What changed in this filing

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Item 1A. Risk Factors

2021-08-17 compared with 2020-08-18 · 323 added, 338 removed, 256 unchanged (72% of the section changed)

Investing in our ordinary shares involves a high degree of risk.

You should carefully consider the following risks as well as the other information contained in this Annual Report on Form 10-K,

including our consolidated financial statements and the related notes, before investing in our ordinary shares.

You should carefully consider the following risks as well as the other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes, before investing in our ordinary shares.

The risks and uncertainties described below are not the only ones that we may face.

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In this event, the market price of our ordinary shares could decline and you could lose some or all of your investment.

pandemic has adversely affected the global economy, disrupted global supply chains and created significant volatility in the financial markets.

COVID-19 Updates

The COVID-19 pandemic has adversely affected the global economy, disrupted global supply chains and created significant volatility in the financial markets.

In addition, the pandemic has resulted in travel restrictions, business closures and the institution of quarantines and other restrictions on movement in many communities.

For the six months ended June 26, 2020, we experienced a decrease in demand for some of our services and disruption in our supply chain because of the effects of COVID-19,

which had a negative impact on our financial results.

The extent of the impact of COVID-19

on our future business, financial condition and operating results will depend largely on future developments, including (i) the duration and magnitude of the pandemic;

(ii) the measures taken by governmental authorities and private actors to limit the spread of COVID-19;

The extent of the impact of COVID-19 on our future business, financial condition and operating results will depend largely on future developments, including (i) the duration and magnitude of the pandemic;

(ii) the measures taken by governmental authorities and private sectors to limit the spread of COVID-19;

(iii) our ability to continue providing products and services;

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While we have updated our risk factors to reflect risks of which we are aware, this situation is changing rapidly and additional impacts may arise that we are not aware of currently.

Risks Related to Our Business

Company and Operational Risks

Our sales depend on a small number of customers.

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We have depended, and will continue to depend, upon a small number of customers for a significant percentage of our total revenues.

During fiscal years 2020 and 2019, we had three customers and one customer, respectively, that contributed 10% or more of our total revenues.

During fiscal year 2020, Lumentum Operations LLC, Acacia Communications, Inc.

and Infinera Corporation contributed 19%, 10% and 10%, respectively, of our total revenues.

During fiscal year 2019, Lumentum Operations LLC contributed 20% of our total revenues.

During each of fiscal years 2021 and 2020, we had three customers that each contributed 10% or more of our revenues.

Such customers together accounted for 39.1% and 39.0% of our revenues during the respective periods.

Dependence on a small number of customers means that a reduction in orders from, a loss of, or other adverse actions by any one of these customers would reduce our revenues and could have a material adverse effect on our business, financial condition and operating results

For example, in the six months ended June 26, 2020, we experienced some order cancelations and delays with respect to certain products that we manufacture for our customers due to COVID-19,

which adversely affected our revenue.

Further, our customer concentration increases the concentration of our accounts receivable and our exposure to payment default by any of our key customers.

Many of our existing and potential customers have substantial debt burdens, have experienced financial distress or have static or declining revenues, all of which may be exacerbated by the sudden and continuing global economic downturn and uncertainty due to the effects of COVID-19

and subsequent adverse conditions in the credit markets, the impact of the U.S.-China trade dispute, and the impact of Brexit.

Certain of our customers have gone out of business, declared bankruptcy, been acquired, or announced their withdrawal from segments of the optics market.

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Our reliance on a small number of customers gives our customers substantial purchasing power and leverage in negotiating contracts with us.

In addition, although we enter into master supply agreements with our

customers, the level of business to be transacted under those agreements is not guaranteed.

Instead, we are awarded business under those agreements on a project-by-project

In addition, although we enter into master supply agreements with our customers, the level of business to be transacted under those agreements is not guaranteed.

Instead, we are awarded business under those agreements on a project-by-project basis.

Some of our customers have at times significantly reduced or delayed the volume of manufacturing services that they order from us.

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Consolidation in the markets we serve has resulted in a reduction in the number of potential customers for our services.

