What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2023-02-27 compared with 2022-02-24 · 223 added, 184 removed, 709 unchanged (36% of the section changed)

3 unchanged sentences

or "AOI") is a leading, vertically integrated provider of fiber-optic networking products, primarily for four networking end-markets:

internet data center, cable television, ("CATV"), telecommunications, ("telecom"), and fiber-to-the-home ("FTTH").

cable television, ("CATV"), internet data center, telecommunications, ("telecom"), and fiber-to-the-home ("FTTH").

We design and manufacture a range of optical communications products at varying levels of integration, from components, subassemblies and modules to complete turn-key equipment.

7 unchanged sentences

As a result of these trends, fiber-optic networking technology is becoming essential in all four of our target markets, as it is often the only economical way to deliver the desired bandwidth.

The internet data center market is our largest market.

The CATV market is our largest and the most established market, for which we supply a broad array of products, including lasers, transmitters and transceivers, and turn-key equipment.

Sales of headend, node and distribution equipment have contributed significantly to our revenue in recent years as a result of our ability to meet the needs of CATV equipment vendors who have continued to outsource both the design and manufacturing of this equipment.  As the complexity of CATV networks has increased over the years, equipment vendors, many of whom are our customers, have been under pressure to supply a wider variety of increasingly complex equipment to CATV multiple system operators ("MSOs").  In order to meet these demands, many equipment vendors have looked to engage with suppliers like AOI who have the capability to design and manufacture various network equipment or subassemblies, rather than always developing these devices themselves.  This outsourcing trend has been a significant contributor to the revenue we derive from the CATV market.  We believe that our extensive high-speed optical, mixed-signal semiconductor and mechanical engineering capabilities position us well to continue to benefit from these industry dynamics.

The internet data center market is our second largest market.

Our customers in this market are generally large internet-based (“Web 2.0”) data center operators, to whom we supply optical transceivers that plug into switches and servers within the data center and allow these network devices to send and receive data over fiber-optic cables.

The majority of the data center optical transceivers that we sell utilize our own lasers and subassemblies (we refer to the transceivers subassemblies as “light engines”), and we believe that our in-house technology and manufacturing capability for these lasers and subassemblies gives us an advantage over many of our competitors who often lack either development or manufacturing capabilities for these advanced optical modules.

The CATV market is our most established market, for which we supply a broad array of products, including lasers, transmitters and transceivers, and turn-key equipment.

In the telecom market we supply lasers and laser subassemblies as well as transceivers. 

6 unchanged sentences

The lasers we manufacture are tested extensively to enable reliable operation over time and our devices are often highly tolerant of changes in temperature and humidity, making them well-suited to the CATV, FTTH and 5G markets where networking equipment is often installed outdoors.

In 2021, 2020 and 2019 , our revenue was $211.6 million, $234.6 million, and $190.9 million and our gross margin was 17.8%, 21.5%, and 24.2%.

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

December 31, 2021 and 2020 , our accumulated deficit were $142.2 million and $88.6 million, respectively.

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

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

In 2021 , 2020 , and 2019 , Microsoft accounted for 14.1%, 38.3%, and 32.2% of our revenue, the US based large datacenter operator accounted for 8.3%, 8.0%, and 0.4%, the US based NEM accounted for 7.2%, 7.9%, and 1.6%, and Amazon accounted for 5.5%, 11.5% and 24.0%, respectively.

In 2021 , our key customers in the CATV market included ATX Networks Corp., Cisco Systems, Inc., and CommScope (which in 2019 acquired Arris, who had previously acquired the Motorola Home Business in 2013 and Pace Plc in 2016).

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

In 2022, 2021 and 2020 , our revenue was $222.8 million, $211.6 million, and $234.6 million and our gross margin was 15.1%, 17.8%, and 21.5%, respectively. In the years ended December 31, 2022, 2021 and 2020 , we had net loss of $66.4 million, $54.2 million, and $58.5 million , respectively.

December 31, 2022 and 2021 , our accumulated deficit were $209.1 million and $142.7 million, respectively.

In 2022 , we earned 53.0% of our total revenue from the CATV market and 34.6% of our total revenue from the internet data center market.

In 2022 , our key customers in the CATV market included ATX Networks Corp., C isco Systems, Inc., and CommScope . In 2022, 2021 and 2020 , ATX accounted for 47.3%, 25.6% and 3.7% of our revenue, Cisco accounted for 1.9%, 11.9%, and 7.5% of our revenue, and CommScope accounted for 1.7%, 3.3%, and 2.1% of our revenue, respectively.

In 2022 , our key customers in the data center market included Microsoft Corp, a U.S.

based large datacenter operator, and a U.S.

In 2022 , 2021 , and 2020 , Microsoft accounted for 18.4%, 14.1%, and 38.3% of our revenue, the U.S.

based large datacenter operator accounted for 5.9%, 8.3%, and 8.0% of our revenue, the U.S.

based NEM accounted for 3.6%, 7.2%, and 7.9% of our revenue, respectively.

Divestiture Agreement with Yuhan Optoelectronic Technology (Shanghai) Co., Ltd

On September 15, 2022, we entered into a definitive purchase agreement with Yuhan Optoelectronic Technology (Shanghai) Co., Ltd ("Purchaser"), which is a company incorporated in the People's Republic of China ("PRC"), to divest the Company's manufacturing facilities in the PRC and certain assets related to our transceiver business and multi-channel optical sub-assembly products (collectively, the "Divestiture").

The closing of the transaction is subject to the satisfaction of certain closing conditions, including the approval from the Committee on Foreign Investment in the United States ("CFIUS").

The purchase price will be an amount equal to the $150 million USD equivalent of Renminbi, less a holdback amount.

Prior to the closing of the transaction the Company anticipates investing an amount equal to between 4% and 10% of the estimated proceeds from the transaction in exchange for a 10% equity interest in the Purchaser.

Our management has performed an evaluation as required by ASC-360-10-45-9 to determine whether to classify certain of our assets and liabilities as held for sale as of December 31, 2022.

ASC 360 requires that a company classifies a business as held for sale in the period in which management commits to a plan to sell the business, the business is available for immediate sale in its present condition, an active program to complete the plan to sell the business is initiated, the sale of the business within one year is probable and the business is being marketed at a reasonable price in relation to its fair value.

