APPLIED OPTOELECTRONICS, INC. 10-K

Item 9A. Controls and Procedures      a. Evaluation of Disclosure Controls and Procedures.    The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their control objectives.    Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were effective.      b. Management’s Annual Report on Internal Control over Financial Reporting.    Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Internal control over financial reporting is a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officers, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that our degree of compliance with the policies or procedures may deteriorate.   51   Table of Contents   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, 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.      c. Changes in Internal Control over Financial Reporting    There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with management’s evaluation required by the Rules 13a-15(d) and 15d-15(d) under the Exchange Act that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.   52   Table of Contents    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM      Board of Directors and Shareholders Applied Optoelectronics, Inc.   Opinion on internal control over financial reporting   We have audited the internal control over financial reporting of Applied Optoelectronics, Inc. (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, 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. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.   Definition and limitations of internal control over financial reporting   A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.   Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.   /s/ GRANT THORNTON LLP   Houston, Texas February 25, 2021      53   Table of Contents   Item 9B. Other Information    None.    54   Table of Contents   PART III      Item 10. 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 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.    The information required regarding Section 16(a) beneficial ownership reporting compliance is incorporated by reference from the information contained in our Proxy Statement.    The information required with respect to procedures by which security holders may recommend nominees to our board of directors, the composition of our Audit Committee, and whether the Company has an “audit committee financial expert”, is incorporated by reference from the information contained in our Proxy Statement.    Adoption of Code of Ethics      The Company has adopted a Code of Business Conduct and Ethics (the “Code”) applicable to all of our board of director members, employees and executive officers, including our Chief Executive Officer (Principal Executive Officer), and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer). The Company has made the Code available on our website at http://www.ao-inc.com.    The Company intends to satisfy the public disclosure requirements regarding (1) any amendments to the Code, or (2) any waivers under the Code given to our Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer by posting such information on our website at www.ao-inc.com. There were no amendments to the Code or waivers granted thereunder relating to the Principal Executive Officer, Principal Financial Officer or Principal Accounting Officer during 2020.    Item 11. Executive Compensation    The information required regarding the compensation of our directors and executive officers is incorporated herein by reference from the information contained in the sections entitled “Summary Compensation Table,” “Director Compensation,” and “Compensation Committee Report” in our Proxy Statement.    Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters    The information required regarding security ownership of our 5% or greater stockholders and of our directors and management is incorporated herein by reference from the information contained in the section entitled “Security Ownership of Certain Beneficial Owners and Management” in our Proxy Statement.    The information required regarding securities authorized for issuance under our equity compensation plans is incorporated herein by reference from the information contained in the section entitled “Equity Compensation Plan Information” in our Proxy Statement.    Item 13. Certain Relationships and Related Transactions, and Director Independence    The information required regarding related transactions is incorporated herein by reference from the information contained in our Proxy Statement.    Item 14. Principal Accounting Fees and Services    The information required by Part III, Item 14, regarding principal accounting fees and services is incorporated by reference from the information contained in 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.   55   Table of Contents   Part IV      Item 15. Exhibits, Financial Statements Schedules    (a)(1) The consolidated financial statements are listed on the Index to Consolidated Financial Statements to this report beginning on page F-1.    (a)(2) Financial Statement Schedules. Financial statement schedules have been omitted, as the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto appearing in this Form 10-K.    (a)(3)  Exhibits. See the Exhibit immediately following Item 16. Form 10-K Summary of this Form 10-K.    Item 16. Form 10-K Summary    None.   56   Table of Contents    EXHIBIT INDEX              Incorporated By Reference Number      Exhibit Description      Form      File No.      Exhibit      Filing Date 3.1   Amended and Restated Certificate of Incorporation of the registrant, as currently in effect   10-Q   001-36083   3.1   November 14, 2013                       3.2   Amended and Restated Bylaws of the registrant, as currently in effect   10-Q   001-36083   3.2   November 14, 2013                       4.1   Common Stock Specimen   8-K   001-36083   4.1   November 14, 2016                       4.2     Indenture,  dated as of March 5, 2019 between Applied Optoelectronics, Inc. and Wells Fargo Bank, National Association, as trustee, paying agent, and conversion agent   8-K   001-36083   4.1   March 5, 2019                       4.3   Form of Note representing the Company’s 5.00% Convertible Senior Notes due 2024  (included as Exhibit A to the Indenture)   8-K   001-36083   4.1   March 5, 2019                       4.4   Description of Company’s Common Stock   10-K   001-36083   4.4   February 28, 2020                       10.1   Form of Indemnification Agreement between the registrant each of its Directors and certain of its Executive Officers   S-1   333-190591   10.1   August 13, 2013                       10.2 † 2004 Incentive Share Plan   S-1   333-190591   10.4   August 13, 2013                       10.2.1 † Form of Stock Option Agreement under 2004 Incentive Share Plan   S-1   333-190591   10.4.1   August 13, 2013                       10.3 † 2006 Incentive Share Plan   S-1   333-190591   10.5   August 13, 2013                       10.3.1 † First Amendment to 2006 Incentive Share Plan   S-1/A   333-190591   10.5.1   August 27, 2013                       10.3.2 † Form of Stock Option Agreement under 2006 Incentive Share Plan   S-1   333-190591   10.5.2   August 13, 2013                       10.4 † Amended and Restated 2013 Equity Incentive Plan   10-K   001-36083   10.6   March 9, 2017                       10.4.1 † Form of Restricted Stock Award Agreement under 2013 Equity Incentive Plan   S-1   333-190591   10.6.1   August 13, 2013                       10.4.2 † Form of Restricted Stock Unit Award Agreement under 2013 Equity Incentive Plan   S-1   333-190591   10.6.2   August 13, 2013                       10.4.3 † Form of Stock Appreciation Right Award Agreement under 2013 Equity Incentive Plan   S-1   333-190591   10.6.3   August 13, 2013                       10.4.4 † Form of Notice of Stock Option Award and Stock Option Award Agreement under 2013 Equity Incentive Plan   S-1   333-190591   10.6.4   August 13, 2013                       10.5 † Employment Agreement regarding Change of Control or Separation of Service between the registrant and Chih-Hsiang (Thompson) Lin, dated January 28, 2007   S-1   333-190591   10.12   August 13, 2013                       10.5.1 † Amended and Restated Employment Agreement regarding Change of Control or Separation of Service between the registrant and Chih-Hsiang (Thompson) Lin, dated April 16, 2013   S-1   333-190591   10.12.1   August 13, 2013                       10. 6 † Employment Agreement, dated August 5, 2016, between Applied Optoelectronics, Inc. and Stefan J. Murry   10-Q/A   001-36083   10.20   August 9, 2016                       10.7 † Employment Agreement, dated August 5, 2016, between Applied Optoelectronics, Inc. and Mr. Joshua Yeh   10-Q/A   001-36083   10.21   August 9, 2016                       10.8 † Employment Agreement, dated August 5, 2016, between Applied Optoelectronics, Inc. and Dr. Fred Chang   10-Q/A   001-36083   10.22   August 9, 2016                       10.9 † Employment Agreement, dated August 5, 2016, between Applied Optoelectronics, Inc. and David C. Kuo   10-K   001-36083   10.9   February 28, 2018   57   Table of Contents               Incorporated By Reference   Number          Exhibit Description          Form          File No.          Exhibit          Filing Date   10.10   Loan Agreement, dated September 28, 2017, between Applied Optoelectronics, Inc. and Branch Banking and Trust Company    8-K   001-36083   10.1   October 4, 2017                       10.10.1   Promissory Note, dated September 28, 2017, between Applied Optoelectronics, Inc. and Branch Banking and Trust Company   8-K   001-36-83   10.2   October 4, 2017                       10.10.2   Addendum to the Promissory Note, dated September 28, 2017, between Applied Optoelectronics, Inc. and Branch Banking and Trust Company   8-K   001-36-83   10.3   October 4, 2017                       10.10.3   BB&T Security Agreement, dated September 28, 2017, between Applied Optoelectronics, Inc. and Branch Banking and Trust Company   8-K   001-36083   10.4   October 4, 2017                       10.10.4   Trademark Security Agreement, dated September 28, 2017, between Applied Optoelectronics, Inc. and Branch Banking and Trust Company   8-K   001-36083   10.5   October 4, 2017                       10.10.5   Patent Security Agreement, dated September 28, 2017, between Applied Optoelectronics, Inc. and Branch Banking and Trust Company   8-K   001-36083   10.6   October 4, 2017                       10.11   Supply Agreement, effective November 8, 2017, between Applied Optoelectronics, Inc. and Facebook, Inc.   8-K   001-36083   10.1   February 24, 2018                       10.12   Master Purchase Agreement, effective January 2, 2018, between Applied Optoelectronics, Inc. and Facebook, Inc.   8-K   001-36083   10.2   February 21, 2018                       10.13   Translation of Lease Agreement between Global Technology, Inc. and the People’s Republic of China in Zhejiang Province, Ningbo City, Land Resources Bureau   10-K   001-36083   10.30   February 28, 2018                       10.13.1   Translation of Investment and Construction Agreement between Global Technology, Inc. and the People’s Republic of China in Zhejiang Province, Ningbo City, Land Resources Bureau   10-K   001-36083   10.30.1   February 28, 2018                       10.14   Translation of Construction Agreement between Global Technology, Inc. and Zhejiang Xinyu Construction Group Co., Ltd. dated February 8, 2018   10-Q   001-36083   10.5   May 8, 2018                       10.15   First Amendment to Loan Agreement, dated March 30, 2018, between Applied Optoelectronics, Inc. and Branch Banking and Trust Company   8-K   001-36083   10.1   April 5, 2018                       10.15.1   Addendum to the Promissory Note ($60 million), dated March 30, 2018, between Applied Optoelectronics, Inc. and Branch Banking and Trust Company   8-K   001-36083   10.2   April 5, 2018                       10.15.2   Promissory Note ($26 million), dated March 30, 2018, between Applied Optoelectronics, Inc. and Branch Banking and Trust Company   8-K   001-36083   10.3   April 5, 2018                       10.15.3   Addendum to the Promissory Note ($26 million), dated March 30, 2018, between Applied Optoelectronics, Inc. and Branch Banking and Trust Company   8-K   001-36083   10.4   April 5, 2018                       10.15.4   Promissory Note ($21.5 million), dated March 30, 2018, between Applied Optoelectronics, Inc. and Branch Banking and Trust Company   8-K   001-36083   10.5   April 5, 2018   58   Table of Contents               Incorporated By Reference   Number          Exhibit Description          Form          File No.          Exhibit          Filing Date   10.15.5   Addendum to the Promissory Note ($21.5 million), dated March 30, 2018, between Applied Optoelectronics, Inc. and Branch Banking and Trust Company   8-K   001-36083   10.6   April 5, 2018                       10.15.6   Note Modification Agreement, dated March 30, 2018, between Applied Optoelectronics, Inc. and Branch Banking and Trust Company   8-K   001-36083   10.7   April 5, 2018                       10.15.7   Assignment of Lease and Rent, dated March 30, 2018, between Applied Optoelectronics, Inc. and Branch Banking and Trust Company   8-K   001-36083   10.8   April 5, 2018                       10.15.8   Texas Deed of Trust and Security Agreement, dated March 30, 2018, between Applied Optoelectronics, Inc. and Branch Banking and Trust Company   8-K   001-36083   10.9   April 5, 2018                       10.15.9   Environmental Certification and Indemnity Agreement, dated March 30, 2018, between Applied Optoelectronics, Inc. and Branch Banking and Trust Company   8-K   001-36083   10.10   April 5, 2018   59   Table of Contents               Incorporated By Reference   Number          Exhibit Description          Form          File No.          