What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-02-24 compared with 2021-02-25 · 418 added, 561 removed, 1505 unchanged (39% of the section changed)

6 unchanged sentences

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, 2021 .

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.

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered in this Form 10-K, our disclosure controls and procedures were effective.

Management’s Annual Report on Internal Control over Financial Reporting.

16 unchanged sentences

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. 

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2021, 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, 2021, 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, 2021, and our report dated February 24, 2022 expressed an unqualified opinion on those financial statements.

19 unchanged sentences

Other Information

Disclosure Regarding Foreign Jurisdiction that Prevent Inspections

PART III  

8 unchanged sentences

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.

There were amendments to the Code or waivers granted thereunder relating to the Principal Executive Officer, Principal Financial Officer or Principal Accounting Officer during 2021 .

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.

The information required regarding the compensation of our directors and executive officers is incorporated herein by reference from the information in our Proxy Statement.

The information required regarding pay ratio disclosure is incorporated herein by reference from the information contained in our Proxy Statement.

The information required regarding our Compensation Committee and the Compensation Committee Report are incorporated by reference from the information contained in our Proxy Statement.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

5 unchanged sentences

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

The information required regarding the independence of our directors is incorporated herein by reference from the information contained in our Proxy Statement.

Principal Accounting Fees and Services

2 unchanged sentences

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)(1) The consolidated financial statements are listed on the Index to Consolidated Financial Statements to this Form 10-K beginning on page F-1.

(a)(2) Financial Statement Schedules.

31 unchanged sentences

August 13, 2013

Form of Stock Option Agreement under 2004 Incentive Share Plan

August 13, 2013

2006 Incentive Share Plan

August 13, 2013

First Amendment to 2006 Incentive Share Plan

12 unchanged sentences

August 13, 2013

Employment Agreement regarding Change of Control or Separation of Service between the registrant and Chih-Hsiang (Thompson) Lin, dated January 28, 2007

August 13, 2013

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

40 unchanged sentences

February 24, 2018

10.12

Master Purchase Agreement, effective January 2, 2018, between Applied Optoelectronics, Inc.

1 unchanged sentence

February 21, 2018

10.13

Translation of Lease Agreement between Global Technology, Inc.

141 unchanged sentences

October 22, 2020 

Translation of the Maximum Loan Co ntract, between Global Technology, Inc.

and China Zheshang Bank Co., Ltd, dated January 6, 2021.

January 11, 2021

Translation of the Maximum Mortgage Contract, between Global Technology, Inc.

and China Zheshang Bank Co., Ltd, dated January 6, 2021.

January 11, 2021

Fifth Amendment to Loan Agreement and Fourth Amendment to Security Agreement, dated April 5, 2021, between Applied Optoelectronics, Inc.

and Truist Bank (included as Exhibit 10.1 to the Registrants Current Report on Form 8-K filed with the Securities and Exchange Commission on April 9, 2021).

April 9, 2021

Note Modification Agreement, dated April 5, 2021, between Applied Optoelectronics, Inc.

and Truist Bank.

April 9, 2021

Addendum to Promissory Note, dated April 5, 2021, between Applied Optoelectronics, Inc.

and Truist Bank.

April 9, 2021

 †

2021 Stock Incentive Plan.

August 5, 2021

Form of Restricted Stock Unit Award Agreement under 2021 Equity Incentive Plan.

August 5, 2021

Form of Performance Restricted Stock Unit Award Agreement under 2021 Equity Incentive Plan.

August 5, 2021

Sixth Amendment to Loan Agreement and Fifth Amendment to Security Agreement, December 29, 2021, between Applied Optoelectronics, Inc.

and Truist Bank.

January 5, 2022

Note Modification Agreement, dated December 29, 2021, between Applied Optoelectronics, Inc.

and Truist Bank.

January 5, 2022

Addendum to Promissory Note, dated December 29, 2021, between Applied Optoelectronics, Inc.

and Truist Bank.

January 5, 2022

Consent of Grant Thornton LLP

54 unchanged sentences

February 24, 2022

/s/ ALEX IGNATIEV

ALEX IGNATIEV,

/s/ CYNTHIA (CINDY) DELANEY

CYNTHIA (CINDY) DELANEY,

February 24, 2022

6 unchanged sentences

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm  (PCAOB ID Number 248 )

Consolidated Balance Sheets

9 unchanged sentences

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

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

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of comprehensive income (loss), changes in shareholders’

equity, and cash flows for each of the three years in the period ended December 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, 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.

