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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________
FORM 10-Q
_________________________________
(MARK ONE)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
        For the quarterly period ended December 31, 2020

OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM              TO             
Commission file number 001-34717
__________________________
Alpha and Omega Semiconductor Limited

(Exact name of Registrant as Specified in its Charter)
Bermuda77-0553536
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification Number)
Clarendon House, 2 Church Street
Hamilton HM 11, Bermuda
(Address of Principal Registered
Offices including Zip Code)
(408830-9742
(Registrant's Telephone Number, Including Area Code)
__________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes       No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filerAccelerated filerNon-accelerated filer
  (Do not check if a smaller reporting company)
Smaller reporting companyEmerging growth company

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

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


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
Number of common shares outstanding as of January 25, 2021: 25,770,99825,770,998




Alpha and Omega Semiconductor Limited
Form 10-Q
Fiscal Second Quarter Ended December 31, 2020
TABLE OF CONTENTS
 
  Page
Part I.
    Item 1.
    Item 2.
    Item 3.
    Item 4.
Part II.
    Item 1.
    Item 1A.
    Item 2.
    Item 3.
    Item 4.
    Item 5.
    Item 6.




PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands except par value per share)
 December 31,
2020
June 30,
2020
ASSETS
Current assets:
Cash and cash equivalents$180,966 $158,536 
Restricted cash230 2,190 
Accounts receivable, net24,934 13,272 
Inventories144,307 135,528 
Other current assets10,833 8,807 
Total current assets361,270 318,333 
Property, plant and equipment, net430,808 412,340 
Operating lease right-of-use assets, net34,395 32,948 
Intangible assets, net15,090 16,770 
Deferred income tax assets 4,852 4,766 
Restricted cash - long-term2,143 1,978 
Other long-term assets4,607 5,804 
Total assets$853,165 $792,939 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable$83,859 $86,181 
Accrued liabilities60,483 54,986 
Income taxes payable2,166 1,360 
Short-term debt43,574 30,114 
Finance lease liabilities16,535 15,258 
Operating lease liabilities4,896 4,159 
Total current liabilities211,513 192,058 
Long-term debt93,096 99,775 
Income taxes payable - long-term921 903 
Deferred income tax liabilities860 496 
Finance lease liabilities - long-term20,821 26,842 
Operating lease liabilities - long-term31,102 30,254 
Other long-term liabilities20,196 10,723 
Total liabilities378,509 361,051 
Commitments and contingencies (Note 10)
Equity:
Preferred shares, par value $0.002 per share:
Authorized: 10,000 shares; issued and outstanding: none at December 31, 2020 and June 30, 2020
  
Common shares, par value $0.002 per share:
Authorized: 100,000 shares; issued and outstanding: 32,394 shares and 25,765 shares, respectively at December 31, 2020 and 31,944 shares and 25,305 shares, respectively at June 30, 2020
65 64 
Treasury shares at cost: 6,629 shares at December 31, 2020 and 6,639 shares at June 30, 2020
(66,097)(66,184)
Additional paid-in capital254,980 246,103 
Accumulated other comprehensive income (loss)1,481 (5,127)
Retained earnings141,289 118,833 
Total Alpha and Omega Semiconductor Limited shareholder's equity331,718 293,689 
Noncontrolling interest142,938 138,199 
Total equity474,656 431,888 
Total liabilities and equity$853,165 $792,939 

