What changed in this filing

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Item 9A. Controls and Procedures

2021-02-25 compared with 2020-02-28 · 884 added, 325 removed, 1182 unchanged (51% of the section changed)

16 unchanged sentences

Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of the end of the period covered by this Form 10-K based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organization of the Treadway Commission.

Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2019.

Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2020.

Grant Thornton LLP, the independent registered public accounting firm that audited the consolidated financial statements included in this Form 10-K, has issued a report, included below, on the effectiveness of our internal control over financial reporting as of December 31, 2020.

7 unchanged sentences

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO. 

We also have audited, in accordance with the standards of the Public Company Accounting, Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2020, and our report dated February 25, 2021 expressed an unqualified opinion on those financial statements.

Basis for opinion  

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

19 unchanged sentences

Directors, Executive Officers and Corporate Governance

The information required regarding our directors is incorporated herein by reference from the information contained in our definitive Proxy Statement for the 2020 Annual Meeting of Stockholders (our “Proxy Statement”), a copy of which will be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2019.

The information required regarding our directors is incorporated herein by reference from the information contained in our definitive Proxy Statement for the 2021 Annual Meeting of Stockholders (our “Proxy Statement”), a copy of which will be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2020.

The information required regarding our executive officers is incorporated herein by reference from the information contained in our Proxy Statement.

51 unchanged sentences

Description of Company’s Common Stock

February 28, 2020

Form of Indemnification Agreement between the registrant each of its Directors and certain of its Executive Officers

118 unchanged sentences

April 5, 2018

Translation of the Approval Notice of Credit Line, dated June 12, 2018, between Prime World International Holdings Ltd.

and Taishin International Bank  

June 25, 2018

Translation of the Credit Facility Agreement, dated June 19, 2018, between Prime World International Holdings Ltd.

and Taishin International Bank

June 25, 2018

Translation of the Agreement on Providing Collateral, dated June 19, 2018, between Prime World International Holdings Ltd., and Taishin International Bank

June 25, 2018

Translation of the NT$300 Million Promissory Note, dated June 19, 2018, between Prime World International Holdings Ltd.

and Taishin International Bank

June 25, 2018

Translation of the Maximum Loan (Credit Line) Agreement, dated September 21, 2018, between Global Technology, Inc.

and China Construction Bank Co., Ltd.

September 27, 2018

Translation of the Security Agreement, dated September 21, 2018, between Global Technology, Inc.

and China Construction Bank Co., Ltd.

September 27, 2018

Letter of Offer, dated July 26, 2018, between Prime World International Holdings, Ltd.

and the Development Bank of Singapore (Taiwan) Ltd.

October 9, 2018

Incorporated By Reference  

8 unchanged sentences

Filing Date  

Conditions Governing Facilities Granted by and Transactions Entered into with DBS Bank (Taiwan) Ltd., dated October 3, 2018, between Prime World International Holdings Ltd.

and the Development Bank of Singapore (Taiwan) Ltd.

October 9, 2018

First Amendment to Lease, dated October 8, 2018, between Applied Optoelectronics, Inc.

3 unchanged sentences

December 6, 2018

Translation of Agreement for Individually Negotiated Terms and Conditions, dated December 11, 2018, between Prime World International Holdings, Ltd., and CTBC Bank, Ltd.

December 17, 2018

Translation of Approval Notice, dated October 31, 2018, between Prime World International Holdings, Ltd., and CTBC Bank, Ltd.

December 17, 2018

Translation of General Agreement for Omnibus Credit Lines, dated December 11, 2018, between Prime World International Holdings, Ltd., and CTBC Bank, Ltd.

December 17, 2018

Translation of Promissory Note, dated December 11, 2018, between Prime World International Holdings, Ltd., and CTBC Bank, Ltd.

December 17, 2018

Translation of Purchase and Sale Contract, Finance Lease Agreement and Promissory Note, dated January 21, 2019, between Prime World International Holdings, Ltd.

65 unchanged sentences

November 18, 2019

Paycheck Protection Program Loan Promissory Note, dated April 17, 2020, executed by Applied Optoelectronics, Inc.

April 22, 2020

Translation of Amendment to the Finance Lease Agreements, dated September 15, 2020, between Prime World International Holdings Ltd., and Chailease Finance Co., Ltd.

September 18, 2020

Translation of the Credit Facility Agreement, dated October 7, 2020, between Prime World International Holdings Ltd.

and Taishin International Bank.

October 13, 2020

Translation of the Notice of Credit Line Approval, dated August 24, 2020.

October 13, 2020

Translation of the Credit Granting Agreement, between Global Technology Inc.

and China Merchants Bank Co., Ltd., dated October 19, 2020.

October 22, 2020 

Consent of Grant Thornton LLP

23 unchanged sentences

†     Management contract, compensatory plan or arrangement.

Confidential Treatment has been granted for portions of this document.

SIGNATURES  

30 unchanged sentences

February 25, 2021

/s/ ALAN MOORE

/s/ ELIZABETH LOBOA

ELIZABETH LOBOA,

February 25, 2021

3 unchanged sentences

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 

Report of Independent Registered Public Accounting Firm 

Consolidated Balance Sheets 

Consolidated Statements of Operations 

Consolidated Statements of Comprehensive Income (Loss) 

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Stockholders’

Consolidated Statements of Cash Flows 

Notes to Consolidated Financial Statements 

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  

3 unchanged sentences

We have audited the accompanying consolidated balance sheets of Applied Optoelectronics, Inc.

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’

equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”).

1 unchanged sentence

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report February 25, 2021 expressed an unqualified opinion.

Change in accounting principle

As discussed in Note B 

to the consolidated financial statements, the Company has changed its method of accounting for leases on January 1, 2019 due to the adoption of Accounting Standards Update No.

Leases (Topic 842).

Basis for opinion

6 unchanged sentences

Our audits included performing procedures to assess the risks of material misstatement of the 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 supporting the amounts and disclosures in the financial statements.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the 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 financial statements.

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

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.

Inventory Reserve

As described further in Note B to the financial statements, the Company's inventories are stated at the lower of cost or market.

The Company assesses the valuation of its inventory on a periodic basis and provides an allowance based on several factors including products’

life span, historical changes in valuation and write-offs, and management’s estimates of future demand.

One significant estimate and assumption that impacts the financial statements is inventory reserve.

We identified the accounting for inventory reserve as a critical audit matter.

The principal considerations for our determination that accounting for inventory reserve is a critical audit matter are the judgments and estimates associated with management’s determination of lower of cost or market adjustments, due to the nature of the inputs and assumptions used in the process and are subject to estimation uncertainty and require auditor subjectivity in evaluating reasonableness.

Management developed certain percentages that determine the extent of any lower of cost or market adjustments based on the age of the inventory.

Such percentages were determined through analysis of the inventory to determine each product's lifespan, a review historical write-offs or scrapped inventory, and an assessment by product engineers of the possibility of obsolescence for each product.

Our audit procedures related to the accounting for inventory reserve included the following:

We assessed the qualifications and competence of management and evaluated the methodologies used to determine the inventory reserve;

We tested the design and operating effectiveness of key controls related to the accounting for the inventory reserve, including controls relating to management’s development of the reserve;

We obtained the underlying inventory aging report and agreed the balances to the general ledger to test for completeness and recalculated the unit price and agreed such unit price to inventory details;

We obtained the underlying Inventory aging report and agreed the balances to the general ledger to test for completeness and selected inventory items to re-age;

We obtained the underlying inventory aging report and agreed the balances to the general ledger to test for completeness and recalculated the inventory reserve;

Impairment of Long-Lived Assets

As described further in Note B to the financial statements, The Company accounts for impairment of long-lived assets in accordance with ASC 360, Property, Plant and Equipment, (“ASC 360”).

Long-lived assets consist primarily of property, plant and equipment, right-of-use assets and intangible assets.

The Company evaluates the carrying value of long-lived assets when it determines a triggering event has occurred, or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

When indicators exist, recoverability of assets is measured by a comparison of the carrying value of the asset group to the estimated undiscounted future net cash flows expected to be generated by the asset.

If assets are determined not to be recoverable, the Company performs an analysis of the fair value of the asset group and will recognize an impairment loss when the fair value is less than the carrying amounts of such assets.

The undiscounted future net cash flows, and any subsequent fair value determination, are based on assumptions and projections that require subjective judgments.

We identified the long-lived assets impairment assessment and testing as a critical audit matter.

The principal consideration for our determination that the accounting for impairment of long-lived assets represents a critical audit matter is the judgments and assumptions associated with management’s determination of the recoverability of the long-lived assets including any subsequent fair value assessments.

Auditing the undiscounted future net cash flows involved a high degree of subjectivity, auditor judgment and audit effort in evaluating management’s significant assumptions primarily due to the complexity of the cash flow models used, as well as the sensitivity of the underlying significant assumptions.

The Company used an undiscounted cash flow model to assess the recoverability of the long-lived assets, which included assumptions such as revenue growth rates, operating expenses, earnings before interest, taxes, depreciation, and amortization (“EBITDA”) margins, capital expenditures asset grouping, forecasting period and future sales values.

These significant assumptions are forward-looking and could be affected by future economic and market conditions.

Our audit procedures related to the accounting for impairment of long-lived assets included the following:

We assessed the qualifications and competence of management and evaluated the methodologies used to determine the fair value of long-lived assets;

We tested the design and operating effectiveness of key controls related to the accounting for possible impairment, including controls relating to management’s development of forecasts for revenue growth rates, operating expenses, earnings before interest, taxes, depreciation, and amortization (“EBITDA”) margins, capital expenditures asset grouping, forecasting period and future sales values;

We tested the assumptions, including the testing of underlying source information and the mathematical accuracy of the calculations, used within the undiscounted cash-flow models to estimate the recoverability of long-lived assets which included assumptions such as, revenue growth rates, operating expenses, earnings before interest, taxes, depreciation, and amortization (“EBITDA”) margins, capital expenditures asset grouping, forecasting period and future sales values;

We tested the Company’s ability to forecast future cash flows by reviewing actual results compared to amounts previously forecasted;

We tested the sensitivity of the undiscounted cash flows utilized in the recoverability test.

