AXTI filing — read by section

Item 1. Financial Statements

Item 1. Financial Statements (unaudited) 

 AXT, INC.

 CONDENSED CONSOLIDATED BALANCE SHEETS

 (Unaudited, in thousands, except per share data)

 June 30, 
 December 31, 
 
 2025 
 2024 
 
 ASSETS 
 
 Current assets:
 
 Cash and cash equivalents
 $ 27,007 $ 22,833 

 Restricted cash
 8,100 10,978 

 Accounts receivable, net of allowances for credit losses of $ 147 and $ 147 as of June 30, 2025 and December 31, 2024
 22,794 25,640 

 Inventories
 80,063 85,077 

 Prepaid expenses and other current assets
 6,996 13,744 

 Total current assets
 144,960 158,272 

 Property, plant and equipment, net
 159,714 159,721 

 Operating lease right-of-use assets
 2,233 2,479 

 Other assets
 22,096 18,842 

 Total assets
 $ 329,003 $ 339,314 

 LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY 
 
 Current liabilities:
 
 Accounts payable
 $ 11,242 $ 12,356 

 Accrued liabilities
 12,372 14,556 

 Short-term loans
 55,928 47,264 

 Total current liabilities
 79,542 74,176 

 Noncurrent operating lease liabilities
 1,714 1,977 

 Other long-term liabilities
 7,116 8,253 

 Total liabilities
 88,372 84,406 

 Commitments and contingencies (Note 12)
 
 Redeemable noncontrolling interests (Note 18)
 38,010 38,577 

 Stockholders’ equity:
 
 Preferred stock Series A, $ 0.001 par value; 2,000 shares authorized; 883 shares issued and outstanding as of June 30, 2025 and December 31, 2024 (Liquidation preference of $ 8,140 and $ 8,052 as of June 30, 2025 and December 31, 2024)
 3,532 3,532 

 Common stock, $ 0.001 par value; 70,000 shares authorized; 46,078 and 45,358 shares issued and outstanding as of June 30, 2025 and December 31, 2024
 46 45 

 Additional paid-in capital
 242,776 241,514 

 Accumulated deficit
 ( 59,470 ) ( 43,664 ) 

 Accumulated other comprehensive loss
 ( 7,170 ) ( 8,657 ) 

 Total AXT, Inc. stockholders’ equity
 179,714 192,770 

 Noncontrolling interests
 22,907 23,561 

 Total stockholders’ equity
 202,621 216,331 

 Total liabilities, redeemable noncontrolling interests and stockholders’ equity
 $ 329,003 $ 339,314 

 See accompanying notes to condensed consolidated financial statements.

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 AXT, INC.

 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 (Unaudited, in thousands, except per share data)

 Three Months Ended 
 
 Six Months Ended 
 
 June 30, 
 
 June 30, 
 
 2025 
 
 2024 
 
 2025 
 
 2024 
 
 Revenue
 
 $ 
 17,974 
 
 $ 
 27,923 
 
 $ 
 37,330 
 
 $ 
 50,611 
 
 Cost of revenue
 
 16,541 
 
 20,271 
 
 37,138 
 
 36,865 
 
 Gross profit
 
 1,433 
 
 7,652 
 
 192 
 
 13,746 
 
 Operating expenses:
 
 Selling, general and administrative
 
 5,653 
 
 5,779 
 
 11,569 
 
 12,006 
 
 Research and development
 
 2,525 
 
 3,758 
 
 5,643 
 
 6,972 
 
 Total operating expenses
 
 8,178 
 
 9,537 
 
 17,212 
 
 18,978 
 
 Loss from operations
 
 ( 6,745 
 ) 
 
 ( 1,885 
 ) 
 
 ( 17,020 
 ) 
 
 ( 5,232 
 ) 
 
 Interest expense, net
 
 ( 202 
 ) 
 
 ( 282 
 ) 
 
 ( 471 
 ) 
 
 ( 631 
 ) 
 
 Gain (loss) from equity method and fair value investments
 
 ( 171 
 ) 
 
 598 
 
 77 
 
 1,488 
 
 Other income, net
 
 23 
 
 491 
 
 377 
 
 1,523 
 
 Loss before provision for income taxes
 
 ( 7,095 
 ) 
 
 ( 1,078 
 ) 
 
 ( 17,037 
 ) 
 
 ( 2,852 
 ) 
 
 Provision for income taxes
 
 579 
 
 121 
 
 653 
 
 395 
 
 Net loss
 
 ( 7,674 
 ) 
 
 ( 1,199 
 ) 
 
 ( 17,690 
 ) 
 
 ( 3,247 
 ) 
 
 Less: Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests
 
 666 
 
 ( 317 
 ) 
 
 1,884 
 
 ( 352 
 ) 
 
 Net loss attributable to AXT, Inc.
 
 $ 
 ( 7,008 
 ) 
 
 $ 
 ( 1,516 
 ) 
 
 $ 
 ( 15,806 
 ) 
 
 $ 
 ( 3,599 
 ) 
 
 Net loss attributable to AXT, Inc. per common share:
 
 Basic
 
 $ 
 ( 0.16 
 ) 
 
 $ 
 ( 0.04 
 ) 
 
 $ 
 ( 0.36 
 ) 
 
 $ 
 ( 0.09 
 ) 
 
 Diluted
 
 $ 
 ( 0.16 
 ) 
 
 $ 
 ( 0.04 
 ) 
 
 $ 
 ( 0.36 
 ) 
 
 $ 
 ( 0.09 
 ) 
 
 Weighted-average number of common shares outstanding:
 
 Basic
 
 43,710 
 
 43,092 
 
 43,630 
 
 43,039 
 
 Diluted
 
 43,710 
 
 43,092 
 
 43,630 
 
 43,039 
 
 See accompanying notes to condensed consolidated financial statements.

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 AXT, INC.

 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 (Unaudited, in thousands)

 Three Months Ended 
 
 Six Months Ended 
 
 June 30, 
 
 June 30, 
 
 2025 
 
 2024 
 
 2025 
 
 2024 
 
 Net loss
 
 $ 
 ( 7,674 
 ) 
 
 $ 
 ( 1,199 
 ) 
 
 $ 
 ( 17,690 
 ) 
 
 $ 
 ( 3,247 
 ) 
 
 Other comprehensive income (loss), net of tax:
 
 Change in foreign currency translation income (loss), net of tax
 
 1,312 
 
 ( 747 
 ) 
 
 1,849 
 
 ( 2,757 
 ) 
 
 Change in unrealized gain on available-for-sale debt investments, net of tax
 
 — 
 
 8 
 
 — 
 
 15 
 
 Total other comprehensive income (loss), net of tax
 
 1,312 
 
 ( 739 
 ) 
 
 1,849 
 
 ( 2,742 
 ) 
 
 Comprehensive loss
 
 ( 6,362 
 ) 
 
 ( 1,938 
 ) 
 
 ( 15,841 
 ) 
 
 ( 5,989 
 ) 
 
 Less: Comprehensive (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests
 
 410 
 
 ( 179 
 ) 
 
 1,522 
 
 162 
 
 Comprehensive loss attributable to AXT, Inc.
 
 $ 
 ( 5,952 
 ) 
 
 $ 
 ( 2,117 
 ) 
 
 $ 
 ( 14,319 
 ) 
 
 $ 
 ( 5,827 
 ) 
 
 See accompanying notes to condensed consolidated financial statements.

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 AXT, INC.

 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Unaudited, in thousands)

 Six Months Ended 
 
 June 30, 
 
 2025 
 
 2024 
 
 Cash flows from operating activities: 
 
 Net loss
 
 $ 
 ( 17,690 
 ) 
 
 $ 
 ( 3,247 
 ) 
 
 Adjustments to reconcile net loss to net cash used in operating activities:
 
 Depreciation and amortization
 
 4,483 
 
 4,440 
 
 Stock-based compensation
 
 1,279 
 
 1,524 
 
 Gain on disposal of equipment
 
 ( 7 
 ) 
 
 — 
 
 Return of equity method investments as dividends
 
 868 
 
 2,063 
 
 Gain from equity method and fair value investments
 
 ( 77 
 ) 
 
 ( 1,488 
 ) 
 
 Deferred tax assets
 
 ( 38 
 ) 
 
 53 
 
 Changes in operating assets and liabilities:
 
 Accounts receivable
 
 3,185 
 
 ( 8,363 
 ) 
 
 Inventories
 
 6,219 
 
 ( 1,045 
 ) 
 
 Prepaid expenses and other current assets
 
 5,334 
 
 ( 1,317 
 ) 
 
 Other assets
 
 ( 2,941 
 ) 
 
 89 
 
 Accounts payable
 
 ( 1,290 
 ) 
 
 2,299 
 
 Accrued liabilities
 
 ( 2,265 
 ) 
 
 ( 807 
 ) 
 
 Other long-term liabilities
 
 ( 4,982 
 ) 
 
 ( 2,164 
 ) 
 
 Net cash used in operating activities
 
 ( 7,922 
 ) 
 
 ( 7,963 
 ) 
 
 Cash flows from investing activities: 
 
 Purchases of property, plant and equipment
 
 ( 789 
 ) 
 
 ( 4,663 
 ) 
 
 Proceeds from sales and maturities of available-for-sale debt securities
 
 — 
 
 480 
 
 Investments in non-marketable equity investments
 
 ( 837 
 ) 
 
 ( 275 
 ) 
 
 Net cash used in investing activities
 
 ( 1,626 
 ) 
 
 ( 4,458 
 ) 
 
 Cash flows from financing activities: 
 
 Proceeds from common stock options exercised
 
 — 
 
 25 
 
 Proceeds from short-term bank loans
 
 24,420 
 
 26,488 
 
 Payments on short-term bank loans
 
 ( 20,158 
 ) 
 
 ( 28,332 
 ) 
 
 Proceeds from long-term loans
 
 2,755 
 
 5,831 
 
 Payments on long-term loans
 
 ( 456 
 ) 
 
 ( 333 
 ) 
 
 Net cash provided by financing activities
 
 6,561 
 
 3,679 
 
 Effect of exchange rate changes on cash, restricted cash and cash equivalents
 
 4,283 
 
 225 
 
 Net increase (decrease) in cash, restricted cash and cash equivalents
 
 1,296 
 
 ( 8,517 
 ) 
 
 Cash, restricted cash and cash equivalents at the beginning of the year
 
 33,811 
 
 50,114 
 
 Cash, restricted cash and cash equivalents at the end of the period
 
 $ 
 35,107 
 
 $ 
 41,597 
 
 Supplemental disclosure of non-cash flow information: 
 
 Notes receivables paid to purchase fixed assets
 
 $ 
 1,510 
 
 $ 
 2,545 
 
 Consideration payable in connection with construction in progress, included in accrued liabilities
 
 $ 
 — 
 
 $ 
 144 
 
 See accompanying notes to condensed consolidated financial statements.

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 AXT, INC.

 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited)

 Note 1. Basis of Presentation 

 The accompanying condensed consolidated financial statements of AXT, Inc., a Delaware corporation (“AXT,” the “Company,” “we,” “us,” and “our” refer to AXT, Inc. and all of its consolidated subsidiaries) are unaudited, and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10 -Q and Article 10 of Regulation S- X. Accordingly, this interim quarterly financial report does not include all disclosures required by U.S. GAAP for complete consolidated financial statements. In the opinion of our management, the unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, considered necessary to present fairly the financial position, results of operations and cash flows of the Company for all periods presented.

 Our management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these condensed consolidated financial statements in conformity with U.S. GAAP. Due to the COVID- 19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. These estimates and assumptions may change as new events occur and additional information is obtained. Actual results could differ materially from those estimates.

 The results of operations for the three and six months ended June 30, 2025 are not necessarily indicative of the results to be expected in the future or for the full fiscal year. It is recommended that these condensed consolidated financial statements be read in conjunction with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10 -K for the year ended December 31, 2024 filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2025 .

 The condensed consolidated financial statements include the accounts of AXT and our consolidated subsidiaries, Beijing Tongmei Xtal Technology Co., Ltd. (“Tongmei”), AXT-Tongmei, Inc. (“AXT-Tongmei”), Baoding Tongmei Xtal Technology Co., Ltd. (“Baoding Tongmei”), ChaoYang Tongmei Xtal Technology Co., Ltd. (“ChaoYang Tongmei”), ChaoYang LiMei Semiconductor Technology Co., Ltd. (“ChaoYang LiMei”), ChaoYang XinMei High Purity Semiconductor Materials Co., Ltd. (“ChaoYang XinMei”), Nanjing JinMei Gallium Co., Ltd. (“JinMei”), ChaoYang JinMei Gallium Ltd. (“ChaoYang JinMei”), ChaoYang ShuoMei High Purity Semiconductor Materials Co., Ltd. (“ChaoYang ShuoMei”), MaAnShan JinMei Gallium Ltd., (“MaAnShan JinMei”) and Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd. (“BoYu”). All significant inter‑company accounts and transactions have been eliminated. Investments in business entities in which we do not have controlling interests, but have the ability to exercise significant influence over operating and financial policies (generally 20 - 50% ownership), are accounted for by the equity method. As of June 30, 2025 and December 31, 2024 , we have three companies accounted for by the equity method. In May 2023, we reduced our ownership in Emeishan Jia Mei High Purity Metals Co., Ltd. (“Jia Mei”) from 25 % to 10 % by selling a portion of our Jia Mei shares to a third party for approximately $ 827,000 . As a result of our decreased ownership and the fact that we do not have the ability to exercise significant influence over Jia Mei’s operations, as of May 2023, we no longer reported Jia Mei as an equity investment in our condensed consolidated balance sheets. Our Jia Mei investment was re-measured to fair value at the time of sale. Any future changes to the fair value are recognized through net income (“fair value method”). For the majority-owned subsidiaries that we consolidate, we reflect the portion we do not own as either noncontrolling interests in stockholder’s equity or as redeemable noncontrolling interests in temporary equity on our condensed consolidated balance sheets and in our condensed consolidated statements of operations.

 When warranted by favorable market conditions, we intend to construct facilities at the ChaoYang LiMei location to provide us with additional production capacity. For the three and six months ended June 30, 2025 , expenses associated with ChaoYang LiMei had a de minimis impact on our condensed consolidated financial statements.

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 In February 2021, Tongmei signed a joint venture agreement with certain investors to fund a new company, ChaoYang XinMei. The agreement called for a total investment of approximately $ 3.0 million, of which Tongmei would fund approximately $ 1.8 million for a 58.5 percent ownership of ChaoYang XinMei. In February 2021, Tongmei and the investors completed the initial funding of approximately $ 1.5 million. Tongmei’s portion of the investment was approximately $ 0.9 million. In May 2021, Tongmei and the investors completed the funding of the remaining balance of approximately $ 1.5 million. Tongmei’s portion of the final investment was approximately $ 0.9 million, for a total investment of approximately $ 1.8 million for a 58.5 percent ownership of ChaoYang XinMei. In September 2021 and October 2021, ChaoYang XinMei received funding from a minority investor of $ 0.9 million and $ 1.0 million, respectively. In December 2021 and January 2022, ChaoYang XinMei received funding from Tongmei of $ 1.4 million and $ 1.4 million, respectively. In January 2022, the China local government certified this additional funding in ChaoYang XinMei as an equity investment. In April 2022, Tongmei entered into a capital increase agreement (the “Capital Increase Agreement”) with minority investors to further invest approximately $ 4.5 million in ChaoYang XinMei. Tongmei’s portion of the investment was approximately $ 2.6 million, of which $ 1.1 million was invested in April 2022 and $ 0.8 million was invested in May 2022. The minority investors’ portion of the investment was approximately $ 1.9 million, of which $ 0.7 million was invested in April 2022 and $ 0.6 million was invested in May 2022. As a result, noncontrolling interests increased $ 1.4 million and redeemable noncontrolling interests increased $ 0.1 million. In July 2022, Tongmei and the minority investors further invested $ 0.8 million and $ 0.6 million in ChaoYang XinMei, respectively. This completed the investment obligations under the Capital Increase Agreement. As a result, noncontrolling interests increased $ 610,000 and redeemable noncontrolling interests increased $ 57,000 . Tongmei’s ownership remained at 58.5 % after these equity investments.

 In April 2022, ChaoYang JinMei signed a joint venture agreement with certain investors to fund a new company, ChaoYang ShuoMei, our consolidated subsidiary (the “ChaoYang ShuoMei Joint Venture Agreement”). The ChaoYang ShuoMei Joint Venture Agreement called for a total investment of approximately $ 4.4 million, of which ChaoYang JinMei would fund approximately $ 3.3 million for a 75 percent ownership of ChaoYang ShuoMei. In July and August 2022, ChaoYang JinMei completed the initial funding of $ 1.0 million in ChaoYang ShuoMei. In August 2022, the investor invested $ 334,000 in ChaoYang ShuoMei. As a result, noncontrolling interests increased $ 406,000 and redeemable noncontrolling interests increased $ 73,000 . In January 2023, ChaoYang ShuoMei received $ 0.5 million in funding from ChaoYang JinMei and $ 0.2 million in funding from one of the minority investors. As a result, noncontrolling interests increased $ 0.2 million and redeemable noncontrolling interests increased $ 36,000 . In May 2023, ChaoYang ShuoMei received $ 1.0 million in funding from ChaoYang JinMei and $ 0.3 million in funding from one of the minority investors. As a result, noncontrolling interests increased $ 0.4 million and redeemable noncontrolling interests increased $ 75,000 . In August 2023, ChaoYang ShuoMei received $ 0.6 million in funding from ChaoYang JinMei and $ 0.2 million in funding from one of the minority investors. As a result, noncontrolling interests increased $ 0.2 million and redeemable noncontrolling interests increased $ 44,000 . ChaoYang JinMei has completed its investment obligations under the ChaoYang ShuoMei Joint Venture Agreement. ChaoYang JinMei’s ownership of ChaoYang ShuoMei remained at 75 % after these equity investments.

 In April 2022, Tongmei signed a joint venture agreement with certain investors to fund a new company, ChaoYang KaiMei Quartz Co., Ltd. (“ChaoYang KaiMei”) (the “ChaoYang KaiMei Joint Venture Agreement”), which called for a total investment of approximately $ 7.6 million, of which Tongmei would fund approximately $ 3.0 million for a 40 percent ownership of ChaoYang KaiMei. In July 2022, Tongmei and the investors completed the initial funding of approximately $ 2.2 million. Tongmei’s portion of the investment was approximately $ 0.9 million. In January 2023, Tongmei made an investment of $ 0.9 million to ChaoYang KaiMei. In each of July 2023 and August 2023, Tongmei made an investment of approximately $ 0.6 million in ChaoYang KaiMei. In September 2023, Tongmei entered into another joint venture agreement with the same group of investors. This new agreement called for additional investment of approximately $ 5.6 million, with Tongmei committing to fund approximately $ 2.3 million. In December 2023, Tongmei made its initial additional investment of approximately $ 0.6 million in ChaoYang KaiMei, followed by additional investments of approximately $ 0.3 million each in June and July 2024, and in March, April and May 2025 . Tongmei’s ownership of ChaoYang KaiMei remained at 40 % after these equity investments.

 All activities for MaAnShan JinMei ceased during the first half of 2022 and the subsidiary was subsequently dissolved in May 2022. The dissolution of MaAnShan JinMei had a de minimis impact on the condensed consolidated results.

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 During the quarter ended December 31, 2020, Tongmei 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 several private equity investors in China.

 In preparation for Tongmei’s application for a listing of shares in an initial public offering (the “IPO”) on the Shanghai Stock Exchange’s Sci-Tech innovAtion boaRd (the “STAR Market”), in late December 2020, we reorganized our entity structures in China. JinMei and BoYu and their subsidiaries were assigned to Tongmei and effectively merged with Tongmei although they retained their own respective legal entity status and are wholly owned subsidiaries of Tongmei. The 33 % minority interest stakeholders of BoYu converted their ownership to a 7.59 % minority interest in Tongmei. The 8.5 % minority interest stakeholders, employees of JinMei, converted their ownership to a 0.38 % minority interest in Tongmei. Further, a number of employees, key managers and contributors purchased a 0.4 % minority interest in Tongmei. Additionally, Baoding Tongmei and ChaoYang Tongmei, were assigned to Tongmei as wholly owned subsidiaries. In 2020, the private equity funds (the “Investors”) had transferred approximately $ 48.1 million of new capital to Tongmei. An additional investment of approximately $ 1.5 million of new capital was funded in January 2021. Under China regulations these investments must be formally approved by the appropriate government agency and are not deemed to be dilutive until such approval is granted. The government approved the approximately $ 49 million investment in its entirety on January 25, 2021, at which time the Investors owned a redeemable noncontrolling interest in Tongmei of 7.28 %. As of June 30, 2025 , Tongmei’s noncontrolling interests and redeemable noncontrolling interests totaled approximately 14.5 %. We remain the controlling stakeholder of Tongmei and hold a majority of the board of director positions of Tongmei. In June 2021, we sold AXT-Tongmei to Tongmei for $ 1 . Since Tongmei is 85.5 % owned by us, and the transaction was between common interest holders, the transaction was accounted for at net book value and resulted in an increase of $ 1.2 million to noncontrolling interests and $ 1.2 million to redeemable noncontrolling interests.

 Note 2. Investments and Fair Value Measurements 

 Our investments consist of instruments with original maturities of more than three months. As of June 30, 2025 and December 31, 2024 , our cash and debt investments are classified as follows (in thousands):

 June 30, 2025 
 December 31, 2024 
 
 Gross 
 Gross 
 Gross 
 Gross 
 
 Amortized 
 Unrealized 
 Unrealized 
 Fair 
 Amortized 
 Unrealized 
 Unrealized 
 Fair 
 
 Cost 
 Gain 
 (Loss) 
 Value 
 Cost 
 Gain 
 (Loss) 
 Value 
 
 Classified as: 
 
 Cash, restricted cash and cash equivalents
 $ 35,107 $ — $ — $ 35,107 $ 33,811 $ — $ — $ 33,811 

 We manage our debt investments as a single portfolio of highly marketable securities that is intended to be available to meet our current cash requirements. Certificates of deposit and corporate bonds are typically held until maturity.

 Historically, the gross unrealized losses related to our portfolio of available-for-sale debt securities were immaterial, and primarily due to normal market fluctuations and not due to increased credit risk or other valuation concerns. There was an insignificant amount of gross unrealized losses on our available-for-sale debt securities as of June 30, 2025 , and historically, such gross unrealized losses have been temporary in nature and we believe that it is probable the principal and interest will be collected in accordance with the contractual terms. We review our debt investment portfolio at least quarterly, or when there are changes in credit risks or other potential valuation concerns, to identify and evaluate whether an allowance for credit losses or impairment would be necessary. Factors considered in determining whether a loss is temporary include the magnitude of the decline in market value, the length of time the market value has been below cost (or adjusted cost), credit quality, and our ability and intent to hold the securities for a period of time sufficient to allow for any anticipated recovery in market value. We held no available-for-sale debt securities as of June 30, 2025 and December 31, 2024 .

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 Restricted Cash 

 We maintain restricted cash in connection with cash balances temporarily restricted for regular business operations. These balances have been excluded from the Company’s cash balance. As of June 30, 2025 and December 31, 2024 , $ 8.1 million and $ 11.0 million were included in restricted cash in our condensed consolidated balance sheets, respectively. The decrease in restricted cash primarily reflects the release of restrictions upon the settlement of the related bank loans that were collateralized by such cash balances.

 Investments in Privately-held Raw Material Companies 

 We have made strategic investments in private companies located in China in order to gain access at a competitive cost to raw materials that are critical to our substrate business (see Note 7 ). The investment balances for the non-consolidated companies are accounted for under the equity method, included in “Other assets” in the condensed consolidated balance sheets, totaled $ 14.3 million and $ 14.1 million as of June 30, 2025 and December 31, 2024 , respectively. As of June 30, 2025 , there were three companies accounted for under the equity method. There were no impairment charges for these investments during the three and six months ended June 30, 2025 and 2024 .

 In May 2023, we reduced our ownership in Jia Mei from 25 % to 10 % by selling a portion of our Jia Mei shares to a third party for approximately $ 827,000 . As a result of our decreased ownership and the fact that we do not have the ability to exercise significant influence over Jia Mei’s operations, we adopted the fair value method of accounting to report on the investment in Jia Mei. Our investments under the fair value method are reviewed for other-than-temporary declines in value on a quarterly basis. We monitor our investments for impairment and record reductions in carrying value when events or changes in circumstances indicate that the carrying value may not be recoverable. As a result of the share sale, we recognized a gain of $ 575,000 . Additionally, in accordance with Accounting Standards Codification (“ASC”) 321 - 10 - 35 - 2, we adjusted the investment in Jia Mei to its fair value at the time of the sale, which resulted in a gain of $ 383,000 . The gain resulting from the sale and the subsequent remeasurement was incorporated as a component of “Equity in income of unconsolidated joint ventures” in the condensed consolidated statements of operations in the second quarter of 2023. In June 2025, we determined that the fair value had declined, resulting in the recognition of a loss of $ 145,000 . As of June 30, 2025 , our investments in this unconsolidated company had a carrying value of $ 406,000 and were included in “Other assets” in the condensed consolidated balance sheets.

 Fair Value Measurements 

 We invest primarily in certificates of deposits, corporate bonds and notes, government securities and money market accounts. We review our debt investment portfolio for credit loss at least quarterly or when there are changes in credit risk or other potential valuation concerns. As of June 30, 2025 and December 31, 2024 , the total unrealized loss, net of tax, included in accumulated other comprehensive income was immaterial. We believe it is probable the principal and interest will be collected in accordance with the contractual terms, and the unrealized loss on these securities was due to normal market fluctuations, and not due to increased credit risk or other valuation concerns. ASC 820, Fair Value Measurements and Disclosures , establishes three levels of inputs that may be used to measure fair value. Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets of the asset or identical assets. Level 2 instrument valuations are obtained from readily- available, observable pricing sources for comparable instruments. Level 3 instrument valuations are obtained from unobservable inputs in which there is little or no market data, which require us to develop our own assumptions. On a recurring basis, we measure certain financial assets and liabilities at fair value, primarily consisting of our short-term and long-term debt investments.

 The type of instrument valued based on quoted market prices in active markets includes our money market funds, which are generally classified within Level 1 of the fair value hierarchy. We classify our available-for-sale debt securities, including certificates of deposit and corporate bonds, as having Level 2 inputs. The valuation techniques used to measure the fair value of these financial instruments having Level 2 inputs were derived from bank statements, quoted market prices, broker or dealer statements or quotations, or alternative pricing sources with reasonable levels of price transparency.

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 We place short-term foreign currency hedges that are intended to offset the potential cash exposure related to fluctuations in the exchange rate between the United States dollar and Japanese yen. We measure the fair value of these foreign currency hedges at each month end and quarter end using current exchange rates and in accordance with U.S. GAAP. At quarter end, any foreign currency hedges not settled are netted in “Accrued liabilities” on the condensed consolidated balance sheets and classified as Level 3 assets and liabilities. As of June 30, 2025 , the net change in fair value from the placement of the hedge to settlement at each month end during the quarter had a de minimis impact on the condensed consolidated results.

 There were no changes in valuation techniques or related inputs in the three and six months ended June 30, 2025 . There have been no transfers between fair value measurements levels during the three and six months ended June 30, 2025 . Our investment balance as of June 30, 2025 was $ 0 .

 Items Measured at Fair Value on a Nonrecurring Basis 

 Certain assets that are subject to nonrecurring fair value measurements are not included in the table above. These assets include investments in privately-held companies accounted for by the equity or fair value method (see Note 7 ). We did not record any other-than-temporary impairment charges for these investments during the three and six months ended June 30, 2025 and 2024 , respectively. 

 Note 3. Inventories 

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

 June 30, 
 December 31, 
 
 2025 
 2024 
 
 Inventories:
 
 Raw materials
 $ 27,794 $ 31,743 

 Work in process
 49,396 50,779 

 Finished goods
 2,873 2,555 

 $ 80,063 $ 85,077 

 As of June 30, 2025 and December 31, 2024 , carrying values of inventories were net of inventory reserves 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.

 Note 4. Property, Plant and Equipment, Net 

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

 June 30, 
 December 31, 
 
 2025 
 2024 
 
 Property, plant and equipment:
 
 Machinery and equipment, at cost
 $ 69,120 $ 67,917 

 Less: accumulated depreciation and amortization 
 ( 45,610 ) ( 44,065 ) 

 Building, at cost
 142,308 137,420 

 Less: accumulated depreciation and amortization 
 ( 28,797 ) ( 26,310 ) 

 Leasehold improvements, at cost
 7,737 7,575 

 Less: accumulated depreciation and amortization 
 ( 6,631 ) ( 6,347 ) 

 Construction in progress
 21,587 23,531 

 $ 159,714 $ 159,721 

 As of June 30, 2025 , the balance of construction in progress was $ 21.6 m illion, of which $ 16.5 m illion was related to our buildings in our new Dingxing and Kazuo locations, $ 1.2 million was for manufacturing equipment purchases not yet placed in service an d $ 3.8 mil lion was for construction in progress for our other consolidated subsidiaries. As of December 31, 2024 , the balance of construction in progress was $ 23.5 million, of which $ 17.9 million was related to our buildings in our Dingxing and Kazuo locations, $ 1.4 million was for manufacturing equipment purchases not yet placed in service and $ 4.3 million was for our construction in progress for our other consolidated subsidiaries. 

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 Note 5. Accrued Liabilities 

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

 June 30, 
 
 December 31, 
 
 2025 
 
 2024 
 
 Accrued compensation and related charges
 
 $ 
 2,917 
 
 $ 
 2,832 
 
 Preferred stock dividends payable
 
 $ 
 2,901 
 
 $ 
 2,901 
 
 Payable in connection with construction in progress
 
 1,929 
 
 1,985 
 
 Accrued professional services
 
 609 
 
 1,460 
 
 Other tax payable
 
 573 
 
 399 
 
 Current portion of operating lease liabilities
 
 550 
 
 536 
 
 Accrued product warranty
 
 435 
 
 451 
 
 Accrued income taxes
 
 371 
 
 127 
 
 Advances from customers
 
 331 
 
 1,590 
 
 Other personnel-related costs
 
 258 
 
 256 
 
 Accrual for sales returns
 
 36 
 
 28 
 
 Other accrued liabilities
 
 1,462 
 
 1,991 
 
 $ 
 12,372 
 
 $ 
 14,556 
 
 Note 6. Related Party Transactions 

 In September 2021 and October 2021, our consolidated subsidiary, ChaoYang XinMei, received funding from a minority investor of $ 0.9 million and $ 1.0 million, respectively. As of December 31, 2021, $ 1.9 million was included in short-term loan from noncontrolling interest in our condensed consolidated balance sheets. In December 2021 and January 2022, the same subsidiary received funding from Tongmei of $ 1.4 million and $ 1.4 million, respectively. In January 2022, the China local government certified this additional funding in ChaoYang XinMei as an equity investment. As a result, noncontrolling interests increased $ 2.2 million and redeemable noncontrolling interests increased $ 0.2 million. Short-term loan from noncontrolling interest decreased to $ 0 . In April 2022, Tongmei entered into the Capital Increase Agreement with minority investors to further invest approximately $ 4.5 million in ChaoYang XinMei. In April 2022 and May 2022, ChaoYang XinMei received funding from Tongmei of $ 1.1 million and $ 0.8 million, respectively, as equity investments. In April 2022 and May 2022, the minority investors invested $ 0.7 million and $ 0.6 million, respectively. As a result, noncontrolling interests increased $ 1.4 million and redeemable noncontrolling interests increased $ 0.1 million. In July 2022, Tongmei and the minority investors further invested $ 0.8 million and $ 0.6 million in ChaoYang XinMei, respectively. This completed the investment obligations under the Capital Increase Agreement. As a result, noncontrolling interests increased $ 610,000 and redeemable noncontrolling interests increased $ 57,000 . Tongmei’s ownership remained at 58.5 % after these equity investments.

 In September 2022, our consolidated subsidiary, ChaoYang LiMei completed the sale of land and its attached buildings to our equity investment entity, ChaoYang KaiMei, for a total consideration of $ 1.5 million. In January 2023, ChaoYang KaiMei paid to ChaoYang LiMei $ 1.5 million. 

 Our Related Party Transactions Policy seeks to prohibit all conflicts of interest in transactions between related parties and us, unless they have been approved by our Board of Directors. This policy applies to all of our employees, directors, and our consolidated subsidiaries. Our executive officers retain board seats on the board of directors of the companies in which we have invested in our PRC joint ventures. See Note 7 for further details.

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 Note 7. Investments in Privately-Held Raw Material Companies 

 We have made strategic investments in private companies located in China in order to gain access at a competitive cost to raw materials that are critical to our substrate business. These companies form part of our overall supply chain strategy.

 As of June 30, 2025 , the investments are summarized below (in thousands):

 Investment Balance as of 
 
 June 30, 
 December 31, 
 Accounting 
 Ownership 
 
 Company 
 2025 
 2024 
 Method 
 Percentage 
 
 Nanjing JinMei Gallium Co., Ltd.
 $ 592 $ 592 Consolidated 
 ** 85.5 % 

 ChaoYang JinMei Gallium Co., Ltd.
 1,820 1,820 Consolidated 
 ** 85.5 % 

 Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd.
 1,346 1,346 Consolidated 
 ** 85.5 % 

 ChaoYang ShuoMei High Purity Semiconductor Materials Co., Ltd.
 3,122 3,122 Consolidated 
 **** 75.0 % 

 ChaoYang XinMei High Purity Semiconductor Materials Co., Ltd.
 7,331 7,331 Consolidated 
 *** 58.5 % 

 $ 14,211 $ 14,211 

 Beijing JiYa Semiconductor Material Co., Ltd.
 $ 4,177 $ 4,867 Equity 
 39 % 

 Xiaoyi XingAn Gallium Co., Ltd.
 5,515 5,304 Equity 
 ** 25 % 

 ChaoYang KaiMei Quartz Co., Ltd.
 4,638 3,895 Equity 
 ***** 40 % 

 $ 14,330 $ 14,066 

 Emeishan Jia Mei High Purity Metals Co., Ltd.
 406 551 Fair value 
 ****** 10 % 

 $ 406 $ 551 

 * These percentages reflect the ownership currently in effect upon the completion of the reorganization in China and the ownership in effect upon the completion of the new capital funding by private equity investors in January 2021. 

 ** In preparation for Tongmei’s application for a listing of shares in an IPO on the STAR Market, in late December 2020 we reorganized our entity structures in China. JinMei and BoYu and their subsidiaries, previously organized under AXT, Inc., were assigned to Tongmei and effectively merged with Tongmei although they retained their own respective legal entity status and are wholly owned subsidiaries of Tongmei. The 33 % minority interest stakeholders of BoYu converted their ownership to a 7.59 % minority interest in Tongmei. The 8.5 % minority interest stakeholders, employees of JinMei, converted their ownership to a 0.38 % minority interest in Tongmei. Further, a number of employees, key managers and contributors, purchased a 0.4 % minority interest in Tongmei. In 2020, the Investors transferred approximately $ 48.1 million of new capital to Tongmei. An additional investment of approximately $ 1.5 million of new capital was funded in early January 2021. Under China regulations these investments must be formally approved by the appropriate government agency and are not deemed to be dilutive until such approval is granted. The government approved the approximately $ 49 million investment in its entirety on January 25, 2021 at which time the Investors owned a redeemable noncontrolling interest in Tongmei of 7.28 %. As of June 30, 2025 , Tongmei’s noncontrolling interests and redeemable noncontrolling interests totaled approximately 14.5 %. AXT remains the controlling stakeholder of Tongmei and holds a majority of the Board of Director positions of Tongmei.

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

 **** In April 2022, ChaoYang JinMei signed a joint venture agreement with certain investor to fund a new company, ChaoYang ShuoMei.

 ***** In April 2022, Tongmei signed a joint venture agreement with certain investors to fund a new company, ChaoYang KaiMei.

 ****** In May 2023, we sold 15 % of our equity investments in Jia Mei to a third party. We now own 10 % of Jia Mei and account for it under the fair value method.

 13 
 
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 In May 2023, we reduced our ownership in Jia Mei from 25 % to 10 % by selling a portion of our Jia Mei shares to a third party for approximately $ 827,000 . Considering our decreased ownership and that we no longer have significant influence over its operations and financial policies, we adopted the fair value method of accounting to report on the investment in Jia Mei. As Jia Mei's equity interest is without a readily determinable fair value, we elected to use the measurement alternative to measure at cost, less any impairment, plus or minus fair value changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer.

 The Jia Mei investment is reviewed for other-than-temporary declines in value on a quarterly basis. In May 2025, two unrelated investors entered into an agreement to invest approximately $ 360,000 each in Jia Mei, in exchange for an 8.9 % ownership per investor. The signed agreement provided a market-based indication of Jia Mei's fair value. Based on the signed agreement, we recorded an impairment charge of $ 145,000 for Jia Mei investment during the six months ended June 30, 2025 . Our ownership interest in Jia Mei remained at 10 % as of June 30, 2025, pending the closing of the May 2025 transaction.

 Although we have representation on the board of directors of each of the privately held raw material companies, the daily operations of each of these companies are managed by local management and not by us. Decisions concerning their respective short-term strategy and operations, ordinary course of business capital expenditures and sales of finished product, are made by local management with regular guidance and input from us.

 For AXT’s minority investment entities that are not consolidated, the investment balances are included in “Other assets” in our condensed consolidated balance sheets and totaled $ 14.7 million and $ 14.6 million as of June 30, 2025 and December 31, 2024 , respectively. As of June 30, 2025 , our ownership interests in ChaoYang KaiMei, JiYa, Xiaoyi XingAn Gallium Co., Ltd (“Xiaoyi XingAn”) and Jia Mei were 40 %, 39 %, 25 %, and 10 %, respectively. These minority investment entities are not considered variable interest entities because:

 ●
 all minority investment entities have sustainable businesses of their own;
 
 ●
 our voting power is proportionate to our ownership interests;
 
 ●
 we only recognize our respective share of the losses and/or residual returns generated by the companies if they occur; and
 
 ●
 we do not have controlling financial interest in, do not maintain operational or management control of, do not control the board of directors of, and are not required to provide additional investment or financial support to any of these companies.
 
 In June 2022, July 2022 and August 2022, we received a dividend of $ 1.3 million from BoYu, $ 1.5 million from Xiaoyi XingAn and $0.1 million from JiYa, respectively. In April 2023, Xiaoyi XingAn distributed a dividend of $ 1.8 million to us. Additionally, in both April 2023 and November 2023, JiYa distributed dividends to us, totaling $ 2.0 million and $ 0.5 million, respectively. In May 2024 and November 2024, we received a dividend of $ 2.1 million from Xiaoyi XingAn and $ 0.3 million from JiYa, respectively. In April 2025, we received a $ 0.9 million dividend from JiYa. We have no current intentions to distribute to our investors earnings under our corporate structure. All of these distributions were paid to the PRC companies and the minority shareholders.

 AXT’s minority investment entities are not consolidated and are accounted for under the equity method. The equity investment entities had the following summarized statements of operations information (in thousands) for the three and six months ended June 30, 2025 and 2024 :

 Three Months Ended 
 Six Months Ended 
 
 June 30, 
 June 30, 
 
 2025 
 2024 
 2025 
 2024 
 
 Net revenue
 $ 7,064 $ 9,338 $ 15,722 $ 17,442 

 Gross profit
 $ 1,862 $ 4,161 $ 3,806 $ 8,090 

 Operating income
 $ 1,010 $ 4,035 $ 2,292 $ 7,406 

 Net income (loss)
 $ ( 197 ) $ 2,044 $ 774 $ 5,182 

 Our portion of the income and losses, including impairment charges, from these minority investment entities that are not consolidated and are accounted for under the equity method was a loss of $ 0.2 million and income of $ 0.6 million, respectively, for the three months ended June 30, 2025 and 2024. Our portion of the income and losses, including impairment charges, from these minority investment entities that are not consolidated and are accounted for under the equity method was income of $ 0.2 million and $ 1.5 million, respectively, for the six months ended June 30, 2025 and 2024. 

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 Note 8. Stockholders ’ Equity 

 Condensed Consolidated Statements of Stockholders ’ Equity 

 (in thousands) 

 The changes in stockholders’ equity by component for the three and six months ended June 30, 2025 are as follows:

 Accumulated 
 
 Additional 
 Other 
 AXT, Inc. 
 Total 
 
 Preferred 
 Common 
 Paid-In 
 Accumulated 
 Comprehensive 
 Stockholders’ 
 Noncontrolling 
 Stockholders’ 
 
 Stock 
 Stock 
 Capital 
 Deficit 
 Income (Loss) 
 Equity 
 Interests 
 Equity 
 
 Balance as of December 31, 2024 
 $ 3,532 $ 45 $ 241,514 $ ( 43,664 ) $ ( 8,657 ) $ 192,770 $ 23,561 $ 216,331 

 Stock-based compensation
 — — 563 — — 563 — 563 

 Tongmei stock-based compensation
 — 1 70 — — 71 6 77 

 Net loss
 — — — ( 8,798 ) — ( 8,798 ) ( 610 ) ( 9,408 ) 

 Other comprehensive loss
 — — — — 431 431 53 484 

 Balance as of March 31, 2025 
 3,532 46 242,147 ( 52,462 ) ( 8,226 ) 185,037 23,010 208,047 

 Stock-based compensation
 — — 607 — — 607 — 607 

 Tongmei stock-based compensation
 — — 22 — — 22 2 24 

 Net loss
 — — — ( 7,008 ) — ( 7,008 ) ( 233 ) ( 7,241 ) 

 Other comprehensive loss
 — — — — 1,056 1,056 128 1,184 

 Balance as of June 30, 2025 
 $ 3,532 $ 46 $ 242,776 $ ( 59,470 ) $ ( 7,170 ) $ 179,714 $ 22,907 $ 202,621 

 Net loss and Other comprehensive loss attributable to redeemable noncontrolling interests were $ 433,000 and $ 128,000 , r espectively, for the three months ended June 30, 2025, and $ 1.0 million and $ 181,000 , respectively, for the six months ended June 30, 2025 and are not shown in the table above.

 15 
 
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 The changes in stockholders’ equity by component for the three and six months ended June 30, 2024 are as follows:

 Accumulated 
 
 Additional 
 Other 
 AXT, Inc. 
 Total 
 
 Preferred 
 Common 
 Paid-In 
 Accumulated 
 Comprehensive 
 Stockholders’ 
 Noncontrolling 
 Stockholders’ 
 
 Stock 
 Stock 
 Capital 
 Deficit 
 Income (Loss) 
 Equity 
 Interests 
 Equity 
 
 Balance as of December 31, 2023 
 $ 3,532 $ 44 $ 238,452 $ ( 32,040 ) $ ( 5,999 ) $ 203,989 $ 23,494 $ 227,483 

 Common stock options exercised
 — — 20 — — 20 — 20 

 Stock-based compensation
 — — 614 — — 614 — 614 

 Tongmei stock-based compensation
 — — 171 — — 171 13 184 

 Net loss
 — — — ( 2,083 ) — ( 2,083 ) 106 ( 1,977 ) 

 Other comprehensive income
 — — — — ( 1,627 ) ( 1,627 ) ( 187 ) ( 1,814 ) 

 Balance as of March 31, 2024 
 3,532 44 239,257 ( 34,123 ) ( 7,626 ) 201,084 23,426 224,510 

 Common stock options exercised
 — — 5 — — 5 — 5 

 Stock-based compensation
 — — 621 — — 621 — 621 

 Tongmei stock-based compensation
 — — 79 — — 79 7 86 

 Net loss
 — — — ( 1,516 ) — ( 1,516 ) 316 ( 1,200 ) 

 Other comprehensive income
 — — — — ( 601 ) ( 601 ) ( 69 ) ( 670 ) 

 Balance as of June 30, 2024 
 $ 3,532 $ 44 $ 239,962 $ ( 35,639 ) $ ( 8,227 ) $ 199,672 $ 23,680 $ 223,352 

 Net income (loss) and Other comprehensive income (loss) attributable to redeemable noncontrolling interests were $ 1,000 and ($ 69,000 ), respectively, for the three months ended June 30, 2024 and ($ 70,000 ) and ($ 258,000 ), respectively, for the six months ended June 30, 2024 and are not shown in the table above.

 There were no reclassification adjustments from accumulated other comprehensive income (loss) for the three and six months ended June 30, 2025 and 2024 .

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 Stock Repurchase Program 

 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 can be made from time to time in the open market and are 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. No shares were repurchased from 2016 through 2024. During the three and six months ended June 30, 2025 , we did not repurchase any shares under the approved stock repurchase program. As of June 30, 2025 , approxima tely $ 2.7 m illion remained available for future repurchases under this program. Currently, we do not plan to repurchase additional shares.

 By the terms of the Series A preferred stock, so long as any shares of Series A preferred stock are outstanding, neither the Company nor any subsidiary of the Company shall redeem, repurchase or otherwise acquire any shares of common stock, unless all accrued dividends on the Series A preferred stock have been paid. During 2013 and 2015, we repurchased shares of our outstanding common stock. As of December 31, 2015, the Series A preferred stock had cumulative dividends of $ 2.9 million and we included this amount in “Accrued liabilities” in our consolidated balance sheets. In the quarter ended June 30, 2025 and 2024 , we did not repurchase any of our outstanding common stock. If we are required to pay the cumulative dividends on the Series A preferred stock, our cash and cash equivalents would be reduced. We account for the cumulative year-to-date dividends on the Series A preferred stock when calculating our earnings per share.

 Note 9. Stock-Based Compensation 

 We account for stock-based compensation in accordance with the provisions of ASC Topic 718, Compensation-Stock Compensation (“ASC 718” ), which established accounting for stock-based awards exchanged for employee services. Stock-based compensation cost is measured at each grant date, based on the fair value of the award, and is recognized as expense over the employee’s requisite service period of the award. All of our stock compensation is accounted for as an equity instrument.

 In May 2015, our stockholders approved our 2015 Equity Incentive Plan (the “2015 Plan”). The 2015 Plan is a replacement of the 2007 Plan. The 399,562 share reserve of the 2007 Plan became the reserve of the 2015 Plan, together with 3,000,000 additional shares approved for issuance under the 2015 Plan. In May 2019, our stockholders approved 1,600,000 of additional shares for issuance under the 2015 Plan. In May 2021, our stockholders approved 3,600,000 of additional shares for issuance under the 2015 Plan. In May 2024, our stockholders approved an amendment to the 2015 Plan to increase the number of shares reserved for issuance by an additional 3,600,000 shares. In May 2025, our stockholders approved our 2025 Equity Incentive Plan (the “2025 Plan”). The 2025 Plan is a replacement of the 2015 Plan. The 4,313,156 share reserve of the 2015 Plan became the reserve of the 2025 Plan. Awards that may be made under the 2025 Plan are stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, deferred compensation awards and other stock-based awards. Stock options and stock appreciation rights awarded under the 2025 Plan may not be repriced without stockholder approval. Stock options and stock appreciation rights may not be granted below fair market value. Stock options or stock appreciation rights generally shall not be fully vested over a period of less than four years from the date of grant and cannot be exercised more than 10 years from the date of grant. Restricted stock, restricted stock units, and performance awards generally shall not vest faster than over a three -year period (or a twelve -month period if vesting is based on a performance measure). However, options granted to consultants and restricted stock awards granted to independent board members typically vest in one year and the 2025 Plan does allow for similar vesting to employees.

 The following table summarizes compensation costs related to our stock-based awards (in thousands, except per share data):

 Three Months Ended 
 Six Months Ended 
 
 June 30, 
 June 30, 
 
 2025 
 2024 
 2025 
 2024 
 
 Cost of revenue
 $ 47 $ 68 $ 110 $ 173 

 Selling, general and administrative
 476 526 949 1,079 

 Research and development
 110 121 220 272 

 Net effect on net loss
 $ 633 $ 715 $ 1,279 $ 1,524 

 We did not capitalize any stock-based compensation to inventory as of June 30, 2025 and December 31, 2024 due to the immateriality of the amount.

 17 
 
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 We estimate the fair value of stock options using the Black-Scholes option pricing model, consistent with the provisions of ASC 718. There were no options granted in the three and six months ended June 30, 2025 and 2024 .

 The following table summarizes the stock option transactions during the six months ended June 30, 2025 (in thousands, except per share data):

 Weighted- 
 
 average 
 
 Weighted- 
 Remaining 
 
 Number of 
 average 
 Contractual 
 Aggregate 
 
 Options 
 Exercise 
 Life 
 Intrinsic 
 
 Stock Options 
 Outstanding 
 Price 
 (in years) 
 Value 
 
 Balance as of January 1, 2025
 1,175 $ 5.16 3.16 $ — 

 Granted
 — — 

 Exercised
 — — 

 Canceled and expired
 — — 

 Balance as of June 30, 2025
 1,175 $ 5.16 2.67 $ — 

 Options exercisable as of June 30, 2025
 1,175 $ 5.16 2.67 $ — 

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

 Restricted stock awards 

 A summary of activity related to restricted stock awards for the six months ended June 30, 2025 is presented below (in thousands, except per share data):

 Weighted- 
 
 Average 
 
 Grant Date 
 
 Stock Awards 
 Shares 
 Share Value 
 
 Non-vested as of January 1, 2025
 1,541 $ 2.84 

 Granted
 589 $ 1.52 

 Vested
 ( 198 ) $ 3.94 

 Forfeited
 ( 20 ) $ 2.81 

 Non-vested as of June 30, 2025
 1,912 $ 2.32 

 As of June 30, 2025 , the unamortized compensation costs related to unvested restricted stock awards was approximatel y $ 3.7 mi llion, which is to be amortized on a straight-line basis over a weighted-average period of approximately 1.4 years.

 At-Risk, Performance Shares 

 In February 2024, the Company issued at-risk, performance shares classified as equity awards. Expense is recognized quarterly on a straight-line method over the requisite service period, based on the probability of achieving the specified financial performance metric, with changes in expectations recognized as an adjustment to earnings in the period of change. Compensation cost is not recognized for at-risk, performance shares that do not vest because service or performance conditions are not satisfied and any previously recognized compensation cost is reversed. At-risk, performance shares are eligible to receive dividend equivalents under the Company’s 2015 Equity Incentive Plan (the “Plan”), as determined by the Board of Directors. The Company will recognize forfeitures as they occur.

 The Company’s at-risk, performance shares are classified as equity and contain performance and service conditions that must be satisfied for an employee to receive the shares. The financial performance metric for the at-risk, performance shares issued in February 2024 is based upon the Company’s year-end actual results in 2024. All performance shares, if earned, are still subject to annual vesting over a four -year period, except that no shares are vested on the first anniversary because the performance measurement is based on year-end results for the year 2023 and 2024, respectively.

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 The fair value of the at-risk, performance shares is determined based on the closing price of the Company’s common stock on the first day after the public issuance of the Company’s earnings release for the most recent fiscal quarter, following the Compensation Committee and Board of Directors approval, which is considered the grant date. The fair value per share of the at-risk, performance shares classified as equity awards granted in February 2024 and March 2023 was $ 2.28 and $ 3.71 , respectively.

 On March 15, 2023, the Compensation Committee recommended, and the Board approved, the grant to Dr. Morris Young of 223,590 at-risk, performance shares under the Plan. On March 15, 2023, the Compensation Committee approved the grant to Gary Fischer of 77,600 at-risk, performance shares under the Plan. If the minimum financial metric for fiscal year 2023 is achieved, then based upon a performance formula, a corresponding portion of the 223,590 shares issued to Dr. Young would be eligible to vest and a corresponding portion of the 77,600 shares issued to Mr. Fischer would be eligible to vest. If the target financial metric was exceeded and an additional financial metric for fiscal year 2023 is achieved, then additional shares above the target number of shares are earned based on such performance formula and the maximum number of additional shares earned is capped at 100% of the target. If the minimum financial metric for fiscal year 2023 is not achieved, then these awards are forfeited. On February 20, 2024, the Compensation Committee met and certified that the minimum revenue metric for fiscal year 2023 was not achieved. Therefore, none of the at-risk performance shares became eligible to vest.

 On February 20, 2024, the Compensation Committee recommended, and the Board approved, the grant to Dr. Morris Young of 223,590 at-risk, performance shares under the Plan. On February 20, 2024, the Compensation Committee approved the grant to Gary Fischer of 77,600 at-risk, performance shares under the Plan. If the minimum financial metric for fiscal year 2024 is achieved, then based upon a performance formula, a corresponding portion of the 223,590 shares issued to Dr. Young would be eligible to vest and a corresponding portion of the 77,600 shares issued to Mr. Fischer would be eligible to vest. If the target financial metric is exceeded, then additional shares above the target number of shares are earned based on such performance formula and the maximum number of additional shares earned is capped at 100% of the target. If the minimum financial metric for fiscal year 2024 is not achieved, then these awards are forfeited. On February 18, 2025, the Compensation Committee met and certified that the year-over-year annual revenue growth rate achieved for fiscal year 2024, expressed as a percentage, was 200%. Therefore, the maximum number of at-risk performance shares became eligible to vest.

 A summary of the status of our unvested at-risk, performance shares as of June 30, 2025 is presented below (in thousands, except per share data):

 Weighted- 
 
 Average 
 
 Grant Date 
 
 Stock Awards 
 Shares 
 Share Value 
 
 Non-vested as of January 1, 2025
 301 $ 2.28 

 Granted
 151 (1) $ 2.23 

 Vested
 ( 75 ) $ 2.28 

 Forfeited
 — $ — 

 Non-vested as of June 30, 2025
 377 $ 2.26 

 ( 1 ) 
 The number of shares presented assumes the achievement of 100% of a target financial performance metric to be determined by the Company ’ s Compensation Committee and will be subject to an at-risk, performance shares agreement. 
 
 As of June 30, 2025 , there was $ 0.5 m illion of unrecognized compensation expense related to unvested at-risk, performance shares that is expected to be recognized over a weighted-average period of 1.6 yea rs.

 Note 10. Net Loss Per Share 

 Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the periods less shares of common stock subject to repurchase and non-vested stock awards. Diluted net income (loss) per share is computed using the weighted-average number of common shares outstanding and potentially dilutive common shares outstanding during the periods. The dilutive effect of outstanding stock options and restricted stock awards is reflected in diluted earnings per share by application of the treasury stock method. Potentially dilutive common shares consist of common shares issuable upon the exercise of stock options and vesting of restricted stock awards. Potentially dilutive common shares are excluded from the computation of weighted-average number of common shares outstanding in net loss years, as their effect would be anti-dilutive to the computation.

 19 
 
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 A reconciliation of the numerators and denominators of the basic and diluted net loss per share calculations is as follows (in thousands, except per share data):

 Three Months Ended 
 Six Months Ended 
 
 June 30, 
 June 30, 
 
 2025 
 2024 
 2025 
 2024 
 
 Numerator:
 
 Net loss attributable to AXT, Inc.
 $ ( 7,008 ) $ ( 1,516 ) $ ( 15,806 ) $ ( 3,599 ) 

 Less: Preferred stock dividends
 ( 44 ) ( 44 ) ( 88 ) ( 88 ) 

 Net loss available to common stockholders
 $ ( 7,052 ) $ ( 1,560 ) $ ( 15,894 ) $ ( 3,687 ) 

 Denominator:
 
 Denominator for basic net loss per share - weighted-average common shares
 43,710 43,092 43,630 43,039 

 Effect of dilutive securities:
 
 Common stock options
 — — — — 

 Restricted stock awards
 — — — — 

 Denominator for dilutive net loss per common shares
 43,710 43,092 43,630 43,039 

 Net loss attributable to AXT, Inc. per common share:
 
 Basic
 $ ( 0.16 ) $ ( 0.04 ) $ ( 0.36 ) $ ( 0.09 ) 

 Diluted
 $ ( 0.16 ) $ ( 0.04 ) $ ( 0.36 ) $ ( 0.09 ) 

 Options excluded from diluted net loss per share as the impact is anti-dilutive
 1,175 1,187 1,175 1,187 

 Restricted stock excluded from diluted net loss per share as the impact is anti-dilutive
 2,289 1,325 2,289 1,325 

 The 883,000 shares of $ 0.001 par value Series A preferred stock issued and outstanding as of June 30, 2025 and December 31, 2024 , valued at $ 3,532,000 , are non-voting and non-convertible preferred stock with a 5.0 % cumulative annual dividend rate payable when declared by the Board of Directors and a $ 4 per share liquidation preference over common stock, which must be paid before any distribution is made to common stockholders. These preferred shares were issued to Lyte Optronics, Inc. stockholders in connection with the completion of our acquisition of Lyte Optronics, Inc. on May 28, 1999. 

 Note 11. Segment Information and Foreign Operations 

 Segment Information 

 We operate in one segment for the design, development, manufacture and distribution of high-performance compound and single element semiconductor substrates and sale of raw materials integral to these substrates. In accordance with ASC Topic 280, Segment Reporting, our chief operating decision‑maker (“CODM”) has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the Company. Since we operate in one segment, all financial segment and product line information can be found in the consolidated financial statements. The CODM regularly evaluates consolidated net income (loss) and functional expenses, including cost of revenue, selling, general and administrative and research and development, to manage Company operations. No additional disaggregated expense categories are presented beyond those already disclosed in the primary financial statements.

 20 
 
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 Product Information 

 The following table represents revenue amounts (in thousands) by product type:

 Three Months Ended 
 Six Months Ended 
 
 June 30, 
 June 30, 
 
 2025 
 2024 
 2025 
 2024 
 
 Product Type:
 
 Substrates
 $ 11,292 $ 19,745 $ 22,374 $ 36,648 

 Raw Materials and Other
 6,682 8,178 14,956 13,963 

 Total
 $ 17,974 $ 27,923 $ 37,330 $ 50,611 

 Geographical Information 

 The following table represents revenue amounts (in thousands) reported for products shipped to customers in the corresponding geographic region:

 Three Months Ended 
 Six Months Ended 
 
 June 30, 
 June 30, 
 
 2025 
 2024 
 2025 
 2024 
 
 Geographical region:
 
 China
 $ 14,492 $ 16,947 $ 27,918 $ 28,464 

 Taiwan
 530 3,420 1,751 8,002 

 Japan
 704 796 1,422 1,786 

 Asia Pacific (excluding China, Taiwan and Japan)
 427 712 1,208 1,510 

 Europe (primarily Germany)
 1,597 4,689 3,698 8,414 

 North America (primarily the United States)
 224 1,359 1,333 2,435 

 Total
 $ 17,974 $ 27,923 $ 37,330 $ 50,611 

 Long-lived assets consist primarily of property, plant and equipment and operating lease right-of-use assets, and are attributed to the geographic location in which they are located. Long-lived assets, net of depreciation, by geographic region were as follows (in thousands):

 As of 
 
 June 30, 
 December 31, 
 
 2025 
 2024 
 
 Long-lived assets by geographic region, net of depreciation:
 
 North America
 $ 1,208 $ 1,353 

 China
 160,739 160,847 

 $ 161,947 $ 162,200 

 Significant Customers 

 One customer represented 11 % of our revenue for the three months ended June 30, 2025 and no customer represented 10% of our revenue for the three months ended June 30, 2024 . Our top five customers, although not the same five customers for each period, represented 32 % and 32 % of our revenue for the three months ended June 30, 2025 and 2024 , respectively.

 One customer represented 10% of our revenue for the six months ended June 30, 2025 and 2024. Our top five customers, although not the same five customers for each period, represented 29 % and 32 % of our revenue for the six months ended June 30, 2025 and 2024 , respectively.

 We perform ongoing credit evaluations of our customers’ financial condition, and limit the amount of credit extended when deemed necessary, but generally do not require collateral. One customer accounted for more than 10 % of our accounts receivable balance as of June 30, 2025 and December 31, 2024 , respectively.

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 Note 12. Commitments and Contingencies 

 Indemnification Agreements 

 We have entered into indemnification agreements with our directors and officers that require us to indemnify our directors and officers against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of a culpable nature; to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified; and to obtain directors’ and officers’ insurance if available on reasonable terms, which we currently have in place.

 Product Warranty 

 We provide warranties for our products for a specific period of time, generally twelve months, against material defects. We provide for the estimated future costs of warranty obligations in cost of sales when the related revenue is recognized. The accrued warranty costs represent the best estimate at the time of sale of the total costs that we expect to incur to repair or replace product parts that fail while still under warranty. The amount of accrued estimated warranty costs is primarily based on historical experience as to product failures as well as current information on repair costs. On a quarterly basis, we review the accrued balances and update the historical warranty cost trends.

 The following table reflects the change in our warranty accrual which is included in “Accrued liabilities” in the condensed consolidated balance sheets, during the three and six months ended June 30, 2025 and 2024 (in thousands):

 Three Months Ended 
 Six Months Ended 
 
 June 30, 
 June 30, 
 
 2025 
 2024 
 2025 
 2024 
 
 Beginning accrued product warranty
 $ 403 $ 495 $ 451 $ 703 

 Accruals for warranties issued
 80 131 101 188 

 Adjustments related to pre-existing warranties including expirations and changes in estimates
 55 ( 50 ) 79 ( 260 ) 

 Cost of warranty repair
 ( 103 ) ( 155 ) ( 196 ) ( 210 ) 

 Ending accrued product warranty
 $ 435 $ 421 $ 435 $ 421 

 Contractual Obligations 

 In 2020, we and a competitor entered into a cross license and covenant agreement (the “Cross License Agreement”), which has a term that began on January 1, 2020 and expires on December 31, 2029. The Cross License Agreement is a fixed-cost cross license and not a variable-cost cross license that is based on revenue or units. Under the Cross License Agreement, we are obligated to make annual payments over a 10 -year period.

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 Land Purchase and Investment Agreement 

 We have established a wafer process production line in Dingxing, China. In addition to a land rights and building purchase agreement that we entered into with a private real estate development company to acquire our new manufacturing facility, we also entered into a cooperation agreement with the Dingxing local government. In addition to pledging its full support and cooperation, the Dingxing local government will issue certain credits or rebates to us as we achieve certain milestones. We, in turn, agreed to hire local workers over time, pay taxes when due and eventually demonstrate a total investment of approximately $ 90 million in value, assets and capital. The investment will include cash paid for the land and buildings, cash on deposit in our name at local banks, the gross value of new and used equipment (including future equipment that might be used for indium phosphide and germanium substrates production), the deemed value for our customer list or the end user of our substrates, for example, the end users of 3 -D sensing VCSELs (vertical cavity surface emitting lasers), a deemed value for employment of local citizens, a deemed value for our proprietary process technology, other intellectual property, other intangibles and additional items of value. There is no timeline or deadline by which this must be accomplished, rather it is a good faith covenant entered into between AXT and the Dingxing local government. Further, there is no specific penalty contemplated if either party breaches the agreement. However, the agreement does state that each party has a right to seek from the other party compensation for losses. Under certain conditions, the Dingxing local government may purchase the land and building at the appraised value. We believe that such cooperation agreements are normal, customary and usual in China and that the future valuation is flexible. We have a similar agreement with the city of Kazuo, China, although on a smaller scale. The total investment targeted by AXT in Kazuo is approximately $ 15 million in value, assets and capital. In addition, BoYu has a similar agreement with the city of Kazuo. The total investment targeted by BoYu in Kazuo is approximately $ 8 million in value, assets and capital.

 Purchase Obligations with Penalties for Cancellation 

 In the normal course of business, we issue purchase orders to various suppliers. In certain cases, we may incur a penalty if we cancel the purchase order. As of June 30, 2025 , we do not have any outstanding purchase orders that will incur a penalty if cancelled by the Company.

 Legal Proceedings 

 From time to time we may be involved in judicial or administrative proceedings concerning matters arising in the ordinary course of business. We do not expect that any of these matters, individually or in the aggregate, will have a material adverse effect on our business, financial condition, cash flows or results of operations.

 On May 6, 2024, a putative shareholder class action complaint was filed in the U.S. District Court for the Eastern District of New York on behalf of persons or entities who purchased or acquired our publicly traded securities against us, Morris S. Young, our Chief Executive Officer, and Gary L. Fischer, our Chief Financial Officer. The court transferred the case to the Northern District of California, where our headquarters are located. A lead plaintiff was appointed and an amended complaint was filed, asserting a putative class period from March 24, 2021 and April 3, 2024, inclusive (the “Class Period”). The amended complaint alleged violations of Sections 10 (b) and 20 (a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b - 5 promulgated thereunder by the defendants, and sought unspecified monetary relief, interest, and attorneys’ fees. On November 8, 2024, Defendants moved to dismiss. The Court granted the motion to dismiss with leave to amend on May 28, 2025, holding that the plaintiffs failed to state a claim. Plaintiffs filed a second amended complaint on June 27, 2025, asserting the same claims as in the prior complaint. On July 11, 2025, Defendants again moved to dismiss. Defendants’ motion to dismiss is fully briefed and pending before the Court.

 On August 22, 2024, a derivative lawsuit was filed in the Northern District of California by an alleged shareholder against Morris S. Young, our Chief Executive Officer, Gary L. Fischer, our Chief Financial Officer, then-serving directors David C. Chang, Jesse Chen, and Christine Russell, and former director Leonard J. LeBlanc, with the Company named as a nominal defendant (together, “Defendants”). Defendants moved to dismiss on November 6, 2024, following which the plaintiff filed an amended complaint on November 20, 2024. The amended complaint asserted that the Defendants breached their fiduciary duties to the Company based on the allegations asserted in the original complaint in the putative shareholder class action. On November 27, 2024, Defendants again moved to dismiss. On March 17, 2025, the Court granted our motion to dismiss, holding that the plaintiff did not make a pre-suit demand on our Board of Directors and failed to plead with particularity facts sufficient to excuse the lack of a demand and also for failure to state a claim. On April 11, 2025, the plaintiff filed a notice that he did not intend to further amend his complaint. The Court entered judgment on April 14, 2025. On May 13, 2025, Plaintiffs filed a notice of appeal.

 It is not possible at this time to reasonably assess the final outcome of the putative shareholder class action or to reasonably estimate the possible loss or range of loss with respect to that litigation. We believe these claims to be meritless and intend to vigorously defend against them.

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 Note 13. Other Income (expense), Net 

 Other income (expense), net for the three months ended June 30, 2025 and 2024 , includes a grant of $ 0.2 million and $ 0.4 million, respectively, from government agencies as awards for technological innovation and job creation. Other income (expense), net for the six months ended June 30, 2025 and 2024 , includes a grant of $ 0.5 million and $ 1.4 million, respectively, from government agencies as awards for technological innovation and job creation.

 In addition, we incurred a foreign currency transaction exchange gain of $ 45,000 and $ 42,000 for the three months ended June 30, 2025 and 2024 , respectively. We incurred a foreign currency transaction exchange gain of $ 86,000 and $ 100,000 for the six months ended June 30, 2025 and 2024 , respectively.

 Note 14. Income Taxes 

 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.

 We provide for income taxes based upon the geographic composition of worldwide earnings and tax regulations governing each region, particularly China. The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws, particularly in foreign countries such as China.

 We recognize interest and penalties related to uncertain tax positions in income tax expense. Income tax expense for the three and six months ended June 30, 2025 includes no interest and penalties. As of June 30, 2025 , we have no accrued interest and penalties related to uncertain tax positions. We file income tax returns in the U.S. federal, various states and foreign jurisdictions. Currently, there is no tax audit in any of the jurisdictions and we do not expect there will be any significant change to this. 

 Provision for income taxes for the three and six months ended June 30, 2025 was mostly related to our wholly owned China subsidiaries and our partially owned subsidiaries in China. Income taxes and certain state taxes, have been provided for our U.S. operations as most of the income in the U.S. had been fully offset by utilization of federal and state net operating loss carryforwards.

 On July 4, 2025, the President signed into law the “One Big Beautiful Bill Act” (the “Act”). Among other things, the Act makes permanent many provisions of the 2017 Tax Cuts and Jobs Act (the “TCJA”) that otherwise would have expired this year. The Act permanently reinstates elective expensing for qualifying domestic research and experimental expenditures with respect to amounts paid or incurred after December 31, 2024 ( section 174A ). Expenditures for research performed outside the U.S. remain amortizable over 15 years. We capitalize the R&E expense incurred by our China subsidiaries and amortize it over 15 years.

 California Senate Bill 167 was signed into law by the acting governor on June 27, 2024. The bill makes several tax changes designed to alleviate the 2024 - 2025 budget. For tax years beginning on or after January 1, 2024, and before January 1, 2027, net operating losses (NOLs) are suspended for both corporate and personal income taxes. The suspension will not apply to any taxpayer with net business income or modified adjusted income of less than $1 million. Another provision in Senate Bill 167 limits the use of credits for tax years beginning on or after January 1, 2024, and before January 1, 2027. During this period, a business (including all taxpayers that are members of a combined report) may claim a total of only $5 million in credits under both the Corporation and Personal Income Tax laws (including the carryover of any business credit). Since the Company’s profit level is below $1 million, Bill 167 has no impact on the Company.

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 Note 15. Revenue 

 Revenue Recognition 

 We manufacture and sell high-performance compound semiconductor substrates including indium phosphide, gallium arsenide and germanium wafers, and our consolidated subsidiaries sell certain raw materials, including high purity gallium ( 7N Ga), pyrolytic boron nitride (pBN) crucibles and boron oxide ( B2O3 ). After we ship our products, there are no remaining obligations or customer acceptance requirements that would preclude revenue recognition. 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.

 We have elected to account for shipping and handling as activities to fulfill the promise to transfer the goods. Shipping and handling fees billed to customers in a sales transaction are recorded as an offset to shipping and handling expenses. Sales taxes and value added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from revenue.

 We do not provide training, installation or commissioning services. We provide for future returns based on historical data, prior experience, current economic trends and changes in customer demand at the time revenue is recognized. We do not recognize any asset associated with the incremental cost of obtaining revenue generating customer contracts. As such, sales commissions are expensed as incurred, given that the expected period of benefit is less than one year.

 Contract Balances 

 Contract assets are recorded when we have a conditional right to consideration for our completed performance under the contracts. Accounts receivables are recorded when the right to this consideration becomes unconditional. We believe the fair value of our accounts receivable approximates its carrying value due to its short maturities and nominal credit risk. We do not have any material contract assets as of June 30, 2025 . In some contracts we require payment in advance of shipment, per a billing schedule reflected in our customer contracts, and the payment is recorded as a contract liability. The following table reflects the contract liabilities balance, which is included in “Accrued liabilities” on the condensed consolidated balance sheets, as of June 30, 2025 and December 31, 2024 (in thousands):

 June 30, 
 December 31, 
 
 2025 
 2024 
 
 Contract liabilities
 $ 331 $ 1,590 

 During the three and six months ended June 30, 2025, the Company recognized $ 28,000 and $ 1.6 million, respectively, of revenue that was included in the contract balances as of December 31, 2024. During the three and six months ended June 30, 2024, the Company recognized $ 27,000 and $ 154,000 , respectively, of revenue that was included in the contract balances as of December 31, 2023. 

 Disaggregated Revenue 

 In general, revenue disaggregated by product types and geography (see Note 11 ) is aligned according to the nature and economic characteristics of our business and provides meaningful disaggregation of our results of operations. Since we operate in one segment, all financial segment and product line information can be found in the condensed consolidated financial statements.

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 Note 16. Loans and Line of Credit 

 Our bank loans and credit facilities typically have a term of 12 months or less and are included in “Short-term loans” in our condensed consolidated balance sheets. The following table represents Short-term bank loans as of June 30, 2025 and December 31, 2024 (in thousands, except interest rate data):

 Loan 
 Interest 
 Start 
 Due 
 June 30, 
 December 31, 
 
 Subsidiary 
 Bank 
 Detail 
 Rate 
 Date 
 Date 
 2025 
 2024 
 
 Tongmei
 Bank of China (1) 
 $ 689 2.7 % January-25 
 January-26 
 $ 690 $ — 

 579 2.7 % March-25 
 March-26 
 586 — 

 Bank of China (3) 
 1,410 2.4 % September-24 
 September-25 
 1,410 1,370 

 1,370 2.4 % November-24 
 November-25 
 1,410 1,370 

 685 2.7 % November-24 
 November-25 
 700 685 

 2,480 2.5 % February-25 
 February-26 
 2,490 — 

 Bank of Communications (1) 
 1,376 3.0 % May-24 
 May-25 
 — 1,370 

 2,480 3.0 % June-24 
 May-25 
 — 2,466 

 1,420 2.5 % June-25 
 December-25 
 1,420 — 

 2,023 2.6 % June-25 
 June-26 
 2,023 — 

 China Merchants Bank (1) 
 1,386 3.5 % January-24 
 January-25 
 — 1,370 

 692 3.5 % February-24 
 February-25 
 — 685 

 692 3.5 % April-24 
 April-25 
 — 685 

 3,155 2.9 % January-25 
 January-26 
 3,185 — 

 978 2.9 % March-25 
 March-26 
 985 — 

 Bank of Beijing (2) 
 3,600 3.0 % March-24 
 February-25 
 — 3,565 

 3,580 3.0 % June-24 
 June-25 
 — 3,565 

 2,204 2.7 % March-25 
 March-26 
 2,210 — 

 1,405 2.6 % June-25 
 March-26 
 1,405 — 

 3,627 2.6 % June-25 
 June-26 
 3,627 — 

 Industrial Bank (1) 
 2,820 3.9 % September-24 
 September-25 
 2,820 2,740 

 2,679 3.9 % October-24 
 October-25 
 2,700 2,679 

 1,440 3.2 % November-24 
 November-25 
 1,455 1,440 

 Industrial Bank (4) 
 1,380 3.8 % March-25 
 March-26 
 1,390 — 

 NingBo Bank (1) 
 1,647 4.3 % January-24 
 January-25 
 — 1,630 

 1,258 4.3 % May-24 
 March-25 
 — 1,255 

 1,822 3.9 % November-24 
 November-25 
 1,840 1,822 

 550 3.9 % December-24 
 December-25 
 558 550 

 1,584 3.9 % January-25 
 January-26 
 1,590 — 

 689 3.9 % March-25 
 March-26 
 700 — 

 628 3.9 % Apr-25 
 March-26 
 628 — 

 579 3.8 % June-25 
 June-26 
 579 — 

 Industrial and Commercial Bank of China (1) 
 2,820 3.3 % September-24 
 September-25 
 2,820 2,740 

 China Citic Bank (1) 
 2,752 2.9 % June-24 
 June-25 
 — 2,740 

 2,820 2.9 % July-24 
 July-25 
 2,820 2,740 

 1,420 2.9 % September-24 
 September-25 
 1,420 1,370 

 Agricultural Bank of China (1) 
 1,235 2.6 % November-24 
 November-25 
 1,256 1,235 

 137 2.6 % December-24 
 December-25 
 140 137 

 BoYu
 Industrial and Commercial Bank of China (1) 
 1,420 2.8 % September-24 
 September-25 
 1,420 1,370 

 Bank of China (1) 
 1,145 2.3 % September-24 
 September-25 
 837 1,096 

 274 2.4 % December-24 
 December-25 
 279 274 

 Industrial Bank (1) 
 1,370 2.7 % November-24 
 November-25 
 1,385 1,370 

 Bank of Communications (1) 
 274 3.0 % May-24 
 May-25 
 — 274 

 767 2.6 % June-25 
 June-26 
 767 — 

 China Merchants Bank (1) 
 419 2.4 % June-25 
 June-26 
 419 — 

 NanJing Bank (1) 
 1,370 2.8 % December-24 
 December-25 
 1,385 1,370 

 Loan Balance 
 $ 51,349 $ 45,963 

 Collateral for the above bank loans and line of credit 

 ( 1 )
 Not collateralized.
 
 ( 2 )
 AXT time deposit.
 
 ( 3 )
 Baoding Tongmei’s land use rights and its building located at its facility in Dingxing, China. In addition, the loan attracts a guarantee fee amounting to 1.0 % of the loan amount.
 
 ( 4 )
 Chaoyang JinMei’s land use rights and its building located at its facility in Kazuo, China.
 
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 Long-term Loans 

 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 projects. 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.

 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.

 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.

 As of June 30, 2025 , the maturities of our long-term loan liabilities in five years (including current portion) are as follows (in thousands):

 Maturity of long-term loans 
 
 2025
 $ 977 

 2026
 4,046 

 2027
 977 

 2028
 1,256 

 2029
 2,390 

 In summary, short-term loans of $ 55.9 million included under “Short-term loans” in our condensed consolidated balance sheet at June 30, 2025 , consisted of $ 51.3 million of short-term bank loans and $ 4.6 million of the current portion of long-term debt. Long-term loan of $ 5.0 million included under “Other long-term liabilities” in our condensed consolidated balance sheet at June 30, 2025 .

 Note 17. Leases 

 We lease certain equipment, office space, warehouse and facilities under long-term operating leases expiring at various dates through November 2029. The majority of our lease obligations relate to our lease agreement for our facility in Fremont, California with approximately 19,467 square feet, which was scheduled to expire in 2020. Under the terms of the facility lease agreement, in May 2020, we were granted an extension to the term of the lease for an additional three years. Furthermore, in September 2023, we entered into another agreement to extend the lease for an additional five years, commencing December 2023. There are no variable lease payments, residual value guarantees or any restrictions or covenants imposed by the facility lease. The remaining lease obligations relate to a nitrogen system to be used during the manufacturing process for our facility in Dingxing, China. The equipment lease became effective in August 2019 and will expire in July 2029. The facility, located in Tongzhou, China, has a lease effective from December 2024 and expiring in November 2029. There are no variable lease payments, residual value guarantees or any restrictions or covenants imposed by the equipment lease. All other operating leases have a term of 12 months or less.

 Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease contains an option to purchase the asset that is reasonably certain to be exercised, the lease term is for a major part of the remaining useful life of the asset or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any one of these criteria. All of our leases are classified as operating leases and substantially all of our operating leases are comprised of equipment and office space leases. None of our leases are classified as finance leases.

 For all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease.

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 The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All right-of-use assets are reviewed for impairment. The lease liability is initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, our secured incremental borrowing rate for the same term as the underlying lease.

 Lease payments included in the measurement of the lease liability comprise the following: the fixed noncancelable lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early.

 Lease expense for operating leases consists of the lease payments plus any initial direct costs, primarily brokerage commissions, and is recognized on a straight-line basis over the lease term.

 We have elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12 months or less. The effect of short-term leases on our right-of-use asset and lease liability was not material.

 As of June 30, 2025 , the maturities of our operating lease liabilities (excluding short-term leases) are as follows (in thousands):

 Maturity of Lease Liabilities 
 
 2025
 $ 318 

 2026
 659 

 2027
 675 

 2028
 658 

 2029
 194 

 Thereafter
 — 

 Total minimum lease payments
 2,504 

 Less: Interest
 ( 240 ) 

 Present value of lease obligations
 2,264 

 Less: Current portion, included in accrued liabilities
 ( 550 ) 

 Long-term portion of lease obligations
 $ 1,714 

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

 June 30, 
 December 31, 
 
 2025 
 2024 
 
 Weighted-average remaining lease term (years)
 3.78 4.27 

 Weighted-average discount rate
 5.01 % 5.02 % 

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

 Six Months Ended 
 
 June 30, 
 
 2025 
 2024 
 
 Cash paid for amounts included in the measurement of lease liabilities: 
 
 Operating cash flows from operating leases
 $ 316 $ 292 

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 The components of lease expense are as follows (in thousands) within our condensed consolidated statements of operations:

 Three Months Ended 
 Six Months Ended 
 
 June 30, 
 June 30, 
 
 2025 
 2024 
 2025 
 2024 
 
 Operating lease
 $ 161 $ 153 $ 321 $ 306 

 Short-term lease expense
 34 42 83 83 

 Total
 $ 195 $ 195 $ 404 $ 389 

 Note 18. Redeemable Noncontrolling Interests 

 As discussed in Note 1, during the quarter ended December 31, 2020, Tongmei entered into the Capital Investment Agreements with Investors that invested approximately $ 48.1 million in the form of redeemable noncontrolling interests representing 7.06 % of the outstanding shares of Tongmei. An additional investment of approximately $ 1.5 million of new capital was funded in early January 2021. Under China regulations these investments must be formally approved by the appropriate government agency and are not deemed to be dilutive until such approval is granted. The government approved the entire approximately $ 49 million investment on January 25, 2021, at which time the Investors owned a redeemable noncontrolling interest in Tongmei of 7.28 %. The initial carrying amount of the redeemable noncontrolling interest was recorded at fair value on the date of issuance of Tongmei’s common stock, net of issuance costs and presented in temporary equity on the condensed consolidated balance sheets. This classification is due to the existence of certain contingencies that could result in potential redemption at the fixed purchase price as described below. We currently do not believe that this is probable thus no amortization of the issuance costs has been recorded.

 Pursuant to the Capital Investment Agreements with the Investors, each Investor has the right to require AXT to redeem any or all Tongmei shares held by such Investor at the original purchase price paid by such Investor, without interest, in the event the IPO fails to pass the audit of the Shanghai Stock Exchange, is not approved by the Chinese Securities Regulatory Commission (“CSRC”) or Tongmei cancels the IPO application. The aggregate redemption amount is approximately $ 49 million, subject to the foreign exchange rate variable at time of redemption.

 Tongmei submitted its IPO application to the Shanghai Stock Exchange in December 2021 and it was formally accepted for review on January 10, 2022. The Shanghai Stock Exchange approved the IPO application on July 12, 2022. On August 1, 2022, the CSRC accepted for review Tongmei’s IPO application. The STAR Market IPO remains subject to review and approval by the CSRC and other authorities. The process of going public on the STAR Market includes several periods of review and, therefore, is a lengthy process. Subject to review and approval by the CSRC and other authorities, Tongmei hopes to accomplish this goal in the coming months. The listing of Tongmei on the STAR Market will not change the status of AXT as a U.S. public company.

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 The components of the change in redeemable noncontrolling interests for the six months ended June 30, 2025 are presented in the following table (in thousands):

 Balance as of January 1, 2025 
 $ 38,577 

 Equity issuance costs incurred
 ( 531 ) 

 Stock-based compensation attributable to redeemable noncontrolling interests
 8 

 Net loss attributable to redeemable noncontrolling interests
 ( 1,041 ) 

 Effect of foreign currency translation on redeemable noncontrolling interests
 816 

 Effect of foreign currency translation attributable to redeemable noncontrolling interests
 181 

 Balance as of June 30, 2025 
 $ 38,010 

 Note 19. Recent Accounting Pronouncements 

 In December 2023, FASB issued ASU 2023 - 09— Income Taxes (Topic 740 ): Improvements to Income Tax Disclosures, to help investors better understand an entity’s exposure to potential changes in jurisdictional tax legislation and the ensuing risks and opportunities. Furthermore, the update improves to assess income tax information that affects cash flow forecasts and capital allocation decisions. The update is effective for public business entities for annual periods beginning after December 15, 2024, on a prospective basis. Adoption of the new standard will have an immaterial effect on our condensed consolidated financial statements.

 In March 2024, FASB released ASU 2024 - 01— Compensation—Stock Compensation (Topic 718 ). The update adds an illustrative example aimed at clarifying the scope application of a profit interest award in accordance with Topic 718. The update is effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. Adoption of the new standard had an immaterial effect on our condensed consolidated financial statements.

 In November 2024, FASB issued ASU 2024 - 03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220 - 40 ), which requires public business entities to disclose additional information on specific expense categories in the notes to the financial statements. The Update is effective for annual reporting periods beginning after December 15, 2026. Additionally, ASU 2025 - 01 amended the effective date for interim periods within annual reporting periods beginning after December 15, 2027. Adoption is expected to have an immaterial effect on our condensed consolidated financial statements. 

 Note 20. Subsequent Events 

 On July 14, 2025, we reported that Ms. Christine Russell, our independent director, Chair of the Audit Committee, member of the Compensation Committee and the Nominating and Corporate Governance Committee, passed away. On July 29, 2025, we appointed Leonard J. Leblanc to the Board of Directors to fill Ms. Russell’s vacancy effective immediately. The Board also appointed Mr. Leblanc to serve on the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee in reliance on the limited exception provided under the Nasdaq Listing Rules. On July 29, 2025, we also appointed Mr. Jesse Chan to serve as the Chair of the Audit Committee.

 In July 2025, the Company obtained a total of $ 740,000 in unsecured one -year bank loans with interest rates ranging from 2.6 % to 3.8 %. The company repaid $ 2.8 million on an existing loan.

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

 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.

 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.

 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.

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 Overview 

 AXT is a worldwide materials science company that develops and produces high-performance compound and single element semiconductor substrates, also known as wafers. Two of our consolidated subsidiaries produce and sell certain raw materials some of which are used in our substrate manufacturing process and some of which are sold to other companies.

 Our substrate wafers are used when a typical silicon substrate wafer cannot meet the performance requirements of a semiconductor or optoelectronic device. The dominant substrates used in producing semiconductor chips and other electronic circuits are made from silicon. However, certain chips may become too hot or perform their function too slowly if silicon is used as the base material. In addition, optoelectronic applications, such as LED lighting and chip-based lasers, do not use silicon substrates because they require a wave form frequency that cannot be achieved using silicon. Alternative or specialty materials are used to replace silicon as the preferred base in these situations. Our wafers provide such alternative or specialty materials. We do not design or manufacture the chips. We add value by researching, developing and producing the specialty material wafers. We have two product lines: specialty material substrates and raw materials integral to these substrates. Our compound substrates combine indium with phosphorous (indium phosphide: InP) or gallium with arsenic (gallium arsenide: GaAs). Our single element substrates are made from germanium (Ge).

 InP is a high-performance semiconductor wafer substrate used in broadband and fiber optic applications, 5G infrastructure and data center connectivity. Data centers use InP devices for high-speed optical data transmission. We believe the growth of AI applications will increase the need for high-speed data transfer, which may lead to an increase in InP substrate demand from such data centers. Currently, InP substrates are being used in certain consumer products, including proximity sensors and other sensors in mobile devices, biometric wearables and other health monitoring applications. In recent years, InP demand has increased. Semi-insulating GaAs substrates are used to create various high-speed microwave components, including power amplifier chips used in cell phones, satellite communications and broadcast television applications. Semi-conducting GaAs substrates are used to create opto-electronic products, such as light emitting diodes (LEDs) that are used in a wide range of applications, including automotive lighting, horticulture, signage, display, sensors and machine vision. Semi-conducting GaAs substrates are also used in making industrial lasers. GaAs wafers could also be used for making vertical cavity surface emitting lasers (VCSELs) for facial recognition and micro-LEDs targeting improved screen technology. Ge substrates are used in applications such as solar cells for space and terrestrial photovoltaic applications.

 Our supply chain strategy includes several consolidated raw material companies. One of these consolidated companies produces pyrolytic boron nitride (pBN) crucibles used in the high temperature (typically in the range 500 C to 1,500 C) growth process of single crystal ingots, effusion rings when growing OLED (Organic Light Emitting Diode) tools, epitaxial layer growth in MOCVD (Metal-Organic Chemical Vapor Deposition) reactors and MBE (Molecular Beam Epitaxy) reactors. We use these pBN crucibles in our own ingot growth processes and they are also sold in the open market to other companies. A second consolidated company converts raw gallium to purified gallium. We use purified gallium in producing our GaAs substrates and it is also sold in the open market to other companies for use in producing magnetic materials, high temperature thermometers, single crystal ingots, including gallium arsenide, gallium nitride, gallium antimonite and gallium phosphide ingots, and other materials and alloys. In addition to purified gallium, the second consolidated company also produces InP base material which we then use to grow single crystal ingots. Our substrate product group generated 68%, 63%, and 79% of our consolidated revenue and our raw materials product group generated 32%, 37%, and 21% for 2024, 2023, and 2022, respectively.

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 The following chart shows our substrate products and their materials, diameters and illustrative applications and shows our raw materials group primary products and their illustrative uses and applications.

 Products 
 
 Substrate Group and Wafer Diameter 
 
 Sample of Applications 
 
 Indium Phosphide 
 
 •Data center connectivity using light/lasers
 
 (InP) 
 
 •High-speed data transfer in data centers to support AI applications
 
 2”, 3”, 4”, 6”
 
 •5G communications
 
 •Fiber optic lasers and detectors
 
 •Consumer devices
 
 •Passive Optical Networks (PONs)
 
 •Silicon photonics
 
 •Photonic Integrated circuits (PICs)
 
 •Thermo-Photovoltaics (TPVs)
 
 •RF amplifier and switching (military wireless & 5G)
 
 •Infrared light-emitting diode (LEDs) motion control
 
 •Lidar for robotics and autonomous vehicles
 
 •Infrared thermal imaging
 
 Gallium Arsenide 
 
 •Wi-Fi devices
 
 (GaAs - semi-insulating) 
 
 •IoT devices
 
 1”, 2”, 3”, 4”, 5”, 6”
 
 •High-performance transistors
 
 •Direct broadcast television
 
 •Power amplifiers for wireless devices
 
 •Satellite communications
 
 •High efficiency solar cells for drones and automobiles
 
 •Solar cells
 
 Gallium Arsenide 
 
 •High brightness LEDs
 
 (GaAs - semi-conducting) 
 
 •Screen displays using micro-LEDs
 
 1”, 2”, 3”, 4”, 5”, 6”, 8”
 
 •Printer head lasers and LEDs
 
 •3-D sensing using VCSELs
 
 •Data center communication using VCSELs
 
 •Sensors for industrial robotics/Near-infrared sensors
 
 •Laser machining, cutting and drilling
 
 •Optical couplers
 
 •High efficiency solar cells for drones and automobiles
 
 •Other lasers
 
 •Night vision goggles
 
 •Lidar for robotics and autonomous vehicles
 
 •Solar cells
 
 Germanium 
 
 •Multi-junction solar cells for satellites
 
 (Ge) 
 
 •Optical sensors and detectors
 
 2”, 4”, 6”
 
 •Terrestrial concentrated photo voltaic (CPV) cells
 
 •Infrared detectors
 
 •Carrier wafer for LED
 
 Raw Materials Group 
 
 6N+ and 7N+ purified gallium 
 
 •Key material in single crystal ingots such as:
 
 - Gallium Arsenide (GaAs)
 
 - Gallium Nitride (GaN)
 
 - Gallium Antimonite (GaSb)
 
 - Gallium Phosphide (GaP)
 
 Boron trioxide (B2O3) 
 
 •Encapsulant in the ingot growth of III-V compound semiconductors
 
 Gallium-Magnesium alloy 
 
 •Used for the synthesis of organo-gallium compounds in epitaxial growth on semiconductor wafers
 
 pyrolytic boron nitride (pBN) crucibles 
 
 •Used when growing single-crystal compound semiconductor ingots
 
 •Used as effusion rings when growing OLED tools
 
 pBN insulating parts 
 
 •Used in MOCVD reactors
 
 •Used when growing epitaxial layers in Molecular Beam Epitaxy (MBE) reactors
 
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 All of our substrate products and raw material products are manufactured in the People’s Republic of China (PRC or China) by our PRC subsidiaries and PRC joint ventures. The PRC generally has favorable costs for facilities and labor compared with comparable facilities in the United States, Europe or Japan. Our supply chain includes partial ownership of raw material companies in China (subsidiaries/joint ventures). We believe this supply chain arrangement provides us with pricing advantages, reliable supply, market trend visibility and better sourcing lead-times for key raw materials central to manufacturing our substrates. In the event of industry-wide supply shortages we believe our vertically integrated supply chain strategy will be even more advantageous. Our raw material companies produce materials, including raw gallium (4N Ga), high purity gallium (6N and 7N Ga), starting material for InP, arsenic, germanium, germanium dioxide, pyrolytic boron nitride (pBN) crucibles and boron oxide (B2O3). We have board representation in all of these raw material companies. We consolidate the companies in which we have either a controlling financial interest, or majority financial interest combined with the ability to exercise substantive control over the operations, or financial decisions, of such companies. We use the equity method to account for companies in which we have noncontrolling financial interest and have the ability to exercise significant influence, but not control, over such companies. We purchase portions of the materials produced by these companies for our own use and they sell the remainder of their production to third parties.

 In 2015, the Beijing city government announced its decision to move most of its offices to the Tongzhou district where our original manufacturing facility is currently located. The Beijing city government has moved thousands of government employees into this district. The government has constructed showcase tower buildings and overseen the establishment of new apartment complexes, retail stores and restaurants. A large park, named Green Heart City Park, was built across the street from our facility and Universal Studios has developed an amusement park within a few miles of our facility. To create room and upgrade the district, the city instructed virtually all existing manufacturing companies, including Tongmei, to relocate all or some of their manufacturing lines. We were instructed to relocate our gallium arsenide manufacturing lines. For reasons of manufacturing efficiency, we elected to also move part of our germanium manufacturing line. Our indium phosphide manufacturing line, as well as various administrative and sales functions, remain primarily at our original site.

 Begun in 2017, the relocation of our gallium arsenide production lines is now completed. Our PRC subsidiary, Baoding Tongmei Xtal Technology Co., Ltd. (“Baoding Tongmei”), entered into volume production in 2020. To mitigate our risks and maintain our production schedule, we moved our gallium arsenide equipment in stages. By December 31, 2019, we had ceased all crystal growth for gallium arsenide in our original manufacturing facility in Beijing and transferred 100% of our ingot production to the new manufacturing facility of our PRC subsidiary, ChaoYang Tongmei Xtal Technology Co., Ltd., (“ChaoYang Tongmei”), in Kazuo, a city approximately 250 miles from Beijing. We transferred our wafer processing equipment for gallium arsenide to Baoding Tongmei’s new manufacturing facility in Dingxing, a city approximately 75 miles from Beijing. These new facilities enabled us to expand capacity and upgrade some of the equipment. In 2021 and 2022, we added additional equipment, including certain more advanced equipment. We have also invested in additional buildings to complement the initial construction and add capacity as needed. Our PRC subsidiaries also acquired sufficient land to enable them to add facilities, if needed in the future. We believe our success in the relocation and our ability to add capacity in the future gives us competitive advantages. In addition, a new level of technological sophistication in our manufacturing capabilities is enabling us to support the major trends that we believe are likely to drive demand for our products in the years ahead.

 New customer qualifications and expanding capacity as needed require us to continue to diligently address the many details that arise at each of our sites. A failure to properly accomplish this could result in disruption to our production and have a material adverse impact on our revenue, our results of operations and our financial condition. If we fail to meet the product qualification and volume requirements of a customer, we may lose sales to that customer. Our reputation may also be damaged. Any loss of sales could have a material adverse effect on our revenue, our results of operations and our financial condition.

 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.

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 Pursuant to the Capital Investment Agreements with the Investors, each Investor has the right to require AXT to redeem any or all Tongmei shares held by such Investor at the original purchase price paid by such Investor, without interest, in the event the IPO fails to pass the audit of the Shanghai Stock Exchange, is not approved by the Chinese Securities Regulatory Commission (“CSRC”) or Tongmei cancels the IPO application. The aggregate redemption amount is approximately $49 million, subject to the foreign exchange rate variable at time of redemption.

 Tongmei submitted its IPO application to the Shanghai Stock Exchange in December 2021 and it was formally accepted for review on January 10, 2022. The Shanghai Stock Exchange approved the IPO application on July 12, 2022. On August 1, 2022, the CSRC accepted for review Tongmei’s IPO application. The STAR Market IPO remains subject to review and approval by the CSRC and other authorities. The process of going public on the STAR Market includes several periods of review and, therefore, is a lengthy process. Subject to review and approval by the CSRC and other authorities, Tongmei hopes to accomplish this goal in the coming months. The listing of Tongmei on the STAR Market will not change the status of AXT as a U.S. public company.

 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.

 We are neither a PRC operating company nor do we conduct our operations in China through the use of variable interest entities (“VIEs”). Recent statements and regulatory actions by China’s government on the use of VIEs and data security or anti-monopoly concerns have not impacted our ability to conduct our business or continue to list our common stock on the Nasdaq Global Select Market.

 The following organization chart depicts the consolidated structure as of June 30, 2025:

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 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.

 In September 2018, the United States announced a list of thousands of categories of goods that became subject to Section 301 tariffs when imported into the United States from China. This pronouncement imposed tariffs on wafer substrates we imported into the United States. The initial tariff rate was 25%. On July 3, 2023, China announced new export control regulations on materials including gallium and germanium and compounds of these materials, effective as of August 1, 2023. Materials that could be used in military applications, specifically including weapons of mass destruction, were the primary focus. This required Tongmei to seek permits from the applicable Chinese authorities to export gallium arsenide and germanium substrates. Since that time, a general escalation has been underway with further increases to the tariffs from the US and additional export controls from China.

 In late 2024 and early 2025, a new round of trade restrictions was announced by China and the United States. On December 3, 2024, China issued further rules restricting exports of materials that can typically be used in military applications including antimony, gallium, germanium and other superhard materials. The effective date was December 3, 2024, the same day as the announcement itself. Reciprocally, the United States increased tariffs on many items from China from 25% to 50%, effective January 1, 2025. On February 1, 2025, the United States again further increased the tariff on imports of many products from China, including our wafer substrates, to 60%. On March 4, 2025, the United States further increased the tariff on imports of many products, including our wafer substrates, to 70%. In the first half of April 2025, we observed high volatility in tariffs put in place by the United States. At least four separate tariffs were imposed by the United States on products from China. Tariffs on our products increased to 100%. We have little or no germanium imports into the U.S. and historically a relatively small value of imports of gallium arsenide wafers into the U.S. In 2024 only 8% of our total worldwide revenue was from sales in North America. Our primary revenue generator derived from imports into the U.S. is indium phosphide substrates. While Tongmei has generally received the required permits for exports to countries in Asia and Europe, our U.S. gallium arsenide customers are considered “dual use” customers: in addition to commercial applications they have significant levels of military involvement. As such, no permits for gallium arsenide to the U.S. have yet been approved.

 On February 4, 2025, China added indium phosphide substrates to its export control list. As a result, the three wafer substrate product 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.

 In the ordinary course of business, our PRC subsidiaries and PRC joint ventures require permits and licenses to operate in the PRC. Such permits and licenses include permits to use hazardous materials in manufacturing operations. From time to time, the PRC government issues new regulations, which may require additional actions on the part of our PRC subsidiaries and PRC joint ventures to comply. For example, on February 27, 2015, the China State Administration of Work Safety updated its list of hazardous substances. The previous list, which was published in 2002, did not restrict the materials that we use in our wafers. The new list added gallium arsenide. As a result of the newly published list, we were required to seek additional permits. In the ordinary course of business, our PRC subsidiaries and PRC joint ventures apply for permits as required. Any such intervention or influence or change in the rules and regulations in China could result in a material change in our PRC operations and/or the value of our common stock or cause the value of such securities to significantly decline or be worthless.

 Another example of a change in the rules and regulations in China occurred when we were instructed by the Beijing municipal government to relocate part of our manufacturing facility in Beijing.

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 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.

 The cash generated from one PRC subsidiary is not used to fund another PRC subsidiary’s operations. None of our PRC subsidiaries has faced difficulties or limitations on its ability to transfer cash between our subsidiaries. We have cash management policies that dictate the amount of such funding.

 We are subject to a number of unique legal and operational risks associated with our corporate structure, any of which could result in a material change in our operations and/or the value of our common stock or cause the value of such securities to significantly decline or be worthless. Please carefully read the section entitled “Risk Factors” in Part II, Item 1A below. In particular, the following risk factors address issues associated with our corporate structure:

 ●
 
 Although we are a Delaware corporation and are neither a PRC operating company nor do we conduct our operations in China through the use of VIEs, in the event we inadvertently concluded that we do not require any permissions or approvals from the CSRC or other PRC central government authorities to complete a public offering of securities in the U.S. or applicable laws, regulations, or interpretations change, we may be required to obtain such permissions or approvals to complete such a public offering of securities.
 
 ●
 
 The PRC central government may intervene in or influence our PRC operations at any time and the rules and regulations in China can change quickly with little advance notice.
 
 ●
 
 The PRC central government may also exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result in a material change in our operations and/or the value of our common stock.
 
 ●
 
 Changes in China’s political, social, regulatory or economic environments may affect our financial performance.
 
 ●
 
 Joint venture raw material companies in China bring certain risks.
 
 ●
 
 Risks exist in utilizing our new gallium arsenide manufacturing sites efficiently.
 
 ●
 
 The Chinese central government is increasingly aware of air pollution and other forms of environmental pollution and their reform efforts can impact our manufacturing, including intermittent mandatory shutdowns.
 
 ●
 
 Shutdowns or underutilizing our manufacturing facilities may result in declines in our gross margins.
 
 ●
 
 Escalating and volatile trade tariffs, import restrictions, export restrictions, Chinese regulations or other trade barriers may materially harm our business.
 
 ●
 
 If China places restrictions on freight and transportation routes and on ports of entry and departure this could result in shipping delays or increased costs for shipping.
 
 ●
 
 Our international operations are exposed to potential adverse tax consequence in China.
 
 ●
 
 We derive a significant portion of our revenue from international sales, and our ability to sustain and increase our international sales involves significant risks.
 
 ●
 
 The terms of the private equity raised in China as a first step toward an IPO on the STAR Market grant each Investor a right of redemption if Tongmei fails to achieve its IPO.
 
 ●
 
 We are subject to foreign exchange gains and losses that may materially impact our statement of operations.
 
 ●
 
 Although the audit report is prepared by an independent registered public accounting firm that is currently inspected fully by the Public Company Accounting Oversight Board (the “PCAOB”), there is no guarantee that future audit reports will be prepared by an independent registered public accounting firm that is completely inspected by the PCAOB.
 
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 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.

 Critical Accounting Policies, Estimates and Change in Accounting Estimates 

 We prepare our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Accordingly, we make estimates, assumptions and judgments that affect the amounts reported on our condensed consolidated financial statements. These estimates, assumptions and judgments about future events and their effects on our results cannot be determined with certainty, and are made based upon our historical experience and on other assumptions that are believed to be reasonable under the circumstances. These estimates may change as new events occur or additional information is obtained, and we may periodically be faced with uncertainties, the outcomes of which are not within our control and may not be known for a prolonged period of time.

 We have identified the policies below as critical to our business operations and understanding of our financial condition and results of operations. Critical accounting policies are material to the presentation of our condensed consolidated financial statements and require us to make difficult, subjective or complex judgments that could have a material effect on our financial reports and results of operations. They may require us to make assumptions about matters that are highly uncertain at the time of the estimate. Different estimates that we could have used, or changes in the estimate that are reasonably likely to occur, may have a material impact on our financial condition or results of operations.

 Revenue Recognition 

 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.

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 Accounts Receivable and Allowance for Credit Losses 

 Accounts receivable are recorded at the invoiced amount and are not interest bearing. We review at least quarterly, or when there are changes in credit risks, the likelihood of collection on our accounts receivable balances and provide an allowance for credit losses. We measure the expected credit losses on a collective (pool) basis when similar delinquency status exists. We evaluate receivables from U.S. customers with an emphasis on balances in excess of 90 days and for receivables from customers located outside the U.S. with an emphasis on balances in excess of 120 days and establish a reserve allowance on the receivable balances if needed. The reason for the difference in the evaluation of receivables between foreign and U.S. customers is that U.S. customers have historically made payments in a shorter period of time than foreign customers. Foreign business practices generally require us to allow customer payment terms that are longer than those accepted in the United States.

 In accordance with ASC 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.

 Warranty Reserve 

 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.

 Inventory Valuation 

 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.

 Impairment of Investments 

 We classify marketable investments in debt securities as available-for-sale debt securities in accordance with ASC Topic 320, Investments - Debt Securities . All available-for-sale debt securities with a quoted market value below cost (or adjusted cost) are reviewed in order to determine whether the decline is other-than-temporary. Factors considered in determining whether a loss is temporary include the magnitude of the decline in market value, the length of time the market value has been below cost (or adjusted cost), credit quality, and our ability and intent to hold the securities for a period of time sufficient to allow for any anticipated recovery in market value. We also review our debt investment portfolio at least quarterly, or when there are changes in credit risks or other potential valuation concerns to identify and evaluate whether an allowance for expected credit losses or impairment would be necessary.

 39
 
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 We also invest in equity instruments of privately-held companies in China for business and strategic purposes. Investments in our unconsolidated PRC joint venture companies are classified as other assets and accounted for under either the equity or fair value method, depending on whether we have the ability to exercise significant influence over the joint venture company’s operations or financial decisions. We monitor our investments for impairment and record reductions in carrying value when events or changes in circumstances indicate that the carrying value may not be recoverable. Determination of impairment is highly subjective and is based on a number of factors, including an assessment of the strength of each company’s management, the length of time and extent to which the fair value has been less than our cost basis, the financial condition and near-term prospects of the company, fundamental changes to the business prospects of the company, share prices of subsequent offerings, and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in our carrying value.

 There was a $145,000 impairment charge related to an investment during the three and six months ended June 30, 2025 and no impairment charge during the six months ended June 30, 2024. 

 Fair Value of Investments 

 ASC 820, establishes three levels of inputs that may be used to measure fair value.

 Level 1 instruments represent quoted prices in active markets. Therefore, determining fair value for Level 1 instruments does not require significant management judgment, and the estimation is not difficult.

 Level 2 instruments include observable inputs other than Level 1 prices, such as quoted prices for identical instruments in markets with insufficient volume or infrequent transactions (less active markets), issuer bank statements, credit ratings, non-binding market consensus prices that can be corroborated with observable market data, model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities, or quoted prices for similar assets or liabilities. These Level 2 instruments require more management judgment and subjectivity compared to Level 1 instruments, including:

 ●
 
 Determining which instruments are most comparable to the instrument being priced requires management to identify a sample of similar securities based on the coupon rates, maturity, issuer, credit rating, and instrument type, and subjectively select an individual security or multiple securities that are deemed most similar to the security being priced.
 
 ●
 
 Determining which model-derived valuations to use in determining fair value requires management judgment. When observable market prices for similar securities or similar securities are not available, we price our marketable debt instruments using non-binding market consensus prices that are corroborated with observable market data or pricing models, such as discounted cash flow models, with all significant inputs derived from or corroborated with observable market data.
 
 Level 3 instruments include unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities. The determination of fair value for Level 3 instruments requires the most management judgment and subjectivity.

 We place short-term foreign currency hedges that are intended to offset the potential cash exposure related to fluctuations in the exchange rate between the United States dollar and Japanese yen. We measure the fair value of these foreign currency hedges at each month end and quarter end using current exchange rates and in accordance with U.S. GAAP. At quarter end any foreign currency hedges not settled are netted in “Accrued liabilities” in the condensed consolidated balance sheets and classified as Level 3 assets and liabilities. As of June 30, 2025, the net change in fair value from the placement of the hedge to settlement at each month end during the quarter had a de minimis impact to the condensed consolidated results.

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

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 Impairment of Long-Lived Assets 

 We evaluate the recoverability of property, equipment and intangible assets in accordance with ASC Topic 360, Property, Plant and Equipment. When events and circumstances indicate that long-lived assets may be impaired, we compare the carrying value of the long-lived assets to the projection of future undiscounted cash flows attributable to these assets. In the event that the carrying value exceeds the future undiscounted cash flows, we record an impairment charge against income equal to the excess of the carrying value over the assets’ fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets held for sale are carried at the lower of carrying value or estimated net realizable value. We had no “Assets held for sale” or any impairment of long-lived assets in the condensed consolidated balance sheets as of June 30, 2025 and December 31, 2024.

 Stock-based Compensation 

 We account for stock-based compensation in accordance with ASC Topic 718, Stock-based Compensation . Share-based awards granted include stock options and restricted stock awards. We utilize the Black‑Scholes option pricing model to estimate the grant date fair value of stock options, which requires the input of highly subjective assumptions, including estimating stock price volatility and expected term. Historical volatility of our stock price was used while the expected term for our options was estimated based on historical option exercise behavior and post-vesting forfeitures of options, and the contractual term, the vesting period and the expected term of the outstanding options. Further, we apply an expected forfeiture rate in determining the amount of share-based compensation. We use historical forfeitures to estimate the rate of future forfeitures. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our stock compensation. The cost of restricted stock awards is determined using the fair value of our common stock on the date of grant.

 The award of performance Restricted Stock covering Shares (the “Performance Award”) will be subject to vesting requirements relating to both the recipient of the Performance Award (the “Participant”) continuously remaining a Service Provider through specified dates and achievement of specified performance-based criteria (“Performance Criteria”). Any capitalized term not defined herein will have the meaning ascribed to such term in the 2015 Equity Incentive Plan.

 The financial Performance Criteria are metrics based upon prior year-end actual results as compared to the Company’s 2023 year-end actual results with respect to the 2023 Performance Awards or based upon the 2024 year-end actual results with respect to the 2024 Performance Awards. All performance shares, if earned, are still subject to annual vesting over a four-year period except that no shares are vested on the first anniversary because the performance measurement is based on year-end results for the entire year.

 We recognize the compensation costs net of an estimated forfeiture rate over the requisite service period of the options award, which is generally the vesting term of four years. Compensation expense for restricted stock awards is recognized over the vesting period, which is generally one, three or four years. Stock-based compensation expense is recorded in cost of revenue, research and development, and selling, general and administrative expenses.

 Income Taxes 

 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. 

 We provide for income taxes based upon the geographic composition of worldwide earnings and tax regulations governing each region, particularly China. The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws, particularly in foreign countries such as China.

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

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 Economic Challenges, Risks and Uncertainties 

 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.

 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.

 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”.

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 Board of Director Changes 

 On July 11, 2025, Ms. Christine Russell, our independent director, Chair of the Audit Committee, member of the Compensation Committee and the Nominating and Corporate Governance Committee, passed away. On July 14, 2025, we notified The Nasdaq Stock Market LLC (“Nasdaq”) that due to the passing of Ms. Russell, our Audit Committee has been reduced to two independent directors, and we are currently not compliant with Nasdaq Lising Rule 5605(c)(2)(A), which requires the Audit Committee to be comprised of a minimum of three independent directors. On July 18, 2025, Nasdaq confirmed our non-compliance and further notified us that, consistent with Nasdaq Listing Rule 5605(c)(4), Nasdaq will provide us a cure period to regain compliance (i) until the earlier of the Company’s next annual meeting of shareholders or July 11, 2026; or, (ii) if the next annual meeting of shareholders is held before January 7, 2026, then we must provide evidence of compliance no later than January 7, 2026. We intend to regain compliance as soon as possible and the Board will add a new independent director who satisfies the applicable requirements of the Nasdaq Listing Rules prior to the expiration of the foregoing cure period.

 On July 29, 2025, we appointed Leonard J. Leblanc to the Board of Directors (the “Board”) to fill the vacancy on the Board due to the passing of Ms. Russell. Mr. Leblanc will serve as a Class III director with a maximum term expiring on July 29, 2027, or until his successor is duly elected and qualified. In connection with Mr. Leblanc’s appointment to the Board, the Board considered the compensation Mr. Leblanc previously received during his term as director emeritus, and determined that Mr. Leblanc is not independent under the Nasdaq Listing Rules as his total compensation exceeded $120,000 during January 1, 2022 to December 31, 2022. From January 1, 2023 to December 31, 2023, Mr. Leblanc’s total compensation did not exceed $120,00 and Mr. Leblanc did not receive any further compensation from us after December 29, 2023. As such, after December 31, 2022, Mr. Leblanc would not have received any compensation from us in excess of $120,000 during any period of twelve consecutive months in the three year look-back period preceding January 1, 2026, and he would therefore be considered independent under the Nasdaq Listing Rules on January 1, 2026. Other than the compensation previously received as director emeritus, the Board has determined that Mr. Leblanc meets all independence requirements for a member of the audit committee under Rule 10A-3 of the Securities and Exchange Act of 1934, as amended, and the other independence requirements under the Nasdaq Listing Rules.

 The Board also considered Mr. Leblanc’s previous service as a director and chair of the Audit Committee. Based on Mr. Leblanc’s experience and previous service with us, the Board determined that Mr. Leblanc familiarity with our operations, business, supply-chain and manufacturing strategies, and intricacies of our corporate structure is necessary to our current needs. The Board believes that the unforeseen passing of Ms. Russell during a critical period in our operations further necessitates the appointment of a director who is already familiar with our financial operations and our management under the current environment and economic conditions. Accordingly, the Board determined that the appointment of Mr. Leblanc to our Audit Committee as a non-independent director will be in the best interests of the Company and our stockholders in reliance on the exception provided under applicable Nasdaq Listing Rules for membership on the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee under exceptional and limited circumstances. Based on the foregoing determination, the Board also appointed Mr. Leblanc to serve on the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee in reliance on the limited exception provided under the Nasdaq Listing Rules. Mr. LeBlanc’s independence under the Nasdaq Listing Rules will be re-evaluated by the Board on or after January 1, 2026.

 On July 29, 2025, we appointed Mr. Jesse Chen to serve as the Chair of the Audit Committee. Mr. Chen currently serves as an independent director, lead director, Chair of the Nominating and Governance Committee, and a member of the Audit Committee and Compensation Committee.

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 Table of Contents 
 
 Results of Operations 

 Reven ue 

 Three Months Ended 
 
 Six Months Ended 
 
 June 30, 
 
 Increase 
 
 June 30, 
 
 Increase 
 
 2025 
 
 2024 
 
 (Decrease) 
 
 % Change 
 
 2025 
 
 2024 
 
 (Decrease) 
 
 % Change 
 
 Product Type:
 
 ($ in thousands) 
 
 ($ in thousands) 
 
 Substrates
 
 $ 
 11,292 
 
 $ 
 19,745 
 
 $ 
 (8,453 
 ) 
 
 (42.8 
 )% 
 
 $ 
 22,374 
 
 $ 
 36,648 
 
 $ 
 (14,274 
 ) 
 
 (38.9 
 )% 
 
 Raw materials and other
 
 6,682 
 
 8,178 
 
 (1,496 
 ) 
 
 (18.3 
 )% 
 
 14,956 
 
 13,963 
 
 993 
 
 7.1 
 % 
 
 Total revenue
 
 $ 
 17,974 
 
 $ 
 27,923 
 
 $ 
 (9,949 
 ) 
 
 (35.6 
 )% 
 
 $ 
 37,330 
 
 $ 
 50,611 
 
 $ 
 (13,281 
 ) 
 
 (26.2 
 )% 
 
 Revenue decreased $10.0 m illion, or 35.6%, to $18.0 mil lion for the three months ended June 30, 2025 from $27.9 million for the three months ended June 30, 2024. The substrate reve nue decrease fo r the three months ended June 30, 2025 as compared to the same period in 2024 was primarily the res ult 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 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 sa les decreased $1.5 m illion, or 18.3%, to $6.7 million for the three months ended June 30, 2025 as compared to the same period in 2024. T he 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 o f a decrease in sales of refined gallium and pBN crucibles resulting from weaker market demand. 

 Revenu e decreased $13.3 m illion , 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 reven ue decrease for the six 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 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 sale s increased $1.0 million, or 7.0%, to $15.0 m illion for the six months ended June 30, 2025 as compared to the same period in 2024. The increase in raw materials revenue for the six months ended June 30, 2025 as compared to the same period in 2024 was primarily the r esult 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. 

 44
 
 Table of Contents 
 
 Revenue by Geographic Region 

 Three Months Ended 
 
 2024 to 2025 
 
 June 30, 
 
 Increase 
 
 2025 
 
 2024 
 
 (Decrease) 
 
 % Change 
 
 ($ in thousands) 
 
 China
 
 $ 
 14,492 
 
 $ 
 16,947 
 
 $ 
 (2,455 
 ) 
 
 (14.5 
 )% 
 
 % of total revenue 
 
 81 
 % 
 
 61 
 % 
 
 Taiwan
 
 530 
 
 3,420 
 
 (2,890 
 ) 
 
 (84.5 
 )% 
 
 % of total revenue 
 
 3 
 % 
 
 12 
 % 
 
 Japan
 
 704 
 
 796 
 
 (92 
 ) 
 
 (11.6 
 )% 
 
 % of total revenue 
 
 4 
 % 
 
 3 
 % 
 
 Asia Pacific (excluding China, Taiwan and Japan)
 
 427 
 
 712 
 
 (285 
 ) 
 
 (40.0 
 )% 
 
 % of total revenue 
 
 2 
 % 
 
 2 
 % 
 
 Europe (primarily Germany)
 
 1,597 
 
 4,689 
 
 (3,092 
 ) 
 
 (65.9 
 )% 
 
 % of total revenue 
 
 9 
 % 
 
 17 
 % 
 
 North America (primarily the United States)
 
 224 
 
 1,359 
 
 (1,135 
 ) 
 
 (83.5 
 )% 
 
 % of total revenue 
 
 1 
 % 
 
 5 
 % 
 
 Total revenue
 
 $ 
 17,974 
 
 $ 
 27,923 
 
 $ 
 (9,949 
 ) 
 
 (35.6 
 )% 
 
 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.

 Six Months Ended 
 
 June 30, 
 
 Increase 
 
 2025 
 
 2024 
 
 (Decrease) 
 
 % Change 
 
 ($ in thousands) 
 
 China
 
 $ 
 27,918 
 
 $ 
 28,464 
 
 $ 
 (546 
 ) 
 
 (1.9 
 )% 
 
 % of total revenue 
 
 75 
 % 
 
 56 
 % 
 
 Taiwan
 
 1,751 
 
 8,002 
 
 (6,251 
 ) 
 
 (78.1 
 )% 
 
 % of total revenue 
 
 5 
 % 
 
 16 
 % 
 
 Japan
 
 1,422 
 
 1,786 
 
 (364 
 ) 
 
 (20.4 
 )% 
 
 % of total revenue 
 
 4 
 % 
 
 3 
 % 
 
 Asia Pacific (excluding China, Taiwan and Japan)
 
 1,208 
 
 1,510 
 
 (302 
 ) 
 
 (20.0 
 )% 
 
 % of total revenue 
 
 3 
 % 
 
 3 
 % 
 
 Europe (primarily Germany)
 
 3,698 
 
 8,414 
 
 (4,716 
 ) 
 
 (56.0 
 )% 
 
 % of total revenue 
 
 10 
 % 
 
 17 
 % 
 
 North America (primarily the United States)
 
 1,333 
 
 2,435 
 
 (1,102 
 ) 
 
 (45.3 
 )% 
 
 % of total revenue 
 
 3 
 % 
 
 5 
 % 
 
 Total revenue
 
 $ 
 37,330 
 
 $ 
 50,611 
 
 $ 
 (13,281 
 ) 
 
 (26.2 
 )% 
 
 45
 
 Table of Contents 
 
 Revenue in China decrea sed $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 du e 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. Re venue in Asia P acific decreased $0.3 million, p rimarily 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. Rev enue in Euro pe decreased $4.7 million, pri marily 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. 

 Gross Profit 

 Three Months Ended 
 
 Six Months Ended 
 
 June 30, 
 
 Increase 
 
 June 30, 
 
 Increase 
 
 2025 
 
 2024 
 
 (Decrease) 
 
 % Change 
 
 2025 
 
 2024 
 
 (Decrease) 
 
 % Change 
 
 ($ in thousands) 
 
 ($ in thousands) 
 
 Gross profit
 
 $ 
 1,433 
 
 $ 
 7,652 
 
 $ 
 (6,219 
 ) 
 
 (81.3 
 )% 
 
 $ 
 192 
 
 $ 
 13,746 
 
 $ 
 (13,554 
 ) 
 
 (98.6 
 )% 
 
 Gross Profit % 
 
 8.0 
 % 
 
 27.4 
 % 
 
 0.5 
 % 
 
 27.2 
 % 
 
 Gross prof it decreased 6.2 million, or 81.3%, to a profit of $1.4 million for the three months ended June 30, 2025 from $7.7 million for the three months ended June 30, 2024. The decrease i n gross profit is primarily the resu lt 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. 

 Gross pr ofit decreased 13.6 million, or 98.6%, to a profit of $0.2 million for the six months ended June 30, 2025 from $13.7 million for the six months ended June 30, 2024. T he decrease in gr oss profit is primarily t he result of significant unfavorable yields charged to cost of goods sold in our gallium arsenide production lines. These charges resulted in a negative gross margin as a percent of revenue. Further, the export restrictions imposed by China on indium phosphide had a negative impact on product mix and on total substrate revenue. Sales of indium phosphide wafers were reduced significantly. Lower substrate revenue resulted in an increase in unabsorbed overhead charged to cost of goods sold. 

 Selling, General and Administrative Expenses 

 Three Months Ended 
 
 Six Months Ended 
 
 June 30, 
 
 Increase 
 
 June 30, 
 
 Increase 
 
 2025 
 
 2024 
 
 (Decrease) 
 
 % Change 
 
 2025 
 
 2024 
 
 (Decrease) 
 
 % Change 
 
 ($ in thousands) 
 
 ($ in thousands) 
 
 Selling, general and administrative expenses
 
 $ 
 5,653 
 
 $ 
 5,779 
 
 $ 
 (126 
 ) 
 
 (2.2 
 )% 
 
 $ 
 11,569 
 
 $ 
 12,006 
 
 $ 
 (437 
 ) 
 
 (3.6 
 )% 
 
 % of total revenue 
 
 31.5 
 % 
 
 20.7 
 % 
 
 31.0 
 % 
 
 23.7 
 % 
 
 Selling, general and administrative expen ses decreased $126,000, or 2.2%, to $5.7 mi llion for the three months ended June 30, 2025 from $5.8 million for the three months ended June 30, 2024. Th e lower s elling, general and administrative expenses were primarily from a decre ase in legal and professional service expenses, outside commissions and office supply expenses, partially offset by an increase in compensation related expenses. 

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

 46
 
 Table of Contents 
 
 Research and Development 

 Three Months Ended 
 
 Six Months Ended 
 
 June 30, 
 
 Increase 
 
 June 30, 
 
 Increase 
 
 2025 
 
 2024 
 
 (Decrease) 
 
 % Change 
 
 2025 
 
 2024 
 
 (Decrease) 
 
 % Change 
 
 ($ in thousands) 
 
 ($ in thousands) 
 
 Research and development
 
 $ 
 2,525 
 
 $ 
 3,758 
 
 $ 
 (1,233 
 ) 
 
 (32.8 
 )% 
 
 $ 
 5,643 
 
 $ 
 6,972 
 
 $ 
 (1,329 
 ) 
 
 (19.1 
 )% 
 
 % of total revenue 
 
 14.0 
 % 
 
 13.5 
 % 
 
 15.1 
 % 
 
 13.8 
 % 
 
 Research and development exp enses decreased $1.2 million, or 32.8%, to $2.5 million fo r the three months ended June 30, 2025 from $3.8 million for the three months ended June 30, 2024. The decrease i n research and development expenses for the three months ended June 30, 2025 was primarily d ue to lower product development expenses for crystal ingot processing, partially offset by higher compensation related expenses. 

 Research and development expen ses decreased $1.3 million, or 19.1%, to $5.6 million for t he six months ended June 30, 2025 from $7.0 million for the six months ended June 30, 2024. Th e decrease in research and development expenses for the six months ended June 30, 2025 was primarily due to lower product development expenses for crystal ingot processing, partially offset by higher compensation related expenses .

 Interest Expense, Net 

 Three Months Ended 
 
 Six Months Ended 
 
 June 30, 
 
 Increase 
 
 June 30, 
 
 Increase 
 
 2025 
 
 2024 
 
 (Decrease) 
 
 % Change 
 
 2025 
 
 2024 
 
 (Decrease) 
 
 % Change 
 
 ($ in thousands) 
 
 ($ in thousands) 
 
 Interest expense, net
 
 $ 
 202 
 
 $ 
 282 
 
 $ 
 (80 
 ) 
 
 (28.4 
 )% 
 
 $ 
 471 
 
 $ 
 631 
 
 $ 
 (160 
 ) 
 
 (25.4 
 )% 
 
 % of total revenue 
 
 1.1 
 % 
 
 1.0 
 % 
 
 1.3 
 % 
 
 1.2 
 % 
 
 Interest expense , net decreased $80,000, or 28.4%, to $202,000 for t he 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 d uring the three months ended June 30, 2025 as compared to the three months ended June 30, 2024.

 Interest expense, net decreased $160,000, or 25.4%, to $471,000 fo r 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 durin g the six months ended June 30, 2025 as compared to the six months ended June 30, 2024.

 Gain (loss) from equity method and fair value investments 

 Three Months Ended 
 
 Six Months Ended 
 
 June 30, 
 
 June 30, 
 
 2025 
 
 2024 
 
 Change 
 
 % Change 
 
 2025 
 
 2024 
 
 Change 
 
 % Change 
 
 ($ in thousands) 
 
 ($ in thousands) 
 
 Gain (loss) from equity method and fair value investments
 
 $ 
 (171 
 ) 
 
 $ 
 598 
 
 $ 
 (769 
 ) 
 
 (128.6 
 )% 
 
 $ 
 77 
 
 $ 
 1,488 
 
 $ 
 (1,411 
 ) 
 
 (94.8 
 )% 
 
 % of total revenue 
 
 (1.0 
 )% 
 
 2.1 
 % 
 
 0.2 
 % 
 
 2.9 
 % 
 
 The gain (loss) from equity method and fair value investments was a loss o f $0.2 m illion for the three months ended June 30, 2025 as compared to income of $0.6 million for the three months ended June 30, 2024. T he decrease in income of $0.8 million is primarily due to weaker performance in unconsolidated joint ventures. 

 The gain (loss) from equity method and fair value investments was income of $0.1 mil lion for the six months ended June 30, 2025 as compared to income of $1.5 million for the six months ended June 30, 2024. Th e decrease in income o f $1.4 million is primarily due to weaker performance in unconsolidated joint ventures. 

 47
 
 Table of Contents 
 
 Other Income, Net 

 Three Months Ended 
 
 Six Months Ended 
 
 June 30, 
 
 Other Income 
 
 June 30, 
 
 Other Income 
 
 2025 
 
 2024 
 
 Change 
 
 % Change 
 
 2025 
 
 2024 
 
 Change 
 
 % Change 
 
 ($ in thousands) 
 
 ($ in thousands) 
 
 Other income, net
 
 $ 
 23 
 
 $ 
 491 
 
 $ 
 (468 
 ) 
 
 (95.3 
 )% 
 
 $ 
 377 
 
 $ 
 1,523 
 
 $ 
 (1,146 
 ) 
 
 (75.2 
 )% 
 
 % of total revenue 
 
 0.1 
 % 
 
 1.8 
 % 
 
 1.0 
 % 
 
 3.0 
 % 
 
 Other incom e, net decreased $0.5 million, or 95.3%, to an income of $23,000 fo r 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 p rimarily due to a decrease in government grants.

 Other incom e, net decreased $1.1 million, or 75.2%, to an income of $0.4 mi llion 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, n et decreased prima rily due to a decrease in government grants.

 Provision for Income Taxes 

 Three Months Ended 
 
 Six Months Ended 
 
 June 30, 
 
 Increase 
 
 June 30, 
 
 Increase 
 
 2025 
 
 2024 
 
 (Decrease) 
 
 % Change 
 
 2025 
 
 2024 
 
 (Decrease) 
 
 % Change 
 
 ($ in thousands) 
 
 ($ in thousands) 
 
 Provision for income taxes
 
 $ 
 579 
 
 $ 
 121 
 
 $ 
 458 
 
 378.5 
 % 
 
 $ 
 653 
 
 $ 
 395 
 
 $ 
 258 
 
 65.3 
 % 
 
 % of total revenue 
 
 3.2 
 % 
 
 0.4 
 % 
 
 1.7 
 % 
 
 0.8 
 % 
 
 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.

 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. 

 48
 
 Table of Contents 
 
 Net (Income) loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests 

 Net (income) loss attributable to 
 
 Net (income) loss attributable to 
 
 Three Months Ended 
 
 noncontrolling interests and 
 
 Six Months Ended 
 
 noncontrolling interests and 
 
 June 30, 
 
 redeemable noncontrolling interests 
 
 June 30, 
 
 redeemable noncontrolling interests 
 
 2025 
 
 2024 
 
 Change 
 
 % Change 
 
 2025 
 
 2024 
 
 Change 
 
 % Change 
 
 ($ in thousands) 
 
 ($ in thousands) 
 
 Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests
 
 $ 
 666 
 
 $ 
 (317 
 ) 
 
 $ 
 983 
 
 310.1 
 % 
 
 $ 
 1,884 
 
 $ 
 (352 
 ) 
 
 $ 
 2,236 
 
 635.2 
 % 
 
 % of total revenue 
 
 3.7 
 % 
 
 (1.1 
 )% 
 
 5.0 
 % 
 
 (0.7 
 )% 
 
 Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interes ts 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. 

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

 Liquidity and Capital Resources 

 We consider cash and short-term investments as liquid and available for use within one year in our current operations. Short-term investments are comprised of U.S. government securities, certificates of deposit and investment-grade corporate notes and bonds.

 As of June 30, 2025, our principal source of liquidity w as $35.1 mil lion, which consisted of cash o f $27.0 m illion and restricted cash of $8.1 m illion. In the six months ended June 30, 2025, cash and restricted c ash increased by $1.3 m illion. Th e increase in cash and restricted cash of $1.3 million in the six months ended June 30, 2025 was primarily du e 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 approximatel y $29.8 mi llion in cash and investments in foreign bank accounts, of whic h $7.9 mil lion was classified in restricted cash.

 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.

 Net cash used in operating activities of $7.9 milli on for the six months ended June 30, 2025 was primarily comprised of 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 .

 49
 
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 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.

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

 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.

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

 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.

 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, approximatel y $2.7 m illion remained available for future repurchases under this program. Currently, we do not plan to repurchase additional shares.

 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. 

 Occasionally, one of our PRC subsidiaries or PRC raw material joint ventures declares and pays a dividend. These dividends generally occur when the PRC joint venture declares a dividend for all of its shareholders. Dividends paid to the Company are subject to a 10% PRC withholding tax. The Company is required to obtain approval from the State Administration of Foreign Exchange (“SAFE”) to transfer funds in or out of the PRC. SAFE requires a valid agreement to approve the transfers, which are processed through a bank. Other than PRC foreign exchange restrictions, the Company is not subject to any PRC restrictions and limitations on its ability to distribute earnings from its businesses, including its PRC subsidiaries and PRC joint ventures, to the Company and its investors as well as the ability to settle amounts owed by the Company to its PRC subsidiaries and PRC joint ventures. If SAFE approval is denied the dividend payable to the Company would be owed but would not be paid.

 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.

 We have no current intentions to distribute to our investors earnings under our corporate structure. We settle amounts owed under our transfer pricing arrangements in the ordinary course of business.

 50
 
 Table of Contents 
 
 The cash generated from one PRC subsidiary is not used to fund another PRC subsidiary’s operations. None of our PRC subsidiaries has faced difficulties or limitations on its ability to transfer cash between our subsidiaries. AXT has cash management policies that dictate the amount of such funding.

 As one of the first steps in the process of listing Tongmei on the STAR Market and going public, we sold approximately 7.28% of Tongmei to private equity investors for approximately $49 million in the aggregate. Pursuant to the Capital Investment Agreements with the Investors, each Investor has the right to require AXT to redeem any or all Tongmei shares held by such Investor at the original purchase price paid by such Investor, without interest, in the event the IPO fails to pass the audit of the Shanghai Stock Exchange, is not approved by the CSRC or Tongmei cancels the IPO application. The aggregate redemption amount is approximately $49 million.

 Tongmei submitted its IPO application to the Shanghai Stock Exchange, and it was formally accepted for review on January 10, 2022. The Shanghai Stock Exchange approved the IPO application on July 12, 2022. On August 1, 2022, the CSRC accepted for review Tongmei’s IPO application. The STAR Market IPO remains subject to review and approval by the CSRC and other authorities. The process of going public on the STAR Market includes several periods of review and, therefore, is a lengthy process. Subject to review and approval by the CSRC and other authorities, Tongmei expects to accomplish this goal in the coming months. The listing of Tongmei on the STAR Market will not change the status of AXT as a U.S. public company. 

 51
 
 Table of Contents 
 
 Our bank loans and credit facilities typically have a term of 12 months or less and are included in “Short-term loans” in our condensed consolidated balance sheets. The following table represents short-term bank loans as of June 30, 2025 and December 31, 2024 (in thousands, except interest rate data):

 Loan 
 
 Interest 
 
 Start 
 
 Due 
 
 June 30, 
 
 December 31, 
 
 Subsidiary 
 
 Bank 
 
 Detail 
 
 Rate 
 
 Date 
 
 Date 
 
 2025 
 
 2024 
 
 Tongmei
 
 Bank of China (1) 
 
 $ 
 689 
 
 2.7 
 % 
 
 January-25
 
 January-26
 
 $ 
 690 
 
 $ 
 — 
 
 579 
 
 2.7 
 % 
 
 March-25
 
 March-26
 
 586 
 
 — 
 
 Bank of China (3) 
 
 1,410 
 
 2.4 
 % 
 
 September-24
 
 September-25
 
 1,410 
 
 1,370 
 
 1,370 
 
 2.4 
 % 
 
 November-24
 
 November-25
 
 1,410 
 
 1,370 
 
 685 
 
 2.7 
 % 
 
 November-24
 
 November-25
 
 700 
 
 685 
 
 2,480 
 
 2.5 
 % 
 
 February-25
 
 February-26
 
 2,490 
 
 — 
 
 Bank of Communications (1) 
 
 1,376 
 
 3.0 
 % 
 
 May-24
 
 May-25
 
 — 
 
 1,370 
 
 2,480 
 
 3.0 
 % 
 
 June-24
 
 May-25
 
 — 
 
 2,466 
 
 1,420 
 
 2.5 
 % 
 
 June-25
 
 December-25
 
 1,420 
 
 — 
 
 2,023 
 
 2.6 
 % 
 
 June-25
 
 June-26
 
 2,023 
 
 — 
 
 China Merchants Bank (1) 
 
 1,386 
 
 3.5 
 % 
 
 January-24
 
 January-25
 
 — 
 
 1,370 
 
 692 
 
 3.5 
 % 
 
 February-24
 
 February-25
 
 — 
 
 685 
 
 692 
 
 3.5 
 % 
 
 April-24
 
 April-25
 
 — 
 
 685 
 
 3,155 
 
 2.9 
 % 
 
 January-25
 
 January-26
 
 3,185 
 
 — 
 
 978 
 
 2.9 
 % 
 
 March-25
 
 March-26
 
 985 
 
 — 
 
 Bank of Beijing (2) 
 
 3,600 
 
 3.0 
 % 
 
 March-24
 
 February-25
 
 — 
 
 3,565 
 
 3,580 
 
 3.0 
 % 
 
 June-24
 
 June-25
 
 — 
 
 3,565 
 
 2,204 
 
 2.7 
 % 
 
 March-25
 
 March-26
 
 2,210 
 
 — 
 
 1,405 
 
 2.6 
 % 
 
 June-25
 
 March-26
 
 1,405 
 
 — 
 
 3,627 
 
 2.6 
 % 
 
 June-25
 
 June-26
 
 3,627 
 
 — 
 
 Industrial Bank (1) 
 
 2,820 
 
 3.9 
 % 
 
 September-24
 
 September-25
 
 2,820 
 
 2,740 
 
 2,679 
 
 3.9 
 % 
 
 October-24
 
 October-25
 
 2,700 
 
 2,679 
 
 1,440 
 
 3.2 
 % 
 
 November-24
 
 November-25
 
 1,455 
 
 1,440 
 
 Industrial Bank (4) 
 
 1,380 
 
 3.8 
 % 
 
 March-25
 
 March-26
 
 1,390 
 
 — 
 
 NingBo Bank (1) 
 
 1,647 
 
 4.3 
 % 
 
 January-24
 
 January-25
 
 — 
 
 1,630 
 
 1,258 
 
 4.3 
 % 
 
 May-24
 
 March-25
 
 — 
 
 1,255 
 
 1,822 
 
 3.9 
 % 
 
 November-24
 
 November-25
 
 1,840 
 
 1,822 
 
 550 
 
 3.9 
 % 
 
 December-24
 
 December-25
 
 558 
 
 550 
 
 1,584 
 
 3.9 
 % 
 
 January-25
 
 January-26
 
 1,590 
 
 — 
 
 689 
 
 3.9 
 % 
 
 March-25
 
 March-26
 
 700 
 
 — 
 
 628 
 
 3.9 
 % 
 
 Apr-25
 
 March-26
 
 628 
 
 — 
 
 579 
 
 3.8 
 % 
 
 June-25
 
 June-26
 
 579 
 
 — 
 
 Industrial and Commercial Bank of China (1) 
 
 2,820 
 
 3.3 
 % 
 
 September-24
 
 September-25
 
 2,820 
 
 2,740 
 
 China Citic Bank (1) 
 
 2,752 
 
 2.9 
 % 
 
 June-24
 
 June-25
 
 — 
 
 2,740 
 
 2,820 
 
 2.9 
 % 
 
 July-24
 
 July-25
 
 2,820 
 
 2,740 
 
 1,420 
 
 2.9 
 % 
 
 September-24
 
 September-25
 
 1,420 
 
 1,370 
 
 Agricultural Bank of China (1) 
 
 1,235 
 
 2.6 
 % 
 
 November-24
 
 November-25
 
 1,256 
 
 1,235 
 
 137 
 
 2.6 
 % 
 
 December-24
 
 December-25
 
 140 
 
 137 
 
 BoYu
 
 Industrial and Commercial Bank of China (1) 
 
 1,420 
 
 2.8 
 % 
 
 September-24
 
 September-25
 
 1,420 
 
 1,370 
 
 Bank of China (1) 
 
 1,145 
 
 2.3 
 % 
 
 September-24
 
 September-25
 
 837 
 
 1,096 
 
 274 
 
 2.4 
 % 
 
 December-24
 
 December-25
 
 279 
 
 274 
 
 Industrial Bank (1) 
 
 1,370 
 
 2.7 
 % 
 
 November-24
 
 November-25
 
 1,385 
 
 1,370 
 
 Bank of Communications (1) 
 
 274 
 
 3.0 
 % 
 
 May-24
 
 May-25
 
 — 
 
 274 
 
 767 
 
 2.6 
 % 
 
 June-25
 
 June-26
 
 767 
 
 — 
 
 China Merchants Bank (1)
 
 419 
 
 2.4 
 % 
 
 June-25
 
 June-26
 
 419 
 
 — 
 
 NanJing Bank (1) 
 
 1,370 
 
 2.8 
 % 
 
 December-24
 
 December-25
 
 1,385 
 
 1,370 
 
 Loan Balance 
 
 $ 
 51,349 
 
 $ 
 45,963 
 
 Collateral for the above bank loans and line of credit 
 
 (1)
 
 Not collateralized.
 
 (2)
 
 AXT time deposit.
 
 (3)
 
 Baoding Tongmei’s land use rights and its building located at its facility in Dingxing, China. In addition, the loan attracts a guarantee fee amounting to 1.0% of the loan amount.
 
 (4)
 
 Chaoyang JinMei’s land use rights and its building located at its facility in Kazuo, China.
 
 52
 
 Table of Contents 
 
 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.

 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.

 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.

 We believe that we have adequate cash and investments to meet our operating needs and capital expenditures over the next 12 months. If our sales decrease, however, our ability to generate cash from operations will be adversely affected which could adversely affect our future liquidity, require us to use cash at a more rapid rate than expected, and require us to seek additional capital.

 Cash from operations could be affected by various risks and uncertainties, including, but not limited to those set forth below under the section entitled “Risk Factors” in Part II, Item 1A below.

 Contract to Purchase Goods and Services 

 Purchase orders or contracts for the purchase of certain goods and services are not considered to be part of our contractual obligations. We cannot determine the aggregate amount of such purchase orders that represent contractual obligations because purchase orders may represent authorizations to purchase rather than binding agreements. For the purposes of this disclosure, contractual obligations for purchase of goods or services are defined as agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. Our purchase orders are based on our current needs and are fulfilled by our vendors within short time horizons. We also enter into contracts for outsourced services; however, the obligations under these contracts were not significant and the contracts generally contain clauses allowing for cancellation without significant penalty. Contractual obligations that are contingent upon the achievement of certain milestones would also not be included.

 Land Purchase and Investment Agreement 

 We have established a wafer processing production line in Dingxing, China. In addition to a land rights and building purchase agreement that we entered into with a private real estate development company to acquire our new manufacturing facility, we also entered into a cooperation agreement with the Dingxing local government. In addition to pledging its full support and cooperation, the Dingxing local government will issue certain tax credits to us as we achieve certain milestones. We, in turn, agreed to hire local workers over time, pay taxes when due and eventually demonstrate a total investment of approximately $90 million in value, assets and capital. The investment will include cash paid for the land and buildings, cash on deposit in our name at local banks, the gross value of new and used equipment (including future equipment that might be used for indium phosphide and germanium substrates production), the deemed value for our customer list or the end user of our substrates (for example, the end users of the 3-D sensing VCSELs), a deemed value for employment of local citizens, a deemed value for our proprietary process technology, other intellectual property, other intangibles and additional items of value. There is no timeline or deadline by which this must be accomplished, rather it is a good faith covenant entered into between AXT and the Dingxing local government. Further, there is no specific penalty contemplated if either party breaches the agreement, however the agreement does state that each party has a right to seek from the other party compensation for losses. Under certain conditions, the Dingxing local government may purchase the land and building at the appraised value. We believe that such cooperation agreements are normal, customary and usual in China and that the future valuation is flexible. We have a similar agreement with the city of Kazuo, China, although on a smaller scale. The total investment targeted by AXT in Kazuo is approximately $15 million in value, assets and capital.

 53
 
 Table of Contents 
 
 Off-Balance Sheet Arrangements 

 As of June 30, 2025, we did not have any off-balance sheet financing arrangements and have never established any special purpose entities as defined under SEC Regulation S-K Item 303(a)(4)(ii).
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.
AXT INC 10-Q

Item 1. Financial Statements
