What changed in this filing

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Item 9A. Controls and Procedures

2023-02-27 compared with 2022-02-24 · 361 added, 586 removed, 1337 unchanged (41% of the section changed)

17 unchanged sentences

Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2022 .

Grant Thornton LLP, the independent registered public accounting firm that audited the consolidated financial statements included in this Form 10-K, has issued a report, included below, on the effectiveness of our internal control over financial reporting as of December 31, 2021 .

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with management’s evaluation required by the Rules 13a-15(d) and 15d-15(d) under the Exchange Act that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  

Board of Directors and Shareholders

Applied Optoelectronics, Inc.

Opinion on internal control over financial reporting  

We have audited the internal control over financial reporting of Applied Optoelectronics, Inc.

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 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.

Basis for opinion

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

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and limitations of internal control over financial reporting  

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ GRANT THORNTON LLP

Houston, Texas

February 24, 2022

Other Information

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Directors, Executive Officers and Corporate Governance

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

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

The information required regarding Section 16(a) beneficial ownership reporting compliance is incorporated by reference from the information contained in our Proxy Statement.

The information required with respect to procedures by which security holders may recommend nominees to our board of directors, the composition of our Audit Committee, and whether the Company has an “audit committee financial expert”, is incorporated by reference from the information contained in our Proxy Statement.

The information required by this item (other than the information set forth in the next paragraph in this Item 10) will be included in our definitive proxy statement with respect to our 2023 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission and is incorporated herein by reference. 

Adoption of Code of Ethics  

4 unchanged sentences

Executive Compensation

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.

The information required by this item will be included in our definitive proxy statement with respect to our 2023 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission and is incorporated herein by reference.

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

The information required regarding security ownership of our 5% or greater stockholders and of our directors and management is incorporated herein by reference from the information contained in the section entitled “Security Ownership of Certain Beneficial Owners and Management”

in our Proxy Statement.

The information required regarding securities authorized for issuance under our equity compensation plans is incorporated herein by reference from the information contained in the section entitled “Equity Compensation Plan Information”

in our Proxy Statement.

Certain Relationships and Related Transactions, and Director Independence

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

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

The information required by Part III, Item 14, regarding principal accounting fees and services is incorporated by reference from the information contained in our Proxy Statement, a copy of which will be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2021 .

Part IV  

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Agreement for the Sale and Purchase of a New Company to Be Established in Hong Kong Special Administrative Region of The People's Republic of China, dated as of September 15, 2022, by and between Prime World International Holdings Ltd., Applied Optoelectronics, Inc.

and Yuhan Optoelectronics Technology (Shanghai) Co., Ltd.

September 15, 2022

Amended and Restated Certificate of Incorporation of the registrant, as currently in effect

125 unchanged sentences

April 5, 2018

Incorporated By Reference  

Number  

Exhibit Description  

Exhibit  

Filing Date  

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

28 unchanged sentences

and Shanghai Pudong Development Bank Co., Ltd., dated April 30, 2019

Incorporated By Reference  

Number  

Exhibit Description  

Exhibit  

Filing Date  

Translation of the Working Capital Loan Contract (RMB 30,000,000), between Global Technology, Inc.

44 unchanged sentences

September 18, 2020

Incorporated By Reference  

Number  

Exhibit Description  

Exhibit  

Filing Date  

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

13 unchanged sentences

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).

and Truist Bank

April 9, 2021

21 unchanged sentences

January 5, 2022

Consent of Grant Thornton LLP

Power of Attorney (see the signature page in this Annual Report on Form 10-K).

Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.

Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.

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

and China Zheshang Bank Co., Ltd., dated June 7, 2022.

June 10, 2022

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

and China Zheshang Bank Co., Ltd., dated June 7, 2022.

June 10, 2022

Form of Trademark License Agreement, by and among Applied Optoelectronics, Inc., and Global Technology Co., Ltd., and Yuhan Optoelectronic Technology (Shanghai) Co., Ltd.

September 15, 2022

Form of Technology Cross-License Agreement, by and among Applied Optoelectronics, Inc., Global Technology Co., Ltd., and Yuhan Optoelectronic Technology (Shanghai) Co., Ltd.

September 15, 2022

Form of Product Supply Agreement, by and between Applied Optoelectronics, Inc.

and Yuhan Optoelectronic Technology (Shanghai) Co., Ltd.

September 15, 2022

Incorporated By Reference  

Number  

Exhibit Description  

Exhibit  

Filing Date  

Form of Contract Manufacturing Agreement, by and among Applied Optoelectronics, Inc., Global Technology Co., Ltd., and Yuhan Optoelectronic Technology (Shanghai) Co., Ltd.