Exhibit          Filing Date   10.16   First Amendment to Lease, dated October 8, 2018, between Applied Optoelectronics, Inc. and GIG VAOI Breckinridge, LLC.   8-K   001-36083   10.1   October 12, 2018                       10.17   Translation of Purchase and Sale Contract, Finance Lease Agreement and Promissory Note, dated November 29, 2018, between Prime World International Holdings, Ltd., and Chailease Finance Co., Ltd.   8-K   001-36083   10.1   December 6, 2018                       10.18   Translation of Purchase and Sale Contract, Finance Lease Agreement and Promissory Note, dated January 21, 2019, between Prime World International Holdings, Ltd. and Chailease Finance Co., Ltd.   8-K   001-36083   10.1   January 25, 2019                       10.19   Second Amendment to Loan Agreement, dated February 1, 2019, between Applied Optoelectronics, Inc. and Branch Banking and Trust Company   8-K   001-36083   10.1   February 7, 2019                       10.20   Purchase Agreement, dated as of February 28, 2019 by and among Applied Optoelectronics, Inc., Raymond James & Associates, Inc. and Cowen and Company, LLC   8-K   001-36083   10.1   March 5, 2019                       10.20.1   Third Amendment to Loan Agreement, dated March 5, 2019, between Applied Optoelectronics, Inc. and Branch Banking and Trust Company   8-K   001-36083   10.2   March 5, 2019                       10.21   Translation of Approval Notice between, Prime World International Holdings, Ltd., and Far Eastern International Bank Co., Ltd., dated April 11, 2019   8-K   001-36083   10.1   April 17, 2019                       10.21.1   Translation of Comprehensive Credit Facilities Master Agreement between, Prime World International Holdings, Ltd., and Far Eastern International Bank Co., Ltd., dated April 11, 2019   8-K   001-36083   10.2   April 17, 2019                       10.21.2   Translation of Credit Terms / Financial Transaction Terms Agreement between, Prime World International Holdings, Ltd., and Far Eastern International Bank Co., Ltd., dated April 11, 2019   8-K   001-36083   10.3   April 17, 2019                       10.21.3   Translation of Promissory Note between, Prime World International Holdings, Ltd., and Far Eastern International Bank Co., Ltd., dated April 11, 2019   8-K   001-36083   10.4   April 17, 2019                       10.22   Translation of the Credit Granting Agreement, between Global Technology, Inc. and China Merchants Bank Co., Ltd., dated April 19, 2019   8-K   001-36083   10.1   April 25, 2019                       10.23   Translation of the Working Capital Loan Contract, between Global Technology, Inc. and Shanghai Pudong Development Bank Co., Ltd., dated April 30, 2019   8-K   001-36083   10.1   May 6, 2019                       10.24   Translation of the Working Capital Loan Contract (RMB 30,000,000), between Global Technology, Inc. and Shanghai Pudong Development Bank Co., Ltd., dated May 7, 2019   8-K   001-36083   10.1   May 13, 2019   10.24.1   Translation of the Working Capital Loan Contract (USD 2,000,000),between Global Technology, Inc. and Shanghai Pudong Development Bank Co., Ltd., dated May 8, 2019   8-K   001-36083   10.2   May 13, 2019                       10.25   Translation of the Financing Credit Line Agreement, dated May 24, 2019, between Global Technology, Inc. and Shanghai Pudong Development Bank Co., Ltd.   8-K   001-36083   10.1   May 31, 2019                       10.25.1   Translation of the Maximum Mortgage Contract (Security Agreement), dated May 24, 2019, between Global Technology, Inc. and Shanghai Pudong Development Bank Co., Ltd.   8-K   001-36083   10.2   May 31, 2019                       10.26   Translation of the Maximum Loan Contract (¥100M), dated June 21, 2019, between Global Technology, Inc. and China Zheshang Bank Co., Ltd   8-K   001-36083   10.1   June 27, 2019   60 Table of Contents   10.26.1   Translation of the Maximum Mortgage Contract (the “Real Estate Security Agreement”), dated June 21, 2019, between Global Technology, Inc. and China Zheshang Bank Co., Ltd   8-K   001-36083   10.2   June 27, 2019                       10.26.2   Translation of the Maximum Loan Contract (¥50M), dated June 21, 2019, between Global Technology, Inc. and China Zheshang Bank Co., Ltd   8-K   001-36083   10.3   June 27, 2019                       10.26.3   Translation of the Maximum Mortgage Contract (the “Machinery and Equipment Security Agreement”), dated June 21, 2019, between Global Technology, Inc. and China Zheshang Bank Co., Ltd   8-K   001-36083   10.4   June 27, 2019                       10.27   Translation of the Approval Notice of Credit Line, dated July 8, 2019, between Prime World International Holdings Ltd. and Taishin International Bank   10-Q   001-36083   10.11   August 8, 2019                       10.27.1   Translation of the General Agreement for Financial Transaction, dated July 23, 2019, between Prime World International Holdings Ltd. and Taishin International Bank   10-Q   001-36083   10.12   August 8, 2019                       10.27.2   Translation of the Credit Facility Agreement, dated July 23, 2019, between Prime World International Holdings Ltd. and Taishin International Bank   10-Q   001-36083   10.13   August 8, 2019                       10.27.3   Translation of the Promissory Note, dated July 23, 2019, between Prime World International Holdings Ltd. and Taishin International Bank   10-Q   001-36083   10.14   August 8, 2019                       10.28 ** Fourth Amendment to Loan Agreement, dated September 30, 2019, between Applied Optoelectronics, Inc. and Branch Banking and Trust Company   8-K   001-36083   10.1   October 4, 2019                       10.28.1   Note Modification Agreement, dated September 30, 2019, executed by Applied Optoelectronics, Inc.   8-K   001-36083   10.2   October 4, 2019                       10.28.2   Addendum To Promissory Note, dated September 30, 2019, executed by Applied Optoelectronics, Inc.   8-K   001-36083   10.3   October 4, 2019                       10.29   Second Amendment to Lease, dated November 11, 2019, between Applied Optoelectronics, Inc. and ROIB2 Breckinridge, LLC.   8-K   001-36083   10.1   November 18, 2019                       10.30   Paycheck Protection Program Loan Promissory Note, dated April 17, 2020, executed by Applied Optoelectronics, Inc.   8-K   001-36083   10.1   April 22, 2020                       10.31   Translation of Amendment to the Finance Lease Agreements, dated September 15, 2020, between Prime World International Holdings Ltd., and Chailease Finance Co., Ltd.   8-K   001-36083   10.1   September 18, 2020                       10.32   Translation of the Credit Facility Agreement, dated October 7, 2020, between Prime World International Holdings Ltd. and Taishin International Bank.   8-K   001-36083   10.1   October 13, 2020                       10.32.1   Translation of the Notice of Credit Line Approval, dated August 24, 2020.   8-K   001-36083   10.2   October 13, 2020                       10.33   Translation of the Credit Granting Agreement, between Global Technology Inc. and China Merchants Bank Co., Ltd., dated October 19, 2020.   8-K   001-36083   10.2   October 22, 2020                        23.1 * Consent of Grant Thornton LLP                                       24.1   Power of Attorney (see the signature page in this Annual Report on Form 10-K).                                       31.1 * Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.                                       31.2 * Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.                   61   Table of Contents               Incorporated By Reference   Number          Exhibit Description          Form          File No.          Exhibit          Filing Date                         32.1 * Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350 as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.                                       101.INS   Inline XBRL Instance Document                                       101.SCH   Inline XBRL Taxonomy Extension Schema Document                                       101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document                                       101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document                                       101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document                                       101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document                                       104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)                 *     Filed herewith. †     Management contract, compensatory plan or arrangement. **   Confidential Treatment has been granted for portions of this document.      62   Table of Contents   SIGNATURES       Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on February 25, 2021.       APPLIED OPTOELECTRONICS, INC.       By: /s/ Chih-Hsiang (Thompson) Lin     Chih-Hsiang (Thompson) Lin ,     President and Chief Executive Officer and     Chairman of the Board of Directors February 25, 2021         POWER OF ATTORNEY     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Chih-Hsiang (Thompson) Lin and Stefan J. Murry, and each of them, jointly and severally, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.     Pursuant to the requirements of the Securities and Exchange Act of 1934, this Form 10-K has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.     Signature Date     /s/ Chih-Hsiang (Thompson) Lin   CHIH-HSIANG (THOMPSON) LIN,   President, Chief Executive Officer and February 25, 2021 Chairman of the Board of Directors   (principal executive officer)       /s/ STEFAN J. MURRY   STEFAN J. MURRY,   Chief Financial Officer February 25, 2021 (principal financial officer and   principal accounting officer)       Signature Date     /s/ WILLIAM H. YEH   WILLIAM H. YEH, February 25, 2021 Director       /s/ RICHARD B. BLACK   RICHARD B. BLACK, February 25, 2021 Director       /s/ CHE-WEI LIN   CHE-WEI LIN, February 25, 2021 Director       /s/ ALEX IGNATIEV   ALEX IGNATIEV, February 25, 2021 Director       /s/ ELIZABETH LOBOA   ELIZABETH LOBOA, February 25, 2021 Director       /s/ MIN-CHU (MIKE) CHEN   MIN-CHU (MIKE) CHEN, February 25, 2021 Director         63   Table of Contents      INDEX TO CONSOLIDATED FINANCIAL STATEMENTS       Pages     Report of Independent Registered Public Accounting Firm F-2     Consolidated Balance Sheets F-4     Consolidated Statements of Operations F-5     Consolidated Statements of Comprehensive Income (Loss) F-6     Consolidated Statements of Stockholders’ Equity F-7     Consolidated Statements of Cash Flows F-8     Notes to Consolidated Financial Statements F-9       F-1   Table of Contents   REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM      Board of Directors and Shareholders Applied Optoelectronics, Inc.       Opinion on the financial statements We have audited the accompanying consolidated balance sheets of Applied Optoelectronics, Inc. (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”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of 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.   Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the 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;       F-2     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     We have served as the Company’s auditor since 2008.    Houston, Texas February 25, 2021       F-3   Table of Contents     Applied Optoelectronics, Inc. and Subsidiaries   CONSOLIDATED BALANCE SHEETS   (in thousands)          December 31,       2020     2019   ASSETS                 Current Assets                 Cash and cash equivalents   $ 43,425     $ 59,977   Restricted cash     6,689       7,051   Accounts receivable - trade, net of allowance of $ 62 and $ 30 , respectively     43,042       34,654   Notes receivable     401       1   Inventories     110,397       85,028   Prepaid income tax     2       224   Prepaid expenses and other current assets     5,213       5,869   Total current assets     209,169       192,804   Property, plant and equipment, net     252,984       248,444   Land use rights, net     5,854       5,598   Operating right of use asset     7,729       7,768   Financing right of use asset     88       119   Intangible assets, net     3,999       4,081   Deferred income tax assets     —       7,287   Other assets, net     982       724   TOTAL ASSETS   $ 480,805     $ 466,825   LIABILITIES AND STOCKHOLDERS' EQUITY                 Current liabilities                 Current portion of notes payable and long-term debt   $ 38,265     $ 33,371   Accounts payable     29,482       32,828   Bank acceptance payable     15,860       6,310   Current lease liability - operating     1,012       965   Current lease liability - financing     18       17   Accrued liabilities     18,511       17,864   Total current liabilities     103,148       91,355   Notes payable and long-term debt, less current portion     13,904       16,552   Convertible senior notes     77,854       77,041   Non-current lease liability - operating     7,926       7,983   Non-current lease liability - financing     82       100   TOTAL LIABILITIES     202,914       193,031   Stockholders' equity:                 Preferred Stock; 5,000 shares authorized at $ 0.001 par value; no shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively     —       —   Common Stock; 45,000 shares authorized at $ 0.001 par value; 25,110 and 20,104 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively     25       20   Additional paid-in capital     354,685       303,401   Accumulated other comprehensive income     11,690       430   Accumulated deficit     ( 88,509 )     ( 30,057 ) 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.   