What changed in this filing

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Item 1A. Risk Factors

2025-02-28 compared with 2024-02-23 · 73 added, 35 removed, 446 unchanged (19% of the section changed)

7 unchanged sentences

For each year ended 2024, 2023 and 2022 , our top ten customers represented 95%, 92.7% and 87.2% of our revenue, respectively.

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

In 2024 , Microsoft represented 43.7% of our revenue, Digicomm represented 35.1% of our revenue and Oracle represented 12.4% of our revenue.

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

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We also may not be able to develop the underlying core technologies necessary to create new products and enhancements, license these technologies from third parties, or remain competitive in our markets.

Adverse global economic conditions could have a negative effect on our business, results of operations and financial condition and liquidity .

A general slowdown in the global economy or in a particular region or industry, other unfavorable changes in economic conditions, such as inflation, higher interest rates, tightening of the credit markets, recession or slowing growth, or an increase in trade tensions with U.S.

trading partners could negatively impact our business, financial condition and liquidity.

Adverse global economic conditions have from time to time caused or exacerbated significant slowdowns in the industries and markets in which we operate, which have adversely affected our business and results of operations.

Macroeconomic weakness and uncertainty also make it more difficult for us to accurately forecast operating results, and may make it more difficult to raise or refinance debt.

An escalation of trade tensions between the U.S.

and China has resulted in trade restrictions, increased protectionism and increased tariffs that harm our ability to participate in Chinese markets or compete effectively with Chinese companies.

Sustained uncertainty about, or worsening of, current global economic conditions and further escalation of trade tensions between the U.S.

and its trading partners, especially China, and the decoupling of the U.S.

and China economies, could result in a global economic slowdown and long-term changes to global trade.

Such events may also (i) cause our customers and consumers to reduce, delay or forgo technology spending, (ii) result in customers sourcing products from other suppliers not subject to such restrictions or tariffs, (iii) lead to the insolvency or consolidation of key suppliers and customers, and (iv) intensify pricing pressures.

Any or all of these factors could negatively affect demand for our products and our business, financial condition and results of operations.

Our revenues, growth rates and operating results are likely to fluctuate significantly as a result of factors that are outside our control, which could adversely impact our operating results.

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We may be required to write down inventory costs in the future and our high inventory costs may have an adverse effect on our gross profits and our results of operations.

Changes in United States tariff and import/export regulations may have a negative effect on our business.

The United States has recently enacted and proposed to enact significant new tariffs.

Additionally, President Trump has directed various federal agencies to further evaluate key aspects of U.S.

trade policy and there has been ongoing discussion and commentary regarding potential significant changes to U.S.

trade policies, treaties and tariffs.

There continues to exist significant uncertainty about the future relationship between the U.S.

and other countries with respect to such trade policies, treaties and tariffs.

These developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between the impacted nations and the U.S.

Any of these factors could depress economic activity and restrict our access to suppliers or customers and have a material adverse effect on our business, financial condition and results of operations.

Increasing costs and shifts in product mix may adversely impact our gross margins.

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

As of December 31, 2023, we had U.S.

accumulated net operating loss carryforwards, or NOLs, of approximately $112 million, federal and state research and development credits (“R&D credits”) of $10.9 million, business interest expense carryforwards of $26 million and foreign tax credits of $4.6 million for U.S.

As of December 31, 202

, we had U.S.

accumulated net operating loss carryforwards, or NOLs, of approximately $147.3 million,

federal and state research and development credits (“R&D credits”) of $12.5 million, business interest expense carryforwards of $20.7 million and foreign tax credits of $4.6 million for U.S.

federal income tax purposes.

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

We have identified a material weakness in our internal control over financial reporting which may, if not remediated, result in material misstatements in our financial statement.

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934.

As disclosed in Item 9A, “Controls and Procedures,” our controls and procedures were not effective as a result of a material weakness in internal controls over financial reporting.

The material weakness related to an error pertaining to operation of controls over our review of technical accounting analysis.

A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

As a result of this material weakness, our management concluded that our internal control over financial reporting and related disclosure controls and procedures were not effective.

We are actively engaged in developing a remediation plan designed to address this material weakness.

If our remedial measures are insufficient to address the material weakness, or if additional material weaknesses or significant deficiencies in our internal control are discovered or occur in the future, our ability to record, process and report financial information accurately, and to prepare financial statements within required time periods, could be adversely affected.

If we are unable to remediate the material weakness, or if we are otherwise unable to maintain effective internal control over financial reporting, our financial statements may contain material misstatements and we could be required to restate our financial results.

If our financial statements are not filed on a timely basis or we are required to restate our financial results, we could be in violation of covenants contained in the agreements governing our debt and other borrowings.

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

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The occurrence of any of these circumstances may adversely affect our financial condition and results of operation.

Our ability to retain or recruit key personnel could be adversely affected by the lack of available shares under our equity incentive plan.

In addition, if this lack causes us to be unable to settle outstanding awards in shares and such awards must instead be settled in cash, such cash settlement could deplete our available cash, which could have an adverse effect on our business and financial condition.

The success of our business and results of operations is dependent on our executive officers and other key personnel.

Beginning in 2021, in order to improve our ability to retain and recruit such persons, as well as to better align our executive compensation program with the interests of our stockholders, we implemented a long-term incentive program under our 2021 Equity Incentive Plan (the “2021 Plan”) pursuant to which we grant performance-based equity awards that vest on the achievement of specified performance goals for a specified three-year period.

These performance-based awards could be earned and become payable with respect to between 0% and 200% of the target number of shares based on the Company’s achievement of preset performance goals.

On June 12, 2024, the Compensation Committee certified that we exceeded the maximum performance target level for each of the performance targets set for the performance awards granted in June 2021 (the “2021 PSUs”).

Therefore, executives holding such awards were entitled to payment of the 2021 PSUs at 200% of the target number of shares.

On June 6, 2024, at the annual meeting of stockholders, a proposal to increase the number of shares of common stock authorized for issuance under the 2021 Plan by 2,000,000 shares was not approved, and as a result, the Company did not have sufficient shares of common stock available for issuance under the 2021 Plan to issue all of the shares payable pursuant to the 2021 PSUs.

As a result, the Company settled the excess portion of the 2021 PSUs in cash, instead of in shares, resulting in reduced cash on the balance sheet and recognition of an additional $2.8 million of stock-based compensation expense for the three months ended June 30, 2024.

If the Company is not able to obtain shareholder approval for additional shares of common stock under the 2021 Plan in the future that are sufficient to permit outstanding awards to be settled in shares, the Company may have to incur additional cash expenditures to settle such awards in cash in lieu of shares.

This could impair the effectiveness of our long-term incentive program and negatively affect our ability to retain or recruit key personnel, and cash settlement in lieu of shares could have an adverse effect on our future results and financial condition.

Legal and Regulatory Risks

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

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

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

New policy priorities may modify our import risks footprint affecting the flow of our products into the U.S.

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

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

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We have been, and in the future may be, subject to legal actions in the ordinary course of our operations, both domestically and internationally.

In addition, we are currently subject to claims in an arbitration proceeding relating to the termination of the Divestiture Agreement with Yuhan Optoelectronic Technology (Shanghai) Co., Ltd., as noted in Risk Factors and Management ’ s Discussion and Analysis of Financial Condition and Results of Operations .

There can be no assurances as to the favorable outcome of any litigation, arbitration or administrative action.

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Our indebtedness and liabilities could limit the cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition and results of operations and impair our ability to satisfy our obligations under our indebtedness.

December 31, 2023

, we had approximately $114.9 million of consolidated indebtedness.

December 31, 2024, we had approximately $161.2 million of consolidated indebtedness.

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

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limiting our flexibility to plan for, or react to, changes in our business;

diluting the interests of our existing stockholders as a result of issuing shares of our common stock upon conversion of the 2026 Notes;

diluting the interests of our existing stockholders as a result of issuing shares of our common stock upon conversion of the 2026 Notes and the 2030 Notes;

placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital.

Our business may not generate sufficient funds, and we may otherwise be unable to maintain sufficient cash reserves, to pay amounts due under our indebtedness, including the 2026 Notes, and our cash needs may increase in the future.

In addition, our existing credit facilities in Asia contain, and any future indebtedness that we may incur may contain, financial and other restrictive covenants that limit our ability to operate our business, raise capital or make payments under our other indebtedness.

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In addition, our obligations under our credit facilities with SPD and CZB are secured by real estate.

A breach of any of covenants under our loan agreements, or a failure to pay interest or indebtedness when due under any of our credit facilities could result in a variety of adverse consequences, including the acceleration of our indebtedness.

A breach of any of the covenants under our loan agreements, or a failure to pay interest or indebtedness when due under any of our credit facilities could result in a variety of adverse consequences, including the acceleration of our indebtedness.

We may not be able to obtain additional capital when desired, on favorable terms or at all.

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Any of these events could harm our competitive position, result in a loss of customer confidence, cause us to incur significant costs to remedy any damages and ultimately materially adversely affect our business and financial condition.

To manage our growth and our increasingly complex business operations, we will need to upgrade our operational and financial systems and procedures, which requires management time and may result in significant additional expense.

For example, we will be upgrading our enterprise resource planning system in fiscal 2025 in order to accommodate our expanding operations.

We cannot be certain that we will institute, in a timely or efficient manner or at all, the improvements to our managerial, operational and financial systems and procedures necessary to support our anticipated increased levels of operations.

Problems associated with, or disruptions resulting from, any improvement or expansion of our operational and financial systems could adversely affect our relationships with our suppliers, manufacturers, resellers and customers, inhibit our ability to expand or take advantage of market opportunities, cause harm to our reputation, result in errors in our financial and other reporting, and affect our ability to maintain an effective internal control environment and meet our external reporting obligations, any of which could harm our business and operating results and affect our stock price.

Risks Related to International Trade and Operations

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government has made statements and taken certain actions that have led and may lead to further changes to U.S.

and international trade policies, including imposing additional tariffs on certain products manufactured in China.

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

and foreign leaders regarding the possibility of instituting tariffs on foreign imports of certain materials.

and international trade policies, including imposing additional tariffs on certain products manufactured abroad, with a specific focus on China.

Since the beginning of 2018, increasing rhetoric coupled with legislative, administrative, or executive action, from several U.S.

and foreign leaders has led to the imposition of increased tariffs on imports of certain materials and products.

Five rounds of U.S.

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

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

Tariffs on China Imports.

Despite rapid changes to U.S.

import laws and applicable duties, the U.S.

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

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

In 2025, following an Executive order, all Chinese-origin products became subject to additional U.S.

The Chinese government has, in turn, issued reciprocal tariffs on U.S.

Due to rapid changes to U.S.

import laws and applicable duties the Company faces a variety of import-related risk.

Because of the political nature of U.S.

trade policy, it is unknown whether and to what extent new tariffs (or other new laws or regulations) will be adopted, the duration of any existing punitive tariffs, or the effect of U.S.

trade policy on us or our industry.

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

therefore, there could be material adverse effects on our business, financial condition, and/or cash flow if any new tariffs, legislation and/or regulations are implemented, or if existing trade agreements are renegotiated or if China or other affected countries take further retaliatory trade actions.

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

therefore, there could be material adverse effects on our business, financial condition, and/or cash flow if any new tariffs, legislation, regulations, or executive orders are implemented, or if existing trade agreements are renegotiated or if China or other affected countries take further retaliatory trade actions.

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

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

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

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

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

Department of Commerce.

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

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

and foreign laws, regulations, and trade standards, including modifications of the U.S.

import regime, the Foreign Corrupt Practices Act and various modifications by the BIS to export policy;

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

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

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

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

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

Risks Related to Our Divestiture in the PRC

The termination of our proposed sale of our China manufacturing facilities and claims asserted by the intended purchaser could materially adversely affect our business, financial condition, and results of operations.

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

(the "Seller") entered into a definitive agreement (the "Purchase Agreement") with 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.

On September 12, 2023, we delivered a notice of termination to the Purchaser to terminate the Purchase Agreement as a result of the Purchaser's failure to satisfy certain of its material obligations under the Purchase Agreement.

In doing so, 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 disputing the validity of our termination notice and seeking specific performance with respect to the transaction contemplated by the Purchase Agreement, which would in any case remain subject to regulatory approvals.

A hearing has not been set for the arbitration and we are not able to predict the outcome of this dispute with certainty at this time.

However, any costs, damages or other losses we might incur in connection with the arbitration, as well as any injunction or other equitable remedy we may be subject to, could adversely affect our operations and financial conditions, divert management’s attention and seriously harm our business.

Risks Related to Intellectual Property Matters

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

What changed 10-K

Item 1A. Risk Factors