7 unchanged sentences
Summary Risk Factors
+Added: ● 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.
● We are subject to a number of unique legal and operational risks associated with our corporate structure.
3 unchanged sentences
Unpredictable fluctuations in our operating results, changes and events in our end markets and global trends cause volatility in our stock price.
−Removed: ● COVID-19 or other contagious diseases may affect our business operations and financial performance.
−Removed: Lack of supply of current vaccines and resistance by some to be vaccinated could prolong COVID-19.
−Removed: ● 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.
+Added: ● We face litigation and legal proceedings which could adversely affect our business, financial condition, results of operations or cash flows.
● Changes in China’s political, social, regulatory or economic environments may affect our financial performance.
1 unchanged sentence
Shutdowns or underutilizing our manufacturing facilities may result in declines in our gross margins.
−Removed: ● Enhanced trade tariffs, import restrictions, export restrictions, Chinese regulations or other trade barriers may materially harm our business.
+Added: ● Escalating trade tariffs, import restrictions, export restrictions, Chinese regulations or other trade barriers may materially harm our business.
● If China places restrictions on freight and transportation routes and on ports of entry and departure this could result in shipping delays or increased costs for shipping.
19 unchanged sentences
Risks Related to Our Business and Operations
+Added: 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.
+Added: 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.
+Added: This pronouncement imposed tariffs on wafer substrates we imported into the United States.
+Added: The initial tariff rate was 25%.
+Added: 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.
+Added: Materials that could be used in military applications, specifically including weapons of mass destruction, were the primary focus.
+Added: This required Tongmei to seek permits from the applicable Chinese authorities to export gallium arsenide and germanium substrates.
+Added: Since that time, a general escalation has been underway with further increases to the tariffs from the US and additional export controls from China.
+Added: The escalating requirements resulted in a new layer of administration within our company.
+Added: Each order needs the customer to certify in writing that our wafer substrates will not be used in military applications and must state the end use of our products.
+Added: This is a labor intensive process and has extended the cycle time in order fulfillment.
+Added: To ensure compliance in trade matters we have consulted with legal experts and incurred additional legal costs.
+Added: The rapid pace of change and new regulations in trade matters results in more internal administrative review and costs.
+Added: In late 2024 and early 2025, a new round of trade restrictions was announced by China and the United States.
+Added: 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.
+Added: The effective date was December 3, 2024, the same day as the announcement itself.
+Added: Reciprocally, the United States increased tariffs on many items from China from 25% to 50%, effective January 1, 2025.
+Added: 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%.
+Added: On March 4, 2025, the United States further increased the tariff on imports of many products, including our wafer substrates, to 70%.
+Added: All of our wafer substrates are manufactured in China and in the years 2024, 2023 and 2022, approximately 8%, 10% and 14% of our revenue, respectively, were generated by sales to customers in North America, primarily in the U.S.
+Added: In the years 2024, 2023 and 2022, we paid approximately $1.0 million, $1.0 million and $3.3 million, respectively, in tariffs.
+Added: The trade and political tensions between China and the U.S.
+Added: remain high and controls on exports and tariffs are changing and fluid.
Silicon substrates (wafers) are significantly lower in cost compared to substrates made from specialty materials, such as those that we produce, and new silicon-based technologies could enable silicon-based substrates to replace specialty material-based substrates for certain applications.
12 unchanged sentences
Our raw material companies experience selling price volatility and purchase price volatility in acquiring base materials.
−Removed: We consolidate the results of two of these raw material companies, and any reduction in their gross margins could have a significant, adverse impact on our overall gross margins.
+Added: We consolidate the results of several of these raw material companies, and any reduction in their gross margins could have a significant, adverse impact on our overall gross margins.
One or more of our companies has in the past sold, and may in the future sell, raw materials at significantly reduced prices in order to gain volume sales or sales to new customers.
9 unchanged sentences
During periods of decreased demand, we have underutilized our manufacturing lines.
−Removed: If we are unable to improve utilization levels at our facilities during periods of decreased demand and correctly manage capacity, the fixed
−Removed: expense levels will have an adverse effect on our business, financial condition and results of operations.
+Added: If we are unable to improve utilization levels at our facilities during periods of decreased demand and correctly manage capacity, the fixed expense levels will have an adverse effect on our business, financial condition and results of operations.
For example, in the three months ended September 30, 2023, our revenue dropped to $17.4 million and our gross margin was only 10.7%.
5 unchanged sentences
In addition, lead times required by our customers are shrinking, which reduces our ability to forecast orders and properly balance our capacity utilization.
−Removed: 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.
−Removed: 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 from China.
−Removed: This pronouncement imposed tariffs on wafer substrates we imported into the United States.
−Removed: The initial tariff rate was 10% and subsequently was increased to 25%.
−Removed: Approximately 10% of our revenue derives from importing our wafers into the United States.
−Removed: 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.
−Removed: The future impact of tariffs and trade wars is uncertain.
−Removed: The economic and political conditions between China and the United States, in our view, create an unstable business environment.
−Removed: The United States has restricted access by certain Chinese technology companies to items produced domestically and abroad from U.S.
−Removed: technology and software, which may impact our ability to grow our revenue.
−Removed: Trade restrictions against China have resulted in a greater determination within China to be self-sufficient and produce more goods domestically.
−Removed: 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.
−Removed: These factors could negatively impact our sales in China.
−Removed: Our operations and financial results depend on worldwide economic and political conditions and their impact on levels of business spending, which has deteriorated significantly in many countries and regions.
−Removed: Uncertainties in the political, financial and credit markets and U.S.
−Removed: financial system may cause our customers to postpone deliveries.
−Removed: The COVID-19 virus remains an additional cause of uncertainty.
−Removed: Additionally, U.S.
−Removed: bank failures may affect our customers.
−Removed: Delays in the placement of new orders and extended uncertainties may reduce future sales of our products and services.
−Removed: The revenue growth and profitability of our business depends on the overall demand for our substrates.
−Removed: Because the end users of our products are primarily large companies whose businesses fluctuate with general economic and business conditions, a softening of demand for products that use our substrates, caused by a weakening economy, may result in decreased revenue.
−Removed: Customers may find themselves facing excess inventory from earlier purchases and may defer or reconsider purchasing products due to the downturn in their business and in the general economy.
−Removed: For example, global business conditions deteriorated in the second half of 2022.
−Removed: In the second quarter of 2022, our revenue totaled $39.5 million.
−Removed: In the fourth quarter of 2022, our revenue declined to $26.8 million and in the third quarter of 2023, our revenue further declined to $17.4 million.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: predict the timing, duration of or effect on our business of any future economic downturn or the timing or strength of any subsequent recovery.
+Added: 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.
+Added: Like most technology companies, we could be targeted in cyber-attacks.
+Added: We face a risk that experienced computer programmers and hackers may be able to penetrate our network security and misappropriate or compromise our confidential and proprietary information, potentially without being detected.
+Added: 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.
+Added: 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.
+Added: 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.
+Added: Cyber-attacks could use fraud, trickery or other forms of deception.
+Added: A cyber-attack could expose us to a risk of loss or misuse of information, result in litigation and potential liability, damage our reputation or otherwise harm our business.
+Added: In addition, the cost and operational consequences of implementing further data protection measures could be significant.
+Added: Portions of our information technology infrastructure might also experience interruptions, delays or cessations of service or produce errors in connection with upgrades, systems integration or migration work that takes place from time to time, which may have a material impact on our business.
+Added: We may not be successful in implementing upgrades, new systems and transitioning data, which could cause business disruptions and be more expensive, time consuming, disruptive and resource-intensive than originally anticipated.
+Added: Such disruptions could adversely impact our ability to fulfill orders and interrupt other processes.
+Added: Delayed sales, lower margins or lost customers could adversely affect our financial results and reputation.
COVID-19 or other contagious diseases may affect our business operations and financial performance.
The spread of COVID-19 impacted our operations and financial performance.
−Removed: The outbreak of COVID has triggered references to the SARS outbreak, which occurred in 2003 and affected our business operations.
+Added: The outbreak of COVID triggered references to the SARS outbreak, which occurred in 2003 and affected our business operations.
Any severe occurrence of an outbreak of a contagious disease such as COVID-19, SARS, Avian Flu or Ebola may cause us or the government to temporarily close our manufacturing operations in China.
In January 2020, virtually all companies in China were ordered to remain closed after the traditional Lunar New Year holiday ended, including our subsidiaries in China.
−Removed: In December 2022, the PRC government ended its zero-COVID policy.
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.
8 unchanged sentences
Our products are manufactured using complex crystal growth and wafer processing technologies, and the number of usable wafer substrates we produce can fluctuate as a result of many factors, including:
−Removed: ● poor control of furnace temperature and pressure;
+Added: ● poor control of furnace temperature and pressure during crystal growth;
● impurities in the materials used;
28 unchanged sentences
Regular use in the normal course of business of hazardous chemicals or hazardous materials or a company’s failure to meet the ever-tightening standards for control of hazardous chemicals or hazardous materials could result in orders to shut down permanently, fines or other severe measures.
−Removed: Any such orders directed at one of our raw material companies could result in impairment charges if the company is forced to close its business, cease operations or incurs fines or operating losses, which would have a material adverse effect on our financial results.
+Added: Any such orders directed at one of our raw material companies could result in impairment charges if the
+Added: company is forced to close its business, cease operations or incurs fines or operating losses, which would have a material adverse effect on our financial results.
Further, some of our raw material companies share facilities with our raw material investment partners.
10 unchanged sentences
Although the relocation is completed and we are in volume production at the new sites, unforeseen manufacturing issues and restrictions at the new sites could occur.
−Removed: Problems could occur as we add capacity or comply
−Removed: with strict guidelines as customers perform their qualifications.
