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Item 9A. Controls and Procedures

2024-02-23 compared with 2023-02-27 · 649 added, 950 removed, 748 unchanged (68% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures.

The term “disclosure controls and procedures,”

as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their control objectives.

1 unchanged sentence

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

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

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act).

Internal control over financial reporting is a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officers, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

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

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

Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

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

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

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

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

Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of the end of the period covered by this Form 10-K based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organization of the Treadway Commission.

Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of the end of the period covered by this Form 10-K based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organization of the Treadway Commission.

Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2023 .

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, 2023.

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, 2023, 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, 2023, 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, 2023, and our report dated February 23, 2024 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 23, 2024

Other Information

Rule 10b5 - 1 Trading Plans

The adoption or termination of contracts, instructions or written plans for the purchase or sale of our securities by our Section 16 offers and directors for the three months ended December 31, 2023, each of which is intended to satisfy the affirmative defense conditions of Rule 10b5 - 1 (c) under the Exchange Act ("Rule 10b5 - 1 Plan"), were as follows:

Name Title Action Date Adopted Expiration Date Aggregate # of Securities to be Purchased/Sold

Chih-Hsiang (Thompson) Lin ( 1 ) CEO Adoption 12/14/2023 3/15/2025 60,000

Stefan Murry ( 2 ) CFO Adoption 12/14/2023 10/31/2024 12,000

Hung-Lun (Fred) Chang ( 3 ) SVP/North America General Manager Adoption 12/14/2023 1/31/2025 18,195

David Kuo ( 4 ) SVP/CLO Adoption 12/14/2023 2/28/2025 40,000

( 1 ) Chih-Hsiang (Thompson) Lin , our CEO , entered into a Rule 10b5 - 1 Plan on December 14, 2023 .

Lin's plan provides for the potential sale of 60,000 shares of the Company's common stock.

The Plan expires on March 15, 2025 , or upon the earlier of completion of all authorized transactions under the plan.

( 2 ) Stefan Murry , our CFO , entered into a Rule 10b5 - 1 Plan on December 14, 2023 .

Murry's plan provides for the potential sale of 12,000 shares of the Company's common stock.

The Plan expires on October 31, 2024 , or upon the earlier of completion of all authorized transactions under the plan.

( 3 ) Hung-Lun (Fred) Chang , our Senior Vice President and North America General Manager , entered into a Rule 10b5 - 1 Plan on December 14, 2023 .

Chang's plan provides for the potential sale of up to 18,195 shares of the Company's common stock.

The plan expires January 31, 2025 , or upon the earlier of the completion of all authorized transactions under the plan.

( 4 ) David Kuo , our Senior Vice President and Chief Legal Officer , entered into a Rule 10b5 - 1 Plan on December 14, 2023 .

Kuo's plan provides for the potential sale of up to 40,000 shares of the Company's common stock.

The plan expires February 28, 2025 , or upon the earlier completion of all authorized transactions under the plan.

Disclosure Regarding Foreign Jurisdiction that Prevent Inspections

PART III  

Directors, Executive Officers and Corporate Governance

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  

The Company has adopted a Code of Business Conduct and Ethics (the “Code”) applicable to all of our board of director members, employees and executive officers, including our Chief Executive Officer (Principal Executive Officer), and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer).

The 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 2024 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission and is incorporated herein by reference.

Adoption of Code of Ethics

The Company has made the Code available on our website at http://www.ao-inc.com.

The Company intends to satisfy the public disclosure requirements regarding (1) any amendments to the Code, or (2) any waivers under the Code given to our Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer by posting such information on our website at www.ao-inc.com.

There were amendments to the Code or waivers granted thereunder relating to the Principal Executive Officer, Principal Financial Officer or Principal Accounting Officer during 2022 .

There were no amendments to the Code or waivers granted thereunder relating to the Principal Executive Officer, Principal Financial Officer or Principal Accounting Officer during 2023 .

Executive Compensation

6 unchanged sentences

The information required by this item will be included in our definitive proxy statement with respect to our 2024 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission and is incorporated herein by reference.

Part IV  

Exhibits, Financial Statements Schedules

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

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

(a)(2) Financial Statement Schedules.

Financial statement schedules have been omitted, as the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto appearing in this Form 10-K.

(a)(3)  Exhibits.

(a)(3) Exhibits.

See the Exhibit immediately following Item 16.

1 unchanged sentence

Form 10-K Summary

EXHIBIT INDEX  

Incorporated By Reference

EXHIBIT INDEX

Incorporated By Reference

Exhibit Description

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.

3 unchanged sentences

November 14, 2013

Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Applied Optoelectronics, Inc.

September 7, 2023

Amended and Restated Bylaws of the registrant, as currently in effect

2 unchanged sentences

November 14, 2016

Indenture, 

dated as of March 5, 2019 between Applied Optoelectronics, Inc.

Indenture, dated as of March 5, 2019 between Applied Optoelectronics, Inc.

and Wells Fargo Bank, National Association, as trustee, paying agent, and conversion agent

March 5, 2019

Form of Note representing the Company’s 5.00% Convertible Senior Notes due 2024 

(included as Exhibit A to the Indenture)

Form of Note representing the Company’s 5.00% Convertible Senior Notes due 2024 (included as Exhibit A to the Indenture)

March 5, 2019

Description of Company’s Common Stock

February 28, 2020

Indenture, dated as of December 5, 2023, between Applied Optoelectronics, Inc.

and Computershare Trust Company, N.A., as Trustee

December 5, 2023

Form of 5.250% Convertible Senior Note due 2026 (included as an exhibit to Exhibit 4.1)

December 5, 2023

First Supplemental Indenture, dated as of December 5, 2023, between Applied Optoelectronics, Inc.

and Computershare Trust Company, N.A., as Trustee

December 5, 2023

Description of Company's Common Stock

Form of Indemnification Agreement between the registrant each of its Directors and certain of its Executive Officers

August 13, 2013

2006 Incentive Share Plan

August 13, 2013

First Amendment to 2006 Incentive Share Plan

August 27, 2013

Form of Stock Option Agreement under 2006 Incentive Share Plan

August 13, 2013

Amended and Restated 2013 Equity Incentive Plan

8 unchanged sentences

August 13, 2013

Amended and Restated Employment Agreement regarding Change of Control or Separation of Service between the registrant and Chih-Hsiang (Thompson) Lin, dated April 16, 2013

2021 Stock Incentive Plan

August 5, 2021

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

August 5, 2021

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

August 5, 2021

Incorporated By Reference

Exhibit Description

Applied Optoelectronic, Inc.

2023 Equity Incentive Plan

November 9, 2023

Amended and Restated Employment Agreement regarding Change of Control or Separation of Service between the registrant and Chih-Hsiang (Thompson) Lin, dated April 16, 2013

August 13, 2013

Employment Agreement, dated August 5, 2016, between Applied Optoelectronics, Inc.

7 unchanged sentences

February 28, 2018

Incorporated By Reference  

Number  

Exhibit Description  

Exhibit  

Filing Date  

Loan Agreement, dated September 28, 2017, between Applied Optoelectronics, Inc.

and Branch Banking and Trust Company 

October 4, 2017

Promissory Note, dated September 28, 2017, between Applied Optoelectronics, Inc.

and Branch Banking and Trust Company

October 4, 2017

Addendum to the Promissory Note, dated September 28, 2017, between Applied Optoelectronics, Inc.

and Branch Banking and Trust Company

October 4, 2017

BB&T Security Agreement, dated September 28, 2017, between Applied Optoelectronics, Inc.

and Branch Banking and Trust Company

October 4, 2017

Trademark Security Agreement, dated September 28, 2017, between Applied Optoelectronics, Inc.

and Branch Banking and Trust Company

October 4, 2017

Patent Security Agreement, dated September 28, 2017, between Applied Optoelectronics, Inc.

and Branch Banking and Trust Company

October 4, 2017

Supply Agreement, effective November 8, 2017, between Applied Optoelectronics, Inc.

5 unchanged sentences

Translation of Lease Agreement between Global Technology, Inc.

and the People’s Republic of China in Zhejiang Province, Ningbo City, Land Resources Bureau

February 28, 2018

Translation of Investment and Construction Agreement between Global Technology, Inc.

and the People’s Republic of China in Zhejiang Province, Ningbo City, Land Resources Bureau

February 28, 2018

2 unchanged sentences

dated February 8, 2018

First Amendment to Loan Agreement, dated March 30, 2018, between Applied Optoelectronics, Inc.

and Branch Banking and Trust Company

April 5, 2018

Addendum to the Promissory Note ($60 million), dated March 30, 2018, between Applied Optoelectronics, Inc.

and Branch Banking and Trust Company

April 5, 2018

Promissory Note ($26 million), dated March 30, 2018, between Applied Optoelectronics, Inc.

and Branch Banking and Trust Company

April 5, 2018

Addendum to the Promissory Note ($26 million), dated March 30, 2018, between Applied Optoelectronics, Inc.

and Branch Banking and Trust Company

April 5, 2018

Promissory Note ($21.5 million), dated March 30, 2018, between Applied Optoelectronics, Inc.

and Branch Banking and Trust Company

April 5, 2018

Incorporated By Reference  

Number  

Exhibit Description  

Exhibit  

Filing Date  

Addendum to the Promissory Note ($21.5 million), dated March 30, 2018, between Applied Optoelectronics, Inc.

and Branch Banking and Trust Company

April 5, 2018

Note Modification Agreement, dated March 30, 2018, between Applied Optoelectronics, Inc.

and Branch Banking and Trust Company

April 5, 2018

Assignment of Lease and Rent, dated March 30, 2018, between Applied Optoelectronics, Inc.

and Branch Banking and Trust Company

April 5, 2018

Texas Deed of Trust and Security Agreement, dated March 30, 2018, between Applied Optoelectronics, Inc.

and Branch Banking and Trust Company

April 5, 2018

Environmental Certification and Indemnity Agreement, dated March 30, 2018, between Applied Optoelectronics, Inc.

and Branch Banking and Trust Company

April 5, 2018

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

1 unchanged sentence

October 12, 2018

Translation of Purchase and Sale Contract, Finance Lease Agreement and Promissory Note, dated November 29, 2018, between Prime World International Holdings, Ltd., and Chailease Finance Co., Ltd.

December 6, 2018

Translation of Purchase and Sale Contract, Finance Lease Agreement and Promissory Note, dated January 21, 2019, between Prime World International Holdings, Ltd.

and Chailease Finance Co., Ltd.

January 25, 2019

Second Amendment to Loan Agreement, dated February 1, 2019, between Applied Optoelectronics, Inc.

and Branch Banking and Trust Company

February 7, 2019

Purchase Agreement, dated as of February 28, 2019 by and among Applied Optoelectronics, Inc., Raymond James & Associates, Inc.

1 unchanged sentence

March 5, 2019

Third Amendment to Loan Agreement, dated March 5, 2019, between Applied Optoelectronics, Inc.

and Branch Banking and Trust Company

March 5, 2019

Translation of Approval Notice between, Prime World International Holdings, Ltd., and Far Eastern International Bank Co., Ltd., dated April 11, 2019

April 17, 2019

Translation of Comprehensive Credit Facilities Master Agreement between, Prime World International Holdings, Ltd., and Far Eastern International Bank Co., Ltd., dated April 11, 2019

April 17, 2019

Translation of Credit Terms / Financial Transaction Terms Agreement between, Prime World International Holdings, Ltd., and Far Eastern International Bank Co., Ltd., dated April 11, 2019

April 17, 2019

Translation of Promissory Note between, Prime World International Holdings, Ltd., and Far Eastern International Bank Co., Ltd., dated April 11, 2019

April 17, 2019

Translation of the Credit Granting Agreement, between Global Technology, Inc.

and China Merchants Bank Co., Ltd., dated April 19, 2019

April 25, 2019

Translation of the Working Capital Loan Contract, between Global Technology, Inc.

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.

6 unchanged sentences

and Shanghai Pudong Development Bank Co., Ltd.

Translation of the Maximum Loan Contract (¥100M), dated June 21, 2019, between Global Technology, Inc.

and China Zheshang Bank Co., Ltd

June 27, 2019

Translation of the Maximum Mortgage Contract (the “Real Estate Security Agreement”), dated June 21, 2019, between Global Technology, Inc.

and China Zheshang Bank Co., Ltd

June 27, 2019

Translation of the Maximum Loan Contract (¥50M), dated June 21, 2019, between Global Technology, Inc.

and China Zheshang Bank Co., Ltd

June 27, 2019

Translation of the Maximum Mortgage Contract (the “Machinery and Equipment Security Agreement”), dated June 21, 2019, between Global Technology, Inc.

and China Zheshang Bank Co., Ltd

June 27, 2019

Translation of the Approval Notice of Credit Line, dated July 8, 2019, between Prime World International Holdings Ltd.

and Taishin International Bank

August 8, 2019

Translation of the General Agreement for Financial Transaction, dated July 23, 2019, between Prime World International Holdings Ltd.

and Taishin International Bank

August 8, 2019

Translation of the Credit Facility Agreement, dated July 23, 2019, between Prime World International Holdings Ltd.

and Taishin International Bank

August 8, 2019

Translation of the Promissory Note, dated July 23, 2019, between Prime World International Holdings Ltd.

and Taishin International Bank

August 8, 2019

Fourth Amendment to Loan Agreement, dated September 30, 2019, between Applied Optoelectronics, Inc.

and Branch Banking and Trust Company

October 4, 2019

Note Modification Agreement, dated September 30, 2019, executed by Applied Optoelectronics, Inc.

October 4, 2019

Addendum To Promissory Note, dated September 30, 2019, executed by Applied Optoelectronics, Inc.

October 4, 2019

Second Amendment to Lease, dated November 11, 2019, between Applied Optoelectronics, Inc.

3 unchanged sentences

April 22, 2020

Translation of Amendment to the Finance Lease Agreements, dated September 15, 2020, between Prime World International Holdings Ltd., and Chailease Finance Co., Ltd.

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.

and Taishin International Bank.

October 13, 2020

Translation of the Notice of Credit Line Approval, dated August 24, 2020.

October 13, 2020

Translation of the Credit Granting Agreement, between Global Technology Inc.

and China Merchants Bank Co., Ltd., dated October 19, 2020.

October 22, 2020 

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

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

January 11, 2021

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

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

January 11, 2021

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

and Truist Bank

April 9, 2021

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

and Truist Bank.

April 9, 2021

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

and Truist Bank.

April 9, 2021

 †

2021 Stock Incentive Plan.

August 5, 2021

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

August 5, 2021

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

August 5, 2021

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

and Truist Bank.

January 5, 2022

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

and Truist Bank.

January 5, 2022

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

and Truist Bank.

January 5, 2022

Incorporated By Reference

Exhibit Description

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

11 unchanged sentences

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.

3 unchanged sentences

November 21, 2022

Statement of Work No.

1 – Foundry between Applied Optoelectronics, Inc.

and Microsoft Corporation, effective December 16, 2022

Microsoft Corporation Purchase Order Terms & Conditions (included as Appendix C to Exhibit 10.1)

Incorporated By Reference

Exhibit Description

Third Amendment to Lease, dated June 9, 2023, between Applied Optoelectronics, Inc.

and Albany Road-Breck Exchange LLC

June 14, 2023

Statement of Work No.

2 – Design and Assembly, between Applied Optoelectronics, Inc.

and Microsoft Corporation, effective June 21, 2023

June 21, 2023

Microsoft Corporation Purchase Order Terms & Conditions (included as Appendix J to Exhibit 10.1)

June 21, 2023

Form of Exchange Agreement, dated as of November 30, 2023, between Applied Optoelectronics, Inc.

and the applicable Noteholders

December 1, 2023

Purchase Agreement, dated as of November 30, 2023, by and between Applied Optoelectronics, Inc.

and Raymond James & Associates, Inc.

December 5, 2023

Translation of the Asset Pool Agreement, between Global Technology, Inc.

and China Zheshang Bank Co., Ltd., dated December 21, 2023

December 27, 2023

Translation of the Pledge Contract, between Global Technology, Inc.

and China Zheshang Bank Co., Ltd., dated December 21, 2023

December 27, 2023

Subsidiaries of the registrant

5 unchanged sentences

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

§1350 as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

Compensation Recovery Policy

Inline XBRL Instance Document

5 unchanged sentences

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*     Filed herewith.

†     Management contract, compensatory plan or arrangement.

* Filed herewith.

† Management contract, compensatory plan or arrangement.

** Confidential Treatment has been granted for portions of this document.

SIGNATURES  

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.

APPLIED OPTOELECTRONICS, INC.

/s/ Chih-Hsiang (Thompson) Lin

33 unchanged sentences

February 23, 2024

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 

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

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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

Consolidated Balance Sheets

1 unchanged sentence

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Stockholders’

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  

Board of Directors and Shareholders

2 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, 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”).

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, 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 23, 2024 expressed an unqualified opinion.

Basis for opinion

These financial statements are the responsibility of the Company’s management.

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

We are a public accounting firm registered with the 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.

These financial statements are the responsibility of the Company’s management.

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

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

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

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

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

One significant estimate and assumption that impacts the financial statements is inventory reserve.

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

The principal considerations for our determination that accounting for inventory reserve is a critical audit matter are the judgments and estimates associated with management’s determination of 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.

As described further in Note B to the financial statements, the Company assesses the valuation of its inventory on a periodic basis and provides a reserve based on several factors including products’ life span and management’s estimates of future demand.

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

The principal considerations for our determination that accounting for the 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 and quantity 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:

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

We assessed the qualifications and competence of management and evaluated the methodologies used to determine the inventory reserve;

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

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

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selected inventory items to re-age;

recalculated the inventory reserve.

tested the underlying source of information and the mathematical accuracy of the calculation used in the inventory reserve;

tested the sensitivity of the inputs utilized in the reserve calculation.

Impairment of Long-Lived Assets

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

Long-lived assets consist primarily of property, plant and equipment, right-of-use assets and intangible assets.

The Company evaluates the carrying value of long-lived assets when it determines a triggering event has occurred, or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

When indicators exist, recoverability of assets is measured by a comparison of the carrying value of the asset group to the estimated undiscounted future net cash flows expected to be generated by the asset.

If assets are determined not to be recoverable, the Company performs an analysis of the fair value of the asset group and will recognize an impairment loss when the fair value is less than the carrying amounts of such assets.

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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, forecast period and future sales values.

The principal consideration for our determination that the long-lived assets impairment assessment and cash flow analysis 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 sensitivity of the underlying significant assumptions used in the cash flow analysis.

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

Our audit procedures related to the accounting for impairment of long-lived assets included the following:

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

We tested the design and operating effectiveness of key controls related to the accounting for possible impairment, including controls relating to management’s development of forecasts for revenue growth rates, operating expenses, 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;

Our audit procedures related to the assessment of long-lived asset impairment and cash flow analysis included the following:

We assessed the qualifications and competence of management and evaluated the methodologies used in the impairment assessment of long-lived assets;

We tested the assumptions, including 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;

We tested the sensitivity of the undiscounted cash flows utilized in the recoverability test.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2008.

Houston, Texas

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Applied Optoelectronics, Inc.

and Subsidiaries  

CONSOLIDATED BALANCE SHEETS  

(in thousands except the par value)  

and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(in thousands except the par value)

Current Assets

Cash and cash equivalents

$ 24,685  

$ 34,656  

$ 45,366 $ 24,685

Restricted cash

10,902  

Accounts receivable - trade, net of allowance of $ 3 and $ 28 , respectively

61,175  

47,944  

48,071 61,175

Notes receivable

79,679  

92,516  

63,866 79,679

Prepaid income tax

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Total current assets

183,164  

194,079  

172,605 183,164

Property, plant and equipment, net

210,184  

243,035  

200,317 210,184

Land use rights, net

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Other assets, net

$ 408,263  

$ 454,459  

$ 389,186 $ 408,263

LIABILITIES AND STOCKHOLDERS' EQUITY

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Accounts payable

$ 47,845  

$ 34,402  

$ 32,892 $ 47,845

Bank acceptance payable

12,337  

15,482 12,337

Accrued liabilities

17,222  

15,587  

Deferred revenue

18,549 17,222

Unearned revenue

Current lease liability - operating

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Current portion of notes payable and long-term debt

57,074  

49,689  

23,197 57,074

Current portion of convertible notes

Total current liabilities

138,582  

108,957  

93,358 138,582

Convertible senior notes

79,506  

78,680  

76,233 79,506

Non-current lease liability - operating

Non-current lease liability - financing

Notes payable and long-term debt, less current portion

TOTAL LIABILITIES

223,593  

199,889  

174,317 223,593

Stockholders' equity:

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Additional paid-in capital

391,526  

381,143  

478,972 391,526

Accumulated other comprehensive income

16,071  

Accumulated deficit

( 209,068 )  

( 265,116 ) ( 209,068 )

TOTAL STOCKHOLDERS' EQUITY

184,670  

254,570  

214,869 184,670

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$ 408,263  

$ 454,459  

$ 389,186 $ 408,263

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

Applied Optoelectronics, Inc.

and Subsidiaries  

CONSOLIDATED STATEMENTS OF OPERATIONS  

and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

Year ended December 31,

$ 222,818  

$ 211,565  

$ 234,623  

Cost of goods sold

189,191  

173,850  

184,082  

33,627  

37,715  

50,541  

Operating expenses

Research and development

36,244  

41,220  

43,393  

Sales and marketing

10,899  

14,087  

General and administrative

46,658  

42,362  

41,903  

Total operating expenses

92,625  

94,481  

99,383  

Loss from operations

( 58,998 )  

( 56,766 )  

Other income (expense)

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Interest expense

( 6,319 )  

( 5,620 )  

Other income (expense), net

( 1,205 )  

Total other income (expense), net

( 7,398 )  

Loss before income taxes

( 66,396 )  

( 54,160 )  

Income tax expense

$ ( 66,397 )  

$ ( 54,162 )  

Net loss per share

$ ( 2.38 )  

$ ( 2.01 )  

$ ( 2.38 )  

$ ( 2.01 )  

Weighted average shares used to compute net loss per share:

27,846,387  

26,912,141  

21,866,630  

27,846,387  

26,912,141  

21,866,630  

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

Applied Optoelectronics, Inc.

and Subsidiaries  

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)  

(in thousands)  

and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

Year ended December 31,

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Applied Optoelectronics, Inc.

and Subsidiaries  

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

and Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Years ended December 2021, 2022 and 2023

(in thousands)  

Preferred Stock

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January 1, 2021

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, 2021

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, 2022

27,323  

$ 381,143  

$ 16,071  

$ ( 142,671 )  

$ 254,570  

Public offering of common stock, net

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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, 2023

28,622  

$ 391,526  

$ 2,183  

$ ( 209,068 )  

$ 184,670  

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

Applied Optoelectronics, Inc.

Applied Optoelectronics, Inc.

and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS  

(in thousands)  

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Year ended December 31,

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Allowance of bad debt

Inventory reserve adjustment

Lower of cost or net realizable value reserve adjustment to inventory

Depreciation and amortization

Amortization of debt issuance costs

Deferred income taxes, net

Loss (gain) on disposal of assets

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Accrued liabilities

Unearned Revenue

Lease liability

Net cash used in operating activities

Net cash used in operating activities

Investing activities:

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Financing activities:

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

Principal payments of long-term debt and notes payable

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

Applied Optoelectronics, Inc.

Applied Optoelectronics, Inc.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  

NOTE A—ORGANIZATION AND OPERATIONS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A—ORGANIZATION AND OPERATIONS

Applied Optoelectronics, Inc.

(“AOI”

or the “Company”) was incorporated in the State of Texas on February 

(“AOI” or the “Company”) was incorporated in the State of Texas on February 28, 1997.

In March 2013, the Company converted into a Delaware corporation.

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The Company operates in Taipei, Taiwan and Ningbo, China through its wholly-owned subsidiary Prime World International Holdings, Ltd.

(“Prime World”, incorporated in the British Virgin Islands).

Prime World is the parent of Global Technology, Inc.

(“Global”, incorporated in the People’s Republic of China).  Through Global, the Company primarily manufactures certain of its data center transceiver products, including subassemblies and transceivers, as well as Cable TV Broadband (“CATV”) systems and equipment, and performs research and development activities for the CATV products.

(“Global”, incorporated in the People’s Republic of China).

Through Global, the Company primarily manufactures certain of its data center transceiver products, including subassemblies and transceivers, as well as Cable TV Broadband (“CATV”) systems and equipment, and performs research and development activities for the CATV products.

Prime World also operates a branch in Taiwan, which primarily manufactures transceivers.

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

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

Basis of Presentation

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Foreign Currency Translation

The functional currency for the Company’s foreign operations is the local currency.

The assets and liabilities of these operations are translated at the rate of exchange in effect on the balance sheet date and sales and expenses are translated at monthly average rates.

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

There is no tax effect on the foreign currency translation because 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.

T here 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.

The translation gain or losses from the long-term investment nature of intercompany balances are treated as translation adjustments and included in comprehensive income.

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The three levels of the fair value hierarchy are as follows:

1—Inputs represent quoted prices in active markets for identical assets or liabilities.

2—Inputs other than quoted prices included within Level 

1 that are observable for the asset or liability, either directly or indirectly.

Level 1—Inputs represent quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

3—Inputs that are not observable from objective sources, such as management’s internally developed assumptions used in pricing an asset or liability.

Level 3—Inputs that are not observable from objective sources, such as management’s internally developed assumptions used in pricing an asset or liability.

Assets and liabilities that are required to be fair valued on a recurring basis include money market funds, marketable securities, equity instruments and contingent consideration.

Money market funds are valued with Level 

1 inputs, using quoted market prices, and are included in cash and cash equivalents on the Company’s consolidated balance sheets.

Money market funds are valued with Level 1 inputs, using quoted market prices, and are included in cash and cash equivalents on the Company’s consolidated balance sheets.

Cash and Cash Equivalents

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

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

Cash in foreign accounts was approximately $ 17.7 million and $ 17.5 million at December 31, 2023 and 2022 , 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, 2022 , approximately $ 18.3  million of U.S.

As of December 31, 2023 , approximately $ 36.8 million of U.S.

deposits were not covered by FDIC insurance.

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The Company places all cash and cash equivalents with high-credit quality financial institutions.

The Company performs ongoing credit valuations of its customers’

financial condition whenever deemed necessary and generally does not require deposits or collateral to support customer receivables.

The historical amount of losses on uncollectible accounts has been within the Company’s estimates.

The Company performs ongoing credit valuations of its customers’ financial condition whenever deemed necessary and generally does not require deposits or collateral to support customer receivables.

The historical amount of losses on uncollectible accounts has been within the Company’s estimates.

The Company generates much of its revenue from a limited number of customers.

In 2023, 2022 and 2021 , its top five customers represented 85.6 %, 78.2 %, and 67 % of its revenue, respectively.

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.

In 2023 , Microsoft, ATX and Digicomm represented 46.6 %, 15.6 % and 11.3 % of its revenue, respectively.

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

The five largest receivable balances for customers represented an aggregate of 75.4 % and 86.9 % of total accounts receivable at December 31, 2023 and 2022 , 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 

As of December 31, 2023 , Digicomm represented 35.2 % of total accounts receivable and ATX represented 21.4 % of total accounts receivable.

As of December 31, 2022, ATX represented 64.9 % of total accounts receivable, respectively.

No other customer represented greater than ten percent of revenue in 2023 or 2022 had greater than ten percent of total accounts receivable at December 31, 2023 or 2022.

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

1 unchanged sentence

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.

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.

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.

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Construction in progress is transferred to the appropriate fixed asset account and depreciation commences when the asset has been substantially completed and placed in service.

Land use rights allow the Company rights for 50  years to certain land in Ningbo, China on which the Company built a facility that included office space, manufacturing operations and employee dormitories.

Land use rights allow the Company rights for 50 years to certain land in Ningbo, China on which the Company built a facility that included office space, manufacturing operations and employee dormitories.

The land use rights are recorded at cost and are amortized on the straight-line basis over the useful life of the related contract.

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

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.

The Company periodically evaluates its intangible assets to determine whether events or changes in circumstances indicate that a patent or trademark may not be applicable to the Company’s current products or is no longer in use.

As of December 31, 2023 , the Company had 326 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.

If such a determination is made, the intangible asset is impaired and the remaining value of the patent or trademark will be expensed at that time.

Impairment of Long-Lived Assets

The Company accounts for impairment of long-lived assets in accordance with Accounting Standards Codification (“ASC”) 360, Property, Plant and Equipment , (“ASC 

The Company accounts for impairment of long-lived assets in accordance with Accounting Standards Codification (“ASC”) 360, Property, Plant and Equipment , (“ASC 360” ).

Long-lived assets consist primarily of property, plant and equipment, right-of-use assets and intangible assets.

In accordance with ASC 

360, the Company evaluates the carrying value of long-lived assets when it determines a triggering event has occurred, or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

In accordance with ASC 360, the Company evaluates the carrying value of long-lived assets when it determines a triggering event has occurred, or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Examples of such triggering events include a significant disposal of a portion of such assets, an adverse change in the market involving the business employing the related asset, a significant decrease in the benefits realized from an acquired business, difficulties or delays in integrating the business, and a significant change in the operations of an acquired business.

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Comprehensive Income (Loss)

220, Comprehensive Income , (“ASC 

) 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).

ASC 220, Comprehensive Income , (“ASC 220” ) establishes rules for reporting and display of comprehensive income (loss) and its components.

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

Share-based Compensation

The Company accounts for share-based compensation in accordance with the provisions of ASC 718, Compensation—Stock Compensation .

Share-based compensation expense is recognized based on the grant date fair value in order to recognize compensation cost for those shares expected to vest.