See accompanying notes to these condensed consolidated financial statements.
1

Table of Contents
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except per share data)
Three Months Ended December 31,Six Months Ended December 31,
 2020201920202019
Revenue$158,830 $117,860 $310,381 $235,662 
Cost of goods sold110,081 93,454 219,109 184,324 
Gross profit48,749 24,406 91,272 51,338 
Operating expenses
Research and development15,423 12,147 30,114 24,515 
Selling, general and administrative19,736 15,629 37,241 30,814 
Total operating expenses35,159 27,776 67,355 55,329 
Operating income (loss)13,590 (3,370)23,917 (3,991)
Interest expense and other income (loss), net(381)(635)(930)(1,462)
Income (loss) before income taxes13,209 (4,005)22,987 (5,453)
Income tax expense 669 568 1,680 978 
Net income (loss) including noncontrolling interest12,540 (4,573)21,307 (6,431)
Net loss attributable to noncontrolling interest(363)(3,568)(1,170)(6,435)
Net income (loss) attributable to Alpha and Omega Semiconductor Limited$12,903 $(1,005)$22,477 $4 
Net income (loss) per common share attributable to Alpha and Omega Semiconductor Limited
Basic$0.50 $(0.04)$0.88 $0.00 
Diluted$0.47 $(0.04)$0.84 $0.00 
Weighted average number of common shares attributable to Alpha and Omega Semiconductor Limited used to compute net income (loss) per share
Basic25,672 24,701 25,506 24,620 
Diluted27,353 24,701 26,834 25,362 

See accompanying notes to these condensed consolidated financial statements.

2

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

Three Months Ended December 31,Six Months Ended December 31,
2020201920202019
Net income (loss) including noncontrolling interest$12,540 $(4,573)$21,307 $(6,431)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment6,814 3,055 12,517 (3,096)
Comprehensive income (loss)19,354 (1,518)33,824 (9,527)
Less: Noncontrolling interest2,824 (2,150)4,739 (7,985)
Comprehensive income (loss) attributable to Alpha and Omega Semiconductor Limited$16,530 $632 $29,085 $(1,542)

See accompanying notes to these condensed consolidated financial statements.

3

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited, in thousands)

Common Shares
Treasury Stock
Additional Paid-In Capital
Accumulated Other Comprehensive Income (Loss)Retained Earnings
Total AOS Shareholders' EquityNoncontrolling InterestTotal Equity
Balance, September 30, 2020$64 $(66,171)$248,967 $(2,146)$128,394 $309,108 $140,114 $449,222 
Exercise of common stock options and release of restricted stock units — 1,495 — — 1,495 — 1,495 
Reissuance of treasury stock upon exercise of common stock options and release of restricted stock units— 74 — — (8)66 — 66 
Withholding tax on restricted stock units— — (541)— — (541)— (541)
Issuance of shares under ESPP1 — 1,635 — — 1,636 — 1,636 
Share-based compensation— — 2,424 — — 2,424 — 2,424 
Restricted stock units settlement in connection with service— — 1,000 — — 1,000 — 1,000 
Net income (loss)— — — — 12,903 12,903 (363)12,540 
Cumulative translation adjustment— — — 3,627 — 3,627 3,187 6,814 
Balance, December 31, 2020$65 $(66,097)$254,980 $1,481 $141,289 $331,718 $142,938 $474,656 
Common SharesTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Retained EarningsTotal AOS Shareholders' EquityNoncontrolling InterestTotal Equity
Balance, June 30, 2020$64 $(66,184)$246,103 $(5,127)$118,833 $293,689 $138,199 $431,888 
Exercise of common stock options and release of restricted stock units — 1,495 — — 1,495 — 1,495 
Reissuance of treasury stock upon exercise of common stock options and release of restricted stock units— 87 — — (21)66 — 66 
Withholding tax on restricted stock units— — (953)— — (953)— (953)
Issuance of shares under ESPP1 — 1,635 — — 1,636 — 1,636 
Share-based compensation— — 4,700 — — 4,700 — 4,700 
Restricted stock units settlement in connection with service— — 2,000 — — 2,000 — 2,000 
Net income (loss)— — — — 22,477 22,477 (1,170)21,307 
Cumulative translation adjustment— — — 6,608 — 6,608 5,909 12,517 
Balance, December 31, 2020$65 $(66,097)$254,980 $1,481 $141,289 $331,718 $142,938 $474,656 
4

