What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2022-02-24 compared with 2021-02-25 · 148 added, 201 removed, 370 unchanged (49% of the section changed)

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As of February 20, 2021 there were 36 holders of record of our common stock (not including beneficial holders of our common stock holding in street name).

The graph below shows the cumulative total stockholder return of an investment of $100 (and the reinvestment of any dividends thereafter) on September 26, 2013 (the first trading day of our common stock) in (i) our common stock, (ii) the NASDAQ Composite Index and (iii) the NASDAQ Telecommunications Index.

Our stock price performance shown in the graph below is not indicative of future stock price performance.

The following graph and related information is being “furnished”

and shall not be deemed “soliciting material”

or be deemed to be “filed”

with the SEC, nor shall such information be incorporated by reference into any future filing, except to the extent that we specifically state that such graph and related information are incorporated by reference into such filing.

PERCENT CHANGE

For equity compensation plan information refer to Item 12 of this Form 10-K.

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Unregistered Sales of Equity Securities  

Not applicable.

Selected Financial Data

Not applicable.  

The selected consolidated financial data in this section is not intended to replace our consolidated financial statements and the related notes.

You should read this summary consolidated financial data together with the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”

and our audited consolidated financial statements and related notes, all included elsewhere in this Form 10-K.

We derived the consolidated statements of operations data for the years ended December 31, 2020, 2019 and 2018 and the consolidated balance sheet data as of December 31, 2020 and 2019 from our consolidated financial statements appearing elsewhere in this Form 10-K.

The consolidated statement of operations data for the years ended December 31, 2017 and 2016 and the consolidated balance sheet data as of December 31, 2018, 2017 and 2016 are derived from our audited consolidated financial statements that have previously been filed with the SEC.

Our historical results are not necessarily indicative of the results to be expected in the future and results of interim periods are not necessarily indicative of results for the entire year.

The following table sets forth our consolidated results of operations for the periods presented (in thousands, except share and per share data):

Years ended December 31,

Consolidated Statements of Operations Data:

Cost of goods sold (1)

Operating expenses:

Research and development (1)

Sales and marketing (1)

General and administrative (1)

Total operating expenses

Income (loss) from operations

Interest and other income (expense), net:

Interest income

Interest expense

Other income (expense), net

Total interest and other income (expense), net

Income (loss) before income taxes

Income tax (expense) benefit

Net income (loss) attributable to common stockholders

Net income (loss) per share attributable to common stockholders:

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

These expenses include share-based compensation expense.

Share-based compensation expense is accounted for at fair value, using the Black-Scholes option-pricing model for stock options and at the fair market value based on quoted market prices of the Company’s stock as of the grant date for restricted stock units and restricted stock awards.

Share-based compensation expense is recognized over the vesting period of the awards and was included in cost of goods sold and operating expenses as follows:

The following table provides share-based compensation expense for the periods presented (in thousands):  

Years ended December 31,

Cost of goods sold

Research and development

Sales and marketing

General and administrative

Total share-based compensation expense

The following table provides selected balance sheet data for the periods presented (in thousands):

As of December 31,

Consolidated balance sheet data:

Total cash, restricted cash, cash equivalents and short-term investments

Working capital (1)

Short-term obligations (2)

Long-term obligations (3)

Common stock and additional paid-in-capital

Total retained earnings (deficit)

Working capital is defined as total current assets less total current liabilities.

Short-term obligations are defined as short-term loans, operating and financing leases, notes payable and bank acceptance payable.

Long-term obligations are defined as long-term loans, operating and financing leases, notes payable and convertible senior notes.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Factors that could cause or contribute to such differences include, but are not limited to, those discussed in “Risk Factors.”

This section generally discusses the results of our operations for the year ended December 31, 2021 compared to the year ended December 31, 2020.

For a discussion of the year ended December 31, 2020 compared to the year ended December 31, 2019, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Result of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2020, as amended.

Overview  

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In the years ended December 31, 2021, 2020 and 2019 , we had net loss of $53.7 million, $58.5 million, and $66.0 million, respectively.

At December 31, 2020 and 2019, our accumulated deficit was $88.6 million and $30.1 million, respectively.

At December 31, 2021 and 2020 , our accumulated deficit was $142.2 million and $88.5 million, respectively.

In 2021 , we earned 46.1% of our total revenue from the internet data center market, and 44.6% of our total revenue from the CATV market.

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In 2021 , revenue from the internet data center market, CATV market, telecom market and FTTH markets provided 46.1%, 44.6%, 7.7%, and 0.5% of our revenue, respectively, compared to73.9%, 16.2%, 9.0%, and 0.0% of our 2020 revenue, respectively.

In 2020, our key customers in the data center market included, Microsoft Corp (Microsoft), Amazon.com (Amazon) and a multinational computer technology company.

In 2020, 2019, and 2018, Microsoft accounted for 38.3%, 32.2%, and 22.1% of our revenue, Amazon accounted for 11.5%, 24.0%, and 12.1% of our revenue, and the multinational computer technology company accounted for 8.0%, 0.4%, and 0.0% of our revenue, respectively.

In 2020, our key customers in the CATV market included Cisco Systems, Inc.