/s/ GRANT THORNTON LLP

8 unchanged sentences

Cash and cash equivalents

$ 43,425  

$ 59,977  

Restricted cash

Accounts receivable - trade, net of allowance of $ 62 and $ 30 , respectively

43,042  

34,654  

Notes receivable  

110,397  

85,028  

Prepaid income tax

1 unchanged sentence

Total current assets

209,169  

192,804  

Property, plant and equipment, net

252,984  

248,444  

Land use rights, net

Operating right of use asset

Financing right of use asset

Operating right of use asset  

Financing right of use asset  

Intangible assets, net

1 unchanged sentence

Other assets, net

$ 480,805  

$ 466,825  

LIABILITIES AND STOCKHOLDERS' EQUITY

1 unchanged sentence

Current portion of notes payable and long-term debt

$ 38,265  

$ 33,371  

Accounts payable

29,482  

32,828  

Bank acceptance payable

Current lease liability - operating

Current lease liability - financing

15,860  

Current lease liability - operating  

Current lease liability - financing  

Accrued liabilities

18,511  

17,864  

Total current liabilities

103,148  

91,355  

Notes payable and long-term debt, less current portion

Convertible senior notes

Non-current lease liability - operating

Non-current lease liability - financing

13,904  

16,552  

Convertible senior notes  

77,854  

77,041  

Non-current lease liability - operating  

Non-current lease liability - financing  

TOTAL LIABILITIES

202,914  

193,031  

Stockholders' equity:

6 unchanged sentences

Additional paid-in capital

354,685  

303,401  

Accumulated other comprehensive income

Retained earnings (Accumulated deficit)

11,690  

Accumulated deficit

( 88,509 )  

TOTAL STOCKHOLDERS' EQUITY

277,891  

273,794  

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$ 480,805  

$ 466,825  

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

4 unchanged sentences

Year ended December 31,

$ 234,623  

$ 190,872  

$ 267,465  

Cost of goods sold

184,082  

144,671  

179,692  

50,541  

46,201  

87,773  

Operating expenses

Research and development

43,393  

43,399  

49,903  

Sales and marketing

14,087  

10,060  

General and administrative

41,903  

41,489  

39,497  

Total operating expenses

99,383  

94,948  

98,541  

Income (loss) from operations

( 48,842 )  

( 48,747 )  

Other income (expense)

1 unchanged sentence

Interest expense

( 5,635 )  

( 5,405 )  

Other income, net

Total other income (expense), net

Income (loss) before income taxes

( 2,382 )  

( 2,640 )  

Loss before income taxes

( 51,224 )  

( 51,387 )  

Income tax benefit (expense)

Net income (loss)

Net income (loss) per share

Weighted average shares used to compute net income (loss) per share:

( 7,228 )  

( 14,662 )  

$ ( 58,452 )  

$ ( 66,049 )  

Net loss per share

$ ( 2.67 )  

$ ( 3.31 )  

$ ( 2.67 )  

$ ( 3.31 )  

Weighted average shares used to compute net loss per share:

21,866,630  

19,982,363  

19,646,646  

21,866,630  

19,982,363  

19,646,646  

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

4 unchanged sentences

Year ended December 31,

Net income (loss)

Loss on foreign currency translation adjustment

$ ( 58,452 )  

$ ( 66,049 )  

Gain/(Loss) on foreign currency translation adjustment

11,260  

( 172 )  

Comprehensive loss

$ ( 47,192 )  

$ ( 66,221 )  

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

8 unchanged sentences

January 1, 2018

Public offering of common stock, net

19,451  

$ 285,376  

$ 9,743  

$ 38,138  

$ 333,276  

Stock options exercised, net of shares withheld for employee tax

( 2,073 )  

Issuance of restricted stock, net of shares withheld for employee tax

( 1,943 )  

Share-based compensation

11,120  

Cumulative effect of previously unrecognized tax benefits

Foreign currency translation adjustment

( 9,141 )  

Net loss  

( 2,146 )  

December 31, 2018

19,810  

$ 292,480  

$ 35,992  

$ 329,094  

Stock options exercised, net of shares withheld for employee tax

Issuance of restricted stock, net of shares withheld for employee tax

( 897 )  

Share-based compensation

Cumulative effect of previously unrecognized tax benefits

11,804  

Foreign currency translation adjustment

( 172 )  

( 66,049 )  

December 31, 2019

20,140  

$ 303,401  

$ ( 30,057 )  

$ 273,794  

Public offering of common stock, net

39,306  

39,310  

Stock options exercised, net of shares withheld for employee tax

Issuance of restricted stock, net of shares withheld for employee tax

( 1,098 )  

Share-based compensation

13,046  

Foreign currency translation adjustment

11,260  

( 58,452 )  

December 31, 2020

25,110  

$ 354,685  

$ 11,690  

$ ( 88,509 )  

$ 277,891  

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

5 unchanged sentences

Operating activities:

Net income (loss)

Adjustments to reconcile net income to net cash provided by operating activities:

$ ( 58,452 )  

$ ( 66,049 )  

Adjustments to reconcile net loss to net cash provided by operating activities:

Allowance of bad debt  

Lower of cost or market reserve adjustment to inventory

Depreciation and amortization

24,733  

24,014  

29,698  

Amortization of debt issuance costs

Deferred income taxes, net

14,570  

Loss on disposal of assets

Share-based compensation

13,046  

11,804  

11,120  

Unrealized foreign exchange gain (loss)

( 1,152 )  

( 247 )  

Changes in operating assets and liabilities:

Accounts receivable, trade

( 8,421 )  

( 4,351 )  

29,316  

Notes receivable  

( 389 )  

Prepaid income tax

( 23,674 )  

Other current assets

1 unchanged sentence

Accounts payable

Accrued income taxes

( 3,347 )  

Accrued income taxes  

Accrued liabilities

Lease liability

Net cash provided (used in) by operating activities

( 308 )  

Lease liability  

( 438 )  

( 896 )  

Net cash provided by (used in) by operating activities

( 44,009 )  

( 1,754 )  

14,029  

Investing activities:

1 unchanged sentence

Purchase of property, plant and equipment

( 15,795 )  

( 28,789 )  

Purchase of land use rights

1 unchanged sentence

Deposits and prepaid for equipment

( 3,279 )  

( 2,688 )  

Purchase of intangible assets

( 489 )  

( 640 )  

Net cash used in investing activities

( 19,347 )  

( 32,116 )  

Financing activities:

Proceeds from issuance of notes payable and long-term debt, net of debt issuance costs

13,661  

47,849  

Principal payments of long-term debt and notes payable

( 5,233 )  

( 43,363 )  

Proceeds from line of credit borrowings

95,730  

83,434  

155,078  

Repayments of line of credit borrowings

( 96,006 )  

( 88,299 )  

Proceeds from bank acceptance payable

39,958  

13,638  

Repayments of bank acceptance payable

( 31,338 )  

( 11,952 )  

Proceeds from issuance of convertible senior notes, net of debt issuance costs

Principal payments of financing lease

( 18 )  

76,362  

Principal payments of financing lease  

( 17 )  

Exercise of stock options

Payments of tax withholding on behalf of employees related to share-based compensation

Proceeds from common stock offering, net

( 1,080 )  

( 897 )  

Proceeds from common stock offering, net  

39,203  

Net cash provided by financing activities

47,441  

42,596  

34,803  

Effect of exchange rate changes on cash

( 999 )  

Net increase (decrease) in cash, cash equivalents and restricted cash

( 16,914 )  

Cash, cash equivalents and restricted cash at beginning of period

67,028  

58,004  

83,948  

Cash, cash equivalents and restricted cash at end of period

$ 50,114  

$ 67,028  

$ 58,004  

Supplemental disclosure of cash flow information:

Cash paid (received) for:

$ 4,971  

$ 3,172  

( 364 )  

( 890 )  

Non-cash investing and financing activities:

Net change in accounts payable related to property and equipment additions

Net change in deposits and prepaid for equipment related to property and equipment additions

$ ( 2,326 )  

$ 3,869  

Net change in deposits and prepaid for equipment related to property and equipment additions  

( 64 )  

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

49 unchanged sentences

The Company considers all highly liquid securities with an original maturity of ninety days or less from the date of purchase to be cash equivalents.

Cash in foreign accounts was approximately $ 15.1 million and $ 8.0 million at December 31, 2019  and 2018 , respectively.

Cash in foreign accounts was approximately $ 10.7 million and $ 15.1 million at December 31, 2020 and 2019 , respectively.

The Company maintains cash and cash equivalents at U.S.

financial institutions for which the combined account balances in individual institutions may exceed Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage.

As of December 

31, 2019 , approximately $ 51.3  million of U.S.

As of December 31, 2020 , approximately $ 38.7 million of U.S.

deposits were not covered by FDIC insurance.

13 unchanged sentences

The Company generates much of its revenue from a limited number of customers.

In 2019 , 

2018 and 2017 , its top five customers represented 80.7 %, 85.7 %, and 86.1 % of its revenue, respectively.

In 2020, 2019 and 2018 , its top five customers represented 73.3 %, 80.7 %, and 85.7 % of its revenue, respectively.

In 2020 , Microsoft and Amazon represented 38.3 % and 11.5 % of its revenue, respectively.

In 2019 , Microsoft, Amazon, Facebook and Cisco represented 32.2 %, 24.0 %, 10.9 %, and 10.0 % of its revenue, respectively.

In 2018 , Facebook, Microsoft, Amazon and Cisco represented 38.3 %, 22.1 %, 12.1 % and 9.9 % of its revenue, respectively.

In 2017 , Amazon, Facebook, Microsoft and Cisco represented 35.4 %, 28.6 %, 13.8 % and 4.8 % of its revenue, respectivel y.

The five largest receivable balances for customers represented an aggregate of 82.0 % and 70.2 % of total accounts receivable at December 31, 2019  and 2018 , respectively.

 The five largest receivable balances for customers represented an aggregate of 64.6 % and 82.0 % of total accounts receivable at December 31, 2020 and 2019 , respectively.

As of December 31, 2020 , Microsoft and Amazon represented 20.9 % and 8.5 % of total accounts receivable, respectively.

As of December 31, 2018 , Microsoft, Amazon and Facebook represented 23.2 %, 18.7 %, and 12.6 % of total accounts receivable, respectively.

No other customer represented greater than ten percent of revenue in 2019 , 

2018 or 

2017  had greater than ten percent of total accounts receivable at December 31, 2019 or 2018 .

As of December 31, 2019 , Microsoft and Amazon represented 32.0 %, and 33.0 % of total accounts receivable, respectively.

No other customer represented greater than ten percent of revenue in 2020, 2019 or 2018 had greater than ten percent of total accounts receivable at December 31, 2020 or 2019.

Inventories are stated at the lower of cost (average-cost method) or market.

4 unchanged sentences

The Company calculates depreciation using the straight-line method over the following estimated useful lives:

20 - 42 years

Useful lives (in years)

Land improvements

14 unchanged sentences

Intangible assets consist of intellectual property that is stated at cost less accumulated amortization.

As of December 

31, 2019 , the Company had 291 total patents issued.

The costs incurred to obtain such patents have been capitalized and are being amortized over an estimated life between 10 and 20  

As of December 31, 2020 , the Company had 295  total patents issued.

The costs incurred to obtain such patents have been capitalized and are being amortized over an estimated life between 10 and 20  years.

The Company periodically evaluates its intangible assets to determine whether events or changes in circumstances indicate that a patent or trademark may not be applicable to the Company’s current products or is no longer in use.

18 unchanged sentences

The Company accounts for share-based compensation in accordance with the provisions of ASC 718, Compensation—Stock Compensation .

Share-based compensation expense is recognized based on the estimated grant date fair value in order to recognize compensation cost for those shares expected to vest.

Share-based compensation expense is recognized based on the grant date fair value in order to recognize compensation cost for those shares expected to vest.

Compensation cost is recognized on a straight-line basis over the vesting period of the restricted stock units and adjusted as forfeitures occur.

10 unchanged sentences

While the Company believes that its warranty accrual is adequate, the actual warranty costs may exceed the accrual, in which case the cost of sales will increase in the future.

As of December 31, 2019  and 2018 , the amount of accrued warranty was $ 0.8 million and $ 1.0 million, respectively.

As of December 31, 2020 and 2019 , the amount of accrued warranty was $ 0.7 million and $ 0.8 million, respectively.