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited, in thousands)
Common Shares
Treasury Stock
Additional Paid-In Capital
Accumulated Other Comprehensive Income (Loss)Retained Earnings
Total AOS Shareholders' EquityNoncontrolling InterestTotal Equity
Balance, September 30, 2019$62 $(66,227)$236,683 $(5,876)$126,481 $291,123 $146,430 $437,553 
Exercise of common stock options and release of restricted stock units — 26 — — 26 — 26 
Withholding tax on restricted stock units— — (99)— — (99)— (99)
Issuance of shares under ESPP1 — 1,700 — — 1,701 — 1,701 
Share-based compensation— — 2,487 — — 2,487 — 2,487 
Net loss— — — — (1,005)(1,005)(3,568)(4,573)
Cumulative translation adjustment— — — 1,637 — 1,637 1,418 3,055 
Balance, December 31, 2019$63 $(66,227)$240,797 $(4,239)$125,476 $295,870 $144,280 $440,150 
Common SharesTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Retained EarningsTotal AOS Shareholders' EquityNoncontrolling InterestTotal Equity
Balance, June 30, 2019$62 $(66,240)$234,410 $(2,693)$125,485 $291,024 $152,265 $443,289 
Exercise of common stock options and release of restricted stock units — 26 — — 26 — 26 
Reissuance of treasury stock upon exercise of common stock options and release of restricted stock units— 13 — — (13) —  
Withholding tax on restricted stock units— — (195)— — (195)— (195)
Issuance of shares under ESPP1 — 1,700 — — 1,701 — 1,701 
Share-based compensation— — 4,856 — — 4,856 — 4,856 
Net income (loss)— — — — 4 4 (6,435)(6,431)
Cumulative translation adjustment— — — (1,546)— (1,546)(1,550)(3,096)
Balance, December 31, 2019$63 $(66,227)$240,797 $(4,239)$125,476 $295,870 $144,280 $440,150 


See accompanying notes to these condensed consolidated financial statements.

5

Table of Contents
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six Months Ended December 31,
20202019
Cash flows from operating activities
Net income (loss) including noncontrolling interest$21,307 $(6,431)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization25,689 21,754 
Share-based compensation expense6,100 4,856 
Deferred income taxes, net278 (148)
Loss on disposal of property and equipment40 89 
Changes in assets and liabilities:
Accounts receivable, net(11,662)(9,576)
Inventories(8,779)(4,856)
Other current and long-term assets(1,793)940 
Accounts payable(370)(5,676)
Income taxes payable824 453 
Accrued and other liabilities14,299 6,306 
Net cash provided by operating activities45,933 7,711 
Cash flows from investing activities
Purchases of property and equipment excluding JV Company(14,842)(20,354)
Purchases of property and equipment in JV Company(9,926)(12,067)
Proceeds from sale of property and equipment10  
Government grant related to equipment119 1,254 
Net cash used in investing activities(24,639)(31,167)
Cash flows from financing activities
Withholding tax on restricted stock units(953)(195)
Proceeds from exercise of stock options and ESPP3,197 1,727 
Proceeds from borrowings31,008 33,708 
Repayments of borrowings(29,912)(20,863)
Principal payments on finance leases(8,119)(3,403)
Net cash provided by (used in) financing activities(4,779)10,974 
Effect of exchange rate changes on cash, cash equivalents and restricted cash4,120 (347)
Net increase (decrease) in cash, cash equivalents and restricted cash20,635 (12,829)
Cash, cash equivalents and restricted cash at beginning of period162,704 124,295 
Cash, cash equivalents and restricted cash at end of period$183,339 $111,466 
Supplemental disclosures of non-cash investing and financing information:
Property and equipment purchased but not yet paid $12,621 $18,165 

See accompanying notes to these condensed consolidated financial statements.
6

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

1. The Company and Significant Accounting Policies
The Company

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

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Article 10 of Securities and Exchange Commission Regulation S-X, as amended. They do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with U.S. GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring adjustments and accruals) considered necessary for a fair presentation of the results of operations for the periods presented have been included in the interim periods. Operating results for the three and six months ended December 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2021 or any other interim period. The condensed consolidated balance sheets at June 30, 2020 is derived from the audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020.
Reclassification

The Company has reclassified certain amounts previously reported in its financial statements to conform to the current presentation. These reclassifications did not have a material impact on our consolidated financial statements.

