What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-28 compared with 2024-02-23 · 96 added, 82 removed, 345 unchanged (34% of the section changed)

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Factors that could cause or contribute to such differences include, but are not limited to, those discussed in “Risk Factors.” This section generally discusses the results of our operations for the year ended December 31, 2024, compared to the year ended December 31, 2023.

For a discussion of the year ended December 31, 2022 compared to the year ended December 31, 2021, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2022, as amended.

For a discussion of the year ended December 31, 2023 compared to the year ended December 31, 2022, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2023.

We are a leading, vertically integrated provider of fiber-optic networking products.

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

In designing products for our customers, we begin with the fundamental building blocks of lasers and laser components.

In designing products for our customers, we typically begin with the fundamental building blocks of lasers and laser components.

From these foundational products, we design and manufacture a wide range of products to meet our customers’ needs and specifications, and such products differ from each other by their end market, intended use and level of integration.

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We sell our products to leading OEMs in the CATV, telecom, and FTTH markets as well as internet data center operators and CATV MSOs.

In 2023 , revenue from the internet data center market, CATV market, telecom market and FTTH markets provided 64.9%, 27.5%, 6.4%, and 0.0% of our revenue, respectively, compared to 34.6%, 53%, 11.1%, and 0.1% of our 2022 revenue, respectively.

In 2023 , our key customers in the internet data center market included Microsoft, a U.S.

based large data center operator , and a China based datacenter equipment manufacturer .

In 2023 , 2022 , and 2021 , Microsoft accounted for 46.6%, 18.4%, and 14.1% of our revenue, a U.S.

based large data center operator accounted for 8.8%, 5.9% and 8.3% of our revenue and China based manufacture accounted for 3.3%, 1.2% and 1.2% of our revenue, respectively.

In 2023, our key customers in the CATV market included ATX, Digicomm and a U.S.

based large CATV equipment provider.

In 2023 , 2022 , and 2021 , ATX accounted for 15.6%, 47.3%, and 25.6% of our revenue, Digicomm accounted for 11.3%, 0%, and 0% of our revenue, and a U.S.

based large CATV equipment provider accounted for 1.3%, 1.7% and 3.3% of our revenue, respectively.

In 2023 , our decrease of revenue of 2.3% over the prior-year was driven primarily by decreased demand in the CATV market, which we believe is due to reductions in purchasing of older generation DOCSIS 3.1 equipment, which was nearly offset by increased demand for our internet datacenter products, which we believe is arising from demand for products necessary for new datacenter construction along with datacenter upgrades to enable new technologies like Artificial Intelligence (AI).

Based on customer forecasts and order backlog we believe that this elevated datacenter demand will likely continue into 2024.

We also believe that sales in our CATV market will increase in 2024 as a result of DOCSIS 4.0 products which we plan to release in 2024.

In 2024 , revenue from the internet data center market, CATV market, telecom market, FTTH and other markets provided 59.5%, 35.2%, 4.4% and 0.9% of our revenue, respectively, compared to 64.9%, 27.5%, 6.4% and 1.2% of our 2023 revenue, respectively.

In 2024 , our key customers in the internet data center market included Microsoft, Oracle and a U.S.

based datacenter equipment manufacturer.

In 2024 , 2023 , and 2022 , Microsoft accounted for 43.7%, 46.6%, and 18.4% of our revenue and a Oracle accounted for 12.4%, 8.8% and 5.9% of our revenue, respectively.

In 2024, our key customer in the CATV market was Digicomm, a provider of logistics solutions and a distributor of equipment to CATV MSOs.

In 2024 , 2023 , and 2022 , Digicomm accounted for 34.1%, 11.3% and 0% of our revenue.

In 2024 , our increase of revenue of 14.6% over the prior-year was driven primarily by increased demand for our internet data center products, which we believe is arising from demand for products necessary for new data center construction along with data center upgrades to enable new technologies like AI, and the demand recovery in the CATV market, offset by the lack of revenue from Non-Recurring Engineering ("NRE") projects.

Based on customer forecasts and order backlog we believe that this elevated data center demand will likely continue into 2025.

We also believe that sales in our CATV market will increase in 2025.