Although we have announced the execution of a definitive purchase agreement regarding the Divestiture, completion of this transaction is not certain for reasons that include the fact that the proposed sale is subject to regulatory approval in the US and China, the timing and likelihoodof which is uncertain and beyond our control, and the fact that we cannot be certain that the buyer will not request modification of terms within the definitive purchase agreement.

As a result, we have concluded that at the present time the business is not "available for immediate sale" under the meaning defined in ASC 360 and therefore none of our assets or liabilities should be classified as held for sale.

Industry Background  

During 2021 , our four target markets, internet data center, CATV, telecom and FTTH, experienced a significant growth in bandwidth consumption and the corresponding need for network infrastructure improvement to support this growth.

During 2022 , our four target markets, CATV, internet data center, telecom and FTTH, experienced a significant growth in bandwidth consumption and the corresponding need for network infrastructure improvement to support this growth.

The prevailing trends in our target markets include:

Trends in the Internet Data Center Market.

To support the substantial increase in bandwidth consumption, internet data center operators are increasing the scale of their internet data centers and deploying infrastructure capable of higher data transmission rates.

As a result, there is an ongoing transition from the use of copper cable, typically at speeds of up to 1 gigabit per second ("Gbps"), to optical fiber as a transport medium, typically providing speeds from 10 Gbps to 400 Gbps.

In recent years, a number of leading internet companies have adopted more open internet data center architectures, using a mix of systems and components from a variety of vendors, and in some cases designing their own equipment.

For these companies, compatibility of new networking equipment with legacy infrastructure is not as important, and consequently, these companies are more willing to work with non-traditional equipment vendors, which we believe creates an opportunity for optical device vendors.

Moreover, transmission speeds have continued to increase among the companies who have previously transitioned from copper-based to fiber-based infrastructure, resulting in opportunities for optical device vendors to supply new optical transceivers capable of operating at these higher data rates.

‑ 

9 unchanged sentences

‑ 

Trends in the Internet Data Center Market.

‑ 

Trends in the Telecom Market.

1 unchanged sentence

As demand for mobile internet connectivity has increased in recent years, reliable and high-speed optical networks have become increasingly important.

In particular, the use of wavelength division multiplexing ("WDM") to expand the capacity of mobile networks has led to increased demand for WDM components (including lasers and transceivers) by telecom equipment manufacturers.

In particular, the use of wavelength division multiplexing ("WDM") to expand the capacity of mobile networks has led to increased demand for WDM components (including lasers and transceivers) by telecom equipment manufacturers.

In coming years, we believe that the deployment of advanced 5G networks will result in increased demand for optical components, especially those used in connecting between antennas and base stations, as well as for backhaul as mentioned above.

‑ 

Trends in the FTTH Market.

The FTTH market generally refers to the PONs that telecom service providers deploy.

The most commonly deployed PON technology is Gigabit PON, or GPON, which delivers up to 2.5 Gbps of data, but due to the splitting of the bandwidth among multiple users, the actual bandwidth delivered to an individual subscriber is far less than 2.5 Gbps.

One approach that does support true 1 Gbps service to the home is wavelength division multiplexing PON, or WDM-PON, a technology that enables the transmission of multiple wavelengths of data over a single fiber-optic strand.

We also see opportunities for 10 Gbps Ethernet Passive Optical Network ("EPON") and higher data rate PON networks in the future.

The most commonly deployed PON technology is Gigabit PON, or GPON, which delivers up to 2.5 Gbps of data, but due to the splitting of the bandwidth among multiple users, the actual bandwidth delivered to an individual subscriber is far less than 2.5 Gbps.

One approach that does support true 1 Gbps service to the home is wavelength division multiplexing PON, or WDM-PON, a technology that enables the transmission of multiple wavelengths of data over a single fiber-optic strand.

We also see opportunities for 10 Gbps Ethernet Passive Optical Network ("EPON") and higher data rate PON networks in the future. 

Also, we have seen trends towards cable television MSOs beginning to deploy PON networks. 

We see opportunities with these customers particularly given our knowledge and experience in CATV as discussed above.

Our Solutions  

37 unchanged sentences

We seek to be the leading global provider of optical components, modules and equipment for each of our four target markets:

internet data centers, CATV, telecom and FTTH.

CATV, internet data centers, telecom and FTTH.

Our strategy includes the following key elements:

‑ 

Continue to penetrate the internet data center market.

In the internet data center market, we primarily target internet data center operators who have adopted an open system architecture—one in which the optical connectivity solutions can be provided by a different vendor than the vendor which provides their servers and switches.

‑ 

Extend our leadership in CATV networking.

1 unchanged sentence

‑ 

Develop new products for the Telecom market.

Our addressable telecom market has often been limited by our relatively small portfolio of products for this market.

In many cases, our telecom product offerings are identical or nearly identical to products that we sell in other markets (for example, CATV or internet data center).

As we continue to develop new technological capabilities, we intend to develop products specifically for telecom markets.

‑ 

Continue to penetrate the FTTH market.

We believe our WDM-PON technology is a cost-effective solution for delivering 1 Gbps bandwidth to a home.

We intend to capture an increasing share of the FTTH market by delivering optical modules enabling 1 Gbps synchronous service to the home through our customers, who are either internet service providers or manufacturers of networking equipment supplying internet service providers.

Besides WDM-PON, we also believe that PON networks operating at 10 Gbps or higher will be in demand by certain customers in the future and we intend to develop components for these networks.

Continue to penetrate the internet data center market.

‑ 

63 unchanged sentences

Examples of equipment include our CATV transmitter and CATV nodes.

Research and Development  

To maintain our growth and competitiveness, we engage in an active research and development program to develop new products and enhance existing products.

As a result of these efforts, we anticipate releasing various new or enhanced products over the next several years. 

December 31, 2022

, we had a total of 217 employees working in the R&D department, including seven with Ph.D.

We continue to recruit talented engineers to further enhance our research and development capabilities.

We have research and development departments in our facilities in Texas, Georgia, China and Taiwan.

Our research and development teams collaborate on joint projects, and by co-locating with our manufacturing operations enable us to achieve an efficient cost structure and improve our time to market.

A key factor in our research and development success is our highly collaborative process for new product development.

Particularly in our equipment and module businesses, we often collaborate very closely with our customers from a very early stage in product development.

By purposefully fostering this close collaboration, we believe that we can more rapidly develop leading solutions meeting the needs of our customers.