September 15, 2022

Loan Security and Guarantee Agreement, dated November 16, 2022, between Applied Optoelectronics, Inc.

and CIT Northbridge Credit, LLC.

November 21, 2022

Subsidiaries of the registrant

August 13, 2013

Consent of Grant Thornton LLP

Power of Attorney (see the signature page in this Annual Report on Form 10-K).

Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C.

12 unchanged sentences

SIGNATURES  

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on February 24, 2022 .

Pursuant to the requirements of Section 13 or 15(d) the Securities and Exchange Act of 1934, the registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. 

APPLIED OPTOELECTRONICS, INC.

47 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, 2021 and 2020, the related consolidated statements of comprehensive income (loss), changes in shareholders’

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’

equity, and cash flows for each of the three years in the period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, 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, 2021, 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 dated February 24, 2022 expressed an unqualified opinion.

Basis for opinion

1 unchanged sentence

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

1 unchanged sentence

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

7 unchanged sentences

Inventory Reserve

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

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

As described further in Note B to the financial statements, the Company assesses the valuation of its inventory on a periodic basis and provides an allowance based on several factors including products’

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

1 unchanged sentence

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

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

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

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

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

Management developed certain percentages that determine the extent of inventory reserves based on the age of the inventory.

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

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

1 unchanged sentence

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

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

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

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

Impairment of Long-Lived Asset

We obtained the underlying inventory aging report and agreed the balances to the general ledger to test for completeness and performed the following:

recalculated the unit price and agreed such unit price to inventory details;

selected inventory items to re-age;

recalculated the inventory reserve.

Impairment of Long-Lived Assets

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

4 unchanged sentences

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

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

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

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

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

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

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

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, forecast period and future sales values.

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

1 unchanged sentence

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

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

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

We tested the 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, EBITDA margins, capital expenditures, asset grouping, forecast 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, EBITDA margins, capital expenditures, asset grouping, forecast 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;

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CONSOLIDATED BALANCE SHEETS  

(in thousands)  

(in thousands except the par value)  

Current Assets

3 unchanged sentences

Restricted cash

10,902  

Accounts receivable - trade, net of allowance of $ 28 and $ 30 , respectively

21 unchanged sentences

Current liabilities

Current portion of notes payable and long-term debt

$ 49,689  

$ 38,265  

Accounts payable

3 unchanged sentences

12,337  

Accrued liabilities

17,222  

15,587  

Deferred revenue

Current lease liability - operating

Current lease liability - financing

Accrued liabilities

Current portion of notes payable and long-term debt

57,074  

3 unchanged sentences

108,957  

Notes payable and long-term debt, less current portion

13,904  

Convertible senior notes

3 unchanged sentences

Non-current lease liability - financing

Notes payable and long-term debt, less current portion

TOTAL LIABILITIES

13 unchanged sentences

16,071  

11,690  

Accumulated deficit

30 unchanged sentences

14,087  

10,060  

General and administrative

14 unchanged sentences

( 5,620 )  

Other income, net

Other income (expense), net

( 1,205 )  

Total other income (expense), net

6 unchanged sentences

$ ( 54,162 )  

$ ( 58,452 )  

Net loss per share

16 unchanged sentences

Year ended December 31,

$ ( 54,162 )  

$ ( 58,452 )  

Gain/(Loss) on foreign currency translation adjustment

11,260  

Comprehensive loss

$ ( 49,781 )  

$ ( 47,192 )  

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

8 unchanged sentences

January 1, 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 )  

Share-based compensation

13,046  

Foreign currency translation adjustment

11,260  

( 58,452 )  

December 31, 2020

25,110  

$ 354,685  

$ 11,690  

$ ( 88,509 )  

$ 277,891  

Public offering of common stock, net

15,288  

15,289  

Stock options exercised, net of shares withheld for employee tax

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

( 959 )  

Share-based compensation

12,121  

Foreign currency translation adjustment

( 54,162 )  

December 31, 2021

27,323  

$ 381,143  

$ 16,071  

$ ( 142,671 )  

$ 254,570  

Public offering of common stock, net

1 unchanged sentence

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

( 454 )  

Share-based compensation

Foreign currency translation adjustment

( 13,888 )  

( 66,397 )  

December 31, 2022

28,622  

$ 391,526  

$ 2,183  

$ ( 209,068 )  

$ 184,670  

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

5 unchanged sentences

Operating activities:

$ ( 54,162 )  

$ ( 58,452 )  

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

Adjustments to reconcile net loss to net cash used in operating activities:

Allowance of bad debt

( 32 )  