For example, II-VI

Incorporated completed its acquisition of Finisar Corporation in September 2019, Cisco entered into an agreement in July 2019 to acquire Acacia Communications, and Lumentum Holdings Inc.

For example, II-VI Incorporated (“II-VI”) entered into an agreement in March 2021 to acquire Coherent, Inc.;

Cisco Systems, Inc.

completed its acquisition of Acacia Communications Inc.

in March 2021;

II-VI completed its acquisition of Finisar Corporation in September 2019;

and Lumentum Holdings Inc.

completed its acquisition of Oclaro, Inc.

in December 2018.

In some cases, consolidation among our customers has led to a reduction in demand for our services as customers acquired the capacity to manufacture products in-house.

In some cases, consolidation among our customers has led to a reduction in demand for our services as customers have acquired the capacity to manufacture products in-house.

Consolidation among our customers and their customers will continue to adversely affect our business, financial condition and operating results in several ways.

Consolidation among our customers and their customers may result in a smaller number of large customers whose size and purchasing power give them increased leverage that may result in, among other things, decreases in our average selling prices.

In addition to pricing pressures, this consolidation may also reduce overall demand for our manufacturing services if customers obtain new capacity to manufacture products in-house

or discontinue duplicate or competing product lines in order to streamline operations.

In addition to pricing pressures, this consolidation may also reduce overall demand for our manufacturing services if customers obtain new capacity to manufacture products in-house or discontinue duplicate or competing product lines in order to streamline operations.

If demand for our manufacturing services decreases, our business, financial condition and operating results could be harmed.

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Our quarterly revenues, gross profit margins, and operating results have fluctuated significantly and may continue to fluctuate significantly in the future.

For example, any of the risks described in this “Risk Factors”

section and, in particular, the following factors, could cause our quarterly and annual revenues, gross profit margins, and operating results to fluctuate from period to period:

For example, any of the risks described in this “Risk Factors” section and, in particular, the following factors, could cause our revenues, gross profit margins, and operating results to fluctuate from period to period:

• any reduction in customer demand or our ability to fulfill customer orders as a result of disruptions in our supply chain caused by COVID-19;

our ability to acquire new customers and retain our existing customers by delivering superior quality and customer service;

the cyclicality of the optical communications market, as well as the industrial lasers, medical and sensors markets;

• our ability to acquire new customers and retain our existing customers;

• the cyclicality of the optical communications, industrial lasers, medical and sensors markets;

• competition;

• our ability to achieve favorable pricing for our services;

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• changes in the relative mix in our revenues.

Therefore, we believe that quarter-to-quarter

comparisons of our operating results may not be useful in predicting our future operating results.

Therefore, we believe that quarter-to-quarter comparisons of our operating results may not be useful in predicting our future operating results.

You should not rely on our results for one quarter as any indication of our future performance.

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Currently, the optical communications market contributes the significant majority of our revenues.

There can be no assurance that our efforts to further expand and diversify into other markets within the optics industry will prove successful or that these markets will continue to grow as fast as we expect.

There can be no assurance that our efforts to further expand and diversify into other markets within

the optics industry will prove successful or that these markets will continue to grow as fast as we expect.

In the event that the opportunities presented by these markets prove to be less than anticipated, if we are less successful than expected in diversifying into these markets, or if our margins in these markets prove to be less than expected, our growth may slow or stall, and we may incur costs that are not offset by revenues in these markets, all of which could harm our business, financial condition and operating results.

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If our customers choose to manufacture products internally rather than to outsource production to us, or choose to outsource to a third-party manufacturer, our business, financial condition and operating results could be harmed.

Competitors in the market for optical manufacturing services include Benchmark Electronics, Inc., Celestica Inc., Sanmina-SCI

Corporation, Jabil Circuit, Inc., and Venture Corporation Limited.

Competitors in the market for optical manufacturing services include Benchmark Electronics, Inc., Celestica Inc., Sanmina-SCI Corporation, Jabil Circuit, Inc., and Venture Corporation Limited.

Our customized optics and glass operations face competition from companies such as Browave Corporation, Fujian Castech Crystals, Inc., Photop Technologies, Inc., and Research Electro-Optic, Inc.

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These advantages may allow them to devote greater resources than we can to the development and promotion of service offerings that are similar or superior to our service offerings.

These competitors may also engage in more extensive research and development, undertake more far-reaching

marketing campaigns, adopt more aggressive pricing policies or offer services that achieve greater market acceptance than ours.

These competitors may also engage in more extensive research and development, undertake more far-reaching marketing campaigns, adopt more aggressive pricing policies or offer services that achieve greater market acceptance than ours.

These competitors may also compete with us by making more attractive offers to our existing and potential employees, suppliers, and strategic partners.

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Our exposure to financially troubled customers or suppliers could harm our business, financial condition and operating results.

We provide manufacturing services to companies, and rely on suppliers, that have in the past and may in the future experience financial difficulty, particularly in light of the sudden and continuing global economic downturn and uncertainty due to the effects of COVID-19

and subsequent adverse conditions in the credit markets that have affected access to capital and liquidity.

Some of our customers and suppliers have in the past and may in the future experience financial difficulty, particularly in light of the sudden and continuing global economic downturn and uncertainty due to the COVID-19 pandemic and subsequent adverse conditions in the credit markets that have affected access to capital and liquidity.

As a result, we devote significant resources to monitor receivables and inventory balances with certain of our customers.

If our customers experience financial

difficulty, we could have difficulty recovering amounts owed to us from these customers, or demand for our services from these customers could decline.

For example, in July 2014, one of our customers filed for bankruptcy protection under the Local Trade Court in France;

although the bankruptcy of this customer did not have a significant effect on our consolidated financial statements, the same may not be the case if a significant customer were to file for bankruptcy protection in the future.

If our customers experience financial difficulty, we could have difficulty recovering amounts owed to us from these customers, or demand for our services from these customers could decline.

If our suppliers experience financial difficulty, we could have trouble sourcing materials necessary to fulfill production requirements and meet scheduled shipments.

Any such financial difficulty could adversely affect our operating results and financial condition by resulting in a reduction in our revenues, a charge for inventory write-offs, a provision for doubtful accounts, and larger working capital requirements due to increased days in inventory and days in accounts receivable.

Fluctuations in foreign currency exchange rates and changes in governmental policies regarding foreign currencies could increase our operating costs, which would adversely affect our operating results.

Volatility in the functional and non-functional

currencies of our entities and the U.S.

dollar could seriously harm our business, financial condition, and operating results.

The primary impact of currency exchange fluctuations is on our cash, receivables, and payables of our operating entities.

We may experience significant unexpected losses from fluctuations in exchange rates.

For example, in the three months ended March 29, 2019, we experienced a $3.1 million foreign exchange loss, which negatively affected our net income per share for the same period by $0.08.

Our customer contracts generally require that our customers pay us in U.S.

However, the majority of our payroll and other operating expenses are paid in Thai baht.

As a result of these arrangements, we have significant exposure to changes in the exchange rate between the Thai baht and the U.S.

dollar, and our operating results are adversely impacted when the U.S.

dollar depreciates relative to the Thai baht and other currencies.

We have experienced such depreciation in the U.S.

dollar as compared with the Thai baht, and our results have been adversely impacted by this fluctuation in exchange rates.

As of June 26, 2020, the U.S.

dollar had depreciated approximately 6.8% against the Thai baht since June 29, 2018.

Further, while we attempt to hedge against certain exchange rate risks, we typically enter into hedging contracts with maturities of up to 12 months, leaving us exposed to longer term changes in exchange rates.

Also, we have significant exposure to changes in the exchange rate between the Chinese Renminbi (“RMB”) and pound sterling (“GBP”) and the U.S.

The expenses of our subsidiaries located in the PRC and the United Kingdom are denominated in RMB and GBP, respectively.

Currently, RMB are convertible in connection with trade- and service-related foreign exchange transactions, foreign debt service, and payment of dividends.

The PRC government may at its discretion restrict access in the future to foreign currencies for current account transactions.

If this occurs, our PRC subsidiary may not be able to pay us dividends in U.S.

dollars without prior approval from the PRC State Administration of Foreign Exchange.

In addition, conversion of RMB for most capital account items, including direct investments, is still subject to government approval in the PRC.

This restriction may limit our ability to invest the earnings of our PRC subsidiary.

As of June 26, 2020, the U.S.

dollar had appreciated approximately 6.7% against the RMB since June 29, 2018.

There remains significant international pressure on the PRC government to adopt a substantially more liberalized currency policy.

GBP are convertible in connection with trade- and service-related foreign exchange transactions and foreign debt service.

As of June 26, 2020, the U.S.

dollar had appreciated approximately 5.5% against the GBP since June 29, 2018.

Any appreciation in the value of the RMB and GBP against the U.S.

dollar could negatively impact our operating results.

We purchase some of the critical materials used in certain of our products from a single source or a limited number of suppliers.

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We rely on a single source or a limited number of suppliers for critical materials used in a significant number of the products we manufacture.

We generally purchase these single or limited source materials through

standard purchase orders and do not maintain long-term supply agreements with our suppliers.

We generally use a rolling 12-month

forecast based on anticipated product orders, customer forecasts, product order history, backlog, and warranty and service demand to determine our materials requirements.

We generally purchase these single or limited source materials through standard purchase orders and do not maintain long-term supply agreements with our suppliers.

We generally use a rolling 12-month forecast based on anticipated product orders, customer forecasts, product order history, backlog, and warranty and service demand to determine our materials requirements.

Lead times for the parts and components that we order vary significantly and depend on factors such as manufacturing cycle times, manufacturing yields, and the availability of raw materials used to produce the parts or components.

Historically, we have experienced supply shortages resulting from various causes, including reduced yields by our suppliers, which prevented us from manufacturing products for our customers in a timely manner.

More recently, for the six months ended June 26, 2020, we experienced significant fluctuations in the availability of certain materials due to COVID-19,

which had an adverse impact on our revenue and costs.

More recently, for the six months ended June 26, 2020, we experienced significant fluctuations in the availability of certain materials due to COVID-19, which had an adverse impact on our revenue and costs.

Currently, we are experiencing various levels of semiconductor impact due to a significant global shortage.

The semiconductor supply chain is complex, and a constrained wafer capacity is occurring deep in the chain.

During the COVID-19 pandemic, there has been a surging demand for consumer electronics, which in turn has increased the demand for semiconductors.

At the same time, wafer foundries that support chipmakers have not invested enough in recent years to increase capacities to the levels needed to support current demand from all of their customers.

Wafers have a long lead time for production, in some cases up to 30 weeks, which further exacerbates the shortage.

A shortage of semiconductors or other key components can cause a significant disruption to our production schedule and have a substantial adverse effect on our business, financial condition and operating results.

Our revenues, profitability and customer relations will be harmed by continued fluctuations in the availability of materials, a stoppage or delay of supply, a substitution of more expensive or less reliable parts, the receipt of defective parts or contaminated materials, an increase in the price of supplies, or an inability to obtain reductions in price from our suppliers in response to competitive pressures.

We continue to undertake programs to strengthen our supply chain.

Nevertheless, we are experiencing, and expect for the foreseeable future to continue to experience, strain on our supply chain, and periodic supplier problems.

We have incurred, and expect to continue to incur for the foreseeable future, costs to address these problems.

Nevertheless, we are experiencing, and expect for the foreseeable future to experience, strain on our supply chain, as well as periodic supplier problems.

We have incurred, and expect for the foreseeable future to incur, costs related to our efforts to address these problems.

Managing our inventory is complex and may require write-downs due to excess or obsolete inventory, which could cause our operating results to decrease significantly in a given fiscal period.

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If any of our significant customers becomes unable or unwilling to purchase inventory or does not agree to such contractual provisions in the future, our business, financial condition and operating results may be harmed.

