What changed in this filing

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Item 1A. Risk Factors

2024-08-09 compared with 2024-05-10 · 51 added, 48 removed, 764 unchanged (11% of the section changed)

9 unchanged sentences

● The PRC central government may intervene in or influence our PRC operations at any time and the rules and regulations in China can change quickly with little advance notice.

● Although the audit report included in this Annual Report is prepared by an independent registered public accounting firm who is currently inspected fully by the Public Company Accounting Oversight Board (the “PCAOB”), there is no guarantee that future audit reports will be prepared by an independent registered public accounting firm that is completely inspected by the PCAOB.

● Although the audit report included in our 2023 Annual Report was prepared by an independent registered public accounting firm who is currently inspected fully by the Public Company Accounting Oversight Board (the “PCAOB”), there is no guarantee that future audit reports will be prepared by an independent registered public accounting firm that is completely inspected by the PCAOB.

● Our NASDAQ stock price is volatile and our stock price could decline.

2 unchanged sentences

Lack of supply of current vaccines and resistance by some to be vaccinated could prolong COVID-19.

● We face litigation and legal proceedings which could adversely affect our business, financial condition, results of operations or cash flows.

● Global economic and political conditions, including trade tariffs, import-export restrictions, and other restrictions, may have a negative impact on our business and financial results.

29 unchanged sentences

SOI technology uses a silicon-insulator-silicon layered substrate in place of conventional silicon substrates in semiconductor manufacturing.

SOI substrates cost less than GaAs substrates and, although their performance is not as robust as GaAs substrates in terms of power consumption, heat generation and speed, they became acceptable in mobile phones and other applications that were previously dominated by GaAs substrates.

SOI substrates cost less than GaAs substrates and, although their performance is not as robust as GaAs substrates in

terms of power consumption, heat generation and speed, they became acceptable in mobile phones and other applications that were previously dominated by GaAs substrates.

The adoption of SOI resulted in decreased GaAs wafer demand, and decreased revenue.

25 unchanged sentences

If we receive fewer customer orders than forecasted or if our customers delay or cancel orders, we may not be able to reduce our manufacturing costs in the short-term and our gross margins would be negatively affected.

In addition, lead times required by our customers are shrinking, which reduces our ability to forecast orders and properly balance our capacity utilization.

lead times required by our customers are shrinking, which reduces our ability to forecast orders and properly balance our capacity utilization.

Global economic and political conditions, including trade tariffs, import-export restrictions, and other restrictions, may have a negative impact on our business and financial results.

3 unchanged sentences

Approximately 5% of our revenue derives from importing our wafers into the United States.

In the first quarter of 2024 we paid approximately $65,000 in tariffs.

In the first half of 2024 we paid approximately $197,000 in tariffs.

In the years ended December 31, 2023, 2022 and 2021 we paid approximately $1.0 million, $3.3 million and $1.3 million, respectively, in tariffs.

4 unchanged sentences

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.

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.

These factors could negatively impact our sales in China.

23 unchanged sentences

If there is a renewed surge of the COVID-19 pandemic in cities in which our PRC subsidiaries and PRC joint ventures are located, the Chinese government may require these companies to close again.

If one or more of our key suppliers is required to close for an extended period, we might not have enough raw material inventories to continue manufacturing operations.

If one or more of our key suppliers is required to close for an

extended period, we might not have enough raw material inventories to continue manufacturing operations.

In addition, travel restrictions between China and the U.S.

27 unchanged sentences

We purchase a portion of the materials produced by these companies for our use and they sell the remainder of their production to third parties.

We consolidate the companies in which we have a majority or controlling financial interest and employ equity accounting for the companies in which we have a smaller ownership interest.

We consolidate the companies in which we have a majority or controlling financial interest and employ equity accounting for the companies in which we have a smaller ownership

Several of these companies occupy space within larger facilities owned and/or operated by one of the other investment partners.

29 unchanged sentences

To reduce air pollution in Beijing, the Chinese government has sometimes limited the construction of new, or expansion of existing, facilities by manufacturing companies in the Beijing area or required mandatory factory shutdowns.