Changes in products warranty were as follows (in thousands):

Year ended December 31,

Beginning Balance, January 1

$ 1,118  

Warranty costs incurred

( 457 )  

( 1,261 )  

Provision for warranty

Ending Balance, December 31

Advertising Costs

Advertising costs are charged to operations as incurred and amounted to approximately $ 0.5 million, $ 0.5 million, and $ 0.3 million for the years ended December 31 , 2019 , 

2018 and 2017 , respectively.

Advertising costs are charged to operations as incurred and amounted to approximately $ 0.4 million, $ 0.5 million, and $ 0.5 million for the years ended December 31, 2020, 2019 and 2018 , respectively.

Research and Development

1 unchanged sentence

The Company receives reimbursement for certain development costs, which are capitalized when incurred, up to the reimbursable amount.

Shipping and Handling Costs

Shipping and handling costs are included in operating expenses as fulfillment costs unless we bill our customers for shipping and handling charges, which are included in net sales for the applicable period, and the corresponding shipping and handling expense is reported in cost of sales.

The Company accounts for income taxes in accordance with the provisions of ASC 740, Income Taxes .

5 unchanged sentences

Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet.

Global Intangible Low-taxed Income Provisions ("GILTI")

One of the base broadening provisions of the U.S.

Tax Cuts and Jobs Act of 2017 (“the 2017 Act”) 

is the global intangible low-taxed income provisions ("GILTI").

In accordance with guidance issued by the FASB staff, the Company has adopted an accounting policy to treat any GILTI inclusions as a period cost if and when incurred.

Thus, for the fiscal years ended

December 31, 2020,

December 

December 31, 2018, deferred taxes were computed without consideration of the possible future impact of the GILTI provisions, and any current year impact was recorded as a part of the current portion of income tax expense.

Recent Accounting Pronouncements

1 unchanged sentence

Recent Accounting Pronouncements Adopted in 2020

On February 25, 2016, the FASB released Accounting Standards Update ("ASU") No.

2016 - 02, Leases, to complete its project to overhaul lease accounting.

The ASU codifies ASC 842, Leases, which will replace the guidance in ASC 840.

The new standard establishes a right-of-use model ("ROU") that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.

The Company adopted this ASU on January 1, 2019 without any impact to beginning retained earnings.

Upon adoption of the new lease standard, the Company elected the package of practical expedients which allowed it to carry forward the historical lease classification on existing leases at adoption.

In addition, the Company elected the short-term lease recognition exemption for all leases that qualify.

The Company also elected the practical expedient to not separate lease and non-lease components for all of its leases.

The Company has implemented internal controls to enable the presentation of financial information on adoption.

The standard has a material impact on the Company’s consolidated balance sheet, but did not have an impact in its consolidated income statements.

The most significant effects of adopting the new standard relate to the recognition of new ROU assets and lease liabilities on its balance sheet for its Taiwan branch.

See Note D, "Operating Leases" for additional information on the required disclosures related to the impact of adopting this standard.

In June 2018, the FASB issued ASU 2018 - 07, Compensation-Stock Compensation (Topic 718 ):

Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for nonemployee share-based payment transactions.

The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards.

The Company adopted this ASU on January 1, 2019 with no impact on its consolidated financial statements.

In June 2016 , the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 

2016 - 13 Financial Instruments - Credit Losses, Measurement of Credit Losses on Financial Instruments, which changes the way entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net earnings.

The Company adopted this ASU as of January 1, 2020.

The adoption of the new standard did not have a material impact on the Company's condensed consolidated financial statements as current processes for estimating expected credit losses for trade receivables align with the expected credit loss model.

The Company estimates its allowance for credit losses based on historical collection trends, the age of outstanding receivables, geographical location of the customer, existing economic conditions and reasonable forecasts.

If events or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly.

In March 2020 , the FASB issued ASU 2020 - 03, “Codification Improvements to Financial Instruments”, which improves and clarifies various financial instruments topics.

This ASU includes seven different issues that describe the areas of improvement and the related amendments to GAAP, and is intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications.

The Company adopted ASU 2020 - 03 upon issuance, which did not have a material effect on the Company’s current financial position, results of operations or financial statement disclosures.

In December 2019 , the FASB issued ASU 2019 - 12, “Income Taxes (Topic 740 ):

Simplifying the Accounting for Income Taxes”

The Accounting Standards Codification (“ASC”) aims to identify, evaluate, and improve areas of GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The Company adopted ASU 2019 - 12  as of December 31, 2020, which did not have a material effect on the Company’s current financial position, results of operations or financial statement disclosures.

In August 2020, the Securities and Exchange Commission (the “SEC”) issued a new rule that modernizes the disclosure requirements in Regulation S-K, 

Item 101 “Description of Business”

Item 103 “Legal Proceedings”

 and 

Item 105 “Risk Factors”

The intent of this rule was to improve the readability of disclosures, reduce repetition, and eliminate immaterial information, thereby simplifying compliance for registrants and making disclosures more meaningful for investors.

While most of the changes involved reducing or eliminating previously required disclosures, the rule expanded the disclosure requirements related to human capital and more specifically, any human capital measures or objectives that management focuses on in managing the business.

The final rule was effective thirty days after its date of publication in the Federal Register.

The Company evaluated this SEC final rule, which was adopted and incorporated in this filing, and it did not have a material impact on this current SEC filing nor is it expected to have a material impact on future SEC filings.

Recent Accounting Pronouncements Yet to be Adopted  

In June 2016, the FASB issued ASU 2016 - 13 Financial Instruments - Credit Losses, Measurement of Credit Losses on Financial Instruments, which changes the way entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net earnings. The new standard is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods.

Based on the composition of the Company’s investment portfolio, current market conditions, and historical credit loss activity, the adoption of ASU 2016 - 13 is not expected to have a material impact on its consolidated financial statements.

In March 2020 , the FASB issued ASU 2020 - 04, “Reference Rate Reform (Topic 848 ):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which provides temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates.

This ASU is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022.

The Company is currently assessing the impact of this pronouncement to the financial statements.

In August 2020 , the FASB issued ASU 2020 - 06, “Debt - Debt with Conversion and Other Options (Subtopic 470 - 20 )”

and “Derivatives and Hedging - Contracts in Entities Own Equity”

(Subtopic 815 - 40 ).

This ASU simplifies accounting for convertible instruments by eliminating two of the three models in ASC 470 - 20 that requires separating embedded conversion features from convertible instruments.

The guidance is effective for fiscal years beginning after December 15, 2021.

The Company is currently assessing the impact of this pronouncement to the financial statements. 

In November 2020, the SEC issued a new rule that modernizes and simplifies various aspects and financial disclosure requirements in Regulation S-K, specifically related to 

Item 301 “Selected Financial Data”

Item 302 “Supplementary Financial Information”

and Item 303 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”

(“MD&A”).

The intent of this new rule is to (i) eliminate duplicative disclosures, (ii) enhance and promote more principles-based MD&A disclosures with the objective of making them more meaningful for investors, all while (iii) simplifying the compliance requirements and efforts for registrants, by providing them with the flexibility to present management’s perspective on the registrant’s financial condition and results of operations.

While most of the changes involve reducing or eliminating previously required information and disclosures, the rule does expand the disclosure requirements surrounding certain aspects of the various items in Regulation S-K discussed above.

The final rule was published in the Federal Register on January 11, 2021, is effective thirty days after its publication date, or February 10, 2021, and registrants are required to comply with this final rule in the registrant’s first fiscal year ending on or after the date that is 210 days after the publication date.

The Company is currently assessing the impact of this new SEC rule.

NOTE C—REVENUE RECOGNITION

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Years ended December 31,

$ 173,437  

73.9 %  

$ 143,562  

75.2 %  

$ 200,236  

37,944  

16.2 %  

37,328  

19.6 %  

51,699  

21,092  

13,159  

Total Revenue

$ 234,623  

100.0 %  

$ 190,872  

100.0 %  

$ 267,465  

NOTE D—O perating Leases

The Company leases space under non-cancelable operating leases for manufacturing facilities, research and development offices and certain storage facilities and apartments.

The Company leases space under non-cancellable operating leases for manufacturing facilities, research and development offices and certain storage facilities and apartments.

These leases do not contain contingent rent provisions.

4 unchanged sentences

Several of the leases include one or more options to renew which have been assessed and either includes or excludes from the calculation of the lease liability of the ROU asset based on management’s intentions and individual fact patterns.

Several warehouses and apartments have non-cancelable lease terms of less than one -year and therefore, the Company has elected the practical expedient to exclude these short-term leases from its ROU asset and lease liabilities.

Several warehouses and apartments have non-cancellable lease terms of less than one -year and therefore, the Company has elected the practical expedient to exclude these short-term leases from its ROU asset and lease liabilities.

As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

2 unchanged sentences

Year ended December 31,

Operating lease expense

$ 1,206  

$ 1,229  

Financing lease expense

1 unchanged sentence

Total lease expense

$ 1,368  

$ 1,345  

Maturities of lease liabilities are as follows for the future one -year periods ending December 31, ( in thousands):

$ 1,334  

2026 and thereafter

Total lease payments

$ 10,615  

Less imputed interest

( 1,677 )  

Present value

$ 8,938  

The weighted average remaining lease term and discount rate for operating leases were as follows for the periods indicated:

2 unchanged sentences

Weighted Average Discount Rate - operating leases

3.23 %  

3.13 %  

Weighted Average Discount Rate - financing leases

5.00 %  

Supplemental cash flow information related to operating leases was as follows for the periods indicated (in thousands):

Year ended December 31,

Cash paid for amounts included in the measurement of lease liabilities

7 unchanged sentences

Cash and cash equivalents

$ 43,425  

$ 59,977  

Restricted cash

Total cash, cash equivalents and restricted cash shown in the statement of cash flows

Restricted cash includes guarantee deposits for customs duties and compensating balances associated with certain credit facilities.

As of December 31, 2019  and 2018 , there was $ 1.9 million and $ 2.4 million of restricted cash required for bank acceptance notes issued to vendors, respectively.

There was $4.2

million and $ 0.0 million certificate of deposit associated with credit facilities with a bank in China as of December 31, 2019 and 2018 respectively.

$ 50,114  

$ 67,028  

Restricted cash includes guarantee deposits for customs duties, China government subsidy fund, and compensating balances associated with certain credit facilities.

As of December 31, 2020 and 2019 , there was $ 4.9 million and $ 1.9 million of restricted cash required for bank acceptance notes issued to vendors, respectively.

There was $ 0.5 million and $ 4.2 

million certificate of deposit associated with credit facilities with a bank in China as of 

December 31, 2020 and 2019 respectively.

NOTE F—EARNINGS PER SHARE

Basic net income (loss) per share has been computed using the weighted-average number of shares of common stock outstanding during the period.

Diluted net income (loss) per share has been computed using the weighted-average number of shares of common stock and dilutive potential common shares from options and restricted stock units outstanding during the period.

Basic net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period.

Diluted net loss per share has been computed using the weighted-average number of shares of common stock and dilutive potential common shares from options and restricted stock units outstanding during the period.

In periods with net losses, normally dilutive shares become anti-dilutive.

Therefore, basic and dilutive earnings per share are the same.