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 24, 2022 expressed an unqualified opinion.

Basis for opinion

28 unchanged sentences

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

Impairment of Long-Lived Assets

Impairment of Long-Lived Asset

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”).

7 unchanged sentences

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.

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.

2 unchanged sentences

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 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;

16 unchanged sentences

43,042  

Notes receivable  

92,516  

9 unchanged sentences

Land use rights, net

Operating right of use asset  

Financing right of use asset  

Operating right of use asset

Financing right of use asset

Intangible assets, net

Deferred income tax assets

Other assets, net

11 unchanged sentences

15,860  

Current lease liability - operating  

Current lease liability - financing  

Current lease liability - operating

Current lease liability - financing

Accrued liabilities

6 unchanged sentences

13,904  

16,552  

Convertible senior notes  

78,680  

77,854  

Non-current lease liability - operating  

Non-current lease liability - financing  

Non-current lease liability - operating

Non-current lease liability - financing

TOTAL LIABILITIES

13 unchanged sentences

16,071  

11,690  

Accumulated deficit

30 unchanged sentences

14,087  

10,060  

General and administrative

6 unchanged sentences

94,948  

Income (loss) from operations

Loss from operations

( 56,766 )  

8 unchanged sentences

( 2,382 )  

( 2,640 )  

Loss before income taxes

1 unchanged sentence

( 51,224 )  

Income tax benefit (expense)

( 7,228 )  

Income tax expense

( 7,228 )  

23 unchanged sentences

11,260  

( 172 )  

Comprehensive loss

11 unchanged sentences

January 1, 2019

19,451  

$ 285,376  

$ 9,743  

$ 38,138  

$ 333,276  

Stock options exercised, net of shares withheld for employee tax

( 2,073 )  

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

( 1,943 )  

Share-based compensation

11,120  

Cumulative effect of previously unrecognized tax benefits

( 9,141 )  

Net loss  

( 2,146 )  

Foreign currency translation adjustment

December 31, 2019

19,810  

$ 292,480  

$ 35,992  

$ 329,094  

Public offering of common stock, net

Stock options exercised, net of shares withheld for employee tax

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

( 897 )  

Share-based compensation

11,804  

Foreign currency translation adjustment

( 172 )  

( 66,049 )  

December 31, 2020

20,140  

$ 303,401  

$ ( 30,057 )  

$ 273,794  

Public offering of common stock, net

39,306  

39,310  

Stock options exercised, net of shares withheld for employee tax

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

( 1,098 )  

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

Share-based compensation

13,046  

Foreign currency translation adjustment

11,260  

( 58,452 )  

December 31, 2021

25,110  

$ 354,685  

$ 11,690  

$ ( 88,509 )  

$ 277,891  

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

8 unchanged sentences

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

11 unchanged sentences

11,804  

Unrealized foreign exchange gain (loss)

Interest for extinguishment of debt

( 70 )  

Extinguishment of debt

( 6,229 )  

Unrealized foreign exchange gain (loss)

( 1,152 )  

Changes in operating assets and liabilities:

2 unchanged sentences

( 8,421 )  

Notes receivable

( 7,585 )  

Notes receivable  

( 389 )  

1 unchanged sentence

15,786  

( 23,674 )  

Other current assets

2 unchanged sentences

( 3,347 )  

Accrued income taxes  

Accrued liabilities

( 3,092 )  

Lease liability  

( 438 )  

Lease liability

( 918 )  

Net cash provided by (used in) by operating activities

( 438 )  

Net cash used in by operating activities

( 11,644 )  

1 unchanged sentence

Investing activities:

Maturities of short-term investments

Purchase of property, plant and equipment

1 unchanged sentence

( 15,795 )  

Purchase of land use rights

Proceeds from disposal of equipment

11 unchanged sentences

13,661  

47,849  

Principal payments of long-term debt and notes payable

11 unchanged sentences

39,958  

13,638  

Repayments of bank acceptance payable

4 unchanged sentences

76,362  

Principal payments of financing lease  

( 18 )  

( 17 )  

Exercise of stock options

2 unchanged sentences

( 1,080 )  

Proceeds from common stock offering, net  

15,397  

39,203  

Net cash provided by financing activities

4 unchanged sentences

( 876 )  

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

( 999 )  

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

( 8,978 )  

( 16,914 )  

Cash, cash equivalents and restricted cash at beginning of period

16 unchanged sentences

$ ( 2,326 )  

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

$ 3,869  

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

( 64 )  

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

49 unchanged sentences

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

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

Cash in foreign accounts was approximately $ 17.3 million and $ 10.7  million at December 31, 2021 and 2020 , respectively.