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 ("Fab") in the LiangJiang New Area of Chongqing, China (the “JV Transaction”). The Fab is being built in phases.  As of December 31, 2020, the Company owns 51%, and the Chongqing Funds own 49% of the equity interest in the JV Company. The Joint Venture is accounted under the provisions of the consolidation guidance since the Company has controlling financial interest. If both parties agree that the termination of the JV Company is the best interest of each party or the JV Company is bankrupt or insolvent where either party may terminate early, after paying the debts of the JV Company, the remaining assets of the JV Company shall be paid to the Chongqing Funds to cover the principal of its total paid-in contributions plus interest at 10% simple annual rate prior to distributing the balance of the JV Company's assets to the Company. The JV Company has reached its targeted production of assembly and testing and is currently ramping up its Phase I of the 12-inch wafer fabrication.

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

The COVID-19 pandemic has had and continues to have a negative impact on business and economic activities across the globe. As a result of the COVID-19 pandemic and the global economic downturn and changing consumer behaviors due to various restrictions imposed by governments, the Company has experienced shifting market trends, including an increasing demand in the markets for notebooks, PCs and gaming devices and decreasing demand for mobile phone and industrial products, as more consumers are staying at and working from home. While the Company has recently benefited from the
7

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
increasing demand of PC related products, there is no guarantee that this trend will continue, and such increasing demand may discontinue or decline as government authorities relax COVID-19 related restrictions. Furthermore, as the COVID-19 pandemic continues and global economic downturn and high unemployment persists, consumer spending may slow down substantially, in which case the Company may experience a significant decline of customer orders for its products, including those designed for PC-related applications, and such decline will adversely affect its financial conditions and results of operations. The extent to which the COVID-19 pandemic may impact the Company's business will depend on future developments which are uncertain, such as the duration of the outbreak, travel restrictions, governmental mandates issued to mitigate the spread of the disease, business closures, economic disruptions, and the effectiveness of actions taken to contain and treat the virus. Accordingly, the COVID-19 pandemic may have a negative impact on the Company's sales and results of operations, the size and duration of which is difficult to predict.

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

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets, current operating lease liabilities and long-term operating lease liabilities on the Company's condensed consolidated balance sheets. Finance leases are included in property, plant and equipment, current finance lease liabilities and long-term finance leases liabilities on the condensed consolidated balance sheets.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The Company uses an estimate of its incremental borrowing rate based on the information available at the lease commencement date. The operating lease ROU assets also include any lease payments made and exclude lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Operating lease expense is generally recognized on a straight-line basis over the lease term. Variable lease payments are expensed as incurred and are not included within the operating lease ROU asset and lease liability calculation. The Company does not record leases on the condensed consolidated balance sheet with a term of one year or less.

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 revenue when product is shipped to the customer, net of estimated stock rotation returns and price adjustments to certain distributors.

Packaging and testing services revenue is recognized upon shipment of serviced products to the customer.

Share-based Compensation Expense

The Company maintains an equity-settled, share-based compensation plan to grant restricted share units and stock options. The Company recognizes expense related to share-based compensation awards that are ultimately expected to vest based on estimated fair values on the date of grant. The fair value of restricted share units is based on the fair value of the Company's common share on the date of grant. For restricted stock awards subject to market conditions, the fair value of each restricted stock award is estimated at the date of grant using the Monte-Carlo pricing model. The fair value of stock options is estimated
8

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
Restricted Cash

As a condition of the loan agreement, the Company is required to keep a compensating balance at the issuing bank (see Note 5). In addition, the Company maintains restricted cash in connection with cash balances temporarily restricted for regular business operations including the possibility of a dispute with a vendor. These balances have been excluded from the Company’s cash and cash equivalents balance and are classified as restricted cash in the Company’s condensed consolidated balance sheets. As of December 31, 2020 and June 30, 2020, the amount of restricted cash was $2.4 million and $4.2 million, respectively.
Fair Value of Financial Instruments

