What changed in this filing

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Item 1. Business

2025-03-14 compared with 2024-03-15 · 71 added, 65 removed, 493 unchanged (22% of the section changed)

17 unchanged sentences

We believe the growth of AI applications will increase the need for high-speed data transfer which may lead to an increase in InP substrate demand from such data centers.

Currently, InP substrates are being used in certain consumer products, including proximity sensors in mobile devices, biometric wearables and other health monitoring applications.

In recent years, InP demand has increased.

Currently, InP substrates are being used in certain consumer products, including proximity sensors and other sensors in mobile devices.

Semi-insulating GaAs substrates are used to create various high-speed microwave components, including power amplifier chips used in cell phones, satellite communications and broadcast television applications.

15 unchanged sentences

• Data center connectivity using light/lasers

• High-speed data transfer in data centers to support AI applications

• High-speed data transfer in data centers

2”, 3”, 4”, 6”

• 5G communications

75 unchanged sentences

Our indium phosphide manufacturing line, as well as various administrative and sales functions, remain primarily at our original site.

Begun in 2017, the relocation of our gallium arsenide production lines is now completed.

Our PRC subsidiary, Baoding Tongmei Xtal Technology Co., Ltd.

(“Baoding Tongmei”), entered into volume production in 2020.

To mitigate our risks and maintain our production schedule, we moved our gallium arsenide equipment in stages.

By December 31, 2019, we had ceased all crystal growth for gallium arsenide in our original manufacturing facility in Beijing and transferred 100% of our ingot production to the new manufacturing facility of our PRC subsidiary, ChaoYang Tongmei Xtal Technology Co., Ltd., (“ChaoYang Tongmei”), in Kazuo, a city approximately 250 miles from Beijing.

We transferred our wafer processing equipment for gallium arsenide to Baoding Tongmei’s new manufacturing facility in Dingxing, a city approximately 75 miles from Beijing.

These new facilities enabled us to expand capacity and upgrade some of the equipment.

In 2021 and 2022, we added additional equipment, including certain more advanced equipment.

We have also invested in additional buildings to complement the initial construction and add capacity as needed.

Our PRC subsidiaries also acquired sufficient land to enable them to add facilities, if needed in the future.

We believe our success in the relocation and our ability to add capacity in the future gives us competitive advantages.

In addition, a new level of technological sophistication in our manufacturing capabilities is enabling us to support the major trends that we believe are likely to drive demand for our products in the years ahead.

New customer qualifications and expanding capacity as needed require us to continue to diligently address the many details that arise at each of our sites.

6 unchanged sentences

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.

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.

32 unchanged sentences

The new list added gallium arsenide.

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

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.

In September 2018, the Trump Administration announced a list of thousands of categories of goods that became subject to tariffs when imported into the United States.

This pronouncement imposed tariffs on the wafer substrates we imported into the United States.

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 and we expect the volume to increase.

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

The future impact of tariffs and trade wars is uncertain.

Effective as of August 1, 2023, the PRC government instituted a requirement for export licenses for gallium and germanium-related materials and the derivative products using these materials.

Tongmei is required to apply for export licenses for gallium arsenide and germanium wafer substrates and each application must state the end use of the product exported.

These regulations have required a new level of administration by Tongmei.

In some cases, the PRC government has not issued the requisite licenses and our shipments have been delayed.

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.

This pronouncement imposed tariffs on wafer substrates we imported into the United States.

The initial tariff rate was 25%.

On July 3, 2023, China announced new export control regulations on materials including gallium and germanium and compounds of these materials, effective as of August 1, 2023.

Materials that could be used in military applications, specifically including weapons of mass destruction, were the primary focus.

This required Tongmei to seek permits from the applicable Chinese authorities to export gallium arsenide and germanium substrates.

Since that time, a general escalation has been underway with further increases to the tariffs from the US and additional export controls from China.

In late 2024 and early 2025, a new round of trade restrictions was announced by China and the United States.

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.

The effective date was December 3, 2024, the same day as the announcement itself.

Reciprocally, the United States increased tariffs on many items from China from 25% to 50%, effective January 1, 2025.

On February 1, 2025, the United States again further increased the tariff on imports of many products from China, including our wafer substrates, to 60%.

On March 4, 2025, the United States further increased the tariff on imports of many products, including our wafer substrates, to 70%.

We have little or no germanium exports to the U.S.

and historically a relatively small value of imports of gallium arsenide wafers into the U.S.

Our primary revenue generator derived from imports into the U.S.

is indium phosphide substrates.

While Tongmei has generally received the required permits for exports to countries in Asia and Europe, our U.S.

gallium arsenide customers are considered “dual use” customers:

in addition to commercial applications they have significant levels of military involvement.

As such, no permits for gallium arsenide to the U.S.

have yet been approved.

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.

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.

But since the requirement is new it will take at least several months from February 4, 2025 to have early applications processed.

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

6 unchanged sentences

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

For the years ended December 31, 2023, 2022 and 2021, 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 $4.3 million, $2.9 million and $774,000, respectively.

For years ended December 31, 2023 and 2022, the aggregate dividends paid to minority shareholders by our PRC subsidiaries and PRC raw material joint ventures were approximately $0 and $0, respectively.

For the years ended December 31, 2024, 2023 and 2022, 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, $4.3 million and $2.9 million, respectively.

For years ended December 31, 2024 and 2023, no dividends were paid to minority shareholders by our PRC subsidiaries and PRC raw material joint ventures.

In the year ended December 31, 2024, we continued the settlement of amounts owed under our transfer pricing arrangements in the ordinary course of business.

3 unchanged sentences

We have cash management policies that dictate the amount of such funding.

We are subject to a number of unique legal and operational risks associated with our corporate structure, any of which could result in a material change in our operations and/or the value of our common stock or cause the value of such securities to significantly decline or be worthless.

such securities to significantly decline or be worthless.

Please carefully read the “Risk Factors” in this Annual Report on Form 10-K in Item 1A below, including Category III, “Risks Related to International Aspects of Our Business”.

24 unchanged sentences

On December 15, 2022, the PCAOB vacated its 2021 determinations that the positions taken by authorities in the PRC and Hong Kong prevented it from inspecting and investigating completely registered public accounting firms headquartered in those jurisdictions.

See “Although the audit report is prepared by an independent registered public accounting firm that 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” under the section entitled “Risk Factors” in Item 1A below for further information on risks related to our foreign operations and dependence.

See “Although the audit report is prepared by an independent registered public accounting firm that 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” under the section entitled “Risk Factors” in Item 1A below for further information on risks related to our foreign operations and dependence.

We were incorporated in California in December 1986 and reincorporated in Delaware in May 1998.

20 unchanged sentences

We believe the growth of AI applications will increase the need for high speed data transfer, which may lead to an increase in InP substrate demand from such data centers.

Currently, InP substrates are being used in certain consumer products, including proximity sensors in mobile devices, biometric wearables and other health monitoring applications.

In recent years, InP demand has increased.

Currently, InP substrates are being used in certain consumer products, including proximity sensors and other sensors in mobile devices.

13 unchanged sentences

Also, one of our largest data center upgrade customers works closely with us as a partner.

Our advantages increase with larger diameters, which the industry is starting to demand, and we believe our superior technology will converge with new demands from data centers that are driven by AI applications, additional consumer application wins and other data center and 5G/telecom applications .

Our advantages increase with

larger diameters, which the industry is starting to demand, and we believe our superior technology will converge with new demands from data centers that are driven by AI applications, additional consumer application wins and other data center and 5G/telecom applications .

● New facilities, equipment and added capacity .

18 unchanged sentences

In our industry, the single crystal growth process and the wafer manufacturing process incorporate proprietary process technology.

We have a substantial body of proprietary process technology and we believe this gives us a competitive advantage, especially in InP.

Tongmei has a substantial body of proprietary process technology and we believe this gives us a competitive advantage, especially in InP.

This also creates a barrier to entry.

7 unchanged sentences

We intend to promote our capabilities as we believe we provide “best in class” InP wafers.

On the horizon, AI will use InP for high-speed data transmission.

AI will use InP for high-speed data transmission.

Other applications could include driverless cars, 5G in cell phones and health and well-being biometric wearables.

2 unchanged sentences

We intend to promote our technological strengths by showcasing our success in developing larger diameter wafers.

Our 8-inch GaAs product has crossed several milestones and is now shipping in small quantities.

The InP development will initially target a consumer market.

Our 8-inch GaAs product has

crossed several milestones and is now shipping in small quantities.

Our 6-inch InP is now desired by some key customers .

● Expand our recycling program.

29 unchanged sentences

Depending on physical properties of the materials in a wafer, the performance of devices and circuits can be remarkably different.

AXT uses its proprietary vertical gradient freeze (VGF) technology for growing single crystal Indium Phosphide (InP), Gallium Arsenide (GaAs) and Germanium (Ge) ingots.

Tongmei uses its proprietary vertical gradient freeze (VGF) technology for growing single crystal Indium Phosphide (InP), Gallium Arsenide (GaAs) and Germanium (Ge) ingots.

After growing the crystalline ingot, the ingot is then sliced into individual substrates or wafers.

2 unchanged sentences

We do not grow the epitaxial layer.

We sell the majority of our substrates to companies that specialize

in applying the epitaxial layer.

We sell the majority of our substrates to companies that specialize in applying the epitaxial layer.

Our wafers are then used to produce state-of-the-art electronic circuits and opto-electronic devices.

6 unchanged sentences

InP crystal growth relies on extreme pressure within the crucible.

As such it requires not only temperature control methodologies, but also pressure control and stabilization process methodologies, many of which AXT considers proprietary trade secrets.

As such it requires not only temperature control methodologies, but also pressure control and stabilization process methodologies, many of which we consider proprietary trade secrets.

It is this combination of variables and the required methods to control them that create a barrier to entry.

8 unchanged sentences

Certain micro devices, such as GaAs industrial lasers, require wafers with very low EPD.

AXT considers the process technology we use to achieve low EPD as proprietary process technology and we believe we are one of only a few substrate manufacturing companies that can produce low EPD wafers.

We consider the process technology used by Tongmei to achieve low EPD as proprietary process technology and we believe we are one of only a few substrate manufacturing companies that can produce low EPD wafers.

We have two product lines:

2 unchanged sentences

Through our consolidated subsidiaries in our supply chain, we also sell certain raw materials.

InP is a high-performance semiconductor substrate used in fiber optic lasers and detectors, passive optical networks (PONs), telecommunication, 5G infrastructure, metro and data center connectivity, silicon photonics data center upgrades, photonic ICs (PICs), terrestrial solar cell (CPV), lasers, RF amplifiers, infrared motion control and infrared thermal imaging.

On the horizon, we believe InP wafers will be used in artificial intelligence hardware architecture for high-speed data transmission.

InP is a high-performance semiconductor substrate used in fiber optic lasers and detectors, passive optical networks (PONs), telecommunication, 5G infrastructure, connectivity in data centers including metro, hyperscale and artificial intelligence, silicon photonics data center upgrades, photonic ICs (PICs), terrestrial solar cell (CPV), lasers, RF amplifiers, infrared motion control and infrared thermal imaging.

We make semi-insulating GaAs substrates used in making semiconductor chips in applications such as power amplifiers for wireless devices and high-performance transistors.

Our semi-conducting GaAs substrates are used to create opto-electronic products, which include High Brightness LEDs that are often used to backlight wireless handsets and LCD TVs and for automotive, signage, display and lighting applications, as well as high power industrial lasers for material processing (welding, cutting, drilling, soldering, marking and surface modification).

Our semi-conducting GaAs substrates can be used to make micro-LEDs for advanced screen technologies and to create opto-electronic products for 3-D facial recognition sensing using VCSELs.

Our semi-conducting GaAs substrates can also be used to make micro-LEDs for advanced screen technologies and to create opto-electronic products for 3-D facial recognition sensing using VCSELs.

Ge substrates are used in emerging applications, such as triple junction solar cells for space and terrestrial photovoltaic applications and for optical applications.

1 unchanged sentence

Many of our customers require customized specifications, such as special levels of iron or sulfur dopants or a special wafer thickness.

We supply InP substrates in two-, three- and four-inch diameters, and are developing six-inch diameter InP substrates.

We supply Ge substrates in two-, four- and six-inch

We supply InP substrates in two-, three- and four-inch diameters, and are in pilot production and customer qualifications with six-inch diameter InP substrates.

We supply Ge substrates in two-, four- and six-inch diameters.

We supply both semi-insulating and semi-conducting GaAs substrates in one-, two-, three-, four-, five- and six-inch diameters.

2 unchanged sentences

Our consolidated raw material subsidiaries produce and sell certain raw materials, some of which are used in our substrate manufacturing process and some of which are sold to other companies.

One of these consolidated companies produces pBN crucibles and the other consolidated company converts raw gallium to purified gallium and produces InP base material.

One of these consolidated companies produces pBN crucibles and another consolidated company converts raw gallium to purified gallium and produces InP base material.

A third newly formed subsidiary will focus on production and sale of arsenic.

7 unchanged sentences

Product diversity can mitigate some of the down cycles in our market because we are not dependent on a single product or application for revenue.

Before specialty material wafers can be processed in a typical wafer manufacturing facility that constructs the electronic circuit, laser or optical device on a chip, a thin layer of structured chemicals is grown on the surface of the substrate.

Before specialty material wafers can be processed in a typical wafer manufacturing facility that fabricates the electronic circuit, laser or optical device on a chip, a thin layer of structured chemicals is grown on the surface of the substrate.

This is called an epitaxial layer.

6 unchanged sentences

We have at times sold a significant portion of our products in any particular period to a limited number of customers.

No customer represented more than 10% of our revenue for the years ended December 31, 2023 and 2021 and o ne customer, Landmark, represented 15% of our revenue for the year ended December 31, 2022.

No customer represented more than 10% of our revenue for the years ended December 31, 2024 and 2023 and o ne customer represented 15% of our revenue for the year ended December 31, 2022.

Our top five customers, although not the same five customers for each period, represented 30% of our revenue for the year 2024, 25% of our revenue for 2023 and 34% of our revenue for 2022.

3 unchanged sentences

Manufacturing, Raw Materials and Supplies

We manufacture all of our products in China.

All of our products are manufactured in China.

We believe this location generally has favorable costs for facilities and labor compared to the United States or compared to the location of some of our competitors in Japan and Germany.

We use a two-stage wafer manufacturing process.

The first stage deploys our VGF technology for the crystal growth of single element or compound element ingots in diameters currently ranging from one inch to eight inches.

The growth process occurs in high temperature furnaces built using our proprietary designs.

The first stage deploys VGF technology for the crystal growth of single element or compound element ingots in diameters currently ranging from one inch to eight inches.

The growth process occurs in high temperature furnaces built using Tongmei proprietary designs.

Growing the crystalline elements into cylindrical ingots takes a number of days, depending on the material, the diameter and length of the ingot produced.

The crystal growth stage utilizes AXT proprietary process technology.

The second stage includes slicing or

sawing the ingot into wafers or substrates, then processing each substrate to strict specifications, including grinding to reduce the thickness, beveling the edges, and then polishing and cleaning each substrate.

The crystal growth stage utilizes our proprietary process technology.

The second stage includes slicing or sawing the ingot into wafers or substrates, then processing each substrate to strict specifications, including grinding to reduce the thickness, beveling the edges, and then polishing and cleaning each substrate.

Many of the wafer processing steps use chemical baths and properly cleaning the wafer is a critical process.

The wafer processing stage also utilizes AXT proprietary process technology.

The wafer processing stage also utilizes our proprietary process technology.

Wafers from each ingot will include some material that does not meet specifications or quality standards.

5 unchanged sentences

Other key elements are the initial cost of the raw material elements, manufacturing equipment, factory loading, facilities and labor.

Together with certain subsidiaries we have partial ownership of 10 raw material companies in China that form the backbone of our supply chain model.

Together with certain subsidiaries we have partial ownership in over ten raw material companies in China that form the backbone of our supply chain model.

These companies generally provide us with reliable supply, market trend visibility, and shorter lead-times for raw materials central to our manufactured products, including gallium, gallium alloys, indium phosphide poly-crystal, high-purity arsenic, germanium, germanium dioxide, pBN and boron oxide.

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Not only is this beneficial for environmental reasons, it also reduces our total material costs and, ultimately, improves our gross margin.

We have also developed a recycling process for gallium arsenide and expect to deploy it when final permits are issued.

We have also developed a recycling process for gallium arsenide.

Sales and Marketing

26 unchanged sentences

As a manufacturing company, we must constantly improve our manufacturing processes to remain competitive, and our research and development programs must be integrated into our manufacturing lines.

All of our research and development is conducted at our manufacturing facilities and the process technology developed by the China teams over the last 20 years enables us to remain competitive and to provide high-quality wafer substrates to our customers.

All of our research and development is conducted at our manufacturing facilities in China and the process technology developed by the China teams over the last 20 years enables us to remain competitive and to provide high-quality wafer substrates to our customers.

Our China research and development teams must continue to stay close to the manufacturing sites and develop new process steps, features and benefits.

53 unchanged sentences

Furthermore, in aggregate, our consolidated raw material companies have been issued 132 patents in China, including 36 patents issued to JinMei, 80 patents issued to BoYu and 15 patents issued to ChaoYang XinMei High Purity Semiconductor Materials Co., Ltd.

(“ChaoYang XinMei”).

(“ChaoYang XinMei”), and 1 patent issued to ChaoYang ShuoMei High Purity Semiconductor Materials Co., Ltd.

(“ChaoYang ShuoMei”).

In the normal course of business, we periodically receive and make inquiries regarding possible patent infringement.

11 unchanged sentences

In 2017, China increased its focus on environmental concerns which increased pressure on manufacturing companies.

During periods of severe air pollution in Beijing, manufacturing companies, including AXT, may be ordered by the local government to stop production for several days.

For example, in the first quarter of 2018, over 300 manufacturing companies, including AXT, 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.

During periods of severe air pollution in Beijing, manufacturing companies, including Tongmei, may be ordered by the local government to stop production for several days.

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.

Human Capital

22 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-K

Item 1. Business