AXT INC 10-Q

Item 1. Financial Statements (unaudited) ​ AXT, INC. CONDENSED CONSOLIDATED BALANCE SHEET S (Unaudited, in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, December 31, ​ ​ 2024 ​ 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ASSETS ​ ​ ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ ​ Cash ​ $ 27,808 ​ $ 37,752 ​ Restricted cash ​ ​ 13,789 ​ ​ 12,362 ​ Short-term investments ​ 1,675 ​ 2,140 ​ Accounts receivable, net of allowances for credit losses of $ 263 and $ 579 as of June 30, 2024 and December 31, 2023 ​ 27,163 ​ 19,256 ​ Inventories ​ 85,774 ​ 86,503 ​ Prepaid expenses and other current assets ​ 11,187 ​ 12,643 ​ Total current assets ​ 167,396 ​ 170,656 ​ Property, plant and equipment, net ​ 161,332 ​ 166,348 ​ Operating lease right-of-use assets ​ ​ 2,531 ​ ​ 2,799 ​ Other assets ​ 18,154 ​ 18,898 ​ Total assets ​ $ 349,413 ​ $ 358,701 ​ LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 11,655 ​ $ 9,617 ​ Accrued liabilities ​ 12,268 ​ 19,019 ​ Short-term loans ​ ​ 50,724 ​ ​ 52,921 ​ Total current liabilities ​ 74,647 ​ 81,557 ​ Noncurrent operating lease liabilities ​ ​ 2,083 ​ ​ 2,351 ​ Other long-term liabilities ​ 9,570 ​ 5,647 ​ Total liabilities ​ 86,300 ​ 89,555 ​ Commitments and contingencies (Note 12) ​ ​ ​ ​ ​ ​ ​ Redeemable noncontrolling interests (Note 18) ​ ​ 39,761 ​ ​ 41,663 ​ Stockholders’ equity: ​ ​ ​ ​ ​ ​ ​ Preferred stock Series A, $ 0.001 par value; 2,000 shares authorized; 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) ​ 3,532 ​ 3,532 ​ Common stock, $ 0.001 par value; 70,000 shares authorized; 44,482 and 44,239 shares issued and outstanding as of June 30, 2024 and December 31, 2023 ​ 44 ​ 44 ​ Additional paid-in capital ​ 239,962 ​ 238,452 ​ Accumulated deficit ​ ( 35,639 ) ​ ( 32,040 ) ​ Accumulated other comprehensive loss ​ ( 8,227 ) ​ ( 5,999 ) ​ Total AXT, Inc. stockholders’ equity ​ 199,672 ​ 203,989 ​ Noncontrolling interests ​ 23,680 ​ 23,494 ​ Total stockholders’ equity ​ 223,352 ​ 227,483 ​ Total liabilities, redeemable noncontrolling interests and stockholders’ equity ​ $ 349,413 ​ $ 358,701 ​ ​ See accompanying notes to condensed consolidated financial statements. 3 Table of Contents ub AXT, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended Six Months Ended ​ ​ ​ ​ June 30, ​ June 30, ​ ​ ​ ​ 2024 2023 ​ 2024 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenue ​ $ 27,923 ​ $ 18,595 ​ $ 50,611 ​ $ 38,000 ​ ​ Cost of revenue ​ 20,271 ​ 16,880 ​ 36,865 ​ 31,175 ​ ​ Gross profit ​ 7,652 ​ 1,715 ​ 13,746 ​ 6,825 ​ ​ Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Selling, general and administrative ​ 5,779 ​ 5,820 ​ 12,006 ​ 11,772 ​ ​ Research and development ​ 3,758 ​ 2,740 ​ 6,972 ​ 6,335 ​ ​ Total operating expenses ​ 9,537 ​ 8,560 ​ 18,978 ​ 18,107 ​ ​ Loss from operations ​ ( 1,885 ) ​ ( 6,845 ) ​ ( 5,232 ) ​ ( 11,282 ) ​ ​ Interest expense, net ​ ( 282 ) ​ ( 365 ) ​ ( 631 ) ​ ( 762 ) ​ ​ Equity in income of unconsolidated joint ventures ​ 598 ​ 941 ​ 1,488 ​ 1,975 ​ ​ Other income, net ​ 491 ​ 777 ​ 1,523 ​ 1,059 ​ ​ Loss before provision (benefit) for income taxes ​ ( 1,078 ) ​ ( 5,492 ) ​ ( 2,852 ) ​ ( 9,010 ) ​ ​ Provision (benefit) for income taxes ​ 121 ​ ( 139 ) ​ 395 ​ 9 ​ ​ Net loss ​ ( 1,199 ) ​ ( 5,353 ) ​ ( 3,247 ) ​ ( 9,019 ) ​ ​ Less: Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests ​ ( 317 ) ​ 264 ​ ( 352 ) ​ 582 ​ ​ Net loss attributable to AXT, Inc. ​ $ ( 1,516 ) ​ $ ( 5,089 ) ​ $ ( 3,599 ) ​ $ ( 8,437 ) ​ ​ Net loss attributable to AXT, Inc. per common share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ ( 0.04 ) ​ $ ( 0.12 ) ​ $ ( 0.09 ) ​ $ ( 0.20 ) ​ ​ Diluted ​ $ ( 0.04 ) ​ $ ( 0.12 ) ​ $ ( 0.09 ) ​ $ ( 0.20 ) ​ ​ Weighted-average number of common shares outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ 43,092 ​ 42,586 ​ 43,039 ​ 42,542 ​ ​ Diluted ​ 43,092 ​ 42,586 ​ 43,039 ​ 42,542 ​ ​ ​ ​ See accompanying notes to condensed consolidated financial statements. ​ 4 Table of Contents ​ AXT, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited, in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ ​ June 30, ​ June 30, ​ ​ 2024 2023 2024 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss ​ $ ( 1,199 ) ​ $ ( 5,353 ) ​ $ ( 3,247 ) ​ $ ( 9,019 ) ​ Other comprehensive loss, net of tax: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Change in foreign currency translation loss, net of tax ​ ( 747 ) ​ ( 7,245 ) ​ ( 2,757 ) ​ ( 6,358 ) ​ Change in unrealized gain on available-for-sale debt investments, net of tax ​ 8 ​ 77 ​ 15 ​ 188 ​ Total other comprehensive loss, net of tax ​ ( 739 ) ​ ( 7,168 ) ​ ( 2,742 ) ​ ( 6,170 ) ​ Comprehensive loss attributable to AXT, Inc. ​ ( 1,938 ) ​ ( 12,521 ) ​ ( 5,989 ) ​ ( 15,189 ) ​ Less: Comprehensive (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests ​ ( 179 ) ​ 1,517 ​ 162 ​ 1,695 ​ Comprehensive loss attributable to AXT, Inc. ​ $ ( 2,117 ) ​ $ ( 11,004 ) ​ $ ( 5,827 ) ​ $ ( 13,494 ) ​ ​ See accompanying notes to condensed consolidated financial statements. ​ 5 Table of Contents AXT, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ ​ June 30, ​ ​ 2024 2023 ​ Cash flows from operating activities: ​ ​ ​ ​ ​ ​ ​ Net loss ​ $ ( 3,247 ) ​ $ ( 9,019 ) ​ Adjustments to reconcile net loss to net cash provided by (used in) operating activities: ​ ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ 4,440 ​ 4,243 ​ Amortization of marketable securities premium ​ — ​ 14 ​ Stock-based compensation ​ 1,524 ​ 1,827 ​ (Gain) loss on disposal of equipment ​ — ​ 4 ​ Return of equity method investments as dividends ​ ​ 2,063 ​ ​ 3,666 ​ Equity in income of unconsolidated joint ventures ​ ( 1,488 ) ​ ( 1,975 ) ​ Deferred tax assets ​ ​ 53 ​ ​ 110 ​ Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ ​ Accounts receivable ​ ( 8,363 ) ​ 8,741 ​ Inventories ​ ( 1,045 ) ​ ( 1,223 ) ​ Prepaid expenses and other current assets ​ ( 1,317 ) ​ 2,944 ​ Other assets ​ 89 ​ ( 597 ) ​ Accounts payable ​ 2,299 ​ ( 5,192 ) ​ Accrued liabilities ​ ( 807 ) ​ ( 1,605 ) ​ Other long-term liabilities ​ ( 2,164 ) ​ 828 ​ Net cash provided by (used in) operating activities ​ ( 7,963 ) ​ 2,766 ​ Cash flows from investing activities: ​ ​ ​ ​ ​ ​ ​ Purchases of property, plant and equipment ​ ( 4,663 ) ​ ( 6,792 ) ​ Proceeds from sales and maturities of available-for-sale debt securities ​ 480 ​ 2,903 ​ Proceeds from sales of equity securities - 15 % Jia Mei ​ — ​ 827 ​ Investments in non-marketable equity investments ​ ​ ( 275 ) ​ ​ — ​ Net cash used in investing activities ​ ( 4,458 ) ​ ( 3,062 ) ​ Cash flows from financing activities: ​ ​ ​ ​ ​ ​ ​ Proceeds from common stock options exercised ​ 25 ​ 10 ​ Proceeds from short-term bank loans ​ 26,488 ​ 28,803 ​ Payments on short-term bank loans ​ ​ ( 28,332 ) ​ ​ ( 27,653 ) ​ Proceeds from capital increase in subsidiary shares from noncontrolling interests ​ ​ — ​ ​ 509 ​ Proceeds from long-term loan ​ ​ 5,831 ​ ​ — ​ Payments on long-term loan ​ ​ ( 333 ) ​ ​ — ​ Net cash provided by financing activities ​ 3,679 ​ 1,669 ​ Effect of exchange rate changes on cash and restricted cash ​ 225 ​ ( 1,835 ) ​ Net decrease in cash and restricted cash ​ ( 8,517 ) ​ ( 462 ) ​ Cash and restricted cash at the beginning of the year ​ 50,114 ​ 41,348 ​ Cash and restricted cash at the end of the period ​ $ 41,597 ​ $ 40,886 ​ Supplemental disclosure of non-cash flow information: ​ ​ ​ ​ ​ ​ ​ Notes receivables paid to purchase fixed assets ​ $ 2,545 ​ $ — ​ Investment in subsidiary shares from noncontrolling interest ​ $ — ​ $ 221 ​ Consideration payable in connection with construction in progress, included in accrued liabilities ​ $ 144 ​ $ 3,926 ​ ​ See accompanying notes to condensed consolidated financial statements. ​ 6 Table of Contents ​ ​ AXT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) ​ Note 1. Basis of Presentation ​ The accompanying condensed consolidated financial statements of AXT, Inc., a Delaware corporation (“AXT,” the “Company,” “we,” “us,” and “our” refer to AXT, Inc. and all of its consolidated subsidiaries) are unaudited, and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, this interim quarterly financial report does not include all disclosures required by U.S. GAAP for complete consolidated financial statements. In the opinion of our management, the unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, considered necessary to present fairly the financial position, results of operations and cash flows of the Company for all periods presented. ​ Our management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these condensed consolidated financial statements in conformity with U.S. GAAP. Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. These estimates and assumptions may change as new events occur and additional information is obtained. Actual results could differ materially from those estimates. ​ The results of operations for the three and six months ended June 30, 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. (“Tongmei”), AXT-Tongmei, Inc. (“AXT-Tongmei”), Baoding Tongmei Xtal Technology Co., Ltd. (“Baoding Tongmei”), ChaoYang Tongmei Xtal Technology Co., Ltd. (“ChaoYang Tongmei”), ChaoYang LiMei Semiconductor Technology Co., Ltd. (“ChaoYang LiMei”), ChaoYang XinMei High Purity Semiconductor Materials Co., Ltd. (“ChaoYang XinMei”), Nanjing JinMei Gallium Co., Ltd. (“JinMei”), ChaoYang JinMei Gallium Ltd. (“ChaoYang JinMei”), ChaoYang ShuoMei High Purity Semiconductor Materials Co., Ltd. (“ChaoYang ShuoMei”), MaAnShan JinMei Gallium Ltd., (“MaAnShan JinMei”) and Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd. (“BoYu”). All significant inter-company accounts and transactions have been eliminated. Investments in business entities in which we do not have controlling interests, but have the ability to exercise significant influence over operating and financial policies (generally 20-50% ownership), are accounted for by the equity method. As of June 30, 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 a third party for approximately $ 827,000 . As a result of our decreased ownership and the fact that we do not have the ability to exercise significant influence over Jia Mei’s operations, as of May 2023, we no longer reported Jia Mei as an equity investment in our condensed consolidated balance sheets. Our Jia Mei investment was re-measured to fair value at the time of sale. Any future changes to the fair value are recognized through net income (“fair value method”). For the majority-owned subsidiaries that we consolidate, we reflect the portion we do not own as either noncontrolling interests in stockholder’s equity or as redeemable noncontrolling interests in temporary equity on our condensed consolidated balance sheets and in our condensed consolidated statements of operations. ​ When warranted by favorable market conditions, we intend to construct facilities at the ChaoYang LiMei location to provide us with additional production capacity. For the three and six months ended June 30, 2024, expenses associated with ChaoYang LiMei had a de minimis impact on our condensed consolidated financial statements. ​ 7 Table of Contents In February 2021, Tongmei signed a joint venture agreement with certain investors to fund a new company, ChaoYang XinMei. The agreement called for a total investment of approximately $ 3.0 million, of which Tongmei would fund approximately $ 1.8 million for a 58.5 percent ownership of ChaoYang XinMei. In February 2021, Tongmei and the investors completed the initial funding of approximately $ 1.5 million. Tongmei’s portion of the investment was approximately $ 0.9 million. In May 2021, Tongmei and the investors completed the funding of the remaining balance of approximately $ 1.5 million. Tongmei’s portion of the final investment was approximately $ 0.9 million, for a total investment of approximately $ 1.8 million for a 58.5 percent ownership of ChaoYang XinMei. In September 2021 and October 2021, ChaoYang XinMei received funding from a minority investor of $ 0.9 million and $ 1.0 million, respectively. In December 2021 and January 2022, ChaoYang XinMei received funding from Tongmei of $ 1.4 million and $ 1.4 million, respectively. In January 2022, the China local government certified this additional funding in ChaoYang XinMei as an equity investment. In April 2022, Tongmei entered into a capital increase agreement (the “Capital Increase Agreement”) with minority investors to further invest approximately $ 4.5 million in ChaoYang XinMei. Tongmei’s portion of the investment was approximately $ 2.6 million, of which $ 1.1 million was invested in April 2022 and $ 0.8 million was invested in May 2022. The minority investors’ portion of the investment was approximately $ 1.9 million, of which $ 0.7 million was invested in April 2022 and $ 0.6 million was invested in May 2022. As a result, noncontrolling interests increased $ 1.4 million and redeemable noncontrolling interests increased $ 0.1 million. In July 2022, Tongmei and the minority investors further invested $ 0.8 million and $ 0.6 million in ChaoYang XinMei, respectively. This completed the investment obligations under the Capital Increase Agreement. As a result, noncontrolling interests increased $ 610,000 and redeemable noncontrolling interests increased $ 57,000 . Tongmei’s ownership remained at 58.5 % after these equity investments. ​ In April 2022, ChaoYang JinMei signed a joint venture agreement with certain investors to fund a new company, ChaoYang ShuoMei, our consolidated subsidiary (the “ChaoYang ShuoMei Joint Venture Agreement”). The ChaoYang ShuoMei Joint Venture Agreement called for a total investment of approximately $ 4.4 million, of which ChaoYang JinMei would fund approximately $ 3.3 million for a 75 percent ownership of ChaoYang ShuoMei. In July and August 2022, ChaoYang JinMei completed the initial funding of $ 1.0 million in ChaoYang ShuoMei. In August 2022, the investor invested $ 334,000 in ChaoYang ShuoMei. As a result, noncontrolling interests increased $ 406,000 and redeemable noncontrolling interests increased $ 73,000 . In January 2023, ChaoYang ShuoMei received $ 0.5 million in funding from ChaoYang JinMei and $ 0.2 million in funding from one of the minority investors. As a result, noncontrolling interests increased $ 0.2 million and redeemable noncontrolling interests increased $ 36,000 . In May 2023, ChaoYang ShuoMei received $ 1.0 million in funding from ChaoYang JinMei and $ 0.3 million in funding from one of the minority investors. As a result, noncontrolling interests increased $ 0.4 million and redeemable noncontrolling interests increased $ 75,000 . In August 2023, ChaoYang ShuoMei received $ 0.6 million in funding from ChaoYang JinMei and $ 0.2 million in funding from one of the minority investors. As a result, noncontrolling interests increased $ 0.2 million and redeemable noncontrolling interests increased $ 44,000 . ChaoYang JinMei has completed its investment obligations under the ChaoYang ShuoMei Joint Venture Agreement. ChaoYang JinMei’s ownership of ChaoYang ShuoMei remained at 75 % after these equity investments. ​ In April 2022, Tongmei signed a joint venture agreement with certain investors to fund a new company, ChaoYang KaiMei Quartz Co., Ltd. (“ChaoYang KaiMei”) (the “ChaoYang KaiMei Joint Venture Agreement”), which called for a total investment of approximately $ 7.6 million, of which Tongmei would fund approximately $ 3.0 million for a 40 percent ownership of ChaoYang KaiMei. In July 2022, Tongmei and the investors completed the initial funding of approximately $ 2.2 million. Tongmei’s portion of the investment was approximately $ 0.9 million. In January 2023, Tongmei made an investment of $ 0.9 million to ChaoYang KaiMei. In each of July 2023 and August 2023, Tongmei made an investment of approximately $ 0.6 million in ChaoYang KaiMei. In September 2023, Tongmei entered into another joint venture agreement with the same group of investors. This new agreement called for additional investment of approximately $ 5.6 million, with Tongmei committing to fund approximately $ 2.3 million. In December 2023, Tongmei made its initial additional investment of approximately $ 0.6 million in ChaoYang KaiMei, followed by 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. ​ All activities for MaAnShan JinMei ceased during the first half of 2022 and the subsidiary was subsequently dissolved in May 2022. The dissolution of MaAnShan JinMei had a de minimis impact on the condensed consolidated results. 8 Table of Contents ​ During the quarter ended December 31, 2020, Tongmei entered into two sets of definitive transaction documents, each consisting of a capital increase agreement along with certain supplemental agreements in substantially the same form (collectively, the “Capital Investment Agreements”), with several private equity investors in China. ​ In preparation for Tongmei’s application for a listing of shares in an initial public offering (the “IPO”) on the Shanghai Stock Exchange’s Sci-Tech innovAtion boaRd (the “STAR Market”), in late December 2020, we reorganized our entity structures in China. JinMei and BoYu and their subsidiaries were assigned to Tongmei and effectively merged with Tongmei although they retained their own respective legal entity status and are wholly owned subsidiaries of Tongmei. The 33 % minority interest stakeholders of BoYu converted their ownership to a 7.59 % minority interest in Tongmei. The 8.5 % minority interest stakeholders, employees of JinMei, converted their ownership to a 0.38 % minority interest in Tongmei. Further, a number of employees, key managers and contributors purchased a 0.4 % minority interest in Tongmei. Additionally, Baoding Tongmei and ChaoYang Tongmei, were assigned to Tongmei as wholly owned subsidiaries. In 2020, the private equity funds (the “Investors”) had transferred approximately $ 48.1 million of new capital to Tongmei. An additional investment of approximately $ 1.5 million of new capital was funded in January 2021. Under China regulations these investments must be formally approved by the appropriate government agency and are not deemed to be dilutive until such approval is granted. The government approved the approximately $ 49 million investment in its entirety on January 25, 2021, at which time the Investors owned a redeemable noncontrolling interest in Tongmei of 7.28 %. As of June 30, 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. In June 2021, we sold AXT-Tongmei to Tongmei for $ 1 . Since Tongmei is 85.5 % owned by us, and the transaction was between common interest holders, the transaction was accounted for at net book value and resulted in an increase of $ 1.2 million to noncontrolling interests and $ 1.2 million to redeemable noncontrolling interests. ​ Note 2. Investments and Fair Value Measurements ​ Our investments consist of instruments with original maturities of more than three months. As of June 30, 2024 and December 31, 2023, our cash and debt investments are classified as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2024 ​ December 31, 2023 ​ ​ ​ Gross Gross ​ ​ ​ ​ Gross Gross ​ ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair ​ Amortized ​ Unrealized ​ Unrealized ​ Fair ​ Cost Gain (Loss) Value Cost Gain (Loss) Value Classified as: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and restricted cash ​ $ 41,597 ​ $ — ​ $ — ​ $ 41,597 ​ $ 50,114 ​ $ — ​ $ — ​ $ 50,114 ​ Investments (available-for-sale): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Certificates of deposit 1 ​ 1,680 ​ — ​ ​ ( 5 ) ​ 1,675 ​ 2,160 ​ — ​ ​ ( 20 ) ​ 2,140 ​ Total cash, restricted cash and investments ​ $ 43,277 ​ $ — ​ $ ( 5 ) ​ $ 43,272 ​ $ 52,274 ​ $ — ​ $ ( 20 ) ​ $ 52,254 ​ Contractual maturities on investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Due within 1 year 2 ​ $ 1,680 ​ ​ ​ ​ ​ ​ ​ $ 1,675 ​ $ 2,160 ​ ​ ​ ​ ​ ​ ​ $ 2,140 ​ ​ ​ $ 1,680 ​ ​ ​ ​ ​ ​ ​ $ 1,675 ​ $ 2,160 ​ ​ ​ ​ ​ ​ ​ $ 2,140 ​ 1. Certificates of deposit with original maturities of more than three months. 