We expect continued sales of our 40 Gbps and 100 Gbps products in 2025, and we expect that sales of 400 Gbps products will likely exceed sales of 100 Gbps products later in 2025.

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Similar to revenue, our gross margins can fluctuate materially depending on a variety of factors including average selling price changes, product mix, global supply chain situation, raw material cost reduction or increase, manufacturing utilization rate and changes in manufacturing efficiency.

We currently expect to see material revenue from 800G products in 2025.

Our sales model focuses on direct engagement and close coordination with our customers to determine product design, qualifications, performance and price.

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We do believe that over a period of years the collective impact of design wins correlates to our overall revenue growth.

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

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

(the "Seller") entered into the Purchase Agreement with Yuhan Optoelectronic Technology (Shanghai) Co., Ltd.

(the "Purchaser") for the sale of the manufacturing facilities in the People's Republic of China and certain assets related to its transceiver business and multi-channel optical sub-assembly products.

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 transactions contemplated by the Purchase Agreement, which would in any case remain subject to regulatory approvals.

We filed our response on January 22, 2024, generally denying the Purchaser’s allegations and asserting certain counterclaims.

A hearing for the arbitration has not been set.

While we do not believe the Purchaser’s claims have merit, we are not able to determine the outcome of this dispute or the likelihood or amount of our loss or recovery, if any, arising from this matter.

For more information regarding this dispute, see Note T "Contingencies" included in Part II, Item 8 of this Form 10-K.

Factors Affecting Our Performance

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Customer Concentration within End Markets.

Historically, our revenue has been significantly concentrated within the data center market, and starting from 2021, our revenue tends to be split primarily between CATV market and data center market.

Our revenue tends to be split primarily between CATV market and data center market.

Moreover, within these markets, revenue tends to be concentrated among a small number of customers.

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

We have taken several actions to increase the diversity of our customer base.

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

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

We had three customers and two customers that accounted for more than 10% of our revenue in 2023 and 2022, respectively.

We had three customers that accounted for more than 10% of our revenue in 2024 and 2023, respectively.

Product Development.

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Global renewed its national high-tech enterprise certificate in 2011, 2014, 2017, 2020, and 2023 extending its three-year tax preferential status through December 2026.

For the years ended December 31, 2023 and 2022, we had $0.2 million and $0.2 million, respectively, of unrecognized tax benefits related to U.S.

For the years ended December 31, 2024 and 2023, we had $0.2 million each, of unrecognized tax benefits related to U.S.

tax benefits recognized for which we do not meet the more likely than not threshold.

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The combined effect of the factory shut-down and employee turnover in the quarter may also contribute to negative seasonality in Q1.

In 2024, we began to produce more of our CATV and internet data center products outside of China which we believe will be instrumental in further alleviating some of the typical seasonality that we see in Q1.

Our gross margin varies quarter to quarter and varies primarily due to the product mix in a particular quarter, as well as from the level of manufacturing efficiencies, production yields (particularly in the laser chip fabrication process) and overall supply costs.

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Total Revenue

Revenue decreased by $5.2 million or 2.3% from 2022 to 2023.

The decrease was driven primarily by decreased demand in the CATV market, which we believe is due to reductions in purchasing of older generation DOCSIS 3.1 equipment, which was nearly offset by increased demand for our internet datacenter products, arising from demand for products necessary for new datacenter construction along with datacenter upgrades to enable new technologies like Artificial Intelligence (AI).

Based on customer forecasts and order backlog we believe that this elevated datacenter demand will likely continue into 2024.

We also believe that sales in our CATV market will increase in 2024 as a result of DOCSIS 4.0 products which we plan to release in 2024.

Revenue increased by $31.7 million or 14.6% from 2023 to 2024.

The increase was driven primarily by increased demand in the CATV market, which we believe is due to market acceptance on our newly release DOCSIS 4.0 products in 2024, and increased demand for our internet data center products, arising from demand for products necessary for new data center construction along with data center upgrades to enable new technologies like AI, offset by the lack of NRE project revenue in 2024.

Based on customer forecasts and order backlog we believe that this elevated data center demand will likely continue into 2025.

We also believe that sales in our CATV market will increase in 2025 as a result of further adoption of our DOCSIS 4.0 products.

