What changed in this filing

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Item 1. Financial Statements

2025-05-14 compared with 2024-11-12 · 334 added, 525 removed, 1169 unchanged (42% of the section changed)

2 unchanged sentences

(Unaudited, in thousands, except per share data)

September 30,

Current assets:

Cash and cash equivalents

Restricted cash

Short-term investments

Accounts receivable, net of allowances for credit losses of $ 263 and $ 579 as of September 30, 2024 and December 31, 2023

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

Prepaid expenses and other current assets

16 unchanged sentences

2,000 shares authorized;

883 shares issued and outstanding as of September 30, 2024 and December 31, 2023 (Liquidation preference of $ 8,008 and $ 7,875 as of September 30, 2024 and December 31, 2023)

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

Common stock, $ 0.001 par value;

70,000 shares authorized;

44,677 and 44,239 shares issued and outstanding as of September 30, 2024 and December 31, 2023

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

Additional paid-in capital

10 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Cost of revenue

Gross profit (loss)

Operating expenses:

6 unchanged sentences

Other income, net

Loss before provision (benefit) for income taxes

Provision (benefit) for income taxes

Loss before provision for income taxes

Provision for income taxes

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

4 unchanged sentences

See accompanying notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited, in thousands)

Three Months Ended

Nine Months Ended

September 30,

Other comprehensive income (loss), net of tax:

Change in foreign currency translation gain (loss), net of tax

Change in foreign currency translation income (loss), net of tax

Change in unrealized gain on available-for-sale debt investments, net of tax

Total other comprehensive income (loss), net of tax

Comprehensive income (loss) attributable to AXT, Inc.

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

Comprehensive income (loss) attributable to AXT, Inc.

Comprehensive loss

Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interests

Comprehensive loss attributable to AXT, Inc.

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

(Unaudited, in thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities:

1 unchanged sentence

Depreciation and amortization

Amortization of marketable securities premium

Stock-based compensation

Loss on disposal of equipment

Return of equity method investments as dividends

Gain on disposal of equipment

Equity in income of unconsolidated joint ventures

6 unchanged sentences

Other long-term liabilities

Net cash provided by (used in) operating activities

Net cash used in operating activities

Cash flows from investing activities:

1 unchanged sentence

Proceeds from sales and maturities of available-for-sale debt securities

Proceeds from sales of equity securities - 15 % Jia Mei

Investments in non-marketable equity investments

4 unchanged sentences

Payments on short-term bank loans

Proceeds from capital increase in subsidiary shares from noncontrolling interests

Proceeds from long-term loan

1 unchanged sentence

Net cash provided by financing activities

Effect of exchange rate changes on cash and restricted cash

Net decrease in cash and restricted cash

Cash and restricted cash at the beginning of the year

Cash and restricted cash at the end of the period

Effect of exchange rate changes on cash, restricted cash and cash equivalents

Net increase (decrease) in cash, restricted cash and cash equivalents

Cash, restricted cash and cash equivalents at the beginning of the year

Cash, restricted cash and cash equivalents at the end of the period

Supplemental disclosure of non-cash flow information:

Loan proceeds received by notes receivable

Notes receivables paid to purchase fixed assets

Investment in subsidiary shares from noncontrolling interest

Consideration payable in connection with construction in progress, included in accrued liabilities

12 unchanged sentences

Actual results could differ materially from those estimates.

The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected in the future or for the full fiscal year.

It is recommended that these condensed consolidated financial statements be read in conjunction with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2024, and our Quarterly Report on Form 10-Q for the three months ended March 31, 2024 and June 30, 2024 filed with the SEC on May 10, 2024 and August 9, 2024, respectively.

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

The condensed consolidated financial statements include the accounts of AXT and our consolidated subsidiaries, Beijing Tongmei Xtal Technology Co., Ltd.

10 unchanged sentences

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

As of September 30, 2024 and December 31, 2023, we have three companies accounted for by the equity method.

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

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

5 unchanged sentences

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

For the three and nine months ended September 30, 2024, expenses associated with ChaoYang LiMei had a de minimis impact on our condensed consolidated financial statements.

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

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

51 unchanged sentences

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

As of September 30, 2024, Tongmei’s noncontrolling interests and redeemable noncontrolling interests totaled approximately 14.5 %.

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

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

3 unchanged sentences

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

As of September 30, 2024 and December 31, 2023, our cash and debt investments are classified as follows (in thousands):

September 30, 2024

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

March 31, 2025

December 31, 2024

Classified as:

Cash and restricted cash

Investments (available-for-sale):

Certificates of deposit 1

Total cash, restricted cash and investments

Contractual maturities on investments:

Due within 1 year 2

Certificates of deposit with original maturities of more than three months.

Classified as “Short-term investments” in our condensed consolidated balance sheets.

Cash, restricted cash and cash equivalents

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

Certificates of deposit and corporate bonds are typically held until maturity.

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

There was an insignificant amount of gross unrealized losses on our available-for-sale debt securities as of September 30, 2024, and historically, such gross unrealized losses have been temporary in nature and we believe that it is probable the principal and interest will be collected in accordance with the contractual terms.

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

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

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

The following table summarizes the fair value and gross unrealized losses related to available-for-sale debt securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2024 (in thousands):

In Loss Position

Loss Position

As of September 30, 2024

Certificates of deposit

Total in loss position

In Loss Position

Loss Position

As of December 31, 2023

Certificates of deposit

Total in loss position

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

Restricted Cash

1 unchanged sentence

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

As of September 30, 2024, $ 13.9 million was included in restricted cash in our condensed consolidated balance sheets.

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

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

Investments in Privately-held Raw Material Companies

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

The investment balances for the non-consolidated companies are accounted for under the equity method, included in “Other assets” in the condensed consolidated balance sheets, totaled $ 13.5 million and $ 12.5 million as of September 30, 2024 and December 31, 2023, respectively.

As of September 30, 2024, there were three companies accounted for under the equity method.

One of our equity investments, Beijing JiYa Semiconductor Material Co., Ltd.

(“JiYa”), determined one of their equity investments was fully impaired and wrote the asset balance down to zero .

This resulted in a $ 754,000 impairment charge in our second quarter 2023 financial results.

Except as mentioned above, there were no impairment charges for the remainder of these investments during the three and nine months ended September 30, 2024 and 2023.

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

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

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

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

As a result of our decreased ownership and the fact that we do not have the ability to exercise significant influence over Jia Mei’s operations, we adopted the fair value method of accounting to

report on the investment in Jia Mei.

As a result of our decreased ownership and the fact that we do not have the ability to exercise significant influence over Jia Mei’s operations, we adopted the fair value method of accounting to report on the investment in Jia Mei.

Our investments under the fair value method are reviewed for other-than-temporary declines in value on a quarterly basis.

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

As of September 30, 2024, our investments in this unconsolidated company had a carrying value of $ 551,000 and were included in “Other assets” in the condensed consolidated balance sheets.

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

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

4 unchanged sentences

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

As of September 30, 2024 and December 31, 2023, the total unrealized loss, net of tax, included in accumulated other comprehensive income was immaterial.

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

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

8 unchanged sentences

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

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

We measure the fair value of these

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

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

As of September 30, 2024, the net change in fair value from the placement of the hedge to settlement at each month end during the quarter had a de minimis impact on the condensed consolidated results.

There were no changes in valuation techniques or related inputs in the three and nine months ended September 30, 2024.

There have been no transfers between fair value measurements levels during the three and nine months ended September 30, 2024.

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis in accordance with ASC 820 as of September 30, 2024 (in thousands):

Quoted Prices in

Active Markets of

Significant Other

Balance as of

Identical Assets

Observable Inputs

September 30, 2024

Certificates of deposit

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis in accordance with ASC 820 as of December 31, 2023 (in thousands):

Quoted Prices in

Active Markets of

Significant Other

Balance as of

Identical Assets

Observable Inputs

December 31, 2023

Certificates of deposit

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

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

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

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

Items Measured at Fair Value on a Nonrecurring Basis

1 unchanged sentence

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

We did not record any other-than-temporary impairment charges for these investments during the three and nine months ended September 30, 2024 and 2023, respectively.