2. Classified as “Short-term investments” in our condensed consolidated balance sheets. ​ We manage our debt investments as a single portfolio of highly marketable securities that is intended to be available to meet our current cash requirements. Certificates of deposit and corporate bonds are typically held until maturity. ​ Historically, the gross unrealized losses related to our portfolio of available-for-sale debt securities were immaterial, and primarily due to normal market fluctuations and not due to increased credit risk or other valuation concerns. There was an insignificant amount of gross unrealized losses on our available-for-sale debt securities as of 9 Table of Contents 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 June 30, 2024 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ In Loss Position ​ In Loss Position ​ Total In ​ ​ < 12 months ​ > 12 months ​ Loss Position ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ Gross ​ ​ ​ ​ Gross ​ ​ Fair ​ Unrealized ​ Fair ​ Unrealized ​ Fair ​ Unrealized As of June 30, 2024 Value (Losses) Value (Losses) Value (Losses) Investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Certificates of deposit ​ $ — ​ $ — ​ $ 1,675 ​ $ ( 5 ) ​ $ 1,675 ​ $ ( 5 ) ​ Total in loss position ​ $ — ​ $ — ​ $ 1,675 ​ $ ( 5 ) ​ $ 1,675 ​ $ ( 5 ) ​ ​ 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 December 31, 2023 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ In Loss Position ​ In Loss Position ​ Total In ​ ​ < 12 months ​ > 12 months ​ Loss Position ​ ​ Gross ​ Gross ​ Gross ​ ​ Fair ​ Unrealized ​ Fair ​ Unrealized ​ Fair ​ Unrealized As of December 31, 2023 ​ Value ​ (Loss) ​ Value ​ (Loss) ​ Value ​ (Loss) Investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Certificates of deposit ​ $ — ​ $ — ​ $ 2,140 ​ $ ( 20 ) ​ $ 2,140 ​ $ ( 20 ) ​ Total in loss position ​ $ — ​ $ — ​ $ 2,140 ​ $ ( 20 ) ​ $ 2,140 ​ $ ( 20 ) ​ ​ Restricted Cash ​ We maintain restricted cash in connection with cash balances temporarily restricted for regular business operations. These balances have been excluded from the Company’s cash balance. As of June 30, 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 $ 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. (“JiYa”), determined one of their equity investments was fully impaired and wrote the asset balance down to zero . 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 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 10 Table of Contents 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 . Additionally, in accordance with Accounting Standards Codification (“ASC”) 321-10-35-2, we adjusted the investment in Jia Mei to its fair value at the time of the sale, which resulted in a gain of $ 383,000 . The gain resulting from the sale and the subsequent remeasurement was incorporated as a component of “Equity in income of unconsolidated joint ventures” in the condensed consolidated statements of operations in the second quarter of 2023. ​ Fair Value Measurements ​ We invest primarily in certificates of deposits, corporate bonds and notes, government securities and money market accounts. We review our debt investment portfolio for credit loss at least quarterly or when there are changes in credit risk or other potential valuation concerns. As of June 30, 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. ASC 820, Fair Value Measurements and Disclosures , establishes three levels of inputs that may be used to measure fair value. Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets of the asset or identical assets. Level 2 instrument valuations are obtained from readily- available, observable pricing sources for comparable instruments. Level 3 instrument valuations are obtained from unobservable inputs in which there is little or no market data, which require us to develop our own assumptions. On a recurring basis, we measure certain financial assets and liabilities at fair value, primarily consisting of our short-term and long-term debt investments. ​ The type of instrument valued based on quoted market prices in active markets includes our money market funds, which are generally classified within Level 1 of the fair value hierarchy. We classify our available-for-sale debt securities, including certificates of deposit and corporate bonds, as having Level 2 inputs. The valuation techniques used to measure the fair value of these financial instruments having Level 2 inputs were derived from bank statements, quoted market prices, broker or dealer statements or quotations, or alternative pricing sources with reasonable levels of price transparency. ​ We place short-term foreign currency hedges that are intended to offset the potential cash exposure related to fluctuations in the exchange rate between the United States dollar and Japanese yen. We measure the fair value of these foreign currency hedges at each month end and quarter end using current exchange rates and in accordance with U.S. GAAP. At quarter end, any foreign currency hedges not settled are netted in “Accrued liabilities” on the condensed consolidated balance sheets and classified as Level 3 assets and liabilities. As of June 30, 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 ​ ​ ​ Significant ​ ​ ​ ​ ​ Active Markets of ​ Significant Other ​ Unobservable ​ ​ Balance as of ​ Identical Assets ​ Observable Inputs ​ Inputs ​ June 30, 2024 (Level 1) (Level 2) (Level 3) Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Certificates of deposit ​ $ 1,675 ​ $ — ​ $ 1,675 ​ $ — ​ Total ​ $ 1,675 ​ $ — ​ $ 1,675 ​ $ — ​ ​ 11 Table of Contents The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis in accordance with ASC 820 as of December 31, 2023 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Quoted Prices in ​ ​ ​ Significant ​ ​ ​ ​ ​ Active Markets of ​ Significant Other ​ Unobservable ​ ​ Balance as of ​ Identical Assets ​ Observable Inputs ​ Inputs ​ December 31, 2023 (Level 1) (Level 2) (Level 3) Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Certificates of deposit ​ $ 2,140 ​ $ — ​ $ 2,140 ​ $ — ​ Total ​ $ 2,140 ​ $ — ​ $ 2,140 ​ $ — ​ ​ Items Measured at Fair Value on a Nonrecurring Basis ​ Certain assets that are subject to nonrecurring fair value measurements are not included in the table above. These assets include investments in privately-held companies accounted for by the equity or fair value method (see Note 7). We did not record any other-than-temporary impairment charges for these investments during the three and six months ended June 30, 2024 and 2023, respectively. ​ Note 3. Inventories ​ The components of inventories are summarized below (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, ​ ​ 2024 2023 Inventories: ​ ​ ​ ​ ​ ​ ​ Raw materials ​ $ 28,939 ​ $ 32,910 ​ Work in process ​ 53,854 ​ 50,008 ​ Finished goods ​ 2,981 ​ 3,585 ​ ​ ​ $ 85,774 ​ $ 86,503 ​ ​ 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. ​ Note 4. Property, Plant and Equipment, Net ​ The components of our property, plant and equipment are summarized below (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, ​ ​ ​ 2024 ​ 2023 ​ Property, plant and equipment: ​ ​ ​ ​ ​ ​ ​ Machinery and equipment, at cost ​ $ 66,958 ​ $ 65,918 ​ Less: accumulated depreciation and amortization ​ ​ ( 42,793 ) ​ ​ ( 42,112 ) ​ Building, at cost ​ ​ 137,407 ​ ​ 125,786 ​ Less: accumulated depreciation and amortization ​ ​ ( 24,562 ) ​ ​ ( 23,339 ) ​ Leasehold improvements, at cost ​ 7,571 ​ 7,596 ​ Less: accumulated depreciation and amortization ​ ​ ( 6,115 ) ​ ​ ( 5,984 ) ​ Construction in progress ​ 22,866 ​ 38,483 ​ ​ ​ $ 161,332 ​ $ 166,348 ​ ​ 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 12 Table of Contents million was for our buildings in our new Dingxing and Kazuo locations, $ 3.1 million was for manufacturing equipment purchases not yet placed in service and $ 4.2 million was for our construction in progress for our other consolidated subsidiaries. ​ ​ Note 5. Accrued Liabilities ​ The components of accrued liabilities are summarized below (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, ​ ​ 2024 2023 Preferred stock dividends payable ​ $ 2,901 ​ $ 2,901 ​ Accrued compensation and related charges ​ ​ 2,193 ​ ​ 3,707 ​ Payable in connection with construction in progress ​ ​ 1,478 ​ ​ 7,249 ​ Advances from customers ​ ​ 1,106 ​ ​ 305 ​ Other tax payable ​ ​ 527 ​ ​ 493 ​ Current portion of operating lease liabilities ​ ​ 471 ​ ​ 458 ​ Accrued professional services ​ ​ 470 ​ ​ 868 ​ Accrued product warranty ​ ​ 421 ​ ​ 703 ​ Accrued income taxes ​ ​ 362 ​ ​ — ​ Other personnel-related costs ​ ​ 276 ​ ​ 286 ​ Accrual for sales returns ​ ​ 47 ​ ​ 39 ​ Other accrued liabilities ​ ​ 2,016 ​ ​ 2,010 ​ ​ ​ $ 12,268 ​ $ 19,019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Note 6. Related Party Transactions ​ In September 2021 and October 2021, our consolidated subsidiary, ChaoYang XinMei, received funding from a minority investor of $ 0.9 million and $ 1.0 million, respectively. As of December 31, 2021, $ 1.9 million was included in short-term loan from noncontrolling interest in our condensed consolidated balance sheets. In December 2021 and January 2022, the same subsidiary received funding from Tongmei of $ 1.4 million and $ 1.4 million, respectively. In January 2022, the China local government certified this additional funding in ChaoYang XinMei as an equity investment. As a result, noncontrolling interests increased $ 2.2 million and redeemable noncontrolling interests increased $ 0.2 million. Short-term loan from noncontrolling interest decreased to $ 0 . In April 2022, Tongmei entered into the Capital Increase Agreement with minority investors to further invest approximately $ 4.5 million in ChaoYang XinMei. In April 2022 and May 2022, ChaoYang XinMei received funding from Tongmei of $ 1.1 million and $ 0.8 million, respectively, as equity investments. In April 2022 and May 2022, the minority investors invested $ 0.7 million and $ 0.6 million, respectively. As a result, noncontrolling interests increased $ 1.4 million and redeemable noncontrolling interests increased $ 0.1 million. In July 2022, Tongmei and the minority investors further invested $ 0.8 million and $ 0.6 million in ChaoYang XinMei, respectively. This completed the investment obligations under the Capital Increase Agreement. As a result, noncontrolling interests increased $ 610,000 and redeemable noncontrolling interests increased $ 57,000 . Tongmei’s ownership remained at 58.5 % after these equity investments. ​ In September 2022, our consolidated subsidiary, ChaoYang LiMei completed the sale of land and its attached buildings to our equity investment entity , ChaoYang KaiMei, for a total consideration of $ 1.5 million. In January 2023, ChaoYang KaiMei paid to ChaoYang LiMei $ 1.5 million. 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. This policy applies to all of our employees, directors, and our consolidated subsidiaries. Our executive officers retain board seats on the board of directors of the companies in which we have invested in our China joint ventures. See Note 7 for further details. ​ 13 Table of Contents Note 7. Investments in Privately-Held Raw Material Companies ​ We have made strategic investments in private companies located in China in order to gain access at a competitive cost to raw materials that are critical to our substrate business. These companies form part of our overall supply chain strategy. ​ As of June 30, 2024, the investments are summarized below (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Investment Balance as of ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, ​ Accounting ​ Ownership * Company 2024 2023 Method Percentage ​ Nanjing JinMei Gallium Co., Ltd. ​ $ 592 ​ $ 592 Consolidated ** 85.5 % ChaoYang JinMei Gallium Co., Ltd. ​ ​ 1,820 ​ ​ 1,820 ​ Consolidated ​ ** 85.5 % Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd. ​ 1,346 ​ 1,346 Consolidated ** 85.5 % ChaoYang ShuoMei High Purity Semiconductor Materials Co., Ltd. ​ ​ 3,122 ​ ​ 3,122 ​ Consolidated ​ **** 75.0 % ChaoYang XinMei High Purity Semiconductor Materials Co., Ltd. ​ ​ 7,331 ​ ​ 7,331 ​ Consolidated *** 58.5 % ​ ​ $ 14,211 ​ $ 14,211 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beijing JiYa Semiconductor Material Co., Ltd. ​ $ 4,400 ​ ​ 3,806 ​ Equity ​ 39 % Xiaoyi XingAn Gallium Co., Ltd. ​ ​ 4,233 ​ ​ 5,516 ​ Equity ​ ** 25 % ChaoYang KaiMei Quartz Co., Ltd. ​ ​ 3,316 ​ ​ 3,154 ​ Equity ​ ***** 40 % ​ ​ $ 11,949 ​ $ 12,476 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Emeishan Jia Mei High Purity Metals Co., Ltd. ​ 551 ​ 551 Fair value ****** 10 % ​ ​ $ 551 ​ $ 551 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ * These percentages reflect the ownership currently in effect upon the completion of the reorganization in China and the ownership in effect upon the completion of the new capital funding by private equity investors in January 2021. ​ ** In preparation for Tongmei’s application for a listing of shares in an IPO on the STAR Market, in late December 2020 we reorganized our entity structures in China. JinMei and BoYu and their subsidiaries, previously organized under AXT, Inc., were assigned to Tongmei and effectively merged with Tongmei although they retained their own respective legal entity status and are wholly owned subsidiaries of Tongmei. The 33 % minority interest stakeholders of BoYu converted their ownership to a 7.59 % minority interest in Tongmei. The 8.5 % minority interest stakeholders, employees of JinMei, converted their ownership to a 0.38 % minority interest in Tongmei. Further, a number of employees, key managers and contributors, purchased a 0.4 % minority interest in Tongmei. In 2020, the Investors transferred approximately $ 48.1 million of new capital to Tongmei. An additional investment of approximately $ 1.5 million of new capital was funded in early January 2021. Under China regulations these investments must be formally approved by the appropriate government agency and are not deemed to be dilutive until such approval is granted. The government approved the approximately $ 49 million investment in its entirety on January 25, 2021 at which time the Investors owned a redeemable noncontrolling interest in Tongmei of 7.28 %. As of June 30, 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. ​ *** In February 2021, Tongmei signed a joint venture agreement with certain investors to fund ChaoYang XinMei. ​ **** In April 2022, ChaoYang JinMei signed a joint venture agreement with certain investor to fund a new company, ChaoYang ShuoMei. ​ ***** In April 2022, Tongmei signed a joint venture agreement with certain investors to fund a new company, ChaoYang KaiMei. ​ ****** In May 2023, we sold 15 % of our equity investments in Jia Mei to a third party. We now own 10 % of Jia Mei and account for it under the fair value method. ​ 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 14 Table of Contents investment in Jia Mei. As a result of the share sale, we recognized a gain of $ 575,000 . Additionally, in accordance with ASC 321-10-35-2, we adjusted the investment in Jia Mei to its fair value at the time of the sale. The gain resulting from the sale and the subsequent remeasurement was incorporated as a component of “Equity in income of unconsolidated joint ventures” in the consolidated statements of operations in the second quarter of 2023. The gain from the sale and the subsequent remeasurement includes the following: ​ ​ ​ ​ ​ ​ ​ Amount ​ (in thousands) Fair value of the consideration received ​ $ 779 Foreign income tax withholding ​ ​ 48 Carrying value of 15 % of Emeishan Jia Mei High Purity Metals Co., Ltd. ​ ​ ( 252 ) Gain recognized on sale of 15 % of Emeishan Jia Mei High Purity Metals Co., Ltd. ​ $ 575 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount ​ ​ (in thousands) Fair value of the retained investment in Emeishan Jia Mei High Purity Metals Co., Ltd. ​ $ 551 Carrying value of retained noncontrolling investment ( 10 %) ​ ​ ( 168 ) Gain on retained noncontrolling investment due to remeasurement ( 10 %) ​ $ 383 ​ 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 six months ended June 30, 2024. ​ In November 2023, our 46 % equity ownership interest in Donghai County Dongfang High Purity Electronic Materials Co., Ltd. (“Dongfang”) was sold to a third party for consideration valued at approximately $ 0.6 million, including raw materials, equipment, and vehicle. As a result, our equity ownership interest of Dongfang decreased from 46 % to 0 %. The loss resulting from the sale was incorporated as a component of “Equity in income of unconsolidated joint ventures” in the consolidated statements of operations in the fourth quarter of 2023. The loss from the sale includes the following: ​ ​ ​ ​ ​ ​ ​ Amount ​ (in thousands) Fair value of the consideration received ​ $ 585 Carrying value of 46 % of Donghai County Dongfang High Purity Electronic Materials Co., Ltd. ​ ​ ( 1,710 ) Loss recognized on sale of 46 % of Donghai County Dongfang High Purity Electronic Materials Co., Ltd. ​ $ ( 1,125 ) ​ Although we have representation on the board of directors of each of the privately held raw material companies, the daily operations of each of these companies are managed by local management and not by us. Decisions concerning their respective short-term strategy and operations, ordinary course of business capital expenditures and sales of finished product, are made by local management with regular guidance and input from us. ​ For AXT’s minority investment entities that are not consolidated, the investment balances are included in “Other assets” in our condensed consolidated balance sheets and totaled $ 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: ​ ● all minority investment entities have sustainable businesses of their own; ​ ● our voting power is proportionate to our ownership interests; ​ 15 Table of Contents ● we only recognize our respective share of the losses and/or residual returns generated by the companies if they occur; and ​ ● we do not have controlling financial interest in, do not maintain operational or management control of, do not control the board of directors of, and are not required to provide additional investment or financial support to any of these companies. ​ In June 2022, we received a $ 1.3 million dividend from BoYu. In July 2022, we received a $ 1.5 million dividend from one of our equity investment entities, Xiaoyi XingAn. In August 2022, we received a $ 125,000 dividend from one of our equity investment entities, JiYa. 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. All of these distributions were paid to the PRC companies and the minority shareholders. ​ AXT’s minority investment entities are not consolidated and are accounted for under the equity method. The equity investment entities had the following summarized statements of operations information (in thousands) for the three and six months ended June 30, 2024 and 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ ​ June 30, ​ June 30, ​ ​ 2024 2023 2024 2023 Net revenue ​ $ 9,338 ​ $ 7,678 ​ $ 17,442 ​ $ 15,652 ​ Gross profit ​ $ 4,161 ​ $ 2,648 ​ $ 8,090 ​ $ 5,554 ​ Operating income ​ $ 4,035 ​ $ 3,163 ​ $ 7,406 ​ $ 5,172 ​ Net income ​ $ 2,044 ​ $ 913 ​ $ 5,182 ​ $ 4,858 ​ ​ 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. 16 Table of Contents Note 8. Stockholders’ Equity ​ Condensed Consolidated Statements of Stockholders’ Equity (in thousands) ​ The changes in stockholders’ equity by component for the three and six months ended June 30, 2024 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other ​ AXT, Inc. Total ​ ​ Preferred Common Additional Accumulated Comprehensive ​ Stockholders’ Noncontrolling Stockholders’ ​ ​ Stock Stock Paid-In Capital Deficit Income (Loss) Equity Interests Equity Balance as of December 31, 2023 $ 3,532 $ 44 $ 238,452 $ ( 32,040 ) $ ( 5,999 ) ​ $ 203,989 $ 23,494 $ 227,483 ​ Common stock options exercised ​ ​ — ​ ​ — ​ ​ 20 ​ ​ — ​ ​ — ​ ​ 20 ​ ​ — ​ ​ 20 ​ Investment in subsidiary with noncontrolling interest ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ Investment in subsidiary with redeemable noncontrolling interest ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ Noncontrolling interest portion of Tongmei stock-based compensation ​ ​ — ​ ​ — ​ ​ ( 24 ) ​ ​ — ​ ​ — ​ ​ ( 24 ) ​ ​ 13 ​ ​ ( 11 ) ​ Stock-based compensation ​ ​ — ​ ​ — ​ ​ 614 ​ ​ — ​ ​ — ​ ​ 614 ​ ​ — ​ ​ 614 ​ Tongmei stock-based compensation ​ ​ — ​ ​ — ​ ​ 195 ​ ​ — ​ ​ — ​ ​ 195 ​ ​ — ​ ​ 195 ​ Net loss ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 2,083 ) ​ ​ — ​ ​ ( 2,083 ) ​ ​ 106 ​ ​ ( 1,977 ) ​ Other comprehensive income ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 1,627 ) ​ ​ ( 1,627 ) ​ ​ ( 187 ) ​ ​ ( 1,814 ) ​ Balance as of March 31, 2024 ​ $ 3,532 ​ $ 44 ​ $ 239,257 ​ $ ( 34,123 ) ​ $ ( 7,626 ) ​ $ 201,084 ​ $ 23,426 ​ $ 224,510 ​ Common stock options exercised ​ ​ — ​ ​ — ​ ​ 5 ​ ​ — ​ ​ — ​ ​ 5 ​ ​ — ​ ​ 5 ​ Investment in subsidiary with noncontrolling interest ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ​ ​ ​ — ​ Investment in subsidiary with redeemable noncontrolling interest ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ Noncontrolling interest portion of Tongmei stock-based compensation ​ ​ — ​ ​ — ​ ​ ( 15 ) ​ ​ — ​ ​ — ​ ​ ( 15 ) ​ ​ 7 ​ ​ ( 8 ) ​ Stock-based compensation ​ ​ — ​ ​ — ​ ​ 621 ​ ​ — ​ ​ — ​ ​ 621 ​ ​ — ​ ​ 621 ​ Tongmei stock-based compensation ​ ​ — ​ ​ — ​ ​ 94 ​ ​ — ​ ​ — ​ ​ 94 ​ ​ — ​ ​ 94 ​ Net loss ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 1,516 ) ​ ​ — ​ ​ ( 1,516 ) ​ ​ 316 ​ ​ ( 1,200 ) ​ Other comprehensive income (loss) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 601 ) ​ ​ ( 601 ) ​ ​ ( 69 ) ​ ​ ( 670 ) ​ Balance as of June 30, 2024 $ 3,532 ​ $ 44 ​ $ 239,962 ​ $ ( 35,639 ) ​ $ ( 8,227 ) ​ $ 199,672 ​ $ 23,680 ​ $ 223,352 ​ ​ Net income (loss) and Other comprehensive income (loss) attributable to redeemable noncontrolling interests were $ 1,000 and ($ 69,000 ), respectively, for the three months ended June 30, 2024 and ($ 70,000 ) and ($ 258,000 ), respectively, for the six months ended June 30, 2024 and are not shown in the table above. ​ 17 Table of Contents The changes in stockholders’ equity by component for the three and six months ended June 30, 2023 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other ​ AXT, Inc. Total ​ Preferred Common Additional Accumulated Comprehensive ​ Stockholders’ Noncontrolling Stockholders’ ​ Stock Stock Paid-In Capital Deficit Income (Loss) Equity Interests Equity Balance as of December 31, 2022 $ 3,532 $ 44 $ 235,308 $ ( 14,159 ) $ ( 3,118 ) ​ $ 221,607 $ 23,293 $ 244,900 Common stock options exercised ​ ​ — ​ ​ — ​ ​ 8 ​ ​ — ​ ​ — ​ ​ 8 ​ ​ — ​ ​ 8 Investment in subsidiary with noncontrolling interest ​ ​ — ​ ​ — ​ ​ ( 36 ) ​ ​ — ​ ​ — ​ ​ ( 36 ) ​ ​ 239 ​ ​ 203 Investment in subsidiary with redeemable noncontrolling interest ​ ​ — ​ ​ — ​ ​ ( 36 ) ​ ​ — ​ ​ — ​ ​ ( 36 ) ​ ​ — ​ ​ ( 36 ) Noncontrolling interest portion of Tongmei stock-based compensation ​ ​ — ​ ​ — ​ ​ 33 ​ ​ — ​ ​ — ​ ​ 33 ​ ​ ( 16 ) ​ ​ 17 Stock-based compensation ​ ​ — ​ ​ — ​ ​ 717 ​ ​ — ​ ​ — ​ ​ 717 ​ ​ — ​ ​ 717 Tongmei stock-based compensation ​ ​ — ​ ​ — ​ ​ 198 ​ ​ — ​ ​ — ​ ​ 198 ​ ​ — ​ ​ 198 Net loss ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 3,348 ) ​ ​ — ​ ​ ( 3,348 ) ​ ​ ( 169 ) ​ ​ ( 3,517 ) Other comprehensive income ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 858 ​ ​ 858 ​ ​ 70 ​ ​ 928 Balance as of March 31, 2023 ​ $ 3,532 ​ $ 44 ​ $ 236,192 ​ $ ( 17,507 ) ​ $ ( 2,260 ) ​ $ 220,001 ​ $ 23,417 ​ $ 243,418 Common stock options exercised ​ ​ — ​ ​ — ​ ​ 2 ​ ​ — ​ ​ — ​ ​ 2 ​ ​ — ​ ​ 2 Investment in subsidiary with noncontrolling interest ​ ​ — ​ ​ — ​ ​ ( 74 ) ​ ​ — ​ ​ — ​ ​ ( 74 ) ​ ​ 380 ​ ​ 306 Investment in subsidiary with redeemable noncontrolling interest ​ ​ — ​ ​ — ​ ​ ( 75 ) ​ ​ — ​ ​ — ​ ​ ( 75 ) ​ ​ — ​ ​ ( 75 ) Noncontrolling interest portion of Tongmei stock-based compensation ​ ​ — ​ ​ — ​ ​ 31 ​ ​ — ​ ​ — ​ ​ 31 ​ ​ ( 14 ) ​ ​ 17 Stock-based compensation ​ ​ — ​ ​ — ​ ​ 720 ​ ​ — ​ ​ — ​ ​ 720 ​ ​ — ​ ​ 720 Tongmei stock-based compensation ​ ​ — ​ ​ — ​ ​ 192 ​ ​ — ​ ​ — ​ ​ 192 ​ ​ — ​ ​ 192 Net income (loss) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 5,089 ) ​ ​ — ​ ​ ( 5,089 ) ​ ​ 38 ​ ​ ( 5,051 ) Other comprehensive income (loss) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 5,915 ) ​ ​ ( 5,915 ) ​ ​ ( 623 ) ​ ​ ( 6,538 ) Balance as of June 30, 2023 $ 3,532 ​ $ 44 ​ $ 236,988 ​ $ ( 22,596 ) ​ $ ( 8,175 ) ​ $ 209,793 ​ $ 23,198 ​ $ 232,991 ​ 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 ​ On October 27, 2014, our Board of Directors approved a stock repurchase program pursuant to which we may repurchase up to $ 5.0 million of our outstanding common stock. These repurchases can be made from time to time in the open market and are funded from our existing cash balances and cash generated from operations. During 2015, we repurchased approximately 908,000 shares at an average price of $ 2.52 per share for a total purchase price of approximately $ 2.3 million under the stock repurchase program. No shares were repurchased from 2016 through 2023 . 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. ​ 18 Table of Contents Note 9. Stock-Based Compensation ​ We account for stock-based compensation in accordance with the provisions of ASC Topic 718, Compensation-Stock Compensation (“ASC 718”), which established accounting for stock-based awards exchanged for employee services. Stock-based compensation cost is measured at each grant date, based on the fair value of the award, and is recognized as expense over the employee’s requisite service period of the award. All of our stock compensation is accounted for as an equity instrument. ​ In May 2015, our stockholders approved our 2015 Equity Incentive Plan (the “2015 Plan”). The 2015 Plan is a replacement of the 2007 Plan. The 399,562 share reserve of the 2007 Plan became the reserve of the 2015 Plan, together with 3,000,000 additional shares approved for issuance under the 2015 Plan. In May 2019, our stockholders approved 1,600,000 of additional shares for issuance under the 2015 Plan. In May 2021, our stockholders approved 3,600,000 of additional shares for issuance under the 2015 Plan. In May 2024, our stockholders approved an amendment to the 2015 Plan to increase the number of shares reserved for issuance by an additional 3,600,000 shares. 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 ​ ​ ​ June 30, ​ June 30, ​ ​ 2024 2023 2024 2023 Cost of revenue ​ $ 68 ​ $ 103 ​ $ 173 ​ $ 208 ​ Selling, general and administrative ​ 526 ​ 655 ​ 1,079 ​ 1,287 ​ Research and development ​ 121 ​ 154 ​ 272 ​ 332 ​ Net effect on net loss ​ $ 715 ​ $ 912 ​ $ 1,524 ​ $ 1,827 ​ ​ 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 and six months ended June 30, 2024 and 2023. ​ 19 Table of Contents The following table summarizes the stock option transactions during the six months ended June 30, 2024 (in thousands, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ ​ ​ ​ ​ average ​ ​ ​ ​ ​ ​ Weighted- ​ Remaining ​ ​ ​ ​ ​ Number of ​ average ​ Contractual ​ Aggregate ​ ​ Options ​ Exercise ​ Life ​ Intrinsic Stock Options Outstanding Price (in years) Value Balance as of January 1, 2024 ​ 1,198 ​ $ 5.10 4.09 ​ $ 14 ​ Granted — ​ — ​ ​ ​ ​ ​ ​ Exercised ( 11 ) ​ ​ 2.22 ​ ​ ​ ​ ​ ​ Canceled and expired — ​ ​ — ​ ​ ​ ​ ​ ​ Balance as of June 30, 2024 1,187 ​ $ 5.13 3.63 ​ $ 189 ​ Options vested as of June 30, 2024 and unvested options expected to vest, net of forfeitures 1,187 ​ $ 5.13 3.63 ​ $ 189 ​ Options exercisable as of June 30, 2024 1,187 ​ $ 5.13 3.63 ​ $ 189 ​ ​ 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 six months ended June 30, 2024 is presented below (in thousands, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-Average ​ ​ ​ ​ Grant Date Stock Awards Shares Share Value Non-vested as of January 1, 2024 ​ 1,220 ​ $ 3.75 ​ Granted 85 ​ $ 3.47 ​ Vested ( 165 ) ​ $ 5.05 ​ Forfeited ​ ( 4 ) ​ $ 3.20 ​ Non-vested as of June 30, 2024 1,136 ​ $ 3.54 ​ ​ 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 ​ In March 2023 and February 2024, the Company issued at-risk, performance shares classified as equity awards. Expense is recognized quarterly on a straight-line method over the requisite service period, based on the probability of achieving the specified financial performance metric, with changes in expectations recognized as an adjustment to earnings in the period of change. Compensation cost is not recognized for at-risk, performance shares that do not vest because service or performance conditions are not satisfied and any previously recognized compensation cost is reversed. At-risk, performance shares are eligible to receive dividend equivalents under the Company’s 2015 Equity Incentive Plan (the “Plan”), as determined by the Board of Directors. The Company will recognize forfeitures as they occur. ​ The Company’s at-risk, performance shares are classified as equity and contain performance and service conditions that must be satisfied for an employee to receive the shares. The financial performance metric for the at-risk, performance shares issued in February 2022 is based upon year-end 2021 actual results as compared to the Company’s year-end actual results in 2022. The financial performance metrics for the at-risk, performance shares issued in March 2023 are based upon the Company’s year-end actual results in 2023. The financial performance metric for the at-risk, performance shares issued in February 2024 is based upon the Company’s year-end actual results in 2024. All performance shares, if earned, are still subject to annual vesting over a four-year period, except that no shares are vested 20 Table of Contents on the first anniversary because the performance measurement is based on year-end results for the year 2023 and 2024, respectively. ​ The fair value of the at-risk, performance shares is determined based on the closing price of the Company’s common stock on the first day after the public issuance of the Company’s earnings release for the most recent fiscal quarter, following the Compensation Committee and Board of Directors approval, which is considered the grant date. The fair value per share of the at-risk, performance shares classified as equity awards granted in February 2024 and March 2023 was $ 2.28 and $ 3.71 , respectively. ​ On February 15, 2022, the Compensation Committee recommended, and the Board approved, the grant to Dr. Morris Young of 114,320 at-risk, performance shares under the Plan. On February 15, 2022, the Compensation Committee approved the grant to Gary Fischer of 32,100 at-risk, performance shares under the Plan. If the performance financial metric is less than 50 % achieved these shares are forfeited. If the performance financial metric is between 50 % and 200 % achieved, then a corresponding pro rata portion of the 114,320 shares issued to Dr. Young would be eligible to vest and a corresponding pro rata portion of the 32,100 shares issued to Mr. Fischer would be eligible to vest. Any shares that are not eligible to vest are forfeited. If the target financial metric exceeds 200 %, then the maximum number of at-risk performance shares that would be eligible to vest is 114,320 for Dr. Young and 32,100 for Mr. Fischer. On February 14, 2023, the Compensation Committee met and certified the year-over-year annual revenue growth rate achieved for fiscal year 2022, expressed as a percentage, was 2.7 %. Therefore, none of the at-risk performance shares became eligible to vest. ​ On March 15, 2023, the Compensation Committee recommended, and the Board approved, the grant to Dr. Morris Young of 223,590 at-risk, performance shares under the Plan. On March 15, 2023, the Compensation Committee approved the grant to Gary Fischer of 77,600 at-risk, performance shares under the Plan. If the minimum financial metric for fiscal year 2023 is achieved, then based upon a performance formula, a corresponding portion of the 223,590 shares issued to Dr. Young would be eligible to vest and a corresponding portion of the 77,600 shares issued to Mr. Fischer would be eligible to vest. If the target financial metric was exceeded and an additional financial metric for fiscal year 2023 is achieved, then additional shares above the target number of shares are earned based on such performance formula and the maximum number of additional shares earned is capped at 100 % of the target. If the minimum financial metric for fiscal year 2023 is not achieved, then these awards are forfeited. On February 20, 2024, the Compensation Committee met and certified that the minimum revenue metric for fiscal year 2023 was not achieved. Therefore, none of the at-risk performance shares became eligible to vest. ​ On February 20, 2024, the Compensation Committee recommended, and the Board approved, the grant to Dr. Morris Young of 223,590 at-risk, performance shares under the Plan. On February 20, 2024, the Compensation Committee approved the grant to Gary Fischer of 77,600 at-risk, performance shares under the Plan. If the minimum financial metric for fiscal year 2024 is achieved, then based upon a performance formula, a corresponding portion of the 223,590 shares issued to Dr. Young would be eligible to vest and a corresponding portion of the 77,600 shares issued to Mr. Fischer would be eligible to vest. If the target financial metric is exceeded, then additional shares above the target number of shares are earned based on such performance formula and the maximum number of additional shares earned is capped at 100 % of the target. If the minimum financial metric for fiscal year 2024 is not achieved, then these awards are forfeited. ​ 21 Table of Contents 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 ​ ​ ​ ​ Grant Date Stock Awards Shares Share Value Non-vested as of January 1, 2024 ​ 38 ​ $ 15.37 Granted (1) 151 ​ $ 2.28 Vested — ​ $ — Forfeited ​ — ​ $ — Non-vested as of June 30, 2024 189 ​ $ 4.91 ​ (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 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. ​ Note 10. Net Loss Per Share ​ Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the periods less shares of common stock subject to repurchase and non-vested stock awards. Diluted net income (loss) per share is computed using the weighted-average number of common shares outstanding and potentially dilutive common shares outstanding during the periods. The dilutive effect of outstanding stock options and restricted stock awards is reflected in diluted earnings per share by application of the treasury stock method. Potentially dilutive common shares consist of common shares issuable upon the exercise of stock options and vesting of restricted stock awards. Potentially dilutive common shares are excluded from the computation of weighted-average number of common shares outstanding in net loss years, as their effect would be anti-dilutive to the computation. ​ A reconciliation of the numerators and denominators of the basic and diluted net loss per share calculations is as follows (in thousands, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ ​ June 30, ​ June 30, ​ ​ 2024 2023 2024 2023 Numerator: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss attributable to AXT, Inc. ​ $ ( 1,516 ) ​ $ ( 5,089 ) ​ $ ( 3,599 ) ​ $ ( 8,437 ) ​ Less: Preferred stock dividends ​ ( 44 ) ​ ( 44 ) ​ ( 88 ) ​ ( 88 ) ​ Net loss available to common stockholders ​ $ ( 1,560 ) ​ $ ( 5,133 ) ​ $ ( 3,687 ) ​ $ ( 8,525 ) ​ Denominator: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Denominator for basic net loss per share - weighted-average common shares ​ 43,092 ​ 42,586 ​ 43,039 ​ 42,542 ​ Effect of dilutive securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common stock options ​ — ​ — ​ — ​ — ​ Restricted stock awards ​ — ​ — ​ — ​ — ​ Denominator for dilutive net loss per common shares ​ 43,092 ​ 42,586 ​ 43,039 ​ 42,542 ​ Net loss attributable to AXT, Inc. per common share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ ( 0.04 ) ​ $ ( 0.12 ) ​ $ ( 0.09 ) ​ $ ( 0.20 ) ​ Diluted ​ $ ( 0.04 ) ​ $ ( 0.12 ) ​ $ ( 0.09 ) ​ $ ( 0.20 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Options excluded from diluted net loss per share as the impact is anti-dilutive ​ 1,187 ​ 1,200 ​ 1,187 ​ 1,200 ​ Restricted stock excluded from diluted net loss per share as the impact is anti-dilutive ​ 1,325 ​ 1,019 ​ 1,325 ​ 1,019 ​ ​ 22 Table of Contents 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. stockholders in connection with the completion of our acquisition of Lyte Optronics, Inc. on May 28, 1999. ​ Note 11. Segment Information and Foreign Operations ​ Segment Information ​ We operate in one segment for the design, development, manufacture and distribution of high-performance compound and single element semiconductor substrates and sale of raw materials integral to these substrates. In accordance with ASC Topic 280, Segment Reporting, our chief operating decision maker 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. ​ Product Information ​ The following table represents revenue amounts (in thousands) by product type: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ ​ ​ June 30, ​ June 30, ​ ​ ​ 2024 2023 2024 2023 Product Type: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Substrates ​ $ 19,745 ​ $ 11,027 ​ $ 36,648 ​ $ 24,516 ​ ​ Raw Materials and Other ​ 8,178 ​ 7,568 ​ 13,963 ​ 13,484 ​ ​ Total ​ $ 27,923 ​ $ 18,595 ​ $ 50,611 ​ $ 38,000 ​ ​ ​ Geographical Information ​ The following table represents revenue amounts (in thousands) reported for products shipped to customers in the corresponding geographic region: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ ​ ​ June 30, ​ June 30, ​ ​ ​ 2024 2023 2024 2023 Geographical region: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ China ​ $ 16,947 ​ $ 10,289 ​ $ 28,464 ​ $ 18,391 ​ ​ Taiwan ​ ​ 3,420 ​ ​ 1,407 ​ ​ 8,002 ​ ​ 3,878 ​ ​ Japan ​ 796 ​ 1,396 ​ 1,786 ​ 2,931 ​ ​ Asia Pacific (excluding China, Taiwan and Japan) ​ ​ 712 ​ ​ 737 ​ ​ 1,510 ​ ​ 1,828 ​ ​ Europe (primarily Germany) ​ ​ 4,689 ​ ​ 3,015 ​ ​ 8,414 ​ ​ 6,585 ​ ​ North America (primarily the United States) ​ 1,359 ​ 1,751 ​ ​ 2,435 ​ ​ 4,387 ​ ​ Total ​ $ 27,923 ​ $ 18,595 ​ $ 50,611 ​ $ 38,000 ​ ​ ​ 23 Table of Contents Long-lived assets consist primarily of property, plant and equipment and operating lease right-of-use assets, and are attributed to the geographic location in which they are located. Long-lived assets, net of depreciation, by geographic region were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ ​ ​ June 30, ​ December 31, ​ ​ 2024 2023 Long-lived assets by geographic region, net of depreciation: ​ ​ ​ ​ ​ ​ ​ North America ​ $ 1,493 ​ $ 1,631 ​ China ​ 162,370 ​ 167,516 ​ ​ ​ $ 163,863 ​ $ 169,147 ​ ​ Significant Customers ​ 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 June 30, 2024 , and December 31, 2023. ​ Note 12. Commitments and Contingencies ​ Indemnification Agreements ​ We have entered into indemnification agreements with our directors and officers that require us to indemnify our directors and officers against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of a culpable nature; to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified; and to obtain directors’ and officers’ insurance if available on reasonable terms, which we currently have in place. ​ Product Warranty ​ We provide warranties for our products for a specific period of time, generally twelve months , against material defects. We provide for the estimated future costs of warranty obligations in cost of sales when the related revenue is recognized. The accrued warranty costs represent the best estimate at the time of sale of the total costs that we expect to incur to repair or replace product parts that fail while still under warranty. The amount of accrued estimated warranty costs is primarily based on historical experience as to product failures as well as current information on repair costs. On a quarterly basis, we review the accrued balances and update the historical warranty cost trends. ​ 24 Table of Contents 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 ​ ​ June 30, ​ June 30, ​ 2024 2023 2024 2023 Beginning accrued product warranty ​ $ 495 ​ $ 915 ​ $ 703 ​ $ 669 ​ Accruals for warranties issued ​ 131 ​ 114 ​ 188 ​ 658 ​ Adjustments related to pre-existing warranties including expirations and changes in estimates ​ ( 50 ) ​ ( 64 ) ​ ( 260 ) ​ ( 39 ) ​ Cost of warranty repair ​ ( 155 ) ​ ( 113 ) ​ ( 210 ) ​ ( 436 ) ​ Ending accrued product warranty ​ $ 421 ​ $ 852 ​ $ 421 ​ $ 852 ​ ​ Contractual Obligations ​ In 2020, we and a competitor entered into a cross license and covenant agreement (the “Cross License Agreement”), which has a term that began on January 1, 2020 and expires on December 31, 2029. The Cross License Agreement is a fixed-cost cross license and not a variable-cost cross license that is based on revenue or units. Under the Cross License Agreement, we are obligated to make annual payments over a 10-year period. ​ Land Purchase and Investment Agreement ​ 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 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. 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. 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. ​ Purchase Obligations with Penalties for Cancellation ​ In the normal course of business, we issue purchase orders to various suppliers. In certain cases, we may incur a penalty if we cancel the purchase order. As of June 30, 2024, we do not have any outstanding purchase orders that will incur a penalty if cancelled by the Company. ​ 25 Table of Contents Legal Proceedings ​ From time to time we may be involved in judicial or administrative proceedings concerning matters arising in the ordinary course of business. We do not expect that any of these matters, individually or in the aggregate, will have a material adverse effect on our business, financial condition, cash flows or results of operations. ​ On May 6, 2024, a 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. ​ Note 13. Other Income (expense), Net ​ 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. ​ Note 14. Income Taxes ​ We account for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”), which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that a portion of the deferred tax asset will not be realized. ​ We provide for income taxes based upon the geographic composition of worldwide earnings and tax regulations governing each region, particularly China. The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws, particularly in foreign countries such as China. ​ We recognize interest and penalties related to uncertain tax positions in income tax expense. Income tax expense for the three and six months ended June 30, 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. federal, various states and foreign jurisdictions. Currently, there is no tax audit in any of the jurisdictions and we do not expect there will be any significant change to this. Provision for income taxes for the three and six months ended June 30, 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. operations as most of the income in the U.S. had been fully offset by utilization of federal and state net operating loss carryforwards. ​ 26 Table of Contents Under the 2017 Tax Cuts and Jobs Act, research and experimental (“R&E”), expenditures incurred or paid for tax years beginning after December 31, 2021 will no longer be immediately deductible for tax purposes. Instead, businesses are now required to capitalize and amortize R&E expenditures over a period of five years for research conducted within the U.S. or 15 years for research conducted in a foreign jurisdiction. We capitalize the R&E expense incurred by our China subsidiaries and amortize it over 15 years. ​ California Senate Bill 167 was signed into law by the acting governor on June 27, 2024. The bill makes several tax changes designed to alleviate the 2024-2025 budget. For tax years beginning on or after January 1, 2024, and before January 1, 2027, net operating losses (NOLs) are suspended for both corporate and personal income taxes. The suspension will not apply to any taxpayer with net business income or modified adjusted income of less than $1 million. Another provision in Senate Bill 167 limits the use of credits for tax years beginning on or after January 1, 2024, and before January 1, 2027. During this period, a business (including all taxpayers that are members of a combined report) may claim a total of only $5 million in credits under both the Corporation and Personal Income Tax laws (including the carryover of any business credit). Since the Company’s profit level is below $1 million, Bill 167 has no impact on the Company. ​ Note 15. Revenue ​ Revenue Recognition ​ We manufacture and sell high-performance compound semiconductor substrates including indium phosphide, gallium arsenide and germanium wafers, and our consolidated subsidiaries sell certain raw materials, including high purity gallium (7N Ga), pyrolytic boron nitride (pBN) crucibles and boron oxide (B2O3). After we ship our products, there are no remaining obligations or customer acceptance requirements that would preclude revenue recognition. Our products are typically sold pursuant to purchase orders placed by our customers, and our terms and conditions of sale do not require customer acceptance. We account for a contract with a customer when there is a legally enforceable contract, which could be the customer’s purchase order, the rights of the parties are identified, the contract has commercial terms, and collectibility of the contract consideration is probable. The majority of our contracts have a single performance obligation to transfer products and are short term in nature, usually less than six months. Our revenue is measured based on the consideration specified in the contract with each customer in exchange for transferring products that are generally based upon a negotiated formula, list or fixed price. Revenue is recognized when control of the promised goods is transferred to our customer, which is either upon shipment from our dock, receipt at the customer’s dock, or removal from consignment inventory at the customer’s location, in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods. ​ We have elected to account for shipping and handling as activities to fulfill the promise to transfer the goods. Shipping and handling fees billed to customers in a sales transaction are recorded as an offset to shipping and handling expenses. Sales taxes and value added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from revenue. ​ We do not provide training, installation or commissioning services. We provide for future returns based on historical data, prior experience, current economic trends and changes in customer demand at the time revenue is recognized. We do not recognize any asset associated with the incremental cost of obtaining revenue generating customer contracts. As such, sales commissions are expensed as incurred, given that the expected period of benefit is less than one year . ​ Contract Balances ​ Contract assets are recorded when we have a conditional right to consideration for our completed performance under the contracts. Accounts receivables are recorded when the right to this consideration becomes unconditional. We believe the fair value of our accounts receivable approximates its carrying value due to its short maturities and nominal credit risk. We do not have any material contract assets as of June 30, 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 27 Table of Contents liability. The following table reflects the contract liabilities balance, which is included in “Accrued liabilities” on the condensed consolidated balance sheets, as of June 30, 2024 and December 31, 2023 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, ​ ​ ​ 2024 ​ 2023 ​ Contract liabilities ​ $ 1,106 ​ $ 305 ​ 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 ​ In general, revenue disaggregated by product types and geography (see Note 11) is aligned according to the nature and economic characteristics of our business and provides meaningful disaggregation of our results of operations. Since we operate in one segment, all financial segment and product line information can be found in the condensed consolidated financial statements. ​ Note 16. Loans and Line of Credit ​ Our bank loans and credit facilities typically have a term of 12 months or less and are included in “Short-term loans” in our condensed consolidated balance sheets. The following table represents short-term bank loans as of June 30, 2024 and December 31, 2023 (in thousands, except interest rate data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 28 Table of Contents ​ ​ ​ Loan Interest ​ ​ ​ ​ ​ December 31, ​ June 30, Subsidiary Bank ​ Detail Rate ​ Start Date ​ Due Date ​ 2023 ​ 2024 Tongmei Bank of China (1) $ 1,848 3.5 % January-23 ​ January-24 $ 1,795 $ - ​ ​ ​ 2,184 2.8 % March-23 ​ March-24 ​ 2,118 ​ - ​ ​ ​ 376 2.7 % September-23 ​ September-24 ​ 386 ​ 376 ​ ​ ​ 876 3.5 % November-23 ​ November-24 ​ 876 ​ 855 ​ ​ ​ 1,003 3.5 % November-23 ​ November-24 ​ 1,003 ​ 980 ​ Bank of China (2) ​ 2,911 3.5 % January-23 ​ January-24 ​ 2,825 ​ - ​ ​ ​ 2,770 3.0 % January-24 ​ January-25 ​ - ​ 2,755 ​ Bank of Communications (1) ​ 1,455 3.3 % January-23 ​ January-24 ​ 1,414 ​ - ​ ​ ​ 1,380 3.8 % May-23 ​ May-24 ​ 1,414 ​ - ​ ​ ​ 1,373 3.8 % July-23 ​ May-24 ​ 1,414 ​ - ​ ​ ​ 1,376 3.0 % May-24 ​ May-25 ​ - ​ 1,376 ​ ​ ​ 2,480 3.0 % June-24 ​ May-25 ​ - ​ 2,480 ​ China Merchants Bank (1) ​ 4,367 3.7 % January-23 ​ January-24 ​ 4,235 ​ - ​ ​ ​ 1,386 3.5 % January-24 ​ January-25 ​ - ​ 1,376 ​ ​ ​ 692 3.5 % February-24 ​ February-25 ​ - ​ 690 ​ ​ ​ 692 3.5 % April-24 ​ April-25 ​ - ​ 690 ​ Bank of Beijing (3) ​ 2,290 4.2 % January-23 ​ January-24 ​ 2,220 ​ - ​ ​ ​ 3,541 3.2 % June-23 ​ May-24 ​ 3,626 ​ - ​ ​ ​ 1,380 3.2 % June-23 ​ February-24 ​ 1,414 ​ - ​ ​ ​ 1,414 3.0 % December-23 ​ December-24 ​ 1,414 ​ 1,376 ​ ​ ​ 3,600 3.0 % March-24 ​ February-25 ​ - ​ 3,577 ​ ​ ​ 1,386 3.0 % March-24 ​ December-24 ​ - ​ 1,376 ​ ​ ​ 3,580 3.0 % June-24 ​ June-25 ​ - ​ 3,577 ​ Industrial Bank (1) ​ 2,757 4.3 % June-23 ​ June-24 ​ 2,825 ​ - ​ ​ ​ 2,744 4.3 % July-23 ​ July-24 ​ 2,825 ​ 2,752 ​ ​ ​ 2,744 4.3 % September-23 ​ September-24 ​ 2,825 ​ 2,752 ​ NingBo Bank (1) ​ 2,744 4.2 % August-23 ​ September-24 ​ 2,820 ​ 2,746 ​ ​ ​ 1,271 4.3 % November-23 ​ November-24 ​ 1,271 ​ 1,238 ​ ​ ​ 2,825 4.3 % December-23 ​ December-24 ​ 2,825 ​ 2,752 ​ ​ ​ 1,647 4.3 % January-24 ​ January-25 ​ - ​ 1,637 ​ ​ ​ 1,258 4.3 % May-24 ​ March-25 ​ - ​ 1,258 ​ Industrial and Commercial Bank of China (1) ​ 2,744 3.3 % September-23 ​ September-24 ​ 2,825 ​ 2,752 ​ NanJing Bank (1) ​ 2,752 3.8 % October-23 ​ October-24 ​ 2,752 ​ 2,683 ​ China Citic Bank (1) ​ 2,752 3.0 % June-24 ​ June-25 ​ - ​ 2,752 BoYu Industrial and Commercial Bank of China (4) ​ 1,414 2.7 % December-23 ​ December-24 ​ 1,414 ​ 1,376 ​ Bank of China (1) ​ 1,204 2.4 % January-23 ​ January-24 ​ 849 ​ - ​ NingBo Bank (1) ​ 1,414 3.3 % November-23 ​ May-24 ​ 1,414 ​ - ​ ​ ​ 1,376 3.0 % May-24 ​ November-24 ​ - ​ 1,376 ​ Industrial Bank (1) ​ 688 3.6 % September-23 ​ September-24 ​ 708 ​ 690 ​ Bank of Communications (1) ​ 1,414 3.0 % November-23 ​ May-24 ​ 1,414 ​ - ​ ​ ​ 275 3.0 ​ May-24 ​ May-25 ​ - ​ 275 ​ NanJing Bank (1) ​ 1,386 3.5 % January-24 ​ January-25 ​ - ​ 1,376 ​ Loan Balance ​ ​ ​ ​ ​ ​ ​ $ 52,921 $ 49,899 ​ Collateral for the above bank loans and line of credit (1) Not collateralized. (2) ChaoYang LiMei time deposit. (3) AXT time deposit. (4) BoYu’s land use rights and its building located at its facility in Tianjin, China. In addition, the December 2023 loan attracts a guarantee fee amounting to 0.7 % of the loan amount. ​ Long-term Loa ns ​ On January 30, 2024, the Company secured a new line of credit amounting to $ 9.7 million, structured as a five-year bank loan. The credit facility bears interest at a rate of 6.5 % per annum on the amount drawn from the line of credit. The credit facility is collateralized by the real estate properties owned by ChaoYang Tongmei. In January 2024, the Company borrowed $ 5.8 million against the credit facility. The intended use of the credit facility is for construction projects. As of June 30, 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. 29 Table of Contents ​ In December 2023, one of our consolidated subsidiaries, ChaoYang XinMei secured a loan of approximately $ 2.1 million from an unrelated financing company. According to the agreement, ChaoYang XinMei temporarily transferred ownership of its production line and related equipment to the financing company, while retaining the right to use the property for production. At the end of the 30-month contractual period, ChaoYang XinMei holds the option to repurchase the production line and related equipment for $ 14.00 . As of June 30, 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 ​ 2025 $ 894 2026 ​ 1,307 2027 ​ 963 2028 ​ 1,238 2029 ​ 2,357 ​ 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 . ​ Note 17. Leases ​ We lease certain equipment, office space, warehouse and facilities under long-term operating leases expiring at various dates through July 2029. The majority of our lease obligations relate to our lease agreement for our facility in Fremont, California with approximately 19,467 square feet, which was scheduled to expire in 2020. Under the terms of the facility lease agreement, in May 2020, we were granted an extension to the term of the lease for an additional three years . Furthermore, in September 2023, we entered into another agreement to extend the lease for an additional five years , commencing December 2023. There are no variable lease payments, residual value guarantees or any restrictions or covenants imposed by the facility lease. The remaining lease obligations relate to a nitrogen system to be used during the manufacturing process for our facility in Dingxing, China. The equipment lease became effective in August 2019 and will expire in July 2029. There are no variable lease payments, residual value guarantees or any restrictions or covenants imposed by the equipment lease. All other operating leases have a term of 12 months or less. ​ Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease contains an option to purchase the asset that is reasonably certain to be exercised, the lease term is for a major part of the remaining useful life of the asset or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any one of these criteria. All of our leases are classified as operating leases and substantially all of our operating leases are comprised of equipment and office space leases. None of our leases are classified as finance leases. ​ For all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. ​ The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All right-of-use assets are reviewed for impairment. The lease liability is initially measured at the present value 30 Table of Contents of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, our secured incremental borrowing rate for the same term as the underlying lease. ​ Lease payments included in the measurement of the lease liability comprise the following: the fixed noncancelable lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early. ​ Lease expense for operating leases consists of the lease payments plus any initial direct costs, primarily brokerage commissions, and is recognized on a straight-line basis over the lease term. ​ We have elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12 months or less. The effect of short-term leases on our right-of-use asset and lease liability was not material. ​ As of June 30, 2024, the maturities of our operating lease liabilities (excluding short-term leases) are as follows (in thousands): ​ ​ ​ ​ Maturity of Lease Liabilities ​ 2024 $ 293 2025 ​ 598 2026 ​ 612 2027 ​ 626 2028 ​ 608 Thereafter ​ 149 Total minimum lease payments ​ 2,886 Less: Interest ​ ( 332 ) Present value of lease obligations ​ 2,554 Less: Current portion, included in accrued liabilities ​ ( 471 ) Long-term portion of lease obligations $ 2,083 ​ The weighted-average remaining lease term and the weighted-average discount rate for our operating leases as of each date is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ December 31, ​ ​ ​ 2024 ​ 2023 ​ Weighted-average remaining lease term (years) ​ 4.72 ​ 5.22 ​ Weighted-average discount rate ​ 5.14 % 5.14 % ​ ​ Supplemental cash flow information related to leases where we are the lessee is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ ​ June 30, ​ ​ ​ 2024 ​ 2023 ​ Cash paid for amounts included in the measurement of lease liabilities: ​ ​ ​ ​ ​ ​ ​ Operating cash flows from operating leases ​ $ 292 ​ $ 289 ​ ​ The components of lease expense are as follows (in thousands) within our condensed consolidated statements of operations: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 31 Table of Contents ​ ​ Three Months Ended ​ Six Months Ended ​ ​ June 30, ​ June 30, ​ ​ 2024 ​ 2023 ​ 2024 ​ 2023 Operating lease ​ $ 153 ​ $ 128 ​ $ 306 ​ $ 257 Short-term lease expense ​ ​ 42 ​ ​ 37 ​ ​ 83 ​ ​ 71 Total ​ $ 195 ​ $ 165 ​ $ 389 ​ $ 328 ​ ​ Note 18. Redeemable Noncontrolling Interests As discussed in Note 1, during the quarter ended December 31, 2020, Tongmei entered into the Capital Investment Agreements with Investors that invested approximately $ 48.1 million in the form of redeemable noncontrolling interests representing 7.06 % of the outstanding shares of Tongmei. An additional investment of approximately $ 1.5 million of new capital was funded in early January 2021. Under China regulations these investments must be formally approved by the appropriate government agency and are not deemed to be dilutive until such approval is granted. The government approved the entire approximately $ 49 million investment on January 25, 2021, at which time the Investors owned a redeemable noncontrolling interest in Tongmei of 7.28 %. The initial carrying amount of the redeemable noncontrolling interest was recorded at fair value on the date of issuance of Tongmei’s common stock, net of issuance costs and presented in temporary equity on the condensed consolidated balance sheets. This classification is due to the existence of certain contingencies that could result in potential redemption at the fixed purchase price as described below. We currently do not believe that this is probable thus no amortization of the issuance costs has been recorded. Pursuant to the Capital Investment Agreements with the Investors, each Investor has the right to require AXT to redeem any or all Tongmei shares held by such Investor at the original purchase price paid by such Investor, without interest, in the event the IPO fails to pass the audit of the Shanghai Stock Exchange, is not approved by the Chinese Securities Regulatory Commission (“CSRC”) or Tongmei cancels the IPO application. The aggregate redemption amount is approximately $ 49 million, subject to the foreign exchange rate variable at time of redemption. ​ Tongmei submitted its IPO application to the Shanghai Stock Exchange in December 2021 and it was formally accepted for review on January 10, 2022. The Shanghai Stock Exchange approved the IPO application on July 12, 2022. On August 1, 2022, the CSRC accepted for review Tongmei’s IPO application. The STAR Market IPO remains subject to review and approval by the CSRC and other authorities. The process of going public on the STAR Market includes several periods of review and, therefore, is a lengthy process. Subject to review and approval by the CSRC and other authorities, Tongmei hopes to accomplish this goal in the coming months. The listing of Tongmei on the STAR Market will not change the status of AXT as a U.S. public company. ​ 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 $ 41,663 Equity issuance costs incurred ​ ( 466 ) Stock-based compensation attributable to redeemable noncontrolling interests ​ 22 Net loss attributable to redeemable noncontrolling interests ​ ( 70 ) Effect of foreign currency translation on redeemable noncontrolling interests ​ ( 1,130 ) Effect of foreign currency translation attributable to redeemable noncontrolling interests ​ ( 258 ) Balance as of June 30, 2024 $ 39,761 ​ 32 Table of Contents ​ Note 19. Recent Accounting Pronouncements ​ In November 2023, the Financial Accounting Standards Board (“FASB”) released ASU 2023-07— Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, aiming to enhance the transparency and relevance of segment information provided in financial statements. The amendments in this update require that a public entity disclose significant segment expenses, and profit or loss and assets, among other disclosures, for each reportable segment, on an annual and interim basis. 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 not have a material effect on our condensed consolidated financial statements. ​ In December 2023, FASB issued ASU 2023-09— Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to help investors better understand an entity’s exposure to potential changes in jurisdictional tax legislation and the ensuing risks and opportunities. Furthermore, the update improves to assess income tax information that affects cash flow forecasts and capital allocation decisions. The update is effective for public business entities for annual periods beginning after December 15, 2024, on a prospective basis. Adoption of the new standard will have an immaterial effect on our condensed consolidated financial statements. ​ In March 2024, FASB released ASU 2024-01— Compensation—Stock Compensation (Topic 718). The update adds an illustrative example aimed at clarifying the scope application of a profit interest award in accordance with Topic 718. The update is effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. Adoption of the new standard will have an immaterial effect on our condensed consolidated financial statements. ​ ​ Note 20. Subsequent Event ​ 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. ​ 33 Table of Contents ITEM 2. MANAGEMENT’S DISCUSSIO N AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ​ This Quarterly Report on Form 10-Q of AXT, Inc., a Delaware corporation (“AXT”, “the Company”, “we,” “us,” and “our” refer to AXT, Inc. and its consolidated subsidiaries) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements relating to our expectations regarding results of operations, market and customer demand for our products, customer qualifications of our products, our ability to expand our markets or increase sales, emerging applications using chips or devices fabricated on our substrates, including the use of InP wafer substrates in artificial intelligence (“AI”) applications, the development and adoption of new products, applications, enhancements or technologies, the life cycles of our products and applications, product yields and gross margins, expense levels, the impact of the adoption of certain accounting pronouncements, our investments in capital projects, ramping production at our new sites, potential severance costs with respect to any reduction in our work force, our ability to have new customers qualify substrates from our new manufacturing locations in China, our ability to utilize or increase our manufacturing capacity, and our belief that we have adequate cash and investments to meet our needs over the next 12 months are forward-looking statements. Additionally, statements regarding completing steps in connection with the proposed listing of shares of our wafer manufacturing company, Beijing Tongmei Xtal Technology Co., Ltd. (“Tongmei”), on the Shanghai Stock Exchange’s Sci-Tech innovAtion boaRd (the “STAR Market”), being accepted to list shares of Tongmei on the STAR Market, the timing and completion of such listing of shares of Tongmei on the STAR Market are forward-looking statements. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “goals,” “should,” “continues,” “would,” “could” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this Quarterly Report on Form 10-Q. Additionally, statements concerning future matters such as our strategy and plans, industry trends and the impact of trends, tariffs and trade wars, geopolitical tensions, export restrictions in China, the potential or expected impact of the COVID-19 pandemic on our business, results of operations and financial condition, mandatory factory shutdowns in China, changes in policies and regulations in China and economic cycles on our business are forward-looking statements. ​ Our forward-looking statements are based upon assumptions that are subject to uncertainties and factors relating to the Company’s operations and business environment, which could cause actual results to differ materially from those expressed or implied in the forward-looking statements contained in this Quarterly Report on Form 10-Q. These uncertainties and factors include, but are not limited to: the withdrawal, cancellations or requests for redemptions by private equity funds in China of their investments in Tongmei, the administrative challenges in satisfying the requirements of various government agencies in China in connection with the investments in Tongmei and the listing of shares of Tongmei on the STAR Market, continued open access to companies to list shares on the STAR Market, investor enthusiasm for new listings of shares on the STAR Market and geopolitical tensions between China and the United States. Additional uncertainties and factors include, but are not limited to: the timing and receipt of significant orders; the cancellation of orders and return of product; emerging applications using chips or devices fabricated on our substrates; end-user acceptance of products containing chips or devices fabricated on our substrates; our ability to bring new products to market; product announcements by our competitors; the ability to control costs and improve efficiency; the ability to utilize our manufacturing capacity; product yields and their impact on gross margins; the relocation of manufacturing lines and ramping of production; possible factory shutdowns as a result of air pollution in China; COVID-19 or other outbreaks of a contagious disease; the availability of current COVID-19 vaccines; tariffs and other trade war issues; export restrictions in China; the financial performance of our partially owned supply chain companies; policies and regulations in China; and other factors as set forth in this Quarterly Report on Form 10-Q, including those set forth under the section entitled “Risk Factors” in Part II, Item 1A below. All forward-looking statements are based upon management’s views as of the date of this Quarterly Report on Form 10-Q and are subject to risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated in such forward-looking statements. Such risks and uncertainties include those set forth under the section entitled “Risk Factors” in Part II, Item 1A below, as well as those discussed elsewhere in this Quarterly Report on Form 10-Q and identify important factors that could disrupt or injure our business or cause actual results to differ materially from those predicted in any such forward-looking statements. ​ These forward-looking statements are not guarantees of future performance. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report on Form 10-Q, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects. We undertake no obligation to revise or update any forward-looking statements in order to reflect any development, event or circumstance that may arise after the date of this Quarterly Report on Form 10-Q. This discussion should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 34 Table of Contents 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. ​ Overview ​ AXT is a worldwide materials science company that develops and produces high-performance compound and single element semiconductor substrates, also known as wafers. Two of our consolidated subsidiaries produce and sell certain raw materials some of which are used in our substrate manufacturing process and some of which are sold to other companies. Our substrate wafers are used when a typical silicon substrate wafer cannot meet the performance requirements of a semiconductor or optoelectronic device. The dominant substrates used in producing semiconductor chips and other electronic circuits are made from silicon. However, certain chips may become too hot or perform their function too slowly if silicon is used as the base material. In addition, optoelectronic applications, such as LED lighting and chip-based lasers, do not use silicon substrates because they require a wave form frequency that cannot be achieved using silicon. Alternative or specialty materials are used to replace silicon as the preferred base in these situations. Our wafers provide such alternative or specialty materials. We do not design or manufacture the chips. We add value by researching, developing and producing the specialty material wafers. We have two product lines: specialty material substrates and raw materials integral to these substrates. Our compound substrates combine indium with phosphorous (indium phosphide: InP) or gallium with arsenic (gallium arsenide: GaAs). Our single element substrates are made from germanium (Ge). ​ InP is a high-performance semiconductor wafer substrate used in broadband and fiber optic applications, 5G infrastructure and data center connectivity. Data centers use InP devices for high-speed optical data transmission. We believe the growth of AI applications will increase the need for high-speed data transfer, which may lead to an increase in InP substrate demand from such data centers. Currently, InP substrates are being used in certain consumer products, including proximity sensors in mobile devices, biometric wearables and other health monitoring applications. In recent years, InP demand has increased. Semi-insulating GaAs substrates are used to create various high-speed microwave components, including power amplifier chips used in cell phones, satellite communications and broadcast television applications. Semi-conducting GaAs substrates are used to create opto-electronic products, such as light emitting diodes (LEDs) that are used in a wide range of applications, including automotive lighting, horticulture, signage, display, sensors and machine vision. Semi-conducting GaAs substrates are also used in making industrial lasers. GaAs wafers could also be used for making vertical cavity surface emitting lasers (VCSELs) for facial recognition and micro-LEDs targeting improved screen technology. Ge substrates are used in applications such as solar cells for space and terrestrial photovoltaic applications. Our supply chain strategy includes several consolidated raw material companies. One of these consolidated companies produces pyrolytic boron nitride (pBN) crucibles used in the high temperature (typically in the range 500 C to 1,500 C) growth process of single crystal ingots, effusion rings when growing OLED (Organic Light Emitting Diode) tools, epitaxial layer growth in MOCVD (Metal-Organic Chemical Vapor Deposition) reactors and MBE (Molecular Beam Epitaxy) reactors. We use these pBN crucibles in our own ingot growth processes and they are also sold in the open market to other companies. A second consolidated company converts raw gallium to purified gallium. We use purified gallium in producing our GaAs substrates and it is also sold in the open market to other companies for use in producing magnetic materials, high temperature thermometers, single crystal ingots, including gallium arsenide, gallium nitride, gallium antimonite and gallium phosphide ingots, and other materials and alloys. In addition to purified gallium, the second consolidated company also produces InP base material which we then use to grow single crystal ingots. Our substrate product group generated 63%, 79%, and 75% of our consolidated revenue and our raw materials product group generated 37%, 21%, and 25% for 2023, 2022, and 2021, respectively. 35 Table of Contents The following chart shows our substrate products and their materials, diameters and illustrative applications and shows our raw materials group primary products and their illustrative uses and applications. ​ Products ​ Substrate Group and Wafer Diameter ​ Sample of Applications Indium Phosphide ​ • Data center connectivity using light/lasers (InP) ​ • High-speed data transfer in data centers to support AI applications 2”, 3”, 4” ​ • 5G communications ​ ​ • Fiber optic lasers and detectors ​ ​ • Consumer devices ​ ​ • Passive Optical Networks (PONs) ​ ​ • Silicon photonics ​ ​ • Photonic Integrated circuits (PICs) ​ ​ • Thermo-Photovoltaics (TPVs) ​ ​ • RF amplifier and switching (military wireless & 5G) ​ ​ • Infrared light-emitting diode (LEDs) motion control ​ ​ • Lidar for robotics and autonomous vehicles ​ ​ • Infrared thermal imaging Gallium Arsenide ​ • Wi-Fi devices (GaAs - semi-insulating) ​ • IoT devices 1”, 2”, 3”, 4”, 5”, 6” ​ • High-performance transistors ​ ​ • Direct broadcast television ​ ​ • Power amplifiers for wireless devices ​ ​ • Satellite communications ​ ​ • High efficiency solar cells for drones and automobiles ​ ​ • Solar cells Gallium Arsenide ​ • High brightness LEDs (GaAs - semi-conducting) ​ • Screen displays using micro-LEDs 1”, 2”, 3”, 4”, 5”, 6”, 8” ​ • Printer head lasers and LEDs ​ ​ • 3-D sensing using VCSELs ​ ​ • Data center communication using VCSELs ​ ​ • Sensors for industrial robotics/Near-infrared sensors ​ ​ • Laser machining, cutting and drilling ​ ​ • Optical couplers ​ ​ • High efficiency solar cells for drones and automobiles ​ ​ • Other lasers ​ ​ • Night vision goggles ​ ​ • Lidar for robotics and autonomous vehicles ​ ​ • Solar cells Germanium ​ • Multi-junction solar cells for satellites (Ge) ​ • Optical sensors and detectors 2”, 4”, 6” ​ • Terrestrial concentrated photo voltaic (CPV) cells ​ ​ • Infrared detectors ​ ​ • Carrier wafer for LED Raw Materials Group ​ ​ 6N+ and 7N+ purified gallium ​ • Key material in single crystal ingots such as: ​ ​ - Gallium Arsenide (GaAs) ​ ​ - Gallium Nitride (GaN) ​ ​ - Gallium Antimonite (GaSb) ​ ​ - Gallium Phosphide (GaP) Boron trioxide (B2O3) ​ • Encapsulant in the ingot growth of III-V compound semiconductors Gallium-Magnesium alloy ​ • Used for the synthesis of organo-gallium compounds in epitaxial growth on semiconductor wafers pyrolytic boron nitride (pBN) crucibles ​ • Used when growing single-crystal compound semiconductor ingots ​ ​ • Used as effusion rings when growing OLED tools pBN insulating parts ​ • Used in MOCVD reactors ​ ​ • Used when growing epitaxial layers in Molecular Beam Epitaxy (MBE) reactors ​ 36 Table of Contents All of our substrate products and raw material products are manufactured in the People’s Republic of China (PRC or China) by our PRC subsidiaries and PRC joint ventures. The PRC generally has favorable costs for facilities and labor compared with comparable facilities in the United States, Europe or Japan. Our supply chain includes partial ownership of raw material companies in China (subsidiaries/joint ventures). We believe this supply chain arrangement provides us with pricing advantages, reliable supply, market trend visibility and better sourcing lead-times for key raw materials central to manufacturing our substrates. In the event of industry-wide supply shortages we believe our vertically integrated supply chain strategy will be even more advantageous. Our raw material companies produce materials, including raw gallium (4N Ga), high purity gallium (6N and 7N Ga), starting material for InP, arsenic, germanium, germanium dioxide, pyrolytic boron nitride (pBN) crucibles and boron oxide (B2O3). We have board representation in all of these raw material companies. We consolidate the companies in which we have either a controlling financial interest, or majority financial interest combined with the ability to exercise substantive control over the operations, or financial decisions, of such companies. We use the equity method to account for companies in which we have noncontrolling financial interest and have the ability to exercise significant influence, but not control, over such companies. We purchase portions of the materials produced by these companies for our own use and they sell the remainder of their production to third parties. ​ In 2015, the Beijing city government announced its decision to move most of its offices to the Tongzhou district where our original manufacturing facility is currently located. The Beijing city government has moved thousands of government employees into this district. The government has constructed showcase tower buildings and overseen the establishment of new apartment complexes, retail stores and restaurants. A large park, named Green Heart City Park, was built across the street from our facility and Universal Studios has developed an amusement park within a few miles of our facility. To create room and upgrade the district, the city instructed virtually all existing manufacturing companies, including Tongmei, to relocate all or some of their manufacturing lines. We were instructed to relocate our gallium arsenide manufacturing lines. For reasons of manufacturing efficiency, we elected to also move part of our germanium manufacturing line. Our indium phosphide manufacturing line, as well as various administrative and sales functions, remain primarily at our original site. ​ Begun in 2017, the relocation of our gallium arsenide production lines is now completed. Our PRC subsidiary, Baoding Tongmei Xtal Technology Co., Ltd. (“Baoding Tongmei”), entered into volume production in 2020. To mitigate our risks and maintain our production schedule, we moved our gallium arsenide equipment in stages. By December 31, 2019, we had ceased all crystal growth for gallium arsenide in our original manufacturing facility in Beijing and transferred 100% of our ingot production to the new manufacturing facility of our PRC subsidiary, ChaoYang Tongmei Xtal Technology Co., Ltd., (“ChaoYang Tongmei”), in Kazuo, a city approximately 250 miles from Beijing. We transferred our wafer processing equipment for gallium arsenide to Baoding Tongmei’s new manufacturing facility in Dingxing, a city approximately 75 miles from Beijing. These new facilities enabled us to expand capacity and upgrade some of the equipment. In 2021 and 2022, we added additional equipment, including certain more advanced equipment. We have also invested in additional buildings to complement the initial construction and add capacity as needed. Our PRC subsidiaries also acquired sufficient land to enable them to add facilities, if needed in the future. We believe our success in the relocation and our ability to add capacity in the future gives us competitive advantages. In addition, a new level of technological sophistication in our manufacturing capabilities is enabling us to support the major trends that we believe are likely to drive demand for our products in the years ahead. ​ New customer qualifications and expanding capacity as needed require us to continue to diligently address the many details that arise at each of our sites. A failure to properly accomplish this could result in disruption to our production and have a material adverse impact on our revenue, our results of operations and our financial condition. If we fail to meet the product qualification and volume requirements of a customer, we may lose sales to that customer. Our reputation may also be damaged. Any loss of sales could have a material adverse effect on our revenue, our results of operations and our financial condition. ​ On November 16, 2020, we announced a strategic initiative to access China’s capital markets by beginning a process to list shares of Tongmei in an initial public offering (the “IPO”) on the STAR Market, an exchange intended to support innovative companies in China. We formed and founded Tongmei in 1998 and believe Tongmei has grown into a company that will be an attractive offering on the STAR Market. To qualify for a STAR Market listing, the first major step in the process was to engage private equity firms in China (“Investors”) to invest funds in Tongmei. By December 31, 37 Table of Contents 2020, Investors, which consist of 10 private equity funds, had entered into two sets of definitive transaction documents, each consisting of a capital increase agreement along with certain supplemental agreements in substantially the same form (collectively, the “Capital Investment Agreements”), with Tongmei for a total investment of approximately $48.1 million. The currency used in the investment transactions was the Chinese renminbi, which has been converted to approximate U.S. dollars for this Quarterly Report on Form 10-Q. The remaining investment of approximately $1.5 million of new capital was funded in January 2021. The government approved the approximately $49 million investment in its entirety on January 25, 2021. In exchange for an investment of approximately $49 million, the Investors received a 7.28% redeemable noncontrolling interest in Tongmei. ​ Pursuant to the Capital Investment Agreements with the Investors, each Investor has the right to require AXT to redeem any or all Tongmei shares held by such Investor at the original purchase price paid by such Investor, without interest, in the event the IPO fails to pass the audit of the Shanghai Stock Exchange, is not approved by the Chinese Securities Regulatory Commission (“CSRC”) or Tongmei cancels the IPO application. The aggregate redemption amount is approximately $49 million, subject to the foreign exchange rate variable at time of redemption. ​ Tongmei submitted its IPO application to the Shanghai Stock Exchange in December 2021 and it was formally accepted for review on January 10, 2022. The Shanghai Stock Exchange approved the IPO application on July 12, 2022. On August 1, 2022, the CSRC accepted for review Tongmei’s IPO application. The STAR Market IPO remains subject to review and approval by the CSRC and other authorities. The process of going public on the STAR Market includes several periods of review and, therefore, is a lengthy process. Subject to review and approval by the CSRC and other authorities, Tongmei hopes to accomplish this goal in the coming months. The listing of Tongmei on the STAR Market will not change the status of AXT as a U.S. public company. ​ An early step in the STAR Market IPO process involved certain entity reorganizations and alignment of assets under Tongmei. In this regard our two consolidated raw material companies, Nanjing JinMei Gallium Co., Ltd. (“JinMei”) and Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd. (“BoYu”) and their subsidiaries were assigned to Tongmei in December 2020. As of June 30, 2021, AXT-Tongmei, Inc., a wholly owned subsidiary of AXT, was assigned to Tongmei. The assignment to Tongmei of JinMei, BoYu and their subsidiaries, and AXT-Tongmei, Inc. increased the number of customers and employees attributable to Tongmei as well as increased Tongmei’s consolidated revenue. ​ We are neither a PRC operating company nor do we conduct our operations in China through the use of variable interest entities (“VIEs”). Recent statements and regulatory actions by China’s government on the use of VIEs and data security or anti-monopoly concerns have not impacted our ability to conduct our business or continue to list our common stock on the Nasdaq Global Select Market. ​ The following organization chart depicts the consolidated structure as of June 30, 2024; ​ 38 Table of Contents The businesses of our PRC subsidiaries and PRC joint ventures are subject to complex and rapidly evolving laws and regulations in the PRC, which can change quickly with little advance notice. The PRC government is a single party form of government with virtually unlimited authority and power to intervene in or influence commercial operations in China. In the past, we have experienced such intervention or influence by the PRC government and a change in the rules and regulations in China when we were instructed by the Beijing municipal government to relocate part of our manufacturing facility in Beijing and expect that such intervention or influence or change in the rules and regulations in China could occur in the future. ​ In the ordinary course of business, our PRC subsidiaries and PRC joint ventures require permits and licenses to operate in the PRC. Such permits and licenses include permits to use hazardous materials in manufacturing operations. From time to time, the PRC government issues new regulations, which may require additional actions on the part of our PRC subsidiaries and PRC joint ventures to comply. For example, on February 27, 2015, the China State Administration of Work Safety updated its list of hazardous substances. The previous list, which was published in 2002, did not restrict the materials that we use in our wafers. The new list added gallium arsenide. As a result of the newly published list, we were required to seek additional permits. In the ordinary course of business, our PRC subsidiaries and PRC joint ventures apply for permits as required. Any such intervention or influence or change in the rules and regulations in China could result in a material change in our PRC operations and/or the value of our common stock or cause the value of such securities to significantly decline or be worthless. ​ In September 2018, the Trump Administration announced a list of thousands of categories of goods that became subject to tariffs when imported into the United States. This pronouncement imposed tariffs on the wafer substrates we imported into the United States. The initial tariff rate was 10% and subsequently was increased to 25%. Approximately 5% of our revenue derives from importing our wafers into the United States and we expect the volume to increase. 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. ​ Effective as of August 1, 2023, the PRC government instituted a requirement for export licenses for gallium and germanium-related materials and the derivative products using these materials. Tongmei is required to apply for export licenses for gallium arsenide and germanium wafer substrates and each application must state the end use of the product exported. These regulations have required a new level of administration by Tongmei. In some cases, the PRC government has not issued the requisite licenses and our shipments have been delayed. ​ We have created a vertically integrated supply chain and transfer cash through our corporate structure in three ways. First, we capitalize our investments in our PRC subsidiaries. We licensed to our PRC subsidiaries intellectual property and received from our PRC subsidiaries royalty payments or one-time fees. Second, we use transfer pricing arrangements to buy from our PRC subsidiaries and PRC joint ventures wafers and raw materials. We review the terms of the transfer pricing arrangements annually with our independent registered public accounting firm. In the past, we sold to our PRC subsidiaries capital equipment that we purchased at the request of our PRC subsidiaries and for which we were reimbursed by the applicable PRC subsidiary. In recent years, Tongmei purchases capital equipment from suppliers in Taiwan, Japan, China, Europe or South Korea. Third, our PRC subsidiaries and PRC joint ventures pay dividends to entities within the Company’s corporate structure. For the six months ended June 30, 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. For the year ended December 31, 2023, the aggregate dividends paid to minority shareholders by our PRC subsidiaries and PRC raw material joint ventures were approximately $0. All of these distributions were paid to our PRC subsidiaries and the minority shareholders. For the six months ended June 30, 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. ​ 39 Table of Contents The cash generated from one PRC subsidiary is not used to fund another PRC subsidiary’s operations. None of our PRC subsidiaries has faced difficulties or limitations on its ability to transfer cash between our subsidiaries. We have cash management policies that dictate the amount of such funding. ​ We are subject to a number of unique legal and operational risks associated with our corporate structure, any of which could result in a material change in our operations and/or the value of our common stock or cause the value of such securities to significantly decline or be worthless. Please carefully read the section entitled “Risk Factors” in Part II, Item 1A below. In particular, the following risk factors address issues associated with our corporate structure: ​ ● Although we are a Delaware corporation and are neither a PRC operating company nor do we conduct our operations in China through the use of VIEs, in the event we inadvertently concluded that we do not require any permissions or approvals from the CSRC or other PRC central government authorities to complete a public offering of securities in the U.S. or applicable laws, regulations, or interpretations change, we may be required to obtain such permissions or approvals to complete such a public offering of securities. ● The PRC central government may intervene in or influence our PRC operations at any time and the rules and regulations in China can change quickly with little advance notice. ● The PRC central government may also exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result in a material change in our operations and/or the value of our common stock. ● Changes in China’s political, social, regulatory or economic environments may affect our financial performance. ● Joint venture raw material companies in China bring certain risks. ● Risks exist in utilizing our new gallium arsenide manufacturing sites efficiently. ● The Chinese central government is increasingly aware of air pollution and other forms of environmental pollution and their reform efforts can impact our manufacturing, including intermittent mandatory shutdowns. ● Shutdowns or underutilizing our manufacturing facilities may result in declines in our gross margins. ● Enhanced trade tariffs, import restrictions, export restrictions, Chinese regulations or other trade barriers may materially harm our business. ● If China places restrictions on freight and transportation routes and on ports of entry and departure this could result in shipping delays or increased costs for shipping. ● Our international operations are exposed to potential adverse tax consequence in China. ● We derive a significant portion of our revenue from international sales, and our ability to sustain and increase our international sales involves significant risks. ● The terms of the private equity raised in China as a first step toward an IPO on the STAR Market grant each Investor a right of redemption if Tongmei fails to achieve its IPO. ● We are subject to foreign exchange gains and losses that may materially impact our statement of operations. ● Although the audit report is prepared by an independent registered public accounting firm that is currently inspected fully by the Public Company Accounting Oversight Board (the “PCAOB”), there is no guarantee that future audit reports will be prepared by an independent registered public accounting firm that is completely inspected by the PCAOB. ​ Our independent registered public accounting firm is BPM LLP (“BPM”), which is registered with the PCAOB. The Holding Foreign Companies Accountable Act (the “HFCA Act”) requires that the PCAOB determine whether it is unable to inspect or investigate completely registered public accounting firms located in a non-U.S. jurisdiction because of a position taken by one or more authorities in that jurisdiction. On December 16, 2021, the PCAOB issued a report on its determinations that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in the PRC and Hong Kong because of positions taken by PRC authorities in those jurisdictions. BPM is headquartered in the United States and not in the PRC or Hong Kong. As such, BPM is subject to the determinations announced by the PCAOB. Accordingly, the Company does not expect the HFCA Act, the Accelerating Holding Foreign Companies Accountable Act and the related regulations to affect the Company and does not expect to be identified by the Securities and Exchange Commission, or SEC, under the HFCA Act. On December 15, 2022, the PCAOB vacated its 40 Table of Contents 2021 determinations that the positions taken by authorities in the PRC and Hong Kong prevented it from inspecting and investigating completely registered public accounting firms headquartered in those jurisdictions. See “Although the audit report is prepared by an independent registered public accounting firm that is currently inspected fully by the PCAOB, there is no guarantee that future audit reports will be prepared by an independent registered public accounting firm that is completely inspected by the PCAOB” under the section entitled “Risk Factors” in Part II, Item 1A below for further information on risks related to our foreign operations and dependence. ​ Critical Accounting Policies, Estimates and Change in Accounting Estimates ​ We prepare our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Accordingly, we make estimates, assumptions and judgments that affect the amounts reported on our condensed consolidated financial statements. These estimates, assumptions and judgments about future events and their effects on our results cannot be determined with certainty, and are made based upon our historical experience and on other assumptions that are believed to be reasonable under the circumstances. These estimates may change as new events occur or additional information is obtained, and we may periodically be faced with uncertainties, the outcomes of which are not within our control and may not be known for a prolonged period of time. ​ We have identified the policies below as critical to our business operations and understanding of our financial condition and results of operations. Critical accounting policies are material to the presentation of our condensed consolidated financial statements and require us to make difficult, subjective or complex judgments that could have a material effect on our financial reports and results of operations. They may require us to make assumptions about matters that are highly uncertain at the time of the estimate. Different estimates that we could have used, or changes in the estimate that are reasonably likely to occur, may have a material impact on our financial condition or results of operations. ​ Revenue Recognition ​ We manufacture and sell high-performance compound semiconductor substrates including indium phosphide, gallium arsenide and germanium wafers, and our consolidated subsidiaries sell certain raw materials, including high purity gallium (6N and 7N Ga), pyrolytic boron nitride (pBN) crucibles and boron oxide (B2O3). After we ship our products, there are no remaining obligations or customer acceptance requirements that would preclude revenue recognition. Our products are typically sold pursuant to purchase orders placed by our customers, and our terms and conditions of sale do not require customer acceptance. We account for a contract with a customer when there is a legally enforceable contract, which could be the customer’s purchase order, the rights of the parties are identified, the contract has commercial terms, and collectibility of the contract consideration is probable. The majority of our contracts have a single performance obligation to transfer products and are short term in nature, usually less than six months. Our revenue is measured based on the consideration specified in the contract with each customer in exchange for transferring products that are generally based upon a negotiated, formula, list or fixed price. Revenue is recognized when control of the promised goods is transferred to our customer, which is either upon shipment from our dock, receipt at the customer’s dock, or removal from consignment inventory at the customer’s location, in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods. ​ Accounts Receivable and Allowance for Credit Losses ​ Accounts receivable are recorded at the invoiced amount and are not interest bearing. We review at least quarterly, or when there are changes in credit risks, the likelihood of collection on our accounts receivable balances and provide an allowance for credit losses. We measure the expected credit losses on a collective (pool) basis when similar delinquency status exists. We evaluate receivables from U.S. customers with an emphasis on balances in excess of 90 days and for receivables from customers located outside the U.S. with an emphasis on balances in excess of 120 days and establish a reserve allowance on the receivable balances if needed. The reason for the difference in the evaluation of receivables between foreign and U.S. customers is that U.S. customers have historically made payments in a shorter period of time than foreign customers. Foreign business practices generally require us to allow customer payment terms that are longer than those accepted in the United States. 41 Table of Contents ​ In accordance with ASC 326-20’s current expected credit loss impairment model, we exercise judgment when determining the adequacy of our reserves as we evaluate historical bad debt trends, general economic conditions in the United States and internationally, and reasonable and supportable forecasts of future economic conditions. Uncollectible receivables are recorded as provision for credit losses when a credit loss is expected through the establishment of an allowance, which would then be written off when all efforts to collect have been exhausted and recoveries are recognized when they are received. As of June 30, 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. ​ Warranty Reserve ​ We maintain a product warranty based upon our claims experience during the prior twelve months and any pending claims and returns of which we are aware. Warranty costs are accrued at the time revenue is recognized. As of June 30, 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. ​ Inventory Valuation ​ Inventories are stated at the lower of cost (approximated by standard cost) or net realizable value. Cost is determined using the weighted-average cost method. Our inventory consists of raw materials as well as finished goods and work in process that include material, labor and manufacturing overhead costs. We routinely evaluate the levels of our inventory in light of current market conditions in order to identify excess and obsolete inventory, and we provide a valuation allowance for certain inventories based upon the age and quality of the product and the projections for sale of the completed products. As of June 30, 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. ​ Impairment of Investments ​ We classify marketable investments in debt securities as available-for-sale debt securities in accordance with Accounting Standards Codification (“ASC”) Topic 320, Investments - Debt Securities . All available-for-sale debt securities with a quoted market value below cost (or adjusted cost) are reviewed in order to determine whether the decline is other-than-temporary. Factors considered in determining whether a loss is temporary include the magnitude of the decline in market value, the length of time the market value has been below cost (or adjusted cost), credit quality, and our ability and intent to hold the securities for a period of time sufficient to allow for any anticipated recovery in market value. We also review our debt investment portfolio at least quarterly, or when there are changes in credit risks or other potential valuation concerns to identify and evaluate whether an allowance for expected credit losses or impairment would be necessary. ​ We also invest in equity instruments of privately-held companies in China for business and strategic purposes. Investments in our unconsolidated PRC joint venture companies are classified as other assets and accounted for under either the equity or fair value method, depending on whether we have the ability to exercise significant influence over the joint venture company’s operations or financial decisions. We monitor our investments for impairment and record reductions in carrying value when events or changes in circumstances indicate that the carrying value may not be recoverable. Determination of impairment is highly subjective and is based on a number of factors, including an assessment of the strength of each company’s management, the length of time and extent to which the fair value has been less than our cost basis, the financial condition and near-term prospects of the company, fundamental changes to the 42 Table of Contents business prospects of the company, share prices of subsequent offerings, and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in our carrying value. ​ For the year ended December 31, 2023, one of our PRC joint venture raw material companies assessed one of its equity investments was fully impaired. We also divested our equity investment in a PRC joint venture. 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 and six months ended June 30, 2024 and 2023. ​ Fair Value of Investments ​ ASC 820, establishes three levels of inputs that may be used to measure fair value. ​ Level 1 instruments represent quoted prices in active markets. Therefore, determining fair value for Level 1 instruments does not require significant management judgment, and the estimation is not difficult. ​ Level 2 instruments include observable inputs other than Level 1 prices, such as quoted prices for identical instruments in markets with insufficient volume or infrequent transactions (less active markets), issuer bank statements, credit ratings, non-binding market consensus prices that can be corroborated with observable market data, model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities, or quoted prices for similar assets or liabilities. These Level 2 instruments require more management judgment and subjectivity compared to Level 1 instruments, including: ​ ● Determining which instruments are most comparable to the instrument being priced requires management to identify a sample of similar securities based on the coupon rates, maturity, issuer, credit rating, and instrument type, and subjectively select an individual security or multiple securities that are deemed most similar to the security being priced. ● Determining which model-derived valuations to use in determining fair value requires management judgment. When observable market prices for similar securities or similar securities are not available, we price our marketable debt instruments using non-binding market consensus prices that are corroborated with observable market data or pricing models, such as discounted cash flow models, with all significant inputs derived from or corroborated with observable market data. ​ Level 3 instruments include unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities. The determination of fair value for Level 3 instruments requires the most management judgment and subjectivity. ​ We place short-term foreign currency hedges that are intended to offset the potential cash exposure related to fluctuations in the exchange rate between the United States dollar and Japanese yen. We measure the fair value of these foreign currency hedges at each month end and quarter end using current exchange rates and in accordance with U.S. GAAP. At quarter end any foreign currency hedges not settled are netted in “Accrued liabilities” in the condensed consolidated balance sheets and classified as Level 3 assets and liabilities. As of June 30, 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. ​ 43 Table of Contents Impairment of Long-Lived Assets ​ We evaluate the recoverability of property, equipment and intangible assets in accordance with ASC Topic 360, Property, Plant and Equipment. When events and circumstances indicate that long-lived assets may be impaired, we compare the carrying value of the long-lived assets to the projection of future undiscounted cash flows attributable to these assets. In the event that the carrying value exceeds the future undiscounted cash flows, we record an impairment charge against income equal to the excess of the carrying value over the assets’ fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets held for sale are carried at the lower of carrying value or estimated net realizable value. We had no “Assets held for sale” or any impairment of long-lived assets in the condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023. ​ Stock-based Compensation ​ We account for stock-based compensation in accordance with ASC Topic 718, Stock-based Compensation . Share-based awards granted include stock options and restricted stock awards. We utilize the Black-Scholes option pricing model to estimate the grant date fair value of stock options, which requires the input of highly subjective assumptions, including estimating stock price volatility and expected term. Historical volatility of our stock price was used while the expected term for our options was estimated based on historical option exercise behavior and post-vesting forfeitures of options, and the contractual term, the vesting period and the expected term of the outstanding options. Further, we apply an expected forfeiture rate in determining the amount of share-based compensation. We use historical forfeitures to estimate the rate of future forfeitures. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our stock compensation. The cost of restricted stock awards is determined using the fair value of our common stock on the date of grant. The award of performance Restricted Stock covering Shares (the “Performance Award”) will be subject to vesting requirements relating to both the recipient of the Performance Award (the “Participant”) continuously remaining a Service Provider through specified dates and achievement of specified performance-based criteria (“Performance Criteria”). Any capitalized term not defined herein will have the meaning ascribed to such term in the 2015 Equity Incentive Plan. ​ The financial Performance Criteria are metrics based upon prior year-end actual results as compared to the Company’s 2023 year-end actual results with respect to the 2023 Performance Awards or based upon the 2024 year-end actual results with respect to the 2024 Performance Awards. All performance shares, if earned, are still subject to annual vesting over a four-year period except that no shares are vested on the first anniversary because the performance measurement is based on year-end results for the entire year. We recognize the compensation costs net of an estimated forfeiture rate over the requisite service period of the options award, which is generally the vesting term of four years. Compensation expense for restricted stock awards is recognized over the vesting period, which is generally one, three or four years. Stock-based compensation expense is recorded in cost of revenue, research and development, and selling, general and administrative expenses. Income Taxes ​ We account for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”), which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that a portion of the deferred tax asset will not be realized. Our deferred tax assets have been reduced to zero by valuation allowance. ​ We provide for income taxes based upon the geographic composition of worldwide earnings and tax regulations governing each region, particularly China. The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws, particularly in foreign countries such as China. ​ 44 Table of Contents See Note 14—“Income Taxes” in the notes to condensed consolidated financial statements for additional information. ​ Impact of the COVID-19 Pandemic ​ In March 2020, the World Health Organization declared the outbreak of COVID-19 to be a pandemic, which continues to be an ongoing pandemic. In March 2020, the President of the United States declared the COVID-19 outbreak a national emergency. For much of the three months ended March 31, 2020, our manufacturing facilities in China were operating at reduced staffing levels to limit the risk of COVID-19 exposure for our employees. The Chinese government mandates have evolved, allowing us to return to full staffing levels at all three manufacturing locations in China. We are unable to accurately predict the full impact of the COVID-19 pandemic due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, the potential resurgence of the outbreak as a result of variants in countries that had previously contained the outbreak, the availability of COVID-19 vaccines and the number of people who are vaccinated, the effect of the outbreak on transportation, such as reduced availability of air transport, port closures, and increased border controls or closures, the impact of the outbreak on our customers and additional actions that may be taken by government authorities to contain the outbreak, such as lockdowns in China that may require the temporary closure of one or more of our manufacturing facilities in China and travel restrictions between China and the U.S. that have disrupted our normal movement to and from China and impacted our efficiency. As a result of these factors, we believe that the COVID-19 pandemic has had and may continue to have a material adverse impact on our business, condensed consolidated results of operations and financial condition until the COVID-19 pandemic subsides and related public health measures are reduced or eliminated. ​ Results of Operations ​ Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ Increase ​ ​ ​ ​ June 30, ​ Increase ​ ​ ​ ​ ​ ​ 2024 2023 ​ (Decrease) % Change ​ 2024 2023 (Decrease) % Change ​ Product Type: ​ ($ in thousands) ​ ​ ​ ​ ​ ​ ​ ($ in thousands) ​ ​ ​ ​ ​ ​ ​ Substrates ​ $ 19,745 ​ $ 11,027 ​ $ 8,718 79.1 % ​ $ 36,648 ​ $ 24,516 ​ $ 12,132 49.5 % ​ Raw materials and other ​ ​ 8,178 ​ ​ 7,568 ​ ​ 610 8.1 % ​ ​ 13,963 ​ ​ 13,484 ​ ​ 479 3.6 % ​ Total revenue ​ $ 27,923 ​ $ 18,595 ​ $ 9,328 ​ 50.2 % ​ $ 50,611 ​ $ 38,000 ​ $ 12,611 ​ 33.2 % ​ ​ 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 $14.0 million for the six months ended June 30, 2024 as compared to the same period in 2023. The increase in raw materials revenue for the six months ended June 30, 2024 as compared to the same period in 2023 was primarily the result of an increase in sales of refined gallium and pBN crucibles resulting from stronger market demand. 45 Table of Contents ​ Revenue by Geographic Region ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ 2023 to 2024 ​ ​ ​ ​ June 30, ​ Increase ​ ​ ​ ​ ​ 2024 2023 (Decrease) % Change ​ ​ ​ ($ in thousands) ​ ​ ​ ​ ​ ​ ​ China ​ $ 16,947 ​ $ 10,289 ​ $ 6,658 64.7 % ​ % of total revenue ​ 61 % 55 % ​ ​ ​ ​ ​ ​ Taiwan ​ 3,420 ​ 1,407 ​ ​ 2,013 ​ 143.1 % ​ % of total revenue ​ 12 % 8 % ​ ​ ​ ​ ​ ​ Japan ​ ​ 796 ​ ​ 1,396 ​ (600) (43.0) % ​ % of total revenue ​ 3 % 8 % ​ ​ ​ ​ ​ ​ Asia Pacific (excluding China, Taiwan and Japan) ​ 712 ​ 737 ​ (25) (3.4) % ​ % of total revenue ​ 2 % 4 % ​ ​ ​ ​ ​ ​ Europe (primarily Germany) ​ 4,689 ​ 3,015 ​ 1,674 55.5 % ​ % of total revenue ​ 17 % 16 % ​ ​ ​ ​ ​ ​ North America (primarily the United States) ​ ​ 1,359 ​ ​ 1,751 ​ ​ (392) ​ (22.4) % ​ % of total revenue ​ ​ 5 % ​ 9 % ​ ​ ​ ​ ​ ​ Total revenue ​ $ 27,923 ​ $ 18,595 ​ $ 9,328 50.2 % ​ ​ 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 $0.6 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 $0.4 million, primarily due to lower demand for our GaAs and Ge wafer substrates and pBN crucibles sold by one of our consolidated subsidiaries, partially offset by higher demand for our InP wafer substrates. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ Increase ​ ​ ​ ​ ​ 2024 2023 (Decrease) % Change ​ ​ ​ ($ in thousands) ​ ​ ​ ​ ​ ​ ​ China ​ $ 28,464 ​ $ 18,391 ​ $ 10,073 54.8 % ​ % of total revenue ​ 56 % 48 % ​ ​ ​ ​ ​ ​ Taiwan ​ 8,002 ​ 3,878 ​ 4,124 106.3 % ​ % of total revenue ​ 16 % 10 % ​ ​ ​ ​ ​ ​ Japan ​ 1,786 ​ 2,931 ​ (1,145) (39.1) % ​ % of total revenue ​ 3 % 8 % ​ ​ ​ ​ ​ ​ Asia Pacific (excluding China, Taiwan and Japan) ​ 1,510 ​ 1,828 ​ (318) (17.4) % ​ % of total revenue ​ 3 % 5 % ​ ​ ​ ​ ​ ​ Europe (primarily Germany) ​ ​ 8,414 ​ ​ 6,585 ​ ​ 1,829 ​ 27.8 % ​ % of total revenue ​ ​ 17 % ​ 17 % ​ ​ ​ ​ ​ ​ North America (primarily the United States) ​ 2,435 ​ 4,387 ​ (1,952) (44.5) % ​ % of total revenue ​ 5 % 12 % ​ ​ ​ ​ ​ ​ Total revenue ​ $ 50,611 ​ $ 38,000 ​ $ 12,611 33.2 % ​ ​ 46 Table of Contents 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 $2.0 million primarily due to lower demand for our GaAs, InP and Ge wafer substrates and pBN crucibles sold by one of our consolidated subsidiaries. ​ Gross Profit ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ Increase ​ ​ ​ ​ June 30, ​ Increase ​ ​ ​ ​ ​ 2024 2023 (Decrease) % Change ​ ​ 2024 2023 (Decrease) % Change ​ ​ ​ ($ in thousands) ​ ​ ​ ​ ​ ​ ​ ($ in thousands) ​ ​ ​ ​ ​ ​ ​ Gross profit $ 7,652 ​ $ 1,715 ​ $ 5,937 346.2 % ​ $ 13,746 ​ $ 6,825 ​ $ 6,921 101.4 % ​ Gross Profit % 27.4 % 9.2 % ​ ​ ​ ​ ​ ​ 27.2 % 18.0 % ​ ​ ​ ​ ​ ​ ​ 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 $6.8 million for the six months ended June 30, 2023. The increase in gross profit is the result of higher revenue across all product lines. Gross margin as a percentage of revenue increased due to higher unit volume across all product lines, and a shift in product mix had a positive impact on gross margin. ​ Selling, General and Administrative Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ Increase ​ ​ ​ ​ June 30, ​ Increase ​ ​ ​ ​ ​ 2024 2023 (Decrease) % Change ​ ​ 2024 2023 (Decrease) % Change ​ ​ ​ ($ in thousands) ​ ​ ​ ​ ​ ​ ​ ($ in thousands) ​ ​ ​ ​ ​ ​ ​ Selling, general and administrative expenses $ 5,779 ​ $ 5,820 ​ $ (41) (0.7) % ​ $ 12,006 ​ $ 11,772 ​ $ 234 2.0 % ​ % of total revenue 20.7 % 31.3 % ​ ​ ​ ​ ​ ​ 23.7 % 31.0 % ​ ​ ​ ​ ​ ​ ​ 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 $11.8 million for the six months ended June 30, 2023. The higher selling, general and administrative expenses were primarily from an increase in professional service expenses. ​ 47 Table of Contents Research and Development ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ Increase ​ ​ ​ ​ June 30, ​ Increase ​ ​ ​ ​ ​ 2024 2023 (Decrease) % Change ​ ​ 2024 2023 (Decrease) % Change ​ ​ ​ ($ in thousands) ​ ​ ​ ​ ​ ​ ​ ($ in thousands) ​ ​ ​ ​ ​ ​ ​ Research and development $ 3,758 ​ $ 2,740 ​ $ 1,018 37.2 % ​ $ 6,972 ​ $ 6,335 ​ $ 637 10.1 % ​ % of total revenue 13.5 % 14.7 % ​ ​ ​ ​ ​ ​ 13.8 % 16.7 % ​ ​ ​ ​ ​ ​ 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 $6.3 million for the six months ended June 30, 2023. The increase in research and development expenses for the six months ended June 30, 2024 was primarily due to higher development expenses for crystal ingot processing. ​ Interest Expense, Net ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ Increase ​ ​ ​ ​ June 30, ​ Increase ​ ​ ​ ​ ​ 2024 2023 (Decrease) % Change ​ ​ 2024 2023 (Decrease) % Change ​ ​ ​ ($ in thousands) ​ ​ ​ ​ ​ ​ ​ ($ in thousands) ​ ​ ​ ​ ​ ​ ​ Interest expense, net $ 282 ​ $ 365 ​ $ (83) (22.7) % ​ $ 631 ​ $ 762 ​ $ (131) (17.2) % ​ % of total revenue 1.0 % 2.0 % ​ ​ ​ ​ ​ ​ 1.2 % 2.0 % ​ ​ ​ ​ ​ ​ ​ 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 $762,000 for the six months ended June 30, 2023. Interest expense, net decreased primarily due to increased interest income during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023. ​ Equity in Income of Unconsolidated Joint Ventures ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ Equity in Income ​ ​ June 30, ​ Equity in Income ​ ​ ​ 2024 2023 Change % Change ​ ​ 2024 2023 Change % Change ​ ​ ​ ($ in thousands) ​ ​ ​ ​ ​ ​ ​ ($ in thousands) ​ ​ ​ ​ ​ ​ ​ Equity in income of unconsolidated joint ventures $ 598 ​ $ 941 ​ $ (343) (36.5) % ​ $ 1,488 ​ $ 1,975 ​ $ (487) (24.7) % ​ % of total revenue 2.1 % 5.1 % ​ ​ ​ ​ ​ ​ 2.9 % 5.2 % ​ ​ ​ ​ ​ ​ ​ 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 $0.5 million is primarily due to a profit decline in one unconsolidated joint venture’s Gallium sale. ​ 48 Table of Contents Other Income, Net ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ Other Income ​ ​ June 30, ​ Other Income ​ ​ ​ 2024 2023 Change % Change ​ ​ 2024 2023 Change % Change ​ ​ ​ ($ in thousands) ​ ​ ​ ​ ​ ​ ​ ($ in thousands) ​ ​ ​ ​ ​ ​ ​ Other income, net $ 491 ​ $ 777 ​ $ (286) ​ (36.8) % ​ $ 1,523 ​ $ 1,059 ​ $ 464 43.8 % ​ % of total revenue 1.8 % 4.2 % ​ ​ ​ ​ ​ ​ 3.0 % 2.8 % ​ ​ ​ ​ ​ ​ ​ 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 $1.1 million for the six months ended June 30, 2023. Other income, net increased primarily due to higher government grants received in the first quarter of 2024, which was partially offset by a decrease in the second quarter of 2024. ​ Provision (benefit) for Income Taxes ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ ​ ​ ​ ​ ​ ​ June 30, ​ Increase ​ ​ ​ ​ June 30, ​ Increase ​ ​ ​ ​ ​ 2024 2023 (Decrease) % Change ​ 2024 2023 (Decrease) % Change ​ ​ ​ ($ in thousands) ​ ​ ​ ​ ​ ​ ​ ($ in thousands) ​ ​ ​ ​ ​ ​ ​ Provision (benefit) for income taxes $ 121 ​ $ (139) ​ $ 260 187.1 % ​ $ 395 ​ $ 9 ​ $ 386 4,288.9 % ​ % of total revenue 0.4 % (0.7) % ​ ​ ​ ​ ​ ​ 0.8 % 0.0 % ​ ​ ​ ​ ​ ​ ​ 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. Our estimated tax rate can vary greatly from year to year because of the change or benefit in the mix of taxable income between our U.S. and China-based operations. ​ Under the 2017 Tax Cuts and Jobs Act, research and experimental (“R&E”) expenditures incurred or paid for tax years beginning after December 31, 2021 will no longer be immediately deductible for tax purposes. Instead, businesses are now required to capitalize and amortize R&E expenditures over a period of five years for research conducted within the U.S. or 15 years for research conducted in a foreign jurisdiction. We capitalize the R&E expense in our China subsidiaries and amortize it over 15 years. ​ On August 16, 2022, President Biden signed the Inflation Reduction Act (the “Inflation Reduction Act”) into law finalizing a legislation intended to address inflation by paying down the national debt, lower consumer energy costs, providing incentives for the production of clean energy, and reducing healthcare costs. The Inflation Reduction Act imposes a 1% exercise tax on stock buy backs and a 15% minimum tax on corporations with over $1 billion in profit. The Inflation Reduction Act has no impact on us, since we have no plan to buy back additional shares of our common stock and our profit is not over $1 billion. ​ 49 Table of Contents Net (Income) loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Net (income) loss attributable to ​ ​ Six Months Ended ​ Net (income) loss attributable to ​ ​ ​ ​ ​ ​ ​ ​ ​ noncontrolling interests and ​ ​ ​ ​ ​ ​ ​ ​ noncontrolling interests and ​ ​ ​ June 30, redeemable noncontrolling interests ​ ​ June 30, redeemable noncontrolling interests ​ ​ ​ 2024 ​ 2023 ​ Change ​ % Change ​ ​ 2024 ​ 2023 ​ Change ​ % Change ​ ​ ​ ($ in thousands) ​ ​ ​ ​ ​ ​ ​ ($ in thousands) ​ ​ ​ ​ ​ ​ ​ Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests $ (317) ​ $ 264 ​ $ (581) (220.1) % ​ $ (352) ​ $ 582 ​ $ (934) (160.5) % ​ % of total revenue (1.1) % 1.4 % ​ ​ ​ ​ ​ ​ (0.7) % 1.5 % ​ ​ ​ ​ ​ ​ ​ 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 ​ We consider cash and short-term investments as liquid and available for use within one year in our current operations. Short-term investments are comprised of U.S. government securities, certificates of deposit and investment-grade corporate notes and bonds. ​ As of June 30, 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. 50 Table of Contents ​ 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. These repurchases could be made from time to time in the open market and could be funded from our existing cash balances and cash generated from operations. During 2015, we repurchased approximately 908,000 shares at an average price of $2.52 per share for a total purchase price of approximately $2.3 million under the stock repurchase program. Since 2015, no shares were repurchased under this program. 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. ​ Dividends accrue on our outstanding Series A preferred stock, and are payable as and when declared by our Board of Directors. We have never declared or paid any dividends on the Series A preferred stock. By the terms of the Series A preferred stock, so long as any shares of Series A preferred stock are outstanding, neither the Company nor any subsidiary of the Company shall redeem, repurchase or otherwise acquire any shares of common stock, unless all accrued dividends on the Series A preferred stock have been paid. During 2013 and 2015, we repurchased shares of our outstanding common stock. As of December 31, 2015, the Series A preferred stock had cumulative dividends of $2.9 million and we include such cumulative dividends in “Accrued liabilities” in our condensed consolidated balance sheets . At the time we pay this accrued liability, our cash will be reduced. We account for the cumulative year to date dividends on the Series A preferred stock when calculating our earnings per share. ​ Occasionally, one of our PRC subsidiaries or PRC raw material joint ventures declares and pays a dividend. These dividends generally occur when the PRC joint venture declares a dividend for all of its shareholders. Dividends paid to the Company are subject to a 10% PRC withholding tax. The Company is required to obtain approval from the State Administration of Foreign Exchange (“SAFE”) to transfer funds in or out of the PRC. SAFE requires a valid agreement to approve the transfers, which are processed through a bank. Other than PRC foreign exchange restrictions, the Company is not subject to any PRC restrictions and limitations on its ability to distribute earnings from its businesses, including its PRC subsidiaries and PRC joint ventures, to the Company and its investors as well as the ability to settle amounts owed by the Company to its PRC subsidiaries and PRC joint ventures. If SAFE approval is denied the dividend payable to the Company would be owed but would not be paid. 51 Table of Contents ​ 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. We settle amounts owed under our transfer pricing arrangements in the ordinary course of business. ​ The cash generated from one PRC subsidiary is not used to fund another PRC subsidiary’s operations. None of our PRC subsidiaries has faced difficulties or limitations on its ability to transfer cash between our subsidiaries. AXT has cash management policies that dictate the amount of such funding. ​ As one of the first steps in the process of listing Tongmei on the STAR Market and going public, we sold approximately 7.28% of Tongmei to private equity investors for approximately $49 million in the aggregate. Pursuant to the Capital Investment Agreements with the Investors, each Investor has the right to require AXT to redeem any or all Tongmei shares held by such Investor at the original purchase price paid by such Investor, without interest, in the event the IPO fails to pass the audit of the Shanghai Stock Exchange, is not approved by the CSRC or Tongmei cancels the IPO application. The aggregate redemption amount is approximately $49 million. ​ Tongmei submitted its IPO application to the Shanghai Stock Exchange, and it was formally accepted for review on January 10, 2022. The Shanghai Stock Exchange approved the IPO application on July 12, 2022. On August 1, 2022, the CSRC accepted for review Tongmei’s IPO application. The STAR Market IPO remains subject to review and approval by the CSRC and other authorities. The process of going public on the STAR Market includes several periods of review and, therefore, is a lengthy process. Subject to review and approval by the CSRC and other authorities, Tongmei expects to accomplish this goal in the coming months. The listing of Tongmei on the STAR Market will not change the status of AXT as a U.S. public company. ​ Our bank loans and credit facilities typically have a term of 12 months or less and are included in “Short-term loans” in our condensed consolidated balance sheets. The following table represents short-term bank loans as of June 30, 2024 and December 31, 2023 (in thousands, except interest rate data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 52 Table of Contents ​ ​ ​ Loan Interest ​ ​ ​ ​ ​ December 31, ​ June 30, Subsidiary Bank ​ Detail Rate ​ Start Date ​ Due Date ​ 2023 ​ 2024 Tongmei Bank of China (1) $ 1,848 3.5 % January-23 ​ January-24 $ 1,795 $ - ​ ​ ​ 2,184 2.8 % March-23 ​ March-24 ​ 2,118 ​ - ​ ​ ​ 376 2.7 % September-23 ​ September-24 ​ 386 ​ 376 ​ ​ ​ 876 3.5 % November-23 ​ November-24 ​ 876 ​ 855 ​ ​ ​ 1,003 3.5 % November-23 ​ November-24 ​ 1,003 ​ 980 ​ Bank of China (2) ​ 2,911 3.5 % January-23 ​ January-24 ​ 2,825 ​ - ​ ​ ​ 2,770 3.0 % January-24 ​ January-25 ​ - ​ 2,755 ​ Bank of Communications (1) ​ 1,455 3.3 % January-23 ​ January-24 ​ 1,414 ​ - ​ ​ ​ 1,380 3.8 % May-23 ​ May-24 ​ 1,414 ​ - ​ ​ ​ 1,373 3.8 % July-23 ​ May-24 ​ 1,414 ​ - ​ ​ ​ 1,376 3.0 % May-24 ​ May-25 ​ - ​ 1,376 ​ ​ ​ 2,480 3.0 % June-24 ​ May-25 ​ - ​ 2,480 ​ China Merchants Bank (1) ​ 4,367 3.7 % January-23 ​ January-24 ​ 4,235 ​ - ​ ​ ​ 1,386 3.5 % January-24 ​ January-25 ​ - ​ 1,376 ​ ​ ​ 692 3.5 % February-24 ​ February-25 ​ - ​ 690 ​ ​ ​ 692 3.5 % April-24 ​ April-25 ​ - ​ 690 ​ Bank of Beijing (3) ​ 2,290 4.2 % January-23 ​ January-24 ​ 2,220 ​ - ​ ​ ​ 3,541 3.2 % June-23 ​ May-24 ​ 3,626 ​ - ​ ​ ​ 1,380 3.2 % June-23 ​ February-24 ​ 1,414 ​ - ​ ​ ​ 1,414 3.0 % December-23 ​ December-24 ​ 1,414 ​ 1,376 ​ ​ ​ 3,600 3.0 % March-24 ​ February-25 ​ - ​ 3,577 ​ ​ ​ 1,386 3.0 % March-24 ​ December-24 ​ - ​ 1,376 ​ ​ ​ 3,580 3.0 % June-24 ​ June-25 ​ - ​ 3,577 ​ Industrial Bank (1) ​ 2,757 4.3 % June-23 ​ June-24 ​ 2,825 ​ - ​ ​ ​ 2,744 4.3 % July-23 ​ July-24 ​ 2,825 ​ 2,752 ​ ​ ​ 2,744 4.3 % September-23 ​ September-24 ​ 2,825 ​ 2,752 ​ NingBo Bank (1) ​ 2,744 4.2 % August-23 ​ September-24 ​ 2,820 ​ 2,746 ​ ​ ​ 1,271 4.3 % November-23 ​ November-24 ​ 1,271 ​ 1,238 ​ ​ ​ 2,825 4.3 % December-23 ​ December-24 ​ 2,825 ​ 2,752 ​ ​ ​ 1,647 4.3 % January-24 ​ January-25 ​ - ​ 1,637 ​ ​ ​ 1,258 4.3 % May-24 ​ March-25 ​ - ​ 1,258 ​ Industrial and Commercial Bank of China (1) ​ 2,744 3.3 % September-23 ​ September-24 ​ 2,825 ​ 2,752 ​ NanJing Bank (1) ​ 2,752 3.8 % October-23 ​ October-24 ​ 2,752 ​ 2,683 ​ China Citic Bank (1) ​ 2,752 3.0 % June-24 ​ June-25 ​ - ​ 2,752 BoYu Industrial and Commercial Bank of China (4) ​ 1,414 2.7 % December-23 ​ December-24 ​ 1,414 ​ 1,376 ​ Bank of China (1) ​ 1,204 2.4 % January-23 ​ January-24 ​ 849 ​ - ​ NingBo Bank (1) ​ 1,414 3.3 % November-23 ​ May-24 ​ 1,414 ​ - ​ ​ ​ 1,376 3.0 % May-24 ​ November-24 ​ - ​ 1,376 ​ Industrial Bank (1) ​ 688 3.6 % September-23 ​ September-24 ​ 708 ​ 690 ​ Bank of Communications (1) ​ 1,414 3.0 % November-23 ​ May-24 ​ 1,414 ​ - ​ ​ ​ 275 3.0 ​ May-24 ​ May-25 ​ - ​ 275 ​ NanJing Bank (1) ​ 1,386 3.5 % January-24 ​ January-25 ​ - ​ 1,376 ​ Loan Balance ​ ​ ​ ​ ​ ​ ​ $ 52,921 $ 49,899 Collateral for the above bank loans and line of credit (1) Not collateralized. (2) ChaoYang LiMei time deposit. (3) AXT time deposit. (4) BoYu’s land use rights and its building located at its facility in Tianjin, China. In addition, the December 2023 loan attracts a guarantee fee amounting to 0.7% of the loan amount. ​ On January 30, 2024, the Company secured a new line of credit amounting to $9.7 million, structured as a five-year bank loan. The credit facility bears interest at a rate of 6.5% per annum on the amount drawn from the line of credit. The credit facility is collateralized by the real estate properties owned by ChaoYang Tongmei. In January 2024, the Company borrowed $5.8 million against the credit facility. The intended use of the credit facility is for construction of fixed assets. As of June 30, 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 53 Table of Contents 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. On May 17, 2022, the SEC declared the Shelf Registration Statement effective. ​ We believe that we have adequate cash and investments to meet our operating needs and capital expenditures over the next 12 months. If our sales decrease, however, our ability to generate cash from operations will be adversely affected which could adversely affect our future liquidity, require us to use cash at a more rapid rate than expected, and require us to seek additional capital. Cash from operations could be affected by various risks and uncertainties, including, but not limited to those set forth below under the section entitled “Risk Factors” in Part II, Item 1A below. ​ Contract to Purchase Goods and Services ​ Purchase orders or contracts for the purchase of certain goods and services are not considered to be part of our contractual obligations. We cannot determine the aggregate amount of such purchase orders that represent contractual obligations because purchase orders may represent authorizations to purchase rather than binding agreements. For the purposes of this disclosure, contractual obligations for purchase of goods or services are defined as agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. Our purchase orders are based on our current needs and are fulfilled by our vendors within short time horizons. We also enter into contracts for outsourced services; however, the obligations under these contracts were not significant and the contracts generally contain clauses allowing for cancellation without significant penalty. Contractual obligations that are contingent upon the achievement of certain milestones would also not be included. ​ Land Purchase and Investment Agreement In 2017, Baoding Tongmei established a wafer processing 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 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 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. 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. 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 54 Table of Contents 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 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). ​ ITEM 3 . QUANTITATIVE AND QUALITATIV E DISCLOSURES ABOUT MARKET RISK ​ Foreign Currency Risk ​ A significant portion of our business is conducted in currencies other than the U.S. dollar. Foreign exchange losses have had a material adverse effect on our operating results and cash flows in the past and could have a material adverse effect on our operating results and cash flows in the future. If we do not effectively manage the risks associated with this currency risk, our revenue, cash flows and financial condition could be adversely affected. During 2023 and 2022, we recorded a foreign exchange gain of $0.2 million and $1.6 million, respectively, and during 2021 we recorded a net foreign exchange loss of $0.4 million, included as part of “Other income, net” in our condensed consolidated statements of operations. We incur foreign currency transaction exchange gains and losses due to operations in general. In the future we may experience foreign exchange losses on our non-functional currency denominated receivables and payables to the extent that we have not mitigated our exposure. Foreign exchange losses could have a materially adverse effect on our operating results and cash flows. ​ Our product sales to Japanese customers are typically invoiced in Japanese yen. As such, we have foreign exchange exposure on our accounts receivable and on any Japanese yen denominated cash deposits. To partially protect us against fluctuations in foreign currency resulting from accounts receivable in Japanese yen, starting in 2015, we instituted a foreign currency hedging program. We place short term hedges that are intended to offset the potential cash exposure related to fluctuations in the exchange rate between the United States dollar and Japanese yen. We measure the fair value of these hedges at each month end and quarter end using current exchange rates and in accordance with U.S. GAAP. 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 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. Most of our operations are conducted in China and most of our costs are incurred in Chinese renminbi, which subjects us to fluctuations in the exchange rates between the U.S. dollar and the Chinese renminbi. We incur transaction gains or losses resulting from consolidation of expenses incurred in local currencies for our Chinese subsidiaries, as well as in translation of the assets and liabilities at each balance sheet date. Our financial results could be adversely affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets, including the revaluation by China of the renminbi, and any future adjustments that China may make to its currency such as any move it might make to a managed float system with opportunistic interventions. We may also experience foreign exchange losses on our non-functional currency denominated receivables and payables. ​ We currently are using a hedging program to minimize the effects of currency fluctuations relating to the Japanese yen. While we may apply this program to other currencies, such as the Chinese renminbi, our hedging position is partial and may not exist at all in the future. It may not succeed in minimizing our foreign currency fluctuation risks. Our primary objective in holding these instruments is to reduce the volatility of earnings and cash flows associated with changes in foreign currency. The program is not designated for trading or speculative purposes. The company may choose not to hedge certain foreign exchange exposures for a variety of reasons, including but not limited to accounting considerations and the prohibitive economic cost of hedging particular exposures. However, even with our hedging program, we still experience losses on foreign exchange from time to time. ​ 55 Table of Contents Interest Rate Risk ​ Cash and restricted cash earning interest and certain variable rate debt instruments are subject to interest rate fluctuations. The following table sets forth the probable impact of a 10% change in interest rates (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Proforma 10% Proforma 10% ​ ​ Balance as of ​ Current ​ Projected Annual ​ Interest Rate ​ Interest Rate ​ ​ June 30, ​ Interest ​ Interest ​ Decline ​ Increase Instrument ​ 2024 ​ Rate ​ Income ​ Income ​ Income Cash and restricted cash ​ $ 41,597 0.87 % $ 362 ​ $ 326 ​ $ 398 ​ Investments in marketable debt securities ​ 1,675 3.34 % 56 ​ 50 ​ 62 ​ ​ ​ ​ ​ ​ ​ ​ $ 418 ​ $ 376 ​ $ 460 ​ ​ The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash, short-term investments, and accounts receivable. We invest primarily in money market accounts, certificates of deposits, corporate bonds and notes, and government securities. We are exposed to credit risks in the event of default by the issuers to the extent of the amount recorded on the condensed consolidated balance sheets. These securities are generally classified as available-for-sale and consequently are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income (loss), net of estimated tax, further reduced by a valuation allowance for expected credit losses, if any. Our cash and short-term investments and long-term investments are in high-quality instruments placed with major banks and financial institutions and commercial paper. We have no investments in auction rate securities. ​ Credit Risk ​ We perform ongoing credit evaluations of our customers’ financial condition, and limit the amount of credit extended when deemed necessary, but generally do not require collateral. The credit risk in our accounts receivable is mitigated by our credit evaluation process and the broad dispersion of sales transactions. No customers accounted for 10% of our accounts receivable balance as of June 30, 2024 and December 31, 2023. ​ Impairment of Equity Investment Risk ​ As part of our supply chain strategy, we maintain minority investments in privately-held raw material companies located in China either invested directly by us or by one of our supply chain companies in China. These minority investments are reviewed for other than-temporary declines in value on a quarterly basis. These investments are classified as other assets in the condensed consolidated balance sheets and accounted for under either the equity or fair value method, depending on whether we have the ability to exercise significant influence over the raw material company’s operations or financial decisions. We monitor our investments for impairment and record reductions in carrying value when events or changes in circumstances indicate that the carrying value may not be recoverable. 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 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. ​ 56 Table of Contents