UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2022~~March 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 001-36083

Applied Optoelectronics, Inc.

(Exact name of registrant as specified in its charter)

Delaware	76-0533927
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

13139 Jess Pirtle Blvd.

Sugar Land, TX 77478

(Address of principal executive offices)

(281) 295-1800

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Trading Name of each exchange on which registered
Common Stock, Par value $0.001	AAOI	NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒ ☐
Non-accelerated filer	☐☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~August 1, 2022~~May 2, 2023 there were ~~27,882,758~~29,195,682 shares of the registrant’s Common Stock outstanding.

Table of Contents

	*June 30,*			*December 31,*			*March 31,*			*December 31,*
	*2022*			*2021*			*2023*			*2022*
ASSETS
Current Assets
Cash and cash equivalents	$	33,667		$	34,656		$	16,103		$	24,685
Restricted cash		6,983			6,480			10,845			10,902
Accounts receivable - trade, net of allowance of $26 and $30, respectively		49,139			47,944
Accounts receivable - trade, net of allowance of $39 and $28, respectively								56,799			61,175
Notes receivable		212			8,148			1,079			339
Inventories, net		98,181			92,516
Prepaid income tax		0			1
Inventories								70,186			79,679
Prepaid expenses and other current assets		6,235			4,334			6,517			6,384
Total current assets		194,417			194,079			161,529			183,164
Property, plant and equipment, net		224,349			243,035			207,171			210,184
Land use rights, net		5,500			5,856			5,278			5,238
Operating right of use asset		6,165			7,078			5,381			5,566
Financing right of use asset		41			57			18			26
Intangible assets, net		3,763			3,836			3,655			3,699
Other assets, net		520			518			519			386
TOTAL ASSETS	$	434,755		$	454,459		$	383,551		$	408,263
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of notes payable and long-term debt	$	53,565		$	49,689
Accounts payable		52,496			34,402		$	38,419		$	47,845
Bank acceptance payable		10,273			8,198			19,196			12,337
Accrued liabilities								13,505			17,222
Deferred revenue								2,763			3,000
Current lease liability - operating		1,023			1,062			1,035			1,041
Current lease liability - financing		19			19			58			63
Accrued liabilities		12,440			15,587
Current portion of notes payable and long-term debt								50,921			57,074
Current portion of Convertible senior notes								79,710			—
Total current liabilities		129,816			108,957			205,607			138,582
Notes payable and long-term debt, less current portion		0			5,000
Non-current lease liability - operating								5,307			5,505
Convertible senior notes		79,090			78,680			—			79,506
Non-current lease liability - operating		6,202			7,189
Non-current lease liability - financing		53			63
TOTAL LIABILITIES		215,161			199,889			210,914			223,593
Stockholders' equity:
Common Stock; 45,000 shares authorized at $0.001 par value; 27,658 and 27,323 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively		28			27
Common Stock; 45,000 shares authorized at $0.001 par value; 29,072 and 28,622 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively								29			29
Additional paid-in capital		385,531			381,143			394,147			391,526
Accumulated other comprehensive income		7,226			16,071			3,823			2,183
Accumulated deficit		(173,191	)		(142,671	)		(225,362	)		(209,068	)
TOTAL STOCKHOLDERS' EQUITY		219,594			254,570			172,637			184,670
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	434,755		$	454,459		$	383,551		$	408,263

The accompanying notes are an integral part of these condensed consolidated financial statements.

	*Three months ended June 30,*						*Six months ended June 30,*						*Three months ended March 31,*
	*2022*			*2021*			*2022*			*2021*			*2023*			*2022*
Revenue, net	$	52,299		$	54,189		$	104,540		$	103,890		$	53,030		$	52,242
Cost of goods sold		43,671			43,411			86,888			82,393			43,786			43,217
Gross profit		8,628			10,778			17,652			21,497			9,244			9,025
Operating expenses
Research and development		8,328			10,914			17,814			21,842			8,536			9,486
Sales and marketing		2,164			2,832			4,722			5,792			2,327			2,558
General and administrative		11,035			10,681			22,254			21,550			12,548			11,220
Total operating expenses		21,527			24,427			44,790			49,184			23,411			23,264
Loss from operations		(12,899	)		(13,649	)		(27,138	)		(27,687	)		(14,167	)		(14,239	)
Other income (expense)
Interest income		31			16			59			32			33			28
Interest expense		(1,408	)		(1,367	)		(2,810	)		(2,798	)		(2,137	)		(1,401	)
Other income (expense), net		(180	)		6,797			(629	)		6,628
Other expense, net														(21	)		(450	)
Total other income (expense), net		(1,557	)		5,446			(3,380	)		3,862			(2,125	)		(1,823	)
Loss before income taxes		(14,456	)		(8,203	)		(30,518	)		(23,825	)		(16,292	)		(16,062	)
Net loss	$	(14,456	)	$	(8,203	)	$	(30,518	)	$	(23,825	)	$	(16,292	)	$	(16,062	)
Net loss per share
Basic	$	(0.52	)	$	(0.31	)	$	(1.11	)	$	(0.89	)	$	(0.56	)	$	(0.58	)
Diluted	$	(0.52	)	$	(0.31	)	$	(1.11	)	$	(0.89	)	$	(0.56	)	$	(0.58	)

Weighted average shares used to compute net loss per share:
Basic		27,612,315			26,850,032			27,537,048			26,636,755			28,871,857			27,463,321
Diluted		27,612,315			26,850,032			27,537,048			26,636,755			28,871,857			27,463,321

The accompanying notes are an integral part of these condensed consolidated financial statements.

												*Accumulated*																				*Accumulated*
	*Preferred Stock*				*Common Stock*				*Additional*			*other*									*Preferred Stock*				*Common Stock*				*Additional*			*other*
	*Number*				*Number*				*paid-in*			*comprehensive*			*Accumulated*			*Stockholders'*			*Number*				*Number*				*paid-in*			*comprehensive*		*Accumulated*			*Stockholders'*
	*of shares*		*Amount*		*of shares*		*Amount*		*capital*			*gain (loss)*			*deficit*			*equity*			*of shares*		*Amount*		*of shares*		*Amount*		*capital*			*gain (loss)*		*deficit*			*equity*
March 31, 2022		0	$	0		27,530	$	28	$	383,474		$	14,809		$	(158,735	)	$	239,576
December 31, 2022																						—	$	—		28,622	$	29	$	391,526		$	2,183	$	(209,068	)	$	184,670
Issuance of restricted stock, net of shares withheld for employee tax		0		0		128		0		(87	)		0			0			(87	)		—		—		292		—		(76	)		—		—			(76	)
Share-based compensation		—		0		—		0		2,144			0			0			2,144			—		—		—		—		2,290			—		—			2,290
Public offering of common stock, net																						—		—		158		—		407			—		—			407
Foreign currency translation adjustment		—		0		—		0		0			(7,583	)		0			(7,583	)		—		—		—		—		—			1,640		(2	)		1,638
Net loss		—		0		—		0		0			0			(14,456	)		(14,456	)		—		—		—		—		—			—		(16,292	)		(16,292	)
June 30, 2022		0	$	0		27,658	$	28	$	385,531		$	7,226		$	(173,191	)	$	219,594
March 31, 2023																						—	$	—		29,072	$	29	$	394,147		$	3,823	$	(225,362	)	$	172,637

Accumulated

Preferred Stock

Common Stock

Additional

other

Number

Number

paid-in

comprehensive

Accumulated

Stockholders'

of shares

Amount

of shares

Amount

capital

gain (loss)

deficit

equity

March 31, 2021
0 $ 0 26,787 $ 27 $ 371,920 $ 10,656 $ (104,131 ) $ 278,472
Public offering of common stock, net
0 0 35 0 262 0 0 262
Issuance of restricted stock, net of shares withheld for employee tax
0 0 97 0 (144 ) 0 0 (144 )
Share-based compensation
— 0 — 0 3,274 0 0 3,274
Foreign currency translation adjustment
— 0 — 0 0 3,630 0 3,630
Net loss
— 0 — 0 0 0 (8,203 ) (8,203 )
June 30, 2021
0 $ 0 26,919 $ 27 $ 375,312 $ 14,286 $ (112,334 ) $ 277,291

Accumulated

Preferred Stock

Common Stock

Additional

other

Number

Number

paid-in

comprehensive

Accumulated

Stockholders'

of shares

Amount

of shares

Amount

capital

gain (loss)

deficit

equity

January 1, 2022
0 $ 0 27,323 $ 27 $ 381,143 $ 16,071 $ (142,671 ) $ 254,570
Stock options exercised, net of shares withheld for employee tax
0 0 0 0 0 0 0 0
Issuance of restricted stock, net of shares withheld for employee tax
0 0 335 1 (228 ) 0 0 (227 )
Share-based compensation
— 0 — 0 4,616 0 0 4,616
Foreign currency translation adjustment
— 0 — 0 0 (8,845 ) (2 ) (8,847 )
Net loss
— 0 — 0 0 0 (30,518 ) (30,518 )
June 30, 2022
0 $ 0 27,658 $ 28 $ 385,531 $ 7,226 $ (173,191 ) $ 219,594

												*Accumulated*																			*Accumulated*
	*Preferred Stock*				*Common Stock*				*Additional*			*other*								*Preferred Stock*				*Common Stock*				*Additional*			*other*
	*Number*				*Number*				*paid-in*			*comprehensive*		*Retained*			*Stockholders'*			*Number*				*Number*				*paid-in*			*comprehensive*			*Accumulated*			*Stockholders'*
	*of shares*		*Amount*		*of shares*		*Amount*		*capital*			*gain (loss)*		*earnings*			*equity*			*of shares*		*Amount*		*of shares*		*Amount*		*capital*			*gain (loss)*			*deficit*			*equity*
January 1, 2021		0	$	0		25,110	$	25	$	354,685		$	11,690	$	(88,509	)	$	277,891
Public offering of common stock, net		0		0		1,546		2		15,228			0		0			15,230
Stock options exercised, net of shares withheld for employee tax		0		0		2		0		8			0		0			8
December 31, 2021																					—	$	—		27,323	$	27	$	381,143		$	16,071		$	(142,671	)	$	254,570
Issuance of restricted stock, net of shares withheld for employee tax		0		0		261		0		(402	)		0		0			(402	)		—		—		207		—		(141	)		—			—			(141	)
Share-based compensation		—		0		—		0		5,793			0		0			5,793			—		—		—		—		2,472			—			—			2,472
Foreign currency translation adjustment		—		0		—		0		0			2,596		0			2,596			—		—		—		—		—			(1,262	)		—			(1,262	)
Net loss		—		0		—		0		0			0		(23,825	)		(23,825	)		—		—		—		—		—			—			(16,062	)		(16,062	)
June 30, 2021		0	$	0		26,919	$	27	$	375,312		$	14,286	$	(112,334	)	$	277,291
March 31, 2022																					—	$	—		27,530	$	27	$	383,474		$	14,809		$	(158,733	)	$	239,577

The accompanying notes are an integral part of these condensed consolidated financial statements.