Intellectual Property  

7 unchanged sentences

Our issued U.S.

and foreign patents will expire between 2022 and 2042.

and foreign patents will expire between 2023 and 2042.

While our patents are an important element of our success, our business as a whole is not dependent on any one patent or group of patents.

16 unchanged sentences

These marks are also registered in, or have applications for registration pending in, various foreign trademark offices.

Research and Development  

To maintain our growth and competitiveness, we engage in an active research and development program to develop new products and enhance existing products.

As a result of these efforts, we anticipate releasing various new or enhanced products over the next several years. 

As of December 31, 2021 , we had a total of 226 employees working in the R&D department, including ten with Ph.D.

We continue to recruit talented engineers to further enhance our research and development capabilities.

We have research and development departments in our facilities in Texas, Georgia, China and Taiwan.

Our research and development teams collaborate on joint projects, and by co-locating with our manufacturing operations enable us to achieve an efficient cost structure and improve our time to market.

A key factor in our research and development success is our highly collaborative process for new product development.

Particularly in our equipment and module businesses, we often collaborate very closely with our customers from a very early stage in product development.

By purposefully fostering this close collaboration, we believe that we can more rapidly develop leading solutions meeting the needs of our customers.

Manufacturing and Operations  

7 unchanged sentences

In addition, in our Taiwan location, we manufacture transceivers for the internet data center, telecom, FTTH and other markets.

In our China facility, we take advantage of lower labor costs and manufacture certain more labor intensive components and optical equipment systems, such as optical subassemblies and transceivers for the internet data center market, CATV transmitters (at the headend) and CATV outdoor equipment (at the node).

Each manufacturing facility conducts testing on the components, modules or subsystems it manufactures and each facility is certified to ISO 9001:2015.

Our facilities in Ningbo, China, Taipei, Taiwan, and Sugar Land, Texas are all certified to ISO 14001:2015.

In our China facility, we take advantage of lower labor costs and manufacture certain more labor intensive components and optical equipment systems, such as optical subassemblies and transceivers for the CATV transmitters (at the headend), internet data center market, and CATV outdoor equipment (at the node).

Each manufacturing facility conducts testing on the components, modules or subsystems it manufactures and each facility is certified to ISO 9001:2015 and ISO 14001:2015.

We sell our products to customers worldwide, and in addition to these external customer sales many of our products are used internally in the production of transceivers and equipment that we manufacture.

7 unchanged sentences

Accordingly, we maintain ongoing communications with our vendors in order to help prevent any interruptions in supply, and have implemented a supply-chain management program to maintain quality and lower purchase prices through standardized purchasing efficiencies and design requirements.

Sources of Raw Materials

We depend on a limited number of suppliers for certain raw materials, components, and equipment used in our products.

We continually review our supplier relationships to mitigate risks and lower costs, especially where we depend on one or two suppliers for critical components or raw materials.

While maintaining inventories that we believe are sufficient to meet our near-term needs, we strive not to carry significant inventories of raw materials.

Accordingly, we maintain ongoing communications with our suppliers in order to prevent any interruptions in supply, and have implemented a supply-chain management program to maintain quality and lower purchase prices through standardized purchasing efficiencies and design requirements.

To date, we generally have been able to obtain sufficient quantities of critical supplies in a timely manner.

We are subject to rules promulgated by the SEC pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding the use of "conflict minerals".

These rules have imposed and will continue to impose additional costs and may introduce new risks related to our ability to verify the origin of any "conflict minerals" used in our products.

Customers  

Our customers are primarily internet data center operators, CATV and telecom equipment manufacturers, and internet service providers.

Our customers are primarily CATV, internet data center operators, telecom equipment manufacturers, and internet service providers.

We generally employ a direct sales model in North America and in the rest of the world we use both direct and indirect sales channels.

4 unchanged sentences

We also from time to time offer design or manufacturing services to customers to assist them in more effectively using our products and realizing time-to-market advantages.

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

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

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

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

In 2021 , the three customers who contributed most to our data center revenue were Microsoft, a US based large datacenter operator and a US based NEM.

Our CATV products were used by three large CATV original equipment manufacturers, or OEMs, consisting of ATX, Cisco and CommScope.

In 2021 , revenue from the internet data center market, CATV market, telecom market, FTTH market and other markets provided 46.1%, 44.6%, 7.7%, 0.5% and 1.2% of our revenue, respectively, compared to 73.9%, 16.2%, 9.0%, 0.01% and 0.9%, respectively, in 2020 .

In 2022 , our three large CATV original equipment manufacturers, or OEMs, consisted of ATX, Cisco and CommScope.

The three customers who contributed most to our data center revenue were Microsoft, a U.S.

based large datacenter operator and a U.S.

based NEM. In 2022 , revenue from the CATV market, internet data center market, telecom market, FTTH market and other markets provided 53.0%, 34.6%, 11.1%, 0.1% and 1.2% of our revenue, respectively, compared to 44.6%, 46.1%, 7.7%, 0.5% and 1.1%, respectively, in 2021 .

In our telecom market, we manufacture and sell optical products which include transceivers designed to transmit signals used in 5th Generation ("5G") mobile networks, and various products targeted at the metro-scale telecom networking market.

  We have various other products designed for diverse applications, both inside and outside of communications technology, which generally are derivatives of products developed for our four target markets.

We support our sales efforts by attendance at industry trade shows (virtually and in person), technical conferences and other promotional efforts.

29 unchanged sentences

We believe that we compete favorably with respect to the above factors based on our MBE and MOCVD processes, our vertically integrated model, the performance and reliability of our product offerings, and our technical expertise in light engine design and manufacture.

See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Seasonality,”

1 unchanged sentence

Human Capital

As of December 31, 2021 , we employed 2,534 full-time employees, of which 36 held Ph.D.

As of December 31, 2022 , we employed 2,213 full-time employees, of which 35 held Ph.D.

degrees in a science or engineering field.

Of our employees, 367 are located in the U.S., 514 are located in Taiwan and 1653 are located in China. 

Of our employees, 301 are located in the U.S., 449 are located in Taiwan and 1463 are located in China. 

As of December 31, 2022 , none of our employees are represented by any collective bargaining agreement, but certain employees of our China subsidiary are members of a trade union.

52 unchanged sentences

Other governmental regulations may require us to reengineer our products to use components that are more environmentally compatible, resulting in additional costs to us.

