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Item 1. Financial Statements

2025-08-13 compared with 2025-05-14 · 517 added, 285 removed, 1218 unchanged (40% of the section changed)

Financial Statements (unaudited)

CONDENSED CONSOLIDATED BALANCE SHEET S

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except per share data)

1 unchanged sentence

Cash and cash equivalents

$ 27,007 $ 22,833

Restricted cash

Accounts receivable, net of allowances for credit losses of $ 147 and $ 147 as of March 31, 2025 and December 31, 2024

Accounts receivable, net of allowances for credit losses of $ 147 and $ 147 as of June 30, 2025 and December 31, 2024

22,794 25,640

80,063 85,077

Prepaid expenses and other current assets

Total current assets

144,960 158,272

Property, plant and equipment, net

159,714 159,721

Operating lease right-of-use assets

22,096 18,842

$ 329,003 $ 339,314

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY

1 unchanged sentence

Accounts payable

$ 11,242 $ 12,356

Accrued liabilities

12,372 14,556

Short-term loans

55,928 47,264

Total current liabilities

79,542 74,176

Noncurrent operating lease liabilities

1 unchanged sentence

Total liabilities

88,372 84,406

Commitments and contingencies (Note 12)

Redeemable noncontrolling interests (Note 18)

38,010 38,577

Stockholders’ equity:

1 unchanged sentence

2,000 shares authorized;

883 shares issued and outstanding as of March 31, 2025 and December 31, 2024 (Liquidation preference of $ 8,096 and $ 8,052 as of March 31, 2025 and December 31, 2024)

883 shares issued and outstanding as of June 30, 2025 and December 31, 2024 (Liquidation preference of $ 8,140 and $ 8,052 as of June 30, 2025 and December 31, 2024)

Common stock, $ 0.001 par value;

70,000 shares authorized;

45,604 and 45,358 shares issued and outstanding as of March 31, 2025 and December 31, 2024

46,078 and 45,358 shares issued and outstanding as of June 30, 2025 and December 31, 2024

Additional paid-in capital

242,776 241,514

Accumulated deficit

( 59,470 ) ( 43,664 )

Accumulated other comprehensive loss

( 7,170 ) ( 8,657 )

Total AXT, Inc.

stockholders’ equity

179,714 192,770

Noncontrolling interests

22,907 23,561

Total stockholders’ equity

202,621 216,331

Total liabilities, redeemable noncontrolling interests and stockholders’ equity

$ 329,003 $ 339,314

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

Three Months Ended

Six Months Ended

Cost of revenue

Gross profit (loss)

Operating expenses:

4 unchanged sentences

Interest expense, net

Equity in income of unconsolidated joint ventures

Gain (loss) from equity method and fair value investments

Other income, net

10 unchanged sentences

Three Months Ended

Six Months Ended

Other comprehensive income (loss), net of tax:

3 unchanged sentences

Comprehensive loss

Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interests

Comprehensive (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests

Comprehensive loss attributable to AXT, Inc.

2 unchanged sentences

(Unaudited, in thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

1 unchanged sentence

Gain on disposal of equipment

Equity in income of unconsolidated joint ventures

Return of equity method investments as dividends

Gain from equity method and fair value investments

Deferred tax assets

15 unchanged sentences

Payments on short-term bank loans

Proceeds from long-term loan

Payments on long-term loan

Proceeds from long-term loans

Payments on long-term loans

Net cash provided by financing activities

4 unchanged sentences

Supplemental disclosure of non-cash flow information:

Loan proceeds received by notes receivable

Notes receivables paid to purchase fixed assets

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Actual results could differ materially from those estimates.

The results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results to be expected in the future or for the full fiscal year.

The results of operations for the three and six months ended June 30, 2025 are not necessarily indicative of the results to be expected in the future or for the full fiscal year.

It is recommended that these condensed consolidated financial statements be read in conjunction with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10 -K for the year ended December 31, 2024 filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2025 .

11 unchanged sentences

Investments in business entities in which we do not have controlling interests, but have the ability to exercise significant influence over operating and financial policies (generally 20 - 50% ownership), are accounted for by the equity method.

As of March 31, 2025 and December 31, 2024, we have three companies accounted for by the equity method.

As of June 30, 2025 and December 31, 2024 , we have three companies accounted for by the equity method.

In May 2023, we reduced our ownership in Emeishan Jia Mei High Purity Metals Co., Ltd.

5 unchanged sentences

When warranted by favorable market conditions, we intend to construct facilities at the ChaoYang LiMei location to provide us with additional production capacity.

For the three months ended March 31, 2025, expenses associated with ChaoYang LiMei had a de minimis impact on our condensed consolidated financial statements.

For the three and six months ended June 30, 2025 , expenses associated with ChaoYang LiMei had a de minimis impact on our condensed consolidated financial statements.

In February 2021, Tongmei signed a joint venture agreement with certain investors to fund a new company, ChaoYang XinMei.

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This new agreement called for additional investment of approximately $ 5.6 million, with Tongmei committing to fund approximately $ 2.3 million.

In December 2023, Tongmei made its initial additional investment of approximately $ 0.6 million in ChaoYang KaiMei, followed by additional investments of approximately $ 0.3 million each in June and July 2024.

Tongmei’s ownership of ChaoYang KaiMei remained at 40 % after these equity investments.

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The government approved the approximately $ 49 million investment in its entirety on January 25, 2021, at which time the Investors owned a redeemable noncontrolling interest in Tongmei of 7.28 %.

As of March 31, 2025, Tongmei’s noncontrolling interests and redeemable noncontrolling interests totaled approximately 14.5 %.

As of June 30, 2025 , Tongmei’s noncontrolling interests and redeemable noncontrolling interests totaled approximately 14.5 %.

We remain the controlling stakeholder of Tongmei and hold a majority of the board of director positions of Tongmei.

3 unchanged sentences

Our investments consist of instruments with original maturities of more than three months.

As of March 31, 2025 and December 31, 2024, our cash and debt investments are classified as follows (in thousands):

March 31, 2025

As of June 30, 2025 and December 31, 2024 , our cash and debt investments are classified as follows (in thousands):

June 30, 2025

December 31, 2024

1 unchanged sentence

Cash, restricted cash and cash equivalents

$ 35,107 $ — $ — $ 35,107 $ 33,811 $ — $ — $ 33,811

We manage our debt investments as a single portfolio of highly marketable securities that is intended to be available to meet our current cash requirements.

1 unchanged sentence

Historically, the gross unrealized losses related to our portfolio of available-for-sale debt securities were immaterial, and primarily due to normal market fluctuations and not due to increased credit risk or other valuation concerns.

There was an insignificant amount of gross unrealized losses on our available-for-sale debt securities as of March 31, 2025, and historically, such gross unrealized losses have been temporary in nature and we believe that it is probable the principal and interest will be collected in accordance with the contractual terms.

There was an insignificant amount of gross unrealized losses on our available-for-sale debt securities as of June 30, 2025 , and historically, such gross unrealized losses have been temporary in nature and we believe that it is probable the principal and interest will be collected in accordance with the contractual terms.

We review our debt investment portfolio at least quarterly, or when there are changes in credit risks or other potential valuation concerns, to identify and evaluate whether an allowance for credit losses or impairment would be necessary.

Factors considered in determining whether a loss is temporary include the magnitude of the decline in market value, the length of time the market value has been below cost (or adjusted cost), credit quality, and our ability and intent to hold the securities for a period of time sufficient to allow for any anticipated recovery in market value.

We held no available-for-sale debt securities as of March 31, 2025 and December 31, 2024.

We held no available-for-sale debt securities as of June 30, 2025 and December 31, 2024 .

Restricted Cash

1 unchanged sentence

These balances have been excluded from the Company’s cash balance.

As of March 31, 2025 and December 31, 2024, $ 6.6 million and $ 11.0 million were included in restricted cash in our condensed consolidated balance sheets, respectively.

As of June 30, 2025 and December 31, 2024 , $ 8.1 million and $ 11.0 million were included in restricted cash in our condensed consolidated balance sheets, respectively.

The decrease in restricted cash primarily reflects the release of restrictions upon the settlement of the related bank loans that were collateralized by such cash balances.

1 unchanged sentence

We have made strategic investments in private companies located in China in order to gain access at a competitive cost to raw materials that are critical to our substrate business (see Note 7 ).

The investment balances for the non-consolidated companies are accounted for under the equity method, included in “Other assets” in the condensed consolidated balance sheets, totaled $ 14.6 million and $ 14.1 million as of March 31, 2025 and December 31, 2024, respectively.

As of March 31, 2025, there were three companies accounted for under the equity method.

There were no impairment charges for these investments during the three months ended March 31, 2025 and 2024.

The investment balances for the non-consolidated companies are accounted for under the equity method, included in “Other assets” in the condensed consolidated balance sheets, totaled $ 14.3 million and $ 14.1 million as of June 30, 2025 and December 31, 2024 , respectively.

As of June 30, 2025 , there were three companies accounted for under the equity method.

There were no impairment charges for these investments during the three and six months ended June 30, 2025 and 2024 .

In May 2023, we reduced our ownership in Jia Mei from 25 % to 10 % by selling a portion of our Jia Mei shares to a third party for approximately $ 827,000 .

2 unchanged sentences

We monitor our investments for impairment and record reductions in carrying value when events or changes in circumstances indicate that the carrying value may not be recoverable.

As of March 31, 2025, our investments in this unconsolidated company had a carrying value of $ 551,000 and were included in “Other assets” in the condensed consolidated balance sheets.

As a result of the share sale, we recognized a gain of $ 575,000 .

1 unchanged sentence

The gain resulting from the sale and the subsequent remeasurement was incorporated as a component of “Equity in income of unconsolidated joint ventures” in the condensed consolidated statements of operations in the second quarter of 2023.

In June 2025, we determined that the fair value had declined, resulting in the recognition of a loss of $ 145,000 .

As of June 30, 2025 , our investments in this unconsolidated company had a carrying value of $ 406,000 and were included in “Other assets” in the condensed consolidated balance sheets.

Fair Value Measurements

1 unchanged sentence

We review our debt investment portfolio for credit loss at least quarterly or when there are changes in credit risk or other potential valuation concerns.

As of March 31, 2025 and December 31, 2024, the total unrealized loss, net of tax, included in accumulated other comprehensive income was immaterial.

As of June 30, 2025 and December 31, 2024 , the total unrealized loss, net of tax, included in accumulated other comprehensive income was immaterial.

We believe it is probable the principal and interest will be collected in accordance with the contractual terms, and the unrealized loss on these securities was due to normal market fluctuations, and not due to increased credit risk or other valuation concerns.

8 unchanged sentences

We place short-term foreign currency hedges that are intended to offset the potential cash exposure related to fluctuations in the exchange rate between the United States dollar and Japanese yen.

We measure the fair value of these

foreign currency hedges at each month end and quarter end using current exchange rates and in accordance with U.S.

We measure the fair value of these foreign currency hedges at each month end and quarter end using current exchange rates and in accordance with U.S.

At quarter end, any foreign currency hedges not settled are netted in “Accrued liabilities” on the condensed consolidated balance sheets and classified as Level 3 assets and liabilities.

As of March 31, 2025, the net change in fair value from the placement of the hedge to settlement at each month end during the quarter had a de minimis impact on the condensed consolidated results.

There were no changes in valuation techniques or related inputs in the three months ended March 31, 2025.

There have been no transfers between fair value measurements levels during the three months ended March 31, 2025.

Our investment balance as of March 31, 2025 was $ 0 .

As of June 30, 2025 , the net change in fair value from the placement of the hedge to settlement at each month end during the quarter had a de minimis impact on the condensed consolidated results.

There were no changes in valuation techniques or related inputs in the three and six months ended June 30, 2025 .

There have been no transfers between fair value measurements levels during the three and six months ended June 30, 2025 .

Our investment balance as of June 30, 2025 was $ 0 .

Items Measured at Fair Value on a Nonrecurring Basis

1 unchanged sentence

These assets include investments in privately-held companies accounted for by the equity or fair value method (see Note 7 ).

We did not record any other-than-temporary impairment charges for these investments during the three months ended March 31, 2025 and 2024, respectively.

We did not record any other-than-temporary impairment charges for these investments during the three and six months ended June 30, 2025 and 2024 , respectively.

The components of inventories are summarized below (in thousands):

Raw materials

$ 27,794 $ 31,743

Work in process

49,396 50,779

Finished goods

As of March 31, 2025 and December 31, 2024, carrying values of inventories were net of inventory reserves of $ 25.3 million and $ 24.1 million, respectively, for excess and obsolete inventory and $ 46,000 and $ 73,000 , respectively, for lower of cost or net realizable value reserves.

$ 80,063 $ 85,077

As of June 30, 2025 and December 31, 2024 , carrying values of inventories were net of inventory reserves of $ 26.5 million and $ 24.1 million, respectively, for excess and obsolete inventory and $ 141,000 and $ 73,000 , respectively, for lower of cost or net realizable value reserves.