The following table presents the computation of the basic and diluted net income (loss) per share for the periods indicated (in thousands):

The following table presents the computation of the basic and diluted net loss per share for the periods indicated (in thousands):

Year ended December 31,

Net income (loss)

Weighted average shares used to compute net income (loss) per share

$ ( 58,452 )  

$ ( 66,049 )  

Weighted average shares used to compute net loss per share

21,867  

19,982  

19,647  

Effect of dilutive options and restricted stock units

Net income (loss) per share

The following potentially dilutive securities were excluded from diluted net income (loss) per share as their effect would have been antidilutive (in thousands):

As of As of December 31,

21,867  

19,982  

19,647  

Net loss per share

$ ( 2.67 )  

$ ( 3.31 )  

$ ( 2.67 )  

$ ( 3.31 )  

The following potentially dilutive securities were excluded from diluted net loss per share as their effect would have been antidilutive (in thousands):

As of December 31,

Employee stock options

3 unchanged sentences

NOTE G—INVENTORIES

At December 31, 2019  and 2018 , inventories consisted of the following (in thousands):

At December 31, 2020 and 2019 , inventories consisted of the following (in thousands):

As of December 31,

Raw materials

$ 25,555  

$ 15,570  

Work in process and sub-assemblies

52,544  

50,787  

Finished goods

32,298  

18,671  

Total inventory

For the years ended December 31, 2019 , 

2018 and 2017 , the lower of cost or market reserve adjustment expensed for inventory was $ 6.8 million, $ 7.2  million, and $ 1.9  million , respectively.

For the years December 31, 2019 , 

2018 and 2017 , the direct inventory write-offs related to scrap, discontinued products, and damaged inventories were $ 13.4 million, $ 12.3 million, and $ 6.8 million, respectively.

$ 110,397  

$ 85,028  

For the years ended December 31, 2020, 2019 and 2018 , the lower of cost or market reserve adjustment expensed for inventory was $ 3.9 million, $ 6.8 million, and $ 7.2  million, respectively.

For the years December 31, 2020, 2019 and 2018 , the direct inventory write-offs related to scrap, discontinued products, and damaged inventories were $ 20.4 million, $ 13.4 million, and $ 12.3 million, respectively.

NOTE H—PROPERTY, PLANT AND EQUIPMENT

4 unchanged sentences

Building and improvements

88,280  

83,846  

Machinery and equipment

253,738  

237,464  

Furniture and fixtures

Computer equipment and software

11,912  

10,506  

Transportation equipment

360,975  

338,385  

Less accumulated depreciation and amortization

( 142,434 )  

218,541  

221,406  

Construction in progress

33,342  

25,937  

Total property, plant and equipment, net

For the years ended December 31, 2019 , 

2018 and 2017 , depreciation expense of property, plant and equipment was $ 23.5 million, $ 29.2  million and $ 19.9  million , respectively.

$ 252,984  

$ 248,444  

For the years ended December 31, 2020, 2019 and 2018 , depreciation expense of property, plant and equipment was $ 24.2 million, $ 23.5 million, and $ 29.2  million, respectively.

For the years 

December 31, 2020, 2019 and 2018 , the capitalized interest was $ 0.4 million, $ 0.2 million and $ 0.0 million, respectively. 

As of December 31, 2020 , the Company concluded that its continued loss history constitutes a triggering event as described in ASC 360 - 10 - 35 - 21, Property, Plant, and Equipment . 

3 unchanged sentences

December 31, 2020

$ 8,158  

$ ( 4,165 )  

$ 3,993  

( 15 )  

Total intangible assets

$ 8,179  

$ ( 4,180 )  

$ 3,999  

December 31, 2019

$ 7,638  

$ ( 3,560 )  

$ 4,078  

( 14 )  

Total intangible assets

For the years ended December 31, 2019 , 

2018 and 2017 , amortization expense for intangible assets, included in general and administrative expenses on the income statement, was $ 0.5 million each year.

$ 7,655  

$ ( 3,574 )  

$ 4,081  

For the years ended December 31, 2020, 2019 and 2018 , amortization expense for intangible assets, included in general and administrative expenses on the income statement, was $ 0.5 million each year.

The remaining weighted average amortization period for intangible assets is approximately 7  years.

At December 

31, 2019 , future amortization expense for intangible assets is estimated to be (in thousands):

At December 31, 2020 , future amortization expense for intangible assets is estimated to be (in thousands):

$ 3,999  

NOTE J—FAIR VALUE OF FINANCIAL INSTRUMENTS

5 unchanged sentences

Cash and cash equivalents

$ 43,425  

Restricted cash

$ 50,114  

Bank acceptance payable

Convertible senior notes

$ 15,860  

Convertible senior notes  

70,225  

Total liabilities

The following table presents a summary of the Company’s financial instruments measured at fair value on a recurring basis as of December 

31, 2018 (in thousands):

$ 86,085  

The following table presents a summary of the Company’s financial instruments measured at fair value on a recurring basis as of 

December 31, 2019 (in thousands):

Quoted prices

3 unchanged sentences

Cash and cash equivalents

$ 59,977  

Restricted cash

$ 67,028  

Bank acceptance payable

$ 6,310  

Convertible senior notes  

77,191  

Total liabilities

$ 83,501  

NOTE K—NOTES PAYABLE AND LONG-TERM DEBT

3 unchanged sentences

Revolving line of credit with a U.S.

bank up to $20,000 (2019) and $60,000 (2018) with interest at LIBOR plus 1.5% (2019) and 1.4% (2018), maturing April 2, 2021

Term loan with a U.S.

bank with monthly payments of principal and interest at LIBOR plus 1.15%, maturing April 1, 2024

Term loan with a U.S.

bank with monthly payments of principal and interest at LIBOR plus 1.3%, maturing between April 1, 2023 and December 18, 2023

Revolving line of credit with a Taiwan bank up to $9,767 with 2% interest, maturing May 31, 2019

Revolving line of credit with a Taiwan bank up to $7,000 with interest ranging from 1.5% to 3.5%, matured July 26, 2019

Revolving line of credit with a Taiwan bank up to $3,336 with 2.2% interest, maturing July 31, 2020

Notes payable to a finance company due in monthly installments with 3.4% interest, maturing November 30, 2021

bank up to $ 20,000 with interest at LIBOR plus 1.5 % , maturing April 2, 2021  

$ 18,700  

$ 20,000  

Paycheck Protection Program Term Note with interest at fixed rate 1.0 %, maturing April 16, 2022

Revolving line of credit with a Taiwan bank up to $ 3,336 with 2.2 % interest, maturing October 16, 2020

Revolving line of credit with a Taiwan bank up to $ 3,436 with 2.2 % interest, maturing January 31, 2021  

Notes payable to a finance company due in monthly installments with 3.5 % interest, maturing January 21, 2022

Notes payable to a finance company due in monthly installments with 3.1 % interest, maturing January 21, 2022

Revolving line of credit with a Taiwan bank up to $ 2,668 with interest of 1.7 %, maturing April 11, 2020

Revolving line of credit with a China bank up to $18,599 with interest ranging from 4.1% to 4.6%, maturing September 21, 2023

Revolving line of credit with a China bank up to $25,449 with interest of 4.57%, maturing May 24, 2024

Credit facility with a China bank up to $7,167 with interest of 5.7%, maturing June 20, 2022

Revolving line of credit with a China bank up to $ 8,917 with interest ranging from 4.5 %, maturing October 15, 2021

Revolving line of credit with a China bank up to $ 25,449 with interest from 3.01 % to 4.57 %, maturing May 24, 2024

11,603  

Credit facility with a China bank up to $ 7,167 with interest of 5.7 %, maturing from June 20, 2022

52,187  

49,985  

Less debt issuance costs, net

( 18 )  

52,169  

49,923  

Less current portion

( 38,265 )  

Non-current portion

$ 13,904  

$ 16,552  

Bank Acceptance Notes Payable

Bank acceptance notes issued to vendors with a zero percent interest rate

The current portion of long-term debt is the amount payable within one year of the balance sheet date of December 

$ 15,860  

$ 6,310  

The current portion of long-term debt is the amount payable within one year of the balance sheet date of December 31, 2020 .

Maturities of notes payable and long-term debt are as follows for the future years ending December 

31 (in thousands):

$ 38,265  

13,904  

Total outstanding

$ 52,169  

On September 28, 2017, the Company entered into a Loan Agreement, a Promissory Note, an Addendum to the Promissory Note, a BB&T Security Agreement, a Trademark Security Agreement, and a Patent Security Agreement (together the “Credit Facility”) with Branch Banking and Trust Company (“BB&T”).

32 unchanged sentences

As of December 31, 2020 , $ 18.7 million was outstanding under the Line of Credit.

On June 19, 2018, Prime World entered into a one year revolving credit facility totaling 300 million NT dollars, or approximately $ 9.7 million, (the “Taiwan Credit Facility”) with Taishin International Bank in Taiwan (“Taishin”).

Borrowing under the Taiwan Credit Facility would have been used for short-term working capital.

Prime World could have drawn upon the Taiwan Credit Facility from June 19, 2018 until July 31, 2019.

The term of each draw would have been either 90 or 120 days.

Borrowings under the Taiwan Credit Facility bore interest at a rate of 2.00 % for 90 day draws and 1.95 % for 120 day draws.

At the end of the draw term, Prime World would have been required to make payments for all principal and accrued interest.

The agreements for the Taiwan Credit Facility contained representations and warranties and events of default applicable to Prime World that are customary for agreements of this type.

As of December 31, 2019, the Taiwan Credit Facility has been fully repaid and the agreement has terminated.

On July 23, 2019, Prime World entered into a one -year revolving credit facility totaling 100 million NT dollars, or approximately $ 3.3 million, (the “NT$100M Credit Line”) and 1 million USD (the “US$1M Credit Line”) with Taishin.

Borrowing under the NT$100M Credit Line will be used for short-term working capital;

the borrowing under the US$1M Credit Line will be strictly used for spot transactions in the foreign exchange market.

The NT$100M Credit Line and US$1M Credit Line are collectively referred to as the “Credit Facility”.

Prime World may draw upon the Credit Facility from July 23, 2019 through July 31, 2020.

The term of each draw shall be either 90 or 120 days.

Borrowings under the NT$100M Credit Line will bear interest at a rate of 2.25 % for 90 day draws and 2.2 % for 120 day draws;

borrowings under the US$1M Credit Line will bear interest equal to the Taishin’s foreign exchange rate effective on the day of the applicable draw.

At the end of the draw term Prime World will make payment for all principal and accrued interest.

Prime World’s obligations under the Credit Facility will be secured by a promissory note executed between Prime World and Taishin.

The agreements for the Credit Facility contain representations and warranties, and events of default applicable to Prime World that are customary for agreements of this type. 

As of December 31, 2019, $ 3.3 million was outstanding under the Credit Facility.

On October 3, 2018, Prime World entered into a revolving credit facility for up to $ 7 million, (the “Revolving Credit Facility”) with the Development Bank of Singapore (Taiwan) Ltd.

(“DBS”).

Borrowing under the Revolving Credit Facility will be used for short-term working capital.

Prime World may draw upon the Revolving Credit Facility from October 3, 2018 until July 

  The term of each draw shall be either 60 or 90 days depending on the purpose of the draw.  Borrowings under the Revolving Credit Facility bear interest at a rate equal to DBS’s cost of funds rate plus 1.25 % for draws in U.S.

dollars and 1.35 % plus the Bank’s cost of funds rate for draws in NT dollars.