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

17 unchanged sentences

In 2021, 2020 and 2019 , its top five customers represented 67.0 %, 73.3 %, and 80.7 % of its revenue, respectively.

In 2021 , ATX, Microsoft and Cisco represented 25.6 %, 14.1 % and 11.9 % 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.

 The five largest receivable balances for customers represented an aggregate of 70.6 % and 64.6 % of total accounts receivable at December 31, 2021 and 2020 , respectively.

As of December 31, 2021 , ATX, Microsoft and Cisco represented 41.7 %, 13.3% and 3.5 % of total accounts receivable, respectively.

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

23 unchanged sentences

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.

As of December 31, 2021 , the Company had 328 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.

36 unchanged sentences

Beginning Balance, January 1

$ 1,118  

Warranty costs incurred

7 unchanged sentences

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.

The Company receives reimbursement for certain development costs, which offset with expense up to the reimbursable amount.

Shipping and Handling Costs

9 unchanged sentences

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").

Tax Cuts and Jobs Act of 2017 (“the 2017 Act”) is the global intangible low-taxed income provisions ("GILTI").

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

Thus, for the fiscal years ended

December 31, 2020,

December 

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

Thus, for the fiscal years ended December 31, 2021, December 

31, 2020, and December 31, 2019, deferred taxes were computed without consideration of the possible future impact of the GILTI provisions, and any current year impact was recorded as a part of the current portion of income tax expense.

Recent Accounting Pronouncements

1 unchanged sentence

Recent Accounting Pronouncements Adopted in 2021

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

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

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

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

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

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

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

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

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

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

Simplifying the Accounting for Income Taxes”

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

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

Item 101 “Description of Business”

Item 103 “Legal Proceedings”

 and 

Item 105 “Risk Factors”

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

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

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

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

Recent Accounting Pronouncements Yet to be Adopted  

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

1 unchanged sentence

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.

The Company adopted this ASU on January 1, 2021, with no impact on its consolidated financial statements. 

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

2 unchanged sentences

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. 

The Company adopted this ASU on January 1, 2021, with no impact on its consolidated 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 

5 unchanged sentences

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

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

Recent Accounting Pronouncements Yet to be Adopted  

To date, there have been no recent accounting pronouncement not yet effective that have significance, or potential significance, to our Consolidated Financial Statements. 

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;

The Company derives revenue from the manufacture and sale of fiber optic networking products.

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.

45 unchanged sentences

$ 190,872  

NOTE D—O perating Leases

NOTE D— 

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

32 unchanged sentences

Weighted Average Discount Rate - operating leases

3.23 %  

3.13 %  

Weighted Average Discount Rate - financing leases

5.00 %  

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

6 unchanged sentences

Right-of-use assets obtained in exchange for new operating lease liabilities

Right-of-use assets obtained in exchange for new finance lease liabilities

NOTE E—CASH, CASH EQUIVALENTS AND RESTRICTED CASH

8 unchanged sentences

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 

As of December 31, 2021 and 2020 , there was $ 3.0  million and $ 4.9 million of restricted cash required for bank acceptance notes issued to vendors, respectively.

There was $ 2.4 million and $ 0.5 million certificate of deposit associated with credit facilities with a bank in China as of 

December 31, 2021 and 2020 respectively.

There was $ 1.0 million guarantee deposits for customs duties as of December 31, 2021 and December 31, 2020. 

NOTE F—EARNINGS PER SHARE

41 unchanged sentences

$ 110,397  

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 ended December 31, 2021, 2020 and 2019 , the lower of cost or market reserve adjustment expensed for inventory was $ 3.9 million, $ 3.9 million, and $ 6.8 million, respectively.

For the years December 31, 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.

27 unchanged sentences

$ 252,984  

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 ended December 31, 2021, 2020 and 2019 , depreciation expense of property, plant and equipment was $ 24.8 million, $ 24.2 million, and $ 23.5 million, respectively.

For the years 

23 unchanged sentences

For the years ended December 31, 2021, 2020 and 2019 , 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.

