What changed in this filing

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Item 1. Financial Statements

2021-08-12 compared with 2021-05-14 · 309 added, 204 removed, 1109 unchanged (32% of the section changed)

5 unchanged sentences

Short-term investments

Accounts receivable, net of allowances of $ 217 as of March 31, 2021 and December 31, 2020

Accounts receivable, net of allowances of $ 217 as of June 30, 2021 and December 31, 2020

Prepaid expenses and other current assets

16 unchanged sentences

2,000 shares authorized;

883 shares issued and outstanding as of March 31, 2021 and December 31, 2020 (Liquidation preference of $ 7,390 and $ 7,346 as of March 31, 2021 and December 31, 2020)

883 shares issued and outstanding as of June 30, 2021 and December 31, 2020 (Liquidation preference of $ 7,434 and $ 7,346 as of June 30, 2021 and December 31, 2020)

Common stock, $ 0.001 par value;

70,000 shares authorized;

42,276 and 41,967 shares issued and outstanding as of March 31, 2021 and December 31, 2020

42,480 and 41,967 shares issued and outstanding as of June 30, 2021 and December 31, 2020

Additional paid-in capital

10 unchanged sentences

Three Months Ended

Six Months Ended

Cost of revenue

4 unchanged sentences

Income (loss) from operations

Interest expense, net

Interest income (expense), net

Equity in income (loss) of unconsolidated joint ventures

3 unchanged sentences

Net income attributable to noncontrolling interests and redeemable noncontrolling interests

Net income (loss) attributable to AXT, Inc.

Net income attributable to AXT, Inc.

per common share:

4 unchanged sentences

Three Months Ended

Six Months Ended

Other comprehensive income (loss), net of tax:

Change in foreign currency translation loss, net of tax

Change in foreign currency translation gain (loss), net of tax

Change in unrealized gain (loss) on available-for-sale debt investments, net of tax

Total other comprehensive loss, net of tax

Total other comprehensive income (loss), net of tax

Comprehensive income (loss)

Comprehensive income attributable to noncontrolling interests

Comprehensive income attributable to noncontrolling interests and redeemable noncontrolling interests

Comprehensive income (loss) attributable to AXT, Inc.

2 unchanged sentences

(Unaudited, in thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

Adjustments to reconcile net income to net cash used in operating activities:

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization

1 unchanged sentence

Stock-based compensation

Provision for doubtful accounts

Loss on disposal of equipment

(Gain) loss from equity method investments, net

Return of equity method investments (dividends)

Equity in (income) loss of unconsolidated joint ventures

Changes in operating assets and liabilities:

4 unchanged sentences

Other long-term liabilities, including royalties

Net cash used in operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

8 unchanged sentences

Proceeds from issuance of Tongmei's common stock to redeemable noncontrolling interests, net of issuance costs

Dividends paid by joint ventures to their minority shareholders

Net cash provided by financing activities

2 unchanged sentences

Cash and cash equivalents at the beginning of the year

Cash and cash equivalents at the end of the year

Cash and cash equivalents at the end of the period

Supplemental disclosure of non-cash flow information:

12 unchanged sentences

Actual results could differ materially from those estimates.

The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected in the future or for the full fiscal year.

It is recommended that these condensed consolidated financial statements be read in conjunction with our consolidated financial statements and the notes thereto included in our 2020 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 23, 2021.

The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results to be expected in the future or for the full fiscal year.

The condensed 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.

(“Tongmei”), AXT-Tongmei, Inc.

(“AXT-Tongmei”), Baoding Tongmei Xtal Technology Co., Ltd.

(“Baoding Tongmei”), ChaoYang Tongmei Xtal Technology Co., Ltd.

6 unchanged sentences

Investments in business entities in which we do not have controlling interests, but have the ability to exercise significant influence over operating and financial policies (generally 20-50% ownership), are accounted for by the equity method.

As of March 31, 2021 and December 31, 2020, we have five companies accounted for by the equity method.

As of June 30, 2021 and December 31, 2020, 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 condensed consolidated balance sheets and in our condensed 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 three months ended March 31, 2021, expenses associated with ChaoYang LiMei had a de minimis impact on our condensed consolidated financial statements.

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.

The agreement calls for a total investment of approximately $ 3 million, of which Tongmei will fund approximately $ 1.8 million for a 58.5 percent ownership of ChaoYang XinMei.

For the three and six months ended June 30, 2021, expenses associated with ChaoYang LiMei had a de minimis impact on our condensed consolidated financial statements.

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

The agreement called for a total investment of approximately $ 3.0 million, of which Tongmei would fund approximately $ 1.8 million for a 58.5 percent ownership of ChaoYang XinMei.

In February 2021, the investors completed the initial funding of approximately $ 1.5 million.

Tongmei’s portion of the investment was approximately $ 0.9 million.

In May 2021, the investors completed the funding of the remaining balance of approximately $ 1.5 million.

Tongmei’s portion of the final investment was approximately $ 0.9 million, for a total investment of approximately $ 1.8 million for a 58.5 percent ownership of ChaoYang XinMei.

During the quarter ended December 31, 2020, Tongmei entered into two sets of definitive transaction documents, each consisting of a capital increase agreement along with certain supplemental agreements in substantially the same form (collectively, the “Capital Investment Agreements”), with several private equity investors in China.

9 unchanged sentences

The government approved the approximately $ 49 million investment in its entirety on January 25, 2021, at which time the Investors owned a redeemable noncontrolling interests in Tongmei of 7.28 %.

As of March 31, 2021, Tongmei’s noncontrolling interests and redeemable noncontrolling interests totaled 14.5 %.

As of June 30, 2021, Tongmei’s noncontrolling interests and redeemable noncontrolling interests totaled approximately 14.5 %.

AXT remains the controlling stakeholder of Tongmei and holds a majority of the Board of Director positions of Tongmei.

In June 2021, AXT sold AXT-Tongmei to Beijing Tongmei for $ 1 .

Since Beijing Tongmei is 85.5 % owned by AXT, and the transaction was between common interest holders, the transaction was accounted for at net book value and resulted in an increase of $ 1.2 million to noncontrolling interests and $ 1.2 million to redeemable noncontrolling interests as of June 30, 2021.

Investments and Fair Value Measurements

1 unchanged sentence

Our investments consist of instruments with original maturities of more than three months.

As of March 31, 2021 and December 31, 2020, our cash, cash equivalents and debt investments are classified as follows (in thousands):

March 31, 2021

As of June 30, 2021 and December 31, 2020, our cash, cash equivalents and debt investments are classified as follows (in thousands):

June 30, 2021

December 31, 2020

18 unchanged sentences

Historically, the gross unrealized losses related to our portfolio of available-for-sale debt securities were immaterial, and primarily due to normal market fluctuations and not due to increased credit risk or other valuation concerns.

There was an insignificant amount of gross unrealized losses on our available-for-sale debt securities as of March 31, 2021, 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.

There was an insignificant amount of gross unrealized losses on our available-for-sale debt securities as of June 30, 2021, 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 March 31, 2021.

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 securities have been in a continuous unrealized loss position as of March 31, 2021 (in thousands):

A portion of our debt investments would generate a loss if we sold them on June 30, 2021.

In Loss Position

1 unchanged sentence

Loss Position

As of March 31, 2021

As of June 30, 2021

Corporate bonds

9 unchanged sentences

We have made strategic investments in private companies located in China in order to gain access at a competitive cost to raw materials that are critical to our substrate business (see Note 7).

The investment balances for the non-consolidated companies are accounted for under the equity method and included in “Other assets” in the condensed consolidated balance sheets and totaled $ 7.5 million and $ 6.4 million as of March 31, 2021 and December 31, 2020, respectively.

As of March 31, 2021, there were five companies accounted for under the equity method.

There were no impairment charges in the three months ended March 31, 2021 and 2020.

The investment balances for the non-consolidated companies are accounted for under the equity method and included in “Other assets” in the condensed consolidated balance sheets and totaled $ 8.3 million and $ 6.4 million as of June 30, 2021 and December 31, 2020, respectively.

As of June 30, 2021, there were five companies accounted for under the equity method.

There were no impairment charges in the three and six months ended June 30, 2021 and 2020.

Fair Value Measurements

1 unchanged sentence

We review our debt investment portfolio for credit loss at least quarterly or when there are changes in credit risk or other potential valuation concerns.

As of March 31, 2021 and December 31, 2020, the total unrealized loss, net of tax, included in accumulated other comprehensive income was immaterial.

We believe it is probable the principal and interest will be collected in accordance with the contractual terms, and the unrealized loss on

these securities was due to normal market fluctuations, and not due to increased credit risk or other valuation concerns.

As of June 30, 2021 and December 31, 2020, the total unrealized loss, net of tax, included in accumulated other comprehensive income was immaterial.

