AXT INC

Previous wording

An early step in the STAR Market IPO process involved certain entity reorganizations and alignment of assets under Tongmei. In this regard our two consolidated raw material companies, Nanjing JinMei Gallium Co., Ltd. (“JinMei”) and Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd. (“BoYu”) and their subsidiaries were assigned to Tongmei in December 2020. As of June 30, 2021, AXT-Tongmei, Inc., a wholly owned subsidiary of AXT, was assigned to Tongmei. The assignment to Tongmei of JinMei, BoYu and their subsidiaries, and AXT-Tongmei, Inc. increased the number of customers and employees attributable to Tongmei as well as increased Tongmei’s consolidated revenue.

Current wording

An early step in the STAR Market IPO process involved certain entity reorganizations and alignment of assets under Tongmei. In this regard our two consolidated raw material companies, JinMei and BoYu and their subsidiaries were assigned to Tongmei in December 2020. As of June 30, 2021, AXT-Tongmei, Inc., a wholly owned subsidiary of AXT, was assigned to Tongmei. The assignment to Tongmei of JinMei, BoYu and their subsidiaries, and AXT-Tongmei, Inc. increased the number of customers and employees attributable to Tongmei as well as increased Tongmei’s consolidated revenue.

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.

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%. In 2024, 8% of our total worldwide revenue was from sales in North America, primarily in the U.S. Indium phosphide substrates are the primary revenue generator derived from imports into the U.S. This revenue has been impacted by additional tariffs imposed by the United States and by export controls implemented by China. As such, in the third quarter of 2025, only approximately 1% of our revenue was generated by sales to customers in North America.

Previous wording

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.

Current wording

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 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, the timing for receiving permits remains uncertain. We are actively monitoring and following up on the status of our applications.

Previous 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.

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 nine months ended September 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 nine months ended September 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

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.

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 September 30, 2025 and December 31, 2024, our accounts receivable, net balance was $33.8 million and $25.6 million, respectively, which was net of an allowance of $141,000 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 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.

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 September 30, 2025 and December 31, 2024, accrued product warranties totaled $512,000 and $451,000, respectively. The increase in accrued product warranties is primarily attributable to increased 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 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.

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 September 30, 2025 and December 31, 2024, we had an inventory reserve of $27.1 million and $24.1 million, respectively, for excess and obsolete inventory and $149,000 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 and six months ended June 30, 2025 and 2024.

Current wording

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

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. 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.

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, 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

The political tensions between China and the U.S. remain high and tariffs and controls on exports are changing and fluid. There can be no assurances that Tongmei will receive China permits to export our wafer substrates or that China will not adopt additional export control regulations that affect our business, financial condition and results of operations. Reciprocally, there can be no assurance that the U.S. will allow products to be imported into the U.S. from China or what the tariff charge rate might be. We are actively evaluating the potential impacts of these proposed tariffs, as well as our ability to mitigate their related impacts. Tariffs and export restrictions clearly affect our revenue and operations. For additional discussion regarding these factors and other risks, please refer to “Part II. Other Information – Item 1A. Risk Factors – Risks Related to International Aspects of Our Business”.

Current wording

The political tensions between China and the U.S. remain high and tariffs and controls on exports are changing and fluid. There can be no assurances that Tongmei will receive the necessary China permits to export our wafer substrates or that China will not adopt additional export control regulations that affect our business, financial condition and results of operations. Reciprocally, there can be no assurance that the U.S. will allow products to be imported into the U.S. from China or what the tariff charge rate might be. We are actively evaluating the potential impacts of these proposed tariffs, as well as our ability to mitigate their related impacts. Tariffs and export restrictions clearly affect our revenue and operations. For additional discussion regarding these factors and other risks, please refer to “Part II. Other Information – Item 1A. Risk Factors – Risks Related to International Aspects of Our Business”.

Previous 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.

Current wording

Revenue increased$4.3 million, or 18.2%, to $28.0 million for the three months ended September 30, 2025 from $23.6 million for the three months ended September 30, 2024. The substrate revenue increase for the three months ended September 30, 2025 as compared to the same period in 2024 was primarily the result of higher demand for InP wafer substrates used for data center applications and in passive optical networks, as a result ofadditional export approvals granted by the China government. Raw materials sales decreased $1.9 million, or 22.5%, to $6.7 million for the three months ended September 30, 2025 as compared to the same period in 2024. The decrease in raw materials revenue for the three months ended September 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 decreased $13.3 million, or 26.2%, to $37.3 million for the six months ended June 30, 2025 from $50.6 million for the six months ended June 30, 2024. The substrate revenue decrease for the six months ended June 30, 2025 as compared to the same period in 2024 was primarily the result oflower 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 government, and 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 increased $1.0 million, or 7.0%, to $15.0 million for the six months ended June 30, 2025 as compared to the same period in 2024. The increase inraw materials revenue for the six months ended June 30, 2025 as compared to the same period in 2024 was primarily the result of an increase in sales of refined gallium and from the sale of recycled materials, partially offset by lower demand for pBN crucibles resulting from weaker market demand.

Current wording

Revenue decreased$9.0 million, or 12.1%, to $65.3 million for the nine months ended September 30, 2025 from $74.3 million for the nine months ended September 30, 2024. The substrate revenue decrease for the nine months ended September 30, 2025 as compared to the same period in 2024 was primarily the result oflower 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 government, and 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 $0.9 million, or 4.2%, to $21.7 million for the nine months ended September 30, 2025 as compared to the same period in 2024. The decrease inraw materials revenue for the nine months ended September 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, partially offset by demand from the sale of recycled materials.

Previous 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.

Current wording

Revenue in China decreased $0.7 million for the three months ended September 30, 2025, primarily due to lower demand for our Ge wafer substrates and refined gallium sold by one of our consolidated subsidiaries, partially offset by higher demand for our InP and GaAs wafer substrates. Revenue in Taiwan increased $6.9 million, primarily due toadditional export approvals granted by the China government. Revenue in Japan increased $0.2 million, primarily due toadditional export approvals granted by the China government. Revenue in Asia Pacific decreased $0.5 million, primarily due to the impact of China export restrictions on our InP and GaAs wafer substrates, partially offset by increased demand for pBN crucibles sold by one of our consolidated subsidiaries. Revenue in Europe increased $0.7 million, primarily due to additional export approvals granted by the China government. Revenue in North America decreased $2.4 million, primarily due to the impact of China export restrictions on our InP and GaAs wafer substrates and lower demand for pBN crucibles sold by one of our consolidated subsidiaries.

Previous wording

Revenue in China decreased $2.5 million for the three months ended June 30, 2025, primarily due to lower demand for our InP and Ge wafer substrates and refined gallium sold by one of our consolidated subsidiaries, partially offset by higher demand for our GaAs wafer substrates. Revenue in Taiwan decreased $2.9 million, primarily due to the impact of China export restrictions on our InP and GaAs wafer substrates. Revenue in Japan decreased $0.1 million, primarily due to the impact of China export restrictions on our GaAs and InP 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 InP and GaAs wafer substrates and decreased demand for pBN crucibles sold by one of our consolidated subsidiaries. Revenue in Europe decreased $3.1 million, primarily due to the impact of China export restrictions on our GaAs, InP and Ge wafer substrates and lower demand for pBN 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 and lower demand for pBN crucibles sold by one of our consolidated subsidiaries.

Current wording

Revenue in China decreased $1.2 million for thenine months ended September 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 increased $0.7 million, primarily due toadditional export approvals granted by the China government. Revenue in Asia Pacific decreased $0.8 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 $4.0 million, primarily dueto additional export approvals granted by the China government. Revenue in North America decreased $3.5 million, primarily due to the impact of China export restrictions on our InP and GaAs wafer substrates and lower demand for pBN crucibles sold by one of our consolidated subsidiaries.

Previous wording

Gross profit decreased 13.6 million, or 98.6%, to a profit of $0.2 millionfor the six months ended June 30, 2025 from $13.7 million for the six 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 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 13.0 million, or 67.0%, to a profit of $6.4 millionfor the nine months ended September 30, 2025 from $19.4 million for the nine months ended September 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 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.

Previous 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.

Current wording

Selling, general and administrative expenses increased$684,000, or 12.1%, to $6.3 million for the three months ended September 30, 2025 from $5.7 million for the three months ended September 30, 2024. The higher selling, general and administrative expenses were primarily from an increase in compensation related costs and legal expenses, partially offset by a decrease in professional service related expenses.

Previous wording

Selling, general and administrative expenses decreased $437,000, or 3.6%, to $11.6 million for the six months ended June 30, 2025 from $12.0 million for the six months ended June 30, 2024. The lower selling, general and administrative expenses were primarily from a decrease in compensation related expenses, outside commissions and office supply expenses, partially offset by higher legal and professional service expenses.

Current wording

Selling, general and administrative expenses increased $247,000, or 1.4%, to $17.9 million for the nine months ended September 30, 2025 from $17.7 million for the nine months ended September 30, 2024. The higher selling, general and administrative expenses were primarily from an increase in compensation related expenses and legal expenses, partially offset by lower professional service expenses.

Previous 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.

Current wording

Research and development expenses decreased $2.4 million, or 70.5%, to $1.0 million for the three months ended September 30, 2025 from $3.4 million for the three months ended September 30, 2024. The decrease in research and development expenses for the three months ended September 30, 2025 was primarily due tothe use of one-time benefits of certain materials.

Previous wording

Research and development expenses decreased $1.3 million, or 19.1%, to $5.6 million for the six months ended June 30, 2025 from $7.0 million for the six months ended June 30, 2024. The decrease inresearch and development expenses for the six months ended June 30, 2025 was primarily due tolower product development expenses for crystal ingot processing, partially offset by higher compensation related expenses.

Current wording

Research and development expenses decreased$3.8 million, or 36.1%, to $6.7 million for the nine months ended September 30, 2025 from $10.4 million for the nine months ended September 30, 2024. The decrease inresearch and development expenses for the nine months ended September 30, 2025 was primarily due to the use of one-time benefits of certain materials.

Previous 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.

Current wording

Interest expense, netincreased$4,000, or 1.0%, to $395,000 for the three months ended September 30, 2025 from $391,000 for the three months ended September 30, 2024. Interest expense, net increased primarily due to lower interest income during the three months ended September 30, 2025 as compared to the three months ended September 30, 2024.

Previous wording

Interest expense, net decreased $160,000, or 25.4%, to $471,000 for the six months ended June 30, 2025 from $631,000 for the six months ended June 30, 2024. Interest expense, net decreased primarily due to higher interest income during the six months ended June 30, 2025 as compared to the six months ended June 30, 2024.

Current wording

Interest expense, net decreased$156,000, or 15.3%, to $866,000 for the nine months ended September 30, 2025 from $1,022,000 for the nine months ended September 30, 2024. Interest expense, net decreased primarily due to higher interest income during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024.

Previous 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.

Current wording

The gain from equity method and fair value investments was income of $0.5 million for the three months ended September 30, 2025 as compared to income of $1.0 million for the three months ended September 30, 2024. The decrease in income of $0.5 million is primarily dueto weaker performance in unconsolidated joint ventures.

Previous wording

The gain (loss) from equity method and fair value investments was incomeof $0.1 million for the six months ended June 30, 2025 as compared to income of $1.5 million for the six months ended June 30, 2024. The decrease inincome of $1.4 million is primarilydue to weaker performance in unconsolidated joint ventures.

Current wording

The gain from equity method and fair value investments was income of $0.6 million for the nine months ended September 30, 2025 as compared to income of $2.5 million for the nine months ended September 30, 2024. The decrease inincome of $1.9 million is primarilydue to weaker performance in unconsolidated joint ventures.

Previous 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.

Current wording

Other income, net decreased $0.7 million, or 131.4%, to a loss of $166,000 for the three months ended September 30, 2025 from an income of $0.5 million for the three months ended September 30, 2024. Other income, net decreased primarily due to a decrease in government grants.

Previous wording

Other income, net decreased $1.1 million, or 75.2%, to an income of $0.4 million for the six months ended June 30, 2025 from an income of $1.5 million for the six months ended June 30, 2024. Other income, net decreased prima rily due to a decrease in government grants.

Current wording

Other income, netdecreased$1.8 million, or 89.7%, to an income of $0.2 million for the nine months ended September 30, 2025 from an income of $2.1 million for the nine months ended September 30, 2024. Other income, net decreased prima rily due to a decrease in government grants.

Previous 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.

Current wording

Provision for income taxes decreased $122,000, or 19.5%, to a provision of $504,000 for the three months ended September 30, 2025 as compared to a provision of $626,000 for the three months ended September 30, 2024. The tax expense recorded for the three months ended September 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

Provision for income taxes increased $258,000, or 65.3%, to a provision of $653,000 for the six months ended June 30, 2025 as compared to a provision of $395,000 for the six months ended June 30, 2024. The tax expense recorded for the six 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.

Current wording

Provision for income taxes increased $136,000, or 13.3%, to a provision of $1.2 million for the nine months ended September 30, 2025 as compared to a provision of $1.0 million for the nine months ended September 30, 2024. The tax expense recorded for the nine months ended September 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.

Previous wording

Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests increased $2.2 million or 635.2% to a loss of $1.9 million for the six months ended June 30, 2025, from an income of $352,000 for the six months ended June 30, 2024, primarily dueto lower profitability from our PRC subsidiaries as sales decreased.

Current wording

Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests increased$0.2 million or 366.0% to an income of $0.2 million for the three months ended September 30, 2025, from an income of $50,000 for the three months ended September 30, 2024, primarily due to higher profitability from our PRC subsidiaries as sales increased.

Previous 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.

Current wording

Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests decreased $2.1 million or 510.7% to a loss of $1.7 million for the nine months ended September 30, 2025, from an income of $402,000 for the nine months ended September 30, 2024, primarily due to lower profitability from our PRC subsidiaries as sales decreased.

Previous 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.

Current wording

As of September 30, 2025, our principal source of liquidity was $31.2 million, which consisted of cash of $23.1 million and restricted cashof $8.1 million. In the nine months ended September 30, 2025, cash and restricted cash decreased by $2.6 million. The decrease in cash and restricted cash of $2.6 million in the nine months ended September 30, 2025 was primarily due to net cash used in operating activities of $17.1 million and net cash used in investing activities of $3.8 million, partially offset by net cash provided by financing activities of $11.8 million and the effect of exchange rate changes of $6.5 million. As of September 30, 2025, we and our PRC subsidiaries held approximately $26.5 million in cash and investments in foreign bank accounts, of which $7.9 million was classified in restricted cash.

Previous 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.

Current wording

As of September 30, 2024, our principal source of liquidity was $38.8 million, which consisted of cash of $24.9 million and restricted cash of $13.9 million. In the nine months ended September 30, 2024, cash and restricted cash decreased by $11.3 million and investments decreased by $2.1 million. The decrease in cash and restricted cash of $11.3 million in the nine months ended September 30, 2024 was primarily due to net cash used in operating activities of $13.4 million and net cash used in investing activities of $4.0 million, partially offset by net cash provided by financing activities of $4.5 million and the effect of exchange rate changes of $1.6 million. As of September 30, 2024, we and our PRC subsidiaries held approximately $33.8 million in cash and investments in foreign bank accounts.

Previous 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.

Current wording

Net cash used in operating activitiesof $17.1 million for the nine months ended September 30, 2025 was primarily comprisedof a net loss before income attributable to noncontrolling interest and redeemable noncontrolling interests of $19.4 million, a net change of $6.7 million in operating assets and liabilities, and gain from equity method and fair value investments of $0.6 million, partially offset by the adjustment for non-cash items of depreciation and amortization of $6.8 million, stock-based compensation of $2.0 million and return of equity method investments as dividends of $0.9 million.

Previous 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.

Current wording

Net cash used in operating activities of $13.4 million for the nine months ended September 30, 2024 was primarily comprised of a net change of $15.9 million in operating assets and liabilities, a net loss before income attributable to noncontrolling interest and redeemable noncontrolling interests of $6.1 million, and income from equity method investments of $2.5 million, partially offset by the adjustment for non-cash items of depreciation and amortization of $6.7 million, stock-based compensation of $2.3 million and return of equity method investments as dividends of $2.1 million.

Previous 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.

Current wording

Net cash used in investing activitiesof $3.8 million for the nine months ended September 30, 2025 was primarily from the purchase of property, plant and equipment of $3.0 million and investment in non-marketable equity investments of $0.8 million.

Previous 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.

Current wording

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

Previous 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.

Current wording

Net cash provided by financing activities was $11.8 million for the nine months ended September 30, 2025, which consisted of proceeds from short-term loans of $43.3 million, long-term loan of $3.2 million andcommon stock options exercised of $0.1 million, partially offset by repayment of short-term loansof $33.6 million and repayment of long-term loan of $1.1 million.

Previous 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.

Current wording

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

Previous 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.

Current wording

For the nine months ended September 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 nine months ended September 30, 2025 and 2024, there were no dividends paid to minority shareholders by our PRC subsidiaries or PRC raw material joint ventures. For the nine months ended September 30, 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

On January 30, 2024, the Company secured a new line of credit amounting to $9.7 million, structured as a five-year bank loan. The credit facility bears interest at a rate of 6.5% per annum on the amount drawn from the line of credit. The credit facility is collateralized by the real estate properties owned by ChaoYang Tongmei. In January 2024, the Company borrowed $5.8 million against the credit facility. The intended use of the credit facility is for construction of fixed assets. As of June 30, 2025, $5.0 million is included in “Other long-term liabilities” and $0.6 million is included in “Short-term loans” in our condensed consolidated balance sheets.

Current wording

On January 30, 2024, the Company secured a new line of credit amounting to $9.7 million, structured as a five-year bank loan. The credit facility bears interest at a rate of 6.5% per annum on the amount drawn from the line of credit. The credit facility is collateralized by the real estate properties owned by ChaoYang Tongmei. In January 2024, the Company borrowed $5.8 million against the credit facility. The intended use of the credit facility is for construction of fixed assets. As of September 30, 2025, $4.7 million is included in “Other long-term liabilities” and $0.7 million is included in “Short-term loans” in our condensed consolidated balance sheets.

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 June 30, 2025, $1.3 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 September 30, 2025, the remaining amount is included in “Short-term loans” in our condensed consolidated balance sheets.