(Cisco), a global broadband access and media distributor, and CommScope.

In 2020, 2019 and 2018, Cisco accounted for 7.5%, 10.0%, and 9.9% of our revenue, respectively;

CommScope accounted for 2.1%, 3.7%, and 2.1% of our revenue, respectively.

The global broadband access and media distributor is a new customer in 2020, it accounted for 3.7% of our revenue in 2020. 

In 2020, our revenue increase of 22.9% over the prior-year was driven primarily by increased demand for our 100 Gbps transceivers in our data center market, and laser chips used in the manufacture of transceivers for 5G wireless communications in our telecom market.

The increase in 100 Gbps demand includes increased demand from several existing customers, along with new customer additions. 

We believe that some of this increase is related to increased demand for cloud-based services as a result of a shift to remote-working arrangements in the US and other areas, which in turn caused our customers to increase capacity in their data centers requiring more optical transceivers, especially 100 Gbps transceivers.

The increase in 5G-related sales came mainly from customers in China, as wireless operators in that country have begun to deploy advanced 5G mobile networks. The slight increase in revenue for our CATV products is due to increased demand from CATV MSOs as they began to add capacity to their networks. 

This increase in demand was at least partially attributable to network capacity expansion, particularly in the upstream direction, which is related to changes in network traffic due to increased working from home in the US earlier in the year.

In 2021 , our key customers in the data center market included, Microsoft, a US based large datacenter operator and a US based NEM company.

In 2021 , 

2020 , and 2019 , Microsoft accounted for 25.6%, 38.3%, and 32.2% of our revenue, the US based large datacenter operator accounted for 8.3%.

8.0%, and 0.4% of our revenue, and the US based NEM company accounted for 7.2%, 7.9% and 1.6% of our revenue, respectively.

In 2021 , our key customers in the CATV market included ATX, Cisco, and CommScope.

In 2021, 2020 and 2019 , ATX accounted for 25.6%, 3.7% and 0% of our revenue, Cisco accounted for 11.9%, 7.5%, and 10.0% of our revenue, and CommScope accounted for 3.3%, 2.1%, and 3.7% of our revenue, respectively. 

In 2021 , our revenue decrease of 9.8% over the prior-year was driven primarily by decreased demand for the datacenter products;

this slowdown was related to inventory normalization following the surge in demand that was driven by the shift to working from home in 2020.

We believe datacenter demand will improve in 2022.

The decreased demand for datacenter products was offset by increased demand for CATV products from several existing customers.

The increase in demand from CATV multiple-system operators ("MSOs") resulted in strong demand for our CATV products, especially those products that are related to architecture improvements to enable delivery of additional bandwidth to consumers. 

This increase in bandwidth demand is particularly acute in the upstream direction, and sales of products associated with increased return-path bandwidth were notably strong in the fourth quarter.

Based on forecasts and current order bookings, we believe that this CATV demand will likely continue through 2022. 

We expect continued sales of our 40 Gbps and 100 Gbps products in 2022, and we expect that sales of 100 Gbps products will likely exceed sales of 40 Gbps products.

However, quarter-to-quarter results may show considerable variability as is usual in a period of technology transition.  Similar to revenue, our gross margins can fluctuate materially depending on a variety of factors including average selling price changes, product mix, raw material cost reduction or increase, manufacturing utilization rate and changes in manufacturing efficiency. Furthermore, we are continuing to monitor and assess the effects of the coronavirus outbreak on our commercial and manufacturing operations, including any impact on our revenue in 2020.

However, quarter-to-quarter results may show considerable variability as is usual in a period of technology transition.  Similar to revenue, our gross margins can fluctuate materially depending on a variety of factors including average selling price changes, product mix, global supply chain situation, raw material cost reduction or increase, manufacturing utilization rate and changes in manufacturing efficiency. Furthermore, we are continuing to monitor and assess the effects of the coronavirus outbreak on our commercial and manufacturing operations, including any impact on our revenue in 2022.

Our sales model focuses on direct engagement and close coordination with our customers to determine product design, qualifications, performance and price.

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We are subject to risks and uncertainties as a result of the COVID-19 pandemic.

The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict as coronavirus continues to spread around the world.

The vaccine still has not become widely available to our workforce, and treatments are limited.

The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict as COVID-19 continues to spread around the world.

In March 2020, we instituted travel restrictions and implemented sanitation and disinfection procedures to safeguard the health and safety of our employees which continue today.

We have modified our workplace practices, which resulted in many employees working remotely.

Recently, we began allowing certain employee travel, but continue strict sanitation procedures in our facilities.

With increased vaccinations and the potential reduction of infections, we implemented procedures for a safe return to the office environment for all of our employees.

However, even with these precautions, it is not possible to eliminate the risk of a widespread outbreak among our employees and if such an outbreak were to occur, it would likely have a negative impact on our business, results of operations and our financial condition.

The spread of COVID-19 may still impact our supply chain operations through restrictions, reduced capacity and shutdown of business activities by suppliers whom we rely on for sourcing components and materials and third-party partners whom we rely on for manufacturing, warehousing and logistics services.

