What changed in this filing

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Item 1. Financial Statements

2022-08-12 compared with 2022-05-09 · 413 added, 255 removed, 1217 unchanged (35% of the section changed)

4 unchanged sentences

Cash and cash equivalents

Restricted cash

Short-term investments

Accounts receivable, net of allowances of $ 130 as of March 31, 2022 and December 31, 2021

Accounts receivable, net of allowances of $ 307 and $ 130 as of June 30, 2022 and December 31, 2021

Prepaid expenses and other current assets

17 unchanged sentences

2,000 shares authorized;

883 shares issued and outstanding as of March 31, 2022 and December 31, 2021 (Liquidation preference of $ 7,566 and $ 7,522 as of March 31, 2022 and December 31, 2021)

883 shares issued and outstanding as of June 30, 2022 and December 31, 2021 (Liquidation preference of $ 7,610 and $ 7,522 as of June 30, 2022 and December 31, 2021)

Common stock, $ 0.001 par value;

70,000 shares authorized;

42,952 and 42,886 shares issued and outstanding as of March 31, 2022 and December 31, 2021

43,060 and 42,886 shares issued and outstanding as of June 30, 2022 and December 31, 2021

Additional paid-in capital

10 unchanged sentences

Three Months Ended

Six Months Ended

Cost of revenue

4 unchanged sentences

Income from operations

Interest expense, net

Interest income (expense), net

Equity in income of unconsolidated joint ventures

Other expense, net

Other income (expense), net

Income before provision for income taxes

9 unchanged sentences

Three Months Ended

Six Months Ended

Other comprehensive income (loss), net of tax:

2 unchanged sentences

Total other comprehensive income (loss), net of tax

Comprehensive income

Comprehensive income attributable to noncontrolling interests and redeemable noncontrolling interests

Comprehensive income attributable to AXT, Inc.

Comprehensive income (loss)

Comprehensive (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests

Comprehensive income (loss) attributable to AXT, Inc.

See accompanying notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW S

(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

Gain on disposal of equipment

Gain (loss) on disposal of equipment

Return of equity method investments (dividends)

Equity in income of unconsolidated joint ventures

6 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:

7 unchanged sentences

Payments on bank loan

Proceeds from capital increase in subsidiary shares from noncontrolling interest

Formation of new subsidiary with noncontrolling interests

1 unchanged sentence

Net cash provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

Net decrease in cash and cash equivalents

Effect of exchange rate changes on cash, restricted cash and cash equivalents

Net increase (decrease) in cash, restricted cash and cash equivalents

Cash and cash equivalents at the beginning of the year

Cash and cash equivalents at the end of the period

Cash, restricted cash and cash equivalents at the end of the period

Supplemental disclosure of non-cash flow information:

2 unchanged sentences

Consideration payable to repurchase subsidiary shares from noncontrolling interests, included in accrued liabilities

Bank loan proceed paid directly to a third-party vendor, included in accounts payable

Consideration payable in connection with construction in progress, included in accrued liabilities

See accompanying notes to condensed consolidated financial statements.

10 unchanged sentences

Actual results could differ materially from those estimates.

The results of operations for the three months ended March 31, 2022 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 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2022.

The results of operations for the three and six months ended June 30, 2022 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.

6 unchanged sentences

(“JinMei”), ChaoYang JinMei Gallium Ltd.

(“ChaoYang JinMei”), MaAnShan JinMei Gallium Ltd., and Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd.

(“ChaoYang JinMei”), ChaoYang ShuoMei High Purity Semiconductor Materials Co., Ltd.

(“ChaoYang ShuoMei”), MaAnShan JinMei Gallium Ltd., and Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd.

All significant inter-company accounts and transactions have been eliminated.

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

As of March 31, 2022 and December 31, 2021, we have five companies accounted for by the equity method.

As of June 30, 2022 and December 31, 2021, 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, 2022, expenses associated with ChaoYang LiMei had a de minimis impact on our condensed consolidated financial statements.

For the three and six months ended June 30, 2022, 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.

8 unchanged sentences

Tongmei’s ownership remained at 58.5 % after these equity investments.

In April 2022, Tongmei entered into a capital increase agreement with minority investors to further invest $ 4.5 million in ChaoYang XinMei.

Tongmei’s portion of the investment was approximately $ 2.6 million, of which $ 1.1 million was paid in April 2022 and $ 0.8 million was paid in May 2022.

The minority investors’ portion of the investment was approximately $ 1.9 million, of which $ 0.7 million was paid in April 2022 and $ 0.6 million was paid in May 2022.

As a result, noncontrolling interests increased $ 1.4 million and redeemable noncontrolling interests increased $ 0.1 million.

Tongmei’s ownership remained at 58.5 % after the April 2022 and May 2022 equity investments.

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

The agreement calls for a total investment of approximately $ 4.4 million, of which ChaoYang JinMei will fund approximately $ 3.3 million for a 75 percent ownership of ChaoYang ShuoMei.

All activities for MaAnShan JinMei Gallium Ltd.

ceased during the first half of 2022 and the subsidiary was subsequently dissolved in May 2022.

The dissolution of MaAnShan JinMei Gallium Ltd.

had a de minimis impact on the condensed consolidated results.

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 interest in Tongmei of 7.28 %.

As of March 31, 2022, Tongmei’s noncontrolling interests and redeemable noncontrolling interests totaled approximately 14.5 %.

As of June 30, 2022, 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.

4 unchanged sentences

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

As of March 31, 2022 and December 31, 2021, our cash, cash equivalents and debt investments are classified as follows (in thousands):

March 31, 2022

As of June 30, 2022 and December 31, 2021, our cash, cash equivalents and debt investments are classified as follows (in thousands):

June 30, 2022

December 31, 2021

Classified as:

Cash and restricted cash

Cash equivalents:

Certificates of deposit 1

Total cash and cash equivalents

Total cash, restricted cash and cash equivalents

Investments (available-for-sale):

2 unchanged sentences

Total investments

Total cash, cash equivalents and investments

Total cash, restricted cash, cash equivalents and investments

Contractual maturities on investments:

8 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, 2022, 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, 2022, 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, 2022.

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, 2022 (in thousands):

A portion of our debt investments would generate a loss if we sold them on June 30, 2022.

In Loss Position

1 unchanged sentence

Loss Position

As of March 31, 2022

As of June 30, 2022

Certificates of deposit

9 unchanged sentences

Total in loss position

Restricted Cash

We maintain restricted cash in connection with cash balances temporarily restricted for regular business operations.

As a condition of a credit facility between the Bank of Beijing and Tongmei for $ 3.4 million, we are required to maintain a time deposit of $ 3.9 million at the Bank of Beijing as collateral.

The bank loan has a term of 12 months, therefore the bank loan and time deposit are classified as short-term in our condensed consolidated balance sheet.

This time deposit has been excluded from the Company’s cash and cash equivalents balance.

As of June 30, 2022, the amount of restricted cash was $ 3.9 million.

Investments in Privately-held Raw Material Companies

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

The investment balances for the non-consolidated companies are accounted for under the equity method and included in “Other assets” in the condensed consolidated balance sheets and totaled $ 11.3 million and $ 10.2 million as of March 31, 2022 and December 31, 2021, respectively.

As of March 31, 2022, there were five companies accounted for under the equity method.

There were no impairment charges in the three months ended March 31, 2022 and 2021.

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 $ 13.1 million and $ 10.2 million as of June 30, 2022 and December 31, 2021, respectively.

As of June 30, 2022, there were five companies accounted for under the equity method.

There were no impairment charges in the three and six months ended June 30, 2022 and 2021.

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, 2022 and December 31, 2021, the total unrealized loss, net of tax, included in accumulated other comprehensive income was immaterial.

As of June 30, 2022 and December 31, 2021, 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.

6 unchanged sentences

We classify our available-for-sale debt securities including certificates of deposit and corporate bonds as having Level 2 inputs.

The valuation techniques used to measure the fair value of these financial instruments having Level 2 inputs were derived from bank statements, quoted

market prices, broker or dealer statements or quotations, or alternative pricing sources with reasonable levels of price transparency.

The valuation techniques used to measure the fair value of these financial instruments having Level 2 inputs were derived from bank statements, quoted market prices, broker or dealer statements or quotations, or alternative pricing sources with reasonable levels of price transparency.

We place short-term foreign currency hedges that are intended to offset the potential cash exposure related to fluctuations in the exchange rate between the United States dollar and Japanese yen.

1 unchanged sentence

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, 2022, 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, 2022.

There have been no transfers between fair value measurements levels during the three months ended March 31, 2022.

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis in accordance with ASC 820 as of Mach 31, 2022 (in thousands):

As of June 30, 2022, 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, 2022.

There have been no transfers between fair value measurements levels during the three and six months ended June 30, 2022.

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, 2022 (in thousands):

Quoted Prices in

4 unchanged sentences

Observable Inputs

March 31, 2022

Cash equivalents and investments:

June 30, 2022

Certificates of deposit

8 unchanged sentences

December 31, 2021

Cash equivalents and investments:

Certificates of deposit

3 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, 2022 and 2021, respectively.

We did not record any other-than-temporary impairment charges for these investments during the three and six months ended June 30, 2022 and 2021, respectively.

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

2 unchanged sentences

Finished goods

As of March 31, 2022 and December 31, 2021, carrying values of inventories were net of inventory reserves of $ 20.6 million and $ 19.6 million, respectively, for excess and obsolete inventory and $ 70,000 and $ 66,000 , respectively, for lower of cost or net realizable value reserves.

As of June 30, 2022 and December 31, 2021, carrying values of inventories were net of inventory reserves of $ 22.1 million and $ 19.6 million, respectively, for excess and obsolete inventory and $ 135,000 and $ 66,000 , 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, 2022, the balance of construction in progress was $ 37.5 million, of which $ 27.2 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 $ 6.1 million was for construction in progress for our other consolidated subsidiaries.

As of June 30, 2022, the balance of construction in progress was $ 41.1 million, of which $ 33.3 million was related to our buildings in our new Dingxing and Kazuo locations, $ 4.0 million was for manufacturing equipment purchases not yet placed in service and $ 3.9 million was for construction in progress for our other consolidated

subsidiaries.

As of December 31, 2021, the balance of construction in progress was $ 31.7 million, of which $ 22.7 million was for our buildings in our new Dingxing and Kazuo locations, $ 3.0 million was for manufacturing equipment purchases not yet placed in service and $ 6.0 million was for our construction in progress at our other consolidated subsidiaries.

3 unchanged sentences

Preferred stock dividends payable

Advances from customers

Accrued income taxes

Payable in connection with construction in progress

Accrued product warranty

Current portion of operating lease liabilities

Advances from customers

Other tax payable

Accrued professional services

Current portion of operating lease liabilities

Other personnel-related costs

Payable in connection with construction in progress

Other tax payable

Accrual for sales returns

6 unchanged sentences

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, 2022 and December 31, 2021, amounts payable of $ 112,000 and $ 112,000 , respectively, were included in “Accounts payable” in our condensed consolidated balance sheets.

As of June 30, 2022 and December 31, 2021, amounts payable of $ 106,000 and $ 112,000 , 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.

2 unchanged sentences

In July 2021, JinMei repaid the principal and outstanding interest totaling $ 858,000 to Tongmei.

As of March 31, 2022 and December 31, 2021, the remaining balance of principal and interest totaled $ 0 and $ 0 , 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.

As of June 30, 2022 and December 31, 2021, the remaining balance of principal and interest totaled $ 0 and $ 0 , respectively.

In September 2021 and October 2021, our consolidated subsidiary, ChaoYang XinMei received funding from a minority investor of $ 0.9 million and $ 1.0 million, respectively.

3 unchanged sentences

Short-term loan from noncontrolling interest decreased to $ 0 .

In April 2022 and May 2022, ChaoYang XinMei received funding from Tongmei of $ 1.1 million and $ 0.8 million, respectively, as equity investments.

In April 2022 and May 2022, the minority investors invested $ 0.7 million and $ 0.6 million, respectively.

As a result, noncontrolling interests increased $ 1.4 million and redeemable noncontrolling interests increased $ 0.1 million.

Tongmei’s ownership remained at 58.5 % after these equity investments.

As of March 31, 2022, $ 0 was included in “Long-term debt, related party” in our condensed consolidated balance sheets.

As of June 30, 2022, $ 0 was included in “Long-term debt, related party” in our condensed consolidated balance sheets.

Our Related Party Transactions Policy seeks to prohibit all conflicts of interest in transactions between related parties and us, unless they have been approved by our Board of Directors.

This policy applies to all of our

employees, directors, and our consolidated subsidiaries.

This policy applies to all of our employees, directors, and our consolidated subsidiaries.

Our executive officers retain board seats on the board of directors of the companies in which we have invested in our China joint ventures.

3 unchanged sentences

These companies form part of our overall supply chain strategy.

As of March 31, 2022, the investments are summarized below (in thousands):

As of June 30, 2022, the investments are summarized below (in thousands):

Investment Balance as of

18 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 interest in Tongmei of 7.28 %.

As of March 31, 2022, Tongmei’s noncontrolling interests and redeemable noncontrolling interests totaled approximately 14.5 %.

As of June 30, 2022, 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.

4 unchanged sentences

On June 15, 2018, we paid the first installment of $ 163,000 .

In May 2019, we paid the second installment of $ 1.2 million as the relocation of JinMei’s headquarters and manufacturing operations was nearly complete, which had been previously included in “Accrued liabilities” in our condensed consolidated balance sheets.

In May 2019, we paid the second installment

of $ 1.2 million as the relocation of JinMei’s headquarters and manufacturing operations was nearly complete, which had been previously included in “Accrued liabilities” in our condensed consolidated balance sheets.

As a result, our ownership of JinMei increased from 83 % to 95 %.

1 unchanged sentence

As a result, our ownership of JinMei increased from 95 % to 97 %.

In May 2019, we purchased the remaining 3 % ownership interest from retiring members of the JinMei

management team for approximately $ 413,000 .

In May 2019, we purchased the remaining 3 % ownership interest from retiring members of the JinMei management team for approximately $ 413,000 .

The final payment to the JinMei management team was made in October, 2020.

19 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 $ 11.3 million and $ 10.2 million as of March 31, 2022 and December 31, 2021, 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 $ 13.1 million and $ 10.2 million as of June 30, 2022 and December 31, 2021, respectively.

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

6 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 investment entities had the following summarized statements of operations information (in thousands) for the three months ended March 31, 2022 and 2021:

Excluding one fully impaired entity, the equity investment entities had the following summarized statements of operations information (in thousands) for the three and six months ended June 30, 2022 and 2021:

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 income of $ 1.1 million and $ 1.1 million, respectively, for the three months ended March 31, 2022 and 2021.

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 $ 2.2 million and $ 1.5 million, respectively, for the three months ended June 30, 2022 and 2021.

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 $ 3.3 million and $ 2.6 million, respectively, for the six months ended June 30, 2022 and 2021.

Stockholders’ Equity

1 unchanged sentence

(in thousands)

The changes in stockholders’ equity by component for the three months ended March 31, 2022 are as follows:

The changes in stockholders’ equity by component for the three and six months ended June 30, 2022 are as follows:

Comprehensive

12 unchanged sentences

Balance as of March 31, 2022

Net income and other comprehensive income attributable to redeemable noncontrolling interests was $ 418,000 and $ 46,000 , respectively, not shown in the table above.

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

Common stock options exercised

Investment in subsidiary with noncontrolling interest

Noncontrolling interest portion of Tongmei stock-based compensation

Stock-based compensation

Tongmei stock-based compensation

Other comprehensive income (loss)

Balance as of June 30, 2022

Net income and other comprehensive loss attributable to redeemable noncontrolling interests was $ 549,000 and $ 575,000 , respectively, for the three months ended June 30, 2022, and $ 967,000 and $ 529,000 , respectively, for the six months ended June 30, 2022 not shown in the table above.

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

There were no reclassification adjustments from accumulated other comprehensive income (loss) for the three months ended March 31, 2022 and 2021 .

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

There were no reclassification adjustments from accumulated other comprehensive income (loss) for the three and six months ended June 30, 2022 and 2021 .

Stock Repurchase Program

3 unchanged sentences

No shares were repurchased from 2016 through 2021.

During the three months ended March 31, 2022, we did no t repurchase any shares under the approved stock repurchase program.

As of March 31, 2022, approximately $ 2.7 million remained available for future repurchases under this program.

During the three and six months ended June 30, 2022, we did no t repurchase any shares under the approved stock repurchase program.

As of June 30, 2022, approximately $ 2.7 million remained available for future repurchases under this program.

Currently, we do not plan to repurchase additional shares.

1 unchanged sentence

We account for stock-based compensation in accordance with the provisions of ASC Topic 718, Compensation-Stock Compensation (“ASC 718”), which established accounting for stock-based awards exchanged for employee services.

Stock-based compensation cost is measured at each grant date, based on the fair value of the award, and is recognized as expense over the employee’s requisite service period of the award.

Stock-based compensation cost is measured at each grant date, based on the fair value of the award, and is

recognized as expense over the employee’s requisite service period of the award.

All of our stock compensation is accounted for as an equity instrument.

1 unchanged sentence

Three Months Ended

Six Months Ended

Cost of revenue

4 unchanged sentences

Net effect on net income

As of March 31, 2022, the unamortized compensation costs related to unvested stock options granted to employees under our stock option plan was approximately $ 0.3 million, net of estimated forfeitures of $ 35,000 .

As of June 30, 2022, the unamortized compensation costs related to unvested stock options granted to employees under our stock option plan was approximately $ 0.3 million, net of estimated forfeitures of $ 28,000 .

These costs will be amortized on a straight-line basis over a weighted-average period of approximately 1.2 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, 2022 and December 31, 2021 due to the immateriality of the amount.

We did not capitalize any stock-based compensation to inventory as of June 30, 2022 and December 31, 2021 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, 2022 and 2021.

The following table summarizes the stock option transactions during the three months ended March 31, 2022 (in thousands, except per share data):

There were no options granted in the three and six months ended June 30, 2022 and 2021.

The following table summarizes the stock option transactions during the six months ended June 30, 2022 (in thousands, except per share data):

Stock Options

1 unchanged sentence

Canceled and expired

Balance as of March 31, 2022

Options vested as of March 31, 2022 and unvested options expected to vest, net of forfeitures

Options exercisable as of March 31, 2022

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on our closing price of $ 7.02 on March 31, 2022, which would have been received by the option holder had all option holders exercised their options on that date.

Balance as of June 30, 2022

Options vested as of June 30, 2022 and unvested options expected to vest, net of forfeitures

Options exercisable as of June 30, 2022

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on our closing price of $ 5.86 on June 30, 2022, 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, 2022 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, 2022 is presented below (in thousands, except per share data):

Weighted-Average

Non-vested as of January 1, 2022

Non-vested as of March 31, 2022

As of March 31, 2022, the unamortized compensation costs related to unvested restricted stock awards was approximately $ 4.3 million, which is to be amortized on a straight-line basis over a weighted-average period of approximately 1.4 years.

Non-vested as of June 30, 2022

As of June 30, 2022, the unamortized compensation costs related to unvested restricted stock awards was approximately $ 3.9 million, which is to be amortized on a straight-line basis over a weighted-average period of approximately 1.3 years.

At-Risk, Performance Shares

25 unchanged sentences

Young and 32,100 for Mr.

A summary of the status of our unvested at-risk, performance shares as of March 31, 2022 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, 2022 is presented below (in thousands, except per share data):

Weighted-Average

Non-vested as of January 1, 2022

Non-vested as of March 31, 2022

Non-vested as of June 30, 2022

*The number of shares presented is based on achieving 150 % of the targeted financial performance metric as defined in the at-risk, performance shares agreement.

** The first annual vesting was reported in Q4 2021, when 25 % of the at-risk performance shares became eligible subject to review and confirmation by the Compensation Committee after year-end results were certified.

As of March 31, 2022, there was $ 1.5 million of unrecognized compensation expense related to unvested at-risk, performance shares that is expected to be recognized over a weighted-average period of 1.8 years.

As of June 30, 2022, 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 1.6 years.

Net Income (Loss) Per Share

6 unchanged sentences

Three Months Ended

Six Months Ended

Net income attributable to AXT, Inc.

8 unchanged sentences

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, 2022 and December 31, 2021, 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, 2022 and December 31, 2021, 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.

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Three Months Ended

Six Months Ended

Product Type:

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Three Months Ended

Six Months Ended

Geographical region:

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Significant Customers

One customer, Landmark, represented 10 % of our revenue for the three months ended March 31, 2022 and no customer represented 10% of our revenue for the three months ended March 31, 2021.

Our top five customers, although not the same five customers for each period, represented 29 % and 26 % of our revenue for the three months ended March 31, 2022 and 2021, respectively.

One customer, Landmark, represented 12 % of our revenue for the three months ended June 30, 2022 and no customer represented 10% of our revenue for the three months ended June 30, 2021.

Our top five customers, although not the same five customers for each period, represented 35 % and 31 % of our revenue for the three months ended June 30, 2022 and 2021, respectively.

One customer, Landmark, represented 11 % of our revenue for the six months ended June 30, 2022 and no customer represented 10% of our revenue for the six months ended June 30, 2021.

Our top five customers, although not the same five customers for each period, represented 32 % and 27 % of our revenue for the six months ended June 30, 2022 and 2021, 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 12 % and 10 % of our accounts receivable balance as of March 31, 2022 , and no customer accounted for 10% of our accounts receivable as of December 31, 2021.

One customer accounted for 11 % of our accounts receivable balance as of June 30, 2022 , and no customer accounted for 10% of our accounts receivable as of December 31, 2021.

Commitments and Contingencies

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On a quarterly basis, we review the accrued balances and update the historical warranty cost trends.

The following table reflects the change in our warranty accrual which is included in “Accrued liabilities” in the condensed consolidated balance sheets, during the three months ended March 31, 2022 and 2021 (in thousands):

The following table reflects the change in our warranty accrual which is included in “Accrued liabilities” in the condensed consolidated balance sheets, during the three and six months ended June 30, 2022 and 2021 (in thousands):

Three Months Ended

Six Months Ended

Beginning accrued product warranty

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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.

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.

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

As of March 31, 2022, we do not have any outstanding purchase orders that will incur a penalty if cancelled by the Company.

As of June 30, 2022, we do not have any outstanding purchase orders that will incur a penalty if cancelled by the Company.

Legal Proceedings

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Other Expense, Net

Other expense, net for the three months ended March 31, 2022 and 2021, includes a grant of $ 0.2 million and $ 0.1 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 $ 228,000 and $ 173,000 for the three months ended March 31, 2022 and 2021, 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.

Other expense, net for the six months ended June 30, 2022 and 2021, includes a grant of $ 0.2 million and $ 0.1 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 $ 230,000 and $ 34,000 for the three months ended June 30, 2022 and 2021, respectively.

We incurred a foreign currency transaction exchange gain of $ 2,000 and a loss of $ 140,000 for the six months ended June 30, 2022 and 2021, respectively.

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

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

Income tax expense for the three months ended March 31, 2022 includes no interest and penalties.

As of March 31, 2022, we have no accrued interest and penalties related to uncertain tax positions.

Income tax expense for the three and six months ended June 30, 2022 includes no interest and penalties.

As of June 30, 2022, we have no accrued interest and penalties related to uncertain tax positions.

We file income tax returns in the U.S.

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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, 2022 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, 2022 was mostly related to our wholly owned China subsidiaries and our partially owned subsidiaries in China.

Income taxes and certain state taxes, have been provided for our U.S.

operations as most of the income in the U.S.

had been fully offset by utilization of federal and state net operating loss carryforwards except for the newly created US subsidiary, AXT-Tongmei.

had been fully offset by utilization of federal and state

net operating loss carryforwards except for the newly created US subsidiary, AXT-Tongmei.

Which has incurred tax expense.

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We also capitalize the R&E expense in our China subsidiaries and amortize it over 15 years.

On June 29, 2020, California Governor Gavin Newsom signed Assembly Bill 85 (“AB 85”) into law as part of the California 2020 Budget Act, which temporarily suspends the use of California net operating losses and imposes a cap on the amount of business incentive tax credits that companies can utilize against their net income for tax years 2020, 2021, and 2022.

We analyzed the provisions of AB 85 and determined there was no impact on our provision for income taxes for the current period and will continue to evaluate the impact, if any, AB 85 may have on the Company’s condensed consolidated financial statements and disclosures .

Revenue Recognition

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We have elected to account for shipping and handling as activities to fulfill the promise to transfer the goods.

Shipping and handling fees billed to customers in a sales transaction are recorded as an offset to shipping and handling

Shipping and handling fees billed to customers in a sales transaction are recorded as an offset to shipping and handling expenses.

Sales taxes and value added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from revenue.

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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, 2022.

We do not have any material contract assets as of June 30, 2022.

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, 2022 and December 31, 2021 (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, 2022 and December 31, 2021 (in thousands):

Contract liabilities

During the three months ended March 31, 2022, the Company recognized $ 321,000 of revenue that was included in the contract balances as of December 31, 2021.

During the three and six months ended June 30, 2022, the Company recognized $ 410,000 and $ 731,000 of revenue that was included in the contract balances as of December 31, 2021.

Disaggregated Revenue

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In March 2022, Tongmei repaid $ 2.7 million of the Credit Facility, including all outstanding accrued interest.

As of March 31, 2022, $ 0 was included in “Bank loan” in our condensed consolidated balance sheets.

As of June 30, 2022, $ 0 was included in “Bank loan” in our condensed consolidated balance sheets.

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 % .

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In November 2021, Tongmei repaid the full amount of the Credit Facility, including all outstanding accrued interest.

As of March 31, 2022, $ 0 was included in “Bank loan” in our condensed consolidated balance sheets.

As of June 30, 2022, $ 0 was included in “Bank loan” in our condensed consolidated balance sheets.

In February 2020, our consolidated subsidiary, BoYu , entered into a credit facility with the Industrial and Commercial Bank of China (“ICBC”) with a $ 1.4 million line of credit at an annual interest rate of approximately 0.15 % over the loan prime rate.

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The annual interest rate was approximately 4.3 % as of December 31, 2020.

The credit facility is collateralized by BoYu’s land use rights and its building located at its facility in Tianjin, China and BoYu’s accounts receivable.

The credit facility is collateralized by BoYu’s land use rights and its

building located at its facility in Tianjin, China and BoYu’s accounts receivable.

The primary intended use of the credit facility is for general purposes, which may include working capital and other corporate expenses.

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

As of March 31, 2022, $ 1.6 million was included in “Bank loan” in our condensed consolidated balance sheets.

As of June 30, 2022, $ 1.5 million was included in “Bank loan” in our condensed consolidated balance sheets.

In September 2021, Tongmei entered into a credit facility with the Bank of Communications with a $ 3.1 million line of credit at an annual interest rate of 4.0 % as of September 30, 2021.

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In November 2021, the Bank of China increased the line of credit, under the same terms as the September 2021 line of credit, by $ 1.6 million for a total line of credit of $ 4.7 million.

As of March 31, 2022, $ 4.7 million was included in “Bank loan” in our condensed consolidated balance sheets.

As of June 30, 2022, $ 4.5 million was included in “Bank loan” in our condensed consolidated balance sheets.

In December 2021, Tongmei entered into a credit facility with China Merchants Bank for $ 1.6 million with an annual interest rate of 3.55 %.

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a fee of 1.5 % of the loan amount or approximately $ 24,000 .

As of March 31, 2022, $ 1.6 million was included in “Bank loan” in our condensed consolidated balance sheets.

As of June 30, 2022, $ 1.5 million was included in “Bank loan” in our condensed consolidated balance sheets.

In December 2021, Tongmei entered into a credit facility with China Merchants Bank for $ 1.6 million with an annual interest rate of 4.22 %.

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The credit facility is not collateralized.

As of March 31, 2022, $ 1.6 million was included in “Bank loan” in our condensed consolidated balance sheets.

As of June 30, 2022, $ 1.5 million was included in “Bank loan” in our condensed consolidated balance sheets.

In January 2022, ChaoYang Tongmei entered into a credit facility with the Bank of Communications for $ 1.6 million with an annual interest rate of 3.3 %.

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The repayment of the loan is due in January 2023.

As of March 31, 2022, $ 1.6 million was included in “Bank loan” in our condensed consolidated balance sheets.

As of June 30, 2022, $ 1.5 million was included in “Bank loan” in our condensed consolidated balance sheets.

In January 2022, ChaoYang JinMei entered into a credit facility with the Bank of Communications for $ 1.6 million with an annual interest rate of 3.3 % .

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The repayment of the loan is due in January 2023.

As of March 31, 2022, $ 1.6 million was included in “Bank loan” in our condensed consolidated balance sheets.

As of June 30, 2022, $ 1.5 million was included in “Bank loan” in our condensed consolidated balance sheets.

In January 2022, Tongmei entered into a credit facility with the Bank of China for $ 4.4 million with an annual interest rate of 4.55 %.

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The Credit Facility is collateralized by Baoding Tongmei Xtal Technology Co., Ltd.’s land use rights and all of its buildings located at its facility in Dingxing, China.

As of March 31, 2022, $ 4.4 million was included in “Bank loan” in our condensed consolidated balance sheets.

As of June 30, 2022, $ 4.2 million was included in “Bank loan” in our condensed consolidated balance sheets.

In March 2022, Tongmei entered into a credit facility with the Bank of China for $ 3.1 million with an annual interest rate of 3.7 %.

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The repayment of the loan is due in September 2022.

As of March 31, 2022, $ 3.1 million was included in “Bank loan” in our condensed consolidated balance sheets.

As of June 30, 2022, $ 3.0 million was included in “Bank loan” in our condensed consolidated balance sheets.

In April 2022, Tongmei entered into a credit facility with the Bank of China for $ 1.5 million with an annual interest rate of 4.2 %.

Accrued interest is calculated monthly and paid quarterly.

The repayment of the loan and any

accrued interest is due in April 2023.

As of June 30, 2022, $ 1.5 million was included in “Bank loan” in our condensed consolidated balance sheets.

In May 2022, Tongmei entered into a credit facility with the Bank of Beijing for $ 3.4 million with an annual interest rate of 4.2 %.

Accrued interest is calculated monthly and paid quarterly.

The repayment of the loan and any accrued interest is due in May 2023.

The credit facility is collateralized by a $ 3.9 million time deposit held in the Bank of Beijing.

The time deposit cannot be withdrawn until such time as the credit facility and all accrued interest has been repaid.

As of June 30, 2022, $ 3.4 million was included in “Bank loan” in our condensed consolidated balance sheets.

In June 2022, Tongmei entered into a credit facility with Industrial Bank for $ 6.0 million with an annual interest rate of 4.35 %.

Accrued interest is calculated monthly and paid quarterly.

The repayment of the loan and any accrued interest is due in June 2023.

The credit facility is not collateralized.

As of June 30, 2022, $ 6.0 million was included in “Bank loan” in our condensed consolidated balance sheets.

In June 2022, Tongmei entered into a credit facility with NingBo Bank for $ 1.5 million with an annual interest rate of 4.8 %.

The repayment of the loan and any accrued interest is due in June 2023.

The credit facility is not collateralized.

As of June 30, 2022, $ 1.5 million was included in “Bank loan” in our condensed consolidated balance sheets.

In June 2022, BoYu entered into a credit facility with NingBo Bank for $ 1.5 million with an annual interest rate of 4.8 %.

The repayment of the loan and any accrued interest is due in June 2023.

The credit facility is not collateralized.

As of June 30, 2022, $ 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.

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

As of March 31, 2022, the maturities of our operating lease liabilities (excluding short-term leases) are as follows (in thousands):

As of June 30, 2022, the maturities of our operating lease liabilities (excluding short-term leases) are as follows (in thousands):

Maturity of Lease Liabilities

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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:

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Three Months Ended

Six Months Ended

Operating lease

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We currently do not believe that this is probable thus no amortization of the issuance costs has been recorded.

Pursuant to the Capital Investment Agreements with the Investors, each Investor has the right to require AXT to redeem any or all Tongmei shares held by such Investor at the original purchase price paid by such Investor, without interest, in the event of a material adverse change or if Tongmei does not achieve its IPO on or before December 31, 2022.

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

The aggregate redemption amount is approximately $ 49 million.

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

Tongmei submitted to the Shanghai Stock Exchange the application in December 2021 and it was formally accepted for review on January 10, 2022.

The Shanghai Stock Exchange provided comments to the formal application in March 2022 and Tongmei filed an amended application to address the comments on April 14, 2022.

The Shanghai Stock Exchange accepted for review the amended application on April 18, 2022 and provided comments to the amended application on April 26, 2022.

The Shanghai Stock Exchange has not yet approved the formal application.

If the Shanghai Stock Exchange approves the formal application, then the Shanghai Stock Exchange will forward it to the CSRC for further review.

The process of going public on the STAR Market includes several periods of review and is therefore a lengthy process.

Tongmei does not expect to complete the IPO until the second half of 2022.

If, on December 31, 2022, the IPO application 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.

If the application is approved and Tongmei completes an IPO the redemption right is cancelled.

Tongmei submitted its IPO application to the Shanghai Stock Exchange the application in December 2021 and it was formally accepted for review on January 10, 2022.

The Shanghai Stock Exchange approved the IPO application on July 12, 2022.

The STAR Market IPO remains subject to review and approval by the CSRC and other authorities.

The process of going public on the STAR Market includes several periods of review and, therefore, is a lengthy process.

Subject to review and approval by the CSRC and other authorities, Tongmei expects to accomplish this goal in the second half of 2022, probably in the fourth quarter of 2022.

The listing of Tongmei on the STAR Market will not change the status of AXT as a U.S.

public company.

The components of the change in redeemable noncontrolling interests for the three months ended March 31, 2022 are presented in the following table (in thousands):

The components of the change in redeemable noncontrolling interests for the six months ended June 30, 2022 are presented in the following table (in thousands):

Balance as of January 1, 2022

Investment in subsidiary with redeemable noncontrolling interest

Equity issuance costs incurred

Equity issuance costs incurred for the six months ended June 30, 2022

Stock-based compensation attributable to redeemable noncontrolling interests

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Effect of foreign currency translation attributable to redeemable noncontrolling interests

Balance as of March 31, 2022

Balance as of June 30, 2022

Recent Accounting Pronouncements

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Adoption of the new standard had a de minimis effect on our condensed consolidated financial statements.

In March 2022, FASB pronouncement ASU 2022-02, Financial Instruments-Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures was issued as an amendment to Accounting Standards Update 2016-13, Financial Instruments-Credit Losses.

ASU 2022-02 aims to modify disclosure requirements for certain loan refinancings and restructurings by creditors.

The amendment also require that an entity disclose current-period gross write offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost.

The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Adoption of the new standard will have an immaterial effect on our condensed consolidated financial statements.

Subsequent Event

In April 2022, Tongmei entered into a capital increase agreement with noncontrolling interests to further invest $ 4.5 million in our consolidated subsidiary, ChaoYang XinMei.

Tongmei’s portion of the investment was approximately $ 2.6 million, of which $ 1.1 million was paid in April 2022.

Noncontrolling interests’ portion of the investment was approximately $ 1.9 million, of which $ 0.7 million was paid in April 2022.

As a result, noncontrolling interests increased $ 0.8 million and redeemable noncontrolling interests increased $ 0.1 million.

Tongmei’s ownership remained at 58.5 % after the April 2022 equity investment.

In July, we received a $ 1.5 million dividend from one of our equity investments, Xiaoyi XingAn Gallium Co., Ltd.

In July and August 2022, ChaoYang JinMei completed the initial funding of $ 1.0 million in our consolidated subsidiary, ChaoYang ShuoMei.

In August 2022, noncontrolling interest contributed $ 334,000 in ChaoYang ShuoMei.

As a result, noncontrolling interests increased $ 406,000 and redeemable noncontrolling interests increased $ 73,000 .

In July 2022, Tongmei further contributed $ 0.8 million in our consolidated subsidiary, ChaoYang XinMei.

Noncontrolling interest further contributed $ 0.6 million in ChaoYang XinMei.

This completed the agreed amount in the April capital increase agreement.

As a result, noncontrolling interests increased $ 610,000 and redeemable noncontrolling interests increased $ 57,000 .

Tongmei’s ownership remained at 58.5 % after the July 2022 equity investment.

In August 2022, Tongmei entered into a credit facility with NingBo Bank for $ 1.5 million with an annual interest rate of 4.8 %.

The repayment of the loan and any accrued interest is due in August 2023.

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

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Additionally, statements regarding completing steps in connection with the proposed listing of shares of our wafer manufacturing company, Beijing Tongmei Xtal Technology Co., Ltd.

(“Tongmei”), on the Shanghai Stock Exchange’s Sci-Tech innovAtion boaRd (the “STAR Market”), being accepted to list shares of Tongmei on the STAR Market, the timing and completion of such listing of shares of Tongmei on the STAR Market and the completion of entity reorganizations and the alignment of assets under Tongmei are forward looking statements.

(“Tongmei”), on the Shanghai Stock Exchange’s Sci-Tech innovAtion boaRd (the “STAR Market”), being accepted to list shares of Tongmei on the STAR Market and the timing and completion of such listing of shares of Tongmei on the STAR Market are forward looking statements.

Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “goals,” “should,” “continues,” “would,” “could” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this annual report.

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These uncertainties and factors include but are not limited to:

investments in Tongmei and the listing of shares of Tongmei on the STAR Market, continued open access to companies to list shares on the STAR Market, investor enthusiasm for new listings of shares on the STAR Market and geopolitical tensions between China and the United States.

the withdrawal, cancellations or requests for redemptions by private equity funds in China of their investments in Tongmei, the administrative challenges in satisfying the requirements of various government agencies in China in connection with the investments in Tongmei and the listing of shares of Tongmei on the STAR Market, continued open access to companies to list shares on the STAR Market, investor enthusiasm for new listings of shares on the STAR Market and geopolitical tensions between China and the United States.

Additional uncertainties and factors include, but are not limited to:

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A new application for semi-conducting GaAs substrates is 3-D sensing chips using VCSELs (vertical cavity surface emitting lasers) as an array of lasers on a single chip that can be used in cell phones and other devices.

GaAs wafers could also be used for making vertical cavity surface emitting lasers (VCSELs) and micro-LEDs targeting

improved screen technology.

GaAs wafers could also be used for making vertical cavity surface emitting lasers (VCSELs) and micro-LEDs targeting improved screen technology.

Ge substrates are used in applications such as solar cells for space and terrestrial photovoltaic applications.

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To qualify for a STAR Market listing, the first major step in the process was to engage private equity firms in China (“Investors”) to invest funds in Tongmei.

By December 31, 2020, Investors, which consist of 10 private equity funds, had engaged with Tongmei for a total investment of

approximately $48.1 million.

By December 31, 2020, Investors, which consist of 10 private equity funds, had entered into two sets of definitive transaction documents,

each consisting of a capital increase agreement along with certain supplemental agreements in substantially the same form (collectively, the “Capital Investment Agreements”), with Tongmei for a total investment of approximately $48.1 million.

(The currency used in the investment transactions was the Chinese renminbi, which has been converted to approximate U.S.

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In exchange for an investment of approximately $49 million, the Investors received a 7.28% redeemable noncontrolling interest in Tongmei.

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

The aggregate redemption amount is approximately $49 million.