patents and technology rights $ 18,037 $ 18,037 Trade name 268 268 Customer relationships 1,150 1,150 19,455 19,455 Less: accumulated amortization ( 12,959 ) ( 9,674 ) 6,496 9,781 Goodwill 269 269 Intangible assets, net $ 6,765 $ 10,050 The Company is amortizing intangible assets of patents and technology rights related to a license agreement with STMicroelectronices International N.V. Amortization expense for intangible assets was $ 3.3 million, $ 3.4 million and $ 3.4 million for the years ended June 30, 2023, 2022 and 2021, respectively. The estimated useful lives for patents and technology rights and trade name were five years and ten years , respectively. Customer relationships are fully amortized. Estimated future minimum amortization expense of intangible assets is as follows (in thousands): Year ending June 30, 2024 $ 3,249 2025 3,247 $ 6,496 92 Accrued liabilities June 30, 2023 2022 (in thousands) Accrued compensation and benefits $ 15,627 $ 34,681 Warranty accrual 1,674 2,650 Stock rotation accrual 5,588 4,798 Accrued professional fees 2,458 2,659 Accrued inventory 1,597 2,491 Accrued facilities related expenses 2,327 2,421 Accrued property, plant and equipment 6,402 20,485 Other accrued expenses 4,401 5,159 Customer deposit 38,082 40,578 ESPP payable 1,377 971 $ 79,533 $ 116,893 Short-term customer deposits are payments received from customers for securing future product shipments. As of June 30, 2023, $ 13.5 million were from Customer A and $ 9.2 million were from Customer B, and $ 15.4 million were from other customers. As of June 30, 2022, $ 12.5 million were from Customer A and $ 16.2 million were from Customer B, and $ 11.9 million were from other customers. The activity in the warranty accrual, included in accrued liabilities is as follows: Year Ended June 30, 2023 2022 2021 (in thousands) Beginning balance $ 2,650 $ 2,795 $ 709 Addition 3,666 1,127 2,443 Utilization ( 4,642 ) ( 1,272 ) ( 357 ) Ending balance $ 1,674 $ 2,650 $ 2,795 The activity in the stock rotation accrual, included in accrued liabilities is as follows: Year Ended June 30, 2023 2022 2021 (in thousands) Beginning balance $ 4,798 $ 3,917 $ 3,358 Addition 13,950 5,817 4,742 Utilization ( 13,160 ) ( 4,936 ) ( 4,183 ) Ending balance $ 5,588 $ 4,798 $ 3,917 93 Other long-term liabilities June 30, 2023 2022 (in thousands) Customer deposits $ 46,393 $ 70,301 Computer software liabilities 4,644 8,302 Other long-term liabilities $ 51,037 $ 78,603 Customer deposits are payments received from customers for securing future product shipments. As of June 30, 2023, $ 21.0 million were from Customer A and $ 11.7 million were from Customer B, and $ 13.7 million were from other customers. As of June 30, 2022, $ 34.5 million were from Customer A and $ 21.9 million were from Customer B and $ 13.9 million were from other customers. 7. Bank Borrowing Short-term bank borrowing In January 2023, one of the Company's subsidiaries in China entered into a line of credit facility with Bank of Communications Limited in China. The purpose of the credit facility is to provide working capital borrowings. The Company could borrow up to approximately RMB 140 million or $ 20.6 million based on currency exchange rate between RMB and U.S. Dollar on January 31, 2023 with a maturity date of December 1, 2023. As of June 30, 2023, there was no outstanding balance for this loan. In September 2022, one of the Company's subsidiaries 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 working capital borrowings. The Company could borrow up to approximately RMB 72.0 million or $ 10.3 million based on currency exchange rate between RMB and U.S. Dollar on September 20, 2022 with a maturity date of September 30, 2023. As of June 30, 2023, there was no outstanding balance. In October 2019, one of the Company's subsidiaries in China entered into a line of credit facility with Bank of Communications Limited in China. 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. The Company could borrow up to approximately RMB 60.0 million or $ 8.5 million based on the currency exchange rate between the RMB and the U.S. Dollar on October 31, 2019. In September 2021, this line of credit was renewed with maximum borrowings up to RMB 140.0 million with the same terms and a maturity date of September 18, 2022. During the three months ended December 31, 2021, the Company borrowed RMB 11.0 million, or $ 1.6 million, at an interest rate of 3.85 % per annum, with principal due on November 18, 2022. As of June 30, 2023, there was no outstanding balance and this loan was expired. On November 16, 2018, one of the Company's subsidiaries in China entered into a line of credit facility with Industrial and Commercial Bank of China. The purpose of the credit facility was to provide short-term borrowings. The Company could borrow up to approximately RMB 72.0 million or $ 10.3 million based on currency exchange rate between RMB and U.S. Dollar on November 16, 2018. The RMB 72.0 million consists of RMB 27.0 million for trade borrowings with a maturity date of December 31, 2021, and RMB 45.0 million for working capital borrowings or trade borrowings with a maturity date of September 13, 2022. During the three months ended December 31, 2021, the Company borrowed RMB 5.0 million, or $ 0.8 million, at an interest rate of 3.7 % per annum, with principal due on September 12, 2022. As of June 30, 2023, there was no outstanding balance and this loan was expired. Accounts Receivable Factoring Agreement On August 9, 2019, one of the Company's wholly-owned subsidiaries (the "Borrower") entered into a factoring agreement with the Hongkong and Shanghai Banking Corporation Limited (“HSBC”), whereby the Borrower assigns certain of its accounts receivable with recourse. This factoring agreement allows the Borrower to borrow up to 70 % of the net amount of its eligible accounts receivable of the Borrower with a maximum amount of $ 30.0 million. The interest rate is based on one month 94 London Interbank Offered Rate ("LIBOR") plus 1.75 % per annum. The Company is the guarantor for this agreement. The Company is accounting for this transaction as a secured borrowing under the Transfers and Servicing of Financial Assets guidance. In addition, any cash held in the restricted bank account controlled by HSBC has a legal right of offset against the borrowing. This agreement, with certain financial covenants required, has no expiration date. On August 11, 2021, the Borrower signed an agreement with HSBC to decrease the borrowing maximum amount to $ 8.0 million with certain financial covenants required. Other terms remain the same. The Borrower was in compliance with these covenants as of June 30, 2023. As of June 30, 2023, there was no outstanding balance and the Company had unused credit of approximately $ 8.0 million. Debt financing In September 2021, Jireh Semiconductor Incorporated (“Jireh”), one of the wholly-owned subsidiaries, entered into a financing arrangement agreement with a company (“Lender”) for the lease and purchase of a machinery equipment manufactured by a supplier. This agreement has a 5 years term, after which Jireh has the option to purchase the equipment for $ 1 . The implied interest rate was 4.75 % per annum which was adjustable based on every five basis point increase in 60-month U.S. Treasury Notes, until the final installation and acceptance of the equipment. The total purchase price of this equipment was euro 12.0 million. In April 2021, Jireh made a down payment of euro 6.0 million, representing 50 % of the total purchase price of the equipment, to the supplier. In June 2022, the equipment was delivered to Jireh after Lender paid 40 % of the total purchase price, for euro 4.8 million, to the supplier on behalf of Jireh. In September 2022, Lender paid the remaining 10 % payment for the total purchase price and reimbursed Jireh for the 50 % down payment, after the installation and configuration of the equipment. The title of the equipment was transferred to Lender following such payment. The agreement was amended with fixed implied interest rate of 7.51 % and monthly payment of principal and interest effective in October 2022. Other terms remain the same. In addition, Jireh purchased hardware for the machine under this financing arrangement. The purchase price of this hardware was $ 0.2 million. The financing arrangement is secured by this equipment and other equipment which had the carrying amount of $ 15.2 million as of June 30, 2023. As of June 30, 2023, the outstanding balance of this debt financing was $ 11.9 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 with the first payment of principal beginning in October 2022. As of June 30, 2023, Jireh was in compliance with these covenants and the outstanding balance of this loan was $ 38.3 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. The loan has a five-year term and matures on June 1, 2023. Jireh made consecutive monthly payments of principal and interest to the Bank. The outstanding principal shall accrue interest at a fixed rate of 5.04 % per annum on the basis of a 360-day year. The loan agreement contains customary restrictive covenants and includes certain financial covenants that require the Company to maintain, on a consolidated basis, specified financial ratios. In August 2021, Jireh signed an amendment of this loan with the Bank to modify the financial covenants requirement to align with the new term loan agreement entered into on August 18, 2021 discussed above. The amendment was accounted for as a debt modification and no gain or loss was recognized. The Company paid this loan in full on May 1, 2023. As of June 30, 2023, there was no outstanding balance and this loan was expired. On August 15, 2017, Jireh entered into a credit agreement with the Bank that provided a term loan in an amount up to $ 30.0 million for the purpose of purchasing certain equipment for the fabrication facility located in Oregon. The obligation under the credit agreement was secured by substantially all assets of Jireh and guaranteed by the Company. The credit agreement had a five-year term and matured on August 15, 2022. In January 2018 and July 2018, Jireh drew down on the loan in the amount of $ 13.2 million and $ 16.7 million, respectively. Beginning in October 2018, Jireh was required to pay to the Bank on each payment date, the outstanding principal amount of the loan in monthly installments. The loan accrued interest based on an adjusted LIBOR as defined in the credit agreement, plus specified applicable margin in the range of 1.75 % to 2.25 %, based on the outstanding balance of the loan. The credit agreement contained customary restrictive covenants and included certain financial covenants that required the Company to maintain, on a consolidated basis, specified financial ratios and fixed charge coverage ratio. In August 2021, Jireh signed an amendment of this loan with the Bank to modify the financial covenants requirement to align with the new term loan agreement entered into on August 18, 2021, discussed above. The amendment was accounted for as a debt modification and no gain or loss was recognized. The loan was fully paid off in September, 2022. As of June 30, 2023, there was no outstanding balance and this loan was expired. 95 At June 30, 2023, maturities of short-term debt and long-term debt were as follows (in thousands): Year ending June 30, 2024 $ 11,472 2025 11,664 2026 11,871 2027 14,344 2028 536 Total principal of debt 49,887 Less: debt issuance costs ( 93 ) Total principal of debt, less debt issuance costs $ 49,794 Short-term Debt Long-term Debt Total Principal amount $ 11,472 $ 38,415 $ 49,887 Less: debt issuance costs ( 38 ) ( 55 ) ( 93 ) Total debt, less debt issuance costs $ 11,434 $ 38,360 $ 49,794 96 8. Leases The Company evaluates contracts for lease accounting at contract inception and assesses lease classification at the lease commencement date. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities and operating lease liabilities - long-term on the Company's Consolidated Balance Sheets. Finance leases are included in property, plant and equipment, finance lease liabilities and finance lease liabilities-long-term on the Consolidated Balance Sheets. The Company recognizes a ROU asset and corresponding lease obligation liability at the lease commencement date where the lease obligation liability is measured at the present value of the minimum lease payments. As most of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate at lease commencement. The Company uses an interest rate commensurate with the interest rate to borrow on a collateralized basis over a similar term with an amount equal to the lease payments. Operating leases are primarily related to offices, research and development facilities, sales and marketing facilities, and manufacturing facilities. In addition, long-term supply agreements to lease gas tank equipment and purchase industrial gases are accounted for as operating leases. Lease agreements frequently include renewal provisions and require the Company to pay real estate taxes, insurance and maintenance costs. For operating leases, the amortization of the ROU asset and the accretion of its lease obligation liability result in a single straight-line expense recognized over the lease term. The finance lease is related to the $ 5.1 million of a machinery lease financing with a vendor. In September 2022, the lease was amended to make a monthly payment of principal and interest as a fixed amount effective in October 2022. Other terms remain the same. The amendment was accounted for as a debt modification and no gain or loss was recognized. The Company does not record leases on the consolidated balance sheet with a term of one year or less. The components of the Company’s operating and finance lease expenses are as follows for the years presented (in thousands): Fiscal Year Ended June 30, 2023 Fiscal Year Ended June 30, 2022 Operating leases: Fixed rent expense $ 5,779 $ 6,262 Variable rent expense 1,014 946 Finance lease: Amortization of equipment 522 908 Interest 306 976 Short-term leases: Short-term lease expenses 400 205 Total lease expenses $ 8,021 $ 9,297 97 Supplemental balance sheet information related to the Company’s operating and finance leases is as follows (in thousands, except lease term and discount rate): June 30, 2023 June 30, 2022 Operating Leases : ROU assets associated with operating leases $ 24,349 $ 23,674 Finance Lease: Property, plant and equipment, gross $ 5,133 $ 4,831 Accumulated depreciation ( 657 ) ( 136 ) Property, plant and equipment, net $ 4,476 $ 4,695 Weighted average remaining lease term (in years) Operating leases 6.57 7.42 Finance lease 4.25 5.00 Weighted average discount rate Operating leases 4.67 % 4.27 % Finance lease 7.51 % 4.76 % Supplemental cash flow information related to the Company’s operating and finance lease is as follows (in thousands): Fiscal Year Ended June 30, 2023 Fiscal Year Ended June 30, 2022 Cash paid from amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 5,945 $ 6,480 Operating cash flows from finance lease $ 306 $ 976 Financing cash flows from finance lease $ 810 $ 4,176 Non-cash investing and financing information: Operating lease right-of-use assets obtained in exchange for lease obligations $ 5,579 $ 5,852 Future minimum lease payments are as follows as of June 30, 2023 (in thousands): Operating Leases Finance Leases 2024 $ 5,452 $ 1,144 2025 4,623 1,144 2026 3,807 1,144 2027 3,647 1,145 2028 3,317 191 Thereafter 8,303 — Total minimum lease payments 29,149 4,768 Less amount representing interest ( 4,222 ) ( 685 ) Total lease liabilities $ 24,927 $ 4,083 98 9. Shareholders' Equity Common Shares The Company's Bye-laws, as amended, authorized the Company to issue 100,000,000 common shares with par value of $ 0.002 . Each common share is entitled to one vote. The holders of common shares are also entitled to receive dividends whenever funds are legally available and when and if declared by the board of directors. No dividends had been declared as of June 30, 2023. In September 2017, the board of directors approved a repurchase program (the “Repurchase Program”) that allowed the Company to repurchase its common shares from the open market pursuant to a pre-established Rule 10b5-1 trading plan or through privately negotiated transactions up to an aggregate of $ 30.0 million. The amount and timing of any repurchases under the Repurchase Program depend on a number of factors, including but not limited to, the trading price, volume and availability of the Company's common shares. Shares repurchased under this program are accounted for as treasury shares and the total cost of shares repurchased is recorded as a reduction of shareholders' equity. From time to time, treasury shares may be reissued as part of the Company's stock-based compensation programs. Gains on re-issuance of treasury stock are credited to additional paid-in capital; losses are charged to additional paid-in capital to offset the net gains, if any, from previous sales or re-issuance of treasury stock. Any remaining balance of the losses is charged to retained earnings. During fiscal year 2023, the Company repurchased an aggregate of 548,132 shares, from the open market for a total cost of approximately $ 13.4 million, excluding fees and related expenses, at an average price of $ 24.51 per share. During fiscal year 2022 and 2021, the Company did no t repurchase any shares pursuant to the repurchase program. As of June 30, 2023, the Company had repurchased an aggregate of 7,332,780 shares for a total cost of $ 81.1 million, at an average price of $ 11.01 per share, excluding fees and related expenses, since inception of the program. No repurchased shares have been retired. Of the 7,332,780 repurchased shares, 175,599 shares with a weighted average repurchase price of $ 9.97 per share, were reissued at an average price of $ 4.76 per share for option exercises and vested restricted stock units (“RSU”). As of June 30, 2023, there was none remaining available under the share repurchase program. 99 10. Share-based Compensation 2018 Omnibus Incentive Plan The 2009 Share Option/Share Issuance Plan (the “2009 Plan”) was approved in September 2009 at the annual general meeting of shareholders in connection with the Company's IPO. At the annual general meeting of shareholders in November 2018, the 2009 Plan was approved to be terminated and the 2018 Omnibus Incentive Plan (the “2018 Plan”) was effective. No further awards will be made under the 2009 Plan. The 2018 Plan authorized the board of directors to grant incentive share options, non-statutory share options and restricted shares to employees, directors, non-employee directors and consultants of the Company and its subsidiaries for up to 2,065,000 common shares. The 2018 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. 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 and 2022, the 2018 Plan was approved to increase by 1,000,000 and 740,000 shares, respectively, to a total of 3,805,000 shares. As of June 30, 2023, 611,994 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 one hundred thirty-five thousand dollars ($ 135,000 ) 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. Options and RSUs generally vest over a four-year to five-year period, and are exercisable for a maximum period of ten years after the date of grant. The fair value of RSU, including time-based restricted stock units and performance-based restricted stock units is based on the market price of the Company's share on the date of grant. Time-based Restricted Stock Units (“TRSU”) The following table summarizes the Company's TRSU activities: Number of Restricted Stock Units Weighted Average Grant Date Fair Value Per Share Weighted Average Remaining Recognition Period (Years) Aggregate Intrinsic Value Nonvested at June 30, 2020 932,138 $ 11.36 1.66 $ 10,141,661 Granted 722,873 $ 29.85 Vested ( 567,087 ) $ 15.70 Forfeited ( 34,400 ) $ 14.88 Nonvested at June 30, 2021 1,053,524 $ 21.60 1.73 $ 32,016,594 Granted 597,381 $ 45.83 Vested ( 410,670 ) $ 20.54 Forfeited ( 70,626 ) $ 26.79 Nonvested at June 30, 2022 1,169,609 $ 34.03 1.73 $ 38,994,764 Granted 714,080 $ 27.70 Vested ( 451,549 ) $ 28.84 Forfeited ( 47,075 ) $ 33.40 Nonvested at June 30, 2023 1,385,065 $ 32.48 1.73 $ 45,430,132 100 Performance-based Restricted Stock Units (“PRSU”) In March each year since fiscal year 2017, the Company granted PRSU to certain personnel. The number of shares to be ultimately earned under the PRSU is determined based on the level of attainment of predetermined financial goals. 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 $ 5.2 million, $ 4.6 million and $ 2.3 million of expenses for these PRSUs during the years ended June 30, 2023, 2022 and 2021, respectively. During the quarter ended June 30, 2019, the Company announced an incentive program. Under this program, each participant’s award is denominated in stock and subject to achievement of certain objective goals within certain timelines. In June 2020, the Company believed it was most likely that predetermined goal measures would be met. Therefore, the Company reported such expenses in the other current liabilities line on the condensed consolidated balance sheets as the amount of bonus is to be settled in variable number of RSU’s at the completion of the objective goals. Such non-cash compensation expense was recorded as part of share-based compensation expense in the condensed consolidated statements of operations. As of June 30, 2022 and 2021, the Company recorded nil and $ 0.1 million such expenses 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. The following table summarizes the Company’s PRSU activities: Number of Performance-based Restricted Stock Units Weighted Average Grant Date Fair Value Per Share Weighted Average Remaining Recognition Period (Years) Aggregate Intrinsic Value Nonvested at June 30, 2020 342,775 $ 12.38 1.60 $ 3,729,392 Granted 165,500 $ 36.27 Vested ( 148,211 ) $ 14.24 Forfeited ( 6,240 ) $ 17.23 Nonvested at June 30, 2021 353,824 $ 22.69 1.74 $ 10,752,711 Granted 194,000 $ 48.65 Vested ( 151,199 ) $ 19.44 Forfeited ( 7,250 ) $ 40.33 Nonvested at June 30, 2022 389,375 $ 36.56 1.85 $ 12,981,763 Granted 264,214 $ 25.70 Vested ( 116,132 ) $ 30.54 Forfeited ( 10,743 ) $ 48.65 Nonvested at June 30, 2023 526,714 $ 32.19 1.78 $ 17,276,219 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 $ 1.9 million and $ 4.5 million of expenses for these MSUs during the fiscal year ended June 30, 2023 and 2022, respectively. During the quarter ended September 30, 2018, the Company granted 1.3 million MSUs to certain personnel. The number of shares to be earned at the end of the performance period is determined based on the Company’s achievement of specified stock prices and revenue thresholds during the performance period from January 1, 2019 to December 31, 2021 as well as the 101 recipients remaining in continuous service with the Company through such period. The MSUs vest in four equal annual installments after the end of performance period. 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 were valued immediately before and after the modification, using Monte-Carlo simulation pricing model. The Monte-Carlo simulation pricing model applied the following assumptions for pre-modification conditions: risk-free interest rate of 0.13 %, expected term of 1.3 years, expected volatility of 66.7 % and dividend yield of 0 %; and for post-modification conditions: risk-free interest rate of 0.14 %, expected term of 2.3 years, expected volatility of 59.1 % and dividend yield of 0 %. The fair value of these MSUs was recalculated to reflect the change as of August 31, 2020 and the unrecognized compensation amount was adjusted to reflect the increase in fair value. The Company recorded approximately $ 3.9 million, $ 1.6 million and $ 1.2 million of expense for these MSUs during the years ended June 30, 2023, 2022 and 2021, respectively. The following table summarizes the Company’s MSUs activities: Number of Performance-based Restricted Stock Units Weighted Average Grant Date Fair Value Per Share Weighted Average Remaining Recognition Period (Years) Aggregate Intrinsic Value Nonvested at June 30, 2020 1,290,000 $ 5.17 3.88 $ 14,035,200 Forfeited ( 50,000 ) $ 5.17 Nonvested at June 30, 2021 1,240,000 $ 5.17 3.84 $ 37,683,600 Granted 1,022,000 $ 48.44 Forfeited ( 56,000 ) $ 9.81 Nonvested at June 30, 2022 2,206,000 $ 25.10 3.83 $ 73,548,040 Vested ( 90,000 ) $ 5.17 Forfeited ( 8,000 ) $ 