	*Six months ended June 30,*						Three months ended March 31,
	*2022*			*2021*			2023			2022
Operating activities:
Net loss	$	(30,518	)	$	(23,825	)	$	(16,292	)	$	(16,062	)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for losses on accounts receivable		(4	)		0
Lower of cost or market reserve adjustment to inventory		2,403			2,211
Allowance of bad debt								11			(1	)
Inventory reserve adjustment								2,588			2,037
Depreciation and amortization		11,995			12,870			5,329			6,108
Amortization of debt issuance costs		425			434			306			211
Loss on disposal of assets		(35	)		5
Gain (loss) on disposal of assets								3			(39	)
Share-based compensation		4,616			5,793			2,290			2,472
Interest for extinguishment of debt		0			(70	)
Extinguishment of debt		0			(6,229	)
Unrealized foreign exchange gain		1,366			692
Unrealized foreign exchange (gain) loss								(1,065	)		997
Changes in operating assets and liabilities:
Accounts receivable, trade		5,938			(5,362	)		4,365			(223	)
Notes receivable		7,911			(3,390	)		(742	)		6,986
Prepaid income tax		1			0			—			1
Inventories		(11,530	)		8,934			7,403			(1,978	)
Other current assets		(2,118	)		72			(80	)		(1,422	)
Operating right of use asset		476			381			230			243
Accounts payable		10,966			(3,889	)		(9,427	)		(406	)
Accrued liabilities		(2,730	)		(3,082	)		(3,815	)		(2,271	)
Unearned revenue								(237	)		—
Lease liability		(512	)		(427	)		(257	)		(256	)
Net cash used in operating activities		(1,350	)		(14,882	)		(9,390	)		(3,603	)
Investing activities:
Purchase of property, plant and equipment		(1,669	)		(3,582	)		(575	)		(1,022	)
Proceeds from disposal of equipment		118			110			65			115
Deposits for equipment		(214	)		(272	)
Deposits and prepaid for equipment								(160	)		(30	)
Purchase of intangible assets		(245	)		(188	)		(113	)		(114	)
Net cash used in investing activities		(2,010	)		(3,932	)		(783	)		(1,051	)
Financing activities:
Principal payments of long-term debt and notes payable		(7,336	)		(2,227	)		—			(170	)
Proceeds from line of credit borrowings		76,903			66,742			19,482			41,395
Repayments of line of credit borrowings		(69,988	)		(50,119	)		(25,402	)		(39,062	)
Proceeds from bank acceptance payable		19,951			10,722			18,974			9,686
Repayments of bank acceptance payable		(17,292	)		(20,206	)		(12,293	)		(7,968	)
Principal payments of financing lease		(9	)		(9	)		(5	)		(5	)
Exercise of stock options		0			8
Payments of tax withholding on behalf of employees related to share-based compensation		(227	)		(402	)		(75	)		(140	)
Proceeds from common stock offering, net		0			15,336			407			—
Net cash provided by financing activities		2,002			19,845			1,088			3,736
Effect of exchange rate changes on cash		872			(646	)		446			(110	)
Net decrease in cash, cash equivalents and restricted cash		(486	)		385			(8,639	)		(1,028	)
Cash, cash equivalents and restricted cash at beginning of period		41,136			50,114			35,587			41,136
Cash, cash equivalents and restricted cash at end of period	$	40,650		$	50,499			26,948			40,108
Supplemental disclosure of cash flow information:
Cash paid for:
Interest, net of amounts capitalized	$	2,616		$	2,394		$	2,304		$	2,406
Income taxes		0			1
Non-cash investing and financing activities:
Extinguishment of Debt and interest		0			(6,299	)
Net change in accounts payable related to property and equipment additions		(291	)		(2,341	)		(20	)		19
Net change in deposits and prepaid for equipment related to property and equipment additions		41			35			(93	)		13

The accompanying notes are an integral part of these condensed consolidated financial statements.

Applied Optoelectronics, Inc. (“AOI” or the “Company”) is a Delaware corporation. The Company 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"). The Company designs and manufactures a wide range of optical communications products at varying levels of integration, from components, subassemblies and modules to complete turn-key equipment.

The Company has manufacturing and research and development facilities located in the U.S., Taiwan and China. In the U.S., at its corporate headquarters and manufacturing facilities in Sugar Land, Texas, the Company primarily manufactures lasers and laser components and performs research and development activities for laser component and optical module products. In addition, the Company also has a research and development facility in Duluth, Georgia. The Company operates in Taipei, Taiwan and Ningbo, China through its wholly-owned subsidiary Prime World International Holdings, Ltd. (“Prime World”, incorporated in the British Virgin Islands). Prime World operates a branch in Taipei, Taiwan, which primarily manufactures transceivers and performs research and development activities for the transceiver products. Prime World is also the parent of Global Technology, Inc. (“Global”, incorporated in the People’s Republic of China). Through Global, the Company primarily manufactures certain of its data center transceiver products, including subassemblies, as well as CATV systems and equipment, and performs research and development activities for the CATV products.

The unaudited condensed consolidated financial statements of the Company as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 and for the three ~~and~~ ~~six~~months ended ~~June 30, 2022~~March 31, 2023 and ~~June 30, 2021~~March 31, 2022, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim information and with the instructions on Form 10-Q and Rule 10-01 of Regulation S-X pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In accordance with those rules and regulations, the Company has omitted certain information and notes required by GAAP for annual consolidated financial statements. In the opinion of management, the condensed consolidated financial statements contain all adjustments, except as otherwise noted, necessary for the fair presentation of the Company’s financial position and results of operations for the periods presented. The year-end condensed balance sheet data was derived from audited financial statements. These condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K (“Annual Report”) for the fiscal year ended December 31, ~~2021~~2022. The results of operations for the three ~~and~~ ~~six~~months ended ~~June 30, 2022~~March 31, 2023 are not necessarily indicative of the results expected for the entire fiscal year. All significant inter-company accounts and transactions have been eliminated.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates in the consolidated financial ~~statements~~statements and accompanying notes. Significant estimates and assumptions that impact these financial statements and the accompanying notes relate to, among other things, allowance for ~~credit losses,~~doubtful accounts, inventory reserve, impairment of long-lived assets, service and product warranty costs, share-based compensation expense, estimated useful lives of property and equipment, and taxes.

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

On September 15, 2022, the Company 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 PRC and certain assets related to its transceiver business and multi-channel optical sub-assembly products (collectively, the "Divestiture"). 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").

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 March 31, 2023. 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. 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 likelihood of 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. As 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.

There have been no changes in the Company’s significant accounting policies for the three ~~and~~ ~~six~~months ended ~~June 30, 2022~~March 31, 2023, as compared to the significant accounting policies described in its ~~2021~~2022 Annual ~~Report, except as described below.~~Report.

To date, there have been no recent accounting pronouncement not yet effective that have significance, or potential significance, to our Consolidated Financial Statements.

Revenue is classified based on the location where the product is manufactured. For additional information on the disaggregated revenues by geographical region, see Note 17, "Geographic Information.”

Revenue is also classified by major product category and is presented below (in thousands):

The Company leases space under non-cancellable operating leases for manufacturing facilities, research and development offices and certain storage facilities and apartments. These leases do not contain contingent rent provisions. The Company also leases certain machinery, office equipment and a ~~vehicle.~~vehicle under an operating lease. Many of its leases include both lease (e.g. fixed payments including rent, taxes, and insurance costs) and non-lease components (e.g. common-area or other maintenance costs) which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases. Several of the leases include one or more options to renew which have been assessed and either included or excluded from the calculation of the lease liability of the right of use ("ROU") asset based on management’s intentions and individual fact patterns. Several warehouses and apartments have non-cancellable lease terms of less than one-year and therefore, the Company has elected the practical expedient to exclude these short-term leases from its ROU asset and lease liabilities.

As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Based on the applicable lease terms and current economic environment, the Company applies a location approach for determining the incremental borrowing rate.

~~The~~Lease expense is included under general and administrative expenses and was $0.3 million each for the periods ended March 31,2023 and March 31, 2022. The components of lease expense were as follows for the periods indicated (in thousands):

Maturities of lease liabilities are as follows for the future one-year periods ending ~~June 30, 2022~~March 31, 2023 (in thousands):

The weighted average remaining lease term and discount rate for ~~operating~~the leases were as follows for the periods indicated:

Supplemental cash flow information related to ~~operating~~the leases was as follows for the periods indicated (in thousands):

The following table provides a reconciliation of ~~cash,~~cash, cash equivalents and ~~restricted~~restricted cash reported within the statement of financial position that sum to the total of the same such amounts in the statement of cash flows (in thousands):

Restricted cash includes guarantee deposits for customs duties, China government subsidy fund, and compensating balances ~~required for~~associated with certain credit facilities. As of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~ 2022, there was ~~$4.8~~$8.4 million and ~~$3.0~~$8.7 million of restricted cash required for bank acceptance notes issued to vendors, respectively. In addition, there was ~~$0.3~~$1.0 million and ~~$2.4~~$1.1 million certificate of deposit associated with credit facilities with a bank in China as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~ 2022, respectively. There was ~~$1.8~~$1.4 million and ~~$1.0~~$1.0 million guarantee deposits for customs duties as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~ 2022, respectively.

Basic net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share has been computed using the weighted-average number of shares of common stock and dilutive potential common shares from stock options, restricted stock units and senior convertible notes outstanding during the period. In periods with net losses, normally dilutive shares become anti-dilutive. Therefore, basic and diluted loss per share are the same.

The following table sets forth the computation of the basic and diluted net loss per share for the periods indicated (in thousands):

The following potentially dilutive securities were excluded from the diluted net loss per share as their effect would have been antidilutive (in thousands):

Inventories, net of inventory write-downs, consist of the following for the periods indicated (in thousands):

~~The lower of cost or market adjustment expensed for inventory for the~~ ~~three~~ ~~months ended~~ ~~June 30, 2022~~ ~~and~~ ~~2021~~ ~~was~~ ~~$0.4 million~~ ~~and $1.3 million, respectively. The lower of cost or market adjustment expensed for inventory for the~~ ~~six~~ ~~months ended~~ ~~June 30, 2022~~ ~~and~~ ~~2021~~ ~~was $2.4 million and $2.2 million, respectively.~~

For the three months ended ~~June 30, 2022~~March 31, 2023 and ~~2021~~2022, the inventory reserve adjustment expensed for inventory was $2.6 million, and $2.0 million, respectively. For the three months ended March 31, 2023 and 2022, the direct inventory write-offs related to scrap, discontinued products, and damaged inventories we~~re $1.8~~were $3.8 million, and ~~$4.8 million, respectively.~~ ~~For the~~ ~~six~~ ~~months ended~~ ~~June 30, 2022~~ ~~and~~ ~~2021,~~ ~~the direct inventory write-offs related to scrap, discontinued products, and damaged inventories were $2.7 million and $10.8~~$1.0 million, respectively.

Property, plant and equipment consisted of the following for the periods indicated (in thousands):

For the three months ended ~~June 30, 2022~~March 31, 2023 and ~~2021~~2022, the depreciation expense of property, plant and equipment was ~~$5.7~~$5.2 million and ~~$6.3 million, respectively. For the~~ ~~six~~ ~~months ended~~ ~~June 30, 2022~~ ~~and~~ ~~2021,~~ ~~the depreciation expense of property, plant and equipment was $11.7 million and $12.6~~$6.0 million, respectively. For the three months ended ~~June 30, 2022~~March 31, 2023 and ~~2021~~2022, the capitalized interest was $0 million and $0.1 million, ~~and $0.2 million,~~ respectively. ~~For the~~ ~~six~~ ~~months ended~~ ~~June 30, 2022~~ ~~and~~ ~~2021,~~ ~~the capitalized interest was $0.2 million and $0.3 million, respectively.~~

As of ~~June 30, 2022~~March 31, 2023, the Company concluded that its continued loss history constitutes a triggering event as described in ASC 360-10-35-21,Property, Plant, and Equipment. The Company performed a recoverability test and concluded that future undiscounted cash flows exceed the carrying amount of the Company’s long-lived assets and therefore no impairment charge was recorded.

Intangible assets consisted of the following for the periods indicated (in thousands):

For the three months ended ~~June 30, 2022~~March 31, 2023 and ~~2021~~2022, amortization expense for intangible assets, included in general and administrative expenses on the ~~income~~ statement of operations, was each $0.2 ~~million. For the~~ ~~six~~ ~~months ended~~ ~~June 30, 2022~~ ~~and~~ ~~2021,~~ ~~the amortization expense for intangible assets, was each $0.3~~ million. The remaining weighted average amortization period for intangible assets is approximately 65.7 years.

At ~~June 30, 2022~~March 31, 2023, future amortization expense for intangible assets for future one year periods is estimated to be (in thousands):

The ~~following table represents a summary of the Company’s financial instruments measured at fair value on a recurring basis for the periods indicated (in thousands):~~

~~The~~ carrying value amounts of cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses, notes receivable and other current assets, accounts payable, accrued expenses, bank acceptance payable and other current liabilities approximate fair value because of the short-term maturity of these instruments. ~~The carrying value amounts of bank acceptances approximate fair value due to the short-term nature of the debt since it renews frequently at current interest rates.~~ The Company believes that the interest rates in effect at each period end represent the current market rates for similar borrowings.

The fair value of ~~its~~ convertible senior ~~debt~~notes is measured for disclosure ~~purpose.~~purposes only. The fair value and carrying amount of our convertible senior notes as of March 31, 2023 was $60.9 million and $79.9 million, respectively. As of December 31, 2022, the fair value and carrying amount of our convertible senior notes was $58.3 million and $79.5 million, respectively. The fair value is based on observable market prices for this debt, which is traded in less active markets and are therefore classified as a Level 2 fair value measurement.

Notes payable and long-term debt consisted of the following for the periods indicated (in thousands):

The current portion of long-term debt is the amount payable within one year of the balance sheet date of ~~June 30, 2022~~March 31, 2023.

Maturities of long-term debt are as follows for the future one-year periods ending ~~June 30,~~March 31, (in thousands):

On ~~September 28, 2017,~~November 16, 2022, the Company entered into a Loan Security and Guarantee Agreement ~~(“Loan Agreement”), a Promissory Note, an Addendum to the Promissory Note, a Truist Bank Security Agreement, a Trademark Security Agreement, and a Patent Security Agreement (together the~~(the “Credit Facility”) with ~~Truist Bank.~~CIT Northbridge Credit, LLC, as agent for secured parties. The ~~Company’s~~Credit Facility provides the Company with a three-year, $27.78 million revolving line of credit. Borrowings under the Credit Facility will be used for working capital needs, capital expenditures, and other corporate purposes. The Company's obligations under the Credit Facility are secured by the ~~Company’s~~Company's inventory, accounts receivable, ~~inventory,~~instruments, equipment, intellectual property, and all business assets with the exception of real estate and ~~equipment.~~

On ~~December 29, 2021~~, the Company executed a Sixth Amendment to the Loan Agreement (the "Sixth Amendment") and a Fifth Amendment to Security Agreement, a Note Modification Agreement, and an Addendum to Promissory Note (together the "Sixth Amended Credit Facility") with Truist Bank. The Sixth Amended Credit Facility extends the $20 million line of credit, originally entered into on ~~September 28, 2017,~~ ~~until~~ ~~April 15, 2023.~~ all foreign assets. Borrowings will bear interest at a rate equal to the Secured Overnight Financing Rate (SOFR) plus ~~1.56%~~3.75%, ~~with a~~ while monthly average usage is less than 50% of the Credit Facility, otherwise SOFR ~~floor~~plus 4.75%. The Credit Facility will become due at the earlier date of ~~0.75%.~~ either November 16, 2025 or 91 days prior to the maturity of the Convertible Notes. As of ~~June 30, 2022~~March 31, 2023, ~~the Company had $17~~$20.5 million ofwas outstanding ~~borrowings and was in compliance with all covenants~~ under the ~~Sixth Amended~~ Credit Facility.

On ~~September 15, 2020,~~ ~~Prime World entered into an Amendment to the Finance Lease Agreements dated~~ ~~November 29, 2018~~ ~~and~~ ~~January 21, 2019 (~~~~the “Amendment”) with Chailease Finance Co., Ltd. (“Chailease”). The Amendment amends the Finance Lease Agreements, dated~~ ~~November 29, 2018~~ ~~and~~ ~~January 21, 2019 (~~~~hereafter collectively referred to as the “Original Finance Agreements”). Pursuant to the Amendment, Prime World agrees to pay Chailease~~ ~~NT$22,311,381,~~ or approximately $0.8 million for certain leased equipment listed in the Amendment (the “Leased Equipment”). This payment includes all outstanding lease payments, costs and expenses; simultaneously, Chailease agrees to transfer title of such Leased Equipment back to Prime World. Regarding all other equipment contemplated in the Original Finance Agreements but ~~not~~ ~~listed in the Amendment, pursuant to the terms and conditions made under the Original Finance Agreements, Prime World is obligated to pay Chailease monthly lease payments which total~~ ~~NT$159,027,448,~~ ~~or approximately $5.5 million (the “Lease Payments”). The Lease Payments began on~~ ~~September 21, 2020~~ ~~with the last Lease Payment due on~~ ~~January 21, 2022,~~ ~~title of all other equipment contemplated under the Original Finance Agreements but~~ ~~not~~ ~~listed in the Amendment transferred to Prime World upon completion of the Lease Payments and expiration of the Original Finance Agreements. As of~~ ~~June 30, 2022~~~~, the Company has fully repaid the Original Finance Agreements and Amendment.~~

On May 24, 2019, the Company’s China subsidiary, Global, entered into a five-year revolving credit line agreement, totaling 180,000,000 RMB (the “SPD Credit Line”), or approximately $25.4 million at that time, and a mortgage security agreement (the “Security Agreement”), with Shanghai Pudong Development Bank Co., Ltd ("SPD"). Borrowing under the SPD Credit Line will be used for general corporate and capital investment purposes, including the issuance of bank acceptance notes to Global’s vendors. ~~The total SPD Credit Line of~~ ~~180~~ ~~million RMB is inclusive of all credit facilities previously entered into with SPD including: a 30 million RMB credit facility entered into on~~ ~~May 7, 2019;~~ ~~and a 9.9 million RMB credit facility entered into on~~ ~~April 30, 2019~~ ~~and $2 million credit facility entered into on~~ ~~May 8, 2019.~~ Global may draw upon the SPD Credit Line on an as-needed basis at any time during the 5-year term; however, draws under the SPD Credit Line may become due and repayable to SPD at SPD’s discretion due to changes in Chinese government regulations and/or changes in Global’s financial and operational condition. Each draw will bear interest equal to SPD’s commercial banking interest rate effective on the day of the applicable draw. Global’s obligations under the SPD Credit Line will be secured by real property owned by Global and mortgaged to the Bank under the terms of the Security Agreement. As of ~~June 30, 2022~~March 31, 2023, ~~$19.7~~$12.9 million was outstanding under the SPD Credit Line and the outstanding balance of bank acceptance notes issued to vendors was ~~$4.2~~$14.0 million.

On ~~June 21, 2019,~~ ~~the Company’s China subsidiary, Global, entered into an 18 month credit facility totaling 100,000,000 RMB (the~~ ~~“¥100M~~ ~~Credit Facility”), or approximately $14.1 million, with China Zheshang Bank Co., Ltd., in Ningbo City, China (“CZB”). Borrowing under the~~ ~~¥100M~~ ~~Credit Facility will be used by Global for general corporate purposes. On~~ ~~January 6, 2021,~~ ~~the~~ ~~¥100M~~ ~~Credit Facility with CZB was extended for~~ ~~three~~ (3~~) years until~~ ~~January 5, 2024.~~ ~~Global~~ ~~may~~ ~~draw upon the~~ ~~¥100M~~ ~~Credit Facility from~~ ~~June 21, 2019~~ ~~until~~ ~~January 5, 2024 (~~~~the~~ ~~“¥100M~~ ~~Credit Period”). The Company repaid and replaced this loan agreement on~~ ~~June 7, 2022.~~

On June 7, 2022, the Company's China Subsidiary, Global, entered a security agreement with China Zheshang Bank in Ningbo City, China ("CZB") for a five-year credit line agreement, totaling 200,000,000 RMB (the "¥200M Credit Facility"), or approximately $29.9 ~~million.~~million at that time. Global may draw upon the ¥200M Credit Facility between June 7, 2022 and June 6, 2027 (" ¥200M Credit Period"). During the ¥200M Credit Period, Global may request to draw upon the ¥200M Credit Facility on an as-needed ~~basi~~s;basis; however, draws under the ¥200M Credit Facility may become due and repayable to CZB at CZB’s discretion due to changes in Chinese government regulations and/or changes in Global’s financial and operational condition. Each draw will be facilitated by a separate credit agreement specifying the terms of each draw and will bear interest equal to ~~the Bank's~~CZB's commercial banking interest rate effective on the day of the applicable draw. Global’s obligations under the ¥200M Credit Facility will be secured by real property owned by Global and mortgaged to CZB under the terms of the Real Estate Security Agreement. As of ~~June 30, 2022~~March 31, 2023, ~~$16.9~~$17.8 million was outstanding under the ¥200M Credit Facility and the outstanding balance of bank acceptance notes issued to vendors was ~~$6.1~~$5.2 million.

On ~~June 21, 2019,~~ ~~the Company’s China subsidiary, Global, entered into a~~ ~~three-year credit facility totaling 50,000,000 RMB (the~~ ~~“¥50M~~ ~~Credit Facility”), or approximately $7.1 million, with CZB. Borrowing under the~~ ~~¥50M~~ ~~Credit Facility will be used by Global for general corporate purposes. Global~~ ~~may~~ ~~draw upon the~~ ~~¥50M~~ ~~Credit Facility from~~ ~~June 21, 2019~~ ~~until~~ ~~June 20, 2022 (~~~~the~~ ~~“¥50M~~ ~~Credit Period”). During the~~ ~~¥50M~~ ~~Credit Period, Global~~ ~~may~~ ~~request to draw upon the~~ ~~¥50M~~ ~~Credit Facility on an as-needed basis; however, draws under the~~ ~~¥50M~~ ~~Credit Facility~~ ~~may~~ become due and repayable to CZB at CZB’s discretion due to changes in Chinese government regulations and/or changes in Global’s financial and operational condition. Each draw will bear interest equal to CZB’s commercial banking interest rate effective on the day of the applicable draw. Global’s obligations under the ~~¥50M~~ ~~Credit Facility will be secured by machinery and equipment owned by Global and mortgaged to CZB under the terms of the Machinery and Equipment Security Agreement. As of~~ ~~June 30, 2022~~~~, the Company has fully repaid the~~ ~~¥50M~~ ~~Credit Facility.~~

As of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022, the Company had ~~$14.8~~$19.4 million and ~~$7.4~~ $13.3 million of unused borrowing capacity, ~~respectively~~respectively.

As of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022, there was ~~$5.1~~$9.4 million and ~~$5.4~~$9.9 million of restricted cash, investments or security deposits associated with the loan facilities, respectively.

On March 5, 2019, the Company issued $80.5 million of 5% convertible senior notes due 2024 (the “Notes”). The Notes were issued pursuant to an indenture, dated as of March 5, 2019 (the “Indenture”), between the Company and Wells Fargo Bank, National Association, as trustee, paying agent, and conversion agent (the “Trustee”). The Notes bear interest at a rate of 5.00% per year, payable in cash semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2019. The Notes will mature on March 15, 2024, unless earlier repurchased, redeemed or converted in accordance with their terms.

The sale of the Notes generated net proceeds of $76.4 million, after deducting the Initial Purchasers’ discounts and offering expenses payable by the Company. The Company used approximately $37.8 million of the net proceeds from the offering to fully repay the CapEx Loan and Term Loan with Truist Bank and the remainder will be used for general corporate purposes.

The following table presents the carrying value of the Notes for the periods indicated (in thousands):

The Notes are convertible at the option of holders of the Notes at any time until the close of business on the scheduled trading day immediately preceding the maturity date. Upon conversion, holders of the Notes will receive shares of the Company’s common stock, together, if applicable, with cash in lieu of any fractional share, at the then-applicable conversion rate. The initial conversion rate is 56.9801 shares of the Company’s common stock per $1,000 principal amount of Notes (representing an initial conversion price of approximately $17.55 per share of common stock, which represents an initial conversion premium of approximately 30% above the closing price of $13.50 per share of the Company’s common stock on February 28, 2019), subject to customary adjustments. If a make-whole fundamental change (as defined in the Indenture) occurs, and in connection with certain other conversions before March 15, 2022, the Company will in certain circumstances increase the conversion rate for a specified period of time.

Initially and as of March 31, 2023 there are no guarantors of the Notes, but the Notes will be fully and unconditionally guaranteed, on a senior, unsecured basis by certain of the Company’s future domestic subsidiaries. The Notes are the Company’s senior, unsecured obligations and are equal in right of payment with existing and future senior, unsecured indebtedness, senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated to the Notes and effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness. The Note Guarantee (as defined in the Indenture) of each future guarantor, if any, will be such guarantor’s senior, unsecured obligations and are equal in right of payment with existing and future senior, unsecured indebtedness, senior in right of payment to such future guarantor’s existing and future indebtedness that is expressly subordinated to the Notes and effectively subordinated to such future guarantor’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness.

Holders may require the Company to repurchase their Notes upon the occurrence of a fundamental change (as defined in the Indenture) at a cash purchase price equal to the principal amount thereof plus accrued and unpaid interest, if any.

After March 15, 2022, the Company may redeem for cash all or part of the Notes if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (ii) the trading day immediately before the date the Company sends such redemption notice. The redemption price is equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. In addition, calling any Note for redemption will constitute a “make-whole fundamental change” with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted after it is called for redemption.

The Indenture contains covenants that limit the Company’s 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.

Pursuant to the guidance in ASC 815-40, Contracts in Entity’s Own Equity, the Company evaluated whether the conversion feature of the note needed to be bifurcated from the host instrument as a freestanding financial instrument. Under ASC 815-40, to qualify for equity classification (or non-bifurcation, if embedded) the instrument (or embedded feature) must be both (1) indexed to the issuer’s own stock and (2) meet the requirements of the equity classification guidance. Based upon the Company’s analysis, it was determined the conversion option is indexed to its own stock and also met all the criteria for equity classification contained in ASC 815-40-25-7 and 815-40-25-10. Accordingly, the conversion option is not required to be bifurcated from the host instrument as a freestanding financial instrument. Since the conversion feature meets the equity scope exception from derivative accounting, the Company then evaluated whether the conversion feature needed to be separately accounted for as an equity component under ASC 470-20, Debt with Conversion and Other Options. The Company determined that notes should be accounted for in their entirety as a liability.

The Company incurred approximately $4.1 million in transaction costs in connection with the issuance of the Notes. These costs were recognized as a reduction of the carrying amount of the Notes utilizing the effective interest method and are being amortized over the term of the Notes.

The following table sets forth interest expense information related to the Notes (in thousands):

Accrued liabilities consisted of the following for the periods indicated (in thousands):

Other income and (expense) consisted of the following for the periods indicated (in thousands):

The Company’s board of directors and stockholders approved the following equity plans:

The Company issued stock options, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) to employees, consultants and non-employee directors. Stock option awards generally vest over a four-year period and have a maximum term of ten years. Stock options under these plans have been granted with an exercise price equal to the fair market value on the date of the grant. Nonqualified and Incentive Stock Options, RSAs and RSUs may be granted from these plans. Prior to the Company’s initial public offering in September 2013, the fair market value of the Company’s stock had been historically determined by the board of directors and from time to time with the assistance of third-party valuation specialists.

Options have been granted to the Company’s employees under the two incentive plans and generally become exercisable as to 25% of the shares on the first anniversary date following the date of grant and 12.5% on a semi-annual basis thereafter. All options expire ten years after the date of grant.

The following is a summary of option ~~activity (in thousands, except per share data):~~activity:

						*Weighted*			*Weighted*									*Weighted*			*Weighted*
				*Weighted*		*Average*			*Average*							*Weighted*		*Average*			*Average*
				*Average*		*Share Price*	*Weighted*		*Remaining*		*Aggregate*					*Average*		*Share Price*	*Weighted*		*Remaining*		*Aggregate*
	*Number of*			*Exercise*		*on Date of*	*Average*		*Contractual*		*Intrinsic*		*Number of*			*Exercise*		*on Date of*	*Average*		*Contractual*		*Intrinsic*
	*shares*			*Price*		*Exercise*	*Fair Value*		*Life*		*Value*		*shares*			*Price*		*Exercise*	*Fair Value*		*Life*		*Value*
	(in thousands, except price data)												(in thousands, except price data)
Outstanding at January 1, 2022		269		$	10.32		$	5.44		1.6879	$	0
Outstanding at January 1, 2023														263		$	10.41		$	5.45		0.71	$	-
Exercised		0			0			0				0		-			-			-		-		-
Forfeited		(5	)		0			0				0		(34	)		7.50			4.73		-		-
Outstanding, June 30, 2022		264			10.40			5.45		1.2174		0
Exercisable, June 30, 2022		264			10.40			5.45		1.2174		0
Outstanding, March 31, 2023														229			10.84			5.56		0.57		-
Exercisable, March 31, 2023														229			10.84			5.56		0.57		-
Vested and expected to vest		264			10.40			5.45		1.2174		0		229			10.84			5.56		0.57		-

As of ~~June 30, 2022~~March 31, 2023, there was 0no unrecognized stock option expense.

In ~~June 2021,~~ ~~the~~The Company approved to grant restricted performance stock units (“PSUs”) to senior executives as a part of our long-term equity compensation ~~program.~~ program starting from June 2021. The number of shares of common stock that will ultimately be issued to settle PSUs granted ranges from 0% to 200% of the number granted and is determined based on certain performance criteria over a -three-year measurement period. The performance criteria for the PSUs are based on a combination of the performance of our stock price and the Total Shareholder Return (“TSR”) for the performance period compared with the TSR of certain peer companies or index for the performance period. PSUs granted vest 100% on the third anniversary of their grant, assuming achievement of the applicable performance criteria. We estimated the fair value of the PSUs using a Monte Carlo simulation model on the date of grant. Compensation expense is recognized ratably over the explicit service ~~period.~~ period. The Company recognized PSU expenses ~~of $0.7 million~~ for the ~~six~~three months ended on ~~June 30 2022.~~March 31, 2023

~~Restricted Stock Units/Awards~~and 2022 of $0.4 million and $0.3 million, respectively.

The following is a summary of ~~RSU/RSA activity, inclusive of performance based incentive plan (in thousands, except per share data):~~PSU activity:

As of ~~June 30, 2022~~March 31, 2023, there was ~~$18.6~~$2.4 million of unrecognized compensation expense related to these ~~RSUs and RSAs.~~PSUs. This expense is expected to be recognized over 1.4 years.

As of ~~2.3~~March 31, 2023, there was $9.1 million of unrecognized compensation expense related to these RSUs. This expense is expected to be recognized over 1.9 years.

Employee share-based compensation expenses recognized for the periods indicated (in thousands):

The Company’s effective tax rate for the three months ended ~~June 30, 2022~~March 31, 2023 and ~~2021~~2022 was 0%. For the three months ended ~~June 30, 2022~~ March 31, 2023and ~~2021,~~2022, the effective tax rate varied from the federal statutory rate of 21% ~~primarily due to the change of the valuation allowance on federal, state,~~

~~The Company's effective tax rate for the~~ ~~six~~ ~~months ended~~ ~~June 30, 2022~~ ~~and~~ ~~2021~~ ~~was 0%. For the~~ ~~six~~ ~~months ended~~ ~~June 30, 2022~~ ~~and~~ ~~2021,~~ ~~the effective tax rate varied from the federal statutory rate of 21%~~ primarily due to the change of the valuation allowance on federal, state, Taiwan, and China ~~DTA.~~deferred tax assets ("DTA").

The Company continually monitors and performs an assessment of the realizability of its DTAs, including an analysis of factors such as future taxable income, reversal of existing taxable temporary differences, and tax planning strategies. In assessing the need for a valuation allowance, the Company considered both positive and negative evidence related to the likelihood of realization of deferred tax assets using a “more likely than not” standard. In making such assessment, more weight was given to evidence that could be objectively verified, including recent cumulative losses. Based on the Company’s review of this evidence, management determined that a full valuation allowance against all of the Company’s net deferred tax assets at ~~June 30, 2022~~March 31, 2023 was appropriate.

The Company operates in 1one reportable segment. The Company’s Chief Executive Officer, who is considered to be the chief operating decision maker, manages the Company’s operations as a whole and reviews financial information presented on a consolidated basis, accompanied by information about product revenue, for purposes of evaluating financial performance and allocating resources.

The following tables set forth the Company’s revenue and asset information by geographic region. Revenue is classified based on the location of where the product is manufactured. Long-lived assets in the tables below comprise only property, plant, equipment and intangible assets (in thousands):

From time to time, the Company may be subject to legal proceedings and litigation arising in the ordinary course of business, including, but not limited to, inquiries, investigations, audits and other regulatory proceedings, such as described below. The Company records a loss provision when it believes it is both probable that a liability has been incurred and the amount can be reasonably estimated. ~~Unless otherwise disclosed, the Company is unable to estimate the possible loss or range of loss for the legal proceeding described below.~~

~~Except for the lawsuits described below, the~~The Company believes that there are no claims or actions pending or threatened against it, the ultimate disposition of which would have a material adverse effect on it.

On August 9, 2021, the Company has received a Taxes Notification of Audit Result (“Notice”) from the Texas Comptroller’s Office (the “Comptroller”), for fiscal years between 2016 and 2019, informing the Company that the Comptroller believes the Company did not qualify for certain sales and use tax exemptions on various Research and Development purchases and accordingly the Company is liable for Sale and Use Tax in the amount of approximately $1.0 million including interest charges. The Company paid $0.4 million for the tax notice in May 2021, but challenged the remaining tax assessments and vigorously defended its position. The Comptroller’s office ~~has~~exhausted its redetermination period and therefore moved AOI’s case to the hearing process. In ~~not~~April 2023 ~~made final assessments after~~ the ~~Company’s defenses. However,~~Company received a notice from an attorney representing the ~~management estimated the additional tax assessment will be in the range of $0.2 million~~Administrative Hearings Section ("AHS") to ~~$0.4 million including interest charges.~~issue a Position Letter.

~~The~~The Company repaid its revolving bank line of credit with ~~Truist Bank~~CIT Northbridge Credit, LLC in the amount of ~~$17million~~ $2 million on ~~July 5,~~April 3, 2023.

In April 2023, the Company received notice from the California Department of Tax and Fee Administration regarding a sales tax audit to be performed in May 2023 for the period from January 1, 2020 through December 21, 2022.This is in the early stages and the audit has not begun, therefore management is unable to assess if any incremental taxes, interest or penalties would be due.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the accompanying notes appearing elsewhere in this Quarterly Report on Form 10-Q for the period ended ~~June 30, 2022~~March 31, 2023 and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended December 31, ~~2021~~2022 included in our Annual Report. References to “Applied Optoelectronics,” “we,” “our” and “us” are to Applied Optoelectronics, Inc. and its subsidiaries unless otherwise specified or the context otherwise requires.

This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Terminology such as "believe," "may," "estimate," "continue," "anticipate," "intend," "should," "could," "would," "target," "seek," "aim," "believe," "predicts," "think," "objectives," "optimistic," "new," "goal," "strategy," "potential," "is likely," "will," "expect," "plan," "project," "permit," or by other similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements.

We have based these forward-looking statements largely on our current expectations and projections about future events and industry and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified in “Part II —Item 1A. Risk Factors” provided below, and those discussed in other documents we file with the SEC, including our Report on Form 10-K for the year ended December 31, ~~2021~~2022 and subsequent Quarterly Reports on Form 10-Q. Furthermore, such forward-looking statements speak only as of the date of this Quarterly Report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report.

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. In designing products for our customers, we typically begin with the fundamental building blocks of lasers and laser components. From these foundational products, we design and manufacture a wide range of products to meet our customers’ needs and specifications, and such products differ from each other by their end market, intended use and level of integration. 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.

The four end markets we target are all driven by significant bandwidth demand fueled by the growth of network-connected devices, video traffic, cloud computing and online social networking. Within the CATV market, we benefit from a number of ongoing trends including the build-out of CATV infrastructure in the US and other countries, the move to higher bandwidth networks among CATV service providers and the outsourcing of system design among CATV networking equipment companies. 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 100 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 CATV market, we benefit from a number of ongoing trends including the build-out of CATV infrastructure in the US and other countries, the move to higher bandwidth networks among CATV service providers and the outsourcing of system design among CATV networking equipment companies. In the FTTH market, we benefit from continuing PON deployments and system upgrades among telecom service providers. In the telecom market, we benefit from deployment of new high-speed fiber-optic networks by telecom network operators, including 5G networks.

Our vertically integrated manufacturing model provides us several advantages, including rapid product development, fast response times to customer requests and greater control over product quality and manufacturing costs. We design, manufacture and integrate our own analog and digital lasers using a 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. 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 telecom markets where networking equipment is often installed outdoors.

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. The subassemblies are used in the manufacture of components by our other manufacturing facilities or sold to third parties as modules. We manufacture our laser chips only within our Sugar Land facility, where our laser design team is located. 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. Additionally, in our Taiwan location, we manufacture transceivers for the internet data center, telecom, FTTH and other markets. In our China facility, we take advantage of lower labor costs and 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, .~~market. Each manufacturing facility conducts testing on the components, modules or subsystems it manufactures and each facility is certified to ISO 9001:2015. Our facilities in Ningbo, China, Taipei, Taiwan, and Sugar Land, Texas are all certified to ISO 14001:2015.

Our business depends on winning competitive bid selection processes to develop components, systems and equipment for use in our customers’ products. These selection processes are typically lengthy, and as a result our sales cycles will vary based on the level of customization required, market served, whether the design win is with an existing or new customer and whether our solution being designed in our customers’ product is our first generation or subsequent generation product. We do not have any long-term purchase commitments (in excess of one year) with any of our customers, most of whom purchase our products on a purchase order basis. However, once one of our solutions is incorporated into a customer’s design, we believe that our solution is likely to continue to be purchased for that design throughout that product’s life cycle because of the time and expense associated with redesigning the product or substituting an alternative solution.

Our principal executive offices are located at 13139 Jess Pirtle Blvd., Sugar Land, TX 77478, and our telephone number is (281) 295-1800.

On September 15, 2022, we entered into a definitive purchase agreement and announced the planned divestiture to sell the manufacturing facilities in the People's Republic of China ("PRC") and certain assets related to our transceiver business and multi-channel optical sub-assembly products to Yuhan Optoelectronic Technology (Shanghai) Co., Ltd. ("Purchaser"), which is a company incorporated in the PRC. The transaction is expected to close in late 2023 or 2024 subject to satisfaction of certain closing conditions, including CFIUS approval.

The purchase price will be an amount equal to the $150 million USD equivalent of Renminbi, less a holdback amount. 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. The proceeds from the transaction will enable the Company to make strategic investments in higher margin and higher growth opportunities. By exiting the transceiver market, the Company will focus its resources on its CATV business and manufacturing lasers and laser components for the CATV, datacenter, telecom and FTTH markets.

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 March 31, 2023. 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. 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 likelihood of 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. As 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.

The COVID-19 pandemic has had, and continues to have, a significant impact around the world. We are subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict as ~~coronavirus~~COVID-19 continues to spread around the world. In March 2020, we instituted travel restrictions and implemented sanitation and disinfection procedures to safeguard the health and safety of our employees which continue today. ~~Recently, we began allowing certain employee travel, but continue strict sanitation procedures in our facilities.~~ With increased vaccinations and the potential ~~significant~~ reduction of infections, we ~~have~~ implemented procedures for a safe return to the office environment for all of our ~~employees.~~employees in 2021. China experienced the world's largest COVID-19 surge of the pandemic in December 2022 after the end of the zero-COVID policy. Yet there is minimum impact to the labor force in China due to less government restrictions on quarantine and testing.

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. Currently, the suppliers who were responsible for most of our supply-chain constraints in 2021 have begun returning to normal operations and have expressed optimism that their deliveries in 2022 will return to normal. However, late in the first quarter of 2022, certain areas of China began to experience severeOur supply chain restrictions due to COVID-19 ~~outbreaks. Also, certain~~have improved during the latter part of ~~our suppliers~~2022, and we will continue to expect improvements for ~~semiconductor components have recently notified us~~the remainder of lengthy delays in shipments of certain integrated circuits used in some of our products. Currently, it is not possible to estimate the impact (if any) of these restrictions because it is not clear how long the restrictions will be in place or the extent to which the restrictions will curtail production by our suppliers in the affected areas. 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. Also, where it is possible, we have in many cases begun to utilize alternative components in place of the originally-specified components when the original components have experienced supply disruption. We believe that these additional suppliers and alternative parts will be able to augment our supply of needed components, although in some cases these alternative materials are more expensive than the original ones so a switch to these alternate materials has had a negative impact on gross margins and profitability. Due to a mix of old and new parts used in production, it is difficult to estimate the amount of margin reduction associated with these alternatives. Due to the changing supply environment, it is also difficult to estimate the future impact, if any, of these additional supply-chain related costs.

Although demand for many of our products has been strong in the short-term as subscribers seek more bandwidth, customers’ purchasing decisions over the long-term may be impacted by the pandemic and its impact on the economy, which could in turn impact our revenue and results of operations. The extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity or results of operations is therefore uncertain.2023.

The following table set forth our consolidated results of operations for the periods presented and as a percentage of our revenue for those periods (in thousands, except percentages):

We generate revenue through the sale of our products to equipment providers and network operators for the CATV, internet data center, telecom and FTTH markets. 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. The following charts provide the revenue contribution from each of the markets we served for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ (in thousands, except percentages):

~~Revenue decreased by $1.9 million, or 3.5%, for~~The increase in revenue during the three months ended ~~June 30, 2022 as compared to June 30, 2021,~~March 31, 2023 was driven primarily ~~due to decrease~~by strong demand in CATV product sales arising from ~~supply chain constraints during~~products with architecture improvements to enable delivery of additional bandwidth to consumers. The increase in bandwidth demand was particularly acute in the ~~pandemic lockdown~~upstream direction, and sales of products associated with increased return-path bandwidth were notably strong in ~~Shanghai, China.~~the quarter. The ~~decrease~~increase was offset by the ~~increase~~decrease of ~~Telecom sales. Revenue for the six months ended June 30, 2022 slightly increased compared to June 30, 2021 due to more~~data center sales ~~of CATV~~ and ~~Telecom products partially offset by decreases in datacenter and FTTH~~telecom sales.

Although sales of CATV products in the three months ended June 30, 2022 were lower than in the same period in the prior year due to supply chain constraints, demand for CATV products has been elevated compared to the prior year. Based on customer forecasts and order backlog we believe that this elevated CATV demand will likely continue into 2023.

We have begun to see increased orders for our 400G ~~datacenter~~data center products from several large customers. Based on forecasts from our customers, we expect increased demand for these products through the end of ~~2022.~~2023. In the first quarter, we also generated approximately $4 million in revenue from one of our largest data center customers which was related to furnishing qualification reports to ensure future orders will be fullfilled and expedited. We believe there will be additional such expediting fees in the second quarter and we believe that the customer's willingness to incur these expedite fees implies significant demand for the expedited products for at least the remainder of 2023.

For the three months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~, our top ten customers represented ~~87.1%~~93% and ~~86.8%~~88.6% of our revenue, respectively. 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. We continue to prioritize new customer acquisition and growth of diverse revenue streams.

Cost of goods sold increased by ~~$0.2~~$0.6 million, or ~~0.6%,~~1.3% for the three months ended ~~June 30, 2022~~March 31, 2023 as compared to the three months ended ~~June 30, 2021~~March 31, 2022, primarily due to ~~3.5%~~the 1.5% sales ~~decrease offset by~~increase and higher cost of certain raw materials due to global supply chain disruption. ~~Cost of goods sold increased by $4.5 million, or 5.5%, for the six months ended June 30, 2022, primarily due to higher cost of certain raw materials due to global supply chain disruptions.~~

Gross ~~margin decreased $2.2~~profit increased $0.2 million, or ~~19.9% and $3.8 million, or 17.9%, respectively,~~2.4% for the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 as compared to the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022, primarily as a result of ~~changes in the mix~~higher selling prices for some of our ~~CATV and datacenter~~data center products. In addition, we experienced higher costs of certain raw materials and global supply chain disruptions due to COVID-19 closures of ports and factories in Asia (see the section above on the COVID-19 pandemic for more details of these challenges).

Research and development expense decreased by ~~$2.6~~$1.0 million, or ~~23.7%~~10% for the three months ended ~~June 30, 2022~~March 31, 2023 as compared to the three months ended ~~June 30, 2021~~March 31, 2022. Research ~~and development expense decreased by $4 million, or 18.4%, for the six months ended~~ ~~June 30, 2022~~ ~~as compared to the six months ended~~ ~~June 30, 2021.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 and other new product development, and depreciation expense resulting from R&D equipment investments. ~~These~~The decreases were primarily due to ~~a decrease in personnel-related costs,~~less share-based compensation expense, and less materials and supplies used in R&D ~~activities.~~activities combined with Asian currency exchange rate effect.

Sales and marketing expense decreased by ~~$0.7~~$0.2 million, or ~~23.6%~~9.0% for the three months ended ~~June 30, 2022~~March 31, 2023 as compared to the three months ended ~~June 30, 2021. Sales and marketing expense decreased by $1.1 million, or 18.5%, for the six months ended~~ ~~June 30, 2022~~ ~~as compared to the three months ended~~ ~~June 30, 2021.These decreases were~~March 31, 2022. The decrease was primarily due to a decrease in ~~personnel-related costs,~~ duties and ~~freight. These decreases were~~freight and partially offset by an increase in ~~trade show~~miscellaneous tax expenses.

General and administrative expense increased ~~slightly~~ by ~~$0.4~~$1.3 million, or ~~3.3%~~11.8% for the three months ended ~~June 30, 2022~~March 31, 2023 compared to the three months ended ~~June 30, 2021~~March 31, 2022. ~~General and administrative expense~~This increase ~~by $0.7 million, or 3.3%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. These increases were~~was primarily due to an increase in ~~depreciation expense~~personnel-related costs and ~~performance based incentive expenses. These increases were~~professional service fees incurred due to the transaction for China divestiture agreement, taxes and fees. This increase was partially offset by a decrease in ~~personnel-related costs and professional service fees.~~

Interest income increased ~~slightly~~ for the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 compared to the three ~~and six~~ months ended ~~June 30, 2021.~~March 31, 2022. The changes are similar to expected rates of fluctuation with the interest rates and cash balances.

Interest expense increased ~~slightly~~by $0.7 million, or 52.5% for the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 compared to the three ~~and six~~ months ended ~~June 30, 2021.~~March 31, 2022. This increase was due to higher average debt interest rate during the period.

Other ~~income, net~~expense decreased by $7$0.4 million, or ~~102.6%~~95.3%, for the three months ended ~~June 30, 2022~~March 31, 2023 as compared to the three months ended ~~June 30, 2021~~March 31, 2022. ~~Other income, net decreased by $7.3 million, or 109.5%, for the six months ended June 30, 2022 as compared to the six months ended June 30, 2022.~~ This decrease was mainly due to the other income received in the ~~second~~first quarter of ~~2021~~2023 from the ~~forgiveness by the SBA of the Company's PPP Loan forgiveness application~~China plant for ~~the entire PPP Loan balance of $6.23 million~~a local government subsidized income in local city development plan and foreign currency ~~loss~~gain arising from ~~unfavorable~~favorable exchange rate change.

The Company’s effective tax rate for the three months ended March 31, 2023 and ~~six months ended June 30,~~ 2022 ~~and 2021~~ was 0%. For the three months ended March 31, 2023 and ~~six months ended June 30,~~ 2022 ~~and 2021,~~, the effective tax rate varied from the federal statutory rate of 21% primarily due to the change of the valuation allowance on federal, state, Taiwan, and China deferred tax assets ("DTA").

On August 9, 2022, the Creating Helpful Incentives to Produce Semiconductors Act ("CHIPS Act") was enacted. Among its provisions, the bill provides various federal grants, tax credits, and incentives for investment in the United States. On August 16, 2022, the Inflation Reduction Act (“IRA”) was also signed into law. Among other provisions, the IRA imposes a 15% corporate alternative minimum tax (“Corporate AMT”) for tax years beginning after December 31, 2022, imposes a 1% excise tax on corporate stock repurchases after December 31, 2022, and provides tax incentives to promote various energy efficient initiatives. We are evaluating these laws and their potential impact on our current income tax expense and cash taxes. However, we currently do not believe this will have an impact on our taxes for the 2023 tax year.

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Table of Contents

Comprehensive Loss

Three months ended June 30,

2022

2021

Change

% of

% of

Amount

revenue

Amount

revenue

Amount

%

(in thousands, except percentages)

Net loss
$ (14,456 ) (27.6 )% $ (8,203 ) (15.1 )% $ (6,253 ) 76.2 %
Gain (Loss) on foreign currency translation adjustment
(7,583 ) (14.5 )% 3,630 6.7 % (11,213 ) (308.9 )%
Comprehensive loss
$ (22,309 ) (42.7 )% $ (4,573 ) (8.4 )% $ (17,736 ) 387.8 %

Six months ended June 30,

2022

2021

Change

% of

% of

Amount

revenue

Amount

revenue

Amount

%

(in thousands, except percentages)

Net loss
$ (30,518 ) (29.2 )% $ (23,825 ) (38.5 )% $ (6,693 ) 28.1 %
Gain (Loss) on foreign currency translation adjustment
(8,845 ) (8.5 )% 2,596 4.2 % (11,441 ) (440.7 )%
Comprehensive loss
$ (39,363 ) (37.7 )% $ (21,229 ) (34.3 )% $ (18,134 ) 85.4 %

Comprehensive loss ~~increased~~decreased by ~~$17.7~~$2.7 million, or ~~387.8%~~15.4%, for the three months ended ~~June 30, 2022~~March 31, 2023 as compared to the three months ended ~~June 30, 2021,~~March 31, 2022, primarily due to ~~increase~~decrease of ~~$11.2~~$2.9 million in loss ofon foreign currency translation adjustments for non-U.S. dollar functional currency operations.

The functional currency for the Company’s operations is generally the applicable local currency. Accordingly, the assets and liabilities of companies whose functional currency is other than the U.S. dollar are included in the consolidated financial statements by translating the assets and liabilities into the U.S. dollar at the exchange rates applicable at the end of the reporting period. Translation gains or losses are accumulated in other comprehensive income (loss) in the consolidated statements of shareholders’ equity and are also included in comprehensive loss.

As of ~~June 30, 2022,~~March 31, 2023, we had ~~$14.8~~$19.4 million of unused borrowing capacity from all of our loan agreements. As of ~~June 30, 2022,~~March 31, 2023, our cash, cash equivalents and restricted cash totaled ~~$40.7~~$26.9 million. Cash and cash equivalents are held for working capital purposes and are invested primarily in money market or time deposit funds. We do not enter into investments for trading or speculative purposes.

On October 24, 2019, we filed a Registration Statement on Form S-3 with the Securities and Exchange Commission, which was declared effective on January 9, 2020, 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 $250 million. The unsold securities under this registration were carried forward to the S-3 declared effective in March 2023.

On February 28, 2020, we entered into an Equity Distribution Agreement with Raymond James & Associates, Inc. (the “Sales Agent”) pursuant to which the Company may issue and sell shares of the Company’s common stock having an aggregate offering price of up to $55 million (the “Initial ATM Offering”), from time to time through the Sales Agent. In January 2021, the Company completed its Initial ATM Offering and sold 5.9 million shares at a weighted average price of $9.12 per share, providing proceeds of $53.9 million, net of expenses and underwriting discounts and commissions. There are no more securities remaining that can be sold under this ATM offering.

On February 26, 2021, we entered into another Equity Distribution 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 having an aggregate offering price of up to $35 million (the “Second ATM Offering”), from time to time through the Sales Agent. In February 2023, the Company completed its Second ATM Offering and sold 0.7 million shares at a weighted average price of $3.81 per share, providing proceeds of $2.6 million, net of expenses and underwriting discounts and commissions. There are no more securities remaining that can be sold under this ATM offering.

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

On January 5, 2023, the Company filed a Registration statement on Form S-3 with the Securities and Exchange Commission, which was declared effective on March 21, 2023, providing for the public offer and sale of certain securities of the Company from time to time, at our discretion, up to an aggregate amount of $185 million. Pursuant to Rule 415(a)(6) under the Securities Act, the securities registered pursuant to this registration statement include unsold securities previously registered for sale pursuant to our previously filed Registration Statement on Form S-3, which became effective on January 9, 2020.

On March 24, 2023, we entered into 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~~“Third ATM Offering”), from time to time through the Sales Agent. Upon delivery of a placement notice and subject to the terms and conditions of the Agreement, sales, if any, of the Shares will be made through the Sales Agent in transactions that are deemed to be “at the market” offerings as defined in Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”), including sales made through the facilities of the Nasdaq Global Market, the principal trading market for the Company’s common stock, on any other existing trading market for the Company’s common stock, to or through a market maker or as otherwise agreed by the Company and the Sales Agent. In the placement notice, the Company will designate the maximum number of Shares to be sold through the Sales Agent, the time period during which sales are requested to be made, the minimum price for the Shares to be sold, and any limitation on the number of Shares that may be sold in any one day. Subject to the terms and conditions of the Agreement, the Sales Agent will use its commercially reasonable efforts to sell Shares on the Company’s behalf up to the designated amount specified in the placement notice. The Company has no obligation to sell any Shares under the Agreement and may at any time suspend offers and sales of the Shares under the Agreement.

The Agreement provides that the Sales Agent will be entitled to compensation of up to 2% of the gross sales price of the Shares sold through the Sales Agent from time to time. The Company has also agreed to reimburse the Sales Agent for certain specified expenses in connection with the registration of Shares under state blue sky laws and any filing with, and clearance of the offering by, the Financial Industry Regulatory Authority Inc., not to exceed $10,000 in the aggregate, and any associated application fees incurred. Additionally, if the Agreement is terminated under certain circumstances, and the Company fails to sell a minimum amount of the Shares as set forth in the Agreement, then the Company has agreed to reimburse the Sales Agent for reasonable out-of-pocket expenses, including the reasonable fees and disbursements of counsel incurred by the Sales Agent, up to a maximum of $30,000 in the aggregate. The Company agreed to indemnify the Sales Agent against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Sales Agent may be required to make because of any of those liabilities.

~~In March 2021, we commenced sales of common stock through the Second ATM Offering.~~ As of ~~June 30, 2022~~March 31, 2023, no gross sale has been made through the ~~total gross sales were $1.0 million and~~Third ATM Offering, thus ~~remaining~~the amount of common stock we have available to sell under the Third ATM Offering is ~~$34.0~~$35 million.

On March 5, 2019, the Company issued $80.5 million of 5% convertible senior notes due 2024 (the "Notes"), bearing interest at a rate of 5% per year maturing on March 15, 2024, 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. Also, refer to Note 12 “Convertible Senior Notes” to the consolidated financial statements for further discussion of the Notes.

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

For the ~~six~~three months ended ~~June 30, 2022~~,March 31, 2023, net cash used in operating activities was ~~$1.3~~$9.4 million. Net cash used in operating activities consisted of our net loss of ~~$30.5~~$16.3 million after exclusion of non-cash items of ~~$20.8~~$9.5 million. Cash decreased due to an increase in ~~inventory~~accounts receivable of ~~$11.5~~$4.4 million, ~~a decrease in accrued liabilities of $2.7 million, offset with~~ an increase in ~~accounts payable of $11 million and~~ ~~a decrease~~ ~~in accounts receivable and~~ trade receivables from our customers of ~~$5.9~~$0.7 million together with decrease in accounts payable of $9.4 million and ~~$7.9~~accrued liabilities of $3.8 million, ~~respectively.~~respectively, offset with a decrease in inventory of $7.4 million.

For the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, net cash used in operating activities was ~~$14.9~~$3.6 million. Net cash used in operating activities consisted of our net loss of ~~$23.8~~$16.1 million after exclusion of non-cash items of ~~$21.9~~$11.8 million. Cash decreased due to a decrease in accrued liabilities of $2.3 million and an increase in ~~accounts receivable and~~inventory of $2.0 million, offset by a decrease in trade receivables from our customers of ~~$5.4 million and $3.4 million, respectively, a decrease in accrued liabilities of $3.1 million, a decrease in accounts payable to our vendors of $3.9 million, offset by a decrease in inventory of $8.9~~$7.0 million.

For the ~~six~~three months ended ~~June 30, 2022~~,March 31, 2023, net cash used in investing activities was ~~$2 million, mainly from the purchase of additional plant, machinery and equipment.~~

~~For the six months ended June 30, 2021, net cash used in investing activities was $3.9~~$0.8 million, mainly from the purchase of additional plant, machinery and equipment.

For the three months ended March 31, 2022, net cash used in investing activities was $1.1 million, mainly from the purchase of additional plant, machinery and equipment.

For the ~~six~~three months ended ~~June 30, 2022~~,March 31, 2023, our financing activities provided $2$1.1 million in cash. This increase in cash was due to ~~$6.9~~$6.7 million ~~net proceeds from lines~~ of ~~credit and $2.7 million~~ net proceeds from bank acceptances and $0.4 million of net proceeds from our At The Market (ATM) Offering, offset by the repayment of loan of ~~$7.3 million.~~ $5.9 million lines of credit.

For the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, our financing activities provided ~~$19.8~~$3.7 million in cash. This increase in cash was due to ~~$15.3~~$2.3 million of net proceeds from ~~our At The Market (ATM) Offerings, $16.6~~lines of credit and $1.7 million net proceeds from ~~line of credit, offset by repayment of loan and bank acceptance of $2.2 million and $9.5 million, respectively.~~acceptances payable.

We have lending arrangements with several financial institutions. In the US, we have a revolving line of credit with ~~Truist Bank.~~CIT Northbridge Credit, LLC. The line of credit contains financial covenants that may limit the amount and types of debt that we may incur. As of ~~June 30, 2022,~~March 31, 2023, we were in compliance with these covenants.

As of ~~June 30, 2022~~March 31, 2023, we had ~~$14.8~~$19.4 million of unused borrowing capacity.

On March 5, 2019, we issued $80.5 million of 5% convertible senior notes due in 2024. The Notes will mature on March 15, 2024, unless earlier repurchased, redeemed or converted in accordance with their terms.

