What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2020-11-06 compared with 2020-08-07 · 36 added, 30 removed, 664 unchanged (9% of the section changed)

6 unchanged sentences

Risks Related to Our General Business

Silicon substrates (wafers) are significantly lower in cost compared to substrates made from specialty materials, and new silicon-based technologies could enable silicon-based substrates to replace specialty material based substrates for certain applications.

Historically silicon wafers or substrates are less expensive than specialty material substrates, such as those that we produce.

133 unchanged sentences

Approximately 10% of our revenue derives from importing our wafers into the United States.

In the six months ended June 30, 2020 we paid approximately $470,000 in tariffs.

In the nine months ended September 30, 2020 we paid approximately $850,000 in tariffs.

In the year 2019, we paid approximately $735,000 in tariffs.

1 unchanged sentence

The economic and political conditions between China and the United States, in our view, create an unstable business environment.

The United States has restricted access by certain Chinese technology companies to items produced domestically and abroad from U.S.

technology and software, which may impact our ability to grow our revenue .

Trade restrictions against China have resulted in a greater determination within China to be self-sufficient and produce more goods domestically.

3 unchanged sentences

Uncertainties in the political, financial and credit markets may cause our customers to postpone deliveries.

The recent outbreak of the COVID-19 virus is an additional cause of uncertainty.

The outbreak of the COVID-19 virus is an additional cause of uncertainty.

Delays in the placement of new orders and extended uncertainties may reduce future sales of our products and services.

3 unchanged sentences

If market conditions deteriorate, we may experience increased collection times and greater write-offs, either of which could have a material adverse effect on our profitability and our cash flow.

Future tightening of credit markets and concerns regarding the availability of credit may make it more difficult for our customers to raise capital, whether debt or equity, to finance their purchases of capital equipment or of the products we sell.

products we sell.

Delays in our customers’ ability to obtain such financing, or the unavailability of such financing, would adversely affect our product sales and revenues and, therefore, harm our business and operating results.

predict the timing, duration of or effect on our business of any future economic downturn or the timing or strength of any subsequent recovery.

We cannot predict the timing, duration of or effect on our business of any future economic downturn or the timing or strength of any subsequent recovery.

If any of our facilities are damaged by occurrences such as fire, explosion, power outage or natural disaster, we might not be able to manufacture our products.

22 unchanged sentences

The slowdown persisted until late in 2017.

This resulted in a slowdown of sales of our InP substrates used in the PON market.

This resulted in a slowdown of sales

of our InP substrates used in the PON market.

We expect similar cycles of strong demand followed by lower demand will occur for various InP, GaAs or Ge substrates in the future.

26 unchanged sentences

In the first quarter of 2019, we incurred an impairment charge of $1.1 million for a germanium materials company in China in which we have a 25% ownership interest, writing down our investment to zero value.

disposal of hazardous chemicals, the operations of that joint venture could be adversely affected and we could be subject to substantial liability for clean-up efforts, personal injury, fines or suspension or termination of our joint venture’s operations.

Further, if any of our joint venture companies or investment partners with which our joint ventures share facilities is deemed to have violated applicable laws, rules or regulations governing the use, storage, discharge or disposal of hazardous chemicals, the operations of that joint venture could be adversely affected and we could be subject to substantial liability for clean-up efforts, personal injury, fines or suspension or termination of our joint venture’s operations.

Employees working for our joint ventures or any of the other investment partners could bring litigation against us as a result of actions taken at the joint venture or investment partner facilities, even though we are not directly controlling those operations.

25 unchanged sentences

Our employees working remotely as a result of the current COVID-19 pandemic increases our vulnerability in this regard.

Computer programmers and hackers also may be able to develop and deploy viruses, worms, and other malicious software programs that attack our information technology infrastructure.

The costs to us to eliminate or alleviate cyber or other security problems, bugs,

viruses, worms, malicious software programs and security vulnerabilities could be significant, and our efforts to address these problems may not be successful and could result in interruptions and delays that may impede our sales, manufacturing, distribution, accounting or other critical functions.

Computer programmers and hackers

also may be able to develop and deploy viruses, worms, and other malicious software programs that attack our information technology infrastructure.

The costs to us to eliminate or alleviate cyber or other security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and our efforts to address these problems may not be successful and could result in interruptions and delays that may impede our sales, manufacturing, distribution, accounting or other critical functions.

Breaches of our security measures could create system disruptions or cause shutdowns or result in the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data about us.

23 unchanged sentences

We may be unable to maintain or increase sales to our customers and sales of our products could decline.

Defects in our products could cause us to incur higher manufacturing costs and suffer product returns and additional service expenses, all of which could adversely impact our operating results.

If new products developed by us contain defects when released, our customers may be dissatisfied and

we may suffer negative publicity or customer claims against us, lose sales or experience delays in market acceptance of our new products.

Defects in our products could cause us to incur higher manufacturing costs and suffer product returns and additional service expenses, all of which could adversely impact our

operating results.

If new products developed by us contain defects when released, our customers may be dissatisfied and we may suffer negative publicity or customer claims against us, lose sales or experience delays in market acceptance of our new products.

Our substrate products have a long qualification cycle that makes it difficult to forecast revenue from new customers or for new products sold to existing customers.

29 unchanged sentences

Our industry has in the past experienced periods of oversupply and that has resulted in significantly reduced prices for compound semiconductor devices and components, including our products, both as a result of general economic changes and overcapacity.

Oversupply causes greater price competition and can cause our revenue, gross margins and net income to decline.

During periods of weak demand, customers typically reduce purchases, delay

delivery of products and/or cancel orders for our products.

Oversupply causes greater price competition and can cause our revenue, gross

margins and net income to decline.

During periods of weak demand, customers typically reduce purchases, delay delivery of products and/or cancel orders for our products.

Order cancellations, reductions in order size or delays in orders could occur and would materially adversely affect our business and results of operations.

81 unchanged sentences

The initial tariff rate was 10% and subsequently was increased to 25%.

Approximately 10% of our revenue derives from importing our wafers into the United States.

For the six months ended June 30, 2020 we paid approximately $470,000 in tariffs.

For the nine months ended September 30, 2020, we paid approximately $850,000 in tariffs.

In the year 2019 we paid approximately $735,000 in tariffs.

2 unchanged sentences

Additionally, the Trump Administration continues to signal that it may alter trade agreements and terms between China and the United States, including limiting trade with China, and may impose additional tariffs on imports from China.

Negotiations between the U.S.

and China could be impacted by the results of the U.S.

presidential election.

It is possible that our business could be adversely impacted by retaliatory trade measures taken by China or other countries in response to existing or future tariffs, which could cause us to raise prices or make changes to our operations, which could materially harm our business, financial condition and results of operations.

The economic and political conditions between China and the United States, in our view, create an unstable business environment.

Trade restrictions against China have resulted in a greater determination within China to be self-

sufficient and produce more goods domestically.

The United States government has restricted access by certain Chinese technology companies to items produced domestically and abroad from U.S.

technology and software, which may impact our ability to grow our revenue .

Trade restrictions against China have resulted in a greater determination within China to be self-sufficient and produce more goods domestically.

Government agencies in China may be encouraging and supporting the founding of new companies, the addition of new products in existing companies and more vertical integration within companies.

26 unchanged sentences

We are subject to the risks arising from adverse changes and uncertainty in domestic and global economies.

Uncertain global economic and political conditions or low or negative growth in China, Europe or the United States, along with volatility in the financial markets, increasing national debt and fiscal concerns in various regions and the adoption and availability of fiscal and monetary stimulus measures to counteract the impact of the COVID-19 pandemic, pose challenges to our industry.

Currently China’s economy is slowing and this could impact our financial performance.

2 unchanged sentences

Volatility in U.S.

and international markets and economies may adversely affect our liquidity, financial condition and profitability.

and international markets and economies may adversely affect our liquidity,

financial condition and profitability.

Another severe or prolonged economic downturn could result in a variety of risks to our business, including:

42 unchanged sentences

For example, in 2017 we incurred a loss of $602,000.

The functional currency of our wholly-owned Chinese subsidiary and our partially-owned joint venture companies is the Chinese renminbi, the local currency.

The functional currency of our wholly-owned Chinese subsidiaries and our partially-owned joint venture companies is the Chinese renminbi, the local currency.

We can incur foreign exchange gains or losses when we pay dollars to one of our China-based companies or a third-party supplier in China.

53 unchanged sentences

To create room and upgrade the district, the city instructed virtually all existing manufacturing companies, including AXT, to relocate all or some of their manufacturing lines.

were instructed to move our gallium arsenide manufacturing.

We were instructed to move our gallium arsenide manufacturing.

For reasons of manufacturing efficiency, we elected to also move our germanium manufacturing line.

27 unchanged sentences

Our liquidity is affected by many factors including among others, the relocation of our gallium arsenide manufacturing operations, the extent to which we pursue ongoing capital expenditures, the build out of the sites at Dingxing and Kazuo, the level of our production, the level of profits or losses, and other factors related to the uncertainties of the industry and global economies.

Our capital expenditures and any negative cash flow effects of these

other factors will draw down our cash reserves, which could adversely affect our financial condition, require us to incur debt, reduce our value and possibly impinge our ability to raise debt and equity funding in the future, at a time when we might need to raise additional cash or elect to raise additional cash.

Our capital expenditures and any negative cash flow effects of these other factors will draw down our cash reserves, which could adversely affect our financial condition, require us to incur debt, reduce our value and possibly impinge our ability to raise debt and equity funding in the future, at a time when we might need to raise additional cash or elect to raise additional cash.

Accordingly, there can be no assurance that events will not require us to seek additional capital or, if required, that such capital would be available on terms acceptable to us, if at all.

72 unchanged sentences

Our competitors may also develop and patent improvements to the VGF technology upon which we rely, and thus may limit any exclusivity we enjoy by virtue of our patents or trade secrets.

It is possible that pending or future United States or foreign patent applications made by us will not be approved, that our issued patents will not protect our intellectual property, or that third parties will challenge our

ownership rights or the validity of our patents.

In addition, the laws of some foreign countries may not protect our proprietary rights to as great an extent as do the laws of the United States and it may be more difficult to monitor the use of our intellectual property.

24 unchanged sentences

As a result of the newly published list, we were instructed to obtain a permit to continue to manufacture our gallium arsenide wafer substrates.

The Beijing municipal authority accepted our permit application in May 2015, but has not yet issued to us the requisite permit while we continue to show good faith in relocating our gallium arsenide production.

The Beijing municipal

authority accepted our permit application in May 2015, but has not yet issued to us the requisite permit while we continue to show good faith in relocating our gallium arsenide production.

If our application is denied in the future before we complete customer qualifications and ramp up wafer processing production, then our gallium arsenide production could be disrupted, which could materially and adversely impact our results of operations and our financial condition.

23 unchanged sentences

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 1A. Risk Factors