In the years ended December 31, 2024 and 2023 , our top ten customers represented 95.0% and 92.7% of our revenue, respectively.

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Cost of goods sold

Cost of goods sold decreased by $30.5 million, or 16.1%, from 2022 to 2023 , primarily due to a 24% decrease from direct material costs.

The increase in gross margin for the year ended December 31, 2023 compared to the same period ended December 31, 2022 was primarily the result of our change in business strategy from selling non-branded products through channel partners to selling branded products directly to MSOs in our CATV segment, along with some price increases and changes in the mix of products in our datacenter segment and new sales to Microsoft for non-recurring engineering ("NRE") costs associated with product development projects for their next-generation datacenter optics.

Cost of goods sold increased by $28.8 million, or 18.2%, from 2023 to 2024 , The cost increase in 2024 is due to the increase in direct material and direct labor cost because of revenue growth in 2024.

However, this was partially offset by a decreased inventory reserve, which indicated improved inventory turnover.

The decrease in gross margin for the year ended December 31, 2024 compared to the same period ended December 31, 2023 was primarily due to the lack of NRE projects in 2024, as these NRE projects usually generate revenue with higher than average gross margin.

Operating expenses

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Research and development expense

Research and development expense decreased $0.27 million, or 0.7% from 2022 to 2023 .

Research and development expense increased $19.0 million, or 52.8% from 2023 to 2024 .

Research and development costs consist of R&D work orders, R&D material usage and other project related costs related to 100 Gbps, 200/400/800/1600 Gbps data center products, DOCSIS 4.0 capable CATV products, including 1.8 GHz-capable amplifier products, and other new product development, and depreciation expense resulting from R&D equipment investments.

These decreases were primarily due to less R&D work orders, less depreciation expense and less indirect materials usage, offset by higher R&D wage expenses due to a combination of increased headcount and salary increases.

The expenses increased due to a higher volume of internal work orders and headcount increase.

During 2024, we experienced increased interest in new technologies like 800G and 1.6T among our data center customers.

Supporting customer testing and qualification for these new opportunities materially increased our R&D expenditures, and to the extent that we continue to see elevated customer interest in these new technologies we also expect continued elevated R&D expenditures relative to historical averages.

We continue to place a high degree of strategic focus on innovation and product development to support future growth.

Sales and marketing expense

Sales and marketing expense increased by $7.1 million, or 64.0%, from 2023 to 2024 .

These increases were primarily due to more sales effort for our Quantum Bandwidth™ products, offset by less commission expense in China.

These increases were primarily due to more sales effort for our Quantum Bandwidth™ products and higher shipping expenses.

General and administrative expense

General and administrative expense increased by $6.4 million, or 12.0%, from 2023 to 2024 .

These increases were primarily due to the higher professional service fees and share-based compensation expense, offset by less depreciation expense.

These increases were primarily due to the higher professional service fees and share-based compensation expense.

Other income (expense), net

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Interest income increased by $0.3 million, or 43.5% from 2023 to 2024 .

The increase was primarily due to higher savings balance and higher savings rate in 2023, compared with 2022.

Interest expense increased by $3.1 million, or 49.2% from 2022 to 2023 .

The increase was primarily due to the higher interest rates in 2023, and termination of the CIT loan agreement in November, 2023.

The increase was primarily due to higher savings balance in 2024.

Interest expense decreased by $2.6 million, or 27.6% from 2023 to 2024 .

The decrease was due to the debt issuance cost of the 2026 Notes, which was replaced with the 2030 Notes in the fourth quarter of 2024 was recognized as loss extinguishment cost.

Interest expense in 2023 included the interest expense from the CIT loan, which we terminated in Q4 2023.

Other expense increased by $104.0 million, or 1,771.4% from 2023 to 2024 .

This increase was primarily due to the debt extinguishment cost relating to the 2024 Notes, which is non cash expense related to issuance of shares.

This increase was primarily due to the debt extinguishment cost relating to the 2026 Notes, reflecting the difference between the book value of the 2026 Notes and its fair value at the time of settlement.

This resulted in a one-time loss recognized in the period, contributing to the overall rise in non-operating expenses.

Benefit (provision) for income taxes

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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):

On March 13, 2024, we entered into an Equity Distribution Agreement (the "First ATM Agreement") with Raymond James & Associates (the "Sales Agent") pursuant to which the Company could issue and sell shares of the Company’s common stock, having an aggregate offering price of up to $25 million (the "First ATM Offering"), from time to time through the Sales Agent.

On August 6, 2024, we entered into Amendment No.

1 to the First ATM Agreement with the Sales Agent, to increase the aggregate offering price from $25 million to $60 million.

On November 6, 2024, we provided notice of its termination, effective on such date, of the First ATM Agreement, as amended.

We sold approximately 5.7 million shares at a weighted average price of $10.55 per share, providing proceeds of $58.7 million, net of expenses and underwriting discounts and commissions, under the First ATM Offering.

On November 7, 2024, we entered into another Equity Distribution Agreement (the "Second ATM Agreement") with the Sales Agent pursuant to which the Company could 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 $55 million (the "Second ATM Offering"), from time to time through the Sales Agent.

Upon delivery of a placement notice and subject to the terms and conditions of the Agreement, sales of the Shares were 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 would designate the maximum number of Shares to be sold through the Sales Agent, the time period during which sales were requested to be made, the minimum price for the Shares to be sold, and any limitation on the number of Shares that could be sold in any one day.

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

The Second ATM Agreement provided that the Sales Agent would 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 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.

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 could be required to make because of any of those liabilities.

On November 22, 2024, the Company completed the Second ATM Offering and sold approximately 1.8 million shares at a weighted average price of $31.17 per share, providing proceeds of $53.9 million, net of expenses and underwriting discounts and commissions.

The details of the shares of common stock sold through the First ATM Offering and the Second ATM Offering through December 31, 2024 are as follows (in thousands, except shares and weighted average per share price):

Distribution Agent

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Raymond James & Associates, Inc.

Note Offering

Automatic Shelf Registration Statement

On December 18, 2024, the Company filed an automatic shelf registration statement on Form S-3ASR (Registration File No.

333-283905) (the "Automatic Shelf Registration Statement") with the U.S.

Securities and Exchange Commission, which became effective immediately upon filing.

Registered Direct Offering

On December 23, 2024, the Company issued an aggregate of 1,036,458 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $33.97 per share, in a registered direct offering (the "Registered Direct Offering").

The Registered Direct Offering was made pursuant to the Automatic Shelf Registration Statement.

The Registered Direct Offering closed on December 23, 2024.

Raymond James and Associates, Inc.

acted as the sole placement agent (the "Placement Agent") for the Company in connection with the Registered Direct Offering.

Pursuant to that certain Placement Agency Agreement, dated as of December 18, 2024, between the Company and the Placement Agent, the Placement Agent is entitled to a fee equal to an aggregate of 3% of the aggregate principal amount of the Registered Direct Offering.

The Registered Direct Offering generated proceeds of approximately $33.7 million, after deducting placement agent fees and other estimated offering expenses payable by us.

The Company intends to use the net proceeds from the Registered Direct Offering for general corporate purposes, which may include among other things, capital expenditures and working capital.

The Company may also use such proceeds to fund acquisitions of businesses, technologies or product lines that complement its current business;

however, the Company has no present plans, agreements or commitments with respect to any potential acquisition.

Note Offerings

On March 5, 2019, the Company issued $80.5 million of 5% convertible senior notes due 2024, bearing interest at a rate of 5% per year maturing on March 15, 2024 (the "2024 Notes"), unless earlier repurchased, redeemed or converted in accordance with their terms.

The Company paid off the remaining $0.29 million of the 2024 Notes on March 15, 2024.

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.

Also refer to Note L “Convertible Senior Notes” to the consolidated financial statements for further discussion of the 2026 Notes.

On December 23, 2024, the Company issued approximately $125.0 million aggregate principal amount of 2.750% convertible senior notes due 2030 (the “2030 Notes"), and on the same day consummated various separate, privately negotiated exchange agreements with certain holders of its 2026 Notes to exchange approximately $76.6 million principal amount of the 2026 Notes for aggregate consideration consisting of (i) $125.0 million aggregate principal amount of the 2030 Notes, (ii) 1,487,874 shares of the Company's common stock, par value $0.001 per share and (iii) approximately $0.9 million of cash in aggregate.

Also refer to Note L "Convertible Senior Notes" to the consolidated financial statements for further discussion of the 2030 Notes.

The table below sets forth selected cash flow data for the periods presented (in thousands):

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In 2024, net cash used in operating activities was $69.5 million.

Net cash used in operating activities mainly consisted of our net loss of $186.7 million, after excluding non-cash items of $153.1 million, an increase in accounts receivable from our customers of $68.7 million, an increase in other receivables by $7.9 million, an increase in inventory by $29.4 million, offset by an increase in accounts payable and accrual of $75.9 million.

In 2023, net cash used in operating activities was $7.9 million.

Net cash used in operating activities consisted of our net loss of $56.0 million, after the exclusion of non-cash items of $42.1 million, a decrease in accounts receivable from our customers of $14.5 million and a decrease in our inventory of $6.8 million, contributing to the cash increases.

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These cash decreases were offset by a decrease of notes receivable of $7.8 million, decrease in inventory of $1.2 million, increase in accounts payable to our vendors of $13.0 million and increase in accrued liability of $5.3 million.

In 2021, net cash used in operating activities was $11.6 million.

Net cash used in operating activities consisted of our net loss of $54.2 million, after the exclusion of non-cash items of $36.6 million, an increase in accounts and notes receivable from our customers of $14.6 million and a decrease in accrued liabilities of $3.1 million.

These cash decreases were offset by a decrease in inventory of $15.8 million and increase in accounts payable to our vendors of $7.1 million.

Investing activities

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In 2023, net cash used in investing activities was $14.8 million.

The net cash used consisted of spending on purchase and prepaid of additional property, plant and equipment of $3.7 million and purchase of intangible assets of $0.5 million.

The majority of the cash was used for CapEx spending of $14.3 million.

In 2022, net cash used in investing activities was $3.8 million.

The net cash used consisted of spending on purchase and prepaid of additional property, plant and equipment of $10.2 million.

The net cash used consisted of spending on purchase and prepaid of additional property, plant and equipment of $3.7 million and purchase of intangible assets of $0.5 million.

Financing activities

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In 2024, our financing activities provided $142.2 million in cash.

This increase in cash was primarily due to $113 million of net proceeds from our First ATM Offering and Second ATM Offering, and around $30 million from the 2030 Notes.

In 2023, our financing activities provided $40.6 million in cash.

This increase in cash was primarily due to $69.0 million of net proceeds from our ATM Offering , $76.1 million from the 2026 Notes, offset by the repayment of 2024 Notes amounting to $80.2 million and repayment of line of credit borrowings of $34.2 million.

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These activities were offset by $7.3 million debt repayment and $0.5 million related to tax withholding associated with employee share-based compensation.

In 2021, our financing activities provided $14.1 million in cash.

This increase in cash was due to $15.4 million of net proceeds from our ATM Offering.

These activities were offset by $0.3 million net repayments to acceptances payable and bank debt, and $1.0 million related to tax withholding associated with employee share-based compensation.

Loans and commitments

We have lending arrangements with several financial institutions.

In the U.S., we entered a Loan Security and Guarantee Agreement with CIT Northbridge Credit, LLC in November 2022.

The line of credit contained financial covenants that may limit the amount and types of debt that we may incur.

In November 2023, we terminated the loan agreement with CIT Northbridge Credit, LLC.

Currently, in the U.S., we do not have a bank loan agreement with any U.S.

financial institution.

However, we may explore lending opportunities in the U.S.

in the future.

In China, we have a revolving line of credit with Shanghai Pudong Development Bank Co., Ltd and a credit facility with China Zheshang Bank Co., Ltd.

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

As of December 31, 2024, the outstanding principal amount remaining on the 2026 Notes is $3.5 million.

On December 23, 2024, the Company issues $125.0 million of 2.75% convertible senior notes due 2030.

The 2030 Notes will mature on January 15, 2030, unless earlier repurchased, redeemed or converted in accordance with their terms.

See Note K “Notes Payable and Long-term Debt” and Note L “Convertible Senior Notes” of our Consolidated Financial Statements for a description of our notes payable and long-term debt and convertible senior notes.