Lower of cost or market reserve adjustment to inventory

Inventory reserve adjustment

Depreciation and amortization

25,371  

24,733  

24,014  

Amortization of debt issuance costs

Deferred income taxes, net

14,570  

Loss on disposal of assets

Loss (gain) on disposal of assets

Share-based compensation

12,121  

13,046  

11,804  

Interest for extinguishment of debt

( 70 )  

Extinguishment of debt

( 6,229 )  

Unrealized foreign exchange (gain) loss

( 1,152 )  

Changes in operating assets and liabilities:

Accounts receivable, trade

( 7,020 )  

( 8,421 )  

Notes receivable

( 7,585 )  

( 389 )  

Prepaid income tax

15,786  

( 23,674 )  

Other current assets

1 unchanged sentence

Accounts payable

( 3,347 )  

Accrued income taxes

Accrued liabilities

( 3,092 )  

Lease liability

( 918 )  

( 438 )  

Net cash used in by operating activities

( 11,644 )  

( 44,009 )  

Net cash used in operating activities

Investing activities:

Purchase of property, plant and equipment

( 7,981 )  

( 15,795 )  

Proceeds from disposal of equipment

Deposits and prepaid for equipment

( 2,222 )  

( 3,279 )  

Purchase of intangible assets

( 457 )  

( 489 )  

Net cash used in investing activities

( 10,546 )  

( 19,347 )  

Financing activities:

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

13,661  

Principal payments of long-term debt and notes payable

( 4,144 )  

( 5,233 )  

Proceeds from line of credit borrowings

122,935  

95,730  

83,434  

Repayments of line of credit borrowings

( 111,287 )  

( 96,006 )  

Proceeds from line of credit borrowings, net of debt issuance costs

Repayments of line of credit borrowings, net of debt issuance costs

Proceeds from bank acceptance payable

24,622  

39,958  

13,638  

Repayments of bank acceptance payable

( 32,465 )  

( 31,338 )  

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

( 18 )  

76,362  

Principal payments of financing lease

( 18 )  

( 17 )  

Exercise of stock options

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

( 960 )  

( 1,080 )  

Proceeds from common stock offering, net

15,397  

39,203  

Net cash provided by financing activities

14,088  

47,441  

42,596  

Effect of exchange rate changes on cash

( 876 )  

( 999 )  

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

( 8,978 )  

( 16,914 )  

Net decrease in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

50,115  

67,029  

58,004  

Cash, cash equivalents and restricted cash at end of period

$ 41,137  

$ 50,115  

$ 67,029  

Supplemental disclosure of cash flow information:

Cash paid (received) for:

$ 4,899  

$ 4,971  

$ 3,172  

( 364 )  

Non-cash investing and financing activities:

Net change in accounts payable related to property and equipment additions

$ ( 4,027 )  

$ ( 2,326 )  

$ 3,869  

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

( 64 )  

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

18 unchanged sentences

The Company also has a research and development center in Duluth, Georgia.

September 

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.

The transaction is expected to close in 2023, subject to customary closing conditions and regulatory approval.

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 likelihood of 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.

NOTE B—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

10 unchanged sentences

The resulting gains or losses from translation are included in a separate component of other comprehensive income.

There is no tax effect on the foreign currency translation because it is management’s intent to reinvest the undistributed earnings of its foreign subsidiaries indefinitely.

There is no tax effect on the foreign currency translation because management has concluded that no deferred tax asset (DTA) should be recorded because at the present time management cannot conclude that the temporary book-tax basis difference that would create this DTA will reverse in the foreseeable future due to the uncertainties in the timing of the Divestiture described above in Note A.

Transaction gains and losses resulting from re-measuring monetary asset and liability accounts that are denominated in a currency other than a subsidiary’s functional currency are included in net foreign exchange gain and loss and are included in net income except for those intercompany balances that are long-term investments in nature.

16 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 $ 17.3 million and $ 10.7  million at December 31, 2021 and 2020 , respectively.

Cash in foreign accounts was approximately $ 17.5  million and $ 17.3  million at December 31, 2022 and 2021 , respectively.

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

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

As of December 31, 2021 , approximately $ 23.1 million of U.S.

As of December 31, 2022 , approximately $ 18.3  million of U.S.

deposits were not covered by FDIC insurance.

14 unchanged sentences

In 2022, 2021 and 2020 , its top five customers represented 78.2 %, 67 %, and 73.3 % 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.

 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.

No other customer represented greater than ten percent of revenue in 2021, 2020, or 2019 had greater than ten percent of total accounts receivable at December 31, 2021 or 2020.

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

In 2022 , ATX and Microsoft represented 47.3 % and 18.4 % of its revenue, respectively.

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

The five largest receivable balances for customers represented an aggregate of 86.9 % and 70.6 % of total accounts receivable at December 31, 2022 and 2021 , respectively.

As of December 31, 2022 , ATX represented 64.9 % of total accounts receivable. As of December 31, 2021, ATX and Microsoft represented 41.7 %, and 13.3 % of total accounts receivable, respectively.

No other customer represented greater than ten percent of revenue in 2022, 2021 or 2020 had greater than ten percent of total accounts receivable at December 31, 2022 

Inventories are stated at the lower of cost (average-cost method) or net realizable value.

Work in process and finished goods includes materials, labor and allocated overhead.

The Company assesses the valuation of its inventory on a periodic basis and provides write-offs for the value of estimated excess and obsolete inventory based on estimates of future demand.

Inventory reserves are recorded to account for the excess and obsolete inventory combined with the lower of cost or net realizable value assessments. To develop the reserve, the Company developed certain percentages that determine the extent of inventory reserve adjustments based on the age of the inventory.

Property, Plant and Equipment

18 unchanged sentences

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

As of December 31, 2021 , the Company had 328 total patents issued.

As of December 31, 2022 , the Company had 304  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.

15 unchanged sentences

220, Comprehensive Income , (“ASC 

) establishes rules for reporting and display of comprehensive income and its components.

) establishes rules for reporting and display of comprehensive income (loss) and its components.

220 requires that unrealized gains and losses on the Company’s foreign currency translation adjustments be included in comprehensive income (loss).

8 unchanged sentences

Specifically, the Company recognizes revenue when obligations under the terms of a contract with its customer are satisfied;

generally this occurs with the transfer of control of products or services.

generally this occurs with the transfer of control of products or services 

at point of time or over times.

When the company receives payments and its obligations to customers are not satisfied, the company will recognize the payment as Deferred Revenue from customers.

Product Warranty

3 unchanged sentences

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

As of December 31, 2021 and 2020 , the amount of accrued warranty was $ 0.3 million and $0.7 million, respectively.

As of December 31, 2022 and 2021 , the amount of accrued warranty was $ 0.1  million and $ 0.3  million, respectively.

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

3 unchanged sentences

( 85 )  

( 457 )  

Provision for warranty

( 38 )  

Ending Balance, December 31

Advertising Costs

Advertising costs are charged to operations as incurred and amounted to approximately $ 0.1 million, $ 0.4 million, and $ 0.5 million for the years ended December 31, 2021, 2020 and 2019 , respectively.

Advertising costs are charged to operations as incurred and amounted to approximately $ 0.8  million, $ 0.1  million, and $ 0.4  million for the years ended December 31, 2022, 2021 and 2020 , respectively.

Research and Development

7 unchanged sentences

The ability to realize deferred tax assets is evaluated annually and a valuation allowance is provided if it is unlikely that the deferred tax assets will not give rise to future benefits in the Company’s tax returns.

The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two -step process in which ( 1 ) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and ( 2 ) for those tax positions that meet the more-likely-than- not recognition threshold, it recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two -step process in which ( 1 ) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and ( 2 ) for those tax positions that meet the more-likely-than- not recognition threshold, it recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority.

The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations.

9 unchanged sentences

Recent Accounting Pronouncements Adopted in 2022

There was no accounting pronouncement adopted in 2022.

Recent Accounting Pronouncements Adopted in 2021

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 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 )”

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 )”

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

1 unchanged sentence

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 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 

Item 301 “Selected Financial Data”

Item 302 “Supplementary Financial Information”

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 Item 301 “Selected Financial Data”, Item 302 “Supplementary Financial Information”

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

2 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 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.

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  

25 unchanged sentences

Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless a portion of the variable consideration related to the contract is allocated entirely to a performance obligation.

The Company determines standalone selling price based on the price at which the performance obligation is sold separately.

The company recognizes revenues over times for services obligations.

Based on ASC 606 - 10 - 32 - 34 methods, expected cost plus a margin approach is adopted to allocate the transaction price.

Recognize revenue when or as the Company satisfies a performance obligation  

18 unchanged sentences

11.1 %  

16,247  

21,092  

Total Revenue

11 unchanged sentences

common-area or other maintenance costs) which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases.

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

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

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

1 unchanged sentence

Based on the applicable lease terms and current economic environment, the Company applies a location approach for determining the incremental borrowing rate.

Lease expense is included under general and administrative expenses and was $ 1.2  million, $ 1.3  million, and $ 1.4  million, respectively, for the years ended December 31, 2022, 2021 and 2020 , respectively.

The Components of lease expense were as follows for the periods indicated (in thousands):

22 unchanged sentences

Weighted Average Discount Rate - operating leases

3.21 %  

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):

7 unchanged sentences

NOTE E—CASH, CASH EQUIVALENTS AND RESTRICTED CASH

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the statement of financial position that sum to the total of the same such amounts in the statement of cash flows (in thousands):

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the balance sheet that sum to the total of the same such amounts in the statement of cash flows (in thousands):

Cash and cash equivalents

2 unchanged sentences

Restricted cash

10,902  

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

2 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, 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 

As of December 31, 2022 and 2021 , there was $ 8.7  million and $ 3.0  million of restricted cash required for bank acceptance notes issued to vendors, respectively.

There was $ 1.1  million and $ 2.4  million certificate of deposit with original maturity of 90 days or less associated with credit facilities with a bank in China as of 

December 31, 2022 and 2021 respectively.

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

There was $ 1.0 million guarantee deposits for customs duties as of December 31, 2022 

and December 31, 2021.

NOTE F—EARNINGS PER SHARE

41 unchanged sentences

$ 92,516  

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.

For the years ended December 31, 2022, 2021 and 2020, the inventory reserve adjustment expensed for inventory was $ 4.9  million, $ 3.9 million, and $ 3.9  million, respectively.

For the years December 31, 2022, 2021 and 2020, the direct inventory write-offs related to scrap, discontinued products, and damaged inventories were $ 10.4  million, $ 16.8  million, and $ 20.4 million, respectively.

NOTE H—PROPERTY, PLANT AND EQUIPMENT

26 unchanged sentences

$ 243,035  

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 ended December 31, 2022, 2021 and 2020 , depreciation expense of property, plant and equipment was $ 22.6  million, $ 24.8  million, and $ 24.2  million, respectively.

For the years 

December 31, 2021, 2020 and 2019 , the capitalized interest was $ 0.9 million, $ 0.4 million, and $ 0.2 million, respectively. 

December 31, 2022, 2021 and 2020 , the capitalized interest was $ 0.2  million, $ 0.9  million, and $ 0.4  million, respectively. 

As of December 31, 2022 , the Company concluded that its continued loss history constitutes a triggering event as described in ASC 360 - 10 - 35 - 21, Property, Plant, and Equipment . 

20 unchanged sentences

$ 3,836  

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 six  years.

For the years ended December 31, 2022, 2021 and 2020 , amortization expense for intangible assets, included in general and administrative expenses on the income statement, was $ 0.6  million, $ 0.5 million and $0.5 million, respectively. The remaining weighted average amortization period for intangible assets is approximately six  years.

At December 31, 2022 , future amortization expense for intangible assets is estimated to be (in thousands):

December 31, 2022

$ 3,699  

9 unchanged sentences

Restricted cash

Note receivable

10,902  

Note receivable

$ 35,587  

$ 35,926  

Bank acceptance payable

20 unchanged sentences

$ 8,148  

$ 49,284  

Bank acceptance payable

12 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

bank up to $ 20,000 with interest at 4.063% , matured November 16, 2022

$ 14,373  

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

Revolving line of credit with a U.S.

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

bank up to $ 27.8 million with interest at 8.984% , maturing the earlier of either 12/14/2023 or 11/16/2025 if the convertible debt remained in effect

25,000  

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

Revolving line of credit with a Taiwan bank up to $ 3,436 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 China bank up to $ 8,917 with interest ranging from 4.5 %, maturing October 15, 2021

Revolving line of credit with a China bank up to $ 19,902 with interest from 2.95% to 4.57% , maturing May 24, 2024

1 unchanged sentence

19,595  

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

Credit facility with a China bank up to $ 26,636 with interest of 4.45% ~ 6.6% , maturing June 7, 2027

20,140  

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

13,044  

Credit facility with a China bank up to $ 7,167 with interest of 5.7% , matured June 27, 2022

58,242  

54,711  

Less debt issuance costs, net

6 unchanged sentences

$ 5,000  

$ 13,904  

Bank Acceptance Notes Payable

3 unchanged sentences

The current portion of long-term debt is the amount payable within one year of the balance sheet date of December 31, 2022 .

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

31 (in thousands):

$ 49,689  

Total outstanding

$ 54,689  

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) .

 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.

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.

On September 28, 2017, the Company entered into a Loan Agreement (“Loan Agreement”), a Promissory Note, an Addendum to the Promissory Note, a Truist Bank Security Agreement, a Trademark Security Agreement, and a Patent Security Agreement (together the “Credit Facility”) with Truist Bank.

The Company amended the Loan Agreement on December 29, 2021. 

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  

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.

As of December 31, 2022, the Company has fully repaid loan under the Sixth Amended Credit Facility.