Although demand for our products has been strong in the short-term as subscribers seek more bandwidth, customers’

purchasing decisions over the long-term may be impacted by the pandemic and its impact on the economy, which could in turn impact our revenue and results of operations.

The extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity or results of operations is uncertain.

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Customer Concentration within End Markets.

Historically, our revenue has been significantly concentrated, first within the CATV market and now2020 within the internet data center market.

 Historically, our revenue has been significantly concentrated within the data center market, and for 2021  our revenue now tends to be split between data center market and CATV market.

Moreover, within these markets, revenue tends to be concentrated among a small number of customers.

In the last three years, we have taken several actions to increase the diversity of our customer base.

In the last couple years, we have taken several actions to increase the diversity of our customer base.

These actions include hiring additional sales staff to improve our ability to serve new customers and introduction of new products that we believe will appeal to new customers.

Furthermore, we have developed additional original design manufacturer, or ODM, relationships with customers in each of our target markets which should enable us to diversify our revenue base.

We had two and four customers that each accounted for more than 10% of our revenue in 2020 and 2019, respectively.

We had three and two customers that accounted for more than 10% of our revenue in 2021 and 2020 , respectively.

Product Development.

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dollars, but some sales from our Taiwan location and China-based subsidiary are denominated in NT dollars and RMB, respectively.

For the year ended December 31, 2020, 36.3% of our total revenue was manufactured at our China-based subsidiary, with $12.8 million denominated in RMB and 55.9% of our total revenue was from products manufactured at our Taiwan-based facility with no revenue denominated in NT dollars.

For the year ended December 31, 2021 , 46.2% of our total revenue was manufactured at our China-based subsidiary, with $16.6 million denominated in RMB and 46.9% of our total revenue was from products manufactured at our Taiwan-based facility with no revenue denominated in NT dollars.

We expect a similar portion of our sales to be denominated in foreign currencies in 2022.

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Interest expense consists of amounts paid for interest on our short-term and long-term debt borrowings, and convertible senior notes.

Other income (expense), net is primarily made up of government subsidizes income and foreign currency transaction gains and losses.

Other income (expense), net is primarily made up of government subsidized income, extinguishment of debt and foreign currency transaction gains and losses.

The functional currency of our China subsidiary is the RMB and the foreign currency transaction gains and losses of our China subsidiary primarily result from their transactions in U.S.

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Seasonality  

We believe that the demand for our CATV products is seasonal.

Historically, revenue derived from our CATV products has usually been highest in the second or third quarter and lowest in the first quarter of each year.

The first quarter of the year has historically been negatively affected by reduced economic activity due to the Lunar New Year holiday and the lower level of deployment of outdoor CATV equipment in cold weather environments.  

We are uncertain whether the demand for our internet data center, telecom and FTTH products is seasonal, as our sales data does not indicate a significant trend with respect to these products.

In 2017, we began to manufacture a meaningful quantity of internet data center products in our Ningbo, China factory.

We are uncertain whether the demand for our internet data center, CATV, telecom and FTTH products is seasonal, as our sales data does not indicate a significant trend with respect to these products.

We began to manufacture a meaningful quantity of internet data center and CATV products in our Ningbo, China factory in 2017 and 2020, respectively.

This factory experiences a lengthy shut-down associated with the Lunar New Year holiday which occurs in Q1 of each year.

In addition to the factory shut-down, it is also common for employees in the factory to fail to return to work following resumption of operations.

In the years 2020, 2019, and 2018, the percentage of employees in our China factory who resigned or were terminated during Q1, relative to the average number of employees during the quarter was 217%, 122%, and 90%, respectively.  

However, we believe that the turnover in 2020 was higher than usual due to the COVID-19 pandemic which caused travel restrictions, additional health check requirements, and a lengthy shutdown of operations in Ningbo. 

We believe that our employee turnover would likely have been lower in 2020 without these effects, but we cannot quantitatively estimate the turnover due to COVID-19. 

As a result of this employee turnover, we must hire and train replacement employees.

In the years 2021 , 

2020 , and 2019 , the percentage of employees in our China factory who resigned or were terminated during Q1, relative to the average number of employees during the quarter was 101%, 217%, and 122%, respectively.  

We believe that the turnover in 2020 was higher than usual due to the COVID-19 pandemic which caused travel restrictions, additional health check requirements, and a lengthy shutdown of operations in Ningbo. 

As a result of employee turnover, we must hire and train replacement employees.

These replacement employees require a period of training and improvement, and this impacts the quantity of products we can produce in the quarter.

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Net income (loss)

Comparison of Years Ended December 31, 2020 and 2019

Comparison of Years Ended 

December 31, 2021 and 2020

Revenue  

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We derive a significant portion of our revenue from our top ten customers, and we anticipate that we will continue to do so for the foreseeable future.

The following charts provide the revenue contribution from each of the markets we served for the years ended December 31, 2020 and 2019 (in thousands, except percentages):

The following charts provide the revenue contribution from each of the markets we served for the years ended 

December 31, 2021 and 2020 (in thousands, except percentages):

Years ended December 31,

Total Revenue

The increase in revenue for the year was driven primarily by increased demand for our 100 Gbps transceivers in our data center market, and laser chips used in the manufacture of transceivers for 5G wireless communications in our telecom market.