We believe it is probable the principal and interest will be collected in accordance with the contractual terms, and the unrealized loss on these securities was due to normal market fluctuations, and not due to increased credit risk or other valuation concerns.

Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), establishes three levels of inputs that may be used to measure fair value.

9 unchanged sentences

At quarter end, any foreign currency hedges not settled are netted in “Accrued liabilities” on the condensed consolidated balance sheet and classified as Level 3 assets and liabilities.

As of March 31, 2021, the net change in fair value from the placement of the hedge to settlement at each month end during the quarter had a de minimis impact on the condensed consolidated results.

There were no changes in valuation techniques or related inputs in the three months ended March 31, 2021.

There have been no transfers between fair value measurements levels during the three months ended March 31, 2021.

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis in accordance with ASC 820 as of March 31, 2021 (in thousands):

As of June 30, 2021, the net change in fair value from the placement of the hedge to settlement at each month end during the quarter had a de minimis impact on the condensed consolidated results.

There were no changes in valuation techniques or related inputs in the three and six months ended June 30, 2021.

There have been no transfers between fair value measurements levels during the three and six months ended June 30, 2021.

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis in accordance with ASC 820 as of June 30, 2021 (in thousands):

Quoted Prices in

4 unchanged sentences

Observable Inputs

March 31, 2021

June 30, 2021

Cash equivalents and investments:

15 unchanged sentences

These assets include investments in privately-held companies accounted for by the equity or cost method (see Note 7).

We did not record any other-than-temporary impairment charges for these investments during the three months ended March 31, 2021 and 2020, respectively.

We did not record any other-than-temporary impairment charges for these investments during the three and six months ended June 30, 2021 and 2020, respectively.

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

2 unchanged sentences

Finished goods

As of March 31, 2021 and December 31, 2020, carrying values of inventories were net of inventory reserves of $ 18.3 million and $ 17.7 million, respectively, for excess and obsolete inventory and $ 269,000 and $ 162,000 , respectively, for lower of cost or net realizable value reserves.

As of June 30, 2021 and December 31, 2020, carrying values of inventories were net of inventory reserves of $ 19.3 million and $ 17.7 million, respectively, for excess and obsolete inventory and $ 394,000 and $ 162,000 , respectively, for lower of cost or net realizable value reserves.

Property, Plant and Equipment, Net

8 unchanged sentences

Construction in progress

As of March 31, 2021, the balance of construction in progress was $ 28.6 million, of which $ 16.8 million was related to our buildings in our new Dingxing and Kazuo locations, $ 4.5 million was for manufacturing equipment purchases not yet placed in service and $ 7.3 million was for our construction in progress for our other consolidated subsidiaries.

As of December 31, 2020, the balance of construction in progress was $ 24.5 million, of which $ 14.2 million was for 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 for our construction in progress at our other consolidated subsidiaries.

As of June 30, 2021, the balance of construction in progress was $ 30.0 million, of which $ 21.1 million was related to our buildings in our new Dingxing and Kazuo locations, $ 4.3 million was for manufacturing equipment purchases not yet placed in service and $ 4.6 million was for our construction in progress for our other consolidated subsidiaries.

purchases not yet placed in service and $ 6.3 million was for our construction in progress at our other consolidated subsidiaries.

Accrued Liabilities

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

Payable in connection with repurchase of subsidiaries shares

Accrued compensation and related charges

Preferred stock dividends payable

Payable in connection with construction

Accrued income taxes

Payable in connection with land restoration of Nanjing JinMei factory

Advance from customers

Accrued product warranty

Payable in connection with land restoration of Nanjing JinMei factory

Accrued professional services

Current portion of operating lease liabilities

Advance from customers

Payable in connection with construction

Other personnel-related costs

Accrued income taxes

Other tax payable

Accrual for sales returns

Payable in connection with repurchase of subsidiaries shares

Other accrued liabilities

Related Party Transactions

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.

Beginning in 2012, our consolidated subsidiary, 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 three months ended March 31, 2021 and 2020, JinMei has recorded $ 0 and $ 0 income from agency sales, respectively, which were included in “Other income (expense), net” in the condensed consolidated statements of operations.

In March 2012, Tongmei, entered into an operating lease for the land it owns with our consolidated joint venture, BoYu.

For the three months ended June 30, 2021 and 2020, JinMei has recorded $ 0 and $ 0 income from agency sales, respectively.

For the six months ended June 30, 2021 and 2020, JinMei has recorded $ 0 and $ 0 income from agency sales, respectively, which were included in “Other income (expense), net” in the condensed consolidated statements of operations.

In March 2012, Tongmei, entered into an operating lease for the land it owns with our consolidated subsidiary, 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.

1 unchanged sentence

ChaoYang Tongmei purchases raw materials from one of our equity investment entities, Donghai County Dongfang High Purity Electronic Materials Co., Ltd., for production in the ordinary course of business.

As of March 31, 2021 and December 31, 2020, amounts payable of $ 108,000 and $ 0 , respectively, were included in “Accounts payable” in our condensed consolidated balance sheets.

As of June 30, 2021 and December 31, 2020, amounts payable of $ 110,000 and $ 0 , respectively, were included in “Accounts payable” in our condensed consolidated balance sheets.

ChaoYang Tongmei also purchases raw materials from one of our equity investment entities, Emei Shan Jiamei Materials Co., Ltd.

(“JiaMei”), for production in the ordinary course of business.

As of March 31, 2021 and December 31, 2020, amounts payable of $ 0 and $ 0 , respectively, were included in “Accounts payable” in our condensed consolidated balance sheets.

As of June 30, 2021 and December 31, 2020, amounts payable of $ 0 and $ 0 , respectively, were included in “Accounts payable” in our condensed consolidated balance sheets.

Tongmei and ChaoYang Tongmei also purchase 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 March 31, 2021 and December 31, 2020, amounts payable of $ 0 and $ 0 , respectively, were included in “Accounts payable” in our condensed consolidated balance sheets.

As of June 30, 2021 and December 31, 2020, amounts payable of $ 0 and $ 0 , respectively, were included in “Accounts payable” in our condensed consolidated balance sheets.

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.

1 unchanged sentence

The principal is due in three installments between December 2021 and December 2023 while the interest is due in December of each year .

As of March 31, 2021, JinMei repaid principal and interest totaling $ 535,000 to Tongmei.

As of March 31, 2021 and December 31, 2020, the remaining balance of principal and interest totaled $ 306,000 and $ 303,000 , respectively.

As of June 30, 2021, JinMei repaid principal and interest totaling $ 703,000 to Tongmei.

As of June 30, 2021 and December 31, 2020, the remaining balance of principal and interest totaled $ 155,000 and $ 303,000 , respectively.

JinMei is in the process of relocating its headquarters and 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.

In April 2016, our consolidated subsidiary, BoYu, provided a personal loan of $ 177,000 to one of its executive employees.

This loan was secured by the officer’s shares in BoYu.

The loan bore 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.

During the three months ended June 30, 2017, the repayment of the principal and interest totaling $ 180,000 was received by our consolidated subsidiary.

In November 2017, BoYu provided another personal loan of $ 291,000 to the same executive employee.

8 unchanged sentences

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 March 31, 2021 and December 31, 2020 , there were no outstanding personal loans .

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.

As of June 30, 2021 and December 31, 2020 , there were no outstanding personal loans .

On November 2, 2017, our consolidated subsidiary, 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 of the owner of one of BoYu's customers.

For the three months ended March 31, 2021 and 2020, BoYu has recorded $ 5,000 and $ 254,000 , respectively, in revenue from this customer.

As of March 31, 2021 and December 31, 2020, amounts receivable of $ 5,000 and $ 0 , respectively, were included in “Accounts receivable” in our condensed consolidated balance sheets.

For the three months ended June 30, 2021 and 2020, BoYu recorded $ 45,000 and $ 12,000 , respectively, in revenue from this customer.

For the six months ended June 30, 2021 and 2020, BoYu recorded $ 50,000 and $ 0.3 million, respectively, in revenue from this customer.

As of June 30, 2021 and December 31, 2020, amounts receivable of $ 0 and $ 0 , respectively, were included in “Accounts receivable” in our condensed 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.

6 unchanged sentences

These companies form part of our overall supply chain strategy.

As of March 31, 2021, the investments are summarized below (in thousands):

As of June 30, 2021, the investments are summarized below (in thousands):

Investment Balance as of

9 unchanged sentences

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

** In preparation for Tongmei’s application for a listing on the STAR Market, in late December 2020 we reorganized our entity structures in China.

** In preparation for Tongmei’s application for a listing of shares in an IPO on the STAR Market, in late December 2020 we reorganized our entity structures in China.

JinMei and BoYu and 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.

2 unchanged sentences

Further, a number of employees, key managers and contributors, purchased a 0.4 % minority interest in Tongmei.

In 2020, the Investors had transferred approximately $ 48.1 million of new capital to Tongmei.

In 2020, the Investors transferred approximately $ 48.1 million of new capital to Tongmei.

An additional investment of approximately $ 1.5 million of new capital was funded in early January 2021.

1 unchanged sentence

The government approved the approximately $ 49 million investment in its entirety on January 25, 2021 at which time the Investors owned a redeemable noncontrolling interests in Tongmei of 7.28 %.

As of March 31, 2021, Tongmei’s noncontrolling interests and redeemable noncontrolling interests totaled approximately 14.5 %.

As of June 30, 2021, Tongmei’s noncontrolling interests and redeemable noncontrolling interests totaled approximately 14.5 %.

AXT remains the controlling stakeholder of Tongmei and holds a majority of the Board of Director positions of Tongmei.

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

29 unchanged sentences

Decisions concerning their respective short-term strategy and operations, ordinary course of business capital expenditures and sales of finished product, are made by local management with regular guidance and input from us.

For AXT’s minority investment entities that are not consolidated, the investment balances are included in “Other assets” in our condensed consolidated balance sheets and totaled $ 7.5 million and $ 6.4 million as of March 31, 2021 and December 31, 2020, respectively.

For AXT’s minority investment entities that are not consolidated, the investment balances are included in “Other assets” in our condensed consolidated balance sheets and totaled $ 8.3 million and $ 6.4 million as of June 30, 2021 and December 31, 2020, respectively.

Our respective ownership interests in each of these companies are 46 %, 39 %, 25 %, 25 % and 25 %.

12 unchanged sentences

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 three months ended March 31, 2021 and 2020:

Excluding one fully impaired entity, the equity entities had the following summarized income information (in thousands) for the three and six months ended June 30, 2021 and 2020:

Three Months Ended

Six Months Ended

Operating income

Our portion of the income and losses from these minority investment entities that are not consolidated and are accounted for under the equity method was a gain of $ 1.1 million and a loss of $ 0.1 million, respectively, for the three months ended March 31, 2021 and 2020.

Net income (loss)

Our portion of the income and losses from these minority investment entities that are not consolidated and are accounted for under the equity method was income of $ 1.5 million and a loss of $ 0.2 million, respectively, for the three months ended June 30, 2021 and 2020.

Our portion of the income and losses from these minority investment entities that are not consolidated and are accounted for under the equity method was income of $ 2.6 million and a loss of $ 0.3 million, respectively, for the six months ended June 30, 2021 and 2020.

Stockholders’ Equity

1 unchanged sentence

(in thousands)

The changes in stockholders’ equity by component for the three months ended March 31, 2021 are as follows:

The changes in stockholders’ equity by component for the three and six months ended June 30, 2021 are as follows:

Comprehensive

13 unchanged sentences

Balance as of March 31, 2021

The changes in stockholders’ equity by component for the three months ended March 31, 2020 are as follows:

Common stock options exercised

Stock-based compensation

Formation of new subsidiary with noncontrolling interests

Transfer of subsidiary with noncontrolling interest

Transfer of subsidiary with redeemable noncontrolling interest

Other comprehensive income

Balance as of June 30, 2021

The changes in stockholders’ equity by component for the three and six months ended June 30, 2020 are as follows:

Comprehensive

10 unchanged sentences

Balance as of March 31, 2020

There were no reclassification adjustments from accumulated other comprehensive income (loss) for the three months ended March 31, 2021 and 2020 .

Common stock options exercised

Stock-based compensation

Net dividend declared by joint ventures

Other comprehensive income

Balance as of June 30, 2020

There were no reclassification adjustments from accumulated other comprehensive income (loss) for the three and six months ended June 30, 2021 and 2020 .

Stock Repurchase Program

3 unchanged sentences

No shares were repurchased from 2016 through 2020.

During the three months ended March 31, 2021, we did not repurchase any shares under the approved stock repurchase program.

As of March 31, 2021, approximately $ 2.7 million remained available for future repurchases under this program.

During the three and six months ended June 30, 2021, we did not repurchase any shares under the approved stock repurchase program.

As of June 30, 2021, approximately $ 2.7 million remained available for future repurchases under this program.

Currently, we do not plan to repurchase additional shares.

5 unchanged sentences

Three Months Ended

Six Months Ended

Cost of revenue

3 unchanged sentences

Tax effect on stock-based compensation

Net effect on net income (loss)

As of March 31, 2021, the unamortized compensation costs related to unvested stock options granted to employees under our stock option plan was approximately $ 0.7 million, net of estimated forfeitures of $ 63,000 .

Net effect on net income

As of June 30, 2021, the unamortized compensation costs related to unvested stock options granted to employees under our stock option plan was approximately $ 0.6 million, net of estimated forfeitures of $ 56,000 .

These costs will be amortized on a straight-line basis over a weighted-average period of approximately 2.0 years and will be adjusted for subsequent changes in estimated forfeitures.

We did not capitalize any stock-based compensation to inventory as of March 31, 2021 and December 31, 2020 due to the immateriality of the amount.

We did not capitalize any stock-based compensation to inventory as of June 30, 2021 and December 31, 2020 due to the immateriality of the amount.

We estimate the fair value of stock options using the Black-Scholes valuation model, consistent with the provisions of ASC 718.

There were no options granted in the three months ended March 31, 2021 and 2020.

The following table summarizes the stock option transactions during the three months ended March 31, 2021 (in thousands, except per share data):

There were no options granted in the three and six months ended June 30, 2021 and 2020.

The following table summarizes the stock option transactions during the six months ended June 30, 2021 (in thousands, except per share data):

Stock Options

1 unchanged sentence

Canceled and expired

Balance as of March 31, 2021

Options vested as of March 31, 2021 and unvested options expected to vest, net of forfeitures

Options exercisable as of March 31, 2021

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on our closing price of $ 11.66 on March 31, 2021, which would have been received by the option holder had all option holders exercised their options on that date.

Balance as of June 30, 2021

Options vested as of June 30, 2021 and unvested options expected to vest, net of forfeitures

Options exercisable as of June 30, 2021

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on our closing price of $ 10.98 on June 30, 2021, which would have been received by the option holder had all option holders exercised their options on that date.

Restricted stock awards

A summary of activity related to restricted stock awards for the three months ended March 31, 2021 is presented below (in thousands, except per share data):

A summary of activity related to restricted stock awards for the six months ended June 30, 2021 is presented below (in thousands, except per share data):

Weighted-Average

Non-vested as of January 1, 2021

Non-vested as of March 31, 2021

As of March 31, 2021, the unamortized compensation costs related to unvested restricted stock awards was approximately $ 4.6 million, which is to be amortized on a straight-line basis over a weighted-average period of approximately 1.5 years.

Non-vested as of June 30, 2021

As of June 30, 2021, the unamortized compensation costs related to unvested restricted stock awards was approximately $ 4.4 million, which is to be amortized on a straight-line basis over a weighted-average period of approximately 1.4 years.

At-Risk, Performance Shares

7 unchanged sentences

All performance shares, if earned, are still subject to annual vesting over a four year period except that no shares are vested on the first anniversary because the performance measurement is based on year-end results for the year 2021.

The fair value of the at-risk, performance shares is determined based on the closing price of the Company’s common stock on the second day following the Compensation Committee and Board of Directors approval date, which is considered the grant date.

The fair value of the at-risk, performance shares is determined based on the closing price of the Company’s common stock on the first day after the public issuance of the Company’s earnings release for the most recent fiscal quarter, following the Compensation Committee and Board of Directors approval, which is considered the grant date.

The fair value per share of the at-risk, performance shares classified as equity awards granted in February 2021 was $ 15.37 .

None of the at-risk, performance shares had vested as of March 31, 2021.

None of the at-risk, performance shares had vested as of June 30, 2021.

On February 17, 2021, the Compensation Committee recommended, and the Board approved, at-risk, performance shares under the Plan, wherein 75,420 shares were granted to Dr.

Morris Young, our Chief Executive Officer, and 25,650 shares were granted to Gary Fischer, our Chief Financial Officer and Corporate Secretary.

A summary of the status of our unvested at-risk, performance shares as of March 31, 2021 is presented below (in thousands, except per share data):

A summary of the status of our unvested at-risk, performance shares as of June 30, 2021 is presented below (in thousands, except per share data):

Weighted-Average

Non-vested as of January 1, 2021

Non-vested as of March 31, 2021

Non-vested as of June 30, 2021

*The number of share presented is based on achieving 100 % of the targeted financial performance metric as defined in the at-risk, performance shares agreement.

As of March 31, 2021, there was $ 1.4 million of unrecognized compensation expense related to unvested at-risk, performance shares that is expected to be recognized over a weighted-average period of 2.1 years.

As of June 30, 2021, there was $ 1.2 million of unrecognized compensation expense related to unvested at-risk, performance shares that is expected to be recognized over a weighted-average period of 1.9 years.

Net Income (Loss) Per Share

2 unchanged sentences

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.

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.

1 unchanged sentence

Three Months Ended

Net income (loss) attributable to AXT, Inc.

Six Months Ended

Net income attributable to AXT, Inc.

Preferred stock dividends

Net income (loss) available to common stockholders

Denominator for basic net income (loss) per share - weighted-average common shares

Net income available to common stockholders

Denominator for basic net income per share - weighted-average common shares

Effect of dilutive securities:

1 unchanged sentence

Restricted stock awards

Denominator for dilutive net income (loss) per common shares

Net income (loss) attributable to AXT, Inc.

Denominator for dilutive net income per common shares

Net income attributable to AXT, Inc.

per common share:

Options excluded from diluted net income (loss) per share as the impact is anti-dilutive

Restricted stock excluded from diluted net income (loss) per share as the impact is anti-dilutive

The 883,000 shares of $ 0.001 par value Series A preferred stock issued and outstanding as of March 31, 2021 and December 31, 2020, valued at $ 3,532,000 , are non-voting and non-convertible preferred stock with a 5.0 % cumulative annual dividend rate payable when declared by the board of directors and a $ 4 per share liquidation preference over common stock, which must be paid before any distribution is made to common stockholders.

Options excluded from diluted net income per share as the impact is anti-dilutive

Restricted stock excluded from diluted net income per share as the impact is anti-dilutive

The 883,000 shares of $ 0.001 par value Series A preferred stock issued and outstanding as of June 30, 2021 and December 31, 2020, valued at $ 3,532,000 , are non-voting and non-convertible preferred stock with a 5.0 % cumulative annual dividend rate payable when declared by the board of directors and a $ 4 per share liquidation preference over common stock, which must be paid before any distribution is made to common stockholders.

These preferred shares were issued to Lyte Optronics, Inc.

9 unchanged sentences

Three Months Ended

Six Months Ended

Product Type:

3 unchanged sentences

Three Months Ended

Six Months Ended

Geographical region:

7 unchanged sentences

Significant Customers

No customers represented 10 % of our revenue for the three months ended March 31, 2021 while two customers, Landmark and Osram, represented 17 % and 15 % , respectively, of our revenue for the three months ended March 31, 2020.

Our top five customers, although not the same five customers for each period, represented 26 % and 49 % of our revenue for the three months ended March 31, 2021 and 2020, respectively.

No customers represented 10% of our revenue for the three months ended June 30, 2021 while one customer, Landmark, represented 10 % of our revenue for the three months ended June 30, 2020.

Our top five customers, although not the same five customers for each period, represented 31 % and 30 % of our revenue for the three months ended June 30, 2021 and 2020, respectively.

No customers represented 10% of our revenue for the six months ended June 30, 2021 while two customers, Landmark and Osram Opto, represented 13 % and 11 % , respectively, of our revenue for the six months ended June 30,

Our top five customers, although not the same five customers for each period, represented 27 % and 39 % of our revenue for the six months ended June 30, 2021 and 2020, respectively.

We perform ongoing credit evaluations of our customers’ financial condition, and limit the amount of credit extended when deemed necessary, but generally do not require collateral.

Two customers accounted for 14 % and 10 % of

our accounts receivable balance as of March 31, 2021 , and three customers accounted for 20 %, 13 % and 12 % of our accounts receivable balance as of March 31, 2020.

One customer accounted for 14 % of our accounts receivable balance as of June 30, 2021 , and two customers accounted for 11 % and 10 % of our accounts receivable as of December 31, 2020.

Commitments and Contingencies

9 unchanged sentences

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 condensed consolidated balance sheets, as of March 31, 2021 and 2020 (in thousands):

The following table reflects the change in our warranty accrual which is included in “Accrued liabilities” on the condensed consolidated balance sheets, during the three and six months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended

Six Months Ended

Beginning accrued product warranty

12 unchanged sentences

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.

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.

10 unchanged sentences

In certain cases, we may incur a penalty if we cancel the purchase order.

As of March 31, 2021, we do not have any outstanding purchase orders that will incur a penalty if cancelled by the Company.

As of June 30, 2021, we do not have any outstanding purchase orders that will incur a penalty if cancelled by the Company.

Legal Proceedings

2 unchanged sentences

Other Income (Expense), Net

Other income (expense), net for the three months ended March 31, 2021 and 2020, includes a grant of $ 0.1 million and $ 1.4 million, respectively, from a Chinese provincial government agency as an award for relocating to its province.

In addition, we incurred a foreign currency transaction exchange loss of $ 173,000 and $ 43,000 for the three months ended March 31, 2021 and 2020, respectively.

Other income (expense), net for the three months ended June 30, 2021 and 2020, includes a grant of $ 0 and $ 1.6 million, respectively, from a Chinese provincial government agency as an award for relocating to its province.

Other income (expense), net for the six months ended June 30, 2021 and 2020, includes a grant of $ 0.1 million and $ 3.0 million, respectively, from a Chinese provincial government agency as an award for relocating to its province.

In addition, we incurred a foreign currency transaction exchange gain of $ 34,000 and $ 51,000 for the three months ended June 30, 2021 and 2020, respectively.

We incurred a foreign currency transaction exchange loss of $ 140,000 and gain of $ 9,000 for the six months ended June 30, 2021 and 2020, respectively.

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.

4 unchanged sentences

We recognize interest and penalties related to uncertain tax positions in income tax expense.

Income tax expense for the three months ended March 31, 2021 includes no interest and penalties.

As of March 31, 2021, we have no accrued interest and penalties related to uncertain tax positions.

Income tax expense for the three and six months ended June 30, 2021 includes no interest and penalties.

As of June 30, 2021, we have no accrued interest and penalties related to uncertain tax positions.

We file income tax returns in the U.S.

1 unchanged sentence

Currently, there is no tax audit in any of the jurisdictions and we do not expect there will be any significant change to this.

Provision for income taxes for the three months ended March 31, 2021 was mostly related to our wholly owned China subsidiaries and our partially owned subsidiaries in China.

Provision for income taxes for the three and six months ended June 30, 2021 was mostly related to our wholly owned China subsidiaries and our partially owned subsidiaries in China.

Besides the state tax liabilities, no income taxes or benefits have been provided for U.S.

operations for the three months ended March 31, 2021 due to the loss in the

operations for the three and six months ended June 30, 2021 due to no taxable income in the U.S.

and the uncertainty of generating future profit in the U.S., which has resulted in our deferred tax assets being fully reserved.

23 unchanged sentences

We believe the fair value of our accounts receivable approximates its carrying value due to its short maturities and nominal credit risk.

We do not have any material contract assets as of March 31, 2021.

We do not have any material contract assets as of June 30, 2021.

In some contracts we require payment in advance of shipment, per a billing schedule reflected in our customer contracts, and the payment is recorded as a contract liability.

The following table reflects the contract liabilities balance, which is included in “Accrued liabilities” on the condensed consolidated balance sheets, as of March 31, 2021 and December 31, 2020 (in thousands):

The following table reflects the contract liabilities balance, which is included in “Accrued liabilities” on the condensed consolidated balance sheets, as of June 30, 2021 and December 31, 2020 (in thousands):

Contract liabilities

During the three months ended March 31, 2021, the Company recognized $ 248,000 of revenue that was included in the contract balances as of December 31, 2020.

During the three and six months ended June 30, 2021, the Company recognized $ 12,000 and $ 260,000 of revenue that was included in the contract balances as of December 31, 2020.

Disaggregated Revenue

7 unchanged sentences

The commitments under the Credit Agreement, as amended by the First Amendment, expired on November 30, 2020 and there were no loans thereunder .

As of March 31, 2021, the Credit agreement has expired and no loans or letters of credit were outstanding.

As of June 30, 2021, the Credit agreement has expired and no loans or letters of credit were outstanding.

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.

15 unchanged sentences

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 March 31, 2021, $ 8.8 million was included in “Bank loan” in our condensed consolidated balance sheets.

In April 2021, Tongmei repaid the full amount of the credit facility, including all outstanding accrued interest, of approximately $ 5.6 million and simultaneously applied to renew the credit facility.

In June 2021, the combined loans were renewed for approximately $ 5.8 million and funded against the credit facility with an annual interest rate of 4.7 %.

As of June 30, 2021, $ 9.0 million was included in “Bank loan” in our condensed consolidated balance sheets.

In February 2020, our majority-owned 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.

4 unchanged sentences

Accrued interest is calculated monthly and paid monthly.

The annual interest rate was approximately 3.92 % as of March 31, 2021.

The annual interest rate was approximately 3.92 % as of June 30, 2021.

In December 2020, BoYu borrowed $ 1.5 million against the credit facility.

The repayment of the full amount is due in December 2021.

As of March 31, 2021, $ 1.5 million was included in “Bank loan” in our condensed consolidated balance sheets.

As of June 30, 2021, $ 1.5 million was included in “Bank loan” in our condensed consolidated balance sheets.

We lease certain equipment, office space, warehouse and facilities under long-term operating leases expiring at various dates through July 2029.

23 unchanged sentences

The effect of short-term leases on our right-of-use asset and lease liability was not material.

As of March 31, 2021, the maturities of our operating lease liabilities (excluding short-term leases) are as follows (in thousands):

As of June 30, 2021, the maturities of our operating lease liabilities (excluding short-term leases) are as follows (in thousands):

Maturity of Lease Liabilities

7 unchanged sentences

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

Three Months Ended

Six Months Ended

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

Supplemental noncash information on lease liabilities arising from obtaining right-of-use assets:

Leased assets obtained in exchange for new operating lease liabilities

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

Three Months Ended

Six Months Ended

Operating lease

10 unchanged sentences

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.

Tongmei currently plans to submit its formal application to the CSRC in the third quarter of 2021 or the fourth 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.

6 unchanged sentences

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 quarter ended March 31, 2021 are presented in the following table (in thousands):

The components of the change in redeemable noncontrolling interests for the six months ended June 30, 2021 are presented in the following table (in thousands):

Balance as of January 1, 2021

Increase in redeemable noncontrolling interests due to issuance of Tongmei's common stock

Increase in redeemable noncontrolling interests due to transfer of subsidiary with noncontrolling interests

Increase in redeemable noncontrolling interests due to formation of new subsidiary with noncontrolling interests

Equity issuance costs incurred during the quarter ended March 31, 2021

Equity issuance costs incurred for the six months ended June 30, 2021

Net income attributable to redeemable noncontrolling interests

Effect of foreign currency translation attributable to redeemable noncontrolling interests

Balance as of March 31, 2021

Balance as of June 30, 2021

MANAGEMENT’S DISCUSSIO N AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

171 unchanged sentences

This right is suspended when Tongmei submits its formal application for IPO to the China Securities Regulatory Commission (“CSRC”).

Tongmei currently plans to submit its formal application to the CSRC in the third quarter of 2021.

Tongmei currently plans to submit its formal application to the CSRC in the third quarter of 2021 or in the fourth quarter of 2021.

8 unchanged sentences

(“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.

The following organization chart depicts the consolidated structure as of March 31, 2021;

As of June 30, 2021, AXT-Tongmei, Inc., a wholly owned subsidiary of AXT, was assigned to Tongmei.

The assignment to Tongmei of JinMei, BoYu and its subsidiaries, and AXT-Tongmei, Inc.

will increase the number of customers and employees attributable to Tongmei as well as increase Tongmei’s consolidated revenue.

The following organization chart depicts the consolidated structure as of June 30, 2021;

In September 2018, the Trump Administration announced a list of thousands of categories of goods that became subject to tariffs when imported into the United States.

2 unchanged sentences

Approximately 10% of our revenue derives from importing our wafers into the United States.

For the three months ended March 31, 2021, we paid approximately $273,000 in tariffs.

For the six months ended June 30, 2021, we paid approximately $554,000 in tariffs.

In 2020, we paid approximately $1.3 million in tariffs.

30 unchanged sentences

Uncollectible receivables are recorded as bad debt expense when a credit loss is expected through the establishment of an allowance, which would then be written off when all efforts to collect have been exhausted and recoveries are recognized when they are received.

As of March 31, 2021 and December 31, 2020, our accounts receivable, net balance was $28.4 million and $24.6 million, respectively, which was net of an allowance for doubtful accounts of $217,000 and $217,000, respectively.

As of June 30, 2021 and December 31, 2020, our accounts receivable, net balance was $33.5 million and $24.6 million, respectively, which was net of an allowance for doubtful accounts of $217,000 and $217,000, respectively.

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.

2 unchanged sentences

Warranty costs are accrued at the time revenue is recognized.

As of March 31, 2021 and December 31, 2020, accrued product warranties totaled $582,000 and $609,000, respectively.

The decrease in accrued product warranties is primarily attributable to decreased claims for quality issues experienced by customers.

As of June 30, 2021 and December 31, 2020, accrued product warranties totaled $792,000 and $609,000, respectively.

The increase in accrued product warranties is primarily attributable to increased claims for quality issues experienced by customers.

If actual warranty costs or pending new claims differ substantially from our estimates, revisions to the estimated warranty liability would be required, which could have a material impact on our financial condition and results of operations for future periods.

4 unchanged sentences

We routinely evaluate the levels of our inventory in light of current market conditions in order to identify excess and obsolete inventory, and we provide a valuation allowance for certain inventories based upon the age and quality of the product and the projections for sale of the completed products.

As of March 31, 2021 and December 31, 2020, we had an inventory reserve of $18.3 million and $17.7 million, respectively, for excess and obsolete inventory and $269,000 and $162,000, respectively, for lower of cost or net realizable value reserves.

As of June 30, 2021 and December 31, 2020, we had an inventory reserve of $19.3 million and $17.7 million, respectively, for excess and obsolete inventory and $394,000 and $162,000, respectively, for lower of cost or net realizable value reserves.

If actual demand for our products were to be substantially lower than estimated, additional inventory adjustments for excess or obsolete inventory might be required, which could have a material impact on our business, financial condition and results of operations.

8 unchanged sentences

Determination of impairment is highly subjective and is based on a number of factors, including an assessment of the strength of each company’s management, the length of time and extent to which the fair value has been less than our cost basis, the financial condition and near-term prospects of the company, fundamental changes to the business prospects of the company, share prices of subsequent offerings, and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in our carrying value.

There were no impairment charges during the three months ended March 31, 2021 and 2020.

There were no impairment charges during the six months ended June 30, 2021 and 2020.

Fair Value of Investments

12 unchanged sentences

At quarter end any foreign currency hedges not settled are netted in “Accrued liabilities” on the condensed consolidated balance sheet and classified as Level 3 assets and liabilities.

As of March 31, 2021, 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.

There have been no transfers between fair value measurement levels during the three months ended March 31, 2021 and 2020.

As of June 30, 2021, 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.

There have been no transfers between fair value measurement levels during the three months ended June 30, 2021 and 2020.

Impairment of Long-Lived Assets

4 unchanged sentences

Assets held for sale are carried at the lower of carrying value or estimated net realizable value.

We had no “Assets held for sale” or any impairment of long-lived assets on the condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020.

We had no “Assets held for sale” or any impairment of long-lived assets on the condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020.

Stock-based Compensation

27 unchanged sentences

The Chinese government mandates have evolved, allowing us to return to full staffing levels at all three manufacturing locations in China.

We are unable to accurately predict the full impact of the COVID-19 pandemic due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, the potential resurgence of the outbreak in countries that had previously contained the outbreak, the availability of COVID-19 vaccines, the effect of the outbreak on transportation, such as reduced availability of air transport, port closures, and increased border controls or closures, the impact of the outbreak on our customers and additional actions that may be taken by government authorities to contain the outbreak, such as travel restrictions between China and the U.S.

We are unable to accurately predict the full impact of the COVID-19 pandemic due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, the potential resurgence of the outbreak as a result of variants in countries that had previously contained the outbreak, the availability of COVID-19 vaccines and the number of people who are vaccinated, the effect of the outbreak on transportation, such as reduced availability of air transport, port closures, and increased border controls or closures, the impact of the outbreak on our customers and additional actions that may be taken by government authorities to contain the outbreak, such as travel restrictions between China and the U.S.

that have disrupted our normal movement to and from China and impacted our efficiency.

As a result of these factors, we believe that the COVID-19 pandemic could

have a material adverse impact on our business, consolidated results of operations and financial condition until the COVID-19 pandemic subsides and related public health measures are reduced or eliminated.

As a result of these factors, we believe that the COVID-19 pandemic could have a material adverse impact on our business,

consolidated results of operations and financial condition until the COVID-19 pandemic subsides and related public health measures are reduced or eliminated.

Results of Operations

Three Months Ended

Six Months Ended

Product Type:

($ in thousands)

Raw materials and other

Total revenue

Revenue increased $10.6 million, or 51.3%, to $31.4 million for the three months ended March 31, 2021 from $20.7 million for the three months ended March 31, 2020.

The substrate revenue increase for the three months ended March 31, 2021 as compared to the same period in 2020 was primarily the result of higher demand for our InP wafer substrates followed by an increase in revenue for semi-insulating GaAs wafer substrates.

Demand for InP used in 5G and related 5G technologies was a primary contributor to InP revenue growth.

Revenue increased $11.6 million, or 52.4%, to $33.7 million for the three months ended June 30, 2021 from $22.1 million for the three months ended June 30, 2020.

The substrate revenue increase for the three months ended June 30, 2021 as compared to the same period in 2020 was primarily the result of higher demand for our InP wafer substrates followed by an increase in revenue for semi-conducting GaAs wafer substrates.

Demand for InP wafer substrates used in 5G and related 5G technologies was a primary contributor to InP revenue growth.

In addition, data center connectivity applications contributed to InP revenue.

Demand for GaAs used in LED applications was the primary contributor to GaAs revenue growth, primarily in automotive applications.

Raw materials sales increased $4.1 million, or 107.6%, to $8.0 million for the three months ended March 31, 2021 as compared to the same period in 2020.

The raw materials revenue increase for the three months ended March 31, 2021 as compared to the same period in 2020 was primarily the result of an increase in sales of refined gallium and pBN crucibles resulting from stronger market demand.

Demand for GaAs wafer substrates used in LED applications was the primary contributor to GaAs revenue growth, primarily in automotive applications and high-end signage.

Raw materials sales increased $3.6 million, or 67.9%, to $8.8 million for the three months ended June 30, 2021 as compared to the same period in 2020.

The raw materials revenue increase for the three months ended June 30, 2021 as compared to the same period in 2020 was primarily the result of an increase in sales of refined gallium and pBN crucibles resulting from stronger market demand.

In addition, pricing for purified gallium increased .

Revenue increased $22.2 million, or 51.9%, to $65.1 million for the six months ended June 30, 2021 from $42.9 million for the six months ended June 30, 2020.

The substrate revenue increase for the six months ended June 30, 2021 as compared to the same period in 2020 was primarily the result of higher demand for our InP wafer substrates followed by an increase in revenue for semi-conducting GaAs wafer substrates.

Demand for InP wafer substrates used in 5G and related 5G technologies was a primary contributor to InP revenue growth.

In addition, data center connectivity applications contributed to InP revenue.

Demand for GaAs wafer substrates used in LED applications was the primary contributor to GaAs revenue growth, primarily in automotive applications and high-end signage.

Raw m aterials sales increased $7.7 million, or 84.7%, to $16.8 million for the six months ended June 30, 2021 as compared to the same period in 2020.

The raw materials revenue increase for the six months ended June 30, 2021 as compared to the same period in 2020, was primarily the result of an increase in sales of refined gallium and pBN crucibles resulting from stronger market demand.

Revenue by Geographic Region

11 unchanged sentences

Total revenue

Revenue in China increased $10.8 million for the three months ended March 31, 2021, primarily due to higher demand for our InP, GaAs and Ge wafer substrates and, refined gallium and pBN crucibles sold by two of our consolidated subsidiaries.

Revenue in Taiwan decreased $2.2 million primarily due to an end customer who began buying directly from us instead of from an epitaxial growth customer in Taiwan, and decreased demand for InP and GaAs wafer substrates.

Revenue in Japan increased $1.2 million primarily due to higher demand for our InP wafer substrates.

Revenue in Asia Pacific increased by $0.5 million primarily due to increased demand for GaAs wafer

substrates partially offset by decreased demand for pBN crucibles sold by one of our consolidated subsidiaries.

Revenue in Europe decreased by $0.8 million primarily due to decreased demand for our Ge wafer substrates partially offset by increased demand for our GaAs wafer substrates.

Revenue in North America increased by $1.1 million due to higher demand for our InP wafer substrates partially offset by lower demand for our GaAs wafer substrates.

Revenue in China increased $7.8 million for the three months ended June 30, 2021, primarily due to higher demand for our InP, GaAs and Ge wafer substrates and refined gallium and pBN crucibles sold by two of our consolidated subsidiaries.

Revenue in Taiwan increased $0.6 million, primarily due to higher demand for our InP wafer substrates partially offset by decreased demand for our GaAs wafer substrates.

Revenue in Japan increased $0.9 million primarily due to higher demand for our InP wafer substrates partially offset by lower demand for our GaAs wafer substrates and decreased demand for pBN crucibles sold by one of our consolidated subsidiaries.

Revenue in Asia Pacific decreased by $0.3 million, primarily due to decreased demand for pBN crucibles sold by one of our consolidated subsidiaries partially offset by increased demand for our GaAs wafer substrates.

Revenue in Europe increased by $2.3 million primarily due to increased demand for our GaAs, InP and Ge wafer substrates.

Revenue in North America increased by $0.3 million due to higher demand for our InP and Ge wafer substrates partially offset by lower demand for our GaAs wafer substrates and decreased demand for pBN crucibles sold by one of our consolidated subsidiaries.

Six Months Ended

($ in thousands)

% of total revenue

Asia Pacific (excluding China, Taiwan and Japan)

% of total revenue

Europe (primarily Germany)

% of total revenue

North America (primarily the United States)

% of total revenue

Total revenue

Revenue in China increased by $18.6 million for the six months ended June 30, 2021, primarily due to increased demand for our InP, GaAs and Ge wafer substrates along with increased demand for pBN crucibles and refined

gallium sold by two of our consolidated subsidiaries.

Revenue in Taiwan decreased by $1.6 million primarily due to decreased demand for our InP and GaAs wafer substrates.

Revenue in Japan increased $2.1 million primarily due to higher demand for our InP wafer substrates partially offset by lower demand for our GaAs wafer substrates.

Revenue in Europe increased $1.5 million, primarily due to increased demand for GaAs wafer substrates partially offset by lower demand for Ge wafer substrates.

Revenue in North America increased $1.4 million, primarily due to increased demand for our InP wafer substrates partially offset by decreased demand for our GaAs wafer substrates.

Three Months Ended

Six Months Ended

($ in thousands)

Gross Margin %

Gross profit increased $6.0 million, or 108.9%, to $11.5 million for the three months ended March 31, 2021 from $5.5 million for the three months ended March 31, 2020.

Gross profit increased $5.5 million, or 80.8%, to $12.2 million for the three months ended June 30, 2021 from $6.8 million for the three months ended June 30, 2020.

The increase in gross profit is attributed to higher revenue and a change in product mix.

Gross profit increased $11.5 million, or 93.4%, to $23.8 million for the six months ended June 30, 2021 from $12.3 million for the six months ended June 30, 2020.

The increase in gross profit is attributed to higher revenue and a change in product mix.

Selling, General and Administrative Expenses

Three Months Ended

Six Months Ended

($ in thousands)

Selling, general and administrative expenses

% of total revenue

Selling, general and administrative expenses increased $0.8 million, or 17.3%, to $5.6 million for the three months ended March 31, 2021 from $4.7 million for the three months ended March 31, 2020.

Selling, general and administrative expenses increased $1.0 million, or 22.1%, to $5.8 million for the three months ended June 30, 2021 from $4.7 million for the three months ended June 30, 2020.

The higher selling, general and administrative expenses were primarily from higher personnel-related expenses, directors and officers insurance and professional service-related expenses partially offset by lower travel-related expenses driven by the COVID-19 pandemic.

Selling, general and administrative expenses increased $1.9 million, or 19.7%, to $11.4 million for the six months ended June 30, 2021 from $9.5 million for the six months ended June 30, 2020.

The higher selling, general and administrative expenses were primarily from higher personnel-related expenses, license and fees and outside commissions partially offset by lower legal and travel-related expenses driven by the COVID-19 pandemic.

Research and Development

Three Months Ended

Six Months Ended

($ in thousands)

Research and development

% of total revenue

Research and development expenses increased $1.0 million, or 70.9%, to $2.4 million for the three months ended March 31, 2021 from $1.4 million for the three months ended March 31, 2020.

The increase in research and development expenses for the three months ended March 31, 2021 was primarily due to development expenses for 8-inch GaAs wafer substrates and development of new features for certain of our GaAs and InP wafer substrates, product testing and personnel-related expenses.

Interest Expense, Net

Research and development expenses increased $1.0 million, or 64.4%, to $2.5 million for the three months ended June 30, 2021 from $1.5 million for the three months ended June 30, 2020.

The increase in research and

development expenses for the three months ended June 30, 2021 was primarily due to development expenses for 8-inch GaAs and 6-inch InP wafer substrates and development of new features for certain of our GaAs and InP wafer substrates, higher product testing and personnel-related expenses.

Research and development expenses increased $2.0 million, or 67.5%, to $4.9 million for the six months ended June 30, 2021 from $3.0 million for the six months ended June 30, 2020.

The increase in research and development expenses for the six months ended June 30, 2021 was primarily due to development expenses for 8-inch GaAs and 6-inch InP wafer substrates and development of new features for certain of our GaAs and InP wafer substrates, higher expense in our new product testing and personnel-related expenses.

Interest Income (Expense), Net

Three Months Ended

Six Months Ended

($ in thousands)

Interest expense, net

($ in thousands)

Interest income (expense), net

% of total revenue

Interest expense, net increased $21,000 or 72.4% for the three months ended March 31, 2021 as compared to the same period in 2020.

Interest expense, net increased primarily due to significantly lower interest rates on our investments resulting from the economic impact of the COVID-19 pandemic and interest expense incurred by Tongmei under the credit facility.

Interest income (expense), net increased $78,000 or 200.0% for the three months ended June 30, 2021 as compared to the same period in 2020.

Interest income (expense), net increased primarily due to an increase in the amount of cash and cash equivalents held by us in June 2021 as compared to June 2020.

Interest income (expense), net increased $57,000 or 83.8% for the six months ended June 30, 2021 as compared to the same period in 2020.

Interest income (expense), net increased primarily due to an increase in the amount of cash and cash equivalents held by us in June 2021 as compared to June 2020.

Equity in Income (Loss) of Unconsolidated Joint Ventures

Three Months Ended

Six Months Ended

Equity in Income (Loss)

Equity in Loss

($ in thousands)

Equity in income (loss) of unconsolidated joint ventures

% of total revenue

The equity in income (loss) of unconsolidated joint venture companies was a gain of $1.1 million for the three months ended March 31, 2021 as compared to a loss of $120,000 for the three months ended March 31, 2020.

The current quarter gain is primarily due to positive financial results of two raw gallium companies that benefited from higher average selling prices.

The equity in income (loss) of unconsolidated joint venture companies was income of $1.5 million for the three months ended June 30, 2021 as compared to a loss of $168,000 for the three months ended June 30, 2020.

The current quarter income is primarily due to positive financial results of two raw gallium companies that benefited from higher sales volume.

The equity in income (loss) of unconsolidated joint venture companies was income of $2.6 million for the six months ended June 30, 2021 as compared to a loss of $0.3 million for the six months ended June 30, 2020.

The current year six month income is primarily due to positive financial results of two raw gallium companies that benefited from higher sales volume and an increase in the selling price of gallium.

Other Income (Expense), Net

Three Months Ended

Six Months Ended

Other Income (Expense)

($ in thousands)

Other income (expense), net

% of total revenue

Other income (expense), net decreased $1.5 million to an expense of $0.1 million for the three months ended March 31, 2021 from an income of $1.4 million for the three months ended March 31, 2020.

Other income (expense), net decreased primarily due to a grant of $1.4 million received from a provincial government agency as an award for relocating to its province in March 2020, which was not repeated in March 2021.

Other income (expense), net decreased $1.5 million to an income of $0.1 million for the three months ended June 30, 2021 from an income of $1.6 million for the three months ended June 30, 2020.

Other income (expense), net decreased primarily due to a grant of $1.6 million received from a Chinese provincial government agency as an award for relocating to its province in June 2020, which was not repeated in June 2021.

Other income (expense), net decreased $3.0 million to an expense of $50,000 for the six months ended June 30, 2021 from an income of $3.0 million for the six months ended June 30, 2020.

Other income (expense), net decreased primarily due to grants totaling $3.0 million received from a Chinese provincial government agency as an award for relocating to its province in June 2020, which was not repeated in June 2021.

Provision for Income Taxes

Three Months Ended

Six Months Ended

($ in thousands)

Provision for income taxes

% of total revenue

Provision for income taxes for the three months ended March 31, 2021 was $746,000, which was primarily related to higher profits in China and a tax on a rebate we received from a purchase of land use rights when we began the relocation.

Provision for income taxes for the three and six months ended June 30, 2021 was $893,000 and $1.6 million, respectively, which was primarily related to higher profits in China and a tax on a rebate we received from a purchase of land use rights when we began the relocation.

No income taxes, except certain state tax, or benefits have been provided for our U.S.

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On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was passed into law.

The CARES Act includes several significant business tax provisions, including modification to the taxable

income limitation for utilization of net operating losses (“NOLs”) incurred in 2018, 2019 and 2020 and the ability to carry back NOLs from those years for a period of up to five years, an increase to the limitation on deductibility of certain business interest expense, bonus depreciation for purchases of qualified improvement property, and special deductions on certain corporate charitable contributions.

The CARES Act includes several significant business tax provisions, including modification to the taxable income limitation for utilization of net operating losses (“NOLs”) incurred in 2018, 2019 and 2020 and the ability to carry back NOLs from those years for a period of up to five years, an increase to the limitation on deductibility of certain business interest expense, bonus depreciation for purchases of qualified improvement property, and special deductions on certain corporate charitable contributions.

We analyzed the provisions of the CARES Act and determined there was no effect on our provision for income taxes for the current period and will continue to evaluate the impact, if any, the CARES Act may have on the Company’s condensed consolidated financial statements and disclosures.

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Net income attributable to

Six Months Ended

Net income attributable to

noncontrolling interests and

redeemable noncontrolling interests

($ in thousands)

Net income attributable to noncontrolling interests and redeemable noncontrolling interests

% of total revenue

Net income attributable to noncontrolling interests and redeemable noncontrolling interests decreased $55,000 or 13.9% to $340,000 for the three months ended March 31, 2021 from $395,000 for the three months ended March 31, 2020 primarily due to lower profitability from our consolidated joint venture operations in China.

Net income attributable to noncontrolling interests and redeemable noncontrolling interests decreased $368,000 or 61.5% to $230,000 for the three months ended June 30, 2021, from $598,000 for the three months ended June 30, 2020, primarily due to the structural changes of the legal entities in China (see Note 1) and to a lesser degree, losses generated by ChaoYang XinMei.

Net income attributable to noncontrolling interests and redeemable noncontrolling interests decreased $423,000 or 42.6% to $570,000 for the six months ended June 30, 2021, from $993,000 for the six months ended June 30, 2020, primarily due to the structural changes of the legal entities in China (see Note 1) and to a lesser degree, losses generated by ChaoYang XinMei.

Liquidity and Capital Resources

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government securities, certificates of deposit and investment-grade corporate notes and bonds.

As of March 31, 2021, our principal source of liquidity was $66.9 million, which consisted of cash and cash equivalents of $61.2 million and investments of $5.7 million.

In the three months ended March 31, 2021, cash and cash equivalents decreased by $11.4 million and investments decreased by $0.3 million.

The decrease in cash and cash equivalents of $11.4 million in the three months ended March 31, 2021 was primarily due to net cash used in operating activities of $8.3 million, net cash used in investing activities of $5.5 million, the effect of exchange rate changes of $0.2 million, partially offset by net cash provided by financing activities of $2.6.

As of March 31, 2021, we and our consolidated subsidiaries in China held approximately $44.4 million in cash and investments in foreign bank accounts.

As of March 31, 2020, our principal source of liquidity was $28.8 million, which consisted of cash and cash equivalents of $20.1 million and investments of $8.7 million.

In the three months ended March 31, 2020, cash and cash equivalents decreased by $6.8 million and short-term investments decreased by $0.7 million.

The decrease in cash and cash equivalents of $6.8 million in the three months ended March 31, 2020 was primarily due to net cash used in operating activities of $6.1 million, net cash used in investing activities of $1.4 million and the effect of exchange rate changes of $0.1 million, partially offset by net cash provided by financing activities of $0.8 million.

As of March 31, 2020, we and our consolidated joint ventures held approximately $11.2 million in cash and investments in foreign bank accounts.

As of June 30, 2021, our principal source of liquidity was $58.5 million, which consisted of cash and cash equivalents of $52.8 million and investments of $5.7 million.

In the six months ended June 30, 2021, cash and cash equivalents decreased by $19.8 million and investments decreased by $0.3 million.

The decrease in cash and cash equivalents of $19.8 million in the six months ended June 30, 2021 was primarily due to net cash used in operating activities of $10.6 million, and net cash used in investing activities of $12.8 million, partially offset by net cash provided by financing activities of $3.2 million and the effect of exchange rate changes of $0.3 million.

As of June 30, 2021, we and our consolidated subsidiaries in China held approximately $34.5 million in cash and investments in foreign bank accounts.

As of June 30, 2020, our principal source of liquidity was $32.5 million, which consisted of cash and cash equivalents of $26.5 million and investments of $6.0 million.

In the six months ended June 30, 2020, cash and cash equivalents decreased by $0.4 million and investments decreased by $3.5 million.

The decrease in cash and cash equivalents of $0.4 million in the six months ended June 30, 2020 was primarily due to net cash used in investing activities of $3.0 million and the effect of exchange rate changes of $0.2 million, partially offset by net cash provided by operating activities of $2.0 million and financing activities of $0.8 million.

As of June 30, 2020, we and our consolidated subsidiaries held approximately $13.4 million in cash and investments in foreign bank accounts.

This consisted of $11.3 million held by our wholly-owned subsidiaries in China and $2.1 million held by our partially-owned consolidated subsidiary in China.

Net cash used in operating activities of $8.3 million for the three months ended March 31, 2021 was primarily comprised of a net change of $13.4 million in operating assets and liabilities and a gain on equity method investments of $1.1 million, partially offset by a net income before income attributable to non-controlling interest of $3.8 million, the adjustment for non-cash items of depreciation and amortization of $1.6 million and stock-based compensation of $0.8 million.

Net cash used in operating activities of $6.1 million for the three months ended March 31, 2020 was primarily comprised of a net change of $8.1 million in operating assets and liabilities, partially offset by net income of $0.2 million, the adjustment for non-cash items of depreciation and amortization of $1.0 million, stock-based compensation of $0.6 million and loss on equity method investments of $0.1 million.

Net cash used in investing activities of $5.5 million for the three months ended March 31, 2021 was primarily from the purchase of property, plant and equipment of $5.8 million, partially offset by proceeds from sales and maturities of available-for-sale debt securities of $0.2 million.

Net cash used in investing activities of $1.4 million for the three months ended March 31, 2020 was primarily from the purchase of property, plant and equipment of $2.1 million, partially offset by proceeds from sales and maturities of available-for-sale debt securities of $0.7 million .

Net cash provided by financing activities was $2.6 million for the three months ended March 31, 2021, which consisted of proceeds from issuance of Tongmei’s common stock to redeemable noncontrolling interests of $0.7 million, common stock exercised of $0.7 million, formation of new subsidiary with noncontrolling interest of $0.6 million and proceeds from sale of subsidiary shares to noncontrolling interests of $0.5 million.

Net cash provided by financing activities was $0.8 million for the three months ended March 31, 2020, which consisted of proceeds from short-term borrowings of $0.4 million and proceeds from common stock exercised of $0.4 million.

Net cash used in operating activities of $10.6 million for the six months ended June 30, 2021 was primarily comprised of a net change of $22.2 million in operating assets and liabilities and a gain on equity method investments of

$2.6 million, partially offset by a net income before income attributable to non-controlling interest and redeemable noncontrolling interests of $8.4 million, the adjustment for non-cash items of depreciation and amortization of $3.3 million stock-based compensation of $1.8 million and return of equity method investments (dividends) of $0.8 million.

Net cash provided by operating activities of $2.0 million for the six months ended June 30, 2020 was primarily comprised of a net income before income attributable to non-controlling interest of $1.2 million, the adjustment for non-cash items of depreciation and amortization of $2.0 million, stock-based compensation of $1.3 million and loss on equity method investments of $0.3 million, partially offset by a net change of $2.8 million in operating assets and liabilities.

Net cash used in investing activities of $12.8 million for the six months ended June 30, 2021 was primarily from the purchase of property, plant and equipment of $13.0 million, partially offset by proceeds from sales and maturities of available-for-sale debt securities of $0.2 million.

Net cash used in investing activities of $3.0 million for the six months ended June 30, 2020 was primarily from the purchase of property, plant and equipment of $6.5 million, partially offset by proceeds from sales and maturities of available-for-sale debt securities of $3.5 million.

Net cash provided by financing activities was $3.2 million for the six months ended June 30, 2021, which consisted of proceeds from issuance of Tongmei’s common stock to redeemable noncontrolling interests of $0.3 million, common stock exercised of $1.1 million, formation of new subsidiary with noncontrolling interest of $1.3 million and proceeds from sale of subsidiary shares to noncontrolling interests of $0.5 million.

Net cash provided by financing activities was $0.8 million for the six months ended June 30, 2020, which consisted of proceeds from short-term borrowings of $0.4 million and proceeds from common stock exercised of $0.5 million, partially offset by dividends paid by joint ventures to their minority shareholders of $0.1 million.

On October 27, 2014, our Board of Directors approved a stock repurchase program pursuant to which we may repurchase up to $5.0 million of our outstanding common stock.

2 unchanged sentences

Since 2015, no shares were repurchased under this program.

During the three months ended March 31, 2021, we did not repurchase any shares under the approved stock repurchase program.

As of March 31, 2021, approximately $2.7 million remained available for future repurchases under this program.

During the six months ended June 30, 2021, we did not repurchase any shares under the approved stock repurchase program.

As of June 30, 2021, approximately $2.7 million remained available for future repurchases under this program.

Currently, we do not plan to repurchase additional shares.

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This right is suspended when Tongmei submits its formal application to the 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.

Tongmei currently plans to submit its formal application to the CSRC in the third quarter of 2021 or in the fourth quarter of 2021.

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.

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The commitments under the Credit Agreement, as amended by the First Amendment, expired on November 30, 2020 and there were no loans thereunder.

As of the date of this Quarterly Report on Form 10-Q, the Credit agreement is expired and no loans or letters of credit were outstanding.

As of the date of this Quarterly Report on Form 10-Q, the Credit agreement has expired and no loans or letters of credit were outstanding.

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.

11 unchanged sentences

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 contained an option to renew for an additional six months, which was exercised in March 2021.

The repayment of the loan was due on March 22, 2021, however the credit facility contained an option to renew for an additional six months, which was exercised in March 2021.

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%.

1 unchanged sentence

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 March 31, 2021, $8.8 million was included in “Bank loan” in our condensed consolidated balance sheets.

In April 2021, Tongmei repaid the full amount of the credit facility, including all outstanding accrued interest, of approximately $5.6 million and simultaneously applied to renew the credit facility.

In June 2021, the combined loans were renewed for approximately $5.8 million and funded against the credit facility with an annual interest rate of 4.7%.

As of June 30, 2021, $9.0 million was included in “Bank loan” in our condensed consolidated balance sheets.

In February 2020, our majority-owned 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.

4 unchanged sentences

Accrued interest is calculated monthly and paid monthly.

The annual interest rate was approximately 3.92% as of March 31, 2021.

The annual interest rate was approximately 3.92% as of June 30, 2021.

In December 2020, BoYu borrowed $1.5 million against the credit facility.

1 unchanged sentence

December 2021.

As of March 31, 2021, $1.5 million was included in “Bank loan” in our condensed consolidated balance sheets.

As of June 30, 2021, $1.5 million was included in “Bank loan” in our condensed consolidated balance sheets.

On July 27, 2021, we filed with the SEC a registration statement on Form S-3, pursuant to which we may offer up to $60,000,000 of common stock, preferred stock, debt securities, depositary shares, warrants, subscription rights, purchase contracts and/or units in one or more offerings and in any combination.

A prospectus supplement, which we will provide each time we offer securities, will describe the specific amounts, prices and terms of the securities we determine to offer.

We currently expect to use the net proceeds from the sale of securities under the shelf registration statement for working capital, capital expenditures and other general corporate purposes.

We may also use a portion of the net proceeds to acquire, license or invest in complementary products, technologies or businesses.

We believe that we have adequate cash and investments to meet our operating needs and capital expenditures over the next twelve months.

27 unchanged sentences

Off-Balance Sheet Arrangements

As of March 31, 2021, we did not have any off-balance sheet financing arrangements and have never established any special purpose entities as defined under SEC Regulation S-K Item 303(a)(4)(ii).

As of June 30, 2021, we did not have any off-balance sheet financing arrangements and have never established any special purpose entities as defined under SEC Regulation S-K Item 303(a)(4)(ii).

QUANTITATIVE AND QUALITATIV E DISCLOSURES ABOUT MARKET RISK

13 unchanged sentences

At quarter end and year end any foreign currency hedges not settled are netted on the condensed consolidated balance sheet and consolidated balance sheet, respectively, and classified as Level 3 assets and liabilities.

As of March 31, 2021 and 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 condensed consolidated results.

As of June 30, 2021 and 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 condensed consolidated results.

The functional currency for our foreign operations is the renminbi, the local currency of China, and, in the future we may establish short term hedges covering renminbi.

29 unchanged sentences

The credit risk in our accounts receivable is mitigated by our credit evaluation process and the broad dispersion of sales transactions.

Two customers accounted for 14% and 10%, respectively, of our accounts receivable balance as of March 31, 2021 and two customers accounted for 11% and 10% of our accounts receivable as of December 31, 2020.

One customer accounted for 14% of our accounts receivable balance as of June 30, 2021 and two customers accounted for 11% and 10% of our accounts receivable as of December 31, 2020.

As part of our supply chain strategy, we maintain minority investments in privately-held raw material companies located in China either invested directly by us or by one of our supply chain companies in China.

3 unchanged sentences

Reasons for other than temporary declines in value include whether the related company would have insufficient cash flow to operate for the next twelve months, significant changes in the operating performance and changes in market conditions.

As of March 31, 2021 and December 31, 2020, we did not maintain any direct investments under the cost method.

Our minority investments under the equity method as of March 31, 2021 and December 31, 2020 totaled $7.5 million and $6.4 million, respectively.

As of June 30, 2021 and December 31, 2020, we did not maintain any direct investments under the cost method.

Our minority investments under the equity method as of June 30, 2021 and December 31, 2020 totaled $8.3 million and $6.4 million, respectively.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements