0
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
for the quarterly period ended
Or
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
for the transition period from to
Commission File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of | (I.R.S. Employer |
(Address of principal executive offices) (Zip code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: |
| Trading Symbol |
| Name of each exchange on which registered: |
The |
Indicate by check-mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check-mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check-mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ◻ | ||
Non-accelerated filer ◻ | Smaller reporting company | |
Emerging growth company |
If an emerging growth company, indicate by check-mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check-mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | Outstanding at May 1, 2023 | |
Common Stock, $0.001 par value |
AXT, INC.
FORM 10-Q
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
AXT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except per share data)
| March 31, |
| December 31, |
| |||
2023 | 2022 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | | $ | | |||
Restricted cash | | | |||||
Short-term investments |
| |
| | |||
Accounts receivable, net of allowances of $ |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Long-term investments |
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Property, plant and equipment, net |
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Operating lease right-of-use assets | | | |||||
Other assets |
| |
| | |||
Total assets | $ | | $ | | |||
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | | $ | | |||
Accrued liabilities |
| |
| | |||
Bank loans | | | |||||
Total current liabilities |
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Noncurrent operating lease liabilities | | | |||||
Other long-term liabilities |
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Total liabilities |
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Commitments and contingencies (Note 16) | |||||||
Redeemable noncontrolling interests (Note 18) | | | |||||
Stockholders’ equity: | |||||||
Preferred stock Series A, $ |
| |
| | |||
Common stock, $ |
| |
| | |||
Additional paid-in capital |
| |
| | |||
Accumulated deficit |
| ( |
| ( | |||
Accumulated other comprehensive loss |
| ( |
| ( | |||
Total AXT, Inc. stockholders’ equity |
| |
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Noncontrolling interests |
| |
| | |||
Total stockholders’ equity |
| |
| | |||
Total liabilities, redeemable noncontrolling interests and stockholders’ equity | $ | | $ | |
See accompanying notes to condensed consolidated financial statements.
3
ub
AXT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
| Three Months Ended |
| |||||||
March 31, | |||||||||
2023 |
| 2022 | |||||||
Revenue | $ | | $ | | |||||
Cost of revenue |
| |
| | |||||
Gross profit |
| |
| | |||||
Operating expenses: | |||||||||
Selling, general and administrative |
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Research and development |
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Total operating expenses |
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Income (loss) from operations |
| ( |
| | |||||
Interest expense, net |
| ( |
| ( | |||||
Equity in income of unconsolidated joint ventures |
| |
| | |||||
Other income (expense), net |
| |
| ( | |||||
Income (loss) before provision for income taxes |
| ( |
| | |||||
Provision for income taxes |
| |
| | |||||
Net income (loss) |
| ( |
| | |||||
Less: Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests |
| |
| ( | |||||
Net income (loss) attributable to AXT, Inc. | $ | ( | $ | | |||||
Net income (loss) attributable to AXT, Inc. per common share: | |||||||||
Basic | $ | ( | $ | | |||||
Diluted | $ | ( | $ | | |||||
Weighted-average number of common shares outstanding: | |||||||||
Basic |
| |
| | |||||
Diluted |
| |
| |
See accompanying notes to condensed consolidated financial statements.
4
AXT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in thousands)
Three Months Ended | ||||||||
March 31, | ||||||||
| 2023 |
| 2022 |
|
| |||
Net income (loss) | $ | ( | $ | | ||||
Other comprehensive income (loss), net of tax: | ||||||||
Change in foreign currency translation gain, net of tax |
| |
| | ||||
Change in unrealized gain (loss) on available-for-sale debt investments, net of tax |
| |
| ( | ||||
Total other comprehensive income, net of tax |
| |
| | ||||
Comprehensive income (loss) attributable to AXT, Inc. |
| ( |
| | ||||
Less: Comprehensive loss (income) attributable to noncontrolling interests and redeemable noncontrolling interests |
| |
| ( | ||||
Comprehensive income (loss) attributable to AXT, Inc. | $ | ( | $ | |
See accompanying notes to condensed consolidated financial statements.
5
AXT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended | |||||||
March 31, | |||||||
| 2023 |
| 2022 | ||||
Cash flows from operating activities: | |||||||
Net income (loss) | $ | ( | $ | | |||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | |||||||
Depreciation and amortization |
| |
| | |||
Amortization of marketable securities premium |
| |
| | |||
Stock-based compensation |
| |
| | |||
Loss on disposal of equipment |
| |
| | |||
Equity in income of unconsolidated joint ventures |
| ( |
| ( | |||
Deferred tax assets | ( | ( | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable |
| |
| ( | |||
Inventories |
| ( |
| ( | |||
Prepaid expenses and other current assets |
| |
| | |||
Other assets |
| ( |
| ( | |||
Accounts payable |
| ( |
| ( | |||
Accrued liabilities |
| ( |
| ( | |||
Other long-term liabilities, including royalties |
| ( |
| ( | |||
Net cash used in operating activities |
| ( |
| ( | |||
Cash flows from investing activities: | |||||||
Purchases of property, plant and equipment |
| ( |
| ( | |||
Proceeds from sales and maturities of available-for-sale debt securities |
| |
| — | |||
Net cash used in investing activities |
| ( |
| ( | |||
Cash flows from financing activities: | |||||||
Proceeds from common stock options exercised |
| |
| — | |||
Proceeds from bank loans |
| |
| | |||
Payments on bank loans | ( | ( | |||||
Proceeds from capital increase in subsidiary shares from noncontrolling interest | | — | |||||
Net cash provided by financing activities |
| |
| | |||
Effect of exchange rate changes on cash and cash equivalents, and restricted cash |
| |
| | |||
Net increase (decrease) in cash and cash equivalents, and restricted cash |
| |
| ( | |||
Cash and cash equivalents, and restricted cash at the beginning of the year |
| |
| | |||
Cash and cash equivalents, and restricted cash at the end of the period | $ | | $ | | |||
Supplemental disclosure of non-cash flow information: | |||||||
Conversion of related party borrowings to Additional Paid-in Capital | $ | — | $ | | |||
Investment in subsidiary shares from noncontrolling interest | $ | | $ | |
See accompanying notes to condensed consolidated financial statements.
6
AXT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying condensed consolidated financial statements of AXT, Inc. (“AXT,” the “Company,” “we,” “us,” and “our” refer to AXT, Inc. and all of its consolidated subsidiaries) are unaudited, and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, this interim quarterly financial report does not include all disclosures required by U.S. GAAP. In the opinion of our management, the unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, considered necessary to present fairly the financial position, results of operations and cash flows of AXT and our consolidated subsidiaries for all periods presented.
Our management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these condensed consolidated financial statements in conformity with U.S. GAAP. Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. These estimates and assumptions may change as new events occur and additional information is obtained. Actual results could differ materially from those estimates.
The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected in the future or for the full fiscal year. It is recommended that these condensed consolidated financial statements be read in conjunction with our consolidated financial statements and the notes thereto included in our 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2023.
The condensed consolidated financial statements include the accounts of AXT, and our consolidated subsidiaries, Beijing Tongmei Xtal Technology Co., Ltd. (“Tongmei”), AXT-Tongmei, Inc. (“AXT-Tongmei”), Baoding Tongmei Xtal Technology Co., Ltd. (“Baoding Tongmei”), ChaoYang Tongmei Xtal Technology Co., Ltd. (“ChaoYang Tongmei”), ChaoYang LiMei Semiconductor Technology Co., Ltd. (“ChaoYang LiMei”), ChaoYang XinMei High Purity Semiconductor Materials Co., Ltd. (“ChaoYang XinMei”), Nanjing JinMei Gallium Co., Ltd. (“JinMei”), ChaoYang JinMei Gallium Ltd. (“ChaoYang JinMei”), ChaoYang ShuoMei High Purity Semiconductor Materials Co., Ltd. (“ChaoYang ShuoMei”), MaAnShan JinMei Gallium Ltd., (“MaAnShan JinMei”) and Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd. (“BoYu”). All significant inter-company accounts and transactions have been eliminated. Investments in business entities in which we do not have controlling interests, but have the ability to exercise significant influence over operating and financial policies (generally 20-50% ownership), are accounted for by the equity method. As of March 31, 2023 and December 31, 2022, we have
When market conditions are warranted, we intend to construct facilities at the ChaoYang LiMei location to provide us with additional production capacity. For the three months ended March 31, 2023, expenses associated with ChaoYang LiMei had a de minimis impact on our condensed consolidated financial statements.
In February 2021, Tongmei signed a joint venture agreement with certain investors to fund a new company, ChaoYang XinMei. The agreement called for a total investment of approximately $
7
2022, ChaoYang XinMei received funding from Tongmei of $
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 $
In April 2022, Tongmei signed a joint venture agreement with certain investors to fund a new company, ChaoYang KaiMei Quartz Co., Ltd (“ChaoYang KaiMei”). The agreement called for a total investment of approximately $
All activities for MaAnShan JinMei ceased during the first half of 2022 and the subsidiary was subsequently dissolved in May 2022. The dissolution of MaAnShan JinMei had a de minimis impact on the condensed consolidated results.
During the quarter ended December 31, 2020, Tongmei entered into two sets of definitive transaction documents, each consisting of a capital increase agreement along with certain supplemental agreements in substantially the same form (collectively, the “Capital Investment Agreements”), with several private equity investors in China.
In preparation for Tongmei’s application for a listing of shares in an initial public offering (the “IPO”) on the Shanghai Stock Exchange’s Sci-Tech innovAtion boaRd (the “STAR Market”), in late December 2020, we reorganized our entity structures in China. JinMei and BoYu and 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
8
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 $
Note 2. Investments and Fair Value Measurements
Our cash and cash equivalents consist of cash and instruments with original maturities of less than three months. Our investments consist of instruments with original maturities of more than three months.
March 31, 2023 | December 31, 2022 |
| |||||||||||||||||||||||
|
| Gross |
| Gross |
|
|
| Gross |
| Gross |
|
| |||||||||||||
Amortized | Unrealized | Unrealized | Fair | Amortized | Unrealized | Unrealized | Fair |
| |||||||||||||||||
| Cost |
| Gain |
| (Loss) |
| Value |
| Cost |
| Gain |
| (Loss) |
| Value |
| |||||||||
Classified as: | |||||||||||||||||||||||||
Cash and restricted cash | $ | | $ | — | $ | — | $ | | $ | | $ | — | $ | — | $ | | |||||||||
Cash equivalents: | |||||||||||||||||||||||||
Certificates of deposit 1 | — | — | — | — | — | — | — | — | |||||||||||||||||
Total cash, restricted cash and cash equivalents |
| |
| — |
| — |
| |
| |
| — |
| — |
| | |||||||||
Investments (available-for-sale): | |||||||||||||||||||||||||
Certificates of deposit 2 |
| |
| — | ( |
| |
| |
| — | ( |
| | |||||||||||
Corporate bonds |
| |
| — |
| ( |
| |
| |
| — |
| ( |
| | |||||||||
Total investments |
| |
| — |
| ( |
| |
| |
| — |
| ( |
| | |||||||||
Total cash, restricted cash, cash equivalents and investments | $ | | $ | — | $ | ( | $ | | $ | | $ | — | $ | ( | $ | | |||||||||
Contractual maturities on investments: | |||||||||||||||||||||||||
Due within 1 year 3 | $ | | $ | | $ | | $ | | |||||||||||||||||
Due after 1 through 5 years 4 |
| |
| |
| |
| | |||||||||||||||||
$ | | $ | | $ | | $ | |
1. | Certificates of deposit with original maturities of less than three months. |
2. | Certificates of deposit with original maturities of more than three months. |
3. | Classified as “Short-term investments” in our condensed consolidated balance sheets. |
4. | Classified as “Long-term investments” in our condensed consolidated balance sheets. |
We manage our debt investments as a single portfolio of highly marketable securities that is intended to be available to meet our current cash requirements. Certificates of deposit and corporate bonds are typically held until maturity.
Historically, the gross unrealized losses related to our portfolio of available-for-sale debt securities were immaterial, and primarily due to normal market fluctuations and not due to increased credit risk or other valuation concerns. There was an insignificant amount of gross unrealized losses on our available-for-sale debt securities as of March 31, 2023, and historically, such gross unrealized losses have been temporary in nature and we believe that it is probable the principal and interest will be collected in accordance with the contractual terms. We review our debt investment portfolio at least quarterly, or when there are changes in credit risks or other potential valuation concerns, to identify and evaluate whether an allowance for credit losses or impairment would be necessary. Factors considered in determining whether a loss is temporary include the magnitude of the decline in market value, the length of time the market value has been below cost (or adjusted cost), credit quality, and our ability and intent to hold the securities for a period of time sufficient to allow for any anticipated recovery in market value.
9
The following table summarizes the fair value and gross unrealized losses related to available-for-sale debt securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2023 (in thousands):
In Loss Position | In Loss Position | Total In |
| ||||||||||||||||
< 12 months | > 12 months | Loss Position |
| ||||||||||||||||
Gross | Gross | Gross |
| ||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized |
| |||||||||||||
As of March 31, 2023 |
| Value |
| (Losses) |
| Value |
| (Losses) |
| Value |
| (Losses) |
| ||||||
Investments: | |||||||||||||||||||
Certificates of deposit | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( | |||||||
Corporate bonds |
| — |
| — |
| |
| ( |
| | ( | ||||||||
Total in loss position | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( |
The following table summarizes the fair value and gross unrealized losses related to available-for-sale debt securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2022 (in thousands):
In Loss Position | In Loss Position | Total In |
| ||||||||||||||||
< 12 months | > 12 months | Loss Position |
| ||||||||||||||||
|
|
| Gross |
|
|
| Gross |
|
|
| Gross |
| |||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized |
| |||||||||||||
As of December 31, 2022 | Value | (Loss) | Value | (Loss) | Value | (Loss) |
| ||||||||||||
Investments: | |||||||||||||||||||
Certificates of deposit | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( | |||||||
Corporate bonds |
| — |
| — |
| |
| ( |
| | ( | ||||||||
Total in loss position | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( |
Restricted Cash
We maintain restricted cash in connection with cash balances temporarily restricted for regular business operations. In May 2022, Tongmei and the Bank of Beijing signed a credit facility for $
Investments in Privately-held Raw Material Companies
We have made strategic investments in private companies located in China in order to gain access at a competitive cost to raw materials that are critical to our substrate business (see Note 7). The investment balances for the non-consolidated companies are accounted for under the equity method and included in “Other assets” in the condensed consolidated balance sheets and totaled $
10
Fair Value Measurements
We invest primarily in money market accounts, certificates of deposits, corporate bonds and notes, and government securities. We review our debt investment portfolio for credit loss at least quarterly or when there are changes in credit risk or other potential valuation concerns. As of March 31, 2023 and December 31, 2022, the total unrealized loss, net of tax, included in accumulated other comprehensive income was immaterial. We believe it is probable the principal and interest will be collected in accordance with the contractual terms, and the unrealized loss on these securities was due to normal market fluctuations, and not due to increased credit risk or other valuation concerns. Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), establishes three levels of inputs that may be used to measure fair value. Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets of the asset or identical assets. Level 2 instrument valuations are obtained from readily-available, observable pricing sources for comparable instruments. Level 3 instrument valuations are obtained from unobservable inputs in which there is little or no market data, which require us to develop our own assumptions. On a recurring basis, we measure certain financial assets and liabilities at fair value, primarily consisting of our short-term and long-term debt investments.
The type of instrument valued based on quoted market prices in active markets include our money market funds, which are generally classified within Level 1 of the fair value hierarchy. We classify our available-for-sale debt securities including certificates of deposit and corporate bonds as having Level 2 inputs. The valuation techniques used to measure the fair value of these financial instruments having Level 2 inputs were derived from bank statements, quoted market prices, broker or dealer statements or quotations, or alternative pricing sources with reasonable levels of price transparency.
We place short-term foreign currency hedges that are intended to offset the potential cash exposure related to fluctuations in the exchange rate between the United States dollar and Japanese yen. We measure the fair value of these foreign currency hedges at each month end and quarter end using current exchange rates and in accordance with U.S. GAAP. At quarter end, any foreign currency hedges not settled are netted in “Accrued liabilities” on the condensed consolidated balance sheet and classified as Level 3 assets and liabilities. As of March 31, 2023, the net change in fair value from the placement of the hedge to settlement at each month end during the quarter had a de minimis impact on the condensed consolidated results. There were no changes in valuation techniques or related inputs in the three months ended March 31, 2023. There have been
The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis in accordance with ASC 820 as of March 31, 2023 (in thousands):
|
| Quoted Prices in |
| Significant |
| ||||||||
Active Markets of | Significant Other | Unobservable |
| ||||||||||
Balance as of | Identical Assets | Observable Inputs | Inputs |
| |||||||||
| March 31, 2023 |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| |||||
Assets: | |||||||||||||
Investments: | |||||||||||||
Certificates of deposit | $ | | $ | — | $ | | $ | — | |||||
Corporate bonds |
| |
| — |
| |
| — | |||||
Total | $ | | $ | — | $ | | $ | — |
11
The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis in accordance with ASC 820 as of December 31, 2022 (in thousands):
|
| Quoted Prices in |
| Significant |
| ||||||||
Active Markets of | Significant Other | Unobservable |
| ||||||||||
Balance as of | Identical Assets | Observable Inputs | Inputs |
| |||||||||
| December 31, 2022 |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| |||||
Assets: | |||||||||||||
Investments: | |||||||||||||
Certificates of deposit | $ | | $ | — | $ | | $ | — | |||||
Corporate bonds |
| |
| — |
| |
| — | |||||
Total | $ | | $ | — | $ | | $ | — |
Items Measured at Fair Value on a Nonrecurring Basis
Certain assets that are subject to nonrecurring fair value measurements are not included in the table above. These assets include investments in privately-held companies accounted for by the equity or cost method (see Note 7). We did not record any other-than-temporary impairment charges for these investments during the three months ended March 31, 2023 and 2022, respectively.
Note 3. Inventories
The components of inventories are summarized below (in thousands):
March 31, | December 31, | ||||||
| 2023 |
| 2022 |
| |||
Inventories: | |||||||
Raw materials | $ | | $ | | |||
Work in process |
| |
| | |||
Finished goods |
| |
| | |||
$ | | $ | |
As of March 31, 2023 and December 31, 2022, carrying values of inventories were net of inventory reserves of $
Note 4. Property, Plant and Equipment, Net
The components of our property, plant and equipment are summarized below (in thousands):
March 31, | December 31, | ||||||
2023 | 2022 | ||||||
Property, plant and equipment: | |||||||
Machinery and equipment, at cost | $ | | $ | | |||
Less: accumulated depreciation and amortization | ( | ( | |||||
Building, at cost | | | |||||
Less: accumulated depreciation and amortization | ( | ( | |||||
Leasehold improvements, at cost |
| |
| | |||
Less: accumulated depreciation and amortization | ( | ( | |||||
Construction in progress |
| |
| | |||
$ | | $ | |
As of March 31, 2023, the balance of construction in progress was $
12
subsidiaries. As of December 31, 2022, the balance of construction in progress was $
Note 5. Accrued Liabilities
The components of accrued liabilities are summarized below (in thousands):
March 31, | December 31, | ||||||
| 2023 |
| 2022 |
| |||
Accrued compensation and related charges | $ | | $ | | |||
Preferred stock dividends payable | | | |||||
Advances from customers | | | |||||
Accrued product warranty | | | |||||
Other tax payable |