See Note 11 “Notes Payable and Long-term Debt” and Note 12 “Convertible Senior Notes” of our Condensed Consolidated Financial Statements for a description of our notes payable and long-term debt and convertible senior notes.

On February 8, 2018, we entered into a construction contract with Zhejiang Xinyu Construction Group Co., Ltd. for the construction of a new factory and other facilities at our Ningbo, China location. Construction costs for these facilities under this contract are estimated to total approximately $27.5 million. As of ~~September 30, 2020~~,March 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 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 ~~that~~ the factory will be placed in service in ~~early 2023, and at this time~~ the ~~factory property~~year 2024 after the construction is completed for the building interior work. Property will be transferred from construction in progress to building and ~~improvements. ~~improvement at that time.

We ~~believe that our existing~~had cash, ~~and~~ cash equivalents and restricted cash ~~flows from~~of $26.9 million as of March 31, 2023, a decrease of approximately $8.6 million compared to December 31, 2022. This cash reduction included repayment of $5.9 million of our ~~operating activities, and available~~revolving credit ~~will be sufficient to meet our anticipated cash needs for the next 12 months.~~facility with CIT, along with changes in current accounts which consumed $2.6 million in cash. Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support our research and development efforts, the expansion of our sales and marketing activities, the introduction of new and enhanced products, the building improvement of a new factory and other facilities at our Ningbo, China location, changes in our manufacturing capacity and the continuing market acceptance of our products.

As of March 31, 2023, we had a total loan balance (excluding convertible notes) of $52.0 million from various lenders in the US and China, and had $19.4 million available borrowing capacity on existing credit lines. Should additional liquidity be needed, our Board has authorized issuance of equity totaling up to $35 million under our Third ATM Offering (see the discussion of Liquidity and Capital Resources in Item 2, below) to date, no sales have been made under this Third ATM Offering, thus the amount of common stock we have available to sell under this offering is $35 million.

Also as noted in Item 2, below, on September 15, 2022, the Company 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 our manufacturing facilities in PRC and certain assets related to our transceiver business and multi-channel optical sub-assembly products (collectively, the "Divestiture"). The purchase price will be an amount equal to the $150 million USD equivalent of Renminbi, less a holdback amount. Prior to the closing of the transaction we anticipate 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. The remaining funds from this transaction will significantly enhance our liquidity.

In the event we need additional liquidity, we will explore additional sources of liquidity. These additional sources of liquidity could include one, or a combination, of the following: (i) issuing equity or debt securities, (ii) incurring indebtedness secured by our assets and (iii) selling product lines, other assets and/or portions of our business. There can be no guarantee that we will be able to raise additional funds on terms acceptable to us, or at all.

Please refer to Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021~~2022 for a complete discussion of its contractual obligations and commitments.

The annual inflation rate in 2022 slowed down to 2.95% in Taiwan, which should remain the USsame in 2023 and ~~Taiwan accelerated more than 7%~~was 6.5% in ~~2021 and~~the US. Estimated inflation rate in the US ~~increased~~is expected to ~~9.1%~~continue to decline in ~~2022.~~ 2023 based on U.S. Federal monetary policy “tapering” to address inflation.

Cost inflation included increases in shipping costs, labor rates, and in costs of some raw materials. We currently believe these increases are related to the COVID-19 pandemic (~~see~~(see the section above on the COVID-19 pandemic for more details of these challenges), however we cannot be sure when or if prices will return to pre-pandemic levels.

There is no guarantee that we can 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.

Compared to other major economies in the world, China has a ~~stable~~low level of inflation or even in deflation, which has not had a significant impact on our sales or operating results.

In our Annual Report for the year ended December 31, ~~2021~~2022 and in the Notes to the Financial Statements herein, we identify our most critical accounting policies. In preparing the financial statements, we make assumptions, estimates and judgments that affect the amounts reported. We periodically evaluate our estimates and judgments that are most critical in nature which are related to revenue recognition, allowance for credit losses, inventory reserves, impairment of long-lived assets, ~~(excluding goodwill and other indefinite-lived intangible assets), goodwill and other indefinite-lived intangible assets, purchase price allocation of acquisitions,~~ service and product warranties, share based compensation expense, estimated useful lives of property and equipment, and income taxes. Our estimates are based on historical experience and on our future expectations that we believe are reasonable. The combination of these factors forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results are likely to differ from our current estimates and those differences may be material.

For quantitative and qualitative disclosures about market risk affecting the Company, see Item 7A – Quantitative and Qualitative Disclosures about Market Risk in our Annual Report for the fiscal year ended December 31, ~~2021.~~2022. We do not believe the Company’s exposure to market risk has changed materially since December 31, ~~2021.~~2022.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their control objectives.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~June 30, 2022.~~March 31, 2023. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

There were no changes in our internal control over financial reporting during the three month period covered by this Quarterly Report on Form 10-Q, which were identified in connection with management’s evaluation required by the Rules 13a-15(d) and 15d-15(d) under the Exchange Act that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Information with respect to legal proceedings can be found in Note 18 to the Condensed Consolidated Financial Statements contained in Part 1, Item 1 of this report.

Investing in our common stock involves a high degree of risk. See Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, ~~2020 for~~2022 for a detailed discussion of the risk factors affecting our Company. As of ~~June 30, 2022,~~March 31, 2023, there have been no material changes to those risk ~~factors.~~factors, except as described below.

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. (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. (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. 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. 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. This transaction is expected to close in late 2023 or 2024, subject to customary closing conditions and regulatory approval.

• 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 and other third parties may decide not to renew or seek to terminate, change or renegotiate their relationships 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

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 contains 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. 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. 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.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		Page
Part I. Financial Information

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3

	Condensed Consolidated Balance Sheets as of ~~June 30, 2022~~March 31, 2023 (Unaudited) and December 31, ~~2021~~2022	3

	Condensed Consolidated Statements of Operations for the Three ~~and Six~~ Months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ (Unaudited)	4

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three ~~and Six~~ Months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ (Unaudited)	5

	Condensed Consolidated Statements of Stockholders’ Equity for the Three ~~and Six~~ Months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the ~~Six~~Three Months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ (Unaudited)	7

	Notes To Condensed Consolidated Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1922

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2730

Item 4.	Controls and Procedures	2730

Part II. Other Information

Item 1.	Legal Proceedings	2730

Item 1A.	Risk Factors	2730

Item 6.	Exhibits	2731

	Signatures	2933

	*Three months ended June 30,*										*Three months ended March 31,*
			*% of*					*% of*					*% of*					*% of*
	*2022*		*Revenue*			*2021*		*Revenue*			*2023*		*Revenue*			*2022*		*Revenue*
CATV	$	23,713		45.4	%	$	27,599		51.0	%	$	27,779		52.4	%	$	24,980		47.8	%
Data Center		21,497		41.1	%		22,392		41.3	%		20,353		38.4	%		21,415		41.0	%
Telecom		6,276		12.0	%		3,333		6.2	%		3,707		7.0	%		5,265		10.1	%
FTTH		27		0	%		298		0.5	%		2		0.0	%		98		0.2	%
Other		786		1.5	%		567		1.0	%		1,189		2.2	%		484		0.9	%
Total Revenue	$	52,299		100.0	%	$	54,189		100.0	%	$	53,030		100.0	%	$	52,242		100.0	%

	*Six months ended June 30,*
			*% of*					*% of*
	*2022*		*Revenue*			*2021*		*Revenue*
CATV	$	48,694		46.7	%	$	46,238		44.5	%
Data Center		42,911		41.0	%		48,331		46.5	%
Telecom		11,541		11.0	%		7,811		7.5	%
FTTH		124		0.1	%		722		0.7	%
Other		1,270		1.2	%		788		0.8	%
Total Revenue	$	104,540		100.0	%	$	103,890		100.0	%

		*Operating*			*Financing*		*Operating*		*Financing*
2023	$	1,241		$	22		1,221		60
2024		1,204			54		1,136		-
2025		1,157			0		1,151		-
2026		1,168			0		1,076		-
2027		1,108			0		1,099		-
2028 and thereafter		2,165			0		1,289		-
Total lease payments	$	8,043		$	76		6,971		60
Less imputed interest		(818	)		(4	)	(629	)	(2	)
Present value	$	7,225		$	72		6,342		58

	*Six months ended June 30,*
	*2022*			*2021*
Weighted Average Remaining Lease Term (Years) - operating leases		6.67			7.84
Weighted Average Remaining Lease Term (Years) - financing leases		1.33			2.33
Weighted Average Discount Rate - operating leases		3.22	%		3.23	%
Weighted Average Discount Rate - financing leases		5.00	%		5.00	%

	*June 30, 2022*		*December 31, 2021*		*March 31, 2023*		*December 31, 2022*
Raw materials	$	36,596	$	29,469	$	21,315	$	25,732
Work in process and sub-assemblies		50,446		41,528		33,614		39,563
Finished goods		11,139		21,519		15,257		14,384
Total inventories	$	98,181	$	92,516	$	70,186	$	79,679

	*June 30, 2022*							*March 31, 2023*
	*Gross*		*Accumulated*			*Intangible*		*Gross*		*Accumulated*			*Intangible*
	*Amount*		*amortization*			*assets, net*		*Amount*		*amortization*			*assets, net*
Patents	$	8,781	$	(5,041	)	$	3,740	$	9,111	$	(5,493	)	$	3,618
Trademarks		42		(19	)		23		60		(23	)		37
Total intangible assets	$	8,823	$	(5,060	)	$	3,763	$	9,171	$	(5,516	)	$	3,655

	*As of June 30, 2022*								*As of December 31, 2021*
	*(Level 1)*		*(Level 2)*		*(Level 3)*		*Total*		*(Level 1)*		*(Level 2)*		*(Level 3)*		*Total*
Assets:
Cash and cash equivalents	$	33,667	$	0	$	0	$	33,667	$	34,656	$	0	$	0	$	34,656
Restricted cash		6,983		0		0		6,983		6,480		0		0	$	6,480
Note receivable		0		212		0		212		0		8,148		0		8,148
Total assets	$	40,650	$	212	$	0	$	40,862	$	41,136	$	8,148	$	0	$	49,284
Liabilities:
Bank acceptance payable	$	0	$	10,273	$	0	$	10,273	$	0	$	8,198	$	0		8,198
Convertible senior notes		0		68,667		0		68,667		0		67,588		0		67,588
Total liabilities	$	0	$	78,940	$	0	$	78,940	$	0	$	75,786	$	0	$	75,786

Within one year	$	53,565	$	50,921
Beyond one year		0		-
Total outstanding	$	53,565	$	50,921

				*Weighted*								*Weighted*
				*Average Share*		*Weighted*		*Aggregate*				*Average Share*	*Weighted*		*Aggregate*
	*Number of*			*Price on Date*		*Average Fair*		*Intrinsic*		*Number of*		*Price on Date*	*Average Fair*		*Intrinsic*
	*shares*			*of Release*		*Value*		*Value*		*shares*		*of Release*	*Value*		*Value*
	(in thousands, except price data)									(in thousands, except price data)
Outstanding at January 1, 2022		2,170				$	11.15	$	11,156
Outstanding at January 1, 2023											766		$	6.75	$	1,447
Granted		1,679					2.03		3,064		0			0		0
Released		(400	)		0		12.34		1,383		0			0		0
Cancelled/Forfeited		(99	)				10.79		153		0			0		0
Outstanding, June 30, 2022		3,350					6.45		5,193
Outstanding, March 31, 2023											766			6.75		1,692
Vested and expected to vest		3,350					6.45		5,193		766			6.75		1,692

	*Three months ended*				*Six months ended*				*Three months ended*
	*June 30,*				*June 30,*				*March 31,*
	*2022*		*2021*		*2022*		*2021*		*2023*		*2022*
Share-based compensation - by expense type
Cost of goods sold	$	114	$	266	$	250	$	467	$	114	$	136
Research and development		310		630		675		1,193		297		365
Sales and marketing		186		329		412		548		195		226
General and administrative		1,534		2,048		3,279		3,585		1,684		1,745
Total share-based compensation expense	$	2,144	$	3,273	$	4,616	$	5,793	$	2,290	$	2,472

	*As of the period ended*				*As of the period ended*
	*June 30,*		*December 31,*		*March 31,*		*December 31,*
	*2022*		*2021*		*2023*		*2022*
Long-lived assets:
United States	$	83,750	$	87,709	$	78,048	$	80,048
Taiwan		56,174		63,644		49,628		50,777
China		99,894		108,509		93,828		93,888
	$	239,818	$	259,862	$	221,504	$	224,713

	Three months ended					Three months ended					Six months ended					Six months ended
	June 30,					June 30,					June 30,					June 30,
	2022					2021					2022					2021
Revenue, net	$	52,299		100.0	%	$	54,189		100.0	%	$	104,540		100.0	%	$	103,890		100.0	%
Cost of goods sold		43,671		83.5	%		43,411		80.1	%		86,888		83.1	%		82,393		79.3	%
Gross profit		8,628		16.5	%		10,778		19.9	%		17,652		16.9	%		21,497		20.7	%
Operating expenses
Research and development		8,328		15.9	%		10,914		20.1	%		17,814		17.0	%		21,842		21.0	%
Sales and marketing		2,164		4.1	%		2,832		5.2	%		4,722		4.5	%		5,792		5.6	%
General and administrative		11,035		21.1	%		10,681		19.7	%		22,254		21.3	%		21,550		20.7	%
Total operating expenses		21,527		41.1	%		24,427		45.0	%		44,790		42.8	%		49,184		47.3	%
Loss from operations		(12,899	)	(24.6	)%		(13,649	)	(25.1	)%		(27,138	)	(25.9	)%		(27,687	)	(26.6	)%
Other income (expense)
Interest income		31		0.1	%		16		0.0	%		59		0.1	%		32		0.0	%
Interest expense		(1,408	)	(2.7	)%		(1,367	)	(2.5	)%		(2,810	)	(2.7	)%		(2,798	)	(2.7	)%
Other income, net		(180	)	(0.3	)%		6,797		12.5	%		(629	)	(0.6	)%		6,628		6.4	%
Total other income (expense), net		(1,557	)	(2.9	)%		5,446		10.0	%		(3,380	)	(3.2	)%		3,862		3.7	%
Loss before income taxes		(14,456	)	(27.6	)%		(8,203	)	(15.1	)%		(30,518	)	(29.2	)%		(23,825	)	(22.9	)%
Net loss	$	(14,456	)	(27.6	)%	$	(8,203	)	(15.1	)%	$	(30,518	)	(29.2	)%	$	(23,825	)	(22.9	)%

	Three months ended					Three months ended
	March 31,					March 31,
	2023					2022
Revenue, net	$	53,030		100.00	%	$	52,242		100.0	%
Cost of goods sold		43,786		82.57	%		43,217		82.7	%
Gross profit		9,244		17.43	%		9,025		17.3	%
Operating expenses
Research and development		8,536		16.10	%		9,486		18.2	%
Sales and marketing		2,327		4.39	%		2,558		4.9	%
General and administrative		12,548		23.66	%		11,220		21.5	%
Total operating expenses		23,411		44.15	%		23,264		44.5	%
Loss from operations		(14,167	)	(26.72	)%		(14,239	)	(27.3	)%
Other income (expense)
Interest income		33		0.06	%		28		0.1	%
Interest expense		(2,137	)	(4.03	)%		(1,401	)	(2.7	)%
Other income, net		(21	)	(0.04	)%		(450	)	(0.9	)%
Total other income (expense), net		(2,125	)	(4.01	)%		(1,823	)	(3.5	)%
Loss before income taxes		(16,292	)	(30.72	)%		(16,062	)	(30.7	)%
Income tax expense		-		0.00	%		0		0.0	%
Net loss	$	(16,292	)	(30.72	)%	$	(16,062	)	(30.7	)%

	Three months ended June 30,										Change
			% of					% of
	2022		Revenue			2021		Revenue			Amount			%
CATV	$	23,713		45.4	%	$	27,599		51.0	%	$	(3,858	)		(14.0	)%
Data Center		21,497		41.1	%		22,392		41.5	%		(922	)		(4.1	)%
Telecom		6,276		12.0	%		3,333		6.5	%		2,943			88.3	%
FTTH		27		0.1	%		298		0.0	%		(272	)		(91.1	)%
Other		786		1.5	%		566		1.0	%		220			38.8	%
Total Revenue	$	52,299		100.0	%	$	54,188		100.0	%	$	(1,890	)		(3.5	)%

	*June 30, 2022*			*December 31, 2021*			*March 31, 2023*			*December 31, 2022*
Land improvements	$	806		$	806		$	806		$	806
Building and improvements		87,118			89,698
Buildings and improvements								86,889			86,372
Machinery and equipment		256,414			266,386			252,892			251,216
Furniture and fixtures		5,491			5,658			5,434			5,382
Computer equipment and software		12,144			12,727			11,815			11,713
Transportation equipment		703			726			686			679
		362,676			376,001			358,522			356,168
Less accumulated depreciation and amortization		(171,735	)		(167,772	)		(183,003	)		(177,519	)
		190,941			208,229			175,519			178,649
Construction in progress		32,307			33,705			30,551			30,434
Land		1,101			1,101			1,101			1,101
Total property, plant and equipment, net	$	224,349		$	243,035		$	207,171		$	210,184

2023	$	611	477
2024		611	636
2025		611	636
2026		611	636
2027		611	636
2028		611
thereafter		97
2028 and thereafter			634
	$	3,763	3,655

	Six months ended June 30,										Change
			% of					% of
	2022		Revenue			2021		Revenue			Amount			%
CATV	$	48,694		46.7	%	$	46,238		44.5	%	$	2,483			5.4	%
Data Center		42,911		41.0	%		48,331		46.5	%		(5,446	)		(11.3	)%
Telecom		11,541		11.0	%		7,811		7.5	%		3,730			47.8	%
FTTH		124		0.1	%		722		0.0	%		(598	)		(82.8	)%
Other		1,270		1.2	%		788		0.8	%		482			61.2	%
Total Revenue	$	104,540		100.0	%	$	103,890		100.0	%	$	651			0.6	%

	Three months ended March 31,										Change
			% of					% of
	2023		Revenue			2022		Revenue			Amount				%
CATV	$	27,779		52.4	%	$	24,980		47.8	%	$	2,799		11.2	%
Data Center		20,353		38.4	%		21,415		41.0	%		(1,062	)	(5.0	)%
Telecom		3,707		7.0	%		5,265		10.1	%		(1,558	)	(29.6	)%
FTTH		2		0.0	%		98		0.2	%		(96	)	(98.0	)%
Other		1,189		2.2	%		484		0.9	%		705		145.7	%
Total Revenue	$	53,030		100.0	%	$	52,242		100.0	%	$	788		1.5	%

	Three months ended June 30,																Three months ended March 31,
	2022					2021					Change						2023					2022					Change
			% of					% of											% of					% of
	Amount		Revenue			Amount		Revenue			Amount			%			Amount		Revenue			Amount		Revenue			Amount		%
	(in thousands, except percentages)																(in thousands, except percentages)
Cost of goods sold	$	43,671		83.5	%	$	43,411		80.1	%	$	260			0.6	%	$	43,786		82.6	%	$	43,217		82.7	%	$	569		1.3	%
Gross margin		8,628		16.5	%		10,778		19.9	%	$	(2,150	)		(19.9	)%		9,244		17.4	%		9,025		17.3	%		219		2.4	%

	Three months ended June 30,
	2022						2021						Change
				% of						% of
	Amount			revenue			Amount			revenue			Amount			%
	(in thousands, except percentages)
Net loss	$	(14,456	)		(27.6	)%	$	(8,203	)		(15.1	)%	$	(6,253	)		76.2	%
Gain (Loss) on foreign currency translation adjustment		(7,583	)		(14.5	)%		3,630			6.7	%		(11,213	)		(308.9	)%
Comprehensive loss	$	(22,309	)		(42.7	)%	$	(4,573	)		(8.4	)%	$	(17,736	)		387.8	%

	Three months ended March 31,
	2023						2022						Change
				% of						% of
	Amount			revenue			Amount			revenue			Amount			%
	(in thousands, except percentages)
Net (loss)	$	(16,292	)		(30.7	)%	$	(16,062	)		(30.2	)%	$	(230	)		(1.4	)%
Gain (Loss) on foreign currency translation adjustment		1,640			3.1	%		(1,262	)		(2.4	)%		2,902			(230.0	)%
Comprehensive (loss)	$	(14,652	)		(27.6	)%	$	(17,324	)		(30.5	)%	$	2,672			(15.4	)%

Distribution Agent	Month	Number of Shares Sold		Weighted Average Per Share Price		Gross Proceeds		Compensation to Distribution Agent		Net Proceeds
Raymond James & Associates, Inc.	March 2021		65,748		9.0622	$	596		12	$	584
Raymond James & Associates, Inc.	June 2021		34,686		9.1115		316		6	$	310
Raymond James & Associates, Inc.	July 2021		6,740		9.1061		60		1	$	59
Raymond James & Associates, Inc.	September 2022		94,491		2.9045		274		5	$	269
Raymond James & Associates, Inc.	October 2022		313,333		2.8947		907		18	$	889
Raymond James & Associates, Inc.	November 2022		29,426		2.7830		82		2	$	80
Raymond James & Associates, Inc.	February 2023		158,149		2.8111		445		9	$	436
Total			702,573			$	2,680		53	$	2,627


Number		Description
2.1*		Agreement for the Sale and Purchase of a New Company to Be Established in Hong Kong Special Administrative Region of The People’s Republic of China, dated as of September 15, 2022, by and between Prime World International Holdings Ltd., Applied Optoelectronics, Inc. and Yuhan Optoelectronic Technology (Shanghai) Co., Ltd. (filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 15, 2022).

3.1*		Amended and Restated Certificate of Incorporation, as currently in effect (filed as Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 14, 2013).

3.2*		Amended and Restated Bylaws, as currently in effect (filed as Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 14, 2013).

4.1*		Common Stock Specimen (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 15, 2015).

4.2*		Indenture, dated as of March 5, 2019 between Applied Optoelectronics, Inc. and Wells Fargo Bank, National Association, as trustee, paying agent, and conversion agent (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 5, 2019).

4.3*		Form of Note representing the Company’s 5.00% Convertible Senior Notes due 2024 (included as Exhibit A to the Indenture filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 5, 2019).

10.1*		Translation of the Maximum Loan Contract, between Global Technology, Inc. and China Zheshang Bank Co., Ltd, dated June 7, 2022. (filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 3, 2022).

10.2*		Translation of the Maximum Mortgage Contract, between Global Technology, Inc. and China Zheshang Bank Co., Ltd, dated June 7, 2022. (filed as Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 3, 2022).

31.1**		Certification of Chief Executive Officer pursuant to Exchange Act Rule, 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2**		Certification of Chief Financial Officer pursuant to Exchange Act Rule, 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certification pursuant to 18 U.S.C. 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Chief Executive Officer and Chief Financial Officer.

101.INS**		Inline XBRL Instance – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH**		Inline XBRL Taxonomy Extension Schema Document.

101.CAL**		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF**		Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB**		Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE**		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104**		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

	APPLIED OPTOELECTRONICS, INC.

Date: ~~August~~May 4, ~~2022~~2023	By:	/s/ STEFAN J. MURRY
		Stefan J. Murry
		Chief Financial Officer
		(principal financial officer and principal accounting officer)