What changed in this filing

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Item 1. Financial Statements

2024-08-09 compared with 2024-05-10 · 348 added, 237 removed, 1262 unchanged (32% of the section changed)

5 unchanged sentences

Short-term investments

Accounts receivable, net of allowances for credit losses of $ 579 and $ 579 as of March 31, 2024 and December 31, 2023

Accounts receivable, net of allowances for credit losses of $ 263 and $ 579 as of June 30, 2024 and December 31, 2023

Prepaid expenses and other current assets

16 unchanged sentences

2,000 shares authorized;

883 shares issued and outstanding as of March 31, 2024 and December 31, 2023 (Liquidation preference of $ 7,920 and $ 7,875 as of March 31, 2024 and December 31, 2023)

883 shares issued and outstanding as of June 30, 2024 and December 31, 2023 (Liquidation preference of $ 7,964 and $ 7,875 as of June 30, 2024 and December 31, 2023)

Common stock, $ 0.001 par value;

70,000 shares authorized;

44,399 and 44,239 shares issued and outstanding as of March 31, 2024 and December 31, 2023

44,482 and 44,239 shares issued and outstanding as of June 30, 2024 and December 31, 2023

Additional paid-in capital

10 unchanged sentences

Three Months Ended

Six Months Ended

Cost of revenue

7 unchanged sentences

Other income, net

Loss before provision for income taxes

Provision for income taxes

Loss before provision (benefit) for income taxes

Provision (benefit) for income taxes

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

7 unchanged sentences

Three Months Ended

Other comprehensive income (loss), net of tax:

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

Six Months Ended

Other comprehensive loss, net of tax:

Change in foreign currency translation loss, net of tax

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

Total other comprehensive income (loss), net of tax

Total other comprehensive loss, net of tax

Comprehensive loss attributable to AXT, Inc.

Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interests

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

Comprehensive 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 loss to net cash used in operating activities:

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

Depreciation and amortization

2 unchanged sentences

(Gain) loss on disposal of equipment

Return of equity method investments as dividends

Equity in income of unconsolidated joint ventures

6 unchanged sentences

Other long-term liabilities

Net cash used in operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

1 unchanged sentence

Proceeds from sales and maturities of available-for-sale debt securities

Proceeds from sales of equity securities - 15 % Jia Mei

Investments in non-marketable equity investments

Net cash used in investing activities

8 unchanged sentences

Effect of exchange rate changes on cash and restricted cash

Net increase (decrease) in cash and restricted cash

Net decrease in cash and restricted cash

Cash and restricted cash at the beginning of the year

7 unchanged sentences

Basis of Presentation

The accompanying condensed consolidated financial statements of AXT, Inc.

(“AXT,” the “Company,” “we,” “us,” and “our” refer to AXT, Inc.

The accompanying condensed consolidated financial statements of AXT, Inc., a Delaware corporation (“AXT,” the “Company,” “we,” “us,” and “our” refer to AXT, Inc.

and all of its consolidated subsidiaries) are unaudited, and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

1 unchanged sentence

Accordingly, this interim quarterly financial report does not include all disclosures required by U.S.

In the opinion of our management, the unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, considered necessary to present fairly the financial position, results of operations and cash flows of AXT, Inc.

for all periods presented.

GAAP for complete consolidated financial statements.

Our management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these condensed consolidated financial statements in conformity with U.S.

2 unchanged sentences

Actual results could differ materially from those estimates.

The results of operations for the three months ended March 31, 2024 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 2023 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2024.

The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the results to be expected in the future or for the full fiscal year.

It is recommended that these condensed consolidated financial statements be read in conjunction with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2024, and our Quarterly Report on Form 10-Q for the three months ended March 31, 2024 filed with the SEC on May 10, 2024.

The condensed consolidated financial statements include the accounts of AXT and our consolidated subsidiaries, Beijing Tongmei Xtal Technology Co., Ltd.

10 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, 2024 and December 31, 2023, we have three companies accounted for by the equity method.

As of June 30, 2024 and December 31, 2023, we have three companies accounted for by the equity method.

In May 2023, we reduced our ownership in Emeishan Jia Mei High Purity Metals Co., Ltd.

(“Jia Mei”) from 25 % to 10 % by selling a portion of our Jia Mei shares to an unrelated third party for approximately $ 827,000 .

(“Jia Mei”) from 25 % to 10 % by selling a portion of our Jia Mei shares to a third party for approximately $ 827,000 .

As a result of our decreased ownership and the fact that we do not have the ability to exercise significant influence over Jia Mei’s operations, as of May 2023, we no longer reported Jia Mei as an equity investment in our condensed consolidated balance sheets.

3 unchanged sentences

When warranted by favorable market conditions, we intend to construct facilities at the ChaoYang LiMei location to provide us with additional production capacity.

For the three months ended March 31, 2024, 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, 2024, 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.

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

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

34 unchanged sentences

This new agreement called for additional investment of approximately $ 5.6 million, with Tongmei committing to fund approximately $ 2.3 million.

In December 2023, Tongmei made its initial additional investment of approximately $ 0.6 million in ChaoYang KaiMei.

These contributions culminated in the fulfillment of all of Tongmei’s financial obligations under the ChaoYang KaiMei Joint Venture Agreement.

In December 2023, Tongmei made its initial additional investment of approximately $ 0.6 million in ChaoYang KaiMei, followed by a second additional investment of approximately $ 0.3 million in June 2024.

Tongmei’s ownership of ChaoYang KaiMei remained at 40 % after these equity investments.

12 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, 2024, Tongmei’s noncontrolling interests and redeemable noncontrolling interests totaled approximately 14.5 %.

As of June 30, 2024, Tongmei’s noncontrolling interests and redeemable noncontrolling interests totaled approximately 14.5 %.

We remain the controlling stakeholder of Tongmei and hold a majority of the board of director positions of Tongmei.

3 unchanged sentences

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

As of March 31, 2024 and December 31, 2023, our cash and debt investments are classified as follows (in thousands):

March 31, 2024

As of June 30, 2024 and December 31, 2023, our cash and debt investments are classified as follows (in thousands):

June 30, 2024

December 31, 2023

11 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, 2024, 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, 2024, 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.

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, 2024 (in thousands):

In Loss Position

1 unchanged sentence

Loss Position

As of March 31, 2024

As of June 30, 2024

Certificates of deposit

10 unchanged sentences

These balances have been excluded from the Company’s cash balance.

As of March 31, 2024, $ 13.8 million was included in restricted cash in our condensed consolidated balance sheets.

As of June 30, 2024, $ 13.8 million was included in restricted cash in our condensed consolidated balance sheets.

Investments in Privately-held Raw Material Companies

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

The investment balances for the non-consolidated companies are accounted for under the equity method, included in “Other assets” in the condensed consolidated balance sheets, totaled $ 13.2 million and $ 12.5 million as of March 31, 2024 and December 31, 2023, respectively.

As of March 31, 2024, there were three companies accounted for under the equity method.

The investment balances for the non-consolidated companies are accounted for under the equity method, included in “Other assets” in the condensed consolidated balance sheets, totaled $ 11.9 million and $ 12.5 million as of June 30, 2024 and December 31, 2023, respectively.

As of June 30, 2024, there were three companies accounted for under the equity method.

One of our equity investments, Beijing JiYa Semiconductor Material Co., Ltd.

1 unchanged sentence

This resulted in a $ 754,000 impairment charge in our second quarter 2023 financial results.

Except as mentioned above, there were no impairment charges for the remainder of these investments during the three months ended March 31, 2024 and 2023.

In May 2023, we reduced our ownership in Jia Mei from 25 % to 10 % by selling a portion of our Jia Mei shares to an unrelated third party for approximately $ 827,000 .

Except as mentioned above, there were no impairment charges for the remainder of these investments during the three and six months ended June 30, 2024 and 2023.

In May 2023, we reduced our ownership in Jia Mei from 25 % to 10 % by selling a portion of our Jia Mei shares to a third party for approximately $ 827,000 .

As a result of our decreased ownership and the fact that we do not have the ability to exercise significant influence over Jia Mei’s operations, we adopted the fair value method of accounting to report on the investment in Jia Mei.

Our investments under the fair value method are reviewed for other-than-temporary declines in value on a quarterly basis.

We monitor our investments for impairment and record reductions

in carrying value when events or changes in circumstances indicate that the carrying value may not be recoverable.

As of March 31, 2024, our investments in this unconsolidated company had a carrying value of $ 551,000 and were included in “Other assets” in the condensed consolidated balance sheets.

Our investments under the fair value method are reviewed for other-than-temporary

declines in value on a quarterly basis.

We monitor our investments for impairment and record reductions in carrying value when events or changes in circumstances indicate that the carrying value may not be recoverable.

As of June 30, 2024, our investments in this unconsolidated company had a carrying value of $ 551,000 and were included in “Other assets” in the condensed consolidated balance sheets.

As a result of the share sale, we recognized a gain of $ 575,000 .

4 unchanged sentences

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, 2024 and December 31, 2023, the total unrealized loss, net of tax, included in accumulated other comprehensive income was immaterial.