+Added: Problems could occur as we add capacity or comply with strict guidelines as customers perform their qualifications.
All of this will require us to continue to diligently address the many details that arise at each of our new sites.
17 unchanged sentences
Our products are used to produce components for electronic and opto-electronic products.
−Removed: Accordingly, demand for our products is subject to the demand for end-user applications, including certain consumer applications, which utilize our products.
−Removed: For example, we have developed an 8-inch gallium arsenide wafer targeting an application in a consumer product.
−Removed: Our customer recently informed us that its end-user customer has cancelled its project.
−Removed: Production of the intended product was scheduled to begin in 2025.
−Removed: While there may be other end users, this particular cancellation is the loss of a potentially high-volume sales opportunity.
+Added: Accordingly, demand for our products is subject to the demand for end-user applications, including certain consumer applications, which
+Added: utilize our products.
+Added: For example, we developed an 8-inch gallium arsenide wafer targeting an application in a consumer product.
+Added: Our customer subsequently informed us that its end-user customer has cancelled its project.
+Added: Volume production of the intended product was scheduled to begin in 2025.
+Added: While there may be other end users, this particular cancellation was 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:
7 unchanged sentences
For example, during 2019 widespread political and economic instability and trade war concerns resulted in a general slowdown and our revenue decreased significantly.
−Removed: Additionally, in the second half of 2016, manufacturers producing and selling passive optical network devices known as EPONs and GPONs experienced a slowdown in
−Removed: demand resulting in surplus inventory on hand.
+Added: Additionally, in the second half of 2016, manufacturers producing and selling passive optical network devices known as EPONs and GPONs experienced a slowdown in demand resulting in surplus inventory on hand.
The slowdown persisted until late in 2017.
This resulted in a slowdown of sales of our InP substrates used in the PON market.
−Removed: More recently, global business conditions deteriorated, beginning in the second half of 2022.
−Removed: In general, many companies purchased more inventory than needed, in part due to fears of shortages resulting from COVID.
−Removed: In the second quarter of 2022, our revenue totaled $39.5 million.
−Removed: In the fourth quarter of 2022 our revenue declined to $26.8 million, in the second quarter of 2023, our revenue declined to $18.6 million and in the third quarter of 2023, our revenue further declined to $17.4 million.
−Removed: We expect similar cycles of strong demand followed by lower demand will occur for various InP, GaAs or Ge substrates in the future.
−Removed: Our financial performance can be hurt if there are unfavorable financial results in any of our raw material companies.
+Added: In the second half of 2022, many companies purchased more inventory than needed, in part due to fears of shortages resulting from COVID.
+Added: This triggered an inventory correction cycle and our revenue declined as customers worked down their inventory level, We expect similar cycles of strong demand followed by lower demand will occur for various InP, GaAs or Ge substrates in the future.
+Added: 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.
2 unchanged sentences
In 2024 and 2023, the companies accounted for under the equity method of accounting contributed a gain of $3.4 million and $1.9 million, respectively, to our consolidated financial statements.
−Removed: In 2023, the total includes impairment charges of $1.9 million.
+Added: The 2023 total includes impairment charges of $1.9 million.
The last time the companies accounted for under the equity method of accounting contributed a loss was 2019 with a loss of $1.9 million.
2 unchanged sentences
We face competition for our wafer substrate products from other manufacturers of substrates, such as Sumitomo, JX, Freiberger, Umicore, Vital and CCTC, and from companies, such as Qorvo and Skyworks, that are actively considering alternative materials to GaAs and marketing semiconductor devices using these alternative materials.
−Removed: Sumitomo and JX also compete with us in the InP market.
−Removed: If we are unable to compete effectively, our revenue may decrease and we may not maintain profitability.
+Added: If we are unable to compete effectively, our revenue may
+Added: decrease and we may not maintain profitability.
We face many competitors that have a number of significant advantages over us, including:
9 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.
−Removed: This could result in the formation of new competitors that would compete against the Company and adversely affect our financial results.
−Removed: 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.
−Removed: Like most technology companies, we could be targeted in cyber-attacks.
−Removed: We face a risk that experienced computer programmers and hackers may be able to penetrate our network security and misappropriate or compromise our confidential and proprietary information, potentially without being detected.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: Cyber-attacks could use fraud, trickery or other forms of deception.
−Removed: A cyber-attack could expose us to a risk of loss or misuse of information, result in litigation and potential liability, damage our reputation or otherwise harm our business.
−Removed: In addition, the cost and operational consequences of implementing further data protection measures could be significant.
−Removed: Portions of our information technology infrastructure might also experience interruptions, delays or cessations of service or produce errors in connection with systems integration or migration work that takes place from time to time, which may have a material impact on our business.
−Removed: We may not be successful in implementing new systems and transitioning data, which could cause business disruptions and be more expensive, time consuming, disruptive and resource-intensive than originally anticipated.
−Removed: Such disruptions could adversely impact our ability to fulfill orders and interrupt other processes.
−Removed: Delayed sales, lower margins or lost customers could adversely affect our financial results and reputation.
+Added: This could result in the formation of new competitors that would compete against us and adversely affect our financial results.
The average selling prices of our substrates may decline over relatively short periods, which may reduce our revenue and gross margins.
17 unchanged sentences
In addition, customers that have accounted for significant revenue in the past may not continue to generate revenue for us in any future period.
+Added: For example, in 2021 and 2022, our InP wafers were used in a high-volume consumer product.
+Added: Subsequently, a newer version did not use InP and our revenue declined.
Any loss of customers or any delay in scheduled shipments of our products could cause revenue to fall below our expectations and the expectations of market analysts or investors, causing our stock price to decline.
24 unchanged sentences
We have experienced quality control problems with some of our products, which caused customers to return products to us, reduce orders for our products, or both.
−Removed: If we experience quality control problems, or experience other manufacturing problems, customers may return product for credit, cancel or reduce orders or purchase products from our competitors.
+Added: we experience quality control problems, or experience other manufacturing problems, customers may return product for credit, cancel or reduce orders or purchase products from our competitors.
We may be unable to maintain or increase sales to our customers and sales of our products could decline.
16 unchanged sentences
This may adversely affect our results of operations and the value of our business.
−Removed: A recent example of a cyclical downcycle took shape in the second half of 2022 and has continued into 2024.
+Added: A recent example of a cyclical downcycle took shape in the second half of 2022.
Early in its history, COVID began to impact supply chains resulting in shortages.
13 unchanged sentences
During periods of weak demand, customers typically reduce purchases, delay delivery of products and/or cancel orders for our products.
−Removed: Order cancellations, reductions in order size or delays in orders could occur and would materially adversely affect our business and results of operations.
+Added: Order cancellations, reductions in order size or delays in
+Added: orders could occur and would materially adversely affect our business and results of operations.
Actions to reduce our costs may be insufficient to align our structure with prevailing business conditions.
23 unchanged sentences
We might invest in additional joint venture companies in order to remain competitive in our marketplace and ensure a supply of critical raw materials.
−Removed: However, we may not be able to identify additional complementary joint
−Removed: venture opportunities or, even once opportunities are identified, we may not be able to reach agreement on the terms of the business venture with the other investment partners.
+Added: However, we may not be able to identify additional complementary joint venture opportunities or, even once opportunities are identified, we may not be able to reach agreement on the terms of the business venture with the other investment partners.
Further, geopolitical tensions and trade wars could result in government agencies blocking such new joint ventures.
4 unchanged sentences
Subsequent to our fulfilling an order, some customers have been unable to make payments when due, reducing our cash balances and causing us to incur charges to allow for a possibility that some accounts might not be paid.
−Removed: We observed an increase in our accounts receivable in the first quarter of 2020 and believe this has resulted from work stoppages, shelter-in-place orders and general cautiousness due to the COVID-19 pandemic.
In the past, we have had some customers file for bankruptcy.
5 unchanged sentences
We compete for qualified management and other personnel with other specialty material companies and semiconductor companies.
−Removed: Our employees could leave the Company with little or no prior notice and would be free to work for a competitor.
+Added: 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.
17 unchanged sentences
Risks Related to International Aspects of Our Business
+Added: Escalating trade tariffs, import restrictions, export restrictions, Chinese regulations or other trade barriers may materially harm our business.
+Added: 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.
+Added: This pronouncement imposed tariffs on wafer substrates we imported into the United States.
+Added: The initial tariff rate was 25%.
+Added: 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.
+Added: Materials that could be used in military applications, specifically including weapons of mass destruction, were the primary focus.
+Added: This required Tongmei to seek permits from the applicable Chinese authorities to export gallium arsenide and germanium substrates.
+Added: Since that time, a general escalation has been underway with further increases to the tariffs from the US and additional export controls from China.
+Added: The escalating requirements resulted in a new layer of administration within our company.
+Added: Each order needs the customer to certify in writing that our wafer substrates will not be used in military applications and must state the end use of our products.
+Added: This is a labor intensive process and has extended the cycle time in order fulfillment.
+Added: To ensure compliance in trade matters we have consulted with legal experts and incurred additional legal costs.
+Added: The rapid pace of change and new regulations in trade matters results in more internal administrative review and costs.
+Added: In late 2024 and early 2025, a new round of trade restrictions was announced by China and the United States.
+Added: 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.
+Added: The effective date was December 3, 2024, the same day as the announcement itself.
+Added: Reciprocally, the United States increased tariffs on many items from China from 25% to 50%, effective January 1, 2025.
+Added: 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%.
+Added: On March 4, 2025, the United States further increased the tariff on imports of many products, including our wafer substrates, to 70%.
+Added: We have little or no germanium exports to the U.S.
+Added: and historically a relatively small value of imports of gallium arsenide wafers into the U.S.
+Added: Our primary revenue generator derived from imports into the U.S.