The increase in 100 Gbps demand includes increased demand from several existing customers, along with new customer additions. 

Towards the end of 2020, we saw a slow-down in orders from certain customers in our datacenter and telecom markets. 

We attribute the slowdown in datacenter business to absorption of previously-purchased inventory and in our telecom business to slow-down in the rate of deployment of new 5G mobile networks in China. 

We believe that both of these effects are temporary and we expect that they should be resolved in 2021.

The decrease in revenue for the year was driven primarily by decreased demand for the datacenter products;

this slowdown was related to inventory normalization following the surge in demand that was driven by the shift to working from home in 2020. We believe datacenter demand will improve in 2022.

The decreased demand for datacenter products was offset by increased demand for CATV products from several existing customers.

This increase in bandwidth demand is particularly acute in the upstream direction, and sales of products associated with increased return-path bandwidth were notably strong in the quarter.

Based on forecasts and current order bookings, we believe that this CATV demand will likely continue through 2022. 

In the years ended December 31, 2021 and 2020 , our top ten customers represented 84.7% and 84.3% of our revenue, respectively. We believe that diversifying our customer base is critical for our future success, since reliance on a small number of key customers makes our ability to forecast future results dependent upon the accuracy of the forecasts we receive from those key customers.

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Cost of goods sold

Cost of goods sold increased by $39.4 million, or 27.2%, from 2019 to 2020, primarily due to a 22.9% increase in sales over the prior year.

The decrease in gross margin for the year ended December 31, 2020 compared to the same period ended December 31, 2019 was primarily the result of changes in the mix of products within our datacenter segment.

In particular, we saw an increase in sales of certain lower-cost 100 Gbps transceivers, designed for shorter reaches within the datacenter, relative to sales of transceivers designed for longer reaches.

This product mix resulted in an overall reduction in gross margin.

Also contributing to the reduced gross margin was production inefficiencies, and higher costs of certain raw materials. 

Cost of goods sold decreased by $10.2 million, or 5.6%, from 

2020  to 2021 , primarily due to a 9.8% decrease in sales over the prior year.

The decrease in gross margin for the year ended December 31, 2021 compared to the same period ended 

December 31, 2020 was primarily the result of changes in the mix of datacenter and CATV products.

In particular, we saw an increase in sales of certain CATV products relative to sales of transceivers.

In addition, we experienced higher costs of certain raw materials and global supply chain disruptions due to COVID-19 closures of ports and factories in Asia (see the section above on the COVID-19 pandemic for more details of these challenges).

Operating expenses  

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Research and development expense  

Research and development expense was comparable between 2019 and 2020.

Research and development expense decreased $2.2 million, or 5.0% from 

2020  and 

Research and development costs consist of R&D work orders, R&D material usage and other project related costs related to 100 Gbps, 200/400 Gbps data center products, DOCSIS 3.1 capable CATV products, including remote-PHY products and 1.2 GHz-capable amplifier products, 

and other new product development, and depreciation expense resulting from R&D equipment investments.

and other new product development, and depreciation expense resulting from R&D equipment investments. These decreases were primarily due to decrease in personnel-related costs, and share-based compensation expense.

These decreases were partically offset by an increase in sale and use tax on R&D purchase.

Sales and marketing expense  

Sales and marketing expense increased by $4.0 million, or 40.0%, from 2019 to 2020.

These increases were primarily due to increase in commission expenses, duties and freight.

These increases were partially offset by a decrease in trade show expenses and travel-related costs as a result of the COVID-19 pandemic. 

As a result of the pandemic outbreak, the Company has modified many of its customary business practices by limiting employee travel including cancelling in-person participation in various meetings, events and conferences. 

Sales and marketing expense decreased by $3.2 million, or 22.6%, from 2020  to 2021 .

These decreases were primarily due to decrease in shipping and handling charges and tradeshow expense. 

General and administrative expense

General and administrative expense increased by $0.5 million, or 1.1%, from 2020  to 2021 .

These increases were primarily due to an increase in personnel-related costs, share-based compensation expense and insurance expense.

These increases were partially offset by a decrease in legal expenses, some of which were paid by our insurance carrier rather than the Company, as legal expenses related to the first of our shareholder class action lawsuits have exceeded the retention in our insurance contract. 

These increases were primarily due to an increase in depreciation expense and expenses related to winter storm Uri.

These increases were partially offset by a decrease in personnel-related costs and professional service fees. 

Other income (expense), net  

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The changes are similar to expected rates of fluctuation with the interest rates and cash balances.

Interest expense increased by $0.2 million, or 4.3% from 2019 to 2020 due to higher average debt balances during the year.

Other income increased by $1.2 million, or 62.9% from 2019 to 2020.This increases was primarily due to the receipt of government subsidies associated with COVID-19 pandemic in Taiwan. 

Interest expense was comparable between 

2020  and 

2021  due to comparable debt balances during the year.

Other income increased by $5.2 million, or 172.0% from 

2020  to 2021 .This increases was primarily due to approval by the SBA of the Company's PPP Loan forgiveness application for the entire PPP Loan balance of $6.23 million.

This increase was offset with less receipt of government subsidies.

