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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number: 000-24085
AXT, INC.
(Exact name of registrant as specified in its charter)
Delaware
94-3031310
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
4281 Technology Drive, Fremont, California
94538
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (510) 438-4700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Trading Symbol
Name of each exchange on which registered:
Common Stock, $0.001 par value
AXTI
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act ◻ Yes ⌧ No
Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ◻ Yes ⌧ No
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. ⌧ Yes ◻ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). ⌧ Yes ◻ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in
Rule 12b-2 of the Exchange Act.
Large accelerated filer ◻
Accelerated filer ◻
Non-accelerated filer ⌧
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ◻
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ◻
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ◻ Yes ☒ No
The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of $3.38 for the common stock
on June 28, 2024 as reported on the Nasdaq Global Select Market, was approximately $119,813,368. Shares of common stock held by each officer, director and
by each person who owns 10% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not a conclusive determination for other purposes.
As of March 1, 2025, 45,597,995 shares, $0.001 par value, of the registrant’s common stock were outstanding.
Document Incorporated by Reference
Portions of the registrant’s definitive proxy statement relating to our annual meeting of stockholders to be held on May 15, 2025 (the “Proxy Statement”) are incorporated by
reference into Part III of this Annual Report on Form 10-K where indicated. Such Proxy Statement will be filed with the Securities and Exchange Commission (the “SEC”) pursuant
to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
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1
TABLE OF CONTENTS
Page
PART I
Item 1.
Business
3
Item 1A.
Risk Factors
18
Item 1B.
Unresolved Staff Comments
45
Item 1C.
Cybersecurity
45
Item 2.
Properties
47
Item 3.
Legal Proceedings
47
Item 4.
Mine Safety Disclosures
48
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
49
Item 6.
Reserved
51
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
51
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
67
Item 8.
Consolidated Financial Statements and Supplementary Data
69
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
69
Item 9A.
Controls and Procedures
69
Item 9B.
Other Information
70
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
70
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
71
Item 11.
Executive Compensation
71
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
71
Item 13.
Certain Relationships and Related Transactions and Director Independence
71
Item 14.
Principal Accountant Fees and Services
71
PART IV
Item 15.
Exhibits and Financial Statement Schedules
72
Item 16.
Form 10-K Summary
116
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2
PART I
This Annual Report on Form 10-K of AXT, Inc., a Delaware corporation (“AXT”, “the Company”, “we,” “us,” and
“our” refer to AXT, Inc. and its consolidated subsidiaries) contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Statements relating to our expectations regarding results of operations, market and customer demand for our
products, customer qualifications of our products, our ability to expand our markets or increase sales, emerging applications
using chips or devices fabricated on our substrates, including the use of InP wafer substrates in artificial intelligence (“AI”)
applications, the development and adoption of new products, applications, enhancements or technologies, the life cycles of our
products and applications, product yields and gross margins, expense levels, the impact of the adoption of certain accounting
pronouncements, our investments in capital projects, potential severance costs with respect to any reduction in our work force,
our ability to have new customers qualify substrates from our manufacturing locations in China, our ability to utilize or
increase our manufacturing capacity, and our belief that we have adequate cash and investments to meet our needs over the
next 12 months are forward-looking statements. Additionally, statements regarding completing steps in connection with the
proposed listing of shares of our wafer manufacturing company, Beijing Tongmei Xtal Technology Co., Ltd. (“Tongmei”), on
the Shanghai Stock Exchange’s Sci-Tech innovAtion boaRd (the “STAR Market”), being accepted to list shares of Tongmei
on the STAR Market, the timing and completion of such listing of shares of Tongmei on the STAR Market are forward looking
statements. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “goals,” “should,”
“continues,” “would,” “could” and similar expressions or variations of such words are intended to identify forward-looking
statements, but are not the exclusive means of identifying forward-looking statements in this annual report. Additionally,
statements concerning future matters such as our strategy and plans, industry trends, tariffs and trade wars, geopolitical
tensions, export restrictions in China, the potential impact of COVID-19 or other pandemics on our business, results of
operations and financial condition, mandatory factory shutdowns in China, changes in policies and regulations in China and
economic cycles on our business are forward-looking statements.
Our forward-looking statements are based upon assumptions that are subject to uncertainties and factors relating to
the Company’s operations and business environment, which could cause actual results to differ materially from those
expressed or implied in the forward-looking statements contained in this report. These uncertainties and factors include, but
are not limited to: the withdrawal, cancellations or requests for redemptions by private equity funds in China of their
investments in Tongmei, the administrative challenges in satisfying the requirements of various government agencies in China
in connection with the investments in Tongmei and the listing of shares of Tongmei on the STAR Market, continued open
access to companies to list shares on the STAR Market, investor enthusiasm for new listings of shares on the STAR Market
and geopolitical tensions between China and the United States. Additional uncertainties and factors include, but are not limited
to: the timing and receipt of significant orders; the cancellation of orders and return of product; emerging applications using
chips or devices fabricated on our substrates; end-user acceptance of products containing chips or devices fabricated on our
substrates; our ability to bring new products to market; product announcements by our competitors; the ability to control costs
and improve efficiency; the ability to utilize our manufacturing capacity; product yields and their impact on gross margins;
possible factory shutdowns as a result of air pollution in China; COVID-19 or other outbreaks of a contagious disease; the
availability of current COVID-19 vaccines; tariffs and other trade war issues; export restrictions in China; the financial
performance of our partially owned supply chain companies; policies and regulations in China; and other factors as set forth in
this Annual Report on Form 10-K, including those set forth under the section entitled “Risk Factors” in Item 1A below. All
forward-looking statements are based upon management’s views as of the date of this annual report and are subject to risks
and uncertainties that could cause actual results to differ materially from historical results or those anticipated in such forward-
looking statements. Such risks and uncertainties include those set forth under the section entitled “Risk Factors” in Item 1A
below, as well as those discussed elsewhere in this annual report, and identify important factors that could disrupt or injure our
business or cause actual results to differ materially from those predicted in any such forward-looking statements.
These forward-looking statements are not guarantees of future performance. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the date hereof. Readers are urged to carefully
review and consider the various disclosures made in this report, which attempt to advise interested parties of the risks and
factors that may affect our business, financial condition, results of operations and prospects. We undertake no obligation to
revise or update any forward-looking statements in order to reflect any development, event or circumstance that may arise
after the date of this report.
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3
Item 1. Business
AXT is a worldwide materials science company that develops and produces high-performance compound and single
element semiconductor substrates, also known as wafers. Two of our consolidated subsidiaries produce and sell certain raw
materials some of which are used in our substrate manufacturing process and some of which are sold to other companies.
Our substrate wafers are used when a typical silicon substrate wafer cannot meet the performance requirements of a
semiconductor or optoelectronic device. The dominant substrates used in producing semiconductor chips and other electronic
circuits are made from silicon. However, certain chips may become too hot or perform their function too slowly if silicon is
used as the base material. In addition, optoelectronic applications, such as LED lighting and chip-based lasers, do not use
silicon substrates because they require a wave form frequency that cannot be achieved using silicon. Alternative or specialty
materials are used to replace silicon as the preferred base in these situations. Our wafers provide such alternative or specialty
materials. We do not design or manufacture the chips. We add value by researching, developing and producing the specialty
material wafers. We have two product lines: specialty material substrates and raw materials integral to these substrates. Our
compound substrates combine indium with phosphorous (indium phosphide: InP) or gallium with arsenic (gallium arsenide:
GaAs). Our single element substrates are made from germanium (Ge).
InP is a high-performance semiconductor wafer substrate used in broadband and fiber optic applications, 5G
infrastructure and data center connectivity. Data centers use InP devices for high-speed optical data transmission. We believe
the growth of AI applications will increase the need for high-speed data transfer which may lead to an increase in InP substrate
demand from such data centers. Currently, InP substrates are being used in certain consumer products, including proximity
sensors and other sensors in mobile devices. Semi-insulating GaAs substrates are used to create various high-speed microwave
components, including power amplifier chips used in cell phones, satellite communications and broadcast television
applications. Semi-conducting GaAs substrates are used to create opto-electronic products, such as light emitting diodes
(LEDs) that are used in a wide range of applications including automotive lighting, horticulture, signage, display, sensors and
machine vision. Semi-conducting GaAs substrates are also used in making industrial lasers. GaAs wafers could also be used
for making vertical cavity surface emitting lasers (VCSELs) for facial recognition and micro-LEDs targeting improved screen
technology. Ge substrates are used in applications such as solar cells for space and terrestrial photovoltaic applications.
Our supply chain strategy includes several consolidated raw material companies. One of these consolidated
companies produces pyrolytic boron nitride (pBN) crucibles used in the high temperature (typically in the range 500 C to
1,500 C) growth process of single crystal ingots, effusion rings when growing OLED (Organic Light Emitting Diode) tools,
epitaxial layer growth in MOCVD (Metal-Organic Chemical Vapor Deposition) reactors and MBE (Molecular Beam Epitaxy)
reactors. We use these pBN crucibles in our own ingot growth processes and they are also sold in the open market to other
companies. A second consolidated company converts raw gallium to purified gallium. We use purified gallium in producing
our GaAs substrates and it is also sold in the open market to other companies for use in producing magnetic materials, high
temperature thermometers, single crystal ingots, including gallium arsenide, gallium nitride, gallium antimonite and gallium
phosphide ingots, and other materials and alloys. In addition to purified gallium, the second consolidated company also
produces InP base material which we then use to grow single crystal ingots. Our substrate product group generated 68%, 63%,
and 79% of our consolidated revenue and our raw materials product group generated 32%, 37%, and 21% for 2024, 2023, and
2022, respectively.
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4
The following chart shows our substrate products and their materials, diameters and illustrative applications and
shows our raw materials group primary products and their illustrative uses and applications.
Products
Substrate Group and Wafer Diameter Sample of Applications
Indium Phosphide
• Data center connectivity using light/lasers
(InP)
• High-speed data transfer in data centers
2”, 3”, 4”, 6”
• 5G communications
• Fiber optic lasers and detectors
• Consumer devices
• Passive Optical Networks (PONs)
• Silicon photonics
• Photonic Integrated circuits (PICs)
• Thermo-Photovoltaics (TPV’s)
• RF amplifier and switching (military wireless & 5G)
• Infrared light-emitting diode (LEDs) motion control
• Lidar for robotics and autonomous vehicles
• Infrared thermal imaging
Gallium Arsenide
• Wi-Fi devices
(GaAs - semi-insulating)
• IoT devices
1”, 2”, 3”, 4”, 5”, 6”
• High-performance transistors
• Direct broadcast television
• Power amplifiers for wireless devices
• Satellite communications
• High efficiency solar cells for drones and automobiles
• Solar cells
Gallium Arsenide
• High brightness LEDs
(GaAs - semi-conducting)
• Screen displays using micro-LEDs
1”, 2”, 3”, 4”, 5", 6”,8’
• Printer head lasers and LEDs
• 3-D sensing using VCSELs
• Data center communication using VCSELs
• Sensors for industrial robotics/Near-infrared sensors
• Laser machining, cutting and drilling
• Optical couplers
• High efficiency solar cells for drones and automobiles
• Other lasers
• Night vision goggles
• Lidar for robotics and autonomous vehicles
• Solar cells
Germanium
• Multi-junction solar cells for satellites
(Ge)
• Optical sensors and detectors
2”, 4”, 6”
• Terrestrial concentrated photo voltaic (CPV) cells
• Infrared detectors
• Carrier wafer for LED
Raw Materials Group
6N+ and 7N+ purified gallium
• Key material in single crystal ingots such as:
- Gallium Arsenide (GaAs)
- Gallium Nitride (GaN)
- Gallium Antimonite (GaSb)
- Gallium Phosphide (GaP)
Boron trioxide (B2O3)
• Encapsulant in the ingot growth of III-V compound semiconductors
Gallium-Magnesium alloy
• Used for the synthesis of organo-gallium compounds in epitaxial growth on semiconductor wafers
pyrolytic boron nitride (pBN) crucibles • Used when growing single-crystal compound semiconductor ingots
• Used as effusion rings when growing OLED tools
pBN insulating parts
• Used in MOCVD reactors
• Used when growing epitaxial layers in Molecular Beam Epitaxy (MBE) reactors
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All of our substrate products and raw material products are manufactured in the People’s Republic of China (PRC or
China) by our PRC subsidiaries and PRC joint ventures material companies. The PRC generally has favorable costs for
facilities and labor compared with comparable facilities in the United States, Europe or Japan. Our supply chain includes
partial ownership of raw material companies in China (subsidiaries/joint ventures). We believe this supply chain arrangement
provides us with pricing advantages, reliable supply, market trend visibility and better sourcing lead-times for key raw
materials central to manufacturing our substrates. In the event of industry-wide supply shortages we believe our vertically
integrated supply chain strategy will be even more advantageous. Our raw material companies produce materials, including
raw gallium (4N Ga), high purity gallium (6N and 7N Ga), starting material for InP, arsenic, germanium, germanium dioxide,
pyrolytic boron nitride (pBN) crucibles, and boron oxide (B2O3). We have board representation in all of these raw material
companies. We consolidate the companies in which we have either a controlling financial interest, or majority financial
interest combined with the ability to exercise substantive control over the operations, or financial decisions, of such
companies. We use the equity method to account for companies in which we have noncontrolling financial interest and have
the ability to exercise significant influence, but not control, over such companies. We purchase portions of the materials
produced by these companies for our own use and they sell the remainder of their production to third parties.
In 2015, the Beijing city government announced its decision to move most of its offices into the district where our
original manufacturing facility is currently located (the Tongzhou district) and the Beijing city government has moved
thousands of government employees into this district. The government has constructed showcase tower buildings and
overseen the establishment of new apartment complexes, retail stores and restaurants. A large park, named Green Heart City
Park, was built across the street from our facility and Universal Studios has developed an amusement park within a few miles
of our facility. To create room and upgrade the district, the city instructed virtually all existing manufacturing companies,
including Tongmei, to relocate all or some of their manufacturing lines. We were instructed to relocate our gallium arsenide
manufacturing lines. For reasons of manufacturing efficiency, we elected to also move part of our germanium manufacturing
line. Our indium phosphide manufacturing line, as well as various administrative and sales functions, remain primarily at our
original site.
New customer qualifications and expanding capacity as needed require us to continue to diligently address the many
details that arise at each of our sites. A failure to properly accomplish this could result in disruption to our production and have
a material adverse impact on our revenue, our results of operations and our financial condition. If we fail to meet the product
qualification and volume requirements of a customer, we may lose sales to that customer. Our reputation may also be
damaged. Any loss of sales could have a material adverse effect on our revenue, our results of operations and our financial
condition.
On November 16, 2020, we announced a strategic initiative to access China’s capital markets by beginning a process
to list shares of Tongmei in an initial public offering (the “IPO”) on the STAR Market, an exchange intended to support
innovative companies in China. We formed and founded Tongmei in 1998 and believe Tongmei has grown into a company
that will be an attractive offering on the STAR Market. To qualify for a STAR Market listing, the first major step in the
process was to engage private equity firms in China (“Investors”) to invest funds in Tongmei. By December 31, 2020,
Investors, which consist of 10 private equity funds, had entered into two sets of definitive transaction documents, each
consisting of a capital increase agreement along with certain supplemental agreements in substantially the same form
(collectively, the “Capital Investment Agreements”), with Tongmei for a total investment of approximately $48.1 million. The
currency used in the investment transactions was the Chinese renminbi, which has been converted to approximate U.S. dollars
for this Annual Report on Form 10-K. The remaining investment of approximately $1.5 million of new capital was funded in
January 2021. The government approved the approximately $49 million investment in its entirety on January 25, 2021. In
exchange for an investment of approximately $49 million, the Investors received a 7.28% redeemable noncontrolling interest
in Tongmei.
Pursuant to the Capital Investment Agreements with the Investors, each Investor has the right to require AXT to
redeem any or all Tongmei shares held by such Investor at the original purchase price paid by such Investor, without interest,
in the event the IPO fails to pass the audit of the Shanghai Stock Exchange, is not approved by the Chinese Securities
Regulatory Commission (“CSRC”) or Tongmei cancels the IPO application. The aggregate redemption amount is
approximately $49 million, subject to the foreign exchange rate variable at time of redemption.
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Tongmei submitted its IPO application to the Shanghai Stock Exchange in December 2021 and it was formally
accepted for review on January 10, 2022. The Shanghai Stock Exchange approved the IPO application on July 12, 2022. On
August 1, 2022, the CSRC accepted for review Tongmei’s IPO application. The STAR Market IPO remains subject to review
and approval by the CSRC and other authorities. The process of going public on the STAR Market includes several periods of
review and therefore is a lengthy process. Subject to review and approval by the CSRC and other authorities, Tongmei hopes
to accomplish this goal in the coming months. The listing of Tongmei on the STAR Market will not change the status of AXT
as a U.S. public company.
An early step in the STAR Market IPO process involved certain entity reorganizations and alignment of assets under
Tongmei. In this regard our two consolidated raw material companies, Nanjing JinMei Gallium Co., Ltd. (“JinMei”) and
Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd. (“BoYu”) and their subsidiaries were assigned to
Tongmei in December 2020. As of June 30, 2021, AXT-Tongmei, Inc., a wholly owned subsidiary of AXT, was assigned to
Tongmei. The assignment to Tongmei of JinMei and BoYu and their subsidiaries, and AXT-Tongmei, Inc. increased the
number of customers and employees attributable to Tongmei as well as increased Tongmei’s consolidated revenue.
We are neither a PRC operating company nor do we conduct our operations in China through the use of variable
interest entities (“VIEs”). Recent statements and regulatory actions by China’s government on the use of VIEs and data
security or anti-monopoly concerns have not impacted our ability to conduct our business or continue to list our common
stock on the Nasdaq Global Select Market.
The following organization chart depicts the consolidated structure as of December 31, 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. The PRC government is a single party form of
government with virtually unlimited authority and power to intervene in or influence commercial operations in China. In the
past, we have experienced such intervention or influence by the PRC government and a change in the rules and regulations in
China when we were instructed by the Beijing municipal government to relocate part of our manufacturing facility in Beijing
and expect that such intervention or influence or change in the rules and regulations in China could occur in the future.
In the ordinary course of business, our PRC subsidiaries and PRC joint ventures require permits and licenses to
operate in the PRC. Such permits and licenses include permits to use hazardous materials in manufacturing operations. From
time to time, the PRC government issues new regulations, which may require additional actions on the part of our PRC
subsidiaries and PRC joint ventures to comply. For example, on February 27, 2015, the China State Administration of Work
Safety updated its list of hazardous substances. The previous list, which was published in 2002, did not restrict the materials
that we use in our wafers. The new list added gallium arsenide. As a result of the newly published list, we
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were required to seek additional permits. In the ordinary course of business, our PRC subsidiaries and PRC joint ventures
apply for permits as required. Any such intervention or influence or change in the rules and regulations in China could result
in a material change in our PRC operations and/or the value of our common stock or cause the value of such securities to
significantly decline or be worthless.
In September 2018, the United States announced a list of thousands of categories of goods that became subject to
Section 301 tariffs when imported into the United States from China. This pronouncement imposed tariffs on wafer substrates
we imported into the United States. The initial tariff rate was 25%. On July 3, 2023, China announced new export control
regulations on materials including gallium and germanium and compounds of these materials, effective as of August 1, 2023.
Materials that could be used in military applications, specifically including weapons of mass destruction, were the primary
focus. This required Tongmei to seek permits from the applicable Chinese authorities to export gallium arsenide and
germanium substrates. Since that time, a general escalation has been underway with further increases to the tariffs from the
US and additional export controls from China.
In late 2024 and early 2025, a new round of trade restrictions was announced by China and the United States. On
December 3, 2024, China issued further rules restricting exports of materials that can typically be used in military applications
including antimony, gallium, germanium and other superhard materials. The effective date was December 3, 2024, the same
day as the announcement itself. Reciprocally, the United States increased tariffs on many items from China from 25% to 50%,
effective January 1, 2025. On February 1, 2025, the United States again further increased the tariff on imports of many
products from China, including our wafer substrates, to 60%. On March 4, 2025, the United States further increased the tariff
on imports of many products, including our wafer substrates, to 70%. We have little or no germanium exports to the U.S. and
historically a relatively small value of imports of gallium arsenide wafers into the U.S. Our primary revenue generator derived
from imports into the U.S. is indium phosphide substrates. While Tongmei has generally received the required permits for
exports to countries in Asia and Europe, our U.S. gallium arsenide customers are considered “dual use” customers: in addition
to commercial applications they have significant levels of military involvement. As such, no permits for gallium arsenide to
the U.S. have yet been approved. On February 4, 2025, China added indium phosphide substrates to its export control list. As
a result, the three wafer substrate product lines manufactured by Tongmei all require permits from China’s Ministry of
Commerce before they can be exported from China. To our knowledge, indium phosphide is rarely used in military
applications and we can reasonably expect that export permits to ship our indium phosphide substrates to the U.S. will be
granted. But since the requirement is new it will take at least several months from February 4, 2025 to have early applications
processed.
We have created a vertically integrated supply chain and transfer cash through our corporate structure in three ways.
First, we capitalize our investments in our PRC subsidiaries. We licensed to our PRC subsidiaries intellectual property and
received from our PRC subsidiaries royalty payments or one-time fees. Second, we use transfer pricing arrangements to buy
from our PRC subsidiaries and PRC joint ventures wafers and raw materials. We review the terms of the transfer pricing
arrangements annually with our independent registered public accounting firm. In the past, we sold to our PRC subsidiaries
capital equipment that we purchased at the request of our PRC subsidiaries and for which we were reimbursed by the
applicable PRC subsidiary. In recent years, Tongmei purchases capital equipment from suppliers in Taiwan, Japan, China,
Europe or South Korea. Third, our PRC subsidiaries and PRC joint ventures pay dividends to entities within the Company’s
corporate structure. For the years ended December 31, 2024, 2023 and 2022, 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 $2.4 million, $4.3 million and $2.9 million, respectively. For years ended December 31, 2024
and 2023, no dividends were paid to minority shareholders by our PRC subsidiaries and PRC raw material joint ventures. In
the year ended December 31, 2024, we continued the settlement of amounts owed under our transfer pricing arrangements in
the ordinary course of business. We have no current intentions to distribute earnings to our investors under our corporate
structure.
The cash generated from one PRC subsidiary is not used to fund another PRC subsidiary’s operations. None of our
PRC subsidiaries has ever faced difficulties or limitations on its ability to transfer cash between our subsidiaries. We have cash
management policies that dictate the amount of such funding.
We are subject to a number of unique legal and operational risks associated with our corporate structure, any of
which could result in a material change in our operations and/or the value of our common stock or cause the value of
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8
such securities to significantly decline or be worthless. Please carefully read the “Risk Factors” in this Annual Report on Form
10-K in Item 1A below, including Category III, “Risks Related to International Aspects of Our Business”. In particular, the
following risk factors address issues associated with our corporate structure:
●
Although we are a Delaware corporation and are neither a PRC operating company nor do we conduct our
operations in China through the use of VIEs, in the event we inadvertently concluded that we do not require any
permissions or approvals from the CSRC or other PRC central government authorities to complete a public
offering of securities in the U.S. or applicable laws, regulations, or interpretations change, we may be required to
obtain such permissions or approvals to complete such a public offering of securities.
●
The PRC central government may intervene in or influence our PRC operations at any time and the rules and
regulations in China can change quickly with little advance notice.
●
The PRC central government may also exert more control over offerings conducted overseas and/or foreign
investment in China-based issuers, which could result in a material change in our operations and/or the value of
our common stock.
●
Changes in China’s political, social, regulatory or economic environments may affect our financial performance.
●
Joint venture raw material companies in China bring certain risks.
●
Risks exist in utilizing our new gallium arsenide manufacturing sites efficiently.
●
The Chinese central government is increasingly aware of air pollution and other forms of environmental
pollution and their reform efforts can impact our manufacturing, including intermittent mandatory shutdowns.
●
Shutdowns or underutilizing our manufacturing facilities may result in declines in our gross margins.
●
Enhanced trade tariffs, import restrictions, export restrictions, Chinese regulations or other trade barriers may
materially harm our business.
●
If China places restrictions on freight and transportation routes and on ports of entry and departure this could
result in shipping delays or increased costs for shipping.
●
Our international operations are exposed to potential adverse tax consequence in China.
●
We derive a significant portion of our revenue from international sales, and our ability to sustain and increase
our international sales involves significant risks.
●
The terms of the private equity raised in China as a first step toward an IPO on the STAR Market grant each
Investor a right of redemption if Tongmei fails to achieve its IPO.
●
We are subject to foreign exchange gains and losses that may materially impact our statement of operations.
●
Although the audit report is prepared by an independent registered public accounting firm that is currently
inspected fully by the Public Company Accounting Oversight Board (the “PCAOB”), there is no guarantee that
future audit reports will be prepared by an independent registered public accounting firm that is completely
inspected by the PCAOB.
Our independent registered public accounting firm is BPM LLP (“BPM”), which is registered with the PCAOB. The
Holding Foreign Companies Accountable Act (the “HFCA Act”) requires that the PCAOB determine whether it is unable to
inspect or investigate completely registered public accounting firms located in a non-U.S. jurisdiction because of a position
taken by one or more authorities in that jurisdiction. On December 16, 2021, the PCAOB issued a report on its determinations
that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in the PRC
and Hong Kong because of positions taken by PRC authorities in those jurisdictions. BPM is headquartered in the United
States and not in the PRC or Hong Kong. As such, BPM is subject to the determinations announced by the PCAOB.
Accordingly, the Company does not expect the HFCA Act, the Accelerating Holding Foreign Companies Accountable Act and
the related regulations to affect the Company and does not expect to be identified by the Securities and Exchange
Commission, or SEC, under the HFCA Act. On December 15, 2022, the PCAOB vacated its 2021 determinations that the
positions taken by authorities in the PRC and Hong Kong prevented it from inspecting and investigating completely registered
public accounting firms headquartered in those jurisdictions. See “Although the audit report is prepared by an independent
registered public accounting firm that is currently inspected fully by the PCAOB, there is no guarantee that future audit
reports will be prepared by an independent registered public accounting firm that is
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completely inspected by the PCAOB” under the section entitled “Risk Factors” in Item 1A below for further information on
risks related to our foreign operations and dependence.
We were incorporated in California in December 1986 and reincorporated in Delaware in May 1998. The Company
went public in 1998. We changed our name from American Xtal Technology, Inc. to AXT, Inc. in July 2000. Our principal
corporate office is located at 4281 Technology Drive, Fremont, California 94538, and our telephone number at this address is
(510) 438-4700.
Industry Background
Certain electronic and opto-electronic applications have performance requirements that exceed the capabilities of
conventional silicon substrates, also known as wafers, and often require high-performance compound wafers (mixture of two
materials) or single element wafer substrates. Examples of higher performance non-silicon based wafer substrates include
GaAs, InP, gallium nitride (GaN), silicon carbide (SiC) and Ge. One of the earliest broadly used alternative wafer substrates
was GaAs and GaAs wafer substrates were the earliest wafer substrates we produced.
Silicon substrates dominate the semiconductor substrate market. Silicon wafers are larger in diameter and
significantly lower in cost. AXT and our competitors exist because the laws of physics prevent certain functions from
performing properly, or at all, if silicon material is used as the wafer substrate. Our substrate wafers are used when a typical
silicon substrate wafer cannot meet the performance requirements of a semiconductor chip or optoelectronic device. Demand
for higher performance non-silicon-based wafer substrates, such as the substrates in which AXT specializes, is expected to
increase as new applications are adopted. In contrast to the ever-more complex electronic circuit designs and the skill sets
required to accomplish such designs, the knowledge base and skill sets required for AXT and our competitors are material
science-based. We do not design or manufacture the semiconductor chips and other electronic circuits. Instead, we apply our
deep knowledge in material science to grow single crystal ingots that are then sliced into individual wafer substrates. We add
value by researching, developing and producing the specialty material wafers. This places us at the beginning of the
semiconductor “food chain”.
InP is a high-performance semiconductor wafer substrate used in broadband and fiber optic applications, 5G
infrastructure and data center connectivity. Data centers use InP devices for high-speed optical data transmission. We believe
the growth of AI applications will increase the need for high speed data transfer, which may lead to an increase in InP
substrate demand from such data centers. Currently, InP substrates are being used in certain consumer products, including
proximity sensors and other sensors in mobile devices. Semi-insulating GaAs substrates are used to create various high-speed
microwave components, including power amplifier chips used in cell phones, satellite communications and broadcast
television applications. Semi-conducting GaAs substrates are used to create opto-electronic products, including light emitting
diodes (LEDs) that are used for a wide range of applications including automotive lighting, horticulture, signage, display,
sensors and machine vision. They are also used in making industrial lasers. GaAs wafers could also be used for making
vertical cavity surface emitting lasers (VCSELs) for facial recognition and micro-LEDs targeting improved screen technology.
Ge substrates are used in applications such as solar cells for space and terrestrial photovoltaic applications.
The AXT Advantages
We believe that we benefit from the following advantages:
●
We believe our InP substrates are best in class. We believe our InP substrates have the lowest defect densities
and lowest stress and slip lines on the market and are best in class. Our InP substrates enable our customers to
achieve the highest wafer fab and device yields. We have developed a strong base of proprietary InP technology
that we continue to expand. There are significant barriers to entry in the InP substrate market and currently
there are only three primary suppliers, including AXT.
Further, we believe we can be the dominant supplier in the emerging 6-inch diameter market. Already, our InP
substrates have reached production in at least two well-known consumer products. Also, one of our largest data
center upgrade customers works closely with us as a partner. Our advantages increase with
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larger diameters, which the industry is starting to demand, and we believe our superior technology will
converge with new demands from data centers that are driven by AI applications, additional consumer
application wins and other data center and 5G/telecom applications.
●
New facilities, equipment and added capacity. We believe we are the only company in our industry to have
added significant new facilities, equipment and capacity in recent years. Although current customers and
prospective customers previously viewed our relocation process as a risk, we believe our success in managing
this process now positions us as the “go to” supplier with a state of the art manufacturing line, a proven ability
to add capacity and a commitment to continuous improvement.
●
We believe that we are the only compound semiconductor substrate supplier to have a position in raw
materials. We believe this provides us with a more reliable supply of, and shorter lead-times for, the raw
materials central to our final manufactured products. Customers find this business model attractive. Revenue
from the sale of raw materials provides further diversity in our customer base and business model.
●
Unique access to capital if needed to expand capacity. We believe the combination of access to both the U.S.
and China capital markets presents a strong position to our customers and gives us an advantage over our
competitors.
●
Low-cost manufacturing operation in China. Since 2004, we have manufactured all of our products in China,
which generally has favorable costs for facilities and labor compared to costs of comparable facilities and labor
in the United States, Japan or Europe. Our primary competitors have their major manufacturing operations in
Germany or Japan.
●
Key provider of low defect density GaAs wafer substrates. In recent years customer demand for low etch pit
density (“EPD”) GaAs wafer substrates has increased. The most recent example is the requirement for 8-inch
wafers GaAs. The requirement of low EPD is a barrier to entry and we believe there are a limited number of
potential substrate providers that can meet this requirement, including AXT. We believe the quality of our low
EPD wafers will enable us to support new applications and generate additional revenue.
●
Proprietary process technology drives manufacturing. In our industry, the single crystal growth process and
the wafer manufacturing process incorporate proprietary process technology. Tongmei has a substantial body of
proprietary process technology and we believe this gives us a competitive advantage, especially in InP. This also
creates a barrier to entry.
●
Our team. We have a strong technical sales support team that engages with our customers and understands their
product requirements. A significant percentage of the members of our team that engage with customers have
advanced degrees in physics or materials science. We are known in the marketplace to be knowledgeable and
responsive.
Strategy
Our goal is to become the leading worldwide supplier of high-performance compound and single element
semiconductor substrates. Key elements of our strategy include:
●
Promote our strengths in InP. As cloud-based data centers continue to combine integrated circuits and InP-
based lasers to transfer data through light, we believe there will be increased demand for InP substrates. We
intend to promote our capabilities as we believe we provide “best in class” InP wafers. AI will use InP for high-
speed data transmission. Other applications could include driverless cars, 5G in cell phones and health and well-
being biometric wearables.
●
Promote flagship products: 8-inch GaAs and 6-inch InP. We intend to promote our technological strengths by
showcasing our success in developing larger diameter wafers. Our 8-inch GaAs product has
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crossed several milestones and is now shipping in small quantities. Our 6-inch InP is now desired by some key
customers.
●
Expand our recycling program. We have successfully deployed InP recycling and have developed a recycling
program for GaAs. Recycling can lower our manufacturing costs and it is also good for the environment. Some
customers require recycling programs.
●
Showcase our new facilities. With travel restrictions largely removed, we plan to host more customers that tour
our facilities. We had several very positive visits in 2024 and plan to increase the number of visits in 2025.
●
Strengthen our raw materials supply chain. The supply and demand equation for specialty materials can be
complex and volatile. Over the years, we have established or invested in raw material companies in China that
are an integral part of our supply chain. We will continue to provide strategic support to these companies and
they, in turn, will continue to be the backbone of our supply chain. We have identified some new steps that will
make our supply chain even stronger.
●
Offer diverse products, including custom products. We believe AXT has a reputation in the market for
providing a broad range of products, including custom products that are supported by a team of technical sales
support professionals, the majority of whom hold advanced graduate degrees in physics or materials science. We
plan to further promote this brand image as a way to differentiate ourselves in the market. We believe this
strategy will lead to a more diverse customer base and higher revenue volumes.
●
Increase manufacturing efficiencies. The recent industry-wide inventory corrections and reduced
manufacturing volumes impacted our manufacturing efficiencies. We will seek to continue to leverage our
China-based manufacturing advantages by increasing efficiencies in our manufacturing methods, systems and
processes. We promote the concept and practice of continuous improvement within our company culture.
●
Materials of the future. The specialty materials substrate market is dynamic and subject to continued changes
and cycles. We plan to use our deep knowledge and experience in specialty materials and wafer substrates to
seek new applications for existing substrates in our portfolio and explore additional materials that may be
synergistic with our knowledge base, customer needs and manufacturing lines.
Technology
Wafer substrates on which integrated circuits and optical devices are fabricated serve as a foundation for
semiconductor device fabrication. Wafers are derived from ingots that are grown in a cylindrical form. The diameter and
length of an ingot will vary depending on the type of material and the growth process used. An ingot can be single-crystalline
(a single crystal) or multi-crystalline (polycrystalline). A single crystal is a continuous lattice of atoms with no boundaries
within the structure. The ingot must be a single crystal in order for it to be useful in making wafers for device fabrication. A
single crystal ingot can be made from a single element such as germanium or silicon, or it can be made from two or more
elements such as gallium arsenide (with gallium and arsenic) or indium phosphide (with indium and phosphorous). Depending
on physical properties of the materials in a wafer, the performance of devices and circuits can be remarkably different.
Tongmei uses its proprietary vertical gradient freeze (VGF) technology for growing single crystal Indium Phosphide
(InP), Gallium Arsenide (GaAs) and Germanium (Ge) ingots. After growing the crystalline ingot, the ingot is then sliced into
individual substrates or wafers. Before specialty material wafers can be used, a thin layer of structured chemicals is grown on
the surface of the substrate. This is called an epitaxial layer and it is a complicated and highly technical process. We do not
grow the epitaxial layer. We sell the majority of our substrates to companies that specialize in applying the epitaxial layer. Our
wafers are then used to produce state-of-the-art electronic circuits and opto-electronic devices. The chips are used in a wide
variety of applications.
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InP and GaAs compounds are formed by combining elements from Groups III and V in the periodic table of
elements, whereas Ge is a Group IV elemental material. Each of these materials has unique properties that determine the best
device and/or circuit applications. As a result of their special high electron mobility combined with their direct ban-gap
properties, both InP and GaAs wafers have enjoyed dominant roles in the production of light-emitting diodes (LEDs), solid-
state lasers and power amplifiers for mobile phones, to name a few applications. Ge wafers, on the other hand, have played a
key role in the manufacturing of special solar cells known as triple junction solar cells (TJSCs) for space and terrestrial power
generation.
Crystal growth process technology frequently contains steps and procedures that are considered proprietary trade
secrets held by the manufacturer, often including methods to control the temperature within the crucible. InP crystal growth
relies on extreme pressure within the crucible. As such it requires not only temperature control methodologies, but also
pressure control and stabilization process methodologies, many of which we consider proprietary trade secrets. It is this
combination of variables and the required methods to control them that create a barrier to entry. We believe our long-term
investment in research and development has resulted in a substantive body of proprietary knowledge.
After growing the crystalline ingot, the material is then sliced into individual substrates or wafers. We have continued
to invest in wafer processing technology covering each step in the process from sawing to edge smoothing to final cleaning
and we believe we have technology and trade secrets addressing the scope of wafer processing. One focus in our recent
development programs has been on automation, particularly in cleaning the wafers.
Ideally, all the atoms in a wafer or substrate are arrayed in a specific periodic order. However, sensitivities in the
ingot growth process will cause some atoms to be improperly aligned and these are referred to as dislocations. The aggregate
number of dislocations in a wafer is referred to as the dislocation density. Dislocation densities can be seen as a group of tiny
marks or pits under a microscope by etching the wafer with acid and each wafer has an etch pit density or EPD. Certain micro
devices, such as GaAs industrial lasers, require wafers with very low EPD. We consider the process technology used by
Tongmei to achieve low EPD as proprietary process technology and we believe we are one of only a few substrate
manufacturing companies that can produce low EPD wafers.
Products
We have two product lines: specialty material substrates and raw materials integral to these substrates. We design,
develop, manufacture and distribute high-performance semiconductor substrates, also known as wafers. Through our
consolidated subsidiaries in our supply chain, we also sell certain raw materials. InP is a high-performance semiconductor
substrate used in fiber optic lasers and detectors, passive optical networks (PONs), telecommunication, 5G infrastructure,
connectivity in data centers including metro, hyperscale and artificial intelligence, silicon photonics data center upgrades,
photonic ICs (PICs), terrestrial solar cell (CPV), lasers, RF amplifiers, infrared motion control and infrared thermal imaging.
We make semi-insulating GaAs substrates used in making semiconductor chips in applications such as power amplifiers for
wireless devices and high-performance transistors. Our semi-conducting GaAs substrates are used to create opto-electronic
products, which include High Brightness LEDs that are often used to backlight wireless handsets and LCD TVs and for
automotive, signage, display and lighting applications, as well as high power industrial lasers for material processing
(welding, cutting, drilling, soldering, marking and surface modification). Our semi-conducting GaAs substrates can also be
used to make micro-LEDs for advanced screen technologies and to create opto-electronic products for 3-D facial recognition
sensing using VCSELs. Ge substrates are used in emerging applications, such as triple junction solar cells for space and
terrestrial photovoltaic applications and for optical applications.
Substrates. We currently sell compound substrates manufactured from InP and GaAs, as well as single-element
substrates manufactured from Ge. Many of our customers require customized specifications, such as special levels of iron or
sulfur dopants or a special wafer thickness. We supply InP substrates in two-, three- and four-inch diameters, and are in pilot
production and customer qualifications with six-inch diameter InP substrates. We supply Ge substrates in two-, four- and six-
inch diameters. We supply both semi-insulating and semi-conducting GaAs substrates in one-, two-, three-, four-, five- and
six-inch diameters. More recently we have successfully developed 8-inch GaAs wafers and are selling them in small
quantities.
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Raw Materials. Our consolidated raw material subsidiaries produce and sell certain raw materials, some of which are
used in our substrate manufacturing process and some of which are sold to other companies. One of these consolidated
companies produces pBN crucibles and another consolidated company converts raw gallium to purified gallium and produces
InP base material. A third newly formed subsidiary will focus on production and sale of arsenic.
We promote our product diversity as a way to differentiate ourselves in the market. Some competitors provide only
gallium arsenide substrates. We provide gallium arsenide and also indium phosphide and germanium substrates. Some
competitors limit their wafer diameters to only a few sizes. Our wafers range from one inch to up to eight inches in diameter.
We also produce substrates with customer defined specifications, which may range in thickness, smoothness or flatness and
may include adding special additional materials, such as iron or sulfur. In addition to our wafers or substrates, we also
generate revenue from our two consolidated subsidiaries that sell raw materials. Product diversity can mitigate some of the
down cycles in our market because we are not dependent on a single product or application for revenue.
Customers
Before specialty material wafers can be processed in a typical wafer manufacturing facility that fabricates the
electronic circuit, laser or optical device on a chip, a thin layer of structured chemicals is grown on the surface of the substrate.
This is called an epitaxial layer. We do not grow the epitaxial layer. We sell our substrates to companies that apply the
epitaxial layer, who then in turn sell the modified wafers to the wafer fabs, chip design companies, LED manufacturers and
others. Some customers do both the epitaxial layer and wafer fabrication.
Epitaxial layer companies that form our customer base are located in Asia, the United States and Europe. We also sell
our products to universities and other research organizations that use specialty materials for experimentation in various aspects
of semi-conducting and semi-insulating applications. Our customers that purchase raw materials are located in Asia, the
United States and Europe.
We have at times sold a significant portion of our products in any particular period to a limited number of customers.
No customer represented more than 10% of our revenue for the years ended December 31, 2024 and 2023 and one customer
represented 15% of our revenue for the year ended December 31, 2022. Our top five customers, although not the same five
customers for each period, represented 30% of our revenue for the year 2024, 25% of our revenue for 2023 and 34% of our
revenue for 2022.
For the year ended December 31, 2024, three customers of our consolidated subsidiaries, in aggregate, accounted for
31% of raw material sales. For the year ended December 31, 2023, three customers of our consolidated subsidiaries, in
aggregate, accounted for 31% of raw material sales and for the year ended December 31, 2022, three customers accounted for
29% of raw material sales. Our subsidiaries and consolidated raw material companies are a key strategic benefit for us as they
further diversify our sources of revenue.
Manufacturing, Raw Materials and Supplies
All of our products are manufactured in China. We believe this location generally has favorable costs for facilities
and labor compared to the United States or compared to the location of some of our competitors in Japan and Germany.
We use a two-stage wafer manufacturing process. The first stage deploys VGF technology for the crystal growth of
single element or compound element ingots in diameters currently ranging from one inch to eight inches. The growth process
occurs in high temperature furnaces built using Tongmei proprietary designs. Growing the crystalline elements into cylindrical
ingots takes a number of days, depending on the material, the diameter and length of the ingot produced. The crystal growth
stage utilizes our proprietary process technology. The second stage includes slicing or sawing the ingot into wafers or
substrates, then processing each substrate to strict specifications, including grinding to reduce the thickness, beveling the
edges, and then polishing and cleaning each substrate. Many of the wafer processing steps use chemical baths and properly
cleaning the wafer is a critical process. The wafer processing stage also utilizes our proprietary process technology.
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Wafers from each ingot will include some material that does not meet specifications or quality standards. Defects
may occur as a result of inherent factors in the materials used in the crystalline growth process. They may also result from
variances in the manufacturing process. We have many steps in our manufacturing line that are partially or fully automated but
other manufacturing steps are performed manually. We intend to increase the level of automation, particularly in cleaning the
wafers. Due to potential defects, yield is a key factor in our manufacturing cost. Other key elements are the initial cost of the
raw material elements, manufacturing equipment, factory loading, facilities and labor.
Together with certain subsidiaries we have partial ownership in over ten raw material companies in China that form
the backbone of our supply chain model. These companies generally provide us with reliable supply, market trend visibility,
and shorter lead-times for raw materials central to our manufactured products, including gallium, gallium alloys, indium
phosphide poly-crystal, high-purity arsenic, germanium, germanium dioxide, pBN and boron oxide. We believe that these raw
material companies have been and will continue to be advantageous in allowing us to procure materials to support our planned
growth. In addition, we purchase supply parts, components and raw materials from several other domestic and international
suppliers. We depend on a single or limited number of suppliers for certain critical materials used in the production of our
substrates, such as quartz tubing, arsenic, phosphorus and polishing solutions. We generally purchase our materials through
standard purchase orders and not pursuant to long-term supply contracts.
Recycling
We developed a proprietary process technology that enables us to recycle remnants of indium phosphide processing
material. The process was introduced into manufacturing in 2022. The process involves capturing certain InP waste materials
generated in the manufacturing process. These materials can then be re-processed and cycled back into the normal process
procedures. Not only is this beneficial for environmental reasons, it also reduces our total material costs and, ultimately,
improves our gross margin. We have also developed a recycling process for gallium arsenide.
Sales and Marketing
We sell our substrate products directly to customers through our direct salesforce in the United States, China and
Europe. We also use independent sales representatives and distributors in Japan, Taiwan, Korea and other areas. Our direct
sales force is knowledgeable in the use of compound and single-element substrates. Specialty material wafers are scientifically
complicated. Our application engineers must work closely with customers during all stages of our wafer substrate
manufacturing process, from developing the precise composition of the wafer substrate through manufacturing and processing
the wafer substrate to the customer’s specifications. We believe that maintaining a close relationship with customers and
providing them with engineering support improves customer satisfaction and provides us with a competitive advantage in
selling. A significant percentage of the members of our technical sales support team who frequently engage with customers
have PhDs in physics or materials science.
International Sales. International sales are a substantial part of our business. Sales to customers outside North
America (primarily the United States) accounted for approximately 92% of our revenue for 2024 and approximately 90% and
86% of our revenue during each of 2023 and 2022, respectively. The primary markets for sales of our substrate products
outside of North America are to customers located in Asia and Western Europe.
Our raw material companies sell specialty raw materials including 4N, 5N, 6N, 7N and 8N gallium, boron oxide,
germanium, arsenic, germanium dioxide, and pyrolytic boron nitride crucibles used, for example, in crystal growth processes,
epitaxial layer growth in MBE reactors and manufacturing OLED rings. Each raw material company has its own separate sales
force and sells directly to its own customers in addition to selling raw materials to us.
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Research and Development
To maintain and improve our competitive position, we focus our research and development efforts on designing new
proprietary processes and products, improving the performance of existing products, achieving new lows in EPD, increasing
yields and reducing manufacturing costs. We also conduct research and development focusing on larger diameter wafers and,
in our history, we have consistently developed new products based on larger wafer diameters. Crystal growth of specialty
earth materials becomes significantly more difficult as the ingot diameter increases because a consistent temperature, and in
the case of InP, consistent control of pressure, must be applied over a larger surface area.
Certain micro devices, such as those used in industrial lasers, require GaAs wafers with very low EPD. Low EPD
will also be required for GaAs 8-inch diameter wafers applications and InP wafers that will be used in certain high-end
applications. Low EPD has been, and will remain, a focus in our research and development efforts.
Our current substrate research and development activities focus on continued development and enhancement of
GaAs, InP and Ge substrates, including improved yield, enhanced surface and electrical characteristics and uniformity, greater
substrate strength and increased crystal length. In 2015, we acquired proprietary wafer processing equipment from Hitachi
Metals. The Hitachi Metals purchase includes a license covering the use of the proprietary equipment and Hitachi Metals’
proprietary wafer processing technology. A particular focus of the equipment and process technology is on cleaning the
wafers. It is important to remove any residual cleaning agents from each wafer to ensure that the epitaxial growth process is
not encumbered by residual chemicals on the wafer. We are also focused on developing 6-inch InP wafer substrates and on
increasing yields on the recently developed 8-inch GaAs wafers substrates.
As a manufacturing company, we must constantly improve our manufacturing processes to remain competitive, and
our research and development programs must be integrated into our manufacturing lines. All of our research and development
is conducted at our manufacturing facilities in China and the process technology developed by the China teams over the last
20 years enables us to remain competitive and to provide high-quality wafer substrates to our customers. Our China research
and development teams must continue to stay close to the manufacturing sites and develop new process steps, features and
benefits. We believe our teams are fully capable of moving the process technology forward.
Our consolidated subsidiaries conduct research and development, focusing on gallium alloys, gallium refinement and
pyrolytic boron nitride crucibles used in high temperature crystal growth.
We have assembled a multi-disciplinary team of skilled scientists, engineers and technicians to meet our research and
development objectives. Research and development expenses were $14.5 million in 2024, compared with $12.1 million in
2023 and $13.9 million in 2022. Development work focusing on yield, continuous improvement and other matters related to
our research and development efforts also occurs within regular manufacturing processes. These costs are included in our cost
of revenue because it is difficult to isolate them as research and development.
Competition
The semiconductor substrate industry is characterized by narrow technological boundaries, price erosion and
generally intense competition. Certain wafer substrates, such as low-quality wafer substrates for consumer products using
LED lighting, compete almost entirely on price. Other products, such as InP and low EPD GaAs wafers, have fewer
competitors and quality is a key competitive factor in addition to price. We face actual and potential competition from a
number of established companies who have the advantages of greater name recognition and more established relationships in
the industry. In some cases, our competitors have substantially greater financial, technical and marketing resources as they are
divisions of much larger companies. They may utilize these advantages to expand their product offerings more quickly, adapt
to new or emerging technologies and changes in customer requirements more quickly, and devote greater resources to the
marketing and sale of their products. We believe a critical factor in our business is the level of technical support we provide to
the customer or prospective customer and we attempt to counter possible advantages of name recognition or size with superior
technical support through our team of technical sales support professionals, the majority of whom hold PhDs in physics or
materials science.
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We believe that the primary competitive factors in the markets in which our substrate products compete are:
●
quality;
●
low EPD;
●
price;
●
customer technical support;
●
performance;
●
meeting customer specifications; and
●
manufacturing capacity.
Our ability to compete in target markets also depends on factors such as:
●
the timing and success of the development and introduction of new products, including larger diameter wafers,
and product features by us and our competitors;
●
the availability of adequate sources of raw materials;
●
protection of our proprietary methods, systems and processes;
●
protection of our products and processes by effective use of intellectual property laws; and
●
general economic conditions, which impact end markets using substrates.
A majority of our customers specialize in epitaxial growth, a complex series of chemical layers grown on top of our
wafers. Our wafers cannot be used to make chips until the epitaxial layers are grown. Typically, our customer or prospective
customer has at least two qualified substrate suppliers. Qualified suppliers must meet industry-standard specifications for
quality, on-time delivery and customer support. Once a substrate supplier has qualified with a customer, then price, consistent
quality and current and future product delivery lead times become the most important competitive factors. A supplier that
cannot meet a customer’s current lead times or that a customer perceives will not be able to meet future demand and provide
consistent quality can lose market share. Our primary competition in the market for compound and single element
semiconductor substrates includes Sumitomo Electric Industries (“Sumitomo”), Japan Energy (“JX”), Freiberger Compound
Materials (“Freiberger”), Umicore, China Crystal Technology Corp. (“CCTC”) and Vital Materials. We believe that at least
two of our competitors are shipping high volumes of GaAs substrates manufactured using a process similar to our VGF
technology. In addition, we also face competition from semiconductor device manufacturers that may use other specialty
material substrates that are not GaAs, InP or Ge based materials and that are actively exploring alternative materials. For
example, silicon-on-insulator (“SOI”) technology, a silicon wafer technology that produces satisfactory devices at lower cost,
has been proven in the market. From 2012 to 2015, SOI technology displaced GaAs chips in key sectors, primarily the radio
frequency (“RF”) switching function in cell phones.
Because of our vertically integrated, sophisticated supply chain, we believe we are the only compound semiconductor
substrate supplier to offer a broad suite of raw materials. We believe this gives us a unique competitive advantage because we
have greater control and stability over many of our needed materials. Further, we believe we have some advantage in
manufacturing costs. In the event of a significant increase in demand we believe our raw materials supply chain strategy and
our ability to rapidly increase capacity can provide us some advantage.
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Intellectual Property
Our success and the competitive position of our VGF technology depend on our ability to maintain the proprietary
process technology secrets developed by teams in China and other intellectual property protections. We rely on a combination
of patents, trademark and trade secret laws, non-disclosure agreements and other intellectual property protection methods to
protect our proprietary technology. We believe that, due to the rapid pace of technological innovation in the markets for our
products, our ability to establish and maintain a position of technology leadership depends as much on the skills of our
research and development personnel in China as upon the legal protections afforded our existing technologies. To protect our
trade secrets, we take certain measures to ensure their secrecy, such as executing non-disclosure agreements with our
employees, customers and suppliers. However, reliance on trade secrets is only an effective business practice insofar as trade
secrets remain undisclosed and a proprietary product or process is not reverse engineered or independently developed.
In addition to proprietary process trade secrets, we also file patents. To date, we have been issued 170 patents that
relate to our VGF products and processes; 139 in China, 13 in the United States, 8 in Japan, 4 in Taiwan, 4 in the European
Union, and 2 in Germany. Patents have a protected life of 20 years (or 10 years for utility model patents in China) from their
filing dates. Our patents have expiration dates ranging from 2025 to 2039. In some cases we may consider filing divisional,
continuation or continuation-in-part of the existing patents for additional claims. We have several patent applications pending
in China, United States, and rest of the world. Furthermore, in aggregate, our consolidated raw material companies have been
issued 132 patents in China, including 36 patents issued to JinMei, 80 patents issued to BoYu and 15 patents issued to
ChaoYang XinMei High Purity Semiconductor Materials Co., Ltd. (“ChaoYang XinMei”), and 1 patent issued to ChaoYang
ShuoMei High Purity Semiconductor Materials Co., Ltd. (“ChaoYang ShuoMei”).
In the normal course of business, we periodically receive and make inquiries regarding possible patent infringement.
In dealing with such inquiries, it may become necessary or useful for us to obtain or grant licenses or other rights. However,
there can be no assurance that such licenses or rights will be available to us on commercially reasonable terms. If we are not
able to resolve or settle claims, obtain necessary licenses on commercially reasonable terms and/or successfully prosecute or
defend our position, our business, financial condition and results of operations could be materially and adversely affected.
Environmental Regulations
We are subject to federal, state and local environmental and safety laws and regulations in all of our operating
locations, including laws and regulations of China, such as laws and regulations related to the development, manufacture and
use of our products, the use of hazardous materials, the operation of our facilities, and the use of the real property. These laws
and regulations govern the use, storage, discharge and disposal of hazardous materials during manufacturing, research and
development and sales demonstrations. We maintain a number of environmental, health and safety programs that are primarily
preventive in nature. As part of these programs, we regularly monitor ongoing compliance. If we fail to comply with
applicable regulations, we could be subject to substantial liability for clean-up efforts, personal injury, fines or suspension or
be forced to cease our operations, and/or suspend or terminate the development, manufacture or use of certain of our products,
the use of our facilities, or the use of our real property, each of which could have a material adverse effect on our business,
financial condition and results of operations. The regulatory landscape shifts and changes in China as that country works to
improve the environment. Because we manufacture all of our products in China, we are subject to an evolving set of
regulations that could require changes in our equipment and processes, which may increase our capital expenditures and
require us to obtain new permits. In 2017, China increased its focus on environmental concerns which increased pressure on
manufacturing companies. During periods of severe air pollution in Beijing, manufacturing companies, including Tongmei,
may be ordered by the local government to stop production for several days. For example, in the first quarter of 2018, over
300 manufacturing companies, including Tongmei, were intermittently shut down by the local government for a total of ten
days from February 27 to March 31, due to severe air pollution.
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Human Capital
As of December 31, 2024, AXT and Tongmei had 1,075 employees, which consisted of 25 employees in our
headquarters in Fremont, California, one sales professional in France and 1,049 employees in our factories in China. In
addition, our consolidated raw material companies had, in total, 452 employees. In aggregate, we and our consolidated raw
material companies had 1,527 employees, of whom 1,111 were principally engaged in manufacturing, 202 in sales and
administration and 214 in research and development. Of these 1,527 employees, 25, consisting of sales and marketing,
accounting and finance, administration and corporate executives were located in the United States, one in France and 1,501 in
China. Our employees in China are citizens of China, have families and pay taxes in China. We believe these factors are
viewed favorably by government agencies in China.
We believe that our future success largely depends upon our continued ability to attract and retain highly skilled
employees. We provide our employees with competitive salaries and bonuses, opportunities for equity ownership,
development programs that enable continued learning and growth and a robust employment package that promotes well-being
across all aspects of their lives, including health care and paid time off. Most of our employees in China are represented by
unions. As of December 31, 2024, 1,341 employees in China, including employees of our consolidated raw material
companies, were represented by unions. We have never experienced a work stoppage and we consider our relations with our
employees to be good.
Geographical Information
Please see Note 14 to our consolidated financial statements for information regarding our foreign operations, and see
“Risks related to international aspects of our business” under Item 1A. Risk Factors for further information on risks attendant
to our foreign operations and dependence.
Available Information
Our principal executive offices are located at 4281 Technology Drive, Fremont, CA 94538, and our main telephone
number at this address is (510) 438-4700. Our Internet website address is www.axt.com. Our website address is given solely
for informational purposes; we do not intend, by this reference, that our website should be deemed to be part of this Annual
Report on Form 10-K or to incorporate the information available at our website address into this Annual Report on Form 10-
K.
We file electronically with the SEC our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended. We make these reports available free of charge through our Internet website as soon as
reasonably practicable after we have electronically filed such material with the SEC. These reports can also be obtained from
the SEC’s Internet website at www.sec.gov.
Item 1A. Risk Factors
For ease of reference, we have divided these risks and uncertainties into the following general categories:
I.
Summary Risk Factors;
II.
Risks Related to Our Business and Operations;
III. Risks Related to International Aspects of Our Business;
IV. Risks Related to Our Financial Results and Capital Structure;
V.
Risks Related to Our Intellectual Property; and
VI. Risks Related to Compliance, Environmental Regulations and Other Legal Matters.
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I.
Summary Risk Factors
●
Global economic and political conditions, including trade tariffs, import-export restrictions, and other restrictions,
may have a negative impact on our business and financial results.
●
We are subject to a number of unique legal and operational risks associated with our corporate structure.
●
The PRC central government may intervene in or influence our PRC operations at any time and the rules and
regulations in China can change quickly with little advance notice.
●
Although the audit report included in this Annual Report is prepared by an independent registered public accounting
firm who is currently inspected fully by the Public Company Accounting Oversight Board (the “PCAOB”), there is
no guarantee that future audit reports will be prepared by an independent registered public accounting firm that is
completely inspected by the PCAOB.
●
Our NASDAQ stock price is volatile and our stock price could decline. Unpredictable fluctuations in our operating
results, changes and events in our end markets and global trends cause volatility in our stock price.
●
We face litigation and legal proceedings which could adversely affect our business, financial condition, results of
operations or cash flows.
●
Changes in China’s political, social, regulatory or economic environments may affect our financial performance.
●
The Chinese central government is increasingly aware of air pollution and other forms of environmental pollution
and their reform efforts can impact our manufacturing, including intermittent mandatory shutdowns. Shutdowns or
underutilizing our manufacturing facilities may result in declines in our gross margins.
●
Escalating trade tariffs, import restrictions, export restrictions, Chinese regulations or other trade barriers may
materially harm our business.
●
If China places restrictions on freight and transportation routes and on ports of entry and departure this could result
in shipping delays or increased costs for shipping.
●
Our international operations are exposed to potential adverse tax consequence in China.
●
Our gross margin has fluctuated historically and may decline or increase due to several factors. Factors such as
product mix, unit volume, yields and other manufacturing efficiencies can cause our gross margin to decrease or
increase from quarter to quarter.
●
The proposed Tongmei IPO on the STAR Market in China could fail to be completed. This could result in investor
disappointment and in failure to secure sufficient capital needed to take advantage of market opportunities for our
products. Our stock price could decline.
●
The terms of the private equity raised by Tongmei in China grant each investor a right of redemption if the IPO fails
to pass the audit of the Shanghai Stock Exchange, is not approved by the CSRC or Tongmei cancels the IPO
application. This could result in disgorging the cash that we raised from the Investors.
●
Defects in our products could diminish demand for our products. Our ability to receive orders from tier one
customers is contingent on producing wafer substrates of very high quality and deploying best practices in
manufacturing. We may not always be able to meet these requirements and we could then lose revenue.
●
Difficulties in accurately estimating market demand could result in over-investing in inventory, equipment and
capacity expansion or losing market share if we do not invest sufficiently.
●
Attracting and retaining tier one customers requires that we succeed in our research and development programs.
Customers establish difficult to meet product specifications regarding defect densities, surface flatness, diameter size
and other specifications pushing the boundaries of material science. We may not achieve these specifications.
●
We are subject to foreign exchange gains and losses that materially impact our consolidated statements of operations.
Because we are a global company we are exposed to changes and swings in foreign exchange, particularly when
currencies experience periods of volatility.
●
Joint venture raw material companies in China bring certain risks.
●
We derive a significant portion of our revenue from international sales, and our ability to sustain and increase our
international sales involves significant risks.
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II.
Risks Related to Our Business and Operations
Global economic and political conditions, including trade tariffs, import-export restrictions, and other restrictions, may
have a negative impact on our business and financial results.
In September 2018, the United States announced a list of thousands of categories of goods that became subject to
Section 301 tariffs when imported into the United States from China. This pronouncement imposed tariffs on wafer substrates
we imported into the United States. The initial tariff rate was 25%. On July 3, 2023, China announced new export control
regulations on materials including gallium and germanium and compounds of these materials, effective as of August 1, 2023.
Materials that could be used in military applications, specifically including weapons of mass destruction, were the primary
focus. This required Tongmei to seek permits from the applicable Chinese authorities to export gallium arsenide and
germanium substrates. Since that time, a general escalation has been underway with further increases to the tariffs from the
US and additional export controls from China.
The escalating requirements resulted in a new layer of administration within our company. Each order needs the
customer to certify in writing that our wafer substrates will not be used in military applications and must state the end use of
our products. This is a labor intensive process and has extended the cycle time in order fulfillment. To ensure compliance in
trade matters we have consulted with legal experts and incurred additional legal costs. The rapid pace of change and new
regulations in trade matters results in more internal administrative review and costs.
In late 2024 and early 2025, a new round of trade restrictions was announced by China and the United States. On
December 3, 2024, China issued further rules restricting exports of materials that can typically be used in military applications
including antimony, gallium, germanium and other superhard materials. The effective date was December 3, 2024, the same
day as the announcement itself. Reciprocally, the United States increased tariffs on many items from China from 25% to 50%,
effective January 1, 2025. On February 1, 2025, the United States again further increased the tariff on imports of many
products from China, including our wafer substrates, to 60%. On March 4, 2025, the United States further increased the tariff
on imports of many products, including our wafer substrates, to 70%.
All of our wafer substrates are manufactured in China and in the years 2024, 2023 and 2022, approximately 8%, 10%
and 14% of our revenue, respectively, were generated by sales to customers in North America, primarily in the U.S. In the
years 2024, 2023 and 2022, we paid approximately $1.0 million, $1.0 million and $3.3 million, respectively, in tariffs. The
trade and political tensions between China and the U.S. remain high and controls on exports and tariffs are changing and fluid.
Silicon substrates (wafers) are significantly lower in cost compared to substrates made from specialty materials, such as
those that we produce, and new silicon-based technologies could enable silicon-based substrates to replace specialty
material-based substrates for certain applications.
Historically silicon wafers or substrates are less expensive than specialty material substrates, such as those that we
produce. Electronic circuit designers will generally consider silicon first and only turn to alternative materials if silicon cannot
provide the required functionality in terms of power consumption, speed, wave lengths or other specifications. Beginning in
2011, certain applications that had previously used GaAs substrates, specifically the RF chip in mobile phones, adopted a new
silicon-based technology called silicon on insulator, or SOI. SOI technology uses a silicon-insulator-silicon layered substrate
in place of conventional silicon substrates in semiconductor manufacturing. SOI substrates cost less than GaAs substrates and,
although their performance is not as robust as GaAs substrates in terms of power consumption, heat generation and speed,
they became acceptable in mobile phones and other applications that were previously dominated by GaAs substrates. The
adoption of SOI resulted in decreased GaAs wafer demand, and decreased revenue. If SOI or new silicon-based technologies
gain more widespread market acceptance, or are used in more applications, our sales of specialty material-based substrates
could be reduced and our business and operating results could be significantly and adversely affected.
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Our gross margin has fluctuated historically and may decline due to several factors.