As of the execution of the Revolving Credit Facility, DBS’s cost of fund’s rate is 0.77 % for loans made in NT dollars and 2.54 % for loans made in U.S.

DBS’s cost of fund’s rate is adjusted daily.

Prime World is required to make monthly payments of accrued interest with the final monthly payment being for all principal and all accrued interest not yet paid.

Prime World’s obligations under the Revolving Credit Facility is secured by promissory notes executed between Prime World and DBS at the time of each draw.

The agreements for the Revolving Credit Facility contain representations and warranties and events of default applicable to the Prime World that are customary for agreements of this type.

As of December 31, 2019 , the Revolving Credit Facility has been fully repaid and the agreement has terminated.

On April 17, 2020, the Company entered into a term note ("PPP Term Note") with Truist Bank, with a principal amount of $ 6.23 million pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

The PPP loan is evidenced by a promissory note.

The PPP Term Note bears interest at a fixed annual rate of 1.00%, with the first six months of interest deferred.

Beginning in November 2020, the Company will make 18 equal monthly payments of principal and interest with the final payment due in April 2022.

The PPP Term Note may be accelerated upon the occurrence of an event of default.

The PPP Term Note is unsecured and guaranteed by the United States Small Business Administration ("SBA"). The Company applied for forgiveness of the principal amount of the PPP Term Note on September 14, 2020 and currently expects the application to get approved.

The forgiveness application is being reviewed and approved by Truist Bank. 

Under current SBA guidelines, due to the size of the loan we anticipate a further review by the SBA upon completion of the review by Truist Bank. 

The timing of the completion of the review by SBA is currently uncertain. 

Until such time as the forgiveness assessment has been completed by the SBA, the Company will not be required to make any payments under the terms of the PPP Term Note.

On November 29, 2018, Prime World entered into a Purchase and Sale Contract (the “Sale Contract”) and an Equipment Finance Agreement with Chailease Finance Co., Ltd.

15 unchanged sentences

As of December 31, 2020 , $ 2.1 million was outstanding under the Second Equipment Finance Agreement.

On December 11, 2018, Prime World entered into a one -year credit facility totaling NT$150 million, or approximately $ 4.9 million, (the “Credit Facility”) with CTBC Bank Co., Ltd.

(“CTBC”).

Borrowing under the Credit Facility will be used for short-term working capital.

Prime World may draw upon the Credit Facility from December 11, 2018 until October 31, 2019.

The term of each draw shall be up to 120 days.

Under the Credit Facility borrowing in NT dollars will bear interest at a rate equal to CTBC’s Enterprise Swap Index Rate plus 1.2 %;

for all foreign currency borrowing interest bear at a rate equal to CTBC’s Cost of Fund lending rate plus 1.2 %.

As of the execution of the Credit Facility, CTBC’s Enterprise Swap Index Rate and Cost of Funds lending rate is 0.69 % and 3.40 % respectively. 

At the end of the draw term, Prime World is required to make payments for all principal and accrued interest.

The Credit Facility contains representations and warranties, and events of default applicable to Prime World that are customary for agreements of this type.

As of December 31, 2019, the Credit Facility has been fully repaid and the agreement has terminated.

On September 15, 2020, Prime World entered into an Amendment to the Sale Contract and Second Sales Contract (the “Amendment”) with Chailease Finance Co., Ltd.

(“Chailease”).

The Amendment amends the Sales Contract, dated November 29, 2018 and the Second Sales Contract, dated January 21, 2019 ( hereafter collectively referred to as the “Original Sales Contracts”).

Pursuant to the Amendment, Prime World agrees to pay Chailease NT$ 22,311,381 , or approximately $ 0.8 million for certain leased equipment listed in the Amendment (the “Leased Equipment”).

This payment will include all outstanding lease payments, costs and expenses;

simultaneously, Chailease agrees to transfer title of such Leased Equipment back to Prime World.

Regarding all other equipment contemplated in the Original Sales Contracts but not listed in the Amendment, pursuant to the terms and conditions made under the Original Sales Contracts, Prime World is obligated to pay Chailease monthly lease payments which total NT$159,027,448, or approximately $ 5.5  million (the “Lease Payments”).

The Lease Payments will begin on September 21, 2020 with the last Lease Payment due on January 21, 2022, title of all other equipment contemplated under the Original Sales Contracts but not listed in the Amendment will transfer to Prime World upon completion of the Lease Payments and expiration of the Original Sales Contracts. 

On April 11, 2019, Prime World entered into a one -year credit facility totaling NT$80 million, or approximately $ 2.6 million, (the “Far Eastern Credit Facility”) with Far Eastern International Bank Co., Ltd.

6 unchanged sentences

Prime World’s obligations under the Far Eastern Credit Facility will be secured by a promissory note executed between Prime World and Far Eastern.

As of December 31, 2019 , $ 2.7 million was outstanding under the Far Eastern Credit Facility.

On September 21, 2018, the Company’s China subsidiary, Global Technology, Inc., entered into a five -year revolving credit line agreement, totaling 129,000,000 Chinese Renminbi, or RMB, or approximately $ 18.6 million, (the “Credit Line”) and a Security Agreement with China Construction Bank Co., Ltd., in Ningbo, China (“CCB”).

Borrowing under the Credit Line will be used for general corporate and capital investment purposes, including the issuance of bank acceptance notes to Global’s vendors.

Global may draw upon the Credit Line between September 21, 2018 and September 17, 2023;

however, the amount of available credit under the Credit Line may be reduced by CCB without notice to Global and may be decreased subject to changes of Chinese government regulations.

Each draw bears interest equal to CCB’s commercial banking interest rate effective on the day of the applicable draw.

Global’s obligations under the Credit Line is secured by real property owned by Global in China and mortgaged to CCB under the terms of the Security Agreement. On May 10, 2019, Global repaid the Credit Line without penalty and terminated the agreement. 

On April 9, 2020, Prime World repaid the Far Eastern Credit Facility without penalty and terminated the agreement.

On July 23, 2019, Prime World entered into a one -year revolving credit facility totaling NT$100 million, or approximately $3.3 million, (the “NT$100M Credit Line”) and $ 1 million (the “US$1M Credit Line”) with Taishin International Bank in Taiwan ("Taishin").

Borrowing under the NT$100M Credit Line will be used for short-term working capital;

the borrowing under the US$1M Credit Line will be strictly used for spot transactions in the foreign exchange market.

The NT$100M Credit Line and US$1M Credit Line are collectively referred to as the “Taishin Credit Facility”.

On July 20, 2020, the NT$100M Credit Line with Taishin was extended for three ( 3

) months until October 16, 2020.

The term of each draw shall be either 90 or 120 days.

Borrowings under the NT$100M Credit Line will bear interest at a rate of 2.25 % for 90 day draws and 2.2 % for 120 day draws;

borrowings under the US$1M Credit Line will bear interest equal to the Taishin’s foreign exchange rate effective on the day of the applicable draw.

At the end of the draw term Prime World will make payment for all principal and accrued interest.

Prime World’s obligations under the Taishin Credit Facility will be secured by a promissory note executed between Prime World and Taishin.

The agreements for the Taishin Credit Facility contain representations and warranties, and events of default applicable to Prime World that are customary for agreements of this type.

The NT$100M Credit Line and the US$1M Credit Line have been replaced by the new Credit Line on October 7, 2020.

On October 7, 2020, Prime World entered into a revolving credit facility totaling NT$ 100 million, or approximately $3.44 million (the “NT$100M Credit Line”) and $ 1 million USD (the “US$1M Credit Line”) with Taishin International Bank in Taiwan (“Taishin”).

Borrowing under the NT$100M Credit Line will be used for short-term working capital;

borrowing under the US$1M Credit Line will be strictly used for spot transactions in the foreign exchange market.

The NT$100M Credit Line and US$1M Credit Line are collectively referred to as the “Credit Facility”. Prime World may draw upon the Credit Facility from October 7, 2020 through 

January 31, 2021 .

The term of each draw under the NT$100M Credit Line shall be either 90 or 120 days and will bear interest at a rate of 2.15 % for each draw;

borrowings under the US$1M Credit Line will bear interest equal to Taishin’s foreign exchange rate effective on the day of the applicable draw.

At the end of the draw term Prime World will make payment for all principal and accrued interest.

Prime World’s obligations under the Credit Facility will be secured by a promissory note between Prime World and Taishin.

As of December 31, 2020 , $ 1.8 million was outstanding under the Taishin Credit Facility.

On April 19, 2019, the Company’s China subsidiary, Global, entered into a twelve ( 12 ) month revolving line of credit agreement, totaling 60,000,000 RMB, or approximately $ 8.9 million, (the “China Merchants Credit Line”), with China Merchants Bank Co., Ltd., in Ningbo, China (“China Merchants”).

The China Merchants Credit Line will be used by Global for general corporate purposes, including the issuance of bank acceptance notes to Global’s vendors.

Global may draw upon the China Merchants Credit Line from April 19, 2019 until April 18, 2020 ( the “Credit Period”).

On April 14, 2020, 

the China Merchants Credit Line was extended for twelve ( 12 ) months.

Global may draw upon the China Merchants Credit Line from April 19, 2019 until October 14, 2020 ( the “Credit Period”).

During the Credit Period, Global may request to draw upon the China Merchants Credit Line on an as-needed basis;

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Global’s obligations under the China Merchants Credit Line are unsecured.

As of December 31, 2019 , there was no outstanding balance under the China Merchants Credit Line and the outstanding balance of bank acceptance notes issued to vendors was $ 0.1 million.

The China Merchants Credit Line has been replaced by the new Credit Line on October 19, 2020.

On April 30, 2019, the Company’s China subsidiary, Global, entered into a one -year credit facility totaling 9,900,000 RMB, or approximately $ 1.5 million, (the “SPD ¥9.9M Credit Facility”), with Shanghai Pudong Development Bank Co.

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Global’s obligations under the SPD Credit Line will be secured by real property owned by Global and mortgaged to the Bank under the terms of the Security Agreement.

As of December 31, 2019 , $ 7.9  million was outstanding under the SPD Credit Line and the outstanding balance of bank acceptance notes issued to vendors was $ 5.5 million.

On June 21, 2019, the Company’s China subsidiary, Global, entered into an 18 month credit facility totaling 100,000,000 RMB (the “¥100M Credit Facility”), or approximately $ 14.1 million, with China Zheshang Bank Co., Ltd., in Ningbo City, China (“CZB”).

As of December 31, 2020 , $ 11.6 million was outstanding under the SPD Credit Line and the outstanding balance of bank acceptance notes issued to vendors was $ 15.9 million.

Borrowing under the ¥100M Credit Facility will be used by Global for general corporate purposes.

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Each draw will bear interest equal to CZB’s commercial banking interest rate effective on the day of the applicable draw. Global’s obligations under the ¥50M Credit Facility will be secured by machinery and equipment owned by Global and mortgaged to CZB under the terms of the Machinery and Equipment Security Agreement.

As of December 31, 2019 , $ 7.2 million was outstanding under the ¥50M Credit Facility and the outstanding balance of bank acceptance notes issued to vendors was $ 0.8 million.

As of December 31, 2019  and 2018 , the Company had $48.8 million and $ 69.4 million of unused borrowing capacity, respectively.

One-month LIBOR rates were 1.76 % and 2.50 % at December 31, 2019  and 2018 , respectively.

As of December 31, 2019  and 2018 , there was $6.1 million and $ 2.4 million of restricted cash, investments or security deposit associated mainly with the loan facilities, respectively.

As of December 31, 2020 , $ 7.5 million was outstanding under the ¥50M Credit Facility and there was no  outstanding balance of bank acceptance notes issued to vendors under this facility.

On October 19, 2020, the Company’s China subsidiary, Global entered into a twelve ( 12 ) month revolving line of credit agreement, totaling 60,000,000 RMB, or approximately $ 8.91 million (the “Credit Line”), with China Merchants Bank Co., Ltd., in Ningbo, China (“China Merchants”).

The Credit Line will be used by Global for general corporate purposes.

Global may draw upon the Credit Line from October 16, 2020 until October 15, 2021 ( the “Credit Period”).

During the Credit Period, Global may request to draw upon the Credit Line on an as-needed basis;

however, the amount of available credit under the Credit Line and the approval of each draw may be reduced or declined by China Merchants due to changes in Chinese government regulations and/or changes in Global’s financial and operational condition at the time of each requested draw.

Each draw will bear interest equal to the China Merchants’

commercial banking interest rate effective on the day of the applicable draw.

Global’s obligations under the Credit Line is unsecured. As of December 31, 2020 , $ 2.3 million was outstanding under the China Merchants Credit Line and there was no outstanding balance of bank acceptance notes issued to vendors under this facility.

As of December 31, 2020 and 2019 , the Company had $ 28.7 million and $ 48.8 million of unused borrowing capacity, respectively.

One-month LIBOR rates were 0.14 % and 1.76 % at December 31, 2020 and 2019 , respectively.

As of December 31, 2020 and 2019 , there was $ 5.4 million and $ 6.1 million of restricted cash, investments or security deposit associated mainly with the loan facilities, respectively.

NOTE L—C onvertible Senior Notes

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The following table presents the carrying value of the Notes for the periods indicated (in thousands):

$ 80,500  

Unamortized debt issuance costs

Net carrying amount

$ 77,854  

The Notes are convertible at the option of holders of the Notes at any time until the close of business on the scheduled trading day immediately preceding the maturity date.

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The following table sets forth interest expense information related to the Notes (in thousands):

Three months ended December 31,

Year ended December 31,

Contractual interest expense

$ 4,025  

$ 3,276  

Amortization of debt issuance costs

Total interest cost

$ 4,856  

$ 3,957  

Effective interest rate

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Accrued payroll

$ 10,517  

$ 11,009  

Accrued employee benefits

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Accrued professional fees

Accrued capital expenditures

Accrued shipping and tariff expenses

Accrued other

Total accrued liabilities

$ 18,511  

$ 17,864  

NOTE N—OTHER INCOME AND EXPENSE

1 unchanged sentence

Year ended December 31,

Foreign exchange transaction gain (loss)

Foreign exchange transaction gain

Government subsidy income

1 unchanged sentence

Loss on disposal of assets

Total other income (expense), net

( 15 )  

( 13 )  

Total other income, net

$ 2,998  

$ 1,840  

$ 1,814  

NOTE O—INCOME TAXES

The sources of the Company’s income (loss) from operations before income taxes were as follows (in thousands):

Year ended December 31,

Total income (loss) before income taxes

The sources of the Company’s loss from operations before income taxes were as follows (in thousands):

Years ended December 31,

$ ( 20,288 )  

$ ( 35,279 )  

( 30,936 )  

( 16,108 )  

Total loss before income taxes

$ ( 51,224 )  

$ ( 51,387 )  

The provision for income tax expense (benefit) for the years ended December 31, was as follows (in thousands):

$ 1,429  

$ ( 172 )  

$ 16,375  

( 3,542 )  

$ 7,185  

$ 14,549  

Income tax (benefit) expense

$ 7,228  

$ 14,662  

Deferred income tax assets and liabilities result principally from net operating losses, different methods of recognizing depreciation, reserves for doubtful accounts and inventory, research and development credits and foreign tax credits.

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NOL carryforward

$ 31,526  

$ 21,516  

Inventory reserves

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Research and development credits

ASC 842 Assets

Deferred tax assets

Less valuation allowance

Deferred tax assets, net

52,290  

40,609  

Less valuation allowance  

( 43,462 )  

Deferred tax assets, net  

14,873  

Depreciation and amortization

ASC 842 Liabilities

( 7,402 )  

ASC 842 Liabilities  

( 1,426 )  

Deferred tax liabilities

( 8,828 )  

Deferred tax assets, net

$ 7,287  

The Company has a U.S.

net operating loss carry forward of approximately $ 75.9  million, $ 32.7 million of which, if unused, expires between 2026 and 2032 and $ 43.2 million of which, can be carried forward indefinitely.

net operating loss carry forward of approximately $ 87.0 million, $ 32.7 million of which, if unused, expires between 2026 and 2032 and $ 54.3 million of which, can be carried forward indefinitely.

The Company has U.S.

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net operating losses and tax credit carry forwards are subject to an annual limitation due to the ownership change limitations set forth in Internal Revenue Code Section 

 As of December 31, 2020, the Company had Taiwan net operating loss carry forwards of approximately $ 51.4 million and China net operating loss carry forwards of approximately $ 16.0 million. 

The carryforward period for the Taiwan net operating loss carry forwards is ten years, and the expiration period begins 2028.

The carryforward period for China net operating loss carry forwards is five years, and the expiration period begins 2024.

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets.

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Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth.

On the basis of this evaluation, as of December 31, 2019, a valuation allowance of $25.7 million has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized.

Substantially all of the the deferred taxes in the US has been reserved with the remaining deferred taxes in Taiwan and China considered more likely than not to be realizable as of  

December 31, 2019.

The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.

On the basis of this evaluation, as of December 31, 2020  and December 31, 2019, a valuation allowance of $ 43.5 million and $ 25.7 million, respectively, has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized.

During the years ended December 31, 2020 and 2019, the valuation allowance increased by $ 17.7 million and $ 25.7 million, respectively, primarily due to recording a valuation allowance in certain jurisdictions and an increase in deferred tax assets with a full valuation allowance. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.

The following table shows the change in the deferred tax valuation as follows:

Beginning Balance, January 1

$ 25,736  

Change charged to expense/(income)

17,137  

25,736  

Change charged to currency translation adjustment

Ending Balance, December 31

$ 43,462  

$ 25,736  

A reconciliation of the U.S.

federal income tax rate of 21 %, 21 % and 35 % for the years ended December 31, 2019 , 

2018 and 2017 , respectively, to the Company’s effective income tax rate follows (in thousands):

federal income tax rate of 21 %, 21 % and 21 % for the years ended December 31, 2020, 2019 and 2018 , respectively, to the Company’s effective income tax rate follows (in thousands):

Expected taxes at statutory rate

$ ( 10,775 )  

$ ( 10,791 )  

Non-deductible/non-taxable items

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Foreign permanent differences

Increase (decrease) in valuation allowance

( 1,002 )  

( 671 )  

Changes in valuation allowance

17,137  

25,736  

Share-based compensation

Changes in tax rates

Transition tax adjustment, net of foreign tax credits

Research and development credits

Uncertain tax positions

Transition tax adjustment, net of foreign tax credits  

Research and development credits  

( 744 )  

( 1,616 )  

Alternative Minimum Tax

( 172 )  

Foreign other

( 182 )  

Tax (benefit) expense

$ 7,228  

$ 14,662  

The Company's provision for income taxes in

2019 was higher than

2018 primarily due to the recognition of a valuation allowance on our US and state deferred tax assets, along with excess tax expense from stock-based compensation, partially offset by differences in pre-tax income and recording research and development credits.

The Company’s provision for income taxes in 2018 was lower than in 2017 primarily due to a decrease in pre-tax income and the impact of the 2017 Tax Act, partially offset by excess tax benefits from stock-based compensation, recording research and development credits, and the U.S.

return-to-accrual adjustment as a result of the 2017 Tax Act as discussed below.

2020 was lower than

2019 primarily due to the recognition of a valuation allowance on the deferred tax assets, along with excess tax expense from stock-based compensation, partially offset by differences in pre-tax income and recording research and development credits.

The Company’s provision for income taxes in

2019 was higher than in

2018 primarily due to the recognition of a valuation allowance on our US and state deferred tax assets, along with excess tax excess tax expense from stock-based compensation, partially offset by differences in pre-tax income and recording research and development credits.

The Company’s wholly owned subsidiary, Prime World is a tax-exempt entity under the Income Tax Code of the British Virgin Islands.

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In 2011, 2014, and 2017, Global Technology, Inc.

renewed its National high-tech enterprise certificate and was therefore extended its three -year tax preferential status through September 2017.

In November 2017, Global Technology, Inc.

again renewed its National high-tech enterprise certificate and was therefore extended its three -year tax preferential status 

from November 2017 until November 2020.

This tax holiday reduced its 20 19, 2018 and 2017  income tax provision by approximately $ 1.0 , $ 0.5 and $ 1.4 million respectively .

renewed its National high-tech enterprise certificate and therefore extended its three -year tax preferential status through November 2020.

In December 2020, Global Technology, Inc.

again renewed its National high-tech enterprise certificate and therefore extended its three -year tax preferential status

from December 2020 until December 2023.

This tax holiday reduced its 

2020, 2019 and 2018 income tax provision by approximately $ 1.4 , $ 1.0 , and $ 0.5 million respectively.

This tax holiday reduced its fiscal 2020, 2019 and 2018 diluted earnings per share by approximately $ 0.05 , $ 0.05 and $ 0.03 respectively.

Effective January 1, 2016, China expanded the scope of the National high-tech enterprise to include additional deductions for qualifying research and development.

As of December 31, 2019 , 

2018 and 2017 , the total amount of unrecognized tax benefit was $ 0.2 million, $ 0.2 million, and $0.2 million, respectively.

As of December 31, 2020, 2019 and 2018 , the total amount of unrecognized tax benefit was $ 0.2 million, $ 0.2 million, and $ 0.2 million, respectively.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands):

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The Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense.

Related to the unrecognized tax benefits noted above, it has not accrued penalties or interest during 2019 as a result of net operating losses.

Related to the unrecognized tax benefits noted above, it has not accrued penalties or interest during 

2020 as a result of net operating losses.

During 2019 or 2018 , the Company also accrued no penalties or interest.

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As future guidance is issued, the Company may make adjustments to amounts that we have previously recorded that may materially impact our provision for income taxes in the period in which the adjustments are made.

As of December 31, 2019 , the Company has accumulated undistributed earnings generated by its foreign subsidiaries of approximately $ 27.9 million.

Because $ 27.9 million of such earnings have previously been subject to the one -time transition tax on foreign earnings required by the U.S.

Tax Act, any additional taxes due with respect to such earnings or the excess of the amount for financial reporting over the tax basis of our foreign investments would generally be limited to foreign and state taxes.  The Company intends, however, to indefinitely reinvest these earnings and expects future U.S.

On March 18, 2020, the Families First Coronavirus Response Act ("FFCR Act"), and on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") were each enacted in response to the COVID- 19 pandemic.

The FFCR Act and the CARES Act contain numerous tax provisions, such as deferring payroll tax payments, establishing a credit for the retention of certain employees, relaxing limitations on the deductibility of interest, updating the definition of qualified improvement property, modification of the utilization limitations on net operating losses, and the ability to accelerate timing of refundable AMT credits.

This legislation currently has no material impact to income tax expense on the Company’s financial statements. 

The Company continues to monitor additional guidance issued by the U.S.

Treasury Department, the Internal Revenue Services and others.

As of December 31, 2020, the company has accumulated undistributed earnings generated by foreign subsidiaries of approximately $ 5 million.

Because $5 million of such earnings have previously been subject to the one -time transition tax on foreign earnings required by the 2017 Act, any additional taxes due with respect to such earnings or the excess of the amount for financial reporting over the tax basis of our foreign investments would generally be limited to foreign and state taxes.

We intend, however, to indefinitely reinvest these earnings and expect future U.S.

cash generation to be sufficient to meet future U.S.

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Outstanding, January 1, 2020

$ 5.32  

$ 10.77  

Outstanding, December 31, 2020

8 unchanged sentences

Outstanding at January 1, 2020

$ 25.18  

$ 9,143  

Granted  

13,677  

( 605 )  

$ 20.83  

Cancelled/Forfeited

( 40 )  

Outstanding, December 31, 2020

Vested and expected to vest

11,279  

Vested and expected to vest  

11,279  

The aggregate intrinsic value of RSUs and RSAs outstanding at December 31, 2020 was $ 11.3 million.

13 unchanged sentences

Total share-based compensation expense

$ 13,046  

$ 11,804  

$ 11,120  

Share-Based compensation - by award type:

1 unchanged sentence

Restricted stock units

13,046  

11,804  

11,108  

Total share-based compensation expense

$ 13,046  

$ 11,804  

$ 11,120  

NOTE Q—STOCKHOLDERS’

9 unchanged sentences

The Company completed its Second ATM Offering in March 2017 and sold 1.6 million shares of common stock at a weighted average price of $ 31.55 per share, providing proceeds of $ 48.8 million, net of expenses and underwriting discounts and commissions. On October 24, 2019, the Company filed a Registration Statement on Form S- 3 with the Securities and Exchange Commission effective January 9, 2020, providing for the public offer and sale of certain securities of the Company from time to time, at its discretion, up to an aggregate amount of $ 250 million.

No shares of common stock have been sold pursuant to this Registration Statement on Form S- 3.

In connection with such Form S- 3, on February 28, 2020, the Company entered into an Equity Distribution Agreement with Raymond James & Associates, Inc.

pursuant to which the Company may issue and sell shares of the Company’s stock having an aggregate offering price of up to $ 55.0 million (the “Third ATM Offering”) from time to time through Raymond James & Associates, Inc.

As of December 31, 2020, the Company sold 4.5 million shares of common stock at a weighted average price of $ 9.00 per share, providing proceeds of $ 39.4 million, net of expenses and underwriting discounts and commissions. 

NOTE R—SEGMENT AND GEOGRAPHIC INFORMATION

4 unchanged sentences

Long-lived assets in the tables below comprise only property, plant, equipment and intangible assets (in thousands):  

For the Years ended December 31,

Year ended December 31,

United States

$ 18,380  

$ 9,795  

$ 10,795  

131,076  

97,776  

113,547  

85,167  

83,301  

143,123  

$ 234,623  

$ 190,872  

$ 267,465  

As of December 31,

1 unchanged sentence

United States

$ 90,999  

$ 94,507  

$ 88,815  

71,080  

73,816  

65,451  

108,575  

97,687  

89,736  

$ 270,654  

$ 266,010  

$ 244,002  

The Company serves four primary markets, the internet data center, CATV, telecom and FTTH markets.

Of the Company’s total revenues in 2020 , the Company earned $ 173.4 million, or 73.9 %, from the internet data center market, $ 37.9 million, or 16.2 %, from the CATV market, $ 21.1 million, or 9.0 %, from the telecom market and $ 0.1 million, or 0.0 %, from the FTTH market.

Of the Company’s total revenues in 2019 , the Company earned $ 143.6 million, or 75.2 %, from the internet data center market, $ 37.3 million, or 19.6 %, from the CATV market, $ 8.4 million, or 4.4 %, from the telecom market and $ 0.2  million, or 0.1 %, from the FTTH market.

Of the Company’s total revenues in 2018 , the Company earned $ 200.2 million, or 74.9 %, from the internet data center market, $ 51.7 million, or 19.3 %, from the CATV market, $ 13.2 million, or 4.9 %, from the telecom market and $ 0.8  million, or 0.3 %, from the FTTH market.

Of the Company’s total revenues in 2017 , the Company earned $ 306.7  million, or 80.2 %, from the internet data center market, $ 60.8  million, or 15.9 %, from the CATV market, $ 12.9  million, or 3.4 %, from the telecom market and $ 0.5  million, or 0.1 %, from the FTTH market.

NOTE S—EMPLOYEE BENEFIT PLANS

2 unchanged sentences

The plan provides for discretionary Company contributions to be allocated based on the employee’s eligible contributions.

The Company made contributions of $ 0.8 million $ 0.8 million, and $ 0.6 million to the 401 (k) plan for the years ended December 31, 2019 , 

2018 and 2017 , respectively.

The Company made contributions of $ 0.8 million to the 401 (k) plan for each of the years ended December 31, 2020, 2019 and 2018 .

Employees of Global participate in a state-mandated social security program in China.

2 unchanged sentences

Under the regulations of the People’s Republic of China, Global is required to make fixed contributions to a fund, which is under the administration of the local labor departments.

Pension expense for Global was $ 0.7 million, $ 0.9 million, and $ 0.8 million in the years ended for the year ended December 31, 2019 , 

2018 and 2017 , respectively.

Pension expense for Global was $ 1.2 million, $ 0.7 million, and $ 0.9 million for the years ended December 31, 2020, 2019 and 2018 , respectively.

Employees Prime World’s Taiwan branch participate in a pension program under the Taiwan Labor Pension Act.

Pension expense for the Prime World’s Taiwan branch was $ 0.8 million, $ 0.9 million, and $ 0.9 million for the years ended December 31, 2019 , 

2018 and 2017 , respectively.

Pension expense for the Prime World’s Taiwan branch was $ 0.8 million, $ 0.8  million, and $ 0.9 million for the years ended December 31, 2020, 2019 and 2018 , respectively.

NOTE T—COMMITMENTS AND CONTINGENCIES

1 unchanged sentence

The Company conducts part of its operations from leased facilities and also leases equipment.

Rent expense was $ 1.3 million, $ 1.1 million and $ 1.1  million, respectively, for the years ended December 31, 2019 , 

2018 and 2017 , respectively.

At December 

31, 2019 , the approximate minimum rental commitments under noncancellable leases in excess of one year that expire at varying dates through 2029 were as follows (in thousands):  

Rent expense was $ 1.4 million, $ 1.3 million, and $ 1.1 million, respectively, for the years ended December 31, 2020, 2019 and 2018 , respectively.

At December 31, 2020 , the approximate minimum rental commitments under noncancellable leases in excess of one year that expire at varying dates through 2029 were as follows (in thousands):  

Year ended December 31,

$ 1,356  

$ 10,724  

Employment Agreements and Consultancy Agreements  

2 unchanged sentences

The Company has also entered into employment and indemnification agreements with one other executive officer.

These agreements provide that if their employment is terminated as a result of a change of control of the Company, the Company will be required to pay a severance payment in an amount equal to six months of their annual base salary and other additional compensation due under the terms of the agreements.

This agreement provides that if his employment is terminated as a result of a change of control of the Company, the Company will be required to pay a severance payment in an amount equal to six months of his annual base salary and other additional compensation due under the terms of the agreements.

Contingencies  

4 unchanged sentences

On August 5, 2017, a lawsuit was filed in the U.S.

District Court for the Southern District of Texas against the Company and two of its officers in Mona Abouzied v.

District Court for the Southern District of Texas against us and two of our officers in Mona Abouzied v.

Applied Optoelectronics, Inc., Chih-Hsiang (Thompson) Lin, and Stefan J.

1 unchanged sentence

4:17 -cv- 02399.

The complaint in this matter seeks class action status on behalf of the Company’s shareholders, alleging violations of Sections 10 (b) and 20 (a) of the Exchange Act against the Company, its chief executive officer, and its chief financial officer, arising out of its announcement on August 3, 2017 that “we see softer than expected demand for our 40G solutions with one of our large customers that will offset the sequential growth and increased demand we expect in 100G.”

The complaint in this matter seeks class action status on behalf of our shareholders, alleging violations of Sections 10 (b) and 20 (a) of the Exchange Act against us, our chief executive officer, and our chief financial officer, arising out of our announcement on August 3, 2017 that “we see softer than expected demand for our 40G solutions with one of our large customers that will offset the sequential growth and increased demand we expect in 100G.”

A second, related action was filed by Plaintiff Chad Ludwig on August 16, 2017 ( Case No.

1 unchanged sentence

The two cases were consolidated before Judge Vanessa D.

On January 22, 2018, the court appointed Lawrence Rougier as Lead Plaintiff and Levi & Korinsky LLP as Lead Counsel.

On January 22, 2018, the court appointed Lawrence Rougier as Lead Plaintiff and Levi & Korsinsky LLP as Lead Counsel.

Lead Plaintiff filed an amended consolidated class action complaint on March 6, 2018.

1 unchanged sentence

The Company filed a motion to dismiss on April 4, 2018, which was denied on March 28, 2019. 

The Company disputes the allegations, and intends to continue to vigorously defend against these claims. 

On May 15, 2019, Lead Plaintiff filed a motion for leave to amend the consolidated class action complaint for the purpose of adding named Plaintiffs Richard Hamilton, Kenneth X.

5 unchanged sentences

On May 28, 2019, Plaintiffs filed a motion seeking to certify the case as a class action pursuant to Federal Rule of Civil Procedure 23 and seeking appointment of Plaintiffs as class representatives and Levi & Korsinsky as class counsel.

On July 12, 2019, the Company filed a response in opposition to the motion for class certification, and on August 26, 2019, Plaintiffs filed their Reply Brief.

On July 12, 2019, we filed a response in opposition to the motion for class certification, and on August 26, 2019, Plaintiffs filed their reply brief.

On November 13, 2019, the Magistrate Judge issued a Memorandum and Recommendation recommending that the Plaintiffs’

motion for class certification be granted, to which Defendants filed written objections on November 27, 2019.

On December 11, 2019, Plaintiffs filed a response in opposition to Defendants’

objections, and on December 16, 2019, Defendants filed their reply brief.

The court entered an order adopting the Magistrate Judge’s Memorandum and Recommendation over Defendants’

objections on December 20, 2019.

Thereafter, on January 3, 2020, Defendants filed a petition for permission to appeal the class certification order to the Fifth Circuit Court of Appeals.

Plaintiffs filed an answer in opposition to Defendants’

petition on January 13, 2020, and Defendants filed a reply brief in further support of the petition for permission to appeal on January 21, 2020.

On January 23, 2020, Defendants filed an unopposed motion in the Fifth Circuit requesting that the court stay further proceedings for 90 days to allow the parties to conduct settlement negotiations.

The Fifth Circuit entered an order granting the motion on January 24, 2020.

The case is currently in the discovery phase, and fact discovery is scheduled to be completed by June 1, 2020. 

At this stage, The Company is not yet able to determine the likelihood of loss, if any, arising from this matter.

On August 7, 2018, Plaintiff Lei Jin filed a purported derivative action on behalf of nominal defendant Applied Optoelectronics, Inc.

District Court for the Southern District of Texas against the Company’s chief executive officer, chief financial officer and board of directors (Case No.

4:18 -cv- 02713 ). 

This case was consolidated with a later filed derivative lawsuit filed by Plaintiff Yiu Kwong Ng in the U.S.

District Court for the Southern District of Texas (Case No.

4:18 -cv- 4751 ).

The allegations in the consolidated derivative complaints are substantially similar to those underlying the Abouzied securities class action and the Taneja securities class action discussed below.

The consolidated derivative action is stayed pending a ruling on defendants’

forthcoming motion to dismiss in the Taneja securities class action.

The Company disputes the allegations and intends to vigorously contest the matter.

On October 1, 2018, a lawsuit was filed in the U.S.

District Court for the Southern District of Texas against the Company and two of its officers in Gaurav Taneja v.

Applied Optoelectronics, Inc., Thompson Lin, and Stefan Murry , Case No.

4:18 -cv- 03544.

The complaint in this matter seeks class action status on behalf of the Company’s shareholders, alleging violations of Sections 10 (b) and 20 (a) of the Exchange Act against the Company, its chief executive officer, and its chief financial officer, arising out of its announcement on September 28, 2018 that it was revising its third quarter revenue guidance due to “an issue with a small percentage of 25G lasers within a specific customer environment.”

This case was consolidated with two identical cases styled Davin Pokoik v.

Applied Optoelectronics, Inc., Chih-Hsiang Lin, and Stefan J.

Murry, Case No.

4:18 -cv- 3722 and Stephen McGrath v.

Applied Optoelectronics, Inc., Chih-Hsiang Lin, and Stefan J.

Murry . 

Mark Naglich was appointed as Lead Plaintiff on the consolidated matter on January 4, 2019. 

Lead Plaintiff filed an amended consolidated complaint on March 5, 2019, and the Company filed a motion to dismiss the amended consolidated complaint on May 6, 2019.

On July 5, 2019, Plaintiff filed a response in opposition to the motion to dismiss, and the Company filed its reply brief in further support of the motion on August 5, 2019.

On January 29, 2020, the district court entered an order granting Defendants’

motion to dismiss and dismissing the amended consolidated complaint with prejudice.

The court also entered an order denying Lead Plaintiff’s request for leave to further amend the complaint, and entered a final judgment terminating the case.

An appeal by Lead Plaintiff, if any, must be filed with the Fifth Circuit by February 28, 2020. 

The Company continues to dispute the allegations and intends to vigorously contest the matter should an appeal be filed.

motion for class certification be granted, to which we filed written objections on November 27, 2019.

On December 11, 2019, Plaintiffs filed a response in opposition to our objections, and on December 16, 2019, we filed our reply brief.

The court entered an order adopting the Magistrate Judge’s Memorandum and Recommendation over our objections on December 20, 2019.

Thereafter, on January 3, 2020, we filed a petition for permission to appeal the class certification order to the Fifth Circuit Court of Appeals.

Plaintiffs filed an answer in opposition to our petition on January 13, 2020, and we filed a reply brief in further support of the petition for permission to appeal on January 21, 2020.

On January 23, 2020, we filed an unopposed motion in the Fifth Circuit requesting that the court stay further proceedings to allow the parties to conduct settlement negotiations.

The Fifth Circuit entered an order granting the motion on January 24, 2020, and subsequently extended the stay by joint motion of the parties.

On June 2, 2020, the parties reached an agreement in principle to settle the matter pursuant to a mediator’s recommendation.

On June 4, 2020, the parties filed a Joint Motion to Stay All Deadlines and Notice of Settlement with the Court, in order to allow the parties to finalize their settlement and file a motion for preliminary approval with the court no later than August 3, 2020. 

On August 3, 2020, the parties filed a Stipulation of Settlement with the Court. 

The Stipulation of Settlement contemplates—among other things and contingent upon Court approval of the settlement and customary terms and conditions—settlement of the action, a release of all claims made in the action, and dismissal of the claims made in the action with prejudice. 

As consideration for entering into the settlement, Plaintiffs will receive for distribution to the members of the class they purport to represent (in accordance with the terms of the Stipulation of Settlement) a payment of $ 15.5 million funded by AOI’s applicable directors’

and officers’

insurance policies.

On October 20, 2020, Plaintiffs filed motions with the Court seeking final approval of the class action settlement and an award of attorneys’

fees to be paid out of the $15.5 million settlement fund. On November 24, 

2020, the Court held a settlement hearing at which it approved the settlement.

That same day, the Court entered its Final Order and Judgment terminating the case. Additional information regarding the settlement can be obtained by reviewing the settlement documents publicly filed with the Court in the matter. On December 7, 2020, following resolution of the district court case, the Fifth Circuit dismissed, without prejudice, our petition for permission to appeal the class certification order. 

After taking into account all currently available information, the advice of our counsel, and the extent and currently-expected availability of our existing insurance coverage, we believe that the outcome of this matter will

not have a material adverse effect on our overall financial condition, results of operations or cash flows, and we have

not recorded any accrual with regard to this matter.

On August 7, 2018, a derivative lawsuit was filed in the United States District Court for the Southern District of Texas styled Lei Jin, derivatively on behalf of Applied Optoelectronics, Inc.

Chih-Hsiang (“Thompson”) Lin, Stefan J.

Murry, William H.

Yeh, Alex Ignatiev, Richard B.

Black, Min-Chu Chen, Alan Moore, and Che-Wei Lin and Applied Optoelectronics, Inc.

4:18 -cv- 02713 alleging breaches of fiduciary duties, unjust enrichment, and violations of Section 14 (a) of the Exchange Act based on similar factual allegations as in the Abouzied Securities Class Action. 

On December 18, 2018, a second derivative complaint was filed styled Yiu Kwong Ng v.

Chih-Hsiang (“Thompson”) Lin, Stefan J.

Murry, William H.

Yeh, Alex Ignatiev, Richard B.

Black, Min-Chu Chen, Alan Moore, and Che-Wei Lin and Applied Optoelectronics, Inc.

4:18 -cv- 4751 alleging the same causes of actions as the Jin complaint and additional factual allegations regarding our announcement on September 28, 2018 that we had “identified an issue with a small percentage of 25G lasers within a specific customer environment.” 

On January 11, 2019, the court consolidated these two derivative actions, and on January 15, 2019, the court entered an order staying the actions pending the resolution of the securities class actions. On June 24, 2020, the plaintiffs filed a notice that the stay of proceedings had been terminated, and on July 2, 2020, the parties filed a Joint Stipulation and Proposed Scheduling Order.

The court entered the stipulated scheduling order on the same date, under which Defendants were required to file and serve their response or responsive pleading to the complaint by August 3, 2020.

By Agreement of the parties, the Court subsequently extended the deadline for Defendants to file and serve their response or responsive pleading to December 2, 2020. 

On December 2, 2020, Defendants filed their motion to dismiss the consolidated derivative complaint.

On December 7, 2020, Plaintiffs filed a notice alerting the Court that they were intending to file an amended complaint, which was subsequently filed by Plaintiffs on January 13, 2021.

Defendants intend to file a motion to dismiss Plaintiffs’

amended consolidated derivative complaint, the deadline for which is March 1, 2021.

Plaintiffs’

reply brief must be filed 21 days after Defendants file their motion to dismiss. The complaint requests unspecified damages and other relief. 

At this stage, we are not yet able to determine the likelihood of loss, if any, arising from this matter.

NOTE U—SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date the financial statements were issued.

In January 2020, the Company repaid its revolving bank link of credit of $ 20 million.

In January 2021, the Company repaid its revolving bank line of credit of $ 17.8 million.

In January 2021, the Company completed its ATM Offering and sold 1.5 million shares at a weighted average price of $ 10.20 per share, providing proceeds of $ 14.5 million, net of expenses and underwriting discounts and commissions. 

NOTE V—Selected Quarterly Financial Data (unaudited)

The following tables set forth a summary of the Company’s quarterly financial information for each of the four quarters for the years ended December 31, 2019  and 2018 (in thousands, except per share data):

The following tables set forth a summary of the Company’s quarterly financial information for each of the four quarters for the years ended December 31, 2020 and 2019 (in thousands, except per share data):

Year ended December 31, 2020

$ 40,467  

$ 65,222  

$ 76,608  

$ 52,326  

Cost of goods sold

34,129  

51,486  

57,418  

41,049  

13,736  

19,190  

11,277  

15.7 %  

21.1 %  

25.0 %  

Operating expenses:

Research and development

Sales and marketing

General and administrative

Research and development  

10,558  

10,803  

11,206  

10,826  

Sales and marketing  

General and administrative  

10,638  

10,611  

10,272  

10,382  

Total operating expenses

Income (loss) from operations

Interest and other income (expense), net

Net income (loss) before taxes

24,132  

24,844  

25,969  

24,438  

Loss from operations

( 17,794 )  

( 11,108 )  

( 6,779 )  

Interest and other expense, net

( 1,052 )  

( 468 )  

( 588 )  

Net loss before taxes

( 18,846 )  

( 11,576 )  

( 7,367 )  

Income tax (expense) benefit

Net income (loss)

Net income (loss) per share—basic

Net income (loss) per share—diluted

( 7,024 )  

( 2,249 )  

$ ( 16,797 )  

$ ( 18,600 )  

$ ( 9,616 )  

Net loss per share—basic

$ ( 0.83 )  

$ ( 0.89 )  

$ ( 0.42 )  

Net loss per share—diluted

$ ( 0.83 )  

$ ( 0.89 )  

$ ( 0.42 )  

Year ended December 31, 2019

$ 52,719  

$ 43,411  

$ 46,084  

$ 48,658  

Cost of goods sold

40,368  

32,873  

34,108  

37,322  

12,351  

10,538  

11,976  

11,336  

23.4 %  

24.3 %  

26.0 %  

Operating expenses:

Research and development

11,185  

11,151  

10,466  

10,597  

Sales and marketing

General and administrative

10,440  

10,884  

10,178  

Total operating expenses

Income from operations

Interest and other expense, net

Net income before taxes

24,220  

24,366  

22,972  

23,390  

Loss from operations

( 11,869 )  

( 13,828 )  

( 10,996 )  

Interest and other income (expense), net

( 1,079 )  

( 729 )  

Net loss before taxes

( 12,948 )  

( 14,557 )  

( 10,720 )  

Income tax (expense) benefit

Net income per share—basic

Net income per share—diluted

$ ( 10,474 )  

$ ( 11,366 )  

$ ( 8,780 )  

Net loss per share—basic

$ ( 0.53 )  

$ ( 0.57 )  

$ ( 0.44 )  

Net loss per share—diluted

$ ( 0.53 )  

$ ( 0.57 )  

$ ( 0.44 )  

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures