7 unchanged sentences
Summary Risk Factors
−Removed: ● We are subject to a number of unique legal and operational risks associated with our corporate structure.
+Added: ● Global economic and political conditions, including trade tariffs, import-export restrictions, and other restrictions, may have a negative impact on our business and financial results.We are subject to a number of unique legal and operational risks associated with our corporate structure.
● The PRC central government may intervene in or influence our PRC operations at any time and the rules and regulations in China can change quickly with little advance notice.
2 unchanged sentences
Unpredictable fluctuations in our operating results, changes and events in our end markets and global trends cause volatility in our stock price.
−Removed: ● COVID-19 or other contagious diseases may affect our business operations and financial performance.
−Removed: Lack of supply of current vaccines and resistance by some to be vaccinated could prolong COVID-19.
● We face litigation and legal proceedings which could adversely affect our business, financial condition, results of operations or cash flows.
−Removed: ● Global economic and political conditions, including trade tariffs, import-export restrictions, and other restrictions, may have a negative impact on our business and financial results.
● Changes in China’s political, social, regulatory or economic environments may affect our financial performance.
1 unchanged sentence
Shutdowns or underutilizing our manufacturing facilities may result in declines in our gross margins.
−Removed: ● Enhanced trade tariffs, import restrictions, export restrictions, Chinese regulations or other trade barriers may materially harm our business.
+Added: ● Escalating 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.
19 unchanged sentences
Risks Related to Our Business and Operations
+Added: Global economic and political conditions, including trade tariffs, import-export restrictions, and other restrictions, may have a negative impact on our business and financial results.
+Added: In September 2018, the United States announced a list of thousands of categories of goods that became subject to Section 301 tariffs when imported into the United States from China.
+Added: This pronouncement imposed tariffs on wafer substrates we imported into the United States.
+Added: The initial tariff rate was 25%.
+Added: On July 3, 2023, China announced new export control regulations on materials including gallium and germanium and compounds of these materials, effective as of August 1, 2023.
+Added: Materials that could be used in military applications, specifically including weapons of mass destruction, were the primary focus.
+Added: This required Tongmei to seek permits from the applicable Chinese authorities to export gallium arsenide and germanium substrates.
+Added: Since that time, a general escalation has been underway with further increases to the tariffs from the US and additional export controls from China.
+Added: The escalating requirements resulted in a new layer of administration within our company.
+Added: Each order needs the customer to certify in writing that our wafer substrates will not be used in military applications and must state the end use of our products.
+Added: This is a labor intensive process and has extended the cycle time in order fulfillment.
+Added: To ensure compliance in trade matters we have consulted with legal experts and incurred additional legal costs.
+Added: The rapid pace of change and new regulations in trade matters results in more internal administrative review and costs.
+Added: In late 2024 and early 2025, a new round of trade restrictions was announced by China and the United States.
+Added: On December 3, 2024, China issued further rules restricting exports of materials that can typically be used in military applications including antimony, gallium, germanium and other superhard materials.
+Added: The effective date was December 3, 2024, the same day as the announcement itself.
+Added: Reciprocally, the United States increased tariffs on many items from China from 25% to 50%, effective January 1, 2025.
+Added: On February 1, 2025, the United States again further increased the tariff on imports of many products from China, including our wafer substrates, to 60%.
+Added: On March 4, 2025, the United States further increased the tariff on imports of many products, including our wafer substrates, to 70%.
+Added: In the first half of April 2025, we observed high volatility in tariffs put in place by the United States.
+Added: At least four separate tariffs were imposed by the United States on products from China.
+Added: Tariffs on our products increased to 100%.
+Added: All of our wafer substrates are manufactured in China.
+Added: In the years 2024, 2023 and 2022, approximately 8%, 10% and 14% of our revenue, respectively, were generated by sales to customers in North America, primarily in the U.S.
+Added: In the first quarter of 2025, approximately 6% of our revenue was generated from sales to customers in North America, primarily on the U.S.
+Added: In the first quarter of 2025, we paid approximately $271,000 in tariffs.
+Added: In the years 2024, 2023 and 2022, we paid approximately $1.0 million, $1.0 million and $3.3 million, respectively, in tariffs.
+Added: The trade and political tensions between China and the U.S.
+Added: remain high and controls on exports and tariffs are changing and fluid.
Silicon substrates (wafers) are significantly lower in cost compared to substrates made from specialty materials, such as those that we produce, and new silicon-based technologies could enable silicon-based substrates to replace specialty material-based substrates for certain applications.
11 unchanged sentences
For example, in the third quarter of 2022 our gross margin was 42.0% but it dropped to 10.7% in the third quarter of 2023 as a result of several of these factors.
+Added: In the first quarter of 2025, our gross margin was a negative 6.4%.
Our raw material companies experience selling price volatility and purchase price volatility in acquiring base materials.
11 unchanged sentences
During periods of decreased demand, we have underutilized our manufacturing lines.
−Removed: If we are unable to improve utilization levels at our facilities during periods of decreased demand and correctly manage capacity, the fixed
−Removed: expense levels will have an adverse effect on our business, financial condition and results of operations.
+Added: If we are unable to improve utilization levels at our facilities during periods of decreased demand and correctly manage capacity, the fixed expense levels will have an adverse effect on our business, financial condition and results of operations.
For example, in the three months ended September 30, 2023, our revenue dropped to $17.4 million and our gross margin was only 10.7%.
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In addition, lead times required by our customers are shrinking, which reduces our ability to forecast orders and properly balance our capacity utilization.
−Removed: Global economic and political conditions, including trade tariffs, import-export restrictions, and other restrictions, may have a negative impact on our business and financial results.
−Removed: In September 2018, the Trump Administration announced a list of thousands of categories of goods that became subject to tariffs when imported into the United States from China.
−Removed: This pronouncement imposed tariffs on wafer substrates we imported into the United States.
−Removed: The initial tariff rate was 10% and subsequently was increased to 25%.
−Removed: Approximately 6% of our revenue derives from importing our wafers into the United States.
−Removed: In the first three quarters of 2024 we paid approximately $569,000 in tariffs.
−Removed: In the years ended December 31, 2023, 2022 and 2021 we paid approximately $1.0 million, $3.3 million and $1.3 million, respectively, in tariffs.
−Removed: The future impact of tariffs and trade wars is uncertain.
−Removed: The economic and political conditions between China and the United States, in our view, create an unstable business environment.
−Removed: The United States has restricted access by certain Chinese technology companies to items produced domestically and abroad from U.S.
−Removed: technology and software, which may impact our ability to grow our revenue.
−Removed: Trade restrictions against China have resulted in a greater determination within China to be self-sufficient and produce more goods domestically.
−Removed: Government agencies in China may be encouraging and supporting the founding of new companies, the addition of new products in existing companies and more vertical integration within companies.
−Removed: These factors could negatively impact our sales in China.
−Removed: Our operations and financial results depend on worldwide economic and political conditions and their impact on levels of business spending, which has deteriorated significantly in many countries and regions.
−Removed: Uncertainties in the political, financial and credit markets and U.S.
−Removed: financial system may cause our customers to postpone deliveries.
−Removed: The COVID-19 virus remains an additional cause of uncertainty.
−Removed: Additionally, U.S.
−Removed: bank failures may affect our customers.
−Removed: Delays in the placement of new orders and extended uncertainties may reduce future sales of our products and services.
−Removed: The revenue growth and profitability of our business depends on the overall demand for our substrates.
−Removed: Because the end users of our products are primarily large companies whose businesses fluctuate with general economic and business conditions, a softening of demand for products that use our substrates, caused by a weakening economy, may result in decreased revenue.
−Removed: Customers may find themselves facing excess inventory from earlier purchases and may defer or reconsider purchasing products due to the downturn in their business and in the general economy.
−Removed: For example, global business conditions deteriorated in the second half of 2022.
−Removed: In the second quarter of 2022, our revenue totaled $39.5 million.
−Removed: In the fourth quarter of 2022, our revenue declined to $26.8 million and in the third quarter of 2023, our revenue further declined to $17.4 million.
−Removed: If market conditions deteriorate, we may experience increased collection times and greater write-offs, either of which could have a material adverse effect on our profitability and our cash flow.
−Removed: Future tightening of credit markets and concerns regarding the availability of credit may make it more difficult for our customers to raise capital, whether debt or equity, to finance their purchases of capital equipment or of the products we sell.
−Removed: Delays in our customers’ ability to obtain such financing, or the unavailability of such financing, would adversely affect our product sales and revenue and, therefore, harm our business and operating results.
−Removed: We cannot predict
−Removed: the timing, duration of or effect on our business of any future economic downturn or the timing or strength of any subsequent recovery.
+Added: Cyber-attacks, system security risks and data protection issues could disrupt our internal operations and cause a reduction in revenue, increase in expenses, negatively impact our results of operation or result in other adverse consequences.
+Added: Like most technology companies, we could be targeted in cyber-attacks.
+Added: We face a risk that experienced computer programmers and hackers may be able to penetrate our network security and misappropriate or compromise our confidential and proprietary information, potentially without being detected.
+Added: Computer programmers and hackers also may be able to develop and deploy viruses, worms, and other malicious software programs that attack our information technology infrastructure and demand a ransom payment.
+Added: The costs to us to eliminate or alleviate cyber or other security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and our efforts to address these problems may not be successful and could result in interruptions and delays that may impede our sales, manufacturing, distribution, accounting or other critical functions.
+Added: Breaches of our security measures could create system disruptions or cause shutdowns or result in the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data about us.
+Added: Cyber-attacks could use fraud, trickery or other forms of deception.
+Added: A cyber-attack could expose us to a risk of loss or misuse of information, result in litigation and potential liability, damage our reputation or otherwise harm our business.
+Added: In addition, the cost and operational consequences of implementing further data protection measures could be significant.
+Added: Portions of our information technology infrastructure might also experience interruptions, delays or cessations of service or produce errors in connection with systems integration or migration work that takes place from time to time, which may have a material impact on our business.
+Added: We may not be successful in implementing new systems and transitioning data, which could cause business disruptions and be more expensive, time consuming, disruptive and resource-intensive than originally anticipated.
+Added: Such disruptions could adversely impact our ability to fulfill orders and interrupt other processes.
+Added: Delayed sales, lower margins or lost customers could adversely affect our financial results and reputation.
COVID-19 or other contagious diseases may affect our business operations and financial performance.
45 unchanged sentences
Regular use in the normal course of business of hazardous chemicals or hazardous materials or a company’s failure to meet the ever-tightening standards for control of hazardous chemicals or hazardous materials could result in orders to shut down permanently, fines or other severe measures.
−Removed: Any such orders directed at one of our raw material companies could result in impairment charges if the company is forced to close its business, cease operations or incurs fines or operating losses, which would have a material adverse effect on our financial results.
+Added: Any such orders directed at one of our raw material companies could result in impairment charges if the
+Added: company is forced to close its business, cease operations or incurs fines or operating losses, which would have a material adverse effect on our financial results.
Further, some of our raw material companies share facilities with our raw material investment partners.
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Although the relocation is completed and we are in volume production at the new sites, unforeseen manufacturing issues and restrictions at the new sites could occur.
−Removed: Problems could occur as we add capacity or comply
−Removed: with strict guidelines as customers perform their qualifications.
+Added: Problems could occur as we add capacity or comply with strict guidelines as customers perform their qualifications.
All of this will require us to continue to diligently address the many details that arise at each of our new sites.
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Our products are used to produce components for electronic and opto-electronic products.
−Removed: Accordingly, demand for our products is subject to the demand for end-user applications, including certain consumer applications, which utilize our products.
+Added: Accordingly, demand for our products is subject to the demand for end-user applications, including certain consumer applications, which
+Added: utilize our products.
For example, we have developed an 8-inch gallium arsenide wafer targeting an application in a consumer product.
11 unchanged sentences
For example, during 2019 widespread political and economic instability and trade war concerns resulted in a general slowdown and our revenue decreased significantly.
−Removed: Additionally, in the second half of 2016, manufacturers producing and selling passive optical network devices known as EPONs and GPONs experienced a slowdown in demand
−Removed: resulting in surplus inventory on hand.
+Added: Additionally, in the second half of 2016, manufacturers producing and selling passive optical network devices known as EPONs and GPONs experienced a slowdown in demand resulting in surplus inventory on hand.
The slowdown persisted until late in 2017.
This resulted in a slowdown of sales of our InP substrates used in the PON market.
−Removed: More recently, global business conditions deteriorated, beginning in the second half of 2022.
−Removed: In general, many companies purchased more inventory than needed, in part due to fears of shortages resulting from COVID.
−Removed: In the second quarter of 2022, our revenue totaled $39.5 million.
−Removed: In the fourth quarter of 2022 our revenue declined to $26.8 million, in the second quarter of 2023, our revenue declined to $18.6 million and in the third quarter of 2023, our revenue further declined to $17.4 million.
−Removed: We expect similar cycles of strong demand followed by lower demand will occur for various InP, GaAs or Ge substrates in the future.
+Added: In the second half of 2022, many companies purchased more inventory than needed, in part due to fears of shortages resulting from COVID.
+Added: This triggered an inventory correction cycle and our revenue declined as customers worked down their inventory level, We expect similar cycles of strong demand followed by lower demand will occur for various InP, GaAs or Ge substrates in the future.
Our financial performance can be adversely affected if there are unfavorable financial results in any of our raw material companies.
3 unchanged sentences
In 2024 and 2023, the companies accounted for under the equity method of accounting contributed a gain of $3.4 million and $1.9 million, respectively, to our condensed consolidated financial statements.
−Removed: In 2023, the total includes impairment charges of $1.9 million.
+Added: The 2023 total includes impairment charges of $1.9 million.
The last time the companies accounted for under the equity method of accounting contributed a loss was 2019 with a loss of $1.9 million.
3 unchanged sentences
Sumitomo and JX also compete with us in the InP market.
−Removed: If we are unable to compete effectively, our revenue may decrease and we may not maintain profitability.
+Added: are unable to compete effectively, our revenue may decrease and we may not maintain profitability.
We face many competitors that have a number of significant advantages over us, including:
10 unchanged sentences
This could result in the formation of new competitors that would compete against us and adversely affect our financial results.
−Removed: Cyber-attacks, system security risks and data protection issues could disrupt our internal operations and cause a reduction in revenue, increase in expenses, negatively impact our results of operation or result in other adverse consequences.
−Removed: Like most technology companies, we could be targeted in cyber-attacks.
−Removed: We face a risk that experienced computer programmers and hackers may be able to penetrate our network security and misappropriate or compromise our confidential and proprietary information, potentially without being detected.
−Removed: Computer programmers and hackers also may be able to develop and deploy viruses, worms, and other malicious software programs that attack our information technology infrastructure and demand a ransom payment.
−Removed: The costs to us to eliminate or alleviate cyber or other security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and our efforts to address these problems may not be successful and could result in interruptions and delays that may impede our sales, manufacturing, distribution, accounting or other critical functions.
−Removed: Breaches of our security measures could create system disruptions or cause shutdowns or result in the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data about us.
−Removed: Cyber-attacks could use fraud, trickery or other forms of deception.
−Removed: A cyber-attack could expose us to a risk of loss or misuse of information, result in litigation and potential liability, damage our reputation or otherwise harm our business.
−Removed: In addition, the cost and operational consequences of implementing further data protection measures could be significant.
−Removed: Portions of our information technology infrastructure might also experience interruptions, delays or cessations of service or produce errors in connection with systems integration or migration work that takes place from time to time, which may have a material impact on our business.
−Removed: We may not be successful in implementing new systems and transitioning data, which could cause business disruptions and be more expensive, time consuming, disruptive and resource-intensive than originally anticipated.
−Removed: Such disruptions could adversely impact our ability to fulfill orders and interrupt other processes.
−Removed: Delayed sales, lower margins or lost customers could adversely affect our financial results and reputation.
The average selling prices of our substrates may decline over relatively short periods, which may reduce our revenue and gross margins.
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Our customers are not obligated to purchase a specified quantity of our products or to provide us with binding forecasts of product purchases.
−Removed: In addition, our customers may reduce, delay or cancel orders.
+Added: addition, our customers may reduce, delay or cancel orders.
In the past, we have experienced a slowdown in bookings, significant push-outs and cancellation of orders from customers.
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We have experienced quality control problems with some of our products, which caused customers to return products to us, reduce orders for our products, or both.
−Removed: If we experience quality control problems, or experience other manufacturing problems, customers may return product for credit, cancel or reduce orders or purchase products from our competitors.
+Added: If we experience quality control problems, or experience other manufacturing problems, customers may return product for
+Added: credit, cancel or reduce orders or purchase products from our competitors.
We may be unable to maintain or increase sales to our customers and sales of our products could decline.
32 unchanged sentences
During periods of weak demand, customers typically reduce purchases, delay delivery of products and/or cancel orders for our products.
−Removed: Order cancellations, reductions in order size or delays in orders could occur and would materially adversely affect our business and results of operations.
+Added: Order cancellations, reductions in order size or delays in
+Added: orders could occur and would materially adversely affect our business and results of operations.
Actions to reduce our costs may be insufficient to align our structure with prevailing business conditions.
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We might invest in additional joint venture companies in order to remain competitive in our marketplace and ensure a supply of critical raw materials.
−Removed: However, we may not be able to identify additional complementary joint
−Removed: venture opportunities or, even once opportunities are identified, we may not be able to reach agreement on the terms of the business venture with the other investment partners.
+Added: However, we may not be able to identify additional complementary joint venture opportunities or, even once opportunities are identified, we may not be able to reach agreement on the terms of the business venture with the other investment partners.
Further, geopolitical tensions and trade wars could result in government agencies blocking such new joint ventures.
32 unchanged sentences
Risks Related to International Aspects of Our Business
+Added: Escalating and volatile trade tariffs, import restrictions, export restrictions, Chinese regulations or other trade barriers may materially harm our business.
+Added: In September 2018, the United States announced a list of thousands of categories of goods that became subject to Section 301 tariffs when imported into the United States from China.
+Added: This pronouncement imposed tariffs on wafer substrates we imported into the United States.
+Added: The initial tariff rate was 25%.
+Added: On July 3, 2023, China announced new export control regulations on materials including gallium and germanium and compounds of these materials, effective as of August 1, 2023.
+Added: Materials that could be used in military applications, specifically including weapons of mass destruction, were the primary focus.
+Added: This required Tongmei to seek permits from the applicable Chinese authorities to export gallium arsenide and germanium substrates.
+Added: Since that time, a general escalation has been underway with further increases to the tariffs from the US and additional export controls from China.
+Added: The escalating requirements resulted in a new layer of administration within our company.
+Added: Each order needs the customer to certify in writing that our wafer substrates will not be used in military applications and must state the end use of our products.
+Added: This is a labor intensive process and has extended the cycle time in order fulfillment.
+Added: To ensure compliance in trade matters we have consulted with legal experts and incurred additional legal costs.
+Added: The rapid pace of change and new regulations in trade matters results in more internal administrative review and costs.
+Added: In late 2024 and early 2025, a new round of trade restrictions was announced by China and the United States.
+Added: On December 3, 2024 China issued further rules restricting exports of materials that can typically be used in military applications including antimony, gallium, germanium and other superhard materials.
+Added: The effective date was December 3, 2024, the same day as the announcement itself.
+Added: Reciprocally, the United States increased tariffs on many items from China from 25% to 50%, effective January 1, 2025.
+Added: On February 1, 2025, the United States again further increased the tariff on imports of many products from China, including our wafer substrates, to 60%.
+Added: On March 4, 2025, the United States further increased the tariff on imports of many products, including our wafer substrates, to 70%.
+Added: In the first half of April 2025, we observed high volatility in tariffs put in place by the United States.
+Added: At least four separate tariffs were imposed by the United States on products from China.
+Added: Tariffs on our products increased to 100%.
+Added: We have little or no germanium imports into the U.S.
+Added: and historically a relatively small value of imports of gallium arsenide wafers into the U.S.
+Added: In 2024, only 8% of our total worldwide revenue was from sales in North America.
+Added: Our primary revenue generator derived from imports into the U.S.
+Added: is indium phosphide substrates.
+Added: While Tongmei has generally received the required permits for exports to countries in Asia and Europe, our U.S.
+Added: gallium arsenide customers are considered “dual use” customers:
+Added: in addition to commercial applications they have significant levels of military involvement.
+Added: As such, no permits for gallium arsenide to the U.S.
+Added: have yet been approved.
+Added: On February 4, 2025, China added indium phosphide substrates to its export control list.
+Added: As a result, the three wafer substrate product lines manufactured by Tongmei all require permits from China’s Ministry of Commerce before they can be exported from China.
+Added: To our knowledge, indium phosphide is rarely used in military applications and we can reasonably expect that export permits to ship our indium phosphide substrates to the U.S.
+Added: will be granted.
+Added: The portal to apply for exports of indium phosphide from China opened in March and we immediately began to submit our applications.
+Added: 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.
+Added: We are actively monitoring and following-up on the status of our applications.
+Added: All of our wafer substrates are manufactured in China.
+Added: In the years 2024, 2023 and 2022, approximately 8%, 10% and 14% of our revenue, respectively, were generated by sales to customers in North America, primarily in the U.S.
+Added: In the first quarter of 2025, approximately 6% of our revenue was generated by sales to customers in North America, primarily in the U.S.
+Added: In the first quarter of 2025, we paid approximately $271,000 in tariffs.
+Added: In the years 2024, 2023 and 2022, we paid approximately $1.0 million, $1.0 million and $3.3 million, respectively, in tariffs.
+Added: The future impact of tariffs and trade wars is uncertain.
+Added: Based on the tariffs enacted and currently in effect, we anticipate incurring incremental tariff costs, additional costs that we may incur on products shipped to our customers, and costs as a result of pauses on certain of our product imports, in particular products from China.
+Added: We may be required to raise prices, which may result in the loss of customers and our business, financial condition and results of operations may be materially
+Added: Additionally, it is possible that our business could be adversely impacted by further retaliatory trade measures taken by China or other countries in response to existing or future tariffs, which could cause us to raise prices or make changes to our operations, which could materially harm our business, financial condition and results of operations.
+Added: The economic and political conditions between China and the United States, in our view, create an unstable business environment.
+Added: Reciprocal trade restrictions have resulted in a greater determination to be self-sufficient and produce more goods domestically.
+Added: Both governments appear to be encouraging and supporting the founding of new companies, the addition of new products in existing companies and more vertical integration within companies.
+Added: The complexity and uncertainty of trade tensions has caused some customers and prospective customers in each county to adopt sourcing policies that block purchases from suppliers in the other county.
+Added: Further, the continued threats of tariffs and other trade restrictions could have a generally disruptive impact on the global economy and, therefore, negatively impact our sales.
+Added: The trade and political tensions between China and the U.S.
+Added: remain high and controls on exports and tariffs are changing and fluid.
+Added: There can be no assurances that Tongmei will receive China permits to export our wafer substrates or that China will not adopt additional export control regulations that affect our business, financial condition and results of operations.
+Added: Reciprocally, there can be no assurance that the U.S.
+Added: will allow products to be imported into the U.S.
+Added: from China or what the tariff charge rate might be.
+Added: Further, a volatile global trade environment increases the likelihood of supply chain disruption.
+Added: Trade barriers, political conflict, and uncertainty surrounding tariffs can lead to logistical challenges such as shipping delays, port congestion, container shortages, and other transportation bottlenecks.
+Added: These disruptions may hinder our ability to meet customer demand on a timely basis.
+Added: Consequently, prolonged trade tensions or supply chain disturbances could significantly increase our operating costs which may require us to consider alternative manufacturing options.
+Added: There is no guarantee that we can quickly secure alternative manufacturing facilities to meet customer demand of our products.
+Added: Any failure to manage these international trade and supply chain risks could materially and adversely affect our business, financial condition, and results of operations.
+Added: Changes in China’s political, social, regulatory or economic environments may affect our financial performance.
+Added: Our financial performance may be affected by changes in China’s political, social, regulatory or economic environments.
+Added: The role of the Chinese central and local governments in the Chinese economy is significant.
+Added: The Beijing municipal government’s decision to move to the Tongzhou district, the original location of our China company, resulted in the city instructing virtually all existing manufacturing companies, including AXT, to relocate all or some of their manufacturing lines.
+Added: We were instructed to move our gallium arsenide manufacturing line out of the area.
+Added: Chinese policies toward hazardous materials, including arsenic, environmental controls, air pollution, economic liberalization, laws and policies affecting technology companies, foreign investment, currency exchange rates, taxation structure and other matters could change, resulting in greater restrictions on our ability to do business and operate our manufacturing facilities in China.
+Added: We have observed a growing fluidity and tightening of regulations concerning hazardous materials, other environmental controls and air pollution.
+Added: The Chinese government could revoke, terminate or suspend our operating licenses for reasons related to environmental control over the use of hazardous materials, air pollution, labor complaints, national security and similar reasons without compensation to us.
+Added: Further, the central government encourages employees to report to the appropriate regulatory agencies possible safety or environmental violations, but there may not be actual violations.
+Added: In days of severe air pollution the government has ordered manufacturing companies to stop all production.
+Added: For example, in the first quarter of 2018, from February 27 to March 31, over 300 manufacturing companies, including us, were again intermittently shut down by the local government for a total of ten days due to severe air pollution.
+Added: Our shipments were delayed and our revenue for the quarter was negatively impacted.
+Added: We expect that mandatory factory shutdowns may occur in the future.
+Added: Any failure on our part to comply with governmental regulations could result in the loss of our ability to manufacture our products.
+Added: Further, any imposition of surcharges or any increase in Chinese tax rates or reduction or elimination of Chinese tax benefits could hurt our financial results.
The Chinese central government is increasingly aware of air pollution and other forms of environmental pollution and their reform efforts can impact our manufacturing, including intermittent mandatory shutdowns.
25 unchanged sentences
Such permits and licenses include permits to use hazardous materials in manufacturing operations.
−Removed: From time to time, the PRC government issues new regulations, which may require additional actions on the part of our PRC subsidiaries and PRC joint ventures to comply.
+Added: From time to time, the PRC government issues new regulations, which may require additional actions on the part of our
+Added: PRC subsidiaries and PRC joint ventures to comply.
For example, on February 27, 2015, the China State Administration of Work Safety updated its list of hazardous substances.
3 unchanged sentences
Any such intervention or influence or change in the rules and regulations in China could result in a material change in our PRC operations and/or the value of our common stock.
−Removed: Enhanced trade tariffs, import restrictions, export restrictions, Chinese regulations or other trade barriers may materially harm our business.
−Removed: On July 3, 2023, China adopted new export control regulations on gallium- and germanium-related materials and the derivative products using these materials, effective as of August 1, 2023, which require Tongmei to proceed to immediately seek permits from the applicable Chinese authorities to export gallium arsenide and germanium substrates.
−Removed: Indium phosphide substrates are not included in the new export control regulations, and, therefore, exports of indium phosphide will not require export approvals as part of these regulations.
−Removed: While Tongmei has received its initial China export permits to resume shipping gallium arsenide and germanium substrates to certain customers, there can be no assurances that Tongmei will continue to receive China export permits to resume shipping gallium arsenide and germanium substrates to other customers or that China will not adopt additional export control regulations that affect our business, financial condition and results of operations.
−Removed: All of our wafer substrates are manufactured in China and in the years 2023, 2022 and 2021, sales to customers in North America, primarily in the U.S., were approximately 10%, 14% and 10% of our revenue, respectively.
−Removed: In September 2018, the Trump Administration announced a list of thousands of categories of goods that became subject to tariffs when imported into the United States from China.
−Removed: This pronouncement imposed tariffs on wafer substrates we imported into the United States.
−Removed: The initial tariff rate was 10% and subsequently was increased to 25%.
−Removed: In the first three quarters of 2024 we paid approximately $ 569,000 in tariffs.
−Removed: In the years 2023, 2022 and 2021, we paid approximately $1.0 million, $3.3 million and $1.3 million, respectively, in tariffs.
−Removed: The future impact of tariffs and trade wars is uncertain.
−Removed: We may be required to raise prices, which may result in the loss of customers and our business, financial condition and results of operations may be materially harmed.
−Removed: Additionally, it is possible that our business could be adversely impacted by retaliatory trade measures taken by China or other countries in response to existing or future tariffs, which could cause us to raise prices or make changes to our operations, which could materially harm our business, financial condition and results of operations.
−Removed: The economic and political conditions between China and the United States, in our view, create an unstable business environment.
−Removed: The United States government has restricted access by certain Chinese technology companies to items produced domestically and abroad from U.S.
−Removed: technology and software, which may impact our ability to maintain or grow our revenue.
−Removed: Trade restrictions against China have resulted in a greater determination within China to be self-sufficient and produce more goods domestically.
−Removed: Government agencies in China may be encouraging and supporting the founding of new companies, the addition of new products in existing companies and more vertical integration within companies.
−Removed: These factors have resulted in lower revenue from sales of our wafer substrates in China.
−Removed: Further, the continued threats of tariffs and other trade restrictions could have a generally disruptive impact on the global economy and, therefore, negatively impact our sales.
−Removed: In addition, we may incur increases in costs and other adverse business consequences, including losses of customers and revenue or decreased gross margins, due to changes in tariffs, import or export restrictions, further trade barriers, or unexpected changes in regulatory requirements.
−Removed: In addition, in July 2012, we received notice of retroactive value-added taxes (VATs) levied by the tax authorities in China, which applied for the period from July 1, 2011 to June 30, 2012.
−Removed: We expensed the retroactive VATs of approximately $1.3 million in the quarter ended June 30, 2012, which resulted in a decrease in our gross margins.
−Removed: These VATs will continue to negatively impact our gross margins for the future quarters.
−Removed: Given the relatively fluid regulatory environment in China and the United States, there could be
−Removed: additional tax or other regulatory changes in the future.
−Removed: Any such changes could directly and materially adversely impact our financial results and general business condition.
+Added: Uncertainty regarding the United States’ foreign policy, particularly with regards to China, could disrupt our business.
+Added: We manufacture our substrates in China and, in the year ended December 31, 2024, approximately 92% of our sales were to customers located outside the United States.
+Added: Further, we have partial ownership of raw material companies in China as part of our supply chain.
+Added: The United States’ current foreign policy has created uncertainty and caution in the international business community, resulting in disruptions in manufacturing, import/export, trade tariffs, sales, investments and other business activity.
+Added: Such disruptions have had an adverse impact on our financial performance and could continue in the future.
COVID-19 or other contagious diseases may affect our business operations and financial performance.
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As a result, our revenue would decline.
−Removed: Changes in China’s political, social, regulatory or economic environments may affect our financial performance.
−Removed: Our financial performance may be affected by changes in China’s political, social, regulatory or economic environments.
−Removed: The role of the Chinese central and local governments in the Chinese economy is significant.
−Removed: The Beijing municipal government’s decision to move to the Tongzhou district, the original location of our China company, resulted in the city instructing virtually all existing manufacturing companies, including AXT, to relocate all or some of their manufacturing lines.
−Removed: We were instructed to move our gallium arsenide manufacturing line out of the area.
−Removed: Chinese policies toward hazardous materials, including arsenic, environmental controls, air pollution, economic liberalization, laws and policies affecting technology companies, foreign investment, currency exchange rates, taxation structure and other matters could change, resulting in greater restrictions on our ability to do business and operate our manufacturing facilities in China.
−Removed: We have observed a growing fluidity and tightening of regulations concerning hazardous materials, other environmental controls and air pollution.
−Removed: The Chinese government could revoke, terminate or suspend our operating licenses for reasons related to environmental control over the use of hazardous materials, air pollution, labor complaints, national security and similar reasons without compensation to us.
−Removed: Further, the central government encourages employees to report to the appropriate regulatory agencies possible safety or environmental violations, but there may not be actual violations.
−Removed: In days of severe air pollution the government has ordered manufacturing companies to stop all production.
−Removed: For example, in the first quarter of 2018, from February 27 to March 31, over 300 manufacturing companies, including us, were again intermittently shut down by the local government for a total of ten days due to severe air pollution.
−Removed: Our shipments were delayed and our revenue for the quarter was negatively impacted.
−Removed: We expect that mandatory factory shutdowns may occur in the future.
−Removed: Any failure on our part to comply with governmental regulations could result in the loss of our ability to manufacture our products.
−Removed: Further, any imposition of surcharges or any increase in Chinese tax rates or reduction or elimination of Chinese tax benefits could hurt our financial results.
Financial market volatility and adverse changes in the domestic, global, political and economic environment could have a significant adverse impact on our business, financial condition and operating results.
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and China, and U.S.
−Removed: bank failures in 2023, among other factors, are creating an unstable environment
−Removed: and can disrupt or restrict commerce.
+Added: bank failures in 2023, among other factors, are creating an unstable environment and can disrupt or restrict commerce.
Although we remain well-capitalized, the cost and availability of funds may be adversely affected by illiquid credit markets.
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In addition to risks regarding income tax we have in the past been retroactively assessed value added taxes (“VAT” or “sales tax”) and such VAT assessments could occur again in the future.
−Removed: Uncertainty regarding the United States’ foreign policy, particularly with regards to China, could disrupt our business.
−Removed: We manufacture our substrates in China and, in the year ended December 31, 2023, approximately 90% of our sales were to customers located outside the United States.
−Removed: Further, we have partial ownership of raw material companies in China as part of our supply chain.
−Removed: The United States’ current foreign policy has created uncertainty and caution in the international business community, resulting in disruptions in manufacturing, import/export, trade tariffs, sales, investments and other business activity.
−Removed: Such disruptions have had an adverse impact on our financial performance and could continue in the future.
Dividends from within our corporate structure are subject to PRC withholding tax and SAFE approval.
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We are subject to foreign exchange gains and losses that may materially impact our condensed consolidated statements of operations.
−Removed: For example, in 2023 and 2022, we incurred foreign exchange gains of $169,000 and $1.6 million, respectively, and in 2021, we incurred a foreign exchange loss of $434,000.
+Added: For example, in 2024, 2023 and 2022, we incurred foreign exchange gains of $91,000, $169,000 and $1.6 million, respectively.
The functional currency of our companies in China is the Chinese renminbi, the local currency.
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As a result, our revenue could be adversely impacted, and our relationships with our customers could suffer, impacting our ability to generate future revenue.
−Removed: In addition, if
−Removed: power is shut off at any of our facilities at any time, either voluntarily or as a result of unplanned brownouts, during certain phases of our manufacturing process including our crystal growth phase, the work in process may be ruined and rendered unusable, causing us to incur costs that will not be covered by revenue, and negatively impacting our cost of revenue and gross margins.
+Added: In addition, if power is shut off at any of our facilities at any time, either voluntarily or as a result of unplanned brownouts, during certain phases of our manufacturing process including our crystal growth phase, the work in process may be ruined and rendered unusable, causing us to incur costs that will not be covered by revenue, and negatively impacting our cost of revenue and gross margins.
Although the audit report is prepared by an independent registered public accounting firm who is currently inspected fully by the PCAOB, there is no guarantee that future audit reports will be prepared by an independent registered public accounting firm that is completely inspected by the PCAOB.
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The lack of PCAOB inspections of audit work undertaken in China prevented the PCAOB from regularly evaluating independent registered public accounting firms’ audits and their quality control procedures.
−Removed: As a result, to the extent that any component of our independent registered public accounting firm’s work papers is or becomes located in China, such work papers may not be subject to inspection by the PCAOB.
+Added: As a result, to the extent that any component of our independent registered public accounting firm’s work papers is or becomes located in China, such
+Added: work papers may not be subject to inspection by the PCAOB.
As a result, investors would be deprived of such PCAOB inspections, which could result in limitations or restrictions to our access of the U.S.
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stock exchanges if we are determined to be a Commission-Identified Issuer for three consecutive years, and this ultimately could result in our common stock being delisted.
−Removed: Furthermore, on
−Removed: June 22, 2021, the U.S.
+Added: Furthermore, on June 22, 2021, the U.S.
Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S.
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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.
−Removed: As a result, the SEC will not provisionally or conclusively identify an issuer as a Commission-Identified Issuer if it files an annual report with an audit report issued by a registered public accounting firm headquartered in either jurisdiction on or after December 15, 2022, until such time as the PCAOB issues a new determination.
+Added: As a result, the SEC will not provisionally or conclusively identify an issuer as a
+Added: Commission-Identified Issuer if it files an annual report with an audit report issued by a registered public accounting firm headquartered in either jurisdiction on or after December 15, 2022, until such time as the PCAOB issues a new determination.
The SEC will continue to include any Commission-Identified Issuer on the provisional or conclusive list if they filed an annual report with an audit report issued by a registered public accounting firm headquartered in mainland China and Hong Kong prior to the PCAOB’s decision to vacate its 2021 determinations.
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Our actual results may not meet the guidance we have provided.
−Removed: If our operating or financial results do not meet our guidance or the expectations of investment analysts, our stock price may decline.
+Added: our operating or financial results do not meet our guidance or the expectations of investment analysts, our stock price may decline.
We have adopted certain anti-takeover measures that may make it more difficult for a third party to acquire us.
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We rely on a combination of patents, copyrights, trademarks, trade secrets and trade secret laws, non-disclosure agreements and other intellectual property protection methods to protect our proprietary technology.
−Removed: We believe that our
−Removed: internal, non-patented proprietary process technology methods, systems and processes are a valuable and critical element of our intellectual property.
+Added: We believe that our internal, non-patented proprietary process technology methods, systems and processes are a valuable and critical element of our intellectual property.
We must establish and maintain safeguards to avoid the theft of these processes.
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We may have to resort to costly litigation to enforce our intellectual property rights, to protect our trade secrets or know-how or to determine their scope, validity or enforceability.
−Removed: Enforcing or defending our proprietary technology is expensive, could cause us to divert resources and may not prove successful.
+Added: Enforcing or defending our proprietary technology is
+Added: expensive, could cause us to divert resources and may not prove successful.
Our protective measures may prove inadequate to protect our proprietary rights, and if we fail to enforce or protect our rights, we could lose valuable assets.
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For example, on February 27, 2015, the China State Administration of Work Safety updated its list of hazardous substances.
−Removed: The previous list, which was published in 2002, did not restrict the materials
−Removed: that we use in our wafers.
+Added: The previous list, which was published in 2002, did not restrict the materials that we use in our wafers.
The new list added gallium arsenide.
1 unchanged sentence
We face litigation and legal proceedings which could adversely affect our business, financial condition, results of operations or cash flows.
−Removed: We are subject to lawsuits, investigations and claims covering a wide range of matters.
−Removed: We are currently the subject of complaints alleging violations of various laws, including but not limited to federal securities laws, including a shareholder class action, described under the “Legal Proceedings” elsewhere in this report, and in the future could be subject to other proceedings.
−Removed: This litigation and any other regulatory proceedings or actions may be time consuming, could cause us to incur significant defense costs, and could damage our reputation or adversely affect our stock price.
−Removed: In the event that there is an adverse ruling in any legal or regulatory proceeding or action, we may be required to make payments to third parties that could have a material adverse effect on our business, financial condition, results of operations or cash flows.
+Added: We are subject to lawsuits, investigations and claims in the normal course of our business, which can be expensive, lengthy, and disruptive to normal business operations.
+Added: As described under the heading in the “Legal Proceedings” section elsewhere in this report, we, along with our Chief Executive Officer, Morris Young, and our Chief Financial Officer, Gary Fischer, are the subject of a complaint alleging violations of federal securities laws.
+Added: Our current and former directors and certain officers, are also the subject of a derivative lawsuit arising from the same allegations.
+Added: In the future, we could be subject to other proceedings.
+Added: This litigation and any other regulatory proceedings or claims may be time consuming, could cause us to incur significant defense costs, are disruptive to our normal business operations, and could damage our reputation or adversely affect our stock price.
+Added: In the event there is an adverse ruling in any legal or regulatory proceeding or action, we may be required to make payments to third parties that could have a material adverse effect on our business, financial condition, results of operations or cash flows.
+Added: Further, if we become involved in other class action litigation in the future, it could result in substantial costs and diversion of our management’s attention and resources, thus harming our business.
+Added: For additional information regarding certain of the matters in which we are involved, see Item 1, “Legal Proceedings,” contained in Part II of this report.
We could be subject to suits for personal injuries caused by hazardous materials.
21 unchanged sentences
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.