AXT INC

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.

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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* maybecome 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, donot* 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 donot design or manufacture the chips. We add value by researching, developing and producing the specialty material wafers. We havetwo product lines: specialty material substrates and raw materials integral to these substrates. In2025, our substrate product group generated 67% of our revenue and raw materials product group generated 33%. 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 donot have controlling interests, but have the ability to exercise significant influence over operating and financial policies (generally20-50% ownership), are accounted for by the equity method. For the years ended2025 and2024, we have three companies accounted for by the equity method. For the majority-owned subsidiaries that we consolidate, we reflect the portion we donot 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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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 ended2025 and2024, expenses associated with ChaoYang LiMei had a de minimis impact on our consolidated financial statements.

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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 2021and October 2021,ChaoYang XinMei received funding from a minority investor of $0.9 million and $1.0 million, respectively. In December 2021and 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 2022and $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 2022and $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 2022and May 2022equity 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.

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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 Julyand 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 fromone* 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 fromone* 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 fromone* 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 2023and 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 2022ChaoYang 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,** Julyand November 2024,and in March,** Apriland May 2025.*Tongmei’s ownership of ChaoYang KaiMei remained at 40% after these equity investments.

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All activities for MaAnShan JinMei ceased during thefirst half of2022 and the subsidiary was subsequently dissolved in* May 2022.*The dissolution of MaAnShan JinMei had a de minimis impact on the consolidated results.

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During the quarter ended* December 31, 2020,Tongmei entered intotwo* 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.

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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. In2020,* 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 arenot* 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.

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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 Note2.

Fair Value of Investments

ASC Topic820, Fair value measurement (“ASC820”) establishesthree levels of inputs that* may*be used to measure fair value.

Level1 instruments represent quoted prices in active markets. Therefore, determining fair value for Level1 instruments doesnot require significant management judgment, and the estimation isnot difficult.

Level2 instruments include observable inputs other than Level1 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 Level2 instruments require more management judgment and subjectivity compared to Level1 instruments, including:

Level3 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 Level3 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 hedgesnot settled are netted in “Accrued liabilities” on the consolidated balance sheets and classified as Level2 assets and liabilities. As of* December 31, 2025and2024,* 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 loss totaled $74,000 for the year ended* December 31, 2025,and the foreign exchange gain totaled $0.1 million and $0.2 million for the years ended December 31,*2024 and2023, 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 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 and7N Ga), pyrolytic boron nitride (pBN) crucibles and boron oxide (B2O3). After we ship our products, there areno 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 donot 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 thansix 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.

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We have elected to account for shipping and handling as activities to fulfill the promise to transfer the goods. Shipping and handling fees billed to customers in a sales transaction are recorded as an offset to shipping and handling expenses. Sales taxes and value added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from revenue.

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We donot 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 donot 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 thanone 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 donot have any material contract assets as of* December 31, 2025* or2024.

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During the year ended* December 31, 2025*, the Company recognized $1.6 million of revenue that was included in the contract balances as of* December 31, 2024*. During the year ended* December 31, 2024*, the Company recognized $156,000 of revenue that was included in the contract balances as of* December 31, 2023*.

Disaggregated Revenue

In general, revenue disaggregated by product types and geography (See Note14) is aligned according to the nature and economic characteristics of our business and provides meaningful disaggregation of our results of operations. Since we operate inone 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 beone year or less; (ii) to expense costs as incurred for costs to obtain a contract when the amortization period would have beenone 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 donot disclose the value of unsatisfied performance obligations for contracts with an original expected length ofone year or less.

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Accounting for Sales and Use Taxes

We record sales taxes collected on sales of our products and for amountsnot 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 andnot 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.

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We perform ongoing credit evaluations of our customers’ financial condition, and limit the amount of credit extended when deemed necessary, but generally donot 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, 2025* and2024.

No customer represented10% of our revenue for the year ended* December 31, 2025,*2024 and2023. Our topfive customers, althoughnot the samefive customers for each period, represented 29% of our revenue for the year2025,30% of our revenue for the year2024, and 25% of our revenue for the year2023.