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

Government Grants

The Company occasionally receives government grants that provide financial assistance for certain eligible expenditures in China. These grants include reimbursements on interest expense on bank borrowings, payroll tax credits, credit for property, plant and equipment in a particular geographical location, employment credits, as well as business expansion credits. Government grants are not recognized until there is reasonable assurance that the Company will comply with the conditions attaching to it, and that the grant will be received. The Company records such grants either as a reduction of the related expense, a reduction of the cost of the related asset, or as other income depending upon the nature of the grant. As a result of such grants, during the three and six months ended December 31, 2020, the Company reduced interest expense by $0.7 million and $1.5 million, property, plant and equipment by $0.1 million and $0.1 million, and operating expenses by $1.7 million and $3.6 million, respectively. During the three and six months ended December 31, 2019, the Company reduced interest expense by $1.1 million and $3.4 million, property, plant and equipment by $1.3 million and $1.3 million, and operating expenses by $0.5 million and $0.5 million, respectively.

Long-lived Assets

The Company evaluates its long-lived assets for impairment whenever events or changes indicate that the carrying amount of such assets may not be recoverable. Due to the COVID-19 pandemic, the Company assessed the changes in circumstances that occurred since the March 2020 quarter. These factors included operating losses, a decrease in the Company's share price in February and March of 2020, which reduced its market capitalization, expectation of lower business growth for the coming quarters, increased and prolonged economic and regulatory uncertainty in the global economies, and the expectation of higher supply chain costs and increased competition. Therefore, the Company performed a recoverability test by comparing the sum of the estimated undiscounted future cash flows of its long-lived assets to their carrying amount as of June 30, 2020. Some of the more significant assumptions used in the estimated future cash flows include net sales, cost of goods sold, operating expenses, working capital, capital expenditures, income tax rates, and long-term growth rates that appropriately reflects the risks inherent in the future cash flow stream. The Company selected the assumptions used in the financial forecasts by referencing to historical data, supplemented by current and anticipated market conditions, estimated product growth rates and management's plans. These estimated future cash flows were consistent with those the Company uses in its internal planning. The result of the recoverability test indicated that the sum of the expected future cash flows (undiscounted and without interest charges) was greater than the carrying amount of the long-lived assets. Therefore, the Company concluded that the carrying amount of the long-lived assets is recoverable as of June 30, 2020.

9

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

Recent Accounting Pronouncements
    
Recently Issued Accounting Standards not yet adopted

In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which, among other things, provides guidance on how to account for contracts on an entity’s own equity. This ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. Specifically, the ASU eliminated the need for the Company to assess whether a contract on the entity’s own equity (1) permits settlement in unregistered shares, (2) whether counterparty rights rank higher than shareholder’s rights, and (3) whether collateral is required. In addition, the ASU requires incremental disclosure related to contracts on the entity’s own equity and clarifies the treatment of certain financial instruments accounted for under this ASU on earnings per share. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company does not expect the adoption of this guidance will have a material impact on its consolidated financial position, results of operations or cash flows.
In January 2020, the FASB issued ASU No. 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. For public business entities, the amendments in the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company does not expect the adoption of this guidance will have a material impact on its consolidated financial position, results of operations or cash flows.

In December 2019, the FASB issued ASU No. 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12") by removing certain exceptions to the general principles. The amendments will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments is permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis. The Company is currently evaluating the impacts of adoption of the new guidance to its consolidated financial statements.

Recently Adopted Accounting Standards

In August 2018, the FASB issued ASU 2018-15 “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract". These amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contact with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. ASU 2018-15 had no material impact on the Company's consolidated financial statements.