Climate Change and Sustainability

We are spreading initiatives that aim to drive sustainability and reduce our environmental impact.

In addition, we continue to focus on the efficiency of our technology, including but not limited to using light sensors and dimming technology that control brightness and exploring alternative energy sources. 

Export Controls

7 unchanged sentences

in this Form 10-K.

Sources of Raw Materials

We depend on a limited number of suppliers for certain raw materials, components, and equipment used in our products.

We continually review our supplier relationships to mitigate risks and lower costs, especially where we depend on one or two suppliers for critical components or raw materials.

While maintaining inventories that we believe are sufficient to meet our near-term needs, we strive not to carry significant inventories of raw materials.

To date, we generally have been able to obtain sufficient quantities of critical supplies in a timely manner.

We are subject to rules promulgated by the SEC pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding the use of "conflict minerals".

These rules have imposed and will continue to impose additional costs and may introduce new risks related to our ability to verify the origin of any "conflict minerals" used in our products.

Corporate Information  

18 unchanged sentences

In addition, the trading price of our common stock could decline due to the occurrence of any of these risks and you may lose all or part of your investment.

Risks Related to the COVID-19 Pandemic 

Epidemic diseases, such as COVID-19, or the perception of their effects, could have a material adverse effect on our business, financial condition, results of operation, or cash flows.

Outbreaks of epidemic, pandemic, or contagious diseases, such as the recent COVID-19 or, historically, the Ebola virus, Middle East Respiratory Syndrome, Severe Acute Respiratory Syndrome, or the H1N1 virus, could divert medical resources and priorities towards the treatment of that disease.

Business disruptions could include disruptions or restrictions on our ability to travel or to distribute our products, as well as temporary closures of our facilities or the facilities of our suppliers and their contract manufacturers.

Any disruption of our suppliers and their contract manufacturers or our customers would likely impact our sales and operating results.

In addition, a significant outbreak of epidemic, pandemic, or contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our products.

Any of these events could have a material adverse effect on our business, financial condition, results of operations, or cash flows.  

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

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

Recently, we began allowing certain employee travel, but continue strict sanitation procedures in our facilities.  With increased vaccinations and the potential reduction of infections, we implemented procedures for a safe return to the office environment for all of our employees.

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

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

Currently, the suppliers who are responsible for most of our supply-chain constraints have begun the process of returning to normal operations and have expressed optimism that their deliveries in 2022 will return to normal. In order to minimize the impact of these and any similar disruptions, we have added additional suppliers for many key components, where it is practical to do so. 

We believe that these additional suppliers will be able to augment our supply of needed components, although in some cases these new suppliers' materials are more expensive than the pre-existing suppliers so a switch to these alternate suppliers could have a negative impact on gross margins and profitability.

However, this is uncertain and we also cannot predict if other suppliers could encounter similar difficulties.

Any disruption resulting from similar events on a larger scale or over a prolonged period could cause significant delays in supply of needed components.  It would likely have a negative impact on our business, results of operations, and our financial condition. 

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

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

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

Risks Related to Our Divestiture in the PRC

The announcement and pendency of our proposed sale of our China manufacturing facilities could materially adversely affect our business, financial condition, and results of operations.

On September 15, 2022, AOI and Prime World International Holdings Ltd.

(the "Seller"), which is a company incorporated in the British Virgin Islands and wholly owned subsidiary of AOI, entered into a definitive agreement (the "Purchase Agreement") with Yuhan Optoelectronic Technology (Shanghai) Co., Ltd.

(the "Purchaser"), which is a company incorporated in the PRC, under which AOI would divest its manufacturing facilities located in the PRC and certain assets related to its transceiver business and multichannel optical sub-assembly products for the internet data center, FTTH and telecom markets (collectively, "the Divestiture").

The purchase price payable by the Purchaser to the Seller will be an amount equal to the $150 million USD equivalent of Renminbi, less a holdback amount.

Prior to the closing of this transaction, AOI anticipates investing an amount equal to between 4% and 10% of the estimated proceeds from the transaction in exchange for a 10% equity interest in the Purchaser.

Both transactions are expected to close in 2023, subject to customary closing conditions and regulatory approval.

The announcement and pendency of our proposed divestiture could disrupt our business and create uncertainty about our future, which could have a material and negative impact on our business, financial condition, and results of operations, regardless of whether the divestiture is completed.

These risks to our business, all of which could be exacerbated by any delay in the closing of the divestiture, include:

restrictions in the Purchase Agreement on the conduct of our business prior to the closing of the divestiture, which prevent us from taking specified actions without the prior consent of Purchaser, which actions we might otherwise take in the absence of the Purchase Agreement;

the attention of our management may be directed towards the closing of the divestiture and may be diverted from our day-to-day business operations, and matters related to the divestiture may require commitments of time and resources that could otherwise have been devoted to other opportunities that might have been beneficial to us;

our customers, suppliers other parties may decide not to renew or seek to terminate, change or renegotiate their relationship with us, whether pursuant to the terms of their existing agreements with us or otherwise;

our employees may experience uncertainty regarding their future roles, which might adversely affect our ability to retain, recruit and motivate key personnel;

potential litigation relating to the divestiture and the related costs.

Any of these matters could adversely affect our stock price, business, financial condition, results of operations, or business prospects.

In addition, divestiture of our manufacturing facilities in the PRC also contain inherent risks that may impact our ability to fully realize the benefits of such divestiture, including possible delays in closing and potential post-closing claims for indemnification.

The divestiture may also have a dilutive impact on our future earnings if we are unable to offset the dilutive impact from the loss of revenue associated with the divestiture, as well as significant write-offs, including those related to goodwill and other intangible assets.

If any of these risks materialize, the benefits of such divestiture may not be fully realized, if at all, and our business, financial condition, and results of operations could be negatively impacted.

The parties may be unable to satisfy the conditions to the closing of our divestiture and the transaction may not be consummated, and the failure of the Divestiture to be completed may adversely affect our business and our common stock price.

Consummation of our divestiture of our China manufacturing facilities is subject to various closing conditions, including, among other things, approval from the Committee on Foreign Investment in the United States (CFIUS) and other regulatory approvals.

CFIUS has been increasingly relied upon in recent years as a tool to prevent foreign investment that poses a national security risk, often focused on either Chinese or Russian buyers.

Although we do not believe the proposed divestiture presents a national security risk, CFIUS has been directed to focus on transactions that could give foreign parties access to U.S.

technologies, data, or critical supply chains.

Closing conditions related to regulatory approval and other conditions to the consummation of the proposed divestiture may fail to be satisfied.

In addition, satisfying the conditions to the divestiture may take longer than we and the Purchaser currently expect.

The satisfaction of all of the required conditions could delay the completion of the divestiture for a significant period of time or prevent it from occurring.

Thus, there can be no assurance that the conditions to the divestiture will be satisfied or waived or that the divestiture will be consummated.

In addition, the Purchase Agreement may be terminated under specified circumstances.

Failure to complete the divestiture could adversely affect our business and the market price of our common stock in a number of ways, including:

our current stock price may reflect a market assumption that the proposed acquisition will occur, meaning that a failure to complete the proposed transaction could result in a decline in the price of our common stock;

we may be subject to legal proceedings related to the divestiture;

the failure of the divestiture to be consummated may result in negative publicity and a negative impression of us in the investment community;

any disruptions to our business resulting from the announcement and pendency of the divestiture, including any adverse changes in our relationships with our customers, vendors and employees, may continue or intensify in the event the divestiture is not consummated;

we may not be able to take advantage of alternative business opportunities or effectively respond to competitive pressures;

we may be required to pay a termination fee of approximately $3 million if the Purchase Agreement is terminated under certain circumstances;

we expect to incur substantial transaction costs in connection with the proposed transaction, whether or not it is completed;

we may not be entitled to receive a termination payment from Purchaser in all circumstances where the Purchase Agreement is terminated due to Purchaser's breach of its obligations under the Purchase Agreement or where we fail to obtain CFIUS approval.

Risks Related to Operating Our Business  

2 unchanged sentences

For each year ended 2022, 2021 and 2020 , our top ten customers represented 87.2%, 84.7%, and 84.3% of our revenue, respectively.

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

In 2022 , ATX represented 47.3% of our revenue, Microsoft represented 18.4% of our revenue, and a US based large datacenter operator represented 5.9% of our revenue.

As a result, the loss of, or a significant reduction in orders from any of our key customers would materially and adversely affect our revenue and results of operations.

71 unchanged sentences

Given the high fixed costs associated with our vertically integrated business, a reduction in demand for our products will likely adversely impact our gross profits and our results of operations.

We have a high fixed cost base due to our vertically integrated business model, including the fact that 2,178 of our employees as of December 31, 2021 were employed in manufacturing and research and development operations.

We have a high fixed cost base due to our vertically integrated business model, including the fact that 1,851  of our employees as of December 31, 2022 were employed in manufacturing and research and development operations.

We may not be able to adjust these fixed costs quickly to adapt to rapidly changing market conditions.

31 unchanged sentences

‑ 

unanticipated increases in costs or expenses;

unanticipated increases in costs or expenses, including rising inflation or other changes in macroeconomic conditions;

‑ 

49 unchanged sentences

Although we carry product liability insurance, this insurance may not adequately cover our costs arising from defects in our products or otherwise.

Epidemic diseases, such as COVID-19, or the perception of their effects, could have a material adverse effect on our business, financial condition, results of operation, or cash flows.

Any disruption of our suppliers and their contract manufacturers or our customers would likely impact our sales and operating results.

Any of these events could have a material adverse effect on our business, financial condition, results of operations, or cash flows.  

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

The suppliers who are responsible for most of our supply-chain constraints have begun the process of returning to normal operations. In order to minimize the impact of these and any similar disruptions, we have added additional suppliers for many key components, where it is practical to do so. We believe that these additional suppliers will be able to augment our supply of needed components, although in some cases these new suppliers' materials are more expensive than the pre-existing suppliers so a switch to these alternate suppliers could have a negative impact on gross margins and profitability.

However, this is uncertain and we also cannot predict if other suppliers could encounter similar difficulties.

Any disruption resulting from similar events on a larger scale or over a prolonged period could cause significant delays in supply of needed components, which would likely have a negative impact on our business, results of operations, and our financial condition. 

Our ability to use our net operating losses and certain other tax attributes may be limited.

December 31, 2021

accumulated net operating losses, or NOLs, of approximately $104.8 million, federal and state research and development credits (“R&D credits”) of $9.9 million, business interest expense of $13.5 million and foreign tax credits of $4.6 million for U.S.

As of December 31, 2022, we had U.S.

accumulated net operating loss carryforwards, or NOLs, of approximately $111.5 million, federal and state research and development credits (“R&D credits”) of $10.5 million, business interest expense carryforwards of $18.7 million and foreign tax credits of $4.6 million for U.S.

federal income tax purposes.

5 unchanged sentences

Avoiding an ownership change is generally beyond our control.

Although the ownership changes we experienced in the past and in the year ended

December 31, 2021

would not have prevented us from using all NOLs and tax credits accumulated before such ownership changes, assuming we were otherwise able to do so, we could experience another ownership change that might limit our use of NOLs and tax credits in the future.

Although the ownership changes we experienced in the past and in the year ended December 31, 2022 would not have prevented us from using all NOLs and tax credits accumulated before such ownership changes, assuming we were otherwise able to do so, we could experience another ownership change that might limit our use of NOLs and tax credits in the future.

Under the Tax Cuts and Jobs Act of 2017, or Tax Act, NOLs from tax years that began after December 31, 2017 do not expire, but NOLs from tax years that began before January 1, 2018 expire after 20 years.

2 unchanged sentences

Also, any foreign NOLs (for example NOLs in our China and Taiwan jurisdictions) are subject to different NOL expirations, generally shorter than in the US.

Our future results of operations may be subject to volatility as a result of exposure to fluctuations in currency exchange 

We have significant foreign currency exposure and are affected by fluctuations among the U.S.

dollar, the Chinese Renminbi, or RMB, and the New Taiwan dollar, or NT dollar, because a substantial portion of our business is conducted in China and Taiwan.

Our sales, raw materials, components and capital expenditures are denominated in U.S.

dollars, RMB and NT dollars in varying amounts.

Foreign currency fluctuations may adversely affect our revenue and our costs and expenses, and hence our results of operations.

The value of the NT dollar or the RMB against the U.S.

dollar and other currencies may fluctuate and be affected by, among other things, changes in political and economic conditions.

The RMB currency is no longer being pegged solely to the value of the U.S.