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

At December 31, 2021 , future amortization expense for intangible assets is estimated to be (in thousands):

10 unchanged sentences

Restricted cash

Note receivable

$ 41,136  

$ 8,148  

$ 49,284  

Bank acceptance payable

1 unchanged sentence

$ 8,198  

Convertible senior notes  

67,588  

13 unchanged sentences

Restricted cash

Note receivable

$ 50,114  

3 unchanged sentences

$ 15,860  

Convertible senior notes  

70,225  

8 unchanged sentences

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  

Revolving line of credit with a U.S.

bank up to $ 20,000 with interest at SOFR plus 1.56 % , maturing April 15, 2023

$ 14,373  

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

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

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

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

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

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

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

1 unchanged sentence

19,595  

11,603  

Credit facility with a China bank up to $ 14,125 with interest of 3.5 %, maturing January 1, 2024

13,044  

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

18 unchanged sentences

$ 49,689  

13,904  

Total outstanding

$ 54,689  

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.

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”).

September 28, 2017, 

the Company entered into a Loan Agreement (“Loan Agreement”), a Promissory Note, an Addendum to the Promissory Note, a Security Agreement, a Trademark Security Agreement, and a Patent Security Agreement (together the “Credit Facility”) with Truist Bank (which acquired Branch Banking and Trust Company or BB&T in connection with a merger in 

December 2019) .

September 30, 2019, 

the Company executed a Fourth Amendment to Loan Agreement (the “Fourth Amendment”) with Truist Bank.

Under the terms of the Fourth Amendment (i) the maximum commitment under the line of credit was reduced from $ 25,000,000  to 

 (ii) the maturity date of the line of credit was extended to 

April 2, 2021;

( iii) pricing of the unused line fee was adjusted to 

0.30 % per annum;

and (iv) the Fourth Amendment established the requirement that if, at any time during any reporting period and pursuant to the most recent loan base report received by Truist Bank, 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 Truist Bank from the most recent loan base report and otherwise in the sole discretion of Truist Bank after consideration of collections.

April 5, 2021, 

the Company executed a Fifth Amendment to the Loan Agreement (the "Fifth Amendment") and a Fourth Amendment to a Security Agreement, a Note Modification Agreement, and an Addendum to a Promissory Note (together with the Fifth Amendment, the “Fifth Amended Credit Facility”) with Truist Bank.

The Amended Credit Facility renews the $ 20  million line of credit with Truist Bank originally entered into on 

September 28, 2017. 

Under the terms of the Fifth Amended Credit Facility, the maturity date of the line of credit is extended from  

April 2, 2021 

October 15, 2022. 

Borrowings will bear interest at a rate equal to LIBOR plus 

1.5 %, with a LIBOR floor of 

On December 29, 2021, the Company executed a Sixth Amendment to the Loan Agreement (the "Sixth Amendment") and a Fifth Amendment to Security Agreement, a Note Modification Agreement, and an Addendum to Promissory Note (together the "Sixth Amended Credit Facility") with Truist Bank.

The Sixth Amended Credit Facility extends the $ 20 million line of credit, originally entered into on September 28, 2017, until April 15, 2023.

Borrowings will bear interest at a rate equal to the Secured Overnight Financing Rate (SOFR) plus 1.56%, with a SOFR floor of 0.75 %.

As of December 31, 2021 , the Company had $ 14.4 million outstanding and was in compliance with all covenants under the Sixth Amended Credit Facility.

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.

The PPP Term Note bears interest at a fixed annual rate of 

1.00%,  with the  

six  months of interest deferred.

Beginning in 

November 2020, 

the Company is required to make 

18  equal monthly payments of principal and interest with the final payment due in 

April 2022. 

The PPP Term Note 

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").

June 14, 2021, 

the Company received notification from Truist Bank that the SBA approved the Company's application for forgiveness of the entire principal amount of the PPP Term Note, plus all accrued interest.

The forgiveness of the PPP Term Note has been recognized as other income for the year ended 

December 31, 2021 .

September 15, 2020, 

Prime World entered into an Amendment to the Finance Lease Agreements dated 

November 29, 2018 

January 21, 2019 ( 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”).

The Amendment amends the Finance Lease Agreements, dated 

November 29, 2018 

January 21, 2019 ( hereafter collectively referred to as the “Original Finance Agreements”).

Pursuant to the Amendment, Prime World agrees to pay Chailease 

NT$22,311,381,  or approximately $ 0.8  million for certain leased equipment listed in the Amendment (the “Leased Equipment”).