For the year ended* December 31, 2025*, no third-party customer for the raw materials products from our consolidated subsidiaries accounted for over 10% of the revenue from raw materials sales. For the years ended* December 31, 2024and2023*, two third-party customers 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 ofthree 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

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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, 2025*, $8.1 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.

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Accounts Receivable and Allowance for Credit Losses and Sales Returns

Accounts receivable are recorded at the invoiced amount and arenot 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 of90 days and for receivables from customers located outside the U.S. with an emphasis on balances in excess of120 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 Topic326, 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, 2025and2024*, our accounts receivable, net balance was $26.8 million and $25.6 million, respectively, which was net of an allowance of $164,000 and $147,000, respectively. During2025, we increased the allowance by $17,000. During2024, we decreased the allowance by $432,000. 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, 2025and2024*, the sales returns reserve (included in accrued liabilities) balance was $48,000 and $28,000, respectively. During2025, we utilized $48,000 and reserved an additional $68,000 and during2024, we utilized $28,000 and reserved an additional$17,000.

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Warranty Reserve

We maintain a warranty reserve based upon our claims experience during the priortwelve 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, 2025and2024*, accrued product warranties totaled $411,000 and $451,000, 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 donot 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* maybe 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 didnot recognize any impairment charges of long-lived assets in2025*,2024 and2023.

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 thannot 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 assessedone 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. For the year ended December 31, 2024*, we hadno impairment charges. During the year ended* December 31, 2025*,one of our PRC joint venture raw material companies assessedone of its equity investments was impaired, resulting in an impairment loss of$48,000.

Segment Reporting

We operate inone 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 donot allocate any portion of overhead, interest and other income, interest expense or taxes to them. We therefore have determined that our joint venture operations donot constitute an operating segment. Since we operate inone 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 Note10-“Employee Benefit Plans and Stock-based Compensation”. We account for stock-based compensation in accordance with the provisions of ASC Topic718, Compensation-Stock Compensation (“ASC718”). 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.

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Advertising Costs

Advertising costs, included in selling, general and administrative expenses, are expensed as incurred. Advertising costs for the years ended* December 31, 2025,*2024 and2023 were insignificant.

Income Taxes

We account for income taxes in accordance with ASC Topic740, Income Taxes (“ASC740”), 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. ASC740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely thannot that a portion of the deferred tax asset willnot be realized. The impact of ASC740 is more fully described in Note12.

Comprehensive Loss

The components of other comprehensive loss include unrealized losses on marketable securities and foreign currency translation adjustments. Comprehensive loss is presented in the consolidated statements of comprehensive loss. The balance of accumulated other comprehensive loss is as follows (in thousands):

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 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.

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Recent Accounting Pronouncements

In* December 2023,the Financial Accounting Standards Board (“FASB”) issued ASU2023*-09— Income Taxes (Topic740*): 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 had an immaterial effect on our consolidated financial statements.

In* March 2024,FASB released ASU2024*-01— Compensation—Stock Compensation (Topic718*). The update adds an illustrative example aimed at clarifying the scope application of a profit interest award in accordance with Topic718.* The update is effective for annual periods beginning after* December 15, 2024,*and interim periods within those annual periods. Adoption of the new standard had an immaterial effect on our consolidated financial statements.

In* November 2024,FASB issued ASU2024*-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic220*-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.

In* July 2025,FASB issued ASU2025*-05, Financial Instruments - Credit Losses (Topic326*): Measurement of Credit Losses for Accounts Receivable and Contract Assets*, which allows a practical expedient that assumes current conditions as of the balance sheet date donot change for the remaining life of the asset when developing forecasts for estimating expected credit losses. The ASU is effective for fiscal years beginning after* December 15, 2025,*and interim periods within those fiscal years on a prospective basis. Adoption is expected to have an immaterial effect on our condensed consolidated financial statements.

In* December 2025,FASB issued ASU2025*-10, Financial Instruments - Government Grants (Topic832*): Accounting for Government Grants Received by Business Entities*, which establishes authoritative guidance on the recognition, measurement, presentation, and disclosure of government grants received by business entities. The Update provides a framework for determining when a grant should be recognized in income and includes enhanced disclosure requirements. The Update is effective for fiscal years beginning after* December 15, 2028,*and interim periods within those fiscal years. 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 thanthree months. Our investments consist of instruments with original maturities of more than three months. As of* December 31, 2025and2024*, our cash, restricted cash, cash equivalents and debt investments are classified as follows (in thousands):

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.

As of* December 31, 2025and2024*, we didnot hold any available-for-sale debt securities. Historically, the gross unrealized losses related to our portfolio of available-for-sale debt securities were immaterial, and primarily due to normal market fluctuations andnot due to increased credit risk or other valuation concerns. 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.

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 Note6). 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 $15.0 million and$14.1million as of* December 31, 2025and2024*, respectively. As of* December 31, 2025and2024*, 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 Topic820, Fair Value Measurements and Disclosures (“ASC820”), establishesthree levels of inputs that* maybe used to measure fair value. Level1* instrument valuations are obtained from real-time quotes for transactions in active exchange markets of the asset or identical assets. Level2 instrument valuations are obtained from readily available, observable pricing sources for comparable instruments. Level3 instrument valuations are obtained from unobservable inputs in which there is little orno 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 Level1 of the fair value hierarchy. We classify our available-for-sale debt securities including certificates of deposit and corporate bonds as having Level2 inputs. The valuation techniques used to measure the fair value of these financial instruments having Level2 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 wereno changes in valuation techniques or related inputs in the year ended* December 31, 2025*. There have beenno transfers between fair value measurement levels during the years ended* December 31, 2025and2024*.

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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 hedgesnot settled are netted in “Accrued liabilities” on the consolidated balance sheets and classified as Level3 assets and liabilities. As of* December 31, 2025*, 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.

As of* December 31, 2025and2024*, we didnot hold any financial assets or liabilities measured at fair value in accordance with ASC820.

Items Measured at Fair Value on a Nonrecurring Basis

Certain assets that are subject to nonrecurring fair value measurements arenot included in the table above. These assets include investments in privately held companies accounted for by equity and fair value method (See Note6). For the year ended* December 31, 2023,one of our PRC joint ventures assessedone 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. For the year ended December 31, 2024*, we hadno impairment charges. During the year ended* December 31, 2025*, we recognized gains from the fair value remeasurement of an equity investment of $163,000. In the same period,one of our PRC joint venture raw material companies assessedone of its equity investments was impaired, resulting in an impairment loss of $48,000.

Note 3. Inventories

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

As of* December 31, 2025and2024*, carrying values of inventories were net of inventory reserves of $28.4 million and $24.1 million, respectively, for excess and obsolete inventory and $180,000 and $73,000, respectively, for lower of cost or net realizable value reserves.

Note4. Related Party Transactions

In* September 2021and 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 2021and 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 2022and May 2022,ChaoYang XinMei received funding from Tongmei of $1.1 million and $0.8 million, respectively, as equity investments. In April 2022and 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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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.

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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,*2025 and2024, $0 million was included in “Prepaid expenses and other current assets” in our consolidated balance sheets.

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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 Note6 for further details.

Note 5. Property, Plant and Equipment, Net

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

As of* December 31, 2025*, the balance of construction in progress was $23.5 million, of which $18.3 million was related to our buildings in our Dingxing and Kazuo locations, $1.3 million was for manufacturing equipment purchasesnot yet placed in service and $3.8 million was from our construction in progress for our other consolidated subsidiaries. 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 purchasesnot yet placed in service and $4.3 million was from our construction in progress for our other consolidated subsidiaries.

Depreciation and amortization expense was $9.1 million, $9.0 million and $8.7 million for the years ended* December 31, 2025,*2024 and2023, 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):

• 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.*

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****** In preparation for Tongmei’s application for a listing of shares in an IPO on the STAR Market, in late* December 2020we 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. In2020,* 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 arenot* deemed to be dilutive until such approval is granted. The government approved the approximately $49 million investment in its entirety on* January 25, 2021at 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.

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

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

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***** In* April 2022,*Tongmei signed a joint venture agreement with certain investors to fund a new company, ChaoYang KaiMei.

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****** In* May 2023,we sold 15% of our equity investments in Jia Mei to athird* party, after which we began accounting for the investment under the fair value method. We sold the remaining 10% equity interest in* December 2025.*

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In* May 2023,we reduced our ownership in Jia Mei from 25% to 10% by selling a portion of our Jia Mei shares to athird* party for approximately $827,000. Considering our decreased ownership and that weno longer have significant influence over its operations and financial policies, we adopted the fair value method of accounting to report on the investment in Jia Mei. As 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. The Jia Mei investment is reviewed for other-than-temporary declines in value on a quarterly basis. In* May 2025,two unrelated investors entered into an agreement to invest approximately $360,000 each in Jia Mei, in exchange for an 8.9% ownership per investor. The signed agreement provided a marketbased indication of Jia Mei's fair value. Based on the signed agreement, we recorded an impairment charge of $145,000 for Jia Mei investment. In August 2025,the May 2025transaction was registered and as a result, our ownership interest in Jia Mei was reduced to 7.1% as of September 30, 2025.At the end of September 2025,we recognized a gain of $296,000, reflecting an increase in the estimated fair value of the investment based on an offer from another unrelated buyer to purchase our shares in Jia Mei. In December 2025,*we sold our remaining interest in Jia Mei, resulting in a gain of $12,000 due to foreign currency exchange rate changes.

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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 andnot 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 arenot consolidated, the investment balances are included in “Other assets” in our consolidated balance sheets and totaled $15.0 million and $14.1 million as of* December 31, 2025and2024*, respectively. Our respective ownership interests in ChaoYang KaiMei, JiYa, Xiaoyi XingAn and Jia Mei was 40%,39%,25%, and 0%, respectively. These minority investment entities arenot considered variable interest entities because:

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 a10% 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 isnot 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 wouldnot be paid.

For the years ended* December 31, 2025,2024 and2023, 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 $0.9 million, $2.4 million and $4.3 million, respectively. In April 2023,Xiaoyi XingAn distributed a dividend of $1.8 million to us. Additionally, in both April 2023and November 2023,JiYa distributed dividends to us, totaling $2.0 million and $0.5 million, respectively. In May 2024and November 2024,we received a dividend of $2.1 million from Xiaoyi XingAn and $0.3 million from JiYa, respectively. In April 2025,JiYa distributed dividends to us, totaling $0.9 million. For the years ended December 31, 2025and2024*, there wereno dividends paid to minority shareholders by our PRC subsidiaries or PRC raw material joint ventures.

AXT’s minority investment entities arenot 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, 2025,*2024 and2023, respectively: (The2023 income information includes results of Jia Mei forQ1 andQ2.)

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These minority investment entities that arenot consolidated, but rather are accounted for under the equity method, had the following summarized balance sheet information (in thousands) as of* December 31, 2025and2024*, respectively:

Our portion of the income and losses, including impairment charges, from these minority investment entities that arenot consolidated and are accounted for under the equity method was an income of $0.6 million, $3.4 million and $1.9 million for the years ended* December 31, 2025,2024 and2023, respectively. Undistributed retained earnings relating to our investments in these minority investment entities amounted to $8.0 million and $9.2 million as of December 31, 2025and2024*, respectively.

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Note7. Balance Sheets Details

Other Assets

The components of other assets are summarized below (in thousands):

Accrued Liabilities

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

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Note 8. Bank Loans and Line of Credit

Our bank loans and credit facilities, which are entered into by our subsidiaries, typically have a term of12 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, 2025and2024* (in thousands, except interest rate data):

Collateral for the above bank loans and line of credit

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Long-term Loans

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On* January 30, 2024,the Company secured a new line of credit amounting to $9.7 million, structured as afive-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, 2025*, $4.7 million is included in “Other long-term liabilities” and $0.7 million is included in “Short-term loans” in our consolidated balance sheets.

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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 the30-month contractual period, ChaoYang XinMei holds the option to repurchase the production line and related equipment for $14.00. As of December 31, 2025*, $0.6 million is included in “Short-term loans” in our consolidated balance sheets.

In* February 2025,the Company secured afourteen-month unsecured bank loan totaling $2.7 million at an interest rate of 3.2%. As of December 31, 2025*, $2.7 million is included in “Short-term loans” in our condensed consolidated balance sheets.

In* Septemberand November 2025,the Company entered into afour-year bank loan totaling $0.7 million at an interest rate of 3.1%. The loan is secured by the real estate properties owned by JinMei. As of December 31, 2025*, $0.5 million is included in “Other long-term liabilities” and $0.2 million is included in “Short-term loans” in our condensed consolidated balance sheets.

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As of* December 31, 2025*, the maturities of our long-term loan liabilities infive years (including current portion) are as follows (in thousands):

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In summary, short-term loans of $62.8 million included under “Short-term loans” in our consolidated balance sheet at* December 31, 2025*, consisted of $58.5 million of short-term bank loans and $4.3 million of the current portion of long-term debt. Long-term loans of $5.2 million included under “Other long-term liabilities” in our consolidated balance sheet at* December 31, 2025*.

Note9. 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, 2025and2024*, 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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Changes in AXT, Inc.’s ownership interests in consolidated subsidiaries

During2025 and2024, there wereno changes in the Company’s ownership interests in its consolidated subsidiaries that affected the Company’s equity.

Stock Repurchase Program

On* October 27, 2014,our Board of Directors approved a stock repurchase program pursuant to which we mayrepurchase 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. During2015,* 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 during2025,2024 and2023 under this program. As of* December 31, 2025*, 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. During2013 and2015, 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. In2025*,2024 and2023, we didnot 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.

Note10. Employee Benefit Plans and Stock-based Compensation

Stock Option Plans and Equity Incentive Plans

In* May 2007,our stockholders approved our2007* Equity Incentive Plan (the*“2007* Plan”), which provides for the grant of incentive and non-qualified stock options to our employees, consultants and directors. The2007 Plan is a restatement of the1997 Stock Option Plan which expired in2007. The 1,928,994 share reserve of the1997 Stock Option Plan became the reserve of the2007 Plan, together with 1,300,000 additional shares approved for issuance under the2007 Plan. In* May 2013,the stockholders approved an additional 2,000,000 shares to be issued under the2007* plan. Awards* maybe made under the2007* 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 the2007 Plan* maynot* be repriced without stockholder approval. Stock options and stock appreciation rights* maynot* be granted below fair market value. Stock options or stock appreciation rights generally shallnot 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 shallnot vest faster than over athree-year period (or atwelve-month period if vesting is based on a performance measure). In* December 2008,the2007* Plan was amended to comply with the applicable requirements under Section409A of the Internal Revenue Code.

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In* May 2015,our stockholders approved our2015* Equity Incentive Plan (the*“2015* Plan”). The2015 Plan is a replacement of the2007 Plan. The 399,562 share reserve of the2007 Plan became the reserve of the2015 Plan, together with 3,000,000 additional shares approved for issuance under the2015 Plan. In* May 2019,our stockholders approved 1,600,000 of additional shares for issuance under the2015* Plan. In* May 2021,our stockholders approved 3,600,000 of additional shares for issuance under the2015* Plan. In* May 2024,our stockholders approved 3,600,000 of additional shares for issuance under the2015* Plan. In* May 2025,our stockholders approved our2025* Equity Incentive Plan (the*“2025* Plan”). The2025 Plan is a replacement of the2015 Plan, which expired on* April 1, 2025.The2015* Plan will continue to govern the awards granted under that Plan. The 4,313,156 share reserve of the2015 Plan became the reserve of the2025 Plan. Awards that* maybe made under the2015* 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 the2025 Plan* maynot* be repriced without stockholder approval. Stock options and stock appreciation rights* maynot* be granted below fair market value. Stock options or stock appreciation rights generally shallnot 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 shallnot vest faster than over athree-year period (or atwelve-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 inone year and the2025 Plan does allow for similar vesting to employees. As of* December 31, 2025*, approximately 1.5 million shares were available for grant under the2025 Plan.

Stock Options

The following table summarizes the stock option transactions for each of the years ended* December 31,*2023,2024 and2025 (in thousands, except per share data):

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The options outstanding and exercisable as of* December 31, 2025* were in the following exercise price ranges (in thousands, except per share data):

There were 339,000,12,000 and 4,000 options exercised in the years ended* December 31, 2025,2024 and2023, respectively. The total intrinsic value of options exercised for the years ended December 31, 2025,*2024 and2023, was $1.6 million, $29,000 and $7,000, respectively.

As of* December 31, 2025*, the unamortized compensation costs related to unvested stock options granted to employees under our2015 and2025 Plans were $0. We didnot capitalize any stock-based compensation to inventory as of* December 31, 2025and2024*, as the amount was insignificant.

Restricted Stock Awards

A summary of activity related to restricted stock awards for the years ended* December 31, 2025,*2024 and2023 is presented below (in thousands, except per share data):

Total fair value of stock awards vested during the years ended* December 31, 2025,2024 and2023 was $2.7 million, $2.1 million and $2.3 million, respectively. As of December 31, 2025*, we had $6.9 million of unrecognized compensation expense related to restricted stock awards, which will be recognized over the weighted average period of 1.86 years.

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At-Risk, Performance Shares

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In* February 2022and2024* 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 isnot* recognized for at-risk, performance shares that donot vest because service or performance conditions arenot satisfied and any previously recognized compensation cost is reversed. At-risk, performance shares are eligible to receive dividend equivalents under the Company's2015 Equity Incentive Plan (the “Plan”), as determined by the Board of Directors. The Company will recognize forfeitures as they occur.

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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 2021is based upon year-end2020* actual results as compared to the Company’s year-end actual results in2021. The financial performance metric for the at-risk, performance shares issued in* February 2022is based upon year-end2021* actual results as compared to the Company’s year-end actual results in2022. The financial performance metrics for the at-risk, performance shares issued in* March 2023are based upon the Company’s year-end actual results in2023.* The financial performance metric for the at-risk, performance shares issued in* February 2024is based upon the Company’s year-end actual results in2024.* All performance shares, if earned, are still subject to annual vesting over afour-year period, except thatno shares are vested on thefirst anniversary because the performance measurement is based on year-end results for the year2021, 2022 and2023, respectively.

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The fair value of the at-risk, performance shares is determined based on the closing price of the Company’s common stock on thefirst 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 2021and2022* and* March 2023*was $15.37, $7.83 and $3.71, respectively.

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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 arenot* 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 year2022,* expressed as a percentage, was 2.7%. Therefore, none of the at-risk performance shares became eligible to vest.

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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 year2023* 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 year2023 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 year2023 isnot achieved, then these awards are forfeited. On* February 20, 2024,the Compensation Committee met and certified that the minimum revenue metric for fiscal year2023* wasnot achieved. Therefore, none of the at-risk performance shares became eligible to vest.

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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 year2024* 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 year2024 isnot 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 year2024,* expressed as a percentage, was 200%. Therefore, the maximum number of at-risk performance shares became eligible to vest.

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A summary of the status of our unvested at-risk, performance shares as of* December 31, 2025* is presented below (in thousands, except per share data):

*The number of share presented is based on achieving 195% 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

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As of* December 31, 2025*, there was $0.4 million of unrecognized compensation expense related to unvested at-risk, performance shares that is expected to be recognized over a weighted-average period of 1.6 years.

Common Stock

The following number of shares of common stock were reserved and available for future issuance as of* December 31, 2025* (in thousands, except per share data):

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Stock-based Compensation

We recorded $3.3 million, $3.1 million and $3.5 million of stock-based compensation in our consolidated statements of operations for the years ended* December 31, 2025,*2024 and2023, respectively. The following table summarizes compensation costs related to our stock-based compensation awards (in thousands, except per share data):

We estimate the fair value of stock options using a Black-Scholes option pricing model. There wereno stock options granted during2025,2024 and2023.

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 ofzero is based on the fact that we have never paid cash dividends and haveno 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 a401(k) Savings Plan (“Savings Plan”) which qualifies as a thrift plan under Section401(k) of the Internal Revenue Code. All full-time U.S. employees are eligible to participate in the Savings Plan after90 days from the date of hire. Employees* mayelect to reduce their current compensation by up to the statutory prescribed annual limit and have the amount of such reduction contributed to the401*(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 $178,000, $188,000 and $186,000 for the years ended* December 31, 2025,*2024 and2023, 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.

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Product Warranty

We provide warranties for our products for a specific period of time, generally twelve months, against material defects. We provide for the estimated future costs of warranty obligations in cost of sales when the related revenue is recognized. The accrued warranty costs represent the best estimate at the time of sale of the total costs that we expect to incur to repair or replace product parts that fail while still under warranty. The amount of accrued estimated warranty costs 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, during2025 and2024 (in thousands):

Note 12. Income Taxes

Consolidated loss before provision for income taxes was $21.5 million, $10.7 million and $19.0 million for the years ended* December 31, 2025,2024 and2023, respectively. We recorded a current and deferred tax provision of $1.7 million, $1.1 million, and $0.2 million for the years ended December 31, 2025,*2024 and2023, respectively. The components of the provision for income taxes are summarized below (in thousands):

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A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes after the adoption of ASU2023-09 is as follows:

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A reconciliation of the provision for income taxes at the federal statutory rate for the years ended* December 31, 2024and2023* in accordance with the guidance prior to the adoption of ASU2023-09 was as follows:

Net cash payments for income taxes, disaggregated by jurisdiction were as follows (in thousands):

Deferred tax assets and liabilities are summarized below (in thousands):

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As of* December 31, 2025* we have federal net operating loss (“NOL”) carryforwards of approximately $50.5 million, which will begin to expire in2026. We have California net operating loss carryforwards of approximately $0.1 million as of* December 31, 2025*, which will begin to expire in2040.

The deferred tax assets valuation allowance as of* December 31, 2025* 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. We also maintain full valuation allowances for certain foreign subsidiaries due to similar uncertainty regarding the realizability of their deferred tax assets. These factors include our history of losses related to domestic operations, and the lack of carryback capacity to realize deferred tax assets. These factors include our history of losses related to operations, and the lack of carryback capacity to realize deferred tax assets. AXT‑TM, our domestic subsidiary, along with certain foreign subsidiaries, maintains only a partial orno valuation allowance based on their respective assessments of realizability. The valuation allowance increased by $6.5 million and $3.3 million for the year ended* December 31, 2025and2024*, 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 $419,100, $348,000 and $47,000 for2025,2024 and2023, respectively. As of* December 31, 2025*, the favorable tax rate is still valid for the Company and it will stay the same for next year if there isno 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 in2019, 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 since2000. Benefits under the tax holidays vary by jurisdiction.

Utilization of the NOL and R&D credit carryforwards* maybe 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 Section382* of the Internal Revenue Code of1986 (“Section382”), as well as similar state provisions. Ownership changes* maylimit 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 Section382,* results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than50 percentage points over athree-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 Section382. Any limitation* mayresult in expiration of a portion of the NOL or research and development credit carryforwards before utilization. Subsequent ownership changes could further impact the limitation in future years. Until a Section382* study for the year-ended* December 31, 2025* 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 beno net impact to the consolidated balance sheets or statements of operations if an adjustment were required.

During fiscal year2025 and2024, the amount of gross unrecognized tax benefits was $1.1 million as of* December 31, 2025and2024*. 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 havenot 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 isno tax audit in any of the jurisdictions and we donot expect there will be any significant change to this.

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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.

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):

Note 14. Segment Information and Foreign Operations

Segment Information

We operate inone 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 Topic280, 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 inone 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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Product Information

The following table represents revenue amounts (in thousands) by product type:

Geographical Information

The following table represents revenue amounts (in thousands) reported for products shipped to customers in the corresponding geographic region:

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):

Note 15. Other income (expense), net

The components of other income (expense), net are summarized below (in thousands):

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Note 16. Commitments and Contingencies

Legal Proceedings

From time to time we* maybe involved in judicial or administrative proceedings concerning matters arising in the ordinary course of business. We donot* 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, 2021and April 3, 2024,inclusive (the “Class Period”). The amended complaint alleges violations of Sections10*(b) and20(a) of the Securities Exchange Act of1934, as amended (the “Exchange Act”), and Rule10b-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. On March 17, 2025,the Court granted our motion to dismiss, holding that the plaintiff didnot* make a pre-suit demand on our Board of Directors and failed to plead with particularity facts sufficient to excuse the lack of a demand and also for failure to state a claim. On* April 11, 2025,the plaintiff filed a notice that he didnot* intend to further amend his complaint. The Court entered judgment on* April 14, 2025.On May 13, 2025,*Plaintiffs appealed to the Court of Appeals for the Ninth Circuit, which the parties are currently briefing.

It isnot 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 in2020.* 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 areno 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 2019and will expire in July 2029.The facility, located in Tongzhou, China, has a lease effective from December 2024and expiring in November 2029.There areno variable lease payments, residual value guarantees or any restrictions or covenants imposed by these leases. All other operating leases have a term of12* months or less.

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Leases are classified as either finance leases or operating leases. A lease is classified as a finance lease if anyone 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 doesnot meet anyone of these criteria. All of our leases are classified as operating leases and substantially all of our operating leases are comprised of equipment and office space leases.None of our leases are classified as, finance leases.

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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.

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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.

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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 willnot be terminated early.

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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.

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We have electednot to recognize right-of-use assets and lease liabilities for short-term leases that have a term of12 months or less. The effect of short-term leases on our right-of-use asset and lease liability wasnot material.

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As of* December 31, 2025*, the maturities of our operating lease liabilities (excluding short-term leases) are as follows (in thousands):

The weighted average remaining lease term and the weighted-average discount rate for our operating leases are as follows:

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

The components of lease expense are as follows (in thousands) within our consolidated statements of operations:

Royalty Agreement

In2020, 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, 2020and expires on December 31, 2029.The Cross License Agreement is a fixed-cost cross license andnot* 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, 2025and2024*, the royalty expense under the Cross License Agreement wasnot considered material to our consolidated financial statements.

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Land Purchase and Investment Agreement

We have established a wafer process production line in Dingxing, China. In addition to a land rights and building purchase agreement that we entered into with a private real estate development company to acquire our new manufacturing facility, we also entered into a cooperation agreement with the Dingxing local government. In addition to pledging its full support and cooperation, the Dingxing local government will issue certain credits or rebates to us as we achieve certain milestones. We, in turn, agreed to hire local workers over time, pay taxes when due and eventually demonstrate a total investment of approximately $90 million in value, assets and capital. 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 of3-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 isno 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 isno 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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Note17. Redeemable Noncontrolling Interests

As discussed in Note1, 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 arenot* 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 donot* believe that this is probable thusno 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, isnot 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 2021and 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 willnot* 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, 2025and2024* are presented in the following table (in thousands):

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Note18. Subsequent Events

In* January 2026,*the Company placed a deposit of $8.0 million to secure a PRC bank loan obtained by its subsidiary. The deposit serves as collateral for the borrowing and is classified as restricted cash.