Our gross margin has fluctuated from period to period as a result of increases or decreases in total revenue, unit
volume, shifts in product mix, shifts in the cost of raw materials, costs related to the relocation of our gallium arsenide and
germanium production lines, including costs related to hiring additional manufacturing employees at our new locations, tariffs
imposed by the U.S. government, the introduction of new products, decreases in average selling prices for products, utilization
of our manufacturing capacity, fluctuations in manufacturing yields and our ability to reduce product costs. These factors and
other variables change from period to period and these fluctuations are expected to continue in the future. For example, in the
third quarter of 2022 our gross margin was 42.0% but it dropped to 10.7% in the third quarter of 2023 as a result of several of
these factors.
Our raw material companies experience selling price volatility and purchase price volatility in acquiring base
materials. We consolidate the results of several of these raw material companies, and any reduction in their gross margins
could have a significant, adverse impact on our overall gross margins. One or more of our companies has in the past sold, and
may in the future sell, raw materials at significantly reduced prices in order to gain volume sales or sales to new customers. In
addition, the market price of gallium dropped below our per unit inventory cost and we incurred an inventory write down
under the lower of cost or net realizable value accounting rules.
Shutdowns or underutilizing our manufacturing facilities may result in declines in our gross margins.
An important factor in our success is the extent to which we are able to utilize the available capacity in our
manufacturing facilities. A number of factors and circumstances may reduce utilization rates, including periods of industry
overcapacity, low levels of customer orders, operating inefficiencies, mechanical failures and disruption of operations due to
expansion, power interruptions, fire, flood, other natural disasters or calamities or government-ordered mandatory factory
shutdowns, including as a result of the COVID-19 pandemic. Severe air pollution in Beijing can trigger mandatory factory
shutdowns. For example, in the first quarter of 2018, over 300 manufacturing companies, including Tongmei, were
intermittently shut down by the local government for a total of ten days from February 27 to March 31, due to severe air
pollution. Further, we have increased capacity by adding two new sites and this could reduce our utilization rate and increase
our depreciation charges. Because many portions of our manufacturing costs are relatively fixed, high utilization rates are
critical to our gross margins and operating results. If we fail to achieve acceptable manufacturing volumes or experience
product shipment delays, our results of operations will be negatively affected. During periods of decreased demand, we have
underutilized our manufacturing lines. If we are unable to improve utilization levels at our facilities during periods of
decreased demand and correctly manage capacity, the fixed expense levels will have an adverse effect on our business,
financial condition and results of operations. For example, in the three months ended September 30, 2023, our revenue
dropped to $17.4 million and our gross margin was only 10.7%.
If we are unable to utilize the available capacity in our manufacturing facilities, we may need to implement a
restructuring plan, which could have a material adverse effect on our revenue, our results of operations and our financial
condition. For example, in 2013, we concluded that incoming orders were insufficient and that we were significantly
underutilizing our factory capacity. As a result, in February 2014, we announced a restructuring plan with respect to our China
company, Tongmei, in order to better align manufacturing capacity with demand. Under the restructuring plan, we recorded a
charge of approximately $907,000 in the first quarter of 2014.
If we receive fewer customer orders than forecasted or if our customers delay or cancel orders, we may not be able to
reduce our manufacturing costs in the short-term and our gross margins would be negatively affected. In addition, lead times
required by our customers are shrinking, which reduces our ability to forecast orders and properly balance our capacity
utilization.
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Cyber-attacks, system security risks and data protection issues could disrupt our internal operations and cause a reduction
in revenue, increase in expenses, negatively impact our results of operation or result in other adverse consequences.
Like most technology companies, we could be targeted in cyber-attacks. We face a risk that experienced computer
programmers and hackers may be able to penetrate our network security and misappropriate or compromise our confidential
and proprietary information, potentially without being detected. Computer programmers and hackers also may be able to
develop and deploy viruses, worms, and other malicious software programs that attack our information technology
infrastructure and demand a ransom payment. The costs to us to eliminate or alleviate cyber or other security problems, bugs,
viruses, worms, malicious software programs and security vulnerabilities could be significant, and our efforts to address these
problems may not be successful and could result in interruptions and delays that may impede our sales, manufacturing,
distribution, accounting or other critical functions.
Breaches of our security measures could create system disruptions or cause shutdowns or result in the accidental loss,
inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data about us.
Cyber-attacks could use fraud, trickery or other forms of deception. A cyber-attack could expose us to a risk of loss or misuse
of information, result in litigation and potential liability, damage our reputation or otherwise harm our business. In addition,
the cost and operational consequences of implementing further data protection measures could be significant.
Portions of our information technology infrastructure might also experience interruptions, delays or cessations of
service or produce errors in connection with upgrades, systems integration or migration work that takes place from time to
time, which may have a material impact on our business. We may not be successful in implementing upgrades, new systems
and transitioning data, which could cause business disruptions and be more expensive, time consuming, disruptive and
resource-intensive than originally anticipated. Such disruptions could adversely impact our ability to fulfill orders and
interrupt other processes. Delayed sales, lower margins or lost customers could adversely affect our financial results and
reputation.
COVID-19 or other contagious diseases may affect our business operations and financial performance.
The spread of COVID-19 impacted our operations and financial performance. The outbreak of COVID triggered
references to the SARS outbreak, which occurred in 2003 and affected our business operations. Any severe occurrence of an
outbreak of a contagious disease such as COVID-19, SARS, Avian Flu or Ebola may cause us or the government to
temporarily close our manufacturing operations in China. In January 2020, virtually all companies in China were ordered to
remain closed after the traditional Lunar New Year holiday ended, including our subsidiaries in China. If there is a renewed
surge of the COVID-19 pandemic in cities in which our PRC subsidiaries and PRC joint ventures are located, the Chinese
government may require these companies to close again. If one or more of our key suppliers is required to close for an
extended period, we might not have enough raw material inventories to continue manufacturing operations. In addition, travel
restrictions between China and the U.S. were disrupted and this impacted our efficiency. In the future, if our manufacturing
operations were closed for a significant period or we experience difficulty in shipping our products, we could lose revenue and
market share, which would depress our financial performance and could be difficult to recapture. If one of our key customers
is required to close for an extended period, this may delay the placement of new orders. As a result, our revenue would
decline.
If we have low product yields, the shipment of our products may be delayed and our product cost and operating results may
be adversely impacted.
A critical factor in our product cost is yield. Our products are manufactured using complex crystal growth and wafer
processing technologies, and the number of usable wafer substrates we produce can fluctuate as a result of many factors,
including:
●
poor control of furnace temperature and pressure during crystal growth;
●
impurities in the materials used;
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●
contamination of the manufacturing environment;
●
quality control and inconsistency in quality levels;
●
lack of automation and inconsistent processing requiring manual manufacturing steps;
●
substrate breakage during the manufacturing process; and
●
equipment failure, power outages or variations in the manufacturing process.
An example where yield is of special concern is for our six-inch semi-conducting gallium arsenide substrates, which
can be used for manufacturing industrial lasers and LED lighting. These applications require very low defect densities, also
called EPD, and our yields will be lower than the yields achieved for the same substrate when it will be used in other
applications. If we are unable to achieve the targeted quantity of low defect density substrates, then our manufacturing costs
would increase and our gross margins would be negatively impacted.
In addition, we may modify our process to meet a customer specification, but this can impact our yields. If our yields
decrease, our revenue could decline if we are unable to produce products to our customers’ requirements. At the same time,
our manufacturing costs could remain fixed, or could increase. Lower yields negatively impact our gross margin. We have
experienced product shipment delays and difficulties in achieving acceptable yields on both new and older products, and such
delays and poor yields have adversely affected our operating results. We may experience similar problems in the future and we
cannot predict when they may occur, their duration or severity.
If our manufacturing processes result in defects in our products making them unfit for use by our customers, our
products would be rejected, resulting in compensation costs paid to our customers, and possible disqualification. This could
lead to revenue loss and market share loss.
Problems incurred in our raw material companies or our investment partners could result in a material adverse impact on
our financial condition or results of operations.
We have invested in raw material companies in China that produce materials, including 99.99% pure gallium (4N
Ga), high purity gallium (6N and 7N Ga), arsenic, germanium, germanium dioxide, pyrolytic boron nitride (pBN) crucibles
and boron oxide (B2O3). We purchase a portion of the materials produced by these companies for our use and they sell the
remainder of their production to third parties. We consolidate the companies in which we have a majority or controlling
financial interest and employ equity accounting for the companies in which we have a smaller ownership interest. Several of
these companies occupy space within larger facilities owned and/or operated by one of the other investment partners. Several
of these partners are engaged in other manufacturing activities at or near the same facility. In some facilities, we share access
to certain functions, including water, hazardous waste treatment or air quality treatment. If a partner in any of these ventures
experiences problems with its operations, or deliberately withholds or disrupts services, disruptions in the operations of our
companies could occur, having a material adverse effect on the financial condition and results of operation in these companies,
and correspondingly on our financial condition or results of operations. For example, since gallium is a by-product of
aluminum, our raw gallium company in China, which is housed in and receives services from an affiliated aluminum plant,
could generate lower production and shipments of gallium as a result of reduced services provided by the aluminum plant.
Accordingly, in order to meet customer supply obligations, our supply chain may have to source materials from another
independent third-party supplier, resulting in higher costs and reduced gross margin.
The China central government has tightened control over hazardous chemicals and other hazardous materials.
Further, the central government encourages employees to report to the appropriate regulatory agencies possible safety or
environmental violations, but there may not be actual violations. Regular use in the normal course of business of hazardous
chemicals or hazardous materials or a company’s failure to meet the ever-tightening standards for control of hazardous
chemicals or hazardous materials could result in orders to shut down permanently, fines or other severe measures. Any such
orders directed at one of our raw material companies could result in impairment charges if the
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company is forced to close its business, cease operations or incurs fines or operating losses, which would have a material
adverse effect on our financial results.
Further, some of our raw material companies share facilities with our raw material investment partners. If either
company is deemed to have violated applicable laws, rules or regulations governing the use, storage, discharge or disposal of
hazardous chemicals, their operations could be adversely affected and we could be subject to substantial liability for clean-up
efforts, personal injury, fines or suspension or termination of operations. Employees working for these companies could bring
litigation against us even though we are not directly controlling those operations. While we would expect to defend ourselves
vigorously in any litigation that is brought against us, litigation is inherently uncertain and it is possible that our business,
financial condition, results of operations or cash flows could be affected. Even if we are not deemed responsible for the
actions of the raw material companies or investment partners, litigation could be costly, time consuming to defend and divert
management attention; in addition, if we are deemed to be the most financially viable of the partners, plaintiffs may decide to
pursue us for damages.
Unforeseen manufacturing issues and restrictions at the new manufacturing sites could occur.
In 2015, the Beijing city government announced its decision to move most of its offices to the Tongzhou district
where our original manufacturing facility is currently located. The Beijing city government has moved thousands of
government employees into this district. To create room and upgrade the district, the government instructed virtually all
existing manufacturing companies, including Tongmei, to relocate all or some of their manufacturing lines. We were
instructed to move our gallium arsenide manufacturing lines out of the area.
Although the relocation is completed and we are in volume production at the new sites, unforeseen manufacturing
issues and restrictions at the new sites could occur. Problems could occur as we add capacity or comply with strict guidelines
as customers perform their qualifications. All of this will require us to continue to diligently address the many details that arise
at each of our new sites. A failure to properly accomplish this could result in disruption to our production and have a material
adverse impact on our revenue, our results of operations and our financial condition. If we fail to meet the product
qualification and volume requirements of a customer, we may lose sales to that customer. Our reputation may also be
damaged. Any loss of sales could have a material adverse effect on our revenue, our results of operations and our financial
condition.
The Chinese government has in the past imposed temporary restrictions on manufacturing facilities, such as the
restrictions imposed on polluting factories for the 2008 Olympics and the 2014 Asian Pacific Economic Cooperation event.
These restrictions included a shutdown of the transportation of materials and power plants to reduce air pollution. To reduce
air pollution in Beijing, the Chinese government has sometimes limited the construction of new, or expansion of existing,
facilities by manufacturing companies in the Beijing area or required mandatory factory shutdowns. For example, in the first
quarter of 2018, over 300 manufacturing companies, including Tongmei, were intermittently shut down by the local
government for a total of ten days from February 27 to March 31 due to severe air pollution. If the government applies
restrictions to us or requires mandatory factory shutdowns in the future, then such restrictions or shutdowns could have an
adverse impact on our results of operations and our financial condition. Our ability to supply current or new orders could be
significantly impacted. Customers could then be required to purchase products from our competitors, causing our competitors
to take market share from us.
In addition, from time to time, the Chinese government issues new regulations, which may require additional actions
on our part to comply. On February 27, 2015, the China State Administration of Work Safety updated its list of hazardous
substances. The previous list, which was published in 2002, did not restrict the materials that we use in our wafers. The new
list added gallium arsenide. As a result of the newly published list, we were required to seek additional permits.
Demand for our products may decrease if demand for the end-user applications decrease or if manufacturers downstream
in our supply chain experience difficulty manufacturing, marketing or selling their products.
Our products are used to produce components for electronic and opto-electronic products. Accordingly, demand for
our products is subject to the demand for end-user applications, including certain consumer applications, which
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utilize our products. For example, we developed an 8-inch gallium arsenide wafer targeting an application in a consumer
product. Our customer subsequently informed us that its end-user customer has cancelled its project. Volume production of the
intended product was scheduled to begin in 2025. While there may be other end users, this particular cancellation was the loss
of a potentially high-volume sales opportunity. Other factors affecting the ability of the manufacturers downstream in our
supply chain to introduce and market their products successfully, include:
●
worldwide economic and political conditions and their impact on levels of business spending;
●
the competition such manufacturers face in their particular industries;
●
end of life obsolescence of products containing devices built on our wafers;
●
the technical, manufacturing, sales, marketing and management capabilities of such manufacturers;
●
the financial and other resources of such manufacturers; and
●
the inability of such manufacturers to sell their products if they infringe third-party intellectual property rights.
If demand for the end-user applications for which our products are used decreases, or if manufacturers downstream in
our supply chain are unable to develop, market and sell their products, demand for our products will decrease. For example,
during 2019 widespread political and economic instability and trade war concerns resulted in a general slowdown and our
revenue decreased significantly. Additionally, in the second half of 2016, manufacturers producing and selling passive optical
network devices known as EPONs and GPONs experienced a slowdown in demand resulting in surplus inventory on hand.
The slowdown persisted until late in 2017. This resulted in a slowdown of sales of our InP substrates used in the PON market.
In the second half of 2022, many companies purchased more inventory than needed, in part due to fears of shortages resulting
from COVID. This triggered an inventory correction cycle and our revenue declined as customers worked down their
inventory level, We expect similar cycles of strong demand followed by lower demand will occur for various InP, GaAs or Ge
substrates in the future.
Our financial performance can be adversely affected if there are unfavorable financial results in any of our raw material
companies.
The raw material companies in our vertically integrated supply chain have historically made a positive contribution
to our financial performance. However, if there are unfavorable changes in revenue, average selling prices, gross margins or
operating expenses in one or more of the consolidated companies, then this can result in a negative impact on our consolidated
revenue, gross margin and profitability. If the companies are accounted for under the equity method, then these changes can
result in a reduction in Equity in Income of Unconsolidated Joint Venture Companies. In 2024 and 2023, the companies
accounted for under the equity method of accounting contributed a gain of $3.4 million and $1.9 million, respectively, to our
consolidated financial statements. The 2023 total includes impairment charges of $1.9 million. The last time the companies
accounted for under the equity method of accounting contributed a loss was 2019 with a loss of $1.9 million.
Intense competition in the markets for our products could prevent us from increasing revenue and achieving profitability.
The markets for our products are intensely competitive. We face competition for our wafer substrate products from
other manufacturers of substrates, such as Sumitomo, JX, Freiberger, Umicore, Vital and CCTC, and from companies, such as
Qorvo and Skyworks, that are actively considering alternative materials to GaAs and marketing semiconductor devices using
these alternative materials. If we are unable to compete effectively, our revenue may
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decrease and we may not maintain profitability. We face many competitors that have a number of significant advantages over
us, including:
●
greater name recognition and market share in the business;
●
more manufacturing experience;
●
extensive intellectual property; and
●
significantly greater financial, technical and marketing resources.
Our competitors could develop new or enhanced products that are more effective than our products.
The level and intensity of competition has increased over the past years and we expect competition to continue to
increase in the future. Competitive pressures have resulted in reductions in the prices of our products, and continued or
increased competition could reduce our market share, require us to further reduce the prices of our products, affect our ability
to recover costs and result in reduced gross margins and profitability.
In addition, new competitors have and may continue to emerge, such as a company established by a former employee
in China that is supplying semi-conducting GaAs wafers to the LED market. Competition from sources such as this could
increase, particularly if these competitors are able to obtain large capital investments. Further, recent trade tensions between
China and the United States have resulted in a greater determination within China to be self-sufficient and produce more
goods domestically. This could result in the formation of new competitors that would compete against us and adversely affect
our financial results.
The average selling prices of our substrates may decline over relatively short periods, which may reduce our revenue and
gross margins.
Since the market for our products is characterized by declining average selling prices resulting from various factors,
such as increased competition, overcapacity, the introduction of new products and decreased sales of products incorporating
our products, the average selling prices for our products may decline over relatively short time periods. We have in the past
experienced, and in the future may experience, substantial period-to-period fluctuations in operating results due to declining
average selling prices. In certain years, we have experienced an average selling price decline of our substrate selling prices of
approximately 5% to 10%, depending on the substrate product. It is possible that the pace of the decline of average selling
prices could accelerate beyond these levels for certain products in a commoditizing market. We anticipate that average selling
prices may decrease in the future in response to the unstable demand environment, price reductions by competitors, or by
other factors, including pricing pressures from significant customers. When our average selling prices decline, our revenue
and gross profit decline, unless we are able to sell more products or reduce the cost to manufacture our products. We generally
attempt to combat an average selling price decline by improving yields and manufacturing efficiencies and working to reduce
the costs of our raw materials and of manufacturing our products. We also need to sell our current products in increasing
volumes to offset any decline in their average selling prices, and introduce new products, which we may not be able to do, or
do on a timely basis.
In order to remain competitive, we must continually improve our processes, work to reduce the cost of manufacturing
our products and improve our yields and manufacturing efficiencies. Our efforts may not allow us to keep pace with
competitive pricing pressures which could adversely affect our margins. There is no assurance that any changes effected by us
will result in sufficient cost reductions to allow us to reduce the price of our products to remain competitive or improve our
gross margins.
The loss of one or more of our tier one substrate customers would significantly hurt our operating results.
From time to time, sales to one or more of our tier one customers individually represent more than 10% of our
revenue and if we were to lose a major customer the loss would negatively impact our revenue. Our customers are not
obligated to purchase a specified quantity of our products or to provide us with binding forecasts of product purchases.
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In addition, our customers may reduce, delay or cancel orders. In the past, we have experienced a slowdown in bookings,
significant push-outs and cancellation of orders from customers. If we lose a major customer or if a customer cancels, reduces
or delays orders, our revenue would decline. In addition, customers that have accounted for significant revenue in the past
may not continue to generate revenue for us in any future period. For example, in 2021 and 2022, our InP wafers were used in
a high-volume consumer product. Subsequently, a newer version did not use InP and our revenue declined. Any loss of
customers or any delay in scheduled shipments of our products could cause revenue to fall below our expectations and the
expectations of market analysts or investors, causing our stock price to decline.
We have made and may continue to make strategic investments in raw materials suppliers, which may not be successful
and may result in the loss of all or part of our investment.
We have made direct investments or investments through our subsidiaries in raw material suppliers in China, which
provide us with opportunities to gain supplies of key raw materials that are important to our substrate business. These affiliates
each have a market beyond that provided by us. We may not have significant influence over every one of these companies and
in some we have made only a strategic, minority investment. We may not be successful in achieving the financial,
technological or commercial advantage upon which any given investment is premised, and we could end up losing all or part
of our investment which would have a negative impact on our results of operations. In the first quarter of 2019, we incurred an
impairment charge of $1.1 million for a germanium materials company in China in which we had a 25% ownership interest,
writing down our investment to zero value. During the second quarter of 2023, one of our equity investments assessed one of
its equity investments was fully impaired, leading to a $754,000 impairment charge in our financial results for the second
quarter of 2023. In the fourth quarter of 2023, we divested another equity investment, incurring a net impairment charge of
$1.1 million. A significant decline in the selling prices of raw materials began in 2015 and weakened some of these companies
and their losses negatively impacted our financial results for several years. Further, the increasing concern and restrictions in
China of hazardous chemicals and other hazardous materials could result in orders to shut down permanently, fines or other
severe measures. Any such orders directed at one of our joint venture companies could result in impairment charges if the
company is forced to close its business, cease operations or incurs fines, or operating losses, which would have a material
adverse effect on our financial results.
If any of our facilities are damaged by occurrences such as fire, explosion, power outage or natural disaster, we might not
be able to manufacture our products.
The ongoing operation of our manufacturing and production facilities is critical to our ability to meet demand for our
products. If we are not able to use all or a significant portion of our facilities for prolonged periods for any reason, we would
not be able to manufacture products for our customers. For example, a fire or explosion caused by our use of combustible
chemicals, high furnace temperatures or, in the case of InP, high pressure during our manufacturing processes could render
some of our facilities inoperable for an indefinite period of time. Actions outside of our control, such as earthquakes or other
natural disasters, could also damage our facilities, rendering them inoperable. If we are unable to operate our facilities and
manufacture our products, we would lose customers and revenue and our business would be harmed.
On the evening of March 15, 2017, an electrical short-circuit fire occurred at our Beijing manufacturing facility. The
electrical power supply supporting 2-inch, 3-inch and 4-inch gallium arsenide and germanium crystal growth was damaged
and production in that area was stopped. In addition, a wastewater pipe was damaged resulting in a halt to wafer processing
for four days until the pipe could be repaired. We were able to rotate key furnace hardware and use some of the 6-inch
capacity for smaller diameter crystal growth production to mitigate the impact of the fire and resume production. If we are
unable to recover from a fire or natural disaster, our business and operating results could be materially and adversely affected.
Defects in our products could diminish demand for our products.
Our wafer products are complex and may contain defects, including defects resulting from impurities inherent in our
raw materials or inconsistencies in our manufacturing processes. We have experienced quality control problems with some of
our products, which caused customers to return products to us, reduce orders for our products, or both. If
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we experience quality control problems, or experience other manufacturing problems, customers may return product for
credit, cancel or reduce orders or purchase products from our competitors. We may be unable to maintain or increase sales to
our customers and sales of our products could decline. Defects in our products could cause us to incur higher manufacturing
costs and suffer product returns and additional service expenses, all of which could adversely impact our operating results. If
new products developed by us contain defects when released, our customers may be dissatisfied and we may suffer negative
publicity or customer claims against us, lose sales or experience delays in market acceptance of our new products.
Our substrate products have a long qualification cycle that makes it difficult to forecast revenue from new customers or for
new products sold to existing customers.
New customers typically place orders with us for our substrate products three months to a year or more after our
initial contact with them. The sale of our products is subject to our customers’ lengthy internal evaluation and qualification
processes. During this time, we may incur substantial expenses and expend selling, marketing and management efforts while
the customers evaluate our products. These expenditures may not result in sales of our products. If we do not achieve
anticipated sales in a period as expected, we may experience an unplanned shortfall in our revenue. As a result, our operating
results would be adversely affected. In addition, if we fail to meet the product qualification requirements of the customer, we
may not have another opportunity to sell that product to that customer for many months or even years. In the current
competitive climate, the average qualification and sales cycle for our products has lengthened even further and is expected to
continue to make it difficult for us to forecast our future sales accurately. We anticipate that sales of any future substrate
products will also have lengthy qualification periods and will, therefore, be subject to risks substantially similar to those
inherent in the lengthy sales cycles of our current substrate products.
The cyclical nature of the semiconductor industry may limit our ability to maintain or increase net sales and operating
results during industry downturns.
The semiconductor industry is highly cyclical and periodically experiences significant economic downturns
characterized by diminished product demand, resulting in production overcapacity and excess inventory in the markets we
serve. A downturn can result in lower unit volumes and rapid erosion of average selling prices. The semiconductor industry
has experienced significant downturns, often in connection with, or in anticipation of, maturing product cycles of both
semiconductor companies’ and their customers’ products or a decline in general economic conditions. This may adversely
affect our results of operations and the value of our business.
A recent example of a cyclical downcycle took shape in the second half of 2022. Early in its history, COVID began to
impact supply chains resulting in shortages. As a result, in 2021 and into 2022 almost all companies purchased more inventory
than they needed as a safety precaution. In the second half of 2022 companies began to realize they were holding too much
inventory and entered into the “inventory correction” period. Our consolidated revenue had reached $39.7 million in the first
quarter of 2022. In the third quarter of 2023, our revenue had declined to $17.4 million.
Our continuing business depends in significant part upon manufacturers of electronic and opto-electronic compound
semiconductor devices, as well as the current and anticipated market demand for these devices and products using these
devices. As a supplier to the semiconductor industry, we are subject to the business cycles that characterize the industry. The
timing, length and volatility of these cycles are difficult to predict. The compound semiconductor industry has historically
been cyclical due to sudden changes in demand, the amount of manufacturing capacity and changes in the technology
employed in compound semiconductors. The rate of changes in demand, including end demand, is high, and the effect of these
changes upon us occurs quickly, exacerbating the volatility of these cycles. These changes have affected the timing and
amounts of customers’ purchases and investments in new technology. These industry cycles create pressure on our revenue,
gross margin and net income.
Our industry has in the past experienced periods of oversupply and that has resulted in significantly reduced prices
for compound semiconductor devices and components, including our products, both as a result of general economic changes
and overcapacity. Oversupply causes greater price competition and can cause our revenue, gross margins and net income to
decline. During periods of weak demand, customers typically reduce purchases, delay delivery of products and/or cancel
orders for our products. Order cancellations, reductions in order size or delays in
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orders could occur and would materially adversely affect our business and results of operations. Actions to reduce our costs
may be insufficient to align our structure with prevailing business conditions. We may be required to undertake additional
cost-cutting measures, and may be unable to invest in marketing, research and development and engineering at the levels we
believe are necessary to maintain our competitive position. Our failure to make these investments could seriously harm our
business.
A significant portion of our operating expense and manufacturing costs are relatively fixed. If revenue for a particular
quarter is lower than we expect, we likely will be unable to proportionately reduce our operating expenses or fixed
manufacturing costs for that quarter, which would harm our operating results.
If we do not successfully develop new product features and improvements and new products that respond to customer
requirements, our ability to generate revenue, obtain new customers, and retain existing customers may suffer.
Our success depends on our ability to offer new product features, improved performance characteristics and new
products, such as larger diameter substrates, low defect density substrates, thicker or thinner substrates, substrates with
extreme surface flatness specifications, substrates that are manufactured with a doped crystal growth process or substrates that
incorporate leading technology and other technological advances. This is an ongoing iterative research and development
process performed by our China team in collaboration with our manufacturing managers. New products must meet customer
needs and compete effectively on quality, price and performance. The markets for our products are characterized by rapid
technological change, changing customer needs and evolving industry standards. If our competitors introduce products
employing new technologies or performance characteristics, our existing products could become obsolete and unmarketable.
Over time, we have seen our competitors selling more substrates manufactured using a crystal growth technology similar to
ours, which has eroded our technological differentiation.
The development of new product features, improved performance characteristics and new products can be a highly
complex process, and we may experience delays in developing and introducing them. Any significant delay could cause us to
fail to timely introduce and gain market acceptance of new products. Further, the costs involved in researching, developing
and engineering new products could be greater than anticipated. If we fail to offer new products or product enhancements or
fail to achieve higher quality products, we may not generate sufficient revenue to offset our development costs and other
expenses or meet our customers’ requirements.
We purchase critical raw materials and parts for our equipment from single or limited sources, and could lose sales if these
sources fail to fill our needs.
We depend on a limited number of suppliers for certain raw materials, components and equipment used in
manufacturing our products, including key materials such as quartz tubing, and polishing solutions. We generally purchase
these materials through standard purchase orders and not pursuant to long-term supply contracts, and no supplier guarantees
supply of raw materials or equipment to us. If we lose any of our key suppliers, our manufacturing efforts could be
significantly hampered and we could be prevented from timely producing and delivering products to our customers. We have
experienced delays obtaining critical raw materials and spare parts, including gallium, and we could experience such delays
again in the future due to shortages of materials or for other reasons. Delays in receiving equipment or materials could result
in higher costs and cause us to delay or reduce production of our products. If we have to delay or reduce production, we could
fail to meet customer delivery schedules and our revenue and operating results could suffer.
We may not be able to identify or form additional complementary raw material joint ventures.
We might invest in additional joint venture companies in order to remain competitive in our marketplace and ensure a
supply of critical raw materials. However, we may not be able to identify additional complementary joint venture
opportunities or, even once opportunities are identified, we may not be able to reach agreement on the terms of the business
venture with the other investment partners. Further, geopolitical tensions and trade wars could result in government agencies
blocking such new joint ventures. New joint ventures could require cash investments or cause us to incur additional liabilities
or other expenses, any of which could adversely affect our financial condition and operating results.
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The financial condition of our customers may affect their ability to pay amounts owed to us.
Some of our customers may be undercapitalized and cope with cash flow issues. Because of competitive market
conditions, we may grant our customers extended payment terms when selling products to them. Subsequent to our fulfilling
an order, some customers have been unable to make payments when due, reducing our cash balances and causing us to incur
charges to allow for a possibility that some accounts might not be paid. In the past, we have had some customers file for
bankruptcy. If our customers do not pay amounts owed to us then we will incur charges that would reduce our earnings.
We depend on the continuing efforts of our senior management team and other key personnel. If we lose members of our
senior management team or other key personnel, or are unable to successfully recruit and train qualified personnel, our
ability to manufacture and sell our products could be harmed.
Our future success depends on the continuing services of members of our senior management team and other key
personnel. Our industry is characterized by high demand and intense competition for talent, and the turnover rate can be high.
We compete for qualified management and other personnel with other specialty material companies and semiconductor
companies. Our employees could leave with little or no prior notice and would be free to work for a competitor. If one or more
of our senior executives or other key personnel were unable or unwilling to continue in their present positions, we may not be
able to replace them easily or at all, and other senior management may be required to divert attention from other aspects of the
business. The loss of any of these individuals or our ability to attract or retain qualified personnel could adversely affect our
business.
Our results of operations may suffer if we do not effectively manage our inventory.
We must manage our inventory of raw materials, work in process and finished goods effectively to meet changing
customer requirements, while keeping inventory costs down and improving gross margins. Although we seek to maintain
sufficient inventory levels of certain materials to guard against interruptions in supply and to meet our near term needs, we
may experience shortages of certain key materials. Alternatively, a sudden decline in demand could result in holding too much
inventory which occurred in the second half of 2022. Some of our products and supplies have in the past, and may in the
future, become obsolete while in inventory due to changing customer specifications, or become excess inventory due to
decreased demand for our products and an inability to sell the inventory within a foreseeable period. This would result in
charges that reduce our gross profit and gross margin. Furthermore, if market prices drop below the prices at which we value
inventory, we would need to take a charge for a reduction in inventory values in accordance with the lower of cost or net
realizable value valuation rule. We have in the past had to take inventory valuation and impairment charges. Any future
unexpected changes in demand or increases in costs of production that cause us to take additional charges for un-saleable,
obsolete or excess inventory, or to reduce inventory values, would adversely affect our results of operations.
The effect of terrorist threats and actions on the general economy could decrease our revenue.
Countries such as the United States and China continue to be on alert for terrorist activity. The potential near and
long-term impact terrorist activities may have in regards to our suppliers, customers and markets for our products and the
economy is uncertain. There may be embargos of ports or products, or destruction of shipments or our facilities, or attacks that
affect our personnel. There may be other potentially adverse effects on our operating results due to significant events that we
cannot foresee. Since we perform all of our manufacturing operations in China, terrorist activity or threats against U.S. owned
enterprises are a particular concern to us.
III. Risks Related to International Aspects of Our Business
Escalating trade tariffs, import restrictions, export restrictions, Chinese regulations or other trade barriers may materially
harm our business.
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In September 2018, the United States announced a list of thousands of categories of goods that became subject to
Section 301 tariffs when imported into the United States from China. This pronouncement imposed tariffs on wafer substrates
we imported into the United States. The initial tariff rate was 25%. On July 3, 2023, China announced new export control
regulations on materials including gallium and germanium and compounds of these materials, effective as of August 1, 2023.
Materials that could be used in military applications, specifically including weapons of mass destruction, were the primary
focus. This required Tongmei to seek permits from the applicable Chinese authorities to export gallium arsenide and
germanium substrates. Since that time, a general escalation has been underway with further increases to the tariffs from the
US and additional export controls from China.
The escalating requirements resulted in a new layer of administration within our company. Each order needs the
customer to certify in writing that our wafer substrates will not be used in military applications and must state the end use of
our products. This is a labor intensive process and has extended the cycle time in order fulfillment. To ensure compliance in
trade matters we have consulted with legal experts and incurred additional legal costs. The rapid pace of change and new
regulations in trade matters results in more internal administrative review and costs.
In late 2024 and early 2025, a new round of trade restrictions was announced by China and the United States. On
December 3, 2024 China issued further rules restricting exports of materials that can typically be used in military applications
including antimony, gallium, germanium and other superhard materials. The effective date was December 3, 2024, the same
day as the announcement itself. Reciprocally, the United States increased tariffs on many items from China from 25% to 50%,
effective January 1, 2025. On February 1, 2025, the United States again further increased the tariff on imports of many
products from China, including our wafer substrates, to 60%. On March 4, 2025, the United States further increased the tariff
on imports of many products, including our wafer substrates, to 70%. We have little or no germanium exports to the U.S. and
historically a relatively small value of imports of gallium arsenide wafers into the U.S. Our primary revenue generator derived
from imports into the U.S. is indium phosphide substrates. While Tongmei has generally received the required permits for
exports to countries in Asia and Europe, our U.S. gallium arsenide customers are considered “dual use” customers: in addition
to commercial applications they have significant levels of military involvement. As such, no permits for gallium arsenide to
the U.S. have yet been approved. On February 4, 2025, China added indium phosphide substrates to its export control list. As
a result, the three wafer substrate product lines manufactured by Tongmei all require permits from China’s Ministry of
Commerce before they can be exported from China. To our knowledge, indium phosphide is rarely used in military
applications and we can reasonably expect that export permits to ship our indium phosphide substrates to the U.S. will be
granted. But since the requirement is new it will take at least several months from February 4, 2025 to have early applications
processed.
All of our wafer substrates are manufactured in China and in the years 2024, 2023 and 2022, approximately 8%, 10%
and 14% of our revenue, respectively, were generated by sales to customers in North America, primarily in the U.S. In the
years 2024, 2023 and 2022, we paid approximately $1.0 million, $1.0 million and $3.3 million, respectively, in tariffs. The
future impact of tariffs and trade wars is uncertain. We may be required to raise prices, which may result in the loss of
customers and our business, financial condition and results of operations may be materially harmed. Additionally, it is possible
that our business could be adversely impacted by further retaliatory trade measures taken by China or other countries in
response to existing or future tariffs, which could cause us to raise prices or make changes to our operations, which could
materially harm our business, financial condition and results of operations.
The economic and political conditions between China and the United States, in our view, create an unstable business
environment. Reciprocal trade restrictions have resulted in a greater determination to be self-sufficient and produce more
goods domestically. Both governments appear to be encouraging and supporting the founding of new companies, the addition
of new products in existing companies and more vertical integration within companies. The complexity and uncertainty of
trade tensions has caused some customers and prospective customers in each county to adopt sourcing policies that block
purchases from suppliers in the other county. Further, the continued threats of tariffs and other trade restrictions could have a
generally disruptive impact on the global economy and, therefore, negatively impact our sales.
The trade and political tensions between China and the U.S. remain high and controls on exports and tariffs are
changing and fluid. There can be no assurances that Tongmei will receive China permits to export our wafer substrates
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or that China will not adopt additional export control regulations that affect our business, financial condition and results of
operations. Reciprocally, there can be no assurance that the U.S. will allow products to be imported into the U.S. from China
or what the tariff charge rate might be.
Changes in China’s political, social, regulatory or economic environments may affect our financial performance.
Our financial performance may be affected by changes in China’s political, social, regulatory or economic
environments. The role of the Chinese central and local governments in the Chinese economy is significant. The Beijing
municipal government’s decision to move to the Tongzhou district, the original location of our China company, resulted in the
city instructing virtually all existing manufacturing companies, including AXT, to relocate all or some of their manufacturing
lines. We were instructed to move our gallium arsenide manufacturing line out of the area. Chinese policies toward hazardous
materials, including arsenic, environmental controls, air pollution, economic liberalization, laws and policies affecting
technology companies, foreign investment, currency exchange rates, taxation structure and other matters could change,
resulting in greater restrictions on our ability to do business and operate our manufacturing facilities in China. We have
observed a growing fluidity and tightening of regulations concerning hazardous materials, other environmental controls and
air pollution. The Chinese government could revoke, terminate or suspend our operating licenses for reasons related to
environmental control over the use of hazardous materials, air pollution, labor complaints, national security and similar
reasons without compensation to us. Further, the central government encourages employees to report to the appropriate
regulatory agencies possible safety or environmental violations, but there may not be actual violations. In days of severe air
pollution the government has ordered manufacturing companies to stop all production. For example, in the first quarter of
2018, from February 27 to March 31, over 300 manufacturing companies, including us, were again intermittently shut down
by the local government for a total of ten days due to severe air pollution. Our shipments were delayed and our revenue for the
quarter was negatively impacted. We expect that mandatory factory shutdowns may occur in the future. Any failure on our part
to comply with governmental regulations could result in the loss of our ability to manufacture our products. Further, any
imposition of surcharges or any increase in Chinese tax rates or reduction or elimination of Chinese tax benefits could hurt our
financial results.
The Chinese central government is increasingly aware of air pollution and other forms of environmental pollution
and their reform efforts can impact our manufacturing, including intermittent mandatory shutdowns.
The Chinese central government is demonstrating strong leadership to improve air quality and reduce environmental
pollution. These efforts have impacted manufacturing companies through mandatory shutdowns, increased inspections and
regulatory reforms. In the fourth quarter of 2017, many manufacturing companies in the greater Beijing area, including
Tongmei, were instructed by the local government to cease most manufacturing for several days until the air quality improved.
In the first quarter of 2018, from February 27 to March 31 over 300 manufacturing companies, including Tongmei, were again
intermittently shut down by the local government for a total of ten days, or 30 percent of the remaining calendar days, due to
severe air pollution. Our shipments were delayed and our revenue for the quarter was negatively impacted. We expect that
mandatory factory shutdowns may occur in the future. If the frequency of such shutdowns increases, especially at the end of a
quarter, or if the total number of days of shutdowns prevents us from producing enough wafers to ship, then these shutdowns
will have a material adverse effect on our manufacturing output, revenue and factory utilization. Each of our raw material
supply chain companies could also be impacted by environmental related orders from the central government.
Although we are a Delaware corporation and are neither a PRC operating company nor do we conduct our operations in
China through the use of VIEs, in the event we inadvertently concluded that we do not require any permissions or
approvals from the CSRC or other PRC central government authorities to complete a public offering of securities in the
U.S. or applicable laws, regulations, or interpretations change, we may be required to obtain such permissions or approvals
to complete such a public offering of securities.
We are a Delaware corporation and are neither a PRC operating company nor do we conduct our operations in China
through the use of VIEs. All of our products are manufactured in the PRC by our PRC subsidiaries and PRC joint ventures.
We believe that we do not require any permissions or approvals from the CSRC or other PRC central government authorities
to complete a public offering of securities in the U.S. because we are a Delaware corporation
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with our principal corporate office in Fremont, California and the PRC laws and regulations that govern the listing of
securities on a U.S. securities exchange apply to PRC companies. However, in the event that we inadvertently concluded that
such permission or approvals are not required or applicable laws, regulations, or interpretations change and we are required to
obtain such permissions or approvals in the future and we fail to obtain such permissions or approvals, then we may not be
able to complete a public offering of securities in the U.S. We may also be pressured to delist our securities, which would
force the holders to sell these securities and could result in a material adverse effect on the value of these securities. We may
face sanctions by the CSRC or other PRC central government authorities or pressure from the PRC government in various
business matters for failure to obtain such permissions or approvals. These sanctions or pressure may include fines and
penalties on our operations in China, limitations on our operating privileges in China, delays in or restrictions on the
repatriation of the proceeds from a public offering of securities in the U.S. into the PRC, restrictions on or prohibition of the
payments or remittance of dividends by our subsidiaries in China, or other actions that could have a material and adverse
effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our
common stock.
The PRC central government may intervene in or influence our PRC operations at any time and the rules and regulations
in China can change quickly with little advance notice.
The businesses of our PRC subsidiaries and PRC joint ventures are subject to complex and rapidly evolving laws and
regulations in the PRC, which can change quickly with little advance notice. The PRC central government is a single party
form of government with virtually unlimited authority and power to intervene in or influence commercial operations in China.
In the past, we have experienced such intervention or influence by the PRC central government and a change in the rules and
regulations in China when we were instructed by the Beijing municipal government to relocate our gallium arsenide
manufacturing facility in Beijing and expect that such intervention or influence or change in the rules and regulations in China
could occur in the future.
In the ordinary course of business, our PRC subsidiaries and PRC joint ventures require permits and licenses to
operate in the PRC. Such permits and licenses include permits to use hazardous materials in manufacturing operations. From
time to time, the PRC government issues new regulations, which may require additional actions on the part of our PRC
subsidiaries and PRC joint ventures to comply. For example, on February 27, 2015, the China State Administration of Work
Safety updated its list of hazardous substances. The previous list, which was published in 2002, did not restrict the materials
that we use in our wafers. The new list added gallium arsenide. As a result of the newly published list, we were required to
seek additional permits. Any such intervention or influence or change in the rules and regulations in China could result in a
material change in our PRC operations and/or the value of our common stock.
Uncertainty regarding the United States’ foreign policy, particularly with regards to China, could disrupt our business.
We manufacture our substrates in China and, in the year ended December 31, 2024, approximately 92% of our sales
were to customers located outside the United States. Further, we have partial ownership of raw material companies in China as
part of our supply chain. The United States’ current foreign policy has created uncertainty and caution in the international
business community, resulting in disruptions in manufacturing, import/export, trade tariffs, sales, investments and other
business activity. Such disruptions have had an adverse impact on our financial performance and could continue in the future.
COVID-19 or other contagious diseases may affect our business operations and financial performance.
The spread of COVID-19 impacted our operations and financial performance. The outbreak of COVID triggered
references to the SARS outbreak, which occurred in 2003 and affected our business operations. Any severe occurrence of an
outbreak of a contagious disease such as COVID-19, SARS, Avian Flu or Ebola may cause us or the government to
temporarily close our manufacturing operations in China. In January 2020, virtually all companies in China were ordered to
remain closed after the traditional Lunar New Year holiday ended, including our subsidiaries in China. If there is a renewed
surge of the COVID-19 pandemic or of other contagious diseases in cities in which our PRC subsidiaries and PRC joint
ventures are located, the Chinese government may require these companies to close again. If one or more of our key suppliers
is required to close for an extended period, we might not have enough raw material
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inventories to continue manufacturing operations. In addition, during COVID-19, travel restrictions between China and the
U.S. were disrupted and this impacted our efficiency. In the future, if our manufacturing operations were closed for a
significant period or we experience difficulty in shipping our products, we could lose revenue and market share, which would
depress our financial performance and could be difficult to recapture. If one of our key customers is required to close for an
extended period, this may delay the placement of new orders. As a result, our revenue would decline.
Financial market volatility and adverse changes in the domestic, global, political and economic environment could have a
significant adverse impact on our business, financial condition and operating results.
We are subject to the risks arising from adverse changes and uncertainty in domestic and global economies and
policies. Uncertain global economic and political conditions or low or negative growth in China, Europe or the United States,
along with volatility in the financial markets and U.S. financial system, increasing national debt and fiscal concerns in various
regions and the adoption and availability of fiscal and monetary stimulus measures to counteract the impact of the COVID-19
pandemic, pose challenges to our industry. Currently China’s economy is slowing and this could impact our financial
performance. In addition, tariffs, trade restrictions, trade wars, high levels of inflation, high interest rates, the Russian invasion
of Ukraine, the Middle East conflict, the Red Sea shipping disruptions, Brexit, heightened tensions between the U.S. and
China, and U.S. bank failures in 2023, among other factors, are creating an unstable environment and can disrupt or restrict
commerce. The cost and availability of funds may be adversely affected by illiquid credit markets. Volatility in U.S. and
international markets and economies may adversely affect our liquidity, financial condition and profitability. Another severe or
prolonged economic downturn could result in a variety of risks to our business, including:
●
inventory corrections;
●
increased volatility in our stock price;
●
increased volatility in foreign currency exchange rates;
●
delays in, or curtailment of, purchasing decisions by our customers or potential customers;
●
increased credit risk associated with our customers or potential customers, particularly those that may operate in
industries most affected by the economic downturn; and
●
impairment of our tangible or intangible assets.
A recent example of economic volatility is the impact of COVID. Early in its history, COVID began to impact supply
chains resulting in shortages. As a result, in 2021 and into 2022 almost all companies purchased more inventory than needed
as a safety net. In the second half of 2022 companies began to realize they had too much inventory and entered into the
“inventory correction” period. Our consolidated revenue had reached $39.7 million in the first quarter of 2022. In the third
quarter of 2023 our revenue declined to $17.4 million. In the fourth quarter of 2018 and continuing in 2019, we experienced
delays in customer purchasing decisions and disruptions in a normal volume of customer orders that we believe were in part
due to the uncertainties in the global economy, resulting in an adverse impact on consumer spending. During challenging and
uncertain economic times and in tight credit markets, many customers delay or reduce technology purchases. Should similar
events occur again, our business and operating results could be significantly and adversely affected.
The PRC central government may also exert more control over offerings conducted overseas and/or foreign investment in
China-based issuers, which could result in a material change in our operations and/or the value of our common stock.
The PRC central government may also exert more control over offerings conducted overseas and/or foreign
investment in China-based issuers, which could result in a material change in our operations and/or the value of our common
stock. The PRC central government may also seek to significantly limit or completely hinder our ability to offer
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or continue to offer our securities to investors and cause the value of such securities to significantly decline or be worthless.
Our international operations are exposed to potential adverse tax consequence in China.
Our international operations create a risk of potential adverse tax consequences. Taxes on income in our China-based
companies are dependent upon acceptance of our operational practices and intercompany transfer pricing by local tax
authorities as being on an arm's length basis. Due to inconsistencies among taxing authorities in application of the arm's length
standard, transfer pricing challenges by tax authorities could, if successful, materially increase our consolidated income tax
expense. We are subject to tax audits in China and an audit could result in the assessment of additional income tax against us.
This could have a material adverse effect on our operating results or cash flows in the period or periods for which that
determination is made and could result in increases to our overall tax expense in subsequent periods. Various taxing agencies
in China are increasingly focused on tax reform and other legislative action to increase tax revenue. In addition to risks
regarding income tax we have in the past been retroactively assessed value added taxes (“VAT” or “sales tax”) and such VAT
assessments could occur again in the future.
Dividends from within our corporate structure are subject to PRC withholding tax and SAFE approval.
Occasionally, one of our PRC subsidiaries or PRC raw material joint ventures declares and pays a dividend. These
dividends generally occur when the PRC joint venture declares a dividend for all of its shareholders. We have no current
intentions to distribute to our investors earnings under our corporate structure. Dividends paid to the Company are subject to a
10% PRC withholding tax. The Company is required to obtain approval from SAFE to transfer funds in or out of the PRC.
SAFE requires a valid agreement to approve the transfers, which are processed through a bank. Other than PRC foreign
exchange restrictions, the Company is not subject to any PRC restrictions and limitations on its ability to distribute earnings
from its businesses. If SAFE approval is denied the dividend payable to the Company would be owed but would not be paid.
Our PRC subsidiaries and PRC joint ventures are subject to data security oversight.
Our PRC subsidiaries and PRC joint ventures are subject to oversight by the Cyberspace Administration of China
(the “CAC”) regarding data security. Except for routine personal information necessary to process payroll and other benefits
and emergency contact information, our PRC subsidiaries and PRC joint ventures do not collect or maintain personal
information. All of our products are manufactured in the PRC by our PRC subsidiaries and PRC joint ventures. Although we
are neither a PRC operating company nor do we conduct our operations in China through the use of VIEs, cybersecurity is
increasingly a focus of the central government and the CAC could require AXT to comply with PRC cybersecurity
regulations, which could cause us to make changes to our operations that could materially harm our business, financial
condition and results of operations.
We derive a significant portion of our revenue from international sales, and our ability to sustain and increase our
international sales involves significant risks.
Approximately 90% of our revenue is from international sales. We expect that sales to customers outside the United
States, particularly sales to customers in Japan, Taiwan, Europe and China, will continue to represent a significant portion of
our revenue. Therefore, our revenue growth depends significantly on the expansion of our international sales and operations.
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All of our manufacturing facilities and most of our suppliers are also located outside the United States. Managing our
overseas operations presents challenges, including periodic regional economic downturns, trade balance issues, threats of trade
wars, varying business conditions and demands, political instability, variations in enforcement of intellectual property and
contract rights in different jurisdictions, differences in the ability to develop relationships with suppliers and other local
businesses, changes in U.S. and international laws and regulations, including import and export restrictions, fluctuations in
interest and currency exchange rates, the ability to provide sufficient levels of technical support in different locations, cultural
differences and perceptions of U.S. companies, shipping delays and terrorist acts or acts of war, natural disasters and
epidemics or pandemics, such as COVID-19, among other risks. Many of these challenges are present in China, which
represents a large potential market for semiconductor devices. Global uncertainties with respect to: (i) economic growth rates
in various countries; (ii) sustainability of demand for electronic products; (iii) capital spending by semiconductor
manufacturers; (iv) price weakness for certain semiconductor devices; (v) changing and tightening environmental regulations;
(vi) political instability in regions where we have operations and (vii) trade wars may also affect our business, financial
condition and results of operations.
Our dependence on international sales involves a number of risks, including:
●
changes in tariffs, import restrictions, export restrictions, or other trade barriers;
●
unexpected changes in regulatory requirements;
●
longer periods to collect accounts receivable;
●
foreign exchange rate fluctuations;
●
changes in export license requirements;
●
political and economic instability; and
●
unexpected changes in diplomatic and trade relationships.
Most of our sales are denominated in U.S. dollars, except for sales to our Chinese customers which are denominated
in renminbi and our Japanese customers which are denominated in Japanese yen. We also have some small sales denominated
in Euro. Increases in the value of the U.S. dollar could increase the price of our products in non-U.S. markets and make our
products more expensive than competitors’ products in these markets.
We are subject to foreign exchange gains and losses that may materially impact our consolidated statements of operations.
We are subject to foreign exchange gains and losses that may materially impact our consolidated statements of
operations. For example, in 2024, 2023 and 2022, we incurred foreign exchange gains of $91,000, $169,000 and $1.6 million,
respectively.
The functional currency of our companies in China is the Chinese renminbi, the local currency. We can incur foreign
exchange gains or losses when we pay dollars to one of our China-based companies or a third-party supplier in China.
Similarly, if a company in China pays renminbi into one of our bank accounts transacting in dollars the renminbi will be
converted to dollars and we can incur a foreign exchange gain or loss. Hedging renminbi will be considered in the future but it
is complicated by the number of companies involved, the diversity of transactions and restrictions imposed by the banking
system in China.
Sales to Japanese customers are denominated in Japanese yen. This subjects us to fluctuations in the exchange rates
between the U.S. dollar and the Japanese yen and can result in foreign exchange gains and losses. This has been problematic
in the past and, therefore, we instituted a foreign currency hedging program dealing with yen which has historically mitigated
the gains and losses caused by fluctuations in the exchange rates.
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Joint venture raw material companies in China bring certain risks.
Since our consolidated subsidiaries and all of our joint venture raw material companies operate in China, their
activities could subject us to a number of risks associated with conducting operations internationally, including:
●
the imposition of tariffs, trade barriers, export restrictions and duties;
●
import and export restrictions;
●
unexpected changes in regulatory requirements that may limit our ability to manufacture, export the products of
these companies, sell into particular jurisdictions or impose multiple conflicting tax laws and regulations;
●
difficulties in managing geographically disparate operations;
●
difficulties in enforcing agreements through non-U.S. legal systems;
●
political and economic instability, civil unrest or war;
●
terrorist activities that impact international commerce;
●
difficulties in protecting our intellectual property rights, particularly in countries where the laws and practices do
not protect proprietary rights to as great an extent as do the laws and practices of the United States;
●
new or changing laws and policies affecting economic liberalization, foreign investment, currency convertibility
or exchange rates, taxation or employment;
●
new or changing PRC regulations and policies regarding data security and oversight by the CAC of our
consolidated subsidiaries and all of our joint venture raw material companies; and
●
nationalization of foreign-owned assets, including intellectual property.
If China places restrictions on freight and transportation routes and on ports of entry and departure this could result in
shipping delays or increased costs for shipping.
In August 2015, there was an explosion at the Port of Tianjin, China. As a result of this incident the government
placed restrictions on importing certain materials and on freight routes used to transport these materials. We experienced some
modest disruption from these restrictions. If the government were to place additional restrictions on the transportation of
materials, then our ability to transport our raw materials or products could be limited and result in manufacturing delays or
bottlenecks at shipping ports, affecting our ability to deliver products to our customers. During periods of such restrictions, we
may increase our stock of critical materials (such as arsenic, gallium and other items) for use during the period that these
restrictions are likely to last, which will increase our use of cash and increase our inventory level. Any of these restrictions
could materially and adversely impact our results of operations and our financial condition.
Our operating results depend in large part on continued customer acceptance of our substrate products manufactured in
China and continued improvements in product quality.
We manufacture all of our products in China, and source most of our raw materials in China. We have in the past
experienced quality problems with our products. Our previous quality problems caused us to lose market share to our
competitors as some of our customers reduced their orders until our wafer surface quality was as good and as
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consistent as that offered by our competitors. If we are unable to continue to achieve customer qualifications for our products,
or if we are unable to control product quality, customers may not increase purchases of our products, our China facilities will
become underutilized, and we will be unable to achieve revenue growth.
If there are power shortages in China, we may have to temporarily close our China operations, which would adversely
impact our ability to manufacture our products and meet customer orders, and would result in reduced revenue.
In the past, China has faced power shortages resulting in power demand outstripping supply in peak periods.
Instability in electrical supply has caused sporadic outages among residential and commercial consumers causing the Chinese
government to implement tough measures to ease the energy shortage. If further problems with power shortages occur in the
future, we may be required to make temporary closures of our operations or of our subsidiary and joint venture raw material
companies. We may be unable to manufacture our products and would then be unable to meet customer orders except from
finished goods inventory on hand. As a result, our revenue could be adversely impacted, and our relationships with our
customers could suffer, impacting our ability to generate future revenue. In addition, if power is shut off at any of our facilities
at any time, either voluntarily or as a result of unplanned brownouts, during certain phases of our manufacturing process
including our crystal growth phase, the work in process may be ruined and rendered unusable, causing us to incur costs that
will not be covered by revenue, and negatively impacting our cost of revenue and gross margins.
Although the audit report is prepared by an independent registered public accounting firm who is currently inspected fully
by the PCAOB, there is no guarantee that future audit reports will be prepared by an independent registered public
accounting firm that is completely inspected by the PCAOB.
Our independent registered public accounting firm, BPM, is registered with the PCAOB and is subject to regular
inspections by the PCAOB to assess its compliance with the applicable professional standards. Although we have operations
in China, a jurisdiction where the PCAOB was, until recently, unable to conduct inspections without the approval of the
Chinese government authorities, our independent registered public accounting firm is currently inspected fully by the PCAOB.
Inspections of other independent registered public accounting firms conducted by the PCAOB outside China have at
times identified deficiencies in those independent registered public accounting firms’ audit procedures and quality control
procedures, which may be addressed as part of the inspection process to improve future audit quality. The lack of PCAOB
inspections of audit work undertaken in China prevented the PCAOB from regularly evaluating independent registered public
accounting firms’ audits and their quality control procedures. As a result, to the extent that any component of our independent
registered public accounting firm’s work papers is or becomes located in China, such work papers may not be subject to
inspection by the PCAOB. As a result, investors would be deprived of such PCAOB inspections, which could result in
limitations or restrictions to our access of the U.S. capital markets.
As part of a continued regulatory focus in the United States on access to audit and other information currently
protected by national law, in particular PRC laws, in June 2019, a bipartisan group of lawmakers introduced bills in both
houses of the U.S. Congress which, if passed, would require the SEC to maintain a list of issuers for which PCAOB is not able
to inspect or investigate the audit work performed by a non-U.S. independent registered public accounting firm completely.
The proposed Ensuring Quality Information and Transparency for Abroad-Based Listings on our Exchanges Act prescribes
increased disclosure requirements for these issuers and, beginning in 2025, the delisting from U.S. national securities
exchanges such as the Nasdaq Global Select Market of issuers included on the SEC’s list for three consecutive years. It is
unclear if this proposed legislation will be enacted. Furthermore, there have been recent deliberations within the U.S.
government regarding potentially limiting or restricting companies based in China from accessing U.S. capital markets. On
May 20, 2020, the U.S. Senate passed the HFCA Act, which includes requirements for the SEC to identify issuers whose audit
work is performed by independent registered public accounting firms that the PCAOB is unable to inspect or investigate
completely because of a restriction imposed by a non-U.S. authority in the independent registered public accounting firms’
local jurisdiction. The U.S. House of Representatives passed the HFCA Act on December 2, 2020, and the HFCA Act was
signed into law on December 18, 2020. Additionally, in July 2020, the U.S. President’s Working Group on Financial Markets
issued recommendations for actions that can be taken by the
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executive branch, the SEC, the PCAOB or other federal agencies and department with respect to Chinese companies listed on
U.S. stock exchanges and their independent registered public accounting firms, in an effort to protect investors in the United
States. In response, on November 23, 2020, the SEC issued guidance highlighting certain risks (and their implications to U.S.
investors) associated with investments in issuers based in China and summarizing enhanced disclosures the SEC recommends
issuers based in China make regarding such risks. On March 18, 2021, the SEC adopted interim final rules to implement the
HFCA Act, which requires the SEC to identify certain issuers that filed annual reports with audit reports issued by registered
public accounting firms located in foreign jurisdictions and that the PCAOB is unable to inspect or investigate completely
because of a position taken by an authority in those jurisdictions (the “Commission-Identified Issuers”). Specifically, the SEC
implemented the submission and disclosure requirements of the HFCA Act. On December 2, 2021, the SEC issued
amendments to finalize the interim final rules. Further, the SEC established procedures to identify Commission-Identified
Issuers and prohibit the trading of the securities of Commission-Identified Issuers as required by the HFCA Act. We will be
required to comply with these rules if the SEC identifies us as a Commission-Identified Issuer. Under the HFCA Act, our
securities may be prohibited from trading on the Nasdaq Global Select Market or other U.S. stock exchanges if we are
determined to be a Commission-Identified Issuer for three consecutive years, and this ultimately could result in our common
stock being delisted. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies
Accountable Act, which, if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from
trading on any U.S. stock exchanges if the issuer is determined to be a Commission-Identified Issuer for two consecutive years
instead of three. On December 15, 2021, the Accelerating Holding Foreign Companies Accountable Act was introduced to the
U.S. House of Representatives. On September 22, 2021, the PCAOB adopted a final rule implementing the HFCA Act, which
provides a framework for the PCAOB to use when determining, as contemplated under the HFCA Act, whether the PCAOB is
unable to inspect or investigate completely independent registered public accounting firms located in a non-U.S. jurisdiction
because of a position taken by one or more authorities in that jurisdiction and was approved by the SEC on November 5, 2021.
On December 16, 2021, the PCAOB issued a report on its determinations that the PCAOB is unable to inspect or investigate
completely registered public accounting firms headquartered in the PRC and Hong Kong because of positions taken by PRC
authorities in those jurisdictions.
Beginning in March 2022, the SEC listed companies on either its conclusive list of issuers identified under the HFCA
Act or its provisional list of issuers identified under the HFCA Act. Companies listed on the SEC’s conclusive list of issuers
identified under the HFCA Act are determined to be Commission-Identified Issuers. The SEC did not list AXT, Inc. on either
its conclusive list of issuers identified under the HFCA Act or its provisional list of issuers identified under the HFCA Act.
On December 15, 2022, the PCAOB vacated its 2021 determinations that the positions taken by authorities in the
PRC and Hong Kong prevented it from inspecting and investigating completely registered public accounting firms
headquartered in those jurisdictions. As a result, the SEC will not provisionally or conclusively identify an issuer as a
Commission-Identified Issuer if it files an annual report with an audit report issued by a registered public accounting firm
headquartered in either jurisdiction on or after December 15, 2022, until such time as the PCAOB issues a new determination.
The SEC will continue to include any Commission-Identified Issuer on the provisional or conclusive list if they filed an
annual report with an audit report issued by a registered public accounting firm headquartered in mainland China and Hong
Kong prior to the PCAOB’s decision to vacate its 2021 determinations.
While an agreement has been reached among the CSRC, the SEC and the PCAOB regarding the inspection of
PCAOB-independent registered public accounting firms in China, there can be no assurance that we will be able to comply
with requirements imposed by U.S. regulators. If the PRC authorities do not fully perform their obligations under the
agreement with the PCAOB in the future, or if authorities in the PRC otherwise take positions that render the PCAOB unable
to inspect or investigate completely registered public accounting firms headquartered in the PRC and Hong Kong, the PCAOB
will make determinations under the HFCA Act. Delisting of our common stock would force holders of our common stock to
sell their shares. The market price of our common stock could be adversely affected as a result of anticipated negative impacts
of these executive or legislative actions upon, as well as negative investor sentiment towards, companies with operations in
China that are listed in the United States, regardless of whether these executive or legislative actions are implemented and
regardless of our actual operating performance.
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IV. Risks Related to Our Financial Results and Capital Structure
We may utilize our cash balances for relocating manufacturing lines, adding capacity, acquiring state-of-the-art equipment
or offsetting a business downturn resulting in the decline of our existing cash and if we need additional capital, funds may
not be available on acceptable terms, or at all.
Our liquidity is affected by many factors, including among others, the relocation of our gallium arsenide
manufacturing lines, the expansion of our capacity to meet market demand, the acquisition of state-of-the-art equipment, other
capital expenditures, operating activities, the effect of exchange rate changes and other factors related to the uncertainties of
the industry and global economies. Such matters could draw down our cash reserves, which could adversely affect our
financial condition, require us to incur debt, reduce our value and possibly impinge our ability to raise debt and equity funding
in the future, at a time when we might need to raise additional cash or elect to raise additional cash. Accordingly, there can be
no assurance that events will not require us to seek additional capital or, if required, that such capital would be available on
terms acceptable to us, if at all.
The terms of the private equity raised in China as a first step toward an IPO on the STAR Market grant each Investor a
right of redemption if Tongmei fails to achieve its IPO.
Pursuant to the Capital Investment Agreements with the Investors, each Investor has the right to require AXT to
redeem any or all Tongmei shares held by such Investor at the original purchase price paid by such Investor, without interest,
in the event the IPO fails to pass the audit of the Shanghai Stock Exchange, is not approved by the CSRC or Tongmei cancels
the IPO application. The aggregate redemption amount is approximately $49 million.
Tongmei submitted its IPO application to the Shanghai Stock Exchange and it was formally accepted for review on
January 10, 2022. The Shanghai Stock Exchange approved the IPO application on July 12, 2022. On August 1, 2022, the
CSRC accepted for review Tongmei’s IPO application. The STAR Market IPO remains subject to review and approval by the
CSRC and other authorities. The process of going public on the STAR Market includes several periods of review and,
therefore, is a lengthy process. Subject to review and approval by the CSRC and other authorities, Tongmei expects to
accomplish this goal in the coming months. The listing of Tongmei on the STAR Market will not change the status of AXT as
a U.S. public company. There can be no assurances that Tongmei will complete its IPO in 2025 or at all. In the event that
investors exercise their redemption rights, we may be required to seek additional capital in order to redeem their Tongmei
shares and there would be no assurances that such capital would be available on terms acceptable to us, if at all. Any
redemptions could have a material adverse effect on our business, financial condition and results of operations.
Unpredictable fluctuations in our operating results could disappoint analysts or our investors, which could cause our stock
price to decline.
We have experienced, and may continue to experience, significant fluctuations in our revenue, gross margins and
earnings. Our quarterly and annual revenue and operating results have varied significantly in the past and may vary
significantly in the future due to a number of factors, including:
●
inventory corrections within the technology sector;
●
our ability to develop, manufacture and deliver high quality products in a timely and cost-effective manner;
●
unforeseen disruptions at our new sites;
●
disruptions in manufacturing if air pollution, other environmental hazards, or outbreaks of contagious diseases
causes the Chinese government to order work stoppages;
●
fluctuation of our manufacturing yields;
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●
decreases in the prices of our or our competitors’ products;
●
fluctuations in demand for our products;
●
the volume and timing of orders from our customers, and cancellations, push-outs and delays of customer orders
once booked;
●
decline in general economic conditions or downturns in the industry in which we compete;
●
expansion of our manufacturing capacity;
●
expansion of our operations in China;
●
limited availability and increased cost of raw materials;
●
costs incurred in connection with any future acquisitions of businesses or technologies; and
●
increases in our expenses, including expenses for research and development.
Due to these factors, we believe that period-to-period comparisons of our operating results may not be meaningful
indicators of our future performance.
A substantial percentage of our operating expenses are fixed, and we may be unable to adjust spending to compensate
for an unexpected shortfall in revenue. As a result, any delay in generating revenue could cause our operating results to fall
below the expectations of market analysts or investors, which could also cause our stock price to decline.
If our operating results and financial performance do not meet the guidance that we have provided to the public, our stock
price may decline.
We provide public guidance on our expected operating and financial results. Although we believe that this guidance
provides our stockholders, investors and analysts with a better understanding of our expectations for the future, such guidance
is comprised of forward-looking statements subject to the risks and uncertainties described in this Report and in our other
public filings and public statements. Our actual results may not meet the guidance we have provided. If our operating or
financial results do not meet our guidance or the expectations of investment analysts, our stock price may decline.
We have adopted certain anti-takeover measures that may make it more difficult for a third party to acquire us.
Our Board of Directors has the authority to issue up to 1,117,000 shares of preferred stock in addition to the
outstanding shares of Series A preferred stock and to determine the price, rights, preferences and privileges of those shares
without any further vote or action by the stockholders. The rights of the holders of common stock will be subject to, and may
be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of
shares of preferred stock could have the effect of making it more difficult for a third party to acquire a majority of our
outstanding voting stock. We have no present intention to issue additional shares of preferred stock.
Provisions in our restated certificate of incorporation and amended and restated bylaws may have the effect of
delaying or preventing a merger, acquisition or change of control, or changes in our management, which could adversely
affect the market price of our common stock. The following are some examples of these provisions:
●
the division of our Board of Directors into three separate classes, each with three-year terms;
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●
the right of our Board of Directors to elect a director to fill a space created by a board vacancy or the expansion
of the board;
●
the ability of our Board of Directors to alter our amended and restated bylaws; and
●
the requirement that only our Board of Directors or the holders of at least 10% of our outstanding shares may
call a special meeting of our stockholders.
Furthermore, because we are incorporated in Delaware, we are subject to the provisions of Section 203 of the
Delaware General Corporation Law. These provisions prohibit us from engaging in any business combination with any
interested stockholder (a stockholder who owns 15% or more of our outstanding voting stock) for a period of three years
following the time that such stockholder became an interested stockholder, unless:
●
662/3% of the shares of voting stock not owned by the interested stockholder approve the merger or
combination, or
●
the Board of Directors approves the merger or combination or the transaction which resulted in the stockholder
becoming an interested stockholder.
Our common stock may be delisted from The Nasdaq Global Select Market, which could negatively impact the price of our
common stock and our ability to access the capital markets.
Our common stock is listed on The Nasdaq Global Select Market. The bid price of our common stock has in the past
closed below the $1.00 minimum per share bid price required for continued inclusion on The Nasdaq Global Select Market
under Marketplace Rule 5450(a). If the bid price of our common stock remains below $1.00 per share for thirty consecutive
business days, we could be subject to delisting from the Nasdaq Global Select Market.
Any delisting from The Nasdaq Global Select Market could have an adverse effect on our business and on the trading
of our common stock. If a delisting of our common stock were to occur, our common stock would trade in the over-the-
counter market and be quoted on a service such as those provided by OTC Markets Group, Inc. Such alternatives are generally
considered to be less efficient markets, and our stock price, as well as the liquidity of our common stock, may be adversely
impacted as a result. Delisting from The Nasdaq Global Select Market could also have other negative results, including the
potential loss of confidence by customers, suppliers and employees, the loss of institutional investor interest and fewer
business development opportunities, as well as the loss of liquidity for our stockholders.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2024, we had U.S. federal net operating loss carryforwards of approximately $46.4 million. We
have net operating loss carryforwards of approximately $108,000, primarily in the state of California, as of December 31,
2024. We do not expect to utilize the loss carryforwards in the next several years unless Tongmei pays a dividend. Under
Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,”
the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as
research tax credits, to offset its post-change income and taxes may be limited. In general, an “ownership change” occurs if
there is a cumulative change in our ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-
year period. Similar rules may apply under state tax laws. We might have undergone prior ownership changes, and we may
undergo ownership changes in the future, which may result in limitations on our net operating loss carryforwards and other tax
attributes. Any such limitations on our ability to use our net operating loss carryforwards and other tax attributes could
adversely impact our business, financial condition and results of operations.
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V. Risks Related to Our Intellectual Property
Intellectual property infringement claims may be costly to resolve and could divert management attention.
Other companies may hold or obtain patents on inventions or may otherwise claim proprietary rights to technology
necessary to our business. The markets in which we compete are comprised of competitors that in some cases hold substantial
patent portfolios covering aspects of products that could be similar to ours. We could become subject to claims that we are
infringing patent, trademark, copyright or other proprietary rights of others. We may incur expenses to defend ourselves
against such claims or enter into cross license agreements that require us to pay royalty payments to resolve such claims. For
example, in 2020, we and a competitor entered into a cross license and covenant agreement (the “Cross License Agreement”),
which has a term that began on January 1, 2020 and expires on December 31, 2029. We have in the past been involved in
lawsuits alleging patent infringement, and could in the future be involved in similar litigation.
If we are unable to protect our intellectual property, including our non-patented proprietary process technology, we may
lose valuable assets or incur costly litigation.
We rely on a combination of patents, copyrights, trademarks, trade secrets and trade secret laws, non-disclosure
agreements and other intellectual property protection methods to protect our proprietary technology. We believe that our
internal, non-patented proprietary process technology methods, systems and processes are a valuable and critical element of
our intellectual property. We must establish and maintain safeguards to avoid the theft of these processes. Our ability to
establish and maintain a position of technology leadership also depends on the skills of our development personnel. Despite
our efforts to protect our intellectual property, third parties can develop products or processes similar to ours. Our means of
protecting our proprietary rights may not be adequate, and our competitors may independently develop similar technology,
duplicate our products or design around our patents. We believe that at least two of our competitors ship GaAs substrates
produced using a process similar to our VGF process. Our competitors may also develop and patent improvements to the VGF
technology upon which we rely, and thus may limit any exclusivity we enjoy by virtue of our patents or trade secrets.
It is possible that pending or future United States or foreign patent applications made by us will not be approved, that
our issued patents will not protect our intellectual property, or that third parties will challenge our ownership rights or the
validity of our patents. In addition, the laws of some foreign countries may not protect our proprietary rights to as great an
extent as do the laws of the United States and it may be more difficult to monitor the use of our intellectual property. Our
competitors may be able to legitimately ascertain non-patented proprietary technology embedded in our systems. If this
occurs, we may not be able to prevent the development of technology substantially similar to ours.
We may have to resort to costly litigation to enforce our intellectual property rights, to protect our trade secrets or
know-how or to determine their scope, validity or enforceability. Enforcing or defending our proprietary technology is
expensive, could cause us to divert resources and may not prove successful. Our protective measures may prove inadequate to
protect our proprietary rights, and if we fail to enforce or protect our rights, we could lose valuable assets.
VI. Risks Related to Compliance, Environmental Regulations and Other Legal Matters
If we, or any of our partially owned supply chain companies, fail to comply with environmental and safety regulations, we
may be subject to significant fines or forced to cease our operations.
We are subject to federal, state and local environmental and safety laws and regulations in all of our operating
locations, including laws and regulations of China, such as laws and regulations related to the development, manufacture and
use of our products, the use of hazardous materials, the operation of our facilities, and the use of our real property. These laws
and regulations govern the use, storage, discharge and disposal of hazardous materials during manufacturing, research and
development, and sales demonstrations. If we, or any of our partially owned supply chain companies, fail to comply with
applicable regulations, we could be subject to substantial liability for clean-up efforts, personal injury, fines or suspension or
be forced to close or temporarily cease our operations, and/or suspend or terminate the development,
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manufacture or use of certain of our products, the use of our facilities, or the use of our real property, each of which could
have a material adverse effect on our business, financial condition and results of operations.
The Chinese central government is demonstrating strong leadership to improve air quality and reduce environmental
pollution. The central government encourages employees to report to the appropriate regulatory agencies possible safety or
environmental violations but there may not be actual violations. These efforts have impacted manufacturing companies
through mandatory shutdowns, increased inspections and regulatory reforms. In the first quarter of 2018, from February 27 to
March 31 over 300 manufacturing companies were again intermittently shut down by the local government for a total of ten
days, or 30 percent of the remaining calendar days, due to severe air pollution. Our shipments were delayed and our revenue
for the quarter was negatively impacted. We expect that mandatory factory shutdowns may occur in the future. If the
frequency of such shutdowns increases, especially at the end of a quarter, or if the total number of days of shutdowns prevents
us from producing enough wafers to ship, then the shutdowns will have a material adverse effect on our manufacturing output,
revenue and factory utilization. We believe the relocation of our gallium arsenide and germanium manufacturing lines
mitigates our exposure to factory shutdowns. Each of our raw material supply chain companies could also be impacted by
environmental related orders from the central government.
In addition, from time to time, the Chinese government issues new regulations, which may require additional actions
on our part to comply. For example, on February 27, 2015, the China State Administration of Work Safety updated its list of
hazardous substances. The previous list, which was published in 2002, did not restrict the materials that we use in our wafers.
The new list added gallium arsenide. As a result of the newly published list, we were required to seek additional permits.
We face litigation and legal proceedings which could adversely affect our business, financial condition, results of
operations or cash flows.
We are subject to lawsuits, investigations and claims in the normal course of our business, which can be expensive,
lengthy, and disruptive to normal business operations. As described under the heading in the “Legal Proceedings” section
elsewhere in this report, we, along with our Chief Executive Officer, Morris Young, and our Chief Financial Officer, Gary
Fischer, are the subject of a complaint alleging violations of federal securities laws. Our current and former directors and
certain officers, are also the subject of a derivative lawsuit arising from the same allegations. In the future, we could be subject
to other proceedings. This litigation and any other regulatory proceedings or claims may be time consuming, could cause us to
incur significant defense costs, are disruptive to our normal business operations, and could damage our reputation or adversely
affect our stock price. In the event there is an adverse ruling in any legal or regulatory proceeding or action, we may be
required to make payments to third parties that could have a material adverse effect on our business, financial condition,
results of operations or cash flows. Further, if we become involved in other class action litigation in the future, it could result
in substantial costs and diversion of our management’s attention and resources, thus harming our business. For additional
information regarding certain of the matters in which we are involved, see Item 3, “Legal Proceedings,” contained in Part I of
this report.
We could be subject to suits for personal injuries caused by hazardous materials.
In 2005, a complaint was filed against us alleging personal injury, general negligence, intentional tort, wage loss and
other damages, including punitive damages, as a result of exposure of plaintiffs to high levels of gallium arsenide in gallium
arsenide wafers, and methanol. Other current and/or former employees could bring litigation against us in the future. Although
we have in place engineering, administrative and personnel protective equipment programs to address these issues, our ability
to expand or continue to operate our present locations could be restricted or we could be required to acquire costly
remediation equipment or incur other significant expenses if we were found liable for failure to comply with environmental
and safety regulations. Existing or future changes in laws or regulations in the United States and China may require us to incur
significant expenditures or liabilities, or may restrict our operations. In addition, our employees could be exposed to chemicals
or other hazardous materials at our facilities and we may be subject to lawsuits seeking damages for wrongful death or
personal injuries allegedly caused by exposure to chemicals or hazardous materials at our facilities.
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Litigation is inherently uncertain and while we would expect to defend ourselves vigorously, it is possible that our
business, financial condition, results of operations or cash flows could be affected in any particular period by litigation
pending and any additional litigation brought against us. In addition, future litigation could divert management’s attention
from our business and operations, causing our business and financial results to suffer. We could incur defense or settlement
costs in excess of the insurance covering these litigation matters, or that could result in significant judgments against us or
cause us to incur costly settlements, in excess of our insurance limits.
We are subject to internal control evaluations and attestation requirements of Section 404 of the Sarbanes-Oxley Act.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we must include in our Annual Report on Form 10-K a
report of management on the effectiveness of our internal control over financial reporting. Ongoing compliance with this
requirement is complex, costly and time-consuming and it extends to our companies in China. If: (1) we fail to maintain
effective internal control over financial reporting; or (2) our management does not timely assess the adequacy of such internal
control, we could be subject to regulatory sanctions and the public’s perception of us may be adversely impacted.
We need to continue to improve or implement our systems, procedures and controls.
We rely on certain manual processes for data collection and information processing, as do our joint venture
companies. If we fail to manage these procedures properly or fail to effectively manage a transition from manual processes to
automated processes, our systems and controls may be disrupted. To manage our business effectively, we may need to
implement additional management information systems, further develop our operating, administrative, financial and
accounting systems and controls, add experienced senior level managers, and maintain close coordination among our
executive, engineering, accounting, marketing, sales and operations organizations.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Risk Management and Strategy
We have established policies and processes for assessing, identifying, and managing material risks from
cybersecurity threats, and have integrated these processes into our overall risk management systems and processes. We
routinely assess material risks from cybersecurity threats, including any potential unauthorized occurrence on or conducted
through our information systems that may result in adverse effects on the confidentiality, integrity, or availability of our
information systems or any information residing therein.
We conduct periodic risk assessments to identify cybersecurity threats, as well as assessments in the event of a
material change in our business practices that may affect information systems that are vulnerable to such cybersecurity threats.
These risk assessments include identification of reasonably foreseeable internal and external risks, the likelihood and potential
damage that could result from such risks, and the sufficiency of existing policies, procedures, systems, and safeguards in place
to manage such risks.
Following these risk assessments, we re-design, implement, and maintain reasonable safeguards to minimize
identified risks; reasonably address any identified gaps in existing safeguards; and regularly monitor the effectiveness of our
safeguards. We devote significant resources and designate high-level personnel, including our Chief Financial Officer, VP of
Finance, and Controller to manage the risk assessment and mitigation process.
As part of our overall risk management system, we monitor and test our safeguards and train our employees on these
safeguards, in collaboration with finance, IT, and management. Personnel at all levels and departments are made aware of our
cybersecurity policies through trainings and email notifications.
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We engage assessors, consultants, auditors, or other third parties in connection with our risk assessment processes.
These service providers assist us to design and implement our cybersecurity policies and procedures, as well as to monitor and
test and audit our safeguards. We maintain policies and processes to assess and manage risks relating to third-party service
providers, based on the nature of the engagement with the third party and on the information and systems to which the third
party will have access. We maintain policies to conduct due diligence before onboarding new service providers and maintain
ongoing evaluations to ensure compliance with our security standards.
For additional information regarding whether any risks from cybersecurity threats have materially affected or are
reasonably likely to materially affect the Company, including our business strategy, results of operations, or financial
condition, please refer to Item 1A, “Risk Factors,” in this Annual Report on Form 10-K, including the risk factor entitled
“Cyber-attacks, system security risks and data protection issues could disrupt our internal operations and cause a reduction in
revenue, increase in expenses, negatively impact our results of operation or result in other adverse consequences.”
Governance
One of the key functions of our Board of Directors is informed oversight of our risk management process, including
risks from cybersecurity threats. Our Board of Directors is responsible for monitoring and assessing strategic risk exposure,
and our executive officers are responsible for the day-to-day management of the material risks we face. Our Board of
Directors administers its cybersecurity risk oversight function directly as a whole, as well as through the Audit Committee.
The chair of our Audit Committee has experience in assessing and managing cybersecurity risk.
Our management committee on cybersecurity, which includes our Chief Financial Officer and members from finance
and IT, is primarily responsible to assess and manage our material risks from cybersecurity threats. Our Chief Financial
Officer has had supervisory responsibilities over IT for over 30 years and personally engages our employees in training for
cybersecurity. Our lead IT Senior System Engineer has over 20 years of direct IT employment and is a Microsoft Certified
System Engineer, a Cisco Certified Network Associate and a Sun Certified System Administrator. One of our Controllers has
over 15 years of Sarbanes Oxley compliance training and auditing, including auditing compliance regarding IT. Our VP
Finance and Corporate Controller has over 20 years as an employee of AXT and has a thorough understanding of our specific
IT systems.
Our management committee on cybersecurity oversees our cybersecurity policies and processes, including those
described in “Risk Management and Strategy” above. The processes by which our management committee on cybersecurity is
informed about and monitors the prevention, detection, mitigation, and remediation of cybersecurity incidents include regular
communication and reporting from our IT manager, alerts and warnings through the use of technological tools and software
and the results of cybersecurity systems testing from a third-party consultant.
Our Chief Financial Officer provides briefings to our Board of Directors and the Audit Committee regarding the
Company’s cybersecurity risks and activities, including cybersecurity systems testing, activities of third parties, and the like.
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Item 2. Properties
Our principal properties as of March 14, 2025 are as follows:
Square
Location
Feet
Principal Use
Ownership
Fremont, CA
19,467
Administration
Operating lease, expires November 2028
Beijing, China
141,524
Production and
Administration
Owned by AXT / Tongmei
DingXing, China
193,621
Production
Owned by AXT / Tongmei
Kazuo, China
528,390
Production
Owned by AXT / Tongmei
Kazuo, China
75,703
Production and
Administration
Owned by Beijing BoYu Semiconductor Vessel Craftwork
Technology Co., Ltd.*
Tianjin, China
146,012
Production and
Administration
Owned by Beijing BoYu Semiconductor Vessel Craftwork
Technology Co., Ltd., *
Kazuo, China
190,597
Production
Owned by ChaoYang JinMei Gallium Ltd.,*
*
Raw material companies consolidated in our consolidated financial statements.
We consider each facility to be in good operating condition and adequate for its present use, and believe that each
facility has sufficient plant capacity to meet its current and anticipated operating requirements.
Item 3. Legal Proceedings
From time to time we may be involved in judicial or administrative proceedings concerning matters arising in the
ordinary course of business. We do not expect that any of these matters, individually or in the aggregate, will have a material
adverse effect on our business, financial condition, cash flows or results of operations.
Shareholder Class Action
On May 6, 2024, a putative shareholder class action complaint was filed in the U.S. District Court for the Eastern
District of New York on behalf of persons or entities who purchased or acquired our publicly traded securities, against us,
Morris S. Young, our Chief Executive Officer, and Gary L. Fischer, our Chief Financial Officer. The court transferred the case
to the Northern District of California, where our headquarters are 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. Defendants’ motion to dismiss is fully briefed and pending before the Court.
Derivative Action
On August 22, 2024, a derivative lawsuit was filed in the Northern District of California by an alleged 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 (together, “Defendants”). Defendants moved to dismiss on November 6, 2024, following which the plaintiff filed an
amended complaint on November 20, 2024. The amended 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. On
November 27, 2024, Defendants again moved to dismiss. The motion to dismiss is fully briefed and pending before the Court.
It is not possible at this time to reasonably assess the final outcomes of these litigations or to reasonably estimate the
possible loss or range of loss with respect to these litigations. We believe these claims to be meritless and intend to vigorously
defend against them.
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Item 4. Mine Safety Disclosures
Not applicable.
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49
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock has been trading publicly on the NASDAQ Global Market (NASDAQ) under the symbol “AXTI”
since May 20, 1998, the date we consummated our initial public offering, and beginning on January 3, 2011, our common
stock began trading on the NASDAQ Global Select Market under the same symbol.
As of March 3, 2025, there were 206 holders of record of our common stock. Because many shares of AXT’s
common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number
of beneficial owners of our common stock.
We have never paid or declared any cash dividends on our common stock and do not anticipate paying cash
dividends in the foreseeable future. Dividends accrue on our outstanding Series A preferred stock at the rate of $0.20 per
annum per share of Series A preferred stock. The 883,000 shares of Series A preferred stock issued and outstanding as of
December 31, 2024 are valued at $3,532,000 and are non-voting and non-convertible preferred stock with a 5.0% cumulative
annual dividend rate payable when declared by our Board of Directors, and a $4.00 per share liquidation preference over
common stock that must be paid before any distribution is made to the holders of our common stock. These shares of
preferred stock were issued to shareholders of Lyte Optronics, Inc. in connection with the completion of our acquisition of
Lyte Optronics, Inc. on May 28, 1999. By the terms of the Series A preferred stock, so long as any shares of Series A preferred
stock are outstanding, neither the Company nor any subsidiary of the Company shall redeem, repurchase or otherwise acquire
any shares of common stock, unless all accrued dividends on the Series A preferred stock have been paid. During 2013 and
2015, we repurchased shares of our outstanding common stock. As of December 31, 2015, the Series A preferred stock had
cumulative dividends of $2.9 million and we include such cumulative dividends in “Accrued liabilities” in our consolidated
balance sheets. No shares were repurchased during 2024, 2023 and 2022 under this program. If we are required to pay the
cumulative dividends on the Series A preferred stock, our cash and cash equivalents would be reduced. We account for the
cumulative year to date dividends on the Series A preferred stock when calculating our earnings per share.
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Comparison of Stockholder Return
Set forth below is a line graph comparing the annual percentage change in the cumulative total return to the
stockholders of the Company on our common stock with the CRSP Total Return Index for the Nasdaq Stock Market (U.S.
Companies) and the RDG MidCap Technology Index for the period commencing December 31, 2018 and ending December
31, 2024.
Pursuant to SEC rules, our performance graph must include both a broad market equity index and a published
industry or line-of-business index (or a self-constructed peer index) in addition to our common stock. The rules also require
that if a registrant selects a different index from an index used for the immediately preceding fiscal year, it must (i) explain the
reason for the change and (ii) compare the registrant’s total return with that of both the newly selected index and the index
used in the immediately preceding fiscal year. With respect to the published industry index, in prior years, we used the Nasdaq
Electronic Components Index; however, that index was discontinued in 2023. Accordingly, we have used the RDG MidCap
Technology Index as a replacement for the discontinued index and because the Nasdaq Electronic Components Index was
discontinued, we are unable to compare our cumulative total return with that index.
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12/19
12/20
12/21
12/22
12/23
12/24
AXT, Inc.
100
220.00
202.53
100.69
55.17
49.89
NASDAQ Composite
100
144.92
177.06
119.45
172.77
223.87
RDG MidCap Technology
100
132.76
81.82
36.09
38.89
40.63
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
On October 27, 2014, our Board of Directors approved a stock repurchase program pursuant to which we may
repurchase up to $5.0 million of our outstanding common stock. These repurchases can be made from time to time in the open
market and are funded from our existing cash balances and cash generated from operations. During 2015, we repurchased
approximately 908,000 shares at an average price of $2.52 per share for a total purchase price of approximately $2.3 million
under the stock repurchase program. No shares were repurchased during 2024 or 2023 under this program. As of December
31, 2024 and 2023, approximately $2.7 million remained available for future repurchases under this program, respectively.
Item 6. Reserved
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
In addition to historical information, the following discussion contains forward-looking statements that are subject to
risks and uncertainties. Actual results may differ substantially from those referred to herein due to a number of factors,
including but not limited to risks described in the section entitled Item 1A. “Risk Factors” and elsewhere in this Annual Report
on Form 10-K. This discussion should be read in conjunction with our consolidated financial statements and related notes
included elsewhere in this Form 10-K.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”). Accordingly, we make estimates, assumptions and judgments that affect the
amounts reported on our consolidated financial statements. These estimates, assumptions and judgments about future events
and their effects on our results cannot be determined with certainty, and are made based upon our historical experience and on
other assumptions that are believed to be reasonable under the circumstances. These estimates may change as new events
occur or additional information is obtained, and we may periodically be faced with uncertainties, the outcomes of which are
not within our control and may not be known for a prolonged period of time.
We have identified the policies below as critical to our business operations and understanding of our financial
condition and results of operations. Critical accounting policies are material to the presentation of our consolidated financial
statements and require us to make difficult, subjective or complex judgments that could have a material effect on our financial
condition and results of operations. They may require us to make assumptions about matters that are highly uncertain at the
time of the estimate. Different estimates that we could have used, or changes in the estimate that are reasonably likely to
occur, may have a material impact on our financial condition or results of operations. We also refer you to Note 1 to our
consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
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Revenue Recognition and Sales Returns
We manufacture and sell high-performance compound semiconductor substrates including indium phosphide, gallium
arsenide and germanium wafers, and our consolidated subsidiaries sell certain raw materials, including high purity gallium
(6N and 7N Ga), pyrolytic boron nitride (pBN) crucibles and boron oxide (B2O3). After we ship our products, there are no
remaining obligations or customer acceptance requirements that would preclude revenue recognition. Our products are
typically sold pursuant to purchase orders placed by our customers, and our terms and conditions of sale do not require
customer acceptance. We account for a contract with a customer when there is a legally enforceable contract, which could be
the customer’s purchase order, the rights of the parties are identified, the contract has commercial terms, and collectibility of
the contract consideration is probable. The majority of our contracts have a single performance obligation to transfer products
and are short term in nature, usually less than six months. Our revenue is measured based on the consideration specified in the
contract with each customer in exchange for transferring products that are generally based upon a negotiated, formula, list or
fixed price. Revenue is recognized when control of the promised goods is transferred to our customer, which is either upon
shipment from our dock, receipt at the customer’s dock, or removal from consignment inventory at the customer’s location, in
an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods.
We have elected to account for shipping and handling as activities to fulfill the promise to transfer the goods. As
such, shipping and handling fees billed to customers in a sales transaction are recorded in revenue. Shipping and handling
costs incurred are recorded in cost of revenue. Sales taxes and value added taxes in foreign jurisdictions that are collected
from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from
revenue.
We do not provide training, installation or commissioning services. We accrue for future returns based on historical
data, prior experience, current economic trends and changes in customer demand at the time revenue is recognized. We do not
recognize any asset associated with the incremental cost of obtaining revenue generating customer contracts. As such, sales
commissions and other related expenses are expensed as incurred, given that the expected period of benefit is less than one
year.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable are recorded at the invoiced amount and are not interest bearing. We review at least quarterly, or
when there are changes in credit risks, the likelihood of collection on our accounts receivable balances and provide an
allowance for credit losses. We measure the expected credit losses on a collective (pool) basis when similar delinquency status
exist. We evaluate receivables from U.S. customers with an emphasis on balances in excess of 90 days and for receivables
from customers located outside the U.S. with an emphasis on balances in excess of 120 days and establish a reserve allowance
on the receivable balances if needed. The reason for the difference in the evaluation of receivables between foreign and U.S.
customers is that U.S. customers have historically made payments in a shorter period of time than foreign customers. Foreign
business practices generally require us to allow customer payment terms that are longer than those accepted in the United
States.
In accordance with Accounting Standards Codification (“ASC”) Topic 326, Financial Instruments – Credit Losses
current expected credit loss impairment model, we exercise judgment when determining the adequacy of our reserves as we
evaluate historical credit loss trends, general economic conditions in the United States and internationally, and reasonable and
supportable forecasts of future economic conditions. Uncollectible receivables are recorded as provision for credit losses when
a credit loss is expected through the establishment of an allowance, which would then be written off when all efforts to collect
have been exhausted and recoveries are recognized when they are received. As of December 31, 2024 and 2023, our accounts
receivable, net balance was $25.6 million and $19.3 million, respectively, which was net of an allowance of $147,000 and
$579,000 as of December 31, 2024 and 2023, respectively. During 2024, we decreased the allowance by $432,000. During
2023, we increased the allowance by $272,000. If actual uncollectible accounts differ substantially from our estimates,
revisions to the estimated allowance for credit losses would be required, which could have a material impact on our financial
results for the future periods.
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Warranty Reserve
We maintain a warranty reserve based upon our claims experience during the prior twelve months and any pending
claims and returns of which we are aware. Warranty costs are accrued at the time revenue is recognized. As of December 31,
2024 and 2023, accrued product warranties totaled $451,000 and $703,000, respectively. The decrease in accrued product
warranties is primarily attributable to decreased claims for quality issues experienced by customers. If actual warranty costs or
pending new claims differ substantially from our estimates, revisions to the estimated warranty liability would be required,
which could have a material impact on our financial condition and results of operations for future periods.
Inventory Valuation
Inventories are stated at the lower of cost (approximated by standard cost) or net realizable value. Cost is determined
using the weighted average cost method. Our inventory consists of raw materials as well as finished goods and work-in-
process that include material, labor and manufacturing overhead costs. We routinely evaluate the levels of our inventory in
light of current market conditions in order to identify excess and obsolete inventory, and we provide a reserve for certain
inventories based upon the age and quality of the product and the projections for sale of the completed products. As of
December 31, 2024 and 2023, we had an inventory reserve of $24.1 million and $21.9 million, respectively, for excess and
obsolete inventory and $73,000 and $78,000, respectively, for lower of cost or net realizable value reserves. If actual demand
for our products were to be substantially lower than estimated, additional inventory adjustments for excess or obsolete
inventory might be required, which could have a material impact on our business, financial condition and results of operations.
Impairment of Investments
We classify marketable investments in debt securities as available-for-sale debt securities in accordance with ASC
Topic 320, Investments—Debt Securities. All available-for-sale debt securities with a quoted market value below cost (or
adjusted cost) are reviewed in order to determine whether the decline is other-than-temporary. Factors considered in
determining whether a loss is temporary include the magnitude of the decline in market value, the length of time the market
value has been below cost (or adjusted cost), credit quality, and our ability and intent to hold the debt securities for a period of
time sufficient to allow for any anticipated recovery in market value. We also review our debt investment portfolio at least
quarterly, or when there are changes in credit risks or other potential valuation concerns to identify and evaluate whether an
allowance for expected credit losses or impairment would be necessary.
We also invest in equity instruments of privately held raw material companies in China for business and strategic
purposes. Investments in our unconsolidated PRC joint venture raw material companies are classified as other assets and
accounted for under either the equity or fair value method, depending on whether we have the ability to exercise significant
influence over their operations or financial decisions. We monitor our investments for impairment and record reductions in
carrying value when events or changes in circumstances indicate that the carrying value may not be recoverable.
Determination of impairment is highly subjective and is based on a number of factors, including an assessment of the strength
of the subsidiary’s management, the length of time and extent to which the fair value has been less than our cost basis, the
financial condition and near-term prospects of the subsidiary, fundamental changes to the business prospects of the subsidiary,
share prices of subsequent offerings, and our intent and ability to hold the investment for a period of time sufficient to allow
for any anticipated recovery in our carrying value.
For the year ended December 31, 2023, one of our PRC joint venture raw material companies assessed one of its
equity investments was fully impaired. For the year ended December 31, 2023, we also divested our equity investment in a
PRC joint venture. The impairment and divesture resulted in a total of $1.9 million in impairment charges in our financial
results for the year ended December 31, 2023. For the years ended December 31, 2024 and 2022, we had no impairment
charges.
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Fair Value of Investments
ASC Topic 820, Fair Value Measurement establishes three levels of inputs that may be used to measure fair value.
Level 1 instruments represent quoted prices in active markets. Therefore, determining fair value for Level 1
instruments does not require significant management judgment, and the estimation is not difficult.
Level 2 instruments include observable inputs other than Level 1 prices, such as quoted prices for similar instruments
in markets with insufficient volume or infrequent transactions (less active markets), issuer bank statements, credit ratings,
non-binding market consensus prices that can be corroborated with observable market data, model-derived valuations in
which all significant inputs are observable or can be derived principally from or corroborated with observable market data for
substantially the full term of the assets or liabilities, or quoted prices for similar assets or liabilities. These Level 2 instruments
require more management judgment and subjectivity compared to Level 1 instruments, including:
●
Determining which instruments are most comparable to the instrument being priced requires management to identify
a sample of similar securities based on the coupon rates, maturity, issuer, credit rating, and instrument type, and
subjectively select an individual security or multiple securities that are deemed most similar to the security being
priced.
●
Determining which model-derived valuations to use in determining fair value requires management judgment. When
observable market prices for similar securities or similar securities are not available, we price our marketable debt
instruments using non-binding market consensus prices that are corroborated with observable market data or pricing
models, such as discounted cash flow models, with all significant inputs derived from or corroborated with
observable market data.
Level 3 instruments include unobservable inputs to the valuation methodology that are significant to the
measurement of fair value of assets or liabilities. The determination of fair value for Level 3 instruments requires the most
management judgment and subjectivity.
We place short-term foreign currency hedges that are intended to offset the potential cash exposure related to
fluctuations in the exchange rate between the United States dollar and Japanese yen. We measure the fair value of these
foreign currency hedges at each month end and quarter end using current exchange rates and in accordance with generally
accepted accounting principles. At quarter end any foreign currency hedges not settled are netted in “Accrued liabilities” on
the consolidated balance sheet and classified as Level 3 assets and liabilities. As of December 31, 2024 and 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 consolidated results.
Impairment of Long-Lived Assets
We evaluate the recoverability of property, equipment and intangible assets in accordance with ASC Topic 360,
Property, Plant and Equipment. When events and circumstances indicate that long-lived assets may be impaired, we compare
the carrying value of the long-lived assets to the projection of future undiscounted cash flows attributable to such assets. In the
event that the carrying value exceeds the future undiscounted cash flows, we record an impairment charge against income
equal to the excess of the carrying value over the asset’s fair value. Fair values are determined based on quoted market values,
discounted cash flows or internal and external appraisals, as applicable. Assets held for sale are carried at the lower of carrying
value or estimated net realizable value. We had no “Assets held for sale” or any impairment of long-lived assets on the
consolidated balance sheets as of December 31, 2024 and 2023.
Stock-Based Compensation
We account for stock-based compensation in accordance with ASC Topic 718, Stock-based Compensation. Share-
based awards granted include stock options and restricted stock awards. We utilize the Black-Scholes option
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55
pricing model to estimate the grant date fair value of stock options, which requires the input of highly subjective assumptions,
including estimating stock price volatility and expected term. Historical volatility of our stock price was used while the
expected term for our options was estimated based on historical option exercise behavior and post-vesting forfeitures of
options, and the contractual term, the vesting period and the expected term of the outstanding options. Further, we apply an
expected forfeiture rate in determining the amount of share-based compensation. We use historical forfeitures to estimate the
rate of future forfeitures. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of
our stock compensation. The cost of restricted stock awards is determined using the fair value of our common stock on the
date of grant.
We recognize the compensation costs net of an estimated forfeiture rate over the requisite service period of the
options award, which is generally the vesting term of four years. Compensation expense for restricted stock awards is
recognized over the vesting period, which is generally one, three or four years. Stock-based compensation expense is recorded
in cost of revenue, research and development, and selling, general and administrative expenses. (see Note 1—Summary of
Significant Accounting Policies—Stock-Based Compensation).
Income Taxes
We account for income taxes in accordance with ASC Topic 740, Income Taxes, which requires that deferred tax
assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax
bases of recorded assets and liabilities. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it
is more likely than not that a portion of the deferred tax asset will not be realized. Our deferred tax assets have been reduced to
zero by valuation allowance.
We provide for income taxes based upon the geographic composition of worldwide earnings and tax regulations
governing each region, particularly China. The calculation of tax liabilities involves significant judgment in estimating the
impact of uncertainties in the application of complex tax laws, particularly in foreign countries such as China.
See Note 12—”Income Taxes” in the consolidated financial statements for additional information.
Results of Operations
Overview
We were founded in 1986 to commercialize and enhance our proprietary VGF technology for producing high-
performance compound semiconductor substrates or wafers. We have one operating segment and two product lines: specialty
material substrates and raw materials used to make such substrates or other related products. We recorded our first substrate
sales in 1990 and our substrate products currently include indium phosphide (InP), gallium arsenide (GaAs) and germanium
(Ge) substrates used to produce semiconductor devices for use in applications such as fiber optic and wireless
telecommunications, light emitting diodes (LEDs), lasers and for solar cells for space and terrestrial photovoltaic applications.
Our two raw material companies sell, among other items, purified gallium and pBN crucibles.
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56
Economic Challenges, Risks and Uncertainties
In the first months of the year 2025, the Company has been impacted by escalating trade tensions and regulations. On
December 3, 2024, China issued further rules restricting exports of materials that can typically be used in military applications
including antimony, gallium, germanium and other superhard materials. Reciprocally, the United States increased tariffs on
many items from China from 25% to 50%, effective January 1, 2025. On February 1, 2025, the United States again increased
the tariff on imports of many products from China, including our wafer substrates, to 60%. On February 4, 2025, China added
indium phosphide substrates to its export control list. On March 4, 2025, the United States further increased the tariff on
imports of many products, including our wafer substrates, to 70%.
Previously, as of August 1, 2023, Tongmei was required to secure permits from the applicable Chinese authorities to
export gallium arsenide and germanium substrates. Materials that could be used in military applications, specifically including
weapons of mass destruction, are the primary focus. We have little or no germanium exports to the U.S. and historically a
relatively small value of imports of gallium arsenide wafers into the U.S. Our primary revenue generator derived from imports
into the U.S. is indium phosphide substrates. In 2024, approximately 8% of our revenue was generated by sales to customers
in the U.S. To our knowledge, indium phosphide is rarely used in military applications and we can reasonably expect that
export permits to ship our indium phosphide substrates to the U.S. will be granted. But since the requirement is new it will
take at least several months from February 4, 2025 to have early applications processed. The political tensions between China
and the U.S. remain high and tariffs and controls on exports are changing and fluid. There can be no assurances that Tongmei
will receive China permits to export our wafer substrates or that China will not adopt additional export control regulations that
affect our business, financial condition and results of operations. Reciprocally, there can be no assurance that the U.S. will
allow products to be imported into the U.S. from China or what the tariff charge rate might be. For additional discussion
regarding these factors and other risks, please refer to “Item 1A. Risk Factors – Risks Related to International Aspects of Our
Business.
Operating Results
We manufacture all of our products in the People’s Republic of China (PRC or China), which generally has favorable
costs for facilities and labor compared with comparable facilities in the United States, Europe or Japan. Our supply chain
includes partial ownership of raw material companies in China (joint ventures). We believe this supply chain arrangement
provides us with pricing advantages, reliable supply and enhanced sourcing lead-times for key raw materials which are central
to our final manufactured products.
Revenue
Years Ended Dec. 31
2023 to 2024
2022 to 2023
Increase
Increase
2024
2023
2022
(Decrease) % Change
(Decrease)
% Change
Product Type:
Substrates
$ 67,748
$ 47,466
$ 111,094
$ 20,282
42.7 %
$ (63,628)
(57.3)%
Raw materials and other
31,613
28,329
30,024
3,284
11.6 %
(1,695)
(5.6)%
Total revenue
$ 99,361
$ 75,795
$ 141,118
$ 23,566
31.1 %
$ (65,323)
(46.3)%
Revenue increased $23.6 million, or 31.1%, in 2024 from $75.8 million in 2023. The $20.3 million increase in wafer
substrate sales was the result of higher demand for InP wafer substrates for 5G applications, data center upgrades (silicon
photonics) and consumer related applications, GaAs wafer substrates as the result of increased demand for LED products,
industrial lasers and other applications requiring low defect densities in the wafer substrate and higher demand for our Ge
wafer substrates from our customers in China. The $3.3 million raw materials revenue increase as compared to the same
period in 2023 was primarily the result of increased sales of purified gallium and increased revenue from pBN crucibles and
pBN-based OLED manufacturing tools sold by BoYu, one of our consolidated raw material companies.
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57
Revenue decreased $65.3 million, or 46.3%, in 2023 from $141.1 million in 2022. The $63.6 million decrease in
wafer substrate sales was the result of lower demand for InP wafer substrates for 5G applications, data center upgrades (silicon
photonics) and consumer related applications, lower demand for our GaAs wafer substrates as the result of decreased demand
for LED products, industrial lasers and other applications requiring low defect densities in the wafer substrate and lower
demand for our Ge wafer substrates from our customers in China. The $1.7 million raw materials revenue decrease as
compared to the same period in 2022 was primarily the result of decreased revenue from pBN crucibles and pBN-based
OLED manufacturing tools sold by BoYu, one of our consolidated raw material companies, partially offset by increased sales
of purified gallium.
Revenue by Geographic Region
Year Ended Dec. 31,
2023 to 2024
2022 to 2023
Increase
Increase
Increase
Increase
2024
2023
2022
(Decrease) % Change
(Decrease) % Change
($ in thousands)
China
$ 56,119
$ 39,778
$
55,414
$ 16,341
41.1 %$ (15,636)
(28.2)%
% of total revenue
56 %
53 %
39 %
Taiwan
14,098
8,651
28,780
5,447
63.0 %
(20,129)
(69.9)%
% of total revenue
14 %
11 %
21 %
Japan
4,979
4,641
11,724
338
7.3 %
(7,083)
(60.4)%
% of total revenue
5 %
6 %
8 %
Asia Pacific (excluding China,
Taiwan and Japan)
2,818
3,814
4,188
(996)
(26.1)%
(374)
(8.9)%
% of total revenue
3 %
5 %
3 %
Europe (primarily Germany)
13,766
12,315
20,592
1,451
11.8 %
(8,277)
(40.2)%
% of total revenue
14 %
16 %
15 %
North America (primarily the
United States)
7,581
6,596
20,420
985
14.9 % (13,824)
(67.7)%
% of total revenue
8 %
9 %
14 %
Total revenue
$ 99,361
$ 75,795
$ 141,118
$ 23,566
31.1 %$ (65,323)
(46.3)%
Sales to customers located outside of North America represented approximately 92%, 90% and 86% of our revenue
during 2024, 2023 and 2022, respectively.
Revenue from customers in China increased in 2024 by 41.1%, primarily due to higher demand for GaAs, InP and Ge
wafer substrates used in wireless and LED applications, pBN crucibles sold by one of our consolidated subsidiaries and
refined gallium sold by another of our consolidated subsidiaries. Revenue from customers in Taiwan increased in 2024 by
63.0%, primarily due to higher demand for GaAs wafer substrates and InP wafer substrates used in wireless applications,
partially offset by decreased demand for Ge wafer substrates. Revenue from customers in Japan increased in 2024 by 7.3% as
a result of higher demand for our InP wafer substrates and pBN crucibles sold by one of our consolidated subsidiaries,
partially offset by decreased demand for our GaAs wafers used in LED and wireless applications and refined gallium.
Revenue from customers in Asia Pacific decreased by 26.1% as a result of decreased demand for GaAs wafer substrates used
in wireless applications and pBN crucibles sold by one of our consolidated subsidiaries, partially offset by increased demand
for raw gallium. Revenue from customers in Europe increased in 2024 by 11.8%, primarily due to higher demand for GaAs
wafer substrates used in LED and wireless applications, InP and Ge wafer substrates, partially offset by lower demand for
pBN crucibles sold by one of our consolidated subsidiaries. Revenue from customers in North America increased in 2024 by
14.9% primarily due to higher demand for InP wafer substrates, partially offset by decreased demand for GaAs wafer
substrates and pBN crucibles sold by one of our consolidated subsidiaries.
Revenue from customers in China decreased in 2023 by 28.2%, primarily due to lower demand for Ge and InP wafer
substrates and GaAs wafer substrates used in wireless and LED applications and pBN crucibles sold by one of our
consolidated subsidiaries, partially offset by increased demand for refined gallium. Revenue from customers in Taiwan
decreased in 2023 by 69.9%, primarily due to lower demand for InP wafer substrates and GaAs wafer substrates used in
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58
wireless applications, partially offset by increased demand for Ge wafer substrates. Revenue from customers in Japan
decreased in 2023 by 60.4% as a result of lower demand for InP and Ge wafer substrates, GaAs wafer substrates used in LED
and wireless applications, pBN crucibles sold by one of our consolidated subsidiaries and refined gallium. Revenue from
customers in Asia Pacific decreased by 8.9% as a result of decreased demand for GaAs wafer substrates used in wireless
applications and refined gallium, partially offset by increased demand for InP wafer substrates and pBN crucibles sold by one
of our consolidated subsidiaries. Revenue from customers in Europe decreased in 2023 by 40.2%, primarily due to lower
demand for GaAs wafer substrates used in LED and wireless applications, InP and Ge wafer substrates and pBN crucibles sold
by one of our consolidated subsidiaries. Revenue from customers in North America decreased in 2023 by 67.7% primarily due
to lower demand for InP wafer substrates and GaAs wafer substrates used in LED and wireless applications, partially offset by
increased demand for pBN crucibles sold by one of our consolidated subsidiaries.
Gross Margin
2023 to 2024
2022 to 2023
Year Ended Dec. 31,
Increase
Increase
2024
2023
2022
(Decrease) % Change
(Decrease) % Change
($ in thousands)
Gross profit
$ 23,836
$ 13,318
$ 52,121
$ 10,518
79.0 %$ (38,803)
(74.4)%
Gross Profit %
24.0 %
17.6 %
36.9 %
Gross profit increased $10.5 million in 2024 as compared to 2023. Gross margin in 2024 was 24.0% as compared to
17.6% in 2023. The increase in gross profit is attributed to higher revenue resulting in fixed costs being spread over more units
and a favorable change in product mix.
Gross profit decreased $38.8 million in 2023 as compared to 2022. Gross margin in 2023 was 17.6% as compared to
36.9% in 2022. The decrease in gross profit is attributed to lower revenue resulting in fixed costs being spread over less units
and an unfavorable change in product mix.
Selling, General and Administrative Expenses
2023 to 2024
2022 to 2023
Years Ended Dec. 31
Increase
Increase
2024
2023
2022
(Decrease) % Change
(Decrease) % Change
($ in thousands)
Selling, general and
administrative expenses
$ 24,096
$ 22,806
$ 25,654
$
1,290
5.7 % $ (2,848)
(11.1)%
% of total revenue
24.3 %
30.1 %
18.2 %
Selling, general and administrative expenses increased $1.3 million, or 5.7%, to $24.1 million for 2024 compared to
$22.8 million for 2023. The higher selling, general and administrative expenses were primarily from higher legal expenses,
professional service expenses and outside commissions, partially offset by lower insurance costs and allowance for credit
losses.
Selling, general and administrative expenses decreased $2.8 million, or 11.1%, to $22.8 million for 2023 compared to
$25.7 million for 2022. The lower selling, general and administrative expenses were primarily from lower personnel-related
expenses, stock compensation expenses and outside commissions, partially offset by higher professional service expenses and
D&O insurance costs.
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59
Research and Development Expenses
2023 to 2024
2022 to 2023
Years Ended Dec. 31
Increase
Increase
2024
2023
2022
(Decrease) % Change
(Decrease) % Change
($ in thousands)
Research and development
$ 14,543
$ 12,081
$ 13,913
$
2,462 20.4
% $ (1,832)
(13.2)%
% of total revenue
14.6 %
15.9 %
9.9 %
Research and development expenses increased $2.5 million, or 20.4%, to $14.5 million in 2024 from $12.1 million in
2023. The increase in research and development expenses in 2024 was primarily due to higher development expenses for 8-
inch GaAs and 6-inch InP wafer substrates and the development of new features for certain of our GaAs and InP wafer
substrates and new product testing, partially offset by lower personnel-related expenses.
Research and development expenses decreased $1.8 million, or 13.2%, to $12.1 million in 2023 from $13.9 million
in 2022. The decrease in research and development expenses in 2023 was primarily due to lower personnel-related expenses
and development expenses for 8-inch GaAs and 6-inch InP wafer substrates and the development of new features for certain
of our GaAs and InP wafer substrates and new product testing.
Interest Expense, Net
2023 to 2024
2022 to 2023
Years Ended Dec. 31
Increase
Increase
2024
2023
2022
(Decrease) % Change
(Decrease) % Change
($ in thousands)
Interest expense, net
$
1,340
$
1,527
$
1,071
$
(187)
(12.2)%
$
456
42.6 %
% of total revenue
1.3 %
2.0 %
0.8 %
Interest expense, net decreased in 2024 as compared to the same period in 2023, primarily due to decreased
borrowings in 2024. Interest expense, net increased in 2023 as compared to the same period in 2022, primarily due to lower
investment balances in 2023 and increased borrowings in 2023.
Equity in Income of Unconsolidated Joint Venture Companies
2023 to 2024
2022 to 2023
Years Ended Dec. 31
Increase
Increase
2024
2023
2022
(Decrease) % Change
(Decrease) % Change
($ in thousands)
Equity in income of
unconsolidated joint ventures
$
3,439
$
1,884
$
5,957
$
1,555
82.5 %
$ (4,073)
(68.4)%
% of total revenue
3.5 %
2.5 %
4.2 %
Equity in income of unconsolidated joint ventures is the aggregate net income (loss) from our minority-owned supply
chain joint venture companies that are not consolidated. Equity in income of unconsolidated joint ventures increased $1.6
million to an income of $3.4 million in 2024 from an income of $1.9 million in 2023 as our unconsolidated joint ventures
reported better net income in 2024 as compared to 2023.
Equity in income of unconsolidated joint ventures decreased $4.1 million to an income of $1.9 million in 2023 from
an income of $6.0 million in 2022 as our unconsolidated joint ventures reported worse net income in 2023 as compared to
2022. The decreased income in 2023 includes total impairment charges of $1.9 million on two of our equity investments.
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60
Other Income, Net
2023 to 2024
2022 to 2023
Years Ended Dec. 31
Increase
Increase
2024
2023
2022
(Decrease) % Change
(Decrease) % Change
($ in thousands)
Other income, net
$
2,047
$
2,179
$
3,487
$
(132)
(6.1)%
$ (1,308)
(37.5)%
% of total revenue
2.1 %
2.9 %
2.5 %
Other income, net decreased $0.1 million to an income of $2.0 million for 2024 as compared to an income of $2.2
million in 2023, primarily due to foreign exchange gains of $0.1 million in 2024 compared to foreign exchange gains of $0.2
million in 2023.
Other income, net decreased $1.3 million to an income of $2.2 million for 2023 as compared to an income of $3.5
million in 2022, primarily due to foreign exchange gains of $0.2 million in 2023 compared to foreign exchange gains of $1.6
million in 2022 and compensation received from the China government by one of our consolidated subsidiaries for relocating
its facilities to Kazuo in 2022.
Provision for Income Taxes
2023 to 2024
2022 to 2023
Years Ended Dec. 31
Increase
Increase
2024
2023
2022
(Decrease) % Change
(Decrease) % Change
($ in thousands)
Provision for income taxes
$
1,134
$
160
$
2,185
$
974
608.8 %
$ (2,025)
(92.7)%
% of total revenue
1.1 %
0.2 %
1.5 %
Provision for income taxes for 2024 and 2023 were $1.1 million and $0.2 million, respectively, which were mostly
related to our consolidated wafer substrate subsidiaries in China and our two partially owned consolidated raw material
companies. No income taxes or benefits have been provided for AXT as the income in the U.S. had been fully offset by
utilization of federal and state net operating loss carryforwards. Additionally, there is uncertainty of generating future profit in
the U.S., which has resulted in our deferred tax assets being fully reserved. AXT-Tongmei incurred approximately $3,000 in
federal income tax liability for the year ended December 31, 2024. Our estimated tax rate can vary greatly from year to year
because of the change or benefit in the mix of taxable income between our U.S. and China-based operations.
Due to our uncertainty regarding our future profitability, we recorded a valuation allowance against our net deferred
tax assets of $20.7 million and $17.5 million for the years 2024 and 2023, respectively.
Net (Income) loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests
2023 to 2024
2022 to 2023
Years Ended Dec. 31
Increase
Increase
2024
2023
2022
(Decrease) % Change
(Decrease) % Change
($ in thousands)
Net (income) loss attributable
to noncontrolling interests and
redeemable noncontrolling
interests
$
167
$
1,312
$ (2,931)
$ (1,145)
(87.3)%
$
4,243
144.8 %
% of total revenue
0.2 %
1.7 %
(2.1)%
The decrease in noncontrolling interests and redeemable noncontrolling interests’ share of loss for 2024 as compared
to 2023 was primarily due to reduced losses at four of our consolidated subsidiaries in China and by a profit from our other
consolidated subsidiary in China.
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The decrease in noncontrolling interests and redeemable noncontrolling interests’ share of income to a loss for 2023
as compared to 2022 was primarily due to losses at four of our consolidated subsidiaries in China, partially offset by a profit
from our other consolidated subsidiary in China.
Liquidity and Capital Resources
Year Ended December 31,
2024
2023
2022
($ in thousands)
Net cash provided by (used in):
Operating activities
$
(12,112)
$
3,403
$
(8,765)
Investing activities
(4,445)
(2,604)
(25,223)
Financing activities
(536)
8,613
38,031
Effect of exchange rate changes
790
(646)
542
Net change in cash and restricted cash
(16,303)
8,766
4,585
Cash, restricted cash and cash equivalents—beginning year
50,114
41,348
36,763
Cash, restricted cash and cash equivalents —end of year
33,811
50,114
41,348
Short and long-term investments—end of year
—
2,140
11,457
Total cash, restricted cash, cash equivalents and short-term and long-term
investments
$
33,811
$
52,254
$
52,805
We consider cash and cash equivalents, short-term investments and long-term investments as liquid and available for
use within two years in our current operations. Short-term investments and long-term investments are comprised of money
market accounts, certificates of deposit, corporate bonds and notes, and government securities. As of December 31, 2024, we
and our consolidated joint ventures held approximately $24.8 million in cash and investments in bank accounts outside the
United States.
Total cash, restricted cash and cash equivalents, short-term and long-term investments decreased by $18.4 million in
2024. As of December 31, 2024, our principal source of liquidity was cash, restricted cash and cash equivalents of
$33.8 million. In 2024, cash, restricted cash and cash equivalents decreased by $16.3 million and short-term investments
decreased by $2.1 million. The decrease in cash, restricted cash and cash equivalents of $16.3 million in 2024 was primarily
due to net cash used in operating activities of $12.1 million, investing activities of $4.4 million and net cash used in financing
activities of $0.5 million, partially offset by the positive effect of exchange rate changes of $0.8 million.
Total cash, restricted cash and cash equivalents, short-term and long-term investments decreased by $0.6 million in
2023. As of December 31, 2023, our principal source of liquidity was $52.3 million, which consisted of cash, restricted cash
and cash equivalents of $50.1 million and short-term investments of $2.1 million. In 2023, cash, restricted cash and cash
equivalents increased by $8.8 million and short-term investments decreased by $9.3 million. The increase in cash, restricted
cash and cash equivalents of $8.8 million in 2023 was primarily due to net cash provided by operating activities of $3.4
million and financing activities of $8.6 million, partially offset by net cash used in investing activities of $2.6 million and the
effect of exchange rate changes of $0.6 million.
Net cash used in operating activities of $12.1 million for 2024 was primarily comprised of our net loss of $11.8
million, net change in operating assets and liabilities of $11.7 million and income from equity method investments of $3.4
million, partially offset by adjustment of non-cash items of depreciation and amortization of $9.0 million, return of equity
method investments (dividends) of $2.4 million, stock-based compensation of $3.1 million, deferred tax assets of $0.3 million
and loss on disposal of equipment of $0.1 million. The $11.7 million net change in operating assets and liabilities primarily
resulted from an increase in accounts receivable of $6.9 million, a $6.0 million increase in prepaid expenses and other current
assets, a $3.4 million decrease in other long-term liabilities, including royalties, and a $0.7 million increase in inventories,
partially offset by an increase in accounts payable of $3.0 million, a $1.3 million decrease in other assets, and a $1.0 million
increase in accrued liabilities.
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Net cash used in operating activities of $3.4 million for 2023 was primarily comprised of net change in operating
assets and liabilities of $7.0 million, adjustment of non-cash items of depreciation and amortization of $8.7 million, return of
equity method investments (dividends) of $4.3 million, stock-based compensation of $3.5 million, deferred tax assets of $0.6
million, provision for credit losses of $0.3 million and loss on sale of equity investment of $0.2 million, offset in part by our
net loss of $19.2 million and income from equity method investments of $2.1 million. The $7.0 million net change in
operating assets and liabilities primarily resulted from a decrease in accounts receivable of $9.3 million, a $1.1 million
decrease in inventories and a $0.4 million decrease in other assets, offset in part by a $1.9 million decrease in accrued
liabilities, a $1.0 million decrease in other long-term liabilities, including royalties, a $0.7 million increase in prepaid expenses
and other current assets, and a decrease in accounts payable of $0.2 million.
Net cash used in operating activities of $8.8 million for 2022 was primarily comprised of net change in operating
assets and liabilities of $35.2 million, gain on equity method investments of $6.0 million offset in part by our net income of
$18.7 million, adjustment of non-cash items of depreciation and amortization of $8.1 million, stock-based compensation of
$4.0 million, return of equity method investments (dividends) of $1.6 million, and amortization of marketable securities
premium of $0.1 million. The $35.2 million net change in operating assets and liabilities primarily resulted from a $31.4
million increase in inventories, a $5.5 million decrease in accounts payable, a $3.5 million increase in prepaid expenses and
other current assets, a $2.1 million decrease in accrued liabilities, and a $0.5 million increase in other assets offset in part by a
$4.5 million decrease in accounts receivable and a $3.3 million increase in other long-term liabilities, including royalties.
Net cash used in investing activities of $4.4 million for 2024 was primarily due to property, plant and equipment
of $5.8 million in preparation for our new manufacturing sites, additional equipment for our Beijing site and equipment and
facility costs incurred by our consolidated subsidiaries and investments in non-marketable equity investments of $0.8 million,
which were partially offset by proceeds from maturities and sales of available-for-sale debt securities of $2.2 million.
Net cash used in investing activities of $2.6 million for 2023 was primarily due to property, plant and equipment of
$10.5 million in preparation for our new manufacturing sites, additional equipment for our Beijing site and equipment and
facility costs incurred by our consolidated subsidiaries and investments in non-marketable equity investments of $2.5 million,
which were partially offset by proceeds from maturities and sales of available-for-sale debt securities of $9.6 million and
proceeds from sales of equity securities of $0.8 million.
Net cash used in investing activities of $25.2 million for 2022 was primarily due to property, plant and equipment of
$28.5 million in preparation for our new manufacturing sites, additional equipment for our Beijing site and equipment and
facility costs incurred by our consolidated subsidiaries and the purchases of marketable investment securities of $2.2 million,
which were partially offset by proceeds from maturities and sales of available-for-sale debt securities of $5.4 million.
Net cash used in financing activities was $0.5 million for 2024 which mainly consisted of payments on short-term
loans of $60.0 million and payments on long term loans of $0.8 million, which were partially offset by the proceeds of $54.5
million from short-term loans in China, and $5.8 million from long-term loans in China.
Net cash provided by financing activities was $8.6 million for 2023 which mainly consisted of the proceeds of $56.5
million from short-term loans in China, $0.7 million from the capital increase in subsidiary shares from noncontrolling
interest, and $0.6 million from a long-term loan in China, which were partially offset by payments on short-term loans of
$49.2 million.
Net cash provided by financing activities was $38.0 million for 2022 which mainly consisted of the proceeds of
$53.1 million from short-term loans in China, $2.2 million from the capital increase in subsidiary shares from noncontrolling
interest, and $0.5 million from the exercise of common stock options, which were partially offset by payments on short-term
loans of $17.8 million.
On October 27, 2014, our Board of Directors approved a stock repurchase program pursuant to which we may
repurchase up to $5.0 million of our outstanding common stock. These repurchases can be made from time to time in the
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open market and are funded from our existing cash balances and cash generated from operations. During 2015, we
repurchased approximately 908,000 shares at an average price of $2.52 per share for a total purchase price of approximately
$2.3 million under the stock repurchase program. No shares were repurchased during 2024, 2023 and 2022 under this
program. As of December 31, 2024, approximately $2.7 million remained available for future repurchases under this
program. Currently, we do not plan to repurchase additional shares.
Dividends accrue on our outstanding Series A preferred stock, and are payable as and when declared by our Board of
Directors. We have never paid or declared any dividends on the Series A preferred stock. By the terms of the Series A
preferred stock, so long as any shares of Series A preferred stock are outstanding, neither the Company nor any subsidiary of
the Company shall redeem, repurchase or otherwise acquire any shares of common stock, unless all accrued dividends on the
Series A preferred stock have been paid. During 2013 and 2015, we repurchased shares of our outstanding common stock. As
of December 31, 2015, the Series A preferred stock had cumulative dividends of $2.9 million and we included this amount in
“Accrued liabilities” in our consolidated balance sheets. At the time we pay this accrued liability, our cash and cash
equivalents would be reduced. We account for the cumulative year to date dividends on the Series A preferred stock when
calculating our earnings per share. See Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities in Part II.
Occasionally, one of our PRC subsidiaries or PRC raw material joint ventures declares and pays a dividend. These
dividends generally occur when the PRC joint venture declares a dividend for all of its shareholders. Dividends paid to the
Company are subject to a 10% PRC withholding tax. The Company is required to obtain approval from SAFE to transfer
funds in or out of the PRC. SAFE requires a valid agreement to approve the transfers, which are processed through a bank.
Other than PRC foreign exchange restrictions, the Company is not subject to any PRC restrictions and limitations on its ability
to distribute earnings from its businesses, including its PRC subsidiaries and PRC joint ventures, to the Company and its
investors as well as the ability to settle amounts owed by the Company to its PRC subsidiaries and PRC joint ventures. If
SAFE approval is denied the dividend payable to the Company would be owed but would not be paid.
For the years ended December 31, 2024, 2023 and 2022, 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
approximately $2.4 million, $4.3 million and $2.9 million, respectively. In June 2022, July 2022 and August 2022, we
received a dividend of $1.3 million from BoYu, $1.5 million from one of our equity investments, Xiaoyi XingAn Gallium Co.,
Ltd. (“Xiaoyi XingAn”) and $0.1 million from one of our equity investments, JiYa Semiconductor Material Co. Ltd. (“JiYa”),
respectively. In April 2023 and November 2023, Xiaoyi XingAn distributed a dividend of $1.8 million, and JiYa distributed
dividends of $2.0 million and $0.5 million, respectively. In May 2024 and November 2024, Xiaoyi XingAn distributed a $2.1
million dividend to us, and JiYa distributed a dividend of 0.3 million. For the years ended December 31, 2024 and 2023, there
were no dividends paid to minority shareholders by our PRC subsidiaries or PRC raw material joint ventures.
We have no current intentions to distribute to our investors earnings under our corporate structure. We settle amounts
owed under our transfer pricing arrangements in the ordinary course of business.
The cash generated from one PRC subsidiary is not used to fund another PRC subsidiary’s operations. None of our
PRC subsidiaries has ever faced difficulties or limitations on its ability to transfer cash between our subsidiaries. AXT has
cash management policies that dictate the amount of such funding.
As one of the first steps in the process of listing Tongmei on the STAR Market and going public, we sold
approximately 7.28% of Tongmei to private equity investors for approximately $49 million in the aggregate. Pursuant to the
Capital Investment Agreements with the Investors, each Investor has the right to require AXT to redeem any or all Tongmei
shares held by such Investor at the original purchase price paid by such Investor, without interest, in the event the IPO fails to
pass the audit of the Shanghai Stock Exchange, is not approved by the CSRC or Tongmei cancels the IPO application. The
aggregate redemption amount is approximately $49 million.
Tongmei submitted its IPO application to the Shanghai Stock Exchange, and it was formally accepted for review on
January 10, 2022. The Shanghai Stock Exchange approved the IPO application on July 12, 2022. On August
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1, 2022, the CSRC accepted for review Tongmei’s IPO application. The STAR Market IPO remains subject to review and
approval by the CSRC and other authorities. The process of going public on the STAR Market includes several periods of
review and, therefore, is a lengthy process. Subject to review and approval by the CSRC and other authorities, Tongmei hopes
to accomplish this goal in the coming months. The listing of Tongmei on the STAR Market will not change the status of AXT
as a U.S. public company.
We believe that we have adequate cash to meet our operating needs and capital expenditures over the next twelve
months. If our sales decrease, however, our ability to generate cash from operations will be adversely affected which could
adversely affect our future liquidity, require us to use cash at a more rapid rate than expected, and require us to seek additional
capital.
On July 27, 2021, we filed with the SEC a registration statement on Form S-3, pursuant to which we may offer up to
$60 million of common stock, preferred stock, debt securities, depositary shares, warrants, subscription rights, purchase
contracts and/or units in one or more offerings and in any combination. A prospectus supplement, which we will provide each
time we offer securities, will describe the specific amounts, prices and terms of the securities we determine to offer. We
currently expect to use the net proceeds from the sale of securities under the shelf registration statement for working capital,
capital expenditures and other general corporate purposes. We may also use a portion of the net proceeds to acquire, license or
invest in complementary products, technologies or businesses. On May 17, 2022, the SEC declared the registration statement
effective.
Cash from operations could be affected by various risks and uncertainties, including, but not limited to those set forth
below under Item 1A. “Risk Factors” above.
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65
Bank Loans and Line of Credit
Our bank loans and credit facilities typically have a term of 12 months or less and are included in “Short-term loan”
in our consolidated balance sheets. The following table represents Short-term bank loans as of December 31, 2024 and 2023
(in thousands, except interest rate data):
Loan
Interest
December 31,
December 31,
Subsidiary
Bank
Detail
Rate
Start Date
Due Date
2024
2023
Tongmei
Bank of China (1)
$
1,848
3.5
% January-23
January-24
$
-
$
1,795
2,184
2.8
% March-23
March-24
-
2,118
376
2.7
% September-23
September-24
-
386
876
3.5
% November-23
November-24
-
876
1,003
3.5
% November-23
November-24
-
1,003
Bank of China (2)
2,911
3.5
% January-23
January-24
-
2,825
Bank of China (5)
1,426
2.4
% September-24
September-25
1,370
-
1,370
2.4
% November-24
November-25
1,370
-
685
2.7
% November-24
November-25
685
-
Bank of Communications (1)
1,455
3.3
% January-23
January-24
-
1,414
1,380
3.8
% May-23
May-24
-
1,414
1,373
3.8
% July-23
May-24
-
1,414
1,376
3.0
% May-24
May-25
1,370
-
2,480
3.0
% June-24
May-25
2,466
-
China Merchants Bank (1)
4,367
3.7
% January-23
January-24
-
4,235
1,386
3.5
% January-24
January-25
1,370
-
692
3.5
% February-24
February-25
685
-
692
3.5
% April-24
April-25
685
-
Bank of Beijing (3)
2,290
4.2
% January-23
January-24
-
2,220
3,541
3.2
% June-23
May-24
-
3,626
1,380
3.2
% June-23
February-24
-
1,414
1,414
3.0
% December-23
December-24
-
1,414
3,600
3.0
% March-24
February-25
3,565
-
3,580
3.0
% June-24
June-25
3,565
-
Industrial Bank (1)
2,757
4.3
% June-23
June-24
-
2,825
2,744
4.3
% July-23
July-24
-
2,825
2,744
4.3
% September-23
September-24
-
2,825
2,851
3.9
% September-24
September-25
2,740
-
2,679
3.9
% October-24
October-25
2,679
-
1,440
3.2
% November-24
November-25
1,440
-
NingBo Bank (1)
2,744
4.2
% August-23
September-24
-
2,820
1,271
4.3
% November-23
November-24
-
1,271
2,825
4.3
% December-23
December-24
-
2,825
1,647
4.3
% January-24
January-25
1,630
-
1,258
4.3
% May-24
March-25
1,255
-
1,822
3.9
% November-24
November-25
1,822
-
550
3.9
% December-24
December-25
550
-
Industrial and Commercial Bank of China (1)
2,744
3.3
% September-23
September-24
-
2,825
2,851
3.3
% September-24
September-25
2,740
-
NanJing Bank (1)
2,752
3.8
% October-23
October-24
-
2,752
China Citic Bank (1)
2,752
2.9
% June-24
June-25
2,740
-
2,851
2.9
% July-24
July-25
2,740
-
1,426
2.9
% September-24
September-25
1,370
-
Agricultural Bank of China (1)
1,235
2.6
% November-24
November-25
1,235
-
137
2.6
% December-24
December-25
137
-
BoYu
Industrial and Commercial Bank of China (4)
1,414
2.7
% December-23
December-24
-
1,414
Industrial and Commercial Bank of China (1)
1,426
2.8
% September-24
September-25
1,370
-
Bank of China (1)
1,204
2.4
% January-23
January-24
-
849
1,145
2.3
% September-24
September-25
1,096
-
274
2.4
% December-24
December-25
274
-
NingBo Bank (1)
1,414
3.3
% November-23
May-24
-
1,414
Industrial Bank (1)
688
3.6
% September-23
September-24
-
708
1,370
2.7
% November-24
November-25
1,370
-
Bank of Communications (1)
1,414
3.0
% November-23
May-24
-
1,414
274
3.0
% May-24
May-25
274
-
NanJing Bank (1)
1,370
2.8
% December-24
December-25
1,370
-
Loan Balance
$
45,963
$
52,921
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66
Collateral for the above bank loans and line of credit
(1)
Not collateralized.
(2)
ChaoYang LiMei time deposit.
(3)
AXT time deposit.
(4)
BoYu’s land use rights and its building located at its facility in Tianjin, China. In addition, the December 2023 loan attracts a guarantee fee
amounting to 0.7% of the loan amount.
(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. The credit facility bears interest at a rate of 6.5% per annum on the amount drawn from the line of credit. The
credit facility is collateralized by the real estate properties owned by ChaoYang Tongmei. In January 2024, the Company
borrowed $5.8 million against the credit facility. The intended use of the credit facility is for construction of fixed assets. As of
December 31, 2024, $5.2 million is included in “Other long-term liabilities” and $411,000 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 December 31, 2024, $619,000 is included in “Other long-term
liabilities” and $890,000 is included in “Short-term loans” in our consolidated balance sheets.
Off-Balance Sheet Arrangements
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). We have not entered into any options on non-financial assets.
Contractual Obligations
We lease certain equipment, office space, warehouse and facilities under long-term operating leases expiring at
various dates through November 2029. The majority of our lease obligations relate to our lease agreement for our facility in
Fremont, California with approximately 19,467 square feet, which was scheduled to expire in 2020. Under the terms of the
facility lease agreement, in May 2020, we were granted an extension to the term of the lease for an additional three years.
Furthermore, in September 2023, we entered into another agreement to extend the lease for an additional five years,
commencing December 2023. There are no variable lease payments, residual value guarantees or any restrictions or covenants
imposed by the facility lease. The remainder relate to our lease agreements for a nitrogen system and a facility. The nitrogen
system is used during the manufacturing process by our facility in Dingxing, China. The equipment lease became effective in
August 2019 and will expire in July 2029. The facility, located in Tongzhou, China, has a lease effective from December 2024
and expiring in November 2029. There are no variable lease payments, residual value guarantees or any restrictions or
covenants imposed by the equipment lease. All other operating leases have a term of 12 months or less. Total rent expenses
under these operating leases charged to selling, general and administrative were approximately $624,000, $510,000 and
$458,000 for the years ended December 31, 2024, 2023 and 2022, respectively, primarily related to our Fremont facility. Total
rent expenses under these operating leases charged to cost of revenue were approximately $275,000, $285,000 and $303,000
for the years ended December 31, 2024, 2023 and 2022, respectively, primarily related to the nitrogen system at our facility in
Dingxing.
In 2020, we and a competitor entered into the Cross License Agreement, which has a term that begins on January 1,
2020 and expires on December 31, 2029. The Cross License Agreement is a fixed-cost cross license and not a variable-cost
cross license that is based on revenue or units. Under the Cross License Agreement, we are obligated to make annual
payments over a 10-year period. For the years ended December 31, 2024 and 2023, the royalty expense under the Cross
License Agreement was not considered material to our consolidated financial statements.
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67
Land Purchase and Investment Agreement
We have established a wafer processing production line in Dingxing, China. In addition to a land rights and building
purchase agreement that we entered into with a private real estate development company to acquire our new manufacturing
facility, we also entered into a cooperation agreement with the Dingxing local government. In addition to pledging its full
support and cooperation, the Dingxing local government will issue certain tax credits to us as we achieve certain
milestones. We, in turn, agreed to hire local workers over time, pay taxes when due and eventually demonstrate a total
investment of approximately $90 million in value, assets and capital. The investment will include cash paid for the land and
buildings, cash on deposit in our name at local banks, the gross value of new and used equipment (including future equipment
that might be used for indium phosphide and germanium substrates production), the deemed value for our customer list or the
end user of our substrates (for example, the end users of the 3-D sensing VCSELs), a deemed value for employment of local
citizens, a deemed value for our proprietary process technology, other intellectual property, other intangibles and additional
items of value. There is no timeline or deadline by which this must be accomplished, rather it is a good faith covenant entered
into between AXT and the Dingxing local government. Further, there is no specific penalty contemplated if either party
breaches the agreement, however the agreement does state that each party has a right to seek from the other party
compensation for losses. Under certain conditions, the Dingxing local government may purchase the land and building at the
appraised value. We believe that such cooperation agreements are normal, customary and usual in China and that the future
valuation is flexible. We have a similar agreement with the city of Kazuo, China, although on a smaller scale. The total
investment targeted by AXT in Kazuo is approximately $15 million in value, assets and capital.
Purchase Obligations with Penalties for Cancellation
In the normal course of business, we issue purchase orders to various suppliers. In certain cases, we may incur a
penalty if we cancel the purchase order. As of December 31, 2024, we do not have any outstanding purchase orders that will
incur a penalty if canceled by the Company.
Recent Accounting Pronouncements
Recent accounting pronouncements are detailed in Note 1 to our consolidated financial statements included in this
Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Risk
A significant portion of our business is conducted in currencies other than the U.S. dollar. Foreign exchange losses
have had a material adverse effect on our operating results and cash flows in the past and could have a material adverse effect
on our operating results and cash flows in the future. If we do not effectively manage the risks associated with this currency
risk, our revenue, cash flows and financial condition could be adversely affected. During 2024, 2023 and 2022, we recorded a
foreign exchange gain of $0.1 million, $0.2 million and $1.6 million, respectively. We incur foreign currency transaction
exchange gains and losses due to operations in general. In the future we may experience foreign exchange losses on our non-
functional currency denominated receivables and payables to the extent that we have not mitigated our exposure. Foreign
exchange losses could have a materially adverse effect on our operating results and cash flows.
Our product sales to Japanese customers are typically invoiced in Japanese yen. As such we have foreign exchange
exposure on our accounts receivable and on any Japanese yen denominated cash deposits. To partially protect us against
fluctuations in foreign currency resulting from accounts receivable in Japanese yen, starting in 2015, we instituted a foreign
currency hedging program. We place short term hedges that are intended to offset the potential cash exposure related to
fluctuations in the exchange rate between the United States dollar and Japanese yen. We measure the fair value of these hedges
at each month end and quarter end using current exchange rates and in accordance with generally accepted accounting
principles. At quarter end and year end any foreign currency hedges not settled are netted on the consolidated balance sheet
and consolidated balance sheet, respectively, and classified as Level 3 assets and
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liabilities. As of December 31, 2024 the net change in fair value from the placement of the hedge to settlement at each month
end during the quarter had a de minimis impact to the consolidated results.
The functional currency for our foreign operations is the renminbi, the local currency of China, and in the future we
may establish short term hedges covering renminbi. Most of our operations are conducted in China and most of our costs are
incurred in Chinese renminbi, which subjects us to fluctuations in the exchange rates between the U.S. dollar and the Chinese
renminbi. We incur transaction gains or losses resulting from consolidation of expenses incurred in local currencies for our
Chinese subsidiaries, as well as in translation of the assets and liabilities at each balance sheet date. Our financial results could
be adversely affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign
markets, including the revaluation by China of the renminbi, and any future adjustments that China may make to its currency
such as any move it might make to a managed float system with opportunistic interventions. We may also experience foreign
exchange losses on our non-functional currency denominated receivables and payables.
We currently are using a hedging program to minimize the effects of currency fluctuations relating to the
Japanese yen. While we may apply this program to other currencies, such as the Chinese renminbi, our hedging position is
partial and may not exist at all in the future. It may not succeed in minimizing our foreign currency fluctuation
risks. Our primary objective in holding these instruments is to reduce the volatility of earnings and cash flows associated with
changes in foreign currency. The program is not designated for trading or speculative purposes. The Company may choose not
to hedge certain foreign exchange exposures for a variety of reasons, including but not limited to accounting considerations
and the prohibitive economic cost of hedging particular exposures. However, even with our hedging program, we still
experience losses on foreign exchange from time to time.
Interest Rate Risk
Cash, restricted cash and cash equivalents earning interest and certain variable rate debt instruments are subject to
interest rate fluctuations. The following table sets forth the probable impact of a 10% change in interest rates (in thousands):
Proforma 10% Proforma 10%
Balance as of
Current
Projected Annual
Interest Rate
Interest Rate
December 31,
Interest
Interest
Decline
Increase
Instrument
2024
Rate
Income
Income
Income
Cash, restricted cash and cash equivalents
$
33,811
0.80 % $
270
$
243
$
297
Investments in marketable debt securities
—
— %
—
—
—
$
270
$
243
$
297
The primary objective of our investment activities is to preserve principal while maximizing income without
significantly increasing risk. Financial instruments that potentially subject us to concentration of credit risk consist primarily
of cash, restricted cash, cash equivalents, short-term investments, and accounts receivable. We invest primarily in money
market accounts, certificates of deposits, corporate bonds and notes, and government securities. We are exposed to credit risks
in the event of default by the issuers to the extent of the amount recorded on the consolidated balance sheets. Our cash,
restricted cash, cash equivalents and short-term investments and long-term investments are in high-quality instruments placed
with major banks and financial institutions. We have no investments in auction rate securities.
Credit Risk
We perform ongoing credit evaluations of our customers’ financial condition, and limit the amount of credit extended
when deemed necessary, but generally do not require collateral. The credit risk in our accounts receivable is mitigated by our
credit evaluation process and the geographical dispersion of sales transactions. One customer accounted for more than 10% of
our accounts receivable as of December 31, 2024 and no customer accounted for more than 10% of our accounts receivable as
of December 31, 2023.
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69
Equity Risk
As part of our supply chain strategy, we maintain minority investments in privately held raw material companies
located in China either invested directly by us and our subsidiaries or through our consolidated joint venture companies. These
minority investments are reviewed for other than temporary declines in value on a quarterly basis. These investments are
classified as other assets in the consolidated balance sheets and accounted for under either the equity or fair value method,
depending on whether we have the ability to exercise significant influence over their operations or financial decisions. We
monitor our investments for impairment and record reductions in carrying value when events or changes in circumstances
indicate that the carrying value may not be recoverable. Reasons for other than temporary declines in value include whether
the related company would have insufficient cash flow to operate for the next twelve months, significant changes in the
operating performance and changes in market conditions. Our minority investment under the fair value method as of
December 31, 2024 and 2023 totaled $0.6 million and $0.6 million, respectively (see Note 6 to the consolidated financial
statements). Our minority investments under the equity method as of December 31, 2024 and 2023 totaled $14.1 million and
$12.5 million, respectively.
Inflation Risk
While the historical impact of inflation is difficult to accurately measure due to the imprecise nature of the estimates
required, we do not believe the effects of inflation on our consolidated results of operations and financial condition have been
material. However, there can be no assurance that our consolidated results of operations and financial condition will not be
materially impacted by inflation in the future, including by heightened levels of inflation currently experienced globally.
Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such
higher costs. Our inability or failure to do so could harm our business, consolidated results of operations or financial
condition.
Item 8. Consolidated Financial Statements and Supplementary Data
The consolidated financial statements, related notes thereto and financial statement schedules required by this item
are listed and set forth beginning on page 72, and are incorporated by reference here.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the
effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this
Annual Report on Form 10-K. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures as defined under Exchange Act Rules 13a-15(e) and 15d-15(e) were
effective at the reasonable assurance level to ensure that information required to be disclosed in our Securities Exchange Act
reports is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange
Commission and is accumulated and communicated to management, including our Chief Executive Officer and our Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Our disclosure controls and procedures include components of our internal control over financial reporting.
Management’s assessment of the effectiveness of our internal control over financial reporting is expressed at the level of
reasonable assurance because a control system, no matter how well designed and operated, can provide only reasonable
assurance that the control system’s objectives will be met.
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Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a
process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and implemented
by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Internal
control over financial reporting includes those policies and procedures that:
●
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and
dispositions of our assets;
●
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with U.S. GAAP, and that receipts and expenditures are being made only in accordance
with authorizations of our management and directors; and
●
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on the consolidated financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, has assessed the effectiveness of our internal control over financial reporting as of December 31, 2024 based
on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Management has concluded that our internal control over financial
reporting was effective as of December 31, 2024.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during our fourth quarter of fiscal 2024 that has
materially affected, or is reasonably likely to materially affect, AXT’s internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable.
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71
PART III
The SEC allows us to include information required in this Annual Report on Form 10-K by referring to other
documents or reports we have already filed or will soon be filing. This is called “Incorporation by Reference.” The Proxy
Statement will be filed with the SEC pursuant to Regulation 14A not later than 120 days after the end of the fiscal year
covered by this Annual Report on Form 10-K, and certain information therein is incorporated in this report by reference.
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item will be included in the Proxy Statement and is incorporated by reference into
this Annual Report on Form 10-K.
Item 11. Executive Compensation
The information required by this item will be included in the Proxy Statement and is incorporated by reference into
this Annual Report on Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be included in the Proxy Statement and is incorporated by reference into
this Annual Report on Form 10-K.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required by this item will be included in the Proxy Statement and is incorporated by reference into
this Annual Report on Form 10-K.
Item 14. Principal Accountant Fees and Services
The information required by this item will be included in the Proxy Statement and is incorporated by reference into
this Annual Report on Form 10-K.
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72
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)
The following documents are filed as part of this report:
(1)
Financial Statements:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID: 207)
73
Consolidated Balance Sheets
75
Consolidated Statements of Operations
76
Consolidated Statements of Comprehensive Income (Loss)
77
Consolidated Statements of Stockholders’ Equity
78
Consolidated Statements of Cash Flows
79
Notes to Consolidated Financial Statements
80
(2)
Financial Statement Schedules
All schedules have been omitted because the required information is not applicable or because the information
required is included in the consolidated financial statements or notes thereto.
(b)
Exhibits
See Index to Exhibits attached elsewhere to this Annual Report on Form 10-K. The exhibits listed in the
accompanying Index to Exhibits are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K.
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73
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of AXT, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of AXT, Inc. (a Delaware corporation) and its
subsidiaries (the “Company”) as of December 31, 2024, and 2023, and the related consolidated statements of operations,
comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December
31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December
31, 2024, and 2023, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal
control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on
a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to
accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.
Inventories – Reserve for Excess and Obsolete Inventory
As described in Notes 1 and 3 to the consolidated financial statements, the Company’s consolidated inventories
balance was $85.1 million as of December 31, 2024, which was net of a reserve of $24.1 million for excess and obsolete
inventories. The Company’s inventories are stated at the lower of weighted average costs (approximated by standard cost) or
net realizable value. The Company routinely evaluates the levels of its inventories in light of current market conditions in
order to identify excess and obsolete inventories, and to provide a reserve for certain inventories to their estimated net
realizable value based upon the age, quality and life expectancy of the product, and the projections for sale
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74
of the completed products. If actual demand were to be substantially lower than estimated, there could be a significant adverse
impact on the carrying value of inventories and consolidated results of operations.
The principal considerations for our determination that performing procedures relating to reserve for excess and
obsolete inventories is a critical audit matter are the significant amount of judgment by management in developing the
assumptions of the forecasted product demand, which in turn led to significant auditor judgment, subjectivity, and effort in
performing audit procedures and evaluating audit evidence relating to the forecasted product demand. Additionally, for certain
new product launches there may be limited historical data with which to evaluate forecasts.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of internal
controls relating to management’s reserve for excess and obsolete inventories, including internal controls over the
development of assumptions related to forecasted product demand. The procedures also included, among others, testing
management’s process for developing the reserve for excess and obsolete inventories, testing the completeness and accuracy
of the underlying data used in the estimate, and evaluating management’s assumptions of forecasted product demand.
Evaluating management’s demand forecast for reasonableness involved considering historical sales or usage by product,
comparing prior period estimates to actual results of the same period, and determining whether the demand forecast used was
consistent with evidence obtained in other areas of the audit.
/s/ BPM LLP
We have served as the Company’s auditor since 2004.
San Jose, California
March 14, 2025
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75
AXT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
December 31,
2024
2023
ASSETS
Current assets:
Cash and cash equivalents
$
22,833
$
37,752
Restricted cash
10,978
12,362
Short-term investments
—
2,140
Accounts receivable, net of allowances for credit losses of $147 and $579 as of
December 31, 2024 and December 31, 2023
25,640
19,256
Inventories
85,077
86,503
Prepaid expenses and other current assets
13,744
12,643
Total current assets
158,272
170,656
Property, plant and equipment, net
159,721
166,348
Operating lease right-of-use assets
2,479
2,799
Other assets
18,842 `
18,898
Total assets
$
339,314
$
358,701
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND
STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
12,356
$
9,617
Accrued liabilities
14,556
19,019
Short-term loans
47,264
52,921
Total current liabilities
74,176
81,557
Noncurrent operating lease liabilities
1,977
2,351
Other long-term liabilities
8,253
5,647
Total liabilities
84,406
89,555
Commitments and contingencies (Note 16)
Redeemable noncontrolling interests (Note 18)
38,577
41,663
Stockholders’ equity:
Preferred stock Series A, $0.001 par value; 2,000 shares authorized; 883 shares issued and
outstanding as of December 31, 2024 and December 31, 2023 (Liquidation preference of
$8,052 and $7,875 as of December 31, 2024 and December 31, 2023)
3,532
3,532
Common stock, $0.001 par value; 70,000 shares authorized; 45,358 and 44,239 shares
issued and outstanding as of December 31, 2024 and December 31, 2023
45
44
Additional paid-in capital
241,514
238,452
Accumulated deficit
(43,664)
(32,040)
Accumulated other comprehensive loss
(8,657)
(5,999)
Total AXT, Inc. stockholders’ equity
192,770
203,989
Noncontrolling interests
23,561
23,494
Total stockholders’ equity
216,331
227,483
Total liabilities, redeemable noncontrolling interests and stockholders’ equity
$
339,314
$
358,701
See accompanying notes to consolidated financial statements.
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76
AXT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year Ended December 31,
2024
2023
2022
Revenue
$
99,361
$
75,795
$
141,118
Cost of revenue
75,525
62,477
88,997
Gross profit
23,836
13,318
52,121
Operating expenses:
Selling, general and administrative
24,096
22,806
25,654
Research and development
14,543
12,081
13,913
Total operating expenses
38,639
34,887
39,567
Income (loss) from operations
(14,803)
(21,569)
12,554
Interest expense, net
(1,340)
(1,527)
(1,071)
Equity in income of unconsolidated joint ventures
3,439
1,884
5,957
Other income, net
2,047
2,179
3,487
Income (loss) before provision for income taxes
(10,657)
(19,033)
20,927
Provision for income taxes
1,134
160
2,185
Net income (loss)
(11,791)
(19,193)
18,742
Less: Net (income) loss attributable to noncontrolling interests and
redeemable noncontrolling interests
167
1,312
(2,931)
Net income (loss) attributable to AXT, Inc.
$
(11,624)
$
(17,881)
$
15,811
Net income (loss) attributable to AXT, Inc. per common share:
Basic
$
(0.27)
$
(0.42)
$
0.37
Diluted
$
(0.27)
$
(0.42)
$
0.37
Weighted-average number of common shares outstanding:
Basic
43,154
42,643
42,104
Diluted
43,154
42,643
42,715
See accompanying notes to consolidated financial statements.
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77
AXT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Year Ended December 31,
2024
2023
2022
Net income (loss)
$
(11,791)
$
(19,193)
$
18,742
Other comprehensive loss, net of tax:
Change in foreign currency translation loss, net of tax
(3,292)
(3,818)
(10,994)
Change in unrealized gain (loss) on available-for-sale debt
investments, net of tax
20
283
(238)
Total other comprehensive loss, net of tax
(3,272)
(3,535)
(11,232)
Comprehensive income (loss) attributable to AXT, Inc.
(15,063)
(22,728)
7,510
Less: Comprehensive (income) loss attributable to noncontrolling
interests and redeemable noncontrolling interests
781
1,965
(1,117)
Comprehensive income (loss) attributable to AXT, Inc.
$
(14,282)
$
(20,763)
$
6,393
See accompanying notes to consolidated financial statements.
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AXT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
Common Stock
Preferred
Additional
Accumulated Other
AXT, Inc.
Total
Stock
Paid-In
Accumulated
Comprehensive
Stockholders’
Noncontrolling
Stockholders’
Shares Amount Shares Amount Capital
Deficit
Income (Loss)
Equity
Interests
Equity
Balance as of January
1,2022
883
$ 3,532
42,886
43
231,622
(29,970)
6,302
211,529
18,317
229,846
Common stock options
exercised
172
1
517
518
518
Investment in subsidiary
with noncontrolling
interest
(466)
(466)
2,699
2,233
Investment in subsidiary
with redeemable
noncontrolling interest
(471)
(471)
(471)
Restricted stock awards
canceled
(91)
—
—
Stock-based
compensation
3,273
3,273
3,273
Issuance of common
stock in the form of
restricted stock
587
—
—
Tongmei stock-based
compensation
733
733
733
Noncontrolling interest
portion of Tongmei
stock-based
compensation
100
100
(42)
58
Investment in subsidiary
from noncontrolling
interest
—
1,887
1,887
Net income
15,811
15,811
1,333
17,144
Other comprehensive
loss
(9,420)
(9,420)
(901)
(10,321)
Balance as of
December 31, 2022
883
3,532
43,554
44
235,308
(14,159)
(3,118)
221,607
23,293
244,900
Common stock options
exercised
4
10
10
10
Investment in subsidiary
with noncontrolling
interest
(153)
(153)
861
708
Investment in subsidiary
with redeemable
noncontrolling interest
(155)
(155)
(155)
Restricted stock awards
canceled
(23)
—
—
Stock-based
compensation
2,779
2,779
2,779
Issuance of common
stock in the form of
restricted stock
704
—
—
Tongmei stock-based
compensation
761
761
761
Noncontrolling interest
portion of Tongmei
stock-based
compensation
(98)
(98)
55
(43)
Net loss
(17,881)
(17,881)
(391)
(18,272)
Other comprehensive
loss
(2,881)
(2,881)
(324)
(3,205)
Balance as of
December 31, 2023
883
3,532
44,239
44
238,452
(32,040)
(5,999)
203,989
23,494
227,483
Common stock options
exercised
12
1
27
28
28
Restricted stock awards
canceled
(6)
—
—
Stock-based
compensation
2,647
2,647
2,647
Issuance of common
stock in the form of
restricted stock
1,113
—
—
Tongmei stock-based
compensation
450
450
450
Noncontrolling interest
portion of Tongmei
stock-based
compensation
(62)
(62)
31
(31)
Net loss
(11,624)
(11,624)
342
(11,282)
Other comprehensive
loss
(2,658)
(2,658)
(306)
(2,964)
Balance as of
December 31, 2024
883
$ 3,532
45,358
$
45
$ 241,514
$
(43,664)
$
(8,657)
$
192,770
$
23,561
$
216,331
See accompanying notes to consolidated financial statements.
78
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79
AXT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
2024
2023
2022
Cash flows from operating activities:
Net income (loss)
$
(11,791)
$
(19,193)
$
18,742
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Depreciation and amortization
8,979
8,722
8,119
Amortization of marketable securities premium
—
18
58
Stock-based compensation
3,097
3,540
4,006
Provision for credit losses
—
272
(177)
Loss on sale of equity investment
—
166
—
(Gain) loss on disposal of equipment
118
21
(85)
Return of equity method investments as dividends
2,396
4,316
1,608
Equity in income of unconsolidated joint ventures
(3,439)
(2,050)
(5,957)
Deferred tax assets
265
553
104
Changes in operating assets and liabilities:
Accounts receivable
(6,896)
9,306
4,535
Inventories
(737)
1,073
(31,412)
Prepaid expenses and other current assets
(6,002)
(652)
(3,486)
Other assets
1,261
419
(471)
Accounts payable
3,038
(162)
(5,519)
Accrued liabilities
1,004
(1,897)
(2,127)
Other long-term liabilities
(3,405)
(1,049)
3,297
Net cash provided by (used in) operating activities
(12,112)
3,403
(8,765)
Cash flows from investing activities:
Purchases of property, plant and equipment
(5,771)
(10,475)
(28,465)
Purchases of available-for-sale debt securities
—
—
(2,158)
Proceeds from sales and maturities of available-for-sale debt securities
2,160
9,582
5,400
Proceeds from sales of equity securities - 15% Jia Mei
—
827
—
Investments in non-marketable equity investments
(834)
(2,538)
—
Net cash used in investing activities
(4,445)
(2,604)
(25,223)
Cash flows from financing activities:
Proceeds from common stock options exercised
28
10
518
Proceeds from short-term bank loans
54,501
56,470
53,078
Payments on short-term bank loans
(60,092)
(49,210)
(17,798)
Proceeds from capital increase in subsidiary shares from noncontrolling interests
—
708
2,233
Proceeds from long-term loan
5,831
635
—
Payments on long-term loan
(804)
Net cash provided by (used in) financing activities
(536)
8,613
38,031
Effect of exchange rate changes on cash, restricted cash and cash equivalents
790
(646)
542
Net increase (decrease) in cash, restricted cash and cash equivalents
(16,303)
8,766
4,585
Cash, restricted cash and cash equivalents at the beginning of the year
50,114
41,348
36,763
Cash, restricted cash and cash equivalents at the end of the period
$
33,811
$
50,114
$
41,348
Supplemental disclosures:
Income taxes paid, net of refunds
$
962
$
686
$
1,692
Interest expense paid
$
2,069
$
1,564
$
—
Supplemental disclosure of non-cash flow information:
Loan proceeds received by notes receivable
$
—
$
1,481
$
—
Notes receivables paid to purchase fixed assets
$
4,572
$
4,170
$
6,835
Non-cash consideration received from sale of DongFang
$
—
$
585
$
—
Conversion of related party borrowings to Additional Paid-in Capital
$
—
$
—
$
1,887
Investment in subsidiary shares from noncontrolling interest
$
—
$
308
$
937
Bank loan proceeds paid directly to a third-party vendor, included in accounts payable
$
—
$
—
$
474
Sales of land and building to unconsolidated joint venture
$
—
$
—
$
976
Consideration payable in connection with construction in progress, included in accrued
liabilities
$
857
$
6,574
$
4,135
See accompanying notes to consolidated financial statements.
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80
AXT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The Company and Summary of Significant Accounting Policies
The Company
AXT, Inc. (“AXT”, “the Company”, “we,” “us,” and “our” refer to AXT, Inc. and its consolidated subsidiaries) is a
worldwide materials science company that develops and produces high-performance compound and single element
semiconductor substrates, also known as wafers. Our consolidated subsidiaries produce and sell certain raw materials some of
which are used in our substrate manufacturing process and some of which are sold to other companies.
Our substrate wafers are used when a typical silicon substrate wafer cannot meet the conductive requirements of a
semiconductor or optoelectronic device. The dominant substrates used in producing semiconductor chips and other electronic
circuits are made from silicon. However, certain chips may become too hot or perform their function too slowly if silicon is
used as the base material. In addition, optoelectronic applications, such as LED lighting and chip-based lasers, do not use
silicon substrates because they require a wave form frequency that cannot be achieved using silicon. Alternative or specialty
materials are used to replace silicon as the preferred base in these situations. Our wafers provide such alternative or specialty
materials. We do not design or manufacture the chips. We add value by researching, developing and producing the specialty
material wafers. We have two product lines: specialty material substrates and raw materials integral to these substrates. In
2024, our substrate product group generated 68% of our revenue and raw materials product group generated 32%. Our
compound substrates combine indium with phosphorous (indium phosphide: InP) or gallium with arsenic (gallium arsenide:
GaAs). Our single element substrates are made from germanium (Ge).
Our raw materials include purified gallium, InP based material and pBN crucibles. We use purified gallium in
producing our GaAs substrates and also sell purified gallium in the open market to other companies for use in magnetic
materials, high temperature thermometers and growing single crystal ingots including gallium arsenide, gallium nitride,
gallium antimonite, gallium phosphide and other materials and alloys. Pyrolytic boron nitride (pBN) crucibles are used in the
high temperature (typically in the range 500 C to 1,500 C) growth process of single crystal ingots and epitaxial layer growth in
MBE reactors. We use these pBN crucibles in our own ingot growth processes and also sell them in the open market to other
companies.
Principles of Consolidation
The consolidated financial statements include the accounts of AXT, and our consolidated subsidiaries, Beijing
Tongmei Xtal Technology Co., Ltd. (“Tongmei”), AXT-Tongmei, Inc. (“AXT-Tongmei”), Baoding Tongmei Xtal Technology
Co., Ltd. (“Baoding Tongmei”), ChaoYang Tongmei Xtal Technology Co., Ltd. (“ChaoYang Tongmei”), ChaoYang LiMei
Semiconductor Technology Co., Ltd. (“ChaoYang LiMei”), ChaoYang XinMei High Purity Semiconductor Materials Co., Ltd.
(“ChaoYang XinMei”), Nanjing JinMei Gallium Co., Ltd. (“JinMei”), ChaoYang JinMei Gallium Ltd. (“ChaoYang JinMei”),
ChaoYang ShuoMei High Purity Semiconductor Materials Co., Ltd. (“ChaoYang ShuoMei”), MaAnShan JinMei Gallium
Ltd., (“MaAnShan JinMei”) and Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd. (“BoYu”). Baoding
Tongmei is located in the city of Dingxing, China. Each of ChaoYang Tongmei and ChaoYang LiMei is located in the city of
Kazuo, China. All significant inter-company accounts and transactions have been eliminated. Investments in business entities
in which we do not have controlling interests, but have the ability to exercise significant influence over operating and financial
policies (generally 20-50% ownership), are accounted for by the equity method. For the years ended 2024 and 2023, we have
three companies accounted for by the equity method. For the majority-owned subsidiaries that we consolidate, we reflect the
portion we do not own as either noncontrolling interests in stockholder’s equity or as redeemable noncontrolling interests in
temporary equity on our consolidated balance sheets and in our consolidated statements of operations.
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81
When market conditions are warranted, we intend to construct facilities at the ChaoYang LiMei location to provide
us with additional production capacity. For the years ended 2024 and 2023, expenses associated with ChaoYang LiMei had a
de minimis impact on our consolidated financial statements.
In February 2021, Tongmei signed a joint venture agreement with certain investors to fund a new company,
ChaoYang XinMei. The agreement called for a total investment of approximately $3.0 million, of which Tongmei would fund
approximately $1.8 million for a 58.5 percent ownership of ChaoYang XinMei. In February 2021, the investors completed the
initial funding of approximately $1.5 million. Tongmei’s portion of the investment was approximately $0.9 million. In May
2021, the investors completed the funding of the remaining balance of approximately $1.5 million. Tongmei’s portion of the
final investment was approximately $0.9 million, for a total investment of approximately $1.8 million for a 58.5 percent
ownership of ChaoYang XinMei. In September 2021 and October 2021, ChaoYang XinMei received funding from a minority
investor of $0.9 million and $1.0 million, respectively. In December 2021 and January 2022, ChaoYang XinMei received
funding from Tongmei of $1.4 million and $1.4 million, respectively. In January 2022, the China local government certified
this additional funding in ChaoYang XinMei as an equity investment. Tongmei’s ownership remained at 58.5% after these
equity investments. In April 2022, Tongmei entered into a capital increase agreement (the “Capital Increase Agreement”) with
minority investors to further invest $4.5 million in ChaoYang XinMei. Tongmei’s portion of the investment was
approximately $2.6 million, of which $1.1 million was invested in April 2022 and $0.8 million was invested in May 2022. The
minority investors’ portion of the investment was approximately $1.9 million, of which $0.7 million was invested in April
2022 and $0.6 million was invested in May 2022. As a result, noncontrolling interests increased $1.4 million and redeemable
noncontrolling interests increased $0.1 million. Tongmei’s ownership remained at 58.5% after the April 2022 and May 2022
equity investments. In July 2022, Tongmei and the minority investors further invested $0.8 million and $0.6 million in
ChaoYang XinMei, respectively. This completed the investment obligations under the Capital Increase Agreement. As a result,
noncontrolling interests increased $610,000 and redeemable noncontrolling interests increased $57,000. Tongmei’s ownership
remained at 58.5% after the July 2022 equity investment.
In April 2022, ChaoYang JinMei signed a joint venture agreement with a certain investor to fund a new company,
ChaoYang ShuoMei, our consolidated subsidiary. The agreement calls for a total investment of approximately $4.4 million, of
which ChaoYang JinMei will fund approximately $3.3 million for a 75 percent ownership of ChaoYang ShuoMei. In July and
August 2022, ChaoYang JinMei completed the initial funding of $1.0 million in ChaoYang ShuoMei. In August 2022, the
investor invested $334,000 in ChaoYang ShuoMei. As a result, noncontrolling interests increased $406,000 and redeemable
noncontrolling interests increased $73,000. In January 2023, ChaoYang ShuoMei received $0.5 million in funding from
ChaoYang JinMei and $0.2 million in funding from one of the minority investors. As a result, noncontrolling interests
increased $0.2 million and redeemable noncontrolling interests increased $36,000. In May 2023, ChaoYang ShuoMei received
$1.0 million in funding from ChaoYang JinMei and $0.3 million in funding from one of the minority investors. As a result,
noncontrolling interests increased $0.4 million and redeemable noncontrolling interests increased $75,000. In August 2023,
ChaoYang ShuoMei received $0.6 million in funding from ChaoYang JinMei and $0.2 million in funding from one of the
minority investors. As a result, noncontrolling interests increased $0.2 million and redeemable noncontrolling interests
increased $44,000. ChaoYang JinMei has completed its investment obligations under the ChaoYang ShuoMei Joint Venture
Agreement. ChaoYang JinMei’s ownership of ChaoYang ShuoMei remained at 75% after these equity investments.
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In April 2022, Tongmei signed a joint venture agreement with certain investors to fund a new company, ChaoYang
KaiMei. The agreement called for a total investment of approximately $7.6 million, of which Tongmei would fund
approximately $3.0 million for a 40.0 percent ownership of ChaoYang KaiMei. In July 2022, the investors completed the
initial funding of approximately $2.2 million. Tongmei’s portion of the investment was approximately $0.9 million. In January
2023, Tongmei made an investment of $0.9 million to ChaoYang KaiMei. In each of July 2023 and August 2023, Tongmei
made an investment of approximately $0.6 million in ChaoYang KaiMei. These contributions culminated in the fulfillment of
all of Tongmei’s financial obligations under the April 2022 ChaoYang KaiMei Joint Venture Agreement. In September 2023,
Tongmei entered into another joint venture agreement with the same group of investors. This new agreement called for
additional investment of approximately $5.6 million, with Tongmei committing to fund approximately $2.3 million. In
December 2023, Tongmei made its initial additional investment of approximately $0.6 million in ChaoYang KaiMei, followed
by additional investments of approximately $0.3 million each in June, July and November 2024. Tongmei’s ownership of
ChaoYang KaiMei remained at 40% after these equity investments.
All activities for MaAnShan JinMei ceased during the first half of 2022 and the subsidiary was subsequently
dissolved in May 2022. The dissolution of MaAnShan JinMei had a de minimis impact on the consolidated results.
During the quarter ended December 31, 2020, Tongmei entered into two sets of definitive transaction documents,
each consisting of a capital increase agreement along with certain supplemental agreements in substantially the same form
(collectively, the “Capital Increase Agreements”), with several private equity investors in China.
In preparation for Tongmei’s application for a listing of shares in an initial public offering (the “IPO”) on the
Shanghai Stock Exchange’s Sci-Tech innovAtion boaRd (the “STAR Market”), in late December 2020, we reorganized our
entity structures in China. JinMei and BoYu and its subsidiaries were assigned to Tongmei and effectively merged with
Tongmei although they retained their own respective legal entity status and are wholly owned subsidiaries of Tongmei. The
33% minority interest stakeholders of BoYu converted their ownership to a 7.59% minority interest in Tongmei. The 8.5%
minority interest stakeholders, employees of JinMei, converted their ownership to a 0.38% minority interest in Tongmei.
Further, a number of employees, key managers and contributors purchased a 0.4% minority interest in Tongmei. Additionally,
Baoding Tongmei and ChaoYang Tongmei, were assigned to Tongmei as wholly owned subsidiaries. In 2020, the private
equity funds (the “Investors”) had transferred approximately $48.1 million of new capital to Tongmei. An additional
investment of approximately $1.5 million of new capital was funded in January 2021. Under China regulations these
investments must be formally approved by the appropriate government agency and are not deemed to be dilutive until such
approval is granted. The government approved the approximately $49 million investment in its entirety on January 25, 2021,
at which time the Investors owned a redeemable noncontrolling interest in Tongmei of 7.28%. As of September 30, 2022,
Tongmei’s noncontrolling interests and redeemable noncontrolling interests totaled approximately 14.5%. AXT remains the
controlling stakeholder of Tongmei and holds a majority of the board of director positions of Tongmei. In June 2021, AXT
sold AXT-Tongmei to Tongmei for $1. Since Tongmei is 85.5% owned by AXT, and the transaction was between common
interest holders, the transaction was accounted for at net book value and resulted in an increase of $1.2 million to
noncontrolling interests and $1.2 million to redeemable noncontrolling interests.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America (“U.S. GAAP”) requires management to make estimates, judgments and assumptions. We believe that the
estimates, judgments, and assumptions upon which management relies are reasonable based on information available at the
time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the
reported amounts of assets and liabilities as of the date of the consolidated financial statements as well as the reported
amounts of revenues and expenses during the periods presented. To the extent there are material differences between these
estimates and actual results, our consolidated financial statements would be affected.
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Fair Value of Financial Instruments
The carrying amounts of certain of our financial instruments including cash and cash equivalents, restricted cash,
short-term investments and long-term investments, accounts receivable, accounts payable, accrued liabilities and bank loans
approximate fair value due to their short maturities. Certain cash equivalents and investments are required to be adjusted to
fair value on a recurring basis. See Note 2.
Fair Value of Investments
ASC Topic 820, Fair value measurement (“ASC 820”) establishes three levels of inputs that may be used to measure
fair value.
Level 1 instruments represent quoted prices in active markets. Therefore, determining fair value for Level 1
instruments does not require significant management judgment, and the estimation is not difficult.
Level 2 instruments include observable inputs other than Level 1 prices, such as quoted prices for similar instruments
in markets with insufficient volume or infrequent transactions (less active markets), issuer bank statements, credit ratings,
non-binding market consensus prices that can be corroborated with observable market data, model-derived valuations in
which all significant inputs are observable or can be derived principally from or corroborated with observable market data for
substantially the full term of the assets or liabilities, or quoted prices for similar assets or liabilities. These Level 2 instruments
require more management judgment and subjectivity compared to Level 1 instruments, including:
●
Determining which instruments are most comparable to the instrument being priced requires management to identify
a sample of similar securities based on the coupon rates, maturity, issuer, credit rating, and instrument type, and
subjectively select an individual security or multiple securities that are deemed most similar to the security being
priced.
●
Determining which model-derived valuations to use in determining fair value requires management judgment. When
observable market prices for similar securities or comparable securities are not available, we price our marketable
debt instruments using non-binding market consensus prices that are corroborated with observable market data or
pricing models, such as discounted cash flow models, with all significant inputs derived from or corroborated with
observable market data.
Level 3 instruments include unobservable inputs to the valuation methodology that are significant to the
measurement of fair value of assets or liabilities. The determination of fair value for Level 3 instruments requires the most
management judgment and subjectivity.
We place short-term foreign currency hedges that are intended to offset the potential cash exposure related to
fluctuations in the exchange rate between the United States dollar and Japanese yen. We measure the fair value of these
foreign currency hedges at each month end and quarter end using current exchange rates and in accordance with generally
accepted accounting principles. At quarter end any foreign currency hedges not settled are netted in “Accrued liabilities” on
the consolidated balance sheets and classified as Level 3 assets and liabilities. As of December 31, 2024 and 2023, the net
change in fair value from the placement of the hedge to settlement had a de minimis impact to the consolidated results.
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Foreign Currency Translation
The functional currency of our Chinese subsidiaries is the renminbi, the local currency of China. Transaction gains
and losses resulting from transactions denominated in currencies other than the U.S. dollar or in the functional currencies of
our subsidiaries are included in “Other income, net” for the years presented. The transaction gain totaled $0.1 million, $0.2
million and $1.6 million for the years ended December 31, 2024, 2023 and 2022, respectively. The assets and liabilities of the
subsidiaries are translated at the rates of exchange on the balance sheet date. Revenue and expense items are translated at the
average rate of exchange for the period. Gains and losses from foreign currency translation are included in “Other
comprehensive income (loss)”, net of tax in the consolidated statements of comprehensive income (loss).
Revenue Recognition
We manufacture and sell high-performance compound semiconductor substrates including indium phosphide, gallium
arsenide and germanium wafers, and our consolidated subsidiaries sell certain raw materials, including high purity gallium
(6N and 7N Ga), pyrolytic boron nitride (pBN) crucibles and boron oxide (B2O3). After we ship our products, there are no
remaining obligations or customer acceptance requirements that would preclude revenue recognition. Our products are
typically sold pursuant to purchase orders placed by our customers, and our terms and conditions of sale do not require
customer acceptance. We account for a contract with a customer when there is a legally enforceable contract, which could be
the customer’s purchase order, the rights of the parties are identified, the contract has commercial terms, and collectibility of
the contract consideration is probable. The majority of our contracts have a single performance obligation to transfer products
and are short term in nature, usually less than six months. Our revenue is measured based on the consideration specified in the
contract with each customer in exchange for transferring products that are generally based upon a negotiated formula, list or
fixed price. Revenue is recognized when control of the promised goods is transferred to our customer, which is either upon
shipment from our dock, receipt at the customer’s dock, or removal from consignment inventory at the customer’s location, in
an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods.
We have elected to account for shipping and handling as activities to fulfill the promise to transfer the goods.
Shipping and handling fees billed to customers in a sales transaction are recorded as an offset to shipping and handling
expenses. Sales taxes and value added taxes in foreign jurisdictions that are collected from customers and remitted to
governmental authorities are accounted for on a net basis and, therefore, are excluded from revenue.
We do not provide training, installation or commissioning services. We provide for future returns based on historical
data, prior experience, current economic trends and changes in customer demand at the time revenue is recognized. We do not
recognize any asset associated with the incremental cost of obtaining revenue generating customer contracts. As such, sales
commissions are expensed as incurred, given that the expected period of benefit is less than one year.
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Contract Balances
We receive payments from customers based on a billing schedule as established in our contracts. Contract assets are
recorded when we have a conditional right to consideration for our completed performance under the contracts. Accounts
receivables are recorded when the right to this consideration becomes unconditional. We do not have any material contract
assets as of December 31, 2024, or 2023.
December 31,
December 31,
2024
2023
Contract liabilities
$
1,590
$
305
During the three and twelve months ended December 31, 2024, the Company
recognized $0 and $156,000, respectively, of revenue that was included in the
contract balances as of December 31, 2023. During the three and twelve months
ended December 31, 2023, the Company recognized $9,000 and $278,000,
respectively, of revenue that was included in the contract balances as of
December 31, 2022.
Disaggregated Revenue
In general, revenue disaggregated by product types and geography (See Note 14) is aligned according to the nature
and economic characteristics of our business and provides meaningful disaggregation of our results of operations. Since we
operate in one segment, all financial segment and product line information can be found in the consolidated financial
statements.
Practical Expedients and Exemptions
We elected to use the following practical expedients: (i) not to adjust the promised amount of consideration for the
effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a
promised product or service to a customer and when the customer pays for that product or service will be one year or less; (ii)
to expense costs as incurred for costs to obtain a contract when the amortization period would have been one year or less; (iii)
not to assess whether promised goods or services are performance obligations if they are immaterial in the context of the
contract with the customer.
In addition, we do not disclose the value of unsatisfied performance obligations for contracts with an original
expected length of one year or less.
Accounting for Sales and Use Taxes
We record sales taxes collected on sales of our products and for amounts not yet remitted to tax authorities as accrued
liabilities on our consolidated balance sheets.
Risks and Concentration of Credit Risk
Our business is very dependent on the semiconductor, lasers and optical industries which can be highly cyclical and
experience downturns as a result of economic changes, overcapacity, and technological advancements. Significant
technological changes in the industry or customer requirements, or the emergence of competitive products with new
capabilities or technologies, could adversely affect our operating results. In addition, a significant portion of our revenues and
net income is derived from international sales. Fluctuations of the United States dollar against foreign currencies and changes
in local regulatory or economic conditions, particularly in an emerging market such as China, could adversely affect operating
results.
We depend on a limited number of suppliers for certain raw materials, components and equipment used in
manufacturing our products, including quartz tubing and polishing solutions. We generally purchase these materials through
standard purchase orders and not pursuant to long-term supply contracts.
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Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash, restricted
cash, cash equivalents, investments, and accounts receivable. We invest primarily in money market accounts, certificates of
deposit and corporate bonds. The composition and maturities are regularly monitored by management. Such deposits are in
excess of the amount of the insurance provided by the federal government on such deposits. We are exposed to credit risks in
the event of default by the issuers to the extent of the amount recorded on the consolidated balance sheets.
We perform ongoing credit evaluations of our customers’ financial condition, and limit the amount of credit extended
when deemed necessary, but generally do not require collateral. The credit risk in our accounts receivable is mitigated by our
credit evaluation process and the geographical dispersion of sales transactions. One customer accounted for more than 10% of
our accounts receivable as of December 31, 2024 and no customer accounted for more than 10% of our accounts receivable as
of December 31, 2023.
No customer represented 10% of our revenue for the year ended December 31, 2024 and 2023. One customer
represented 15% of our revenue for the year ended December 31, 2022. Our top five customers, although not the same five
customers for each period, represented 30% of our revenue for the year 2024, 25% of our revenue for the year 2023, and 34%
of our revenue for the year 2022.
For the years ended December 31, 2024 and 2023, two third-party customers for the raw materials products from our
consolidated subsidiaries accounted for over 10% of the revenue from raw materials sales. For the year ended December 31,
2022, one third-party customer for the raw materials products from our consolidated subsidiaries accounted for over 10% of
the revenue from raw materials sales. Our subsidiaries and raw material joint ventures are a key strategic benefit for us as they
further diversify our sources of revenue.
Cash and Cash Equivalents
We consider investments in highly liquid instruments purchased with an original maturity of three months or less to
be cash equivalents. Cash equivalents consist primarily of certificate of deposits. Cash and cash equivalents are stated at cost,
which approximates fair value.
Restricted Cash
We maintain restricted cash in connection with cash balances temporarily restricted for regular business operations.
These balances have been excluded from the Company’s cash and cash equivalents balance. As of December 31, 2024, $11.0
million was included in restricted cash in our consolidated balance sheets.
Short-Term and Long-Term Investments
We classify our investments in marketable securities as available-for-sale debt securities. Short-term and long-term
investments are comprised of available-for-sale marketable securities, which consist primarily of certificates of deposit and
corporate bonds. These investments are reported at fair value as of the respective balance sheet dates with unrealized gains and
losses included in accumulated other comprehensive income (loss) within stockholders’ equity on the consolidated balance
sheets. The amortized cost of securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such
amortization is included in “Other income, net” in the consolidated statements of operations. Realized gains and losses and
declines in value judged to be other than temporary on available-for-sale securities are also included in “Other income, net” in
the consolidated statements of operations. The cost of securities sold is based upon the specific identification method.
Accounts Receivable and Allowance for Credit Losses and Sales Returns
Accounts receivable are recorded at the invoiced amount and are not interest bearing. We review at least quarterly, or
when there are changes in credit risks, the likelihood of collection on our accounts receivable balances and provide an
allowance for credit losses. We measure the expected credit losses on a collective (pool) basis when similar delinquency status
exist. We evaluate receivables from U.S. customers with an emphasis on balances in excess of 90
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days and for receivables from customers located outside the U.S. with an emphasis on balances in excess of 120 days and
establish a reserve allowance on the receivable balances if needed. The reason for the difference in the evaluation of
receivables between foreign and U.S. customers is that U.S. customers have historically made payments in a shorter period of
time than foreign customers. Foreign business practices generally require us to allow customer payment terms that are longer
than those accepted in the United States.
In accordance with ASC Topic 326, Financial Instruments – Credit Losses current expected credit loss impairment
model, we exercise judgment when determining the adequacy of these reserves as we evaluate historical bad debt trends,
general economic conditions in the United States and internationally, and reasonable and supportable forecasts of future
economic conditions. Uncollectible receivables are recorded as provision for credit losses when a credit loss is expected
through the establishment of an allowance, which would then be written off when all efforts to collect have been exhausted
and recoveries are recognized when they are received. As of December 31, 2024 and 2023, our accounts receivable, net
balance was $25.6 million and $19.3 million, respectively, which was net of an allowance of $147,000 and $579,000,
respectively. During 2024, we decreased the allowance by $432,000. During 2023, we increased the allowance by $272,000. 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.
As of December 31, 2024 and 2023, the sales returns reserve (included in accrued liabilities) balance was $28,000
and $39,000, respectively. During 2024, we utilized $28,000 and reserved an additional $17,000 and during 2023, we utilized
$39,000 and reduced an additional $34,000.
Warranty Reserve
We maintain a warranty reserve based upon our claims experience during the prior twelve months and any pending
claims and returns of which we are aware. Warranty costs are accrued at the time revenue is recognized. As of December 31,
2024 and 2023, accrued product warranties totaled $451,000 and $703,000, respectively. The increase in accrued product
warranties is primarily attributable to increased claims for quality issues experienced by some of our customers. If actual
warranty costs or pending new claims differ substantially from our estimates, revisions to the estimated warranty liability
would be required, which could have a material impact on our financial condition and results of operations for future periods.
Inventories
Inventories are stated at the lower of cost (approximated by standard cost) or net realizable value. Cost is determined
using the weighted average cost method. Our inventory consists of raw materials as well as finished goods and work-in-
process that include material, labor and manufacturing overhead costs. We routinely evaluate the levels of our inventory in
light of current market conditions in order to identify excess and obsolete inventory, and we provide a reserve for certain
inventories to their estimated net realizable value based upon the age and quality of the product and the projections for sale of
the completed products. When a reserve is recorded, a new lower cost basis for that inventory is established and subsequent
changes in facts and circumstances do not result in the restoration or increase in the new cost basis.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation computed using the straight-line
method over the estimated economic lives of the assets, which vary from 1 to 39.5 years. Leasehold improvements are
amortized using the straight-line method over the shorter of the estimated useful life or the term of the lease. We generally
depreciate computer, software, office equipment, furniture and fixtures over 3 to 5 years, machinery and equipment over 1 to
20 years, automobiles over 5 to 10 years, leasehold and building improvements over 10 years, or the lease term if shorter, and
buildings over 39.5 years. Repairs and maintenance costs are expensed as incurred.
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Impairment of Long-Lived Assets
We evaluate property, plant and equipment and intangible assets for impairment. When events and circumstances
indicate that long-lived assets may be impaired, we compare the carrying value of the long-lived assets to the projection of
future undiscounted cash flows attributable to these assets. In the event that the carrying value exceeds the future undiscounted
cash flows, we record an impairment charge against income equal to the excess of the carrying value over the assets’ fair
value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as
applicable. We did not recognize any impairment charges of long-lived assets in 2024, 2023 and 2022.
Impairment of Investments
All available-for-sale debt securities are periodically reviewed for impairment. An investment is considered to be
impaired when its fair value is less than its amortized cost basis and it is more likely than not that we will be required to sell
the impaired security before recovery of its amortized cost basis. Factors considered in determining whether a loss is
temporary include the magnitude of the decline in market value, the length of time the market value has been below cost (or
adjusted cost), credit quality, and our ability and intent to hold the securities for a period of time sufficient to allow for any
anticipated recovery in market value.
We also invest in equity instruments of privately held companies in China for business and strategic purposes.
Investments in our unconsolidated joint venture companies are classified as other assets and accounted for under either the
equity or fair value method, depending on whether we have the ability to exercise significant influence over their operations or
financial decisions. We monitor our investments for impairment and record reductions in carrying value when events or
changes in circumstances indicate that the carrying value may not be recoverable. Determination of impairment is highly
subjective and is based on a number of factors, including an assessment of the strength of each company’s management, the
length of time and extent to which the fair value has been less than our cost basis, the financial condition and near-term
prospects of the subsidiary, fundamental changes to the business prospects of the Company, share prices of subsequent
offerings, and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery
in our carrying value. We estimate fair value of our fair value method investments considering available information such as
pricing in recent rounds of financing, current cash positions, earnings (loss) and cash flow forecasts, recent operational
performance, and any other readily available market data.
For the year ended December 31, 2023, one of our PRC joint ventures assessed one of its equity investments was
fully impaired. For the year ended December 31, 2023, we divested our equity investment in a PRC joint venture. The
impairment and divestiture resulted in a total of $1.9 million in impairment charges in our consolidated financial results. There
were no impairment charges during the year ended December 31, 2022 and 2024.
Segment Reporting
We operate in one segment for the design, development, manufacture and distribution of high-performance
compound and single element semiconductor substrates and sale of raw materials integral to these substrates. Our chief
operating decision-maker (“CODM”) has been identified as our Chief Executive Officer, who reviews operating results to
make decisions about allocating resources and assessing our performance for the Company. We discuss revenue and capacity
for both AXT and our joint ventures collectively, when determining capacity constraints and need for raw materials in our
business, and consider their capacity when determining our strategic and product marketing and advertising strategies. While
we consolidate our majority-owned or significantly controlled joint ventures, we do not allocate any portion of overhead,
interest and other income, interest expense or taxes to them. We therefore have determined that our joint venture operations do
not constitute an operating segment. Since we operate in one segment, all financial segment and product line information can
be found in the consolidated financial statements. The CODM regularly evaluates consolidated net income (loss) and
functional expenses, including cost of revenue, selling, general and administrative and research and development, to manage
Company operations.
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Stock-Based Compensation
We have employee stock option plans, which are described more fully in Note 10-“Employee Benefit Plans and
Stock-based Compensation”. We account for stock-based compensation in accordance with the provisions of ASC Topic 718,
Compensation-Stock Compensation (“ASC 718”). We utilize the Black-Scholes option pricing model to estimate the grant
date fair value of stock options, which requires the input of highly subjective assumptions, including estimating stock price
volatility and expected term. Stock-based compensation cost is measured at each grant date, based on the fair value of the
award, and is recognized as expense and as an increase in additional paid-in capital over the requisite service period of the
award.
Research and Development
Research and development costs consist primarily of salaries, including stock-based compensation expense and
related personnel costs, depreciation, materials and product testing which are expensed as incurred. Tangible assets acquired
for research and development purposes are capitalized if they have alternative future use.
Advertising Costs
Advertising costs, included in selling, general and administrative expenses, are expensed as incurred. Advertising
costs for the years ended December 31, 2024, 2023 and 2022 were insignificant.
Income Taxes
We account for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”), which requires that
deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the
book and tax bases of recorded assets and liabilities. ASC 740 also requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that a portion of the deferred tax asset will not be realized. The impact of ASC 740 is
more fully described in Note 12.
Comprehensive Income (loss)
The components of other comprehensive income (loss) include unrealized gains and losses on marketable securities
and foreign currency translation adjustments. Comprehensive income (loss) is presented in the consolidated statements of
comprehensive income (loss). The balance of accumulated other comprehensive income (loss) is as follows (in thousands):
As of December 31,
2024
2023
Accumulated other comprehensive loss:
Unrealized loss on investments, net
$
—
$
(20)
Cumulative translation adjustment
(9,514)
(6,530)
(9,514)
(6,550)
Less: Cumulative translation adjustment attributable to noncontrolling
interests and redeemable noncontrolling interests
(857)
(551)
Accumulated other comprehensive loss attributable to AXT, Inc.
$
(8,657)
$
(5,999)
Net Income (Loss) Per Share
Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding
during the periods less shares of common stock subject to repurchase and non-vested stock awards. Diluted net income (loss)
per share is computed using the weighted-average number of common shares outstanding and potentially dilutive common
shares outstanding during the periods. The dilutive effect of outstanding stock options and restricted stock awards is reflected
in diluted earnings per share by application of the treasury stock method. Potentially dilutive common shares consist of
common shares issuable upon the exercise of stock options and vesting of restricted
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stock awards. Potentially dilutive common shares are excluded from the computation of weighted-average number of common
shares outstanding in net loss years, as their effect would be anti-dilutive to the computation.
Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) released ASU 2023-07— Segment
Reporting (Topic 280): Improvements to Reportable Segment Disclosures, aiming to enhance the transparency and relevance
of segment information provided in financial statements. The amendments in this Update require that a public entity disclose
significant segment expenses, profit or loss and assets, etc. for each reportable segment, on an annual and interim basis. The
Update is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after
December 15, 2024. Adoption of the new standard had an immaterial effect on our consolidated financial statements.
In December 2023, FASB issued ASU 2023-09— Income Taxes (Topic 740): Improvements to Income Tax
Disclosures, to help investors better understand an entity’s exposure to potential changes in jurisdictional tax legislation and
the ensuing risks and opportunities. Furthermore, the Update improves to assess income tax information that affects cash flow
forecasts and capital allocation decisions. The Update is effective for public business entities for annual periods beginning
after December 15, 2024, on a prospective basis. Adoption of the new standard will have an immaterial effect on our
consolidated financial statements.
In March 2024, FASB released ASU 2024-01— Compensation—Stock Compensation (Topic 718). The update adds
an illustrative example aimed at clarifying the scope application of a profit interest award in accordance with Topic 718. The
update is effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods.
Adoption of the new standard will have an immaterial effect on our consolidated financial statements.
In November 2024, FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense
Disaggregation Disclosures (Subtopic 220-40), which requires public business entities to disclose additional information on
specific expense categories in the notes to the financial statements. The Update is effective for annual reporting periods
beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Adoption is expected
to have an immaterial effect on our consolidated financial statements.
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Note 2. Cash, Restricted Cash, Cash Equivalents and Investments
Our cash, restricted cash and cash equivalents consist of cash and instruments with original maturities of less than
three months. Our investments consist of instruments with original maturities of more than three months. As of December 31,
2024 and 2023, our cash, restricted cash, cash equivalents and debt investments are classified as follows (in thousands):
December 31, 2024
December 31, 2023
Gross
Gross
Gross
Gross
Amortized
Unrealized
Unrealized
Fair
Amortized
Unrealized
Unrealized
Fair
Cost
Gain
(Loss)
Value
Cost
Gain
(Loss)
Value
Classified as:
Cash, restricted cash and
cash equivalents
$ 33,811
$
—
$
—
$ 33,811
$ 50,114
$
—
$
—
$ 50,114
Investments (available-for-
sale):
Certificates of deposit 1
—
—
—
—
2,160
—
(20)
2,140
Total cash, restricted cash,
cash equivalents and
investments
$ 33,811
$
—
$
—
$ 33,811
$ 52,274
$
—
$
(20)
$ 52,254
Contractual maturities on
investments:
Due within 1 year 2
$
—
$
—
$
2,160
$
2,140
$
—
$
—
$
2,160
$
2,140
1.
Certificate of deposit with original maturities of less than three months.
2.
Certificate of deposit with original maturities of more than three months.
3.
Classified as “Short-term investments” in our consolidated balance sheets.
4.
Classified as “Long-term investments” in our consolidated balance sheets.
We manage our debt investments as a single portfolio of highly marketable securities that is intended to be available
to meet our current cash requirements. Certificates of deposit and corporate bonds are typically held until maturity.
Historically, the gross unrealized losses related to our portfolio of available-for-sale debt securities were immaterial,
and primarily due to normal market fluctuations and not due to increased credit risk or other valuation concerns. Gross
unrealized losses on our available-for-sale debt securities as of December 31, 2023 was $20,000, 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.
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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 debt securities have been in a continuous unrealized loss
position as of December 31, 2023 (in thousands):
In Loss Position
In Loss Position
Total In
< 12 months
> 12 months
Loss Position
Gross
Gross
Gross
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
As of December 31, 2023
Value
(Loss)
Value
(Loss)
Value
(Loss)
Investments:
Certificates of deposit
$
—
$
—
$
2,140
$
(20)
$
2,140
$
(20)
Total in loss position
$
—
$
—
$
2,140
$
(20)
$
2,140
$
(20)
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 6). The investment balances for the non-consolidated
companies, are accounted for under the equity method and included in “Other assets” in the consolidated balance sheets and
totaled $14.1 million and $12.5 million as of December 31, 2024 and 2023, respectively. As of December 31, 2024 and 2023,
there were three companies accounted for under the equity method, respectively.
Fair Value Measurements
We invest primarily in money market accounts, certificates of deposit, corporate bonds and notes, and government
securities. ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), establishes three levels of inputs that may
be used to measure fair value. Level 1 instrument valuations are obtained from real-time quotes for transactions in active
exchange markets of the asset or identical assets. Level 2 instrument valuations are obtained from readily
available, observable pricing sources for comparable instruments. Level 3 instrument valuations are obtained from
unobservable inputs in which there is little or no market data, which require us to develop our own assumptions. On a
recurring basis, we measure certain financial assets and liabilities at fair value, primarily consisting of our short-term and
long-term debt investments.
The type of instrument valued based on quoted market prices in active markets include our money market funds,
which are generally classified within Level 1 of the fair value hierarchy. We classify our available-for-sale debt securities
including certificates of deposit and corporate bonds as having Level 2 inputs. The valuation techniques used to measure the
fair value of these financial instruments having Level 2 inputs were derived from bank statements, quoted market prices,
broker or dealer statements or quotations, or alternative pricing sources with reasonable levels of price transparency. There
were no changes in valuation techniques or related inputs in the year ended December 31, 2024. There have been no transfers
between fair value measurement levels during the years ended December 31, 2024 and 2023.
We place short-term foreign currency hedges that are intended to offset the potential cash exposure related to
fluctuations in the exchange rate between the United States dollar and Japanese yen. We measure the fair value of these
foreign currency hedges at each month end and quarter end using current exchange rates and in accordance with generally
accepted accounting principles. At quarter end any foreign currency hedges not settled are netted in “Accrued liabilities” on
the consolidated balance sheets and classified as Level 3 assets and liabilities. As of December 31, 2024, the net change in fair
value from the placement of the hedge to settlement at each month end during the quarter had a de minimis impact to the
consolidated results.
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93
The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis in
accordance with ASC 820 as of December 31, 2023 (in thousands):
Quoted Prices in
Significant
Active Markets of
Significant Other
Unobservable
Balance as of
Identical Assets
Observable Inputs
Inputs
December 31, 2023
(Level 1)
(Level 2)
(Level 3)
Assets:
Investments:
Certificates of deposit
$
2,140
$
—
$
2,140
$
—
Total
$
2,140
$
—
$
2,140
$
—
Items Measured at Fair Value on a Nonrecurring Basis
Certain assets that are subject to nonrecurring fair value measurements are not included in the table above. These
assets include investments in privately held companies accounted for by equity and fair value method (See Note 6). For the
year ended December 31, 2023, one of our PRC joint ventures assessed one of its equity investments was fully impaired. For
the year ended December 31, 2023, we divested our equity investment in a PRC joint venture. The impairment and divestiture
resulted in a total of $1.9 million in impairment charges in our financial results. We had no impairment charges for 2024 and
2022.
Note 3. Inventories
The components of inventory are summarized below (in thousands):
December 31,
December 31,
2024
2023
Inventories:
Raw materials
$
31,743
$
32,910
Work in process
50,779
50,008
Finished goods
2,555
3,585
$
85,077
$
86,503
As of December 31, 2024 and 2023, carrying values of inventories were net of inventory reserves of $24.1 million
and $21.9 million, respectively, for excess and obsolete inventory and $73,000 and $78,000, respectively, for lower of cost or
net realizable value reserves.
Note 4. Related Party Transactions
ChaoYang Tongmei purchases raw materials from one of PRC joint ventures, Donghai County Dongfang High Purity
Electronic Materials Co., Ltd. (“Dongfang”) for production in the ordinary course of business. In November 2023, the
Company completed the sale of Dongfang to a third party. As of December 31, 2024 and 2023, amounts payable of $0 and $0,
respectively, were included in “Accounts payable” in our consolidated balance sheets.
In September 2021 and October 2021, our consolidated subsidiary, ChaoYang XinMei received funding from a
minority investor of $0.9 million and $1.0 million, respectively. As of December 31, 2021, $1.9 million was included in short-
term loan from noncontrolling interest in our consolidated balance sheets. In December 2021 and January 2022, the same
subsidiary received funding from Tongmei of $1.4 million and $1.4 million, respectively. In January 2022, the China local
government certified this additional funding in ChaoYang XinMei as an equity investment. As a result, noncontrolling
interests increased $2.2 million and redeemable noncontrolling interests increased $0.2 million. Short-term loan from
noncontrolling interest decreased to $0. In April 2022, Tongmei entered into the Capital Increase Agreement with minority
investors to further invest approximately $4.5 million in ChaoYang XinMei. In April 2022 and May 2022, ChaoYang XinMei
received funding from Tongmei of $1.1 million and $0.8 million, respectively, as equity investments. In April 2022 and May
2022, the minority investors invested $0.7 million and $0.6 million, respectively. As a result, noncontrolling interests
increased $1.4 million and redeemable noncontrolling interests increased $0.1 million.
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94
Tongmei’s ownership remained at 58.5% after these equity investments. In July 2022, Tongmei and the minority investors
further invested $0.8 million and $0.6 million in ChaoYang XinMei, respectively. This completed the investment obligations
under the Capital Increase Agreement. As a result, noncontrolling interests increased $610,000 and redeemable noncontrolling
interests increased $57,000. Tongmei’s ownership remained at 58.5% after the July 2022 equity investment.
In September 2022, our consolidated subsidiary, ChaoYang LiMei completed the sale of land and its attached
buildings to our equity investment entity, ChaoYang KaiMei, for a total consideration of $1.5 million. In January 2023,
ChaoYang KaiMei paid to ChaoYang LiMei $1.5 million. As of December 31, 2024, $0 million was included in “Prepaid
expenses and other current assets” in our 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 PRC joint ventures. See Note 6 for further details.
Note 5. Property, Plant and Equipment, Net
The components of our property, plant and equipment are summarized below (in thousands):
December 31,
December 31,
2024
2023
Property, plant and equipment:
Machinery and equipment, at cost
$
67,917
$
65,918
Less: accumulated depreciation and amortization
(44,065)
(42,112)
Building, at cost
137,420
125,786
Less: accumulated depreciation and amortization
(26,310)
(23,339)
Leasehold improvements, at cost
7,575
7,596
Less: accumulated depreciation and amortization
(6,347)
(5,984)
Construction in progress
23,531
38,483
$
159,721
$
166,348
As of December 31, 2024, the balance of construction in progress was $23.5 million, of which $17.9 million was
related to our buildings in our Dingxing and Kazuo locations, $1.4 million was for manufacturing equipment purchases not yet
placed in service and $4.3 million was from our 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 related to our
buildings in our Dingxing and Kazuo locations, $3.1 million was for manufacturing equipment purchases not yet placed in
service and $4.2 million was from our construction in progress for our other consolidated subsidiaries.
Depreciation and amortization expense was $9.0 million, $8.7 million and $8.1 million for the years ended December
31, 2024, 2023 and 2022, respectively.
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Note 6. Investments in Privately Held Raw Material Companies
We have made strategic investments in private companies located in China in order to gain access at a competitive
cost to raw materials that are critical to our substrate business. These companies form part of our overall supply chain.
The investments are summarized below (in thousands):
Investment Balance as of
December 31,
December 31,
Accounting
Ownership
*
Company
2024
2023
Method
Percentage
Nanjing JinMei Gallium Co., Ltd.
$
592
$
592 Consolidated
** 85.5 %
ChaoYang JinMei Gallium Co., Ltd.
1,820
1,820
Consolidated
** 85.5 %
Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd.
1,346
1,346 Consolidated
** 85.5 %
ChaoYang ShuoMei High Purity Semiconductor Materials Co., Ltd.
3,122
3,122
Consolidated
**** 75.0 %
ChaoYang XinMei High Purity Semiconductor Materials Co., Ltd.
7,331
7,331
Consolidated
*** 58.5 %
$
14,211
$
14,211
Beijing JiYa Semiconductor Material Co., Ltd.
$
4,867
3,806
Equity
39 %
Xiaoyi XingAn Gallium Co., Ltd.
5,304
5,516
Equity
** 25 %
ChaoYang KaiMei Quartz Co., Ltd.
3,895
3,154
Equity
***** 40 %
$
14,066
$
12,476
Emeishan Jia Mei High Purity Metals Co., Ltd.
551
551
Fair value ****** 10 %
$
551
$
551
* These percentages reflect the ownership currently in effect upon the completion of the reorganization in China and the ownership in effect
upon the completion of the new capital funding by private equity investors in January 2021.
** In preparation for Tongmei’s application for a listing of shares in an IPO on the STAR Market, in late December 2020 we reorganized our
entity structures in China. JinMei and BoYu and their subsidiaries, previously organized under AXT, Inc., were assigned to Tongmei and
effectively merged with Tongmei although they retained their own respective legal entity status and are wholly owned subsidiaries of
Tongmei. The 33% minority interest stakeholders of BoYu converted their ownership to a 7.59% minority interest in Tongmei. The 8.5%
minority interest stakeholders, employees of JinMei, converted their ownership to a 0.38% minority interest in Tongmei. Further, a number
of employees, key managers and contributors, purchased a 0.4% minority interest in Tongmei. In 2020, the Investors transferred
approximately $48.1 million of new capital to Tongmei. An additional investment of approximately $1.5 million of new capital was funded
in early January 2021. Under China regulations these investments must be formally approved by the appropriate government agency and are
not deemed to be dilutive until such approval is granted. The government approved the approximately $49 million investment in its entirety
on January 25, 2021 at which time the Investors owned a redeemable noncontrolling interest in Tongmei of 7.28%. As of December 31,
2022, Tongmei’s noncontrolling interests and redeemable noncontrolling interests totaled approximately 14.5%. AXT remains the
controlling stakeholder of Tongmei and holds a majority of the Board of Director positions of Tongmei.
*** In February 2021, Tongmei signed a joint venture agreement with certain investors to fund ChaoYang XinMei.
**** In April 2022, ChaoYang JinMei signed a joint venture agreement with certain investor to fund a new company, ChaoYang ShuoMei.
***** In April 2022, Tongmei signed a joint venture agreement with certain investors to fund a new company, ChaoYang KaiMei.
****** In May 2023, we sold 15% of our equity investments in Jia Mei to a third party. We now own 10% of the equity ownership of Jia
Mei and account for it under the fair value method.
In May 2023, we reduced our ownership in Jia Mei from 25% to 10% by selling a portion of our Jia Mei shares to an
unrelated third party for approximately $827,000. Considering our decreased ownership and that we no longer have
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96
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 Jia Mei's equity interest is without a readily determinable fair value, we elected to use the
measurement alternative to measure at cost, less any impairment, plus or minus fair value changes resulting from observable
price changes in orderly transactions for identical or similar investments of the same issuer. As a result of the share sale, we
recognized a gain of $575,000. Additionally, in accordance with ASC Topic 321, Investments–Equity Securities, we adjusted
the investment in Jia Mei to its fair value at the time of the sale. The gain resulting from the sale and the subsequent
remeasurement was incorporated as a component of “Equity in income of unconsolidated joint ventures” in the consolidated
statements of operations for the twelve months ended December 31, 2023. The gain from the sale and the subsequent
remeasurement includes the following:
Amount
(in thousands)
Fair value of the consideration received
$
779
Foreign income tax withholding
48
Carrying value of 15% of Emeishan Jia Mei High Purity Metals Co., Ltd.
(252)
Gain recognized on sale of 15% of Emeishan Jia Mei High Purity Metals Co., Ltd.
$
575
Amount
(in thousands)
Fair value of the retained investment in Emeishan Jia Mei High Purity Metals Co., Ltd.
$
551
Carrying value of retained noncontrolling investment (10%)
(168)
Gain on retained noncontrolling investment due to remeasurement (10%)
$
383
The Jia Mei investment is reviewed for other-than-temporary declines in value on a quarterly basis. We did not record
any other-than-temporary impairment charges for Jia Mei investment during the twelve months ended December 31, 2023.
In November 2023, our 46% equity ownership interest in Dongfang was sold to a third party for consideration valued
at approximately $0.6 million, including raw materials, equipment, and vehicle. As a result, our equity ownership interest of
Dongfang decreased from 46% to 0%. The loss resulting from the sale was incorporated as a component of “Equity in income
of unconsolidated joint ventures” in the consolidated statements of operations for the twelve months ended December 31,
2023. The loss from the sale includes the following:
Amount
(in thousands)
Fair value of the consideration received
$
585
Carrying value of 46% of Donghai County Dongfang High Purity Electronic Materials Co., Ltd.
(1,710)
Loss recognized on sale of 46% of Donghai County Dongfang High Purity Electronic Materials Co., Ltd.
$
(1,125)
Although we have representation on the board of directors of each of the privately held raw material companies, the
daily operations of each of these companies are managed by local management and not by us. Decisions concerning their
respective short-term strategy and operations, ordinary course of business capital expenditures and sales of finished product,
are made by local management with regular guidance and input from us.
For AXT’s minority investment entities that are not consolidated, the investment balances are included in “Other
assets” in our consolidated balance sheets and totaled $14.1 million and $12.5 million as of December 31, 2024 and 2023,
respectively. Our respective ownership interests in ChaoYang KaiMei, JiYa, Xiaoyi XingAn and Jia Mei was
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97
40%, 39%, 25%, and 10%, respectively. These minority investment entities are not considered variable interest entities
because:
●
all minority investment entities have sustainable businesses of their own;
●
our voting power is proportionate to our ownership interests;
●
we only recognize our respective share of the losses and/or residual returns generated by the companies if they occur;
and
●
we do not have controlling financial interest in, do not maintain operational or management control of, do not control
the board of directors of, and are not required to provide additional investment or financial support to any of these
companies.
Occasionally, one of our PRC subsidiaries or PRC raw material joint ventures declares and pays a dividend. These
dividends generally occur when the PRC joint venture declares a dividend for all of its shareholders. Dividends paid to the
Company are subject to a 10% PRC withholding tax. The Company is required to obtain approval from the State
Administration of Foreign Exchange (“SAFE”) to transfer funds in or out of the PRC. SAFE requires a valid agreement to
approve the transfers, which are processed through a bank. Other than PRC foreign exchange restrictions, the Company is not
subject to any PRC restrictions and limitations on its ability to distribute earnings from its businesses, including its PRC
subsidiaries and PRC joint ventures, to the Company and its investors as well as the ability to settle amounts owed by the
Company to its PRC subsidiaries and PRC joint ventures. If SAFE approval is denied the dividend payable to the Company
would be owed but would not be paid.
For the years ended December 31, 2024, 2023 and 2022, 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
approximately $2.4 million, $4.3 million and $2.9 million, respectively. In June 2022, July 2022 and August 2022, we
received a dividend of $1.3 million from BoYu, $1.5 million from Xiaoyi XingAn and $0.1 million from JiYa, respectively. In
April 2023, Xiaoyi XingAn distributed a dividend of $1.8 million to us. Additionally, in both April 2023 and November 2023,
JiYa distributed dividends to us, totaling $2.0 million and $0.5 million, respectively. In May 2024 and November 2024, we
received a dividend of $2.1 million from Xiaoyi XingAn and $0.3 million from JiYa, respectively. For the years ended
December 31, 2024 and 2023, there were no dividends paid to minority shareholders by our PRC subsidiaries or PRC raw
material joint ventures.
AXT’s minority investment entities are not consolidated and are accounted for under the equity method. The equity
entities had the following summarized income information (in thousands) for the years ended December 31, 2024, 2023 and
2022, respectively: (The 2023 income information includes results of Jia Mei for Q1 and Q2.)
Our share for the
Year Ended
Year Ended
December 31,
December 31,
2024
2023
2022
2024
2023
2022
Net revenue
$
37,591
$
32,544
$
48,139
$
11,715
$
10,033
$
15,031
Gross profit
17,747
11,698
27,000
5,374
3,365
8,229
Operating income
13,780
10,115
24,987
3,889
2,724
7,532
Net income
11,944
8,681
19,104
3,439
1,884
5,957
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98
These minority investment entities that are not consolidated, but rather are accounted for under the equity method,
had the following summarized balance sheet information (in thousands) as of December 31, 2024 and 2023, respectively: (The
2023 balance sheet information excludes Jia Mei.)
As of December 31,
2024
2023
Current assets
$
34,858
$
31,636
Noncurrent assets
20,975
19,751
Current liabilities
5,602
7,367
Noncurrent liabilities
6,165
—
Our portion of the income and losses, including impairment charges, from these minority investment entities that are
not consolidated and are accounted for under the equity method was an income of $3.4 million, $1.9 million and $6.0 million
for the years ended December 31, 2024, 2023 and 2022, respectively. Undistributed retained earnings relating to our
investments in these minority investment entities amounted to $9.2 million and $8.1 million as of December 31, 2024 and
2023, respectively.
Note 7. Balance Sheets Details
Other Assets
The components of other assets are summarized below (in thousands):
As of December 31,
2024
2023
Equity method investments
$
14,066
$
12,476
Value added tax receivable, long term
194
1,291
Other intangible assets
1,710
1,821
Deferred tax assets
1,418
1,683
Other assets
1,454
1,627
$
18,842
$
18,898
Accrued Liabilities
The components of accrued liabilities are summarized below (in thousands):
As of December 31,
2024
2023
Preferred stock dividends payable
$
2,901
$
2,901
Accrued compensation and related charges
2,832
3,707
Payable in connection with construction in progress
1,985
7,249
Advances from customers
1,590
305
Accrued professional services
1,460
868
Current portion of operating lease liabilities
536
458
Accrued product warranty
451
703
Other tax payable
399
493
Other personnel-related costs
256
286
Accrued income taxes
127
—
Accrual for sales returns
28
39
Other accrued liabilities
1,991
2,010
$
14,556
$
19,019
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99
Note 8. Bank Loans and Line of Credit
Our bank loans and credit facilities typically have a term of 12 months or less and are included in “Short-term loan”
in our consolidated balance sheets. The following table represents short-term bank loans as of December 31, 2024 and 2023
(in thousands, except interest rate data):
Loan
Interest
December 31,
December 31,
Subsidiary
Bank
Detail
Rate
Start Date
Due Date
2024
2023
Tongmei
Bank of China (1)
$
1,848
3.5
% January-23
January-24
$
-
$
1,795
2,184
2.8
% March-23
March-24
-
2,118
376
2.7
% September-23
September-24
-
386
876
3.5
% November-23
November-24
-
876
1,003
3.5
% November-23
November-24
-
1,003
Bank of China (2)
2,911
3.5
% January-23
January-24
-
2,825
Bank of China (5)
1,426
2.4
% September-24
September-25
1,370
-
1,370
2.4
% November-24
November-25
1,370
-
685
2.7
% November-24
November-25
685
-
Bank of Communications (1)
1,455
3.3
% January-23
January-24
-
1,414
1,380
3.8
% May-23
May-24
-
1,414
1,373
3.8
% July-23
May-24
-
1,414
1,376
3.0
% May-24
May-25
1,370
-
2,480
3.0
% June-24
May-25
2,466
-
China Merchants Bank (1)
4,367
3.7
% January-23
January-24
-
4,235
1,386
3.5
% January-24
January-25
1,370
-
692
3.5
% February-24
February-25
685
-
692
3.5
% April-24
April-25
685
-
Bank of Beijing (3)
2,290
4.2
% January-23
January-24
-
2,220
3,541
3.2
% June-23
May-24
-
3,626
1,380
3.2
% June-23
February-24
-
1,414
1,414
3.0
% December-23
December-24
-
1,414
3,600
3.0
% March-24
February-25
3,565
-
3,580
3.0
% June-24
June-25
3,565
-
Industrial Bank (1)
2,757
4.3
% June-23
June-24
-
2,825
2,744
4.3
% July-23
July-24
-
2,825
2,744
4.3
% September-23
September-24
-
2,825
2,851
3.9
% September-24
September-25
2,740
-
2,679
3.9
% October-24
October-25
2,679
-
1,440
3.2
% November-24
November-25
1,440
-
NingBo Bank (1)
2,744
4.2
% August-23
September-24
-
2,820
1,271
4.3
% November-23
November-24
-
1,271
2,825
4.3
% December-23
December-24
-
2,825
1,647
4.3
% January-24
January-25
1,630
-
1,258
4.3
% May-24
March-25
1,255
-
1,822
3.9
% November-24
November-25
1,822
-
550
3.9
% December-24
December-25
550
-
Industrial and Commercial Bank of China (1)
2,744
3.3
% September-23
September-24
-
2,825
2,851
3.3
% September-24
September-25
2,740
-
NanJing Bank (1)
2,752
3.8
% October-23
October-24
-
2,752
China Citic Bank (1)
2,752
2.9
% June-24
June-25
2,740
-
2,851
2.9
% July-24
July-25
2,740
-
1,426
2.9
% September-24
September-25
1,370
-
Agricultural Bank of China (1)
1,235
2.6
% November-24
November-25
1,235
-
137
2.6
% December-24
December-25
137
-
BoYu
Industrial and Commercial Bank of China (4)
1,414
2.7
% December-23
December-24
-
1,414
Industrial and Commercial Bank of China (1)
1,426
2.8
% September-24
September-25
1,370
-
Bank of China (1)
1,204
2.4
% January-23
January-24
-
849
1,145
2.3
% September-24
September-25
1,096
-
274
2.4
% December-24
December-25
274
-
NingBo Bank (1)
1,414
3.3
% November-23
May-24
-
1,414
Industrial Bank (1)
688
3.6
% September-23
September-24
-
708
1,370
2.7
% November-24
November-25
1,370
-
Bank of Communications (1)
1,414
3.0
% November-23
May-24
-
1,414
274
3.0
% May-24
May-25
274
-
NanJing Bank (1)
1,370
2.8
% December-24
December-25
1,370
-
Loan Balance
$
45,963
$
52,921
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100
Collateral for the above bank loans and line of credit
(1)
Not collateralized.
(2)
ChaoYang LiMei time deposit.
(3)
AXT time deposit.
(4)
BoYu’s land use rights and its building located at its facility in Tianjin, China. In addition, the December 2023 loan attracts a guarantee fee
amounting to 0.7% of the loan amount.
(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 Loans
On January 30, 2024, the Company secured a new line of credit amounting to $9.7 million, structured as a five-year
bank loan. The credit facility bears interest at a rate of 6.5% per annum on the amount drawn from the line of credit. The
credit facility is collateralized by the real estate properties owned by ChaoYang Tongmei. In January 2024, the Company
borrowed $5.8 million against the credit facility. The intended use of the credit facility is for construction projects. As of
December 31, 2024, $5.2 million is included in “Other long-term liabilities” and $411,000 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 December 31, 2024, $619,000 associated with this financing
arrangement is included in “Other long-term liabilities” and $890,000 is included in “Short-term loans” in our consolidated
balance sheets.
As of December 31, 2024, the maturities of our long-term loan liabilities in five years (including current portion) are
as follows (in thousands):
Maturity of long-term loans
2025
$
1,301
2026
1,301
2027
959
2028
1,233
2029
2,347
In summary, short-term loans of $47.3 million included under “Short-term loans” in our consolidated balance sheet at
December 31, 2024, consisted of $46.0 million of short-term bank loans and $1.3 million of the current portion of long-term
debt. Long-term loans of $5.8 million included under “Other long-term liabilities” in our consolidated balance sheet at
December 31, 2024 consisted of $5.2 million in a five-year bank loan and $0.6 million in a loan secured by ChaoYang
XinMei.
Note 9. Stockholders’ Equity and Stock Repurchase Program
Stockholders’ Equity
The 883,000 shares of $0.001 par value Series A preferred stock issued and outstanding as of December 31, 2024 and
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 $4 per share liquidation preference over common stock, and must be
paid before any distribution is made to common stockholders. These preferred shares were issued to Lyte Optronics, Inc.
stockholders in connection with the completion of our acquisition of Lyte Optronics, Inc. on May 28, 1999.
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101
Changes in AXT, Inc.’s ownership interests in consolidated subsidiaries
The effects of changes in the Company’s ownership interests in its less than 100% owned subsidiaries on the
Company’s equity are as follows:
As of December 31,
2024
2023
Net loss attributable to AXT, Inc.
$
(11,624) $
(17,881)
Decrease in additional paid-in capital for:
Investment in subsidiary with noncontrolling interest
—
(308)
Change from net loss attributable to AXT, Inc., net of transfers to noncontrolling interests
$
(11,624)
$
(18,189)
Stock Repurchase Program
On October 27, 2014, our Board of Directors approved a stock repurchase program pursuant to which we may
repurchase up to $5.0 million of our outstanding common stock. These repurchases can be made from time to time in the open
market and are funded from our existing cash balances and cash generated from operations. During 2015, we repurchased
approximately 908,000 shares at an average price of $2.52 per share for a total purchase price of approximately $2.3 million
under the stock repurchase program. No shares were repurchased during 2024, 2023 and 2022 under this program. As of
December 31, 2024, approximately $2.7 million remained available for future repurchases under this program.
By the terms of the Series A preferred stock, so long as any shares of Series A preferred stock are outstanding, neither
the Company nor any subsidiary of the Company shall redeem, repurchase or otherwise acquire any shares of common stock,
unless all accrued dividends on the Series A preferred stock have been paid. During 2013 and 2015, we repurchased shares of
our outstanding common stock. As of December 31, 2015, the Series A preferred stock had cumulative dividends of $2.9
million and we included this amount in “Accrued liabilities” in our consolidated balance sheets. In 2024, 2023 and 2022, we
did not repurchase any of our outstanding common stock. If we are required to pay the cumulative dividends on the Series A
preferred stock, our cash and cash equivalents would be reduced. We account for the cumulative year-to-date dividends on the
Series A preferred stock when calculating our earnings per share.
Note 10. Employee Benefit Plans and Stock-based Compensation
Stock Option Plans and Equity Incentive Plans
In May 2007, our stockholders approved our 2007 Equity Incentive Plan (the “2007 Plan”), which provides for the
grant of incentive and non-qualified stock options to our employees, consultants and directors. The 2007 Plan is a restatement
of the 1997 Stock Option Plan which expired in 2007. The 1,928,994 share reserve of the 1997 Stock Option Plan became the
reserve of the 2007 Plan, together with 1,300,000 additional shares approved for issuance under the 2007 Plan. In May 2013,
the stockholders approved an additional 2,000,000 shares to be issued under the 2007 plan. Awards may be made under the
2007 Plan are stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance
units, deferred compensation awards and other stock-based awards. Stock options and stock appreciation rights awarded under
the 2007 Plan may not be repriced without stockholder approval. Stock options and stock appreciation rights may not be
granted below fair market value. Stock options or stock appreciation rights generally shall not be fully vested over a period of
less than three years from the date of grant and cannot be exercised more than 10 years from the date of grant. Restricted
stock, restricted stock units, and performance awards generally shall not vest faster than over a three-year period (or a twelve-
month period if vesting is based on a performance measure). In December 2008, the 2007 Plan was amended to comply with
the applicable requirements under Section 409A of the Internal Revenue Code.
In May 2015, our stockholders approved our 2015 Equity Incentive Plan (the “2015 Plan”). The 2015 Plan is a
replacement of the 2007 Plan. The 399,562 share reserve of the 2007 Plan became the reserve of the 2015 Plan, together with
3,000,000 additional shares approved for issuance under the 2015 Plan. In May 2019, our stockholders approved
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102
1,600,000 of additional shares for issuance under the 2015 Plan. In May 2021, our stockholders approved 3,600,000 of
additional shares for issuance under the 2015 Plan. In May 2024, our stockholders approved 3,600,000 of additional shares for
issuance under the 2015 Plan. Awards that may be made under the 2015 Plan are stock options, stock appreciation rights,
restricted stock, restricted stock units, performance shares, performance units, deferred compensation awards and other stock-
based awards. Stock options and stock appreciation rights awarded under the 2015 Plan may not be repriced without
stockholder approval. Stock options and stock appreciation rights may not be granted below fair market value. Stock options
or stock appreciation rights generally shall not be fully vested over a period of less than four years from the date of grant and
cannot be exercised more than 10 years from the date of grant. Restricted stock, restricted stock units, and performance
awards generally shall not vest faster than over a three-year period (or a twelve-month period if vesting is based on a
performance measure). However, options granted to consultants and restricted stock awards granted to independent board
members typically vest in one year and the 2015 Plan does allow for similar vesting to employees. As of December 31, 2024,
approximately 3.7 million shares were available for grant under the 2015 Plan.
Stock Options
The following table summarizes the stock option transactions for each of the years ended December 31, 2022, 2023
and 2024 (in thousands, except per share data):
Weighted-
average
Weighted-
Remaining
Number of
average
Contractual
Aggregate
Options
Exercise
Life
Intrinsic
Stock Options
Outstanding
Price
(in years)
Value
Balance as of January 1, 2022
1,378
$
4.83
5.60
$ 5,573
Granted
—
—
Exercised
(172)
3.02
Canceled and expired
—
—
Balance as of December 31, 2022
1,206
$
5.09
5.08
$
630
Granted
—
—
Exercised
(4)
2.30
Canceled and expired
(4)
4.12
Balance as of December 31, 2023
1,198
$
5.10
4.09
$
14
Granted
—
—
Exercised
(12)
2.24
Canceled and expired
(11)
2.47
Balance as of December 31, 2024
1,175
$
5.16
3.16
$
—
Options exercisable as of December 31, 2024
1,175
$
5.16
3.16
$
—
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103
The options outstanding and exercisable as of December 31, 2024 were in the following exercise price ranges (in
thousands, except per share data):
Options Vested and
Options Outstanding as of
Exercisable as of
December 31, 2024
December 31, 2024
Weighted‑average
Range of
Weighted‑average
Remaining
Weighted‑Average
Exercise Price
Shares
Exercise Price
Contractual Life
Shares
Exercise Price
$
2.18
- $
2.18
53
$
2.18
0.84
53
$
2.18
$
2.56
- $
2.56
11
$
2.56
1.01
11
$
2.56
$
3.06
- $
3.06
330
$
3.06
4.85
330
$
3.06
$
5.21
- $
5.21
352
$
5.21
1.82
352
$
5.21
$
5.77
- $
5.77
245
$
5.77
3.85
245
$
5.77
$
7.95
- $
7.95
60
$
7.95
2.08
60
$
7.95
$
9.50
- $
9.50
124
$
9.50
2.82
124
$
9.50
1,175
$
5.16
3.16
1,175
$
5.16
There were 12,000, 4,000 and 172,000 options exercised in the years ended December 31, 2024, 2023 and 2022,
respectively. The total intrinsic value of options exercised for the years ended December 31, 2024, 2023 and 2022, was
$29,000, $7,000 and $0.8 million, respectively.
As of December 31, 2024, the unamortized compensation costs related to unvested stock options granted to
employees under our 2015 plan was $0. We did not capitalize any stock-based compensation to inventory as of December 31,
2024 and 2023, as the amount was insignificant.
Restricted Stock Awards
A summary of activity related to restricted stock awards for the years ended December 31, 2022, 2023 and 2024 is
presented below (in thousands, except per share data):
Weighted-Average
Grant Date
Stock Awards
Shares
Share Value
Non-vested as of January 1, 2022
875
$
6.26
Granted
513
$
4.67
Vested
(387)
$
6.01
Forfeited
(17)
$
5.34
Non-vested as of December 31, 2022
984
$
5.55
Granted
692
$
2.20
Vested
(446)
$
5.25
Forfeited
(10)
$
6.37
Non-vested as of December 31, 2023
1,220
$
3.75
Granted
811
$
2.40
Vested
(485)
$
4.39
Forfeited
(5)
$
2.99
Non-vested as of December 31, 2024
1,541
$
2.84
Total fair value of stock awards vested during the years ended December 31, 2024, 2023 and 2022 was $2.1 million,
$2.3 million and $2.3 million, respectively. As of December 31, 2024, we had $3.8 million of unrecognized compensation
expense related to restricted stock awards, which will be recognized over the weighted average period of 1.5 years.
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104
At-Risk, Performance Shares
In February 2021 and 2022 and March 2023, the Company issued at-risk, performance shares classified as equity
awards. Expense is recognized quarterly on a straight-line method over the requisite service period, based on the probability of
achieving the specified financial performance metric, with changes in expectations recognized as an adjustment to earnings in
the period of change. Compensation cost is not recognized for at-risk, performance shares that do not vest because service or
performance conditions are not satisfied and any previously recognized compensation cost is reversed. At-risk, performance
shares are eligible to receive dividend equivalents under the Company's 2015 Equity Incentive Plan (the “Plan”), as
determined by the Board of Directors. The Company will recognize forfeitures as they occur.
The Company's at-risk, performance shares are classified as equity and contain performance and service conditions
that must be satisfied for an employee to receive the shares. The financial performance metric for the at-risk, performance
shares issued in February 2021 is based upon year-end 2020 actual results as compared to the Company’s year-end actual
results in 2021. The financial performance metric for the at-risk, performance shares issued in February 2022 is based upon
year-end 2021 actual results as compared to the Company’s year-end actual results in 2022. The financial performance metrics
for the at-risk, performance shares issued in March 2023 are based upon the Company’s year-end actual results in 2023. The
financial performance metric for the at-risk, performance shares issued in February 2024 is based upon the Company’s year-
end actual results in 2024. All performance shares, if earned, are still subject to annual vesting over a four-year period, except
that no shares are vested on the first anniversary because the performance measurement is based on year-end results for the
year 2021, 2022 and 2023, respectively.
The fair value of the at-risk, performance shares is determined based on the closing price of the Company’s common
stock on the first day after the public issuance of the Company’s earnings release for the most recent fiscal quarter, following
the Compensation Committee and Board of Directors approval, which is considered the grant date. The fair value per share of
the at-risk, performance shares classified as equity awards granted in February 2021 and 2022 and March 2023 was $15.37,
$7.83 and $3.71, respectively.
On February 17, 2021, the Compensation Committee recommended, and the Board approved, the grant to Dr. Morris
Young, our Chief Executive Officer, of 113,130 at-risk, performance shares under the Plan. On February 17, 2021, the
Compensation Committee approved the grant to Gary Fischer, our Chief Financial Officer and Corporate Secretary, of 38,475
at-risk, performance shares under the Plan. On March 14, 2022, the Compensation Committee met and certified that the year-
over-year annual revenue growth rate achieved for fiscal year 2021, expressed as a percentage, was 44%. Therefore, all of the
at-risk performance shares became eligible to vest.
On February 15, 2022, the Compensation Committee recommended, and the Board approved, the grant to Dr. Morris
Young of 114,320 at-risk, performance shares under the Plan. On February 15, 2022, the Compensation Committee approved
the grant to Gary Fischer of 32,100 at-risk, performance shares under the Plan. If the performance financial metric is less than
50% achieved these shares are forfeited. If the performance financial metric is between 50% and 200% achieved, then a
corresponding pro rata portion of the 114,320 shares issued to Dr. Young would be eligible to vest and a corresponding pro
rata portion of the 32,100 shares issued to Mr. Fischer would be eligible to vest. Any shares that are not eligible to vest are
forfeited. If the target financial metric exceeds 200%, then the maximum number of at-risk performance shares that would be
eligible to vest is 114,320 for Dr. Young and 32,100 for Mr. Fischer. On February 14, 2023, the Compensation Committee met
and certified the year-over-year annual revenue growth rate achieved for fiscal year 2022, expressed as a percentage, was
2.7%. Therefore, none of the at-risk performance shares became eligible to vest.
On March 15, 2023, the Compensation Committee recommended, and the Board approved, the grant to Dr. Morris
Young of 223,590 at-risk, performance shares under the Plan. On March 15, 2023, the Compensation Committee approved the
grant to Gary Fischer of 77,600 at-risk, performance shares under the Plan. If the minimum financial metric for fiscal year
2023 is achieved, then based upon a performance formula, a corresponding portion of the 223,590 shares issued to Dr. Young
would be eligible to vest and a corresponding portion of the 77,600 shares issued to Mr. Fischer would be eligible to vest. If
the target financial metric is exceeded and an additional financial metric for fiscal year 2023 is achieved, then additional
shares above the target number of shares are earned based on such performance formula and the maximum number of
additional shares earned is capped at 100% of the target. If the minimum financial metric for fiscal year 2023
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105
is not achieved, then these awards are forfeited. On February 20, 2024, the Compensation Committee met and certified that
the minimum revenue metric for fiscal year 2023 was not achieved. Therefore, none of the at-risk performance shares became
eligible to vest.
On February 20, 2024, the Compensation Committee recommended, and the Board approved, the grant to Dr. Morris
Young of 223,590 at-risk, performance shares under the Plan. On February 20, 2024, the Compensation Committee approved
the grant to Gary Fischer of 77,600 at-risk, performance shares under the Plan. If the minimum financial metric for fiscal year
2024 is achieved, then based upon a performance formula, a corresponding portion of the 223,590 shares issued to Dr. Young
would be eligible to vest and a corresponding portion of the 77,600 shares issued to Mr. Fischer would be eligible to vest. If
the target financial metric is exceeded, then additional shares above the target number of shares are earned based on such
performance formula and the maximum number of additional shares earned is capped at 100% of the target. If the minimum
financial metric for fiscal year 2024 is not achieved, then these awards are forfeited. On February 18, 2025, the Compensation
Committee met and certified that the year-over-year annual revenue growth rate achieved for fiscal year 2024, expressed as a
percentage, was 200%. Therefore, the maximum number of at-risk performance shares became eligible to vest.
A summary of the status of our unvested at-risk, performance shares as of December 31, 2024 is presented below (in
thousands, except per share data):
Weighted-Average
Grant Date
Stock Awards
Shares
Share Value
Non-vested as of January 1, 2023
76 *
$
15.37
Granted
13
$
3.71
Vested
(38)
$
15.37
Forfeited
(13)
$
3.71
Non-vested as of December 31, 2023
38
$
15.37
Granted
301 **
$
2.28
Vested
(38)
$
15.37
Forfeited
—
$
—
Non-vested as of December 31, 2024
301
$
2.28
*The number of share presented is based on achieving 150% of the targeted financial performance metric as defined in the at-risk, performance shares
agreement.
**The number of share presented is based on achieving 200% of the targeted financial performance metric as defined in the at-risk, performance shares
agreement
As of December 31, 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 1.9 years.
Common Stock
The following number of shares of common stock were reserved and available for future issuance as of December 31,
2024 (in thousands, except per share data):
Options outstanding
1,175
Restricted stock awards outstanding
1,842
Stock available for future grant: 2015 Equity Incentive Plan
3,733
Total
6,750
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106
Stock-based Compensation
We recorded $3.1 million, $3.5 million and $4.0 million of stock-based compensation in our consolidated statements
of operations for the years ended December 31, 2024, 2023 and 2022, respectively. The following table summarizes
compensation costs related to our stock-based compensation awards (in thousands, except per share data):
Year Ended
December 31,
2024
2023
2022
Cost of revenue
$
322
$
414
$
379
Selling, general and administrative
2,295
2,502
2,947
Research and development
480
624
680
Net effect on net loss
$
3,097
$
3,540
$
4,006
Shares used in computing basic net income (loss) per share
43,154
42,643
42,104
Shares used in computing diluted net income (loss) per share
43,154
42,643
42,715
Effect on basic net income (loss) per share
$
0.07
$
0.08
$
0.10
Effect on diluted net income (loss) per share
$
0.07
$
0.08
$
0.09
We estimate the fair value of stock options using a Black-Scholes option pricing model. There were no stock options
granted during 2024, 2023 and 2022.
The expected term for stock options is based on the observed historical option exercise behavior and post-vesting
forfeitures of options by our employees, and the contractual term, the vesting period and the expected term of the outstanding
options. Expected volatility is based on the historical volatility of our common stock. The dividend yield of zero is based on
the fact that we have never paid cash dividends and have no present intention to pay cash dividends. The risk-free interest
rates are taken from the Daily Federal Yield Curve Rates as of the grant dates as published by the Federal Reserve and
represent the yields on actively traded Treasury securities for terms equal to the expected term of the options.
Retirement Savings Plan
We have a 401(k) Savings Plan (“Savings Plan”) which qualifies as a thrift plan under Section 401(k) of the Internal
Revenue Code. All full-time U.S. employees are eligible to participate in the Savings Plan after 90 days from the date of hire.
Employees may elect to reduce their current compensation by up to the statutory prescribed annual limit and have the amount
of such reduction contributed to the 401(k) Plan. We provide matching to employee contributions up to 4% of the employees’
base pay if employees contribute at least 6% of their base pay. If the contribution rate is less than 6% of the base pay, the
matching percentage is prorated. Our contributions to the Savings Plan were $188,000, $186,000 and $191,000 for the years
ended December 31, 2024, 2023 and 2022, respectively.
Note 11. Guarantees
Indemnification Agreements
We have entered into indemnification agreements with our directors and officers that require us to indemnify our
directors and officers against liabilities that may arise by reason of their status or service as directors or officers, other than
liabilities arising from willful misconduct of a culpable nature; to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified; and to obtain directors’ and officers’ insurance if available on
reasonable terms, which we currently have in place.
Product Warranty
We provide warranties for our products for a specific period of time, generally twelve months, against material
defects. We provide for the estimated future costs of warranty obligations in cost of sales when the related revenue is
recognized. The accrued warranty costs represent the best estimate at the time of sale of the total costs that we expect to
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107
incur to repair or replace product parts that fail while still under warranty. The amount of accrued estimated warranty costs are
primarily based on historical experience as to product failures as well as current information on repair costs. On a quarterly
basis, we review the accrued balances and update the historical warranty cost trends. The following table reflects the change in
our warranty accrual which is included in “Accrued liabilities” on the consolidated balance sheets, during 2024 and 2023 (in
thousands):
Year Ended
December 31,
2024
2023
Beginning accrued product warranty
$
703
$
669
Accruals for warranties issued
353
794
Adjustments related to pre-existing warranties including expirations and changes in estimates
(22)
(159)
Cost of warranty repair
(583)
(601)
Ending accrued product warranty
$
451
$
703
Note 12. Income Taxes
Consolidated income (loss) before provision for income taxes was a loss of $10.7 and $19.0 million for the years
ended December 31, 2024 and 2023, respectively, and income of $20.9 million for the year ended December 31, 2022. We
recorded a current and deferred tax provision of $1.1 million, $0.2 million and $2.2 million for the years ended December 31,
2024, 2023 and 2022, respectively. The components of the provision for income taxes are summarized below (in thousands):
Year Ended December 31,
2024
2023
2022
Current:
Federal
$
3
$ (317)
$
848
State
18
41
34
Foreign
910
(62)
918
Total current
931
(338)
1,800
Deferred:
Federal
144
(9)
(591)
State
6
(7)
(4)
Foreign
53
514
980
Total deferred
203
498
385
Total provision for income taxes
$ 1,134
$
160
$ 2,185
A reconciliation of the effective income tax rates and the U.S. statutory federal income tax rate is summarized below:
Year Ended December 31,
2024
2023
2022
Statutory federal income tax rate
21.0 %
21.0 %
21.0 %
State income taxes, net of federal tax benefits
(0.2)
1.6
0.1
Valuation allowance
(32.3)
(25.7)
(19.3)
Stock-based compensation
(2.4)
(1.7)
0.7
Foreign tax rate differential
(1.5)
6.1
(2.6)
Foreign tax incentives
1.9
0.1
(3.5)
Foreign income inclusion
—
—
18.9
Tax effect in equity method loss or gain from unconsolidated affiliates
2.8
0.4
(3.0)
Other
0.1
(2.6)
(1.8)
Effective tax rate
(10.6)%
(0.8)%
10.5 %
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108
Deferred tax assets and liabilities are summarized below (in thousands):
As of December 31,
2024
2023
Deferred tax assets:
Net operating loss carryforwards
$
17,220
$
14,362
Accruals, reserves and other
4,542
4,349
Credit carryforwards
207
206
Operating lease liability
268
325
Gross deferred tax assets
22,237
19,242
Valuation allowance
(20,722)
(17,462)
Total deferred tax assets
1,515
1,780
Deferred tax liabilities:
Operating lease right-of-use assets
(261)
(323)
Total net deferred tax assets (included in other assets)
$
1,254
$
1,457
As of December 31, 2024 we have federal net operating loss (“NOL”) carryforwards of approximately $46.4 million,
which will begin to expire in 2025. We have California net operating loss carryforwards of approximately $108,000 as of
December 31, 2024.
The deferred tax assets valuation allowance as of December 31, 2024 is attributed to U.S. federal, and state deferred
tax assets, which result primarily from future deductible accruals, reserves, NOL carryforwards, and tax credit carryforwards.
We believe that, based on a number of factors, the available objective evidence creates sufficient uncertainty regarding the
realizability of the deferred tax assets such that a full valuation allowance has been recorded. These factors include our history
of losses related to domestic operations, and the lack of carryback capacity to realize deferred tax assets. The valuation
allowance increased by $3.3 million and $5.6 million for the year ended December 31, 2024 and 2023, respectively.
The China Enterprise Income Tax Law (“EIT”) imposes a single uniform income tax rate of 25% on all Chinese
enterprises. Our subsidiaries in China have qualified for a preferential 15% tax rate that is available for High and New
Technology Enterprises (“HTE”). In order to retain the preferential tax rate, we must meet certain operating conditions, satisfy
certain product requirements, meet certain headcount requirements and maintain certain levels of research expenditures. We
realized benefits from this 10% reduction in tax rate of $348,000, $47,000 and $0.9 million for 2024, 2023 and 2022,
respectively. As of December 31, 2024, the favorable tax rate is still valid for the Company and it will stay the same for next
year if there is no change of the business nature. The preferential tax rate that we enjoy could be modified or discontinued
altogether at any time, which could materially and adversely affect our financial condition and results of operations.
Our subsidiaries in China also qualify for reduction in their taxable income in China for research and development
(“R&D”) expenditures. Government pre-approval is required to claim R&D tax benefits. Any R&D claim is then submitted
with the annual corporate income tax for the taxing authorities’ approval. Historically, we didn’t record such benefit until we
received the tax refund from the Chinese government. Beginning in 2019, we record the tax benefit in the year it incurs the
cost rather than in the year the tax benefit is received. This will better align the costs with the tax benefit. Our consolidated
subsidiaries in China have enjoyed various tax holidays since 2000. Benefits under the tax holidays vary by jurisdiction.
Utilization of the NOL and R&D credit carryforwards may be subject to a substantial annual limitation due to
ownership changes that might have occurred previously or that could occur in the future, as provided by Section 382 of the
Internal Revenue Code of 1986 (“Section 382”), as well as similar state provisions. Ownership changes may limit the amount
of NOL and tax credit carryforwards that can be utilized to offset future taxable income and tax, respectively. In general, an
ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or
public groups in the stock of a corporation by more than 50 percentage points over a three-year period. If there is a change of
control, utilization of our NOL or tax credit carryforwards would be subject to an annual limitation under Section 382. Any
limitation may result in expiration of a portion of the NOL or research and development credit
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109
carryforwards before utilization. Subsequent ownership changes could further impact the limitation in future years. Until a
Section 382 study for the year-ended December 31, 2024 is completed and any limitation known, no amounts are being
presented as an uncertain tax position. A full valuation allowance has been provided against our NOL carryforwards and R&D
credit carryforwards and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation
allowance. Thus, there would be no net impact to the consolidated balance sheets or statements of operations if an adjustment
were required.
During fiscal year 2024 and 2023, the amount of gross unrecognized tax benefits was $1.1 million as of December
31, 2024 and 2023. The Company recognizes interest and penalties related to uncertain tax positions as part of the provision
for income taxes. To date, such interest and penalties have not been material. All of the unrecognized tax benefit would impact
the effective tax rate in future periods if recognized.
We comply with the laws, regulations, and filing requirements of all jurisdictions in which we conduct business. We
regularly engage in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions.
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.
On August 9, 2022, Congress passed the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act to
strengthen domestic semiconductor manufacturing, design and research, fortify the economy and national security, and
reinforce America’s chip supply chains. The CHIPS Act provides for a new 25% advanced manufacturing investment credit
for investments in semiconductor manufacturing and for the manufacture of certain equipment required in the semiconductor
manufacturing process. Since the Company has all its manufacturing in China, the Company will not qualify for the
investment credit.
On August 16, 2022, the Inflation Reduction Act (IRA) was signed into law. The law is intended to address inflation
by paying down the national debt, lower consumer energy costs, provide incentives for the production of clean energy and
reduce health care costs. The new law imposes a 1% excise tax on corporate buybacks, and a 15% minimum tax on the adjust
financial statement income (AFSI) for corporations with average annual AFSI over a three-tax year period in excess of $1
billion. The Company does not anticipate the IRA to have a material impact on its financial statements.
Note 13. Net Income (Loss) per Share
Basic net income (loss) per share is computed using the weighted average number of common shares outstanding
during the periods less shares of common stock subject to repurchase and non-vested stock awards. Diluted net income (loss)
per share is computed using the weighted-average number of common shares outstanding and potentially dilutive common
shares outstanding during the periods. The dilutive effect of outstanding stock options and restricted stock awards is reflected
in diluted earnings per share by application of the treasury stock method. Potentially dilutive common shares consist of
common shares issuable upon the exercise of stock options. Potentially dilutive common shares are excluded in net loss
periods, as their effect would be anti-dilutive.
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A reconciliation of the numerators and denominators of the basic and diluted net income per share calculations is as
follows (in thousands, except per share data):
Year ended
December 31,
2024
2023
2022
Numerator:
Net income (loss) attributable to AXT, Inc.
$ (11,624)
$ (17,881)
$ 15,811
Less: Preferred stock dividends
(177)
(177)
(177)
Net income (loss) available to common stockholders
$ (11,801)
$ (18,058)
$ 15,634
Denominator:
Denominator for basic net income (loss) per share - weighted-average
common shares
43,154
42,643
42,104
Effect of dilutive securities:
Common stock options
—
—
333
Restricted stock awards
—
—
278
Denominator for dilutive net income (loss) per common shares
43,154
42,643
42,715
Net income (loss) attributable to AXT, Inc. per common share:
Basic
$
(0.27)
$
(0.42)
$
0.37
Diluted
$
(0.27)
$
(0.42)
$
0.37
Options excluded from diluted net income (loss) per share as the impact is anti-
dilutive
1,175
1,198
220
Restricted stock excluded from diluted net income (loss) per share as the impact
is anti-dilutive
1,842
1,258
291
Note 14. Segment Information and Foreign Operations
Segment Information
We operate in one segment for the design, development, manufacture and distribution of high-performance
compound and single element semiconductor substrates and sale of raw materials integral to these substrates. In accordance
with ASC Topic 280, Segment Reporting, our chief operating decision-maker (“CODM”) has been identified as the Chief
Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for
the Company. Since we operate in one segment, all financial segment and product line information can be found in the
consolidated financial statements. The CODM regularly evaluates consolidated net income (loss) and functional expenses,
including cost of revenue, selling, general and administrative and research and development, to manage Company operations.
No additional disaggregated expense categories are presented beyond those already disclosed in the primary financial
statements.
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111
Product Information
The following table represents revenue amounts (in thousands) by product type:
Year Ended
December 31,
2024
2023
2022
Product Type:
Substrates
$
67,748
$
47,466
$
111,094
Raw materials and others
31,613
28,329
30,024
Total
$
99,361
$
75,795
$
141,118
Geographical Information
The following table represents revenue amounts (in thousands) reported for products shipped to customers in the
corresponding geographic region:
Year Ended
December 31,
2024
2023
2022
Geographical region:
China
$
56,119
$
39,778
$
55,414
Taiwan
14,098
8,651
28,780
Japan
4,979
4,641
11,724
Asia Pacific (excluding China, Taiwan and Japan)
2,818
3,814
4,188
Europe (primarily Germany)
13,766
12,315
20,592
North America (primarily the United States)
7,581
6,596
20,420
Total
$
99,361
$
75,795
$
141,118
Long-lived assets consist primarily of property, plant and equipment, and operating lease right-of-use assets are
attributed to the geographic location in which they are located. Long-lived assets, net of depreciation, by geographic region
were as follows (in thousands):
As of December 31,
2024
2023
Long-lived assets by geographic region, net of depreciation:
North America
$
1,353
$
1,631
China
160,847
167,516
$
162,200
$
169,147
Note 15. Other income (expense), net
The components of other income (expense), net are summarized below (in thousands):
Year Ended
December 31,
2024
2023
2022
Foreign exchange gain (loss)
$
91
$
169
$
1,573
Income from local China government subsidy
2,239
2,557
1,710
Other income (expense)
(283)
(547)
204
$
2,047
$
2,179
$
3,487
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112
Note 16. Commitments and Contingencies
Legal Proceedings
From time to time we may be involved in judicial or administrative proceedings concerning matters arising in the
ordinary course of business. We do not expect that any of these matters, individually or in the aggregate, will have a material
adverse effect on our business, financial condition, cash flows or results of operations.
On May 6, 2024, a putative shareholder class action complaint was filed in the U.S. District Court for the Eastern
District of New York on behalf of persons or entities who purchased or acquired our publicly traded securities, against us,
Morris S. Young, our Chief Executive Officer, and Gary L. Fischer, our Chief Financial Officer. The court transferred the case
to the Northern District of California, where our headquarters are 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. Defendants ‘motion to dismiss is fully briefed and pending before the Court.
On August 22, 2024, a derivative lawsuit was filed in the Northern District of California by an alleged 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 (together, “Defendants”). Defendants moved to dismiss on November 6, 2024, following which the plaintiff filed an
amended complaint on November 20, 2024. The amended 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. On
November 27, 2024, Defendants again moved to dismiss. The motion to dismiss is fully briefed and pending before the Court.
It is not possible at this time to reasonably assess the final outcomes of these litigations or to reasonably estimate the
possible loss or range of loss with respect to these litigations. We believe these claims to be meritless and intend to vigorously
defend against them.
Leases
We lease certain equipment, office space, warehouse and facilities under long-term operating leases expiring at
various dates through November 2029. The majority of our lease obligations relate to our lease agreement for our facility in
Fremont, California with approximately 19,467 square feet, which was scheduled to expire in 2020. Under the terms of the
facility lease agreement, in May 2020, we were granted an extension to the term of the lease for an additional three years.
Furthermore, in September 2023, we entered into another agreement to extend the lease for an additional five years,
commencing December 2023. There are no variable lease payments, residual value guarantees or any restrictions or covenants
imposed by the facility lease. The remainder relate to our lease agreements for a nitrogen system and a facility. The nitrogen
system is used during the manufacturing process for our facility in Dingxing, China. The equipment lease became effective in
August 2019 and will expire in July 2029. The facility, located in Tongzhou, China, has a lease effective from December 2024
and expiring in November 2029. There are no variable lease payments, residual value guarantees or any restrictions or
covenants imposed by these leases. All other operating leases have a term of 12 months or less.
Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if any one of
the following criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease contains an
option to purchase the asset that is reasonably certain to be exercised, the lease term is for a major part of the remaining useful
life of the asset or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A
lease is classified as an operating lease if it does not meet any one of these criteria. All of our leases
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113
are classified as operating leases and substantially all of our operating leases are comprised of equipment and office space
leases. None of our leases are classified as, finance leases.
For all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-
use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the
lease payments under the lease.
The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability,
plus any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All
right-of-use assets are reviewed for impairment. The lease liability is initially measured at the present value of the lease
payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, our secured
incremental borrowing rate for the same term as the underlying lease.
Lease payments included in the measurement of the lease liability comprise the following: the fixed noncancelable
lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and
payments for early termination options unless it is reasonably certain the lease will not be terminated early.
Lease expense for operating leases consists of the lease payments plus any initial direct costs, primarily brokerage
commissions, and is recognized on a straight-line basis over the lease term.
We have elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12
months or less. The effect of short-term leases on our right-of-use asset and lease liability was not material.
As of December 31, 2024, the maturities of our operating lease liabilities (excluding short-term leases) are as follows
(in thousands):
Maturity of Lease Liabilities
2025
$
630
2026
653
2027
670
2028
651
2029
191
Thereafter
-
Total minimum lease payments
2,795
Less: Interest
(282)
Present value of lease obligations
2,513
Less: Current portion, included in accrued liabilities
(536)
Long-term portion of lease obligations
$
1,977
The weighted average remaining lease term and the weighted-average discount rate for our operating leases are as
follows:
December 31,
December 31,
2024
2023
Weighted-average remaining lease term (years)
4.27
5.22
Weighted-average discount rate
5.02 %
5.14 %
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114
Supplemental cash flow information related to leases where we are the lessee is as follows (in thousands):
Year Ended
December 31,
2024
2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
603
$
578
The components of lease expense are as follows (in thousands) within our consolidated statements of operations:
Year Ended
December 31,
2024
2023
Operating lease
$
615
$
548
Short-term lease expense
170
143
Total
$
785
$
691
Royalty Agreement
In 2020, we and a competitor entered into a cross license and covenant agreement (the “Cross License Agreement”),
which has a term that began on January 1, 2020 and expires on December 31, 2029. The Cross License Agreement is a fixed-
cost cross license and not a variable-cost cross license that is based on revenue or units. Under the Cross License Agreement,
we are obligated to make annual payments over a 10-year period. For the years ended December 31, 2024 and 2023, the
royalty expense under the Cross License Agreement was not considered material to our consolidated financial statements.
Land Purchase and Investment Agreement
We have established a wafer process production line in Dingxing, China. In addition to a land rights and building
purchase agreement that we entered into with a private real estate development company to acquire our new manufacturing
facility, we also entered into a cooperation agreement with the Dingxing local government. In addition to pledging its full
support and cooperation, the Dingxing local government will issue certain credits or rebates to us as we achieve certain
milestones. We, in turn, agreed to hire local workers over time, pay taxes when due and eventually demonstrate a total
investment of approximately $90 million in value, assets and capital. The investment will include cash paid for the land and
buildings, cash on deposit in our name at local banks, the gross value of new and used equipment (including future equipment
that might be used for indium phosphide and germanium substrates production), the deemed value for our customer list or the
end user of our substrates, for example, the end users of 3-D sensing VCSELs (vertical cavity surface emitting lasers), a
deemed value for employment of local citizens, a deemed value for our proprietary process technology, other intellectual
property, other intangibles and additional items of value. There is no timeline or deadline by which this must be accomplished,
rather it is a good faith covenant entered into between AXT and the Dingxing local government. Further, there is no specific
penalty contemplated if either party breaches the agreement. However, the agreement does state that each party has a right to
seek from the other party compensation for losses. Under certain conditions, the Dingxing local government may purchase the
land and building at the appraised value. We believe that such cooperation agreements are normal, customary and usual in
China and that the future valuation is flexible. We have a similar agreement with the city of Kazuo, China, although on a
smaller scale. The total investment targeted by AXT in Kazuo is approximately $15 million in value, assets and capital. In
addition, BoYu has a similar agreement with the city of Kazuo. The total investment targeted by BoYu in Kazuo is
approximately $8 million in value, assets and capital.
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115
Note 17. Unaudited Quarterly Consolidated Financial Data
Not applicable.
Note 18. Redeemable Noncontrolling Interests
As discussed in Note 1, during the quarter ended December 31, 2020, Tongmei entered into the Capital Investment
Agreements with Investors that invested approximately $48.1 million in the form of redeemable noncontrolling interests
representing 7.06% of the outstanding shares of Tongmei. An additional investment of approximately $1.5 million of new
capital was funded in early January 2021. Under China regulations these investments must be formally approved by the
appropriate government agency and are not deemed to be dilutive until such approval is granted. The government approved
the entire approximately $49 million investment on January 25, 2021, at which time the Investors owned a redeemable
noncontrolling interest in Tongmei of 7.28%. The initial carrying amount of the redeemable noncontrolling interest was
recorded at fair value on the date of issuance of Tongmei’s common stock, net of issuance costs and presented in temporary
equity on the consolidated balance sheets. This classification is due to the existence of certain contingencies that could result
in potential redemption at the fixed purchase price as described below. We currently do not believe that this is probable thus
no amortization of the issuance costs has been recorded.
Pursuant to the Capital Investment Agreements with the Investors, each Investor has the right to require AXT to
redeem any or all Tongmei shares held by such Investor at the original purchase price paid by such Investor, without interest,
in the event the IPO fails to pass the audit of the Shanghai Stock Exchange, is not approved by the Chinese Securities
Regulatory Commission (“CSRC”) or Tongmei cancels the IPO application. The aggregate redemption amount is
approximately $49 million, subject to the foreign exchange rate variable at time of redemption.
Tongmei submitted its IPO application to the Shanghai Stock Exchange in December 2021 and it was formally
accepted for review on January 10, 2022. The Shanghai Stock Exchange approved the IPO application on July 12, 2022. On
August 1, 2022, the CSRC accepted for review Tongmei’s IPO application. The STAR Market IPO remains subject to review
and approval by the CSRC and other authorities. The process of going public on the STAR Market includes several periods of
review and, therefore, is a lengthy process. Subject to review and approval by the CSRC and other authorities, Tongmei hopes
to accomplish this goal in the coming months. The listing of Tongmei on the STAR Market will not change the status of AXT
as a U.S. public company.
The components of the change in redeemable noncontrolling interests for the years ended December 31, 2024 and
2023 are presented in the following table (in thousands):
Balance as of January 1, 2023
$
44,846
Investment in subsidiary with redeemable noncontrolling interest
155
Equity issuance costs incurred
(880)
Stock-based compensation attributable to redeemable noncontrolling interests
52
Net income attributable to redeemable noncontrolling interests
(920)
Effect of foreign currency translation on redeemable noncontrolling interests
(1,260)
Effect of foreign currency translation attributable to redeemable noncontrolling interests
(330)
Balance as of December 31, 2023
41,663
Equity issuance costs incurred
(992)
Stock-based compensation attributable to redeemable noncontrolling interests
34
Net loss attributable to redeemable noncontrolling interests
(509)
Effect of foreign currency translation on redeemable noncontrolling interests
(1,311)
Effect of foreign currency translation attributable to redeemable noncontrolling interests
(308)
Balance as of December 31, 2024
$
38,577
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116
Note 19. Subsequent Events
In January, February and March 2025, the Company obtained a total of $8.4 million in new one-year bank loans with
interest rates ranging from 2.5% to 3.9%. Of the $8.4 million, $6.0 million is unsecured, while the remaining $2.4 million is
collateralized by real estate. In February 2025, the Company secured a fourteen-month unsecured bank loan in an amount of
$2.7 million with an interest rate of 3.2%. The Company repaid $7.4 million of existing loans in January and February 2025.
Item 16. Form 10-K Summary
Not applicable.
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117
AXT, Inc.
EXHIBITS
TO
FORM 10-K ANNUAL REPORT
For the Year Ended December 31, 2024
Exhibit
Number
Description
3.1(1)
Restated Certificate of Incorporation
3.2(2)
Certificate of Amendment of Certificate of Incorporation
3.3(3)
Certificate of Amendment to the Restated Certificate of Incorporation
3.4(4)
Certificate of Designation, Preferences and Rights of Series A Preferred Stock (which is incorporated herein
by reference to Exhibit 2.1 to the registrant’s form 8-K dated May 28, 1999).
3.5(5)
Second Amended and Restated By Laws
3.6(6)
Amended and Restated Section 5.1 of Article V of the Second Amended and Restated Bylaws of AXT, Inc.
3.7(7)
Certificate of Amendment to By Laws
4.1
Description of Securities
10.1(8)*
Form of Indemnification Agreement for directors and officers
10.2(9)*
2007 Equity Incentive Plan (amended December 8, 2008)
10.3(10)*
Forms of agreements under the 2007 Equity Incentive Plan
10.4(11)*
Amended and Restated Employment Offer Letter between the Company and Dr. Morris S. Young dated
December 4, 2012
10.5(12)*
Employment Letter Agreement between the Company and Mr. Gary L. Fischer
10.6(13)*
2015 Equity Incentive Plan, as amended
10.7(14)*
Executive Incentive Plan
10.8
Form of Capital Increase Agreement between Beijing Tongmei Xtal Technologies Co., Ltd. and certain
investors
10.8(a)
Schedule identifying agreements substantially identical to the form of Capital Increase Agreement filed as
Exhibit 10.11 hereto
10.9
Form of First Supplemental Agreement between Beijing Tongmei Xtal Technology Co., Ltd. and certain
investors
10.9(a)
Schedule identifying agreements substantially identical to the form of First Supplemental Agreement filed as
Exhibit 10.12 hereto
10.10
Form of Second Supplemental Agreement between Beijing Tongmei Xtal Technology Co., Ltd. and certain
investors
10.10(a)
Schedule identifying agreements substantially identical to the form of Second Supplemental Agreement filed
as Exhibit 10.13 hereto
10.11
Letter of Commitment on Share Lock-up
10.12
Letter of Commitment on the Shareholding Intention and Share Reduction Intention
10.13
Letter of Commitment on Plan for Stabilizing Tongmei’s Stock Price within Three Years upon the Listing and
the Restraint Measures
10.14
Letter of Commitment on Share Repurchase for Fraudulent Listing
10.15
Letter of Commitment on No False Records, Misleading Statements or Major Omissions in the Prospectus
10.16
Letter of Commitment on Filling the Diluted Spot Return
10.17
Letter of Commitment on Restraint Measures for Nonperformance of the Commitments
10.18
Letter of Commitment on Avoiding Horizontal Competition
10.19
Letter of Commitment on Regulating and Reducing Related Party Transactions
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118
10.20
Letter of Commitment on Avoiding Illegal Guarantees
10.21
Statement and Letter of Commitment
10.22
Special Commitment Letter for Disclosure of Shareholders’ Information and Verification of Retired
Personnel of CSRC
12.1
Computation of Ratio of Earnings to Fixed Charges
19.1
Insider Trading Policy
21.1
List of Subsidiaries
23.1
Consent of BPM LLP, Independent Registered Public Accounting Firm
24.1
Power of Attorney (see signature page)
31.1
Certification by principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification by principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 †
Certification by Chief Einsiderxecutive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
32.2 †
Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
97.1*
Compensation Recovery Policy
101.INS
Inline XBRL Instance.
101.SCH
Inline XBRL Taxonomy Extension Schema.
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase.
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase.
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase.
101.PRE
104
Inline XBRL Taxonomy Extension Presentation Linkbase.
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
(1)
Incorporated by reference to exhibit 3.1 to registrant’s Form 10-K filed with the SEC on March 31, 1999.
(2)
Incorporated by reference to exhibit 3.1 to registrant’s Form 10-Q filed with the SEC on August 14, 2000.
(3)
Incorporated by reference to exhibit 3.4 to registrant’s Form 10-Q filed with SEC on August 5, 2004.
(4)
Incorporated by reference to exhibit 3.1 to registrant’s Form 8-K filed with the SEC on June 14, 1999.
(5)
Incorporated by reference to exhibit 3.4 to registrant’s Form 8-K filed with the SEC on May 30, 2001.
(6)
Incorporated by reference to exhibit 99.2 to registrant’s Form 8-K filed with the SEC on August 1, 2007.
(7)
Incorporated by reference to exhibit 3.1 to registrant’s Form 8-K filed with the SEC on October 26, 2010.
(8)
Incorporated by reference to exhibit 10.1 to registrant’s Form 8-K filed with the SEC on October 31, 2014.
(9)
Incorporated by reference to exhibit 10.31 to registrant’s Form 10-K filed with the SEC on March 31, 2009.
(10) Incorporated by reference to exhibit 10.20 to registrant’s Form 10-K filed with the SEC on March 22, 2010.
(11) Incorporated by reference to exhibit 10.1 to registrant’s Form 8-K filed with the SEC on December 4, 2012.
(12) Incorporated by reference to exhibit 10.1 to registrant’s Form 8-K filed with the SEC on August 12, 2014.
(13) Incorporated by reference to exhibit 10.1 to registrant’s Form 8-K filed with the SEC on May 20, 2024.
(14) Incorporated by reference to exhibit 10.1 to registrant’s Form 8-K filed with the SEC on February 26, 2016.
*
Management contract or compensatory plan.
† The certifications attached as Exhibits 32.1 and 32.2 that accompany this Annual Report on Form 10-K are deemed
furnished and not filed with the Securities and Exchange Commission and are not to be incorporated by reference into any
filing of AXT, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended,
whether made before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language
contained in such filing.
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119
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
AXT, Inc.
By: /s/ GARY L. FISCHER
Chief Financial Officer and Corporate Secretary
(Principal Financial Officer)
Date: March 14, 2025
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes
and appoints Morris S. Young and Gary L. Fischer, and each of them, his true and lawful attorney-in-fact and agent, with full
power of substitution, each with power to act alone, to sign and execute on behalf of the undersigned any and all amendments
to this Report on Form 10-K, and to perform any acts necessary in order to file the same, with all exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing requested and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or their or his or her substitutes, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ MORRIS S. YOUNG
Chief Executive Officer and Chairman of the
Board of Directors
March 14, 2025
Morris S. Young
(Principal Executive Officer)
/s/ GARY L. FISCHER
Chief Financial Officer and Corporate Secretary
March 14, 2025
Gary L. Fischer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ JESSE CHEN
Lead Independent Director
March 14, 2025
Jesse Chen
/s/ DAVID C. CHANG
Director
March 14, 2025
David C. Chang
/s/ Christine Russell
Director
March 14, 2025
Christine Russell
Exhibit 4.1
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
DESCRIPTION OF CAPITAL STOCK
The following information describes our common stock and preferred stock, as well as certain provisions of our
restated certificate of incorporation, as amended (the “certificate of incorporation”), and second amended and restated bylaws,
as amended (the “bylaws”). This summary does not purport to be complete and is qualified in its entirety by the provisions of
our certificate of incorporation and bylaws, copies of which have been filed as exhibits to this Annual Report on Form 10-K,
as well as to the applicable provisions of the Delaware General Corporation Law.
General
Our authorized capital stock consists of 70,000,000 shares of common stock with a $0.001 par value per share (the
“common stock”) and 2,000,000 shares of preferred stock with a $0.001 par value per share (the “preferred stock”), 1,000,000
shares of which are designated as “Series A Preferred Stock” and 200,000 of which are designated as “Series B Preferred
Stock.” Our board of directors may establish the rights and preferences of the preferred stock from time to time.
Common Stock
Each holder of our common stock is entitled to one vote for each share on all matters to be voted upon by the
stockholders. Subject to any preferential rights of any outstanding preferred stock, holders of our common stock are entitled to
receive ratably the dividends, if any, as may be declared from time to time by the board of directors out of funds legally
available therefor. We have never declared or paid any cash dividend on our capital stock and do not anticipate paying any
cash dividends in the foreseeable future. If there is a liquidation, dissolution or winding up of our company, holders of our
common stock would be entitled to share ratably in our assets remaining after the payment of liabilities and any preferential
rights of any outstanding preferred stock.
Holders of our common stock have no preemptive or conversion rights or other subscription rights, and there are no
redemption or sinking fund provisions applicable to the common stock. The outstanding shares of common stock are fully paid
and non-assessable. The rights, preferences and privileges of the holders of our common stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the
future.
Our common stock is listed on the NASDAQ Global Select Market under the symbol “AXTI.” The transfer agent and
registrar for the common stock is Computershare.
Preferred Stock
Our certificate of incorporation provides that we may issue up to 2,000,000 shares of preferred stock. As of March
16, 2023, 883,000 shares of our Series A Preferred Stock were issued and outstanding and 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 $4 per share
liquidation preference over common stock, and must be paid before any distribution is made to common stockholders. Other
than the Series A Preferred Stock, no shares of preferred stock are currently outstanding.
Under the terms of our certificate of incorporation, our board of directors is authorized to issue shares of preferred
stock in one or more series without stockholder approval. Our board of directors has the discretion to determine the rights,
preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences, of each series of preferred stock. There are no restrictions presently on the repurchase or redemption
of any shares of our preferred stock.
The issuance of shares of preferred stock will affect, and may adversely affect, the rights of holders of common stock.
It is not possible to state the actual effect of the issuance of any shares of preferred stock on the rights of holders
of common stock until our board of directors determines the specific rights attached to that preferred stock. The effects of
issuing additional preferred stock could include one or more of the following:
●
restricting dividends on the common stock;
●
diluting the voting power of the common stock;
●
impairing the liquidation rights of the common stock; or
●
delaying or preventing changes in control or management of our company.
Preferred stock will be fully paid and nonassessable upon issuance.
Effect of Certain Provisions of our Certificate of Incorporation and Bylaws and the Delaware Anti-Takeover Statute
Some provisions of Delaware law and our certificate of incorporation and bylaws contain provisions that could make
the following transactions more difficult:
●
acquisition of us by means of a tender offer;
●
acquisition of us by means of a proxy contest or otherwise; or
●
removal of our incumbent officers and directors.
Those provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover
bids and to promote stability in our management. These provisions are also designed to encourage persons seeking to acquire
control of us to first negotiate with our board of directors.
Certificate of Incorporation and Bylaws
Our certificate of incorporation and our bylaws provide for, among other things, the following:
●
Undesignated Preferred Stock. The ability to authorize undesignated preferred stock makes it possible for our
board of directors to issue one or more series of preferred stock with voting or other rights or preferences that
could impede the success of any attempt to change control of our company. These and other provisions may have
the effect of deferring hostile takeovers or delaying changes in control or management of our company.
●
Stockholder Meetings. Our bylaws provide that in general a special meeting of stockholders may be called only
by our board of directors, its chairman or our president.
●
Requirements for Advance Notification of Stockholder Nominations and Proposals. Our bylaws establish
advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of our board of directors or a committee of the
board of directors.
●
Board Classification. Our board of directors is divided into three classes. The directors in each class are elected
to serve for a three-year term, one class being elected each year by our stockholders. This system of electing and
removing directors may tend to discourage a third party from making a tender offer or otherwise attempting to
obtain control of us, because it generally makes it more difficult and time consuming for stockholders to replace
a majority of the directors.
●
Limits on Ability of Stockholders to Act by Written Consent. We have provided in our bylaws that our
stockholders may not act by written consent. This limit on the ability of our stockholders to act by written
consent may lengthen the amount of time required to take stockholder actions. As a result, a holder controlling a
majority of our capital stock would not be able to amend our bylaws or remove directors without holding a
meeting of our stockholders called in accordance with our bylaws.
●
Amendment of Certificate of Incorporation and Bylaws. The amendment of the above provisions of our
certificate of incorporation and bylaws requires approval by holders of at least two-thirds of our outstanding
capital stock entitled to vote generally in the election of directors.
●
Election and Removal of Directors. Our certificate of incorporation and bylaws contain provisions that establish
specific procedures for appointing and removing members of our board of directors. Under our certificate of
incorporation and bylaws, vacancies and newly created directorships on our board of directors may be filled only
by a majority of the directors then serving on the board of directors. Under our certificate of incorporation and
bylaws, directors may be removed, with or without cause, by the affirmative vote of the holders of a majority of
the shares then entitled to vote at an election of directors.
●
No Cumulative Voting. The Delaware General Corporation Law provides that stockholders are not entitled to the
right to cumulate votes in the election of directors unless our certificate of incorporation provides otherwise. Our
certificate of incorporation and bylaws do not expressly provide for cumulative voting. Without cumulative
voting, a minority stockholder may not be able to gain as many seats on our board of directors as the stockholder
would be able to gain if cumulative voting were permitted. The absence of cumulative voting makes it more
difficult for a minority stockholder to gain a seat on our board of directors to influence our board of directors’
decision regarding a takeover.
Delaware Anti-Takeover Statute
We are subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate
takeovers. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging, under certain circumstances,
in a business combination with an interested stockholder for a period of three years following the date the person became an
interested stockholder unless:
●
prior to the date of the transaction, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an interested stockholder;
●
upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the voting stock outstanding, but not for
determining the outstanding voting stock owned by the interested stockholder, (i) shares owned by persons who
are directors and also officers, and (ii) shares owned by employee stock plans in which employee participants do
not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender
or exchange offer; or
●
at or subsequent to the date of the transaction, the business combination is approved by the board of directors of
the corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66-2/3% of the outstanding voting stock which is not owned by the interested
stockholder.
Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial
benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns
or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation’s
outstanding voting stock.
Exhibit 10.8
Capital Increase Agreement
on
Beijing Tongmei Xtal Technology Co., Ltd.
Among
Guangshuo Semiconductor Equipment (Shanghai) Co., Ltd.,
Beijing Tongmei Xtal Technology Co., Ltd.
and
AXT, INC.
January 2021
2
CONTENTS
Article 1 Definitions and Interpretation
4
Article 2 Capital Increase
7
Article 3 Undertakings, Representations and Warrants
10
Article 4 Termination of Agreement
11
Article 5 Liability for Default
12
Article 6 Confidentiality
13
Article 7 Term
14
Article 8 Governing Law and Resolution of Disputes
14
Article 9 Notices
15
Article 10 Miscellaneous
17
3
CAPITAL INCREASE AGREEMENT
This CAPITAL INCREASE AGREEMENT (hereinafter referred to as the “Agreement”) is entered into as of
[DD] [MM], 2021 in Beijing by and among:
Party A: Guangshuo Semiconductor Equipment (Shanghai) Co., Ltd.
Domicile: Room 603, No. 15, Lane 218, Haiji No.6 Road, Nanhui New Town, Pudong New Area, Shanghai
Legal Representative: Zhang Shuheng
Party B: Beijing Tongmei Xtal Technology Co., Ltd. (hereinafter referred to as the “Target Company” or
“the Company”)
Domicile: No. 4 East Second Street, Industrial Development Zone, Tongzhou District, Beijing, PRC
Legal Representative: Morris Young
Party C: AXT, INC.
Domicile: 4281 TECHNOLOGY DR FREMONT CA 94538
Authorized Representative: Morris Young
(Party A, Party B and Party C are collectively referred to as the “Parties” herein; each party or any party is
referred to as the “Party”, as the context requires)
WHEREAS,
1. Party A is the investor of the Target Company, a limited partnership duly incorporated and validly existing in
accordance with the laws of the People’s Republic of China, with its registered address at Room 603, No. 15,
Lane 218, Haiji No.6 Road, Nanhui New Town, Pudong New Area, Shanghai, PRC.
4
2. Party B is the Target Company, a limited liability company incorporated and validly existing in accordance
with the laws of the People’s Republic of China, under the Unified Social Credit Code
91110000700004889C, with a registered capital of RMB 820.960319 million, and with its registered address
at No. 4 East Second Street, Industrial Development Zone, Tongzhou District, Beijing, PRC. The legal
representative of it is Morris Young.
3. Party C is an American company listed on NASDAQ (stock code: AXTI), with its address at 4281
TECHNOLOGY DR FREMONT CA 94538.
4. The Parties agree that Party A shall subscribe for Party B’s newly increased registered capital in accordance
with the terms and conditions specified in this Agreement.
NOW, THEREFORE, the Parties hereto agree as follows through friendly negotiation:
Article 1 Definitions and Interpretation
1.1
Unless otherwise specified in this Agreement, the following words and expressions shall have the following
meanings:
Agreement
refers to this Capital Increase Agreement, including amendments and supplements
made thereto from time to time;
Company, Target
Company
refers to Beijing Tongmei Xtal Technology Co., Ltd.
Affiliates
refers to relevant companies whose financial statements shall be consolidated upon the
current and subsequent reorganization of the Target Company in accordance with the
Accounting Standards for Business Enterprises of PRC ;
Controlling
Shareholder
refers to AXT, INC., a company listed on NASDAQ in the United States, with the stock code
AXTI;
Articles
of
Association
refers to the Company’s Articles of Association, including amendments and supplements
made thereto from time to time;
Capital Increase
refers to the subscription of newly increased registered capital of the Target Company by
Party A with the equivalent cash in RMB of USD 90742 in accordance with the terms and
conditions of this Agreement among the proposed financing of USD 90742 (Party A shall
make payment in RMB. The specific amount shall be calculated as per the middle rate of
USD against RMB (i.e. 1 U.S. dollar = RMB 6.6205) announced by the People's Bank of
China on 2:00 p.m., November 13, 2020, i.e. Party A makes an investment of RMB 0.600758
million)
5
Capital
Contribution
refers to the total amount of capital contributed by Party A to the Target Company to
subscribe for the newly increased registered of the Target Company in accordance with the
provisions of this Agreement, that is USD 90742. (Party A shall make the contribution in
RMB, and the specific amount shall be calculated by referring to the middle rate of USD
against RMB (i.e. 1 U.S. dollar = 6.6205 yuan) announced by the People’s Bank of China on
2:00 p.m., November 13, 2020, i.e. Party A makes an investment of RMB 0.600758 million).
IPO
refers to the initial public offering and listing on domestic stock exchanges by the Target
Company with the approval of the competent authorities;
Related Parties
The Company’s related party refers to the natural person, legal person or any other
organization in any of the following circumstances: 1) the natural, legal person or any other
organization that controls the Company directly or indirectly; 2) the natural person holding
more than 5% shares directly or indirectly; 3) the Company’s director, supervisor or senior
manager; 4) family members having close relations with the related natural person described
in 1), 2) and 3), including spouse, spouse's sibling and the parents of children's spouse; 5)
legal person or other organization that directly holds more than 5% shares of the Company;
6) director, supervisor, senior manager or other major leader of the legal person or other
organization that controls the Company directly or indirectly; 7) legal person or other
organization directly or indirectly controlled by the related legal person or natural person
described in 1) – 6) or in which the aforesaid related natural person (except for chairman)
acts as director or senior manager, unless it is the Company or its holding subsidiary; 8)
legal person or other organization indirectly holding more than 5% shares of the Company;
9) other natural person, legal person or other organization that CSRC, Shanghai Stock
Exchange or the Company judges having special relationship with the Company in
accordance with the principle of substance over form, which may make the Company’s
interests incline towards it.
Within the 12 months after the transaction date or upon the validity of relevant transaction
agreement or implementation of relevant argument, the legal person or other organization or
natural person in any of the circumstances described in the preceding paragraph shall be
deemed as the Company’s related party.
The Company will not form an associated relationship with the legal person that the legal
person or other organization listed in Paragraph 1 controls directly or indirectly or other
organization that is under the control of the identical state-owned assets regulatory agency,
except that legal representative, general manager, leader or over half of directors of the legal
person or other organization double as the Company’s director, supervisor or senior
manager.
6
PRC
refers to the People’s Republic of China, for the purpose of this Agreement, excluding Hong
Kong Special Administrative Region, Macau Special Administrative Region and Taiwan.
Yuan
refers to Chinese Yuan, the statutory currency of PRC.
USD
refers to US dollar, the statutory currency of the United States.
Working Day
refers to the normal working day of banks in China (excluding Saturday, Sunday and
statutory holidays of PRC).
1.2
Any reference to the terms and annexes in this Agreement refer to the terms and annexes of this Agreement
(unless otherwise indicated). The annexes to this Agreement shall be deemed as an integral part of this
Agreement.
1.3
Any reference to the documents in this Agreement shall include the modifications, combinations,
supplements, updates and substitutions made thereto from time to time.
1.4
The terms of any law or regulation shall refer to the terms of the law or regulation revised from time to time
(whether before or after the execution date of this Agreement).
1.5
The headlines are only for the convenience of reading, and shall not affect the interpretation of this
Agreement.
1.6
Unless otherwise stated, if any date of implementation under this Agreement falls on a non-working day,
such implementation shall be postponed to the first working day following the non-working day.
7
Article 2 Capital Increase
2.1
Capital Increase
Prior to the signature of this Agreement, the Target Company signed relevant capital increase agreements
with Liaoning Haitong Innovation Securities Investment Co., Ltd. (hereinafter referred to as “Haitong
Innovation Securities”), Liaoning Haitong New Kinetic Energy Equity Investment Fund Partnership (L.P.)
(hereinafter referred to as “Haitong New Kinetic Energy”) and Liaoning Haitong New Energy Low-carbon
Industry Equity Investment Fund Co., Ltd. (hereinafter referred to as “Haitong New Energy”). According to
agreements, Haitong Innovation Securities, Haitong New Kinetic Energy and Haitong New Energy
increased an investment in RMB equivalent to USD 10 million, USD 9 million and USD 3.5 million
respectively to the Target Company based on the pre-investment valuation of USD 624 million (the specific
amount shall be calculated as per the middle rate of USD against RMB (i.e. 1 U.S. dollar = RMB 6.6205)
announced by the People's Bank of China on 2:00 p.m., November 13, 2020, i.e. Haitong Innovation
Securities makes an investment of RMB 66.205 million, Haitong New Kinetic Energy adds an investment of
RMB 59.5845 million and Haitong New Energy adds an investment of RMB 23.17175 million respectively)
(the above are collectively known as “Haitong capital increase”).
Prior to the signature of this Agreement, the Target Company signed relevant capital increase agreements
with Fujian Province Anxin Industry Investment Fund Partnership (L.P.) (hereinafter referred to as Anxin
Industry Investment), Jinggangshan Meicheng Equity Investment Partnership (L.P.)( hereinafter referred to
as Jinggangshan Meicheng), Hefei Huadeng Phase 2 Integrated Circuit Industry Investment Partnership
(L.P.)( hereinafter referred to as Huadeng Phase 2), Qingdao Xinxingyi Equity Investment Fund Partnership
(L.P.)( hereinafter referred to as Qingdao Xinxing), Qiji (Hangzhou) Investment Co., Ltd.(hereinafter
referred to as Hangzhou Qiji), Gongqingcheng Yihua Tongze Investment Partnership (L.P.)( hereinafter
referred to as Gongqingcheng Yihua). According to agreements, Anxin Industry Investment, Jinggangshan
Meicheng, Hefei Huadeng Phase 2, Qingdao Xinxing, Hangzhou Qiji and Gongqingcheng Yihua increased
an investment in RMB equivalent to USD 6.797 million, USD 4.531 million , USD 5.287 million, USD
3.021 million, USD 3.021 million and USD 1.343 million respectively to the Target Company based on the
pre-investment valuation of USD 624 million (the specific
8
amount shall be calculated as per the middle rate of USD against RMB (i.e. 1 U.S. dollar = RMB 6.6205)
announced by the People's Bank of China on 2:00 p.m., November 13, 2020, i.e. Anxin Industry Investment
makes an investment of RMB 45 million, Jinggangshan Meicheng adds an investment of RMB 30 million,
Huadeng Phase 2 adds an investment of RMB 35 million, Qingdao Xinxing adds an investment of RMB 20
million, Hangzhou Qiji adds an investment of RMB 20 million and Gongqingcheng Yihua adds an
investment of RMB 8.892 million respectively) (the above are collectively known as “Anxin capital
increase”).
Prior to the signature of this Agreement, the Target Company signed relevant capital increase agreements
with Sunrise Baoying (Ningbo) Investment Center (L.P.) (hereinafter referred to as Sunrise Baoying).
According to agreements, Sunrise Baoying (Ningbo) Investment Center (L.P.) increased an investment in
RMB equivalent to USD 1 million to the Target Company based on the pre-investment valuation of USD
624 million (the specific amount shall be calculated as per the middle rate of USD against RMB (i.e. 1 U.S.
dollar = RMB 6.6205) announced by the People's Bank of China on 2:00 p.m., November 13, 2020, i.e.
Haitong Innovation Securities makes an investment of RMB 6.6205 million(the above are collectively
known as “Sunrise capital increase”).
The Target Money under this Agreement agrees to attract financing of USD 90742. Party A agrees to
subscribe the newly added capital of the Target Company with the equivalent cash in RMB of equivalent to
USD 90742. (Party A shall make payment in RMB. The specific amount shall be calculated as per the
middle rate of USD against RMB (i.e. 1 U.S. dollar = RMB 6.6205) announced by the People's Bank of
China on 2:00 p.m., November 13, 2020, i.e. Party A makes an investment of RMB 0.600758 million). After
this round of capital increase, on the basis of considering Haitong capital increase, Anxin capital increase,
Sunrise capital increase as well as the completion of equity financing of other two investors and not
considering the subsequent equity financing, Party A holds a total of 0.0135% equities of the Target
Company.
9
2.2
Purpose of Capital Contribution
All the capital contribution shall be used by Target Company for purposes related to its current main
business or recombination (The specific meaning shall be subject to the supplementary agreement signed
and concluded by the Parties). Except as described above, the Target Company shall not use the above
capital contribution for other purposes without Party A’s prior written consent.
2.3
Payment of Capital Contribution
(1) Party A shall make the payment of USD 90742 to Party B in a lump-sum within 10 working days upon
the establishment of the following prerequisites: (Party A shall make the contribution in RMB, and the
specific amount shall be converted by referring to the middle rate of USD against RMB announced by the
People’s Bank of China on November 13, 2020, i.e. RMB 0.600758 million).
① Party B agrees upon the resolution of board of shareholders on the capital increase and relevant capital
increase agreements;
② Party C agrees upon the board resolution on the capital increase and relevant capital increase agreements;
(2) The details of the bank account used by the Target Company to receive the capital contribution are as
follows:
Account Name: Beijing Tongmei Xtal Technology Co., Ltd.
Account Number: 32205600822-2
Bank Name: BOC Tongzhou Branch
2.4
Completion of Capital Increase
（1）The completion of the capital increase shall be subject to the completion of the registration of change
in connection with to the capital increase with industry and commerce department and the
acquisition of the renewed business license;
（2）Party A shall use its best efforts to actively cooperate with the Target Company in going through the
procedures of change, filing and reporting with the applicable market supervision and management
department (industry and commerce) and the competent commercial department for the capital
increase.
10
Article 3 Undertakings, Representations and Warrants
3.1
Representations and Warranties of Party A:
(1) Party A is legally incorporated and validly existing in accordance with the laws of PRC; Party A and its
shareholders are not included in the “three types of shareholders” of contractual private equity funds, asset
management plans and trust plans; and Party A has obtained the qualifications of being shareholder required
by laws and regulations.
(2) Party A has independent legal status and full civil capacity to enter into and perform this Agreement, and
can independently act as a subject of litigation.
(3) Party A has acquired all the authorizations, approvals or filings required for the execution, delivery and
performance of this Agreement and completion the transaction under this Agreement. The execution and
performance of this Agreement by Party A will not violate the provisions of relevant laws and regulations
and normative documents or the terms of major contractual documents that are binding upon it.
(4) Party A has prepared sufficient funds for this capital increase and the source of funds is true and legal.
3.2
Representations and Warranties of Party B and Party C:
(1) Party B and Party C have obtained internal approval and authorization for the execution and performance
of this Agreement, and the authorization documents have been provided to Party A.
(2) Party B and Party C have independent legal status and full capacity for civil capacity to enter into and
perform this Agreement, and can independently act as a subject of litigation.
(3) Party B and Party C undertake that they have obtained all authorizations and internal decision-making
procedures necessary for the execution and performance of this Agreement and the completion of the
transaction under this Agreement. The execution of this Agreement and the and performance of the
obligations hereunder by Party B and Party C will not violate any agreement entered into individually or
jointly as a party or the provisions of relevant laws, regulations and normative documents.
11
(4) As of the execution date of this Agreement, where Party C is subjected to any hostile acquisition or
attempt to change Party C’s control power initiated by any subject or person, without prejudice to director's
loyalty, diligence and fiduciary duties under laws of the US, Party C’s board of directors shall take actions
such as issuing securities with voting rights or other priority rights in accordance with relevant provisions of
applicable laws, certificate of incorporation, and articles of incorporation, so as to avoid the material change
in Party C’s equity structure, board of directors and management.
Article 4 Termination of Agreement
4.1
This Agreement can be terminated by the Parties by consensus.
4.2
In case of the following events, Party B and Party C are entitled to send a written notice of termination of
this Agreement to Party A, and this Agreement shall be terminated as of the date of receipt of such written
notice by Party A:
(1) Party A is in violation of this Agreement or any other transaction documents, and fails to rectify and
remedy its default within a reasonable period as required by Party B and Party C in the written notice
requesting for the rectification of such default;
(2) The representations and warranties made by Party A in this Agreement are untrue, inaccurate, or
misleading, fraudulent or concealed in material respects.
4.3
In case of the following events, Party A is entitled to send a written notice of termination of this Agreement
to Party B and Party C, and this Agreement shall be terminated as of the date of receipt of such written
notice by Party B or Party C:
(1) Party B or Party C is in violation of this Agreement or any other transaction documents, and fails to
rectify and remedy its default within a reasonable period as required by Party A in the written notice
requesting for the rectification of such default;
(2) The representations and warranties made by Party B and Party C together or separately in this
Agreement are untrue, inaccurate, or misleading, fraudulent or concealed in material respects.
12
(3) Party B and Party C fail to finish the relevant matters agreed in the written supplementary agreement by
the parties.
4.4
Where this Agreement is cancelled prior to the completion of the capital increase, Party A does not need to
pay any investment. Should Party A have affected the payment, Party B shall refund Party A within 10
working days upon the cancelation of this Agreement.
4.5
Upon the cancellation or termination of this Agreement, other transaction documents (if any) signed by the
Parties regarding the capital increase shall be automatically cancelled or terminated with this Agreement.
4.6
Upon the termination of this Agreement, except for Article 5 (Liability for Default), Article 6
(Confidentiality), this paragraph, and Article 8 (Governing Law and Resolution of Disputes), the Parties
shall neither enjoy the rights under this Agreement, nor shall assume the obligations and responsibilities
under this Agreement, and nothing in this Agreement shall relieve any party from its liability for default of
this Agreement incurred prior to the termination.
Article 5 Liability for Default
5.1
In case of any violation of this Agreement or any other transaction documents by any party, the breaching
party shall compensate for the losses incurred thereby to other parties hereto (including related fees and
expenses, interest, fines and attorney fees incurred by such default).
5.2
For the avoidance of doubt, the Parties agree that when the Agreement is terminated by the parties in
accordance with relevant provisions under this Agreement, the provisions of the preceding paragraph on
compensation for losses shall not affect Party A’s right to request the Target Company to return the capital
contribution made.
13
Article 6 Confidentiality
6.1
Except as otherwise provided in this Agreement, each party to this Agreement shall treat as strictly
confidential all information contained in this Agreement or received or obtained through negotiation and/or
signing of this Agreement, including but not limited to any information related to the following matters, and
shall not disclose or make use of such information.
(1)
The existence and terms of this Agreement;
(2)
Negotiations related to this Agreement; or
(3)
Business activities conducted by a party to this Agreement, the party or any of its related parties.
6.2
During the Term of this Agreement and before the relevant confidential information becomes public
information (hereinafter referred to as the “Confidentiality Period”), without the prior written consent of
other parties hereto, each party neither may use the confidential information of other parties for any purpose
other than the execution and performance of this Agreement, nor disclose or provide such confidential
information to any third party other than the Parties hereto, and shall take all necessary measures to ensure
that its current and future directors, officers, employees and professional consultants such as lawyers,
accountants, financial consultants, etc. comply with the above-mentioned confidentiality obligations during
the confidentiality period, otherwise the party shall compensate other parties for their losses.
6.3
Provided that, under the following circumstances, this Article 6 shall not prohibit the disclosure or use of
any information within the following scope:
(1) The disclosure or use required by applicable laws, any rules of the stock exchange where the shares of
any party are listed, or any government agency;
(2) Disclosure or use required for the purpose of any legal proceedings caused by this Agreement or any
other agreement signed under or pursuant to this Agreement, or the disclosure is related to the tax affairs
of the disclosing party and made to the tax department;
14
(3) Disclosure made to any party’s officers, directors, employees, lawyers, accountants, financial
consultants and other agents or representatives who need to know the information for the completion of
the transactions contemplated by this Agreement or any agreement entered into under this Agreement,
provided that such persons promise to comply with the provisions of Article 6 with respect to such
information as if they were a party to this Agreement;
(4) Such information can be acquired from public channels (except for acquisition by violation of the
confidentiality agreement (if any) or this Agreement); or
(5) Prior written consent for disclosure or use has been given by other parties.
Article 7 Term
7.1
This Agreement shall become effective as of the date of execution by the Parties.
7.2
This Agreement will remain effective upon its commencement, unless it is cancelled or terminated in
accordance with the provisions of this Agreement.
Article 8 Governing Law and Resolution of Disputes
8.1
The formation, validity, performance, alteration, termination, interpretation of this Agreement, as well as the
settlement of disputes caused by or related to this Agreement, shall be governed by the laws of the PRC.
8.2
Any dispute arising from or in connection with this Agreement shall be resolved by the Parties hereto
through friendly negotiation with their best efforts; the aforesaid negotiation shall commence immediately
upon the notification of the dispute in writing by one party to other parties.
8.3
If the Parties cannot resolve the dispute through friendly negotiation within 30 days from the service of the
notice mentioned in Article 9.2, any party is entitled to file an application with the China International
Economic and Trade Arbitration Commission for arbitration applying the arbitration rules of the China
International Economic and Trade Arbitration Commission in effect at the time of the arbitration. The
arbitration
15
proceedings shall be conducted in Chinese in Beijing. The arbitration award is final and binding upon the
Parties.
8.4
In the event of any dispute or controversy during the arbitration period, except for the rights and obligations
in connection with the dispute involved in such arbitration, each party shall continue to perform its other
obligations under this Agreement (and shall be entitled to exercise its right under this Agreement).
Article 9 Notices
9.1
All notices, requests, claims, demands and other formal communications (hereinafter referred to as
“Notices”) under this Agreement shall be made in writing and signed or sealed by the sender or its
authorized representative. Such notice shall be delivered by hand, registered airmail or fax and other
electronic communication means to the following addresses designated by the Parties:
(1) If to Party A:
Party A: Guangshuo Semiconductor Equipment (Shanghai) Co., Ltd.
Address: Room 603, No. 15, Lane 218, Haiji No.6 Road, Nanhui New Town, Pudong
New Area, Shanghai
E-mail: steven_zhang@lumentime.com
Fax: 021-61702388
Attention: Zhang Shuheng
(2) If to Party B:
Address: No. 4 East Second Street, Zhangjiawan Industrial Development Zone,
Tongzhou District, Beijing, PRC
E-mail: ze.hao@axt.com
Fax: 010-61562245
16
Attention: Hao Ze
(3) If to Party C:
Address: 4281 Technology Drive, Fremont CA 94538-6339 USA
E-mail: gfischer@axt.com
Fax: (001-510) 583-5901
Attention: Gary Fischer
Any notice shall be addressed to relevant parties listed in this Article (or other recipients of other parties
notified by relevant parties in accordance with the provisions of this Article).
9.2
Any notice delivered by hand, registered airmail or fax, and other electronic communication means shall be
deemed to have been served:
(1) In the case of delivery by hand and obtaining of written receipt, if it is delivered before 17:00 on the
working day of the place of service, the time when the written receipt is signed shall be the time of service;
if it is delivered after 17:00 on the working day or at any time on the non-working day of the place of
service, the notice shall be deemed as being served at 9:00 on the next working day of the place of service;
(2) If the registered airmail is domestic mail in China and is sent by express mail service with postage
prepaid, it shall be deemed as being served on the fifth working day from the date of mailing;
(3) If the registered airmail is sent from or to any place outside of China and sent by international express
mail service with postage prepaid, it shall be deemed to be served on the tenth working day from the date of
mailing;
(4) In the case of delivery by fax or other electronic communication means, it shall be deemed as being
served after sending, as evidenced by the sending report confirming the successful sending and the oral
receipt confirmation (the sender shall record it in writing and sign it). Provided that, if the fax or other
electronic communication is sent
17
after 17:00 on the working day or at any time on a non-working day of the place of service, it shall be
deemed as being served at 9:00 on the next working day of the place of service.
Article 10 Miscellaneous
10.1
The Parties unanimously agree that from the date of completion of the change registration for the capital
increase with the industry and commerce department, the Target Company’s accumulated and newly
increased undistributed profits over the years will be shared by the Target Company’s new and old
shareholders after the capital increase in proportion to their respective paid-up capital.
10.2
Unless otherwise specified, the failure or delay in the exercise of any right, power or privilege under this
Agreement by any party shall not be deemed as a waiver of that right, power or privilege by such party; the
exercise of any right, power or privilege in whole or in part shall not be regarded as the interference with the
exercise of other rights, powers or privileges.
10.3
Without prejudice to the provisions of other terms of this Agreement, if any term or part of this Agreement is
determined to be invalid, illegal or unenforceable under the laws of PRC, or violation of the public interest,
the validity, legality and enforceability of the remaining of the Agreement shall not be affected or impaired
in any way. The Parties shall conduct friendly negotiations to agree on the term satisfactory to the Parties to
substitute the invalid term.
10.4
Unless otherwise agreed in this Agreement, each party shall respectively bear the legal and other expenses
incurred by itself in the preparation, negotiation and conclusion of the Agreement and other transaction
documents.
10.5
This Agreement and its annexes constitute a complete agreement among the Parties hereto. Unless otherwise
agreed in this Agreement, the amendment, modification, waiver, cancellation or termination of the
Agreement must be signed by the Parties in a written agreement.
18
10.6
Matters not covered in this Agreement shall be amicably negotiated by the Parties, and a written
supplementary agreement shall be executed by the Parties by consensus. The supplementary agreement shall
have the same legal effect as the Agreement.
10.7
No Party shall assign any of its rights or obligations under this Agreement, unless with the prior written
consent of the Parties.
10.8
This Agreement is executed in sextuplicate with one copy for each party, and the rest shall be maintained by
the Target Company for future use. Each copy has the same legal effect.
(The remainder of this page is intentionally left blank)
(No text on this page, and only for the signature of Capital Increase Agreement on Beijing Tongmei Xtal Technology
Co., Ltd. among Guangshuo Semiconductor Equipment (Shanghai) Co., Ltd., Beijing Tongmei Xtal Technology Co.,
Ltd. and AXT, INC.)
Guangshuo Semiconductor Equipment (Shanghai) Co., Ltd. (seal)
Legal representative or authorized representative (signature):
(No text on this page, and only for the signature of Capital Increase Agreement on Beijing Tongmei Xtal Technology
Co., Ltd. among Guangshuo Semiconductor Equipment (Shanghai) Co., Ltd., Beijing Tongmei Xtal Technology Co.,
Ltd. and AXT, INC.)
Beijing Tongmei Xtal Technology Co., Ltd. (Seal)
Legal representative or authorized representative (signature):
(No text on this page, and only for the signature of Capital Increase Agreement on Beijing Tongmei Xtal Technology
Co., Ltd. among Guangshuo Semiconductor Equipment (Shanghai) Co., Ltd., Beijing Tongmei Xtal Technology Co.,
Ltd. and AXT, INC.)
AXT, INC.
Authorized representative (signature):
Exhibit 10.8(a)
Schedule identifying agreements substantially identical to
the form of Capital Increase Agreement filed as Exhibit 10.8 hereto
Subscribed Capital of Beijing
Tongmei Xtal Technology Co., Ltd.
Purchase
Investor
Price (RMB)
Capital %
Liaoning Haitong New Energy Equity Investment (Limited Partnership)
11,840,774
1.3373%
Liaoning Haitong New Energy Low-Carbon Industry Equity Investment Co., Ltd.
4,604,745
.5201%
Haitong Innovation Securities Investment Co., Ltd.
13,156,415
1.4859%
Fujian Province An Xin Industry Investment Fund Partnership (Limited Partnership)
8,942,416
1.01%
Jinggangshan Meicheng Equity Investment Partnership (Limited Partnership)
5,961,172
.6733%
Hefei Walden II IC Industry Investment Partnership (Limited Partnership)
6,955,797
.7856%
Qingdao Xinxingyi Equity Investment Fund Partnership (Limited Partnership)
3,974,553
.4489%
Qiji (Hangzhou) Investment Consulting Co., Ltd.
3,974,553
.4489%
Gongqingcheng Yi Hua Tong Ze Investment Partnership (Limited Partnership)
1,766,907
.1996%
Sunrise Baoying (Ningbo) Investment Center (Limited Partnership)
1,315,642
.1486%
Xiamen He Yong Zhi Cheng Equity Investment Partnership (Limited Partnership)
860,468
.0972%
Hangzhou Jingyue Technology Development Partnership (Limited Partnership)
993,611
.1122%
Exhibit 10.9
Supplementary Agreement
to
Capital Increase Agreement on Beijing Tongmei Xtal Technology Co., Ltd.
Among
Guangshuo Semiconductor Equipment (Shanghai) Co., Ltd.,
Beijing Tongmei Xtal Technology Co., Ltd.
and
AXT, INC.
January 2021
2
Supplementary Agreement to Capital Increase Agreement
The Supplementary Agreement to the Capital Increase Agreement (hereinafter referred to as the “Supplementary
Agreement”) is entered into as of [DD] [MM], 2021 in Beijing by and among:
Party A: Guangshuo Semiconductor Equipment (Shanghai) Co., Ltd.,
Domicile: Room 603, No. 15, Lane 218, Haiji No.6 Road, Nanhui New Town, Pudong New Area, Shanghai
Legal Representative: Zhang Shuheng
Party B: Beijing Tongmei Xtal Technology Co., Ltd. (hereinafter referred to as the “Target Company” or
“the Company”)
Domicile: No.4, East Second Street, Industrial Development Zone, Tongzhou District, Beijing, PRC
Legal Representative: Morris Young
Party C: AXT, INC. (hereinafter referred to as “controlling shareholder”)
Domicile: 4281 TECHNOLOGY DR FREMONT CA 94538
Authorized Representative: Morris Young
(Party A, Party B and Party C are collectively referred to as the “Parties” and individually a “Party” in the
Supplementary Agreement, as required by the context)
WHEREAS:
1. Party A is the investor of the Target Company, a limited partnership duly incorporated and validly existing in
accordance with the laws of the People’s Republic of China, with its registered address at Room 603, No. 15,
Lane 218, Haiji No.6 Road, Nanhui New Town, Pudong New Area, Shanghai, PRC.
3
2. Party B is the Target Company, a limited liability company incorporated and effectively existing pursuant to
Chinese laws, with a unified social credit code of 91110000700004889C and a registered capital of RMB
820.960319 million, its registered address is No.4, East Second Street, Industrial Development Zone,
Tongzhou District, Beijing, and its legal representative is Morris Young.
3. Party C is an American company (stock code: AXTI) listed on NASDAQ, with its address at 4281
TECHNOLOGY DR FREMONT CA 94538.
4. The Parties have entered into the Capital Increase Agreement on Beijing Tongmei Xtal Technology Co., Ltd.
(hereinafter referred to as the Capital Increase Agreement) on [DD] [MM], 2021. Party A consents to
subscribe for the corresponding newly-increased registered capital of the Target Company in RMB cash
equivalent to USD 90742 (Party A shall make payment in RMB. The specific amount shall be calculated as
per the middle price of USD against RMB (i.e. 1 U.S. dollar = RMB 6.6205) announced by the People's Bank
of China on 2:00 p.m., November 13, 2020, i.e. Party A makes an investment of RMB 0.600758 million).
To further define the rights and obligations of the Parties in this round of capital increase of the Company, the
Parties consent to enter into the Supplementary Agreement, and reach supplementary agreements to the Capital
Increase Agreement as below:
4
ARTICLE 1 DEFINITION AND INTERPRETATION
1.1 Unless otherwise stated herein or otherwise defined in the context, definitions and interpretations in the
Supplementary Agreement shall have the same meaning as those in the Capital Increase Agreement.
ARTICLE 2 INDUSTRIAL AND COMMERCIAL CHANGES
2.1 Upon the establishment of employee stock ownership platform, the Target Company shall go through the
registration formality of industrial and commercial change regarding Party A’s additional investment for the Target
Company within ten working days after Party A finishes the capital increase or accepts the Company’s equity. The
formalities must be finished no later than March 31, 2021. Where the Company fails to finish the formalities within
the due time, Party B shall notify Party A in written form and both parties can prolong the period appropriately via
consultation.
ARTICLE 3 VALUATION OF TARGET COMPANY AND INVESTMENT PROPORTION OF PARTY A
3.1 The Parties agree and acknowledge that, subject to Article 5 (Restructuring of the Target Company) of the
Supplementary Agreement, the pre-investment valuation of the Target Company prior to this round of capital
increase is USD 624 million. The Target Company plans to attract financing of USD 90742 million from Party A.
The after-investment valuation is USD 673 million (including USD 22.5 million corresponding to Haitong capital
increase and USD 24 million corresponding to Anxin capital increase, USD 1 million corresponding to Sunrise
capital increase and USD 1.409258 million corresponding to equity financing of other two investors ).
3.2 The actual investment of Party A in this round of capital increase is USD 90742 million. Premised on the
above valuation in Article 3.1, in light of that fact that the employee stock ownership platform of the Target
Company has become a shareholder of the Target Company and Chaoyang Jinmei Gallium Co., Ltd. and the
shareholder (s) other than Party C of Beijing Boyu Semiconductor Vessel Craftwork Technology Co., Ltd. have
become the shareholders of the Target Company, and without considering other equity financing after this round of
capital
increase, Party A's equity ratio in the Target Company after this round of capital increase should be no less than
0.0135%.
ARTICLE 4 DELIVERY
4.1 Within five working days from the completion of the change of the industrial and commercial registration of
this round of capital increase, the Parties shall complete the delivery mentioned in Article 4.2 of the Supplementary
Agreement at the Target Company or other places otherwise consented by the Parties (hereinafter referred to as
“delivery”). The date of completion of such delivery is referred to as “date of delivery” in the Supplementary
Agreement.
4.2 On the date of delivery, the Target Company shall deliver the following documents to Party A:
(a) The original capital verification report issued by an accounting firm registered in China on the increase of
registered capital and paid-in situation of the Target Company;
(b) The original of capital contribution certificate signed by legal representative of the Target Company and
affixed with the official seal of the Target Company, which lists the equities that all shareholders hold in the
Target Company and the ratio; copy of the new business license with official seal of the Target Company; a
5
copy (copies) of the updated register of shareholders of the Target Company, and the original for Party A to
check. Party A has been registered as a shareholder of the Target Company in the register of shareholders.
ARTICLE 5 RESTRUCTURING OF THE TARGET COMPANY
After entering into the Supplementary Agreement, the Target Company shall launch the following restructuring
with a view to ensure eligible listing (as defined below):
5.1 The Target Company shall, prior to March 31, 2021, complete the acquisition of all shares of Baoding
Tongmei Xtal Manufacturing Co., Ltd., Chaoyang Tongmei Xtal Technology Co., Ltd., Chaoyang Jinmei Gallium
Co., Ltd., Beijing Boyu Semiconductor Vessel Craftwork Technology Co., Ltd. (including two holding subsidiaries
affiliated to it, i.e., Boyu (Tianjin) Semiconductor Materials Co., Ltd. and Boyu (Chaoyang) Semiconductor
Technology Co., Ltd.) and Nanjing Jinmei Gallium Co., Ltd. (including 25% equities of Xiaoyi Xing’an Gallium
Co., Ltd. it holds) and go through the registration of industrial and commercial changes. As a result, Baoding
Tongmei Xtal Manufacturing Co., Ltd., Chaoyang Tongmei Xtal Technology Co., Ltd., Chaoyang Jinmei Gallium
Co., Ltd., Beijing Boyu Semiconductor Vessel Craftwork Technology Co., Ltd. and Nanjing Jinmei Gallium Co., Ltd.
have become wholly-owned subsidiaries of the Target Company, and the Target Company has become the only
subject for the control and IPO (in the future) that AXT, INC. (a crystal technology company in the US) implements
in China.
5.2 The Target Company shall hold a wholly-owned subsidiary in the United States prior to March 31, 2021. The
U.S. subsidiary shall assume responsibility for the sales of overseas customers, take over the personnel of the
controlling shareholder- AXT, INC. and afford the personnel expenses (except for the personnel expenses required to
maintain the controlling shareholder's listing status in the US), in order that the sales of the Target Company - AXT,
INC. and its subsidiaries are all conducted via the Target Company and its subsidiaries, and the sales price of the
Target Company and its subsidiaries shall be close to the consignment price of the controlling shareholder - AXT,
INC.
ARTICLE 6 VALUATION ADJUSTMENT
6.1 The capital increase price of this round of capital increase is determined based on the assets, personnel and
business size of the Target Company upon completion of the restructuring of the Target Company as specified in
Article 5.1 of the Supplementary Agreement. If there is any change in the restructuring scope of the Target Company
prescribed in Article 5.1 of the Supplementary Agreement, Party B shall inform Party A in written form within five
working days from the date of change, and Party A shall be entitled to reasonably adjust the investment valuation in
principle of good faith based on the assets, personnel and business size of the changed restructuring scope, and adjust
the capital increase price accordingly. Adjusted price = price prior to adjustment * operating income of adjusted
assets under the combined caliber/operating income of assets prior to adjustment under simulated consolidation
scope. Adjustment methods include, without limitation, increasing Party A's shareholding ratio in the Target
Company, giving equity or cash compensation to Party B and/or Party C, etc.
6.2 In the case that the change of the restructuring scope of the Target Company results in decrease of over 20%
in the operating income under the consolidation scope or is not recognized by Party A, Party A shall be entitled to
unilaterally decide to rescind the Capital Increase Agreement, and the Target Company shall return the investment
funds actually paid by Party A.
6
ARTICLE 7 ARRANGEMENTS DURING TRANSITION PERIOD
7.1 The period from the date of entering into the Capital Increase Agreement to the completion for industrial and
commercial change for the restructuring of the Target Company as specified in the Supplementary Agreement is
referred to as “transition period”.
7.2 Party B and Party C undertake to ensure that the Target Company and its subsidiaries (including the
companies that the Target Company intends to restructure as specified in Article 5.1 of this Agreement, similarly
hereinafter) operate pursuant to the normal business operation mode that conforms to laws and past practices during
the transition period.
7.3 During the transition period, when the business assets of the Target Company and its subsidiaries has a major
unfavorable change described in 6.2, Party A shall be entitled to start the valuation adjustment mechanism pursuant
to Article 6 of the Supplementary Agreement or cancel the Capital Increase Agreement unilaterally. In such case, the
Target Company shall refund Party A the investment having been paid.
7
ARTICLE 8 EQUITY REPURCHASE
8.1 Qualified listing
The Parties shall do their utmost to urge the Target Company to complete the initial public offering of shares and
be listed on the domestic stock exchange (hereinafter referred to as "eligible listing" or "IPO") prior to December 31,
2022 (or other date consented by the Parties through consensus and written consent, hereinafter referred to as
“expected completion date of listing”).
With a view to complete the eligible listing of the Target Company, the Parties consent to cooperate with the
Target Company in taking or urging other parties to take all essential and appropriate actions, making or urging other
parties to do all essential or appropriate behaviors and offer all corresponding assistance and cooperation, including,
without limitation, the revision, alteration and termination of relevant clauses of the Supplementary Agreement, in
line with the review requirements of the stock exchange, China Securities Regulatory Commission and other
regulatory authorities.
8.2 Equity Repurchase
Where the Target Company is under any of the following circumstances, Party C shall repurchase part or all of
the equity of the Target Company held by Party A as required by Party A:
(1) Where the Company fails to achieve IPO by the expected date of completion. If the Company’s IPO
declaration material has been formally accepted by the securities regulatory authority or stock exchange and is under
audit, the repurchase launch occasion agreed in this provision shall be postponed to the date when the Company fails
in the audit/registration in securities regulatory authority or stock exchange with respect to the IPO application or
withdraws the IPO declaration materials.
(2) Equity repurchase under other circumstances:
1) There are major changes in the main business of the Target Company, which has resulted in substantial
obstacles to the IPO listing of the Company;
2) The Target Company has an associated transaction or guarantee that may generate material adverse effect on
Party A’s interests with associated parties by violating the articles of association;
3) Before the IPO of the Target Company, the controlling shareholder and its concerted actors control the equity
ratio of the Target Company less than 51% or lose control of the Company in other ways;
4) Where Party C is subjected to any hostile acquisition or attempt to change Party C’s control power initiated by
any subject or person, Party C’s Board of Directors, without prejudice to director's loyalty, diligence and fiduciary
duties under laws of the US, fails to response to it by taking the actions (e.g. issuing securities with voting right or
any other nature of priority rights) according to relevant provisions of applicable law, registered certificate and the
articles of association, causing material changes in Party C’s shareholding structure, Board of Directors and
management.
5) Party C or the Target Company and its subsidiaries have seriously dishonored their commitments and
warranties or violated other obligations under the Capital Increase Agreement and the Supplementary Agreement,
8
and besides, they fail to correct and make up for their breach within the reasonable time limit indicated by the written
notice sent by Party A which reasonably requires them to correct the breach.
(3) Party A shall submit a repurchase request to Party C in written form within fifteen (15) days from the date of
the repurchase prescribed in this Article, in order that Party C are provided with sufficient time to make repurchase
arrangements.
(4) Party C shall, within ninety (90) days after Party A raises the repurchase request in written form, enter into an
equity transfer agreement with Party A, and fully pay the corresponding equity repurchase price within the period
indicated in the relevant repurchase legal documents.
8.3 Calculation Method of Equity Repurchase Price
The equity repurchase price of the Target Company is the investment fund actually paid by Party A when it
acquires the equity.
8.4 The Parties further consent that, in the case that the Target Company fails to complete the listing prior to the
expected completion date of listing, Party C shall also be entitled to send a repurchase notice to Party A in written
form, and repurchase all the equity of the Target Company held by Party A at the price prescribed in Article 8.3 of the
Supplementary Agreement.
9
ARTICLE 9 EQUITY TRANSFER
9.1 Restrictions on Equity Transfer
(1) Under no circumstances shall Party A directly or indirectly transfer any corporate equity to an entity
(“competitor”) or its affiliated party that maintains a competitive relationship with the business of the Target
Company unless it acquires the written consent of the Target Company ahead of time.
(2) Within one year after the eligible listing of the Target Company (or longer period provided by applicable laws
and regulations), Party A shall not transfer or entrust others to manage the shares of the Target Company held by it in
any form, nor propose that the Target Company repurchase the shares of the Target Company held by it. Upon
expiration of the aforesaid time limit, the shares of the Target Company held by Party A can be traded in the relevant
market, except for those prohibited from being sold in accordance with the mandatory provisions of applicable laws,
and the transaction shall strictly follow laws, administrative regulations, departmental rules, normative documents
and relevant regulations of regulatory authorities such as exchanges, and corresponding information disclosure
obligations shall be fulfilled.
9.2 Preemptive Rights
In the case that the controlling shareholder plans to transfer all or part of the Company's equity to a third party
after the capital increase is accomplished and prior to the IPO of the Target Company, the controlling shareholder
shall inform Party A of the above transfer matters beforehand in writing, and Party A shall be entitled to the
preemptive right under the same conditions.
Despite the foregoing agreement, (1) the equity transfer arising out of the employee incentive plan as
implemented by the Target Company; (2) He Junfang’s transfer of some equities of the Target Company he holds via
its controlled Beijing Bomeilian Special Ceramics Co., Ltd. or other subject after the restructuring specified in the
Supplementary Agreement (the transfer price of every RMB 1 registered capital shall be no lower than the RMB 1
registered capital price corresponding to the capital increase this time) is not subject to the aforesaid preemptive
right. Party A agrees to waive the preemptive right.
9.3 Priority right to sell
In the case that the controlling shareholder, as the transferring shareholder, plans to transfer the corporate equity
held by it to a third party (hereinafter referred to as the “transferee”) other than the rest shareholders (except for
transferring the corporate equity held by it incurred by the execution of the Company's employee incentive plan), and
Party A does not exercise the preemptive right as indicated in Article 9.2 of the Supplementary Agreement, Party A
shall be entitled to send a written notice (hereinafter referred to as the “notice of priority right to sell”) to the
controlling shareholder within twenty (20) working days upon receipt of the transfer notice, requiring to sell the
Company’s equities that Party A holds at the date thereof to a third party in priority at the same price and under the
same terms and conditions as those of the controlling shareholder's transfer of equity to a third party (hereinafter
referred to as “the priority right to sell”), and specify the proportion of the equity to be transferred to the registered
capital in the notice of priority right to sell. In such case, the controlling shareholder shall promote the third party’s
agreement on the acceptance of Party A’s equities.
In the event that Party A fails to issue a notice of priority right to sell within the above time limit, or exercises the
preemptive right pursuant to Article 9.2 of the Supplementary Agreement, it shall be deemed that Party A has waived
exercising the priority right to sell.
10
ARTICLE 10 ANTI-DILUTION
10.1 After the capital increase is accomplished, in the case that the Target Company increases its registered
capital, under the same conditions, Party A shall be entitled to the priority to subscribe based on the proportion of its
paid-in capital contribution at that time, except for the newly added/issued registered capital for implementing the
employee incentive plan of the Target Company,.
10.2 Subject to the Supplementary Agreement, upon completion of this round of capital increase, if Party B
increases in capital and share at a price lower than the price per share when Party A invests in Party B, Party A,
according to the following agreement of this article, adjust the unit price of the Company’s equities it holds by means
of “generalized weighted average” (“adjusted price”), so that the price per share of all equity held by Party A in the
Company shall not be higher than the price per share of the newly-added registered capital subscribed by the new
investors in the rear round of financing (“anti-dilution adjustment”), and adjust the equity ratio obtained by the
previous investment accordingly in accordance with 10.3 herein Party A's price per share shall be adjusted
accordingly under the circumstances of share split, dividend payment, joint stock and restructuring.
Adjusted price = OCP * (OS + (NP/OCP))/(OS + NS)
Registered capital amount that Party A holds after the adjustment = Total price of shares that Party A
obtains/adjusted price
OCP= Price of every RMB of registered capital to the Company’s equities that Party A holds prior to anti-dilution
adjustment
OS= Sum of the Company’s registered capital before subsequent capital increase and the registered capital that
can be obtained by exercising the option
NP= Corresponding total investment in the Company’s subsequent capital increase
NS= Corresponding newly increased registered capital for the Company’s subsequent capital increase
10.3 Upon completion of this round of capital increase and prior to the IPO of the Target Company, when it is
necessary to make anti-dilution adjustment, Party A shall be entitled to require the Target Company and the
controlling shareholder to compensate Party A's equity, and the measures that can be selected include: (i) under the
premise permitted by law, Party A subscribes for the newly-increased registered capital of the Company at the
nominal consideration of RMB 1 yuan or at the lowest price provided by law; (ii) under the premise permitted by
law, the controlling shareholder transfers the equity required for adjustment to Party A at the nominal consideration
of RMB 1 yuan or at the lowest price provided by law; (iii) equity compensation methods provided by other laws.
10.4 Where the Target Company has one or multiple rounds of subsequent financing after the accomplishment of
capital increase and before IPO of the Company, it shall calculate the equity compensation proportion respectively as
per 10.3 herein for every round of financing.
11
ARTICLE 11 RIGHT TO KNOW
11.1 Upon completion of the capital increase, Party A shall be entitled to consult the Articles of Association,
minutes of Shareholders’ meetings, resolutions of the Board of Directors and minutes of meetings, resolutions of the
Board of Supervisors and minutes of meetings, and financial and accounting reports, provided that the capital
increase complies with relevant domestic and foreign laws and regulations and regulatory rules.
ARTICLE 12 GOVERNANCE OF THE COMPANY
12.1 Upon completion of the capital increase, the Target Company shall hold a Directors’ meeting and invite all
Directors to attend as stipulated in the Articles of Association. The resolutions of the Board of Directors shall be
approved by more than half of all Directors, including but not limited to the following contents:
(1) Formulation and modification of the Company’s Articles of Association;
(2) Formulation of the Company’s major business policy and investment plan;
(3) Formulation of the Company’s annual financial budget and accounting plan;
(4) Formulation of the Company’s profits distribution scheme and loss recovery plan;
(5)The Company’s increase or decrease of its registered capital, issuance of bonds or other securities, and plans for
listing;
(6) The Company’s external acquisition, sale of material assets, annexation, merger, reorganization, overseas
investment, establishment of a joint venture, dissolution or liquidation;
(7) Approval, modification and management of employee equity incentive plan or employee stock ownership
plan in any other form;
(8) A single guarantee amount exceeds 10% of the Company’s latest audited net assets;
(9) The total amount of external guarantee provided by the Company and its holding subsidiaries reaches or
exceeds any guarantee provided after 50% of the Company’s latest audited net assets;
(10) The guarantee provided for the guarantee object whose asset-liability ratio exceeds 70%;
(11) The guarantee provided for the Controlling Shareholder and its affiliates.
12
ARTICLE 13 COMMITMENTS, REPRESENTATIONS AND WARRANTIES
13.1 Representations and warranties of Party A:
(1) Party A is legally established and effectively exists in accordance with Chinese laws. Party A and its
Shareholders are not classified as the “three types of shareholders” such as contractual private equity funds, asset
management plans, and trust plans, and have the shareholder qualification stipulated by laws and regulations.
(2) Party A has independent legal status and full capacity for civil conduct to sign and perform the Supplementary
Agreement and can act independently as a litigation subject.
(3) Party A has obtained all authorizations, approvals or registrations necessary for it to execute, deliver and
perform the Supplementary Agreement and complete the transactions hereunder. The execution and performance
hereof by Party A shall not violate the provisions of any relevant laws, regulations and normative documents or the
clauses of any material contractual documents binding upon it.
(4) Party A has prepared sufficient funds for this capital increase and the source of funds is true and legal.
13.2 Representations and warranties of Party B and Party C (except for the circumstance having been disclosed to
Party A):
(1) The execution and performance hereof by Party B and Party C have been internally approved and authorized, and
such authorization document has been provided for Party A;
(2) Party B and Party C have independent legal status and full capacity for civil conduct to sign and perform the
Supplementary Agreement and can act independently as a litigation subject.
(3) Party B and Party C commit that they have obtained all the authorization, approval or filing necessary for the
execution and performance hereof and the completion of the transactions hereunder. The execution hereof by Party B
and Party C and the performance of their obligations hereunder shall not violate any agreement entered into
individually or jointly as a party or the provisions of any relevant laws, regulations and normative documents or the
clauses of any material contractual documents binding upon them.
(4) As of the date of execution hereof, in the event that Party C is subjected to any hostile takeover or attempt to
change Party C’s control right initiated by any entity or person, Party C’s Board of Directors, without prejudice to
director's loyalty, diligence and fiduciary duties under laws of the US, shall response to it by taking the actions (e.g.
issuing securities with voting right or any other nature of priority rights) according to relevant provisions of
applicable law, registered certificate and the articles of association, so as to avoid material changes to Party C’s
shareholding structure, Board of Directors and management..
(5) As of the date of execution hereof, Party C shall neither operate, directly or indirectly, or for others, any
business that is identical to, similar to or in competition with the Company’s main business, nor cause an adverse
impact on the Company’s completion of the IPO on account of the matters related to horizontal competition.
(6) As of the date of execution hereof, Party B and Party C shall further regulate and reduce affiliated
transactions, and shall not cause an adverse impact on the Company’s completion of the IPO on account of such
transactions.
(7) The Target Company has not provided guarantees, loans or loans in disguise to the Controlling Shareholder or
its affiliates or any third party, and there is neither mortgage, pledge, lien or other forms of guarantee or counter-
13
guarantee for important assets such as equity, real estate, land use rights, trademarks and patents, or other forms of
contingent debts, liabilities or obligations. The execution and performance hereof will not entitle the Creditors of the
Target Company (including, but not limited to, the lending bank) to declare that the debt is maturing
prematurely or to demand guarantees or increased interest or otherwise to change the terms and conditions of the
debt.
(8) The Target Company is not involved in any material claim, lawsuit, arbitration, judicial investigation,
administrative investigation or punishment, and the Controlling Shareholder is not involved in any material claim,
lawsuit, arbitration, judicial investigation, administrative investigation or punishment concerning the Target
Company. The Directors and Senior Managers of the Target Company are not involved in any material claim,
lawsuit, arbitration, judicial investigation, administrative investigation or punishment as a result of the acts of the
Target Company, and the Controlling Shareholder is not involved in any material claim, lawsuit, arbitration, judicial
investigation, administrative investigation or punishment concerning the Directors and Senior Managers of the Target
Company.
(9) On the signing date and the closing date hereof, the important agreements (including business, lease, loan and
mortgage agreements) being executed by the Target Company shall be legal, valid and binding upon the relevant
Parties. The important and ongoing affiliated transaction agreements made and concluded by and among the Target
Company and the affiliates have complied with legal procedures and been disclosed to Party A. There is no
circumstance that may cause the Target Company to be liable for breach of contract or indemnify the other Party, and
there is no breach of contract which may have a material adverse effect on the Target Company. The agreements and
contracts between the Target Company and third parties have been or will be performed in full and legally, and there
is no circumstance where the Target Company shall bear major liabilities to any third party for any of its acts prior to
the date of execution hereof.
(10) The Target Company has duly submitted a true and complete tax return to the Chinese tax authorities. The
Target Company and its affiliates have paid in full the taxes (including, but not limited to, enterprise income tax,
business tax, value-added tax, etc.) payable prior to the date of execution hereof in accordance with applicable
Chinese tax laws, regulations and normative documents. The Target Company does not receive any notice of
challenge, investigation or punishment from the government authorities concerning tax matters.
(11) All rights and interests in the intellectual property rights owned by the Target Company are legal without
infringing the intellectual property rights of others. The important intellectual property rights of the Target Company
are not involved in dispute, claim or any mortgage, pledge or other guarantee rights or restrictions.
(12) The Target Company has established legal labor relations with its employees without any major disputes, as
well as the corresponding arbitration or litigation procedures. The Target Company and its subsidiaries have paid the
social insurance premium, housing provident fund and other fees payable by the employees in accordance with
applicable laws prior to the date of execution hereof.
(13) The restructuring agreed in ARTICLE 5.1 hereof by the Target Company will not materially and adversely
affect its business, assets, personnel integrity and independence.
(14) Within 4 months after the end of each financial year, Party B and Party C commit to submit to Party A the
Target Company’s audit report of the previous year; the Target Company shall, within 15 days prior to the beginning
of each financial year, provide Party A with the plans for annual operation, annual budget and investment of the
following year; the annual audit of the Target Company shall be conducted by an accounting firm registered in
China.
14
(15) This Agreement shall be legally binding up Party B and Party C once it comes into force,
ARTICLE 14 TERMINATION OF SPECIAL STIPULATIONS
14.1 The Supplementary Agreement shall terminate automatically on the date when the Target Company formally
submits IPO application materials to China Securities Regulatory Commission (CSRC) or the stock exchange.
ARTICLE 15 MISCELLANEOUS
15.1
It is agreed by the Parties hereto that the Supplementary Agreement shall constitute an integral part of
the Capital Increase Agreement and shall prevail in case of any inconsistency between the Supplementary Agreement
and the Capital Increase Agreement. In case of any unfinished matters in the Supplementary Agreement, the
provisions of the Capital Increase Agreement shall prevail.
15.2
The Supplementary Agreement shall take effect on the date of execution by the Parties hereto.
15.3
According to the needs of the change of business registration, the Parties agree to cooperate with each
other to, in accordance with the format required by the industrial and commercial administration department,
separately enter into a simplified Capital Increase
Agreement (the “Format Version”) concerning the capital increase. In case of any conflict or inconsistency between
the Format Version and the Capital Increase Agreement or the Supplementary Agreement, the provisions of the
Capital Increase Agreement and the Supplementary Agreement shall prevail.
15.4
The Supplementary Agreement is made in triplicate, with each Party holding one copy. Each copy
shall be equally authentic.
(The remainder of this page is intentionally left blank)
(No text on this page, and only for the signature of Supplementary Agreement to Capital Increase Agreement on
Beijing Tongmei Xtal Technology Co., Ltd. among Guangshuo Semiconductor Equipment (Shanghai) Co., Ltd.,
Beijing Tongmei Xtal Technology Co., Ltd. and AXT, INC.)
Guangshuo Semiconductor Equipment (Shanghai) Co., Ltd., (Seal)
Legal representative or authorized representative (signature):
(No text on this page, and only for the signature of Supplementary Agreement to Capital Increase Agreement on
Beijing Tongmei Xtal Technology Co., Ltd. among Guangshuo Semiconductor Equipment (Shanghai) Co., Ltd.,
Beijing Tongmei Xtal Technology Co., Ltd. and AXT, INC.)
Beijing Tongmei Xtal Technology Co., Ltd. (Seal)
Legal representative or authorized representative (signature):
(No text on this page, and only for the signature of Supplementary Agreement to Capital Increase Agreement on
Beijing Tongmei Xtal Technology Co., Ltd. among Guangshuo Semiconductor Equipment (Shanghai) Co., Ltd.,
Beijing Tongmei Xtal Technology Co., Ltd. and AXT, INC.)
AXT, INC.
Authorized representative (signature):
Exhibit 10.9(a)
Schedule identifying agreements substantially identical to
the form of First Supplemental Agreement filed as Exhibit 10.9 hereto
Subscribed Capital of Beijing
Tongmei Xtal Technology Co., Ltd.
Purchase
Investor
Price (RMB)
Capital %
Liaoning Haitong New Energy Equity Investment (Limited Partnership)
11,840,774
1.3373%
Liaoning Haitong New Energy Low-Carbon Industry Equity Investment Co., Ltd.
4,604,745
.5201%
Haitong Innovation Securities Investment Co., Ltd.
13,156,415
1.4859%
Fujian Province An Xin Industry Investment Fund Partnership (Limited Partnership)
8,942,416
1.01%
Jinggangshan Meicheng Equity Investment Partnership (Limited Partnership)
5,961,172
.6733%
Hefei Walden II IC Industry Investment Partnership (Limited Partnership)
6,955,797
.7856%
Qingdao Xinxingyi Equity Investment Fund Partnership (Limited Partnership)
3,974,553
.4489%
Qiji (Hangzhou) Investment Consulting Co., Ltd.
3,974,553
.4489%
Gongqingcheng Yi Hua Tong Ze Investment Partnership (Limited Partnership)
1,766,907
.1996%
Sunrise Baoying (Ningbo) Investment Center (Limited Partnership)
1,315,642
.1486%
Xiamen He Yong Zhi Cheng Equity Investment Partnership (Limited Partnership)
860,468
.0972%
Hangzhou Jingyue Technology Development Partnership (Limited Partnership)
993,611
.1122%
Exhibit 10.10
______________________________________________
Supplementary Agreement II
to
Capital Increase Agreement on Beijing Tongmei Xtal Technology Co., Ltd.
______________________________________________
Among
Guangshuo Semiconductor Equipment (Shanghai) Co., Ltd.,
Beijing Tongmei Xtal Technology Co., Ltd.
And
AXT, INC.
January 2021
2
Supplementary Agreement II to Capital Increase Agreement
The Supplementary Agreement II to the Capital Increase Agreement (hereinafter referred to as the “Agreement”)
is made and entered into by and among the Parties below in Beijing on [DD] [MM], 2021.
Party A: Guangshuo Semiconductor Equipment (Shanghai) Co., Ltd.,
Domicile: Room 603, No. 15, Lane 218, Haiji No.6 Road, Nanhui New Town, Pudong New Area, Shanghai
Legal Representative: Zhang Shuheng
Party B: Beijing Tongmei Xtal Technology Co., Ltd.
Domicile: No.4, East Second Street, Industrial Development Zone, Tongzhou District, Beijing, PRC
Legal Representative: Morris Young
Party C: AXT, INC.
Domicile: 4281 TECHNOLOGY DR FREMONT CA 94538
Authorized Representative: Morris Young
(Party A, Party B and Party C are collectively referred to as the “Parties” and individually a “Party” in the
Agreement, as required by the context)
WHEREAS:
1. Party A is the investor of the Target Company, a limited partnership duly incorporated and validly existing in
accordance with the laws of the People’s Republic of China, with its registered address at Room 603, No. 15,
Lane 218, Haiji No.6 Road, Nanhui New Town, Pudong New Area, Shanghai, PRC.
2. Party B is the Target Company, a limited liability company incorporated and effectively existing pursuant to
Chinese laws, with a unified social credit code of
3
91110000700004889C and a registered capital of RMB 820.960319 million, its registered address is No.4,
East Second Street, Industrial Development Zone, Tongzhou District, Beijing, PRC, and its legal
representative is Morris Young.
3. Party C is a NASDAQ listed company (stock code: AXTI) with its address at 4281 TECHNOLOGY DR
FREMONT CA 94538.
4. The Parties have signed and entered into the Capital Increase Agreement on Beijing Tongmei Xtal
Technology Co., Ltd. (hereinafter referred to as the “Capital Increase Agreement”) and the Supplementary
Agreement to Capital Increase Agreement on Beijing Tongmei Xtal Technology Co., Ltd. (hereinafter referred
to as the “Supplementary Agreement”) on [DD] [MM], 2021. Party A consents to subscribe for the
corresponding newly-increased registered capital of the Target Company in RMB cash equivalent to USD
90742 in total (Party A makes payment in RMB, and the specific amount is calculated as per the central
parity of the exchange rate of USD to RMB (i.e. 1 U.S. dollar = RMB 6.6205) of the People’s Bank of China
on 2:00 p.m., November 13, 2020, i.e. RMB 0.600758 million).
To further define the rights and obligations of the Parties in this round of capital increase of the Company, the
Parties consent to make and enter into the Agreement, and reach supplementary agreements to the Capital Increase
Agreement and Supplementary Agreement as below:
4
ARTICLE 1 DEFINITION AND INTERPRETATION
1.1 Unless otherwise stated herein or otherwise defined in the context, definitions and interpretations in the
Agreement shall have the same meaning as those in the Capital Increase Agreement and Supplementary Agreement.
ARTICLE 2 EQUITY REPURCHASE
2.1 Qualified Listing
The Parties shall do their utmost to urge the Target Company to complete the initial public offering of shares
and be listed on the domestic stock exchange (hereinafter referred to as “eligible listing” or “IPO”) prior to
December 31, 2022 (or other date consented by the Parties through consensus and written consent, hereinafter
referred to as “expected completion date of listing”). With a view to complete the eligible listing of the Target
Company, the Parties consent that the provisions of Article 8 EQUITY REPURCHASE of the Supplementary
Agreement shall terminate automatically upon formal submission of IPO application materials to the securities
regulatory authority or the stock exchange by the Target Company.
2.2 Equity Repurchase
The Parties hereto further agree that if the Target Company fails or is unable to complete the qualified listing
prior to the aforesaid expected date of listing, the provisions on repurchase set forth in Article 8 of the Supplementary
Agreement shall take effect automatically and shall become effective retroactively as of the date of execution of the
Supplementary Agreement, i.e.:
Where the Target Company is under any of the following circumstances, Party C shall repurchase part or all of
the equity of the Target Company held by Party A as required by Party A:
(1) Where the Company fails to achieve IPO by the expected date of completion. If the Company’s IPO
declaration material has been formally accepted by the securities regulatory authority or stock exchange and is under
audit, the repurchase launch occasion agreed in this provision can be postponed to the date when the Company fails
in the audit/registration in securities regulatory authority or stock exchange with respect to the IPO application or
withdraws the IPO declaration materials.
(2) Equity repurchase under other circumstances:
5
1) There are major changes in the main business of the Target Company, which has resulted in substantial
obstacles to the IPO listing of the Company;
2) The Target Company violates the provisions of the Articles of Association and conducts related transactions
or guarantees with its affiliated parties that may have a material adverse impact on Party A’s interests;
3) Before the IPO of the Target Company, the controlling shareholder and its concerted actors control the equity
ratio of the Target Company less than 51% or lose control of the Company in other ways;
4) Where Party C is subjected to any hostile acquisition or attempt to change Party C’s control power initiated
by any subject or person, Party C’s Board of Directors, without prejudice to director's loyalty, diligence and
fiduciary duties under laws of the US, fails to response to it by taking the actions (e.g. issuing securities with
voting right or any other nature of priority rights) according to relevant provisions of applicable law, registered
certificate and the articles of association, causing material changes in Party C’s shareholding structure, Board of
Directors and management.
5) Party C or the Target Company and its subsidiaries have seriously dishonored their commitments and
warranties or violated other obligations under the Capital Increase Agreement and the Agreement, and besides,
they fail to correct and make up for their breach within the reasonable time limit indicated by the written notice
sent by Party A which reasonably requires them to correct the breach.
(3) Party A shall submit a repurchase request to Party C in written form within fifteen (15) days from the date of
the repurchase prescribed in this Article, in order that Party C are provided with sufficient time to make repurchase
arrangements.
(4) Party C shall, within ninety (90) days after Party A raises the repurchase request in written form, enter into
an equity transfer agreement with Party A, and fully pay the corresponding equity repurchase price within the period
indicated in the relevant repurchase legal documents.
2.3 Calculation Method of Equity Repurchase Price
The equity repurchase price of the Target Company is the investment fund actually paid by Party A when it
acquires the equity.
6
2.4 The Parties further consent that, in the case that the Target Company fails to complete the listing prior to the
expected completion date of listing, Party C shall also be entitled to send a repurchase notice to Party A in written
form, and repurchase all the equity of the Target Company held by Party A at the price prescribed in Article 2.3 of the
Agreement.
ARTICLE 3 COMMITMENTS, REPRESENTATIONS AND WARRANTIES
The commitments, representations and warranties made by the Parties under the Capital Increase Agreement
and Supplementary Agreement shall apply to the Agreement.
ARTICLE 4 MISCELLANEOUS
4.1 It is agreed by the Parties hereto that the Agreement shall constitute an integral part of the Capital Increase
Agreement and the Supplementary Agreement, and shall prevail in case of any inconsistency there between. In case of
any unfinished matters in the Agreement, the provisions of the Capital Increase Agreement and the Supplementary
Agreement shall prevail.
4.2 The Agreement shall take effect on the date of signature by the Parties hereto.
4.3 The Agreement is made in triplicate, with each Party holding one copy. Each copy shall be equally
authentic.
(The remainder of this page is intentionally left blank)
(No text on this page, and only for the signature of Supplementary Agreement II to Capital Increase Agreement on
Beijing Tongmei Xtal Technology Co., Ltd. among Guangshuo Semiconductor Equipment (Shanghai) Co., Ltd.,
Beijing Tongmei Xtal Technology Co., Ltd. and AXT, INC.)
Guangshuo Semiconductor Equipment (Shanghai) Co., Ltd., (Seal)
Legal representative or authorized representative (signature):
(No text on this page, and only for the signature of Supplementary Agreement II to Capital Increase Agreement on
Beijing Tongmei Xtal Technology Co., Ltd. among Guangshuo Semiconductor Equipment (Shanghai) Co., Ltd.,
Beijing Tongmei Xtal Technology Co., Ltd. and AXT, INC.)
Beijing Tongmei Xtal Technology Co., Ltd. (Seal)
Legal representative or authorized representative (signature):
(No text on this page, and only for the signature of Supplementary Agreement II to Capital Increase Agreement on
Beijing Tongmei Xtal Technology Co., Ltd. among Guangshuo Semiconductor Equipment (Shanghai) Co., Ltd.,
Beijing Tongmei Xtal Technology Co., Ltd. and AXT, INC.)
AXT, INC.
Authorized Representative (signature):
Exhibit 10.10(a)
Schedule identifying agreements substantially identical to
the form of Second Supplemental Agreement filed as Exhibit 10.10 hereto
Subscribed Capital of Beijing
Tongmei Xtal Technology Co., Ltd.
Purchase
Investor
Price (RMB)
Capital %
Liaoning Haitong New Energy Equity Investment (Limited Partnership)
11,840,774
1.3373%
Liaoning Haitong New Energy Low-Carbon Industry Equity Investment Co., Ltd.
4,604,745
.5201%
Haitong Innovation Securities Investment Co., Ltd.
13,156,415
1.4859%
Fujian Province An Xin Industry Investment Fund Partnership (Limited Partnership)
8,942,416
1.01%
Jinggangshan Meicheng Equity Investment Partnership (Limited Partnership)
5,961,172
.6733%
Hefei Walden II IC Industry Investment Partnership (Limited Partnership)
6,955,797
.7856%
Qingdao Xinxingyi Equity Investment Fund Partnership (Limited Partnership)
3,974,553
.4489%
Qiji (Hangzhou) Investment Consulting Co., Ltd.
3,974,553
.4489%
Gongqingcheng Yi Hua Tong Ze Investment Partnership (Limited Partnership)
1,766,907
.1996%
Sunrise Baoying (Ningbo) Investment Center (Limited Partnership)
1,315,642
.1486%
Xiamen He Yong Zhi Cheng Equity Investment Partnership (Limited Partnership)
860,468
.0972%
Hangzhou Jingyue Technology Development Partnership (Limited Partnership)
993,611
.1122%
Exhibit 10.11
3/12/2025 6:41 AM 译文-10.14_680--AXT agrees to lock up Issuer shares.docx Folder- 1 of 3
关于股份锁定的承诺函
Letter of Commitment on Share Lock-up
鉴于北京通美晶体技术股份有限公司（以下简称“发行人”）拟首次公开发行股票并在科创板上市（以下简
称“本次发行上市”），本企业作为发行人的控股股东，现就所持发行人股份的锁定及减持事项承诺如下：
In view that Beijing Tongmei Xtal Technology Co., Ltd. (hereinafter referred to as “the Issuer”) plans to make an IPO
(initial public offering) and be listed on the Science and Technology Innovation Board (hereinafter referred to as “this
Listing”), our enterprise, as the controlling shareholder of the Issuer, hereby undertakes as follows with respect to the lock-
up and reduction matters of the Issuer’s shares held by it:
一、
自发行人股票上市之日起36个月内，不转让或者委托他人管理本企业直接和间接持有的发行人本次
发行上市前已发行的股份（以下简称“首发前股份”），也不提议由发行人回购该部分股份。
I. Within 36 months from the Issuer’s stock listing date, our enterprise shall not transfer or entrust others to manage
the shares, which are directly and indirectly held by our enterprise and have been issued by the Issuer before this Listing,
(hereinafter referred to as “the shares before IPO”), and shall not suggest that the Issuer should repurchase such shares.
二、
发行人上市后6个月内若发行人股票连续20个交易日的收盘价低于发行人本次发行上市时的股票发
行价（以下简称“发行人股票发行价”），或者上市后6个月期末收盘价低于发行人股票发行价，本企业持有发行
人股份的锁定期自动延长6个月。若发行人已发生派息、送股、资本公积转增股本、增发新股等除权、除息事
项，则上述发行价指发行人股票经调整后的价格。
II. If the closing price of the Issuer’s stocks is lower than the stock issue price at the time of this Listing of the Issuer
(hereinafter referred to as “the Issuer’s stock issue price”) for 20 consecutive trading days within 6 months after the Issuer
is listed, or if the closing price at the end of 6 months after the listing is lower than the Issuer’s stock issue price, the lock-
up period of the Issuer’s shares held by our enterprise shall be automatically extended for six months. If the Issuer has
carried out the ex-right and ex-dividend matters such as dividend payout, stock dividend, conversion of capital reserve into
share capital and additional issuance of new stocks, then the above issue price shall refer to the adjusted price of the
Issuer’s stocks.
三、
发行人存在《上海证券交易所科创板股票上市规则》第十二章第二节规定的重大违法情形，触及退
市标准的，自相关行政处罚决定或者司法裁判作出之日起至发行人股票终止上市前，本企业将不会减持发行人股
份。
Exhibit 10.11
3/12/2025 6:41 AM 译文-10.14_680--AXT agrees to lock up Issuer shares.docx Folder- 2 of 3
III. If the Issuer is involved in major circumstances against the laws stipulated in Section II, Chapter XII of Rules of
Shanghai Stock Exchange for Stock Listing on the Science and Technology Innovation Board and meets the delisting
standards, our enterprise will not reduce the Issuer’s shares from the date when the relevant administrative penalty or
judicial judgment is made to the termination of the Issuer’s stock listing.
四、
本企业在锁定期届满后减持首发前股份的，将严格遵守法律、行政法规、部门规章、规范性文件及
上海证券交易所的相关规定，并履行相应的信息披露义务。
IV. If our enterprise reduces the shares before IPO upon the expiration of the lock-up period, our enterprise will
strictly observe the laws, administrative regulations, departmental rules, normative documents and relevant stipulations of
Shanghai Stock Exchange, and will perform the corresponding information disclosure obligation.
五、
本企业将及时向发行人报告本企业持有的发行人股份及其变动情况。
V. Our enterprise will timely report the Issuer’s shares held by our enterprise and the changes to the Issuer.
六、
如本企业违反上述承诺减持发行人股份的，则出售该部分发行人股份所取得的实际收益（如有）归
发行人所有。
VI. If our enterprise reduces the Issuer’s shares in violation of the above commitment, then the actual incomes (if any)
made from selling such Issuer’s shares shall belong to the Issuer.
（本页以下无正文）
(There is not text below this page)
Exhibit 10.11
3/12/2025 6:41 AM 译文-10.14_680--AXT agrees to lock up Issuer shares.docx Folder- 3 of 3
（本页无正文，为《关于股份锁定的承诺函》的签署页）
(Without text, this page is a signing page of Letter of Commitment on Share Lock-up)
AXT, Inc.
（盖章）
(Sealed)
签署：
Signed by:
姓名：MORRIS SHEN-SHIH YOUNG
Name: MORRIS SHEN-SHIH YOUNG
职务：授权代表
Title: authorized representative
日期：年月日
Date: MM/DD/YY
Exhibit 10.12
3/12/2025 6:43 AM 译文-10.15_、600-关 Post Lock up intentions of AXT.docx Folder- 1 of 3
关于持股意向及减持意向的承诺函
Letter of Commitment on the Shareholding Intention and Share Reduction Intention
鉴于北京通美晶体技术股份有限公司（以下简称“公司”）拟申请首次公开发行股票并在科创板上市（以下简
称“本次发行上市”），本企业作为公司的控股股东，现就所持公司股份的持股意向及减持意向承诺如下：
In view that Beijing Tongmei Xtal Technology Co., Ltd. (hereinafter referred to as “the Company”) plans to apply for
an IPO (initial public offering) and be listed on the Science and Technology Innovation Board (hereinafter referred to as
“this Listing”), our enterprise, as the controlling shareholder of the Company, hereby undertakes as follows with respect to
its intentions to hold and reduce the Company’s shares held by it:
一、
在持有公司股份的锁定期届满后，本企业将根据实际需要和二级市场情况决定是否减持及减持数
量。
I. Upon the expiration of the lock-up period of the Company’s shares held by our enterprise, our enterprise will decide
whether to reduce the shares and the amount of shares to be reduced according to the actual needs and the conditions of the
secondary market.
二、
本企业拟减持公司本次发行上市前已发行的股份（以下简称“首发前股份”）的，将严格遵守中国证
券监督管理委员会、上海证券交易所关于股东减持的相关规定，审慎制定股份减持计划，并将事先明确并披露公
司的控制权安排，保证公司持续稳定经营；本企业在持有公司股份锁定期届满后两年内拟减持公司股份的，减持
价格将不低于公司首次公开发行股票的发行价（若公司在本次发行上市后发生派息、送股、资本公积转增股本、
增发新股等除权、除息事项的，减持价格按照监管规则的规定作相应调整），并通过公司在减持前三个交易日或
相关法律法规规定的期限内予以公告。
II. If our enterprise plans to reduce the shares issued by the Company before this Listing (hereinafter referred to as
“the shares before IPO”), our enterprise will strictly observe the relevant stipulations on share reduction by shareholder of
China Securities Regulatory Commission and Shanghai Stock Exchange and prudently formulate the share reduction plan,
and will make clear and disclose the arrangement for the right to control the Company in advance to ensure the Company’s
continuous and stable operation. If our enterprise plans to reduce the Company’s shares held by it within two years upon
the expiration of the lock-up period of the Company’s shares held by it, the share reduction price shall be no lower than the
issue price of the Company’s IPO (if the Company carries out the ex-right and ex-dividend matters such as dividend
payout, stock dividend, conversion of capital reserve into share capital and additional issuance of new stocks, the share
reduction price shall be adjusted according to the stipulations
Exhibit 10.12
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of regulatory rules), and shall be announced through the Company within three trading days before the share reduction or
the term stipulated in relevant laws and regulations.
三、
本企业在锁定期届满后减持公司首发前股份的，减持方式、程序等将严格遵守《中华人民共和国公
司法》《中华人民共和国证券法》及其他适用的法律、行政法规、部门规章、规范性文件及相关监管规则关于股
份减持及信息披露的规定。
III. If our enterprise reduces the Company’s shares before IPO upon the expiration of the lock-up period, the share
reduction and procedure shall strictly observe the Company Law of the People’s Republic of China, the Securities Law of
the People’s Republic of China and other applicable laws, administrative regulations, departmental rules and normative
documents as well as the stipulations on share reduction and information disclosure in the relevant regulatory rules.
（本页以下无正文）
(There is no text below this page)
Exhibit 10.12
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（本页无正文，为《关于持股意向及减持意向的承诺函》的签署页）
(Without text, this page is a signing page of Letter of Commitment on the Shareholding Intention and Share Reduction
Intention)
AXT, Inc.
（盖章）
(Sealed)
签署：
Signed by:
姓名：MORRIS SHEN-SHIH YOUNG
Name: MORRIS SHEN-SHIH YOUNG
职务：授权代表
Title: authorized representative
日期：年月日
Date: MM/DD/YY
Exhibit 10.13
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关于上市后三年内稳定公司股价的预案及约束措施的承诺函
Letter of Commitment on Plan for Stabilizing the Company’s Stock Price within
Three Years upon the Listing and the Restraint Measures
为维护北京通美晶体技术股份有限公司（以下简称“公司”）股票上市后股价的稳定，充分保护公司股东特别
是中小股东的权益，公司特制定《北京通美晶体技术股份有限公司上市后三年内稳定公司股价的预案》（以下简
称“《稳定股价的预案》”）。根据中国证券监督管理委员会（以下简称“中国证监会”）《关于进一步推进新股发
行体制改革的意见》的要求，公司及其控股股东、在公司领取薪酬和/或津贴的董事（独立董事除外，下同）和高
级管理人员承诺将严格遵守下述稳定公司股价的预案：
In order to maintain the stable stock price after the stocks of Beijing Tongmei Xtal Technology Co., Ltd. (hereinafter
referred to as “the Company”) are listed and fully protect the rights and interests of the Company’s shareholders and
especially the small and medium shareholders, the Company hereby formulates the Plan of Beijing Tongmei Xtal
Technology Co., Ltd. for Stabilizing the Company’s Share Price within Three Years upon the Listing (hereinafter referred to
as the “Plan for Stabilizing the Stock Price”). According to the requirements of the Opinions on Further Promoting the
Reform of New Stock Issue System of China Securities Regulatory Commission (hereinafter referred to as “CSRC”), the
Company and its controlling shareholder, directors (except independent directors, the same below) and senior executives
receiving the remunerations and/or allowances from the Company shall undertake to strictly observe the following plan for
stabilizing the Company’s stock price:
一、
启动和停止股价稳定措施的条件
I. Conditions for starting and stopping the measures for stabilizing the stock price
（一）
启动条件：如果公司首次公开发行股票并在科创板上市后三年内股价出现连续20个交易日收盘价均
低于公司上一个会计年度经审计的每股净资产（每股净资产=合并财务报表中归属于母公司普通股股东权益合计
数/年末公司股份总数，如果公司股票发生派息、送股、资本公积金转增股本、增发新股等除权、除息事项或者因
其他原因导致公司净资产或股份总数发生变化的，则相关的计算对比方法按照证券交易所的有关规定或者其他适
用的规定做调整处理，下同）的情况时，公司将按照顺序采取以下措施中的一项或多项稳定公司股价：（1）公
司回购股票；（2）控股股东增持股票；（3）董事和高级管理人员增持股票。
(I) Conditions for starting the measures: if the closing stock price is lower than the audited net assets per share (net
assets per share = the total number of rights and interests attributable to the common shareholders of the parent company in
the consolidated financial statements/the total number of the Company’s shares at the year end, in case of any change in
the net assets or total shares of the Company due to ex-right and ex-dividend matters such as
Exhibit 10.13
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dividend payout, stock dividend, conversion of capital reserve into share capital and additional issuance of new stocks in
the Company’s stocks or for other reasons, then the relevant calculation and comparison methods shall be adjusted
according to the relevant stipulations of the stock exchange or other applicable stipulations, the same below) of the
Company in the previous accounting year for 20 consecutive trading days within three years after the Company makes the
IPO and is listed on the Science and Technology Innovation Board, the Company will take one or multiple measures as
follows in sequence to stabilize the Company’s stock price: (1) the Company repurchases the shares; (2) the controlling
shareholder increases the shares; (3) directors and senior executives increase the shares.
（二）
停止条件：在以下稳定股价具体措施的实施期间内，如公司股票连续20个交易日收盘价均高于公司
上一个会计年度经审计的每股净资产时，或继续回购和/或增持公司股份将导致公司股权分布不符合上市条件，将
停止实施股价稳定措施。
(II) Conditions for stopping the measures: within the implementation period of the following specific measures for
stabilizing the stock price, if the Company’s closing stock price is higher than the audited net assets per share of the
Company in the previous accounting year for 20 consecutive trading days, or if the continued repurchase and/or increase
of the Company’s shares will cause the Company’s equity distribution to fail to meet the listing conditions, the Company
will stop implementing the measures for stabilizing the stock price.
二、
稳定股价的措施
II. Measures for stabilizing the stock price
（一）
公司稳定股价的措施
(I) The Company’s measures for stabilizing the stock price
当触发上述股价稳定措施的启动条件时，在确保公司股权分布符合上市条件以及不影响公司正常生产经营的
前提下，公司应依照《中华人民共和国公司法》《上市公司回购社会公众股份管理办法（试行）》《关于上市公
司以集中竞价交易方式回购股份的补充规定》等法律、行政法规、部门规章、规范性文件、证券交易所相关规
定、公司章程及公司内部治理制度的规定，及时履行相关法定程序后，向社会公众股东回购股份。
When the conditions for starting the above measures for stabilizing the stock price are triggered, in the premise of
ensuring the compliance of the Company’s equity distribution with the listing conditions and not influencing the
Company’s normal production or operation, the Company shall repurchase the shares from the social public shareholders
after it timely performs the relevant legal procedures according to the laws such as the Company Law
Exhibit 10.13
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of the People’s Republic of China, Measures for Management of the Repurchase of Social Public Shares by the Listed
Companies (Trial) and Supplementary Provisions on Share Purchase by the Listed Companies in the Way of Centralized
Competitive Price Transaction, administrative regulations, departmental rules, normative documents, relevant stipulations
of stock exchange, the Articles of Association and the stipulations of the corporate internal governance system.
公司应在触发稳定股价措施日起10个交易日内召开董事会审议公司回购股份的议案，议案须经公司董事会全
体董事过半数表决通过，并在董事会做出决议后的2个交易日内公告董事会决议、有关议案及召开股东大会的通
知。回购股份的议案应包括拟回购股份的价格或价格区间、股份数量、回购期限以及届时有效的法律、行政法
规、部门规章、规范性文件以及证券交易所相关规定应包含的其他信息。公司股东大会对回购股份的议案做出决
议，须经出席股东大会的股东所持表决权三分之二以上通过，公司控股股东承诺就该等回购事宜在股东大会中投
赞成票。公司应在股东大会审议通过该等方案后的5个交易日内启动稳定股价具体方案的实施。回购的股份将被
依法注销并及时办理公司减资程序。
The Company shall hold a board meeting within 10 trading days from the date when the conditions for measures for
stabilizing the stock price are triggered, to deliberate the Company’s proposal on the share repurchase, and the proposal
shall be approved by voting of more than half of all directors of the Board of Directors of the Company, and the resolution
and related proposal of the board meeting and the notice on holding the shareholders’ meeting shall be announced within 2
trading days after the board meeting makes the resolution. The proposal on the share repurchase shall include the price or
price range of shares planning to be repurchased, the share quantity, the repurchase term as well as other information to be
contained by the effective laws, administrative regulations, departmental rules, normative documents and relevant
stipulations of the stock exchange at that time. The proposal on share repurchase shall be resolved at the shareholders’
meeting of the Company, which shall be approved by more than two thirds of the voting power held by the shareholders
attending the shareholders’ meeting. The Company’s controlling shareholder undertakes to vote in favor of such
repurchase matters at the shareholders’ meeting. The Company shall start implementing the specific scheme for stabilizing
the stock price within 5 trading days after such scheme is deliberated and approved at the shareholder’s meeting. The
shares repurchased will be cancelled according to law, and the Company’s capital reduction procedure will be timely
handled.
公司为稳定股价之目的通过回购股份议案的，回购公司股份的数量、金额应当符合以下条件：
If the Company approves the share repurchase proposal for the purpose of stabilizing the stock price, the quantity and
amount of the Company’s shares repurchased shall meet the following conditions:
Exhibit 10.13
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1、单次用于回购股份的资金金额不低于上一个会计年度经审计的归属于公司股东净利润的10%，但不高于
上一个会计年度经审计的归属于公司股东净利润的20%；
1. The amount of funds used for a single share repurchase shall be no less than 10% of the audited net profit
attributable to the Company’s shareholders in the previous accounting year but shall be no more than 20% of the audited
net profit attributable to the Company’s shareholders in the previous accounting year;
2、同一会计年度内用于稳定股价的回购资金合计不超过上一个会计年度经审计的归属于公司股东净利润的
50%。
2. The total repurchase funds used to stabilize the stock price within a same accounting year shall not exceed 50% of
the audited net profit attributable to the Company’s shareholders in the previous accounting year.
超过上述标准的，有关稳定股价措施在当年度不再继续实施。但如下一年度继续出现需启动稳定股价措施的
情形时，公司将继续按照上述原则执行稳定股价预案。
If the above standards are exceeded, the relevant measures for stabilizing the stock price shall not be continued any
longer in the current year. However, in case of the circumstances for which the measures for stabilizing the stock price
need to be started again in the next year, the Company will continue to implement the plan for stabilizing the stock price
according to the above principles.
（二）
控股股东稳定股价的措施
(II) Controlling shareholder’s measures for stabilizing the stock price
当公司回购股份方案实施期限届满之日后公司股票连续20个交易日的收盘价均低于公司上一个会计年度经审
计的每股净资产时，或无法实施公司回购股份的股价稳定措施时，公司控股股东应启动通过二级市场以竞价交易
方式增持公司股份的方案：
When the Company’s closing stock price is lower than the audited net assets per share of the Company in the previous
year for 20 consecutive trading days upon the expiration date of the implementation term of the Company’s share
repurchase scheme, or when the Company’s stock price stabilization measure by repurchasing the shares is unable to be
implemented, the Company’s controlling shareholder shall start the scheme for increasing the Company’s shares in the
way of competitive price transaction through the secondary market:
1、公司控股股东应在符合《上市公司收购管理办法》《上海证券交易所科创板股票上市规则》等法律、行
政法规、部门规章、规范性文件、证券交易所相关规定的条件和要求的前提下，对公司股票进行增持，并承诺就
公司稳定股价方案以其所拥有的全部表决票数在股东大会上投赞成票。
Exhibit 10.13
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1. The Company’s controlling shareholder shall increase the Company’s shares in the premise of meeting the
conditions and requirements of the laws such as the Measures for Management of the Acquisition of Listed Companies and
the Rules of Shanghai Stock Exchange for Stock Listing on the Science and Technology Innovation Board, administrative
regulations, departmental rules, normative documents and relevant stipulations of the stock exchange, and shall undertake
to vote in favor of the Company’s scheme for stabilizing the stock price with all its votes at the shareholders’ meeting.
2、控股股东应在触发稳定股价措施日起10个交易日内，将其增持公司股份的具体计划书面通知公司并由公
司公告。控股股东应在稳定股价方案公告后的5个交易日内启动稳定股价具体方案的实施。
2. The controlling shareholder shall notify the Company of its specific plan for increasing the Company’s shares in
writing and have the Company announce it within 10 trading days from the date when the conditions for measures for
stabilizing the stock price are triggered. The controlling shareholder shall start implementing the specific scheme for
stabilizing the stock price within 5 trading days after the scheme for stabilizing the stock price is announced.
3、公司控股股东为稳定股价之目的增持公司股份的，增持公司股份的数量、金额应当符合以下条件：
3. If the Company’s controlling shareholder increases the Company’s shares for the purpose of stabilizing the stock
price, the quantity and amount of the Company’s shares increased shall meet the following conditions;
（1）
连续12个月内控股股东增持公司股份的累计资金金额不低于其上一年度获得的公司税后现金分红金
额的30%，不超过控股股东上一年度获得的公司税后现金分红总额；
(1) The accumulated amount of funds used by the controlling shareholder to increase the Company’s shares in 12
consecutive months shall be no less than 30% of the after-tax cash dividend amount obtained by it from the Company in
the previous year and shall not exceed the total amount of after-tax cash dividend obtained by the controlling shareholder
in the previous year;
（2）
连续12个月内累计增持股份数量不超过公司股份总数的2%。若本项要求与第（1）项矛盾的，以本
项为准。
(2) The accumulated quantity of shares increased in 12 consecutive months shall not exceed 2% of the total quantity
of the Company’s shares. If this requirement conflicts with (1), this requirement shall prevail.
超过上述标准的，有关稳定股价措施在当年度不再继续实施。但如下一年度继续出现需启动稳定股价措施的
情形时，其将继续按照上述原则执行稳定股价预案。
Exhibit 10.13
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If the above standards are exceeded, the relevant measures for stabilizing the stock price shall not be continued any
longer in the current year. However, in case of the circumstances for which the measures for stabilizing the stock price
need to be started again in the next year, the controlling shareholder will continue to implement the plan for stabilizing the
stock price according to the above principles.
（三）
董事、高级管理人员稳定股价的措施
(III) Measures of directors and senior executives for stabilizing the stock price
当公司启动股价稳定措施并且控股股东增持股份方案实施期限届满之日后公司股票连续20个交易日的收盘价
均低于公司上一个会计年度经审计的每股净资产时，或无法实施控股股东增持股份的股价稳定措施时，董事、高
级管理人员应启动通过二级市场以竞价交易方式增持公司股份的方案：
When the Company’s closing stock price is lower than the audited net assets per share of the Company in the previous
accounting year for 20 consecutive trading days upon the expiration date of the implementation term for the controlling
shareholder’s scheme for share increase when the Company starts the measures for stabilizing the stock price, or when the
controlling shareholder’s stock price stabilization measure by increasing the shares is unable to be implemented, the
directors and senior executive shall start the scheme for increasing the Company’s shares in the way of competitive price
transaction through the secondary market:
1、董事、高级管理人员应在符合《上市公司收购管理办法》《上市公司董事、监事和高级管理人员所持本
公司股份及其变动管理规则》等法律、行政法规、部门规章、规范性文件、证券交易所相关规定的条件和要求的
前提下，对公司股票进行增持，并承诺就公司稳定股价方案以其董事身份（如有）在董事会上投赞成票。
1. Directors and senior executives shall increase the Company’s shares in the premise of meeting the conditions and
requirements of the laws such as the Measures for Management of the Acquisition of Listed Companies and the Rules for
Management of the Companies’ Shares Held by the Directors, Supervisors and Senior Executives of Listed Companies and
Their Changes, administrative regulations, departmental rules, normative documents and relevant stipulations of the stock
exchange, and shall undertake to vote in favor of the Company’s scheme for stabilizing the stock price at the board
meeting with their identity of director (if any).
2、上述负有增持义务的董事、高级管理人员应在触发稳定股价措施日起10个交易日内，将其增持公司股份
的具体计划书面通知公司并由公司公告。该等董事、高级管理人员应在稳定股价方案公告后的5个交易日内启动
稳定股价具体方案的实施。
Exhibit 10.13
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2. The above directors and senior executives bearing the share increase obligation shall notify the Company of their
specific plans for increasing the Company’s shares in writing and have the Company announce the plans within 10 trading
days from the date when the conditions for measures for stabilizing the stock price are triggered. Such directors and senior
executives shall start implementing the specific schemes for stabilizing the stock price within 5 trading days after the
schemes for stabilizing the stock price are announced.
3、除不可抗力外，上述负有增持义务的董事、高级管理人员为稳定股价之目的增持公司股份的，增持公司
股份的数量、金额应当符合以下条件：
3. Except for the force majeure, if the directors and senior executives bearing the above share increase the Company’s
shares for the purpose of stabilizing the stock price, the quantity and amount of the Company’s shares increased shall meet
the following conditions:
自上述股价稳定措施启动条件成就之日起一个会计年度内，董事、高级管理人员增持公司股票的资金金额不
低于其上年度从公司领取的税后现金分红（如有）、薪酬和津贴合计金额的10%，但不超过30%。
Within one accounting year from the conditions for starting the above stock price stabilization measures are met, the
amount of funds used by directors and senior executives to increase the Company’s shares shall be no less than 10% of
total amount of after-tax cash dividends (if any), remunerations and allowances received by them from the Company in the
previous year but shall not exceed 30%.
超过上述标准的，有关稳定股价措施在当年度不再继续实施。但如下一年度继续出现需启动稳定股价措施的
情形时，其将继续按照上述原则执行稳定股价预案。
If the above standards are exceeded, the relevant measures for stabilizing the stock price shall not be continued any
longer in the current year. However, in case of the circumstances for which the measures for stabilizing the stock price
need to be started again in the next year, the directors and senior executives will continue to implement the plan for
stabilizing the stock price according to the above principles.
4、在《稳定股价的预案》有效期内，新聘任的符合上述条件的董事和高级管理人员应当遵守《稳定股价的
预案》关于公司董事、高级管理人员的义务及责任的规定。公司及公司控股股东、现有董事、高级管理人员应当
促成新聘任的该等董事、高级管理人员遵守《稳定股价的预案》，并在其获得书面提名前签署相关承诺。
4. Within the valid term of the Plan for Stabilizing the Stock Price, the newly-employed directors and senior
executives in line with the above conditions shall observe the stipulations on the obligations and responsibilities of the
Company’s directors and senior executives in the Plan for Stabilizing the Stock Price. The Company and the
Exhibit 10.13
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Company’s controlling shareholder, existing directors and senior executives shall facilitate such newly-employed directors
and senior executives to observe the Plan for Stabilizing the Stock Price and sign the relevant commitments before they
are nominated in writing.
（四）
其他稳定股价的措施
(IV) Other measures for stabilizing the stock price
1、符合法律、行政法规、部门规章、规范性文件以及证券交易所相关规定并保证公司经营资金需求的前提
下，经董事会、股东大会审议同意，公司可通过实施利润分配或资本公积金转增股本的方式稳定公司股价；
1. In the premise of complying with the laws, administrative regulations, departmental rules, normative documents
and relevant provisions of the stock exchange and guaranteeing the Company’s operation fund demand, upon the
deliberation and consent of the Board of Directors and General Meeting of Shareholders, the Company may stabilize the
Company’s stock price through profit allocation or conversion of capital reserve into share capital;
2、符合法律、行政法规、部门规章、规范性文件以及证券交易所相关规定前提下，公司可通过削减开支、
限制高级管理人员薪酬、暂停股权激励计划等方式提升公司业绩、稳定公司股价；
2. In the premise of complying with the laws, administrative regulations, departmental rules, normative documents
and relevant provisions of the stock exchange, the Company may promote the Company’s performance and stabilize the
Company’s stock price by means of reducing the expenditures, limiting the senior executives remuneration and suspending
the equity incentive plan;
3、法律、行政法规、部门规章、规范性文件规定的以及中国证监会、证券交易所认可的其他稳定股价的措
施。
3. Other measures for stabilizing the stock price stipulated by laws, administrative regulations, departmental rules and
normative documents and recognized by CSRC and the Stock Exchange.
三、
约束措施
III. Restraint measures
（一）
公司未履行稳定股价承诺的约束措施
(I) Restrain measures for the Company’s failure to perform the commitment of stabilizing the stock price
如公司未能履行或未按期履行稳定股价承诺，需在股东大会及中国证监会指定的披露媒体上公开说明具体原
因。如非因不可抗力导致，给投资者造成损失的，公司将向投资者依法承担赔偿责任，并按照
Exhibit 10.13
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法律、行政法规及相关监管机构的要求承担相应的责任；如因不可抗力导致，应尽快研究将投资者利益损失降低
到最小的处理方案，并提交股东大会审议，尽可能地保护公司投资者利益。
If the Company fails to perform or does not perform the commitment of stabilizing the stock price on schedule, it
shall explain the specific reasons publicly at the shareholders’ meeting and in the disclosure media designated by CSRC. If
for the reasons other than the force majeure, the Company will be liable for compensating the investors for the losses
caused to the investors, and shall bear the corresponding responsibilities according to the laws, administrative regulations
and the requirements of relevant regulators; in case of force majeure, the Company shall study the disposal scheme for
minimizing the losses to the investors’ benefits as soon as possible and submit it to the shareholders’ meeting for
deliberation, so as to protect the benefits of the Company’s investors as far as possible.
（二）
控股股东未履行稳定股价承诺的约束措施
(II) Restraint measures for the controlling shareholder’s failure to perform the commitment of stabilizing the stock
price
如控股股东未能履行或未按期履行稳定股价承诺，需在股东大会及中国证监会指定的披露媒体上公开说明具
体原因。如非因不可抗力导致，应同意在履行完毕相关承诺前暂不领取公司分配利润中归属于控股股东的部分，
给投资者造成损失的，依法赔偿投资者损失；如因不可抗力导致，尽快研究将投资者利益损失降低到最小的处理
方案，尽可能地保护投资者利益。
If the controlling shareholder fails to perform or does not perform the commitment of stabilizing the stock price on
schedule, it shall explain the specific reasons publicly at the shareholders’ meeting and in the disclosure media designated
by CSRC. If for the reasons other than the force majeure, it shall agree not to receive the part attributable to the controlling
shareholder in the profit allocated by the Company for the time being before completing the performance of relevant
commitments, and shall compensate the investors for the losses caused to the investors according to law; in case of force
majeure, the controlling shareholder shall study the disposal scheme for minimizing the losses to the investors’ benefits as
soon as possible, so as to protect the benefits of the investors as far as possible.
（三）
董事、高级管理人员未履行稳定股价承诺的约束措施
(III) Restraint measures for failure of directors and senior executives to perform the commitment of stabilizing the
stock price
如上述负有增持义务的董事、高级管理人员未能履行或未按期履行稳定股价承诺，需在股东大会及中国证监
会指定的披露媒体上公开说明具体原因。如非因不可抗力导致，应调减或停发董事、高级管理
Exhibit 10.13
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人员薪酬和/或津贴，给投资者造成损失的，依法赔偿投资者损失；如因不可抗力导致，应尽快研究将投资者利益
损失降低到最小的处理方案，尽可能地保护投资者利益。
If the above directors and senior executives bearing the share increase obligation fail to perform or do not perform the
commitment of stabilizing the stock price on schedule, they shall explain the specific reasons publicly at the shareholders’
meeting and in the disclosure media designated by CSRC. If for the reasons other than the force majeure, the
remunerations and/or allowances of the directors and senior executives shall be reduced or suspended, and the directors
and senior executives shall compensate the investors for the losses caused to the investors according to law; in case of
force majeure, such directors and senior executives shall study the disposal scheme for minimizing the losses to the
investors’ benefits as soon as possible, so as to protect the benefits of the investors as far as possible.
本承诺函自公司首次公开发行股票并在科创板上市之日起生效。
This letter of commitment shall take effect from the date when the Company makes the IPO and is listed on the
Science and Technology Innovation Board.
（本页以下无正文）
(There is no text below this page)
Exhibit 10.13
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（本页无正文，为《关于上市后三年内稳定公司股价的预案及约束措施的承诺函》的签署页）
(Without text, this page is a signing page of Letter of Commitment on Plan for Stabilizing the Company’s Stock Price
within Three Years upon the Listing and the Restraint Measures)
北京通美晶体技术股份有限公司
Beijing Tongmei Xtal Technology Co., Ltd.
（盖章）
(Sealed)
日期：年月日
Date: MM/DD/YY
Exhibit 10.13
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（本页无正文，为《关于上市后三年内稳定公司股价的预案及约束措施的承诺函》的签署页）
(Without text, this page is a signing page of Letter of Commitment on Plan for Stabilizing the Company’s Stock Price
within Three Years upon the Listing and the Restraint Measures)
控股股东：
Controlling shareholder:
AXT, Inc.
（盖章）
(Sealed)
签署：
Signed by:
姓名：MORRIS SHEN-SHIH YOUNG
Name: MORRIS SHEN-SHIH YOUNG
职务：授权代表
Title: authorized representative
日期：年月日
Date: MM/DD/YY
Exhibit 10.13
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（本页无正文，为《关于上市后三年内稳定公司股价的预案及约束措施的承诺函》的签署页）
(Without text, this page is a signing page of Letter of Commitment on Plan for Stabilizing the Company’s Stock Price
within Three Years upon the Listing and the Restraint Measures)
董事长：
Chairman:
________________
MORRIS SHEN-SHIH YOUNG
日期：年月日
Date: MM/DD/YY
Exhibit 10.13
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（本页无正文，为《关于上市后三年内稳定公司股价的预案及约束措施的承诺函》的签署页）
(Without text, this page is a signing page of Letter of Commitment on Plan for Stabilizing the Company’s Stock Price
within Three Years upon the Listing and the Restraint Measures)
董事、总经理：
Director and General Manager:
________________
VINCENT WENSEN LIU（刘文
森）
日期：年月日
Date: MM/DD/YY
Exhibit 10.13
3/12/2025 6:44 AM 译文-10.16_、4170-关Stablizning the stock long term.docx Folder- 15 of 18
（本页无正文，为《关于上市后三年内稳定公司股价的预案及约束措施的承诺函》的签署页）
(Without text, this page is a signing page of Letter of Commitment on Plan for Stabilizing the Company’s Stock Price
within Three Years upon the Listing and the Restraint Measures)
董事、财务负责人：
Director and Financial Administrator
________________
郝泽
(Hao Ze)
日期：年月日
Date: MM/DD/YY
Exhibit 10.13
3/12/2025 6:44 AM 译文-10.16_、4170-关Stablizning the stock long term.docx Folder- 16 of 18
（本页无正文，为《关于上市后三年内稳定公司股价的预案及约束措施的承诺函》的签署页）
(Without text, this page is a signing page of Letter of Commitment on Plan for Stabilizing the Company’s Stock Price
within Three Years upon the Listing and the Restraint Measures)
董事、副总经理：
Director and Deputy General Manager:
________________
王育新
Wang Yuxin
日期：年月日
Date: MM/DD/YY
Exhibit 10.13
3/12/2025 6:44 AM 译文-10.16_、4170-关Stablizning the stock long term.docx Folder- 17 of 18
（本页无正文，为《关于上市后三年内稳定公司股价的预案及约束措施的承诺函》的签署页）
(Without text, this page is a signing page of Letter of Commitment on Plan for Stabilizing the Company’s Stock Price
within Three Years upon the Listing and the Restraint Measures)
董事、副总经理：
Director and Deputy General Manager:
________________
郭涛
Guo Tao
日期：年月日
Date: MM/DD/YY
Exhibit 10.13
3/12/2025 6:44 AM 译文-10.16_、4170-关Stablizning the stock long term.docx Folder- 18 of 18
（本页无正文，为《关于上市后三年内稳定公司股价的预案及约束措施的承诺函》的签署页）
(Without text, this page is a signing page of Letter of Commitment on Plan for Stabilizing the Company’s Stock Price
within Three Years upon the Listing and the Restraint Measures)
董事会秘书：
Board Secretary:
________________
宋晶
Song Jing
日期：年月日
Date: MM/DD/YY
Exhibit 10.14
3/12/2025 6:46 AM 译文-10.17_、400-关Share repurchase if deemed to be fraudulent.docx Folder- 1 of 3
关于欺诈发行上市的股份购回的承诺函
Letter of Commitment on Share Repurchase for Fraudulent Listing
鉴于北京通美晶体技术股份有限公司（以下简称“公司”）拟申请首次公开发行股票并在科创板上市（以下简
称“本次发行上市”），公司及公司控股股东承诺如下：
In view that Beijing Tongmei Xtal Technology Co., Ltd. (hereinafter referred to as “the Company”) plans to apply for
an IPO (initial public offering) and be listed on the Science and Technology Innovation Board (hereinafter referred to as
“this Listing”), the Company and the Company’s controlling shareholder undertake as follows:
一、
保证公司本次发行上市不存在任何欺诈发行的情形。
I. To guarantee that there is no fraud in this Listing of the Company.
二、
如公司不符合发行上市条件，以欺骗手段骗取发行注册并已经发行上市的，公司及公司控股股东将
在中国证券监督管理委员会等有权部门认定并生效（如涉及诉讼的，以司法机关最终判决为准）后5个工作日内
启动股份回购程序，回购公司本次公开发行的全部新股，具体回购责任承担以中国证券监督管理委员会等有权部
门最终认定为准。
II. If the Company does not meet the listing conditions, but fraudulently obtains the issuance registration and has been
listed, the Company and the Company’s controlling shareholder will start the share repurchase procedure within 5 working
days upon the effective affirmation made by the authorities such as China Securities Regulatory Commission (if any
litigation is involved, the final judgment made by the juridical authority shall prevail) to repurchase all new stocks issued
by the Company publicly this time. Assumption of specific repurchase responsibilities shall be subject to the final
affirmation made by the authorities such as China Securities Regulatory Commission.
（本页以下无正文）
(There is no text below this page)
Exhibit 10.14
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（本页无正文，为《关于欺诈发行上市的股份购回的承诺函》的签署页）
(Without text, this page is a signing page of Letter of Commitment on Share Repurchase for Fraudulent Listing)
北京通美晶体技术股份有限公司
Beijing Tongmei Xtal Technology Co., Ltd.
（盖章）
(Sealed)
日期：年月日
Date: MM/DD/YY
Exhibit 10.14
3/12/2025 6:46 AM 译文-10.17_、400-关Share repurchase if deemed to be fraudulent.docx Folder- 3 of 3
（本页无正文，为《关于欺诈发行上市的股份购回的承诺函》的签署页）
(Without text, this page is a signing page of Letter of Commitment on Share Repurchase for Fraudulent Listing)
控股股东：
Controlling shareholder:
AXT, Inc.
（盖章）
(Sealed)
签署：
Signed by:
姓名：MORRIS SHEN-SHIH YOUNG
Name: MORRIS SHEN-SHIH YOUNG
职务：授权代表
Title: authorized representative
日期：年月日
Date: MM/DD/YY
Exhibit 10.15
3/12/2025 6:48 AM 译文-10.18_、510-关Share repurchase if material error in Prospectus.docx Folder- 1 of 3
关于招股说明书不存在虚假记载、误导性陈述或者重大遗漏的承诺函
Letter of Commitment on No False Record, Misleading Statement or Major Omission
in the Prospectus
鉴于北京通美晶体技术股份有限公司（以下简称“发行人”）拟申请首次公开发行股票并在科创板上市（以下
简称“本次发行上市”），本企业作为发行人的控股股东，特此承诺如下：
In view that Beijing Tongmei Xtal Technology Co., Ltd. (hereinafter referred to as “the Issuer”) plans to apply for an
IPO (initial public offering) and be listed on the Science and Technology Innovation Board (hereinafter referred to as “this
Listing”), our enterprise, as the controlling shareholder of the Issuer, hereby undertakes as follows:
一、
发行人本次发行上市的招股说明书及其他信息披露资料不存在虚假记载、误导性陈述或者重大遗
漏，本企业对其真实性、准确性、完整性承担个别和连带的法律责任。
I. There is no false record, misleading statement or major omission in the prospectus for this Listing and other
information disclosure materials, and our enterprise shall bear individual and joint and several legal liabilities for their
authenticity, accuracy and integrity.
二、
若中国证券监督管理委员会（以下简称“中国证监会”）、上海证券交易所或其他有权部门认定招股
说明书所载内容存在虚假记载、误导性陈述或者重大遗漏之情形，且该等情形对判断发行人是否符合法律规定的
发行条件构成重大、实质影响的，则本企业承诺将依据《中华人民共和国公司法》《中华人民共和国证券法》的
规定购回本企业已转让的原限售股份（如有）。
II. If China Securities Regulatory Commission (hereinafter referred to as “CSRC”), Shanghai Stock Exchange or
other authorities affirm that there is circumstance of false record, misleading statement or major omission in the prospectus
and that such circumstance constitutes the major and material impact on judging whether the Issuer complies with the
issuance conditions stipulated by laws, then our enterprise shall undertake to repurchase the original restricted shares,
which have been transferred by our enterprise (if any), in accordance with the Company Law of the People’s Republic of
China and the Securities Law of the People’s Republic of China.
三、
如发行人招股说明书及其他信息披露资料有虚假记载、误导性陈述或者重大遗漏，致使投资者在证
券发行和交易中遭受损失的，本企业将依法赔偿投资者损失。
III. If there is false record, misleading statement or major omission in the Issuer’s prospectus and other information
disclosure materials, causing the losses to the investors in the securities issuance and transactions, our enterprise will
compensate the investors for the losses according to law.
Exhibit 10.15
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（本页以下无正文）
(There is no text below this page)
Exhibit 10.15
3/12/2025 6:48 AM 译文-10.18_、510-关Share repurchase if material error in Prospectus.docx Folder- 3 of 3
（本页无正文，为《关于招股说明书不存在虚假记载、误导性陈述或者重大遗漏的承诺函》的签署页）
(Without text, this page is a signing page of Letter of Commitment on No False Record, Misleading Statement or Major
Omission in the Prospectus)
AXT, Inc.
（盖章）
(Sealed)
签署：
Signed by:
姓名：MORRIS SHEN-SHIH YOUNG
Name: MORRIS SHEN-SHIH YOUNG
职务：授权代表
Title: authorized representative
日期：年月日
Date: MM/DD/YY
Exhibit 10.16
3/12/2025 6:49 AM 译文-10.19_、 280-关Filling the Diluted Spot Return--GF Unclear.docx Folder- 1 of 2
关于填补被摊薄即期回报的承诺函
Letter of Commitment on Filling the Diluted Spot Return
鉴于北京通美晶体技术股份有限公司（以下简称“发行人”）拟申请首次公开发行股票并在科创板上市，本企
业作为发行人的控股股东，现依据相关法律、法规和中国证券监督管理委员会的有关规定，就填补被摊薄即期回
报事项作出如下承诺：
In view that Beijing Tongmei Xtal Technology Co., Ltd. (hereinafter referred to as “the Issuer”) plans to apply for an
IPO (initial public offering) and be listed on the Science and Technology Innovation Board, our enterprise, as the
controlling shareholder of the Issuer, hereby undertakes as follows with respect to the matter of filling the diluted spot
return according to the relevant laws, regulations and relevant stipulations of China Securities Regulatory Commission:
本企业将督促发行人切实履行填补被摊薄即期回报的措施，并承诺：本企业或本企业提名的董事将在权限范
围内参与发行人经营管理活动，尽最大努力维护发行人及其股东的合法利益。
Our enterprise will supervise and urge the Issuer to practically perform the measures for filling the diluted spot return,
and shall undertake: our enterprise or the directors nominated by our enterprise will participate in the Issuer’s operation
and management activities within the scope of authority and will try the best to safeguard the legal rights and interests of
the Issuer and its shareholders.
（本页以下无正文）
(There is no text below this page)
Exhibit 10.16
3/12/2025 6:49 AM 译文-10.19_、 280-关Filling the Diluted Spot Return--GF Unclear.docx Folder- 2 of 2
（本页无正文，为《关于填补被摊薄即期回报的承诺函》的签署页）
(Without text, this page is a signing page of Letter of Commitment on Filling the Diluted Spot Return)
AXT, Inc.
（盖章）
(Sealed)
签署：
Signed by:
姓名：MORRIS SHEN-SHIH YOUNG
Name: MORRIS SHEN-SHIH YOUNG
职务：授权代表
Title: authorized representative
日期：年月日
Date: MM/DD/YY
Exhibit 10.17
3/12/2025 6:51 AM 译文-10.20_、680-关Public shaming if we fail to comply.docx Folder- 1 of 3
关于未履行承诺的约束措施的承诺函
Letter of Commitment on Restraint Measures for Nonperformance of the
Commitments
鉴于北京通美晶体技术股份有限公司（以下简称“发行人”）拟申请首次公开发行股票并在科创板上市（以下
简称“本次发行上市”），本企业作为发行人的控股股东，承诺如下：
In view that Beijing Tongmei Xtal Technology Co., Ltd. (hereinafter referred to as “the Issuer”) plans to apply for an
IPO (initial public offering) and be listed on the Science and Technology Innovation Board (hereinafter referred to as “this
Listing”), our enterprise, as the controlling shareholder of the Issuer, undertakes as follows :
一、
本企业保证将严格履行在发行人上市招股说明书中所披露的全部公开承诺事项中的各项义务和责
任。
I. Our enterprise shall guarantee to strictly perform all obligations and responsibilities in all public commitments
disclosed in the Issuer’s listing prospectus.
二、
如本企业非因不可抗力原因导致未能完全或有效地履行公开承诺事项的，则本企业承诺将视具体情
况采取以下措施予以约束：
II. If our enterprise fails to fully or effectively perform the public commitments due to force majeure, and then our
enterprise shall undertake to take the following measures for restraint according t to the specific conditions:
1、本企业将在股东大会及中国证券监督管理委员会（以下简称“中国证监会”）指定的披露媒体上公开说明
未履行承诺的具体原因；
1. Our enterprise will explain the specific reasons for nonperformance publicly at the shareholders’ meeting and in the
disclosure media designated by China Securities Regulatory Commission (hereinafter referred to as “CSRC”);
2、若因本企业未能履行公开承诺事项导致投资者在证券交易中遭受损失的，本企业将依法赔偿投资者由此
遭受的损失；
2. If our enterprise’s nonperformance of public commitments causes losses to the investors in the securities
transactions, our enterprise will compensate the investors for the losses caused thereby according to law;
3、在本企业完全消除因本企业未履行相关承诺事项所导致的所有不利影响之前，本企业将暂不收取发行人
所分配之红利或派发之红股；
3. Before our enterprise completely eliminates the adverse impact caused by our enterprise’s nonperformance of
relevant commitments, our enterprise will not receive the dividend allocated by or bonus shares distributed by the Issuer
for the time being;
Exhibit 10.17
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4、如本企业因未能履行公开承诺事项而获得经济收益的，该等收益归发行人所有，本企业应当在获得该等
收益之日起五个工作日内将其支付至发行人指定账户。
4. If our enterprise obtains the economic gains due to its nonperformance of the public commitments, such gains shall
belong to the Issuer, and our enterprise shall pay such gains to the account designated by the Issuer within five working
days from the date when it obtains such gains.
三、
如本企业因不可抗力原因导致未能履行公开承诺事项的，需提出新的承诺（相关承诺需按法律法
规、发行人章程的规定履行相关审批程序）并接受如下约束措施，直至新的承诺履行完毕或相应补救措施实施完
毕：
III. If our enterprise fails to perform the public commitments due to force majeure, our enterprise shall propose the
new commitments (for the relevant commitments, the relevant examination and approval procedures shall be performed
according to the laws and regulations as well as the stipulations in the Issuer’s Articles of Association) and accept the
restraint measures as follows, until the new commitments are completed or the corresponding remedial measures are
completed:
1、在股东大会及中国证监会指定的披露媒体上公开说明未履行的具体原因；
1. Explain the specific reasons for nonperformance publicly at the shareholders’ meeting and in the disclosure media
designated by China Securities Regulatory Commission.
2、尽快研究将投资者利益损失降低到最小的处理方案，尽可能地保护投资者利益。
2. Study the disposal scheme for minimizing the losses to the investors’ benefits as soon as possible, so as to protect
the benefits of the investors as far as possible.
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Exhibit 10.17
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（本页无正文，为《关于未履行承诺的约束措施的承诺函》的签署页）
(Without text, this page is a signing page of Letter of Commitment on Restraint Measures for Nonperformance of the
Commitments)
AXT, Inc.
（盖章）
(Sealed)
签署：
Signed by:
姓名：MORRIS SHEN-SHIH YOUNG
Name: MORRIS SHEN-SHIH YOUNG
职务：授权代表
Title: authorized representative
日期：年月日
Date: MM/DD/YY
Exhibit 10.18
3/12/2025 6:52 AM 译文-10.21_、530-关Promise not to compete with Tongmei.docx Folder- 1 of 3
关于避免同业竞争的承诺函
Letter of Commitment on Avoiding Horizontal Competition
鉴于北京通美晶体技术股份有限公司（以下简称“发行人”）拟申请首次公开发行股票并在科创板上市（以下
简称“本次发行上市”），本企业作为发行人的控股股东，现依据相关法律、行政法规和中国证券监督管理委员会
的有关规定，就避免与发行人的主营业务产生同业竞争事项作出如下承诺：
In view that Beijing Tongmei Xtal Technology Co., Ltd. (hereinafter referred to as “the Issuer”) plans to apply for an
IPO (initial public offering) and be listed on the Science and Technology Innovation Board (hereinafter referred to as “this
Listing”), our enterprise, as the controlling shareholder of the Issuer, hereby undertakes as follows with respect to the
matter of avoiding the horizontal competition with the Issuer in its main business according to the relevant laws,
administrative regulations and relevant stipulations of China Securities Regulatory Commission:
1、本企业（含本企业控制的除发行人及其控股企业以外的其他企业，下同）目前未以任何形式从事与发行
人（含发行人直接或间接控制的企业，下同）主营业务构成竞争关系的业务或活动；发行人的资产完整，其资
产、业务、人员、财务及机构均独立于本企业。
1. At present, our enterprise (including other enterprises controlled by our enterprise except the Issuer and its holding
enterprises, the same below) has not been engaged in the businesses or activities constituting the competition relationship
with the main business of the Issuer (including the enterprises directly or indirectly controlled by the Issuer, the same
below) in any form; the Issuer has the complete assets, and its assets, businesses, personnel and finance are independent
from our enterprise.
2、自本函出具之日起，本企业不会以任何形式从事与发行人主营业务构成竞争关系的业务或活动，或以任
何形式支持除发行人以外的其他企业从事与发行人主营业务构成竞争关系的业务或活动。
2. From the date when this letter is issued, our enterprise will not be engaged in the businesses or activities
constituting the competition relationship with the main business of the Issuer in any form or support other enterprises
except the Issuer to be engaged in the businesses or activities constituting the competition relationship with the main
business of the Issuer in any form.
3、自本函出具之日起，如本企业将来不可避免地从事与发行人构成竞争关系的业务或活动，本企业将主动
或在发行人提出异议后，及时转让或终止前述业务或活动，发行人对该等业务享有优先受让权。
3. From the date when this letter is issued, if our enterprise will be inevitably engaged in the businesses or activities
constituting the competition relationship with the Issuer in the future, our enterprise will timely transfer or terminate the
above-mentioned businesses or activities actively or after the Issuer proposes an objection, and the Issuer shall have the
priority to accept the transfer of such businesses.
Exhibit 10.18
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4、上述承诺在本企业作为发行人控股股东期间持续有效。
4. The above commitment shall be effective continuously during the period when our enterprise acts as the Issuer’s
controlling shareholder.
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Exhibit 10.18
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（本页无正文，为《关于避免同业竞争的承诺函》的签署页）
(Without text, this page is a signing page of Letter of Commitment on Avoiding Horizontal Competition)
AXT, Inc.
（盖章）
(Sealed)
签署：
Signed by:
姓名：MORRIS SHEN-SHIH YOUNG
Name: MORRIS SHEN-SHIH YOUNG
职务：授权代表
Title: authorized representative
日期：年月日
Date: MM/DD/YY
Exhibit 10.19
3/12/2025 6:54 AM 译文-10.22_、475-关Promise to manange related party transactions properly.docx Folder- 1 of 3
关于规范并减少关联交易的承诺函
Letter of Commitment on Standardizing and Reducing the Related Transactions
鉴于北京通美晶体技术股份有限公司（以下简称“发行人”）拟申请首次公开发行股票并在科创板上市，本企
业作为发行人的控股股东，为保证发行人业务的持续发展、规范关联交易行为，特此承诺如下：
In view that Beijing Tongmei Xtal Technology Co., Ltd. (hereinafter referred to as “the Issuer”) plans to apply for an
IPO (initial public offering) and be listed on the Science and Technology Innovation Board, and in order to guarantee the
continuous development of the Issuer’s business and standardize the related transaction acts, our enterprise, as the Issuer’s
controlling shareholder, hereby undertakes as follows:
1、在不对发行人及其他股东的利益构成不利影响的前提下，本企业将采取措施规范并尽量减少与发行人发
生关联交易。
1. In the premise of not constituting the adverse impact on the benefits of the Issuer and other shareholders, our
enterprise will take measures to standardize and minimize the related transactions with the Issuer.
2、对于正常经营范围内或存在其他合理原因确需发生或无法避免的关联交易，本企业及本企业控制的其他
企业将与发行人依法签订交易协议，并按照有关法律、行政法规、部门规章、规范性文件和届时有效的《北京通
美晶体技术股份有限公司章程》的规定履行批准程序，并保证该等关联交易均将基于公允定价的原则实施。
2. For the indeed necessary or inevitable related transactions within the scope of normal operation or for other
reasonable reasons, our enterprise and other enterprises controlled by our enterprise will sign the transaction agreements
with the Issuer according to law and perform the approval procedure according to the relevant laws, administrative
regulations, departmental rules, normative documents and effective Articles of Association of Beijing Tongmei Xtal
Technology Co., Ltd. at that time, and shall guarantee that such related transactions shall be implemented based on the
principle of fair pricing.
3、本企业将严格按照相关规定履行必要的关联方回避表决等义务，履行批准关联交易的法定审批程序和信
息披露义务。
3. Our enterprise will perform necessary obligations such as vote avoidance by related parties strictly according to the
relevant stipulations, and perform the legal examination and approval procedure for related transactions and information
disclosure obligation.
4、保证不利用关联交易非法转移发行人的资金、利润或从事其他损害发行人及其他股东、债权人利益的行
为。
Exhibit 10.19
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4. Our enterprise guarantees not to utilize the related transactions to illegally transfer the Issuer’s capitals, profits or
be engaged in other acts damaging the benefits of other shareholders and creditors.
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Exhibit 10.19
3/12/2025 6:54 AM 译文-10.22_、475-关Promise to manange related party transactions properly.docx Folder- 3 of 3
（本页无正文，为《关于规范并减少关联交易的承诺函》的签署页）
(Without text, this page is a signing page of Letter of Commitment on Standardizing and Reducing the Related
Transactions)
AXT, Inc.
（盖章）
(Sealed)
签署：
Signed by:
姓名：MORRIS SHEN-SHIH YOUNG
Name: MORRIS SHEN-SHIH YOUNG
职务：授权代表
Title: authorized representative
日期：年月日
Date: MM/DD/YY
Exhibit 10.20
3/12/2025 6:56 AM 译文-10.23_、410-关Proper use of shareholder rights--GF unclear.docx Folder- 1 of 2
关于避免资金占用和违规担保的承诺函
Letter of Commitment on Avoiding the Capital Occupation and Illegal Guarantee
鉴于北京通美晶体技术股份有限公司（以下简称“发行人”）拟申请首次公开发行股票并在科创板上市，本企
业作为发行人的控股股东，现依据相关法律、行政法规和中国证券监督管理委员会的有关规定，为维护发行人及
其他股东的合法权益，本企业确认及承诺如下：
In view that Beijing Tongmei Xtal Technology Co., Ltd. (hereinafter referred to as “the Issuer”) plans to apply for an
IPO (initial public offering) and be listed on the Science and Technology Innovation Board, and in order to safeguard the
legal rights and interests of the Issuer and other shareholders, our enterprise, as the controlling shareholder of the Issuer,
hereby confirms and undertakes as follows according to the relevant laws, administrative regulations and relevant
stipulations of China Securities Regulatory Commission:
一、
截至本函出具之日，不存在发行人或其控股企业的资金被本企业及本企业控制的其他企业非经营性
占用的情况，也不存在发行人或其控股企业为本企业及本企业控制的其他企业违规提供担保的情形。
I. As of the date when this letter is issued, the capitals of the Issuer or its holding enterprises are not occupied by our
enterprise or other enterprises controlled by our enterprise for the non-operational purpose, and the Issuer or its holding
enterprises do not illegally provide guarantee for our enterprise and other enterprises controlled by our enterprise.
二、
本企业承诺依法行使股东权利，不滥用股东权利损害发行人或发行人其他股东的合法利益，本企业
及本企业控制的其他企业不会以借款、代偿债务、代垫款项或其他方式非法占用发行人或其控股企业的资金，不
会要求发行人或其控股企业违规提供担保。
II. Our enterprise undertakes that it will exercise the shareholder’s rights according to law and will not abuse the
shareholder’s rights to damage the legal rights and interests of the Issuer or other shareholders of the Issuers, and that our
enterprise and other enterprises controlled by our enterprise will not illegally occupy the capitals of the Issuer or its
holding enterprises with loan, compensatory debt and advanced payment or by other means and will not require the Issuer
or its holding enterprises to provide the guarantee illegally.
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Exhibit 10.20
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（本页无正文，为《关于避免资金占用和违规担保的承诺函》的签署页）
(Without text, this page is a signing page of Letter of Commitment on Avoiding the Capital Occupation and Illegal
Guarantee)
AXT, Inc.
（盖章）
(Sealed)
签署：
Signed by:
姓名：MORRIS SHEN-SHIH YOUNG
Name: MORRIS SHEN-SHIH YOUNG
职务：授权代表
Title: authorized representative
日期：年月日
Date: MM/DD/YY
Exhibit 10.21
3/12/2025 6:58 AM 译文-10.24_、1510-Commitment to good behavior--GF unclear.docx Folder- 1 of 6
声明与承诺函
Statement and Letter of Commitment
鉴于北京通美晶体技术股份有限公司（以下简称“北京通美”或“公司”）拟申请首次公开发行股票并在科创板
上市，本企业作为北京通美的控股股东，就以下事项声明和承诺如下：
In view that Beijing Tongmei Xtal Technology Co., Ltd. (hereinafter referred to as “Beijing Tongmei” or “the
Company”) plans to apply for an IPO (initial public offering) and be listed on the Science and Technology Innovation
Board, our enterprise, as the controlling shareholder of Beijing Tongmei, hereby states and undertakes as follows:
一、
本企业认缴或受让公司注册资本对应的投资款均系本企业自有或自筹资金，来源合法合规。
I. The corresponding investment funds when our enterprise subscribes or accepts the transfer of the Company’s
registered capital are the owned or self-raised funds with the sources in line with laws and regulations.
二、
本企业所持有的公司股权为本企业真实持有，权属清晰，不存在委托持股、信托持股或其他特殊安
排情形。
II. The Company’s equity held by our enterprise is really held by our enterprise, with the clear ownership, and there is
no entrusted shareholding, trust shareholding or other special arrangements.
三、
截至本函出具日，本企业与公司其他股东之间不存在一致行动关系、表决权委托/代理等任何特殊安
排。
III. As of the date when this letter is issued, there is no concerted action relationship, voting power
entrustment/agency and any other special arrangements between our enterprise and other shareholders of the Company.
四、
2018年1月1日至本函出具日，本企业任意单一股东均无法基于其所持表决权股份单独决定本企业股
东大会的审议事项，本企业任意单一董事或股东均无法对董事会决议产生决定性影响。本企业不存在实际控制
人。
IV. From January 1, 2018 to the date when this letter is issued, no single shareholder of our enterprise can
independently decide the matters to be deliberated at the shareholders’ meeting of our enterprise based on the voting shares
held by such shareholder, and no single director and shareholder of our enterprise can generate the decisive impact on the
resolution made by the Board of Directors. Our enterprise does not have the actual controller.
五、
截至本函出具日，本企业所持有的公司股份不存在被质押、冻结、查封或设定其他第三者权益的情
况，亦未涉及任何争议纠纷或潜在纠纷。
Exhibit 10.21
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V. As of the date when this letter is issued, the Company’s shares held by our company have not been pledged, frozen
or sealed up, or have not had other third-party rights and interests set on them, and have not been involved in any disputes
or potential disputes as well.
六、
2020年11月至2021年1月，本企业与公司及相关方签署《增资协议之补充协议》《增资协议之补充
协议二》，约定公司未在2022年12月31日（或各方协商一致并书面同意的其他日期）前实现IPO，或其他特定情
形下投资方有权要求本企业回购投资方所持有的全部或部分公司股权。除上述条款外，还存在股权转让限制、优
先购买、优先出售、反稀释等特殊权利条款；《增资协议之补充协议》自公司向中国证监会或证券交易所正式提
交IPO申请材料之日起自动终止；如公司未在2022年12月31日（或各方协商一致并书面同意的其他日期）前完成
合格上市，则回购条款自动恢复效力且追溯至《增资协议之补充协议》签署之日起即有效力。
VI. From November 2020 to January 2021, our company signed the Supplementary Agreement to Capital Increase
Agreement and the Supplementary Agreement II to Capital Increase Agreement with the Company and the interested
parties, agreeing that if the Company fails to realize the IPO before December 31, 2022 (or other dates uniformly
negotiated and agreed in writing by the parties), or in other specific circumstances, the investors shall have the right to
require our enterprise to repurchase all or part of the Company’s equity held by the investors. In addition to the above
clause, there are also special right provisions, such as equity transfer restriction, preemption, sales in priority and anti-
dilution; the Supplementary Agreement to Capital Increase Agreement shall be automatically terminated from the date
when the Company formally submits the IPO application materials to CSRC or the Stock Exchange; if the Company fails
to complete the qualified listing before December 31, 2022 (or other dates uniformly negotiated and agreed in writing by
the parties), then the repurchase clause shall resume its effectiveness automatically and be effective retroactively from the
signing date of the Supplementary Agreement to Capital Increase Agreement.
除上述情形外，截至本函出具日，本企业与公司和/或公司其他股东不存在任何有效的、以书面或口头形式达
成的任何涉及和/或可能涉及的投资者投资回报承诺、公司经营业绩承诺、与公司上市有关的相关承诺、补偿条
款、股份回购、对赌等事项的约定或承诺。
Except the above circumstances, as of the date when this letter is issued, there has been no effective, written or oral
commitment on the investors’ ROI, commitment on the Company’s operation performance, relevant commitments related
to the Company’s listing, and agreements or commitments on the matters such as
Exhibit 10.21
3/12/2025 6:58 AM 译文-10.24_、1510-Commitment to good behavior--GF unclear.docx Folder- 3 of 6
compensation clause, share repurchase and gambling involved/possibly involved between our enterprise and the Company
and/or other shareholders of the Company.
七、
2018年1月1日至本函出具日，本企业不存在贪污、贿赂、侵占财产、挪用财产或者破坏社会主义市
场经济秩序的刑事犯罪，不存在涉嫌欺诈发行、重大信息披露违法或其他涉及国家安全、公共安全、生态安全、
生产安全、公众健康安全等领域的重大违法行为，不存在被立案调查或者被司法机关立案侦查，尚未结案的情
形；本企业不存在尚未了结的或可以合理预见的重大诉讼、仲裁或行政处罚案件。
VII. Since January 1, 2018 till the date when this letter is issued, our enterprise has not been involved in the criminal
offences such as corruption, bribery, embezzlement of property, misappropriation of property or destruction of the order of
socialist market economy, has not been involved in fraudulent issuance, illegal disclosure of major information or other
major illegal acts involving the fields such as the state security, public security, ecological security, production security and
public health security, and has not been registered and surveyed or been registered and investigated by a judicial authority
but the case has not been closed yet; our enterprise has not been involved in any pending or reasonably foreseeable major
litigation, arbitration or administrative penalty cases.
八、
截至本函出具日，除附件所列情形外，本企业在公司的主要客户或供应商中未直接或间接占有任何
权益；本企业与北京通美本次申请首次公开发行股票并在科创板上市相关的中介机构（指海通证券股份有限公
司、北京市金杜律师事务所、安永华明会计师事务所（特殊普通合伙），下同）以及该等单位的实际控制人、股
东/合伙人、董事、监事、高级管理人员、经办人之间不存在关联关系。
VIII. As of the date when this letter is issued, except the circumstances listed in the annex, our enterprise has not
directly or indirectly occupied any rights and interests in the Company’s major clients or suppliers; there has been no
association relationship between our company and the intermediaries (refer to Haitong Securities Co., Ltd., Beijing King &
Wood Mallesons and Ernst & Young Hua Ming (Special General Partnership), the same below) related to Beijing
Tongmei’s application of IPO and listing on the Science and Technology Innovation Board this time as well as actual
controllers, shareholders/partners, directors, supervisors, senior executives and handlers of such units.
九、
本企业就公司本次申请首次公开发行股票并在科创板上市向公司及其中介机构提供的所有原始书面
材料、副本材料、复印材料、口头信息或证言是真实、完整和准确的，且无任何虚假、隐瞒、遗漏或误导之处；
本企业所提供的副本或复印件与正本或原件内容一致，所有文件上的印章与签名都是
Exhibit 10.21
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真实的。如违反前述承诺，本企业将向公司及其中介机构依法赔偿其因此遭受的全部损失；如未来发生与本企业
提供的资料和信息不一致的情形，本企业将立即通知公司及其中介机构。
IX. All original written materials, duplicates, copies, oral information or testimonies provided by our company for the
Company and its intermediaries in terms of the Company’s application of IPO and listing on the Science and Technology
Innovation Board this time are true, complete and accurate, without any false, concealed, omitted or misleading content;
the duplicates or copies provided by our enterprise are consent with the originals, and the seals and signatures on all
documents are true. In case of violating the above-mentioned commitments, our enterprise will compensate the Company
and its intermediaries for all the losses caused to them according to law; in case of any circumstances inconsistent with the
materials and information provided by our enterprise in the future, our enterprise will immediately notify the Company and
its intermediaries.
特此声明承诺。
Hereby state and undertake.
（以下无正文）
(There is no text below)
Exhibit 10.21
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（本页无正文，为《声明与承诺函》的签署页）
(Without text, this page is a signing page of Statement and Letter of Commitment)
AXT, Inc.
（盖章）
(Sealed)
签署：
Signed by:
姓名：MORRIS SHEN-SHIH YOUNG
Name: MORRIS SHEN-SHIH YOUNG
职务：授权代表
Title: authorized representative
日期：年月日
Date: MM/DD/YY
Exhibit 10.21
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附件：本企业在北京通美的客户或供应商中的持股情况
Annex: Shareholding of Our Enterprise in the Clients or Suppliers of Beijing Tongmei
公司名称
Name of the Company
持股比例(%)
Shareholding proportion (%)
北京吉亚半导体材料有限公司
Beijing JiYa Semiconductor Material Co., Ltd.
39
峨眉山嘉美高纯材料有限公司
Emeishan Jiamei High Pure Materials Co., Ltd.
10
锡林郭勒通力锗业有限责任公司
XiLinGol Tongli Ge Refine Co., Ltd. *
0
* We determined that XiLinGol Tongli Ge Refine Co., Ltd. was fully impaired and wrote the asset balance down to zero in
2019.
Exhibit 10.22
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关于股东信息披露及证监会离职人员核查事项之
专项承诺函
Special Commitment Letter for Disclosure of Shareholders’
Information and Verification of Retired Personnel of CSRC
鉴于北京通美晶体技术股份有限公司（以下简称“公司”或“北京通美”）申请首次公开发
行股票并在科创板上市（以下简称“本次发行上市”），根据中国证监会《监管规则适用指引
—关于申请首发上市企业股东信息披露》《监管规则适用指引——发行类第2号》以及上海证
券交易所的相关规定，本企业作为北京通美的股东，特此作出如下声明和承诺：
Given that Beijing Tongmei Xtal Technology Co., Ltd. (hereinafter referred to as "the Company"
or "Beijing Tongmei") applied for initial public offering of shares and listing in the science and
technology innovation board (hereinafter referred to as "This Offering and Listing"), in accordance
with the Guidelines for the Application of Regulatory Rules - Disclosure of Information on
Shareholders of Enterprises Applying for Initial Public Offerings and Guidelines for the Application
of Regulatory Rules - Offering No. 2 issued by China Securities Regulatory Commission and the
relevant regulations of the Shanghai Stock Exchange, the Company, as a shareholder of Beijing
Tongmei, hereby makes the following statement and commitment:
一、关于股份代持。本企业持有北京通美的股份系本企业真实持有，权属清晰，持股至
今不存在委托持股、信托持股或其他特殊安排情形。
I. Shares held by agency. The shares held by the Company in Beijing Tongmei are truly held by
the Company, and the ownership is clear. So far, there is no entrusted shareholding, trust shareholding
or other special arrangements.
二、关于入股价格异常。本企业历次入股的背景和原因、入股形式、资金来源、支付方
式、入股价格及定价依据详见本专项承诺函附件，不存在本企业入股价格明显异常的情形。
II. Abnormal share purchasing price. Please refer to the appendix of this special commitment
letter for the details of the background and reasons, forms of shares, sources of funds, payment
methods, share prices and pricing basis of the previous shares of the Company, and there is no
obvious abnormality in the share purchasing price of the Company.
Exhibit 10.22
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三、关于股东适格性。本企业及向上追溯的各级股东、合伙人和出资人均具备法律、法
规规定的股东资格，不存在法律、法规规定禁止持股的主体直接或间接持有北京通美股份的
情形。本企业及向上追溯的各级股东、合伙人和出资人与本次发行中介机构（指海通证券股
份有限公司、北京市金杜律师事务所、安永华明会计师事务所（特殊普通合伙））及其负责
人、高级管理人员、经办人员不存在亲属关系、关联关系、委托持股、信托持股或其他利益
输送安排。本企业不存在以北京通美股权进行不当利益输送的情形。
III. Eligibility of shareholders. The Company and its shareholders, partners and investors at all
levels retrospectively have the shareholder qualifications stipulated by laws and regulations, and
there is no situation that the subject prohibited by laws and regulations from holding shares directly
or indirectly holds shares in Beijing Tongmei. The Company and its shareholders, partners and
investors at all levels retrospectively have no kinship, association, entrusted shareholding, trust
shareholding or other benefit transfer arrangements with the intermediary institutions (Haitong
Securities Co., Ltd, King & Wood Mallesons, Ernst & Young Hua Ming LLP) and their responsible
persons, senior managers and managers. There is no improper transfer of benefits by equity of
Beijing Tongmei in the Company.
四、本企业向北京通美及其本次发行上市的中介机构所提供的所有资料及信息均真实、
完整、准确、有效，不存在任何虚假陈述、重大遗漏或可能产生误导的信息。自本承诺函出
具之日起，如本承诺函所述事项发生任何变更，本企业将立即书面告知北京通美及中介机
构。
IV. All the materials and information provided by the Company to Beijing Tongmei and its
intermediaries for this issuance and listing are true, complete, accurate and effective, and there are no
false statements, major omissions or information that may lead to misleading. From the date of
issuance of this commitment letter, if there is any change in the matters mentioned in this
commitment letter, the Company will immediately inform Beijing Tongmei and intermediary
agencies in writing.
特此声明承诺。
The Company hereby declares the above.
（本页以下无正文）
(The remainder of this page is intentionally left blank.)
Exhibit 10.22
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（本页无正文，为《关于股东信息披露及证监会离职人员核查事项之专项承诺函》的
签署页）
(The remainder of this page is intentionally left blank. It is the signature page of the Special
Commitment Letter for Disclosure of Shareholders’ Information and Verification of Retired
Personnel of CSRC)
AXT, Inc.
（盖章）
(Seal)
签署：
Signature:
姓名：MORRIS SHEN-SHIH YOUNG
Name: MORRIS SHEN-SHIH YOUNG
职务：授权代表
Title: Authorized Representative
日期： 年 月 日
Date:
Exhibit 10.22
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附件：
Appendix:
序
号
S.N.
取得股份
时间
Time of
Share
acquisition
股权变动
Changes in
equity
入股背景和
原因
Background
and reasons
for
shareholding
持股比例
Ownership ratio
每注册
资本价
格
Price per
registered
capital
定价依
据
Pricing
basis
资金来源
Sources of
funds
增资/转让后金
额
Amount after
capital
increase/transfer
持股比例
Ownership
ratio
1
1998年9月
September
1998
设立
Establishment
看好行业发
展
Optimistic
about the
development
of the
industry
302.94万美元
$3,029,400
99.00%
1美元
One
dollar
注册资本
Registered
capital
自有资金
Own funds
2
2000年8月
August
2000
第一次股权
转让
First equity
transfer
北京通美经
营发展需要
资金投入
Beijing
Tongmei’s
business
development
needs capital
investment
306万美元
$3.06 million
100.00%
1美元
One
dollar
注册资本
Registered
capital
自有资金
Own funds
第一次增资
First capital
increase
506万美元
$5.06 million
100.00%
1美元
One
dollar
3
2001年5月
May 2001
第二次增资
Second
capital
increase
北京通美经
营发展需要
资金投入
Beijing
Tongmei’s
business
development
needs capital
investment
1506万美元
$15.06 million
100.00%
1美元
One
dollar
注册资本
Registered
capital
自有资金
Own funds
4
2002年10
月
October
2002
第三次增资
Third capital
increase
北京通美经
营发展需要
资金投入
Beijing
Tongmei’s
business
development
needs capital
investment
2306万美元
$23.06 million
100.00%
1美元
One
dollar
注册资本
Registered
capital
资本公积和
未分配利润
转增
Capital
reserve and
undistributed
profit
increase
5
2006年9月
September
2006
第四次增资
Fourth capital
increase
北京通美经
营发展需要
资金投入
Beijing
Tongmei’s
business
development
needs capital
investment
2534万美元
$25.34 million
100.00%
1美元
One
dollar
注册资本
Registered
capital
未分配利润
转增
Increase in
undistributed
profits
6
2007年12
月
December
2007
第五次增资
Fifth capital
increase
北京通美经
营发展需要
资金投入
Beijing
Tongmei’s
business
development
3013万美元
$30.13 million
100.00%
1美元
One
dollar
注册资本
Registered
capital
未分配利润
转增
Increase in
undistributed
profits
Exhibit 10.22
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序
号
S.N.
取得股份
时间
Time of
Share
acquisition
股权变动
Changes
in equity
入股背景和
原因
Background
and reasons
for
shareholding
持股比例
Ownership ratio
每注册资
本价格
Price per
registered
capital
定价依据
Pricing
basis
资金来源
Sources
of funds
增资/转让后金
额
Amount after
capital
increase/transfer
持股比例
Ownership
ratio
needs capital
investment
7
2012年5月
May 2012
第六次增
资
Sixth
capital
increase
北京通美经
营发展需要
资金投入
Beijing
Tongmei’s
business
development
needs capital
investment
3913万美元
$39.13 million
100.00%
1美元
One dollar
注册资本
Registered
capital
自有资金
Own
funds
8
2020年12
月
December
2020
第七次增
资
Seventh
capital
increase
为解决同业
竞争，整合
境内业务资
源，通美进
行重组
In order to
solve the
competition
among peers
and integrate
domestic
business
resources,
Tongmei
reorganized
75224.6378万元
人民币
752,246,378 yuan
91.6300%
1.36元人
民币
RMB 1.36
协商确定
Determined
through
negotiation
子公司股
权
Subsidiary
equity
9
2021年1月
January
2021
第二次股
权转让
Second
equity
transfer
看好北京通
美所处行业
发展前景以
及后续发展
潜力
Optimistic
about the
development
prospects and
subsequent
development
potential of
the industry
where Beijing
Tongmei is
located
75715.3721万元
人民币
757.153721
million yuan
85.5129%
5.03元人
民币
RMB 5.03
协商确定
Determined
through
negotiation
自有资金
Own
funds
Exhibit 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31,
2024
2023
2022
2021
2020
(in thousands)
Earnings:
Income (loss) before income taxes
$ (10,657)$ (19,033)$ 20,927 $ 17,602 $ 7,072
Less: Equity in loss (earnings) of investees
(3,439)
(1,884)
(5,957)
(4,409)
(111)
Less: Pre-tax net income attributable to noncontrolling interest and redeemable
noncontrolling interests
167
1,312
(2,931)
(1,934) (1,803)
Add: Distributions paid by equity investees
-
-
-
-
-
Fixed charges and preferred stock dividends, as calculated below
2,072
2,153
1,476
721
533
Total earnings
$ (11,857)$ (17,452)$ 13,515 $ 11,980 $ 5,691
Computation of fixed charges and preferred stock dividends:
Interest expense
$
1,762 $
1,876 $ 1,201 $
422 $
222
Preferred stock dividends(1)
177
177
177
177
177
Interest component of rent expense(2)
133
100
98
122
134
Total combined fixed charges and preferred stock dividends
$
2,072 $
2,153 $ 1,476 $
721 $
533
Ratio of earnings to combined fixed charges and preferred stock dividends(3)
(5.72)
(8.11)
9.16
16.62
10.68
Deficiency of earnings to combined fixed charges and preferred stock dividends
N/A
N/A
N/A
N/A
N/A
(1) Dividends accrue on our outstanding Series A preferred stock at the rate of $0.20 per annum per share of Series A preferred stock.
We have not paid any dividends on preferred stock. 883,000 shares of our preferred stock were issued and outstanding for all of the
periods presented.
(2) Effective January 1, 2019 and onwards, interest is calculated consistent with guidance under ASC 842, where an estimate for the
Company's incremental borrowing rate of 5.14%. The borrowing rate is calculated using a weighted average for the interest rate on
the Company's Fremont office lease of 5.5% and the interest rate on Tongmei’s nitrogen system of 4.7%.
(3) For periods in which there is a deficiency of earnings available to cover combined fixed charges and preferred stock dividends, the
ratio information is not applicable.
2/26/2025 4:05 PM Insider Trading Policy - Revised February 26, 2025
Page 8
AXT, INC.
INSIDER TRADING POLICY
I.
Trading in Company Securities While in Possession of Material Nonpublic Information is
Prohibited
THE PURCHASE OR SALE OF SECURITIES BY ANY PERSON WHO POSSESSES MATERIAL
NONPUBLIC INFORMATION IS A VIOLATION OF FEDERAL AND STATE SECURITIES LAWS.
Furthermore, it is important that the appearance, as well as the fact, of trading on the basis of material
nonpublic information be avoided. Therefore, it is the policy of AXT (the “Company”) that any person
subject to this Policy who possesses material nonpublic information pertaining to the Company may
not trade in the Company’s securities, advise anyone else to do so, or communicate the information to
anyone else until you know that the information has been disseminated to the public.
No director, officer, employee or consultant of the Company who is aware of material nonpublic
information relating to the Company may, directly or through family members or other persons or entities,
●
buy or sell securities of the Company, other than pursuant to a trading plan that complies with
Rule 10b5-1 promulgated by the Securities and Exchange Commission ( “SEC”),
●
engage in any other action to take personal advantage of that information, or
●
pass that information on to others outside the Company, including friends and family (a
practice referred to as “tipping”).
In addition, it is the policy of the Company that no officer, director, employee or consultant who, in the course
of working for the Company, learns of material nonpublic information of another company with which the
Company does business, such as a customer or supplier, may trade in that company’s securities until that
information becomes public or is no longer material.
II.
All Employees, Officers, Directors and their Family Members and Affiliates Are Subject to this
Policy
This Policy applies to all directors, officers, employees and consultants of the Company and entities
(such as trusts, limited partnerships and corporations) over which such individuals have or share voting or
investment control. For the purposes of this Policy, officers, outside directors and consultants are included
within the term “employee.” This Policy also applies to any other persons whom the Company’s insider trading
Compliance Officer may designate because they have access to material nonpublic information concerning the
Company, as well as any person who receives material nonpublic information from any Company insider.
Employees, officers and directors are responsible for ensuring compliance by family members and members
of their households and by entities over which they exercise voting or investment control. Insiders are
responsible for ensuring compliance with this Policy, including restrictions on all trading during certain periods,
by family members and members of their households and by entities over which they exercise voting or
investment control. Insiders should provide each of these persons or entities with a copy of this Policy.
Exhibit 19.1
2/26/2025 4:05 PM Insider Trading Policy - Revised February 26, 2025
Page 8
III.
Executive Officers, Directors and Certain Named Employees Are Subject to Additional
Restrictions. All employees with AXT stock, even our Tongmei employees in China, must follow the
Trading Window and Blackout Period rules.
A. Section 16 Insiders. The Company has designated those persons listed on Exhibit A attached
hereto as the directors and executive officers who are subject to the reporting provisions and trading
restrictions of Section 16 of the Securities Exchange Act of 1934 (the “Exchange Act”) and the underlying rules
and regulations promulgated by the SEC. Each person listed on Exhibit A is referred to herein as a
“Section 16 Insider.” The Company will amend Exhibit A from time to time as necessary to reflect the addition
and the resignation or departure of Section 16 Insiders.
B.
Insider Employees. The Company has designated all employees paid by Fremont, including
expats in China and including any employees based in Europe, as employees who have frequent access to
material nonpublic information concerning the Company (“Insider Employees”). For purposes of this Insider
Trading Policy, Section 16 Insiders and Insider Employees are each referred to as “Insiders.”
C.
Trading Restrictions. All Section 16 Insiders and all Insider Employees must strictly follow the
rules regarding trading on insider information, Trading Windows and Blackout Periods as declared by AXT. To
minimize the risk of apparent or actual violations of the rules governing insider trading, we have adopted the
following special restrictions relating to transactions in Company securities by Insiders.
Trading Window. In addition to the restrictions that are applicable to all employees, any trade by an
Insider that is subject to the Insider Trading Policy will be permitted only during an open “trading window.”
Further, any China employee who has AXT stock options or RSAs must also comply with the Trading Window
and Blackout rules. The trading window generally opens on the second full trading day following the public
issuance of the Company’s earnings release for the most recent fiscal quarter and closes at the close of
trading on the last day of the month preceding the last month of a fiscal quarter. For example, if AXT releases
our quarterly financial results on a Wednesday, Insiders can begin trading on the following Friday (assuming
that the market was trading on Thursday). In addition to the times when the trading window is scheduled to be
closed, the Company may impose a special blackout period at its discretion due to the existence of material
nonpublic information, such as a pending acquisition, that is likely to be widely known among Insiders.
Following termination of employment or other service, Insiders will be subject to the trading window, as well as
any special blackout period in effect at the time of termination, for one full fiscal quarter thereafter. Even when
the window is open, Insiders and other Company personnel are prohibited from trading in the Company’s
securities while in possession of material nonpublic information. The Company’s Compliance Officer will
advise Insiders when the trading window opens and closes.
Hardship Exemptions. The Compliance Officer may, on a case by case basis, authorize a
transaction in the Company’s securities outside of the trading window (but in no event during a special
blackout period) due to financial or other hardship. Any request for a hardship exemption must be in writing
and must describe the amount and nature of the proposed transaction and the circumstances of the hardship.
(The request may be made as part of a pre-clearance request, so long as it is in writing.) The Insider
requesting the hardship exemption must also certify to the Compliance Officer within two business days prior
to the date of the proposed trade that he or she is not in possession of material nonpublic information
concerning the Company.
The existence of the foregoing procedure does not in any way obligate the Compliance Officer to
approve any hardship exemption requested by an Insider.
Individual Account Plan Blackout Periods. Certain trading restrictions apply during a blackout
period applicable to any Company individual account plan in which participants may hold Company stock. For
the purpose of such restrictions, a “blackout period” is a period in which the plan participants are
Exhibit 19.1
2/26/2025 4:05 PM Insider Trading Policy - Revised February 26, 2025
Page 8
temporarily restricted from making trades in Company stock. During any blackout period, directors and
executive officers are prohibited from trading in shares of the Company’s stock that were acquired in
connection with such director's or officer's service or employment with the Company. Such trading restriction
is required by law, and no hardship exemptions are available. The Company will notify directors and executive
officers in the event of any blackout period.
D.
Additional Reporting Restrictions. In light of the reporting requirements to which Section 16
Insiders are subject under Section 16 of the Exchange Act, Section 16 Insiders are subject to additional
restrictions. Therefore, additional materials are provided to Section 16 Insiders. These include Memorandum
on Obligations of Directors and Officers, Appendix I, Duties Regarding Transactions in Company Stock and
two check lists.
IV.
Insider Trading Compliance Officer
The Company has designated Gary Fischer, as its Insider Trading Compliance Officer (the
“Compliance Officer”).
The duties of the Compliance Officer will include the following:
1.
Administering this Policy and monitoring and enforcing compliance with all policy
provisions and procedures.
2.
Responding to all inquiries relating to this policy and its procedures.
3.
Designating and announcing special trading blackout periods during which no Insiders
may trade in Company securities.
4.
Providing copies of this Policy and other appropriate materials to all current and new
directors, officers and employees, and such other persons as the Compliance Officer
determines have access to material nonpublic information concerning the Company.
5.
Administering, monitoring and enforcing compliance with federal and state insider
trading laws and regulations; and assisting in the preparation and filing of all required
SEC reports relating to trading in Company securities, including without limitation
Forms 3, 4, 5 and 144 and Schedules 13D and 13G.
6.
Selecting designated brokers through which Insiders are authorized to trade Company
securities.
7.
Revising the Policy as necessary to reflect changes in federal or state insider trading
laws and regulations.
8.
Maintaining as Company records originals or copies of all documents required by the
provisions of this Policy or the procedures set forth herein, and copies of all required
SEC reports relating to insider trading, including without limitation Forms 3, 4, 5 and
144 and Schedules 13D and 13G.
9.
Maintaining the accuracy of the list of Section 16 Individuals as set forth on Exhibit A
and the list of Insider Employees as set forth on Exhibit B, and updating such lists
periodically as necessary to reflect additions or deletions.
The Compliance Officer may designate one or more individuals who may perform the Compliance
Officer’s duties in the event that the Compliance Officer is unable or unavailable to perform such duties.
Exhibit 19.1
2/26/2025 4:05 PM Insider Trading Policy - Revised February 26, 2025
Page 8
In fulfilling his or her duties under this Policy, the Compliance Officer shall be authorized to consult with the
Company’s outside counsel.
V.
Applicability of This Policy to Transactions in Company Securities
A.
General Rule. This Policy applies to all transactions in the Company’s securities, including
common stock and any other securities the Company may issue from time to time, such as preferred stock,
warrants and convertible debentures, as well as to derivative securities relating to the Company’s stock,
whether or not issued by the Company, such as exchange-traded options. For purposes of this Policy, the
term “trade” includes any transaction in the Company’s securities, including gifts and pledges.
B.
Employee Benefit Plans
1.
Stock Option Plans. The trading prohibitions and restrictions set forth in this Policy do not
apply to the exercise of stock options for cash, but do apply to all sales of securities acquired through the
exercise of stock options. Thus, this Policy does apply to the “same-day sale” or cashless exercise of
Company stock options.
2.
Employee Stock Purchase Plans. The trading prohibitions and restrictions set forth in this
Policy do not apply to periodic contributions by the Company or employees to employee stock purchase plans
or employee benefit plans (e.g., a pension or 401(k) plan) which are used to purchase Company securities
pursuant to the employee’s advance instructions. However, no officers or employees may alter their
instructions regarding the level of withholding or the purchase of Company securities in such plans while in the
possession of material nonpublic information. Any sale of securities acquired under such plans is subject to
the prohibitions and restrictions of this Policy.
VI.
Definition of “Material Nonpublic Information”
A.
“Material”. Information about the Company is “material” if it would be expected to affect the
investment or voting decisions of a reasonable shareholder or investor, or if the disclosure of the information
would be expected to significantly alter the total mix of the information in the marketplace about the Company.
In simple terms, material information is any type of information which could reasonably be expected to affect
the market price of the Company’s securities. Both positive and negative information may be material. While
it is not possible to identify all information that would be deemed material, the following types of information
ordinarily would be considered material:
●
Financial performance, especially quarterly and year-end earnings, and significant changes in
financial performance or liquidity.
●
Company projections and strategic plans.
●
Potential mergers or acquisitions, the sale of Company assets or subsidiaries or major
partnering agreements.
●
New major contracts, orders, suppliers, customers or finance sources or the loss thereof.
●
Major discoveries or significant changes or developments in products or product lines,
research or technologies.
●
Significant changes or developments in supplies or inventory, including significant product
defects, recalls or product returns.
●
Significant pricing changes.
Exhibit 19.1
2/26/2025 4:05 PM Insider Trading Policy - Revised February 26, 2025
Page 8
●
Stock splits, public or private securities/debt offerings, or changes in Company dividend
policies or amounts.
●
Significant changes in senior management or membership of the Board of Directors.
●
Significant labor disputes or negotiations.
●
Actual or threatened major litigation, or the resolution of such litigation.
●
Receipt or denial of regulatory approval for products.
B.
“Nonpublic”. Material information is “nonpublic” if it has not been widely disseminated to the
general public through a report filed with the SEC or through major newswire services, national news services
or financial news services. For the purpose of this Policy, information will be considered public after the close
of trading on the first full trading day following the Company’s widespread public release of the information.
C.
Consult the Compliance Officer When in Doubt. As a rule of thumb, if you think something
might be material nonpublic information, it probably is. Any employees who are unsure whether the information
that they possess is material or nonpublic must consult the Compliance Officer for guidance before trading in
any Company securities.
VII.
Employees May Not Disclose Material Nonpublic Information to Others or Make
Recommendations Regarding Trading in Company Securities
No employee may disclose material nonpublic information concerning the Company to any other
person (including family members) where such information may be used by such person to his or her
advantage in the trading of the securities of companies to which such information relates, a practice commonly
known as “tipping.” No employee or related person may make recommendations or express opinions as to
trading in the Company’s securities while in possession of material nonpublic information, except such person
may advise others not to trade in the Company’s securities if doing so might violate the law or this policy.
VIII.
Employees May Not Participate in Internet Forums About AXT
Employees are prohibited from participating in chat room discussions, message boards, Facebook,
blogs or other online conversation platforms regarding the Company’s securities or business.
IX.
Only Designated Company Spokespersons Are Authorized to Disclose Material Nonpublic
Information
The Company is required under the federal securities laws to avoid the selective disclosure of material
nonpublic information. The Company has established procedures for releasing material information in a
manner that is designed to achieve broad dissemination of the information immediately upon its release.
Employees may not, therefore, disclose material information to anyone outside the Company, including family
members and friends, other than in accordance with those established procedures. Any inquiries from
outsiders regarding material nonpublic information about the Company should be forwarded to the Chief
Executive Officer or the Chief Financial Officer.
X.
Certain Types of Transactions Are Prohibited
A.
Short Sales. Short sales of the Company’s securities evidence an expectation on the part of
the seller that the securities will decline in value, and therefore signal to the market that the seller
Exhibit 19.1
2/26/2025 4:05 PM Insider Trading Policy - Revised February 26, 2025
Page 8
has no confidence in the Company or its short-term prospects. In addition, short sales may reduce the seller’s
incentive to improve the Company’s performance. For these reasons, short sales of the Company’s securities
are prohibited by this Policy. In addition, Section 16(c) of the Exchange Act expressly prohibits executive
officers and directors from engaging in short sales.
B.
Publicly Traded Options. A transaction in options is, in effect, a bet on the short-term
movement of the Company’s stock and therefore creates the appearance that the director or employee is
trading based on inside information. Transactions in options also may focus the director’s or employee’s
attention on short-term performance at the expense of the Company’s long-term objectives. Accordingly,
transactions in puts, calls or other derivative securities involving the Company’s stock, on an exchange or in
any other organized market, are prohibited by this Policy. (Option positions arising from certain types of
hedging transactions are governed by the section below captioned “Hedging Transactions”).
C.
Hedging Transactions. Certain forms of hedging or monetization transactions, such as zero-
cost collars and forward sale contracts, allow an employee to lock in much of the value of his or her stock
holdings, often in exchange for all or part of the potential for upside appreciation in the stock. These
transactions allow the employee to continue to own the covered securities, but without the full risks and
rewards of ownership. When that occurs, the employee may no longer have the same objectives as the
Company’s other shareholders. Therefore, employees are prohibited from engaging in such transactions
involving the Company’s securities. Any person wishing to enter into such an arrangement must first receive
pre-approval for the proposed transaction from the Compliance Officer.
D.
Margin Accounts and Pledges. Securities held in a margin account may be sold by the broker
without the customer’s consent if the customer fails to meet a margin call. Similarly, securities pledged (or
hypothecated) as collateral for a loan may be sold in foreclosure if the borrower defaults on the loan. Because
a margin sale or foreclosure sale may occur at a time when the pledgor is aware of material nonpublic
information or otherwise is not permitted to trade in Company securities, directors, officers and other
employees are prohibited from holding Company securities in a margin account or pledging Company
securities as collateral for a loan. Any person wishing to enter into such an arrangement must first receive pre-
approval for the proposed transaction from the Compliance Officer.
E.
Short Term Trading. To avoid undue focus on the Company’s short-term stock market
performance, if you purchase the Company securities in the open market, you may not sell any Company
securities of the same class during the six months following the purchase or vice versa.
XI.
The Company May Suspend All Trading Activities by Employees
In order to avoid any questions and to protect both employees and the Company from any potential
liability, from time to time the Company may impose a “blackout” period during which some or all of the
Company’s employees may not buy or sell the Company’s securities. The Compliance Officer will impose
such a blackout period if, in his judgment, there exists nonpublic information that would make trades by the
Company’s employees (or certain of the Company’s employees) inappropriate in light of the risk that such
trades could be viewed as violating applicable securities laws.
XII.
Violations of Insider Trading Laws or This Policy Can Result in Severe Consequences
A.
Civil and Criminal Penalties. The consequences of prohibited insider trading or tipping can be
severe. Persons violating insider trading or tipping rules may be required to disgorge the profit made or the
loss avoided by the trading, pay civil penalties up to three times the profit made or loss avoided, face private
action for damages, as well as being subject to criminal penalties, including up to 20 years in prison and fines
of up to $5 million. The Company and/or the supervisors of the person violating the rules may also be required
to pay major civil or criminal penalties.
Exhibit 19.1
2/26/2025 4:05 PM Insider Trading Policy - Revised February 26, 2025
Page 8
B.
Company Discipline. Violation of this Policy or federal or state insider trading laws by any
director, officer or employee may subject the director to removal proceedings and the officer or employee to
disciplinary action by the Company, including termination for cause.
C.
Reporting Violations. Any person who violates this Policy or any federal or state laws
governing insider trading, or knows of any such violation by any other person, must report the violation
immediately to the Compliance Office or the Audit Committee of the Company’s Board of Directors. Upon
learning of any such violation, the Compliance Officer [or Audit Committee], in consultation with the Company’s
legal counsel, will determine whether the Company should release any material nonpublic information or
whether the Company should report the violation to the SEC or other appropriate governmental authority.
XIII.
Every Individual Is Responsible
Every employee has the individual responsibility to comply with this Policy against illegal insider
trading. An employee may, from time to time, have to forego a proposed transaction in the Company’s
securities even if he or she planned to make the transaction before learning of the material nonpublic
information and even though the employee believes that he or she may suffer an economic loss or forego
anticipated profit by waiting.
XIV.
This Policy Continues to Apply Following Termination of Employment
The Policy continues to apply to transactions in the Company’s securities even after termination of
employment. If an employee is in possession of material nonpublic information when his or her employment
terminates, he or she may not trade in the Company’s securities until that information has become public or is
no longer material.
XV.
The Compliance Officer Is Available to Answer Questions about this Policy
Please direct all inquiries regarding any of the provisions or procedures of this Policy to the
Compliance Officer.
XVI.
This Policy Is Subject to Revision
The Company may change the terms of this Policy from time to time to respond to developments in
law and practice. The Company will take steps to inform all affected persons of any material change to this
Policy.
XVII.
All Employees Must Acknowledge Their Agreement to Comply with This Policy
The Policy will be delivered to all employees upon its adoption by the Company, and to all new other
employees at the start of their employment or relationship with the Company. Upon first receiving a copy of
the Policy or any revised versions, each employee must sign an acknowledgment that he or she has received
a copy and agrees to comply with the Policy’s terms. This acknowledgment and agreement will constitute
consent for the Company to impose sanctions for violation of this Policy and to issue any necessary stop-
transfer orders to the Company’s transfer agent to enforce compliance with this Policy.
Exhibit 19.1
2/26/2025 4:05 PM Insider Trading Policy - Revised February 26, 2025
Page 8
EXHIBIT A
SECTION 16 DIRECTORS AND NAMED EXECUTIVE OFFICERS
(as of February 26, 2025)
SECTION 16 NAMED EXECUTIVE OFFICERS
Name
Title
Morris Young
Chief Executive Officer and Board of Director
Gary Fischer
VP & CFO
OTHER DIRECTORS
Jesse Chen
Lead Director & Corp Gov Committee Chair
David Chang
Comp Committee Chair
Christine Russell
Audit Committee Chair
Exhibit 19.1
Exhibit 21.1
AXT, Inc. Subsidiaries
State or Other Jurisdiction of
Subsidiaries of the registrant*
Incorporation
Beijing Tongmei Xtal Technology Co., Ltd.
China
Nanjing Jin Mei Gallium Co., Ltd.
China
Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd.
China
*
As of December 31, 2024. Pursuant to Item 601(b)(21)(ii) of Regulation S-K, the names of other AXT, Inc. subsidiaries are omitted because,
considered in the aggregate, they would not constitute a significant subsidiary as of December 31, 2024.
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-
258196) and Form S-8 (Nos. 333-281611, 333-258267, 333-231744, 333-204478, 333-188788, 333-67297, 333-
38858 and 333-143366) of AXT, Inc. of our report dated March 14, 2025, relating to the consolidated financial
statements, which appears in this Annual Report on Form 10-K.
/s/ BPM LLP
San Jose, California
March 14, 2025
Exhibit 31.1
CERTIFICATION PURSUANT TO 18 U.S.C. RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Morris S. Young, certify that:
1.
I have reviewed this annual report on Form 10-K of AXT, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects, the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
March 14, 2025
/s/ MORRIS S. YOUNG
Morris S. Young
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION PURSUANT TO 18 U.S.C. RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gary L. Fischer, certify that:
1.
I have reviewed this annual report on Form 10-K of AXT, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
March 14, 2025
/s/ GARY L. FISCHER
Gary L. Fischer
Chief Financial Officer and Corporate Secretary
(Principal Financial Officer and
Principal Accounting Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of AXT, Inc. (the “Company”) on Form 10-K for the year ended December 31,
2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby
certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to
the best of my knowledge:
(1)
The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78m); and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: March 14, 2025
By:
/s/ Morris S. Young
Morris S. Young
Chief Executive Officer
(Principal Executive Officer)
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of AXT, Inc. (the “Company”) on Form 10-K for the year ended December 31,
2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby
certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to
the best of my knowledge:
(1)
The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78m); and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: March 14, 2025
By:
/s/ Gary L. Fischer
Gary L. Fischer
Chief Financial Officer and
Corporate Secretary
(Principal Financial Officer and
Principal Accounting Officer)
Exhibit 97.1
AXT, INC.
COMPENSATION RECOVERY POLICY
As adopted on November 8, 2023
AXT, Inc. (the “Company”) is committed to strong corporate governance. As part of this commitment, the
Company’s Board of Directors (the “Board”) has adopted this clawback policy called the Compensation Recovery
Policy (the “Policy”). The Policy is intended to further the Company’s pay-for-performance philosophy and to comply
with applicable laws by providing rules relating to the reasonably prompt recovery of certain compensation received
by Covered Executives in the event of an Accounting Restatement. The application of the Policy to Covered Executives
is not discretionary, except to the limited extent provided below, and applies without regard to whether a Covered
Executive was at fault. Capitalized terms used in the Policy are defined below, and the definitions have substantive
impact on its application so reviewing them carefully is important to your understanding.
The Policy is intended to comply with, and will be interpreted in a manner consistent with, Section 10D of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), with Exchange Act Rule 10D-1 and with the listing
standards of the national securities exchange (the “Exchange”) on which the securities of the Company are listed.
Persons Covered by the Policy
The Policy is binding and enforceable against all “Covered Executives.” A Covered Executive is each individual
who is or was ever designated as an “officer” by the Board in accordance with Exchange Act Rule 16a-1(f) (a “Section
16 Officer”). The Committee may (but is not obligated to) require a Covered Executive to sign and return to the
Company an acknowledgement that such Covered Executive will be bound by the terms and comply with the Policy.
The Policy is binding on each Covered Executive whether or not the Covered Executive signs and/or returns any
acknowledgment.
Administration of the Policy
The Compensation Committee of the Board (the “Committee”) has full delegated authority to administer the
Policy. The Committee is authorized to interpret and construe the Policy and to make all determinations necessary,
appropriate, or advisable for the administration of the Policy. In addition, if determined in the discretion of the Board,
the Policy may be administered by the independent members of the Board or another committee of the Board made
up of independent members of the Board, in which case all references to the Committee will be deemed to refer to
the independent members of the Board or the other Board committee. All determinations of the Committee will be
final and binding and will be given the maximum deference permitted by law.
Accounting Restatements Requiring Application of the Policy
If the Company is required to prepare an accounting restatement due to the material noncompliance of the
Company with any financial reporting requirement under the securities laws, including any required accounting
restatement to correct an error in previously issued financial statements that is material to the previously issued
financial statements, or that would result in a material misstatement if the error were corrected in the current period
or left uncorrected in the current period (an “Accounting Restatement”), then the
-2-
Committee must determine the Excess Compensation, if any, that must be recovered. The Company’s obligation to
recover Excess Compensation is not dependent on if or when restated financial statements are filed.
Compensation Covered by the Policy
The Policy applies to certain Incentive-Based Compensation (certain terms used in this Section are defined
below) that is Received on or after October 2, 2023 (the “Effective Date”), during the Covered Period while the
Company has a class of securities listed on a national securities exchange. Incentive-Based Compensation is
considered “Clawback Eligible Incentive-Based Compensation” if the Incentive-Based Compensation is Received by a
person after such person became a Section 16 Officer and the person served as a Section 16 Officer at any time during
the performance period for the Incentive-Based Compensation. “Excess Compensation” means the amount of
Clawback Eligible Incentive-Based Compensation that exceeds the amount of Clawback Eligible Incentive-Based
Compensation that otherwise would have been Received had such Clawback Eligible Incentive-Based Compensation
been determined based on the restated amounts. Excess Compensation must be computed without regard to any
taxes paid and is referred to in the listing standards as “erroneously awarded incentive-based compensation.”
To determine the amount of Excess Compensation for Incentive-Based Compensation based on stock price or
total shareholder return, where it is not subject to mathematical recalculation directly from the information in an
Accounting Restatement, the amount must be based on a reasonable estimate of the effect of the Accounting
Restatement on the stock price or total shareholder return upon which the Incentive-Based Compensation was
Received and the Company must maintain documentation of the determination of that reasonable estimate and
provide that documentation to the Exchange.
“Incentive-Based Compensation” means any compensation that is granted, earned, or vested based wholly or
in part upon the attainment of a Financial Reporting Measure. For the avoidance of doubt, no compensation that is
potentially subject to recovery under the Policy will be earned until the Company’s right to recover under the Policy
has lapsed. The following items of compensation are not Incentive-Based Compensation under the Policy: salaries,
bonuses paid solely at the discretion of the Committee or Board that are not paid from a bonus pool that is
determined by satisfying a Financial Reporting Measure, bonuses paid solely upon satisfying one or more subjective
standards and/or completion of a specified employment period, non-equity incentive plan awards earned solely upon
satisfying one or more strategic measures or operational measures, and equity awards for which the grant is not
contingent upon achieving any Financial Reporting Measure performance goal and vesting is contingent solely upon
completion of a specified employment period (e.g., time-based vesting equity awards) and/or attaining one or more
non-Financial Reporting Measures.
“Financial Reporting Measures” are measures that are determined and presented in accordance with the
accounting principles used in preparing the Company’s financial statements, and any measures that are derived
wholly or in part from such measures. Stock price and total shareholder return are also Financial Reporting Measures.
A Financial Reporting Measure need not be presented within the financial statements or included in a filing with the
Securities and Exchange Commission.
Incentive-Based Compensation is “Received” under the Policy in the Company’s fiscal period during which the
Financial Reporting Measure specified in the Incentive-Based Compensation award is attained, even if the payment,
vesting, settlement or grant of the Incentive-Based Compensation occurs after the end of that period. For the
avoidance of doubt, the Policy does not apply to Incentive-Based Compensation for which the Financial Reporting
Measure is attained prior to the Effective Date.
“Covered Period” means the three completed fiscal years immediately preceding the Accounting Restatement
Determination Date. In addition, Covered Period can include certain transition periods resulting from a change in the
Company’s fiscal year.
-3-
“Accounting Restatement Determination Date” means the earliest to occur of: (a) the date the Board, a
committee of the Board, or one or more of the officers of the Company authorized to take such action if Board action
is not required, concludes, or reasonably should have concluded, that the Company is required to prepare an
Accounting Restatement; and (b) the date a court, regulator, or other legally authorized body directs the Company to
prepare an Accounting Restatement.
Repayment of Excess Compensation
The Company must recover Excess Compensation reasonably promptly and Covered Executives are required
to repay Excess Compensation to the Company. Subject to applicable laws, the Company may recover Excess
Compensation by requiring the Covered Executive to repay such amount to the Company by direct payment to the
Company or such other means or combination of means as the Committee determines to be appropriate (these
determinations do not need to be identical as to each Covered Executive). These means include (but are not limited
to):
(a)
requiring reimbursement of cash Incentive-Based Compensation previously paid;
(b)
seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer, or other
disposition of any equity-based awards (including, but not limited to, time-based vesting awards),
without regard to whether such awards are Incentive-Based Compensation or vest based on the
achievement of performance goals;
(c)
offsetting the amount to be recovered from any unpaid or future compensation to be paid by the
Company or any affiliate of the Company to the Covered Executive, including (but not limited to)
payments of severance that might otherwise be due in connection with a Covered Executive’s
termination of employment and without regard to whether such amounts are Incentive-Based
Compensation;
(d)
cancelling outstanding vested or unvested equity awards (including, but not limited to, time-based
vesting awards), without regard to whether such awards are Incentive-Based Compensation; and/or
(e)
taking any other remedial and recovery action permitted by law, as determined by the Committee.
The repayment of Excess Compensation must be made by a Covered Executive notwithstanding any Covered
Executive’s belief (whether or not legitimate) that the Excess Compensation had been previously earned under
applicable laws and therefore is not subject to clawback.
In addition to its rights to recovery under the Policy, the Company or any affiliate of the Company may take
any legal actions it determines appropriate to enforce a Covered Executive’s obligations to the Company or to
discipline a Covered Executive. Failure of a Covered Executive to comply with their obligations under the Policy may
result in (without limitation) termination of that Covered Executive’s employment, institution of civil proceedings,
reporting of misconduct to appropriate governmental authorities, reduction of future compensation opportunities or
change in role. The decision to take any actions described in the preceding sentence will not be subject to the
approval of the Committee and can be made by the Board, any committee of the Board, or any duly authorized officer
of the Company or of any applicable affiliate of the Company. For avoidance of doubt, any decisions of the Company
or the Covered Executive’s employer to discipline a Covered Executive or terminate the employment of a Covered
Executive are independent of determinations under this Policy. For example, if a Covered Executive was involved in
activities that led to an Accounting Restatement, the Company’s decision as to whether or not to terminate such
Covered Executive’s employment would be made under its employment
-4-
arrangements with such Covered Executive and the requirement to apply this no-fault and non-discretionary clawback
policy will not be determinative of whether any such termination is for cause, although failure to comply with the
Policy might be something that could result in a termination for cause depending on the terms of such arrangements.
Limited Exceptions to the Policy
The Company must recover the Excess Compensation in accordance with the Policy except to the limited
extent that any of the conditions set forth below is met, and the Committee determines that recovery of the Excess
Compensation would be impracticable:
(a)
The direct expense paid to a third party to assist in enforcing the Policy would exceed the amount to
be recovered. Before reaching this conclusion, the Company must make a reasonable attempt to
recover such Excess Compensation, document such reasonable attempt(s) to recover, and provide
that documentation to the Exchange; or
(b)
Recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are
broadly available to employees of the Company, to fail to meet the legal requirements as such.
Other Important Information in the Policy
The Policy is in addition to the requirements of Section 304 of the Sarbanes-Oxley Act of 2002 that are
applicable to the Company’s Chief Executive Officer and Chief Financial Officer, as well as any other applicable laws,
regulatory requirements, rules, or pursuant to the terms of any existing Company policy or agreement providing for
the recovery of compensation. With the exception of any compensation that is Received prior to the Effective Date,
which compensation will remain subject to the Company’s previously adopted clawback policy providing for recovery
of compensation as applicable pursuant to the terms of such policy, if any, this Policy supersedes in full all of the
clawback policies of the Company that were in effect prior to the Effective Date to the extent such policies were
applicable with respect to Covered Executives and the operative portions of such policies will have no further force or
effect on or after the Effective Date.
Notwithstanding the terms of any of the Company’s organizational documents (including, but not limited to,
the Company’s bylaws), any corporate policy or any contract (including, but not limited to, any indemnification
agreement), neither the Company nor any affiliate of the Company will indemnify or provide advancement for any
Covered Executive against any loss of Excess Compensation. Neither the Company nor any affiliate of the Company
will pay for or reimburse insurance premiums for an insurance policy that covers potential recovery obligations. In the
event that the Company is required to recover Excess Compensation pursuant to the Policy from a Covered Executive
who is no longer an employee pursuant to the Policy, the Company will be entitled to seek recovery in order to
comply with applicable laws, regardless of the terms of any release of claims or separation agreement that individual
may have signed.
The Committee or Board may review and modify the Policy from time to time.
If any provision of the Policy or the application of any such provision to any Covered Executive is adjudicated
to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability will not affect any
other provisions of the Policy or the application of such provision to another Covered Executive, and the invalid, illegal
or unenforceable provisions will be deemed amended to the minimum extent necessary to render any such provision
or application enforceable.
The Policy will terminate and no longer be enforceable when the Company ceases to be a listed issuer within
the meaning of Section 10D of the Exchange Act.
ACKNOWLEDGEMENT
●
I acknowledge that I have received and read the Compensation Recovery Policy (the “Policy”) of AXT, Inc. (the
“Company”).
●
I understand and acknowledge that the Policy applies to me, and all of my beneficiaries, heirs, executors,
administrators or other legal representatives and that the Company’s right to recovery in order to comply with
applicable laws will apply, regardless of the terms of any release of claims or separation agreement I have
signed or will sign in the future.
●
I agree to be bound by and to comply with the Policy and understand that determinations of the Committee
(as such term is used in the Policy) will be final and binding and will be given the maximum deference
permitted by law.
●
I understand and agree that my current indemnification rights, whether in an individual agreement or the
Company’s organizational documents, exclude the right to be indemnified for amounts required to be
recovered under the Policy.
●
I understand that my failure to comply in all respects with the Policy is a basis for termination of my
employment with the Company and any affiliate of the Company as well as any other appropriate discipline.
●
I understand that neither the Policy, nor the application of the Policy to me, gives rise to a resignation for
good reason (or similar concept) by me under any applicable employment agreement or arrangement.
●
I acknowledge that if I have questions concerning the meaning or application of the Policy, it is my
responsibility to seek guidance from the Chief Financial Officer, Human Resources or my own personal
advisers.
●
I acknowledge that neither this Acknowledgement nor the Policy is meant to constitute an employment
contract.
Please review, sign and return this form to the Chief Financial Officer.
Covered Executive
(print name)
(signature)
(date)