For example, in the first quarter of 2018, over 300 manufacturing companies, including Tongmei, were intermittently shut down by the local government for a total of ten days from February 27 to March 31 due to severe air pollution.

example, in the first quarter of 2018, over 300 manufacturing companies, including Tongmei, were intermittently shut down by the local government for a total of ten days from February 27 to March 31 due to severe air pollution.

If the government applies restrictions to us or requires mandatory factory shutdowns in the future, then such restrictions or shutdowns could have an adverse impact on our results of operations and our financial condition.

12 unchanged sentences

Production of the intended product was scheduled to begin in 2025.

While there may be other end users, this particular cancellation is

the loss of a potentially high-volume sales opportunity.

While there may be other end users, this particular cancellation is the loss of a potentially high-volume sales opportunity.

Other factors affecting the ability of the manufacturers downstream in our supply chain to introduce and market their products successfully, include:

15 unchanged sentences

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

Our financial performance can be hurt if there are unfavorable financial results in any of our raw material companies.

Our financial performance can be adversely affected if there are unfavorable financial results in any of our raw material companies.

The raw material companies in our vertically integrated supply chain have historically made a positive contribution to our financial performance.

20 unchanged sentences

Further, recent trade tensions between China and the United States have resulted in a greater determination within China to be self-sufficient and produce more goods domestically.

This could result in the formation of new competitors that would compete against the Company and adversely affect our financial results.

This could result in the formation of new competitors that would compete against us and adversely affect our financial results.

Cyber-attacks, system security risks and data protection issues could disrupt our internal operations and cause a reduction in revenue, increase in expenses, negatively impact our results of operation or result in other adverse consequences.

2 unchanged sentences

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 and demand a ransom payment.

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.

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.

8 unchanged sentences

Since the market for our products is characterized by declining average selling prices resulting from various factors, such as increased competition, overcapacity, the introduction of new products and decreased sales of products incorporating our products, the average selling prices for our products may decline over relatively short time periods.

have in the past experienced, and in the future may experience, substantial period-to-period fluctuations in operating results due to declining average selling prices.

We have in the past experienced, and in the future may experience, substantial period-to-period fluctuations in operating results due to declining average selling prices.

In certain years, we have experienced an average selling price decline of our substrate selling prices of approximately 5% to 10%, depending on the substrate product.

43 unchanged sentences

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.

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.

11 unchanged sentences

A downturn can result in lower unit volumes and rapid erosion of average selling prices.

The semiconductor

industry has experienced significant downturns, often in connection with, or in anticipation of, maturing product cycles of both semiconductor companies’ and their customers’ products or a decline in general economic conditions.

The semiconductor industry has experienced significant downturns, often in connection with, or in anticipation of, maturing product cycles of both semiconductor companies’ and their customers’ products or a decline in general economic conditions.

This may adversely affect our results of operations and the value of our business.

17 unchanged sentences

Actions to reduce our costs may be insufficient to align our structure with prevailing business conditions.

We may be required to undertake additional cost-cutting measures, and may be unable to invest in marketing, research and development and engineering at the levels we believe are necessary to maintain our competitive position.

We may be required to undertake additional cost-cutting measures, and may be unable to invest in marketing, research and development and engineering at

the levels we believe are necessary to maintain our competitive position.

Our failure to make these investments could seriously harm our business.

11 unchanged sentences

Further, the costs involved in researching, developing and engineering new products could be greater than anticipated.

If we fail to offer new products

or product enhancements or fail to achieve higher quality products, we may not generate sufficient revenue to offset our development costs and other expenses or meet our customers’ requirements.

If we fail to offer new products or product enhancements or fail to achieve higher quality products, we may not generate sufficient revenue to offset our development costs and other expenses or meet our customers’ requirements.

We purchase critical raw materials and parts for our equipment from single or limited sources, and could lose sales if these sources fail to fill our needs.

22 unchanged sentences

We compete for qualified management and other personnel with other specialty material companies and semiconductor companies.

Our employees could leave the Company with little or no prior notice and would be free to work for a competitor.

Our employees could leave with little or no prior notice and would be free to work for a competitor.

If one or more of our senior executives or other key personnel were unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all, and other senior management may be required to divert attention from other aspects of the business.

2 unchanged sentences

We must manage our inventory of raw materials, work in process and finished goods effectively to meet changing customer requirements, while keeping inventory costs down and improving gross margins.