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

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

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

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

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

(“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.

Regarding all other equipment contemplated in the Original Finance Agreements but 

not  listed in the Amendment, pursuant to the terms and conditions made under the Original Finance Agreements, 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 Finance Agreements but 

not  listed in the Amendment will transfer to Prime World upon completion of the lease payments and expiration of the Original Finance Agreements. As of December 31, 2021 , the Company has fully repaid the 

November 29, 2018 

Finance Lease Agreement, and the Company had $ 0.2 million outstanding under the 

January 21, 2019 

Finance Lease Agreement.

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 a $ 1  million USD credit line (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.

NT$100M  Credit Line and the 

US$1M  Credit Line are collectively referred to as the “Taishin Credit Facility”. On 

January 14, 2021, 

NT$100M  Credit Line with Taishin was extended for 

three  ( 3 ) months until 

April 14, 2021. 

Prime World 

draw upon the Taishin Credit Facility from 

October 7, 2020 

through 

April 14, 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.

Prime World’s obligations under the Taishin Credit Facility will be secured by a promissory note between Prime World and Taishin. As of December 31, 2021 , the Company has fully repaid 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”).

8 unchanged sentences

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.

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.

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.

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

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.

5 unchanged sentences

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.

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 mortgage security agreement.

As of December 31, 2021 , $ 19.6 million was outstanding under the SPD Credit Line and the outstanding balance of bank acceptance notes issued to vendors was $ 5.4 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.

June 21, 2019, 

the Company’s China subsidiary, Global, entered into an 

18  month credit facility totaling 

100,000,000  RMB (the 

“¥100M  Credit Facility”), or approximately $ 14.1  million, with China Zheshang Bank Co., Ltd., in Ningbo City, China (“CZB”).

Borrowing under the 

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

January 6, 2021, 

¥100M  Credit Facility with CZB was extended for 

three  ( 3

) years until 

January 5, 2024. 

draw upon the 

¥100M  Credit Facility from 

June 21, 2019 

January 5, 2024 ( the 

“¥100M  Credit Period”).

During the 

¥100M  Credit Period, Global 

request to draw upon the 

¥100M  Credit Facility on an as-needed basis;

however, draws under the 

¥100M  Credit Facility 

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.

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.

The agreements for the 

¥100M  Credit Facility and the Real Estate Security Agreement also contain rights and obligations, representations and warranties, and events of default applicable to the Company that are customary for agreements of this type. As of December 31, 2021 , $ 13.0 million was outstanding under the 

¥100M  Credit Facility and the outstanding balance of bank acceptance notes issued to vendors was $ 2.7 million.

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 CZB.

Borrowing under the 

¥50M  Credit Facility will be used by Global for general corporate purposes. Global 

draw upon the 

¥50M  Credit Facility from 

June 21, 2019 

June 20, 2022 ( the 

“¥50M  Credit Period”).

During the 

¥50M  Credit Period, Global 

request to draw upon the 

¥50M  Credit Facility on an as-needed basis;

however, draws under the 

¥50M  Credit Facility 

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, 2021 , $ 7.5  million was outstanding under the 

¥50M  Credit Facility. 

October 19, 2020, 

the Company’s China subsidiary, Global entered into a new 

twelve  ( 12 ) month revolving line of credit agreement, totaling 

60,000,000  RMB, or approximately $ 8.9  million (the “Replacement China Merchants Credit Line”), with China Merchants, to replace the original China Merchants Credit Line.

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

draw upon the Replacement China Merchants Credit Line during the period from 

October 16, 2020 

October 15, 2021. 

During such period, Global 

request to draw upon the Replacement China Merchants Credit Line on an as-needed basis;

however, the amount of available credit under the Replacement China Merchants Credit Line and the approval of each draw 

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.

Global’s obligations under the Replacement China Merchants Credit Line is unsecured. As of December 31, 2021 , there was 

no  outstanding amount under the Replacement China Merchants Credit Line and the outstanding balance of bank acceptance notes issued to vendors was $ 0.1 million.

As of December 31, 2021 and 2020 , the Company had $7.4 million and $ 28.7 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.

As of December 31, 2021 and 2020 , there was each $ 5.4 million restricted cash, investments or security deposit associated mainly with the loan facilities, respectively.

NOTE L—C onvertible Senior Notes

77 unchanged sentences

Other non-operating gain

Loss on disposal of assets

( 15 )  

Loan forgiveness

Gain (loss) on disposal of assets

( 15 )  

18 unchanged sentences

$ 14,549  

$ 7,185  

$ 14,549  

Income tax (benefit) expense

12 unchanged sentences

Research and development credits

ASC 842 Assets  

Deferred tax assets

1 unchanged sentence

52,290  

Less valuation allowance  

( 57,721 )  

Deferred tax assets, net  

10,099  

1 unchanged sentence

( 8,600 )  

ASC 842 Liabilities  

( 1,499 )  

2 unchanged sentences

Deferred tax assets, net

$ 7,287  

The Company has a U.S.

12 unchanged sentences

On the basis of this evaluation, as of December 31, 2021  and December 31, 2020, a valuation allowance of $ 57.7 million and $ 43.5 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.

During the years ended December 31, 2021 and 2020, the valuation allowance increased by $ 14.3 million and $ 17.7 million, respectively, primarily due to an increase in deferred tax assets with a full valuation allowance and recording a valuation allowance in certain jurisdictions. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.

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

1 unchanged sentence

$ 43,462  

$ 25,736  

Change charged to expense/(income)

1 unchanged sentence

17,137  

25,736  

Change charged to currency translation adjustment

2 unchanged sentences

$ 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):

federal income tax rate of 21 % for the years ended December 31, 2021, 2020 and 2019 , respectively, to the Company’s effective income tax rate follows (in thousands):

Expected taxes at statutory rate

1 unchanged sentence

$ ( 10,775 )  

PPP loan forgiveness

( 1,308 )  

Non-deductible/non-taxable items

6 unchanged sentences

17,137  

25,736  

Share-based compensation

Changes in tax rates

Transition tax adjustment, net of foreign tax credits  

Research and development credits  

( 872 )  

9 unchanged sentences

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.

primarily due to the change of the valuation allowance on the deferred tax assets.

The Company's provision for income taxes in 2020 was lower than 2019 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 wholly owned subsidiary, Prime World is a tax-exempt entity under the Income Tax Code of the British Virgin Islands.

10 unchanged sentences

This tax holiday reduced its 

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

2021, 2020 and 2019 income tax provision by approximately $ 0.0 million, $ 1.4 million, and $ 1.0 million, respectively.

This tax holiday reduced its fiscal 2021, 2020, and 2019 diluted earnings per share by approximately $0.00, $0.05, and $ 0.05 respectively.

25 unchanged sentences

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.

In response to the COVID- 19 pandemic, the CARES Act was signed into law on March 27, 2020.

The CARES Act, among other things, includes tax provisions relating to refundable payroll tax credits, deferment of employer social security payments, net operating loss utilization and carryback periods, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property (“QIP”).

On December 27, 2020, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 was enacted as part of the Consolidated Appropriations Act, 2021, followed by the American Rescue Plan Act on March 1, 2021.

These recent laws, among many other provisions, expand and extend the Paycheck Protection Program (“PPP”), refundable employee retention tax credits previously made available under the CARES Act and allow a full deduction for business meals for the 2021 and 2022 tax years.

During 2021, the Company recognized a tax benefit of $ 1.3 million on the non-taxable forgiveness of the PPP loan (see also Note K).

However, the legislation had no material impact to income tax expense on the Company’s financial statements as a result of our valuation allowance. 

As of December 31, 2021, the Company does not have any accumulated undistributed earnings generated by foreign subsidiaries.

The Company expects any earnings of foreign subsidiaries to be indefinitely invested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs. 

NOTE P—SHARE-BASED COMPENSATION

4 unchanged sentences

the 2006 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 2013 Equity Incentive Plan ( “2013 Plan”)

the 2021 Equity Incentive Plan ( “2021 Plan”)

The Company issued stock options, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) to employees, consultants and non-employee directors.

24 unchanged sentences

$ 11,279  

Granted  

16,016  

5 unchanged sentences

11,156  

Vested and expected to vest  

11,156  

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.

December 31, 2021 , there was $ 20.9 million of unrecognized compensation expense related to these RSUs and RSAs.

This expense is expected to be recognized over 

Performance Based Incentive Plan

June 2021 ,  the Company approved to grant performance stock units (“PSUs”) to senior executives as a part of our long-term equity compensation program.

The number of shares of common stock that will ultimately be issued to settle PSUs granted ranges from 

0 % to 

200 % of the number granted and is determined based on certain performance criteria over a 

three -year measurement period.

The performance criteria for the PSUs are based on a combination of the performance of our stock price and the Total Shareholder Return (“TSR”) for the performance period compared with the TSR of certain peer companies or index for the performance period.

PSUs granted vest 

100 % on the 

third  anniversary of their grant, assuming achievement of the applicable performance criteria.

We estimated the fair value of the PSUs using a Monte Carlo simulation model on the date of grant.

Compensation expense is recognized ratably over the explicit service period. 

Share-Based Compensation  

13 unchanged sentences

$ 11,804  

Share-Based compensation - by award type:

Employee stock options

Restricted stock units

13,046  

11,804  

11,108  

Total share-based compensation expense

$ 13,046  

$ 11,804  

$ 11,120  

NOTE Q—STOCKHOLDERS’

4 unchanged sentences

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.

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. 

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 “Initial ATM Offering”) from time to time through Raymond James & Associates, Inc.

The Company completed its Initial ATM Offering in January 2021 and sold 5.9 million shares of common stock 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, the Company entered into another 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 $ 35 million (the “Second ATM Offering”) from time to time through the Raymond James & Associates, Inc. As of December 31, 2021, the Company sold 0.1 million shares of common stock under the Second ATM Offering at a weighted average price of $ 9.08 per share, providing proceeds of $ 1.0 million, net of expenses and underwriting discounts and commissions.

NOTE R—SEGMENT AND GEOGRAPHIC INFORMATION

6 unchanged sentences

United States

$ 18,380  

$ 9,795  

$ 10,795  

131,076  

97,776  

113,547  

85,167  

83,301  

143,123  

$ 234,623  

$ 190,872  

$ 267,465  

As of December 31,

1 unchanged sentence

United States

$ 90,999  

$ 94,507  

$ 88,815  

71,080  

73,816  

65,451  

108,575  

97,687  

89,736  

$ 270,654  

$ 266,010  

$ 244,002  

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

Of the Company’s total revenues in 2021 , the Company earned $ 97.5 million, or 46.1 %, from the internet data center market, $ 94.3 million, or 44.6 %, from the CATV market, $ 16.2 million, or 7.7 %, from the telecom market and $ 1.0 million, or 0.5 %, from the FTTH market.

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

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

Of the Company’s total revenues in 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.

NOTE S—EMPLOYEE BENEFIT PLANS

2 unchanged sentences

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

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

The Company made contributions of $ 1.0 million, $ 0.8 million, and $ 0.8 million to the 401 (k) plan for each of the years ended December 31, 2021, 2020 and 2019 , respectively. 

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

4 unchanged sentences

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.

Pension expense for the Prime World’s Taiwan branch was $ 0.7 million, $ 0.8 million, and $ 0.8  million for the years ended December 31, 2021, 2020 and 2019 , respectively. 

NOTE T—COMMITMENTS AND CONTINGENCIES

1 unchanged sentence

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

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

Rent expense was $ 1.3 million, $ 1.4 million, and $ 1.3 million, respectively, for the years ended December 31, 2021, 2020 and 2019 , respectively.

At December 31, 2021 , 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):  

12 unchanged sentences

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.

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.

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.

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

August 7, 2018, 

a derivative lawsuit was filed in the United States District Court for the Southern District of Texas styled 

Lei Jin, derivatively on behalf of Applied Optoelectronics, Inc.

Chih-Hsiang ( “

Thompson ”

) Lin, Stefan J.

Murry, William H.

1 unchanged sentence

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

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

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

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

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 securities class action captioned 

Mona Abouzied v.

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

Murry, et al.

4:17 -cv- 02399,  which had been previously filed against the Company and was dismissed following a settlement in 

December 18, 2018, 

second  derivative complaint was filed styled 

Yiu Kwong Ng v.Chih-Hsiang ( “

Thompson ”

) Lin, Stefan J.

Murry, William H.

1 unchanged sentence

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

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

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

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

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

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

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

Defendants intend to file a motion to dismiss Plaintiffs’

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

Plaintiffs’

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

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

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 the Company had “identified an issue with a small percentage of 

25G  lasers within a specific customer environment.” 

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. 

December 2, 2020, 

Defendants filed their motion to dismiss the consolidated derivative complaint.

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 filed a motion to dismiss all claims on 

March 1, 2021.  