48.44 Nonvested at June 30, 2023 2,108,000 $ 25.86 2.96 $ 69,142,400 Stock Option The following table summarizes the Company's stock option activities: Weighted Weighted Average Average Remaining Number of Exercise Price Contractual Aggregate Shares Per Share Term (in years) Intrinsic Value Outstanding at June 30, 2020 643,978 $ 8.79 2.89 Granted — $ — Exercised ( 156,103 ) $ 11.31 $ 1,272,291 Canceled or forfeited — $ — Outstanding at June 30, 2021 487,875 $ 7.99 2.32 Granted — $ — Exercised ( 98,000 ) $ 9.15 $ 3,936,675 Canceled or forfeited — $ — Outstanding at June 30, 2022 389,875 $ 7.70 1.53 Granted — $ — Exercised ( 65,500 ) $ 8.42 $ 1,442,646 Canceled or forfeited ( 5,000 ) $ 9.19 Outstanding at June 30, 2023 319,375 $ 7.53 0.72 $ 8,071,631 Options vested and expected to vest 319,375 $ 7.53 0.72 $ 8,071,631 Exercisable at June 30, 2023 319,375 $ 7.53 0.72 $ 8,071,631 102 Table of Contents The aggregate intrinsic value for options outstanding at June 30, 2023 in the table above is based on the Company’s common stock closing price on June 30, 2023. The 2018 Employee Share Purchase Plan 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 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. The Purchase Plan allows employees to purchase common shares through payroll deductions of up to 15 % of their eligible compensation. Such deductions will accumulate over a six-month accumulation period without interest. 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. In addition, no participant may purchase more than $ 25,000 worth of common stock in any one calendar year period. No more than 300,000 common shares may be purchased by all participants on any purchase date. The ESPP is compensatory and results in compensation expense. The fair values of common shares to be issued under the ESPP were determined using the Black-Scholes option pricing model with the following assumptions: Year Ended June 30, 2023 2022 2021 Volatility rate 64.0 % - 70.5 % 66.4 % - 69.9 % 63.1 % - 68.5 % Risk-free interest rate 4.5 % - 4.6 % 0.3 % - 2.1 % 0.1 % - 0.2 % Expected term 1.3 years 1.3 years 1.3 years Dividend yield — % — % — % The weighted-average estimated fair value of employee stock purchase rights granted pursuant to the ESPP during the years ended June 30, 2023, 2022 and 2021 was $ 11.46 , $ 16.48 and $ 11.11 per share, respectively. Share-based Compensation Expenses The total share-based compensation expense related to TRSU, PSUs, MSUs, stock options and ESPP described above, recognized in the consolidated statements of operations for the years presented was as follows: Year Ended June 30, 2023 2022 2021 (in thousands) Cost of goods sold $ 5,851 $ 5,125 $ 1,756 Research and development 9,437 7,049 5,352 Selling, general and administrative 22,200 19,150 8,216 $ 37,488 $ 31,324 $ 15,324 Total unrecognized share-based compensation expense as of June 30, 2023 was $ 56.1 million including estimated forfeitures, which is expected to be recognized over a weighted-average period of 2.2 years. 11. Employee Benefit Plans The Company maintains a 401(k) retirement plan for the benefit of qualified employees in the U.S. Employees who participate may elect to make salary deferral contributions to the plan up to 100 % of the employees' eligible salary subject to annual Internal Revenue Code maximum limitations. The employer's contribution is discretionary. Effective from April 1, 103 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, 2023 and 2022, the Company made employer match contributions of $ 1.0 million and $ 0.3 million, respectively. 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. The retirement contribution rate is 7.7 % in the U.S., 15.0 % to 16.0 % in China, 6.0 % in Taiwan, and 12.0 % in India. The Company has no obligations for the payment of such social benefits beyond the required contributions as set out above. 104 12. Income Taxes The provision for income taxes is comprised of: Year Ended June 30, 2023 2022 2021 (in thousands) U.S. federal taxes: Current $ 1,093 $ 645 $ 31 Deferred 549 2,260 1,955 Non-U.S. taxes: Current 4,620 7,749 2,344 Deferred ( 404 ) 28,599 ( 396 ) State taxes, net of federal benefit: Current 79 5 1 Total provision for income taxes $ 5,937 $ 39,258 $ 3,935 The reconciliation of the federal statutory income tax rate to our effective income tax rate is as follows (in percentage): Year Ended June 30, 2023 2022 2021 United States statutory rate 21.0 % 21.0 % 21.0 % Stock-based compensation 0.2 0.0 0.1 Foreign taxes, net 13.5 ( 14.3 ) ( 14.4 ) Outside basis difference on equity method investment ( 1.0 ) 1.2 — Tax credits ( 13.3 ) ( 0.3 ) ( 2.4 ) Non-deductible expenses 1.5 — 2.4 Tax exempt income ( 1.5 ) — — Withholding taxes 9.0 — — Non-deductible executive compensation 7.3 0.5 — Foreign derived intangible income deduction ( 7.2 ) ( 0.3 ) — Other 0.6 0.1 ( 0.2 ) 30.1 % 7.9 % 6.5 % The domestic and foreign components of income before taxes are: Year Ended June 30, 2023 2022 2021 (in thousands) U.S. operations $ 19,001 $ 16,684 $ 9,622 Non-U.S. operations 711 478,386 50,602 Net income before income taxes $ 19,712 $ 495,070 $ 60,224 105 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows: June 30, 2023 2022 (in thousands) Deferred tax assets: Accrued compensation $ 2,218 $ 5,742 Net operating loss carryforwards 18 61 Depreciation 5,360 4,365 Tax credits 15,180 15,079 Operating lease liabilities 4,567 5,807 Capitalized R&D costs 1,116 — Accruals and reserves 558 643 Total deferred tax assets 29,017 31,697 Valuation allowance ( 6,686 ) ( 5,755 ) Total deferred tax assets, net of valuation allowance 22,331 25,942 Deferred tax liabilities: Depreciation and amortization ( 16,899 ) ( 18,909 ) Right of use assets ( 4,315 ) ( 5,579 ) Investments ( 27,864 ) ( 29,619 ) Total deferred tax liabilities ( 49,078 ) ( 54,107 ) Net deferred tax liabilities $ ( 26,747 ) $ ( 28,165 ) The breakdown between deferred tax assets and liabilities is as follows: June 30, 2023 2022 (in thousands) Long-term deferred tax assets $ 536 $ 592 Long-term deferred tax liabilities ( 27,283 ) ( 28,757 ) Net deferred tax liabilities $ ( 26,747 ) $ ( 28,165 ) The Company’s valuation allowance related to deferred income taxes as reflected in the consolidated balance sheets was $ 6.7 million and $ 5.8 million as of June 30, 2023 and 2022, respectively. The change in valuation allowance for June 30, 2023 and 2022 was an increase of $ 0.9 million and a decrease of $ 35.7 million, respectively. At June 30, 2023 and 2022, the Company provided a valuation allowance for its state research and development credit carryforward deferred tax assets of $ 6.7 million and $ 5.8 million, respectively, 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, 2023, the Company had federal research and development tax credit carryforwards of approximately $ 8.0 million. The federal tax credits begin to expire in 2039, if not utilized. At June 30, 2023, the Company had state tax credit carryforwards of approximately $ 9.0 million, which carryforward indefinitely. 106 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 $ 27.9 million at June 30, 2023 related to our investment in the JV Company. As of June 30, 2023, the cumulative amount of undistributed earnings of its foreign entities considered permanently reinvested is $ 374.0 million. The determination of the unrecognized deferred tax liability on these earnings is not practicable. Should the Company decide to remit this income to its Bermuda parent company in a future period, its provision for income taxes may increase materially in that period. A reconciliation of the beginning and ending amount of unrecognized tax benefits from July 1, 2020 to June 30, 2023 is as follows: Year Ended June 30, 2023 2022 2021 (in thousands) Balance at beginning of year $ 8,609 $ 7,645 $ 7,126 Additions based on tax positions related to the current year 804 1,121 677 Reductions based on tax positions related to prior years ( 68 ) ( 40 ) ( 41 ) Reductions due to lapse of applicable statute of limitations ( 10 ) ( 117 ) ( 117 ) Balance at end of year $ 9,335 $ 8,609 $ 7,645 At June 30, 2023, the total unrecognized tax benefits of $ 9.3 million included $ 6.8 million of unrecognized tax benefits that have been netted against the related deferred tax assets. The remaining $ 2.5 million of unrecognized tax benefits was recorded within long-term income tax payable on the Company's consolidated balance sheet as of June 30, 2023. The Company cannot reasonably estimate the timing and amount of potential cash settlements on the unrecognized tax benefits. The total unrecognized tax benefits of $ 9.3 million at June 30, 2023 included $ 6.3 million that, if recognized, would reduce the effective income tax rate in future periods. It is reasonably possible that the Company will recognize approximately no reduction to its uncertain tax positions during the next twelve months. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. To the extent accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision in the period that such determination is made. The amount of interest and penalties accrued at June 30, 2023 was $ 0.3 million, of which $ 0.1 million was recognized in the year ended June 30, 2023. The amount of interest and penalties accrued at June 30, 2022 was $ 0.2 million, of which $ 32 thousand was recognized in the year ended June 30, 2022. The Company files its income tax returns in the United States and in various foreign jurisdictions. The tax years 2004 to 2023 remain open to examination by U.S. federal and state tax authorities due to tax attribute carryovers. The tax years 2017 to 2023 remain open to examination by foreign tax authorities. The Company's income tax returns are subject to examinations by the Internal Revenue Service and other tax authorities in various jurisdictions. In accordance with the guidance on the accounting for uncertainty in income taxes, the Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes. These assessments can require considerable estimates and judgments. If the Company's estimate of income tax liabilities proves to be less than the ultimate assessment, then a further charge to expense would be required. If events occur and the payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when the Company determines the liabilities are no longer necessary. "U.S. Tax Cuts and Jobs Act", Enacted December 22, 2017 On December 22, 2017, the United States enacted tax legislation commonly known as the Tax Cuts and Jobs Act (“the Tax Act”), which significantly changed the existing U.S. tax laws, including, but not limited to, (1) a reduction in the corporate tax rate from 35% to 21%, (2) a move from a worldwide tax system toward a territorial system through a “participation exemption” deduction for certain foreign-source dividends, (3) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized, (4) bonus depreciation that allows for full expensing of qualified property, (5) creating a new limitation on deductible interest expense and (6) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. 107 The Company is not currently subject to the Base Erosion and Anti-Abuse (BEAT) tax, which is a tax imposed on certain entities who make payments to their non U.S. affiliates, where such payments reduce the U.S. tax base. The BEAT tax is imposed at a rate of 10% on Adjusted Taxable Income, excluding certain payments to foreign related entities. It is an incremental tax over and above the corporate income tax and is recorded as a period cost. It is possible that this tax could be applicable in future periods, which would cause an increase to the effective tax rate and cash taxes. The Company is subject to U.S. research expense capitalization under IRC Section 174 and is eligible for the foreign derived intangible income (FDII) deductions under the 2017 U.S. Tax Cuts and Jobs Act. The IRC Section 174 research expense capitalization results in a timing difference which is amortizable over five years for domestic R&D expenditures and 15 years for foreign R&D expenditures. The FDII deduction results in a favorable permanent book-tax difference which is based on multiple factors including the amount of foreign sourced taxable income of U.S. corporations. "U.S. Coronavirus Aid, Relief and Economic Security Act” (“CARES Act”), Enacted March 27, 2020 On March 27, 2020, the United States enacted the CARES Act, which made the changes to existing U.S. tax laws, including, but not limited to, (1) allowing U.S. federal net operating losses originated in the 2018, 2019 or 2020 tax years to be carried back five years to recover taxes paid based upon taxable income in the prior five years, (2) eliminated the 80% of taxable income limitation on net operating losses for the 2018, 2019 and 2020 tax years (the 80% limitation will be reinstated for tax years after 2020), (3) accelerating the refund of prior year alternative minimum tax credits, (4) modifying the bonus depreciation for qualified improvement property and (5) modifying the limitation on deductible interest expense. As a result of the ability to carryback net operating losses from the June 2018 and June 2019 years to the June 2015 to June 2017 tax years, net operating losses which were previously tax-effected using the current 21% U.S. federal tax rate were revalued to the U.S. tax rates in effect for the June 2015 to June 2017 tax years due to the ability of receiving tax refunds for the taxes paid in these years. Accordingly, we reported a discrete tax benefit of $ 1.1 million in the third quarter of fiscal year 2020 related to the re-measurement of the net operating losses that could be realized via the new net operating loss carryback provisions. “U.S. Consolidated Appropriations Act, 2021” (“CAA 2021”), Enacted December 27, 2020 On December 27, 2020, the United States enacted the Consolidated Appropriations Act, 2021, which made changes to existing U.S. tax laws. There was no material impact of the tax law changes included in the Consolidated Appropriations Act, 2021 to the Company. “The American Rescue Plan Act of, 2021”, Enacted March 11, 2021 On March 11, 2021, the United States enacted the American Rescue Plan Act of 2021, which made changes to existing U.S. tax laws. There was no material impact of the tax law changes included in the American Rescue Plan Act of 2021 to the Company. “The Chip and Science Act of 2022”, Enacted August 2, 2022 In August 2022 the U.S. enacted the Chip and Science Act of 2022 (the Chips Act). The Chips Act provides incentives to semiconductor chip manufacturers in the United States, including providing a 25% manufacturing investment credits for investments in semiconductor manufacturing property placed in service after December 31, 2022, for which construction begins before January 1, 2027. Property investments qualify for the 25% credit if, among other requirements, the property is integral to the operation of an advanced manufacturing facility, defined as having a primary purpose of manufacturing semiconductors or semiconductor manufacturing equipment. Currently, we are evaluating the impact of the Chips Act to us. “The Inflation Reduction Act”, Enacted August 16, 2022 In August 2022 the United States enacted tax legislation through the Inflation Reduction Act (IRA). The IRA introduces a 15% corporate alternative minimum tax (CAMT) for corporations whose average annual adjusted financial statement income (AFSI) for any consecutive three-tax-year period preceding the applicable tax year exceeds $1 billion. The CAMT is effective for tax years beginning after 31 December 2022. The CAMT is currently not applicable to the Company. Altera Litigation 108 Table of Contents On July 27, 2015, in Altera Corp. v. Commissioner, the U.S. Tax Court issued an opinion related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. In the July 2015 ruling, the Tax Court concluded that the sharing of the cost of employee stock compensation in a company’s cost-sharing arrangement was invalid under the U.S. Administrative Procedures Act. In June 2019, a panel of the Ninth Circuit of the U.S. Court of Appeals reversed this decision. In July 2019, Altera petitioned U.S. Court of Appeals for the Ninth Circuit to hold an en banc rehearing of the case. The petition was subsequently denied by the Ninth Circuit. Altera appealed the case to the U.S. Supreme Court in February 2020, but the U.S. Supreme Court declined to hear the case in June 2020, leaving intact the U.S. Court of Appeals for the Ninth Circuit’s decision. AOS has not recorded any benefit related to the Altera Corporation Tax Court decision in any period through June 2023. The Company will continue to monitor ongoing developments and potential impact to its financial statements. 