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What changed in APPLIED OPTOELECTRONICS, INC.'s 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of APPLIED OPTOELECTRONICS, INC.'s 2024 and 2025 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2025 report.

+282 added−284 removedSource: 10-K (2026-02-26) vs 10-K (2025-02-28)

Top changes in APPLIED OPTOELECTRONICS, INC.'s 2025 10-K

282 paragraphs added · 284 removed · 230 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

52 edited+7 added−5 removed112 unchanged
Biggest changeOver and above our commitment to compliance with all environmental laws, we have further committed ourselves to the following environment goals: ● Obtain at least 20% of the energy used in our operations from renewable sources ● Properly recycle waste materials including paper, electronic components, glass and batteries ● Reduce our generation of hazardous waste by at least 10% over the five year period beginning in 2024 In order to meet these goals, we maintain an Integrated Environmental and Safety Management System.
Biggest changeOur operations and many of our products are subject to various federal, state, local, and foreign regulations that have been adopted with respect to the environment, such as the Directive on the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment; Registration, Evaluation, Authorization, and Restriction of Chemicals; and Substances of Concern In Products, regulations adopted by the European Union, or EU. 13 Table of Contents Over and above our commitment to compliance with all environmental laws, we have further committed ourselves to the following environment goals: – Obtain at least 20% of the energy used in our operations from renewable sources – Properly recycle waste materials including paper, electronic components, glass and batteries – Reduce our generation of hazardous waste by at least 10% over the five year period beginning in 2024 In order to meet these goals, we maintain an Integrated Environmental and Safety Management System.
These rules have imposed and will continue to impose additional costs and may introduce new risks related to our ability to verify the origin of any "conflict minerals" used in our products. Customers Our customers are primarily internet data center operators, CATV, telecom equipment manufacturers, and internet service providers.
These rules have imposed and will continue to impose additional costs and may introduce new risks related to our ability to verify the origin of any "conflict minerals" used in our products. Customers Our customers are primarily internet data center operators, CATV and telecom equipment manufacturers, and internet service providers.
Our major competitors in one or more of our markets include Coherent Corporation, Foxconn Interconnect Technology Ltd., InnoLight Technology (Suzhou) Ltd., Intel Corporation, Lumentum Holdings, Inc., Mitsubishi, Molex, LLC, Source Photonics, Inc. and Sumitomo Electric Industries, Ltd. Many of our competitors are larger than we are and have significantly greater financial, marketing and other resources.
Our major competitors in one or more of our markets include Coherent Corporation, Eoptolink Technology Inc., Ltd., Foxconn Interconnect Technology Ltd., InnoLight Technology (Suzhou) Ltd., Intel Corporation, Lumentum Holdings, Inc., Mitsubishi, Molex, LLC, Source Photonics, Inc. and Sumitomo Electric Industries, Ltd. Many of our competitors are larger than we are and have significantly greater financial, marketing and other resources.
We evaluate and selectively pursue acquisition opportunities or strategic alliances that we believe will enhance or complement our current product offerings, augment our technology roadmap, or diversify our revenue base. 6 Table of Contents Our Technology We believe that we have technology leadership in four key areas: semiconductor laser manufacturing, electronic technologies that enhance the performance of our lasers, optical hybrid integration and mixed-signal semiconductor design. ‑ Differentiated semiconductor laser manufacturing.
We evaluate and selectively pursue acquisition opportunities or strategic alliances that we believe will enhance or complement our current product offerings, augment our technology roadmap, or diversify our revenue base. 7 Table of Contents Our Technology We believe that we have technology leadership in four key areas: semiconductor laser manufacturing, electronic technologies that enhance the performance of our lasers, optical hybrid integration and mixed-signal semiconductor design. ‑ Differentiated semiconductor laser manufacturing.
Our customers in this market are generally large internet-based (“hyperscale”) data center operators, along with equipment suppliers who supply our products along with others to our hyperscale data center operator customers.
Our customers in this market are generally large internet-based ("hyperscale") data center operators, along with equipment suppliers who supply our products along with others to our hyperscale data center operator customers.
We intend to add to our product portfolio in the CATV market following our recent launch of our own branded products to sell directly to MSOs, which we believe offers us further opportunity to enhance our presence as a supplier in the CATV market. ‑ Continue to invest in our capabilities, especially our automated module production, and infrastructure.
We intend to add to our product portfolio in the CATV market following our launch in 2023 of our own branded products to sell directly to MSOs, which we believe offers us further opportunity to enhance our presence as a supplier in the CATV market. ‑ Continue to invest in our capabilities, especially our automated module production, and infrastructure.
Item 1. Business Overview Applied Optoelectronics, Inc. (the “Company” or "AOI") is a leading, vertically integrated provider of fiber-optic networking products, primarily for four networking end-markets: internet data center, cable television ("CATV"), telecommunications, ("telecom"), and fiber-to-the-home ("FTTH").
Item 1. Business Overview Applied Optoelectronics, Inc. (the "Company" or "AOI") is a leading, vertically integrated provider of fiber-optic networking products, primarily for four networking end-markets: internet data center, cable television ("CATV"), telecommunications, ("telecom"), and fiber-to-the-home ("FTTH").
We have never suffered any work stoppage as a result of an employment related strike or any employee related dispute and believe that we have satisfactory relations with our employees. Employee Engagement, Development and Career Planning Our business results depend in part on our ability to successfully manage our human capital resources, including attracting, identifying, and retaining key talent.
We have never suffered any work stoppage as a result of an employment related strike or any employee related dispute and believe that we have satisfactory relations with our employees. 12 Table of Contents Employee Engagement, Development and Career Planning Our business results depend in part on our ability to successfully manage our human capital resources, including attracting, identifying, and retaining key talent.
The leading-edge AI applications require significantly more compute capacity and bandwidth, driving the need for faster (400Gbps and higher) and innovative optical networking solutions to support the intra-data center connectivity needs. ‑ Trends in the CATV Market.
The leading-edge AI applications require significantly more compute capacity and bandwidth, driving the need for faster (800Gbps and higher) and innovative optical networking solutions to support the intra-data center connectivity needs. ‑ Trends in the CATV Market.
In instances where we do not produce components ourselves, we source them from external suppliers and regularly evaluate these relationships in an attempt to reduce risk and lower cost. We depend on a limited number of suppliers, including in some cases our own internal supply, for certain raw materials and components used in our products.
In instances where we do not produce components ourselves, we source them from external suppliers and regularly evaluate these relationships in an attempt to reduce risk and lower cost. 10 Table of Contents We depend on a limited number of suppliers, including in some cases our own internal supply, for certain raw materials and components used in our products.
Each manufacturing facility conducts testing on the components, modules or subsystems it manufactures and each facility is certified to ISO 9001:2015 and ISO 14001:2015. 8 Table of Contents We sell our products to customers worldwide, and in addition to these external customer sales many of our products are used internally in the production of transceivers and equipment that we manufacture.
Each manufacturing facility conducts testing on the components, modules or subsystems it manufactures and each facility is certified to ISO 9001:2015 and ISO 14001:2015. We sell our products to customers worldwide, and in addition to these external customer sales many of our products are used internally in the production of transceivers and equipment that we manufacture.
We believe that having deep experience in both digital and analog signaling allows us to offer superior solutions to our customers, compared with companies who have expertise in only one of these signal types. Our Products Our products include an array of optical communications solutions at varying levels of integration.
We believe that having deep experience in both digital and analog signaling allows us to offer superior solutions to our customers, compared with companies who have expertise in only one of these signal types. 8 Table of Contents Our Products Our products include an array of optical communications solutions at varying levels of integration.
We believe our in-house expertise in both analog and digital optical engineering enables us to design comprehensive solutions that meet many of the different network architectures and protocols used by our customers. 5 Table of Contents Our Strengths Our key competitive strengths include the following: ‑ Proprietary technological expertise and track record of innovation.
We believe our in-house expertise in both analog and digital optical engineering enables us to design comprehensive solutions that meet many of the different network architectures and protocols used by our customers. Our Strengths Our key competitive strengths include the following: ‑ Proprietary technological expertise and track record of innovation.
Additional information concerning regulatory compliance and a discussion of the risks associated with governmental regulations that may materially impact us is described more fully under the heading “Risk Factors” in this Form 10-K. Corporate Information We were incorporated in the State of Texas in 1997. In March 2013, Applied Optoelectronics, Inc., a Texas corporation, converted into a Delaware corporation.
Additional information concerning regulatory compliance and a discussion of the risks associated with governmental regulations that may materially impact us is described more fully under the heading "Risk Factors" in this Form 10-K. Corporate Information We were incorporated in the State of Texas in 1997. In March 2013, Applied Optoelectronics, Inc., a Texas corporation, converted into a Delaware corporation.
The majority of the data center optical transceivers that we sell utilize our own lasers and subassemblies (we refer to the transceivers subassemblies as “light engines”), and we believe that our in-house technology and manufacturing capability for these lasers and subassemblies gives us an advantage over many of our competitors who often lack either development or manufacturing capabilities for these advanced optical modules.
The majority of the data center optical transceivers that we sell utilize our own lasers and subassemblies (we refer to the transceivers subassemblies as "light engines"), and we believe that our in-house technology and manufacturing capability for these lasers and subassemblies gives us an advantage over many of our competitors who often lack either development or manufacturing capabilities for these advanced optical modules.
Our expertise in designing and manufacturing light engines, which combine lasers and photodiodes, and in some cases, driver electronics and/or signal amplifiers, with channel multiplexing and de-multiplexing elements, gives us the ability to quickly develop new products for our data center customers. ‑ Proven system design capabilities.
Our expertise in designing and manufacturing light engines, which combine lasers and photodiodes, and in some cases, driver electronics and/or signal amplifiers, with channel multiplexing and de-multiplexing elements, gives us the ability to quickly develop new products for our data center customers. 6 Table of Contents ‑ Proven system design capabilities.
As a result, there is an ongoing transition from the use of copper cable, typically at speeds of up to 1 gigabit per second ("Gbps"), to optical fiber as a transport medium, typically providing speeds from 10 Gbps to 800 Gbps.
As a result, there is an ongoing transition from the use of copper cable, typically at speeds of up to 1 gigabit per second ("Gbps"), to optical fiber as a transport medium, typically providing speeds from 10 Gbps to 1.6 Tbps.
We make available on our website at www.ao-inc.com free of charge, copies of these reports as soon as reasonably practicable after filing these reports with, or furnishing them to, the SEC. 12 Table of Contents
We make available on our website at www.ao-inc.com free of charge, copies of these reports as soon as reasonably practicable after filing these reports with, or furnishing them to, the SEC.
We accordingly believe that purchase orders are not an accurate indicator of our future sales and any backlog of purchase orders is not a reliable indicator of our future revenue. Competition The optical networking market is intensely competitive.
We accordingly believe that purchase orders are not an accurate indicator of our future sales and any backlog of purchase orders is not a reliable indicator of our future revenue. 11 Table of Contents Competition The optical networking market is intensely competitive.
Prime World International Holdings, Ltd. (“Prime World”) is a wholly-owned subsidiary of the Company incorporated in the British Virgin Islands on January 13, 2006. Prime World is the parent company of Global Technology, Inc. (“Global”). Global was established in June 2002 in the People’s Republic of China (“PRC”) and was acquired by Prime World on March 30, 2006.
Prime World International Holdings, Ltd. ("Prime World") is a wholly-owned subsidiary of the Company incorporated in the British Virgin Islands on January 13, 2006. Prime World is the parent company of Global Technology, Inc. ("Global"). Global was established in June 2002 in the People’s Republic of China ("PRC") and was acquired by Prime World on March 30, 2006.
Moreover, transmission speeds have continued to increase among the companies who have previously transitioned from copper-based to fiber-based infrastructure, resulting in opportunities for optical device vendors to supply new optical transceivers capable of operating at these higher data rates. In recent years, supply chain disruptions caused by the pandemic and other factors have become increasingly concerning to our customers.
Moreover, transmission speeds have continued to increase among the companies who have previously transitioned from copper-based to fiber-based infrastructure, resulting in opportunities for optical device vendors to supply new optical transceivers capable of operating at these higher data rates. In recent years, supply chain disruptions have become increasingly concerning to our customers.
We generally employ a direct sales model in North America and in the rest of the world we use both direct and indirect sales channels. In 2024, 2023 and 2022 , we obtained 64.4%, 88.6% and 99.6% of our revenue, respectively, through our direct sales efforts and the remainder of our revenue through our indirect sales channels.
We generally employ a direct sales model in North America and in the rest of the world we use both direct and indirect sales channels. In 2025, 2024 and 2023 , we obtained 44.7%, 64.4% and 88.6% of our revenue, respectively, through our direct sales efforts and the remainder of our revenue through our indirect sales channels.
For example, many newer networks are being designed with “digital return-path” capabilities, and certain MSOs have begun to deploy “Remote-PHY” technologies. Both of these technologies involve transporting certain network signals in digital format, and then converting these signals to and from analog signals at various points in the MSO’s network.
For example, many newer networks are being designed with "digital return-path" capabilities, and certain MSOs have begun to deploy "Remote-PHY" technologies. Both of these technologies involve transporting certain network signals in digital format, and then converting these signals to and from analog signals at various points in the MSO’s network.
Notwithstanding our expertise in optical transmission equipment, in some cases we utilize our technical expertise in radio frequency ("RF") design to develop products that do not have significant optical technology incorporated, for example our CATV amplifier products which serve to amplify the RF signals in the coaxial-cable portion of an MSO's network do not incorporate optics, but do rely on advanced mixed-signal RF and digital electronic design as well as software and firmware which we develop in house. 7 Table of Contents Research and Development To maintain our growth and competitiveness, we engage in an active research and development program to develop new products and enhance existing products.
Notwithstanding our expertise in optical transmission equipment, in some cases we utilize our technical expertise in radio frequency ("RF") design to develop products that do not have significant optical technology incorporated, for example our CATV amplifier products which serve to amplify the RF signals in the coaxial-cable portion of an MSO's network do not incorporate optics, but do rely on advanced mixed-signal RF and digital electronic design as well as software and firmware which we develop in house.
By selling products directly to these customers, we believe that we will be able to address these needs more efficiently and will improve our time to market for these new innovations, which MSOs have indicated will be critical to timely rollout of their planned network upgrades.
By selling products directly to these customers, we believe that we will be able to address these needs more efficiently and will improve our time to market for these new innovations, which MSOs have indicated will be critical to timely rollout of their planned network upgrades. The internet data center market is currently our fastest-growing business.
In 2024, 2023 and 2022 , our revenue was $249.4 million, $217.6 million and $222.8 million and our gross margin was 24.8%, 27.1% and 15.1%, respectively. In the years ended December 31, 2024, 2023 and 2022 , we had net loss of $186.7 million, $56.0 million and $66.4 million , respectively.
In 2025, 2024 and 2023 , our revenue was $455.7 million, $249.4 million and $217.6 million and our gross margin was 30.0%, 24.8% and 27.1%, respectively. In the years ended December 31, 2025, 2024 and 2023 , we had net loss of $38.2 million, $186.7 million and $56.0 million , respectively.
The prevailing trends in our target markets include: ‑ Trends in the Internet Data Center Market. To support the substantial increase in bandwidth consumption, internet data center operators are increasing the scale of their internet data centers and deploying infrastructure capable of higher data transmission rates.
To support the substantial increase in bandwidth consumption, internet data center operators are increasing the scale of their internet data centers and deploying infrastructure capable of higher data transmission rates.
Available Information We file electronically with the United States Securities and Exchange Commission, or SEC, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended.
Information contained on our website is not incorporated by reference into this Form 10-K. 14 Table of Contents Available Information We file electronically with the United States Securities and Exchange Commission, or SEC, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended.
Of our employees, 375 are located in the U.S., 698 are located in Taiwan and 2,236 are located in China. As of December 31, 2024 , none of our employees are represented by any collective bargaining agreement, but certain employees of our China subsidiary are members of a trade union.
Of our employees, 548 are located in the U.S., 1,262 are located in Taiwan and 2,881 are located in China. As of December 31, 2025 , none of our employees are represented by any collective bargaining agreement, but certain employees of our China subsidiary are members of a trade union.
For example, pursuant to environmental laws and regulations, including but not limited to the Comprehensive Environmental Response Compensation and Liability Act, or CERCLA, we may be liable for the full amount of any remediation-related costs at properties we currently own or operate or formerly owned, such as our currently owned Sugar Land, Texas facility, or at properties at which we previously operated, as well as at properties we will own or operate in the future, and properties to which we have sent hazardous substances, whether or not we caused the contamination. 11 Table of Contents Environment We are committed to maintaining compliance with all environmental laws applicable to our operations, products, and services and to reducing our environmental impact across our business.
For example, pursuant to environmental laws and regulations, including but not limited to the Comprehensive Environmental Response Compensation and Liability Act, or CERCLA, we may be liable for the full amount of any remediation-related costs at properties we currently own or operate or formerly owned, such as our currently owned Sugar Land, Texas facility, or at properties at which we previously operated, as well as at properties we will own or operate in the future, and properties to which we have sent hazardous substances, whether or not we caused the contamination.
We made this strategic decision in order to better address the needs of our MSO customers as we believe they are embarking on a complex and lengthy series of network upgrades that will likely require significant innovation from their equipment suppliers.
In 2023, we began offering many of our CATV products directly to MSO customers, under Quantum Bandwidth™ brand name. We made this strategic decision in order to better address the needs of our MSO customers as we believe they are embarking on a complex and lengthy series of network upgrades that will likely require significant innovation from their equipment suppliers.
In the internet data center market, we primarily target internet data center operators who have adopted an open system architecture—one in which the optical connectivity solutions can be provided by a different vendor than the vendor which provides their servers and switches. ‑ Extend our leadership in CATV networking.
In the internet data center market, we primarily target internet data center operators who have adopted an open system architecture—one in which the optical connectivity solutions can be provided by a different vendor than the vendor which provides their servers and switches. ‑ Invest in US production capacity for data center products.
We have various other products designed for diverse applications, both inside and outside of communications technology, which generally are derivatives of products developed for our four target markets. We support our sales efforts by attendance at industry trade shows (virtually and in person), technical conferences and other promotional efforts.
We have various other products designed for diverse applications, both inside and outside of communications technology, which generally are derivatives of products developed for our four target markets. We support our sales efforts by attendance at industry trade shows, technical conferences and other promotional efforts. These efforts are aimed at attracting new customers and enhancing our existing customer relationships.
Seasonality See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Seasonality,” regarding seasonality of certain of the Company’s products. 10 Table of Contents Human Capital Employees As of December 31, 2024 , we employed 3,309 full-time employees, of which 49 held Ph.D. degrees in a science or engineering field.
Seasonality See Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Seasonality," regarding seasonality of certain of the Company’s products. Human Capital Employees As of December 31, 2025 , we employed 4,691 full-time employees, of which 69 held Ph.D. degrees in a science or engineering field.
In 2024 , revenue from the internet data center market, CATV market, telecom market, FTTH market and other markets provided 59.5%, 35.2%, 4.4%, 0.0% and 0.9% of our revenue, respectively, compared to 64.9%, 27.5%, 6.4%, 0.0% and 1.2%, respectively, in 2023 .
In 2025 , revenue from CATV market, the internet data center market, telecom market, FTTH and other markets provided 53.8%, 42.9%, 3.0% and 0.3% of our revenue, respectively, compared to 35.2%, 59.5%, 4.4% and 0.9%, respectively, in 2024 .
In addition, we believe that the significant automation employed in our production process for data center optical modules gives us advantages over our competitors in the ability to scale production rapidly, which is beneficial because the rapid adoption of artificial intelligence ("AI") is fueling a new wave of investment by hyperscale data center operators, as AI computing is very compute and bandwidth intensive. 3 Table of Contents The CATV market is our second largest and the most established market, for which we supply a broad array of products, including lasers, transmitters and transceivers, and turn-key equipment.
In addition, we believe that the significant automation employed in our production process for data center optical modules gives us advantages over our competitors in the ability to scale production rapidly, which is beneficial because the rapid adoption of artificial intelligence ("AI") is fueling a new wave of investment by hyperscale data center operators, as AI computing is very compute and bandwidth intensive.
As one of the early developers of DOCSIS 4.0 equipment, we believe that this represents a significant opportunity for sales of CATV equipment in the next few years. ‑ Trends in the Telecom Market.
As one of the early developers of DOCSIS 4.0 equipment, we believe that this represents a significant opportunity for sales of CATV equipment in the next few years. Beginning in 2025, nearly all of our CATV equipment sold meets DOCSIS 4.0 standards. 5 Table of Contents ‑ Trends in the Telecom Market.
In our Taiwan location, we manufacture optical components, such as our butterfly lasers, which incorporate laser chips, subassemblies and components manufactured within our Sugar Land facility. In addition, in our Taiwan location, we manufacture transceivers for the internet data center, telecom, FTTH and other markets. We also manufacture CATV outdoor equipment including amplifiers.
In addition, in our Taiwan location, we manufacture transceivers for the internet data center, telecom, FTTH and other markets and we also manufacture CATV outdoor equipment including amplifiers.
In 2024, 2023 and 2022 , Microsoft accounted for 43.7%, 46.6% and 18.4% of our revenue, and 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.
In 2025, 2024 and 2023 , Microsoft accounted for 28.8%, 43.7% and 46.6% of our revenue, respectively, and in 2024, Oracle accounted for 12.4% of our revenue.
By purposefully fostering this close collaboration, we believe that we can more rapidly develop leading solutions meeting the needs of our customers. Intellectual Property We rely on a combination of patent, copyright, trademark, trade secret laws and unfair competition laws, as well as confidentiality and licensing arrangements, to establish and protect our intellectual property.
Intellectual Property We rely on a combination of patent, copyright, trademark, trade secret laws and unfair competition laws, as well as confidentiality and licensing arrangements, to establish and protect our intellectual property.
We have research and development departments in our facilities in Texas, Georgia, China and Taiwan. Our research and development teams collaborate on joint projects, and by co-locating with our manufacturing operations enable us to achieve an efficient cost structure and improve our time to market.
Our research and development teams collaborate on joint projects, and by co-locating with our manufacturing operations enable us to achieve an efficient cost structure and improve our time to market. A key factor in our research and development success is our highly collaborative process for new product development.
At December 31, 2024 and 2023 , our accumulated deficits were $451.9 million and $265.1 million, respectively. In 2024 , we earned 59.5% of our total revenue from the internet data center market and 35.2% of our total revenue from the CATV market. In 2024 , our key customers in the internet data center market included Microsoft and Oracle .
At December 31, 2025 and 2024 , our accumulated deficits were $493.1 million and $451.9 million, respectively. In 2025 , we earned 53.8% of our total revenue from the CATV market and 42.9% of our total revenue from the internet data center market. 4 Table of Contents In 2025 , our key customer in the CATV market was Digicomm.
While our patents are an important element of our success, our business as a whole is not dependent on any one patent or group of patents. We do not anticipate any material effect on our business due to any patents expiring in 2024, and we continue to obtain new patents through our ongoing research and development.
We do not anticipate any material effect on our business due to any patents expiring in 2025, and we continue to obtain new patents through our ongoing research and development.
These efforts are aimed at attracting new customers and enhancing our existing customer relationships. 9 Table of Contents Backlog We generally make sales pursuant to short-term purchase orders without deposits and subject to rescheduling, revision or cancellation on short notice.
Backlog We generally make sales pursuant to short-term purchase orders without deposits and subject to rescheduling, revision or cancellation on short notice.
In 2024 , 2023 , and 2022 , Digicomm accounted for 34.1%, 11.3% and 0% of our revenue and ATX Networks accounted for 0%, 15.6% and 47.3% of our revenue, respectively. 4 Table of Contents Industry Background During 2024 , our four target markets, internet data center, CATV, telecom and FTTH, experienced a significant growth in bandwidth consumption and the corresponding need for network infrastructure improvement to support this growth.
Industry Background During 2025 , our four target markets, internet data center, CATV, telecom and FTTH, experienced a significant growth in bandwidth consumption and the corresponding need for network infrastructure improvement to support this growth. The prevailing trends in our target markets include: ‑ Trends in the Internet Data Center Market.
As a result of these efforts, we anticipate releasing various new or enhanced products over the next several years. As of December 31, 2024 , we had a total of 284 employees working in the R&D department, including 12 with Ph.D. degrees. We continue to recruit talented engineers to further enhance our research and development capabilities.
As of December 31, 2025 , we had a total of 425 employees working in the R&D department, including 14 with Ph.D. degrees. We continue to recruit talented engineers to further enhance our research and development capabilities. We have research and development departments in our facilities in Texas, Georgia, China and Taiwan.
Our sales channel partners provide logistical services and day-to-day customer support. Where we sell through an indirect sales channel, we work with the end customer to establish technological specifications for our products. Our equipment customers typically offer our equipment under their brand-name and our equipment is often customized with unique design or performance criteria by each of these customers.
Our sales channel partners provide logistical services and day-to-day customer support. Where we sell through an indirect sales channel, we work with the end customer to establish technological specifications for our products. We also from time to time offer design or manufacturing services to customers to assist them in more effectively using our products and realizing time-to-market advantages.
These actions include hiring sales staff to improve our ability to serve new customers and the 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 have taken several actions to increase the diversity of our customer base. These actions include hiring sales staff to improve our ability to serve new customers and the introduction of new products that we believe will appeal to new customers.
In the FTTH market, we benefit from continuing passive optical network deployments and system updates among telecom service providers. In the telecom market, we benefit from deployment of new high-speed fiber-optic networks by telecom network operators, including 5G networks. The internet data center market is currently our largest and fastest-growing market.
In the FTTH market, we benefit from continuing passive optical network deployments and system updates among telecom service providers.
While we expect our intellectual property to provide competitive advantages, we also find meaningful value from unpatented proprietary process knowledge, know-how and trade secrets.
While we expect our intellectual property to provide competitive advantages, we also find meaningful value from unpatented proprietary process knowledge, know-how and trade secrets. 9 Table of Contents Patents As of December 31, 2025 , we owned a total of 199 U.S. issued patents, 140 patents issued in China and Taiwan and 10 patents issued in Europe, plus a number of pending U.S. and foreign/international patent applications.
A key factor in our research and development success is our highly collaborative process for new product development. Particularly in our equipment and module businesses, we often collaborate very closely with our customers from a very early stage in product development.
Particularly in our equipment and module businesses, we often collaborate very closely with our customers from a very early stage in product development. By purposefully fostering this close collaboration, we believe that we can more rapidly develop leading solutions meeting the needs of our customers.
In 2024 , the three customers who contributed most to our internet data center revenue were Microsoft, Oracle and a U.S. based manufacturer. In 2024, our largest CATV customer was Digicomm.
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. In 2025 , the largest customer who contributed most to our internet data center revenue was Microsoft. In 2025, our largest CATV customer was Digicomm.
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In 2023, we began offering many of our CATV products directly to MSO customers, under the newly-created Quantum Bandwidth™ brand name.
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In the telecom market, we benefit from deployment of new high-speed fiber-optic networks by telecom network operators, including 5G networks. 3 Table of Contents The CATV market is our most established business, for which we supply a broad array of products, including lasers, transmitters and transceivers, and turn-key equipment.
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Patents As of December 31, 2024 , we owned a total of 188 U.S. issued patents, 137 patents issued in China and Taiwan and 10 patents issued in Europe, plus a number of pending U.S. and foreign/international patent applications. Our issued U.S. and foreign patents will expire between 2025 and 2044.
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In 2025 , 2024 , and 2023 , Digicomm accounted for 53.1%, 34.1% and 11.3% of our revenue, respectively, and in 2023, ATX Networks accounted for 15.6% of our revenue. In 2025 , our key customer in the internet data center market was Microsoft .
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We also from time to time offer design or manufacturing services to customers to assist them in more effectively using our products and realizing time-to-market advantages. In the last six years, we have taken several actions to increase the diversity of our customer base.
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We believe that our flexible and highly-automated production process gives us a competitive advantage by allowing us to locate production in the U.S., which is desirable to our customers, without dramatically increasing the cost of production by doing so. We intend to enhance this advantage by continuing to aggressively invest in U.S. production. ‑ Extend our leadership in CATV networking.
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Our operations and many of our products are subject to various federal, state, local, and foreign regulations that have been adopted with respect to the environment, such as the Directive on the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment; Registration, Evaluation, Authorization, and Restriction of Chemicals; and Substances of Concern In Products, regulations adopted by the European Union, or EU.
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Research and Development To maintain our growth and competitiveness, we engage in an active research and development program to develop new products and enhance existing products. As a result of these efforts, we anticipate releasing various new or enhanced products over the next several years.
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Information contained on our website is not incorporated by reference into this Form 10-K.
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Our issued U.S. and foreign patents will expire between 2026 and 2046. While our patents are an important element of our success, our business as a whole is not dependent on any one patent or group of patents.
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In our Taiwan location, which comprises several buildings in close proximity to each other, we manufacture optical components, such as our butterfly lasers, which incorporate laser chips, subassemblies and components manufactured within our Sugar Land facility.
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Environment We are committed to maintaining compliance with all environmental laws applicable to our operations, products, and services and to reducing our environmental impact across our business.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeFurthermore, other than our current suppliers, there are a limited number of entities from whom we could obtain certain materials and components. We may also face shortages if we experience increased demand for materials or components beyond what our qualified suppliers can deliver.
Biggest changeSome of the raw materials and components we use in our products are available only from a sole source or have been qualified only from a single supplier. Furthermore, other than our current suppliers, there are a limited number of entities from whom we could obtain certain materials and components.
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.
These developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions, the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between impacted nations and the U.S.
Outbreaks of epidemic, pandemic, or contagious diseases, such as the recent COVID-19 or, historically, the Ebola virus, Middle East Respiratory Syndrome, Severe Acute Respiratory Syndrome, or the H1N1 virus, could result in business disruptions.
Outbreaks of epidemic, pandemic, or contagious diseases, such as the recent COVID-19 pandemic or, historically, the Ebola virus, Middle East Respiratory Syndrome, Severe Acute Respiratory Syndrome, or the H1N1 virus, could result in business disruptions.
A substantial portion of our property, plants, and equipment is located in China and Taiwan. We expect to make further investments in Asia in the future. Therefore, our business, financial condition, results of operations and prospects are subject to economic, political, legal, and social events and developments in Asia.
A substantial portion of our property, plants, and equipment is located in China and Taiwan. We expect to make further investments in Taiwan in the future. Therefore, our business, financial condition, results of operations and prospects are subject to economic, political, legal, and social events and developments in Asia.
Our charter documents, stock incentive plans and Delaware law could prevent a takeover that stockholders consider favorable and could also reduce the market price of our stock. Our amended and restated certificate of incorporation and our amended and restated bylaws and our stock incentive plans contain provisions that could delay or prevent a change in control of our company.
Our charter documents, stock incentive plans and Delaware law could prevent a takeover that stockholders consider favorable and could also reduce the market price of our stock. Our Restated Certificate of Incorporation and our Amended and Restated Bylaws and our stock incentive plans contain provisions that could delay or prevent a change in control of our company.
Our indebtedness could have significant negative consequences for our security holders and our business, results of operations and financial condition by, among other things: - increasing our vulnerability to adverse economic and industry conditions; - limiting our ability to obtain additional financing; - requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for other purposes; - 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 and the 2030 Notes; and - placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital.
Our indebtedness could have significant negative consequences for our security holders and our business, results of operations and financial condition by, among other things: - increasing our vulnerability to adverse economic and industry conditions; - limiting our ability to obtain additional financing; - requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for other purposes; - 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 2030 Notes; and - placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital.
Our Amended and Restated Certificate of Incorporation provides that, unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company's stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or the Company's Amended and Restated Certificate of Incorporation or By-laws, or (iv) any action asserting a claim against the Company governed by the internal affairs doctrine.
Our Restated Certificate of Incorporation provides that, unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company's stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or the Company's Restated Certificate of Incorporation or By-laws, or (iv) any action asserting a claim against the Company governed by the internal affairs doctrine.
Cyber threats may be generic, or they may be custom-crafted against our information systems. In the ordinary course of our business, we and our data center customers maintain sensitive data on our respective networks, including intellectual property, employee personal information and proprietary or confidential business information relating to our business and that of our customers and business partners.
Cyber threats may be generic, or they may be custom-crafted against our information systems. In the ordinary course of our business, we and our customers maintain sensitive data on our respective networks, including intellectual property, employee personal information and proprietary or confidential business information relating to our business and that of our customers and business partners.
Our international revenue and operations are subject to several material risks, including: - difficulties in staffing, managing and supporting operations in more than one country; ‑ difficulties in enforcing agreements and collecting receivables through foreign legal systems; ‑ fewer legal protections for intellectual property in foreign jurisdictions; ‑ foreign and U.S. taxation issues and international trade barriers, including the adoption or expansion of governmental trade tariffs, export controls, and fluctuating changes to end-use and end-user rules; ‑ difficulties in obtaining any necessary governmental authorizations for the export of our products to certain foreign jurisdictions; ‑ fluctuations in foreign economies including the impact of recessionary environments and inflation in the United States and other economies where we do business; ‑ fluctuations in the value of foreign currencies and interest rates, including the impact of recessionary environments and inflation in the United States and other economies where we do business; ‑ trade and travel restrictions; ‑ domestic and international economic or political changes, hostilities and other disruptions in regions where we currently operate or may operate in the future; ‑ difficulties and increased expenses in complying with a variety of U.S. 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; and ‑ different and changing legal and regulatory requirements in the jurisdictions we currently operate or may operate in the future.
Our international revenue and operations are subject to several material risks, including: - difficulties in staffing, managing and supporting operations in more than one country; ‑ difficulties in enforcing agreements and collecting receivables through foreign legal systems; ‑ fewer legal protections for intellectual property in foreign jurisdictions; ‑ foreign and U.S. taxation issues and international trade barriers, including the adoption or expansion of governmental trade tariffs, export controls, and fluctuating changes to end-use and end-user rules; ‑ difficulties in obtaining any necessary governmental authorizations for the export of our products to certain foreign jurisdictions; ‑ fluctuations in foreign economies including the impact of recessionary environments and inflation in the United States and other economies where we do business; ‑ fluctuations in the value of foreign currencies and interest rates, including the impact of recessionary environments and inflation in the United States and other economies where we do business; ‑ trade and travel restrictions; ‑ domestic and international economic or political changes, hostilities and other disruptions in regions where we currently operate or may operate in the future; 30 Table of Contents ‑ difficulties and increased expenses in complying with a variety of U.S. 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; and ‑ different and changing legal and regulatory requirements in the jurisdictions we currently operate or may operate in the future.
Natural disasters or other catastrophic events could harm our operations. Our operations in the U.S., China and Taiwan could be subject to significant risk of natural disasters, including earthquakes, hurricanes, typhoons, flooding and tornadoes, as well as other catastrophic events, such as epidemics, cyberattacks, terrorist attacks or wars.
Our operations in the U.S., China and Taiwan could be subject to significant risk of natural disasters, including earthquakes, hurricanes, typhoons, flooding and tornadoes, as well as other catastrophic events, such as epidemics, cyberattacks, terrorist attacks or wars.
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. tariffs on imports from China (respectively the “U.S.
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. tariffs on imports from China (respectively the "U.S.
These fluctuations are due to numerous factors, including: ‑ the timing, size and mix of sales of our products; ‑ fluctuations in demand for our products, including the increase, decrease, rescheduling or cancellation of significant customer orders; ‑ our ability to design, manufacture and deliver products which meet customer requirements in a timely and cost-effective manner; ‑ the gain or loss of key customers; ‑ changes in our pricing and sales policies or the pricing and sales policies of our competitors; ‑ seasonality of certain of our products and manufacturing capabilities; ‑ quality control or yield problems in our manufacturing operations; ‑ supply disruption for certain raw materials and components used in our products; ‑ capacity constraints of our outside contract manufacturers for a portion of the manufacturing process for some of our products; ‑ length and variability of the sales cycles of our products; ‑ unanticipated increases in costs or expenses, including rising inflation or other changes in macroeconomic conditions; ‑ the loss of key employees; ‑ different capital expenditure and budget cycles for our customers, affecting the timing of their spending for our products; ‑ political stability in the areas of the world in which we operate; ‑ changes in or limitations imposed by trade protection laws or other regulatory orders or requirements in the United States or in other countries, including tariffs, sanctions, or other costs, restrictions, or requirements which may affect our ability to import or export our products to or from various countries; and ‑ t rade-related government actions that impose barriers or restrictions that would impact our ability to sell or ship products to Huawei or other customers.
These fluctuations are due to numerous factors, including: ‑ the timing, size and mix of sales of our products; ‑ fluctuations in demand for our products, including the increase, decrease, rescheduling or cancellation of significant customer orders; ‑ our ability to design, manufacture and deliver products which meet customer requirements in a timely and cost-effective manner; ‑ the gain or loss of key customers; ‑ changes in our pricing and sales policies or the pricing and sales policies of our competitors; ‑ seasonality of certain of our products and manufacturing capabilities; ‑ quality control or yield problems in our manufacturing operations; ‑ supply disruption for certain raw materials and components used in our products; ‑ capacity constraints of our outside contract manufacturers for a portion of the manufacturing process for some of our products; 22 Table of Contents ‑ length and variability of the sales cycles of our products; ‑ unanticipated increases in costs or expenses, including rising inflation or other changes in macroeconomic conditions; ‑ the loss of key employees; ‑ different capital expenditure and budget cycles for our customers, affecting the timing of their spending for our products; ‑ political stability in the areas of the world in which we operate; ‑ changes in or limitations imposed by trade protection laws or other regulatory orders or requirements in the United States or in other countries, including tariffs, sanctions, or other costs, restrictions, or requirements which may affect our ability to import or export our products to or from various countries; and ‑ t rade-related government actions that impose barriers or restrictions that would impact our ability to sell or ship products to customers.
For example, the Chinese government could require the use of local suppliers, compel companies that do business in China to partner with local companies, and otherwise provide additional government incentives or subsidies to government-backed local customers to buy from local suppliers.
For example, the Chinese government could require the use of local suppliers, compel companies that do business in China to partner with local companies, or otherwise provide additional government incentives or subsidies to government-backed local customers to buy from local suppliers.
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 the 2030 Notes, and our cash needs may increase in the future.
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 2030 Notes, and our cash needs may increase in the future.
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, 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.
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, regulations, or executive orders are implemented, or if existing trade agreements are renegotiated or if China or other affected countries take further retaliatory trade measures.
If we fail to comply with these covenants or to make payments under our indebtedness when due, then we would be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full. 20 Table of Contents Our loan agreements contain restrictive covenants that may adversely affect our ability to conduct our business.
If we fail to comply with these covenants or to make payments under our indebtedness when due, then we would be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full. 27 Table of Contents Our loan agreements contain restrictive covenants that may adversely affect our ability to conduct our business.
Despite our implementation of network security measures, our network and storage applications have been subject to computer viruses, ransomware and other forms of cyber terrorism. 21 Table of Contents Also, despite our implementation of security measures, we are not able to guarantee that we can prevent unauthorized access by hackers or breaches due to operator error, malfeasance or other system disruptions.
Despite our implementation of network security measures, our network and storage applications have been subject to computer viruses, ransomware and other forms of cyber terrorism. 28 Table of Contents Also, despite our implementation of security measures, we are not able to guarantee that we can prevent unauthorized access by hackers or breaches due to operator error, malfeasance or other system disruptions.
Accordingly, there is uncertainty as to whether a court would enforce such a forum selection provision as written in connection with claims arising under the Securities Act of 1933. This forum selection provision in our Amended and Restated Certificate of Incorporation may limit our stockholders' ability to obtain a favorable judicial forum for disputes with us.
Accordingly, there is uncertainty as to whether a court would enforce such a forum selection provision as written in connection with claims arising under the Securities Act of 1933. This forum selection provision in our Restated Certificate of Incorporation may limit our stockholders' ability to obtain a favorable judicial forum for disputes with us.
In such cases, our business and the results of operations could be adversely affected. 19 Table of Contents Our business could be negatively impacted as a result of shareholder activism. In recent years, shareholder activists have become involved in numerous public companies. Shareholder activists frequently propose to involve themselves in the governance, strategic direction, and operations of the Company.
In such cases, our business and the results of operations could be adversely affected. 26 Table of Contents Our business could be negatively impacted as a result of shareholder activism. In recent years, shareholder activists have become involved in numerous public companies. Shareholder activists frequently propose to involve themselves in the governance, strategic direction, and operations of the Company.
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.
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 result in a decrease in the sales of our products to customers located in China or other customers selling to Chinese end users.
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.
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 the Company or our industry.
Any indemnity claim could also adversely affect our relationships with our customers and result in substantial costs to us. 25 Table of Contents Risks Related to Our Common Stock Our stock price has been and is likely to be volatile.
Any indemnity claim could also adversely affect our relationships with our customers and result in substantial costs to us. 33 Table of Contents Risks Related to Our Common Stock Our stock price has been and is likely to be volatile.
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. 14 Table of Contents Adverse global economic conditions could have a negative effect on our business, results of operations and financial condition and liquidity .
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 .
Factors affecting military, political or economic conditions between China and Taiwan could have a material adverse effect on our financial condition and results of operations, as well as the market price and the liquidity of our common shares. 23 Table of Contents Risks Related to Our Operations in China Our business operations conducted in China are critical to our success.
Factors affecting military, political or economic conditions between China and Taiwan could have a material adverse effect on our financial condition and results of operations, as well as the market price and the liquidity of our common shares. Risks Related to Our Operations in China Our business operations conducted in China are critical to our success.
If we are unable to qualify and sell any of our new products in volume, on time, or at all, our results of operations may be adversely affected. 13 Table of Contents Technology adoption cycles impact our business . In each of our markets, technology standards influence customer purchasing patterns and vendor selection.
If we are unable to qualify and sell any of our new products in volume, on time, or at all, our results of operations may be adversely affected. Technology adoption cycles impact our business . In each of our markets, technology standards influence customer purchasing patterns and vendor selection.
If any of our major customers decrease, stop or delay purchasing our products for any reason, we will likely have excess manufacturing capacity or inventory and our business and results of operations would be harmed. If our customers do not qualify our products for use on a timely basis, our results of operations may suffer.
If any of our major customers decrease, stop or delay purchasing our products for any reason, we will likely have excess manufacturing capacity or inventory and our business and results of operations would be harmed. 18 Table of Contents If our customers do not qualify our products for use on a timely basis, our results of operations may suffer.
Our reliance on a limited number of suppliers or a single qualified vendor may result in delivery and quality problems, and reduced control over product pricing, reliability and performance. Our products could contain defects that may cause us to incur significant costs or result in a loss of customers.
Our reliance on a limited number of suppliers or a single qualified vendor may result in delivery and quality problems, and reduced control over product pricing, reliability and performance. 23 Table of Contents Our products could contain defects that may cause us to incur significant costs or result in a loss of customers.
Any further changes to these laws may increase our costs and reduce our flexibility. 24 Table of Contents Risks Related to Intellectual Property Matters If we fail to protect, or incur significant costs in defending, our intellectual property and other proprietary rights, our business and results of operations could be materially harmed.
Any further changes to these laws may increase our costs and reduce our flexibility. Risks Related to Intellectual Property Matters If we fail to protect, or incur significant costs in defending, our intellectual property and other proprietary rights, our business and results of operations could be materially harmed.
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.
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 Amended and Restated 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.
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.
Any or all of these factors could negatively affect demand for our products and our business, financial condition and results of operations. 20 Table of Contents 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.
Any of these developments could contribute to a decline in business and consumer spending in addition to other adverse market conditions, which could adversely affect our business. The turnover of direct labor in manufacturing industries in China is high, which could adversely affect our production, shipments and results of operations.
Any of these developments could contribute to a decline in business and consumer spending in addition to other adverse market conditions, which could adversely affect our business. 31 Table of Contents The turnover of direct labor in manufacturing industries in China is high, which could adversely affect our production, shipments and results of operations.
Changes in and responses to U.S. trade policy could reduce the competitiveness of our products and thus cause our sales and revenues to drop, which could materially and adversely impact our business and operations. 22 Table of Contents We face a variety of risks associated with our international sales and operations.
Changes in and responses to U.S. trade policy could reduce the competitiveness of our products and thus cause our sales and revenues to drop, which could materially and adversely impact our business and operations. We face a variety of risks associated with our international sales and operations.
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.
In addition, our existing credit facilities in Asia and the U.S. 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.
A failure to evaluate and execute an acquisition appropriately or otherwise adequately address these risks may adversely affect our financial condition and results of operations. 18 Table of Contents Future divestitures may adversely affect our financial condition and results of operations.
A failure to evaluate and execute an acquisition appropriately or otherwise adequately address these risks may adversely affect our financial condition and results of operations. Future divestitures may adversely affect our financial condition and results of operations.
Prior to the sale of new products, our customers typically require us to “qualify” our products for use in their applications. At the successful completion of this qualification process, we refer to the resulting sales opportunity as a “design win.” Additionally, new customers often audit our manufacturing facilities and perform other evaluations during this qualification process.
Prior to the sale of new products, our customers typically require us to "qualify" our products for use in their applications. At the successful completion of this qualification process, we refer to the resulting sales opportunity as a "design win". Additionally, new customers often audit our manufacturing facilities and perform other evaluations during this qualification process.
We have a high fixed cost base due to our vertically integrated business model, including the fact that 2,879 of our employees as of December 31, 2024 were employed in manufacturing and research and development operations. We may not be able to adjust these fixed costs quickly to adapt to rapidly changing market conditions.
We have a high fixed cost base due to our vertically integrated business model, including the fact that 4,116 of our employees as of December 31, 2025 were employed in manufacturing and research and development operations. We may not be able to adjust these fixed costs quickly to adapt to rapidly changing market conditions.
Risks Related to Operating Our Business We are dependent on our key customers for a significant portion of our revenue and the loss of, or a significant reduction in orders from, any of our key customers would adversely impact our revenue and results of operations. We generate much of our revenue from a limited number of customers.
We are dependent on our key customers for a significant portion of our revenue and the loss of, or a significant reduction in orders from, any of our key customers would adversely impact our revenue and results of operations. We generate much of our revenue from a limited number of customers.
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.
To manage our growth and our increasingly complex business operations, we may need to upgrade systems and procedures, which requires management time and may result in significant additional expense. For example, we upgraded our enterprise resource planning system in fiscal 2025 in order to accommodate our expanding operations.
Tariffs on China Imports”) went into effect on July 2018, August 2018, September 2018, September 2019, and February 2020. In 2025, following an Executive order, all Chinese-origin products became subject to additional U.S. tariffs. The Chinese government has, in turn, issued reciprocal tariffs on U.S. goods.
Tariffs on China Imports") went into effect on July 2018, August 2018, September 2018, September 2019, and February 2020. In 2025, following an Executive order, all Chinese-origin products became subject to additional U.S. "Fentanyl" tariffs. "Reciprocal tariffs" were also implemented on Chinese and Taiwanese origin goods. The Chinese government has, in turn, issued reciprocal tariffs on U.S. goods.
Our gross margins on individual products and among products fluctuate over each product’s life cycle. Our overall gross margins have fluctuated from period to period as a result of shifts in product mix, the introduction of new products, decreases in average selling prices and our ability to reduce product costs, and these fluctuations are expected to continue in the future.
Our overall gross margins have fluctuated from period to period as a result of shifts in product mix, the introduction of new products, decreases in average selling prices and our ability to reduce product costs, and these fluctuations are expected to continue in the future.
A total of $111.8 million, $43.3 million and $51.3 million or 44.8%, 19.9% and 23.0% of our revenue in the years ended December 31, 2024, 2023 and 2022 was attributable to our product manufactured at our plant in China, respectively.
A total of $262.1 million, $111.8 million and $43.3 million or 57.5%, 44.8% and 19.9% of our revenue in the years ended December 31, 2025, 2024 and 2023 was attributable to our product manufactured at our plant in China, respectively.
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. 15 Table of Contents Increasing costs and shifts in product mix may adversely impact our gross margins.
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. Our gross margins on individual products and among products fluctuate over each product’s life cycle.
As of December 31, 2024, we had approximately $161.2 million of consolidated indebtedness. We may also incur additional indebtedness to meet future financing needs.
As of December 31, 2025, we had approximately $163.8 million of consolidated indebtedness. We may also incur additional indebtedness to meet future financing needs.
The continued services of our executive officers and other key engineering, sales, marketing, manufacturing and support personnel is essential to our success. For example, our ability to achieve new design wins depends upon the experience and expertise of our engineers.
We depend on key personnel to develop and maintain our technology and manage our business in a rapidly changing market. The continued services of our executive officers and other key engineering, sales, marketing, manufacturing and support personnel is essential to our success. For example, our ability to achieve new design wins depends upon the experience and expertise of our engineers.
We have lending arrangements with several financial institutions, including credit facilities with Shanghai Pudong Development Bank Co., Ltd ("SPD") and China Zheshang Bank Co., Ltd. ("CZB") in China. Our loan agreements governing our long-term debt obligations in Asia contain certain financial and operating covenants that limit our management’s discretion with respect to certain business matters.
We have lending arrangements with several financial institutions, including credit facilities with several lending institutions in Asia, and BOK Financial in the U.S. Our loan agreements governing our long-term debt obligations in Asia and the U.S. contain certain financial and operating covenants that limit our management’s discretion with respect to certain business matters.
These and other provisions in our amended and restated certificate of incorporation, our amended and restated bylaws and under Delaware law could discourage potential takeover attempts, reduce the price that investors might be willing to pay for shares of our common stock in the future and result in the market price being lower than it would be without these provisions.
These and other provisions in our Restated Certificate of Incorporation, our amended and restated bylaws and under Delaware law could discourage potential takeover attempts, reduce the price that investors might be willing to pay for shares of our common stock in the future and result in the market price being lower than it would be without these provisions. 34 Table of Contents Our Restated Certificate of Incorporation includes a forum selection clause, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us.
In the future, we may need to take legal actions to prevent third parties from infringing upon or misappropriating our intellectual property or from otherwise gaining access to our technology.
We have taken legal actions to prevent third parties from infringing upon or misappropriating our intellectual property or from otherwise gaining access to our technology.
Among other things, these covenants restrict our ability to incur additional debt, create liens or other encumbrances, change the nature of our business, sell or otherwise dispose of assets and merge or consolidate with other entities.
Among other things, these covenants restrict our ability to incur additional debt, create liens or other encumbrances, change the nature of our business, sell or otherwise dispose of assets and merge or consolidate with other entities. These restrictions may limit our flexibility in responding to business opportunities, competitive developments and adverse economic or industry conditions.
Although the length of our product development cycle varies widely by product and customer, it may take 18 months or longer before we receive our first order. As a result, we may incur significant expenses long before customers accept and purchase our products.
Although the length of our product development cycle varies widely by product and customer, it may take 18 months or longer before we receive our first order.
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.
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.
As of December 31, 202 4 , 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.
As of December 31, 2025, we had U.S. accumulated net operating loss carryforwards, or NOLs, of approximately $253.0 million, federal and state research and development credits ("R&D credits") of $14.9 million, business interest expense carryforwards of $24.9 million and foreign tax credits of $4.6 million for U.S. federal income tax purposes.
Product development delays may result from numerous factors, including: ‑ modification of product specifications and customer requirements; ‑ unanticipated engineering complexities; ‑ difficulties in reallocating engineering resources and overcoming resource limitations; and ‑ rapidly changing technology or competitive product requirements.
As a result, we may incur significant expenses long before customers accept and purchase our products. 19 Table of Contents Product development delays may result from numerous factors, including: ‑ modification of product specifications and customer requirements; ‑ unanticipated engineering complexities; ‑ difficulties in reallocating engineering resources and overcoming resource limitations; and ‑ rapidly changing technology or competitive product requirements.
Moreover, our operating results may not meet our announced guidance or the expectations of research analysts or investors, in which case the price of our common stock could decrease significantly.
Moreover, our operating results may not meet our announced guidance or the expectations of research analysts or investors, in which case the price of our common stock could decrease significantly. There can be no assurance that we will be able to successfully address these risks.
Our inability to obtain sufficient quantities of critical materials or components could adversely affect our ability to meet demand for our products, adversely affecting our financial condition and results of operations.
We may also face shortages if we experience increased demand for materials or components beyond what our qualified suppliers can deliver. Our inability to obtain sufficient quantities of critical materials or components could adversely affect our ability to meet demand for our products, adversely affecting our financial condition and results of operations.
Any failure by us or our subsidiaries to comply with these agreements could harm our business, financial condition and operating results. In addition, our obligations under our credit facilities with SPD and CZB are secured by real estate.
Any failure by us or our subsidiaries to comply with these agreements could harm our business, financial condition and operating results.
Furthermore, the divestitures could adversely affect our ongoing business operations, including by enhancing our competitors' positions or reducing customer confidence in our ongoing brand and products. The inability to effectively and efficiently manage divestitures with the results we expect or in the timeframe we anticipate could adversely affect our financial condition and results of operations.
Furthermore, the divestitures could adversely affect our ongoing business operations, including by enhancing our competitors' positions or reducing customer confidence in our ongoing brand and products.
Some of these suppliers could disrupt our business if they stop, decrease or delay shipments or if the materials or components they ship have quality or reliability issues. Some of the raw materials and components we use in our products are available only from a sole source or have been qualified only from a single supplier.
We depend on a limited number of suppliers for certain raw materials and components used in our products. Some of these suppliers could disrupt our business if they stop, decrease or delay shipments or if the materials or components they ship have quality or reliability issues.
For each year ended 2024, 2023 and 2022 , our top ten customers represented 95%, 92.7% and 87.2% of our revenue, respectively. In 2024 , Microsoft represented 43.7% of our revenue, Digicomm represented 35.1% of our revenue and Oracle represented 12.4% of our revenue.
For each year ended 2025, 2024 and 2023 , our top ten customers represented 96.6%, 95% and 92.7% of our revenue, respectively. In 2025 , Digicomm represented 53.1% of our revenue and Microsoft represented 28.8% of our revenue.
A failure to obtain patents or trademark registrations or a successful challenge to our patents and trademark registrations in the U.S. or other foreign countries may limit our ability to protect the intellectual property rights that these patent and trademark registrations intended to cover.
A failure to obtain patents or trademark registrations or a successful challenge to our patents and trademark registrations in the U.S. or other foreign countries may limit our ability to protect the intellectual property rights that these patent and trademark registrations intended to cover. 32 Table of Contents Policing unauthorized use of our technology is difficult and we cannot be certain that the steps we have taken will prevent the misappropriation, unauthorized use or other infringement of our intellectual property rights.
Any of these events could have a material adverse effect on our business, financial condition, results of operations, or cash flows.
Any of these events could have a material adverse effect on our business, financial condition, results of operations, or cash flows. Our ability to use our net operating losses and certain other tax attributes may be limited.
It is also possible that a court could rule that such a provision is inapplicable or unenforceable. 26 Table of Contents Item 1B. Unresolved Staff Comments None.
It is also possible that a court could rule that such a provision is inapplicable or unenforceable.
Any of our key employees, including our Chief Executive Officer, Chief Financial Officer, Senior Vice President and North America General Manager and Senior Vice President and Asia General Manager, may resign at any time. We do not have key person life insurance policies covering any of our employees.
Any of our key employees, including our Chief Executive Officer, Chief Financial Officer, Senior Vice President and North America General Manager and Senior Vice President and Asia General Manager, may resign at any time. To implement our business plan, we also intend to hire additional employees in expanding areas of our business.
Therefore, our business, financial condition, results of operations and prospects are to a significant degree subject to economic, political, legal, and social events and developments in China.
Additionally, a substantial portion of our property, plant and equipment, 42.8%, 46.9% and 43.0%, as of December 31, 2025, 2024 and 2023 , was located in China, respectively. Therefore, our business, financial condition, results of operations and prospects are to a significant degree subject to economic, political, legal, and social events and developments in China.
We may not be successful in attracting, assimilating or retaining qualified personnel to satisfy our current or future needs. Our ability to develop, manufacture and sell our products, and thus our financial condition and results of operations, would be adversely affected if we are unable to retain existing personnel or hire additional qualified personnel.
Our ability to develop, manufacture and sell our products, and thus our financial condition and results of operations, would be adversely affected if we are unable to retain existing personnel or hire additional qualified personnel. We depend on a limited number of suppliers and any supply interruption could have an adverse effect on our business.
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.
Changes in United States tariff and import/export regulations may have a negative effect on our business. During the year ended December 31, 2025, the United States has imposed, and may continue to impose, significant tariffs and other trade restrictions on imported goods. In February 2026, the U.S.
To implement our business plan, we also intend to hire additional employees in expanding areas of our business. Our ability to continue to attract and retain highly skilled employees is a critical factor in our success. Competition for highly skilled personnel is intense.
Our ability to continue to attract and retain highly skilled employees is a critical factor in our success. Competition for highly skilled personnel is intense. We may not be successful in attracting, assimilating or retaining qualified personnel to satisfy our current or future needs.
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.
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. 24 Table of Contents Our future results of operations may be subject to volatility as a result of exposure to fluctuations in currency exchange rates.
Due to rapid changes to U.S. import laws and applicable duties the Company faces a variety of import-related risk.
In addition to country-specific tariffs, sectoral tariffs have come into effect targeting raw materials such as aluminum and rare earth minerals, as well as some finished and semifinished goods, such as semiconductors. 29 Table of Contents Due to rapid changes to U.S. import laws and applicable duties the Company faces a variety of import-related risk.
Removed
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.
Added
Summary Risk Factors Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows, and prospects.
Removed
There can be no assurance that we will be able to successfully address these risks. 16 Table of Contents We depend on key personnel to develop and maintain our technology and manage our business in a rapidly changing market.
Added
These risks are discussed more fully below and include but are not limited to, risks related to: Risks Inherent in Our Business · significant investments in U.S. manufacturing and automation, which may not achieve expected returns · a limited number of key customers account for a significant portion of our revenue · difficulty forecasting customer demand and matching production to demand · product qualifications · our ability to compete effectively · technology adoption cycles · continually develop new products or fall behind · adverse global economic conditions · volatile or slower revenue growth in the future · potential manufacturing problems affect quality and customer relationships · high fixed costs due to vertical integration · changes in U.S. tariff and import/export regulations · increasing costs and product mix shifts · financial results may vary significantly on a quarterly basis, leading to stock price volatility · dependence on key personnel in a rapidly changing market · limited number of suppliers 15 Table of Contents · products defects · epidemic disease could cause business disruptions · limited ability to use net operating losses · fluctuations in currency exchange rates · an acquisition or divestiture may adversely affect our operations · natural disasters · lack of shares could affect our ability to retain and recruit talent Legal and Regulatory Risks · export and import controls · shareholder activism · litigation, administrative action and expenses Risks Related to our Indebtedness and Future Financing · indebtedness and liabilities could limit cash flow · restrictive covenants in loan agreements · ability to obtain capital on favorable terms or at all Risks Related to Data Breaches and Network Infrastructures · data breaches and cyberattacks · disruptions or failures in information technology systems and network infrastructures Risks Related to International Trade and Operations · changes in U.S. and international trade policies · variety of risks with international sales and operations Risks Related to Our Operations in China · changes in economic and political policies in China · high turnover of direct labor in manufacturing in China · regulations of loans to our China subsidiary · China labor laws and increasing labor costs 16 Table of Contents Risks Related to Intellectual Property Matters · ability to obtain, maintain, protect and enforce our intellectual property rights · intellectual property disputes Risks Related to Our Common Stock · volatility of the trading price of our Common Stock · limitations on the ability of holders of our Common Stock to influence corporate matters · exclusive forum selection clause in our Restated Certificate of Incorporation Risks Related to Operating Our Business Significant capital investments in U.S. manufacturing and automation, including investments intended to support artificial intelligence ("AI")-related demand, may not achieve expected returns and could adversely affect our business, financial condition, and results of operations.
Removed
We depend on a limited number of suppliers and any supply interruption could have an adverse effect on our business. We depend on a limited number of suppliers for certain raw materials and components used in our products.
Added
We are planning and, in some cases, have already commenced substantial capital investments to expand and modernize our U.S. manufacturing footprint and to increase automation across our operations.
Removed
The spread of COVID-19 has previously impacted our supply chain operations through restrictions, reduced capacity and shutdown of business activities by suppliers whom we rely on for sourcing components and materials and third-party partners whom we rely on for manufacturing, warehousing and logistics services.
Added
These initiatives include site selection and construction of new or expanded facilities, acquisition and installation of advanced production equipment, deployment of robotics and software-enabled process controls, and related hiring and training of specialized personnel.
Removed
Any disruption resulting from similar events on a larger scale or over a prolonged period could cause significant delays in supply of needed components, which would likely have a negative impact on our business, results of operations, and our financial condition. 17 Table of Contents Our ability to use our net operating losses and certain other tax attributes may be limited.
Added
A significant portion of these investments is predicated on our expectations regarding the growth, timing, and mix of customer demand, including demand we anticipate could be driven by AI-related use cases and workloads across our end markets. These projects involve long lead times, complex execution, and significant upfront and continuing expenditures.
Removed
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.
Added
If these investments do not yield anticipated productivity gains, cost efficiencies, capacity utilization, or revenue growth, or if the expected AI-driven demand does not materialize, is delayed, or develops differently than we forecast, our returns on invested capital could be materially below our expectations and our business, financial condition, and results of operations could be adversely affected.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOwned or Lease Approximate Location Expiration Date Square Footage Use Sugar Land, Texas Owned (1) 139,450 Administration, sales, manufacturing, research and development Duluth, Georgia Leased (2) 10,459 Sales, research and development Ningbo, China Owned (3) 458,849 Administration, sales, manufacturing, research and development Taipei, Taiwan November 30, 2039 (4) 305,459 Administration, sales, manufacturing, research and development (1) We manufacture laser chips (utilizing our MBE and MOCVD process), subassemblies and components in our Sugar Land, Texas facility.
Biggest changeApproximate Location Owned or leased Square Footage Use Sugar Land, Texas Owned and leased 139,450 Administration, sales, manufacturing, research and development Duluth, Georgia Leased 38,900 Sales, research and development Ningbo, China Owned 1,203,740 Administration, sales, manufacturing, research and development Taipei, Taiwan Leased 705,760 Administration, sales, manufacturing, research and development
Removed
(2) In our Georgia facility, we have sales and research and development for CATV market. T he lease covering the 2,932 square feet facility will expire October 31, 2025 and the lease covering the 7,527 square feet will expire December 31, 2025.
Removed
(3) In our China facility, we manufacture certain more labor intensive components and optical equipment systems, such as optical subassemblies and transceivers for the CATV transmitters (at the headend), CATV outdoor equipment (at the node) and internet data center market.
Removed
Our China subsidiary acquired the land use rights to the real property on which our current facility is located from the Chinese government. Such land use rights expire on October 7, 2054. Our China subsidiary owns the facility located on such real property.
Removed
Our China subsidiary also obtained from the Chinese government the land use rights to a second real property located within a close proximity to our current facility. The land use rights for the second real property expire on December 28, 2067.
Removed
(4) In our Taiwan location, we manufacture optical components, such as our butterfly lasers, which incorporate laser chips, subassemblies and components manufactured within our Sugar Land facility. In addition, in our Taiwan location, we manufacture transceivers for the internet data center market, telecom, FTTH and other markets. We also manufacture CATV outdoor equipment in our Taiwan location.
Removed
The lease covering the Taiwan facility commenced on June 1, 2014 and expires on May 31, 2029. On October 7, 2024, we entered into a Land and Building Lease Agreement to lease approximately 3,537 square meters of two adjoining parcels of land, in New Taipei City. The lease also includes a building on these parcels, totaling approximately 3,406 square meters.
Removed
The lease term is for fifteen years, commencing on December 1, 2024, and ending on November 30, 2039.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+1 added−1 removed3 unchanged
Biggest changeDividend Policy We have never declared or paid any cash dividends on our capital stock, and we do not anticipate paying any cash dividends on our common stock for the foreseeable future. We currently intend to retain all available funds and future earnings for use in the operation and expansion of our business.
Biggest changeWe currently intend to retain all available funds and future earnings for use in the operation and expansion of our business.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities On September 26, 2013, our common stock began to trade on the NASDAQ Global Market under the symbol “AAOI”. Prior to that time, there was no public market for our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities On September 26, 2013, our common stock began to trade on the NASDAQ Global Market under the symbol "AAOI". Prior to that time, there was no public market for our common stock.
The graph below shows the cumulative total stockholder return of an investment of $100 (and the reinvestment of any dividends thereafter) on January 1, 2019 (the last five fiscal years) in (i) our common stock, (ii) the NASDAQ Composite Index and (iii) the NASDAQ Telecommunications Index.
The graph below shows the cumulative total stockholder return of an investment of $100 (and the reinvestment of any dividends thereafter) on January 1, 2020 (the last five fiscal years) in (i) our common stock, (ii) the NASDAQ Composite Index and (iii) the NASDAQ Telecommunications Index.
As of February 24, 2025, there were 54 holders of record of our common stock (not including beneficial holders of our common stock holding in street name).
As of February 24, 2026, there were 58 holders of record of our common stock (not including beneficial holders of our common stock holding in street name).
In addition, the terms of our loan agreements governing our long-term debt obligations restricts us from paying dividends. Unregistered Sales of Equity Securities Not applicable.
In addition, the terms of our loan agreements governing our long-term debt obligations restricts us from paying dividends. Unregistered Sales of Equity Securities None. Purchases of Equity Securities by Issuer and Affiliated Purchasers None. Item 6. [Reserved]
Removed
Date AAOI NASDAQ Telecom NASDAQ Composite 12/31/2019 100.00 % 100.00 % 100.00 % 12/31/2020 71.63 % 122.04 % 143.64 % 12/31/2021 43.27 % 127.87 % 174.36 % 12/31/2022 15.91 % 95.61 % 116.65 % 12/31/2023 162.63 % 107.36 % 167.30 % 12/31/2024 310.27 % 119.33 % 215.22 % For equity compensation plan information refer to Item 12 of this Form 10-K.
Added
Date AAOI NASDAQ Telecom NASDAQ Composite 12/31/2020 100.00 % 100.00 % 100.00 % 12/31/2021 60.40 % 104.78 % 121.39 % 12/31/2022 22.21 % 78.34 % 81.21 % 12/31/2023 227.03 % 87.97 % 116.47 % 12/31/2024 433.14 % 97.78 % 149.83 % 12/31/2025 409.64 % 107.40 % 180.33 % For equity compensation plan information refer to Item 12 of this Form 10-K. 37 Table of Contents Dividend Policy We have never declared or paid any cash dividends on our capital stock, and we do not anticipate paying any cash dividends on our common stock for the foreseeable future.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

98 edited+19 added−20 removed73 unchanged
Biggest changeRegistered 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.
Biggest changeApr-25 12.69 2,110,057 26,245 536 Raymond James & Associates and Needham & Company, LLC Jun-25 17.46 5,725,948 98,000 2,000 Raymond James & Associates and Needham & Company, LLC Sep-25 26.41 5,680,235 147,000 3,000 Raymond James & Associates and Needham & Company, LLC Nov-25 23.15 2,778,564 63,050 1,287 Raymond James & Associates and Needham & Company, LLC Dec-25 29.51 3,919,517 113,350 2,313 Total 23,749,971 $ 519,400 $ 10,600 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").
We derive a significant portion of our revenue from our top ten customers, and we anticipate that we will continue to do so for the foreseeable future.
We derive a significant portion of our revenue from our top ten customers, and we anticipate that we will continue to do so for the foreseeable future.
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.
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.
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, 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.
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, 2025 and 2024, 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.
However, there is no guarantee that we may increase selling prices or reduce costs to fully mitigate the effect of inflation on our costs, which may adversely impact our sales margins and profitability. 41 Table of Contents Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S.
However, there is no guarantee that we may increase selling prices or reduce costs to fully mitigate the effect of inflation on our costs, which may adversely impact our sales margins and profitability. 50 Table of Contents Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S.
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. 35 Table of Contents Results of Operations The following table sets forth our results of operations for the periods presented as a percentage of our revenue for those periods.
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. 43 Table of Contents Results of Operations The following table sets forth our results of operations for the periods presented as a percentage of our revenue for those periods.
We believe our close coordination with our customers regarding their future product requirements enhances the efficiency of our research and development expenditures. 32 Table of Contents Discussion of Financial Performance Revenue We generate revenue through the sale of our products to equipment providers for the internet data center, CATV, telecom, FTTH and other markets.
We believe our close coordination with our customers regarding their future product requirements enhances the efficiency of our research and development expenditures. 40 Table of Contents Discussion of Financial Performance Revenue We generate revenue through the sale of our products to equipment providers for the internet data center, CATV, telecom, FTTH and other markets.
Notwithstanding the foregoing, however, in general for our mature products our cost of goods sold for a particular product declines over time as a result of increasing efficiencies in the manufacturing processes, or supply cost declines, as well as yield improvements and testing enhancements. We manufacture products in three of our four facilities located in the U.S., Taiwan and China.
Notwithstanding the foregoing, however, in general for our mature products our cost of goods sold for a particular product declines over time as a result of increasing efficiencies in the manufacturing processes, or supply cost declines, as well as yield improvements and testing enhancements. We manufacture products in our facilities located in the U.S., Taiwan and China.
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.
Research and development costs consist of R&D work orders, R&D material usage and other project related costs related to 100 Gbps, 200/400/800/1,600 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.
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 also agreed to reimburse the Sales Agents 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.
We base those internal sales upon established transfer pricing methodologies. However, we eliminate all of those internal sales, and cost of goods sold transactions, to arrive at total revenue and cost of goods sold on a consolidated basis. 33 Table of Contents We have a global set of suppliers to help balance considerations related to product availability, quality and cost.
We base those internal sales upon established transfer pricing methodologies. However, we eliminate all of those internal sales, and cost of goods sold transactions, to arrive at total revenue and cost of goods sold on a consolidated basis. 41 Table of Contents We have a global set of suppliers to help balance considerations related to product availability, quality and cost.
In the future, we expect general and administrative expense to increase on a dollar basis but to decline as a percentage of revenue, to the extent that our revenue increases over time. 34 Table of Contents Other income (expense) Interest income consists of income earned on our cash, cash equivalents and short-term investments.
In the future, we expect general and administrative expense to increase on a dollar basis but to decline as a percentage of revenue, to the extent that our revenue increases over time. 42 Table of Contents Other income (expense) Interest income consists of income earned on our cash, cash equivalents and short-term investments.
Additionally, we pay commissions to third parties on certain product lines and identified customers, which also amounted to less than one percent of our revenue in 2024, 2023 and 2022 . As such, our sales and marketing expense does not directly increase with revenue.
Additionally, we pay commissions to third parties on certain product lines and identified customers, which also amounted to less than one percent of our revenue in 2025, 2024 and 2023 . As such, our sales and marketing expense does not directly increase with revenue.
We consider the likelihood of possible outcomes in determining the best estimate for the fair value of the assets. We did not record any asset impairment charges in 2024, 2023 and 2022. Valuation of inventories Inventories are stated at the lower of cost (average-cost method) or net realizable value.
We consider the likelihood of possible outcomes in determining the best estimate for the fair value of the assets. We did not record any asset impairment charges in 2025, 2024 and 2023. Valuation of inventories Inventories are stated at the lower of cost (average-cost method) or net realizable value.
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.
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, 2025, compared to the year ended December 31, 2024.
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.
In the placement notice, the Company would designate the maximum number of Shares to be sold through the Sales Agents, 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 one day.
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.
For a discussion of the year ended December 31, 2024 compared to the year ended December 31, 2023, 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, 2024.
These replacement employees require a period of training and improvement, and this impacts the quantity of products we can produce in the quarter. The combined effect of the factory shut-down and employee turnover in the quarter may also contribute to negative seasonality in Q1.
These replacement employees require a period of training and improvement, and this impacts the quantity of products we can produce in the quarter. The combined effect of the factory shut-down and employee turnover in the quarter may also contribute to negative seasonality in the first quarter.
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.
The expenses increased due to a higher volume of internal work orders and headcount increase. During 2025, we experienced increased interest in new technologies like 800G and 1.6T among our data center customers.
We compensate our sales staff through base salary and commissions, with base salary being the largest component of overall compensation. Total sales commissions to employees amounted to less than one percent of our revenue in 2024, 2023 and 2022 .
We compensate our sales staff through base salary and commissions, with base salary being the largest component of overall compensation. Total sales commissions to employees amounted to less than one percent of our revenue in 2025, 2024 and 2023 .
Within the internet data center market, we benefit from the increasing use of higher-capacity optical networking technology as a replacement for older, lower-speed optical interconnects, particularly as speeds reach 800 Gbps and above, as well as the movement to open internet data center architectures and the increasing use of in-house equipment design among leading internet companies.
Within the internet data center market, we benefit from the increasing use of higher-capacity optical networking technology as a replacement for older, lower-speed optical interconnects, particularly as speeds reach 800Gbps and above, as well as the movement to open internet data center architectures and the increasing use of in-house equipment design among leading internet companies.
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.
Subject to the terms and conditions of the Agreement, the Sales Agents would use its commercially reasonable efforts to sell Shares on the Company's behalf up to the designated amount specified in the placement notice.
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.
Based on customer forecasts and order backlog we believe that this elevated data center demand will likely continue into 2026. We also believe that sales in our CATV market will increase in 2026.
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.
The Company agreed to indemnify the Sales Agents against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Sales Agents could be required to make because of any of those liabilities.
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. However, quarter-to-quarter results may show considerable variability as is usual in a period of technology transition.
We expect continued sales of our 40 Gbps, 100 Gbps, and 400 Gbps products in 2026, and we expect that sales of 800 Gbps products will likely exceed sales of 400 Gbps products later in 2026. However, quarter-to-quarter results may show considerable variability as is usual in a period of technology transition.
In 2024, 2023 and 2022, we had 8, 6, and 12 design wins, respectively. We define a design win as the successful completion of the evaluation stage, where our customer has tested our product, verified that our product meets substantially all of their requirements and has informed us that they intend to purchase the product from us.
In 2025, 2024 and 2023, we had 9, 8 and 6 design wins, respectively. We define a design win as the successful completion of the evaluation stage, where our customer has tested our product, verified that our product meets substantially all of their requirements and has informed us that they intend to purchase the product from us.
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.
Upon delivery of a placement notice and subject to the terms and conditions of this Agreement, sales of the Shares were made through the Sales Agents 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 Agents.
We expect that our income taxes will vary in relation to our profitability and the geographic distribution of our profits. In 2024, 2023 and 2022 our effective tax rate was 0% . Our wholly owned subsidiary, Global Technology, Inc., has received preferential tax concessions in China as a national high-tech enterprise.
We expect that our income taxes will vary in relation to our profitability and the geographic distribution of our profits. In 2025, 2024 and 2023 our effective tax rate was 17.97%. Our wholly owned subsidiary, Global Technology, Inc., has received preferential tax concessions in China as a national high-tech enterprise.
In 2024, net cash used in investing activities was $50.7 million. The majority of the cash was used for Capex spending of $50.2 million. In 2023, net cash used in investing activities was $14.8 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 majority of the cash was used for CapEx spending of $210.2 million. In 2024, net cash used in investing activities was $50.7 million. The majority of the cash was used for CapEx spending of $50.2 million. In 2023, net cash used in investing activities was $14.8 million.
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.
Based on customer forecasts and order backlog we believe that this elevated data center demand will likely continue into 2026. We also believe that sales in our CATV market will increase in 2026 as a result of further adoption of our DOCSIS 4.0 products, including adoption by new customers.
Thus, if we are unable to realize our expected cost reductions, we may experience declining gross margins on such products. Our product pricing is established when the product is initially introduced to the market, and thereafter through periodic negotiations with customers. We generally do not agree to periodic automatic price reductions.
Thus, if we are unable to realize our expected cost reductions, we may experience declining gross margins on such products. Our product pricing is established when the product is initially introduced to the market, and thereafter through periodic negotiations with customers.
Although our overall gross margins over the past three years have been between 15.1% and 27.1%, our gross margins vary more broadly on a product-by-product basis. Our newer and more advanced products typically have higher average selling prices and higher gross margins; however, until the product volumes scale, the gross margin from newer and advanced products may initially be lower.
Although our overall gross margins over the past three years have been between 24.8% and 30.0%, our gross margins vary more broadly on a product-by-product basis. Our newer and more advanced products typically have higher average selling prices and higher gross margins; however, until the product volumes scale, the gross margin from newer and advanced products may initially be lower.
Years ended December 31, 2024 2023 2022 Revenue, net 100.0 % 100.0 % 100.0 % Cost of goods sold 75.2 % 72.9 % 84.9 % Gross profit 24.8 % 27.1 % 15.1 % Operating expenses Research and development 22.0 % 16.5 % 16.3 % Sales and marketing 7.3 % 5.1 % 4.4 % General and administrative 23.9 % 24.5 % 20.9 % Total operating expenses 53.2 % 46.1 % 41.6 % Loss from operations (28.4 )% (19.0 )% (26.5 )% Interest and other expense, net (46.4 )% (6.7 )% (3.3 )% Loss before income taxes (74.9 )% (25.7 )% (29.8 )% Income tax expense 0.0 % 0.0 % 0.0 % Net loss (74.9 )% (25.7 )% (29.8 )% Comparison of Years Ended December 31, 2024 and 2023 Revenue We generate revenue through the sale of our products to equipment providers and network operators for the internet data center, CATV, telecom, FTTH and other markets.
Years ended December 31, 2025 2024 2023 Revenue, net 100.0 % 100.0 % 100.0 % Cost of goods sold 70.0 % 75.2 % 72.9 % Gross profit 30.0 % 24.8 % 27.1 % Operating expenses Research and development 18.8 % 22.0 % 16.5 % Sales and marketing 6.6 % 7.3 % 5.1 % General and administrative 16.6 % 23.9 % 24.5 % Total operating expenses 42.0 % 53.2 % 46.1 % Loss from operations (12.0 )% (28.4 )% (19.0 )% Interest and other expense, net 1.7 % (46.4 )% (6.7 )% Loss before income taxes (10.3 )% (74.9 )% (25.7 )% Income tax benefit (expense) 1.9 % 0.0 % 0.0 % Net loss (8.4 )% (74.9 )% (25.7 )% Comparison of Years Ended December 31, 2025 and 2024 Revenue We generate revenue through the sale of our products to equipment providers and network operators for the internet data center, CATV, telecom, FTTH and other markets.
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.
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.
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.
In 2025, we began to produce more of our CATV and internet data center products outside of China which we believe will be instrumental in alleviating some of the typical seasonality that we see in the first quarter.
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.
On November 7, 2025, the Company entered into another Equity Distribution Agreement (the "Agreement") with the Sales Agents 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 $180 million (the "Fourth ATM Offering"), from time to time through the Sales Agents.
Recent Accounting Pronouncements See Note B of our Consolidated Financial Statements for a description of recent accounting pronouncements. 42 Table of Contents
Recent Accounting Pronouncements See Note B of our Consolidated Financial Statements for a description of recent accounting pronouncements.
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 Agreement provided that each of the Sales Agents would be entitled to compensation of up to 2% of the gross sales price of the Shares sold through such Sales Agent from time to time.
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 $113 million of net proceeds from our ATM offerings, and around $30 million from the 2030 Notes. In 2023, our financing activities provided $40.6 million in cash.
In the telecom market, we benefit from deployment of new high-speed fiber-optic networks by telecom network operators, including 5G networks. In 2024, 2023 and 2022 , our revenue was $249.4 million, $217.6 million and $222.8 million, and our gross margin was 24.8%, 27.1% and 15.1%, respectively.
In the telecom market, we benefit from deployment of new high-speed fiber-optic networks by telecom network operators, including 5G networks. 38 Table of Contents In 2025, 2024 and 2023 , our revenue was $455.7 million, $249.4 million and $217.6 million, and our gross margin was 30.1%, 24.8% and 27.1%, respectively.
We have grown our annual revenue at a compound annual growth rate, or CAGR, of 6.7% between 2014 and 2024 . In the years ended December 31, 2024, 2023 and 2022 , we had net loss of $186.7 million, $56.0 million and $66.4 million , respectively.
We have grown our annual revenue at a compound annual growth rate, or CAGR, of 5.7% between 2016 and 2025 . In the years ended December 31, 2025, 2024 and 2023 , we had net loss of $38.2 million, $186.7 million and $56.0 million , respectively.
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 February 28, 2025, the Company entered into an Equity Distribution Agreement with Raymond James & Associates ("Raymond James") pursuant to which the Company could issue and sell shares of the Company’s common stock, having an aggregate offering price of up to $100 million (the "First ATM Offering"), from time to time through Raymond James.
Also refer to Note L "Convertible Senior Notes" to the consolidated financial statements for further discussion of the 2030 Notes. 39 Table of Contents The table below sets forth selected cash flow data for the periods presented (in thousands): Years ended December 31, 2024 2023 2022 Net cash used in operating activities $ (69,526 ) $ (7,929 ) $ (14,022 ) Net cash used in investing activities (50,697 ) (14,761 ) (3,834 ) Net cash provided by financing activities 142,179 40,578 10,753 Effect of exchange rates on cash and cash equivalents 2,080 1,622 1,553 Net increase(decrease) in cash $ 24,036 $ 19,510 $ (5,550 ) Operating activities In 2024, net cash used in operating activities was $69.5 million.
Also refer to Note L "Convertible Senior Notes" to the consolidated financial statements for further discussion of the 2030 Notes. 48 Table of Contents The table below sets forth selected cash flow data for the periods presented (in thousands): Years ended December 31, 2025 2024 2023 Net cash used in operating activities $ (174,428 ) $ (69,526 ) $ (7,929 ) Net cash used in investing activities (210,604 ) (50,697 ) (14,761 ) Net cash provided by financing activities 527,941 142,179 40,578 Effect of exchange rates on cash and cash equivalents (6,007 ) 2,080 1,622 Net increase(decrease) in cash $ 136,902 $ 24,036 $ 19,510 Operating activities In 2025, net cash used in operating activities was $174.4 million.
Benefit (provision) for income taxes Years ended December 31, 2024 2023 Change (in thousands, except percentages) Benefit (provision) for income taxes $ (2 ) $ (9 ) 7 (77.8 )% Our income tax provision consists of U.S. income tax, state taxes, and Taiwan and China income tax recorded during the periods.
Benefit (expense) for income taxes Years ended December 31, 2025 2024 Change (in thousands, except percentages) Benefit (provision) for income taxes $ 8,476 $ (2 ) 8,478 (423,900 )% Our income tax benefit (expense) consists of U.S. income tax, state taxes, and Taiwan and China income tax recorded during the periods.
In the years ended December 31, 2024 and 2023 , our top ten customers represented 95.0% and 92.7% of our revenue, respectively.
In the years ended December 31, 2025 and 2024 , our top ten customers represented 96.6% and 95.0% of our revenue, respectively.
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.
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.
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.
The increase was driven primarily by increased demand in the CATV market, which we believe is due to large scale deployments of our DOCSIS 4.0 products in 2025, 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.
Property has been transferred from construction in progress to building and improvement in 2024. Future liquidity needs We believe that our existing cash and cash equivalents, cash flows from our operating activities, and available credit will be sufficient to meet our anticipated cash needs for the next 12 months.
Future liquidity needs We believe that our existing cash and cash equivalents, cash flows from our operating activities, and available credit will be sufficient to meet our anticipated cash needs for the next 12 months.
We typically experience lower yields and higher associated costs on new products, especially during the initial phase of the production. For our mature products, we can experience lower yields and higher production costs if customer requirements change or if we experience manufacturing difficulties or quality issues during our production process.
For our mature products, we can experience lower yields and higher production costs if customer requirements change or if we experience manufacturing difficulties or quality issues during our production process.
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.
Note Offerings 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"), bearing interest at a rate of 5.250% per year maturing on December 5, 2026, unless earlier repurchased, redeemed or converted in accordance with their terms.
The following chart provides the revenue contribution from each of the markets we serve for the years 2024, 2023 and 2022 , as well as the corresponding percentage of our total revenue for each period (in thousands, except percentages): Years ended December 31, Market 2024 2023 2022 Data Center $ 148,525 $ 141,213 $ 77,094 CATV 87,713 59,942 118,169 Telecom 10,980 13,831 24,727 FTTH 3 56 129 Other 2,144 2,604 2,699 Total $ 249,365 $ 217,646 $ 222,818 Percentage of Revenue Data Center 59.5 % 64.9 % 34.6 % CATV 35.2 % 27.5 % 53.0 % Telecom 4.4 % 6.4 % 11.1 % FTTH 0.0 % 0.0 % 0.1 % Other 0.9 % 1.2 % 1.2 % Total Revenue 100 % 100 % 100 % In 2024, 2023 and 2022 , our top ten customers represented 95.0%, 92.7% and 87.2% of our revenue, respectively.
The following chart provides the revenue contribution from each of the markets we serve for the years 2025, 2024 and 2023 , as well as the corresponding percentage of our total revenue for each period (in thousands, except percentages): Years ended December 31, Market 2025 2024 2023 CATV $ 245,124 $ 87,713 $ 59,942 Data Center 195,651 148,525 141,213 Telecom 13,729 10,980 13,831 FTTH and other 1,211 2,147 2,660 Total $ 455,715 $ 249,365 $ 217,646 Percentage of Revenue Data Center 53.8 % 35.2 % 27.5 % CATV 42.9 % 59.5 % 64.9 % Telecom 3.0 % 4.4 % 6.4 % FTTH and other 0.3 % 0.9 % 1.2 % Total Revenue 100 % 100 % 100 % In 2025, 2024 and 2023 , our top ten customers represented 96.6%, 95.0% and 92.7% of our revenue, respectively.
For the year ended December 31, 2024 , 44.8% of our total revenue was manufactured at our China-based subsidiary, with $0.8 million denominated in RMB and 50.8% of our total revenue was from products manufactured at our Taiwan-based facility, with no revenue denominated in NT dollars.
For the year ended December 31, 2025 , 57.5% of our total revenue was manufactured at our China-based subsidiary, with $3.4 million denominated in RMB and 38.2% of our total revenue was from products manufactured at our Taiwan-based facility, with no revenue denominated in NT dollars.
We have been able to automate many of our production processes, which often results in lower labor costs and reduced scrap or rework rates, both of which lower our production cost.
This generally has resulted in lower material costs for us. ‑ Enhancing the efficiency of our production process. We have been able to automate many of our production processes, which often results in lower labor costs and reduced scrap or rework rates, both of which lower our production cost.
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.
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.
We cannot be sure when or if prices will return to pre-pandemic levels. Compared to other major economies in the world, China has a stable level of inflation, which has not had a significant impact on our sales or operating results.
Compared to other major economies in the world, China has a stable level of inflation, which has not had a significant impact on our sales or operating results.
We had three customers that accounted for more than 10% of our revenue in 2024 and 2023, respectively. Product Development. We invest heavily to develop new and innovative products. The majority of our research and development expense is allocated to product development, usually with a specific customer and customer platform in mind.
We invest heavily to develop new and innovative products. The majority of our research and development expense is allocated to product development, usually with a specific customer and customer platform in mind.
At December 31, 2024 and 2023 , our accumulated deficit was $451.9 million and $265.1 million, respectively. In 2024 , we earned 59.5% of our total revenue from the internet data center market and 35.2% of our total revenue from the CATV market.
At December 31, 2025 and 2024 , our accumulated deficit was $491.0 million and $451.9 million, respectively. In 2025 , we earned 53.8% of our total revenue from the CATV market and 42.9% of our total revenue from the internet data center market.
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 2025 , revenue from CATV market, the internet data center market, telecom market, FTTH and other markets provided 53.8%, 42.9%, 3.0% and 0.3% of our revenue, respectively, compared to 35.2%, 59.5%, 4.4% and 0.9%, respectively, in 2024 . In 2025 , our key customer in the CATV market was Digicomm.
There can be no guarantee that we will be able to raise additional funds on terms acceptable to us, or at all. Contractual Obligations and Commitments We have outstanding notes payable and debt with varying maturities with various financial institutions.
There can be no guarantee that we will be able to raise additional funds on terms acceptable to us, or at all. Contractual Obligations and Commitments We have outstanding notes payable and debt with varying maturities with various financial institutions. As of December 31, 2025, our debt had an amount of $34.0 million, which is due within 12 months.
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.
On April 8, 2025, the Company completed the First ATM Offering and sold approximately 2.1 million shares at a weighted average price of $12.69 per share, providing proceeds of approximately $26 million, net of expenses and underwriting discounts and commissions.
We believe that diversifying our customer base is critical for our future success, since reliance on a small number of key customers makes our ability to forecast future results dependent upon the accuracy of the forecasts we receive from those key customers. 36 Table of Contents Cost of goods sold and gross margin Years ended December 31, 2024 2023 Change % of % of Amount Revenue Amount Revenue Amount % (in thousands, except percentages) Cost of goods sold $ 187,565 75.2 % $ 158,725 72.9 % $ 28,840 18.2 % Gross margin 61,800 24.8 % 58,921 27.1 % 2,879 4.9 % 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.
We believe that diversifying our customer base is critical for our future success, since reliance on a small number of key customers makes our ability to forecast future results dependent upon the accuracy of the forecasts we receive from those key customers. 44 Table of Contents Cost of goods sold and gross margin Years ended December 31, 2025 2024 Change % of % of Amount Revenue Amount Revenue Amount % (in thousands, except percentages) Cost of goods sold $ 318,802 70.0 % $ 187,565 75.2 % $ 131,237 70.0 % Gross margin 136,913 30.0 % 61,800 24.8 % 75,113 121.5 % Cost of goods sold increased by $131.2 million, or 70.0%, from 2024 to 2025.
Under the liability method, deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
Accounting for income taxes We account for income taxes in accordance with the provisions of ASC 740, Income Taxes. The liability method is used to account for deferred income taxes. Under the liability method, deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
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 fixed-rate convertible senior notes.
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 fixed-rate convertible senior notes.
In the years 2024 , 2023 , and 2022 , the percentage of employees in our China factory who resigned or were terminated during Q1, relative to the average number of employees during the quarter was 17.2%, 53.8% and 66.1%, respectively.
In the years 2025 , 2024 , and 2023 , the percentage of employees in our China factory who resigned or were terminated during the first quarter, relative to the average number of employees during the quarter was 7.9%, 17.2% and 53.8% , respectively. As a result of employee turnover, we must hire and train replacement employees.
These cash increases were offset by a decrease in accounts payable of $15.0 million and a decrease in unearned revenue of $2.5 million. In 2022, net cash used in operating activities was $14.0 million.
These cash increases were offset by a decrease in accounts payable of $15.0 million and a decrease in unearned revenue of $2.5 million. Investing activities Our investing activities consisted primarily of capital expenditures and purchases of intangible assets. In 2025, net cash used in investing activities was $210.6 million.
Our effective tax rate is affected by recurring items, such as tax rates in state and foreign jurisdictions and the relative amounts of income we earn in those jurisdictions. We recorded no federal tax expense for the years ended December 31, 2024 and December 31, 2023.
Our effective tax rate is affected by recurring items, such as tax rates in state and foreign jurisdictions, the relative amounts of income we earn in those jurisdictions, and valuation allowances on our deferred taxes.
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 Month Weighted Average Per Share Price Number of Shares Sold Net Proceeds Compensation to Distribution Agent Raymond James & Associates, Inc.
By December 23, 2025, the Company completed the Fourth ATM Offering and sold approximately 6.7 million shares at a weighted average price of $26.87 per share, providing proceeds of $176 million, net of expenses and underwriting discounts and commissions. 47 Table of Contents The details of the shares of common stock sold through the First ATM Offering, the Second ATM Offering, the Third ATM Offering and the Fourth ATM Offering through December 31, 2025 are as follows (in thousands, except shares and weighted average per share price): Distribution Agent Month Weighted Average Per Share Price Number of Shares Sold Net Proceeds Compensation to Distribution Agent Raymond James & Associates, Inc.
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 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.
During the years ended December 31, 2025, 2024 and 2023, we recorded excess and obsolete inventory reserve charges of $9.7 million, $3.4 million and $8.7 million, respectively.
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.
This favorable variance was primarily due to the absence of debt extinguishment costs related to the 2026 Notes, which in the prior period reflected the difference between the carrying value of the 2026 Notes and their fair value at the time of settlement. The settlement resulted in a one-time loss recognized in the prior period, which increased non-operating expenses.
This increase in cash was due to $12.2 million of net proceeds from line of credit borrowing, $5.1 million of net proceeds from bank acceptance payable and $1.2 million of net proceeds from our ATM Offering.
This increase in cash was primarily due to $518.9 million of net proceeds from our ATM offerings, and around $19.6 million from net proceeds from line of credit borrowing and bank acceptance payable. In 2024, our financing activities provided $142.2 million in cash.
In 2024 , 2023 , and 2022 , Digicomm accounted for 34.1%, 11.3% and 0% of our revenue. 30 Table of Contents 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.
In 2025 , our increase of revenue of 82.8% over the prior-year was driven primarily by increased demands both for our CATV products and 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.
Increasingly, optical networking technologies are being incorporated into networking equipment, replacing legacy copper-based networking technologies. This shift to optical networking solutions benefits us as a provider of those solutions. Pricing, Product Cost and Margins. Our products are sold in a highly competitive marketplace, and in many cases our products are only minimally differentiated from those of our competitors.
Bandwidth demand in all of our target markets is driving service provider investment in new equipment and in turn generating demand for our products. Increasingly, optical networking technologies are being incorporated into networking equipment, replacing legacy copper-based networking technologies. This shift to optical networking solutions benefits us as a provider of those solutions. Pricing, Product Cost and Margins.
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 June 18, 2025, the Company completed the Second ATM Offering and sold approximately 5.7 million shares at a weighted average price of $17.46 per share, providing proceeds of approximately $98 million, net of expense and underwriting discounts and commissions.
The following charts provide the revenue contribution from each of the markets we served for the years ended December 31, 2024 and 2023 (in thousands, except percentages): Years ended December 31, Change % of % of 2024 Revenue 2023 Revenue Amount % CATV $ 87,713 35.2 % $ 59,942 27.5 % $ 27,771 46.3 % Data Center 148,525 59.5 % 141,213 64.9 % 7,312 5.2 % Telecom 10,980 4.4 % 13,831 6.4 % (2,851 ) (20.6 )% FTTH 3 0.0 % 56 0.0 % (53 ) (94.6 )% Other 2,144 0.9 % 2,604 1.2 % (460 ) (17.7 )% Total Revenue $ 249,365 100.0 % $ 217,646 100.0 % $ 31,719 14.6 % Revenue increased by $31.7 million or 14.6% from 2023 to 2024.
The following charts provide the revenue contribution from each of the markets we served for the years ended December 31, 2025 and 2024 (in thousands, except percentages): Years ended December 31, Change % of % of 2025 Revenue 2024 Revenue Amount % CATV $ 245,124 53.8 % $ 87,713 35.2 % $ 157,411 179.5 % Data Center 195,651 42.9 % 148,525 59.6 % 47,126 31.7 % Telecom 13,729 3.0 % 10,980 4.4 % 2,749 25.0 % FTTH and other 1,211 0.3 % 2,147 0.9 % (936 ) (43.6 )% Total Revenue $ 455,715 100.0 % $ 249,365 100.0 % $ 206,350 82.8 % Revenue increased by $206.4 million, or 82.8%, from 2024 to 2025.
Operating expenses Years ended December 31, 2024 2023 Change % of % of Amount revenue Amount revenue Amount % (in thousands, except percentages) Research and development $ 54,955 22.0 % $ 35,975 16.5 % $ 18,980 52.8 % Sales and marketing 18,154 7.3 % 11,069 5.1 % 7,085 64.0 % General and administrative 59,599 23.9 % 53,226 24.5 % 6,373 12.0 % Total operating expenses $ 132,708 53.2 % $ 100,270 46.1 % $ 32,438 32.4 % Research and development expense Research and development expense increased $19.0 million, or 52.8% from 2023 to 2024 .
Operating expenses Years ended December 31, 2025 2024 Change % of % of Amount revenue Amount revenue Amount % (in thousands, except percentages) Research and development $ 85,507 18.8 % $ 54,955 22.0 % $ 30,552 55.6 % Sales and marketing 30,267 6.6 % 18,154 7.3 % 12,113 66.7 % General and administrative 75,741 16.6 % 59,599 23.9 % 16,142 27.1 % Total operating expenses $ 191,515 42.0 % $ 132,708 53.2 % $ 58,807 44.3 % Research and development expense Research and development expense increased $30.6 million, or 55.6%, from 2024 to 2025 .
Inflation 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 .
Further information regarding our leases is provided in Note D – Leases to Consolidated Financial Statements in this Form 10-K. Inflation The annual inflation rate in the US came down to 2.7% in 2025, compared with 2.9% in 2024. Even though the inflation has slowed from the peak, it remained above the Federal Reserve's objective of 2%.
We expect a similar portion of our sales to be denominated in foreign currencies in 2025. Cost of goods sold and gross margin Our cost of goods sold is impacted by variances arising from changes in yields and production volume, as well as increases or decreases in the cost of raw materials used in production.
Cost of goods sold and gross margin Our cost of goods sold is impacted by variances arising from changes in yields and production volume, as well as increases or decreases in the cost of raw materials used in production. We typically experience lower yields and higher associated costs on new products, especially during the initial phase of the production.
In addition to the factory shut-down, it is also common for employees in the factory to fail to return to work following resumption of operations.
Our Ningbo, China factory experiences a lengthy shut-down associated with the Lunar New Year holiday which occurs in the first quarter of each year. In addition to the factory shut-down, it is also common for employees in the factory to fail to return to work following resumption of operations.
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. In 2022, our financing activities provided $10.8 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 the 2024 Notes amounting to $80.2 million and repayment of line of credit borrowings of $34.2 million. 49 Table of Contents Loans and commitments As of December 31, 2025, we have lending arrangements with one U.S. bank, one financial institution in Taiwan and four financial institutions in China.
The income tax expense in the years ended December 31, 2024 and December 31, 2023 was primarily related to the state tax provision and the recording of a valuation allowance on our deferred tax assets. 38 Table of Contents Liquidity and Capital Resources As of December 31, 2024 , we had $24.8 million of unused borrowing capacity from all of our loan agreements.
We recorded no federal tax expense for the years ended December 31, 2025 and December 31, 2024. The income tax expense in the years ended December 31, 2025 and December 31, 2024 was primarily related to the state tax provision and the recording of a valuation allowance on our deferred tax assets.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

6 edited+1 added−1 removed10 unchanged
Biggest changeIf exchange rates of RMB and NT dollars for U.S. dollars were 1% higher during the year ended December 31, 2024 , our operating expenses would have had been lower by $0.5 million. 43 Table of Contents As of December 31, 2024 , we held the U.S. dollar denominated assets net of liabilities of approximately $12.8 million in our China subsidiary and liabilities net of assets of $27.7 million in our Taiwan branch.
Biggest changeIf exchange rates of RMB and NT dollars for U.S. dollars were 1% higher during the year ended December 31, 2025, our operating expenses would have had been higher by $0.8 million.
We do not anticipate any material effect on our cash balances or investment portfolio due to fluctuations in interest rates. We could be exposed to interest rate risk, should we incur debt that had a floating interest rate. As of December 31, 2024 , all debts bore a fixed interest rate and therefore did not generate interest rate risk.
We do not anticipate any material effect on our cash balances or investment portfolio due to fluctuations in interest rates. We could be exposed to interest rate risk, should we incur debt that had a floating interest rate. As of December 31, 2025 , all debts bore a fixed interest rate and therefore did not generate interest rate risk.
With respect to these U.S. dollar denominated net assets as of December 31, 2024 , if exchange rates of RMB and NT dollars for U.S. dollars were 1% higher during the year ended December 31, 2024 , our other operating expenses would have been reduced by $0.1 million.
With respect to these U.S. dollar denominated net assets as of December 31, 2025 , if exchange rates of RMB and NT dollars for U.S. dollars were 1% higher during the year ended December 31, 2025 , our other operating expenses would have been reduced by $0.4 million.
As of December 31, 2024 , we had not hedged our interest rate risk. Foreign Exchange Rates We operate on an international basis with a large portion of our business conducted in our Taiwan branch and China subsidiary. We use the U.S. dollar as our reporting currency for our consolidated financial statements.
As of December 31, 2025 , we had not hedged our interest rate risk. 52 Table of Contents Foreign Exchange Rates We operate on an international basis with a large portion of our business conducted in our Taiwan branch and China subsidiary. We use the U.S. dollar as our reporting currency for our consolidated financial statements.
During the year ended December 31, 2024 , we recognized approximately $0.1 million of exchange gain arising from foreign currency transactions and re-measurement of monetary assets and liabilities dominated in non-functional currency on the balance sheet date.
During the year ended December 31, 2025, we recognized approximately$0.1 million of exchange gain arising from foreign currency transactions and re-measurement of monetary assets and liabilities dominated in non-functional currency on the balance sheet date. During the year ended December 31, 2025, 0.7% of our revenue was denominated in RMB and none of our revenue was denominated in NT dollars.
Accordingly, fluctuations in exchange rates directly affect our cost of goods sold and net income (loss), and have a significant impact on our operating margins.
In the year ended December 31, 2025, 21.7% of our operating expenses were denominated in RMB and 17.8% of our operating expenses were denominated in NT dollars. Accordingly, fluctuations in exchange rates directly affect our cost of goods sold and net income (loss), and have a significant impact on our operating margins.
Removed
During the year ended December 31, 2024 , 0.3% of our revenue was denominated in RMB and none of our revenue was denominated in NT dollars. In the year ended December 31, 2024 , 22.6% of our operating expenses were denominated in RMB and 16.3% of our operating expenses were denominated in NT dollars.
Added
As of December 31, 2025 , we held the U.S. dollar denominated liabilities net of assets of approximately $2.3 million in our China subsidiary and liabilities net of assets of $39.5 million in our Taiwan branch.

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