F-4   Table of Contents     Applied Optoelectronics, Inc. and Subsidiaries   CONSOLIDATED STATEMENTS OF OPERATIONS   (in thousands, except share and per share data)       Year ended December 31,       2020     2019     2018   Revenue, net   $ 234,623     $ 190,872     $ 267,465   Cost of goods sold     184,082       144,671       179,692   Gross profit     50,541       46,201       87,773   Operating expenses                         Research and development     43,393       43,399       49,903   Sales and marketing     14,087       10,060       9,141   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 )     ( 10,768 ) Other income (expense)                         Interest income     255       925       282   Interest expense     ( 5,635 )     ( 5,405 )     ( 1,106 ) Other income, net     2,998       1,840       1,814   Total other income (expense), net     ( 2,382 )     ( 2,640 )     990   Loss before income taxes     ( 51,224 )     ( 51,387 )     ( 9,778 ) Income tax benefit (expense)     ( 7,228 )     ( 14,662 )     7,632   Net loss   $ ( 58,452 )   $ ( 66,049 )   $ ( 2,146 ) Net loss per share                         Basic   $ ( 2.67 )   $ ( 3.31 )   $ ( 0.11 ) Diluted   $ ( 2.67 )   $ ( 3.31 )   $ ( 0.11 )                           Weighted average shares used to compute net loss per share:                         Basic     21,866,630       19,982,363       19,646,646   Diluted     21,866,630       19,982,363       19,646,646     The accompanying notes are an integral part of these consolidated financial statements.   F-5   Table of Contents     Applied Optoelectronics, Inc. and Subsidiaries   CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)   (in thousands)         Year ended December 31,       2020     2019     2018   Net loss   $ ( 58,452 )   $ ( 66,049 )   $ ( 2,146 ) Gain/(Loss) on foreign currency translation adjustment     11,260       ( 172 )     ( 9,141 ) Comprehensive loss   $ ( 47,192 )   $ ( 66,221 )   $ ( 11,287 )   The accompanying notes are an integral part of these consolidated financial statements.    F-6   Table of Contents     Applied Optoelectronics, Inc. and Subsidiaries   CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Years ended December 2019 and 2020 (in thousands)                                                 Accumulated     Retained               Preferred Stock     Common Stock     Additional     other     earnings/               Number             Number             paid-in     comprehensive     (Accumulated     Stockholders'       of shares     Amount     of shares     Amount     capital     gain (loss)     deficit)     equity   January 1, 2018     —     $ —       19,451     $ 19     $ 285,376     $ 9,743     $ 38,138     $ 333,276   Stock options exercised, net of shares withheld for employee tax     —       —       121       —       ( 2,073 )     —       —       ( 2,073 ) Issuance of restricted stock, net of shares withheld for employee tax     —       —       238       1       ( 1,943 )     —       —       ( 1,942 ) Share-based compensation     —       —       —       —       11,120       —       —       11,120   Cumulative effect of previously unrecognized tax benefits     —       —                     —       ( 9,141 )     —       ( 9,141 ) Net loss     —       —       —       —             —       ( 2,146 )     ( 2,146 ) December 31, 2018     —     $ —       19,810     $ 20     $ 292,480     $ 602     $ 35,992     $ 329,094   Stock options exercised, net of shares withheld for employee tax     —       —       3       —       14       —       —       14   Issuance of restricted stock, net of shares withheld for employee tax     —       —       327       —       ( 897 )     —       —       ( 897 ) Share-based compensation     —       —       —       —       11,804       —       —       11,804   Foreign currency translation adjustment     —       —       —       —       —       ( 172 )     —       ( 172 ) Net loss     —       —                     —             ( 66,049 )     ( 66,049 ) December 31, 2019     —     $ —       20,140     $ 20     $ 303,401     $ 430     $ ( 30,057 )   $ 273,794   Public offering of common stock, net     —       —       4,470       4       39,306       —       —       39,310   Stock options exercised, net of shares withheld for employee tax     —       —       3       —       30       —       —       30   Issuance of restricted stock, net of shares withheld for employee tax     —       —       497       1       ( 1,098 )     —       —       ( 1,097 ) Share-based compensation     —       —       —       —       13,046       —       —       13,046   Foreign currency translation adjustment     —       —       —       —       —       11,260       —       11,260   Net loss     —       —       —       —       —       —       ( 58,452 )     ( 58,452 ) December 31, 2020     —     $ —       25,110     $ 25     $ 354,685     $ 11,690     $ ( 88,509 )   $ 277,891     The accompanying notes are an integral part of these consolidated financial statements.    F-7   Table of Contents     Applied Optoelectronics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS   (in thousands)          Year ended December 31,       2020     2019     2018   Operating activities:                         Net loss   $ ( 58,452 )   $ ( 66,049 )   $ ( 2,146 ) Adjustments to reconcile net loss to net cash provided by operating activities:                         Allowance of bad debt     32       —       —   Lower of cost or market reserve adjustment to inventory     3,930       6,774       7,166   Depreciation and amortization     24,733       24,014       29,698   Amortization of debt issuance costs     900       892       42   Deferred income taxes, net     7,348       14,570       ( 8,964 ) Loss on disposal of assets     15       13       7   Share-based compensation     13,046       11,804       11,120   Unrealized foreign exchange gain (loss)     ( 1,152 )     ( 247 )     ( 548 ) Changes in operating assets and liabilities:                         Accounts receivable, trade     ( 8,421 )     ( 4,351 )     29,316   Notes receivable     ( 389 )     ( 4 )     —   Prepaid income tax     188       961       230   Inventories     ( 23,674 )     1,560       ( 28,403 ) Other current assets     1,220       5,514       ( 2,939 ) Operating right of use asset     407       847       —   Accounts payable     ( 3,347 )     3,150       ( 13,714 ) Accrued income taxes     1       —       ( 7,390 ) Accrued liabilities     44       ( 308 )     554   Lease liability     ( 438 )     ( 896 )     —   Net cash provided by (used in) by operating activities     ( 44,009 )     ( 1,754 )     14,029   Investing activities:                         Maturities of short-term investments     —       —       36   Purchase of property, plant and equipment     ( 15,795 )     ( 28,789 )     ( 71,854 ) Purchase of land use rights     —       —       ( 5,591 ) Proceeds from disposal of equipment     216       1       697   Deposits and prepaid for equipment     ( 3,279 )     ( 2,688 )     674   Purchase of intangible assets     ( 489 )     ( 640 )     ( 476 ) Net cash used in investing activities     ( 19,347 )     ( 32,116 )     ( 76,514 ) Financing activities:                         Proceeds from issuance of notes payable and long-term debt, net of debt issuance costs     6,229       13,661       47,849   Principal payments of long-term debt and notes payable     ( 5,233 )     ( 43,363 )     ( 3,133 ) Proceeds from line of credit borrowings     95,730       83,434       155,078   Repayments of line of credit borrowings     ( 96,006 )     ( 88,299 )     ( 165,569 ) Proceeds from bank acceptance payable     39,958       13,638       4,595   Repayments of bank acceptance payable     ( 31,338 )     ( 11,952 )     —   Proceeds from issuance of convertible senior notes, net of debt issuance costs     ( 18 )     76,362       —   Principal payments of financing lease     ( 17 )     (2 )         Exercise of stock options     13       14       120   Payments of tax withholding on behalf of employees related to share-based compensation     ( 1,080 )     ( 897 )     ( 4,137 ) 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 )     298       1,738   Net increase (decrease) in cash, cash equivalents and restricted cash     ( 16,914 )     9,024       ( 25,944 ) 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:                         Interest   $ 4,971     $ 3,172     $ 848   Income taxes     ( 364 )     ( 890 )     8,470   Non-cash investing and financing activities:                         Net change in accounts payable related to property and equipment additions   $ ( 2,326 )   $ 3,869     $ ( 1,151 ) Net change in deposits and prepaid for equipment related to property and equipment additions     ( 64 )     8,801       —     The accompanying notes are an integral part of these consolidated financial statements.   F-8   Table of Contents   Applied Optoelectronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        NOTE A—ORGANIZATION AND OPERATIONS    Applied Optoelectronics, Inc. (“AOI” or the “Company”) was incorporated in the State of Texas on February  28, 1997. In March 2013, the Company converted into a Delaware corporation. The Company is a leading, vertically integrated provider of fiber-optic networking products, primarily for four networking end-markets: internet data center, CATV, telecom and FTTH. The Company designs and manufactures a wide range of optical communications products at varying levels of integration, from components, subassemblies and modules to complete turn-key equipment.    The Company has manufacturing and research and development facilities located in the U.S., Taiwan and China. At its corporate headquarters and manufacturing facilities in Sugar Land, Texas, the Company primarily manufactures lasers and laser components and performs research and development activities for laser component and optical module products. The Company operates in Taipei, Taiwan and Ningbo, China through its wholly-owned subsidiary Prime World International Holdings, Ltd. (“Prime World”, incorporated in the British Virgin Islands). Prime World is the parent of Global Technology, Inc. (“Global”, incorporated in the People’s Republic of China).  Through Global, the Company primarily manufactures certain of its data center transceiver products, including subassemblies and transceivers, as well as Cable TV Broadband (“CATV”) systems and equipment, and performs research and development activities for the CATV products. Prime World also operates a branch in Taiwan, which primarily manufactures transceivers. The Company also has a research and development center in Duluth, Georgia.         NOTE B—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES    1. Basis of Presentation    The consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries and are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). All intercompany balances and transactions have been eliminated in consolidation.    2. Use of Estimates    The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates in the consolidated financial statements and accompanying notes. Significant estimates and assumptions that impact these financial statements relate to, among other things, allowance for doubtful accounts, inventory reserve, product warranty costs, share-based compensation expense, estimated useful lives of property and equipment, and taxes.    3. Foreign Currency Translation    The functional currency for the Company’s foreign operations is the local currency. The assets and liabilities of these operations are translated at the rate of exchange in effect on the balance sheet date and sales and expenses are translated at monthly average rates. The resulting gains or losses from translation are included in a separate component of other comprehensive income. There is no tax effect on the foreign currency translation because it is management’s intent to reinvest the undistributed earnings of its foreign subsidiaries indefinitely. Transaction gains and losses resulting from re-measuring monetary asset and liability accounts that are denominated in a currency other than a subsidiary’s functional currency are included in net foreign exchange gain and loss and are included in net income except for those intercompany balances that are long-term investments in nature. The translation gain or losses from the long-term investment nature of intercompany balances are treated as translation adjustments and included in comprehensive income.    4. Fair Value    The carrying value of cash, cash equivalents and short-term investments, accounts receivable, accounts payable, and note receivable approximate their historical fair values due to their short-term maturities. The carrying value of the debt approximates its fair value due to the short-term nature of the debt since it renews frequently at current interest rates. Management believes that the interest rates in effect at each year end represent the current market rates for similar borrowings.   F- 9   Table of Contents   The fair value measurement standard defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard characterizes inputs used in determining fair value according to a hierarchy that prioritized inputs based on the degree to which they are observable. The three levels of the fair value hierarchy are as follows:    Level  1—Inputs represent quoted prices in active markets for identical assets or liabilities.    