On November 16, 2022, the Company entered into a Loan Security and Guarantee Agreement (the “Credit Facility”) with CIT Northbridge Credit, LLC, as agent for secured parties.

The Credit Facility provides the Company with a three -year, $ 27.78 million revolving line of credit.

Borrowings under the Credit Facility will be used to repay senior debt with Truist Bank and for working capital needs, capital expenditures, and other corporate purposes.

The Company's obligations under the Credit Facility are secured by the Company's inventory, accounts receivable, instruments, equipment, intellectual property, and all business assets with the exception of real estate and all foreign assets.

Borrowings will bear interest at a rate equal to the Secured Overnight Financing Rate (SOFR) plus 

3.75 %, while monthly average usage is less than 50% of the Credit Facility, otherwise SOFR plus 4.75 %.

The Credit Facility will become due at the earlier date of either November 16, 2025 or 91 days prior to the maturity of the Convertible Notes.

As of December 31, 2022, $ 25.0 million was outstanding under the Credit Facility. 

On September 15, 2020, Prime World entered into an Amendment to the Finance Lease Agreements dated November 29, 2018 and January 21, 2019 ( the “Amendment”) with Chailease Finance Co., Ltd.

(“Chailease”).

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;

The Amendment amends the Finance Lease Agreements, dated November 29, 2018 and 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 includes 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 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 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”).

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

On April 14, 2020, 

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

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

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

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

Each draw will bear interest equal to China Merchants’

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

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

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

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, with Shanghai Pudong Development Bank Co., Ltd ("SPD").

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 began 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 transferred to Prime World upon completion of the Lease Payments and expiration of the Original Finance Agreements.

As of December 

31, 2022, the Company has fully repaid the loan under the Original Finance Agreements and Amendment.

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 Shanghai Pudong Development Bank Co., Ltd ("SPD").

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

1 unchanged sentence

a 30 million RMB credit facility entered into on May 7, 2019;

and a 9.9 million RMB credit facility entered into on April 30, 2019. 

and a 9.9 million RMB credit facility entered into on April 30, 2019 and $ 2 million credit facility entered into on May 8, 2019.

Global may draw upon the SPD Credit Line on an as-needed basis at any time during the 5 -year term;

1 unchanged sentence

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 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.

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.

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

As of December 31, 2022, $ 13.1 million was outstanding under the SPD Credit Line and the outstanding balance of bank acceptance notes issued to vendors was $ 8.2  million.

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

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

On January 6, 2021, the ¥100M Credit Facility with CZB was extended for three ( 3 ) years until January 5, 2024.

The Company replaced the ¥100M Credit Facility on June 7, 2022.

On June 7, 2022, the Company's China Subsidiary, Global, entered a security agreement with China Zheshang Bank in Ningbo City, China ("CZB") for a five -year credit line agreement, totaling 200,000,000 RMB (the "¥200M Credit Facility"), or approximately $ 29.9 million.

Global may draw upon the ¥200M Credit Facility between June 7, 2022 and June 6, 2027 (" ¥200M Credit Period").

During the ¥200M Credit Period, Global may request to draw upon the ¥200M Credit Facility on an as-needed basis;

however, draws under the ¥200M 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 be facilitated by a separate credit agreement specifying the terms of each draw and will bear interest equal to CZB's commercial banking interest rate effective on the day of the applicable draw.

Global’s obligations under the ¥200M 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, 2022, $ 20.1  million was outstanding under the ¥200M Credit Facility and the outstanding balance of bank acceptance notes issued to vendors was $ 4.2  million.

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 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 ¥50M 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 

¥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 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.

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.

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, 2022, the Company has fully repaid the loan under the ¥50M Credit Facility.

As of December 

31, 2022 and December 31, 2021, the Company had $ 13.3  million and $ 7.4 million of unused borrowing capacity, respectively.

As of December 31, 2022 and December 31, 2021, there was $ 9.9  million and $ 5.4 million of restricted cash, investments or security deposits associated with the loan facilities, respectively.

NOTE L—C onvertible Senior Notes

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

December 31, 2022

$ 80,500  

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15, 2022, the Company will in certain circumstances increase the conversion rate for a specified period of time.

Initially there are no guarantors of the Notes, but the Notes will be fully and unconditionally guaranteed, on a senior, unsecured basis by certain of the Company’s future domestic subsidiaries. 

Initially and as of December 31, 2022, there are no guarantors of the Notes, but the Notes will be fully and unconditionally guaranteed, on a senior, unsecured basis by certain of the Company’s future domestic subsidiaries. 

The Notes are the Company’s senior, unsecured obligations and are equal in right of payment with existing and future senior, unsecured indebtedness, senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated to the Notes and effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness. 

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Holders may require the Company to repurchase their Notes upon the occurrence of a fundamental change (as defined in the Indenture) at a cash purchase price equal to the principal amount thereof plus accrued and unpaid interest, if any.

The Company may not redeem the Notes prior to March 

On or after March 

15, 2022, the Company may redeem for cash all or part of the Notes if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice;

and (ii) the trading day immediately before the date the Company sends such redemption notice. 

The redemption price is equal to 100 % of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. 

After March 15, 2022, the Company may redeem for cash all or part of the Notes if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice;

and (ii) the trading day immediately before the date the Company sends such redemption notice.

The redemption price is equal to 100 % of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

In addition, calling any Note for redemption will constitute a “make-whole fundamental change”

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The Indenture contains covenants that limit the Company’s ability and the ability of our subsidiaries to, among other things:

(i) incur or guarantee additional indebtedness or issue disqualified stock;

and (ii) create or incur liens.

(i) incur or guarantee additional indebtedness or issue disqualified stock;

and (ii) create or incur liens.

Pursuant to the guidance in ASC 815 - 40, Contracts in Entity’s Own Equity, the Company evaluated whether the conversion feature of the note needed to be bifurcated from the host instrument as a freestanding financial instrument.

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Accordingly, the conversion option is not required to be bifurcated from the host instrument as a freestanding financial instrument.

Since the conversion feature meets the equity scope exception from derivative accounting, the Company then evaluated whether the conversion feature needed to be separately accounted for as an equity component under ASC 470 - 20, Debt with Conversion and Other Options . 

The Company determined that notes should be accounted for in their entirety as a liability.

The Company incurred approximately $ 4.1 million in transaction costs in connection with the issuance of the Notes.

These costs were recognized as a reduction of the carrying amount of the Notes utilizing the effective interest method and are being amortized over the term of the notes.

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

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Accrued interest

Accrued shipping and tariff expenses

Advance payments

Accrued product warranty

Accrued commission expenses

Accrued commission

Accrued professional fees

Accrued shipping and tariff expenses

Accrued product warranty

Accrued other

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Year ended December 31,

Foreign exchange transaction gain

Foreign exchange transaction gain (loss)

$ ( 1,488 )  

Government subsidy income

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Gain (loss) on disposal of assets

( 15 )  

Total other income, net

Total other gain (loss), net

$ ( 1,205 )  

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$ 7,185  

$ 16,375  

$ 7,185  

$ 14,549  

Income tax (benefit) expense

$ 7,228  

$ 14,662  

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

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Research and development credits

10,505  

ASC 842 Assets

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

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

The carryforward period for China net operating loss carry forwards is ten years, and the expiration period begins 2029.

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

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

On the basis of this evaluation, as of December 31, 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, 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.

On the basis of this evaluation, as of December 31, 2022 

and December 31, 2021, a valuation allowance of $ 69.7 million and $ 57.7 million, respectively, has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized.

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:

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$ 43,462  

$ 25,736  

Change charged to expense/(income)

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Change charged to currency translation adjustment

( 2,237 )  

Ending Balance, December 31

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Alternative Minimum Tax

( 172 )  

Foreign other

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$ 7,228  

$ 14,662  

The Company's provision for income taxes in

was lower than

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

The Company's provision for income taxes in 2022 was lower than 2021 primarily due to state taxes.

The Company's provision for income taxes in 2021 was lower than 2020 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.

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1, 2008, China adopted a uniform income tax rate of 25 % for all enterprises including foreign invested enterprises.

Global Technology, Inc.

was recognized as a National high-tech enterprise in 2008 and was entitled to a 15 % tax rate for a three year period from November 2008 to November 2011.

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

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

However, Global Technology, Inc.

has been recognized as a National high-tech enterprise since 2008 and entitled to a 15 % reduced tax rate. 

In December 2020, Global Technology, Inc.

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

from December 2020 until December 2023.

until December 2023.

This tax holiday reduced its 

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The Company is subject to examination for tax years 2011 forward for various foreign jurisdictions.

Tax Act significantly changed how the U.S.

taxes corporations.

Tax Act requires complex computations to be performed that were not previously required by U.S.

tax law, significant judgments to be made in interpretation of the provisions of the U.S.

Tax Act, significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced.

Treasury Department, the IRS, and other standard-setting bodies will continue to interpret or issue guidance on how provisions of the U.S.

Tax Act will be applied or otherwise administered.

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

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

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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).

These 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.

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. 

On August 9, 2022, the Creating Helpful Incentives to Produce Semiconductors and Science Act, (the “CHIPS Act”) was signed into law.