In 2020, we received $1.4 million government subsidies associated with COVID-19 pandemic in Taiwan.  

Benefit (provision) for income taxes  

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Our effective tax rate is affected by recurring items, such as tax rates in state and foreign jurisdictions and the relative amounts of income we earn in those jurisdictions.

We recorded a tax expense of $7.2 million for the year ended December 31, 2020 as compared to $14.7 million for the year ended December 31, 2019.

The income tax expense in the year ended December 31, 2020 was primarily related to the change of the valuation allowance, deferred tax assets, and the recording of a valuation allowance on Taiwan and China deferred tax assets.

The income tax expense recorded in the year ended December 31, 2019 was primarily related to recognition of research and development credits, offset by the recognition of a valuation allowance on our US and state deferred tax assets, and due to excess tax benefits attributable to share-based compensation, and as well as the tax rates in foreign jurisdictions.

We recorded no federal tax expense for the year ended December 31, 2021 as compared to $7.2 million for the year ended December 31, 2020 .

The income tax expense in the year ended December 31, 2021 was primarily related to the state tax provision.

The income tax expense recorded in the year ended 

December 31, 2020 was primarily related to the change of the valuation allowance, deferred tax assets, and the recording of a valuation allowance on Taiwan and China deferred tax assets.

Comparison of Years Ended December 31, 2020 and 2019

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We derive a significant portion of our revenue from our top ten customers, and we anticipate that we will continue to do so for the foreseeable future.

The following charts provide the revenue contribution from each of the markets we served for the years ended December 31, 2019 and 2018 (in thousands, except percentages):

The following charts provide the revenue contribution from each of the markets we served for the years ended 

December 31, 2020 and 2019 (in thousands, except percentages):

Years ended December 31,

Total Revenue

The decrease in revenue for the year was driven primarily by decreased demand for our 40 Gbps and 100 Gbps transceivers.

The decrease in 100 Gbps demand was mostly from one major customer, while this decrease was partially offset by growth in 100 Gbps transceivers from another of our major customers.

We believe that the decrease in 40 Gbps transceiver sales is related to a broad industry trend of reducing 40 Gbps infrastructure in favor of 100 Gbps infrastructure.

The decrease in revenue in our CATV market for the year was mainly a result of reduced overall market demand for CATV outside plant products, which we attribute to reduced desire on the part of CATV MSOs to deploy capex to increase their network capacity.

The decrease in revenue in our telecom market was primarily attributable to decreased demand for certain of our legacy telecom products by our customers, partially offset by sales of newer-generation products such as those designed for 5G mobile networks.

In the years ended December 31, 2019 and 2018, our top ten customers represented 88.1%, and 92.9% of our revenue, respectively.

The increase in 100 Gbps demand includes increased demand from several existing customers, along with new customer additions. 

Towards the end of 2020, we saw a slow-down in orders from certain customers in our datacenter and telecom markets. 

We attribute the slowdown in datacenter business to absorption of previously-purchased inventory and in our telecom business to slow-down in the rate of deployment of new 5G mobile networks in China. 

We believe that both of these effects are temporary and we expect that they should be resolved in 2021.

In the years ended December 31, 2020 and 2019, our top ten customers represented 84.3%, and 88.1% of our revenue, respectively. We believe that diversifying our customer base is critical for our future success, since reliance on a small number of key customers makes our ability to forecast future results dependent upon the accuracy of the forecasts we receive from those key customers.

Cost of goods sold and gross margin  

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Cost of goods sold

Cost of goods sold decreased by $35.0 million, or 19.5%, from 2018 to 2019, primarily due to a 28.6% decrease in sales over the prior year.

The decrease in gross margin for the year ended December 31, 2019 compared to the same period ended December 31, 2018 was primarily the result of changes in the mix of products within our datacenter segment.

Cost of goods sold increased by $39.4 million, or 27.2%, from 2019 to 2020, primarily due to a 22.9% increase in sales over the prior year.

This product mix resulted in an overall reduction in gross margin.

Also contributing to the reduced gross margin was quality and testing costs that we incurred in the first part of the year.

Also contributing to the reduced gross margin was production inefficiencies, and higher costs of certain raw materials. 

Operating expenses  

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Research and development expense  

Research and development expense decreased by $6.5 million, or 13.0%, from 2018 to 2019.

Research and development costs consist of R&D work orders, R&D material usage and other project related costs related to 40 Gbps, 100 Gbps, and 200/400 Gbps data center products, DOCSIS 3.1 capable CATV products, including remote-PHY products, and other new product development, and depreciation expense resulting from R&D equipment investments.

Research and development costs decreased from 2018 to 2019 due mainly to decreases in costs from R&D work orders, depreciation expense related to R&D equipment, and materials and supplies used in R&D activities.

These decreases were offset by increases in personnel related costs.

Research and development expense was comparable between 2019 and 2020.

and other new product development, and depreciation expense resulting from R&D equipment investments.

Sales and marketing expense  

Sales and marketing expense increased by $4.0 million, or 40.0%, from 2019 to 2020.

This increase was due to increases in personnel costs, share-based compensation expenses, duties and freight, and trade show expenses.

These increases were primarily due to increase in commission expenses, duties and freight.

These increases were partially offset by a decrease in trade show expenses and travel-related costs as a result of the COVID-19 pandemic. 

General and administrative expense

General and administrative expense increased by $0.4 million, or 1.0%, from 2019 to 2020.

These increases were primarily due to an increase in share-based compensation expenses, depreciation expenses, insurance expenses and professional service fees, including legal expenses.

These increases were partially offset by a decrease in personnel related costs.

These increases were primarily due to an increase in personnel-related costs, share-based compensation expense and insurance expense.

Other income (expense), net  

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Total other income (expense), net

Interest income increased by $0.6

million, or 228.0% from 2018 to 2019 due to higher interest rates and larger cash balances during the year.

Interest expense increased by $4.3 million, or 388.7% from 2018 to 2019 due to higher debt balances, including convertible senior notes and higher interest rates during the year.

Other income increased slightly from 2018 to 2019.

This increase was primarily due to the receipt of government subsidies associated with our investments in new product development and for qualifying as a high-tech enterprise in China.

These increases were partially offset by the decrease in foreign currency transaction gains.

Interest income decreased by $0.6

million, or 72.4% from 2019 to 2020.

The changes are similar to expected rates of fluctuation with the interest rates and cash balances.

Interest expense increased by $0.2 million, or 4.3% from 2019 to 2020 due to higher average debt balances during the year.

Other income increased by $1.2 million, or 62.9% from 2019 to 2020.This increases was primarily due to the receipt of government subsidies associated with COVID-19 pandemic in Taiwan. 

Benefit (provision) for income taxes

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Benefit (provision) for income taxes

Our income tax expense (benefit) consisted of U.S.

income tax, state taxes, Taiwan and China income tax recorded during the periods.

Our effective tax rate was affected by recurring items, such as tax rates in state and foreign jurisdictions and the relative amounts of income we earned in those jurisdictions.

We recorded a tax expense of $14.7 million for the year ended December 31, 2019 as compared to the tax benefit of $ 7.6 million for the year ended December 31, 2018.

The income tax expense in the year ended December 31, 2019 was primarily related to the recognition of research and development credits, offset by the recognition a valuation allowance on our US and state deferred tax assets, and due to excess tax benefits attributable to share-based compensation, and as well as the tax rates in foreign jurisdictions.

The income tax benefit recorded in the year ended December 31, 2018 was primarily related to the impact of changes to tax law, offset by the recognition of excess tax benefits attributable to share-based compensation as well as the recognition of research and development credits.

Our income tax provision consists of U.S.

income tax, state taxes, and Taiwan and China income tax recorded during the periods.

Our effective tax rate is affected by recurring items, such as tax rates in state and foreign jurisdictions and the relative amounts of income we earn in those jurisdictions.

We recorded a tax expense of $7.2 million for the year ended December 31, 2020 as compared to $14.7 million for the year ended December 31, 2019.

Liquidity and Capital Resources

As of December 31, 2020, we had $28.6 million of unused borrowing capacity from all of our loan agreements.

As of December 31, 2021 , we had $7.4 million of unused borrowing capacity from all of our loan agreements.

As of December 31, 2021 , our cash, cash equivalents, restricted cash and short-term investments totaled $41.1 million.

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On October 24, 2019, we filed a Registration Statement on Form S-3 with the Securities and Exchange Commission, which was declared effective on January 9, 2020, providing for the public offer and sale of certain securities of the Company from time to time, at our discretion, up to an aggregate amount of $250 million. 

On February 28, 2020, we entered into an Equity Distribution Agreement (the “Agreement”) with Raymond James & Associates, Inc.

(the “Sales Agent”) pursuant to which the Company may issue and sell shares of the Company’s common stock, par value $0.001 per share (the “Shares”) having an aggregate offering price of up to $55 million from time to time through the Sales Agent. 

On February 28, 2020, we entered into an Equity Distribution Agreement with Raymond James & Associates, Inc.

(the “Sales Agent”) pursuant to which the Company may issue and sell shares of the Company’s common stock having an aggregate offering price of up to $55 million (the “Initial ATM Offering”), from time to time through the Sales Agent.

In January 2021, the Company completed its Initial ATM Offering and sold 5.9 million shares at a weighted average price of $9.12 per share, providing proceeds of $53.9 million, net of expenses and underwriting discounts and commissions.

On February 26, 2021, we entered into another Equity Distribution Agreement (the “Agreement”) with the Sales Agent pursuant to which the Company may issue and sell shares of the Company’s common stock, par value $0.001 per share (the “Shares”) having an aggregate offering price of up to $35 million (the “Second ATM Offering”), from time to time through the Sales Agent.

Upon delivery of a placement notice and subject to the terms and conditions of the Agreement, sales, if any, of the Shares will be made through the Sales Agent in transactions that are deemed to be “at the market”

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The Company agreed to indemnify the Sales Agent against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Sales Agent may be required to make because of any of those liabilities.

In March 2020, we commenced sales of common stock through an At-The-Market (ATM) Offering.

The details of the shares of common stock sold through the ATM Offering through December 31, 2020 are as follows (in thousands, except shares and weighted average per share price): 

In March 2021, we commenced sales of common stock through the Second ATM Offering.

The details of the shares of common stock sold through the Second ATM Offering through December 31, 2021 are as follows (in thousands, except shares and weighted average per share price): 

Distribution Agent

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Raymond James & Associates, Inc.

November 2020

Raymond James & Associates, Inc.

December 2020

As of December 31, 2020, the total gross sales were $40.3 million and thus remaining amount of common stock we have available to sell under the ATM Offering is $14.7 million.

The Company completed its ATM Offering in January 2021.

Also refer to Note U “Subsequent Event”

to the consolidated financial statements for further discussion of the Notes.

On March 5, 2019, the Company issued $80.5 million of 5% convertible senior notes due 2024, bearing interest at a rate of 5% per year maturing on March 15, 2024, unless earlier repurchased, redeemed or converted in accordance with their terms.

As of December 31, 2021, the total gross sales were $1.0 million and thus remaining amount of common stock we have available to sell under the Second ATM Offering is $34.0 million. 

On March 5, 2019, the Company issued $80.5 million of 5% convertible senior notes due 2024, bearing interest at a rate of 5% per year maturing on March 15, 2024 (the "Notes"), unless earlier repurchased, redeemed or converted in accordance with their terms.

The sale of the Notes generated net proceeds of $76.4 million, after expenses. Also refer to Note L “Convertible Senior Notes”

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Net increase (decrease) in cash

Operating activities  

In 2021, net cash used in operating activities was $11.6 million.

Net cash used in operating activities consisted of our net loss of $54.2 million, after the exclusion of non-cash items of $36.6 million, an increase in accounts and notes receivable from our customers of $14.6 million and a decrease in accrued liabilities of $3.1 million.

These cash decreases were offset by a decrease in inventory of $15.8 million and increase in accounts payable to our vendors of $7.1 million. 

In 2020, net cash used in operating activities was $44.0 million.

Net cash used in operating activities consisted of our net loss of $58.5 million, after the exclusion of non-cash items of $48.9 million, an increase in accounts receivable from our customers of $8.4 million and an increase in inventory of $23.7 million and decrease in accounts payable to our vendor of $3.3 million.

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These cash decreases were offset by a decrease in inventory of $1.6 million, an increase in accounts payable to our vendors of $3.2 million, a decrease in prepaid tax of $1.0 million and a decrease in other current assets of $5.5 million.

In 2018, net cash provided by operating activities was $14.0 million.

Net cash provided by operating activities consisted of our net loss of $2.1 million, after the exclusion of non-cash items of $38.5 million, an increase in accounts receivable from our customers of $29.3 million and an increase in accrued liabilities of $0.6 million.

These cash increase were offset by an increase in inventory of $28.4 million, a decrease in account payable to our vendors of $13.7 million, a decrease in accrued income tax

of $7.4 million and an increase in other current assets of $3.0 million.

Investing activities  

Our investing activities consisted primarily of capital expenditures and purchases of intangible assets.

In 2020, net cash used in investing activities was $19.3 million.

In 2021, net cash used in investing activities was $10.5 million.

The net cash used consisted of spending on purchase and prepaid of additional property, plant and equipment of $10.2 million.

In 2020, net cash used in investing activities was $19.3 million.

The net cash used consisted of spending on China factory construction, purchase and prepaid of additional property, plant and equipment of $19.1 million.

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The net cash used consisted of spending on China factory construction, purchase and prepaid of additional property, plant and equipment of $31.5 million.

In 2018, net cash used in investing activities was $76.5 million.

The net cash used consisted of spending on property, plant and equipment and land use rights of $77.4 million offset by sales proceeds from equipment of $0.7 million.

Financing activities  

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In 2021, our financing activities provided $14.1 million in cash.

This increase in cash was due to $39.2 million of net proceeds from our At The Market (ATM) Offering, $6.2 million proceeds from PPP term loan, and $3.4 million net proceeds from acceptances payable and long-term debt. 

This increase in cash was due to $15.4 million of net proceeds from our At-The-Market (ATM) Offering.

These activities were offset by $0.3 million net repayments to acceptances payable and bank debt, and $1.0 million related to tax withholding associated with employee share-based compensation. 

In 2020, our financing activities provided $47.4 million in cash.

This increase in cash was due to $39.2 million of net proceeds from our At-The-Market (ATM) Offering, $6.2 million proceeds from PPP term loan, and $3.4 million net proceeds from acceptances payable and bank debt. 

In 2019, our financing activities provided $42.6 million in cash.

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These activities were offset by $0.9 million related to tax withholding associated with employee share-based compensation.

In 2018, our financing activities provided $34.8 million in cash.

We received $38.8 million in net borrowings associated with our bank loans and bank acceptance notes.

These activities were offset by $4.1 million related to tax withholding associated with employee share-based compensation.

Loans and commitments  

We have lending arrangements with several financial institutions.

In the US, we have a revolving line of credit and a PPP Term Note with Truist Bank.

In the U.S., we have a revolving line of credit with Truist Bank.

The line of credit contains financial covenants that may limit the amount and types of debt that we may incur. As of December 31, 2021 , we were in compliance with these covenants. 

In Taiwan, we have a revolving credit facility with Taishin International Bank, and an equipment finance agreement with Chailease Finance Co., Ltd.

In Taiwan, we have an equipment finance agreement with Chailease Finance Co., Ltd.

for Prime World’s Taiwan Branch.

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for our China subsidiary, Global.

December 31, 2020, we had $28.6 million of unused borrowing capacity. 

December 31, 2021

, we had $7.4 million of unused borrowing capacity. 

On March 5, 2019, the Company issued $80.5 million of 5% convertible senior notes due 2024.

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We anticipate additional expenses for building improvements to the factory and we are in the process of evaluating the timing of these expenditures and obtaining bids for any such work. 

Based on forecasts, we believe the factory will be placed in service in the first half of 2022, property will be transferred from construction in progress to building and improvement at that time.

Future liquidity needs  

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There can be no guarantee that we will be able to raise additional funds on terms acceptable to us, or at all.

Contractual Obligations and Commitments  

The following summarizes our contractual obligations as of December 31, 2020 (in thousands):

Payments due by period

Notes payable and long-term debt (1)

Convertible senior notes (2)

Operating leases (3)

Financing leases (3)

Total commitments

We have several loan and security agreements in China, Taiwan and the U.S.

that provide various credit facilities, including lines of credit, bank acceptance payable and term loans.

The amount presented in the table represents the principal portion and estimated interest expense for the obligations.

We issued convertible senior notes due 2024.

The amount presented in the table represents the principal portion and estimated interest expense for the obligation.

We have entered into various non-cancellable lease agreements for our offices in Taiwan and in the U.S.

Contractual Obligations and Commitments

We have outstanding notes payable with varying maturities.

As of December 31, 2021, our notes payable had an aggregate amount of $54.7 million, with $49.7 million payable witin 12 months.

Further information regarding our note payable is provided in Note K Notes Payable and Long-Term Debt in the Notes to Consolidated Financial Statements in this Form 10-K.

We also have a fixed-rate convertible senior note.

As of December 31, 2021, our convertible senior note had an aggregate principle amount of $80.5 million and future interest payments associated with our senior notes totaled $10.1 million.

Further information regarding our convertible senior notes is provided in Note L –

Convertible Senior Notes in the Notes to Consolidated Financial Statements in this Form 10-K.

In addition, we have operating and financial lease for certain property and equipment with an expected term at the commencement date of more than 12 months.

As of December 31, 2021, the future minimum payments required under these leases totaled $9.3 million, with $1.3 million payable within 12 months.

Further information regarding our leases is provided in Note D –

Leases to Consolidated Financial Statements in this Form 10-K.

Inflation  

We believe that the relatively low rate of inflation in the U.S.

over the past few years has not had a significant impact on our sales or operating results or on the prices of raw materials.

To the extent we expand our operations in China and Taiwan, such actions may result in inflation having a more significant impact on our operating results in the future.

Off-Balance Sheet Arrangements  

During 2020, 2019 and 2018, we did not have any off-balance sheet arrangements that we believe have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that would be material to investors.

The annual inflation rate in the US and Taiwan accelerated more than 7% in 2021.

Cost inflation including increases in shipping costs, labor rates, and in costs of some raw materials;

we currently

believe these increases are related to the COVID-19 pandemic (please refer to our discussion on COVID-19 in the MD&A section of this Form 10-K), however we cannot be sure when or if prices will return to pre-pandemic levels.

There is no guarantee that we can increase selling prices or reduce costs to fully mitigate the effect of inflation on our costs, which may adversely impact our sales margins and profitability.

Compared to other major economies in the world, China has a stable level of inflation, which has not had a significant impact on our sales or operating results.

Critical Accounting Policies and Estimates

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We consider the likelihood of possible outcomes in determining the best estimate for the fair value of the assets.

We did not record any asset impairment charges in 2020, 2019 or 2018.

We did not record any asset impairment charges in 2021, 2020, and 2019.

Valuation of inventories

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We assess the valuation of our inventory on a periodic basis and provide an allowance for the value of estimated excess and obsolete inventory based on estimates of future demand.

During the years ended December 31, 2020, 2019 and 2018, we recorded excess and obsolete inventory reserve charges of $3.9 million, $6.8 million, and $7.2 million, respectively.

During the years ended December 31, 2021, 2020 and 2019 , we recorded excess and obsolete inventory reserve charges of $3.9 million, $3.9 million, and $6.8 million, respectively.

For the years December 2021, 2020 and 2019 , the direct inventory write-offs related to scrap, discontinued products and damaged inventories were $16.8 million, $20.4 million, and $13.4 million, respectively.

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We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine 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, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

On the basis of this evaluation, as of December 31, 2020, a valuation allowance of $10.6 million and $ 3.1 million has been recorded related to Taiwan and China deferred tax assets to recognize only the portion of the deferred tax assets that are more likely than not to be realized.

On the basis of this evaluation, as of December 31, 2021 , a valuation allowance of $57.7 million has been recorded related to deferred tax assets to recognize only the portion of the deferred tax assets that are more likely than not to be realized.

The amount of the deferred tax assets 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.

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

What changed 10-K

Item 5. Market for Registrant’s Common Equity