Exhibit 99.1

​

​

​

​

​

Beijing Tongmei Xtal Technology Co., Ltd.

​

No. 2, East 2^nd Street, Tongzhou Industrial Development Zone, Beijing

​

​

Prospectus

​

in respect of

​

Initial Public Offering and STAR Market Listing of Shares

​

(For filing purpose)

​

​

Sponsor (Lead Underwriter)

​

​

(No. 689, Guangdong Road, Shanghai)

​

​

​

​

Statement of the Issuer

Any decision or comment made by the China Securities Regulatory Commission or the Shanghai Stock Exchange shall not constitute their guarantee for the truthfulness, accuracy and completeness of the registration documents and the information disclosed therein, or any substantial judgment or guarantee made by them regarding the profitability and investment value of the Issuer or the investors’ return on investment. Any representation to the contrary is a fraudulent misrepresentation.

According to the Securities Law, after the offering of the shares according to law, the Issuer shall be solely responsible for any changes in its business and earnings, and the investors shall judge the Issuer’s investment value and make investment decisions in their sole discretion, and solely assume the investment risks arising from any changes in the Issuer’s business and earnings or the fluctuations in the price of the shares.

The Issuer and its directors, supervisors and executives covenant that this Prospectus and other relevant information disclosures are free from any misrepresentation, misleading statement or material omission, and agree to assume joint and several liabilities for the truthfulness, accuracy and completeness of this Prospectus and other relevant information disclosures.

The controlling shareholder of the Issuer covenants that this Prospectus is free from any misrepresentation, misleading statement or material omission, and agree to assume joint and several liabilities for the truthfulness, accuracy and completeness of this Prospectus.

The principal, chief financial officer and financial director of the Issuer warrant that the financial and accounting information contained in this Prospectus is true and complete.

The Issuer and its directors, supervisors, executives and controlling shareholder, the Sponsor and the relevant underwriting securities companies undertake to indemnify the investors according to law for the losses incurred in the offering of and transactions in the securities issued by the Issuer due to any misrepresentation, misleading statement or material omission in this Prospectus and other relevant information disclosures of the Issuer.

​

1-1-1

​

​

The Sponsor and the relevant securities service providers undertake to indemnify the investors according to law for the losses incurred due to any misrepresentation, misleading statement or material omission in the documents produced and provided by them in connection with this Offering.

​

​

1-1-2

​

​

1-1-3

​

​

Significant Matters

We hereby advise the investors to carefully read this Prospectus in its entirety and pay special attention to the significant matters set out below, before making an investment decision.

I.Our controlling shareholder, AXT, is a company listed on the NASDAQ

Our controlling shareholder, AXT, was listed on the NASDAQ in May 1998. AXT does not conduct any business other than research, development, production and sale of InP substrates, GaAs substrates, germanium substrates, PBN and other high-purity materials through Beijing Tongmei. Therefore, through this Offering, AXT will spin off its major assets and all businesses and list the same on the STAR Market.

According to the legal opinion in respect of AXT issued by the foreign attorney, this Offering application has been approved and authorized by the board of directors of AXT. This Offering by Beijing Tongmei has been disclosed by AXT in the relevant document submitted to the U.S. Securities and Exchange Commission (“SEC”), and does not require any applicable authorization, consent, approval or action of, notice to, or filing or completion of other procedures with, any government or regulatory authority of the State of Delaware having jurisdiction over AXT, the NASDAQ or the SEC.

II.We hereby advise the investors to pay special attention to the risk factors described below

(I)We and our controlling shareholder AXT are listed on the STAR Market and the NASDAQ respectively

After the completion of this Offering of A-shares, we and our controlling shareholder AXT will be listed on the STAR Market and the NASDAQ respectively, which means that we and AXT need to comply with the laws and rules and listing-related regulatory requirements of both U.S.A. and China, and disclose the information required to be publicly disclosed

​

1-1-4

​

according to law concurrently in U.S.A. and China.

Due to the differences between U.S.A. and China in the applicable laws, rules and regulatory philosophies, we and AXT are subject to different accounting standards and different regulatory requirements, including different requirements for certain accounting treatment and disclosure of financial information. In addition, due to the differences between U.S.A. and China in the requirements of securities regulatory authorities for information disclosure by the listed companies, language, culture and expression habits, composition and investment philosophies of investors, and actual situations of capital market, our stock price on the STAR Market may be different from the stock price of AXT on the NASDAQ. Such differences and the fluctuations in the stock price of AXT on the NASDA may affect our stock price on the STAR Market.

(II)Risks related to technological upgrading

In the development of semiconductor materials, along with the breakthrough in the technology of silicon-based materials, GaAs substrates might be replaced by SOI (silicon on insulator) wafers in RF devices and other fields of application. SOI wafers have certain performance advantages over silicon substrates. Though the RF devices produced using SOI wafers are inferior to the products using GaAs substrates in terms of power consumption, radiation and transmission speed, their cost is lower than that of GaAs substrates, so SOI wafers have replaced GaAs substrates in smart phones and other fields of application. If SOI wafers and other new-type substrate products become more cost effective and receive wide recognition on the market, or are used in more application scenarios, the scope of application of III-V compound semiconductor substrates will be reduced, which may have an adverse effect on our business and results of operation.

(III)Risks related to market competition

The industry in which we operate have a relatively high market concentration, and our III-V compound semiconductor substrate and germanium substrate products directly compete with the products of Sumotimo, JX Nippon, Freiberger, Umicore and other advanced international

​

1-1-5

​

companies that have strong R&D capabilities, know-how, distribution channels and market reputations, and may develop more advanced technologies and launch more competitive products. In addition, such competitors own core technologies similar to the VGF technology owned by us.