Property, Plant and Equipment, Net

2 unchanged sentences

Machinery and equipment, at cost

$ 69,120 $ 67,917

accumulated depreciation and amortization

( 45,610 ) ( 44,065 )

Building, at cost

142,308 137,420

accumulated depreciation and amortization

( 28,797 ) ( 26,310 )

Leasehold improvements, at cost

accumulated depreciation and amortization

( 6,631 ) ( 6,347 )

Construction in progress

As of March 31, 2025, the balance of construction in progress was $ 23.8 million, of which $ 18.3 million was related to our buildings in our new Dingxing and Kazuo locations, $ 1.2 million was for manufacturing equipment purchases not yet placed in service and $ 4.3 million was for construction in progress for our other consolidated subsidiaries.

purchases not yet placed in service and $ 4.3 million was for our construction in progress for our other consolidated subsidiaries.

21,587 23,531

$ 159,714 $ 159,721

As of June 30, 2025 , the balance of construction in progress was $ 21.6 m illion, of which $ 16.5 m illion was related to our buildings in our new Dingxing and Kazuo locations, $ 1.2 million was for manufacturing equipment purchases not yet placed in service an d $ 3.8 mil lion was for construction in progress for our other consolidated subsidiaries.

As of December 31, 2024 , the balance of construction in progress was $ 23.5 million, of which $ 17.9 million was related to our buildings in our Dingxing and Kazuo locations, $ 1.4 million was for manufacturing equipment purchases not yet placed in service and $ 4.3 million was for our construction in progress for our other consolidated subsidiaries.

Accrued Liabilities

The components of accrued liabilities are summarized below (in thousands):

Preferred stock dividends payable

Accrued compensation and related charges

Preferred stock dividends payable

Payable in connection with construction in progress

3 unchanged sentences

Accrued product warranty

Other personnel-related costs

Advances from customers

Accrued income taxes

Advances from customers

Other personnel-related costs

Accrual for sales returns

17 unchanged sentences

In January 2023, ChaoYang KaiMei paid to ChaoYang LiMei $ 1.5 million.

As of March 31, 2025, $ 0 million was included in “Prepaid expenses and other current assets” in our condensed consolidated balance sheets.

Our Related Party Transactions Policy seeks to prohibit all conflicts of interest in transactions between related parties and us, unless they have been approved by our Board of Directors.

5 unchanged sentences

These companies form part of our overall supply chain strategy.

As of March 31, 2025, the investments are summarized below (in thousands):

As of June 30, 2025 , the investments are summarized below (in thousands):

Investment Balance as of

Nanjing JinMei Gallium Co., Ltd.

$ 592 $ 592 Consolidated

ChaoYang JinMei Gallium Co., Ltd.

1,820 1,820 Consolidated

Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd.

1,346 1,346 Consolidated

ChaoYang ShuoMei High Purity Semiconductor Materials Co., Ltd.

3,122 3,122 Consolidated

ChaoYang XinMei High Purity Semiconductor Materials Co., Ltd.

7,331 7,331 Consolidated

$ 14,211 $ 14,211

Beijing JiYa Semiconductor Material Co., Ltd.

$ 4,177 $ 4,867 Equity

Xiaoyi XingAn Gallium Co., Ltd.

5,515 5,304 Equity

ChaoYang KaiMei Quartz Co., Ltd.

4,638 3,895 Equity

$ 14,330 $ 14,066

Emeishan Jia Mei High Purity Metals Co., Ltd.

406 551 Fair value

* These percentages reflect the ownership currently in effect upon the completion of the reorganization in China and the ownership in effect upon the completion of the new capital funding by private equity investors in January 2021.

8 unchanged sentences

The government approved the approximately $ 49 million investment in its entirety on January 25, 2021 at which time the Investors owned a redeemable noncontrolling interest in Tongmei of 7.28 %.

As of March 31, 2025, Tongmei’s noncontrolling interests and redeemable noncontrolling interests totaled approximately 14.5 %.

As of June 30, 2025 , Tongmei’s noncontrolling interests and redeemable noncontrolling interests totaled approximately 14.5 %.

AXT remains the controlling stakeholder of Tongmei and holds a majority of the Board of Director positions of Tongmei.

5 unchanged sentences

In May 2023, we reduced our ownership in Jia Mei from 25 % to 10 % by selling a portion of our Jia Mei shares to a third party for approximately $ 827,000 .

Considering our decreased ownership and that we no longer have significant

influence over its operations and financial policies, we adopted the fair value method of accounting to report on the investment in Jia Mei.

As Jia Mei's equity interest is without a readily determinable fair value, we elected to use the

measurement alternative to measure at cost, less any impairment, plus or minus fair value changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer.

Considering our decreased ownership and that we no longer have significant influence over its operations and financial policies, we adopted the fair value method of accounting to report on the investment in Jia Mei.

As Jia Mei's equity interest is without a readily determinable fair value, we elected to use the measurement alternative to measure at cost, less any impairment, plus or minus fair value changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer.

The Jia Mei investment is reviewed for other-than-temporary declines in value on a quarterly basis.

We did not record any other-than-temporary impairment charges for Jia Mei investment during the three months ended March 31, 2025.

In May 2025, two unrelated investors entered into an agreement to invest approximately $ 360,000 each in Jia Mei, in exchange for an 8.9 % ownership per investor.

The signed agreement provided a market-based indication of Jia Mei's fair value.

Based on the signed agreement, we recorded an impairment charge of $ 145,000 for Jia Mei investment during the six months ended June 30, 2025 .

Our ownership interest in Jia Mei remained at 10 % as of June 30, 2025, pending the closing of the May 2025 transaction.

Although we have representation on the board of directors of each of the privately held raw material companies, the daily operations of each of these companies are managed by local management and not by us.

Decisions concerning their respective short-term strategy and operations, ordinary course of business capital expenditures and sales of finished product, are made by local management with regular guidance and input from us.

For AXT’s minority investment entities that are not consolidated, the investment balances are included in “Other assets” in our condensed consolidated balance sheets and totaled $ 15.2 million and $ 14.6 million as of March 31, 2025 and December 31, 2024, respectively.

As of March 31, 2025, our ownership interests in ChaoYang KaiMei, JiYa, Xiaoyi XingAn Gallium Co., Ltd (“Xiaoyi XingAn”) and Jia Mei were 40 %, 39 %, 25 %, and 10 %, respectively.

For AXT’s minority investment entities that are not consolidated, the investment balances are included in “Other assets” in our condensed consolidated balance sheets and totaled $ 14.7 million and $ 14.6 million as of June 30, 2025 and December 31, 2024 , respectively.

As of June 30, 2025 , our ownership interests in ChaoYang KaiMei, JiYa, Xiaoyi XingAn Gallium Co., Ltd (“Xiaoyi XingAn”) and Jia Mei were 40 %, 39 %, 25 %, and 10 %, respectively.

These minority investment entities are not considered variable interest entities because:

3 unchanged sentences

we do not have controlling financial interest in, do not maintain operational or management control of, do not control the board of directors of, and are not required to provide additional investment or financial support to any of these companies.

In June 2022, we received a $ 1.3 million dividend from BoYu.

In July 2022, we received a $ 1.5 million dividend from one of our equity investment entities, Xiaoyi XingAn.

In August 2022, we received a $ 125,000 dividend from one of our equity investment entities, JiYa.

In April 2023 and November 2023, Xiaoyi XingAn distributed a dividend of $ 1.8 million, and JiYa distributed dividends of $ 2.0 million and $ 0.5 million, respectively.

In May 2024, Xiaoyi XingAn distributed a $ 2.1 million dividend to us.

In June 2022, July 2022 and August 2022, we received a dividend of $ 1.3 million from BoYu, $ 1.5 million from Xiaoyi XingAn and $0.1 million from JiYa, respectively.

In April 2023, Xiaoyi XingAn distributed a dividend of $ 1.8 million to us.

Additionally, in both April 2023 and November 2023, JiYa distributed dividends to us, totaling $ 2.0 million and $ 0.5 million, respectively.

In May 2024 and November 2024, we received a dividend of $ 2.1 million from Xiaoyi XingAn and $ 0.3 million from JiYa, respectively.

In April 2025, we received a $ 0.9 million dividend from JiYa.

We have no current intentions to distribute to our investors earnings under our corporate structure.

1 unchanged sentence

AXT’s minority investment entities are not consolidated and are accounted for under the equity method.

The equity investment entities had the following summarized statements of operations information (in thousands) for the three months ended March 31, 2025 and 2024:

The equity investment entities had the following summarized statements of operations information (in thousands) for the three and six months ended June 30, 2025 and 2024 :

Three Months Ended

Six Months Ended

$ 7,064 $ 9,338 $ 15,722 $ 17,442

$ 1,862 $ 4,161 $ 3,806 $ 8,090

Operating income

Our portion of the income and losses, including impairment charges, from these minority investment entities that are not consolidated and are accounted for under the equity method was an income of $ 0.2 million and $ 0.9 million, respectively, for the three months ended March 31, 2025 and 2024.

$ 1,010 $ 4,035 $ 2,292 $ 7,406

Net income (loss)

$ ( 197 ) $ 2,044 $ 774 $ 5,182

Our portion of the income and losses, including impairment charges, from these minority investment entities that are not consolidated and are accounted for under the equity method was a loss of $ 0.2 million and income of $ 0.6 million, respectively, for the three months ended June 30, 2025 and 2024.

Our portion of the income and losses, including impairment charges, from these minority investment entities that are not consolidated and are accounted for under the equity method was income of $ 0.2 million and $ 1.5 million, respectively, for the six months ended June 30, 2025 and 2024.

Stockholders ’ Equity

1 unchanged sentence

(in thousands)

The changes in stockholders’ equity by component for the three months ended March 31, 2025 are as follows:

The changes in stockholders’ equity by component for the three and six months ended June 30, 2025 are as follows:

Comprehensive

2 unchanged sentences

Stockholders’

Paid-In Capital

Income (Loss)

Balance as of December 31, 2024

Noncontrolling interest portion of Tongmei stock-based compensation

$ 3,532 $ 45 $ 241,514 $ ( 43,664 ) $ ( 8,657 ) $ 192,770 $ 23,561 $ 216,331

Stock-based compensation

— — 563 — — 563 — 563

Tongmei stock-based compensation

— 1 70 — — 71 6 77

— — — ( 8,798 ) — ( 8,798 ) ( 610 ) ( 9,408 )

Other comprehensive loss

— — — — 431 431 53 484

Balance as of March 31, 2025

Net loss and Other comprehensive loss attributable to redeemable noncontrolling interests were $ 608,000 and $ 53,000 , respectively, for the three months ended March 31, 2025, and are not shown in the table above.

The changes in stockholders’ equity by component for the three months ended March 31, 2024 are as follows:

3,532 46 242,147 ( 52,462 ) ( 8,226 ) 185,037 23,010 208,047

Stock-based compensation

— — 607 — — 607 — 607

Tongmei stock-based compensation

— — 22 — — 22 2 24

— — — ( 7,008 ) — ( 7,008 ) ( 233 ) ( 7,241 )

Other comprehensive loss

— — — — 1,056 1,056 128 1,184

Balance as of June 30, 2025

$ 3,532 $ 46 $ 242,776 $ ( 59,470 ) $ ( 7,170 ) $ 179,714 $ 22,907 $ 202,621

Net loss and Other comprehensive loss attributable to redeemable noncontrolling interests were $ 433,000 and $ 128,000 , r espectively, for the three months ended June 30, 2025, and $ 1.0 million and $ 181,000 , respectively, for the six months ended June 30, 2025 and are not shown in the table above.

The changes in stockholders’ equity by component for the three and six months ended June 30, 2024 are as follows:

Comprehensive

2 unchanged sentences

Stockholders’

Paid-In Capital

Income (Loss)

Balance as of December 31, 2023

$ 3,532 $ 44 $ 238,452 $ ( 32,040 ) $ ( 5,999 ) $ 203,989 $ 23,494 $ 227,483

Common stock options exercised

Noncontrolling interest portion of Tongmei stock-based compensation

— — 20 — — 20 — 20

Stock-based compensation

— — 614 — — 614 — 614

Tongmei stock-based compensation

Net income (loss)

— — 171 — — 171 13 184

— — — ( 2,083 ) — ( 2,083 ) 106 ( 1,977 )

Other comprehensive income

— — — — ( 1,627 ) ( 1,627 ) ( 187 ) ( 1,814 )

Balance as of March 31, 2024

Net loss and Other comprehensive income attributable to redeemable noncontrolling interests were $ 71,000 and $ 189,000 , respectively, for the three months ended March 31, 2024, and are not shown in the table above.

There were no reclassification adjustments from accumulated other comprehensive income (loss) for the three months ended March 31, 2025 and 2024 .

3,532 44 239,257 ( 34,123 ) ( 7,626 ) 201,084 23,426 224,510

Common stock options exercised

— — 5 — — 5 — 5

Stock-based compensation

— — 621 — — 621 — 621

Tongmei stock-based compensation

— — 79 — — 79 7 86

— — — ( 1,516 ) — ( 1,516 ) 316 ( 1,200 )

Other comprehensive income

— — — — ( 601 ) ( 601 ) ( 69 ) ( 670 )

Balance as of June 30, 2024

$ 3,532 $ 44 $ 239,962 $ ( 35,639 ) $ ( 8,227 ) $ 199,672 $ 23,680 $ 223,352

Net income (loss) and Other comprehensive income (loss) attributable to redeemable noncontrolling interests were $ 1,000 and ($ 69,000 ), respectively, for the three months ended June 30, 2024 and ($ 70,000 ) and ($ 258,000 ), respectively, for the six months ended June 30, 2024 and are not shown in the table above.

There were no reclassification adjustments from accumulated other comprehensive income (loss) for the three and six months ended June 30, 2025 and 2024 .

Stock Repurchase Program

3 unchanged sentences

No shares were repurchased from 2016 through 2024.

During the three months ended March 31, 2025, we did no t repurchase any shares under the approved stock repurchase program.

As of March 31, 2025, approximately $ 2.7 million remained available for future repurchases under this program.

During the three and six months ended June 30, 2025 , we did not repurchase any shares under the approved stock repurchase program.

As of June 30, 2025 , approxima tely $ 2.7 m illion remained available for future repurchases under this program.

Currently, we do not plan to repurchase additional shares.

2 unchanged sentences

As of December 31, 2015, the Series A preferred stock had cumulative dividends of $ 2.9 million and we included this amount in “Accrued liabilities” in our consolidated balance sheets.

In the quarter ended March 31, 2025 and 2024 , we did no t repurchase any of our outstanding common stock.

In the quarter ended June 30, 2025 and 2024 , we did not repurchase any of our outstanding common stock.

If we are required to pay the cumulative dividends on the Series A preferred stock, our cash and cash equivalents would be reduced.

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In May 2024, our stockholders approved an amendment to the 2015 Plan to increase the number of shares reserved for issuance by an additional 3,600,000 shares.

In May 2025, our stockholders approved our 2025 Equity Incentive Plan (the “2025 Plan”).

The 2025 Plan is a replacement of the 2015 Plan.

The 4,313,156 share reserve of the 2015 Plan became the reserve of the 2025 Plan.

Awards that may be made under the 2025 Plan are stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, deferred compensation awards and other stock-based awards.

6 unchanged sentences

Three Months Ended

Six Months Ended

Cost of revenue

$ 47 $ 68 $ 110 $ 173

Selling, general and administrative

476 526 949 1,079

Research and development

110 121 220 272

Net effect on net loss

As of March 31, 2025, the unamortized compensation costs related to unvested stock options granted to employees under our stock option plan was $ 0 .

We did not capitalize any stock-based compensation to inventory as of March 31, 2025 and December 31, 2024 due to the immateriality of the amount.

$ 633 $ 715 $ 1,279 $ 1,524

We did not capitalize any stock-based compensation to inventory as of June 30, 2025 and December 31, 2024 due to the immateriality of the amount.

We estimate the fair value of stock options using the Black-Scholes option pricing model, consistent with the provisions of ASC 718.

There were no options granted in the three months ended March 31, 2025 and 2024.

The following table summarizes the stock option transactions during the three months ended March 31, 2025 (in thousands, except per share data):

There were no options granted in the three and six months ended June 30, 2025 and 2024 .

The following table summarizes the stock option transactions during the six months ended June 30, 2025 (in thousands, except per share data):

Stock Options

Balance as of January 1, 2025

1,175 $ 5.16 3.16 $ —

Canceled and expired

Balance as of March 31, 2025

Options exercisable as of March 31, 2025

Balance as of June 30, 2025

1,175 $ 5.16 2.67 $ —

Options exercisable as of June 30, 2025

1,175 $ 5.16 2.67 $ —

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on our closing price of $ 1.41 on March 31, 2025, which would have been received by the option holder had all option holders exercised their options on that date.

Restricted stock awards

A summary of activity related to restricted stock awards for the three months ended March 31, 2025 is presented below (in thousands, except per share data):

Weighted-Average

A summary of activity related to restricted stock awards for the six months ended June 30, 2025 is presented below (in thousands, except per share data):

Non-vested as of January 1, 2025

Non-vested as of March 31, 2025

As of March 31, 2025, the unamortized compensation costs related to unvested restricted stock awards was approximately $ 3.5 million, which is to be amortized on a straight-line basis over a weighted-average period of approximately 1.4 years.

( 198 ) $ 3.94

( 20 ) $ 2.81

Non-vested as of June 30, 2025

As of June 30, 2025 , the unamortized compensation costs related to unvested restricted stock awards was approximatel y $ 3.7 mi llion, which is to be amortized on a straight-line basis over a weighted-average period of approximately 1.4 years.

At-Risk, Performance Shares

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The financial performance metric for the at-risk, performance shares issued in February 2024 is based upon the Company’s year-end actual results in 2024.

performance shares, if earned, are still subject to annual vesting over a four-year period, except that no shares are vested on the first anniversary because the performance measurement is based on year-end results for the year 2023 and 2024, respectively.

All performance shares, if earned, are still subject to annual vesting over a four -year period, except that no shares are vested on the first anniversary because the performance measurement is based on year-end results for the year 2023 and 2024, respectively.

The fair value of the at-risk, performance shares is determined based on the closing price of the Company’s common stock on the first day after the public issuance of the Company’s earnings release for the most recent fiscal quarter, following the Compensation Committee and Board of Directors approval, which is considered the grant date.

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Therefore, the maximum number of at-risk performance shares became eligible to vest.

A summary of the status of our unvested at-risk, performance shares as of March 31, 2025 is presented below (in thousands, except per share data):

Weighted-Average

A summary of the status of our unvested at-risk, performance shares as of June 30, 2025 is presented below (in thousands, except per share data):

Non-vested as of January 1, 2025

Non-vested as of March 31, 2025

151 (1) $ 2.23

( 75 ) $ 2.28

Non-vested as of June 30, 2025

The number of shares presented assumes the achievement of 100% of a target financial performance metric to be determined by the Company ’ s Compensation Committee and will be subject to an at-risk, performance shares agreement.

As of March 31, 2025, there was $ 0.6 million of unrecognized compensation expense related to unvested at-risk, performance shares that is expected to be recognized over a weighted-average period of 1.8 years.

As of June 30, 2025 , there was $ 0.5 m illion of unrecognized compensation expense related to unvested at-risk, performance shares that is expected to be recognized over a weighted-average period of 1.6 yea rs.

Net Loss Per Share

Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the periods less shares of common stock subject to repurchase and non-vested stock awards.

net income (loss) per share is computed using the weighted-average number of common shares outstanding and potentially dilutive common shares outstanding during the periods.

Diluted net income (loss) per share is computed using the weighted-average number of common shares outstanding and potentially dilutive common shares outstanding during the periods.

The dilutive effect of outstanding stock options and restricted stock awards is reflected in diluted earnings per share by application of the treasury stock method.

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Three Months Ended

Six Months Ended

Net loss attributable to AXT, Inc.

$ ( 7,008 ) $ ( 1,516 ) $ ( 15,806 ) $ ( 3,599 )

Preferred stock dividends

( 44 ) ( 44 ) ( 88 ) ( 88 )

Net loss available to common stockholders

$ ( 7,052 ) $ ( 1,560 ) $ ( 15,894 ) $ ( 3,687 )

Denominator for basic net loss per share - weighted-average common shares

43,710 43,092 43,630 43,039

Effect of dilutive securities:

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Denominator for dilutive net loss per common shares

43,710 43,092 43,630 43,039

Net loss attributable to AXT, Inc.

per common share:

$ ( 0.16 ) $ ( 0.04 ) $ ( 0.36 ) $ ( 0.09 )

Options excluded from diluted net loss per share as the impact is anti-dilutive

1,175 1,187 1,175 1,187

Restricted stock excluded from diluted net loss per share as the impact is anti-dilutive

The 883,000 shares of $ 0.001 par value Series A preferred stock issued and outstanding as of March 31, 2025 and December 31, 2024, valued at $ 3,532,000 , are non-voting and non-convertible preferred stock with a 5.0 % cumulative annual dividend rate payable when declared by the Board of Directors and a $ 4 per share liquidation preference over common stock, which must be paid before any distribution is made to common stockholders.

2,289 1,325 2,289 1,325

The 883,000 shares of $ 0.001 par value Series A preferred stock issued and outstanding as of June 30, 2025 and December 31, 2024 , valued at $ 3,532,000 , are non-voting and non-convertible preferred stock with a 5.0 % cumulative annual dividend rate payable when declared by the Board of Directors and a $ 4 per share liquidation preference over common stock, which must be paid before any distribution is made to common stockholders.

These preferred shares were issued to Lyte Optronics, Inc.

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Three Months Ended

Six Months Ended

Product Type:

$ 11,292 $ 19,745 $ 22,374 $ 36,648

Raw Materials and Other

6,682 8,178 14,956 13,963

$ 17,974 $ 27,923 $ 37,330 $ 50,611

Geographical Information

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Three Months Ended

Six Months Ended

Geographical region:

$ 14,492 $ 16,947 $ 27,918 $ 28,464

530 3,420 1,751 8,002

704 796 1,422 1,786

Asia Pacific (excluding China, Taiwan and Japan)

427 712 1,208 1,510

Europe (primarily Germany)

1,597 4,689 3,698 8,414

North America (primarily the United States)

224 1,359 1,333 2,435

$ 17,974 $ 27,923 $ 37,330 $ 50,611

Long-lived assets consist primarily of property, plant and equipment and operating lease right-of-use assets, and are attributed to the geographic location in which they are located.

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North America

$ 1,208 $ 1,353

160,739 160,847

$ 161,947 $ 162,200

Significant Customers

No customer represented 10 % of our revenue for the three months ended March 31, 2025 and one customer represented 12 % of our revenue for the three months ended March 31, 2024 .

Our top five customers, although not the same five customers for each period, represented 36 % and 33 % of our revenue for the three months ended March 31, 2025 and 2024, respectively.

One customer represented 11 % of our revenue for the three months ended June 30, 2025 and no customer represented 10% of our revenue for the three months ended June 30, 2024 .

Our top five customers, although not the same five customers for each period, represented 32 % and 32 % of our revenue for the three months ended June 30, 2025 and 2024 , respectively.

One customer represented 10% of our revenue for the six months ended June 30, 2025 and 2024.

Our top five customers, although not the same five customers for each period, represented 29 % and 32 % of our revenue for the six months ended June 30, 2025 and 2024 , respectively.

We perform ongoing credit evaluations of our customers’ financial condition, and limit the amount of credit extended when deemed necessary, but generally do not require collateral.

One customer accounted for more than 10 % of our accounts receivable balance as of March 31, 2025 , and December 31, 2024, respectively.

One customer accounted for more than 10 % of our accounts receivable balance as of June 30, 2025 and December 31, 2024 , respectively.

Commitments and Contingencies

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On a quarterly basis, we review the accrued balances and update the historical warranty cost trends.

The following table reflects the change in our warranty accrual which is included in “Accrued liabilities” in the condensed consolidated balance sheets, during the three months ended March 31, 2025 and 2024 (in thousands):

The following table reflects the change in our warranty accrual which is included in “Accrued liabilities” in the condensed consolidated balance sheets, during the three and six months ended June 30, 2025 and 2024 (in thousands):

Three Months Ended

Six Months Ended

Beginning accrued product warranty

$ 403 $ 495 $ 451 $ 703

Accruals for warranties issued

80 131 101 188

Adjustments related to pre-existing warranties including expirations and changes in estimates

55 ( 50 ) 79 ( 260 )

Cost of warranty repair

( 103 ) ( 155 ) ( 196 ) ( 210 )

Ending accrued product warranty

$ 435 $ 421 $ 435 $ 421

Contractual Obligations

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Further, there is no specific penalty contemplated if either party breaches the agreement.

However, the agreement does state that each party has a right to seek from the other party compensation for

However, the agreement does state that each party has a right to seek from the other party compensation for losses.

Under certain conditions, the Dingxing local government may purchase the land and building at the appraised value.

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In certain cases, we may incur a penalty if we cancel the purchase order.

As of March 31, 2025, we do not have any outstanding purchase orders that will incur a penalty if cancelled by the Company.

As of June 30, 2025 , we do not have any outstanding purchase orders that will incur a penalty if cancelled by the Company.

Legal Proceedings

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The court transferred the case to the Northern District of California, where our headquarters are located.

A lead plaintiff has been appointed and an amended complaint was filed.

The amended complaint asserts a putative class period from March 24, 2021 and April 3, 2024, inclusive (the “Class Period”).

The amended complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder by the defendants, and seeks unspecified monetary relief, interest, and attorneys’ fees.

A lead plaintiff was appointed and an amended complaint was filed, asserting a putative class period from March 24, 2021 and April 3, 2024, inclusive (the “Class Period”).

