AXT INC 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as defined under Exchange Act Rules 13a-15(e) and 15d-15(e) were effective at the reasonable assurance level to ensure that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission and is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures include components of our internal control over financial reporting. Management’s assessment of the effectiveness of our internal control over financial reporting is expressed at the level of reasonable assurance because a control system, no matter how well designed and operated, can provide only reasonable assurance that the control system’s objectives will be met. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and implemented by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Internal control over financial reporting includes those policies and procedures that: ● pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets; ● provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and ● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has assessed the effectiveness of our internal control over financial reporting as of December 31, 2020 based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management has concluded that our internal control over financial reporting was effective as of December 31, 2020. 62 Table of Contents Changes in Internal Control over Financial Reporting There was no change in our internal control over financial reporting during our fourth quarter of fiscal 2020 that has materially affected, or is reasonably likely to materially affect, AXT’s internal control over financial reporting. Item 9B. Other Information None. ​ 63 Table of Contents PART III The United States Securities and Exchange Commission (“SEC”) allows us to include information required in this report by referring to other documents or reports we have already or will soon be filing. This is called “Incorporation by Reference.” We intend to file our definitive proxy statement for our annual meeting of stockholders to be held on May 20, 2021 (the “Proxy Statement”) pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report, and certain information therein is incorporated in this report by reference. Item 10. Directors, Executive Officers and Corporate Governance The information required by this item with respect to identification of directors is incorporated by reference to the information contained in the section captioned “Information About our Board of Directors” in the Proxy Statement. The information with respect to our executive officers, is incorporated by reference to the information contained in the section captioned “Executive Officers” in the Proxy Statement. Information with respect to Items 405 of Regulation S-K is incorporated by reference to the information contained in the sections of the Proxy Statement captioned “Section 16(a) Beneficial Ownership Reporting Compliance.” There will be no disclosure under Item 407(c)(3). Information with respect to Items 407(d)(4) and 407(d)(5) is incorporated by reference to the information contained in the sections of the Proxy Statement captioned “Corporate Governance—Committees of the Board of Directors.” The Board of Directors of AXT, Inc. has adopted a Code of Conduct and Ethics (the “Code”) that applies to our principal executive officers, principal financial officer, and corporate controller, as well as all other employees. A copy of this Code has been posted on our Internet website at www.axt.com. Any amendments to, or waivers from, a provision of our Code that applies to our principal executive officer, principal financial officer, controller, or persons performing similar functions and that relates to any element of the Code enumerated in paragraph (b) of Item 406 of Regulation S-K shall be disclosed by posting such information on our website. Item 11. Executive Compensation The information required by this Item is incorporated herein by reference to information set forth in our Proxy Statement under the section entitled “Executive Compensation and Other Matters.” ​ ​ ● ● ​ ​ Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this Item is incorporated herein by reference to information set forth in our Proxy Statement under the section entitled “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information.” ​ Item 13. Certain Relationships and Related Transactio ns and Director Independence Information required by this item will be set forth in our Proxy Statement under the headings “Compensation Committee Interlocks and Insider Participation” and “Certain Relationships and Related Transactions,” which information is incorporated herein by reference. ​ Item 14. Principal Accountant Fees and Services The information required by this Item is incorporated herein by reference to information set forth in our Proxy Statement under the section entitled “Ratification of Appointment of Independent Registered Public Accountants.” ​ 64 Table of Contents PART IV Item 15. Exhibits and Financial Statement Schedules (a) The following documents are filed as part of this report: (1) Financial Statements: INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ​ ​ Report of Independent Registered Public Accounting Firm 66 Consolidated Balance Sheets 68 Consolidated Statements of Operations 69 Consolidated Statements of Comprehensive Income (Loss) 70 Consolidated Statements of Stockholders’ Equity 71 Consolidated Statements of Cash Flows 72 Notes to Consolidated Financial Statements 73 ​ (2) Financial Statement Schedules All schedules have been omitted because the required information is not applicable or because the information required is included in the consolidated financial statements or notes thereto. (b) Exhibits See Index to Exhibits attached elsewhere to this Form 10-K. The exhibits listed in the accompanying Index to Exhibits are filed as part of, or incorporated by reference into, this report on Form 10-K. ​ 65 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of AXT, Inc. ​ Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of AXT, Inc. (a Delaware corporation) and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Inventories – Reserve for Excess and Obsolete Inventory As described in Notes 1 and 3 to the consolidated financial statements, the Company’s consolidated inventories balance was $51.5 million as of December 31, 2020, which was net of a reserve of $17.7 million for excess and obsolete inventories. The Company’s inventories are stated at the lower of weighted average costs (approximated by standard cost) or net realizable value. The Company routinely evaluates the levels of its inventories in light of current market conditions in order to identify excess and obsolete inventories, and to provide a reserve for certain inventories to their estimated net realizable value based upon the age, quality and life expectancy of the product, and the projections for sale of the completed products. If actual demand were to be substantially lower than estimated, there could be a significant adverse impact on the carrying value of inventories and results of operations. The principal considerations for our determination that performing procedures relating to reserve for excess and obsolete inventories is a critical audit matter are the significant amount of judgment by management in developing the assumptions of the forecasted product demand, which in turn led to significant auditor judgment, subjectivity, and effort in performing 66 Table of Contents audit procedures and evaluating audit evidence relating to the forecasted product demand. Additionally, for certain new product launches there may be limited historical data with which to evaluate forecasts. ​ Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of internal controls relating to management’s reserve for excess and obsolete inventories, including internal controls over the development of assumptions related to forecasted product demand. The procedures also included, among others, testing management’s process for developing the reserve for excess and obsolete inventories, testing the completeness and accuracy of the underlying data used in the estimate, and evaluating management’s assumptions of forecasted product demand. Evaluating management’s demand forecast for reasonableness involved considering historical sales or usage by product, comparing prior period estimates to actual results of the same period, and determining whether the demand forecast used was consistent with evidence obtained in other areas of the audit. ​ /s/ BPM LLP ​ We have served as the Company’s auditor since 2004. San Jose, California March 23, 2021 67 Table of Contents AXT, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2020 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ASSETS ​ ​ ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 72,602 ​ $ 26,892 ​ Short-term investments ​ 240 ​ 9,427 ​ Accounts receivable, net of allowances of $ 217 and $ 34 as of December 31, 2020 and December 31, 2019 ​ 24,558 ​ 19,031 ​ Inventories ​ 51,515 ​ 49,152 ​ Prepaid expenses and other current assets ​ 15,603 ​ 8,703 ​ Total current assets ​ 164,518 ​ 113,205 ​ Long-term investments ​ 5,726 ​ — ​ Property, plant and equipment, net ​ 115,825 ​ 97,403 ​ Operating lease right-of-use assets ​ ​ 2,683 ​ ​ 2,938 ​ Other assets ​ 10,110 ​ 9,803 ​ Total assets ​ $ 298,862 ​ $ 223,349 ​ LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 12,669 ​ $ 10,098 ​ Accrued liabilities ​ 15,995 ​ 11,681 ​ Bank loan ​ ​ 10,411 ​ ​ 5,747 ​ Total current liabilities ​ 39,075 ​ 27,526 ​ Noncurrent operating lease liabilities ​ ​ 2,374 ​ ​ 2,695 ​ Other long-term liabilities ​ 1,881 ​ 366 ​ Total liabilities ​ 43,330 ​ 30,587 ​ Commitments and contingencies (Note 16) ​ ​ ​ ​ ​ ​ ​ Redeemable noncontrolling interests (Note 18) ​ ​ 47,563 ​ ​ — ​ Stockholders’ equity: ​ ​ ​ ​ ​ ​ ​ Preferred stock Series A, $ 0.001 par value; 2,000 shares authorized; 883 shares issued and outstanding as of December 31, 2020 and December 31, 2019 (Liquidation preference of $ 7,346 and $ 7,169 as of December 31, 2020 and December 31, 2019) ​ 3,532 ​ 3,532 ​ Common stock, $ 0.001 par value; 70,000 shares authorized; 41,967 and 40,632 shares issued and outstanding as of December 31, 2020 and December 31, 2019 ​ 42 ​ 41 ​ Additional paid-in capital ​ 230,381 ​ 236,957 ​ Accumulated deficit ​ ( 44,545 ) ​ ( 47,783 ) ​ Accumulated other comprehensive income (loss) ​ 3,209 ​ ( 4,862 ) ​ Total AXT, Inc. stockholders’ equity ​ 192,619 ​ 187,885 ​ Noncontrolling interests ​ 15,350 ​ 4,877 ​ Total stockholders’ equity ​ 207,969 ​ 192,762 ​ Total liabilities, redeemable noncontrolling interests and stockholders’ equity ​ $ 298,862 ​ $ 223,349 ​ ​ See accompanying notes to consolidated financial statements. ​ 68 Table of Contents AXT, INC. CONSOLIDATED STATEMENTS OF OPERATION S (In thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ 2020 2019 2018 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenue ​ ​ $ 95,361 ​ $ 83,256 ​ $ 102,397 ​ Cost of revenue ​ ​ 65,086 ​ 58,431 ​ 65,350 ​ Gross profit ​ ​ 30,275 ​ 24,825 ​ 37,047 ​ Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Selling, general and administrative ​ ​ 19,200 ​ 19,305 ​ 19,003 ​ Research and development ​ ​ 7,135 ​ 5,834 ​ 5,897 ​ Total operating expenses ​ ​ 26,335 ​ 25,139 ​ 24,900 ​ Income (loss) from operations ​ ​ 3,940 ​ ( 314 ) ​ 12,147 ​ Interest income (expense), net ​ ​ ( 179 ) ​ 217 ​ 528 ​ Equity in income (loss) of unconsolidated joint ventures ​ ​ 111 ​ ( 1,876 ) ​ ( 1,080 ) ​ Other income, net ​ ​ 3,200 ​ 947 ​ 352 ​ Income (loss) before provision for income taxes ​ ​ 7,072 ​ ( 1,026 ) ​ 11,947 ​ Provision for income taxes ​ ​ 2,031 ​ 562 ​ 938 ​ Net income (loss) ​ ​ 5,041 ​ ( 1,588 ) ​ 11,009 ​ Less: Net income attributable to noncontrolling interests ​ ​ ( 1,803 ) ​ ( 1,012 ) ​ ( 1,355 ) ​ Net income (loss) attributable to AXT, Inc. ​ ​ $ 3,238 ​ $ ( 2,600 ) ​ $ 9,654 ​ Net income (loss) attributable to AXT, Inc. per common share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ ​ $ 0.08 ​ $ ( 0.07 ) ​ $ 0.24 ​ Diluted ​ ​ $ 0.07 ​ $ ( 0.07 ) ​ $ 0.24 ​ Weighted-average number of common shares outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ ​ 40,152 ​ 39,487 ​ 39,049 ​ Diluted ​ ​ 41,025 ​ 39,487 ​ 40,265 ​ ​ See accompanying notes to consolidated financial statements. ​ 69 Table of Contents AXT, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2020 2019 2018 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) ​ ​ $ 5,041 ​ $ ( 1,588 ) ​ $ 11,009 ​ Other comprehensive income (loss), net of tax: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Change in foreign currency translation gain (loss), net of tax ​ ​ 8,443 ​ ( 1,847 ) ​ ( 5,749 ) ​ Change in unrealized gain on available-for-sale debt investments, net of tax ​ ​ 6 ​ 81 ​ 9 ​ Reclassification adjustment for gains included in net loss upon deconsolidation of a subsidiary ​ ​ ​ — ​ ​ ( 617 ) ​ ​ — ​ Total other comprehensive income (loss), net of tax ​ ​ 8,449 ​ ( 2,383 ) ​ ( 5,740 ) ​ Comprehensive income (loss) ​ ​ 13,490 ​ ( 3,971 ) ​ 5,269 ​ Less: Comprehensive income attributable to noncontrolling interests ​ ​ ( 2,181 ) ​ ( 1,519 ) ​ ( 994 ) ​ Comprehensive income (loss) attributable to AXT, Inc. ​ ​ $ 11,309 ​ $ ( 5,490 ) ​ $ 4,275 ​ ​ See accompanying notes to consolidated financial statements. ​ 70 Table of Contents AXT, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Preferred ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ Accumulated Other ​ AXT, Inc. ​ ​ ​ Total ​ ​ Stock ​ ​ ​ ​ ​ ​ ​ Paid-In ​ Accumulated ​ Comprehensive ​ Stockholders’ ​ Noncontrolling ​ Stockholders’ ​ Shares $ ​ Shares $ Capital Deficit Income (Loss) Equity Interests Equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ January 1, 2018 ​ 883 ​ ​ 3,532 ​ ​ 39,413 ​ ​ 39 ​ ​ 231,679 ​ ( 54,837 ) ​ 3,407 ​ 183,820 ​ 4,497 ​ 188,317 ​ Common stock options exercised ​ ​ ​ ​ ​ ​ ​ 238 ​ ​ 1 ​ ​ 627 ​ ​ ​ ​ ​ ​ ​ ​ 628 ​ ​ ​ ​ ​ 628 ​ Purchase of subsidiary shares from noncontrolling interests ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 187 ​ ​ ​ ​ ​ ​ ​ ​ 187 ​ ​ ( 1,794 ) ​ ​ ( 1,607 ) ​ Restricted stock awards canceled ​ ​ ​ ​ ​ ​ ​ ( 10 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ Stock-based compensation ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1,925 ​ ​ ​ ​ ​ ​ ​ ​ 1,925 ​ ​ ​ ​ ​ 1,925 ​ Issuance of common stock in the form of restricted stock ​ ​ ​ ​ ​ ​ ​ 344 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ Net income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 9,654 ​ ​ ​ ​ ​ 9,654 ​ ​ 1,355 ​ ​ 11,009 ​ Other comprehensive loss ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 5,379 ) ​ ​ ( 5,379 ) ​ ​ ( 361 ) ​ ​ ( 5,740 ) ​ Balance as of December 31, 2018 ​ 883 ​ ​ 3,532 ​ ​ 39,985 ​ ​ 40 ​ ​ 234,417 ​ ( 45,183 ) ​ ( 1,972 ) ​ 190,835 ​ 3,697 ​ 194,532 ​ Common stock options exercised ​ ​ ​ ​ ​ ​ ​ 113 ​ ​ 1 ​ ​ 267 ​ ​ ​ ​ ​ ​ ​ ​ 268 ​ ​ ​ ​ ​ 268 ​ Reclassification out of accumulated other comprehensive income and noncontrolling interests upon the deconsolidation of a subsidiary ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 1,150 ) ​ ​ ( 1,150 ) ​ ​ 533 ​ ​ ( 617 ) ​ Purchase of subsidiary shares from noncontrolling interests ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 74 ) ​ ​ ​ ​ ​ ​ ​ ​ ( 74 ) ​ ​ ( 339 ) ​ ​ ( 413 ) ​ Restricted stock awards canceled ​ ​ ​ ​ ​ ​ ​ ( 20 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ Stock-based compensation ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2,346 ​ ​ ​ ​ ​ ​ ​ ​ 2,346 ​ ​ ​ ​ ​ 2,346 ​ Issuance of common stock in the form of restricted stock ​ ​ ​ ​ ​ ​ ​ 554 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ Net loss ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 2,600 ) ​ ​ ​ ​ ​ ( 2,600 ) ​ ​ 1,012 ​ ​ ( 1,588 ) ​ Other comprehensive loss ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 1,740 ) ​ ​ ( 1,740 ) ​ ​ ( 26 ) ​ ​ ( 1,766 ) ​ Balance as of December 31, 2019 ​ 883 ​ ​ 3,532 ​ ​ 40,632 ​ ​ 41 ​ ​ 236,957 ​ ​ ( 47,783 ) ​ ​ ( 4,862 ) ​ ​ 187,885 ​ ​ 4,877 ​ ​ 192,762 ​ Common stock options exercised ​ ​ ​ ​ ​ ​ ​ 905 ​ ​ 1 ​ ​ 2,535 ​ ​ ​ ​ ​ ​ ​ ​ 2,536 ​ ​ ​ ​ ​ 2,536 ​ Sale of subsidiary shares to noncontrolling interests ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 396 ​ ​ ​ ​ ​ ​ ​ ​ 396 ​ ​ ​ ​ ​ 396 ​ Purchase of subsidiary shares from noncontrolling interests ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 1,398 ) ​ ​ ​ ​ ​ ​ ​ ​ ( 1,398 ) ​ ​ ( 202 ) ​ ​ ( 1,600 ) ​ Restricted stock awards canceled ​ ​ ​ ​ ​ ​ ​ ( 13 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ Stock-based compensation ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2,623 ​ ​ ​ ​ ​ ​ ​ ​ 2,623 ​ ​ ​ ​ ​ 2,623 ​ Issuance of common stock in the form of restricted stock ​ ​ ​ ​ ​ ​ ​ 443 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ Adjustment to noncontrolling interests in connection with the reorganization and alignment of assets under Tongmei ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 10,732 ) ​ ​ ​ ​ ​ ​ ​ ​ ( 10,732 ) ​ ​ 10,732 ​ ​ — ​ Net dividend declared by joint ventures ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 2,238 ) ​ ​ ( 2,238 ) ​ Net income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 3,238 ​ ​ ​ ​ ​ 3,238 ​ ​ 1,803 ​ ​ 5,041 ​ Other comprehensive income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 8,071 ​ ​ 8,071 ​ ​ 378 ​ ​ 8,449 ​ Balance as of December 31, 2020 ​ 883 ​ $ 3,532 ​ ​ 41,967 ​ $ 42 ​ $ 230,381 ​ $ ( 44,545 ) ​ $ 3,209 ​ $ 192,619 ​ $ 15,350 ​ $ 207,969 ​ ​ See accompanying notes to consolidated financial statements . ​ 71 Table of Contents AXT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ 2020 2019 2018 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) ​ $ 5,041 ​ $ ( 1,588 ) ​ $ 11,009 ​ Adjustments to reconcile net income (loss) to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ 4,333 ​ 5,531 ​ 4,871 ​ Amortization of marketable securities premium ​ 34 ​ 37 ​ 158 ​ Impairment charge on equity investee ​ ​ — ​ ​ 1,068 ​ ​ — ​ Stock-based compensation ​ 2,623 ​ 2,346 ​ 1,925 ​ Provision for doubtful accounts ​ 183 ​ — ​ — ​ (Gain) loss on disposal of equipment ​ 50 ​ 72 ​ ( 99 ) ​ Gain from deconsolidation of a subsidiary ​ ​ — ​ ​ ( 175 ) ​ ​ — ​ (Gain) loss from equity method investments, net ​ ( 111 ) ​ 983 ​ 1,080 ​ Return on equity method investments ​ ​ — ​ ​ 362 ​ ​ — ​ Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accounts receivable ​ ( 5,333 ) ​ 441 ​ 2,819 ​ Inventories ​ ( 916 ) ​ 8,862 ​ ( 14,629 ) ​ Prepaid expenses and other current assets ​ ( 6,719 ) ​ 2,936 ​ ( 4,600 ) ​ Other assets ​ ( 104 ) ​ ( 1,188 ) ​ ( 1,888 ) ​ Accounts payable ​ 2,305 ​ ( 3,137 ) ​ 2,314 ​ Accrued liabilities* ​ 2,601 ​ ( 4,010 ) ​ 518 ​ Other long-term liabilities, including royalties ​ 1,878 ​ 118 ​ ( 260 ) ​ Net cash provided by operating activities ​ 5,865 ​ 12,658 ​ 3,218 ​ Cash flows from investing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Purchases of property, plant and equipment ​ ( 19,855 ) ​ ( 21,792 ) ​ ( 40,539 ) ​ Proceeds from sale of equipment ​ — ​ — ​ 99 ​ Purchases of available-for-sale debt securities ​ ( 5,968 ) ​ ( 8,725 ) ​ ( 9,937 ) ​ Proceeds from sales and maturities of available-for-sale debt securities ​ 9,401 ​ 22,189 ​ 19,550 ​ Net cash used in investing activities ​ ( 16,422 ) ​ ( 8,328 ) ​ ( 30,827 ) ​ Cash flows from financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Proceeds from common stock options exercised ​ 2,536 ​ 268 ​ 628 ​ Proceeds from sale of previously consolidated subsidiary shares ​ ​ — ​ ​ 366 ​ ​ — ​ Consideration paid to repurchase subsidiary shares from noncontrolling interests ​ ​ — ​ ​ ( 262 ) ​ ​ ( 415 ) ​ Proceeds from short-term loan ​ 10,401 ​ 5,814 ​ — ​ Payments on short-term loan ​ ​ ( 5,996 ) ​ ​ — ​ ​ — ​ Proceeds from sale of subsidiary shares to noncontrolling interests ​ ​ 396 ​ ​ — ​ ​ — ​ Proceeds from issuance of Tongmei's common stock to redeemable noncontrolling interests net of issuance cost ​ ​ 47,563 ​ ​ — ​ ​ — ​ Dividends paid by joint ventures to their minority shareholders ​ ( 2,238 ) ​ — ​ — ​ Net cash provided by (used in) financing activities ​ 52,662 ​ 6,186 ​ 213 ​ Effect of exchange rate changes on cash and cash equivalents ​ 3,605 ​ ( 150 ) ​ ( 430 ) ​ Net increase (decrease) in cash and cash equivalents ​ 45,710 ​ 10,366 ​ ( 27,826 ) ​ Cash and cash equivalents at the beginning of the year ​ 26,892 ​ 16,526 ​ 44,352 ​ Cash and cash equivalents at the end of the year ​ $ 72,602 ​ $ 26,892 ​ $ 16,526 ​ Supplemental disclosures: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income taxes paid, net of refunds ​ $ 1,959 ​ $ 749 ​ $ 1,134 ​ Supplemental disclosure of non-cash flow information: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consideration payable to repurchase subsidiary shares from noncontrolling interests, included in accrued liabilities ​ $ 1,439 ​ $ 151 ​ $ 1,192 ​ Reduction of noncontrolling interests in excess (deficit) of total consideration paid and payable in connection with the repurchase of subsidiary shares from noncontrolling interests ​ $ ( 1,398 ) ​ $ ( 74 ) ​ $ 187 ​ Consideration payable in connection with construction, included in accrued liabilities ​ $ 1,457 ​ $ 1,447 ​ $ 2,912 ​ * Dividend accrued but not paid by joint ventures of $ 0 , $ 0 and $ 504 was included in accrued liabilities as of December 31, 2020, 2019 and 2018 , respectively. See accompanying notes to consolidated financial statements . ​ 72 Table of Contents AXT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. The Company and Summary of Significant Accounting Policies The Company AXT, Inc. (“AXT”, “the Company”, “we,” “us,” and “our” refer to AXT, Inc. and its consolidated subsidiaries) is a worldwide materials science company that develops and produces high-performance compound and single element semiconductor substrates, also known as wafers. 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 conductive 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. In 2020, our substrate product group generated 79 % of our revenue and raw materials product group generated 21 %. 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). Our raw materials include purified gallium, InP based material and pBN crucibles. We use purified gallium in producing our GaAs substrates and also sell purified gallium in the open market to other companies for use in magnetic materials, high temperature thermometers and growing single crystal ingots including gallium arsenide, gallium nitride, gallium antimonite, gallium phosphide and other materials and alloys. Pyrolytic boron nitride (pBN) crucibles are used in the high temperature (typically in the range 500 C to 1,500 C) growth process of single crystal ingots and epitaxial layer growth in MBE reactors. We use these pBN crucibles in our own ingot growth processes and also sell them in the open market to other companies. Principles of Consolidation The consolidated financial statements include the accounts of AXT, and our consolidated subsidiaries, Beijing Tongmei Xtal Technology Co., Ltd. (“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”), Nanjing JinMei Gallium Co., Ltd. (“JinMei”), ChaoYang JinMei Gallium Ltd. (“ChaoYang JinMei”), MaAnShan JinMei Gallium Ltd., and Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd. (“BoYu”). Baoding Tongmei is located in the city of Dingxing, China. Each of ChaoYang Tongmei and ChaoYang LiMei is located in the city of Kazuo, China. 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. For the years ended 2020 and 2019, we have five companies accounted for by the equity 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 consolidated balance sheets and in our consolidated statements of operations. ​ When market conditions are warranted, we intend to construct facilities at the ChaoYang LiMei location to provide us with additional production capacity. For the years ended 2020 and 2019, expenses associated with ChaoYang LiMei had a de minimis impact on our consolidated financial statements. ​ 73 Table of Contents As discussed in Note 6, “Investments in Privately-Held Raw Material Companies”, effective as of March 11, 2019, we reduced our ownership in Beijing JiYa Semiconductor Material Co., Ltd. (“JiYa”) from 46 % to 39 % by selling a portion of our JiYa shares to our investor partner, which is also JiYa’s landlord. As a result of this transaction, our investor partner became the largest shareholder of JiYa and assumed the right to appoint the general manager of JiYa and thereby exercised greater control over JiYa’s long-term strategic direction. Further, although our Chief Executive Officer remains on the board, as of March 11, 2019 he was no longer the chairman of JiYa’s board of directors and our Chief Financial Officer was no longer a member of JiYa’s board of financial supervisors. Therefore, we deconsolidated JiYa from our consolidated financial statements as of March 11, 2019 in accordance with Accounting Standards Codification (“ASC”) Topic 810, Consolidation (“ASC 810”). As of March 12, 2019, we accounted for our retained investment in JiYa under the equity method of accounting, as we continue to exercise significant influence. ​ Our consolidated balance sheet as of December 31, 2018, as reported, included JiYa’s assets and liabilities, after all significant inter-company accounts and transactions were eliminated. Our consolidated balance sheet as of December 31, 2020 and 2019, as reported, does not include the assets and liabilities of JiYa, since we deconsolidated JiYa as of March 11, 2019. Our consolidated statement of operations for the year 2019 includes JiYa’s results for the period through March 11, 2019. ​ As discussed in Note 6, in May 2019, we purchased the remaining 3 % ownership interest of JinMei from retiring members of the JinMei management team for approximately $ 413,000 . As a result, our ownership of JinMei increased from 97 % to 100 %. As of June 1, 2019, we referred to JinMei as a wholly-owned subsidiary instead of a significantly controlled subsidiary and reduced the carrying value of the corresponding noncontrolling interests to zero . Before August 1, 2020, our ownership of ChaoYang JinMei was 100 %. In August 2020, we sold an 8.5 % ownership interest to current members of the ChaoYang JinMei management team for approximately $ 396,000 . As a result, our ownership of ChaoYang JinMei decreased from 100 % to 91.5 %. As of August 2020, we referred to ChaoYang JinMei as a significantly controlled subsidiary instead of a wholly-owned subsidiary. ​ 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 Increase Agreements”), with several private equity investors in China. ​ In preparation for Tongmei’s application for a listing on the Shanghai Stock Exchange’s Sci-Tech innovAtion boaRd (the “STAR Market”), in late December we reorganized our entity structures in China. JinMei and BoYu and its 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. As of December 31, 2020, Tongmei’s noncontrolling interests totaled 8.37 % . Additionally, Baoding Tongmei and ChaoYang Tongmei, were assigned to Tongmei as wholly owned subsidiaries. AXT remains the controlling stakeholder of Tongmei and holds a majority of the Board of Director positions of Tongmei. The reorganization does not result in any change to the consolidated financials of AXT. ​ Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates, judgments and assumptions. We believe that the estimates, judgments, and assumptions upon which management relies are reasonable based on information available at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates and actual results, our consolidated financial statements would be affected. 74 Table of Contents Fair Value of Financial Instruments The carrying amounts of certain of our financial instruments including cash and cash equivalents, short-term investments and long-term investments, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short maturities. Certain cash equivalents and investments are required to be adjusted to fair value on a recurring basis. See Note 2. Fair Value of Investments ASC Topic 820, Fair value measurement (“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 similar 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 comparable 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 generally accepted accounting principles. At quarter end any foreign currency hedges not settled are netted in “Accrued liabilities” on the consolidated balance sheets and classified as Level 3 assets and liabilities. As of December 31, 2020 and 2019, the net change in fair value from the placement of the hedge to settlement had a de minimis impact to the consolidated results. Foreign Currency Translation The functional currency of our Chinese subsidiaries is the renminbi, the local currency of China. Transaction gains and losses resulting from transactions denominated in currencies other than the U.S. dollar or in the functional currencies of our subsidiaries are included in “Other income, net” for the years presented. The transaction loss for the year ended December 31, 2020 totaled $ 411,000 . The transaction gain totaled $ 321,000 and $ 165,000 for the years ended December 31, 2019 and 2018, respectively. The assets and liabilities of the subsidiaries are translated at the rates of exchange on the balance sheet date. Revenue and expense items are translated at the average rate of exchange for the 75 Table of Contents period. Gains and losses from foreign currency translation are included in “Other comprehensive income (loss)” in the consolidated statements of comprehensive income (loss), net of tax. 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. ​ 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 We receive payments from customers based on a billing schedule as established in our contracts. 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 do not have any material contract assets as of December 31, 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ ​ ​ 2020 ​ 2019 ​ Contract liabilities ​ $ ( 374 ) ​ $ ( 396 ) ​ During the three and twelve months ended December 31, 2020, the Company recognized $ 9,000 and $ 251,000 , respectively, of revenue that was included in the contract balances as of December 31, 2019. ​ ​ ​ ​ ​ ​ ​ Disaggregated Revenue In general, revenue disaggregated by product types and geography (See Note 14) 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 consolidated financial statements. 76 Table of Contents Practical Expedients and Exemptions We elected to use the following practical expedients: (i) not to adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to a customer and when the customer pays for that product or service will be one year or less; (ii) to expense costs as incurred for costs to obtain a contract when the amortization period would have been one year or less; (iii) not to assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer. In addition, we do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. ​ Accounting for Sales Taxes We record sales taxes collected on sales of our products and for amounts not yet remitted to tax authorities as accrued liabilities on our consolidated balance sheets. Risks and Concentration of Credit Risk Our business is very dependent on the semiconductor, lasers and optical industries which can be highly cyclical and experience downturns as a result of economic changes, overcapacity, and technological advancements. Significant technological changes in the industry or customer requirements, or the emergence of competitive products with new capabilities or technologies, could adversely affect our operating results. In addition, a significant portion of our revenues and net income is derived from international sales. Fluctuations of the United States dollar against foreign currencies and changes in local regulatory or economic conditions, particularly in an emerging market such as China, could adversely affect operating results. We depend on a limited number of suppliers for certain raw materials, components and equipment used in manufacturing our products, including quartz tubing and polishing solutions. We generally purchase these materials through standard purchase orders and not pursuant to long-term supply contracts. Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash and cash equivalents, investments, and accounts receivable. We invest primarily in money market accounts, certificates of deposit and corporate bonds. The composition and maturities are regularly monitored by management. Such deposits are in excess of the amount of the insurance provided by the federal government on such deposits. We are exposed to credit risks in the event of default by the issuers to the extent of the amount recorded on the consolidated balance sheets. ​ 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. The credit risk in our accounts receivable is mitigated by our credit evaluation process and the geographical dispersion of sales transactions. Two customers accounted for 11 % and 10 % of our accounts receivable as of December 31, 2020 and three customers accounted for 14 %, 13 % and 12 % of our trade accounts receivable as of December 31, 2019. One customer represented 11 % of our revenue for the year ended December 31, 2020. One customer represented 15 % of our revenue for the year ended December 31, 2019. One customer represented 13 % of our revenue for the year ended December 31, 2018. Our top five customers, although not the same five customers for each period, represented 32 % of our revenue for the year 2020 and 40 % of our revenue for 2019 and 35 % of our revenue for 2018, respectively. For the year ended December 31, 2020, one third-party customer for the raw materials products from our consolidated subsidiaries accounted for over 10% of the revenue from raw materials sales. For the years ended December 31, 2019 and 2018, each of three third-party customers for the raw materials products from our consolidated subsidiaries accounted for over 10% of the revenue from raw materials sales. Our subsidiaries and raw material joint ventures are a key strategic benefit for us as they further diversify our sources of revenue. 77 Table of Contents Cash and Cash Equivalents We consider investments in highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents consist primarily of certificate of deposits. Cash and cash equivalents are stated at cost, which approximates fair value. Short-Term and Long-Term Investments We classify our investments in marketable securities as available-for-sale debt securities . Short-term and long-term investments are comprised of available-for-sale marketable securities, which consist primarily of certificates of deposit and corporate bonds. These investments are reported at fair value as of the respective balance sheet dates with unrealized gains and losses included in accumulated other comprehensive income (loss) within stockholders’ equity on the consolidated balance sheets. The amortized cost of securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in “Other income, net” in the consolidated statements of operations. Realized gains and losses and declines in value judged to be other than temporary on available-for-sale securities are also included in “Other income, net” in the consolidated statements of operations. The cost of securities sold is based upon the specific identification method. Accounts Receivable and Allowance for Doubtful Accounts and Sales Returns Accounts receivable are recorded at the invoiced amount and are not interest bearing. We periodically review the likelihood of collection on our accounts receivable balances and provide an allowance for doubtful accounts receivable primarily based upon the age of these accounts. 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. We assess the probability of collection based on a number of factors, including the length of time a receivable balance has been outstanding, our past history with the customer and their credit worthiness. We exercise judgment when determining the adequacy of these reserves as we evaluate historical bad debt trends, general economic conditions in the United States and internationally, and changes in customer financial conditions. Uncollectible receivables are recorded as bad debt expense when all efforts to collect have been exhausted and recoveries are recognized when they are received. As of December 31, 2020 and 2019, our accounts receivable, net balance was $ 24.6 million and $ 19.0 million, respectively, which was net of an allowance for doubtful accounts of $ 217,000 and $ 34,000 in December 31, 2020 and 2019, respectively. During 2020, the allowance for doubtful accounts increased by $ 183,000 due to the poor financial condition of a few customers. During 2019, the allowance for doubtful accounts decreased by $ 324,000 primarily due to the deconsolidation of JiYa. If actual uncollectible accounts differ substantially from our estimates, revisions to the estimated allowance for doubtful accounts would be required, which could have a material impact on our financial results for the future periods. As of December 31, 2020 and 2019, the sales returns reserve (included in accrued liabilities) balance was $ 81,000 and $ 26,000 , respectively. During 2020, we utilized $ 82,000 and reserved an additional $ 137,000 and during 2019, we utilized $ 26,000 and reserved an additional $ 5,000 . ​ Warranty Reserve We maintain a warranty reserve 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 December 31, 2020 and 2019, accrued product warranties totaled $ 609,000 and $ 387,000 , respectively. The increase in accrued product warranties is primarily attributable to increased claims for quality issues experienced by approximately four of our customers. If actual warranty costs or pending new claims differ substantially from our estimates, revisions to 78 Table of Contents the estimated warranty liability would be required, which could have a material impact on our financial condition and results of operations for future periods. Inventories 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 reserve for certain inventories to their estimated net realizable value based upon the age and quality of the product and the projections for sale of the completed products. When a reserve is recorded, a new lower cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in the new cost basis. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation computed using the straight-line method over the estimated economic lives of the assets, which vary from 1 to 39.5 years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life or the term of the lease. We generally depreciate com puter , soft ware , office equipment , furniture and fixtures 3 to 5 years , machinery and equipment 1 to 20 years , automobiles 5 to 10 years , leasehold and building improvements over 10 years , or the lease term if shorter, and buildings over 39.5 years. Repairs and maintenance costs are expensed as incurred. Impairment of Long-Lived Assets We evaluate property, plant and equipment and intangible assets for impairment. 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. We did not recognize any impairment charges of long-lived assets in 2020, 2019 and 2018. Impairment of Investments All available-for-sale debt securities are periodically reviewed for impairment. An investment is considered to be impaired when its fair value is less than its amortized cost basis and it is more likely than not that we will be required to sell the impaired security before recovery of its amortized cost basis. 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 invest in equity instruments of privately-held companies in China for business and strategic purposes. Investments in our unconsolidated joint venture companies are classified as other assets and accounted for under either the equity or cost method, depending on whether we have the ability to exercise significant influence over their 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 subsidiary, 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. We estimate fair value of our cost method investments considering available information such as pricing in recent rounds of financing, current cash positions, earnings and cash flow forecasts, recent operational performance and any other readily available market data. 79 Table of Contents We have 25 % ownership interest in a germanium materials company in China and we incurred an impairment charge during 2019. After receiving such company’s preliminary first quarter 2019 financial results in early April 2019 and its projections for significant losses going forward, we determined that this asset was fully impaired and wrote the asset balance down to zero . This resulted in a $ 1.1 million impairment charge in our first quarter 2019 financial results. Except as mentioned above, there were no impairment charges for the remainder of these investments during the years ended December 31, 2020 and 2019. Segment Reporting 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. Our chief operating decision-maker has been identified as our Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing our performance for the Company. We discuss revenue and capacity for both AXT and our joint ventures collectively, when determining capacity constraints and need for raw materials in our business, and consider their capacity when determining our strategic and product marketing and advertising strategies. While we consolidate our majority-owned or significantly controlled joint ventures, we do not allocate any portion of overhead, interest and other income, interest expense or taxes to them. We therefore have determined that our joint venture operations do not constitute an operating segment. Since we operate in one segment, all financial segment and product line information can be found in the consolidated financial statements. Stock-Based Compensation We have employee stock option plans, which are described more fully in Note 10—&quot;Employee Benefit Plans and Stock-based Compensation”. We account for stock-based compensation in accordance with the provisions of ASC Topic 718, Compensation-Stock Compensation (“ASC 718”). 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. Stock-based compensation cost is measured at each grant date, based on the fair value of the award, and is recognized as expense and as an increase in additional paid-in capital over the requisite service period of the award. Research and Development Research and development costs consist primarily of salaries, including stock-based compensation expense and related personnel costs, depreciation, materials and product testing which are expensed as incurred. Tangible assets acquired for research and development purposes are capitalized if they have alternative future use. ​ Advertising Costs Advertising costs, included in selling, general and administrative expenses, are expensed as incurred. Advertising costs for the years ended December 31, 2020, 2019 and 2018 were insignificant. 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. The impact of ASC 740 is more fully described in Note 12. 80 Table of Contents Comprehensive Income (Loss) The components of other comprehensive income (loss) include unrealized gains and losses on marketable securities and foreign currency translation adjustments. Comprehensive income (loss) is presented in the consolidated statements of comprehensive income, net of tax. The balance of accumulated other comprehensive income (loss) is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ 2020 ​ 2019 Accumulated other comprehensive income (loss): ​ ​ ​ ​ ​ ​ Unrealized gain ( loss) on investments, net ​ $ 3 ​ $ ( 3 ) Cumulative translation adjustment ​ 3,601 ​ ​ ( 4,842 ) ​ ​ 3,604 ​ ​ ( 4,845 ) Less: Cumulative translation adjustment attributable to noncontrolling interests ​ ​ 395 ​ ​ 17 Accumulated other comprehensive income (loss) attributable to AXT, Inc. ​ $ 3,209 ​ $ ( 4,862 ) ​ Net Income (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. Recent Accounting Pronouncements Accounting Standard Update No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) was issued in June 2016. Under ASU 2016-13, existing guidance on reporting credit losses for trade and other receivables and available for sale debt securities have been replaced with a new forward-looking “expected loss” model that has resulted in the earlier recognition of allowances for losses. Our adoption of ASU 2016-13 and its subsequent series of amendments during the twelve months ended December 31, 2020 using the modified retrospective transition approach did not result in a material impact on our consolidated financial statements. As part of our assessment of the adequacy of our allowances for credit losses, we consider a number of factors including, but not limited to, customer credit ratings, bankruptcy filings, published or estimated credit default rates, age of receivables, adequacy of our allowance for doubtful accounts and expected loss rates. ​ 81 Table of Contents Note 2. Cash, Cash Equivalents and Investments Our cash and cash equivalents consist of cash and instruments with original maturities of less than three months. Our investments consist of instruments with original maturities of more than three months. As of December 31, 2020 and 2019, our cash, cash equivalents and debt investments are classified as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ December 31, 2019 ​ ​ ​ Gross Gross ​ ​ ​ ​ Gross Gross ​ ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair ​ Amortized ​ Unrealized ​ Unrealized ​ Fair ​ Cost Gain (Loss) Value Cost Gain (Loss) Value Classified as: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash ​ $ 72,602 ​ $ — ​ $ — ​ $ 72,602 ​ $ 26,892 ​ $ — ​ $ — ​ $ 26,892 ​ Cash equivalents: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Certificates of deposit 1 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ Total cash and cash equivalents ​ 72,602 ​ — ​ — ​ 72,602 ​ 26,892 ​ — ​ — ​ 26,892 ​ Investments (available-for-sale): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Certificates of deposit 2 ​ 2,880 ​ 5 ​ ​ — ​ 2,885 ​ 2,400 ​ 2 ​ ​ — ​ 2,402 ​ Corporate bonds ​ 3,083 ​ — ​ ( 2 ) ​ 3,081 ​ 7,030 ​ 4 ​ ( 9 ) ​ 7,025 ​ Total investments ​ 5,963 ​ 5 ​ ( 2 ) ​ 5,966 ​ 9,430 ​ 6 ​ ( 9 ) ​ 9,427 ​ Total cash, cash equivalents and investments ​ $ 78,565 ​ $ 5 ​ $ ( 2 ) ​ $ 78,568 ​ $ 36,322 ​ $ 6 ​ $ ( 9 ) ​ $ 36,319 ​ Contractual maturities on investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Due within 1 year 3 ​ $ 240 ​ ​ ​ ​ ​ ​ ​ $ 240 ​ $ 9,430 ​ ​ ​ ​ ​ ​ ​ $ 9,427 ​ Due after 1 through 5 years 4 ​ 5,723 ​ ​ ​ ​ ​ ​ ​ 5,726 ​ — ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ $ 5,963 ​ ​ ​ ​ ​ ​ ​ $ 5,966 ​ $ 9,430 ​ ​ ​ ​ ​ ​ ​ $ 9,427 ​ 1. Certificate of deposit with original maturities of less than three months. 2. Certificate of deposit with original maturities of more than three months. 3. Classified as “Short-term investments” in our consolidated balance sheets. 4. Classified as “Long-term investments” in our consolidated balance sheets. ​ 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. Gross unrealized losses on our available-for-sale debt securities as of December 31, 2020 was $ 2,000 , 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. A portion of our debt investments would generate a loss if we sold them on December 31, 2020. 82 Table of Contents The following table summarizes the fair value and gross unrealized losses related to available-for-sale debt securities, aggregated by investment category and length of time that individual debt securities have been in a continuous unrealized loss position as of December 31, 2020 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ In Loss Position ​ In Loss Position ​ Total In ​ ​ < 12 months ​ > 12 months ​ Loss Position ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ Gross ​ ​ ​ ​ Gross ​ ​ Fair ​ Unrealized ​ Fair ​ Unrealized ​ Fair ​ Unrealized As of December 31, 2020 Value (Losses) Value (Losses) Value (Losses) Investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate bonds ​ 2,048 ​ ( 2 ) ​ — ​ — ​ 2,048 ​ ​ ( 2 ) ​ Total in loss position ​ $ 2,048 ​ $ ( 2 ) ​ $ — ​ $ — ​ $ 2,048 ​ $ ( 2 ) ​ ​ The following table summarizes the fair value and gross unrealized losses related to available-for-sale debt securities, aggregated by investment category and length of time that individual debt securities have been in a continuous unrealized loss position as of December 31, 2019 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ In Loss Position ​ In Loss Position ​ Total In ​ ​ < 12 months ​ > 12 months ​ Loss Position ​ ​ Gross ​ Gross ​ Gross ​ ​ Fair ​ Unrealized ​ Fair ​ Unrealized ​ Fair ​ Unrealized As of December 31, 2019 ​ Value ​ (Loss) ​ Value ​ (Loss) ​ Value ​ (Loss) Investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate bonds ​ 4,515 ​ ( 9 ) ​ — ​ — ​ 4,515 ​ ​ ( 9 ) ​ Total in loss position ​ $ 4,515 ​ $ ( 9 ) ​ $ — ​ $ — ​ $ 4,515 ​ $ ( 9 ) ​ ​ 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 6). The investment balances for the non-consolidated companies, are accounted for under the equity method and included in “Other assets” in the consolidated balance sheets and totaled $ 6.4 million and $ 6.0 million as of December 31, 2020 and 2019, respectively. As of December 31, 2020, there were five companies accounted for under the equity method. The year ended December 31, 2019 includes an impairment charge of $ 1.1 million for one of our minority investments (see Note 6). We had no impairment charges during 2020 and 2018. Fair Value Measurements We invest primarily in money market accounts, certificates of deposit, corporate bonds and notes, and government securities. ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), 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 include 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. There were no changes in valuation techniques or related inputs in the year ended December 31, 2020. There have been no transfers between fair value measurement levels during the years ended December 31, 2020 and 2019. 83 Table of Contents 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 generally accepted accounting principles. At quarter end any foreign currency hedges not settled are netted in “Accrued liabilities” on the consolidated balance sheets and classified as Level 3 assets and liabilities. As of December 31, 2020, 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 consolidated results. The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis in accordance with ASC 820 as of December 31, 2020 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Quoted Prices in ​ ​ ​ Significant ​ ​ ​ ​ ​ Active Markets of ​ Significant Other ​ Unobservable ​ ​ Balance as of ​ Identical Assets ​ Observable Inputs ​ Inputs ​ December 31, 2020 (Level 1) (Level 2) (Level 3) Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash equivalents and investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Certificates of deposit ​ $ 2,885 ​ $ — ​ $ 2,885 ​ $ — ​ Corporate bonds ​ 3,081 ​ — ​ 3,081 ​ — ​ Total ​ $ 5,966 ​ $ — ​ $ 5,966 ​ $ — ​ ​ The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis in accordance with ASC 820 as of December 31, 2019 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Quoted Prices in ​ ​ ​ Significant ​ ​ ​ ​ ​ Active Markets of ​ Significant Other ​ Unobservable ​ ​ Balance as of ​ Identical Assets ​ Observable Inputs ​ Inputs ​ December 31, 2019 (Level 1) (Level 2) (Level 3) Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash equivalents and investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Certificates of deposit ​ $ 2,402 ​ $ — ​ $ 2,402 ​ $ — ​ Corporate bonds ​ 7,025 ​ — ​ 7,025 ​ — ​ Total ​ $ 9,427 ​ $ — ​ $ 9,427 ​ $ — ​ ​ 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 equity and cost method (See Note 6). For the year ended December 31, 2019, we recognized an impairment charge of $ 1.1 million for one of our minority investments. We received its preliminary first quarter 2019 financial results in early April 2019 as well as its projections for significant losses going forward. Such projected losses would fully deplete our asset investment balance for this company in 2019. This company in which we have a minority investment is experiencing significant disruptions due to upgrades and repairs required to comply with stronger environmental regulations in China. As a result, we determined that this asset was fully impaired and wrote the asset balance down to zero . We had no impairment charges for 2020 and 2018. 84 Table of Contents Note 3. Inventories The components of inventory are summarized below (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ ​ 2020 2019 Inventories: ​ ​ ​ ​ ​ ​ ​ Raw materials ​ $ 24,738 ​ $ 20,677 ​ Work in process ​ 24,215 ​ 24,946 ​ Finished goods ​ 2,562 ​ 3,529 ​ ​ ​ $ 51,515 ​ $ 49,152 ​ ​ As of December 31, 2020 and 2019, carrying values of inventories were net of inventory reserves of $ 17.7 million and $ 16.4 million, respectively, for excess and obsolete inventory and $ 162,000 and $ 91,000 , respectively, for lower of cost or net realizable value reserves. Note 4. Related Party Transactions Effective as of March 11, 2019, we reduced our ownership in JiYa from 46 % to 39 % by selling a portion of our JiYa shares to our investor partner, which is also JiYa’s landlord. Based on an independent third-party valuation analysis, we sold these shares for $ 366,000 . Previously we were the largest shareholder of JiYa and as such, we had the right to appoint the general manager of JiYa and the ability to exercise control in substance over JiYa’s long-term strategic direction. Further, our Chief Executive Officer was the chairman of JiYa’s board of directors and our Chief Financial Officer was a member of JiYa’s board of financial supervisors. As a result of this transaction, our investor partner, Shanxi Aluminum Industrial Co., Ltd. became the largest shareholder of JiYa and assumed the right to appoint the general manager of JiYa and thereby exercised greater control over JiYa’s long-term strategic direction. Further, although our Chief Executive Officer remains on the board, as of March 11, 2019, he was no longer chairman of JiYa’s board of directors and our Chief Financial Officer was no longer on JiYa’s board of financial supervisors. ​ Previously, we accounted for JiYa’s financial performance under the consolidation method of accounting. As a result of the changes, we began to account for JiYa’s financial performance under the equity method of accounting. Therefore, we deconsolidated JiYa from our consolidated financial statements as of March 11, 2019 in accordance with ASC 810. As of March 12, 2019, we accounted for our investment in JiYa under the equity method of accounting as we continue to have board representation and substantial ownership. Pro-forma financials have not been presented because we believe the effects were not material to our consolidated financial position and results of operations for all periods presented. JiYa continues to be a related party to us after deconsolidation, from whom we may purchase raw materials for production in the ordinary course of business from time to time. ​ Beginning in 2012, our consolidated joint venture, JinMei, became contractually obligated under an agency sales agreement to sell raw material on behalf of its equity investment entity. JinMei bills the customers and remits the receipts, net of its portions of sales commission, to this equity investment entity. For the years ended December 31, 2020, 2019 and 2018, JinMei recorded $ 0 , $ 0 and $ 24,000 of income from agency sales, respectively, which were included in “Other income, net” in the consolidated statements of operations. In March 2012, Tongmei, entered into an operating lease for the land it owns with our consolidated joint venture, BoYu. The lease agreement for the land of approximately 22,081 square feet commenced on January 1, 2012 for a term of 10 years with annual lease payments of $ 24,000 subject to a 5 % increase at each third year anniversary. The annual lease payment is due by January 31 st of each year. Tongmei also purchases raw materials from Donghai County Dongfang High Purity Electronic Materials Co., Ltd. for production in the ordinary course of business. As of December 31, 2020 and 2019, there were no amounts payable outstanding. 85 Table of Contents ChaoYang Tongmei also purchases raw materials from one of our equity investment entities, Emeishan Jia Mei High Purity Metals Co. Ltd. (“Jiamei”), for production in the ordinary course of business. As of December 31, 2020 and 2019, there no amounts payable outstanding. Tongmei and ChaoYang Tongmei also purchases raw materials from one of our equity investment entities, Xilingol Tongli Germanium Refine Co. Ltd. (“Tongli”), for production in the ordinary course of business. As of December 31, 2020 and 2019, there no amounts payable outstanding. In July 2017, Tongmei, provided an inter-company loan to JinMei in the amount of $ 768,000 in preparation for the acquisition of the land use rights and the construction of a new building. The inter-company loan carries an interest rate of 4.9 % per annum. The principle is due in three installments between December 2021 and December 2023 while the interest is due in December of each year . As of December 31, 2020, JinMei repaid principal and interest totaling $ 537,000 to Tongmei. As of December 31, 2020 and 2019, the remaining balance of principal and interest totaled $ 303,000 and $ 285,000 , respectively. JinMei, is in the process of relocating its manufacturing operations to the city of Kazuo, located in the province of Liaoning near the Inner Mongolia Autonomous Region, near our own location. ​ In April 2016, our consolidated joint venture, BoYu, provided a personal loan of $ 177,000 to one of its executive employees. This loan is collateralized by the officer’s shares in BoYu. The loan bears interest at 2.75 % per annum. During the three months ended June 30, 2017, the repayment of the principal and interest totaling $ 180,000 was received by our consolidated joint venture. In November 2017, BoYu provided another personal loan of $ 291,000 to the same executive employee. This loan bears interest at 2.75 % per annum. Principal and accrued interest are due on November 30, 2020. In May 2019, BoYu provided another personal loan of $ 146,000 to the same executive employee. This loan bears interest at 2.75 % per annum. Principal and accrued interest are due at such time BoYu pays a dividend to its shareholders. In March 2020, BoYu provided another personal loan of $ 141,000 to the same executive employee. This loan bears interest at 2.75 % per annum. Principal and accrued interest are due on December 31, 2024. On December 25, 2020, the executive repaid the principal of $ 612,000 and interest of $ 35,000 of the personal loans to BoYu. As of December 31, 2020 and 2019, the balances, including both principal and accrued interest, were $ 0 , and $ 449,000 , respectively, and included in “Other assets” in our consolidated balance sheets. ​ On November 2, 2017, our consolidated joint venture, BoYu, raised additional capital in the amount of $ 2 million in cash from a third-party investor through the issuance of shares equivalent to 10 % ownership of BoYu. This third-party investor is an immediate family member to the owner of one of BoYu's customers. For the years ended December 31, 2020 and 2019, BoYu has recorded $ 0.3 million and $ 0.2 million in revenue from this customer, respectively. As of December 31, 2020 and 2019, amounts receivable of $ 0 and $ 12,000 , respectively, were included in “Accounts receivable” in our consolidated balance sheets. In December 2020, we purchased shares equivalent to 4 % of BoYu from the same third-party investor for $ 1.6 million and the remaining 6 % was sold to another third-party investor. ​ 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 China joint ventures. See Note 6 for further details. 86 Table of Contents Note 5. Property, Plant and Equipment, Net The components of our property, plant and equipment are summarized below (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ ​ ​ 2020 ​ 2019 ​ Property, plant and equipment: ​ ​ ​ ​ ​ ​ ​ Machinery and equipment, at cost ​ $ 48,206 ​ $ 45,742 ​ Less: accumulated depreciation and amortization ​ ​ ( 37,832 ) ​ ​ ( 37,115 ) ​ Building, at cost ​ ​ 94,567 ​ ​ 38,837 ​ Less: accumulated depreciation and amortization ​ ​ ( 15,324 ) ​ ​ ( 12,736 ) ​ Leasehold improvements, at cost ​ 6,285 ​ 4,877 ​ Less: accumulated depreciation and amortization ​ ​ ( 4,616 ) ​ ​ ( 4,035 ) ​ Construction in progress ​ 24,539 ​ 61,833 ​ ​ ​ $ 115,825 ​ $ 97,403 ​ ​ As of December 31, 2020, the balance of construction in progress was $ 24.5 million, of which $ 14.2 million was related to our buildings in our new Dingxing and Kazuo locations, $ 4.0 million was for manufacturing equipment purchases not yet placed in service and $ 6.3 million was from our construction in progress for our other consolidated subsidiaries. As of December 31, 2019, the balance of construction in progress was $ 61.8 million, of which $ 48.8 million was related to our buildings in our new Dingxing and Kazuo locations, $ 3.4 million was for manufacturing equipment purchases not yet placed in service and $ 9.6 million was from our construction in progress for our other consolidated subsidiaries. Depreciation and amortization expense was $ 4.3 million, $ 5.5 million and $ 4.9 million for the years ended December 31, 2020, 2019 and 2018, respectively. From time to time we review our estimates of the useful lives of our property, plant and equipment. As a result of the review, we determined a portion of our manufacturing equipment was lasting longer than the estimate previously established for the respective useful lives. Where appropriate, we extended the useful life of the manufacturing equipment in our accounting records. In addition, the useful life of our buildings located in China was extended to better align with industry standards. The changes in our estimate of the useful life, effective January 1, 2020, were made in order to remain consistent with U.S. GAAP regarding management estimates. The effect of the change in the useful lives decreased our manufacturing costs for the year ended December 31, 2020 by approximately $ 1.4 million and increased our basic and diluted net income per share by approximately $ 0.03 , respectively, as a result of lower depreciation expense. ​ 87 Table of Contents Note 6. 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. The investments are summarized below (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Investment Balance as of ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ Accounting ​ Ownership * Company 2020 2019 Method Percentage ​ Nanjing JinMei Gallium Co., Ltd. ​ $ 592 ​ $ 592 Consolidated ** 100 % Chaoyang JinMei Gallium Co., Ltd. ​ ​ 1,820 ​ ​ 1,820 ​ Consolidated ​ ** 100 % Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd. ​ 1,346 ​ 1,346 Consolidated ** 100 % ​ ​ $ 3,758 ​ $ 3,758 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Donghai County Dongfang High Purity Electronic Materials Co., Ltd. ​ $ 1,651 ​ $ 1,326 Equity ** 46 % Beijing JiYa Semiconductor Material Co., Ltd. ​ ​ 1,418 ​ ​ 1,621 ​ Equity ​ 39 % Xilingol Tongli Germanium Co., Ltd. ​ — ​ — Equity 25 % Xiaoyi XingAn Gallium Co., Ltd. ​ ​ 2,822 ​ ​ 2,367 ​ Equity ​ ** 25 % Emeishan Jia Mei High Purity Metals Co., Ltd. ​ 485 ​ 647 Equity 25 % ​ ​ $ 6,376 ​ $ 5,961 ​ ​ ​ ​ ​ ​ * These percentages reflect the ownership currently in effect upon the completion of the reorganization in China. ** In preparation for Tongmei’s application for a listing on the STAR Market, in late December 2020 we reorganized our entity structures in China. JinMei and BoYu and its 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. As of December 31, 2020, Tongmei’s noncontrolling interests totaled 8.37 %. ​ Effective as of March 11, 2019, we reduced our ownership in JiYa from 46 % to 39 % by selling a portion of our JiYa shares to our investor partner, which is also JiYa’s landlord. Based on an independent third-party valuation analysis, we sold these shares for $ 366,000 . Previously, we were the largest shareholder and, as such, we had the right to appoint the general manager of JiYa and the ability to exercise control in substance over JiYa’s long-term strategic direction. Further, our Chief Executive Officer was the chairman of JiYa’s board of directors and our Chief Financial Officer was a member of JiYa’s board of financial supervisors. As a result of this transaction, our investor partner, Shanxi Aluminum Industrial Co., Ltd., became the largest shareholder and assumed the right to appoint the general manager and thereby exercised greater control over JiYa’s long-term strategic direction. Further, although our Chief Executive Officer remains on the board, as of March 11, 2019 he was no longer the chairman of JiYa’s board of directors and our Chief Financial Officer was no longer a member of JiYa’s board of financial supervisors. ​ Previously we accounted for JiYa’s financial performance under the consolidation method of accounting. As a result of the changes we began to account for JiYa’s financial performance under the equity method of accounting. Therefore, we deconsolidated JiYa from our consolidated financial statements as of March 11, 2019 in accordance with ASC 810. As of March 12, 2019, we accounted for our investment in JiYa under the equity method of accounting as we continue to have board representation and substantial ownership. Pro-forma financials have not been presented because we believe the effects were not material to our consolidated financial position and results of operation for all periods presented. JiYa continues to be a related party to us after deconsolidation, whom we may purchase raw materials from for production in the ordinary course of business from time to time. ​ We recorded a gain on the deconsolidation of JiYa of $ 175,000 as a component of “Equity in loss of unconsolidated joint ventures” during 2019 in the consolidated statements of operations and comprehensive income (loss). 88 Table of Contents On the date of deconsolidation, the fair value of the Company’s investment in JiYa exceeded the Company’s share of the net assets of JiYa, which generated the gain. As of March 12, 2019, we recorded our investment in JiYa at a fair value of $ 2,040,000 , which was based on an independent third-party valuation analysis. The valuation is based on the asset-based approach. The market-based approach is not deemed appropriate due to lack of availability of market data for comparable companies on the open market and the discounted cash flow approach is not deemed reliable because of the difficulty in predicting the future profitability of JiYa due to the volatility of the gallium market, the concentration of customers and the significant accumulated losses of JiYa. The asset-based approach examines the value of a company’s assets net of its liabilities to derive a value for the equity holders. The gain on deconsolidation includes the following: ​ ​ ​ ​ ​ ​ ​ Amount ​ (in thousands) Fair value of the consideration received ​ $ 366 Fair value of the retained investment in Beijing JiYa Semiconductor Material Co., Ltd. ​ ​ 2,040 Carrying value of noncontrolling interests, net of accumulated other comprehensive income attributable to subsidiary ​ ​ 617 Derecognition of Beijing JiYa Semiconductor Material Co., Ltd.'s net asset ​ ​ ( 2,848 ) Gain recognized on deconsolidation of Beijing JiYa Semiconductor Material Co., Ltd. ​ $ 175 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount ​ ​ (in thousands) Fair value of the retained investment in Beijing JiYa Semiconductor Material Co., Ltd. ​ $ 2,040 Carrying value of retained noncontrolling investment ​ ​ ( 1,559 ) Gain on retained noncontrolling investment due to remeasurement ​ $ 481 ​ Before June 15, 2018, our ownership of JinMei was 83 %. On June 15, 2018, we purchased a 12 % ownership interest from one of the minority owners of JinMei for $ 1.4 million. The $ 1.4 million was scheduled to be paid in two installments. On June 15, 2018, we paid the first installment of $ 163,000 . In May 2019, we paid the second installment of $ 1.2 million as the relocation of JinMei’s headquarters and manufacturing operations was nearly complete, which had been previously included in “Accrued liabilities” in our consolidated balance sheets. As a result, our ownership of JinMei increased from 83 % to 95 %. In September 2018, we purchased a 2 % ownership interest from one of the three remaining minority owners of JinMei for $ 252,000 . As a result, our ownership of JinMei increased from 95 % to 97 %. In May 2019, we purchased the remaining 3 % ownership interest from retiring members of the JinMei management team for approximately $ 413,000 . The final payment to the JinMei management team was made in October, 2020. As a result, our ownership of JinMei increased from 97 % to 100 %. Prior to June 1, 2019, we reported JinMei as a consolidated joint venture as we had a controlling financial interest and have majority control of the board. As of June 1, 2019, we referred to it as a wholly-owned subsidiary and reduced the carrying value of the corresponding noncontrolling interests to zero . Before August 1, 2020, our ownership of ChaoYang JinMei was 100 %. In August 2020, we sold an 8.5 % ownership interest to current members of the ChaoYang JinMei management team for approximately $ 396,000 . As a result, our ownership of ChaoYang JinMei decreased from 100 % to 91.5 %. As of August 2020, we referred to ChaoYang JinMei as a significantly controlled subsidiary instead of a wholly-owned subsidiary. Our Chief Executive Officer is chairman of the JinMei board and we have appointed two other representatives to serve on the JinMei board. Our ownership of BoYu is 67 %. On November 2, 2017, BoYu raised additional capital in the amount of $ 2 million in cash from a third-party investor through the issuance of shares equivalent to 10 % ownership of BoYu. As a result, our ownership of BoYu was diluted from 70 % to 63 %. In December 2020, we purchased shares equivalent to 4 % of BoYu from the same third-party investor for $ 1.6 million. As a result, our ownership of BoYu increased from 63 % to 67 %. We continue to consolidate BoYu as we have a controlling financial interest and have majority control of the board and accordingly no gain was recognized as a result of this equity transaction. Our Chief Executive Officer is chairman of the BoYu board and we have appointed two other representatives to serve on the board. 89 Table of Contents An additional step in the STAR Market initial public offering (“IPO”) process involves certain entity reorganizations and alignment of assets under Tongmei. In this regard our two consolidated raw material companies, JinMei and BoYu and its subsidiaries were assigned to Tongmei in December 2020. This will increase the number of customers and employees attributable to Tongmei as well as increase Tongmei’s consolidated revenue. Although we have representation on the boards of directors of each of these 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 decisions concerning sales of finished product, are made by local management with regular guidance and input from us. During 2020, 2019 and 2018, our two consolidated raw material subsidiaries generated $ 7.5 million, $ 4.3 million and $ 5.5 million of income, respectively, of which an income of $ 1.8 million, an income of $ 1.0 million and an income of $ 1.4 million, respectively were allocated to noncontrolling interests, resulting in $ 5.7 million, $ 3.3 million and $ 4.1 million of income, respectively, to our net income (loss). For AXT’s minority investment entities that are not consolidated, the investment balances are included in “Other assets” in our consolidated balance sheets and totaled $ 6.4 million and $ 6.0 million as of December 31, 2020 and 2019, respectively. Our respective ownership interests in each of these companies are 46 %, 39 %, 25 %, 25 % and 25 %. 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. One of the minority investment entities in which we have a 25 % ownership interest is a germanium materials company in China. This company provides results to us only on a quarterly basis. We received its preliminary first quarter 2019 financial results in early April 2019 as well as its projections for significant losses going forward. Such projected losses would fully deplete our asset investment balance for this company in 2019. The Company is experiencing significant disruptions due to upgrades and repairs required to comply with stronger environmental regulations in China. As a result, we determined that this asset was fully impaired and wrote the asset balance down to zero . This resulted in a $ 1.1 million impairment charge in our first quarter 2019 financial results. ​ AXT’s minority investment entities are not consolidated and are accounted for under the equity method. Excluding one fully impaired entity, the equity entities had the following summarized income information (in thousands) for the years ended December 31, 2020, 2019 and 2018, respectively: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Our share for the ​ ​ ​ ​ Year Ended ​ Year Ended ​ ​ ​ ​ December 31, ​ December 31, ​ 2020 2019 ​ 2018 2020 2019 2018 Net revenue ​ ​ $ 20,049 ​ $ 18,991 ​ $ 33,212 ​ $ 6,252 ​ $ 5,458 ​ $ 8,549 ​ Gross profit ​ ​ 4,907 ​ 2,013 ​ 6,457 ​ 1,504 ​ 558 ​ 1,675 ​ Operating income (loss) ​ ​ 1,957 ​ ( 2,266 ) ​ ( 3,152 ) ​ 504 ​ ( 700 ) ​ ( 778 ) ​ Net income (loss) ​ ​ $ 1,014 ​ $ ( 3,000 ) ​ $ ( 4,750 ) ​ $ 111 ​ $ ( 1,876 ) ​ $ ( 1,080 ) ​ ​ 90 Table of Contents Excluding one fully impaired entity, these minority investment entities that are not consolidated, but rather are accounted for under the equity method, had the following summarized balance sheet information (in thousands) as of December 31, 2020 and 2019, respectively: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ 2020 ​ 2019 Current assets ​ $ 24,136 $ 22,144 ​ Noncurrent assets ​ 11,339 ​ 11,990 ​ Current liabilities ​ 12,502 ​ 13,726 ​ Noncurrent liabilities ​ — ​ — ​ ​ 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 gain of $ 0.1 million for the year ended December 31, 2020 and a loss of $ 1.9 million and $ 1.1 million for the years ended December 31, 2019 and 2018, respectively. Dividends received from these minority investment entities were $ 362,000 for the year ended December 31, 2019 and $ 0 for each of the years ended December 31, 2020 and 2018. Excluding one fully impaired entity, undistributed retained earnings relating to our investments in these minority investment entities amounted to $ 1.3 million and $ 1.2 million as of December 31, 2020 and 2019, respectively. Note 7. Balance Sheets Details Other Assets The components of other assets are summarized below (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ ​ 2020 2019 Equity method investments ​ $ 6,376 ​ $ 5,961 ​ Value added tax receivable, long term ​ ​ 471 ​ ​ 2,708 ​ Other intangible assets ​ ​ 1,682 ​ ​ 1,124 ​ Other assets ​ ​ 1,581 ​ ​ 10 ​ ​ ​ $ 10,110 ​ $ 9,803 ​ ​ Accrued Liabilities The components of accrued liabilities are summarized below (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ ​ 2020 2019 Accrued compensation and related charges ​ $ 4,417 ​ $ 3,307 ​ Preferred stock dividends payable ​ ​ 2,901 ​ ​ 2,901 ​ Payable in connection with construction ​ ​ 1,457 ​ ​ 1,447 ​ Payable in connection with repurchase of subsidiaries shares ​ ​ 1,439 ​ ​ 151 ​ Accrued income taxes ​ ​ 760 ​ ​ 171 ​ Payable in connection with land restoration of Nanjing JinMei factory ​ ​ 750 ​ ​ 703 ​ Accrued professional services ​ ​ 675 ​ ​ 630 ​ Accrued product warranty ​ ​ 609 ​ ​ 387 ​ Current portion of operating lease liabilities ​ ​ 445 ​ ​ 319 ​ Advance from customers ​ ​ 374 ​ ​ 396 ​ Other tax payable ​ ​ 295 ​ ​ 50 ​ Other personnel-related costs ​ ​ 101 ​ ​ 180 ​ Accrual for sales returns ​ ​ 81 ​ ​ 26 ​ Other accrued liabilities ​ ​ 1,691 ​ ​ 1,013 ​ ​ ​ $ 15,995 ​ $ 11,681 ​ ​ ​ 91 Table of Contents ​ Note 8. Bank Loans and Line of Credit On November 6, 2018, the Company entered into the Credit Agreement, which established a $ 10 million secured revolving line of credit with a $ 1.0 million letter of credit sublimit facility. The revolving credit facility is collateralized by substantially all of the assets of the Company located within the United States, subject to certain exceptions. The commitments under the Credit Agreement expire on November 30, 2020 and any loans thereunder will bear interest at a rate based on the daily one-month LIBOR for the applicable interest period plus a margin of 2 % . As of December 31, 2019, no loans or letters of credit were outstanding under the Credit Agreement. Effective February 5, 2020, the Company amended the Credit Agreement. The line of credit was reduced from $ 10 million to $ 7 million. The commitments under the First Amendment To Credit Agreement expired on November 30, 2020, no loans or letters of credit were outstanding under the Credit Agreement at December 31, 2020. ​ On August 9, 2019, Tongmei entered into a credit facility with the Bank of China with a $ 5.8 million line of credit at an annual interest rate of approximately 0.4 % over the average interest rate quoted by the National Interbank Funding Center. Accrued interest is calculated monthly and paid quarterly. The annual interest rate was approximately 4.7 % as of December 31, 2019. The credit facility is collateralized by Baoding Tongmei’s land use rights and all of its buildings located at its facility in Dingxing. The primary intended use of the credit facility is for general purposes, which may include working capital and other corporate expenses. ​ On August 9, 2019, we borrowed $ 2.8 million against the credit facility. The repayment of the full amount was due on August 9, 2020. On September 12, 2019, we borrowed an additional $ 2.8 million against the credit facility. The repayment of the full amount was due on September 12, 2020. In August 2020, Tongmei repaid the full amount of the credit facility including all outstanding accrued interest of approximately $ 5.9 million and simultaneously applied to renew the credit facility. The process of repaying a loan and then renewing the loan is customary in China. ​ In September 2020, the August 2019 borrowing was renewed and funded against the credit facility with an interest rate of 3.85 %. The interest owed during the term of the loan was deducted prior to funding. The repayment of the loan is due on March 22, 2021, however the credit facility contains an option to renew for an additional six month s. ​ In October 2020, the September 2019 borrowing was renewed and funded against the credit facility and an additional $ 2.7 million was approved and funded against the credit facility with the annual interest rate of 4.7 %. Accrued interest is calculated monthly and paid quarterly. The combined loan totals $ 5.6 million. The repayment of the $ 5.6 million is due on April 8, 2021, however, the credit facility contains an option to renew for an additional six months . As of December 31, 2020, $ 8.9 million was included in “Bank loan” in our consolidated balance sheets. ​ In February 2020, our consolidated subsidiary, BoYu, entered into a credit facility with the Industrial and Commercial Bank of China (“ICBC”) with a $ 1.4 million line of credit at an annual interest rate of approximately 0.15 % over the loan prime rate. Accrued interest is calculated monthly and paid quarterly. The annual interest rate was approximately 4.3 % as of December 31, 2020. The credit facility is collateralized by BoYu’s land use rights and its building located at its facility in Tianjin, China and BoYu’s accounts receivable. The primary intended use of the credit facility is for general purposes, which may include working capital and other corporate expenses. ​ In March 2020, BoYu borrowed $ 0.4 million against the credit facility. The repayment of the full amount is due in March 2021. In December 2020, BoYu borrowed an additional $ 1.1 million against the credit facility. As of December 31, 2020, $ 1.5 million was included in “Bank loan” in our consolidated balance sheets. ​ Note 9. Stockholders’ Equity and Stock Repurchase Program Stockholders’ Equity The 883,000 shares of $ 0.001 par value Series A preferred stock issued and outstanding as of December 31, 2020 and 2019, valued at $ 3,532,000 are non-voting and non-convertible preferred stock with a 5.0 % cumulative annual 92 Table of Contents dividend rate payable when declared by the Board of Directors and $ 4 per share liquidation preference over common stock, and 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. Changes in AXT, Inc.’s ownership interest in consolidated subsidiaries The effects of changes in the Company’s ownership interests in its less than 100% owned subsidiaries on the Company’s equity are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ 2020 ​ 2019 Net income (loss) attributable to AXT, Inc. ​ $ 3,238 $ ( 2,600 ) Increase (decrease) in additional paid-in capital for: ​ ​ ​ ​ Sales of subsidiary shares to noncontrolling interest ​ 396 ​ — Purchase of subsidiary shares from noncontrolling interest ​ ​ ( 1,398 ) ​ ​ ( 74 ) Adjustment to noncontrolling interests in connection with the reorganization and alignment of assets under Tongmei ​ ​ ( 10,732 ) ​ ​ — Net transfers to noncontrolling interests ​ ​ ( 11,734 ) ​ ​ ( 74 ) Change from net income (loss) attributable to AXT, Inc., net of transfers to noncontrolling interest ​ $ ( 8,496 ) ​ $ ( 2,674 ) ​ 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 during 2020, 2019 and 2018 under this program. As of December 31, 2020, approximately $ 2.7 million remained available for future repurchases under this program. 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 2018, 2019 and 2020, 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 10. Employee Benefit Plans and Stock-based Compensation Stock Option Plans and Equity Incentive Plans In May 2007, our stockholders approved our 2007 Equity Incentive Plan (the “2007 Plan”), which provides for the grant of incentive and non-qualified stock options to our employees, consultants and directors. The 2007 Plan is a restatement of the 1997 Stock Option Plan which expired in 2007. The 1,928,994 share reserve of the 1997 Stock Option Plan became the reserve of the 2007 Plan, together with 1,300,000 additional shares approved for issuance under the 2007 Plan. In May 2013, the stockholders approved an additional 2,000,000 shares to be issued under the 2007 plan. Awards may be made under the 2007 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 2007 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 93 Table of Contents appreciation rights generally shall not be fully vested over a period of less than three 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). In December 2008, the 2007 Plan was amended to comply with the applicable requirements under Section 409A of the Internal Revenue Code. 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. Awards that may be made under the 2015 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 2015 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 2015 Plan does allow for similar vesting to employees. As of December 31, 2020, approximately 0.6 million shares were available for grant under the 2015 Plan. Stock Options The following table summarizes the stock option transactions for each of the years ended December 31, 2018, 2019 and 2020 (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, 2018 2,666 ​ $ 3.81 6.87 ​ $ 13,149 ​ Granted 246 ​ 5.77 ​ ​ ​ ​ ​ ​ Exercised ( 238 ) ​ 2.64 ​ ​ ​ ​ ​ ​ Canceled and expired ( 20 ) ​ 4.40 ​ ​ ​ ​ ​ ​ Balance as of December 31, 2018 2,654 ​ $ 4.09 6.28 ​ $ 2,720 ​ Granted 430 ​ 3.06 ​ ​ ​ ​ ​ ​ Exercised ( 113 ) ​ 2.37 ​ ​ ​ ​ ​ ​ Canceled and expired ( 18 ) ​ 4.47 ​ ​ ​ ​ ​ ​ Balance as of December 31, 2019 ​ 2,953 ​ $ 4.00 5.95 ​ $ 3,040 ​ Granted — ​ — ​ ​ ​ ​ ​ ​ Exercised ( 905 ) ​ 2.80 ​ ​ ​ ​ ​ ​ Canceled and expired ( 163 ) ​ 5.85 ​ ​ ​ ​ ​ ​ Balance as of December 31, 2020 1,885 ​ $ 4.42 6.17 ​ $ 9,713 ​ Options vested as of December 31, 2020 and unvested options expected to vest, net of forfeitures 1,872 ​ $ 4.42 6.15 ​ $ 9,636 ​ Options exercisable as of December 31, 2020 1,418 ​ $ 4.52 5.41 ​ $ 7,165 ​ ​ 94 Table of Contents The options outstanding and exercisable as of December 31, 2020 were in the following exercise price ranges (in thousands, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Options Vested and ​ ​ ​ ​ ​ ​ Options Outstanding as of ​ Exercisable as of ​ ​ ​ ​ ​ ​ December 31, 2020 ​ December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ‑ average ​ ​ ​ Range of ​ ​ ​ Weighted ‑ average Remaining ​ ​ ​ Weighted ‑ Average Exercise Price ​ Shares ​ Exercise Price Contractual Life ​ Shares ​ Exercise Price $ 2.14 - $ 2.14 ​ 8 ​ $ 2.14 3.33 8 ​ $ 2.14 ​ $ 2.18 - $ 2.18 ​ 304 ​ $ 2.18 4.84 304 ​ $ 2.18 ​ $ 2.36 - $ 2.91 ​ 162 ​ $ 2.56 3.29 162 ​ $ 2.56 ​ $ 3.06 - $ 3.06 ​ 430 ​ $ 3.06 8.85 107 ​ $ 3.06 ​ $ 4.79 - $ 4.79 ​ 92 ​ $ 4.79 0.82 92 ​ $ 4.79 ​ $ 5.21 - $ 5.21 ​ 440 ​ $ 5.21 5.82 440 ​ $ 5.21 ​ $ 5.61 - $ 5.61 ​ 20 ​ $ 5.61 1.16 20 ​ $ 5.61 ​ $ 5.77 - $ 5.77 ​ 245 ​ $ 5.77 7.85 128 ​ $ 5.77 ​ $ 7.95 - $ 7.95 ​ 60 ​ $ 7.95 6.08 59 ​ $ 7.95 ​ $ 9.50 - $ 9.50 ​ 124 ​ $ 9.50 6.82 98 ​ $ 9.50 ​ ​ ​ ​ ​ ​ ​ 1,885 ​ $ 4.42 6.17 1,418 ​ $ 4.52 ​ ​ There were 905,000 , 113,000 and 238,000 options exercised in the years ended December 31, 2020, 2019 and 2018, respectively. The total intrinsic value of options exercised for the years ended December 31, 2020, 2019 and 2018, was $ 3.2 million, $ 266,000 and $ 666,000 , respectively. As of December 31, 2020, the unamortized compensation costs related to unvested stock options granted to employees under our 2015 plan was approximately $ 0.8 million, net of estimated forfeitures of $ 71,000 . These costs will be amortized on a straight-line basis over a weighted-average period of approximately 2.4 years and will be adjusted for subsequent changes in estimated forfeitures. We did not capitalize any stock-based compensation to inventory as of December 31, 2020 and 2019, as the amount was insignificant. Restricted Stock Awards A summary of activity related to restricted stock awards for the years ended December 31, 2018, 2019 and 2020 is presented below (in thousands, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-Average ​ ​ ​ ​ Grant Date Stock Awards Shares Share Value Non-vested as of January 1, 2018 480 ​ $ 7.13 ​ Granted 344 ​ $ 6.02 ​ Vested ( 181 ) ​ $ 6.04 ​ Forfeited ( 10 ) ​ $ 6.65 ​ Non-vested as of December 31, 2018 633 ​ $ 6.85 ​ Granted 554 ​ $ 3.60 ​ Vested ( 228 ) ​ $ 6.46 ​ Forfeited ( 20 ) ​ $ 7.16 ​ Non-vested as of December 31, 2019 ​ 939 ​ $ 5.02 ​ Granted 443 ​ $ 5.94 ​ Vested ( 347 ) ​ $ 5.44 ​ Forfeited ​ ( 13 ) ​ $ 5.54 ​ Non-vested as of December 31, 2020 1,022 ​ $ 5.27 ​ ​ Total fair value of stock awards vested during the years ended December 31, 2020, 2019 and 2018 was $ 1.9 million, $ 1.5 million and $ 1.1 million, respectively. As of December 31, 2020, we had $ 4.8 million of unrecognized 95 Table of Contents compensation expense related to restricted stock awards, which will be recognized over the weighted average period of 1.6 years. Common Stock The following number of shares of common stock were reserved and available for future issuance as of December 31, 2020 (in thousands, except per share data): ​ ​ ​ ​ Options outstanding 1,885 ​ Restricted stock awards outstanding 1,022 ​ Stock available for future grant: 2015 Equity Incentive Plan 562 ​ Total 3,469 ​ ​ Stock-based Compensation We recorded $ 2.6 million, $ 2.3 million and $ 1.9 million of stock-based compensation in our consolidated statements of operations for the years ended December 31, 2020, 2019 and 2018, respectively. The following table summarizes compensation costs related to our stock-based compensation awards (in thousands, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ December 31, ​ ​ 2020 2019 ​ 2018 Cost of revenue ​ ​ $ 116 ​ $ 125 ​ $ 92 ​ Selling, general and administrative ​ ​ 2,000 ​ 1,778 ​ 1,520 ​ Research and development ​ ​ 507 ​ 443 ​ 313 ​ Total stock-based compensation ​ ​ 2,623 ​ 2,346 ​ 1,925 ​ Tax effect on stock-based compensation ​ ​ — ​ — ​ — ​ Net effect on net income (loss) ​ ​ $ 2,623 ​ $ 2,346 ​ $ 1,925 ​ Shares used in computing basic net income (loss) per share ​ ​ 40,152 ​ 39,487 ​ 39,049 ​ Shares used in computing diluted net income (loss) per share ​ ​ 41,025 ​ 39,487 ​ 40,265 ​ Effect on basic net income (loss) per share ​ ​ $ 0.07 ​ $ ( 0.06 ) ​ $ 0.05 ​ Effect on diluted net income (loss) per share ​ ​ $ 0.06 ​ $ ( 0.06 ) ​ $ 0.05 ​ ​ We estimate the fair value of stock options using a Black-Scholes option pricing model. There were no stock options granted during 2020. There were 430,000 and 246,000 stock options granted with a weighted-average grant date fair value of $ 1.48 and $ 2.74 per share during 2019 and 2018, respectively. The fair value of options granted was estimated at the date of grant using the following weighted-average assumptions: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, ​ ​ 2020 ​ 2019 ​ 2018 Expected term (in years) ​ — ​ 6.1 ​ 5.8 Volatility ​ — % ​ 49.5 % ​ 46.6 % Expected dividend ​ — % ​ — % ​ — % Risk-free interest rate ​ — % ​ 1.67 % ​ 3.09 % ​ The expected term for stock options is based on the observed historical option exercise behavior and post-vesting forfeitures of options by our employees, and the contractual term, the vesting period and the expected term of the outstanding options. Expected volatility is based on the historical volatility of our common stock. The dividend yield of zero is based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends. The risk-free interest rates are taken from the Daily Federal Yield Curve Rates as of the grant dates as published by the Federal Reserve and represent the yields on actively traded Treasury securities for terms equal to the expected term of the options. 96 Table of Contents Retirement Savings Plan We have a 401(k) Savings Plan (“Savings Plan”) which qualifies as a thrift plan under Section 401(k) of the Internal Revenue Code. All full-time U.S. employees are eligible to participate in the Savings Plan after 90 days from the date of hire. Employees may elect to reduce their current compensation by up to the statutory prescribed annual limit and have the amount of such reduction contributed to the 401(k) Plan. We provide matching to employee contributions up to 4 % of the employees’ base pay if employees contribute at least 6 % of their base pay. If the contribution rate is less than 6 % of the base pay, the matching percentage is prorated. Our contributions to the Savings Plan were $ 188,000 , $ 176,000 and $ 180,000 for the years ended December 31, 2020, 2019 and 2018, respectively. Note 11. Guarantees 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 are 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” on the consolidated balance sheets, during 2020 and 2019 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2020 2019 Beginning accrued product warranty ​ $ 387 ​ $ 236 ​ Accruals for warranties issued ​ 510 ​ 522 ​ Adjustments related to pre-existing warranties including expirations and changes in estimates ​ 186 ​ 227 ​ Cost of warranty repair ​ ( 474 ) ​ ( 598 ) ​ Ending accrued product warranty ​ $ 609 ​ $ 387 ​ ​ ​ ​ 97 Table of Contents Note 12. Income Taxes Consolidated income before provision for income taxes includes non-U.S. income of approximately $ 12.1 million, $ 2.8 million and $ 6.5 million for the years ended December 31, 2020, 2019 and 2018, respectively. We recorded a current tax provision of $ 2.0 million, $ 0.6 million and $ 0.9 million for the years ended December 31, 2020, 2019 and 2018, respectively. The components of the provision for income taxes are summarized below (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 2019 2018 Current: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal ​ $ — ​ $ — ​ $ — ​ State ​ 15 ​ 27 ​ 5 ​ Foreign ​ 2,016 ​ 535 ​ 933 ​ Total current ​ 2,031 ​ 562 ​ 938 ​ Deferred: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal ​ — ​ — ​ — ​ State ​ — ​ — ​ — ​ Total deferred ​ — ​ — ​ — ​ Total provision for income taxes ​ $ 2,031 ​ $ 562 ​ $ 938 ​ ​ A reconciliation of the effective income tax rates and the U.S. statutory federal income tax rate is summarized below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 2019 2018 Statutory federal income tax rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal tax benefits 0.2 ​ ( 2.1 ) ​ — ​ Valuation allowance 0.8 ​ ( 173.0 ) ​ ( 2.6 ) ​ Stock-based compensation ( 1.9 ) ​ ( 21.8 ) ​ 0.3 ​ Foreign tax rate differential ​ 2.1 ​ 137.7 ​ ( 11.4 ) ​ Foreign tax incentives ​ ( 3.8 ) ​ 32.2 ​ ( 2.9 ) ​ Foreign income inclusion ​ 7.8 ​ — ​ 2.6 ​ Tax effect in equity method loss or gain from unconsolidated affiliates ​ 1.1 ​ ( 47.8 ) ​ 3.2 ​ Foreign-derived intangible income ​ — ​ — ​ ( 2.4 ) ​ Other ​ 1.4 ​ ( 1.0 ) ​ 0.1 ​ Effective tax rate 28.7 % ( 54.8 ) % 7.9 % ​ Deferred tax assets and liabilities are summarized below (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ 2020 2019 Deferred tax assets: ​ ​ ​ ​ ​ ​ ​ Net operating loss carryforwards ​ $ 14,328 ​ $ 14,979 ​ Accruals, reserves and other ​ 3,756 ​ 3,011 ​ Credit carryforwards ​ 1,685 ​ 1,685 ​ Operating lease liability ​ 178 ​ 209 ​ Gross deferred tax assets ​ ​ 19,947 ​ ​ 19,884 ​ Valuation allowance ​ ( 19,798 ) ​ ( 19,691 ) ​ Total deferred tax assets ​ 149 ​ 193 ​ Deferred tax liabilities: ​ ​ ​ ​ ​ Operating lease right-of-use assets ​ ( 149 ) ​ ( 193 ) ​ Total net deferred tax assets ​ $ — ​ $ — ​ ​ 98 Table of Contents As of December 31, 2020, we have federal net operating loss (“NOL”) carryforwards of approximately $ 57.0 million, which will begin to expire in 2024. In addition, we have federal tax credit carryforwards of approximately $ 0.8 million, which will begin to expire in 2021. We have utilized all state net operating losses, primarily in the state of California, as of December 31, 2020. The deferred tax assets valuation allowance as of December 31, 2020 is attributed to U.S. federal, and state deferred tax assets, which result primarily from future deductible accruals, reserves, NOL carryforwards, and tax credit carryforwards. We believe that, based on a number of factors, the available objective evidence creates sufficient uncertainty regarding the realizability of the deferred tax assets such that a full valuation allowance has been recorded. These factors include our history of losses related to domestic operations, and the lack of carryback capacity to realize deferred tax assets. The valuation allowance increased by $ 0.1 million and $ 0.2 million for the years ended December 31, 2020 and 2019, respectively, whereas the valuation allowance decreased by $ 2.6 million for the year ended December 31, 2018. The China Enterprise Income Tax Law (“EIT”) imposes a single uniform income tax rate of 25 % on all Chinese enterprises. Our subsidiaries in China have qualified for a preferential 15 % tax rate that is available for High and New Technology Enterprises (“HTE”). In order to retain the preferential tax rate, we must meet certain operating conditions, satisfy certain product requirements, meet certain headcount requirements and maintain certain levels of research expenditures. We realized benefits from this 10 % reduction in tax rate of $ 973,000 , $ 211,000 and $ 764,000 for 2020, 2019 and 2018, respectively. As of December 31, 2020, the favorable tax rate is still valid for the Company and it will stay the same for next year if there is no change of the business nature. The preferential tax rate that we enjoy could be modified or discontinued altogether at any time, which could materially and adversely affect our financial condition and results of operations. Our subsidiaries in China also qualify for reduction in their taxable income in China for research and development (“R&D”) expenditures. Government pre-approval is required to claim R&D tax benefits. Any R&D claim is then submitted with the annual corporate income tax for the taxing authorities’ approval. Historically, we didn’t record such benefit until we received the tax refund from the Chinese government. Beginning in 2019, we record the tax benefit in the year it incurs the cost rather than in the year the tax benefit is received. This will better align the costs with the tax benefit. Our consolidated subsidiaries in China have enjoyed various tax holidays since 2000. Benefits under the tax holidays vary by jurisdiction. Utilization of the NOL and R&D credit carryforwards may be subject to a substantial annual limitation due to ownership changes that might have occurred previously or that could occur in the future, as provided by Section 382 of the Internal Revenue Code of 1986 (“Section 382”), as well as similar state provisions. Ownership changes may limit the amount of NOL and tax credit carryforwards that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. If there is a change of control, utilization of our NOL or tax credit carryforwards would be subject to an annual limitation under Section 382. Any limitation may result in expiration of a portion of the NOL or research and development credit carryforwards before utilization. Subsequent ownership changes could further impact the limitation in future years. Until a Section 382 study is completed and any limitation known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against our NOL carryforwards and R&D credit carryforwards and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no net impact to the consolidated balance sheets or statements of operations if an adjustment were required. During fiscal year 2020, 2019 and 2018, the amount of gross unrecognized tax benefits remains unchanged. The total amount of unrecognized tax benefits was $ 14.6 million as of December 31, 2020 and 2019. The Company recognizes interest and penalties related to uncertain tax positions as part of the provision for income taxes. To date, such interest and penalties have not been material. Excluding the effects of recorded valuation allowances for deferred tax assets, $ 14.6 million of the unrecognized tax benefit would favorably impact the effective tax rate in future periods if recognized. 99 Table of Contents We comply with the laws, regulations, and filing requirements of all jurisdictions in which we conduct business. We regularly engage in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. 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. On June 29, 2020, Governor Newsom signed the highly anticipated budget package for California’s fiscal year that began on July 1, 2020. As part of the budget package, Assembly Bill 85 (“AB 85”) was enacted into law. The bill contains several tax changes to help with the budget deficit. Notably, AB 85 contains two major tax changes: (1) it suspends the usage of NOLs; and (2) it limits certain business tax credits for tax years 2020, 2021, and 2022. The budget has no impact to the Company since the Company has no NOLs and business credits to utilize. On Sunday, December 27, 2020, a new $900 billion Coronavirus relief bill was signed into law by the President. The bill includes updates to the Families First Coronavirus Act, CARES Act, the Employee Social Security Deferral and the Paycheck Protection Program. Since the Company has no taxable income, most of the acts have no direct impact or are not applicable to the Company. Note 13. Net Income (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. Potentially dilutive common shares are excluded in net loss periods, as their effect would be anti-dilutive. A reconciliation of the numerators and denominators of the basic and diluted net income (loss) per share calculations is as follows (in thousands, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ ​ ​ December 31, ​ ​ 2020 2019 2018 Numerator: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) attributable to AXT, Inc. ​ ​ $ 3,238 ​ $ ( 2,600 ) ​ $ 9,654 ​ Less: Preferred stock dividends ​ ​ ( 177 ) ​ ( 177 ) ​ ( 177 ) ​ Net income (loss) available to common stockholders ​ ​ $ 3,061 ​ $ ( 2,777 ) ​ $ 9,477 ​ Denominator: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Denominator for basic net income (loss) per share - weighted-average common shares ​ ​ 40,152 ​ 39,487 ​ 39,049 ​ Effect of dilutive securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common stock options ​ ​ 602 ​ — ​ 1,106 ​ Restricted stock awards ​ ​ 271 ​ — ​ 110 ​ Denominator for dilutive net income (loss) per common shares ​ ​ 41,025 ​ 39,487 ​ 40,265 ​ Net income (loss) attributable to AXT, Inc. per common share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ ​ $ 0.08 ​ $ ( 0.07 ) ​ $ 0.24 ​ Diluted ​ ​ $ 0.07 ​ $ ( 0.07 ) ​ $ 0.24 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Options excluded from diluted net income (loss) per share as the impact is anti-dilutive ​ ​ 862 ​ 2,953 ​ 266 ​ Restricted stock excluded from diluted net income (loss) per share as the impact is anti-dilutive ​ ​ 161 ​ 939 ​ 227 ​ ​ ​ 100 Table of Contents ​ Note 14. 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 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. Product Information The following table represents revenue amounts (in thousands) by product type: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, ​ ​ 2020 2019 2018 ​ Product Type: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Substrates $ 75,587 ​ $ 67,849 ​ $ 81,008 ​ ​ Raw materials and others 19,774 ​ 15,407 ​ 21,389 ​ ​ Total $ 95,361 ​ $ 83,256 ​ $ 102,397 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Geographical Information The following table represents revenue amounts (in thousands) reported for products shipped to customers in the corresponding geographic region: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, ​ ​ 2020 2019 2018 ​ Geographical region: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ China $ 35,150 ​ $ 26,796 ​ $ 31,492 ​ ​ Taiwan ​ 16,485 ​ ​ 16,204 ​ ​ 20,078 ​ ​ Japan ​ 7,624 ​ ​ 6,258 ​ ​ 10,305 ​ ​ Asia Pacific (excluding China, Taiwan and Japan) ​ 5,458 ​ ​ 7,592 ​ ​ 8,488 ​ ​ Europe (primarily Germany) ​ 19,673 ​ ​ 18,178 ​ ​ 22,013 ​ ​ North America (primarily the United States) 10,971 ​ 8,228 ​ 10,021 ​ ​ Total $ 95,361 ​ $ 83,256 ​ $ 102,397 ​ ​ Long-lived assets consist primarily of property, plant and equipment, and operating lease right-of-use assets 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 December 31, ​ ​ 2020 2019 Long-lived assets by geographic region, net of depreciation: ​ ​ ​ ​ ​ ​ ​ North America ​ $ 836 ​ $ 1,069 ​ China ​ 117,672 ​ 99,272 ​ ​ ​ $ 118,508 ​ $ 100,341 ​ ​ ​ ​ 101 Table of Contents Note 15. Other income, net The components of other income, net are summarized below (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ ​ 2020 2019 2018 Foreign exchange gain (loss) ​ $ ( 411 ) ​ $ 321 ​ $ 165 Gain from local China government subsidy ​ ​ 3,800 ​ ​ 808 ​ ​ — Other income (expense) ​ ​ ( 189 ) ​ ​ ( 182 ) ​ ​ 187 ​ ​ $ 3,200 ​ $ 947 ​ $ 352 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Note 16. Commitments and Contingencies 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. Leases We lease certain equipment, office space, warehouse and facilities under long-term operating leases expiring at various dates through July 2029. The majority of our lease obligations relate to our lease agreement for 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. There are no variable lease payments, residual value guarantees or any restrictions or covenants imposed by the equipment lease. The remainder relate to our lease agreement for our facility in Fremont, California with approximately 19,467 square feet, which expires 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 . There are no variable lease payments, residual value guarantees or any restrictions or covenants imposed by the facility 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. ​ 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 102 Table of Contents 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 December 31, 2020, the maturities of our operating lease liabilities (excluding short-term leases) are as follows (in thousands): ​ ​ ​ Maturity of Lease Liabilities ​ 2021 $ 566 2022 ​ 583 2023 ​ 574 2024 ​ 284 2025 ​ 284 Thereafter ​ 1,020 Total minimum lease payments ​ 3,311 Less: Interest ​ ( 492 ) Present value of lease obligations ​ 2,819 Less: Current portion, included in accrued liabilities ​ ( 445 ) Long-term portion of lease obligations $ 2,374 ​ The weighted average remaining lease term and the weighted-average discount rate for our operating leases are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ ​ ​ 2020 ​ 2019 ​ Weighted-average remaining lease term (years) ​ 7.15 ​ 7.94 ​ Weighted-average discount rate ​ 4.61 % 4.61 % ​ Supplemental cash flow information related to leases where we are the lessee is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, ​ ​ ​ 2020 ​ 2019 ​ Cash paid for amounts included in the measurement of lease liabilities: ​ ​ ​ ​ ​ ​ ​ Operating cash flows from operating leases ​ $ 456 ​ $ 267 ​ Supplemental noncash information on lease liabilities arising from obtaining right-of-use assets: ​ ​ ​ ​ ​ ​ ​ Leased assets obtained in exchange for new operating lease liabilities ​ $ — ​ $ 2,072 ​ ​ ​ 103 Table of Contents The components of lease expense are as follows (in thousands) within our consolidated statements of operations: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ ​ 2020 ​ 2019 Operating lease ​ $ 512 ​ $ 358 Short-term lease expense ​ ​ 89 ​ ​ 60 Total ​ $ 601 ​ $ 418 ​ Royalty Agreement In 2010, we and a competitor had entered into a royalty agreement with a term of eight years , terminating December 31, 2018. We were obligated to make annual payments over an eight-year period. For the year ended December 31, 2018, royalty expense under this agreement was $ 565,000 , which was net of claim for credit of $ 10,000 . These expenses were included in cost of revenue. 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. For the year ended December 31, 2020, royalty expense under this agreement was $ 174,000 . ​ ​ ​ 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. ​ ​ 104 Table of Contents Note 17. Unaudited Quarterly Consolidated Financial Data ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Quarter ​ First Second Third Fourth ​ ​ (in thousands, except per share data) 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenue ​ $ 20,723 ​ $ 22,134 ​ $ 25,469 ​ $ 27,035 ​ Gross profit ​ 5,522 ​ 6,768 ​ 8,823 ​ 9,162 ​ Net income (loss) attributable to AXT, Inc. ​ ( 178 ) ​ 361 ​ 991 ​ 2,064 ​ Net income (loss) attributable to AXT, Inc. per share, basic ​ $ ( 0.01 ) ​ $ 0.01 ​ $ 0.02 ​ $ 0.05 ​ Net income (loss) attributable to AXT, Inc. per share, diluted ​ $ ( 0.01 ) ​ $ 0.01 ​ $ 0.02 ​ $ 0.05 ​ 2019: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenue ​ $ 20,208 ​ $ 24,797 ​ $ 19,841 ​ $ 18,410 ​ Gross profit ​ 6,695 ​ 8,506 ​ 5,759 ​ 3,865 ​ Net income (loss) attributable to AXT, Inc. ​ ( 1,104 ) ​ 1,451 ​ ( 898 ) ​ ( 2,049 ) ​ Net income (loss) attributable to AXT, Inc. per share, basic ​ $ ( 0.03 ) ​ $ 0.04 ​ $ ( 0.02 ) ​ $ ( 0.05 ) ​ Net income (loss) attributable to AXT, Inc. per share, diluted ​ $ ( 0.03 ) ​ $ 0.04 ​ $ ( 0.02 ) ​ $ ( 0.05 ) ​ ​ ​ ​ ​ ​ 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 private equity funds that invested approximately $ 48.1 million in the form of redeemable noncontrolling interests representing 7.06 % of the outstanding shares of Tongmei. The initial carrying amount of the redeemable noncontrolling interests 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 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 accretion 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 of a material adverse change or if Tongmei does not achieve its IPO on or before December 31, 2022. This right is suspended when Tongmei submits its formal application to the China Securities Regulatory Commission (“CSRC”). Tongmei currently plans to submit its formal application to the CSRC in the third quarter of 2021. However, if on December 31, 2022 the IPO application has been submitted and accepted by the CSRC or the stock exchange and such submission remains under review, then the date when such Investor is entitled to exercise such redemption right shall be deferred to a date when such submission is rejected by the CSRC or stock exchange, or the date when Tongmei withdraws its IPO application. The process of going public on the STAR Market includes several periods of review and is therefore a lengthy process. Tongmei does not expect to complete the IPO until mid-2022. The listing of Tongmei on China’s STAR Market will not change the status of AXT as a U.S. public company. There can be no assurances that Tongmei will complete its IPO by December 31, 2022, or at all. In the event that Investors exercise their redemption rights, we may be required to seek additional capital in order to redeem their Tongmei shares and there would be no assurances that such capital would be available on terms acceptable to us, if at all. Any redemptions could have a material adverse effect on our business, financial condition and results of operations. The components of the change in redeemable noncontrolling interests for the year ended December 31, 2020 are presented in the following table (in thousands): ​ ​ ​ Balance as of January 1, 2020 $ - Increase in redeemable noncontrolling interests due to issuance of Tongmei's common stock ​ 48,102 Equity issuance costs incurred ​ ( 539 ) Net income attributable to redeemable noncontrolling interests ​ - Effect of foreign currency translation attributable to redeemable noncontrolling interests ​ - Balance as of December 31, 2020 $ 47,563 105 Table of Contents ​ ​ Note 19. Subsequent Events In 2020, the private equity funds 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 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 private equity funds owned a minority interest in Tongmei of 7.28 %. In January 2021, we purchased 0.55 % shares of Tongmei from Beijing Bomeilian Special Ceramics Co., Ltd., previously a minority interest shareholder of BoYu, for $ 3.73 million. As a result of this purchase, and of the government’s approval January 25, 2021 of the private equity funds we now own 85.5 % of Tongmei. ​ In February 2021, Tongmei signed a joint venture agreement with certain investors to fund a new company, ChaoYang XinMei High Purity Semiconductor Materials Co., Ltd. (“ChaoYang XinMei”). The agreement calls for a total investment of approximately $ 3 million in which Tongmei will fund approximately $ 1.8 million for a 58.5 percent ownership of ChaoYang XinMei. In February 2021, the investors completed the initial funding of approximately $ 1.5 million. Tongmei’s portion of the investment was approximately $ 0.9 million. ​ ​ Item 16. Form 10-K Summary Not applicable. ​ 106 Table of Contents AXT, Inc. EXHIBITS TO FORM 10-K ANNUAL REPORT For the Year Ended December 31, 2020 ​ ​ ​ Exhibit Number Description 3.1(1) ​ Restated Certificate of Incorporation 3.2(2) ​ Certificate of Amendment of Certificate of Incorporation 3.3(3) ​ Certificate of Amendment to the Restated Certificate of Incorporation 3.4(4) ​ Certificate of Designation, Preferences and Rights of Series A Preferred Stock (which is incorporated herein by reference to Exhibit 2.1 to the registrant’s form 8-K dated May 28, 1999). 3.5(5) ​ Second Amended and Restated By Laws 3.6(6) ​ Amended and Restated Section 5.1 of Article V of the Second Amended and Restated Bylaws of AXT, Inc. 3.7(7) ​ Certificate of Amendment to By Laws 4.1 ​ Description of Securities 10.1(8)* ​ Form of Indemnification Agreement for directors and officers 10.3(9)** ​ 6-inch Supply Agreement dated December 31, 2008 between AXT, Inc. and IQE plc 10.4(10)** ​ 4-inch Supply Agreement dated December 31, 2008 between AXT, Inc. and IQE plc 10.5(11)* ​ 2007 Equity Incentive Plan (amended December 8, 2008) 10.6(12)* ​ Forms of agreements under the 2007 Equity Incentive Plan 10.7(13)* ​ Amended and Restated Employment Offer Letter between the Company and Dr. Morris S. Young dated December 4, 2012 10.8(14)* ​ Employment Letter Agreement between the Company and Mr. Gary L. Fischer 10.9(15)* ​ 2015 Equity Incentive Plan 10.10(16)* ​ Executive Incentive Plan 10.11(17)* ​ Credit Agreement, dated as of November 2, 2018, by and between AXT, Inc. and Wells Fargo Bank, National Association 10.12 ​ First Amendment to Credit Agreement, dated as of February 5, 2020, by and between AXT, Inc. and Wells Fargo Bank, National Association 10.13 ​ Form of Capital Increase Agreement between Beijing Tongmei Xtal Technologies Co., Ltd. and certain investors 10.13(a) ​ Schedule identifying agreements substantially identical to the form of Capital Increase Agreement filed as Exhibit 10.13 hereto 10.14 ​ Form of First Supplemental Agreement between Beijing Tongmei Xtal Technology Co., Ltd. and certain investors 10.14(a) ​ Schedule identifying agreements substantially identical to the form of First Supplemental Agreement filed as Exhibit 10.14 hereto 10.15 ​ Form of Second Supplemental Agreement between Beijing Tongmei Xtal Technology Co., Ltd. and certain investors 10.15(a) ​ Schedule identifying agreements substantially identical to the form of Second Supplemental Agreement filed as Exhibit 10.15 hereto 12.1 ​ Computation of Ratio of Earnings to Fixed Charges 21.1 ​ List of Subsidiaries 23.1 ​ Consent of Independent Registered Public Accounting Firm, BPM LLP 24.1 ​ Power of Attorney (see signature page) 107 Table of Contents 31.1 ​ Certification by principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 ​ Certification by principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 ​ Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 ​ Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS ​ Inline XBRL Instance. 101.SCH ​ Inline XBRL Taxonomy Extension Schema. 101.CAL ​ Inline XBRL Taxonomy Extension Calculation Linkbase. 101.DEF ​ Inline XBRL Taxonomy Extension Definition Linkbase. 101.LAB ​ Inline XBRL Taxonomy Extension Label Linkbase. 101.PRE 104 ​ Inline XBRL Taxonomy Extension Presentation Linkbase. Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) ​ ​ (1) Incorporated by reference to exhibit 3.1 to registrant’s Form 10-K filed with the SEC on March 31, 1999. (2) Incorporated by reference to exhibit 3.1 to registrant’s Form 10-Q filed with the SEC on August 14, 2000. (3) Incorporated by reference to exhibit 3.4 to registrant’s Form 10-Q filed with SEC on August 5, 2004. (4) Incorporated by reference to exhibit 3.1 to registrant’s Form 8-K filed with the SEC on June 14, 1999. (5) Incorporated by reference to exhibit 3.4 to registrant’s Form 8-K filed with the SEC on May 30, 2001. (6) Incorporated by reference to exhibit 99.2 to registrant’s Form 8-K filed with the SEC on August 1, 2007. (7) Incorporated by reference to exhibit 3.1 to registrant’s Form 8-K filed with the SEC on October 26, 2010. (8) Incorporated by reference to exhibit 10.1 to registrant’s Form 8-K filed with the SEC on October 31, 2014. (9) Incorporated by reference to exhibit 10.29 to registrant’s Form 8-K filed with the SEC on January 5, 2009. (10) Incorporated by reference to exhibit 10.30 to registrant’s Form 8-K filed with the SEC on January 5, 2009. (11) Incorporated by reference to exhibit 10.31 to registrant’s Form 10-K filed with the SEC on March 31, 2009. (12) Incorporated by reference to exhibit 10.20 to registrant’s Form 10-K filed with the SEC on March 22, 2010. (13) Incorporated by reference to exhibit 10.1 to registrant’s Form 8-K filed with the SEC on December 4, 2012. (14) Incorporated by reference to exhibit 10.1 to registrant’s Form 8-K filed with the SEC on August 12, 2014. (15) Incorporated by reference to appendix A to the registrant’s Definitive Proxy Statement on Schedule 14A filed with the SEC on April 8, 2015. (16) Incorporated by reference to exhibit 10.1 to registrant’s Form 8-K filed with the SEC on February 26, 2016. (17) Incorporated by reference to exhibit 10.1 registrant’s Form 8-K filed with the SEC on November 9, 2018. ​ * Management contract or compensatory plan. ** Confidential treatment has been requested of the SEC for portions of the exhibit. ​ 108 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized. ​ ​ ​ ​ AXT, Inc. ​ ​ ​ By: /s/ GARY L. FISCHER ​ ​ Chief Financial Officer and Corporate Secretary (Principal Financial Officer) ​ Date: March 23, 2021 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Morris S. Young and Gary L. Fischer, and each of them, his true and lawful attorney-in-fact and agent, with full power of substitution, each with power to act alone, to sign and execute on behalf of the undersigned any and all amendments to this Report on Form 10-K, and to perform any acts necessary in order to file the same, with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requested and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or their or his or her substitutes, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. ​ ​ ​ ​ ​ Signature Title Date ​ ​ ​ ​ ​ /s/ MORRIS S. YOUNG ​ Chief Executive Officer and Director ​ March 23, 2021 Morris S. Young ​ (Principal Executive Officer) ​ ​ ​ ​ ​ ​ ​ /s/ GARY L. FISCHER ​ Chief Financial Officer and Corporate Secretary ​ March 23, 2021 Gary L. Fischer ​ (Principal Financial Officer and Principal Accounting Officer) ​ ​ ​ ​ ​ ​ ​ /s/ JESSE CHEN ​ Chairman of the Board of Directors ​ March 23, 2021 Jesse Chen ​ ​ ​ ​ ​ ​ ​ ​ ​ /s/ DAVID C. CHANG ​ Director ​ March 23, 2021 David C. Chang ​ ​ ​ ​ ​ ​ ​ ​ ​ /s/ LEONARD LEBLANC ​ Director ​ March 23, 2021 Leonard LeBlanc ​ ​ ​ ​ ​ ​ ​ ​ ​ /s/ Christine Russell ​ Director ​ March 23, 2021 Christine Russell ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 109