Along with the continuous growth of the semiconductor terminal application market in the Chinese Mainland, the market of compound semiconductor materials develops rapidly, and a lot of new III-V compound semiconductor material projects have been built, which make us face competitions from both advanced international companies and new players in China, and may result in a decrease in our product prices. If we are unable to effectively cope with such competitions, our operating revenues, results of operation and financial condition may be affected adversely.

(IV)Risk of reliance on the suppliers of certain critical raw materials and fluctuations in the raw material prices

The main raw materials required by us in production include gallium, germanium ingot, quartz, high-purity arsenic, indium phosphide polycrystalline and boron trichloride. The costs of raw materials constitute a large proportion in our production costs, and the fluctuations in the raw material prices could affect our results of operation. We generally place orders to purchase such main raw materials, but the suppliers may be unable to guarantee the long-term and stable supply of the relevant raw materials to us. Failure of the suppliers to provide the raw materials normally may affect our production and operation, and cause us to be unable to deliver products on schedule. Delay in providing the raw materials by the suppliers may result in an increase in our production costs, delay in production or reduction of output, which may, in turn, have an adverse effect on our revenues and results of operation.

(V)Risk of loss of key personnel

The semiconductor materials industry in which we operate is a highly technology intensive industry and requires a large number of professionals, in particular, R&D personnel and outstanding management personnel. Along with the continuous growth of market demands

​

1-1-6

​

and increasingly fierce competition in the industry, the semiconductor materials industry faces increasingly fierce competition for technical professionals. If we are unable to provide a better development platform, more competitive remunerations and friendly R&D conditions, our key personnel may leave us, which may have an adverse effect on our business.

(VI)Risk of disclosure of core technologies

Through years of technology research and development and accumulation, we now own series of proprietary intellectual properties and know-how. Though we attach great importance to the protection of core technologies, our intellectual properties and know-how may be disclosed due to failure of our or our suppliers’ network security systems to prevent unauthorized accesses and complicated web attacks, or improper handling of sensitive data by our employees or suppliers or otherwise, which may seriously damage our reputation and competitiveness, and in turn have an adverse effect on our business development and results of operation.

(VII)Risk of changes in industry regulatory policies

We mainly operate in the Chinese Mainland, so we need to comply with the laws and regulations of the Chinese Mainland relating to work safety, environmental protection and use of hazardous chemicals, among others, in our production and operation. In 2015, the State Administration of Work Safety (“SAWS”) included GaAs in the list of hazardous chemicals. The increasingly strict industry regulatory policies require us to enhance production management, to ensure our production and operations comply with the applicable laws and regulations. If we and our subsidiaries fail to comply with the applicable laws and regulations, we may be required to assume material liabilities in connection with disposal of hazardous wastes, personal injuries or administrative penalties, or suspend certain business, which may have a material adverse effect on our business, financial condition and results of operation.

​

1-1-7

​

III.Business situation from the date of audited financial report till the date of this Prospectus

The date of our audited financial report is June 30, 2021. From the date of audited financial report till the date of this Prospectus, our business has run well, our mode of business, volume and prices of main raw materials purchased, revenues, selling prices of products, and composition of customers and suppliers have not undergone any material change, and our overall business environment has not undergone any material adverse change.

​

​

1-1-8

​

1-1-9

​

​

​

​

1-1-10

​

​

​

​

1-1-11

​

​

​

​

​

1-1-12

​

1-1-13

​

​

1-1-14

​

​

​

​

1-1-15

​

​

1-1-16

​

​

​

​

1-1-17

​

​

1-1-18

​

​

​

​

1-1-19

​

​

1-1-20

​

​

​

​

1-1-21

​

​

​

​

1-1-22

​

​

​

Due to the effect of rounding off, certain aggregate amounts in this Prospectus may be different from the sums of the relevant addends, in the part of odd amounts.

​

​

1-1-23

​

Section II Overview

This overview briefs the content of this Prospectus. The investors are advised to carefully read this Prospectus in its entirety before making an investment decision.

II.Particulars of this Offering

​

​

​

1-1-24

​

​

1-1-25

​

​

III.Main financial data and financial metrics of the Issuer during the reporting period

1-1-26

​

​

​

IV.Main business of the Issuer

We are a well-known global semiconductor material technology company mainly engaged in the research, development, production and sale of InP substrates, GaAs substrates, germanium substrates, PBN and other high-purity materials. Our InP substrate, GaAs substrate and germanium substrate materials can be used for the production of FR devices, optical modules, LEDs (including Mini LEDs and Micro LEDs), lasers, detectors, sensors, space solar cells and other devices, and are widely applied in 5G communication, data center, new-generation display, artificial intelligence, driverless car, wearable device, aerospace and other fields. Our PBN and other high-purity materials guarantee the supply of high-quality raw materials for our semiconductor substrate products from the source, and are widely used in compound semiconductor, OLED, LED and other industries.

We are based in China and serve the world. Our products have been recognized by a large number of domestic and foreign customers and we have cooperated with many well-known companies closely for years. Our main customers are companies listed in U.S.A., Europe, the Chinese Mainland and Taiwan, including without limitation Osram, Customer C, IQE, II-VI, Meta, Qorvo, IPG, Skyworks, Broadcom, Customer A, Customer B, Win Semiconductor, Landmark Optoelectronics, Visual Photonics Epitaxy, San’an Optoelectronics, Everbright Photonics and other specialized epilayer manufacturers, fabs, chip and device manufacturers. In addition, the Chinese Academy of Sciences, the Massachusetts Institute of Technology, the California Institute of Technology, the Peking University, the University of Science and Technology of China, the Shanghai Jiao Tong University, the Xiamen University and other well-known domestic and foreign research institutes and universities also purchase our semiconductor material products for use in education and academic researches.

​

1-1-27

​

Below are our well-known downstream customers in different fields:

​

​

The following table sets forth the components of our revenues from main business by product for the reporting period:

1-1-28

​

​

*Including processing of supplied materials, precise crucible regeneration services, etc.

(II)Competitive position

At present, we and our main competitors, Sumitomo, JX Nippon and Freiberger, are tier 1 companies in the global III-V compound semiconductor material industry. Along with the shift of the semiconductor industry chain to the Chinese Mainland and increasing maturity of domestic 5G communication, data center, new-generation display and other downstream industries, we are expected to grasp the development opportunities on the emerging market during the new industry cycle, and grow into a global leading company in the field of III-V compound semiconductor substrate materials.

Our competitive position is reflected in the following aspects:

In terms of market share, according to Yole, our market share in the global InP substrate market was 36%, ranked No.2 in the world, in 2020; and our market share in the global GaAs substrate market was 13%, ranked No.4 in the world, in 2019.

In terms of product performance, our semiconductor substrate products demonstrate excellent performance in dislocation density, resistivity uniformity, flatness and surface granularity, among others, and can satisfy the requirements of 5G RF power amplifiers, Mini LEDs, Micro LEDs, wearable sensors, vehicle-mounted lidars, biometric lasers and other high-end markets for the performance of semiconductor substrate materials. We are one of the few companies in the world whose products can be used on high-end III-V compound semiconductor substrates.

In terms of product size, we are one of the few companies in the world that master the production technology of 8-inch GaAs substrates and 6-inch InP substrates. As 5G communication, new-generation display and other fields of downstream application enter a new investment cycle, the newly built production lines of downstream customers are very likely to shift to large sizes. Therefore, the companies capable to supply large-sized III-V

​

1-1-29

​

compound semiconductor substrates are expected to have first-mover advantages in the new industry cycle.

In terms of supply chain, we have basically built a complete supply chain for III-V compound semiconductor substrates, which help us ensure more reliable supply of all critical raw materials, effectively control time of production and delivery, and stabilize our production costs. In the context that we are increasing our production capacity, we have a remarkable advantage in supply chain.

V.Technological advancement, commercialization of technologies developed and future development strategies of the Issuer

After years of continuous research, development and production practice, we have accumulated strong technologies and processes. We have mastered synthesis of GaAs poly-crystals, VGF growth of semi-insulator GaAs single crystals and carbon doping control, VGF growth of semiconductor GaAs single crystals and uniform doping control, VGF growth of high-quality germanium single crystals and doping control, VGF growth of high-quality InP single crystals and doping control, partial crystallization at longitudinal temperature gradients, chemical vapor deposition of PBN and other core technologies, and formed a complete and independent technology system in the global III-V compound semiconductor material industry.

As of September 30, 2021, we own 51 patents for invention. While applying for intellectual property rights at home and abroad, according to the different types of core technologies, we keep our formula and process-related know-how in strict confidence, and prevent the disclosure of know-how due to publication of patents. We have been named as a specilzed, refinement, characteristic and novelty small and medium-sized enterprise, national post-doctoral research center, Beijing scientific research and development institution and one of the 13^th group of municipal enterprise technology centers of Beijing, and have got other qualifications and awards.

Our development goal is to grow into a global leading company in the field of III-V compound semiconductor substrate materials. In order to achieve such development goal, we

​

1-1-30

​

have developed clear development strategies: first, to increase the production capacity for the existing products, in the context of continuous growth of the market, our production capacity is lower than our main competitors, which put us in an adverse competitive position, so we urgently need to improve our supply capability; second, to accelerate the development of production capacity for large-sized substrate products, as 5G communication, new-generation display and other fields of downstream application enter a new investment cycle, the newly built production lines of downstream customers are very likely to shift to large sizes, so we need to develop high supply capability for large-sized substrate products as soon as possible; third, follow the global frontier of technology, and continue to expand the application scenarios of III-V compound semiconductors. We keep a close eye on the new technologies, new devices and new application scenarios proposed by the academic and industrial circles, give active cooperation to downstream customers in their research and development, and introduce our substrate products to new application scenarios in advance.

VI.Listing standard selected by the Issuer

The listing standard selected by the Issuer is the standard set forth in Paragraph (4) under “capitalization and financial metrics” in the Rules Governing the Listing of Stocks on the Sci-tech Innovation Board of the Shanghai Stock Exchange, i.e. “the expected capitalization is not lower than RMB3 billion and the operating revenue in the previous year is not less than RMB300 million”.

VII.Description of the satisfaction by the Issuer of the positioning of the STAR Market

​

​

1-1-31

​

​

​

1-1-32

​

​

As stated above, we meet the standard set forth in Section 5 of the Tentative Provisions for Application for and Recommendation of Listing of Enterprises on the Sci-tech Innovation Board of the Shanghai Stock Exchange (April 2021 Revision), and the standard set forth in Section 6 thereof, i.e. “the company owns at least 50 patents for invention (including patents relating to national defense) which constitute core technologies and relate to revenues from main business”, as described below:

​

1-1-33

​

VIII.Special arrangement made by the Issuer in respect of corporate governance

As of the date of this Prospectus, there isn’t any special arrangement in connection with our corporate governance structure.

IX.Use of offering proceeds by the Issuer

The total proceeds from this Offering of RMB-denominated ordinary shares (A-shares) depend on the offering price to be determined according to the market situation and result of inquiry. The net offering proceeds after deduction of the distribution cost will be used in the following projects in order of precedence:

If the amount of net offering proceeds after deduction of the distribution cost is less than the amount of funds required by such investment projects, we will allocate the offering proceeds in the proportion stated above, and use self-raised funds to make up for the shortfall. If the amount of net offering proceeds after deduction of the distribution cost exceeds the amount of funds required by such investment projects, we will use the excess amount in the development of our main business according to the actual needs in our business operation and subject to the relevant provisions of the CRSC and the Shanghai Stock Exchange. Before the receipt of the offering proceeds, we may use self-raised funds to fund such investment projects, and replace such self-raised funds with the offering proceeds after receipt thereof.

​

​

1-1-34

​

1-1-35

​

​

​

​

​

1-1-36

​

​

​

III.Relationship between the Issuer and the persons involved in this Offering

Haitong Innovation, Haitong New Driving Force and Haitong New Energy hold 1.4859%, 1.3373% and 0.5201% shares in the Issuer respectively.

​

1-1-37

​

​

Haitong New Energy Private Equity Investment Management Co., Ltd is the fund manager and executive partner of Haitong New Driving Force, and the fund manager of Haitong New Energy. Haitong Innovation holds 29.90% shares in Haitong New Energy. Haitong Kaiyuan Investment Co., Ltd. holds 20.00% shares in Haitong New Energy and 19.33% shares in Haitong New Driving Force respectively. Haitong Securities is the indirect controlling shareholder of Haitong New Energy Private Equity Investment Management Co., Ltd., and the controlling shareholder of Haitong Kaiyuan Investment Co., Ltd. and Haitong Innovation.

Except as stated above, none of the intermediaries involved in this Offering or their principals, executives and responsible persons directly or indirectly holds shares or is otherwise interested in the Issuer, and vice versa.

IV.Important dates of this Offering

​

​

​

​

1-1-38

​

Section IV Risk Factors

In assessing the shares offered by us this time, in addition to the information provided elsewhere in this Prospectus, the investors shall carefully consider all of the risk factors described below. The following risk factors are arranged according to the principle of materiality and degree that they may affect the investors’ decisions, which does not indicate that such risk factors will occur in turn.

In the development of semiconductor materials, along with the breakthrough in the technology of silicon-based materials, GaAs substrates might be replaced by SOI (silicon on insulator) wafers in RF devices and other fields of application. SOI wafers have certain performance advantages over silicon substrates. Though the RF devices produced using SOI wafers are inferior to the products using GaAs substrates in terms of power consumption, radiation and transmission speed, their cost is lower than that of GaAs substrates, so SOI wafers have replaced GaAs substrates in smart phones and other fields of application. If SOI wafers and other new-type substrate products become more cost effective and receive wide recognition on the market, or are used in more application scenarios the scope of application of III-V compound semiconductor substrates will be reduced, which may have an adverse effect on our business and results of operation.

The semiconductor materials industry in which we operate is a highly technology intensive industry and requires a large number of professionals, in particular, R&D personnel and outstanding management personnel. Along with the continuous growth of market demands and increasingly fierce competition in the industry, the semiconductor materials industry faces increasingly fierce competition for technical professionals. If we are unable to provide a better development platform, more competitive remunerations and friendly R&D conditions, our key

​

1-1-39

​

personnel may leave us, which may have an adverse effect on our business.

(III)Risk of disclosure of core technologies

Through years of technology research and development and accumulation, we now own series of proprietary intellectual properties and know-how. Though we attach great importance to the protection of core technologies, our intellectual properties and know-how may be disclosed due to failure of our or our suppliers’ network security systems to prevent unauthorized accesses and complicated web attacks, or improper handling of sensitive data by our employees or suppliers or otherwise, which may seriously damage our reputation and competitiveness, and in turn have an adverse effect on our business development and results of operation.

The industry in which we operate have a relatively high market concentration, and our III-V compound semiconductor substrate and germanium substrate products directly compete with the products of Sumotimo, JX Nippon, Freiberger, Umicore and other advanced international companies that have strong R&D capabilities, know-how, distribution channels and market reputations, and may develop more advanced technologies and launch more competitive products. In addition, such competitors own core technologies similar to the VGF technology owned by us.

Along with the continuous growth of the semiconductor terminal application market in the Chinese Mainland, the market of compound semiconductor materials develops rapidly, and a lot of new III-V compound semiconductor material projects have been built, which make us face competitions from both advanced international companies and new players in China, and may result in a decrease in our product prices. If we are unable to effectively cope with such competitions, our operating revenues, results of operation and financial condition may be affected adversely.

​

1-1-40

​

The main raw materials required by us in production include gallium, germanium ingot, quartz, high-purity arsenic, indium phosphide polycrystalline and boron trichloride. The costs of raw materials constitute a large proportion in our production costs, and the fluctuations in the raw material prices could affect our results of operation. We generally place orders to purchase such main raw materials, but the suppliers may be unable to guarantee the long-term and stable supply of the relevant raw materials to us. Failure of the suppliers to provide the raw materials normally may affect our production and operation, and cause us to be unable to deliver products on schedule. Delay in providing the raw materials by the suppliers may result in an increase in our production costs, delay in production or reduction of output, which may, in turn, have an adverse effect on our revenues and results of operation.

(III)Risks related to verification by customers

Our compound semiconductor material products must pass strict verifications by customers before they are sold to customers. According to industry practices, product verification often lasts about three months to one year, and even longer. During the verification of our products by a customer, we will incur sales, administration and other expenses, but cannot guarantee that our products will pass the verification. Failure of our products to pass the verification by a new customer as expected, or our new products to pass the verification by any existing customer could have an adverse effect on our results of operation. In addition, if our products fail to pass the verification by a customer, we have a slim chance to sell the relevant products to such customer within a period of time thereafter.

(IV)Risk of intensification of international trade disputes

Since 2018, the trade disputes between the U.S.A. and China have been growing in intensity. Between 2018 and 2020, the US government imposed additional tariffs on certain products imported from China, while the Chinese government also imposed additional tariffs on certain products imported from the U.S.A. In the future, the US government and the Chinese

​

1-1-41

​

government may continue to impose additional tariffs on and other trade barriers against certain products imported from each other.

The continuous intensification of US-China trade disputes will have far-reaching adverse influence on the global semiconductor industry. If the Chinese government imposes additional tariffs on the raw materials purchased by us from U.S.A. or the US government imposes additional tariffs on the products sold by us to U.S.A., our production costs will increase and product prices will lose competitive advantage, which could have a material adverse effect on our operating revenues, results of operation and financial condition.

(V)Risks related to industry cycle

The compound semiconductor material industry in which we operate is on the upstream of the semiconductor industry chain, and the demands for compound semiconductor materials are directly affected by the chip manufacturing and terminal application markets on the downstream. In case of any macroeconomic or industrial recession, as a result of which the growth of demands on 5G communication, data center, new-generation display, artificial intelligence and other terminal application markets falls short of expectations, or the semiconductor industry is going downhill, leading to a decrease in the output and sales of ICs, sensors, discrete devices and LEDs, our results of operation and business development could be adversely affected.

(VI)Risk of decrease in product prices

Our product prices may decrease due to fluctuations in downstream market demands, intensified industrial competition or other reasons. If we are unable to reduce our production costs and improve the competiveness of our products through increasing production scale and yield rate, improving production technology or otherwise, the decrease in product prices could affect our profitability and competitiveness.

(VII)Risks related to product quality

Due to the complication of the environment for, and difficulty in the process control of,

​

1-1-42

​

the growth of compound semiconductor crystals, we are unable to completely avoid product defects. If we are unable to control the defects within a reasonable range, the product quality of our downstream chip or device manufacturers may be adversely affected, as a result of which the downstream customers may return our products, reduce or cancel purchase orders, or even turn to our competitors. In addition, product defects will increase our production costs and result in costs of returned goods and additional services, which in turn could have an adverse effect on our results of operation. Moreover, if our products are often found to be defective, our market reputation could be adversely affected.

(VIII)Risk of suspension of production

The complicated growth environment and long period of growth of compound semiconductor crystals put forward high requirements for the continuity of production. In case of any fire or explosion during the production due to accumulation of flammable chemicals, excessively high temperature or otherwise, we may have to suspend production in order to repair the production lines or even replace equipment. In addition, the continuity of our production may be adversely affected if our main production bases are subject to any power restriction policy. We may incur direct economic losses and even lose certain customers and revenues in case of any suspension of production caused by any accident or power restriction requirements.

III.Risk of management and internal controls

(I)We have a controlling shareholder but do not have an actual controller

As of the date of this Prospectus, AXT directly holds 85.51% shares in us, and is our controlling shareholder. As a company listed on the NASDAQ, AXT has a decentralized shareholding structure, and does not have an actual controller. Therefore, we also do not have an actual controller. We cannot guarantee that we will not forfeit the opportunities of business development due to unstable corporate governance structure or inefficient decision making caused by lack of actual controller, which may affect our production and operation and cause

​

1-1-43

​

fluctuations in our results of operation. In addition, the changes in the shareholding structure and control of AXA in the future (if any) may result in changes in the main members of our management, which may in turn affect our normal operations.

(II)Risk of management and internal controls resulting from increase in our scale of operation

During the reporting period, our total assets amounted to RMB1‚213,983,200, RMB1‚336,216‚000, RMB1‚803,043,800 and RMB1‚853,603,500, and operating revenues amounted to RMB490‚280‚000, RMB462‚226‚800, RMB583‚170‚400 and RMB393‚559‚400 receptively, both of which have grown rapidly.

Along with the further increase in the scale of our assets, operation and employees, the allocation of resources in research and development, purchasing, production, sales and other areas, and internal controls and management have become increasingly complicated, which put forward higher requirements for our organization structure and management capabilities. Our internal control system and management level may be unable to adapt to the rapid increase in our scale of operation, which may result in a decrease in our operating efficiency, and increase in the costs and expenses at a rate higher than the growth rate of revenues, which in turn could lower our competitiveness. We face risks of management and internal controls resulting from increase in our scale of operation.

(III)Risk of integration and management of subsidiaries

During the reporting period, we acquired Chaoyang Jinmei, Nanjing Jinmei, Beijing Boyu, Chaoyang Boyu, Tianjin Boyu, AXT-Tongmei and other companies through business combination involving entities under common control. Such companies are mainly engaged in the research, development, production and sale of PBN and other high-purity materials. After acquisition of such companies, we have integrated their operation, management, R&D and other activities. However, if we fail to effectively integrate and manage such controlled subsidiaries, our operations in the future may be affected.

​

1-1-44

​

IV.Financial risk

(I)Risks related to collection of accounts receivable

As of the end of each reporting period, the carrying amount of our accounts receivable amounted to RMB150,030,000, RMB129,799,300, RMB152,366,000 and RMB201,058,100, accounting for 12.36%, 9.71%, 8.45% and 10.85% of our total assets respectively. During the reporting period, the huge amount of accounts receivable have caused certain pressure on our working capital. We have made provisions for doubtful accounts receivable according to the principle of prudence. If we fail to properly manage our accounts receivable or our customers fall into serious difficulties in operation, we may be unable to collect our accounts receivable in a timely manner, which may have an adverse effect on our results of operation.

(II)Risk of management and impairment of inventories

As of the end of each reporting period, the carrying amount of our inventories amounted to RMB268,346,200, RMB245,695,300, RMB284,639,900 and RMB330,357,400, accounting for 44.60%, 44.03%, 30.81% and 38.34% of our current assets respectively. Both the amounts of inventories and their proportion in the current assets are relatively high. As of the end of each reporting period, the balance of allowance for impairment of inventories was RMB9,689,900, RMB23,596,800, RMB14,558,100 and RMB17,079,200 respectively.

We need to maintain a certain level of inventories of important raw materials, in order to prevent interruption of supply. However, certain critical raw materials may be in short supply sometimes. Some of our inventories and works in progress may become obsolete due to changes in the specifications required by customers, or inability to be sold within a foreseeable time due to plunge in demand, which may cause losses to us. In addition, in case of any material adverse change in the selling prices of our products in the future, the net realizable value of our inventories may fall below their net carrying amount, so we have to record additional allowances for impairment of inventories, which may affect our profit.

​

1-1-45

​

(III)Risk of changes in preferential tax policies

During the reporting period, as a hi-tech enterprise, we have enjoyed a preferential enterprise income tax rate and tax credits for R&D expenses. If the Chinese government makes any material adjustment to the laws, regulations and policies relating to tax preferences or we fail to obtain the qualification as a hi-tech enterprise or satisfy the conditions for tax credits for R&D expenses in China, our results of operation may be adversely affected.

(IV)Risk of high percentage of revenues from the overseas market

The percentage of our operating revenues from the overseas market was 63.32%, 60.66%, 57.63% and 47.91% in 2018, 2019, 2020 and January to June 2021 respectively, which was relatively high. Continuous worsening of the international trade environment, additional tariff barriers, great fluctuations in exchange rate and other adverse situations may affect our revenues from the overseas market, which may have an adverse effect on our results of operation.

(V)Foreign exchange risk

During the reporting period, the sales of our most products are denominated in USD and YEN, purchases of part of raw materials are denominated in USD, so RMB to USD and RMB to YEN exchange rates could affect our results of operation. During the reporting period, we recorded RMB6,430,000, RMB1,271,100, RMB-6,879,000 and RMB1,343,700 of exchange loss (exchange gain expressed with “-”) respectively in financial expenses. The RMBexchange rates fluctuate due to changes in international political and economic environment and are somewhat uncertain. Along with the continuous increase in our scale of operation, if RMBto USD and RMBto YEN exchange rates fluctuate greatly in the future, our performance may become uncertain and we may incur exchange losses, which could have an adverse effect on our results of operation and financial condition.

(VI) Risk of fluctuations in gross margin ratio

During the reporting period, the gross margin ratio of our main business was 30.81%, 19.43%, 25.70% and 33.24% respectively, which varied with the reporting period. If our scale of operation, product mix, customer resources, cost control or advantages in technological

​

1-1-46

​

innovation change significantly, or the industrial competition grows in intensity, resulting in decrease in the selling prices of our products, increase in costs and expenses or substantial changes in customer demands, the gross margin ratio of our main business may fluctuate.

(VII)Risk of decrease in return on net assets

The balance of our net assets was RMB875,182,900, RMB940,481,700, RMB971,819,300 and RMB1,354,779,000 respectively as of the end of each reporting period. In 2021, our net assets increased as a result of equity financing. After the completion of this Offering, our net assets will increase significantly within a short time. However, the projects to be invested with the offering proceeds need certain time to be completed, and our net profit may be unable to keep pace with the growth of net assets, so our return on net assets may decrease in a short time.

(I)Risk of IP disputes

Our results of operation somewhat depend on our intellectual property (“IP”) system and ability to maintain such IPs and protect our trade secrets. As of September 30, 2021, we own 51 domestic and foreign issued patents for inventions, including 42 domestic patents and 9 foreign patents. We attach great importance to the proprietary nature and compliance of our R&D system, and do our utmost to prevent our technologies and products from falling into the scope of patent protection of our competitors. We also attach great importance to the protection of our IPs, and have built an IP protection system. Any IP dispute raised by our competitors against us or infringement of our IPs by our competitors may have an adverse effect on our production and operations.

(II)Risk of changes in industry regulatory policies

We mainly operate in the Chinese Mainland, so we need to comply with the laws and regulations of the Chinese Mainland relating to work safety, environmental protection and use of hazardous chemicals, among others, in our production and operation. In 2015, the State

​

1-1-47

​

Administration of Work Safety (“SAWS”) included GaAs in the list of hazardous chemicals. The increasingly strict industry regulatory policies require us to enhance production management, to ensure our production and operations comply with the applicable laws and regulations. If we and our subsidiaries fail to comply with the applicable laws and regulations, we may be required to assume material liabilities in connection with disposal of hazardous wastes, personal injuries or administrative penalties, or suspend certain business, which may have a material adverse effect on our business, financial condition and results of operation.

(III)Risk of cross licensing of patents

In the semiconductor industry, in order to avoid infringements and suits arising from overlapping patents, the companies often make cross licensing arrangements.

AXT, our controlling shareholder, has entered into a Cross-licensing and Non-prosecution Agreement with M, one of our major competitors, under which M and AXT grant a cross license to each other and the entities under their respective control for patents filed prior to December 31, 2029 (inclusive), covering the manufacturing, use, import, and sales of gallium arsenide and indium phosphide crystals and substrate products. We, as a controlled subsidiary of AXT, are a main beneficiary of the Cross-licensing and Non-prosecution Agreement.

Our core technologies may be divulged or misappropriated if we fail to strictly implement the security measures. If the relevant licenses are terminated by M or fail to be renewed upon expiration thereof, and the Issuer fail to develop alternate technologies in a timely manner, we may face allegations of patent infringement due to lack of necessary license, which may have an adverse effect on our production and operations.

(IV)Some of our buildings have not obtained building property title certificates

Some of our buildings have not obtained building property title certificates. The total floor area of such buildings is 23‚010.18 square meters, accounting for about 16.26% of the total area of main building properties owned by us and our controlled subsidiaries, a relatively low percentage. Such buildings are mainly located in our plant area at Tongzhou District, Beijing,

​

1-1-48

​

in which part of InP substrate production lines are located. We have developed solutions with respect to the plant buildings in which the affected InP substrate production lines are located and auxiliary buildings. Other buildings without building property title certificates are not within our main premises. Therefore, the lack of building property title certificates of some buildings will not have a material adverse effect on our production and operations.

Such buildings have not obtained building property title certificates due to being completed far back in time and certain historic and objective reasons, such as the status of Tongzhou District as the sub-center of Beijing and its industrial adjustment. The competent authorities may order us to stop using such buildings.

VI.Risk of the projects to be invested with the offering proceeds

(I)The projects to be invested with the offering proceeds may fail to produce the desired economic benefits

The proceeds from this Offering will be invested in GaAs semiconductor material project and used to replenish working capital. Though we have conducted feasibility studies and market researches in respect of such investment projects, such studies and researches were conducted on the basis of the current market environment, technological capabilities, development trends and other factors, such projects may face uncertainties in connection with overall economic situation, industrial and market environment, technology upgrading or otherwise when they are actually implemented, and we may fail to make breakthroughs in certain critical technologies or the performance of the products developed by us may fall short of expectations, which may have an adverse effect on the implementation of such investment projects.

(II)Additional depreciation and amortization of fixed assets may affect our profitability

After the projects to be invested with the proceeds from this Offering are completed and put into production, we need to record additional depreciation and amortization of fixed assets

​

1-1-49

​

of RMB87‚382‚800 in total every year, which will significantly increase our fixed production costs of expenses. If such investment projects fail to produce benefits or revenues as expected due to poor management or ineffective market exploitation, such additional depreciation and amortization of fixed assets will increase our operating risks, which in turn could have an adverse effect on our profitability.

VII.We and our controlling shareholder AXT are listed on the STAR Market and the NASDAQ respectively

After the completion of this Offering of A-shares, we and our controlling shareholder AXT will be listed on the STAR Market and the NASDAQ respectively, which means that we and AXT need to comply with the laws and rules and listing-related regulatory requirements of both the U.S.A. and China, and disclose the information required to be publicly disclosed according to law concurrently in the U.S.A. and China.

Due to the differences between the U.S.A. and China in the applicable laws, rules and regulatory philosophies, we and AXT are subject to different accounting standards and different regulatory requirements, including different requirements for certain accounting treatment and disclosure of financial information. In addition, due to the differences between the U.S.A. and China in the requirements of securities regulatory authorities for information disclosure by the listed companies, language, culture and expression habits, composition and investment philosophies of investors, and actual situations of capital market, our stock price on the STAR Market may be different from the stock price of AXT on the NASDAQ. Such differences and the fluctuations in the stock price of AXT on the NASDA may affect our stock price on the STAR Market.

VIII.Other risks

(I)The COVID-19 pandemic could have an adverse effect on the semiconductor industry

The outbreak of COVID-19 throughout the world since early 2020 has a material adverse

​

1-1-50

​

effect on global economy. Since the COVID-19 is still spreading globally, the duration of the pandemic and its impact cannot be estimated at present. If the pandemic continues or grows in intensity, China and other countries and regions where our customers and supplies are located may take anti-epidemic measures, such as lockdown, quarantine, restriction on movement and work at home, which may have an adverse effect on our research and development, production, sales, service and other activities. If the pandemic cannot be put under control for a long time, the economic and financial markets in major countries of the world may be adversely affected, which may result in continuous recession of the semiconductor industry from the source, and have a material adverse effect on our business, results of operation and financial condition.

(II)Risk of fluctuations in stock price

The market price of our stock not only depends on our results of operation and prospectus, but is also affected by the macro-economic cycle, interest rate, the relation between demand and supply of capital and other factors, and may fluctuate due to changes in international and domestic political and economic situations and mood of investors. The fluctuation in stock price is a normal phenomenon on the stock market. Therefore, the investors must be aware of risks and make correct investment decisions.

(III)Risk of force majeure

Political factors, natural disasters, wars and other events of force majeure occurred in the course of business may cause damages to our assets, personnel, suppliers and customers, which may have an adverse effect on our production and operations.

(IV)Risk of failure in this Offering

Pursuant to the applicable regulations, if the number of investors making valid offers or submitting subscriptions off the line in respect of this Offering is less than the number required by law, or the total capitalization in this Offering fails to reach the applicable criteria of capitalization, this Offering will be suspended. If our listing review procedures exceed the time limit prescribed by the Exchange or the offering registration procedures fail to be resumed within three months following the suspension thereof, or there are other adverse factors affecting this Offering, this Offering may fail.

​

1-1-51

​

1-1-52

​

On August 26, 1998, Beijing Tongzhou District Industrial Development Zone Corporation and AXT jointly entered into the Articles of Association of Beijing Tongmei Xtal Technology Limited.

On September 9, 1998, the Beijing Tongzhou District Foreign Economic Relations and Trade Commission issued to Tongmei Limited the Approval on the Establishment Contract of Beijing Tongmei Xtal Technology Limited, its Articles of Association and Board of Directors ([1998] Tong Wai Jing Mao Fa No. 93 ), agreeing that Industrial Development Zone Corporation and AXT jointly establish Beijing Tongmei Xtal Technology Limited; its total amount of investment is USD 3.06 million and its registered capital is USD 3.06 million.

On September 15, 1998, the People’s Government of Beijing Municipality issued the Certificate of Approval of a Foreign-invested Enterprise of the People’s Republic of China to Tongmei Limited (Wai Jing Mao Zi [1998] No. 00455).

On September 25, 1998, Tongmei Limited obtained the Business License of Enterprise Legal Person issued by the State Administration for Industry and Commerce.

According to the articles of association and industrial and commercial registration materials of Tongmei Limited when it was incorporated, its shareholding structure at the time of incorporation is as follows:

​

(II) Incorporation of Joint Stock Company

On April 1, 2021, the shareholders’ meeting of Tongmei Limited passed a resolution that agrees to change Tongmei Limited into a company limited by shares. Ernst & Young Huaming audited the financial statements of Tongmei Limited as of January 31, 2021, and issued the Special Audit Report (EY (2021) Zhuan Zi No. 61641535_ B01). Sinotop Appraisal issued the Asset Appraisal Report of which the appraisal base date is January 31, 2021 (Zhong Feng Ping Bao Zi (2021) No. 01085).

​

1-1-53

​

On April 16, 2021, with the unanimous consent of all the promoters at the establishment meeting of the Issuer, Tongmei Limited initiated the establishment of Beijing Tongmei Xtal Technology Co., Ltd. by way of overall change on the basis of its net assets of RMB1,345,479,418 as of January 31, 2021 as audited by Ernst & Young Huaming, which were converted into 885,426,756 shares at the rate of 1:0.6581, and the remaining RMB460,052,662 being included in the capital reserve. On the same day, all shareholders of Tongmei Limited signed the Promoter Agreement.

On April 16, 2021, the Beijing Tongzhou District Administration for Market Regulation issued a new business license (Unified Social Credit Code: 91110000700004889C).

On April 21, 2021, Ernst & Young Huaming issued the Capital Verification Report (EY (2021) Yan Zi No. 61641535_B03) to review and verify the above-mentioned overall change and capital contribution matter.

The shareholding structure when Joint Stock Company is established is as follows:

​

1-1-54

​

​

​

After the overall change and establishment of Joint Stock Company, the Company succeeded to all the assets and liabilities of Tongmei Limited, and no legal right or interest of any creditor was prejudiced; as of the date of this Prospectus, the Issuer has no dispute with its creditors arising out of the overall change.

As of the date of this Prospectus, the procedures in relation to the industrial and commercial registration and tax registration of the Company’s overall change have been completed in compliance with the Company Law and other laws and regulations.

(III) Changes in Shareholders of the Issuer

During the reporting period, the changes in the share capital and shareholders of the Issuer are as below:

1. Shareholding structure at the beginning of the Report Period

On January 1, 2018, the shareholding structure of the Company’s predecessor, Tongmei Limited., was as follows:

Note: On November 26, 2020, Tongmei Limited held a board meeting which agreed to change the Company’s registered capital from USD 39.13 million to RMB301,106,669. Tongmei Limited obtained the Business License re-issued by the Beijing Tongzhou District Administration for Market Regulation in December 2020.

2. Capital increase of Tongmei Limited in December 2020

To integrate business resources and resolve the horizontal competition issue, AXT, Jinchao Business Mangement, Beijing Bomeilian and Zhongke Hengye contributed to the Company’s capital increase with their 100% equity interest in Beijing Boyu, Baoding Tongmei, Chaoyang Tongmei, Nanjing Jinmei and Chaoyang Jinmei.

​

1-1-55

​

In addition, to enable employees of the Company to share the Company’s development results, and to stimulate employees, the Company established the employee shareholding platforms, Beijing Liaoyan, Beijing Dingmei, Boyu Yingchuang and Boyu Hengye to contribute to the Company’s capital increase, based on the principle of voluntariness and risk-taking, to realize the employee stock ownership in the Company.

On December 25, 2020, Tongmei Limited held a shareholders’ meeting, agreeing to increase the Company’s registered capital from RMB301,106,668.53 to RMB820,960,319. The newly added registered capital comprises RMB516,569,800, which was subscribed by AXT, Jinchao Business Management, Beijing Bomeilian, and Zhongke Hengye in the form of equity, and RMB3,283,841, which was subscribed by Beijing Liaoyan, Beijing Dingmei, Boyu Yingchuang, and Boyu Hengye in the form of cash.

The newly added registered capital that was subscribed by AXT, Jinchao Business Management, Beijing Bomeilian, and Zhongke Hengye in the form of equity the value of equity paid by them are listed as below:

1-1-56

​

​

According to the capital increase agreement of Tongmei Limited and the asset evaluation reports issued by Sinotop Appraisal, AXT subscried for the newly increased registered capital of the Company in an amount of RMB451,139,700, the consideration of which was its 100% equity interest in Baoding Tongmei, 100% equity interest in Chaoyang Tongmei, 100% equity interest in Nanjing Jinmei, 91.5% equity interest in Chaoyang Jinmei and 67% equity interest in Beijing Boyu; Jinchao Business Management subscried for the newly increased registered capital of the Company in an amount of RMB3,119,500, the consideration of which was its 8.5% equity interest in Chaoyang Jinmei; Beijing Bomeilian subscried for the newly increased registered capital of the Company in an amount of RMB50,981,400, the consideration of which was its 27% equity interest in Beijing Boyu; Zhongke Hengye subscried for the newly increased registered capital of the Company in an amount of RMB11,329,200, the consideration of which was its 6% equity interest in Beijing Boyu. The capital increase price for AXT, Jinchao Business Management, Beijing Bomeilian and Zhongke Hengye is RMB1.36 per unit of registered capital.

Beijing Liaoyan, Beijing Dingmei, Boyu Yingchuang and Boyu Hengye made their respective capital contribution in cash, and the basic information on their capital contribution is as follows:

​

1-1-57

​

​

​

After this capital increase was completed, Baoding Tongmei, Chaoyang Tongmei, Nanjing Jinmei, Chaoyang Jinmei, and Beijing Boyu became wholly-owned subsidiaries of the Company. On December 29, 2020, Tongmei Limited obtained the Business License re-issued by the Beijing Tongzhou District Administration for Market Regulation.

On January 28, 2021, Ernst & Young Huaming issued the Capital Verification Report (EY (2021) Yan Zi No. 61641535_B01), confirming that as of January 12, 2021, Tongmei Limited had received the newly increased registered capital of RMB519,853,650.47 paid by investors; the cumulative amount of paid-in capital of Tongmei Limited was RMB820,960,319.00.

Upon the completion of this change, the shareholding structure of Tongmei Limited is as follows: