APPLIED OPTOELECTRONICS, INC. 10-K

Item 9A. Controls and Procedures a. 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. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their control objectives. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2023 . 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. b. 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. 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. 42 Table of Contents 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. c. 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. 43 Table of Contents 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 44 Table of Contents Item 9B. 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 . Mr. 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 . Mr. 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 . Mr. 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 . Mr. 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. Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevent Inspections None. 45 Table of Contents PART III Item 10. 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 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 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 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 no amendments to the Code or waivers granted thereunder relating to the Principal Executive Officer, Principal Financial Officer or Principal Accounting Officer during 2023 . Item 11. Executive Compensation 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. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 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. Item 13. Certain Relationships and Related Transactions, and Director Independence 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. Item 14. Principal Accounting Fees and Services 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. 46 Table of Contents Part IV Item 15. 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)(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. See the Exhibit immediately following Item 16. Form 10-K Summary of this Form 10-K. Item 16. Form 10-K Summary None. 47 Table of Contents EXHIBIT INDEX Incorporated By Reference Number Exhibit Description Form File No. Exhibit Filing Date 2.1 ** Agreement for the Sale and Purchase of a New Company to Be Established in Hong Kong Special Administrative Region of The People's Republic of China, dated as of September 15, 2022, by and between Prime World International Holdings Ltd., Applied Optoelectronics, Inc. and Yuhan Optoelectronics Technology (Shanghai) Co., Ltd. 8-K 001-36083 2.1 September 15, 2022 3.1 Amended and Restated Certificate of Incorporation of the registrant, as currently in effect 10-Q 001-36083 3.1 November 14, 2013 3.2 Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Applied Optoelectronics, Inc. 8-K 001-36083 3.1 September 7, 2023 3.3 Amended and Restated Bylaws of the registrant, as currently in effect 10-Q 001-36083 3.2 November 14, 2013 4.1 Common Stock Specimen 8-K 001-36083 4.1 November 14, 2016 4.2 Indenture, dated as of March 5, 2019 between Applied Optoelectronics, Inc. and Wells Fargo Bank, National Association, as trustee, paying agent, and conversion agent 8-K 001-36083 4.1 March 5, 2019 4.3 Form of Note representing the Company’s 5.00% Convertible Senior Notes due 2024 (included as Exhibit A to the Indenture) 8-K 001-36083 4.1 March 5, 2019 4.4 Indenture, dated as of December 5, 2023, between Applied Optoelectronics, Inc. and Computershare Trust Company, N.A., as Trustee 8-K 001-36083 4.1 December 5, 2023 4.5 Form of 5.250% Convertible Senior Note due 2026 (included as an exhibit to Exhibit 4.1) 8-K 001-36083 4.2 December 5, 2023 4.6 First Supplemental Indenture, dated as of December 5, 2023, between Applied Optoelectronics, Inc. and Computershare Trust Company, N.A., as Trustee 8-K 001-36083 4.3 December 5, 2023 4.7 * Description of Company's Common Stock 10.1 Form of Indemnification Agreement between the registrant each of its Directors and certain of its Executive Officers S-1 333-190591 10.1 August 13, 2013 10.2 † Amended and Restated 2013 Equity Incentive Plan 10-K 001-36083 10.6 March 9, 2017 10.2.1 † Form of Restricted Stock Award Agreement under 2013 Equity Incentive Plan S-1 333-190591 10.6.1 August 13, 2013 10.2.2 † Form of Restricted Stock Unit Award Agreement under 2013 Equity Incentive Plan S-1 333-190591 10.6.2 August 13, 2013 10.2.3 † Form of Stock Appreciation Right Award Agreement under 2013 Equity Incentive Plan S-1 333-190591 10.6.3 August 13, 2013 10.2.4 † Form of Notice of Stock Option Award and Stock Option Award Agreement under 2013 Equity Incentive Plan S-1 333-190591 10.6.4 August 13, 2013 10.4 † 2021 Stock Incentive Plan 10-Q 001-36083 10.1 August 5, 2021 10.4.1 † Form of Restricted Stock Unit Award Agreement under 2021 Equity Incentive Plan 10-Q 001-36083 10.4.1 August 5, 2021 10.4.2 † Form of Performance Restricted Stock Unit Award Agreement under 2021 Equity Incentive Plan 10-Q 001-36083 10.4.2 August 5, 2021 48 Table of Contents Incorporated By Reference Number Exhibit Description Form File No. Exhibit Filing Date 10.5 † Applied Optoelectronic, Inc. 2023 Equity Incentive Plan 10-Q 001-36083 10.1 November 9, 2023 10.6 † 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 S-1 333-190591 10.12.1 August 13, 2013 10.7 † Employment Agreement, dated August 5, 2016, between Applied Optoelectronics, Inc. and Stefan J. Murry 10-Q/A 001-36083 10.20 August 9, 2016 10.8 † Employment Agreement, dated August 5, 2016, between Applied Optoelectronics, Inc. and Mr. Joshua Yeh 10-Q/A 001-36083 10.21 August 9, 2016 10.9 † Employment Agreement, dated August 5, 2016, between Applied Optoelectronics, Inc. and Dr. Fred Chang 10-Q/A 001-36083 10.22 August 9, 2016 10.10 † Employment Agreement, dated August 5, 2016, between Applied Optoelectronics, Inc. and David C. Kuo 10-K 001-36083 10.9 February 28, 2018 10.11 Supply Agreement, effective November 8, 2017, between Applied Optoelectronics, Inc. and Facebook, Inc. 8-K 001-36083 10.1 February 24, 2018 10.12 Master Purchase Agreement, effective January 2, 2018, between Applied Optoelectronics, Inc. and Facebook, Inc. 8-K 001-36083 10.2 February 21, 2018 10.13 Translation of Lease Agreement between Global Technology, Inc. and the People’s Republic of China in Zhejiang Province, Ningbo City, Land Resources Bureau 10-K 001-36083 10.30 February 28, 2018 10.13.1 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 10-K 001-36083 10.30.1 February 28, 2018 10.14 Translation of Construction Agreement between Global Technology, Inc. and Zhejiang Xinyu Construction Group Co., Ltd. dated February 8, 2018 10-Q 001-36083 10.5 May 8, 2018 10.15 First Amendment to Lease, dated October 8, 2018, between Applied Optoelectronics, Inc. and GIG VAOI Breckinridge, LLC. 8-K 001-36083 10.1 October 12, 2018 10.16 Purchase Agreement, dated as of February 28, 2019 by and among Applied Optoelectronics, Inc., Raymond James & Associates, Inc. and Cowen and Company, LLC 8-K 001-36083 10.1 March 5, 2019 10.17 Translation of the Working Capital Loan Contract, between Global Technology, Inc. and Shanghai Pudong Development Bank Co., Ltd., dated April 30, 2019 8-K 001-36083 10.1 May 6, 2019 10.18 Translation of the Working Capital Loan Contract (RMB 30,000,000), between Global Technology, Inc. and Shanghai Pudong Development Bank Co., Ltd., dated May 7, 2019 8-K 001-36083 10.1 May 13, 2019 10.18.1 Translation of the Working Capital Loan Contract (USD 2,000,000), between Global Technology, Inc. and Shanghai Pudong Development Bank Co., Ltd., dated May 8, 2019 8-K 001-36083 10.2 May 13, 2019 10.19 Translation of the Financing Credit Line Agreement, dated May 24, 2019, between Global Technology, Inc. and Shanghai Pudong Development Bank Co., Ltd. 8-K 001-36083 10.1 May 31, 2019 10.19.1 Translation of the Maximum Mortgage Contract (Security Agreement), dated May 24, 2019, between Global Technology, Inc. and Shanghai Pudong Development Bank Co., Ltd. 8-K 001-36083 10.2 May 31, 2019 10.20 Second Amendment to Lease, dated November 11, 2019, between Applied Optoelectronics, Inc. and ROIB2 Breckinridge, LLC. 8-K 001-36083 10.1 November 18, 2019 10.21 Paycheck Protection Program Loan Promissory Note, dated April 17, 2020, executed by Applied Optoelectronics, Inc. 8-K 001-36083 10.1 April 22, 2020 49 Table of Contents Incorporated By Reference Number Exhibit Description Form File No. Exhibit Filing Date 10.22 Translation of the Maximum Loan Contract between Global Technology, Inc. and China Zheshang Bank Co., Ltd., dated June 7, 2022. 8-K 001-36083 10.1 June 10, 2022 10.22.1 Translation of the Maximum Mortgage Contract, between Global Technology, Inc. and China Zheshang Bank Co., Ltd., dated June 7, 2022. 8-K 001-36083 10.2 June 10, 2022 10.23 Form of Trademark License Agreement, by and among Applied Optoelectronics, Inc., and Global Technology Co., Ltd., and Yuhan Optoelectronic Technology (Shanghai) Co., Ltd. 8-K 001-36083 10.1 September 15, 2022 10.23.1 Form of Technology Cross-License Agreement, by and among Applied Optoelectronics, Inc., Global Technology Co., Ltd., and Yuhan Optoelectronic Technology (Shanghai) Co., Ltd. 8-K 001-36083 10.2 September 15, 2022 10.23.2 ** Form of Product Supply Agreement, by and between Applied Optoelectronics, Inc. and Yuhan Optoelectronic Technology (Shanghai) Co., Ltd. 8-K 001-36083 10.3 September 15, 2022 10.23.3 ** Form of Contract Manufacturing Agreement, by and among Applied Optoelectronics, Inc., Global Technology Co., Ltd., and Yuhan Optoelectronic Technology (Shanghai) Co., Ltd. 8-K 001-36083 10.4 September 15, 2022 10.24 Loan Security and Guarantee Agreement, dated November 16, 2022, between Applied Optoelectronics, Inc. and CIT Northbridge Credit, LLC. 8-K 001-36083 10.1 November 21, 2022 10.25 Statement of Work No. 1 – Foundry between Applied Optoelectronics, Inc. and Microsoft Corporation, effective December 16, 2022 8-K 001-36083 10.1 May 3, 2023 10.25.1 Microsoft Corporation Purchase Order Terms & Conditions (included as Appendix C to Exhibit 10.1) 8-K 001-36083 10.2 May 3, 2023 50 Table of Contents Incorporated By Reference Number Exhibit Description Form File No. Exhibit Filing Date 10.26 Third Amendment to Lease, dated June 9, 2023, between Applied Optoelectronics, Inc. and Albany Road-Breck Exchange LLC 8-K 001-36083 10.1 June 14, 2023 10.27 Statement of Work No. 2 – Design and Assembly, between Applied Optoelectronics, Inc. and Microsoft Corporation, effective June 21, 2023 8-K 001-36083 10.1 June 21, 2023 10.27.1 Microsoft Corporation Purchase Order Terms & Conditions (included as Appendix J to Exhibit 10.1) 8-K 001-36083 10.2 June 21, 2023 10.28 Form of Exchange Agreement, dated as of November 30, 2023, between Applied Optoelectronics, Inc. and the applicable Noteholders 8-K 001-36083 10.1 December 1, 2023 10.29 ** Purchase Agreement, dated as of November 30, 2023, by and between Applied Optoelectronics, Inc. and Raymond James & Associates, Inc. 8-K 001-36083 10.1 December 5, 2023 10.30 Translation of the Asset Pool Agreement, between Global Technology, Inc. and China Zheshang Bank Co., Ltd., dated December 21, 2023 8-K 001-36083 10.1 December 27, 2023 10.30.1 Translation of the Pledge Contract, between Global Technology, Inc. and China Zheshang Bank Co., Ltd., dated December 21, 2023 8-K 001-36083 10.2 December 27, 2023 21.1 Subsidiaries of the registrant S-1 333-190591 21.1 August 13, 2013 23.1 * Consent of Grant Thornton LLP 24.1 Power of Attorney (see the signature page in this Annual Report on Form 10-K). 31.1 * Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of The Sarbanes-Oxley Act of 2002. 31.2 * Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of The Sarbanes-Oxley Act of 2002. 32.1 * 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. 97 * Compensation Recovery Policy 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) * Filed herewith. † Management contract, compensatory plan or arrangement. ** Confidential Treatment has been granted for portions of this document. 51 Table of Contents 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. By: /s/ Chih-Hsiang (Thompson) Lin Chih-Hsiang (Thompson) Lin , President and Chief Executive Officer and Chairman of the Board of Directors February 23, 2024 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Chih-Hsiang (Thompson) Lin and Stefan J. Murry, and each of them, jointly and severally, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities and Exchange Act of 1934, this Form 10-K has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Date /s/ Chih-Hsiang (Thompson) Lin CHIH-HSIANG (THOMPSON) LIN, President, Chief Executive Officer and February 23, 2024 Chairman of the Board of Directors (principal executive officer) /s/ STEFAN J. MURRY STEFAN J. MURRY, Chief Financial Officer February 23, 2024 (principal financial officer and principal accounting officer) Signature Date /s/ WILLIAM H. YEH WILLIAM H. YEH, February 23, 2024 Director /s/ RICHARD B. BLACK RICHARD B. BLACK, February 23, 2024 Director /s/ CHE-WEI LIN CHE-WEI LIN, February 23, 2024 Director /s/ CYNTHIA (CINDY) DELANEY CYNTHIA (CINDY) DELANEY, February 23, 2024 Director /s/ ELIZABETH LOBOA ELIZABETH LOBOA, February 23, 2024 Director /s/ MIN-CHU (MIKE) CHEN MIN-CHU (MIKE) CHEN, February 23, 2024 Director 52 Table of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Pages Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248 ) F-2 Consolidated Balance Sheets F-4 Consolidated Statements of Operations F-5 Consolidated Statements of Comprehensive Income (Loss) F-6 Consolidated Statements of Stockholders’ Equity F-7 Consolidated Statements of Cash Flows F-8 Notes to Consolidated Financial Statements F-9 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders Applied Optoelectronics, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of Applied Optoelectronics, Inc. (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 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 audits in accordance with the standards of the PCAOB. 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. 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. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 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 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 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; and ● We obtained the underlying inventory aging report and agreed the balances to the general ledger to test for completeness and performed the following: ● recalculated the unit price and agreed such unit price to inventory details; ● selected inventory items to re-age; ● tested the underlying source of information and the mathematical accuracy of the calculation used in the inventory reserve; and ● 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 group. 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. The undiscounted future net cash flows, and any subsequent fair value determination, are based on assumptions and projections that require subjective judgments. We identified the long-lived assets impairment assessment and cash flow analysis as a critical audit matter. 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. The Company used an undiscounted cash flow model to assess the recoverability of the long-lived assets, which included assumptions such as revenue growth rates, operating expenses, earnings before interest, taxes, depreciation, and amortization (“EBITDA”) margins, capital expenditures, asset grouping, forecast period and future sales values. These significant assumptions are forward looking and could be affected by future economic and market conditions. 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 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 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; and ● We tested the sensitivity of the undiscounted cash flows utilized in the recoverability test. F-2 Table of Contents /s/ GRANT THORNTON LLP Houston, Texas February 23, 2024 F-3 Table of Contents Applied Optoelectronics, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands except the par value) December 31, 2023 2022 ASSETS Current Assets Cash and cash equivalents $ 45,366 $ 24,685 Restricted cash 9,731 10,902 Accounts receivable - trade, net of allowance of $ 3 and $ 28 , respectively 48,071 61,175 Notes receivable 219 339 Inventories 63,866 79,679 Prepaid income tax 3 — Prepaid expenses and other current assets 5,349 6,384 Total current assets 172,605 183,164 Property, plant and equipment, net 200,317 210,184 Land use rights, net 5,030 5,238 Operating right of use asset 5,026 5,566 Financing right of use asset — 26 Intangible assets, net 3,628 3,699 Other assets, net 2,580 386 TOTAL ASSETS $ 389,186 $ 408,263 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 32,892 $ 47,845 Bank acceptance payable 15,482 12,337 Accrued liabilities 18,549 17,222 Unearned revenue 1,803 3,000 Current lease liability - operating 1,149 1,041 Current lease liability - financing — 63 Current portion of notes payable and long-term debt 23,197 57,074 Current portion of convertible notes 286 — Total current liabilities 93,358 138,582 Convertible senior notes 76,233 79,506 Non-current lease liability - operating 4,726 5,505 TOTAL LIABILITIES 174,317 223,593 Stockholders' equity: Preferred Stock; 5,000 shares authorized at $ 0.001 par value; no shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively — — Common Stock; 80,000 shares authorized at $ 0.001 par value; 38,148 and 28,622 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively 38 29 Additional paid-in capital 478,972 391,526 Accumulated other comprehensive income 975 2,183 Accumulated deficit ( 265,116 ) ( 209,068 ) TOTAL STOCKHOLDERS' EQUITY 214,869 184,670 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 389,186 $ 408,263 The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of Contents Applied Optoelectronics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data) Year ended December 31, 2023 2022 2021 Revenue, net $ 217,646 $ 222,818 $ 211,565 Cost of goods sold 158,725 189,191 173,850 Gross profit 58,921 33,627 37,715 Operating expenses Research and development 35,975 36,244 41,220 Sales and marketing 11,069 9,723 10,899 General and administrative 53,226 46,658 42,362 Total operating expenses 100,270 92,625 94,481 Loss from operations ( 41,349 ) ( 58,998 ) ( 56,766 ) Other income (expense) Interest income 609 126 70 Interest expense ( 9,428 ) ( 6,319 ) ( 5,620 ) Other income (expense), net ( 5,871 ) ( 1,205 ) 8,156 Total other income (expense), net ( 14,690 ) ( 7,398 ) 2,606 Loss before income taxes ( 56,039 ) ( 66,396 ) ( 54,160 ) Income tax expense ( 9 ) ( 1 ) ( 2 ) Net loss $ ( 56,048 ) $ ( 66,397 ) $ ( 54,162 ) Net loss per share Basic $ ( 1.75 ) $ ( 2.38 ) $ ( 2.01 ) Diluted $ ( 1.75 ) $ ( 2.38 ) $ ( 2.01 ) Weighted average shares used to compute net loss per share: Basic 31,944,259 27,846,387 26,912,141 Diluted 31,944,259 27,846,387 26,912,141 The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of Contents Applied Optoelectronics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) Year ended December 31, 2023 2022 2021 Net loss $ ( 56,048 ) $ ( 66,397 ) $ ( 54,162 ) Gain/(Loss) on foreign currency translation adjustment ( 1,208 ) ( 13,888 ) 4,381 Comprehensive loss $ ( 57,256 ) $ ( 80,285 ) $ ( 49,781 ) The accompanying notes are an integral part of these consolidated financial statements. F-6 Table of Contents Applied Optoelectronics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Years ended December 2021, 2022 and 2023 (in thousands) Accumulated Retained Preferred Stock Common Stock Additional other earnings/ Number Number paid-in comprehensive (Accumulated Stockholders' of shares Amount of shares Amount capital gain (loss) deficit) equity January 1, 2021 — $ — 25,110 $ 25 $ 354,685 $ 11,690 $ ( 88,509 ) $ 277,891 Public offering of common stock, net — — 1,552 1 15,288 — — 15,289 Stock options exercised, net of shares withheld for employee tax — — 2 — 8 — — 8 Issuance of restricted stock, net of shares withheld for employee tax — — 659 1 ( 959 ) — — ( 958 ) Share-based compensation — — — — 12,121 — — 12,121 Foreign currency translation adjustment — — — — — 4,381 — 4,381 Net loss — — — — — — ( 54,162 ) ( 54,162 ) December 31, 2021 — $ — 27,323 $ 27 $ 381,143 $ 16,071 $ ( 142,671 ) $ 254,570 Public offering of common stock, net — — 437 1 1,237 — — 1,238 Stock options exercised, net of shares withheld for employee tax — — — — — — — — Issuance of restricted stock, net of shares withheld for employee tax — — 862 1 ( 454 ) — — ( 453 ) Share-based compensation — — — — 9,600 — — 9,600 Foreign currency translation adjustment — — — — — ( 13,888 ) — ( 13,888 ) Net loss — — — — — — ( 66,397 ) ( 66,397 ) December 31, 2022 — $ — 28,622 $ 29 $ 391,526 $ 2,183 $ ( 209,068 ) $ 184,670 Public offering of common stock, net — — 8,275 8 76,498 — — 76,506 Stock options exercised, net of shares withheld for employee tax — — 48 — 21 — — 21 Issuance of restricted stock, net of shares withheld for employee tax — — 1,203 1 ( 957 ) — — ( 956 ) Share-based compensation — — — — 11,884 — — 11,884 Foreign currency translation adjustment — — — — — ( 1,208 ) — ( 1,208 ) Net loss — — — — — — ( 56,048 ) ( 56,048 ) December 31, 2023 — $ — 38,148 $ 38 $ 478,972 $ 975 $ ( 265,116 ) $ 214,869 The accompanying notes are an integral part of these consolidated financial statements. F-7 Table of Contents Applied Optoelectronics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year ended December 31, 2023 2022 2021 Operating activities: Net loss $ ( 56,048 ) $ ( 66,397 ) $ ( 54,162 ) Adjustments to reconcile net loss to net cash used in operating activities: Allowance of bad debt ( 24 ) ( 3 ) ( 32 ) Lower of cost or net realizable value reserve adjustment to inventory 8,728 4,900 3,889 Depreciation and amortization 20,427 23,202 25,371 Amortization of debt issuance costs 2,308 902 865 Loss (gain) on disposal of assets 51 ( 47 ) 1 Share-based compensation 11,884 9,600 12,121 Interest for extinguishment of debt — — ( 70 ) Extinguishment of debt — — ( 6,229 ) Unrealized foreign exchange (gain) loss ( 1,313 ) 1,916 645 Changes in operating assets and liabilities: Accounts receivable, trade 13,128 ( 12,749 ) ( 7,020 ) Notes receivable 83 7,764 ( 7,585 ) Prepaid income tax ( 3 ) 1 1 Inventories 6,790 1,150 15,786 Other current assets 1,008 ( 2,406 ) 867 Operating right of use asset 530 888 848 Accounts payable ( 14,953 ) 12,966 7,069 Accrued income taxes ( 1 ) — 1 Accrued liabilities 1,333 5,260 ( 3,092 ) Unearned Revenue ( 1,197 ) — — Lease liability ( 660 ) ( 969 ) ( 918 ) Net cash used in operating activities ( 7,929 ) ( 14,022 ) ( 11,644 ) Investing activities: Purchase of property, plant and equipment ( 9,079 ) ( 3,210 ) ( 7,981 ) Proceeds from disposal of equipment 135 403 114 Deposits and prepaid for equipment ( 5,229 ) ( 529 ) ( 2,222 ) Purchase of intangible assets ( 588 ) ( 498 ) ( 457 ) Net cash used in investing activities ( 14,761 ) ( 3,834 ) ( 10,546 ) Financing activities: Principal payments of long-term debt and notes payable ( 80,214 ) ( 7,336 ) ( 4,144 ) Proceeds from line of credit borrowings, net of debt issuance costs 57,626 143,261 122,935 Repayments of line of credit borrowings, net of debt issuance costs ( 91,791 ) ( 131,030 ) ( 111,287 ) Proceeds from bank acceptance payable 57,057 45,666 24,622 Repayments of bank acceptance payable ( 53,748 ) ( 40,573 ) ( 32,465 ) Proceeds from issuance of convertible senior notes, net of debt issuance costs 83,661 — — Principal payments of financing lease ( 63 ) ( 19 ) ( 18 ) Exercise of stock options 22 — 8 Payments of tax withholding on behalf of employees related to share-based compensation ( 956 ) ( 454 ) ( 961 ) Proceeds from common stock offering, net 68,984 1,238 15,397 Net cash provided by financing activities 40,578 10,753 14,087 Effect of exchange rate changes on cash 1,622 1,553 ( 876 ) Net decrease in cash, cash equivalents and restricted cash 19,510 ( 5,550 ) ( 8,979 ) Cash, cash equivalents and restricted cash at beginning of period 35,587 41,136 50,115 Cash, cash equivalents and restricted cash at end of period $ 55,097 $ 35,587 $ 41,136 Supplemental disclosure of cash flow information: Cash paid (received) for: Interest $ 8,098 $ 5,142 $ 4,899 Income taxes 9 — 1 Non-cash investing and financing activities: Net change in accounts payable related to property and equipment additions $ 1,053 $ ( 164 ) $ ( 4,027 ) Net change in deposits and prepaid for equipment related to property and equipment additions ( 1,297 ) 67 84 The accompanying notes are an integral part of these consolidated financial statements. F-8 Table of Contents Applied Optoelectronics, Inc. and Subsidiaries 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 28, 1997. In March 2013, the Company converted into a Delaware corporation. The Company is a leading, vertically integrated provider of fiber-optic networking products, primarily for four networking end-markets: internet data center, CATV, telecom and FTTH. The Company designs and manufactures a wide range of optical communications products at varying levels of integration, from components, subassemblies and modules to complete turn-key equipment. The Company has manufacturing and research and development facilities located in the U.S., Taiwan and China. At its corporate headquarters and manufacturing facilities in Sugar Land, Texas, the Company primarily manufactures lasers and laser components and performs research and development activities for laser component and optical module products. 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. Prime World also operates a branch in Taiwan, which primarily manufactures transceivers. The Company also has a research and development center in Duluth, Georgia. NOTE B—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Basis of Presentation The consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries and are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). All intercompany balances and transactions have been eliminated in consolidation. 2. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates in the consolidated financial statements and accompanying notes. Significant estimates and assumptions that impact these financial statements relate to, among other things, allowance for doubtful accounts, inventory reserve, product warranty costs, share-based compensation expense, estimated useful lives of property and equipment, and taxes. 3. 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 it is management’s intent to reinvest the undistributed earnings of its foreign subsidiaries indefinitely. 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. The translation gain or losses from the long-term investment nature of intercompany balances are treated as translation adjustments and included in comprehensive income. 4. Fair Value The carrying value of cash, cash equivalents and short-term investments, accounts receivable, accounts payable, and note receivable approximate their historical fair values due to their short-term maturities. The carrying value of the debt approximates its fair value due to the short-term nature of the debt since it renews frequently at current interest rates. Management believes that the interest rates in effect at each year end represent the current market rates for similar borrowings. F- 9 Table of Contents The fair value measurement standard defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard characterizes inputs used in determining fair value according to a hierarchy that prioritized inputs based on the degree to which they are observable. The three levels of the fair value hierarchy are as follows: 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. 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. 5. 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 $ 17.7 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, 2023 , approximately $ 36.8 million of U.S. deposits were not covered by FDIC insurance. The Company has not experienced any losses and believes it is not exposed to any significant risk with such accounts. 6. Restricted Cash/Compensating Balances Restricted cash includes guarantee deposits for customs duties and compensating balances associated with credit facilities. 7. Accounts Receivable/Allowance for Doubtful Accounts The Company carries its accounts receivable at the net amount that it estimates to be collectible. An allowance for uncollectable accounts is maintained through a charge against operations. The allowance is determined by management review of outstanding amounts per customer, historical payments and the aging of accounts. 8. Concentration of Credit Risk and Significant Customers Financial instruments which potentially subject the Company to concentrations of credit risk include cash, cash equivalents and accounts receivable. 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 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 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, 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. F- 10 Table of Contents 9. Inventories Inventories are stated at the lower of cost (average-cost method) or net realizable value. Work in process and finished goods includes materials, labor and allocated overhead. The Company assesses the valuation of its inventory on a periodic basis and provides write-offs for the value of estimated excess and obsolete inventory based on estimates of future demand. Inventory reserves are recorded to account for the excess and obsolete inventory combined with the lower of cost or net realizable value assessments. To develop the reserve, the Company developed certain percentages that determine the extent of inventory reserve adjustments based on the age of the inventory. 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. 10. Property, Plant and Equipment Property, plant and equipment are stated at cost, net of accumulated depreciation and amortization. The Company calculates depreciation using the straight-line method over the following estimated useful lives: Useful lives (in years) Buildings 20 - 42 Land improvements 10 Machinery and equipment 2 - 20 Furniture and fixtures 3 - 7 Computer equipment and software 3 - 10 Leasehold improvements The shorter of the life of the applicable lease or the useful life of the improvement Transportation equipment 5 Major improvements are capitalized and expenditures for maintenance and repairs are expensed as incurred. Construction in progress represents property, plant and equipment under construction or being installed. Costs include original cost, installation, construction and other direct costs which include interest on borrowings used to finance the asset. 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. The land use rights are recorded at cost and are amortized on the straight-line basis over the useful life of the related contract. The land use rights expire on October 7, 2054 and December 28, 2067. 11. Intangible Assets Intangible assets consist of intellectual property that is stated at cost less accumulated amortization. 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. 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. 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. F- 11 Table of Contents 12. 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 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. 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 group. 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. If such 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. The fair value, based on reasonable and supportable assumptions and projections, require subjective judgments. Depending on the assumptions and estimates used, the appraised fair value projected in the evaluation of long-lived assets can vary within a range of outcomes. The Company considers the likelihood of possible outcomes in determining the best estimate for the fair value of the assets. The Company did not record any asset impairment charges in 2023 , 2022 or 2021. 13. 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). 14. 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. Compensation cost is recognized on a straight-line basis over the vesting period of the restricted stock units and adjusted as forfeitures occur. 15. Revenue Recognition 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 . 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 Unearned Revenue from customers. 16. Product Warranty The Company generally offers a one -year limited warranty for its products but it can extend for longer periods of three to five years for certain products sold to certain customers. 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, 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): Year ended December 31, 2023 2022 Beginning Balance, January 1 $ 140 $ 263 Warranty costs incurred ( 44 ) ( 85 ) Provision for warranty 159 ( 38 ) Ending Balance, December 31 $ 255 $ 140 17. Advertising Costs 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. F- 12 Table of Contents 18. Research and Development Research and development costs are charged to operations as incurred. The Company receives reimbursement for certain development costs, which offset with expense up to the reimbursable amount. 19. Shipping and Handling Costs Shipping and handling costs are included in operating expenses as fulfillment costs unless we bill our customers for shipping and handling charges, which are included in net sales for the applicable period, and the corresponding shipping and handling expense is reported in cost of sales. 20. Income Taxes The Company accounts for income taxes in accordance with the provisions of ASC 740, Income Taxes . The liability method is used to account for deferred income taxes. 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. The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet. 21. 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, 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. 22. Recent Accounting Pronouncements Recent Accounting Pronouncements Adopted in 2023 There was no accounting pronouncement adopted in 2023. F- 13 Table of Contents 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. Revenue is recognized when obligations under the terms of a contract with its customer are satisfied; generally this occurs with the transfer of control of products or services. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or providing services. Certain customers may receive cash and/or non-cash incentives, which are accounted for as variable consideration. To achieve this core principle, the Company applies the following five steps: 1. 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. The Company applies judgment in determining the customer's ability and intention to pay, which is based on a variety of factors including the customer's payment history or, in the case of a new customer, published credit and financial information pertaining to the customer. F- 14 Table of Contents 2. Identify the performance obligations in the contract Performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the product or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the products or services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised products or services, the Company must apply judgment to determine whether promised products or services are capable of being distinct and distinct in the context of the contract. If these criteria are not met, the promised products or services are accounted for as a combined performance obligation. The Company has elected to account for shipping and handling activities as a fulfillment cost as permitted by the standard. 3. Determine the transaction price The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring products or services to the customer. To the extent the transaction price is variable, revenue is recognized at an amount equal to the consideration to which the Company expects to be entitled. This estimate includes customer sales incentives which are accounted for as a reduction to revenue and estimated using either the expected value method or the most likely amount method, depending on the nature of the program. The Company will adjust its consideration for any rebates if it is more likely than not that the rebate conditions will be met. 4. Allocate the transaction price to performance obligations in the contract 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 for each performance obligation. 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. 5. 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 $ 3,000 $ — Additional Unearned Revenue 12,608 3,000 Revenue recognized 13,805 — Unearned Revenue, end of period $ 1,803 $ 3,000 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, % of % of % of 2023 Revenue 2022 Revenue 2021 Revenue CATV $ 59,942 27.5 % $ 118,169 53.0 % $ 94,266 44.6 % Data Center 141,213 64.9 % 77,094 34.6 % 97,461 46.1 % Telecom 13,831 6.4 % 24,727 11.1 % 16,247 7.7 % FTTH 56 0.0 % 129 0.1 % 957 0.5 % Other 2,604 1.2 % 2,699 1.2 % 2,634 1.2 % Total Revenue $ 217,646 100.0 % $ 222,818 100.0 % $ 211,565 100.0 % F- 15 Table of Contents 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. These leases do not contain contingent rent provisions. The Company also leases certain machinery, office equipment and a vehicle under operating leases. Many of its leases include both lease (e.g. fixed payments including rent, taxes, and insurance costs) and non-lease components (e.g. 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 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, $ 1.2 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): Year ended December 31, Year ended December 31, 2023 2022 Operating lease expense $ 1,146 $ 1,161 Financing lease expense 27 32 Short Term lease expense 22 27 Total lease expense $ 1,195 $ 1,220 Maturities of lease liabilities are as follows for the future one -year periods ending December 31, ( in thousands): Operating Financing Total 2024 $ 1,330 $ — $ 1,330 2025 1,307 — 1,307 2026 1,106 — 1,106 2027 1,092 — 1,092 2028 1,093 — 1,093 2029 and thereafter 463 — 463 Total lease payments $ 6,391 $ — $ 6,391 Less imputed interest ( 516 ) — ( 516 ) Present value $ 5,875 $ — $ 5,875 The weighted average remaining lease term and discount rate for operating leases were as follows for the periods indicated: December 31, December 31, 2023 2022 Weighted Average Remaining Lease Term (Years) - operating leases 5.10 6.16 Weighted Average Remaining Lease Term (Years) - financing leases — 0.83 Weighted Average Discount Rate - operating leases 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): Year ended December 31, Year ended December 31, 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases 1,250 1,234 Operating cash flows from financing lease 2 4 Financing cash flows from financing lease 63 19 Right-of-use assets obtained in exchange for new operating lease liabilities - — F- 16 Table of Contents 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): December 31, December 31, 2023 2022 Cash and cash equivalents $ 45,366 $ 24,685 Restricted cash 9,731 10,902 Total cash, cash equivalents and restricted cash shown in the statement of cash flows $ 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. Diluted net loss per share has been computed using the weighted-average number of shares of common stock and dilutive potential common shares from options and restricted stock units outstanding during the period. In periods with net losses, normally dilutive shares become anti-dilutive. Therefore, basic and dilutive earnings per share are the same. The following table presents the computation of the basic and diluted net loss per share for the periods indicated (in thousands): Year ended December 31, 2023 2022 2021 Numerator: Net loss $ ( 56,048 ) $ ( 66,397 ) $ ( 54,162 ) Denominator: Weighted average shares used to compute net loss per share Basic 31,944 27,846 26,912 Effect of dilutive options and restricted stock units — — — Diluted 31,944 27,846 26,912 Net loss per share Basic $ ( 1.75 ) $ ( 2.38 ) $ ( 2.01 ) Diluted $ ( 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): As of December 31, 2023 2022 Employee stock options - - Restricted stock units 1,167 1 Shares for convertible senior notes 5,264 4,587 Total antidilutive shares 6,431 4,588 F- 17 Table of Contents NOTE G—INVENTORIES At December 31, 2023 and 2022 , inventories consisted of the following (in thousands): As of December 31, 2023 2022 Raw materials $ 22,128 $ 25,732 Work in process and sub-assemblies 33,792 39,563 Finished goods 22,452 26,794 Allowance for Inventory ( 14,506 ) ( 12,410 ) Total inventory $ 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): December 31, 2023 December 31, 2022 Land improvements $ 806 $ 806 Building and improvements 86,534 86,372 Machinery and equipment 257,842 251,216 Furniture and fixtures 5,449 5,382 Computer equipment and software 12,059 11,713 Transportation equipment 673 679 363,363 356,168 Less accumulated depreciation and amortization ( 194,086 ) ( 177,519 ) 169,277 178,649 Construction in progress 29,939 30,434 Land 1,101 1,101 Total property, plant and equipment, net $ 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 . 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. F- 18 Table of Contents NOTE I—INTANGIBLE ASSETS Intangible assets consisted of the following for the periods indicated (in thousands): December 31, 2023 Gross Accumulated Intangible Amount amortization assets, net Patents $ 9,502 $ ( 5,981 ) $ 3,521 Trademarks 138 ( 31 ) $ 107 Total intangible assets $ 9,640 $ ( 6,012 ) $ 3,628 December 31, 2022 Gross Accumulated Intangible Amount amortization assets, net Patents $ 8,994 $ ( 5,330 ) $ 3,664 Trademarks 56 ( 21 ) 35 Total intangible assets $ 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 2024 $ 683 2025 683 2026 683 2027 683 2028 683 2029 213 thereafter - Total $ 3,628 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 Significant in active other markets for observable Significant identical remaining unobservable assets (Level 1) inputs (Level 2) inputs (Level 3) Total Assets: Cash and cash equivalents $ 45,366 $ — $ — $ 45,366 Restricted cash 9,731 — — 9,731 Note receivable — 219 — 219 Total assets $ 55,097 $ 219 $ — $ 55,316 Liabilities: Bank acceptance payable — $ 15,482 — $ 15,482 Convertible senior notes — 76,519 — 76,519 Total liabilities $ — $ 92,001 $ — $ 92,001 F- 19 Table of Contents 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 Significant in active other markets for observable Significant identical remaining unobservable assets (Level 1) inputs (Level 2) inputs (Level 3) Total Assets: Cash and cash equivalents $ 24,685 $ — $ — $ 24,685 Restricted cash 10,902 — — 10,902 Note receivable — 339 — 339 Total assets $ 35,587 $ 339 $ — $ 35,926 Liabilities: Bank acceptance payable — $ 12,337 — $ 12,337 Convertible senior notes — 58,314 — 58,314 Total liabilities $ — $ 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): December 31, 2023 December 31, 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 $ 19.04 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 Sub-total 23,197 58,242 Less debt issuance costs, net — ( 1,168 ) Grand total 23,197 57,074 Less current portion ( 23,197 ) ( 57,074 ) Non-current portion $ - $ - Bank Acceptance Notes Payable Bank acceptance notes issued to vendors with a zero percent interest rate $ 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 . F- 20 Table of Contents 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. 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. The total SPD Credit Line of 180 million RMB is inclusive of all credit facilities previously entered into with SPD including: a 30 million RMB credit facility entered into on May 7, 2019; and a 9.9 million RMB credit facility entered into on April 30, 2019 and $ 2 million credit facility entered into on May 8, 2019. Global may draw upon the SPD Credit Line on an as-needed basis at any time during the 5 -year term; 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, 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. On June 7, 2022, the Company's China Subsidiary, Global, entered a security agreement with China Zheshang Bank in Ningbo City, China ("CZB") for a five -year credit line agreement, totaling 200,000,000 RMB (the "¥200M Credit Facility"), or approximately $ 29.9 million. Global may draw upon the ¥200M Credit Facility between June 7, 2022 and June 6, 2027 (" ¥200M Credit Period"). During the ¥200M Credit Period, Global may request to draw upon the ¥200M Credit Facility on an as-needed basis; however, draws under the ¥200M Credit Facility may become due and repayable to CZB at CZB’s discretion due to changes in Chinese government regulations and/or changes in Global’s financial and operational condition. Each draw will be facilitated by a separate credit agreement specifying the terms of each draw and will bear interest equal to CZB's commercial banking interest rate effective on the day of the applicable draw. Global’s obligations under the ¥200M Credit Facility will be secured by real property owned by Global and mortgaged to CZB under the terms of the Real Estate Security Agreement. 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. 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 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. F- 21 Table of Contents 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 Principal $ 80,214 Unamortized debt issuance costs ( 3,981 ) Net carrying amount $ 76,233 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. The 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. The 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; and ( 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 no more than 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. 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. Accordingly, the conversion option is not required to be bifurcated from the host instrument as a freestanding financial instrument. Since the conversion feature meets the equity scope exception from derivative accounting, the Company then evaluated whether the conversion feature needed to be separately accounted for as an equity component under ASC 470 - 20, Debt with Conversion and Other Options. The Company determined that notes should be accounted for in their entirety as a liability. F- 22 Table of Contents The following table sets forth interest expense information related to the 2024 Notes (in thousands): Year ended December 31, 2023 2022 Contractual interest expense $ 4,039 $ 4,025 Amortization of debt issuance costs 849 826 Total interest cost $ 4,888 $ 4,851 Effective interest rate 5.1 % 5.1 % NOTE M—ACCRUED LIABILITIES Accrued liabilities consisted of the following for the periods indicated (in thousands): December 31, 2023 December 31, 2022 Accrued payroll $ 12,146 $ 9,702 Accrued employee benefits 3,376 3,265 Accrued state and local taxes 745 588 Accrued interest 341 1,597 Accrued shipping and tariff expenses 27 — Advance payments 187 216 Accrued commission 649 937 Accrued professional fees 270 409 Accrued product warranty 255 140 Accrued other 553 368 Total accrued liabilities $ 18,549 $ 17,222 NOTE N—OTHER INCOME AND EXPENSE Other income and expense consisted of the following for the periods indicated (in thousands): Year ended December 31, 2023 2022 2021 Foreign exchange transaction gain (loss) $ 711 $ ( 1,488 ) $ 454 Government subsidy income 937 160 1,345 Other non-operating gain(loss) ( 7,468 ) 76 129 Loan forgiveness — — 6,229 Gain (loss) on disposal of assets ( 51 ) 47 ( 1 ) Total other gain (loss), net $ ( 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, 2023 2022 2021 Domestic $ ( 52,886 ) $ ( 45,404 ) $ ( 21,229 ) Foreign ( 3,153 ) ( 20,992 ) ( 32,931 ) Total loss before income taxes $ ( 56,039 ) $ ( 66,396 ) $ ( 54,160 ) F- 23 Table of Contents The provision for income tax expense (benefit) for the years ended December 31, was as follows (in thousands): Current: 2023 2022 2021 Federal $ — $ — $ — State 1 1 2 Foreign 8 — — Total $ 9 $ 1 $ 2 Deferred: Federal $ — $ — $ — State — — — Foreign — — — Total $ — $ — $ — Income tax (benefit) expense $ 9 $ 1 $ 2 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): 2023 2022 NOL carryforward $ 49,469 $ 47,901 Inventory reserves 3,195 2,892 Unrealized gains and losses 355 363 Share-based compensation 1,013 914 Foreign tax credit 4,599 4,599 Research and development credits 10,998 10,505 Capitalized research and development 8,717 Interest 5,659 3,966 ASC 842 Assets 1,561 1,602 Other 941 776 Deferred tax assets 86,507 73,518 Less valuation allowance ( 78,124 ) ( 69,680 ) Deferred tax assets, net 8,383 3,838 Depreciation and amortization ( 6,992 ) ( 2,441 ) ASC 842 Liabilities ( 1,391 ) ( 1,397 ) Deferred tax liabilities ( 8,383 ) ( 3,838 ) Deferred tax assets, net $ — $ — The Company has a U.S. net operating loss carry forward of approximately $ 112 million, $ 32.7 million of which, if unused, expires between 2026 and 2032 and $ 79.3 million of which, can be carried forward indefinitely. The Company has U.S. and state research and development tax credits of $ 11 million, which, if unused, expire between 2028 and 2043. In addition, the Company has foreign tax credits of $ 4.6 million, which, if unused, will expire in 2028. 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 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. The carryforward period for China net operating loss carry forwards is ten years, and the expiration period begins 2029. Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three -year period ended December 31, 2023. 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, 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. F- 24 Table of Contents The following table shows the change in the deferred tax valuation allowance as follows: 2023 2022 2021 Beginning Balance, January 1 $ 69,680 $ 57,721 $ 43,462 Change charged to expense/(income) 8,755 14,196 13,822 Change charged to currency translation adjustment ( 311 ) ( 2,237 ) 437 Ending Balance, December 31 $ 78,124 $ 69,680 $ 57,721 A reconciliation of the U.S. 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): 2023 2022 2021 Expected taxes at statutory rate $ ( 11,768 ) $ ( 13,943 ) $ ( 11,374 ) PPP loan forgiveness — — ( 1,308 ) Non-deductible/non-taxable items 57 33 897 Global intangible low-taxed incom 2,568 Foreign rate differences 242 552 107 Foreign permanent differences ( 1,212 ) ( 1,407 ) ( 1,320 ) Changes in valuation allowance 8,755 14,196 13,822 Share-based compensation 729 879 468 Research and development credits ( 492 ) ( 626 ) ( 872 ) Extinguishment of debt 1,580 — — Foreign other — — — Other, net ( 450 ) 317 ( 418 ) Tax (benefit) expense $ 9 $ 1 $ 2 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 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 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 . Effective January 1, 2016, China expanded the scope of the National high-tech enterprise to include additional deductions for qualifying research and development. As of December 31, 2023, 2022 and 2021, the total amount of unrecognized tax benefit was $ 0.2 million, $ 0.2 million, and $ 0.2 million, respectively. The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands): 2023 2022 2021 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 F- 25 Table of Contents 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 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. To the extent allowed by law, the taxing authorities may have the right to examine prior periods where net operating losses or tax credits were generated and carried forward, and make adjustments up to the amount of the net operating loss or tax credit carryforward. The Company is subject to examination for tax years 2018 forward for various foreign jurisdictions. 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. Among other things, the CHIPS Act provides for refundable tax credits and certain other financial incentives to further investments in domestic manufacturing. 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 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. F- 26 Table of Contents NOTE P—SHARE-BASED COMPENSATION Equity Plans 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. Stock options under these plans have been granted with an exercise price equal to the fair market value on the date of the grant. 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 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. The following is a summary of option activity (in thousands, except per share data): Weighted Weighted Weighted Average Average Average Share Price Weighted Remaining Aggregate Number of Exercise on Date of Average Contractual Intrinsic shares Price Exercise Fair Value Life Value (in thousands, except price data) Outstanding, January 1, 2023 263 $ 10.41 $ 5.45 0.71 $ — Exercised ( 48 ) 11.33 16.23 5.81 0.03 237 Forfeited ( 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. F- 27 Table of Contents 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. We estimated the fair value of the PSUs using a Monte Carlo simulation model on the date of grant. Compensation expense is recognized ratably over the explicit service period. The Company recognized PSU 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): Weighted Average Share Weighted Aggregate Number of Price on Date Average Fair Intrinsic shares of Release Value Value (in thousands, except price data) Outstanding at January 1, 2023 766 $ 6.75 $ 1,447 Granted 767 8.89 3,566 Released — — — 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 RSU activity (in thousands, except per share data): Weighted Average Share Weighted Aggregate Number of Price on Date Average Fair Intrinsic shares of Release Value Value (in thousands, except price data) Outstanding at January 1, 2023 2,209 $ 5.76 $ 4,176 Granted 2,200 4.76 10,449 Released ( 1,397 ) $ 5.61 6.15 7,833 Cancelled/Forfeited ( 139 ) 3.91 2,692 Outstanding, December 31, 2023 2,873 4.89 55,507 Vested and expected to vest 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. In 2014, the Company ceased issuing stock options and began issuing RSUs and RSAs as share-based compensation to employees. 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): Share-Based compensation - by expense type: 2023 2022 2021 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 $ 11,884 $ 9,600 $ 12,121 F- 28 Table of Contents NOTE Q—STOCKHOLDERS’ EQUITY Common Stock 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 On 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 415 (a)( 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. On 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. 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. On September 12, 2023, we entered into Amendment No. 1 to the Agreement with the Sales Agent, to increase the aggregate offering price from $ 35 million to $ 70 million. In 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 Month Weighted Average Per Share Price Number of Shares Sold Net Proceeds Compensation to Distribution Agent Raymond James & Associates, Inc. Feb 2023 $ 2.811 158 $ 436 $ 9 Raymond James & Associates, Inc. Jun 2023 4.036 2,497 9,879 202 Raymond James & Associates, Inc. Aug 2023 11.645 1,150 13,124 268 Raymond James & Associates, Inc. Sept 2023 10.184 892 8,901 182 Raymond James & Associates, Inc. Oct 2023 11.003 1,043 11,244 229 Raymond James & Associates, Inc. Nov 2023 12.572 2,068 25,473 520 Total 7,808 $ 69,057 $ 1,410 F- 29 Table of Contents 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, 2023 2022 2021 Revenues: United States $ 30,798 $ 7,423 $ 14,633 Taiwan 143,528 164,144 99,201 China 43,320 51,251 97,731 $ 217,646 $ 222,818 $ 211,565 As of December 31, 2023 2022 2021 Long-lived assets: United States $ 75,283 $ 80,048 $ 87,709 Taiwan 47,668 50,777 63,644 China 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. 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 $ 2.7 million, or 1.2 %, from the FTTH and Other markets. F- 30 Table of Contents 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 $ 1.7 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 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. Unless otherwise disclosed, the Company is unable to estimate the possible loss or range of loss for the legal proceeding described below. 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 None. NOTE U—SUBSEQUENT EVENTS The Company has evaluated subsequent events through the date the financial statements were issued. F-31