June 25, 2021, 

the parties filed a stipulation indicating that they had reached a settlement-in-principle of the action.

In the stipulation, the Company agreed to implement various corporate governance reforms as specified in the Settlement Agreement in addition to having its D&O insurance carrier make a payment to the Plaintiffs in exchange for a full dismissal of all claims and customary releases.

June 28, 2021, 

the Court stayed all deadlines in the action for 

30  days to allow the parties to finalize the settlement.

The deadline was extended to late 

August 30, 2021, 

the Plaintiffs filed an unopposed Motion for Preliminary Approval of the Settlement agreed to by the parties.

On November 2, 2021, the Court granted final approval of the settlement and closed the case.

The deadline to appeal has now passed with no party appealing final judgement.

This motion was granted on 

August 31, 2021 

and the Court set the Settlement Hearing date for 

November 4, 2021. 

The Company has complied with all requirements of the Settlement Agreement and the Settlement Hearing is on schedule to take place on 

November 4, 2021. 

The Company has agreed to implement various corporate governance reforms as specified in the Settlement Agreement in addition to having its D&O insurance carrier make a payment to the Plaintiffs in exchange for a full dismissal of all claims and customary releases.

Other Contingencies  

On August 9, 2021, the Company has received a Taxes Notification of Audit Result (“Notice”) from the Texas Comptroller’s Office (the “Comptroller”), for fiscal years between 2016 and 2019, informing the Company that the Comptroller believes the Company did not qualify for certain sales and use tax exemptions on various Research and Development purchases and accordingly the Company is liable for Sale and Use Tax in the amount of approximately $ 1.0 million including interest charges.

The Company paid $ 0.4 million for the tax notice but challenged the remaining tax assessments and vigorously defended its position. The Comptroller’s office has not made final assessments after the Company’s defenses.

However, the management estimated the additional tax assessment will be in the range of $ 0.2 million to $ 0.4 million including interest charges.

NOTE U—SUBSEQUENT EVENTS

1 unchanged sentence

In January 2022, the Company repaid its revolving bank line of credit of $ 14.4 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):

Year ended December 31, 2020

$ 40,467  

$ 65,222  

$ 76,608  

$ 52,326  

Cost of goods sold

34,129  

51,486  

57,418  

41,049  

13,736  

19,190  

11,277  

15.7 %  

21.1 %  

25.0 %  

Operating expenses:

Research and development  

10,558  

10,803  

11,206  

10,826  

Sales and marketing  

General and administrative  

10,638  

10,611  

10,272  

10,382  

Total operating expenses

24,132  

24,844  

25,969  

24,438  

Loss from operations

( 17,794 )  

( 11,108 )  

( 6,779 )  

Interest and other expense, net

( 1,052 )  

( 468 )  

( 588 )  

Net loss before taxes

( 18,846 )  

( 11,576 )  

( 7,367 )  

Income tax (expense) benefit

( 7,024 )  

( 2,249 )  

$ ( 16,797 )  

$ ( 18,600 )  

$ ( 9,616 )  

Net loss per share—basic

$ ( 0.83 )  

$ ( 0.89 )  

$ ( 0.42 )  

Net loss per share—diluted

$ ( 0.83 )  

$ ( 0.89 )  

$ ( 0.42 )  

Year ended December 31, 2019

$ 52,719  

$ 43,411  

$ 46,084  

$ 48,658  

Cost of goods sold

40,368  

32,873  

34,108  

37,322  

12,351  

10,538  

11,976  

11,336  

23.4 %  

24.3 %  

26.0 %  

Operating expenses:

Research and development

11,185  

11,151  

10,466  

10,597  

Sales and marketing

General and administrative

10,440  

10,884  

10,178  

Total operating expenses

24,220  

24,366  

22,972  

23,390  

Loss from operations

( 11,869 )  

( 13,828 )  

( 10,996 )  

Interest and other income (expense), net

( 1,079 )  

( 729 )  

Net loss before taxes

( 12,948 )  

( 14,557 )  

( 10,720 )  

Income tax (expense) benefit

$ ( 10,474 )  

$ ( 11,366 )  

$ ( 8,780 )  

Net loss per share—basic

$ ( 0.53 )  

$ ( 0.57 )  

$ ( 0.44 )  

Net loss per share—diluted

$ ( 0.53 )  

$ ( 0.57 )  

$ ( 0.44 )  

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

What changed 10-K

Item 9A. Controls and Procedures