As of June 30, 2024 and December 31, 2023, 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.

10 unchanged sentences

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

As of March 31, 2024, 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, 2024.

There have been no transfers between fair value measurements levels during the three months ended March 31, 2024.

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, 2024 (in thousands):

As of June 30, 2024, 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, 2024.

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

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, 2024 (in thousands):

Quoted Prices in

4 unchanged sentences

Observable Inputs

March 31, 2024

June 30, 2024

Certificates of deposit

11 unchanged sentences

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

We did not record any other-than-temporary impairment charges for these investments during the three months ended March 31, 2024 and 2023, respectively.

We did not record any other-than-temporary impairment charges for these investments during the three and six months ended June 30, 2024 and 2023, respectively.

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

2 unchanged sentences

Finished goods

As of March 31, 2024 and December 31, 2023, carrying values of inventories were net of inventory reserves of $ 22.2 million and $ 21.9 million, respectively, for excess and obsolete inventory and $ 213,000 and $ 78,000 , respectively, for lower of cost or net realizable value reserves.

As of June 30, 2024 and December 31, 2023, carrying values of inventories were net of inventory reserves of $ 23.1 million and $ 21.9 million, respectively, for excess and obsolete inventory and $ 161,000 and $ 78,000 , 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, 2024, the balance of construction in progress was $ 36.9 million, of which $ 29.4 million was related to our buildings in our new Dingxing and Kazuo locations, $ 2.9 million was for manufacturing equipment purchases not yet placed in service and $ 4.6 million was for construction in progress for our other consolidated subsidiaries.

As of June 30, 2024, the balance of construction in progress was $ 22.9 million, of which $ 16.3 million was related to our buildings in our new Dingxing and Kazuo locations, $ 2.3 million was for manufacturing equipment purchases not yet placed in service and $ 4.2 million was for construction in progress for our other consolidated subsidiaries.

As of December 31, 2023, the balance of construction in progress was $ 38.5 million, of which $ 31.2

2 unchanged sentences

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

Accrued compensation and related charges

Preferred stock dividends payable

Accrued compensation and related charges

Payable in connection with construction in progress

Other tax payable

Advances from customers

Accrued product warranty

Accrued professional services

Other tax payable

Current portion of operating lease liabilities

Other personnel-related costs

Accrued professional services

Accrued product warranty

Accrued income taxes

Other personnel-related costs

Accrual for sales returns

7 unchanged sentences

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

In April 2022, Tongmei entered into the Capital Increase Agreement with minority investors to further invest $ 4.5 million in ChaoYang XinMei.

In April 2022, Tongmei entered into the Capital Increase Agreement with minority investors to further invest approximately $ 4.5 million in ChaoYang XinMei.

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

7 unchanged sentences

In January 2023, ChaoYang KaiMei paid to ChaoYang LiMei $ 1.5 million.

As of March 31, 2024, $ 0 million was included in “Prepaid expenses and other current assets” in our condensed consolidated balance sheets.

As of June 30, 2024, $ 0 million was included in “Prepaid expenses and other current assets” 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.

5 unchanged sentences

These companies form part of our overall supply chain strategy.

As of March 31, 2024, the investments are summarized below (in thousands):

As of June 30, 2024, 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, 2024, Tongmei’s noncontrolling interests and redeemable noncontrolling interests totaled approximately 14.5 %.

As of June 30, 2024, 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

We now own 10 % of Jia Mei and account for it under the fair value method.

In May 2023, we reduced our ownership in Jia Mei from 25 % to 10 % by selling a portion of our Jia Mei shares to an unrelated third party for approximately $ 827,000 .

Considering our decreased ownership and we no longer have significant influence over its operations and financial policies, we adopted the fair value method of accounting to report

on the investment in Jia Mei.

In May 2023, we reduced our ownership in Jia Mei from 25 % to 10 % by selling a portion of our Jia Mei shares to a third party for approximately $ 827,000 .

Considering our decreased ownership and we no longer have significant influence over its operations and financial policies, we adopted the fair value method of accounting to report on the

investment in Jia Mei.

As a result of the share sale, we recognized a gain of $ 575,000 .

12 unchanged sentences

The Jia Mei investment is reviewed for other-than-temporary declines in value on a quarterly basis.

We did not record any other-than-temporary impairment charges for Jia Mei investment during the three months ended March 31, 2024.

We did not record any other-than-temporary impairment charges for Jia Mei investment during the six months ended June 30, 2024.

In November 2023, our 46 % equity ownership interest in Donghai County Dongfang High Purity Electronic Materials Co., Ltd.

9 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 $ 13.2 million and $ 12.5 million as of March 31, 2024 and December 31, 2023, respectively.

As of March 31, 2024, our ownership interests inChaoYang KaiMei, JiYa, Xiaoyi XingAn Gallium Co., Ltd (“Xiaoyi XingAn”) and Jia Mei were 40 %, 39 %, 25 %, and 10 %, 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 $ 11.9 million and $ 12.5 million as of June 30, 2024 and December 31, 2023, respectively.

As of June 30, 2024, our ownership interests in ChaoYang KaiMei, JiYa, Xiaoyi XingAn Gallium Co., Ltd (“Xiaoyi XingAn”) and Jia Mei were 40 %, 39 %, 25 %, and 10 %, respectively.

These minority investment entities are not considered variable interest entities because:

7 unchanged sentences

In April 2023 and November 2023, Xiaoyi XingAn distributed a dividend of $ 1.8 million, and JiYa distributed dividends of $ 2.0 million and $ 0.5 million, respectively.

In May 2024, Xiaoyi XingAn distributed a $ 2.1 million dividend to us.

We have no current intentions to distribute to our investors earnings under our corporate structure.

1 unchanged sentence

AXT’s minority investment entities are not consolidated and are accounted for under the equity method.

The equity investment entities had the following summarized statements of operations information (in thousands) for the three months ended March 31, 2024 and 2023:

The equity investment entities had the following summarized statements of operations information (in thousands) for the three and six months ended June 30, 2024 and 2023:

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 an income of $ 0.9 million and $ 1.0 million, respectively, for the three months ended March 31, 2024 and 2023.

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 an income of $ 0.6 million and a loss of $ 18,000 , respectively, for the three months ended June 30, 2024 and 2023.

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 $ 1.0 million, respectively, for the six months ended June 30, 2024 and 2023.

In the condensed consolidated statements of operations for the second quarter of 2023, the "Equity in income of unconsolidated joint ventures" included a gain of $ 958,000 from the Jia Mei sale, resulting in an income of $ 0.9 million and $ 2.0 million for the three and six months ended June 30, 2023, respectively.

Stockholders’ Equity

1 unchanged sentence

(in thousands)

The changes in stockholders’ equity by component for the three months ended March 31, 2024 are as follows:

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

Comprehensive

13 unchanged sentences

Balance as of March 31, 2024

Net loss and Other comprehensive loss attributable to redeemable noncontrolling interests were $ 71,000 and $ 189,000 , respectively, for the three months ended March 31, 2024 and are not shown in the table above.

The changes in stockholders’ equity by component for the three months ended March 31, 2023 are as follows:

Common stock options exercised

Investment in subsidiary with noncontrolling interest

Investment in subsidiary with redeemable 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, 2024

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

The changes in stockholders’ equity by component for the three and six months ended June 30, 2023 are as follows:

Comprehensive

13 unchanged sentences

Balance as of March 31, 2023

Net loss and Other comprehensive income attributable to redeemable noncontrolling interests were $ 149,000 and $ 70,000 , respectively, for the three months ended March 31, 2023, and are not shown in the table above.

There were no reclassification adjustments from accumulated other comprehensive income (loss) for the three months ended March 31, 2024 and 2023 .

Common stock options exercised

Investment in subsidiary with noncontrolling interest

Investment in subsidiary with redeemable noncontrolling interest

Noncontrolling interest portion of Tongmei stock-based compensation

Stock-based compensation

Tongmei stock-based compensation

Net income (loss)

Other comprehensive income (loss)

Balance as of June 30, 2023

Net loss and Other comprehensive income attributable to redeemable noncontrolling interests were $ 302,000 and $ 630,000 , respectively, for the three months ended June 30, 2023, and $ 451,000 and $ 560,000 , respectively, for the six months ended June 30, 2023 and are not shown in the table above.

There were no reclassification adjustments from accumulated other comprehensive income (loss) for the three and six months ended June 30, 2024 and 2023 .

Stock Repurchase Program

3 unchanged sentences

No shares were repurchased from 2016 through 2023 .

During the three months ended March 31, 2024, we did no t repurchase any shares under the approved stock repurchase program.

As of March 31, 2024, approximately $ 2.7 million remained available for future repurchases under this program.

During the three and six months ended June 30, 2024, we did no t repurchase any shares under the approved stock repurchase program.

As of June 30, 2024, approximately $ 2.7 million remained available for future repurchases under this program.

Currently, we do not plan to repurchase additional shares.

3 unchanged sentences

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

In May 2015, our stockholders approved our 2015 Equity Incentive Plan (the “2015 Plan”).

The 2015 Plan is a replacement of the 2007 Plan.

The 399,562 share reserve of the 2007 Plan became the reserve of the 2015 Plan, together with 3,000,000 additional shares approved for issuance under the 2015 Plan.

In May 2019, our stockholders approved 1,600,000 of additional shares for issuance under the 2015 Plan.

In May 2021, our stockholders approved 3,600,000 of additional shares for issuance under the 2015 Plan.

In May 2024, our stockholders approved an amendment to the 2015 Plan to increase the number of shares reserved for issuance by an additional 3,600,000 shares.

Awards that may be made under the 2015 Plan are stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, deferred compensation awards and other stock-based awards.

Stock options and stock appreciation rights awarded under the 2015 Plan may not be repriced without stockholder approval.

Stock options and stock appreciation rights may not be granted below fair market value.

Stock options or stock appreciation rights generally shall not be fully vested over a period of less than four years from the date of grant and cannot be exercised more than 10 years from the date of grant.

Restricted stock, restricted stock units, and performance awards generally shall not vest faster than over a three-year period (or a twelve-month period if vesting is based on a performance measure).

However, options granted to consultants and restricted stock awards granted to independent board members typically vest in one year and the 2015 Plan does allow for similar vesting to employees.

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

Three Months Ended

Six Months Ended

Cost of revenue

1 unchanged sentence

Research and development

Net effect on net income (loss)

As of March 31, 2024, the unamortized compensation costs related to unvested stock options granted to employees under our stock option plan was $ 0 .

We did not capitalize any stock-based compensation to inventory as of March 31, 2024 and December 31, 2023 due to the immateriality of the amount.

Net effect on net loss

As of June 30, 2024, the unamortized compensation costs related to unvested stock options granted to employees under our stock option plan was $ 0 .

We did not capitalize any stock-based compensation to inventory as of June 30, 2024 and December 31, 2023 due to the immateriality of the amount.

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

There were no options granted in the three months ended March 31, 2024 and 2023.

The following table summarizes the stock option transactions during the three months ended March 31, 2024 (in thousands, except per share data):

There were no options granted in the three and six months ended June 30, 2024 and 2023.

The following table summarizes the stock option transactions during the six months ended June 30, 2024 (in thousands, except per share data):

Stock Options

1 unchanged sentence

Canceled and expired

Balance as of March 31, 2024

Options vested as of March 31, 2024 and unvested options expected to vest, net of forfeitures

Options exercisable as of March 31, 2024

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on our closing price of $ 4.59 on March 28, 2024, which would have been received by the option holder had all option holders exercised their options on that date.

Balance as of June 30, 2024

Options vested as of June 30, 2024 and unvested options expected to vest, net of forfeitures

Options exercisable as of June 30, 2024

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on our closing price of $ 3.38 on June 28, 2024, 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, 2024 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, 2024 is presented below (in thousands, except per share data):

Weighted-Average

Non-vested as of January 1, 2024

Non-vested as of March 31, 2024

As of March 31, 2024, the unamortized compensation costs related to unvested restricted stock awards was approximately $ 3.5 million, which is to be amortized on a straight-line basis over a weighted-average period of approximately 1.3 years.

Non-vested as of June 30, 2024

As of June 30, 2024, the unamortized compensation costs related to unvested restricted stock awards was approximately $ 3.3 million, which is to be amortized on a straight-line basis over a weighted-average period of approximately 1.2 years.

At-Risk, Performance Shares

42 unchanged sentences

If the minimum financial metric for fiscal year 2024 is not achieved, then these awards are forfeited.

A summary of the status of our unvested at-risk, performance shares as of March 31, 2024 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, 2024 is presented below (in thousands, except per share data):

Weighted-Average

Non-vested as of January 1, 2024

Non-vested as of March 31, 2024

Non-vested as of June 30, 2024

(1) The number of shares 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, 2024, there was $ 0.4 million of unrecognized compensation expense related to unvested at-risk, performance shares that is expected to be recognized over a weighted-average period of 1.81 years.

As of June 30, 2024, there was $ 0.3 million of unrecognized compensation expense related to unvested at-risk, performance shares that is expected to be recognized over a weighted-average period of 1.56 years.

Net Loss Per Share

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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.

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

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

Three Months Ended

Six Months Ended

Net loss attributable to AXT, Inc.

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Net loss available to common stockholders

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

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

Effect of dilutive securities:

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Restricted stock awards

Denominator for dilutive net income (loss) per common shares

Net income (loss) attributable to AXT, Inc.

Denominator for dilutive net loss per common shares

Net loss 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, 2024 and December 31, 2023, 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 loss per share as the impact is anti-dilutive

Restricted stock excluded from diluted net 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 June 30, 2024 and December 31, 2023, 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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We operate in one segment for the design, development, manufacture and distribution of high-performance compound and single element semiconductor substrates and sale of raw materials integral to these substrates.

accordance with ASC Topic 280, Segment Reporting, our chief operating decision maker has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the Company.

In accordance with ASC Topic 280, Segment Reporting, our chief operating decision maker has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the Company.

Since we operate in one segment, all financial segment and product line information can be found in the condensed consolidated financial statements.

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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 represented 12 % of our revenue for the three months ended March 31, 2024 and no customers represented 10 % of our revenue for the three months ended March 31, 2023.

Our top five customers, although not the same five customers for each period, represented 33 % and 28 % of our revenue for the three months ended March 31, 2024 and 2023, respectively.

No customer represented 10% of our revenue for the three months ended June 30, 2024 and 2023 .

Our top five customers, although not the same five customers for each period, represented 32 % and 24 % of our revenue for the three months ended June 30, 2024 and 2023, respectively.

One customer represented 10% of our revenue for the six months ended June 30, 2024 and no customer represented 10% of our revenue for the six months ended June 30, 2023.

Our top five customers, although not the same five customers for each period, represented 32 % and 24 % of our revenue for the six months ended June 30, 2024 and 2023, 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.

No customers accounted for 10 % of our accounts receivable balance as of March 31, 2024 , and no customers accounted for more than 10 % of our accounts receivable as of December 31, 2023.

No customers accounted for 10 % of our accounts receivable balance as of June 30, 2024 , and December 31, 2023.

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, 2024 and 2023 (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, 2024 and 2023 (in thousands):

Three Months Ended

Six Months Ended

Beginning accrued product warranty

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Land Purchase and Investment Agreement

We have established a wafer process production line in Dingxing, China.

In addition to a land rights and building purchase agreement that we entered into with a private real estate development company to acquire our new manufacturing facility, we also entered into a cooperation agreement with the Dingxing local government.

In addition to pledging its full support and cooperation, the Dingxing local government will issue certain credits or rebates to us as we achieve certain milestones.

We, in turn, agreed to hire local workers over time, pay taxes when due and eventually demonstrate a total investment of approximately $ 90 million in value, assets and capital.

In 2017, Baoding Tongmei established a wafer process production line in Dingxing, China.

In addition to a land rights and building purchase agreement that Baoding Tongmei entered into with a private real estate development company to acquire our new manufacturing facility, Baoding Tongmei also entered into a cooperation agreement with the Dingxing local government.

In addition to pledging its full support and cooperation, the Dingxing local government will issue certain credits or rebates to Baoding Tongmei as Baoding Tongmei achieves certain milestones.

Baoding Tongmei, in turn, agreed to hire local workers over time, pay taxes when due and eventually demonstrate a total investment of approximately $ 90 million in value, assets and capital.

The investment will include cash paid for the land and buildings, cash on deposit in our name at local banks, the gross value of new and used equipment (including future equipment that might be used for indium phosphide and germanium substrates production), the deemed value for our customer list or the end user of our substrates, for example, the end users of 3-D sensing VCSELs (vertical cavity surface emitting lasers), a deemed value for employment of local citizens, a deemed value for our proprietary process technology, other intellectual property, other intangibles and additional items of value.

There is no timeline or deadline by which this must be accomplished, rather it is a good faith covenant entered into between AXT and the Dingxing local government.

There is no timeline or deadline by which this must be accomplished, rather it is a good faith covenant entered into between Baoding Tongmei and the Dingxing local government.

Further, there is no specific penalty contemplated if either party breaches the agreement.

However, the agreement does state that each party has a right to seek from the other party compensation for

However, the agreement does state that each party has a right to seek from the other party compensation for losses.

Under certain conditions, the Dingxing local government may purchase the land and building at the appraised value.

We believe that such cooperation agreements are normal, customary and usual in China and that the future valuation is flexible.

We have a similar agreement with the city of Kazuo, China, although on a smaller scale.

The total investment targeted by AXT in Kazuo is approximately $ 15 million in value, assets and capital.

Chaoyang Tongmei has a similar agreement with the city of Kazuo, China, although on a smaller scale.

The total investment targeted by Chaoyang Tongmei in Kazuo is approximately $ 15 million in value, assets and capital.

In addition, BoYu has a similar agreement with the city of Kazuo.

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

As of March 31, 2024, we do not have any outstanding purchase orders that will incur a penalty if cancelled by the Company.

As of June 30, 2024, we do not have any outstanding purchase orders that will incur a penalty if cancelled by the Company.

Legal Proceedings

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We do not expect that any of these matters, individually or in the aggregate, will have a material adverse effect on our business, financial condition, cash flows or results of operations.

On May 6, 2024, a shareholder class action complaint was filed in the U.S.

District Court for the Eastern District of New York on behalf of persons or entities who purchased or acquired our publicly traded securities, against us, Morris S.

Young, our Chief Executive Officer, and Gary L.

Fischer, our Chief Financial Officer.

The complaint asserts a putative class period from March 24, 2021 and April 3, 2024, inclusive (the “Class Period”).

The complaint asserts that the defendants issued materially false and misleading statements about our business and financial condition in certain filings made with the SEC during the Class Period, alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder by the defendants, and seeks unspecified monetary relief, interest, and attorneys’ fees.

The Court has ordered the case to be transferred to the Northern District of California, where our headquarters is located.

It is not possible at this time to reasonably assess the final outcome of this litigation or reasonably to estimate the possible loss or range of loss with respect to this litigation.

Management believes these claims to be meritless and intends to vigorously defend against them.

Other Income (expense), Net

Other income (expense), net for the three months ended March 31, 2024 and 2023, includes a grant of $ 1.0 million and $ 0.5 million, respectively, from government agencies as awards for technological innovation.

In addition, we incurred a foreign currency transaction exchange gain of $ 58,000 and a loss of $ 213,000 for the three months ended March 31, 2024 and 2023, respectively.

Other income (expense), net for the three months ended June 30, 2024 and 2023, includes a grant of $ 0.4 million and $ 1.3 million, respectively, from government agencies as awards for technological innovation and job creation.

Other income (expense), net for the six months ended June 30, 2024 and 2023, includes a grant of $ 1.4 million and $ 1.8 million, respectively, from government agencies as awards for technological innovation and job creation.

In addition, we incurred a foreign currency transaction exchange gain of $ 42,000 and $ 10,000 for the three months ended June 30, 2024 and 2023, respectively.

We incurred a foreign currency transaction exchange gain of $ 100,000 and a loss of $ 203,000 for the six months ended June 30, 2024 and 2023, 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.

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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, 2024 includes no interest and penalties.

As of March 31, 2024, we have no accrued interest and penalties related to uncertain tax positions.

Income tax expense for the three and six months ended June 30, 2024 includes no interest and penalties.

As of June 30, 2024, 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, 2024 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, 2024 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.

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We capitalize the R&E expense incurred by 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.

California Senate Bill 167 was signed into law by the acting governor on June 27, 2024.

The bill makes several tax changes designed to alleviate the 2024-2025 budget.

For tax years beginning on or after January 1, 2024, and before January 1, 2027, net operating losses (NOLs) are suspended for both corporate and personal income taxes.

The suspension will not apply to any taxpayer with net business income or modified adjusted income of less than $1 million.

Another provision in Senate Bill 167 limits the use of credits for tax years beginning on or after January 1, 2024, and before January 1, 2027.

During this period, a business (including all taxpayers that are members of a combined report) may claim a total of only $5 million in credits under both the Corporation and Personal Income Tax laws (including the carryover of any business credit).

Since the Company’s profit level is below $1 million, Bill 167 has no impact on the Company.

Revenue Recognition

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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, 2024.

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, 2024 and December 31, 2023 (in thousands):

We do not have any material contract assets as of June 30, 2024.

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

The following table reflects the contract liabilities balance, which is included in “Accrued liabilities” on the condensed consolidated balance sheets, as of June 30, 2024 and December 31, 2023 (in thousands):

Contract liabilities

During the three months ended March 31, 2024, the Company recognized $ 127,000 of revenue that was included in the contract balances as of December 31, 2023.

During the three months ended March 31, 2023, the Company recognized $ 286,000 of revenue that was included in the contract balances as of December 31, 2022.

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

During the three and six months ended June 30, 2023, the Company recognized $ 3,000 and $ 277,000 , respectively, of revenue that was included in the contract balances as of December 31, 2022.

Disaggregated Revenue

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Our bank loans and credit facilities typically have a term of 12 months or less and are included in “Short-term loans” in our condensed consolidated balance sheets.

The following table represents short-term bank loans as of March 31, 2024 and December 31, 2023 (in thousands, except interest rate data):

The following table represents short-term bank loans as of June 30, 2024 and December 31, 2023 (in thousands, except interest rate data):

Bank of China (1)

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NanJing Bank (1)

China Citic Bank (1)

Industrial and Commercial Bank of China (4)

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The intended use of the credit facility is for construction projects.

As of March 31, 2024, $ 5.6 million is included in “Other long-term liabilities” and $ 277,000 is included in “Short-term loans” in our consolidated balance sheets.

As of June 30, 2024, $ 5.5 million is included in “Other long-term liabilities” and $ 275,000 is included in “Short-term loans” in our consolidated balance sheets.

In December 2023, one of our consolidated subsidiaries, ChaoYang XinMei secured a loan of approximately $ 2.1 million from an unrelated financing company.

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At the end of the 30-month contractual period, ChaoYang XinMei holds the option to repurchase the production line and related equipment for $ 14.00 .

As of March 31, 2024, $ 1.4 million associated with this financing arrangement is included in “Other long-term liabilities” and $ 554,000 is included in “Short-term loans” in our consolidated balance sheets.

As of March 31, 2024, the maturities of our long-term loan liabilities in five years (excluding short-term loans) are as follows (in thousands):

As of June 30, 2024, $ 1.2 million associated with this financing arrangement is included in “Other long-term liabilities” and $ 550,000 is included in “Short-term loans” in our consolidated balance sheets.

As of June 30, 2024, the maturities of our long-term loan liabilities in five years (excluding short-term loans) are as follows (in thousands):

Maturity of long term loans

In summary, short-term loans of $ 49.0 million included under “Short-term loans” in our condensed consolidated balance sheet at March 31, 2024, consisted of $ 48.2 million of short-term bank loans and $ 0.8 million of the current portion of long-term debt.

Long-term loans of $ 7.0 million included under “Other long-term liabilities” in our condensed consolidated balance sheet at March 31, 2024 consisted of $ 5.6 million in a five-year bank loan and $ 1.4 million in a loan secured by ChaoYang XinMei.

In summary, short-term loans of $ 50.7 million included under “Short-term loans” in our condensed consolidated balance sheet at June 30, 2024, consisted of $ 49.9 million of short-term bank loans and $ 0.8 million of the current portion of long-term debt.

Long-term loans of $ 6.7 million included under “Other long-term liabilities” in our condensed consolidated balance sheet at June 30, 2024 consisted of $ 5.5 million in a five-year bank loan and $ 1.2 million in a loan secured by ChaoYang XinMei .

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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A lease is classified as a finance lease if any one of the following criteria are met:

the lease transfers ownership of the asset by the end of the lease term, the lease

contains an option to purchase the asset that is reasonably certain to be exercised, the lease term is for a major part of the remaining useful life of the asset or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset.

the lease transfers ownership of the asset by the end of the lease term, the lease contains an option to purchase the asset that is reasonably certain to be exercised, the lease term is for a major part of the remaining useful life of the asset or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset.

A lease is classified as an operating lease if it does not meet any one of these criteria.

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All right-of-use assets are reviewed for impairment.

The lease liability is initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, our secured incremental borrowing rate for the same term as the underlying lease.

The lease liability is initially measured at the present value

of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, our secured incremental borrowing rate for the same term as the underlying lease.

Lease payments included in the measurement of the lease liability comprise the following:

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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, 2024, the maturities of our operating lease liabilities (excluding short-term leases) are as follows (in thousands):

As of June 30, 2024, 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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public company.

The components of the change in redeemable noncontrolling interests for the three months ended March 31, 2024 are presented in the following table (in thousands):

The components of the change in redeemable noncontrolling interests for the six months ended June 30, 2024 are presented in the following table (in thousands):

Balance as of January 1, 2024

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Effect of foreign currency translation attributable to redeemable noncontrolling interests

Balance as of March 31, 2024

Balance as of June 30, 2024

Recent Accounting Pronouncements

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The update is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

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

Adoption of the new standard will not have a material effect on our condensed consolidated financial statements.

In December 2023, FASB issued ASU 2023-09— Income Taxes (Topic 740):

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Subsequent Event

In April 2024, Tongmei obtained $ 691,000 in a new one-year bank loan with an annual interest rate of 3.5 %.

The bank loan is unsecured.

On May 6, 2024, a putative shareholder class action was filed in U.S.

District Court for the Eastern District of New York.

Nowakowsky vs.

AXT, Inc., 1:24-cv-03341-DLI-JRC.

Named as defendants are the Company, Morris Young, and Gary Fischer.

The case alleges claims under the Securities Exchange Act of 1934.

That Court has ordered the case to be transferred to the Northern District of California, where the Company’s headquarters is located.

In July 2024, the Company secured $ 3.9 million in new one-year , unsecured bank loans with interest rates ranging from 2.9 % to 3.2 %.

During the same month, the Company repaid $ 4.3 million of existing loans.

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

This Quarterly Report on Form 10-Q of AXT, Inc.

(“AXT”, “the Company”, “we,” “us,” and “our” refer to AXT, Inc.

This Quarterly Report on Form 10-Q of AXT, Inc., a Delaware corporation (“AXT”, “the Company”, “we,” “us,” and “our” refer to AXT, Inc.

and its consolidated subsidiaries) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

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policies and regulations in China;

and other factors as set forth in this Quarterly Report on Form 10-Q, including those set forth under the section entitled “Risk Factors” in Item 1A below.

and other factors as set forth in this Quarterly Report on Form 10-Q, including those set forth under the section entitled “Risk Factors” in Part II, Item 1A below.

All forward-looking statements are based upon management’s views as of the date of this Quarterly Report on Form 10-Q and are subject to risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated in such forward-looking statements.

Such risks and uncertainties include those set forth under the section entitled “Risk Factors” in Item 1A below, as well as those discussed elsewhere in this Quarterly Report on Form 10-Q and identify important factors that could disrupt or injure our business or cause actual results to differ materially from those predicted in any such forward-looking statements.

Such risks and uncertainties include those set forth under the section entitled “Risk Factors” in Part II, Item 1A below, as well as those discussed elsewhere in this Quarterly Report on Form 10-Q and identify important factors that could disrupt or injure our business or cause actual results to differ materially from those predicted in any such forward-looking statements.

These forward-looking statements are not guarantees of future performance.

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This discussion should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our

Annual Report on Form 10-K for the year ended December 31, 2023 and the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”) and the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

AXT is a worldwide materials science company that develops and produces high-performance compound and single element semiconductor substrates, also known as wafers.

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Recent statements and regulatory actions by China’s government on the use of VIEs and data security or anti-monopoly concerns have not impacted our ability to conduct our business or continue to list our common stock on the Nasdaq Global Select Market.

The following organization chart depicts the consolidated structure as of March 31, 2024;

The following organization chart depicts the consolidated structure as of June 30, 2024;

The businesses of our PRC subsidiaries and PRC joint ventures are subject to complex and rapidly evolving laws and regulations in the PRC, which can change quickly with little advance notice.

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Approximately 5% of our revenue derives from importing our wafers into the United States and we expect the volume to increase.

For the three months ended March 31, 2024 and 2023, we paid approximately $65,000 and $447,000, respectively, in tariffs.

For the six months ended June 30, 2024 and 2023, we paid approximately $197,000 and $701,000, respectively, in tariffs.

The future impact of tariffs and trade wars is uncertain.

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Third, our PRC subsidiaries and PRC joint ventures pay dividends to entities within the Company’s corporate structure.

For the three months ended March 31, 2024, the aggregate dividends paid to the Company, directly or to an intermediate entity within our corporate structure, by our PRC subsidiaries and PRC raw material joint ventures were $0.

For the six months ended June 30, 2024, the aggregate dividends paid to the Company, directly or to an intermediate entity within our corporate structure, by our PRC subsidiaries and PRC raw material joint ventures were $2.1 million.

For the year ended December 31, 2023, the aggregate dividends paid to the Company, directly or to an intermediate entity within our corporate structure, by our PRC subsidiaries and PRC raw material joint ventures were approximately $4.3 million.

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All of these distributions were paid to our PRC subsidiaries and the minority shareholders.

For the three months ended March 31, 2024 and the year ended December 31, 2023, no transfers, dividends, or distributions were made between the Company and its PRC subsidiaries, or to investors, except for the settlement of amounts owed under our transfer pricing arrangements in the ordinary course of business.

For the six months ended June 30, 2024 and the year ended December 31, 2023, no transfers, dividends, or distributions were made between the Company and its PRC subsidiaries, or to investors, except for the settlement of amounts owed under our transfer pricing arrangements in the ordinary course of business.

We have no current intentions to distribute earnings to our investors under our corporate structure.

The cash generated from one PRC subsidiary is not used to fund another PRC subsidiary’s operations.

None of our PRC subsidiaries has ever faced difficulties or limitations on its ability to transfer cash between our subsidiaries.

None of our PRC subsidiaries has faced difficulties or limitations on its ability to transfer cash between our subsidiaries.

We have cash management policies that dictate the amount of such funding.

We are subject to a number of unique legal and operational risks associated with our corporate structure, any of which could result in a material change in our operations and/or the value of our common stock or cause the value of such securities to significantly decline or be worthless.

Please carefully read the section entitled “Risk Factors” in Item 1A below.

Please carefully read the section entitled “Risk Factors” in Part II, Item 1A below.

In particular, the following risk factors address issues associated with our corporate structure:

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2021 determinations that the positions taken by authorities in the PRC and Hong Kong prevented it from inspecting and investigating completely registered public accounting firms headquartered in those jurisdictions.

See “Although the audit report is prepared by an independent registered public accounting firm that is currently inspected fully by the PCAOB, there is no guarantee that future audit reports will be prepared by an independent registered public accounting firm that is completely inspected by the PCAOB” under the section entitled “Risk Factors” in Item 1A below for further information on risks related to our foreign operations and dependence.

See “Although the audit report is prepared by an independent registered public accounting firm that is currently inspected fully by the PCAOB, there is no guarantee that future audit reports will be prepared by an independent registered public accounting firm that is completely inspected by the PCAOB” under the section entitled “Risk Factors” in Part II, Item 1A below for further information on risks related to our foreign operations and dependence.

Critical Accounting Policies, Estimates and Change in Accounting Estimates

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

As of March 31, 2024 and December 31, 2023, our accounts receivable, net balance was $25.1 million and $19.3 million, respectively, which was net of an allowance of $579,000 and $579,000, respectively.

As of June 30, 2024 and December 31, 2023, our accounts receivable, net balance was $27.2 million and $19.3 million, respectively, which was net of an allowance of $263,000 and $579,000, respectively.

If actual uncollectible accounts differ substantially from our estimates, revisions to the estimated allowance for credit losses would be required, which could have a material impact on our financial results for the future periods.

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Warranty costs are accrued at the time revenue is recognized.

As of March 31, 2024 and December 31, 2023, accrued product warranties totaled $495,000 and $703,000, respectively.

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

As of June 30, 2024 and December 31, 2023, accrued product warranties totaled $421,000 and $703,000, respectively.

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

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

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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, 2024 and December 31, 2023, we had an inventory reserve of $22.2 million and $21.9 million, respectively, for excess and obsolete inventory and $213,000 and $78,000, respectively, for lower of cost or net realizable value reserves.

As of June 30, 2024 and December 31, 2023, we had an inventory reserve of $23.1 million and $21.9 million, respectively, for excess and obsolete inventory and $161,000 and $78,000, 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.

12 unchanged sentences

The impairment and divesture resulted in a total of $1.9 million in impairment charges in our financial results for the year ended December 31, 2023.

Except as mentioned above, there were no impairment charges for the remainder of these investments during the three months ended March 31, 2024 and 2023.

Except as mentioned above, there were no impairment charges for the remainder of these investments during the three and six months ended June 30, 2024 and 2023.

Fair Value of Investments

12 unchanged sentences

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

As of March 31, 2024, the net change in fair value from the placement of the hedge to settlement at each month end during the quarter had a de minimis impact to the condensed consolidated results.

There have been no transfers between fair value measurement levels during the three months ended March 31, 2024 and 2023.

As of June 30, 2024, the net change in fair value from the placement of the hedge to settlement at each month end during the quarter had a de minimis impact to the condensed consolidated results.

There have been no transfers between fair value measurement levels during the three and six months ended June 30, 2024 and 2023.

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 in the condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023.

We had no “Assets held for sale” or any impairment of long-lived assets in the condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023.

Stock-based Compensation

9 unchanged sentences

Any capitalized term not defined herein will have the meaning ascribed to such term in the 2015 Equity Incentive Plan.

The Performance Criteria will be measured over the Company’s fiscal year 2023 or 2024.

The financial Performance Criteria are metrics based upon prior year-end actual results as compared to the Company’s current year-end actual results with respect to the 2023 Performance Awards or based upon the current year-end actual results with respect to the 2024 Performance Awards.

The financial Performance Criteria are metrics based upon prior year-end actual results as compared to the Company’s 2023 year-end actual results with respect to the 2023 Performance Awards or based upon the 2024 year-end actual results with respect to the 2024 Performance Awards.

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

18 unchanged sentences

Three Months Ended

Six Months Ended

Product Type:

($ in thousands)

Raw materials and other

Total revenue

Revenue increased $3.3 million, or 16.9%, to $22.7 million for the three months ended March 31, 2024 from $19.4 million for the three months ended March 31, 2023.

The substrate revenue increase for the three months ended March 31, 2024 as compared to the same period in 2023 was primarily the result of higher demand for GaAs wafer substrates due to increased demand across a number of applications and higher demand for InP wafer substrates reflecting strong growth from data center applications and continued improvement in passive optical networks.

Raw materials sales decreased $0.1 million, or 2.2%, to $5.8 million for the three months ended March 31, 2024 as compared to the same period in 2023.

The decrease in raw materials revenue for the three months ended March 31, 2024 as compared to the same period in 2023 was primarily the result of a decrease in sales of pBN crucibles resulting from weaker market demand, partially offset by increased sales of refined gallium resulting from stronger market demand.

Revenue increased $9.3 million, or 50.2%, to $27.9 million for the three months ended June 30, 2024 from $18.6 million for the three months ended June 30, 2023.

The substrate revenue increase for the three months ended June 30, 2024 as compared to the same period in 2023 was primarily the result of higher demand for GaAs wafer substrates due to increased demand across a number of applications and higher demand for InP wafer substrates reflecting strong growth from data center applications and continued improvement in passive optical networks and higher demand for Ge wafer substrates in China.

Raw materials sales increased $0.6 million, or 8.1%, to $8.2 million for the three months ended June 30, 2024 as compared to the same period in 2023.

The increase in raw materials revenue for the three months ended June 30, 2024 as compared to the same period in 2023 was primarily the result of an increase in sales of pBN crucibles and refined gallium resulting from stronger market demand.

Revenue increased $12.6 million, or 33.2%, to $50.6 million for the six months ended June 30, 2024 from $38.0 million for the six months ended June 30, 2023.

The substrate revenue increase for the six months ended June 30, 2024 as compared to the same period in 2023 was primarily the result of higher demand for GaAs wafer substrates due to increased demand across a number of applications and higher demand for InP wafer substrates reflecting strong growth from data center applications and continued improvement in passive optical networks and higher demand for Ge wafer substrates in China.

Raw materials sales increased $0.5 million, or 3.6%, to $14.0 million for the six months ended June 30, 2024 as compared to the same period in 2023.

The increase in raw materials revenue for the six months ended June 30, 2024 as compared to the same period in 2023 was primarily the result of an increase in sales of refined gallium and pBN crucibles resulting from stronger market demand.

Revenue by Geographic Region

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Total revenue

Revenue in China increased $3.4 million for the three months ended March 31, 2024, primarily due to higher demand for our GaAs and InP wafer substrates and refined gallium, partially offset by lower demand for our Ge wafer substrates and pBN crucibles sold by one of our consolidated subsidiaries.

Revenue in China increased $6.7 million for the three months ended June 30, 2024, primarily due to higher demand for our InP, GaAs and Ge wafer substrates and refined gallium sold by one of our consolidated subsidiaries.

Revenue in Taiwan increased $2.0 million, primarily due to higher demand for our GaAs and InP wafer substrates, partially offset by lower demand for our Ge wafer substrates.

Revenue in Japan decreased $0.5 million, primarily due to lower demand for our GaAs and Ge wafer substrates and pBN crucibles sold by one of our consolidated subsidiaries, partially offset by higher demand for our InP wafer substrates.

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

Revenue in Europe increased $0.2 million, primarily due to increased demand for our GaAs and Ge wafer substrates and pBN crucibles sold by one of our consolidated subsidiaries, partially offset by lower demand for our InP wafer substrates.

Revenue in North America decreased $1.6 million, primarily due to lower demand for our InP, GaAs and Ge wafer substrates and pBN crucibles sold by one of our consolidated subsidiaries.

Revenue in Japan decreased $0.6 million, primarily due to lower demand for our InP and GaAs wafer substrates and refined gallium sold by one of our consolidated subsidiaries, partially offset by higher demand for our Ge wafer substrates and pBN crucibles sold by one of our consolidated subsidiaries.

Revenue in Asia Pacific decreased $25,000, primarily due to decreased demand for our GaAs wafer substrates, partially offset by higher demand for pBN crucibles sold by one of our consolidated subsidiaries.

Revenue in Europe increased $1.7 million, primarily due to increased demand for our GaAs and InP wafer substrates and pBN crucibles sold by one of our consolidated subsidiaries, partially offset by lower demand for our Ge wafer substrates.

Revenue in North America decreased $0.4 million, primarily due to lower demand for our GaAs and Ge wafer substrates and pBN crucibles sold by one of our consolidated subsidiaries, partially offset by higher demand for our InP wafer substrates.

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 $10.1 million for the six months ended June 30, 2024, primarily due to higher demand for our GaAs, InP and Ge wafer substrates and refined gallium sold by one of our consolidated subsidiaries.

Revenue in Taiwan increased $4.1 million, primarily due to higher demand for our GaAs and InP wafer substrates, partially offset by lower demand for our Ge wafer substrates.

Revenue in Japan decreased $1.1 million primarily due to lower demand for our GaAs, InP and Ge wafer substrates and refined gallium and pBN crucibles sold by two of our consolidated subsidiaries.

Revenue in Asia Pacific decreased by $0.3 million, primarily due to decreased demand for our InP, Ge and GaAs wafer substrates, partially offset by higher demand for refined gallium and pBN crucibles sold by two of our consolidated subsidiaries.

Revenue in Europe increased by $1.8 million primarily due to higher demand for our GaAs, InP and Ge wafer substrates and pBN crucibles sold by one of our consolidated subsidiaries.

Revenue in North America decreased by $2.0 million primarily due to lower demand for our GaAs, InP and Ge wafer substrates and pBN crucibles sold by one of our consolidated subsidiaries.

Three Months Ended

Six Months Ended

($ in thousands)

Gross Profit %

Gross profit increased $1.0 million, or 19.3%, to $6.1 million for the three months ended March 31, 2024 from $5.1 million for the three months ended March 31, 2023.

Gross profit increased $5.9 million, or 346.2%, to $7.7 million for the three months ended June 30, 2024 from $1.7 million for the three months ended June 30, 2023.

The increase in gross profit is the result of higher revenue for our wafer substrates.

Gross margin as a percentage of revenue increased due to higher unit volume across all wafer substrate and a favorable shift in product mix.

Gross profit increased $6.9 million, or 101.4%, to $13.7 million for the six months ended June 30, 2024 from $6.8 million for the six months ended June 30, 2023.

The increase in gross profit is the result of higher revenue across all product lines.

Gross margin as a percentage of revenue increased due to higher unit volume across all product lines, and a shift in product mix had a positive impact on gross margin.

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 $0.3 million, or 4.6%, to $6.2 million for the three months ended March 31, 2024 from $6.0 million for the March 31, 2023.

The higher selling, general and administrative expenses were primarily from an increase in compensation related expenses and outside commissions.

Selling, general and administrative expenses decreased $41,000, or 0.7%, to $5.8 million for the three months ended June 30, 2024 from $5.8 million for the June 30, 2023.

The lower selling, general and administrative expenses were primarily from a decrease in compensation related expenses.

Selling, general and administrative expenses increased $234,000, or 2.0%, to $12.0 million for the six months ended June 30, 2024 from $11.8 million for the six months ended June 30, 2023.

The higher selling, general and administrative expenses were primarily from an increase in professional service expenses.

Research and Development

Three Months Ended

Six Months Ended

($ in thousands)

Research and development

% of total revenue

Research and development expenses decreased $0.4 million, or 10.6%, to $3.2 million for the three months ended March 31, 2024 from $3.6 million for the three months ended March 31, 2023.

The decrease in research and development expenses for the three months ended March 31, 2024 was primarily due to a reduction in new product testing costs as the recycling project advanced.

Research and development expenses increased $1.0 million, or 37.2%, to $3.8 million for the three months ended June 30, 2024 from $2.7 million for the three months ended June 30, 2023.

The increase in research and development expenses for the three months ended June 30, 2024 was primarily due to higher development expenses for crystal ingot processing.

Research and development expenses increased $0.6 million, or 10.1%, to $7.0 million for the six months ended June 30, 2024 from $6.3 million for the six months ended June 30, 2023.

The increase in research and development expenses for the six months ended June 30, 2024 was primarily due to higher development expenses for crystal ingot processing.

Interest Expense, Net

Three Months Ended

Six Months Ended

($ in thousands)

Interest expense, net

% of total revenue

Interest expense, net decreased $48,000, or 12.1%, to $349,000 for the three months ended March 31, 2024 from $397,000 for the three months ended March 31, 2023.

Interest expense, net decreased primarily due to increased interest income during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

Interest expense, net decreased $83,000, or 22.7%, to $282,000 for the three months ended June 30, 2024 from $365,000 for the three months ended June 30, 2023.

Interest expense, net decreased primarily due to increased interest income during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Interest expense, net decreased $131,000, or 17.2%, to $631,000 for the six months ended June 30, 2024 from $762,000 for the six months ended June 30, 2023.

Interest expense, net decreased primarily due to increased interest income during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

Equity in Income of Unconsolidated Joint Ventures

Three Months Ended

Six Months Ended

Equity in Income

($ in thousands)

Equity in income of unconsolidated joint ventures

% of total revenue

The equity in income of unconsolidated joint venture companies was income of $0.9 million for the three months ended March 31, 2024 as compared to income of $1.0 million for the three months ended March 31, 2023.

The decrease in income of $0.1 million is primarily due to lower net income at one raw gallium company.

The equity in income of unconsolidated joint venture companies was income of $0.6 million for the three months ended June 30, 2024 as compared to income of $0.9 million for the three months ended June 30, 2023.

The decrease in income of $0.3 million is primarily due to a profit decline in one unconsolidated joint venture.

The equity in income of unconsolidated joint venture companies was income of $1.5 million for the six months ended June 30, 2024 as compared to income of $2.0 million for the six months ended June 30, 2023.

The decrease in income of $0.5 million is primarily due to a profit decline in one unconsolidated joint venture’s Gallium sale.

Other Income, Net

Three Months Ended

Six Months Ended

($ in thousands)

Other income, net

% of total revenue

Other income, net increased $750,000, or 266%, to an income of $1.0 million for the three months ended March 31, 2024 from an income of $282,000 for the three months ended March 31, 2023.

Other income, net increased primarily due to compensation received from the China government by our consolidated subsidiaries for technological innovation of $957,000 in the three months ended March 31, 2024 compared to $473,000 in the three months ended March 31, 2023, and a foreign exchange gain of $58,000 in the three months ended March 31, 2024 compared to a loss of $213,000 in the three months ended March 31, 2023.

Provision for Income Taxes

Other income, net decreased $286,000, or 36.8%, to an income of $491,000 for the three months ended June 30, 2024 from an income of $777,000 for the three months ended June 30, 2023.

Other income, net decreased primarily due to a decline in government grants.

Other income, net increased $464,000, or 43.8%, to an income of $1.5 million for the six months ended June 30, 2024 from an income of $1.1 million for the six months ended June 30, 2023.

Other income, net increased primarily due to higher government grants received in the first quarter of 2024, which was partially offset by a decrease in the second quarter of 2024.

Provision (benefit) for Income Taxes

Three Months Ended

Six Months Ended

($ in thousands)

Provision for income taxes

($ in thousands)

Provision (benefit) for income taxes

% of total revenue

Provision for income taxes increased $126,000, or 85.1%, to a provision of $274,000 for the three months ended March 31, 2024 as compared to a provision of $148,000 for the three months ended March 31, 2023.

The tax expense recorded for the three months ended March 31, 2024 is the result of foreign taxes and certain state taxes.

No income tax is provided for our U.S.

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

has been fully offset by utilization of federal and state net operating loss carryforwards.

Provision (benefit) for income taxes increased $260,000, or 187.1%, to a provision of $121,000 for the three months ended June 30, 2024 as compared to a benefit of $139,000 for the three months ended June 30, 2023.

The tax expense recorded for the three months ended June 30, 2024 is the result of foreign taxes and certain state taxes.

Provision for income taxes increased $386,000, or 4,288.9%, to $395,000 for the six months ended June 30, 2024 as compared to $9,000 for the six months ended June 30, 2023.

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

11 unchanged sentences

Net (income) loss attributable to

Six Months Ended

Net (income) loss attributable to

noncontrolling interests and

redeemable noncontrolling interests

($ in thousands)

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

% of total revenue

Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests increased $353,000 or 111.0% to an income of $35,000 for the three months ended March 31, 2024, from a loss of $318,000 for the three months ended March 31, 2023, primarily due to higher profitability from our consolidated joint venture companies in China as sales increased.

Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests decreased $581,000 or 220.1% to a loss of $317,000 for the three months ended June 30, 2024, from an income of $264,000 for the three months ended June 30, 2023, primarily due to higher profitability from our PRC subsidiaries as sales increased.

Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests decreased $934,000, or 160.5%, to a loss of $352,000 for the six months ended June 30, 2024, from an income of $582,000 for the six months ended June 30, 2023, primarily due to higher profitability from our PRC subsidiaries as sales increased.

Liquidity and Capital Resources

2 unchanged sentences

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

As of March 31, 2024, our principal source of liquidity was $ 41.3 million, which consisted of cash and restricted cash of $ 39.6 million and investments of $ 1.7 million.

In the three months ended March 31, 2024, cash and restricted cash decreased by $10.5 million and investments decreased by $0.5 million.

The decrease in cash and restricted cash of $10.5 million in the three months ended March 31, 2024 was primarily due to net cash used in operating activities of $8.8 million and net cash used in investing activities of $3.9 million, partially offset by net cash provided by financing activities of $2.0 million and the effect of exchange rate changes of $0.2 million.

As of March 31, 2024, we and our consolidated joint ventures in China held approximately $34.7 million in cash and investments in foreign bank accounts.

As of March 31, 2023, our principal source of liquidity was $53.6 million, which consisted of cash and restricted cash of $44.9 million and investments of $8.7 million.

In the three months ended March 31, 2023, cash and restricted cash increased by $3.5 million and investments decreased by $2.8 million.

The increase in cash and restricted cash of $3.5 million in the three months ended March 31, 2023 was primarily due to net cash provided by financing activities of $5.8 million and the effect of exchange rate changes of $19,000, partially offset by net cash used in operating activities of $1.5 million and net cash used in investing activities of $0.7 million.

As of March 31, 2023, we and our consolidated joint ventures in China held approximately $40.4 million in cash and investments in foreign bank accounts .

Net cash used in operating activities of $8.8 million for the three months ended March 31, 2024 was primarily comprised of a net change of $8.9 million in operating assets and liabilities, a net loss before income attributable to noncontrolling interest and redeemable noncontrolling interests of $2.0 million, and income from equity method investments of $0.9 million, partially offset by the adjustment for non-cash items of depreciation and amortization of $2.2 million and stock-based compensation of $0.8 million.

Net cash used in operating activities of $1.5 million for the three months ended March 31, 2023 was primarily comprised of a net loss before income attributable to noncontrolling interest and redeemable noncontrolling interests of $3.7 million, income from equity method investments of $1.0 million, partially offset by the adjustment for non-cash items of depreciation and amortization of $2.1 million, stock-based compensation of $0.9 million and a net change of $0.1 million in operating assets and liabilities.

Net cash used in investing activities of $3.9 million for the three months ended March 31, 2024 was primarily from the purchase of property, plant and equipment of $4.4 million, partially offset by proceeds from sales and maturities of available-for-sale debt securities of $0.5 million.

Net cash used in investing activities of $0.7 million for the three months ended March 31, 2023 was primarily from the purchase of property, plant and equipment of $3.6 million, partially offset by proceeds from sales and maturities of available-for-sale debt securities of $2.9 million.

Net cash provided by financing activities was $2.0 million for the three months ended March 31, 2024, which consisted of proceeds from short-term loans of $12.9 million, long-term loan of $5.9 million and common stock options exercised of $20,000, partially offset by repayment of short-term loans of $16.5 million and repayment of long-term loan of $0.2 million.

Net cash provided by financing activities was $5.8 million for the three months ended March 31, 2023, which consisted of proceeds from short-term loans of $18.4 million, capital increase in subsidiary shares from noncontrolling interest of $0.2 million and common stock option exercised of $8,000, partially offset by repayment of short-term loan of $12.8 million.

As of June 30, 2024, our principal source of liquidity was $ 43.3 million, which consisted of cash and restricted cash of $ 41.6 million and investments of $ 1.7 million.

In the six months ended June 30, 2024, cash and restricted cash decreased by $8.5 million and investments decreased by $0.5 million.

The decrease in cash and restricted cash of $8.5 million in the six months ended June 30, 2024 was primarily due to net cash used in operating activities of $8.0 million and net cash used in investing activities of $4.5 million, partially offset by net cash provided by financing activities of $3.7 million and the effect of exchange rate changes of $0.2 million.

As of June 30, 2024, we and our PRC subsidiaries held approximately $35.6 million in cash and investments in foreign bank accounts.

As of June 30, 2023, our principal source of liquidity was $49.6 million, which consisted of cash, restricted cash and cash equivalents of $40.9 million and investments of $8.7 million.

In the six months ended June 30, 2023, cash, restricted cash and cash equivalents decreased by $0.5 million and investments decreased by $2.7 million.

The decrease in cash, restricted cash and cash equivalents of $0.5 million in the six months ended June 30, 2023 was primarily due to the effect of exchange rate changes of $1.8 million and net cash used in investing activities of $3.1 million, partially offset by net cash provided by operating activities of $2.8 million and financing activities of $1.7 million.

As of June 30, 2023, we and our PRC subsidiaries held approximately $38.1 million in cash and investments in foreign bank accounts.

Net cash used in operating activities of $8.0 million for the six months ended June 30, 2024 was primarily comprised of a net change of $11.3 million in operating assets and liabilities, a net loss before income attributable to noncontrolling interest and redeemable noncontrolling interests of $3.2 million, and income from equity method investments of $1.5 million, partially offset by the adjustment for non-cash items of depreciation and amortization of $4.4 million, return of equity method investments as dividends of $2.1 million and stock-based compensation of $1.5 million.

Net cash provided by operating activities of $2.8 million for the six months ended June 30, 2023 was primarily comprised of a net change of $3.9 million in operating assets and liabilities, the adjustment for non-cash items of depreciation and amortization of $4.2 million, return of equity method investments (dividends) of $3.7 million, stock-based compensation of $1.8 million and deferred tax assets of $0.1 million, partially offset by a net loss before income attributable to noncontrolling interest and redeemable noncontrolling interests of $9.0 million and income from equity method investments of $2.0 million.

Net cash used in investing activities of $4.5 million for the six months ended June 30, 2024 was primarily from the purchase of property, plant and equipment of $4.7 million, and investment in non-marketable equity investments of $0.3 million, partially offset by proceeds from sales and maturities of available-for-sale debt securities of $0.5 million.

Net cash used in investing activities of $3.1 million for the six months ended June 30, 2023 was primarily from the purchase of property, plant and equipment of $6.8 million, partially offset by proceeds from sales and maturities of available-for-sale debt securities of $2.9 million and proceeds from sale of equity securities of $0.8 million.

Net cash provided by financing activities was $3.7 million for the six months ended June 30, 2024, which consisted of proceeds from short-term loans of $26.5 million, long-term loan of $5.8 million and common stock options exercised of $25,000, partially offset by repayment of short-term loans of $28.3 million and repayment of long-term loan of $0.3 million.

Net cash provided by financing activities was $1.7 million for the six months ended June 30, 2023, which consisted of proceeds from short-term loans of $28.8 million, capital increase in subsidiary shares from noncontrolling interests of $0.5 million and common stock option exercised of $10,000, partially offset by repayment of short-term loans of $27.7 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, 2024, we did not repurchase any shares under the approved stock repurchase program.

As of March 31, 2024, approximately $2.7 million remained available for future repurchases under this program.

During the six months ended June 30, 2024, we did not repurchase any shares under the approved stock repurchase program.

As of June 30, 2024, approximately $2.7 million remained available for future repurchases under this program.

Currently, we do not plan to repurchase additional shares.

13 unchanged sentences

If SAFE approval is denied the dividend payable to the Company would be owed but would not be paid.

For the three months ended March 31, 2024 and 2023, we were not paid any dividends, directly or to an intermediate entity within our corporate structure, by our PRC subsidiaries and PRC raw material joint.

For the three months ended March 31, 2024 and 2023, there were no dividends paid to minority shareholders by our PRC subsidiaries or PRC raw material joint ventures.

For the three months ended March 31, 2024, no transfers, dividends, or distributions have been made to date between the Company and its PRC subsidiaries, or to investors, except for the settlement of amounts owed under our transfer pricing arrangements in the ordinary course of business.

For the six months ended June 30, 2024 and 2023, the aggregate dividends paid to us, directly or to an intermediate entity within our corporate structure, by our PRC subsidiaries and PRC raw material joint ventures were $2.1 million and $3.7 million, respectively.

For the six months ended June 30, 2024 and 2023, there were no dividends paid to minority shareholders by our PRC subsidiaries or PRC raw material joint ventures.

For the six months ended June 30, 2024, no transfers, dividends, or distributions have been made to date between the Company and its PRC subsidiaries, or to investors, except for the settlement of amounts owed under our transfer pricing arrangements in the ordinary course of business.

We have no current intentions to distribute to our investors earnings under our corporate structure.

1 unchanged sentence

The cash generated from one PRC subsidiary is not used to fund another PRC subsidiary’s operations.

None of our PRC subsidiaries has ever faced difficulties or limitations on its ability to transfer cash between our subsidiaries.

None of our PRC subsidiaries has faced difficulties or limitations on its ability to transfer cash between our subsidiaries.

AXT has cash management policies that dictate the amount of such funding.

11 unchanged sentences

Our bank loans and credit facilities typically have a term of 12 months or less and are included in “Short-term loans” in our condensed consolidated balance sheets.

The following table represents short-term bank loans as of March 31, 2024 and December 31, 2023 (in thousands, except interest rate data):

The following table represents short-term bank loans as of June 30, 2024 and December 31, 2023 (in thousands, except interest rate data):

Bank of China (1)

7 unchanged sentences

NanJing Bank (1)

China Citic Bank (1)

Industrial and Commercial Bank of China (4)

15 unchanged sentences

The intended use of the credit facility is for construction of fixed assets.

As of March 31, 2024, $5.6 million is included in “Other long-term liabilities” and $277,000 is included in “Short-term loans” in our consolidated balance sheets.

As of June 30, 2024, $5.5 million is included in “Other long-term liabilities” and $275,000 is included in “Short-term loans” in our consolidated balance sheets.

In December 2023, one of our consolidated subsidiaries, ChaoYang XinMei secured a loan of approximately $2.1 million from an unrelated financing company.

According to the agreement, ChaoYang XinMei temporarily transferred ownership of its production line and related equipment to the financing company, while retaining the right to use the property for production.

At the end of the 30-month contractual period, ChaoYang XinMei holds the option to repurchase the production line and related equipment for $14.00.

As of March 31, 2024, $1.4 million is included in “Other long-term liabilities” and $554,000 is included in “Short-term loans” in our consolidated balance sheets.

On July 27, 2021, we filed with the SEC a registration statement on Form S-3 (the “Shelf Registration Statement”), pursuant to which we may offer up to $60 million 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 Agreement for working capital, capital expenditures and other general corporate purposes.

At the end of the 30-month contractual period, ChaoYang XinMei holds the option to

repurchase the production line and related equipment for $14.00.

As of June 30, 2024, $1.2 million is included in “Other long-term liabilities” and $550,000 is included in “Short-term loans” in our consolidated balance sheets.

On July 27, 2021, we filed with the SEC a registration statement on Form S-3 (as amended, the “Shelf Registration Statement”), pursuant to which we may offer up to $60 million 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.

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If our sales decrease, however, our ability to generate cash from operations will be adversely affected which could adversely affect our future liquidity, require us to use cash at a more rapid rate than expected, and require us to seek additional capital.

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

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

Contract to Purchase Goods and Services

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Land Purchase and Investment Agreement

We have established a wafer processing production line in Dingxing, China.

In addition to pledging its full support and cooperation, the Dingxing local government will issue certain tax credits to us as we achieve certain milestones.

We, in turn, agreed to hire local workers over time, pay taxes when due and eventually demonstrate a total investment of approximately $90 million in value, assets and capital.

In 2017, Baoding Tongmei established a wafer processing production line in Dingxing, China.

In addition to pledging its full support and cooperation, the Dingxing local government will issue certain tax credits to Baoding Tongmei as Baoding Tongmei achieves certain milestones.

Baoding Tongmei, in turn, agreed to hire local workers over time, pay taxes when due and eventually demonstrate a total investment of approximately $90 million in value, assets and capital.

The investment will include cash paid for the land and buildings, cash on deposit in our name at local banks, the gross value of new and used equipment (including future equipment that might be used for indium phosphide and germanium substrates production), the deemed value for our customer list or the end user of our substrates (for example, the end users of the 3-D sensing VCSELs), a deemed value for employment of local citizens, a deemed value for our proprietary process technology, other intellectual property, other intangibles and additional items of value.

There is no timeline or deadline by which this must be accomplished, rather it is a good faith covenant entered into between AXT and the Dingxing local government.

There is no timeline or deadline by which this must be accomplished, rather it is a good faith covenant entered into between Baoding Tongmei and the Dingxing local government.

Further, there is no specific penalty contemplated if either party breaches the agreement, however the agreement does state that each party has a right to seek from the other party compensation for losses.

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We believe that such cooperation agreements are normal, customary and usual in China and that the future valuation is flexible.

We have a similar agreement with the city of Kazuo, China, although on a smaller scale.

The total investment targeted by AXT in Kazuo is approximately $15 million in value, assets and capital.

Chaoyang Tongmei has a similar agreement with the city of Kazuo, China, although on a smaller scale.

The total investment targeted by Chaoyang Tongmei in Kazuo is

approximately $15 million in value, assets and capital.

In addition, BoYu has a similar agreement with the city of Kazuo.

The total investment targeted by BoYu in Kazuo is approximately $8 million in value, assets and capital.

Off-Balance Sheet Arrangements

As of March 31, 2024, 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, 2024, 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

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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, 2024 and December 31, 2023, 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 June 30, 2024 and December 31, 2023, 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.

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

No customers accounted for 10% of our accounts receivable balance as of March 31, 2024 and December 31, 2023.

No customers accounted for 10% of our accounts receivable balance as of June 30, 2024 and December 31, 2023.

Impairment of Equity Investment Risk

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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.

Our minority investments under the equity method as of March 31, 2024 and December 31, 2023 totaled $13.2 million and $12.5 million, respectively.

Our minority investment under the fair value method as of March 31, 2024 and December 31, 2023 totaled $0.6 million and $0.6 million, respectively.

Our minority investments under the equity method as of June 30, 2024 and December 31, 2023 totaled $11.9 million and $12.5 million, respectively.

Our minority investment under the fair value method as of June 30, 2024 and December 31, 2023 totaled $0.6 million and $0.6 million, respectively.

See Note 7 for a discussion on the new fair value method investment.

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