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What changed in APPLIED OPTOELECTRONICS, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of APPLIED OPTOELECTRONICS, INC.'s 2022 and 2023 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 2023 report.

+237 added−248 removedSource: 10-K (2024-02-23) vs 10-K (2023-02-27)

Top changes in APPLIED OPTOELECTRONICS, INC.'s 2023 10-K

237 paragraphs added · 248 removed · 189 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

41 edited+17 added−14 removed111 unchanged
Biggest changeAs a result, we have concluded that at the present time the business is not "available for immediate sale" under the meaning defined in ASC 360 and therefore none of our assets or liabilities should be classified as held for sale. 4 Table of Contents Industry Background During 2022 , our four target markets, CATV, internet data center, telecom and FTTH, experienced a significant growth in bandwidth consumption and the corresponding need for network infrastructure improvement to support this growth.
Biggest changeIn 2023 , 2022 , and 2021 , ATX accounted for 15.6%, 47.3%, and 25.6% of our revenue, Digicomm accounted for 11.3%, 0%, and 0% of our revenue, and a U.S. based large CATV equipment provider accounted for 1.3%, 1.7%, and 3.3% of our revenue, respectively. 4 Table of Contents Industry Background During 2023 , 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.
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: cable television, ("CATV"), internet data center, 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").
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 CATV, internet data center operators, 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, telecom equipment manufacturers, and internet service providers.
Our major competitors in one or more of our markets include EMCORE Corporation, Finisar Corporation who was acquired by II-VI Incorporated, Foxconn Interconnect Technology Ltd., InnoLight Technology (Suzhou) Ltd., Intel Corporation, Lumentum Holdings, Inc., Mitsubishi, Molex, LLC, Source Photonics, Inc. and Sumitomo Electric Industries, Ltd.
Our major competitors in one or more of our markets include Finisar Corporation who was acquired by II-VI Incorporated, Foxconn Interconnect Technology Ltd., InnoLight Technology (Suzhou) Ltd., Intel Corporation, Lumentum Holdings, Inc., Mitsubishi, Molex, LLC, Source Photonics, Inc. and Sumitomo Electric Industries, Ltd.
We design and manufacture a range of optical communications products at varying levels of integration, from components, subassemblies and modules to complete turn-key equipment. In designing products for our customers, we begin with the fundamental building blocks of lasers and laser components.
We design and manufacture a range of optical communications products at varying levels of integration, from components, subassemblies and modules to complete turn-key equipment. In designing products for our customers, we generally begin with the fundamental building blocks of lasers and laser components.
Export Control Classification requirements are dependent upon an item’s technical characteristics, the destination, the end-use, and the end-user, and other activities of the end-user. Should the ECCN change, then the export of our products to certain countries would be restricted.
Export Control Classification requirements are dependent upon an item’s technical characteristics, the destination, the end-use, the end-user, and the activities of the end-user. Should the ECCN change, then the export of our products to certain countries would be restricted.
In order to meet these demands, many equipment vendors have looked to engage with suppliers like AOI who have the capability to design and manufacture various network equipment or subassemblies, rather than always developing these devices themselves. This outsourcing trend has been a significant contributor to the revenue we derive from the CATV market.
In order to meet these demands, many equipment vendors have looked to engage with suppliers like us who have the capability to design and manufacture various network equipment or subassemblies, rather than always developing these devices themselves. This outsourcing trend has been a significant contributor to the revenue we derive from the CATV market.
In coming years, we believe that the deployment of advanced 5G networks will result in increased demand for optical components, especially those used in connecting between antennas and base stations, as well as for backhaul as mentioned above. ‑ Trends in the FTTH Market. The FTTH market generally refers to the PONs that telecom service providers deploy.
In coming years, we believe that the deployment of advanced 5G networks will result in increased demand for optical components, especially those used in connecting between antennas and base stations, as well as for backhaul. ‑ Trends in the FTTH Market. The FTTH market generally refers to the PONs that telecom service providers deploy.
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 four years, we have taken several actions to increase the diversity of our customer base.
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 five years, we have taken several actions to increase the diversity of our customer base.
Sales of headend, node and distribution equipment have contributed significantly to our revenue in recent years as a result of our ability to meet the needs of CATV equipment vendors who have continued to outsource both the design and manufacturing of this equipment.
Sales of headend, node and distribution equipment, including amplifiers, have contributed significantly to our revenue in recent years as a result of our ability to meet the needs of CATV equipment vendors who have continued to outsource both the design and manufacturing of this equipment.
As the complexity of CATV networks has increased over the years, equipment vendors, many of whom are our customers, have been under pressure to supply a wider variety of increasingly complex equipment to CATV multiple system operators ("MSOs").
As the complexity of CATV networks has increased over the years, equipment vendors, many of whom are our customers, have been under pressure to supply a wider variety of increasingly complex equipment to CATV multiple system operators (“MSOs”).
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 400 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 800 Gbps.
We do not anticipate any material effect on our business due to any patents expiring in 2023, 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 2024, and we continue to obtain new patents through our ongoing research and development.
Our portfolio of patents and patent applications covers several different technology families including: ‑ laser structure and design; ‑ optical signal conditioning and laser control; ‑ laser fabrication; ‑ photodiode and optical receiver design and fabrication; ‑ optical device and module designs; ‑ optical device packaging equipment and techniques; and ‑ optical network enhancements.
Our portfolio of patents and patent applications covers several different technology families including: ‑ laser structure and design; ‑ optical signal conditioning and laser control; ‑ laser fabrication; ‑ photodiode and optical receiver design and fabrication; ‑ optical device and module designs; ‑ optical device packaging equipment and techniques; ‑ optical network enhancements; and - CATV networking technologies.
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 2022, 2021 and 2020 , we obtained 99.6%, 98.01%, and 97.6% 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 2023, 2022 and 2021 , we obtained 88.6%, 99.6%, and 98.01% of our revenue, respectively, through our direct sales efforts and the remainder of our revenue through our indirect sales channels.
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, 2022 , we employed 2,213 full-time employees, of which 35 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. 10 Table of Contents Human Capital Employees As of December 31, 2023 , we employed 2,149 full-time employees, of which 37 held Ph.D. degrees in a science or engineering field.
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. Patents As of December 31, 2022 , we owned a total of 165 U.S. issued patents and 130 patents issued in China and Taiwan, plus a number of pending U.S. and foreign/international patent applications.
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. Patents As of December 31, 2023 , we owned a total of 176 U.S. issued patents and 150 patents issued in China and Taiwan, plus a number of pending U.S. and foreign/international patent applications.
Our issued U.S. and foreign patents will expire between 2023 and 2042. 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.
Our issued U.S. and foreign patents will expire between 2024 and 2043. 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.
Department of Commerce is responsible for regulating the export of most commercial items that are classified as dual-use goods that may have both commercial and military applications. Our products are classified under Export Control Classification Numbers, or ECCNs, 5A991 and 6A995.
Department of Commerce is responsible for regulating the export of most commercial items that are classified as dual-use goods that may have both commercial and military applications. Our products are primarily classified under Export Control Classification Numbers (ECCN) 5A991, 6A995, and EAR99.
As of December 31, 2022 , we had a total of 217 employees working in the R&D department, including seven 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.
As of December 31, 2023 , we had a total of 233 employees working in the R&D department, including nine 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.
The lasers we manufacture are tested extensively to enable reliable operation over time and our devices are often highly tolerant of changes in temperature and humidity, making them well-suited to the CATV, FTTH and 5G markets where networking equipment is often installed outdoors.
We manufacture the majority of the laser chips and optical components that are used in our products. The lasers we manufacture are tested extensively to enable reliable operation over time and our devices are often highly tolerant of changes in temperature and humidity, making them well-suited to the CATV, FTTH and 5G markets where networking equipment is often installed outdoors.
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. ‑ Continue to invest in our capabilities and infrastructure.
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.
Our Strategy We seek to be the leading global provider of optical components, modules and equipment for each of our four target markets: CATV, internet data centers, telecom and FTTH. Our strategy includes the following key elements: ‑ Extend our leadership in CATV networking.
Our Strategy We seek to be the leading global provider of optical components, modules and equipment for each of our four target markets: internet data centers, CATV, telecom and FTTH. Our strategy includes the following key elements: ‑ Continue to penetrate the internet data center market.
Our research and development functions are generally partnered with our manufacturing locations, and we have an additional research and development facility in Duluth, Georgia. In our Sugar Land facility, we manufacture laser chips (utilizing our MBE and MOCVD processes), subassemblies and components.
Manufacturing and Operations We have three manufacturing sites: Sugar Land, Texas, Ningbo, China and Taipei, Taiwan. Our research and development functions are generally partnered with our manufacturing locations, and we have an additional research and development facility in Duluth, Georgia. In our Sugar Land facility, we manufacture laser chips (utilizing our MBE and MOCVD processes), subassemblies and components.
In 2022, 2021 and 2020 , our revenue was $222.8 million, $211.6 million, and $234.6 million and our gross margin was 15.1%, 17.8%, and 21.5%, respectively. In the years ended December 31, 2022, 2021 and 2020 , we had net loss of $66.4 million, $54.2 million, and $58.5 million , respectively.
In 2023, 2022 and 2021 , our revenue was $217.6 million, $222.8 million, and $211.6 million and our gross margin was 27.1%, 15.1%, and 17.8%, respectively. In the years ended December 31, 2023, 2022 and 2021 , we had net loss of $56 million, $66.4 million, and $54.2 million , respectively.
In 2022 , revenue from the CATV market, internet data center market, telecom market, FTTH market and other markets provided 53.0%, 34.6%, 11.1%, 0.1% and 1.2% of our revenue, respectively, compared to 44.6%, 46.1%, 7.7%, 0.5% and 1.1%, respectively, in 2021 .
In 2023 , revenue from the internet data center market, CATV market, telecom market, FTTH market and other markets provided 64.9%, 27.5%, 6.4%, 0.0% and 1.2% of our revenue, respectively, compared to 34.6%, 53%, 11.1%, 0.1% and 1.2%, respectively, in 2022 .
Of our employees, 301 are located in the U.S., 449 are located in Taiwan and 1463 are located in China. As of December 31, 2022 , 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, 330 are located in the U.S., 464 are located in Taiwan and 1,355 are located in China. As of December 31, 2023 , none of our employees are represented by any collective bargaining agreement, but certain employees of our China subsidiary are members of a trade union.
In 2022 , our key customers in the data center market included Microsoft Corp, a U.S. based large datacenter operator, and a U.S. based NEM.
In 2023 , our key customers in the internet data center market included Microsoft, a U.S. based large data center operator, and a China based datacenter equipment manufacturer .
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. ‑ Trends in the Telecom Market.
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.