Level  2—Inputs other than quoted prices included within Level  1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.    Level  3—Inputs that are not observable from objective sources, such as management’s internally developed assumptions used in pricing an asset or liability.    Assets and liabilities that are required to be fair valued on a recurring basis include money market funds, marketable securities, equity instruments and contingent consideration.    Money market funds are valued with Level  1 inputs, using quoted market prices, and are included in cash and cash equivalents on the Company’s consolidated balance sheets.    5. Cash and Cash Equivalents    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 $ 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, 2020 , approximately $ 38.7 million of U.S. deposits were not covered by FDIC insurance. The Company has not experienced any losses and believes it is not exposed to any significant risk with such accounts.    6. Restricted Cash/Compensating Balances    Restricted cash includes guarantee deposits for customs duties and compensating balances associated with credit facilities.    7. Accounts Receivable/Allowance for Doubtful Accounts    The Company carries its accounts receivable at the net amount that it estimates to be collectible. An allowance for uncollectable accounts is maintained through a charge against operations. The allowance is determined by management review of outstanding amounts per customer, historical payments and the aging of accounts.    8. Concentration of Credit Risk and Significant Customers    Financial instruments which potentially subject the Company to concentrations of credit risk include cash, cash equivalents and accounts receivable. The Company places all cash and cash equivalents with high-credit quality financial institutions.    The Company performs ongoing credit valuations of its customers’ financial condition whenever deemed necessary and generally does not require deposits or collateral to support customer receivables. The historical amount of losses on uncollectible accounts has been within the Company’s estimates. The Company generates much of its revenue from a limited number of customers. 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.  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, 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.     F- 10   Table of Contents   9. Inventories    Inventories are stated at the lower of cost (average-cost method) or market. Work in process and finished goods includes materials, labor and allocated overhead. The Company assesses the valuation of its inventory on a periodic basis and provides write-offs for the value of estimated excess and obsolete inventory based on estimates of future demand.    10. Property, Plant and Equipment    Property, plant and equipment are stated at cost, net of accumulated depreciation and amortization. The Company calculates depreciation using the straight-line method over the following estimated useful lives:        Useful lives (in years)             Buildings     20 - 42   Land improvements     10   Machinery and equipment     2 - 20   Furniture and fixtures     3 - 7   Computer equipment and software     3 - 10   Leasehold improvements     The shorter of the life of the applicable lease or the useful life of the improvement   Transportation equipment     5     Major improvements are capitalized and expenditures for maintenance and repairs are expensed as incurred. Construction in progress represents property, plant and equipment under construction or being installed. Costs include original cost, installation, construction and other direct costs which include interest on borrowings used to finance the asset. Construction in progress is transferred to the appropriate fixed asset account and depreciation commences when the asset has been substantially completed and placed in service.    Land use rights allow the Company rights for 50  years to certain land in Ningbo, China on which the Company built a facility that included office space, manufacturing operations and employee dormitories. The land use rights are recorded at cost and are amortized on the straight-line basis over the useful life of the related contract. The land use rights expire on October 7, 2054 and December 28, 2067.    11. Intangible Assets    Intangible assets consist of intellectual property that is stated at cost less accumulated amortization. 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. If such a determination is made, the intangible asset is impaired and the remaining value of the patent or trademark will be expensed at that time.    F- 11   Table of Contents   12. Impairment of Long-Lived Assets    The Company accounts for impairment of long-lived assets in accordance with Accounting Standards Codification (“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. In accordance with ASC  360, 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. Examples of such triggering events include a significant disposal of a portion of such assets, an adverse change in the market involving the business employing the related asset, a significant decrease in the benefits realized from an acquired business, difficulties or delays in integrating the business, and a significant change in the operations of an acquired business. If such 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 fair value, based on reasonable and supportable assumptions and projections, require subjective judgments. Depending on the assumptions and estimates used, the appraised fair value projected in the evaluation of long-lived assets can vary within a range of outcomes. The Company considers the likelihood of possible outcomes in determining the best estimate for the fair value of the assets. The Company did not record any asset impairment charges in 2020 , 2019 or 2018.   13. Comprehensive Income (Loss)    ASC  220, Comprehensive Income , (“ASC  220” ) establishes rules for reporting and display of comprehensive income and its components. ASC  220 requires that unrealized gains and losses on the Company’s foreign currency translation adjustments be included in comprehensive income (loss).    14. Share-based Compensation    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 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.    15. Revenue Recognition    The Company derives revenue from the manufacture and sale of fiber optic networking products. Revenue recognition follows the criteria of ASC  606, Revenue from Contracts with Customers . Specifically, the Company recognizes revenue when obligations under the terms of a contract with its customer are satisfied; generally this occurs with the transfer of control of products or services.   16. Product Warranty    The Company generally offers a one -year limited warranty for its products but it can extend for longer periods of three to five years for certain products sold to certain customers. The Company estimates the costs that may be incurred under its basic limited warranty and records a liability for the amount of such costs at the time when product defects occur. Factors that affect the Company’s warranty liability include the historical and anticipated rates of warranty claims and cost to repair. 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, 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,       2020     2019     2018   Beginning Balance, January 1   $ 821     $ 995     $ 1,118   Warranty costs incurred     ( 457 )     ( 1,261 )     ( 4,888 ) Provision for warranty     339       1,087       4,765   Ending Balance, December 31   $ 703     $ 821     $ 995     17. Advertising Costs    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.    F- 12   Table of Contents   18. Research and Development    Research and development costs are charged to operations as incurred. The Company receives reimbursement for certain development costs, which are capitalized when incurred, up to the reimbursable amount.   19. 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.   20. Income Taxes    The Company accounts for income taxes in accordance with the provisions of ASC 740, Income Taxes . The liability method is used to account for deferred income taxes. Under the liability method, deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The ability to realize deferred tax assets is evaluated annually and a valuation allowance is provided if it is unlikely that the deferred tax assets will not give rise to future benefits in the Company’s tax returns.    The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two -step process in which ( 1 ) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and ( 2 ) for those tax positions that meet the more-likely-than- not recognition threshold, it recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.    The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet.   21. 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  31, 2019, and 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.     22. Recent Accounting Pronouncements     Recent Accounting Pronouncements Adopted in 2020   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.    F- 13   Table of Contents    Recent Accounting Pronouncements Yet to be Adopted      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    Revenue from Contracts with Customers      On January 1, 2018, the Company adopted Topic 606 using the modified retrospective method. Under the modified retrospective method, the Company did not record a cumulative effect adjustment to retained earnings for initially applying the new guidance as no revenue recognition differences were identified in the timing or amount of revenue. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with its historic accounting under Revenue Recognition ("Topic 605" ).    The adoption of Topic 606 represents a change in accounting principle that will provide financial statement readers with enhanced revenue recognition disclosures. In accordance with Topic 606, revenue is recognized when obligations under the terms of a contract with its customer are satisfied; generally this occurs with the transfer of control of products or services. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or providing services. Certain customers may receive cash and/or non-cash incentives, which are accounted for as variable consideration. To achieve this core principle, the Company applies the following five steps:    1. Identify the contract with a customer      A contract with a customer exists when (i) the Company enters into an agreement with a customer that defines each party's rights regarding the products or services to be transferred and identifies the payment terms related to these products or services, (ii) both parties to the contract are committed to perform their respective obligations, (iii) the contract has commercial substance, and (iv) the Company determines that collection of substantially all consideration for products or services that are transferred is probable based on the customer's intent and ability to pay the promised consideration. The Company applies judgment in determining the customer's ability and intention to pay, which is based on a variety of factors including the customer's payment history or, in the case of a new customer, published credit and financial information pertaining to the customer.    F- 14   Table of Contents   2. Identify the performance obligations in the contract    Performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the product or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the products or services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised products or services, the Company must apply judgment to determine whether promised products or services are capable of being distinct and distinct in the context of the contract. If these criteria are not met, the promised products or services are accounted for as a combined performance obligation. The Company has elected to account for shipping and handling activities as a fulfillment cost as permitted by the standard.    3. Determine the transaction price    The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring products or services to the customer. To the extent the transaction price is variable, revenue is recognized at an amount equal to the consideration to which the Company expects to be entitled. This estimate includes customer sales incentives which are accounted for as a reduction to revenue and estimated using either the expected value method or the most likely amount method, depending on the nature of the program. The Company will adjust its consideration for any rebates if it is more likely than not that the rebate conditions will be met.    4. Allocate the transaction price to performance obligations in the contract    If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless a portion of the variable consideration related to the contract is allocated entirely to a performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately.    5. Recognize revenue when or as the Company satisfies a performance obligation      The Company generally satisfies performance obligations at a point in time. Revenue is recognized based on the transaction price at the time the related performance obligation is satisfied by transferring a promised product or service to a customer.    Disaggregation of Revenue      Revenue is classified based on the location of where the product is manufactured. For additional information on the disaggregated revenues by geographical region, see Note R, "Segments and Geographic Information.”   Revenue is also classified by major product category and is presented below (in thousands):        Years ended December 31,               % of             % of             % of       2020     Revenue     2019     Revenue     2018     Revenue   Data Center   $ 173,437       73.9 %   $ 143,562       75.2 %   $ 200,236       74.9 % CATV     37,944       16.2 %     37,328       19.6 %     51,699       19.3 % Telecom     21,092       9.0 %     8,429       4.4 %     13,159       4.9 % FTTH     110       0.0 %     190       0.1 %     818       0.3 % Other     2,040       0.9 %     1,363       0.7 %     1,553       0.6 % Total Revenue   $ 234,623       100.0 %   $ 190,872       100.0 %   $ 267,465       100.0 %        F- 15   Table of Contents     NOTE D—O perating Leases   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. The Company also leases certain machinery, office equipment and a vehicle under operating leases. Many of its leases include both lease (e.g. fixed payments including rent, taxes, and insurance costs) and non-lease components (e.g. common-area or other maintenance costs) which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases. 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-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. Based on the applicable lease terms and current economic environment, the Company applies a location approach for determining the incremental borrowing rate.   The Components of lease expense were as follows for the periods indicated (in thousands):       Year ended December 31,     Year ended December 31,       2020     2019   Operating lease expense   $ 1,206     $ 1,229   Financing lease expense     32       5   Short Term lease expense     130       111   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):       Operating     Financing   2021   $ 1,334     $ 22   2022     1,328       22   2023     1,243       65   2024     1,247       —   2025     1,273       —   2026 and thereafter     4,190       —   Total lease payments   $ 10,615     $ 109   Less imputed interest     ( 1,677 )     ( 9 ) Present value   $ 8,938     $ 100     The weighted average remaining lease term and discount rate for operating leases were as follows for the periods indicated:       December 31,     December 31,       2020     2019   Weighted Average Remaining Lease Term (Years) - operating leases     8.09       9.23   Weighted Average Remaining Lease Term (Years) - financing leases     2.83       3.83   Weighted Average Discount Rate - operating leases     3.23 %       3.13 %   Weighted Average Discount Rate - financing leases     5.00 %       5.00 %       Supplemental cash flow information related to operating leases was as follows for the periods indicated (in thousands):       Year ended December 31,     Year ended December 31,       2020     2019   Cash paid for amounts included in the measurement of lease liabilities                 Operating cash flows from operating leases     1,351       1,325   Operating cash flows from financing lease     5       8   Financing cash flows from financing lease     17       2   Right-of-use assets obtained in exchange for new operating lease liabilities     712       64   Right-of-use assets obtained in exchange for new finance lease liabilities     —       124             F- 16   Table of Contents     NOTE E—CASH, CASH EQUIVALENTS AND RESTRICTED CASH    The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the statement of financial position that sum to the total of the same such amounts in the statement of cash flows (in thousands):       December 31,     December 31,       2020     2019   Cash and cash equivalents   $ 43,425     $ 59,977   Restricted cash     6,689       7,051   Total cash, cash equivalents and restricted cash shown in the statement of cash flows   $ 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 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 loss per share for the periods indicated (in thousands):        Year ended December 31,       2020     2019     2018   Numerator:                         Net loss   $ ( 58,452 )   $ ( 66,049 )   $ ( 2,146 ) Denominator:                         Weighted average shares used to compute net loss per share                         Basic     21,867       19,982       19,647   Effect of dilutive options and restricted stock units     —       —       —   Diluted     21,867       19,982       19,647   Net loss per share                         Basic   $ ( 2.67 )   $ ( 3.31 )   $ ( 0.11 ) Diluted   $ ( 2.67 )   $ ( 3.31 )   $ ( 0.11 )     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,       2020     2019   Employee stock options     19       44   Restricted stock units     5       1   Shares for convertible senior notes     4,587       4,587   Total antidilutive shares     4,611       4,632        F- 17   Table of Contents       NOTE G—INVENTORIES    At December 31, 2020 and 2019 , inventories consisted of the following (in thousands):        As of December 31,       2020     2019   Raw materials   $ 25,555     $ 15,570   Work in process and sub-assemblies     52,544       50,787   Finished goods     32,298       18,671   Total inventory   $ 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    Property, plant and equipment consisted of the following for the periods indicated (in thousands):        December 31, 2020     December 31, 2019   Land improvements   $ 806     $ 806   Building and improvements     88,280       83,846   Machinery and equipment     253,738       237,464   Furniture and fixtures     5,540       5,105   Computer equipment and software     11,912       10,506   Transportation equipment     699       658         360,975       338,385   Less accumulated depreciation and amortization     ( 142,434 )     ( 116,979 )       218,541       221,406   Construction in progress     33,342       25,937   Land     1,101       1,101   Total property, plant and equipment, net   $ 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 .  The Company performed a recoverability test and concluded that future undiscounted cash flows exceed the carrying amount of the Company’s long-lived assets and therefore no impairment charge was recorded.       F- 18   Table of Contents     NOTE I—INTANGIBLE ASSETS    Intangible assets consisted of the following for the periods indicated (in thousands):        December 31, 2020       Gross     Accumulated     Intangible       Amount     amortization     assets, net   Patents   $ 8,158     $ ( 4,165 )   $ 3,993   Trademarks     21       ( 15 )   $ 6   Total intangible assets   $ 8,179     $ ( 4,180 )   $ 3,999         December 31, 2019       Gross     Accumulated     Intangible       Amount     amortization     assets, net   Patents   $ 7,638     $ ( 3,560 )   $ 4,078   Trademarks     17       ( 14 )     3   Total intangible assets   $ 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, 2020 , future amortization expense for intangible assets is estimated to be (in thousands):   2021   $ 579   2022     579   2023     579   2024     579   2025     579   thereafter     1,104       $ 3,999       NOTE J—FAIR VALUE OF FINANCIAL INSTRUMENTS    The following table presents a summary of the Company’s financial instruments measured at fair value on a recurring basis as of December 31, 2020 (in thousands):        Quoted prices     Significant                       in active     other                       markets for     observable     Significant               identical     remaining     unobservable               assets (Level 1)     inputs (Level 2)     inputs (Level 3)     Total   Assets:                                 Cash and cash equivalents   $ 43,425     $ —     $ —     $ 43,425   Restricted cash     6,689       —       —       6,689   Total assets   $ 50,114     $ —     $ —     $ 50,114   Liabilities:                                 Bank acceptance payable     —     $ 15,860       —     $ 15,860   Convertible senior notes     —       70,225       —       70,225   Total liabilities   $ —     $ 86,085     $ —     $ 86,085     F- 19   Table of Contents   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     Significant                       in active     other                       markets for     observable     Significant               identical     remaining     unobservable               assets (Level 1)     inputs (Level 2)     inputs (Level 3)     Total   Assets:                                 Cash and cash equivalents   $ 59,977     $ —     $ —     $ 59,977   Restricted cash     7,051       —       —       7,051   Total assets   $ 67,028     $ —     $ —     $ 67,028   Liabilities:                                 Bank acceptance payable     —     $ 6,310       —     $ 6,310   Convertible senior notes     —       77,191       —       77,191   Total liabilities   $ —     $ 83,501     $ —     $ 83,501       NOTE K—NOTES PAYABLE AND LONG-TERM DEBT    Notes payable and long-term debt consisted of the following for the periods indicated (in thousands):        December 31, 2020     December 31, 2019   Revolving line of credit with a U.S. 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     6,229       —   Revolving line of credit with a Taiwan bank up to $ 3,336 with 2.2 % interest, maturing October 16, 2020     —       3,336   Revolving line of credit with a Taiwan bank up to $ 3,436 with 2.2 % interest, maturing January 31, 2021     1,756       —   Notes payable to a finance company due in monthly installments with 3.5 % interest, maturing January 21, 2022     1,941       4,262   Notes payable to a finance company due in monthly installments with 3.1 % interest, maturing January 21, 2022     2,149       4,633   Revolving line of credit with a Taiwan bank up to $ 2,668 with interest of 1.7 %, maturing April 11, 2020     —       2,668   Revolving line of credit with a China bank up to $ 8,917 with interest ranging from 4.5 %, maturing October 15, 2021     2,299       —   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       7,919   Credit facility with a China bank up to $ 7,167 with interest of 5.7 %, maturing from June 20, 2022     7,510       7,167   Sub-total     52,187       49,985   Less debt issuance costs, net     ( 18 )     ( 62 ) Grand total     52,169       49,923   Less current portion     ( 38,265 )     ( 33,371 ) Non-current portion   $ 13,904     $ 16,552                     Bank Acceptance Notes Payable                 Bank acceptance notes issued to vendors with a zero percent interest rate   $ 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 .    F- 20   Table of Contents   Maturities of notes payable and long-term debt are as follows for the future years ending December  31 (in thousands):    2021   $ 38,265   2022     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”). The Credit Facility provides the Company with a three year, $ 50 million, revolving line of credit. Borrowings under the Credit Facility will be used for general corporate purposes. The Company makes monthly payments of accrued interest with the final monthly payment being for all principal and all accrued interest not yet paid. The Company’s obligations under the Credit Facility are secured by the Company’s accounts receivable, inventory, intellectual property, and all business assets with the exception of real estate and equipment. Borrowings under the Credit Facility bear interest at a rate equal to the one -month LIBOR plus 1.50 %. The Credit Facility requires the Company to maintain certain financial covenants and also contains representations and warranties, and events of default applicable to the Company that are customary for agreements of this type.     On March 30, 2018, the Company executed a First Amendment to Loan Agreement, a Note Modification Agreement and Addendum to Promissory Note for $60 million, a Promissory Note and Addendum to Promissory Note for $26 million, a Promissory Note and Addendum to Promissory Note for $21.5 million, a Texas Deed of Trust and Security Agreement, an Assignment of Lease and Rent, and an Environmental Certification and Indemnity Agreement, (collectively, the “Amended Credit Facility”), with BB&T. The Amended Credit Facility amends the Company’s three -year $50 million line of credit with BB&T, originally executed on September 28, 2017 ( the “Existing Loan”). The Amended Credit Facility ( 1 ) increases the principal amount of the three -year line of credit from $50 million to $ 60 million (the “Line of Credit”); ( 2 ) allows the Company to borrow an additional $ 26 million from BB&T in the form of a five -year capital expenditure loan (the “CapEx Loan”) and ( 3 ) allows the Company to borrow an additional $ 21.5 million in the form of a seventy -month real estate term loan (the “Term Loan”) to refinance the Company’s plant and facilities in Sugar Land, Texas. Borrowings under the Line of Credit bear interest at a rate equal to the one -month LIBOR plus a Line of Credit margin ranging between 1.40 % and 2.0 %. Borrowings under the CapEx Loan bear interest at a rate equal to the one -month LIBOR plus a CapEx Loan margin ranging between 1.30 % and 2.0 %. Borrowings under the Term Loan bear interest at a rate equal to the one -month LIBOR plus a Term Loan margin ranging between 1.15 % and 2.0 %. The Company is required to make monthly payments of principal and accrued interest with the final monthly payments being for all principal and accrued interest not yet paid. The Company’s obligations under the Amended Credit Facility are secured by the Company’s accounts receivable, inventory, equipment, intellectual property, real property, and virtually all business assets.      On February 1, 2019, the Company executed a Second Amendment to Loan Agreement (the "Second Amendment") with BB&T. The original loan agreement with BB&T, executed on September 28, 2017, and a first amendment to the original loan agreement, executed on March 30, 2018, provided the Company with a three -year $ 60 million line of credit; a $ 26 million five -year CapEx Loan and a $ 21.5 million seventy -month real estate term loan for the Company’s plant and facilities in Sugar Land, Texas. The Second Amendment extends the CapEx Loan draw-down date from March 30, 2019 to September 30, 2019, requires the Company to provide BB&T monthly financial statements and allows additional unfinanced capital expenditures.   On March  5, 2019, the Company executed a Third Amendment to Loan Agreement (the “Third Amendment”) with BB&T pursuant to which the Company has established a revolving credit line used for working capital purposes.  The Third Amendment, among other things: (i) contemplates the issuance of the Notes (as defined in Note L below) and the subsequent conversion of the Notes into common stock in accordance with the terms of the Indenture, including the payment of cash for any fractional shares; (ii) adjusts pricing of the unused line fee to 0.20 % per annum; (iii) reduces the maximum commitment under the line of credit from $60,000,000 to $25,000,000; and (iv) provides that, so long as the Company’s utilization of the revolving credit line is not greater than 60 % of the available commitment, the Company will not be required to comply with its financial covenants, including its fixed charge coverage ratio or funded debt to EBITDA covenant, and provided that, such restriction on utilization will not apply during the period of time commencing seven business days prior to the end of any fiscal quarter through seven business days after the subsequent fiscal quarter.   On March 5, 2019, the Company used approximately $ 37.8 million of the net proceeds from the offering of the Notes to fully repay the CapEx Loan and Term Loan with BB&T.   On September 30, 2019, the Company executed a Fourth Amendment to Loan Agreement (the “Fourth Amendment”) with BB&T. Under the terms of the Fourth Amendment (i) the maximum commitment under the line of credit was reduced from $25,000,000 to $20,000,000; (ii) the maturity date of the line of credit was extended from September 28, 2020 to April 2, 2021; ( iii) pricing of the unused line fee was adjusted to 0.30 % per annum; and (iv) the Covenant Threshold Amount test created in the Third Amendment was removed and replaced with the requirement that if, at any time during any reporting period and pursuant to the most recent loan base report received by BB&T, the principal balance outstanding under the line of credit exceeds the lesser of the approved maximum amount of the line of credit commitment amount or the collateral loan value reduced by the reserves, the Company shall immediately prepay the line of credit to the extent necessary to eliminate such excess. Such reserves shall, at any time that the fixed charge coverage ratio for the loan is less than 1.5 to 1.0, tested for the period of twelve months ended on the applicable covenant measurement date, equal to an amount equal to seventy-five percent ( 75 %) of the lesser of the line of credit commitment amount or collateral loan value reduced by the sum of (i) the principal balance outstanding under the line of credit, (ii) the letter of credit exposure reserve, and (iii) the availability reserve as determined by BB&T from the most recent loan base report and otherwise in the sole discretion of BB&T after consideration of collections.   As of December 31, 2020 , the Company was in compliance with all covenants under the Loan Agreement. As of December 31, 2020 , $ 18.7 million was outstanding under the Line of Credit.   F- 21   Table of Contents    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. (“Chailease”) in connection with certain equipment. Pursuant to the Sale Contract, Prime World sold certain equipment to Chailease for a purchase price of NT$267,340,468, or approximately $ 8.7 million. Simultaneously, Prime World financed the equipment back from Chailease for a term of three -years, pursuant to the Equipment Finance Agreement. Prime World is obligated to pay an initial payment of NT$67,340,468, or approximately $ 2.2 million, thereafter the monthly payments range from NT$5,571,229, or $ 0.2 million, to NT$6,139,188, or approximately $ 0.2 million. Based on the monthly payments made under the Equipment Finance Agreement, the annual interest rate is calculated to be 3.5 %. Upon an event of default under the Equipment Finance Agreement, Prime World’s payment obligation will be secured by a promissory note to Chailease in the amount of NT$210,601,605, or approximately $ 6.8 million, subject to certain terms and conditions. The title of the equipment will be transferred to Prime World upon expiration of the Equipment Finance Agreement. As of December 31, 2020 , $ 1.9 million was outstanding under the Equipment Finance Agreement.   On January 21, 2019, Prime World entered into a Second Purchase and Sale Contract (the “Second Sales Contract”), Promissory Note, and a second Equipment Finance Agreement with Chailease in connection with certain equipment. Pursuant to the Second Sales Contract, Prime World sold certain equipment to Chailease for a purchase price of NT$267,333,186, or approximately $ 8.7 million. Simultaneously, Prime World financed the equipment back from Chailease for a term of three -years, pursuant to the Second Equipment Finance Agreement. Prime World is obligated to pay an initial monthly payment of NT$67,333,186, or approximately $ 2.2 million, thereafter the monthly payments range from NT$5,570,167, or approximately $ 0.2 million to NT$6,082,131, or approximately $ 0.2 million. Based on the monthly payments made under the Second Equipment Finance Agreement, the annual interest rate is calculated to be 3.1 %. Upon an event of default under the Second Equipment Finance Agreement, Prime World’s payment obligation will be secured by a promissory note to Chailease at the amount of NT$209,555,736 or approximately $ 6.8 million, subject to certain terms and conditions. The title of the equipment will be transferred to Prime World upon expiration of the Second Equipment Finance Agreement. As of December 31, 2020 , $ 2.1 million was outstanding under the Second Equipment Finance Agreement.   ​ 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.    F- 22   Table of Contents   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. (“Far Eastern”). Prime World may draw upon the Far Eastern Credit Facility from April 11, 2019 until April 11, 2020. The term of each draw shall be up to 180 days. Under the Far Eastern Credit Facility borrowing in NT dollars will bear interest at a rate equal to Far Eastern’s published one -year fixed term time deposits rate, plus 0.655%; for all foreign currency borrowing, interest shall be the TAIFX3 rate for the length of time equal to the term of the loan or the next longer tenor for which rates are quoted, plus 0.7 %. As of the execution of the Far Eastern Credit Facility, Far Eastern’s published one -year fixed term time deposits rate and TAIFX3 rate are 1.045 % and 2.75 %, respectively. Prime World’s obligations under the Far Eastern Credit Facility will be secured by a promissory note executed between Prime World and Far Eastern. 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. 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; however, the amount of available credit under the China Merchants 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 China Merchants’ commercial banking interest rate effective on the day of the applicable draw. Global’s obligations under the China Merchants Credit Line are unsecured. 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. ("SPD"). Borrowing under the SPD ¥9.9M Credit Facility will be used for short-term working capital. Global may draw upon the SPD ¥9.9M Credit Facility from April 30, 2019 until May 9, 2019. Borrowing under the SPD ¥9.9M Credit Facility will mature on April 30, 2020 and will bear interest equal to SPD’s published twelve ( 12 ) month prime loan rate in effect on the date of the draw, plus 0.2475 %. Under the SPD ¥9.9M Credit Facility, Global will make monthly payments of accrued interest and the principal shall be repaid upon maturity. Global’s obligations under the SPD ¥9.9M Credit Facility are unsecured. The SPD ¥9.9M Credit Facility has been replaced by the SPD Credit Line on May 24, 2019.   On May 7, 2019, the Company’s China subsidiary, Global, entered into a one -year credit facility totaling 30,000,000 RMB, or approximately $ 4.5 million, (the “SPD ¥30M Credit Facility”), with SPD. Borrowing under the SPD ¥30M Credit Facility will be used to repay Global’s outstanding loans with China Construction Bank. Borrowing under the SPD ¥30M Credit Facility will mature on May 7, 2020 and will bear interest equal to the Bank’s published twelve ( 12 ) month prime loan rate in effect on the date of the draw, plus 0.2475 %. As of the execution of the Credit Facility agreement, the Bank’s published 12 months prime loan rate is 4.32 %. Under the SPD ¥30M Credit Facility, Global will make monthly payments of accrued interest; principal shall be repaid upon maturity. Global’s obligations under the SPD ¥30M Credit Facility are unsecured. The SPD ¥30M Credit Facility has been replaced by the SPD Credit Line on May 24, 2019.   F- 23   Table of Contents   On May 8, 2019, the Company’s China subsidiary, Global, entered into a six -month credit facility totaling 2,000,000 USD (the “$2M Credit Facility”) with SPD. Borrowing under the $2M Credit Facility will be used to repay Global’s outstanding loans with CCB and for general corporate purposes. Borrowing under the $2M Credit Facility will mature on November 7, 2019 and will bear interest equal to SPD’s published six ( 6 ) month LIBOR in effect on the date of the draw, plus 1.48 %. As of the execution of the $2M Credit Facility agreement, the SPD published 6 months LIBOR rate was 2.59438 %. Under the $2M Credit Facility, Global will make quarterly payments of accrued interest; principal shall be repaid upon maturity. Global’s obligations under the $2M Credit Facility are unsecured. The $2M Credit Facility has been replaced by the SPD Credit Line on May 24, 2019.   On May 24, 2019, the Company’s China subsidiary, Global, entered into a five -year revolving credit line agreement, totaling 180,000,000 RMB (the “SPD Credit Line”), or approximately $ 25.4 million, and a mortgage security agreement (the “Security Agreement”), with SPD. Borrowing under the SPD Credit Line will be used for general corporate and capital investment purposes, including the issuance of bank acceptance notes to Global’s vendors. The total SPD Credit Line of 180 million RMB is inclusive of all credit facilities previously entered into with SPD including: a 30 million RMB credit facility entered into on May 7, 2019; and a 9.9 million RMB credit facility entered into on April 30, 2019.  Global may draw upon the SPD Credit Line on an as-needed basis at any time during the 5 -year term; however, draws under the SPD Credit Line may become due and repayable to SPD at SPD’s discretion due to changes in Chinese government regulations and/or changes in Global’s financial and operational condition. Each draw will bear interest equal to SPD’s commercial banking interest rate effective on the day of the applicable draw. 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, 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.   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 CZB. Borrowing under the ¥100M Credit Facility will be used by Global for general corporate purposes. Global may draw upon the ¥100M Credit Facility from June 21, 2019 until January 4, 2021 ( the “¥100M Credit Period”). During the ¥100M Credit Period, Global may request to draw upon the ¥100M Credit Facility on an as-needed basis; however, draws under the ¥100M Credit Facility may become due and repayable to CZB at CZB’s discretion due to changes in Chinese government regulations and/or changes in Global’s financial and operational condition. 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 ¥100M Credit Facility will be secured by real property owned by Global and mortgaged to CZB under the terms of the Real Estate Security Agreement. As of December 31, 2020 , there was no outstanding balance under the ¥100M Credit Facility.   On June 21, 2019, the Company’s China subsidiary, Global, entered into a three -year credit facility totaling 50,000,000 RMB (the “¥50M Credit Facility”), or approximately $ 7.1 million, with China Zheshang Bank Co., Ltd., in Ningbo City, China (“CZB”). Borrowing under the ¥50M Credit Facility will be used by Global for general corporate purposes. Global may draw upon the ¥50M Credit Facility from June 21, 2019 until June 20, 2022 ( the “¥50M Credit Period”). During the ¥50M Credit Period, Global may request to draw upon the Credit Facility on an as-needed basis; however, draws under the ¥50M Credit Facility may become due and repayable to CZB at CZB’s discretion due to changes in Chinese government regulations and/or changes in Global’s financial and operational condition. 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, 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.   F- 24   Table of Contents     NOTE L—C onvertible Senior Notes   On March 5, 2019, the Company issued $ 80.5 million of 5 % convertible senior notes due 2024 (the “Notes”). The Notes were issued pursuant to an indenture, dated as of March  5, 2019 (the “Indenture”), between the Company and Wells Fargo Bank, National Association, as trustee, paying agent, and conversion agent (the “Trustee”). The Notes bear interest at a rate of 5.00% per year, payable in cash semi-annually in arrears on March  15 and September  15 of each year, beginning on September  15, 2019. The Notes will mature on March  15, 2024, unless earlier repurchased, redeemed or converted in accordance with their terms.   The sale of the Notes generated net proceeds of $ 76.4 million, after deducting the Initial Purchasers’ discounts and offering expenses payable by the Company. The Company used approximately $ 37.8 million of the net proceeds from the offering to fully repay the CapEx Loan and Term Loan with BB&T and the remainder will be used for general corporate purposes.   The following table presents the carrying value of the Notes for the periods indicated (in thousands):       December 31,       2020   Principal   $ 80,500   Unamortized debt issuance costs     ( 2,646 ) 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. Upon conversion, holders of the Notes will receive shares of the Company’s common stock, together, if applicable, with cash in lieu of any fractional share, at the then-applicable conversion rate. The initial conversion rate is 56.9801 shares of the Company’s common stock per $ 1,000 principal amount of Notes (representing an initial conversion price of approximately $ 17.55 per share of common stock, which represents an initial conversion premium of approximately 30 % above the closing price of $ 13.50 per share of the Company’s common stock on February  28, 2019 ), subject to customary adjustments. If a make-whole fundamental change (as defined in the Indenture) occurs, and in connection with certain other conversions before March  15, 2022, the Company will in certain circumstances increase the conversion rate for a specified period of time.   Initially there are no guarantors of the Notes, but the Notes will be fully and unconditionally guaranteed, on a senior, unsecured basis by certain of the Company’s future domestic subsidiaries.  The Notes are the Company’s senior, unsecured obligations and are equal in right of payment with existing and future senior, unsecured indebtedness, senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated to the Notes and effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness.  The Note Guarantee (as defined in the Indenture) of each future guarantor, if any, will be such guarantor’s senior, unsecured obligations and are equal in right of payment with existing and future senior, unsecured indebtedness, senior in right of payment to such future guarantor’s existing and future indebtedness that is expressly subordinated to the Notes and effectively subordinated to such future guarantor’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness.   Holders may require the Company to repurchase their Notes upon the occurrence of a fundamental change (as defined in the Indenture) at a cash purchase price equal to the principal amount thereof plus accrued and unpaid interest, if any.   The Company may not redeem the Notes prior to March  15, 2022.   On or after March  15, 2022, the Company may redeem for cash all or part of the Notes if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (ii) the trading day immediately before the date the Company sends such redemption notice.  The redemption price is equal to 100 % of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.  In addition, calling any Note for redemption will constitute a “make-whole fundamental change” with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted after it is called for redemption.   The Indenture contains covenants that limit the Company’s ability and the ability of our subsidiaries to, among other things: (i) incur or guarantee additional indebtedness or issue disqualified stock; and (ii) create or incur liens.   Pursuant to the guidance in ASC 815 - 40, Contracts in Entity’s Own Equity , the Company evaluated whether the conversion feature of the note needed to be bifurcated from the host instrument as a freestanding financial instrument. Under ASC 815 - 40, to qualify for equity classification (or non-bifurcation, if embedded) the instrument (or embedded feature) must be both ( 1 ) indexed to the issuer’s own stock and ( 2 ) meet the requirements of the equity classification guidance. Based upon the Company’s analysis, it was determined the conversion option is indexed to its own stock and also met all the criteria for equity classification contained in ASC 815 - 40 - 25 - 7 and 815 - 40 - 25 - 10. Accordingly, the conversion option is not required to be bifurcated from the host instrument as a freestanding financial instrument. Since the conversion feature meets the equity scope exception from derivative accounting, the Company then evaluated whether the conversion feature needed to be separately accounted for as an equity component under ASC 470 - 20, Debt with Conversion and Other Options .  The Company determined that notes should be accounted for in their entirety as a liability.   The Company incurred approximately $ 4.1 million in transaction costs in connection with the issuance of the Notes. These costs were recognized as a reduction of the carrying amount of the Notes utilizing the effective interest method and are being amortized over the term of the notes.   F- 25   Table of Contents   The following table sets forth interest expense information related to the Notes (in thousands):       Year ended December 31,       2020     2019   Contractual interest expense   $ 4,025     $ 3,276   Amortization of debt issuance costs     831       681   Total interest cost   $ 4,856     $ 3,957   Effective interest rate     5.1 %     5.1 %     NOTE M—ACCRUED LIABILITIES    Accrued liabilities consisted of the following for the periods indicated (in thousands):       December 31, 2020     December 31, 2019   Accrued payroll   $ 10,517     $ 11,009   Accrued employee benefits     3,057       2,288   Accrued state and local taxes     251       1,215   Accrued interest     1,256       1,208   Advance payments     303       312   Accrued product warranty     703       821   Accrued commission expenses     974       420   Accrued professional fees     377       222   Accrued shipping and tariff expenses     526       344   Accrued other     547       25   Total accrued liabilities   $ 18,511     $ 17,864       NOTE N—OTHER INCOME AND EXPENSE    Other income and expense consisted of the following for the periods indicated (in thousands):        Year ended December 31,       2020     2019     2018   Foreign exchange transaction gain   $ 1     $ 20     $ 663   Government subsidy income     2,708       1,614       934   Other non-operating gain     304       219       224   Loss on disposal of assets     ( 15 )     ( 13 )     ( 7 ) Total other income, net   $ 2,998     $ 1,840     $ 1,814       NOTE O—INCOME TAXES    The sources of the Company’s loss from operations before income taxes were as follows (in thousands):        Years ended December 31,       2020     2019     2018   Domestic   $ ( 20,288 )   $ ( 35,279 )     ( 11,444 ) Foreign     ( 30,936 )     ( 16,108 )     1,666   Total loss before income taxes   $ ( 51,224 )   $ ( 51,387 )     ( 9,778 )   F- 26   Table of Contents   The provision for income tax expense (benefit) for the years ended December 31, was as follows (in thousands):    Current:   2020     2019     2018   Federal   $ 41     $ —     $ —   State     2       16       80   Foreign     —       97       1,349   Total   $ 43     $ 113     $ 1,429   Deferred:                         Federal   $ ( 172 )   $ 16,375     $ ( 6,391 ) State     —       1,716       61   Foreign     7,357       ( 3,542 )     ( 2,731 ) Total   $ 7,185     $ 14,549     $ ( 9,061 )                           Income tax (benefit) expense   $ 7,228     $ 14,662     $ ( 7,632 )   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. At December  31, the net deferred tax assets and liabilities are comprised of the following approximate amounts (in thousands):       2020     2019   NOL carryforward   $ 31,526     $ 21,516   Inventory reserves     2,241       2,385   AMT credit     —       172   Unrealized gains and losses     59       96   Share-based compensation     618       528   Foreign tax credit     4,599       4,599   Research and development credits     9,008       8,264   Interest     1,784       888   ASC 842 Assets     1,671       1,641   Other     784       520   Deferred tax assets     52,290       40,609   Less valuation allowance     ( 43,462 )     ( 25,736 ) Deferred tax assets, net     8,828       14,873   Depreciation and amortization     ( 7,402 )     ( 6,180 ) ASC 842 Liabilities     ( 1,426 )     ( 1,406 ) Deferred tax liabilities     ( 8,828 )     ( 7,586 ) Deferred tax assets, net   $ —     $ 7,287     The Company has a U.S. 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. and state research and development tax credits of $ 9.0 million, which, if unused, expire between 2028 and 2040. In addition, the Company has foreign tax credits of $ 4.6 million, which, if unused, will expire in 2028. Utilization of U.S. 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  382.  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. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three -year period ended December 31, 2020 . 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, 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.   F- 27   Table of Contents   The following table shows the change in the deferred tax valuation as follows:       2020     2019     2018   Beginning Balance, January 1   $ 25,736     $ —     $ —   Change charged to expense/(income)     17,137       25,736       —   Change charged to currency translation adjustment     589       —       —   Ending Balance, December 31   $ 43,462     $ 25,736     $ —     A reconciliation of the U.S. 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):        2020     2019     2018   Expected taxes at statutory rate   $ ( 10,775 )   $ ( 10,791 )   $ ( 2,053 ) Non-deductible/non-taxable items     1,132       962       1,020   Foreign rate differences     1,153       590       ( 1,043 ) Foreign permanent differences     ( 1,002 )     ( 671 )     ( 1,067 ) Changes in valuation allowance     17,137       25,736       —   Share-based compensation     426       607       ( 1,325 ) Changes in tax rates     —       —       ( 103 ) Transition tax adjustment, net of foreign tax credits     —       —       ( 1,777 ) Research and development credits     ( 744 )     ( 1,616 )     ( 2,022 ) Alternative Minimum Tax     ( 172 )     —       —   Foreign other     12       27       514   Other, net     61       ( 182 )     224   Tax (benefit) expense   $ 7,228     $ 14,662     $ ( 7,632 )     The Company's provision for income taxes in 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.   The Company’s wholly owned subsidiary, Global Technology, Inc., has enjoyed preferential tax concessions in China as a national high-tech enterprise. In March 2007, China’s parliament enacted the PRC Enterprise Income Tax Law, or the EIT Law, under which, effective January  1, 2008, China adopted a uniform income tax rate of 25 % for all enterprises including foreign invested enterprises. Global Technology, Inc. was recognized as a National high-tech enterprise in 2008 and was entitled to a 15 % tax rate for a three year period from November 2008 to November 2011. In 2011, 2014, and 2017, Global Technology, Inc. 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, 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):        2020     2019     2018   Unrecognized tax benefits — January 1   $ 181     $ 181     $ 181   Gross increases — tax positions in prior period     —       —       —   Gross decreases — tax positions in prior period     —       —       —   Unrecognized tax benefits — December 31   $ 181     $ 181     $ 181     F- 28   Table of Contents   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  2020 as a result of net operating losses. During 2019 or 2018 , the Company also accrued no penalties or interest.    The Company is subject to taxation in the United States and various states and foreign jurisdictions. The Company’s open tax years subject to examination in the U.S. federal and state jurisdictions are 2017 through 2019. To the extent allowed by law, the taxing authorities may have the right to examine prior periods where net operating losses or tax credits were generated and carried forward, and make adjustments up to the amount of the net operating loss or tax credit carryforward. The Company is subject to examination for tax years 2010 forward for various foreign jurisdictions.   The U.S. Tax Act significantly changed how the U.S. taxes corporations. The U.S. Tax Act requires complex computations to be performed that were not previously required by U.S. tax law, significant judgments to be made in interpretation of the provisions of the U.S. Tax Act, significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced. The U.S. Treasury Department, the IRS, and other standard-setting bodies will continue to interpret or issue guidance on how provisions of the U.S. Tax Act will be applied or otherwise administered. 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.   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. cash needs.           F- 29   Table of Contents       NOTE P—SHARE-BASED COMPENSATION    Equity Plans                              The Company’s board of directors and stockholders approved the following equity plans:      ‑ the 1998 Share Incentive Plan     ‑ the 2000 Share Incentive Plan      ‑ the 2004 Share Incentive Plan      ‑ the 2006 Share Incentive Plan      ‑ the Amended and Restated 2013 Equity Incentive Plan ( “2013 Plan”)    The Company issued stock options, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) to employees, consultants and non-employee directors. Stock option awards generally vest over a four year period and have a maximum term of ten years. Stock options under these plans have been granted with an exercise price equal to the fair market value on the date of the grant. Nonqualified and Incentive Stock Options, RSAs and RSUs may be granted from these plans. Prior to the Company’s initial public offering in September 2013, the fair market value of the Company’s stock had been historically determined by the board of directors and from time to time with the assistance of third party valuation specialists.    Stock Options      Options have been granted to the Company’s employees under the five incentive plans and generally become exercisable as to 25 % of the shares on the first anniversary date following the date of grant and semi-annually thereafter. All options expire ten years after the date of grant.    The following is a summary of option activity (in thousands, except per share data):                        Weighted             Weighted                       Weighted     Average             Average                       Average     Share Price     Weighted     Remaining     Aggregate       Number of     Exercise     on Date of     Average     Contractual     Intrinsic       shares     Price     Exercise     Fair Value     Life     Value       (in thousands, except price data)   Outstanding, January 1, 2020     281     $ 5.32             $ 5.32       3.62     $ 573   Exercised     ( 5 )     6.00     $ 10.77       0.41               24   Forfeited     —       —               —               —   Outstanding, December 31, 2020     276       10.29               5.41       2.67       54   Exercisable, December 31, 2020     281       10.21               5.41       2.67       54   Vested and expected to vest     276       10.29               5.41       2.67       54     As of December 31, 2020 , there was no unrecognized stock option expense.    F- 30   Table of Contents   Restricted Stock Unit/Awards    The following is a summary of RSU/RSA activity (in thousands, except per share data):                Weighted                               Average Share     Weighted     Aggregate       Number of     Price on Date     Average Fair     Intrinsic       shares     of Release     Value     Value       (in thousands, except price data)   Outstanding at January 1, 2020     770             $ 25.18     $ 9,143   Granted     1,201               11.39       13,677   Released     ( 605 )   $ 20.83       20.83       6,911   Cancelled/Forfeited     ( 40 )             15.27       342   Outstanding, December 31, 2020     1,325               14.97       11,279   Vested and expected to vest     1,325               14.97       11,279     The aggregate intrinsic value of RSUs and RSAs outstanding at December 31, 2020 was $ 11.3 million. Unrecognized compensation expense related to these RSUs and RSAs at December 31, 2020 was $ 16.9 million. This expense is expected to be recognized over 2.35 years.    Share-Based Compensation      The Company recognizes compensation expense on a straight-line basis over the applicable vesting term of the award and expense is adjusted as forfeitures occur.    In 2014, the Company ceased issuing stock options and began issuing RSUs and RSAs as share-based compensation to employees. The Company estimates the fair value of RSUs and RSAs at the fair market value on the grant date.    Employee share-based compensation expenses recognized for the years ended December  31, were as follows (in thousands):    Share-Based compensation - by expense type:        2020     2019     2018   Cost of goods sold   $ 937     $ 772     $ 795   Research and development     2,812       2,557       2,419   Sales and marketing     1,191       1,070       925   General and administrative     8,106       7,405       6,981   Total share-based compensation expense   $ 13,046     $ 11,804     $ 11,120     Share-Based compensation - by award type:        2020     2019     2018   Employee stock options   $ —     $ —     $ 12   Restricted stock units     13,046       11,804       11,108   Total share-based compensation expense   $ 13,046     $ 11,804     $ 11,120     F- 31   Table of Contents     NOTE Q—STOCKHOLDERS’ EQUITY    Common Stock      The Company’s Amended and Restated Certificate of Incorporation authorizes the issuance of up to 45,000,000  shares of common stock, all of which have been designated voting common stock.    Preferred Stock      The Company’s Amended and Restated Certificate of Incorporation authorizes the issuance of up to 5,000,000  shares of preferred stock.    Public Offerings of Common Stock      On October 17, 2016, the Company filed a Registration Statement on Form S- 3 with the Securities and Exchange Commission effective November 1, 2016, 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. In connection with such Form S- 3, 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 $ 50.0 million (the “Second ATM Offering”) from time to time through Raymond James & Associates, Inc. On November 22, 2016, the Company commenced sales of common stock through the Second ATM Offering. 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. 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    The Company operates in one reportable segment. The Company’s Chief Executive Officer, who is considered to be the chief operating decision maker, manages the Company’s operations as a whole and reviews financial information presented on a consolidated basis, accompanied by information about product revenue, for purposes of evaluating financial performance and allocating resources.    The following tables set forth the Company’s revenue and asset information by geographic region. Revenue is classified based on the location of where the product is manufactured. Long-lived assets in the tables below comprise only property, plant, equipment and intangible assets (in thousands):         Year ended December 31,       2020     2019     2018   Revenues:                         United States   $ 18,380     $ 9,795     $ 10,795   Taiwan     131,076       97,776       113,547   China     85,167       83,301       143,123       $ 234,623     $ 190,872     $ 267,465         As of December 31,       2020     2019     2018   Long-lived assets:                         United States   $ 90,999     $ 94,507     $ 88,815   Taiwan     71,080       73,816       65,451   China     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.   F- 32   Table of Contents     NOTE S—EMPLOYEE BENEFIT PLANS    On August  1, 2000, the Company established a 401 (k) profit sharing plan covering employees meeting certain age and service requirements. 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 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. Under this program, pension costs are recorded on the basis of required monthly contributions to employees’ individual accounts during their service periods. 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 $ 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, $ 0.8  million, and $ 0.9 million for the years ended December 31, 2020, 2019 and 2018 , respectively.      NOTE T—COMMITMENTS AND CONTINGENCIES    Commitments      The Company conducts part of its operations from leased facilities and also leases equipment. 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,   Amount   2021   $ 1,356   2022     1,350   2023     1,308   2024     1,247   2025     1,273   thereafter     4,190       $ 10,724     Employment Agreements and Consultancy Agreements      The Company has entered into employment and indemnification agreements with three executive officers. These agreements provide that if their employment is terminated as a result of a change of control of the Company, or if their employment is terminated for certain other reasons set forth in the agreements, the Company will be required to pay a severance payment in an amount equal to their annual base salary, and other additional compensation due under the terms of the agreements.    The Company has also entered into employment and indemnification agreements with one other executive officer. 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.    F- 33   Table of Contents   Contingencies      From time to time, the Company may be subject to legal proceedings and litigation arising in the ordinary course of business, including, but not limited to, inquiries, investigations, audits and other regulatory proceedings, such as described below.  The Company records a loss provision when it believes it is both probable that a liability has been incurred and the amount can be reasonably estimated. Unless otherwise disclosed, the Company is unable to estimate the possible loss or range of loss for the legal proceeding described below.    Except for the lawsuits described below, the Company believes that there are no claims or actions pending or threatened against it, the ultimate disposition of which would have a material adverse effect on it.   Class Action and Shareholder Derivative Litigation   On August 5, 2017, a lawsuit was filed in the U.S. 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. Murry, et al. , Case No. 4:17 -cv- 02399. 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. 4:17 -cv- 02512 ) in the Southern District of Texas. The two cases were consolidated before Judge Vanessa D. Gilmore. 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. The amended complaint requests unspecified damages and other relief. The Company filed a motion to dismiss on April 4, 2018, which was denied on March 28, 2019.  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. Luthy, Roy H. Cetlin, and John Kugel (together with Lead Plaintiff Lawrence Rougier, “Plaintiffs”) to the case. The court granted the motion on May 16, 2019. The substantive allegations in the Plaintiffs’ operative second amended consolidated class action complaint remain unchanged. 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, 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 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. 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. , No. 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. , No. 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.        F- 34   Table of Contents     NOTE U—SUBSEQUENT EVENTS    The Company has evaluated subsequent events through the date the financial statements were issued.   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, 2020 and 2019 (in thousands, except per share data):       First     Second     Third     Fourth   Year ended December 31, 2020   Quarter     Quarter     Quarter     Quarter                                     Revenue   $ 40,467     $ 65,222     $ 76,608     $ 52,326   Cost of goods sold     34,129       51,486       57,418       41,049   Gross profit     6,338       13,736       19,190       11,277   Gross margin     15.7 %     21.1 %     25.0 %     21.6 %                                   Operating expenses:                                 Research and development     10,558       10,803       11,206       10,826   Sales and marketing     2,936       3,430       4,491       3,230   General and administrative     10,638       10,611       10,272       10,382   Total operating expenses     24,132       24,844       25,969       24,438                                     Loss from operations     ( 17,794 )     ( 11,108 )     ( 6,779 )     ( 13,161 ) Interest and other expense, net     ( 1,052 )     ( 468 )     ( 588 )     ( 274 ) Net loss before taxes     ( 18,846 )     ( 11,576 )     ( 7,367 )     ( 13,435 ) Income tax (expense) benefit     2,049       ( 7,024 )     ( 2,249 )     ( 4 ) Net loss   $ ( 16,797 )   $ ( 18,600 )   $ ( 9,616 )   $ ( 13,439 )                                   Net loss per share—basic   $ ( 0.83 )   $ ( 0.89 )   $ ( 0.42 )   $ ( 0.57 ) Net loss per share—diluted   $ ( 0.83 )   $ ( 0.89 )   $ ( 0.42 )   $ ( 0.57 )   F- 35   Table of Contents       First     Second     Third     Fourth   Year ended December 31, 2019   Quarter     Quarter     Quarter     Quarter                                     Revenue   $ 52,719     $ 43,411     $ 46,084     $ 48,658   Cost of goods sold     40,368       32,873       34,108       37,322   Gross profit     12,351       10,538       11,976       11,336   Gross margin     23.4 %     24.3 %     26.0 %     23.3 %                                   Operating expenses:                                 Research and development     11,185       11,151       10,466       10,597   Sales and marketing     2,595       2,331       2,518       2,615   General and administrative     10,440       10,884       9,988       10,178   Total operating expenses     24,220       24,366       22,972       23,390                                     Loss from operations     ( 11,869 )     ( 13,828 )     ( 10,996 )     ( 12,054 ) Interest and other income (expense), net     ( 1,079 )     ( 729 )     276       ( 1,109 ) Net loss before taxes     ( 12,948 )     ( 14,557 )     ( 10,720 )     ( 13,163 ) Income tax (expense) benefit     2,474       3,191       1,940       ( 22,267 ) Net loss   $ ( 10,474 )   $ ( 11,366 )   $ ( 8,780 )   $ ( 35,430 )                                   Net loss per share—basic   $ ( 0.53 )   $ ( 0.57 )   $ ( 0.44 )   $ ( 1.76 ) Net loss per share—diluted   $ ( 0.53 )   $ ( 0.57 )   $ ( 0.44 )   $ ( 1.76 )     F-36