What changed in this filing

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Item 1. Financial Statements

2024-11-12 compared with 2024-08-09 · 326 added, 242 removed, 1368 unchanged (29% of the section changed)

2 unchanged sentences

(Unaudited, in thousands, except per share data)

September 30,

Current assets:

1 unchanged sentence

Short-term investments

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

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

Prepaid expenses and other current assets

16 unchanged sentences

2,000 shares authorized;

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

883 shares issued and outstanding as of September 30, 2024 and December 31, 2023 (Liquidation preference of $ 8,008 and $ 7,875 as of September 30, 2024 and December 31, 2023)

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

44,677 and 44,239 shares issued and outstanding as of September 30, 2024 and December 31, 2023

Additional paid-in capital

10 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cost of revenue

18 unchanged sentences

Three Months Ended

Six Months Ended

Other comprehensive loss, net of tax:

Change in foreign currency translation loss, net of tax

Nine Months Ended

September 30,

Other comprehensive income (loss), net of tax:

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

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

Total other comprehensive loss, net of tax

Comprehensive loss attributable to AXT, Inc.

Total other comprehensive income (loss), net of tax

Comprehensive income (loss) attributable to AXT, Inc.

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

Comprehensive loss attributable to AXT, Inc.

Comprehensive income (loss) attributable to AXT, Inc.

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

(Unaudited, in thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows from operating activities:

3 unchanged sentences

Stock-based compensation

(Gain) loss on disposal of equipment

Loss on disposal of equipment

Return of equity method investments as dividends

43 unchanged sentences

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

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

10 unchanged sentences

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

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

As of September 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.

5 unchanged sentences

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

For the three and six months ended June 30, 2024, expenses associated with ChaoYang LiMei had a de minimis impact on our condensed consolidated financial statements.

For the three and nine months ended September 30, 2024, expenses associated with ChaoYang LiMei had a de minimis impact on our condensed consolidated financial statements.

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

36 unchanged sentences

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

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

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

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

12 unchanged sentences

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

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

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

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

3 unchanged sentences

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

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

June 30, 2024

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

September 30, 2024

December 31, 2023

10 unchanged sentences

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

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.

There was an insignificant amount of gross unrealized losses on our available-for-sale debt securities as of September 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

1 unchanged sentence

Loss Position

As of June 30, 2024

As of September 30, 2024

Certificates of deposit

10 unchanged sentences

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.

As of September 30, 2024, $ 13.9 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.

The investment balances for the non-consolidated companies are accounted for under the equity method, included in “Other assets” in the condensed consolidated balance sheets, totaled $ 13.5 million and $ 12.5 million as of September 30, 2024 and December 31, 2023, respectively.

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

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

1 unchanged sentence

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

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

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

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

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

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

declines in value on a quarterly basis.

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

report on the investment in Jia Mei.

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

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

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

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

4 unchanged sentences

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

As of June 30, 2024 and December 31, 2023, the total unrealized loss, net of tax, included in accumulated other comprehensive income was immaterial.

As of September 30, 2024 and December 31, 2023, the total unrealized loss, net of tax, included in accumulated other comprehensive income was immaterial.

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

10 unchanged sentences

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

As of 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):

As of September 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 nine months ended September 30, 2024.

There have been no transfers between fair value measurements levels during the three and nine months ended September 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 September 30, 2024 (in thousands):

Quoted Prices in

4 unchanged sentences

Observable Inputs

June 30, 2024

September 30, 2024

Certificates of deposit

11 unchanged sentences

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

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

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

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

September 30,

Raw materials

1 unchanged sentence

Finished goods

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.

As of September 30, 2024 and December 31, 2023, carrying values of inventories were net of inventory reserves of $ 23.2 million and $ 21.9 million, respectively, for excess and obsolete inventory and $ 68,000 and $ 78,000 , respectively, for lower of cost or net realizable value reserves.

Property, Plant and Equipment, Net

The components of our property, plant and equipment are summarized below (in thousands):

September 30,

Property, plant and equipment:

6 unchanged sentences

Construction in progress

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

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.

As of September 30, 2024, the balance of construction in progress was $ 25.3 million, of which $ 18.5 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 $ 4.5 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 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.

Accrued Liabilities

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

September 30,

Preferred stock dividends payable

Accrued compensation and related charges

Payable in connection with construction in progress

Advances from customers

Accrued compensation and related charges

Accrued professional services

Accrued income taxes

Other tax payable

Current portion of operating lease liabilities

Accrued professional services

Accrued product warranty

Accrued income taxes

Advances from customers

Other personnel-related costs

18 unchanged sentences

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.

As of September 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.

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

See Note 7 for further details.

2 unchanged sentences

These companies form part of our overall supply chain strategy.

As of June 30, 2024, the investments are summarized below (in thousands):

As of September 30, 2024, the investments are summarized below (in thousands):

Investment Balance as of

September 30,

Nanjing JinMei Gallium Co., Ltd.

17 unchanged sentences

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

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

As of September 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.

5 unchanged sentences

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

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

investment in Jia Mei.

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

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

12 unchanged sentences

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

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

We did not record any other-than-temporary impairment charges for Jia Mei investment during the three and nine months ended September 30, 2024.

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

9 unchanged sentences

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

For AXT’s minority investment entities that are not consolidated, the investment balances are included in “Other assets” in our condensed consolidated balance sheets and totaled $ 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.

For AXT’s minority investment entities that are not consolidated, the investment balances are included in “Other assets” in our condensed consolidated balance sheets and totaled $ 13.5 million and $ 12.5 million as of September 30, 2024 and December 31, 2023, respectively.

As of September 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:

11 unchanged sentences

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:

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

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Operating income

Our portion of the income and losses from these minority investment entities that are not consolidated and are accounted for under the equity method was an income of $ 0.6 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.

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 $ 1.0 million and $ 0.4 million, respectively, for the three months ended September 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 $ 2.5 million and $ 1.4 million, respectively, for the nine months ended September 30, 2024 and 2023.

In the condensed consolidated statements of operations, the "Equity in income of unconsolidated joint ventures" included a gain of $ 958,000 from the Jia Mei sale, resulting in an income of $ 2.3 million for the nine months ended September 30, 2023.

Stockholders’ Equity

1 unchanged sentence

(in thousands)

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

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

Comprehensive

6 unchanged sentences

Common stock options exercised

Investment in subsidiary with noncontrolling interest

Investment in subsidiary with redeemable noncontrolling interest

Noncontrolling interest portion of Tongmei stock-based compensation

1 unchanged sentence

Tongmei stock-based compensation

Other comprehensive income

Other comprehensive loss

Balance as of March 31, 2024

Common stock options exercised

Investment in subsidiary with noncontrolling interest

Investment in subsidiary with redeemable noncontrolling interest

Noncontrolling interest portion of Tongmei stock-based compensation

1 unchanged sentence

Tongmei stock-based compensation

Other comprehensive income (loss)

Other comprehensive loss

Balance as of June 30, 2024

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

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

Common stock options exercised

Noncontrolling interest portion of Tongmei stock-based compensation

Stock-based compensation

Tongmei stock-based compensation

Other comprehensive income

Balance as of September 30, 2024

Net income (loss) and Other comprehensive income (loss) attributable to redeemable noncontrolling interests were ($ 140,000 ) and $ 376,000 , respectively, for the three months ended September 30, 2024 and ($ 210,000 ) and $ 118,000 , respectively, for the nine months ended September 30, 2024 and are not shown in the table above.

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

Comprehensive

22 unchanged sentences

Balance as of June 30, 2023

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

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

Common stock options exercised

Investment in subsidiary with noncontrolling interest

Investment in subsidiary with redeemable noncontrolling interest

Noncontrolling interest portion of Tongmei stock-based compensation

Stock-based compensation

Tongmei stock-based compensation

Other comprehensive income (loss)

Balance as of September 30, 2023

Net loss and Other comprehensive income attributable to redeemable noncontrolling interests were $ 356,000 and $ 55,000 , respectively, for the three months ended September 30, 2023, and $ 807,000 and $ 615,000 , respectively, for the nine months ended September 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 nine months ended September 30, 2024 and 2023 .

Stock Repurchase Program

3 unchanged sentences

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.

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

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

Currently, we do not plan to repurchase additional shares.

17 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cost of revenue

2 unchanged sentences

Net effect on net loss

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

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

As of September 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 September 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.

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

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

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

Stock Options

1 unchanged sentence

Canceled and expired

Balance as of June 30, 2024

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

Options exercisable as of June 30, 2024

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on our closing price of $ 3.38 on June 28, 2024, which would have been received by the option holder had all option holders exercised their options on that date.

Balance as of September 30, 2024

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

Options exercisable as of September 30, 2024

The aggregate intrinsic value in the table above represents the total pretax intrinsic value, based on our closing price of $ 2.42 on September 30, 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):

A summary of activity related to restricted stock awards for the nine months ended September 30, 2024 is presented below (in thousands, except per share data):

Weighted-Average

Non-vested as of January 1, 2024

Non-vested as of June 30, 2024

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

Non-vested as of September 30, 2024

As of September 30, 2024, the unamortized compensation costs related to unvested restricted stock awards was approximately $ 3.0 million, which is to be amortized on a straight-line basis over a weighted-average period of approximately 1.1 years.

At-Risk, Performance Shares

6 unchanged sentences

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 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

on the first anniversary because the performance measurement is based on year-end results for the year 2023 and 2024, respectively.

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

30 unchanged sentences

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

A summary of the status of our unvested at-risk, performance shares as of June 30, 2024 is presented below (in thousands, except per share data):

A summary of the status of our unvested at-risk, performance shares as of September 30, 2024 is presented below (in thousands, except per share data):

Weighted-Average

Non-vested as of January 1, 2024

Non-vested as of June 30, 2024

Non-vested as of September 30, 2024

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

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.

As of September 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 1.3 years.

Net Loss Per Share

6 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Net loss attributable to AXT, Inc.

10 unchanged sentences

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

The 883,000 shares of $ 0.001 par value Series A preferred stock issued and outstanding as of June 30, 2024 and December 31, 2023, valued at $ 3,532,000 , are non-voting and non-convertible preferred stock with a 5.0 % cumulative annual dividend rate payable when declared by the Board of Directors and a $ 4 per share liquidation preference over common stock, which must be paid before any distribution is made to common stockholders.

The 883,000 shares of $ 0.001 par value Series A preferred stock issued and outstanding as of September 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.

9 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Product Type:

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Geographical region:

4 unchanged sentences

Long-lived assets, net of depreciation, by geographic region were as follows (in thousands):

September 30,

Long-lived assets by geographic region, net of depreciation:

1 unchanged sentence

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.

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

Our top five customers, although not the same five customers for each period, represented 29 % and 31 % of our revenue for the three months ended September 30, 2024 and 2023, respectively.

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

Our top five customers, although not the same five customers for each period, represented 30 % and 25 % of our revenue for the nine months ended September 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.

One customer accounted for more than 10 % of our accounts receivable balance as of September 30, 2024 , and no customer accounted for more than 10 % of our accounts receivable balance as of December 31, 2023.

Commitments and Contingencies

9 unchanged sentences

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

The following table reflects the change in our warranty accrual which is included in “Accrued liabilities” in the condensed consolidated balance sheets, during the three and six months ended June 30, 2024 and 2023 (in thousands):

The following table reflects the change in our warranty accrual which is included in “Accrued liabilities” in the condensed consolidated balance sheets, during the three and nine months ended September 30, 2024 and 2023 (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Beginning accrued product warranty

25 unchanged sentences

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.

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

Legal Proceedings

5 unchanged sentences

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.

The court transferred the case to the Northern District of California, where our headquarters is located.

A lead plaintiff has been appointed and an amended complaint was filed.

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

The amended complaint 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 motion to dismiss is due on November 8, 2024.

On August 22, 2024, a derivative lawsuit was filed in the Northern District of California by a shareholder against Morris S.

Young, our Chief Executive Officer, Gary L.

Fischer, our Chief Financial Officer, current directors David C.

Chang, Jesse Chen, and Christine Russell, and former director Leonard J.

LeBlanc, with the Company named as a nominal defendant.

The complaint asserts that the defendants breached their fiduciary duties to the Company based on the allegations asserted in the original complaint in the putative shareholder class action.

The motion to dismiss is due on November 15, 2024.

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

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

Other Income (expense), Net

Other income (expense), net for the three months ended 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.

Other income (expense), net for the three months ended September 30, 2024 and 2023, includes a grant of $ 0.5 million and $ 0.1 million, respectively, from government agencies as awards for technological innovation and job creation.

Other income (expense), net for the nine months ended September 30, 2024 and 2023, includes a grant of $ 1.9 million and $ 1.9 million, respectively, from government agencies as awards for technological innovation and job creation.

In addition, we incurred a foreign currency transaction exchange gain of $ 800 and $ 146,000 for the three months ended September 30, 2024 and 2023, respectively.

We incurred a foreign currency transaction exchange gain of $ 101,000 and a loss of $ 57,000 for the nine months ended September 30, 2024 and 2023, respectively.

We account for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”), which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities.

3 unchanged sentences

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.

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

As of September 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.

Provision for income taxes for the three and nine months ended September 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.

31 unchanged sentences

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

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

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

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

We do not have any material contract assets as of September 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 liability.

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

September 30,

Contract liabilities

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.

During the three and nine months ended September 30, 2024, the Company recognized $ 9,000 and $ 163,000 , respectively, of revenue that was included in the contract balances as of December 31, 2023.

During the three and nine months ended September 30, 2023, the Company recognized $ 1,000 and $ 278,000 , respectively, of revenue that was included in the contract balances as of December 31, 2022.

Disaggregated Revenue

3 unchanged sentences

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

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

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

September 30,

Bank of China (1)

Bank of China (2)

Bank of China (5)

Bank of Communications (1)

7 unchanged sentences

Industrial and Commercial Bank of China (4)

Industrial and Commercial Bank of China (1)

Bank of China (1)

9 unchanged sentences

In addition, the December 2023 loan attracts a guarantee fee amounting to 0.7 % of the loan amount.

(5) Baoding Tongmei’s land use rights and its building located at its facility in Dingxing, China.

In addition, the loan attracts a guarantee fee amounting to 1.0 % of the loan amount.

Long-term Loa ns

4 unchanged sentences

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.

As of September 30, 2024, $ 5.4 million is included in “Other long-term liabilities” and $ 428,000 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.

1 unchanged sentence

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):

As of September 30, 2024, $ 965,000 associated with this financing arrangement is included in “Other long-term liabilities” and $ 748,000 is included in “Short-term loans” in our consolidated balance sheets.

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

Maturity of long-term loans

In summary, short-term loans of $ 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 .

In summary, short-term loans of $ 54.1 million included under “Short-term loans” in our condensed consolidated balance sheet at September 30, 2024, consisted of $ 52.9 million of short-term bank loans and $ 1.2 million of the current portion of long-term debt.

Long-term loans of $ 6.4 million included under “Other long-term liabilities” in our condensed consolidated balance sheet at September 30, 2024 consisted of $ 5.4 million in a five-year bank loan and $ 1.0 million in a loan secured by ChaoYang XinMei .

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

18 unchanged sentences

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

The lease liability is initially measured at the present value

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

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

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

3 unchanged sentences

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):

As of September 30, 2024, the maturities of our operating lease liabilities (excluding short-term leases) are as follows (in thousands):

Maturity of Lease Liabilities

4 unchanged sentences

The weighted-average remaining lease term and the weighted-average discount rate for our operating leases as of each date is as follows:

September 30,

Weighted-average remaining lease term (years)

1 unchanged sentence

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

Six Months Ended

Nine Months Ended

September 30,

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

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Operating lease

18 unchanged sentences

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):

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

Balance as of January 1, 2024

4 unchanged sentences

Effect of foreign currency translation attributable to redeemable noncontrolling interests

Balance as of June 30, 2024

Balance as of September 30, 2024

Recent Accounting Pronouncements

14 unchanged sentences

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.

In October and November 2024, the Company secured a total of $ 5.7 million in new one-year bank loans with interest rates ranging from 2.4 % to 3.9 %.

Of the $ 5.7 million, $ 3.6 million is unsecured, while the remaining $ 2.1 million is collateralized by Baoding Tongmei’s real estate.

In October and November 2024, the Company repaid $ 6.1 million of existing loans.

The loan repayments also led to a reduction in restricted cash by $ 1.4 million.

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

198 unchanged sentences

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;

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

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

14 unchanged sentences

Approximately 6% 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.

For the nine months ended September 30, 2024 and 2023, we paid approximately $569,000 and $768,000, respectively, in tariffs.

The future impact of tariffs and trade wars is uncertain.

11 unchanged sentences

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 nine months ended September 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.

1 unchanged sentence

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.

For the nine months ended September 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.

61 unchanged sentences

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.

As of September 30, 2024 and December 31, 2023, our accounts receivable, net balance was $28.0 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.

2 unchanged sentences

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.

As of September 30, 2024 and December 31, 2023, accrued product warranties totaled $392,000 and $703,000, respectively.

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

5 unchanged sentences

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

As of 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.

As of September 30, 2024 and December 31, 2023, we had an inventory reserve of $23.2 million and $21.9 million, respectively, for excess and obsolete inventory and $68,000 and $78,000, respectively, for lower of cost or net realizable value reserves.

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

12 unchanged sentences

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

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

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

Fair Value of Investments

12 unchanged sentences

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

As of 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.

As of September 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 nine months ended September 30, 2024 and 2023.

Impairment of Long-Lived Assets

4 unchanged sentences

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

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

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

Stock-based Compensation

24 unchanged sentences

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.

In addition, the Chinese government authorities took a number of actions, which included, among others, lockdowns in China which reduced availability of air transport, port closures, and increased border controls or closures, travel restrictions between China and the U.S.

to contain the spread of COVID-19.

As of 2023, China has lifted all COVID-19 restrictions, allowing us to return to full staffing levels at all three manufacturing locations in China.

On May 5, 2023, the World Health Organization declared that COVID-19 no longer constitutes a public health emergency of international concern.

However, the extent of the impact of COVID-19 on our results of operations in the future will be dependent on future developments such as, among others, the potential resurgence of COVID-19, the frequency, duration and extent of outbreaks of COVID-19, future actions we or the authorities may take in response to these developments, all of which remain highly uncertain and unpredictable.

There is no assurance that we will be able to adjust our business operations to adapt to such developments in the future.

Results of Operations

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Product Type:

3 unchanged sentences

Total revenue

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

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

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

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

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

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

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

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

Revenue increased $6.3 million, or 36.2%, to $23.6 million for the three months ended September 30, 2024 from $17.4 million for the three months ended September 30, 2023.

The substrate revenue increase for the three months ended September 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 $1.7 million, or 23.7%, to $8.6 million for the three months ended September 30, 2024 as compared to the same period in 2023.

The increase in raw materials revenue for the three months ended September 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 and from the sale of recycled materials.

Revenue increased $18.9 million, or 34.1%, to $74.3 million for the nine months ended September 30, 2024 from $55.4 million for the nine months ended September 30, 2023.

The substrate revenue increase for the nine months ended September 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 $2.1 million, or 10.4%, to $22.6 million for the nine months ended September 30, 2024 as compared to the same period in 2023.

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

Revenue by Geographic Region

Three Months Ended

September 30,

($ in thousands)

9 unchanged sentences

Total revenue

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

Revenue in China increased $3.5 million for the three months ended September 30, 2024, primarily due to higher demand for our InP, GaAs and Ge wafer substrates and refined gallium and pBN crucibles sold by two of our consolidated subsidiaries.

Revenue in Taiwan decreased $0.4 million, primarily due to lower demand for our InP and Ge wafer substrates, partially offset by higher demand for our GaAs wafer substrates.

Revenue in Japan increased $1.1 million, primarily due to higher demand for our InP and GaAs wafer substrates and pBN crucibles sold by one of our consolidated subsidiaries.

Revenue in Asia Pacific decreased $97,000, primarily due to decreased demand for pBN crucibles sold by one of our consolidated subsidiaries.

Revenue in Europe increased $0.3 million, primarily due to increased demand for our GaAs, partially offset by lower demand for our Ge and InP wafer substrates.

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

Nine Months Ended

September 30,

($ in thousands)

9 unchanged sentences

Total revenue

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

Revenue in China increased $13.6 million for the nine months ended September 30, 2024, primarily due to higher demand for our GaAs, InP and Ge wafer substrates and refined gallium and pBN crucibles sold by two of our consolidated subsidiaries.

Revenue in Taiwan increased $3.8 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.

Revenue in Japan decreased $80,000 primarily due to lower demand for our GaAs wafer substrates and refined gallium sold by one of our consolidated

subsidiaries, partially offset by higher demand for pBN crucibles sold by one of our consolidated subsidiaries and for our InP wafer substrates.

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

Revenue in Europe increased by $2.1 million primarily due to higher 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 and for raw gallium sold by one of our consolidated subsidiaries.

Revenue in North America decreased by $0.1 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.

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

($ in thousands)

1 unchanged sentence

Gross Profit %

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.

Gross profit increased $3.8 million, or 204.5%, to $5.7 million for the three months ended September 30, 2024 from $1.9 million for the three months ended September 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.

Gross profit increased $10.7 million, or 123.5%, to $19.4 million for the nine months ended September 30, 2024 from $8.7 million for the nine months ended September 30, 2023.

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

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

($ in thousands)

2 unchanged sentences

% of total revenue

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.

Selling, general and administrative expenses decreased $17,000, or 0.3%, to $5.7 million for the three months ended September 30, 2024 from $5.7 million for the three months ended September 30, 2023.

The lower selling, general and administrative expenses were primarily from a decrease in compensation related expenses and bad debt expense, partially offset by higher legal and professional service expenses.

Selling, general and administrative expenses increased $217,000, or 1.2%, to $17.7 million for the nine months ended September 30, 2024 from $17.4 million for the nine months ended September 30, 2023.

The higher selling, general and administrative expenses were primarily from an increase in legal and professional service expenses, partially offset by a decrease in compensation related expenses.

Research and Development

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

($ in thousands)

2 unchanged sentences

% of total revenue

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.

Research and development expenses increased $0.5 million, or 17.5%, to $3.4 million for the three months ended September 30, 2024 from $2.9 million for the three months ended September 30, 2023.

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

Research and development expenses increased $1.1 million, or 12.4%, to $10.4 million for the nine months ended September 30, 2024 from $9.3 million for the nine months ended September 30, 2023.

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

Interest Expense, Net

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

($ in thousands)

2 unchanged sentences

% of total revenue

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.

Interest expense, net increased $10,000, or 2.6%, to $391,000 for the three months ended September 30, 2024 from $381,000 for the three months ended September 30, 2023.

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

Interest expense, net decreased $121,000, or 10.6%, to $1.0 million for the nine months ended September 30, 2024 from $1.1 million for the nine months ended September 30, 2023.

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

Equity in Income of Unconsolidated Joint Ventures

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Equity in Income

September 30,

Equity in Income

3 unchanged sentences

% of total revenue

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.

The equity in income of unconsolidated joint venture companies was income of $1.0 million for the three months ended September 30, 2024 as compared to income of $0.4 million for the three months ended September 30, 2023.

The increase in income of $0.6 million is primarily due to strong performance in unconsolidated joint ventures.

The equity in income of unconsolidated joint venture companies was income of $2.5 million for the nine months ended September 30, 2024 as compared to income of $2.3 million for the nine months ended

September 30, 2023.

The increase in income of $0.2 million is primarily due to strong performance in unconsolidated joint ventures.

Other Income, Net

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

($ in thousands)

2 unchanged sentences

% of total revenue

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.

Other income, net increased $306,000, or 137.2%, to an income of $529,000 for the three months ended September 30, 2024 from an income of $223,000 for the three months ended September 30, 2023.

Other income, net increased primarily due to an increase in government grants.

Other income, net increased $770,000, or 60.1%, to an income of $2.1 million for the nine months ended September 30, 2024 from an income of $1.3 million for the nine months ended September 30, 2023.

Other income, net increased primarily due to an increase in government grants.

Provision (benefit) for Income Taxes

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

($ in thousands)

2 unchanged sentences

% of total revenue

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.

Provision (benefit) for income taxes increased $727,000, or 719.8%, to a provision of $626,000 for the three months ended September 30, 2024 as compared to a benefit of $101,000 for the three months ended September 30, 2023.

The tax expense recorded for the three months ended September 30, 2024 is the result of both foreign taxes and domestic taxes.

Provision for income taxes increased $1,113,000, or 1,209.8%, to $1,021,000 for the nine months ended September 30, 2024 as compared to a benefit of $92,000 for the nine months ended September 30, 2023.

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

11 unchanged sentences

Net (income) loss attributable to

Six Months Ended

Nine Months Ended

Net (income) loss attributable to

1 unchanged sentence

noncontrolling interests and

September 30,

redeemable noncontrolling interests

September 30,

redeemable noncontrolling interests

3 unchanged sentences

% of total revenue

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.

Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests increased $642,000 or 108.4% to a gain of $50,000 for the three months ended September 30, 2024, from a loss of $592,000 for the three months ended September 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 increased $1.6 million, or 134.2%, to an income of $402,000 for the nine months ended September 30, 2024, from a loss of $1.2 million for the nine months ended September 30, 2023, primarily due to higher profitability from our PRC subsidiaries as sales increased.

Liquidity and Capital Resources

2 unchanged sentences

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Net cash provided by financing activities was $1.7 million for the six months ended June 30, 2023, which consisted of proceeds from short-term loans of $28.8 million, capital increase in subsidiary shares from noncontrolling interests of $0.5 million and common stock option exercised of $10,000, partially offset by repayment of short-term loans of $27.7 million.

As of September 30, 2024, our principal source of liquidity was $ 38.8 million, which consisted of cash of $24.9 million and restricted cash of $13.9 million.

In the nine months ended September 30, 2024, cash and restricted cash decreased by $11.3 million and investments decreased by $2.1 million.

The decrease in cash and restricted cash of $11.3 million in the nine months ended September 30, 2024 was primarily due to net cash used in operating activities of $13.4 million and net cash used in investing activities of $4.0 million, partially offset by net cash provided by financing activities of $4.5 million and the effect of exchange rate changes of $1.6 million.

As of September 30, 2024, we and our PRC subsidiaries held approximately $33.8 million in cash and investments in foreign bank accounts.

As of September 30, 2023, our principal source of liquidity was $43.6 million, which consisted of cash, restricted cash and cash equivalents of $39.3 million and investments of $4.3 million.

In the nine months ended September 30, 2023, cash, restricted cash and cash equivalents decreased by $2.0 million and investments decreased by $7.2 million.

The decrease in cash, restricted cash and cash equivalents of $2.0 million in the nine months ended September 30, 2023 was primarily due to net cash used in investing activities of $4.8 million and the effect of exchange rate changes of $1.4 million, partially offset by cash provided by financing activities of $2.2 million and net cash provided by operating activities of $2.0 million.

As of September 30, 2023, we and our consolidated joint ventures in China held approximately $30.2 million in cash and investments in foreign bank accounts.

Net cash used in operating activities of $13.4 million for the nine months ended September 30, 2024 was primarily comprised of a net change of $15.9 million in operating assets and liabilities, a net loss before income

attributable to noncontrolling interest and redeemable noncontrolling interests of $6.1 million, and income from equity method investments of $2.5 million, partially offset by the adjustment for non-cash items of depreciation and amortization of $6.7 million, stock-based compensation of $2.3 million and return of equity method investments as dividends of $2.1 million.

Net cash provided by operating activities of $2.0 million for the nine months ended September 30, 2023 was primarily comprised of a net change of $6.8 million in operating assets and liabilities, the adjustment for non-cash items of depreciation and amortization of $6.4 million, return of equity method investments (dividends) of $3.7 million, stock-based compensation of $2.7 million and deferred tax assets of $0.1 million, partially offset by net loss before income attributable to noncontrolling interest and redeemable noncontrolling interests of $15.4 million and income from equity method investments of $2.3 million.

Net cash used in investing activities of $4.0 million for the nine months ended September 30, 2024 was primarily from the purchase of property, plant and equipment of $5.6 million, and investment in non-marketable equity investments of $0.6 million, partially offset by proceeds from sales and maturities of available-for-sale debt securities of $2.2 million.

Net cash used in investing activities of $4.8 million for the nine months ended September 30, 2023 was primarily from the purchase of property, plant and equipment of $11.2 million and investments in non-marketable equity investments of $1.9 million, partially offset by proceeds from sales and maturities of available-for-sale debt securities of $7.4 million and proceeds from sale of equity securities of $0.8 million.

Net cash provided by financing activities was $4.5 million for the nine months ended September 30, 2024, which consisted of proceeds from short-term loans of $41.6 million, long-term loan of $5.8 million and common stock options exercised of $28,000, partially offset by repayment of short-term loans of $42.3 million and repayment of long-term loan of $0.6 million.

Net cash provided by financing activities was $2.2 million for the nine months ended September 30, 2023, which consisted of proceeds from short-term loans of $42.2 million, a capital increase in subsidiary shares from noncontrolling interests of $0.7 million and common stock options exercised of $10,000, partially offset by repayment of short-term loans of $40.7 million.

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

2 unchanged sentences

Since 2015, no shares were repurchased under this program.

During the 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.

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

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

Currently, we do not plan to repurchase additional shares.

9 unchanged sentences

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.

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.

1 unchanged sentence

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

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.

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

For the nine months ended September 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.

15 unchanged sentences

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

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

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

September 30,

Bank of China (1)

Bank of China (2)

Bank of China (5)

Bank of Communications (1)

7 unchanged sentences

Industrial and Commercial Bank of China (4)

Industrial and Commercial Bank of China (1)

Bank of China (1)

9 unchanged sentences

In addition, the December 2023 loan attracts a guarantee fee amounting to 0.7% of the loan amount.

(5) Baoding Tongmei’s land use rights and its building located at its facility in Dingxing, China.

In addition, the loan attracts a guarantee fee amounting to 1.0% 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.

2 unchanged sentences

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.

The intended use of the credit facility is for construction of

fixed assets.

As of September 30, 2024, $5.4 million is included in “Other long-term liabilities” and $428,000 is included in “Short-term loans” in our consolidated balance sheets.

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

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

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

repurchase the production line and related equipment for $14.00.

As of 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.

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 September 30, 2024, $965,000 is included in “Other long-term liabilities” and $748,000 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.

22 unchanged sentences

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.

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.

2 unchanged sentences

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.

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.

1 unchanged sentence

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).

As of September 30, 2024, we did not have any off-balance sheet financing arrangements and have never established any special purpose entities as defined under SEC Regulation S-K Item 303(a)(4)(ii).

QUANTITATIVE AND QUALITATIV E DISCLOSURES ABOUT MARKET RISK

13 unchanged sentences

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

As 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.

As September 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.

18 unchanged sentences

Interest Rate

September 30,

Cash and restricted cash

9 unchanged sentences

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.

One customer accounted for more than 10% of our accounts receivable balance as of September 30, 2024, and no customer accounted for more than 10% of our accounts receivable balance as of December 31, 2023.

Impairment of Equity Investment Risk

4 unchanged sentences

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

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.

Our minority investments under the equity method as of September 30, 2024 and December 31, 2023 totaled $13.5 million and $12.5 million, respectively.

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

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

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

What changed 10-Q

Item 1. Financial Statements