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

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

September 30,

Raw materials

1 unchanged sentence

Finished goods

As of September 30, 2024 and December 31, 2023, carrying values of inventories were net of inventory reserves of $ 23.2 million and $ 21.9 million, respectively, for excess and obsolete inventory and $ 68,000 and $ 78,000 , respectively, for lower of cost or net realizable value reserves.

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

Property, Plant and Equipment, Net

The components of our property, plant and equipment are summarized below (in thousands):

September 30,

Property, plant and equipment:

6 unchanged sentences

Construction in progress

As of September 30, 2024, the balance of construction in progress was $ 25.3 million, of which $ 18.5 million was related to our buildings in our new Dingxing and Kazuo locations, $ 2.3 million was for manufacturing equipment purchases not yet placed in service and $ 4.5 million was for construction in progress for our other consolidated subsidiaries.

As of December 31, 2023, the balance of construction in progress was $ 38.5 million, of which $ 31.2 million was for our buildings in our new Dingxing and Kazuo locations, $ 3.1 million was for manufacturing equipment purchases not yet placed in service and $ 4.2 million was for our construction in progress for our other consolidated subsidiaries.

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

As of December 31, 2024, the balance of construction in progress was $ 23.5 million, of which $ 17.9 million was related to our buildings in our Dingxing and Kazuo locations, $ 1.4 million was for manufacturing equipment

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

Accrued Liabilities

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

September 30,

Preferred stock dividends payable

Payable in connection with construction in progress

Accrued compensation and related charges

Payable in connection with construction in progress

Accrued professional services

Accrued income taxes

Other tax payable

1 unchanged sentence

Accrued product warranty

Advances from customers

Other personnel-related costs

Advances from customers

Accrued income taxes

Accrual for sales returns

17 unchanged sentences

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

As of September 30, 2024, $ 0 million was included in “Prepaid expenses and other current assets” in our condensed consolidated balance sheets.

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

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

5 unchanged sentences

These companies form part of our overall supply chain strategy.

As of September 30, 2024, the investments are summarized below (in thousands):

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

Investment Balance as of

September 30,

Nanjing JinMei Gallium Co., Ltd.

17 unchanged sentences

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

As of September 30, 2024, Tongmei’s noncontrolling interests and redeemable noncontrolling interests totaled approximately 14.5 %.

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

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

5 unchanged sentences

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

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

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

Additionally, in accordance with ASC 321-10-35-2, we adjusted the investment in Jia Mei to its fair value at the time of the sale.

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

The gain from the sale and the subsequent remeasurement includes the following:

(in thousands)

Fair value of the consideration received

Foreign income tax withholding

Carrying value of 15 % of Emeishan Jia Mei High Purity Metals Co., Ltd.

Gain recognized on sale of 15 % of Emeishan Jia Mei High Purity Metals Co., Ltd.

(in thousands)

Fair value of the retained investment in Emeishan Jia Mei High Purity Metals Co., Ltd.

Carrying value of retained noncontrolling investment ( 10 %)

Gain on retained noncontrolling investment due to remeasurement ( 10 %)

Considering our decreased ownership and that we no longer have significant

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

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

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

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

We did not record any other-than-temporary impairment charges for Jia Mei investment during the three and nine months ended September 30, 2024.

In November 2023, our 46 % equity ownership interest in Donghai County Dongfang High Purity Electronic Materials Co., Ltd.

(“Dongfang”) was sold to a third party for consideration valued at approximately $ 0.6 million, including raw materials, equipment, and vehicle.

As a result, our equity ownership interest of Dongfang decreased from 46 % to 0 %.

The loss resulting from the sale was incorporated as a component of “Equity in income of unconsolidated joint ventures” in the consolidated statements of operations in the fourth quarter of 2023.

The loss from the sale includes the following:

(in thousands)

Fair value of the consideration received

Carrying value of 46 % of Donghai County Dongfang High Purity Electronic Materials Co., Ltd.

Loss recognized on sale of 46 % of Donghai County Dongfang High Purity Electronic Materials Co., Ltd.

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

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

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

For AXT’s minority investment entities that are not consolidated, the investment balances are included in “Other assets” in our condensed consolidated balance sheets and totaled $ 13.5 million and $ 12.5 million as of September 30, 2024 and December 31, 2023, respectively.

As of September 30, 2024, our ownership interests in ChaoYang KaiMei, JiYa, Xiaoyi XingAn Gallium Co., Ltd (“Xiaoyi XingAn”) and Jia Mei were 40 %, 39 %, 25 %, and 10 %, respectively.

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

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

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

11 unchanged sentences

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

The equity investment entities had the following summarized statements of operations information (in thousands) for the three and nine months ended September 30, 2024 and 2023:

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

Three Months Ended

Nine Months Ended

September 30,

Operating income

Our portion of the income and losses from these minority investment entities that are not consolidated and are accounted for under the equity method was an income of $ 1.0 million and $ 0.4 million, respectively, for the three months ended September 30, 2024 and 2023.

Our portion of the income and losses from these minority investment entities that are not consolidated and are accounted for under the equity method was income of $ 2.5 million and $ 1.4 million, respectively, for the nine months ended September 30, 2024 and 2023.

In the condensed consolidated statements of operations, the "Equity in income of unconsolidated joint ventures" included a gain of $ 958,000 from the Jia Mei sale, resulting in an income of $ 2.3 million for the nine months ended September 30, 2023.

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

Stockholders’ Equity

1 unchanged sentence

(in thousands)

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

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

Comprehensive

5 unchanged sentences

Balance as of December 31, 2024

Common stock options exercised

Noncontrolling interest portion of Tongmei stock-based compensation

3 unchanged sentences

Balance as of March 31, 2025

Common stock options exercised

Noncontrolling interest portion of Tongmei stock-based compensation

Stock-based compensation

Tongmei stock-based compensation

Other comprehensive loss

Balance as of June 30, 2024

Common stock options exercised

Noncontrolling interest portion of Tongmei stock-based compensation

Stock-based compensation

Tongmei stock-based compensation

Other comprehensive income

Balance as of September 30, 2024

Net income (loss) and Other comprehensive income (loss) attributable to redeemable noncontrolling interests were ($ 140,000 ) and $ 376,000 , respectively, for the three months ended September 30, 2024 and ($ 210,000 ) and $ 118,000 , respectively, for the nine months ended September 30, 2024 and are not shown in the table above.

The changes in stockholders’ equity by component for the three and nine months ended September 30, 2023 are as follows:

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

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

Comprehensive

6 unchanged sentences

Common stock options exercised

Investment in subsidiary with noncontrolling interest

Investment in subsidiary with redeemable noncontrolling interest

Noncontrolling interest portion of Tongmei stock-based compensation

1 unchanged sentence

Tongmei stock-based compensation

Net income (loss)

Other comprehensive income

Balance as of March 31, 2024

Common stock options exercised

Investment in subsidiary with noncontrolling interest

Investment in subsidiary with redeemable noncontrolling interest

Noncontrolling interest portion of Tongmei stock-based compensation

Stock-based compensation

Tongmei stock-based compensation

Net income (loss)

Other comprehensive income (loss)

Balance as of June 30, 2023

Common stock options exercised

Investment in subsidiary with noncontrolling interest

Investment in subsidiary with redeemable noncontrolling interest

Noncontrolling interest portion of Tongmei stock-based compensation

Stock-based compensation

Tongmei stock-based compensation

Other comprehensive income (loss)

Balance as of September 30, 2023

Net loss and Other comprehensive income attributable to redeemable noncontrolling interests were $ 356,000 and $ 55,000 , respectively, for the three months ended September 30, 2023, and $ 807,000 and $ 615,000 , respectively, for the nine months ended September 30, 2023 and are not shown in the table above.

There were no reclassification adjustments from accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2024 and 2023 .

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

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

Stock Repurchase Program

3 unchanged sentences

No shares were repurchased from 2016 through 202 4 .

During the three and nine months ended September 30, 2024, we did no t repurchase any shares under the approved stock repurchase program.

As of September 30, 2024, approximately $ 2.7 million remained available for future repurchases under this program.

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

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

Currently, we do not plan to repurchase additional shares.

By the terms of the Series A preferred stock, so long as any shares of Series A preferred stock are outstanding, neither the Company nor any subsidiary of the Company shall redeem, repurchase or otherwise acquire any shares of common stock, unless all accrued dividends on the Series A preferred stock have been paid.

During 2013 and 2015, we repurchased shares of our outstanding common stock.

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

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

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

We account for the cumulative year-to-date dividends on the Series A preferred stock when calculating our earnings per share.

Stock-Based Compensation

16 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Cost of revenue

2 unchanged sentences

Net effect on net loss

As of September 30, 2024, the unamortized compensation costs related to unvested stock options granted to employees under our stock option plan was $ 0 .

We did not capitalize any stock-based compensation to inventory as of September 30, 2024 and December 31, 2023 due to the immateriality of the amount.

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

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

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

There were no options granted in the three and nine months ended September 30, 2024 and 2023.

The following table summarizes the stock option transactions during the nine months ended September 30, 2024 (in thousands, except per share data):

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

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

Stock Options

1 unchanged sentence

Canceled and expired

Balance as of September 30, 2024

Options vested as of September 30, 2024 and unvested options expected to vest, net of forfeitures

Options exercisable as of September 30, 2024

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on our closing price of $ 2.42 on September 30, 2024, which would have been received by the option holder had all option holders exercised their options on that date.

Balance as of March 31, 2025

Options exercisable as of March 31, 2025

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

Restricted stock awards

A summary of activity related to restricted stock awards for the nine months ended September 30, 2024 is presented below (in thousands, except per share data):

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

Weighted-Average

Non-vested as of January 1, 2025

Non-vested as of September 30, 2024

As of September 30, 2024, the unamortized compensation costs related to unvested restricted stock awards was approximately $ 3.0 million, which is to be amortized on a straight-line basis over a weighted-average period of approximately 1.1 years.

Non-vested as of March 31, 2025

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

At-Risk, Performance Shares

In March 2023 and February 2024, the Company issued at-risk, performance shares classified as equity awards.

In February 2024, the Company issued at-risk, performance shares classified as equity awards.

Expense is recognized quarterly on a straight-line method over the requisite service period, based on the probability of achieving the specified financial performance metric, with changes in expectations recognized as an adjustment to earnings in the period of change.

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The Company’s at-risk, performance shares are classified as equity and contain performance and service conditions that must be satisfied for an employee to receive the shares.

The financial performance metric for the at-risk, performance shares issued in February 2022 is based upon year-end 2021 actual results as compared to the Company’s year-end actual results in 2022.

The financial performance metrics for the at-risk, performance shares issued in March

2023 are based upon the Company’s year-end actual results in 2023.

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

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

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

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

The fair value per share of the at-risk, performance shares classified as equity awards granted in February 2024 and March 2023 was $ 2.28 and $ 3.71 , respectively.

On February 15, 2022, the Compensation Committee recommended, and the Board approved, the grant to Dr.

Morris Young of 114,320 at-risk, performance shares under the Plan.

On February 15, 2022, the Compensation Committee approved the grant to Gary Fischer of 32,100 at-risk, performance shares under the Plan.

If the performance financial metric is less than 50 % achieved these shares are forfeited.

If the performance financial metric is between 50 % and 200 % achieved, then a corresponding pro rata portion of the 114,320 shares issued to Dr.

Young would be eligible to vest and a corresponding pro rata portion of the 32,100 shares issued to Mr.

Fischer would be eligible to vest.

Any shares that are not eligible to vest are forfeited.

If the target financial metric exceeds 200 %, then the maximum number of at-risk performance shares that would be eligible to vest is 114,320 for Dr.

Young and 32,100 for Mr.

On February 14, 2023, the Compensation Committee met and certified the year-over-year annual revenue growth rate achieved for fiscal year 2022, expressed as a percentage, was 2.7 %.

Therefore, none of the at-risk performance shares became eligible to vest.

On March 15, 2023, the Compensation Committee recommended, and the Board approved, the grant to Dr.

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If the minimum financial metric for fiscal year 2024 is not achieved, then these awards are forfeited.

A summary of the status of our unvested at-risk, performance shares as of September 30, 2024 is presented below (in thousands, except per share data):

On February 18, 2025, the Compensation Committee met and certified that the year-over-year annual revenue growth rate achieved for fiscal year 2024, expressed as a percentage, was 200 %.

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

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

Weighted-Average

Non-vested as of January 1, 2025

Non-vested as of September 30, 2024

(1) The number of shares presented is based on achieving 150 % of the targeted financial performance metric as defined in the at-risk, performance shares agreement.

As of September 30, 2024, there was $ 0.3 million of unrecognized compensation expense related to unvested at-risk, performance shares that is expected to be recognized over a weighted-average period of 1.3 years.

Non-vested as of March 31, 2025

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

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

Net Loss Per Share

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

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

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

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

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Three Months Ended

Nine Months Ended

September 30,

Net loss attributable to AXT, Inc.

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

The 883,000 shares of $ 0.001 par value Series A preferred stock issued and outstanding as of September 30, 2024 and December 31, 2023, valued at $ 3,532,000 , are non-voting and non-convertible preferred stock

with a 5.0 % cumulative annual dividend rate payable when declared by the Board of Directors and a $ 4 per share liquidation preference over common stock, which must be paid before any distribution is made to common stockholders.

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

These preferred shares were issued to Lyte Optronics, Inc.

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We operate in one segment for the design, development, manufacture and distribution of high-performance compound and single element semiconductor substrates and sale of raw materials integral to these substrates.

In accordance with ASC Topic 280, Segment Reporting, our chief operating decision maker has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the Company.

Since we operate in one segment, all financial segment and product line information can be found in the condensed consolidated financial statements.

In accordance with ASC Topic 280, Segment Reporting, our chief operating decision-maker (“CODM”) has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the Company.

Since we operate in one segment, all financial segment and product line information can be found in the consolidated financial statements.

The CODM regularly evaluates consolidated net income (loss) and functional expenses, including cost of revenue, selling, general and administrative and research and development, to manage Company operations.

No additional disaggregated expense categories are presented beyond those already disclosed in the primary financial statements.

Product Information

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Three Months Ended

Nine Months Ended

September 30,

Product Type:

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Three Months Ended

Nine Months Ended

September 30,

Geographical region:

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Long-lived assets, net of depreciation, by geographic region were as follows (in thousands):

September 30,

Long-lived assets by geographic region, net of depreciation:

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Significant Customers

No customer represented 10% of our revenue for the three months ended September 30, 2024 and 2023 .

Our top five customers, although not the same five customers for each period, represented 29 % and 31 % of our revenue for the three months ended September 30, 2024 and 2023, respectively.

No customer represented 10% of our revenue for the nine months ended September 30, 2024 and 2023.

Our top five customers, although not the same five customers for each period, represented 30 % and 25 % of our revenue for the nine months ended September 30, 2024 and 2023, respectively.

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

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

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

One customer accounted for more than 10 % of our accounts receivable balance as of September 30, 2024 , and no customer accounted for more than 10 % of our accounts receivable balance as of December 31, 2023.

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

Commitments and Contingencies

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

The following table reflects the change in our warranty accrual which is included in “Accrued liabilities” in the condensed consolidated balance sheets, during the three and nine months ended September 30, 2024 and 2023 (in thousands):

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

Three Months Ended

Nine Months Ended

September 30,

Beginning accrued product warranty

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Land Purchase and Investment Agreement

In 2017, Baoding Tongmei established a wafer process production line in Dingxing, China.

In addition to a land rights and building purchase agreement that Baoding Tongmei entered into with a private real estate development company to acquire our new manufacturing facility, Baoding Tongmei also entered into a cooperation agreement with the Dingxing local government.

In addition to pledging its full support and cooperation, the Dingxing local government will issue certain credits or rebates to Baoding Tongmei as Baoding Tongmei achieves certain milestones.

Baoding Tongmei, in turn, agreed to hire local workers over time, pay taxes when due and eventually demonstrate a total investment of approximately $ 90 million in value, assets and capital.

We have established a wafer process production line in Dingxing, China.

In addition to a land rights and building purchase agreement that we entered into with a private real estate development company to acquire our new manufacturing facility, we also entered into a cooperation agreement with the Dingxing local government.

In addition to pledging its full support and cooperation, the Dingxing local government will issue certain credits or rebates to us as we achieve certain milestones.

We, in turn, agreed to hire local workers over time, pay taxes when due and eventually demonstrate a total investment of approximately $ 90 million in value, assets and capital.

The investment will include cash paid for the land and buildings, cash on deposit in our name at local banks, the gross value of new and used equipment (including future equipment that might be used for indium phosphide and germanium substrates production), the deemed value for our customer list or the end user of our substrates, for example, the end users of 3-D sensing VCSELs (vertical cavity surface emitting lasers), a deemed value for employment of local citizens, a deemed value for our proprietary process technology, other intellectual property, other intangibles and additional items of value.

There is no timeline or deadline by which this must be accomplished, rather it is a good faith covenant entered into between Baoding Tongmei and the Dingxing local government.

There is no timeline or deadline by which this must be accomplished, rather it is a good faith covenant entered into between AXT and the Dingxing local government.

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

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

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

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

We believe that such cooperation agreements are normal, customary and usual in China and that the future valuation is flexible.

Chaoyang Tongmei has a similar agreement with the city of Kazuo, China, although on a smaller scale.

The total investment targeted by Chaoyang Tongmei in Kazuo is approximately $ 15 million in value, assets and capital.

We have a similar agreement with the city of Kazuo, China, although on a smaller scale.

The total investment targeted by AXT in Kazuo is approximately $ 15 million in value, assets and capital.

In addition, BoYu has a similar agreement with the city of Kazuo.

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

As of September 30, 2024, we do not have any outstanding purchase orders that will incur a penalty if cancelled by the Company.

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

Legal Proceedings

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We do not expect that any of these matters, individually or in the aggregate, will have a material adverse effect on our business, financial condition, cash flows or results of operations.

On May 6, 2024, a shareholder class action complaint was filed in the U.S.

On May 6, 2024, a putative shareholder class action complaint was filed in the U.S.

District Court for the Eastern District of New York on behalf of persons or entities who purchased or acquired our publicly traded securities, against us, Morris S.

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Fischer, our Chief Financial Officer.

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

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

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

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

The motion to dismiss is due on November 8, 2024.

On August 22, 2024, a derivative lawsuit was filed in the Northern District of California by a shareholder against Morris S.

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

On August 22, 2024, a derivative lawsuit was filed in the Northern District of California by an alleged shareholder against Morris S.

Young, our Chief Executive Officer, Gary L.

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

LeBlanc, with the Company named as a nominal defendant.

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

The motion to dismiss is due on November 15, 2024.

It is not possible at this time to reasonably assess the final outcomes of these litigations or reasonably to estimate the possible loss or range of loss with respect to these litigations.

Management believes these claims to be meritless and intends to vigorously defend against them.

LeBlanc, with the Company named as a nominal defendant (together, “Defendants”).

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

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

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

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

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

On April 11, 2025, the plaintiff filed a notice that he did not intend to further amend his complaint.

The Court entered judgment on April 14, 2025.

On May 13, 2025, Plaintiffs filed a notice of appeal.

It is not possible at this time to reasonably assess the final outcome of the putative shareholder class action or to reasonably estimate the possible loss or range of loss with respect to that litigation.

We believe these claims to be meritless and intend to vigorously defend against them.

Other Income (expense), Net

Other income (expense), net for the three months ended September 30, 2024 and 2023, includes a grant of $ 0.5 million and $ 0.1 million, respectively, from government agencies as awards for technological innovation and job creation.

Other income (expense), net for the nine months ended September 30, 2024 and 2023, includes a grant of $ 1.9 million and $ 1.9 million, respectively, from government agencies as awards for technological innovation and job creation.

In addition, we incurred a foreign currency transaction exchange gain of $ 800 and $ 146,000 for the three months ended September 30, 2024 and 2023, respectively.

We incurred a foreign currency transaction exchange gain of $ 101,000 and a loss of $ 57,000 for the nine months ended September 30, 2024 and 2023, respectively.

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

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

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

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

Income tax expense for the three and nine months ended September 30, 2024 includes no interest and penalties.

As of September 30, 2024, we have no accrued interest and penalties related to uncertain tax positions.

We file income tax

returns in the U.S.

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

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

We file income tax returns in the U.S.

federal, various states and foreign jurisdictions.

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

Provision for income taxes for the three and nine months ended September 30, 2024 was mostly related to our wholly owned China subsidiaries and our partially owned subsidiaries in China.

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

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

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

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

After we ship our products,

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

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

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

We do not have any material contract assets as of September 30, 2024.

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

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

The following table reflects the contract liabilities balance, which is included in “Accrued liabilities” on the condensed consolidated balance sheets, as of September 30, 2024 and December 31, 2023 (in thousands):

September 30,

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

Contract liabilities

During the three and nine months ended September 30, 2024, the Company recognized $ 9,000 and $ 163,000 , respectively, of revenue that was included in the contract balances as of December 31, 2023.

During the three and nine months ended September 30, 2023, the Company recognized $ 1,000 and $ 278,000 , respectively, of revenue that was included in the contract balances as of December 31, 2022.

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

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

Disaggregated Revenue

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

The following table represents short-term bank loans as of September 30, 2024 and December 31, 2023 (in thousands, except interest rate data):

September 30,

Bank of China (1)

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

Bank of China (1)

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Industrial Bank (1)

Industrial Bank (4)

NingBo Bank (1)

Industrial and Commercial Bank of China (1)

NanJing Bank (1)

China Citic Bank (1)

Industrial and Commercial Bank of China (4)

Agricultural Bank of China (1)

Industrial and Commercial Bank of China (1)

Bank of China (1)

NingBo Bank (1)

Industrial Bank (1)

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(1) Not collateralized.

(2) ChaoYang LiMei time deposit.

(2) AXT time deposit.

(4) BoYu’s land use rights and its building located at its facility in Tianjin, China.

In addition, the December 2023 loan attracts a guarantee fee amounting to 0.7 % of the loan amount.

(3) Baoding Tongmei’s land use rights and its building located at its facility in Dingxing, China.

In addition, the loan attracts a guarantee fee amounting to 1.0 % of the loan amount.

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

Long-term Loa ns

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

As of September 30, 2024, $ 5.4 million is included in “Other long-term liabilities” and $ 428,000 is included in “Short-term loans” in our consolidated balance sheets.

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

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

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

As of September 30, 2024, $ 965,000 associated with this financing arrangement is included in “Other long-term liabilities” and $ 748,000 is included in “Short-term loans” in our consolidated balance sheets.

As of September 30, 2024, the maturities of our long-term loan liabilities in five years (excluding short-term loans) are as follows (in thousands):

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

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

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

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

Maturity of long-term loans

In summary, short-term loans of $ 54.1 million included under “Short-term loans” in our condensed consolidated balance sheet at September 30, 2024, consisted of $ 52.9 million of short-term bank loans and $ 1.2 million of the current portion of long-term debt.

Long-term loans of $ 6.4 million included under “Other long-term liabilities” in our condensed consolidated balance sheet at September 30, 2024 consisted of $ 5.4 million in a five-year bank loan and $ 1.0 million in a loan secured by ChaoYang XinMei .

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

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

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

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

The majority of our lease obligations relate to our lease agreement for our facility in Fremont, California with approximately 19,467 square feet, which was scheduled to expire in 2020.

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The equipment lease became effective in August 2019 and will expire in July 2029.

The facility, located in Tongzhou, China, has a lease effective from December 2024 and expiring in November 2029.

There are no variable lease payments, residual value guarantees or any restrictions or covenants imposed by the equipment lease.

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

As of September 30, 2024, the maturities of our operating lease liabilities (excluding short-term leases) are as follows (in thousands):

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

Maturity of Lease Liabilities

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The weighted-average remaining lease term and the weighted-average discount rate for our operating leases as of each date is as follows:

September 30,

Weighted-average remaining lease term (years)

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

Nine Months Ended

September 30,

Three Months Ended

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

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Three Months Ended

Nine Months Ended

September 30,

Operating lease

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public company.

The components of the change in redeemable noncontrolling interests for the nine months ended September 30, 2024 are presented in the following table (in thousands):

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

Balance as of January 1, 2025

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Effect of foreign currency translation attributable to redeemable noncontrolling interests

Balance as of September 30, 2024

Balance as of March 31, 2025

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) released ASU 2023-07— Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, aiming to enhance the transparency and relevance of segment information provided in financial statements.

The amendments in this update require that a public entity disclose significant segment expenses, and profit or loss and assets, among other disclosures, for each reportable segment, on an annual and interim basis.

The update is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Adoption of the new standard will not have a material effect on our condensed consolidated financial statements.

In December 2023, FASB issued ASU 2023-09— Income Taxes (Topic 740):

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The update is effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods.

Adoption of the new standard will have an immaterial effect on our condensed consolidated financial statements.

Subsequent Event

In October and November 2024, the Company secured a total of $ 5.7 million in new one-year bank loans with interest rates ranging from 2.4 % to 3.9 %.

Of the $ 5.7 million, $ 3.6 million is unsecured, while the remaining $ 2.1 million is collateralized by Baoding Tongmei’s real estate.

In October and November 2024, the Company repaid $ 6.1 million of existing loans.

The loan repayments also led to a reduction in restricted cash by $ 1.4 million.

Adoption of the new standard had an immaterial effect on our condensed consolidated financial statements.

In November 2024, FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires public business entities to disclose additional information on specific expense categories in the notes to the financial statements.

The Update is effective for annual reporting periods beginning after December 15, 2026.

Additionally, ASU 2025-01 amended the effective date for interim periods within annual reporting periods beginning after December 15, 2027.

Adoption is expected to have an immaterial effect on our condensed consolidated financial statements.

Subsequent Events

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

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

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

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

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

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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.

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

In recent years, InP demand has increased.

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

2”, 3”, 4”, 6”

• 5G communications

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

The following organization chart depicts the consolidated structure as of September 30, 2024;

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

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

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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 6% of our revenue derives from importing our wafers into the United States and we expect the volume to increase.

For the nine months ended September 30, 2024 and 2023, we paid approximately $569,000 and $768,000, 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%.

In the first half of April 2025 we observed high volatility in tariffs put in place by the United States.

At least four separate tariffs were imposed by the United States on products from China.

Tariffs on our products increased to 100%.

We have little or no germanium imports into the U.S.

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

In 2024 only 8% of our total worldwide revenue was from sales in North America.

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.

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

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

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

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

First, we capitalize our investments in our PRC subsidiaries.

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

We licensed to our PRC subsidiaries intellectual

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

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

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

For the nine months ended September 30, 2024, the aggregate dividends paid to the Company, directly or to an intermediate entity within our corporate structure, by our PRC subsidiaries and PRC raw material joint ventures were $2.1 million.

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

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

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

For the nine months ended September 30, 2024 and the year ended December 31, 2023, no transfers, dividends, or distributions were made between the Company and its PRC subsidiaries, or to investors, except for the settlement of amounts owed under our transfer pricing arrangements in the ordinary course of business.

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

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

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● Shutdowns or underutilizing our manufacturing facilities may result in declines in our gross margins.

● Enhanced trade tariffs, import restrictions, export restrictions, Chinese regulations or other trade barriers may materially harm our business.

● Escalating and volatile 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.

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

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.

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 Part II, Item 1A below for further information on risks related to our foreign operations and dependence.

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

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

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

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

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Foreign business practices generally require us to allow customer payment terms that are longer than those accepted in the United States.

In accordance with ASC 326-20’s current expected credit loss impairment model, we exercise judgment when determining the adequacy of our reserves as we evaluate historical bad debt trends, general economic conditions in the United States and internationally, and reasonable and supportable forecasts of future economic conditions.

In accordance with ASC Topic 326, Financial Instruments – Credit Losses current expected credit loss impairment model, we exercise judgment when determining the adequacy of our reserves as we evaluate historical bad debt trends, general economic conditions in the United States and internationally, and reasonable and supportable forecasts of future economic conditions.

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

As of September 30, 2024 and December 31, 2023, our accounts receivable, net balance was $28.0 million and $19.3 million, respectively, which was net of an allowance of $263,000 and $579,000, respectively.

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

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

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Warranty costs are accrued at the time revenue is recognized.

As of September 30, 2024 and December 31, 2023, accrued product warranties totaled $392,000 and $703,000, respectively.

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

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

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

As of September 30, 2024 and December 31, 2023, we had an inventory reserve of $23.2 million and $21.9 million, respectively, for excess and obsolete inventory and $68,000 and $78,000, respectively, for lower of cost or net realizable value reserves.

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

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

Impairment of Investments

We classify marketable investments in debt securities as available-for-sale debt securities in accordance with Accounting Standards Codification (“ASC”) Topic 320, Investments - Debt Securities .

We classify marketable investments in debt securities as available-for-sale debt securities in accordance with ASC Topic 320, Investments - Debt Securities .

All available-for-sale debt securities with a quoted market value below cost (or adjusted cost) are reviewed in order to determine whether the decline is other-than-temporary.

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

business prospects of the company, share prices of subsequent offerings, and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in our carrying value.

For the year ended December 31, 2023, one of our PRC joint venture raw material companies assessed one of its equity investments was fully impaired.

We also divested our equity investment in a PRC joint venture.

The impairment and divesture resulted in a total of $1.9 million in impairment charges in our financial results for the year ended December 31, 2023.

Except as mentioned above, there were no impairment charges for the remainder of these investments during the three and nine months ended September 30, 2024 and 2023.

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

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

Fair Value of Investments

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

As of September 30, 2024, the net change in fair value from the placement of the hedge to settlement at each month end during the quarter had a de minimis impact to the condensed consolidated results.

There have been no transfers between fair value measurement levels during the three and nine months ended September 30, 2024 and 2023.

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

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

Impairment of Long-Lived Assets

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

We had no “Assets held for sale” or any impairment of long-lived assets in the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023.

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

Stock-based Compensation

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See Note 14—“Income Taxes” in the notes to condensed consolidated financial statements for additional information.

Impact of the COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19 to be a pandemic, which continues to be an ongoing pandemic.

In March 2020, the President of the United States declared the COVID-19 outbreak a national emergency.

For much of the three months ended March 31, 2020, our manufacturing facilities in China were operating at reduced staffing levels to limit the risk of COVID-19 exposure for our employees.

In addition, the Chinese government authorities took a number of actions, which included, among others, lockdowns in China which reduced availability of air transport, port closures, and increased border controls or closures, travel restrictions between China and the U.S.

to contain the spread of COVID-19.

As of 2023, China has lifted all COVID-19 restrictions, allowing us to return to full staffing levels at all three manufacturing locations in China.

On May 5, 2023, the World Health Organization declared that COVID-19 no longer constitutes a public health emergency of international concern.

However, the extent of the impact of COVID-19 on our results of operations in the future will be dependent on future developments such as, among others, the potential resurgence of COVID-19, the frequency, duration and extent of outbreaks of COVID-19, future actions we or the authorities may take in response to these developments, all of which remain highly uncertain and unpredictable.

There is no assurance that we will be able to adjust our business operations to adapt to such developments in the future.

Economic Challenges, Risks and Uncertainties

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

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 increased the tariff on imports of many products from China, including our wafer substrates, to 60%.

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

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

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

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

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

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

We have little or no germanium imports into 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.

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

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

will be granted.

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

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

The political tensions between China and the U.S.

remain high and tariffs and controls on exports are changing and fluid.

There can be no assurances that Tongmei will receive China permits to export our wafer substrates or that China will not adopt additional export control regulations that affect our business, financial condition and results of operations.

Reciprocally, there can be no assurance that the U.S.

will allow products to be imported into the U.S.

from China or what the tariff charge rate might be.

We are actively evaluating the potential impacts of these proposed tariffs, as well as our ability to mitigate their related impacts.

Tariffs and export restrictions clearly affect our revenue and operations.

For additional discussion regarding these factors and other risks, please refer to “Part II.

Other Information – Item 1A.

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

Results of Operations

Three Months Ended

Nine Months Ended

September 30,

Product Type:

($ in thousands)

Raw materials and other

Total revenue

Revenue increased $6.3 million, or 36.2%, to $23.6 million for the three months ended September 30, 2024 from $17.4 million for the three months ended September 30, 2023.

The substrate revenue increase for the three months ended September 30, 2024 as compared to the same period in 2023 was primarily the result of higher demand for GaAs wafer substrates due to increased demand across a number of applications and higher demand for InP wafer substrates reflecting strong growth from data center applications and continued improvement in passive optical networks and higher demand for Ge wafer substrates in China.

Raw materials sales increased $1.7 million, or 23.7%, to $8.6 million for the three months ended September 30, 2024 as compared to the same period in 2023.

The increase in raw materials revenue for the three months ended September 30, 2024 as compared to the same period in 2023 was primarily the result of an increase in sales of refined gallium and pBN crucibles resulting from stronger market demand and from the sale of recycled materials.

Revenue increased $18.9 million, or 34.1%, to $74.3 million for the nine months ended September 30, 2024 from $55.4 million for the nine months ended September 30, 2023.

The substrate revenue increase for the nine months ended September 30, 2024 as compared to the same period in 2023 was primarily the result of higher demand for GaAs wafer substrates due to increased demand across a number of applications and higher demand for InP wafer substrates reflecting strong growth from data center applications and continued improvement in passive optical networks and higher demand for Ge wafer substrates in China.

Raw materials sales increased $2.1 million, or 10.4%, to $22.6 million for the nine months ended September 30, 2024 as compared to the same period in 2023.

The increase in raw materials revenue for the nine months ended September 30, 2024 as compared to the same period in 2023 was primarily the result of an increase in sales of refined gallium and pBN crucibles resulting from stronger market demand.

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

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

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

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

Revenue by Geographic Region

Three Months Ended

September 30,

($ in thousands)

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Total revenue

Revenue in China increased $3.5 million for the three months ended September 30, 2024, primarily due to higher demand for our InP, GaAs and Ge wafer substrates and refined gallium and pBN crucibles sold by two of our consolidated subsidiaries.

Revenue in Taiwan decreased $0.4 million, primarily due to lower demand for our InP and Ge wafer substrates, partially offset by higher demand for our GaAs wafer substrates.

Revenue in Japan increased $1.1 million, primarily due to higher demand for our InP and GaAs wafer substrates and pBN crucibles sold by one of our consolidated subsidiaries.

Revenue in Asia Pacific decreased $97,000, primarily due to decreased demand for pBN crucibles sold by one of our consolidated subsidiaries.

Revenue in Europe increased $0.3 million, primarily due to increased demand for our GaAs, partially offset by lower demand for our Ge and InP wafer substrates.

Revenue in North America increased $1.8 million, primarily due to higher demand for our InP wafer substrates and pBN crucibles sold by one of our consolidated subsidiaries, partially offset by lower demand for our GaAs and Ge wafer substrates.

Nine Months Ended

September 30,

($ in thousands)

% of total revenue

Asia Pacific (excluding China, Taiwan and Japan)

% of total revenue

Europe (primarily Germany)

% of total revenue

North America (primarily the United States)

% of total revenue

Total revenue

Revenue in China increased $13.6 million for the nine months ended September 30, 2024, primarily due to higher demand for our GaAs, InP and Ge wafer substrates and refined gallium and pBN crucibles sold by two of our consolidated subsidiaries.

Revenue in Taiwan increased $3.8 million, primarily due to higher demand for our GaAs and InP wafer substrates, partially offset by lower demand for our Ge wafer substrates.

Revenue in Japan decreased $80,000 primarily due to lower demand for our GaAs wafer substrates and refined gallium sold by one of our consolidated

subsidiaries, partially offset by higher demand for pBN crucibles sold by one of our consolidated subsidiaries and for our InP wafer substrates.

Revenue in Asia Pacific decreased by $0.4 million, primarily due to decreased demand for our InP, Ge and GaAs wafer substrates and pBN crucibles sold by one of our consolidated subsidiaries, partially offset by higher demand for refined gallium sold by one of our consolidated subsidiaries.

Revenue in Europe increased by $2.1 million primarily due to higher demand for our GaAs and InP wafer substrates and pBN crucibles sold by one of our consolidated subsidiaries, partially offset by lower demand for our Ge wafer substrates and for raw gallium sold by one of our consolidated subsidiaries.

Revenue in North America decreased by $0.1 million primarily due to lower demand for our GaAs and Ge wafer substrates and pBN crucibles sold by one of our consolidated subsidiaries, partially offset by higher demand for our InP wafer substrates.

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

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

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

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

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

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

Three Months Ended

Nine Months Ended

September 30,

($ in thousands)

Gross Profit %

Gross profit increased $3.8 million, or 204.5%, to $5.7 million for the three months ended September 30, 2024 from $1.9 million for the three months ended September 30, 2023.

The increase in gross profit is the result of higher revenue for our wafer substrates.

Gross margin as a percentage of revenue increased due to higher unit volume across all wafer substrate and a favorable shift in product mix.

Gross profit increased $10.7 million, or 123.5%, to $19.4 million for the nine months ended September 30, 2024 from $8.7 million for the nine months ended September 30, 2023.

The increase in gross profit is the result of higher revenue across all product lines.

Gross margin as a percentage of revenue increased due to higher unit volume across all product lines, and a shift in product mix had a positive impact on gross margin.

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

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

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

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

Sales of indium phosphide wafers were reduced significantly.

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

Selling, General and Administrative Expenses

Three Months Ended

Nine Months Ended

September 30,

($ in thousands)

Selling, general and administrative expenses

% of total revenue

Selling, general and administrative expenses decreased $17,000, or 0.3%, to $5.7 million for the three months ended September 30, 2024 from $5.7 million for the three months ended September 30, 2023.

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

Selling, general and administrative expenses increased $217,000, or 1.2%, to $17.7 million for the nine months ended September 30, 2024 from $17.4 million for the nine months ended September 30, 2023.

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

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

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

Research and Development

Three Months Ended

Nine Months Ended

September 30,

($ in thousands)

Research and development

% of total revenue

Research and development expenses increased $0.5 million, or 17.5%, to $3.4 million for the three months ended September 30, 2024 from $2.9 million for the three months ended September 30, 2023.

The increase in research and development expenses for the three months ended September 30, 2024 was primarily due to higher development expenses for crystal ingot processing.

Research and development expenses increased $1.1 million, or 12.4%, to $10.4 million for the nine months ended September 30, 2024 from $9.3 million for the nine months ended September 30, 2023.

The increase in research and development expenses for the nine months ended September 30, 2024 was primarily due to higher development expenses for crystal ingot processing.

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

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

Interest Expense, Net

Three Months Ended

Nine Months Ended

September 30,

($ in thousands)

Interest expense, net

% of total revenue

Interest expense, net increased $10,000, or 2.6%, to $391,000 for the three months ended September 30, 2024 from $381,000 for the three months ended September 30, 2023.

Interest expense, net increased primarily due to lower interest income during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

Interest expense, net decreased $121,000, or 10.6%, to $1.0 million for the nine months ended September 30, 2024 from $1.1 million for the nine months ended September 30, 2023.

Interest expense, net decreased primarily due to increased interest income during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

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

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

Equity in Income of Unconsolidated Joint Ventures

Three Months Ended

Nine Months Ended

September 30,

Equity in Income

September 30,

Equity in Income

($ in thousands)

Equity in income of unconsolidated joint ventures

% of total revenue

The equity in income of unconsolidated joint venture companies was income of $1.0 million for the three months ended September 30, 2024 as compared to income of $0.4 million for the three months ended September 30, 2023.

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

The equity in income of unconsolidated joint venture companies was income of $2.5 million for the nine months ended September 30, 2024 as compared to income of $2.3 million for the nine months ended

September 30, 2023.

The increase in income of $0.2 million is primarily due to strong performance in unconsolidated joint ventures.

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

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

Other Income, Net

Three Months Ended

Nine Months Ended

September 30,

($ in thousands)

Other income, net

% of total revenue

Other income, net increased $306,000, or 137.2%, to an income of $529,000 for the three months ended September 30, 2024 from an income of $223,000 for the three months ended September 30, 2023.

Other income, net increased primarily due to an increase in government grants.

Other income, net increased $770,000, or 60.1%, to an income of $2.1 million for the nine months ended September 30, 2024 from an income of $1.3 million for the nine months ended September 30, 2023.

Other income, net increased primarily due to an increase in government grants.

Provision (benefit) for Income Taxes

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

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

Provision for Income Taxes

Three Months Ended

Nine Months Ended

September 30,

($ in thousands)

Provision (benefit) for income taxes

Provision for income taxes

% of total revenue

Provision (benefit) for income taxes increased $727,000, or 719.8%, to a provision of $626,000 for the three months ended September 30, 2024 as compared to a benefit of $101,000 for the three months ended September 30, 2023.

The tax expense recorded for the three months ended September 30, 2024 is the result of both foreign taxes and domestic taxes.

Provision for income taxes increased $1,113,000, or 1,209.8%, to $1,021,000 for the nine months ended September 30, 2024 as compared to a benefit of $92,000 for the nine months ended September 30, 2023.

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

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

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

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

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

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

1 unchanged sentence

and China-based operations.

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

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

or 15 years for research conducted in a foreign jurisdiction.

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

On August 16, 2022, President Biden signed the Inflation Reduction Act (the “Inflation Reduction Act”) into law finalizing a legislation intended to address inflation by paying down the national debt, lower consumer energy costs, providing incentives for the production of clean energy, and reducing healthcare costs.

The Inflation Reduction Act imposes a 1% exercise tax on stock buy backs and a 15% minimum tax on corporations with over $1 billion in profit.

The Inflation Reduction Act has no impact on us, since we have no plan to buy back additional shares of our common stock and our profit is not over $1 billion.

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

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

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Net (income) loss attributable to

Nine Months Ended

Net (income) loss attributable to

noncontrolling interests and

September 30,

redeemable noncontrolling interests

September 30,

redeemable noncontrolling interests

($ in thousands)

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

% of total revenue

Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests increased $642,000 or 108.4% to a gain of $50,000 for the three months ended September 30, 2024, from a loss of $592,000 for the three months ended September 30, 2023, primarily due to higher profitability from our PRC subsidiaries as sales increased.

Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests increased $1.6 million, or 134.2%, to an income of $402,000 for the nine months ended September 30, 2024, from a loss of $1.2 million for the nine months ended September 30, 2023, primarily due to higher profitability from our PRC subsidiaries as sales increased.

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

Liquidity and Capital Resources

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

As of September 30, 2024, our principal source of liquidity was $ 38.8 million, which consisted of cash of $24.9 million and restricted cash of $13.9 million.

In the nine months ended September 30, 2024, cash and restricted cash decreased by $11.3 million and investments decreased by $2.1 million.

The decrease in cash and restricted cash of $11.3 million in the nine months ended September 30, 2024 was primarily due to net cash used in operating activities of $13.4 million and net cash used in investing activities of $4.0 million, partially offset by net cash provided by financing activities of $4.5 million and the effect of exchange rate changes of $1.6 million.

As of September 30, 2024, we and our PRC subsidiaries held approximately $33.8 million in cash and investments in foreign bank accounts.

As of September 30, 2023, our principal source of liquidity was $43.6 million, which consisted of cash, restricted cash and cash equivalents of $39.3 million and investments of $4.3 million.

In the nine months ended September 30, 2023, cash, restricted cash and cash equivalents decreased by $2.0 million and investments decreased by $7.2 million.

The decrease in cash, restricted cash and cash equivalents of $2.0 million in the nine months ended September 30, 2023 was primarily due to net cash used in investing activities of $4.8 million and the effect of exchange rate changes of $1.4 million, partially offset by cash provided by financing activities of $2.2 million and net cash provided by operating activities of $2.0 million.

As of September 30, 2023, we and our consolidated joint ventures in China held approximately $30.2 million in cash and investments in foreign bank accounts.

Net cash used in operating activities of $13.4 million for the nine months ended September 30, 2024 was primarily comprised of a net change of $15.9 million in operating assets and liabilities, a net loss before income

attributable to noncontrolling interest and redeemable noncontrolling interests of $6.1 million, and income from equity method investments of $2.5 million, partially offset by the adjustment for non-cash items of depreciation and amortization of $6.7 million, stock-based compensation of $2.3 million and return of equity method investments as dividends of $2.1 million.

Net cash provided by operating activities of $2.0 million for the nine months ended September 30, 2023 was primarily comprised of a net change of $6.8 million in operating assets and liabilities, the adjustment for non-cash items of depreciation and amortization of $6.4 million, return of equity method investments (dividends) of $3.7 million, stock-based compensation of $2.7 million and deferred tax assets of $0.1 million, partially offset by net loss before income attributable to noncontrolling interest and redeemable noncontrolling interests of $15.4 million and income from equity method investments of $2.3 million.

Net cash used in investing activities of $4.0 million for the nine months ended September 30, 2024 was primarily from the purchase of property, plant and equipment of $5.6 million, and investment in non-marketable equity investments of $0.6 million, partially offset by proceeds from sales and maturities of available-for-sale debt securities of $2.2 million.

Net cash used in investing activities of $4.8 million for the nine months ended September 30, 2023 was primarily from the purchase of property, plant and equipment of $11.2 million and investments in non-marketable equity investments of $1.9 million, partially offset by proceeds from sales and maturities of available-for-sale debt securities of $7.4 million and proceeds from sale of equity securities of $0.8 million.

Net cash provided by financing activities was $4.5 million for the nine months ended September 30, 2024, which consisted of proceeds from short-term loans of $41.6 million, long-term loan of $5.8 million and common stock options exercised of $28,000, partially offset by repayment of short-term loans of $42.3 million and repayment of long-term loan of $0.6 million.

Net cash provided by financing activities was $2.2 million for the nine months ended September 30, 2023, which consisted of proceeds from short-term loans of $42.2 million, a capital increase in subsidiary shares from noncontrolling interests of $0.7 million and common stock options exercised of $10,000, partially offset by repayment of short-term loans of $40.7 million.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2 unchanged sentences

Since 2015, no shares were repurchased under this program.

During the nine months ended September 30, 2024, we did not repurchase any shares under the approved stock repurchase program.

As of September 30, 2024, approximately $2.7 million remained available for future repurchases under this program.

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

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

Currently, we do not plan to repurchase additional shares.

9 unchanged sentences

Dividends paid to the Company are subject to a 10% PRC withholding tax.

The Company is required to obtain approval from the

State Administration of Foreign Exchange (“SAFE”) to transfer funds in or out of the PRC.

The Company is required to obtain approval from the State Administration of Foreign Exchange (“SAFE”) to transfer funds in or out of the PRC.

SAFE requires a valid agreement to approve the transfers, which are processed through a bank.

1 unchanged sentence

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

For the nine months ended September 30, 2024 and 2023, the aggregate dividends paid to us, directly or to an intermediate entity within our corporate structure, by our PRC subsidiaries and PRC raw material joint ventures were $2.1 million and $3.7 million, respectively.

For the nine months ended September 30, 2024 and 2023, there were no dividends paid to minority shareholders by our PRC subsidiaries or PRC raw material joint ventures.

For the nine months ended September 30, 2024, no transfers, dividends, or distributions have been made to date between the Company and its PRC subsidiaries, or to investors, except for the settlement of amounts owed under our transfer pricing arrangements in the ordinary course of business.

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

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

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

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

15 unchanged sentences

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

The following table represents short-term bank loans as of September 30, 2024 and December 31, 2023 (in thousands, except interest rate data):

September 30,

Bank of China (1)

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

Bank of China (1)

4 unchanged sentences

Industrial Bank (1)

Industrial Bank (4)

NingBo Bank (1)

Industrial and Commercial Bank of China (1)

NanJing Bank (1)

China Citic Bank (1)

Industrial and Commercial Bank of China (4)

Agricultural Bank of China (1)

Industrial and Commercial Bank of China (1)

Bank of China (1)

NingBo Bank (1)

Industrial Bank (1)

3 unchanged sentences

(1) Not collateralized.

(2) ChaoYang LiMei time deposit.

(2) AXT time deposit.

(4) BoYu’s land use rights and its building located at its facility in Tianjin, China.

In addition, the December 2023 loan attracts a guarantee fee amounting to 0.7% of the loan amount.

(3) Baoding Tongmei’s land use rights and its building located at its facility in Dingxing, China.

In addition, the loan attracts a guarantee fee amounting to 1.0% of the loan amount.

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

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

2 unchanged sentences

In January 2024, the Company borrowed $5.8 million against the credit facility.

The intended use of the credit facility is for construction of

fixed assets.

As of September 30, 2024, $5.4 million is included in “Other long-term liabilities” and $428,000 is included in “Short-term loans” in our consolidated balance sheets.

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

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

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

1 unchanged sentence

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

As of September 30, 2024, $965,000 is included in “Other long-term liabilities” and $748,000 is included in “Short-term loans” in our consolidated balance sheets.

On July 27, 2021, we filed with the SEC a registration statement on Form S-3 (as amended, the “Shelf Registration Statement”), pursuant to which we may offer up to $60 million of common stock, preferred stock, debt securities, depositary shares, warrants, subscription rights, purchase contracts and/or units in one or more offerings and in any combination.

A prospectus supplement, which we will provide each time we offer securities, will describe the specific amounts, prices and terms of the securities we determine to offer.

We currently expect to use the net proceeds from the sale of securities under the Shelf Registration Statement for working capital, capital expenditures and other general corporate purposes.

We may also use a portion of the net proceeds to acquire, license or invest in complementary products, technologies or businesses.

On May 17, 2022, the SEC declared the Shelf Registration Statement effective.

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

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

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

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

12 unchanged sentences

Land Purchase and Investment Agreement

In 2017, Baoding Tongmei established a wafer processing production line in Dingxing, China.

In addition to pledging its full support and cooperation, the Dingxing local government will issue certain tax credits to Baoding Tongmei as Baoding Tongmei achieves certain milestones.

Baoding Tongmei, in turn, agreed to hire local workers over time, pay taxes when due and eventually demonstrate a total investment of approximately $90 million in value, assets and capital.

We have established a wafer processing production line in Dingxing, China.

In addition to pledging its full support and cooperation, the Dingxing local government will issue certain tax credits to us as we achieve certain milestones.

We, in turn, agreed to hire local workers over time, pay taxes when due and eventually demonstrate a total investment of approximately $90 million in value, assets and capital.

The investment will include cash paid for the land and buildings, cash on deposit in our name at local banks, the gross value of new and used equipment (including future equipment that might be used for indium phosphide and germanium substrates production), the deemed value for our customer list or the end user of our substrates (for example, the end users of the 3-D sensing VCSELs), a deemed value for employment of local citizens, a deemed value for our proprietary process technology, other intellectual property, other intangibles and additional items of value.

There is no timeline or deadline by which this must be accomplished, rather it is a good faith

covenant entered into between Baoding Tongmei and the Dingxing local government.

There is no timeline or deadline by which this must be accomplished, rather it is a good faith covenant entered into between AXT and the Dingxing local government.

Further, there is no specific penalty contemplated if either party breaches the agreement, however the agreement does state that each party has a right to seek from the other party compensation for losses.

1 unchanged sentence

We believe that such cooperation agreements are normal, customary and usual in China and that the future valuation is flexible.

Chaoyang Tongmei has a similar agreement with the city of Kazuo, China, although on a smaller scale.

The total investment targeted by Chaoyang Tongmei in Kazuo is approximately $15 million in value, assets and capital.

In addition, BoYu has a similar agreement with the city of Kazuo.

The total investment targeted by BoYu in Kazuo is approximately $8 million in value, assets and capital.

We have a similar agreement with the city of Kazuo, China, although on a smaller scale.

The total investment targeted by AXT in Kazuo is approximately $15 million in value, assets and capital.

Off-Balance Sheet Arrangements

As of September 30, 2024, we did not have any off-balance sheet financing arrangements and have never established any special purpose entities as defined under SEC Regulation S-K Item 303(a)(4)(ii).

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

QUANTITATIVE AND QUALITATIV E DISCLOSURES ABOUT MARKET RISK

3 unchanged sentences

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

During 2023 and 2022, we recorded a foreign exchange gain of $0.2 million and $1.6 million, respectively, and during 2021 we recorded a net foreign exchange loss of $0.4 million, included as part of “Other income, net” in our condensed consolidated statements of operations.

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

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

7 unchanged sentences

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

As September 30, 2024 and December 31, 2023, the net change in fair value from the placement of the hedge to settlement at each month end during the quarter had a de minimis impact to the condensed consolidated results.

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

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

18 unchanged sentences

Interest Rate

September 30,

Cash and restricted cash

Cash, restricted cash and cash equivalents

Investments in marketable debt securities

8 unchanged sentences

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

One customer accounted for more than 10% of our accounts receivable balance as of September 30, 2024, and no customer accounted for more than 10% of our accounts receivable balance as of December 31, 2023.

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

Impairment of Equity Investment Risk

4 unchanged sentences

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

Our minority investments under the equity method as of September 30, 2024 and December 31, 2023 totaled $13.5 million and $12.5 million, respectively.

Our minority investment under the fair value method as of September 30, 2024 and December 31, 2023 totaled $0.6 million and $0.6 million, respectively.

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

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

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

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

What changed 10-Q

Item 1. Financial Statements