109 Table of Contents 13. Segment and Geographic Information The Company is organized as, and operates in, one operating segment: the design, development and supply of power semiconductor products for computing, consumer electronics, communication and industrial applications. The chief operating decision-makers are the Executive Chairman and the Chief Executive Officer. The financial information presented to the Company’s Executive Chairman and Chief Executive Officer is on a consolidated basis, accompanied by information about revenue by customer and geographic region, for purposes of evaluating financial performance and allocating resources. The Company has one business segment, and there are no segment managers who are held accountable for operations, operating results and plans for products or components below the consolidated unit level. Accordingly, the Company reports as a single operating segment. The Company sells its products primarily to distributors in the Asia Pacific region, who in turn sell these products to end customers. Because the Company’s distributors sell their products to end customers which may have a global presence, revenue by geographical location is not necessarily representative of the geographical distribution of sales to end user markets. In February 2023, the Company entered into a license agreement with a customer to license the Company’s proprietary SiC technology and to provide 24-months of engineering and development services for a total fee of $ 45 million. The revenue by geographical location in the following tables is based on the country or region in which the products were shipped to: Year Ended June 30, 2023 2022 2021 (in thousands) Hong Kong $ 561,855 $ 630,238 $ 537,553 China 84,546 120,978 107,325 South Korea 9,168 11,802 5,497 United States 19,744 12,470 5,492 Other countries 16,008 2,064 1,035 $ 691,321 $ 777,552 $ 656,902 Year Ended June 30, 2023 2022 2021 (in thousands) Power discrete $ 458,795 $ 545,135 $ 482,718 Power IC 218,620 220,882 161,726 Packaging and testing services 3,979 11,535 12,458 License and development services 9,927 — — $ 691,321 $ 777,552 $ 656,902 Long-lived assets, net consisting of property, plant and equipment and land use rights, net, as well as operating lease right-of-use assets, net by geographical area are as follows: June 30, 2023 2022 (in thousands) China $ 114,822 $ 105,326 United States 263,083 232,731 Other countries 4,275 4,283 $ 382,180 $ 342,340 110 14. Restricted Net Assets Laws and regulations in China permit payments of dividends by the Company's subsidiaries in China only out of their retained earnings, if any, as determined in accordance with China accounting standards and regulations. Each China subsidiary is also required to set aside at least 10 % of its after-tax profit, if any, based on China accounting standards each year to its statutory reserves until the cumulative amount of such reserves reaches 50 % of its registered capital. As a result of these China laws and regulations, the Company's China subsidiaries are restricted in their abilities to transfer a portion of their net assets to the Company. As of June 30, 2023 and 2022, such restricted portion amounted to approximately $ 93.2 million and $ 92.4 million, or 10.5 % and 10.8 %, of our total consolidated net assets attributable to the Company, respectively. As the Company's China subsidiaries are not revenue generating operating units, the Company does not expect to repatriate funds in the form of dividends, loans or advances from its China subsidiaries for working capital and other funding purposes. 15. Commitments and Contingencies Purchase commitments As of June 30, 2023 and 2022, the Company had approximately $ 127.5 million and $ 89.9 million, respectively, of outstanding purchase commitments primarily for purchases of semiconductor raw materials, wafers, spare parts, packaging and testing services and others. As of June 30, 2023 and 2022, the Company had approximately $ 9.7 million, and $ 63.4 million, respectively, of commitments for the purchase of property and equipment. Other commitments 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, bank borrowings and leases. Contingencies and indemnities The Company has in the past, and may from time to time in the future, become involved in legal proceedings arising from the normal course of business activities. The semiconductor industry is characterized by frequent claims and litigation, including claims regarding patent and other intellectual property rights as well as improper hiring practices. Irrespective of the validity of such claims, the Company could incur significant costs in the defense of such claims and suffer adverse effects on its operations. 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 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. As part of this process and in response to DOC’s request, the Company provided certain documents and materials relating to the Company’s supply chain and shipment process to DOC, and DOC is currently reviewing this matter. DOC has not informed the Company of any specific timeline or schedule under which DOC will complete its review. Given the case is in still ongoing and neither DOJ nor DOC have provided the Company with any clear indication of the timing and schedule for the investigation, the Company cannot estimate the reasonably possible loss or range of loss that may occur. Also, the Company is unable to predict the duration, scope, result or related costs of the investigation, although the Company expects to incur additional professional fees as a result of this matter. In addition, the Company is unable to predict what, if any, further action that may be taken by the government in connection with the investigation, or what, if any, penalties, sanctions or remedial actions may be sought. The Company is a party to a variety of agreements that it has contracted with various third parties. Pursuant to these agreements, the Company may be obligated to indemnify another party to such an agreement with respect to certain matters. Typically, these obligations arise in the context of contracts entered into by the Company, under which the Company customarily agrees to hold the other party harmless against losses arising from a breach of representations and covenants related to such matters as title to assets sold, certain intellectual property rights, specified environmental matters and certain income taxes. In these circumstances, payment by the Company is customarily conditioned on the other party making a claim pursuant to the procedures specified in the particular contract, which procedures typically allow the Company to challenge the other party's claim. Further, the Company's obligations under these agreements may be limited in time and/or amount, and in some 111 instances, the Company may have recourse against third parties for certain payments made by it under these agreements. The Company has not historically paid or recorded any material indemnifications, and no accrual was made at June 30, 2023 and 2022. The Company has agreed to indemnify its directors and certain employees as permitted by law and pursuant to its Bye-laws, and has entered into indemnification agreements with its directors and executive officers. The Company has not recorded a liability associated with these indemnification arrangements, as it historically has not incurred any material costs associated with such indemnification obligations. Costs associated with such indemnification obligations may be mitigated by insurance coverage that the Company maintains. However, such insurance may not cover any, or may cover only a portion of, the amounts the Company may be required to pay. In addition, the Company may not be able to maintain such insurance coverage at reasonable cost, if at all, in the future. Environmental matters The Company is subject to various federal, state, local, and foreign laws and regulations governing environmental matters, including the use, handling, discharge, and disposal of hazardous materials. The Company believes that it has been in material compliance with applicable environmental regulations and standards. Complying with current laws and regulations has not had a material adverse effect on the Company’s financial condition and results of operations. However, it is possible that additional environmental issues may arise in the future, which the Company cannot currently predict. 112 SCHEDULE II ALPHA AND OMEGA SEMICONDUCTOR LIMITED VALUATION AND QUALIFYING ACCOUNTS (in thousands) Allowance Allowance Valuation Allowance for Doubtful for Price for Deferred Accounts Adjustments Tax Assets June 30, 2020 $ 30 $ 30,092 $ 37,827 Additions — 178,902 3,647 Reductions — ( 196,579 ) — June 30, 2021 $ 30 $ 12,415 $ 41,474 Additions — 170,651 — Reductions — ( 164,335 ) ( 35,719 ) June 30, 2022 $ 30 $ 18,731 $ 5,755 Additions — 165,543 931 Reductions — ( 144,298 ) — June 30, 2023 $ 30 $ 39,976 $ 6,686 113 (b) Index to Exhibits: Number Description 3.1 Memorandum of Association of Registrant (incorporated by reference to Exhibit 3.1 from Registration Statement on Form F-1 (File No. 333-165823) filed with the Commission on March 31, 2010) 3.2 Amended and Restated Bye-laws of Registrant (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Commission on November 12, 2015) 3.3 Amendment No. 1 to Amended and Restated Bye-Laws of Registrant (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Commission on November 14, 2017) 4.1 Form of Common Share Certificate (incorporated by reference to Exhibit 4.2 from Registration Statement on Form F-1 (File No. 333-165823) filed with the Commission on March 31, 2010) 4.2* Description of Securities of the Registrant 10.7†† Foundry Agreement dated as of January 10, 2002 between the Registrant and Shanghai Hua Hong NEC Electronics Company, Limited (incorporated by reference to Exhibit 10.16 from Registration Statement on Form F-1 (File No. 333-165823) filed with the Commission on March 31, 2010) 10.8†† First Addendum to Foundry Agreement dated as of July 28, 2005 between the Registrant and Shanghai Hua Hong NEC Electronics Company, Limited (incorporated by reference to Exhibit 10.17 from Registration Statement on Form F-1 (File No. 333-165823) initially filed with the Commission on March 31, 2010) 10.9†† Second Addendum to Foundry Agreement dated as of April 11, 2007 between the Registrant and Shanghai Hua Hong NEC Electronics Company, Limited (incorporated by reference to Exhibit 10.18 from Registration Statement on Form F-1 (File No. 333-165823) filed with the Commission on March 31, 2010) 10.10†† Foundry Service Agreement dated as of November 2, 2009 between Alpha & Omega Semiconductor (Macau), Ltd. and Shanghai Hua Hong NEC Electronics Company, Limited (incorporated by reference to Exhibit 10.6 from Registration Statement on Form F-1 (File No. 333-165823) filed with the Commission on March 31, 2010) 10.11 Non-Exclusive Distributor Agreement dated as of July 27, 2010 between Alpha & Omega Semiconductor (Hong Kong) Limited and Frontek Technology Corporation (incorporated by reference to Exhibit 4.17 from Annual Report on Form 20-F (File No. 001-34717) filed with the Commission on September 2, 2010) 10.12†† Supplement to Non-Exclusive Distributor Agreement dated as of July 27, 2010 between Alpha & Omega Semiconductor (Hong Kong) Limited and Frontek Technology Corporation (incorporated by reference to Exhibit 4.18 from Annual Report on Form 20-F (File No. 001-34717) filed with the Commission on September 2, 2010) 10.13†† First Amendment of Supplement to Distribution Agreement dated as of April 21, 2011 between Alpha & Omega Semiconductor (Hong Kong) Limited and Frontek Technology Corporation(incorporated by reference to Exhibit 10.15 from Annual Report Form 10-K (File No. 001-34717) filed with the Commission on September 9, 2011) 10.14 Supplement to Distribution Agreement dated as of July 27, 2010 between the Registrant and Frontek Technology Corporation (incorporated by reference to Exhibit 10.1 from Quarterly Report on Form 10-Q (File No. 001-34717) filed with the Commission on February 6, 2015) 10.15 Non-Exclusive Distributor Agreement dated as of July 27, 2010 between Alpha & Omega Semiconductor (Hong Kong) Limited and Promate Electronic Co., Ltd. (incorporated by reference to Exhibit 4.19 from Annual Report on Form 20-F (File No. 001-34717) filed with the Commission on September 2, 2010) 10.16†† Supplement to Non-Exclusive Distributor Agreement dated as of July 27, 2010 between Alpha & Omega Semiconductor (Hong Kong) Limited and Promate Electronic Co., Ltd. (incorporated by reference to Exhibit 4.20 from Annual Report on Form 20-F (File No. 001-34717) filed with the Commission on September 2, 2010) 10.17†† First Amendment of Supplement to Distribution Agreement dated as of April 21, 2011 between Alpha & Omega Semiconductor (Hong Kong) Limited and Promate Electronic Co., Ltd. (incorporated by reference to Exhibit 10.18 from Annual Report Form 10-K (File No. 001-34717) filed with the Commission on September 9, 2011) 114 10.18 Supplement to Distribution Agreement dated as of July 27, 2010 between the Registrant and Promate Electronic Co., Ltd (incorporated by reference to Exhibit 10.2 from Quarterly Report on Form 10-Q (File No. 001-34717) filed with the Commission on February 6, 2015) 10.19 Lease dated as of December 23, 2009 between Alpha and Omega Semiconductor Incorporated and OA Oakmead II, LLC (incorporated by reference to Exhibit 10.19 from Registration Statement on Form F-1 (File No. 333-165823) filed with the Commission on March 31, 2010) 10.20 Guarantee dated as of January 5, 2010 between the Registrant and OA Oakmead II, LLC (incorporated by reference to Exhibit 10.20 from Registration Statement on Form F-1 (File No. 333-165823) filed with the Commission on March 31, 2010) 10.22(+) Form of Retention Agreement (incorporated by reference to Exhibit 10.14 from Registration Statement on Form F-1 (File No. 333-165823) filed with the Commission on March 31, 2010) 10.24 Third Addendum to Foundry Agreement dated as of March 6, 2012 by and among the Registrant and Shanghai Hua Hong NEC Electronics Company, Limited (incorporated by reference to Exhibit 10.34 from Annual Report on Form 10-K (File No.: 001-34717) filed with the Commission on August 31, 2012) 10.25(+) Amended Form of Restricted Share Unit Issuance Agreement (incorporated by reference to Exhibit 10.35 from Annual Report on Form 10-K (File No.: 001-34717) filed with the Commission on August 31, 2012) 10.27(+) Form of Restricted Share Unit Agreement (incorporated by reference to Exhibit 10.3 from Quarterly Report on Form 10-Q (File No: 001-34717) filed with the Commission on May 9, 2014) 10.28†† Joint Venture Contract on Incorporation of Chongqing Alpha and Omega Semiconductor Limited, dated as of March 29, 2016, among the Registrant, certain subsidiaries of the Registrant, Chongqing Strategic Emerging Industry Equity Investment Fund Partnership (LP), and Chongqing Liangjiang New Area Strategic Emerging Industry Equity Investment Fund Partnership (LP) (English Translation) (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 001-34717) filed with the Commission on May 10, 2016) 10.29 (+) Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 001-34717) filed with the Commission on February 9, 2017) 10.30†† Engineering, Procurement and Construction Contract dated January 10, 2017 between Chongqing Alpha and Omega Semiconductor Limited and The IT Electronics Eleventh Design & Research Institute Scientific and Technological Engineering Corporation Limited (the “EPC Contract”) (English Translation) (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No. 001-34717) filed with the Commission on May 4, 2017) 10.31†† Amendment No. 1 to EPC Contract effective as of January 10, 2017 (English Translation) (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q (File No. 001-34717) filed with the Commission on May 4, 2017) 10.32†† Financing Lease Contract, dated May 9, 2018, by and between Chongqing Alpha and Omega Semiconductor Limited and Chongqing YinHai Financing Lease Co., Ltd. (English Translation) (incorporated by reference to Exhibit 10.38 from Annual Report on Form 10-K (File No. 001-34717) filed with the Commission on August 23, 2018) 10.33†† Real Estate Mortgage Contract, dated May 14, 2018, by and between Chongqing Alpha and Omega Semiconductor Limited and the Export-Import Bank of China (English Translation) (incorporated by reference to Exhibit 10.39 from Annual Report on Form 10-K (File No. 001-34717) filed with the Commission on August 23, 2018) 10.34 Second Supplemental Agreement to the Joint Venture Contract on Incorporation of Chongqing Alpha and Omega Semiconductor Limited (English Translation) (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 001-34717) filed with the Commission on May 11, 2020) 10.35 Third Supplemental Agreement to the Joint Venture Contract on Incorporation of Chongqing Alpha and Omega Semiconductor Limited (English Translation) (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No. 001-34717) filed with the Commission on May 11, 2020) 10.36 First Amendment to Lease dated as of December 23, 2009 between Alpha and Omega Semiconductor Incorporated and ECI Five Oakmead, LLC (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q (File No. 001-34717) filed with the Commission on May 11, 2020) 115 10.37 Alpha & Omega Semiconductor Limited 2018 Omnibus Incentive Plan (incorporated by reference to Appendix A to the Definitive Proxy Statement on Schedule 14A filed with the Commission on October 13, 2022) 10.38 Supplemental Agreement to Financing Lease Contract, dated as of June 28, 2020 between YinHai Leasing Company and China Import/Export Bank and Chongqing Alpha and Omega Semiconductor Technology Co., Ltd. (English Translation) ( incorporated by reference to Exhibit 10.44 from Annual Report on Form 10-K (File No. 001-34717) filed with the Commission on September 2, 2020) 10.39 Amendment to Market Performance Restricted Share Unit Agreement (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 001-34717) filed with the Commission on November 6, 2020) 10.40 Supplemental Agreement to Financing Lease Contract, dated August 3, 2020 between YinHai Leasing Company and Chongqing Alpha and Omega Semiconductor Technology Co., Ltd (English Translation) (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No. 001-34717) filed with the Commission on November 6, 2020) 10.41 Alpha & Omega Semiconductor Limited 2018 Omnibus Incentive Plan-Plan Amendment (incorporated by reference to Appendix A to the Definitive Proxy Statement on Schedule 14A filed with the Commission on October 13, 2022) 10.45(+) 2021 Officer Form Retention Agreement for Executive Officers of Alpha and Omega Semiconductor Limited (incorporated by reference to Exhibit 10.45 from Annual Report on Form 10-K (File No. 001-34717) filed with the Commission on August 30, 2021) 10.47(+) Second Amendment To Lease US Sunnyvale Office (incorporated by reference to Exhibit 10.47 from Annual Report on Form 10-K (File No. 001-34717) filed with the Commission on August 30, 2021) 10.48(+) Third Amendment To Lease US Sunnyvale Office (incorporated by reference to Exhibit 10.48 from Annual Report on Form 10-K (File No. 001-34717) filed with the Commission on August 30, 2021) 10.49 Amended and Restated Director Compensation Policy (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 001-34717) filed with the Commission on November 5, 2021) 10.50 Equity Transfer Agreement of Chongqing Alpha and Omega Semiconductor Limited dated as of December 1, 2021 (English Translation) (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 001-34717) filed with the Commission on February 9, 2022) 10.51 The fourth Supplementary Agreement to the Joint Venture Contract on Incorporation of Chongqing Alpha and Omega Semiconductor Limited dated as of December 1, 2021 (English Translation) (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No. 001-34717) filed with the Commission on February 9, 2022) 10.52 Fourth Addendum to Foundry Agreement dated as of July 28, 2005 between the Registrant and Shanghai Hua Hong NEC Electronics Company, Limited (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 001-34717) filed with the Commission on May 10, 2022) 10.53 Fifth Addendum to Foundry Agreement dated as of July 28, 2005 between the Registrant and Shanghai Hua Hong NEC Electronics Company, Limited (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No. 001-34717) filed with the Commission on May 10, 2022) 10.54† Shareholders Contract of Chongqing Alpha and Omega Semiconductor Limited dated as of July 12, 2022 (incorporated by reference to Exhibit 10 . 54 from Annual Report on Form 10-K (File No. 001-34717) filed with the Commission on September 20, 2022) 10.56 Executive Chairman Employment Agreement (Mike Chang) (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File No. 001-34717) filed with the Commission on May 8 , 202 3 ) 10.57 Chief Executive Officer Employment Agreement (Stephen Chang) (incorporated by reference to Exhibit 10. 2 to the Quarterly Report on Form 10-Q (File No. 001-34717) filed with the Commission on May 8, 2023) 16.1 Letter from BDO USA LLP to the Securities and Exchange Commission (incorporated by reference to Exhibit 16.1 to the Current Report on Form 8-K filed with the Commission on October 11, 2022) 21.1* List of Subsidiaries of the Registrant 23.1* Consent of B aker Tilly US , LLP, independent registered public accounting firm 116 23.2* Consent of BDO USA, P.A., independent registered public accounting firm 31.1* Certification of Chief Executive Officer required by Rule 13(a)-14(a) under the Exchange Act 31.2* Certification of Chief Financial Officer required by Rule 13(a)-14(a) under the Exchange Act 32.1* Certification of Chief Executive Officer required by Rule 13a-14(b) under the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code 32.2* Certification of Chief Financial Officer required by Rule 13a-14(b) under the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code 99.1* Chongqing Alpha and Omega Semiconductor Limited Report of Independent Auditor 101.INS XBRL Instance 101.SCH XBRL Taxonomy Extension Schema 101.CAL XBRL Taxonomy Extension Calculation 101.DEF XBRL Taxonomy Extension Definition 101.LAB XBRL Taxonomy Extension Labels 101.PRE XBRL Taxonomy Extension Presentation * Filed with this Annual Report on Form 10-K. † Certain provisions in this exhibit have been omitted as confidential information. †† Confidential treatment has been granted for certain information contained in this document pursuant to an order of the Securities and Exchange Commission. Such information has been omitted and filed separately with the Securities and Exchange Commission. (+) Indicates management contract or compensatory plan or arrangement. 117 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. August 29, 2023 ALPHA AND OMEGA SEMICONDUCTOR LIMITED By: /s/ STEPHEN C. CHANG Stephen C. Chang Chief Executive Officer (Principal Executive Officer) 118 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS , that each person whose signature appears below constitutes and appoints Stephen C. Chang and Yifan Liang, and each or any one of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ STEPHEN C. CHANG Chief Executive Officer and Director August 29, 2023 Stephen C. Chang (Principal Executive Officer) /s/ MIKE F. CHANG Executive Chairman and Chairman of the Board August 29, 2023 Mike F. Chang, Ph.D. (Principal Executive Officer) /s/ YIFAN LIANG Chief Financial Officer and Corporate Secretary August 29, 2023 Yifan Liang (Principal Financial Officer and Principal Accounting Officer) /s/ LUCAS S. CHANG Director August 29, 2023 Lucas S. Chang /s/ CLAUDIA CHEN Director August 29, 2023 Claudia Chen /s/ SO-YEON JEONG Director August 29, 2023 So-Yeon Jeong /s/ HANQING (HELEN) LI Director August 29, 2023 Hanqing (Helen) Li /s/ KING OWYANG Director August 29, 2023 King Owyang /s/ MICHAEL L. PFEIFFER Director August 29, 2023 Michael L. Pfeiffer /s/ MICHAEL J. SALAMEH Director August 29, 2023 Michael J. Salameh