Trademarks We have registered the trademarks APPLIED OPTOELECTRONICS, INC., AOI and our logo with the U.S. Patent and Trademark Office on the Principal Register. These marks are also registered in, or have applications for registration pending in, various foreign trademark offices. Manufacturing and Operations We have three manufacturing sites: Sugar Land, Texas, Ningbo, China and Taipei, Taiwan.
Trademarks We have registered the trademarks APPLIED OPTOELECTRONICS, INC., AOI, and we have filed for registration of trademark for Quantum Bandwidth with the U.S. Patent and Trademark Office on the Principal Register. These marks are also registered in, or have applications for registration pending in, various foreign trademark offices.
In 2022 , 2021 , and 2020 , Microsoft accounted for 18.4%, 14.1%, and 38.3% of our revenue, the U.S. based large datacenter operator accounted for 5.9%, 8.3%, and 8.0% of our revenue, the U.S. based NEM accounted for 3.6%, 7.2%, and 7.9% of our revenue, respectively.
In 2023, 2022 and 2021 , Microsoft accounted for 46.6%, 18.4% and 14.1% of our revenue, a U.S. based large data center operator accounted for 8.8%, 5.9%, and 8.3% of our revenue, and a China based manufacturer accounted for 3.3%, 1.2%, and 1.2% of our revenue, respectively.
Also, we have seen trends towards cable television MSOs beginning to deploy PON networks. We see opportunities with these customers particularly given our knowledge and experience in CATV as discussed above.
We also see opportunities for 10 Gbps Ethernet Passive Optical Network ("EPON") and higher data rate PON networks in the future. Also, we have seen trends towards cable television MSOs beginning to deploy PON networks. We see opportunities with these customers particularly given our knowledge and experience in CATV.
At December 31, 2022 and 2021 , our accumulated deficit were $209.1 million and $142.7 million, respectively. In 2022 , we earned 53.0% of our total revenue from the CATV market and 34.6% of our total revenue from the internet data center market.
At December 31, 2023 and 2022 , our accumulated deficits were $265.1 million and $209.1 million, respectively. In 2023 , we earned 64.9% of our total revenue from the internet data center market and 27.5% of our total revenue from the CATV market.
One approach that does support true 1 Gbps service to the home is wavelength division multiplexing PON, or WDM-PON, a technology that enables the transmission of multiple wavelengths of data over a single fiber-optic strand. We also see opportunities for 10 Gbps Ethernet Passive Optical Network ("EPON") and higher data rate PON networks in the future.
One approach that does support true 1 Gbps service to the home is wavelength division multiplexing PON, or WDM-PON, a technology that enables the transmission of multiple wavelengths of data over a single fiber-optic strand. Another approach is XGS-PON, which offers 10 Gbps over a single fiber strand.
Our customers in this market are generally large internet-based (“Web 2.0”) data center operators, to whom we supply optical transceivers that plug into switches and servers within the data center and allow these network devices to send and receive data over fiber-optic cables.
In both cases, we supply optical transceivers that plug into switches and servers within the data center and allow these network devices to send and receive data over fiber optic cables.
This outsourcing trend has been a significant contributor to the revenue we derive from the CATV market. ‑ 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.
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.
In 2022 , our three large CATV original equipment manufacturers, or OEMs, consisted of ATX, Cisco and CommScope. The three customers who contributed most to our data center revenue were Microsoft, a U.S. based large datacenter operator and a U.S. based NEM.
In 2023 , the three customers who contributed most to our data center revenue were Microsoft, a U.S. based large data center operator and a China based manufacturer. In 2023, our three largest CATV customers were ATX, Digicomm and a U.S. based large CATV equipment provider.
As a result of these trends, fiber-optic networking technology is becoming essential in all four of our target markets, as it is often the only economical way to deliver the desired bandwidth. 3 Table of Contents The CATV market is our largest and the most established market, for which we supply a broad array of products, including lasers, transmitters and transceivers, and turn-key equipment.
As a result of these trends, fiber-optic networking technology is becoming essential in all four of our target markets, as it is often the only economical way to deliver the desired bandwidth. The internet data center market is currently our largest and fastest-growing market.
We design, manufacture and integrate our own analog and digital lasers using proprietary Molecular Beam Epitaxy, or MBE, and Metal Organic Chemical Vapor Deposition (MOCVD) fabrication process, which we believe is unique in our industry. We manufacture the majority of the laser chips and optical components that are used in our products.
We design, manufacture and integrate our own analog and digital lasers using proprietary Molecular Beam Epitaxy ("MBE") and Metal Organic Chemical Vapor Deposition ("MOCVD"), alternative processes for the fabrication of lasers. We believe the use of both processes, and our knowledge of how to combine these processes with others to fabricate lasers is unique in our industry.
In North America, CATV service providers have upgraded their networks with new technologies like DOCSIS 3.1, which enables them to offer higher speed connections to their customers.
Beginning over two decades ago, CATV service providers have invested extensively to support high speed, two-way communications over their networks and we expect that they will continue to do so. In North America, CATV service providers have most recently upgraded their networks with technologies like DOCSIS 3.1, which enables them to offer high speed internet connections to their customers.
We believe that our extensive high-speed optical, mixed-signal semiconductor and mechanical engineering capabilities position us well to continue to benefit from these industry dynamics. The internet data center market is our second largest market.
We believe that our extensive high-speed optical, mixed-signal semiconductor and mechanical engineering capabilities position us well to continue to benefit from these industry dynamics. Our recent launch of our own branded line of equipment offers an additional growth opportunity for us, enabling us to sell directly to MSOs in certain cases rather than to CATV equipment vendors.
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The trend of rising bandwidth consumption also impacts the internet data center market, as reflected in the shift to higher speed server connections.
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Our internet data center market is also experiencing substantial growth as hyperscale data center operators build and upgrade their infrastructure to support artificial intelligence ("AI") applications which are compute and bandwidth intensive.
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In 2022 , our key customers in the CATV market included ATX Networks Corp., C isco Systems, Inc., and CommScope . In 2022, 2021 and 2020 , ATX accounted for 47.3%, 25.6% and 3.7% of our revenue, Cisco accounted for 1.9%, 11.9%, and 7.5% of our revenue, and CommScope accounted for 1.7%, 3.3%, and 2.1% of our revenue, respectively.
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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.
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Divestiture Agreement with Yuhan Optoelectronic Technology (Shanghai) Co., Ltd On September 15, 2022, we entered into a definitive purchase agreement with Yuhan Optoelectronic Technology (Shanghai) Co., Ltd ("Purchaser"), which is a company incorporated in the People's Republic of China ("PRC"), to divest the Company's manufacturing facilities in the PRC and certain assets related to our transceiver business and multi-channel optical sub-assembly products (collectively, the "Divestiture").
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The rapid adoption of 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.
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The closing of the transaction is subject to the satisfaction of certain closing conditions, including the approval from the Committee on Foreign Investment in the United States ("CFIUS"). The purchase price will be an amount equal to the $150 million USD equivalent of Renminbi, less a holdback amount.
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In 2023, we began offering many of our CATV products directly to CATV multiple system operator ("MSO") customers, under the newly-created Quantum Bandwidth™ brand name.
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Prior to the closing of the transaction the Company anticipates investing an amount equal to between 4% and 10% of the estimated proceeds from the transaction in exchange for a 10% equity interest in the Purchaser.
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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.
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Our management has performed an evaluation as required by ASC-360-10-45-9 to determine whether to classify certain of our assets and liabilities as held for sale as of December 31, 2022.
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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.
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ASC 360 requires that a company classifies a business as held for sale in the period in which management commits to a plan to sell the business, the business is available for immediate sale in its present condition, an active program to complete the plan to sell the business is initiated, the sale of the business within one year is probable and the business is being marketed at a reasonable price in relation to its fair value.
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All of our laser chips are manufactured in our facility in Sugar Land, Texas. We believe that our domestic production capacity for these devices gives us a competitive advantage over many of our competitors, as we believe that many of our customers prefer to source key components from suppliers who have domestic manufacturing capacity.
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Although we have announced the execution of a definitive purchase agreement regarding the Divestiture, completion of this transaction is not certain for reasons that include the fact that the proposed sale is subject to regulatory approval in the US and China, the timing and likelihoodof which is uncertain and beyond our control, and the fact that we cannot be certain that the buyer will not request modification of terms within the definitive purchase agreement.
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In 2023 , our key customers in the CATV market included ATX, Digicomm and a U.S. based large CATV equipment provider.
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The prevailing trends in our target markets include: ‑ Trends in the CATV Market. In recent years, CATV service providers have invested extensively to support high speed, two-way communications and we expect that they will continue to do so.
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As a result, we believe that our ability to manufacture lasers and other data center products in the US represents a competitive advantage compared with many of our competitors who have most or all of their production outside the US.
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In order to increase available bandwidth for their customers beyond the bandwidth possible with the introduction of DOCSIS 3.1, cable MSOs have been reducing the number of customers that are connected to a single node. By reducing the number of “homes per node,” the average bandwidth available to each customer is increased.
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Hyperscale data center operators have consistently sought and deployed the most advanced technologies to support the compute and bandwidth needs within their facilities, driving the growth of optical networking within data centers.
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Other new technologies, such as Converged Cable Access Platform ("CCAP") and Remote-PHY are under development by cable equipment suppliers. These technologies are being developed to be a cost-effective solution to provide higher available bandwidth to CATV customers.
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These operators have adopted more open internet data center architectures and have designed their own networking equipment, both of which use a mix of systems and components from a variety of vendors. We have benefited from these trends over the past several years, and expected to continue to benefit from them.
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As the complexity of CATV networks has increased over the years, equipment vendors, many of whom are our customers, have been under pressure to supply a wider variety of increasingly complex equipment to CATV MSOs.
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Recently the hyperscale data center operators have begun to build and upgrade their data centers to support AI, offering us a new growth opportunity.
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In order to meet these demands, many equipment vendors have looked to engage with suppliers like AOI, who have the capability to design and manufacture various network equipment or subassemblies, rather than always developing these devices themselves.
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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.
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We intend to maintain our position as a leading producer of optical components used in CATV networks, and to capture an increasing share of the CATV equipment market as the major equipment vendors continue to outsource the design and manufacturing of such products. ‑ Continue to penetrate the internet data center market.
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In order to increase available bandwidth for their customers beyond the bandwidth possible with DOCSIS 3.1, cable MSOs have supported the development of DOCSIS 4.0, which is primarily aimed at increasing the amount of bandwidth available to offer to customers, and also to making the distribution of bandwidth between "forward-path" (i.e. from the MSO office to the customer) and "return-path" (i.e. from the customer to the MSO office) more flexible.
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In part, enabling the flexible deployment of bandwidth between forward-path and return-path is an effort by MSOs to enable their networks to more effectively scale with consumer demand trends in the future. MSOs like Comcast and Charter have announced plans to spend billions of dollars over the next few years to upgrade to DOCSIS 4.0 network equipment.
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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.
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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 and infrastructure.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

47 edited+9 added−20 removed192 unchanged
Biggest changeWe typically do not have long-term contracts with our customers and instead rely on recurring purchase orders. However, many of our current revenue expectations and forecasts reflect significant anticipated orders from a limited number of key customers.
Biggest changeAs a result, the loss of, or a significant reduction in orders from any of our key customers would materially and adversely affect our revenue and results of operations. We typically do not have long-term contracts with our customers and instead rely on recurring purchase orders.
Negative developments in any of these factors in China or Taiwan or other countries could result in a reduction in demand for our products, the cancellation or delay of orders already placed, difficulties in producing and delivering our products, threats to our intellectual property, difficulty in collecting receivables, and a higher cost of doing business.
Negative developments in any of these factors in China, Taiwan, or other countries could result in a reduction in demand for our products, the cancellation or delay of orders already placed, difficulties in producing and delivering our products, threats to our intellectual property, difficulty in collecting receivables, and a higher cost of doing business.
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 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 2026 Notes; and - placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital.
In addition, the Indenture governing the Notes contains covenants that limit our ability and the ability of our subsidiaries to, among other things: (i) incur or guarantee additional indebtedness or issue disqualified stock; and (ii) create or incur liens. These restrictions may limit our flexibility in responding to business opportunities, competitive developments and adverse economic or industry conditions.
In addition, the Indenture governing the 2026 Notes contains covenants that limit our ability and the ability of our subsidiaries to, among other things: (i) incur or guarantee additional indebtedness or issue disqualified stock; and (ii) create or incur liens. These restrictions may limit our flexibility in responding to business opportunities, competitive developments and adverse economic or industry conditions.
We use a proprietary MBE laser manufacturing process that requires customized equipment, and this process is currently conducted and located solely at our wafer fabrication facility in Sugar Land, Texas, such that a natural disaster, terrorist attack or other catastrophic event that affects that facility would materially harm our operations.
We use a proprietary MBE laser manufacturing process that requires customized equipment, and this process is currently conducted and located solely at our wafer fabrication facility in Sugar Land, Texas, such that a natural disaster, cyberattack, terrorist attack or other catastrophic event that affects that facility would materially harm our operations.
The spread of COVID-19 has 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.
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.
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, 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.
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 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 2026 Notes, and our cash needs may increase in the future.
If we cannot raise required capital when needed, we may be unable to meet the demands of existing and prospective customers, adversely affecting our sales and market opportunities and consequently our business, financial condition and results of operations. 22 Table of Contents Risks Related to Data Breaches and Network Infrastructures Data breaches and cyberattacks could compromise our operations, our customers’ operations, or the operations of our contract manufacturers upon whom we rely, and cause significant damage to our business and reputation.
If we cannot raise required capital when needed, we may be unable to meet the demands of existing and prospective customers, adversely affecting our sales and market opportunities and consequently our business, financial condition and results of operations. 21 Table of Contents Risks Related to Data Breaches and Network Infrastructures Data breaches and cyberattacks could compromise our operations, our customers’ operations, or the operations of our contract manufacturers upon whom we rely, and cause significant damage to our business and reputation.
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. 15 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.
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 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 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. 18 Table of Contents Our ability to use our net operating losses and certain other tax attributes may be limited.
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.
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. 21 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. 20 Table of Contents Our loan agreements contain restrictive covenants that may adversely affect our ability to conduct our business.
Tariffs on China Imports remain in place, and the Company faces a variety of import-related risk. Because of the political nature of many actions, it is unknown whether and to what extent new tariffs (or other new laws or regulations) will be adopted, or the effect that any such actions would have on us or our industry.
Tariffs on Chinese Imports remain in place, and the Company faces a variety of import-related risk. Because of the political nature of many actions, it is unknown whether and to what extent new tariffs (or other new laws or regulations) will be adopted, or the effect that any such actions would have on us or our industry.
As a result, our ability to export or sell our products to certain countries could be restricted, which could adversely affect our business, financial condition and results of operations. Furthermore, new policy priorities may lead to additional or new import risks affecting the flow of our products into the U.S.
As a result, our ability to export or sell our products to certain countries and end-users could be restricted, which could adversely affect our business, financial condition, and results of operations. Furthermore, new policy priorities may lead to additional or new import risks affecting the flow of our products into the U.S.
The rate of increase in our costs and expenses may exceed the rate of increase in our revenue, either of which would materially and adversely affect our business, our results of operations and our financial condition. 16 Table of Contents Our financial results may vary significantly from quarter-to-quarter due to a number of factors, which may lead to volatility in our stock price.
The rate of increase in our costs and expenses may exceed the rate of increase in our revenue, either of which would materially and adversely affect our business, our results of operations and our financial condition. 15 Table of Contents Our financial results may vary significantly from quarter-to-quarter due to a number of factors, which may lead to volatility in our stock price.
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. 23 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. 22 Table of Contents We face a variety of risks associated with our international sales and operations.
There can be no assurance that we will be able to successfully address these risks. 17 Table of Contents We depend on key personnel to develop and maintain our technology and manage our business in a rapidly changing market.
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.
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. 19 Table of Contents Natural disasters or other catastrophic events could harm our operations.
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. 18 Table of Contents Natural disasters or other catastrophic events could harm our operations.
Any indemnity claim could also adversely affect our relationships with our customers and result in substantial costs to us. 26 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. 25 Table of Contents Risks Related to Our Common Stock Our stock price has been and is likely to be volatile.
It is also possible that a court could rule that such a provision is inapplicable or unenforceable. 27 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. 26 Table of Contents Item 1B. Unresolved Staff Comments None.
We have a high fixed cost base due to our vertically integrated business model, including the fact that 1,851 of our employees as of December 31, 2022 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 1,772 of our employees as of December 31, 2023 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.
Our products are primarily classified under Export Control Classification Numbers (ECCN) 5A991 EAR99. Export Control Classification requirements are depend upon an item’s technical characteristics and dictate the licensing requirements and permissible destination, end-use, end-users, and activities of the end-user.
Our products are primarily classified under Export Control Classification Numbers (ECCN) 5A991, 6A995, and EAR99. Export Control Classification requirements are dependent upon an item’s technical characteristics and dictate the licensing requirements and permissible destination, end-use, end-users, and activities of the end-user.
Although the ownership changes we experienced in the past and in the year ended December 31, 2022 would not have prevented us from using all NOLs and tax credits accumulated before such ownership changes, assuming we were otherwise able to do so, we could experience another ownership change that might limit our use of NOLs and tax credits in the future.
Although the ownership changes we experienced in the past would not have prevented us from using all NOLs and tax credits accumulated before such ownership changes, assuming we were otherwise able to do so, we could experience another ownership change that might limit our use of NOLs and tax credits in the future.
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, pending completion of the Divestiture described above. 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 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.
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. 24 Table of Contents Risks Related to Our Operations in China Pending the completion of the Divestiture described above, 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. 23 Table of Contents Risks Related to Our Operations in China Our business operations conducted in China are critical to our success.
This litigation and any other such litigation could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business. 20 Table of Contents Risks Related to Our Indebtedness and Future Financing Our indebtedness and liabilities could limit the cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition and results of operations and impair our ability to satisfy our obligations under our indebtedness.
Any litigation, arbitration, or other administrative action could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business. 19 Table of Contents Risks Related to Our Indebtedness and Future Financing Our indebtedness and liabilities could limit the cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition and results of operations and impair our ability to satisfy our obligations under our indebtedness.
We currently derive and expect to continue to derive, a significant portion of our revenue from sales to international customers. In 2022, 2021 and 2020 , 18.53%, 22.7%, and 25.4% of our revenue, respectively, was derived from sales outside of North America. In addition, a significant portion of our manufacturing operations are based in Ningbo, China, and Taipei, Taiwan.
We currently derive and expect to continue to derive, a significant portion of our revenue from sales to international customers. In 2023, 2022 and 2021 , 27.7%, 18.5%, and 22.7% of our revenue, respectively, was derived from sales outside of North America. In addition, a significant portion of our manufacturing operations are based in Ningbo, China, and Taipei, Taiwan.
Additionally, a substantial portion of our property, plant and equipment, 42.2% 42.2%, and 40.6% as of December 31, 2022, 2021 and 2020 , was located in China, respectively. We expect to make further investments in China in the foreseeable future.
Additionally, a substantial portion of our property, plant and equipment, 43.0%, 42.2%, and 42.2% as of December 31, 2023, 2022 and 2021 , was located in China, respectively. We expect to make further investments in China in the foreseeable future.
As of December 31, 2022 , we had approximately $148.9 million of consolidated indebtedness. We may also incur additional indebtedness to meet future financing needs.
As of December 31, 2023 , we had approximately $114.9 million of consolidated indebtedness. We may also incur additional indebtedness to meet future financing needs.
Among other things, these covenants require us to maintain certain financial ratios and 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.
A total of $51.3 million, $97.7 million, and $85.2 million or 23.0%, 46.2%, and 36.3%, of our revenue in the years ended December 31, 2022, 2021 and 2020 was attributable to our product manufactured at our plant in China, respectively.
A total of $43.3 million, $51.3 million, and $97.7 million or 19.9%, 23.0%, and 46.2%, of our revenue in the years ended December 31, 2023, 2022 and 2021 was attributable to our product manufactured at our plant in China, respectively.
As of December 31, 2022, we had U.S. accumulated net operating loss carryforwards, or NOLs, of approximately $111.5 million, federal and state research and development credits (“R&D credits”) of $10.5 million, business interest expense carryforwards of $18.7 million and foreign tax credits of $4.6 million for U.S. federal income tax purposes.
As of December 31, 2023, we had U.S. accumulated net operating loss carryforwards, or NOLs, of approximately $112 million, federal and state research and development credits (“R&D credits”) of $10.9 million, business interest expense carryforwards of $26 million and foreign tax credits of $4.6 million for U.S. federal income tax purposes.
In addition, our existing Credit Facility with CIT Northbridge Credit, LLC, contains, 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, 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.
If our key customers do not continue to purchase our existing products or fail to purchase additional products from us, our revenue would decline and our results of operations would be adversely affected.
However, many of our current revenue expectations and forecasts reflect significant anticipated orders from a limited number of key customers. If our key customers do not continue to purchase our existing products or fail to purchase additional products from us, our revenue would decline and our results of operations would be adversely affected.
(the "Purchaser"), which is a company incorporated in the PRC, under which AOI would divest its manufacturing facilities located in the PRC and certain assets related to its transceiver business and multichannel optical sub-assembly products for the internet data center, FTTH and telecom markets (collectively, "the Divestiture").
(the "Purchaser") pursuant to which the Seller would divest its manufacturing facilities located in the People's Republic of China and certain assets related to its transceiver business and multichannel optical sub-assembly products for the internet data center, FTTH and telecom markets.
Any further changes to these laws may increase our costs and reduce our flexibility. 25 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.
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. Our success depends on our ability to protect our intellectual property and other proprietary rights.
Our success depends on our ability to protect our intellectual property and other proprietary rights. We rely on a combination of patent, trademark, copyright, trade secret and unfair competition laws, as well as license agreements and other contractual provisions, to establish and protect our intellectual property and other proprietary rights.
We rely on a combination of patent, trademark, copyright, trade secret and unfair competition laws, as well as license agreements and other contractual provisions, to establish and protect our intellectual property and other proprietary rights. We have applied for patents in the U.S. and in other foreign countries, some of which have been issued.
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 loan agreements with CIT Northbridge Credit, LLC are secured by our accounts receivable, inventory, instruments, intellectual property, and all business assets except real estate and foreign assets.
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.
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. Also see the section above on the COVID-19 pandemic for details related to global supply chain disruptions.
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.
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. 14 Table of Contents We must continually develop successful new products and enhance existing products, and if we fail to do so or if our release of new or enhanced products is delayed, our business may be harmed.
We must continually develop successful new products and enhance existing products, and if we fail to do so or if our release of new or enhanced products is delayed, our business may be harmed.
There can be no assurances as to the favorable outcome of any litigation. In addition it can be costly to defend litigation and these costs could negatively impact our financial results. As further described in that section, subsequent derivative actions and securities class actions have since been filed.
There can be no assurances as to the favorable outcome of any litigation, arbitration or administrative action. In addition it can be costly to defend such matters and these costs could negatively impact our financial results.
Moreover, our existing and future patents and trademarks may not be sufficiently broad to protect our proprietary rights or may be held invalid or unenforceable in court.
In addition, we have registered certain trademarks in the U.S. We cannot guarantee that our pending applications will be approved by the applicable governmental authorities. Moreover, our existing and future patents and trademarks may not be sufficiently broad to protect our proprietary rights or may be held invalid or unenforceable in court.
Our loan agreements governing our long-term debt obligations in the U.S. and 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 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 generate much of our revenue from a limited number of customers. For each year ended 2022, 2021 and 2020 , our top ten customers represented 87.2%, 84.7%, and 84.3% of our revenue, respectively.
For each year ended 2023, 2022 and 2021 , our top ten customers represented 92.7%, 87.2%, and 84.7% of our revenue, respectively. In 2023 , Microsoft represented 46.6% of our revenue, ATX represented 15.6% of our revenue, and Digicomm represented 11.3% of our revenue.
(the "Seller"), which is a company incorporated in the British Virgin Islands and wholly owned subsidiary of AOI, entered into a definitive agreement (the "Purchase Agreement") with Yuhan Optoelectronic Technology (Shanghai) Co., Ltd.
On September 15, 2022, AOI and Prime World International Holdings Ltd. (the "Seller") entered into a definitive agreement (the "Purchase Agreement") with Yuhan Optoelectronic Technology (Shanghai) Co., Ltd.
Risks Related to Our Divestiture in the PRC The announcement and pendency of our proposed sale of our China manufacturing facilities could materially adversely affect our business, financial condition, and results of operations. On September 15, 2022, AOI and Prime World International Holdings Ltd.
Any further changes to these laws may increase our costs and reduce our flexibility. 24 Table of Contents Risks Related to Our Divestiture in the PRC The termination of our proposed sale of our China manufacturing facilities and claims asserted by the intended purchaser could materially adversely affect our business, financial condition, and results of operations.
In 2022 , ATX represented 47.3% of our revenue, Microsoft represented 18.4% of our revenue, and a US based large datacenter operator represented 5.9% of our revenue. As a result, the loss of, or a significant reduction in orders from any of our key customers would materially and adversely affect our revenue and results of operations.
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.
Removed
The purchase price payable by the Purchaser to the Seller will be an amount equal to the $150 million USD equivalent of Renminbi, less a holdback amount.
Added
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.
Removed
Prior to the closing of this transaction, AOI anticipates investing an amount equal to between 4% and 10% of the estimated proceeds from the transaction in exchange for a 10% equity interest in the Purchaser. Both transactions are expected to close in 2023, subject to customary closing conditions and regulatory approval.
Added
Network operators deploy the next generation of technology at different times, and typically reduce or stop their purchase of the trailing generation of equipment in advance of their deployment of the next generation.
Removed
The announcement and pendency of our proposed divestiture could disrupt our business and create uncertainty about our future, which could have a material and negative impact on our business, financial condition, and results of operations, regardless of whether the divestiture is completed.
Added
Our revenue from sales of the trailing generation products may fall rapidly, or at an uneven rate, and the prices at which we can sell the trailing generation products may decline.
Removed
These risks to our business, all of which could be exacerbated by any delay in the closing of the divestiture, include: ‑ restrictions in the Purchase Agreement on the conduct of our business prior to the closing of the divestiture, which prevent us from taking specified actions without the prior consent of Purchaser, which actions we might otherwise take in the absence of the Purchase Agreement; ‑ the attention of our management may be directed towards the closing of the divestiture and may be diverted from our day-to-day business operations, and matters related to the divestiture may require commitments of time and resources that could otherwise have been devoted to other opportunities that might have been beneficial to us; ‑ our customers, suppliers other parties may decide not to renew or seek to terminate, change or renegotiate their relationship with us, whether pursuant to the terms of their existing agreements with us or otherwise; ‑ our employees may experience uncertainty regarding their future roles, which might adversely affect our ability to retain, recruit and motivate key personnel; and ‑ potential litigation relating to the divestiture and the related costs.
Added
If we do not effectively manage our inventory, we may have an excess of inventory that we may not be able to participate in vendor selection processes of operators and their equipment providers for the next generation of technology deployment, which would reduce our future revenue potential.
Removed
Any of these matters could adversely affect our stock price, business, financial condition, results of operations, or business prospects. In addition, divestiture of our manufacturing facilities in the PRC also contain inherent risks that may impact our ability to fully realize the benefits of such divestiture, including possible delays in closing and potential post-closing claims for indemnification.
Added
In addition, we are currently subject to claims in an arbitration proceeding relating to the termination of the Divestiture Agreement with Yuhan Optoelectronic Technology (Shanghai) Co., Ltd., as noted in Risk Factors and Management ’ s Discussion and Analysis of Financial Condition and Results of Operations .
Removed
The divestiture may also have a dilutive impact on our future earnings if we are unable to offset the dilutive impact from the loss of revenue associated with the divestiture, as well as significant write-offs, including those related to goodwill and other intangible assets.
Added
On September 12, 2023, we delivered a notice of termination to the Purchaser to terminate the Purchase Agreement as a result of the Purchaser's failure to satisfy certain of its material obligations under the Purchase Agreement. In doing so, we also asserted the right to recover a break-up fee from the Purchaser.
Removed
If any of these risks materialize, the benefits of such divestiture may not be fully realized, if at all, and our business, financial condition, and results of operations could be negatively impacted.
Added
On December 22, 2023, the Purchaser filed for arbitration in Hong Kong with the Hong Kong International Arbitration Centre disputing the validity of our termination notice and seeking specific performance with respect to the transaction contemplated by the Purchase Agreement, which would in any case remain subject to regulatory approvals.
Removed
The parties may be unable to satisfy the conditions to the closing of our divestiture and the transaction may not be consummated, and the failure of the Divestiture to be completed may adversely affect our business and our common stock price.
Added
A hearing has not been set for the arbitration and we are not able to predict the outcome of this dispute with certainty at this time.
Removed
Consummation of our divestiture of our China manufacturing facilities is subject to various closing conditions, including, among other things, approval from the Committee on Foreign Investment in the United States (CFIUS) and other regulatory approvals.
Added
However, any costs, damages or other losses we might incur in connection with the arbitration, as well as any injunction or other equitable remedy we may be subject to, could adversely affect our operations and financial conditions, divert management’s attention and seriously harm our business.
Removed
CFIUS has been increasingly relied upon in recent years as a tool to prevent foreign investment that poses a national security risk, often focused on either Chinese or Russian buyers.
Removed
Although we do not believe the proposed divestiture presents a national security risk, CFIUS has been directed to focus on transactions that could give foreign parties access to U.S. technologies, data, or critical supply chains. Closing conditions related to regulatory approval and other conditions to the consummation of the proposed divestiture may fail to be satisfied.
Removed
In addition, satisfying the conditions to the divestiture may take longer than we and the Purchaser currently expect. The satisfaction of all of the required conditions could delay the completion of the divestiture for a significant period of time or prevent it from occurring.
Removed
Thus, there can be no assurance that the conditions to the divestiture will be satisfied or waived or that the divestiture will be consummated. In addition, the Purchase Agreement may be terminated under specified circumstances.
Removed
Failure to complete the divestiture could adversely affect our business and the market price of our common stock in a number of ways, including: - our current stock price may reflect a market assumption that the proposed acquisition will occur, meaning that a failure to complete the proposed transaction could result in a decline in the price of our common stock; - we may be subject to legal proceedings related to the divestiture; - the failure of the divestiture to be consummated may result in negative publicity and a negative impression of us in the investment community; - any disruptions to our business resulting from the announcement and pendency of the divestiture, including any adverse changes in our relationships with our customers, vendors and employees, may continue or intensify in the event the divestiture is not consummated; - we may not be able to take advantage of alternative business opportunities or effectively respond to competitive pressures; - we may be required to pay a termination fee of approximately $3 million if the Purchase Agreement is terminated under certain circumstances; - we expect to incur substantial transaction costs in connection with the proposed transaction, whether or not it is completed; and - we may not be entitled to receive a termination payment from Purchaser in all circumstances where the Purchase Agreement is terminated due to Purchaser's breach of its obligations under the Purchase Agreement or where we fail to obtain CFIUS approval. 13 Table of Contents 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.
Removed
The suppliers who are responsible for most of our supply-chain constraints have begun the process of returning to normal operations. In order to minimize the impact of these and any similar disruptions, we have added additional suppliers for many key components, where it is practical to do so.
Removed
We believe that these additional suppliers will be able to augment our supply of needed components, although in some cases these new suppliers' materials are more expensive than the pre-existing suppliers so a switch to these alternate suppliers could have a negative impact on gross margins and profitability.
Removed
However, this is uncertain and we also cannot predict if other suppliers could encounter similar difficulties.
Removed
We have lending arrangements with several financial institutions, including loan agreements with CIT Northbridge Credit, LLC in the U.S., and credit facilities with Shanghai Pudong Development Bank Co., Ltd and China Zheshang Bank Co., Ltd. in China.
Removed
Our credit facilities with Shanghai Pudong Development Bank Co., Ltd. and China Zheshang Bank Co., Ltd. are secured by real estate.
Removed
We have applied for patents in the U.S. and in other foreign countries, some of which have been issued. In addition, we have registered certain trademarks in the U.S. We cannot guarantee that our pending applications will be approved by the applicable governmental authorities.

Item 2. Properties

Properties — owned and leased real estate

3 edited+1 added−0 removed4 unchanged
Biggest changeOwned or Lease Approximate Location Expiration Date Square Footage Use Sugar Land, Texas Owned (1) 139,450 Administration, sales, manufacturing, research and development Ningbo, China Owned (2) 458,849 Administration, sales, manufacturing, research and development Taipei, Taiwan May 31, 2029 (3) 268,797 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 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 May 31, 2029 (4) 268,797 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.
(3) 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.
(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.
(2) 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.
(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.
Added
(2) In our Georgia facility, we have sales and research and development for CATV market, and the lease covering the 2,932 square feet facility will expire October 31, 2024 and the lease covering the 7,527 square feet will expire December 31, 2025.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAs of February 21, 2023 there were 36 holders of record of our common stock (not including beneficial holders of our common stock holding in street name). For equity compensation plan information refer to Item 12 of this Form 10-K.
Biggest changeAs of February 20, 2024 there were 35 holders of record of our common stock (not including beneficial holders of our common stock holding in street name). For equity compensation plan information refer to Item 12 of this Form 10-K.

Item 7. Management's Discussion & Analysis

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

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Biggest changeIn 2022 , 2021 , and 2020 , Microsoft accounted for 18.4%, 14.11%, and 38.3% of our revenue, the U.S. based large datacenter operator accounted for 5.9%, 8.3%, and 8.0% of our revenue, and the U.S. based NEM company accounted for 3.6%, 7.2% and 7.9% of our revenue, respectively. 29 Table of Contents In 2022 , our revenue increase of 5.3% over the prior-year was driven primarily by strong demand in CATV product sales arising from products with architecture improvements to enable delivery of additional bandwidth to consumers.
Biggest changeIn 2023 , 2022 , and 2021 , ATX accounted for 15.6%, 47.3%, and 25.6% of our revenue, Digicomm accounted for 11.3%, 0%, and 0% of our revenue, and a U.S. based large CATV equipment provider accounted for 1.3%, 1.7% and 3.3% of our revenue, respectively. 28 Table of Contents In 2023 , our decrease of revenue of 2.3% over the prior-year was driven primarily by decreased demand in the CATV market, which we believe is due to reductions in purchasing of older generation DOCSIS 3.1 equipment, which was nearly offset by increased demand for our internet datacenter products, which we believe is arising from demand for products necessary for new datacenter construction along with datacenter upgrades to enable new technologies like Artificial Intelligence (AI).
Overview We are a leading, vertically integrated provider of fiber-optic networking products. We target four networking end-markets: CATV, internet data centers, telecom and FTTH. We design and manufacture a range of optical communications products at varying levels of integration, from components, subassemblies and modules to complete turn-key equipment.
Overview We are a leading, vertically integrated provider of fiber-optic networking products. We target four networking end-markets: internet data centers, CATV, telecom and FTTH. We design and manufacture a range of optical communications products at varying levels of integration, from components, subassemblies and modules to complete turn-key equipment.
We are primarily focused on the higher-performance segments within the CATV, internet data center, telecom and FTTH markets which increasingly demand faster connectivity and innovation. Our vertically integrated manufacturing model provides us several advantages, including rapid product development, fast response times to customer requests and control over product quality and manufacturing costs.
We are primarily focused on the higher-performance segments within the internet data center, CATV, telecom and FTTH markets which increasingly demand faster connectivity and innovation. Our vertically integrated manufacturing model provides us several advantages, including rapid product development, fast response times to customer requests and control over product quality and manufacturing costs.
Seasonality We are uncertain whether the demand for our CATV, internet data center, telecom and FTTH products is seasonal, as our sales data does not indicate a significant trend with respect to these products. We began to manufacture a meaningful quantity of CATV and internet data center products in our Ningbo, China factory in 2017 and 2020, respectively.
Seasonality We are uncertain whether the demand for our internet data center, CATV, telecom and FTTH products is seasonal, as our sales data does not indicate a significant trend with respect to these products. We began to manufacture a meaningful quantity of CATV and internet data center products in our Ningbo, China factory in 2017 and 2020, respectively.
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.
Further information regarding our note payable is provided in Note K Notes Payable and Long-Term Debt in the Notes to Consolidated Financial Statements in this Form 10-K. We also have a fixed-rate convertible senior note.
Further information regarding our notes payable is provided in Note K Notes Payable and Long-Term Debt in the Notes to Consolidated Financial Statements in this Form 10-K. We also have a fixed-rate convertible senior note.
When indicators exist, recoverability of assets is measured by a comparison of the carrying value of the asset group to the estimated undiscounted future net cash flows expected to be generated by the asset.
When indicators exist, recoverability of assets is measured by a comparison of the carrying value of the asset group to the estimated undiscounted future net cash flows expected to be generated by the asset group.
Such percentages were determined through analysis of the inventory to determine each product's lifespan, a review historical write-offs or scrapped inventory, and an assessment by product engineers of the possibility of obsolescence for each product.
Such percentages were determined through analysis of the inventory to determine each product's lifespan, a review of historical write-offs or scrapped inventory, and an assessment by product engineers of the possibility of obsolescence for each product.
Historically, our revenue has been significantly concentrated within the data center market, and starting from 2021, our revenue tends to be split between CATV market and data center market. Moreover, within these markets, revenue tends to be concentrated among a small number of customers.
Historically, our revenue has been significantly concentrated within the data center market, and starting from 2021, our revenue tends to be split primarily between CATV market and data center market. Moreover, within these markets, revenue tends to be concentrated among a small number of customers.
Sales and marketing expense consists primarily of personnel costs, including share-based compensation for our sales and marketing personnel, as well as travel and trade show expense, shipping and tariff expense, sales commissions and the allocation of overall corporate services and facility costs.
Sales and marketing expense consists primarily of personnel costs, including share-based compensation for our sales and marketing personnel, as well as travel and trade show expenses, shipping and tariff expenses, sales commissions and the allocation of overall corporate services and facility costs.
Upon delivery of a placement notice and subject to the terms and conditions of the Agreement, sales, if any, of the Shares will be made through the Sales Agent in transactions that are deemed to be “at the market” offerings as defined in Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”), including sales made through the facilities of the Nasdaq Global Market, the principal trading market for the Company’s common stock, on any other existing trading market for the Company’s common stock, to or through a market maker or as otherwise agreed by the Company and the Sales Agent.
Upon delivery of a placement notice and subject to the terms and conditions of the Agreement, sales, if any, of the Shares will be made through the Sales Agent in transactions that are deemed to be “at the market” offerings as defined in Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"), including sales made through the facilities of the Nasdaq Global Market, the principal trading market for the Company’s common stock, on any other existing trading market for the Company’s common stock, to or through a market maker or as otherwise agreed by the Company and the Sales Agent.
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. 40 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. 39 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.
For the years ended December 31, 2022 and 2021, we had $0.2 million and $0.2 million, respectively, of unrecognized tax benefits related to U.S. tax benefits recognized for which we do not meet the more likely than not threshold. See additional information regarding income taxes in Note O, included in Part II, Item 8 of this Form 10-K.
For the years ended December 31, 2023 and 2022, we had $0.2 million and $0.2 million, respectively, of unrecognized tax benefits related to U.S. tax benefits recognized for which we do not meet the more likely than not threshold. See additional information regarding income taxes in Note O, included in Part II, Item 8 of this Form 10-K.
Furthermore, we have developed additional original design manufacturer, or ODM, relationships with customers in each of our target markets which should enable us to diversify our revenue base. We had two and three customers that accounted for more than 10% of our revenue in 2022 and 2021, respectively. Product Development. We invest heavily to develop new and innovative products.
Furthermore, we have developed additional original design manufacturer, or ODM, relationships with customers in each of our target markets which should enable us to diversify our revenue base. We had three customers and two customers that accounted for more than 10% of our revenue in 2023 and 2022, respectively. Product Development. We invest heavily to develop new and innovative products.
Global renewed its national high-tech enterprise certificate in 2011, 2014, 2017 and 2020, extending its three-year tax preferential status through December 2023.
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.
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. 34 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. 33 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. 31 Table of Contents Discussion of Financial Performance Revenue We generate revenue through the sale of our products to equipment providers for the CATV, internet data center, 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. 30 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 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. 32 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. 31 Table of Contents We have a global set of suppliers to help balance considerations related to product availability, quality and cost.
We expect a similar portion of our sales to be denominated in foreign currencies in 2023. 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 expect a similar portion of our sales to be denominated in foreign currencies in 2024. 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.
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. 33 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. 32 Table of Contents Other income (expense) Interest income consists of income earned on our cash, cash equivalents and short-term investments.
We anticipate additional expenses for building improvements to the factory and we are in the process of evaluating the timing of these expenditures and obtaining bids for any such work. Based on forecasts, we believe the factory will be placed in service in the second half of 2023 after the construction is completed for the building interior.
We anticipate additional expenses for building improvements to the factory and we are in the process of evaluating the timing of these expenditures and obtaining bids for any such work. Based on forecasts, we believe the factory will be placed in service in the second half of 2024 after the construction is completed for the building interior.
We believe that the turnover in 2020 was higher than usual due to the COVID-19 pandemic which caused travel restrictions, additional health check requirements, and a lengthy shutdown of operations in Ningbo. As a result of employee turnover, we must hire and train replacement employees.
We believe that the turnover in 2022 was higher than usual due to the COVID-19 pandemic which caused travel restrictions, additional health check requirements, and a lengthy shutdown of operations in Ningbo. As a result of employee turnover, we must hire and train replacement employees.
These cash decreases were offset by a decrease of notes receivable of $7.8 million, decrease in inventory of $1.2 million, increase in accounts payable to our vendors of $13.0 million and increase in accrued liabilities of $5.3 million. In 2021, net cash used in operating activities was $11.6 million.
These cash decreases were offset by a decrease of notes receivable of $7.8 million, decrease in inventory of $1.2 million, increase in accounts payable to our vendors of $13.0 million and increase in accrued liability of $5.3 million. In 2021, net cash used in operating activities was $11.6 million.
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 2022, 2021 and 2020 . 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 2023, 2022 and 2021 . As such, our sales and marketing expense does not directly increase with revenue.
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, 2022 compared to the year ended December 31, 2021.
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, 2023 compared to the year ended December 31, 2022.
For a discussion of the year ended December 31, 2021 compared to the year ended December 31, 2020, 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, 2021, as amended.
For a discussion of the year ended December 31, 2022 compared to the year ended December 31, 2021, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2022, as amended.
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, 2022 and December 31, 2021.
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, 2023 and December 31, 2022.
As of December 31, 2022, construction of the building shell is complete, and approximately $27.4 million of this total cost has been paid and the remaining portion will be paid in yearly installments for three years after final inspection.
As of December 31, 2023, construction of the building shell is complete, and approximately $27.4 million of this total cost has been paid and the remaining portion will be paid in yearly installments for three years after final inspection.
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 2022, 2021 and 2020 .
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 2023, 2022 and 2021 .
Although our overall gross margins over the past three years have been between 15.1% and 21.5%, 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 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.
The details of the shares of common stock sold through the Second ATM Offering through December 31, 2022 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.
The details of the shares of common stock sold through the ATM Offering through December 31, 2023 are as follows (in thousands, except shares and weighted average per share price): Distribution Agent Month Weighted Average Per Share Price Number of Shares Sold Net Proceeds Compensation to Distribution Agent Raymond James & Associates, Inc.
We expect that our income taxes will vary in relation to our profitability and the geographic distribution of our profits. In 2022 and 2021 our effective tax rate was (0.0%) . In 2020 our effective tax rate was (14.1%). 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 2023, 2022 and 2021 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.
In 2022, 2021 and 2020 , we had 12, 20, and 30 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 2023, 2022 and 2021 , we had 6, 12, and 20 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.
Years ended December 31, 2022 2021 2020 Revenue, net 100.0 % 100.0 % 100.0 % Cost of goods sold 84.9 % 82.2 % 78.5 % Gross profit 15.1 % 17.8 % 21.5 % Operating expenses Research and development 16.3 % 19.5 % 18.5 % Sales and marketing 4.4 % 5.2 % 6.0 % General and administrative 20.9 % 20.0 % 17.9 % Total operating expenses 41.6 % 44.7 % 42.4 % Loss from operations (26.5 )% (26.8 )% (20.8 )% Interest and other expense, net (3.3 )% 1.2 % (1.0 )% Loss before income taxes (29.8 )% (25.6 )% (21.8 )% Income tax expense (0.0 )% 0.0 % (3.1 )% Net loss (29.8 )% (25.6 )% (24.9 )% Comparison of Years Ended December 31, 2022 and 2021 Revenue We generate revenue through the sale of our products to equipment providers and network operators for the CATV, internet data center, telecom, FTTH and other markets.
Years ended December 31, 2023 2022 2021 Revenue, net 100.0 % 100.0 % 100.0 % Cost of goods sold 72.9 % 84.9 % 82.2 % Gross profit 27.1 % 15.1 % 17.8 % Operating expenses Research and development 16.5 % 16.3 % 19.5 % Sales and marketing 5.1 % 4.4 % 5.2 % General and administrative 24.5 % 20.9 % 20.0 % Total operating expenses 46.1 % 41.6 % 44.7 % Loss from operations (19.0 )% (26.5 )% (26.8 )% Interest and other expense, net (6.7 )% (3.3 )% 1.2 % Loss before income taxes (25.7 )% (29.8 )% (25.6 )% Income tax expense 0.0 % 0.0 % 0.0 % Net loss (25.7 )% (29.8 )% (25.6 )% Comparison of Years Ended December 31, 2023 and 2022 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.
Recent Accounting Pronouncements See Note B of our Consolidated Financial Statements for a description of recent accounting pronouncements. 41 Table of Contents
Recent Accounting Pronouncements See Note B of our Consolidated Financial Statements for a description of recent accounting pronouncements. 40 Table of Contents
In the years 2022 , 2021 , and 2020 , 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 66.1%, 35.9%, and 43.8%, respectively.
In the years 2023 , 2022 , and 2021 , 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 53.8 %, 66.1%, and 35.9%, respectively.
During the years ended December 31, 2022, 2021 and 2020, we recorded excess and obsolete inventory reserve charges of $4.9 million, $3.9 million, and $3.9 million, respectively. For the years December 2022, 2021 and 2020, the direct inventory write-offs related to scrap, discontinued products and damaged inventories were $10.4 million, $16.8 million, and $20.4 million, respectively.
During the years ended December 31, 2023, 2022 and 2021, we recorded excess and obsolete inventory reserve charges of $8.7 million, $4.9 million, and $3.9 million, respectively. For the years December 2023, 2022 and 2021, the direct inventory write-offs related to scrap, discontinued products and damaged inventories were $10.6 million, $10.4 million, and $16.8 million, respectively.
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 with varying maturities. As of December 31, 2022, our notes payable had an amount of $57.1 million, and the entire balance is within 12 months.
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 with varying maturities. As of December 31, 2023, our notes payable had an amount of $23.2 million, and the entire balance is due within 12 months.
As of December 31, 2022, our convertible senior note had an aggregate principle amount of $80.5 million and future interest payments associated with our senior notes totaled $6.0 million. Further information regarding our convertible senior notes is provided in Note L – Convertible Senior Notes in the Notes to Consolidated Financial Statements in this Form 10-K.
As of December 31, 2023, our 2026 Note had an aggregate principle amount of $80.2 million and future interest payments associated with our 2026 Notes totaled $12.6 million. Further information regarding our convertible senior notes is provided in Note L – Convertible Senior Notes in the Notes to Consolidated Financial Statements in this Form 10-K.
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 Gbps data center products, DOCSIS 3.1 capable CATV products, including remote-PHY products and 1.2 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 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.
On the basis of this evaluation, as of December 31, 2022, a valuation allowance of $69.7 million has been recorded related to deferred tax assets to recognize only the portion of the deferred tax assets that are more likely than not to be realized.
On the basis of this evaluation, as of December 31, 2023, a valuation allowance of $78.1 million has been recorded related to deferred tax assets to recognize only the portion of the deferred tax assets that are more likely than not to be realized.
The income tax expense in the years ended December 31, 2022 and December 31, 2021 was primarily related to the state tax provision and the recording of a valuation allowance on our deferred tax assets. 37 Table of Contents Liquidity and Capital Resources As of December 31, 2022 , we had $13.3 million of unused borrowing capacity from all of our loan agreements.
The income tax expense in the years ended December 31, 2023 and December 31, 2022 was primarily related to the state tax provision and the recording of a valuation allowance on our deferred tax assets. 36 Table of Contents Liquidity and Capital Resources As of December 31, 2023 , we had $22.5 million of unused borrowing capacity from all of our loan agreements.
Within the internet data center market, we benefit from the increasing use of higher-capacity optical networking technology as a replacement for copper cables, particularly as speeds reach 10 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 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.
We sell our products to customers who either incorporate our products into their offering or resell our products to end customers. Because we sell to a limited number of well-established customers, we employ a limited number of sales professionals who are able to cover large markets.
We sell our products to customers who either incorporate our products into their own products, use them in their own infrastructure, or resell our products to end customers. Because we sell to a limited number of well-established customers, we employ a limited number of sales professionals who are able to cover large markets.
As of December 31, 2022 , our cash, cash equivalents, restricted cash and short-term investments totaled $35.6 million. Cash and cash equivalents are held for working capital purposes and are invested primarily in money market or time deposit funds.
As of December 31, 2023 , our cash, cash equivalents, restricted cash and short-term investments totaled $55.1 million. Cash and cash equivalents are held for working capital purposes and are invested primarily in money market or time deposit funds.
On January 5, 2023, the Company filed a Registration Statement on Form S-3 with the Securities and Exchange Commission, which has not yet been declared effective, providing for the public offer and sale of certain securities of the Company from time to time, at our discretion, up to an aggregate amount of $185 million.
ATM Offerings On January 5, 2023, the Company filed a Registration Statement on Form S-3 with the Securities and Exchange Commission, which was declared effective on March 21, 2023, providing for the public offer and sale of certain securities of the Company from time to time, at our discretion, up to an aggregate amount of $185 million.
Benefit (provision) for income taxes Years ended December 31, 2022 2021 Change (in thousands, except percentages) Benefit (provision) for income taxes $ (1 ) $ (2 ) 1 (50.0 )% Our income tax provision consists of U.S. income tax, state taxes, and Taiwan and China income tax recorded during the periods.
Benefit (provision) for income taxes Years ended December 31, 2023 2022 Change (in thousands, except percentages) Benefit (provision) for income taxes $ (9 ) $ (1 ) (8 ) 800.0 % Our income tax provision consists of U.S. income tax, state taxes, and Taiwan and China income tax recorded during the periods.
In addition, we have operating and financial lease for certain property and equipment with an expected term at the commencement date of more than 12 months. As of December 31, 2022, the future minimum payments required under these leases totaled $7.3 million, with $1.2 million payable within 12 months.
In addition, we have operating and financing leases for certain property and equipment with an expected term at the commencement date of more than 12 months. As of December 31, 2023, the future minimum payments required under these leases totaled $6.4 million, with $1.3 million payable within 12 months.
In 2021, our financing activities provided $14.1 million in cash. This increase in cash was due to $15.4 million of net proceeds from our At-The-Market (ATM) Offering. These activities were offset by $0.3 million net repayments to acceptances payable and bank debt, and $1.0 million related to tax withholding associated with employee share-based compensation.
These activities were offset by $7.3 million debt repayment and $0.5 million related to tax withholding associated with employee share-based compensation. In 2021, our financing activities provided $14.1 million in cash. This increase in cash was due to $15.4 million of net proceeds from our ATM Offering.
If such assets are determined not to be recoverable we perform an analysis of the fair value of the asset group and will recognize an impairment loss when the fair value is less than the carrying amount of such assets. The fair value, based on reasonable and supportable assumptions and projections, require subjective judgments.
If such assets are determined not to be recoverable we perform an analysis of the fair value of the asset group and will recognize an impairment loss when the fair value is less than the carrying amount of such assets.
Investing activities Our investing activities consisted primarily of capital expenditures and purchases of intangible assets. In 2022, net cash used in investing activities was $3.8 million. The net cash used consisted of spending on purchase and prepaid of additional property, plant and equipment of $3.7 million and purchase of intangible assets of $0.5 million.
The majority of the cash was used for CapEx spending of $14.3 million. In 2022, net cash used in investing activities was $3.8 million. The net cash used consisted of spending on purchase and prepaid of additional property, plant and equipment of $3.7 million and purchase of intangible assets of $0.5 million.
Valuation of inventories Inventories are stated at the lower of cost (average-cost method) or net realizable value. Work in process and finished goods includes materials, labor and allocated overhead. We assess the valuation of our inventory on a periodic basis and provide an allowance for the value of estimated excess and obsolete inventory based on estimates of future demand.