In the long term, the RMB may appreciate or depreciate significantly in value against the U.S.

dollar, depending upon the fluctuation of the basket of currencies against which it is currently valued, or it may be permitted to enter into a full float, which may also result in a significant appreciation or depreciation of the RMB against the U.S.

In addition, our currency exchange variations may be magnified by Chinese exchange control regulations that restrict our ability to convert RMB into foreign currency.

To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk.

While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedging transactions may be limited and we may not be able to successfully hedge our exposure.

Future acquisitions may adversely affect our financial condition and results of operations.

15 unchanged sentences

The inability to effectively and efficiently manage divestitures with the results we expect or in the timeframe we anticipate could adversely affect our financial condition and results of operations.

Our future results of operations may be subject to volatility as a result of exposure to fluctuations in currency exchange rates.

We have significant foreign currency exposure and are affected by fluctuations among the U.S.

dollar, the Chinese Renminbi, or RMB, and the New Taiwan dollar, or NT dollar, because a substantial portion of our business is conducted in China and Taiwan.

Our sales, raw materials, components and capital expenditures are denominated in U.S.

dollars, RMB and NT dollars in varying amounts.

Foreign currency fluctuations may adversely affect our revenue and our costs and expenses, and hence our results of operations.

The value of the NT dollar or the RMB against the U.S.

dollar and other currencies may fluctuate and be affected by, among other things, changes in political and economic conditions.

The RMB currency is no longer being pegged solely to the value of the U.S.

In the long term, the RMB may appreciate or depreciate significantly in value against the U.S.

In addition, our currency exchange variations may be magnified by Chinese exchange control regulations that restrict our ability to convert RMB into foreign currency.

To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk.

Natural disasters or other catastrophic events could harm our operations.

10 unchanged sentences

We are subject to governmental export and import controls that could subject us to liability or impair our ability to compete in international markets.

We are subject to export and import control laws, trade regulations and other trade requirements that limit which products we sell and where and to whom we sell our products.

Specifically, the Bureau of Industry and Security of the U.S.

Department of Commerce is responsible for regulating the export of most commercial items that are so called dual-use goods that may have both commercial and military applications.

Our products are primarily classified under Export Control Classification Numbers, or ECCNs 5A991 EAR99.

Export Control Classification requirements are dependent upon an item’s technical characteristics, and dictate the destination, end-use, end-user, and other activities of the end-user.

We are subject to export and import control laws, trade regulations and other trade requirements that limit which products we sell and where and to whom we sell our products.

Specifically, the BIS regulates the export of most commercial items and "dual-use" goods that may have both commercial and military applications.

Our products are primarily classified under Export Control Classification Numbers (ECCN) 5A991 EAR99.

Export Control Classification requirements are depend upon an item’s technical characteristics and dictate the licensing requirements and permissible destination, end-use, end-users, and activities of the end-user.

Should the regulations applicable to our products change, or the restrictions applicable to countries to which we ship our products change, then the export of our products to such countries could be restricted.

As a result, our ability to export or sell our products to certain countries could be restricted, which could adversely affect our business, financial condition and results of operations.

Furthermore, due to the recent administration change in the U.S., and the appointment of a new United States Trade Representative, new policy priorities may lead to additional or new import risks affecting the flow of our products into the U.S.

Furthermore, new policy priorities may lead to additional or new import risks affecting the flow of our products into the U.S.

Changes in our products or any change in export or import regulations or related legislation, shift in approach to the enforcement or scope of existing regulations, or change in the countries, persons or technologies targeted by such regulations, could result in delayed or decreased sales of our products to existing or potential customers.

In such event, our business and results of operations could be adversely affected.

In such cases, our business and the results of operations could be adversely affected.

Our business could be negatively impacted as a result of shareholder activism.

13 unchanged sentences

December 31, 2022

, we had approximately $141.6 million of consolidated indebtedness.

, we had approximately $148.9 million of consolidated indebtedness.

We may also incur additional indebtedness to meet future financing needs.

7 unchanged sentences

Our business may not generate sufficient funds, and we may otherwise be unable to maintain sufficient cash reserves, to pay amounts due under our indebtedness, including the Notes, and our cash needs may increase in the future.

In addition, our existing Credit Facility with Truist Bank, contains, and any future indebtedness that we may incur may contain, financial and other restrictive covenants that limit our ability to operate our business, raise capital or make payments under our other indebtedness.

In addition, our existing Credit Facility with CIT Northbridge Credit, LLC, contains, and any future indebtedness that we may incur may contain, financial and other restrictive covenants that limit our ability to operate our business, raise capital or make payments under our other indebtedness.

If we fail to comply with these covenants or to make payments under our indebtedness when due, then we would be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full.

Our loan agreements contain restrictive covenants that may adversely affect our ability to conduct our business.

We have lending arrangements with several financial institutions, including loan agreements with Truist Bank in the U.S., equipment finance agreements with Chailease Finance Co., Ltd.

in Taiwan and credit facilities with China Merchants Bank Co.

Ltd., Shanghai Pudong Development Bank Co., Ltd and China Zheshang Bank Co., Ltd.

We have lending arrangements with several financial institutions, including loan agreements with CIT Northbridge Credit, LLC in the U.S., and credit facilities with Shanghai Pudong Development Bank Co., Ltd and China Zheshang Bank Co., Ltd.

Our loan agreements governing our long-term debt obligations in the U.S.

6 unchanged sentences

Any failure by us or our subsidiaries to comply with these agreements could harm our business, financial condition and operating results.

In addition, our obligations under our loan agreements with Truist Bank are secured by our accounts receivable, inventory, intellectual property, and all business assets except real estate and equipment.

In addition, our obligations under our loan agreements with CIT Northbridge Credit, LLC are secured by our accounts receivable, inventory, instruments, intellectual property, and all business assets except real estate and foreign assets.

Our credit facilities with Shanghai Pudong Development Bank Co., Ltd.

9 unchanged sentences

expansion of manufacturing capabilities;

payment of any outstanding indebtedness;

‑ 

5 unchanged sentences

Additional financing may not, however, be available on terms favorable to us, or at all, if and when needed, and our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our infrastructure or respond to competitive pressures could be significantly limited.

If we cannot raise required capital when needed, including under our Registration Statement filed with the SEC in October 2019, effective January 2020, we may be unable to meet the demands of existing and prospective customers, adversely affecting our sales and market opportunities and consequently our business, financial condition and results of operations.

If we cannot raise required capital when needed, we may be unable to meet the demands of existing and prospective customers, adversely affecting our sales and market opportunities and consequently our business, financial condition and results of operations.

Risks Related to Data Breaches and Network Infrastructures

31 unchanged sentences

Since the beginning of 2018, there has been increasing rhetoric, in some cases coupled with legislative, administrative, or executive action, from several U.S.

and foreign leaders regarding the possibility of instituting tariffs on the foreign imports of certain materials. Five rounds of U.S.

and foreign leaders regarding the possibility of instituting tariffs on foreign imports of certain materials. Five rounds of U.S.

tariffs on imports from China (respectively the “U.S.

Tariffs on China Imports”) went into effect on July 2018, August 2018, September 2018, September 2019, and February 2020.

A limited number of our products that are of Chinese origin are currently subject to the U.S.

A limited number of our products that are of Chinese origin are currently subject to U.S.

Tariffs on China Imports.

Despite an administration change in the U.S., and the appointment of a new United States Trade Representative, it is unknown whether and to what extent new tariffs (or other new laws or regulations) will be adopted, or the effect that any such actions would have on us or our industry.

Despite rapid changes to U.S.

import laws and applicable duties, the U.S.

Tariffs on China Imports remain in place, and the Company faces a variety of import-related risk.

Because of the political nature of many actions, it is unknown whether and to what extent new tariffs (or other new laws or regulations) will be adopted, or the effect that any such actions would have on us or our industry.

A significant portion of our manufacturing operations are based in Ningbo, China;

1 unchanged sentence

Furthermore, the implementation of trade tariffs both globally and between the U.S.

and China specifically carries the risk of negatively impacting China’s overall economic condition, which could have negative repercussions on our business.

Bilateral tariffs could cause a decrease in the sales of our products to customers located in China or other customers selling to Chinese end users, further impacting our business.

and China specifically carries the risk of negatively impacting China’s overall economic condition, which could negatively affect our business.

Bilateral tariffs could cause a decrease in the sales of our products to customers located in China or other customers selling to Chinese end users.

The Company's ability to export U.S.-made products is primarily subject to the regulatory supervision of the Bureau of Industry and Security (BIS) of the U.S.

Department of Commerce.

Because the Company's focus on telecommunications products is a priority trade issue for BIS, the Company actively monitors licensing and export policy for our products.

Significant changes to existing international trade agreements could also lead to sourcing or logistics disruption resulting from import delays or the imposition of increased tariffs on our sourcing partners. 

For example, the Chinese government could, among other things, require the use of local suppliers, compel companies that do business in China to partner with local companies, and otherwise provide government incentives or subsidies to government-backed local customers to buy from local suppliers.

For example, the Chinese government could require the use of local suppliers, compel companies that do business in China to partner with local companies, and otherwise provide additional government incentives or subsidies to government-backed local customers to buy from local suppliers.

Changes in and responses to U.S.

trade policy could reduce the competitiveness of our products and thus cause our sales and revenues to drop, which could materially and adversely impact our business and results of operations.

trade policy could reduce the competitiveness of our products and thus cause our sales and revenues to drop, which could materially and adversely impact our business and operations.

We face a variety of risks associated with our international sales and operations.

We currently derive and expect to continue to derive, a significant portion of our revenue from sales to international customers.

In 2021, 2020 and 2019 , 25.5%, 25.4%, and 18.8% of our revenue was derived from sales that occurred outside of North America, respectively.

In addition, a significant portion of our manufacturing operations is based in Ningbo, China and Taipei, Taiwan.

Trade-related government actions, by the U.S., China or other countries that impose barriers or restrictions that would impact our ability to sell or ship products to customers or potential customers may have a negative impact on our financial condition and results of operations.

We cannot predict the actions government entities may take in this context and may be unable to quickly offset or effectively react to government actions that restrict our ability to sell to certain customers or in certain jurisdictions.

In 2022, 2021 and 2020 , 18.53%, 22.7%, and 25.4% of our revenue, respectively, was derived from sales outside of North America.

In addition, a significant portion of our manufacturing operations are based in Ningbo, China, and Taipei, Taiwan.

Trade-related government actions by the U.S., China or other countries that impose barriers or restrictions that would impact our ability to sell or ship products to customers or potential customers may have a negative impact on our financial condition and operations.

We cannot predict the actions government entities may take in this context and we may be unable to quickly or effectively react to government actions that restrict our ability to sell to certain customers or those in certain jurisdictions.

Government actions that affect our customers' ability to sell products or access critical elements of their supply chains may result in a decreased demand for their products, which may consequently reduce their demand for our products.

Our international revenue and operations are subject to a number of material risks, including:  

Our international revenue and operations are subject to several material risks, including:  

difficulties in staffing, managing and supporting operations in more than one country;

2 unchanged sentences

foreign and U.S.

taxation issues and international trade barriers, including the adoption or expansion of governmental trade tariffs, export controls, and fluctuating changes to end use and user rules;

taxation issues and international trade barriers, including the adoption or expansion of governmental trade tariffs, export controls, and fluctuating changes to end-use and end-user rules;

difficulties in obtaining any necessary governmental authorizations for the export of our products to certain foreign jurisdictions;

fluctuations in foreign economies;

fluctuations in the value of foreign currencies and interest rates;

fluctuations in foreign economies including the impact of recessionary environments and inflation in the United States and other economies where we do business;

fluctuations in the value of foreign currencies and interest rates, including the impact of recessionary environments and inflation in the United States and other economies where we do business;

trade and travel restrictions;

1 unchanged sentence

difficulties and increased expenses in complying with a variety of U.S.

and foreign laws, regulations, and trade standards, including the Foreign Corrupt Practices Act, and various modifications by the Bureau of Industry and Security of the U.S.

Department of Commerce to export policy;

different and changing legal and regulatory requirements in the jurisdictions in which we currently operate or may operate in the future.

and foreign laws, regulations, and trade standards, including the Foreign Corrupt Practices Act and various modifications by the BIS to export policy;

different and changing legal and regulatory requirements in the jurisdictions we currently operate or may operate in the future.

Negative developments in any of these factors in China or Taiwan or other countries could result in a reduction in demand for our products, the cancellation or delay of orders already placed, difficulties in producing and delivering our products, threats to our intellectual property, difficulty in collecting receivables, and a higher cost of doing business.

Although we maintain certain compliance programs throughout the Company, violations of U.S.

Although we maintain compliance programs throughout the Company, violations of U.S.

and foreign laws and regulations may result in criminal or civil sanctions, including material monetary fines, penalties and other costs against us or our employees, and may have a material adverse effect on our business.

Our business operations conducted in China and Taiwan are important to our success.

A substantial portion of our property, plant and equipment is located in China and Taiwan.

We expect to make further investments in China and Taiwan in the future.

Therefore, our business, financial condition, results of operations and prospects are subject to economic, political, legal, and social events and developments in China and Taiwan.

Factors affecting military, political or economic conditions in China and Taiwan could have a material adverse effect on our financial condition and results of operations, as well as the market price and the liquidity of our common shares.

A substantial portion of our property, plants and equipment is located in China and Taiwan.

We expect to make further investments in Asia in the future, pending completion of the Divestiture described above.

Therefore, our business, financial condition, results of operations and prospects are subject to economic, political, legal, and social events and developments in Asia.

Factors affecting military, political or economic conditions between China and Taiwan could have a material adverse effect on our financial condition and results of operations, as well as the market price and the liquidity of our common shares.

Risks Related to Our Operations in China

Pending the completion of the Divestiture described above, our business operations conducted in China are critical to our success.

A total of $51.3 million, $97.7 million, and $85.2 million or 23.0%, 46.2%, and 36.3%, of our revenue in the years ended December 31, 2022, 2021 and 2020 was attributable to our product manufactured at our plant in China, respectively.

Additionally, a substantial portion of our property, plant and equipment, 42.2% 42.2%, and 40.6% as of December 31, 2022, 2021 and 2020 , was located in China, respectively.

We expect to make further investments in China in the foreseeable future.

Therefore, our business, financial condition, results of operations and prospects are to a significant degree subject to economic, political, legal, and social events and developments in China. 

Adverse changes in economic and political policies in China, or Chinese laws or regulations could have a material adverse effect on business conditions and the overall economic growth of China, which could adversely affect our business.

The Chinese economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources.

The Chinese economy has been transitioning from a planned economy to a more market-oriented economy.

Despite reforms, the government continues to exercise significant control over China’s economic growth by way of the allocation of resources, control over foreign currency-denominated obligations and monetary policy and provision of preferential treatment to particular industries or companies.

In addition, the laws, regulations and legal requirements in China, including the laws that apply to foreign-invested enterprises, or FIEs, are subject to frequent changes.

The interpretation and enforcement of such laws is uncertain.

Protections of intellectual property rights and confidentiality in China may not be as effective as in the U.S.

or other countries or regions with more developed legal systems.

Any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.

Any adverse changes to these laws, regulations and legal requirements or their interpretation or enforcement could have a material adverse effect on our business.

Furthermore, while China’s economy has experienced rapid growth in the past 20 years, growth has been uneven across different regions, among various economic sectors and over time.

China has also in the past and may in the future experience economic downturns due to, for example, government austerity measures, changes in government policies relating to capital spending, limitations placed on the ability of commercial banks to make loans, reduced levels of exports and international trade, inflation, lack of financial liquidity, stock market volatility and global economic conditions.

Any of these developments could contribute to a decline in business and consumer spending in addition to other adverse market conditions, which could adversely affect our business.

The turnover of direct labor in manufacturing industries in China is high, which could adversely affect our production, shipments and results of operations.

Employee turnover of direct labor in the manufacturing sector in China is extremely high and retention of such personnel is a challenge to companies located in or with operations in China.

Although direct labor costs do not represent a high proportion of our overall manufacturing costs, direct labor is required for the manufacture of our products.

If our direct labor turnover rates are higher than we expect, or we otherwise fail to adequately manage our direct labor turnover rates, then our results of operations could be adversely affected.

Chinese regulation of loans to and direct investment by offshore holding companies in China entities may delay or prevent us from making loans or additional capital contributions to our China subsidiary.

Any loans that we wish to make to our China subsidiary are subject to Chinese regulations and approvals.

For example, any loans to our China subsidiary to finance their activities cannot exceed statutory limits, must be registered with State Administration of Foreign Exchange, or SAFE, or its local counterpart, and must be approved by the relevant government authorities.

Any capital contributions to our China subsidiary must be approved by the Ministry of Commerce or its local counterpart.

In addition, under Circular 142, our China subsidiary, as a FIE, may not be able to convert our capital contributions to them into RMB for equity investments or acquisitions in China.

We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all, with respect to our future loans or capital contributions to our China subsidiary.

If we fail to receive such registrations or approvals, our ability to capitalize our China subsidiary may be negatively affected, which could materially and adversely affect our liquidity and ability to fund and expand our business.

Our China subsidiary is subject to Chinese labor laws and regulations, and Chinese labor laws may increase our operating costs in China.

Chinese labor laws and regulations provide certain protections for our employees located in China, and changes to those labor laws and regulations may increase our costs and reduce our flexibility.

The China Labor Contract Law, which went into effect in 2008, together with its implementing rules, provides increased rights to Chinese employees compared to prior employment laws in China.

Under the rules under the China Labor Contract Law, the probation period varies depending on contract terms and the employment contract can only be terminated during the probation period for cause upon three days’

Additionally, an employer may not be able to terminate a contract during the probation period on the grounds of a material change of circumstances or a mass layoff.

The law also has specific provisions on conditions when an employer has to sign an employment contract with open-ended terms.

If an employer fails to enter into an open-ended contract in certain circumstances, the employer must pay the employee twice their monthly wage beginning from the time the employer should have executed an open-ended contract.

Additionally, an employer must pay severance for nearly all terminations, including when an employer decides not to renew a fixed-term contract.

Any further changes to these laws may increase our costs and reduce our flexibility.

Risks Related to Intellectual Property Matters 

38 unchanged sentences

Any indemnity claim could also adversely affect our relationships with our customers and result in substantial costs to us.

Risks Related to Our Operations in China

Our business operations conducted in China are critical to our success.

A total of $97.7 million, $85.2 million, and $83.3 million or 46.2%, 36.3%, and 43.6%, of our revenue in the years ended December 31, 2021, 2020 and 2019 was attributable to our product manufactured at our plant in China, respectively.

Additionally, a substantial portion of our property, plant and equipment, 42.2% 40.6%, and 37.1% as of December 31, 2021, 2020 and 2019 , was located in China, respectively.