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

Revenue recognition follows the criteria of ASC 

606, Revenue from Contracts with Customers .

Revenue recognition follows the criteria of ASC 606, Revenue from Contracts with Customers .

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

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

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.

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 Unearned Revenue from customers.

Product Warranty

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The Company estimates the costs that may be incurred under its basic limited warranty and records a liability for the amount of such costs at the time when product defects occur.

Factors that affect the Company’s warranty liability include the historical and anticipated rates of warranty claims and cost to repair.

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

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

As of December 31, 2023 and 2022 , the amount of accrued warranty was $ 0.25 million and $ 0.1 million, respectively.

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

2 unchanged sentences

Warranty costs incurred

( 85 )  

( 44 ) ( 85 )

Provision for warranty

( 38 )  

Ending Balance, December 31

Advertising Costs

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.

Advertising costs are charged to operations as incurred and amounted to approximately $ 0.8 million, $ 0.8 million, and $ 0.1 million for the years ended December 31, 2023, 2022 and 2021 , respectively.

Research and Development

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Under the liability method, deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

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

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

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Global Intangible Low-taxed Income Provisions ("GILTI")

One of the base broadening provisions of the U.S.

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

One of the base broadening provisions of the U.S.

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

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

Thus, for the fiscal years ended December 31, 2022, December 

31, 2021, and December 31, 2020, deferred taxes were computed without consideration of the possible future impact of the GILTI provisions, and any current year impact was recorded as a part of the current portion of income tax expense.

Thus, for the fiscal years ended December 31, 2023, December 31, 2022, and December 31, 2021, deferred taxes were computed without consideration of the possible future impact of the GILTI provisions, and any current year impact was recorded as a part of the current portion of income tax expense.

Recent Accounting Pronouncements

Recent Accounting Pronouncements Adopted in 2023

There was no accounting pronouncement adopted in 2023.

Recent Accounting Pronouncements Adopted in 2021

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

Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which provides temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates.

This ASU is effective beginning on March 12, 2020 and the Company may elect to apply the amendments prospectively through December 31, 2022.

The Company 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”

(Subtopic 815 - 40 ).

This ASU simplifies accounting for convertible instruments by eliminating two of the three models in ASC 470 - 20 that requires separating embedded conversion features from convertible instruments.

The 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”

(“MD&A”).

The intent of this new rule is to (i) eliminate duplicative disclosures, (ii) enhance and promote more principles-based MD&A disclosures with the objective of making them more meaningful for investors, all while (iii) simplifying the compliance requirements and efforts for registrants, by providing them with the flexibility to present management’s perspective on the registrant’s financial condition and results of operations.

While most of the changes involve reducing or eliminating previously required information and disclosures, the rule does expand the disclosure requirements surrounding certain aspects of the various items in Regulation S-K discussed above.

The final rule was published in the Federal Register on January 11, 2021, is effective thirty days after its publication date, or February 10, 2021, and registrants are required to comply with this final rule in the registrant’s first fiscal year ending on or after the date that is 210 days after the publication date.

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

Recent Accounting Pronouncements Yet to be Adopted  

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

NOTE C—REVENUE RECOGNITION

Revenue from Contracts with Customers  

Recent Accounting Pronouncements Yet to be Adopted

In December 2023, the FASB issued ASU 2023 - 09 Income Taxes (Topic 740 ):

Improvements to Income Tax Disclosures", which requires the Company to disclose disaggregated jurisdictional and categorical information for the tax rate reconciliation, income taxes paid and other income tax related amounts.

This guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted.

The adoption is expected to enhance the Company's Notes to the Consolidated Financial Statements.

The Company is currently evaluating the impact the new standard will have on its financial statements and related disclosure.

In November 2023, the FASB issued ASU 2023 - 07 "Segment Reporting (Topic 280 ):

Improvements to Reportable Segment Disclosures", which requires the Company to expand the breadth and frequency of segment disclosures to include additional information about significant segment expenses, the chief operating decision maker (CODM) and other items, and also require the annual disclosures on an interim basis.

This guidance is effective for annual periods beginning after December 15, 2023, with early adoption permitted.

The Company is currently evaluating the impact the new standard will have on its financial statements and related disclosure.

In October 2023, the FASB issued ASU 2023 - 06 "Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative", which amends U.S.

GAAP to include 14 disclosure requirements that are currently required under SEC Regulation S- X or Regulation S-K.

Each amendment will be effective on the date on which the SEC removes the related disclosure requirement from SEC Regulation S- X or Regulation S-K.

The Company has evaluated the new standard and determined that it will have no material impact on its financial statements or disclosures since the Company is already subject to the relevant SEC disclosure requirements.

NOTE C—REVENUE RECOGNITION

Revenue from Contracts with Customers

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

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To achieve this core principle, the Company applies the following five steps:

Identify the contract with a customer  

A contract with a customer exists when (i) the Company enters into an agreement with a customer that defines each party's rights regarding the products or services to be transferred and identifies the payment terms related to these products or services, (ii) both parties to the contract are committed to perform their respective obligations, (iii) the contract has commercial substance, and (iv) the Company determines that collection of substantially all consideration for products or services that are transferred is probable based on the customer's intent and ability to pay the promised consideration.

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If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.

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

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

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  

The Company generally satisfies performance obligations at a point in time.

Revenue is recognized based on the transaction price at the time the related performance obligation is satisfied by transferring a promised product or service to a customer.

Disaggregation of Revenue  

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

In cases where there is no directly observable stand alone selling price, allowable estimation methods are used.

For example for contracts involving non-recurring engineering, an expected cost plus margin approach has typically been adopted to estimate the standalone selling price.

Recognize revenue when or as the Company satisfies a performance obligation

For product sales, the Company generally satisfies performance obligations at a point in time, most often upon shipment of a product to the customer or delivery of the product to the customer.

In the case of such point in time satisfaction of a performance obligation, r evenue is recognized based on the transaction price at the time the related performance obligation is satisfied.

For service obligations, the Company generally recognizes revenue over time.

The most common type of service obligation encountered by the Company is an arrangement involving non-recurring engineering in which service revenue is typically recognized over time under either the time and material practical expedient, as the Company has a right to consideration from a customer, in an amount that corresponds directly with the value to the customer of the Company's performance completed to date, or under the output method, for example using contract-specific milestones or other objective measures of progress.

Unearned Revenue

Unearned Revenue results from cash received or amounts billed to customers in advance of revenue recognized upon the satisfaction of performance obligations.

As of December 31, 2023, and 2022, the Company had Unearned Revenue of $ 1.8 million and $ 3 million, respectively.

The following table reflects the changes in Unearned Revenue in our consolidated financial statements for the periods indicated (in thousands).

The remaining $ 1.8 million will be expected to be recognized as revenue gradually in 2024, depending on the customer's request.

December 31, 2023

December 31, 2022

Unearned Revenue, beginning of period

Additional Unearned Revenue

Revenue recognized

Unearned Revenue, end of period

Disaggregation of Revenue

Revenue is classified based on the location of where the product is manufactured.

For additional information on the disaggregated revenues by geographical region, see Note R, "Segments and Geographic Information.”

Revenue is also classified by major product category and is presented below (in thousands):

Years ended December 31,

$ 118,169  

53.0 %  

$ 94,266  

44.6 %  

$ 37,944  

77,094  

34.6 %  

97,461  

46.1 %  

173,437  

24,727  

11.1 %  

16,247  

21,092  

$ 59,942 27.5 % $ 118,169 53.0 % $ 94,266 44.6 %

141,213 64.9 % 77,094 34.6 % 97,461 46.1 %

13,831 6.4 % 24,727 11.1 % 16,247 7.7 %

56 0.0 % 129 0.1 % 957 0.5 %

2,604 1.2 % 2,699 1.2 % 2,634 1.2 %

Total Revenue

$ 222,818  

100.0 %  

$ 211,565  

100.0 %  

$ 234,623  

NOTE D— 

$ 217,646 100.0 % $ 222,818 100.0 % $ 211,565 100.0 %

NOTE D— Leases

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

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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 included or excluded 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.

As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

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

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.

Lease expense is included under general and administrative expenses and was $ 1.2 million, $ 1.2 million, and $ 1.3 million, respectively, for the years ended December 31, 2023, 2022 and 2021 , respectively.

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

2 unchanged sentences

Operating lease expense

$ 1,161  

$ 1,230  

$ 1,146 $ 1,161

Financing lease expense

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Total lease expense

$ 1,220  

$ 1,281  

$ 1,195 $ 1,220

Maturities of lease liabilities are as follows for the future one -year periods ending December 31, ( in thousands):

$ 1,237  

$ 1,330 $ — $ 1,330

1,307 — 1,307

1,106 — 1,106

1,092 — 1,092

1,093 — 1,093

2029 and thereafter

Total lease payments

$ 7,284  

$ 6,391 $ — $ 6,391

Less imputed interest

( 738 )  

( 516 ) — ( 516 )

Present value

$ 6,546  

$ 5,875 $ — $ 5,875

The weighted average remaining lease term and discount rate for operating leases were as follows for the periods indicated:

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Weighted Average Discount Rate - operating leases

3.21 %  

3.30 % 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):

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

NOTE E—CASH, CASH EQUIVALENTS AND RESTRICTED CASH

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):

NOTE E—CASH, CASH EQUIVALENTS AND RESTRICTED CASH

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

$ 24,685  

$ 34,656  

$ 45,366 $ 24,685

Restricted cash

10,902  

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

$ 35,587  

$ 41,136  

Restricted cash includes guarantee deposits for customs duties, China government subsidy fund, and compensating balances associated with certain credit facilities.

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, 2022 

and December 31, 2021.

NOTE F—EARNINGS PER SHARE

$ 55,097 $ 35,587

Restricted cash includes guarantee deposits for customs duties, China government subsidy fund, and compensating balances associated with certain credit facilities.

As of December 31, 2023 and 2022 , there was $ 6.5 million and $ 8.7 million of restricted cash required for bank acceptance notes issued to vendors, respectively.

There was $ 2.5 million and $ 1.1 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, 2023 and 2022 respectively.

There was $ 0.7 million and $ 1.0 million guarantee deposits for customs duties as of December 31, 2023 and December 31, 2022.

NOTE F—EARNINGS PER SHARE

Basic net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period.

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Year ended December 31,

$ ( 66,397 )  

$ ( 54,162 )  

$ ( 56,048 ) $ ( 66,397 ) $ ( 54,162 )

Weighted average shares used to compute net loss per share

27,846  

26,912  

21,867  

31,944 27,846 26,912

Effect of dilutive options and restricted stock units

27,846  

26,912  

21,867  

31,944 27,846 26,912

Net loss per share

$ ( 2.38 )  

$ ( 2.01 )  

$ ( 2.38 )  

$ ( 2.01 )  

$ ( 1.75 ) $ ( 2.38 ) $ ( 2.01 )

The following potentially dilutive securities were excluded from diluted net loss per share as their effect would have been antidilutive (in thousands):

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Total antidilutive shares

NOTE G—INVENTORIES

At December 31, 2023 and 2022 , inventories consisted of the following (in thousands):

1 unchanged sentence

Raw materials

$ 25,732  

$ 29,469  

$ 22,128 $ 25,732

Work in process and sub-assemblies

39,563  

41,528  

33,792 39,563

Finished goods

14,384  

21,519  

22,452 26,794

Allowance for Inventory

( 14,506 ) ( 12,410 )

Total inventory

$ 79,679  

$ 92,516  

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

$ 63,866 $ 79,679

For the years 2023, 2022 and 2021, the inventory reserve adjustment expensed for inventory was $ 8.7 million, $ 4.9 million, and $ 3.9 million, respectively.

For the years December 31, 2023, 2022 and 2021, the direct inventory write-offs related to scrap, discontinued products, and damaged inventories were $ 10.6 million, $ 10.4 million, and $ 16.8 million, respectively.

NOTE H—PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following for the periods indicated (in thousands):

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Building and improvements

86,372  

89,698  

86,534 86,372

Machinery and equipment

251,216  

266,386  

257,842 251,216

Furniture and fixtures

Computer equipment and software

11,713  

12,727  

12,059 11,713

Transportation equipment

356,168  

376,001  

363,363 356,168

Less accumulated depreciation and amortization

( 177,519 )  

178,649  

208,229  

( 194,086 ) ( 177,519 )

169,277 178,649

Construction in progress

30,434  

33,705  

29,939 30,434

Total property, plant and equipment, net

$ 210,184  

$ 243,035  

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, 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 . 

The Company performed a recoverability test and concluded that future undiscounted cash flows exceed the carrying amount of the Company’s long-lived assets and therefore no impairment charge was recorded. 

NOTE I—INTANGIBLE ASSETS

$ 200,317 $ 210,184

For the years ended December 31, 2023, 2022 and 2021 , depreciation expense of property, plant and equipment was $ 19.7 million, $ 22.6 million, and $ 24.8 million, respectively.

For the years December 31, 2023, 2022 and 2021 , the capitalized interest was $ 0 million, $ 0.2 million, and $ 0.9 million, respectively.

As of December 31, 2023 , the Company concluded that its continued loss history constitutes a triggering event as described in ASC 360 - 10 - 35 - 21, Property, Plant, and Equipment .

NOTE I—INTANGIBLE ASSETS

Intangible assets consisted of the following for the periods indicated (in thousands):

December 31, 2023

$ 8,994  

$ ( 5,330 )  

$ 3,664  

( 21 )  

$ 9,502 $ ( 5,981 ) $ 3,521

138 ( 31 ) $ 107

Total intangible assets

$ 9,050  

$ ( 5,351 )  

$ 3,699  

$ 9,640 $ ( 6,012 ) $ 3,628

December 31, 2022

$ 8,597  

$ ( 4,779 )  

$ 3,818  

( 17 )  

$ 8,994 $ ( 5,330 ) $ 3,664

Total intangible assets

$ 8,632  

$ ( 4,796 )  

$ 3,836  

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.

$ 9,050 $ ( 5,351 ) $ 3,699

For the years ended December 31, 2023, 2022 and 2021 , amortization expense for intangible assets, included in general and administrative expenses on the income statement, was $ 0.7 million, $ 0.6 million and $ 0.5 million, respectively.

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

At December 31, 2023 , future amortization expense for intangible assets is estimated to be (in thousands):

December 31, 2023

$ 3,699  

NOTE J—FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents a summary of the Company’s financial instruments measured at fair value on a recurring basis as of December 31, 2022 (in thousands):

NOTE J—FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents a summary of the Company’s financial instruments measured at fair value on a recurring basis as of December 31, 2023 (in thousands):

Quoted prices

3 unchanged sentences

Cash and cash equivalents

$ 24,685  

$ 45,366 $ — $ — $ 45,366

Restricted cash

10,902  

9,731 — — 9,731

Note receivable

$ 35,587  

$ 35,926  

$ 55,097 $ 219 $ — $ 55,316

Bank acceptance payable

$ 12,337  

— $ 15,482 — $ 15,482

Convertible senior notes

58,314  

— 76,519 — 76,519

Total liabilities

$ 70,651  

The following table presents a summary of the Company’s financial instruments measured at fair value on a recurring basis as of 

December 31, 2021 (in thousands):

$ — $ 92,001 $ — $ 92,001

The following table presents a summary of the Company’s financial instruments measured at fair value on a recurring basis as of December 31, 2022 (in thousands):

Quoted prices

3 unchanged sentences

Cash and cash equivalents

$ 34,656  

$ 24,685 $ — $ — $ 24,685

Restricted cash

10,902 — — 10,902

Note receivable

$ 41,136  

$ 8,148  

$ 49,284  

$ 35,587 $ 339 $ — $ 35,926

Bank acceptance payable

$ 8,198  

— $ 12,337 — $ 12,337

Convertible senior notes

67,588  

— 58,314 — 58,314

Total liabilities

$ 75,786  

NOTE K—NOTES PAYABLE AND LONG-TERM DEBT

$ — $ 70,651 $ — $ 70,651

NOTE K—NOTES PAYABLE AND LONG-TERM DEBT

Notes payable and long-term debt consisted of the following for the periods indicated (in thousands):

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Revolving line of credit with a U.S.

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 $ 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  

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

13,102  

19,595  

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

20,140  

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  

Revolving line of credit with a China bank up to $ 19.04 million with interest from 4.57 % to 6.12 %, maturing May 24, 2024

12,608 13,102

Credit facility with a China bank up to $ 26.65 million with interest of 4.45 % to 6.6 %, maturing June 6, 2027

10,589 20,140

23,197 58,242

Less debt issuance costs, net

( 1,168 )  

57,074  

54,689  

23,197 57,074

Less current portion

( 57,074 )  

( 23,197 ) ( 57,074 )

Non-current portion

$ 5,000  

Bank Acceptance Notes Payable

Bank acceptance notes issued to vendors with a zero percent interest rate

$ 12,337  

$ 8,198  

$ 15,482 $ 12,337

The current portion of long-term debt is the amount payable within one year of the balance sheet date of December 31, 2023 .

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’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.

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, 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 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 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.

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 provided the Company with a three -year, $ 27.78 million revolving line of credit.

Borrowings under the Credit Facility were to 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 were 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 were to bear interest at a rate equal to the Secured Overnight Financing Rate (SOFR) plus 3.75 %, while monthly average usage was less than 50% of the Credit Facility, otherwise SOFR plus 4.75 %.

The Credit Facility was to become due at the earlier date of either November 16, 2025 or 91 days prior to the maturity of the 2024 Notes.

On August 16, 2023, the Company delivered a termination notice to CIT to terminate the Credit Facility.

As a result of the Company's delivery of such termination notice, the Credit Facility was terminated effective as of November 17, 2023 and was fully repaid.

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

The total SPD Credit Line of 180 million RMB is inclusive of all credit facilities previously entered into with SPD including:

2 unchanged sentences

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

however, draws under the SPD Credit Line may become due and repayable to SPD at SPD’s discretion due to changes in Chinese government regulations and/or changes in Global’s financial and operational condition.

Each draw will bear interest equal to SPD’s commercial banking interest rate effective on the day of the applicable draw.

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

As of December 31, 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 bear interest equal to SPD’s commercial banking interest rate effective on the day of the applicable draw.

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

As of December 31, 2023, $ 12.6 million was outstanding under the SPD Credit Line and the outstanding balance of bank acceptance notes issued to vendors was $ 12.5 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;

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 ¥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

On March 5, 2019, the Company issued $ 80.5 million of 5 % convertible senior notes due 2024 (the “Notes”).

The Notes were issued pursuant to an indenture, dated as of March 

5, 2019 (the “Indenture”), between the Company and Wells Fargo Bank, National Association, as trustee, paying agent, and conversion agent (the “Trustee”).

The Notes bear interest at a rate of 5.00% per year, payable in cash semi-annually in arrears on March 

15 and September 

15 of each year, beginning on September 

The Notes will mature on March 

15, 2024, unless earlier repurchased, redeemed or converted in accordance with their terms.

The sale of the Notes generated net proceeds of $ 76.4 million, after deducting the Initial Purchasers’

discounts and offering expenses payable by the Company. The Company used approximately $ 37.8 million of the net proceeds from the offering to fully repay the CapEx Loan and Term Loan with BB&T and the remainder will be used for general corporate purposes.

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.

On December 21, 2023, Global entered into an asset pool business cooperation agreement ("Asset Pool Agreement") and an asset pool pledge contract ("Pledge Contract") (referred to collectively as the Pledge Asset Line"), with CZB, which supplements the existing ¥200M Credit Facility.

The Pledge Asset Line does not constitute a new credit line or an increase to the existing credit limits.

Global may draw upon the Pledge Asset Line between December 21, 2023 and December 21, 2025 ( "Asset Pool Period").

During the Asset Pool Period, Global may request to draw upon the Pledge Asset Line on an as-needed bases;

however, amount of available credit under the Pledge Asset Line and approval of each draw may be reduced or declined by CZB due to changes in Chinese government regulations and/or changes in Global's financial and operational condition.

Global's obligations under the Pledge Asset Line will be secured by certain financial assets, including but not limited to, deposit receipts, domestic accounts receivable and electronic commercial paper.

As of December 31, 2023, $ 10.6 million was outstanding under the ¥200M Credit Facility and the outstanding balance of bank acceptance notes issued to vendors was $ 2.9 million.

As of December 31, 2023 and December 31, 2022, the Company had $ 22.5 million and $ 13.3 million of unused borrowing capacity, respectively.

As of December 31, 2023 and December 31, 2022, there was $ 9.7 million and $ 9.9 million of restricted cash, investments or security deposits associated with the loan facilities, respectively.

NOTE L—C onvertible Senior Notes

On March 5, 2019, the Company issued $ 80.5 million of 5 % convertible senior notes due 2024 (the “2024 Notes”).

On December 5, 2023, the Company issued approximately $ 80.2 million aggregate principal amount of 5.250 % convertible senior notes due 2026 (the "2026 Notes"), and on the same day consummated various separate, privately negotiated exchange agreements with certain holders of its 2024 Notes to exchange or repurchase approximately $ 80.2 million principal amount of the 2024 Notes for aggregate consideration consisting of approximately $ 81.1 million in cash, which included accrued interest on the 2024 Notes, and approximately 466,368 shares of the Company's common stock, par value $ 0.001 per share.

The 2026 Notes were issued pursuant to an Indenture, dated as of December 5, 2023, ( the "Indenture"), between the Company and Computershare Trust Company, N.A., as trustee.

The 2026 Notes will bear interest at a rate of 5.250% per year and will pay interest semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2024.

The 2026 Notes will mature on December 15, 2026, unless earlier converted, redeemed or repurchased in accordance with their terms.

The following table presents the carrying value of the 2026 Notes for the periods indicated (in thousands):

December 31, 2023

$ 80,500  

Unamortized debt issuance costs

Net carrying amount

$ 79,506  

The Notes are convertible at the option of holders of the Notes at any time until the close of business on the scheduled trading day immediately preceding the maturity date.

Upon conversion, holders of the Notes will receive shares of the Company’s common stock, together, if applicable, with cash in lieu of any fractional share, at the then-applicable conversion rate.

The initial conversion rate is 56.9801 shares of the Company’s common stock per $ 1,000 principal amount of Notes (representing an initial conversion price of approximately $ 17.55 per share of common stock, which represents an initial conversion premium of approximately 30 % above the closing price of $ 13.50 per share of the Company’s common stock on February 

28, 2019 ), subject to customary adjustments.

If a make-whole fundamental change (as defined in the Indenture) occurs, and in connection with certain other conversions before March 

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

Initially 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. 

The Note Guarantee (as defined in the Indenture) of each future guarantor, if any, will be such guarantor’s senior, unsecured obligations and are equal in right of payment with existing and future senior, unsecured indebtedness, senior in right of payment to such future guarantor’s existing and future indebtedness that is expressly subordinated to the Notes and effectively subordinated to such future guarantor’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness.

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

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

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

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

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

with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted after it is called for redemption.

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

The conversion rate for the 2026 Notes is 65.6276 shares of the Company’s common stock per $ 1,000 principal amount of the 2026 Notes (which is equivalent to a conversion price of approximately $ 15.24 per share of the Company’s common stock, representing a premium of approximately 15 % over the last reported sale price of the Company’s common stock on November 30, 2023 of $ 13.25 per share), subject to adjustment.

Before September 15, 2026, holders of the 2026 Notes will have the right to convert their 2026 Notes only upon the occurrence of certain events.

From and after September 15, 2026, holders of the 2026 Notes may convert their 2026 Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date.

The Company will settle conversions by paying or delivering, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election, based on the applicable conversion rate(s).

Initially there are

no guarantors of the

2026 Notes, but the

2026 Notes will be fully and unconditionally guaranteed, on a senior, unsecured basis by certain of the Company’s future domestic subsidiaries.

2026 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

2026 Notes and effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness.

The Note Guarantee (as defined in the Indenture) of each future guarantor, if any, will be such guarantor’s senior, unsecured obligations and is equal in right of payment with existing and future senior, unsecured indebtedness, senior in right of payment to such future guarantor’s existing and future indebtedness that is expressly subordinated to the

2026 Notes and effectively subordinated to such future guarantor’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness.

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

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

and (ii) create or incur liens.

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

Under ASC 815 - 40, to qualify for equity classification (or non-bifurcation, if embedded) the instrument (or embedded feature) must be both ( 1 ) indexed to the issuer’s own stock and ( 2 ) meet the requirements of the equity classification guidance.

Based upon the Company’s analysis, it was determined the conversion option is indexed to its own stock and also met all the criteria for equity classification contained in ASC 815 - 40 - 25 - 7 and 815 - 40 - 25 - 10.

2026 Notes will be redeemable, in whole or in part (subject to certain limitations described in the Indenture), at the Company’s option at any time, and from time to time, on or after

December 15, 2024 and on or before the

40th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the

2026 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of the Company’s common stock exceeds

130 % of the conversion price on (

1 ) 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;

2 ) the trading day immediately before the date it sends such notice.

In addition, the 2026 Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or before the 40th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date (subject to the right of a holder of 2026 Notes as of the close of business on a record date to receive the related interest payment on the corresponding interest payment date), if the Company completes the "Specified Divestiture" of ( x ) one or more of its manufacturing facilities located in the People’s Republic of China and/or (y) significant assets located in the People’s Republic of China which relate to the Company’s transceiver business and multi-channel optical sub-assembly products (or any substantially related assets), for aggregate consideration in cash to the Company of not less than the U.S.

Dollar equivalent of $ 150,000,000 (measured at the time of completion).

Calling any Convertible Note for redemption will constitute a “Make-whole fundamental change” (as defined in the Indenture) with respect to that Convertible Note, in which case the conversion rate applicable to the conversion of that Convertible Note will be increased in certain circumstances if it is converted after it is called for redemption.

In addition, if the Specified Divestiture is completed, then each holder of

2026 Notes will have the right to require the Company to repurchase its

2026 Notes for cash on a date of the Company’s choosing, which must be a business day that is

35, nor less than

20, business days after we send the related notice of Specified Divestiture.

The repurchase price for a note tendered for such repurchase will be equal to the principal amount of the

2026 Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date (subject to the right of a holder of

2026 Notes as of the close of business on a record date to receive the related interest payment on the corresponding interest payment date).

Moreover, if the Company undergoes a fundamental change, as described in the Indenture, holders of the 2026 Notes may require the Company to repurchase for cash all or part of their 2026 Notes at a repurchase price equal to 100 % of the principal amount of the 2026 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the required repurchase date.

Additionally, the 2026 Notes are subject to customary events of default.

No sinking fund is provided for the 2026 Notes.

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

4 unchanged sentences

Contractual interest expense

$ 4,025  

$ 4,039 $ 4,025

Amortization of debt issuance costs

Total interest cost

$ 4,851  

$ 4,888 $ 4,851

Effective interest rate

NOTE M—ACCRUED LIABILITIES

Accrued liabilities consisted of the following for the periods indicated (in thousands):

2 unchanged sentences

Accrued payroll

$ 9,702  

$ 6,516  

$ 12,146 $ 9,702

Accrued employee benefits

8 unchanged sentences

Total accrued liabilities

$ 20,222  

$ 15,587  

NOTE N—OTHER INCOME AND EXPENSE

$ 18,549 $ 17,222

NOTE N—OTHER INCOME AND EXPENSE

Other income and expense consisted of the following for the periods indicated (in thousands):

1 unchanged sentence

Foreign exchange transaction gain (loss)

$ ( 1,488 )  

$ 711 $ ( 1,488 ) $ 454

Government subsidy income

Other non-operating gain

937 160 1,345

Other non-operating gain(loss)

( 7,468 ) 76 129

Loan forgiveness

Gain (loss) on disposal of assets

( 51 ) 47 ( 1 )

Total other gain (loss), net

$ ( 1,205 )  

$ 8,156  

$ 2,998  

NOTE O—INCOME TAXES

The sources of the Company’s loss from operations before income taxes were as follows (in thousands):

$ ( 5,871 ) $ ( 1,205 ) $ 8,156

NOTE O—INCOME TAXES

The sources of the Company’s loss from operations before income taxes were as follows (in thousands):

Years ended December 31,

$ ( 45,404 )  

$ ( 21,229 )  

( 20,992 )  

( 32,931 )  

$ ( 52,886 ) $ ( 45,404 ) $ ( 21,229 )

( 3,153 ) ( 20,992 ) ( 32,931 )

Total loss before income taxes

$ ( 66,396 )  

$ ( 54,160 )  

$ ( 56,039 ) $ ( 66,396 ) $ ( 54,160 )

The provision for income tax expense (benefit) for the years ended December 31, was as follows (in thousands):

$ 7,185  

Income tax (benefit) expense

$ 7,228  

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

At December 

31, the net deferred tax assets and liabilities are comprised of the following approximate amounts (in thousands):

At December 31, the net deferred tax assets and liabilities are comprised of the following approximate amounts (in thousands):

NOL carryforward

$ 47,901  

$ 44,448  

$ 49,469 $ 47,901

Inventory reserves

3 unchanged sentences

Research and development credits

10,505  

10,998 10,505

Capitalized research and development

ASC 842 Assets

Deferred tax assets

73,518  

67,820  

86,507 73,518

Less valuation allowance

( 69,680 )  

( 78,124 ) ( 69,680 )

Deferred tax assets, net

10,099  

Depreciation and amortization

( 2,441 )  

( 6,992 ) ( 2,441 )

ASC 842 Liabilities

( 1,397 )  

( 1,391 ) ( 1,397 )

Deferred tax liabilities

( 3,838 )  

( 8,383 ) ( 3,838 )

Deferred tax assets, net

5 unchanged sentences

Utilization of U.S.

net operating losses and tax credit carry forwards are subject to an annual limitation due to the ownership change limitations set forth in Internal Revenue Code Section 

 As of December 31, 2022, the Company had Taiwan net operating loss carry forwards of approximately $ 72.5 million and China net operating loss carry forwards of approximately $ 58.8 million. 

net operating losses and tax credit carry forwards are subject to an annual limitation due to the ownership change limitations set forth in Internal Revenue Code Section 382.