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Construction costs for these facilities under this contract are estimated to total approximately $27.5 million.

As of December 31, 2023, construction of the building shell is complete, and approximately $27.4 million of this total cost has been paid and the remaining portion will be paid in yearly installments for three years after final inspection.

As of December 31, 2024, construction of the building shell is complete and the first floor has been used, and approximately $27.4 million of this total cost has been paid and the remaining portion will be paid in yearly installments for three years after final inspection.

We anticipate additional expenses for building improvements to the factory and we are in the process of evaluating the timing of these expenditures and obtaining bids for any such work.

Based on forecasts, we believe the factory will be placed in service in the second half of 2024 after the construction is completed for the building interior.

Property will be transferred from construction in progress to building and improvement at that time.

Based on forecasts, we believe the factory will be placed in full service in the year 2025 after the construction is completed for the building interior.

Property has been transferred from construction in progress to building and improvement in 2024.

Future liquidity needs

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Contractual Obligations and Commitments

We have outstanding notes payable with varying maturities.

As of December 31, 2023, our notes payable had an amount of $23.2 million, and the entire balance is due within 12 months.

We have outstanding notes payable and debt with varying maturities with various financial institutions.

As of December 31, 2024, our notes payable and debt had an amount of $26.7 million, $22.4 million of which is due within 12 months.

Further information regarding our notes payable is provided in Note K – Notes Payable and Long-Term Debt in the Notes to Consolidated Financial Statements in this Form 10-K.

We also have a fixed-rate convertible senior note.

As of December 31, 2023, our 2026 Note had an aggregate principle amount of $80.2 million and future interest payments associated with our 2026 Notes totaled $12.6 million.

We also have fixed-rate convertible senior notes.

As of December 31, 2024, the 2026 Notes had a principal amount of $3.5 million and future interest payments associated with the 2026 Notes totaled $0.2 million.

As of December 31, 2024, the 2030 Notes had an aggregate principal amount of $125 million and future interest payments associated with the 2030 Notes totaled $13.9 million.

Further information regarding our convertible senior notes is provided in Note L – Convertible Senior Notes in the Notes to Consolidated Financial Statements in this Form 10-K.

In addition, we have operating and financing leases for certain property and equipment with an expected term at the commencement date of more than 12 months.

In addition, we have operating leases for certain property and equipment with an expected term at the commencement date of more than 12 months.

As of December 31, 2024, the future minimum payments required under these leases totaled $12.3 million, with $1.7 million payable within 12 months.

Further information regarding our leases is provided in Note D – Leases to Consolidated Financial Statements in this Form 10-K.

The annual inflation rate in the US came down to 3.4% in 2023.

Even though the inflation has slowed from the peak, it remained well above the Federal Reserve's objective of 2%.

The annual inflation rate in the US came down to 2.9% in 2024, compared with 3.4% in 2023.

Even though the inflation has slowed from the peak, it remained above the Federal Reserve's objective of 2%.

The annual inflation rate in Taiwan came down to 2.1% in 2024 from 2.7% in 2023 .

30 unchanged sentences

During the years ended December 31, 2024, 2023 and 2022, we recorded excess and obsolete inventory reserve charges of $3.4 million, $8.7 million and $4.9 million, respectively.

For the years December 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.

For the years ended December 31, 2024, 2023 and 2022, the direct inventory write-offs related to scrap, discontinued products and damaged inventories were $3.8 million, $10.6 million and $10.4 million, respectively.

We have an accounting policy to record a reserve for inventory encompassing the value of excess or obsolete items combined with the lower of cost or net reliable value.

13 unchanged sentences

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

On the basis of this evaluation, as of December 31, 2023, a valuation allowance of $78.1 million has been recorded related to deferred tax assets to recognize only the portion of the deferred tax assets that are more likely than not to be realized.

On the basis of this evaluation, as of December 31, 2024, a valuation allowance of $94.8 millio n has been recorded related to deferred tax assets to recognize only the portion of the deferred tax assets that are more likely than not to be realized.

The amount of the deferred tax assets 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.

6 unchanged sentences

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 7. Management’s Discussion and Analysis