Among other things, the CHIPS Act provides for refundable tax credits and certain other financial incentives to further investments in domestic manufacturing.

The Company is evaluating the provisions of the new law and the potential impacts to the Company.

On August 16, 2022, legislation commonly known as the Inflation Reduction Act was signed into law.

Among other things, the Inflation Reduction Act includes a 1% excise tax on corporate stock repurchases, applicable to repurchases after December 31, 2022, and also a new minimum tax based on book income.

We are in the process of evaluating the potential impacts of the Inflation Reduction Act to us.

While we do not currently expect the Inflation Reduction Act to have a material impact on our effective tax rate, our analysis of the effect of the Inflation Reduction Act on us is ongoing and incomplete, and it is possible that the Inflation Reduction Act (or implementing regulations and other guidance, which have not yet been issued) could adversely impact our current and deferred federal tax liability.

The Company does not expect any earnings of foreign subsidiaries to be indefinitely invested outside the United States.

As of December 31, 2022, however, the Company does not have any accumulated undistributed earnings generated by foreign subsidiaries and has estimated that its tax basis in foreign subsidiaries exceeds its book basis. The Company has concluded that no deferred tax asset (DTA) should be recorded  because at the present time it cannot conclude that the temporary book-tax basis difference that would create this DTA will reverse in the foreseeable future due to the uncertainties in the timing of the Divestiture described above.

NOTE P—SHARE-BASED COMPENSATION

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Stock Options  

Options have been granted to the Company’s employees under the five incentive plans and generally become exercisable as to 25 % of the shares on the first anniversary date following the date of grant and semi-annually thereafter.

Options have been granted to the Company’s employees under the two incentive plans and generally become exercisable as to 25 % of the shares on the first anniversary date following the date of grant and 12.5 % on a semi-annual basis thereafter.

All options expire ten years after the date of grant.

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$ 5.44  

$ 9.64  

Outstanding, December 31, 2022

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As of December 31, 2022 , there was no unrecognized stock option expense.

Restricted Stock Unit/Awards

The following is a summary of RSU/RSA activity (in thousands, except per share data):

Performance Based Incentive Plan/ Restricted Stock Unit

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

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.

The Company recognized PSU expenses for the twelve  months ended December 31, 2022 and 2021 was $ 1.7  million and $ 0.7  million, respectively. 

Restricted stock units are issued to employees through a vesting plan and distribution schedule after employee remains with the Company for a particular length of time.

The following is a total summary of PSU/RSU activity (in thousands, except per share data):

Average Share

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$ 2.75  

$ 8.28  

Cancelled/Forfeited

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Outstanding, December 31, 2022

11,156  

Vested and expected to vest

11,156  

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.

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. 

December 31, 2022 , there was $ 13.8  million of unrecognized compensation expense related to these RSUs.

This expense is expected to be recognized over 1.95  years.

Share-Based Compensation  

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Public Offerings of Common Stock  

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 “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.

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

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

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

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

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

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

offerings as defined in Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”), including sales made through the facilities of the Nasdaq Global Market, the principal trading market for the Company’s common stock, on any other existing trading market for the Company’s common stock, to or through a market maker or as otherwise agreed by the Company and the Sales Agent.

In the placement notice, the Company will designate the maximum number of Shares to be sold through the Sales Agent, the time period during which sales are requested to be made, the minimum price for the Shares to be sold, and any limitation on the number of Shares that may be sold in any one day.

Subject to the terms and conditions of the Agreement, the Sales Agent will use its commercially reasonable efforts to sell Shares on the Company’s behalf up to the designated amount specified in the placement notice.

The Company has no obligation to sell any Shares under the Agreement and may at any time suspend offers and sales of the Shares under the Agreement.

The Agreement provides that the Sales Agent will be entitled to compensation of up to 2 % of the gross sales price of the Shares sold through the Sales Agent from time to time.

The Company has also agreed to reimburse the Sales Agent for certain specified expenses in connection with the registration of Shares under state blue sky laws and any filing with, and clearance of the offering by, the Financial Industry Regulatory Authority Inc., not to exceed $ 10,000 in the aggregate, and any associated application fees incurred.

Additionally, if the Agreement is terminated under certain circumstances, and the Company fails to sell a minimum amount of the Shares as set forth in the Agreement, then the Company has agreed to reimburse the Sales Agent for reasonable out-of-pocket expenses, including the reasonable fees and disbursements of counsel incurred by the Sales Agent, up to a maximum of $ 30,000 in the aggregate.

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

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

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

Distribution Agent

Weighted Average Per Share Price

Number of Shares Sold

Compensation to Distribution Agent