As of December 31, 2023, the Company had Taiwan net operating loss carry forwards of approximately $ 73.7 million and China net operating loss carry forwards of approximately $ 66.9 million.

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

3 unchanged sentences

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, 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.

On the basis of this evaluation, as of December 31, 2023 and December 31, 2022, a valuation allowance of $ 78.1 million and $ 69.7 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:

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

Beginning Balance, January 1

$ 57,721  

$ 43,462  

$ 25,736  

$ 69,680 $ 57,721 $ 43,462

Change charged to expense/(income)

14,196  

13,822  

17,137  

8,755 14,196 13,822

Change charged to currency translation adjustment

( 2,237 )  

( 311 ) ( 2,237 ) 437

Ending Balance, December 31

$ 69,680  

$ 57,721  

$ 43,462  

$ 78,124 $ 69,680 $ 57,721

A reconciliation of the U.S.

federal income tax rate of 21 % for the years ended December 31, 2022, 2021 and 2020 , respectively, to the Company’s effective income tax rate follows (in thousands):

federal income tax rate of 21 % for the years ended December 31, 2023, 2022 and 2021 , respectively, to the Company’s effective income tax rate follows (in thousands):

Expected taxes at statutory rate

$ ( 13,943 )  

$ ( 11,374 )  

$ ( 11,768 ) $ ( 13,943 ) $ ( 11,374 )

PPP loan forgiveness

( 1,308 )  

— — ( 1,308 )

Non-deductible/non-taxable items

Global intangible low-taxed incom

Foreign rate differences

Foreign permanent differences

( 1,407 )  

( 1,320 )  

( 1,212 ) ( 1,407 ) ( 1,320 )

Changes in valuation allowance

14,196  

13,822  

17,137  

8,755 14,196 13,822

Share-based compensation

Research and development credits

( 626 )  

( 872 )  

Alternative Minimum Tax

( 492 ) ( 626 ) ( 872 )

Extinguishment of debt

Foreign other

( 418 )  

( 450 ) 317 ( 418 )

Tax (benefit) expense

$ 7,228  

The Company's provision for income taxes in 2023 was higher than 2022 primarily due to state taxes and foreign taxes.

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.

The Company’s wholly owned subsidiary, Prime World is a tax-exempt entity under the Income Tax Code of the British Virgin Islands.

The Company’s wholly owned subsidiary, Global Technology, Inc., has enjoyed preferential tax concessions in China as a national high-tech enterprise.

In March 2007, China’s parliament enacted the PRC Enterprise Income Tax Law, or the EIT Law, under which, effective January 

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

The Company’s wholly owned subsidiary, Prime World is a tax-exempt entity under the Income Tax Code of the British Virgin Islands.

The Company’s wholly owned subsidiary, Global Technology, Inc., has enjoyed preferential tax concessions in China as a national high-tech enterprise.

In March 2007, China’s parliament enacted the PRC Enterprise Income Tax Law, or the EIT Law, under which, effective January 1, 2008, China adopted a uniform income tax rate of 25 % for all enterprises including foreign invested enterprises.

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 2023, Global Technology, Inc.

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

until December 2023.

This tax holiday reduced its 

2022, 2021 and 2020 income tax provision by approximately $ 0.0 million, $ 0.0 million, and $ 1.4 million, respectively.

again renewed its National high-tech enterprise certificate and therefore extended its three -year tax preferential status until December 2026.

This tax holiday reduced its 2023, 2022 and 2021 income tax provision by approximately $ 0.0 million, $ 0.0 million, and $ 0.0 million, respectively.

This tax holiday reduced its fiscal 2023, 2022, and 2021 diluted earnings per share by approximately $0.00, $ 0.00 , and $ 0.00 respectively .

2 unchanged sentences

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands):

Unrecognized tax benefits —

Gross increases —

tax positions in prior period

Gross decreases —

tax positions in prior period

Unrecognized tax benefits —

Unrecognized tax benefits — January 1

$ 181 $ 181 $ 181

Gross increases — tax positions in prior period

Gross decreases — tax positions in prior period

Unrecognized tax benefits — December 31

$ 181 $ 181 $ 181

The Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense.

Related to the unrecognized tax benefits noted above, it has not accrued penalties or interest during 

2022 as a result of net operating losses.

Related to the unrecognized tax benefits noted above, it has not accrued penalties or interest during 2023 as a result of net operating losses.

During 2022 or 2021, the Company also accrued no penalties or interest.

The Company is subject to taxation in the United States and various states and foreign jurisdictions.

The Company’s open tax years subject to examination in the U.S.

federal and state jurisdictions are 2020 through 2023.

2 unchanged sentences

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

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

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

These 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. 

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

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

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.

There was no material impact of this Act in 2023, and the Company has determined that any future impacts will depend on the extent to which the Company expands its semiconductor manufacturing operations in accordance with the requirements of the Act.

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

Equity Plans  

The Company’s board of directors and stockholders approved the following equity plans:

the 2006 Share Incentive Plan

the 2013 Equity Incentive Plan ( “2013 Plan”)

the 2021 Equity Incentive Plan ( “2021 Plan”)

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

We do not currently expect the Inflation Reduction Act to have a material impact on our effective tax rate.

The Company expects any earnings of foreign subsidiaries to be indefinitely invested outside the United States.

As of December 31, 2023, 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 does not expect that the temporary book-tax basis difference that would create this DTA will reverse in the foreseeable future.

NOTE P—SHARE-BASED COMPENSATION

The Company’s board of directors and stockholders approved the following equity plans:

‑ the 2013 Equity Incentive Plan ( "2013 Plan")

‑ the 2021 Equity Incentive Plan ( " 2021 Plan " )

‑ the 2023 Inducement Plan ( " Inducement Plan " )

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

Stock option awards generally vest over a four year period and have a maximum term of ten years.

1 unchanged sentence

Nonqualified and Incentive Stock Options, RSAs and RSUs may be granted from these plans.

Prior to the Company’s initial public offering in September 2013, the fair market value of the Company’s stock had been historically determined by the board of directors and from time to time with the assistance of third party valuation specialists.

Stock Options  

Options have been granted to the Company’s employees under the 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.

Stock Options

Options have been granted to the Company’s employees under the 2013 Plan 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.

2 unchanged sentences

Outstanding, January 1, 2023

$ 10.32  

$ 5.44  

263 $ 10.41 $ 5.45 0.71 $ —

( 48 ) 11.33 16.23 5.81 0.03 237

( 214 ) 10.18 5.36 1,955

Outstanding, December 31, 2023

1 13.84 7.12 0.08 8

Exercisable, December 31, 2023

1 13.84 7.12 0.08 8

Vested and expected to vest

1 13.84 7.12 0.08 8

As of December 31, 2023 , there was no unrecognized stock option expense.

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.

Performance Based Incentive Plan

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.

1 unchanged sentence

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. 

The Company recognized PSU expense for the twelve months ended December 31, 2023 and 2022 was $ 3 million and $ 1.7 million, respectively.

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

Average Share

Price on Date

(in thousands, except price data)

Outstanding at January 1, 2023

766 $ 6.75 $ 1,447

767 8.89 3,566

Cancelled/Forfeited

Outstanding, December 31, 2023

1,533 7.82 29,610

Vested and expected to vest

1,533 7.82 29,610

As of December 31, 2023, there was $ 6.6 million of unrecognized compensation expense related to these PSUs.

This expense is expected to be recognized over 2.1 years.

Restricted Stock Units

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):

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

Average Share

2 unchanged sentences

Outstanding at January 1, 2023

$ 11.15  

$ 11,156  

( 1,023 )  

$ 2.75  

2,209 $ 5.76 $ 4,176

2,200 4.76 10,449

( 1,397 ) $ 5.61 6.15 7,833

Cancelled/Forfeited

( 149 )  

( 139 ) 3.91 2,692

Outstanding, December 31, 2023

2,873 4.89 55,507

Vested and expected to vest

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  

2,873 4.89 55,507

As of December 31, 2023 , there was $ 12.1 million of unrecognized compensation expense related to these RSUs.

This expense is expected to be recognized over 2.41 years.

Share-Based Compensation

The Company recognizes compensation expense on a straight-line basis over the applicable vesting term of the award and expense is adjusted as forfeitures occur.

1 unchanged sentence

The Company estimates the fair value of RSUs and RSAs at the fair market value on the grant date.

Employee share-based compensation expenses recognized for the years ended December 

31, were as follows (in thousands):

Employee share-based compensation expenses recognized for the years ended December 31, were as follows (in thousands):

Share-Based compensation - by expense type:

Cost of goods sold

$ 524 $ 488 $ 885

Research and development

1,492 1,332 2,173

Sales and marketing

1,110 857 1,115

General and administrative

8,758 6,923 7,948

Total share-based compensation expense

$ 9,600  

$ 12,121  

$ 13,046  

NOTE Q—STOCKHOLDERS’

Common Stock  

The Company’s Amended and Restated Certificate of Incorporation authorizes the issuance of up to 45,000,000  shares of common stock, all of which have been designated voting common stock.

Preferred Stock  

The Company’s Amended and Restated Certificate of Incorporation authorizes the issuance of up to 5,000,000  shares of preferred stock.

Public Offerings of Common Stock  

On October 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):

$ 11,884 $ 9,600 $ 12,121

NOTE Q—STOCKHOLDERS’ EQUITY

The Company’s Amended and Restated Certificate of Incorporation authorizes the issuance of up to 80,000,000 shares of common stock, all of which have been designated voting common stock.

Preferred Stock

The Company’s Amended and Restated Certificate of Incorporation authorizes the issuance of up to 5,000,000 shares of preferred stock.

Public Offerings of Common Stock

January 5, 2023, the Company filed a Registration Statement on Form S-

3 with the Securities and Exchange Commission, which was declared effective on

March 21, 2023, 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

$ 185 million.

Pursuant to Rule

6 ) under the Securities Act, the securities registered pursuant to this registration statement include unsold securities previously registered for sale pursuant to our previously filed Registration Statement on Form S-

3, which became effective on

January 9, 2020.

March 24, 2023, we entered into an Equity Distribution Agreement (the "Agreement") with Raymond James & Associates (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 "ATM Offering"), from time to time through the Sales Agent.

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.

may be sold in any

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.

not to exceed

$ 10,000 in the aggregate, and any associated application fees incurred.

$ 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.

September 12, 2023, we entered into Amendment

1 to the Agreement with the Sales Agent, to increase the aggregate offering price from

$ 35 million to

$ 70 million.

November, 2023, we completed sales under the ATM Offering.

The details of the shares of common stock sold through the ATM Offering through December 31, 2023 are as follows (in thousands, except shares and weighted average per share price):

Distribution Agent

3 unchanged sentences

Raymond James & Associates, Inc.

9.0622  

65,748  

$ 2.811 158 $ 436 $ 9

Raymond James & Associates, Inc.

9.1115  

34,686  

4.036 2,497 9,879 202

Raymond James & Associates, Inc.

9.1061  

11.645 1,150 13,124 268

Raymond James & Associates, Inc.

September 2022

2.9045  

94,491  

10.184 892 8,901 182

Raymond James & Associates, Inc.

2.8947  

313,333  

11.003 1,043 11,244 229

Raymond James & Associates, Inc.

November 2022

2.7830  

29,426  

544,424  

$ 2,192  

NOTE R—SEGMENT AND GEOGRAPHIC INFORMATION

12.572 2,068 25,473 520

7,808 $ 69,057 $ 1,410

NOTE R—SEGMENT AND GEOGRAPHIC INFORMATION

The Company operates in one reportable segment.

The Company’s Chief Executive Officer, who is considered to be the chief operating decision maker, manages the Company’s operations as a whole and reviews financial information presented on a consolidated basis, accompanied by information about product revenue, for purposes of evaluating financial performance and allocating resources.

The following tables set forth the Company’s revenue and asset information by geographic region.

Revenue is classified based on the location of where the product is manufactured.

Long-lived assets in the tables below comprise only property, plant, equipment and intangible assets (in thousands):  

Year ended December 31,

United States

$ 7,423  

$ 14,633  

$ 18,380  

164,144  

99,201  

131,076  

51,251  

97,731  

85,167  

$ 222,818  

$ 211,565  

$ 234,623  

$ 30,798 $ 7,423 $ 14,633

143,528 164,144 99,201

43,320 51,251 97,731

$ 217,646 $ 222,818 $ 211,565

As of December 31,

1 unchanged sentence

United States

$ 80,048  

$ 87,709  

$ 90,999  

50,777  

63,644  

71,080  

93,888  

108,509  

108,575  

$ 224,713  

$ 259,862  

$ 270,654  

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

Of the Company’s total revenues in 2022,  the Company earned $ 118.2  million, or 53.0 %, from the CATV market, $ 77.1  million, or 34.6 %, from the internet data center market, $ 24.7  million, or 11.1 %, from the telecom market and $ 0.1  million, or 

0.1 %, from the FTTH market.

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

Of the Company’s total revenues in 2020, the Company earned $ 37.9 million, or 16.2 %, from the CATV market, $ 173.4 million, or 73.9 %, from the internet data center market, $ 21.1 million, or 9.0 %, from the telecom market and $ 0.1 million, or 0.0 %, from the FTTH market.

NOTE S—EMPLOYEE BENEFIT PLANS

$ 75,283 $ 80,048 $ 87,709

47,668 50,777 63,644

91,050 93,888 108,509

$ 214,001 $ 224,713 $ 259,862

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

Of the Company’s total revenues in 2023, the Company earned $ 141.2 million, or 64.9 %, from the internet data center market, $ 59.9 million, or 27.5 %, from the CATV market, $ 13.8 million, or 6.4 %, from the telecom market and $ 0.1 million, or 0.0 %, from the FTTH market.

Of the Company’s total revenues in 2022, the Company earned $ 118.2 million, or 53.0 %, from the CATV market, $ 77.1 million, or 34.6 %, from the internet data center market, $ 24.7 million, or 11.1 %, from the telecom market and $ 0.1 million, or 0.1 %, from the FTTH market.

NOTE S—EMPLOYEE BENEFIT PLANS

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

Under this program, pension costs are recorded on the basis of required monthly contributions to employees’

individual accounts during their service periods.

Under the regulations of the People’s Republic of China, Global is required to make fixed contributions to a fund, which is under the administration of the local labor departments.

Pension expense for Global was $ 1.0  million, $ 1.0  million, and $ 1.2  million for the years ended December 31, 2022, 2021 and 2020 , respectively.

Employees of Prime World’s Taiwan branch participate in a pension program under the Taiwan Labor Pension Act.

Pension expense for the Prime World’s Taiwan branch was $ 0.5  million, $ 0.7  million, and $ 0.8  million for the years ended December 31, 2022, 2021 and 2020 , respectively. 

NOTE T—COMMITMENTS AND CONTINGENCIES

Employment Agreements and Consultancy Agreements  

The Company has entered into employment and indemnification agreements with three executive officers.

These agreements provide that if their employment is terminated as a result of a change of control of the Company, or if their employment is terminated for certain other reasons set forth in the agreements, the Company will be required to pay a severance payment in an amount equal to their annual base salary, and other additional compensation due under the terms of the agreements.

The Company has also entered into employment and indemnification agreements with one other executive officer.

This agreement provides that if his employment is terminated as a result of a change of control of the Company, the Company will be required to pay a severance payment in an amount equal to six months of his annual base salary and other additional compensation due under the terms of the agreements.

Contingencies  

From time to time, the Company may be subject to legal proceedings and litigation arising in the ordinary course of business, including, but not limited to, inquiries, investigations, audits and other regulatory proceedings, such as described below.  The Company records a loss provision when it believes it is both probable that a liability has been incurred and the amount can be reasonably estimated.

Under this program, pension costs are recorded on the basis of required monthly contributions to employees’ individual accounts during their service periods.

Under the regulations of the People’s Republic of China, Global is required to make fixed contributions to a fund, which is under the administration of the local labor departments.

Pension expense for Global was $ 1.7 million, $ 1.0 million, and $ 1.0 million for the years ended December 31, 2023, 2022 and 2021 , respectively.

Employees of Prime World’s Taiwan branch participate in a pension program under the Taiwan Labor Pension Act.

Pension expense for the Prime World’s Taiwan branch was $ 0.5 million, $ 0.5 million, and $ 0.7 million for the years ended December 31, 2023, 2022 and 2021 , respectively.

NOTE T—COMMITMENTS AND CONTINGENCIES

Employment Agreements and Consultancy Agreements

The Company has entered into employment and indemnification agreements with our CEO.

The agreement provides that if his employment is terminated as a result of a change of control of the Company, or if his employment is terminated for certain other reasons set forth in the agreements, the Company will be required to pay a severance payment in an amount equal to his annual base salary, and other additional compensation due under the terms of the agreements.

The Company has also entered into employment and indemnification agreements with four other named executive officers.

These agreements provide that if their employment is terminated as a result of a change of control of the Company, the Company will be required to pay a severance payment in an amount equal to their annual base salary and other additional compensation due under the terms of the agreements.

Contingencies

The Company records a loss provision when it believes it is both probable that a liability has been incurred and the amount can be reasonably estimated.

Unless otherwise disclosed, the Company is unable to estimate the possible loss or range of loss for the legal proceeding described below.

The Company believes that there are no claims or actions pending or threatened against it, the ultimate disposition of which would have a material adverse effect on it.

Other Contingencies  

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

The Company paid $ 0.4 million for the tax notice, but challenged the remaining tax assessments and vigorously defended its position.

The Comptroller’s office exhausted its redetermination period and therefore moved AOI’s case to hearing process.

AOI has not received its hearing schedule.

The management estimated that the additional tax assessment will be in the range of $ 0.2 million to $ 0.4 million including interest charges

NOTE U—SUBSEQUENT EVENTS

Arbitration filed by Yuhan Optoelectronic Technology (Shanghai) Co., Ltd.

On September 12, 2023, the Company delivered notice of termination with respect to that certain 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 (the “Purchase Agreement”), dated September 15, 2022, with Prime World International Holdings Ltd.

(the “Seller”) and Yuhan Optoelectronic Technology (Shanghai) Co., Ltd.

(the “Purchaser”), pursuant to which the Seller would divest its manufacturing facilities located in the People's Republic of China and certain assets related to its transceiver business and multichannel optical sub-assembly products for the internet data center, FTTH and telecom markets.

The termination, in accordance with the terms of the Purchase Agreement, was a result of the Purchaser's failure to satisfy certain of its material obligations under the Purchase Agreement.

In terminating the Purchase Agreement, we also asserted the right to recover a break-up fee from the Purchaser.

On December 22, 2023, the Purchaser filed for arbitration in Hong Kong with the Hong Kong International Arbitration Centre (“HKIAC”) challenging the validity of our termination notice and seeking specific performance with respect to the transactions contemplated in the Purchase Agreement, which in any case remain subject to regulatory approvals.

On January 22, 2024, the Company filed its response, generally denying the Purchaser’s allegations and asserting counterclaims for recovery of a break-up fee.

While the Company does not believe the Purchaser’s claims have merit and intends to vigorously defend this matter, it is not able to determine the outcome of this dispute or the likelihood or amount of the Company’s loss or recovery, if any, arising from this matter.

If specific performance is granted by HKIAC, the transaction contemplated by the Purchase Agreement would still have to be approved by the Committee on Foreign Investment in the United States prior to its consummation.

A hearing date for the arbitration has not been set.

Other Contingencies

NOTE U—SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date the financial statements were issued.

In February 

2023, the Company repaid its revolving bank line of credit of $ 8.3 million.

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

What changed 10-K

Item 9A. Controls and Procedures