Although we seek

to maintain sufficient inventory levels of certain materials to guard against interruptions in supply and to meet our near term needs, we may experience shortages of certain key materials.

Although we seek to maintain sufficient inventory levels of certain materials to guard against interruptions in supply and to meet our near term needs, we may experience shortages of certain key materials.

Alternatively, a sudden decline in demand could result in holding too much inventory which occurred in the second half of 2022.

29 unchanged sentences

However, in the event that we inadvertently concluded that such permission or approvals are not required or applicable laws, regulations, or interpretations change and we are required to obtain such permissions or approvals in the future and we fail to obtain such permissions or approvals, then we may not be able to complete a public offering of securities in the U.S.

We may also be pressured to delist our

securities, which would force the holders to sell these securities and could result in a material adverse effect on the value of these securities.

We may also be pressured to delist our securities, which would force the holders to sell these securities and could result in a material adverse effect on the value of these securities.

We may face sanctions by the CSRC or other PRC central government authorities or pressure from the PRC government in various business matters for failure to obtain such permissions or approvals.

21 unchanged sentences

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

In the first quarter of 2024 we paid approximately $ 65 ,000 in tariffs.

In the first half of 2024 we paid approximately $ 197 ,000 in tariffs.

In the years 2023, 2022 and 2021, we paid approximately $1.0 million, $3.3 million and $1.3 million, respectively, in tariffs.

13 unchanged sentences

These VATs will continue to negatively impact our gross margins for the future quarters.

Given the relatively fluid regulatory environment in China and the United States, there could be additional tax or other regulatory changes in the future.

Given the relatively fluid regulatory environment in China and the United States, there could be

additional tax or other regulatory changes in the future.

Any such changes could directly and materially adversely impact our financial results and general business condition.

22 unchanged sentences

In days of severe air pollution the government has ordered manufacturing companies to stop all production.

For example, in the first quarter of 2018, from February 27 to March 31, over 300 manufacturing

companies, including us, were again intermittently shut down by the local government for a total of ten days due to severe air pollution.

For example, in the first quarter of 2018, from February 27 to March 31, over 300 manufacturing companies, including us, were again intermittently shut down by the local government for a total of ten days due to severe air pollution.

Our shipments were delayed and our revenue for the quarter was negatively impacted.

9 unchanged sentences

and China, and U.S.

bank failures in 2023, among other factors, are creating an unstable environment and can disrupt or restrict commerce.

bank failures in 2023, among other factors, are creating an unstable environment

and can disrupt or restrict commerce.

Although we remain well-capitalized, the cost and availability of funds may be adversely affected by illiquid credit markets.

19 unchanged sentences

The PRC central government may also exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result in a material change in our operations and/or the value of our common stock.

The PRC central government may also seek to significantly limit or completely hinder our ability to offer

or continue to offer our securities to investors and cause the value of such securities to significantly decline or be worthless.

The PRC central government may also seek to significantly limit or completely hinder our ability to offer or continue to offer our securities to investors and cause the value of such securities to significantly decline or be worthless.

Our international operations are exposed to potential adverse tax consequence in China.

27 unchanged sentences

Approximately 95% of our revenue is from international sales.

We expect that sales to customers outside the United States, particularly sales to customers in Japan, Taiwan, Europe and China, will continue to represent a

significant portion of our revenue.

We expect that sales to customers outside the United States, particularly sales to customers in Japan, Taiwan, Europe and China, will continue to represent a significant portion of our revenue.

Therefore, our revenue growth depends significantly on the expansion of our international sales and operations.

68 unchanged sentences

As a result, our revenue could be adversely impacted, and our relationships with our customers could suffer, impacting our ability to generate future revenue.

In addition, if power is shut off at any of our facilities at any time, either voluntarily or as a result of unplanned brownouts, during certain phases of our manufacturing process including our crystal growth phase, the work in process may be ruined and rendered unusable, causing us to incur costs that will not be covered by revenue, and negatively impacting our cost of revenue and gross margins.

In addition, if

power is shut off at any of our facilities at any time, either voluntarily or as a result of unplanned brownouts, during certain phases of our manufacturing process including our crystal growth phase, the work in process may be ruined and rendered unusable, causing us to incur costs that will not be covered by revenue, and negatively impacting our cost of revenue and gross margins.

Although the audit report is prepared by an independent registered public accounting firm who is currently inspected fully by the PCAOB, there is no guarantee that future audit reports will be prepared by an independent registered public accounting firm that is completely inspected by the PCAOB.

16 unchanged sentences

On May 20, 2020, the U.S.

Senate passed the HFCA Act, which includes requirements

for the SEC to identify issuers whose audit work is performed by independent registered public accounting firms that the PCAOB is unable to inspect or investigate completely because of a restriction imposed by a non-U.S.

Senate passed the HFCA Act, which includes requirements for the SEC to identify issuers whose audit work is performed by independent registered public accounting firms that the PCAOB is unable to inspect or investigate completely because of a restriction imposed by a non-U.S.

authority in the independent registered public accounting firms’ local jurisdiction.

12 unchanged sentences

stock exchanges if we are determined to be a Commission-Identified Issuer for three consecutive years, and this ultimately could result in our common stock being delisted.

Furthermore, on June 22, 2021, the U.S.

Furthermore, on

June 22, 2021, the U.S.

Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S.

15 unchanged sentences

Delisting of our common stock would force holders of our common stock to sell their shares.

The market price of our common stock could be adversely affected as a

result of anticipated negative impacts of these executive or legislative actions upon, as well as negative investor sentiment towards, companies with operations in China that are listed in the United States, regardless of whether these executive or legislative actions are implemented and regardless of our actual operating performance.

The market price of our common stock could be adversely affected as a result of anticipated negative impacts of these executive or legislative actions upon, as well as negative investor sentiment towards, companies with operations in China that are listed in the United States, regardless of whether these executive or legislative actions are implemented and regardless of our actual operating performance.

Risks Related to Our Financial Results and Capital Structure

73 unchanged sentences

Similar rules may apply under state tax laws.

We might have undergone prior ownership changes, and we may undergo ownership changes in the future, which may result in

limitations on our net operating loss carryforwards and other tax attributes.

We might have undergone prior ownership changes, and we may undergo ownership changes in the future, which may result in limitations on our net operating loss carryforwards and other tax attributes.

Any such limitations on our ability to use our net operating loss carryforwards and other tax attributes could adversely impact our business, financial condition and results of operations.

9 unchanged sentences

We rely on a combination of patents, copyrights, trademarks, trade secrets and trade secret laws, non-disclosure agreements and other intellectual property protection methods to protect our proprietary technology.

We believe that our internal, non-patented proprietary process technology methods, systems and processes are a valuable and critical element of our intellectual property.

We believe that our

internal, non-patented proprietary process technology methods, systems and processes are a valuable and critical element of our intellectual property.

We must establish and maintain safeguards to avoid the theft of these processes.

27 unchanged sentences

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 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.

We face litigation and legal proceedings which could adversely affect our business, financial condition, results of operations or cash flows.

We are subject to lawsuits, investigations and claims covering a wide range of matters.

We are currently the subject of complaints alleging violations of various laws, including but not limited to federal securities laws, including a shareholder class action, described under the “Legal Proceedings” elsewhere in this report, and in the future could be subject to other proceedings.

This litigation and any other regulatory proceedings or actions may be time consuming, could cause us to incur significant defense costs, and could damage our reputation or adversely affect our stock price.

In the event that there is an adverse ruling in any legal or regulatory proceeding or action, we may be required to make payments to third parties that could have a material adverse effect on our business, financial condition, results of operations or cash flows.

We could be subject to suits for personal injuries caused by hazardous materials.

11 unchanged sentences

(1) we fail to maintain effective internal control over financial reporting;

or (2) our management does not timely assess the adequacy

of such internal control, we could be subject to regulatory sanctions and the public’s perception of us may be adversely impacted.

or (2) our management does not timely assess the adequacy of such internal control, we could be subject to regulatory sanctions and the public’s perception of us may be adversely impacted.

We need to continue to improve or implement our systems, procedures and controls.

3 unchanged sentences

Unregistered Sales of Equity Securitie s and Use of Proceeds

Not applicable.

Defaults upon Senior Securities

2 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