APPLIED OPTOELECTRONICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note1. Description of Business​

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Business Overview

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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 forfour networking end-markets: internet data center, cable television ("CATV"), 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.

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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 as well as certain of its data center transceivers and performs research and development activities for laser component and optical module products and certain data center transceiver products. In addition, the Company 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 certain of its data center transceivers and certain CATV systems and equipment and performs research and development activities for the transceiver products. Prime World is 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 CATV and certain data center transceiver products.

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Interim Financial Statements

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The accompanying unaudited condensed consolidated financial statements of the Company as of* September 30, 2025* and* December 31, 2024* and for thethree andnine months ended* September 30, 2025* and* September 30, 2024*, 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 Form10-Q and Rule10-01 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 Form10-K ("Annual Report") for the fiscal year ended* December 31, 2024*. The results of operations for thethree andnine months ended* September 30, 2025* arenot necessarily indicative of the results expected for the entire fiscal year. All significant inter-company accounts and transactions have been eliminated.

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Use of Estimates

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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 materially from those estimates in the consolidated financial statements and accompanying notes. Significant estimates and assumptions that impact these financial statements and the accompanying notes relate to, among other things, revenue recognition, allowance for credit losses, inventory reserve, impairment of long-lived assets, service and product warranty costs, share-based compensation expense, estimated useful lives of tangible and intangible assets, and taxes.

Product Warranty

The Company generally offers aone-year limited warranty for its products but it can extend for longer periods ofthree tofive years for certain products sold to certain customers. The Company estimates the costs that* maybe incurred under its basic limited warranty and records a liability for the amount of such costs at the time when product defects occur. Factors that affect the Company’s warranty liability include the historical and anticipated rates of warranty claims and cost to repair. While the Company believes that its warranty accrual is adequate, the actual warranty costs mayexceed the accrual, in which case the cost of sales will increase in the future. As of September 30, 2025and December 31, 2024,*the amount of accrued warranty was $0.45 million and $0.28 million, respectively.

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Note2. Significant Accounting Policies

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There have beenno changes in the Company’s significant accounting policies for thethree andnine months ended* September 30, 2025*, as compared to the significant accounting policies described in its2024 Annual Report.

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Recent Accounting Pronouncements

In* November 2023,the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)No. 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures, which requires more detailed disclosures, on an annual and interim basis, related to the Company’s reportable segment. The guidance is effective for annual periods beginning after December 15, 2023,and interim periods within fiscal years beginning after December 15, 2024.See Note17* Segment and Geographic Information for further details about the impact of this ASU on the Company’s financial statements.

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Recent Accounting Pronouncements Yet to be Adopted

In* May 2024,the Financial Accounting Standard Board ("FASB") issued Accounting Standard Update ("ASU")2025-04 "Share-Based Consideration Payable to a Customer". The standard is effective for our2026* annual period, and our interim periods beginning in2027. The Company is currently evaluating the impact of the new standard will have on its annual financial statements and related disclosures.

In* November 2024,the FASB issued ASU2024*-03 "Income Statement: Reporting Comprehensive Income/Expense Disaggregation Disclosures (Subtopic220-40)" to improve the disclosures about an entity's expenses. Upon adoption, we will be required to disclose in the notes a disaggregation of certain expense categories included within the expense captions of the income statement. The standard is effective for our2027 annual period, and our interim periods beginning in2028. The Company is currently evaluating the impact of the new standard will have on its annual financial statements and related disclosures.

In* December 2023,the FASB issued ASU2023*-09 "Income Taxes (Topic740): "Improvements to Income Tax Disclosures", which requires the Company to disclose disaggregated jurisdictional and categorical information for the tax rate reconciliation, income taxes paid and other income tax related amounts. This guidance is effective for annual periods beginning after* December 15, 2024,with early adoption permitted. ASU2023*-09 will be effective for the Company for the year ending* December 31, 2025.*The adoption is expected to enhance the Company's Notes to the Consolidated Financial Statements. The Company is currently evaluating the impact the new standard will have on its annual financial statements and related disclosures.

In* July 2025,the FASB issued ASUNo.* 2025-05—Financial Instruments—Credit Losses (Topic326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which added a practical expedient that assumes that current conditions as of the balance sheet date donot change for the remaining life of the asset when estimating expected credit losses for current accounts receivable and current contract assets. The guidance is effective for annual periods beginning after* December 15, 2025.The Company plans to adopt this ASU on the effective date and doesnot* expect it to have a material impact on the Company’s financial statements.

In* September 2025,the FASB issued ASUNo.* 2025-06—Intangibles—Goodwill and Other—Internal-Use Software (Subtopic350-40): Targeted Improvements to the Accounting for Internal-Use Software, which removed the language around project stages that was used to assess when costs could be capitalized for an internal-use software. The update also requires internal-use software to be disclosed under the ASC360 Property, Plant, and Equipment guidance. The guidance is effective for annual periods beginning after* December 15, 2027.*The Company is currently assessing the impact of this ASU on the Company’s accounting policies and the financial statements.

Note3. Revenue Recognition

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Disaggregation of Revenue

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Revenue is classified based on the location where the product is manufactured. For additional information on the disaggregated revenues by geographical region, see Note17, "Segment and Geographic Information."

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

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Unearned Revenue

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We record unearned revenues when cash payments are received or due in advance of our performance, including amounts which are refundable. Unearned revenues solely relate to statement of work with Microsoft regarding contract prices allocated to the performance obligations that are unsatisfied, or partially unsatisfied, as of the balance sheet dates. Unearned revenue balance as of* September 30, 2025* and* December 31, 2024* were both zero. For thethree months ended* September 30, 2025and2024*, revenue recognized from the unearned revenue balance was $0 and $0.1 million, respectively. For thenine months ended* September 30, 2025and2024*, revenue recognized from the unearned revenue balance was $0 and $0.4 million, respectively. The unearned revenue was as follows for the periods indicated (in thousands):

Customer Warrant

On* March 13, 2025,the Company issued a warrant (the "Customer Warrant") to a wholly-owned subsidiary of Amazon.com, Inc. to purchase up to an aggregate of 7,945,399 shares of the Company's common stock ("Warrant Shares") at an exercise price of $23.6956 per share. The Customer Warrant has a contractual term of 10 years. At the time of the issuance, the Customer Warrant is exercisable to purchase 1,324,233 Warrant Shares. The remaining 6,621,166 Warrant Shares mayvest over the next10* years, dependent on aggregate purchases by or on behalf of Amazon and its affiliates of $4 billion of the Company's products over this time period. The Company accounts for the Customer Warrant as an equity classified share-based consideration to a customer and will recognize the grant-date fair value of the Customer Warrant as a reduction of revenue from Amazon as the related goods or services are transferred.The grant date fair value of the Customer Warrant was determined to be $12.64 per share, using the Black-Scholes-Merton option pricing model.

The per share grant date fair value of the Customer Warrant was estimated using the following assumptions:

For thenine months ended* September 30, 2025,the Company recognized approximately $4 million of revenue associated with customer arrangements that included the issuance of warrants. The impact of these arrangements on the Company’s consolidated financial statements wasnot* material** *for the periods presented. As of September 30, 2025,*the Company recorded other current asset of $1.7 million and other noncurrent asset of $15.0 million, representing the aggregate grant-date fair value of 1,324,233 Warrant Shares vested at the issuance.

Note4. Leases

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The Company leases space under non-cancellable operating leases for manufacturing facilities, research and development offices and certain storage facilities and apartments. These leases donot contain contingent rent provisions. The Company also leases certain machinery, office equipment and a vehicle under operating leases. The Company determines if an arrangement is or contains a lease at contract inception. 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 includeone 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 thanone-year and therefore, the Company has elected the practical expedient to exclude these short-term leases from its ROU asset and lease liabilities.

On* October 7, 2024,Prime World entered into a Land and Building Lease Agreement with San Ho Enterprise Co., Ltd. ("San Ho Enterprise"), under which Prime World will lease approximately 38,072 square feet, oftwo* adjoining parcels of land, in New Taipei City. The lease also includes a building on these parcels, totaling approximately 3,406 square meters, or approximately 36,662 square feet. The lease term is forfifteen years, commencing on* December 1, 2024,and ending on November 30, 2039.Atwo*-month renovation period from* October 1to November 30, 2024,preceded the lease term, during whichno* rent was charged by San Ho Enterprise. During the lease term, the monthly rent will increase bythree percent (3%) everythree years.

On* June 7, 2025,Prime World entered into a Land and Building Lease Agreement with San Ho Electric Machinery Industry Co., Ltd. ("San Ho Electric") in Taoyuan City. On August 20, 2025,*Prime World terminated the lease with San Ho Electric and agreed to pay a termination fee in full settlement of rent, fees, damages and other amounts arising from the early termination of the lease.

On* September 1, 2025,Prime World entered into a Lease Agreement with International Games System Co., Ltd., under which Prime World will lease a parcel of land with a total area of approximately 65,580 square feet, in New Taipei City. The lease includes a building on the parcel, totaling approximately 346,212 square feet, excluding approximately 54,086 square feet of the leased property which has previously been leased to an existing tenant. The lease term is forfifteen years, commencing November 1, 2025and ending October 31, 2040.Atwo*-month renovation period from* September 1to October 1, 2025will precede the lease term, during whichno* rent will be charged. During the lease term, the monthly rent will increase bythree percent (3%) everyfive years. On* October 28, 2025,we entered into a lease to include thefirst* floor which was previously excluded in the* September 1, 2025*lease.

On* September 19, 2025,the Company entered into a Lease Agreement with Coleman Logistics Assets LLC (“Coleman”), pursuant to which the Company will lease approximately 209,665 square feet of space located at1111* Gillingham Lane, Sugar Land, Texas77478. The leased premises will be used by the Company primarily for manufacturing and related operations. The lease has a term of 126 months, commencing on the earlier of (i) the date the Company commences manufacturing operations within the leased premises, (ii) the date on which the leasehold improvements are substantially completed, or (iii)* March 31, 2026,and expiring approximately126* months thereafter, unless earlier terminated in accordance with the lease. Coleman has agreed to provide a construction allowance toward the cost of leasehold improvements in an amount equal to the lesser of (i) the actual aggregate cost of such improvements or (ii) $1,886,985. Base rent under the lease is abated for thefirst seven months of the term and thereafter increases on a scheduled basis through the end of the term, reflecting an average annual escalation of approximately 3.5%. Beginning in theeighth month of the term, base rent will be $7.44 per rentable square foot on an annual basis (approximately $129,992 per month), escalating periodically to $10.49 per rentable square foot on an annual basis (approximately $183,367 per month) during the finalsix months of the term.

Although the lease agreement was executed prior to* September 30, 2025,the lease hadnot* yet commenced as of that date, as Coleman is currently completing required improvements to the leased premises. The Company expects the lease to commence in thefirst quarter of2026, at which time the Company will recognize a right-of-use (“ROU”) asset and a corresponding lease liability on its consolidated balance sheet. The total undiscounted lease payments over the initial lease term are approximately $21.9 million, which will be recognized upon lease commencement. No ROU asset or lease liability related to this agreement has been recorded as of* September 30, 2025.*

As most of the Company’s leases donot 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.

Lease expense is included under general and administrative expenses and were $1.1 million and $0.4 million for thethree months ended* September 30, 2025and2024*, respectively. For thenine months ended* September 30, 2025and2024*, lease expenses were $2.4 million and $1.1 million, respectively. The components of lease expense were as follows for the periods indicated (in thousands):

Maturities of lease liabilities are as follows for the futureone-year periods ending* September 30, 2025* (in thousands):

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

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

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Note5. Cash, Cash Equivalents and Restricted Cash

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The following table provides a reconciliation of cash, cash equivalents and 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):

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Restricted cash includes guarantee deposits for customs duties, a China government subsidy fund, and deposits as collateral in order to secure bank acceptance notes issued to vendors. As of* September 30, 2025* and* December 31, 2024*, there were $9.7 million and $8.5 million of restricted cash required for bank acceptance notes issued to vendors, respectively. In addition, as of* September 30, 2025* and* December 31, 2024* certificates of deposit associated with credit facilities with a bank in China were $0 and $2.5 million, respectively. There were $1.0 million and $0.7 million guarantee deposits for customs duties as of* September 30, 2025* and* December 31, 2024* respectively. There were $3.0 million and $0 government subsidy funds as of* September 30, 2025* and* December 31, 2024*, respectively.

Note6. Loss Per Share

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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. On* March 13, 2025,the Company issued 7,945,399 stock warrants to a subsidiary of Amazon, and 1,324,233 warrants have been vested upon signing the warrant agreement. For the three months ended September 30, 2025,such warrants are in the money, the warrants are considered dilutive instruments; For thenine* months ended* September 30, 2025,such warrants are out of money, they arenot* considered dilutive instruments.

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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):

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Note7. Inventories

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Inventories, net consist of the following for the periods indicated (in thousands):​

For thethree months ended* September 30, 2025and2024*, the inventory reserve adjustment expensed for inventory was $2.1 million and $0.7 million, respectively. Fornine months ended* September 30, 2025and2024,* the inventory reserve adjustment expensed for inventory was $5.4 million and $2.4 million, respectively.

For thethree months ended* September 30, 2025and2024*, the direct inventory write-offs related to scrap, discontinued products and damaged inventories were $4.4 million and $0.7 million, respectively. For thenine months ended* September 30, 2025and2024*, the direct inventory write-offs related to scrap, discontinued products and damaged inventories were $6.3 million and $2.4 million, respectively.

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Note8. Property, Plant & Equipment

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

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For thethree months ended* September 30, 2025and2024*, the depreciation expense of property, plant and equipment was $7.3 million and $5.1 million, respectively. For thenine months ended* September 30, 2025and2024*, the depreciation expense of property, plant and equipment was $19.2 million and $15.0 million, respectively.

As of* September 30, 2025**,the Company concluded that its continued loss history constitutes a triggering event as described in ASC360*-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 thereforeno impairment charge was recorded.

Note9. Intangible Assets, net

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

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For thethree months ended* September 30, 2025and2024*, amortization expense for intangible assets, included in general and administrative expenses on the statement of operations, was $0.1 million and $0.1 million, respectively. For thenine months ended* September 30, 2025and2024*, amortization expense for intangible assets, included in general and administrative expenses on the statement of operations, was $0.3 million and $0.3 million, respectively. The remaining weighted average amortization period for intangible assets is approximately 8.1 years.

On* September 30, 2025*, future amortization expenses for intangible assets for future periods are estimated to be (in thousands):

Note10. Fair Value of Financial Instruments​

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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 Company believes that the interest rates in effect at each period end represent the current market rates for similar borrowings.

The Company's accounts receivable was $224.0 million as of* September 30, 2025.Of this amount, $193.7 million was due from DigiComm International Inc. For thethree* months ended* September 30, 2025and2024*, our topten customers represented 97% and 96% of our revenue, respectively. For thenine months ended* September 30, 2025and2024*, our topten customers represented 97% and 94% of our revenue, respectively.

The fair value of convertible senior notes is measured for disclosure purposes only. The fair value and carrying amount of our convertible senior notes as of* September 30, 2025* were $134.8 million and $130.1 million, respectively. As of* December 31, 2024*, the fair value and carrying amount of our convertible senior notes was $148.6 million and $134.5 million, respectively. The fair value is based on observable market prices for this debt, which is traded in less active markets and is therefore classified as a Level2 fair value measurement.

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Note11. Notes Payable and Long-Term Debt

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

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The loans are all withinone year of the balance sheet date of* September 30, 2025.*

SPD Credit Line

On* May 24, 2024,Global entered into afive-year revolving credit line with Shanghai Pudong Development Bank Co., Ltd. ("SPD"), totaling 170,000,000 RMB (the “SPD Credit Line”) or approximately $23.9 million at that time. On June 18, 2025,Global used the CCB Credit Facility, as described hereinbelow, to repay certain amounts outstanding under the SPD Credit Line. Upon repayment, Global terminated the SPD Credit Line effective June 18, 2025.*

On* July 18, 2025,Global entered into aone-year credit facility with SPD, totaling82,000,000* RMB (the“¥82M Credit Facility”), or approximately $11.4 million at that time. Borrowing under the¥82M Credit Facility will be used to repay the Company’s outstanding loans with China Zheshang Bank Co., Ltd., and for general corporate and capital investment purposes.

On* July 29, 2025,Global entered into afive-year revolving credit line agreement with SPD in Ningbo City, China, totaling250,000,000* RMB (the"¥250M SPD Credit Line"), or approximately $34.9 million at that time, and a mortgage contract. Borrowing under the¥250M SPD Credit Line will be used for general corporate and capital investment purposes. Any credit previously extended by SPD will be applied against the available amount under the¥250M SPD Credit Line, inclusive of the¥82M Credit Facility. Global's obligation under the¥250M SPD Credit Line will be secured by certain real property owned by Global. As of* September 30, 2025,$14.4 million was outstanding under the¥250M SPD Credit Line, and the outstanding balance of bank acceptance notes under this bank issued to vendors was$19.9 million. The unused credit as of September 30, 2025*was $6.9 million.

CZB Loan

On* June 7, 2022,Global entered into a security agreement with China Zheshang Bank in Ningbo City, China ("CZB") for afive-year credit line agreement, totaling200,000,000* RMB (the"¥200M Credit Facility"), or approximately $29.9 million at that time. On* July 23, 2025,Global used the¥82M Credit Facility, as described hereinabove, to repay certain amounts outstanding under the¥200M Credit Facility. Upon repayment, Global terminated the¥200M Credit Facility effective July 23, 2025.*

As of* September**30,* 2025, the outstanding balance of bank acceptance notes issued to vendors was $4.3 million.

CCB Loan

On* June 12, 2025,*Global entered into aone-year credit facility with China Construction Bank Co., Ltd., in Ningbo, City, China ("CCB"), totaling 96,800,000 RMB (the "CCB Credit Facility"), or approximately $13.5 million at that time.

On* June 26, 2025,Global entered into afive-year revolving credit line agreement with CCB, totaling 162,260,000 RMB (the "CCB Credit Line"), or approximately $22.7 million at that time. The amount available under the CCB Credit Line is inclusive of the CCB Credit Facility previously granted by CCB on June 12, 2025.As of September 30, 2025,there was $13.6 million outstanding under the CCB Credit Line, The outstanding balance of bank acceptances notes under this bank issued to vendors was $7.0 million as of September 30,2025.The unused credit as of September 30, 2025*was $1.9 million.

BOKF Loan

On* July 31, 2025,the Company entered into a Loan and Security Agreement (the “BOKF Credit Facility”) with BOKF, NA dba BOK Financial, as agent for secured parties. The BOKF Credit Facility provides the Company with athree-year, $35 million revolving line of credit, with the ability to request additional lender commitments in an aggregate amountnot* to exceed $40 million (for a total aggregate amount of $75 million) pursuant to certain conditions. As of* September 30, 2025,*$0 was outstanding under the BOKF Credit Facility.

As of* September 30, 2025* and* December 31, 2024*, the Company had $43.8 million and $24.8 million of unused borrowing capacity, respectively.

As of* September 30, 2025* and* December 31, 2024*, therewas $9.7 million and $8.5 million of restricted cash, investments or security deposits associated with the loan facilities, respectively.

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Note12. Convertible Senior Notes

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On* March 5, 2019,the Company issued $80.5 million of 5% convertible senior notes due2024* (the*"2024* Notes"). On* December 5, 2023,the Company issued approximately $80.2 million aggregate principal amount of 5.250% convertible senior notes due2026* (the*"2026* Notes"), and on the same day consummated various separate, privately negotiated exchange agreements with certain holders of its2024 Notes to exchange or repurchase approximately $80.2 million principal amount of the2024 Notes for aggregate consideration consisting of approximately $81.1 million in cash, which included accrued interest on the2024 Notes, and approximately 466,368 shares of the Company's common stock, par value $0.001 per share. The Company paid off the remaining $0.29 million of the2024 Notes on* March 15,*2024.

The2026 Notes bear interest at a rate of5.250% per year and pay interest semi-annually in arrears on* June 15and December 15of each year, beginning on June 15, 2024.The2026* Notes mature on* December 15, 2026,*unless earlier converted, redeemed or repurchased in accordance with their terms.

On* December 18, 2024,the Company entered into exchange agreements with certain holders of the2026* Notes to exchange approximately $76.7 million principal amount of the2026 Notes for aggregate consideration consisting of (i) $125.0 million aggregate principal amount of 2.75% Convertible Senior Notes due2030 (the*"2030* Notes"), (ii)1,487,874 shares of the Company’s common stock, par value $0.001 per share (the "Common Stock") and (iii) approximately $89.6 thousands of cash in aggregate, representing accrued and unpaid interest on the2026 Notes and the value of fractional shares of Common Stock (such transactions, collectively, the "Exchanges"). The Exchanges closed on* December 23, 2024.There was $3.5 million principal amount for the2026* Notes remaining. On* July 30, 2025,the Company retired the final $3.5 million principal and accrued and unpaid interest on the2026* Notes by exchanging such outstanding principal for 239,404 shares of the Company's common stock and by paying the accrued and outstanding interest in cash.

The2030 Notes were issued pursuant to an Indenture, dated as of* December 23, 2024 (the "Indenture"), between the Company, as issuer, and Computershare Trust Company, N.A., as trustee. The2030* Notes bear interest at a rate of 2.750% per year and will pay interest semiannually in arrears on* January 15and July 15of each year, beginning on July 15, 2025.The2030* Notes will mature on* January 15, 2030,*unless earlier converted, redeemed or repurchased in accordance with their terms.

The following table presents the carrying value of the2026 Notes and the2030 Notes for the periods indicated (in thousands):

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The conversion rate for the2030 Notes is 23.0884 shares of Common Stock per*$1,000* principal amount of the2030 Notes (which is equivalent to a conversion price of approximately $43.31 per share of Common Stock, representing a premium of approximately 27.50% over the last reported sale price of the Common Stock on* December 18, 2024of $33.97 per share), subject to adjustment. Before October 15, 2029,holders of the2030* Notes will have the right to convert their2030 Notes only upon the satisfaction of a common stock sale price condition or a note trading price condition (each, as described in the Indenture) or upon the occurrence of certain events (including the occurrence of a Fundamental Change, Make-Whole Fundamental Change or Common Stock Change Event (each as defined in the Indenture). From and after* October 15, 2029,holders of the2030* Notes* mayconvert their2030* Notes at any time at their election until the close of business on thesecond scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of its Common Stock or a combination of cash and shares of its Common Stock, at the Company’s election, based on the applicable conversion rate(s).

The2030 Notes will be redeemable, in whole or in part (subject to certain limitations described in the Indenture), at the Company’s option at any time, and from time to time, on or after* January 15, 2027and on or before the40th* scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the2030 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of the Common Stock exceeds 130% of the conversion price on (1) each of at least 20 trading days, whether ornot 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 (2) the trading day immediately before the date it sends such notice.

In addition, the2030 Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or before the40th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the2030 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date (subject to the right of a holder of2030 Notes as of the close of business on a record date to receive the related interest payment on the corresponding interest payment date), if the “Specified Divestiture” (as defined in the Indenture) is completed.

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Calling any2030 Note for redemption will constitute a "Make-Whole Fundamental Change" (as defined in the Indenture) with respect to that2030 Note, in which case the conversion rate applicable to the conversion of that2030 Note will be increased in certain circumstances if it is converted after it is called for redemption.

In addition, if the Specified Divestiture is completed, then unless the Company has previously elected to redeem all of the2030 Notes, each holder of2030 Notes will have the right to require the Company to repurchase its2030 Notes for cash on a date of the Company’s choosing, which must be a business day that isno more than35, nor less than20, business days after the date the Company’s sends the related notice of Specified Divestiture. The repurchase price for a note tendered for such repurchase will be equal to the principal amount of the2030 Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date (subject to the right of a holder of2030 Notes as of the close of business on a record date to receive the related interest payment on the corresponding interest payment date).

Moreover, if the Company undergoes a fundamental change, as described in the Indenture, holders of the2030 Notes* mayrequire the Company to repurchase for cash all or part of their2030* Notes at a repurchase price equal to 100% of the principal amount of the2030 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the required repurchase date.

Additionally, the2030 Notes are subject to customary events of default. The2030 Notes donot restrict the Company’s ability to incur debt or liens.No sinking fund is provided for the2030 Notes. There areno guarantors of the2030 Notes.

Pursuant to the guidance in ASC815-40, 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 ASC815-40, 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. Accordingly, the conversion option isnot required to be bifurcated from the host instrument as a derivative.

Pursuant to ASC815-15, the Company further determined that the contingent redemption features in the2030 Notes arenot required to be bifurcated from the host contract and accounted for separately. Additionally, the Company then evaluated whether the conversion feature needed to be separately accounted for as an equity component under ASC470-20, Debt with Conversion and Other Options, and determined that the additional premium wasnot substantial. Accordingly, that amount was recognized as a premium on the2030 Notes.

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The following table sets forth interest expense information related to the2026 Notes and2030 Notes (in thousands):

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Note13. Accrued Liabilities​

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

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Note14. Other Income and Expense

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

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Note15. Share-Based Compensation

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Equity Plans

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

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The Company has 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 afour-year period and have a maximum term often 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.

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Performance Based Incentive Plan

​Starting in2021, certain senior executives were granted performance stock units ("PSUs") under our Amended and Restated2021 Equity Incentive Plan ("2021 Plan"), which generally vest over athree-year period subject to achievement of certain pre-established performance metrics. The number of shares of common stock that would ultimately be issued to settle PSUs granted ranged from 0% to 200% of the target number of shares granted. We estimate the fair value of the PSUs on the date of grant using a Monte Carlo simulation model, with stock-based compensation expense recognized ratably over the applicablethree-year performance period. The Company recognized stock-based compensation expense for the PSUs for thethree months ended* September 30, 2025and2024* of $1.2 million and $3.8 million, respectively. The Company recognized stock-based compensation expense for the PSUs for thenine months ended* September 30, 2025and2024* of $3.3 million and $5.8 million, respectively.

The following is a summary of PSU activity for thenine months ended* September 30, 2025:*

As of* September 30, 2025*, there was $6.2 million of unrecognized stock-based compensation expense related to outstanding PSUs, which expense is expected to be recognized over 1.9 years.

Restricted Stock Units

The following is a summary of RSU activity:

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As of* September 30, 2025*, there was $12.1 million of unrecognized compensation expense related to these RSUs. This expense is expected to be recognized over 2.3 years.

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Share-Based Compensation

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

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Note16. Income Taxes

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For thethree months ended* September 30, 2025and2024,* 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").

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 thannot” 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* September 30, 2025*was appropriate.

On* July 4, 2025,new U.S tax legislation was signed into law (known as the "One Big Beautiful Bill Act" or "OBBBA") which includes, among other provisions, changes to the U.S. corporate income tax system including the allowance of immediate expensing of qualifying research and development expenses and permanent extensions of certain provisions within the Tax Cuts and Jobs Act. In addition, the OBBBA makes changes to certain U.S. corporate and international tax provisions which are generallynot* effective until2026. For example, as a U.S. domiciled company, the income from the Company's foreign subsidiaries is subject to the U.S. tax provisions under Internal Revenue Code Section951A, which, as amended by the OBBBA, generally will require that net Controlled Foreign Corporation (“CFC”) tested income (formerly referred to as global intangible low-taxed income, or GILTI) be included in the taxable income of U.S. entities for tax years after* December 31, 2025.We are currently evaluating the impact of the new legislation but donot* expect it to have a material impact on our financial statements since we currently have a full valuation allowance applied against our deferred tax assets.

Note17. Segment and Geographic Information

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The Company operates inone reportable segment. The Company’s Chief Executive Officer, who is considered to be the chief operating decision maker ("CODM"), 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. Our CEO is the functional head of all operations and manufacturing. Our Board, in conjunction with our CODM, considers our consolidated performance and doesnot have individual financial or operating goals for each location, nor for any other subset of the Company's operations. As such, the Company has determined it operates asone reportable segment.

Our CODM uses net income or loss to allocate resources and assess performance. The CODM regularly reviews the consolidated net income or loss to make strategic decisions, such as capital expenditure plan, production plan and manpower allocation. The following table is in thousands.

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We exclude share-based compensation and related expense, certain legal expenses associated with litigation and otherone-time expenses from adjusted research and development, adjusted sales and marketing and adjusted general and administrative expenses.

Other segment items include share-based compensation expense, interest expense, interest income, certain legal expenses associated with litigation and otherone-time items.

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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 property, plant, equipment, land use rights, right of use assets and intangible assets (in thousands):

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Note18. Commitments and contingencies

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Litigation

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From time to time, the Company* maybe subject to legal proceedings and litigation arising in the ordinary course of business, including, butnot* 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.

The Company believes that there areno claims or actions pending or threatened against it, the ultimate disposition of which would have a material adverse effect on it.

Other Contingencies

On* August 9, 2021,the Company received a Taxes Notification of Audit Result ("Notice") from the Texas Comptroller’s Office (the "Comptroller"), for fiscal years between2016* and2019, informing the Company that the Comptroller believes the Company didnot 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 exhausted its redetermination period and therefore moved the Company’s case to the hearing process.No hearing date has yet been scheduled, and as a result the Company isnot* able to determine the outcome of this sales tax dispute or the likelihood or amount of the Company’s loss, if any, arising from this matter.

Note19. Subsequent Events

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On* October 13, 2025,*the board of the Company approved capital injection to Prime World and also its branch office in Taiwan.

On* October 28, 2025,Prime World entered into a new Premises Lease Agreement with International Games System Co., Ltd. to lease the remaining 54,086 square feet of the building Prime World leased on September 1, 2025*in New Taipei City.

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