AXT INC

Previous wording

ITEM 2. MANAGEMENT’S DISCUSSIO****N AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Current wording

ITEM 2. MANAGEMENT**’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Previous wording

This Quarterly Report on Form 10-Q of AXT, Inc., a Delaware corporation (“AXT”, “the Company”, “we,” “us,” and “our” refer to AXT, Inc. and its consolidated subsidiaries) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements relating to our expectations regarding results of operations, market and customer demand for our products, customer qualifications of our products, our ability to expand our markets or increase sales, emerging applications using chips or devices fabricated on our substrates, including the use of InP wafer substrates in artificial intelligence (“AI”) applications, the development and adoption of new products, applications, enhancements or technologies, the life cycles of our products and applications, product yields and gross margins, expense levels, the impact of the adoption of certain accounting pronouncements, our investments in capital projects, ramping production at our new sites, potential severance costs with respect to any reduction in our work force, our ability to have new customers qualify substrates from our new manufacturing locations in China, our ability to utilize or increase our manufacturing capacity, and our belief that we have adequate cash and investments to meet our needs over the next 12 months are forward-looking statements. Additionally, statements regarding completing steps in connection with the proposed listing of shares of our wafer manufacturing company, Beijing Tongmei Xtal Technology Co., Ltd. (“Tongmei”), on the Shanghai Stock Exchange’s Sci-Tech innovAtion boaRd (the “STAR Market”), being accepted to list shares of Tongmei on the STAR Market, the timing and completion of such listing of shares of Tongmei on the STAR Market are forward-looking statements. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “goals,” “should,” “continues,” “would,” “could” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this Quarterly Report on Form 10-Q. Additionally, statements concerning future matters such as our strategy and plans, industry trends and the impact of trends, tariffs and trade wars, geopolitical tensions, export restrictions in China, the potential or expected impact of the COVID-19 pandemic on our business, results of operations and financial condition, mandatory factory shutdowns in China, changes in policies and regulations in China and economic cycles on our business are forward-looking statements.

Current wording

This Quarterly Report on Form 10-Q of AXT, Inc., a Delaware corporation (“AXT”, “the Company”, “we,” “us,” and “our” refer to AXT, Inc. and its consolidated subsidiaries) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements relating to our expectations regarding results of operations, market and customer demand for our products, customer qualifications of our products, our ability to expand our markets or increase sales, emerging applications using chips or devices fabricated on our substrates, including the use of InP wafer substrates in artificial intelligence (“AI”) applications, the development and adoption of new products, applications, enhancements or technologies, the life cycles of our products and applications, product yields and gross margins, expense levels, the impact of the adoption of certain accounting pronouncements, our investments in capital projects, ramping production at our new sites, potential severance costs with respect to any reduction in our work force, our ability to have new customers qualify substrates from our new manufacturing locations in China, our ability to utilize or increase our manufacturing capacity, and our belief that we have adequate cash and investments to meet our needs over the next 12 months are forward-looking statements. Additionally, statements regarding completing steps in connection with the proposed listing of shares of our wafer manufacturing company, Beijing Tongmei Xtal Technology Co., Ltd. (“Tongmei”), on the Shanghai Stock Exchange’s Sci-Tech innovAtion boaRd (the “STAR Market”), being accepted to list shares of Tongmei on the STAR Market, the timing and completion of such listing of shares of Tongmei on the STAR Market are forward-looking statements. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “goals,” “should,” “continues,” “would,” “could” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this Quarterly Report on Form 10-Q. Additionally, statements concerning future matters such as our strategy and plans, industry trends and the impact of trends, tariffs and trade wars, geopolitical tensions, export restrictions in China, results of operations and financial condition, mandatory factory shutdowns in China, changes in policies and regulations in China and economic cycles on our business are forward-looking statements.

Previous wording

Our forward-looking statements are based upon assumptions that are subject to uncertainties and factors relating to the Company’s operations and business environment, which could cause actual results to differ materially from those expressed or implied in the forward-looking statements contained in this Quarterly Report on Form 10-Q. These uncertainties and factors include, but are not limited to: the withdrawal, cancellations or requests for redemptions by private equity funds in China of their investments in Tongmei, the administrative challenges in satisfying the requirements of various government agencies in China in connection with the investments in Tongmei and the listing of shares of Tongmei on the STAR Market, continued open access to companies to list shares on the STAR Market, investor enthusiasm for new listings of shares on the STAR Market and geopolitical tensions between China and the United States. Additional uncertainties and factors include, but are not limited to: the timing and receipt of significant orders; the cancellation of orders and return of product; emerging applications using chips or devices fabricated on our substrates; end-user acceptance of products containing chips or devices fabricated on our substrates; our ability to bring new products to market; product announcements by our competitors; the ability to control costs and improve efficiency; the ability to utilize our manufacturing capacity; product yields and their impact on gross margins; the relocation of manufacturing lines and ramping of production; possible factory shutdowns as a result of air pollution in China; COVID-19 or other outbreaks of a contagious disease; the availability of current COVID-19 vaccines; tariffs and other trade war issues; export restrictions in China; the financial performance of our partially owned supply chain companies; policies and regulations in China; and other factors as set forth in this Quarterly Report on Form 10-Q, including those set forth under the section entitled “Risk Factors” in Part II, Item 1A below. All forward-looking statements are based upon management’s views as of the date of this Quarterly Report on Form 10-Q and are subject to risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated in such forward-looking statements. Such risks and uncertainties include those set forth under the section entitled “Risk Factors” in Part II, Item 1A below, as well as those discussed elsewhere in this Quarterly Report on Form 10-Q and identify important factors that could disrupt or injure our business or cause actual results to differ materially from those predicted in any such forward-looking statements.

Current wording

Our forward-looking statements are based upon assumptions that are subject to uncertainties and factors relating to the Company’s operations and business environment, which could cause actual results to differ materially from those expressed or implied in the forward-looking statements contained in this Quarterly Report on Form 10-Q. These uncertainties and factors include, but are not limited to: the withdrawal, cancellations or requests for redemptions by private equity funds in China of their investments in Tongmei, the administrative challenges in satisfying the requirements of various government agencies in China in connection with the investments in Tongmei and the listing of shares of Tongmei on the STAR Market, continued open access to companies to list shares on the STAR Market, investor enthusiasm for new listings of shares on the STAR Market and geopolitical tensions between China and the United States. Additional uncertainties and factors include, but are not limited to: the timing and receipt of significant orders; the cancellation of orders and return of product; emerging applications using chips or devices fabricated on our substrates; end-user acceptance of products containing chips or devices fabricated on our substrates; our ability to bring new products to market; product announcements by our competitors; the ability to control costs and improve efficiency; the ability to utilize our manufacturing capacity; product yields and their impact on gross margins; the relocation of manufacturing lines and ramping of production; possible factory shutdowns as a result of air pollution in China; outbreaks of a contagious disease; tariffs and other trade war issues; export restrictions in China; the financial performance of our partially owned supply chain companies; policies and regulations in China; and other factors as set forth in this Quarterly Report on Form 10-Q, including those set forth under the section entitled “Risk Factors” in Part II, Item 1A below. All forward-looking statements are based upon management’s views as of the date of this Quarterly Report on Form 10-Q and are subject to risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated in such forward-looking statements. Such risks and uncertainties include those set forth under the section entitled “Risk Factors” in Part II, Item 1A below, as well as those discussed elsewhere in this Quarterly Report on Form 10-Q and identify important factors that could disrupt or injure our business or cause actual results to differ materially from those predicted in any such forward-looking statements.

Previous wording

These forward-looking statements are not guarantees of future performance. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report on Form 10-Q, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects. We undertake no obligation to revise or update any forward-looking statements in order to reflect any development, event or circumstance that may arise after the date of this Quarterly Report on Form 10-Q. This discussion should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our

Current wording

These forward-looking statements are not guarantees of future performance. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report on Form 10-Q, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects. We undertake no obligation to revise or update any forward‑looking statements in order to reflect any development, event or circumstance that may arise after the date of this Quarterly Report on Form 10-Q. This discussion should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Annual Report”) and the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Previous wording

2020, Investors, which consist of 10 private equity funds, had entered into two sets of definitive transaction documents, each consisting of a capital increase agreement along with certain supplemental agreements in substantially the same form (collectively, the “Capital Investment Agreements”), with Tongmei for a total investment of approximately $48.1 million. The currency used in the investment transactions was the Chinese renminbi, which has been converted to approximate U.S. dollars for this Quarterly Report on Form 10-Q. The remaining investment of approximately $1.5 million of new capital was funded in January 2021. The government approved the approximately $49 million investment in its entirety on January 25, 2021. In exchange for an investment of approximately $49 million, the Investors received a 7.28% redeemable noncontrolling interest in Tongmei.

Current wording

On November 16, 2020, we announced a strategic initiative to access China’s capital markets by beginning a process to list shares of Tongmei in an initial public offering (the “IPO”) on the STAR Market, an exchange intended to support innovative companies in China. We formed and founded Tongmei in 1998 and believe Tongmei has grown into a company that will be an attractive offering on the STAR Market. To qualify for a STAR Market listing, the first major step in the process was to engage private equity firms in China (“Investors”) to invest funds in Tongmei. By December 31, 2020, Investors, which consist of 10 private equity funds, had entered into two sets of definitive transaction documents, each consisting of a capital increase agreement along with certain supplemental agreements in substantially the same form (collectively, the “Capital Investment Agreements”), with Tongmei for a total investment of approximately $48.1 million. The currency used in the investment transactions was the Chinese renminbi, which has been converted to approximate U.S. dollars for this Quarterly Report on Form 10-Q. The remaining investment of approximately $1.5 million of new capital was funded in January 2021. The government approved the approximately $49 million investment in its entirety on January 25, 2021. In exchange for an investment of approximately $49 million, the Investors received a 7.28% redeemable noncontrolling interest in Tongmei.

Previous wording

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. The PRC government is a single party form of government with virtually unlimited authority and power to intervene in or influence commercial operations in China. In the past, we have experienced such intervention or influence by the PRC government and a change in the rules and regulations in China when we were instructed by the Beijing municipal government to relocate part of our manufacturing facility in Beijing and expect that such intervention or influence or change in the rules and regulations in China could occur in the future.

Current wording

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. The PRC government is a single party form of government with virtually unlimited authority and power to intervene in or influence commercial operations in China. We have experienced such interventions or influence by the PRC government and expect that such intervention or influence or change in the rules and regulations in China could occur in the future.

Previous wording

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.

Current wording

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.

Previous wording

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. We review the terms of the transfer pricing arrangements annually with our independent registered public accounting firm. In the past, we sold to our PRC subsidiaries capital equipment that we purchased at the request of our PRC subsidiaries and for which we were reimbursed by the applicable PRC subsidiary. In recent years, Tongmei purchases capital equipment from suppliers in Taiwan, Japan, China, Europe or South Korea. Third, our PRC subsidiaries and PRC joint ventures pay dividends to entities within the Company’s corporate structure. 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. For the year ended December 31, 2024, the aggregate dividends paid to minority shareholders by our PRC subsidiaries and PRC raw material joint ventures were approximately $0. All of these distributions were paid to our PRC subsidiaries and the minority shareholders. 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.

Current wording

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. Second, we use transfer pricing arrangements to buy from our PRC subsidiaries and PRC joint ventures wafers and raw materials. We review the terms of the transfer pricing arrangements annually with our independent registered public accounting firm. In the past, we sold to our PRC subsidiaries capital equipment that we purchased at the request of our PRC subsidiaries and for which we were reimbursed by the applicable PRC subsidiary. In recent years, Tongmei purchases capital equipment from suppliers in Taiwan, Japan, China, Europe or South Korea. Third, our PRC subsidiaries and PRC joint ventures pay dividends to entities within the Company’s corporate structure. For the six months ended June 30, 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 $0.9 million. 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. For the year ended December 31, 2024, the aggregate dividends paid to minority shareholders by our PRC subsidiaries and PRC raw material joint ventures were approximately $0. All of these distributions were paid to our PRC subsidiaries and the minority shareholders. For the six months ended June 30, 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.

Previous wording

Our independent registered public accounting firm is BPM LLP (“BPM”), which is registered with the PCAOB. The Holding Foreign Companies Accountable Act (the “HFCA Act”) requires that the PCAOB determine whether it is unable to inspect or investigate completely registered public accounting firms located in a non-U.S. jurisdiction because of a position taken by one or more authorities in that jurisdiction. On December 16, 2021, the PCAOB issued a report on its determinations that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in the PRC and Hong Kong because of positions taken by PRC authorities in those jurisdictions. BPM is headquartered in the United States and not in the PRC or Hong Kong. As such, BPM is subject to the determinations announced by the PCAOB. 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. 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.

Current wording

Our independent registered public accounting firm is BPM LLP (“BPM”), which is registered with the PCAOB. The Holding Foreign Companies Accountable Act (the “HFCA Act”) requires that the PCAOB determine whether it is unable to inspect or investigate completely registered public accounting firms located in a non-U.S. jurisdiction because of a position taken by one or more authorities in that jurisdiction. On December 16, 2021, the PCAOB issued a report on its determinations that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in the PRC and Hong Kong because of positions taken by PRC authorities in those jurisdictions. BPM is headquartered in the United States and not in the PRC or Hong Kong. As such, BPM is not subject to the determinations announced by the PCAOB. 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. 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.

Previous wording

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 (6N and 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. 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. We account for a contract with a customer when there is a legally enforceable contract, which could be the customer’s purchase order, the rights of the parties are identified, the contract has commercial terms, and collectibility of the contract consideration is probable. 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

Current wording

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 (6N and 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. 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. We account for a contract with a customer when there is a legally enforceable contract, which could be the customer’s purchase order, the rights of the parties are identified, the contract has commercial terms, and collectibility of the contract consideration is probable. 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. 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.

Previous wording

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 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.

Current wording

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 June 30, 2025 and December 31, 2024, our accounts receivable, net balance was $22.8 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.

Previous wording

We maintain a product warranty based upon our claims experience during the prior twelve months and any pending claims and returns of which we are aware. Warranty costs are accrued at the time revenue is recognized. 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. If actual warranty costs or pending new claims differ substantially from our estimates, revisions to the estimated warranty liability would be required, which could have a material impact on our financial condition and results of operations for future periods.

Current wording

We maintain a product warranty based upon our claims experience during the prior twelve months and any pending claims and returns of which we are aware. Warranty costs are accrued at the time revenue is recognized. As of June 30, 2025 and December 31, 2024, accrued product warranties totaled $435,000 and $451,000, respectively. The decrease in accrued product warranties is primarily attributable to decreased claims for quality issues experienced by customers. If actual warranty costs or pending new claims differ substantially from our estimates, revisions to the estimated warranty liability would be required, which could have a material impact on our financial condition and results of operations for future periods.

Previous wording

Inventories are stated at the lower of cost (approximated by standard cost) or net realizable value. Cost is determined using the weighted-average cost method. Our inventory consists of raw materials as well as finished goods and work in process that include material, labor and manufacturing overhead costs. 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 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.

Current wording

Inventories are stated at the lower of cost (approximated by standard cost) or net realizable value. Cost is determined using the weighted-average cost method. Our inventory consists of raw materials as well as finished goods and work in process that include material, labor and manufacturing overhead costs. 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 June 30, 2025 and December 31, 2024, we had an inventory reserve of $26.5 million and $24.1 million, respectively, for excess and obsolete inventory and $141,000 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.

Previous wording

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

Current wording

There have been no transfers between fair value measurement levels during the three and six months ended June 30, 2025 and 2024.

Previous wording

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. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that a portion of the deferred tax asset will not be realized. Our deferred tax assets have been reduced to zero by valuation allowance.

Current wording

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. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that a portion of the deferred tax asset will not be realized.

Previous wording

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

Current wording

The Company has been impacted by escalating trade tensions and regulations. 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. 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%. Due to the uncertainties pertaining to export restrictions in China and tariffs and tariff levels in the United States, it is difficult for us to reliably forecast the short-term or ongoing impact to our business or that of our customers but is expected that tariffs and export regulations would negatively impact our revenues, profitability and cash flows. We are closely monitoring the fluid nature of proposed tariffs and any impact they may have on our operations and will continue to monitor macroeconomic conditions and evaluate the financial and operational impact of ongoing trade policy shifts.

Previous wording

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. 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.

Current wording

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. On February 4, 2025, China added indium phosphide substrates to its export control list. As a result, the three wafer substrate product families manufactured by Tongmei all require permits from China’s Ministry of Commerce before they can be exported from China. The portal to apply for exports of indium phosphide from China opened in March and we immediately began to submit our applications. On June 11, Tongmei was informed that it has satisfied the applicable requirements for a permit to export indium phosphide and has received its initial export permits from the Ministry of Commerce of the People’s Republic of China to resume shipping indium phosphide substrates to certain customers in Europe and Japan. More recently, we have also obtained export permits for indium phosphide shipments to the UK and Canada. 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. 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.

Previous wording

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.

Current wording

Revenue decreased $10.0 million, or 35.6%, to $18.0 million for the three months ended June 30, 2025 from $27.9 million for the three months ended June 30, 2024. The substrate revenue decrease for the three months ended June 30, 2025 as compared to the same period in 2024 was primarily the result of lower demand for InP wafer substrates used for data center applications and in passive optical networks, as a result of export restrictions imposed by the China governmentand decreased demand for GaAs wafer substrates due to decreased demand across a number of applications and weaker demand for Ge wafer substrates in China. Raw materials sales decreased $1.5 million, or 18.3%, to $6.7 million for the three months ended June 30, 2025 as compared to the same period in 2024. The decrease in raw materials revenue for the three months ended June 30, 2025 as compared to the same period in 2024 was primarily the result of a decrease in sales of refined gallium and pBN crucibles resulting from weaker market demand.

Previous wording

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.

Current wording

Revenue in China decreased $0.5 million for the six months ended June 30, 2025, primarily due to lower demand for our InP and Ge wafer substrates and pBN crucibles sold by one of our consolidated subsidiaries, partially offset by higher demand for our GaAs wafer substrates and refined gallium sold by one of our consolidated subsidiaries. Revenue in Taiwan decreased $6.3 million, primarily due to the impact of China export restrictions on our InP and GaAs wafer substrates. Revenue in Japan decreased $0.4 million, primarily due to the impact of China export restrictions on our InP and GaAs wafer substrates, partially offset by higher demand for pBN crucibles sold by one of our consolidated subsidiaries. Revenue in Asia Pacific decreased $0.3 million, primarily due to the impact of China export restrictions on 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 $4.7 million, primarily dueto the impact of China export restrictions on our GaAs, InP and Ge wafer substrates andlower demand forpBN crucibles sold by one of our consolidated subsidiaries. Revenue in North America decreased $1.1 million, primarily due to the impact of China export restrictions on our InP and GaAs wafer substrates andlower demand forpBN crucibles sold by one of our consolidated subsidiaries.

Previous wording

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.

Current wording

Gross profit decreased 6.2 million, or 81.3%, to a profit of $1.4 million forthe three months ended June 30, 2025 from $7.7 million for the three months ended June 30, 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 lower 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.

Previous wording

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.

Current wording

Selling, general and administrative expenses decreased $126,000, or 2.2%, to $5.7 million for the three months ended June 30, 2025 from $5.8 million for the three months ended June 30, 2024. The lower selling, general and administrative expenses were primarily from a decrease in legal and professional service expenses, outside commissions and office supply expenses, partially offset by an increase in compensation related expenses.

Previous wording

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.

Current wording

Research and development expenses decreased $1.2 million, or 32.8%, to $2.5 million for the three months ended June 30, 2025 from $3.8 million for the three months ended June 30, 2024. The decrease in research and development expenses for the three months ended June 30, 2025 was primarily due to lower product development expenses for crystal ingot processing, partially offset by higher compensation related expenses.

Previous wording

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.

Current wording

Interest expense, net decreased $80,000, or 28.4%, to $202,000 for the three months ended June 30, 2025 from $282,000 for the three months ended June 30, 2024. Interest expense, net decreased primarily due to higher interest income during the three months ended June 30, 2025 as compared to the three months ended June 30, 2024.

Previous wording

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.

Current wording

The gain (loss) from equity method and fair value investments was a loss of $0.2 million for the three months ended June 30, 2025 as compared to income of $0.6 million for the three months ended June 30, 2024. The decrease in income of $0.8 million is primarily dueto weaker performance in unconsolidated joint ventures.

Previous wording

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.

Current wording

Other income, net decreased $0.5 million, or 95.3%, to an income of $23,000 for the three months ended June 30, 2025 from an income of $0.5 million for the three months ended June 30, 2024. Other income, net decreased primarily due to a decrease in government grants.

Previous wording

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. Our estimated tax rate can vary greatly from year to year because of the change or benefit in the mix of taxable income between our U.S. and China-based operations.

Current wording

Provision for income taxes increased $458,000, or 378.5%, to a provision of $579,000 for the three months ended June 30, 2025 as compared to a provision of $121,000 for the three months ended June 30, 2024. The tax expense recorded for the three months ended June 30, 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 for the U.S. parent company. Our estimated tax rate can vary greatly from year to year because of the change or benefit in the mix of taxable income between our U.S. and China-based operations.

Previous wording

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.

Current wording

Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests increased $1.0 million or 310.1% to a loss of $0.7 million for the three months ended June 30, 2025, from an income of $317,000 for the three months ended June 30, 2024, primarily due to lower profitability from our PRC subsidiaries as sales decreased.

Previous wording

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 inthe 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 inrestricted cash.

Current wording

As of June 30, 2025, our principal source of liquidity was $35.1 million, which consisted of cash of $27.0 million and restricted cashof $8.1 million. In the six months ended June 30, 2025, cash and restricted cash increased by $1.3 million. The increase in cash and restricted cash of $1.3 million in the six months ended June 30, 2025 was primarily due to net cash provided by financing activities of $6.6 million and the effect of exchange rate changes of $4.3 million, partially offset by net cash used in operating activities of $7.9 million and net cash used in investing activities of $1.6 million. As of June 30, 2025, we and our PRC subsidiaries held approximately $29.8 million in cash and investments in foreign bank accounts, of which $7.9 million was classified in restricted cash.

Previous wording

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.

Current wording

As of June 30, 2024, our principal source of liquidity was $43.3 million, which consisted of cash and restricted cash of $41.6 million and investments of $1.7 million. In the six months ended June 30, 2024, cash and restricted cash decreased by $8.5 million and investments decreased by $0.5 million. The decrease in cash and restricted cash of $8.5 million in the six months ended June 30, 2024 was primarily due to net cash used in operating activities of $8.0 million and net cash used in investing activities of $4.5 million, partially offset by net cash provided by financing activities of $3.7 million and the effect of exchange rate changes of $0.2 million. As of June 30, 2024, we and our consolidated joint ventures in China held approximately $35.6 million in cash and investments in foreign bank accounts.

Previous wording

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.

Current wording

Net cash used in operating activitiesof $7.9 million for the six months ended June 30, 2025 was primarily comprisedof a net loss before income attributable to noncontrolling interest and redeemable noncontrolling interests of $17.7 million and gain from equity method and fair value investments of $0.1 million, partially offset by the adjustment for non-cash items of depreciation and amortization of $4.5 million, a net change of $3.3 million in operating assets and liabilities, stock-based compensation of $1.3 million and return of equity method investments as dividends of $0.9 million.

Previous wording

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.

Current wording

Net cash used in operating activities of $8.0 million for the six months ended June 30, 2024 was primarily comprised of a net change of $11.3 million in operating assets and liabilities, a net loss before income attributable to noncontrolling interest and redeemable noncontrolling interests of $3.2 million, and income from equity method investments of $1.5 million, partially offset by the adjustment for non-cash items of depreciation and amortization of $4.4 million, return of equity method investments as dividends of $2.1 million and stock-based compensation of $1.5 million.

Previous wording

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.

Current wording

Net cash used in investing activitiesof $1.6 million for the six months ended June 30, 2025 was primarily from the purchase of property, plant and equipment of $0.8 million and investment in non-marketable equity investments of $0.8 million.

Previous wording

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.

Current wording

Net cash used in investing activities of $4.5 million for the six months ended June 30, 2024 was primarily from the purchase of property, plant and equipment of $4.7 million, and investment in non-marketable equity investments of $0.3 million, partially offset by proceeds from sales and maturities of available-for-sale debt securities of $0.5 million.

Previous wording

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.

Current wording

Net cash provided by financing activities was $6.6 million for the six months ended June 30, 2025, which consisted of proceeds from short-term loans of $24.4 million and long-term loan of $2.8 million, partially offset by repayment of short-term loansof $20.2 million and repayment of long-term loan of $0.5 million.

Previous wording

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.

Current wording

Net cash provided by financing activities was $3.7 million for the six months ended June 30, 2024, which consisted of proceeds from short-term loans of $26.5 million, long-term loan of $5.8 million and common stock options exercised of $25,000, partially offset by repayment of short-term loans of $28.3 million and repayment of long-term loan of $0.3 million.

Previous wording

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. These repurchases could be made from time to time in the open market and could be funded from our existing cash balances and cash generated from operations. During 2015, we repurchased approximately 908,000 shares at an average price of $2.52 per share for a total purchase price of approximately $2.3 million under the stock repurchase program. Since 2015, no shares were repurchased 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.

Current wording

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. These repurchases could be made from time to time in the open market and could be funded from our existing cash balances and cash generated from operations. During 2015, we repurchased approximately 908,000 shares at an average price of $2.52 per share for a total purchase price of approximately $2.3 million under the stock repurchase program. Since 2015, no shares were repurchased under this program. As of June 30, 2025, approximately $2.7 million remained available for future repurchases under this program. Currently, we do not plan to repurchase additional shares.

Previous wording

Dividends accrue on our outstanding Series A preferred stock, and are payable as and when declared by our Board of Directors. We have never declared or paid any dividends on the Series A preferred stock. 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 weinclude such cumulative dividends in “Accrued liabilities” in our condensed consolidated balance sheets. At the time we pay this accrued liability, our cash will be reduced. We account for the cumulative year to date dividends on the Series A preferred stock when calculating our earnings per share.

Current wording

Dividends accrue on our outstanding Series A preferred stock, and are payable as and when declared by our Board of Directors. We have never declared or paid any dividends on the Series A preferred stock. 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 include such cumulative dividends in “Accrued liabilities” in our condensed consolidated balance sheets. As of June 30, 2025, the balance remained unchanged. At the time we pay this accrued liability, our cash will be reduced. We account for the cumulative year to date dividends on the Series A preferred stock when calculating our earnings per share.

Previous wording

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.

Current wording

For the six months ended June 30, 2025 and 2024, 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 $0.9 million and $2.1 million, respectively. For the six months ended June 30, 2025 and 2024, there were no dividends paid to minority shareholders by our PRC subsidiaries or PRC raw material joint ventures. For the six months ended June 30, 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.

Previous wording

In December 2023, one of our consolidated subsidiaries, ChaoYang XinMei secured a loan of approximately $2.1 million from an unrelated financing company. According to the agreement, ChaoYang XinMei temporarily transferred ownership of its production line and related equipment to the financing company, while retaining the right to use the property for production. 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 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.

Current wording

In December 2023, one of our consolidated subsidiaries, ChaoYang XinMei secured a loan of approximately $2.1 million from an unrelated financing company. According to the agreement, ChaoYang XinMei temporarily transferred ownership of its production line and related equipment to the financing company, while retaining the right to use the property for production. 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 June 30, 2025, $1.3 million is included in “Short-term loans” in our condensed consolidated balance sheets.

Previous wording

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.

Current wording

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 June 30, 2025, the full amount is included in “Short-term loans” in our condensed consolidated balance sheets.