If we fail to adequately expand our manufacturing capacity, we will not be able to grow our business, which would harm our business, financial condition and operating results.

Conversely, if we expand too much or too rapidly, we may experience excess capacity, which would harm our business, financial condition and operating results.

We may not be able to pursue many large customer orders or sustain our historical growth rates if we do not have sufficient manufacturing capacity to enable us to commit to provide customers with specified quantities of products.

If our customers do not believe that we have sufficient manufacturing capacity, they may:

(1) outsource all of their production to another source that they believe can fulfill all of their production requirements;

(2) look to a second source for the manufacture of additional quantities of the products that we currently manufacture for them;

(3) manufacture the products themselves;

(4) decide against using our services for their new products.

Most recently, we expanded our manufacturing capacity by building a new facility in Chonburi, Thailand in March 2017, and we began construction of a new building at our Chonburi campus in January 2021.

We may continue to devote significant resources to the expansion of our manufacturing capacity, and any such expansion will be expensive, will require management’s time and may disrupt our operations.

In the event we are unsuccessful in our attempts to expand our manufacturing capacity, our business, financial condition and operating results could be harmed.

However, if we successfully expand our manufacturing capacity but are unable to promptly utilize the additional space due to reduced demand for our services or an inability to win new projects, add new customers or penetrate new markets, or if the optics industry does not grow as we expect, we may experience periods of excess capacity, which could harm our business, financial condition and operating results.

We may experience manufacturing yields that are lower than expected, potentially resulting in increased costs, which could harm our business, operating results and customer relations.

Manufacturing yields depend on a number of factors, including the following:

• the quality of input, materials and equipment;

• the quality and feasibility of our customer’s design;

• the repeatability and complexity of the manufacturing process;

• the experience and quality of training of our manufacturing and engineering teams;

• the monitoring of the manufacturing environment.

Lower volume production due to continually changing designs generally results in lower yields.

Manufacturing yields and margins can also be lower if we receive or inadvertently use defective or contaminated materials from our suppliers.

addition, our customer contracts typically provide that we will supply products at a fixed price each quarter, which assumes specific production yields and quality metrics.

If we do not meet the yield assumptions and quality metrics used in calculating the price of a product, we may not be able to recover the costs associated with our failure to do so.

Consequently, our operating results and profitability may be harmed.

If the products that we manufacture contain defects, we could incur significant correction costs, demand for our services may decline and we may be exposed to product liability and product warranty claims, which could harm our business, financial condition, operating results and customer relations.

We manufacture products to our customers’ specifications, and our manufacturing processes and facilities must comply with applicable statutory and regulatory requirements.

In addition, our customers’ products and the manufacturing processes that we use to produce them are often complex.

As a result, products that we manufacture may at times contain manufacturing or design defects, and our manufacturing processes may be subject to errors or fail to comply with applicable statutory or regulatory requirements.

Additionally, not all defects are immediately detectable.

The testing procedures of our customers are generally limited to the evaluation of the products that we manufacture under likely and foreseeable failure scenarios.

For various reasons (including, among others, the occurrence of performance problems that are unforeseeable at the time of testing or that are detected only when products are fully deployed and operated under peak stress conditions), these products may fail to perform as expected after their initial acceptance by a customer.

We generally provide a warranty of between one to five years on the products that we manufacture for our customers.

This warranty typically guarantees that products will conform to our customers’ specifications and be free from defects in workmanship.

Defects in the products we manufacture, whether caused by a design, engineering, manufacturing or component failure or by deficiencies in our manufacturing processes, and whether such defects are discovered during or after the warranty period, could result in product or component failures, which may damage our business reputation, whether or not we are indemnified for such failures.

We could also incur significant costs to repair or replace defective products under warranty, particularly when such failures occur in installed systems.

In some instances, we may also be required to incur costs to repair or replace defective products outside of the warranty period in the event that a recurring defect is discovered in a certain percentage of a customer’s products delivered over an agreed upon period of time.

We have experienced product or component

failures in the past and remain exposed to such failures, as the products that we manufacture are widely deployed throughout the world in multiple environments and applications.

Further, due to the difficulty in determining whether a given defect resulted from our customer’s design of the product or our manufacturing process, we may be exposed to product liability or product warranty claims arising from defects that are not attributable to our manufacturing process.

In addition, if the number or type of defects exceeds certain percentage limitations contained in our contractual arrangements, we may be required to conduct extensive failure analysis, re-qualify for production or cease production of the specified products.

Product liability claims may include liability for personal injury or property damage.

Product warranty claims may include liability for a recall, repair or replacement of a product or component.

Although liability for these claims is generally assigned to our customers in our contracts, even where they have assumed liability our customers may not, or may not have the resources to, satisfy claims for costs or liabilities arising from a defective product.

Additionally, under one of our contracts, in the event the products we manufacture do not meet the end-customer’s testing requirements or otherwise fail, we may be required to pay penalties to our customer, including a fee during the time period that the customer or end-customer’s production line is not operational as a result of the failure of the products that we manufacture, all of which could harm our business, operating results and customer relations.

If we engineer or manufacture a product that is found to cause any personal injury or property damage or is otherwise found to be defective, we could incur significant costs to resolve the claim.

While we maintain insurance for certain product liability claims, we do not maintain insurance for any recalls and, therefore, would be required to pay any associated costs that are determined to be our responsibility.

A successful product liability or product warranty claim in excess of our insurance coverage or any material claim for which insurance coverage is denied, limited, is not available or has not been obtained could harm our business, financial condition and operating results.

If we fail to attract additional skilled employees or retain key personnel, our business, financial condition and operating results could suffer.

Our future success depends, in part, upon our ability to attract additional skilled employees and retain our current key personnel.

We have identified several areas where we intend to expand our hiring, including business development, finance, human resources, operations and supply chain management.

We may not be able to hire and retain such personnel at compensation levels consistent with our existing compensation and salary structure.

Our future also depends on the continued contributions of our executive management team and other key management and technical personnel, each of whom would be difficult to replace.

Although we have key person life insurance policies on some of our executive officers, the loss of any of

our executive officers or key personnel or the inability to continue to attract qualified personnel could harm our business, financial condition and operating results.

Risks Related to Our International Operations

We conduct operations in a number of countries, which creates logistical and communications challenges for us and exposes us to other risks and challenges that could harm our business, financial condition and operating results.

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Our customers are located throughout the world, and our principal manufacturing facilities are located in Thailand.

Total revenues from the bill-to-location

of customers outside of North America accounted for 49.4%, 52.3% and 53.1% of our total revenues for fiscal year 2020, fiscal year 2019 and fiscal year 2018, respectively.

We expect that total revenues from the bill-to-location

of customers outside of North America will continue to account for a significant portion of our total revenues.

Revenues from the bill-to-location of customers outside of North America accounted for 52.8%, 49.4% and 52.3% of our revenues for fiscal year 2021, fiscal year 2020 and fiscal year 2019, respectively.

We expect that revenues from the bill-to-location of customers outside of North America will continue to account for a significant portion of our revenues.

Our customers also depend on international sales, which further exposes us to the risks associated with international operations.

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• compliance with a variety of domestic and foreign laws and regulations, including trade regulatory requirements;

periodic changes in a specific country’s or region’s economic conditions, such as recession;

• periodic changes in a specific country or region’s economic conditions, such as recession;

• unanticipated restrictions on our ability to sell to foreign customers where sales of products and the provision of services may require export licenses or are prohibited by government action (for example, in early 2018, the U.S.

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We expect this ban to continue to adversely affect orders from our customers for the foreseeable future.

We are subject to risks related to the ongoing U.S.-China trade dispute, including increased tariffs on materials that we use in manufacturing, which could adversely affect our business, financial condition and operating result.

In August 2019, the U.S.

Presidential Administration imposed tariffs on a wide range of products and goods manufactured in China that are directly or indirectly imported into the U.S.

imposed tariffs on a wide range of products and goods manufactured in the PRC that are directly or indirectly imported into the U.S.

Although the U.S.

Administration announced on January 15, 2020 the reduction of certain tariffs on Chinese imported goods and delayed the implementation of certain other related tariffs, we have no assurance that the U.S.

Administration will not continue to increase or impose tariffs on imports from China or alter trade agreements and terms between China and the United States, which may include limiting trade with China.

Trade restrictions, including tariffs, quotas, embargoes, safeguards and customs restrictions, could have the effect of increasing the cost of materials we use to manufacture certain products, which could result in lower margins.

announced on January 15, 2020 the reduction of certain tariffs on Chinese imported goods and delayed the implementation of certain other related tariffs, we have no assurance that the U.S.

will not continue to increase or impose tariffs on imports from the PRC or alter trade agreements and terms between the PRC and the U.S., which may include limiting trade with the PRC.

Trade restrictions, including tariffs, quotas, embargoes, safeguards and customs restrictions, could increase the cost of materials we use to manufacture certain products, which could result in lower margins.

The tariffs could also result in disruptions to our supply chain, as suppliers struggle to fill orders from companies trying to purchase goods in bulk ahead of announced tariffs taking effect.

The institution of trade tariffs both globally and between the U.S.

and China specifically could also cause a decrease in the sales of our customers’ products to end-users

located in China, which could directly impact our revenues in the form of reduced orders.

and the PRC specifically could also cause a decrease in the sales of our customers’ products to end-users located in the PRC, which could directly impact our revenues in the form of reduced orders.

If existing tariffs are raised further, or if new tariffs are imposed on additional categories of components used in our manufacturing activities, and if we are unable to pass the costs of such tariffs on to our customers, our operating results would be harmed.

Our business and operations would be adversely impacted in the event of a failure of our information technology infrastructure and/or cyber security attacks.

We rely upon the capacity, availability and security of our information technology hardware and software infrastructure.

For instance, we use a combination of standard and customized software platforms to manage, record, and report all aspects of our operations and, in many instances, enable our customers to remotely access certain areas of our databases to monitor yields, inventory positions, work-in-progress

status and vendor quality data.

We are constantly expanding and updating our information technology infrastructure in response to our changing needs.

Any failure to manage, expand and update our information technology infrastructure or any failure in the operation of this infrastructure could harm our business.

Despite our implementation of security measures, our systems are vulnerable to damage caused by computer viruses, natural disasters, unauthorized access and other similar disruptions.

Any system failure, accident or security breach could result in disruptions to our operations.

To the extent that any disruption, cyber-attack or other security breach results in a loss or damage to our data or inappropriate disclosure of confidential information, our business could be harmed.

In addition, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.

If we fail to adequately expand our manufacturing capacity, we will not be able to grow our business, which would harm our business, financial condition and operating results.

Conversely, if we expand too much or too rapidly, we may experience excess capacity, which would harm our business, financial condition and operating results.

If our customers do not believe that we have sufficient manufacturing capacity, they may:

(1) outsource all of their production to another source that they believe can fulfill all of their production requirements;

(2) look to a second source for the manufacture of additional quantities of the products that we currently manufacture for them;

(3) manufacture the products themselves;

or (4) otherwise decide against using our services for their new products.

Most recently, we expanded our manufacturing capacity by building a new facility in Chonburi, Thailand, which was completed in March 2017.

We may continue to devote significant resources to the expansion of our manufacturing capacity, and any such expansion will be expensive, will require management’s time and may

disrupt our operations.

In the event we are unsuccessful in our attempts to expand our manufacturing capacity, our business, financial condition and operating results could be harmed.

However, if we expand our manufacturing capacity and are unable to promptly utilize the additional space due to reduced demand for our services or an inability to win new projects, new customers or penetrate new markets, or if the optics industry does not grow as we expect, we may experience periods of excess capacity, which could harm our business, financial condition and operating results.

Volatility in the functional and non-functional currencies of our entities and the U.S.

dollar could seriously harm our business, financial condition and operating results.