10

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13”). ASU 2018-13 amends existing fair value measurement disclosure requirements by adding, changing, or removing certain disclosures. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. ASU 2018-13 had no material impact on the Company's consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326). Topic 326 adds to U.S. GAAP the current expected credit loss ("CECL") model, a measurement model based on expected losses rather than incurred losses. Under this new standard, an entity recognizes its estimate of expected credit losses as an allowance. The new standard is also intended to reduce the complexity of U.S. GAAP by decreasing the number of credit loss models that entities use to account for debt instruments. The new guidance significantly changes the accounting for credit losses. The Company adopted ASU 2016-13 using the modified-retrospective approach in the first quarter of fiscal 2021 with no impact to its condensed consolidated financial statements.

The adoption of Topic 326 did not significantly change the Company's approach to the valuation of trade receivables. The Company determines whether there is an expected loss on its accounts receivable by reviewing all available data, including its customers' latest available financial statements, their credit standing and historical collection experience, as well as current and future market and economic conditions. As of December 31, 2020, the allowance for credit losses on the Company's trade receivables remained immaterial.


11

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Net Income (Loss) Per Common Share Attributable to Alpha and Omega Semiconductor Limited
The following table presents the calculation of basic and diluted net income (loss) per share attributable to common shareholders:
 Three Months Ended December 31,Six Months Ended December 31,
 2020201920202019
(in thousands, except per share data)
Numerator:
Net income (loss) attributable to Alpha and Omega Semiconductor Limited$12,903 $(1,005)$22,477 $4 
Denominator:
Basic:
Weighted average number of common shares used to compute basic net income per share25,672 24,701 25,506 24,620 
Diluted:
Weighted average number of common shares used to compute basic net income per share25,672 24,701 25,506 24,620 
Effect of potentially dilutive securities:
Stock options, RSUs and ESPP shares1,681  1,328 742 
Weighted average number of common shares used to compute diluted net income per share27,353 24,701 26,834 25,362 
Net income (loss) per share attributable to Alpha and Omega Semiconductor Limited:
Basic$0.50 $(0.04)$0.88 $0.00 
Diluted$0.47 $(0.04)$0.84 $0.00 
The following potential dilutive securities were excluded from the computation of diluted net income (loss) per share as their effect would have been anti-dilutive:
 Three Months Ended December 31,Six Months Ended December 31,
 2020201920202019
(in thousands)(in thousands)
Employee stock options and RSUs7 2,040 66 337 
ESPP35 868 134 597 
Total potential dilutive securities42 2,908 200 934 

3. Concentration of Credit Risk and Significant Customers
The Company manages its credit risk associated with exposure to distributors and direct customers on outstanding accounts receivable through the application and review of credit approvals, credit ratings and other monitoring procedures. In some instances, the Company also obtains letters of credit from certain customers.
Credit sales, which are mainly on credit terms of 30 to 60 days, are only made to customers who meet the Company's credit requirements, while sales to new customers or customers with low credit ratings are usually made on an advance payment basis. The Company considers its trade accounts receivable to be of good credit quality because its key distributors and direct customers have long-standing business relationships with the Company and the Company has not experienced any significant bad debt write-offs of accounts receivable in the past. The Company closely monitors the aging of accounts receivable from its distributors and direct customers, and regularly reviews their financial positions, where available.

12

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In the past, the Company shipped its product indirectly to Huawei and its affiliates (collectively, “Huawei”) through distributors. Typically, the Company sold its products to distributors who then sold to original design manufacturers (“ODMs”) that incorporated our products into end applications that were then shipped to Huawei. While distributor point of sale reports summarize distributor sales to ODMs, the Company must make certain assumptions and estimates in order to determine the amount of revenues attributed to indirect shipment to Huawei.  During the fiscal year ended June 30, 2019, the estimated revenues attributed to indirect shipments to Huawei were approximately 2% of total revenues. During the period from May 2019 to December 2019, estimated revenues earned by the Company from shipments indirectly made to Huawei were in the range of $11 million to $13 million. The Company has not shipped any products to Huawei after December 31, 2019. See Note 10.
Summarized below are individual customers whose revenue or accounts receivable balances were 10% or higher than the respective total consolidated amounts:
Three Months Ended December 31,Six Months Ended December 31,
Percentage of revenue2020201920202019
Customer A28.4 %31.3 %28.6