Work in process and finished goods includes materials, labor and allocated overhead. We assess the valuation of our inventory on a periodic basis and provide an allowance for the value of estimated excess and obsolete inventory based on estimates of future demand.
Also refer to Note L “Convertible Senior Notes” to the consolidated financial statements for further discussion of the Notes. 38 Table of Contents The table below sets forth selected cash flow data for the periods presented (in thousands): Years ended December 31, 2022 2021 2020 Net cash used in operating activities $ (14,022 ) $ (11,644 ) $ (44,009 ) Net cash used in investing activities (3,834 ) (10,546 ) (19,347 ) Net cash provided by financing activities 10,753 14,087 47,441 Effect of exchange rates on cash and cash equivalents 1,553 (876 ) (999 ) Net decrease in cash $ (5,550 ) $ (8,979 ) $ (16,914 ) Operating activities In 2022, net cash used in operating activities was $14.0 million.
Also refer to Note L “Convertible Senior Notes” to the consolidated financial statements for further discussion of the 2026 Notes. 37 Table of Contents The table below sets forth selected cash flow data for the periods presented (in thousands): Years ended December 31, 2023 2022 2021 Net cash used in operating activities $ (7,929 ) $ (14,022 ) $ (11,644 ) Net cash used in investing activities (14,761 ) (3,834 ) (10,546 ) Net cash provided by financing activities 40,578 10,753 14,087 Effect of exchange rates on cash and cash equivalents 1,622 1,553 (876 ) Net increase(decrease) in cash $ 19,510 $ (5,550 ) $ (8,979 ) Operating activities In 2023, net cash used in operating activities was $7.9 million.
On February 26, 2021, we entered into another Equity Distribution Agreement (the “Agreement”) with the Sales Agent pursuant to which the Company may issue and sell shares of the Company’s common stock, par value $0.001 per share (the “Shares”) having an aggregate offering price of up to $35 million (the “Second ATM Offering”), from time to time through the Sales Agent.
On March 24, 2023, we entered into an Equity Distribution Agreement (the "Agreement") with Raymond James & Associates (the "Sales Agent") pursuant to which the Company may issue and sell shares of the Company’s common stock, par value $0.001 per share (the "Shares") having an aggregate offering price of up to $35 million (the "ATM Offering"), from time to time through the Sales Agent.
However, quarter-to-quarter results may show considerable variability as is usual in a period of technology transition. 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.
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.
The following chart provides the revenue contribution from each of the markets we serve for the years 2022, 2021 and 2020 , as well as the corresponding percentage of our total revenue for each period (in thousands, except percentages): Years ended December 31, Market 2022 2021 2020 CATV $ 118,169 $ 94,266 $ 37,944 Data Center 77,094 97,461 173,437 Telecom 24,727 16,247 21,092 FTTH 129 957 110 Other 2,699 2,634 2,040 Total $ 222,818 $ 211,565 $ 234,623 Percentage of Revenue CATV 53.0 % 44.6 % 16.2 % Data Center 34.6 % 46.1 % 73.9 % Telecom 11.1 % 7.7 % 9.0 % FTTH 0.1 % 0.5 % 0.0 % Other 1.2 % 1.2 % 0.9 % Total Revenue 100 % 100 % 100 % In 2022, 2021 and 2020 , our top ten customers represented 87.2%, 84.7%, and 84.3% of our revenue, respectively.
The following chart provides the revenue contribution from each of the markets we serve for the years 2023, 2022 and 2021 , as well as the corresponding percentage of our total revenue for each period (in thousands, except percentages): Years ended December 31, Market 2023 2022 2021 CATV $ 59,942 $ 118,169 $ 94,266 Data Center 141,213 77,094 97,461 Telecom 13,831 24,727 16,247 FTTH 56 129 957 Other 2,604 2,699 2,634 Total $ 217,646 $ 222,818 $ 211,565 Percentage of Revenue CATV 27.5 % 53.0 % 44.6 % Data Center 64.9 % 34.6 % 46.1 % Telecom 6.4 % 11.1 % 7.7 % FTTH 0.0 % 0.1 % 0.5 % Other 1.2 % 1.2 % 1.2 % Total Revenue 100 % 100 % 100 % In 2023, 2022 and 2021 , our top ten customers represented 92.7%, 87.2%, and 84.7% of our revenue, respectively.
The net cash used consisted of spending on China factory construction, purchase and prepaid of additional property, plant and equipment of $19.1 million. Financing activities Our financing activities have historically consisted primarily of proceeds from the issuance of common stock and arrangements with various commercial lenders. In 2022, our financing activities provided $10.8 million in cash.
In 2021, net cash used in investing activities was $10.5 million. The net cash used consisted of spending on purchase and prepaid of additional property, plant and equipment of $10.2 million. Financing activities Our financing activities have historically consisted primarily of proceeds from the issuance of common stock and arrangements with various commercial lenders.
The Company agreed to indemnify the Sales Agent against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Sales Agent may be required to make because of any of those liabilities. In March 2021, we commenced sales of common stock through the Second ATM Offering.
The Company agreed to indemnify the Sales Agent against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Sales Agent may be required to make because of any of those liabilities.
For the year ended December 31, 2022 , 23.0% of our total revenue was manufactured at our China-based subsidiary, with $10.5 million denominated in RMB and 73.7% 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, 2023 , 19.9% of our total revenue was manufactured at our China-based subsidiary, with $3.8 million denominated in RMB and 66% of our total revenue was from products manufactured at our Taiwan-based facility, with no revenue denominated in NT dollars.
In the U.S., we entered a Loan Security and Guarantee Agreement with CIT Northbridge Credit, LLC in November 2022 and fully repaid the loan with Truist Bank. The line of credit contains financial covenants that may limit the amount and types of debt that we may incur. As of December 31, 2022 , we were in compliance with these covenants.
In the U.S., we entered a Loan Security and Guarantee Agreement with CIT Northbridge Credit, LLC in November 2022. The line of credit contained financial covenants that may limit the amount and types of debt that we may incur. In November 2023, we terminated the loan agreement with CIT Northbridge Credit, LLC.
These cash decreases were offset by a decrease in inventory of $15.8 million and increase in accounts payable to our vendors of $7.1 million. In 2020, net cash used in operating activities was $44.0 million.
These cash decreases were offset by a decrease in inventory of $15.8 million and increase in accounts payable to our vendors of $7.1 million. Investing activities Our investing activities consisted primarily of capital expenditures and purchases of intangible assets. In 2023, net cash used in investing activities was $14.8 million.
In 2022 , revenue from the CATV market, internet data center market, telecom market and FTTH markets provided 53.0%, 34.6%, 11.1%, and 0.1% of our revenue, respectively, compared to 44.6%, 46.1%, 7.7%, and 0.5% of our 2021 revenue, respectively. In 2022 , our key customers in the CATV market included, ATX, Cisco, and CommScope .
In 2023 , revenue from the internet data center market, CATV market, telecom market and FTTH markets provided 64.9%, 27.5%, 6.4%, and 0.0% of our revenue, respectively, compared to 34.6%, 53%, 11.1%, and 0.1% of our 2022 revenue, respectively.
In 2022 , we earned 53.0% of our total revenue from the CATV market and 34.6% of our total revenue from the internet data center market. We sell our products to leading OEMs in the CATV, telecom, and FTTH markets as well as internet data center operators.
We sell our products to leading OEMs in the CATV, telecom, and FTTH markets as well as internet data center operators and CATV MSOs.
As of December 31, 2022 , we had $13.3 million of unused borrowing capacity. On March 5, 2019, the Company issued $80.5 million of 5% convertible senior notes due 2024. The Notes will mature on March 15, 2024, unless earlier repurchased, redeemed or converted in accordance with their terms.
On December 5, 2023, the Company issued $80.2 million of 5.250% convertible senior notes due 2026. The 2026 Notes will mature on December 15, 2026, unless earlier repurchased, redeemed or converted in accordance with their terms.
Other income (expense), net Years ended December 31, 2022 2021 Change % of % of Amount revenue Amount revenue Amount % (in thousands, except percentages) Interest income $ 126 0.1 % $ 70 0.0 % $ 56 80.0 % Interest expense (6,319 ) (2.8 )% (5,620 ) (2.7 )% (699 ) 12.4 % Other income (expense), net (1,205 ) (0.5 )% 8,156 3.9 % (9,361 ) (114.8 )% Total other income (expense), net $ (7,398 ) (3.3 )% $ 2,606 1.2 % $ (10,004 ) (383.9 )% Interest income increased by $0.1 million, or 80.0% from 2021 to 2022 .
Other income (expense), net Years ended December 31, 2023 2022 Change % of % of Amount revenue Amount revenue Amount % (in thousands, except percentages) Interest income $ 609 0.3 % $ 126 0.1 % $ 483 383.3 % Interest expense (9,428 ) (4.3 )% (6,319 ) (2.8 )% (3,109 ) 49.2 % Other income (expense), net (5,871 ) (2.7 )% (1,205 ) (0.5 )% (4,666 ) 387.2 % Total other income (expense), net $ (14,690 ) (6.7 )% $ (7,398 ) (3.2 )% $ (7,292 ) 98.6 % Interest income increased by $0.5 million, or 383.3% from 2022 to 2023 .
Operating expenses Years ended December 31, 2022 2021 Change % of % of Amount revenue Amount revenue Amount % (in thousands, except percentages) Research and development $ 36,244 16.3 % $ 41,220 19.5 % $ (4,976 ) (12.1 )% Sales and marketing 9,723 4.4 % 10,899 5.2 % (1,176 ) (10.8 )% General and administrative 46,658 20.9 % 42,362 20.0 % 4,296 10.1 % Total operating expenses $ 92,625 41.6 % $ 94,481 44.7 % $ (1,856 ) (2.0 )% Research and development expense Research and development expense decreased $5.0 million, or 12.1% from 2021 to 2022 .
Operating expenses Years ended December 31, 2023 2022 Change % of % of Amount revenue Amount revenue Amount % (in thousands, except percentages) Research and development $ 35,975 16.5 % $ 36,244 16.3 % $ (269 ) (0.7 )% Sales and marketing 11,069 5.1 % 9,723 4.4 % 1,346 13.8 % General and administrative 53,226 24.5 % 46,658 20.9 % 6,568 14.1 % Total operating expenses $ 100,270 46.1 % $ 92,625 41.6 % $ 7,645 8.3 % Research and development expense Research and development expense decreased $0.27 million, or 0.7% from 2022 to 2023 .
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. 35 Table of Contents Cost of goods sold and gross margin Years ended December 31, 2022 2021 Change % of % of Amount Revenue Amount Revenue Amount % (in thousands, except percentages) Cost of goods sold $ 189,191 84.91 % $ 173,850 82.17 % $ 15,341 8.8 % Gross margin 33,627 15.09 % 37,715 17.83 % (4,088 ) (10.8 )% Cost of goods sold increased by $15.3 million, or 8.8%, from 2021 to 2022 , primarily due to a 5.3% increase in sales over the prior year.
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. 34 Table of Contents Cost of goods sold and gross margin Years ended December 31, 2023 2022 Change % of % of Amount Revenue Amount Revenue Amount % (in thousands, except percentages) Cost of goods sold $ 158,725 72.9 % $ 189,191 84.9 % $ (30,466 ) (16.1 )% Gross margin 58,921 27.1 % 33,627 15.1 % 25,294 75.2 % Cost of goods sold decreased by $30.5 million, or 16.1%, from 2022 to 2023 , primarily due to a 24% decrease from direct material costs.
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 "Notes"), unless earlier repurchased, redeemed or converted in accordance with their terms. The sale of the Notes generated net proceeds of $76.4 million, after expenses.
Nov 2023 12.572 2,068 25,473 520 Total 7,808 $ 69,057 $ 1,410 Note Offering 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.
Net cash used in operating activities consisted of our net loss of $58.5 million, after the exclusion of non-cash items of $48.9 million, an increase in accounts receivable from our customers of $8.4 million and an increase in inventory of $23.7 million and decrease in accounts payable to our vendor of $3.3 million.
Net cash used in operating activities consisted of our net loss of $56.0 million, after the exclusion of non-cash items of $42.1 million, a decrease in accounts receivable from our customers of $14.5 million and a decrease in our inventory of $6.8 million, contributing to the cash increases.
Our business depends on winning competitive bid selection processes to develop components, systems and equipment for use in our customers’ products.
As a result, we strive to build strategic and long-lasting customer relationships and deliver products that are customized to our customers’ requirements. Our business depends on winning competitive bid selection processes to develop components, systems and equipment for use in our customers’ products.
In 2022 , 2021 , and 2020 , ATX accounted for 47.3%, 25.6%, and 3.7% of our revenue, Cisco accounted for 1.9%, 11.9% and 7.5% of our revenue and CommScope accounted for 1.7%, 3.3% and 2.1% of our revenue, respectively. Data center market included, Microsoft, a U.S. based large datacenter operator and a U.S. based NEM company.
In 2023 , 2022 , and 2021 , Microsoft accounted for 46.6%, 18.4%, and 14.1% of our revenue, a U.S. based large data center operator accounted for 8.8%, 5.9% and 8.3% of our revenue and China based manufacture accounted for 3.3%, 1.2% and 1.2% of our revenue, respectively.
The following charts provide the revenue contribution from each of the markets we served for the years ended December 31, 2022 and 2021 (in thousands, except percentages): Years ended December 31, Change % of % of 2022 Revenue 2021 Revenue Amount % CATV $ 118,169 53.0 % $ 94,266 44.6 % $ 23,903 25.4 % Data Center 77,094 34.6 % 97,461 46.1 % (20,367 ) (20.9 )% Telecom 24,727 11.1 % 16,247 7.7 % 8,480 52.2 % FTTH 129 0.1 % 957 0.5 % (828 ) (86.5 )% Other 2,699 1.2 % 2,634 1.2 % 65 2.5 % Total Revenue $ 222,818 100.0 % $ 211,565 100.0 % $ 11,253 5.3 % Revenue increased by $11.2 million or 5.3% from 2021 to 2022.
The following charts provide the revenue contribution from each of the markets we served for the years ended December 31, 2023 and 2022 (in thousands, except percentages): Years ended December 31, Change % of % of 2023 Revenue 2022 Revenue Amount % CATV $ 59,942 27.5 % $ 118,169 53.0 % $ (58,227 ) (49.3 )% Data Center 141,213 64.9 % 77,094 34.6 % 64,119 83.2 % Telecom 13,831 6.4 % 24,727 11.1 % (10,896 ) (44.1 )% FTTH 56 0.0 % 129 0.1 % (73 ) (56.6 )% Other 2,604 1.2 % 2,699 1.2 % (95 ) (3.5 )% Total Revenue $ 217,646 100.0 % $ 222,818 100.0 % $ (5,172 ) (2.3 )% Revenue decreased by $5.2 million or 2.3% from 2022 to 2023.
Based on customer forecasts and order backlog we believe that this elevated CATV demand will likely continue into 2023. We expect continued sales of our 40 Gbps and 100 Gbps products in 2023, and we expect that sales of 100 Gbps products will likely exceed sales of 40 Gbps products.
Based on customer forecasts and order backlog we believe that this elevated datacenter demand will likely continue into 2024. We also believe that sales in our CATV market will increase in 2024 as a result of DOCSIS 4.0 products which we plan to release in 2024.
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 At-The-Market (ATM) Offering. These activities were offset by $7.3 million debt repayment and $0.5 million related to tax withholding associated with employee share-based compensation.
In 2022, our financing activities provided $10.8 million in cash. 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.
The decreases were primarily due to less R&D work orders, renovation depreciation ended in October 2021 in China site and less indirect materials usage. 36 Table of Contents Sales and marketing expense Sales and marketing expense decreased by $1.2 million, or 10.8%, from 2021 to 2022 .
These decreases were primarily due to less R&D work orders, less depreciation expense and less indirect materials usage, offset by higher R&D wage expenses due to a combination of increased headcount and salary increases. 35 Table of Contents Sales and marketing expense Sales and marketing expense increased by $1.3 million, or 13.8%, from 2022 to 2023 .
Within the CATV market, we benefit from a number of ongoing trends including the move to higher bandwidth networks among CATV service providers and the outsourcing of system design among CATV networking equipment companies.
Within the CATV market, we benefit from a number of ongoing trends including the move to higher bandwidth networks among CATV service providers, especially the desire by MSOs to increase the return-path bandwidth available to offer to their customers. In the FTTH market, we benefit from continuing PON deployments and system upgrades among telecom service providers.
In Taiwan, the Company has fully repaid the finance agreement with Chailease Finance Co, Ltd. for Prime World's Taiwan Branch. In China, we have a revolving line of credit with Shanghai Pudong Development Bank Co., Ltd and a credit facility with China Zheshang Bank Co., Ltd. for our China subsidiary, Global.
In China, we have a revolving line of credit with Shanghai Pudong Development Bank Co., Ltd and a credit facility with China Zheshang Bank Co., Ltd. for our China subsidiary, Global. As of December 31, 2023 , we had $22.5 million of unused borrowing capacity.
In the years ended December 31, 2022, 2021 and 2020 , we had net loss of $66.4 million, $54.2 million , and $58.5 million, respectively. At December 31, 2022 and 2021 , our accumulated deficit was $209.1 million and $142.7 million, respectively.
We have grown our annual revenue at a compound annual growth rate, or CAGR, of 10.7% between 2013 and 2023 . In the years ended December 31, 2023, 2022 and 2021 , we had net loss of $56.0 million, $66.4 million , and $54.2 million, respectively.
Our strategy is to use our direct sales force to sell to key accounts and to expand our use of distributors for increased coverage in certain international markets and certain domestic market segments. We have direct sales personnel that cover the U.S., Taiwan and China focusing primarily on major OEM customers and internet data center operators.
Our sales model focuses on direct engagement and close coordination with our customers to determine product design, qualifications, performance and price. Our strategy is to use our direct sales force to sell to key accounts and to expand our use of distributors for increased coverage in certain international markets and certain domestic market segments.
Depending on the assumptions and estimates used, the fair value projected in the evaluation of long-lived assets can vary within a range of outcomes. 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 2022, 2021 and 2020.
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 2023, 2022 and 2021. Valuation of inventories Inventories are stated at the lower of cost (average-cost method) or net realizable value.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+0 added−0 removed12 unchanged
Biggest changeAs of December 31, 2022 , our debt bears a variable rate of interest that is based on SOFR or other interbank offered rates. The debt subject to variable rates is subject to fluctuation in the SOFR or other interbank offered rates. As of December 31, 2022 , we had not hedged our interest rate risk.
Biggest changeAs of December 31, 2023 , we had not hedged our interest rate risk. During a portion of the year ending ending December 31, 2023, we did have certain loans that bore floating interest rates.
With respect to our interest expense for the year ended December 31, 2022 , an increase of 1.0% in each of our interest rates would have resulted in an increase of $0.6 million in our interest expense for such period.
With respect to our interest expense for the year ended December 31, 2023 an increase of 1.0% in each of our interest rates would have resulted in an increase of $0.2 million in our interest expense for such period.
With respect to these U.S. dollar denominated net assets as of December 31, 2022 , if exchange rates of RMB and NT dollars for U.S. dollars were 1% higher during the year ended December 31, 2022 , our other operating expenses would have been reduced by $0.4 million.
With respect to these U.S. dollar denominated net assets as of December 31, 2023 , if exchange rates of RMB and NT dollars for U.S. dollars were 1% higher during the year ended December 31, 2023 , our other operating expenses would have been reduced by $48K.
If exchange rates of RMB and NT dollars for U.S. dollars were 1% higher during the year ended December 31, 2022 , our operating expenses would have had been higher by $0.4 million. 42 Table of Contents As of December 31, 2022 , we held the U.S. dollar denominated liabilities net of assets of approximately $24.6 million in our China subsidiary and $26.7 million in our Taiwan branch.
If exchange rates of RMB and NT dollars for U.S. dollars were 1% higher during the year ended December 31, 2023 , our operating expenses would have had been higher by $0.4 million. 41 Table of Contents As of December 31, 2023 , we held the U.S. dollar denominated liabilities net of assets of approximately $11.4 million in our China subsidiary and $16.2 million in our Taiwan branch.
During the year ended December 31, 2022 , we recognized approximately $1.5 million of exchange loss 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, 2023 , we recognized approximately $0.7 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, 2022 , 4.7% of our revenue was denominated in RMB and none of our revenue was denominated in NT dollars. In the year ended December 31, 2022 , 25.8% of our operating expenses were denominated in RMB and 18.9% of our operating expenses were denominated in NT dollars.
During the year ended December 31, 2023 , 1.8% of our revenue was denominated in RMB and none of our revenue was denominated in NT dollars. In the year ended December 31, 2023 , 22% of our operating expenses were denominated in RMB and 16.7% of our operating expenses were denominated in NT dollars.
We do not anticipate any material effect on our cash balances or investment portfolio due to fluctuations in interest rates. We are exposed to market risk due to the possibility of changing interest rates associated with certain debt instruments.
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, 2023 , all debts bore a fixed interest rate and therefore did not generate interest rate risk.

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