+Added: is indium phosphide substrates.
+Added: While Tongmei has generally received the required permits for exports to countries in Asia and Europe, our U.S.
+Added: gallium arsenide customers are considered “dual use” customers:
+Added: in addition to commercial applications they have significant levels of military involvement.
+Added: As such, no permits for gallium arsenide to the U.S.
+Added: have yet been approved.
+Added: On February 4, 2025, China added indium phosphide substrates to its export control list.
+Added: 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.
+Added: 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.
+Added: will be granted.
+Added: But since the requirement is new it will take at least several months from February 4, 2025 to have early applications processed .
+Added: All of our wafer substrates are manufactured in China and in the years 2024, 2023 and 2022, approximately 8%, 10 % and 14% of our revenue, respectively, were generated by sales to customers in North America, primarily in the U.S.
+Added: In the years 2024, 2023 and 2022, we paid approximately $1.0 million, $1.0 million and $3.3 million, respectively, in tariffs.
+Added: The future impact of tariffs and trade wars is uncertain.
+Added: We may be required to raise prices, which may result in the loss of customers and our business, financial condition and results of operations may be materially harmed.
+Added: Additionally, it is possible that our business could be adversely impacted by further 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 .
+Added: The economic and political conditions between China and the United States, in our view, create an unstable business environment.
+Added: Reciprocal trade restrictions have resulted in a greater determination to be self-sufficient and produce more goods domestically.
+Added: Both governments appear to be encouraging and supporting the founding of new companies, the addition of new products in existing companies and more vertical integration within companies.
+Added: The complexity and uncertainty of trade tensions has caused some customers and prospective customers in each county to adopt sourcing policies that block purchases from suppliers in the other county.
+Added: Further, the continued threats of tariffs and other trade restrictions could have a generally disruptive impact on the global economy and, therefore, negatively impact our sales.
+Added: The trade and political tensions between China and the U.S.
+Added: remain high and controls on exports and tariffs are changing and fluid.
+Added: There can be no assurances that Tongmei will receive China permits to export our wafer substrates
+Added: or that China will not adopt additional export control regulations that affect our business, financial condition and results of operations.
+Added: Reciprocally, there can be no assurance that the U.S.
+Added: will allow products to be imported into the U.S.
+Added: from China or what the tariff charge rate might be.
+Added: Changes in China’s political, social, regulatory or economic environments may affect our financial performance.
+Added: Our financial performance may be affected by changes in China’s political, social, regulatory or economic environments.
+Added: The role of the Chinese central and local governments in the Chinese economy is significant.
+Added: The Beijing municipal government’s decision to move to the Tongzhou district, the original location of our China company, resulted in the city instructing virtually all existing manufacturing companies, including AXT, to relocate all or some of their manufacturing lines.
+Added: We were instructed to move our gallium arsenide manufacturing line out of the area.
+Added: Chinese policies toward hazardous materials, including arsenic, environmental controls, air pollution, economic liberalization, laws and policies affecting technology companies, foreign investment, currency exchange rates, taxation structure and other matters could change, resulting in greater restrictions on our ability to do business and operate our manufacturing facilities in China.
+Added: We have observed a growing fluidity and tightening of regulations concerning hazardous materials, other environmental controls and air pollution.
+Added: The Chinese government could revoke, terminate or suspend our operating licenses for reasons related to environmental control over the use of hazardous materials, air pollution, labor complaints, national security and similar reasons without compensation to us.
+Added: Further, the central government encourages employees to report to the appropriate regulatory agencies possible safety or environmental violations, but there may not be actual violations.
+Added: In days of severe air pollution the government has ordered manufacturing companies to stop all production.
+Added: 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.
+Added: Our shipments were delayed and our revenue for the quarter was negatively impacted.
+Added: We expect that mandatory factory shutdowns may occur in the future.
+Added: Any failure on our part to comply with governmental regulations could result in the loss of our ability to manufacture our products.
+Added: Further, any imposition of surcharges or any increase in Chinese tax rates or reduction or elimination of Chinese tax benefits could hurt our financial results.
The Chinese central government is increasingly aware of air pollution and other forms of environmental pollution and their reform efforts can impact our manufacturing, including intermittent mandatory shutdowns.
12 unchanged sentences
We believe that we do not require any permissions or approvals from the CSRC or other PRC central government authorities to complete a public offering of securities in the U.S.
−Removed: because we are a Delaware corporation with our principal corporate office in Fremont, California and the PRC laws and regulations that govern the listing of securities on a U.S.
+Added: because we are a Delaware corporation
+Added: with our principal corporate office in Fremont, California and the PRC laws and regulations that govern the listing of securities on a U.S.
securities exchange apply to PRC companies.
16 unchanged sentences
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.
−Removed: Enhanced trade tariffs, import restrictions, export restrictions, Chinese regulations or other trade barriers may materially harm our business.
−Removed: On July 3, 2023, China adopted new export control regulations on gallium- and germanium-related materials and the derivative products using these materials, effective as of August 1, 2023, which require Tongmei to proceed to immediately seek permits from the applicable Chinese authorities to export gallium arsenide and germanium substrates.
−Removed: Indium phosphide substrates are not included in the new export control regulations, and, therefore, exports of indium phosphide will not require export approvals as part of these regulations.
−Removed: While Tongmei has received its initial China export permits to resume shipping gallium arsenide and germanium substrates to certain customers, there can be no assurances that Tongmei will continue to receive China export permits to resume shipping gallium arsenide and germanium substrates to other customers or that China will not adopt additional export control regulations that affect our business, financial condition and results of operations.
−Removed: All of our wafer substrates are manufactured in China and in the years 2023, 2022 and 2021, approximately 10%, 14% and 10% of our revenue, respectively, were generated by sales to customers in North America, primarily in the U.S.
−Removed: 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 from China.
−Removed: This pronouncement imposed tariffs on wafer substrates we imported into the United States.
−Removed: The initial tariff rate was 10% and subsequently was increased to 25%.
−Removed: In the years 2023, 2022 and 2021, we paid approximately $1.0 million, $3.3 million and $1.3 million, respectively, in tariffs.
−Removed: The future impact of tariffs and trade wars is uncertain.
−Removed: We may be required to raise prices, which may result in the loss of customers and our business, financial condition and results of operations may be materially harmed.
−Removed: Additionally, 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.
−Removed: The economic and political conditions between China and the United States, in our view, create an unstable business environment.
−Removed: The United States government has restricted access by certain Chinese technology companies to items produced domestically and abroad from U.S.
−Removed: technology and software, which may impact our ability to maintain or grow our revenue.
−Removed: Trade restrictions against China have resulted in a greater determination within China to be self-sufficient and produce more goods domestically.
−Removed: 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.
−Removed: These factors have resulted in lower revenue from sales of our wafer substrates in China.
−Removed: Further, the continued threats of tariffs and other trade restrictions could have a generally disruptive impact on the global economy and, therefore, negatively impact our sales.
−Removed: In addition, we may incur increases in costs and other adverse business consequences, including losses of customers and revenue or decreased gross margins, due to changes in tariffs, import or export restrictions, further trade barriers, or unexpected changes in regulatory requirements.
−Removed: In addition, in July 2012, we received notice of retroactive value-added taxes (VATs) levied by the tax authorities in China, which applied for the period from July 1, 2011 to June 30, 2012.
−Removed: We expensed the retroactive VATs of approximately $1.3 million in the quarter ended June 30, 2012, which resulted in a decrease in our gross margins.
−Removed: These VATs will continue to negatively impact our gross margins for the future quarters.
−Removed: Given the relatively fluid regulatory environment in China and the United States, there could be additional tax or other regulatory changes in the future.
−Removed: Any such changes could directly and materially adversely impact our financial results and general business condition.
+Added: Uncertainty regarding the United States’ foreign policy, particularly with regards to China, could disrupt our business.
+Added: We manufacture our substrates in China and, in the year ended December 31, 2024, approximately 92% of our sales were to customers located outside the United States.
+Added: Further, we have partial ownership of raw material companies in China as part of our supply chain.
+Added: The United States’ current foreign policy has created uncertainty and caution in the international business community, resulting in disruptions in manufacturing, import/export, trade tariffs, sales, investments and other business activity.
+Added: Such disruptions have had an adverse impact on our financial performance and could continue in the future.
COVID-19 or other contagious diseases may affect our business operations and financial performance.
The spread of COVID-19 impacted our operations and financial performance.
−Removed: The outbreak of COVID has triggered references to the SARS outbreak, which occurred in 2003 and affected our business operations.
+Added: The outbreak of COVID triggered references to the SARS outbreak, which occurred in 2003 and affected our business operations.
Any severe occurrence of an outbreak of a contagious disease such as COVID-19, SARS, Avian Flu or Ebola may cause us or the government to temporarily close our manufacturing operations in China.
In January 2020, virtually all companies in China were ordered to remain closed after the traditional Lunar New Year holiday ended, including our subsidiaries in China.
−Removed: In December 2022, the PRC government ended its zero-COVID policy.
−Removed: 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.
−Removed: 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.
−Removed: In addition, travel restrictions between China and the U.S.
+Added: If there is a renewed surge of the COVID-19 pandemic or of other contagious diseases in cities in which our PRC subsidiaries and PRC joint ventures are located, the Chinese government may require these companies to close again.
+Added: If one or more of our key suppliers is required to close for an extended period, we might not have enough raw material
+Added: inventories to continue manufacturing operations.
+Added: In addition, during COVID-19, travel restrictions between China and the U.S.
were disrupted and this impacted our efficiency.
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As a result, our revenue would decline.
−Removed: Changes in China’s political, social, regulatory or economic environments may affect our financial performance.
−Removed: Our financial performance may be affected by changes in China’s political, social, regulatory or economic environments.
−Removed: The role of the Chinese central and local governments in the Chinese economy is significant.
−Removed: The Beijing municipal government’s decision to move to the Tongzhou district, the original location of our China company, resulted in the city instructing virtually all existing manufacturing companies, including AXT, to relocate all or some of their manufacturing lines.
−Removed: We were instructed to move our gallium arsenide manufacturing line out of the area.
−Removed: Chinese policies toward hazardous materials, including arsenic, environmental controls, air pollution, economic liberalization, laws and policies affecting technology companies, foreign investment, currency exchange rates, taxation structure and other matters could change, resulting in greater restrictions on our ability to do business and operate our manufacturing facilities in China.
−Removed: We have observed a growing fluidity and tightening of regulations concerning hazardous materials, other environmental controls and air pollution.
−Removed: The Chinese government could revoke, terminate or suspend our operating licenses for reasons related to environmental control over the use of hazardous materials, air pollution, labor complaints, national security and similar reasons without compensation to us.
−Removed: Further, the central government encourages employees to report to the appropriate regulatory agencies possible safety or environmental violations, but there may not be actual violations.
−Removed: In days of severe air pollution the government has ordered manufacturing companies to stop all production.
−Removed: 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.
−Removed: Our shipments were delayed and our revenue for the quarter was negatively impacted.
−Removed: We expect that mandatory factory shutdowns may occur in the future.
−Removed: Any failure on our part to comply with governmental regulations could result in the loss of our ability to manufacture our products.
−Removed: Further, any imposition of surcharges or any increase in Chinese tax rates or reduction or elimination of Chinese tax benefits could hurt our financial results.
Financial market volatility and adverse changes in the domestic, global, political and economic environment could have a significant adverse impact on our business, financial condition and operating results.
−Removed: We are subject to the risks arising from adverse changes and uncertainty in domestic and global economies.
+Added: We are subject to the risks arising from adverse changes and uncertainty in domestic and global economies and policies.
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 and U.S.
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bank failures in 2023, among other factors, are creating an unstable environment and can disrupt or restrict commerce.
−Removed: Although we remain well-capitalized, the cost and availability of funds may be adversely affected by illiquid credit markets.
+Added: The cost and availability of funds may be adversely affected by illiquid credit markets.
Volatility in U.S.
−Removed: and international markets and economies may adversely
−Removed: affect our liquidity, financial condition and profitability.
+Added: 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:
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● impairment of our tangible or intangible assets.
−Removed: A recent example of economic volatility took shape in the second half of 2022 and has continued into 2024.
+Added: A recent example of economic volatility is the impact of COVID.
Early in its history, COVID began to impact supply chains resulting in shortages.
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Our consolidated revenue had reached $39.7 million in the first quarter of 2022.
−Removed: In the third quarter of 2023 our revenue had declined to $17.4 million.
+Added: In the third quarter of 2023 our revenue declined to $17.4 million.
In the fourth quarter of 2018 and continuing in 2019, we experienced delays in customer purchasing decisions and disruptions in a normal volume of customer orders that we believe were in part due to the uncertainties in the global economy, resulting in an adverse impact on consumer spending.
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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.
−Removed: 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.
+Added: The PRC central government may also seek to significantly limit or completely hinder our ability to offer
+Added: 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.
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In addition to risks regarding income tax we have in the past been retroactively assessed value added taxes (“VAT” or “sales tax”) and such VAT assessments could occur again in the future.
−Removed: Uncertainty regarding the United States’ foreign policy, particularly with regards to China, could disrupt our business.
−Removed: We manufacture our substrates in China and, in the twelve months ended December 31, 2023, approximately 90% of our sales were to customers located outside the United States.
−Removed: Further, we have partial ownership of raw material companies in China as part of our supply chain.
−Removed: The United States’ current foreign policy has created uncertainty and caution in the international business community, resulting in disruptions in manufacturing, import/export, trade tariffs, sales, investments and other business activity.
−Removed: Such disruptions have had an adverse impact on our financial performance and could continue in the future.
Dividends from within our corporate structure are subject to PRC withholding tax and SAFE approval.
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We are subject to foreign exchange gains and losses that may materially impact our consolidated statements of operations.
−Removed: For example, in 2023 and 2022, we incurred foreign exchange gains of $169,000 and $1.6 million, respectively and in 2021, we incurred a foreign exchange loss of $434,000.
+Added: For example, in 2024, 2023 and 2022, we incurred foreign exchange gains of $91,000, $169,000 and $1.6 million, respectively.
The functional currency of our companies in China is the Chinese renminbi, the local currency.
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Since our consolidated subsidiaries and all of our joint venture raw material companies operate in China, their activities could subject us to a number of risks associated with conducting operations internationally, including:
+Added: ● the imposition of tariffs, trade barriers, export restrictions and duties;
● import and export restrictions;
● unexpected changes in regulatory requirements that may limit our ability to manufacture, export the products of these companies, sell into particular jurisdictions or impose multiple conflicting tax laws and regulations;
−Removed: ● the imposition of tariffs, trade barriers and duties;
● difficulties in managing geographically disparate operations;
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We manufacture all of our products in China, and source most of our raw materials in China.
−Removed: We have in the past experienced quality problems with our China manufactured products.
−Removed: Our previous quality problems caused us to lose market share to our competitors as some of our customers reduced their orders until our wafer surface quality was as good and as consistent as that offered by our competitors.
+Added: We have in the past experienced quality problems with our products.
+Added: Our previous quality problems caused us to lose market share to our competitors as some of our customers reduced their orders until our wafer surface quality was as good and as
+Added: consistent as that offered by our competitors.
If we are unable to continue to achieve customer qualifications for our products, or if we are unable to control product quality, customers may not increase purchases of our products, our China facilities will become underutilized, and we will be unable to achieve revenue growth.
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We may be unable to manufacture our products and would then be unable to meet customer orders except from finished goods inventory on hand.
−Removed: As a result, our revenue could be adversely impacted,
−Removed: and our relationships with our customers could suffer, impacting our ability to generate future revenue.
+Added: 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.
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Additionally, in July 2020, the U.S.
−Removed: President’s Working Group on Financial Markets issued recommendations for actions that can be taken by the executive branch, the SEC, the PCAOB or other federal agencies and department with respect to Chinese companies listed on U.S.
+Added: President’s Working Group on Financial Markets issued recommendations for actions that can be taken by the
+Added: executive branch, the SEC, the PCAOB or other federal agencies and department with respect to Chinese companies listed on U.S.
stock exchanges and their independent registered public accounting firms, in an effort to protect investors in the United States.
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Under the HFCA Act, our securities may be prohibited from trading on the Nasdaq Global Select Market or other U.S.
−Removed: stock exchanges if we are determined to be a Commission-Identified
−Removed: Issuer for three consecutive years, and this ultimately could result in our common stock being delisted.
+Added: 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.
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● unforeseen disruptions at our new sites;
−Removed: ● disruptions in manufacturing if air pollution, or other environmental hazards, or outbreaks of contagious diseases causes the Chinese government to order work stoppages;
+Added: ● disruptions in manufacturing if air pollution, other environmental hazards, or outbreaks of contagious diseases causes the Chinese government to order work stoppages;
● fluctuation of our manufacturing yields;
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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.
−Removed: We believe that our
−Removed: internal, non-patented proprietary process technology methods, systems and processes are a valuable and critical element of our intellectual property.
+Added: 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.
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These laws and regulations govern the use, storage, discharge and disposal of hazardous materials during manufacturing, research and development, and sales demonstrations.
−Removed: If we, or any of our partially owned supply chain companies, fail to comply with applicable regulations, we could be subject to substantial liability for clean-up efforts, personal injury, fines or suspension or be forced to close or temporarily cease our operations, and/or suspend or terminate the development, manufacture or use of certain of our products, the use of our facilities, or the use of our real property, each of which could have a material adverse effect on our business, financial condition and results of operations.
+Added: If we, or any of our partially owned supply chain companies, fail to comply with applicable regulations, we could be subject to substantial liability for clean-up efforts, personal injury, fines or suspension or be forced to close or temporarily cease our operations, and/or suspend or terminate the development,
+Added: manufacture or use of certain of our products, the use of our facilities, or the use of our real property, each of which could have a material adverse effect on our business, financial condition and results of operations.
The Chinese central government is demonstrating strong leadership to improve air quality and reduce environmental pollution.
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For example, on February 27, 2015, the China State Administration of Work Safety updated its list of hazardous substances.
−Removed: The previous list, which was published in 2002, did not restrict the materials
−Removed: that we use in our wafers.
+Added: 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.
+Added: We face litigation and legal proceedings which could adversely affect our business, financial condition, results of operations or cash flows.
+Added: We are subject to lawsuits, investigations and claims in the normal course of our business, which can be expensive, lengthy, and disruptive to normal business operations.
+Added: As described under the heading in the “Legal Proceedings” section elsewhere in this report, we, along with our Chief Executive Officer, Morris Young, and our Chief Financial Officer, Gary Fischer, are the subject of a complaint alleging violations of federal securities laws.
+Added: Our current and former directors and certain officers, are also the subject of a derivative lawsuit arising from the same allegations.
+Added: In the future, we could be subject to other proceedings.
+Added: This litigation and any other regulatory proceedings or claims may be time consuming, could cause us to incur significant defense costs, are disruptive to our normal business operations, and could damage our reputation or adversely affect our stock price.
+Added: In the event 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.
+Added: Further, if we become involved in other class action litigation in the future, it could result in substantial costs and diversion of our management’s attention and resources, thus harming our business.
+Added: For additional information regarding certain of the matters in which we are involved, see Item 3, “Legal Proceedings,” contained in Part I of this report.
We could be subject to suits for personal injuries caused by hazardous materials.
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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.