The amended complaint alleged violations of Sections 10 (b) and 20 (a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b - 5 promulgated thereunder by the defendants, and sought unspecified monetary relief, interest, and attorneys’ fees.

On November 8, 2024, Defendants moved to dismiss.

The Court granted the motion to dismiss with leave to amend on May 28, 2025, holding that the plaintiffs failed to state a claim.

Plaintiffs filed a second amended complaint on June 27, 2025, asserting the same claims as in the prior complaint.

On July 11, 2025, Defendants again moved to dismiss.

Defendants’ motion to dismiss is fully briefed and pending before the Court.

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Young, our Chief Executive Officer, Gary L.

Fischer, our Chief Financial Officer, current directors David C.

Fischer, our Chief Financial Officer, then-serving directors David C.

Chang, Jesse Chen, and Christine Russell, and former director Leonard J.

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Defendants moved to dismiss on November 6, 2024, following which the plaintiff filed an amended complaint on November 20, 2024.

The amended complaint asserts that the Defendants breached their fiduciary duties to the Company based on the allegations asserted in the original complaint in the putative shareholder class action.

The amended complaint asserted that the Defendants breached their fiduciary duties to the Company based on the allegations asserted in the original complaint in the putative shareholder class action.

On November 27, 2024, Defendants again moved to dismiss.

The motion to dismiss is fully briefed and pending before the Court.

On March 17, 2025, the Court granted our motion to dismiss, holding that the plaintiff did not make a pre-suit demand on our Board of Directors and failed to plead with particularity facts sufficient to excuse the lack of a demand and also for failure to state a claim.

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Other Income (expense), Net

Other income (expense), net for the three months ended March 31, 2025 and 2024, includes a grant of $ 0.3 million and $ 1.0 million, respectively, from government agencies as awards for technological innovation and job creation.

In addition, we incurred a foreign currency transaction exchange gain of $ 41,000 and $ 58,000 for the three months ended March 31, 2025 and 2024, respectively.

Other income (expense), net for the three months ended June 30, 2025 and 2024 , includes a grant of $ 0.2 million and $ 0.4 million, respectively, from government agencies as awards for technological innovation and job creation.

Other income (expense), net for the six months ended June 30, 2025 and 2024 , includes a grant of $ 0.5 million and $ 1.4 million, respectively, from government agencies as awards for technological innovation and job creation.

In addition, we incurred a foreign currency transaction exchange gain of $ 45,000 and $ 42,000 for the three months ended June 30, 2025 and 2024 , respectively.

We incurred a foreign currency transaction exchange gain of $ 86,000 and $ 100,000 for the six months ended June 30, 2025 and 2024 , respectively.

We account for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740” ), which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities.

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We recognize interest and penalties related to uncertain tax positions in income tax expense.

Income tax expense for the three months ended March 31, 2025 includes no interest and penalties.

As of March 31, 2025, we have no accrued interest and penalties related to uncertain tax positions.

Income tax expense for the three and six months ended June 30, 2025 includes no interest and penalties.

As of June 30, 2025 , we have no accrued interest and penalties related to uncertain tax positions.

We file income tax returns in the U.S.

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Currently, there is no tax audit in any of the jurisdictions and we do not expect there will be any significant change to this.

Provision for income taxes for the three months ended March 31, 2025 was mostly related to our wholly owned China subsidiaries and our partially owned subsidiaries in China.

Provision for income taxes for the three and six months ended June 30, 2025 was mostly related to our wholly owned China subsidiaries and our partially owned subsidiaries in China.

Income taxes and certain state taxes, have been provided for our U.S.

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had been fully offset by utilization of federal and state net operating loss carryforwards.

Under the 2017 Tax Cuts and Jobs Act, research and experimental (“R&E”), expenditures incurred or paid for tax years beginning after December 31, 2021 will no longer be immediately deductible for tax purposes.

Instead, businesses are now required to capitalize and amortize R&E expenditures over a period of five years for research conducted within the U.S.

or 15 years for research conducted in a foreign jurisdiction.

On July 4, 2025, the President signed into law the “One Big Beautiful Bill Act” (the “Act”).

Among other things, the Act makes permanent many provisions of the 2017 Tax Cuts and Jobs Act (the “TCJA”) that otherwise would have expired this year.

The Act permanently reinstates elective expensing for qualifying domestic research and experimental expenditures with respect to amounts paid or incurred after December 31, 2024 ( section 174A ).

Expenditures for research performed outside the U.S.

remain amortizable over 15 years.

We capitalize the R&E expense incurred by our China subsidiaries and amortize it over 15 years.

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We manufacture and sell high-performance compound semiconductor substrates including indium phosphide, gallium arsenide and germanium wafers, and our consolidated subsidiaries sell certain raw materials, including high purity gallium ( 7N Ga), pyrolytic boron nitride (pBN) crucibles and boron oxide ( B2O3 ).

After we ship our products,

there are no remaining obligations or customer acceptance requirements that would preclude revenue recognition.

After we ship our products, there are no remaining obligations or customer acceptance requirements that would preclude revenue recognition.

Our products are typically sold pursuant to purchase orders placed by our customers, and our terms and conditions of sale do not require customer acceptance.

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We believe the fair value of our accounts receivable approximates its carrying value due to its short maturities and nominal credit risk.

We do not have any material contract assets as of March 31, 2025.

We do not have any material contract assets as of June 30, 2025 .

In some contracts we require payment in advance of shipment, per a billing schedule reflected in our customer contracts, and the payment is recorded as a contract liability.

The following table reflects the contract liabilities balance, which is included in “Accrued liabilities” on the condensed consolidated balance sheets, as of March 31, 2025 and December 31, 2024 (in thousands):

The following table reflects the contract liabilities balance, which is included in “Accrued liabilities” on the condensed consolidated balance sheets, as of June 30, 2025 and December 31, 2024 (in thousands):

Contract liabilities

During the three ended March 31, 2025, the Company recognized $ 1.5 million of revenue that was included in the contract balances as of December 31, 2024.

During the three months ended March 31, 2024, the Company recognized $ 127,000 of revenue that was included in the contract balances as of December 31, 2023.

$ 331 $ 1,590

During the three and six months ended June 30, 2025, the Company recognized $ 28,000 and $ 1.6 million, respectively, of revenue that was included in the contract balances as of December 31, 2024.

During the three and six months ended June 30, 2024, the Company recognized $ 27,000 and $ 154,000 , respectively, of revenue that was included in the contract balances as of December 31, 2023.

Disaggregated Revenue

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Our bank loans and credit facilities typically have a term of 12 months or less and are included in “Short-term loans” in our condensed consolidated balance sheets.

The following table represents Short-term bank loans as of March 31, 2025 and December 31, 2024 (in thousands, except interest rate data):

The following table represents Short-term bank loans as of June 30, 2025 and December 31, 2024 (in thousands, except interest rate data):

Bank of China (1)

$ 689 2.7 % January-25

579 2.7 % March-25

Bank of China (3)

1,410 2.4 % September-24

1,370 2.4 % November-24

685 2.7 % November-24

2,480 2.5 % February-25

Bank of Communications (1)

1,376 3.0 % May-24

2,480 3.0 % June-24

1,420 2.5 % June-25

2,023 2.6 % June-25

China Merchants Bank (1)

1,386 3.5 % January-24

692 3.5 % February-24

692 3.5 % April-24

3,155 2.9 % January-25

978 2.9 % March-25

Bank of Beijing (2)

3,600 3.0 % March-24

3,580 3.0 % June-24

2,204 2.7 % March-25

1,405 2.6 % June-25

3,627 2.6 % June-25

Industrial Bank (1)

2,820 3.9 % September-24

2,679 3.9 % October-24

1,440 3.2 % November-24

Industrial Bank (4)

1,380 3.8 % March-25

NingBo Bank (1)

1,647 4.3 % January-24

1,258 4.3 % May-24

1,822 3.9 % November-24

550 3.9 % December-24

1,584 3.9 % January-25

689 3.9 % March-25

628 3.9 % Apr-25

579 3.8 % June-25

Industrial and Commercial Bank of China (1)

2,820 3.3 % September-24

China Citic Bank (1)

2,752 2.9 % June-24

2,820 2.9 % July-24

1,420 2.9 % September-24

Agricultural Bank of China (1)

1,235 2.6 % November-24

137 2.6 % December-24

Industrial and Commercial Bank of China (1)

1,420 2.8 % September-24

Bank of China (1)

1,145 2.3 % September-24

274 2.4 % December-24

Industrial Bank (1)

1,370 2.7 % November-24

Bank of Communications (1)

274 3.0 % May-24

767 2.6 % June-25

China Merchants Bank (1)

419 2.4 % June-25

NanJing Bank (1)

1,370 2.8 % December-24

$ 51,349 $ 45,963

Collateral for the above bank loans and line of credit

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Chaoyang JinMei’s land use rights and its building located at its facility in Kazuo, China.

Long-term Loa ns

Long-term Loans

On January 30, 2024, the Company secured a new line of credit amounting to $ 9.7 million, structured as a five -year bank loan.

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The intended use of the credit facility is for construction projects.

As of March 31, 2025, $ 5.0 million is included in “Other long-term liabilities” and $ 0.6 million is included in “Short-term loans” in our condensed consolidated balance sheets.

As of June 30, 2025 , $ 5.0 million is included in “Other long-term liabilities” and $ 0.6 million is included in “Short-term loans” in our condensed consolidated balance sheets.

In December 2023, one of our consolidated subsidiaries, ChaoYang XinMei secured a loan of approximately $ 2.1 million from an unrelated financing company.

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At the end of the 30 -month contractual period, ChaoYang XinMei holds the option to repurchase the production line and related equipment for $ 14.00 .

As of March 31, 2025, $ 0.3 million associated with this financing arrangement is included in “Other long-term liabilities” and $ 1.1 million is included in “Short-term loans” in our condensed consolidated balance sheets.

As of June 30, 2025 , $ 1.3 million is included in “Short-term loans” in our condensed consolidated balance sheets.

In February 2025, the Company secured a fourteen -month unsecured bank loan totaling $ 2.7 million at an interest rate of 3.2 %.

As of March 31, 2025, $ 2.6 million is included in “Other long-term liabilities” and $ 0.1 million is included in “Short-term loans” in our condensed consolidated balance sheets.

As of March 31, 2025, the maturities of our long-term loan liabilities in five years (including current portion) are as follows (in thousands):

As of June 30, 2025 , the full amount is included in “Short-term loans” in our condensed consolidated balance sheets.

As of June 30, 2025 , the maturities of our long-term loan liabilities in five years (including current portion) are as follows (in thousands):

Maturity of long-term loans

In summary, short-term loans of $ 52.5 million included under “Short-term loans” in our condensed consolidated balance sheet at March 31, 2025, consisted of $ 50.8 million of short-term bank loans and $ 1.7 million of the current portion of long-term debt.

Long-term loans of $ 7.9 million included under “Other long-term liabilities” in our condensed consolidated balance sheet at March 31, 2025 consisted of $ 5.0 million in a five-year bank loan, $ 0.3 million in a loan secured by ChaoYang XinMei and $ 2.6 million in a fourteen-month bank loan .

In summary, short-term loans of $ 55.9 million included under “Short-term loans” in our condensed consolidated balance sheet at June 30, 2025 , consisted of $ 51.3 million of short-term bank loans and $ 4.6 million of the current portion of long-term debt.

Long-term loan of $ 5.0 million included under “Other long-term liabilities” in our condensed consolidated balance sheet at June 30, 2025 .

We lease certain equipment, office space, warehouse and facilities under long-term operating leases expiring at various dates through November 2029.

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The effect of short-term leases on our right-of-use asset and lease liability was not material.

As of March 31, 2025, the maturities of our operating lease liabilities (excluding short-term leases) are as follows (in thousands):

As of June 30, 2025 , the maturities of our operating lease liabilities (excluding short-term leases) are as follows (in thousands):

Maturity of Lease Liabilities

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Weighted-average discount rate

5.01 % 5.02 %

Supplemental cash flow information related to leases where we are the lessee is as follows (in thousands):

Three Months Ended

Six Months Ended

Cash paid for amounts included in the measurement of lease liabilities:

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Three Months Ended

Six Months Ended

Operating lease

$ 161 $ 153 $ 321 $ 306

Short-term lease expense

$ 195 $ 195 $ 404 $ 389

Redeemable Noncontrolling Interests

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public company.

The components of the change in redeemable noncontrolling interests for the three months ended March 31, 2025 are presented in the following table (in thousands):

The components of the change in redeemable noncontrolling interests for the six months ended June 30, 2025 are presented in the following table (in thousands):

Balance as of January 1, 2025

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Effect of foreign currency translation attributable to redeemable noncontrolling interests

Balance as of March 31, 2025

Balance as of June 30, 2025

Recent Accounting Pronouncements

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Subsequent Events

In April 2025, the Company received a dividend of $ 965,000 from one of our equity investments, JiYa.

In April 2025, the Company obtained a $ 620,000 unsecured bank loan with a one-year term and an interest rate of 3.9 %.

In April and May 2025, Tongmei made additional equity investments totaling $ 550,000 in ChaoYang KaiMei, an equity method investee.

Tongmei’s ownership of ChaoYang KaiMei remained at 40 % following these investments.

MANAGEMENT’S DISCUSSIO N AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

On July 14, 2025, we reported that Ms.

Christine Russell, our independent director, Chair of the Audit Committee, member of the Compensation Committee and the Nominating and Corporate Governance Committee, passed away.

On July 29, 2025, we appointed Leonard J.

Leblanc to the Board of Directors to fill Ms.

Russell’s vacancy effective immediately.

The Board also appointed Mr.

Leblanc to serve on the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee in reliance on the limited exception provided under the Nasdaq Listing Rules.

On July 29, 2025, we also appointed Mr.

Jesse Chan to serve as the Chair of the Audit Committee.

In July 2025, the Company obtained a total of $ 740,000 in unsecured one -year bank loans with interest rates ranging from 2.6 % to 3.8 %.

The company repaid $ 2.8 million on an existing loan.

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q of AXT, Inc., a Delaware corporation (“AXT”, “the Company”, “we,” “us,” and “our” refer to AXT, Inc.

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Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “goals,” “should,” “continues,” “would,” “could” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this Quarterly Report on Form 10-Q.

Additionally, statements concerning future matters such as our strategy and plans, industry trends and the impact of trends, tariffs and trade wars, geopolitical tensions, export restrictions in China, the potential or expected impact of the COVID-19 pandemic on our business, results of operations and financial condition, mandatory factory shutdowns in China, changes in policies and regulations in China and economic cycles on our business are forward-looking statements.

Additionally, statements concerning future matters such as our strategy and plans, industry trends and the impact of trends, tariffs and trade wars, geopolitical tensions, export restrictions in China, results of operations and financial condition, mandatory factory shutdowns in China, changes in policies and regulations in China and economic cycles on our business are forward-looking statements.

Our forward-looking statements are based upon assumptions that are subject to uncertainties and factors relating to the Company’s operations and business environment, which could cause actual results to differ materially from those expressed or implied in the forward-looking statements contained in this Quarterly Report on Form 10-Q.

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possible factory shutdowns as a result of air pollution in China;

COVID-19 or other outbreaks of a contagious disease;

the availability of current COVID-19 vaccines;

outbreaks of a contagious disease;

tariffs and other trade war issues;

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We undertake no obligation to revise or update any forward‑looking statements in order to reflect any development, event or circumstance that may arise after the date of this Quarterly Report on Form 10-Q.

This discussion should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our

Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Annual Report”) and the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

This discussion should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Annual Report”) and the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

AXT is a worldwide materials science company that develops and produces high-performance compound and single element semiconductor substrates, also known as wafers.

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(GaAs - semi-insulating)

• IoT devices

1”, 2”, 3”, 4”, 5”, 6”

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•High efficiency solar cells for drones and automobiles

• Solar cells

Gallium Arsenide

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•Lidar for robotics and autonomous vehicles

• Solar cells

•Multi-junction solar cells for satellites

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To qualify for a STAR Market listing, the first major step in the process was to engage private equity firms in China (“Investors”) to invest funds in Tongmei.

By December 31,

2020, Investors, which consist of 10 private equity funds, had entered into two sets of definitive transaction documents, each consisting of a capital increase agreement along with certain supplemental agreements in substantially the same form (collectively, the “Capital Investment Agreements”), with Tongmei for a total investment of approximately $48.1 million.

By December 31, 2020, Investors, which consist of 10 private equity funds, had entered into two sets of definitive transaction documents, each consisting of a capital increase agreement along with certain supplemental agreements in substantially the same form (collectively, the “Capital Investment Agreements”), with Tongmei for a total investment of approximately $48.1 million.

The currency used in the investment transactions was the Chinese renminbi, which has been converted to approximate U.S.

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Recent statements and regulatory actions by China’s government on the use of VIEs and data security or anti-monopoly concerns have not impacted our ability to conduct our business or continue to list our common stock on the Nasdaq Global Select Market.

The following organization chart depicts the consolidated structure as of March 31, 2025:

The following organization chart depicts the consolidated structure as of June 30, 2025:

The businesses of our PRC subsidiaries and PRC joint ventures are subject to complex and rapidly evolving laws and regulations in the PRC, which can change quickly with little advance notice.

The PRC government is a single party form of government with virtually unlimited authority and power to intervene in or influence commercial operations in China.

In the past, we have experienced such intervention or influence by the PRC government and a change in the rules and regulations in China when we were instructed by the Beijing municipal government to relocate part of our manufacturing facility in Beijing and expect that such intervention or influence or change in the rules and regulations in China could occur in the future.

In the ordinary course of business, our PRC subsidiaries and PRC joint ventures require permits and licenses to operate in the PRC.

Such permits and licenses include permits to use hazardous materials in manufacturing operations.

From time to time, the PRC government issues new regulations, which may require additional actions on the part of our PRC subsidiaries and PRC joint ventures to comply.

For example, on February 27, 2015, the China State Administration of Work Safety updated its list of hazardous substances.

The previous list, which was published in 2002, did not restrict the materials that we use in our wafers.

The new list added gallium arsenide.

As a result of the newly published list, we were required to seek additional permits.

In the ordinary course of business, our PRC subsidiaries and PRC joint ventures apply for permits as required.

Any such intervention or influence or change in the rules and regulations in China could result in a material change in our PRC operations and/or the value of our common stock or cause the value of such securities to significantly decline or be worthless.

We have experienced such interventions or influence by the PRC government and expect that such intervention or influence or change in the rules and regulations in China could occur in the future.

In September 2018, the United States announced a list of thousands of categories of goods that became subject to Section 301 tariffs when imported into the United States from China.

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On February 4, 2025, China added indium phosphide substrates to its export control list.

As a result, the three wafer substrate product lines manufactured by Tongmei all require permits from China’s Ministry of Commerce before they can be exported from China.

As a result, the three wafer substrate product families manufactured by Tongmei all require permits from China’s Ministry of Commerce before they can be exported from China.

The portal to apply for exports of indium phosphide from China opened in March and we immediately began to submit our applications.

On June 11, Tongmei was informed that it has satisfied the applicable requirements for a permit to export indium phosphide and has received its initial export permits from the Ministry of Commerce of the People’s Republic of China to resume shipping indium phosphide substrates to certain customers in Europe and Japan.

More recently, we have also obtained export permits for indium phosphide shipments to the UK and Canada.

To our knowledge, indium phosphide is rarely used in military applications and we can reasonably expect that export permits to ship our indium phosphide substrates to the U.S.

will be granted.

The portal to apply for exports of indium phosphide from China opened in March and we immediately began to submit our applications.

However, since the requirement for such export permits is new, the timing for when permits will be granted remains uncertain and we are unable to estimate when we will receive the necessary export permits to resume shipping our indium phosphide substrates to the U.S.

We are actively monitoring and following up on the status of our applications.

In the ordinary course of business, our PRC subsidiaries and PRC joint ventures require permits and licenses to operate in the PRC.

Such permits and licenses include permits to use hazardous materials in manufacturing operations.

From time to time, the PRC government issues new regulations, which may require additional actions on the part of our PRC subsidiaries and PRC joint ventures to comply.

For example, on February 27, 2015, the China State Administration of Work Safety updated its list of hazardous substances.

The previous list, which was published in 2002, did not restrict the materials that we use in our wafers.

The new list added gallium arsenide.

As a result of the newly published list, we were required to seek additional permits.

In the ordinary course of business, our PRC subsidiaries and PRC joint ventures apply for permits as required.

Another example of a change in the rules and regulations in China occurred when we were instructed by the Beijing municipal government to relocate part of our manufacturing facility in Beijing.

We have created a vertically integrated supply chain and transfer cash through our corporate structure in three ways.

First, we capitalize our investments in our PRC subsidiaries.

We licensed to our PRC subsidiaries intellectual

property and received from our PRC subsidiaries royalty payments or one-time fees.

We licensed to our PRC subsidiaries intellectual property and received from our PRC subsidiaries royalty payments or one-time fees.

Second, we use transfer pricing arrangements to buy from our PRC subsidiaries and PRC joint ventures wafers and raw materials.

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Third, our PRC subsidiaries and PRC joint ventures pay dividends to entities within the Company’s corporate structure.

For the three months ended March 31, 2025, the aggregate dividends paid to the Company, directly or to an intermediate entity within our corporate structure, by our PRC subsidiaries and PRC raw material joint ventures were $0.

For the six months ended June 30, 2025, the aggregate dividends paid to the Company, directly or to an intermediate entity within our corporate structure, by our PRC subsidiaries and PRC raw material joint ventures were $0.9 million.

For the year ended December 31, 2024, the aggregate dividends paid to the Company, directly or to an intermediate entity within our corporate structure, by our PRC subsidiaries and PRC raw material joint ventures were approximately $2.4 million.

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All of these distributions were paid to our PRC subsidiaries and the minority shareholders.

For the three months ended March 31, 2025 and the year ended December 31, 2024, no transfers, dividends, or distributions were made between the Company and its PRC subsidiaries, or to investors, except for the settlement of amounts owed under our transfer pricing arrangements in the ordinary course of business.

For the six months ended June 30, 2025 and the year ended December 31, 2024, no transfers, dividends, or distributions were made between the Company and its PRC subsidiaries, or to investors, except for the settlement of amounts owed under our transfer pricing arrangements in the ordinary course of business.

We have no current intentions to distribute earnings to our investors under our corporate structure.

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BPM is headquartered in the United States and not in the PRC or Hong Kong.

As such, BPM is subject to the determinations announced by the PCAOB.

As such, BPM is not subject to the determinations announced by the PCAOB.

Accordingly, the Company does not expect the HFCA Act, the Accelerating Holding Foreign Companies Accountable Act and the related regulations to affect the Company and does not expect to be identified by the Securities and Exchange Commission, or SEC, under the HFCA Act.

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The majority of our contracts have a single performance obligation to transfer products and are short term in nature, usually less than six months.

is measured based on the consideration specified in the contract with each customer in exchange for transferring products that are generally based upon a negotiated, formula, list or fixed price.

Our revenue is measured based on the consideration specified in the contract with each customer in exchange for transferring products that are generally based upon a negotiated, formula, list or fixed price.

Revenue is recognized when control of the promised goods is transferred to our customer, which is either upon shipment from our dock, receipt at the customer’s dock, or removal from consignment inventory at the customer’s location, in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods.

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Uncollectible receivables are recorded as provision for credit losses when a credit loss is expected through the establishment of an allowance, which would then be written off when all efforts to collect have been exhausted and recoveries are recognized when they are received.

As of March 31, 2025 and December 31, 2024, our accounts receivable, net balance was $22.9 million and $25.6 million, respectively, which was net of an allowance of $147,000 and $147,000, respectively.

As of June 30, 2025 and December 31, 2024, our accounts receivable, net balance was $22.8 million and $25.6 million, respectively, which was net of an allowance of $147,000 and $147,000, respectively.

If actual uncollectible accounts differ substantially from our estimates, revisions to the estimated allowance for credit losses would be required, which could have a material impact on our financial results for the future periods.

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Warranty costs are accrued at the time revenue is recognized.

As of March 31, 2025 and December 31, 2024, accrued product warranties totaled $403,000 and $451,000, respectively.

As of June 30, 2025 and December 31, 2024, accrued product warranties totaled $435,000 and $451,000, respectively.

The decrease in accrued product warranties is primarily attributable to decreased claims for quality issues experienced by customers.

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We routinely evaluate the levels of our inventory in light of current market conditions in order to identify excess and obsolete inventory, and we provide a valuation allowance for certain inventories based upon the age and quality of the product and the projections for sale of the completed products.

As of March 31, 2025 and December 31, 2024, we had an inventory reserve of $25.3 million and $24.1 million, respectively, for excess and obsolete inventory and $46,000 and $73,000, respectively, for lower of cost or net realizable value reserves.

As of June 30, 2025 and December 31, 2024, we had an inventory reserve of $26.5 million and $24.1 million, respectively, for excess and obsolete inventory and $141,000 and $73,000, respectively, for lower of cost or net realizable value reserves.

If actual demand for our products were to be substantially lower than estimated, additional inventory adjustments for excess or obsolete inventory might be required, which could have a material impact on our business, financial condition and results of operations.

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Determination of impairment is highly subjective and is based on a number of factors, including an assessment of the strength of each company’s management, the length of time and extent to which the fair value has been less than our cost basis, the financial condition and near-term prospects of the company, fundamental changes to the business prospects of the company, share prices of subsequent offerings, and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in our carrying value.

There were no impairment charges for the these investments during the three months ended March 31, 2025 and 2024.

There was a $145,000 impairment charge related to an investment during the three and six months ended June 30, 2025 and no impairment charge during the six months ended June 30, 2024.

Fair Value of Investments

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At quarter end any foreign currency hedges not settled are netted in “Accrued liabilities” in the condensed consolidated balance sheets and classified as Level 3 assets and liabilities.

As of March 31, 2025, the net change in fair value from the placement of the hedge to settlement at each month end during the quarter had a de minimis impact to the condensed consolidated results.

There have been no transfers between fair value measurement levels during the three months ended March 31, 2025 and 2024.

As of June 30, 2025, the net change in fair value from the placement of the hedge to settlement at each month end during the quarter had a de minimis impact to the condensed consolidated results.

There have been no transfers between fair value measurement levels during the three and six months ended June 30, 2025 and 2024.

Impairment of Long-Lived Assets

4 unchanged sentences

Assets held for sale are carried at the lower of carrying value or estimated net realizable value.

We had no “Assets held for sale” or any impairment of long-lived assets in the condensed consolidated balance sheets as of March 31, 2025 and December 31, 2024.

We had no “Assets held for sale” or any impairment of long-lived assets in the condensed consolidated balance sheets as of June 30, 2025 and December 31, 2024.

Stock-based Compensation

16 unchanged sentences

ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that a portion of the deferred tax asset will not be realized.

Our deferred tax assets have been reduced to zero by valuation allowance.

We provide for income taxes based upon the geographic composition of worldwide earnings and tax regulations governing each region, particularly China.

2 unchanged sentences

Economic Challenges, Risks and Uncertainties

In the first months of the year 2025, the Company has been impacted by escalating trade tensions and regulations.

The Company has been impacted by escalating trade tensions and regulations.

On December 3, 2024, China issued further rules restricting exports of materials that can typically be used in military applications including antimony, gallium, germanium and other superhard materials.

4 unchanged sentences

On April 2, 2025, the United States again announced a baseline 10% tariff on product imports from almost all countries and individualized higher tariffs on certain other countries, including up to 145% tariffs on certain products from China.

Several tariff announcements have been followed by announcements of limited exemptions and temporary pauses, however, our wafer substrates continue to be subject to tariffs of approximately 100%.

Several tariff announcements have been followed by announcements of limited exemptions and temporary pauses;

however, our wafer substrates continue to be subject to tariffs of approximately 100%.

Due to the uncertainties pertaining to export restrictions in China and tariffs and tariff levels in the United States, it is difficult for us to reliably forecast the short-term or ongoing impact to our business or that of our customers but is expected that tariffs and export regulations would negatively impact our revenues, profitability and cash flows.

We are closely monitoring the fluid nature of proposed tariffs and any impact they may have on our operations and will continue to monitor macroeconomic conditions and evaluate the financial and operational impact of ongoing trade policy shifts.

Previously, as of August 1, 2023, Tongmei was required to secure permits from the applicable Chinese authorities to export gallium arsenide and germanium substrates.

5 unchanged sentences

In 2024, approximately 8% of our revenue was generated by sales to customers in the U.S.

On February 4, 2025, China added indium phosphide substrates to its export control list.

As a result, the three wafer substrate product families manufactured by Tongmei all require permits from China’s Ministry of Commerce before they can be exported from China.

The portal to apply for exports of indium phosphide from China opened in March and we immediately began to submit our applications.

More recently, we have also obtained export permits for indium phosphide shipments to the UK and Canada.

To our knowledge, indium phosphide is rarely used in military applications and we can reasonably expect that export permits to ship our indium phosphide substrates to the U.S.

will be granted.

The portal to apply for exports of indium phosphide from China opened in March and we immediately began to submit our applications.

11 unchanged sentences

Risk Factors – Risks Related to International Aspects of Our Business”.

Board of Director Changes

On July 11, 2025, Ms.

Christine Russell, our independent director, Chair of the Audit Committee, member of the Compensation Committee and the Nominating and Corporate Governance Committee, passed away.

On July 14, 2025, we notified The Nasdaq Stock Market LLC (“Nasdaq”) that due to the passing of Ms.

Russell, our Audit Committee has been reduced to two independent directors, and we are currently not compliant with Nasdaq Lising Rule 5605(c)(2)(A), which requires the Audit Committee to be comprised of a minimum of three independent directors.

On July 18, 2025, Nasdaq confirmed our non-compliance and further notified us that, consistent with Nasdaq Listing Rule 5605(c)(4), Nasdaq will provide us a cure period to regain compliance (i) until the earlier of the Company’s next annual meeting of shareholders or July 11, 2026;

or, (ii) if the next annual meeting of shareholders is held before January 7, 2026, then we must provide evidence of compliance no later than January 7, 2026.

We intend to regain compliance as soon as possible and the Board will add a new independent director who satisfies the applicable requirements of the Nasdaq Listing Rules prior to the expiration of the foregoing cure period.

On July 29, 2025, we appointed Leonard J.

Leblanc to the Board of Directors (the “Board”) to fill the vacancy on the Board due to the passing of Ms.

Leblanc will serve as a Class III director with a maximum term expiring on July 29, 2027, or until his successor is duly elected and qualified.

In connection with Mr.

Leblanc’s appointment to the Board, the Board considered the compensation Mr.

Leblanc previously received during his term as director emeritus, and determined that Mr.

Leblanc is not independent under the Nasdaq Listing Rules as his total compensation exceeded $120,000 during January 1, 2022 to December 31, 2022.

From January 1, 2023 to December 31, 2023, Mr.

Leblanc’s total compensation did not exceed $120,00 and Mr.

Leblanc did not receive any further compensation from us after December 29, 2023.

As such, after December 31, 2022, Mr.

Leblanc would not have received any compensation from us in excess of $120,000 during any period of twelve consecutive months in the three year look-back period preceding January 1, 2026, and he would therefore be considered independent under the Nasdaq Listing Rules on January 1, 2026.

Other than the compensation previously received as director emeritus, the Board has determined that Mr.

Leblanc meets all independence requirements for a member of the audit committee under Rule 10A-3 of the Securities and Exchange Act of 1934, as amended, and the other independence requirements under the Nasdaq Listing Rules.

The Board also considered Mr.

Leblanc’s previous service as a director and chair of the Audit Committee.

Leblanc’s experience and previous service with us, the Board determined that Mr.

Leblanc familiarity with our operations, business, supply-chain and manufacturing strategies, and intricacies of our corporate structure is necessary to our current needs.

The Board believes that the unforeseen passing of Ms.

Russell during a critical period in our operations further necessitates the appointment of a director who is already familiar with our financial operations and our management under the current environment and economic conditions.

Accordingly, the Board determined that the appointment of Mr.

Leblanc to our Audit Committee as a non-independent director will be in the best interests of the Company and our stockholders in reliance on the exception provided under applicable Nasdaq Listing Rules for membership on the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee under exceptional and limited circumstances.

Based on the foregoing determination, the Board also appointed Mr.

Leblanc to serve on the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee in reliance on the limited exception provided under the Nasdaq Listing Rules.

LeBlanc’s independence under the Nasdaq Listing Rules will be re-evaluated by the Board on or after January 1, 2026.

On July 29, 2025, we appointed Mr.

Jesse Chen to serve as the Chair of the Audit Committee.

Chen currently serves as an independent director, lead director, Chair of the Nominating and Governance Committee, and a member of the Audit Committee and Compensation Committee.

Results of Operations

Three Months Ended

Six Months Ended

Product Type:

($ in thousands)

Raw materials and other

Total revenue

Revenue decreased $3.3 million, or 14.7%, to $19.4 million for the three months ended March 31, 2025 from $22.7 million for the three months ended March 31, 2024.

The substrate revenue decrease for the three months ended March 31, 2025 as compared to the same period in 2024 was primarily the result of lower demand for GaAs wafer substrates due to decreased demand across a number of applications and decreased demand for InP wafer substrates used for data center applications and in passive optical networks and weaker demand for Ge wafer substrates in China.

Raw materials sales increased $2.5 million, or 43.0%, to $8.3 million for the three months ended March 31, 2025 as compared to the same period in 2024.

The increase in raw materials revenue for the three months ended March 31, 2025 as compared to the same period in 2024 was primarily the result of an increase in sales of refined gallium and pBN crucibles resulting from stronger market demand and from the sale of recycled materials.

Revenue decreased $10.0 m illion, or 35.6%, to $18.0 mil lion for the three months ended June 30, 2025 from $27.9 million for the three months ended June 30, 2024.

The substrate reve nue decrease fo r the three months ended June 30, 2025 as compared to the same period in 2024 was primarily the res ult of lower demand for InP wafer substrates used for data center applications and in passive optical networks, as a result of export restrictions imposed by the China government and decreased demand for GaAs wafer substrates due to decreased demand across a number of applications and weaker demand for Ge wafer substrates in China.

Raw materials sa les decreased $1.5 m illion, or 18.3%, to $6.7 million for the three months ended June 30, 2025 as compared to the same period in 2024.

T he decrease in raw materials revenue for the three months ended June 30, 2025 as compared to the same period in 2024 was primarily the result o f a decrease in sales of refined gallium and pBN crucibles resulting from weaker market demand.

Revenu e decreased $13.3 m illion , or 26.2%, to $37.3 million for the six months ended June 30, 2025 from $50.6 million for the six months ended June 30, 2024.

The substrate reven ue decrease for the six months ended June 30, 2025 as compared to the same period in 2024 was primarily the result of lower demand for InP wafer substrates used for data center applications and in passive optical networks, as a result of export restrictions imposed by the China government , and decreased demand for GaAs wafer substrates due to decreased demand across a number of applications and weaker demand for Ge wafer substrates in China .

Raw materials sale s increased $1.0 million, or 7.0%, to $15.0 m illion for the six months ended June 30, 2025 as compared to the same period in 2024.

The increase in raw materials revenue for the six months ended June 30, 2025 as compared to the same period in 2024 was primarily the r esult of an increase in sales of refined gallium and from the sale of recycled materials, partially offset by lower demand for pBN crucibles resulting from weaker market demand.

Revenue by Geographic Region

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Total revenue

Revenue in China increased $1.9 million for the three months ended March 31, 2025, primarily due to higher demand for our GaAs wafer substrates and refined gallium sold by one of our consolidated subsidiaries, partially offset by lower demand for our InP and Ge wafer substrates and pBN crucibles sold by one of our consolidated subsidiaries.

Revenue in Taiwan decreased $3.4 million, primarily due to lower demand for our InP and GaAs wafer substrates.

Revenue in Japan decreased $0.3 million, primarily due to lower demand for our InP wafer substrates, partially offset by higher demand for our GaAs wafer substrates and pBN crucibles sold by one of our consolidated subsidiaries.

Revenue in Asia Pacific decreased $17,000, primarily due to decreased demand for our GaAs and InP wafer substrates and refined gallium sold by one of our consolidated subsidiaries, partially offset by higher demand for pBN crucibles sold by one of our consolidated subsidiaries.

Revenue in Europe decreased $1.6 million, primarily due to decreased demand for our GaAs, InP and Ge wafer substrates and pBN crucibles sold by one of our consolidated subsidiaries.

Revenue in North America increased $33,000, primarily due to higher demand for our InP wafer substrates and pBN crucibles sold by one of our consolidated subsidiaries, partially offset by lower demand for our GaAs and Ge wafer substrates.

Revenue in China decreased $2.5 million for the three months ended June 30, 2025, primarily due to lower demand for our InP and Ge wafer substrates and refined gallium sold by one of our consolidated subsidiaries, partially offset by higher demand for our GaAs wafer substrates.

Revenue in Taiwan decreased $2.9 million, primarily due to the impact of China export restrictions on our InP and GaAs wafer substrates.

Revenue in Japan decreased $0.1 million, primarily due to the impact of China export restrictions on our GaAs and InP wafer substrates, partially offset by higher demand for pBN crucibles sold by one of our consolidated subsidiaries.

Revenue in Asia Pacific decreased $0.3 million, primarily due to the impact of China export restrictions on our InP and GaAs wafer substrates and decreased demand for pBN crucibles sold by one of our consolidated subsidiaries.

Revenue in Europe decreased $3.1 million, primarily due to the impact of China export restrictions on our GaAs, InP and Ge wafer substrates and lower demand for pBN crucibles sold by one of our consolidated subsidiaries.

Revenue in North America decreased $1.1 million, primarily due to the impact of China export restrictions on our InP and GaAs wafer substrates and lower demand for pBN crucibles sold by one of our consolidated subsidiaries.

Six Months Ended

($ in thousands)

% of total revenue

Asia Pacific (excluding China, Taiwan and Japan)

% of total revenue

Europe (primarily Germany)

% of total revenue

North America (primarily the United States)

% of total revenue

Total revenue

Revenue in China decrea sed $0.5 million for the six months ended June 30, 2025, primarily due to lower demand for our InP and Ge wafer substrates and pBN crucibles sold by one of our consolidated subsidiaries, partially offset by higher demand for our GaAs wafer substrates and refined gallium sold by one of our consolidated subsidiaries .

Revenue in Taiwan decreased $6.3 million, primarily du e to the impact of China export restrictions on our InP and GaAs wafer substrates.

Revenue in Japan decreased $0.4 million, primarily due to the impact of China export restrictions on our InP and GaAs wafer substrates, partially offset by higher demand for pBN crucibles sold by one of our consolidated subsidiaries.

Re venue in Asia P acific decreased $0.3 million, p rimarily due to the impact of China export restrictions on our GaAs and InP wafer substrates and refined gallium sold by one of our consolidated subsidiaries, partially offset by higher demand for pBN crucibles sold by one of our consolidated subsidiaries.

Rev enue in Euro pe decreased $4.7 million, pri marily due to the impact of China export restrictions on our GaAs, InP and Ge wafer substrates and lower demand for pBN crucibles sold by one of our consolidated subsidiaries.

Three Months Ended

Six Months Ended

($ in thousands)

Gross Profit %

Gross profit decreased 7.3 million, or 120.4%, to a loss of $1.2 million for the three months ended March 31, 2025 from $6.1 million for the three months ended March 31, 2024.

The decrease in gross profit is primarily the result of significant unfavorable yields charged to cost of goods sold in our gallium arsenide production lines.

Gross prof it decreased 6.2 million, or 81.3%, to a profit of $1.4 million for the three months ended June 30, 2025 from $7.7 million for the three months ended June 30, 2024.

The decrease i n gross profit is primarily the resu lt of significant unfavorable yields charged to cost of goods sold in our gallium arsenide production lines.

These charges resulted in a lower gross margin as a percent of revenue.

Further, the export restrictions imposed by China on indium phosphide had a negative impact on product mix and on total substrate revenue.

Sales of indium phosphide wafers were reduced significantly.

Lower substrate revenue resulted in an increase in unabsorbed overhead charged to cost of goods sold.

Gross pr ofit decreased 13.6 million, or 98.6%, to a profit of $0.2 million for the six months ended June 30, 2025 from $13.7 million for the six months ended June 30, 2024.

T he decrease in gr oss profit is primarily t he result of significant unfavorable yields charged to cost of goods sold in our gallium arsenide production lines.

These charges resulted in a negative gross margin as a percent of revenue.

4 unchanged sentences

Three Months Ended

Six Months Ended

($ in thousands)

Selling, general and administrative expenses

% of total revenue

Selling, general and administrative expenses decreased $311,000, or 5.0%, to $5.9 million for the three months ended March 31, 2025 from $6.2 million for the three months ended March 31, 2024.

The lower selling, general and administrative expenses were primarily from a decrease in compensation related expenses, partially offset by higher legal and professional service expenses.

Selling, general and administrative expen ses decreased $126,000, or 2.2%, to $5.7 mi llion for the three months ended June 30, 2025 from $5.8 million for the three months ended June 30, 2024.

Th e lower s elling, general and administrative expenses were primarily from a decre ase in legal and professional service expenses, outside commissions and office supply expenses, partially offset by an increase in compensation related expenses.

Selling, general and administrative expen ses decreased $437,000, or 3.6%, to $11.6 m illion for the six months ended June 30, 2025 from $12.0 million for the six months ended June 30, 2024.

Th e lower selli ng, general and administrative expenses were primarily fro m a decrease in compensation related expenses, outside commissions and office supply expenses, partially offset by higher legal and professional service expenses.

Research and Development

Three Months Ended

Six Months Ended

($ in thousands)

Research and development

% of total revenue

Research and development expenses decreased $0.1 million, or 3.0%, to $3.1 million for the three months ended March 31, 2025 from $3.2 million for the three months ended March 31, 2024.

The decrease in research and development expenses for the three months ended March 31, 2025 was primarily due to lower compensation related expenses, partially offset by higher product development expenses for crystal ingot processing.

Research and development exp enses decreased $1.2 million, or 32.8%, to $2.5 million fo r the three months ended June 30, 2025 from $3.8 million for the three months ended June 30, 2024.

The decrease i n research and development expenses for the three months ended June 30, 2025 was primarily d ue to lower product development expenses for crystal ingot processing, partially offset by higher compensation related expenses.

Research and development expen ses decreased $1.3 million, or 19.1%, to $5.6 million for t he six months ended June 30, 2025 from $7.0 million for the six months ended June 30, 2024.

Th e decrease in research and development expenses for the six months ended June 30, 2025 was primarily due to lower product development expenses for crystal ingot processing, partially offset by higher compensation related expenses .

Interest Expense, Net

Three Months Ended

Six Months Ended

($ in thousands)

Interest expense, net

% of total revenue

Interest expense, net decreased $80,000, or 22.9%, to $269,000 for the three months ended March 31, 2025 from $349,000 for the three months ended March 31, 2024.

Interest expense, net decreased primarily due to higher interest income during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024.

Equity in Income of Unconsolidated Joint Ventures

Interest expense , net decreased $80,000, or 28.4%, to $202,000 for t he three months ended June 30, 2025 from $282,000 for the three months ended June 30, 2024.

Interest expense, net decreased primarily due to higher interest income d uring the three months ended June 30, 2025 as compared to the three months ended June 30, 2024.

Interest expense, net decreased $160,000, or 25.4%, to $471,000 fo r the six months ended June 30, 2025 from $631,000 for the six months ended June 30, 2024.

Interest expense , net decreased primarily due to higher interest income durin g the six months ended June 30, 2025 as compared to the six months ended June 30, 2024.

Gain (loss) from equity method and fair value investments

Three Months Ended

Equity in Income

Six Months Ended

($ in thousands)

Equity in income of unconsolidated joint ventures

($ in thousands)

Gain (loss) from equity method and fair value investments

% of total revenue

The equity in income of unconsolidated joint venture companies was income of $0.2 million for the three months ended March 31, 2025 as compared to income of $0.9 million for the three months ended March 31, 2024.

The decrease in income of $0.6 million is primarily due to weaker performance in unconsolidated joint ventures.

The gain (loss) from equity method and fair value investments was a loss o f $0.2 m illion for the three months ended June 30, 2025 as compared to income of $0.6 million for the three months ended June 30, 2024.

T he decrease in income of $0.8 million is primarily due to weaker performance in unconsolidated joint ventures.

The gain (loss) from equity method and fair value investments was income of $0.1 mil lion for the six months ended June 30, 2025 as compared to income of $1.5 million for the six months ended June 30, 2024.

Th e decrease in income o f $1.4 million is primarily due to weaker performance in unconsolidated joint ventures.

Other Income, Net

Three Months Ended

Six Months Ended

($ in thousands)

Other income, net

% of total revenue

Other income, net decreased $0.7 million, or 65.7%, to an income of $0.4 million for the three months ended March 31, 2025 from an income of $1.0 million for the three months ended March 31, 2024.

Other income, net decreased primarily due to a decrease in government grants.

Other incom e, net decreased $0.5 million, or 95.3%, to an income of $23,000 fo r the three months ended June 30, 2025 from an income of $0.5 million for the three months ended June 30, 2024.

Other income, net decreased p rimarily due to a decrease in government grants.

Other incom e, net decreased $1.1 million, or 75.2%, to an income of $0.4 mi llion for the six months ended June 30, 2025 from an income of $1.5 million for the six months ended June 30, 2024.

Other income, n et decreased prima rily due to a decrease in government grants.

Provision for Income Taxes

Three Months Ended

Six Months Ended

($ in thousands)

Provision for income taxes

% of total revenue

Provision for income taxes decreased $200,000, or 73.0%, to a provision of $74,000 for the three months ended March 31, 2025 as compared to a provision of $274,000 for the three months ended March 31, 2024.

The tax expense recorded for the three months ended March 31, 2025 is the result of mainly foreign taxes and some minimum state taxes.

Provision for income taxes increased $458,000, or 378.5%, to a provision of $579,000 for the three months ended June 30, 2025 as compared to a provision of $121,000 for the three months ended June 30, 2024.

The tax expense recorded for the three months ended June 30, 2025 is the result of mainly foreign taxes and some minimum state taxes.

No federal income tax is provided for our U.S.

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has been fully offset by utilization of net operating loss carryforwards.

Additionally, there is uncertainty of generating future profit in the U.S., which has resulted in our deferred tax assets being fully reserved.

Additionally, there is uncertainty of generating future profit in the U.S., which has resulted in our deferred tax assets being fully reserved for the U.S.

parent company.

Our estimated tax rate can vary greatly from year to year because of the change or benefit in the mix of taxable income between our U.S.

and China-based operations.

Due to our uncertainty regarding our future profitability, we recorded a valuation allowance against our net deferred tax assets of $20.7 million and $17.3 million for the three months ended March 31, 2025 and 2024.

Provision for income taxes increased $258,000, or 65.3%, to a provision of $653,000 for the six months ended June 30, 2025 as compared to a provision of $395,000 for the six months ended June 30, 2024.

The tax expense recorded for the six months ended June 30, 2025 is the result of mainly foreign taxes and some minimum state taxes.

No federal income tax is provided for our U.S.

operations as most of the income in the U.S.

has been fully offset by utilization of net operating loss carryforwards.

Net (Income) loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests

Three Months Ended

Net (income) loss attributable to

Three Months Ended

noncontrolling interests and

Six Months Ended

noncontrolling interests and

redeemable noncontrolling interests

($ in thousands)

Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests

% of total revenue

Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests increased $1.3 million or 3,580% to a loss of $1.2 million for the three months ended March 31, 2025, from an income of $35,000 for the three months ended March 31, 2024, primarily due to lower profitability from our PRC subsidiaries as sales decreased.

Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interes ts increased $1.0 million or 310.1% to a loss of $0.7 million for the three months ended June 30, 2025, from an income of $317,000 for the three months ended June 30, 2024, primarily due to lower profitability from our PRC subsidiaries as sales decreased.

Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests increased $2.2 million or 635.2% to a loss of $1.9 mil lion for the six months ended June 30, 2025, from an income of $352,000 for the six months ended June 30, 2024, primarily due to lower profitability from our PRC subsidiaries as sales decreased.

Liquidity and Capital Resources

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government securities, certificates of deposit and investment-grade corporate notes and bonds.

As of March 31, 2025, our principal source of liquidity was $ 38.2 million, which consisted of cash of $31.6 million and restricted cash of $6.6 million.

In the three months ended March 31, 2025, cash and restricted cash increased by $4.4 million.

The increase in cash and restricted cash of $4.4 million in the three months ended March 31, 2025 was primarily due to net cash provided by financing activities of $6.9 million and the effect of exchange rate changes of $1.6 million, partially offset by net cash used in operating activities of $3.3 million and net cash used in investing activities of $0.8 million.

As of March 31, 2025, we and our PRC subsidiaries held approximately $31.8 million in cash and investments in foreign bank accounts , of which $6.4 million was classified in restricted cash .

As of March 31, 2024, our principal source of liquidity was $41.3 million, which consisted of cash and restricted cash of $39.6 million and investments of $1.7 million.

In the three months ended March 31, 2024, cash and restricted cash decreased by $10.5 million and investments decreased by $0.5 million.

The decrease in cash and restricted cash of $10.5 million in the three months ended March 31, 2024 was primarily due to net cash used in operating activities of $8.8 million and net cash used in investing activities of $3.9 million, partially offset by net cash provided by financing activities of $2.0 million and the effect of exchange rate changes of $0.2 million.

As of March 31, 2024, we and our consolidated joint ventures in China held approximately $34.7 million in cash and investments in foreign bank accounts.

Net cash used in operating activities of $3.3 million for the three months ended March 31, 2025 was primarily comprised of a net loss before income attributable to noncontrolling interest and redeemable noncontrolling interests of $10.0 million, and income from equity method investments of $0.2 million, partially offset by a net change of $4.1 million in operating assets and liabilities, the adjustment for non-cash items of depreciation and amortization of $2.2 million, and stock-based compensation of $0.6 million.

Net cash used in operating activities of $8.8 million for the three months ended March 31, 2024 was primarily

comprised of a net change of $8.9 million in operating assets and liabilities, a net loss before income attributable to noncontrolling interest and redeemable noncontrolling interests of $2.0 million, and income from equity method investments of $0.9 million, partially offset by the adjustment for non-cash items of depreciation and amortization of $2.2 million and stock-based compensation of $0.8 million.

Net cash used in investing activities of $0.8 million for the three months ended March 31, 2025 was primarily from the purchase of property, plant and equipment of $0.5 million and investment in non-marketable equity investments of $0.3 million.

Net cash used in investing activities of $3.9 million for the three months ended March 31, 2024 was primarily from the purchase of property, plant and equipment of $4.4 million, partially offset by proceeds from sales and maturities of available-for-sale debt securities of $0.5 million.

Net cash provided by financing activities was $6.9 million for the three months ended March 31, 2025, which consisted of proceeds from short-term loans of $13.7 million and long-term loan of $2.8 million, partially offset by repayment of short-term loans of $9.3 million and repayment of long-term loan of $0.3 million.

Net cash provided by financing activities was $2.0 million for the three months ended March 31, 2024, which consisted of proceeds from short-term loans of $12.9 million, long-term loan of $5.9 million and common stock options exercised of $20,000, partially offset by repayment of short-term loans of $16.5 million and repayment of long-term loan of $0.2 million.

As of June 30, 2025, our principal source of liquidity w as $35.1 mil lion, which consisted of cash o f $27.0 m illion and restricted cash of $8.1 m illion.

In the six months ended June 30, 2025, cash and restricted c ash increased by $1.3 m illion.

Th e increase in cash and restricted cash of $1.3 million in the six months ended June 30, 2025 was primarily du e to net cash provided by financing activities of $6.6 million and the effect of exchange rate changes of $4.3 million, partially offset by net cash used in operating activities of $7.9 million and net cash used in investing activities of $1.6 million.

As of June 30, 2025, we and our PRC subsidiaries held approximatel y $29.8 mi llion in cash and investments in foreign bank accounts, of whic h $7.9 mil lion was classified in restricted cash.

As of June 30, 2024, our principal source of liquidity was $43.3 million, which consisted of cash and restricted cash of $41.6 million and investments of $1.7 million.

In the six months ended June 30, 2024, cash and restricted cash decreased by $8.5 million and investments decreased by $0.5 million.

The decrease in cash and restricted cash of $8.5 million in the six months ended June 30, 2024 was primarily due to net cash used in operating activities of $8.0 million and net cash used in investing activities of $4.5 million, partially offset by net cash provided by financing activities of $3.7 million and the effect of exchange rate changes of $0.2 million.

As of June 30, 2024, we and our consolidated joint ventures in China held approximately $35.6 million in cash and investments in foreign bank accounts.

Net cash used in operating activities of $7.9 milli on for the six months ended June 30, 2025 was primarily comprised of a net loss before income attributable to noncontrolling interest and redeemable noncontrolling interests of $17.7 million and gain from equity method and fair value investments of $0.1 million, partially offset by the adjustment for non-cash items of depreciation and amortization of $4.5 million, a net change of $3.3 million in operating assets and liabilities, stock-based compensation of $1.3 million and return of equity method investments as dividends of $0.9 million .

Net cash used in operating activities of $8.0 million for the six months ended June 30, 2024 was primarily comprised of a net change of $11.3 million in operating assets and liabilities, a net loss before income attributable to noncontrolling interest and redeemable noncontrolling interests of $3.2 million, and income from equity method investments of $1.5 million, partially offset by the adjustment for non-cash items of depreciation and amortization of $4.4 million, return of equity method investments as dividends of $2.1 million and stock-based compensation of $1.5 million.

Net cash used in investing activities of $1.6 milli on for the six months ended June 30, 2025 was primarily from the purchase of property, plant and equipment o f $0.8 million and investment in non-marketable equity investments of $0.8 m illion.

Net cash used in investing activities of $4.5 million for the six months ended June 30, 2024 was primarily from the purchase of property, plant and equipment of $4.7 million, and investment in non-marketable equity investments of $0.3 million, partially offset by proceeds from sales and maturities of available-for-sale debt securities of $0.5 million.

Net cash provided by financing activities was $6.6 m illion for the six months ended June 30, 2025, which consisted of proceeds from short-term loan s of $24.4 million and long-term loan of $2.8 million, p artially offset by repayment of short-term loans of $20.2 million and repayment of long-term loan of $0.5 m illion.

Net cash provided by financing activities was $3.7 million for the six months ended June 30, 2024, which consisted of proceeds from short-term loans of $26.5 million, long-term loan of $5.8 million and common stock options exercised of $25,000, partially offset by repayment of short-term loans of $28.3 million and repayment of long-term loan of $0.3 million.

On October 27, 2014, our Board of Directors approved a stock repurchase program pursuant to which we may repurchase up to $5.0 million of our outstanding common stock.

2 unchanged sentences

Since 2015, no shares were repurchased under this program.

During the three months ended March 31, 2025, we did not repurchase any shares under the approved stock repurchase program.

As of March 31, 2025, approximately $2.7 million remained available for future repurchases under this program.

As of June 30, 2025, approximatel y $2.7 m illion remained available for future repurchases under this program.

Currently, we do not plan to repurchase additional shares.

4 unchanged sentences

As of December 31, 2015, the Series A preferred stock had cumulative dividends of $2.9 million and we include such cumulative dividends in “Accrued liabilities” in our condensed consolidated balance sheets.

As of June 30, 2025, the balance remained unchanged.

At the time we pay this accrued liability, our cash will be reduced.

7 unchanged sentences

If SAFE approval is denied the dividend payable to the Company would be owed but would not be paid.

For the three months ended March 31, 2025 and 2024, we received no dividends, directly or to an intermediate entity within our corporate structure, by our PRC subsidiaries and PRC raw material joint ventures.

For the three months ended March 31, 2025 and 2024, there were no dividends paid to minority shareholders by our PRC subsidiaries or PRC raw material joint ventures.

For the three months ended March 31, 2025, no transfers, dividends, or distributions have been made to date between the Company and its PRC subsidiaries, or to investors, except for the settlement of amounts owed under our transfer pricing arrangements in the ordinary course of business.

For the six months ended June 30, 2025 and 2024, the aggregate dividends paid to us, directly or to an intermediate entity within our corporate structure, by our PRC subsidiaries and PRC raw material joint ventures were $0.9 million and $2.1 million, respectively.

For the six months ended June 30, 2025 and 2024, there were no dividends paid to minority shareholders by our PRC subsidiaries or PRC raw material joint ventures.

For the six months ended June 30, 2025, no transfers, dividends, or distributions have been made to date between the Company and its PRC subsidiaries, or to investors, except for the settlement of amounts owed under our transfer pricing arrangements in the ordinary course of business.

We have no current intentions to distribute to our investors earnings under our corporate structure.

15 unchanged sentences

Our bank loans and credit facilities typically have a term of 12 months or less and are included in “Short-term loans” in our condensed consolidated balance sheets.

The following table represents short-term bank loans as of March 31, 2025 and December 31, 2024 (in thousands, except interest rate data):

The following table represents short-term bank loans as of June 30, 2025 and December 31, 2024 (in thousands, except interest rate data):

Bank of China (1)

13 unchanged sentences

Bank of Communications (1)

China Merchants Bank (1)

NanJing Bank (1)

10 unchanged sentences

The intended use of the credit facility is for construction of fixed assets.

As of March 31, 2025, $5.0 million is included in “Other long-term liabilities” and $0.6 million is included in “Short-term loans” in our condensed consolidated balance sheets.

As of June 30, 2025, $5.0 million is included in “Other long-term liabilities” and $0.6 million is included in “Short-term loans” in our condensed consolidated balance sheets.

In December 2023, one of our consolidated subsidiaries, ChaoYang XinMei secured a loan of approximately $2.1 million from an unrelated financing company.

1 unchanged sentence

At the end of the 30-month contractual period, ChaoYang XinMei holds the option to repurchase the production line and related equipment for $14.00.

As of March 31, 2025, $0.3 million is included in “Other long-term liabilities” and $1.1 million is included in “Short-term loans” in our condensed consolidated balance sheets.

As of June 30, 2025, $1.3 million is included in “Short-term loans” in our condensed consolidated balance sheets.

In February 2025, the Company secured a fourteen-month unsecured bank loan totaling $2.7 million at an interest rate of 3.2%.

As of March 31, 2025, $2.6 million is included in “Other long-term liabilities” and $0.1 million is included in “Short-term loans” in our condensed consolidated balance sheets.

As of June 30, 2025, the full amount is included in “Short-term loans” in our condensed consolidated balance sheets.

We believe that we have adequate cash and investments to meet our operating needs and capital expenditures over the next 12 months.

24 unchanged sentences

Off-Balance Sheet Arrangements

As of March 31, 2025, we did not have any off-balance sheet financing arrangements and have never established any special purpose entities as defined under SEC Regulation S-K Item 303(a)(4)(ii).

QUANTITATIVE AND QUALITATIV E DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risk

A significant portion of our business is conducted in currencies other than the U.S.

Foreign exchange losses have had a material adverse effect on our operating results and cash flows in the past and could have a material adverse effect on our operating results and cash flows in the future.

If we do not effectively manage the risks associated with this currency risk, our revenue, cash flows and financial condition could be adversely affected.

During 2024, 2023 and 2022, we recorded a foreign exchange gain of $0.1 million, $0.2 million and $1.6 million, respectively.

We incur foreign currency transaction exchange gains and losses due to operations in general.

In the future we may experience foreign exchange losses on our non-functional currency denominated receivables and payables to the extent that we have not mitigated our exposure.

Foreign exchange losses could have a materially adverse effect on our operating results and cash flows.

Our product sales to Japanese customers are typically invoiced in Japanese yen.

As such, we have foreign exchange exposure on our accounts receivable and on any Japanese yen denominated cash deposits.

To partially protect us against fluctuations in foreign currency resulting from accounts receivable in Japanese yen, starting in 2015, we instituted a foreign currency hedging program.

We place short term hedges that are intended to offset the potential cash exposure related to fluctuations in the exchange rate between the United States dollar and Japanese yen.

We measure the fair value of these hedges at each month end and quarter end using current exchange rates and in accordance with U.S.

At quarter end and year end any foreign currency hedges not settled are netted on the condensed consolidated balance sheet and consolidated balance sheet, respectively, and classified as Level 3 assets and liabilities.

As March 31, 2025 and December 31, 2024, the net change in fair value from the placement of the hedge to settlement at each month end during the quarter had a de minimis impact to the condensed consolidated results.

The functional currency for our foreign operations is the renminbi, the local currency of China, and in the future we may establish short term hedges covering renminbi.

Most of our operations are conducted in China and most of our costs are incurred in Chinese renminbi, which subjects us to fluctuations in the exchange rates between the U.S.

dollar and the Chinese renminbi.

We incur transaction gains or losses resulting from consolidation of expenses incurred in local currencies for our Chinese subsidiaries, as well as in translation of the assets and liabilities at each balance sheet date.

Our financial results could be adversely affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets, including the revaluation by China of the renminbi, and any future adjustments that China may make to its currency such as any move it might make to a managed float system with opportunistic interventions.

We may also experience foreign exchange losses on our non-functional currency denominated receivables and payables.

We currently are using a hedging program to minimize the effects of currency fluctuations relating to the Japanese yen.

While we may apply this program to other currencies, such as the Chinese renminbi, our hedging position is partial and may not exist at all in the future.

It may not succeed in minimizing our foreign currency fluctuation risks.

Our primary objective in holding these instruments is to reduce the volatility of earnings and cash flows associated with changes in foreign currency.

The program is not designated for trading or speculative purposes.

The company may choose not to hedge certain foreign exchange exposures for a variety of reasons, including but not limited to accounting considerations and the prohibitive economic cost of hedging particular exposures.

However, even with our hedging program, we still experience losses on foreign exchange from time to time.

Interest Rate Risk

Cash and restricted cash earning interest and certain variable rate debt instruments are subject to interest rate fluctuations.

The following table sets forth the probable impact of a 10% change in interest rates (in thousands):

Balance as of

Projected Annual

Interest Rate

Cash, restricted cash and cash equivalents

Investments in marketable debt securities

The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk.

Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash, short-term investments, and accounts receivable.

We invest primarily in money market accounts, certificates of deposits, corporate bonds and notes, and government securities.

We are exposed to credit risks in the event of default by the issuers to the extent of the amount recorded on the condensed consolidated balance sheets.

These securities are generally classified as available-for-sale and consequently are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income (loss), net of estimated tax, further reduced by a valuation allowance for expected credit losses, if any.

Our cash and short-term investments and long-term investments are in high-quality instruments placed with major banks and financial institutions and commercial paper.

We have no investments in auction rate securities.

We perform ongoing credit evaluations of our customers’ financial condition, and limit the amount of credit extended when deemed necessary, but generally do not require collateral.

The credit risk in our accounts receivable is mitigated by our credit evaluation process and the broad dispersion of sales transactions.

One customer accounted for more than 10% of our accounts receivable balance as of March 31, 2025 and December 31, 2024, respectively.

Impairment of Equity Investment Risk

As part of our supply chain strategy, we maintain minority investments in privately-held raw material companies located in China either invested directly by us or by one of our supply chain companies in China.

These minority investments are reviewed for other than-temporary declines in value on a quarterly basis.

These investments are classified as other assets in the condensed consolidated balance sheets and accounted for under either the equity or fair value method, depending on whether we have the ability to exercise significant influence over the raw material company’s operations or financial decisions.

We monitor our investments for impairment and record reductions in carrying value when events or changes in circumstances indicate that the carrying value may not be recoverable.

Reasons for other-than-temporary declines in value include whether the related company would have insufficient cash flow to operate for the next twelve months, significant changes in the operating performance and changes in market conditions.

Our minority investments under the equity method as of March 31, 2025 and December 31, 2024 totaled $14.6 million and $14.1 million, respectively.

Our minority investment under the fair value method as of March 31, 2025 and December 31, 2024 totaled $0.6 million and $0.6 million, respectively.

See Note 7 for a discussion on the new fair value method investment.

As of June 30, 2025, we did not have any off-balance sheet financing arrangements and have never established any special purpose entities as defined under SEC Regulation S-K Item 303(a)(4)(ii).

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements