8-K - AXTI - Equibles

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 1, 2022

AXT, INC.

(Exact name of registrant as specified in its charter)


Delaware		000-24085		94-3031310
(State or other jurisdiction of incorporation)		(Commission File Number)		(IRS Employer Identification No.)

4281 Technology Drive

Fremont, California 94538

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (510) 438-4700

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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. ☐

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:	****	Trading Symbol	****	Name of each exchange on which registered:
Common Stock, $0.001 par value		AXTI		The NASDAQ Stock Market LLC

References to “AXT” refer to AXT, Inc. and references to “Tongmei” refer to Beijing Tongmei Xtal Technology Co., Ltd.

Item 7.01. Regulation FD Disclosure.

On January 10, 2022, Tongmei’s formal application to list its shares in an initial public offering (the “IPO”) on the Shanghai Stock Exchange’s Sci-Tech innovAtion boaRd (the “STAR Market”) was accepted for review by the Shanghai Stock Exchange. On July 12, 2022, the Shanghai Stock Exchange approved Tongmei’s IPO application. On August 1, 2022, Tongmei’s revised IPO application was accepted for review by the China Securities Regulatory Commission (the “CSRC”). A copy of the revised preliminary information document (the “PID”) that was submitted by Tongmei in connection with the proposed STAR Market listing and IPO is furnished as Exhibit 99.1 to this report. Copies of the Supplementary Offering Sponsorship Letter, Supplementary Listing Sponsorship Letter, Supplementary Audit Inquiry Letter on Application for IPO and Supplementary Legal Opinion, which are exhibits to the PID, are being furnished as Exhibits 99.2 to 99.5 to this report.

The information in this report, including Exhibits 99.1 to 99.5, is being furnished and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor will it be incorporated by reference in any filing under the Securities Act of 1933, amended (the “Securities Act”), or the Exchange Act, except as expressly set forth by specific reference in such filing.

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. There can be no assurances that the proposed STAR Market listing and IPO will ultimately be approved by the CSRC and other authorities and completed.

The Tongmei shares referred to in the PID and this report have not been, and will not be, registered under the Securities Act or any state securities laws and may not be offered or sold in the United States absent registration under the Securities Act or an applicable exemption from the registration requirements of the Securities Act and applicable state securities laws. This report is neither an offer to sell nor a solicitation of an offer to buy, nor shall there be any offer, solicitation or sale of these shares in any jurisdiction in which such offer, solicitation or sale would be unlawful.

Item 9.01	Financial Statements and Exhibits.

(d) Exhibits.



Exhibit No.		Description

99.1		Preliminary Information Document of Beijing Tongmei Xtal Technology Co., Ltd.
99.2*		Supplementary Offering Sponsorship Letter
99.3*		Supplementary Listing Sponsorship Letter
99.4*		Supplementary Audit Inquiry Letter on Application for IPO
99.5*		Supplementary Legal Opinion
104		Cover Page Interactive Data File (formatted as inline XBRL)

* Unofficial English translation of original document prepared in Mandarin Chinese.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


		AXT, INC.

	By:	/s/ Gary L. Fischer
	Date: August 2, 2022<br><br>	Gary L. Fischer<br><br>Chief Financial Officer and Corporate Secretary

Exhibit 99.1


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

The shares sold in this Offering will be listed on the Sci-tech Innovation Board of the Shanghai Stock Exchange (the “STAR Market”). The market involves a high degree of investment risk. The companies listed on the STAR Market are generally characterized by huge investment in R&D, high operating risk, unstable performance and high risk of delisting, among others, so the investors face a high market risk. The investors shall fully understand the risk of investment in the STAR Market and the risk factors disclosed by us, before making an investment decision.

Beijing Tongmei Xtal Technology Co., Ltd.

No. 4, East 2^nd^ Street, Tongzhou Industrial Development Zone, Beijing

Prospectus

in Respect of

Initial Public Offering and STAR Market Listing of Shares

(Draft for Registration)

This Offering application is subject to the completion of the applicable procedures with the Shanghai Stock Exchange and the China Securities Regulatory Commission. This Prospectus does not have a legal effect for the offering of the shares contemplated hereby, and is for the purpose of pre-disclosure only. The investors shall make their investment decisions on the basis of the prospectus officially published.

Sponsor (Lead Underwriter)

(No. 689, Guangdong Road, Shanghai)


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

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.

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.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Summary of this Offering

Type of shares offered	RMB-denominated ordinary shares (A-shares)
Number of shares offered	Up to 98,390,000 shares will be offered this time, representing at least 10.00% of the total share capital of the Company immediately after the completion of this Offering. No existing shareholder will publicly sell any share through this Offering.
Par value	RMB1.00
Offering price per share	RMB[ ]
Scheduled offering date	[ ]
Stock exchange and board	Sci-tech Innovation Board of the Shanghai Stock Exchange (the “STAR Market”)
Total share capital following this Offering	Up to 983,816,756 shares
Participation in the strategic allocation by the subsidiaries of the Sponsor	The Sponsor will arrange for some of its subsidiaries to participate in the strategic allocation relating to this Offering, subject to the relevant rules of the Exchange. The Sponsor and its subsidiaries will define the specific plan for participation in the strategic allocation relating to this Offering in accordance with the relevant requirements, and submit the related documents to the Exchange pursuant to the relevant provisions.
Sponsor (Lead Underwriter)	Haitong Securities Co., Ltd.
Date of Prospectus	[ ]

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

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, a company listed on the NASDAQ, will spin off its major assets and all businesses and list the same on the STAR Market.

AXT’s shares are held dispersedly, and it has no actual controller, therefore the Company has no actual controller. As of March 31, 2022, AXT has issued a total of 42,951,900 ordinary shares, and all of the top five shareholders holding ordinary shares in AXT are foreign investors and the voting rights held by each of them are less than 10%. In addition, as of March 31, 2022, the Chairman of the Company, MORRIS SHEN-SHIH YOUNG, as a founder of AXT, holds 3.8133% of the voting rights of AXT’s ordinary shares directly or through trust, whose shareholding percentage in AXT is relatively low.

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.**During the reporting period, prices of products sold by the Company to the controlling shareholder AXT were different from those of products sold by AXT to end customers

As the Issuer’s controlling shareholder, AXT has always been subject to the uniform arrangement at the group level and is responsible for the sales of semiconductor substrate materials in overseas markets. On the whole, the sales price of compound semiconductor substrates sold by the Company to AXT was determined based on the Issuer’s production cost plus a certain profit margin, and the latter is related to the positions and roles of the Company and AXT in the transaction chain. On the basis of the overall pricing policy, for the pricing policy for different types of substrate materials, the impact of the degree of competition in the market, the status of the Company’s products in the industry and other factors were taken into account.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

During the reporting period, prices of semiconductor substrate materials sold by the Company to the controlling shareholder AXT were different from those of semiconductor substrate materials sold by AXT to end customers. The specific differences are as follows:

Unit: RMB yuan/piece

Item	Aggregation of 2019-2021
		Price of products sold to AXT	Price of products sold by AXT to other parties	Difference
GaAs substrate	391.18	377.11	3.73%
InP substrate	483.15	1,275.32	-62.12%
Germanium substrate	428.07	430.54	-0.57%

The difference between the prices of GaAs substrates and germanium substrates sold by the Company to AXT and those of the same products sold to other parties was relatively small. The difference was mainly due to different specifications of the products sold and different exchange rates caused by difference time of sale. The price of InP substrates sold by the Company to AXT was lower than those of the same products sold by AXT to final customers, mainly because at the early period of the reporting period, AXT made great contributions to the market development, customer maintenance and application R&D of InP substrates, for which AXT also assumed higher costs.

The business transaction mode and price between the Company and AXT are determined by the organizational structure of AXT and the long-term business growth model. AXT, incorporated in California, the US in December 1986, established its complete R&D and production systems initially, and directly explored its own market. In 1998, AXT decided to explore business in China and gradually transferred its production and R&D fully to China, and established Beijing Tongmei. Subsequently, AXT shut down its production in the US, and only maintained overseas sales, purchase and partial application R&D business. On the one hand, the Company sold products to AXT on a cost-plus basis, limiting the sales price offered to AXT; on the other hand, AXT earned returns from sales of the products from the Company to overseas customers, and such returns were used for AXT’s normal operation, application R&D. AXT-Tongmei completed the business and customer transfer with AXT, and undertook AXT’s overseas sales, purchase, and application R&D. AXT ceased to conduct sales business after performing the sales contracts signed prior to March 2021.

On November 29, 2021 and March 15, 2022, the Company held the 7^th^ and 11^th^ meetings of the first board of directors respectively, to review related-party transactions during the reporting period, which were reviewed and approved by the general meeting; independent directors expressed clear opinions on the legitimacy of the deliberation procedures performed for related-party transactions and the reasonableness of transaction prices during the reporting period.

In addition, the tax authorities with jurisdiction over the Company and its domestic subsidiaries have issued the “Compliance Certificate” or “Tax-related Information Inquiry Result Notification”, which proves that during the reporting period, the Company made declarations and paid taxes in accordance with relevant tax laws, regulations and normative documents, and no administrative penalties due to tax arrears or tax violations were found.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

To sum up, the Company started to sell products to overseas customers through AXT-Tongmei from March 2021 on. After AXT fulfilled the sales contract signed before March 2021, it no longer carried out the sales business, and the related-party sales between the Company and AXT were thus terminated thoroughly. During the reporting period, the difference between the Company’s sales price to AXT and AXT’s sales price to end customers is reasonable. There was no benefit transfer in the transactions between the Company and AXT, and there was no adjustment to the Issuer’s profits through the above related-party transactions, without any material adverse effects on the Company.

**III.**The switch of overseas sales business led to an increase in the Company’s revenues in 2021

Before March 2021, the Company carried out overseas sales mainly through AXT, i.e. the Company sold products to AXT, and AXT sold such products to end customers according to its sales orders. From March 2021, AXT switched its overseas semiconductor substrate material sales business and customers to the AXT Tongmei, a subsidiary of the Company. Due to the difference between the price of the semiconductor substrate materials sold by the Company to AXT and the price of the semiconductor substrate materials sold by AXT-Tongmei to end customers, the switch of overseas sales business also led to an increase in the Company’s revenues in 2021.

The switch of overseas sales business has solved the problem of horizontal competition between the Company and the controlling shareholder, integrated the business resources of the controlling shareholder, and is beneficial to the sustainable development of the Company. In 2021, the Company completed the switch of overseas semiconductor substrate sales business. The Company sold products to overseas customers through AXT-Tongmei. After AXT fulfilled the sales contract signed before March 2021, it no longer carried out the sales business, and the related-party sales between the Company and AXT were thus terminated thoroughly. With the rapid growth in demand in the downstream market, especially the domestic market, the Company’s business scale has expanded steadily, and it is expected that the operating performance from January to June 2022 will maintain a year-on-year growth trend.

**IV.**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 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.


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

in the United States has engaged a foreign (in relation to the United States, the same below) auditor which cannot be inspected by the U.S. Public Company Accounting Oversight Board (hereinafter referred to as the “PCAOB”) for three consecutive years, then the U.S. SEC will prohibit its securities registered in the United States from being traded on any U.S. national stock exchange (such as the NASDAQ or the New York Stock Exchange) or over-the-counter.

If the annual audit report of a company listed in the U.S. is issued by a foreign accounting firm, and the PCAOB is unable to conduct or fully conduct an inspection or investigation on such accounting firm due to the position of such foreign government, the SEC will identify such listed company and include it in the identified issuer list, that is, the list of pre-delisted companies. If a listed company is included in the list of pre-delisted companies for three consecutive years, the SEC will prohibit such company from trading its shares in any U.S. securities market.

As of the signing date of this Prospectus, AXT has not been included in the provisional list of delistings by the PCAOB.

AXT has disclosed the risk of being included in the provisional list of delistings by the PCAOB in the Section “Risk Factors” of its 2021 Annual Report (FORM 10-K). Based on the above risk disclosure, AXT considers that it cannot rule out the possibility of being included in the provisional list of delistings in the future.

(II)	Risk of integration and management of subsidiaries

During the reporting period, we acquired Chaoyang Tongmei, Baoding Tongmei, Chaoyang Jinmei, Nanjing Jinmei, Beijing 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 GaAs substrates, PBN materials and other high-purity materials, and the overseas procurement and overseas sales of semiconductor substrate materials mainly in the US. After acquisition of such companies, we have further integrated their operation, management, R&D and other activities. By now, such entities have been in smooth operation for over 12 months. However, if we fail to effectively integrate and manage such controlled subsidiaries, our operations in the future may be affected.

**(III)**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. As the above raw materials are not bulk commodities and there are few suppliers in the market, the Company relies on some key raw material suppliers to a certain extent, and the relevant suppliers may be unable to guarantee the long-term and stable supply of the relevant raw materials to us, which has affected our production and operation, and cause us to be unable to deliver products on schedule. In addition, 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. 1-1-6


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

**(IV)**The relocation of the factory resulted in risks in fluctuation of the gross profit margin of the products and the failure to meet the expected capacity with the new production line

In 2019, the Company started to relocate the GaAs production line from Beijing to Chaoyang, Liaoning and Baoding, Hebei, and re-hired the production staff. Due to the debugging of the production line and the low proficiency of the production staff, there were a large quantity of raw materials consumed and a low yield rate of GaAs substrates, and the original customer needed to re-verify the new production lines (to be completed around the first half of 2019). As a result, the operating costs were high, leading to large fluctuations in the gross profit margin of the Company’s GaAs substrates during the reporting period. According to simulation calculation, the increase in yield rate after the relocation of the production lines, the change in remunerations for the staff, the reduction in water and electricity costs, the redistribution of the production staff had an impact on the gross profit margin of GaAs substrates in 2020 and 2021 respectively, by 3.03% and 29.72%.

After the relocation of the GaAs production line, the InP substrates and germanium substrates need to assume a larger part of depreciation of fixed assets. Meanwhile, the Company has also reassigned the original GaAs substrate workshop staff in Beijing to InP substrate and germanium substrate workshops, and the idle production capacity of GaAs substrates has not been fully converted into the production capacity of InP substrate and germanium substrates, resulting in fluctuations in the gross profit margin of the Company's InP substrate and germanium substrate products to a certain extent.

The Company’s production lines in Chaoyang, Liaoning and Baoding, Hebei have improved the original production processes and enhanced the intelligence level. Although the foregoing production lines have been officially put into production, it will still take some time to adjust the new production line equipment and enhance the operating proficiency of the production staff. Thus, the Company’s production lines in Chaoyang, Liaoning and Baoding, Hebei are at the risk of not being able to achieve the design capacity stably, which may also result in fluctuations in the Company’s product gross profit margin to a certain extent.

**(V)**Operating risk in relation to germanium substrates

Germanium substrates are now mainly used in the field of space satellite solar energy. Before 2014, the world’s major companies with mass production capacity for germanium substrates were the Issuer and Umicore. As AXT fully relocated its germanium substrate production base to China, the Company’s germanium substrate products gradually withdrew from the aerospace market of U.S. Thus, Umicore now has a higher global market share than the Company in terms of germanium substrates.

Due to the continuous growth of the global aerospace field and the commercial satellite market, Yunnan Germanium and other domestic germanium material upstream manufacturers have also started to enter the downstream germanium substrate market since 2014. At present, the Company and Yunnan Germanium are the two major germanium substrate manufacturers in the domestic market. According to the 2021 annual report of Yunnan Germanium, in 2021, it produced 282,800 pieces of photovoltaic-grade germanium products (converted to 4 inches), and expanded its production capacity by 200,000 pieces of 6-inch germanium substrates. With the growth of Yunnan Germanium’s output and sales of germanium substrates, there was a fierce competition in the price of germanium substrates between the Company and Yunnan Germanium. In 2021, the average unit price of germanium substrates of the Company in the domestic market dropped from RMB289.04/piece to RMB226.23/piece, a decline of 7.89%. The entry of Yunnan Germanium and other domestic competitors has resulted in intensified competition in the germanium substrate market. If the Company is unable to maintain a competitive advantage in the production of the existing products and the development of new products, there is a risk that the Company’s share in the germanium substrate market will be reduced, the revenue or gross profit of the Company generated therefrom may be further decreased. 1-1-7


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

**(VI)**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 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.

In addition, given the fact that part of the Company’s raw materials such as high-purity arsenic and indium phosphide polycrystalline and equipment such as single crystal furnaces are imported, the export of relevant raw materials and equipment may be restricted due to changes in the international trade policies of the producing countries, or the purchase prices of the Company may increase significantly due to changes in tariffs, resulting certain effects on the Company’s profitability and production and operation to some extent.

**(VII)**Risk arising from changes in industry regulatory policies

We mainly operate in China, so we need to comply with the laws and regulations in China relating to work safety, environmental protection and use of hazardous chemicals, among others, in our production and operation. In 2003, Gallium is included in the Catalogue of Hazardous Chemicals, 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.

**(VIII)**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. Thus, 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.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

**(IX)**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 Sumitomo, 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 China, 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.

**(X)**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.

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

**(I)**Overall business situation

The date of our audited financial report is December 31, 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.

**(II)**Main financial information and operating status after the audit base date of financial reports

In accordance with the Guidelines for the Disclosure of Main Financial Information and Operating Status Information after the Deadline for the Audit of Prospectuses and Financial Reports of Companies for Initial Public Offering and Listing (Revised in 2020) (CSRC Announcement [2020] No. 43), the Reporting Accountant reviewed the Company’s balance sheet on June 30, 2022 and income statement and cash flow statement from January to June 2022, and issued a Review Report (EY (2022) Zhuan Zi No. 61641535_B06). For the main financial information and operating status after the audit deadline of the Company’s financial reports, please refer to “XX. Operating status from the closing date of the audit of the financial report to the signing date of this Prospectus” in “Section VIII. Financial Information and Management Analysis” of this Prospectus.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

The main financial data of the Company for January to June 2022 are as follows:

1. Main data of the consolidated balance sheet and consolidated income statement

Unit: RMB0’000

Item	June 30, 2022	December 31, 2021	ROC
Total assets	222,935.15	197,898.70	12.65%
Equity attributable to owners of Beijing Tongmei	149,164.94	140,817.16	5.93%
Item	January - June 2022	January - June 2021	ROC
Operating revenues	50,820.28	39,355.94	29.13%
Net profits attributable to shareholdersof Beijing Tongmei	7,578.93	4,019.10	88.57%
Net profit attributable to shareholders of Beijing Tongmei after deducting non-recurring profit or loss	7,524.82	3,898.40	93.02%

From January to June 2022, the main reasons for the increase in the Company’s revenue and net profit are that: on the one hand, the Company has completed the acquisition of AXT-Tongmei, and directly sells substrate materials to foreign end customers, resulting in an increase in revenue and gross profit; on the other hand, as the downstream market demand has remained robust, the Company’s revenue from the sales of substrate materials increased significantly compared with the same period in the previous year, and the Company’s profit increased as well. Meanwhile, the gross profit margin was further improved. In addition, profits of the Company’s shareholding companies increased significantly on a year-on-year basis, leading to a growth in the Company’s income from investment. In addition, profits of the Company’s shareholding companies increased significantly on a year-on-year basis, leading to a growth in the Company’s income from investment.

2. Main data of the consolidated cash flow statement

Unit: RMB0’000

Item	January to June 2022	January to June 2021	ROC
Net cash flow from operating activities	3,112.58	-6,546.27	-147.55%
Net cash flows from investment activities	-9,767.40	-14,758.95	-33.82%
Net cash flow from financing activities	11,991.74	2,881.60	316.15%
Net increase in cash and cash equivalents	5,491.81	-18,473.05	-129.73%

1-1-10


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

From January to June 2022, the net cash flow generated from the Company’s operating activities increased significantly on a year-on-year basis compared with 2021, mainly due to the Company’s completion of business switching, enhanced profitability and the expansion of operating scale.

**(III)**Estimated performance after the audit base date of the financial reports

The operating revenues of the Company from January to September 2022 are expected to be RMB760.9162-773.8758 million, a year-on-year growth of 22.02%-24.10%; the expected net profits attributable to owners of Beijing Tongmei are RMB102.8665-125.7257 million, a year-on-year growth of 38.28%-69.01%; the expected net profits attributable to owners of Beijing Tongmei less non-recurring gains and losses are RMB103.1135-126.0276 million, a year-on-year growth of 41.62%-73.09%. With the development of downstream industries and the expansion of application areas, the business scale of the Company is expected to expand steadily, and the operating performance for January to September 2022 is estimated to maintain a year-on-year growth trend.

The above financial data for January to September 2022 are preliminarily estimated by the Company’s financial department and shall not constitute the Company’s profit forecast or performance commitment.

1-1-11


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Table of Contents

SECTION I DEFINITIONS		17
SECTION II OVERVIEW		28
I.	PARTICULARS OF THE ISSUER AND THE INTERMEDIARIES OF THIS OFFERING	28
II.	PARTICULARS OF THIS OFFERING	29
III.	MAIN FINANCIAL DATA AND FINANCIAL METRICS OF THE ISSUER DURING THE REPORTING PERIOD	31
IV.	MAIN BUSINESS OF THE ISSUER	31
V.	TECHNOLOGICAL ADVANCEMENT, COMMERCIALIZATION OF TECHNOLOGIES DEVELOPED AND FUTURE DEVELOPMENT STRATEGIES OF THE ISSUER	34
VI.	LISTING STANDARD SELECTED BY THE ISSUER	35
VII.	DESCRIPTION OF THE SATISFACTION BY THE ISSUER OF THE POSITIONING OF THE STAR MARKET	35
VIII.	SPECIAL ARRANGEMENT MADE BY THE ISSUER IN RESPECT OF CORPORATE GOVERNANCE	37
IX.	USE OF OFFERING PROCEEDS BY THE ISSUER	37
SECTION III SUMMARY OF THIS OFFERING		38
I.	PARTICULARS OF THIS OFFERING	38
II.	PERSONS INVOLVED IN THIS OFFERING	39
III.	RELATIONSHIP BETWEEN THE ISSUER AND THE PERSONS INVOLVED IN THIS OFFERING	41
IV.	IMPORTANT DATES OF THIS OFFERING	41
SECTION IV RISK FACTORS		42
I.	TECHNOLOGICAL RISK	42
II.	OPERATING RISK	42
III.	RISK OF MANAGEMENT AND INTERNAL CONTROLS	46
IV.	FINANCIAL RISK	46
V.	LEGAL RISK	48
VI.	RISK OF THE PROJECTS TO BE INVESTED WITH THE OFFERING PROCEEDS	49
VII.	WE AND OUR CONTROLLING SHAREHOLDER AXT ARE LISTED ON THE STAR MARKET AND THE NASDAQ RESPECTIVELY	49
VIII.	OTHER RISKS	50

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

SECTION V BASIC INFORMATION OF THE ISSUER		52
I.	BASIC INFORMATION OF THE ISSUER	52
II.	INCORPORATION AND REORGANIZATION OF THE ISSUER	52
III.	SHAREHOLDING STRUCTURE OF THE ISSUER	64
IV.	INFORMATION ON CONTROLLED SUBSIDIARIES AND EQUITY PARTICIPATION COMPANIES OF THE ISSUER	65
V.	BASIC INFORMATION ON MAJOR SHAREHOLDERS HOLDING MORE THAN 5% SHARES AND ACTUAL CONTROLLER	83
VI	SHARE CAPITAL OF THE ISSUER	94
VII.	OVERVIEW OF DIRECTORS, SUPERVISORS, EXECUTIVES AND CORE TECHNICIANS	127
VIII.	AGREEMENTS BETWEEN THE COMPANY AND DIRECTORS, SUPERVISORS, EXECUTIVES AND CORE TECHNICIANS AND THEIR PERFORMANCE	134
IX.	CHANGES IN DIRECTORS, SUPERVISORS, EXECUTIVES AND CORE TECHNICIANS OF THE COMPANY IN THE PAST TWO YEARS	135
X.	EXTERNAL INVESTMENTS BY DIRECTORS, SUPERVISORS, EXECUTIVES AND CORE TECHNICIANS OF THE COMPANY	136
XI.	SHARES HELD BY DIRECTORS, SUPERVISORS, EXECUTIVES AND CORE TECHNICIANS OF THE COMPANY AND THEIR CLOSE RELATIVES	137
XII.	INCOME OF DIRECTORS, SUPERVISORS, EXECUTIVES, AND CORE TECHNICIANS OF THE COMPANY	138
XIII.	EQUITY INCENTIVES AND RELATED ARRANGEMENTS OF THE ISSUER BEFORE THIS OFFERING	140
XIV.	EMPLOYEES AND THEIR SOCIAL SECURITY	145
SECTION VI BUSINESS AND TECHNOLOGY		149
I.	DESCRIPTION OF THE ISSUER’S MAIN BUSINESS AND MAIN PRODUCTS AND SERVICES	149
II.	BRIEF DESCRIPTION OF THE INDUSTRY OF THE ISSUER AND COMPETITION THEREIN	171
III.	SALES AND MAIN CUSTOMERS OF THE ISSUER	221
IV.	PROCUREMENT OF RAW MATERIALS BY AND MAIN SUPPLIERS OF THE ISSUER	225
V.	MAIN RESOURCE ELEMENTS, SUCH AS FIXED ASSETS AND INTANGIBLE ASSETS, HAVING MAJOR IMPACT ON THE MAIN BUSINESS	230
VI.	THE COMPANY’S CORE TECHNOLOGIES	243
VII.	OVERSEAS OPERATIONS OF THE ISSUER	260

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

SECTION VII CORPORATE GOVERNANCE AND INDEPENDENCE		261
I.	ESTABLISHMENT, PERFECTION AND OPERATION OF THE SYSTEM FOR THE GENERAL MEETING OF SHAREHOLDERS, THE BOARD OF DIRECTORS, THE BOARD OF SUPERVISORS, INDEPENDENT DIRECTORS, THE SECRETARY OF THE BOARD OF DIRECTORS, AND THE SPECIAL COMMITTEES OF THE BOARD OF DIRECTORS OF THE COMPANY	261
II.	SHARES WITH SPECIAL VOTING RIGHTS OF THE ISSUER	267
III.	CONTROL STRUCTURE BY AGREEMENT OF THE ISSUER	267
IV.	MANAGEMENT’S SELF-ASSESSMENT OF INTERNAL CONTROLS AND CERTIFIED PUBLIC ACCOUNTANTS’ AUTHENTICATION OPINION	267
V.	FUND OCCUPATION AND PROVISION OF GUARANTEES FOR EXTERNAL PARTIES OF THE ISSUER	271
VI.	VIOLATIONS OF LAWS AND REGULATIONS OF THE ISSUER	272
VII.	SELF-MANAGEMENT AND GOING CONCERN OF THE ISSUER	279
VIII.	HORIZONTAL COMPETITION	281
IX.	RELATED PARTIES AND RELATED PARTY RELATIONSHIP	282
X.	RELATED PARTY TRANSACTIONS	286
XI.	DECISION-MAKING PROCEDURES OF RELATED PARTY TRANSACTIONS AND OPTIONS OF INDEPENDENT DIRECTORS DURING THE REPORTING PERIOD	303
XII.	CHANGES IN RELATED PARTIES	304
SECTION VIII FINANCIAL INFORMATION AND MANAGEMENT ANALYSIS		305
I.	AUDIT OPINIONS OF THE CERTIFIED PUBLIC ACCOUNTANT	305
II.	AUDITED FINANCIAL STATEMENTS	305
III.	BASIS OF PREPARATION OF FINANCIAL STATEMENTS AND SCOPE OF CONSOLIDATED STATEMENTS	317
IV.	KEY AUDIT MATTERS AND CRITERIA FOR DETERMINING MAJOR MATTERS OR LEVEL OF SIGNIFICANCE RELATED TO FINANCIAL INFORMATION	319
V.	PRODUCT (OR SERVICE) CHARACTERISTICS, BUSINESS MODEL, INDUSTRY COMPETITION, EXTERNAL MARKET ENVIRONMENT AND OTHER FACTORS AND THEIR CHANGING TRENDS, AS WELL AS THEIR POSSIBLE IMPACT OR RISK ON FUTURE PROFITABILITY (OPERATING CAPACITY) OR FINANCIAL CONDITION	321
VI.	SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES	324
VII.	STATEMENT OF NON-RECURRING PROFIT OR LOSS AS VERIFIED BY THE CERTIFIED PUBLIC ACCOUNTANT	341
VIII.	MAJOR TAXES OF THE COMPANY	345
IX.	SEGMENT INFORMATION	347
X.	KEY FINANCIAL INDICATORS OF THE ISSUER	347

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

XI.	ANALYSIS OF OPERATING RESULTS	350
XII.	ANALYSIS OF ASSET QUALITY	392
XIII.	ANALYSIS OF LIQUIDITY	417
XIV.	ANALYSIS OF CASH FLOW	420
XV.	ANALYSIS OF CAPITAL EXPENDITURES	423
XVI.	SIGNIFICANT CHANGES OR RISK TRENDS IN THE ISSUER’S LIQUIDITY THAT HAVE OCCURRED OR MAY OCCUR, AND THE ISSUER’S SPECIFIC RESPONSIVE MEASURES TO LIQUIDITY RISKS	424
XVII.	WHETHER THERE ARE MATERIAL ADVERSE CHANGES OR RISK FACTORS IN THE ISSUER’S ABILITY TO CONTINUE AS A GOING CONCERN, AND THE BASIS FOR THE MANAGEMENT’S SELF-EVALUATION	424
XVIII.	SUBSEQUENT EVENTS, CONTINGENCIES AND OTHER SIGNIFICANT EVENTS	425
XIX.	PROFIT FORECAST	425
XX.	OPERATING STATUS FROM THE CLOSING DATE OF THE AUDIT OF THE FINANCIAL REPORT TO THE SIGNING DATE OF THIS PROSPECTUS	425
SECTION IX USE OF OFFERING PROCEEDS AND FUTURE DEVELOPMENT PLANNING		429
I.	USE PLANNING OF OFFERING PROCEEDS FOR THIS OFFERING	429
II.	RELATIONS BETWEEN THE PROJECT FINANCED BY OFFERING PROCEEDS AND THE COMPANY’S EXISTING PRINCIPAL BUSINESS	434
III.	DESCRIPTION OF PARTICULARS OF THE PROJECT FINANCED BY OFFERING PROCEEDS	434
IV.	BUSINESS DEVELOPMENT GOALS OF THE COMPANY	450
SECTION X INVESTOR PROTECTION		453
I.	MAIN ARRANGEMENT FOR THE ISSUER’S INVESTOR RELATIONS	453
II.	DIVIDEND DISTRIBUTION POLICY OF THE ISSUER	454
III.	DISTRIBUTION POLICY FOR ROLLED-OVER PROFITS BEFORE THIS OFFERING	457
IV.	SHAREHOLDER VOTING MECHANISM OF THE ISSUER	457
V.	IMPORTANT COMMITMENTS MADE BY ALL PARTIES CONCERNED IN THIS OFFERING AS WELL AS THEIR FULFILLMENT	458

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

SECTION XI OTHER IMPORTANT MATTERS		477
I.	MAJOR CONTRACTS	477
II.	EXTERNAL GUARANTEES	477
III.	MAJOR LITIGATION OR ARBITRATION MATTERS	487
IV.	MAJOR VIOLATIONS AGAINST THE LAW BY THE CONTROLLING SHAREHOLDER AND ACTUAL CONTROLLER OF THE ISSUER DURING THE REPORTING PERIOD	491
SECTION XII REPRESENTATIONS
SECTION XIII APPENDICES		497
APPENDIX I: MAIN PROPERTIES AND LAND USE RIGHTS OF THE ISSUER AND ITS SUBSIDIARIES		498
APPENDIX II: PATENTS OF THE ISSUER AND ITS SUBSIDIARIES		511
APPENDIX III: MAIN PATENTS GRANTED BY AXT TO THE ISSUER AND ITS CONTROLLED SUBSIDIARIES		520
APPENDIX IV: MAIN TRADEMARKS LICENSED BY AXT TO THE ISSUER AND ITS CONTROLLED SUBSIDIARIES		522

1-1-16


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Section I Definitions

For purpose of this Prospectus, unless the context otherwise indicates, the following terms shall have the meanings set forth below:


I. Basic terms
Issuer, the Company or we	means	Beijing Tongmei Xtal Technology Co., Ltd. and its predecessor Beijing Tongmei Xtal Technology Limited.
Joint Stock Company/ Beijing Tongmei	means	Beijing Tongmei Xtal Technology Co., Ltd.
Tongmei Limited	means	Beijing Tongmei Xtal Technology Limited, the predecessor of the Issuer.
Baoding Tongmei	means	Baoding Tongmei Xtal Manufacture Co., Ltd., a wholly owned subsidiary of the Issuer.
Chaoyang Tongmei	means	Chaoyang Tongmei Xtal Technology Co., Ltd., a wholly owned subsidiary of the Issuer.
AXT-Tongmei	means	AXT-Tongmei Inc., a wholly owned subsidiary of the Issuer incorporated in U.S.A.
Nanjing Jinmei	means	Nanjing Jinmei Gallium Co., Ltd., a wholly owned subsidiary of the Issuer.
Chaoyang Jinmei	means	Chaoyang Jinmei Gallium Co., Ltd., a wholly owned subsidiary of the Issuer.
Beijing Boyu	means	Beijing Boyu Semiconductor Vessel Technology Co., Ltd., a wholly owned subsidiary of the Issuer.
Tianjin Boyu	means	Boyu (Tianjin) Semiconductor Materials Co., Ltd., a wholly owned subsidiary of Beijing Boyu.
Chaoyang Boyu	means	Boyu (Chaoyang) Semiconductor Materials Co., Ltd., a wholly owned subsidiary of Beijing Boyu.
Chaoyang Xinmei	means	Chaoyang Xinmei High-purity Semiconductor Materials Co., Ltd., a subsidiary controlled by the Issuer.
Chaoyang Shuomei	means	Chaoyang Shuomei High-purity Semiconductor Materials Co., Ltd., a subsidiary controlled by the Issuer.
Maanshan Gallium	means	Jinmei Gallium (Maanshan) Co., Ltd. (which has been deregistered), an investee of Beijing Boyu, in which AXT held 90% equity interests and Beijing Boyu held 10% equity interests.
Xing’an Gallium	means	Xiaoyi Xing’an Gallium Co., Ltd., an investee of Nanjing Jinmei.
Kaimei Quartz	means	Chaoyang Kaimei Quartz Co., Ltd., an investee of the Issuer
AXT	means	AXT, Inc., the controlling shareholder of the Issuer, a company trade on the NASDAQ under the symbol “AXTI”.
Jinchao Business Management	means	Nanjing Jinchao Business Management Partnership (LP).
Beijing Bomeilian	means	Beijing Bomeilian Special Ceramics Co., Ltd.
Zhongke Hengye	means	Zhongke Hengye (Tianjin) Technology Development Partnership (LP).
Beijing Dingmei	means	Beijing Dingmei Technology Development Center (LP).
Beijing Liaoyan	means	Beijing Liaoyan Technology Development Center (LP).

1-1-17


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Boyu Yingchuang	means	Boyu Yingchuang (Tianjing) Technology Development Partnership (LP).
Boyu Hengye	means	Boyu Hengye (Tianjing) Technology Development Partnership (LP).
Haitong New Driving Force	means	Liaoning Haitong New Driving Force Equity Investment Fund Partnership (LP).
Haitong New Energy	means	Liaoning Haitong New Energy Low-carbon Industry Equity Investment Fund Co., Ltd.
Haitong Innovation	means	Haitong Innovation Securities Investment Co., Ltd.
Anxin Industrial Investment	means	Fujian Anxin Industrial Investment Fund Partnership (LP).
Jinggangshan Meicheng	means	Jinggangshan Meicheng Equity Investment Partnership (LP).
Huadeng II	means	Hefei Huadeng II Integrated Circuit Industrial Investment Fund Partnership (LP).
Qingdao Xinxing	means	Qingdao Xinxing I Equity Investment Fund Partnership (LP).
Qiji Hangzhou	means	Qiji (Hangzhou) Investment Counseling Co., Ltd.
Gongqingcheng Yihua	means	Gongqingcheng Yihua Tongze Investment Partnership (LP).
Shangrong Baoying	means	Shangrong Baoying (Ningbo) Investment Center (LP).
Xiamen Heyong	means	Xiamen Heyong Zhicheng Equity Investment Partnership (LP).
Hangzhou Jingyue	means	Hangzhou Jingyue Technology Development Partnership (LP).
Lumentime Semiconductor	means	Lumentime Semiconductor Equipment (Shanghai) Co., Ltd.
Liaoning Zhuomei	means	Liaoning Zhuomei Hi-tech Equity Investment Fund Partnership (LP).
Chaoyang Limei	means	Chaoyang Limei Semiconductor Technology Co., Ltd., a wholly owned subsidiary of AXT.
Dongfang Hi-purity	means	Donghai Dongfang Hi-purity Electronic Materials Co., Ltd., an investee of AXT, also a former investee of the Issuer.
Tongli Germanium	means	Xilingol Tongli Germanium Co., Ltd., an investee of AXT.
Jiamei Hi-purity	means	Mount Emei Jiamei Hi-purity Materials Co., Ltd., an investee of AXT.
Beijing Jiya	means	Beijing Jiya Semiconductor Materials Co., Ltd., an investee of AXT.
Industrial Development Zone Company	means	Beijing Tongzhou Industrial Development Zone Company.
SICC	means	SICC CO., LTD. (688234.SH)
NSIG	means	National Silicon Industry Group Co., Ltd. (stock code: 688126.SH).
Osram	means	Osram Opto Semiconductors GmbH, a customer of the Issuer, which is a company incorporated in 1906 and traded on the Frankfurt Stock Exchange under the symbol “OSR.DF”, and a promoter of innovations in the field of optoelectronic semiconductor.
Meta	means	Meta Platforms, Inc., formerly known as Facebook, a customer of the Issuer, which is a well-known global photo sharing and social media platform incorporated in 2004, traded on the NASDAQ under the symbol “FB.O”.
IQE	means	IQE, Inc., a customer of the Issuer, which is a global leading designer and manufacturer of compound semiconductor wafers incorporated in 1988 and traded on the London Stock Exchange under the symbol “IQE.L”.
II-VI	means	II-VI. Inc., a customer of the Issuer, which is a U.S.A.-based engineering material and optoelectronic component company	1-1-18


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

			incorporated in 1971 and traded on the NASDAQ under the symbol “IIVI.O”.
Qorvo		means	Qorvo, Inc., a customer of the Issuer, which is a semiconductor company incorporated in 2015 resulting from a merger, traded on the NASDAQ under the symbol “QRVO.O”, and mainly engaged in the design and production of RF systems.
Skyworks		means	Skyworks Solutions, Inc., a customer of the Issuer, which is a company incorporated in 1962, traded on the NASDAQ under the symbol “SWKS.O”, and mainly engaged in the research and development of innovative analog semiconductors and related applications.
IPG		means	IPG Photonics Corporation, a customer of the Issuer, which is a well-known fiber laser manufacturer incorporated in 1990 and traded on the NASDAQ under the symbol “IPGP.O”.
Broadcom		means	Broadcom Inc., a customer of the Issuer, which is a global semiconductor and infrastructure product supplier incorporated in 1961 and traded on the NASDAQ under the symbol “AVGO.O”, and was acquired by and merged with Avago in 2016 and renamed as “Broadcom”.
Trumpf		means	Trumpf Group, a customer of the Issuer, which is one of the largest laser device manufacturers in the world incorporated in 1923.
nLight Photonics	means	nLight Inc., a customer of the Issuer, which is a company incorporated in 2004 and traded on the NASDAQ under the symbol “LASR.O”, and mainly engaged in the production of semiconductor laser modules and single emitters.
SolAero	means	SolAero Technologies, Corp., a customer of the Issuer, which is a global leading manufacturer of solar panels incorporated in 1998.
Azur Space	means	Azur Space Solar Power GmbH, a customer of the Issuer, which is a company incorporated in 1964 and mainly engaged in the development and production of multi-junction solar cells.
Masimo	means	Masimo Corporation, a customer of the Issuer, which is a global medical technology company incorporated in 1989 and traded on the NASDAQ under the symbol “MASI.O”.
Excelitas	means	Excelitas Technologies Corporation, a customer of the Issuer, which is a major supplier of core chips for MEMS infrared thermopile sensors, and takes the lead in the design and production of high-performance pyroelectric detector, thermopile detector and sensor modules in the world.
Alpha Plus	means	Alpha Plus Co., Ltd., a customer of the Issuer, a manufacturer of vacuum components and vacuum evaporation devices, incorporated in 2000 and supplying its products to major Korean OLED manufacturers.
LouwersHanique	means	LouwersHanique BV, a customer of the Issuer, which is a manufacturer of precision glasses and ceramics incorporated in 2012 after consolidation of Louwers Glastechniek (founded in 1961) and Pulles & Hanique (founded in 1950) , and headquartered in the Netherlands.	1-1-19


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Win Semiconductor	means	Win Semiconductor Corp., a customer of the Issuer, which is the largest GaAs wafer fab in the world incorporated in 1999 and traded on the Taiwan Stock Exchange under “3105.TW”.
Landmark Optoelectronics	means	Landmark Optoelectronics Corp., a customer of the Issuer, which is a company incorporated in 1997 and traded on the Taiwan Stock Exchange under “3081.TW”, and mainly engaged in the epitaxial growth of InP.
Visual Photonics Epitaxy	means	Visual Photonics Epitaxy Corp., a customer of the Issuer, which is a company incorporated in 1996 and traded on the Taiwan Stock Exchange under “2455.TW”, and mainly engaged in the epitaxial growth of GaAs and InP.
Epistar	means	Epistar Corporation, a customer of the Issuer, which is a company incorporated in 1996 and traded on the Taiwan Stock Exchange under “2448.TW”, and mainly engaged in the production of super flex LED Epi wafers and grains.
San’an Optoelectronics	means	San’an Optoelectronics Co., Ltd., a customer of the Issuer, which is a domestic listed company (stock code: 600703.SH) incorporated in 1993 and one of the leading semiconductor lighting engineering companies in China.
Kingsoon	means	Nanchang Kingsoon Optoelectronic Co., Ltd., a customer of the Issuer, which is a company incorporated in 2015 and mainly engaged in the research, development, production and sale of AlGaInP LED epilayers, chips, GaAs solar cell epilayers and other products.
Argosun	means	Anhui Argosun Electronic New Materials Co., Ltd, a customer of the Issuer, which is a company incorporated in 2012 and mainly engaged in the research, development and production of high-purity chemicals for use in the electronics industry.
Jiangxi Jiayin	means	Jiangxi Jiayin Opto-electronic Material Co., Ltd., a customer of the Issuer, which is a company incorporated in 2011 and mainly engaged in the research, development and production of LED epitaxy-MO sources (high-purity metal organic compounds), methyl iodide, hydroiodic acid and other chemicals for use on semiconductors.
Everbright Photonics	means	Suzhou Everbright Photonics Co., Ltd., a customer of the Issuer, which is a domestic manufacturer of semiconductor laser chips, devices and other core components for use in the laser industry incorporated in 2012.
Sumitomo	means	Sumitomo Electric Industries, Ltd., one of the customers and main competitors of the Issuer, which is a well-known Japanese material and component company incorporated in 1920 and traded on the Tokyo Stock Exchange under “5802.T”, and the business of which covers GaAs and InP substrates.
Freiberger	means	Freiberger Compound Materials GmbH, one of the customers and main competitors of the Issuer, which is a company incorporated in 1949 and the business of which covers GaAs substrates.
JX Nippon	means	JX Nippon Mining & Metals Corporation, one of the main competitors of the Issuer, which is a company incorporated in 2010 and the business of which covers InP substrates.	1-1-20


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Umicore	means	Umicore Inc. Belgium., a customer of the Issuer, one of the main competitors of the Issuer, which is a Belgium company incorporated in 1989 and traded on the Euronext under the symbol “UMI.BR”, and the business of which covers germanium substrates.
US Attorney	means	Burks Johansson LLP.
MIIT	means	the Ministry of Industry and Information of the People’s Republic of China.
NDRC	means	the National Development and Reform Commission of the People’s Republic of China.
MOF	means	the Ministry of Finance of the People’s Republic of China.
CSRC	means	the China Securities Regulatory Commission.
Company Law	means	the Company Law of the People’s Republic of China.
Securities Law	means	the Securities Law of the People’s Republic of China.
AOA	means	the Articles of Association of Beijing Tongmei Xtal Technology Co., Ltd.
Draft AOA	means	the Articles of Association of Beijing Tongmei Xtal Technology Co., Ltd. (draft) that will take effect after the completion of this Offering.
NASDAQ	means	the National Association of Securities Dealers Automated Quotations.
Sponsor, Lead Underwriter or Haitong Securities	means	Haitong Securities Co., Ltd.
Issuer’s Attorney or KWM	means	King & Wood Mallesons Beijing Office.
Reporting Accountant or Ernst & Young Huaming	means	Ernst & Young Huaming Certified Public Accountants (Special General Partnership).
Appraiser or Sinotop Appraisal	means	Beijing Sinotop Appraisal Co., Ltd.
This Offering	means	the offering of up to 98,390,000 shares this time.
Reporting period	means	2019, 2020 and 2021
RMB, RMB0’000 and RMB100,000,000	means	Yuan, ten thousand Yuan and one hundred million Yuan.
II. Professional terms
Semiconductor	means	a material the conductivity of which in normal atmosphere temperature is between that of conductor and insulator, that is classified into integrated circuits (“IC”), discrete devices, photoelectrons and sensors by manufacturing technology, and is widely used in communication, computer, consumer electronics, network technology, automobile, aviation, aerospace and other industries.
Substrate or wafer	means	a thin slice of pure single crystal having particular crystallographic planes and appropriate electric, optic and mechanical properties, that is obtained through cutting, grinding and polishing a crystal along particular crystallization direction and used for the growth of epitaxial layers.
Single crystal or crystal	means	that the atoms in the crystal are regularly and periodically arranged in three dimensions, or the entire crystal is composed of the same lattice in three dimensions, and the atoms in the entire crystal exhibits long-ranger order.	1-1-21


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Poly-crystal	means	an object composed of randomly oriented crystals, the atoms in which are irregularly arranged.
III-V semiconductor materials	means	compounds formed by combining elements from Group IIIA (boron, aluminum, gallium, indium and thallium) and elements from Group VA (nitrogen, phosphorus, arsenic, antimony and bismuth).
InP substrate	means	indium phosphide, which is an important semiconductor compound featuring high saturated electron drift velocity, strong radiation resistance, good thermal conductivity, high photoelectric conversion efficiency and large bandgap width, and widely used in optical communication, optoelectronic devices, high-frequency millimeter wave devices, photoelectric IC lasers, optical detectors and other fields.
GaAs substrate	means	gallium arsenide, which is an important semiconductor compound widely used in the production of RF microwave devices because semiconductor devices produced using GaAs feature good performance in high frequency, high temperature and low temperature, low noise and strong radiation resistance.
Germanium substrate	means	germanium single crystal. Germanium (Ge) is a rare metal element, grayish white, brittle and has unilateral conductivity. Germanium is rarely distributed in nature, and its electron mobility and hole mobility are higher than those of silicon, so it is an excellent semiconductor material. Germanium is widely used in semiconductor, aviation and aerospace measurement and control, detection for nuclear physics, optical fiber communication, infrared optics, solar cells, biomedicine and other fields.
PBN	means	pyrolytic boron nitride, a special ceramic material that is white, non-toxic, nonporous and easy to process, and currently widely used in LEC and VGF series crucibles for in situ synthesis of GaAs, InP and GaP single crystals, and other fields.
High-purity gallium	means	gallium with a total impurity content of less than 0.0001%.
High-purity arsenic	means	arsenic with a total impurity content of less than 0.0001%.
Gallium	means	pure gallium that is extracted from bauxite or sphalerite and then obtained through electrolysis, which is a blue-grey or silvery white metal.
Indium	means	a silvery white and pale blue metal that is very soft (can be scratched with nails), flexible, extensible and laminable, and mainly used in the production of low melting alloys, bearing alloys, semiconductors and electric light sources.
Germanium ingot	means	a silvery white and brittle metal used for the production of semiconductor devices. Germanium single crystals containing particular trace impurities can be used for the production of various kinds of transistors, rectifiers and other devices. High-purity germanium single crystals have high refractive index, and are transparent to infrared radiation but opaque to visible light, so they are suitable for the production of prisms or optical lens for the transmission of infrared light. Germanium compounds are used for the	1-1-22


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

		production of fluorescent plates and glasses with high refractive index, and radiation detectors and thermoelectric materials.
6N, 7N, 8N	means	a unit of purity, where 6N refers to materials with a total impurity content of less than 0.0001%, and so on and so forth.
Boron trichloride	means	a chemical used as a dopant source for semiconductor silicon or catalyst for organic synthesis, or for the production of high-purity or organic boron.
VGF method	means	vertical gradient freeze method, which is similar to VB method. Its main difference from VB method is that VGF method eliminates crystal descending travel mechanism and rotation mechanism, making the crystal growth interface more stable, and is suitable for the growth of ultra-low dislocation GaAs single crystals.
HB method	means	horizontal Bridgman method, which is a horizontal crystal growth method as follows: there are high temperature and low temperature zones in the furnace chamber along the horizontal direction; first put the crucible in the high temperature zone in the furnace to melt all the raw materials; when the top of the seed crystals starts to melt, the crucible starts to move toward the low temperature zone, the melt continues to crystallize, and the crystals slowly grow up. This method is used for the growth of GaAs and some compound semiconductor crystals.
VB method	means	vertical Bridgman method, which is a vertical crystal growth method that produces cylindrical and low-defect GaAs ingots with uniform height for use as crystal sources.
LEC method	means	liquid encapsulation Czochralski method, which is a method for pulling single crystals, also called direct pull single crystal technique, that pulls up single crystals from the melt, i.e., using small seed crystals to gradually pull up large-diameter single crystal ingots from the melt vertically.
LED	means	light emitting diode, which is a semiconductor devices that emits light, and widely used in the field of semiconductor lighting.
OLED	means	organic light emitting display, which is called the third generation display technology, and is thinner, lighter and flexible with low energy consumption and high luminous efficacy, and is mainly used in TVs, computers (displays), mobile phones, tablets and other fields.
Mini LED	means	mini light emitting diode, also called sub-millimeter light emitting diode, which is a light emitting diode about 100μm in size.
Micro LED	means	micro light emitting diode, which further thins, miniaturizes and arrays LED structure, and is only about 1-10μm in size.
Semiconductor laser	means	a laser that uses semiconductor materials as working materials.
VCSEL	means	vertical-cavity surface-emitting laser, which is a semiconductor laser that emits laser vertical to the substrate. Multiple lasers can be arranged along multiple directions on the substrate, forming parallel light sources.
RF device	means	a device that produces high-frequency alternating electromagnetic waves and is commonly used in mobile phones, GPS, portable wireless devices and other fields.	1-1-23


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Power amplifier	means	an amplifier that can produce the maximum power output to drive certain load at a given distortion rate, including AB type, D type and digital power amplifiers, where AB type power amplifiers amplify signals by amplifying electric current through transistors, D type power amplifiers simulate analog audio amplitude using pulse width, and digital power amplifiers amplify power using digital signals.
Low-noise amplifier	means	an amplifier with a very low noise figure, which is generally used as a high-frequency or medium-frequency front amplifier for various radio receivers, and amplifying circuit for high-sensitivity electronic detectors.
Wearable device	means	a portable device that can be directly worn or integrated with clothes or accessories of users, which is not just a hardware equipment, but also can perform strong functions through software support, data interaction and cloud interaction.
Epilayer	means	a particular single crystal film growing out of a wafer using epitaxy technology, including substrate wafer and epitaxial film.
MO source	means	a high-purity metal organic compound, which is one of the main raw materials for the production of LED epilayers using MOCVD technology.
MOCVD	means	metal-organic chemical vapor deposition.
MBE	means	molecular beam epitaxy, which is a special vacuum coating process in which an epitaxial film is deposited on a substrate by spraying molecular beams of constituent elements of thin film to the surface of substrate under a ultra-high vacuum condition.
Bandgap width	means	the energy zone in an energy band structure in which the energy state density is zero, which is often used to express the energy range between valence band and conduction band. The bandgap width decides whether a material is a semiconductor or an insulator.
Dislocation density	means	the total length of dislocation lines in a unit volume of a crystal. The lower that the dislocation density is, the better quality that a crystal is of.
Energy band transition	means	the process that electrons transit from an energy level to another energy level, to complete the transition between ground state and excited state, which transition is effectuated directly on certain semiconductor materials, and indirectly on other semiconductor materials through the participation of phonons.
Breakdown electric field	means	the voltage required to cause a breakdown of dielectric, i.e. the dielectric loses its dielectric properties and becomes a conductor under strong electric field action. Such voltage is called breakdown voltage, and the electric field intensity upon breakdown of dielectric is called breakdown field intensity.
Electron mobility	means	that within a certain period of time, the path that the electron travels is not the product of its velocity and time, but the net length traveled after multiple scatterings. The higher the voltage is, the more frequently the scatterings occur; the longer the time is, the more scattering events occur; the larger the sectional area is, the lower the scattering frequency is. So the net path of electron movement is	1-1-24


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

		inversely proportional to the voltage and time. The physical quantity of the frequency of scattering events can be defined accordingly, which is called electron mobility μ.
Hole mobility	means	a measurement of physical quantity indicating the speed of movement of electrons inside a semiconductor under the electric field action.
Thermal conductivity	means	the heat transferred through unit horizontal sectional area per unit time when the vertical downward gradient of temperature is 1^0^C/m.
Optical module	means	a module composed of optoelectronic devices (including transmitter and receiver), functional circuit, optical interface, etc., in which the transmitting end converts electric signals into optical signals, and after transmission via optical fiber, the receiving end converts optical signals into electrical signals.
TOSA	means	transmitter optical subassembly, the main role of which is to convert electric signals into optical signals (E/O), and judge their optical power, threshold and other performance parameters.
ROSA	means	receiver optical subassembly, the role of which is to convert optical signals into electrical signals (O/E), and judge their sensitivity (SEN) and other performance parameters.
DFB	means	distributed feedback laser, which mainly uses semiconductor materials, including without limitation GaSb, GaAs, InP and ZnS, as media, and features excellent mono-chromaticity, i.e. spectral purity. Its line width is generally less than 1MHz and it has a very high side-mode suppression ratio, even as high as 40-50dB and over.
EML	means	electro-absorption modulation laser, which is an integrated device of electro-absorption modulator (EAM) and DFB laser (LD), and an electro-absorption modulator that uses the quantum-limited Stark effect (QCSE) and uses internal grating coupling to determine the wavelength DFB laser, an integrated high-performance optical communication light source with small size and low wavelength.
mm	means	millimeter or 10^-3^ meter, used for describing the length of diameter of a semiconductor wafer.
μm	means	micrometer or 10^-6^ meter.
SEMI	means	the Semiconductor Equipment and Materials International, which is committed to promoting the overall development of micro-electronics, flat panel displays, solar photovoltaic and other industry supply chains.
Yole	means	YoleDeveloppement, a French market research and strategic counseling firm focusing on the market research and consultation in respect of the field of semiconductor and micro-manufacturing technologies.

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.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

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.

**I.**Particulars of the Issuer and the Intermediaries of this Offering

(I) Particulars of the Issuer
Name of the Issuer	Beijing Tongmei Xtal Technology Co., Ltd.	Date of establishment	September 5, 1998
Registered capital	RMB885,426,756	Legal representative	MORRIS SHEN-SHIH YOUNG
Registered address	No. 2, East 2nd Street, Tongzhou Industrial Development Zone, Beijing	Main place of production and business	No. 2, East 2nd Street, Tongzhou Industrial Development Zone, Beijing
Controlling shareholder	AXT. Inc.	Actual controller	None
Industry	Manufacturing of computer, communication and other electronic equipment (Code: C39)	Other exchanges on which the Company is or is intended to be traded or listed	None
(II) Intermediaries of this Offering
Sponsor	Haitong Securities Co., Ltd.	Lead Underwriter	Haitong Securities Co., Ltd.
Issuer’s Attorney	King & Wood Mallesons Beijing Office	Joint lead underwriter	None
Auditor	Ernst & Young Huaming Certified Public Accountants (Special General Partnership)	Appraiser	Beijing Sinotop Appraisal Co., Ltd.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

**II.**Particulars of this Offering

(I) Particulars of this Offering
Type of shares	RMB-denominated ordinary shares (A-shares)
Par value	RMB1.00
Number of shares offered	Up to 98,390,000 shares	% of the total share capital following this Offering	At least 10.00%
Incl.: Number of new shares offered	Up to 98,390,000 shares	% of the total share capital following this Offering	At least 10.00%
Number of share publicly sold by the existing shareholders	-	% of the total share capital following this Offering	-
Total share capital following this Offering	Up to 983,816,756 shares
Offering price per share	RMB[ ]
Price-to-earnings ratio for this Offering	[ ]
Net assets per share before this Offering	RMB[ ] per share	Earnings per share before this Offering	[ ]
Net assets per share following this Offering	RMB[ ] per share	Earnings per share following this Offering	[ ]
Price-to-book ratio for this Offering	[ ]
Pricing mode	The Issuer and the Lead Underwriter will determine the offering price through inquiring of the securities companies, fund management companies, trust companies, financial companies, insurance companies, qualified foreign institutional investors, private fund managers and other professional institutional investors registered with the Securities Association of China.
Mode of offering	The shares will be offered through inquiry of and allocation to offline offerees and online subscription, or in such other manner as approved by the securities regulatory authorities.
Targets of offering	Qualified offerees and individuals, corporations and other investors who have opened accounts on the STAR Market, except for those prohibited by the applicable laws and regulations of the country.
Mode of underwriting	Firm commitment underwriting
Shareholders proposing to publicly sell their shares	N/A

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Principle of allocation of distribution cost	-
Total offering proceeds	RMB[ ]
Net offering proceeds	RMB[ ]
Use of offering proceeds	GaAs semiconductor material project (GaAs (crystal) semiconductor material project)
		Indium phosphide (wafer) semiconductor material project
		Semiconductor material research and development project
		Replenishment of working capital
Estimated distribution cost	The total distribution cost of this Offering is about RMB[ ], including RMB[ ] of underwriter’s fee and sponsor’s fee, RMB[ ] of auditor’s fee and capital verification fee, RMB[ ] of attorney’s fee, RMB[ ] of information disclosure cost, RMB[ ] of distribution service fee and RMB[ ] of miscellaneous expenses.
(II) Important dates of this Offering
Publication date of offering announcement	[ ]
Commencement date of inquiry and recommendation	[ ]
Publication date of pricing announcement	[ ]
Date of subscription and date of payment	[ ]
Listing date of the shares	[ ]

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

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

In RMB0’000

Item	December 31, 2021	December 31, 2020	December 31, 2019
Total assets	197,898.70	180,304.38	133,621.60
Owners’ equity attributable to owner of Beijing Tongmei	140,817.16	97,181.93	90,194.28
Debt-to-asset ratio (parent)	16.71%	38.88%	44.24%
Item	2021	2020	2019
Operating revenue	85,734.52	58,317.04	46,222.68
Net profit	9,403.45	6,027.42	-2,806.35
Net profit attributable to the shareholders of Beijing Tongmei	9,458.76	4,822.19	-3,338.90
Net profit attributable to shareholders of Beijing Tongmei after deduction of extraordinary gain or loss	8,992.18	898.18	-1,505.14
Basic earnings per share	0.11	N/A	N/A
Diluted earnings per share	0.11	N/A	N/A
Weighted average return on net assets	7.88%	5.04%	-3.68%
Net cash flows from operating activities	-1,953.44	5,525.03	9,767.77
Cash dividends	-	-	-
Ratio of R&D expenses to operating revenue	10.52%	7.73%	5.80%

**IV.**Main business of the Issuer

(I)	Main business

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.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

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.

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

Main fields of downstream application	Name of customer
Semiconductor substrate materials
5G, data center and optical fiber communication	Customer A, Landmark Optoelectronics, Win Semiconductor, Customer C, IQE, Broadcom, Qorvo and Skyworks
New-generation displays (including Mini LED and Micro LED)	Orsam, Broadcom, Epistar and San’an Optoelectronics
Artificial intelligence and driverless car	Customer A, Landmark Optoelectronics, Win Semiconductor, Visual Photonics Epitaxy, Customer C and Meta
Wearable devices	Masimo and Alta Devices
Aerospace	Customer B, SolAero, Azur Space and Kingsoon
Industrial lasers	IPG, Trumpf, nLight Photonics, Excelitas and Everbright Photonics
PBN crucibles
Crystal growth crucibles	Sumitomo, Freiberger, Vital Materials Co., Ltd. and Yunnan Lincang Xinyuan Germanium Industry Co., Ltd.
OLED crucibles	Beijing Orient Electronics, Tianma Micro-electronics, China Star Optoelectronics Technology and Visionox
High-purity materials
MO source	Argosun and Jiangxi Jiayin

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

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

In RMB0’000

Item	2021		2020		2019
		Amount	%	Amount	%	Amount	%
InP substrate	28,179.15	32.99%	12,753.63	21.87%	10,971.16	23.74%
GaAs substrate	25,547.46	29.91%	23,536.79	40.37%	17,987.74	38.92%
Ge substrate	8,948.57	10.48%	8,055.63	13.82%	6,812.40	14.74%
PBN crucible	5,502.47	6.44%	5,186.24	8.89%	4,729.22	10.23%
High-purity metals and compounds	12,201.00	14.29%	5,501.42	9.43%	2,531.92	5.48%
Others*	5,025.79	5.88%	3,275.00	5.62%	3,188.36	6.90%
Revenue from main business	85,404.44	100.00%	58,308.72	100.00%	46,220.79	100.00%

*Mainly including precise crucible regeneration services and sale of other PBN materials, 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 China and increasing maturity of 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 1-1-31


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

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 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 has also formed a complete and independently controllable system of core technologies related to III-V compound semiconductor materials.

As of June 30, 2022, we own 61 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 specialized, 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 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. 1-1-32


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

**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

(I)	We satisfy the requirements for industry
Industry in which we operate	√New-generation information technology	According to the Guidelines on the Industrial Classification for the Listed Companies (2012 Revision) published by the CSRC, we are classified into the “computer, communication and other electronic equipment manufacturing industry” (industrial code: C39). According to the Industrial Classification for National Economic Activities (GB/T 4754-2017) published by the National Bureau of Statistics, we are classified into the “manufacturing of electronic components and special-purpose electronic materials” (industrial code: C3985) under the “computer, communication and other electronic equipment manufacturing industry”. According to the Classification of Strategic Emerging Industries (2018) published by the National Bureau of Statistics, we operate in a strategic emerging industry: 1. new-generation information technology industry – 1.2 Core electronic industry – 1.2.3 Manufacturing of high energy storage and critical electronic materials and 3.4.3.1 manufacturing of semiconductor crystals.
---	---	---
			□ High-end equipment
			□ New materials
			□ New energy
			□ Energy saving and environmental protection
			□ Biomedicine
			□ Other sectors meeting the positioning of the STAR Market

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(II)	We satisfy the requirements for science and technology innovation attributes

Assessment standard 1 for science and technology innovation attributes	Whether or not satisfy	Remark
The aggregate R&D expenses in the past three years account for not less than 5% of the aggregate operating revenue in the past three years, or are not less than RMB60 million.	√Yes □ No	Our aggregate R&D expenses in 2019, 2020 and 2021 amounted to RMB162,101,000, accounting for 8.52% of our aggregate operating revenue in the past three years, which was RMB1,902,742,400, so we satisfy the requirement set forth in Section 1(1) of the Guide on Assessment of Science and Technology Innovation Attributes (Tentative).
The number of R&D personnel accounts for not less than 10% of the total number of employees in the current year.	√Yes □ No	As of the end of 2021, our R&D personnel account for 13.40% of the total number of our employees, so we satisfy the requirement set forth in Section 1(2) of the Guide on Assessment of Science and Technology Innovation Attributes (Tentative).
The company owns at least five patents for invention (including patents relating to national defense) which have generated revenues from main business.	√Yes □ No	As of June 30, 2022, we own 52 issued patents for invention in China, and 9 patents for invention abroad; and our revenue from products using core technologies accounted for 99.99%, 99.99% and 99.61% of the operating revenue in 2019 to 2021 respectively, so we satisfy the requirement set forth in Section 1(3) of the Guide on Assessment of Science and Technology Innovation Attributes (Tentative).
The compound annual growth rate of operating revenue in the past three years is not less than 20%, or the operating revenue in the previous year is not less than RMB300 million.	√Yes □ No	Our operating revenue was RMB462‚226‚800, RMB583‚170‚400 and RMB857,345,200 in 2019, 2020 and 2021 respectively, and our operating revenue in the previous year is not less than RMB300 million, so we satisfy the requirement set forth in Section 1(4) of the Guide on Assessment of Science and Technology Innovation Attributes (Tentative).

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:


Metric 2 for science and technology innovation attributes	Whether or not satisfy	Main basis
The company owns at least 50 patents for invention (including patents relating to national defense) which constitute core technologies and	√Yes □ No	As of June 30, 2022, we own 61 patents for inventions, including 52 domestic patents and 9 foreign patents, a total of 52 patents after deduplication. 52 patents (after deduplication) for invention (including patents relating

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

relate to revenues from main business.	to national defense) owned by us constitute our core technologies and relate to our revenues from main business, which are used in single crystal growth, wafer cutting, edge trimming, grinding, polishing, cleaning and other processes, the production of PBN materials and other high-purity materials, and other main processes.

**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:

In RMB0’000


No.	Description of project	Total investment	Amount of offering proceeds to be used
1	GaAs semiconductor material project	112,053.63	36,688.73
2	Indium phosphide (wafer) semiconductor material project	18,118.98	18,118.98
3	Semiconductor material research and development project	17,560.14	17,560.14
4	Replenishment of working capital	44,320.88	44,320.88
Total		192,053.63	116,688.73

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.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Section III Summary of this Offering

I.	Particulars of this Offering


(I) Type of shares	RMB-denominated ordinary shares (A-shares)
(II) Par value	RMB1.00
(III) Number of shares offered	Up to 98,390,000 shares will be offered this time, representing at least 10.00% of the total share capital of the Company immediately after the completion of this Offering. No existing shareholder will publicly sell any share through this Offering.
(IV) Offering price per share	RMB[ ], to be determined through inquiry of the offerees.
(V) Participation in the strategic allocation by the executives and employees of the Issuer	After completion of the registration procedures with the CSRC with respect to this Offering, the board of directors of the Issuer will meet to consider the related matters.
(VI) Participation in the strategic allocation by the subsidiaries of the Sponsor	The Sponsor will arrange for some of its subsidiaries to participate in the strategic allocation relating to this Offering, subject to the relevant rules of the Exchange. The Sponsor and its subsidiaries will define the specific plan for participation in the strategic allocation relating to this Offering in accordance with the relevant requirements, and submit the related documents to the Exchange pursuant to the relevant provisions.
(VII) Price-to-earnings ratio for this Offering	[ ] (calculated by dividing the offering price by the earnings per share, which is equal to the lower of the net profit attributable to the shareholders of Beijing Tongmei before and after deduction of the audited extraordinary gain or loss for the year of [ ] divided by the total share capital immediately after this Offering)
(VIII) Net assets per share before this Offering	[ ] per share (calculated by dividing the audited equity attributable to the shareholders of Beijing Tongmei as of [ ] by the total share capital immediately before this Offering)
(IX) Net assets per share following this Offering	[ ] per share (calculated by dividing the sum of the audited equity attributable to the shareholders of Beijing Tongmei as of [ ] and the net offering proceeds by the total share capital immediately after this Offering)
(X) Price-to-book ratio for this Offering	[ ] (calculated by dividing the offering price by the net assets per share following this Offering)
(XI) Mode of offering	The shares will be offered through inquiry of and allocation to offline offerees and online subscription, or in such other manner as approved by the securities regulatory authorities.
(XII) Targets of offering	Qualified offerees and individuals, corporations and other investors who have opened accounts on the STAR Market, except for those prohibited by the applicable laws and regulations of the country.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(XIII) Mode of underwriting	Firm commitment underwriting
(XIV) Estimated distribution cost	The total distribution cost of this Offering is about RMB[ ], including RMB[ ] of underwriter’s fee and sponsor’s fee, RMB[ ] of auditor’s fee and capital verification fee, RMB[ ] of attorney’s fee, RMB[ ] of information disclosure cost, RMB[ ] of distribution service fee and RMB[ ] of miscellaneous expenses.

II.	Persons involved in this Offering


(I) Issuer
Name	Beijing Tongmei Xtal Technology Co., Ltd.
Legal representative	MORRIS SHEN-SHIH YOUNG
Domicile	No. 2, East 2nd Street, Tongzhou Industrial Development Zone, Beijing
Telephone	010-61562241
Facsimile	010-61562245
Contact person	SONG Jing
(II) Sponsor (lead underwriter)
Name	Haitong Securities Co., Ltd.
Legal representative	ZHOU Jie
Domicile	No. 689, Guangdong Road, Shanghai
Telephone	021-23219000
Facsimile	021-63411627
Sponsor’s representatives	ZHONG Zhuke and WU Ting
Project assistant	XI Hua
Responsible persons for the project	ZHANG Bowen, LI Ling and WANG Jianwei
(III) Law firm
Name	King & Wood Mallesons Beijing Office
Principal	WANG Ling
Domicile	17-18/F, East Tower, World Finance Center, Building 1#, 1 Middle Dongsanhuan Road, Chaoyang District, Beijing
Telephone	010-58785588
Facsimile	010-58785566

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Responsible attorneys	XU Hui, YANG Zhenhua and WANG Anrong
(IV) Accounting firm
Name	Ernst & Young Huaming Certified Public Accountants (Special General Partnership)
Principal	MAO Anning
Domicile	01-12, 17/F, Ernst & Young Tower, Oriental Plaza, 1 East Chang’an Street, Dongcheng District, Beijing
Telephone	010-58153000
Facsimile	010-58153000
Responsible certified public accountants	CHEN Xiaosong and LU Yang
(V) Asset appraiser
Name	Beijing Sinotop Appraisal Co., Ltd.
Principal	CHEN Wei
Domicile	8/F, Block B, Zhongguancun IP Tower, 21 South Haidian Road, Haidian District, Beijing
Telephone	010-66090385
Facsimile	010-66090368
Responsible certified asset appraisers	KOU Yingwei and YAN Bingzhu
(VI) Stock registry
Name	China Securities Depository and Clearing Corporation Limited Shanghai Branch
Domicile	3/F, China Insurance Building, 166 East Lujiazui Road, Pudong New Area, Shanghai
Telephone	021-68870587
(VII) beneficiary bank
Account name	[ ]
Account number	[ ]
(VIII) Stock exchange to which the listing application is submitted
Name	Shanghai Stock Exchange
Domicile	Shanghai Stock Exchange Building, 528 South Pudong Road, Shanghai
Telephone	021-68808888

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

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.

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 49.40% shares in Haitong New Energy. Haitong Kaiyuan Investment Co., Ltd. holds 0.50% shares in Haitong New Energy and 19.33% shares in Haitong New Driving Force respectively. Haitong Securities is the indirect 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

Schedule of offering	Date
Publication date of offering announcement	[ ]
Commencement date of inquiry and recommendation	From [ ] to [ ]
Publication date of pricing announcement	[ ]
Date of subscription and date of payment	From [ ] to [ ]
Listing date of the shares	[ ]

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

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.

I.	Technological risk
(I)	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.

(II)	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 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.

**(III)**Risk of disclosure of core technologies

II.	Operating risk
(I)	Risks related to market competition
---	---


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Along with the continuous growth of the semiconductor terminal application market in China, 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.

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

**(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


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

countries, or the purchase prices of the Company may increase significantly due to changes in tariffs, resulting certain effects on the Company’s profitability and production and operation to some extent.

**(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 competitiveness 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, 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.

**(IX)**The relocation of the factory resulted in risks in fluctuation of the gross profit margin of the products and the failure to meet the expected capacity with the new production line


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

increase in yield rate after the relocation of the production lines, the change in remunerations for the staff, the reduction in water and electricity costs, the redistribution of the production staff had an impact on the gross profit margin of GaAs substrates in 2020 and 2021 respectively, by 3.03% and 29.72%.

**(X)**Operating risk in relation to germanium substrates

**(XI)**Safety production risks

Some of the Company’s raw materials involve hazardous chemicals, which are exposed to the risk of hazardous chemical accidents during production, storage and transportation. In the event of any production accident arising from the improper storage and operation of the Issuer’s articles, natural disasters and any other reasons, it may have a certain impact on the normal implementation of the Company’s production and operation activities, resulting in economic losses. 1-1-43


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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 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‚336,216‚000, RMB1‚803,043,800 and RMB1,978,987,000, and operating revenues amounted to RMB462‚226‚800, RMB583‚170‚400 and RMB857,345,200 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

Following the Company’s merger and acquisition of the above entities, it has implemented the integration of them in terms of operation, management, R&D activities, etc. Up to now, they have operated for more than 12 months after the reorganization, and their operation is in good condition. However, if the Company’s integration and management of its controlled subsidiaries cannot be implemented effectively, the Company’s future business activities may be affected.

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 RMB129,799,300, RMB152,366,000 and RMB218,634,500, accounting for 9.71%, 8.45% and 11.05% 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 1-1-44


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

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 RMB245,695,300, RMB284,639,900 and RMB383,817,900, accounting for 44.03%, 30.81% and 42.17% 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 RMB23,596,800, RMB14,558,100 and RMB17,216,600 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.

**(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 60.66%, 57.63% and 48.83% in 2019, 2020 and 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 RMB1,271,100, RMB-6,879,000 and RMB2,815,100of exchange loss (exchange gain expressed with “-”) respectively in financial expenses. The RMB exchange 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 the RMB-to-USD and RMB-to-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 19.43%, 25.70% and 34.74% respectively, which varied with the reporting period. If our scale of operation, product mix, customer resources, cost control or advantages in technological innovation change significantly, or the industrial competition grows 1-1-45


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

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 RMB940,481,700, RMB971,819,300 and RMB1,427,918,600 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.

V.	Legal risk

**(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 June 30, 2022, we own 61 domestic and foreign issued patents for inventions, including 52 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 arising from changes in industry regulatory policies

We mainly operate in China, so we need to comply with the laws and regulations of China relating to work safety, environmental protection and use of hazardous chemicals, among others, in our production and operation. In 2013, Gallium was included in the Catalogue of Hazardous Chemicals; and 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.

**(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. 1-1-46


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

**(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 24,836.37 square meters, accounting for about 17.32% 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, 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 the GaAs (crystal) semiconductor material project, InP (wafer) semiconductor material project and semiconductor material R&D 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 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 1-1-47


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

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.

On December 18, 2020, the Holding Foreign Companies Accountable Act officially became a law in the United States. The Holding Foreign Companies Accountable Act requires that, from 2021, if the U.S. Securities and Exchange Commission (hereinafter referred to as the “U.S. SEC”) determines that a foreign company listed in the United States has engaged a foreign (in relation to the United States, the same below) auditor which cannot be inspected by the U.S. Public Company Accounting Oversight Board (hereinafter referred to as the “PCAOB”) for three consecutive years, then the U.S. SEC will prohibit its securities registered in the United States from being traded on any U.S. national stock exchange (such as the NASDAQ or the New York Stock Exchange) or over-the-counter.

If the annual audit report of a company listed in the U.S. is issued by a foreign accounting firm, and the PCAOB is unable to conduct or fully conduct an inspection or investigation on such accounting firm due to the position of such foreign government, the SEC will identify such listed company and included it in the identified issuer list, that is, the list of pre-delisted companies. If a listed company is included in the list of pre-delisted companies for three consecutive years, the SEC will prohibit such company from trading its shares in any U.S. securities market.

As of the signing date of this Prospectus, AXT has not been included in the provisional list of delistings by the PCAOB.

**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 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. 1-1-48


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

**(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.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Section V Basic Information of the Issuer

I. Basic information of the Issuer

Company Name (in Chinese):	北京通美晶体技术股份有限公司
Company Name (in English):	Beijing Tongmei Xtal Technology Co., Ltd.
Legal Representative:	MORRIS SHEN-SHIH YOUNG
Share Capital:	RMB885,426,756
Date of Incorporation:	September 25, 1998
Date of Overall Change	April 16, 2021
Domicile:	No. 2, East 2^nd^ Street, Tongzhou Industrial Development Zone, Beijing
Postal Code:	101100
Telephone:	010-61562241
Facsimile:	010-61562245
Website:	http://www.tmjt.com
Email:	tmir@tmjt.com
Information Disclosure Department:	Securities Department
Person in Charge of Information Disclosure:	SONG Jing
Phone Number of Information Disclosure Department:	010-61567380

**II.**Incorporation and reorganization of the Issuer

(I)	Incorporation of Tongmei Limited

On July 24, 1998, the Beijing Administration for Industry and Commerce issued the Notice of Approval of the Registration of a Foreign-Invested Enterprise Name (Jing Gong Shang Wai Qi Ming Deng Zi [98] No. 439), agreeing to pre-approve the name, i.e., Beijing Tongmei Xtal Technology Limited.

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 1-1-50


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Industrial Development Zone Corporation and AXT jointly establish Beijing Tongmei Xtal Technology Limited; its total amount of investment is USD3.06 million and its registered capital is USD3.06 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:

No.	Name of shareholder	Amount of capital contribution (in USD0’000)	Shareholding percentage (%)
1	AXT	302.94	99.00
2	Industrial Development Zone Company	3.06	1.00
Total		306.00	100.00

In June 2000, the Industrial Development Zone Company and AXT signed the Share Transfer Agreement, stipulating that the Development Zone Company should transfer the 1% shares it held in Tongmei Limited (USD30,600 in total) to AXT. In accordance with the then applicable regulations such as the Administrative Measures for the Evaluation of State-owned Assets (State Council Order No. 91, November 1991) and the Rules on the Implementation of the Administrative Measures for the Evaluation of State-owned Assets (Guo Zi Ban Fa [1992] No. 36), the Development Zone Company withdrew, and Tongmei Limited should carry out an asset evaluation, and obtain a confirmation notice issued by the state-owned assets management administration in charge of review and approval, or submit the evaluation result to the state-owned assets management administration for the filing.

In accordance with the documents and statements provided by AXT and the Development Zone Company, and as confirmed through interview with a relevant person in charge of the People’s Government of Zhangjiawan Town, Tongzhou District, Beijing, the above equity transfer took place in June 2000. Due to the large time span, the decease or resignation of the original handlers and other reasons, through efforts in looking for people who know relevant information and with the support of the competent government departments, relevant historical files have been searched, but the appraisal project establishment, assets appraisal and appraisal amount confirmation of the equity transfer and other relevant procedures for the transfer of state-owned assets and relevant archives about the payment of the equity transfer price have not been found yet. Thus, it is flawed.

In response to the above situation, in order to solve historical problems, prevent the loss of state-owned assets, and support the Issuer’s listing, the People’s Government of Zhangjiawan Town, Tongzhou District, Beijing organized relevant government departments of Tongzhou District to have a discussion, and determine a retrospective audit evaluation procedures on the above matters (base date: May 31, 2000), it was determined that the competent superior departments of the Development Zone Company, namely, the People’s Government of Zhangjiawan Town, Tongzhou District, Beijing and the Tongzhou Park Management Committee of Zhongguancun Science and Technology Park (i.e. the Park Management Committee of the Tongzhou District 1-1-51


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

People’s Government, Beijing), would jointly confirm the evaluation result of the retrospective audit, and issue relevant documentary evidence as required for listing audit.

Tihuasic (Beijing) Certified Public Accountants Co. Ltd. and Tianhua Xiangtong (Beijing) Assets Appraisal Co., Ltd. respectively issued the Audit Report on Beijing Tongmei Xtal Technology Co., Ltd. (Tian Hua Zheng Xin (2022) Shen Zi No. N006) and the Retrospective Assets Evaluation Report on All Shareholders’ Equity of Beijing Tongmei Xtal Technology Co., Ltd. Involved the Equity Value that Beijing Tongzhou Industrial Development Zone Company and Beijing Tongmei Xtal Technology Co., Ltd. Propose to Learn (Tian Hua Xiang Tong (2022) No. 2-1). In accordance with such retrospective audit and evaluation results, as of May 31, 2000, the estimated value of the shareholders’ equity of Beijing Tongmei was RMB48.24 million, and as calculated based on 1% of the equity, the equity value of the Development Zone Company in Beijing Tongmei was RMB482,400. Upon consensus through negotiation and a written supplementary agreement between the Development Zone Company and AXT, it was confirmed that AXT should pay the Development Zone Company RMB1,101,686 in total, including the principal and interest for the equity transfer, which has been already paid.

On March 18, 2022, the competent superior departments of the Development Zone Company, namely, the People’s Government of Zhangjiawan Town, Tongzhou District, Beijing and the Tongzhou Park Management Committee of Zhongguancun Science and Technology Park jointly issued a Statement, confirming that “Such evaluation method and evaluation results are reasonable, and the equity transfer price is determined to be RMB482,400. The Development Zone Company has already received the full amount of the equity transfer price as well as the interest, totaling RMB1,101,686”; “The Development Zone Company has already withdrawn from Tongmei Company and has already performed the retrospective evaluation procedures, the transfer price has been settled, and it complies with relevant legal provisions on the transfer of state-owned assets, without any damage to the legitimate rights and interests of the state, any collective or any other third party and without any dispute or potential risk.” In addition, as confirmed through the interview with a relevant person in charge of the People’s Government of Zhangjiawan Town, Tongzhou District, Beijing, the Development Zone Company has gone through complete procedures for withdrawing from the Issuer, and the equity transfer is true and valid.

To sum up, in view of the flaw that the above equity transfer appraisal project approval, assets appraisal, appraisal amount confirmation and other relevant procedures for the transfer of state-owned assets and relevant archives and materials for the payment of the equity transfer price have not been found, the relevant subjects have already performed the retrospective appraisal procedures and obtained relevant documents, which has been confirmed by the competent department, and the transfer price has been settled, so that the flaw has recovered, and it complies with relevant legal provisions on the transfer of state-owned assets. The Development Zone Company has withdrawn from the Issuer by going through the retrospective evaluation procedure and settling the transfer price, the equity transfer is true and valid and complies with relevant legal provisions on the transfer of state-owned assets, without any damage to the legitimate rights and interests of the state, any collective or any other third party and without any dispute or potential risk.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(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).

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.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

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


No.	Name of shareholder		Number of shares	Shareholding percentage (%)
1	AXT		757,153,721	85.5129
2	Beijing Bomeilian		46,074,057	5.2036
3	Haitong Innovation		13,156,415	1.4859
4	Haitong New Driving Force		11,840,774	1.3373
5	Liaoning Zhuomei		10,463,911	1.1818
6	Anxin Industrial Investment		8,942,416	1.0100
7	Huadeng II		6,955,797	0.7856
8	Jinggangshan Meicheng		5,961,172	0.6733
9	Haitong New Energy		4,604,745	0.5201
10	Qingdao Xinxing		3,974,553	0.4489
11	Qiji Hangzhou		3,974,553	0.4489
12	Jinchao Business Management		3,119,500	0.3523
13	Gongqingcheng Yihua		1,766,907	0.1996
14	Beijing Dingmei		1,729,136	0.1953
15	Shangrong Baoying		1,315,642	0.1486
16	Hangzhou Jingyue		993,611	0.1122
17	Zhongke Hengye		865,289	0.0977
18	Xiamen Heyong		860,468	0.0972
19	Beijing Liaoyan		697,721	0.0788
20	Boyu Hengye		637,050	0.0719
21	Boyu Yingchuang		219,934	0.0248
22	Lumentime Semiconductor		119,384	0.0135
Total		885,426,756		100.0000

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.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(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:

No.	Name of shareholder	Amount of capital contribution (in USD0’000)	Shareholding percentage
1	AXT	3,913.00	100.00
Total		3,913.00	100.00

Note: On November 26, 2020, Tongmei Limited held a board meeting which agreed to change the Company’s registered capital from USD39.13 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 Management, 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.

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:

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

In RMB0’000

Name of shareholder	Method of payment	Appraisal base date	Reference Number of appraisal report	Value of appraisal	Transaction price	Subscribed registered capital of the Company
AXT	100% equity interest in Baoding Tongmei	September 30, 2020	Zhong Feng Ping Bao Zi [2021] No. 01234	14,433.71	14,433.5425	10,594.98
			100% equity interest in Chaoyang Tongmei		Zhong Feng Ping Bao Zi [2021] No. 01235	16,001.68	16,001.5758	11,746.00
			100% equity interest in Nanjing Jinmei		Zhong Feng Ping Bao Zi [2021] No. 01236	9,214.83	9,214.5972	6,764.00
			91.5% equity interest in Chaoyang Jinmei		Zhong Feng Ping Bao Zi [2021] No. 01237	4,575.00	4,574.6715	3,358.05
			67% equity interest in Beijing Boyu		Zhong Feng Ping Bao Zi [2021] No. 01232	17,822.00	17,234.3756	12,650.94
Jinchao Business Management	8.5% equity interest in Chaoyang Jinmei			Zhong Feng Ping Bao Zi [2021] No. 01237	425.00	424.9695	311.95
Beijing Bomeilian	27% equity interest in Beijing Boyu			Zhong Feng Ping Bao Zi [2021] No. 01232	7,182.00	6,945.1961	5,098.14
Zhongke Hengye	6% equity interest in Beijing Boyu			Zhong Feng Ping Bao Zi [2021] No. 01232	1,596.00	1,543.3769	1,132.92
Total				71,250.22	70,372.3051	51,656.98

According to the capital increase agreement of Tongmei Limited and the asset evaluation reports issued by Sinotop Appraisal, AXT subscribed 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 subscribed for the newly increased 1-1-56


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

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 subscribed 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 subscribed 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:

No.	Name of shareholder	Amount of investment (in RMB0’000)	Amount of subscribed capital contribution (in RMB0’000)	Capital increase price
1	Beijing Dingmei	228.0000	172.9136	RMB1.32 per unit of registered capital
2	Beijing Liaoyan	92.0000	69.7721	RMB1.32 per unit of registered capital
3	Boyu Yingchuang	29.0000	21.9934	RMB1.32 per unit of registered capital
4	Boyu Hengye	84.0000	63.7050	RMB1.32 per unit of registered capital
Total		433.0000	328.3841

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.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

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


No.	Name of shareholder	Amount of capital contribution (in RMB0’000)	Shareholding percentage (%)
1	AXT	75,224.6378	91.6300
2	Beijing Bomeilian	5,098.1400	6.2100
3	Zhongke Hengye	1,132.9200	1.3800
4	Jinchao Business Management	311.9500	0.3800
5	Beijing Dingmei	172.9136	0.2106
6	Beijing Liaoyan	69.7721	0.0850
7	Boyu Hengye	63.7050	0.0776
8	Boyu Yingchuang	21.9934	0.0268
Total		82,096.0319	100.0000

3. Equity transfer and capital increase of Tongmei Limited in January 2021

On January 21, 2021, Tongmei Limited held a shareholders’ meeting, agreeing to increase the Company’s registered capital from RMB820,960,319 to RMB885,426,756. The newly increased registered capital would be subscribed by Haitong New Driving Force, Haitong New Energy, Haitong Innovation, Anxin Industrial Investment, Jinggangshan Meicheng, Huadeng II, Qingdao Xinxing, Qiji Hangzhou, Gongqingcheng Yihua, Shangrong Baoying, Xiamen Heyong, Hangzhou Jingyue and Lumentime Semiconductor. The above meeting also agreed to the transfer of the registered capital of RMB10,463,911 by the shareholder, Zhongke Hengye, to Liaoning Zhuomei at the price of RMB52,655,928, and the transfer of the registered capital of RMB4,907,343 by the shareholder, Beijing Bomeilian, to AXT at the price of an amount in RMB equivalent to USD3.73 million. The price of this capital increase and equity transfer is RMB5.03 per unit of registered capital.

On January 25, 2021, Tongmei Limited obtained the Business License re-issued by the Beijing Tongzhou District Administration for Market Regulation.

On January 29, 2021, Ernst & Young Huaming issued the Capital Verification Report (EY (2021) Yan Zi No. 61641535_B02), confirming that as of January 28, 2021, Tongmei Limited has received the newly increased registered capital of RMB64,466,437.00 paid by investors; the cumulative amount of paid-in capital of Tongmei Limited is RMB885,426,756.00.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

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


No.	Name of shareholder	Amount of capital contribution (in RMB0’000)	Shareholding percentage (%)
1	AXT	75,715.3721	85.5129
2	Beijing Bomeilian	4,607.4057	5.2036
3	Haitong Innovation	1,315.6415	1.4859
4	Haitong New Driving Force	1,184.0774	1.3373
5	Liaoning Zhuomei	1,046.3911	1.1818
6	Anxin Industrial Investment	894.2416	1.0100
7	Huadeng II	695.5797	0.7856
8	Jinggangshan Meicheng	596.1172	0.6733
9	Haitong New Energy	460.4745	0.5201
10	Qingdao Xinxing	397.4553	0.4489
11	Qiji Hangzhou	397.4553	0.4489
12	Jinchao Business Management	311.9500	0.3523
13	Gongqingcheng Yihua	176.6907	0.1996
14	Beijing Dingmei	172.9136	0.1953
15	Shangrong Baoying	131.5642	0.1486
16	Hangzhou Jingyue	99.3611	0.1122
17	Zhongke Hengye	86.5289	0.0977
18	Xiamen Heyong	86.0468	0.0972
19	Beijing Liaoyan	69.7721	0.0788
20	Boyu Hengye	63.7050	0.0719
21	Boyu Yingchuang	21.9934	0.0248
22	Lumentime Semiconductor	11.9384	0.0135
Total		88,542.6756	100.0000

4. Tongmei Limited changed into a joint stock company completely in April 2021

For details of the overall change of Tongmei Limited into and establishment of Joint Stock Company, please refer to “II(II) Incorporation of Joint Stock Company” of “Section V Basic Information of the Issuer” in this Prospectus. 1-1-59


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

From the above equity change to the date of this Prospectus, no change occurs to the shareholding structure of the Company.

(IV) Material asset reorganization of the issuer during the reporting period

1. Basic information of the material asset reorganization

At the beginning of the reporting period, AXT, the controlling shareholder of the Issuer, carried out the same or similar business operations or engaged in the same upstream and downstream industries as the Issuer. To resolve the horizontal competition and integrate business resources, the Company carried out the asset reorganization in December 2020 and acquired 100% equity interest in Beijing Boyu, Baoding Tongmei, Chaoyang Tongmei, Nanjing Jinmei and Chaoyang Jinmei. For relevant information, please refer to “II(III)2 Capital increase of Tongmei Limited in December 2020” of “Section V Basic Information of the Issuer” of this Prospectus.

In May 2021, the Company acquired AXT-Tongmei. See details in “IV (1) 8. AXT-Tongmei” under “Section V Basic Information of the Issuer” hereof.

2. Impact of material asset reorganization on the Issuer and its management, actual controller and business performance

Regarding assets reorganization in December 2020, all of Tongmei Limited, Beijing Boyu, Baoding Tongmei, Chaoyang Tongmei, Nanjing Jinmei and Chaoyang Jinmei are under the control of the same controlling shareholder AXT. The above asset reorganization of the Company did not cause any change in its principal business and is conducive to improving the integrity of assets, avoiding horizontal competition, and reducing related transactions, thereby further improving the level of corporate governance and enhance the competitiveness of the Company.

The asset reorganization in December 2020 did not result in any major change in the management of the Company; the Company’s controlling shareholder was AXT both before and after the reorganization.

In December 2020, Tongmei Limited completed the acquisition of Beijing Boyu, Baoding Tongmei, Chaoyang Tongmei, Nanjing Jinmei and Chaoyang Jinmei. In the asset reorganization, the relevant financial data of the entities involved and the Issuer’s indicators are compared as follows:

In RMB0’000

Entity	Total amount of assets	Operating income	Total amount of profits
Acquired entities	73,621.79	11,935.97	-2,396.44
Tongmei Limited	80,072.95	35,728.47	-1,507.98
Percentage	91.94%	33.41%	158.92%

Note: The above data is the audited data for 2019.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

As of now, Tongmei Limited has run for more than one full accounting year after completing the acquisition of Beijing Boyu, Baoding Tongmei, Chaoyang Tongmei, Nanjing Jinmei and Chaoyang Jinmei.

In May 2021, the Company completed the acquisition of AXT-Tongmei. If AXT is included in the scope of reorganization, a comparison between the recalculated total assets at the end of the previous accounting year before the reorganization or the total indicator of the operating revenues and profits of the previous accounting year of the reorganized parties and the corresponding accounting entries of the reorganizing party is as follows:

Unit: RMB0’000

Entity	Total assets	Operating revenues	Total profits
Acquired entities A	96,375.98	27,915.63	837.18
Tongmei Limited B	168,634.49	40,800.67	2,149.40
Offset of long-term equity investments of the reorganized parties held by the reorganizing party C	-55,782.07	-	-
Proportion A/(B+C)	85.40%	68.42%	38.95%

Notes: 1. The acquired entities include Beijing Boyu, Baoding Tongmei, Chaoyang Tongmei, Nanjing Jinmei, Chaoyang Jinmei and AXT-Tongmei; 2. The above data are audited data of 2020.

As shown in the above table, if AXT-Tongmei is included in the scope of the reorganization, in the accounting year before the completion of the reorganization between Tongmei Limited and Beijing Boyu, Baoding Tongmei, Chaoyang Tongmei, Nanjing Jinmei, Chaoyang Jinmei and AXT-Tongmei, the total amount of assets, operating income and total amount of profits of acquired entities, after deducting related transactions, have not reached or exceeded 100% of the corresponding indicators of Tongmei Limited in the most recent year since the date of the reorganization, which is amounting to a situation where an offering may be applied for only after it has operated for a full fiscal year under the Opinion on the Application of Article 12 of the Measures for the Administration of Initial Public Offerings and Listings Requiring that the Issuer’s Principal Business has not Changed Significantly in the Last 3 Years - Securities and Futures Law Application Opinion No. 3.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(V) Listing or quoting of the Issuer on other securities markets

The Company has not been listed or quoted on any other securities markets since its establishment. AXT, the controlling shareholder of the Company, is a NASDAQ listed company. For details, please refer to “V(I)1 Controlling Shareholders” of “Section V Basic Information of the Issuer” in this Prospectus.

III. Shareholding structure of the Issuer

As of the date of this Prospectus, the Company’s shareholding structure is as follows:

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

IV. Information on controlled subsidiaries and equity participation companies of the Issuer

(I) Controlled subsidiaries

As of the date of this Prospectus, the Company has 10 controlled subsidiaries, the details of them are listed as follows:

1. Chaoyang Tongmei

(1) Basic Information


Name	Chaoyang Tongmei Xtal Technology Co., Ltd.
Unified Social Credit Code	91211300MA0UKGWA20
Domicile	No. 9, Zhonggong Road, Gongyingzi Town, Kazuo County, Chaoyang City, Liaoning Province
Legal Representative	MORRIS SHEN-SHIH YOUNG
Registered Capital	RMB173,371,951
Paid-in Capital	RMB173,371,951
Date of Incorporation	October 18, 2017
Business Scope	Production, R&D, sales of electronic semiconductor materials; technical consultation and after-sales service of self-produced products. (Businesses that are subject to approval in accordance with the law may be carried out only after being approved by relevant authorities.)
Principal Business and its relationship with the Issuer	Mainly engaged in the R&D, production and sales of gallium arsenide crystals, which falls into the scope of principal business of the Issuer.
Shareholder	The Company holds 100% of its equity interest.

(2) Historical information

Chaoyang Tongmei was established in October 2017. When Chaoyang Tongmei was established, AXT held 100% of its equity interest. Its shareholding structure remained unchanged until Beijing Tongmei acquired Chaoyang Tongmei.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(3) Financial data

The main financial data of Chaoyang Tongmei in the most recent year is as follows:

In RMB0’000

Item	December 31, 2021/2021
Total assets	41,223.45
Net assets	14,302.34
Net profit	-1,137.76

Note: The above financial data have been prepared and included in the Company’s consolidated financial statements in accordance with the enterprise accounting standards and accounting policies of the Company. The consolidated financial statements have been audited by the Reporting Accountant which has issued its Audit Report (EY (2022) Shen Zi No. 61641535_B01) with the standard unqualified opinion.

2. Baoding Tongmei

(1) Basic Information


Name	Baoding Tongmei Xtal Technology Co., Ltd.
Unified Social Credit Code	91130600MA08UNK83T
Domicile	No. 10, South Section of Xinguodao Street, Dingxing County, Baoding City, Hebei Province
Legal Representative	MORRIS SHEN-SHIH YOUNG
Registered Capital	RMB193,050,654
Paid-in Capital	RMB193,050,654
Date of Incorporation	July 28, 2017
Business Scope	R&D, production of electronic semiconductor materials, sales of self-produced products; technical consultation and after-sales service of self-produced products; wholesale and retail of electronic semiconductor materials; import and export of goods or technologies (except for the import and export of goods and technologies that are prohibited by the State or involve administrative approval). (Businesses that are subject to approval in accordance with the law may be carried out only after being approved by relevant authorities.)
Principal Business and its relationship with the Issuer	Mainly engaged in the R&D, production and sales of gallium arsenide substrates, which falls into the scope of principal business of the Issuer.
Shareholder	The Company holds 100% of its equity interest.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(2) Historical information

Baoding Tongmei was established in July 2017. When Baoding Tongmei was established, AXT held 100% of its equity interest. Its shareholding structure remained unchanged until Beijing Tongmei acquired Baoding Tongmei.

(3) Financial data

The main financial data of Baoding Tongmei in the most recent year is as follows:

In RMB0’000

Item	December 31, 2021/2021
Total assets	43,772.72
Net assets	17,074.73
Net profit	4,294.94

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

3. Nanjing Jinmei

(1) Basic Information


Name	Nanjing Jinmei Gallium Co., Ltd.
Unified Social Credit Code	91320115608982073N
Domicile	No. 12, Mozhou East Road, Moling Street, Jiangning District, Nanjing
Legal Representative	MORRIS SHEN-SHIH YOUNG
Registered Capital	RMB5,795,230
Paid-in Capital	RMB5,795,230
Date of Incorporation	September 18, 2000
Business Scope	Licensed businesses: labor dispatch services (Businesses that are subject to approval in accordance with the law may be carried out only after being approved by relevant authorities, and the specific businesses are subject to the approval results) General businesses: sales of electronic special materials; sales of non-ferrous metal alloys; sales of high-performance non-ferrous metals and alloy materials; sales of high-purity elements and compounds; sales of new metal functional materials; sales of rare earth functional materials; sales of chemical products (excluding licensed chemical products); sales of metal materials; sales of metal products; technical services, technology development, technology consulting, technology exchanges, technology transfer, technology promotion; import and export of goods; import and export of technologies; procurement agency service; sales agency; import and export agency (except for businesses that are subject to approval in accordance with the law, such businesses may be carried out by itself by virtue of the business license)
Principal Business and its relationship with the Issuer	Mainly engaged in the sales of high-purity gallium and gallium compounds, which falls into the scope of principal business of the Issuer.
Shareholder	The Company holds 100% of its equity interest.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(2) Historical information

Nanjing Jinmei was established in September 2000. According to the Sino-US Cooperation Nanjing Jinmei Gallium Co., Ltd. Articles of Association and the Cooperation Contract on the Establishment of Nanjing Jinmei Gallium Co., Ltd. between Nanjing Germanium Factory Co., Ltd. (subsequently changed its name into China Germanium Co., Ltd.) and AXT Inc. entered into by and between AXT and Nanjing Germanium Factory Co., Ltd., it was agreed that the total amount of investment in Nanjing Jinmei was USD700,000 and its registered capital was USD500,000, all of which was funded by AXT, and Nanjing Germanium Factory Co., Ltd. would make its investment in the form of its technology of extracting and purifying gallium as a condition of cooperation. With respect to the distribution of its profits, AXT accounted for 88%, and Nanjing Germanium Factory Co., Ltd. accounted for 12%.

In June 2017, China Germanium Co., Ltd. entered into the Equity Transfer Agreement with AXT, pursuant to which it transferred all its obligations and rights (shares) under the joint venture contract to AXT.

According to the Equity Contract entered into by and among AXT and FAN Jiahua, FENG Yi, ZONG Hongxia, and ZHANG Fengxiang in September 2000, AXT held 5% equity interest in Nanjing Jinmei for and on behalf of FAN Jiahua, FENG Yi, ZONG Hongxia, and ZHANG Fengxiang. From February 2018 to May 2019, AXT entered into the Equity Exit Agreement with FAN Jiahua, FENG Yi, and ZONG Hongxia (ZHANG Fengxiang and ZONG Hongxia were husband and wife, and ZHANG Fengxiang had passed away at the time of equity exit) respectively, it is agreed that (1) FAN Jiahua, FENG Yi, and ZONG Hongxia voluntarily transferred all of their equity interest in Nanjing Jinmei to AXT, and confirmed that they had no economic and financial disputes with the company (whether before or after the equity exit); (2) after the completion of such equity transfer, the equity transferor would no longer have corresponding shareholder rights and assume the corresponding obligations of Nanjing Jinmei.

The specific matter in relation to the exit of FAN Jiahua, FENG Yi, ZONG Hongxia and others from Nanjing Jinmei was handled by HAO Ze, a director, deputy general manager, and chief financial officer of the Issuer (who worked in the finance department of Nanjing Jinmei from September 2000 to March 2005) and CHEN Yu, a financial manager of Nanjing Jinmei. According to the interviews with FAN Jiahua, FENG Yi, ZONG Hongxia and the persons handling the above equity exit matter, the purchase of shares of and exit from Nanjing Jinmei of FAN Jiahua, FENG Yi, ZONG Hongxia, and ZHANG Fengxiang is the declaration of their true intentions, the relevant payments have been made, and there is no dispute, discrepancy, or potential discrepancy in relation to the establishment, process and termination of the nominee holding.

Its shareholding structure remained unchanged until Beijing Tongmei acquired Nanjing Jinmei.

(3) Financial data

The main financial data of Nanjing Jinmei in the most recent year is as follows:

In RMB0’000

Item	December 31, 2021/2021
Total assets	12,613.84
Net assets	11,636.11
Net profit	1,911.07

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

4. Chaoyang Jinmei

(1) Basic Information

Name	Chaoyang Jinmei Gallium Co., Ltd.
Unified Social Credit Code	91211300MA0XYDACX4
Domicile	Kazuo Economic Development Zone, Chaoyang City, Liaoning Province
Legal Representative	MORRIS SHEN-SHIH YOUNG
Registered Capital	RMB65,768,718
Paid-in Capital	RMB15,539,524
Date of Incorporation	July 25, 2018
Business Scope	Licensed businesses: production of hazardous chemicals, operation of hazardous chemicals (businesses that are subject to approval in accordance with the law may be carried out only after being approved by relevant authorities, and specific business are subject to the results of approval); general businesses: research and development of electronic special materials, manufacturing of electronic special materials, sales of electronic special materials, research and development of new material technology, manufacturing of metal material, sales of metal material, manufacturing of non-ferrous metal alloy, sales of non-ferrous metal alloy, processing of non-ferrous metal rolling, production of chemical products (excluding licensed chemical products), sales of chemical product (excluding licensed chemical products), sales of new metal functional materials, sales of high-performance non-ferrous metals and alloy materials, sales of rare earth functional materials, sales of high-purity elements and compounds, recycling of renewable resources (excluding productive metal scrap), sales agency, procurement agency services, import and export agency, technical services, technology development, technology consulting, technology exchanges, technology transfer, technology promotion, import and export of goods, import and export of technologies (except for businesses subject to approval according to the law, business activities may be carried out independently by virtue of the business license)
Principal Business and its relationship with the Issuer	Mainly engaged in the R&D, production and sales of high-purity gallium and gallium compounds, which falls into the scope of principal business of the Issuer.
Shareholder	The Company holds 100% of its equity interest.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(2) Historical information

Chaoyang Jinmei was established in July 2018. The shareholding structure of Chaoyang Jinmei is listed as follows:

No.	Name of shareholder	Amount of capital contribution (in USD0’000)	Shareholding percentage (%)
1	AXT	600.00	100.00
Total		600.00	100.00

On June 4, 2020, the shareholders’ meeting of Chaoyang Jinmei passed a resolution, agreeing to increase the registered capital of Chaoyang Jinmei to USD6,557,382, and the newly increased registered capital would be subscribed by Jinchao Business Management. After the capital increase was completed, the shareholding structure of Chaoyang Jinmei is listed as follows:

No.	Name of shareholder	Amount of capital contribution (in USD0’000)	Shareholding percentage (%)
1	AXT	600.0000	91.50
2	Jinchao Business Management	55.7382	8.50
Total		655.7382	100.00

Its shareholding structure remained unchanged until Beijing Tongmei acquired Chaoyang Jinmei.

(3) Financial data

The main financial data of Chaoyang Jinmei in the most recent year is as follows:

In RMB0’000

Item	December 31, 2021/2021
Total assets	16,167.20
Net assets	5,789.78
Net profit	2,550.17

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

5. Beijing Boyu

(1) Basic Information


Name	Beijing Boyu Semiconductor Vessel Craftwork Technology Co., Ltd.
Unified Social Credit Code	911101127415832828
Domicile	Industrial Development Zone, Tongzhou District, Beijing
Legal Representative	MORRIS SHEN-SHIH YOUNG
Registered Capital	RMB16,588,371.64
Paid-in Capital	RMB16,588,371.64
Date of Incorporation	October 22, 2002
Business Scope	Production of pyrolytic boron nitride crucibles and other utensils used to prepare semiconductors and ultra-pure elements; sales of self-produced products; lease of special equipment and automobiles (excluding passenger cars with more than nine seats); import and export of goods. (The enterprise was changed from a foreign-invested enterprise to a domestic-invested enterprise on December 30, 2020, and the market entity independently chooses its businesses and carries out business activities in accordance with the law; for businesses that are subject to approval in accordance with the law, it will carry out business activities in accordance with the approved content after being approved by relevant authorities; it is not allowed to engage in business activities that are prohibited and restricted by the State and industrial policies of this city.)
Principal Business and its relationship with the Issuer	Mainly engaged in the R&D, production and sales of PBN materials, which falls into the scope of principal business of the Issuer.
Shareholder	The Company holds 100% of its equity interest.

(2) Historical information

Beijing Boyu was established in October 2002. When Beijing Boyu was established, its shareholding structure is listed as follows:

No.	Name of shareholder	Amount of capital contribution (in USD0’000)	Shareholding percentage (%)
1	AXT	54.60	93.33
2	Beijing Bomeilian	3.90	6.67
Total		58.50	100.00

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

On October 23, 2013, the shareholders’ meeting of Beijing Boyu passed a resolution, agreeing that the registered capital of the company is increased by USD1.338 million, of which USD937,000 of the newly increased registered capital shall be subscribed by AXT, and USD401,000 of the newly increased registered capital shall be subscribed by Beijing Bomeilian. After the capital increase was completed, the shareholding structure of Beijing Boyu is listed as follows:


No.	Name of shareholder	Amount of capital contribution (in USD0’000)	Shareholding percentage (%)
1	AXT	148.30	77.12
2	Beijing Bomeilian	44.00	22.88
Total		192.30	100.00

On October 18, 2017, the shareholders’ meeting of Beijing Boyu passed a resolution, agreeing that the registered capital of the company is increased by USD195,000, and the newly increased registered capital shall be subscribed by Beijing Bomeilian; on October 27, 2017, the shareholders’ meeting of Beijing Boyu passed a resolution, agreeing that the registered capital of the company is increased by USD235,300, and the newly increased registered capital shall be subscribed by Ulrich Goetz, a natural person. After the above capital increase was completed, the shareholding structure of Beijing Boyu is listed as follows:

No.	Name of shareholder	Amount of capital contribution (in USD0’000)	Shareholding percentage (%)
1	AXT	148.30	63.00
2	Beijing Bomeilian	63.50	27.00
3	Ulrich Goetz	23.53	10.00
Total		235.33	100.00

On November 20, 2020, the shareholders’ meeting of Beijing Boyu passed a resolution, agreeing that Ulrich Goetz, a natural person, transfers 6% equity interest held by him in Beijing Boyu to Zhongke Hengye, and transfers 4% equity interest held by him in Beijing Boyu to AXT. After the completion of such transfers, the shareholding structure of Beijing Boyu is listed as follows:

No.	Name of shareholder	Amount of capital contribution (in USD0’000)	Shareholding percentage (%)
1	AXT	157.712	67.00
2	Beijing Bomeilian	63.50	27.00
3	Zhongke Hengye	14.118	6.00
Total		235.33	100.00

Its shareholding structure remained unchanged until Beijing Tongmei acquired Beijing Boyu.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(3) Financial data

The main financial data of Beijing Boyu in the most recent year is as follows:

In RMB0’000


Item	December 31, 2021/2021
Total assets	19,143.85
Net assets	13,308.98
Net profit	2,762.60

Note: The above data sources from the individual statements of Beijing Boyu; the above financial data have been prepared and included in the Company’s consolidated financial statements in accordance with the enterprise accounting standards and accounting policies of the Company. The consolidated financial statements have been audited by the Reporting Accountant which has issued its Audit Report (EY (2022) Shen Zi No. 61641535_B01) with the standard unqualified opinion.

6. Chaoyang Boyu

(1) Basic Information


Name	Boyu (Chaoyang) Semiconductor Technology Co., Ltd.
Unified Social Credit Code	91211324MA0UTUJ05L
Domicile	Economic Development Zone, Kazuo County, Chaoyang City, Liaoning Province
Legal Representative	MORRIS SHEN-SHIH YOUNG
Registered Capital	RMB10,000,000
Paid-in Capital	RMB10,000,000
Date of Incorporation	December 27, 2017
Business Scope	General businesses: manufacturing of special ceramic products, sales of special ceramic products, manufacturing of electronic special materials, sales of electronic special materials, sales of new ceramic materials, sales of new metal functional materials, import and export of goods, manufacturing of special equipment for semiconductor devices, sales of special equipment for semiconductor devices, manufacturing of graphite and carbon products, sales of graphite and carbon products, repair of special equipment (except for businesses subject to approval according to the law, business activities may be carried out independently by virtue of the business license)
Principal Business and its relationship with the Issuer	Mainly engaged in the R&D, production and sales of PBN materials, which falls into the scope of principal business of the Issuer.
Shareholder	Beijing Boyu holds 100% of its equity interest.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(2) Historical information

Chaoyang Boyu was established in December 2017. When Chaoyang Boyu was established, Beijing Boyu held 100% of its equity interest, its shareholding structure remains unchanged.

(3) Financial data

The main financial data of Chaoyang Boyu in the most recent year is as follows:

In RMB0’000

Item	December 31, 2021/2021
Total assets	5,655.07
Net assets	1,365.87
Net profit	902.87

7. Tianjin Boyu

(1) Basic Information

Name	Boyu (Tianjin) Semiconductor Materials Co., Ltd.
Unified Social Credit Code	911201160759082321
Domicile	No. 3, Baoshan Road, Beijing-Tianjin Zhongguancun Science and Technology Town, Baodi District, Tianjin
Legal Representative	MORRIS SHEN-SHIH YOUNG
Registered Capital	RMB30,000,000
Paid-in Capital	RMB30,000,000
Date of Incorporation	August 8, 2013
Business Scope	Manufacturing of semiconductor discrete devices, sales of semiconductor discrete devices; manufacturing of electronic special materials; sales of electronic special materials; manufacturing of special ceramic products; sales of special ceramic products; sales of new ceramic materials; new material technology promotion services; sales of new metal functional materials; import and export of goods; manufacturing of special equipment for semiconductor devices; sales of special equipment for semiconductor devices; manufacturing of graphite and carbon products; sales of graphite and carbon products; repair of special equipment.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Principal Business and its relationship with the Issuer	Mainly engaged in the R&D, production and sales of PBN materials, which falls into the scope of principal business of the Issuer.
Shareholder	Beijing Boyu holds 100% of its equity interest.

(2) Historical information

Tianjin Boyu was established in August 2013. When Tianjin Boyu was established, Beijing Boyu held 100% of its equity interest, and its shareholding structure remains unchanged.

(3) Financial data

The main financial data of Tianjin Boyu in the most recent year is as follows:

In RMB0’000

Item	December 31, 2021/2021
Total assets	6,978.52
Net assets	3,075.40
Net profit	475.64

8. AXT-Tongmei

(1) Basic Information

Name	AXT-Tongmei Inc.
Address	1209 Orange Street, Wilmington, New Castle, Delaware
Legal Representative	MORRIS SHEN-SHIH YOUNG
Registered Capital	USD 1
Paid-in Capital	UDS 1
Date of Incorporation	December 9, 2020
Principal Business and its relationship with the Issuer	Mainly engaged in the sales of indium phosphide substrates, gallium arsenide substrates, and germanium substrates, which falls into the scope of principal business of the Issuer.
Shareholder	The Company holds 100% of its equity interest.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(2) Historical information

AXT-Tongmei was established in December 2020. When AXT-Tongmei was established, AXT held 100% of its equity interest. Its shareholding structure remained unchanged until Beijing Tongmei acquired AXT-Tongmei.

On May 6, 2021, the 2^nd^ session of the first board of directors passed a resolution that Beijing Tongmei will acquire 100% equity interest in AXT-Tongmei from AXT in cash. On the same day, Beijing Tongmei and AXT entered into the Share Transfer Agreement, pursuant to which Beijing Tongmei will purchase all the shares of AXT-Tongmei from AXT at a price of USD 1. The consideration of the transaction is subject to the Audit Report (EY (2021) Shen Zi No. 61641535_ B01) issued by Ernst & Young Hua Ming LLP.

With respect to its acquisition of AXT-Tongmei, the Company received the Project Filing Notice (Jing Fa Gai (Bei) [2021] No. 169) issued by the Beijing Municipal Commission of Development and Reform and the Certificate of Enterprise Overseas Investment (Overseas Investment Certificate No. N1100202100225) issued by the Beijing Municipal Commerce Bureau.

In May 2021, the company completed the foreign exchange registration procedures involved in the payment of the purchase price of the acquisition, and paid USD 1 to AXT for the equity transfer in June 2021.

(3) Financial data

The main financial data of AXT-Tongmei in the most recent year is as follows:

In RMB0’000

Item	December 31, 2021/2021
Total assets	16,839.19
Net assets	120.61
Net profit	-329.74

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

9. Chaoyang Xinmei

(1) Basic Information


Name	ChaoYang XinMei High Purity Semiconductor Materials Co., Ltd.
Unified Social Credit Code	91211324MA10W1F79B
Domicile	Kazuo Economic Development Zone, Chaoyang City, Liaoning Province
Legal Representative	WANG Fei
Registered Capital	RMB80,769,200
Paid-in Capital	RMB71,000,000
Date of Incorporation	February 1, 2021
Business Scope	General businesses: manufacturing of non-metallic mineral products, import and export of goods, import and export of technologies (except for businesses subject to approval in accordance with the law, business activities may be independently carried out with the business license in accordance with the law)
Principal Business and its relationship with the Issuer	Engaged in the R&D, production and sales of high-purity arsenic materials, but has not yet launched actual business operations
Shareholder	The Company holds 58.50% of its equity interest, Chaoyang Xinshuo Business Co., Ltd. holds 39.00% of its equity interest, and Donghai County Huafei Enterprise Management Consulting Co., Ltd. holds 2.50% of its equity interest.

(2) Historical information

Chaoyang Xinmei was established in February 2021, its registered capital at the time of establishment was RMB20 million; in December 2021, all shareholders of Chaoyang Xinmei increased their capital in the same proportion, the registered capital of Chaoyang Xinmei was RMB50.7692 million after the capital increase; on April 13, 2022, all shareholders of Chaoyang Xinmei increased their capital in the same proportion, the registered capital of Chaoyang Xinmei is RMB80.7692 million after the capital increase.

(3) Financial data

The main financial data of Chaoyang Xinmei in the most recent year is as follows:

In RMB0’000

Item	December 31, 2021/ 2021
Total assets	8,074.83
Net assets	3,966.74
Net profit	-133.26

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

10. Chaoyang Shuomei

(1) Basic Information


Name	ChaoYang Shuomei High Purity Semiconductor Materials Co., Ltd.
Unified Social Credit Code	91211324MA7L9NHY7M
Domicile	Kazuo Economic Development Zone Management Committee Incubation Base
Legal Representative	MORRIS SHEN-SHIH YOUNG
Registered Capital	RMB29,000,000
Paid-in Capital	Nil
Date of Incorporation	April 12, 2022
Business Scope	General businesses: manufacturing of electronic special materials, sales of electronic special materials, recycling of renewable resources (except for productive waste metals) (except for businesses subject to approval in accordance with the law, business activities may be independently carried out with the business license in accordance with the law)
Principal Business and its relationship with the Issuer	Has not yet launched its actual business operations
Shareholder	Chaoyang Jinmei holds 75% of its equity interest, Chaoyang Xinshuo Business Co., Ltd. holds 25% of its equity interest

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(2) Historical information

There is no change in the shareholding structure of Chaoyang Shuomei since its establishment.

(II) Equity Participation Companies

As of the date of this Prospectus, the Company has 2 equity participation companies, the details of which are listed as follows:

1. Xing’an Gallium

Name	Xiaoyi XingAn Gallium Co., Ltd.
Unified Social Credit Code	9114118157106426XT
Domicile	Xipanliang Village, Daxiaobao Town, Xiaoyi, Luliang City, Shanxi Province
Legal Representative	WANG Ping
Registered Capital	RMB10,000,000
Business Scope	Production and distribution of gallium products, import and export of goods (Engage in business activities by virtue of relevant permits, businesses that are subject to approval in accordance with the law may be carried out only after being approved by relevant authorities.)
Principal Business and its relationship with the Issuer	Production and sales of gallium metal as raw materials. Such business is an up-stream extension of the Issuer’s business of semiconductor compound substrate.
Date of Incorporation	March 15, 2011

As of the date of this Prospectus, the shareholding structure of Xing'an Gallium is as follows:


No.	Name of shareholder	Amount of capital contribution (in RMB0’000)	Percentage of capital contribution (%)
1	Xiaoyi Xing’an Chemical Co., Ltd.	600	60.00
2	Nanjing Jinmei	250	25.00
3	QI Zheng	150	15.00
Total		1,000	100.00

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

The main financial data of Xing’an Gallium in the most recent year is listed as follows:

In RMB0’000

Item	December 31, 2021/2021
Total assets	12,910.20
Net assets	11,291.69
Net profit	4,184.72

Note: the above data is unaudited data.

2. Kaimei Quartz

Name of Company	Chaoyang Kaimei Quartz Co., Ltd.
Unified Social Credit Code	91211324MABQ8E6Q36
Registered Address	Semiconductor Industrial Park, Kazuo Economic Development Zone, Chaoyang City, Liaoning Province
Legal Representative	ZHANG Zhongshu
Registered Capital	USD50,000,000
Business Scope	General businesses: manufacturing of technical glass products, sale of technical glass products, R&D of electronic special materials, manufacturing of electronic special material, sale of electronic special material, R&D of new material technology, promotion services for new material technologies, manufacturing of non-metallic mineral products, manufacturing of special equipment (exclusive of manufacturing of professional equipment subject to licenses), import and export of goods, technical services, technical development, technical consultation, technical exchange, technology transfer, technology promotion (except for businesses subject to approval in accordance with the law, business activities may be independently carried out with the business license in accordance with the law)
Principal Business and its relationship with the Issuer	Large-diameter high-quality quartz glass tube for semiconductor manufacturing project, it has not yet launched its actual business operations
Date of Incorporation	June 15, 2022

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

As of the date of this Prospectus, the shareholding structure of Kaimei Quartz is as follows:


No.	Name of shareholder	Amount of capital contribution (in RMB0’000)	Percentage of capital contribution (%)
1	Beijing Kaide Quartz Co., Ltd.	2,550	51.00
2	Beijing Tongmei	2,000	40.00
3	Beijing Demeilai Technology Development Center (Limited Partnership)	450	9.00
Total		5,000	100

(III) Branches

As of the date of this Prospectus, the Company has 2 branches, the details of which are listed as follows:

1. Beijing Tongmei Xtal Technology Co., Ltd. Technology R&D Center

Name ：	Beijing Tongmei Xtal Technology Co., Ltd. Technology R&D Center
Unified Social Credit Code ：	91110112580822739J
Responsible Person:	VINCENT WENSEN LIU
Principal Place of Business:	No.1 Wutong Road, Tongzhou District, Beijing
Type of Enterprise:	Branch
Business Scope ：	R&D of single crystal polished wafers and related semiconductor materials and ultra-pure elements; provision of consulting, technology and after-sales service. (Businesses that are subject to approval in accordance with the law may be carried out only after being approved by relevant authorities in accordance with the approved content.)
Date of Incorporation:	August 2, 2011

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

2. Beijing Boyu Semiconductor Vessel Craftwork Technology Co., Ltd. Tongzhou Branch

Name ：	Beijing Boyu Semiconductor Vessel Craftwork Technology Co., Ltd. Tongzhou Branch
Unified Social Credit Code ：	91110112MA01BTTM13
Responsible Person:	HE Junfang
Principal Place of Business:	Building 17, No.10 Binhe Middle Road, Tongzhou District, Beijing
Type of Enterprise:	Branch
Business Scope ：	Retail sales of pyrolysis boron nitride crucibles and other utensils used to prepare semiconductors and ultra-pure elements. (Businesses that are subject to approval in accordance with the law may be carried out only after being approved by relevant authorities in accordance with the approved content.)
Date of Incorporation:	April 28, 2018

V. Basic information on major shareholders holding more than 5% shares and actual controller

(I) Controlling shareholder and actual controller

1. Controlling shareholder

As of the date of this Prospectus, AXT holds 85.51% equity interest in the Company and is the controlling shareholder of the Company. AXT exercises shareholder rights through the general meeting of the Company; MORRIS SHEN-SHIH YOUNG, the CEO and chairman of AXT, also serves as the Company’s chairman, AXT nominates directors to the Company, and promote the implementation of the Company’s global development and business strategy through its board of directors and general meeting.

(1) Basic Information

Name	AXT, Inc.
Stock Code	AXTI
Date of Listing	May 1998
Date of Incorporation	December 1986
Registered Address	Delaware, U.S.
Office Address	4281 TECHNOLOGY DR FREMONT CA 94538

According to the legal opinions issued by the U.S. lawyer on AXT and information disclosure and announcement documents of AXT, AXT was established in California, U.S. in December 1986 and listed on the NASDAQ stock market in May 1998 under the stock code of AXTI. As of the signing date of the Prospectus, AXT holds 85.51% equity interest in the Company. 1-1-81


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

The other companies controlled by AXT are Chaoyang Limei and Tandie Technologies, LLC. For details, please refer to “V(I)3 Companies controlled by the controlling shareholder” of “Section V Basic Information of the Issuer” of this Prospectus.

(2) Major shareholders

i. Common shares and the top five common shareholders

According to the legal opinions issued by the U.S. lawyer on AXT and the information disclosure and announcement documents of AXT, as of June 30, 2022, AXT has issued 43,059,500 common shares in total, of which the top five shareholders holding AXT common shares are listed as follows:

No.	Name of shareholder	Number of shares held	Shareholding percentage
1	Dimensional Fund Advisors, L.P.	2,999,114	6.97%
2	BlackRock Institutional Trust Company, N.A.	2,419,042	5.62%
3	Wellington Management Group LLP	2,098,283	4.87%
4	The Vanguard Group, Inc.	1,945,520	4.52%
5	Needham Investment Management LLC	1,600,000	3.72%
Total		11,061,959	25.70%

ii. Preferred shares and the top five preferred shareholders

According to the legal opinions issued by the U.S. lawyer on AXT and the information disclosure and announcement documents of AXT, as of June 30, 2022, AXT has issued 883,000 non-voting and nonconvertible preferred shares in total, of which the top five shareholders holding AXT non-voting preferred shares are listed as follows:

No.	Name of shareholder	Number of shares held	Shareholding percentage
1	Opto-Tech Corp.	124,100	14.05%
2	Robert Shih	99,524	11.27%
3	Chiug-Hsin Wu	99,456	11.26%
4	Steven Lin	78,806	8.92%
5	James Lin	78,806	8.92%
Total		480,692	54.42%

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(3) Financial data

The main audited financial data of AXT in the most recent year is listed as follows:

In USD’000

Item	December 31, 2021/2021
Total assets	332,441
Net assets	280,231
Net profit	16,509

Note: the above data has been audited by BPM LLP in accordance with the U.S. GAAP on a consolidated basis.

(4) Information on the Issuer’s employees holding shares of AXT

i. Directly holding shares

As of June 30, 2022, the shares of AXT directly held by the directors, supervisors, executives and core technicians of the Issuer are listed as follows:

No.	Name	Position	Number of shares held directly	Percentage of shares held indirectly in AXT
1	MORRIS SHEN-SHIH YOUNG	Chairman, Core Technicians	242,074	0.5622%
2	VINCENT WENSEN LIU	Director, General Manager, Core Technicians	46,375	0.1077%
3	WANG Yuxin	Director, Deputy General Manager	10,999	0.0255%
4	HAO Ze	Director, Deputy General Manager, Chief Financial Officer	4,450	0.0103%
5	REN Diansheng	Core Technicians	2,375	0.0055%
6	WANG Yuanli	Core Technicians	4,101	0.0095%

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

ii. Indirectly holding shares

As of June 30, 2022, the shares of AXT indirectly held by the directors, supervisors, executives and core technicians of the Issuer are listed as follows:

No.	Name	Position	Indirect holding platform	Number of shares held in the indirect holding platform	Percentage of shares held indirectly in AXT
1	MORRIS SHEN-SHIH YOUNG	Chairman, Core Technicians	Young Family Trust	1,211,158	2.8128%
						Morris SS Young 2019 Annuity Trust	108,112	0.2511%
						Vicke Young 2019 Annuity Trust	108,112	0.2511%
						Morris Young Family limited Partnership	483	0.0011%
						Total	1,427,865	3.3161%

(5) Procedures of AXT regarding the Issuer’s listing on the STAR Market

The board of directors of AXT made a resolution on December 1, 2021 (US Local Time), agreeing to the Issuer’s submission of the application for this Offering and listing to the Shanghai Stock Exchange and authorizing the Chief Executive Officer, MORRIS SHEN-SHIH YOUNG as authorized by the above persons to be responsible for promoting matters in relation to this Offering and listing on behalf of AXT.

According to the legal opinion issued by the U.S. lawyer, “The shareholders of AXT have no right to vote on or consent to the approval and authorization of this Offering and listing, this Offering and listing are subject to the approval of the board of directors”; “The application for this Offering and listing is not subject to any applicable authorization, consent, approval or any other action by any government authority or regulatory agency in the State of Delaware, NASDAQ or U.S. Securities and Exchange Commission that has jurisdiction over AXT, nor is it subject to the notification, filing or any other procedure”; the information disclosure made by AXT concerning this offering and listing is “in compliance with the information disclosure requirements of Delaware General Corporation Law, NASDAQ, and SSE concerning the application of listing submitted by Beijing Tongmei and the listing on the STAR Market”.

2. Actual Controller

The voting right held by each of the top five shareholders holding common shares in AXT is less than 10%, and the shareholding structure of AXT is dispersed. According to the Restated Certificate of Incorporation, the Second Amended and Restated Bylaws and the U.S. AXT Legal Opinion, a general resolution may be passed at the general meeting of AXT if more than half of the voting right held by the shareholders present at the meeting agree to the resolution, and a special resolution may be passed by more than two-thirds of the voting right held by the shareholders present at the meeting; during the reporting period, no shareholder of AXT may individually has a decisive influence on the resolution of AXT’s general meeting through the voting rights of shares in his/her actual possession. 1-1-84


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

According to the Restated Certificate of Incorporation, the Second Amended and Restated Bylaws and the U.S. AXT Legal Opinion of AXT, except for those matters subject to the resolution of AXT shareholders, the highest decision-making body of AXT is its board of directors. The business and daily affairs thereof are managed or responsible by the board of directors, and the executives thereof are appointed by the board of directors. Each director present at a meeting of the board of directors shall have one vote, and any resolution may be passed by more than half of the directors present at the meeting. Directors are nominated by the board of directors and elected by shareholders holding more than half of the voting right at the annual general meeting. Meanwhile, the board of directors shall have the right to fill up any director vacancy and elect additional directors. During the Reporting Period, no shareholder of AXT may determine the selection of more than half of members of the Issuer’s board of directors through the voting right of shares at its actual disposal, and no single shareholder may have a decisive influence on any resolution of the board of directors.

In conclusion, AXT, the controlling shareholder of the Issuer, has no actual controller. Accordingly, the Issuer has no actual controller.

The Company has no actual controller who can actually control the Company’s act through investment relationships, agreements or any other arrangements.

3. Companies controlled by the controlling shareholder

As of the date of this Prospectus, the basic information on other companies controlled by AXT is listed as follows:

(1) Chaoyang Limei

Name of Company	Chaoyang Limei Semiconductor Technology Co., Ltd.
Unified Social Credit Code	91211300MA0YRME12H
Date of Incorporation	July 5, 2019
Registered Address	No. 9 Sitong Road, Gongyingzi Town, Chaoyang City, Liaoning Province
Legal Representative	MORRIS SHEN-SHIH YOUNG
Registered Capital	6,000,000
Type of Company	Limited Liability Company
Business Scope	General businesses: manufacturing of special equipment for semiconductor devices, technical services, technology development, technical consulting, technical exchanges, technology transfer, technology promotion (except for businesses subject to approval in accordance with the law, business activities may be independently carried out by virtue of the business license)
Principal Business and its relationship with the Issuer	During the reporting period, it had no substantial business operation, nor was it competitive with the Issuer.
Structure of capital contribution	Shareholder	Percentage of capital contribution
		USD6,000,000	100%

All values are in US Dollars.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(2) Tandie Technologies, LLC

Name of Company	Tandie Technologies, LLC
Address	Corporation trust center, 1209 Orange street, Wilmington, New Castle County, Delaware 19801
Date of Incorporation	October 30, 2019
Principal Business and its relationship with the Issuer	During the reporting period, it had no substantial business operation, nor was it competitive with the Issuer.
Shareholders	AXT holds its 100% equity interest

4. Other companies invested by the controlling shareholder

As of the date of this Prospectus, the basic information of other companies invested by AXT is described in the following table:

(1) Beijing Jiya

Name of Company	Beijing Jiya Semiconductor Material Co., Ltd.
Unified Social Credit Code	911101147177423197
Date of Incorporation	December 7, 1999
Registered Address	A320-1, Huangchao Hotel, No.10 Zhongxing Road, Science and Technology Park, Changping District, Beijing
Legal Representative	ZHANG Zhi
Registered Capital	USD6,700,000
Type of Company	Limited Liability Company
Business Scope	Production of high-purity metal gallium and gallium compound semiconductor materials; sales of self-produced products; import and export of goods. (The enterprise independently choose its business and carry out business activities in accordance with the law; businesses that are subject to approval in accordance with the law may be carried out only after being approved by the relevant authorities in accordance with the approved content; it shall not engage in business activities that are prohibited and restricted by the industrial policies of the city.)
Principal Business and its relationship with the Issuer	Production and sales of gallium metal as raw materials. Such business is an up-stream extension of the Issuer’s business of semiconductor compound substrate.

1-1-86


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Conditions of cooperation	Percentage of shareholding and bearing risk and losses	Amount of capital contribution	Percentage of capital contribution
AXT	USD3,900,040	39%	USD3,900,040	58.2096%
Chengxin Real Estate Co., Ltd.	USD1,099,960	11%	USD1,099,960	16.4173%
Hamoni Overseas Co., Ltd.	USD1,000,000	10%	USD1,000,000	14.9254%
CHINALCO Shanxi Aluminum Co., Ltd.	Provision of the Bayer process pregnant liquor as the raw material for the production of metal gallium + USD700,000	40%	USD700,000	10.4478%

Note: According to the Articles of Association of Beijing Jiya, Beijing Jiya has established the board of directors which is a body with the highest authority of Beijing Jiya. The board of directors consists of five directors, of which AXT appoints two directors. AXT has no control over Beijing Jiya, and AXT has not included Beijing Jiya in its consolidated statements, either.

(2) Jiamei Hi-purity

Name of Company	Emeishan Jia Mei High Purity Metals Co., Ltd.
Unified Social Credit Code	915111007232286152
Date of Incorporation	February 19, 2001
Registered Address	No. 88, Fubei Road, Suishan Town, Emeishan, Leshan City, Sichuan Province
Legal Representative	CHEN Fangping
Registered Capital	RMB20,800,000
Type of Company	Limited Liability Company
Business Scope		Production of high-purity arsenic and related high-purity materials and optoelectronic products used for compound semiconductors, and sales of its own products (valid until July 07, 2022). (Businesses that are subject to approval in accordance with the law may be carried out only after being approved by relevant authorities.)

1-1-87


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Principal Business and its relationship with the Issuer	Production and sales of high purity arsenic. Such business is an up-stream extension of the Issuer’s business of semiconductor compound substrate.
Structure of capital contribution	Shareholder	Amount of capital contribution	Percentage of capital contribution
		AXT	RMB5,200,000	25.00%
		CHENG Fangping	RMB15,600,000	75.00%

(3) Tongli Germanium

Name of Company	Xilingol Tongli Germanium Refine Co. Ltd.
Unified Social Credit Code	911525007014609581
Date of Incorporation	August 4, 1999
Registered Address	Five kilometers from the northern suburbs of Xilinhot City, Inner Mongolia Autonomous Region
Legal Representative	YUE Zhigang
Registered Capital	RMB97,509,500
Type of Company	Limited Liability Company
Business Scope	Smelting and purification of lignite containing germanium, production and sales of germanium finishing products.
Principal Business and its relationship with the Issuer	Import and export of goods managed by state-owned trading entities; smelting of rare earth metals; rolling processing of non-ferrous metals; sale of high-purity elements and compounds; manufacturing of electronic special materials; sale of electronic special materials; landscaping engineering construction; labor services (exclusive of labor dispatch)
Structure of capital contribution	Shareholders	Amount of capital contribution	Percentage of capital contribution
		AXT	RMB24,377,375	25.00%
		Xilingol League Ulan Tuga Coal Co., Ltd.	RMB54,605,320	56.00%
		China Germanium Co., Ltd.	RMB18,526,805	19.00%

1-1-88


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(4) Dongfang Hi-Purity

Name	Donghai County Dongfang High Purity Electronic Materials Co., Ltd.
Unified Social Credit Code	91320722795382179X
Domicile	East of Shuangyin Road and South of Fenghuang Road (Industrial Concentration Zone), Shuangdian Town, Donghai County
Legal Representative	LI Bo
Registered Capital	RMB31,000,000
Business Scope	Production and sales of electronic materials and gallium arsenide; sales of semiconductor materials. Self-operate or act as an agent for the import and export of various commodities and technologies (except for commodities or technologies restricted or prohibited by the State). (Businesses that are subject to approval in accordance with the law may be carried out only after being approved by relevant authorities.)
Principal business and the business relationship with the Issuer	Production and sales of high-purity arsenic as raw materials. Such business is an up-stream extension of the Issuer’s business of semiconductor compound substrate.
Date of Incorporation	November 23, 2006
Structure of capital contribution	Shareholder	Amount of capital contribution	Percentage of capital contribution
		LI Bo	RMB16,750,000	54.03%
		Chaoyang Limei	RMB14,250,000	45.97%

The Company once held 45.97% equity interest in Dongfang Hi-Purity. Based on the needs of business development and the actual situation of Dongfang Hi-Purity, the Company transferred its 45.97% equity interest in Dongfang Hi-Purity to Chaoyang Limei in November 2021. On November 11, 2021, the Company held its sixth-session meeting of the first board of directors and passed a resolution, agreeing to transfer the registered capital of Dongfang Hi-Purity in an amount of RMB14.25 million (corresponding to the 45.97% equity interest in Dongfang Hi-Purity) to Chaoyang Limei at the price of RMB14 million. The Company entered into the Equity Transfer Agreement with Chaoyang Limei. The Company has received the equity transfer price from Chaoyang Limei. On November 24, 2021, Dongfang Hi-Purity completed the industrial and commercial change registration for this transfer. After the shareholding change, the shareholders of Dongfang Hi-Purity were changed to Li Bo and Chaoyang Limei.

(II) Major shareholders holding more than 5% shares

As of the date of this Prospectus, in addition to the controlling shareholder, the Company’s other shareholders who directly hold more than 5% of the Issuer’s shares are Beijing Bomeilian. Zhongke Hengye is a shareholder of Beijing Bomeilian and holds 33.33% of its shares; at the same time, the shareholder who holds 66.67% of Beijing Bomeilian’s shares is HE Junfang, the representative designated by the executive partner of Zhongke Hengye, therefore, Zhongke Hengye and Beijing Bomeilian are persons acting in concert. Beijing Bomeilian and Zhongke Hengye hold 5.2036% and 0.0977% of the Issuer’s shares respectively, the details of which are listed as follows: 1-1-89


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

1. Beijing Bomeilian

As of the date of this Prospectus, the basic information on Beijing Bomeilian is as follows:

Name：	Beijing Bomeilian Special Ceramics Co., Ltd.
Domicile:	Industrial Development Zone, Tongzhou District, Beijing
Unified Social Credit Code：	91110112736454400F
Legal Representative：	HE Junfang
Registered Capital：	RMB2,000,000
Paid-in Capital：	RMB2,000,000
Type of Company：	Limited Liability Company
Business Scope：	Sales of ceramic products, graphite materials, refractory materials, packaging materials, metal materials, machinery and equipment, hardware and electrical equipment, electronic products, mineral products, construction materials, chemical products (excluding hazardous chemicals), stationery, knitted textiles, and clothing; retail metal ore. (The market entity independently chooses its businesses and carries out business activities in accordance with the law; for businesses that are subject to approval in accordance with the law, it will carry out business activities in accordance with the approved content after being approved by relevant authorities; it is not allowed to engage in business activities that are prohibited and restricted by the State and industrial policies of this city.)
Business Term:	March 8, 2002 to March 7, 2032
Structure of capital contribution：	Shareholder	Amount of capital contribution	Percentage of capital contribution
		HE Junfang	RMB1,333,400	66.67%
		Zhongke Hengye	RMB666,600	33.33%

1-1-90


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

2. Zhongke Hengye

As of the date of this Prospectus, the basic information on Zhongke Hengye is as follows:

Name:	Zhongke Hengye (Tianjin) Technology Development Partnership (Limited Partnership)
Domicile:	Room 265-5, Building 3, Zhongguancun Science and Technology Town Cooperative Development Center, at the intersection of Xihuan North Road and Tangtong Road, Baodi District, Tianjin
Unified Social Credit Code：	91120224MA076W7P29
Executive Partner:	Zhongke Yingchuang (Beijing) Technology Development Co., Ltd. (Designated Representative: HE Junfang)
Partnership Shares:	RMB20,000,000
Type of Company：	Limited Partnership
Business Scope：	General businesses: technical services, technology development, technology consulting, technology exchange, technology transfer, technology promotion; enterprise management; enterprise management consulting. (Except for businesses subject to approval in accordance with the law, business activities shall be independently carried out by virtue of the business license in accordance with the law).
Business Term:	December 2, 2020 to December 1, 2070

As of the date of this Prospectus, the property share structure of Zhongke Hengye is as follows:

Name of Partner	Type of Partner	Amount of capital contribution (in RMB0'000)	Percentage of capital contribution (%)
HE Junfang	Limited Partner	1,580	79.00
WANG Junyong	Limited Partner	400	20.00
Zhongke Yingchuang (Beijing) Technology Development Co., Ltd.	General Partner	20	1.00
Total	-	2,000	100.00

Zhongke Yingchuang (Beijing) Technology Development Co., Ltd., 90% and 10% of its shares are held by HE Junfang and HE Nan respectively, and has not actually engaged in any business.

(III) Issuer’s share pledge or other disputes

As of the date of this Prospectus, the Company’s shares held by its shareholders are free of pledges or other disputes. 1-1-91


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

VI Share capital of the Issuer

(I) Share capital before and after this Offering

The total share capital of the Company before this Offering was 885,426,756 shares, and the number of shares issued in this Offering will not exceed 98,390,000 shares, all of which are shares newly issued by the Company. After the completion of this Offering, the total share capital of the Company will not exceed 983,816,756 shares, and the shares issued in this Offering account for no less than 10.00% of the total share capital of the Company after this Offering.

The changes in the share capital of the Company after and before this Offering are listed as below:

No.	Name of shareholder	Pre-offering share capital structure		Post-offering share capital structure
				Number of shares held	Shareholding percentage (%)	Number of shares held	Shareholding percentage (%)
1	AXT	757,153,721	85.5129	757,153,721	76.9608
2	Beijing Bomeilian	46,074,057	5.2036	46,074,057	4.6832
3	Haitong Innovation	13,156,415	1.4859	13,156,415	1.3373
4	Haitong New Driving Force	11,840,774	1.3373	11,840,774	1.2036
5	Liaoning Zhuomei	10,463,911	1.1818	10,463,911	1.0636
6	Anxin Industrial Investment	8,942,416	1.0100	8,942,416	0.9090
7	Huadeng II	6,955,797	0.7856	6,955,797	0.7070
8	Jinggangshan Meicheng	5,961,172	0.6733	5,961,172	0.6059
9	Haitong New Energy	4,604,745	0.5201	4,604,745	0.4680
10	Qingdao Xinxing	3,974,553	0.4489	3,974,553	0.4040
11	Qiji Hangzhou	3,974,553	0.4489	3,974,553	0.4040
12	Jinchao Business Management	3,119,500	0.3523	3,119,500	0.3171
13	Gongqingcheng Yihua	1,766,907	0.1996	1,766,907	0.1796
14	Beijing Dingmei	1,729,136	0.1953	1,729,136	0.1758
15	Shangrong Baoying	1,315,642	0.1486	1,315,642	0.1337
16	Hangzhou Jingyue	993,611	0.1122	993,611	0.1010
17	Zhongke Hengye	865,289	0.0977	865,289	0.0880
18	Xiamen Heyong	860,468	0.0972	860,468	0.0875
19	Beijing Liaoyan	697,721	0.0788	697,721	0.0709

1-1-92


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

20	Boyu Hengye	637,050	0.0719	637,050	0.0648
21	Boyu Yingchuang	219,934	0.0248	219,934	0.0224
22	Lumentime Semiconductor	119,384	0.0135	119,384	0.0121
Shares issued in this Offering		-	-	9,839.0000	10.0008
Total		885,426,756	100	983,816,756	100.0000

(II) The top ten shareholders before this Offering

For the shareholding status of the top ten shareholders of the Company, please refer to “VI(I) Changes in share capital before and after this Offering” of “Section V Basic Information of the Issuer” of this Prospectus.

(III) The top ten natural person shareholders and their positions in the Company before this Offering

As of the date of this Prospectus, the Company has no natural person shareholders.

(IV) State-owned shares or foreign-invested shares

As of the date of this Prospectus, there is no state-owned shareholder among the Company’s shareholders. The foreign shareholder of the Company is AXT, which holds 85.51% of the Company’s shares.

(V) New shareholders of the Issuer in the past year

The new shareholders of the Company in the past year are listed below:

No.	Name of shareholder	Date of acquisition	Method	Number of shares	Shareholding percentage (%)	Price of capital increase (RMB per share)	Pricing basis
1	Beijing Bomeilian	December 29, 2020	Share exchange and capital increase with shares of Beijing Boyu	46,074,057	5.2036	1.36	Negotiated pricing
2	Jinchao Business Management	December 29, 2020	Share exchange and capital increase with shares of Chaoyang Jinmei	3,119,500	0.3523	1.36	Negotiated pricing
3	Zhongke Hengye	December 29, 2020	Share exchange and capital increase with shares of Beijing Boyu	865,289	0.0977	1.36	Negotiated pricing

1-1-93


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

4	Beijing Dingmei	December 29, 2020	Capital increase in cash	1,729,136	0.1953	1.32	Negotiated pricing
5	Beijing Liaoyan	December 29, 2020	Capital increase in cash	697,721	0.0788	1.32	Negotiated pricing
6	Boyu Hengye	December 29, 2020	Capital increase in cash	637,050	0.0719	1.32	Negotiated pricing
7	Boyu Yingchuang	December 29, 2020	Capital increase in cash	219,934	0.0248	1.32	Negotiated pricing
8	Haitong Innovation	January 21, 2021	Capital increase in cash	13,156,415	1.4859	5.03	Negotiated pricing
9	Haitong New Driving Force	January 21, 2021	Capital increase in cash	11,840,774	1.3373	5.03	Negotiated pricing
10	Liaoning Zhuomei	January 21, 2021	Share transfer	10,463,911	1.1818	5.03	Negotiated pricing
11	Anxin Industrial Investment	January 21, 2021	Capital increase in cash	8,942,416	1.0100	5.03	Negotiated pricing
12	Huadeng II	January 21, 2021	Capital increase in cash	6,955,797	0.7856	5.03	Negotiated pricing
13	Jinggangshan Meicheng	January 21, 2021	Capital increase in cash	5,961,172	0.6733	5.03	Negotiated pricing
14	Haitong New Energy	January 21, 2021	Capital increase in cash	4,604,745	0.5201	5.03	Negotiated pricing
15	Qingdao Xinxing	January 21, 2021	Capital increase in cash	3,974,553	0.4489	5.03	Negotiated pricing
16	Qiji Hangzhou	January 21, 2021	Capital increase in cash	3,974,553	0.4489	5.03	Negotiated pricing
17	Gongqingcheng Yihua	January 21, 2021	Capital increase in cash	1,766,907	0.1996	5.03	Negotiated pricing
18	Shangrong Baoying	January 21, 2021	Capital increase in cash	1,315,642	0.1486	5.03	Negotiated pricing
19	Hangzhou Jingyue	January 21, 2021	Capital increase in cash	993,611	0.1122	5.03	Negotiated pricing
20	Xiamen Heyong	January 21, 2021	Capital increase in cash	860,468	0.0972	5.03	Negotiated pricing
21	Lumentime Semiconductor	January 21, 2021	Capital increase in cash	119,384	0.0135	5.03	Negotiated pricing

1-1-94


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

1. Basic information on new shareholders

(1) Jinchao Business Management

i. Basic information

Name：	Nanjing Jinchao Business Management Enterprise Management Partnership (Limited Partnership)
Principal Place of Business:	U439, No. 12, Mozhou East Road, Moling Street, Jiangning District, Nanjing
Unified Social Credit Code:	91320115MA20NLFE34
Executive Partner:	Nanjing Jinchao Enterprise Management Co., Ltd.
Type of Enterprise:	Limited Partnership
Business Scope:	Enterprise management.
Business Term:	Indefinite period from December 23, 2019

ii. As of the date of this Prospectus, the property share structure of Jinchao Business Management is listed as follows:

Name of Partner	Type of Partner	Amount of capital contribution (in RMB0'000)	Percentage of capital contribution (%)
GUO Tao	Limited Partner	41	15.0183
LU Qinjian	Limited Partner	25	9.1575
XING Zhiguo	Limited Partner	25	9.1575
YANG Guifang	Limited Partner	12	4.3956
ZHANG Changping	Limited Partner	12	4.3956
TANG Zhiguo	Limited Partner	12	4.3956
WANG Yang	Limited Partner	12	4.3956
QIU Caiyong	Limited Partner	12	4.3956
LV Xueping	Limited Partner	12	4.3956
LIU Wenbing	Limited Partner	12	4.3956
DU Wanyi	Limited Partner	10	3.6630
ZHANG Jiuyu	Limited Partner	6	2.1978
YU Yihai	Limited Partner	6	2.1978
JIANG Jingfang	Limited Partner	6	2.1978
DUAN Linlin	Limited Partner	6	2.1978

1-1-95


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

DONG Baowu	Limited Partner	6	2.1978
QIAN Changjun	Limited Partner	5	1.8315
XIAO Aihong	Limited Partner	5	1.8315
ZHENG Dan	Limited Partner	5	1.8315
JING Mingjuan	Limited Partner	5	1.8315
JIANG Jun	Limited Partner	5	1.8315
YE Bing	Limited Partner	5	1.8315
ZHANG Yubin	Limited Partner	5	1.8315
XU Shuangxi	Limited Partner	5	1.8315
LIU Xiaofei	Limited Partner	5	1.8315
CHONG Lei	Limited Partner	5	1.8315
Nanjing Jinchao Enterprise Management Co., Ltd.	General Partner	8	2.9304
Total	-	273	100.00

Nanjing Jinchao Enterprise Management Co., Ltd. is a company in which GUO Tao, XING Zhiguo, and LU Qinjian hold 50%, 25%, and 25% equity interest respectively. As of the date of this Prospectus, the above natural person partners are all employees of the Company.

(2) Beijing Bomeilian

For the information on Beijing Bomeilian, please refer to “V(II) Major shareholders holding more than 5% shares” of “Section V Basic Information of the Issuer” of this Prospectus.

(3) Zhongke Hengye

For the information on Zhongke Hengye, please refer to “V(II) Major shareholders holding more than 5% shares” of “Section V Basic Information of the Issuer” of this Prospectus.

1-1-96


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(4) Beijing Dingmei

i. Basic information

Name:	Beijing Dingmei Technology Development Center (Limited Partnership)
Principal Place of Business:	101-60857, 4^th^ Floor, No. 26, Yard 6, Hengye 8^th^ Street, Tongzhou District, Beijing
Unified Social Credit Code:	91110112MA01YDBJ49
Executive Partner:	YANG Yingju
Type of Enterprise:	Limited Partnership
Business Scope:	Technology promotion, technical services; enterprise management consulting, enterprise marketing planning; economic and trade consulting; conference services.
Business Term:	From December 25, 2020 to December 24, 2050

ii. As of the date of this Prospectus, the property share structure of Beijing Dingmei is listed as follows:

Name of Partner	Type of Partner	Amount of capital contribution (in RMB0'000)	Percentage of capital contribution (%)
YANG Songmei	Limited Partner	11	4.8246
LI Zhigao	Limited Partner	10	4.3860
GENG Yingjie	Limited Partner	10	4.3860
YANG Jun	Limited Partner	10	4.3860
KAI Li	Limited Partner	10	4.3860
CHEN Yu	Limited Partner	10	4.3860
HUANG Jiahua	Limited Partner	10	4.3860
ZHAO Bo	Limited Partner	10	4.3860
XU Lixin	Limited Partner	9	3.9474
LI Jingping	Limited Partner	9	3.9474
XING Zhihong	Limited Partner	9	3.9474
LIU Tianyu	Limited Partner	9	3.9474
LI Lintan	Limited Partner	9	3.9474
CHEN Weijun	Limited Partner	6	2.6316
WANG Yufeng	Limited Partner	6	2.6316
LI Kexin	Limited Partner	6	2.6316

1-1-97


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

HU Chengbin	Limited Partner	6	2.6316
ZHU Yongsheng	Limited Partner	6	2.6316
WANG Ling	Limited Partner	6	2.6316
LI Xin	Limited Partner	6	2.6316
ZHANG Liwei	Limited Partner	6	2.6316
SUN Guofeng	Limited Partner	6	2.6316
XIA Haosheng	Limited Partner	6	2.6316
WANG Qiutong	Limited Partner	6	2.6316
LIU Xiangdong	Limited Partner	6	2.6316
JIANG Jun	Limited Partner	5	2.1930
LIU Chunbao	Limited Partner	4	1.7544
LI Yinhu	Limited Partner	3	1.3158
LI Hongmei	Limited Partner	3	1.3158
CHEN Xuguang	Limited Partner	3	1.3158
ZHANG Youmu	Limited Partner	2	0.8772
YANG Yingju	General Partner	10	4.3860
Total	-	228	100.00

As of the date of this Prospectus, the above natural person partners are all employees of the Company.

1-1-98


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(5) Beijing Liaoyan

i. Basic information

Name:	Beijing Liaoyan Technology Development Center (Limited Partnership)
Principal Place of Business:	101-60856, 4^th^ Floor, No. 26, Yard 6, Hengye 8^th^ Street, Tongzhou District, Beijing
Unified Social Credit Code:	91110112MA01YD6G87
Executive Partner:	WANG Yuxin
Type of Enterprise:	Limited Partnership
Business Scope:	Technology promotion, technical services; enterprise management consulting, enterprise marketing planning; economic and trade consulting; conference services.
Business Term:	From December 25, 2020 to December 24, 2050

ii. As of the date of this Prospectus, the property share structure of Beijing Liaoyan is listed as follows:

Name of Partner	Type of Partner	Amount of capital contribution (in RMB0'000)	Percentage of capital contribution (%)
HAO Ze	Limited Partner	17	18.4783
LI Haimiao	Limited Partner	14	15.2174
WANG Yuanli	Limited Partner	11	11.9565
XIAO Yadong	Limited Partner	11	11.9565
REN Diansheng	Limited Partner	11	11.9565
SHI Ning	Limited Partner	11	11.9565
WANG Yuxin	General Partner	17	18.4783
Total	-	92	100.00

As of the date of this Prospectus, the above natural person partners are all employees of the Company.

1-1-99


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(6) Boyu Yingchuang

i. Basic information

Name:	Boyu Yingchuang (Tianjin) Technology Development Partnership (Limited Partnership)
Principal Place of Business:	Room 267-1, Building 3, Zhongguancun Science and Technology Town Cooperative Development Center, at the intersection of Xihuan North Road and Tangtong Road, Baodi District, Tianjin
Unified Social Credit Code:	91120224MA077FBD95
Executive Partner:	WANG Xin
Type of Enterprise:	Limited Partnership
Business Scope:	General businesses: technical services, technology development, technology consulting, technology exchange, technology transfer, technology promotion; enterprise management; enterprise management consulting.
Business Term:	Indefinite period from December 18, 2020

ii. As of the date of this Prospectus, the property share structure of Boyu Yingchuang is listed as follows:

Name of Partner	Type of Partner	Amount of capital contribution (in RMB0'000)	Percentage of capital contribution (%)
WANG Junyong	Limited Partner	20	68.9655
WANG Xin	General Partner	9	31.0345
Total	-	29	100.00

In January 2022, MENG Fanwei, the general partner of Boyu Yingchuang, resigned for personal reasons, and his property shares were transferred to WANG Xin, an employee of the Company. As of the date of this Prospectus, the above natural person partners are all employees of the Company.

1-1-100


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(7) Boyu Hengye

i. Basic information

Name:	Boyu Hengye (Tianjin) Technology Development Partnership (Limited Partnership)
Principal Place of Business:	Room 267-2, Building 3, Zhongguancun Science and Technology Town Cooperative Development Center, at the intersection of Xihuan North Road and Tangtong Road, Baodi District, Tianjin
Unified Social Credit Code:	91120224MA077FBB2D
Executive Partner:	WANG Yanjie
Type of Enterprise:	Limited Partnership
Business Scope:	General businesses: technical services, technology development, technology consulting, technology exchange, technology transfer, technology promotion; enterprise management; enterprise management consulting.
Business Term:	Indefinite period from December 18, 2020

ii. As of the date of this Prospectus, the property share structure of Boyu Hengye is listed as follows:

Name of Partner	Type of Partner	Amount of capital contribution (in RMB0'000)	Percentage of capital contribution (%)
WANG Juan	Limited Partner	9	10.7143
YANG Huanping	Limited Partner	9	10.7143
CUI Guanhua	Limited Partner	9	10.7143
LIAN Lu	Limited Partner	9	10.7143
WANG Chun	Limited Partner	9	10.7143
XU Mengjian	Limited Partner	9	10.7143
LIU Shuyue	Limited Partner	6	7.1429
ZHANG Chunjing	Limited Partner	3	3.5714
LIU Ying	Limited Partner	3	3.5714
MAO Congjie	Limited Partner	3	3.5714
WU Dan	Limited Partner	3	3.5714
ZHANG Jiawei	Limited Partner	3	3.5714
WANG Yanjie	General Partner	9	10.7143
Total	-	84	100.00

In January 2022, XI Jianhui, a limited partner of Boyu Hengye, resigned for personal reasons, and his property shares were transferred to WANG Junyong, an employee of the Company. In April 2022, WANG 1-1-101


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Junyong transferred the above property shares to CUI Guanhua. As of the date of this Prospectus, the above natural person partners are all employees of the Company.

(8) Haitong New Driving Force

i. Basic information

Name:	Liaoning Haitong New Driving Force Equity Investment Fund Partnership (Limited Partnership)
Principal Place of Business:	No. 91-B80, No. 25 Development Road, Shenyang Economic and Technological Development Zone, Liaoning Province
Unified Social Credit Code:	91210106MA106PA11U
Executive Partner:	Haitong New Energy Private Equity Investment Management Co., Ltd.
Type of Enterprise:	Limited Partnership
Business Scope:	Equity investment.
Business Term:	From January 20, 2020 to January 20, 2027

ii. As of the date of this Prospectus, the property share structure of Haitong New Driving Force is listed as follows:

Name of Partner	Type of Partner	Amount of capital contribution (in RMB0'000)	Percentage of capital contribution (%)
Liaoning Holdings Corporation Ltd.	Limited Partner	35,000	23.3333
Liaoning Transportation Investment Co., Ltd.	Limited Partner	30,000	20.0000
HT Capital Co., Ltd.	Limited Partner	29,000	19.3333
Liaoning State-owned Assets Management Co., Ltd.	Limited Partner	25,000	16.6667
Liaoning Engineering Consulting Group Co., Ltd.	Limited Partner	10,000	6.6667
Liaoning Water Resource Management Group Co., Ltd.	Limited Partner	10,000	6.6667
China Liaoning International Cooperation Group Co., Ltd.	Limited Partner	5,000	3.3333
Bengang Group Co., Ltd.	Limited Partner	5,000	3.3333
Haitong New Energy Private Equity Investment Management Co., Ltd.	General Partner	1,000	0.6667
Total	-	150,000	100.00

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Haitong New Driving Force has completed the private equity investment fund filing (Filing No.: SJX017) on May 18, 2020. The fund manager, Haitong New Energy Private Equity Investment Management Co., Ltd., of Haitong New Driving Force has completed the private equity investment fund manager registration on May 4, 2014 (Registration No.: GC1900031593).

(9) Haitong New Energy

i. Basic information


Name:		Liaoning Haitong New Energy Low-Carbon Industry Equity Investment Fund Co., Ltd.
Principal Place of Business:		Room 812, No. 106, Qingnian Street, Shenhe District, Shenyang
Unified Social Credit Code:		91210103071526798U
Legal Representative：		CHENG Xiangting
Registered Capital：		RMB1,000,000,000
Type of Enterprise:		Limited Liability Company
Business Scope:	Licensed businesses: make investments in unlisted companies, investments in privately issued shares of listed companies, and related consulting services. General businesses: equity investment management, venture capital management, equity investment, debt investment in relation to equity investment, industrial investment, venture capital, participation in the establishment of equity investment enterprises, venture capital enterprises, investment consulting.
Business Term:	From August 8, 2013 to August 7, 2043

ii. As of the date of this Prospectus, the property share structure of Haitong New Energy is listed as follows:

Name of shareholder	Amount of capital contribution (in RMB0'000)	Percentage of capital contribution (%)
Liaoning Energy Investment (Group) Co., Ltd.	49,000	49.00
Haitong Innovation Securities Investment Co., Ltd.	49,400	49.40
HT Capital Co., Ltd.	500	0.50
Liaoning Holdings Corporation Ltd.	1,100	1.10
Total	100,000	100.00

Liaoning Holdings Corporation Ltd. and Liaoning Energy Investment (Group) Co., Ltd. are state-owned shareholders of Haitong New Energy, holding more than 50% equity interest in Haitong New Energy in aggregate.

According to the Explanations issued by Liaoning Holdings Corporation Ltd. (100% equity interest of which is owned by the State-owned Assets Supervision and Administration Commission of Liaoning Provincial Government): “The Enterprise and Liaoning Energy Investment (Group) Co., Ltd. are state-owned shareholders 1-1-103


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

of Liaoning Haitong New Energy Low-carbon Industry Equity Investment Fund Co., Ltd. (hereinafter referred to as the "Low-carbon Fund"), a shareholder of Beijing Tongmei. The Enterprise makes the explanations on the relevant matters as follows: as a shareholder of the Low-carbon Fund, the Enterprise is an independent decision-making company, without the relationship of acting in concert with Liaoning Energy Investment (Group) Co., Ltd. or any other shareholders. The state-owned fund shareholder of the Low-carbon Fund has no control on the Low-carbon Fund.

According to the Explanations issued by Haitong New Energy: "Based on the above, the Enterprise is not a state-owned enterprise, which does not meet the criteria of a state-owned shareholder as specified in the Measures for the Supervision and Administration of State-owned Equity Interest of Listed Companies, and does not belong to government departments, institutions, institutions, and state-owned enterprises. A wholly-owned or wholly-owned enterprise, through investment relations, agreements or other arrangements, can actually control domestic and foreign enterprises in its behavior, for Beijing Tongmei’s current issuance and listing, there is no need to apply for the “SS” and “CS” state-owned shareholder identification.

Haitong New Energy has completed the private equity investment fund filing (Filing No.: SD2870) on May 4, 2014. The fund manager, Haitong New Energy Private Equity Investment Management Co., Ltd., of Haitong New Energy has completed the private equity investment fund manager registration on May 4, 2014 (Registration No.: GC1900031593).

(10) Haitong Innovation

i. Basic information

Name:	Haitong Innovation Securities Investment Co., Ltd.
Principal Place of Business:	Room 107N, Building 2, No. 774, Changde Road, Jing’an District, Shanghai
Unified Social Credit Code:	91310000594731424M
Legal Representative：	SHI Jianlong
Registered Capital	RMB11,500,000,000
Type of Enterprise:	Limited Liability Company
Business Scope:	Securities investment, financial product investment, equity investment.
Business Term:	Indefinite period from April 24, 2012

ii. As of the date of this Prospectus, the shareholding structure of Haitong Innovation is listed as follows:

Name of shareholder	Amount of capital contribution (in RMB0'000)	Percentage of capital contribution (%)
Haitong Securities Company Limited	1,150,000	100.00
Total	1,150,000	100.00

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(11) Anxin Industrial Investment

i. Basic information

Name:	Fujian Anxin Industrial Investment Fund Partnership (Limited Partnership)
Principal Place of Business:	Enterprise Operation Center Tower, Jiangpu Community, Chendai Town, Jinjiang, Quanzhou City, Fujian Province
Unified Social Credit Code:	91350582MA348Q6N7Q
Executive Partner:	Fujian Anxin Investment Management Co., Ltd.
Type of Enterprise:	Limited Partnership
Business Scope:	Entrusted with non-securities equity investment management and other equity-related investments; investing in other companies engaged in equity investments; providing investment management and investment consulting services in relation to non-securities equity investments.
Business Term:	From June 1, 2016 to May 31, 2026

ii. As of the date of this Prospectus, the property share structure of Anxin Industrial Investment is listed as follows:

Name of Partner	Type of Partner	Amount of Capital Contribution (in RMB0'000)	Percentage of capital contribution (%)
China Integrated Circuit Industry Investment Fund Co., Ltd.	Limited Partner	100,000	33.2226
Fujian San'an Group Co., Ltd.	Limited Partner	100,000	33.2226
Fujian Jinjiang Industry Development Investment Group Co., Ltd.	Limited Partner	40,000	13.2890
Quanzhou Industrial Equity Investment Fund Co., Ltd.	Limited Partner	40,000	13.2890
Fujian Local Industry Equity Investment Fund Partnership (Limited Partnership)	Limited Partner	20,000	6.6445
Fujian Anxin Investment Management Co., Ltd.	General Partner	1,000	0.3322
Total	-	301,000	100.00

Anxin Industrial Investment has completed the private equity investment fund filing (Filing No.: SN4075) on December 21, 2016. The fund manager, Fujian Anxin Investment Management Co., Ltd., of Anxin Industrial Investment has completed the private equity investment fund manager registration on November 11, 2016 (Registration No.: P1060140).

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(12) Jinggangshan Meicheng

i. Basic information

Name:	Jinggangshan Meicheng Equity Investment Partnership (Limited Partnership)
Principal Place of Business:	B-0038 (Cluster Registration), Jingcai Town, Jinggangshan, Ji’an City, Jiangxi Province
Unified Social Credit Code:	91360881MA39BQAH4A
Executive Partner:	Jinggangshan Xingcheng Investment Partnership (Limited Partnership)
Type of Enterprise:	Limited Partnership
Business Scope:	General businesses: equity investment, venture capital.
Business Term:	From November 10, 2020 to November 9, 2040

ii. As of the date of this Prospectus, the property share structure of Jinggangshan Meicheng is listed as follows:

Name of Partner	Type of Partner	Amount of capital contribution (in RMB0'000)	Percentage of capital contribution (%)
China Merchants Securities Investment Co., Ltd.	Limited Partner	2,000	62.5000
ZHANG Qiang	Limited Partner	1,100	34.3750
Jinggangshan Xingcheng Investment Partnership (Limited Partnership)	General Partner	100	3.1250
Total	-	3,200	100.00

Jinggangshan Meicheng has completed the private equity investment fund filing (Filing No.: SNK873) on December 17, 2020. The fund manager, Shanghai Xingcheng Investment Management Co., Ltd., of Jinggangshan Meicheng has completed the private equity investment fund manager registration on December 2, 2015 (Registration No.: P1028590).

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(13) Huadeng II

i. Basic information


Name:	Hefei Huadeng II Integrated Circuit Industry Investment Partnership (Limited Partnership)
Principal Place of Business:	Room 647, Fund Building, Building E1, Innovation Industrial Park Phase II, No.2800 Chuangxin Avenue, High-tech Zone, Hefei, China (Anhui) Pilot Free Trade Zone
Unified Social Credit Code:	91340100MA2WBXE765
Executive Partner:	Qingdao Huaying Huachuang Investment Management Center (Limited Partnership)
Type of Enterprise:	Limited Partnership
Business Scope:	Investment in the automotive electronics and semiconductor industries (without the approval of the financial regulatory authorities, it is not allowed to engage in related financial services such as deposit taking, financing guarantee, and wealth management for and on behalf of customers); enterprise management consulting services.
Business Term:	From October 26, 2020 to October 25, 2027

ii. As of the date of this Prospectus, the property share structure of Huadeng II is listed as follows:


Name of Partner	Type of Partner	Amount of capital contribution (in RMB0'000)	Percentage of capital contribution (%)
Hefei Huadeng Huaxin Integrated Circuit Industry Investment Partnership (Limited Partnership)	Limited Partner	65,220.40	36.0877
Qingdao Semiconductor Industry Development Fund Partnership (Limited Partnership)	Limited Partner	49,000.00	27.1126
Tibet Xinkangrui Enterprise Management Partnership (Limited Partnership)	Limited Partner	20,000.00	11.0664
Silergy Semiconductor Technology (Hangzhou) Co., Ltd.	Limited Partner	20,000.00	11.0664
Zhuhai Hengqin Renjun Xingtai Venture Capital Partnership (Limited Partnership)	Limited Partner	6,568.63	3.6345
Yingtan Rongtang Daxin Enterprise Service Center (Limited Partnership)	Limited Partner	5,700.00	3.1539
Zhuhai Hengqin Renjun Xing'an Venture Capital Partnership (Limited Partnership)	Limited Partner	4,931.37	2.7286

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Name of Partner	Type of Partner	Amount of capital contribution (in RMB0'000)	Percentage of capital contribution (%)
Gongqingcheng Xiaoye Zitan No. 5 Investment Partnership (Limited Partnership)	Limited Partner	4,000.00	2.2133
Gongqingcheng Zhixin Zhuoyuan Investment Partnership (Limited Partnership)	Limited Partner	3,500.00	1.9366
Qingdao Huaying Huachuang Investment Management Center (Limited Partnership)	General Partner	1,807.28	1.0000
Total	-	180,727.68	100.00

Huadeng II has completed the private equity investment fund filing (Filing No.: SNC493) on December 18, 2020. The fund manager, Huaxin Yuanchuang (Qingdao) Investment Management Co., Ltd., of Huadeng II has completed the private equity investment fund manager registration on November 11, 2016 (Registration No.: P1060141).

(14) Qingdao Xinxing

i. Basic information

Name:	Qingdao Xinxing I Equity Investment Fund Partnership (Limited Partnership)
Principal Place of Business:	3-103, No. 32, Yangqing Road, Jiangshan Town, Laixi, Qingdao City, Shandong Province
Unified Social Credit Code:	91370285MA3TWF944L
Executive Partner:	Qingdao Taiheshun Equity Investment Management Co., Ltd.
Type of Enterprise:	Limited Partnership
Business Scope:	General businesses: engaging in equity investment, investment management, asset management and other activities with private equity funds (Business activities may be carried out only after the Asset Management Association of China has completed the filing and registration thereof).
Business Term:	Indefinite period from August 31, 2020

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ii. As of the date of this Prospectus, the property share structure of Qingdao Xinxing is listed as follows:

Name of Partner	Type of Partner	Amount of Capital Contribution (in RMB0'000)	Percentage of capital contribution<br><br>（ % ）
Qingdao Xinhe I Investment Partnership (Limited Partnership)	Limited Partner	6,400	40.7617
Sunyard System Engineering Co., Ltd.	Limited Partner	5,000	31.8451
Shanghai Hutai Enterprise Management Partnership (Limited Partnership)	Limited Partner	1,600	10.1904
LU Chunmei	Limited Partner	600	3.8214
WU Xiaofen	Limited Partner	600	3.8214
LU Yu	Limited Partner	500	3.1845
WANG Liwen	Limited Partner	500	3.1845
ZHENG Lei	Limited Partner	500	3.1845
Qingdao Taiheshun Equity Investment Management Co., Ltd.	General Partner	1	0.0064
Total	-	15,701	100.00

Qingdao Xinxing has completed the private equity investment fund filing (Filing No.: SLX177) on October 12, 2020. The fund manager, Qingdao Taiheshun Equity Investment Management Co., Ltd., of Qingdao Xinxing has completed the private equity investment fund manager registration on September 19, 2016 (Registration No.: P1033802).

(15) Qiji Hangzhou

i. Basic information

Name:	Qi Ji (Hangzhou) Investment Consulting Co., Ltd.
Principal Place of Business:	Room 223-2, No. 88-2 behind Marshal Temple, Shangcheng District, Hangzhou, Zhejiang Province
Unified Social Credit Code:	91330102MA2AY1G18K
Legal Representative：	LIU Zhiguang
Registered Capital：	RMB50,000,000
Type of Enterprise:	Limited Liability Company
Business Scope:	Services: investment consulting (without the approval of financial and other regulatory authorities, no financial services such as financing deposits from the public, financing guarantees, and financial management for and on behalf of customers), financial consulting, economic information consulting (except for commodity intermediaries), enterprise management consulting, technology

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	development, technology promotion, technology transfer and technology consulting of computer software and hardware; import and export of goods and technology (Except for the import and export of those restricted or prohibited by the State) (Except for special access management measures that involve the implementation of national regulations)
Business Term:	From November 9, 2017 to November 8, 2037

ii. As of the date of this Prospectus, the property share structure of Qiji Hangzhou is listed as follows:

Name of shareholder	Amount of capital contribution (in RMB0'000)	Percentage of capital contribution (%)
Hangzhou Qiji Holdings Co., Ltd.	5,000	100.00
Total	5,000	100.00

(16) Gongqingcheng Yihua

i. Basic information

Name:	Gongqingcheng Yihua Tongze Investment Partnership (Limited Partnership)
Principal Place of Business:	Gongqingcheng Fund Town, Jiujiang, Jiangxi Province
Unified Social Credit Code:	91360405MA39RWYJ7Q
Executive Partner:	WANG Yonggang
Type of Enterprise:	Limited Partnership
Business Scope:	General businesses: project investment, industrial investment. (Without the approval of the financial regulatory authorities, it is not allowed to engage in related financial services such as deposit taking, financing guarantee, and wealth management for and on behalf of customers, raising funds (financing) from the public)
Business Term:	From December 10, 2020 to December 9, 2070

ii. As of the date of this Prospectus, the property share structure of Gongqingcheng Yihua is listed as follows:

Name of Partner	Type of Partner	Amount of capital contribution (in RMB0'000)	Percentage of capital contribution (%)
ZHOU Zhenhong	Limited Partner	130.4386	14.6199
WANG Yonggang	General Partner	490.8505	55.0157
WANG Yanwei	Limited Partner	270.9109	30.3644
Total	-	892.2000	100.00

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(17) Shangrong Baoying

i. Basic information

Name:	Shangrong Baoying (Ningbo) Investment Center (Limited Partnership)
Principal Place of Business:	A0004, Area C, Room 401, Building 1, No. 88, Meishan Qixing Road, Beilun District, Ningbo, Zhejiang Province
Unified Social Credit Code:	91330206MA281EMD8K
Executive Partner:	Shangrong Capital Management Co., Ltd.
Type of Enterprise:	Limited Partnership
Business Scope:	Industrial investment, investment management, asset management, financial consulting, enterprise investment consulting, equity investment, enterprise management consulting. (Without the approval of the financial regulatory authorities, it is not allowed to engage in related financial services such as deposit taking, financing guarantee, and wealth management for and on behalf of customers, raising funds (financing) from the public)
Business Term:	From January 15, 2016 to January 14, 2026

ii. As of the date of this Prospectus, the property share structure of Shangrong Baoying is listed as follows:

Name of Partner	Type of Partner	Amount of capital contribution (in RMB0'000)	Percentage of capital contribution (%)
Ningbo Heyuan Holdings Co., Ltd.	Limited Partner	89,500.00	88.6139
Yulon Holdings Group Co., Ltd.	Limited Partner	5,000.00	4.9505
Shanghai Keyuan Trading Co., Ltd.	Limited Partner	4,500.00	4.4554
Ningbo Ronghui Investment Center (Limited Partnership)	Limited Partner	1,000.00	0.9901
Shangrong Capital Management Co., Ltd.	General Partner	1,000.00	0.9901
Total	-	101,000	100.00

Shangrong Baoying has completed the private equity investment fund filing (Filing No.: SE8623) on April 19, 2016. The fund manager, Shangrong Capital Management Co., Ltd., of Shangrong Baoying has completed the private equity investment fund manager registration on December 2, 2015 (Registration No.: P1028564).

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(18) Xiamen Heyong

i. Basic information

Name:	Xiamen Heyong Zhicheng Equity Investment Partnership (Limited Partnership)
Principal Place of Business:	Room B56, Unit 2105, No. 492, Xinglinwan Road, Jimei District, Xiamen
Unified Social Credit Code:	91350200MA34D23B19
Executive Partner:	Xiamen Heyong Investment Management Co., Ltd.
Type of Enterprise:	Limited Partnership
Business Scope:	General businesses: engaging in investment activities with own funds.
Business Term:	From July 15, 2020 to July 14, 2060

ii. As of the date of this Prospectus, the property share structure of Xiamen Heyong is listed as follows:

Name of Partner	Type of Partner	Amount of capital contribution (in RMB0'000)	Percentage of capital contribution (%)
LIU Jun	Limited Partner	3,000	37.50
Xiamen Xinhe Equity Investment Co., Ltd.	Limited Partner	3,000	37.50
HONG Jinlong	Limited Partner	1,000	12.50
LIANG Shuzhen	Limited Partner	500	6.25
LIU Changjiang	Limited Partner	400	5.00
Xiamen Heyong Investment Management Co., Ltd.	General Partner	100	1.25
Total	-	8,000	100.00

Xiamen Heyong has completed the private equity investment fund filing (Filing No.: SNF822) on December 25, 2020. The fund manager, Xiamen Heyong Investment Management Co., Ltd., of Xiamen Heyong has completed the private equity investment fund manager registration on January 4, 2017 (Registration No.: P1060810).

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(19) Hangzhou Jingyue

i. Basic information

Name:	Hangzhou Jingyue Technology Development Partnership (Limited Partnership)
Domicile:	Room 9013, Yuejiang Commercial Center, No.857 Xincheng Road, Puyan Street, Binjiang District, Hangzhou, Zhejiang Province
Unified Social Credit Code:	91330108MA2KD3D51R
Executive Partner：	JIANG Xiaoou
Type of Company：	Limited Partnership
Business Scope:	General businesses: technical services, technical development, technical consulting, technical exchanges, technical transfers, and technical promotion; technical intermediary services.
Business Term:	Indefinite period from January 4, 2021

ii. As of the date of this Prospectus, the property share structure of Hangzhou Jingyue is listed as follows:

Name of Partner	Type of Partner	Amount of capital contribution (in RMB0'000)	Shareholding percentage (%)
ZHENG Limei	Limited Partner	180	36
WANG Jiaheng	Limited Partner	140	28
HE Junping	Limited Partner	30	6
JIANG Xiaoou	General Partner	150	30
Total		500	100.00

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(20) Lumentime Semiconductor

i. Basic information

Name:	Lumentime Semiconductor Equipment (Shanghai) Co., Ltd.
Principal Place of Business:	Room 603, Building 15, Lane 218, Haiji 6^th^ Road, Nanhui New Town, Pudong New Area, Shanghai
Unified Social Credit Code:	91310115MA1HAY4E1C
Legal Representative ：	ZHANG Shuheng
Registered Capital ：	RMB10,000,000
Type of Enterprise:	Limited Liability Company
Business Scope:	Engaging in technology development, technical consulting, technical services, technology transfer in the field of semiconductor equipment, sales of semiconductor equipment and electronic components, import and export of goods or technologies (except for the import and export of goods and technologies that are prohibited by the State or involve administrative approval).
Business Term:	From November 18, 2019 to November 17, 2039

ii. As of the date of this Prospectus, the shareholding structure of Lumentime Semiconductor is listed as follows:

Name of Shareholder	Amount of capital contribution (in RMB0'000)	Percentage of capital contribution (%)
ZHANG Shuheng	900	90
ZHANG Hongmei	100	10
Total	1,000	100.00

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(21) Liaoning Zhuomei

i. Basic information

Name:	Liaoning Zhuomei High-tech Equity Investment Fund Partnership (Limited Partnership)
Domicile:	Room 204, 2^nd^ Floor, No. 6A 3 (All), Zhongde Street, Shenyang Economic and Technological Development Zone, Liaoning Province
Unified Social Credit Code:	91210106MA10PYK05G
Executive Partner:	Liaoning Hesheng Sino-German Industrial Investment Fund Manager Center (Limited Partnership)
Type of Company：	Limited Partnership
Business Scope:	General businesses: engage in equity investment, investment management, asset management and other activities with private equity funds (Business activities may be carried out only after the Asset Management Association of China has completed the filing and registration thereof).
Business Term:	Indefinite period from November 17, 2020

ii. As of the date of this Prospectus, the property share structure of Liaoning Zhuomei is listed as follows:

Name of Partner	Type of Partner	Amount of capital contribution (in RMB0'000)	Shareholding percentage (%)
XU Shunbin	Limited Partner	1,000	18.5529
LIU Zhiyang	Limited Partner	779	14.4527
YUAN Dezong	Limited Partner	700	12.9870
LI Xianbiao	Limited Partner	500	9.2764
YAN Puti	Limited Partner	500	9.2764
LI Zhe	Limited Partner	450	8.3488
LIU Zheng	Limited Partner	400	7.4212
WU Fangfang	Limited Partner	330	6.1224
XIE Yuan	Limited Partner	330	6.1224
SI Xinya	Limited Partner	300	5.5659
CHEN Xia	Limited Partner	100	1.8553
Liaoning Hesheng Sino-German Industrial Investment Fund Manager Center (Limited Partnership)	General Partner	1	0.0186
Total		5,390	100.00

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Liaoning Zhuomei has completed the private equity investment fund filing (Filing No.: SNQ134) on January 13, 2021. The fund manager, Liaoning Hesheng Sino-German Industrial Investment Fund Manager Center (Limited Partnership), of Liaoning Zhuomei has completed the private equity investment fund manager registration on July 15, 2019 (Registration No.: P1069969).

None of Jinchao Business Management, Beijing Bomeilian, Zhongke Hengye, Beijing Dingmei, Beijing Liaoyan, Boyu Yingchuang, Boyu Hengye, Haitong Innovation, Qiji Hangzhou, Gongqingcheng Yihua, Hangzhou Jingyue or Lumentime Semiconductor has raised any funds from investors in a non-public manner, entrusted any fund manager to manage assets, or paid any management fees to fund managers. None of them is a private equity investment fund under the Securities Investment Fund Law of the People’s Republic of China or the Interim Measures for the Supervision and Administration of Private Equity Investment Funds or is required to complete the private equity fund filing.

2. Reasons for new shareholders' purchase of the Company’s shares, share purchase price and pricing basis

To integrate business resources and resolve the horizontal competition, the Company carried out an asset reorganization in December 2020. Jinchao Business Management used its 8.5% equity interest in Chaoyang Jinmei, Beijing Bomeilian used its 27% equity interest in Beijing Boyu, and Zhongke Hengye used its 6% equity interest in Beijing Boyu to subscribe for the newly increased registered capital of the Company to realize share exchanges with the Company to increase its capital. The capital increase price was RMB1.36 per unit of registered capital. The capital increase price for Beijing Bomeilian, Zhongke Hengye, and Jinchao Business Management is based on the net asset value per share of Beijing Tongmei and determined through negotiation.

At the same time, to realize the sharing by the Company’s employees of the Company's development results, and to achieve the purpose of stimulating employees, based on the principle of voluntariness and risk-taking, the Company realized that the employees of the Company hold shares in the Company through the establishment of an employee shareholding platform. The employees increased the Company’s capital, through the four employee shareholding platforms of Beijing Liaoyan, Beijing Dingmei, Boyu Yingchuang and Boyu Hengye, at the price of RMB1.32 per unit of registered capital. The capital increase price for the employee shareholding platforms was determined on the basis of the share purchase price for external investors with a given discount after consultation with external investors.

In January 2021, the registered capital of Tongmei Limited was increased from RMB820,960,319 to RMB885,426,756. The newly increased registered capital was derived from the subscriptions made by Haitong New Driving Force, Haitong New Energy, Haitong Innovation, Anxin Industrial Investment, Jinggangshan Meicheng, Huadeng II, Qingdao Xinxing, Qiji Hangzhou, Gongqingcheng Yihua, Shangrong Baoying, Xiamen Heyong, Hangzhou Jingyue and Lumentime Semiconductor in cash at the price of RMB5.03 per unit of registered capital. At the same time, Liaoning Zhuomei acquired part of shares held by Zhongke Hengye in the Company at the price that was equal to the price of the capital increase made by the above shareholders and became a new shareholder of the Issuer. The capital increase was due to the Company’s need of capital investment for its business development, the introduction of external investors, new shareholders’ recognition of the Issuer’s development prospects, they voluntarily subscribed for the newly increased capital of the Issuer and became new shareholders of the Issuer. The capital increase price was determined through negotiation.

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3. Whether any of the new shareholders in the most recent year has a related party relationship with any other shareholders, directors, supervisors, or executives of the Issuer, whether any of the new shareholders has a related party relationship with any of intermediaries of this Offering or any of their persons in charge, executives or handling persons? Whether there is a situation where the shares of any new shareholder are held for and on behalf of others, etc.

(1) Whether any of the new shareholders in the most recent year has a related party relationship with any directors, supervisors, or executives of the Issuer

1) Jinchao Business Management

GUO Tao, a director and deputy general manager of the Company, directly holds 15.0183% property share in Jinchao Business Management, and holds 2.9304% property share in Jinchao Business Management through Nanjing Jinchao Enterprise Management Co., Ltd. in which he holds 50% equity interest.

2) Beijing Liaoyan

HAO Ze, a director, deputy general manager and Chief Financial Officer of the Issuer, holds 18.4783% property share in Beijing Liaoyan. WANG Yuxin, a director and deputy general manager of the Issuer, holds 18.4783% property share in Beijing Liaoyan.

3) Haitong New Driving Force and Haitong New Energy

The fund manager of both Haitong New Driving Force and Haitong New Energy is Haitong New Energy Private Equity Investment Management Co., Ltd., and WANG Huan, a director of the Issuer, serves as a director and deputy general manager of Haitong New Energy Private Equity Investment Management Co., Ltd. (which is the fund manager of Haitong New Driving Force and Haitong New Energy); Haitong New Driving Force and Haitong New Energy jointly nominated and elected WANG Huan as a director of the Issuer.

4) Hangzhou Jingyue

ZHENG Limei, a relative of MORRIS SHEN-SHIH YOUNG, the chairman of the Company, is a limited partner of Hangzhou Jingyue and holds 36% property share in Hangzhou Jingyue.

Except for the above related party relationships, there is no related party relationship between the new shareholders and the directors, supervisors, and executives of the Issuer within the 12 months before the Issuer’s application.

(2) Whether any of the new shareholders in the most recent year has a related party relationship with any other shareholders of the Issuer

For the related party relationship between the new shareholders in the most recent year and other shareholders of the Issuer, please refer to “VI(VI) The related party relationship among shareholders and related shareholders’ shareholding percentage before this Offering” of “Section V Basic Information of the Issuer” of this Prospectus.

Except for the above related party relationships, there is no related party relationship between the new shareholders in the 12 months before the Issuer’s application and other shareholders of the Issuer. 1-1-117


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(3) Whether any of the new shareholders has a related party relationship with any of intermediaries of this Offering or any of their persons in charge, executives or handling persons?

The new shareholders, Haitong Innovation, Haitong New Driving Force and Haitong New Energy, hold 1.4859%, 1.3373% and 0.5201% of the Issuer’s shares respectively. The fund manager of both Haitong New Driving Force and Haitong New Energy and the executive partner of Haitong New Driving Force is Haitong New Energy Private Equity Investment Management Co., Ltd. Haitong Innovation holds 49.40% equity interest in Haitong New Energy, HT Capital Co., Ltd. holds 0.50% and 19.33% equity interest in Haitong New Energy and Haitong New Driving Force respectively. Both the indirect controlling shareholder of Haitong New Energy Private Equity Investment Management Co., Ltd., HT Capital Co., Ltd. and the controlling shareholder of Haitong Innovation are the sponsor Haitong Securities.

Except for the above related party relationship, there is no other related party relationship between the new shareholders within 12 months before the Issuer's application and the intermediaries of this Offering or any of their persons in charge, executives or handling persons.

(4) Whether there is a situation where the shares of any new shareholder are held for and on behalf of others

The funds used by the new shareholders for acquiring shares of the Issuer derive from their own funds, and there is no situation where the shares held by any new shareholder in the Issuer are held for and on behalf of others.

(VI) The related party relationship among shareholders and related shareholders’ shareholding percentage before this Offering

Prior to this Offering, the related party relationship among shareholders of the Company is described below:

1. Beijing Bomeilian and Zhongke Hengye

Zhongke Hengye is a shareholder of Beijing Bomeilian and holds 33.33% of its shares. At the same time, the shareholder holding 66.67% of Beijing Bomeilian’s shares is He Junfang, who is the executive partner of Zhongke Hengye. Zhongke Hengye and Beijing Bomeilian are persons acting in concert. Beijing Bomeilian and Zhongke Hengye hold 5.2036% and 0.0977% of the Issuer’s shares, respectively.

2. Haitong New Driving Force, Haitong New Energy and Haitong Innovation

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

The fund manager of both Haitong New Driving Force and Haitong New Energy and the executive partner of Haitong New Driving Force is Haitong New Energy Private Equity Investment Management Co., Ltd. Haitong Innovation holds 49.40% equity interest in Haitong New Energy, HT Capital Co., Ltd. holds 0.50% and 19.33% equity interest in Haitong New Energy and Haitong New Driving Force respectively. Both the indirect shareholder of Haitong New Energy Private Equity Investment Management Co., Ltd. and the controlling shareholder of HT Capital Co., Ltd. and Haitong Innovation is Haitong Securities.

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3. Anxin Industrial Investment and Gongqingcheng Yihua

Gongqingcheng Yihua is a co-investment platform for employees of Fujian Anxin Investment Management Co., Ltd., the fund manager of Anxin Industrial Investment, and constitute a person acting in concert with Anxin Industrial Investment.

4. MORRIS SHEN-SHIH YOUNG and ZHENG Limei

ZHENG Limei, a limited partner of Hangzhou Jingyue, is a relative of MORRIS SHEN-SHIH YONG, a shareholder of AXT which is the controlling shareholder of the Company.

Except for the above-mentioned related party relationship, there is no related party relationship among the new shareholders within the 12 months prior to the Issuer’s application and other shareholders of the Issuer.

(VII) The impact of the public offering of shares by the Issuer’s shareholders on the Issuer’s control, governance structure, and production and operation

This Offering does not involve any public offering of shares by the Issuer’s shareholders.

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(VIII) Arrangements on valuation adjustment agreements and their Terminations

1. Execution of valuation adjustment agreements

The special rights clauses signed before by the Issuer are shown below:

Date	Name of Agreement	Parties to Agreement	Provisions on Special Rights under Agreement	Termination Provisions	Resumption Provisions
November 2020	Supplementary Agreement to the Capital Increase Agreement of Beijing Tongmei Xtal Technology Co., Ltd., Supplementary Agreement II to the Capital Increase Agreement of Beijing Tongmei Xtal Technology Co., Ltd.	Tongmei Limited, AXT, Haitong New Driving Force, Haitong New Energy	The Supplementary Agreement stipulates that if the Company fails to achieve its IPO before December 31, 2022 (if the Company's IPO is under review at the expiry of such period, the repurchase will be deferred until the IPO is disapproved or the Company withdraws its application), or under other certain circumstances, an investor shall have the right to request AXT to repurchase all or part of shares held by the investor in the Company. In addition to the above provisions, there are other clauses on special rights, such as restrictions on share transfer, right of first refusal, priority sale, anti-dilution.	The Supplementary Agreement shall be automatically terminated as of the date on which the Issuer formally submits its IPO application materials to the China Securities Regulatory Commission or the stock exchange	The Supplementary Agreement II stipulates that if the Issuer fails to complete a qualified listing before December 31, 2022 (or any other date as agreed in writing by all parties), the repurchase provisions will automatically be resumed and will be effective retrospectively from the signing date the Supplementary Agreement
						Tongmei Limited, AXT, Haitong Innovation
December 2020	Supplementary Agreement to the Capital Increase Agreement of Beijing Tongmei Xtal Technology Co., Ltd., Supplementary	Tongmei Limited, AXT, Anxin Industrial Investment, Jinggangshan Meicheng, Huadeng II, Qingdao Xinxing,	The Supplementary Agreement stipulates that if the Company fails to achieve its IPO before December 31, 2022 (or any other date as agreed in writing by all parties) (if the	The Supplementary Agreement shall be automatically terminated as of the date on which the Issuer formally submits	The Supplementary Agreement II stipulates that if the Issuer fails to complete a qualified listing before December

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	Agreement II to the Capital Increase Agreement of Beijing Tongmei Xtal Technology Co., Ltd.	Qiji Hangzhou, Gongqingcheng Yihua	Company's IPO is under review at the expiry of such period, the repurchase will be deferred until the IPO is disapproved or the Company withdraws its application), or under other certain circumstances, an investor shall have the right to request AXT to repurchase all or part of shares held by the investor in the Company. In addition to the above provisions, there are other clauses on special rights, such as restrictions on share transfer, right of first refusal, priority sale, anti-dilution.	the IPO application materials to the China Securities Regulatory Commission or the stock exchange	31, 2022 (or any other date as agreed in writing by all parties), the repurchase provisions will automatically be resumed and will be effective retrospectively from the signing date the Supplementary Agreement
December 2020	Supplementary Agreement to the Capital Increase Agreement of Beijing Tongmei Xtal Technology Co., Ltd., Supplementary Agreement II to the Capital Increase Agreement of Beijing Tongmei Xtal Technology Co., Ltd.	Tongmei Limited, AXT, Shangrong Baoying	The Supplementary Agreement stipulates that if the Company fails to achieve its IPO before December 31, 2022 (or any other date as agreed in writing by all parties) (if the Company's IPO is under review at the expiry of such period, the repurchase will be deferred until the IPO is disapproved or the Company withdraws its application), or under other certain circumstances, an investor shall have the right to request AXT to repurchase all or part of shares held by the investor in the	The Supplementary Agreement shall be automatically terminated as of the date on which the Issuer formally submits the IPO application materials to the China Securities Regulatory Commission or the stock exchange	The Supplementary Agreement II stipulates that if the Issuer fails to complete a qualified listing before December 31, 2022 (or any other date as agreed in writing by all parties), the repurchase provisions will automatically be resumed and will be effective retrospectively from the signing date the Supplementary Agreement	1-1-121


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			Company. In addition to the above provisions, there are other clauses on special rights, such as restrictions on share transfer, right of first refusal, priority sale, anti-dilution.
January 2021	Supplementary Agreement to the Capital Increase Agreement of Beijing Tongmei Xtal Technology Co., Ltd., Supplementary Agreement II to the Capital Increase Agreement of Beijing Tongmei Xtal Technology Co., Ltd.	Tongmei Limited, AXT, Lumentime Semiconductor	The Supplementary Agreement stipulates that if the Company fails to achieve its IPO before December 31, 2022 (or any other date as agreed in writing by all parties) (if the Company's IPO is under review at the expiry of such period, the repurchase will be deferred until the IPO is disapproved or the Company withdraws its application), or under other certain circumstances, an investor shall have the right to request AXT to repurchase all or part of shares held by the investor in the Company. In addition to the above provisions, there are other clauses on special rights, such as restrictions on share transfer, right of first refusal, priority sale, anti-dilution.	The Supplementary Agreement shall be automatically terminated as of the date on which the Issuer formally submits the IPO application materials to the China Securities Regulatory Commission or the stock exchange	The Supplementary Agreement II stipulates that if the Issuer fails to complete a qualified listing before December 31, 2022 (or any other date as agreed in writing by all parties), the repurchase provisions will automatically be resumed and will be effective retrospectively from the signing date the Supplementary Agreement
							Tongmei Limited, AXT, Hangzhou Jingyue<br><br><br><br>Tongmei Limited, AXT, Xiamen Heyong

In March 2022, Beijing Tongmei, AXT and Haitong New Driving Force, Haitong New Energy, Haitong Innovation, Anxin Industrial Investment, Jinggangshan Meicheng, Huadeng II, Qingdao Xinxing, Qiji Hangzhou, Gongqingcheng Yihua, Shangrong Baoying, Lumentime Semiconductor, Hangzhou Jingyue and Xiamen Heyong (the above external investors are collectively referred to as “Party A”) entered into the “Supplementary Agreement III to the Capital Increase Agreement of Beijing Tongmei Xtal Technology Co., Ltd., stipulating that: 1-1-122


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The Parties agree and confirm that the Supplementary Agreement will be automatically terminated on December 28, 2021 and shall be void ab initio from the signing date of such Agreement.
From the date of this Agreement, the Supplementary Agreement II will be automatically terminated and shall be void ab initio from the signing date of such Agreement.
The Parties agree and confirm that on the date when Beijing Tongmei’s IPO has not been approved by the Shanghai Stock Exchange or has not been agreed by the China Securities Regulatory Commission for registration, or Party B (i.e., Beijing Tongmei, the same below) withdraws its IPO application (collectively, “Repurchase Event”), Party A shall have the right to require Party C (i.e., “AXT”, the same below) to repurchase part or all of shares held by Party A in Party B, and Party C is obligated to repurchase part or all of the shares held by Party A in Party B.

Party A shall submit a repurchase request to AXT in writing within fifteen (15) working days from the date when a Repurchase Event occurs and Beijing Tongmei notifies Party A in writing, enabling AXT to have sufficient time to make repurchase arrangements. AXT shall enter into a share transfer agreement with Party A regarding the share repurchase under this Agreement within ninety (90) days after Party A submits the repurchase request in writing and complete the payment of the share repurchase price within the period as stipulated in the relevant repurchase legal instruments. The share repurchase price is the investment amount actually paid by Party A in exchange for such shares.

The Parties further agree that on the date when a Repurchase Event as stipulated in Article 3 hereof takes place, AXT shall also have the right to issue a repurchase notice to Party A in writing, and AXT will repurchase all of shares then held by Party A in Beijing Tongmei. The share repurchase price is the investment amount actually paid by Party A in exchange for such shares.

In conclusion, the Supplementary Agreement and the Supplementary Agreement II have been terminated and shall be void ab initio from the signing date of such agreements. There is no longer any valuation adjustment clause with a time limit for resumption of effectiveness between investment institutions and AXT.

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2. Terminations of valuation adjustment agreements

The terminations by the Company of special rights are in compliance with the provisions of Article 10 of the Questions and Answers II on the Review of the Offering and Listing of Stocks on the STAR Market of the Shanghai Stock Exchange, the particulars of which are set forth below:

Provisions of Article 10 of the Questions and Answers II on the Review of the Offering and Listing of Stocks on the STAR Market of the Shanghai Stock Exchange		Actual circumstances of the Issuer
If a PE, VC and any other institution has entered into an agreement on a valuation adjustment mechanism (generally called as a valuation adjustment agreement) at the time of investing, the Issuer is, in principle, required to terminate the valuation adjustment agreement before submitting the application.		The special rights, such as the repurchase right, owned by investment institutions under the Supplementary Agreement and the Supplementary Agreement II have been terminated and shall be void ab initio, an investment institution have the right to require AXT to repurchase part or all of shares held by the investment institution in the Issuer only on the date when the Issuer’s IPO has not been approved by the Shanghai Stock Exchange or has not been agreed by the China Securities Regulatory Commission for registration, or the Issuer withdraws its IPO application
The valuation adjustment agreements may not be terminated if all of the following conditions are met	The Issuer is not a party to the valuation adjustment agreement.	The entity that has the share repurchase obligation is the controlling shareholder, AXT. The Issuer does not have the obligation to repurchase the shares held by investment institutions in the Company, nor is the Issuer a party to the valuation adjustment mechanism.
		The valuation adjustment agreement has no agreement that may result in the change of control of the Company.	The Issuer has no actual controller, and even if any share repurchase provision stipulated in the valuation adjustment agreement is triggered, it will not result in the change of control of the Issuer.
		The valuation adjustment agreement has no linkage to the market value.	The valuation adjustment agreement is not involved in any provision on the linkage to the market value.
	There is no provision in the valuation adjustment agreement that may materially affect the Issuer's ability to operate as a going concern or otherwise materially affects the rights and interests of investors.	The relevant valuation adjustment agreement arrangement has no provision that may materially affect the Issuer's ability to operate as a going concern or otherwise materially affects the rights and interests of investors.

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VII. Overview of directors, supervisors, executives and core technicians

(I) Members of the board of directors

The board of directors of the Company consists of 9 directors, of which 3 are independent directors. The details of them are described as follows:

No.	Name	Position	Nominated by	Tenure
1	MORRIS SHEN-SHIH YOUNG	Chairman	AXT	From April 16, 2021 to April 15, 2024
2	VINCENT WENSEN LIU	Director	AXT	From April 16, 2021 to April 15, 2024
3	WANG Yuxin	Director	AXT	From April 16, 2021 to April 15, 2024
4	GUO Tao	Director	AXT	From April 16, 2021 to April 15, 2024
5	HAO Ze	Director	AXT	From April 16, 2021 to April 15, 2024
6	WANG Huan	Director	Haitong New Driving Force and Haitong New Energy	From April 16, 2021 to April 15, 2024
7	ZHAO Lun	Independent Director	Board of Directors	From April 16, 2021 to April 15, 2024
8	PANG Fengzheng	Independent Director	Board of Directors	From April 16, 2021 to April 15, 2024
9	LIU Yanfeng	Independent Director	Board of Directors	From April 16, 2021 to April 15, 2024

The resume of each member of the Company’s board of directors is specified as follows:

Mr. MORRIS SHEN-SHIH YOUNG was born in 1945 and is a U.S. citizen with PhD degree. He graduated from the Metallurgical Engineering Department of National Cheng Kung University in Taiwan and obtained a bachelor's degree, and then studied in the Metallurgical Engineering Department of Syracuse University in the United States and obtained a master’s degree. He obtained a doctorate from New York University in 1975 and founded AXT in the United States in 1986, and serves as the chairman and chief executive officer of AXT. From October 2009 to April 2021; he served as the chairman of Tongmei Limited. He has served as the chairman of the Company since April 2021.

Mr. VINCENT WENSEN LIU was born in 1952 and is a U.S. citizen with a bachelor’s degree. From 1983 to 1990, he served as the chief engineer of Beijing Automation Instrumentation Seventh Factory; from March 1993 to December 1998, he successively served as an engineer and production manager of AXT; from December 1998 to April 2021, he successively served as a deputy general manager and the general manager of Tongmei Limited; he has served as a director and the general manager of the Company since April 2021.

Mr. WANG Yuxin was born in 1970 and is a Chinese citizen without permanent residency abroad, he has a bachelor’s degree. From 1994 to 2001, he successively served as a supervisor and manager of the planning department of Beijing Victory Wire & Cable Co., Ltd.; from 2001 to 2009, he successively served as a manager 1-1-125


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of the planning and dispatching department and director of the materials department of Tongmei Limited; from 2009 to April 2021, he successively served as the factory director of the wafer production factory of Tongmei Limited; he has served as a director and deputy general manager of the Company since April 2021.

Mr. GUO Tao was born in 1977 and is a Chinese citizen without permanent residency abroad, he has a bachelor’s degree. From 2000 to 2002, he served as a process management staff member of Beijing Erqi Vehicle Plant; from 2003 to 2005, he served as a production management staff member of Tongmei Limited; from 2005 to 2008, he served as a deputy general manager of Jiamei Hi-purity; from 2008 to 2018, he served as the general manager of Nanjing Jinmei; from 2018 to 2021, he served as the general manager of Chaoyang Jinmei; he has served as a director and deputy general manager of the Company since April 2021.

Mr. HAO Ze was born in 1979 and is a Chinese citizen without permanent residency abroad, he has a bachelor’s degree. From February 1998 to August 1999, he served as a cashier of Green House Store Co., Ltd.; from September 1999 to September 2000, he served as a chief accountant of Tongmei Limited; from September 2000 to March 2005, he served as a director of the financial department of Nanjing Jinmei; from April 2005 to April 2021, he successively served as the chief accountant, financial manager, financial director, and a director of Tongmei Limited; he has served as a director and the Chief Financial Officer of the Company from April 2021; and he has served as a deputy general manager of the Company from December 2021.

Mr. WANG Huan was born in 1984 and is a Chinese citizen without permanent residency abroad, he has a master’s degree. From June 2007 to June 2017, he successively served as a project manager, senior vice president, senior manager, etc. of the Investment Banking Department of Haitong Securities Company Limited; he has successively served as an investment director and deputy general manager (in charge of works) of Haitong New Energy Private Equity Investment Management Co., Ltd. since June 2017; and he served as a director of Tongmei Limited from January 25, 2020, and has served as a director of the Company since April 2021. Currently, he also serves as a director of Brite Semiconductor (Shanghai) Co., Ltd., a director of SICC, a director of Shenzhen Suteng Juchuang Technology Co., Ltd., and a director of Liaoning Zhonglan Electronic Technology Co., Ltd.

Born in 1972, Mr. PANG Fengzheng is a Chinese citizen without permanent residency abroad and graduated from a junior college. He is a Chinese certified public accountant and a senior management accountant. From August 1990 to December 2007, he successively served as a cashier, cost accountant and accounting supervisor in Shandong Wucheng Yinhe Textile Co., Ltd.; From January 2008 to September 2009, he served as a project manager of Reanda Certified Public Accountants LLP Shandong branch; from October 2009 to April 2010, he served as a project manager of Lixin Dahua Certified Public Accountants; from May 2010 to April 2011, he served as a project manager of Beijing Huashen Certified Public Accountants; From May 2011 to November 2017, he served as a senior audit manager of Beijing Xinghua Certified Public Accountants; in November 2016, he was engaged by Zhongtai Securities Co., Ltd. as an external expert member of the NEEQ listing committee; since December 2017, he has served as the executive partner (legal representative) and chief partner of Beijing Chengdexin Certified Public Accountants. Since April 2021, he has served as an independent director of the Company. He also serves as an executive director of Beijing Xinda Jiayuan Tax Agents Co., Ltd.

Mr. ZHAO Lun was born in 1953 and is a Chinese citizen without permanent residency abroad, he has a bachelor’s degree. From February 1982 to May 1996, he was an engineer and senior engineer of the Semiconductor Research Institute of the former Ministry of Posts and Telecommunications; from September 1987 to September 1989, he served as a logic circuit design engineer at SGS/SGS-THOMSOM Milan headquarter; from May 1996 to September 1998, he served as the deputy managing director of the IC Design Center of the former Institute of Telecommunications Science and Technology; from September 1998 to April 2002, he served as the deputy managing general manager of the former Microelectronics Branch of Datang Telecom Technology 1-1-126


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Co., Ltd.; from April 2002 to October 2010, he served as the general manager of Datang Microelectronics Technology Co., Ltd., during which he served as the vice president and director of Datang Telecom Technology Co., Ltd., and also served as the legal representative, executive director and director of Shanghai Lianxin Technology Co., Ltd.; from October 2010 to February 2012, he served as the vice chairman of Datang Microelectronics Technology Co., Ltd.; from February 2012 to July 2015, he served as a deputy general manager of AVIC (Chongqing) Microelectronics Technology Co., Ltd.; from July 2015 to November 2017 he served as the chairman of Beijing Xinsirui Technology Co., Ltd. He has served as a director and the general manager of Changxin Memory Technologies, Inc. since November 2017. Since April 2021, he has served as an independent director of the Company.

Mr. LIU Yanfeng was born in 1982 and is a Chinese citizen without permanent residency abroad, he has a master’s degree. He is a certified public accountant and international accountant. From 2008 to 2010, he served as an auditor of Baker Tilly China Certified Public Accountants; from 2010 to 2015, he served as a senior manager of Ruihua Certified Public Accountants; and from 2016 to 2017, he served as the CFO of Juxinda Holdings Co., Ltd. Since 2017, he has been the general manager of the financial management center of Zhongzhi Capital Management Co., Ltd. He has served as an independent director of the Company since April 2021.

(II) Members of the board of supervisors

The Company’s board of supervisors comprises 3 supervisors, including 1 employee representative supervisor. The details of them are described as follows:

No.	Name	Position	Nominated by	Tensure
1	LIU Zhiyang	Supervisor	AXT	From April 16, 2021 to April 15, 2024
2	CHANG Xiuxia	Supervisor	AXT	From April 16, 2021 to April 15, 2024
3	TIAN Guichun	Employee representative supervisor, chairman of the board of supervisors	General meeting of employee representatives	From July 26, 2021 to April 15, 2024

The resume of each member of the Company’s board of supervisors is specified as follows:

Mr. LIU Zhiyang was born in 1982 and is a Chinese citizen without permanent residency abroad, he has a bachelor’s degree. He has served as a staff member of the Company’s production planning department since 2007; since April 2021, he has been a supervisor of the Company.

Ms. CHANG Xiuxia was born in 1973 and is a Chinese citizen without permanent residency abroad, she has a junior college’s degree. From October 1994 to December 2001, she served as a technician in the first factory of Beijing Yanjing Animal Husbandry Co., Ltd.; she has served as a staff member of the Company's security department since November 2002; since April 2021, she has been a supervisor of the Company.

Mr. TIAN Guichun was born in 1972 and is a Chinese citizen without permanent residency abroad, he has a bachelor’s degree. From June 1991 to October 1997, he worked at the Tongxian Chemical Plant in Beijing and served as the secretary of the Communist Youth League branch. From November 1997 to January 2002, he served 1-1-127


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as a worker in Beijing Aoshen Chemical Plant; he has served as workshop safety officer, workshop asset manager, and workshop statistician of the Company since February 2002; since July 2021, he has been a supervisor of the Company.

(III) Executives

There are 5 executives in the Company, including general manager, deputy general managers, Chief Financial Officer and secretary of the board of directors. The details of them are described as follows:

No.	Name	Position
1	VINCENT WENSEN LIU	General Manager
2	WANG Yuxin	Deputy General Manager
3	GUO Tao	Deputy General Manager
4	HAO Ze	Deputy General Manager, Chief Financial Officer
5	SONG Jing	Deputy General Manager, Secretary of the Board of Directors

The resume of each executive of the Company is specified as follows:

Mr. VINCENT WENSEN LIU, see “VII(I) Members of the board of directors” of “Section V Basic Information of the Issuer” of this Prospectus for his resume.

Mr. WANG Yuxin, see “VII(I) Members of the board of directors” of “Section V Basic Information of the Issuer” of this Prospectus for his resume.

Mr. GUO Tao, see “VII(I) Members of the board of directors” of “Section V Basic Information of the Issuer” of this Prospectus for his resume.

Mr. HAO Ze, see “VII(I) Members of the board of directors” of “Section V Basic Information of the Issuer” of this Prospectus for his resume.

Ms. SONG Jing was born in 1981 and is a Chinese citizen without permanent residency abroad, she has a master’s degree. From August 2007 to September 2010, she served as an assistant to the managing director and an assistant to the secretary of the board of directors of the investment department of China Securities Market Research and Design Center (Joint Group); from October 2010 to October 2018, she successively served as the securities affairs representative and supervisor, vice president and secretary of the board of directors of Beijing Jinyi Cultural Development Co., Ltd. Co., Ltd.; from January 2019 to November 2020, she served as a vice president of Guangdong UnitedData Holding Group Co., Ltd.; she joined Tongmei Limited in December 2020. She has served as the secretary of the Company's board of directors since April 2021, and since December 2021, she has been the deputy general manager of the Company.

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(IV) Core technicians

There are 4 core technicians in the Company, and the details of them are described as follows:

No.	Name	Position
1	MORRIS SHEN-SHIH YOUNG	Chairman
2	VINCENT WENSEN LIU	Director, General Manager
3	REN Diansheng	Technical Director
4	WANG Yuanli	Deputy Technical Director

The resume of each core technicians of the Company is described as follows:

Mr. MORRIS SHEN-SHIH YOUNG, see “VII(I) Members of the board of directors” of “Section V Basic Information of the Issuer” of this Prospectus for his resume.

Mr. VINCENT WENSEN LIU, see “VII(I) Members of the board of directors” of “Section V Basic Information of the Issuer” of this Prospectus for his resume.

Mr. REN Diansheng was born in 1966 and is a Chinese citizen without permanent residency abroad, he has PhD degree, and he is a senior engineer. From April 1990 to February 2005, he served successively as an engineer, senior engineer, project leader, and head of technical department of the quality inspection center of China Electronics Technology Group Corporation 46^th^ Research Institute. Since March 2005, he has successively served as a senior engineer, senior manager of R&D department, and senior manager of chip technology department of Tongmei Limited, and currently serves as the technical director of the Company.

Mr. WANG Yuanli was born in 1976 and is a Chinese citizen without permanent residency abroad, he has PhD degree, and he is a senior engineer. From July 2003 to July 2005, he engaged in the postdoctoral research at the Key Laboratory of Semiconductor Materials Science, Chinese Academy of Sciences; since July 2005, he has successively served as a senior engineer of R&D department, manager of R&D department, and deputy technical director of Tongmei Limited. He has been the deputy technical director of the Company’s R&D department since April 2021.

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(V) Positions held by directors, supervisors, executives and core technicians of the Company in other companies

As of the date of this Prospectus, the positions held by directors, supervisors, executives and core technicians of the Company are described as follows:

No.	Name	Position held in the Issuer	Main entities in which a position held	Position held in the entity other than the Company	Relationship between the entity and the Issuer
1	MORRIS SHEN-SHIH YOUNG	Chairman	AXT	Chairman, Chief Executive Officer	Controlling Shareholder
						Dongfang Hi-purity	Director	Equity Participation Company of Controlling Shareholder
						Xing’an Gallium	Director	Equity Participation Company
						Kaimei Quartz	Director	Equity Participation Company
						Chaoyang Limei	Manager, Executive Director	Controlled Subsidiary of Controlling Shareholder
						Tandie Technologies, LLC	Chief Executive Officer	Controlled Subsidiary of Controlling Shareholder
						Beijing Jiya	Director	Equity Participation Company of Controlling Shareholder
						Tongli Germanium	Director	Equity Participation Company of Controlling Shareholder
						Shaanxi Huadian Resin Co., Ltd.	Director	-
2	HAO Ze	Director, Deputy General Manager, Chief Financial Officer	Beijing Jiya	Director	Equity Participation Company of Controlling Shareholder
3	WANG Yuxin	Director, Deputy General Manager	Beijing Liaoyan	Executive Partner	Shareholder of the Issuer
4	GUO Tao	Director, Deputy	Xing’an Gallium	Supervisor	Equity Participation Company

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		General Manager
			Guangxi Tiandong Jinxin Rare Metal Materials Co., Ltd.	Supervisor	Xing’an Gallium Holding its 30% Equity Interest
						Jiamei Hi-purity	Supervisor	Equity Participation Company of Controlling Shareholder
						Nanjing Jinchao Enterprise Management Co., Ltd.	General Manager, Executive Director	-
5	WANG Huan	Director	SICC CO., LTD.	Director	-
						Haitong New Energy Private Equity Investment Management Co., Ltd.	Director, Deputy General Manager	-
						Brite Semiconductor (Shanghai) Co., Ltd.	Director	-
						Liaoning Zhonglan Electronic Technology Co., Ltd.	Director	-
						Shenzhen Suteng Juchuang Technology Co., Ltd.	Director	-
6	ZHAO Lun	Independent Director	Beijing Chuangan Microchip Technology Co., Ltd.	Manager, Executive Director	-
						Hefei Jixin Enterprise Management Partnership (Limited Partnership)	Executive Partner	-
						Changxin Memory Technologies, Inc.	Director, General Manager	-
						Beijing Jiuxin Technology Co., Ltd.	Manager, Executive Director	-
						Changxin Xinju Equity Investment (Anhui) Co., Ltd.	Executive Director and General Manager
						Changxin Xinyuan Equity Investment (Anhui) Co., Ltd.	Executive Director and General Manager		1-1-131


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

			Changxin Jidian (Beijing) Storage Technology Co., Ltd.	Chairman
						Changxin Xinqiao Storage Technology Co., Ltd.	Executive Director, General Manager	-
						Hefei Jixinshuochi Enterprise Management Co., Ltd.	Supervisor	-
						Ruili Integrated Circuit Co., Ltd.	General Manager	-
						Changxin Memory Technologies (Xi’an), Co., Ltd.	Executive Director, General Manager	-
						Changxin Memory Technologies (Shanghai), Co., Ltd.	Executive Director, General Manager	-
7	PANG Fengzheng	Independent Director	Beijing Chengdexin Certified Public Accountants (General Partnership)	Executive Partner	-
						Beijing Xinda Jiayuan Tax Agents Co., Ltd.	Manager, Executive Director	-
8	LIU Yanfeng	Independent Director	Zhongzhi Capital Management Co., Ltd.	General Manager of the Financial Management Center	-

(VI) Relative relationship among directors, supervisors, executives and core technicians of the Company

As of the date of this Prospectus, there is no relative relationship among directors, supervisors, executives, and core technicians of the Company

VIII. Agreements between the Company and directors, supervisors, executives and core technicians and their performance

As of the date of this Prospectus, the Company has entered into the Labor Contract, the Non-Competition Agreement and the Confidentiality and Intellectual Property Protection Agreement with each director, supervisor, executive and Core Technicians who works for and receive remunerations from the Company with respect to horizontal competition and confidentiality matters, who are protected and bound by the relevant labor contract clauses.

As of the date of this Prospectus, the above contracts or agreements have been performed normally and there is no breach of contract. 1-1-132


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IX. Changes in directors, supervisors, executives and core technicians of the Company in the past two years

(I) Changes in directors of the Company

At the beginning of the reporting period, the members of the board of directors of Tongmei Limited were MORRIS SHEN-SHIH YOUNG, VINCENT WENSEN LIU, WEI GUO LIU, DAVIS SHANXIANG ZHANG and Gary L. Fischer.

On November 26, 2020, due to the resignation of DAVIS SHANXIANG ZHANG as a director due to his personal reasons, the Issuer’s shareholders made a decision to elect HAO Ze as a director of the Issuer.

On January 21, 2021, Tongmei Limited held a shareholders’ meeting to elect WANG Huan as a director

On April 16, 2021, due to the overall change of Tongmei Limited into Joint Stock Company, the Issuer held the founding meeting and the first general meeting of shareholders to elect MORRIS SHEN-SHIH YOUNG, VINCENT WENSEN LIU, HAO Ze, WANG Yuxin, GUO Tao, WANG Huan, ZHAO Lun, PANG Fengzheng, and LIU Yanfeng to be members of the first board of directors of the Issuer, among which ZHAO Lun, PANG Fengzheng and LIU Yanfeng are independent directors.

(II) Changes in supervisors of the Company

At the beginning of the reporting period, Tongmei Limited did not have any supervisor.

On December 25, 2020, Tongmei Limited held a shareholders’ meeting to elect HE Jianwu as a supervisor.

On April 16, 2021, due to the overall change of Tongmei Limited into Joint Stock Company, the Issuer held the founding meeting and the first general meeting of shareholders to elect LIU Zhiyang and CHANG Xiuxia as non-employee representative supervisors, and the general meeting of employee representatives elected HE Jianwu as the employee representative supervisor, and the elected three supervisors jointly formed the first board of supervisors of the Issuer. On the same day, the Issuer convened the first-session meeting of the first board of supervisors and elected HE Jianwu as the chairman of the first board of supervisors.

On June 15, 2021, HE Jianwu, the chairman of the board of supervisors and employee representative supervisor, resigned from the Issuer due to his personal reasons and resigned from his posts as the chairman of the board of supervisors and employee representative supervisor. On July 26, 2021, the Issuer held a general meeting of employee representatives to elect TIAN Guichun as the employee representative supervisor of the first board of supervisors. On July 29, 2021, the Issuer held the third-session meeting of the first board of supervisors and elected TIAN Guichun as the chairman of the first board of supervisors.

(III) Changes in executives

At the beginning of the reporting period, the general manager of Tongmei Limited was VINCENT WENSEN LIU, and no other executive was appointed.

On April 16, 2021, due to the overall change of Tongmei Limited into Joint Stock Company, the Issuer held the first-session meeting of the first board of directors to appoint VINCENT WENSEN LIU as the general manager, WANG Yuxin and GUO Tao as deputy general managers, HAO Ze as the Chief Financial Officer, and SONG Jing as the secretary of the board of directors.

On December 3, 2021, the Issuer held the eighth-session meeting of the first board of directors to appoint HAO Ze and SONG Jing as deputy general managers. 1-1-133


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(IV) Changes in core technicians

No major change in core technicians of the Company has taken place in the most recent two years.

(V) Reasons for the changes in directors and executives of the Company and their impact on the Company

The changes in directors of the Company are made by the Company by way of addition or adjustment in accordance with the requirements of the Company Law and the Articles of Association and the actual need to improve the corporate governance structure. The relevant added or adjusted persons are mainly the directors appointed by shareholders or the added external independent directors, no major change occurs to any of the business development goals, operating principles, or policies of the Company; the changes in the Company’s executives are made based on the requirements of the Company Law and the Articles of Association, the actual needs of the Company’s governance structure and business development, four deputy general managers, one chief financial officer and one secretary of the board of directors are newly added (the above persons are internal personnel of the Issuer, the changes in such personnel are not major changes) without materially adverse change.

X. External investments by directors, supervisors, executives and core technicians of the Company

For details on the shares that are directly or indirectly held by directors, supervisors, executives and core technicians of the Issuer in AXT, please refer to “V(I)1 Controlling Shareholder” of “Section V Basic Information of the Issuer” in this Prospectus.

As of the date of this Prospectus, other external investments made by directors, supervisors, executives and core technicians of the Company are outlined as below:

Name	Position held in the Company	Name of invested company	Shareholding percentage	Relationship with the Issuer
HAO Ze	Director, Deputy General Manager, Chief Financial Officer	Beijing Liaoyan	18.4783%	Shareholder of the Issuer
WANG Yuxin	Director, Deputy General Manager	Beijing Liaoyan	18.4783%	Shareholder of the Issuer
GUO Tao<br><br>	Director, Deputy General Manager	Nanjing Jinchao Enterprise Management Co., Ltd.	50%	General Partner of Jinchao Business Management
				Jinchao Business Management	15.0183%	Shareholder of the Issuer

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

ZHAO Lun<br><br>	Independent Director	Beijing Chuangan Microchip Technology Co., Ltd.	100%	Without related party relationship
				Hefei Jixin Enterprise Management Partnership (Limited Partnership)	50%	Without related party relationship
				Hefei Jixin No. 1 Enterprise Management Partnership (Limited Partnership), etc. (Note)	50%	Without related party relationship
PANG Fengzheng	Independent Director	Beijing Chengdexin Certified Public Accountants (General Partnership)	65%	Without related party relationship
				Beijing Xinda Jiayuan Tax Agents Co., Ltd.	93%	Without related party relationship
REN Diansheng	Core technician	Beijing Liaoyan	11.9565%	Shareholder of the Issuer
Wang Yuanli	Core technician	Beijing Liaoyan	11.9565%	Shareholder of the Issuer

Note: As of the date of this Prospectus, ZHAO Lun, an independent director, is a limited partner of 29 partnerships ranging from Hefei Jixin No. 1 Enterprise Management Partnership (Limited Partnership) to Hefei Jixin No. 29 Enterprise Management Partnership (Limited Partnership), holding 50% property share in each of the above partnerships.

XI. Shares held by directors, supervisors, executives and core technicians of the Company and their close relatives

As of the date of this Prospectus, all shareholders of the Issuer are legal person shareholders, and thus there is no situation in which any of directors, supervisors, executives, core technicians, and their close relatives may directly hold shares of the Company.

As of June 30, 2022, the shares indirectly held by directors, supervisors, executives, core technicians, and their close relatives in the Company are listed below:

No.	Name	Position/Relative Relation	Controlling Shareholder/Indirect Holding Platform	Percentage of Shares Held in the Holding Platform	Percentage of Shares Indirectly Held in the Issuer
1	MORRIS SHEN-SHIH YOUNG	Chairman, Core Technicians	AXT	3.8783%	3.3163%
2	VINCENT WENSEN LIU	Director, General Manager<br><br>Core Technicians	AXT	0.1077%	0.0921%

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3	WANG Yuxin	Director, Deputy General Manager	AXT	0.0255%	0.0218%
						Beijing Liaoyan	18.4783%	0.0146%
4	GUO Tao	Director, Deputy General Manager	Jinchao Business Management	15.0183%	0.0529%
						Nanjing Jinchao Enterprise Management Co., Ltd.	50.00%	0.0052%
5	HAO Ze	Director, Deputy General Manager, Chief Financial Officer	AXT	0.0103%	0.0088%
						Beijing Liaoyan	18.4783%	0.0146%
6	REN Diansheng	Core Technicians	AXT	0.0055%	0.0047%
						Beijing Liaoyan	11.9565%	0.0094%
7	WANG Yuanli	Core Technicians	AXT	0.0095%	0.0081%
						Beijing Liaoyan	11.9565%	0.0094%
8	ZHENG Limei	Relative of MORRIS SHEN-SHIH YOUNG	Hangzhou Jingyue	36.00%	0.0404%

Note: 1. The shareholding of MORRIS SHEN-SHIH YOUNG in AXT is the total of direct shareholding + indirect shareholding; 2. according to the questionnaire filled in by MORRIS SHEN-SHIH YOUNG, his children and siblings hold a total of 0.4634 million shares in AXT.

XII. Income of directors, supervisors, executives, and core technicians of the Company

(I) Composition of remuneration, basis of determination, procedures performed and its proportion

The remuneration of directors, supervisors, executives, and core technicians who hold specifically operating positions in the Company consists of basic salary, year-end bonus, etc. The Company pays fair and appropriate salaries based on needs of positions, duties, and work performance in accordance with the remuneration system, to ensure that all employees’ remuneration and benefits are competitive in the same industry and in the market. The remuneration and appraisal committee of the Company establishes the remuneration policies and plans for directors and executives and assesses the performance of directors and executives and submits them to the board of directors or the general meeting of shareholders for review; the independent directors of the Company will receive fixed allowances.

In 2019, 2020 and 2021, the total remuneration of the Company’s directors, supervisors, executives, and core technicians is RMB6.0227 million, RMB7.352 million and RMB7.6372 million respectively, accounting for -23.98%, 14.24% and 8.04% of the Company’s total profit for each period.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(II) Remunerations received by directors, supervisors, executives, and core technicians from the Issuer in the past year

The remunerations received by directors, supervisors, executives, and core technicians of the Company from the Company in 2021 are outlined as below:

In RMB0’000

No.	Name	Position	2021
1	MORRIS SHEN-SHIH YOUNG	Chairman, Core Technicians	-
2	VINCENT WENSEN LIU	Director, General Manager<br><br>Core Technicians	337.65
3	WANG Yuxin	Director, Deputy General Manager	74.55
4	GUO Tao	Director, Deputy General Manager	62.74
5	HAO Ze	Director, Deputy General Manager, Chief Financial Officer	91.61
6	WANG Huan	Director	-
7	ZHAO Lun	Independent Director	7.08
8	PANG Fengzheng	Independent Director	7.08
9	LIU Yanfeng	Independent Director	7.08
10	LIU Zhiyang	Supervisor	7.90
11	CHANG Xiuxia	Supervisor	5.07
12	TIAN Guichun	Supervisor	8.35
13	SONG Jing	Deputy General Manager, Secretary of the Board of Directors	43.63
14	REN Diansheng	Core Technicians	63.08
15	WANG Yuanli	Core Technicians	47.91

Note: 1. MORRIS SHEN-SHIH YOUNG and WANG Huan, each of them is a director of the Company, have never received any remuneration from the Company; 2. The independent directors of the Company were hired from April 2021.

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(III) Other treatments and pension plans given by the Company to the above persons

As of the date of this Prospectus, the Company has not developed any other treatments or pension plans for directors, supervisors, executives or core technicians.

XIII. Equity incentives and related arrangements of the Issuer before this Offering

(I) Employee stock ownership platform

The Issuer has established four employee stock ownership platforms before the application for this Offering: Beijing Dingmei, Beijing Liaoyan, Boyu Yingchuang and Boyu Hengye holding 0.1953%, 0.0788%, 0.0248% and 0.0719% of the Company’s shares.

1. Basic information on the employee stock ownership platforms

(1) For the basic information on Beijing Dingmei, please refer to “VI(V)1(4) Beijing Dingmei” of “Section V Basic Information of the Issuer” of this Prospectus.

(2) For the basic information on Beijing Liaoyan, please refer to “VI(V)1(5) Beijing Liaoyan” of “Section V Basic Information of the Issuer” of this Prospectus.

(3) For the basic information on Boyu Yingchuang, please refer to “VI(V)1(6) Boyu Yingchuang” of “Section V Basic Information of the Issuer” of this Prospectus.

(4) For the basic information on Boyu Hengye, please refer to “VI(V)1(7) Boyu Hengye” of “Section V Basic Information of the Issuer” of this Prospectus.

In January 2022, MENG Fanwei, an incentive grantee of Boyu Yingchuang, and XI Jianhui, an incentive grantee of Boyu Hengye, resigned, and their shares (the amount of investment made by MENG Fanwei in Boyu Yingchuang was RMB90,000, his percentage of capital contribution was 31.0345%; the amount of investment made by XI Jianhui in Boyu Hengye was RMB90,000, his percentage of capital contribution was 10.7143%), were transferred to employees WANG Xin and WANG Junyong respectively. In April 2022, WANG Junyong transferred the above property share to CUI Guanhua.

2. Share-based payment confirmed by the employee stock ownership platforms

Each of the employee shareholding platforms, Beijing Dingmei, Beijing Liaoyan, Boyu Yingchuang, and Boyu Hengye, became a shareholder of the Company by way of capital increase. The Company confirmed that the amount of share-based payment for 2020 and 2021 is RMB0 and RMB2.6576 million, respectively. The relevant accounting treatment complies with the Accounting Standards for Business Enterprises. For details of the share-based payment, please refer to “XI(IV)2 Administrative expenses” of “Section VIII Financial Accounting Information and Management Analysis” of this Prospectus.

3. No employee stock ownership platform is a private equity investment fund

None of the above employee stock ownership platforms has ever raised funds from investors in a non-public manner. None of them is a private investment fund under the Interim Measures for the Supervision and Administration of Private Equity Investment Funds or is required to comply with the Measures on the Registration of Private Equity Investment Fund Managers and Filing of Fund (for trial) or any other regulations to handle the filing of private equity investment funds. 1-1-138


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

4. Lock-up commitments of the employee stock ownership platforms

For details of lock-up commitments in relation to the above employee stock ownership platforms, please refer to “V(I)2 Commitments made by the Company’s shareholders Jinchao Business Management, Beijing Bomeilian, Zhongke Hengye, Beijing Dingmei, Beijing Liaoyan, Boyu Yingchuang and Boyu Hengye" of “Section X Investor Protection” of this Prospectors.

(II) Stock options and restricted stocks obtained by the Issuer’s employees from the controlling shareholder of the Issuer

Since its establishment, AXT, the controlling shareholder of the Company, has granted stock options and restricted stocks of AXT to certain employees in order to establish and improve a long-term incentive mechanism, maintain the stability of the core team, and fully stimulate the enthusiasm of key employees of the Company. During the reporting period, the Company has confirmed the share-based payment for such stock options and restricted stocks of AXT obtained by the above employees is RMB2,304,100, RMB2,783,700 and RMB6,910,900 respectively.

(III) Issuer’s option Incentive Plan for employees

The Issuer has an option incentive plan (hereinafter referred to as the “Incentive Plan”) that is formulated before the IPO application is made and will be implemented after the listing, and the details of which are outlined as follows:

1. Procedures of formulating the Incentive Plan

On October 15, 2021, the Issuer convened the fourth-session meeting of the first board of directors, and reviewed and approved the Proposal on the Company’s 2021 Stock Option Incentive Plan (Draft), the Proposal on the Administrative Measures on the Implementation and Appraisal of the Company’s 2021 Stock Option Incentive Plan, the Proposal on Requesting the General Meeting of Shareholders to Authorize the Board of Directors to Deal with Matters in Relation to 2021 Stock Option Incentives and other proposals. The independent directors issued their independent opinions agreeing to such proposals.

On October 15, 2021, the Issuer convened the fourth-session meeting of the first board of supervisors and reviewed and approved the Proposal on the Company's 2021 Stock Option Incentive Plan (Draft), the Proposal on the Administrative Measures on the Implementation and Appraisal of the Company's 2021 Stock Option Incentive Plan and other proposals.

On October 15, 2021, the Issuer publicly announced the names and positions of incentive grantees within the Company by on-site posting by the Company, and the publicity period was not less than 10 days.

On October 27, 2021, the Issuer convened the fifth-session meeting of the first board of supervisors to review and approve the Proposal on the Examination and Publicity of the List of Incentive Grantees for 2021 Stock Options by the Board of Supervisors.

On November 1, 2021, the Issuer convened the first extraordinary general meeting of shareholders in 2021, reviewing and approving the Proposal on the Company’s 2021 Stock Option Incentive Plan (Draft), the Proposal on the Administrative Measures on the Implementation and Appraisal of the Company's 2021 Stock Option Incentive Plan, the Proposal on Requesting the General Meeting of Shareholders to Authorize the Board of Directors to Deal with Matters in Relation to 2021 Stock Option Incentives and other proposals. 1-1-139


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

On November 4, 2021, the Issuer held the fifth-session meeting of the first board of directors and the sixth-session meeting of the first board of supervisors, respectively, reviewing and approving the Proposal on Granting Stock Options to Incentive Grantees and other proposals. The independent directors issued their independent opinions agreeing to such proposals.

In summary, the Issuer has fulfilled the necessary procedures in formulating the Incentive Plan.

2. Basic content of the Incentive Plan

The basic content of the Incentive Plan is outline below:

(1) Incentive grantees under the Incentive Plan

There are 171 incentive grantees under the Incentive Plan, including the Issuer’s directors and executives, as well as core managers, core technicians and core business personnel of the Issuer and its controlled subsidiaries, excluding independent directors and supervisors.

Up to now, MENG Fanwei (the number of shares subject to the option granted is 56,360) and LIU Lin (the number of shares subject to the option granted is 14,844) have resigned; LIN Bin (the number of shares subject to the option granted is 21,560), Dianna Huang (the number of shares subject to the option granted is 16,842) voluntarily waived their options.

(2) Relevant clauses of the Incentive Plan

Article 1 of Chapter III of the 2021 Option Incentive Plan stipulates: “This Plan uses stock options as an equity incentive tool. The stocks under this Plan source from the Company’s targeted issuance of stocks to incentive grantees. Subject to the conditions as specified in the Plan, each stock option granted to an incentive grantee shall the right to purchase a common stock of Beijing Tongmei at the exercise price during the exercisable period. The stock option granted to the incentive grantee shall not be transferred, used for guarantee or debt repayment".

Chapter 4 of the 2021 Option Incentive Plan provides for the validity period, waiting period and exercise arrangement of stock options. Among them, Article 4 of Chapter 4 stipulates: “The stock options will be exercised in two batches upon expiry of 36 months after such options are granted. The percentage of options available for exercise with respect to each batch is 1/2 and 1/2 of the total amount of stock options granted. Within the date on which applicable options are exercisable, subject to the fulfillment of the exercise conditions as stipulated in this Plan, an incentive grantee may exercise his/her granted stock options in two batches in accordance with the following table, the period available for the exercise of options is 12 months, and the starting date of the next exercise period shall not be earlier than the expiration date of the preceding exercise period, and should the exercise conditions of each batch of stock options have not been fulfilled, then the relevant rights and interests shall not be deferred to the next period. The stock options granted to the incentive grantees shall not be exercised before the Company’s successful offering and listing.”

Chapter 9 of the 2021 Option Incentive Plan provides for the treatment methods of incentive grantees if special circumstances occur, and clarifies the circumstances under which the Company may repurchase or the incentive grantees may terminate their exercise of relevant stock options.

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Chapter 12 of the 2021 Option Incentive Plan provides for the formulation and approval procedures of this Incentive Plan, the granting procedures of stock options, and the exercise procedures of stock options.

(3) Exercise price

According to the 2021 Option Incentive Plan, the exercise price of the Incentive Plan is determined based on the transaction price of the most recent capital increase made by investors in Beijing Tongmei, and the exercise price is RMB5.03 per share.

(4) Total amount of granted stock options

According to the 2021 Option Incentive Plan, the 2021 Measures on the Management of Appraisals and other provisions that have been reviewed and approved by the first extraordinary general meeting of the Issuer and taken effect in 2021, as well as the authorization granted at the first extraordinary general meeting in 2021, the Issuer shall convene the fifth-session meeting of the first board of directors, which has reviewed and approved the 2021 Stock Option Incentive Plan Granting Scheme of Beijing Tongmei Xtal Technology Co., Ltd., agreeing to grant 7,302,036 stock options to 171 eligible incentive grantees, accounting for 0.8247% of total shares of the Company at the time of granting. As of the date of this Prospectus, all of these 7,302,036 stock options have been granted to incentive grantees.

The number of stocks corresponding to all the option incentive plans of the Issuer that are within their effective period does not exceed 15% of the Issuer’s total share capital before listing, and there is no reserved interest.

(5) Waiting period

Article 3 of Chapter 4 of the 2021 Option Incentive Plan stipulates: “The waiting period is 36 months commencing from the date of granting stock options. During the waiting period, the stock options granted to the incentive grantees under this Plan shall not be exercised.”

(6) No change of control

According to the total amount of stock options granted under the Incentive Plan, the actual controller of the Company will not change due to the exercise of options after the Issuer’s listing.

(7) Lock-up commitments

Article 4 of Chapter 4 of the 2021 Option Incentive Plan stipulates that: “(1) Incentive grantees shall not reduce their holdings within 3 years from the date on which the stocks acquired from the exercise of the options after the Company is listed; (2) After the expiration of the above lock-up period, incentive grantees shall comply with the provisions with respect to the reduction of holding by the Company’s directors, supervisors and executives on a mutatis mutandis basis, and shall abide by the then applicable laws, regulations, regulatory documents and the rules of the stock exchange where the Issuer is listed.”

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3. Impact of option incentives on the Company

Through the formulation of the Incentive Plan, the Company has stimulated the enthusiasm of the Company’s executive officers, core technicians, and core staff members, achieved the unity of shareholders’ goals, the Company’s goals and employees’ goals, and improved the Company's operating efficiency.

After the award of the Incentive Plan, the share-based payment confirmed by the apportionment of the cost of stock options will be increased, which will have an impact on the Company’s operating performance in 2021 and in the future to some extent.

Under the Incentive Plan of the Company, the stock options obtained by a single incentive grantee will not exceed 1% of the Company’s stock after such exercise, which will not have a significant impact on the Company’s equity structure, therefore, the equity incentives will not affect the control of the Company.

4. Accounting treatment of option incentives

With respect to the fair value of shares under the option incentive plan, the Company uses a binomial tree model to evaluate the fair value of the granted share options on the grant date in combination with the terms and conditions of granting share options.

In 2021, the Company recognized the share-based payment of RMB461,300 as a result of the incentive plan, and the relevant accounting treatment complies with the Accounting Standards for Business Enterprises. For more details of the share-based payment, please refer to “XI(IV)2 Management fees” of “Section VIII Financial Information and Management Analysis” of this Prospectus.

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XIV. Employees and their social security

(I) Employees

At the end of each reporting period, the number of employees in the Company was 961, 1,055, and 1,396, respectively. As of December 31, 2021, the professional structure, education level and age distribution of the Company’s employees are listed as follows:

Professional Structure of Employees	Number of Employees	Percentage of Total Employees
Managers	165	11.82%
Salespersons	21	1.50%
Production Staff	1,023	73.28%
R&D Staff	187	13.40%
Total	1,396	100.00%
Education Level of Employees	Number of Employees	Percentage of Total Employees
Master and above	40	2.87%
Bachelor	192	13.75%
Junior College and below	1,164	83.38%
Total	1,396	100.00%
Age Distribution of Employees	Number of Employees	Percentage of Total Employees
50 and above	147	10.53%
40 - 49	443	31.73%
30 - 39	584	41.83%
Under 30	222	15.90%
Total	1,396	100.00%

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(II) Issuer’s implementation of the social security regulations

The Company and its domestic subsidiaries implement a labor contract system and enter into labor contracts with employees in accordance with the Labor Law. The Company and its domestic subsidiaries, in accordance with national and local social security laws and regulations, have provided social insurance for employees, such as pension, medical care, unemployment, work-related injury, and maternity, and have paid housing provident fund for their employees.

The overseas subsidiaries of the Company enter into labor contracts with overseas employees and implement the social security system in accordance with local laws and regulations.

During the reporting period, the Issuer and its subsidiaries have no dispute or lawsuit arising out of the payment of social insurance premium, and there is no administrative penalty arising out of the payment of social insurance premium. As of the date of this Prospectus, the number, base, and ratio in relation to the Issuer’s payment of various social insurance premiums for employees are in compliance with laws, regulations and regulatory documents. The Issuer contributes housing provident fund for the employees of the Company in China pursuant to the regulations of the State and local governments.

1. Issuer’s payment of social insurance and housing provident fund during the reporting period

At the end of each reporting period, the Issuer and its domestic controlled subsidiaries contribute social insurance and housing provident funds for their employees as follows:

Date	Number of Employees	Number of Employees for Whom the Social Insurance and Housing Provident Fund are Contributed
				Pension Insurance	Medical Care Insurance	Unemployment Insurance	Maternity Insurance	Work-Related Injury Insurance	Housing Provident Fund
End of 2021	1,371	1,333	1,333	1,333	1,333	1,333	1,312
End of 2020	1,055	1,018	1,018	1,018	1,018	1,018	526
End of 2019	961	924	924	924	924	924	432

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At the end of each reporting period, the specific reasons for the discrepancies between the actual number of social insurance and housing provident fund contributions and the number of employees is as follows:

Date	Type	Number of Employees for Discrepancies	Reasons for the discrepancies between the actual number of employees for whom the social insurance and housing provident fund have been paid and the number of employees
						Employment of Retired	Month of Onboarding/Internship	Payable but Unpaid
End of 2021	Social Insurance	38	23	11	4
		Housing Fund	59	24	24	11
End of 2020	Social Insurance	37	18	13	6
		Housing Fund	529	19	1	509
End of 2019	Social Insurance	37	22	8	7
		Housing Fund	529	17	6	506

2. Certificates of compliance confirming that the social insurance and housing provident fund contribution is in compliance with laws and regulations

The competent authorities of social security and housing provident fund where the Company and its domestic subsidiaries are located has issued certificates of compliance confirming that the Company and its domestic subsidiaries have never been punished for their violation of any laws and regulations in relation to labor, social security and provident fund during the reporting period.

AXT, the controlling shareholder, has issued the following undertakings: (1) if any employee of the Issuer makes a claim for social insurance, housing provident fund, or brings a litigation or arbitration against the Issuer arising therefrom, or resulting in that the Issuer is subject to any administrative penalty imposed by relevant competent authorities, it will make compensations to the Issuer and be liable for all costs resulting therefrom that are payable by the Issuer; (2) If the competent authorities of labor and social security and housing provident fund require the Issuer to make up for the employees’ social insurance and housing provident fund of the previous years, it will pay the amount as assessed by the competent authorities for the account of the Issuer for free; (3) If the Issuer fails to pay social insurance and housing provident fund in accordance with applicable provisions, causing any other expenses and economic losses, it will bear all of the same on behalf of the Issuer for free.

3. Labor dispatch

The Company has dispatched laborers. At the end of each reporting period, the number of dispatched laborers was 202, 208, and 81, respectively, which accounts for 17.38%, 16.51%, and 5.48% of the total employees of the Company at the end of each reporting period.

During the reporting period, the Company used dispatched laborers through dispatched work agencies, such laborers accounted for more than 10% of the total employees of the Company, which is in violation of the relevant provisions of Article 4 of the Interim Provisions on Labor Dispatch. Since 2021, the Company has mainly adopted 1-1-145


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measures such as mobilizing dispatched laborers to directly enter into labor contracts with the Company, reducing the recruitment of employees through dispatched work agencies and other measures to reduce the ratio of dispatched laborers, and replacing dispatched laborers by hiring more regular employees.

As of December 31, 2021, the number of dispatched laborers used by the Issuer was 81, accounting for 5.48% of the total employees (including dispatched laborers) of the Company, which is in compliance with the provision that “the number of dispatched laborers used by an entity shall not exceed 10% of its total number of employees” under the Interim Provisions on Labor Dispatch

According to the certificates issued by the Human Resources and Social Security Bureau of Tongzhou District, Beijing, the Human Resources and Social Security Bureau of Kazuo County, and the Human Resources and Social Security Bureau of Harqin Zuoyi Mongol Autonomous County, and through the search conducted on the public websites of, among others, the Ministry of Human Resources and Social Security of the People’s Republic of China, Beijing Municipal Human Resources and Social Security Bureau, Hebei Provincial Department of Human Resources and Social Security, Liaoning Provincial Department of Human Resources and Social Security, National Enterprise Credit Information Publicity System, Credit China, QCC.COM, from January 1, 2018 to the date of this Prospectus, the Company has not been subject to any administrative penalties imposed by relevant regulatory authorities arising out of any labor dispatch.

In summary, as of the date of this Prospectus, the labor dispatch ratio of the Company has been in compliance with relevant laws and regulations, and there is no administrative penalty imposed by the relevant regulatory authorities due to the labor dispatch.

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Section VI Business and Technology

I. Description of the Issuer’s main business and main products and services

(I) Main business

The Company, as a globally well-known semiconductor material technology enterprise, mainly engages in the research, development, production, and sales of InP substrates, GaAs substrates, germanium substrates, PBN materials, and other high-purity materials. The InP substrate, GaAs substrate, and germanium substrate products of the Company may be used to produce RF devices, optical modules, LEDs (mini LEDs and micro LEDs), lasers, detectors, sensors, space solar cell and other devices, having a broad scope of application in 5G communications, data centers, new generation display, artificial intelligence, unmanned driving, wearable device, aerospace, etc. The PBN materials and other high-purity materials products of the Company guarantee the high-quality supply of upstream materials for the Company’s semiconductor substrates at the very source, with a broad scope of application in compound semiconductor, semiconductor devices, OLED, LED, and other industries.

Having engaged in the business of III-V compound semiconductor materials for over 35 years, the core team of the Company has built in-depth technology and process accumulation. As of June 30, 2022, the Company has a total of 61 patents for invention, including 52 Chinese domestic patents for invention and 9 overseas patents for invention. In addition, the Company holds a number of process and formula proprietary technologies in the form of know-how. Based on reliable product quality and favorable market reputation, the Company has become one of the most competitive players in the global industry of III-V compound semiconductor materials. According to Yole, the Company held the second largest market shares for InP substrate products in 2020 and the fourth largest market shares for GaAs substrate products in 2019 in the world.

The Company is ranked in the first tier, among main competitors Sumitomo, JX Nippon, and Freiberger, in the global industry of III-V compound semiconductor materials. Given the gradual migration of the semiconductor industry chain to China and maturing downstream industries, including 5G communications, data centers, new generation display, etc., the Company has the potential of developing into a leader for global III-V compound semiconductor substrate materials by making the most of the development opportunities on emerging markets in a new industrial cycle.

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Applications of products in the Company’s main business are illustrated as follows:

(II) Main products

1. Main products

By now, the Company has built a product matrix “centered on semiconductor substrates and supplemented by PBN materials and high-purity materials” to meet various demands of customers in the semiconductor industry. Main products of the Company include InP substrates, GaAs substrates, germanium substrates, PBN materials, and other high-purity materials.

The Company holds III-V compound semiconductor substrates at the core while expanding the business to upstream PBN materials and high-purity materials. PBN materials include PBN crucibles, PBN plates, PBN coatings, etc., and high-purity materials include high-purity gallium (6N, 7N, and 8N purity), gallium-magnesium alloys, indium-magnesium alloys, etc.

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Products of the Company are specifically described as follows:

Main product	Illustration	Application device/product use	Downstream applications
Semiconductor substrate materials
InP substrate (2-inch, 3-inch, 4-inch, and 6-inch)		Mainly used in the production of laser and detector chips in optical modules, and in the production of laser devices, wearable devices, and other device products for health monitoring	5G communications/data centers<br><br>
				Wearable devices<br><br>
GaAs substrates<br><br>(1-inch, 2-inch, 3-inch, 4-inch, 5-inch, 6-inch, and 8-inch)<br><br>	<br><br><br><br>	Mainly used in RF device products, laser devices, sensors, high-brightness light emitting diodes (HBLED) device products that are often used to backlight mobile phone and liquid crystal display (LCD) TVs, and light emitting diode device products in automotive panels, signage, display, and lighting application scenarios	Mobile phones and computers<br><br>
				Communication base stations<br><br>
				Unmanned driving<br><br>
				New generation display (mini LED, micro LED)<br><br>
				<br><br>Industrial lasers

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			VCSEL facial recognition
Germanium substrate (2-inch, 3-inch, 4-inch, and 6-inch)		Mainly used in solar cells and high-performance light emitting diode device products for aerospace	Solar cells for space satellites<br><br>
PBN materials
Pyrolytic boron nitride (PBN) crucibles	<br><br><br><br>	Mainly used in the single-crystal growth of compound semiconductors, molecular beam epitaxial growth, and OLED evaporation source	Crystal growth of compound semiconductors<br><br><br><br>Molecular beam epitaxy (MBE) equipment<br><br><br><br>OLED evaporation source<br><br><br><br>
Other PBN materials (plates, coatings, guide rings, arks, insulating plates, etc.)	<br><br><br><br><br><br>	Used in parts of various high-end semiconductor devices	High-end semiconductor device parts<br><br>	1-1-150


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High-purity materials
High-purity gallium (6N, 7N, 8N)	Mainly used in the production of compound semiconductor substrates, magnetic materials, high-temperature thermometers, single crystal ingots, including gallium arsenide, gallium oxide, gallium nitride, gallium antimonide, and gallium phosphide ingots, and other materials and alloys	Crystal growth<br><br>
Gallium-magnesium alloy, indium-magnesium alloy	Used as raw materials in the production of MO sources. MO sources are important materials for the production of gallium arsenide and gallium nitride compound semiconductor devices, microwave devices, optical devices, and photoelectric devices	MO sources<br><br>

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2. Breakdown of revenue from main business

During the reporting period, the Company’s revenue from main business includes the following:

In RMB0’000

Category	2021		2020		2019
		Amount	Proportion	Amount	Proportion	Amount	Proportion
InP substrates	28,179.15	32.99%	12,753.63	21.87%	10,971.16	23.74%
GaAs substrates	25,547.46	29.91%	23,536.79	40.37%	17,987.74	38.92%
Germanium substrates	8,948.57	10.48%	8,055.63	13.82%	6,812.40	14.74%
PBN crucibles	5,502.47	6.44%	5,186.24	8.89%	4,729.22	10.23%
High-purity metals and compounds	12,201.00	14.29%	5,501.42	9.43%	2,531.92	5.48%
Others	5,025.79	5.88%	3,275.00	5.62%	3,188.36	6.90%
Revenue from main business	85,404.44	100.00%	58,308.72	100.00%	46,220.79	100.00%

Note: Others mainly include revenue from crucible precision regeneration services, sale of other PBN materials, etc.

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The Company provides services for the whole world with a base established and China, and relying on its products accepted by a number of domestic and overseas customers, the Company has been in close cooperation with many well-known enterprises for years. Customers of the Company are mostly listed companies in the US, Europe, Chinese Mainland, and Taiwan District, including 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 professional epitaxy manufacturers, foundry manufacturers, and chip and device manufacturers. In addition, the Chinese Academy of Sciences, the Massachusetts Institute of Technology, the California Institute of Technology, Peking University, the University of Science and Technology of China, Shanghai Jiao Tong University, Xiamen University, and other well-known research institutes and universities in China and abroad purchase semiconductor material products from the Company for teaching and academic research.

Main customers of the Company in various downstream fields are as follows:

Main downstream applications	Customer name
Semiconductor substrate materials
5G, data centers, fiber optic communications	Customer A, Landmark Optoelectronics, Win Semiconductor, Customer C, IQE, Broadcom, Qorvo, Skyworks
New generation display (mini LED and micro LED)	Osram, Broadcom, Epistar, San’an Optoelectronics
Artificial intelligence, unmanned driving	Customer A, Landmark Optoelectronics, Win Semiconductor, Visual Photonics Epitaxy, Customer C, Meta
Wearable devices	Masimo, Alta Devices
Aerospace	Customer B, SolAero, Azur Space, Kingsoon
Industrial lasers	IPG, Trumpf, nLight Photonics, Excelitas, Everbright Photonics
PBN crucibles
Crystal growth crucibles	Sumitomo, Freiberger, Guangdong Vital Advanced Materials Co., Ltd., Yunnan Lincang Xinyuan Germanium Industry Co., Ltd.
OLED crucibles	BOE Technology, Tianma Microelectronics, China Star Optoelectronics, Visionox
High-purity materials
MO sources	Argosun, Jiangxi Jiayin

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3. Description of semiconductor materials

(1) Categories of semiconductor materials

Common semiconductor materials include three categories:

1) Single-element semiconductor materials, i.e. semiconductor material consisting of a single element, mainly including silicon (Si) and germanium (Ge), in which silicon-based semiconductor materials are semiconductor materials with the largest output, lowest costs, and widest applications;

2) III-V compound semiconductor materials, i.e. semiconductor materials made from III-V compounds, mainly including gallium arsenide (GaAs) and indium phosphide (InP). Thanks to the features of high electron mobility and favorable photoelectric performance, such materials have become the most developed semiconductor materials second only to silicon, and have a broad prospect of applications in 5G communications, data centers, fiber optic communications, new generation display, artificial intelligence, unmanned driving, wearable device, and aerospace;

3) Wide-bandgap semiconductors, including gallium nitride (GaN) and silicon carbide (SiC), featuring high bandgap width, high-pressure tolerance, and high power. Despite the high costs at present, these materials have a broad prospect of applications in communications and new energy vehicles.

To differentiate these materials from each other, single-element semiconductor materials, III-V compound semiconductor materials, and wide-bandgap semiconductor materials are referred to as the first generation, second generation, and third generation of semiconductor materials, respectively.

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There is no strict substitutional relation among semiconductor materials; instead, different materials have their respective advantages in specific application scenarios. Physical properties of semiconductor materials are compared as follows:

Item	Single-element semiconductor		III-V compound semiconductor		Wide-bandgap semiconductor
		Silicon	Germanium	Gallium arsenide	Indium phosphide	Gallium nitride	Silicon carbide
Molecular formula	Si	Ge	GaAs	lnP	GaN	SiC
Bandgap width (eV)	1.12	0.7	1.4	1.3	3.39	3.26
Energy band transition type	Indirect	Indirect	Direct	Direct	Direct	Direct
Breakdown electric field (MV/cm)	0.3	-	0.4	0.5	3.3	3
Saturated electron velocity (10^(6)cm/s)	10	6	20	22	22	20
Electron mobility (cm^(2)/Vs)	1,200	3,800	6,500	4,600	1,250	800
Hole mobility (cm^(2)/Vs)	420	1,400	320	150	250	115
Thermal conductivity (W/cmK)	1.5	0.6	0.5	0.7	1.3	4.9
Advantages	Large reserves, and low prices	High electron mobility and hole mobility	Favorable photoelectric performance, heat resistance, and radioresistance	Good thermal conductivity, high photon-to-electron conversion efficiency, and high fiber transmission efficiency	High frequency, high-temperature resistance, and high power
Manufacturing cost	Low	Relatively low	High	Relatively high	Very high

Source: The Third Semiconductor Joint Innovation Incubator Center

According to the table above, in special applications featuring high frequency, high power consumption, high pressure, high temperature, etc., III-V compound semiconductor materials and wide-bandgap compound semiconductor materials have unique advantages as substrates, while silicon and germanium materials are mainly used in low-power consumption environments, and are subject to improvement in process node technologies for its improvement. In the fields of photoelectron, radio frequency, power electronics, etc., advanced processes relying on silicon-based substrate materials can hardly ensure the linearity and stability for integrated circuits.

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(2) Application fields and scenarios of semiconductor materials of different types

The main features, application fields and scenarios of semiconductor materials of different types are as follows:

Items	Single-element semiconductor materials		III-V compound semiconductor materials		Wide-bandgap semiconductors
		Silicon	Germanium	Gallium arsenide	Indium Phosphide	Gallium Nitride	Silicon carbide
Molecular formula	Si	Ge	GaAs	lnP	GaN	SiC
Features	Large reserves, cheap	High electron mobility and hole mobility	Good photoelectric performance, heat resistance, radiation resistance	Good thermal conductivity, high photoelectric conversion efficiency, high optical fiber transmission efficiency	High frequency, high temperature resistance, high power
Application fields	Advanced Process Chip	Space satellite	LED, Display, RF Module	Optical Communication	Charger, high-speed rail	Electric car
Main application scenarios	CPU<br><br><br><br><br><br><br><br>图片许多电子设备中度可信度描述已自动生成<br><br>Memory<br><br>图片手机屏幕截图描述已自动生成	Space satellite solar panel图片卫星在宇宙中描述已自动生成	RF devices of mobile phones and computers图片电脑的屏幕描述已自动生成<br><br>New generation of displays<br><br>图片图片包含游戏机华美光盘描述已自动生成<br><br>Face recognition<br><br>图片人的脸描述已自动生成<br><br>High Power Semiconductor	5G base station optical module图片建筑与房屋的城市空拍图描述已自动生成<br><br>Data Center Optical Module<br><br>图片图片包含建筑电脑电子人行道描述已自动生成<br><br><br><br><br><br>Lidar<br><br><br><br>Wearable device图片图示描述已自动生成	Fast charging chip图片图形用户界面描述已自动生成<br><br>High-speed rail chip图片卡通人物中度可信度描述已自动生成	New energy vehicle图片汽车停在路上描述已自动生成<br><br>Charging pile图片街道边的消防栓旁摆拍中度可信度描述已自动生成

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Laser图片蓝色的灯光低可信度描述已自动生成

Based on the time of invention, single-element semiconductor materials, III-V compound semiconductor materials and wide-bandgap compound semiconductor materials are called semiconductor materials of the first, second and third generations respectively. Different semiconductor materials have different features and purposes; currently, the downstream application fields of Silicon, Germanium, Gallium Arsenide, Indium Phosphide, Silicon Carbide and Gallium Nitride overlap only to a low degree, so there is no generational replacement relationship among different semiconductor materials.

The single-element semiconductor materials are most widely applied semiconductor materials. Due to rich reserve of silicon elements, mature technology and industrial support and relatively low cost, more than 90% of chips and devices are made of silicon, including CPU, GPU, other logic and memory chips. Affected by Moore's Law, silicon-based chips constantly develop toward more advanced processes, as showed in smaller processing nodes, such as 14nm, 7nm and 3nm, and more complicated structures, such as 128-layer, 192-layer 3D NAND, etc. In the common scenario which can be satisfied by performance of silicon-based chips, it is difficult for other materials to replace silicon materials.

However, for special application scenarios where performance of silicon-based chips hardly satisfy, such as high frequency, luminosity, high power and high voltage, other semiconductor materials such as III-V compound semiconductor materials and wide-bandgap compound semiconductor materials are required, and their market demands will grow along with the increase of their downstream application markets and occurrence of new application scenarios, mainly originated from incremental market, other than a substitute market of silicon and other semiconductor materials.

In recent years, wide-bandgap semiconductor materials become favorites of consumers and investors mainly due to the rapid development of the new energy vehicle industry, bringing wide incremental market for power devices of electric vehicle and charging piles. Although wide-bandgap semiconductor materials occurred later than III-V compound semiconductor materials, such semiconductor materials have been used in industrial circle for more than 30 years, not an upgrade or renewal of III-V compound semiconductor materials.

The growth of market demands for 5G, next-generation displays, data centers, unmanned driving, mobile phone facial recognition and wearable devices results in great demands for III-V compound semiconductor materials, which have definite market growth space in future.

(3) Overlapping fields and scenarios of semiconductor materials of different types

As we can see from above paragraphs that main application scenarios of different semiconductor materials are wide and differentiated, however, they overlap in certain fields, mainly in mobile communication RF and LED. The details are as follows:

1) The field of mobile communication RF

All semiconductor materials can be applied to mobile communication RF devices, but different devices have different frequency bands. The operating frequency of gallium arsenide RF devices can reach 8Ghz, which can 1-1-157


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be applied to 4G and 5G mobile communication equipment; the main application frequency of SOI (Silicon On Insulator) RF devices is less than 3.5GHz, which can be applied to 2G, 3G and 4G mobile communication equipment and base stations; the application frequency of gallium nitride radio frequency devices is less than 40Ghz, but the power density of gallium nitride RF devices is relatively high, so it is mainly used in communication base stations.

As a whole, different semiconductor materials have different application scopes in mobile communication field: gallium arsenide and SOI RF devices are mainly applied to mobile equipment, and gallium nitride RF devices are mainly applied to communication base stations; in the field of mobile communication, the relationship between gallium arsenide RF devices and gallium nitride RF devices is more complementary than competitive.

2) LED field

The III-V compound semiconductor material (gallium arsenide) and the wide bandgap semiconductor material (gallium nitride) are all used in the LED field. Among them, gallium arsenide mainly emits red, yellow and infrared light, while gallium nitride mainly emits blue, green and ultraviolet light. The optoelectronic devices made from the two materials emit different colors and can be used together in LED display scenarios. The relationship between two materials is complementary other than competitive or substitutive.

(4) Industry chain of compound semiconductor materials

Links in the industry chain of compound semiconductor materials include the substrate link, the epitaxy link, the chip link, and the device link. The substrate, as the fundamental material of all semiconductor chips, has the functions of physical supporting, heat conduction, electricity conduction, etc. The epilayer is a new semiconductor crystal layer grown on the substrate material by metal-organic chemical vapor deposition (MOCVD), molecular beam epitaxy (MBE), etc. Application-specific chips may be produced with epilayers made from the compound semiconductor substrate treated with epitaxy processes, and be used to manufacture various devices.

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(III) Main business models

1. Profit-making

The Company focuses on the research, development, production, and sales of InP, GaAs, and germanium substrate materials, PBN materials, and high-purity materials, and generates revenues and profits by selling relevant products to downstream customers, including epitaxy manufacturers, foundry manufacturers, chip and device manufacturers, and scientific research institutes.

To ensure stable supply of raw materials for substrate production, the Company is actively expanding its business to the upstream. For raw materials featuring high technology difficulties, high added values, and lack of stable supply in the Chinese Mainland, such as PBN crucibles and high-purity gallium, having achieved self-sufficiency, the Company sells the remaining production capacity to generate revenues and profits for the Company. For other important raw materials with stable supply in the Chinese Mainland, the Company deepens cooperation with suppliers by equity investment to ensure the stable supply of raw materials.

2. Research and development

The Company engages in research and development independently. R&D tasks of the Company are implemented in a project-based manner under the direction of the Research and Development Center, with established departments like the Semiconductor Substrate R&D Department, PBN Materials R&D Department, High-purity Materials R&D Department, etc. The Company has established comprehensive R&D procedures, and determined R&D directions based on the technology development and application demands in the industry, covering the R&D of new products and process optimization of existing products.

The Company is closely attentive to cutting-edge technologies in the industry and the R&D trends of downstream customers, and keeps close communication with customers with strong R&D capabilities throughout the world. Since only a few enterprises in the world are capable of supplying III-V compound semiconductor substrates, downstream customers normally request corresponding R&D tasks to be performed by the Company on materials for the R&D of their own new products. The Company normally needs to engage in R&D efforts with reference to the R&D plans of new devices and new end products of customers for the next 2 to 3 years.

3. Procurement

Raw materials purchased by the Company are primarily classified into major materials and auxiliary materials. Major materials include gallium, germanium ingot, quartz materials, high-purity arsenic, indium phosphide poly-crystal, red phosphorous, indium, and boron trichloride; auxiliary materials include graphite materials, liquid nitrogen, liquid ammonia, polishing solutions, polishing pads, dopants, and other supplementary materials. Energies, mainly water, electricity, gas, and steam, are mainly purchased from energy departments at the place of the factory.

With a global procurement system with standard-based procurement regulations, the Company implements regulated procurement control procedures, and has established long-lasting and mutual beneficial cooperation with suppliers. The Company has two or more qualified suppliers for every type of raw materials to maintain the supply stability of raw materials. The procurement center makes procurement after quality and price comparison within the scope of qualified suppliers in accordance with relevant provisions, and continuously monitors procurement prices. For large-quantity raw materials with high fluctuating prices, the Company has safety stocks, and implements cost control by procurement of a storage quota. For normal raw materials, the Company makes procurement after making a procurement plan in response to demands in production. 1-1-159


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The procurement procedure of the Company is described as follows:

In addition, the Company entrusts germanium dioxide purchased from other suppliers, germanium wastes from growing germanium single crystals, and platinum-rhodium wires worn seriously during production to qualified third parties for recycling.

4. Production

The Company mainly implements production to order, supplemented by production for appropriate stock.

In production, the Company uses an informationization system, formulates comprehensive control procedures for the production process, and establishes a procedure to promptly and effectively handle customer orders. The marketing center generates internal sales orders according to customer orders, and production orders, after being confirmed by the procurement center and quality management center, are issued to the manufacturing center, which claim materials and carry out production according to the production orders. After products are finished and taken into the warehouse, the marketing center ships out the products according to sales orders.

For a long period after the establishment of the Company, given the few qualified suppliers in the Chinese Mainland, and because the Company’s customers were mostly overseas customers, the Company mainly provided crystal and wafer processing and production services for AXT, the controlling shareholder, in the manner of processing materials supplied by customers. With the development of the semiconductor industry in the Chinese Mainland, the rapid growth of downstream customers, and the gradual improvement in production made by domestic suppliers, the Company basically terminated the manner of processing materials supplied by customers in August 2018.

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The production flowchart of the Company is as follows:

5. Sales

The Company sells products through direct sales, and obtains orders mainly by business negotiation with potential customers, entrusted marketing by agents, etc.

Domestic sales are mainly the responsibility of domestic teams. The salesperson develops customers on a one-by-one basis and provides technical support and services, so as to achieve targeted sales and prompt communication and response to customer feedback. The Company has achieved favorable results for its localized sales policy –sales revenues from China have been growing over the years.

For overseas sales, the Company has established direct sales teams in the US and Europe. Since the overseas semiconductor industry started early, overseas customers have high demands for III-V compound semiconductor materials. To accurately understand the demands of overseas customers, seize market opportunities early, and respect local trade habits and operation habits, the Company also sells products in Europe, the US, Taiwan District, and other countries and regions through agents according to business practices.

Before March 2021, the Company carried out overseas sales mainly through AXT, i.e. the Company sold products to AXT, and AXT sold such products to end customers according to its sales orders. In March 2021, the Company completed the integration of overseas sales, so as to sell products to overseas customers through ATX-Tongmei. In May 2021, the Company acquired ATX-Tongmei. AXT will have no sales business after finishing sales contracts signed prior to March 2021.

(1) Sales achieved by business negotiation with customers

The marketing center of the Company is primarily responsible for contacting customers, providing technical support and services for customers, and performing marketing tasks like study of industry trends, market survey, and promotion of the Company’s products. The Company makes market-based pricing in a flexible way depending on the costs of products, market environments, customer recognition, procurement quantity, and other factors.

The sales procedure of the Company is as follows:

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Under industry practices, downstream customers normally request product certification when receiving a new supplier, and may officially enter into business cooperation with a semiconductor material supplier only after the supplier passes the certification. The period of certification varies greatly with application areas and customer scales; given the long period and high costs required for certification, once a supplier is certified, downstream customers normally will not replace the supplier rashly.

To enhance sales of the Company’s products in Japan, under the business practices in the semiconductor industry of Japan, the Company has entered into a Long-term Sales Contract with a Japanese trader. After the Company’s product is certified by a customer, the Japanese customer communicates its procurement demands directly with the trader, and the trader provides orders to the Company, stating the name of the end customer, price, technical specifications and parameters, and quantity; the marketing center checks and submits the order to the financial management center for review; then, the Company sends the product to the trader, while the trader accepts and sells the products to the end customer.

(2) Sales achieved through agents

The Company develops markets in Europe, the US, South Korea, Taiwan District, and other countries and regions through agents. The Company signs a product sales agency agreement with the agent, which is responsible for the marketing of relevant products in a specific region. The Company directly signs sales contracts with relevant customers, sends the products directly to customers, and pays the commission charges to the agent in accordance with the types of the sold products and the commission rate agreed in advance.

During the reporting period, sales revenue realized by the Company through agents are as follows:

In RMB0’000

Item	2021	2020	2019
Sales revenue realized through agents	14,563.58	3,135.30	3,983.49
Revenue	85,734.52	58,317.04	46,222.68
Proportion	16.99%	5.38%	8.62%

During the reporting period, sales revenues realized by the Company through agents are RMB39.8349 million, RMB31.3530 million, and RMB145.6358 million, respectively, accounting for a low proportion of 8.62%, 5.38%, and 16.99% of the operating incomes in the respective period. All sales revenues realized by the Company through agents are overseas revenues. In May 2021, the Company completed the integration of overseas sales, so as to sell products to overseas customers through ATX-Tongmei. Former agents of AXT directly cooperate with ATX-Tongmei, a subsidiary of the Company; therefore, the sales revenues realized by the Company through agents increased in 2021.

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(3) Consignment

The consignment mode of the Issuer is as follows:

Items	Osram	Broadcom	Sumika Electronic Materials, Inc	Freiberger
Delivery	Customer submits the sales forecast for the next 3 months to the Issuer every month, and the Issuer replenishes the inventory from time to time according to factors such as production arrangement and inventory quantity.	Customer submits the sales forecast for the next 6 months to the Issuer every month, and the Issuer replenishes the inventory from time to time according to factors such as production arrangement and inventory quantity.	Based on their own inventory and sales situation, customers sign sales contracts with the Issuer from time to time to agree on the amount of inventory replenishment	Customer submits the sales forecast for the next 26 weeks to the Issuer every quarter, and the Issuer replenishes the inventory from time to time according to factors such as production arrangement and inventory quantity.
Cargo Custody Responsibility	The customer shall manage, protect and maintain the Issuer's consignment inventory, and bear the risks and responsibilities for storage of the consignment products; however, the Issuer retains the title to the consignment products until the products are delivered to and taken by the customer from warehouse.	The risk of damage and loss of consignment goods stored in the consignment warehouse shall be borne by the Issuer, who shall pay relevant expenses arising therefrom; the Issuer retains the title to the consignment products until the products are delivered to and taken by the customer from warehouse.	The risk of damage and loss of consignment goods stored in the consignment warehouse shall be borne by the Issuer; the Issuer retains the title to the consignment products until the products are delivered to and taken by the customer from warehouse.	The risk of damage and loss of consignment goods stored in the consignment warehouse shall be borne by the Issuer; the Issuer retains the title to the consignment products until the products are delivered to and taken by the customer from warehouse.
Price	The customer collects the consignment products from warehouse according to the first-in-first-out principle, confirms the sales order corresponding to the products collected from the warehouse against the product quantity agreed in the sales order, and confirms the sales unit price of the products according to the sales order.
Payment	When the consignment products are actually delivered to and taken by the customer from the warehouse, the customer needs to pay within the credit period agreed in the sales order
Reconciliation	The customer provides the Issuer with detailed reconciliation documents on a monthly basis, including the quantity	The customer provides the Issuer with detailed reconciliation documents every month, including the actual quantity received	The customer provides the Issuer with detailed reconciliation documents on a monthly basis,	The customer provides the Issuer with detailed reconciliation documents on a monthly basis,

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received, the unit price of the product, the amount payable, and the details of remnant inventory	and inventory balance details	including the quantity received, the unit price of the product, and inventory balance details	including the quantity received, sales order corresponding to the product received, and inventory balance details

Prior to consignment business was shifted, Osram, Broadcom and Sumika Electronic Materials, Inc had been consignment customers of AXT for a long term; in March 2021, the sales business and customers were shifted to AXT-Tongmei; in May 2021, the Company completed the acquisition of AXT-Tongmei, and aforesaid three consignment customers were transferred to the Issuer. In addition, prior to business shift, original AXT customers IQE and VPEC transacted with AXT through consignment mode, which is no longer adopted by the aforesaid two customers after business shift.

In 2021, in response to the need of Freiberger, the subsidiary Beijing Boyu adopted the consignment mode after negotiating with Freiberger.

The balance of inventories deposited by the Issuer with aforesaid consignment customers at the end of the reporting period and the post-period sales status as of the end of February 2022 are as follows:

In RMB0’000


Main customers	Ending inventory amount	Post-period consumption amount	Post-period selling rate
Osram	1,578.12	1,578.12	100.00%
Broadcom	73.58	53.73	73.02%
Sumika Electronic Materials, Inc	56.59	56.59	100.00%
Freiberger	63.10	61.31	97.16%
Total	1,771.39	1,749.75	98.78%

As indicated by the above table, as of the end of February 2022, the balance of inventories deposited by the Issuer with consignment customers at the end of the reporting period has been sold out.

(IV) Evolution of the main business, main products or services, and main operation model since the establishment of the Company

Since its establishment, the Company has always been focusing on the research, development, production, and sales of III-V compound semiconductor substrates. AXT, the controlling shareholder of the Company, was established in 1986, and has engaged in the research, development, production, and sales of III-V compound semiconductor substrates since its establishment. In 1998, AXT established Beijing Tongmei in Beijing, gradually migrated its production, research, and development to Beijing Tongmei, and invested compound semiconductor substrate technologies in Beijing Tongmei. The Company made continuous technology development and innovation on the basis of such technologies. 1-1-164


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AXT, the controlling shareholder of the Company, is one of the first enterprises engaging in the commercial production of GaAs substrates using the VGF method, and successively engaged in the production of InP substrates and germanium substrates using the VGF method; it obtained orders from and entered into long-term cooperation in 2000 with internationally major manufacturers, including Osram, Landmark Optoelectronics, and Visual Photonics Epitaxy, and obtained orders from and entered into stable cooperation with Chinese Mainland enterprises after 2010.

To ensure sufficient and controllable supply of raw materials, the Company established a subsidiary of high-purity materials and a subsidiary of PBN materials in 2001 and 2002, respectively. High-purity gallium and PBN crucibles produced by the subsidiaries, in addition to supply to the Company, are also sold to others, hence promoting the localization of the domestic III-V compound semiconductor industry chain. Given the migration of the semiconductor industry to China and the constant increasing demands from domestic customers, thanks to the performance and reputation achieved by the Company in the world, the Company obtained orders from Chinese customers in 2013, including Customer A, Epi Solution Technology Co., Ltd., and Everbright Photonics.

In the field of PBN materials, the Company has engaged in the research and development of PBN materials for over 19 years, and sells products to Europe, the US, Japan, South Korea, Singapore, Taiwan District, and other countries and regions. The Company became a qualified supplier of Sumitomo around 2005, a qualified supplier of Freiberger around 2010, and a qualified supplier of OLED enterprises such as BOE Technology, China Star Optoelectronics, and Tianma around 2019, which further enhanced the Company’s product portfolio and expanded the market coverage of products.

There is no change in the main business, main products or services, and main operation model since the establishment of the Company. The evolution of main products of the Company is as follows:

(V) Process flowchart or service flowchart of main products and services

As a technology-intensive industry, the industry of semiconductor materials is interdisciplinary application of the material science, thermodynamics, semiconductor physics, chemistry, computer simulation, mechanics, etc.

For the Company’s production of semiconductor substrates, raw materials are gallium arsenide poly-crystals, indium phosphide poly-crystals, germanium ingot, etc., and the VGF method is applied to grow gallium arsenide, 1-1-165


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indium phosphide, and germanium single crystals of various sizes. Crystals go through dicing, edging, grinding, polishing, cleaning, and other processes, get tested and inspected, and then packaged as finished products into the warehouse.

PBN products of the Company are made by advanced chemical vapor deposition, in which boron trichloride, pure ammonia, graphite substrates, etc. are used as raw materials; the products are processed and cleaned by using graphite molds, and then packaged as finished products into the warehouse.

High-purity gallium of the Company is produced with gallium as raw materials, in which impurities are extracted and gallium is purified through alkaline electrolysis; finished products are taken into the warehouse after vacuum packaging.

The processes for the Company’s products are as follows:

1. Semiconductor substrate materials

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2. PBN materials

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3. High-purity gallium

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(VI) Main pollutants generated in production, main processing facilities, and handling capabilities

The table below shows the main pollutants generated in production, main processing

facilities, and handling capabilities in the production and operation of the Company:

Category	Pollutant	Environment protection facilities and handling capabilities	Operation status
Wastewater	Ammonia nitrogen wastewater, phosphorus-containing wastewater, arsenic-containing wastewater, domestic wastewater, workshop cleaning wastewater, etc.	Precipitation system, wastewater treatment system, etc.	Normal
Waste gas	Hydrochloric acid mist, sulfuric acid mist, ammonia gas, nitrogen oxides, VOC, SO2, P2O5, etc.	Discharged through the exhaust vent in a controlled manner after treatment by corresponding purification facilities	Normal
Solid waste	Arsenic-containing wastes, organic solvent wastes, surface treatment wastes, waste alkali, waste acid, cotton industrial wastes, waste salt, waste quartz, etc.	Entrusted to qualified units for uniform disposal	Normal
Noise	Noise	Vibration damping, sound insulation, and sound dissipation facilities	Normal

During the reporting period, the Company has no major environment pollution accidents, and is not subject to major administrative punishment related to environment protection.

II. Brief description of the industry of the Issuer and competition therein

(I) Industry of the Company and the basis for determining its industry

The Company mainly engages in the research, development, production, and sales of InP substrates, GaAs substrates, germanium substrates, PBN materials (PBN crucibles, PBN plates, etc.), and high-purity materials (6N, 7N, and 8N high-purity gallium, gallium-magnesium alloys and indium-magnesium alloys).

Under the provisions of the Guidelines for the Industry Classification of Listed Companies (as amended in 2012) released by CSRC, the industry of the Company is “C39 Manufacturing of computers, communications and other electronic equipment” under “C Manufacturing industry”. Under the Industrial Classification for National Economic Activities (GB/T 4754-2017) released by the Standardization Administration of China, the industry of the is “C398 Manufacturing of electronic elements and electronics-specific materials” under “C39 Manufacturing of computers, communications, and other electronic equipment” under “C Manufacturing”.

In addition, under the Classification of Strategic Emerging Industries (2018) (National Bureau of Statistics Order No. 23) released by the National Bureau of Statistics of China, main products of the Company belong to “1.2.3 Manufacturing of high-energy storage and key electronic materials” and “3.4.3.1 Manufacturing of semiconductor crystals”. 1-1-169


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(II) Regulatory authorities, regulation mechanism, and main laws, regulations, and policies of the industry, and impacts on the operation and development of the Issuer

1. Regulatory authorities and regulatory mechanism of the industry

The regulatory authority of the industry operated by the Company is the Ministry of Industry and Information Technology (MIIT), and the self-disciplinary organizations of the industry are the China Semiconductor Industry Association (CSIA) and the China Electronics Materials Industry Association (CEMIA).

MIIT is mainly in charge of formulating and organizing the implementation of industry planning, schemes, and industry policies; drawing up and organizing the implementation of industry development planning, promoting structural strategic adjustment, optimization, and upgrade of the industry, and promoting the integration of informationization and industrialization; monitoring and analyzing operation dynamics of the industry, collecting statistics on and releasing relevant information; guiding technological innovation and technological progress of the industry; drawing up and organizing the implementation of policies to promote energy conservation, comprehensive resource utilization, and clean production in the industry; and promoting institutional reform and management innovation in the industry, and guiding relevant industries to enhance production safety management, etc.

CSIA is an industry-specific, nationwide, non-profit social organization voluntarily established by units, experts, and other relevant supporting enterprises and government-sponsored institutions engaging in the production, designing, operation, and teaching of integrated circuits, discrete semiconductor devices, semiconductor materials and equipment in the semiconductor field of China. Its major duties include: carrying out government-issued policies and regulations, and providing consultations and suggestions to government on industry policy covering economy, technology and equipment; providing information consultation; conducting economic, technological, and academic exchange activities; developing international exchange and cooperation; and drawing up (amending) industry standards, national standards, and recommended standards.

CEMIA is a nationwide social organization voluntarily established by units and other relevant enterprises and government-sponsored institutions engaging in the production, research, development, operation, application, and teaching of electronic materials. Its main duties include: conducting surveys on industries related to electronic materials; assisting government authorities in promoting quality management and supervision in the industry; providing information and consulting services related to the industry of electronic materials; helping enterprises to develop markets and carry out economic and technical cooperation and exchange activities at home and abroad; and promoting environment protection, energy conservation, and emission reduction in the industry of electronic materials.

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2. Main laws, regulations, and policies of the industry, and impact on the operation and development of the Issuer


No.	Issuance date	Issuing authority	Policy name	Main content
1	2022.1	State Council	Plan for Development of the Digital Economy During the 14th Five-Year Period	Accelerate the construction of information network infrastructure. Build an intelligent and comprehensive digital information infrastructure that is speedy and ubiquitous, integrated with sky and ground, cloud-network integration, intelligent and agile, green and low-carbon, safe and controllable. Promote the expansion of backbone network step by step, coordinate the construction of gigabit optical fiber network and 5G network infrastructure, promote the commercial deployment and large-scale application of 5G, develop the sixth-generation mobile communication (6G) network technology, increase support for 6G technology research and development, and actively participate in the promotion of 6G international standardization. Actively and steadily promote the evolution and upgrading of space information infrastructure, accelerate the deployment of satellite communication networks, etc., and promote the construction of satellite Internet. Expand the coverage of the Internet of Things (IoT) in industrial manufacturing, agricultural production, public services, emergency management and other fields, and enhance IoT access capability of fixed-mobile integration and wide-narrow combination.
2	2021.11	MIIT	Information and Communication Industry Development Plan during the 14th Five-Year Plan Period	Build it into the largest 5G independent network which fully covers cities and townships, basically accesses to administrative villages, and is applied deeply to key application scenarios; the layout of data centers realizes coordinated development in the eastern, central and western China, significantly improving the level of intensive and large-scale development, and forming a green and intelligent multi-level computing power facility system with data network collaboration, data cloud collaboration and cloud-edge collaboration, greatly improving the computing power level, and significantly

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				enhancing service capabilities of facilities such as artificial intelligence and blockchain.

3	2020.08	State Council	Notice of the State Council on Promulgating Several Policies on High-quality Development of the Integrated Circuit Industry and Software Industry in the New Period	Integrated circuit designing, equipment, material, encapsulation, and testing enterprises and software enterprises encouraged by the state shall be exempted from corporate income taxes for the first and second years following the year when they make profits, and pay corporate income taxes at half of the statutory tax rate 25% for the third to fifth years. The focus shall be the research and development of key core technologies in high-end chips, integrated circuit equipment and process technologies, key integrated circuit materials, integrated circuit designing tools, fundamental software, industrial software, and application software, for which supports will be available through national key research and development plans, national major scientific and technological projects.
4	2017.01	NDRC	Guidance Catalogue of Key Products and Services for Strategic Emerging Industries (2016 Version)	Compound semiconductor materials are included in the catalogue of key products and services for strategic emerging industries.
5	2016.09	MIIT	Development Planning of the Non-ferrous Industry (2016-2020)	Focusing on the demands in integrated circuits, functional elements and devices, etc. in the new generation of information technology industry, applying advanced and reliable technologies to accelerate the development of large-size silicon single crystal polished wafers, supersized high-purity metal target materials, substrate and encapsulation materials for high-power microwave/laser devices, infrared detection and imaging materials, vacuum electronic materials, etc., so as to achieve breakthrough in the research, development, and industrialization of new generation of microelectronic and photoelectron functional materials, intelligent sensing materials, and improve the level of high-end non-ferrous metal electronic materials.
6	2016.08	State Council	13^th^ Five-Year Plan for National Science	Focusing on the development and manufacturing of carbon fiber and composite materials thereof, high-temperature alloys,	1-1-172


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				advanced semiconductor materials, new displays and materials thereof, special alloys for high-end equipment, rare earth new materials, new materials for military use, etc., so as to achieve breakthrough of core and key technologies in manufacturing, evaluation, and application.
7	2016.03	National People’s Congress	13^th^ Five-year Plan for National Economic and Social Development	Enhance the supporting role of emerging industries, vigorously promote the innovation and industrialization of advanced semiconductors and other emerging cutting-edge fields to create a number of new growth points.<br><br>Accelerate efforts to achieve breakthrough in core technologies in new-generation information and communications, new energy, new materials, and other fields. Support the development and growth of new generation information technologies, high-end equipment and materials, and other industries.
8	2014.06	State Council	National Outline for Promoting the Development of the Integrated Circuit Industry	Clearly defined four major tasks for promoting the development of the integrated circuit industry, including accelerating the development of integrated circuit manufacturing, and making breakthrough in key integrated circuit equipment and materials; and proposed eight safeguard measures to promote the development of the integrated circuit industry, including the establishment of a national industry investment fund.
9	2012.01	MIIT	12^th^ Five-year Plan for the Development of the New Materials Industry	Gradually improve the self-sufficiency ratio of key materials by focusing on high purity, large sizes, low defects, high performance, and low cost. Develop electronic grade poly-crystal silicon, large-size single-crystal silicon, polished wafers, epitaxial wafers, and other materials, and actively develop new semiconductor materials including gallium nitride, gallium arsenide, silicon carbide, indium phosphide, germanium, silicon on insulator (SOI), etc.

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(III) Description of the industry

1. Overview of the semiconductor industry

A semiconductor is a material having electrical conducting performance between a conductor and an insulator under normal temperatures. Common semiconductors include single-element semiconductors like silicon and germanium, and compound semiconductors like gallium arsenide, indium phosphide, gallium nitride, silicon carbide, etc. As the core of electronic products, semiconductors are the basis of the information industry, and are referred to as the “food” for modern industries.

The semiconductor industry has the characteristics of high technology difficulties, large investments, long industry chain, diversified products, rapid updates and iterations, and widespread downstream applications; the industry chain is in a pattern of vertical specialization. The semiconductor manufacturing industry chain includes chip designing, manufacturing, encapsulation, and testing, while semiconductor materials and semiconductor devices are pillar industries for chip manufacturing, encapsulation, and testing. Semiconductor products are widely used in network communications, industrial control, consumer electronics, automotive electronics, rail transportation, power systems, and other fields.

Semiconductor industry chain

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2. Overview of the industry of semiconductor materials

(1) Industry chain of semiconductor materials

Semiconductor materials may be classified into substrates, target materials, chemical-mechanical polishing materials, photoresists, electronic wet chemicals, electronic special gases, encapsulation materials, and other materials, in which substrates are at the very core in the field of semiconductor materials. Substrates include single-element semiconductors, such as semiconductors made of silicon (Si) and germanium (Ge), and compound semiconductors, such as semiconductors made of gallium arsenide (GaAs), indium phosphide (InP), gallium nitride (GaN), and silicon carbide (SiC). Compared with single-element semiconductor substrates, compound semiconductor substrates perform better in high frequency, high power consumption, high pressure, and high temperature performance, but are more expensive to manufacture.

(2) III-V compound semiconductor materials

1) Description of III-V compound semiconductor materials

Because indium phosphide and gallium arsenide are compounds of elements in groups III and V on the periodic table of elements, indium phosphide and gallium arsenide are referred to as III-V compound semiconductor materials.

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Given the broad application prospects of III-V compound semiconductor substrate materials in 5G communications, data centers, new generation display, artificial intelligence, wearable device, unmanned driving, etc., they are one of the important directions for the development of the semiconductor industry.

2) Production processes of III-V compound semiconductor materials

III-V compound semiconductor materials are produced through poly-crystal synthesis and single-crystal growth, followed by several processes like dicing, edging, grinding, polishing, and cleaning, and then put in vacuum packages, in which poly-crystal synthesis and single-crystal growth are core processes.

Poly-crystal synthesis: Compound semiconductor materials are compounds of two or more elements combined at a fixed atomic ratio. Since there is no natural indium phosphide and gallium arsenide poly-crystals, it’s necessary to make such compound poly-crystals through artificial synthesis, in which two high-purity elements are put into PBN crucibles at a certain ratio to create compound poly-crystals in a high-temperature and high-pressure environment.

Single-crystal growth: Available manufacturing methods for compound semiconductor single-crystal growth include horizontal Bridgman method (HB), vertical Bridgman method (VB), liquid encapsulation Czochralski method (LEC), and vertical gradient freeze method (VGF). The following is a schematic diagram of processes in the manufacturing methods of single-crystal growth:

Schematic diagram of single crystal manufacturing processes

Source: Website of Sumitomo Electric, Research Department of CITIC Securities

At present, III-V compound semiconductor substrates used in mainstream applications are generally 2- to 6-inch. Therefore, the mainstream and most effective method of single crystal production is the VGF method at present. AXT, the controlling shareholder of the Company, started commercial production of III-V compound semiconductor single crystals using the VGF method as early as 1986. Compared with other methods, the VGF method is advantageous in the following aspects:

① With respect to the diameter of single crystals, the maximum diameter of single crystals is generally 3 inches in the HB method and 12 inches in the LEC method; however, the equipment for growing single crystals using the LEC method requests high investment, and the crystals are uneven with a large dislocation density. At 1-1-176


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present, the diameters of single crystals grown using the VGF method and VB method may reach 8 inches at the maximum, and the crystals are even with a low dislocation density.

② With respect to the quality of crystals, compared with other methods, the VGF method can produce crystals with a low dislocation density with stable production efficiency.

③ With respect to production costs, the costs are the lowest in the HB method and the highest in the LEC method. Despite similar performance in products manufactured using the VB and VGF method, since no mechanical transmission structure is used, the VGF method can produce single crystals at lower costs.

3. Overview of the InP substrate industry

(1) Description of indium phosphide

Indium phosphide, as a compound of phosphorus and indium, has outstanding characteristics as semiconductor materials. Semiconductor devices made with InP substrates have the characteristics of high saturation electron drift speed, light-emitting wavelength appropriate for low-loss fiber optic communication, high radiation resistance, good thermal conductivity, high photoelectric conversion efficiency, and high bandgap width, etc. Therefore, InP substrates are widely used in the manufacturing of optical modules, sensors, high-end RF devices, etc. Since the 1990s, the indium phosphide technology has been developed rapidly and gradually become one of the mainstream semiconductor materials. The market size of InP substrates is relatively small due to limited demands on the downstream market and high costs. In the future, driven by demands on emerging markets like data centers, 5G communications, wearable device, etc., the market size of InP substrates will expand continuously with the costs reduced under scale effects, which may further promote the development of downstream applications.

(2) Development of the indium phosphide industry

The upstream link in the indium phosphide industry chain is crystal growth, substrate, and epilayer production and manufacturing. With respect to the raw materials and equipment in substrate production, raw materials include indium, red phosphorous, crucibles, etc., and equipment includes the crystal growth furnace, grinder, polisher, cutter, and inspection and testing equipment. The midstream link in the industry chain includes integrated circuit designing, manufacturing, encapsulation, and testing. Downstream applications in the industry chain mainly involve optical communications, unmanned driving, artificial intelligence, wearable device, etc.

Indium phosphide industry chain

Upstream enterprises in the indium phosphide industry chain include substrate manufacturers, including Beijing Tongmei, JX Nippon, Sumitomo, and other domestic substrate manufacturers; epitaxy manufacturers, including IQE, Landmark Optoelectronics, Visual Photonics Epitaxy, II-VI, IntelliEPI, and other epitaxy manufacturers; and device manufacturers, including Finisar, Lumentum, AOI, Mitsubishi, etc. Downstream host 1-1-177


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manufacturers include Huawei, ZTE, Nokia, Cisco, etc. Terminal application enterprises include China Mobile, China Telecom, China Unicom, Tencent, Alibaba, Apple, Google, Amazon, Meta, etc.

The technologies for mass growth of indium phosphide single crystals mainly include the LEC method, VGF method, and VB method. Beijing Tongmei and Sumitomo employs the VGF and VB technology to produce 6-inch indium phosphide single crystals, respectively, while JX Nippon employs the LEC technology to produce 4-inch indium phosphide single crystals.

In terms of the market structure, the market of InP substrate materials is highly concentrated on leading enterprises, and main suppliers include Sumitomo, Beijing Tongmei, and JX Nippon. According to Yole, the world top three manufacturers accounted for over 90% shares on the market of InP substrates in 2020, including Sumitomo, the globally largest manufacturer, accounting for 42%; and Beijing Tongmei, holding the second position, accounting for 36%.

Global competition structure of InP substrates in 2020

Source: Yole

The market size of InP substrate materials will expand continuously thanks to increasing demands on the downstream market. As predicted by Yole, the sales of InP substrates (equivalent to 2-inch) on the global market are expected to reach 1.2819 million pieces by 2026, leading to the compound annual growth rate (CAGR) of 14.40% from 2019 to 2026. The global market size of InP substrates will reach USD202 million by 2026 at the CAGR of 12.42% from 2019 to 2026.

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Expected sales and market sizes of global InP substrates for 2019-2026

Source: Yole

(3) Downstream applications of indium phosphide

Indium phosphide, as a III-V semiconductor material, was used in aerospace solar cells in the 1960s when it was first used in diodes in 1969, and then first used in transistors in the 1980s. In the 1990s, indium phosphide was used in electroabsorption modulated lasers for telecommunications. Thanks to its special advantages of high saturation electron drift speed and low loss on light emitting in substrate materials for photoelectric chips, indium phosphide was put into commercial application on the optical communication market, becoming a key material of optical module semiconductor devices and receivers. In addition, given the characteristics of high frequency, low noise, and high breakdown voltage, indium phosphide has been used in radar laser devices and RF devices since 2010 in the context of increasing application frequencies of high-voltage and high-power devices.

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Source: Yole

Downstream devices using InP substrates mainly include optical modules, sensors, and RF devices; corresponding downstream terminal fields include 5G communications, data centers, artificial intelligence, unmanned driving, wearable device, etc. The demands of such devices are separately described as follows:

1) Optical modules

An optical module, as the core device of optical communication, is an interface module implementing information transmission between devices via photoelectric conversion. It is mainly used in communication base stations and data centers. InP substrates are used to manufacture lasers and receivers in optical modules.

5G communications is a new generation of broadband mobile communication technologies featuring high rate, low time delay, and large connections. 5G base stations request much more optical modules than 4G base stations. The widespread construction of 5G base stations, together with changes in the network structures of 5G base stations, will greatly drive the demands for optical modules. According to Yole, the global market size of telecommunication optical modules (including the market of 5G communications) will grow from USD3.7 billion in 2019 to USD5.6 billion in 2025 at the CAGR of 7.15% from 2019 to 2025.

Data centers are mainly used to meet data traffic demands of cloud computing vendors, large Internet enterprises, communication operators, financial institutions, government authorities, etc. The popularization of mobile Internet in recent years leads to rapid growth in data traffic, which drives the vigorous development of the cloud computing industry, stimulates the growth in construction demands for data centers, and promote the growth in demands for optical modules of data centers. According to Yole, the global market size of data center optical modules will grow from USD4.0 billion in 2019 to USD12.1 billion in 2025 at the CAGR of 20% from 2019 to 2025.

Thanks to the widespread construction of 5G base stations around the world, in the context of explosive growth in data traffic, the development of the global cloud computing industry will drive the construction of data centers around the world. Therefore, the global optical communications industry is expecting a significant period of development opportunities, hence leading to continuously increasing demands for optical modules. Driven by market demands, together with the effects of the new infrastructure policies of the Chinese government, the global 1-1-180


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optical module market will maintain a trend of rapid growth. According to Yole, the expected global sales volumes of InP substrates for optical modules (equivalent to 2-inch) will exceed 1 million pieces by 2026 at the CAGR of 13.94% from 2019 to 2026, and the expected global market size of InP substrates for optical modules will reach USD157 million by 2026 at the CAGR of 13.94% from 2019 to 2026.

Expected sales and market sizes of global InP substrates for optical modules for 2019-2026

Source: Yole

2) Sensors

Thanks to the characteristics of indium phosphide, like high saturation electron drift speed, good thermal conductivity, high photoelectric conversion efficiency, and high bandgap width, wearable device made with InP substrates have the characteristics of good impulse response and high signal-to-noise ratio. Therefore, InP substrates may be used to manufacture sensors in wearable device to monitor vital signs such as the heart rate, blood oxygen levels, blood pressure, and even blood sugar levels. In addition, laser sensors made of InP substrates may emit invisible lights without harm to vision, and may be used in virtual reality (VR) glasses and vehicle radars.

As predicted by Yole, the sales volumes of InP substrates (equivalent to 2-inch) in the sensor field will reach 0.2054 million pieces by 2026 at the CAGR of 35.14% from 2016 to 2026, and the market size of InP substrates in the sensor field will reach USD32 million by 2026 at the CAGR of 30.37% from 2019 to 2026.

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Expected sales and market sizes of global InP substrates for sensors for 2019-2026

Source: Yole

3) RF devices

There is an application market for using InP substrates to manufacture high-frequency and high-power devices and RF devices in fiber optic communications, wireless transmission, radio astronomy. RF devices made with InP substrates (hereinafter referred to as “indium phosphide-based RF devices”) have demonstrated outstanding performance in satellite, radar, and other application scenarios. Indium phosphide-based RF devices are highly competitive in the radio frequency front-ends and analog/hybrid signal broadband circuits of radars and communication systems, hence are suitable for high-speed data processing, high-precision bandwidth A/D conversion, etc. In addition, low-noise amplifiers, modules, and receivers related to indium phosphide-based RF devices are widely used in satellite communication, millimeter-wave radars, active and passive millimeter-wave imaging devices, etc. For bandwidth over 100 GHz, there are obvious advantages of using indium phosphide-based RF devices in wireless transmission of backhaul networks and peer-to-peer communication networks. In the future, InP substrates are expected to become the mainstream substrate materials for RF devices in wireless transmission networks for 6G communications and even 7G communications.

As predicted by Yole, the market size of InP substrates for RF devices will remain stable at USD15 million from 2019 to 2023, and the sales volumes of InP substrates for RF devices (equivalent to 2-inch) will reach 0.0828 million pieces in 2023.

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Expected sales and market sizes of global InP substrates for RF devices for 2019-2026

Source: Yole

(4) The future development trend of InP substrate

The fast development of 5G communications, big data and cloud computing will bring new development opportunities. According to Yole’s estimates, the market size of downstream devices of InP substrate will exceed USD17 billion in 2025. Driven by the market demand and supported by favorable policies such as “East-West Data Migration”, the downstream market of InP substrate will still have a sound development trend. 5G communications, big data and cloud computing all need optical modules. InP substrate is a key semiconductor material for optical module components such as lasers and receivers. Therefore, the construction of 5G base stations and data centers will greatly contribute to the market growth of InP substrate.

In the field of optical communication, 5G base stations uses much more optical modules than 4G base stations. The large-scale construction of 5G base stations will greatly drive the growth of the demand for optical modules. According to Yole’s statistics, the sales volume of optical module device InP substrate (equivalent to two inches) is expected to exceed 1 million pieces by 2026 in the world, and the compound growth rate from 2019 to 2026 will reach 13.94%. The market size of InP substrates is expected to reach USD157 million by 2026 in the world, with a compound growth rate of 13.94% from 2019 to 2026. In addition, the biggest advantage of indium phosphide is that it has a higher power density than gallium arsenide. RF devices made from indium phosphide have better application effect than gallium arsenide in the 5G millimeter wave frequency band and the B5G (Beyond 5G) sub-terahertz (THz) frequency band. In the 6G era to come, indium phosphide is expected to become the upstream basic material of communication radio frequency devices.

In the field of data centers, these years have seen a growing coverage of mobile Internet, as a result, the data traffic has grown rapidly, which has driven the vigorous development of the cloud computing industry, stimulated the growth of the demand for data center construction, and generated more demand for optical modules of data center. According to Yole’s statistics, the market size of global data center optical module will increase from USD4 billion in 2019 to USD12.1 billion in 2025, with a compound growth rate of 20% from 2019 to 2025. 1-1-183


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Moreover, indium phosphide, as a basic raw material for the Digital Infrastructure Mega Project “East-West Data Migration”, will also have more market growth space. On February 17, 2022, NDRC, Cyberspace Administration of Office, Ministry of Industry and Information Technology of PRC, and National Energy Administration jointly issued a notice, agreeing to build 8 national computing hubs in the Beijing-Tianjin-Hebei region, the Yangtze River Delta, the Guangdong-Hong Kong-Macao Greater Bay Area, the Chengdu-Chongqing economic circle, north China's Inner Mongolia Autonomous Region, southwest China's Guizhou Province, northwest China's Gansu Province and Ningxia Hui Autonomous Region, and approve plans on 10 national data center clusters, indicating a strategy is in full swing to channel more computing resources from the eastern areas to the less developed western regions. The 8 computing hubs will promote data circulation and value transfer from the eastern areas to the less developed western regions, and facilitate the shift of data center-related industries from east to west. These 10 national data center clusters will be responsible for the development of the large and super-large data centers of the 8 computing hubs. The Project ‘East-West Data Migration’ will promote the further construction of China’s data centers, which in turn will lead to huge demand and growth space for upstream InP substrate.

4. Overview of the GaAs substrate industry

(1) Description of gallium arsenide

Gallium arsenide, as a compound of arsenic and gallium, has outstanding characteristics as semiconductor materials. Semiconductor devices made with GaAs substrates have the characteristics of high power density, low energy consumption, high temperature resistance, high luminous efficiency, radiation resistance, high breakdown voltage, etc. Therefore, GaAs substrates are widely used in the production of LEDs, RF devices, lasers, etc. Since the 1990s, the gallium arsenide technology has been developed rapidly and gradually become one of the most developed semiconductor materials. However, the market size of GaAs substrates was relatively small for a long time due to the lagging development of downstream applications and limited market demands. Driven by emerging market demands generated by 5G communications, new generation display (mini LEDs, micro LEDs), unmanned driving, artificial intelligence, wearable device, etc. emerging since 2019, the market size of GaAs substrates will gradually increase in the future.

(2) Development of the GaAs substrate industry

The upstream link in the gallium arsenide industry chain is gallium arsenide crystal growth, substrate, and epilayer production and manufacturing. Substrates, as the basis for semiconductor material growth at the epilayer, play a key role of carrying and supporting chips. Raw materials for the production of GaAs substrates include gallium, arsenic, etc. Since there is no natural gallium arsenide single crystal, such single crystals should be synthesized artificially. Equipment for the production of GaAs substrates mainly includes the crystal growth furnace, grinder, polisher, cutter, and inspection and testing equipment.

Downstream applications in the gallium arsenide industry chain mainly involve 5G communications, new generation display (mini LED and micro LED), unmanned driving, artificial intelligence, wearable device, etc.

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Gallium arsenide industry chain

The global market of GaAs substrates is highly concentrated. According to Yole, major manufacturers on the global GaAs substrate market include Freiberger accounting for 28%, Sumitomo accounting for 21%, and Beijing Tongmei accounting for 13%.

Global competition structure of GaAs substrates in 2019

Source: Yole

At present, mainstream growth processes for gallium arsenide crystals include the LEC method, HB method, VB method, and VGF method. Gallium arsenide single crystals are produced mainly using the VB method at Sumitomo, the VGF and LEC methods at Freiberger, and the VGF method at Beijing Tongmei. At present, very few companies are engaged in the business of GaAs substrates. Besides Beijing Tongmei, Guangdong Vital Advanced Materials Co., Ltd. and others have achieved certain size in producing GaAs substrates for LEDs.

The continuous high demands on the downstream application market will lead to continuously increasing market sizes for GaAs substrates. According to Yole, the global sales of GaAs substrates equivalent to 2-inch 1-1-185


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were about 20 million pieces in 2019, and are expected to reach over 35 million pieces by 2025. The global market size of GaAs substrates was about USD200 million in 2019, and is expected to reach USD348 million by 2025 at the compound annual growth rate of 9.67% from 2019 to 2025.

Expected sales and market sizes of global GaAs substrates for 2019-2025

Source: Yole

(3) Downstream applications of GaAs substrates

Gallium arsenide, as one of the mainstream compound semiconductor materials at present, are used in applications in three stages. The first stage starts from the 1960s when GaAs substrates are used in LEDs and solar cells, and used in the aerospace field in the following 30 years. The second stage starts from the 1990s when GaAs substrates are used in radio frequency components to produce mobile devices in the context of widespread use of mobile devices. The third stage starts from 2010 when GaAs substrates enter the stage of large-scale applications in the context of widespread use of LEDs and smartphones. For example, in 2017, iPhone X took the lead in using VCSEL for facial recognition. The production of VCSEL, which requests GaAs substrates, further expands the application scenarios of GaAs substrates. With Apple, Samsung, LG, TCL, and other manufacturers entered the mini LED market in 2021, there will be explosive growth in the market demands of GaAs substrates.

At present, main downstream devices using GaAs substrates include RF devices, lasers, and LEDs. The demands of such devices are separately described as follows:

1) RF devices

RF devices, as key devices for implementing signal transmission and receipt, include power amplifiers, radio frequency switches, filters, digital-to-analog/analog-to-digital converters, etc. Power amplifiers, as the devices for amplifying radio frequency signals, directly decide the distance and signal quality of wireless communications for mobile terminals and base stations. Due to obvious advantages of high electron mobility and high saturation electron rate, gallium arsenide has always been one of the main substrate materials for manufacturing radio frequency power amplifiers. In the 4G era, the widespread construction of 4G base stations and continuous popularization of smartphones resulted in rising demands of GaAs substrates for manufacturing RF devices in 1-1-186


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smartphones. In the 5G era, given the higher requirements on power, frequency, and transmission rate for 5G communications, RF devices made of GaAs substrates are very suitable for high-frequency circuits intended for long-distance and long-duration communication. Therefore, the advantages of gallium arsenide materials are even more obvious in RF devices for the 5G era. The widespread construction of 5G base stations will bring about new drivers for the demands of GaAs substrates; meanwhile, the greater number of RF devices used in 5G mobile phones than 4G mobile phones will also lead to increasing demands for GaAs substrates.

In the context of the rapid development and continuous popularization of 5G communications technologies, the construction of 5G base stations and the popularization of 5G mobile phones will drive the stable growth of gallium arsenide-based RF devices. As predicted by Yole, the sales volumes of GaAs substrates for RF devices (equivalent to 2-inch) on the global market will reach 9.6570 million pieces by 2025, leading to the CAGR of 6.32% from 2019 to 2025. The global market size of GaAs substrates for RF devices will exceed USD98 million by 2025 at the CAGR of 5.03% from 2019 to 2025.

Expected sales and market sizes of global GaAs substrates for RF devices for 2019-2025

Source: Yole

2) LED

A LED is a solid light-emitting device made of compound semiconductors (gallium arsenide, gallium nitride, etc.), which can convert electric energy into optical energy. LEDs made with different materials emit lights of different wavelengths and different colors. According to the color of lights emitted, LEDs may be classified into single-color LEDs, full-color LEDs, and white LEDs. According to chip sizes, LEDs may be classified into common LEDs, mini LEDs, and micro LEDs. Common LEDs are mainly used for general lighting, outdoor large-screen display, while mini LEDs and micro LEDs are used for new generation display.

The continuously increasing popularization of LED lighting leads to decreasing prices of common LED chips and devices. Chips for common LEDs are millimeter-sized, raising low technology requirements on GaAs substrates. Such chips are the low-end market for GaAs substrates with low added values for products, which is dominated by domestic GaAs substrate enterprises in hot competition. Chips for mini LEDs and micro LEDs in 1-1-187


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new generation display are submillimeter-sized and micron-sized, raising very high technology requirements on GaAs substrates. This market is occupied by tier 1 global manufacturers.

As predicted by Yole, the global sales volumes of GaAs substrates for LED devices (equivalent to 2-inch) will increase from about 8.469 million pieces in 2019 to over 13 million pieces in 2025 at a stable CAGR of 7.86%. The global market size of GaAs substrates for LED devices was about USD68 million in 2019, and is expected to exceed USD96 million by 2025, increasing by nearly USD30 million compared with 2019.

Expected sales and market sizes of global GaAs substrates for LED devices for 2019-2025

Source: Yole

At present, LED-based new generation display includes mini LEDs and micro LEDs. Mini LEDs are display technologies using submillimeter-sized light emitting diodes, that is, LED devices with chip sizes between 50-200 μm, as the backlight or pixel light source. The technology of using mini LEDs as backlight of liquid crystal display (LCD) panels has been gradually used in high-definition TVs, laptop computers, tablet computers, and other electronic products, which greatly improves display effects of LCD panels. There are industrialization conditions for large-scale commercial applications of using mini LEDs as backlight. The technology of using mini LEDs as pixel light sources has better performance in display brightness, color gamut, contrast, and responsiveness; however, due to the much greater number of lamp beads than the backlight scenario, the number of chips in use is much greater than the backlight technology, which results in high costs at present. This technology is current in use for outdoor display and 4K/8K large-size high-definition TVs and displays. The year 2021 is the first year of large-scale industrialization for mini LEDs. Mini LED displays using GaAs substrate materials have been used in iPad Pro tablets released in 2021. The mini LED display technology greatly expands the application scenarios of LED display technologies, hence creating a big growth space for the demands of GaAs substrates.

Micro LEDs are display technologies using micron-sized light emitting diodes, that is, LED devices with chip sizes less than 50 μm, as the pixel light source for high-density LED arrays. Besides further enhancement of display effects, the micro LED technology can solve the constraints of the mini LED technology for small-size screens; in the future, this technology can be widely used in mobile phones, tablet computers, watches, AR/VR devices, laptop computers, high-definition TVs of various sizes, and other application scenarios. At present, given 1-1-188


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the small chip sizes for micro LEDs and high difficulties in manufacturing, encapsulation, and testing technologies, the overall auxiliary level of the industry chain for large-scale commercialization still calls for improvement in a certain period of time. Once industrialized, the micro LED display technology is expected to generate geometric growth in the demands of GaAs substrates.

Explosive growth of LED applications

Source: Research Department of Founder Securities

As predicted by Yole, the demands for GaAs substrates for mini LEDs and micro LEDs will grow rapidly from 2.079 million pieces in 2019 to 6.138 million pieces in 2025 at the CAGR of 19.77%. The global market size of GaAs substrates for mini LED and micro LED devices was about USD17 million in 2019, and is expected to reach USD70 million by 2025 at the CAGR of 26.60%.

Expected sales and market sizes of global GaAs substrates for mini LED and micro LED devices for 2019-2025

Source: Yole 1-1-189


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3) Lasers

A laser is a device for generating visible or invisible light with stimulated emission. As a comprehensive system consisting of a large number of optical materials and components, lasers are complex in structure and have a high technical barrier. Relying on the characteristics of high electron mobility and good photoelectric performance of gallium arsenide, infrared lasers and sensors made with GaAs substrates have characteristics of high power density, low energy consumption, high temperature resistance, high luminous efficiency, high breakdown voltage, etc., and may be used in artificial intelligence, unmanned driving, etc.

As predicted by Yole, lasers are one of the biggest growth points for applications of GaAs substrates in the next five years. The global sales volumes of GaAs substrates for lasers (equivalent to 2-inch) are expected to increase from 1.062 million pieces in 2019 to 3.303 million pieces in 2025 at the CAGR of 20.82%. The global market size of GaAs substrates for lasers is expected to reach USD61 million in 2025 at the CAGR of 16.82%.

Expected sales and market sizes of global GaAs substrates for lasers for 2019-2025

Source: Yole

In terms of specific applications, the increasing demands of GaAs substrates for lasers in the next five years will be primarily driven by VCSEL devices. The VCSEL is a semiconductor laser generating a laser light perpendicular to the substrate surface. In application scenarios, normally multiple lasers are arranged at the substrate in multiple directions to create a parallel light source for facial recognition and body recognition. It has been widely used in mobile phones by now.

The VCSEL is a basic sensor for 3D sensing technologies. Given the development of 5G communications technologies and artificial intelligence technologies, together with the effects of the wide application of sensing technologies for the Internet of Things, the VCSEL market sizes has been continuously increasing; in particular, 3D stereo cameras, in which VCSELs are used as emitting sources, will experience a period of rapid development. 3D cameras are cameras capable of recording and displaying, in images, stereo information, so as to record longitudinal sizes, longitudinal locations, and longitudinal routes of objects. In addition, VCSELs, as 3D sensors, have a broad application prospect in emerging fields such as biometric recognition, smart driving, robotics, smart home, smart TVs, smart security, 3D modeling, facial recognition, and VR/AR. 1-1-191


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As predicted by Yole, the in-depth application of 3D sensing technologies in various fields will lead to the rapid development of the VCSEL market, hence driving the demands for GaAs substrates. The global sales volumes of GaAs substrates for VCSEL devices (equivalent to 2-inch) are expected to increase from about 0.9389 million pieces in 2019 to 2.9932 million pieces in 2025 at the CAGR of 21.32%. The global market size of GaAs substrates for VCSEL devices was about USD21 million in 2019, and is expected to reach USD56 million by 2025 at the CAGR of 17.76%.

Expected sales and market sizes of global GaAs substrates for VCSEL devices for 2019-2025

Source: Yole

(4) The future development trend of GaAs substrate

Benefiting from the strong demand for RF devices and optoelectronic devices in the fields of LED and mobile communication RF, the sales volume of GaAs substrate is expected to maintain a sustained high growth trend in the near future. Currently, the downstream application market of GaAs substrate mainly includes the fields of radio frequency and LED. According to Yole’s estimation, the global market size of the downstream main radio frequency devices of GaAs substrate will reach USD25 billion in 2025. According to GGII data, the global market size of downstream LED devices is expected to exceed USD180 billion, and the downstream market space of GaAs substrate is broad. In terms of specific applications, the fast penetration of Mini LED, Micro LED, 5G mobile phones and VCSEL visual recognition will significantly drive the market growth of GaAs substrate.

In the field of LED, the Mini LED and Micro LED chips used in the new generation of displays are of sizes at the levels of sub-millimeter and micron, and the technical requirements for GaAs substrates are very high, so the popularity of Mini LED and Micro LED will bring new opportunities for applications of GaAs. According to Yole’s forecast, the demand for GaAs substrate of Mini LED and Micro LED devices is growing rapidly. In 2025, the sales volume of GaAs substrates for Mini LED and Micro LED devices (equivalent to two inches) in global market will increase to 6,138,000 pieces from 2,079,000 pieces in 2019, with a compound annual growth rate of 19.77%; the global market size of GaAs substrate for Mini LED and Micro LED devices in 2019 was about USD17 million, and it is expected that the global market size of GaAs substrate will reach USD70 million by 2025, with a compound annual growth rate of 26.60%.Currently, the leading Mini LED chip companies have basically completed the investments in the Mini LED field. 1-1-192


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Enterprises	Investment in the field of Mini LED
Sanan Optoelectronics	Mini LED chips realized mass production in 2018, and commenced supply in bulk in 2019
HC SemiTek	It realized mass production and sale of Mini LED chips in 2019; its Mini LED products adopt advanced flip chip structure and LED chip substrate transfer technology, and it has the capacity of supplying Mini LED backlight chip products in bulk.
Change Light	It has completed technical reserves of Mini LED and has bee selling products; its output in 2021 was small because it received enough orders for products in traditional fields and was lack of spare capacity, and Change Light didn’t increase production capacity for Mini LED; after private placement, 60% of raised funds are invested in Mini LED, and it is expected that the sales amount in such field will soar in 2022.
Focus Lighting	High-bandwidth GaN-based optical visible light communication chip jointly developed with the Institute of Semiconductors, Chinese Academy of Sciences progresses smoothly; when it receives newly purchased MOCVD equipment and chip process equipment, new products will realize mass production soon. It has a stable customer base and product specifications, and all its products have been sold out. After the project raising funds is put into use, the production capacity for Mini LED will be put into use, and sale will be realized in a short period.
Ennostar Taiwan	The production capacities of the Group are divided into three value capacities, namely, red light, Mini LED and traditional blue light; the most valuables are red light and Mini LED. Among products sold by its subsidiary EPISTAR in the fourth quarter, IT products account for 45%; of which, total revenues realized from Mini LED account for 40%, converted into 30% of revenues of Ennostar. It is expected that the sales volume of Mini LED for TV sets and display screens will increase greatly in 2022; in addition, production will be enlarged according to original schedule, and it is expected that the production capacity will reach 1.5 million pieces (4-inch) by end of 2022.

Source: announcement of each enterprise.

In the 5G RF field, gallium arsenide substrates will still dominate the 5G smartphone PA (RF power amplifier) market. According to Yole’s statistics, the RF device market accounted for 30.15% of the total gallium arsenide semiconductor market in 2021, and contributed 32.50% of the output value. According to statistics from the Orient Securities Research Institute, in the 4G era, each mobile phone needs to use 7 PAs on average. Since 5G has added frequency bands, high frequency bands will be added in the future, and continue to be compatible with 4G, 3G and 2G standards. Therefore, 5G mobile phones need more PAs, up to 16, with an average of 10 or more. The penetration rate of gallium arsenide substrate-based RF devices used for mobile terminals in 5G era is expected to further increase.

In the field of 3D sensors, with Apple taking the lead in launching the iPhoneX with light front camera integrated with face recognition structure in 2017, the commercial use of 3D sensors (vertical cavity surface lasers, VCSEL) on mobile phones commenced; afterwards, Huawei, OPPO, VIVO, Xiaomi, Samsung and other mobile phone manufacturers are also expected to gradually put 3D sensors (vertical cavity surface laser, VCSEL) in their mobile phones. Mobile phone is just one of the application scenarios of VCSEL. With the development of intelligent driving, automotive lidar is expected to contribute new growth space to GaAs substrates. According to 1-1-193


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the forecast of McKinsey & Company, the annual output of vehicles will reach 115 million units by 2030, of which 15% will achieve high-level autonomous driving and 45% will achieve low-level autonomous driving. In 2019, the global sales volume of GaAs substrate for VCSEL devices (equivalent to two inches) was about 938,900 pieces, and it is expected to increase to 2,993,200 pieces by 2025, with a compound annual growth rate of 21.32%; in 2019, the market size of GaAs substrate for VCSEL devices was approximately USD21 million, and it is expected that the global market size of GaAs substrate will exceed USD56 million by 2025, with a CAGR of 17.76%.

5. Overview of the germanium substrate industry

(1) Description of germanium

Germanium (Ge) is a rare metal element with very few reserves in nature. Thanks to its high electron mobility and hole mobility, it is an excellent semiconductor material to manufacture low-voltage large-current and high-frequency devices. At present, germanium substrates are mostly used in semiconductors, solar cells, etc.

(2) Development of the germanium industry

The germanium industry chain includes extraction and refining in the upstream, purification and deep processing in the midstream, and terminal applications in the downstream. Germanium raw materials in the upstream mainly come from lignite germanium mines, lead-zinc refining by-products, germanium ingot, and germanium single crystal wastes. The high-purity germanium and germanium single crystal production processes in the midstream purification and deep processing stage are the key part of the germanium industry chain, in which germanium single crystals are produced from high-purity germanium using the Czochralski method (CZ) or VGF method. Germanium single crystals may be further deeply processed into germanium substrate materials.

At present, global germanium resources are scarce and highly concentrated. Major germanium production countries include China, the US, Russia, and Canada. Although the US has the largest germanium reserves in the world, both the current outputs and the growth space for future outputs are limited since the germanium outputs are subject to the outputs of lead-zinc mines. In terms of germanium outputs, China has become an important germanium country in the world since 2013 - its germanium outputs basically maintained at over 60% in the global outputs.

Given the scarcity of germanium resources, there is a high barrier for accessing the germanium substrate industry. Globally, the germanium substrate industry is highly concentrated, with Umicore and Beijing Tongmei as major manufacturers.

(3) Corresponding downstream products of germanium substrates

Germanium substrates are mainly used in the fields of solar cells and semiconductor devices. The details are as follows: 1-1-194


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Germanium was widely applied into germanium transistors from 1950 to 1970, and was gradually replaced due to the development and wide application of silicon purification technology. However, germanium semiconductor devices have very small saturation resistance, with almost no heat radiation and extremely high power consumption. Therefore, it is still used in specific scenarios in special fields. Currently, germanium substrates are rarely used in semiconductor devices.

Ge-substrate GaAs solar cells, characterized by high conversion efficiency, radiation resistance and high voltage, are widely used in space power supply, with strong advantages in applications such as artificial satellites, space stations, space probes and landing probes, effectively increasing the service life of solar cells, hence extending the working life of artificial satellites. In this context, the large number of artificial satellites and spacecraft launched around the world leads to a broad market space for the development of space solar cells.

More than 95% of the space power supply in the world uses germanium-substrate gallium arsenide solar cells. For a long period of time, germanium-substrate gallium arsenide space solar cells will be the preferred choice for space power supply. In addition, germanium-substrate gallium arsenide space solar cells may also be applied in some specific application scenarios, such as radar stations in remote mountainous areas, microwave communication stations, etc.

(4) The application or development trend of other materials with the same or similar functions as the germanium substrate, and the impact on the competitiveness and future development space of the germanium substrate

Currently, the germanium substrate is mainly used in solar cell. The development of solar cells is as follows:

1) Since the launch of the first generation of crystalline silicon solar cell in the 1960s, through continuous improvement, its photoelectric conversion rate has reached 17%-19%. Although the photoelectric conversion rate of crystalline silicon solar cell is relatively low, the production cost is low.

2) Since the 1980s, the second generation of gallium arsenide, CuInSe2 (copper indium diselenide) and CdTe (cadmium telluride) and other thin film solar cells have made certain breakthroughs in conversion efficiency, with laboratory efficiencies of 25%, 16.5% and 18.5% respectively, but the commercial conversion rate is still low due to high equipment cost. 1-1-195


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3) Since the 1990s, compound semiconductor tandem cell (mainly germanium-substrate gallium arsenide) has achieved photoelectric conversion efficiency of 28%-32% due to the advantages of high efficiency, high voltage and good performance under high temperature, and the photoelectric conversion efficiency can reach 42.8% after concentrating, and it is used in special application scenarios such as space satellite solar cells, radar stations in remote mountainous areas, and microwave communication stations, but its high cost restricts the large-scale application of germanium-substrate GaAs in general application scenarios.

The comparison of the solar cells of the above three materials is as follows:

Items	Crystalline silicon solar cells		Thin film solar cells				Concentrated PV solar cells
Material	Monocrystalline silicon	Polycrystalline silicon	Amorphous silicon	CdTe	Copper Indium Gallium	Organic film	GaAs on germanium substrate
Light conversion rate	17%-19%		6%-13%				40% or so
Advantage	Low cost, suitable for production and marketing		Large room for battery efficiency improvement, simple production process, suitable for large-scale production				Highest battery conversion rate
Disadvantage	Low battery conversion rate, limited room for improvement		Equipment costs are high, and the current battery conversion rate is low				High cost

Source: Research Report on Raw Materials of Industrial Chain Upstream of Electronics and Semiconductor No. 1: Germanium: Peace Prior to Arrival of Next Round of Demands, CITIC Securities

Crystalline silicon solar cells are currently most widely used due to their low cost. The germanium-substrate gallium arsenide solar cell has higher conversion efficiency and stronger radiation resistance performance. It can reduce the panel area, decrease fuel consumption and prolong battery life when used in space environment, and may not be replaced by other materials temporarily. As the cost of germanium-based gallium arsenide solar cells decreases in the future, it is also expected to be used in other high-end application scenarios.

The demand for germanium substrate in space energy field is stable, as it is closely related to the total number of satellite launches. The massive launch of satellites and spacecraft around the world provides a broad market space for the development of germanium-based gallium arsenide solar cells for space. As disclosed in the Blue Book on China’s Space Science and Technology Activities (2020), in 2020, 114 carrier rockets were launched in the world, carrying 1,260 satellites of various types. According to the US Satellite Industry Association (SIA), the market size of the global satellite industry reached USD371 billion in 2020, and the number of on-orbit satellites increased from 958 in 2010 to 3,371 in 2020. As the development of technologies such as “multiple satellites in a single rocket” and “rocket recovery” take satellites into the era of “mass production”, major countries, including China, the US, and Russia, have promulgated relevant policies in 2020 on the layout of a network of satellite links in space. According to the field of applications, artificial satellites are generally classified into communication satellites, remote sensing satellites, and navigation satellites. China and the US have accelerated the frequency of relevant satellite launches in recent years, with a total of 1,101 communication, remote sensing, and navigation satellites launched by the two countries in 2020. Communication satellites and remote sensing satellites are at the core in the aerospace competition among the countries. Although the Earth can 1-1-196


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take about 60,000 satellites in the low Earth orbit (LEO), main communication bands used by LEO satellites are tending to be saturated; in addition, navigation satellites have to be replaced soon.

(5) The competition pattern and changing trend of germanium substrate market, whether the Issuer has a competitive advantage

With regard to the germanium substrate market, with the rapid development of the semiconductor industry in China, as well as the continuous growth of domestic and foreign aerospace fields and commercial satellite markets, besides the international competitor Umicore N.V., domestic enterprises, including Yunnan Germanium (002428), Guangdong Vital Advanced Materials Co., Ltd, Grinm Advanced Materials (600206), etc., are investing in the industry of germanium substrate. See information related to Umicore, Yunnan Germanium and Guangdong Vital Advanced in “II (VIII) Main enterprises in the industry” under “Section VI Business and Technology” hereof.

Established in 1999, GRIAM is engaged in R&D and preparation of new materials such as thin film materials for microelectronics and optoelectronics, ultra-high-purity metals and rare & precious metal materials, high-end rare earth functional materials, infrared optics and optical fiber materials, and biomedical materials. The company also produces and supplies high-purity germanium substrate materials for space solar cells.

The company has been dealing in the germanium substrate business for a long period, with advanced technology; the solid-liquid interface based on VGF is relatively flat, and the concentration uniformity of radial doping is good. The crystal growth process is carried out in a sealed quartz tube under high vacuum. After using the silicon-boron-gallium co-doping technology, the axial doping uniformity of the germanium crystal is greatly improved, capable of improving performance of cells based on germanium substrate after epitaxy. The company has the production capacity of germanium substrates of 2-6 inches, with an annual production capacity of 1.433 million pieces (equivalent to 2 inches). In 2021, it realized revenues RMB89,485,700 from germanium substrates, which were sold to well-known domestic and foreign customers such as Osram, AZUR SPACE SOLAR POWER GMBH, VISHAY SEMICONDUCTOR GmbH, Nanchang Kaixun and Zhongshan Dehua Chip Technology Co., Ltd. In summary, the company has a strong competitive advantage in germanium substrates.

In terms of the trend of future development, space solar cells are in transition from silicon-based solar cells to triple junction solar cells, and silicon-based solar cells will be replaced by germanium-based gallium arsenide solar cells in the trend. At present, germanium-based gallium arsenide solar cells are mostly used in space applications in China. Solar cells used in satellites launched by China are completely produced by Chinese enterprises and research institutes; in the future, the market of space solar cells may be open to enterprises, which may also increase the demands of germanium substrate materials in relevant fields.

6. Overview of the industry of PBN materials

(1) Description of PBN

Pyrolytic boron nitride (PNB), a hexagonal crystal system, is an advanced inorganic non-metallic material with high purity of up to 99.999%, good denseness, no porosity, good insulation and thermal conductivity, high temperature resistance, chemical inertness, acid resistance, alkali resistance, oxidation resistance, and obvious anisotropy in mechanical, thermal, and electrical properties. It is an ideal crucible and key component in semiconductor crystal growth (VGF method, VB method, LEC method, and HB method), poly-crystal synthesis, MBE epitaxy, OLED vapor deposition, high-end semiconductor devices, and high-power microwave tubes.

PBN is made by applying advanced chemical vapor deposition technologies, in which high-purity baron halide, ammonia gas, and other raw gases are fed into the CVD reactor under high-temperature and high-vacuum 1-1-197


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conditions; after cracking reaction, PBN slowly grows on the surface of substrates such as graphite. PBN may directly grow into vessels such as crucibles, arks, and tubes, or be deposited into plates for processing into various PBN parts; in addition, coating protection may be achieved on other substrates to achieve customized product specifications in line with application scenarios.

Unlike common boron nitride made by hot pressed sintering, PBN is made by applying advanced chemical vapor deposition (CVD), which has a high technology barrier, leading to high concentration in the industry. In terms of the market structure, leading PBN enterprises have obvious monopoly effects with only a few market players. Major suppliers include Beijing Boyu, a wholly owned subsidiary of the Company, and SHIN-ETSU from Japan.

(2) Downstream applications of PBN materials

PBN products are irreplaceable in the semiconductor field. Downstream applications mainly include crystal growth, poly-crystal synthesis, molecular beam epitaxy (MBE), OLED, metal organic chemical vapor deposition (MOCVD), high-end semiconductor device components, aerospace, etc.

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PBN industry chain

In particular, PBN materials are mainly used in the following fields:

1) Crystal growth

The growth of compound semiconductor single crystals (such as gallium arsenide, indium phosphide, etc.) request extremely strict environments in terms of temperature, purity of raw materials, and the purity and chemical inertness of growth vessels. PBN crucibles are the most ideal vessels known for the growth of compound semiconductor single crystals by now. At present, the methods for compound semiconductor single-crystal growth include the LEC method, HB method, VB method, and VGF method, corresponding to LEC crucibles, VB crucibles, and VGF crucibles.

2) Molecular beam epitaxy (MBE)

MBE is one of the most important processes for III-V and II-VI semiconductor epitaxial growth in the world, in which a film is grown layer by layer in the crystal axis direction on the substrate material with a proper substrate under proper conditions. PBN crucibles are essential source oven vessels during MBE.

3) Organic light emitting diode display (OLED)

OLED is considered to be the next generation of flat display technologies thanks to its excellent features such as self-illumination, no backlight, high contrast ratio, small thickness, wide viewing angle, fast response time, flexible panel, wide temperature range, and simple structure and process. Evaporation sources are core components of OLED vapor deposition systems, in which PBN guide rings and crucibles are main parts of the evaporation unit. Guide rings should have good thermal conductivity and insulation performance, and be capable of processing into complex shapes without deformation under high temperatures and gas emission; crucibles should have ultra-high purity, high temperature resistance, electrical insulation, and no wetting with source materials. PBN is an ideal material that has been used widely.

4) High-end semiconductor devices

The development of semiconductor chips toward small sizes and high powers leads to higher and higher requirements on devices and system for semiconductor manufacturing. Thanks to the ultra-high purity, high thermal conductivity, electrical insulation, corrosion resistance, oxidation resistance, and anisotropy, PBN products are widely used as core components in high-end devices. 1-1-199


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(IV) Development of new technologies, new industries, new types of business, and new modes of the industry in the past three years, and future development trends thereof

1. Development of new technologies in the industry in recent years, and future development trends

(1) Continuously increasing sizes of III-V compound semiconductor substrates

Similar to silicon substrates, III-V compound semiconductor substrates are also continuously evolving toward larger sizes. A compound semiconductor substrate with a greater diameter means more chips to be manufactured on a single substrate, hence lower costs for manufacturing individual chips. Meanwhile, since round substrates are used to manufacture rectangular chips, certain areas at the edge of the substrates cannot be utilized; a substrate with a greater diameter leads to less loss at the edge of the substrate, which helps to further reduce the costs of chips. For downstream chip and device enterprises, reducing the costs of chip manufacturing is also one of the key factors in expanding the industrialization scope of emerging applications. For compound semiconductor substrate enterprises, the demands of downstream customers for reducing the costs of chip manufacturing lead to higher requirements on diameters of compound semiconductor substrates.

At present, GaAs substrates are mostly 4 to 6 inches in diameter around the world. The gradually maturing mini LED and micro LED technology requests geometrical increase in the number of LED chips. As a result, GaAs substrates are developing toward 8 inches to reduce chip costs as early as possible for the mini LED and micro LED industry, hence driving the industrialization process thereof. InP substrates, mostly 2 to 4 inches in diameter around the world, are developing toward 6-inch substrates at present on the background of the rapid development of optical communications and sensor demands. In the new investment cycle in downstream application fields, including 5G communications and new generation display, newly established production lines of downstream customers are likely targeted for larger sizes; as a result, enterprises capable of supplying large-size III-V compound semiconductor substrates are expected to take market opportunities early in the new cycle of the industry.

The diameter expansion technology for single crystals requests comprehensive consideration of process control in many aspects, including thermal field designing, diameter expansion structure designing, crystal manufacturing process designing, etc.; greater diameters of substrates lead to higher requirements on the flatness, dislocation density, and surface particles; and larger sizes of substrates have more requirements on the compound semiconductor single-crystal growth technology and substrate dicing, grinding, and polishing technologies.

(2) Continuously increasing length of III-V compound semiconductor single crystals

The diameter expansion of single crystals leads to continuously increasing volume and weight of single crystals, which raises higher requirements on the single-crystal growth equipment, crucibles, and process control. At present, the growth length of large-diameter compound single crystals is limited very much, and the usable crystal after dicing is even shorter, resulting in high costs of materials which affect the downstream industrialization in the industry chain. Therefore, while compound semiconductor substrates develop toward large sizes, the growth length of large-size single crystals should also be continuously improved.

(3) Continuously increasing performance indicators for III-V compound semiconductor substrates

The performance of III-V compound semiconductor substrates directly affects various performance of downstream chip and device products; in particular, under the trend of continuously decreasing chip and device sizes, core performance indicators of III-V compound semiconductor substrates, including dislocation density, resistivity uniformity, flatness, surface particles, etc., have direct impact on device yield and costs, hence affecting the industrialization of downstream application fields. During the production of III-V compound semiconductor 1-1-200


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substrates, such substrate performance indicators are subject to many factors, including quality control of raw and auxiliary materials, poly-crystal synthesis process, process control during single-crystal growth, dicing, grinding, polishing, and cleaning processes, measurement technologies, and packaging technology. Substrate manufacturers should continuously research and develop new technologies and processes to continuously improve product performance indicators, so as to meet the demands of downstream epitaxy, chip, and device enterprises.

2. Development of new industries in recent years, and future development trends

(1) 5G communications industry

5G communications is a new generation of broadband mobile communication technologies featuring high rate, low time delay, and large connections. In 5G communications, InP substrates are mainly used to manufacture optical chips in optical modules. An optical module, as the core device of optical communication, is an interface module implementing information transmission between devices via photoelectric conversion. GaAs substrates are mainly used to manufacture radio frequency power amplifiers in base stations and mobile terminals. 5G base stations request much more optical modules and radio frequency power amplifiers than 4G base stations. After entering the 5G era, the widespread construction of 5G base stations will greatly drive the demands for optical modules and power amplifiers. Meanwhile, replacement demands for 5G smartphones will also significantly increase the demands for mobile phone power amplifiers. Therefore, since 2019, the development of the 5G communications industry will bring about a demand surge for III-V compound semiconductor substrate materials in the next few years.

(2) Data centers

Thanks to the development of the Internet of Things, cloud computing, 5G, and other new industries, the global data traffic experienced explosive growth, leading to dramatic increase in the demands for data centers as the important nodes for network data storage and transmission. In data centers, optical modules are used as interface modules for the photoelectric conversion between devices and optical fibers. InP substrates are mainly used to manufacture lasers and receptors in optical modules, which are eventually used in servers, rack switches, core switches, and other host devices. Under the catalyzing effects of COVID-19 around the world, and driven by new infrastructure policies in the Chinese Mainland, the construction demands of data centers in financial, artificial intelligence, medical imaging, Internet of Things, edge computing, and other industries have driven the global market demands for optical modules, which will continuously increase the market size of III-V compound semiconductor substrate materials.

(3) New generation display industry

In the field of new generation display, the year 2021 is the first year of large-scale industrialization for mini LEDs. Mini LED displays using GaAs substrate materials have been used in iPad Pro tablets released in 2021, indicating no obstacle in large-scale application of such materials. In the future, the micro LED display technology with the “film, micro, and array” advantages will be commercialized in smartphones, high-definition TVs, laptop computers, tablet computers, and other display fields, leading to geometric increase in the market demands for GaAs substrates.

(4) Artificial intelligence industry

In the field of artificial intelligence, at present, VCSEL manufactured with GaAs substrates have been used in 3D sensing technologies. In 2017, Apple took the lead in using VCSEL lasers in iPhone X for facial recognition, which created the opportunities of large-scale commercialization of 3D sensors. In the future, the 3D sensor 1-1-201


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technology will develop from facial recognition to body recognition, and it’s expected that there will be new incremental demands for GaAs substrates in the artificial intelligence field.

(5) Unmanned driving industry

Given the development of unmanned driving (L4-L5) technologies and the increased penetration of advanced driver-assistance (L3) technologies, it’s expected that the market of vehicle-mounted laser radars will experience high-speed development, leading to incremental demands for InP substrates and GaAs substrates.

(6) Wearable device industry

The popularization of smart watches leads to higher market expectations on wearable device. Main functions of wearable device may be classified into two categories. One category is health and medical functions, in which sensors made of InP substrates may be used to monitor vital signs such as the heart rate, blood oxygen levels, blood pressure, and even blood sugar levels. The other category is entertainment functions, in which laser sensors made of InP substrates may emit invisible lights without harm to vision, and may be used in virtual reality (VR) glasses. The diversification of wearable device and increasing penetration will lead to incremental demands for InP substrates.

3. Development of new types of business and new modes in the industry in recent years, and future development trends

The production of III-V compound semiconductor materials by enterprises involves arsenic, gallium, or indium. At present, waste treatment in the industry is mostly entrusted to external third parties because most enterprises are not capable of purifying waste wafers and liquids. In the future, given stricter and stricter environment protection requirements imposed by the states, enterprises in the industry will increase investment in environment protection expenses and environment protection equipment. Therefore, more attention will be paid to the purification technologies intended for wastes in the industry of III-V compound semiconductor materials. Purification of wastes not only indicates the collection and recycling of waste wafers and liquids generated during production, but also effectively solves enterprises’ environment protection issues involved in the production of III-V compound semiconductor materials, hence achieving both corporate benefits and social benefits.

(V) Trends, opportunities, and challenges in the development of the industry

1. Opportunities

(1) Significant opportunities for the development of the semiconductor industry in China thanks to the global industry migration

Historically, the global semiconductor industry chain experienced geographical migration for two times - from the US to Japan in the 1970s, and from Japan to South Korea and Taiwan District in the 1980s. At present, the global semiconductor industry is in the process of migrating to the Chinese Mainland. However, semiconductor materials are still a weak link in the semiconductor industry of China by now. On the background of the semiconductor industry migrating to the Chinese Mainland, as the largest market of semiconductor end applications, the Chinese Mainland is expected to attract the presence of more domestic and overseas enterprises, which will further improve the overall development level of the domestic compound semiconductor industry chain. It’s expected that the auxiliary environment for the compound semiconductor industry chain in China will be significantly improved, leading to higher market shares in the future. 1-1-202


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(2) New opportunities from new demands generated by new applications

Despite the excellent performance, III-V compound semiconductor substrate materials have been constrained for a long period of time by the small market size of downstream applications and high costs; as a result, the market size is greatly less than silicon substrate materials. However, additional markets have been generated for substrate enterprises by many new application fields of III-V compound semiconductors emerging in recent years, such as mini LEDs, micro LEDs, wearable sensors, vehicle-mounted laser radars, and biometric recognition lasers. Given that all such demands are in the process of industrialization and the very low base market size of III-V compound substrates, the volume increase in any one of such markets will greatly drive the entire III-V semiconductor substrate market. In addition, in inherent application fields of III-V compound semiconductors, optical modules for base stations and data centers, smartphones, and base station RF devices, the rapid development of 5G communications, big data, and cloud computing also brings opportunities for 5G base station construction, data center construction, and 5G smartphone replacement, which may lead to great growth points for the III-V semiconductor substrate market.

2. Challenges

(1) Possible mismatch between supply and demands and outflow of talents due to over-investment

The rapid development of the compound semiconductor industry in China has attracted the investment of large funds, resulting in certain over-investment. Considering the mismatch between operating sizes and technology competency of some enterprises, it’s expected that low-end products will experience destructive competition in the future, and talents in the industry may go over to competitors for higher salaries.

(2) Increasing requirements imposed by the state on environment protection and safety in production

In 2013, gallium was included in the Catalogue of Hazardous Chemicals; In 2015, gallium arsenide was included in the list of hazardous chemicals released by the State Administration of Work Safety. Given the stricter regulatory policies in the industry, GaAs substrate enterprises should constantly enhance management over the transportation, use, production, and other stages of raw materials, semi-finished products, and finished products, leading to increasing investment for safety in production to ensure the lawfulness and compliance of production and operation.

Production processes employed by III-V compound semiconductor substrate enterprises involve chemical synthesis processes, high-temperature and high-pressure synthesis processes, physical dicing, polishing, and cleaning processes, purification processes, etc., which will generate certain emission of “three wastes” (waste water, waste gas, and industrial residues). Higher state standards for environment control and higher demands of customers for quality of products from suppliers will lead to increasing costs of III-V compound semiconductor substrate enterprises for environment protection and control.

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(VI) Technical levels and features, scientific and technical achievements of the Issuer, and description of in-depth integration of the industry

As of June 30, 2022, the Company owns a total of 61 patents for invention, including 52 domestic patents for invention and 9 overseas patents for invention; moreover, the Company holds a number of process and formula know-how. The Company has built an independent system of core technologies related to III-V compound semiconductor materials. In addition, the Company has many qualifications and awards, including “Specialized Novel SMEs of Beijing”, the national post-doctoral research station, Beijing Science and Technology Research and Development Institution, 13^th^ “Beijing Enterprise Technology Center” of Beijing, etc.

The Company is in cooperation with major universities and research institutes in the domestic field of semiconductor materials in many aspects to jointly promote the industrialization of scientific and technical achievements and enhance in-depth integration of the industry, academics, and research. Such cooperation institutions include the Chinese Academy of Sciences, the Massachusetts Institute of Technology, the California Institute of Technology, Peking University, the University of Science and Technology of China, Shanghai Jiao Tong University, Xiamen University, etc.

1. Semiconductor substrate materials

The Company has acquired several key technologies in the field of semiconductor substrate materials, including gallium arsenide poly-crystal synthesis, semi-insulating gallium arsenide single crystal vertical gradient freeze growth and carbon doping control, semi-conducting gallium arsenide single crystal vertical gradient freeze growth and uniform doping control, high quality germanium single crystal vertical gradient freeze growth and doping control, high quality indium phosphide single crystal vertical gradient freeze growth and doping control, longitudinal temperature gradient partial crystallization.

Existing products of the Company include 2- to 6-inch InP substrates, 1- to 8-inch GaAs substrates, 2- to 6-inch germanium substrates, PBN materials, and high-purity gallium (6N, 7N, and 8N purity), which are widely used in many fields like 5G communications, data centers, new generation display, artificial intelligence, unmanned driving, wearable device, aerospace.

It’s a long process to achieve commercialized application of new technologies, which normally requires reasoning, pilot production, mass production, and marketing. For 5G communications, data centers, new generation display (mini LEDs and micro LEDs), artificial intelligence, unmanned driving, and other technologies, the Company delivers sample products to downstream customers and universities in the state of application reasoning. Through constant communication with downstream customers on product performance and parameters, the Company can accurately understand customer demands, and can arrive at an expectation on the commercialization prospect of new technologies to seize market opportunities early.

In the future, the Company will keep in good communication with downstream customers to keep updated about cutting-edge technologies. Being closely attentive to the progress of commercialization and marketing of global 6G communication RF devices, medical wearable device, L4-L5 autonomous driving vehicle radars, AR and VR visual transparent glasses around the world in the future, the Company is capable of making layout for corresponding products prior to the widespread commercialized application of new technologies.

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2. PBN materials

The Company has acquired several key technologies in the field of PBN materials, including pyrolytic boron nitride chemical vapor deposition technology, manufacturing technology for boron nitride-boron carbide-graphite composite heating element used for high temperature electric heating, and vapor deposition furnace designing technology for manufacturing ultra-high purity pyrolytic boron nitride products. PBN material products of the Company include single-crystal growth crucibles, OLED crucibles, MBE crucibles, CIGS metal (copper indium gallium selenide) and ceramic evaporation source, Ta crucibles and nozzles, CVD furnaces (chemical vapor deposition furnaces), etc. During the reporting period, the Company has successfully entered the OLED market and established cooperation with well-known enterprises in the OLED industry, including Tianma Microelectronics, BOE Technology, and China Star Optoelectronics.

3. High-purity materials

By now, the Company has acquired the large density difference liquid-liquid extraction technology, high efficiency electrolytic refining technology, longitudinal temperature gradient partial crystallization technology, high-purity gallium purification and high-purity indium phosphide poly-crystal synthesis technology. High-purity material products of the Company include high-purity gallium (6N, 7N, and 8N), gallium-magnesium alloys, indium-magnesium alloys, high-purity indium phosphide poly-crystals, which are not only sufficient for the production of the Company’s III-V compound semiconductor substrates, but also available for external sales.

(VII) Position of the Issuer’s products or services in the market and industry

As recognized by the Semiconductor Materials Branch of China Electronic Materials Industry Association: the gallium arsenide products produced and sold by the Company are widely used in the production of high-speed switches, optoelectronics, microwave communications, radar and infrared sensing devices, with excellent performance and reliable quality, belonging to key material products with electronic information function in the national strategically emerging materials, and playing an important role in the new generation of information communication technology, the new generation of advanced display technology and mobile Internet technology. The gallium arsenide products produced and sold by the Company are the key products listed in the catalog of electronic special materials in the industry classification of national economic; strong support for such product can effectively promote the rapid development of the compound semiconductor industry in China, cultivate talents in this industry, and enhance the global competitiveness of China’s compound semiconductor materials.

As recognized by the National Quality Supervision and Inspection Center for Electronic Functions and Auxiliary Materials: the GaAs substrate of the Company is characterized by ultra-low defect density, high electron mobility, ultra-low internal stress, high flatness, ultra-low surface particle size and ultra-cleanliness; the product performance is outstanding.

Providing services for the whole world with a base established and China, the Company has been in close cooperation with many globally well-known epitaxy, chip, and device enterprises. According to Yole, the Company held the second largest market shares for InP substrates in 2020 and the fourth largest market shares 1-1-205


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for GaAs substrates in 2019 in the world, which manifested the prominent position of the Company in the market and the industry. The table below shows the global competition structure for main products of the Company:

Year	Global market shares of InP substrates
		Sumitomo	Issuer	JX Nippon	Others
2020	42%	36%	13%	10%
Year	Global market shares of GaAs substrates
		Freiberger	Sumitomo	Issuer	Others
2019	28%	21%	13%	38%

Source: Yole

With respect to market positioning, considering the low technical requirements on GaAs substrates in common LEDs for general lighting, which lead to fierce market competition, the Company gradually reduced the sales of GaAs substrates on the common LED market during the reporting period. Instead, according to Yole, very few GaAs substrate enterprises around the world are capable of supplying products for high-end markets for mini LEDs, micro LEDs, 5G RF devices, biometric recognition lasers, etc.; therefore, these applications are the main target markets of the Company’s GaAs substrate products.

Source: Yole

The Company is one of the enterprises which have acquired the production technologies for 8-inch GaAs substrates and 6-inch InP substrates around the world. In the new investment cycle in downstream application fields, including 5G communications and new generation display, newly established production lines of downstream customers are likely targeted for larger sizes; as a result, enterprises capable of supplying large-size III-V compound semiconductor substrates are expected to take market opportunities early in the new cycle of the industry. 1-1-206


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Product size comparison among InP and GaAs substrate manufacturers

Size comparison of InP substrates
InP	Sumitomo	JX Nippon	Beijing Tongmei
		2-6 inches	2-4 inches	2-6 inches
Size comparison of GaAs substrates
GaAs	Freiberger	Sumitomo	Beijing Tongmei
		4-8 inches	2-8 inches	1-8 inches

Source: Yole, and websites of the companies

(VIII) Main enterprises in the industry

1. Sumitomo Electric Industries Limited (Sumitomo, 5802.T), Japan

Established in 1920, Sumitomo is one of the well-known communication manufacturers and industrial manufacturers in the world. Sumitomo engages in wide production and operation covering information communications, vehicle manufacturing, electronic devices and equipment, energy, environment, and industry equipment, and materials, and has established over 200 subsidiaries around the world. Sumitomo’s products in the GaAs substrate filed include 2- to 8-inch gallium arsenide single crystal substrates, and products in the InP substrate field include 2- to 6-inch InP semi-conducting and semi-insulating single crystal substrates.

2. Freiberger Compound Materials GmbH (Freiberger), Germany

Freiberger, established in 1949, mainly produces semi-insulating and semiconductor GaAs substrate products covering 3- to 8-inch GaAs substrates mainly for the photoelectron field. Freiberger has built VGF and LEC process experiences and good quality control capabilities.

3. JX Nippon Mining & Metals Corporation (JX Nippon)

JX Nippon was established in 2010 by combining two major energy groups in Japan - Nippon Oil and Nippon Mining Holdings. It’s business mainly involves the development and extraction of non-ferrous metal resources, manufacturing and sales of film materials (target materials, surface treatment agents, compound semiconductor materials, etc.), and manufacturing and sales of precision machining products. In the field of compound semiconductors, JX Nippon mainly produces 2- to 4-inch InP substrates.

4. Dowa Holdings Co., Ltd. (Dowa, 5714.T)

Dowa, established in 1937, mainly operates environment protection and recycling, metallurgy, electronic materials, metal processing, and thermal treatment. In the field of compound semiconductors, Dowa mainly produces 2- to 4-inch GaAs substrates.

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5. Umicore Material Technology Co., Ltd. (Umicore, UMI.BR)

Umicore, established in 1989, focuses on applications of materials, chemistry, and metallurgy. It has three business groups for catalysis, energy and surface technologies, and recycling, respectively, with presence in all continents serving customers around the world. At present, Umicore has 4- to 12-inch germanium substrate products, which are mainly used for space solar cells, photovoltaic, LEDs, VCSEL, and other fields.

6. Yunnan Lincang Xinyuan Germanium Industry Co., Ltd. (Yunnan Germanium, 002428.SZ)

Yunnan Lincang Xinyuan Germanium Industry Co., Ltd., established in 1998, is a new- and high-tech enterprise with a comprehensive industry chain integrating germanium mining, deep processing, and research and development. In 2013, Yunnan Germanium entered the fields of gallium arsenide and InP substrates by establishing a controlled subsidiary Yunnan Xinyao Semiconductor Materials Co., Ltd.; by now, it is capable of producing 800,000 GaAs substrates and 100,000 InP substrates per year. At present, Yunnan Germanium has 2- to 6-inch gallium arsenide crystal and substrate products, and has products from a 2- to 4-inch InP substrate production line.

7. Guangdong Vital Advanced Materials Co., Ltd.

Guangdong Vital Advanced Materials Co., Ltd., established in 2012 as a subsidiary of Vital Materials Co., Limited, mainly engages in the research, development, production and sales of indium phosphide, germanium, and InP substrates, and other relevant products. It’s semiconductor substrate products mainly include 2- to 6-inch GaAs substrates, 2- to 4-inch InP substrates, and 4- to 6-inch germanium substrates.

(IX) Competitive advantages and disadvantages

1. Competitive advantages

(1) Technology advantages

The industry of III-V compound semiconductor materials is a technology-intensive industry. Dr. MORRIS SHEN-SHIH YOUNG, Chairman of the Company, is one of the founders industrializing the VGF technology. Under the leadership of Dr. MORRIS SHEN-SHIH YOUNG, the Company has educated and built a technology team featuring comprehensive academic backgrounds and rich industry experiences, providing talent guarantee for the Company to continuously make innovation and keep technology advancement. After years of continuous practical research, development, and production, the Company has built profound technology accumulation and processes. The Company has acquired many core technologies, including gallium arsenide poly-crystal synthesis, semi-insulating gallium arsenide single crystal vertical gradient freeze growth and carbon doping control, semi-conducting gallium arsenide single crystal vertical gradient freeze growth and uniform doping control, high quality germanium single crystal vertical gradient freeze growth and doping control, high quality indium phosphide single crystal vertical gradient freeze growth and doping control, longitudinal temperature gradient partial crystallization, pyrolytic boron nitride chemical vapor deposition, etc. In the global industry of III-V compound semiconductor materials, the Company has a complete and independent technology system.

As of June 30, 2022, the Company has a total of 61 patents for invention. Besides intellectual property rights filed in the Chinese Mainland, the Company keeps a number of formula and process know-how in strict confidentiality with respect to various types of core technologies, which may protect such technology secrets from being disclosed by patents. 1-1-208


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Considering the development of new products, such as 6-inch InP substrates and 8-inch GaAs substrates, and the continuous improvement of product performance indicators, during the reporting period, the Company continuously increased expenses in research and development to RMB26.8264 million, RMB45.1082 million, and RMB90.1664 million respectively, accounting for5.80%, 7.73%, and 10.52% of sales revenues. The stable and increasing research and development investment is an important guarantee for the Company to keep its technology advancement.

In summary, with the profound technology accumulation, strict confidentiality measures, and sufficient R&D investment, the Company has certain technical advantages in the global industry of III-V compound semiconductor materials.

(2) Customer and market advantages

Generally, III-V compound semiconductor substrate products should pass customer certification on a per-model basis, and the products may be offered for sale only after passing the customer certification. Given the long period and high costs required for certification, once a substrate product is certified, downstream customers normally will not replace the supplier rashly, which leads to a long-lasting and stable cooperation between the customer and the supplier. As the Company is one of the early enterprises engaging in the InP substrate, GaAs substrate, and germanium substrate business around the world, and the Company’s various product models have passed customer’s product certification around the world. During the reporting period, the Company has been actively marketing large-size InP substrate and GaAs substrate products; thanks to the favorable market reputation built by the Company through long-term operation, the Company’s large-size substrate products have successively passed the certification by various customers.

Providing services for the whole world with a base established and China, the Company has been in close cooperation with many globally well-known epitaxy, foundry, chip, and device enterprises, including 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, and Everbright Photonics - almost covering all well-known enterprises in the global industry chain of III-V compound semiconductors. According to Yole, the Company held the second largest market shares for InP substrates in 2020 and the fourth largest market shares for GaAs substrates in 2019 in the world, which manifested the prominent position of the Company in the market and the industry.

In summary, with various product models certified by globally well-known customers and high shares of the Company’s main products on the global market, the Company has customer and market advantages throughout the world.

(3) Product advantages

The Company’s semiconductor substrate products, being outstanding in key performance indicators like dislocation density, resistivity uniformity, flatness, surface particles, etc., can meet performance requirements on semiconductor substrate products for high-end markets, including 5G radio frequency power amplifiers, mini LEDs, micro LEDs, wearable sensors, vehicle-mounted laser radars, biometric recognition lasers. The Company is one of the few III-V compound semiconductor substrate enterprises in the world whose products can be used in high-end markets.

The Company has comprehensive products of various models, including 2- to 6-inch InP substrates, 1- to 8-inch GaAs substrates, and 2- to 6-inch germanium single crystal substrates, PBN materials, and high-purity gallium (6N, 7N, and 8N), etc. In addition, with highly flexible production processes, the Company is capable of 1-1-209


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customizing substrate products against different specifications in response to different demands of downstream customers, which leads to advantages in full product models and customized production for the Company compared with international competitors.

In summary, the Company has strong product advantages compared with domestic and overseas competitors.

(4) Supply chain advantages

The industry of III-V compound semiconductor materials involves many links, and there are only a few suppliers for some upstream materials, especially in the early days of the Company, there were very few qualified suppliers in China. Since its establishment, the Company has built a global procurement system and an international procurement team, and has ensured over two qualified suppliers for various materials. For domestic suppliers of key raw materials, the Company or AXT, the controlling shareholder, also enhances cooperation with suppliers by equity investment, which further guarantees the stable procurement of the Company’s equipment and raw materials to avoid interruption or lack of supplies.

While continuously improving the global procurement system, in order to further guarantee the supply of raw materials, the Company has expanded to the upstream business through independent research and development for raw materials featuring high technology difficulties, high added values, and difficulties of stable supply from the Chinese Mainland. By now, the Company has been producing key raw materials, such as PBN crucibles and high-purity gallium, through controlled subsidiaries, and developed the indium phosphide poly-crystal manufacturing technology, which ensures the stable supply of such key production elements at the source.

With the layout basically completed for the supply chain of III-V compound semiconductor substrates, the Company has more stable supply of all key raw materials and can effectively control the production and delivery dates of the Company while keeping production costs stable. On the background of further expanded production capacities of the Company, the Company has obvious supply chain advantages.

(5) Advantages in safety in production and environment protection

Some raw materials and semi-finished products in the production of GaAs substrates are hazardous chemicals listed by the state. As the state policies on environment protection become stricter, some domestic enterprises of compound semiconductor raw materials were ordered to suspend production due to problems of safety in production and environment protection, leading to the tension in the supply of some raw materials in the industry. In order to handle issues of safety in production and environment protection, the Company has established a recycling production system in a qualified chemical park in Chaoyang City, Liaoning Province. With the Company at the core, the park has built a gallium arsenide industry cluster and established a system in which hazardous chemicals are controlled, processed, and recycled on a centralized basis, which safeguards the stable supply of upstream raw materials for the Company in terms of production qualifications. Meanwhile, liquid wastes generated during the production of the Company are collected, treated, and recycled, which effectively solves the environment protection difficulties of the gallium arsenide industry, reduces production costs, and achieves favorable demonstration effects in energy conservation and emission reduction.

Therefore, with the production base established in a qualified chemical park, the Company has certain advantages in auxiliary facilities on the background of stricter and stricter policies on safety in production and environment protection.

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2. Competitive disadvantages

(1) Insufficient capital investment

In response to emerging new demands on the downstream market and the update and iteration of new products, the Company needs to further increase investments in fixed assets and in research and development to seize market opportunities, hence improving market shares and profitability. This will cause heavy pressure on capital investment of the Company.

(2) Insufficient production capacities

At present, there is a certain gap between the Company and international competitors in terms of supply capabilities for the market. Despite the several production bases established and the supply capabilities of 1- to 8-inch GaAs substrates and 2- to 6-inch InP substrates, the Company’s production capacities are still inferior to Sumitomo and Freiberger, the competitors in the industry.

(X) Comparison between the Issuer and comparable companies in the industry

1. Main enterprises in the industry

For main enterprises in the industry, refer to “(VIII) Main enterprises in the industry” of “Section VI Business and Technology” of this Prospectus.

2. Comparison of key business data for measuring core competitiveness

(1) Comparison of operation with competitors

The table below shows the comparison of operation between the Company and main competitors:

Name	Main business	Scope of business	Size of business
Sumitomo	Engages in wide production and operation covering information communications, vehicle manufacturing, electronic devices and equipment, energy, environment, and industry equipment, and materials	Comprehensive enterprise with business covering GaAs substrates and InP substrates	In 2020, achieved the operating incomes of 2,918.6 billion yen and the net profits of 56.3 billion yen
Freiberger	Produces semi-insulating and semiconductor GaAs substrate products	Professional substrate manufacturer, mainly providing GaAs substrates	In 2019, achieved the operating incomes of 66 million euro and the net profits of 4 million euro

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JX Nippon	Mainly engages in the development and extraction of non-ferrous metal resources, manufacturing and sales of film materials (target materials, surface treatment agents, compound semiconductor materials, etc.), and manufacturing and sales of precision machining products	Comprehensive enterprise with business covering InP substrates	In 2019, achieved the operating incomes of 1,004.4 billion yen and the net profits of 16.6 billion yen
Dowa Holdings Co., Ltd.	Mainly operates environment protection and recycling, metallurgy, electronic materials, metal processing, and thermal treatment	Comprehensive enterprise with business covering GaAs substrate products	In 2021, achieved the operating incomes of 588 billion yen and the net profits of 25.2 billion yen
Umicore	Focuses on applications of materials, chemistry, and metallurgy. It has three business groups for catalysis, energy and surface technologies, and recycling, respectively	Material enterprise with business covering germanium substrate products	In 2020, achieved the operating incomes of 20.7 billion euro and the net profits of 0.1 billion euro
Beijing Tongmei	Mainly providing III-V compound semiconductor substrate materials and germanium substrate materials	Professional semiconductor substrate enterprise, providing InP substrates, GaAs substrates, and germanium substrates	In 2020, achieved the operating incomes of RMB583 million and the net profits of RMB60 million

Competitors of the Company are mostly comprehensive groups greater, with more capital, and more risk-resistant than the Issuer. As a professional semiconductor substrate enterprise, the Issuer has a more comprehensive product portfolio for semiconductor substrate materials, which may lead to more synergy effects in the sales of various products. In addition, the semiconductor substrate business, with incomes accounting only for a small proportion, is not the main source of incomes and profits for some competitors; while the Issuer’s business is more concentrated, providing the Issuer with certain advantages in rapid response and individualized services.

(2) Comparison of technical strengths

The manufacturing of III-V compound semiconductor substrates, involving several links such as poly-crystal synthesis (if applicable), single-crystal growth, dicing, grinding, polishing, cleaning, testing, etc., has the features of complicated processes and a high technology threshold; meanwhile, InP and GaAs substrates are experiencing iteration toward large sizes, which raises high requirements on the equipment, processes, and technical accumulation of enterprises. With respect to existing products, enterprises of III-V compound semiconductor 1-1-212


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substrates should constantly improve product performance indicators to keep in line with the constant iteration of the chips and device products of downstream customers. Therefore, the capabilities of manufacturing large-size substrates can reflect technical competency to a certain extent.

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According to public information about competitors, the table below shows the sizes of main substrate products available from the companies:

Item		Sumitomo	JX Nippon		Beijing Tongmei
InP substrates	2-inch substrate	√	√		√
		3-inch substrate	√	√		√
		4-inch substrate	√	√		√
		6-inch substrate	√	N/A		√
Item		Sumitomo	Freiberger		Beijing Tongmei
GaAs substrates	4-inch substrate	√	√		√
		6-inch substrate	√	√		√
		8-inch substrate	√	√		√
Item		Umicore		Beijing Tongmei
Germanium substrates	3-inch substrate	√		√
		4-inch substrate	√		√
		6-inch substrate	√		√

Source: Websites of comparable companies

Relying on technical competency comparable to main competitors in terms of substrate product sizes, the Company ranks in tier 1 in the global industry.

(3) Comparison of market shares

According to Yole, the Company held the second largest market shares for InP substrates in 2020 and the fourth largest market shares for GaAs substrates in 2019 in the world. For the competition structure of the Company’s main products, refer to “II. (VII) Position of the Issuer’s products or services in the market and industry” of “Section VI Business and Technology” of this Prospectus.

Given the large-scale migration of the semiconductor industry chain to China and the explosive growth of emerging downstream fields, including 5G communications, data centers, new generation display, artificial intelligence, unmanned driving, etc., the Company has the potential of developing into a leader for global III-V compound semiconductor substrate materials by making the most of the development opportunities on emerging markets in a new industrial cycle.

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(4) Comparison of technical parameters

The core technical parameters of GaAs substrate and InP substrate products include resistivity, resistivity uniformity, carrier concentration, electron mobility, dislocation density, thickness, total thickness fluctuation value, warpage and surface particle size. The specific meanings of aforesaid technical parameters are as follows:

Name	Meaning	Judgment Criterion
Resistivity	A physical quantity that reflects the electrical conductivity of a material	Small resistivity indicates good electrical conductivity; high resistivity indicates poor electrical conductivity
Uniformity of resistivity	It reflects the uniformity of resistivity obtained by measuring 25 points on the entire wafer surface<br><br>(Maximum resistivity - Average) / Average multiplied by 100%	The lower the uniformity, the better the performance
Carrier concentration	The number of charges that can move freely per unit volume	The higher the carrier concentration, the better the conductivity
Electron mobility	Orientational drift velocity of electrons under unit external electric field	The higher the electron mobility, the better the performance
Dislocation density	Refers to the number of dislocation lines passing through a unit cross-sectional area	The lower the dislocation density, the better the performance
Thickness	Usually, the thickness value in the center area of the corresponding wafer product	-
Total thickness fluctuation value	Under the condition of complete vacuum adsorption on the back of the wafer, the difference between the maximum and minimum heights measured on the front side	The lower the total thickness fluctuation value, the better the performance
Warpage	With the wafer naturally placed on the reference plane, the sum of the absolute values of the maximum and minimum values obtained by measuring at front side relative to the reference focal plane	The lower the warpage, the better the performance
Surface particle size	The total number of particles larger than a certain threshold across the wafer surface measured in an ultra-clean environment	The smaller the surface particle size, the better the performance

Currently, the Company has completed R&D of growth and crystal processing technology of 8-inch gallium arsenide monocrystal and 6-inch indium phosphide monocrystal, with capacity to produce in a small batch, and its large-size substrate products have passed the certification of some downstream customers. According to the information disclosed by each

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competitor, the current progress of the production of large-size substrates by each company is as follows:

Item	Sumitomo	Japan JX	Beijing Tongmei
6-inch InP substrate	Capable of producing	Not capable of producing	Capable of producing in a small batch
Item	Sumitomo	Freiberger	Beijing Tongmei
8-inch GaAs substrate	Capable of producing	Capable of producing	Capable of producing in a small batch

Note: The progress of large-size substrate production capacity of each company is based on the announcement on the official website of each company; Sumitomo and Freiberger have not disclosed their mass production stage.

The update and replacement cycles of production lines and equipment in the semiconductor industry are long. Therefore, the mainstream products purchased by downstream epitaxy and OEM manufacturers are mainly 4- and 6-inch GaAs substrates and 3- and 4-inch InP substrates. The comparison between main products of the Company and main competitors in terms of key performance indicators is as follows:

1) 6 inches GaAs (semi-insulating type)

Parameters	Sumitomo	Freiberger	Beijing Tongmei
Resistivity Ω.cm	≥8×10^7^	（1.0-8.0）×10^8^	≥1×10^8^
Resistivity uniformity	Undisclosed	Undisclosed	<150%
Electron mobility cm^2^/v.s	≥3000	≥4500	≥5000
Dislocation density cm^-2^	≤10000	≤10000	1500-5000
Thickness um	675±25/550±25	675±25/550±25	675±25/550±25
Total thickness fluctuation (P/P)um	≤5	≤5	≤4
Total thickness fluctuation (P/E)um	Undisclosed	Undisclosed	≤10
Warpage um	≤10	≤10	≤10
Surface particle size	<100@>0.4um	<100@>0.3um	<80@>0.3um

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2) 4 inches GaAs (semiconductor type)

Parameters	Sumitomo	Freiberger	Beijing Tongmei
Carrier concentration cm^-3^	（0.7-4）×10^18^	（0.8-3.0）×10^18^	（0.8-4.0）×10^18^
Electron mobility cm^2^/v.s	（1.2-3）×10^3^	≥1500	（1-2.5）×10^3^
Average dislocation density cm^-2^	≤5×10^2^	100-500	100-500
Thickness um	625±25	625±25	625±25
Total thickness fluctuation (P/P)um	Undisclosed	≤5	≤4
Total thickness fluctuation (P/E)um	10	≤10	≤10
Warpage um	10	≤10	≤7
Surface particle size	Undisclosed	<50@>0.3um	<40@>0.3um

3) 4 inches InP(semi-insulating type)

Parameters	Sumitomo	Japan JX	Beijing Tongmei
Resistivity Ω.cm	≥1×10^7^	≥1×10^6^	≥0.5×10^7^
Electron mobility cm^2^/v.s	≥2×10^3^	Undisclosed	≥1000
Average dislocation density cm^-2^	≤5×10^3^	≤5×10^4^	1500-5000
Thickness um	625±25	625±20	350±25/625±25
Total thickness fluctuation (P/P)um	≤5	≤8	≤5
Warpage um	≤10	≤15	≤10
Surface particle size	<30@>1.2um2	Undisclosed	<50@>0.3um

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4) 3 inches InP (semiconductor type)

Parameters	Sumitomo	Japan JX	Beijing Tongmei
Carrier concentration cm^-3^	（2-8）×10^18^	(2-10)×10^18^	(0.8-8)×10^18^
Electron mobility cm^2^/v.s	（1-2）×10^3^	Undisclosed	（1-2.5）×10^3^
Average dislocation density cm^-2^	≦5×10^3^	≤5×10^3^	100-500
Thickness um	600±15	620±20	500±15
Total thickness fluctuation (P/P)um	≤6	≦5	≤5
Total thickness fluctuation (P/E)um	≤8	≤8	≤10
Warpage um	≤10	≦10	≤10
Surface particle size	<30@>1.2um^2^	Undisclosed	<30@>0.3um

Source: website of each company

Through comprehensive comparison of the technical parameters of products publicly disclosed by Sumitomo, Freiberger, Japan JX and other enterprises, the Company’s products have advantages of low dislocation density and high flatness (the lower the total thickness fluctuation value and the warpage, and the higher the flatness, the better the performance); the technical parameters of other products are comparable to those of major international competitors, generally at leading level in the world.

By developing large-size InP substrates and GaAs substrate products, the Company fills the market gap and effectively meets the needs of its downstream customers; in addition, through further improvement of monocrystal growth equipment, PBN crucibles and production process, the Company constantly increases the growth length of large-diameter monocrystals, effectively reducing production costs, enhancing crystal growth efficiency, and greatly improving its market competitiveness.

3. The competitive layout of germanium substrates

Before 2014, the world’s major companies with mass production capacity for germanium substrates were the Issuer and Umicore. At present, the Company mainly sells 4-inch germanium substrates in the domestic market, while those sold in overseas markets are mainly 6-inch and 4-inch products.

(1) International market

In the international market, the main competitor of the Company (and its controlling shareholder AXT) is Umicore, which has been engaged in the germanium product business for over 40 years, with infrared-grade germanium products, ultra-high-purity germanium single crystals, germanium substrates and other germanium products. In the international market, the Company (and its controlling shareholder AXT) used to have a global market share of germanium substrate products ahead of Umicore. As AXT fully relocated its germanium substrate production base to China, the Company’s germanium substrate products gradually withdrew from the aerospace market of U.S. At present, the Company’s overseas markets are mainly located in Europe and Asia. Thus, Umicore now has a higher global market share than the Company in terms of germanium substrates.

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(2) Domestic market

In the domestic market, the Company was the most important germanium substrate supplier in China before 2014. As China’s germanium output ranks first in the world at present, some domestic germanium manufacturers, such as Yunnan Germanium, also used to supply germanium ingots or germanium single crystals and other raw materials to Umicore. With the continuous growth of the global aerospace field and the commercial satellite market, domestic upstream manufacturers of germanium substrates have also started entering the downstream germanium substrate market. Yunnan Germanium started to produce and sell germanium substrates on a small scale in 2014. According to the 2019 annual report of Yunnan Germanium, it achieved a revenue of RMB28,447,400 with germanium substrates in the same year.

In recent years, the demand in the domestic market has also shown a rapid growth trend. Yunnan Germanium has also reinforced its development efforts in the domestic market. During the reporting period, its revenue from germanium substrates increased to RMB77,109,300 from 2019 to 2021, and its germanium substrate business in 2021 was comparable to the Company’s revenues.

A comparison of changes in price, production capacity and output between the Company and Yunnan Germanium in terms of germanium substrate products is as follows:

Unit: RMB/piece, 0’000 pieces (converted to 4 inches)

Germanium substrate	Beijing Tongmei			Yunnan Germanium
		2021	2020	ROC	2021	2020	ROC
Unit price	287.74	336.81	-14.57%	283.70	390.06	-27.27%
Capacity	35.83	30.50	17.48%	75.00	30.00	150.00%
Output	35.46	28.18	25.83%	28.28	23.57	20.00%

Source: Annual report of Yunnan Germanium

At present, the Company and Yunnan Germanium are the two most important manufacturers of germanium substrates in the domestic market. According to the 2021 annual report of Yunnan Germanium, in 2021, it produced 282,800 pieces of photovoltaic-grade germanium products (converted to 4 inches), and expanded its production capacity by 200,000 pieces of 6-inch germanium substrates. With the growth of its output and sales, the price competition between the Company and Yunnan Germanium has become fierce. In 2021, the average unit price of the Company in the domestic market dropped from RMB289.04/piece to RMB226.23/piece, a decrease of 7.89%, while that of Yunnan Germanium dropped from RMB390.06/piece to RMB283.70/piece, a decrease of 27.27%.

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III. Sales and main customers of the Issuer

(I) Production and sales of main products

1. Production and sales of main products

The table below shows the utilization of production capacities, outputs, and sales volumes of the Company’s GaAs, InP, and germanium substrate products in the last three years:

Item	2021	2020	2019
GaAs substrates (equivalent to 2-inch)
Production capacity (10,000 pieces)	313.64	232.25	190.50
Output (10,000 pieces)	306.68	205.83	178.90
Utilization of production capacities	97.78%	88.63%	93.91%
Sales volume (10,000 pieces)	263.94	202.46	175.95
Output/sales ratio	86.06%	98.36%	98.35%
InP substrates (equivalent to 2-inch)
Production capacity (10,000 pieces)	40.78	30.70	26.70
Output (10,000 pieces)	39.26	28.32	23.32
Utilization of production capacities	96.27%	92.24%	87.34%
Sales volume (10,000 pieces)	35.70	27.07	23.33
Output/sales ratio	90.94%	95.60%	100.05%
Germanium substrates (equivalent to 2-inch)
Production capacity (10,000 pieces)	143.30	122.00	122.00
Output (10,000 pieces)	141.82	112.73	92.43
Utilization of production capacities	98.97%	92.41%	75.76%
Sales volume (10,000 pieces)	127.90	103.77	80.20
Output/sales ratio	90.18%	92.05%	86.77%

Note: Substrate production capacities are calculated in comprehensive consideration of the production capacities at various production stages, and the production capacities of each period are mainly constrained by the bottleneck at the crystal growing stage; substrate production capacities and outputs are uniformly converted into the quantity of 2-inch products based on the areas of various models.

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GaAs substrate2. Sales prices of main products

The table below shows the changes in the average sales prices of the Company’s main products during the reporting period:

Product category	Unit	2021		2020		2019
				Amount	Change	Amount	Change	Amount
InP substrates	RMB/piece	1,196.06	74.98%	683.54	-9.09%	751.87
GaAs substrates	RMB/piece	437.68	-6.14%	466.33	23.20%	378.50
Germanium substrates	RMB/piece	287.74	-14.57%	336.81	-4.06%	351.05
PBN crucibles	RMB/piece	5,342.20	-5.47%	5,651.35	12.62%	5,018.27
High-purity metals and compounds	RMB10,000/ton	148.07	55.91%	94.97	17.62%	80.74

The average unit prices of various substrate materials are subject to effects of many factors, including changes in product sizes and structures, customer requirements on product parameters, fluctuation in prices of raw materials, etc. During the reporting period, the InP substrates and GaAs substrates of the Company have generally experienced price increase, while the prices of germanium substrates remained relatively stable.

In 2021, the prices of InP substrates increased greatly; the main reasons are that as the global demands for downstream optical chip, optical module epitaxy and device increase, the supply falls behind, so the Company, as the second largest provider of Indium Phosphide, raised sales prices properly; in addition, the Company has integrated overseas sales from May 2021 to directly face end customers, leading to great price increase.

In 2020, the unit price of GaAs substrates increased obviously, mainly due to the effects of the increase in the price of the raw material gallium, and the increasing proportion in the sales of large-size products.

The prices of PBN crucibles experienced certain fluctuation, mainly due to the certain price differences among different device models, sizes, performance, and purposes since crucibles are mostly customized products.

In 2021, the prices of the Company’s high-purity metals and compounds increased substantially, mainly due to the impact of the continuous increase in the prices of raw material gallium since the second half of 2020.

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(II) Main customers

The table below shows the top five customers of the Company in each period during the reporting period:

In RMB0’000

Period	No.	Name	Amount	Proportion	Name of main products sold
2021	1	AXT	5,979.70	6.97%	GaAs, InP, germanium substrates
		2	Osram	5,506.52	6.42%	GaAs, germanium substrates
		3	Landmark Optoelectronics	4,731.71	5.52%	GaAs, InP substrates
		4	Mo Sangyo Co, Ltd.	3,884.27	4.53%	GaAs, InP substrates
		5	Kingsoon	3,487.18	4.07%	Germanium substrates
		Total		23,589.38	27.51
2020	1	AXT	28,196.51	48.35%	GaAs, InP, germanium substrates
		2	Kingsoon	3,027.45	5.19%	Germanium substrates
		3	Customer B	2,938.71	5.04%	GaAs, InP, germanium substrates
		4	Epi Solution Technology Co., Ltd.	1,981.64	3.40%	GaAs, InP substrates
		5	LouwersHanique	1,758.69	3.02%	PBN plates
		Total		37,903.00	64.99%
2019	1	AXT	22,144.98	47.91%	GaAs, InP, germanium substrates
		2	Customer A	4,755.70	10.29%	InP, GaAs substrates
		3	Kingsoon	2,280.93	4.93%	Germanium substrates
		4	Alpha Plus	2,277.28	4.93%	PBN crucibles, PBN materials
		5	Epi Solution Technology Co., Ltd.	1,825.25	3.95%	GaAs, InP substrates
		Total		33,284.14	72.01%<br><br>

Note: Amounts of sales to customers under control of the same actual controller are combined.

Established in 1986, AXT, the controlling shareholder of the Company, is a NASDAQ-listed company. Prior to the preparation for listing the on the STAR Market, the Company is a wholly owned subsidiary of AXT. AXT makes uniform arrangement on the level of the group, and acts as the entity for making external sales. Since March 2021, ATX-Tongmei has been acting as the entity to sell products to overseas customers; in May 2021, 1-1-222


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the Company completed the acquisition of AXT-Tongmei. AXT will not sell products externally after finishing sales contracts signed prior to March 2021. The table below shows the top five end customers of the Company during the reporting period:

In RMB0’000

Period	No.	Name	Amount	Proportion	Name of main products sold
2021	1	Osram	7,045.66	8.22%	GaAs, germanium substrates
		2	Landmark Optoelectronics	5,070.08	5.91%	GaAs, InP substrates
		3	Mo Sangyo Co., Ltd.	4,715.77	5.50%	GaAs, InP substrates
		4	IQE	3,751.44	4.38%	GaAs, InP substrates
		5	Kingsoon	3,487.18	4.07%	Germanium substrates
		Total		24,070.13	28.08%
2020	1	Osram	9,389.14	16.10%	GaAs, germanium substrates
		2	Kingsoon	3,027.45	5.19%	Germanium substrates
		3	Customer B	2,938.71	5.04%	GaAs, InP, germanium substrates
		4	Landmark Optoelectronics	2,804.49	4.81%	GaAs, InP substrates
		5	IQE	2,252.91	3.86%	GaAs, InP substrates
		Total		20,412.71	35.01%
2019	1	Osram	5,720.73	12.38%	GaAs, germanium substrates
		2	Customer A	4,755.70	10.29%	InP substrates
		3	Landmark Optoelectronics	3,011.95	6.52%	GaAs, InP substrates
		4	IQE	2,665.69	5.77%	GaAs, InP, germanium substrates
		5	Kingsoon	2,280.93	4.93%	Germanium substrates
		Total		18,435.00	39.88%

Note: Amounts of sales to customers under control of the same actual controller are combined.

During the reporting period, the total sales of the Company to the top five end customers accounted for 39.88%, 35.01%, and 28.08% of the total sales of the corresponding period, respectively. The Company is not in a situation of realizing over 50% sales in a period from a single end customer, or heavily relying on a few customers. Except for AXT, the Company has no related-party relationship with either the top five customers or the top five end customers during the reporting period. 1-1-223


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IV. Procurement of raw materials by and main suppliers of the Issuer

(I) Procurement of raw materials

Raw materials used in the production of the Company mainly include high-purity arsenic, gallium, indium phosphide poly-crystals, germanium ingot, boron trichloride, and quartz materials. The table below shows the amounts of main raw materials purchased by the Company and proportions in the total procurement amounts of raw materials during the reporting period:

In RMB0’000

Item	2021		2020		2019
		Amount	Proportion	Amount	Proportion	Amount	Proportion
Gallium	15,250.09	37.61%	6,349.97	23.73%	977.37	5.67%
Germanium ingot	4,619.11	11.39%	4,618.48	17.26%	2,879.19	16.71%
Quartz materials	3,849.18	9.49%	2,965.95	11.08%	1,574.30	9.14%
High-purity arsenic	1,675.17	4.13%	1,214.61	4.54%	991.72	5.75%
Boron trichloride	1,009.54	2.49%	915.83	3.42%	1,042.18	6.05%
Indium phosphide poly-crystals	1,230.59	3.04%	693.76	2.59%	1,485.51	8.62%
Total	27,633.69	68.16%	16,758.61	62.62%	8,950.28	51.94%

During the reporting period, the amount of gallium purchased by the Company fluctuated greatly, mainly due to the relocation of the Company’s gallium arsenide production line from Beijing to Chaoyang City, Liaoning Province in 2019, for which the Company kept more gallium arsenide crystals in reserve at the end of 2018, leading to the less procurement of gallium in 2019. In 2020, since the relocated production line was put into operation gradually, the Company’s production capacities and output increased, leading to the gradual increase in the procurement of gallium.

In 2020, the amounts of indium phosphide poly-crystals purchased by the Company decreased, mainly because the Company acquired the indium phosphide poly-crystal synthesis technology and gradually replaced imported indium phosphide poly-crystals with self-produced indium phosphide poly-crystals. The increase in the amount of indium phosphide poly-crystals purchased by the Company in 2021 was due to the high market demands for InP substrates and insufficient production capacities of the Company for indium phosphide poly-crystals, for which the Company increased the amounts of imported indium phosphide poly-crystals.

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The table below shows the changes in the average unit prices of main raw materials purchased by the Company:

Item	2021		2020		2019
		Unit price	ROC	Unit price	ROC	Unit price
Gallium (RMB/kg)	1,823.03	80.45%	1,010.25	12.69%	896.50
Germanium ingot (RMB/kg)	7,008.32	12.42%	6,234.17	-3.31%	6,447.44
Quartz materials (RMB/kg)	443.95	-4.38%	464.29	-4.74%	487.41
High-purity arsenic (RMB/kg)	835.39	-0.17%	836.79	0.21%	835.06
Boron trichloride (RMB/kg)	136.24	13.17%	120.39	-14.71%	141.14
Indium phosphide poly-crystals (RMB/g)	6,837.00	-6.37%	7,301.99	-8.58%	7,987.13

During the reporting period, there were certain fluctuations in the procurement prices of the Company’s raw materials, including gallium, germanium ingot, quartz materials, boron trichloride, and indium phosphide poly-crystals, where the fluctuations in gallium, germanium ingot, and boron trichloride are in line with market price fluctuations. Quartz materials and indium phosphide poly-crystals are mostly customized products subject to uncertain manufacturing difficulties and costs, therefore experienced certain fluctuations in the procurement prices.

(II) Procurement of energies

Main energies used in the production and operation of the Company are water, electricity, natural gas, and steam. The table below shows the procurement of main energies by the Company during the reporting period:

Energy	Item	2021	2020	2019
Water	Amount (RMB10,000)	438.40	260.40	279.10
		Average unit price (RMB/ton)	6.95	5.79	7.73
Electricity	Amount (RMB10,000)	4,804.02	4,292.11	3,914.78
		Average unit price (RMB/kilowatt hour)	0.63	0.63	0.74
Natural gas	Amount (RMB10,000)	266.89	179.97	96.44
		Average unit price (RMB/m^3^)	4.56	3.35	3.34
Steam	Amount (RMB10,000)	221.80	177.26	167.34
		Average unit price (RMB/m^3^)	134.83	136.27	137.15

During the reporting period, the prices of steam purchased by the Company were basically stable.

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During the reporting period, the prices of water consumed by the Company experienced fluctuation. The low prices of water in 2020 are mainly because water consumption of the Company mainly involve the wafer production workshop at Beijing Tongmei and the wafer production workshop at Baoding Tongmei. In 2020, under the impact of COVID-19, the Water Administration of Tongzhou District, Beijing suspended collecting waste water treatment fees to promote the continuous and healthy development of small- and medium-sized enterprises, which reduced the water prices. Since the Water Administration of Tongzhou District, Beijing resumed collecting waste water treatment fees from May 2021, the water prices gradually returned to the normal level.

In 2020 and 2021, the prices of electricity consumption by the Company were relatively low mainly because the Company relocated the production of gallium arsenide crystals, gallium arsenide wafers, and high-purity materials from Beijing Tongmei and Nanjing Jinmei to Chaoyang Tongmei, Baoding Tongmei, and Chaoyang Jinmei, while the electricity costs in Chaoyang City, Liaoning Province are relatively lower.

The prices of natural gas experienced fluctuation during the reporting period. In 2021, the prices of natural gas purchased by the Company increased greatly mainly due to the market-oriented adjustment of natural gas prices in Chaoyang City, Liaoning Province; the natural gas fees for 2021 contained pipeline service fees, resulting in large increase of unit cost of natural gas over previous years.

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(III) Main suppliers

The table below shows the top five suppliers of the Company during the reporting period:

In RMB0’000

Period	No.	Name	Amount	Proportion	Purchased items
2021	1	Xing’an Gallium	6,366.75	15.70%	Gallium
				Guangxi Tiandong Jinxin Rare Metal Materials Co., Ltd.	3,291.46	8.12%	Gallium
				Pinglu Youying Gallium Industry Co., Ltd.	957.18	2.36%	Gallium
		2	Beijing Kaide Quartz Co., Ltd.	2,799.41	6.90%	Quartz materials
		3	China Rare Earth International Trading Co., Ltd.	2,409.90	5.94%	Gallium
		4	Nanjing Zhemai Metal Trade Co., Ltd.	2,391.34	5.90%	Germanium ingot
		5	Hengyang Hengrong High Purity Semiconductor Material Co., Ltd.	1,777.60	4.38%	Germanium ingot and its processing
		Total		19,993.64	49.31%
2020	1	Xing’an Gallium	3,075.53	11.49%	Gallium
				Guangxi Tiandong Jinxin Rare Metal Materials Co., Ltd.	1,226.55	4.58%	Gallium
		2	AXT	2,178.75	8.14%	High-purity arsenic, indium phosphide poly-crystals, etc.
		3	Beijing Kaide Quartz Co., Ltd.	2,071.18	7.74%	Quartz materials
		4	Hengyang Hengrong High Purity Semiconductor Material Co., Ltd.	1,813.92	6.78%	Germanium ingot, and germanium ingot processing
		5	Jiangsu Ningda Environmental Protection Co., Ltd.	1,186.18	4.43%	Germanium ingot
		Total		11,552.11	43.16%
2019	1	Hengyang Hengrong High Purity Semiconductor Material Co., Ltd.	1,670.65	9.69%	Germanium ingot, and germanium ingot processing
	2	Wafer Technology	1,485.51	8.62%	Indium phosphide poly-crystals
		3	Beijing Kaide Quartz Co., Ltd.	1,117.84	6.49%	Quartz materials
		4	AXT	1,020.97	5.92%	High-purity arsenic, indium phosphide poly-crystals, etc.

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5	Dalian F.T.Z. Credit Chemical Technology Development Co., Ltd.	797.69	4.63%	Boron trichloride, ammonia gas materials, etc.
	Total		6,092.66<br><br>	35.35%

Note: Amounts of sales by suppliers under control of the same actual controller are combined.

The Company purchased raw materials through AXT mainly because AXT had an overseas procurement team at that time, leading to convenience for AXT to purchase overseas raw materials. After the Company acquired ATX-Tongmei, ATX-Tongmei has been acting as the entity of overseas procurement for the Company, and the Company no longer purchases raw materials through AXT. The table below shows the top five end suppliers of the Company during the reporting period:

In RMB0’000

Period	No.	Name	Amount	Proportion	Purchased items
2021	1	Xing’an Gallium	6,366.75	15.70%	Gallium
				Guangxi Tiandong Jinxin Rare Metal Materials Co., Ltd.	3,291.46	8.12%	Gallium
				Pinglu Youying Gallium Industry Co., Ltd.	957.18	2.36%	Gallium
		2	Beijing Kaide Quartz Co., Ltd.	2,799.41	6.90%	Quartz materials
		3	China Rare Earth International Trading Co., Ltd.	2,409.90	5.94%	Gallium
		4	Nanjing Zhemai Metal Trade Co., Ltd.	2,391.34	5.90%	Germanium ingot
		5	Hengyang Hengrong High Purity Semiconductor Material Co., Ltd.	1,777.60	4.38%	Germanium ingot and its processing
		Total		19,993.64	49.31%
2020	1	Xing’an Gallium	3,075.53	11.49%	Gallium
		Guangxi Tiandong Jinxin Rare Metal Materials Co., Ltd.	1,226.55	4.58%	Gallium
		2	Beijing Kaide Quartz Co., Ltd.	2,071.18	7.74%	Quartz materials
		3	Hengyang Hengrong High Purity Semiconductor Material Co., Ltd.	1,813.92	6.78%	Germanium ingot, and germanium ingot processing
		4	Jiangsu Ningda Environmental Protection Co., Ltd.	1,186.18	4.43%	Germanium ingot
		5	Nanjing Zhemai Metal Trade Co., Ltd.	1,123.39	4.20%	Germanium ingot
		Total		10,496.75<br><br>	39.22%

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Hengyang Hengrong High Purity Semiconductor Material Co., Ltd.	1,670.65	9.69%	Germanium ingot, and germanium ingot processing
2	Wafer Technology	1,485.51	8.62%	Indium phosphide poly-crystals
3	Beijing Kaide Quartz Co., Ltd.	1,117.84	6.49%	Quartz materials
4	Dalian F.T.Z. Credit Chemical Technology Development Co., Ltd.	797.69	4.63%	Boron trichloride, ammonia gas materials
5	Donghai Dongfang High-purity Electronic Materials Co., Ltd.	789.97	4.58%	High-purity arsenic
Total		5,861.66<br><br>	34.01%

Note: Amounts of sales by suppliers under control of the same actual controller are combined.

Among the main suppliers of the Issuer during the reporting period, AXT, Xing’an Gallium, and Dongfang High-purity are affiliates. Except for the above, during the reporting period, there was no related-party relationship between the Issuer, the Issuer’s controlling shareholder, directors, supervisors, executives, or their close family members and other suppliers.

V. Main resource elements, such as fixed assets and intangible assets, having major impact on the main business

(I) Main fixed assets

The table below shows the Company’s fixed assets as of December 31, 2021:

In RMB0’000

Category	Original value	Accumulated depreciation	Book value	Residue ratio
Properties and buildings	66,855.73	16,685.30	50,170.43	75.01%
Machines and equipment	37,663.03	24,839.91	12,581.19	33.40%
Transportation equipment	921.21	752.76	168.46	18.29%
Tools and instrument	5,253.38	3,597.81	1,655.58	31.51%
Office equipment	510.43	360.70	149.73	29.33%
Total	111,203.80	46,236.48	64,725.38	58.20%

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1. Properties owned by the Issuer

As of the date of this Prospectus, the Company and its subsidiaries owned 44 properties and buildings (for which title deeds have been issued) with the total floor area of 118,530.11 square meters. The 3 properties owned by Baoding Tongmei, 5 properties owned by Chaoyang Tongmei, and 1 property owned by Tianjin Boyu have been pledged with pledge registration completed. For details, refer to “Appendix I: Properties and Land Use Rights of the Issuer and Its Subsidiaries” of this Prospectus.

As of the date of this Prospectus, Beijing Tongmei and its controlled subsidiary, Baoding Tongmei, have some buildings with no title certificate obtained. Specifically:

(1) The building for which Beijing Tongmei has not obtained the title certificate is located in the factory of Beijing Tongmei in Tongzhou District, Beijing, mainly involving partial plants of InP substrates, the power distribution room, the warehouse, and the canteen, etc. The total floor area of the building without a title certificate above is 19,244.15 square meters, accounting for a small proportion of about 13.42% in the total floor areas of properties owned by the Company. Due to historical objective reasons, including the remote past of constructing the buildings, positioning of Tongzhou District as the Beijing Municipal Administrative Center, and industry adjustment in Tongzhou District, the Company has not obtained the title certificates for the buildings above, and is subject to risks that the competent authority may order to stop using such buildings.

The Company has made a response plan for the production of InP substrates: if a government authority in Beijing orders to stop the production of the InP substrate plant without a title certificate, the Company’s plant in Chaoyang City, Liaoning Province has reserved sufficient space to relocate the InP substrate production line; moreover, the InP substrate project has been approved by the local government, and is expected to put into operation in 2022 to maintain stable InP substrate production. Except for the partial plant and auxiliary properties for the production of InP substrates, no other building without a title certificate is main production and operation properties of the Company, and the absence of the title certificates for the buildings above will not cause material adverse effects on the production and operation of the Issuer.

Beijing Municipal Commission of Planning and Natural Resources issued Notice on Query of Compliance Information about the Company to be Listed (Gui Zi Fa Shen Cha [2021] No. 0151) on July 29, 2021, and Notice on Query of Compliance Information about the Company to be Listed (Gui Zi Fa Shen Cha [2022] No. 0081) on February 10, 2022, confirming that “no punishment information at this Commission has been found during January 1, 2018 to February 8, 2022” with respect to the Issuer; Beijing Municipal Commission of Housing and Urban-rural Development issued the Result of Query of Compliance Information about the Company to be Listed (No. 2021-264) on July 30, 2021 and the Result of Query of Compliance Information about the Company to be Listed (No. 2022-169) on February 11, 2022, confirming that “from January 1, 2018 to February 9, 2022, this Commission has not imposed administrative punishments on Beijing Tongmei Xtal Technology Co., Ltd.”

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In summary, considering the small proportion of the floor areas above without a title certificate in the total floor areas of properties owned by the Company, and the existing response plan formulated by the Company, the absence of the title certificate for the buildings above will not cause material adverse effects on the production and operation of the Issuer, and the Company has not subject to administrative punishments due to such absence during the reporting period. Therefore, the absence of the title certificate to the partial buildings of the Company will not cause substantive obstacles in this offering.

(2) The inspection and acceptance formalities for partial auxiliary buildings for the single crystal wafer and relevant semiconductor material production project (State 1 of Phase 1) at Baoding Tongmei have been completed, and the title certificate of real estate is under application. Specifically, such buildings include a chemical warehouse, a waste solvent warehouse, a solid waste warehouse/hazardous waste warehouse, a water treatment and heating station, with a total floor area of 3,766.03 square meters. According to the construction work planning permit, construction work construction permit and other relevant construction procedure documents provided by Baoding Tongmei, as well as Certificate for Completion Acceptance Filing of Construction Projects in Hebei Province issued by Administrative Examination & Approval Bureau of Dingxing County, there is no substantive obstacles in obtaining the title certificate of real estate for such buildings.

(3) The auxiliary houses for production project of annual output of 300 tons of preliminary materials of high-purity semiconductors of Chaoyang Jinmei are applying for completion inspection and acceptance, and the title certificate of real estate is under application after completing acceptance. Such buildings will be used as offices, with construction area of 1,826.19 square meters. According to the construction work construction permit and other relevant construction procedure documents provided by Baoding Tongmei, there is no substantive obstacles in obtaining the title certificate of real estate for such buildings.

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2. Properties leased by the Issuer

As of the date of this Prospectus, the Company leased 4 properties and buildings for its main production and operation, for which the title certificates have been obtained with the total floor area of about 2,377.04 square meters, as specifically described below:

				<br><br>
No.	Lessee	Lessor	Location	Leased area<br><br>(square meter)	Term of lease	Rent	Use
1	Beijing Boyu	Beijing Kaibao Technology Services Co., Ltd.	106, 1/F, Building 2, 7 Yunshan Road, Tongzhou District, Beijing	328.13	2021/11/11-2023/11/10	RMB2.6/square meter/day	Office
2	Beijing Boyu	Beijing Kaibao Technology Services Co., Ltd.	1-008, 1/F, Building 2, 7 Yunshan Road, Tongzhou District, Beijing	124.54	2021/06/15-2023/06/14	RMB2.6/square meter/day	Office
3	Nanjing Jinmei	Nanjing Future Network Town Assets Management Co., Ltd.	U439, 4/F, Podium of UPARK, Future Science City, 12 East Mozhou Road, Jiangning District, Nanjing	115.83	2021/11/21-2024/11/20	RMB54/square meter/month	Office
4	ATX-Tongmei	AXT	4281 Technology Drive, Fremont, CA 94538	19,467 square feet (about 1,808.54 square meters)	2021/03/01-2023/11/30	2021/03/01-2021/11/30<br><br>USD23,360.40/month<br><br>2021/12/01-2023/11/30<br><br>USD26,280.45/month	Office

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As of the date of this Prospectus, the leased properties in the Chinese Mainland above have not gone through lease registration (with a leased area of 568.50 square meters in total). Under the provisions of the Civil Code of the People’s Republic of China, the parties’ failure to register the lease contract in accordance with the provisions of laws and administrative regulations does not affect the validity of the contract. Therefore, this situation will not cause substantive legal obstacles for the Issuer and its controlled subsidiaries to use such leased properties in accordance with law.

(II) Main intangible assets

1.Patented technologies, trademarks, software copyrights

As of June 30, 2022, the Company owns a total of 61 patents for invention, including 52 domestic patents for invention and 9 overseas patents for invention. For details about the patents for invention, refer to “Appendix II: Patents of the Issuer and Its Subsidiaries” of this Prospectus.

The table below shows 24 registered trademarks owned by the Company and its subsidiaries as of June 30, 2022:

No.	Right holder	International Classification	Application/Registration No.	Registration date	Valid to	Means of acquisition	Encumbrance
1	Nanjing Jinmei	Class 1	8124740	2021.04.28	2031.04.27	Original acquisition	None
2	Beijing Boyu	Class 17	9413302	2012.05.21	2032.05.20	Original acquisition	None
3	Beijing Boyu	Class 11	9413300	2012.05.21	2032.05.20	Original acquisition	None
4	Beijing Boyu	Class 9	9413299	2012.05.21	2032.05.20	Original acquisition	None
5	Beijing Boyu	Class 1	9413297	2012.05.21	2032.05.20	Original acquisition	None
6	Beijing Boyu	Class 1	9413298	2012.08.28	2032.08.27	Original acquisition	None

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No.	Right holder	International Classification	Application/Registration No.	Registration date	Valid to	Means of acquisition	Encumbrance
7	Beijing Tongmei	Class 1	55721295	2021.11.14	2031.11.13	Original acquisition	None
8	Beijing Tongmei	Class 9	55687989	2021.11.21	2031.11.20	Original acquisition	None
9	Beijing Tongmei	Class 1	55714231	2021.11.21	2031.11.20	Original acquisition	None
10	Beijing Tongmei	Class 9	55716321	2021.11.21	2031.11.20	Original acquisition	None
11	Beijing Tongmei	Class 9	55716308	2021.11.21	2031.11.20	Original acquisition	None
12	Beijing Tongmei	Class 9	55711221	2021.11.21	2031.11.20	Original acquisition	None
13	Beijing Tongmei	Class 1	55709726	2021.11.21	2031.11.20	Original acquisition	None
14	Beijing Tongmei	Class 1	55705518	2021.11.21	2031.11.20	Original acquisition	None

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15	Beijing Tongmei	Class 9	55704744	2021.11.21	2031.11.20	Original acquisition	None
16	Beijing Tongmei	Class 9	55702854	2021.11.21	2031.11.20	Original acquisition	None
17	Beijing Tongmei	Class 1	55726043	2022.01.14	2032.01.13	Original acquisition	None
18	Beijing Tongmei	Class 1	55723399	2022.01.14	2032.01.13	Original acquisition	None
19	Beijing Tongmei	Class 1	55721305	2022.01.21	2032.01.20	Original acquisition	None
20	Beijing Tongmei	Class 9	55718846	2022.01.14	2032.01.13	Original acquisition	None
21	Beijing Tongmei	Class 1	55710866	2022.01.21	2032.01.20	Original acquisition	None
22	Beijing Tongmei	Class 9	55699743	2022.01.21	2032.01.20	Original acquisition	None
23	Chaoyang Jinmei	Class 9	58530493	2022.02.14	2032.02.13	Original acquisition	None
24	Nanjing Jinmei	Class 1	58552998A	2022.03.07	2032.03.06	Original acquisition	None

The table below shows 7 computer software copyrights owned by the Company and its subsidiaries as of June 30, 2022:

No.	Copyright holder	Software name	Certificate No.	Registration No.	Development completion date	Registration date
1	Baoding Tongmei	Tongmei system for generating random laser engraved numbers	Ruan Zhu Deng Zi No. 5526673	2020SR0647877	2017/12/01	2020/06/18
2	Baoding Tongmei	Tongmei wafer production control system	Ruan Zhu Deng Zi No. 5526565	2020SR0647869	2017/12/01	2020/06/18
3	Chaoyang Jinmei	HGF furnace control system V1.0	Ruan Zhu Deng Zi No. 5967144	2020SR1088448	2019/11/22	2020/09/14
4	Chaoyang Jinmei	Automatic control system software for smelting process of synthesis furnace	Ruan Zhu Deng Zi No. 5969537	2020SR1090841	2019/10/20	2019/10/31

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No.	Copyright holder	Software name	Certificate No.	Registration No.	Development completion date	Registration date
5	Chaoyang Tongmei	Variable frequency speed control system of dust cleaner	Ruan Zhu Deng Zi No.<br><br>6786965	2021SR0062648	2018/11/05	2021/01/13
6	Chaoyang Tongmei	Parameter-based setting system of vacuum pump set	Ruan Zhu Deng Zi No.<br><br>6787454	2021SR0063137	2020/04/06	2021/01/13
7	Chaoyang Tongmei	Automatic control box system for ultrasound cleaner	Ruan Zhu Deng Zi No.<br><br>6787453	2021SR0063136	2019/10/08	2021/01/13

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2. Land use rights

As of the date of this Prospectus, the Company and its subsidiaries owned 27 land use rights, covering the total use areas of 443,069.00 square meters. For details, refer to “2. Land use rights” of “Appendix I: Properties and Land Use Rights of the Issuer and Its Subsidiaries” of this Prospectus.

(III) Main production and operation qualifications

As of the date of this Prospectus, other certificates and qualifications owned by the Company and subsidiaries and playing a significant role in its production and operation are listed as follows:

1. Permit for safe production

Company name	Certificate No.	Scope of permit	Valid to	Approved by
Chaoyang Tongmei	(Liao) WH An Xu Zheng Zi [2021] No. 1608	Gallium arsenide	November 9, 2024	Liaoning Department of Emergency Management
Chaoyang Jinmei	(Liao) WH An Xu Zheng Zi [2021] No. 1609	Gallium, gallium nitrate	November 18, 2024	Liaoning Department of Emergency Management

2. Registration certificate of hazardous chemicals

Company name	Certificate No.	Valid to	Nature of enterprise	Registered type	Registered by
Beijing Tongmei	110110054	September 8, 2022	Importer of hazardous chemicals	Sodium dichloroisocyanurate	Beijing Registration Center of Hazardous Chemicals
Chaoyang Tongmei	211310033	July 25, 2024	Manufacturer (and importer) of hazardous chemicals	Gallium arsenide, arsenic, gallium, etc.	Liaoning Safe Production Service Center
Chaoyang Jinmei	211310035	June 6, 2024	Manufacturer of hazardous chemicals	Gallium, gallium nitrate, etc.	Liaoning Safe Production Service Center

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3. Operation license for hazardous chemicals

Company name	Certificate No.	Valid to	Scope of permit	Issued by
Beijing Tongmei	Jing Tong Wei Hua Jing Zi [2022] 000011	March 16, 2025	GaAs	Emergency Management Bureau of Tongzhou District, Beijing
Chaoyang Jinmei	Chao An Jing (Jia) Zi [2022] 100069	March 24, 2025	Red phosphorus	Chaoyang Emergency Administration

4. Filing certificate/form of operators in explosive hazardous chemicals

Company name	Filing No.	Filed type	Filing authority
Beijing Tongmei	91110000700004889C	Nitric acid, hydrogen peroxide solution (content > 8%), potassium dichromate, zinc powder	Beijing Municipal Public Security Bureau Tongzhou Office
Chaoyang Tongmei	00433691211300MA0UKGWA20	Potassium dichromate, nitric acid, hydrogen peroxide solution (content >8%), perchloric acid [concentration 50%-72%], and zinc powder	Harqin Left Wing Mongol Autonomous County Public Security Bureau
Chaoyang Jinmei	91211300MAOXYDACX4	Nitric acid, potassium dichromate, potassium permanganate, hydrogen peroxide solution (content >8%)	Harqin Zuoyi Mongol Autonomous County Public Security Bureau
Baoding Tongmei	-	Nitric acid, hydrogen peroxide, potassium dichromate, zinc particles	Dingxing County Public Security Bureau

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5. Filing certificate for purchasing Class II and Class III toxic chemicals

Company name	Filing code	Filing date	Filing and registration authority
Beijing Tongmei	Bromine, sulfuric acid, hydrochloric acid, acetone	Filed based on monthly procurement	Beijing Municipal Public Security Bureau Tongzhou Office
Chaoyang Tongmei	Hydrochloric acid, trichloromethane, bromine	Filed based on monthly procurement	Public Security Bureau of Kazuo County, Chaoyang City, Liaoning Province
Baoding Tongmei	Bromine, sulfuric acid, hydrochloric acid, trichloromethane	Filed based on monthly procurement	Public Security Bureau of Dingxing County, Hebei Province
Chaoyang Jinmei	Hydrochloric acid, sulfuric acid, acetone, potassium permanganate	Filed based on monthly procurement	Public Security Bureau of Kazuo County, Chaoyang City, Liaoning Province

6. Drainage permit/registration receipt of fixed pollution sources

Company name	Certificate name	Certificate No.	Valid to	Issued by
Beijing Tongmei	Drainage permit	91110000700004889C001U	December 18, 2022	Ecology and Environment Bureau of Tongzhou District, Beijing
Baoding Tongmei	Drainage permit	91130600MA08UNK83T001U	August 15, 2026	Administrative Examination & Approval Bureau of Baoding City
Chaoyang Boyu	Drainage permit	91211324MA0UTUJ05L001Q	July 12, 2023	Chaoyang Kazuo Economic Development Zone Management Committee
Chaoyang Jinmei	Drainage permit	91211300MA0XYDACX4001Q	December 18, 2022	Chaoyang Kazuo Economic Development Zone Management Committee
Chaoyang Tongmei	Drainage permit	91211300MA0UKGWA20001U	August 29, 2022	Chaoyang Kazuo Economic Development Zone

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Company name	Certificate name	Certificate No.	Valid to	Issued by
				Management Committee
Beijing Boyu	Registration receipt of fixed pollution sources	911101127415832828001Y	May 8, 2025	National Pollution Discharge Permits Administration Information Platform of the Ministry of Ecology and Environment
Tianjin Boyu	Registration receipt of fixed pollution sources	911201160759082321001Z	April 13, 2026	National Pollution Discharge Permits Administration Information Platform of the Ministry of Ecology and Environment
Chaoyang Xinmei	Registration receipt of fixed pollution sources	91211324MA10W1F79B001X	March 15, 2027	National Pollution Discharge Permits Administration Information Platform of the Ministry of Ecology and Environment

7. Franchise rights

As of the date of this Prospectus, the Issuer has no franchise rights.

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(IV) Inherent relationship between resource elements and the products or services provided

The Company carries out production and operation activities relying on existing fixed assets, intangible assets, and other resource elements. As of the date of this Prospectus, no relevant assets are subject to defects, disputes, or potential disputes, or in a situation of causing material adverse effects on the ongoing operation of the Issuer.

(V) Resource elements shared by the Issuer

1. Technology Licensing Agreement between the Issuer and AXT

Under the Technology Licensing Agreement and Supplementary Agreement to the Technology Licensing Agreement dated January 1, 2016 between AXT and the Issuer, AXT grants to the Issuer and its controlled subsidiaries an exclusive, non-transferrable, royalty, and revocable license to AXT’s intellectual property rights; the Issuer may manufacture, use, sell, offer to sell, present, duplicate, and distribute products during the term of such agreements within the territory of the People’s Republic of China; the term of license is from January 1, 2016 to December 31, 2020. The license to AXT intellectual property rights granted by AXT to the Company covers technical trade secrets, contractual rights, license rights, and other existing and (or) subsequent technology rights, and further includes updates and extension thereto. The Issuer shall pay royalty at 5% of its domestic sales revenues to AXT every year.

On November 4, 2021, AXT and the Company entered into a Technology License Agreement, under which: AXT licenses its intellectual property rights, granted patents, and pending patents to the Company and the Company’s controlled subsidiaries, where the intellectual property rights are licensed on an exclusive, non-transferrable, royalty, and irrevocable basis; the patents are granted on a non-exclusive, non-transferrable, royalty, and irrevocable basis; AXT undertakes that, except for M, AXT will not license the patents under the agreement to other third parties without the consent of the Company; the license covers the manufacturing, use, sales, presentation, duplicate, and distribution of gallium arsenide, indium phosphide, germanium crystals and substrate products; the term of license is perpetual from January 1, 2021; the Company needs to pay one-off royalty of USD1.228 million to AXT. Such royalty is determined on the Appraisal of Intangible Assets issued by the overseas appraisal institution Armanino LLP. For details about the patents granted by AXT, refer to “Appendix III: Main Patents Granted by AXT to the Issuer and Its Controlled Subsidiaries”.

2. Cross License and Payment Agreement among AXT, ATX-Tongmei, and the Issuer

In the semiconductor industry, it’s common practices that major players in the semiconductor industry build a rigorous network of patents in various countries and regions around the world through cross license of core technologies to avoid litigations in certain countries and regions due to intellectual property issues in their products.

On April 16, 2020, AXT and M entered into a Cross-licensing and Non-prosecution Agreement, 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), which license shall be global, non-exclusive, and irrevocable, and AXT has to pay royalties to M while M is exempted from royalties; the scope of license covers the manufacturing, use, import, and sales of gallium arsenide and indium phosphide crystals and substrate products; the term of license is from January 1, 2020 to December 31, 2029; during the term of the patent license, M and AXT, and entities under their respective control, shall not knowingly bring a lawsuit against

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each other or against direct or indirect customers of each other throughout the world on the ground of direct or indirect patent infringement covered by the license above.

Considering that the Company is the main beneficiary of the Cross-licensing and Non-Prosecution Agreement above, in November 2021, AXT, the Company, and ATX-Tongmei entered into the Cross License and Payment Agreement, under which the Company undertook the long-term payment obligations (totally USD1.7 million) for the cross license above. The three parties agreed as follows: (1) ATX-Tongmei, an overseas controlled subsidiary of Beijing Tongmei, shall compensate AXT for the cross license royalty USD300,000 that has been paid by AXT to M in 2021; (2) AXT shall pay cross license fees to M on or prior to March 15 every year; (3) AXT shall provide the Company with a certificate of such payment; (4) ATX-Tongmei shall compensate AXT for each payment on or prior to April 15 of the same year; and (5) AXT (excluding the Issuer and its subsidiaries) shall not use the patents licensed under the Cross-licensing and Non-prosecution Agreement in any form.

3. Trademark License Agreement between AXT and the Issuer

AXT and the Issuer entered into a Trade License Agreement in November 2021, under which AXT granted to the Issuer and its subsidiaries a non-transferable, exclusive, irrevocable, royalty-free trademark license to use the licensed trademarks as a part of the Issuer’s enterprise name for the production, marketing, and sales of products; the term of license is perpetual from March 1, 2021. For details about the trademark licenses granted to the Issuer, refer to “Appendix IV: Main Trademarks Licensed by AXT to the Issuer and Its Controlled Subsidiaries”.

VI. The Company’s core technologies

(I) Core technologies of main products

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formed the competitiveness of the Company’s products.

1. Main core technologies of the Issuer

The Company owns the following core technologies:

Name of core technology		Source of technology	Technical advancement	Maturity	Technical protection measures
Poly-crystal synthesis technology	High-efficiency gallium arsenide poly-crystal synthesis technology	Independent research and development	International advanced	Mass production	Technical secrets
		High-efficiency indium phosphide poly-crystal synthesis technology	Independent research and development	Domestic leading	Mass production	Technical secrets
Single crystal growth furnace manufacturing technology	VGF crystal growth furnace manufacturing technology	Independent research and development	International advanced	Mass production	Technical secrets

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Single crystal growth technology	Semi-insulating gallium arsenide single crystal vertical gradient freeze growth and carbon doping control technology	Independent research and development	International advanced	Mass production	Patent protection
		Semi-conductive gallium arsenide single crystal vertical gradient freeze growth and uniform doping control technology	Independent research and development	International advanced	Mass production	Patent protection

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	High-quality germanium single crystal vertical gradient freeze growth and doping control technology	Independent research and development	International advanced	Mass production	Patent protection
		High-quality indium phosphide single crystal vertical gradient freeze growth and doping control technology	Independent research and development	International advanced	Mass production	Patent protection
		Control technology for oxygen concentration in semi-insulating gallium arsenide single crystal substrates	Independent research and development	International advanced	Mass production	Patent protection
		Automatic grinding process for crystal bars	Independent research and development	International advanced	Mass production	Technical secrets
		Automatic etching process for crystal bars	Independent research and development	International advanced	Mass production	Technical secrets
Dicing technology	Ultra-fine diamond wire cutting technology	Independent research and development	International advanced	Mass production	Technical secrets
		High-efficiency and low-stress fully-automatic wafer dicing technology	Independent research and development	International advanced	Mass production	Technical secrets
Grinding technology	Fully-automatic wafer thinning process	Independent research and development	International advanced	Mass production	Technical secrets
Cleaning technology	Fully-automatic wafer wet-cleaning process	Independent research and development	International advanced	Mass production	Technical secrets

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Measuring technology	Crystal detection technology	Independent research and development	International advanced	Mass production	Technical secrets
		Wafer detection technology	Independent research and development	International advanced	Mass production	Technical secrets
Polishing technology	Fully-automatic wafer chemical mechanical polishing process	Independent research and development	International advanced	Mass production	Technical secrets
Sealed packaging technology	Epitaxial out-of-box gallium arsenide wafer preparation technology	Independent research and development	International advanced	Mass production	Patent protection
		Epitaxial out-of-box indium phosphide wafer preparation technology	Independent research and development	International advanced	Mass production	Patent protection
		Epitaxial out-of-box germanium wafer preparation technology	Independent research and development	International advanced	Mass production	Patent protection

Material purification technology	High-density differential liquid-liquid extraction technology	Independent research and development	Domestic leading	Mass production	Patent protection
		High-efficiency electrolytic refining technology	Independent research and development	Domestic leading	Mass production	Patent protection
		Longitudinal temperature gradient partial crystallization technology	Independent research and development	Domestic leading	Mass production	Patent protection

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	Normal pressure-vacuum dehydration method for the preparation of high-temperature sealant diboron trioxide	Independent research and development	Domestic leading	Mass production	Patent protection
Pyrolytic boron nitride chemical vapor deposition technology	Pyrolytic boron nitride chemical vapor deposition technology	Independent research and development	International leading	Mass production	Patent protection
		Technology for the preparation of boron nitride-boron carbide-graphite composite heating elements for high-temperature electric heating	Independent research and development	Domestic leading	Mass production	Patent protection
Chemical vapor deposition reactor manufacturing technology	Design technology of vapor deposition furnaces for the preparation of ultra-high-purity pyrolytic boron nitride products	Independent research and development	International leading	Mass production	Patent protection

2. The Issuer’s technical advancement and specific characterization

(1) Poly-crystal synthesis technology

The Company synthesizes gallium arsenide and indium phosphide poly-crystal materials at the required chemical ratio through precise control of the horizontal temperature gradient in the temperature zone and the high-temperature zone where the quartz boat is located. The synthesis process is stable and easy to control, the cost of quartz tube consumables for the maintenance, sealing, etc. of the furnace body is low, and poly-crystal materials can be synthesized efficiently and stably.

(2) Single crystal growth furnace manufacturing technology

The Company can produce single crystal furnaces suitable for substrates of various sizes. The axial temperature gradient of the body of such a single crystal furnace is easy to control accurately, and the temperature gradient of the solid-liquid interface is small, which enables small internal stress in single crystal growth, perfect single crystals grown, low dislocation density, no slip lines and other defects.

(3) Single crystal growth technology

The whole single crystal growth process of the Company is carried out in a sealed quartz tube, which can ensure the safety and stability of single crystal growth. 1-1-247


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For the growth of gallium arsenide single crystals, the Company uses the reaction between high-purity solid graphite evaporation carbon atoms and boron oxide liquid sealing layers for a certain period of time to control the doping of poly-crystal melt and produce the required semi-insulating gallium arsenide crystals. The advancement of the technology lies in the small curvature of the solid-liquid interface as well as the uniformity of the photoelectric properties of the single crystal in the single crystal growth plane. In addition, the Company can control the oxygen content in the substrate of the final product by heat treatment of gallium arsenide crystals and wafers, for GaAs substrates with different oxygen contents, so as to meet the demand of downstream customers.

In terms of the growth of indium phosphide crystals, the Company adopts the VGF method to grow crystals. The temperature gradient of the solid-liquid interface is small, which can effectively avoid slip lines at the edge of the crystal and other defects. Since the growth of indium phosphide crystals needs to be carried out under high pressure, the advancement of the Company’s indium phosphide crystal production technology lies in that it has good phosphorus pressure air, which can effectively avoid twin crystals, and the N-type sulfur-doped, P-type zinc-doped and high-resistance semi-insulating iron-doped indium phosphide crystals obtained through the doping of sulfur, zinc and iron can meet the needs of downstream customers for different InP substrates.

In terms of the growth of germanium crystals, the VGF solid-liquid interface adopted by the Company is relatively flat, with sound uniformity of the radial doping concentration. Besides, the crystal growth process is carried out in a quartz tube sealed under high vacuum. The silicon-boron-gallium co-doping technology can improve the axial doping uniformity of germanium crystals significantly, and can improve and enhance the performance of batteries prepared based on germanium substrates after epitaxy. The advancement of the Company’s indium phosphide crystal production technology lies in that the safety, stability and diameter expansion of crystal growth can be well guaranteed, and the density of micro-pit defects in the grown germanium crystals is low.

(4) Dicing technology

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A crystal need to be wire-cut to change from a cylinder to a disc. The Company adopts ultra-fine diamond wire cutting technology and high-efficiency and low-stress fully-automatic wafer dicing technology. The advancement of the technology lies in the effective reduction of saw tooth loss in dicing, the high crystal yield rate, and the low dust and solid waste discharges.

(5) Grinding technology

The grinding technology can remove imprints and surface damages of slices, to ensure the uniformity of the surface processing degree, the uniform thickness of the same substrate and the bridged thickness difference between different substrates, so as to improve the precision of the thickness and flatness of the substrate.

The advancement of the Company’s grinding process technology lies in the high degree of automation, the high efficiency and reliability of key parameter measurement and monitoring, the high processing yield, and the sound process scalability.

(6) Cleaning technology

Every processing step, from the production of single crystals to the production of substrates, requires cleaning, including cleaning after dicing, cleaning after grinding, cleaning after etching, cleaning after double-sided polishing, cleaning after final polishing, etc.

The advancement of the Company’s cleaning process technology lies in a high degree of automation, which can effectively remove mechanical damages, contamination and impurities on the surface of the substrate, without introducing any new impurities, which can effectively improve the product yield.

(7) Polishing technology

The purpose of polishing is to control surface roughness, local flatness and surface particles, so as to obtain a flat and smooth polishing section.

The advancement of the Company’s polishing process technology lies in a high degree of automation, a stable mechanical surface polishing process, and a good flatness of the wafer after fine polishing, free of scratches, orange peels, drug marks and other defects.

(8) Measuring technology

Key indicators of products are tested and screened through measuring technology, so as to package and transport qualified products. The Company’s measurement technology targets product demands, including the testing and measurement of crystals and wafers.

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The advancement of the Company’s measurement process technology lies in the high-precision measurement and detection of micro-pit defect density, local flatness, local edge flatness, surface topography, particles and other key indicators.

(9) Sealed packaging technology

As the performance of substrates will decline within a certain period of time after production due to oxidization, in order to meet the needs of different customers for the production cycle, the Company adopts the wet etching passivation technology to grow an ultra-thin oxide layer on the produced substrate, which can improve the performance shelf life of the substrate to the largest extent.

The advancement of the Company’s sealed packaging technology is that the oxide layer on the surface of the wet-etched passivated wafer in an ultra-clean environment has a uniform thickness and a stable composition, so that customers can handle heating and desorption before subsequent epitaxy, so as to obtain a uniform epitaxial surface.

(10) Material purification technology

In terms of extraction technology, the Company adopts the high-density differential liquid-liquid extraction technology, to make two types of liquid with a large density difference fully contact with each other through gas rolling for extraction.

In terms of electrolytic purification technology, the Company adopts high-efficiency electrolytic refining technology. With the design of a closed electrolytic cell through high-efficiency electrolytic refining technology where liquid phase electrodes and cations discharge at the cathode, the production cycle of electrolytic refining can be improved and the consumption of high-purity electrolyte can be reduced.

In terms of gallium crystallization technology, the Company adopts longitudinal temperature gradient partial crystallization technology, which can stably control the temperature of the cooling medium, with materials that have excellent thermal conductivity to make the cold source plate; the air around the gallium container on the cold source plate remains still, to minimize air convection and disturbance as much as possible. The longitudinal temperature gradient freeze method and the partial crystallization method are adopted, for the crystallization of liquid gallium from the bottom to the top.

In terms of sealing technology, the Company adopts the normal pressure-vacuum

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dehydration method for the preparation of high-temperature sealant diboron trioxide. In this technology, the high-temperature sealant diboron trioxide is slowly decomposed and loses most of the water through the heating of the air. Then trace water is removed under vacuum, and a product with qualified moisture is obtained. A dry packaging environment is designed, and a two-layer aluminum-plastic composite bag for vacuum packaging is used, so that the shelf life can be more than one year, which meets the needs of downstream customers.

(11) Pyrolytic boron nitride chemical vapor deposition technology

The Company adopts the chemical vapor deposition method to prepare pyrolytic boron nitride products with high purity, good thickness uniformity, adjustable crystal grains and a high crystallization rate.

In terms of the heating element preparation technology, the Company adopts the technology for the preparation of boron nitride-boron carbide-graphite composite heating elements for high-temperature electric heating. With the dual chemical vapor deposition processes, the boron nitride coating is deposited on the surface of the graphite substrate. The heating element has high operating temperature, stable resistivity, long service life, no volatile impurities under high temperature and other advantages.

(12) Chemical vapor deposition reactor manufacturing technology

The Company’s unique design technology of vapor deposition furnaces for ultra-high purity pyrolytic boron nitride products enables a self-designed deposition furnace for preparation to have multiple air inlets, which improves the deposition efficiency and uniformity of products. With the heater that pyrolyzes the boron nitride coating, ultra-pure products can be obtained. The unique structure of the furnace body can keep the temperature of the furnace body stable and improve the quality of products significantly.

3. Application and contribution of core technologies in main businesses and products or services

All of the Company’s core technologies are applied to its main businesses. During the reporting period, the proportion of revenues from core technology products to operating revenues is as follows:

In RMB0'000

Item	2021	2020	2019
Revenues from core technology products	85,404.44	58,308.72	46,220.79
Operating revenues	85,734.52	58,317.04	46,222.68
Proportion of revenues from core technology products	99.61%	99.99%	99.99%

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4. Protection measures for core technologies

(1) Patent protection

The core technologies owned by the Company are the key to the Company’s long-term development. The Company attaches much importance to the protection of core technologies. To strengthen the unified management of the confidentiality of technical information and prevent technical information from disclosure, the Company has established an intellectual property management system and has standardized the patent application process, so as to ensure that the application for intellectual property rights protection can be timely and efficiently filed for the Company’s technical R&D results. As of June 30, 2022, the Company owns 61 invention patents in total, including 52 domestic invention patents and 9 overseas invention patents.

(2) Non-disclosure and non-competition system

The Company has established a strict confidentiality system. Labor contracts for core employees have clearly specified the confidential matters involved, confidentiality period, scope of confidentiality, liabilities for disclosure and other issues, and it is also prescribed thereunder that an employee shall not work in any company in the same industry within a certain period of time after employment separation.

(3) Equity incentive and option incentive

The Company’s main R&D personnel indirectly hold the Company’s shares. In addition, to establish a long-term incentive mechanism, fully mobilize the enthusiasm of R&D personnel, attract and retain outstanding talents, and effectively combine the interests of shareholders, interests of the Company and personal interests of R&D personnel, so that all the parties can pay attention to the Company’s long-term development together, the Company has granted some R&D personnel stock options. Refer to “XIII. Equity incentives and related arrangements of the Issuer before this Offering” under “Section V Basic Information of the Issuer” hereof for the Company’s implementation of the stock option incentive plan.

(II) The Company’s scientific research strength and achievements

1. Industry-university-research cooperation

The Company’s products have excellent technical performance in dislocation density, resistivity uniformity, flatness, surface granularity, etc. Thus, the Company’s products are not only provided to epitaxy, chip and device manufacturers, but are also for academic research in the academic community. The Chinese Academy of Sciences, the Massachusetts Institute of Technology, the California Institute of Technology, Peking University, the University of Science and Technology of China, Shanghai Jiao Tong University, Xiamen University and other renowned domestic and foreign companies, research institutes and universities have been regularly purchasing semiconductor materials from the Company for teaching and academic research. The Company has actively cooperated with these scientific research institutes for the research and development of cutting-edge technologies in the industry, the promotion of the industrialization of scientific and technological achievements, and the provision of on-the-job training positions to scientific research institutes, so as to promote academic exchanges between academia and industry.

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2. Patents

According to different types of core technologies, apart from applications for intellectual property rights at home and abroad, the Company keeps strictly confidential a large quantity of recipes and process know-how to avoid the disclosure of technical secrets due to patent disclosure. As of June 30, 2022, the Company has 61 invention patents in total, including 52 domestic invention patents and 9 overseas invention patents. For information about the Company’s patents, refer to “V (II) Main intangible assets” under “Section VI Business and Technology” hereof.

3. Important awards won by the Company

No.	Name of award	Issuing authority	Year
1	Specialized Novel SMEs of Beijing	Beijing Municipal Bureau of Economy and Information Technology	2021
2	National Postdoctoral Research Station	Administrative Commission of Tongzhou Park, Zhongguancun Science Park	2015
3	Science and Technology Research and Development Institute of Beijing	Beijing Municipal Science & Technology Commission	2013
4	Practice Base and Practice Organization for Examiners of Beijing (Zhongguancun) National Intellectual Property Bureau Patent Office	China National Intellectual Property Administration and the People’s Government of Beijing Municipality	2013
5	Patent Demonstration Organization of Beijing	Beijing Municipal Intellectual Property Office	2013
6	The 13^th^ Batch of “Municipal Enterprise Technology Center” of Beijing	Beijing Municipal Bureau of Economy and Information Technology	2011
7	First Prize of Science and Technology Award, Tongzhou District	Tongzhou District People’s Government of Beijing Municipality	2011

(III) Main research and development projects

Basic information about the main undergoing research and development projects of the Company is as follows:

No.	Type of project	Name of project	Content of research and target to be achieved	Comparison with the industry’s technology level	Current stage and progress	Participating team
1	Research and development of large-size crystals	Research on a 6-inch indium phosphide crystal process	(1) Performance indicators: The dislocation density is 200/cm^2^, and the doping concentration is 1-4E+18/cm^2^;<br>(2) control the generation of twin crystals; adjust the phosphorus pressure in the growth tube, to control the crystal growth rate.	International advanced	Small-scale commercial production stage	Tongmei R&D team

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2			(1) Performance indicators: The dislocation density is 1,000/cm^2^, and the doping concentration is 0.4-4E+18/cm^2^;<br><br>(2) debugging of equipment processes; adjustment to the stress control of packaging tubes and single crystal furnaces.		International advanced		Small-scale commercial production stage		Tongmei R&D team
3	Research and development of wafer automation technology	Development of an automatic single wafer cleaning process		Completely replace manual cleaning with automatic cleaning with manipulators, which meets or exceeds the current standard for surface inspection after manual cleaning		International advanced		Commercial stage		Tongmei R&D team
4			Development of a fully-automatic wafer polishing process		After the wafer cassette is loaded, it will go through fully-automatic wax-free polishing in a “dry in and wet out” manner, to avoid wax contamination and subsequent cleaning		International advanced		Commercial stage		Tongmei R&D team
5			Development of a fully-automatic wafer waxing process		Remove residual wax through fully-automatic wax processing, to avoid contamination during the final process of wafer cleaning		International advanced		Commercial stage		Tongmei R&D team
6		Development of a new wafer packaging process		Automatic packaging, well-sealed packages, and an internal oxygen content controlled within the appropriate range		International advanced		Commercial stage		Tongmei R&D team

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7	Research and development of PBN materials	Development of cold-necked PBN crucibles for Al vapor deposition	Efficient production of OLED metal vapor deposition crucibles	International advanced	Commercial stage	Boyu R&D team
8			Development of boron nitride vessels with low-texture CVD pyrolysis	Preparation method for low-cost and high-efficiency production of PBN materials	International advanced	Commercial stage	Boyu R&D team
9	Research and development of high-purity materials	Preparation of 6N high-purity indium	High-purity indium (6N purity) production technology and mass production	International advanced	Commercial stage	Jinmei R&D team
10			Research and development of high-purity indium phosphide poly-crystal synthesis equipment	Exploration of the technology for the high-pressure level temperature gradient synthesis and preparation of indium phosphide poly-crystal	International advanced	Small-scale commercial production stage	Jinmei R&D team

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(IV) Investment in research and development

During the reporting period, the Company’s research and development expenses are as follows:

In RMB0'000

Item	2021	2020	2019
R&D expenses	9,016.64	4,510.82	2,682.64
Operating revenues	85,734.52	58,317.04	46,222.68
Proportion to the operating revenues	10.52%	7.73%	5.80%

(V) Collaborative research and development

During the reporting period, the Company has not carried out any collaborative research and development projects.

(VI) Information about technicians

1. Basic information about R&D personnel

As of December 31, 2021, the number of the Company’s R&D staffers is 187, accounting for 13.40% of the then current total number of employees of the Company.

2. Basic information about core technicians

The Company’s core technicians include MORRIS SHEN-SHIH YOUNG, VINCENT WENSEN LIU, WANG Yuanli and REN Diansheng. Refer to “VII (IV) Core technicians” under “V. Basic Information of the Issuer” hereof.

The specific contributions of the Company’s core technicians are as follows:

Name

Specific contribution to the Company’s research and development

MORRIS SHEN-SHIH YOUNG

Dr. YOUNG is currently the Chairman of the Company. Since the establishment of Tongmei Limited in 1998, YOUNG has led the technology team to successfully develop the VGF method for the growth of gallium arsenide, indium phosphide and germanium single crystals. He has also guided the successful development of the relevant substrate preparation process, determined the basic technical route and the selection of key equipment and consumables, and laid a foundation for the commercial scale production of the foregoing three types of epitaxial out-of-box single crystal substrate materials for Beijing Tongmei. In recent years, he has guided the growth of 8-inch gallium arsenide single crystals and realized the growth of the first semi-conductive 8-inch gallium arsenide single crystal bar, and successfully processed it into an epitaxial out-of-box substrate sample, which has been sent to our customer for verification. He has also guided the growth of 6-inch indium phosphide single crystals, grown the 6-inch semi-conductive indium phosphide single crystal bars and has

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	obtained epitaxial out-of-box substrates, which have been delivered to our customer. He has guided the improvement of the annealing process of semi-insulating gallium arsenide wafers, and has realized the control of the oxygen content in the wafers through different annealing processes. He has been granted a number of invention patents in the United States, Europe and the Asia-Pacific region. As of the date of this Prospectus, he has been a co-inventor for 9 invention patents.
VINCENT WENSEN LIU	LIU is currently the General Manager of the Company. Since the establishment of Tongmei Limited. in 1998, he has led his team to build a factory for Beijing Tongmei (including the key design of the single crystal furnace room, the design and supervision of construction of the pure water station, the planning and design of the wafer production line, the design and supervision of construction of the clean plant, etc.), and wafer production and process maintenance. He has also led the R&D project development, technical support for customers and other work. He has taken the lead in introducing the multi-wire cutting process and guided the formulation of the entire process operation specifications for the Company, laid a foundation of the multi-wire cutting process for crystal bars of Beijing Tongmei, and guided the continuous improvement of the wire cutting process. He has guided the improvement of the final cleaning and drying process of wafers, which has significantly improved the local unevenness at the edge after epitaxy by customers, and at the same time guided the introduction of the ACM-Auto-Clean Machine process, which has further increased the cleaning process consistency and surface quality. He has guided the successful development of the cleaning process for germanium substrates for space use, laying a foundation for the subsequent fully-automatic single germanium wafer cleaning. He has also assisted the Company in gaining a number of invention patents and utility model patents in the United States, Europe and the Asia-Pacific region. As of the date of this Prospectus, he has been a co-inventor for 15 invention patents.
REN Diansheng	Dr. REN is currently the Technical Director of the Company. Since he joined the Company’s Technology Department in March 2005, he has been mainly engaged in the R&D and improvement of ultra-clean cleaning and drying processes for wafers. He has made a breakthrough in the development of the semi-automatic cleaning process for 4-6-inch gallium arsenide wafer cassettes, a project he was in charge of; in this project, with an improved cleaning process, the problem of large-area fogging after the 6-inch gallium arsenide epitaxy on the customer side has been eliminated, which has significantly enhanced the satisfaction degree of important foreign customers and the market competitiveness of our products. He has acted as the responsible person for the development of automatic single wafer cleaning process and the introduction of ACM equipment, which have solved the problem of uneven edges and fog spots on gallium arsenide wafer epitaxy. He has also guided the development of the 8-inch gallium arsenide cleaning process, took charge of the development of the automatic cleaning process for germanium wafers; taken charge of the introduction of fully-automatic wafer surface inspection equipment and determination of the detection conditions, as well as the development of a new surface passivation cleaning process; successfully completed the development of the wafer surface plasma treatment process; and successfully completed the research of the impact of different surface treatments and placement conditions on the surface oxidation characteristics. As of the date of this Prospectus, he has been a co-inventor for 7 invention patents.	1-1-257


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WANG Yuanli

Dr. WANG is currently the Company’s Deputy Technical Director. Since he joined the Company’s Technology Department in July 2005, he has completed the development and mass production application of the machine grinding process; completed the research and development of gallium arsenide polishing solution and the improvement of the polishing process; completed the improvement of the semi-insulating gallium arsenide annealing process and the oxygen content control test, and determined the annealing process with controllable oxygen content; completed the development and mass production application of the ultra-fine multi-diamond-wire cutting process; completed the introduction of semi-automatic cylindrical grinding equipment for crystal bars and process development work; participated in the improvement of the growth process for new co-doped germanium single crystal bars; completed the centrifugal extraction process program for germanium particles in waste water from the dicing and grinding of germanium crystal bars and germanium wafers, and realized the recovery of germanium metal from waste water; completed the process development of centrifugal extraction and water recycling of gallium arsenide particles in waste water from gallium arsenide crystal bar grinding and internal circular saw cutting at both ends, which has helped realize the recycling of gallium arsenide waste while avoiding the discharge of sewage containing arsenic; completed the development of the fully-automatic grinding process and the improvement of the polishing process for germanium wafers; and participated in the development of the automatic cleaning process for germanium wafers. He has also guided the development of the 8-inch gallium arsenide multi-wire cutting process and edging process. As of the date of this Prospectus, he has been a co-inventor for 15 invention patents.

3. Restraint and incentive measures implemented by the Issuer for core technicians

The Issuer has developed a relatively strict technical confidentiality system and corresponding restraint and incentive measures for core technicians and the R&D team led by the core technicians: (1) The Company has signed a non-competition agreement with the main R&D personnel, to prevent core technologies from leaking; (2) the Company gives rewards and incentives to R&D personnel by performance evaluation and other means, to broaden the promotion path of the R&D personnel; (3) the Company has implemented equity incentives and option incentives for the main R&D personnel, which has further enhanced the cohesion of the R&D team.

4. Main changes to core technicians during the reporting period and their impact on the Issuer

During the reporting period, there is no change to the Company’s core technicians.

(VII) Technological innovation mechanism, technological reserves and technological innovation arrangement

Regarding the production of large-size substrates, in terms of temperature field control, ultra-low defect density growth control, stress control, anti-twinning growth and other aspects, the Company has prepared a large quantity of profound technical reserves. The Company has established a relatively complete technological innovation mechanism, and has made a reasonable arrangement for technological reserves and technological innovation in the future, mainly including the following aspects:

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The Company attaches much importance to technology research and development, has established an innovation mechanism and an innovation system, encourages the R&D team to develop products that meet the demands of the market, and promotes the combination of research and development, production and marketing. At the same time, for its R&D and innovation, the Company encourages internal cross-departmental cooperation and external opening-up, exchanges and cooperation. Internal cross-departmental cooperation means each department should give full play to its professional and technical advantages, to tackle difficulties with other departments for specific projects and technologies, so as to ensure each technical element in the project is guaranteed. The Company also encourages its technicians to communicate with the outside world, grasp the latest technological trends and development trends through participating in technical forums and academic conferences both at home and abroad, strengthen exchanges and discussions in multiple fields, and realize the integration of multiple disciplines.

2. Build an effective incentive mechanism to enhance the enthusiasm of R&D personnel

The Company has built a fair and effective incentive mechanism, deeply understood the needs of its employees, given rewards and incentives to its employees by performance evaluation and other means, especially to R&D personnel, and broadened the promotion path of R&D personnel, so that R&D personnel can be motivated for continuous innovation while engaging in innovation and practice. Meanwhile, the Company has further enhanced the stability and enthusiasm of its core R&D team through equity incentives and option incentives for core employees.

3. Increase investment in research and development to ensure the operation of innovation mechanisms

In the past three years, the Company has invested RMB26,826,400, RMB45,108,200 and RMB90,166,400 in research and development. In the future, the Company will continue to increase the R&D investment as needed for its own development, and lay a good material foundation for the Company’s technological innovation, talent cultivation and other innovation mechanisms.

VII. Overseas operations of the Issuer

As of the date of this Prospectus, the Company has an overseas subsidiary named AXT-Tongmei, which is mainly engaged in the Company’s overseas purchase and overseas sales. Refer to “IV (I) Controlled subsidiaries” under “Section V Basic Information of the Issuer” hereof for more information.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Section VII Corporate Governance and Independence

During the reporting period, the Company operated as a foreign-invested enterprise before being changed to a Joint Stock Company in its entirety in accordance with the provisions of the Company Law, the Law on Chinese-Foreign Equity Joint Ventures, the Law on Foreign-Capital Enterprises and other laws and regulations as well as the then effective AOA. Since the incorporation of the Joint Stock Company, the Company has further improved its governance structure, approved the new AOA, formulated the Rules of Procedure for General Meeting of Shareholders, the Rules of Procedure for the Board of Directors, the Rules of Procedure for the Board of Supervisors, the Work System for Independent Directors, the Work System for the Secretary of the Board of Directors, the Management System of External Investment, the Management System of External Guarantees, the Measures for Administering Related Party Transactions and other rules, created a relatively complete internal governance structure and formed a mutual coordinating and balancing mechanism among the organ of power, the decision-making body, the supervisory body and the management, so as to offer a strong guarantee for the Company’s compliant growth.

I. Establishment, perfection and operation of the system for the general meeting of shareholders, the board of directors, the board of supervisors, independent directors, the secretary of the board of directors, and the special committees of the board of directors of the Company

(I) Establishment, perfection and operation of the system for the general meeting of shareholders

The Company’s inaugural assembly and the first general meeting of shareholders reviewed and approved, among others, the AOA and the Rules of Procedure for the General Meeting of Shareholders in accordance with the requirements of the Company Law, the Securities Law and other relevant laws, regulations and regulatory documents. On June 27, 2022, the Company reviewed and adopted the Rules of Procedure for General Meeting of Shareholders (as Revised in June 2022) at its annual general meeting in 2021. The aforesaid AOA and rules formulated by the Company specifically provide for, inter alia, the convening, proposal, notification, holding, voting and resolutions of general meetings of shareholders.

Since the incorporation of the Joint Stock Company, the general meeting of shareholders has operated in accordance with the provisions of the AOA, the Rules of Procedure for the General Meeting of Shareholders and other documents. As of the date of this Prospectus, it has held 6 general meetings in total. The persons attending the general meetings comply with relevant regulations, and the convening manner, proceedings, voting on the resolution and the contents of resolutions are legal and valid. The previous general meetings are as follows:

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No.	Meeting number			Date	Present
1	Inaugural assembly			April 16, 2021	All shareholders or shareholder representatives
2	1^st^ extraordinary general meeting of shareholders in 2021			November 1, 2021	All shareholders or shareholder representatives
3	2^nd^ extraordinary general meeting of shareholders in 2021			December 15, 2021	All shareholders or shareholder representatives
4	1^st^ extraordinary general meeting of shareholders in 2022			April 11, 2022	All shareholders or shareholder representatives
5	2^nd^ extraordinary general meeting of shareholders in 2022			May 27, 2022	All shareholders or shareholder representatives
6	Annual general meeting in 2021	June 27, 2022	All shareholders or shareholders representatives

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(II) Establishment, perfection and operation of the system for the board of directors

The Company sets up the board of directors which is accountable to the general meeting in accordance with the provisions of the Company Law and the AOA, among others. The board of directors of the Company is composed of nine directors, including one Chairman and three independent directors. The Company’s inaugural assembly and the first general meeting of shareholders reviewed and approved the Rules of Procedure for the Board of Directors in accordance with the requirements of the Company Law, the Securities Law and other relevant laws, regulations and regulatory documents, which specifically provide for, inter alia, the convening, proposal, holding, review, voting, resolutions and minutes of the meetings of the board of directors.

Since the incorporation of the Joint Stock Company, the board of directors has operated in accordance with the provisions of the AOA, the Rules of Procedure for the Board of Directors and other documents. As of the date of this Prospectus, it has held 17 meetings of the board of directors in total. The persons attending the meetings of the board of directors comply with relevant regulations, and the convening manner, proceedings, voting on the resolution and the contents of resolutions are legal and valid. The previous meetings of the board of directors are as follows:


No.	Meeting number	Date	Present
1	1^st^ session of the first board of directors	April 16, 2021	All directors
2	2^nd^session of the first board of directors	May 6, 2021	All directors
3	3^rd^ session of the first board of directors	September 22, 2021	All directors
4	4^th^ session of the first board of directors	October 15, 2021	All directors
5	5^th^ session of the first board of directors	November 4, 2021	All directors
6	6^th^ session of the first board of directors	November 11, 2021	All directors
7	7^th^ session of the first board of directors	November 29, 2021	All directors
8	8^th^ session of the first board of directors	December 3, 2021	All directors
9	9^th^ session of the first board of directors	December 31, 2021	All directors
10	10^th^ session of the first board of directors	February 28, 2022	All directors
11	11^th^ session of the first board of directors	March 15, 2022	All directors
12	12^th^ session of the first board of directors	March 24, 2022	All directors
13	13^th^ session of the first board of directors	April 28, 2022	All directors
14	14^th^ session of the first board of directors	May 12, 2022	All directors
15	15^th^ session of the first board of directors	May 23, 2022	All directors
16	16^th^ session of the first board of directors	June 6, 2022	All directors
17	17^th^ session of the first board of directors	June 9, 2022	All directors

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The Company sets up the board of supervisors which is accountable to the general meeting in accordance with the provisions of the Company Law and the AOA, among others. The board of supervisors is composed of three supervisors, including one Chairman and one supervisor who is the representative of the staff and workers. The Company’s inaugural assembly and the first general meeting of shareholders reviewed and approved the Rules of Procedure for the Board of Supervisors in accordance with the requirements of the Company Law, the Securities Law and other relevant laws, regulations and regulatory documents, which specifically provide for, inter alia, the functions, powers and proceedings of the board of supervisors.

Since the incorporation of the Joint Stock Company, the board of supervisors has operated in accordance with the provisions of the AOA, the Rules of Procedure for the Board of Supervisors and other documents. As of the date of this Prospectus, it has held 15 meetings of the board of supervisors in total. The persons attending the meetings of the board of supervisors comply with relevant regulations, and the convening manner, proceedings, voting on the resolution and the contents of resolutions are legal and valid. The previous meetings of the board of supervisors are as follows:

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No.	Meeting number	Date	Present
1	1^st^ session of the first board of supervisors	April 16, 2021	All supervisors
2	2^nd^ session of the first board of supervisors	May 6, 2021	All supervisors
3	3^rd^ session of the first board of supervisors	July 23, 2021	All supervisors
4	4^th^ session of the first board of supervisors	October 15, 2021	All supervisors
5	5^th^ session of the first board of supervisors	October 27, 2021	All supervisors
6	6^th^ session of the first board of supervisors	November 4, 2021	All supervisors
7	7^th^ session of the first board of supervisors	November 11, 2021	All supervisors
8	8^th^ session of the first board of supervisors	November 29, 2021	All supervisors
9	9^th^ session of the first board of supervisors	December 3, 2021	All supervisors
10	10^th^ session of the first board of supervisors	December 31, 2021	All supervisors
11	11^th^ session of the first board of supervisors	March 15, 2022	All supervisors
12	12^th^ session of the first board of supervisors	March 24, 2022	All supervisors
13	13^th^ session of the first board of supervisors	April 28, 2022	All supervisors
14	14^th^ session of the first board of supervisors	May 12, 2022	All supervisors
15	15^th^ session of the first board of supervisors	June 6, 2022	All supervisors

(IV) Establishment, perfection and operation of the system for independent directors

The Company has established its Work System for Independent Directors in accordance with the Rules for Independent Directors of Listed Companies, the Code of Corporate Governance of Listed Companies, the AOA and other regulations, with a view to further perfecting the Company’s corporate governance structure, improving the structure of the board of directors, strengthening the restraint and supervisory mechanism for internal directors and managers, protecting the interests of small and medium shareholders and creditors, and promoting the Company’s compliant operation. On April 16, 2021, the Company’s inauguration assembly and the first general meeting of shareholders reviewed and passed the Work System for Independent Directors, which clearly provides for the guarantees of qualifications, nomination, election and replacement, special functions and powers, independent opinions, and exercise of powers of independent directors in details. On June 27, 2022, the Company reviewed and adopted the Work System for Independent Directors of Beijing Tongmei Xtal Technology Co., Ltd. (as Revised in June 2022) at its annual general meeting in 2021, which further updated and revised the work system of independent directors.

The independent directors of the Company have exercised their care and diligence, and played active roles in decision-making of the Company’s significant matters and related party transactions and in improvement of corporate governance structure by making full use of their roles in the operation of the Company since they are appointed. The rich professional knowledge, care and diligence the independent directors possess help the board of directors formulate the Company’s growth strategies, plans and business decisions, and effectively guarantee the science and objectivity of the Company’s business decision-making. 1-1-264


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(V) Establishment, perfection and operation of the system for the secretary of the board of directors

The 1^st^ session of the first board of directors of the Company reviewed and approved the Work System for the Secretary of the Board of Directors on April 16, 2021. The board of directors has one secretary who is appointed or dismissed by the board of directors. The secretary of the board of directors is an executive of the Company, who shall be accountable to the Company and the board of directors and perform his duties with loyalty and care. On June 6, 2022, the Company reviewed and adopted the Work System for the Secretary of the Board of Directors (as Revised in June 2022) at its 16th meeting of the first board of directors, which further updated and revised its board secretary system.

The secretary of the board of directors has performed his functions with due diligence since his appointment in accordance with the relevant requirements of the Company Law, the AOA and the Work System for the Secretary of the Board of Directors, among others.

(VI) Special committees of the board of directors

The board of directors has four special committees, including Strategy Committee, Audit Committee, Nomination Committee, and Remuneration and Appraisal Committee, each of which conducts its work correspondingly in accordance with the Working Rules for Strategy Committee, the Working Rules for Audit Committee, the Working Rules for Nomination Committee, and the Working Rules for Remuneration and Appraisal Committee. Each special committee is accountable to the board of directors and advises the board of directors on decision-making. The members of each special committee are all directors. The majority of members of Audit Committee, Nomination Committee, and

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Remuneration and Appraisal Committee are independent directors, any of whom serves as the convener of its meeting, but one of the independent directors of the Audit Committee is an accounting professional.

The special committees of the board of directors of the Company are as follows:

Committees	Members	Head
Strategy Committee	MORRIS SHEN-SHIH YOUNG,<br><br>VINCENT WENSEN LIU and HAO Ze	MORRIS SHEN-SHIH YOUNG
Audit Committee	PANG Fengzheng, ZHAO Lun and HAO Ze	PANG Fengzheng
Nomination Committee	ZHAO Lun, PANG Fengzheng and WANG Yuxin	ZHAO Lun
Remuneration and Appraisal Committee	LIU Yanfeng, PANG Fengzheng<br><br>and MORRIS SHEN-SHIH YOUNG	LIU Yanfeng

Since their establishment, each special committee of the board of directors and its members have performed their functions with due diligence in accordance with the AOA, the Rules for Procedure of the Board of Directors and their respective working rules.

(VII) Defects and improvements in corporate governance of the Issuer

Prior to the incorporation of the Joint Stock Company, Tongmei Limited operated in accordance with the provisions of the Company Law, the Law on Chinese-Foreign Equity Joint Ventures, the Law on Foreign-Capital Enterprises and other laws and regulations as well as the then effective AOA.

Since the incorporation of the Joint Stock Company, the Company has gradually established and perfected the systems for the general meeting of shareholders, the board of directors, the board of supervisors, independent directors, the secretary of the board of directors and special committees, and formulated a series of rules, including the Rules of Procedure for General Meeting of Shareholders, Rules of Procedure for the Board of Directors, Rules of Procedure for the Board of Supervisors, Work System for Independent Directors, Working Rules for Strategy Committee, Working Rules for Audit Committee, Working Rules for Nomination Committee, Working Rules for Remuneration and Appraisal Committee, Management System of External Guarantees, Management System of External Investment, Measures for Administering Related Party Transactions and Management System for Preventing Controlling Shareholders and Related Parties from Occupying the Funds of the Company, in accordance with relevant laws, regulations and AOA. Further, the Company can effectively implement the systems and rules above and operate in accordance with law.

II. Shares with special voting rights of the Issuer

As of the date of this Prospectus, the Issuer does not have any share with special voting rights or any other similar arrangement.

III. Control structure by agreement of the Issuer

As of the date of this Prospectus, the Issuer does not have any control structure by agreement.

IV. Management’s self-assessment of internal controls and certified public accountants’ authentication opinion 1-1-266


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(I) Defects and rectifications in the internal controls of the Company during the reporting period

1. Change of negotiable instruments

The change of negotiable instruments between the Company and customers in details during the reporting period is shown in the table below.

In RMB0’000

Nature		2021	2020	2019
Change of negotiable<br><br>instruments	Change to customers<br><br>through negotiable instruments	-	153.88	50.00
		Change to customers<br><br>through bank transfer	-	5.11	-
Total		-	158.99	50.00

“Change to customers through negotiable instruments” means that the Issuer refunds change to customers by using negotiable instruments or by transfer when the face value of negotiable instruments actually paid by customers is more than the price for goods being collected by the Issuer and to be actually paid by the customers.

During the reporting period, the change of the Company’s negotiable instruments amounted RMB500,000, RMB1,589,900 and nil,

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respectively, which were relatively small. There was no dispute or claim between the Issuer and customers with regard to change of negotiable instruments, and the aforesaid negotiable instruments did not have a material adverse impact on the Issuer’s normal production and business.

For change of negotiable instruments during the reporting period, the Company further established and improved internal control systems for administration of negotiable instruments, sales and collection, and purchase and payment. Since January 2021, the Company has no change of negotiable instruments, and the relevant systems have been effectively implemented.

2. Endorsement of negotiable instruments without commercial substance within the scope of consolidation

During the reporting period, the detailed endorsement of negotiable instruments without commercial substance of the Issuer and its subsidiaries is shown in the table below:

In RMB0’000

Endorser	Endorsee	2021	2020	2019
Beijing Tongmei	Baoding Tongmei	-	388.18	1,536.21
		Chaoyang Tongmei	440.11	-	-
Total		440.11	388.18	1,536.21

During the reporting period, the Issuer’s parent company endorsed the negotiable instruments received from customers to Baoding Tongmei and Chaoyang Tongmei for payment to suppliers, with the amounts involved being RMB15,362,100, RMB3,881,800 and RMB4,401,100. The aforesaid endorsement of bank acceptance bills was not based on business backgrounds.

Regarding the endorsement of negotiable instruments without commercial substance with related parties during the reporting period, the Company further established and improved internal control systems for administration of negotiable instruments, sales and collection, and purchase and payment. Since February 2021, the Company has no endorsement of negotiable instruments without commercial substance with related parties, and the relevant systems have been effectively implemented.

3. Borrowings/loans between the Issuer and the related parties

For the offer of loans by the Issuer to its related parties Maanshan Gallium and HE Junfang and the borrowings by the Issuer from AXT during the reporting period, refer to “X. 2. Borrowings/loans” of “Section VII Corporate Governance and Independence” in this Prospectus.

Regarding the borrowings/loans between related parties and the Issuer, the Company has further established and improved such systems and rules as the AOA, the Rules of Procedure for the General Meeting of Shareholders, the Rules of Procedure for the Board of Directors, the Work System for Independent Directors and the Decision-making System of Related Party Transactions, which specifically provide for decision-making authority, procedures and information disclosure of related party transactions, among others, and has established a relatively sound decision-making mechanism and supervision system. 1-1-268


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

4. Amounts received through related parties

In March 2021, AXT-Tongmei took the overseas sales business and relevant customers from AXT, and in May 2021, the Company completed the acquisition of AXT-Tongmei. During the business handover, there were cases where both AXT-Tongmei and AXT had amounts receivable from the same customer. Due to factors such as the payment system of overseas customers, such customers may make payment only to a single entity. As a result, there were cases where AXT received amounts on behalf of the Company. As of September 2021, such amounts received were RMB10.2483 million, which accounted for a small proportion in the revenues and were commercially reasonable.

The Company does not have such cases since October 2021.

(II) Self-assessment opinions on the integrity, rationality and effectiveness of internal controls

As of December 31, 2021, Beijing Tongmei’s current internal control system is relatively complete, reasonable and effective, which can meet the requirements and needs of the Company’s management and growth, can ensure the authenticity, legality and integrity of the Company’s accounting information and the safety and integrity of the Company’s property and materials, and can report and disclose information truthfully, accurately, completely and timely in strict accordance with the content and format requirements of information disclosure provided for by laws, regulations and the AOA.

Since the establishment of the Company’s internal control system, various systems have been effectively implemented. With the Company’s continuous development needs, the Company’s internal control system will be further perfected and improved, and will be effectively implemented and implemented in practice.

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(III) Evaluation by the accountant on the internal control system of the Company

The Review Report on Internal Controls (Ernst & Young Huaming (2022) Zhuan Zi No. 61641535_B03) issued by Ernst & Young Huaming Certified Public Accountants (Special General Partnership) for the Company’s internal controls shows that: “Beijing Tongmei’s internal control related to the financial statements described in the Evaluation Report on Internal Controls has been effectively maintained in all major aspects as at December 31, 2021 in accordance with the internal controls related to financial statements established pursuant to the Basic Internal Control Norms for Enterprises (Cai Kuai [2008] No. 7).

V. Fund occupation and provision of guarantees for external parties of the Issuer

For the transfer of funds between the Company on the one hand and HE Junfang, and the controlling shareholder AXT and, the subsidiary that was controlled by it, Maanshan Gallium on the other hand during the reporting period, refer to “X. (II) Incidental related party transactions” of “Section VII Corporate Governance and Independence” in this Prospectus.

Except above, the Company has no other occupation of funds by the controlling shareholder and other enterprises controlled by it, or provision of guarantees to its controlling shareholder and other enterprises controlled by it during the reporting period. 1-1-270


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VI. Violations of laws and regulations of the Issuer

The violations of laws and regulations committed by, or penalties imposed by competent authorities on, the Issuer and its subsidiaries during the reporting period are shown in the table below:

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No.	Name	Imposed by	Date	Penalty Decision No.	Causes and<br><br>Results	Basis for no material violations
1	Issuer	Tongzhou Branch of Beijing Municipal Public Security Bureau	2020/4/17	Jing Gong Tong Xing Fa Jue Zi [2020] No. 000074	The Issuer failed to submit the type, quantity, and flow information of the purchased precursor hazardous chemicals to the public security organ of county-level people’s government where it is located for the record within the prescribed time limit, so it was fined RMB6,000	Zhangjiawan Police Station of Tongzhou Branch of Beijing Municipal Public Security Bureau issued the Certificate on November 5, 2021, confirming that Beijing Tongmei “has paid the fine as scheduled and made corrections as required by laws and regulations and by this Bureau on time, and that such act does not constitute a material violation”.		1-1-272


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2	Issuer	Beijing Ecology and Environment Bureau	2019/1/21	Jing Huan Jing Jian Cha Fa Zi [2018] No. 5	The Issuer failed to put a distinguishing mark of hazardous waste on the iron drum for storing hazardous waste, so it was fined RMB12,000	In accordance with the provisions of Article 75 of the Law of the People’s Republic of China on the Prevention and Control of Environmental Pollution by Solid Waste taking into effect on November 7, 2016, if any person or unit, in violation of the provisions of this Law on the prevention and control of environmental pollution by hazardous waste, fails to install distinguishing marks of hazardous waste, he or it shall be imposed with a penalty of not less than RMB10,000 but not more than RMB100,000. This administrative penalty is RMB12,000, a small amount, so this act does not constitute a serious case. Meanwhile, in accordance with the relevant provisions of the Administrative Penalty Discretionary Benchmark of Beijing Environmental Protection Bureau (2018 Edition), the penalties imposed for the failure to install distinguishing marks of hazardous waste are divided into four categories, including a penalty of RMB10,000 - 20,000 imposed in respect of the least case (i.e. the volume of solid (hazardous) waste being less than or equaling to one ton).	According to the interviews with the staff from Beijing Municipal Ecology and Environment Bureau and Beijing Tongzhou District Ecological Environment Bureau, the Issuer has paid the fine as scheduled and rectified the issues involved in the administrative penalty as required by laws and regulations and by the relevant departments, and the issues involved in the administrative penalty above do not cause a major environment pollution, and this is not a major administrative penalty, so such act does not constitute a major environmental violation.

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3	Issuer	Beijing Tongzhou District Ecology and Environment Bureau	2020/6/1	Tong Huan Jian Fa Zi [2020] No. 080	The Issuer failed to ensure that the automatic monitoring facilities of water pollutant discharge operated normally, so it was fined RMB20,000	In accordance with the provisions of Article 82 of the Law of the People’s Republic of China on Prevention and Control of Water Pollution, any person or unit fails to ensure that the automatic monitoring facilities of water pollutant discharge operate normally, he or it shall be imposed with a penalty of not less than RMB20,000 but not more than RMB200,000. The administrative penalty above is RMB20,000, a small amount, so such act does not constitute a serious case, and the Issuer has correspondingly made corrections and paid the penalty in full.
4	Issuer	Beijing Tongzhou District Emergency Management Bureau	2021/4/22	(Jing Tong) Ying Ji (Wei Hua) Fa (2021) No. 004	The Issuer failed to organize drills in accordance with the emergency rescue plan, so it was fined RMB10,000	Beijing Tongzhou District Emergency Management Bureau issued the Certificate on November 16, 2021, confirming that “two Administrative Penalties (Jing Tong) Ying Ji (Wei Hua) Fa [2021] No. 003 and (Jing Tong) Ying Ji (Wei Hua) Fa [2021] No. 004 do not belong to material administrative penalties”.
5	Issuer	Beijing Tongzhou District Emergency Management Bureau	2021/3/17	(Jing Tong) Ying Ji (Wei Hua) Fa (2021) No. 003	The Issuer did not inform the practitioners of the investigation and

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					management of hidden dangers of the accident, so it was fined RMB49,000
6	Issuer	Beijing Tongzhou District Emergency Management Bureau	2019/4/4	(Jing Tong) Ying Ji (Wei Hua) Fa [2019] No. 008	The Issuer failed to store hazardous chemicals in a dedicated warehouse, so it was fined RMB69,000	Beijing Tongzhou District Emergency Management Bureau issued the Certificate on November 16, 2021, confirming that “such violation does not cause serious social harm or safety production accidents, and that the Company has rectified such act as required”. In addition, in accordance with the Beijing Administrative Penalty Discretion Benchmark of Work Safety (I) (Jing An Jian Fa [2015] No. 115), such violation belongs to Grade B of the discretion benchmark. In accordance with Article 3 of Chapter I General Provisions of such Discretion Benchmark, various violations in connection with work safety are divided into three basic discretion levels, including Grade A, Grade B and Grade C based on social harm and seriousness. “Any violation which causes general social harm and has general severity level” shall belong to Grade B. Accordingly, this does not constitute a material administrative penalty.
7	Issuer	Tongzhou District Fire Rescue Corps	2021/6/14	Tong (Xiao) Xing Fa Jue Zi (2021) No. 100095	The Issuer stacked the control cabinets on the evacuation passage on the west side of No. 6 workshop of this unit, occupying	Tongzhou District Fire Rescue Corps issued the Certificate in 2021, confirming that Beijing Tongmei “received three administrative penalties from this corps from January 1, 2018 to the issue date of this Certificate, all of which do not belong to material administrative penalties”.	1-1-275


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					50% of the clear width of the evacuation passage, and cannot remove them on site, so it was fined RMB29,500
8	Issuer	Beijing Tongzhou District Public Security Fire Corps	2019/12/18	Tong (Xiao) Xing Fa Jue Zi [2019] No. 400039	The Issuer occupied the evacuation passage, so it was fined RMB20,000
9	Chaoyang Tongmei	Housing and Urban-Rural Development Bureau of Kaleqin Left-wing Mongolian Autonomous County	2019/4/3	Ka Zhu Jian Fa Jue Zi [2019] No. (017)	Chaoyang Tongmei started construction before obtaining approval, so it was fined RMB20,000	Housing and Urban-Rural Development Bureau of Kaleqin Left-wing Mongolian Autonomous County issued the Certificate on July 27, 2021, confirming that Chaoyang Tongmei “has paid the fine as scheduled and made corrections as required by laws and regulations and by this Bureau, and that such act does not constitute a material violation or a serious case”.
10	Chaoyang Tongmei	Housing and Urban-Rural Development Bureau of Kaleqin Left-wing Mongolian Autonomous County	2019/4/3	Ka Zhu Jian Fa Jue Zi [2019] No. (021)	Chaoyang Tongmei started construction before obtaining approval, so it was fined RMB344,900

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11	Chaoyang Jinmei	Housing and Urban-Rural Development Bureau of Kaleqin Left-wing Mongolian Autonomous County	2020/7/20	Ka Zhu Jian Fa Jue Zi [2020] No. (41)	Chaoyang Jinmei started construction before obtaining approval, so it was fined RMB115,041	Housing and Urban-Rural Development Bureau of Kaleqin Left-wing Mongolian Autonomous County issued the Certificate on July 30, 2021, confirming that “the act of Chaoyang Jingmei does not cause economic losses, casualties or other serious circumstances, therefore it does not constitute a material violation”.
12	Baoding Tongmei	Dingxing County Environment Protection Bureau	2019/5/14	Ding Huan Fa [2019] No. 80	Baoding Tongmei failed to obtain the pollutant discharge permit according to law, so it was fined RMB200,000	Dingxing County Ecological Environment Bureau issued the Certificate on July 22, 2021, confirming that Baoding Tongmei “has paid the fine as scheduled and made corrections as required by laws and regulations and by this Bureau, and that such act does not constitute a material violation or a serious case”.
13	Nanjing Jinmei	Customs of the Capital Airport of the People’s Republic of China	2021/12/02	Jing Shou Guan Jian Wei Zi [2021] No. 0026	Nanjing Jinmei failed to apply for and avoided the inspection of import and export commodities which are subject to compulsory inspection, so it was fined RMB6,100	In accordance with the provisions of Paragraph 1 of Article 46 of the Regulations for the Implementation of the Law of the People’s Republic of China on Import and Export Commodity Inspection, the consignor of import and export commodities fails to apply for and avoids inspection of import and export commodities which are subject to compulsory inspection, the entry - exit inspection and quarantine agency shall confiscate illegal income and impose a fine of 5% up to 20% of the total commodity value. Nanjing Jinmei’s duty-paid (taxable) price for the goods involved in the aforesaid violation totals RMB68,469.71, and subsequently the Customs of the Capital Airport of the People’s Republic of China imposed a fine of RMB6,100, representing not more than 10% of the duty-paid price for the goods involved, a small amount. Such

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						violation does not belong to a serious case, and therefore it does not constitute a material violation.
14	Beijing Boyu	Beijing Tongzhou District Statistics Bureau	2021/05/24	Tong Tong Zhi Jian Fa Jue Zi (2021) No. 0524	Beijing Boyu provided false statistics and was given warnings	In accordance with the provisions of Article 41 of the Statistical Law of the People’s Republic of China, if any enterprise under statistical investigation provides untrue or incomplete statistical data, it shall be ordered to put it right and given a warning by the statistics institutions of the people’s governments at or above the county level, and may be criticized in a circulated notice and fined not more than RMB50,000; if the case is serious, it shall also be fined not less than RMB50,000 but not more than RMB200,000. Beijing Boyu is not subject to administrative penalty, and the violation is not serious, therefore, such act does not constitute a material violation.

The amounts above imposed on the Issuer are small and would not have a material adverse impact on the Issuer’s business or financial conditions, which are not serious cases and thus constitute material violations. The Company has rectified such acts; meanwhile, such acts do not cause serious environmental pollution, heavy casualties, bad social impact, etc., or not seriously violate the laws regarding national security, public security, ecological security, production safety or public health, the violations involved in the aforesaid administrative penalties will not pose a substantial obstacle to this offering and listing.

Except above, the Issuer has no other illegal activities during the reporting period.

VII. Self-management and going concern of the Issuer

Since its incorporation, the Company has established its compliant corporate governance structure in accordance with the requirements of the Company Law, the Securities Law and the AOA, and has been independent of its shareholders and other enterprises controlled by them in terms of assets, personnel, finance, organization, and business. It has an independent and complete R&D, procurement, production, sales and service system, and is able to realize self-management.

(I) Asset integrity

The Company was established by the overall change of Tongmei Limited and inherited all assets of Tongmei Limited in accordance with law. The assets contributed by the promoter have been available in full. The Company legally owns fixed assets such as machinery and equipment and other intangible assets including patents with clear property rights, and has an independent raw material procurement and product sales system. As of the date of this Prospectus, there is no illegal occupation of the Issuer’s assets by its controlling shareholder and other enterprises controlled by it.

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(II) Personnel independence

The Company has an independent personnel management system. The directors, supervisors and executives of the Company are selected and appointed in strict accordance with the relevant provisions of the Company Law and the AOA. The Company’s general manager, deputy general managers, chief financial officer, the secretary of the board of directors and other executives hold the full-time position in the Company and receive remunerations from the Company, do not hold any positions other than director and supervisor in its controlling shareholder and other enterprises controlled by it, nor work in any other enterprises whose business is identical with or similar to that of the Company. The Company’s financial staff do not take part-time jobs in any shareholder and other enterprises controlled by it.

(III) Financial independence

The Issuer has established an independent financial accounting system, can make independent financial decisions, and has a complaint financial accounting system and a financial management system for its subsidiaries, and there is no interference by shareholders in the use of the Company’s funds. The Company independently opens bank accounts and pays taxes.

(IV) Institutional independence

The Company sets up the general meeting of shareholders, the board of directors, the board of supervisors and other decision-making and supervisory bodies, and establishes the effective corporate governance structure according to law and independently exercises its operation and management powers. The Company does not share institutions with the shareholders and other enterprises controlled by them, and since its incorporation, there has been no interference by shareholders in the Company’s normal production and operation activities.

(V) Business independence

The Company operates independently and mainly engages in the research and development, production and sales of InP substrate, GaAs substrate, germanium substrate, PBN materials and other high-purity materials. The Company is independent of its major shareholders and their controlled enterprises, makes business decisions on its sole discretion, and has a complete procurement system, production system and sales system. There are no related party transactions with major shareholders that seriously affect independence or are obviously unfair. AXT, the controlling shareholder of the Company issued the Letter of Commitment on Avoiding Horizontal Competition, undertaking that it will not engage, directly or indirectly, in any same or similar business competing with the main business of the Company.

(VI) Stability of directors, executives and core technicians

The Issuer mainly engages in the research and development, production and sales of InP substrate, GaAs substrate, germanium substrate, PBN materials and other high-purity materials. The main business remains unchanged. There is no material adverse change in the Issuer’s directors, executives and core technicians in the past two years. The Issuer has no actual controller in the past two years, and the ownership of shares by major shareholders in the Issuer is clear and there is no major ownership dispute that would lead to possible changes in control.

(VII) Other matters

The ownership of the Issuer’s main assets, core technologies, and trademark is clear, there is no major ownership dispute, nor is there any major debt repayment risk, major guarantee, litigation, arbitration, and any 1-1-279


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other contingency, nor is there major change in the business environment or any other circumstance that has had or will have a significant impact on going concern.

VIII. Horizontal competition

(I) Horizontal competition

The controlling shareholder of the Company is AXT, and there is no horizontal competition between the Company and the controlling shareholder and other enterprises controlled by it.

As of the date of this Prospectus, ATX holds 85.51% of shares in the Company, and other enterprises controlled by AXT include Chaoyang Limei and Tandie Technologies, LLC. For details, refer to “V. Basic information on major shareholders holding more than 5% shares and actual controller” of “Section V Basic information of the Issuer” in this Prospectus. As of the date of this Prospectus, Chaoyang Limei and Tandie Technologies, LLC have no substantive business and have no horizontal competition with the Issuer.

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In summary, there is no horizontal competition between the Company and the controlling shareholder and other enterprises controlled by it.

(II) Letter of commitment on avoiding horizontal competition

In order to avoid horizontal competition or potential horizontal competition, protect the interests of the Company and safeguard normal operation of the Company, AXT, the controlling shareholder of the Company, issued the Letter of Commitment on Avoiding Horizontal Competition, undertaking that:

“1. We (including other companies controlled by us other than the Issuer and its controlled companies, the same below) do not engage in any business or activity in any form that competes with the main business of the Issuer (including its directly or indirectly controlled companies, the same below); the assets of the Issuer are complete, and its assets, business, personnel, finance and institutions are independent of us, we will continue to maintain such independence of the Issuer and will not bypass the Issuer’s board of directors to exercise the operation and management powers through the management or directly.

We have shifted its procurement, sales and R&D business and related personnel to AXT-Tongmei, Inc., a subsidiary of the Issuer. At present, we only retain the status as a listed company on NASDAQ in the United States, and we will no longer provide actual business support and convenience related to operating activities for the relevant businesses of the Issuer and its subsidiaries.
From the date of this letter, we will not engage in any business or activity in any form that competes with the main business of the Issuer, or support other companies other than the Issuer in any form to engage in any business or activity that competes with the main business of the Issuer.
From the date of this letter, if we inevitably engage in any business or activity that competes with the Issuer in the future, we will promptly transfer or terminate the aforesaid business or activity on our own initiative or after the Issuer raises an objection, and the Issuer shall have the priority to accept the transfer of such business.
The said commitment shall remain in force during the period when we act as the controlling shareholder of the Issuer.”

IX. Related parties and related party relationship

In accordance with the provisions of the Company Law, the Accounting Standards for Business Enterprises and the Rules Governing the Listing of Stocks on the Science and Technology Innovation Board of Shanghai Stock Exchange, the related parties and related party relationship of the Company are as follows:

(I) Actual controller and controlling shareholder

The Company’s controlling shareholder is AXT, but the Company has no actual controller. For their basic information, refer to “V. Basic information on major shareholders holding more than 5% shares and actual controller” of “Section V Basic information of the Issuer” in this Prospectus.

(II) Shareholders holding, directly or indirectly, not less than 5% of shares in the Issuer

Besides the controlling shareholder, Beijing Bomeilian, another shareholder of the Company, directly holds not less than 5% of shares in the Issuer. For its basic information, refer to “V. Basic information on major shareholders holding more than 5% shares and actual controller” of “Section V Basic information of the Issuer” in this Prospectus. 1-1-281


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As of June 30, 2022, the legal persons or other organizations that hold not less than 5% of shares in AXT, the controlling shareholder of the Issuer, are Dimensional Fund Advisors L.P. and BlackRock, Inc.

Shareholders that indirectly hold not less than 5% of shares in Beijing Bomeilian, the shareholder of the Issuer, are HE Junfang and Zhongke Hengye. Zhongke Hengye holds 33.33% of shares in Beijing Bomeilian. Further, both the shareholder holding 66.67% of shares in Beijing Bomeilian and the representative appointed by the managing partner of Zhongke Henye are HE Junfang. Beijing Bomeilian and Zhongke Hengye hold 5.2036% and 0.0977% of shares in the Issuer, respectively.

(III) Controlled subsidiaries and participation companies of the Issuer

As of the date of this Prospectus, the Company has ten controlled subsidiaries including Baoding Tongmei, Chaoyang Tongmei, Chaoyang Jinmei, Nanjing Jinmei, Beijing Boyu, Chaoyang Boyu, Tianjin Boyu, AXT-Tongmei, Chaoyang Xinmei and Chaoyang Shuomei, and two equity participation company, i.e., Xing’an Gallium and Kaimei Quartz. For the details of the said companies, refer to “IV. Information on controlled

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subsidiaries and equity participation companies of the Issuer” of “Section V Basic information of the Issuer” in this Prospectus.

(IV) Legal persons or other organizations that are controlled, directly or indirectly, by the legal persons or other organizations directly holding not less than 5% of shares in the Issuer

As of the date of this Prospectus, the legal persons that directly hold not less than 5% of shares in the Issuer are AXT, Beijing Bomeilian and Zhongke Hengye. AXT holds 100% of shares in Chaoyang Limei and 100% of shares in Tandie Technologies, LLC. Beijing Bomeilian and Zhongke Hengye do not control, directly or indirectly, any legal person or other organization.

(V) Directors, supervisors and executives of the Issuer and their close family members

The directors, supervisors and executives of the Company and their close family members all are related parties of the Company.

(VI) Directors, supervisors, executives, or other principally responsible person of any legal person or other organization that controls, directly or indirectly, the Issuer

The Company’s controlling shareholder is AXT, and AXT’s directors are MORRIS SHEN-SHIH YOUNG, David Chang, Jesse Chen and Christine Russell. MORRIS SHEN-SHIH YOUNG and Gary L. Fisher act as the Chief Executive Officer and the Chief Finance Officer in AXT, respectively.

(VII) Legal persons or other organizations (excluding the Issuer or its subsidiaries) which the directors, supervisors and executives as well as their close family members of the Issuer, and the directors, supervisors, executives or other principally responsible persons of any legal person or other organization controlling, directly or indirectly, the Issuer, control directly or indirectly or exercise significant influence on, or in which the foregoing other than independent directors serves as a director or executive

1. Legal persons or other organizations (excluding the Issuer or its subsidiaries) which the directors, supervisors and executives as well as their close family members of the Issuer control directly or indirectly or exercise significant influence on, or in which the foregoing other than independent directors serves as a director or executive

Legal persons or other organizations (excluding the Issuer or its subsidiaries) which the directors, supervisors and executives control directly or indirectly or exercise significant influence on, or in which the foregoing other than independent directors serves as a director or executive are related parties of the Company. For their information, refer to “X. External Investments by Directors, Supervisors, Executives and Core Technicians of the Company” and “VII. Overview of directors, supervisors, executives and core technicians” of “Section V Basic information of the Issuer” in this Prospectus.

Legal persons or other organizations (excluding the Issuer or its subsidiaries) which the close family members of the directors, supervisors and executives of the Company control directly or indirectly or exercise 1-1-283


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significant influence on, or in which the foregoing other than independent directors serves as a director or executive are related parties of the Company, the details of which are shown as follows:


Name	Relationship	Employer/controlled entity	Title/control
ZHOU Hongyu	Spouse of the director WANG Yuxin	Beijing Zhiheng Anye Technology Co., Ltd.	Manager and executive director; holding 100% of shares
SONG Guizhou	Brother-in-law of an independent director LIU Yanfeng	Cangzhou Hangcheng Electronic Equipment Co., LTD	Manager, Executive director, holding 80% of shares

2. Legal persons or other organizations (excluding the Issuer or its subsidiaries) which the directors, supervisors, executives or other principally responsible persons of any legal person or other organization controlling, directly or indirectly, the Issuer, control directly or indirectly or exercise significant influence on, or in which the foregoing other than independent directors serves as a director or executive

Legal persons or other organizations (excluding the Issuer or its subsidiaries) which the directors, supervisors, executives or other principally responsible persons of any legal person or other organization controlling, directly or indirectly, the Issuer, control directly or indirectly or exercise significant influence on, or in which the foregoing other than independent directors serves as a director or executive are shown as follows:

Name	Position in AXT	Part-time employer/controlled entity	Part-time title/control
Gary L. Fischer	CFO and Secretary	Dongfang Hi-purity	Director
				Tandie Technologies, LLC	CFO and Secretary
Christine Russell	Director	QuickLogic Corporation	Director
				eGain Communications Corporation	Director
David C. Chang	Director	Global Maximum Educational Opportunities, Inc.	Chairperson and CEO
				American Councils for International Education	Director
				Committee of 100	Director and Secretary
Jesse Chen	Director	Silicon Valley Taiwan Angels	Founding Chairperson
				NCKU North America Alumni Foundation	Director and Chairperson
				NCKU Global Academia-Industry Alliance	Chairperson

(VIII) Other related parties

In addition to the related parties disclosed above, other related parties of the Issuer include natural persons, legal persons, or other organizations that had a related party relationship with the Company during the reporting 1-1-284


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period, or that have special relationships with the Issuer identified based on the principle of substance over form and may cause the Issuer’s interests to favor them, or that shall be deemed as the related parties of the Issuer within 12 months before the transaction, or within 12 months after the relevant transaction agreement becomes effective or the arrangement is implemented.

1. Participation companies of AXT

The participation companies of AXT, the controlling shareholder of the Company is the related party of the Company, including Tongli Germanium, Jiamei Hi-purity, Beijing Jiya and Dongfang Hi-purity.

2. Legal persons or other organizations that hold not less than 10% of shares in controlled subsidiaries having significant influence on the Company

Chaoyang Xinshuo Business Co., Ltd. holds 39% of shares in Chaoyang Xinmei, the controlled subsidiary of the Company, and is the related party of the Company.

3. Former major related parties

The former major related parties during the reporting period are as follows:

No.	Name of related party	Related party relationship
1	WEI GUO LIU	Former director of the Company
2	DAVIS SHANXIANG ZHANG	Former director of the Company
3	HE Jianwu	Former supervisor of the Company
4	Ulrich Goetz	Former shareholder of Beijing Boyu, the controlled subsidiary of the Company
5	Beijing Zhiheng Xingda Technology Co., Ltd.	The director WANG Yuxin previously acted as the executive director and general manager, and held 50% of shares; such company was cancelled on August 23, 2021.
6	Liaoning Zhonglan Opto-electronics Technology Co., Ltd.	The director WANG Huan previously acted as the director.
7	Ningbo Ronbay New Energy Technology Co., Ltd.	The director WANG Huan previously acted as the director.
8	Shanxi Zhaofeng Gallium Co., Ltd.	The director MORRIS SHEN-SHIH YOUNG previously acted as the director.
9	Leonard J. LeBlanc	Previously acted as a director of AXT
10	Maanshan Gallium	Previously was a subsidiary of AXT, which was deregistered in April 2022

X. Related party transactions

(I) Recurring related party transactions

The recurring related party transactions with the related parties during the reporting period are as follows: 1-1-285


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1. Purchase of goods/ receipt of services

In RMB0’000

Related party	Subject matter	2021		2020		2019
				Amount	Proportion to operating costs	Amount	Proportion to operating costs	Amount	Proportion to operating costs
AXT	High-purity arsenic and other raw materials	779.53	1.39%	2,178.75	5.03%	1,020.97	2.74%
Xing’an Gallium	Gallium	6,366.75	11.34%	3,075.53	7.10%	609.98	1.64%
Dongfang Hi-purity	High-purity arsenic, etc.	380.63	0.68%	906.54	2.09%	789.97	2.12%
Tongli Germanium	Germanium ingot	469.50	0.84%	-	-	764.57	2.05%
Beijing Jiya	Gallium	692.57	1.23%	-	-	-	-
Jiamei Hi-purity	High-purity arsenic	88.65	0.16%	-	-	-	-
Total		8,777.63	15.64%	6,160.82	14.22%	3,185.49	8.55%

Note: The amount of purchase from Dongfang Hi-purity includes that of purchase from Donghai Juqing Trading Co., Ltd. controlled by LI Bo, the actual controller of Dongfang Hi-purity.

The Company purchased the raw materials from its related parties including AXT, Xing’an Gallium, Dongfang Hi-purity, Tongli Germanium and Beijing Jiya during the reporting period, the details of which are as follows:

(1) The Company purchased high-purity arsenic and other raw materials through AXT during the reporting period, with the amounts being RMB10,209,700, RMB21,787,500 and RMB7,795,300, respectively. The main reason why the Company purchased raw materials through AXT is that AXT is an American company, and it’s more convenient for AXT to purchase products from American and Japanese suppliers.

The price at which the Company purchased raw materials from AXT refers to the price of purchase by AXT from its suppliers, and there is no related party transaction with evidently unfair price.

AXT-Tongmei becomes the overseas procurement entity and the Company ceases to purchase raw materials through AXT staring from March 2021.

(2) The Company purchased the gallium from Xing’an Gallium, its participation company, with the amounts being RMB6,099,800, RMB30,755,300 and RMB63,667,500, respectively. The gallium is extracted from bauxite deposit. Xing’an Gallium is located in Xiaoyi City, Shanxi Province, close to alumina enterprises, which 1-1-286


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guarantees a stable supply of gallium. The price at which the Company purchased gallium from Xing’an Gallium is as follows:

In RMB/Kg


Year	Price of gallium purchased from Xing’an Gallium	Average purchase price of gallium	Difference rate
2021	1,800.50	1,823.03	-1.24%
2020	965.14	1,010.25	-4.47%
2019	870.41	896.50	-2.91%

The price at which the Company purchased gallium from Xing’an Gallium adopts the market-based pricing, and there is no related party transaction with evidently unfair price.

(3) The Company purchased high-purity arsenic from its participation company Dongfang Hi-purity during the reporting period, with the amounts being RMB7,899,700, RMB9,065,400 and RMB3,770,100, respectively. Dongfang Hi-purity has mature technology for producing high-purity arsenic with stable quality. However, the Company has ceased to purchase high-purity arsenic from Dongfang Hi-purity since June 2021, because its production qualification expired and a new license is pending. In the second half of 2021, the Company purchased a small amount of welding rods from Dongfang Hi-purity. The price at which the Company purchased high-purity arsenic from Dongfang Hi-purity is as follows:

In RMB/Kg


Year	Price of high-purity arsenic purchased from Dongfang Hi-purity	Average purchase price of high-purity arsenic	Difference rate
2021	755.92	805.00	-6.10%
2020	788.28	836.79	-5.80%
2019	801.92	835.06	-3.97%

Note: As the purchase by the Company from Dongfang Hi-purity in 2021 took place in the period from January to June, it is compared and analyzed using the average purchase price of arsenic in the period from January to June 2021.

The Company purchased high-purity arsenic mainly from Dongfang Hi-purity and Jiamei Hi-purity, and imported them from the overseas supplier YONEDA CORPORATION through AXT. The quality of imported high-purity arsenic is slightly higher than that of domestic enterprises, and accordingly, its price, including tariffs, customs declaration, logistics, inspection and warehousing costs, is generally higher than domestic

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price. The price at which the Company purchased arsenic from Dongfang Hi-purity adopts the market-based pricing, and there is no related party transaction with evidently unfair price.

(4) The Company purchased germanium ingot from Tongli Germanium, the participation company of AXT, in 2019 and 2021, with the amounts being RMB7,645,700 and RMB4,695,000, respectively. Germanium usually exists in a dispersed state in various metal silicate mines, sulfide mines and various types of coal mines. Tongli Germanium, located in Xilingol, Inner Mongolia Autonomous Region, was once an important domestic germanium-containing lignite smelting and purification enterprise. Since 2020, Tongli Germanium has not started production due to environment protection, and the Company did not purchase products from Tongli Germanium in 2020. The price at which the Company purchased germanium ingot from Tongli Germanium is as follows:

In RMB/Kg


Year	Price of germanium ingot purchased from Tongli Germanium	Average purchase price of germanium ingot	Difference rate
2021	8,015.33	7,443.09	7.69%
2019	6,358.11	6,447.44	-1.39%

Note: As the purchase by the Company from Tongli Germanium in 2021 took place in the period from July to December, it is compared and analyzed using the average purchase price of germanium ingot in the period from July to December 2021.

The price at which the Company purchased germanium ingot from Tongli Germanium adopts the market-based pricing, and there is no related party transaction with evidently unfair price.

(5) The Company purchased gallium from Beijing Jiya, the participation company of AXT in 2021, with the amount being RMB6,925,700. Beijing Jiya uses an advanced ion exchange process to extract gallium from the mother liquor of the alumina Bayer process, and the product quality is high. Starting from 2021, the Company purchases some gallium from Beijing Jiya. The price at which the Company purchased gallium from Beijing Jiya is as follows:

In RMB/Kg


Year	Price of gallium purchased from Beijing Jiya	Average purchase price of gallium	Difference rate
2021	1,822.54	1,823.03	-0.03%

The price at which the Company purchased gallium from Beijing Jiya adopts the market-based pricing, and there is no related party transaction with evidently unfair price.

(6) In 2021, the Company purchased arsenic and other raw materials from Jiamei Hi-purity, the participation company of AXT, with the amount being RMB886,500. Jiamei Hi-purity mainly engages in production and sales of high-purity arsenic, it resumed its production and business in 2021. The prices at which the Company purchased high-purity arsenic from Jiamei Hi-purity are as follows: 1-1-288


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In RMB/Kg


Year	Price of high-purity arsenic purchased from Jiamei Hi-purity	Average purchase price of high-purity arsenic	Difference rate
2021	929.20	855.57	8.61%

Note: As the purchase by the Company from Jiamei Hi-purity in 2021 took place in the period from July to December, it is compared and analyzed using the average purchase price of arsenic in the period from July to December 2021.

The price at which the Company purchased arsenic from Jiamei Hi-purity adopts the market-based pricing, and there is no related party transaction with evidently unfair price.

2. Sales of goods or services

In RMB0’000

Related party	Subject matter	2021		2020		2019
				Amount	Proportion to operating income	Amount	Proportion to operating income	Amount	Proportion to operating income
AXT	Compound semiconductor<br><br>substrate, etc.	5,979.70	6.97%	28,196.51	48.35%	22,144.98	47.91%
Xing’an Gallium	High-purity gallium	1.65	0.01%	1.26	0.00%	-	-
Total		5,981.35	6.98%	28,197.77	48.35%	22,144.98	47.91%

(1) Sales by the Company to AXT

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The Company sold to AXT the GaAs substrate, InP substrate, germanium substrate and other products during the reporting period, with the sales being RMB221,449,800, RMB281,965,100 and RMB59,797,000, respectively.

During the reporting period, the products supplied by the Company to AXT were mainly sold to Osram, Landmark Optoelectronics, WIN semiconductors and overseas customers. The Company sells products to AXT on a cost-plus pricing basis. The table of comparison between the price at which the Company sells products to AXT and the average sales price is as follows:

In RMB/piece

Item	2021			2020			2019
		Price at which the Company sells products to AXT	Average sales price	Difference rate	Price at which the Company sells products to AXT	Average sales price	Difference rate	Price at which the Company sells products to AXT	Average sales price	Difference rate
GaAs substrate	347.36	431.10	-19.42%	439.92	466.33	-5.66%	352.88	378.5	-6.77%
InP substrate	662.39	964.88	-31.55%	500.58	683.54	-26.77%	415.8	751.87	-44.70%
Germanium substrate	389.15	300.60	29.46%	438.06	336.81	30.06%	427.3	351.05	21.72%

Note: As the sale by the Company to AXT in 2021 took place in the period from January to June, it is compared and analyzed using the average purchase price in the period from January to June 2021.

The difference between the price at which the Company sells products to AXT and the average sales price is mainly reflected in the different performance requirements by customers for substrate products. The price depends on the product size, technical parameters, thickness and edge angle.

1)	GaAs substrate

The difference rate between the price of GaAs substrate sold by the Company to AXT in 2019 and 2020 and the average sales price of the Company is no more than 10%, mainly because GaAs substrate belongs to a proven semiconductor material, the competition among manufacturers is stiff, the customers have strong bargaining power and thus enjoy little price difference.

The difference rate between January and June of 2021 is relatively large, primarily because the deliveries of GaAs substrate are expected to increase by 26.98% by comparing with 2020 based on the Yole’s statistics. In the 1-1-290


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context of the expansion of market scale and the stable rise in the GaAs substrate production capacity of the Company, the Company has further increased its incentives in the international market.

During the reporting period, the average unit price at which the Company sells GaAs substrate to ATX was lower than the average unit price, primarily because overseas customers purchased GaAs substrate to be used partially in conventional LEDs, and their prices were lower than the prices at which GaAs substrate are used in radio frequency devices and lasers. For example, Osram, the largest overseas customer, purchases GaAs substrate to be mainly used in conventional LED fields such as automotive lighting and industrial lighting, while the Company has basically withdrawn from the conventional LED field in the domestic market; in addition, the Company’s GaAs substrate ranks behind Freiberger and Sumitomo. The international market is fiercely competitive. In order to explore the international market for GaAs substrate, the Company has adopted a more aggressive market strategy, which has also led to lower prices offered to AXT. However, domestic customers purchased the Company’s GaAs substrate to be mainly used in smart phones, artificial intelligence, unmanned driving and other fields, which have higher technical requirements for GaAs substrate. Also, the added value is higher, and the domestic price of the Company’s products is higher, thereby driving up the average sale price.

Overall, the price at which the Company sells GaAs substrate to AXT is reasonable.

2) InP substrate

The average unit price at which the Company sells InP substrate to AXT is lower than the average unit price.

For a long time, the Company’s InP substrate products have been mainly promoted and sold by AXT on overseas markets. During the reporting period, with the growth of domestic optical modules and other industries, the Company’s domestic sales team has achieved great results in market exploitation. The proportion of domestic sales of InP substrate has begun to increase rapidly. In 2019, 2020, and from January to June 2021, the

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export volume of InP substrate accounted for 79.88%, 77.18% and 65.07%, respectively. The Company’s large-scale production of InP substrate still relies on overseas orders to a large extent. During the reporting period, overseas sales mainly relied on AXT for market exploitation, customer maintenance and technical cooperation with customers.

Yole’s statistics shows that 80.21% of InP substrate products are mainly used in optical module devices with optical chips as the core. The world’s leading optical chip, optical module epitaxy and device companies are mainly overseas companies, including IQE, Landmark Optoelectronics, Visual Photonics Epitaxy and Win Semiconductor. InP-based optical chips require close cooperation with various upstream and downstream production links such as substrate-epitaxy-foundry. Any problem in any production link will directly affect the product varieties of optical chip and optical module device manufacturers. In order to ensure the stability of the supply chain and smooth communications in the production process, the world’s leading optical chip, optical module extension and device companies prefer purchase overseas. As affected by uncertain events such as the trade frictions and the pandemic, overseas customers will not easily purchase directly from domestic suppliers. AXT, as a former main body of overseas sales and application research and development, undertook the functions of developing overseas customers and providing research on the matching of extended processing performance. AXT sells InP substrate to overseas customers, needs to communicate closely with overseas customers on downstream production processes, and provides overseas customers with reasonable epitaxial production suggestions. In 2019 and 2020, AXT’s sales and R&D expenditures were USD4,508,400 and USD4,967,600, respectively, among which the expenses for overseas sales of InP substrate, customer maintenance, and performance matching represent a larger proportion.

The average unit price offered to the customers developed by the Company through domestic sales team is higher the price at which the Company sells InP substrate to AXT. The abovementioned expenses for market exploitation, research and development are borne by the Company. In addition, the performance parameters of InP substrate sold by the Company to Customer A, Customer B, and other customers are extremely high, because InP substrate products purchased by such customers from the Company are mainly used in some cutting-edge fields. Therefore, the performance indicators such as the doping concentration, conductivity, and dislocation density of InP substrate needed by such customers are higher than those of overseas customers.

In summary, AXT plays an important role in the market exploitation, customer maintenance and application research and development of InP substrate. It also bears higher costs and expenses. Therefore, AXT adds a higher proportion on the basis of Beijing Tongmei’s sales price. Overall, the price at which the Company sells InP substrate to AXT is reasonable.

3) Germanium substrate

The price at which the company sells germanium substrate to AXT is higher than the average sales price, mainly because the raw materials for germanium substrate are mainly produced in China, and there are few foreign germanium substrate producers. Germanium substrate purchased by overseas customers is mainly used for high-end solar cells, so the sales prices offered to AXT are relatively high; while domestic market competition is fierce, so domestic sales prices are relatively low.

The sales price at which the Company sells germanium substrate to AXT has a small difference compared with the average sales unit price of photovoltaic-grade germanium products of Yunnan Lincang Xinyuan Germanium Industry Co., Ltd. (002428.SZ). The details are as follows: 1-1-292


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Unit: RMB/piece

Item	2021			2020			2019
		Sales price offered by the Company to AXT	Sales price of Yunnan Germanium	Difference rate	Sales price offered by the Company to AXT	Sales price of Yunnan Germanium	Difference rate	Sales price offered by the Company to AXT	Sales price of Yunnan Germanium	Difference rate
Germanium substrate (equivalent to 4 inches)	337.96	283.70	19%	346.64	390.06	-11%	392.78	380.07	3%

Overall, the price at which the Company sells germanium substrate to AXT is reasonable.

4) Reason for related party transactions between the Company and AXT and solution

purchase and partial application R&D business. On the one hand, the Company sells products to AXT on a cost-plus basis, limiting the sales price offered to AXT; on the other hand, AXT earns returns from sales of the products from the Company to overseas customers, and such returns are used for AXT’s normal operation, application R&D .

AXT-Tongmei completed the business and customer transfer with the Company, and undertook AXT’s overseas sales, purchase, and application R&D. AXT ceases to conduct sales business after performing the sales contracts signed prior to March 2021.

(2) Sales by the Company to Xing’an Gallium

In addition, in 2020 and 2021, the Company sold high-purity gallium to Xing’an Gallium, with the amounts being RMB12,600 and RMB16,500, respectively. Such sales are designed to compare products of Xing’an Gallium, and the sales price is the market price at which the Company sells high-purity gallium to others. There is no related party transaction with evidently unfair price. 1-1-293


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

3. Payment of remuneration to key management

The allowances and salaries paid by the Company to current key management during the reporting period are as follows:

In RMB0’000


Item	2021	2020	2019
Remuneration of key management	763.72	735.23	602.27

(II) Incidental related party transactions

1. Purchase of special equipment

The Company purchased from AXT the special equipment for producing compound semiconductor substrate during the reporting period, with the amounts being RMB11,596,900, RMB6,025,400 and RMB5,760,500, respectively.

In RMB0’000


Related party	Subject matter	2021	2020	2019
AXT	Special equipment	576.05	602.54	1,159.69

The price at which the Company purchased equipment from AXT refers to the price of purchase by AXT from its suppliers, and there is no related party transaction with evidently unfair price.

2. Borrowings/loans

The borrowings and loans between the Company and its related parties during the reporting period are as follows:

In RMB0’000

Related party	Amount	Start date	Due Date
Loans
Maanshan Gallium	500	July 1, 2017	June 30, 2023
HE Junfang	200	December 1, 2017	November 30, 2020
		100	January 31, 2019	December 31, 2024
		100	March 1, 2020	December 31, 2024
Borrowings
AXT	938.65	March, April and May 2021	\

(1) Loans to Maanshan Gallium 1-1-294


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

The Company lent RMB5,000,000 to Maanshan Gallium in 2017 at an annual interest rate of 4.90%, with the term from July 1, 2017 to June 30, 2023. The repayment agreement is as follows: 20% shall be repaid prior to the end of 2021 in the 1^st^ instalment, 40% shall be repaid prior to the end of 2022 in the 2^nd^ instalment and the remainder shall be repaid at the due date in the 3^rd^ instalment, all of which can be repaid in advance.

Maanshan Gallium repaid the loans amounting to RMB3,000,000, RMB17,100 and RMB1,982,900, respectively, in 2018, 2019 and 2021. The loans have been repaid in full. During the reporting period, the Company received from Maanshan Gallium the interest income amounting to RMB92,900, RMB93,200 and RMB46,100, respectively, in accordance with the loan agreement.

(2) Loans to HE Junfang

In December 2017, Beijing Boyu and HE Junfang signed the loan contract, under which Beijing Boyu lent RMB2,000,000 to HE Junfang at the interest rate of 2.75%, with the term from December 1, 2017 to November 30, 2020; in January 2019, Beijing Boyu and HE Junfang signed the loan contract, under which Beijing Boyu lent RMB1,000,000 to HE Junfang at the interest rate of 2.75%, with the term from January 31, 2019 to December 31, 2024; in March 2020, Beijing Boyu and HE Junfang signed the loan contract, under which Beijing Boyu lent RMB1,000,000 to

HE Junfang at the interest rate of 2.75%, and the interest rate was determined according to that of fixed deposits for the same period. HE Junfang provided the guarantee for the loans above by pledging 66.67% of shares held by him in Beijing Bomeilian.

Three loans above total RMB4,000,000, which were repaid in full in December 2020. The Company determined that the interest income payable by HE Junfang was RMB72,600 and RMB102,600, respectively, 2019 and 2020 in accordance with the loan contracts, and collected such interest income in full in December 2020.

(3) Borrowings by AXT-Tongmei from AXT

AXT-Tongmei borrowed the funds from AXT in March 2021 for its initial operation, and borrowed RMB9,386,500 in aggregate from March to May 2021. The loan contract signed by and between AXT-Tongmei and AXT provides that no interest will accrue and no guarantee or pledge will be provided. As of the date of this Prospectus, the above loans have been repaid.

3. Acceptance of ATX technology and trademark licenses and assumption of cross-licensing obligation by the Company

(1) Acceptance of AXT technology license by the Company

1) Licensing between 2019 and 2020

AXT and the Company signed the Technology Licensing Agreement and Supplementary Agreement to the Technology Licensing Agreement on January 1, 2016, whereupon AXT shall grant to the Company and its controlled subsidiaries an exclusive, non-transferable, royalty-paying, and revocable license of AXT’s intellectual property rights; the Company may domestically manufacture, use, sell, and offer to sell, display, reproduce and distribute the products within the term of such agreement; the license period is from January 1, 2016 to December 31, 2020. The license of AXT’s intellectual property rights granted by AXT to the Company means technical trade secrets, contracting rights and licensing rights and other existing and/or future technological property rights, as well as their updated and expanded parts. The Company shall pay AXT an annual license fee equal to 5% of the domestic sales revenue. The accruals of the license fee are as follows: 1-1-295


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

In RMB0’000


Related party	Subject matter	2021	2020	2019
AXT	Technology license	-	805.40	680.62

In November 2021, Beijing Tongmei and AXT signed the Technology Licensing Agreement under which the technology license became effective in January 2021, which, in essence, is purchasing patent use rights. Beijing Tongmei no longer paid royalties in 2021.

2) Follow-up Licensing

AXT and the Company signed the Technology Licensing Agreement on November 4, 2021, under which AXT shall grant the Issuer and its controlled subsidiaries its intellectual property rights, licensed patents and pending patents. Among them, the intellectual property rights are exclusive, non-transferable, royalty-paying and irrevocable; patent license is non-exclusive, non-transferable, royalty-paying and irrevocable. AXT undertakes that without the consent of the Company, AXT will not grant the patent license under the agreement to other third parties except to M; the scope of license is to manufacture, use, sell, and offer to sell, display, reproduce and distribute the GaAs, InP and Germanium crystal and substrate products around the world. The technology license period is permanent from January 1, 2021. The Company shall pay AXT a one-time license fee amounting to USD1,228,000. The license fee above is determined in accordance with the Evaluation of Intangible Assets issued by Armanino LLP, an overseas evaluation agency. For the purchase of the patent use rights by the Company from AXT, refer to “(V) Resource elements shared by the Issuer” of “Section VI Business and technology” in this Prospectus.

In 2021, the amortization amount of the aforesaid patent use rights is RMB1,335,400.

(2) Assumption of cross-licensing obligations by the Company

AXT and M signed the Cross-licensing and Non-prosecution Agreement in 2020, with the term from January 1, 2020 to December 31, 2029. In November 2021, the Company, the main beneficiary of the said patented technology cross-licensing agreement, signed the Cross-licensing Payment Agreement with AXT-Tongmei and AXT, under which the Company assumed the long-term payment obligation in respect thereof in total amount of USD1,700,000. Such payment obligation is the amount payable by AXT to M pursuant to the Cross-Licensing and Non-prosecution Agreement. For the assumption of cross-licensing obligation by the Company, refer to “(V) Resource elements shared by the Issuer” of “Section VI Business and technology” in this Prospectus.

As of December 31, 2021, the Company has not paid royalties to AXT. In 2021, the Company amortized such patented technology license fees in an amount of RMB1,070,900.

(3) Acceptance of trademark license of AXT by the Company

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

AXT grants the Issuer and its subsidiaries a non-transferable, exclusive, irrevocable, royalty-free trademark license. The licensed trademark is an integral part of the corporate name of the Issuer for the manufacturing, marketing and sales of products; the license period is permanent from March 1, 2021. AXT did not charge a fee for such trademark license. For the acceptance of the trademark license of AXT by the Company, refer to “(V) Resource elements shared by the Issuer” of “Section VI Business and technology” in this Prospectus.

4. Acquisition of Beijing Boyu, Baoding Tongmei, Chaoyang Tongmei, Nanjing Jinmei, Chaoyang Jinmei and AXT-Tongmei

In order to resolve horizontal competition and integrate business resources, the Company carried out an asset reorganization in December 2020 and acquired 100% of shares in Beijing Boyu, Baoding Tongmei, Chaoyang Tongmei, Nanjing Jinmei and Chaoyang Jinmei. Pursuant to the Capital Increase Agreement of Tongmei Limited and the Asset Evaluation Report issued by Zhongfeng Appraisal, AXT shall subscribe for the Company’s newly-added registered capital of RMB451,139,700 at the consideration of 100% shares held by it in Baoding Tongmei, 100% shares held by it in Chaoyang Tongmei, 100% shares held by it in Nanjing Jinmei, 91.5% shares held by it in Chaoyang Jinmei, and 67% shares held by it in Beijing Boyu; Jinchao Business Management shall subscribe for the Company’s newly-added registered capital of RMB3,119,500 at the consideration of 8.5% shares held by it in Chaoyang Jinmei; Beijing Bomeilian shall subscribed for the Company’s newly-added registered capital of RMB50,981,400 at the consideration of 27% shares held by it in Beijing Boyu; Zhongke Hengye shall subscribed for the Company’s newly-added registered capital of RMB11,329,200 at the consideration of 6% shares held by it in Beijing Boyu. For the details of the above-mentioned acquisition, please refer to “II. (III). 2. Capital increase of Tongmei Limited in December 2020” of “Section V Basic Information of the Issuer” in this Prospectus.

AXT-Tongmei was established in December 2020 with the registered capital of USD1. AXT held 100% of shares in it at the time of its establishment. On May 6, 2021, the Company's the 2^nd^ session of the first board of directors passed a resolution that Beijing Tongmei will acquire 100% of shares in AXT-Tongmei from AXT in cash. On the same day, Beijing Tongmei and AXT signed the Share Transfer Agreement, under which Beijing Tongmei shall purchase all the shares in AXT-Tongmei from AXT at a price of USD1. The said consideration is subject to the Audit Report issued by Ernst & Young (EY (2021) Shen Zi No. 61641535_B01). In May 2021, the Company completed the foreign exchange registration procedures involved in the payment of the purchase price, and paid USD1 to AXT for the share transfer in June 2021.

5. Sales by the Company of its 45.9677% shares in Dongfang Hi-purity to Chaoyang Limei

The Company transferred its 45.9677% of shares in Dongfang Hi-purity to Chaoyang Limei based on its business demand and with reference to the actual conditions of Dongfang Hi-purity.

The Company held the 6^th^ session of the first board of directors on November 11, 2021, agreeing that the Company transfers RMB14,250,000 contributed by Dongfang Hi-purity to the registered capital (corresponding to Dongfang Hi-purity’s 45.9677% of shares) to Chaoyang Limei at the price of RMB14,000,000. The Company and Chaoyang Limei signed the Share Transfer Agreement. The Company has received the consideration of share transfer from Chaoyang Limei. Dongfang Hi-purity completed the formalities for changes in industrial and commercial registration particulars for this transfer on November 24, 2021.

The said transfer consideration is determined based on the Asset Assessment Report on 45.9677% of Shares in Donghai Dongfang Hi-purity Electronic Materials Co., Ltd. Involved in Proposed Share Transfer by Beijing Tongmei Xtal Technology Co., Ltd. issued by Beijing North Asia Asset Assessment Firm (Special General Partnership). 1-1-297


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

6. Other related party transactions

(1) Payment of freight by the Company on behalf of AXT

The freight and other expenses paid by the Company on behalf of AXT during the reporting period were RMB2,525,200, RMB1,796,600 and RMB415,400, respectively, and AXT has repaid such freight advanced by the Company.

(2) Payment of remuneration by AXT on behalf of the Company’s executive and the Company entrusting AXT with paying employees’ travel expenses

During the reporting period, AXT paid the remuneration amounting to RMB2,435,400, RMB3,835,000 and RMB736,100, respectively, for the general manager VINCENT WENSEN LIU of the Company. As discussed by ATX, AXT did not require the Company to repay such amount, and the Company has accounted for same.

The travel expenses and freight which the Company entrusted AXT with paying were RMB728,100 and RMB309,800, respectively, in 2019 and 2020.

(3) The Company, as a domestic agency, undergoing the foreign exchange registration formalities for its employees’ participation in the equity incentive plan issued by AXT

AXT, the controlling shareholder of the Company granted some employees of the Company AXT’s stock options and restricted stocks. The Company determined the share-based payments for acquisition by the above personnel of AXT’s stock options and restricted stocks, and the Company collected and paid on behalf of AXT the stock consideration to the domestic employees. The Company, as a domestic agency, underwent the foreign exchange registration formalities for its employees’ participation in the equity incentive plan issued by AXT, and obtained the consent from the foreign exchange administrative authority. AXT paid through the Company its domestic employees the stock considerations amounting to RMB440,100, RMB2,000,800 and RMB1,227,200, respectively, during the reporting period.

(4) Lease of office space by the Company from AXT

In 2021, AXT-Tongmei, the subsidiary of the Company, leased the real estate from AXT as the office space, confirmed that the right-of-use assets were RMB5,135,800, and has paid the rent of RMB1,506,800. For the lease details, refer to “V. (I) Main fixed assets” of “Section VI Business and Technology” in this Prospectus.

(5) Collection of price for goods and adjustments to sales during the period for which ATX’s business was transferred to the Company’s subsidiary in the US.

During the period for which AXT’s business was transferred to AXT-Tongmei, the subsidiary of the Company in 2021, AXT-Tongmei collected the trade receivables in the amount of RMB23,603,100 on behalf of AXT, which were transferred to AXT; AXT collected the trade receivables in the amount of RMB10,248,300 on behalf of AXT-Tongmei, which were transferred to AXT-Tongmei.

In addition, AXT-Tongmei, the subsidiary of the Company, has conducted marketing activities overseas, and at the request of end customers, AXT and AXT-Tongmei are deemed as the same supplier. AXT sold to AXT-Tongmei the products amounting to RMB12,986,800 in total purchased from the Issuer, the revenue of which is not temporarily recognized, and accounted for the purchase by AXT-Tongmei and the sale by the Issuer to AXT.

(6) Guarantees with related parties 1-1-298


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

In December 2019, Beijing Boyu and the Industrial and Commercial Bank of China Limited Beijing Tongzhou Sub-branch signed the Working Capital Loan Contract, and Beijing Zhongguancun Sci-Tech Financing Guaranty Co., Ltd. provided the guarantee in the form of suretyship. HE Junfang and Tianjin Boyu provided counter-guarantees in the form of suretyship to Beijing Zhongguancun Sci-Tech Financing Guaranty Co., Ltd., and Tianjin Boyu and Beijing Boyu provided counter-guarantees respectively in the form of real estate and accounts receivable.

(7) AXT dispatching R&D staff to assist in the Company’s research and development

In order to actively promote the Company’s research and development, AXT dispatched R&D staff to assist in it, and the Company paid allowances to such staff. During the reporting period, the Company paid RMB1,070,500, RMB1,049,900 and RMB415,600, respectively, to the R&D staff dispatched by AXT.

Such R&D staff were changed to the employees of AXT-Tongmei starting from March 2021.

(III) Amounts due from/to related parties during the reporting period

The balance of related party items at the end of each of the reporting periods is as follows:

In RMB0’000

Item	Company	December 31, 2021	December 31, 2020	December 31, 2019
Accounts receivables	AXT	-	5,376.26	6,367.90
Other receivables	AXT	-	145.37	69.85
Long-term receivables	Maanshan Gallium	-	198.29	198.29
		HE Junfang	-	-	100.00
Non-current assets due within one year	HE Junfang	-	-	200.00

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Accounts payable	AXT	3,917.64	8,802.77	7,188.15
		Xing’an Gallium	1,210.56	1,174.42	100.80
		Dongfang Hi-purity	71.12	71.12	-
		Beijing Jiya	4.40	-	-
Other payables	AXT	9,071.68	13,102.92	10,873.76
Non-current liabilities due within one year	AXT	159.79	-	-
Long-term payables	AXT	629.40	-	-

The accounts receivable between the Company and the related party were the receivables from AXT for purchase of semiconductor substrate products, and the receivables by the Company from AXT changed due to the changes in the outstanding payment for the Company’s sale of products to AXT.

Other receivables between the Company and related parties were mainly the advances receivable from AXT, payments for goods collected as an agent and the interest receivable from Maanshan Gallium. Other receivables between the Company and related parties changed due to the repayment by related parties of advances and interest.

The long-term receivables between the Company and related parties were the loans receivable from Maanshan Gallium and HE Junfang. The long-term receivables between the Company and related parties changed due to the repayment by Maanshan Gallium and HE Junfang of the loans offered by the Company and some loans receivable from HE Junfang being changed to the non-current assets due within one year. On July 1, 2021, Maanshan Gallium repaid the loans to the Company.

Non-current assets due within one year were the loans receivable from HE Junfang, which were repaid in December 2020.

The accounts payable between the Company and related parties were the trade accounts payable to AXT, Xing’an Gallium and Dongfang Hi-purity. The accounts payable between the Company and related parties changed, primarily because the Company purchased raw materials through its subsidiary AXT-Tongmei and accordingly reduced the purchase of raw materials from AXT and decreased the accounts payable by the Company to AXT for the purpose of reducing related party transactions.

Other payables between the Company and the related party were mainly loans, equipment payments, royalties and the remaining dividends payable to AXT. Other payables between the Company and the related party changed due to the changes in the loans, equipment payments and royalties payable and repaid to AXT.

The long-term payables and the non-current liabilities due within one year between the Company and the related party were mainly the patent cross-licensing fees payable by the Company to AXT.

(IV) Brief summary of related party transactions

The summary of main related party transactions of the Company during the reporting period is as follows:

In RMB0’000 1-1-300


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Item	2021	2020	2019
Purchase with related parties	8,777.63	6,160.82	3,185.49
Sales with related parties	5,981.35	28,197.77	22,144.98
Remuneration of key executives	763.72	735.23	602.27
Purchase of special equipment	576.05	602.54	1,159.69
Loans	-	100.00	100.00
Borrowings	938.65	-	-
Acceptance of technology license	-	805.40	680.62
Purchase of patent use rights	801.26	-	-
Purchase of cross-licensing rights	963.77	-	-
Payment of freight on behalf of AXT	41.54	179.66	252.52
Realization of options paid on behalf	122.72	200.08	44.01

(V) Effects of related party transactions on the financial position and operating results of the Company

During the reporting period, there was no significant difference between the related party purchase of the Company and market prices for the

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same period, which had no significant impact on the Company’s financial conditions and operating results; the related party sales between the Company and AXT are determined by AXT’s organizational structure and its long-term business growth model, which are reasonable. On the one hand, the Company sells products to AXT on a cost-plus basis, limiting the sales price offered to AXT; on the other hand, AXT earns returns from sales of the products from the Company to overseas customers, and such returns are used for the Company’s normal operation and application and R&D. Starting from March 2021, the Company sells products to overseas customers through AXT-Tongmei, and in May 2021, the Company completed the acquisition of AXT-Tongmei. AXT ceases to conduct sales business after performing the sales contracts signed prior to March 2021, which do not have any adverse impact on the Company.

(VI) Letter of commitment on regulating related party transactions

AXT, the controlling shareholder of the Company, makes the following commitment with respect to regulating and reducing the future potential related party transactions in order to protect the interests of the Company’s small and medium shareholders from being damaged:

“1. We will take measures to regulate and minimize the related party transactions with the Issuer in a manner that has no adverse effect on the interests of the Issuer and its other shareholders.

For the related party transactions that need to occur or cannot be avoided within the normal business scope or on reasonable grounds, we and other companies controlled by us will sign transaction agreements with the Issuer according to law, perform the approval procedures in accordance with the provisions of relevant laws, administrative regulations, departmental rules, normative documents and the Articles of Association of Beijing Tongmei Xtal Technology Co., Ltd. then in effect and ensure that the related-party transactions will be implemented on the basis of the principle of fair pricing.
We will strictly perform the necessary obligations (e.g. related parties being recused from voting) in accordance with relevant regulations and comply with the legal approval procedures and information disclosure obligations on related party transactions.
We guarantee that we will not illegally transfer the funds and profits of the Issuer or engage in other acts that are detrimental to the interests of the Issuer, its other shareholders and creditors by using related party transactions.”

XI. Decision-making procedures of related party transactions and options of independent directors during the reporting period

During the reporting period, the review and approval procedures for related party transactions as provided in the AOA and other documents were performed in respect of all the related party transactions incurred by the Company. Meanwhile, in order to regulate and reduce related party transactions, the Issuer formulated, inter alia, the Rules of Procedure for the General Meeting of Shareholders, the Rules of Procedure for the Board of Directors, the Work System for Independent Directors and the Measures for Administering Related Party Transactions, which further specifically provide for decision-making procedures and information disclosure of related party transactions, among others.

The Issuer held the 7^th^ session and 11^th^ session of the first board of directors, at which the independent directors gave the following opinions on the legality of the review procedures performed for related party transactions and the fairness of transaction prices during the reporting period: 1-1-302


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

During the reporting period, the business transaction mode and transaction price between the Company and AXT are determined by AXT’s organizational structure and its long-term business growth model, which are reasonable; starting from March 2021, the Company sells products to overseas customers through AXT-Tongmei, and in May 2021, the Company completed the acquisition of AXT-Tongmei. AXT ceases to conduct sales business after performing the sales contracts signed prior to March 2021. Except above, the related party transactions between the Company and related parties during the reporting period followed the principles of fairness, voluntariness and reasonableness, and the pricing was fair, and the interests of the Company and non-related shareholders were not damaged.

XII. Changes in related parties

For former related parties of the Company during the reporting period, refer to “IX. (VIII) Other related parties” of “Section VII Corporate Governance and Independence” in this Section. There does not exist related party relationship with the Issuer due to dismissal or cancellation of such related parties or otherwise, nor is there follow-up transaction with the Company after cancellation of related party relationship.

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Section VIII Financial Information and Management Analysis

The financial data and related financial information in this section are based on the audited financial statements and the notes thereto, unless otherwise stated. Unless otherwise stated, the financial data and financial indicators of the Company are calculated based on the data in the consolidated accounting statements. The financial data and related notes in this section reflect the main contents of the audited financial statements and notes thereto of the Company for the reporting period. Investors are advised to monitor the full text of the financial statements and the auditors’ report to obtain the complete financial information.

I. Audit opinions of the certified public accountant

Ernst & Young has been engaged by the Company to audit the financial statements of the Company, including the consolidated and the parent company’s balance sheets as at 31 December 2019, 31 December 2020 and 31 December 2021, the consolidated and the parent company’s income statements, statements of cash flows and statements of changes in equity for the years 2019, 2020 and 2021, and the notes to the financial statements, and has issued a standard unqualified audit report entitled “Ernst & Young (2022) Audit No. 61641535_B01”.

In the opinion of Ernst & Young, the financial statements of Beijing Tongmei have been prepared in all material respects in accordance with the provisions of the Accounting Standards for Business Enterprises (ASBE), and have given a fair picture of the consolidated and the company’s financial condition as at 31 December 2019, 31 December 2020 and 31 December 2021 and the consolidated and the company’s operating results and cash flows for the years 2019, 2020 and 2021.

II. Audited financial statements

(I) Consolidated financial statements

1. Consolidated balance sheet

In RMB0’000


Item	30 December 2021	31 December 2020	31 December 2019
Current assets:
Cash and bank balance	17,326.84	38,875.56	10,737.67
Notes receivable	1,479.17	2,186.30	1,820.67
Accounts receivable	21,863.45	15,236.60	12,979.93
Receivables financing	6,188.39	2,985.42	1,522.26
Prepayments	779.51	522.72	324.72
Other receivables	124.14	847.90	443.11
Inventories	38,381.79	28,463.99	24,569.53
Non-current assets due within one year	-	-	200.00
Other current assets	4,880.93	3,253.96	3,204.71
Total current assets	91,024.21	92,372.45	55,802.59
Non-current assets:

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Long-term accounts receivable	-	198.29	298.29
Long-term equity investments	2,822.92	3,479.53	2,883.16
Fixed assets	64,725.38	61,460.57	30,876.13
Construction-in-progress	21,883.21	12,263.80	33,260.93
Right-of-use assets	1,575.09	-	-
Intangible assets	8,109.80	5,940.45	5,841.00
Long-term deferred expenses	1,627.09	827.40	435.48
Deferred income tax assets	3,564.42	3,192.68	1,531.11
Other non-current assets	2,566.58	569.21	2,692.91
Total non-current assets	106,874.49	87,931.93	77,819.01
Total assets	197,898.70	180,304.38	133,621.60
Current liabilities:

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Short-term borrowings	7,782.47	6,806.05	4,005.03
Accounts payable	12,251.26	14,464.09	10,942.07
Accounts received in advance	-	-	91.26
Contract liabilities	515.39	177.72	-
Staff remuneration payables	3,110.61	2,255.41	1,817.66
Taxes payable	556.03	779.18	933.65
Other payables	18,075.46	51,631.71	17,111.06
Non-current liabilities due within one year	518.01	127.07	121.24
Other current liabilities	19.18	16.95	-
Total current liabilities	42,828.41	76,258.16	35,021.97
Non-current Liabilities:
Lease liabilities	1,273.16	-	-
Long-term accounts payable	629.40	1,184.59	1,311.66
Accrued liabilities	504.14	186.08	107.69
Deferred income	9,871.74	5,493.63	3,132.12
Total non-current liabilities	12,278.43	6,864.29	4,551.46
Total liabilities	55,106.84	83,122.46	39,573.43
Owner’s equity:
Share capital	88,542.68	81,767.65	30,110.67
Capital surplus	43,065.35	1,628.37	41,220.29
Other comprehensive loss	3.56	-	-
Special reserve	536.92	456.12	314.63
Surplus reserve	-	1,489.66	1,489.66
Undistributed profit	8,668.67	11,840.13	17,059.03
Equity attributable to owners of Beijing Tongmei	140,817.16	97,181.93	90,194.28
Minority interests	1,974.70	-	3,853.89
Total owners’ equity	142,791.86	97,181.93	94,048.17
Total liabilities and owners’ equity	197,898.70	180,304.38	133,621.60

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2. Consolidated income statement

In RMB0’000

Item	2021	2020	2019
I. Operating revenue	85,734.52	58,317.04	46,222.68
II. Total operating cost
Including: Operating cost	56,129.26	43,339.43	37,240.39
Tax and surcharges	1,049.40	841.69	734.51
Selling expenses	2,118.22	791.80	837.17
Administrative expenses	7,708.87	5,797.25	7,207.62
R&D cost	9,016.64	4,510.82	2,682.64
Finance cost	491.20	-465.83	142.28
Including: Interest expenses	354.07	256.50	94.52
Interest income	161.42	46.41	45.29
Add: Other gains	597.66	222.00	326.84
Investment gain	1,151.22	471.60	163.37
Including: Gain from investments in associates and joint ventures	1,008.95	596.37	247.88
Credit impairment loss (loss shall be stated as“-”)	-182.76	-143.97	-42.17
Asset impairment loss (loss shall be stated as“-”)	-326.97	858.25	-1,410.18
Gain on disposal of assets (loss shall be stated as“-”)	6.18	-	31.10
III. Operating profit	10,466.28	4,909.79	-3,552.99
Add: Non-operating income	119.81	436.52	1,658.69

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Less: Non-operating expenses	253.38	183.25	616.97
IV. Total profit	10,332.71	5,163.06	-2,511.26
Less: Income tax expenses	929.26	-864.36	295.08
V. Net profit	9,403.45	6,027.42	-2,806.35
Including: Net profit of the acquiree prior to combination in a business combination involving entities under 　　　　common control	-45.36	3,974.60	-1,984.52
(1) By the continuity of operations
Net profit from continuing operations	9,403.45	6,027.42	-2,806.35
(2) By ownership
Net profit attributable to owners of Beijing Tongmei	9,458.76	4,822.19	-3,338.90
Minority interests	-55.30	1,205.23	532.55
VI. Other comprehensive loss to be reclassified to profit or loss
Exchange differences from translation of financial statements	3.56	-	-
VII. Total comprehensive income	9,407.01	6,027.42	-2,806.35
Total comprehensive income attributable to owners of Beijing Tongmei	9,462.31	4,822.19	-3,338.90
Total comprehensive income attributable to minority shareholders	-55.30	1,205.23	532.55
VIII. Earnings per share:
(1) Basic earnings per share (RMB/share)	0.11	N/A	N/A
(2) Diluted earnings per share (RMB/share)	0.11	N/A	N/A

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3. Consolidated statement of cash flows

In RMB0’000


Item	2021	2020	2019
I. Cash flows from operating activities:
Cash received from sale of goods or rendering of labor services	69,849.60	50,991.64	47,919.12
Refunds of taxes	3,922.18	3,166.89	2,751.53
Other cash received in relation to operating activities	7,244.58	3,258.25	4,567.04
Sub-total of cash inflows from operating activities	81,016.36	57,416.78	55,237.69
Cash paid for goods and labor services	41,390.25	25,298.91	17,939.54
Cash paid to and on behalf of employees	20,896.79	13,044.36	14,148.36
Payment of various taxes	4,338.67	2,646.13	2,554.06
Other cash paid in relation to operating activities	16,344.08	10,902.35	10,827.96
Sub-total of cash outflows from operating activities	82,969.80	51,891.75	45,469.92
Net cash flows from operating activities	-1,953.44	5,525.03	9,767.77
II. Cash flows from investing activities:
Cash received from sale of investments	198.29	400.00	1.71
Cash received from return on investment	504.61	32.68	276.35
Cash received from the disposal of fixed assets, intangible assets and other long-term assets, net	55.57	0.30	34.40
Net cash amount received from the disposal of subsidiaries and other business units	1,400.00
Other cash received in relation to investing activities	30.82	40.06	1.47
Sub-total of cash inflows from investing activities	2,189.29	473.04	313.92

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Cash paid for acquisition of fixed assets, intangible assets and other long-term assets, net	26,415.79	10,110.59	17,824.56
Cash paid for acquisition of investments	-	100.00	100.00
Other cash paid in relation to investing activities	-	69.19	73.51
Sub-total of cash outflows from investing activities	26,415.79	10,279.78	17,998.07
Net cash flows from investing activities	-24,226.50	-9,806.74	-17,684.15
III. Cash flows from financing activities:
Cash received from investments	3,456.08	273.00	8,938.03
Including: Capital injection into subsidiaries by minority shareholders	2,030.00	273.00	-
Cash received from borrowings	13,576.00	7,100.00	4,000.00
Other cash received in relation to financing activities	938.65	31,447.38	-
Sub-total of cash inflows from financing activities	17,970.73	38,820.38	12,938.03
Cash repayment of borrowings	12,600.00	4,300.00	-
Cash payments for distribution of dividends and profits or for interest expenses	315.64	1,831.51	1,135.82
Including: Distribution of dividends and profits by subsidiaries to minority shareholders	-	1,468.91	-
Other cash paid in relation to financing activities	296.87	136.50	11.12
Sub-total of cash outflows from financing activities	13,212.51	6,268.01	1,146.94
Net cash flows from financing activities	4,758.21	32,552.37	11,791.09
IV. Effect of changes in foreign exchange rate on cash and cash equivalents	-100.83	-158.92	43.65
V. Net increase in cash and cash equivalents	-21,522.56	28,111.73	3,918.36
Add: Balance of cash and cash equivalents at the beginning of the period/year	38,849.39	10,737.67	6,819.30
VI. Balance of cash and cash equivalents at the end of the period	17,326.84	38,849.39	10,737.67

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(II) Financial statements of the parent company

1. Balance sheet of the parent company

In RMB0’000


Item	31 December 2021	31 December 2020	31 December 2019
Current assets:
Cash and bank balance	8,352.32	34,724.84	7,420.91
Notes receivable	1,457.56	2,052.15	1,820.67
Accounts receivable	25,587.12	18,219.65	14,980.82
Receivables financing	3,314.88	2,658.55	1,368.81
Prepayments	166.34	220.06	55.14
Other receivables	8,770.90	6,373.67	6,457.35
Inventories	17,123.63	17,124.64	18,382.89
Other current assets	1,945.01	138.43	241.72
Total current assets	66,717.77	81,511.99	50,728.30
Non-current assets:
Long-term accounts receivable	15,535.08	10,733.37	8,536.00
Long-term equity investments	58,088.74	57,013.58	1,098.46
Fixed assets	15,252.12	14,714.05	15,852.59
Construction-in-progress	1,674.19	2,290.51	2,130.89
Intangible assets	1,488.09	773.02	563.15
Long-term deferred expenses	1,500.78	642.74	215.44
Deferred income tax assets	1,613.66	824.06	930.01

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Other non-current assets	224.46	131.18	18.10
Total non-current assets	95,377.12	87,122.50	29,344.65
Total assets	162,094.90	168,634.49	80,072.95
Current liabilities:
Short-term borrowings	5,005.27	3,804.96	4,005.03
Accounts payable	9,957.17	13,742.58	15,285.13
Accounts received in advance	-	-	14.00
Contract liabilities	64.17	23.61	-
Staff remuneration payables	1,496.81	1,133.09	966.25
Taxes payable	17.90	561.70	427.57
Other payables	9,559.22	46,115.41	14,618.66
Long-term accounts payable due within one year	159.79	-	-
Other current liabilities	8.34	3.53	-
Total current liabilities	26,268.67	65,384.87	35,316.64
Non-current Liabilities:
Long-term accounts payable	629.40	-	-
Accrued liabilities	184.78	186.08	107.69
Total non-current liabilities	814.18	186.08	107.69
Total liabilities	27,082.85	65,570.95	35,424.33
Owner’s equity:
Share capital/paid-in capital	88,542.68	81,767.65	30,110.67
Capital surplus	46,759.14	5,779.46	1,002.97
Surplus reserve	-	1,489.66	1,489.66
Undistributed profit	-289.77	14,026.77	12,045.33
Total owners’ equity	135,012.05	103,063.54	44,648.62
Total liabilities and owners’ equity	162,094.90	168,634.49	80,072.95

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

2. Income statement of the parent company

In RMB0’000

Item	2021	2020	2019
I. Operating income	36,459.67	40,800.67	35,728.47
II. Total operating cost	-	-	-
Including: Operating cost	32,665.08	33,793.90	31,263.66
Tax and surcharges	375.02	421.48	405.17
Selling expenses	218.59	342.68	292.60
Administrative expenses	2,811.86	2,870.61	2,773.27
R&D cost	3,825.36	2,482.61	1,495.02
Finance cost	-105.84	-763.74	118.79
Including: Interest expenses	279.00	57.85	27.50
Interest income	382.51	-	-
Add: Other gains	139.70	33.32	218.09
Investment gain	157.77	72.99	-68.62
Including: Gain from investments in associates and joint ventures	76.13	133.04	20.74
Credit impairment loss (loss shall be stated as “-”)	-108.63	33.02	-39.70
Asset impairment loss (loss shall be stated as “-”)	64.53	449.39	-1,019.72
Gain on disposal of assets (loss shall be stated as “-”)	739.68	-	78.49
III. Operating profit	-2,337.36	2,241.84	-1,451.51
Add: Non-operating income	13.46	5.26	17.52
Less: Non-operating expenses	152.03	97.70	73.99
IV. Total profit	-2,475.93	2,149.40	-1,507.98
Less: Income tax expenses	-789.60	167.95	-227.18

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V. Net profit	-1,686.32	1,981.44	-1,280.80
Including: Net profit from continuing operations	-1,686.32	1,981.44	-1,280.80
VII. Total comprehensive income	-1,686.32	1,981.44	-1,280.80

3. Statement of cash flows of the parent company

In RMB0’000

Item	2021	2020	2019
I. Cash flows from operating activities:
Cash received from sale of goods or rendering of labor services	25,623.15	28,641.09	33,065.51
Refunds of taxes	639.49	1,355.97	1,118.96
Other cash received in relation to operating activities	324.81	609.89	559.94
Sub-total of cash inflows from operating activities	26,587.45	30,606.95	34,744.42
Cash paid for goods and labor services	23,370.16	17,498.71	16,198.74
Cash paid to and on behalf of employees	9,160.87	7,740.07	8,292.92
Payment of various taxes	1,360.30	410.97	1,077.31
Other cash paid in relation to operating activities	6,638.66	4,730.50	5,523.48
Sub-total of cash outflows from operating activities	40,529.98	30,380.26	31,092.46
Net cash flows from operating activities	-13,942.53	226.70	3,651.96
II. Cash flows from investing activities:
Cash received from sale of investments	198.29	-	101.71
Cash received from return on investment	17.11	28.73	26.35
Cash received from the disposal of fixed assets, intangible assets and other long-term assets, net		50.37	16.52
Net cash amount received from the disposal of subsidiaries and other business units	1,400.00	-	-
Other cash received in relation to investing activities	21.29	40.06	1.47
Sub-total of cash inflows from investing activities	1,636.70	119.17	146.04
Cash paid for acquisition of fixed assets, intangible assets and other long-term assets, net	9,344.62	2,393.25	2,263.18
Cash paid for acquisition of investments	6,170.00	1,541.82	1,423.31
Other cash paid in relation to investing activities	900.00	69.19	73.51

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Sub-total of cash outflows from investing activities	16,414.62	4,004.26	3,760.00
Net cash flows from investing activities	-14,777.92	-3,885.09	-3,613.96
III. Cash flows from financing activities:
Cash received from investments	1,426.08	-	-
Cash received from borrowings	8,800.00	3,800.00	4,000.00
Other cash received in relation to financing activities	-	31,447.38	-
Sub-total of cash inflows from financing activities	10,226.08	35,247.38	4,000.00
Cash repayment of borrowings	7,600.00	4,000.00	-

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Cash payments for distribution of dividends and profits or for interest expenses	239.96	191.82	60.86
Sub-total of cash outflows from financing activities	7,839.96	4,191.82	60.86
Net cash flows from financing activities	2,386.11	31,055.56	3,939.14
IV. Effect of changes in foreign exchange rate on cash and cash equivalents	-38.18	-93.23	16.91
V. Net increase in cash and cash equivalents	-26,372.52	27,303.94	3,994.05
Add: Balance of cash and cash equivalents at the beginning of the period/year	34,724.84	7,420.91	3,426.86
VI. Balance of cash and cash equivalents at the end of the period	8,352.32	34,724.84	7,420.91

III. Basis of preparation of financial statements and scope of consolidated statements

(I) Basis of preparation of financial statements

The financial statements was prepared on a going concern basis, based on actual transactions and events, and in accordance with the Accounting Standards for Business Enterprises - Basic Standards and various specific accounting standards, the Guidance on the Application of Accounting Standards for Business Enterprises, the Interpretation of Accounting Standards for Business Enterprises and other relevant regulations issued by the MOF, as well as the disclosure requirements of CSRC’s Compilation Rules No. 15 for Information Disclosure by Companies Offering Securities to the Public - General Provisions on Financial Reporting.

(II) Scope of consolidation and changes

Scope of consolidated financial statements

The scope of consolidation of consolidated financial statements is determined on the basis of control, and all subsidiaries (including the divisible portion of the investee controlled by the Company) are included in the consolidated financial statements.

During the reporting period, the subsidiaries within the scope of the Company’s consolidated financial statements were as follows: 1-1-316


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Name of subsidiary	Whether included in the scope of consolidation
		31 December 2021	31 December 2020	31 December 2019
Baoding Tongmei	Yes	Yes	Yes
Chaoyang Tongmei	Yes	Yes	Yes
Nanjing Jinmei	Yes	Yes	Yes
Chaoyang Jinmei	Yes	Yes	Yes
Beijing Boyu	Yes	Yes	Yes
AXT-Tongmei	Yes	Yes	N/A
Chaoyang Xinmei	Yes	N/A	N/A
Tianjin Boyu	Yes	Yes	Yes
Chaoyang Boyu	Yes	Yes	Yes

Changes in the scope of consolidation during the reporting period

In December 2020, AXT and other minority shareholders increased their capital in the Company with their respective 100% equity interests in Baoding Tongmei, Chaoyang Tongmei, Nanjing Jinmei, Chaoyang Jinmei and Beijing Boyu, pursuant to which the above five entities became wholly-owned subsidiaries of the Company in December 2020, and the acquisition was a business combination involving entities under common control.

In February 2021, the Company invested in and established Chaoyang Xinmei. In June 2021, the Company paid the consideration to AXT and completed the acquisition of 100% equity interest in AXT-Tongmei, pursuant to which AXT-Tongmei became a wholly-owned subsidiary of the Company in June 2021, and the acquisition was a business combination involving entities under common control.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

IV. Key audit matters and criteria for determining major matters or level of significance related to financial information

(I) Key audit matters

Key audit matters are those matters that Ernst & Young considers, based on its professional judgment, to be most significant to the audit of the financial statements for the years 2019, 2020 and 2021 and for the six months ended 30 June 2021, respectively. These matters are addressed by auditing the financial statements as a whole and issuing an audit opinion, and Ernst & Young does not express an opinion on these matters individually. Ernst & Young has identified the following matters as key audit matters to be communicated in the audit report.

A summary of the key audit matters identified by Ernst & Young during its audit is as follows:

Key audit matters

How to address key audit matters in an audit

Revenue recognition

For 2021, 2020 and 2019, operating revenue in the consolidated financial statements was RMB857,345,238.40, RMB583,170,404.87 and RMB462,226,756.77, respectively. As operating revenue is a key performance indicator of Beijing Tongmei and has a significant impact on the consolidated financial statements, Ernst & Young identified the above matter as a key audit matter. The accounting policies and disclosures for operating revenue in the financial statements are set out in Note III.22 and 24, Note V.36 and Note XV.5 to the financial statements in the Audit Report issued by Ernst & Young.

The procedures performed by Ernst & Young for operating revenue in the audit of financial statements for 2021, 2020 and 2019 included: (1) Understand, evaluate and test management’s design and implementation of internal controls over operating revenue; (2) Examine major sales contracts or orders, identify key terms of contracts, and conduct visits to key customers to understand and assess management’s accounting policies for recognition of different categories of operating revenue; (3) Perform analytical review procedures by comparing the changes in revenue and gross margin in each category for 2021, 2020 and 2019, and making comparative analysis with comparable companies in the same industry; (4) Perform detail tests by checking supporting documents related to revenue recognition, including sales contracts or orders, delivery notes, sales invoices, proof of receipt, customs declarations, bills of lading and bank receipts; (5) Perform background investigation for key customers to check for matters that have a material impact on the Company’s statements; (6) For revenue transactions around the balance sheet date, check supporting documents including sales contracts or orders, sales invoices, proof of receipt, customs declarations and bills of lading, and also check subsequent bank accounts for large sales returns or cut-off issues; (7) In conjunction with the audit of accounts receivable, perform external confirmation procedures on the amount of revenue transactions and the accounts receivable balance at the balance sheet date, and perform alternative testing on a sample of unconfirmed amounts;

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(8) Check the related disclosure of operating revenue in the financial statements.

(II) Criteria for determining major matters or materiality related to financial information

The Company determines the materiality of financial information in terms of both the nature and the amount of the matter based on the industry where it operates and the stage of its development. In determining the materiality of the nature of the matter, the Company mainly considers whether the matter is conducted in the ordinary and usual course of business in nature and whether it has a significant impact on its financial condition, operating results and cash flows, etc. In determining the materiality of the amount of the matter, based on the nature and scale of its business, the Company’s criteria for determining major matters related to financial information as disclosed in this section are 2% of the consolidated operating revenue, or matters that the Company considers to be significant, or matters that have a significant impact on the Company’s future operating results, financial condition, cash flows, liquidity and ability to continue operations, and may affect investors’ judgment on investments.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

V. Product (or service) characteristics, business model, industry competition, external market environment and other factors and their changing trends, as well as their possible impact or risk on future profitability (operating capacity) or financial condition

(I) Main factors affecting the Company’s future profitability (operating capacity) or financial condition and their changing trends

1. Product characteristics

The Company is a world-renowned semiconductor materials technology company, mainly engaged in the development, production and sales of InP substrates, GaAs substrates, germanium substrates, PBN materials and other high-purity materials. Our InP substrate, GaAs substrate and germanium substrate products can be used to produce RF devices, optical modules, LEDs (Mini LED and Micro LED), lasers, detectors, sensors, space solar cells and other devices, and have broad application potential in 5G communications, data centers, next-generation displays, artificial intelligence, unmanned vehicles, wearable devices, aerospace and other fields. Our PBN materials and other high-purity material products guarantee the high quality supply of upstream materials for our semiconductor substrates from the source, and also have been widely applied in compound semiconductor, semiconductor equipment, OLED, LED and other industries.

With excellent key performance indicators such as dislocation density, resistivity uniformity, flatness and surface granularity, the Company’s semiconductor substrate products can meet the performance requirements from premium markets such as 5G RF power amplifiers, Mini LED, Micro LED, wearable device sensors, automotive LIDAR and biometric lasers. The Company is one of the few III-V compound semiconductor substrate companies in the world whose products can be applied in premium markets.

Our products have complete specifications, including 2-6 inch InP substrates, 1-8 inch GaAs substrates, 2-6 inch germanium single crystal substrates, PBN materials and high-purity gallium with a purity of 6N, 7N and 8N. In addition, with high flexibility in production process, the Company can produce tailored substrate products with different specifications based on the different requirements of downstream customers, which gives the Company an advantage in complete product specifications and customized production as compared to its international competitors.

In summary, the Company has a strong product advantage over its domestic and foreign competitors.

2. Business model

Compound semiconductor substrate material manufacturers focus on technology and process accumulation and have a high requirement for the quality of raw materials, a demanding customer verification process and a high degree of product customization, which places high demands on business management capabilities such as R&D, sales, and production. For the research and development, compound semiconductor substrate material manufacturers need to increase investment in research and development and continuously engage in technological innovation so as to have a certain technical advantage in the industry competition. As for procurement, compound semiconductor substrate material manufacturers have demanding requirements for the quality of raw materials and production equipment since high-quality, highly-reliable raw materials and production equipment is an important guarantee for the performance and stability of compound semiconductor substrate materials. As for sales, compound semiconductor substrate material manufacturers need to pay more efforts on product technology verification and after-sales services. 1-1-320


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

3. Industry competition

Based in China and serving the world, the Company has established close cooperation with many well-known epitaxial, chip and device companies around the world, and its main customers include professional epitaxial manufacturers, foundry manufacturers, chip and device manufacturers, such as 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 and Everbright Photonics, covering almost all the well-known companies in the global III-V compound semiconductor industry chain. According to Yole, the Company has outstanding market and industry position with the second largest market share of InP substrate in the world in 2020 and the fourth largest market share of GaAs substrate in the world in 2019.

Although the Company has possessed a leading industry position and advantages in relevant products, the Company still needs to maintain and further enhance its competitiveness in the industry by continuously strengthening its technical strength and expanding its production and sales scale.

4. External market environment for the industry where the Company operates

In terms of external market environment, the Company’s future operating results and financial condition are mainly subject to global economic and industry cycles. Demands for semiconductor products may fluctuate with the changes in global economic environment and industry cycles, which in turn may affect the Company’s operating results and financial condition.

The global semiconductor industry chain has historically experienced two geographic industrial shifts, the first from the United States to Japan in the 1970s and the second from Japan to South Korea and Taiwan, China in the 1980s. Now the global semiconductor industry is shifting to Chinese Mainland. While today, semiconductor materials are still a relatively weak link in China’s semiconductor industry. As the semiconductor industry is shifting to Chinese Mainland, the world’s largest semiconductor end-use market, more domestic and foreign semiconductor companies are expected to be attracted to build factories in Chinese Mainland, which will further enhance the overall development of the domestic compound semiconductor industry chain. It is expected that the supporting facilities for the compound semiconductor industry chain will be significantly improved and their market share will continue to increase in Chinese Mainland in the future.

As III-V compound semiconductor substrate materials, though with excellent performance, have long been limited by the small downstream application market and their own high cost, their market size is much lower than that of silicon substrate materials. However, in recent years, III-V compound semiconductors have been applied in several new areas, such as Mini LED, Micro LED, wearable device sensors, automotive LIDAR, biometric lasers, etc., which creates new increments for substrate companies. These demands will be generated in the process of industrialization. Due to the low base size of III-V compound substrate market, any release of demands in each of the above markets will greatly boost the development of the entire III-V semiconductor substrate market. In addition, in the markets of optical modules for base stations and data centers, smartphones and RF devices for base stations where III-V compound semiconductors were inherently applied, there have emerged opportunities for 5G base stations and data centers development and 5G smartphone upgrade with the rapid development of 5G communications, big data and cloud computing, which will create a big growth point for the III-V semiconductor substrate market. 1-1-321


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(II) Possible impact or risk of the above factors on the future profitability (operating capacity) or financial condition of the Company

The possible impact or risk of the above factors on the future profitability (operating capacity) or financial condition of the Company is as follows:

1. Growth in operating revenue

In recent years, the semiconductor industry has generally maintained a growth with emerging downstream demands and increasing customer orders and demands due to the shifting of the semiconductor industry to the domestic market. With the advantages in technology and process accumulation, new product development capability, diverse product lines, product quality and customer resources, the Company has generally maintained a growth momentum in operating revenue with an average annual compound growth rate of 36.19%. The semiconductor substrate materials realized revenues of RMB357,712,900, RMB443,460,600 and RMB626,751,800 during the reporting period, with a compound growth rate of 32.37% in the past three years. In the future, the operating revenue of the Company is expected to continue to grow.

2. Gross profit margin

In view of their high customization and the higher requirements by downstream customers on their specifications, product standards and technical parameters, compound semiconductor substrate materials are typical high-grade, precise and advanced materials and the industry has high barriers in technology, market and customer verification. During the reporting period, the consolidated gross profit margin of the Company was 19.43%, 25.68% and 34.53%, respectively, showing an overall increase. The Company will further enhance its market position and continue to improve its gross profit margin through product upgrade, process improvement, product offering enrichment, cost control enhancement and business negotiation enhancement.

3. R&D investment

Since its establishment, the Company has been committed to providing innovation-driven, high-performance products and technology solutions for the semiconductor industry, and has maintained a high level of investment in research and development. After years of accumulation, the Company has developed a large number of core technologies with independent intellectual property rights and applied them to its main products, which have gained recognition from customers. During the reporting period, the R&D expenses of the Company amounted to RMB26,826,400, RMB45,108,200 and RMB90,166,400, accounting for 5.80%, 7.73% and 10.52% of the operating revenue, respectively, which remained at a high level. In order to enhance the market competitiveness of its products, the Company will continue to attach importance to R&D and the proportion of R&D investment to operating revenue will remain at a relatively high level.

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VI. Significant accounting policies and estimates

(I) Business combinations involving entities under common control

A business combination involving entities under common control is a business combination in which all of the combining entities are ultimately controlled by the same party or parties both before and after the business combination, and that control is not transitory. For a business combination involving entities under common control, the party that, on the combination date, obtains control of another entity participating in the combination is the acquirer, while that other entity participating in the combination is the acquiree. The combination date is the date on which the acquirer effectively obtains control of the acquiree.

Assets and liabilities that are obtained by the acquirer in a business combination involving entities under common control (including the goodwill generated by the ultimate holding party in the acquisition of the acquiree) shall be measured at their carrying amounts at the combination date as recorded in the financial statements of the ultimate holding party. The difference between the carrying amount of the net assets obtained and the carrying amount of the consideration paid for the combination (or the aggregate face value of shares issued as consideration) shall be adjusted against share premium under capital surplus. If the capital surplus is not sufficient to absorb the difference, any excess shall be adjusted against retained earnings.

If a business combination involving entities under common control is achieved in stages through multiple transactions, the relevant assets and liabilities of the acquiree shall be consolidated in the comparative statements of the consolidated financial statements no earlier than the timepoint at which the acquirer and the acquiree are both under the control of the ultimate holding party, and the increase in net assets resulting from the combination shall be adjusted to shareholders’ equity in the comparative statements.

(II) Consolidated financial statements

The scope of consolidation of consolidated financial statements is determined on the basis of control, including the financial statements of the Company and all of its subsidiaries. A subsidiary is an entity that is controlled by the Company (including enterprises, the divisible portion of the investee and a structured entity that is controlled by the Company).

In the preparation of the consolidated financial statements, subsidiaries adopt the same fiscal year/period and accounting policies as those of the Company. All intra-group assets, liabilities, equities, revenues, expenses and cash flows resulting from intra-group transactions are eliminated in full on consolidation.

Where the amount of losses of a subsidiary attributable to minority shareholders exceeds the opening balance of shareholders’ equity attributable to minority shareholders of the subsidiary, the excess shall still be allocated against minority interests.

For subsidiaries acquired through business combinations involving entities under common control, the operating results and cash flows of the acquiree shall be included in the consolidated financial statements from the beginning of the period in which the combination occurs. While preparing the comparative financial statements, adjustments are made to related items in the financial statements for the prior period as if the reporting entity established through combination had been in existence since the ultimate holding party began to exercise control.

The Company shall reassess whether it controls an investee if changes in relevant facts and circumstances result in changes to one or more of elements of control. 1-1-323


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Changes in minority interests without loss of control are accounted for as equity transactions.

(III) Foreign currency operations and translation of statements

For foreign currency transactions, the Company translates the amounts denominated in foreign currency to those denominated in functional currency.

Upon initial recognition, foreign currency transactions are translated into the functional currency using the spot exchange rate at the dates of the transactions. At the balance sheet date, foreign currency monetary items are translated using the spot exchange rate at the balance sheet date. The resulting differences in the translation of settlement and monetary items are recognized in the profit or loss for the current period, except for those arising from special foreign currency borrowings related to the acquisition and construction of assets eligible for capitalization, which are treated in accordance with the principle of capitalization of borrowing costs. Foreign currency non-monetary items measured at historical cost continue to be translated using the spot exchange rate at the dates of the transactions, without changing its functional currency amounts. Foreign currency non-monetary items measured at fair value are translated using the spot exchange rate at the fair value recognition dates, and the resulting difference is recognized in the profit or loss or other comprehensive income for the current period, depending on the nature of non-monetary items.

For foreign operations, the Company prepares its financial statements by translating its functional currency into RMB. Assets and liabilities in the balance sheet are translated using the spot exchange rate at the balance sheet date, and shareholders’ equity items, except for “undistributed profit”, are translated using the spot exchange rate at the time of occurrence. The income and expense items in the income statement are translated using the weighted-average exchange rate for the period in which transactions occur (unless exchange rate fluctuations make the translation at that rate inappropriate, in which case the exchange rate is the spot rate at the dates of the transactions). Translation differences arising from the above translation of foreign currency financial statements are recognized as other comprehensive income. When a foreign operation is disposed of, other comprehensive income related to the foreign operation is transferred to the profit or loss for the current period, with partial disposal calculated on a pro rata basis.

Cash flows in foreign currencies, as well as those of overseas subsidiaries, are translated using the average exchange rate for the period in which the cash flows occur (unless exchange rate fluctuations make the translation at that rate inappropriate, in which case the exchange rate is the spot rate at the dates when the cash flows occur). The effect of changes in foreign exchange rates on cash is presented separately in the statement of cash flows as an adjustment.

(IV) Financial instruments

A financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

1. Recognition and derecognition of financial instruments

The Company recognizes a financial asset or a financial liability when it becomes a party to the contractual provisions of a financial instrument.

The Company derecognizes a financial asset (or part of a financial asset, or part of a group of similar financial assets), that is to be written off from the accounts and the balance sheet when the following criteria are met:

(1) the rights to receive cash flows from the financial asset have expired; 1-1-324


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(2) the Company has transferred its rights to receive cash flows from the financial asset, or has an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; and either (a) has transferred substantially all the risks and rewards of ownership of the financial asset, or (b) has neither transferred nor retained substantially all the risks and rewards of ownership of the financial asset, but has waived control of the financial asset.

If the underlying obligation of a financial liability has been fulfilled, cancelled, or has expired, the financial liability is derecognized. If an existing financial liability is replaced by the same creditor with a new financial liability that has substantially different terms, or if the terms of an existing financial liability are substantially revised, such replacement or revision is accounted for as the derecognition of the original liability and the recognition of a new liability, and the resulted difference is recognized in the profit or loss for the current period.

Regular way purchase or sale of financial assets is recognized and derecognized on a transaction-date basis for accounting purposes. Regular way purchase or sale of financial assets refers to the receipt or delivery of financial assets within the period as specified by law or general practice under the terms of a contract. The transaction date is the date on which the Company undertakes to buy or sell a financial asset.

2. Changes in contracts due to the benchmark interest rate reform

As a result of the benchmark interest rate reform, the terms of certain financial instruments of the Company have been amended to change the calculation with reference to the benchmark interest rate and make other changes to the terms of the financial instruments.

For financial assets or financial liabilities accounted for under the effective interest rate method, if the basis for determining their contractual cash flows is changed only as a direct result of the benchmark interest rate reform, and the basis for determination before and after the change is economically equivalent, the Company does not assess whether the change results in derecognition, nor does it adjust the carrying amount of the financial assets or financial liabilities, and the Company recalculates the effective interest rate based on the changed future cash flows and uses it as the basis for subsequent measurement. For financial assets or financial liabilities that undergo other changes at the same time, the Company first accounts for the changes resulting from the benchmark interest rate reform in accordance with the above provisions, and then assesses whether the other changes result in material modifications.

3. Classification and measurement of financial assets

The Company’s financial assets are, on initial recognition, classified into financial assets at fair value through profit or loss, financial assets measured at amortized cost and financial assets at fair value through other comprehensive income based on the business model of the Company’s financial asset management and the characteristics of the financial assets’ contractual cash flows.

A financial asset is measured at fair value on initial recognition, except for accounts receivable or notes receivable arising from the sale of goods or rendering of services that do not contain a significant financing component or do not consider a financing component of less than one year, which shall be initially measured at the transaction price.

For financial assets at fair value through profit or loss, the related transaction costs are directly recognized in the profit or loss for the current period, and the related transaction costs of other categories of financial assets are included in their initial recognition amounts.

Subsequent measurement of a financial asset depends on its classification: 1-1-325


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(1) Debt instrument investments measured at amortized cost

A financial asset is classified as a financial asset measured at amortized cost if both of the following conditions are met: the business model for managing the financial asset is to collect the contractual cash flows; and the contractual terms of the financial asset provide that the cash flows arising on a specific date are solely payments of principal and interest based on the outstanding principal amount. Interest income from such financial assets is recognized using the effective interest method, and any gain or loss arising from derecognition, modification or impairment of such assets is recognized in the profit or loss for the current period.

(2) Debt instrument investments at fair value through other comprehensive income

A financial asset is classified as a financial asset at fair value through other comprehensive income if both the following conditions are met: the Company’s business model for managing the financial asset is to both collect the contractual cash flows and sell the financial asset; the contractual terms of the financial asset provide that the cash flows arising on a specific date are solely payments of principal and interest based on the outstanding principal amount. Interest income from such financial assets is recognized using the effective interest method. Changes in fair value are recognized in other comprehensive income, except for interest income, impairment losses and exchange differences which are recognized in the profit or loss for the current period. When a financial asset is derecognized, the cumulative gain or loss previously recognized in other comprehensive income is transferred from other comprehensive income and recognized in the profit or loss for the current period.

(3) Financial assets at fair value through profit or loss

Financial assets other than those measured at amortized cost and those measured at fair value through other comprehensive income as described above are classified as financial assets at fair value through profit or loss. For such financial assets, fair value is used for subsequent measurement, and all changes in fair value are recognized in the profit or loss for the current period.

4. Classification and measurement of financial liabilities

The Company’s financial liabilities are, on initial recognition, classified into financial liabilities at fair value through profit or loss and other financial liabilities. For financial liabilities at fair value through profit or loss, the related transaction costs are directly recognized in the profit or loss for the current period, and the related transaction costs of other financial liabilities are included in their initial recognition amounts.

Subsequent measurement of a financial liability depends on its classification:

(1) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include held-for-trading financial liabilities (including derivatives that are financial liabilities) and financial liabilities designated as at fair value through profit or loss on initial recognition. Held-for-trading financial liabilities (including derivatives that are financial liabilities) are subsequently measured at fair value, with changes in fair value recognized in the profit or loss for the current period. Financial liabilities designated as at fair value through profit or loss are subsequently measured at fair value, with changes in fair value recognized in the profit or loss for the current period, except for those arising from changes in the Company’s own credit risk which are recognized in other comprehensive income; if the recognition of changes in fair value arising from changes in the Company’s own credit risk in other comprehensive income would result in or enlarge the accounting mismatch in profit or loss, the Company would recognize all fair value changes (including the effect arising from changes in its own credit risk) in the profit or loss for the current period. 1-1-326


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(2) Other financial liabilities

Such kind of financial liabilities are subsequently measured at amortized cost by using the effective interest method.

5. Impairment of financial instruments

The Company performs impairment treatment on financial assets measured at amortized cost and debt instrument investments at fair value through other comprehensive income and provides impairment provision on the basis of expected credit losses.

For receivables and contract assets which do not contain significant financing components, the Company uses a simplified measurement method to provide loss provision based on the amount equivalent to lifetime expected credit losses.

For receivables which contain significant financing components, the Company uses a simplified measurement method to provide loss provision based on the amount equivalent to lifetime expected credit losses.

For a financial asset other than those described above using the simplified measurement method, the Company assesses whether its credit risk has increased significantly since the initial recognition on each balance sheet date. If its credit risk has not increased significantly since the initial recognition, representing stage 1, the loss provision is made at an amount equivalent to 12-month expected credit losses, and the interest income is measured by the carrying amount and the effective interest rate; if its credit risk has increased significantly since initial recognition but not credit-impaired, representing stage 2, the loss provision is made at an amount equivalent to lifetime expected credit losses, and the interest income is measured by the carrying amount and the effective interest rate; if the financial asset is credit-impaired after initial recognition, representing stage 3, the loss provision is made at an amount equivalent to lifetime expected credit losses, and the interest income is measured by the amortized cost and the effective interest rate.

The Company assesses the expected credit losses of financial instruments based on individual items and groups. The Company considers the credit risk characteristics of different customers and assesses the expected credit losses of accounts receivable, receivables financing, notes receivable, other receivables and long-term accounts receivables based on the aging groups.

For accounts receivable classified as groups, a bad debt provision is required in full or in part when there is conclusive evidence that the receivables are uncollectible or have a low probability of collection, such as bankruptcy of the debtor, death of the debtor, insolvency, inability to recover the payment through litigation or collection, and severe cash flow deficiency. In addition, the Company measures the bad debt provision based on the lifetime expected credit losses at the end of each quarter. The Company classifies the risk characteristics of accounts receivable into two groups as follows:

Level 1 group, i.e. the low-risk group, which includes the related parties of the Group and the subordinate enterprises of large state-owned groups;

Level 2 group, i.e. the medium-risk group, which includes enterprises other than those included in Level 1 group.

The Company assesses the above two levels of accounts receivable groups separately using the expected credit loss model, and the expected credit loss rate is detailed in Note V.3 to the financial statements in the Audit Report issued by Ernst & Young. 1-1-327


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Refer to Note VIII.3 to the financial statements in the Audit Report issued by Ernst & Young for the disclosures regarding the Company’s criteria for determining a significant increase in credit risk, the definition of the credit-impaired financial assets, and the assumption for measuring expected credit losses.

When the Company no longer reasonably expects to be able to fully or partially recover the contractual cash flows of a financial asset, the Company writes down the carrying amount of the financial asset directly.

6. Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on the net basis, or to realize the assets and settle the liabilities simultaneously.

7. Transfer of financial assets

The financial asset is derecognized if the Company transfers substantially all the risks and rewards of ownership of the financial asset to transferee; and the financial asset is not derecognized if the Company retains substantially all the risks and rewards of ownership of the financial asset.

If the Company neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset, the transaction is accounted for as follows: if the Company has not retained control, the financial asset is derecognized and any resulting assets or liabilities are recognized; or if the Company has retained control, the financial asset is recognized to the extent of its continuing involvement in the transferred financial asset and an associated liability is recognized accordingly.

(V) Inventories

Inventories include raw materials, work-in-process, semi-finished products, goods in stock and goods transferred out.

Inventories are initially measured at cost. Cost of inventories comprises purchase costs, processing costs and other costs. The actual cost of inventories transferred out is determined by using the weighted average method.

The Company adopts a perpetual inventory system.

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At the balance sheet date, inventories are measured at the lower of cost and net realizable value. If the cost of inventories is higher than the net realizable value, a provision for decline in value of inventories is recognized in the profit or loss for the current period. If factors that previously resulted in the provision for decline in value of inventories no longer exist so that the net realizable value of inventories is higher than their carrying amounts, the amount of the write-down is reversed. The reversal is limited to the amount originally provided for the provision for the decline in value of inventories, and is recognized in the profit or loss for the current period. Provision for decline in value of inventories is made for auxiliary materials, semi-finished products and finished goods aged more than one year, while a separate provision is made for separately identified deteriorated, damaged or unusable inventories.

Net realizable value is the estimated selling price in the ordinary course of business deducted by the estimated costs to completion, the estimated selling expenses and the related taxes. Provision for decline in values of inventories is made on the basis of individual inventory items/categories for raw materials and finished goods.

1. Specific method for the provision for inventory depreciation:

The Issuer made a full provision for inventory depreciation on auxiliary materials aged more than one year, a net realizable value test for semi-finished and finished products aged more than one year if they have been purchased by other internal companies for use as the main material for production, and a full provision for inventory depreciation if they have not been purchased by other internal companies for use as the main material for production, according to the respective inventory categories in the accounts. In addition, the Issuer and its subsidiaries made a provision for inventory depreciation on other inventories based on the net realizable value test.

2. Method and basis for determining the net realizable value:

(1) Since the Issuer has made a full provision for inventory depreciation for auxiliary materials aged more than one year as well as semi-finished and finished products aged more than one year that have not been purchased by other internal companies for use as the main material for production, no further net realizable value test shall be performed for these inventories.

(2) The specific methods for determining the net realizable value of GaAs, InP, germanium polycrystals, single crystal and substrates classified as semi-finished products and unfinished products are as follows: for single crystals, the proportion of the current production input amount to the total substrate cost is used to determine the proportion of single crystal stage completion, and then the amount is recognized based on the ex-tax selling price of the substrate around the balance sheet date, less the estimated costs to be incurred from single crystal processing to the substrate, the possible selling expenses and related taxes. For polycrystals, the proportion of the current production input amount to the total single crystal cost is used to determine the proportion of polycrystalline stage completion, and then the proportion of single crystal stage completion is determined based on the aforementioned method, and then the amount is recognized based on the ex-tax selling price of the substrate around the balance sheet date, less the estimated costs to be incurred from polycrystalline to single crystal and from single crystal to substrate, possible selling expenses and related taxes.

(3) For GaAs, InP and germanium substrates classified as unfinished products, the cost to be incurred to completion is estimated based on the approximate production volume of the processes in which they are used. The amount is recognized based on the ex-tax selling price around the balance sheet date, less the estimated costs to be incurred to completion, possible selling expenses and related taxes. 1-1-329


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(4) For GaAs, InP and germanium substrates classified as finished products, the amount is recognized based on the ex-tax selling prices around the balance sheet date, less possible selling expenses and related taxes.

(5) Please refer to the above method for PBN-related products and high-purity metals and compounds, etc.

(VI) Long-term equity investments

Long-term equity investments include equity investments in subsidiaries, joint ventures and associates.

A long-term equity investment is recorded at its initial investment cost on acquisition. For a long-term equity investment acquired through a business combination involving entities under common control, the initial investment cost of the long-term equity investment is the acquirer’s share of the carrying amount of acquiree’s equity at the combination date in the consolidated financial statements of ultimate holding party; the difference between the initial investment cost and the carrying amount of the consideration paid for the combination shall be adjusted to capital surplus (if the capital surplus is not sufficient to absorb the difference, any excess shall be adjusted against retained earnings). The other comprehensive income before the combination date is accounted for in the disposal of such investment under the same accounting basis applied by the acquiree in direct disposal of relevant assets and liabilities. The shareholders’ equity recognized due to acquiree’s changes other than net profit or loss, other comprehensive income and distribution of profits is recognized in the profit or loss for the current period during disposal of such investment. If the investment remains to be classified as long-term equity investment after disposal, the equity is carried forward on a pro rata basis. If the investment is reclassified as financial instruments after disposal, the equity is carried forward entirely. For a long-term equity investment through a business combination not involving entities under common control, the initial investment cost of the long-term equity investment is the cost of combination (for a business combination not involving entities under common control achieved in stages that involves multiple transactions, the initial investment cost is carried at the aggregate of the carrying amount of the acquirer’s previously held equity interest in the acquiree and the new investment cost incurred on the acquisition date). The cost of combination is the aggregate of the fair values of the assets given, liabilities incurred or assumed, and equity securities issued by the acquirer. Other comprehensive income recognized using equity method before the acquisition date should be accounted for in the disposal of such investment under the same accounting basis applied by the acquiree in direct disposal of relevant assets and liabilities. The shareholders’ equity recognized due to acquiree’s changes other than net profit or loss, other comprehensive income and distribution of profits is recognized in the profit or loss for the current period during disposal of such investment. If the investment remains to be classified as long-term equity investment after disposal, the equity is carried forward on a pro rata basis. If the investment is reclassified as financial instruments after disposal, the equity is carried forward entirely. For a long-term equity investment acquired other than through a business combination, the initial investment cost is determined as follows: for a long-term equity investment acquired by paying cash, the initial investment cost is the actual purchase price paid and those costs, taxes and other necessary expenditures directly attributable to the acquisition of the long-term equity investment; for a long-term equity investment acquired by the issue of equity securities, the initial investment cost is the fair value of the securities issued.

For a long-term equity investment where the Company can exercise control over the investee, the long-term investment is accounted for using the cost method in the Company’s individual financial statements. Control is the power over an investee. An investor must have exposure or rights to variable returns from its involvement with the investee, and the ability to use its power over the investee to affect the amount of the investor’s returns.

Under the cost method, the long-term equity investment is measured at its initial investment cost. The cost of long-term equity investment is adjusted if capital is contributed or withdrawn. The cash dividend or profit distribution declared by the investee is recognized as investment income for the period. 1-1-330


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

The equity method is adopted when the Company has joint control, or exercises significant influence on the investee. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control with other parties over the formulation of those policies.

Under the equity method, where the initial investment cost of a long-term equity investment exceeds the investor’s interest in the fair values of the investee’s identifiable net assets at the investment date, the long-term equity investment is measured at the initial investment cost. Where the initial investment cost is less than the investor’s interest in the fair values of the investee’s identifiable net assets at the investment date, the difference is charged to the profit or loss for the current period, and the cost of the long-term equity investment is adjusted accordingly.

Under the equity method, the Company recognizes its share of the net profits or losses and other comprehensive income made by the investee as investment income or losses and other comprehensive income respectively, and adjusts the carrying amount of the investment accordingly. The Company recognizes its share of the investee’s net profits or losses after making appropriate adjustments to the investee’s net profits based on the fair value of the investee’s identifiable assets at the acquisition date, using the Company’s accounting policies and periods, and eliminating the portion of the profits or losses arising from internal transactions with its joint ventures and associates, attributable to the investing entity according to its share ratio (but impairment losses for assets arising from internal transactions shall be recognized in full), except for the disposal of assets that consist of operations. The carrying amount of the investment is reduced based on the Company’s share of any profit distributions or cash dividends declared by the investee. The Company’s share of net losses of the investee is recognized to the extent that the carrying amount of the investment together with any long-term interests that in substance form part of its net investment in the investee is reduced to zero, except that the Company has the obligations to assume additional losses. The Company adjusts the carrying amount of the long-term equity investment for any changes in shareholders’ equity of the investee (other than net profits or losses, other comprehensive income, and profit distribution) and includes the corresponding adjustments in the shareholders’ equity.

On disposal of a long-term equity investment, the difference between the proceeds actually received and the carrying amount is recognized in the profit or loss for the current period; for a long-term equity investment ceased to be accounted for using the equity method on disposal, the other comprehensive income originally accounted for using the equity method is accounted for under the same accounting basis applied by the acquiree in direct disposal of relevant assets and liabilities. The shareholders’ equity recognized due to acquiree’s changes other than net profit or loss, other comprehensive income and distribution of profits is recognized in the profit or loss for the current period in full; for a long-term equity investment remains to be accounted for using the equity method, the other comprehensive income originally accounted for using the equity method is accounted for under the same accounting basis applied by the acquiree in direct disposal of relevant assets and liabilities, and is transferred to the profit or loss for the current period according to the proportion disposed of. The shareholders’ equity recognized due to acquiree’s changes other than net profit or loss, other comprehensive income and distribution of profits is transferred to the profit or loss for the current period on a pro-rata basis.

(VII) Fixed assets

A fixed asset is recognized only when the economic benefits associated with the asset will probably flow into the Company and the cost of the asset can be measured reliably. Subsequent expenditure incurred for a fixed asset that meets the recognition criteria shall be included in the cost of the fixed asset, and the carrying amount of the component of the fixed asset that is replaced shall be derecognized. Otherwise, such expenditure shall be recognized in the profit or loss for the current period in which it is incurred. 1-1-331


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Fixed assets are initially measured at cost. The cost of a purchased fixed asset comprises the purchase price, relevant taxes and other expenditure that directly attributable to the asset and incurred before bringing the asset to working condition for intended use.

Depreciation is calculated using the straight-line method. The useful lives, estimated residual value rates and annual depreciation rates of each category of fixed assets are presented as follows:

Category of fixed assets	Useful life	Estimated residual value rate	Annual depreciation rate
Buildings	20 years	0.00%	5.00%
Machinery and equipment	5-20 years	0.00%	5.00%-20.00%
Tools and instruments	3-5 years	0.00%	20.00%-33.33%
Transportation	4-5 years	0.00%	20.00%-25.00%
Office equipment	5 years	0.00%	20.00%

Fixed assets held under a finance lease are depreciated on a basis consistent with the depreciation policy adopted for fixed assets that are self-owned. When a leased asset can be reasonably determined that its ownership will be transferred at the end of the lease term, it is depreciated over its estimated useful life; otherwise, the leased asset is depreciated over the shorter period of the lease term and its estimated useful life. (Applicable until 1 January 2021)

The Company reviews the useful life, estimated net residual value of a fixed asset, and the depreciation method applied at least at each financial year-end, and makes adjustments if necessary.

(VIII) Construction–in-progress

The cost of construction–in-progress is determined according to the actual expenditure incurred for the construction, including all necessary construction expenditure incurred during the construction period and other relevant expenses.

Construction–in-progress is transferred to fixed assets when the asset is ready for its intended use.

(IX) Right-of-use assets (applicable starting from 1 January 2021)

The Company’s right-of-use assets consist primarily of machinery and equipment.

At the commencement date of the lease, the Company recognizes its right to use the leased assets over the lease term as a right-of-use asset. The cost of the right-of-use asset comprises: the amount of the initial measurement of the lease liability; any lease payments made at or before the commencement date of the lease less any lease incentives received (if any); any initial direct cost incurred by the lessee; and an estimate of costs incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease. The right-of-use assets are depreciated on a straight-line basis subsequently by the Company. If the Company is reasonably certain that the ownership of the underlying asset will be transferred to the Company at the end of the lease term, the Company depreciates the asset over their remaining useful lives. Otherwise, the Company depreciates the assets over the shorter of the lease term or the remaining useful life of the leased asset. 1-1-332


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

When the Company remeasures the lease liability at the present value of the changed lease payments and adjusts the carrying amount of the right-of-use assets accordingly, if the carrying amount of the right-of-use asset is reduced to zero but the lease liability still needs to be further reduced, the Company recognizes the remaining amount in the profit or loss for the current period.

(X) Intangible assets

An intangible asset shall be recognized only when it is probable that the economic benefits associated with the asset will flow to the Company and the cost of the asset can be measured reliably. Intangible assets are measured initially at cost. However, intangible assets acquired in a business combination not involving entities under common control with a fair value that can be measured reliably are recognized separately as intangible assets and measured at fair value.

The useful life of an intangible asset is determined according to the period over which it is expected to generate economic benefits for the Company. An intangible asset is regarded as having an indefinite useful life when there is no foreseeable limit to the period over which the asset is expected to generate economic benefits for the Company.

The useful lives of the intangible assets are as follows:

Category of fixed assets	Useful life
Land use rights	50 years
Software	10 years
Patent rights	6 years

Land use rights that are acquired by the Company are usually accounted for as intangible assets. For buildings such as plants that are developed and constructed by the Company, the relevant land use rights and buildings are accounted for as intangible assets and fixed assets, respectively. Payments for the land and buildings purchased are allocated between the land use rights and the buildings; if the payments cannot be reasonably allocated, all of the land use rights and buildings are accounted for as fixed assets.

An intangible asset with a finite useful life is amortized using the straight-line method over its useful life. For an intangible asset with a finite useful life, the Company reviews its useful life and the amortization method at least at each financial year-end and makes adjustment if necessary.

The Company has no intangible assets with indefinite useful lives.

The Company classifies the expenditure on an internal research and development project into expenditure on the research phase and expenditure on the development phase. Expenditure on the research phase is recognized in the profit or loss for the current period in which it is incurred. Expenditure on the development phase is capitalized when the Company can demonstrate all of the following: the technical feasibility of completing the intangible asset so that it will be available for use or sale; the intention to complete the intangible asset and use or sell it; how the intangible asset will generate economic benefits. Among other things, the Company can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset; the availability of adequate technical, financial and other resources to complete the development and the ability to use or sell the intangible asset; and its ability to measure reliably the expenditure attributable to the intangible asset during its development phase. Expenditure on the 1-1-333


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

development phase that does not meet the above criteria is recognized in the profit or loss for the current period in which it is incurred.

(XI) Impairment of assets

The Company determines the impairment of assets, other than the impairment of inventories, deferred income taxes and financial assets, using the following methods:

The Company assesses at the balance sheet date whether there is any indication that an asset may be impaired. If any indication exists that an asset may be impaired, the Company will estimate the recoverable amount of the asset and perform a test for impairment. Goodwill arising from a business combination and an intangible asset with an indefinite useful life is tested for impairment at least at each year-end, irrespective of whether there is any indication that the asset may be impaired. Intangible assets that have not been ready for intended use are also tested for impairment each year.

The recoverable amount of an asset is the higher of its fair value less costs to sell and the present value of the future cash flows expected to be derived from the asset. The Company estimates the recoverable amount on an individual basis. If it is not possible to estimate the recoverable amount of the individual asset, the Company determines the recoverable amount of the asset group to which the asset belongs. Identification of an asset group is based on whether major cash inflows generated by the asset group are largely independent of the cash inflows from other assets or asset groups.

When the recoverable amount of an asset or asset group is less than its carrying amount, the carrying amount is reduced to the recoverable amount. The reduction in carrying amount is treated as impairment loss and recognized in the profit or loss for the current period. A provision for impairment loss of the asset is recognized accordingly.

Once the above impairment loss is recognized, it cannot be reversed in the subsequent accounting periods.

(XII) Share-based payments

A share-based payment is classified as either an equity-settled share-based payment or a cash-settled share-based payment. An equity-settled share-based payment is a transaction in which the Company receives services with shares or other equity instruments as consideration for settlement.

An equity-settled share-based payment in exchange for services received from employees is measured at the fair value of the equity instruments granted to the employees. If such equity-settled share-based payment could vest immediately, related costs or expenses at an amount equal to the fair value on the grant date are recognized, with a corresponding increase in capital reserve; if such equity-settled share-based payment could not vest until the completion of services for a vesting period, or until the achievement of a specified performance condition, the Company, at each balance sheet date during the vesting period, recognizes the services received for the current period as related costs and expenses, with a corresponding increase in capital reserve, at an amount equal to the fair value of the equity instruments at the grant date, based on the best estimate of the number of equity instruments expected to vest. The fair value of equity instruments is determined by the Black-Scholes model, the discounted cash flow approach and the binomial tree approach. See Note 11 to the Financial Statement of the Auditor’s Report issued by Ernst & Young.

For share-based payments that do not ultimately vest because non-market performance and/or service conditions have not been met, no cost or expense is recognized. Where the share-based payment agreements include market or non-vesting conditions, the transactions shall be treated as vesting irrespective of whether the market or non-vesting conditions are satisfied, provided that all other performance and/or service conditions are satisfied. 1-1-334


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Where the terms of an equity-settled share-based payment are modified, the services received shall be recognized at least based on the terms that had not been modified. In addition, an increase in services received shall be recognized for any modification that increases the fair value of the equity instruments granted, or is otherwise beneficial to the employee at the date of modification.

Where an equity-settled share-based payment is cancelled, it is treated as if it had been vested on the date of cancellation, and the unrecognized amount shall be recognized immediately. If employees or other parties are able to elect to satisfy the non-vesting conditions but fail to do so during the waiting period, it is treated as a cancellation of an equity-settled share-based payment. However, if a new equity instrument is granted and it is determined on the grant date that the instrument is intended to replace the cancelled equity instrument, the equity instrument granted for replacement is treated in the same manner as the modification of the terms and conditions of the original equity instrument.

(XIIII) Contract assets and contract liabilities (applicable starting from 1 January 2020)

1. Contract assets

A contract asset is the right to consideration in exchange for goods or services that the Company has transferred to a customer, and the right is conditional upon something other than the passage of time.

2. Contract liabilities

A contract liability is the obligation to transfer goods or services to a customer for which the Company has received consideration or an amount of consideration is due from the customer, such as an amount of consideration that an entity has received before the transfer of the promised goods or services.

(XIV) Revenue

1. Revenue from contracts with customers (applicable starting from 1 January 2020)

The Company recognizes revenue when the performance obligation under the contract is satisfied, i.e. when the customer obtains the control of the relevant goods or services. Obtaining the control of the relevant goods or services means being able to dominate the use of the goods or the provision of the services and obtain substantially all of the economic benefits therefrom.

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(1) Contracts for the sales of goods

The Company’s contract with customers for sales of goods generally includes only the performance obligation for the transfer of compound semiconductor substrate materials, pyrolytic boron nitride (PBN) crucibles, high-purity metals and compounds, and other goods. The Company generally recognizes revenue at the point in time when customers obtain the control of the relevant goods based on the following considerations: a present right to payment for the goods, the transfer of the significant risks and rewards incidental to the ownership of the goods, the transfer of the legal title of the goods, the transfer of physical assets of the goods and the customer’s acceptance of the goods.

The Company recognizes revenue from product sales when the products are delivered to the agreed delivery location in accordance with the contract, the product delivery obligation is completed, the products are accepted by the customer or the customer receives and consumes them.

(2) Contracts for the rendering of services

The contract for the rendering of services between the Company and its customers typically include a performance obligation to deliver the crucible at a specified location after repair, which the Company treats as a performance obligation to be performed at a point in time and recognizes revenue when the subject property is delivered to the specified location.

(3) Warranty obligations

In accordance with contractual agreements and regulations of laws, the Company provides warranty for the goods sold. For the warranty that guarantees to customers that the goods sold meet the established standards, the Company accounts for it in accordance with Note III.20 to the financial statements in the Audit Report issued by Ernst & Young. For the warranty that provides a separate service in addition to the guarantee to the customer that the goods sold meet the established standards, the Company treats it as a single performance obligation and apportions a portion of the transaction price to the warranty based on the relative proportion of the separate selling prices of the goods and warranty provided, and recognizes revenue when the customer obtains control of the service. In assessing whether the warranty provides a separate service in addition to the guarantee to the customer that the goods sold meet established standards, the Company considers factors such as whether the warranty is a statutory requirement, the duration of the warranty, and the nature of the task committed to perform by the Company.

2. Revenue (applicable until 1 January 2020)

Revenue is recognized when it’s probable that the economic benefits will flow to the Company, the amount can be reliably measured, and the following conditions have been met:

(1) Revenue from sales of goods

Revenue is recognized when the Company has transferred all the significant risks and rewards incidental to the ownership of goods to the buyer and no longer reserved any right to continue to manage and implement effective control which is often associated with the ownership of the goods, and the costs incurred or to be incurred can be measured reliably. The amount of revenue from sales of goods is determined in accordance with the consideration received or receivable from the buyer under contract or agreement, except where the consideration received or receivable under contract or agreement is not fair. Where the consideration receivable under contract or agreement 1-1-336


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is deferred, such that the arrangement is in substance of a financing nature, the amount of revenue from sales of goods is measured at the fair value of the consideration receivable under contract or agreement.

(2) Revenue from rendering of services

The Company’s revenue from rendering of services is recognized when the services are completed and delivered to the customer. Total revenue from rendering of services is determined on the basis of the consideration received or receivable from the recipient of services under contract or agreement, except where the consideration received or receivable under contract or agreement is not fair.

(3) Lease revenue

Rental income from an operating lease is recognized as the profit or loss for the current period on a straight-line basis over the lease term, and variable lease payments that are not included in the lease receipts are recognized in the profit or loss for the current period when they are actually incurred.

(4) Interest income

The calculation is determined based on the time when the other party uses the cash and bank balance of the Company and the effective interest rate.

3. Specific recognition principles for the Company’s revenue

The Company’s revenue is divided into revenue from sales of product goods (including direct sales and agency sales) and revenue from rendering of services, and the specific revenue recognition principles under different categories and sales models are as follows:

(1) Specific recognition principles for revenue from sales of product goods

For domestic customers, the Company adopts direct sales. The Company arrives and delivers the products to the customer according to the contract, at which time the Company has transferred the risk, reward and control of the goods to the customer. The Company is entitled to the present right to payments for the goods and recognizes the revenue based on the logistic sign-off records.

For direct sales to foreign customers, the Company ships goods according to the following requirements in the order:

1) Under FOB and CIF as agreed in the order, revenue is recognized based on the date of export recorded in the customs declaration after the shipment of the goods is completed and the relevant customs clearance procedures are completed;

2) Under CIP, DAP, DDU and other models as agreed in the order or under no agreement in the order, revenue is recognized when the goods are shipped to the location specified by the customer;

3) For sales of an overseas subsidiary, the Company arrives and delivers the product to the customer according to the contract, at which time the Company has transferred control of the goods to the customer. The Company is entitled to the present right to payments for the goods and recognizes the revenue based on the logistic sign-off records;

4) Based on the zero inventory management of some customers, they agree with the Company that when the products arrive at their designated locations and are claimed by them, control of the goods is transferred to the 1-1-337


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customer. The Company is entitled to the present right to payments for the goods and recognizes the revenue from sales of goods.

5) The individual customer agrees with the Company that it acts as the Company’s trader in certain areas, and after it purchases the Company’s products and completes sales to its downstream customers, control of the goods is transferred and the Company recognizes the revenue from sales of goods.

For agency sales, the Company signs sales contracts directly with the relevant customers and ships the products directly to the customers, and pays commissions to the agents in accordance with the types of products it sells as an agent and the pre-agreed commission rate. Its revenue recognition time is same as that related to items 1 to 3 under the direct sales model.

(2) Specific recognition principles for revenue from rendering of services

During the reporting period, the services provided by the Company include commissioned processing business and crucible precision regeneration services. The Company recognizes revenue when the products formed by the services provided arrive and are delivered to customers, or when the shipment is completed and the relevant customs clearance procedures are completed, or when the products are transported to the location designated by customers, and the point of recognition is same as the point of sale of its own goods.

4. Impact of the New Revenue Standard

On 5 July 2017, the MOF issued the Accounting Standard for Business Enterprises No. 14 — Revenue (Revised in 2017) (Cai Kuai [2017] No. 22) (hereinafter referred to as “New Revenue Standard”). In accordance with the provisions of the CSRC’s Questions and Answers on Matters Related to the Implementation of the New Revenue Standard for Initial Public Offering Applicants, the Issuer intends to implement the New Revenue Standard with effect from 1 January 2020. Under the New Revenue Standard, the sale of goods and transportation services incurred in connection with the sale of goods are combined into one performance obligation. Therefore, the transportation costs were reclassified from selling expenses to cost of main business for 2020 and 2021, and no retrospective adjustment was made for 2019.

The Company’s existing business model, contract terms and revenue recognition meet the relevant requirements and specifications of the New Revenue Standard. Except for the above reclassification adjustments, the implementation of the New Revenue Standard will not cause material changes to the specific revenue recognition principles of the Issuer, and therefore has no material impact on the financial statements.

(XV) Government grants

Government grant is recognized when the conditions attached to it can be met and it can be received. If a government grant is a monetary asset, it is measured at the amount received or receivable, otherwise it is measured at fair value; if the fair value is not reliably determinable, it is measured at a nominal amount.

If the government grant is used for constructing or forming long-term assets as stipulated in government documents, the government grant is recognized as a government grant related to assets. If it’s not clearly stated in government documents, the fundamental conditions attached to the

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grant should be the criterion for judgments. If the fundamental conditions attached to the grant are to construct or form long-term assets, the government grant is recognized as a government grant related to assets. Otherwise, the government grant is recognized as a government grant related to income.

A government grant related to income is accounted for as follows: if the grant is a compensation for related costs, expenses or losses to be incurred in subsequent periods, it is recognized as deferred income, and recognized in the profit or loss over the period in which the related costs, expenses or losses are recognized; if the grant is a compensation for related costs, expenses or losses already incurred, it is recognized immediately in the profit or loss for the current period.

A government grant related to assets is recognized as deferred income, and reasonably and systematically amortized to the profit or loss over the useful life of the related asset. However, a government grant measured at a nominal amount is recognized immediately in the profit or loss for the current period. If a related asset has been sold, transferred, scrapped or damaged before the end of its useful life, the unamortized deferred income shall be recognized in the profit or loss in the period of disposal.

(XVI) Safety production funds

Safety production funds provided according to the regulations are included in costs of related products or profit or loss, and credited to the special reserve. They are treated differently when being utilized: the special reserve is offset against for those attributable to the expense nature; the cumulative expenditures are recognized as a fixed asset for those attributable to the fixed asset nature when the working condition for the intended use is reached, and at the same time, the special reserve is offset against with the full depreciation recognized at the same amount.

(XVII) Changes in accounting policies and estimates

1. Changes in accounting policies

(12) New Revenue Standard

In 2017, the MOF issued the revised Accounting Standard for Business Enterprises No. 14 — Revenue (the “New Revenue Standard”). The Company applied the above-mentioned revised standard in accounting with effect from 1 January 2020. According to the transitional rules, no adjustment was made to the information in comparable periods, and the difference arising from the initial application of the new standard as compared with the existing standard was retrospectively adjusted to the retained earnings at the beginning of the current period (i.e.1 January 2020).

The New Revenue Standard establishes a new revenue recognition model for regulating revenue from contracts with customers. Under the New Revenue Standard, the revenue recognition method should reflect how the entity transfers goods or provides services to customers, and the amount of revenue should reflect the amount of consideration to which the entity expects to be entitled as a result of the transfer of those goods or services to customers. Also, the New Revenue Standard regulates the judgments and estimates required for each step of revenue recognition. 1-1-339


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Upon initial application of the New Revenue Standard, the Company’s adjustments to the relevant items in the financial statements at the beginning of the year when the New Revenue Standard is applied for the first time were as follows:

In RMB

Item	Under the New Revenue Standard	Under the original standard	Adjustments
		1 January 2020		31 December 2019
Liabilities:
Contract liabilities	807,569.97	-	807,569.97
Other current liabilities	104,984.10	-	104,984.10
Accounts received in advance	-	912,554.07	-912,554.07

(2) New Lease Standard

In 2018, the MOF issued the revised Accounting Standard for Business Enterprises No. 21 — Leases (the “New Lease Standard”), which adopts a single model similar to the existing accounting for finance leases and requires lessees to recognize right-of-use assets and lease liabilities for all leases other than short-term leases and leases of low-value assets, and to recognize depreciation and interest expense separately. The Company applied the revised lease standard with effect from 1 January 2021. According to the transitional rules, no adjustment was made to the information in comparable periods, and the difference arising from the initial application of the new standard as compared with the existing standard was retrospectively adjusted to the retained earnings at the beginning of 2021.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

The Company applies simplified accounting to operating leases where the lease assets are low-value assets prior to the date of initial application or where the operating leases will be completed within 12 months, and no right-of-use assets and lease liabilities are recognized.

In addition, cash paid for repayment of principal and interest on lease liabilities is included in cash outflows from financing activities in the statement of cash flows from the date of initial application, and payments made under short-term leases and low-value asset leases using simplified accounting and variable lease payments not included in the measurement of lease liabilities are still included in cash outflows from operating activities.

The main effects of the retrospective adjustments arising from this change in accounting policy on the financial statements are as follows:

In RMB

Item	Before the change in accounting policy	Change in accounting policy		After the change in accounting policy
2021
Item	Balance at the end of 2020	Effect of the New Lease Standard	Effect of changes in other presentations in financial statements	Balance at the beginning of 2021
Other current assets	32,539,623.67	-46,629.59	-	32,492,994.08
Fixed assets	614,605,658.83	-12,698,975.48	-	601,906,683.35
Right-of-use assets	-	13,145,549.60	-	13,145,549.60
Non-current liabilities due within one year	1,270,662.51	-1,270,662.51	-	-
Lease liabilities due within one year	-	1,333,763.21	-	1,333,763.21
Lease liabilities	-	12,182,731.52	-	12,182,731.52
Long-term accounts payable	11,845,887.69	-11,845,887.69	-	-
2020
Item	Balance at the end of 2019	Effect of the New Lease Standard	Effect of changes in other presentations in financial statements	Balance at the beginning of 2020
Accounts receivable in advance	912,554.07	-912,554.07	-	-
Contract liabilities	-	807,569.97	-	807,569.97
Other current liabilities	-	104,984.10	-	104,984.10

2. Changes in accounting estimates

The Company had no changes in accounting estimates during the reporting period. 1-1-341


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

VII. Statement of non-recurring profit or loss as verified by the certified public accountant

(I) Details and amounts of non-recurring profit or loss

As per the statement of non-recurring profit or loss as verified by Ernst & Young, the non-recurring profit or loss of the Company for the past three years are as follows:

In RMB0’000

Item	2021	2020	2019
Gain or loss from disposal of non-current assets, including the write-off for which the provision for asset impairment has been made	-66.55	-80.18	19.61
Government grants included in the profit or loss for the current period (except for those closely related to normal business operations and continuously received in fixed quotas or amounts according to certain standards under national policies)	597.66	33.32	218.09
Capital utilization expenses charged to non-financial enterprises included in the profit or loss for the current period	4.61	28.73	9.29
Net profit or loss for the period of a subsidiary from the beginning of the period to the combination date resulting from a business combination involving entities under common control	-45.36	3,974.60	-1,984.52

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Gains or losses from changes in fair value arising from the holding of held-for-trading financial assets, derivative financial assets, held-for-trading financial liabilities and derivative financial liabilities, and investment income from disposal of held-for-trading financial assets, derivative financial assets, held-for-trading financial liabilities, derivative financial liabilities and other debt investments, excluding the effective hedging business related to the Company’s normal business operations	30.82	-29.13	-72.04
Reversal of provision for depreciation of receivables that have been separately tested for depreciation	5.81
Other non-operating income or expenses other than the above items	31.52	-12.26	2.41
Subtotal	558.51	3,915.08	-1,807.16
Effect of income taxes	91.92	-8.93	26.60
Total	466.58	3,924.01	-1,833.76

(II) Effect of non-recurring profit or loss on operating results for the period

During the reporting period, the effect of non-recurring profit or loss on operating results for the period was as follows:

In RMB0’000

Item	2021	2020	2019
Net non-recurring profit or loss attributable to shareholders of Beijing Tongmei	120.70466.58	3,924.01	-1,833.76
Net profit attributable to shareholders of Beijing Tongmei	4,019.109,458.76	4,822.19	-3,338.90
Net profit attributable to shareholders of Beijing Tongmei after deducting non-recurring profit or loss	3,898.408,992.18	898.18	-1,505.14

During the reporting period, the Company’s net non-recurring profit or loss attributable to shareholders of Beijing Tongmei was RMB-18,337,600, RMB39,240,100 and RMB4,665,800, respectively. The non-recurring profit or loss were mainly government grants and net profit or loss for the period of a subsidiary from the beginning of the period to the combination date resulting from a business combination involving entities under common control. In general, he Company’s net profit attributable to shareholders of Beijing Tongmei after deducting non-recurring profit or loss rose rapidly, amounting to RMB-15,051,400, RMB8,981,800 and RMB89,921,800, respectively. 1-1-343


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

VIII. Major Taxes of the Company

(I) Major taxes and their respective tax rates

Tax	Tax rate
Value-added tax (VAT)	The output tax was calculated on taxable income at the tax rates of 16%, 13% and 6%, and the VAT was charged based on the difference after deducting the deductible input tax for the current period.
City maintenance and construction tax	It was levied on turnover taxes actually paid at the rates of 7% and 5%.
Corporate income tax	Corporate income tax was levied on taxable income at the rates of 15%, 25% and 20%.

The corporate income tax rates for different taxable entities are described as follows:

Name of taxable entity	Income tax rate for each period of the reporting period
		2021	2020	2019
Beijing Tongmei	15%	15%	15%
Baoding Tongmei	15%	15%	25%
Chaoyang Tongmei	15%	25%	25%
Nanjing Jinmei	25%	25%	25%
Chaoyang Jinmei	15%	15%	25%
Beijing Boyu	15%	15%	15%
Chaoyang Boyu	15%	15%	15%
Tianjin Boyu	15%	20%	20%
AXT-Tongmei	Note	Note	N/A
Chaoyang Xinmei	25%	N/A	N/A

Note: AXT-Tongmei was taxed at a rate of 21% for the U.S. federal income tax and 8.84% for the California statutory corporate income tax.

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(II) Major tax preferences and approvals

The Company was accredited as a high-tech enterprise on 25 October 2017 (Certificate No. GR201711003982) and passed the high-tech enterprise review on 2 December 2020 (Certificate No. GR202011006218). According to regulations such as the Enterprise Income Tax Law of the People’s Republic of China, the Regulations on the Implementation of the Enterprise Income Tax Law of the People’s Republic of China and the Administrative Measures for Recognition of High and New Technology Enterprises, the income tax rate applicable to the Company was 15% during the reporting period.

Baoding Tongmei, a subsidiary of the Company, was accredited as a high-tech enterprise on 5 November 2020 (Certificate No. GR202013002302). According to regulations such as the Enterprise Income Tax Law of the People’s Republic of China, the Regulations on the Implementation of the Enterprise Income Tax Law of the People’s Republic of China and the Administrative Measures for Recognition of High and New Technology Enterprises, its applicable income tax rate was 15% for 2020 and 2021.

Beijing Boyu, a subsidiary of the Company, was accredited as a high-tech enterprise on 10 August 2017 (Certificate No. GR201711001205) and passed the high-tech enterprise review on 2 December 2020 (Certificate No. GR202011005612). According to regulations such as the Enterprise Income Tax Law of the People’s Republic of China, the Regulations on the Implementation of the Enterprise Income Tax Law of the People’s Republic of China and the Administrative Measures for Recognition of High and New Technology Enterprises, its applicable income tax rate was 15% during the reporting period.

Chaoyang Boyu, a subsidiary of the Company, was accredited as a high-tech enterprise on 2 December 2019 (Certificate No. GR201921000967). According to regulations such as the Enterprise Income Tax Law of the People’s Republic of China, the Regulations on the Implementation of the Enterprise Income Tax Law of the People’s Republic of China and the Administrative Measures for Recognition of High and New Technology Enterprises, its applicable income tax rate was 15% during the reporting period .

Chaoyang Jinmei, a subsidiary of the Company, was accredited as a high-tech enterprise on 1 December 2020 (Certificate No. GR202021001927). According to regulations such as the Enterprise Income Tax Law of the People’s Republic of China, the Regulations on the Implementation of the Enterprise Income Tax Law of the People’s Republic of China and the Administrative Measures for Recognition of High and New Technology Enterprises, its applicable income tax rate was 15% in 2020 and 2021.

Chaoyang Tongmei, a subsidiary of the Company, was accredited as a high-tech enterprise on 14 December 2021 (Certificate No. GR202121000903). According to regulations such as the Enterprise Income Tax Law of the People’s Republic of China, the Regulations on the Implementation of the Enterprise Income Tax Law of the People’s Republic of China and the Administrative Measures for Recognition of High and New Technology Enterprises, its applicable income tax rate was 15% for 2021.

Tianjin Boyu, a subsidiary of the Company, was accredited as a high-tech enterprise on 25 November 2021 (Certificate No. GR202112001913). According to regulations such as the Enterprise Income Tax Law of the People’s Republic of China, the Regulations on the Implementation of the Enterprise Income Tax Law of the People’s Republic of China and the Administrative Measures for Recognition of High and New Technology Enterprises, its applicable income tax rate was 15% for 2021.

According to the Notice on Implementing the Inclusive Tax Deduction and Exemption Policies for Micro and Small Enterprises (Cai Shui [2019] No. 13) issued by the MOF and the State Administration of Taxation, from 1 1-1-345


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January 2019 to 31 December 2021, the portion of the annual taxable income of small low-profit enterprises not exceeding RMB1 million shall be reduced by 25% for taxable income and subject to corporate income tax at a rate of 20%; the portion of the annual taxable income exceeding RMB1 million but not exceeding RMB3 million shall be reduced by 50% for taxable income and subject to corporate income tax at a rate of 20%. Tianjin Boyu, a subsidiary of the Company, was subject to corporate income tax as a micro and small enterprise from 2019 to 2020.

IX. Segment information

The Company has a single operating segment, i.e. the production and sales of semiconductor substrate materials and related upstream and downstream products in the industry chain.

X. Key financial indicators of the Issuer

(I) Key financial indicators


Key financial indicators	31 December 2021	31 December 2020	31 December 2019
Current ratio (X)	2.13	1.21	1.59
Quick Ratio (X)	1.23	0.84	0.89
Gearing ratio (the parent company)	16.71%	38.88%	44.24%
Net assets per share attributable to shareholders of Beijing Tongmei (RMB/share)	1.59	N/A	N/A
Key financial indicators	2021	2020	2019
Accounts receivable turnover rate (times)	4.56	4.09	3.28
Inventory turnover rate (times)	1.60	1.52	1.36
EBITDA (RMB0’000)	17,519.52	10,687.67	1,858.71
Net profit attributable to shareholders of Beijing Tongmei (RMB0’000)	9,458.76	4,822.19	-3,338.90
Net profit attributable to shareholders of Beijing Tongmei after deducting non-recurring profit or loss (RMB0’000)	8,992.18	898.18	-1,505.14
Interest coverage ratio (X)	30.18	21.13	-25.57
Ratio of R&D investment to operating revenue	10.52%	7.73%	5.80%
Cash flow from operating activities per share (RMB/share)	-0.02	N/A	N/A
Net cash flow per share (RMB/share)	-0.24	N/A	N/A

Note: As the Company was a limited liability company from 2019 to 2020, the calculation for per share indicator was not applicable for the corresponding period of financial statements.

The above financial indicators are calculated as follows: 1-1-346


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Current ratio = Current assets ÷ Current liabilities
Quick ratio = (Current assets - Inventory) ÷ Current liabilities
Gearing ratio = (Total liabilities ÷ Total assets) × 100%
Inventory turnover rate = Operating costs ÷ Average inventory balance
Accounts receivable turnover rate = Operating revenue ÷ Average balance of accounts receivable
EBITDA = Total profit + Interest expenses + Depreciation of fixed assets + Depreciation of right-to-use assets + Amortization of long-term deferred expenses + Amortization of intangible assets
Ratio of R&D investment to operating revenue = (R&D investment ÷ operating revenue) × 100%
Interest coverage ratio = (Total profit + Interest expenses) ÷ Interest expenses
Cash flow from operating activities per share = Net cash flow from operating activities ÷ Total equity at the end of the period
Net cash flow per share = Net increase in cash and cash equivalents ÷ Total equity at the end of the period
Net assets per share attributable to shareholders of Beijing Tongmei = Closing net assets attributable to ordinary shareholders of the Company ÷ Total equity at the end of the period 1-1-347


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(II) Return on net assets and earnings per share

According to CSRC’s Compilation Rules No. 9 for Information Disclosure by Companies Offering Securities to the Public — Calculation and Disclosure of Return on Net Assets and Earnings per Share (revised in 2010), the return on net assets and earnings per share of the Company during the reporting period were as follows:

Item	Reporting period	Weighted average return on net assets (%)	Earnings per share (RMB/share)
						Basic earnings per share	Diluted earnings per share
Net profit attributable to ordinary shareholders of the Company	2021	7.88	0.11	0.11
		2020	5.04	N/A	N/A
		2019	-3.68	N/A	N/A
Net profit attributable to ordinary shareholders after deducting non-recurring profit or loss	2021	7.56	0.10	0.10
		2020	0.94	N/A	N/A
		F 2019	-1.66	N/A	N/A

Note: As the Company was a limited liability company from 2019 to 2020, the calculation for per share indicator was not applicable for the corresponding period of financial statements.

The above financial indicators are calculated as follows:

Weighted average return on net assets: Weighted average return on net assets = P0/( E0＋NP÷2＋Ei×Mi÷M0–Ej×Mj÷M0±Ek×Mk÷M0), where: P0 corresponds to net profit attributable to ordinary shareholders of the Company and net profit attributable to ordinary shareholders of the Company after deducting non-recurring profit or loss, respectively; NP is net profit attributable to ordinary shareholders of the Company; E0 is opening net assets attributable to ordinary shareholders of the Company; Ei is net assets attributable to ordinary shareholders of the Company added during the reporting period by issuing new shares or converting debt to equity; Ej is net assets attributable to ordinary shareholders of the Company reduced during the reporting period by repurchasing or cash dividends; M0 is the number of months in the reporting period; Mi is the cumulative number of months from the month following the addition of net assets to the end of the reporting period; Mj is the cumulative number of months from the month following the decrease in net assets to the end of the reporting period; Ek is the increase or decrease in net assets attributable to ordinary shareholders of the Company caused by other transactions or events; Mk is the cumulative number of months from the month following the occurrence of other increases or decreases in net assets to the end of the reporting period.
Basic earnings per share: Basic earnings per share = P0 ÷ S S = S0 + S1 + Si × Mi ÷ M0 - Sj × Mj ÷ M0 – Sk, where: P0 is net profit attributable to ordinary shareholders of the Company or net profit attributable to ordinary 1-1-348


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

shareholders after deducting non-recurring profit or loss; S is the weighted average number of ordinary shares in issue; S0 is the total number of shares at the beginning of the period; S1 is the number of shares increased during the reporting period by increasing capital with provident funds or distributing stock dividends; Si is the number of shares increased during the reporting period by issuing new shares or converting debt to equity; Sj is the number of shares decreased during the reporting period by repurchasing; Sk is the number of shares consolidated during the reporting period; M0 is the number of months during the reporting period; Mi is the cumulative number of months from the month following the increase of shares to the end of the reporting period; Mj is the cumulative number of months from the month following the decrease of shares to the end of the reporting period.

Diluted earnings per share: Diluted earnings per share = P1/(S0 + S1 + Si × Mi ÷ M0 - Sj × Mj ÷ M0 - Sk + weighted average number of ordinary shares increased upon the exercise of warrants, share options, convertible bonds, etc.), where P1 is net profit attributable to ordinary shareholders of the Company or net profit attributable to ordinary shareholders of the Company after deducting non-recurring profit or loss, adjusted in accordance with the ASBE and related regulations after taking into account the effect of dilutive potential ordinary shares on it. In calculating diluted earnings per share, the Company shall consider the effect of all dilutive potential ordinary shares on net profit attributable to ordinary shareholders of the Company or net profit attributable to ordinary shareholders of the Company after deducting non-recurring profit or loss and weighted average number of shares, and include diluted earnings per share in descending order of their dilution until diluted earnings per share reaches the minimum value.

XI. Analysis of operating results

During the reporting period, the data of main operating results of the Company were as follows:

In RMB0’000


Item	2021	2020	2019
Operating revenue	85,734.52	58,317.04	46,222.68
Operating profit	10,466.28	4,909.79	-3,552.99
Total profit	10,332.71	5,163.06	-2,511.26
Net profit attributable to shareholders of Beijing Tongmei	9,458.76	4,822.19	-3,338.90
Net profit attributable to shareholders of Beijing Tongmei after deducting non-recurring profit or loss	8,992.18	898.18	-1,505.14

During the reporting period, the operating revenue of the Company was RMBRMB462,226,800, RMB583,170,400 and RMB857,345,200, respectively, and the net profit attributable to shareholders of Beijing Tongmei was RMBRMB-33,389,000, RMB48,221,900 and RMB94,587,600, respectively, trending upward in general. 1-1-349


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(I) Analysis of operating revenue

1. Analysis of the composition and changes of operating revenue

During the reporting period, the composition of operating revenue of the Company was as follows:

In RMB0’000

Item	2021		2020		2019
		Amount	Percentage	Amount	Percentage	Amount	Percentage
Revenue from main business	85,404.44	99.61%	58,308.72	99.99%	46,220.79	99.99%
Revenue from other business	330.09	0.39%	8.32	0.01%	1.89	0.01%
Total	85,734.52	100.00%	58,317.04	100.00%	46,222.68	100.00%

During the reporting period, the operating revenue of the Company mainly came from main business, which accounted for more than 99.00% in all periods during the reporting period. Revenue from other business was mainly generated from sales of gallium, a kind of raw material, which accounts for a relatively low percentage.

2. Product composition and analysis of revenue from main business

During the reporting period, the breakdown of revenue from main business of the Company by product category was as follows:

In RMB0’000

Item	2021		2020		2019
		Amount	Percentage	Amount	Percentage	Amount	Percentage
Semiconductor substrate materials	62,675.18	73.39%	44,346.06	76.05%	35,771.29	77.39%
PBN crucibles	5,502.47	6.44%	5,186.24	8.89%	4,729.22	10.23%
High-purity metals and compounds	12,201.00	14.29%	5,501.42	9.43%	2,531.92	5.48%
Others	5,025.79	5.88%	3,275.00	5.62%	3,188.36	6.90%
Total	85,404.44	100.00%	58,308.72	100.00%	46,220.79	100.00%

During the reporting period, the Company’s revenue from main business was RMB462,207,900, RMB583,087,200 and RMB854,044,400, respectively, trending upward in general.

For 2020, the Company’s revenue from main business recorded a year-on-year increase of 26.15%, which was mainly due to the following factors: on the one hand, our production capacity recovered for the year ended 31 December 2020 after the GaAs substrate production line completed relocation and put into operation; on the other hand, our revenue grew with the increase in orders for semiconductor substrate materials and high-purity metals 1-1-350


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

and compounds due to rising market demands. In 2021, its main business revenue increased by 46.47% on a year-on-year basis. On the one hand, with the large-scale deployment of 5G base station construction coupled with changes in the network structure of 5G base stations, the demand for optical modules has increased, and with the popularity of 5G mobile phones, the sale of InP substrates has also increased by 26.26%; on the other hand, with the growth in the global demand for downstream optical chips, optical module epitaxy parts and devices and other products, there was a shortage in product supply. Thus, as the world’s second largest InP supplier, the Company increased the sales prices appropriately. In addition, from March 2021 on, AXT-Tongmei replaced AXT to sell products to overseas customers, and in May 2021, the Company completed the acquisition of AXT-Tongmei. The Company then directly faces end customers, resulting in a significant growth in the unit price of InP substrates. In the composition of revenue from main business, revenue from semiconductor substrate materials accounted for more than 50%, which contributed most to our revenue from main business and has been growing rapidly during the reporting period.

(1) Semiconductor substrate materials

During the reporting period, the sales revenue, sales volume and average unit price of various types of semiconductor substrate materials of the Company were as follows:

Item	2021		2020		2019
		Amount	Change	Amount	Change	Amount	Change
InP substrate
Sales revenue (RMB0’000)	28,179.15	120.95%	12,753.63	16.25%	10,971.16	90.03%
Sales volume (10,000 pcs)	23.56	26.26%	18.66	27.87%	14.59	109.16%
Average unit price (RMB/piece)	1,196.06	74.98%	683.54	-9.09%	751.87	-9.15%
GaAs substrate
Sales revenue (RMB0’000)	25,547.46	8.54%	23,536.79	30.85%	17,987.74	16.36%
Sales volume (10,000 pcs)	58.37	15.65%	50.47	6.20%	47.52	12.35%
Average unit price (RMB/piece)	437.68	-6.14%	466.33	23.20%	378.50	3.57%
Germanium substrate
Sales revenue (RMB0’000)	8,948.57	11.08%	8,055.63	18.25%	6,812.40	-11.79%
Sales volume (10,000 pcs)	31.10	30.02%	23.92	23.25%	19.41	-16.02%
Average unit price (RMB/piece)	287.74	-14.57%	336.81	-4.06%	351.05	5.04%

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

During the reporting period, the Company’s InP substrate and GaAs substrate recorded a rapid growth, while germanium substrate was relatively stable. Average unit prices of substrate materials were mainly affected by a combination of factors such as changes in the size and structure of products, customers’ requirements for product parameters and fluctuations in raw material prices.

During the reporting period, InP substrates realized revenues of RMBRMB109,711,600, RMB127,536,300 and RMB281,791,500, respectively.

The significant growth in 2021 was mainly for the shortage in product supply due to the increase in the global demand for downstream optical chips, optical module epitaxy parts and devices with the growth in the global demand for downstream optical chips, optical module epitaxy parts and devices and other products; thus, as the world’s second largest InP supplier, the Company increased the sales prices appropriately. On the other hand, from March 2021 on, AXT-Tongmei integrated its overseas sales business. In May 2021, the Company completed the acquisition of AXT-Tongmei. The Company then directly faces end customers, resulting in a significant growth in the unit price. In addition, with the large-scale deployment of 5G base station construction coupled with changes in the network structure of 5G base stations, the demand for optical modules has increased, and with the popularity of 5G mobile phones, the sales of InP substrates have also increased by 26.26%.

During the reporting period, GaAs substrate realized revenues of RMBRMB179,877,400, RMB235,367,900 and RMB255,474,600, respectively. The increase in revenue for the year ended 31 December 2020 was mainly due to the increase in unit price, which was due to the increase in price of gallium, a kind of main raw material, and the increase in percentage of sales of large-size products. The data in 2021 remained relatively stable on a year-on-year basis.

During the reporting period, germanium substrates realized revenues of RMB77,226,200, RMBRMB80,556,300 and RMB89,485,700, respectively. In recent years, as Yunnan Germanium and other manufacturers have also begun to deploy the production and sale of germanium substrates, competition in the domestic market has intensified. Meanwhile, with the rapid growth in the demand for solar photovoltaic cells and high-performance light-emitting diodes and other device products in the aerospace area, orders from downstream customers have also been rising rapidly year by year, so that the Company has also made some concessions in product pricing. Due to the above factors, revenues from germanium substrates showed a slight growth year by year.

(2) PBN crucibles

During the reporting period, the sales revenue, sales volume and average unit price of PBN crucible products of the Company were as follows:

Item	2021		2020		2019
		Amount	Change	Amount	Change	Amount	Change
Sales revenue (RMB0’000)	5,502.47	6.10%	5,186.24	9.66%	4,729.22	-7.78%
Sales volume (10,000 pcs)	1.03	11.96%	0.92	-2.62%	0.94	-10.25%
Average unit price (RMB/piece)	5,342.20	-5.47%	5,651.35	12.62%	5,018.27	2.75%

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

PBN crucibles are basically customized for customers with differences in vessel type, size, performance and usage. During the reporting period, the revenue of PBN crucibles was RMB47,292,200, RMB51,862,400 and RMB55,024,700, respectively, showing a steady rise overall.

(3) High-purity metals and compounds

During the reporting period, the sales revenue, sales volume and average unit price of high-purity metals and compounds of the Company were as follows:

Item	2021		2020		2019
		Amount	Change	Amount	Change	Amount	Change
Sales revenue (RMB0’000)	12,201.00	121.78%	5,501.42	117.28%	2,531.92	-31.26%
Sales volume (tons)	82.40	42.24%	57.93	84.73%	31.36	-28.60%
Average unit price (RMB0’000/ton)	148.07	55.91%	94.97	17.62%	80.74	-3.73%

During the reporting period, the Company’s high-purity metal and compound products realized revenue of RMBRMB25,319,200, RMB55,014,200 and RMB122,010,000, respectively. The increase in the sales volume and unit price has driven the rapid growth in revenues. Wherein, for 2020, the revenue increased by 117.28%, mainly due to a significant increase in the sales volume of high-purity gallium and gallium oxide since the Company’s production capacity gradually recovered after the relocation. The annual revenues in 2021 showed a year-on-year growth of 121.78%, mainly due to an increase of 55.91% in consolidated average unit price of high-purity gallium and gallium oxide products as compared with that for the year ended 31 December 2020 resulting from a certain increase in each product’s unit price as a result of a significant increase in unit price of gallium, a kind of raw material, since the second half of 2020, and a significant increase in sales volume with rising market demands.

(4) Others

During the reporting period, the Company’s other income amounted to RMBRMB31,883,600, RMB32,750,000 and RMB50,257,900RMB. the Company’s other income from main business were mainly from sales of PBN sheets and other materials and crucible precision regeneration services (i.e. cleaning and repairing crucibles for customers), of which the crucible precision regeneration services have been provided and

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

generated revenues by our subsidiary Beijing Boyu since 2020. The increase in revenues in 2021 was mainly due to the expansion of this type of business.

3. Operating revenue by sales region

During the reporting period, the operating revenue of the Company by sales region was as follows:

In RMB0’000

Region	2021		2020		2019
		Amount	Percentage	Amount	Percentage	Amount	Percentage
Chinese mainland	43,873.92	51.17%	24,707.37	42.37%	18,188.22	39.35%
Taiwan, China	9,363.62	10.92%	7.78	0.01%	4.10	0.01%
Overseas	32,496.98	37.90%	33,601.89	57.62%	28,030.36	60.64%
Total	85,734.52	100.00%	58,317.04	100.00%	46,222.68	100.00%

During the reporting period, the Company’s revenue in the Chinese mainland accounted for 39.35%, 42.37% and 51.17% of its operating revenue, respectively. With increasing revenue from overseas regions, domestic sales accounted for a higher percentage year on year as the domestic semiconductor industry chain gradually matured, and became our main revenue source for 2021.

4. Seasonal analysis of operating revenue

During the reporting period, the composition of operating revenue of the Company by quarter was as follows:

In RMB0’000

Quarter	2021		2020		2019
		Amount	Percentage	Amount	Percentage	Amount	Percentage
Q1	19,317.13	22.53%	12,008.01	20.59%	11,865.62	25.67%
Q2	20,038.81	23.37%	14,323.39	24.56%	12,663.24	27.40%
Q3	22,377.89	26.10%	15,303.68	26.24%	11,480.84	24.84%
Q4	24,000.69	27.99%	16,681.96	28.61%	10,212.97	22.10%
Total	85,734.52	100.00%	58,317.04	100.00%	46,222.68	100.00%

For each period of the reporting period, no obvious seasonal characteristic was presented for sales revenue of the Company, and the Company’s revenue showed an upward trend in each quarter since the second half of 2019 with the rapid rise of market demands.

5. Cash transactions and third-party repayments

During the reporting period, the Company had a small amount of cash sales and purchases. During the reporting period, the Company received cash payments for goods amounting to RMBRMB0, RMB19,600 and RMB16,500, 1-1-354


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

respectively, mainly due to sales of scrap; the Company paid cash payments for goods amounting to RMBRMB595,500, RMB433,600 and RMB15,900, respectively, mainly due to sporadic purchases of low-value consumables. The Company’s cash transactions in each period were reasonable as they involved a small amount of cash and were supported by real business background.

In March 2021, AXT-Tongmei took the overseas sales business and relevant customers from AXT. In May 2021, the Company completed the acquisition of AXT-Tongmei. During the business handover, there were cases where both AXT-Tongmei and AXT had amounts receivable from the same customer. Due to factors such as the payment system of overseas customers, such customers may make payment only to a single entity. As a result, there were cases where AXT received amounts on behalf of the Company. As of September 2021, such amounts received were RMB10.2483 million, which accounted for a small proportion in the revenues and were commercially reasonable.

The Company does not have such cases since October 2021.

(II) Analysis of operating cost

1. Analysis of the composition and changes of operating cost

During the reporting period, the composition of operating cost of the Company was as follows:

In RMB0’000

Item	2021		F 2020		2019
		Amount	Percentage	Amount	Percentage	Amount	Percentage
Cost of main business	55,732.45	99.29%	43,322.22	99.96%	37,240.31	99.99%
Cost of other business	396.81	0.71%	17.21	0.04%	0.08	0.01%
Total	56,129.26	100.00%	43,339.43	100.00%	37,240.39	100.00%

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

During the reporting period, the operating cost of the Company grew with its business expansion and was in line with its operating revenue. During the reporting period, the Company’s cost of main business amounted to RMBRMB372,403,100, RMB433,222,200 and RMB557,324,500, respectively, which was the major component of operating cost.

2. Analysis of product composition of cost of main business

During the reporting period, the composition of cost of main business of the Company by product was as follows:

In RMB0’000

Product name	2021		2020		2019
		Amount	Percentage	Amount	Percentage	Amount	Percentage
Semiconductor substrate	40,782.74	73.18%	35,896.79	82.86%	31,549.91	84.72%
Including: InP substrate	12,844.08	23.05%	7,825.72	18.06%	6,511.21	17.48%
GaAs substrate	19,008.77	34.11%	21,501.25	49.63%	19,629.94	52.71%
Germanium substrate	8,929.89	16.02%	6,569.82	15.17%	5,408.75	14.52%
PBN crucibles	2,633.87	4.73%	2,347.76	5.42%	2,401.20	6.45%
High-purity metals and compounds	10,948.64	19.65%	4,558.49	10.52%	2,263.49	6.08%
Others	1,367.20	2.45%	519.17	1.20%	1,025.71	2.75%
Total	55,732.45	100.00%	43,322.22	100.00%	37,240.31	100.00%

During the reporting period, the Company’s cost of main business mainly came from semiconductor substrate materials, which accounted for 84.72%, 82.86% and 73.18% of the cost of main business respectively. The Company’s cost of main business mainly consists of direct material costs such as gallium, germanium ingot, quartz materials, high-purity arsenic, boron trichloride, indium phosphide polycrystals, direct labor costs in production departments, manufacturing costs such as fuel power costs, indirect labor costs and depreciation of production machines. With the expansion of its production capacity, the Company’s cost of main business has increased as well. 1-1-356


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

3. Material costs, labor costs and manufacturing costs under the cost of main business

During the reporting period, the composition of cost of main business of the Company by direct material costs, direct labor costs and manufacturing costs was as follows:

In RMB0’000

Item	2021		2020		2019
		Amount	Percentage	Amount	Percentage	Amount	Percentage
Direct material costs	14,706.9831,148.82	56.3555.89%	20,628.97	47.62%	16,790.02	45.09%
Direct labor costs	1,933.984,141.97	7.4143%	4,264.90	9.84%	3,934.48	10.57%
Manufacturing costs	9,456.4220,441.66	36.2468%	18,428.35	42.54%	16,515.81	44.35%
Total	26,097.3855,732.45	100.00%	43,322.22	100.00%	37,240.31	100.00%

During the reporting period, direct material costs amounted to RMBRMB167,900,200, RMB206,289,700 and RMB311,488,200, respectively, accounting for 45.09%, 47.62% and 55.89% of the cost of main business. The amount and percentage increased with the rise of revenue from semiconductor substrate materials and high-purity metals and compounds. Significant increase in percentage for 2021 was mainly due to the following factors: on the one hand, the significant increase in purchase unit price of gallium and the rising demand of downstream customers led to the rapid increase in revenue and percentage of high-purity gallium, gallium oxide and other products, and its direct material costs accounted for about 90%, resulting in a large increase in the percentage of comprehensive direct material costs; on the other hand, after the Company relocated some production lines to Chaoyang, Liaoning and Baoding, Hebei, its labor costs and gas power costs were reduced, and the scale effect has been achieved with the gradual recovery of production capacity; the decrease in direct labor costs and manufacturing costs also led to an increase in the percentage of direct materials costs. In addition, the purchase price of boron trichloride and graphite increased, resulting in the increase in the amount and percentage of direct material costs.

During the reporting period, direct labor costs amounted to RMBRMB39,344,800, RMB42,649,000 and RMB41,419,700, respectively, with an overall increase in line with the increase in production personnel. Direct labor costs accounted for 10.57%, 9.84% and 7.43% of the cost of main business, decreasing year on year, which was mainly due to the decrease in salaries in Baoding and Chaoyang, Liaoning where the Company re-recruited production personnel after the relocation of production line during the reporting period. In addition, with the gradual recovery and

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

expansion of production capacity, the scale effect gradually manifested, which led to the decrease in percentage of direct labor costs.

During the reporting period, manufacturing costs amounted to RMB165,158,100, RMB184,283,500 and RMB204,416,600, respectively. The amounts increased with the investment of fixed assets and the increase of supporting staff. Manufacturing costs accounted for 44.35%, 42.54% and 36.68% of the cost of main business, respectively. The larger decrease for 2021 was mainly due to the decrease in labor costs and gas power costs after completion of the relocation of the Company, as well as the release of production capacity.

(III) Analysis of gross profit and gross profit margin

1. Analysis of gross profit and gross profit margin

During the reporting period, the gross profit and gross profit margin of the Company were as follows:

In RMB0’000

Item	2021			2020			2019
		Gross profit	Percentage	Gross profit margin	Gross profit	Percentage	Gross profit margin	Gross profit	Percentage	Gross profit margin
Main business	29,671.99	100.23%	34.74%	14,986.50	100.06%	25.70%	8,980.48	99.98%	19.43%
Other business	-66.72	-0.23%	-20.21%	-8.89	-0.06%	-106.85%	1.81	0.02%	95.77%
Total	29,605.26	100.00%	34.53%	14,977.61	100.00%	25.68%	8,982.29	100.00%	19.43%

During the reporting period, the gross profit of the Company totaled RMB89,822,900, RMB149,776,100 and RMB296,052,600, respectively, with an overall upward trend as our revenue expanded. Our main business recorded strong performance and contributed most to the gross profit, accounting for above 99.00% in each period. During the reporting period, the consolidated gross profit margin of the Company was 19.43%, 25.68% and 34.53%, respectively. The overall change in gross profit margin was mainly due to the change in product structure, fluctuation in its own gross profit margin and exchange rate fluctuation, etc. For 2021, the gross profit margin saw a large increase, which was mainly due to the following factors: on the one hand, the Company started to integrate the sales business of AXT and directly sold products to end customers; on the other hand, with the operation of the plants in Baoding, Hebei and Chaoyang, Liaoning, the production efficiency has been improved; in addition, the labor costs and gas power costs in Baoding, Hebei and Chaoyang, Liaoning are relatively lower than those in Beijing, which further reduced the overall cost. 1-1-358


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

2. Analysis of gross profit and gross profit margin of main business

During the reporting period, the composition of gross profit and gross profit margin of main business of the Company by product category was as follows:

In RMB0’000

Product name	2021			2020			2019
		Gross profit	Gross profit margin	Percentage	Gross profit	Gross profit margin	Percentage	Gross profit	Gross profit margin	Percentage
Semiconductor substrate	21,892.44	34.93%	73.78%	8,449.27	19.05%	56.38%	4,221.38	11.80%	47.01%
Wherein: InP substrate	15,335.07	54.42%	51.68%	4,927.91	38.64%	32.88%	4,459.95	40.65%	49.66%
GaAs substrate	6,538.69	25.59%	22.04%	2,035.54	8.65%	13.58%	-1,642.20	-9.13%	-18.29%
Germanium substrate	18.68	0.21%	0.06%	1,485.81	18.44%	9.91%	1,403.65	20.60%	15.63%
PBN crucible	2,868.60	52.13%	9.67%	2,838.48	54.73%	18.94%	2,328.02	49.23%	25.92%
High-purity metals and compounds	1,252.36	10.26%	4.22%	942.93	17.14%	6.29%	268.43	10.60%	2.99%
Other	3,658.59	72.80%	12.33%	2,755.83	84.15%	18.39%	2,162.65	67.83%	24.08%
Total	29,671.99	34.74%	100.00%	14,986.50	25.70%	100.00%	8,980.48	19.43%	100.00%

During the reporting period, the gross profit margin of main business of the Company was 19.43%, 25.70% and 34.74%, respectively. The gross profit margin fluctuated due to changes in the product composition of each main business and fluctuations in gross profit margin, details of which were as follows:

(1) InP substrate

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

During the reporting period, the gross profit margins of the Company’s indium phosphide substrates were 40.65%, 38.64% and 54.42% respectively, with a slight decline in 2020 and a great increase in 2021, mainly due to the switch of sales business, changes to product sales prices, relocation of production lines resulting in the reallocation of the production staff and other factors. Details are as follows:

S.N.	Changes in the gross profit margin of 2020		Changes in the gross profit margin of 2021
		Item	Impact on the gross profit margin	Item	Impact on the gross profit margin
1	Gross profit margin in 2019	40.65%	Gross profit margin in 2020	38.64%
2	Gross profit margin in 2020	38.64%	Gross profit margin in 2021	54.42%
3	Increase in the gross profit margin in 2020	-2.01%	Increase in the gross profit margin in 2021	15.78%
Major impact factors
1	Change in sales price	1.34%	Change in sales price	6.53%
2	Change in sales structure	-2.89%	Business switch	17.67%
3	Change in raw material price, etc.	-0.75%	Change in sales structure	-1.28%
4	-	-	Change in raw material price, etc.	-1.17%
5	-	-	Production line relocation	-6.24%
6	-	-	Wherein: The original GaAs workshop personnel of Beijing Tongmei were reallocated to the InP substrate workshop	-6.24%

1) Business switch

Since March 2021, AXT transferred its business and customers of overseas semiconductor substrate materials to AXT-Tongmei. After AXT fulfilled the original orders, the Company no longer had any related-party transactions with AXT; in May 2021, the Company completed the acquisition of AXT-Tongmei. Since the completion of the business switch, the Company has directly faced overseas end customers, and also assumed the corresponding costs and expenses. The unit price and period expenses of the company’s InP substrate have increased. In 2021, the Company’s unit sales price of InP substrates was RMB1,196.06/piece, an increase of 74.98% compared with that in 2020.

In 2021, the average unit price of InP substrates sold by the Company to AXT was RMB662.39/piece. Assuming that the average price of InP substrates sold to overseas customers by the Company’s subsidiary AXT-Tongmei in 2021 was consistent with that of InP substrates sold to AXT before the termination of related-party transactions in the first half of 2021, the impact of the business switch on the gross profit margin of InP substrates 1-1-360


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

in 2021 was 17.67%, basically in line with the increase in the gross profit margin of InP substrate products in 2021. The specific calculation process is as follows:

Unit: 0’000 pieces, RMB/piece & RMB0’000

Item	2021
		Sales volume	Estimated unit price	Estimated revenue	Cost	Estimated gross profit margin	Gross profit margin	Difference in gross profit margin
Internal sales	9.48	1,158.12	10,978.98	12,844.08	36.75%	54.42%	17.67%
External sales	14.08	662.39	9,326.45
Total	23.56	861.86	20,305.43

To sum up, the impact of the business switch on the gross profit margin of InP substrates in 2021 was 17.67%.

2) Change in the sales price

As the market demand increases in downstream 5G communications, data centers and other application fields, as well as the Company’s investment in product R&D and product quality optimization, the overall performance of the Company’s InP substrates has also improved, demonstrated by the lower dislocation density, higher flatness, lower warpage and other aspects. As a result, the overall price of InP substrates has also risen with the increase in the market demand.

Under the premise that the proportion of the sales volume and the unit cost of each size remain unchanged compared with those in the previous year, based on the unit price of each specification sold due to the market demand and changes in specific product orders, the overall current average selling price is calculated, and then the impact of the above selling prices on the gross profit margins in 2020 and 2021 is calculated as follows:

Unit: RMB/piece

1-1-361


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Item		2021	2020
InP substrate specifications<br><br>(Simulated weighted unit price = sales volume proportion of the previous year × current unit price)	2-inch ①	439.25	215.38
		3-inch ②	542.63	412.27
		4-inch ③	144.40	140.91
		6-inch ④	2.36	0.69
Estimated average unit price ⑤=①+②+③+④		1,128.64	769.26
Unit cost in the previous year ⑥		419.38	446.28
Estimated gross profit margin ⑦=(⑤-⑥)/⑤		62.84%	41.99%
Gross profit margin in the previous year ⑧		38.64%	40.65%
Impact of business switch on gross profit margin ⑨		17.67%	-
Impact of changes in the sales unit price on the gross profit margin ⑩ = ⑦ - ⑧ - ⑨		6.53%	1.34%

To sum up, according to the calculation, upon exclusion of the impact of change in the product mix and business switch, the unit price changed due to changes in the market demand and customers’ specific downstream applications of products, etc., and then the impact on the gross profit margin in 2020 and 2021 were respectively 1.34% and 6.53%.

3) Change in the sales structure

As at that time, the process maturity and yield rate of large-size products were lower than those of small-size products, and their gross profit margin was lower than that of small-size products, the change in the product sales structure also had a certain impact on the overall gross profit margin. Assuming that the other conditions of the previous year remain unchanged and the calculation is carried out based on the proportion of revenues from each size in the current year, the gross profit margins of InP substrates in 2020 and 2021 were respectively 37.76% and 38.03%. Upon exclusion of the impact of the business switch in 2021, the impact of the change in the product mix on the gross profit margins of InP substrates in 2020 and 2021 were -2.89% and -1.28% respectively.

To sum up, the main reason for the slight decline in the gross profit margin of InP in 2020 is the change in the proportion of the product sales mixture, and the impact in 2021 was small.

4) Production line relocation

Since 2019, the GaAs production line was relocated from Beijing Tongmei to Chaoyang Tongmei and Baoding Tongmei, and the relocation was substantially completed in 2020. Upon the completion of the relocation of the GaAs production line, the GaAs substrate production line would be no longer retained in Beijing, and the original GaAs substrate production personnel were reassigned to the InP and germanium substrate production lines after training.

In 2021, the total number of the foregoing transferred personnel was 210, including 137 reallocated to the InP substrate workshop. Based on the above personnel difference and the average remuneration for Beijing Tongmei’s production personnel in 2020, it is estimated that the impact of the above matters on the gross profit margin of InP substrates in 2021 was -6.24%. 1-1-362


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

5) About the purchase of raw materials

From the perspective of raw materials, the production of InP substrates mainly consumes InP polycrystals, quartz materials, crucibles for crystal growth (mainly produced from boron trichloride and liquid nitrogen), chemical reagents, packaging materials and other materials. Taking 2021 for example, under the premise that the other conditions remain unchanged, a sensitivity analysis of the 10% and 20% increase (decrease) in the purchase unit price of InP polycrystalline to the cost and gross profit margin of InP substrates in 2021 is as follows:

Unit: RMB0’000

Item	Unit price of InP polycrystalline
		+20%	+10%	0	-10%	-20%
Revenue from InP substrates	28,179.15	28,179.15	28,179.15	28,179.15	28,179.15
Cost in InP substrates	13,067.89	12,955.98	12,844.08	12,732.18	12,620.27
Gross profit margin of InP substrates	53.63%	53.98%	54.42%	54.86%	55.29%

It can be seen from the above table that the fluctuation of the unit purchase price of InP polycrystalline has little impact on the cost and gross profit margin of InP substrates as long as the other conditions remain unchanged.

It is estimated that in 2020 and 2021, the impact of the unit direct material YoY change in InP substrates of the Issuer on the current gross profit margins were -0.75% and -1.17% respectively, with a relatively small impact.

For InP substrates, as the world’s second largest manufacturer in 2020 in terms of the market share, the Company performed excellently in key performance indicators such as dislocation density, resistivity uniformity, flatness and surface granularity, which can meet the performance requirements for semiconductor substrates of data center optical module devices, wearable device sensors and other high-end markets. The

Company has good bargaining ability and room for bargaining, and its gross profit margin is relatively high.

(2) GaAs substrate

During the reporting period, the gross profit margins of GaAs substrates were -9.13%, 8.65% and 25.59% respectively, showing an upward trend year by year, mainly due to the fluctuation in sales prices, change in the sales structure proportion, production line relocation and other factors. Details are as follows: 1-1-363


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

S.N.	Change in the gross profit margin in 2020		Change in the gross profit margin in 2021
		Item	Impact on the gross profit margin	Item	Impact on the gross profit margin
1	Gross profit margin in 2019	-9.13%	Gross profit margin in 2020	8.65%
2	Gross profit margin in 2020	8.65%	Gross profit margin in 2021	25.59%
3	Increase in the gross profit margin in 2020	17.78%	Increase in the gross profit margin in 2021	16.94%
Major impact factors
1	Change in sales price	13.12%	Change in sales price	-15.82%
2	Change in sales structure	1.74%	Change in sales structure	-0.95%
3	Production line relocation	3.03%	Production line relocation	29.72%
4	Wherein: increase in yield rate	5.00%	Wherein: The original GaAs workshop personnel of Beijing Tongmei were reallocated to the InP and germanium workshops	8.03%
5	Decrease in water and electricity costs	1.97%	Increase in yield rate	7.27%
6	Differences in remunerations for personnel in different regions	0.37%	Production efficiency increase	5.21%
7	Newly added depreciation due to the transfer of Baoding Tongmei and Chaoyang Tongmei’s new plants into fixed assets	-4.31%	Impact of the fact that Beijing Tongmei’s plant, etc. will no longer participate in amortization	4.88%
8	Change in raw material price, etc.	2.78%	Decrease in fuel costs	2.52%
9	-	-	Differences in remunerations for personnel in different regions	1.81%
10	-	-	Change in raw material price, etc.	0.38%

Note: Impact of the yield rate change and approximate cost change on the gross profit margin

1) Change in the sales price 1-1-364


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

During the reporting period, the overall average unit selling prices of GaAs substrates were RMB378.50/piece, RMB466.33/piece and RMB437.68/piece respectively. The change in sales was mainly affected by changes in the market demand and customer orders, as well as in the sales structure.

Unit: RMB/piece

Item		2021	2020
GaAs substrate specifications<br><br>(Simulated weighted unit price = sales volume proportion of the previous year × current unit price)	2-inch ①	45.01	34.38
		3-inch ②	79.11	67.34
		4-inch ③	93.52	99.51
		6-inch ④	179.88	229.03
Estimated average unit price ⑤=①+②+③+④		397.52	430.26
Unit cost in the previous year ⑥		426.02	413.09
Estimated gross profit margin ⑦=(⑤-⑥)/⑤		-7.17%	3.99%
Gross profit margin in the previous year ⑧		8.65%	-9.13%
Impact of changes in the sales unit price on the gross profit margin ⑨ = ⑦ - ⑧		-15.82%	13.12%

To sum up, according to the calculation, upon exclusion of the impact of change in the product mix, the unit price changed due to changes in the market demand and customers’ specific downstream applications of products, etc., and then the impact on the gross profit margin in 2020 and 2021 were respectively 13.12% and -15.82%. The significant decline in 2021 is mainly because the Company focused on the development of the application of 6-inch GaAs in heterojunction bipolar transistors (HBT) in radio frequency devices in the second half of the year, as on the one hand, the product was highly mature, and on the other hand, customers were offered with more favorable prices with the entry into the downstream market.

2) Change in the sales structure

Assuming that the other conditions of the previous year remain unchanged and the calculation is carried out based on the proportion of revenues from each size in the current year, the gross profit margins of GaAs substrates in 2020 and 2021 were respectively -9.13% and 10.39%, and then the impact of the change in the product sales structure on the gross profit margin in 2020 and 2021 was -0.95% and 1.74% respectively, with a relatively a small impact on the whole.

3) Production line relocation

① Increased yield rate

The relocation of the production lines mainly has a significant impact on the cost of GaAs substrates. In 2019, the Company relocated its GaAs substrate production line from Beijing to Chaoyang, Liaoning and Baoding, 1-1-365


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Hebei, and employed new production staff. In 2019, the new production line was still at the commissioning phase, with a large volume of raw materials consumed. Meanwhile, the original customers also needed to re-verify the new production line successively (the recognition was completed in around the first half of 2019). Under the impact of the production line relocation, in that year, the comprehensive yield rate of GaAs substrates in the crystal growth process was relatively low. The foregoing factors caused the Company’s operating cost to increase. In 2020 and 2021, with the enhancement of production staff’s operating proficiency and the efficiency improvement brought by new equipment, the yield rates of the Company’s GaAs substrate single crystal growth increased by 5.00% and 7.27% respectively.

② Differences in remunerations and unit prices of water and electricity in different regions

The labor cost and water and electricity prices of Baoding, Hebei and Chaoyang, Liaoning are lower than those of Beijing. A comparison of the average salaries for the production staff of Beijing Tongmei, Chaoyang Tongmei and Baoding Tongmei during the reporting period is as follows:

Unit: RMB/person

Item	Beijing Tongmei	Baoding Tongmei	Chaoyang Tongmei
Monthly average salary	11,372.47	8,414.18	8,881.05

Assuming that the salaries for the production staff of Baoding Tongmei and Chaoyang Tongmei were the same as those of Beijing Tongmei during the reporting period, the impact of the gross profit margins of the Company’s GaAs substrates were 0.37% in 2020 and 1.81% in 2021 respectively .

A comparison of the average unit prices of water and electricity in Beijing Tongmei, Chaoyang Tongmei and Baoding Tongmei during the reporting period is as follows:

Item	Unit price of water (RMB yuan/ton)	Unit price of electricity (RMB yuan/ton)
Beijing Tongmei	7.84	0.76
Baoding Tongmei	5.76	0.72
Chaoyang Tongmei	3.80	0.55

Based on the energy consumption in 2020, assuming that the unit prices of water and electricity of Baoding Tongmei and Chaoyang Tongmei were the same as those of Beijing Tongmei, the impact of water and electricity costs on the gross profit margin of GaAs in 2020 was 1.97%.

③ Reassignment of the production staff in Beijing after relocation

At the end of 2020, the relocation of the GaAs-related production line and workshop was completed, and no GaAs-related production department would be retained in Beijing. Meanwhile, relevant workshops, part of the equipment and the original GaAs substrate production staff were reassigned to the InP substrate workshop and germanium substrate workshop, and the total number of transferred staff was 210;

Based on the foregoing staff difference and the average remunerations the production staff of Beijing Tongmei in 2020, it is estimated that the impact of the staff reassignment on the gross profit margin was 8.03%.

④ Beijing Tongmei’s Plant, etc. would no longer participate in amortization 1-1-366


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

At the end of 2020, the GaAs-related production line and workshop were relocated, and the depreciation of the relevant plant of Beijing

Tongmei would no longer be allocated to GaAs substrates. The impact of the foregoing difference on the average unit cost was RMB21.37/piece, and the impact on the gross profit margin was 4.88% accordingly.

To sum up, the relocation of the production line had a great impact on the gross profit margin of GaAs substrates, and after the completion of the production line relocation, the gross profit margin of the Company’s GaAs substrates increased fast year by year. According to simulation calculation, the increase in the yield rate, the change in remunerations for the staff and the reduction in water and electricity costs after the production line relocation, as well as the reassignment of the production staff, the improvement of the production efficiency and other matters had an impact on the gross profit margin of GaAs substrates of 3.03% and 29.72% respectively in 2020 and 2021.

4) About the purchase of raw materials

From the perspective of raw materials, the production of GaAs substrates mainly consumes metal gallium, high-purity arsenic, quartz materials, crucibles for crystal growth (mainly produced from boron trichloride and liquid nitrogen), chemical reagents, packaging materials and other materials. Taking 2021 for example, under the premise that the other conditions remain unchanged, a sensitivity analysis of the 10% and 20% increase (decrease) in the purchase unit price of metal gallium to the cost and gross profit margin of GaAs substrates in 2021 is as follows:

Unit: RMB0’000

Item	Unit price of metal gallium
		+20%	+10%	0	-10%	-20%
Revenue from GaAs substrates	25,547.46	25,547.46	25,547.46	25,547.46	25,547.46
Cost in GaAs substrates	19,955.94	19,482.36	19,008.77	18,535.18	18,061.60
Gross profit margin of GaAs substrates	21.89%	23.74%	25.59%	27.45%	29.30%

It can be seen from the above table that the fluctuation of the unit purchase price of metal gallium has little impact on the cost and gross profit margin of GaAs substrates as long as the other conditions remain unchanged.

It is estimated that in 2020 and 2021, the impact of the unit direct material YoY change in GaAs substrates of the Issuer on the current gross profit margin was 2.78% and 0.38% respectively, which was a relatively small impact.

5) Competition layout

From the perspective of the competitive layout, the Company’s main competitors in GaAs substrates are Sumitomo and Freiberger. In 2019, the Company’s global market share in the GaAs substrate market was 13%. There is a fierce competition in the international market of GaAs substrates, and customers have a strong bargaining ability. As a result, prices offered by peer companies are not significantly different, and the gross profit margin of GaAs substrates is also lower than that of InP substrates. Besides, the GaAs substrate market is growing fast. According to Yole statistics, the shipment volume of GaAs substrates in 2021 was expected to increase by 1-1-367


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

26.98% compared with that in 2020. Under the background of the expansion of the market size and the steady expansion of the Company’s GaAs substrate production capacity, the Company has further increased the preferential treatment in the international market. In the domestic market, the Company have generally withdrawn from the low-priced LED illumination field. Domestic customers purchase the GaAs substrate products from the Company mainly for smart phones, AI, unmanned driving and other fields, which have higher technical requirements and a higher added value for GaAs substrates, resulting in a higher sales price in the domestic market for the Company’s products, which has raised the average selling price and, with the increase of the domestic sales scale of GaAs substrates, it has raised the gross profit margin of GaAs substrates to some extent.

(3) Germanium substrate

1) Main factors leading to the great decrease in the gross profit margin of germanium substrate products

During the reporting period, the gross profit margins of germanium substrates were 20.60%, 18.44% and 0.21% respectively, showing a downward trend year by year, mainly due to the influx of competitors that caused intensified competition, resulting in lower sales prices, changes in product structure, reallocation of production personnel upon production line relocation, increased raw material prices, changes in the capacity utilization rate and other factors. Details are as follows:

S.N.	Changes in the gross profit margin of 2020		Changes in the gross profit margin of 2021
		Item	Impact on the gross profit margin	Item	Impact on the gross profit margin
1	Gross profit margin in 2019	20.60%	Gross profit margin in 2020	18.44%
2	Gross profit margin in 2020	18.44%	Gross profit margin in 2021	0.21%
3	Increase in the gross profit margin in 2020	-2.16%	Increase in the gross profit margin in 2021	-18.23%

Major impact factors
4	Change in sales price	-8.31%	Change in sales price	-3.96%
5	Change in sales structure	-0.43%	Change in sales structure	2.33%
6	Increase in capacity utilization	4.74%	Production line relocation	-10.47%
7	Change in the price of main raw materials	1.66%	Wherein: The original GaAs workshop personnel of Beijing Tongmei were reallocated to the InP and germanium substrate workshop	-10.47%
8	-	-	Change in the price of main raw materials	-7.00%

① Decline of sales prices due to intensified market competition 1-1-368


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Before 2014, the Issuer and the Umicore were major enterprises with the capacity of mass production of germanium substrates in the world. At present, the Company mainly sells 4-inch germanium substrates in the domestic market, and 6-inch and 4-inch products in the overseas market.

A. International market

In the international market, Umicore is the main competitor of the Company (and its controlling shareholder AXT), which has been engaged in germanium product business for more than 40 years with its germanium-related products including, among others, infrared germanium products, ultra-high purity germanium single crystals and germanium substrates. As to the international market, the Company (and its controlling shareholder AXT) once outperformed Umicore in the global market share of germanium substrate products. With AXT’s complete relocation of germanium substrate production base to China, the Company’s germanium substrate products gradually withdrew from the U.S. aerospace market. Currently, given the Company’s overseas market is mainly in Europe and Asia, the germanium substrates of Umicore have a higher global market share than those of the Company.

B. Domestic market

In the domestic market, before 2014, the Company was the most important supplier of germanium substrates in China. As China’s germanium output ranks first in the world, Yunnan Germanium and other domestic manufacturers in the germanium industry in China also supplied raw materials such as germanium ingots or germanium single crystals to Umicore. With the continuous growth of the global aerospace field and commercial satellite market, in China, upstream germanium substrate manufacturers have also begun to enter the downstream germanium substrate market. Yunnan Germanium commenced producing germanium substrates on a small scale and sold them abroad in 2014. According to the 2019 annual report of Yunnan Germanium, it recorded a revenue of RMB28.4474 million from germanium substrates in that year.

In recent years, the domestic market demand in China has also shown a rapid growth, and Yunnan Germanium has also made greater efforts to develop the domestic market. During the reporting period, its revenue from germanium substrates increased to RMB77.1093 million in 2021 from 2019, which was on par with the Company’s revenue scale on that regard in 2021.

The comparison of price changes, production capacity and output changes between the Company and Yunnan Germanium in germanium substrate products is as follows:

Unit: RMB/piece, 0’000 pieces (converted to 4 inches)

Germanium substrate	Beijing Tongmei			Yunnan Germanium
		2021	2020	ROC	2021	2020	ROC
Unit price	287.74	336.81	-14.57%	283.70	390.06	-27.27%
Capacity	35.83	30.50	17.48%	75.00	30.00	150.00%
Output	35.46	28.18	25.83%	28.28	23.57	20.00%

Source: Annual report of Yunnan Germanium

At present, the Company and Yunnan Germanium are the two major manufacturers of germanium substrates in China’s domestic market. As per the 2021 annual report of Yunnan Germanium, in 2021, it produced 282,800 1-1-369


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

photovoltaic germanium products (converted to 4 inches), and expanded its production capacity for 6-inch germanium substrates by 200,000. The price competition between the Company and Yunnan Germanium is intensified with the increase of the latter’s output and sales volume.

Unit: RMB/piece

Item		2021	2020
Germanium substrate specifications<br><br>(Simulated weighted unit price = sales volume proportion of the previous year × current unit price)	2-inch ①	4.99	3.97
		3-inch ②	0.70	6.00
		4-inch ③	234.95	250.61
		6-inch ④	80.51	57.11
Estimated average unit price ⑤=①+②+③+④		321.15	317.69
Unit cost in the previous year ⑥		274.66	278.66
Estimated gross profit margin ⑦=(⑤-⑥)/⑤		14.48%	12.29%
Gross profit margin in the previous year ⑧		18.44%	20.60%
Impact of changes in the sales unit price on the gross profit margin ⑨ = ⑦ - ⑧		-3.96%	-8.31%

To sum up, according to the calculation, upon exclusion of the impact of changes in the product mix, the unit prices change due to the influx of market competitors, changes in demand and in customer orders, etc., and then the impact on the gross profit margin in 2021 was -3.96%.

② Change in the sales structure

Affected by the intensified market competition, in order to further expand the domestic market share and enhance the competitiveness, the product unit prices in 2021 further decreased. The unit price of the 4-inch product declined significantly, and its sales volume and proportion increased due to the price reduction strategy; thus, the product mix in 2021 changed significantly. In 2021, the proportion of revenues from 4-inch germanium substrates increased from 74.18% in 2020 to 88.63%.Assuming that the other conditions of the previous year remain unchanged and the calculation is carried out based on the proportion of revenues from each size in the current year, the gross profit margins of germanium substrates in 2020 and 2021 were respectively 20.17% and 20.77%, and then the impact of the change in the product sales structure on the gross profit margin in 2020 and 2021 was -0.43% and 2.33% respectively, with a relatively a small impact on the whole.

③ Production line relocation

In 2021, the relevant production personnel and plant of Beijing Tongmei’s original GaAs workshop were reallocated to the InP substrate and germanium substrate workshops. Wherein, 73 of them were reallocated to the germanium substrate workshop. Based on the foregoing personnel difference and the average remuneration of 1-1-370


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Beijing Tongmei’s production personnel in 2020, the impact of the personnel reallocation on the gross profit margin of germanium substrates in 2021 was estimated as -10.47%.

④ Increase in raw material prices

In the composition of germanium substrates, the cost of germanium ingots accounts for a relatively high proportion. With the impact of the domestic economic environment, the supply-demand relationship under the epidemic and other factors, the price of germanium ingots have been in an upward trend generally. During the reporting period, the average purchase unit prices of germanium ingots were RMB6,447.44/kg, RMB6,234.17/kg and RMB7,008.32/kg, a growth of -3.31% and 12.42% in 2020 and 2021 respectively. If the average purchase price of germanium ingots in the current year remained the same as that in the previous year, the impact of the increase in germanium ingot prices on the gross profit margin in 2020 and 2021 would be 1.66% and -7.00% respectively. Details are as follows:

Unit: RMB0’000


Item	Revenue	Cost	Gross profit margin
Actual figure in 2021	8,948.57	8,929.89	0.21%
Estimated figure in 2021	8,948.57	8,303.12	7.21%
Difference			-7.00%
Actual figure in 2020	8,055.63	6,569.82	18.44%
Estimated figure in 2020	8,055.63	6,703.72	16.78%
Difference			1.66%

⑤ Change in capacity utilization

During the reporting period, the Company’s germanium substrate capacity utilization rates were 75.76%, 92.41% and 98.97% respectively. The capacity utilization rate in 2019 was relatively low, mainly due to the unsaturated downstream orders, resulting in a high amortization of fixed costs in the year. In 2019, The unit manufacturing cost of germanium substrates was RMB95.09/piece, which was 20.20% higher than that in 2020 and is basically the same as the difference in capacity utilization. In 2020, the impact of the change in the unit manufacturing cost of germanium substrates on the gross profit margin was 4.74%.

2) Whether the relevant factors may cause continuous adverse effects on the future operating performance of the Issuer

1-1-371


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

In the short term, the market price of germanium substrate products continued to drop due to the influx of competitors, and the gross profit margin dropped due to the increase of raw material prices and the reassignment of staff upon the relocation of the GaAs production line, but in the long term, the above factors will not continue to have an adverse impact on the Issuer’s future results of operation. The main reasons are as follows:

① The price and gross profit margin has become stable in January to May 2022

In the first half of 2022, the average selling price of germanium substrates was RMB282.15/piece (unaudited, the same below), decreased by 1.94% year on year. The price tends to become relatively stable; at the same time, with the increase in output, the cost was diluted, and the gross profit margin also recovered to 8.99%, and the overall competition eased to some extent. Meanwhile, from the perspective of customers, main customers of the Company’s germanium substrate products were still Kingsoon, Zhongshan Dehua Chip Technology Co., Ltd., Osram, etc.; there was no material changes, and the cooperation was stable. In the first half of 2022, the Company achieved the sales revenue of RMB51,541,700 from germanium substrate products, up by 18.63% year on year. It has achieved a sales volume of 182,700 pieces, an increase of 23.65% on a year-on-year basis. With the continuous growth in the demand in the downstream space solar cell field, it is expected that the Company’s revenue from germanium substrates will increase on a year-on-year basis in 2022. With the continued increase in the revenue and sales volume of germanium substrates, the increase in the cost arising from the reassignment of staff due to the relocation will be diluted and the unit cost will be reduced.

② The Issuer has early-bird market advantages and advantages in product quality

Having engaged in the mass production of germanium substrates in 2010, the Company has developed many outstanding customers, including Osram and Kingsoon, on the domestic and overseas markets, indicating the obvious early-bird market advantages for the Issuer; meanwhile, the largest customer of the Company’s germanium substrate products during the reporting period is Kingsoon - the germanium substrate products, after being processed by Kingsoon into epilayers, have been used in the production of over 50% solar cells for satellites and spacecraft manufactured by China, which have been successfully equipped in aerospace equipment such as Chang’e 4 and Tianwen-1. The quality of our germanium substrate products has been recognized by relevant authorities. In summary, thanks to the early-bird market advantages and advantages in product quality, the Company has certain market competitiveness and bargaining power, which can ensure the stability of product prices to a certain extent.

③ Continuous investment in R&D to improve product performance

During the reporting period, the Company invested a total of RMB26.8264 million, RMB45.1082 million, and RMB90.1664 million, respectively, in research and development; along with the expansion of the downstream market and application fields, our investment in R&D will also increase continuously. Meanwhile, we also made investment in the research and development of processes and technology upgrade related to germanium substrates, such as the continuous investment in the research and development of 6-inch germanium wafers, the development of the automatic cleaning process, etc. Meanwhile, we will also enhance efforts for the research of new technologies and new applications of germanium substrates for concentrator photovoltaics (i.e. concentrating solar power that concentrates sunshine by using an optical device for power generation, which is considered as the third-generation technology for the future development of power generation with solar energy), ground photovoltaic solar cells, optical devices, etc., so as to improve the product competitiveness of the Company, ensure the bargaining power of the Company on the downstream germanium substrate solar cells, and improve the gross profit margin of such products. 1-1-372


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

④ Expected growth for large-size germanium substrate applications

At present, the Company, like other companies in the industry, have also started using 6-inch germanium substrates for the LED and other fields. That is, a germanium substrate is provided on an LED GaAs substrate epilayer, so as to improve the conductivity performance of the epilayer and improve the brightness of LED chips. This will also expand the application of large-size germanium substrates. In the future, along with the growth of 6-inch germanium substrates for new applications in the optical field, especially the growth of the sales volumes on the overseas market and the stable price of raw materials, the gross profit margin of the Company’s germanium substrate products will increase.

In summary, after the reporting period, the unit price of germanium substrate products have become stable; moreover, the Issuer has certain early-bird market advantages and advantages in product quality; given the continuous investment in research and development, the improvement in product performance, and the increased application of large-size germanium substrates, it is expected that the selling price of germanium substrate products will not decrease continuously and greatly, but will become stable, hence improving the gross profit margin.

(4) PBN crucibles

During the reporting period, the gross profit margin of PBN crucibles of the Company was 49.23%, 54.73% and 52.13%, respectively, which was relatively stable overall. The low gross profit margin of PBN crucibles for the year ended 31 December 2019 was mainly due to the fact that Chaoyang, Liaoning implemented better industrial policy, while Beijing Boyu was notified in the second half of 2018 that its leased plant would be expropriated, and relocated its production equipment and others to Chaoyang Boyu and other plants one after another for the year ended 31 December 2019, resulting in a decrease in the utilization rate of production equipment. Meanwhile, as Chaoyang Boyu re-recruited production personnel who were not proficient, the overall production efficiency of PBN crucibles was low for the year ended 31 December 2019.

(5) High-purity metals and compounds

During the reporting period, the gross profit margin of high-purity metal and compound products of the Company was 10.60%, 17.14% and 10.26%, respectively. The main reason for the increase in 2020 was that the production efficiency decreased as a result of the relocation of Nanjing Jinmei’s production line to Chaoyang Jinmei in 2019, and the production efficiency recovered to some extent after the completion of the relocation in 2020; on the other hand, the sales unit price of high-purity gallium increased with the increase in the market price of gallium. The gross profit margin in 2021 declined, which was mainly because the market price of the raw material metal gallium was at a high level throughout the year, and such change was not transmitted to the terminal price in a timely manner, leading to a price increase weaker than the increase in the unit price of the raw materials.

(6) Others

During the reporting period, the gross profit margin of other income from main business of the Company was 67.83%, 84.15% and 72.80%, respectively. Other businesses under the main business of the Company were mainly sales of materials such as PBN sheets and crucible precision regeneration services, which have high entry thresholds and relatively high gross profit margins.

1-1-373


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

3. Comparative analysis of gross profit margin with comparable companies in the same industry

During the reporting period, the comparison in gross profit margin of main business between the Company and comparable companies in the same industry was as follows:


Company name	2021	2020	2019
SICC	32.83%	34.94%	26.62%
NSIG	15.01%	12.09%	13.82%
Average	23.92%	23.52%	20.22%
The Issuer (semiconductor substrate)	34.93%	19.05%	11.80%

Note: The data of comparable companies are obtained from their annual reports and Prospectuses.

During the reporting period, the gross profit margin of semiconductor substrate materials of the Company significantly differed from the average of comparable companies in the same industry, which was mainly due to the difference in product types, parameters and performance requirements, production process, application areas and downstream customer structure. Among them, SICC mainly provided silicon carbide substrates, NSIG mainly provided silicon substrates, while the Issuer mainly provided InP substrates, GaAs substrates and germanium substrate materials.

Specifically, ’compared with SICC, the overall gross profit margin of semiconductor substrate materials of the Company in 2019 and 2020 was relatively low, as SICC’s main products were silicon carbide whose raw materials, namely graphite parts and graphite mats, were less expensive and more fully supplied than our rare metals. NSIG’s lower gross profit margin was mainly due to the higher operating cost resulting from a significant increase in fixed costs caused by the increase in its production capacity for 300mm semiconductor silicon substrates. In 2021, the gross profit margin of the Company’s semiconductor substrate products was close to that of SICC’s main business.

(IV) Analysis of period expenses

During the reporting period, the composition of the period expenses and their proportions in the operating incomes of the Company are as follows:

In RMB0’000

Item	2021		2020		2019
		Amount	Proportion	Amount	Proportion	Amount	Proportion
Selling expenses	2,118.22	2.47%	791.80	1.36%	837.17	1.81%
Administrative expenses	7,708.87	8.99%	5,797.25	9.94%	7,207.62	15.59%
R&D expenses	9,016.64	10.52%	4,510.82	7.73%	2,682.64	5.80%
Financial expenses	491.20	0.57%	-465.83	-0.80%	142.28	0.31%
Total	19,334.94	22.55%	10,634.04	18.23%	10,869.71	23.52%

1-1-374


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

In each period of the reporting period, the total period expenses of the Company amounted to RMB108,697,100, RMB106,340,400 and RMB193,349,400 respectively, being relatively stable in the recent three years. In 2021, the period expenses were comparatively high, mainly because of the increase in the Company’s incomes on the one hand, and the relatively high benefits to certain overseas sales, R&D and management personnel who were newly recruited in response to the overseas business integration between AXT-Tongmei and AXT since March 2021 on the other hand. In each period of the reporting period, the period expenses accounted for 23.52%, 18.23% and 22.55% of the corresponding year’s operating incomes respectively, with slight fluctuations.

1. Selling expenses

(1) Composition of selling expenses

During the reporting period, the composition of the Company’s selling expenses is as follows:

In RMB0’000

Item	January to June 2021		2020		2019
		Amount	Proportion	Amount	Proportion	Amount	Proportion
Employee benefits	990.26	46.75%	260.66	32.92%	197.11	23.54%
Warranty expenses	451.95	21.34%	249.72	31.54%	144.90	17.31%
Agency fees	418.51	19.76%	188.38	23.79%	288.38	34.45%
Share-based payment	162.57	7.67%	5.74	0.72%	4.16
Business travel expenses	49.56	2.34%	60.31	7.62%	80.69	9.64%
Customs declaration fees and freights	-	-	-	-	74.38	8.88%
Others	45.38	2.14%	26.99	3.41%	47.57	6.18%
Total	2,118.22	100.00%	791.80	100.00%	837.17	100.00%

During the reporting period, the selling expenses of the Company amounted to RMB8,371,700, RMB7,918,000 and RMB21,182,200 respectively. The significant increase in 2021 was mainly due to the rise of employee benefits, warranty expenses and agency fees. The Company’s selling expenses accounted for 1.81%, 1.36% and 2.47% of the corresponding year’s operating incomes respectively, showing a trend of increase following decrease in the recent three years. The selling expenses were mainly composed of employee benefits, warranty expenses and agency fees, the total expenses of such three items accounting for 75.30%, 88.25% and 87.85% of the selling expenses respectively. 1-1-375


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

1) Employee benefits

During the reporting period, the employee benefits in the Company’s selling expenses amounted to RMB1,971,100, RMB2,606,600 and RMB9,902,600, accounting for 23.54%, 32.92% and 46.750% of the selling expenses, respectively.

During the reporting period, the average monthly number and per capita benefits of salespeople are as follows:

In RMB0’000


Item	2021	2020	2019
Selling expenses - employee benefits	990.26	260.66	197.11
Monthly average number	20	12	10
Per capita benefits	49.51	21.72	19.71

In the recent three years, the per capita benefits of the Company’s salespeople have increased year by year. In 2021, the per capita benefits of salespeople saw a significant growth, mainly because in 2021 the Company established an overseas sales team in AXT-Tongmei, the benefits for which were relatively high, raising the average benefit level of the overall salespeople.

2) Warranty expenses

During the reporting period, the Company’s warranty expenses amounted to RMB1,449,000, RMB2,497,200 and RMB4,519,500, accounting for 17.31%, 31.54% and 21.34% of the selling expenses, respectively. The warranty expenses represented the after-sales maintenance fees accrued by the Company according to the sold semiconductor substrate materials, which increased rapidly during the reporting period for reasons that, on the one hand, the sales of semiconductor substrate materials increased rapidly year by year, and on the other hand, the Company had relatively large maintenance expenses in 2020 for its products in response to the launch by Customer A of new products. Besides, the warranty expenses increased significantly in 2021, mainly because the accrued amount increased with the growth of the incomes of AXT-Tongmei having direct dealing with end customers since March 2021, while before that, it was AXT who was responsible for the warranty of overseas customers and the Company made no accruals of warranty expenses for AXT.

3) Agency fees

During the reporting period, the agency fees of the Company amounted to RMB2,883,800, RMB1,883,800 and RMB4,185,100, accounting for 34.45%, 23.79% and 19.76% of the selling expenses, respectively. In order to better promote its products, the Company has also developed the markets through agents in Korea, Taiwan (China), Europe and the United States, among others. In the case of promotion through agents, the Company would sign product sales agency agreements with the agents pursuant to which the agents were responsible for the marketing of relevant products in specific territories, and would directly enter into sales contracts with, and deliver goods to, relevant customers, and pay commissions to the agents according to the type of products they sold at a predetermined fee rate. The significant increase in the agency fees in 2021 was mainly due to the fact that since AXT-Tongmei started to directly face end customers in March 2021, AXT-Tongmei had undertaken relevant businesses, re-signed agency contracts with overseas customer agents, and paid relevant agency fees.

1-1-376


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(2) Comparison of selling expenses ratio with comparable companies

During the reporting period, the comparison of selling expenses ratio between the Issuer and the comparable companies is as follows:


Company name	2021	2020	2019
SICC	2.08%	0.77%	0.76%
NSIG	2.84%	3.36%	4.51%
Average	2.46%	2.07%	2.64%
Issuer	2.47%	1.36%	1.81%

Note: The data of such comparable companies is sourced from their annual reports and Prospectuses.

During the reporting period, the Company’s selling expenses ratio was lower than that of NSIG, for reasons mainly lying in: there was a relatively large number of salespeople in ZINGSEMI, a subsidiary of NSIG, resulting in a high proportion of employee benefits expenses in NSIG’s incomes; the selling expenses of NSIG encompassed consulting service fees which were not included by the Company; and NSIG sold semiconductor wafers of 300mm and below, the unit price of which was far lower than that of the Company’s products having similar size, leading to a relatively high unit freight.

The Company’s selling expenses ratio was higher than that of SICC, mainly because of the warranty expenses accrued by the Company for the semiconductor substrate materials sold to its customers other than AXT, and the agency fees generated by the Company’s sales of semiconductor products in Korea, Taiwan (China), Europe and America, among other markets.

1-1-377


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

2. Administrative expenses

(1) Composition of administrative expenses

During the reporting period, the composition of the Company’s administrative expenses is as follows:

In RMB0’000

Item	2021		2020		2019
		Amount	Proportion	Amount	Proportion	Amount	Proportion
Employee benefits	4,345.54	56.37%	3,069.45	52.95%	4,153.14	57.62%
Depreciation and amortization	806.75	10.47%	410.72	7.08%	471.61	6.54%
share-based payments	262.92	3.41%	118.73	2.05%	94.85	1.32%
Office expenses	556.18	7.21%	410.65	7.08%	334.67	4.64%
Service fees	602.15	7.81%	251.78	4.34%	347.76	4.82%
Business travel expenses	416.80	5.41%	288.40	4.97%	481.86	6.69%
Royalties	-	-	805.40	13.89%	680.62	9.44%
Others	718.52	9.32%	442.12	7.63%	643.11	8.92%
Total	7,708.87	100.00%	5,797.25	100.00%	7,207.62	100.00%

During the reporting period, the administrative expenses of the Company amounted to RMB72,076,200, RMB57,972,500 and RMB77,088,700, with fluctuations, accounting for 15.59%, 9.94% and 8.99% of its operating incomes in each period, respectively. They were relatively high in 2019, mainly due to the relocation of the production line of Nanjing Jinmei to Liaoning Chaoyang and the corresponding dismissal benefits of RMB10,240,200 for dismissed employees.

1) Employee benefits

During the reporting period, the employee benefits in the Company’s administrative expenses amounted to RMB41,531,400, RMB30,694,500 and RMB43,455,400, accounting for 57.62%, 52.95% and 56.37% of the administrative expenses, respectively. Affected by the relocation of the production line of Nanjing Jinmei to Liaoning Chaoyang, Nanjing Jinmei granted dismissal benefits of RMB10,240,200 to its dismissed employees in 2019 respectively.

1-1-378


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

During the reporting period, the monthly average number and per capita benefits of managers are as follows:

In RMB0’000


Item	2021	2020	2019
Administrative expenses - employee benefits	4,345.54	3,069.45	4,153.14
Monthly average number	150	120	126
Per capita benefits	28.97	25.58	32.96
Per capita benefits (excluding dismissal benefits for dismissed employees in 2019)	28.97	25.58	24.83

After excluding the amount of dismissal benefits for eligible employees caused by the relocation of Nanjing Jinmei, the per capita benefits of managers increased year by year during the reporting period.

2) Royalties

During the reporting period, the Company’s royalties amounted to RMB6,806,200, RMB805,400 and RMB0 respectively. The royalties represented the fees paid by the Company to AXT based on the Technology License Agreement between the Company and AXT. For details, refer to “X.(II).3. Acceptance of ATX technology and trademark licenses from AXT and assumption of cross-licensing obligation by the Company” in “Section VII Corporate Governance and Independence” hereof.

1-1-379


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

3) Share-based payments

① Basic information

During the reporting period, the Company’s share-based payments are as follows:

In RMB0’000

Item	2021	2020	2019
By expense type
Selling expenses	162.57	5.74	4.16
Administrative expenses	262.92	118.73	94.85
R&D expenses	342.48	38.51	31.09
Production costs	235.01	115.40	100.31
Total	1,002.98	278.37	230.41
By event
Employee stock ownership platforms equity incentive	265.76	-	-
Equity incentive from AXT to the Company’s employees	691.09	278.37	230.41
The Company’s option incentive of the for employees	46.13
Total	1,002.98	278.37	230.41

A. Participation of the Issuer’s employees in the equity incentive plan of its controlling shareholder

In May 2015, AXT, the controlling shareholder of the Company, approved the 2015 equity incentive plan, according to which AXT granted stock options and restricted shares to the Company’s employees, among others. Such plan is still valid, under which, the relevant share-based payments expenses of the Company amounted to RMB2,304,100, RMB2,783,700 and RMB6,910,900 respectively.

B. The Issuer’s employee stock ownership platforms

In December 2020, in order to have its employees share its development achievements and for the purpose of employee incentive, the Company set up certain employee stock ownership platforms to enable its employees to take shares on the principle of voluntariness and risk assumption. Through four employee stock ownership platforms namely Beijing Liaoyan, Beijing Dingmei, Boyu Yingchuang and Boyu Hengye, the employees have made an additional capital contribution to the Company at the price of RMB1.32 per unit of registered capital. The Company has recognized the share-based payments expenses of RMB2,657,600 for the said capital increase in 2021.

1-1-380


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

C. The Company’s option incentive for employees

In November 2021, the Company granted 7,302,036 shares to a total of 171 employees, including directors, senior management personnel, core management personnel, core technical personnel, core business personnel and other employees.

To sum up, the above share changes are subject to the Accounting Standards for Business Enterprises No. 11 - Share-based Payments, and the relevant accounting treatment complies with the relevant provisions of the Accounting Standards for Business Enterprises.

② Measurement method for the fair value of equity instruments related to share-based payments

A. With respect to the share-based payments expenses related to the AXT equity incentive, the best estimation was made and the estimated number of equity instruments exercisable was modified using the Black Scholes model according to the latest changes in the number of exercisable employees and other follow-up information.

B. With respect to the employee stock ownership platforms equity incentive in 2020, the relevant fair value was made based on the consulting report issued by Shanghai PG Advisory Co., Ltd.

C. Regarding the fair value of the equity under the option incentive plan, the Company adopts the binary tree model, and considers the terms and conditions on the grant of the stock options, to evaluate the fair value of the granted stock options on the grant date.

The measurement method and results of the fair value of the above equity instruments related to share-based payment are reasonable.

③ In case of restrictive conditions related to equity ownership or usufruct, whether the relevant conditions are true and feasible, whether the judgment of service term is accurate, and whether the employee service costs or expenses recognized in each year/period of the service term are accurate

A. The stock ownership and usufruct, among others, concerning the AXT equity incentive were deliberated and approved by the board of directors and the general meeting of AXT.

B. According to the Employee Stock Ownership Management Measures applicable to the 2020 employee incentive, the participants of the employee stock ownership platforms shall be subject to a service term of 3 years for their entitlement to the relevant stock ownership.

C. As stipulated by the Company’s 2021 Stock Option Incentive Plan of Beijing Tongmei Xtal Technology Co., Ltd., the stock option shall be in a waiting period of 36 months from the grant date of the stock options. During the waiting period, the stock options granted under the plan shall be non-exercisable. The stock options shall be exercised in two batches after 36 months of granting, and the exercising ratio of each batch shall be 1/2 and 1/2 respectively of the total number of stock options granted. Before the Company’s successful issuance and listing, the stock options granted to the incentive objects shall be non-exercisable.

In view of the above, there are restrictive conditions for matters related to share-based payments of the Company. The relevant conditions are true and feasible, the judgment of the service term is accurate, and the share-based payments expenses recognized in each period of the service term are accurate. 1-1-381


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(2) Comparison of administrative expenses ratio with comparable companies

During the reporting period, the comparison of the administrative expenses ratio between the Issuer and the comparable companies is as follows:


Company name	2021	2020	2019
SICC	11.52%	9.57%	8.96%
NSIG	9.06%	8.94%	11.71%
Average	10.29%	9.26%	10.34%
Issuer	8.99%	9.94%	15.59%

Note: The data of such comparable companies is sourced from their annual reports and prospectuses; the administrative expenses ratio of SICC was counted after deducting the relevant share-based payment expenses.

In 2020, the administrative expenses ratio of the Company had little difference from that of the comparable companies. In 2019, it was higher than the average level of the comparable companies, mainly due to the relocation of Nanjing Jinmei to Chaoyang Jinmei and the corresponding dismissal benefits of RMB10,240,200 for dismissed employees, resulting in a significant increase in the administrative expenses. In 2021, the Company’s management expenditure rate was lower than that of SICC and was substantially the same as that of NSIG, which was mainly because of the relatively high consulting and intermediary fees of SICC.

3. R&D expenses

(1) Composition of R&D expenses

During the reporting period, the composition of the Company’s R&D expenses is as follows:

In RMB0’000

Item	2021		2020		2019
		Amount	Proportion	Amount	Proportion	Amount	Proportion
Employee benefits	4,809.18	53.34%	2,068.61	45.86%	1,039.83	38.76%
Raw materials and finished products consumed	2,894.58	32.10%	1,773.22	39.31%	1,213.60	45.24%
Depreciation and amortization	396.14	4.39%	252.45	5.60%	149.89	5.59%
Water and electricity	179.23	1.99%	173.00	3.84%	104.39	3.89%
Share-based payments	342.48	3.80%	38.51	0.85%	31.09	1.16%
Others	395.03	4.38%	205.03	4.55%	143.84	5.36%
Total	9,016.64	100.00%	4,510.82	100.00%	2,682.64	100.00%

1-1-382


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

In each period of the reporting period, the Company’s R&D expenses amounted to RMB26,826,400, RMB45,108,200 and RMB90,166,400 respectively. The Company has always attached great importance to the independent innovation and R&D, maintaining a high-level R&D investment to ensure the continuous upgrading of its products and technologies, meet the demands of the market and customers, and improve its core competitiveness. During the period, its R&D expenses increased significantly, mainly due to its increasing R&D investments in large-size substrate materials and the technical study on various semiconductor substrates in wafer processing according to market conditions and its own R&D arrangements.

1) Employee benefits

During the reporting period, the employee benefits in the Company’s R&D expenses amounted to RMB10,398,300, RMB20,686,100 and RMB48,091,800, accounting for 38.76%, 45.86% and 53.34% of the R&D expenses, respectively. In 2019, there was a relative delay in certain R&D activities and arrangements of the Company as well as a decrease in human resources due to the impact of the relocation of Beijing Tongmei and Nanjing Jinmei. In 2020, on the one hand, the R&D activities had resumed with the gradual completion of relocation, and on the other hand, as the Company’s 8-inch GaAs and 6-inch InP substrates entered the R&D milestone, the Company increased the R&D investments in the above large-size substrate materials and the technical study on semiconductor substrates in wafer processing, and it followed that the manpower input was increased. In 2021, remunerations for employees further increased, mainly due to the continuous increase in the number of R&D personnel as well as the higher benefits with the rise of labor cost; in addition, certain overseas R&D personnel having higher benefits were newly recruited by the subsidiary AXT-Tongmei in 2021, which was also one of the reasons therefor.

2) Raw materials and finished products consumed

During the reporting period, the amount of raw materials and finished products consumed by the Company was RMB12,136,000, RMB12,136,000, RMB17,732,200 and RMB28,945,800, which was increased year by year. With the increasing R&D personnel input, the overall proportion shows a slight downward trend.

1-1-383


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(2) R&D projects

During the reporting period, the Company’s R&D projects corresponding to its R&D expenses are as follows:

In RMB0’000


Project	2021	2020	2019
Study on technology of 6-inch InP crystal	871.58	416.44	184.81
Development of automatic single wafer cleaning technology for InP wafer	637.71	-	-
Development of full-automatic polishing technology for InP wafer	731.46	-	-
Study on growth technology of 8-inch GaAs single crystal	1,398.49	149.57	-
InP Grinding new equipment evaluation and technology optimization	536.87	-	-
Development of polisher manipulator with automatic loading and unloading	320.77	60.77	-
Development of 6-inch germanium wafer and automatic cleaning technology	418.89	-	-
Development of new wafer packaging technology	496.29	-	-
Development of full-automatic waxing technology for InP wafer	375.11	-	-
Cutting process development and optimization for 8-inch GaAs single wafers	289.79	-	-
Cleaning process development for 8-inch GaAs single wafers	208.39	-	-

1-1-384


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus


Preparation of 6N high-purity indium	182.19	209.49	21.80
Polishing process development for 8-inch GaAs single wafers	182.81	-	-
Development of cold-neck PBN crucibles for Al vapor deposition	174.13	258.94	-
Development of containers for low-texture CVD pyrolytic boron nitride	276.88	342.80	-
Development of pyrolytic graphite coated crucibles	158.37	171.58	-
Development of low-defect pyrolytic boron nitride (PBN) crucibles for the growth of large-size single crystals“	-	-	302.51
Evaluation of full-automatic liquid waxing machines	-	251.44	276.41
Treatment and recycling project for wastewater from grinding processing	-	-	265.71
Development of tungsten molybdenum heater for MOCVD	-	-	200.89
Development of pyrolytic boron nitride (PBN) crucible for low stress metal evaporation	-	-	182.83
Automatic cleaning of germanium wafer	-	-	334.48
Development of new ultra-fine wire cutting technology	-	297.09	227.71
Development of new double-sided polishing technology	-	270.55	216.02
Development of a new technology for reducing surface particles of GaAs wafer	-	273.37	-
Development of InP 4-inch double sided high flatness wafer	-	266.07	-
Development of InP single wafer automatic cleaning technology 20-RDIW-02	-	244.79	-
Development of a new treatment process for crystal machining wastewater	-	242.26	-
Study on wafer surface inspection automation	-	168.14	-
Others	1,756.91	887.52	469.47
Total	9,016.64	4,510.82	2,682.64

1-1-385


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(3) Comparison of R&D expenses ratio with comparable companies

During the reporting period, the comparison of R&D expenses ratio between the Issuer and the comparable companies is as follows:

Company name	2021	2020	2019
SICC	14.93%	10.71%	6.97%
NSIG	5.10%	7.23%	5.64%
Average	10.02%	8.97%	6.31%
Issuer	10.52%	7.73%	5.80%

Note: The data of such comparable companies is sourced from their annual reports and Prospectuses.

In 2019 and 2020, it was close to that of NSIG and was slightly lower than the average level of the comparable companies as a whole, having the consistent change trend. In 2021, the Company’s R&D expenditure rate is substantially the same as the average level of comparable companies.

4. Financial expenses

During the reporting period, the composition of the Company’s financial expenses is as follows:

In RMB0’000


Item	2021	2020	2019
Interest expenses	354.07	256.50	94.52
Including: Finance lease interest expenses	-	64.76	28.63
Lease liabilities interest expenses	76.05	-	-
Long-term payable interest expenses	22.04	-	-
Less: Interest incomes	161.42	46.41	45.29
Exchange gains or losses	281.51	-687.90	127.11
Service charges	57.07	36.01	13.53
Others	-40.04	-24.03	-47.59
Total	491.20	-465.83	142.28

In each period of the reporting period, the Company’s financial expenses amounted to RMB1,422,800, RMB-4,658,300 and RMB4,912,000 respectively. The change in financial expenses was mainly affected by fluctuations in interest expenses and foreign exchange gains and losses.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(V) Analysis of other profit or loss items

1. Taxes and levies

During the reporting period, the Company’s taxes and surcharges amounted to RMB7,345,100, RMB8,416,900 and RMB10,494,000 respectively, mainly including property taxes, urban maintenance and construction taxes, land use taxes and stamp duties. The specific composition is as follows:

In RMB0’000

Item	2021	2020	2019
Property taxes	549.24	382.96	257.51
Urban maintenance and construction taxes	152.20	136.32	176.17
Land use taxes	113.13	93.20	100.24
Stamp duties	86.67	91.63	40.38
Education surcharges	84.77	79.58	94.14
Local education surcharges	56.51	53.05	62.76
Others	6.88	4.94	3.30
Total	1,049.40	841.69	734.51

2. Other incomes

During the reporting period, the specific composition of the Company’s other incomes is as follows:

In RMB0’000

Item	2021	2020	2019
Amortization of deferred incomes	302.99	109.38	95.69
Government subsidies related to daily activities	291.63	108.16	231.15
Refund of handling charges for withholding individual and enterprise income taxes	3.04	4.46	-
Total	597.66	222.00	326.84

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

The government subsidies related to daily activities included by the Company in the recent three years are as follows:

In RMB0’000

Project	2021	2020	2019
Intellectual property right subsidy	47.20	-
Incentive fund from the Social Security Bureau	19.40	-
Incentive fund from the Industry and Information Technology Bureau	10.00	-
Subsidies for high-level and high-skilled talents	10.00	20.00	10.00
Subsidies from the Commercial commission	-	-	193.88
Enterprise R&D subsidies	8.00	39.36	3.24
Government incentives	165.56	8.00	-
Others	31.47	40.80	24.04
Total	291.63	108.16	231.15

3. Investment incomes

During the reporting period, the specific composition of the Company’s investment incomes is as follows:

In RMB0’000


Item	2021	2020	2019
Long-term equity investment incomes accounted for using the equity method	1,008.95	596.37	247.88
Gains from disposal of affiliated enterprises	92.36
Unrealized gains or losses in downstream transactions	75.12	-57.30	5.48
Losses on fair value measurement of bills	-56.03	-38.35	-17.95
Investment incomes from foreign exchange forward contracts	30.82	-29.13	-72.04
Total	1,151.22	471.60	163.37

During the reporting period, the Company’s investment incomes amounted to RMB1,633,700, RMB4,716,000 and RMB11,512,200 respectively, mainly including the long-term equity investment incomes generated by the Company’s investment in Dongfang Hi-purity, Xing’an Gallium and Maanshan Gallium.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

4. Credit impairment losses and asset impairment losses

“”“”During the reporting period, the details of the Company’s credit impairment losses and asset impairment losses are as follows:

In RMB0’000

Item	2021	2020	2019
Credit impairment losses
Expected credit losses of notes receivable	5.45	-1.58	-6.40
Expected credit losses of accounts receivable	-194.02	-6.12	-35.77
Expected credit losses of other receivables	5.81	-136.26	-
Asset impairment losses
Losses on decline in value of inventories	-265.85	903.87	-1,390.70
Losses on impairment of fixed assets	-61.12	-45.62	-19.49
Total	- 509.73	714.29	-1,452.36

During the reporting period, the Company’s credit impairment losses and asset impairment losses were primarily composed of losses on decline in value of inventories, losses on bad debts of accounts receivable and losses on bad debts of other receivables. In 2020, the losses on decline in value of inventories were reversed by RMB9,038,700, mainly due to completion of sales in that period regarding inventories of which the provision for losses on decline in value was made in the prior period.

5. Incomes from disposal of assets

During the reporting period, the Company’s incomes from disposal of assets were all represented by the incomes from fixed asset disposal, with a relatively small amount of RMB311,000, RMB0 and RMB61,800 respectively.

6. Non-operating incomes

During the reporting period, the composition of the Company’s non-operating incomes is as follows:

In RMB0’000

Item	2021	2020	2019
Demolition compensations	-	429.04	1,639.11
Insurance indemnities	100.22	0.87	9.72
Incomes from retirement of fixed assets	-	0.19	1.88
Others	19.59	6.43	7.97
Total	119.81	436.52	1,658.69

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

The Company’s non-operating incomes were mainly composed of demolition compensations. The demolition compensations of RMB16,391,100 in 2019 were the compensations obtained by Nanjing Jinmei in the relocation for demolition, and those of RMB4,290,400 in 2020 were generated from the Housing Expropriation Office of Tongzhou District People’s Government of Beijing expropriating the leased plant of Beijing Boyu.

7. Non-operating expenses

During the reporting period, the Company’s non-operating expenses are detailed as follows:

In RMB0’000


Item	2021	2020	2019
Losses from damage and retirement of non-current assets	165.09	128.53	541.23
Public welfare donation expenditures	-	15.00	-
Administrative penalties	9.46	14.10	66.59
Labor litigation	40.68	-	-
Others	38.14	25.62	9.15
Total	253.38	183.25	616.97

During the reporting period, the Company’s non-operating expenses were mainly comprised of the losses from damage and retirement of non-current assets. In 2019, the losses from damage and retirement of non-current assets had a relatively high amount, which mainly arose from the retirement of relevant assets due to the relocation of the production line of Nanjing Jinmei.

For the administrative fines of the Company during the reporting period, refer to “VI. Violations of laws and regulations of the Issuer” in “Section VII Corporate Governance and Independence” hereof.

(VI) Taxes

During the reporting period, the Company’s income tax expenses are as follows:

In RMB0’000


Item	2021	2020	2019
Current income tax expenses	1,302.30	797.21	494.37
Deferred income tax expenses	-373.05	-1,661.57	-199.28
Total	929.26	-864.36	295.08

In 2020, the Company’s income tax expenses were negative, mainly due to the relatively high amount of deductible losses and deductible temporary differences in prior years after the merger of subsidiaries at the end of 2020.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

XII. Analysis of asset quality

(I) Analysis of overall assets

At the end of each period of the reporting period, the composition of the Issuer’s assets is as follows:

In RMB0’000

Item	December 30, 2021		December 31, 2020		December 31, 2019
		Amount	Proportion	Amount	Proportion	Amount	Proportion
Current assets	91,024.21	46.00%	92,372.45	51.23%	55,802.59	41.76%
Non-current assets	106,874.49	54.00%	87,931.93	48.77%	77,819.01	58.24%
Total assets	197,898.70	100.00%	180,304.38	100.00%	133,621.60	100.00%

At the end of each period of the reporting period, the total assets of the Company amounted to RMB1,336,216,000, RMB1,803,043,800 and RMB1,978,987,000 respectively, showing an overall upward trend. The increase at the end of 2020 was relatively significant, mainly due to the increase in capital and shares of the Company and the introduction of investors.

(II) Analysis of current assets

At the end of each period of the reporting period, the composition of the Company’s current assets is as follows:

In RMB0’000

Item	December 30, 2021		December 31, 2020		December 31, 2019
		Amount	Proportion	Amount	Proportion	Amount	Proportion
Cash and bank balances	17,326.84	19.04%	38,875.56	42.09%	10,737.67	19.24%
Notes receivable	1,479.17	1.63%	2,186.30	2.37%	1,820.67	3.26%
Accounts receivable	21,863.45	24.02%	15,236.60	16.49%	12,979.93	23.26%
Receivables financing	6,188.39	6.80%	2,985.42	3.23%	1,522.26	2.73%
Prepayments	779.51	0.86%	522.72	0.57%	324.72	0.58%
Other receivables	124.14	0.14%	847.90	0.92%	443.11	0.79%
Inventories	38,381.79	42.17%	28,463.99	30.81%	24,569.53	44.03%
Non-current assets due within one year	-	-	-	-	200.00	0.36%
Other current assets	4,880.93	5.36%	3,253.96	3.52%	3,204.71	5.74%
Total current assets	91,024.21	100.00%	92,372.45	100.00%	55,802.59	100.00%

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

At the end of each period of the reporting period, the Company’s current assets were primarily composed of cash and bank balances, accounts receivable and inventories which in total accounted for 86.53%, 89.39% and 85. 23% of the current assets respectively.

1. Cash and bank balances

At the end of each period of the reporting period, the composition of cash and bank balances is as follows:

In RMB0’000

Item	December 30, 2021	December 31, 2020	December 31, 2019
Cash on hand	1.28	2.95	3.46
Bank deposits	17,325.55	38,846.45	10,734.20
Other monetary funds	-	26.17	-
Total	17,326.84	38,875.56	10,737.67

At the end of each period of the reporting period, the Company’s cash and bank balances amounted to RMB107,376,700, RMB388,755,600 and RMB173,268,400 respectively, showing a fluctuation trend, which were mainly composed of bank deposits. At the end of 2020, the cash and bank balances increased significantly, mainly due to the Company’s receipt of investment funds from external investors corresponding to its capital increase and share expansion at the end of that year. There was a large decline at the end of 2021, which was mainly due to the large increase in inventories and accounts receivable with the growth of business; on the other hand, in the year, the Company invested more in long-term assets such as fixed assets.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

2. Notes receivable and receivables financing

At the end of each period of the reporting period, the Company’s notes receivable and receivables financing are detailed as follows:

In RMB0’000

Subject	Item	December 31, 2021	December 31, 2020	December 31, 2019
		-	-	-
Notes receivable (trade acceptance)	Book balance	1,489.15	2,201.73	1,834.52
	Less: Bad-debt provisions	9.98	15.43	13.85
	Book value	1,479.17	2,186.30	1,820.67
Receivables financing	Bank acceptances	6,188.39	2,985.42	1,522.26
Total book value		7,667.56	5,171.72	3,342.93

The Company’s book value of notes receivable (including receivables financing) at the end of each period of the reporting period amounted to RMB33,429,300, RMB51,717,200 and RMB76,675,600 respectively, showing an increase with the growth of incomes.

On the principle of prudence, the Company divided the acceptors of bank acceptances during the reporting period into state-owned policy-oriented banks, 6 large state-owned commercial banks, and 9 national listed joint-stock commercial banks having high credit rating (“banks with high credit rating”), on the one hand, and other commercial banks and financial companies having general credit rating (“banks with general credit rating”), on the other hand. For bank acceptances accepted by banks with higher credit rating, the Company derecognized the same at the time of discounting or endorsement for transfer. For bank acceptances and commercial acceptances that were undue and accepted by banks with general credit rating, no derocognition was made at the time of discounting or endorsement for transfer.

The acceptors of the Company’s commercial acceptances were enterprises having high payment ability and reputation, with little possibility of non-payment at maturity. There were no notes receivable of the Company that failed to be honored during the reporting period.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

3. Accounts receivable

At the end of each period of the reporting period, the Company’s accounts receivable are as follows:

In RMB0’000

Item	December 30, 2021	December 31, 2020	December 31, 2019
Balance of accounts receivable	22,195.99	15,376.06	13,113.26
Less: Bad-debt provisions	332.55	139.45	133.33
Book value of accounts receivable	21,863.45	15,236.60	12,979.93
Operating incomes	85,734.52	58,317.04	46,222.68
Balance of accounts receivable/operating incomes	25.89%	26.37%	28.37%

(1) Analysis of changes in accounts receivable balance

At the end of each period of the reporting period, the Company’s balance of accounts receivable amounted to RMB131,132,600, RMB153,760,600 and RMB221,959,900 respectively, accounting for 28.37%, 26.37% and 25.89% of the operating incomes, respectively. The Company’s customers have solid financial strength and high credit who are able to make timely payments. With the expansion of business scale and the strengthening of payment collection by the Company, the proportion of the accounts receivable balance in the operating incomes has decreased year by year in the recent three years.

(2) Analysis of classification of accounts receivable balance and bad-debt provisions therefor

At the end of each period of the reporting period, the classification of accounts receivable balance and the bad-debt provisions therefor are as follows:

In RMB0’000

Category	Book balance		Bad-debt provision		Book value
		Amount	Proportion (%)	Amount		Proportion of provision (%)
December 31, 2021
Provision for bad debts made individually:	188.69	0.85%	188.69	100.00%	-

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Provision for bad debts made by group of credit risk characteristics	22,007.30	99.15%	143.85	0.65%	21,863.45
Including: Low-risk customers	1,639.37	7.39%	0.82	0.05%	1,638.55
Medium-risk customers	20,367.93	91.76%	143.04	0.70%	20,224.90
Total	22,195.99	100.00%	332.55	1.50%	21,863.45
December 31, 2020
Provision for bad debts made individually	73.09	0.48%	73.09	100.00%	-
Provision for bad debts made by group of credit risk characteristics	15,302.97	99.52%	66.37	0.43%	15,236.60
Including: Low-risk customers	6,794.59	44.19%	4.02	0.06%	6,790.57
Medium-risk customers	8,508.38	55.34%	62.35	0.73%	8,446.03
Total	15,376.06	100.00%	139.45	0.91%	15,236.60
December 31, 2019
Provision for bad debts made individually	39.22	0.30%	39.22	100.00%	-
Provision for bad debts made by group of credit risk characteristics	13,074.05	99.70%	94.12	0.72%	12,979.93
Including: Low-risk customers	8,120.65	61.93%	5.50	0.07%	8,115.16
Medium-risk customers	4,953.39	37.77%	88.62	1.79%	4,864.77	1-1-395


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Total	13,113.26	100.00%	133.33	1.02%	12,979.93

In the above customers classified corresponding to the provision for bad debts made by group of credit risk characteristics, low-risk customers refer to AXT and institutions subordinated to Customer B. During the reporting period, the Company has made bad-debt provisions for accounts receivable based on the expected credit loss model in accordance with the relevant requirements of the new standards for financial instruments.

(3) Aging distribution of accounts receivable

At the end of each period of the reporting period, the aging distribution of the Company’s accounts receivable is as follows:

In RMB0’000

Item	December 31, 2021		December 31, 2020		December 31, 2019
		Balance	Proportion	Balance	Proportion	Balance	Proportion
Within 1 year	21,826.02	98.33%	15,276.73	99.35%	12,638.46	96.38%
1-2 years	291.19	1.31%	21.34	0.14%	397.69	3.03%
2-3 years	0.80	0.01%	11.97	0.08%	50.15	0.38%
More than 3 years	77.98	0.35%	66.01	0.43%	26.96	0.21%
Total	22,195.99	100.00%	15,376.06	100.00%	13,113.26	100.00%

During the reporting period, the Company’s accounts receivable was collected in a timely manner, with less overdue payment. The balance of accounts receivable within 1 year accounted for 96.38%, 99.35% and 98.33% respectively. The accounts were basically aged within 1 year, having high collection probability and low non-recovery risk overall.

(4) Top five customers of accounts receivable

At the end of each period of the reporting period, the Company’s top five customers of accounts receivable balance are as follows:

In RMB0’000

Entity	Closing balance	Proportion
December 31 2021
Nanchang Kingsoon	2,224.17	10.02%
Osram	1,979.04	8.92%
Epi Solution Technology Co., Ltd.	1,748.70	7.88%
Customer B	1,639.37	7.39%

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Landmark Optoelectronics	1,443.83	6.50%
Total	9,035.10	40.71%
December 31, 2020
AXT	5,376.26	34.97%
Kingsoon	1,841.28	11.98%
Customer B	1,478.52	9.62%
Epi Solution Technology Co., Ltd.	1,008.69	6.56%
Everbright Photonics	661.72	4.30%
Total	10,366.47	67.43%
December 31, 2019
AXT	6,367.90	48.56%
Customer B	1,752.76	13.37%
Kingsoon	1,665.21	12.70%
Epi Solution Technology Co., Ltd.	1,167.45	8.90%
Everbright Photonics	561.16	4.28%
Total	11,514.48	87.81%

Note: The balance of accounts receivable from customers under common control has been consolidated.

At the end of each period of the reporting period, the Company’s top five accounts receivable had a total balance of RMB115,144,800, RMB103,664,700 and RMB90,351,000, accounting for 87.81%, 67.43% and 40.71% of its closing balance of accounts receivable in each period of the reporting period, respectively. At the end of each period of the reporting period, the accounts receivable from the top five customers of the Company all had an aging of within one year, with high possibility of being recovered and low possibility of becoming bad debts. The largest customer of accounts receivable at the end of 2019 and at the end of 2020 was AXT, mainly due to the fact that the Company’s sales business overseas was entirely conducted through AXT before March 2021. In March 2021, AXT-Tongmei, undertook the sales business with relevant customers from AXT, and the Company completed the acquisition of AXT-Tongmei in May 2021. The Company made no sales to AXT anymore, resulting in AXT no longer remaining one of the top five customers of accounts receivable of the Company at the end 2021.

4. Prepayments

At the end of each period of the reporting period, the Company’s prepayments amounted to RMB3,247,200, RMB5,227,200 and RMB7,795,100 respectively, showing an increasing trend with the development of business. During the reporting period, the Company’s prepayments mainly included the prepayments for purchasing raw materials and electricity.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

As of the end of 2021, the top five prepayments of the Company are as follows:

In RMB0’000

Entity	Closing balance	Proportion
State Grid Corporation of China	185.03	23.74%
Aeon Life Insurance Company, Ltd.	108.95	13.98%
Kazuo Ganghua Gas Co., Ltd.	101.02	12.96%
TOKO SHOJI CO.,LTD	38.57	4.95%
Dingxing County Huaao Natural Gas Co., Ltd.	27.50	3.53%
Total	461.07	59.16%

5. Other receivables

1) Analysis of changes in other receivables

At the end of each period of the reporting period, other receivables (excluding interests receivable) of the Company are classified by nature as follows:

In RMB0’000


Item	December 31, 2021	December 31, 2020	December 31, 2019
Deposits and margins	243.97	399.18	351.54
Disbursements	-	40.06	69.85
Relocation compensations	-	429.04	-
Others	15.63	120.88	13.62
Total book balance	259.59	989.16	435.01

’At the end of 2020, other receivables increased rapidly compared with the end of 2019, mainly due to the demolition compensation of RMB4,290,400 generated from the Housing Expropriation Office of Tongzhou District People’s Government of Beijing expropriating the leased plant of Beijing Boyu. The disbursements in other receivables were mainly represented by the marine transportation and related insurance expenses advanced by the Company in the export business.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

2) Aging of other receivables

At the end of each period of the reporting period, the aging distribution of the Company’s other receivables (except for interests receivable) is as follows:

In RMB0’000


Item	December 31, 2021	December 31, 2020	December 31, 2019
Within 1 year	18.87	636.07	126.02
1-2 years	48.19	47.19	145.14
2-3 years	45.13	143.14	156.90
More than 3 years	147.41	162.75	6.95
Total book balance	259.59	989.16	435.01
Less: Bad-debt provisions	135.45	141.26	5.00
Book value	124.14	847.90	430.01

At the end of each period of the reporting period, the book value of other receivables (except for interests receivable) of the Company had a balance of RMB4,300,100, RMB8,479,000 and RMB1,241,400 respectively, mainly including other receivables within one year. The Company has made corresponding provisions for bad-debt losses in accordance with the bad-debt provision policy for other receivables. At the end of 2021, other receivables for more than 3 years were mainly the investment and construction margins from Tianjin Jingjin Zhongguancun Technology City Development Co., Ltd.

As of the end of 2021, the top five other receivables of the Company are as follows:

In RMB0’000

Entity name	Closing balance	Proportion	Nature	Aging
Tianjin Jingjin Zhongguancun Technology City Development Co., Ltd.	135.45	52.18%	Margins	More than 3 years
Human Resources and Social Security Bureau of Kazuo County	69.63	26.82%	Margins	1-2 years, 2-3 years
State Grid Tianjin Power Bureau	19.20	7.40%	Electricity deposit	2-3 years
Beijing Kaibao Technology Services Co., Ltd.	8.78	3.38%	Margins	1-2 years, over 3 years
Nanjing Social Security Center	7.20	2.77%	Insurance reimbursement	Within 1 year
Total	240.26	92.55%

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

6. Inventories

(1) Analysis of inventory structure and changes

At the end of each period of the reporting period, the Company’s inventory structure and changes are as follows:

In RMB0’000

Period	Item	Book balance	Provision for decline in value	Book value	Proportion of book value
December 31, 2021	Raw materials	6,655.61	355.86	6,299.75	16.41%
		Semi-finished goods	12,052.81	616.29	11,436.52	29.80%
		Work in progress	12,763.01	32.81	12,730.20	33.17%
		Goods on hand	6,621.49	716.70	5,904.80	15.38%
		Goods upon delivery	2,010.52	-	2,010.52	5.24%
		Total	40,103.45	1,721.66	38,381.79	100.00%

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

December 31, 2020	Raw materials	10,101.50	480.53	9,620.97	33.80%
		Semi-finished goods	8,746.95	607.01	8,139.94	28.60%
		Work in progress	7,435.33	23.21	7,412.12	26.04%
		Goods on hand	3,558.02	345.07	3,212.95	11.29%
		Goods upon delivery	78.00	-	78.00	0.27%
		Total	29,919.80	1,455.81	28,463.99	100.00%
December 31, 2019	Raw materials	4,241.07	605.71	3,635.36	14.80%
		Semi-finished goods	11,093.40	897.72	10,195.69	41.50%
		Work in progress	7,689.58	588.57	7,101.01	28.90%
		Goods on hand	3,905.15	267.68	3,637.47	14.80%
		Goods upon delivery	-	-	-	-
		Total	26,929.21	2,359.68	24,569.53	100.00%

At the end of each period of the reporting period, the Company’s book balance of inventories amounted to RMB26,929,292,100, RMB299,198,000 and RMB401,034,500 respectively, increasing year by year, mainly because the Company increased the overall work in progress and raw materials for the sake of orderly production in response to the expansion of its output and scale by years during the reporting period. In order to ensure the timely production and delivery of products, the Company reserved comparatively plentiful unfinished goods and semi-finished goods which, at the end of each period of the reporting period, accounted for a relatively large proportion. The increase in the proportion of raw materials at the end of 2020 was mainly due to the relatively sufficient raw material reserves of the Company with the rapid improvement of market demand and sales scale. At the end of 2021, with the further increase in the downstream market demand, the overall scale of the Company’s inventory has increased significantly, and the balance of semi-finished products, unfinished goods and inventory goods has also increased significantly. With the completion of the business handover in May 2021, the Company got new customers, such as Osram and other assignment customers, resulting in a significant increase in the goods shipped out.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(2) Analysis of inventory aging

At the end of each period of the reporting period, the Company’s inventory aging distribution is as follows:

In RMB0’000

Aging	December 31, 2021	December 31, 2020	December 31, 2019
Within 1 year	37,614.00	28,048.20	24,401.54
More than 1 years	2,489.45	1,871.60	2,527.67
Total	40,103.45	29,919.80	26,929.21
Proportion of aging of within 1 year	93.79%	93.74%	90.61%

At the end of each period of the reporting period, the Company’s inventories having an age of within 1 year accounted for more than 90% of the inventories.

(3) Analysis of provisions for decline in value of inventories

At the end of each period of the reporting period, the Company’s provision for decline in value of inventories amounted to RMB23,596,800, RMB14,558,100 and RMB17,216,600, accounting for 8.76%, 4.87% and 4.29% of the book balance of inventories, respectively. The Company has evaluated the inventories at the end of the reporting period in light of the market demand, product technical indicators and estimated selling price, and made provisions for decline in value of inventories when the costs of inventories were lower than the net realizable values thereof. At the end of 2020, the provisions for decline in value decreased significantly, mainly due to the sales of certain products for which impairment provisions were made in prior periods.

The comparison of proportion of provisions for decline in value of inventories between the Company and the comparable listed companies in the same industry is as follows:


Company name	December 31, 2021	December 31, 2020	December 31, 2019
SICC	1.48%	0.43%	0.58%
NSIG	7.35%	9.47%	3.96%
Average	4.42%	4.95%	2.27%
Issuer	4.29%	4.87%	8.76%

Note: The data of such comparable companies is sourced from their annual reports and Prospectuses.

At the end of 2019, the proportion of provisions for decline in value of inventories of the Company was higher than the average level of the comparable companies in the same industry, mainly due to the relatively low proportion of such provisions made by SICC. At the end of 2020, the proportion of provisions for decline in value of inventories of the Company was lower than that of NSIG, mainly because the production of epilayers in 300mm wafers was still in the ramp-up stage with continuous product certification, the process and quality needed to be improved, and the production cost was higher than their market price, resulting in a relatively high provision 1-1-402


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

proportion. At the end of 2020 and the end of 2021, the proportion of the Company’s inventory depreciation provision was basically the same as the average level of comparable companies in the same industry.

7. Non-current assets due within one year

At the end of each period of the reporting period, the Company’s non-current assets due within one year amounted to RMB2 million, RMB0 and RMB0 respectively. The non-current assets due within one year at the end of 2019 were generated from the loan of RMB2 million lent by Beijing Boyu to HE Junfang, which would mature on November 30, 2020 and accordingly was reclassified from long-term receivables to non-current assets due within one year. For details, refer to “X.(II).2. Borrowings/loans” in “Section VII Corporate Governance and Independence” hereof.

8. Other current assets

At the end of each period of the reporting period, the composition of other current assets of the Company is as follows:

In RMB0’000

Item	December 31, 2021	December 31, 2020	December 31, 2019
Input VAT to be deducted	2,665.71	2,851.92	3,137.84
Prepaid enterprise income taxes	383.06	162.62	7.66
Listing intermediary fees	1,569.91	130.73	-
Prepaid expenses	245.85	108.70	59.21
Others	16.40
Total	4,880.93	3,253.96	3,204.71

At the end of each period of the reporting period, other current assets of the Company amounted to RMB32,047,100, RMB32,539,600 and RMB48,809,300 respectively, mainly including input VAT to be deducted from the projects of construction in progress and the listing intermediary fee.

(III) Analysis of non-current assets

At the end of each period of the reporting period, the composition of the Company’s non-current assets is as follows:

In RMB0’000

Item	December 3, 2021		December 31, 2020		December 31, 2019
		Amount	Proportion	Amount	Proportion	Amount	Proportion
Long-term receivables	-	-	198.29	0.23%	298.29	0.38%
Long-term equity investments	2,822.92	2.64%	3,479.53	3.96%	2,883.16	3.70%
Fixed assets	64,725.38	60.56%	61,460.57	69.90%	30,876.13	39.68%

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Construction in progress	21,883.21	20.48%	12,263.80	13.95%	33,260.93	42.74%
Use right assets	1,575.09	1.47%	-	-	-	-
Intangible assets	8,109.80	7.59%	5,940.45	6.76%	5,841.00	7.51%
Long-term prepaid expenses	1,627.09	1.52%	827.40	0.94%	435.48	0.56%
Deferred tax assets	3,564.42	3.34%	3,192.68	3.63%	1,531.11	1.97%
Other non-current assets	2,566.58	2.40%	569.21	0.65%	2,692.91	3.46%
Total non-current assets	106,874.49	100.00%	87,931.93	100.00%	77,819.01	100.00%

The Company’s non-current assets were comprised, primarily, of fixed assets, construction in progress and intangible assets, such three items in the aggregate accounting for 89.92%, 90.61% and 88.63% of the total non-current assets respectively at the end of each period of the reporting period.

1. Long-term receivables

At the end of each period of the reporting period, the Company’s long-term receivables amounted to RMB2,982,900, RMB1,982,900 and RMB0 respectively, mainly including the funds lent by Beijing Tongmei to the related party Maanshan Gallium and those lend by Beijing Boyu to HE Junfang. For details, refer to “X.(II).2. Borrowings/loans” in “Section VII Corporate Governance and Independence” hereof.

2. Long-term equity investments

At the end of each period of the reporting period, the composition of the Company’s long-term equity investments is as follows:

In RMB0’000

Associate	December 31, 2021	December 31, 2020	December 31, 2019
Dongfang Hi-purity	-	1,231.51	1,098.46
Xing’an Gallium	2,822.92	2,248.02	1,784.70
Maanshan Gallium	-	-	-
Total	2,822.92	3,479.53	2,883.16

Note: Beijing Boyu used to hold 10% equity in Maanshan Gallium (already deregistered in April 2022) without actual contribution thereto.

The transfer of 45.97% of the equity in Dongfang Hi-purity held by Beijing Tongmei was completed in November 2021, Nanjing Jinmei, a subsidiary, holds 25% of the equity in Xing’an Gallium, and Beijing Boyu used hold 10% of the equity in Maanshan Gallium. The above changes in long-term equity investments were mainly caused by the Company’s accounting using the equity method, the changes in profits of Dongfang Hi-purity and Xing’an Gallium and the announcement of dividends, among others. 1-1-404


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

3. Fixed assets

The Company’s fixed assets mainly included houses and buildings, machinery and equipment, tools and instruments, transportation equipment and office equipment. At the end of each period of the reporting period, the composition of the Company’s fixed assets is as follows:

In RMB0’000

Item	December 31, 2021		December 31, 2020		December 31, 2019
		Amount	Proportion	Amount	Proportion	Amount	Proportion
Houses and buildings	50,170.43	77.51%	48,710.15	79.25%	18,127.20	58.71%
Machinery and equipment	12,581.19	19.44%	10,917.88	17.76%	10,691.90	34.63%
Tools and instruments	1,655.58	2.56%	1,550.98	2.52%	1,733.02	5.61%
Transportation equipment	168.46	0.26%	164.93	0.27%	224.80	0.73%
Office equipment	149.73	0.23%	116.62	0.19%	99.20	0.32%
Total book value	64,725.38	100.00%	61,460.57	100.00%	30,876.13	100.00%

The Company’s fixed assets were comprised, primarily, of production equipment and houses and buildings, of which the production equipment mainly included special production machines such as crystal growth furnace, and the houses and buildings mainly included office buildings, workshops, etc. At the end of 2020, the book value of houses and buildings of the Company increased significantly, mainly due to the conversion of the “single wafer and related semiconductor material production project (section I, phase I)” of Baoding Tongmei, the “GaAs crystal semiconductor material production project” of Chaoyang Tongmei, and other projects to fixed assets in that year.

During the reporting period, the impairment of the Company’s fixed assets amounted to RMB194,900, RMB456,200 and RMB611,200 respectively, mainly covering unusable machinery and equipment.

The comparison of depreciation life of fixed assets between the Company and the comparable companies in the same industry is as follows:

Item	SICC	NSIG	Issuer
Houses and buildings	20-30 years	13-48 years	20 years
Machinery and equipment	3-10 years	3-15 years	5-20 years
Tools and instruments	3 years	3-5 years	3-5 years
Transportation equipment	4 years	5 years	4-5 years
Office equipment	5 years	3-5 years	5 years

By comparison, the depreciation life of fixed assets on the part of the Company had no significant difference from that of the comparable listed companies in the same industry. 1-1-405


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

4. Construction in progress

During the reporting period, the composition of the Company’s construction in progress is as follows:

In RMB0’000


Project	December 31, 2021	December 31, 2020	December 31, 2019
GaAs crystal semiconductor material production project	5,023.19	2,708.21	9,548.78
High-purity semiconductor preliminary material production project	3,018.03	2,565.94	138.80
InP single wafer production project	2,264.51	1,616.98	1,340.67
Single wafer and related semiconductor material production project	996.97	1,126.61	15,166.41
InP crystal growth and wafer processing and production expansion project	781.85	1,828.96	882.95
PBN product project 2	909.11	695.50	1,101.43
GaAs crystal synthesis and growth and wafer processing expansion project	-	232.17	655.07
High-purity arsenic project	5,428.89
Others	3,460.66	1,489.42	4,426.82
Total	21,883.21	12,263.80	33,260.93

At the end of each period of the reporting period, the Company’s book value of construction in progress was RMB332,609,300, RMB122,638,000 and RMB218,832,100 respectively. The construction in progress increased significantly at the end of 2019, mainly due to the increase in investment in the GaAs crystal semiconductor material production project as well as the single wafer and related semiconductor material production project (phase I and phase I), the projects of which were successively transferred to fixed assets in 2020, resulting in a significant decrease in the amount of construction in progress in that period. The increase in the amounts of construction in progress at the end of 2021 was mainly from the investments in the GaAs crystalline semiconductor material production project and the high-purity arsenic project.

During the reporting period, the Company’s construction in progress did not have any provision for depreciation.

5. Use right assets

At the end of each period of the reporting period, the Company’s use right assets amounted to RMB0 and RMB15,750,900 respectively, mainly due to the Company’s recognition of the right to use relevant machinery and equipment during the lease term as use right assets in accordance with the new lease standards from January 1, 2021.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

6. Intangible assets

At the end of each period of the reporting period, the composition of the Company’s intangible assets is as follows:

In RMB0’000

Item	December 31, 2021	December 31, 2020	December 31, 2019
I. Original costs
Land use rights	7,851.88	6,277.34	6,277.34
Patents	801.26	-	-
Software	480.74	367.95	127.18
Total original costs	9,133.88	6,645.28	6,404.52
II. Accumulated amortization
Land use rights	756.04	613.00	487.42
Patents	133.54	-	-
Software	134.49	91.83	76.10
Total accumulated amortization	1,024.08	704.83	563.52
III. Book value
Land use rights	7,095.84	5,664.33	5,789.92
Patents	667.71	-	-
Software	346.25	276.12	51.08
Total book value	8,109.80	5,940.45	5,841.00

At the end of each period of the reporting period, the Company’s book value of intangible assets was RMB58,410,000, RMB59,404,500 and RMB81,098,000 respectively. The intangible assets were mainly represented by land use rights.

At the end of 2021, the land use rights increased, which was generated from the use of the Company’s newly purchased land in Chaoyang City, Liaoning Province for the development of new production facilities. At the end of 2021, the patents increased by RMB8,012,600, which were the intellectual property right licenses granted by AXT to the Issuer and its controlled subsidiaries. For details, refer to “V.(V).1. Technology Licensing Agreement between the Issuer and AXT” in “Section VI Business and Technology” hereof.

During the reporting period, there were no intangible assets formed by in-house R&D in the Company’s intangible assets.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

7. Long-term prepaid expenses

At the end of each period of the reporting period, the Company’s long-term prepaid expenses amounted to RMB4,354,800, RMB8,274,000 and RMB16,270,900 respectively.

In 2021, the Company entered into an agreement with AXT to undertake long-term payment obligations with respect to cross license with external third parties, resulting in an increase in the balance of long-term prepaid expenses at the end of 2021. For details, refer to “V.(V).2. Cross License and Payment Agreement among AXT, ATX-Tongmei, and the Issuer” in “Section VI Business and Technology” hereof.

8. Deferred income tax assets

At the end of each period of the reporting period, the composition of deferred income tax assets of the Company is as follows:

In RMB0’000

Item	December 31, 2021	December 31, 2020	December 31, 2019
Provisions for impairment of assets	460.53	427.49	417.82
Unrealized profits for inside transactions	195.88	172.07	136.97
Deductible losses	1,695.82	1,263.55	48.27
Government subsidies	462.39	664.28	270.10
Book-tax differences of fixed assets	555.42	621.47	503.51
Expenses provisioned yet not paid	104.24	12.43	137.28
Others	90.14	31.39	17.16
Total	3,564.42	3,192.68	1,531.11

’The deferred income tax assets of the Company were mainly caused by deductible temporary differences arising from deductible losses, government subsidies, book-tax differences of fixed assets and provisions for impairment of assets. At the end of 2020, the deferred income tax assets increased significantly, mainly due to the relatively large amount of deductible losses in the corresponding period in connection with the merger of Baoding Tongmei and other companies by the Issuer at the end of 2020.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

9. Other non-current assets

At the end of each period of the reporting period, other non-current assets of the Company are as follows:

In RMB0’000

Item	June 30, 2021	December 31, 2020	December 31, 2019
Prepaid equipment funds	1,065.58	561.78	260.30
Prepaid engineering funds	31.00	7.43	2,432.61
Prepaid land use right purchase price	1,470.00	-	-
Total	2,566.58	569.21	2,692.91

Other non-current assets of the Company were composed of prepayments for equipment and engineering as well as the prepaid land use right purchase price, which, at the end of each period of the reporting period, had a book value of RMB26,929,100, RMB5,692,100 and RMB25,665,800 respectively. Among them, the prepaid engineering funds had a relatively high amount at the end of 2019, mainly due to the relatively large amount of prepayments related to the plant construction projects of Baoding Tongmei and Chaoyang Tongmei. The relatively high amount of equipment funds and prepaid land use right purchase price at the end of 2021 was mainly attributable to the relatively high prepayments for equipment by the Company.

(IV) Analysis of liabilities

1. Analysis of liabilities composition

At the end of each period of the reporting period, the composition of the Issuer’s liabilities is as follows:

In RMB0’000

Item	December 31, 2021		December 31, 2020		December 31, 2019
		Amount	Proportion	Amount	Proportion	Amount	Proportion
Current liabilities	42,828.41	77.72%	76,258.16	91.74%	35,021.97	88.50%
Non-current liabilities	12,278.43	22.28%	6,864.29	8.26%	4,551.46	11.50%
Total liabilities	55,106.84	100.00%	83,122.46	100.00%	39,573.43	100.00%

At the end of each period of the reporting period, the total liabilities of the Company amounted to RMB395,734,300, RMB831,224,600 and RMB551,068,400 respectively. The comparatively significant increase at the end of 2020 was mainly due to the fact that in December 2020 the Company began to introduce investors who made contributions at the end of 2020, with the industrial and commercial registration and other formalities completed at the beginning of 2021, and relevant items were also transferred from the current liabilities at the end of 2020 to the owners’ equity at the end of 2021, and thus the liabilities at the end of 2021 decreased significantly 1-1-409


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

2. Analysis of current liabilities

At the end of each period of the reporting period, the composition of the Company’s current liabilities is as follows:

In RMB0’000

Item	December 31, 2021		December 31, 2020		December 31, 2019
		Amount	Proportion	Amount	Proportion	Amount	Proportion
Short-term borrowings	7,782.47	18.17%	6,806.05	8.93%	4,005.03	11.44%
Accounts payable	12,251.26	28.61%	14,464.09	18.97%	10,942.07	31.24%
Receipts in advance	-	-	-	-	91.26	0.26%
Contract liabilities	515.39	1.20%	177.72	0.23%	-	-
Employee benefits payable	3,110.61	7.26%	2,255.41	2.96%	1,817.66	5.19%
Taxes payable	556.03	1.30%	779.18	1.02%	933.65	2.67%
Other payables	18,075.46	42.20%	51,631.71	67.71%	17,111.06	48.86%
Non-current liabilities due within one year	518.01	1.21%	127.07	0.17%	121.24	0.35%
Other current liabilities	19.18	0.04%	16.95	0.02%	-	-
Total current liabilities	42,828.41	100.00%	76,258.16	100.00%	35,021.97	100.00%

At the end of each period of the reporting period, the Company’s current liabilities amounted to RMB350,219,700, RMB762,581,600 and RMB428,284,100 respectively, which consisted, primarily, of short-term borrowings, accounts payable and other payables. At the end of each period of the reporting period, the liabilities of the above three items in the aggregate accounted for 91.54%, 95.61% and 88.98% of the total current liabilities respectively. At the end of 2020, the current liabilities increased significantly, mainly because the Company introduced investors in December 2020, and the contributions were made at the end of 2020, with the industrial and commercial registration and other formalities completed at the beginning of 2021, resulting in a significant increase in other payables at the end of 2020. The above other payables were transferred to the owner’s equity at the end of 2021.

(1) Short-term borrowings

At the end of each period of the reporting period, the Company’s short-term borrowings amounted to RMB40,050,300, RMB68,060,500 and RMB77,824,700, accounting for 11.44%, 8.93% and 18.17% of the current liabilities, respectively. During the reporting period, the Company was in the stage of business expansion and the process of sustainable development, making rational use of financial leverage to provide strong guarantee 1-1-410


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

and support for the continuous improvement of productivity. The Company’s short-term borrowings at the end of each period of the reporting period are detailed as follows:

In RMB0’000

Item	December 31, 2021	December 31, 2020	December 31, 2019
Mortgage loans	3,000.00	3,800.00	4,000.00
Guaranteed loans	2,000.00	1,000.00	-
Pledge loans	1,776.00	2,000.00	-
Debt of honor	1,000.00	-
Accrued interest	6.47	6.05	5.03
Total	7,782.47	6,806.05	4,005.03

During the reporting period, there were no outstanding short-term borrowings due and payable by the Company.

(2) Accounts payable

At the end of each period of the reporting period, the accounts payable by the Company had a balance of RMB109,420,700, RMB144,640,900 and RMB122,512,600 respectively, representing the payments for production-related raw materials purchased by the Company.

As of the end of the reporting period, the top five accounts payable balances of the Company are as follows:

In RMB0’000

S/N	Supplier name	Balance of accounts payable	Proportion
1	AXT	3,917.64	31.98%
2	Xing’an Gallium	1,210.56	9.88%
		Pinglu Youying Gallium Co., Ltd.	550.11	4.49%
		Guangxi Tiandong Jinxin Rare Metal Materials Co., Ltd.	539.41	4.40%
3	Beijing Kaide Quartz Co., Ltd.	969.60	7.91%
4	Nanjing Zhemai Metal Trade Co., Ltd.	930.73	7.60%
5	Enshi Zhichun Electronic Materials Co., Ltd.	347.90	2.84%
Total		8,465.95	69.10%

Note: Xing’an Gallium, Pinglu Youying Gallium Co., Ltd. and Guangxi Tiandong Jinxin Rare Metal Materials Co., Ltd. are enterprises under common control. 1-1-411


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(3) Receipts in advance (contract liabilities)

At the end of each period of the reporting period, the receipts in advance (contract liabilities) of the Company had a balance of RMB912,600, RMB1,777,200 and RMB5,153,900, respectively, which were advances from customers, with a small amount.

(4) Employee benefits payable

The employee benefits payable by the Company, which mainly included short-term benefits and post-employment benefits (defined contribution plans), without payments in arrears, amounted to RMB18,176,600, RMB22,554,100 and RMB31,106,100, accounting for 5.19%, 2.96% and 7.26% of the current liabilities respectively at the end of each period of the reporting period. At the end of 2020, the proportion thereof in the current liabilities decreased, mainly because the investors’ contributions were made at the end of 2020 pending completion of the industrial and commercial formalities, resulting in an increase in other payables.

(5) Taxes payable

At the end of each period of the reporting period, the taxes payable by the Company are as follows:

In RMB0’000

Item	December 31, 2021	December 31, 2020	December 31, 2019
Enterprise income taxes	296.99	545.44	883.08
Property taxes	98.15	83.20	5.79
VAT	94.77	40.02	15.46
Urban maintenance and construction taxes	15.24	13.99	1.04
Education surcharges	8.01	8.39	0.46
Local education surcharges	5.34	5.60	0.31
Stamp duties	9.27	55.68	3.18
Others	28.27	26.87	24.35
Total	556.03	779.18	933.65

At the end of each period of the reporting period, the taxes payable by the Company amounted to RMB9,336,500, RMB7,791,800 and RMB5,560,300, accounting for 2.67%, 1.02% and 1.30% of the current liabilities, respectively.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(6) Other payables

At the end of each period of the reporting period, the composition of other payables of the Company is as follows:

In RMB0’000

Aging	December 31, 2021		December 31, 2020		December 31, 2019
		Amount	Proportion	Amount	Proportion	Amount	Proportion
Engineering and equipment funds	9,968.81	55.15%	15,183.28	29.41%	14,719.04	86.02%
Payables to related parties	3,084.93	17.07%	943.43	1.83%	843.06	4.93%
Dividends payable	2,974.60	16.46%	2,974.60	5.76%	820.00	4.79%
Professional service fee	568.46	3.14%	23.62	0.05%	28.66	0.17%
Agency commissions	225.04	1.25%	139.02	0.27%	157.69	0.92%
Withdrawals in advance	373.88	2.07%	282.70	0.55%	228.98	1.34%

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Withholding taxes	139.40	0.77%	239.40	0.46%	-	-
Financing funds	-	-	31,447.38	60.91%	-	-
Others	-740.34	-4.10%	-398.28	-0.77%	-313.63	1.83%
Total	18,075.46	100.00%	51,631.71	100.00%	17,111.06	100.00%

At the end of each period of the reporting period, other payables of the Company had a balance of RMB171,110,600, RMB516,317,100 and RMB180,754,600 respectively. The higher balance of other payables at the end of 2020 was formed mainly because investors were introduced resulting in additional financing funds of RMB314,473,800 which were paid, pending completion of the industrial and commercial change and other formalities, at the end of that year. In addition, other payables were mainly composed of engineering and equipment funds, intercompany funds with AXT and dividends payable.

(7) Non-current liabilities due within one year

The Company’s non-current liabilities due within one year, which were represented by long-term payables and lease liabilities due within one year, amounted to RMB1,212,400, RMB1,270,700 and RMB5,180,100 respectively at the end of each period of the reporting period.

3. Analysis of non-current liabilities

The Company’s non-current liabilities consisted of lease liabilities, long-term payables, provisions and deferred incomes, the details of which at the end of each period of the reporting period are as follows:

In RMB0’000

Item	December 31, 2021		December 31, 2020		December 31, 2019
		Amount	Proportion	Amount	Proportion	Amount	Proportion
Leasing liabilities	1,273.16	10.37%	-	-	-	-
Long-term accounts payable	629.40	5.13%	1,184.59	17.26%	1,311.66	28.82%
Provisions	504.14	4.11%	186.08	2.71%	107.69	2.37%
Deferred incomes	9,871.74	80.40%	5,493.63	80.03%	3,132.12	68.82%
Total non-current liabilities	12,278.43	100.00%	6,864.29	100.00%	4,551.46	100.00%

(1) Lease liabilities (long-term payables)

At the end of each period of the reporting period, the Company’s lease liabilities (long-term accounts payable) had a balance of RMB13,116,600, RMB11,845,900 and RMB19,025,600 respectively. Since January 1, 2021, the Company has, according to the new lease standards, reclassified the present value of outstanding payments for financial leases other than short-term leases and low-value asset leases from long-term accounts payable to lease liabilities. At the end of 2021, the Company’s long-term accounts payable referred to patent cross royalties 1-1-414


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

payable. For details, refer to “V.(V).2. Cross License and Payment Agreement among AXT, ATX-Tongmei, and the Issuer” in “Section VI Business and Technology” hereof.

(2) Provisions

At the end of each period of the reporting period, the Company’s provisions amounted to RMB1,076,900, RMB1,860,800 and RMB5,041,400 respectively, mainly being the warranty expenses accrued by the Company according to the incomes from sales of semiconductor substrate materials, the amount of which increased with the increase in sales incomes of semiconductor substrate materials. At the end of 2021, there was a significant increase therein, mainly because the accrued amount increased with the growth of the incomes of AXT-Tongmei having direct dealing with end customers since March 2021, while before that, it was AXT who was responsible for the warranty of overseas customers and the Company made no accruals of warranty expenses for AXT.

(3) Deferred incomes

At the end of each period of the reporting period, the Company’s deferred incomes amounted to RMB31,312,200, RMB54,936,300 and RMB98,717,400, accounting for 68.82%, 80.03% and 80.40% of the non-current liabilities, respectively. As of the end of 2021, the deferred incomes are detailed as follows:

In RMB0’000

Item	Asset-related/income-related	Closing balance
Enclaves subsidies	Asset-related	2,653.49
Project construction subsidies	Asset-related	7,218.25
Total	-	9,871.74

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

XIII. Analysis of liquidity

(I) Analysis of solvency

1. Analysis of solvency indicators

During the reporting period, the Company’s main solvency indicators are as follows:

Main financial indicator	December 31, 2021 /<br><br>2021	December 31, 2020 /<br><br>2020	December 31, 2019 /<br><br>2019
Current ratio (times)	2.13	1.21	1.59
Quick ratio (times)	1.23	0.84	0.89
Asset-liability ratio (consolidated)	27.85%	46.10%	29.62%
Asset-liability ratio (parent company)	16.71%	38.88%	44.24%
EBITDA (RMB0’000)	17,519.52	10,687.67	1,858.71
Interest coverage ratio (times)	30.18	21.13	-25.57

At the end of each period of the reporting period, the Company’s current ratio was 1.59, 1.21 and 2.13, the quick ratio was 0.89, 0.84 and 1.23, and the asset-liability ratio (consolidated) was 29.62%, 46.10% and 27.85%, respectively.

At the end of 2020, the Company’s current ratio and quick ratio were relatively low, and the asset-liability ratio (consolidated) was relatively high, mainly due to the comparatively significant increase in other payables because the Company introduced investors who made contributions at the end of 2020, but the industrial and commercial change formalities had not been completed by that time. With the transfer of the relevant liabilities into the owners’ equity, the above indicators of 2021 have also been further optimized.

During the reporting period, the Company was in good operating condition, having strong sustainable profitability and solvency, and low risks of failure in honoring the liabilities.

2. Analysis of comparison of solvency with comparable companies in the same industry

At the end of each period of the reporting period, the solvency indicators of the Company and the comparable companies in the same industry are as follows:

Indicator	Entity	December 31, 2021	December 31, 2020	December 31, 2019
Current ratio (times)	SICC	8.01	6.09	0.73
		NSIG	1.89	2.36	0.74
		Average	4.95	4.23	0.74
		Issuer	2.13	1.21	1.59

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Quick ratio (times)	SICC	4.37	4.45	0.54
		NSIG	1.24	1.87	0.48
		Average	2.81	3.16	0.51
		Issuer	1.23	0.84	0.89
Asset-liability ratio (consolidated)	SICC	15.12%	13.57%	67.77%
		NSIG	35.45%	34.20%	48.06%
		Average	25.29%	23.89%	57.92%
		Issuer	27.85%	46.10%	29.62%

Note: The data of such comparable companies is sourced from Ifind.

At the end of 2019, the Company’s current ratio, quick ratio and asset-liability ratio were higher than those of the comparable companies in the same industry. At the end of 2020, the relevant indicators were lower than those of the comparable companies in the same industry, mainly because on the one hand, the Company introduced investors with contributions at the end of 2020, but the relevant industrial and commercial change formalities had not been completed by then, resulting in a significant increase in other payables, and on the other hand, SICC introduced external investors with capital investments of RMB1.595 billion in August 2020, which significantly improved its indicators and raised the average level of the comparable companies. At the end of 2021, the Company’s current ratio and quick ratio were relatively close to those of NSIG, while the asset-liability ratio was basically the same as the average level of comparable companies.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(II) Analysis of asset turnover capacity

The main indicators of the Company’s asset turnover capacity during the reporting period are as follows:

Financial indicator	2021	2020	2019
Accounts receivable turnover (frequency)	4.56	4.09	3.28
Inventory turnover (frequency)	1.60	1.52	1.36

During the reporting period, the Company’s accounts receivable turnover showed an overall upward trend with the rise of incomes. The Company’s customers are mainly leading enterprises in the semiconductor industry having good business reputation and strong payment ability, with low risk of non-recovery of accounts receivable. During the reporting period, the Company’s inventory turnover rose generally. With the expansion of incomes and scale, the Company had proper goods reserves, accelerating the inventory turnover as a whole.

During the reporting period, the comparison of indicators of accounts receivable turnover and inventory turnover between the Company and the comparable listed companies in the same industry is as follows:

Financial indicator	2021	2020	2019
Accounts receivable turnover
SICC	8.20	11.09	27.40
NSIG	6.37	5.46	6.36
Average	7.29	8.28	16.88
Issuer	4.56	4.09	3.28
Inventory turnover
SICC	1.29	2.43	3.04
NSIG	3.36	3.16	4.11
Average	2.33	2.80	3.58
Issuer	1.60	1.52	1.36

During the reporting period, the Company’s accounts receivable turnover was lower than the average level of the comparable listed companies in the same industry. The reasons lied in, on the one hand, there were differences in customer composition and payment terms made available to customers, and on the other hand, there were also relatively large differences in product composition that the Company had comparatively rich product lines and more diversified customer composition. Meanwhile, the Company’s inventory turnover was lower than the average level of the comparable listed companies in the same industry, mainly due to the Company’s rich product lines and sufficient inventory reserves.

(III) Distribution of dividends during the reporting period

During the reporting period, no dividends distribution was made by the Company. 1-1-418


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

XIV. Analysis of cash flow

During the reporting period, the basic information of the Company’s cash flow is as follows:

In RMB0’000

Item	2021	2020	2019
Net cash flow from operating activities	-1,953.44	5,525.03	9,767.77
Net cash flow from investing activities	-24,226.50	-9,806.74	-17,684.15
Net cash flow from financing activities	4,758.21	32,552.37	11,791.09
Net increase in cash and cash equivalents	-21,522.56	28,111.73	3,918.36
Balance of cash and cash equivalents at the end of the period	17,326.84	38,849.39	10,737.67

Under the comprehensive influence of operating activities, investing activities, financing activities and other factors, the Issuer had a net increase in cash and cash equivalents of RMB39,183,600, RMB281,117,300 and RMB-215,225,600, and the cash and cash equivalents at the end of the period had a balance of RMB107,376,700, RMB388,493,900 and RMB173,268,400, respectively, during the reporting period.

(I) Analysis of cash flow from operating activities

The cash flow from operating activities of the Issuer during the reporting period is as follows:

In RMB0’000


Item	2021	2020	2019
Cash receipts from the sale of goods and the rendering of services	69,849.60	50,991.64	47,919.12
Receipts of tax refunds	3,922.18	3,166.89	2,751.53
Other cash receipts relating to operating activities	7,244.58	3,258.25	4,567.04
Sub-total of cash inflows from operating activities	81,016.36	57,416.78	55,237.69
Cash payments for goods purchased and services received	41,390.25	25,298.91	17,939.54
Cash payments to and for employees	20,896.79	13,044.36	14,148.36
Payments of various types of taxes	4,338.67	2,646.13	2,554.06
Other cash payments relating to operating activities	16,344.08	10,902.35	10,827.96
Sub-total of cash outflows from operating activities	82,969.80	51,891.75	45,469.92
Net cash flow from operating activities	-1,953.44	5,525.03	9,767.77

During the reporting period, the Company’s cash receipts from the sale of goods and the rendering of services amounted to RMB479,191,200, RMB509,916,400 and RMB698,496,000, accounting for 103.67%, 87.44% and 1-1-419


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

81.47% of the operating incomes in the corresponding period, respectively. The cash receipts from the sale of goods and the rendering of services were in line with the operating incomes, with high probability to be collected.

The net cash flow from operating activities in 2019 was quite different from the net profits, which was mainly due to the relatively high proportion of the amount received in the year to the incomes and the relatively large amount received; in 2021, there was a significant difference between the net cash flow from operating activities and the net profit, mainly because: 1. with the rapid rise of market demand and the increase of orders, the Company has made more goods reserves; 2. in March 2021, AXT-Tongmei undertook the sales team and R&D team of AXT, and the benefits for foreign employees were relatively high, greatly improving the employee benefits payable; 3. the amount of the operating receivables increased significantly

During the reporting period, the reconciliations and differences between the net cash flow from operating activities and the net profit of the Company are as follows:

In RMB0’000

Item	2021	2020	2019
Net profit	9,403.45	6,027.42	-2,806.35
Add: Provision for impairment of assets	326.97	-858.25	1,410.18
Provision for credit impairment	182.76	143.97	44.31
Depreciation of fixed assets	5,660.31	4,814.97	3,864.78
Depreciation of use right assets	313.25	-	-
Amortization of intangible assets	319.25	141.31	166.82
Amortization of long-term prepaid expenses	539.93	311.83	243.86
Expense of construction in progress	113.79	8.31	-
Losses on disposal of fixed assets, intangible assets and other long-term assets	-6.18	-	-31.10
Losses on retirement of fixed assets	165.09	128.34	539.35
Share-based payments	1,002.98	278.37	230.41
Expenses from the parent company	73.61	383.50	243.54
Increase in deferred incomes	4,378.11	2,361.51	1,754.31
Financial expenses	61.86	-356.21	132.44
Investment incomes	-1,151.22	-471.60	-163.37
Decrease in deferred income tax assets	-371.74	-1,661.57	-205.39
Decrease in inventories	-10,183.65	-2,990.59	874.40
Increase in special reserves	80.80	141.49	233.14
Decrease in operating receivables	-15,508.00	-8,886.99	3,629.53
Increase in operating payables	2,570.06	6,066.52	-363.95

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Downstream transactions	75.12	-57.30	5.48
Changes in accounting policies	-	-	-34.61
Net cash flow from operating activities	-1,953.44	5,525.03	9,767.77

During the reporting period, the changes in the difference between the net cash flow from operating activities and the net profit of the Company were mainly affected by inventories, operating receivables and payables as well as depreciation of fixed assets.

(II) Analysis of cash flow from investing activities

The cash flow from investing activities of the Issuer during the reporting period is as follows:

In RMB0’000

Item	January to June 2021	2020	2019
Cash receipts from disposals and recovery of investments	198.29	400.00	1.71
Cash receipts from investment incomes	504.61	32.68	276.35
Net cash receipts from disposal of fixed assets, intangible assets and other long-term assets	55.57	0.30	34.40
Net cash amount received from the disposal of subsidiaries and other business units	1,400.00
Other cash receipts relating to investing activities	30.82	40.06	1.47
Sub-total of cash inflows from investing activities	2,189.29	473.04	313.92
Cash payments to acquire or construct fixed assets, intangible assets and other long-term assets	26,415.79	10,110.59	17,824.56
Cash payments to acquire investments	-	100.00	100.00
Other cash payments relating to investing activities	-	69.19	73.51
Sub-total of cash outflows from investing activities	26,415.79	10,279.78	17,998.07
Net cash flow from investing activities	-24,226.50	-9,806.74	-17,684.15

During the reporting period, the net cash flow from investing activities of the Company was RMB-176,841,500, RMB-98,067,400 and RMB242,265,000 respectively, mainly due to the large amount of cash payments to acquire or construct fixed assets, intangible assets and other long-term assets.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(III) Analysis of cash flow from financing activities

The cash flow from financing activities of the Issuer during the reporting period is as follows:

In RMB0’000

Item	2021	2020	2019
Cash receipts from capital contributions	3,456.08	273.00	8,938.03
Including: Cash receipts from capital contributions from minority owners of subsidiaries	2,030.00	273.00	-
Cash receipts from borrowings	13,576.00	7 -100.00	4,000.00
Other cash receipts relating to financing activities	938.65	31,447.38	-
Sub-total of cash inflows from financing activities	17,970.73	38,820.38	12,938.03
Cash repayments of borrowings	12,600.00	4 300.00	-
Cash payments for distribution of dividends or profits or settlement of interest expenses	315.64	1,831.51	1,135.82
Including: Payments for distribution of dividends or profits to minority owners of subsidiaries	-	1,468.91	-
Other cash payments relating to financing activities	296.87	136.50	11.12
Sub-total of cash outflows from financing activities	13,212.51	6,268.01	1,146.94
Net cash flow from financing activities	4,758.21	32,552.37	11,791.09

During the reporting period, the cash inflow from financing activities of the Issuer came from the borrowings and the shareholders’ capital contributions, and the cash outflow from financing activities occurred mainly due to the repayments of due borrowings and the settlement of corresponding interest. During the reporting period, the net cash flow from financing activities of the Company amounted to RMB117,910,900, RMB325,523,700 and RMB47,582,100, respectively.

XV. Analysis of capital expenditures

(I) Major capital expenditures during the reporting period

During the reporting period, the Company’s cash payments to acquire or construct fixed assets, intangible assets and other long-term assets amounted to RMB178,245,600, RMB101,105,900 and RMB264,157,900, respectively.

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(II) Foreseeable major capital expenditure plans in the future

As of the execution date hereof, the Issuer’s foreseeable major capital expenditures in the future mainly include the expenditures for the underlying investment in this Offering as well as the expenditures for the construction of Chaoyang Xinmei project. For the impact of the underlying investment in this Offering on the Company’s primary business and operating results, refer to the relevant contents in “Section IX Use of Offering Proceeds and Future Development Planning” hereof.

XVI. Significant changes or risk trends in the Issuer’s liquidity that have occurred or may occur, and the Issuer’s specific responsive measures to liquidity risks

The current assets of the Company are mainly composed of cash and bank balances, accounts receivable and inventories. The accounts receivable have a short aging and are highly likely to be collected. The inventory sales are in good order with high marketability. As such, there is no material change or major risk in the Company’s liquidity.

During the reporting period, the Company’s current ratio was 1.59, 1.21 and 2.14, and the quick ratio was 0.89, 0.84 and 1.23, respectively, with good liquidity on the whole. Nevertheless, liquidity risks still exist, in response to which the Company will take the following measures:

The financing methods of bank loans will be used in a rational manner, and the financing structure will be optimized, to balance the financing sustainability and flexibility.
The management on recovery of payments for goods will be reinforced, and the inventory structure will be optimized according to the Company’s production characteristics to improve the inventory turnover capacity.
The Company, given it is still in a period of rapid growth having relatively tight working capital, plans to go public for equity financing to broaden its own financing channels, further improve its short-term solvency and alleviate liquidity risks.

XVII. Whether there are material adverse changes or risk factors in the Issuer’s ability to continue as a going concern, and the basis for the management’s self-evaluation

The Company is primarily engaged in a prominent business which is in an industry of high market demand and in a positive policy environment conforming to the development direction of national industrial policy. There are no material adverse changes in the Company as to the business pattern, the structure of products or services and the business environment of the corresponding industry. After implementation of the underlying investment in this Offering, the production and marketing scale of the Company will be further expanded and the product supply capacity will be improved; the product structure will be optimized to improve the profitability; and competitive advantages will be ascended to increase the market share.

Based on the industry development and the actual situation of its own operation, factors that may adversely affect the Company’s continuing as a going concern include, among others, technical risk, operation risk and financial risk, as disclosed by the Company in “Section IV Risk Factors” hereof.

To sum up, the management of the Company believes that the Company has the ability to continue as a going concern without material adverse changes or major risks. 1-1-423


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

XVIII. Subsequent events, contingencies and other significant events

(I) Events after the balance sheet date

“’”“”“”“” There are no major contingencies as of the balance sheet date on the part of the Company.

(II) Contingencies

There are no major contingencies as of the balance sheet date on the part of the Company.

(III) Other significant events

As of the balance sheet date, the Company has no other significant matters to be disclosed.

XIX. Profit forecast

The Company has not prepared a profit forecast report.

XX. Operating status from the closing date of the audit of the financial report to the signing date of this Prospectus

(I) Overall operating status

The deadline for the audit of the Company’s financial report is December 31, 2021. From the closing date of the audit of the financial report to the signing date of this Prospectus, the Company’s operation is in good condition, and the business model is not subject to any major changes. The purchase scale and purchase price, income scale and sales price of the Company’s main raw materials have not changed significantly. There is no major change in the composition of the Company’s customers and suppliers, and there is no major adverse change in the overall operating environment.

(II) Main financial information and operating status after the audit base date of financial reports

The main financial data of the Company for January to March June 2022 are as follows:

1. Main data of the consolidated balance sheet and consolidated income statement

Unit: RMB0’000

Item	June 30, 2022	December 31, 2021	ROC
Total assets	222,935.15	197,898.70	12.65%
Total liabilities	71,005.73	55,106.84	28.85%
Total owners’ equity	151,929.43	142,791.86	6.40%
Equity attributable to owners of Beijing Tongmei	149,164.94	140,817.16	5.93%

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Item	January - June 2022	January - June 2021	ROC
Operating revenues	50,820.28	39,355.94	29.13%
Operating profits	7,913.54	4,283.17	84.76%
Total profits	7,751.27	4,169.50	85.90%
Net profits	7,497.21	3,993.78	87.72%
Net profits attributable to shareholders of Beijing Tongmei	7,578.93	4,019.10	88.57%
Net profits attributable to shareholders of Beijing Tongmei after deducting non-recurring profit or loss	7,524.82	3,898.40	93.02%

From January to June 2022, the main reasons for the year-on-year growth in the Company’s revenues and net profits are: on the one hand, the Company has completed the acquisition of AXT-Tongmei, and directly sells substrate materials to overseas end customers, resulting in an increase in revenues and gross profits; on the other hand, due to the continuously increased downstream market demand, the Company’s substrate material revenues increased significantly compared to that during the same period last year, resulting in more profits of the Company. Meanwhile, the gross profit margin was further improved. In addition, profits of the Company’s shareholding companies increased significantly on a year-on-year basis, leading to a growth in the Company’s income from investment.

2. Main data of the consolidated cash flow statement

Unit: RMB0’000

Item	January to June 2022	January to June 2021	ROC
Net cash flow from operating activities	3,112.58	-6,546.27	-147.55%
Net cash flows from investment activities	-9,767.40	-14,758.95	-33.82%
Net cash flow from financing activities	11,991.74	2,881.60	316.15%
Net increase in cash and cash equivalents	5,491.81	-18,473.05	-129.73%

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

3. Non-recurring income statement

Unit: RMB0’000

Item	January - June 2022	January - June 2021
Gain or loss from disposal of non-current assets, including the write-off for which the provision for asset impairment has been made	-169.20	-44.08
Government grants included in the profit or loss for the current period (except for those closely related to normal business operations and continuously received in fixed quotas or amounts according to certain standards under national policies)	206.60	289.53
Capital utilization expenses charged to non-financial enterprises included in the profit or loss for the current period	-	4.61
Net profit or loss for the period of a subsidiary from the beginning of the period to the combination date resulting from a business combination involving entities under common control	-	-45.36
Gains or losses from changes in fair value arising from the holding of held-for-trading financial assets, derivative financial assets, held-for-trading financial liabilities and derivative financial liabilities, and investment income from disposal of held-for-trading financial assets, derivative financial assets, held-for-trading financial liabilities, derivative financial liabilities and other debt investments, excluding the effective hedging business related to the Company’s normal business operations	1.66	17.15
Reversal of provision for depreciation of receivables that have been separately tested for depreciation	1.80	-
Other non-operating income or expenses other than the above items	6,93	-59.62
Subtotal	47.79	162.23
Effect of income taxes	-6.32	41.53
Total	54.11	120.70

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

**(III)**Estimated performance after the audit base date of the financial reports

According to preliminary calculation, the Company’s main operating performance forecast from January to September 2022 is as follows:

The operating revenues of the Company from January to September 2022 are expected to be RMB760.9162 -773.8758 million, a year-on-year growth of 22.02%-24.10%; the expected net profits attributable to owners of Beijing Tongmei are RMB102.8665-125.7257 million, a year-on-year growth of 38.28%-69.01%; the expected net profits attributable to owners of Beijing Tongmei less non-recurring gains and losses are RMB103.1135-126.0276 million, a year-on-year growth of 41.62%-73.09%. With the development of downstream industries and the expansion of application areas, the business scale of the Company is expected to expand steadily, and the operating performance for January to September 2022 is estimated to maintain a year-on-year growth trend.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Section IX Use of Offering Proceeds and Future Development Planning

I. Use planning of offering proceeds for this Offering

(I) Total amount and investment orientation of offering proceeds

The Proposal on the Change of Listing Fundraising Projects was reviewed and approved at the fourteenth-session meeting of the first board of boards on May 12, 2022, and was reviewed and approved at the general meeting of shareholders on May 27, 2022. The Company decided to apply for initial public offering of no more than 98,390,000 RMB-denominated ordinary shares (A shares). The funds raised for this initial public offering fewer offering expenses will be invested in the following projects:

In RMB0’000

S/N	Project name	Total investment	Amount of offering proceeds to be used	Filing of the fundraising project	EIA of the fundraising project
1	GaAs Semiconductor Material Project	112,053.63	36,688.73	Chao Ka Kai Shen Fa Gai Bei [2021] No.22	Chao Ka Kai Huan Shen Fa [2022] No. 7
2	InP (Wafer) Semiconductor Material Project	18,118.98	18,118.98	Chao Ka Kai Shen Fa Gai Bei [2021] No.24	Chao Ka Kai Huan Shen Fa [2022] No. 8
3	Semiconductor Material R&D Project	44,320.88	44,320.88	Chao Ka Kai Shen Fa Gai Bei [2021] No.20	Chao Ka Kai Huan Shen Fa [2022] No. 5
4	Replenished Working Capital	320.88	320.88	-
In Total		192,053.63	116,688.73

GaAs Semiconductor Material Project is divided into two sub-projects, i.e. GaAs (Crystal) Semiconductor Material Project and GaAs (Wafer) Semiconductor Material Project, in which offering proceeds of RMB366,887,300 will be invested in the GaAs (Crystal) Semiconductor Material Project, and the self-raised funds will be invested in the GaAs (Wafer) Semiconductor Material Project.

If the amount of funds actually raised (upon deduction of offering expenses) fails to meet the investment threshold of the said projects, then the Company shall raise funds in proportion to the proposed investments therein, and shall solve the funding gap (if any) through self-financing activities. If the amount of funds actually raised (upon deduction of offering expenses) exceeds the investment threshold of the said projects, then the excess amount will be used for the development of the Company’s principal business based on its actual business need and in accordance with the regulations of the CSRC and Shanghai Stock Exchange. Before the offering proceeds are in place, the Company may invest its self-raised funds in the said projects, which funds will be replaced by the funds to be raised when the same is in place.

(II) Impact of the projects in which offering proceeds are invested on peer competition and independence 1-1-428


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

The projects in which offering proceeds are invested are capacity expansion of the Company's existing products and capacity building of new products, and such funds are raised by Chaoyang Tongmei, a subsidiary wholly owned by the Company. The implementation of the project financed by offering proceeds will not result in peer competition between the Company and its controlling shareholder and other enterprises under its control, nor have any adverse effect on the independence of the Company.

(III) Regulations on the use and administration of offering proceeds

At the 2021 annual general meeting of shareholders, the Company reviewed and approved the Management System for Raised Funds of Beijing Tongmei Crystal Technology Co., Ltd. (Revised in June 2022) (hereinafter referred to as “Management System for Raised Funds”), and has established a special saving system for offering proceeds in accordance with applicable laws and regulations. The offering proceeds that have been put in place will be deposited into the dedicated account determined by the board of directors of the Company for centralized management, so as to ensure special funds be used for special purposes.

The Management System provides for the use and management of offering proceeds as follows:

The Company shall use the offering proceeds as per such offering proceeds investment plan as stated in the offering application. Upon occurrence of any circumstance where there is an adverse effect on the normal operation of the offering proceeds use plan, the Company shall promptly make an announcement thereof. In the event of any of the following circumstances in the fundraising project, the Company shall re-demonstrate the feasibility, expected income, etc. of the fundraising project, decide whether to continue implementing of the project, and disclose the progress of the project in the latest periodic report, the cause of any abnormality and the adjusted fundraising project (if any):

(1) Where there are any major changes in the market environment which the fundraising project is in;

(2) where the fundraising project has been put on hold for more than one year;

(3) where it is beyond the deadline for the completion of the investment plan of the offering proceeds and the amount of the offering proceeds used for investment has not reached 50% of the amount under the relevant plan;

(4) where there are other abnormalities in the fundraising project.

In principle, the funds raised by the Company shall be used for principal business in the scientific and technological innovation area. The Company shall not:

(1) Where the offering proceeds are used for entrusted wealth management (excluding cash management), entrusted loans and other financial investments, security investments, derivative investments and other high-risk investments, and for investments in any company whose principal business is the sale of negotiable securities;

(2) change the use of offering proceeds by way of pledge, entrusted loan or otherwise;

(3) directly or indirectly make the offering proceeds available to its controlling shareholder, de facto controller and other affiliates, so as to provide convenience to such affiliates in using the fundraising project for obtaining improper interests; or

(4) engage in any other conduct in violation of the management rules for offering proceeds. 1-1-429


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

If the Company uses its self-raised funds to invest in any fundraising project, it may, within six (6) months after the offering proceeds are put in place, replace such self-raised funds therewith. The replacement shall be passed by the board of directors of the Company upon deliberation, regarding which the accounting firm needs to issue a verification report, and to which the independent directors, board of supervisors, Sponsor or independent financial advisor shall give explicit consent. The Company shall report the same to Shanghai Stock Exchange and make an announcement thereof within two (2) trading days after the holding of the board meeting.
Any offering proceeds of the Company that are temporarily idle can be subject to cash management, and any products it invests in shall meet the conditions of high safety and good liquidity and shall not affect the normal operation of the investment plan of the offering proceeds. The investment products shall not be subject to any pledge, and the special settlement account for the products (if applicable) shall not be used to deposit any non-offering proceeds or for any other purposes. In the event that a special settlement account for the products is opened or cancelled, the Company shall report it to the SSE for filing and make an announcement within 2 trading days.
In the event that the Company uses any idle offering proceeds to invest in any products, it shall be reviewed and approved by the board of directors of the Company, and the independent directors, board of supervisors, sponsors or independent financial advisers shall express their clear consent. The Company shall announce the following contents within 2 trading days after the board meeting:

(1) Basic information about the offering proceeds this time, including the time of fundraising, the amount of the offering proceeds, the net amount of the fund raised, the investment plan, etc.;

(2) usage of the offering proceeds;

(3) the quota and term of the investment products of idle offering proceeds, and whether there are any behaviors of changing the usage of the offering proceeds in disguise and any measures to ensure the project will not affect the normal progress of the fundraising project;

(4) the income distribution method, investment scope and security of the investment products;

(5) Opinions issued by the independent directors, board of supervisors, Sponsor or independent financial advisor.

The Company may temporarily use any idle offering proceeds to replenish working capital, provided that:

(1) The Company shall not change the purpose of any offering proceeds in disguise, or affect the normal operation of the offering proceeds investment plan;

(2) Such offering proceeds may be used solely for the production and operation of the principal business, other than directly or indirectly for new share placement or subscription, or for trading stocks and derivatives therefrom or exchangeable corporate bonds;

(3) The period for one-time replenishment of working capital shall not exceed twelve (12) months;

(4) The offering proceeds (if applicable) used for temporary replenishment of working capital that become due have been refunded.

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Any use of idle offering proceeds for temporary replenishment of working capital shall be passed upon deliberation by the board of directors of the Company, and shall be explicitly consented by the independent directors, the sponsor and the board of supervisors. Also, the Company shall make an announcement thereof within two (2) trading days after the board meeting.

Before the expiration date of the replenished working capital, the Company shall refund such replenished working capital into a special account for offering proceeds, upon which refund the Company shall report the same to Shanghai Stock Exchange and make an announcement thereof within two (2) trading days.

The part of the actual net amount of the Company’s offering proceeds in excess of the planned amount of the offering proceeds (hereinafter referred to as “Over-raised Funds”) can be used to permanently replenish the working capital or repay bank loans; however, the cumulative amount used within every 12 months shall not exceed 30% of the total amount of the Over-raised Funds, and the Company shall undertake not to make any high-risk investments and provide any financial aid to any parties other than its controlled subsidiaries within 12 months after replenishing the working capital.

The provisions in the preceding paragraph shall not apply to any investment funds related to the main business that are jointly invested in by the Company and professional investment institutions or any investment funds such as industrial investment funds in poverty-stricken areas and poverty alleviation public welfare funds operated in a market-oriented manner.

In the event that the Over-raised Funds are used to permanently replenish the working capital or repay bank loans, it shall be reviewed and approved by the board of directors and general meeting of the Company, online voting channels shall be available to shareholders, and the independent directors, board of supervisors, Sponsor or independent financial advisor shall express clear consents. The Company shall announce the following contents within 2 trading days after the board meeting:

(1) Basic information about the offering proceeds this time, including the time of fundraising, the amount of the offering proceeds, the net amount of the offering proceeds, and the amount of the Over-raised Funds, etc.;

(2) commitment not to make any high-risk investments or provide any financial aid to other parties within 12 months after replenishing the working capital;

(3) Opinions issued by the independent directors, board of supervisors, Sponsor or independent financial advisor.

In the event that the Company uses any Over-raised Fund for any project under construction or any new project (including the acquisition of assets, etc.), the funds shall be invested in its main business, upon a scientifically and prudently conducted feasibility analysis on the investment project, which shall be submitted to the board of directors for review and approval. The board of supervisors, Sponsor or independent financial advisor shall express clear consents, and the information disclosure obligation shall be fulfilled in a timely manner.

In the event that the Company plans to use any Over-raised Fund up to RMB50 million, which has reached over 10% of the total Over-raised Funds, it shall also be submitted to the general meeting for review and approval.

Upon the completion of a single fundraising project or all fundraising projects, if the Company listed on the STAR Market intends to use the surplus offering proceedings of the project (including interest incomes) for other purposes, it shall be reviewed and approved by the board of directors, upon the clear consents expressed by 1-1-431


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the independent directors, board of supervisors, Sponsor or independent financial advisor. The company shall make an announcement 2 trading days after the board meeting.

If the surplus offering proceeds (including interest incomes) are less than RMB10 million, the procedures set forth in the preceding paragraph are not required, provided that the Company shall disclose the use of the relevant offering proceeds in its annual report.

(IV) Investing the offering proceeds primarily in the science and innovation sector

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II. Relations between the project financed by offering proceeds and the Company’s existing principal business

The offering proceeds will be invested in the GaAs Semiconductor Material Project, the InP (Wafer) Semiconductor Material Project, the Semiconductor Material R&D Project, and the Working Capital Replenishment Project. The GaAs Semiconductor Material Project will enable the Company to achieve the mass production of the newly produced 8-inch GaAs substrates, and expand the production scale of 2 to 6-inch GaAs substrates, which creates conditions for the placement of its large-size GaAs substrates in the Mini LED and Micro LED industries, but will be beneficial for solidifying its share in the global market. The InP (Wafer) Semiconductor Material Project will enable the Company to develop an annual production capacity of 810,000 pieces of 2-inch InP substrates, which helps increase the capacity of the Company’s existing products and consolidate its leading position in the field of InP substrates. The Semiconductor Material R&D Project can expand the Company’s R&D team and increase its R&D resources, thus laying a sound foundation for continuous upgrade and iteration of the Company’s technologies and products to raise its comprehensive competitiveness. The Working Capital Replenishment Project can improve the Company’s insolvency, optimize its asset structure, cement and strengthen its core competitiveness, and promote its long-term, steady and sustainable development.

The smooth implementation of the fundraising project can provide necessary funding for mass production of the Company's new products and capacity expansion of its existing products, and conforms to the development strategy of the Company.

The implementation plan of the project financed by offering proceeds is formulated in accordance with the Company’s development planning requirements, and will help optimize and improve the production capacity of its existing products, further boost product upgrade and technological innovation, and expand the scale of its principal business, so as to enhance the core competitiveness and market share in all respects. The project financed by offering proceeds helps develop and perfect the existing product system, and is compatible with the Company’s R&D, marketing, operating and management capabilities. Through years of growth, the Company has accumulated abundant experience in research and development, and has a professional technical and management team, and also the market conditions, personnel, technological strength and management experience as required by the fundraising projects.

III. Description of particulars of the project financed by offering proceeds

(I) GaAs Semiconductor Material Project

1. Particulars of the project

The total investment in the project is RMB1,120,536,300, and the amount of offering proceeds to be used is RMB366,887,300.

The products under the underlying project are mainly 2-inch, 3-inch, 4-inch, 5-inch, 6-inch and 8-inch GaAs substrates, and the underlying project will enable the Company to develop an annual production capacity of 500,000 pieces of 8-inch GaAs substrates and 4,000,000 pieces of 2-inch GaAs substrates. The downstream products designed under the underlying project are mainly: RF devices (e.g. mobile communication (phone) power amplifiers, high-performance transistors and satellite communication devices), LEDs (Mini LEDs and Micro LEDs), lasers (high-power pumps and vertical cavity surface-emitting lasers) and other devices. The Company has accumulated solid technologies, extensive experience and abundant customer resources in its long- 1-1-433


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term production and sale of GaAs substrates. The GaAs substrates of the Company have sold well on the market, and the future market demand for such substrates is expected to achieve sustainable growth.

2. Necessity of project implementation

(1) To satisfy increasing market demand and boost the high-quality development of terminal application field

GaAs is an III-V semiconductor material that has a high power density, low energy consumption and high lighting efficiency, withstands high temperature and radiation, and can penetrate through the voltage. The GaAs substrates are mainly applied in downstream devices, including RF devices, laser devices, LEDs, and are involved in such fields as 5G communication, new-generation LEDs (Mini LEDs and Micro LEDs), unmanned driving, artificial intelligence and wearable equipment.

The GaAs substrates of the Company include 1-inch, 2-inch, 3-inch, 4-inch, 5-inch, 6-inch and 8-inch products, and meet the relevant product specifications. The GaAs substrate products of the Company have gained great recognition from customers and the market by virtue of their excellent performance and technological advancement, and maintain its advantageous position in the industry and market competition.

The underlying project focuses on GaAs substrates, and introduces production and processing equipment with advanced performance by building factories and supporting facilities, so as to further achieve the large-scale mass production of 2-inch, 3-inch, 4-inch, 5-inch, 6-inch and 8-inch GaAs substrates. The content of the project is highly related to the existing principal business of the Company, which will boost the development of its advantageous business areas and its steady development foundation, enhance income scale and profitability, deepen the partnership between upstream and downstream enterprises, further enhance the market share of GaAs substrates, and continuously cement and strengthen market competitiveness.

(2) To follow the technological development orientation of GaAs semiconductor material, and create pioneer advantages in the market

The semiconductor industry is obviously driven by technology and application, and the technological breakthroughs of the semiconductor manufacturing and closed beta test enterprises and the rapid growth of the terminal application field have greater demand for the performance of upstream GaAs substrates and other key semiconductor materials. Large size, high geometric accuracy, high resistivity evenness, low surface granularity and other aspects of performance become important technological development goals for GaAs substrate materials. Up to date, 6-inch and smaller GaAs substrates worldwide have achieved large-scale mass production, while 8-inch GaAs substrates have become the market focus. The new production line for downstream 5G RF devices, Mini LEDs, Micro LEDs, vehicle-mounted laser radars and other fields is likely to be redesigned for 8-inch GaAs substrates, and the Company’s 8-inch GaAs substrates have broad market space.

The Company pays high attention to the technological development trend of the industry, focuses on the iteration and upgrade of its own technologies and products, plays a leading role in the R&D and industrial application of 8-inch GaAs substrates, and keeps communicating with existing and potential end customers to promptly understand the changes in market demand. Currently, the Company’s 8-inch GaAs substrates are at the stage of customer certification, and the Company has obtained the certification of some customers, and will achieve the purpose of large-scale sale. The underlying project will enable the Company to develop annual production capacity of 500,000 pieces of 8-inch GaAs substrates, create pioneer advantages, seize market share and have the upper hand in future market competition. 1-1-434


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3. Feasibility of project implementation

(1) Great support for industrial policies

In recent years, in order to boost the development of the semiconductor industry and the upstream semiconductor material industry, strengthen the innovation capability and international competitiveness, get rid of the reliance on the import of core technologies and products, build an independent and controllable industrial chain, and further boost the sustainable, rapid and healthy development of national economy, the PRC government and competent authorities have enacted a series of supporting industrial policies.

In June 2014, the State Council printed and issued the Outline of the Program for National Integrated Circuit Industry Development, proposing to accelerate the development of integrated circuit industry, make breakthroughs in terms of key equipment and materials for integrated circuits, strengthen the coordination among integrated circuit manufacturers and equipment and materials suppliers, accelerate the industrialization process and strengthen industrial supporting capabilities.

In November 2018, the NBS issued the Classification of Strategic Emerging Industries (2018), which includes InP substrates, GaAs substrates, Germanium substrates and other compound semiconductor materials into the directory of key products in the strategic emerging industries.

In July 2020, the State Council issued the Circular of the State Council on Issuing Several Policies for Promoting the High-quality Development of the Integrated Circuit Industry and the Software Industry in the New Era, proposing eight policies regarding financial tax, investment and financing, R&D, talent, import & export, intellectual property, market application and international cooperation to formulate supporting policies, further optimize the development environment of the integrated circuit industry and software industry, deepen the industrial and international cooperation, and enhance industrial innovation capability and development quality.

Great support for industrial policies provides solid policy guarantee for the implementation of the underlying project and the sustainable development of the Company.

(2) Broad market prospect of the downstream industry of GaAs substrates

The GaAs substrates are mainly applied in downstream devices, including RF devices, laser devices, LEDs, and are involved in such fields as 5G communication, new-generation LEDs (Mini LEDs and Micro LEDs), unmanned driving, artificial intelligence and wearable equipment. The rapid growth of the downstream industry will drive the continuous release of the market demand for upstream materials.

According to the statistics published by Yole, the global market size of GaAs substrates in 2025 is expected to reach USD 0.348 billion, and the compound growth rate from 2019 to 2025 is expected to be approx. 9.67%, among which the GaAs substrates of RF devices will have the largest market that is expected to reach USD 98 million in 2025, while the market size of GaAs substrates of LED devices is expected to reach USD 96 million in 2025. In the future, the broad market potential of GaAs substrates will benefit from all such favorable factors as the commercialized applications of 5G communication, and accelerated development and application of Mini LED and Micro LED technologies.

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The Company pays high attention to the forward-looking technological R&D of the compound semiconductor material industry, continuously invests R&D resources to proactively boost the development of new technologies and processes and the improvement of existing techniques, satisfies the constantly changing downstream demands, and develops core technologies step by step so as to play a leading role in the industry in terms of technologies.

The Company took the lead to commercialize the large-scale production of InP, GaAs and other compound semiconductor substrates worldwide by adopting the VGF method, and the technological characteristics are mainly reflected in the low manufacturing cost of single crystal furnaces and the easy and precise control of the axial temperature gradient of the furnace body. The single crystals produced have such performance advantages as low internal stress, good completeness, high mechanical strength and low dislocation and defect densities. The Company plays a leading role in the industry in terms of the application level of the VGF method.

In addition to crystal growth, the production process of GaAs substrate products also involves such processes as crystal cutting, edge chamfering, surface grinding, polishing treatment, cleaning treatment and packaging, with respect to which the Company has mastered all of the industry’s leading core technologies and production processes, e.g. multi-line cutting technology for GaAs substrates, chamfering technology for GaAs substrates, multi-wafer annealing technology, precision grinding technology for GaAs substrates, precision chemical mechanical rough polishing (and fine polishing) technology for GaAs substrates, and super cleaning technology for GaAs substrates, all of which are maturely used in the mass production of products.

The production and processing technologies of project products and the Company's existing products are highly universal and consistent, and its deep technological reserves will provide technical support for the smooth implementation of the project.

4. Project content and investment estimate

The construction period of the underlying project is expected to be three (3) years, and the total project investment is RMB1,120,536,300, including investment in construction works of RMB1,049,432,500 and initial working capital of RMB71,103,800. Details of the project investment are as follows:

S/N	Project name	Total investment (RMB0’000)	Percentage
1	Construction investment	104,943.25	93.65%
1.1	Engineering costs	94,027.37	83.91%
1.1.1	Construction engineering costs	56,606.57	50.52%
1.1.2	Equipment purchase and installation costs	37,420.80	33.40%
1.2	Other costs relating to engineering construction	5,918.59	5.28%
1.3	Basic reserve fund	4,997.29	4.46%

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2	Start-up working capital	7,110.38	6.35%
Total project investment		112,053.63	100.00%

5. Performance of fundraising filing procedures

On November 4, 2021, the “GaAs (Crystal) Semiconductor Material Project” obtained the Certificate of Filing of GaAs (Crystal) Semiconductor Material Project of Chaoyang Tongmei Xtal Technology Limited (Chao Ka Kai Shen Fa Gai Bei [2021] No.22) issued by the Management Committee of Chaoyang Kazuo Economic Development Zone, and the total investment in such project was RMB366,887,300.

6. Environmental protection

In June 2022, the Company received the “Reply to the ‘Environment Assessment Report of the GaAs (Crystal) Semiconductor Material Project of Chaoyang Tongmei Xtal Technology Limited’” (Chao Ka Kai Huan Shen Fa [2022] No. 7) issued by the Management Committee of Chaoyang Kazuo Economic Development Zone.

7. Relations between the project and the Issuer’s existing principal business and core technologies

2-inch, 3-inch, 4-inch and 6-inch GaAs substrates under the project are the Company’s main products, and the Company has achieved short run production of 8-inch GaAs substrates. The underlying project is highly associated with the Company's existing principal business in the following two aspects:

Based on the analysis of existing principal business, the production processes of the products under the underlying project are the same as those of existing products and consistent with the Company’s existing principal business. Upstream manufacturers are able to provide a stable supply of such products, and the downstream industry is able to offer huge market demand.

Based on the analysis of core technologies, the Company has accumulated deep production technologies and extensive experience through years of production and operation. The products under the underlying project are highly associated with those under the existing principal business in terms of technology.

(II) InP (Wafer) Semiconductor Material Project

Particulars of the project

The total investment in the project is RMB181,189,800, and the amount of offering proceeds to be used is RMB181,189,800.

The products under the underlying project are mainly 2-inch and 3-inch, and the underlying project will enable the Company to develop an annual production capacity of 810,000 pieces of 2-inch InP substrates. The downstream products designed under the underlying project are mainly: optical modules (optical chips, detectors, transmitters, etc.) and other devices. The Company has accumulated solid technologies, extensive experience and abundant customer resources in its long-term production and sale of InP substrates. The InP substrates of the Company have sold well on the market, and the future market demand for such substrates is expected to achieve sustainable growth.

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(1) The Company’s capacity utilization of InP substrates is near saturation, producing a pressing demand for capacity expansion

With the increasing demand for downstream optical chips, optical module extensions and devices and the large-scale construction of 5G base stations around the globe, coupled with the changes in the network structure of 5G base stations, the demand for optical modules has been driven, leading to the rapid business growth of the Company’s InP substrates. The Company’s operating income, capacity and output of InP substrates during the reporting period are as follows:

InP substrates	2021	2020	2019
Operating income (RMB0’000)	28,179.15	12,753.63	10,971.16
Capacity (0’000 pieces)	40.78	30.70	26.70
Output (0’000 pieces)	39.26	28.32	23.32
Capacity utilization	96.27%	92.24%	87.34%

Note: Both capacity and output of InP substrates are calculated based on 2-inch

Combined with the above table, in spite of soaring business growth and capacity expansion of the Company’s InP substrates, capacity utilization is still near saturation, producing a pressing demand for capacity expansion on the production line.

(2) The “Eastern Data and Western Computing” project brings an excess demand for InP substrates. Following the “South-to-North Water Diversion”, the “West-to-East Electricity Transmission”, and the “West-to-East Gas Transmission” projects, at the beginning of 2022, the National Development and Reform Commission (NDRC) announced to implement the “East-to-West Data Processing” project. As a representative project of China’s “new infrastructure”, the national “Eastern Data and Western Computing” project will plan to foster a new computing network system that integrates data centers, cloud computing, and big data. China will build computing hub nodes in eight areas including the Beijing-Tianjin-Hebei Metropolitan Region, the Yangtze River Delta, the Guangdong-Hong Kong-Macao Greater Bay Area, Chengdu-Chongqing, Inner Mongolia, Guizhou, Gansu, and Ningxia. Ten national data center clusters will also be under way. They are combined to drive a significant demand for the optical communication market.

InP is a key semiconductor material of optical module lasers and receivers featuring high saturated electron drift velocity, strong radiation resistance, good thermal conductivity, high photoelectric conversion efficiency and large bandgap width. Therefore, the construction of data centers and cloud computing centers will lead to considerable incremental demands for InP substrates.

The successful implementation of this project will help the company to greatly increase the market supply of InP substrates. The products of the project will be mainly used in the optical module market, so as to further meet the growing market demand and provide the national "Eastern Data and Western Computing" project with substrate material.

(3) The principal business will be deepened to consolidate the Company’s leadership in the industry

As a global leading supplier of InP substrates, the Company, through years of operation and development, have gained great recognition from customers and the market by virtue of their excellent performance and technological 1-1-438


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advancement. According to Yole, the Company held the second largest market shares for InP substrates in 2020, only secondary to Sumitomo, with strong industry influence and brand effect.

The InP substrate industry is highly concentrated due to a high barrier for accessing it in terms of single crystal growth technology and equipment input, so leading enterprises enjoy an obvious monopoly effect. By implementing the underlying project, the Company will build a new InP wafer production workshop and supporting auxiliary facilities, and introduce advanced production and processing equipment to achieve the expansion of 2-inch and 3-inch InP substrates, which will be mainly applied to the field of optical communication.

At present, data centers and customers from the 5G communications industry at home mainly use 2-inch and 3-inch InP substrates and their epilayers, while overseas customers are major targets of 4-inch and 6-inch InP substrates, which are primarily used in emerging fields such as wearable devices. With the increasing demand for data centers and the 5G communications industry, the demand for 2-inch and 3-inch InP substrates among domestic customers continues to grow. Implementing the underlying project will enable the Company to grow our principal business and scale up the production and sales of InP substrates, thereby further raising its scale benefit and cost advantage and consolidating our leadership in the industry.

Feasibility of project implementation

(1) Abundant customer resources

The compound semiconductor material industry features high technical content and customer verification barrier. Downstream customers generally develop strict standards for quality and performance indicators of material products, establish a supplier verification mechanism, and build long-term stable partnerships with material suppliers passing the product quality system verification to ensure stable and ample supply of products.

Based on our profound technical strength, excellent product performance, mature international sales team, and advantages in cost, management and services, the Company has manufactured products widely recognized in the market and accumulated abundant premium customer resources. We sell InP substrates in countries and regions such as the Chinese Mainland, Taiwan District, Germany, Japan, the United States and the South Korea, with primary customers covering 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, and chip and device manufacturers. Having passed the strict review and verification of product quality system, product processes and product quality by the above enterprises, the Company ranks top in the world by the market share of InP substrates. Abundant customer resources will provide a market guarantee for the smooth implementation and new capacity digestion of the underlying project.

(2) Strong technical R&D team and a sound talent mechanism

As a talent- and technology-intensive enterprise, the Company boasts of a R&D team with a solid professional foundation, rich experience in technology R&D and application, and profound industry insights. With strong capability of independent innovation, the Company’s core R&D personnel can conform to the technology trends of compound semiconductor materials industry, accurately grasp the changes of downstream needs, and make forward-looking R&D layout, laying a good foundation for the Company’s research and optimization of crystal growth technology and wafer processing technology, as well as the development, verification and industrial application of new products. 1-1-439


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The Company has built a sound talent mechanism, established a national post-doctoral research center, promoted industry-university-research cooperation, and strengthened the reserve and training of high-end technical talents. The Company has also developed an incentive mechanism for R&D innovation to reward R&D personnel performing brilliantly in R&D work and forming high-value scientific research achievements or intellectual property rights, so as to fully mobilize their enthusiasm and provide them with broad innovation space.

Our strong technical R&D team and sound talent mechanism have become the core driver to the Company’s development, providing talent guarantee for the smooth implementation of the underlying project and the fulfilment of medium and long-term strategic goals in the future. During the implementation of the underlying project, the Company will keep attracting outstanding technical talents in related fields to expand our R&D team, accelerate the progress, and reserve strength for our sustainable development.

(3) Broad market prospect of the InP downstream industry

Optical module is the core device in optical communication system. Information transmission between devices via photoelectric conversion is an important application market of InP substrates. According to Yole, the global market size of data center optical modules will grow to USD12.1 billion in 2025 at the CAGR of 20% from 2019 to 2025 and that of InP substrates will hit USD202 million in 2026 at the CAGR of 12.42% from 2019 to 2026. In particular, the expected global market size of InP substrates for optical communications will reach USD157 million by 2026 at the CAGR of 13.94% from 2019 to 2026, representing more than 70% of the whole InP substrate market. In the future, as the construction of new infrastructure such as 5G communication base stations and data centers accelerates, the market size of optical module devices will continue to increase, driving the market demand for upstream InP substrates.

In the future, as the construction of new infrastructure such as 5G communications and big data centers accelerates, the market size of optical communications and optical modules will continue to increase, driving market demand for upstream InP substrates. Therefore, the products under the underlying project embraces a broad market space, providing market guarantee for new capacity digestion.

Project content and investment estimate

The construction period of the underlying project is expected to be three (3) years, and the total project investment is RMB181,189,800, including investment in construction works of RMB130,047,900 and initial working capital of RMB51,141,900. Details of the project investment are as follows:

S/N	Project name	Total investment (RMB0’000)	Percentage
1	Construction investment	13,004.79	71.77%
1.1	Engineering costs	11,862.52	65.47%
1.1.1	Construction engineering costs	3,995.70	22.05%
1.1.2	Equipment purchase and installation costs	7,866.82	43.42%
1.2	Other costs relating to engineering construction	522.99	2.89%
1.3	Basic reserve fund	619.28	3.42%
2	Start-up working capital	5,114.19	28.23%

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Total project investment	18,118.98	100.00%

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5. Performance of fundraising filing procedures

The “InP (Wafer) Semiconductor Material Project” has obtained the Certificate of Filing of InP (Wafer) Semiconductor Material Project of Chaoyang Tongmei Xtal Technology Limited (Chao Ka Kai Shen Fa Gai Bei [2021] No.24) issued by the Management Committee of Chaoyang Kazuo Economic Development Zone, and the total investment in such project was RMB181,189,800.

6. Environmental protection

In June 2022, the Company received the “Reply to the ‘Environment Assessment Report of the InP (Crystal) Semiconductor Material Project of Chaoyang Tongmei Xtal Technology Limited” (Chao Ka Kai Huan Shen Fa [2022] No. 8) issued by the Management Committee of Chaoyang Kazuo Economic Development Zone.

7. Relations between the project and the Issuer’s existing principal business and core technologies

2-inch and 3-inch InP substrates in the underlying project are one of the Company’s main products, and the underlying project is highly associated with the Company’s existing principal business in the following two aspects:

From the perspective of industrial chain, the production processes of the products under the underlying project are the same as those of existing products and consistent with the Company’s existing principal business. Upstream manufacturers are able to provide a stable supply of such products, and the downstream industry is able to offer huge market demand.

From the perspective of technology correlation, the Company has accumulated extensive experience in technology through years of production and operation of InP substrates. Based on such mature technology, the underlying project features a low risk of technology, with uncertainties under effective control.

(III) Semiconductor Material R&D Project

Particulars of the project

The total investment in the project is RMB175,601,400, and the amount of offering proceeds to be used is RMB175,601,400.

The underlying project will not directly generate economic benefits, but its implementation will bring huge benefits to the Company’s future development.

Based on the Company’s existing R&D environment, the project will make additional purchases of some high-performance R&D equipment and recruit high-quality R&D talents, which will help the Company improve its technical strength and accelerate R&D innovation and achievement transformation, laying a good foundation for the Company to achieve sustainable development.

The Company will strengthen the forward-looking R&D layout and new product development according to our business layout, development trends of III-V compound semiconductor materials, and changes in demands from end customers. The breakthrough of underlying technology and the development of new products will help the Company continuously strengthen the core technology reserve in areas of our principal business, and build and expand our technology advantage. The Company’s product structure will also be enriched to further satisfy the 1-1-442


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diversified and customized demands of end customers, take the initiative in the market environment where technology and products are being rolled out, and gain competitive advantage, providing a solid guarantee for the Company’s future profit growth.

During the construction period of the project, the Company plans to make R&D breakthroughs in the following technology directions: R&D for high-quality 8-inch GaAs polished wafer technology, R&D for characterization technology of GaAs and InP semiconductor wafers, R&D for high-quality InP wafers with low surface defects, improvement and upgrade of 6-inch InP crystal growth technology, and R&D for 8-inch GaAs crystal growth technology.

(1) Improvement and upgrade of 8-inch GaAs crystal growth technology

GaAs is a III-V compound semiconductor material after germanium and silicon. As the downstream application of GaAs semiconductor materials steps to expand and deepen, coupled with the increasing level of wafer epitaxy technology, small-size wafers have no longer been able to satisfy the demand for epitaxy technology. In order to vie for high-end markets and cut down costs, semiconductor epitaxy manufacturers are rushing to develop and apply large-size epitaxy technology, making large-size crystal material an important development direction in the future. The R&D content of this technology segment includes:

1)	Designing and developing equipment for the growth of large-size and high-mass semiconductor crystals;
2)	Carrying out R&D of mechanical automatic charging devices and being equipped with manipulators automatically;
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3)	Exploring the best growth conditions of large-size crystals to improve the yield of crystals;
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4)	Conducting R&D of high-quality semiconductor crystals and achieving the average dislocation density below 1000/cm^2^ and the carrier concentration range within 0.5-4E+18/cm^3^ for silicon-doped semiconductor GaAs single crystals.
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(2) Improvement and upgrade of 6-inch InP crystal growth technology

Due to the special physical properties of InP material, crystals must grow under extremely special conditions, and there are strict requirements for high temperature and high pressure, so that phosphorus could not overflow from the melt under the condition of high-temperature melting, adding great difficulty to the growth technology. When the crystal size increases, higher requirements are put forward for high-temperature and high-pressure conditions of crystal equipment. It is difficult to simply copy small-size crystal growth technology to large-size technology, so the crystal growth technology needs to be improved and upgraded. The R&D content of this technology segment includes:

1)	R&D of devices for the growth of large-size crystals, including large-size autoclaves, high-power heaters, precise temperature control, and manipulator operation;
2)	R&D of crystal growth technology, including heating furnace temperature monitoring and procedure setting;
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3)	Crystal demoulding technology and crystal post-treatment;
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4)	Precise targeted cutting of large-size crystals.
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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(3) Improvement and upgrade of high-quality 8-inch GaAs polished wafer technology

GaAs substrate is a hard and brittle compound semiconductor crystal with special chemical and physical properties, so the traditional silicon wafer processing technology could not be used for reference in wafer preparation. In addition, with the increase of wafer size, the difficulty of both crystal growth and wafer processing will increase.

As the downstream application of 8-inch GaAs substrates is constantly promoted, especially considering the broad application prospect in the field of Micro LED, the requirements for core indicators such as flatness, surface cleanliness, evenness (including evenness within and between wafers) of GaAs polished wafers are getting higher and higher. The existing wafer technology is inefficient and worse still, it gets harder to meet the requirements of downstream customers for product performance, so more advanced processing technology of 8-inch GaAs substrates needs to be developed.

The R&D content of this technology segment includes:

1)	Development of high-precision 8-inch GaAs wafer cutting technology Cutting is the first and basic step of wafer processing, which not only determines the material loss, but also has a great impact on the subsequent processing precision. Developing wafer cutting technology can lay a good foundation for subsequent grinding and polishing.
2)	Development of high-flatness 8-inch GaAs wafer grinding and polishing technology Grinding and polishing are a key step in wafer processing, determining the final flatness parameter of the wafer. By participating in the design and development, the project will further improve the grinding and polishing equipment that meets the processing requirements of 8-inch GaAs wafers, and develop the corresponding grinding and polishing process.
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3)	Development of high-surface-cleanliness 8-inch GaAs wafer cleaning technology As the last process of wafer processing, cleaning determines the overall performance of the wafer surface. By developing and renovating cleaning equipment and efficient cleaning technology, high cleanliness of wafer products can be achieved.
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(4)	Improvement and upgrade of technology for high-quality InP wafers with low surface defects With the extensive application of InP, downstream devices, especially some high-grade, precision and advanced application areas, are more demanding in terms of processing technology and quality requirements of InP substrates. The existing processing technology and wafer quality could no longer meet higher requirements, and problems such as inefficient processing and low product consistency and stability are exposed.
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By optimizing the processing method, improving the processing technology, developing new technology and introducing new processing equipment and testing equipment, the InP substrate products independently developed by the Company increase the substrate quality and decrease the surface defect level, allowing the Company to maintain leadership in the industry. At the same time, in order to meet the higher requirements for performance indicators of InP substrates such as flatness, surface defects, surface cleanliness, performance evenness, and consistency, the underlying project will research and develop the process technology of high-quality InP substrates with low surface defects. 1-1-444


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

The R&D content of this technology segment includes:

1)	R&D of multi-wire cutting process for InP wafers with high angular accuracy, high flatness and low surface damages.

The wafer cutting process has a significant impact on the final crystal orientation angle, flatness and surface quality of the wafer, which is the basis of subsequent grinding and polishing. Developing a multi-wire cutting process with high angle accuracy, high flatness and low surface damages can improve the consistency and flatness of the wafer and reduce the loss of crystal materials.

2)	R&D of grinding and polishing process of InP wafers with high flatness and low surface defects

The grinding and polishing process has a great impact on the flatness of the wafer and plays a decisive role in its surface defects. InP wafers with high flatness and low surface defects can be obtained through the development and transformation of grinding and polishing equipment and the improvement and R&D of related processes.

3)	R&D of high-surface-cleanliness 8-inch InP wafer cleaning technology

The wafer cleaning process has a great impact on the surface cleanliness of the wafer. Reducing particles on the wafer surface by developing the cleaning process and cleaning equipment can improve the cleanliness and consistency of wafer surface.

(5)Improvement and upgrade of characterization technology of GaAs and InP semiconductor wafers

The characterization measurement technology of semiconductor wafers is the primary basis for judging their quality, which can provide reference and guidance for the improvement of semiconductor quality. Excellent product quality not only depends on advanced technology and equipment, but also needs advanced characterization and detection technology.

As the application range of GaAs and InP materials expands and the performance of downstream devices continues to improve, the requirements for the quality and technical parameters of substrates are becoming higher and higher, including electrical parameters such as resistivity and mobility of substrate materials, dislocation density and distribution in crystalline materials, trace metal residues on the wafer surface, and nanoscale particle residues on the surface. At present, the existing measurement and characterization technologies of the Company and in the industry can no longer meet the future market demand in terms of both measurement items and accuracy, so more advanced measurement and characterization technologies for semiconductor wafers need to be developed.

The R&D content of this technology segment includes:

1)	Development of high-precision electrical performance measurement system The study focus should be the Hall measurement system with parameters such as high resistance and high mobility.
2)	Development of automatic detection technology for crystal dislocation and other defects
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A fast and accurate automatic crystal dislocation identification and technical system should be developed.

3) Development of detection technology for trace impurities on wafer surface 1-1-445


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

The measurement technology of trace metal elements on the surface with high applicability and accuracy should be researched and developed.

4) Development of wafer surface granularity detection technology

The detection and characterization technology for submicron and nanometer particles should be researched and developed to provide a basis for improving wafer cleanliness.

2. Necessity of project implementation

(1) The need to improve the international competitiveness of compound semiconductor materials in China

The semiconductor industry is the foundation of electronic information industry and various high-tech upgrades, which relates to national security and strategic deployment. Semiconductor is an important part of the upstream semiconductor industry chain, playing a key supporting role in the manufacturing of semiconductor products such as integrated circuits and discrete devices.

There are various kinds of semiconductor materials, including substrates, target materials, chemical-mechanical polishing materials, photoresists, and encapsulation materials, in which substrates are at the very core in the field of semiconductor materials. Substrates include single-element semiconductors and compound semiconductors, in which III-V compound semiconductor material is the second most mature semiconductor substrate following silicon.

A substrate with a greater diameter means lower costs for manufacturing individual chips, so compound semiconductor substrates are evolving toward larger sizes. However, large-size III-V compound semiconductor materials require special growth conditions and high technical barriers. Only a few international companies in countries such as Japan and Germany can provide large-size GaAs and InP substrates on a large scale. China is a latecomer to the semiconductor industry with low overall competitiveness. In the field of III-V compound semiconductor materials, the Company only has strong competitiveness in the middle and low-end products, with the performance and market competitiveness of high-end and large-size products to be further improved.

The underlying project will focus on R&D around growth technology and equipment for large-size compound semiconductor crystals, including the improvement and R&D of large-size InP polycrystalline ingot technology, the improvement and R&D of large-size InP semiconductor crystal growth technology, and the R&D of large-size GaAs crystal growth technology. The successful implementation of the underlying project will promote the R&D level and technical level of large-size III-V compound semiconductor substrate materials, and improve the international competitiveness of compound semiconductor materials in China.

(2) The need to build a first-mover advantage in the market since large-size III-V compound semiconductor substrate materials have become the development trend

Compound semiconductor substrate materials mainly include III-V compound semiconductor materials represented by gallium arsenide (GaAs) and indium phosphide (InP) and wide bandgap compound semiconductor materials represented by gallium nitride (GaN) and silicon carbide (SiC). Thanks to the features of high electron mobility and favorable photoelectric performance, III-V compound semiconductor materials have a broad prospect of applications in 5G communications, data centers, fiber optic communications, new generation display, artificial intelligence, unmanned driving, wearable device, and aerospace. 1-1-446


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The gradually maturing new generation display technologies such as Mini LED and Micro LED, coupled with the development of emerging technologies like cloud computing, AI and optical communications, the demand for III-V compound semiconductor substrates will increase substantially. According to Yole, the global sales of GaAs substrates converted into 2-inch were about 20 million pieces in 2019, and are expected to reach over 35 million pieces by 2025; the global sales of InP substrates converted into 2-inch were about 499,000 pieces in 2019, and are expected to reach 1.2819 million pieces by 2026. At present, GaAs substrates are mostly 4 to 6 inches in diameter in the market, while InP substrates are mostly 2 to 4 inches in diameter. A substrate with a greater diameter means lower costs for manufacturing individual chips, so downstream chip and device enterprises have an urgent demand for large-size III-V compound semiconductor substrate materials.

The Company keeps communicating with downstream end customers, pays high attention to the technological development trend of the industry and market needs, focuses on the iteration and upgrade of our technologies and products, and plays a leading role in the R&D and industrial application of large-size compound substrates. The Company has mastered the key technologies for the production of large-size III-V compound semiconductor materials. The underlying project will continue to research and improve the growth technology and equipment for large-size semiconductor crystals and help the large-scale production of large-size GaAs substrates and InP substrates with independent intellectual property rights, building a first-mover advantage to take the initiative in the future market competition.

(3) The need to improve the performance and characterization measurement technology of compound semiconductor wafers

The performance of III-V compound semiconductor wafers is closely associated with the performance of downstream chips and devices. Core performance indicators such as dislocation density, resistivity evenness, flatness and surface granularity of wafers will directly affect the yield and cost of devices, and thus their industrialization process in downstream applications. At the same time, with the breakthrough of semiconductor manufacturing, packaging and testing technology and the rapid development of terminal applications, higher requirements are put forward for the key performance of upstream III-V compound semiconductor wafers. High geometric accuracy, high resistivity evenness, low surface granularity, high surface cleanliness, high consistency and other aspects of performance become technological development goals for III-V compound semiconductor wafers.

In addition, the characterization and measurement technology of semiconductor wafers is the primary basis for judging their quality, which can chart the course for the improvement of semiconductor quality. However, as the application scope of GaAs and InP materials is promoted and the performance of downstream devices continues to improve, the market demands higher and higher quality of both kinds of wafers. The existing characterization measurement technology of the Company and the industry can no longer meet the future industry needs. The market has an urgent need to develop more advanced characterization measurement technologies for semiconductor wafers.

The implementation of the underlying project will increase R&D investment in wafer cutting, wafer grinding, wafer polishing, wafer cleaning and other processing technologies, so as to reduce wafer surface defects and improve wafer quality. At the same time, the underlying project will develop characterization measurement technologies such as automatic detection technology for crystal dislocation and other defects, and detection technology for trace impurities and particle size on semiconductor wafer surface, so as to meet the higher requirements of the industry for wafer measurement items and accuracy. The Company will also introduce new processing and testing equipment to ensure our leadership in the industry by technology and equipment. 1-1-447


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

3. Feasibility of project implementation

(1) Policy support for scientific and technological innovation provides a sound macro environment for the underlying project

In 2021, the State Council released the Outline of the 14^th^ Five-Year Plan for National Economic and Social Development and Long-Range Objectives for 2035, proposing that China’s R&D spending will increase by more than 7% annually, and is expected to account for a higher percentage of GDP than that during the 13^th^ Five-Year Plan period. In “Part II Innovation-Driven Development to Build New Strengths”, it proposes that market-oriented mechanisms for technological innovation will be in place to boost the role of enterprises in innovation, encourage the flow of resources to enterprises, and enable enterprises to play a major role in innovation with the support of universities, research institutes, and end-users.

The policy support for enterprises to build technology R&D centers provides a good macro environment for the smooth implementation of the underlying project.

(2) The Company’s accumulated profound technologies provide technical guarantee for the smooth implementation of the underlying project

Insisting on development driven by independent innovation since its establishment, the Company focuses on the research, development, and innovation of new products, new technologies, and new processes, and has accumulated profound technologies after years of continuous research, development, and process improvement. As of June 30, 2022, the Company owns a total of 61 patents for invention. Besides intellectual property rights filed within and outside the Chinese Mainland, the Company keeps a number of formula and process know-how in strict confidentiality with respect to various types of core technologies to protect such technology secrets from being disclosed by patents.

The Company has acquired core technologies such as gallium arsenide poly-crystal synthesis, semi-insulating gallium arsenide single crystal vertical gradient freeze growth and carbon doping control, semi-conducting gallium arsenide single crystal vertical gradient freeze growth and uniform doping control, high quality germanium single crystal vertical gradient freeze growth and doping control, high quality indium phosphide single crystal vertical gradient freeze growth and doping control, longitudinal temperature gradient partial crystallization, and pyrolytic boron nitride chemical vapor deposition technology. A complete and independent system of core technologies related to III-V compound semiconductor materials has also been formed to provide profound technical guarantee for the smooth implementation of the underlying project.

(3) The Company’s professional technology and management teams provide talent guarantee for the smooth implementation of the underlying project

Having engaged in the business of III-V compound semiconductor materials for over 35 years, the core team of the Company has built in-depth technology and process accumulation. Dr. MORRIS SHEN-SHIH YOUNG, Chairman of the Company, is one of the founders industrializing the VGF technology. Under the leadership of Dr. MORRIS SHEN-SHIH YOUNG, the Company has educated and built a technology team featuring comprehensive academic backgrounds and rich industry experiences, providing talent guarantee for the Company to continuously make innovation and keep technology advancement. 1-1-448


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4. Project content and investment estimate

The construction period of the underlying project is expected to be three (3) years, and the total project investment is RMB175,601,400, including investment in construction works of RMB62,143,000 and initial Research and development expenses of RMB113,456,100.

S/N	Project name	Total investment (RMB0’000)	Percentage
1	Construction investment	6,214.53	35.39%
1.1	Engineering costs	5,907.10	33.64%
1.1.1	Equipment purchase and installation costs	5,907.10	33.64%
1.2	Other costs relating to engineering construction	11.50	0.07%
1.3	Basic reserve fund	295.93	1.69%
2	Research and development expenses	11,345.61	64.61%
2.1	Compensation for R&D personnel	3,233.21	18.41%
2.2	Other research and development expenses	8,112.40	46.20%
Total project investment		17,560.14	100.00%

5. Performance of fundraising filing procedures

On May 10, 2022, the “Semiconductor Material R&D Project” obtained the Certificate of Filing of GaAs (Crystal) Semiconductor Material Project of Chaoyang Tongmei Xtal Technology Limited (Chao Ka Kai Shen Fa Gai Bei No.22) issued by the Management Committee of Chaoyang Kazuo Economic Development Zone, and the total investment in such project was RMB175,601,400.

6. Environmental protection

In June 2022, the Company received the “Reply to the ‘Environment Assessment Report of the Semiconductor Material Project of Chaoyang Tongmei Xtal Technology Limited’” (Chao Ka Kai Huan Shen Fa [2022] No. 5) issued by the Management Committee of Chaoyang Kazuo Economic Development Zone.

7. Relations between the project and the Issuer’s existing principal business and core technologies

The Company’s main products include InP substrates, GaAs substrates, germanium substrates, PBN materials and other high-purity materials. Through years of technical research and development, the Company has mastered core technologies in the foregoing product fields, and continued to innovate in the continuous enhancement of product performance, improvement of process yield, reduction of product costs and other aspects. On this basis, the fundraising project will make technological breakthroughs and carry out R&D around R&D for high-quality 8-inch GaAs polished wafer technology, R&D for characterization technology of GaAs and InP semiconductor wafers, R&D for high-quality InP wafers with low surface defects, improvement and upgrade of 6-inch InP crystal growth technology, and R&D for 8-inch GaAs crystal growth technology to consolidate our market position and enhance our profitability. 1-1-449


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(IV) Working Capital Replenishment Project

In order to ensure that the Company will maintain a healthy and sustainable development after the future offering and listing, the Company has carried out calculations based on the turnover of current working capital and the needs of future development strategies, and proposes to use the amount of RMB443,208,800 raised for this Offering to replenish working capital.

As the Company's production capacity and revenue continue to increase, the Company will further increase the expenditures for the procurement of raw materials and employee compensation, thus it is urgent to raise more funds to meet liquidity needs. The working capital that has been put in place will provide sufficient liquidity for the construction of the Company's project, which protects the Company from any cash flow shortage due to the increase in capital expenditures, and meets its long-term development needs. Meanwhile, any increase in working capital is conducive to improving the Company's ability to resist risks, avoiding any material adverse effect on its ability to continue operations due to fluctuations in the prices of raw materials or finished products and changes of exchange rate, and ensuring the stability of its principal business. In addition, in order to adapt to the trend of rapid technological development in the industry and the need for continuous upgrade of product performance, the Company will continuously carry out technological transformation of production lines and the R&D of new products, which requires the Company to have strong financial strength. The use of offering proceeds helps the Company to optimize its capital structure, strengthen its ability to resist risks, offer financial support for its continuous business development, and provide a strong guarantee for the implementation of its strategies for future development.

IV. Business development goals of the Company

(I) Development strategy planning

The Company’s development goal is to become a global leader in the field of compound semiconductor substrate materials. To achieve such goal, the Company has formulated a clear development strategy. The first step is to expand the production capacity of existing products. As the existing market continues to grow, the Company's production capacity is lower than that of its main competitors, which puts the Company in a disadvantageous competitive position. The Company urgently needs to expand its supply capacity. The second step is to accelerate the capacity building and market expansion of large-size substrate products. As downstream applications (such as 5G communications and new-generation LEDs) usher in a new cycle of investment, new production lines for downstream customers are likely to be redesigned for larger-size substrate products, thus the Company needs to develop a large-scale supply capacity for large-size substrate products as soon as possible, so as to seize market opportunities in the new round of industry life cycle. The third step is to pay close attention to the frontiers of global technology and continue to broaden the application scenarios of III-V compound semiconductors. The Company pays close attention to new technologies, devices, and application scenarios in the academic and industrial circles, proactively assists downstream customers to facilitate the R&D process, and introduces in advance the Company's substrate products into new application scenarios.

(II) Measures already taken for achieving strategic goals and implementation effects

During the reporting period, the Company has completed the acquisitions of Chaoyang Tongmei, Baoding Tongmei, Beijing Boyu, Nanjing Jinmei, Chaoyang Jinmei, and AXT-Tongmei, and realized the integration of AXT's compound semiconductor business, solved the problem of horizontal competition, and regulated and reduced related transactions, all creating conditions for listing on the Shanghai Stock Exchange. 1-1-450


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

The Company has carried out technological R&D activities and process exploration for many years, and has mastered the production technology of 8-inch GaAs substrate and 6-inch InP substrate. The Company's 8-inch GaAs substrate products have successively obtained the certification from mainstream international semiconductor customers. The Company will implement the capacity expansion of large-scale GaAs and and InP compound semiconductor projects through the offering proceeds to achieve growth in its performance.

(III) Measures to be taken in the future

1. Expansion of new technologies, devices and application scenarios

While the Company's semiconductor substrate products are actively introduced into such application fields as 5G communications, data centers and new-generation LEDs, the Company will continue to maintain good communication with downstream customers, and will always grasp the information about cutting-edge technologies. The Company pays close attention to future commercialization and promotion of such products as global 6G communication RF devices, medical wearable devices, L4-L5 autonomous driving car radars, and AR and VR visualized transparent glasses. The Company will lay out the corresponding semiconductor substrate products in advance before the commercialization of such new technologies, devices and application scenarios.

2. Diversified financing measures

The smooth implementation of the Company's business development plan is inseparable from adequate funding. In the future, the Company will avail itself of capital markets, financial institutions, professional investment institutions and other financing channels to raise funds for its business development in multiple dimensions. After the Company’s overall consideration of its own strength, development needs, capital cost, capital structure and other factors, it will raise funds through such diversified methods as public issuance of stocks, non-public issuance of stocks, issuance of convertible corporate bonds, bank loans, bond issuance, and joint ventures, so as to satisfy the demand for its rapid growth.

3. Human resources plan

The Company has always attached importance to personnel training and talent introduction. The Company will continue to cultivate talents independently according to actual needs and future development plans, and absorb global high-end talents and optimize the talent structure. The Company will strengthen employee training, continue to improve employee training plans, and establish an effective talent growth mechanism through internal and external training, subject study and other methods, so as to improve the business capabilities and overall quality of employees and satisfy its demand for sustainable development. Meanwhile, the Company will again implement equity or option incentives for key talents based on the actual situation, and combine company interests, personal interests and shareholder interests, so as to effectively attract and motivate talents.

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4. Extensional development plan

According to the overall development strategy and target planning, the Company will focus on the semiconductor material business, and take the opportunity to acquire or invest in corporate equity or assets of strategic significance to the Company worldwide, in order to broaden its business scope, expand the target market, improve the market share of its existing products or reduce its production costs, boost its rapid expansion and maintain its sustained and healthy development.

According to the development trend of the global semiconductor industry, and based on the actual situation of the Company's business, the Company has formulated the said strategic plan. After years of development, the Company has a strong competitive position in the industry and good multi-party cooperation channels, which lays the foundation for achieving the above goals. The achievement of such business development goals is conducive to consolidating and enhancing the Company’s competitive advantages and achieving a steady increase in its profitability.

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Section X Investor Protection

I. Main arrangement for the Issuer’s investor relations

To protect the legitimate rights and interests of investors, regulate the Company’s information disclosure activities and management of investor relations, and safeguard the legitimate rights and interests of the Company’s shareholders, creditors and other stakeholders, the Company has formulated the “Administrative Rules on Information Disclosure”, “Administrative Regulations on Investor Relations” and other relevant corporate governance documents in accordance with laws and regulations of China, established and gradually improved an information disclosure and investor relations management system that meets requirements for listing, so as to ensure timely and fair disclosure of information as well as the authenticity, accuracy and completeness of the information disclosed, protect the investors’ right to know, right to make decisions and to participate, and effectively protect the legitimate rights and interests of the investors.

(I) Information disclosure system and process

The Administrative Rules on Information Disclosure (as Revised in June 2022) (hereinafter referred to as the “Administrative Rules on Information Disclosure”) were reviewed and adopted at the 16^th^ meeting, which clearly stipulate the basic principles and requirements of information disclosure, regular reports, contents to be disclosed, management of information disclosure matters, basic procedures, confidentiality measures, data management and other related matters of the Company. As prescribed by the “Administrative Rules on Information Disclosure”, the Company and relevant information disclosure obligators should disclose all matters that may have significant impact on the Company’s stock trading price or investment decisions. The Company and relevant information disclosure obligors shall disclose information in a timely and fair manner, to ensure the authenticity, accuracy and completeness of the information disclosed. The “Administrative Rules on Information Disclosure” specifies that the information disclosure management department of the Company shall be the office of the Company’s Board of Directors, which is under the unified leadership and management of the Board of Directors. The Administrative Rules also has corresponding rules on the general procedures for the collection, reporting, review and disclosure of regular reports and temporary announcements. Without the written authorization of the Company’s Board of Directors, no directors, supervisors, executives, core technicians or other personnel of the Company shall release or disclose on behalf of the Company or the Board of Directors in any form any information that the Company has not disclosed to shareholders or media.

(II) The establishment of communication channels for investors

The Administrative Regulations on Investor Relations (as Revised in June 2022) (hereinafter referred to as the “Administrative Regulations on Investor Relations”) were reviewed and adopted at the 16^th^ meeting., which clearly stipulate the purpose, principles, objects and contents of investor relations management, the management department in charge of investor relations and its responsibilities as well as investor relations activities. The Chairman of the Company is the first responsible person for investor relations management, and the Board Secretary of the Company is the person in charge of specific investor relations management affairs of the Company. The Board Office of the Company and other relevant functional departments are the specific departments for investor relations management, responsible for organizing and coordinating the daily affairs of the Company’s investor relations management. As prescribed by the “Administrative Rules on Investor Relations”, the Company can communicate with investors through multiple channels at multiple levels. The communication means should be as convenient and effective as possible, to facilitate the participation by investors. The forms of activities include without limitation the following: Announcements, including regular and interim reports; general meetings; website and e-mail box of the Company; analysts’ meetings, performance briefings 1-1-453


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and roadshows; one-to-one communications; field visits and discussions; telephone consultations, etc. In the event that any major matter of the Company is highly concerned or questioned by the market, in addition to performing the information disclosure obligation in a timely manner in accordance with the listing rules, a briefing shall also be held on site, online or by other means, to introduce the situation, explain the reason and answer relevant questions. The Chairman, General Manager, Board Secretary, Financial Head and other responsible persons of the Company shall attend the briefing.

(III) Plan for investor relations management in the future

To strengthen information communication between the Company and the investors, and ensure better services for investors, the Company will observe the “Company Law”, “Securities Law”, “Administrative Measures for Information Disclosure of Listed Companies”, “Guidelines for the Administrative Work on Relations between Listed Companies and Investors”, “Listing Rules of the Science and Technology Innovation Board, Shanghai Stock Exchange” and other laws and regulations as well as the “Articles of Association (Draft)” and “Administrative Rules on Investor Relations” that will be applicable after the listing, to effectively carry out the construction, management and maintenance of investor relations, build a platform between the investors and the Company for smooth communication, and ensure the investors can obtain public information of the Company in a fair and timely manner. The Company will establish a two-way communication channel and an effective mechanism between the Company and the investors through information disclosure and exchange, promote benign relations between the Company and the investors, earnestly safeguard the interests of all shareholders, especially small and medium shareholders, and strive to maximize the value of the Company and the interests of shareholders.

II. Dividend distribution policy of the Issuer

(I) Dividend distribution policy after this Offering

In accordance with the “Articles of Association (Draft)” reviewed and adopted at the extraordinary general meeting of the Company in 2021and the “Dividend Return Plan for the Next Three Years After Listing” reviewed and adopted at the 2^nd^ extraordinary general meeting of the Company in 2021, the dividend distribution policy of the Company after this Offering is as follows:

1. Principle for the formulation of the dividend return plan

The dividend return plan of the Company is based on the actual situation of the Company, as well as information obtained through multiple channels and the full consideration of opinions of shareholders (especially small and medium shareholders), independent directors and supervisors, and a continuous and stable profits distribution policy will be implemented.

2. Form of profits distribution

The Company’s dividends are mainly distributed in the following three forms: cash, shares, and the combination of cash and shares. The Company will give priority to the distribution in cash. Based its cash flow status, business growth, net asset size per share and other reasonable factors, the Company can distribute dividends by shares or by the combination of cash and shares.

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The Company usually pay dividends annually, and the Board of Directors can also propose mid-term cash dividends based on the Company’s need for capital.

4. Conditions and proportions of cash dividends

When the Company makes profits in the current year, after withdrawing the statutory reserve fund and surplus reserve fund according to law, in the absence of major investment plans or major cash expenditures, the annual cash dividends shall be no less than 10% of the distributable profits made in the current year.

A major investment plans or major cash expenditure refers to the Company’s planned external investment, assets acquisition, fixed assets investment or R&D expenditure in the next twelve months that reaches or exceeds 5% of the Company’s audited net assets in the last period, excluding investment projects with offering proceeds.

The Board of Directors of the Company shall comprehensively consider the characteristics of the Company’s industry, development stage, its own business model, profitability, whether there are any major capital expenditure arrangements and other factors, distinguish the following situations, and propose differentiated cash dividend policies in accordance with the procedures prescribed by the articles of association of the Company:

(1) If the Company is at the mature stage of its development and there is no major capital expenditure arrangement, in the profits distribution, the proportion of cash dividends shall be at least 80%;

(2) if the Company is at the mature stage of its development and there are major capital expenditure arrangements, in the profits distribution, the proportion of cash dividends shall be at least 40%;

(3) if the Company is at the growth stage of its development and there are major capital expenditure arrangements, in the profits distribution, the proportion of cash dividends shall be at least 20%.

If it is not easy to determine the development stage of the Company while there are major capital expenditure arrangements, it may be executed by reference to the preceding paragraph. If the Company is at the growth stage of its development and there are no major capital expenditure arrangements, in the profits distribution, the proportion of cash dividends shall be at least 20%. With the continuous development of the Company, if the Board of Directors of the Company considers the Company is at the mature stage of its development, the Board of Directors shall submit the procedures adjusted according to the profits distribution policy prescribed under the articles of association of the Company by the Board of Directors to the general meeting for resolution according to whether the Company has any major capital expenditure arrangement plan, to increase the minimum proportion of cash dividends in the profits distribution.

5. Stock dividends

As long as cash dividends have been distributed in full, in consideration of the wishes and requirements of shareholders, the Company may distribute additional stock dividends and increase capital reserves. The specific plan should to be reviewed by the Board of Directors of the Company and submitted to the general meeting of the Company for approval. The Company shall meet the following conditions for distributing stock dividends:

(1) The Company’s business is in good conditions;

(2) the Company’s stock price does not match the size of its share capital, and the distribution of stock dividends is conducive to the overall interests of all shareholders of the Company; 1-1-455


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(3) the proportion of cash dividends distributed to stock dividends complies with the articles of association of the Company;

(4) other conditions prescribed by laws, administrative regulations, departmental rules and normative documents.

6. Usage of undistributed profits

The Company will use the undistributed profits in a prudent and reasonable manner. The undistributed profits are mainly used for investments to other parties, assets acquisition, purchase of equipment and other major investments and cash expenditures, to gradually expand the production and operation size of the Company, promote its rapid business development and continued operating performance growth, and achieve its future development objectives in a planned and step-by-step manner, for more returns provided to its shareholders.

7. Decision-making procedures and mechanism for profits distribution plans

The Board of Directors of the Company shall formulate the Company’s annual or semi-annual profit distribution preplan in accordance with the Company’s profits distribution plan and program as well as the Company’s current production and operation status, cash flow status, future business development plans, fund demands, recovery of losses for previous years and other factors in order to realize reasonable returns for shareholders through carefully studying and demonstrating the timing, conditions and minimum proportion of the cash dividends, adjustment conditions and decision-making procedures, etc., which shall be adopted upon voting by more than half of the voting rights held by those attending the board meeting. Independent directors shall express their independent opinions on the profits distribution preplan.

The profits distribution plan shall be submitted by the Board of Directors to the general meeting for approval upon the foregoing review procedures. The profits distribution plan shall be approved by more than half of the voting rights held by those attending the general meeting (including representatives of shareholders). Before the general meeting considers the specific plan of cash dividends, the Company shall actively communicate with shareholders, especially small and medium shareholders, via various channels, fully listen to opinions and appeals of small and medium shareholders, and respond to questions concerned by the small and medium shareholders in time.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

8. Adjustment to the profits distribution policy

In the event that the Company does need to adjust its profits distribution policy according to its needs for production and operation, investment plans, long-term development, etc., the adjusted profits distribution policy shall not violate any regulations of the securities regulatory authority, and for the proposal to adjust the profits distribution policy, the opinions of independent directors and the Board of Supervisors shall be sought in advance, and the proposal shall be submitted to the Board of Directors for review and then to the general meeting of the Company for approval. The proposal shall be adopted by more than two thirds of the voting rights held by those attending the general meeting (including representatives of shareholders). The general meeting will provide public shareholders with the channel for online voting.

(II) Differences in dividend distribution policies before and after the Offering

In accordance with relevant laws and regulations issued by the China Securities Regulatory Commission, the Shanghai Stock Exchange and other regulatory agencies, the Company has formulated the “Articles of Association (Draft)” that will be applicable after this Offering and listing, which has been reviewed and adopted by the annual general meeting in 2021 of the Company. The Company’s dividend distribution policy after this Offering has been further improved and detailed based on the current “Articles of Association”, where the principle of profits distribution, the form of profits distribution, the conditions and proportions of profits distribution and other contents are added.

III. Distribution policy for rolled-over profits before this Offering

According to the “Proposal on the Distribution Plan for the Rolled-over Profits Before IPO of the Company” reviewed and adopted at the Company’s 2^nd^ extraordinary general meeting in 2021, the Company’s rolled-over profits before its IPO shall be shared amongst new and existing shareholders according to their shareholding ratios after the listing.

IV. shareholder voting mechanism of the Issuer

(I) Cumulative voting system

In accordance with the “Articles of Association (Draft)” reviewed and adopted by the Company’s annual general meeting in 2021 that will be applicable after this Offering and listing, the general meeting shall actively implement the cumulative voting system in the election of directors and supervisors. The cumulative voting system means that for the selection of directors or supervisors at a general meeting, each share has the same voting right as the number of directors or supervisors to be elected, and the voting rights owned by the shareholders can be used collectively.

(II) Separate vote counting system for small and medium investors

In accordance with the “Articles of Association (Draft)” reviewed and adopted by the Company’s annual general meeting in 2021 that will be applicable after this Offering and listing, when the general meeting reviews major matters that affect the interests of small and medium investors, the votes of small and medium investors shall be counted separately. The result of the separate vote counting shall be disclosed publicly in a timely manner.

(III) Online voting for the general meetings


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

voting or other methods to facilitate the participation by its shareholders in general meetings. Where the shareholders vote on line, it shall comply with relevant regulations of the China Securities Regulatory Commission, the Shanghai Stock Exchange, the China Securities Depository and Clearing Co., Ltd and other agencies as well as these articles of association. A shareholder who participates by the foregoing means shall be deemed as present at the meeting.

The starting time of voting online or by other means for the general meeting shall be no earlier than 3:00 pm of the day before the on-site general meeting, and no later than 9:30 am of the day when the on-site general meeting is held; the ending time shall be no earlier than 3:00 pm of the day when the on-site general meeting ends.

The same voting right can be exercised only in one way, that is, on site, on line or another method. In the event of any repeated vote for the same voting right, the result of the first vote shall prevail.

The ending time of the on-site general meeting shall be no earlier than the ending time on line or by other means. The chairperson of the meeting shall announce the voting status and result of each proposal, and announce whether the proposal is adopted or not based on the voting result.

Before the official announcement of the voting result, the companies, vote counters, scrutineers, major shareholders, network service providers and other relevant parties involved in the on-site voting, online voting and voting by other means shall assume the obligation to keep confidential the voting status.

(IV) Solicitation of voting rights

In accordance with the “Articles of Association (Draft)” reviewed and adopted by the Company’s annual general meeting in 2021 that will be applicable after this Offering and listing, the Board of Directors and independent directors shareholders with more than 1% of the voting rights or investor protection institutions established in accordance with laws, administrative regulations or rules of the China Securities Regulatory Commission can solicit shareholders’ voting rights. For the solicitation of shareholders’ voting rights, the specific voting intention and other information shall be fully disclosed to the solicited persons. No solicitation of shareholders’ voting rights in a paid or disguised form of compensation is allowed. Unless under statutory conditions, The Company shall not impose a minimum shareholding ratio for the solicitation of voting rights.

V. Important commitments made by all parties concerned in this Offering as well as their fulfillment

As of the signing date of this Prospectus, all parties concerned in this Offering have made the following important commitments:

(I) Commitment concerning the sales restriction arrangement for the shares held before this Offering, voluntary lock-up of shares, and extension of the lock-up period

1. AXT, controlling shareholder of the Company, hereby makes the following commitments:

(2) If the closing price of the Issuer’s shares is lower than the issue price of the Issuer’s shares upon this Offering and listing (hereinafter referred to as the “Issuer’s Issue Price”) for 20 consecutive trading days six 1-1-458


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months after the Issuer’s listing, or the closing price at the end of the next 6 months after the listing is lower than the Issuer’s Issue Price, the lock-up period for the shares held by this company in the Issuer will be automatically extended for 6 months. If the Issuer has experienced dividend payout, allotment, conversion of capital reserves into share capital, offering of additional shares and other ex-rights and ex-dividend matters, the foregoing issue price shall refer to the price upon the adjustment to the Issuer’s shares.

(3) If the Issuer commits any gross violation of law as set forth in Section 2, Chapter 12 of the “Listing Rules of the Science and Technology Innovation Board, Shanghai Stock Exchange”, which meets the delisting standard, this enterprise will not reduce the shares of the Issuer as of the date when the relevant administrative penalty decision or judicial ruling is made to the date when the Issuer’s shares are delisted.

(4) If this company reduces the Pre-IPO Shares it holds upon the expiration of the lock-up period, it will strictly abide by laws, administrative regulations, departmental rules, normative documents and relevant rules of the Shanghai Stock Exchange, and perform the corresponding information disclosure obligation.

(5) This company will report to the Issuer the Issuer’s shares held by this company and any change thereto in a timely manner.

(6) In the event that this company violates the foregoing commitment to reduce the shares it holds in the Issuer, the actual proceeds (if any) obtained from the sale of that part of the Issuer’s shares shall be vested in the Issuer.

2. Commitments made by the Company’s shareholders Jinchao Business Management, Beijing Bomeilian, Zhongke Hengye, Beijing Dingmei, Beijing Liaoyan, Boyu Yingchuang and Boyu Hengye:

(1) This company will not transfer any shares directly and indirectly held by this company that have been issued by the Issuer before this Offering and listing (hereinafter referred to as “Pre-IPO Shares”) or entrust any other person with the management of such shares within 36 months as of date when they start holding the Issuer’s shares directly (which is the day when the procedures for the change to the industrial and commercial registration are gone through, i.e. December 29, 2020), or propose the repurchase of such shares by the Issuer.

(2) This company will not transfer any Pre-IPO Shares or entrust any other person with the management of such shares within 12 months as of the Issuer’s listing, or propose the repurchase of such shares by the Issuer.

(3) If this company reduces the Pre-IPO Shares it holds upon the expiration of the lock-up period, they will strictly abide by laws, administrative regulations, departmental rules, normative documents and relevant rules of the Shanghai Stock Exchange, and perform the corresponding information disclosure obligation.

(4) In the event that this company violates the foregoing commitment to reduce the shares it holds in the Issuer, the actual proceeds (if any) obtained from the sale of that part of the Issuer’s shares shall be vested in the Issuer, and all losses and legal consequences arising therefrom shall be assumed by this company.

3. The Company’s shareholders Haitong New Driving Force, Haitong New Energy, Haitong Innovation, Anxin Industrial Investment, Jinggangshan Meicheng, Huadeng II, Qingdao Xinxing, Qiji Hangzhou, Gongqingcheng Yihua, Shangrong Baoying, Xiamen Heyong, Hangzhou Jingyue, Lumentime Semiconductor and Liaoning Zhuomei hereby make the following commitments: 1-1-459


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4. Directors WANG Yuxin and HAO Ze hereby make the following commitments:

(1) I will not transfer any shares of the Issuer directly held by me or indirectly held via the controlling shareholders AXT and Beijing Liaoyan Technology Development Center (Limited Partnership) before this Offering and listing or entrust any other person with the management of such shares within 12 months as of the Issuer’s listing, or propose the repurchase of such shares by the Issuer.

(2) If the Issuer commits any gross violation of law as set forth in Section 2, Chapter 12 of the “Listing Rules of the Science and Technology Innovation Board, Shanghai Stock Exchange”, which meets the delisting standard, I will not reduce the shares of the Issuer as of the date when the relevant administrative penalty decision or judicial ruling is made to the date when the Issuer’s shares are delisted.

(3) Upon the expiration of the foregoing share lock-up period, when I act as a director and executive of the Issuer, the Issuer’s shares that I transfer each year will not exceed 25% of the total Issuer’s shares held by me; if I leave the Company due to any reason, the Issuer’s shares held by me will not be transferred within half a year after the employment separation. If I leave the Company before the expiration of my term of office, I will continue to abide by the foregoing shareholding reduction requirement within the term of office determined when I take office and within 6 months upon the expiration of the term of office.

(4) I will strictly abide by laws, administrative regulations, department rules and normative documents regarding the shareholding and share changes of directors and executives, and will truthfully and timely report to the Issuer the shares held by me as well as any change thereto; I will not refuse to fulfill the foregoing commitment due to title change, employment separation or any other reason.

(4) In the event that I violate the foregoing commitment to reduce the shares they hold in the Issuer, the actual proceeds (if any) obtained from the sale of that part of the Issuer’s shares shall be vested in the Issuer, and all losses and legal consequences arising therefrom shall be assumed by me.

5. Directors GUO Tao hereby makes the following commitments: 1-1-460


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(1) I will not transfer any shares of the Issuer directly held by me or indirectly held via the controlling shareholders AXT and Nanjing Jinchao Enterprise Management Partnership (Limited Partnership) before this Offering and listing or entrust any other person with the management of such shares within 12 months as of the Issuer’s listing, or propose the repurchase of such shares by the Issuer.

(5) In the event that I violate the foregoing commitment to reduce the shares they hold in the Issuer, the actual proceeds (if any) obtained from the sale of that part of the Issuer’s shares shall be vested in the Issuer, and all losses and legal consequences arising therefrom shall be assumed by me.

6. MORRIS SHEN-SHIH YOUNG and VINCENT WENSEN LIU hereby make the following commitments:

(1) I will not transfer any shares of the Issuer directly held by me or indirectly held via the controlling shareholders AXT before this Offering and listing or entrust any other person with the management of such shares within 12 months as of the Issuer’s listing, or propose the repurchase of such shares by the Issuer.

(4) As a core technical staffer of the Issuer, within 4 years as of the expiration of the sales restriction period of the Pre-IPO Shares held by me, the Pre-IPO shares transferred each year shall not exceed 25% of the total Pre-IPO Shares of the Issuer held by me at the time of listing, and the reduction proportion may be used in a cumulative 1-1-461


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manner. Within 6 months upon my employment separation, I will not transfer any Pre-IPO Shares that I hold or entrust any other person with the management of such shares, or propose the repurchase of such shares by the Issuer.

(5) I will strictly abide by laws, administrative regulations, department rules and normative documents regarding the shareholding and share changes of directors, executives and core personnel, perform the obligations as a director, executive and core technical staffer in a standardized and truthful manner, and will truthfully and timely report to the Issuer the shares held by me as well as any change thereto; I will not refuse to fulfill the foregoing commitment due to title change, employment separation or any other reason.

(6) In the event that I violate the foregoing commitment to reduce the shares they hold in the Issuer, the actual proceeds (if any) obtained from the sale of that part of the Issuer’s shares shall be vested in the Issuer, and all losses and legal consequences arising therefrom shall be assumed by me.

7. Deputy General Manager and Board Secretary SONG Jing and the Supervisor hereby make the following commitments:

8. Core technicians WANG Yuanli and REN Diansheng hereby make the following commitments:

(1) I will not transfer any shares of the Issuer directly held by me or indirectly held via Beijing Liaoyan Technology Development Center (LP). before this Offering and listing or entrust any other person with the management of such shares within 12 months as of the Issuer’s listing and within 6 months as of my employment 1-1-462


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separation, or propose the repurchase of such shares by the Issuer. In the event that I leave the Company before the expiration of the foregoing lock-up period, I will still observe the foregoing share lock-up commitment.

(2) Within 4 years as of the expiration of the sales restriction period of the Pre-IPO Shares held by me, the Pre-IPO shares transferred each year shall not exceed 25% of the total Pre-IPO Shares of the Issuer held by me at the time of listing, and the reduction proportion may be used in a cumulative manner.

(3) When acting as a core technician of the Issuer, I will strictly abide by laws, administrative regulations, department rules and normative documents regarding the shareholding and share changes of core technicians. I hereby agree to indemnify and hold harmless the Issuer and the companies under the Issuer’s control against any losses arising from my breach of the foregoing commitment.

(4) In the event of any changes to any laws, administrative regulations, department rules and normative documents as well as requirements of securities regulatory agencies regarding share lock-up and shareholding reduction, I will be willing to be governed by the changed laws, administrative regulations, department rules and normative documents as well as requirements of securities regulatory agencies.

(II) Commitments on shareholdings and intention to reduce shareholdings of shareholders

1. Commitments of the controlling shareholder AXT

(1) Upon the expiration of the lock-up period for holding shares in the Company, this company will decide whether to reduce its holding and the number of shares to be reduced as needed based on conditions of the secondary market.

(2) In the event that this company intends to reduce its holding of the Company’s shares issued before this Offering and listing (hereinafter referred to as “Pre-IPO Shares”), this company will strictly abide by regulations of the China Securities Regulatory Commission and the Shanghai Stock Exchange on shareholders’ reduction, formulate a share reduction plan prudently, and specify and disclose the Company’s control arrangement in advance, to ensure the continuous and stable operation of the Company. In the event that this company intends to reduce the shares held in the Company within two years upon the expiration of the share lock-up period of the Company, the price of reduction will not be lower than the issue price of the Company’s IPO (If the Company experiences dividend payout, allotment, conversion of capital reserves into share capital, offering of additional shares and other ex-rights and ex-dividend matters after this Offering and listing, the price of reduction shall be adjusted as prescribed by regulatory rules), which will be announced via the Company within three trading days before the reduction or within the time limit required by relevant laws and regulations.

(3) In the event that the Company reduces the Pre-IPO Shares of the Company upon the expiration of the lock-up period, the reduction manner and procedures will strictly comply with the “Company Law of the People’s Republic of China”, “Securities Law of the People’s Republic of China” and other applicable laws, administrative regulations, department rules, normative documents and relevant regulatory rules on share reduction and information disclosure.

2. Commitments of Beijing Bomeilian and Zhongke Hengye 1-1-463


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Shareholders holding more than 5% of the Company’s shares as well as their concerted parties Beijing Bomeilian and Zhongke Hengye hereby makes the following commitments:

(2) In the event that this company intends to reduce its holding of the Company’s shares issued before this Offering and listing (hereinafter referred to as “Pre-IPO Shares”), this company will strictly abide by regulations of the China Securities Regulatory Commission and the Shanghai Stock Exchange on shareholders’ reduction, and formulate a share reduction plan prudently. In the event that this company intends to reduce the shares held in the Company within two years upon the expiration of the share lock-up period of the Company, the price of reduction will not be lower than the issue price of the Company’s IPO (If the Company experiences dividend payout, allotment, conversion of capital reserves into share capital, offering of additional shares and other ex-rights and ex-dividend matters after this Offering and listing, the price of reduction shall be adjusted as prescribed by regulatory rules), which will be announced via the Company within three trading days before the reduction or within the time limit required by relevant laws and regulations.

(III) Commitment on the preplan for stabilizing the stock price restraint measures within three years after the Company’s listing

1. The Issuer’s preplan for stabilizing the stock price

As reviewed and adopted by the Company’s 2nd extraordinary general meeting in 2021, the Company formulated the “Proposal for the Company’s IPO and Stabilization of the Stock Price within Three Years after Listing on the Science and Technology Innovation Board”, and the Company, as well as its controlling shareholder, directors that receive compensations and/or allowances from the Company (excluding independent directors) and executives hereby promise that they will strictly observe the preplan for stabilizing the stock price of the Company:

(1) Conditions for the launch and termination of stock price stabilization measures

1) Launch conditions: In the event that the closing price of the Company’s shares is lower than the audited net asset value per share of the previous fiscal year for 20 consecutive trading days within three years after its IPO on the Science and Technology Innovation Board (net asset value per share = total number of common shareholders’ equity attributable to Beijing Tongmei in the consolidated financial statement/total number of year-end shares of the Company), if the Issuer has experienced dividend payout, allotment, conversion of capital reserves into share capital, offering of additional shares and other ex-rights and ex-dividend matters, leading to changes to the net assets or the total number of shares of the Company, the relevant calculating comparison method shall be subject to adjustment in accordance with relevant provisions of the securities exchange or other applicable regulations (hereinafter the same), and the Company will take one or more than one of the following 1-1-464


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measures to stabilize its stock price: A: The Company repurchases its shares; B: the controlling shareholder increases its shareholding; C: directors and executives increase their shareholding.

2) Termination conditions: During the implementation of the following specific measures to stabilize the stock prices, if the closing price of the Company’s shares is higher than the audited net asset value per share of the previous fiscal year for 20 consecutive trading days, or if the Company’s shares are purchased or the shareholding is increased, the Company’s equity distribution will fail to meet the listing conditions, the implementation of the measures to stabilize the stock price will be terminated.

(2) Specific measures to stabilize the stock prices

1) The Company’s measures to stabilize the stock price

When the foregoing launch conditions for the foregoing stock price stabilization measures are triggered, as long as the equity distribution of the Company meets the listing conditions and the normal production and operation of the Company is not affected, the Company shall repurchase the shares from public shareholders after fulfilling relevant statutory procedures in time in accordance with the “Company Law of the People’s Republic of China”, the “Administrative Measures for the Repurchase of Public Shares by Listed Companies (Trial)” and the “Supplementary Provisions on the Purchase of Shares by Listed Companies through Centralized Bidding Transactions” as well as other laws, administrative regulations, department rules, normative documents, relevant provisions of the stock exchange, articles of association of the Company and internal governance rules of the Company.

The Company shall convene a board meeting within 10 trading days after triggering the stock price stabilization measures, to review the Company’s shares repurchase proposal. The proposal shall be adopted by a majority vote of all directors of the Company, and the resolution of the Board of Directors, relevant proposals and the notice of convening the general meeting shall be announced within 2 trading days after the resolution is made by the Board of Directors. The proposal for shares repurchase shall include the price or price range of the shares to be repurchased, the number of shares, the term of repurchase and other information that shall be included as prescribed by the then current laws, administrative regulations, department rules, normative documents and relevant provisions of the stock exchange. The resolution on the shares repurchase shall be discussed at the general meeting, and shall be adopted with more than two-thirds of the voting rights held by the shareholders present at the general meeting. The controlling shareholder of the Company promises that it will vote in favor of such repurchase at the general meeting. The Company shall start the implementation of the stock price stabilization plan within 5 trading days upon the adoption of such plan at the general meeting. The repurchased shares will be cancelled according to law, and the Company’s capital reduction procedures will be gone through in time.

In the event that the Company adopts the shares repurchase proposal for stabilizing the stock price, the quantity and amount of the repurchased shares of the Company shall meet the following conditions:

① The amount of the fund used for shares repurchase for a single time shall be no less than 10% of the audited net profits attributable to shareholders of the Company in the previous fiscal year, yet no higher than 20% the audited net profits attributable to shareholders of the Company in the previous fiscal year;

② The total amount of repurchase fund used to stabilize the stock price in the same fiscal year shall not exceed 50% of the audited net profits attributable shareholders of the Company in the previous fiscal year. 1-1-465


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In the event that the foregoing standard is exceeded, the measures to stabilize the stock price will no longer be implemented in that year. However, the Company will continue to implement the stock price stabilization plan based on the foregoing principles under any circumstance where the stock price stabilization measures should be launched in the next year.

2) Measures of the controlling shareholder to stabilize the stock price

In the event that after the Company launches the measures to stabilize the stock price, the closing price of the Company’s shares is lower than the Company’s audited net assets per share in the previous fiscal year for 20 consecutive trading days upon the expiration of the implementation period of the Company’s shares repurchase plan, or the Company’s shares repurchase measures to stabilize the stock price cannot be implemented, the controlling shareholder of the Company shall launch a plan to increase the shareholding in the Company through bidding transaction via the secondary market:

① The controlling shareholder of the Company shall meet the conditions and requirements under the “Administrative Measures for the Acquisition of Listed Companies”, the “Listing Rules of the Shanghai Stock Exchange Science and Technology Innovation Board” and other laws, administrative regulations, department rules, normative documents and relevant provisions of the stock exchange, and shall make the commitment that it will vote in favor of the Company’s stock price stabilization plan at the general meeting with all its voting rights.

② The controlling shareholder shall inform the Company in writing of its specific plan to increase the shareholding of the Company within 10 trading days as of the date when the stock price stabilization measures are triggered, which shall be announced by the Company. The controlling shareholder shall launch the implementation of the specific plan to stabilize the stock price within 5 trading days after the announcement of the stabilization plan.

③ Where the controlling shareholder of the Company increases the shareholding in the Company to stabilize the stock price, the quantity and amount of the increased shares held in the Company shall meet the following conditions:

A. The accumulated capital amount of the controlling shareholder for increasing the shares in the Company in consecutive 12 months shall be no less than 30% of the after-tax cash dividends of the Company it gains in the previous year, and shall not exceed the total after-tax cash dividends of the Company it gains in the previous year;

B. The cumulative increase of shareholding within 12 consecutive months shall not exceed 2% of the total number of shares of the Company. In the event of any conflict between this paragraph and paragraph a, this paragraph shall prevail.

In the event that the foregoing standards are exceeded, relevant measures to stabilize the stock price will be no longer implemented in that year. However, if the stock price stabilization measures continue to be launched in the following year, the stock price stabilization plan will continue to be implemented based on the above principles.

3) Measures of directors and executives to stabilize the stock price

In the event that after the Company launches the measures to stabilize the stock price, the closing price of the Company’s shares is lower than the Company’s audited net assets per share in the previous fiscal year for 20 consecutive trading days upon the expiration of the implementation period of the shareholding increase plan of the controlling shareholder, or the measures to stabilize the stock price of the shareholding increased by the 1-1-466


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controlling shareholder cannot be implemented, directors and executives of the Company shall launch a plan to increase the shareholding in the Company through bidding transaction via the secondary market:

1-1-467


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①. Directors and executives of the Company shall meet the conditions and requirements under the “Administrative Measures for the Acquisition of Listed Companies”, the “Administrative Rules on Shares Held by Directors, Supervisors and Executives of a Listed Company and Changes Thereto” and other laws, administrative regulations, department rules, normative documents and relevant provisions of the stock exchange, and shall make the commitment that it will vote in favor of the Company’s stock price stabilization plan at the board meeting as directors (if they are).

② The foregoing directors and executives obliged to increase the shareholding shall inform the Company in writing of its specific plan to increase the shareholding of the Company within 10 trading days as of the date when the stock price stabilization measures are triggered, which shall be announced by the Company. Such directors and executives shall launch the implementation of the specific plan to stabilize the stock price within 5 trading days after the announcement of the stabilization plan.

③ Except for force majeure, if the foregoing directors and executives obligated to increase the shareholding increase their shareholding in the Company for stabilizing the stock price, the number and amount of the increased shareholding in the Company shall meet the following conditions:

Within one fiscal year after the conditions for the launch of the foregoing stock price stabilization measures, the amount of the funds for the directors and executives to increase the shareholding in the Company shall be no less than 10% of the total amount of the after-tax cash dividends (if any), remunerations and allowances they receive from the Company in the previous year, yet no more than 30%.

④ During the validity period of the “Preplan for Stabilizing the Stock Price”, newly appointed directors and executives who meet the foregoing conditions shall abide by the obligations and responsibilities of the Company’s directors and executives under the “Preplan for Stabilizing the Stock Price”. The Company, as well as its controlling shareholders, existing directors and executives shall urge the newly appointed directors and executives to abide by the “Preplan for Stabilizing the Stock Price”, and sign relevant commitments before written nomination.

4) Other measures to stabilize the stock price

① As long as laws, administrative regulations, department rules, normative documents and relevant provisions of the stock exchange are observed and the Company’s need for operating capital is met, the Company may implement profits distribution or conversion of capital reserves into share capital upon the approval at the board meeting and the general meeting to stabilize the stock price of the Company.

② As long as laws, administrative regulations, department rules, normative documents and relevant provisions of the stock exchange are observed, the Company may enhance its performance and stabilize its stock price by cutting costs, limiting remunerations for executives, suspending the equity incentive plan and other means.

③ Other measures to stabilize the stock price required by laws, administrative regulations, department rules and normative documents and recognized by the China Securities Regulatory Commission and the stock exchange. 1-1-468


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2. Restraint measures

(1) Restraint measures in the event that the Company fails to fulfill its commitment to stabilize the stock price

In the event that the Company fails to fulfill or fails to fulfill in time its commitment to stabilize the stock price, it shall explain the specific reason in public at the general meeting and disclose it to the media designated by the China Securities Regulatory Commission. In the event of any losses suffered by investors therefrom due to any reason other than force majeure, the Company shall indemnify the investors according to law and assume corresponding responsibilities as prescribed by laws, administrative regulations and requirements of competent regulatory authorities. If the losses are caused by force majeure, a solution to minimize the losses of the investors shall be found out as soon as possible, which shall be submitted to the general meeting for review, to protect the interests of the investors of the Company to the largest extent.

(2) Restraint measures in the event that the controlling shareholder fails to fulfill its commitment to stabilize the stock price

In the event that the controlling shareholder fails to fulfill or fails to fulfill in time its commitment to stabilize the stock price, it shall explain the specific reason in public at the general meeting and disclose it to the media designated by the China Securities Regulatory Commission. In the event that it is not caused by force majeure, the controlling shareholder shall agree not to receive the profits distributed by the Company attributable to the controlling shareholder before fulfilling the relevant commitment; if the investors suffer any losses therefrom, the controlling shareholder shall indemnify the investors according to law. If the losses are caused by force majeure, a solution to minimize the losses of the investors shall be found out as soon as possible, to protect the interests of the investors of the Company to the largest extent.

(3) Restraint measures in the event that directors and executives fail to fulfill their commitment to stabilize the stock price

In the event that the foregoing directors and executives obliged to increase the shareholding fail to fulfill or fail to fulfill in time its commitment to stabilize the stock price, it shall explain the specific reason in public at the general meeting and disclose it to the media designated by the China Securities Regulatory Commission. In the event that it is not caused by force majeure, the remunerations and/or allowances for such directors and executives shall be reduced or canceled for the time being; if the investors suffer any losses therefrom, the controlling shareholder shall indemnify the investors according to law. If the losses are caused by force majeure, a solution to minimize the losses of the investors shall be found out as soon as possible, to protect the interests of the investors of the Company to the largest extent.

(IV) Commitment to repurchase shares in case of fraudulent offering and listing

The Company and its controlling shareholder hereby make the following commitment:

The Company does not commit fraudulent offering in this Offering and listing.
If the Company does not meet the conditions for offering and listing so that it obtains offering registration fraudulently, and has been issued and listed, the Company and its controlling shareholder will launch the shares repurchase procedures within 5 working days after it is determined by the China Securities Regulatory Commission and other competent authorities for the repurchase of all new shares issued by the Company this 1-1-469


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time. If there is an old share placement, the shareholders who implement the placement will buy back the transferred original restricted shares (if any).

(V) Measures and commitment to make up for diluted immediate returns

1. Commitment of the Company

The Company undertakes to take various actions to prevent the risk of diluted immediate returns. To be specific:

(1) Rapidly enhance the Company’s overall strength and expand its business size

After the Offering and listing of the Company this time, the Company’s total assets will be further increased, its anti-risk capabilities and comprehensive strength will be significantly enhanced, and its market value will be greatly improved. With the help of the capital market and the good development opportunities, the Company will continue to expand the size of its main business, give full play to its advantages in the field of semi-conductor materials, and promote its sustainable, healthy and stable development.

(2) Strengthen internal management and cut operating costs

The Company will actively promote the optimization of its product processes, the improvement of its process flows and the transformation and upgrading of its technical equipment. It will also strengthen its refined management, continue to enhance its production and operation efficiency, and keep reducing its production losses. At the same time, the Company will strengthen its budget management, control its expenditure ratio, and improve its profitability.

(3) Accelerate the implementation of investment projects with offering proceeds, and strengthen the management of offering proceeds

This investment projects with offering proceeds are always carried out around the Company’s main business, which is conducive to the improvement of the Company’s comprehensive competitiveness and profitability. After the funds raised this time are in place, the Company will accelerate the progress of the implementation of the investment project with offering proceeds and realize the expected proceeds as soon as possible. At the same time, the Company will strengthen the management of the offering proceeds and regulate the use of the offering proceeds in accordance with the “Articles of Association (Draft)”, “Rules on the Management of Funds Raised” and other relevant provisions, so as to ensure the offering proceeds can be used to realize the proceeds for the established purpose.

(4) Improve the profits distribution policy and strengthen returns for investors

The Company has, in accordance with requirements under the “Notice on Further Implementation of Matters Concerning Cash Dividends of Listed Companies”, the “Guidelines No. 3 for the Supervision of Listed Companies - Cash Dividends of Listed Companies” and other regulations of the China Securities Regulatory Commission, further refined the provisions on the principle of dividend distribution under the “Articles of Association (Draft)” and formulated the “Dividend Return Plan in the Next Three Years after Listing” based on the actual situation of the Company. The Company will strictly implement the profits distribution policy, actively implement profits distribution to its shareholders, and optimize the investment return mechanism as long as the conditions for distribution are met. 1-1-470


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

2. Commitment of the Company’s controlling shareholder AXT

As the controlling shareholder of the Issuer, the Company hereby makes the following commitment on making up for the diluted immediate return in accordance with relevant laws and regulations as well as relevant provisions of the China Securities Regulatory Commission:

This company will urge the Issuer to take effective measures to make up for diluted immediate returns, and undertakes that the Company or any director nominated by this company will participate in the Issuer’s management activities within the scope of authorization, and make all efforts to maintain the legitimate interests of the Issuer and its shareholders.

3. Commitment of directors and executives of the Company

As a director/executive of the Issuer, I hereby make the following commitment on making up for diluted immediate returns in accordance with relevant laws and regulations as well as relevant provisions of the China Securities Regulatory Commission:

(1) I undertake neither to transfer any interests to other organizations or individuals for free or under unfair terms, nor to harm the interests of the Issuer by any other means.

(2) I undertake to restrain my job-related consumption behaviors.

(3) I undertake not to use the Issuer’s assets to engage in any investment or consumption activities that are not related to the performance of my duties.

(4) I undertake to make all efforts to urge the linkage between the compensation system developed by the Company’s Board of Directors or Compensation and Appraisal Committee and the implementation of the Company’s measures to make up for diluted immediate returns within my own duties and powers.

(5) If the Issuer intends to implement equity incentives, I undertake to make all efforts to urge the linkage between the exercise conditions for the equity incentives to be announced by the Issuer and the implementation of the Company’s measures to make up for diluted immediate returns within my own duties and powers.

(6) I undertake that I will faithfully fulfill my commitment to make up for the return measures. If I violate such commitment and cause any losses to the Issuer or investors, I am willing to bear liabilities according to law.

(VI) Commitment on the profits distribution policy

Refer to “II. (I) Dividend distribution policy after this Offering” under “X. Investor Protection” hereof for details.

1-1-471


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(VII) Commitment that there are no false records, misleading statements or major omissions in the Prospectus

1. Commitment of the Company

(1) There are no false records, misleading statements or major omissions in the Prospectus of the Company and other information disclosure materials for this Offering and listing, and the Company will assume individual and joint legal liabilities for their authenticity, accuracy and completeness.

(2) If there are any false records, misleading statements or major omissions in the Prospectus and other information disclosure materials, so that investors suffer losses in the Offering and trading, the Company will report it to the CSRC, the Shanghai Stock Exchange or other competent authorities, and compensate the investors for their losses according to law.

(3) If the CSRC, the Shanghai Stock Exchange or other competent authorities determine that there are any false records, misleading statements or major omissions in the contents of the Prospectus, which have constituted material and substantial impact on the judgment of whether the Company meets the Offering conditions prescribed by law, the Company undertakes to repurchase all the new shares issued by the Company in the IPO by the following means:

1) To the extent allowed by law, if the above circumstance occurs when the Company’s initially offered shares have been issued yet have not been listed for trading, within 30 working days after the CSRC, Shanghai Stock Exchange or other competent authorities determine the Company has the above circumstance, the Company will repurchase all the new shares initially offered by the Company from online investors that have won the opportunity to invest and offline allotment investors at the issue price plus interests at the then current bank deposits interest rate;

2) To the extent allowed by law, if the above circumstance occurs when the Company’s initially offered shares have been issued and have been listed for trading, within 5 working days after the CSRC, Shanghai Stock Exchange or other competent authorities determine the Company has the above circumstance, the Company will formulate a shares repurchase plan and submit it to the Board of Directors and the general meeting for review and approval, and repurchase all the new shares initially offered by the Company via the trading system of the Shanghai Stock Exchange. The repurchase price will be based on the issue price with reference to relevant market factors. If the Issuer has experienced dividend payout, allotment, conversion of capital reserves into share capital, offering of additional shares and other ex-rights and ex-dividend matters, the foregoing offering price will be adjusted accordingly.

(4) In the event that the Company breaches this commitment and fails to repurchase or compensate investors for their losses in a time, the Company will explain the specific reason in public at the general meeting and disclose it to the media designated by the CSRC; if its shareholders and the general public suffer any losses due to the Company’s failure to fulfill its commitment, the Company will make compensations according to law.

2. Commitment of the Company’s controlling shareholder AXT

(1) There are no false records, misleading statements or major omissions in the Prospectus of the Issuer and other information disclosure materials for this Offering and listing, and the Issuer will assume individual and joint legal liabilities for their authenticity, accuracy and completeness. 1-1-472


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(2) If the CSRC, the Shanghai Stock Exchange or other competent authorities determine that there are any false records, misleading statements or major omissions in the contents of the Prospectus, which have constituted material and substantial impact on the judgment of whether this company meets the Offering conditions prescribed by law, this company undertakes to repurchase the original restricted shares that have been transferred by this company (if any) in accordance with the “Company Law of the People’s Republic of China” and the “Securities Law of the People’s Republic of China”.

(3) If there are any false records, misleading statements or major omissions in the Prospectus and other information disclosure materials, so that investors suffer losses in the Offering and trading, this company will compensate the investors for their losses according to law.

3. Commitment of directors, supervisors and executives of the Company

(2) If there are any false records, misleading statements or major omissions in the Prospectus and other information disclosure materials, so that investors suffer losses in the Offering and trading, I will compensate the investors for their losses according to law.

(3) I am willing to assume all the legal liabilities for any violation against the above commitment. The above commitment will not change due to any change to my position or my employment separation.

4. Commitment of Haitong Securities Co., Ltd., which is the Sponsor and Lead Underwriter of the Company

Haitong Securities undertakes that if the documents formulated and produced by the Company for the Issuer’s IPO contain any false records, misleading statements or major omissions, so that investors suffer any losses, the Company will compensate the investors for their losses according to law.

5. Commitment of King & Wood Mallesons, lawyer of the Company

This firm solemnly undertakes:

If the documents prepared and produced by this firm for Beijing Tongmei’s IPO contain any false records, misleading statements or major omissions, so that the investors suffer any losses, upon the effective judgment of the judicial authority, this firm will compensate the investors according to law for their losses arising from the false records, misleading statements or major omissions contained in documents prepared and produced by this firm.

The qualifications of investors who are entitled to the compensation, the standard of loss calculation, the division of responsibilities between compensation subjects and the reasons for exemption will be implemented in accordance with the “Securities Law” and the “A Number of Provisions of the Supreme People’s Court on the Trial of Civil Claims Cases Caused by False Statements in the Securities Market” “(Fa Shi [2003] No. 2) and other relevant laws and regulations, subject to any amendments to such laws and regulations.

This firm will strictly perform the liabilities determined under valid judicial documents and accept social supervision, to ensure the legitimate rights and interests of investors are effectively protected. 1-1-473


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

6. Commitment of the Company’s audit firm Ernst & Young Huaming Certified Public Accountants (Special General Partnership)

“If the documents below prepared and issued by this agency for the initial public offering and STAR Market listing of shares (A shares) of Beijing Tongmei Xtal Technology Co., Ltd. contain mischaracterization, misleading statements, or material omissions, resulting in losses to investors, this agency is responsible for compensating investors for such losses in accordance with law”.

7. Commitment of the Company’s asset appraisal firm Beijing Sinotop Appraisal Group Limited

“The documents prepared and issued by the Company for the Issuer are free from mischaracterization, misleading statements, or material omissions. If the documents prepared and issued by the Company for the Issuer contain mischaracterization, misleading statements, or material omissions, resulting in losses to investors, the Company is responsible for compensating investors for such losses in accordance with law”.

(VIII) Commitment on the failure to fulfill the promised restraint measures

1. Commitment of the Company

(1) The Company guarantees that it will strictly perform all the obligations and responsibilities in all the public commitments disclosed in its Prospectus.

(2) If the Company fails to fulfill any public commitment due to any reason not attributable to force majeure, it shall propose a new commitment (relevant approval procedures shall be gone through in accordance with laws and regulations as well as the Company’s articles of association), and accept the following constraint measures, until the commitment is fulfilled or the corresponding remedial measures are taken:

1) Explain the specific reason at the general meeting and disclose it to the media designated by the CSRC in public;

2) reduce or stop the payment of the remunerations and/or allowances for the directors, supervisors, executives and core technicians that are personally responsible for such unfulfilled commitment;

3) propose a supplementary or alternative commitment to the investors, so as to protect the rights and interests of investors as much as possible, and agree to submit such supplementary or alternative commitment to the general meeting for consideration;

4) compensate the investors for their losses according to law if the breach of the commitment causes the losses to the investors; if such breached commitment can still be fulfilled, the Company will continue to fulfill it.

(3) If the Company fails to fulfill any public commitment due to force majeure, it shall propose a new commitment (relevant approval procedures shall be gone through in accordance with laws and regulations as well as the Company’s articles of association), and accept the following constraint measures, until the commitment is fulfilled or the corresponding remedial measures are taken:

1) Explain the specific reason at the general meeting and disclose it to the media designated by the China Securities Regulatory Commission (hereinafter referred to as “CSRC”) in public; 1-1-474


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

2) find out a solution to minimize the losses of the investors as soon as possible, to protect the interests of the investors to the largest extent.

2. Commitment of the Company’s controlling shareholder

(1) This company guarantees that it will strictly fulfill its obligations and responsibilities in all the public commitments disclosed in the Issuer’s Prospectus.

(2) If this company fails to fully or effectively perform the public commitments due to any reason not attributable to force majeure, this company undertakes to take the following restraint measures as the case may be:

1) This company will explain the specific reason for the failure to fulfill the commitment at the general meeting and disclose it to the media designated by the CSRC in public;

2) if the investor suffers losses in securities transactions due to the Company’s failure to fulfill the public commitments, the Company will compensate the investors for the losses suffered by this according to law; this company will compensate the investors for their losses in the trading of securities according to law if the failure to fulfill the commitment causes the losses to the investors;

3) this company will not accept the dividends or bonus shares distributed by the issue, until this company completely eliminates all the adverse effects caused by its failure to fulfill the relevant commitment;

4) if this company gains any economic benefits due to failure to fulfill the public commitment, such incomes shall belong to the Issuer, and this company shall pay them to the Issuer’s designated account within five working days as of the date when such incomes are gained.

(3) If this company fails to fulfill any public commitment due to force majeure, it shall propose a new commitment (relevant approval procedures shall be gone through in accordance with laws and regulations as well as the Company’s articles of association), and accept the following constraint measures, until the commitment is fulfilled or the corresponding remedial measures are taken:

1) Explain the specific reason at the general meeting and disclose it to the media designated by the CSRC in public;

2) find out a solution to minimize the losses of the investors as soon as possible, to protect the interests of the investors to the largest extent.

3. Commitment of the Company’s directors, supervisors, executives and core technicians

(1) I hereby guarantee that I will strictly fulfill its obligations and responsibilities in all the public commitments disclosed in the Issuer’s Prospectus.

(2) If I fail to fully or effectively perform the public commitments due to any reason not attributable to force majeure, I will undertake to take the following restraint measures as the case may be:

1) I will explain the specific reason for the failure to fulfill the commitment at the general meeting and disclose it to the media designated by the CSRC in public; 1-1-475


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

2) if the investor suffers losses in securities transactions due to the Company’s failure to fulfill the public commitments, I will compensate the investors according to law with all the remuneration and/or allowance (if any) I received from the Issuer in the year when the Issuer was listed, and before I completely eliminate the adverse effects caused by the failure to fulfill the relevant commitment, I will not require the Issuer to increase my compensation or allowance in any manner;

3) I will not accept any dividends or bonus shares distributed by the issue, until I completely eliminate all the adverse effects caused by my failure to fulfill the relevant commitment (if applicable);

4) if I have gained any economic benefits due to failure to fulfill the public commitment, such incomes shall belong to the Issuer, and I will pay them to the Issuer’s designated account within five working days as of the date when such incomes are gained.

(3) If I fail to fulfill any public commitment due to force majeure, I will propose a new commitment (relevant approval procedures shall be gone through in accordance with laws and regulations as well as the Company’s articles of association), and accept the following constraint measures, until the commitment is fulfilled or the corresponding remedial measures are taken:

1) I will explain the specific reason for the failure to fulfill the commitment at the general meeting and disclose it to the media designated by the CSRC in public, and apologize to the shareholders and the public;

2) find out a solution to minimize the losses of the investors as soon as possible, to protect the interests of the investors to the largest extent.

(IX) Other commitments

1. Commitment to avoid peer competition

Refer to “VIII. (II) Commitment to avoid peer competition” in “Section VII: Corporate Governance and Independence” hereof for details.

2. Commitment to regulate and reduce related-party transactions

Refer to “X. (VI) Commitment to regulate related-party transactions” in “Section VII: Corporate Governance and Independence” hereof.

3. Special commitments on disclosure of shareholders’ information

The Issuer hereby makes the following commitments:

(1) The Company has already disclosed shareholders’ information in the Prospectus in an authentic, accurate and complete manner;

(2) in the history of the Company, share-holding entrustment has never happened;

(3) the Issuer’s shares are not held directly or indirectly by any subject that are prohibited from holding shares by laws and regulations; 1-1-476


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(4) except under the circumstances that have been disclosed herein, the intermediary agencies or their responsible persons, executives and handlers for this Offering and listing do not directly or indirectly hold shares of the Issuer;

(5) The Company’s shareholders do not use the Issuer’s equity to convey any improper benefits;

(6) If the Company violates the foregoing commitments, it will assume all legal consequences arising therefrom.

1-1-477


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Section XI Other Important Matters

I. Major contracts

The Company and its subsidiaries are performing and have completed the performance of the following contracts that have significant impact on the operating activities, financial status or future development during the reporting period of the Company:

(I) Procurement contract

Major procurement contracts of the Company refer to major procurement framework agreements of the Company as well as contracts or orders with major suppliers for raw materials and equipment of accumulatively or expectedly over RMB10 million each year during the reporting period. Details are as follows:

Procurement contracts for raw materials

Year	Serial No.	Name of supplier	Content of procurement	Time of execution	Current performance status
2021	1	Xing’an Gallium	Metallic gallium	2020	Fulfilled
		2	Guangxi Tiandong Jinxin Rare Metal Materials Co., Ltd.	Metallic gallium	2021	Fulfilled
		3	Hengyang Hengrong High Purity Semiconductor Material Co., Ltd.	Germanium ingot	2021	Fulfilled
		4	Beijing Kaide Quartz Co., Ltd.	Quartz materials	2021	Fulfilled
		5	China Rare Earth International Trading Co., Ltd.	Metallic gallium	2021	Fulfilled
		6	Nanjing Zhemai Metal Trade Co., Ltd.	Germanium ingot	2021	Fulfilled
		7	Wafer Technology	Indium phosphide polycrystallines	2021	Fulfilled
		8	AMALGAMET CANADA LP	High-purity arsenic	2021	Fulfilled
		9	Pinglu Youying Gallium Industry Co., Ltd.	Metallic gallium	2021	Fulfilled

1-1-478


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

2020	1	AXT	High-purity arsenic, indium phosphide polycrystallines, etc.	2016	Fulfilled
		2	Xing’an Gallium	Metallic gallium	2020	Fulfilled
		3	Guangxi Tiandong Jinxin Rare Metal Materials Co., Ltd.	Metallic gallium	2020	Fulfilled
		4	Beijing Kaide Quartz Co., Ltd.	Quartz materials	2020	Fulfilled
		5	Hengyang Hengrong High Purity Semiconductor Material Co., Ltd.	Germanium ingot	2019	Fulfilled
		6	Yangzhou Ningda Noble Metal Co., Ltd.	Germanium ingot	2020	Fulfilled
		7	Nanjing Zhemai Metal Trade Co., Ltd.	Germanium ingot	2019	Fulfilled
2019	1	AXT	High-purity arsenic, indium phosphide polycrystallines, etc.	2016	Fulfilled
		2	Wafer Technology	Indium phosphide polycrystallines	2019	Fulfilled
	3	Hengyang Hengrong High Purity Semiconductor Material Co., Ltd.	Germanium ingot	2019	Fulfilled
		4	Beijing Kaide Quartz Co., Ltd.	Quartz materials	2019	Fulfilled

1-1-479


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Procurement of equipment

Year	Name of supplier	Content of procurement	Time of execution	Performance status
2019	AXT	Single crystal furnaces and washing machines	2016	Fulfilled

(II) Sales contracts

Major sales contracts of the Company refer to major sales framework agreements as well as sales contracts or orders with major clients of accumulative or expected revenues of over RMB10 million each year during the reporting period. Details are as follows:

Year	Serial No.	Name of client	Main sales contents	Time of signing	Performance status
2021	1	AXT	Gallium arsenide, indium phosphide and germanium substrates	2021	Fulfilled
		2	Landmark Optoelectronics	Gallium arsenide and indium phosphide substrates	2021	<br><br>Fulfilled
		3	Osram	Gallium arsenide and germanium substrates	2021	<br><br>Fulfilled<br><br>
		4	Customer A	Gallium arsenide and indium phosphide substrates	2016	Performing
		5	Institutes subordinated to Customer B	Gallium arsenide and indium phosphide substrates、	2021	<br><br>Fulfilled
		6	Customer C	Gallium arsenide and indium phosphide substrates	2021	<br><br>Fulfilled
		7	Everbright Photonics	Gallium arsenide and indium phosphide substrates	2021	<br><br>Fulfilled
		8	Mo Sangyo Co, LTD.	Gallium arsenide and indium phosphide substrates	2021	Performing
		9	Xinlei Semiconductor Technology (Suzhou) Co., Ltd.	Gallium arsenide and indium phosphide substrates	2021	<br><br>Fulfilled
		10	Kingsoon	Germanium substrates	2021	<br><br>Fulfilled
		11	Visual Photonics Epitaxy	Gallium arsenide and indium phosphide substrates	2021	<br><br>Fulfilled
		12	Jiangsu Bree Optronics Co., Ltd.	High-purity materials	2021	<br><br>Fulfilled
		13	LOUWERSHANIQUE	PBN materials	2020	<br><br>Fulfilled

1-1-480


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Zhongshan Dehua Chip Technology Co., Ltd.	Germanium substrates	2020	<br><br>Fulfilled
15	Yunnan Xinyao Semiconductor Materials Co., Ltd.	PBN materials and high-purity materials	2021	<br><br>Fulfilled
16	Epihouse Optoelectronics Co., Ltd.	InP substrate	2021	Fulfilled
17	Jiangsu Huaxing Laser Technology Co., Ltd.	InP substrate	2021	Fulfilled
18	Daqing Yitai Semiconductor Materials Co., Ltd.	PBN material	2021	Fulfilled
19	IQE	GaAs and InP materials	2021	Fulfilled
20	Grirem Advanced Materials Co.,Ltd.	High-purity material	2021	Fulfilled

1-1-481


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

AXT	Gallium arsenide, indium phosphide and germanium substrates	2020	Fulfilled
2	Customer A	Indium phosphide substrates	2016	Performing
3	Institutes subordinated to Customer B	Gallium arsenide and indium phosphide substrates and germanium substrates	2020	Fulfilled
4	Xinlei Semiconductor Technology (Suzhou) Co., Ltd.	Gallium arsenide and indium phosphide substrates	2020	Fulfilled
5	Everbright Photonics	Gallium arsenide and indium phosphide substrates	2020	Fulfilled
6	ALPHA PLUS	PBN materials	2020	Fulfilled
7	Kingsoon	Gallium arsenide and germanium substrates	2020	Fulfilled
8	SUMIDEN INTERNATIONAL TRADING (SHANGHAI) CO., LTD	PBN materials	2020	Fulfilled
9	Yunnan Xinyao Semiconductor Materials Co., Ltd.	PBN materials and high-purity materials	2020	Fulfilled
10	Zhongshan Dehua Chip Technology Co., Ltd.	Indium phosphide and germanium substrates	2020	<br><br>Fulfilled
11	Jiangsu Bree Optronics Co., Ltd.	High-purity materials	2020	Fulfilled

1-1-482


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

AXT	Gallium arsenide, indium phosphide and germanium substrates	2019	Fulfilled
2	Customer A	Indium phosphide substrates	2016	Performing
3	Kingsoon	Germanium substrates	2018	Fulfilled
4	ALPHA PLUS	PBN materials	2019	Fulfilled
5	Xinlei Semiconductor Technology (Suzhou) Co., Ltd.	Indium phosphide and gallium arsenide substrates	2019	Fulfilled
6	LOUWERSHANIQUE	PBN materials	2019	Fulfilled
7	SUMIDEN INTERNATIONAL TRADING (SHANGHAI) CO., LTD	PBN materials	2019	Fulfilled
8	Everbright Photonics	Gallium arsenide and indium phosphide substrates	2019	Fulfilled
9	Yunnan Xinyao Semiconductor Materials Co., Ltd.	PBN materials and high-purity materials	2019	Fulfilled

1-1-483


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(III) Financing contracts and guarantee contracts

Financing contracts

As of the signing date of this Prospectus, the Company has been performing the following financing contracts:

Serial No.	Lending institution	Borrower	Title of contract	Contractual amount (RMB0'000)	Financing Period
1	Industrial and Commercial Bank of China Limited Beijing Tongzhou Sub-branch	Beijing Boyu	“Working Capital Loan Contract”<br><br>(No.: 2021 (Tongzhou) No. 02856)	1,000	December 16, 2021 - December 15, 2022
2	China Merchants Bank Co., Ltd. Beijing Branch	Beijing Tongmei	Credit Extension Agreement<br><br>(No. 2021 Jiu Xian Qiao Shou Xin 1176)	1,000	December 7, 2021 - December 6, 2022
3	China Merchants Bank Co., Ltd. Beijing Branch	Beijing Tongmei	Credit Extension Agreement<br><br>(No. 2021 Jiu Xian Qiao Shou Xin 1205)	1,000	December 8, 2021 - December 7, 2022
4	Bank of Communications Co, Ltd. Beijing Tongzhou Sub-branch	Beijing Tongmei	Working Capital Loan Contract<br><br>(No.: 29211090)	1,000	November 19, 2021 - November 15, 2022
5	Bank of Communications Co, Ltd. Beijing Tongzhou Sub-branch	Beijing Tongmei	Working Capital Loan Contract<br><br>(No.: 29211074)	2,000	September 24, 2021 - September 23, 2022

1-1-484


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

6	Bank of China Limited Beijing Tongzhou Branch	Beijing Tongmei	Working Capital Loan Contract<br><br>(No. 2022013RS001-001)	2,800	January 30, 2022 - January 30, 2023
7	Bank of Communications Co., Ltd. Beijing Tongzhou Branch	Chaoyang Jinmei	Nonrecourse Factoring Contract<br><br>(No. Z201TD15657614)	1,000	January 28, 2022 – January 24, 2023
8	Bank of Communications Co., Ltd. Beijing Tongzhou Branch	Chaoyang Tongmei	Nonrecourse Factoring Contract<br><br>(No. Z2201TD15655221)	1,000	January 28, 2026 – January 25, 2023
9	Bank of China Limited Beijing Tongzhou Branch	Beijing Tongmei	Working Capital Loan Contract (No. Z2201TD15655221)	1,000	April 12, 2022 to April 11, 2023
10	Bank of Beijing Co., Ltd.	Beijing Tongmei	Borrowing Contract<br><br>(No. 0743920)	2,271	May 26, 2022 to May 25, 2023
11	Industrial Bank Co., Ltd. Beijing Tongzhou Branch	Beijing Tongmei	Working Capital Loan Contract<br><br>(No. Xing Yin Jing Tong (2022) Duan Qi Zi 22206-1)	3,901	June 2, 2022 to June 1, 2023

1-1-485


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Guarantee contracts

As of the signing date of this Prospectus, the Company has fulfilled or is performing the following mortgage and guarantee contracts:

Serial No.	Title and No. of guarantee/mortgage contract	Corresponding financing contract	Guarantor/mortgagor	Contractual amount (RMB0'000)	Debt Period	Form of guarantee
1	Maximum Counter-Guarantee (Real Estate Mortgage) Contract (No.: 2021 DYF1441)	“Working Capital Loan Contract” (No.: 2021 (Tongzhou) No. 02856)	Beijing Zhongguancun Sci-Tech Financing Guaranty Co., Ltd. provides the guarantee, and Boyu (Tianjin) provides the counter-guarantee	1,500	December 16, 2021 - December 15, 2022	Land and housing mortgage
2	Mortgage Contract (No.: 29211074)	Working Capital Loan Contract (No.: 29211074)	Chaoyang Tongmei	11,597	September 24, 2021 -September 23, 2022	Land and housing mortgage
							Working Capital Loan Contract (No.: 29211090)	November 19, 2021 - November 15, 2022
							Nonrecourse Factoring Contract<br><br>(No. Z2201TD15657614)
									January 28, 2022 to January 24, 2023
									January 26, 2022 to January 25, 2023
							Nonrecourse Factoring Contract<br><br>(No. Z2201TD15655221)

1-1-486


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

3	Credit Counter-Guarantee Contract (No.: CGIG2021 Zi 4625 No. 0001)	Credit Extension Agreement (No. 2021 Jiu Xian Qiao Shou Xin 1176)	Beijing Capital Financing Guarantee Co., Ltd. provides the guarantee, and Baoding Tongmei and Chaoyang Tongmei provides the counter-guarantee	1,000	December 7, 2021 - December 6, 2022	Guarantee
4	Credit Counter-Guarantee Contract (No.: CGIG2021 Zi 4625 No. 0002)
5	Maximum Guarantee (No.: 2022013RSD001)	Working Capital Loan Contract (No.: 2022013RS001-001	Baoding Tongmei	5,800	January 30, 2022 to January 30, 2023	Land and real estate mortgage
							Working Capital Loan Contract (No. 2022013RS001-002)
							Domestic Comprehensive Factoring Agreement (No.: 2021DF506)


6	Pledge Contract (No. 0743920001)	Borrowing Contract (No. 0743920)	AXT	2,271	May 26, 2022 to May 25, 2023	Deposit mortgage in foreign currency

(IV) Licensing contracts

In November 2021, AXT signed the “Technology License Agreement” and the “Trademark License Agreement” with the Issuer, and “Cross License and Payment Agreement” with the Company and AXT-Tongmei. Refer to “V. (5) Resource elements shared with others” under the “Section VI Business and Technology” hereof for details of the foregoing agreements.

1-1-487


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

(V) Miscellaneous

In April 2021, Chaoyang Tongmei and Liaoning Zhongda Precision Machinery Co., Ltd. signed the “Contract on the Transfer of Land and Overground Assets (Including Auxiliary Equipment and Facilities)”, where Chaoyang Tongmei shall purchase from Liaoning Zhongda Precision Machinery Co., Ltd. all the land and over-ground assets owned by the Company (including auxiliary equipment and facilities), at a total price of RMB26,723,000.

In December 2021, the Company and Haitong Securities Co., Ltd. signed the “Sponsorship Agreement” and engaged Haitong Securities Co., Ltd. as the Sponsor for the Company’s IPO and listing on the STAR Market.

As of the date of this Prospectus, the engineering contracts of over RMB10 million that the Company is performing include the “Construction Engineering Contract” by and between Chaoyang Tongmei and Chaoyang Liyang Construction Engineering Co., Ltd. and the “Construction Engineering Contract” by and between Chaoyang Xinmei and Chaoyang Liyang Construction Engineering Co., Ltd.

II. External guarantees

During the reporting period, except the counter-guarantee provided by Tianjin Boyu to Beijing Zhongguancun Sci-Tech Financing Guaranty Co., Ltd. and the counter-guarantee provided by Baoding Tongmei and Chaoyang Tongmei to Beijing Capital Financing Guarantee Co., Ltd., the Company does not have any external guarantees. For details of the counter-guarantee provided by the Company and its subsidiaries, refer to “I. (III) 2. Guarantee contracts”, under “XI. Other Important Matters” hereof.

III. Major litigation or arbitration matters

As of the execution date of this Prospectus, the Issuer has no litigation or arbitration matters that may have a significant impact on its financial status, operating result, reputation, business activities and future prospect.

As of the execution date of this Prospectus, the Issuer’s controlling shareholder or controlled subsidiary or the Issuer’s directors, supervisors, executives and core technicians are not involved as a party in any criminal litigation or major litigation or arbitration matters that may have impact on the Issuer.

In the past three years, the Issuer’s directors, supervisors, executives and core technicians have not been involved in any administrative penalties, have not been subject to any investigation by the judicial authority, or have not been subject to any investigation by the CSRC.

IV. Major violations against the law by the controlling shareholder and actual controller of the Issuer during the reporting period

During the reporting period, the Company has no actual controller, and there are no major violations against the law by the Company’s controlling shareholder.

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Section XII Representations

I. Representations by all directors, supervisors and executives of the Issuer

All directors, supervisors and executives of the Company hereby undertake that this Prospectus does not contain any false records, misleading statements or major omissions, and will assume any individual and joint legal liabilities for its authenticity, accuracy and completeness.

	<br><br>
Signatures of all the directors:
	MORRIS<br><br>SHEN-SHIH YOUNG	VINCENT WENSEN LIU	WANG Yuxin

	GUO Tao	WANG Huan	HAO Ze

	ZHAO Lun	PANG Fengzheng	LIU Yanfeng

Signatures of all supervisors:

	TIAN Guichun	LIU Zhiyang	CHANG Xiuxia

Signatures of the non-executive director:

	SONG Jing
		<br><br>Beijing Tongmei Xtal Technology Co., Ltd.

		July 29, 2022

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

II. Representation of the Issuer’s controlling shareholder

The company hereby undertakes that there are no false records, misleading statements or major omissions in this Prospectus, and will assume any individual and joint legal liabilities for its authenticity, accuracy, and completeness.

AXT, Inc.

Signature of the authorized representative:
		MORRIS SHEN-SHIH YOUNG

AXT, Inc.

July 29, 2022

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

III. Representation of the Sponsor (Lead Underwriter) (I)

This company has checked the Prospectus and confirmed that there are no false records, misleading statements or major omissions, and will assume any individual and joint legal liabilities for its authenticity, accuracy, and completeness.


Signature of the project Co-Sponsor:
		XI Hua
Signature of the Sponsor’s representative:
		ZHONG Zhuke		WU Ting
Signature of the Sponsor’s general manager:
		LI Jun
Signatures of the Sponsor’s chairman and legal representative:
		ZHOU Jie

	Haitong Securities Co., Ltd.
			July 29, 2022

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

III. Representation of the Sponsor (Lead Underwriter) (II)

I have read all the contents in this Prospectus of Beijing Tongmei Xtal Technology Co., Ltd. and confirmed that there are no false records, misleading statements or major omissions, and will assume any individual and joint legal liabilities for its authenticity, accuracy, completeness and timeliness.

Signature of the Sponsor’s general manager:


	LI Jun
Signature of the Sponsor’s chairman:


	ZHOU Jie

Haitong Securities Co., Ltd.

July 29, 2022

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

IV. Representation of the Issuer’s lawyer

This firm and the handling lawyer have read the Prospectus of Beijing Tongmei Xtal Technology Co., Ltd. in Respect of Initial Public Offering and STAR Market Listing of Shares, and confirmed that there is no contradiction between the Prospectus and the legal opinions issued by this firm. This firm and the handling lawyer have no objection against the contents of the legal opinions quoted by the Issuer in the Prospectus, confirm that there are no false records, misleading statements or major omissions, and will assume any individual and joint legal liabilities for the authenticity, accuracy, and completeness of the contents of legal opinions quoted in the Prospectus.

Responsible person of the law firm:

	WANG Ling
Handling lawyer:

	XU Hui		YANG Zhenhua

	WANG Anrong
		<br><br>King & Wood Mallesons
		July 29, 2022

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

V. Representation of the Issuer’s auditor

Accountant agency’s representation on citing the auditor’s report and special report in the Prospectus

This agency and the signing CPA have read the Prospectus of Beijing Tongmei Xtal Technology Co., Ltd. in respect of Initial Public Offering and STAR Market Listing of Shares (For filing purpose) (“Prospectus”), and confirmed that there is no contradiction between the audited financial statements, audited assessment report on internal control, statement of non-recurring incomes cited in the Prospectus and the auditor’s report (report No.: Ernst & Young Hua Ming (2022) Shen No. 61641535_B01), internal control review report (Ernst & Young Hua Ming (2022) Zhuan No. 61641535_B03), and special statement on non-recurring incomes and losses (Ernst & Young Hua Ming (2022) Zhuan No. 61641535_B01).

This agency and signing CPA have no objection to the report and special statement above cited by Beijing Tongmei Xtal Technology Co., Ltd. in this Prospectus, and confirm that the Prospectus will not contain misrepresentation, misleading statements, or material omissions in corresponding parts due to completely and accurately citing the report and special statement above issued by this agency, and this agency is correspondingly liable for the truthfulness, accuracy, and completeness of the report and special statement above in accordance with the provisions of relevant laws and regulations.

This representation is to be used by Beijing Tongmei Xtal Technology Co., Ltd. for the application for initial public offering of A stocks with China Securities Regulatory Commission, and shall not be used for other purposes without the written consent of this agency.

Signing CPAs:

	CHEN Xiaosong		LU Yang

Responsible person of the accounting firm:

	MAO Anning

		<br><br>
		Ernst & Young Huaming Certified Public Accountants (Special General Partnership)<br><br>
		July 29, 2022

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

VI. Representation of the Issuer’s capital verification agency

Accountant agency’s representation on citing the capital verification report in the Prospectus

This agency and the signing CPA have read the Prospectus of Beijing Tongmei Xtal Technology Co., Ltd. in respect of Initial Public Offering and STAR Market Listing of Shares (For filing purpose) (“Prospectus”), and confirmed that there is no contradiction between the capital verification report cited in the Prospectus and the capital verification report issued by this agency (reports Nos.: Ernst & Young Hua Ming (2021) Yan No. 61641535_B01, Ernst & Young Hua Ming (2021) Yan No. 61641535_B02, Ernst & Young Hua Ming (2021) Yan No. 61641535_B03).

This agency and signing CPA have no objection to the capital verification report above cited by Beijing Tongmei Xtal Technology Co., Ltd. in this Prospectus, and confirm that the Prospectus will not contain misrepresentation, misleading statements, or material omissions in corresponding parts due to completely and accurately citing the capital verification report above issued by this agency, and this agency is correspondingly liable for the truthfulness, accuracy, and completeness of the capital verification report above in accordance with the provisions of relevant laws and regulations”.


Signing CPAs:

	CHEN Xiaosong	LU Yang

Responsible person of the accounting firm:

	MAO Anning

		Ernst & Young Huaming Certified Public Accountants (Special General Partnership)<br><br>
		July 29, 2022

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

VII. Representation of the assets evaluation agency

This agency and the signing CPV have read the Prospectus and confirmed that there is no contradiction between the Prospectus and the assets evaluation report issued by this agency. This agency and the signing CPV have no objection against the contents of the assets evaluation report quoted by the Issuer in this Prospectus, confirm that there are no false records, misleading statements or major omissions due to the foregoing contents, and will assume any individual and joint legal liabilities for its authenticity, accuracy, completeness and timeliness.

Signing CPVs:

	KOU Yingwei		YAN Bingzhu

Responsible person of the assets evaluation agency:

	CHEN Wei

		Beijing Sinotop Appraisal Group Limited

		July 29, 2022

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Statement on Resignation of Signing CPV

THIS IS TO STATE THAT: On March 30, 2021, this agency issued the Asset Evaluation Report on the Project of Proposed Restructuring of Beijing Tongmei Xtal Technology Limited into a Joint Stock Limited Company (ZFPBZ [2021] No. 01085). KOU Yingwei, a CPV who originally signed the above evaluation report, has left this agency and thus has no way to sign on the representation page for the asset evaluation agency issued by this agency. Nevertheless, the leaving of the signing CPV has no impact on the legal effect of the above evaluation report issued by this agency.

<br><br>
Responsible person and legal representative of the assets evaluation agency:<br><br>

	CHEN Wei

		<br><br>Beijing Sinotop Appraisal Group Limited
			July 29, 2022

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Section XIII Appendices

I. Documents for reference

(I) Offering Sponsorship letter;

(II) listing Sponsorship letter;

(III) legal opinions;

(IV) financial report and audit report;

(V) articles of association (draft) of the Company;

(VI) commitments made by the Issuer and other responsible subjects related to the Issuer’s offering and listing;

(VII) relevant financial statements and review reports (if any) between the Issuer’s audit report benchmark date and the execution date hereof;

(VIII) profits forecast report and audit report (if any);

(IX) internal control verification report;

(X) detailed non-recurring profits and losses statement verified by the CPA;

(XI) Registered documents for the public offering by the Issuer as approved by the CSRC;

(XII) Other important documents related to this Offering.

II. Time and place of reference

(I) Time of reference

9:00-11:30 am & 13:30-17:00 pm on working days.

(II) Place of reference and contact information

Issuer: Beijing Tongmei Xtal Technology Co., Ltd.

Office address: 4 East 2^nd^ Street, Tongzhou Industrial Development District, Beijing

Tel: 010-61567380; contact person: Song Jing

Sponsor (Lead Underwriter): Haitong Securities Co., Ltd.

Office address: 689 Guangdong Road, Shanghai

Tel: 021-23219000; contact person: Zhong Zhuke

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Appendix I: Main Properties and Land Use Rights of the Issuer and Its Subsidiaries

1. Main properties owned

Serial No.	Obligee	Certificate No.	Location	Floor area<br><br>(m^2^)	Purpose	Other rights
1	Beijing Tongmei	Jing Fang Quan Zheng Shi Tong She Wai Zi No. 10041	Beijing Tongmei Xtal Technology Limited in Tongzhou Industrial Development District	3,024.65	Janitor's room, plant, office building, etc.	N/A
2	Beijing Tongmei	Jing Fang Quan Zheng Shi Tong She Wai Zi No. 10120	In Tongzhou Industrial Development District	1,927.77	Janitor's room, warehouse, power distribution room, plant, etc.	N/A
3	Beijing Tongmei	Jing Fang Quan Zheng Shi Tong She Wai Zi No. 10015	Beijing Tongmei Xtal Technology Limited in Tongzhou Industrial Development District	3,062.00	Industrial	N/A

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

4	Beijing Tongmei	Jing Fang Quan Zheng Shi Tong She Wai Zi No. 10121	East Wutong Road in Tongzhou Industrial Development District	5,133.47	Plant, power distribution room, warehouse, bathroom, workshop, office, etc.	N/A
5	Baoding Tongmei	Ji [2018] Ding Xing Xian Bu Dong Chan Quan No. 0003071	East New National Highway No. 107, Dingxing County	17,987.81	Industrial and office	Mortgaged
6	Chaoyang Tongmei	Liao [2021] Ka Zuo Xian Bu Dong Chan Quan No. 20210019945	Duanzheng Village, Gongyingzi Town, Kazuo County	136.59	Fire pump room	N/A
7	Chaoyang Tongmei	Liao [2021] Ka Zuo Xian Bu Dong Chan Quan No. 20210019942	Duanzheng Village, Gongyingzi Town, Kazuo County	441.45	Transformer substation	N/A

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

8	Chaoyang Tongmei	Liao [2021] Ka Zuo Xian Bu Dong Chan Quan No. 20210019944	Duanzheng Village, Gongyingzi Town, Kazuo County	453.39	Boiler room	N/A
9	Chaoyang Tongmei	Liao [2021] Ka Zuo Xian Bu Dong Chan Quan No. 20210019940	Duanzheng Village, Gongyingzi Town, Kazuo County	193.60	Warehouse for class-A hazardous and waste substances	N/A
10	Chaoyang Tongmei	Liao [2021] Ka Zuo Xian Bu Dong Chan Quan No. 20210019939	Duanzheng Village, Gongyingzi Town, Kazuo County	255.00	Raw material warehouse	N/A
11	Chaoyang Tongmei	Liao [2021] Ka Zuo Xian Bu Dong Chan Quan No. 20210019941	Duanzheng Village, Gongyingzi Town, Kazuo County	688.45	Class-A chemical warehouse	N/A
12	Chaoyang Tongmei	Liao [2021] Ka Zuo Xian Bu Dong Chan Quan No. 20210019943	Duanzheng Village, Gongyingzi Town, Kazuo County	1,182.36	Class-A workshop	N/A
13	Chaoyang Tongmei	Liao [2021] Ka Zuo Xian Bu Dong Chan Quan No. 20210015787	Chaoyang Kazuo Economic Development District	4,351.30	Industrial	Mortgaged
14	Chaoyang Tongmei	Liao [2021] Ka Zuo Xian Bu Dong Chan Quan No. 20210015786	Chaoyang Kazuo Economic Development District	11,053.06	Industrial	Mortgaged
15	Chaoyang Tongmei	Liao [2021] Ka Zuo Xian Bu Dong Chan Quan No. 20210015784	Chaoyang Kazuo Economic Development District	1,154.60	Industrial	Mortgaged
16	Chaoyang Tongmei	Liao [2021] Ka Zuo Xian Bu Dong Chan Quan No. 20210015789	Chaoyang Kazuo Economic Development District	1,037.38	Industrial	Mortgaged
17	Chaoyang Tongmei	Liao [2021] Ka Zuo Xian Bu Dong Chan Quan No. 20210015785	Chaoyang Kazuo Economic Development District	11,064.27	Industrial	Mortgaged
18	Chaoyang Tongmei	Liao [2021] Ka Zuo Xian Bu Dong Chan Quan No. 20210014323	Tuchengzi Village, Chaoyang Kazuo Economic Development District	16,729.73	Industrial	N/A

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

19	Chaoyang Tongmei	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190010030	04083, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	89.44	Residence	N/A
20	Chaoyang Tongmei	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190010031	04103, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	89.44	Residence	N/A
21	Chaoyang Tongmei	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190010032	04102, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	84.38	Residence	N/A
22	Chaoyang Tongmei	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190010033	04082, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	84.38	Residence	N/A
23	Tianjin Boyu	Jin [2021] Bao Di Qu Bu Dong Chan Quan No. 7071577	3 Baoshan Avenue, Jingjin Zhongguancun Science Center, Baodi District	13,565.47	Non-residence	Mortgaged
24	Chaoyang Boyu	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190002409	Tuchengzi Village, Gongyingzi Town, Kazuo County	6,595.20	Industrial	N/A
25	Chaoyang Boyu	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190001530	04073, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	89.44	Residence	N/A
26	Chaoyang Boyu	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190001531	02072, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	56.14	Residence	N/A
27	Chaoyang Boyu	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190001532	02071, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	79.76	Residence	N/A

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus


28	Chaoyang Boyu	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190001533	02073, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	127.83	Residence	N/A
29	Chaoyang Boyu	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190001534	04072, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	84.38	Residence	N/A
30	Chaoyang Jinmei	Liao [2021] Ka Zuo Xian Bu Dong Chan Quan No. 20210020066	Block 1, Duanzheng Village, Gongyingzi Town, Kazuo County	12,020.00	Production workshop	N/A
31	Chaoyang Jinmei	Liao [2021] Ka Zuo Xian Bu Dong Chan Quan No. 20210020072	Block 2, Duanzheng Village, Gongyingzi Town, Kazuo County	2,991.00	Class-A workshop	N/A
32	Chaoyang Jinmei	Liao [2021] Ka Zuo Xian Bu Dong Chan Quan No. 20210020069	Block 3, Duanzheng Village, Gongyingzi Town, Kazuo County	234.00	Equipment intermediate warehouse	N/A
33	Chaoyang Jinmei	Liao [2021] Ka Zuo Xian Bu Dong Chan Quan No. 20210020067	Block 4, Duanzheng Village, Gongyingzi Town, Kazuo County	340.00	Warehouse for hazardous and waste substances	N/A
34	Chaoyang Jinmei	Liao [2021] Ka Zuo Xian Bu Dong Chan Quan No. 20210020074	Duanzheng Village, Gongyingzi Town, Kazuo County	262.00	Raw material warehouse	N/A
35	Chaoyang Jinmei	Liao [2021] Ka Zuo Xian Bu Dong Chan Quan No. 20210020073	Duanzheng Village, Gongyingzi Town, Kazuo County	411.00	Liquid nitrogen vaporization workshop	N/A
36	Chaoyang Jinmei	Liao [2021] Ka Zuo Xian Bu Dong Chan Quan No. 20210020070	Duanzheng Village, Gongyingzi Town, Kazuo County	295.00	Transformer substation	N/A

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

37	Chaoyang Jinmei	Liao [2021] Ka Zuo Xian Bu Dong Chan Quan No. 20210020071	Duanzheng Village, Gongyingzi Town, Kazuo County	142.00	Fire pump room	N/A
38	Chaoyang Jinmei	Liao [2021] Ka Zuo Xian Bu Dong Chan Quan No. 20210020068	Duanzheng Village, Gongyingzi Town, Kazuo County	488.00	Boiler room	N/A
39	Chaoyang Jinmei	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190003066	01111, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	89.25	Residence	N/A
40	Chaoyang Jinmei	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190003068	01112, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	84.20	Residence	N/A
41	Chaoyang Jinmei	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190003071	01113, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	88.46	Residence	N/A
42	Chaoyang Jinmei	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190003070	04111, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	88.64	Residence	N/A
43	Chaoyang Jinmei	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190003069	04112, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	84.38	Residence	N/A
44	Chaoyang Jinmei	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190003072	04113, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	89.44	Residence	N/A

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

2. Land use rights owned

Serial No.	Obligee	Certificate No.	Location	Expiration date	Type of land<br><br>(usage)	Type of use right	Area of use right<br><br>(m^2^)	Other rights
1	Issuer	Shi Tong She Wai Guo Yong [99] Zi. No. 10015	Beijing Tongmei Xtal Technology Limited within Tongzhou Industrial Development District	January 26, 2049	Industrial	Transfer	5,830.00	N/A
2	Issuer	Jing Shi Tong She Wai Guo Yong [1999 Chu] Zi. No. 10051	Beijing Tongmei Xtal Technology Limited within Tongzhou Industrial Development District	July 1, 2049	Industrial	Transfer	11,722.63	N/A
3	Issuer	Jing Shi Tong She Wai Guo Yong [2002 Chu] Zi No. 10176	In Tongzhou Industrial Development District	January 25, 2049	Industrial	Transfer	10,670.40	N/A
4	Issuer	Jing Shi Tong She Wai Guo Yong [2002 Chu] Zi No. 10147	East Wutong Road in Tongzhou Industrial Development District	December 28, 2050	Industrial	Transfer	17,144.05	N/A
5	Baoding Tongmei	Ji [2018] Ding Xing Xian Bu Dong Chan Quan No. 0003071	East New National Highway No. 107, Dingxing County	July 1, 2066	Industrial	Transfer	50,253.440	Mortgaged

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

6	Baoding Tongmei	Ji [2018] Ding Xing Xian Bu Dong Chan Quan No. 0004029	East New National Highway No. 107, Dingxing County and north Xingda Road	September 8, 2068	Industrial	Transfer	1,961.51	Mortgaged
7	Baoding Tongmei	Ji [2018] Ding Xing Xian Bu Dong Chan Quan No. 0003858	East New National Highway No. 107, Dingxing County and south Pengcheng Road	September 8, 2068	Industrial	Transfer	24,055.00	Mortgaged

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

8	Chaoyang Tongmei	Liao [2021] Ka Zuo Xian Bu Dong Chan Quan No. 20210019939, No. 20210019940, No. 20210019941, No. 20210019942, No. 20210019943, No. 20210019944, No. 20210019945, No. 20210015784, No. 20210015785, No. 20210015786, No. 20210015787, No. 20210015789 and No. 20210015788	Chaoyang Kazuo Economic Development District, Duanzheng Village, Gongyingzi Town, Kazuo County	August 22, 2067	Industrial land	Transfer	166,699.11	Mortgaged
9	Chaoyang Tongmei	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190010030	04083, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	December 4, 2084	Urban residential land	Transfer	13.44	N/A
10	Chaoyang Tongmei	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190010031	04103, Block 10, Gongyingzi Town [Kangda Small Town],	December 4, 2084	Urban residential land	Transfer	13.44	N/A	1-1-507


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

			Kazuo County
11	Chaoyang Tongmei	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190010032	04102, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	December 4, 2084	Urban residential land	Transfer	12.68	N/A
12	Chaoyang Tongmei	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190010033	04082, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	December 4, 2084	Urban residential land	Transfer	12.68	N/A

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus


13	Chaoyang Jinmei	Liao [2021] Ka Zuo Xian Bu Dong Chan Quan No. 20210020066, No. 20210020067, No. 20210020068, No. 20210020069, No. 20210020070, No. 20210020071, No. 20210020072, No. 20210020073, No. 20210020074	Duanzheng Village, Gongyingzi Town, Kazuo County	October 22, 2068	Industrial land	Transfer	35,984.00	N/A
14	Chaoyang Jinmei	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190003066	01111, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	December 4, 2084	Urban residential land	Transfer	13.41	N/A
15	Chaoyang Jinmei	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190003068	01112, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	December 4, 2084	Urban residential land	Transfer	12.65	N/A
16	Chaoyang Jinmei	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190003071	01113, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	December 4, 2084	Urban residential land	Transfer	13.29	N/A
17	Chaoyang Jinmei	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190003070	04111, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	December 4, 2084	Urban residential land	Transfer	13.32	N/A
18	Chaoyang Jinmei	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190003069	04112, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	December 4, 2084	Urban residential land	Transfer	12.68	N/A

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus


19	Chaoyang Jinmei	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190003072	04113, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	December 4, 2084	Urban residential land	Transfer	13.44	N/A
20	Tianjin Boyu	Jin [2021] Bao Di Qu Bu Dong Chan Quan No. 7071577	3 Baoshan Avenue, Jingjin Zhongguancun Science Center, Baodi District	June 14, 2068	Industrial	Transfer	16,715.70	Mortgaged
21	Chaoyang Boyu	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190002409	Tuchengzi Village, Gongyingzi Town, Kazuo County	March 14, 2068	Industrial	Transfer	34,910.42	N/A
22	Chaoyang Boyu	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190001530	04073, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	December 4, 2084	Urban residential land	Transfer	13.44	N/A
23	Chaoyang Boyu	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190001531	02072, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	December 4, 2084	Urban residential land	Transfer	8.43	N/A
24	Chaoyang Boyu	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190001532	02071, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	December 4, 2084	Urban residential land	Transfer	11.99	N/A
25	Chaoyang Boyu	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190001533	02073, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	December 4, 2084	Urban residential land	Transfer	19.21	N/A

1-1-510


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

26	Chaoyang Boyu	Liao [2019] Ka Zuo Xian Bu Dong Chan Quan No. 20190001534	04072, Block 10, Gongyingzi Town [Kangda Small Town], Kazuo County	December 4, 2084	Urban residential land	Transfer	12.68	N/A
27	Chaoyang Xinmei	Liao [2022] Ka Zuo Xian Bu Dong Chan Quan No. 20220000228	Tuchengzi Village, Yingzi Town, Kazuo County	January 5, 2072	Industrial	Transfer	66,926	N/A

Notes: 1. The property under Beijing Tongmei’s "Jing Fang Quan Zheng Shi Tong She Wai Zi No. 10041 Title Certificate" has a floor area of 3,192.05 square meters, including 167.4 square meters of buildings already demolished; 2. the property under Beijing Tongmei’s "Jing Fang Quan Zheng Shi Tong She Wai Zi No. 10120 Title Certificate" has a floor area of 2,030.17 square meters, including 102.4 square meters of buildings already demolished; and 3. the property under Beijing Tongmei’s "Jing Fang Quan Zheng Shi Tong She Wai Zi No. 10015 Title Certificate" has a floor area of 3,213.30 square meters, including 151.3 square meters of buildings already demolished.

1-1-511


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Appendix II: Patents of the Issuer and Its Subsidiaries

1. Domestic invention patents


Serial No.	Patentee	Name of patent	Type of patent	Patent No.	Date of authorization announcement	Way of acquisition	Other rights
1	Issuer	A chemical and mechanical polishing method for semiconductor chips	Invention	2010105319532	August 29, 2012	Original acquisition	N/A
2	Issuer	Cleaning method for compound semiconductor chips	Invention	2010105138607	January 9, 2013	Original acquisition	N/A
3	Issuer	Substrate polishing apparatus and substrates polished thereby	Invention	2011100341394	May 15, 2013	Original acquisition	N/A
4	Issuer	Method for separating germanium particles from waste water containing fine germanium particles	Invention	2011101041062	May 15, 2013	Original acquisition	N/A
5	Issuer	Indium phosphide chips and surface cleaning method thereof	Invention	2011103520019	June 25, 2014	Original acquisition	N/A
6	Issuer	Gallium arsenide surface chemical etching method and chemical etching solution	Invention	2012100764073	January 14, 2015	Original acquisition	N/A
7	Issuer	Group Ⅲ-V compound semiconductor chips and cleaning method for them	Invention	2011101259950	February 4, 2015	Original acquisition	N/A

1-1-512


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

8	Issuer	A kind of ultra-thin semiconductor chips and preparation method thereof	Invention	201510240960X	January 30, 2018	Original acquisition	N/A
9	Issuer	A kind of ultra-thin Ge single crystal substrate materials and preparation method thereof	Invention	2015102426338	November 6, 2018	Original acquisition	N/A
10	Issuer	A kind of special-shaped semiconductor chips, preparation method and chip support pads	Invention	2015102426484	February 5, 2019	Original acquisition	N/A
11	Issuer	Method and apparatus for removing mucous membranes from chips	Invention	2016103700743	June 21, 2019	Original acquisition	N/A
12	Issuer	Germanium single chip, manufacturing method thereof, crystal bar manufacturing method and usage of single chips	Invention	2017112967461	August 14, 2020	Original acquisition	N/A
13	Issuer	Indium phosphide chips with olive-shaped pits on the back, manufacturing method and etching solution used	Invention	2017106117101	February 2, 2021	Original acquisition	N/A
14	Issuer	A kind of gallium arsenide chips and preparation method thereof	Invention	2018116198862	March 16, 2021	Original acquisition	N/A

1-1-513


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

15	Issuer	Indium phosphide chip with pits on the back, preparation method and etching solution for the preparation thereof	Invention	2017106123441	June 22, 2021	Original acquisition	N/A
16	AXT and Issuer	Laser adjustable depth marking system and method	Invention	2008100006750	May 23, 2012	Original acquisition	N/A
17	AXT and Issuer	Method for manufacturing low-etching pit density semi-insulating gallium arsenide chips and products thereof	Invention	2008100009388	December 26, 2012	Original acquisition	N/A
18	AXT and Issuer	Method and apparatus for growing germanium crystals	Invention	2008101770060	July 24, 2013	Original acquisition	N/A
19	Baoding Tongmei, AXT and Issuer	Germanium ingot/chips with low-micropit density (MPD) and their manufacturing system and method	Invention	2010800022161	June 4, 2014	Original acquisition	N/A
20	Baoding Tongmei	A kind of group IIIA-VA semiconductor single crystal substrates and preparation method thereof	Invention	2012100825236	July 28, 2017	Derivative acquisition	N/A

1-1-514


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

21	Baoding Tongmei	A kind of special-shaped semiconductor chips and preparation method thereof	Invention	201510240946X	July 10, 2018	Derivative acquisition	N/A
22	Chaoyang Tongmei	A kind of metallic gallium special-shaped semiconductor chips and preparation method thereof	Invention	2015102429001	August 7, 2018	Derivative acquisition	N/A
23	Nanjing Jinmei	A kind of vacuum decomposition apparatus for separating gallium arsenide into metallic gallium and metal arsenic	Invention	2008101552422	June 23, 2010	Original acquisition	N/A
24	Nanjing Jinmei	A kind of metallic gallium chemical extraction apparatus	Invention	2008101556796	September 8, 2010	Original acquisition	N/A
25	Nanjing Jinmei	A kind of semi-closed finger-shaped clapboard electrolytic bath	Invention	2008101556813	December 29, 2010	Original acquisition	N/A
26	Nanjing Jinmei	A kind of metallic gallium raindrop-shaped high-purity gallium ball preparation apparatus and method	Invention	2008101556851	February 9, 2011	Original acquisition	N/A

1-1-515


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

27	Nanjing Jinmei	A method for removing bismuth as impurity in metallic gallium	Invention	2012101198114	May 8, 2013	Original acquisition	N/A
28	Nanjing Jinmei	A mass production method for preparing high-purity gallium from metallic gallium	Invention	2012101197906	June 12, 2013	Original acquisition	N/A

1-1-516


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus


29	Nanjing Jinmei	A mass production method for preparing gallium nitrate from metallic gallium	Invention	2012104938939	April 15, 2015	Original acquisition	N/A
30	Nanjing Jinmei	A method for recovering metallic gallium from waste gallium nitride	Invention	2016101280460	October 27, 2017	Original acquisition	N/A
31	Chaoyang Jinmei	A method for preparing molecular beam epitaxy-grade high-purity metallic gallium	Invention	2008101556866	June 23, 2010	Derivative acquisition	N/A
32	Chaoyang Jinmei	A method for preparing N/A high temperature covering-agent-grade boron oxide	Invention	200810155689X	October 27, 2010	Derivative acquisition	N/A
33	Chaoyang Jinmei	A kind of molding apparatus and method for casting high-purity N/A water boron oxide	Invention	2008101556885	March 23, 2011	Derivative acquisition	N/A
34	Chaoyang Boyu, Tianjin Boyu and Jinmei	A method for catalytic decomposition of high-concentration nitrogen oxide waste gas	Invention	2012104945754	February 4, 2015	Derivative acquisition	N/A
35	Beijing Boyu, Chaoyang Boyu and Tianjin Boyu	A kind of low-texture pyrolytic boron nitride (PBN) thin-walled container and preparation method thereof	Invention	2009100923025	July 27, 2011	Original acquisition	N/A
36	Beijing Boyu, Chaoyang Boyu and Tianjin Boyu	A surface repair method of pyrolytic boron nitride crucibles after use	Invention	2012102875225	April 16,2014	Original acquisition	N/A
37	Beijing Boyu, Chaoyang Boyu and Tianjin Boyu	A kind of boron nitride/boron carbide/graphite compound heating element for high-temperature electric heating	Invention	2012102875367	June 4, 2014	Original acquisition	N/A
38	Beijing Boyu, Chaoyang Boyu and Tianjin Boyu	Vapor deposition furnace and method for preparing pyrolytic boron nitride products	Invention	2012103084264	January 28, 2015	Original acquisition	N/A	1-1-517


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

39	Beijing Boyu, Chaoyang Boyu and Tianjin Boyu	Method for manufacturing fixing bars used for preparing cylindrical graphite heaters as well as the heaters	Invention	2012103087883	March 2,2016	Original acquisition	N/A
40	Tianjin Boyu, Chaoyang Boyu and Tianjin Boyu	A kind of heater preparation mold and heater preparation method	Invention	2019108543511	November 6, 2020	Original acquisition	N/A
41	Beijing Boyu, Chaoyang Boyu and Tianjin Boyu	A preparation method for heater support substrates and a preparation method for heaters	Invention	2019108543545	January 22, 2021	Original acquisition	N/A
42	Tianjin Boyu and Chaoyang Boyu	A kind of ceramic heater supporting substrates and ceramic heaters	Invention	2019108550229	June 25, 2021	Original acquisition	N/A
43	Issuer	Germanium single wafer, manufacturing method thereof, manufacturing method of crystal rod and use of single wafer	Invention	2019104837484	October 19, 2021	Original acquisition	N/A
44	Issuer	Controllable oxygen concentration in semiconductor substrate	Invention	2020102755196	February 12, 2022	Original acquisition	N/A
45	Issuer	Indium phosphide wafer and mixed cleaning process thereof	Invention	2022100291567	March 22, 2023	Original acquisition	N/A
46	Issuer	A method for cleaning germanium wafer and application thereof	Invention	2022100570832	April 8, 2022	Original acquisition	N/A
47	Beijing Boyu, Tianjin Boyu, Chaoyang Boyu	A boron nitride crucible mold, preparation method and demoulding method	Invention	2022101498413	May 20, 2022	Original acquisition	N/A
48	Tianjin Boyu, Chaoyang Boyu	A heater and preparation method thereof	Invention	2019108550233	May 20, 2022	Original acquisition	N/A	1-1-518


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

49	Issuer	An etching method for single-sided germanium wafer	Invention	202210189280X	May 17, 2022	Original acquisition	N/A
50	Issuer	An ultra-clean cleaning method and application of indium phosphide wafer	Invention	2022101641498	May 20, 2022	Original acquisition	N/A
51	Issuer	A method for dry cleaning germanium wafer	Invention	2022102285927	May 20, 2022	Original acquisition	N/A
52	Issuer	A kind of GaAs single crystal silicon doped with group II elements and the preparation method thereof	Invention	2022101736892	June 10, 2022	Original acquisition	N/A

2. Overseas invention patents


Serial No.	Patentee	Name of patent	Type of patent	Patent No.	Date of authorization announcement	Place of registration
1	Issuer	PROCESS FOR CLEANING A COMPUND SEMICONDUCTOR WAFER	Invention	8691019	April 8, 2014	U.S.
2	Issuer	IIIA-VA GROUP SEMICONDUCTOR SINGLE CRYSTAL SUBSTRATE AND METHOD FOR PREPARING SAME	Invention	9691617	June 27, 2017	U.S.
3	Issuer	INDIUM PHOSPHIDE WAFER HAVING PITS ON THE BACK SIDE, METHOD AND ETCHING SOLUTION FOR MANUFACTURING THE SAME	Invention	11094549	August 17, 2021	U.S.
4	Issuer	MONOCRYSTALLINE GERMANIUM WAFERS, METHOD FOR PREPARING THE SAME, METHOD FOR PREPARING INGOTS AND USE OF MONOCRYSTALLINE WAFERS	Invention	11127867	September 21, 2021	U.S.

1-1-519


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

5	Issuer	PROCESS FOR CLEANING COMPOUND SEMICONDUCTOR WAFER	Invention	EP2629319	August 16, 2017	Europe
6	Issuer	CONTROLLABLE OXYGEN CONCENTRATION IN SEMICONDUCTOR SUBSTRATE	Invention	EP2978882	June 24, 2020	Europe
7	Issuer	CONTROLLABLE OXYGEN CONCENTRATION IN SEMICONDUCTOR SUBSTRATE	Invention	6330899	May 11, 2018	Japan
8	Issuer	CLEANING METHOD OF COMPOUND SEMI-CONDUCTIVE WAFERS	Invention	6088431	February 10, 2017	Japan
9	Issuer	GROUP III-V COMPOUND SEMI-CONDUCTIVE WAFERS AND CLEANING METHOD THEREOF	Invention	I524411	March 1, 2016	Taiwan, China

1-1-520


Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Appendix III: Main Patents Granted by AXT to the Issuer and Its Controlled Subsidiaries


Serial No.	Title of patent	Country/region	Application/patent No.
1	METHOD AND APPARATUS FOR GROWING SEMICONDUCTOR CRYSTALS WITH A RIGID SUPPORT WITH CARBON DOPING, RESISTIVITY CONTROL AND THERMAL GRADIENT CONTROL	South Korea	10-0966182
2	METHOD AND APPARATUS FOR GROWING SEMICONDUCTOR CRYSTALS WITH A RIGID SUPPORT WITH CARBON DOPING, RESISTIVITY CONTROL AND THERMAL GRADIENT CONTROL	Japan	JP4,324,467
3	METHOD AND APPARATUS FOR GROWING SEMICONDUCTOR CRYSTALS WITH A RIGID SUPPORT WITH CARBON DOPING AND RESISTIVITY CONTROL AND THERMAL GRADIENT CONTROL	Canada	CA2452542
4	METHOD AND APPARATUS FOR GROWING SEMICONDUCTOR CRYSTALS WITH A RIGID SUPPORT WITH CARBON DOPING, RESISTIVITY CONTROL AND THERMAL GRADIENT CONTROL	Japan	5005651
5	METHOD AND APPARATUS FOR GROWING SEMICONDUCTOR CRYSTALS WITH A RIGID SUPPORT WITH CARBON DOPING AND RESISTIVITY CONTROL AND THERMAL GRADIENT CONTROL	USA	6,896,729
6	LOW ETCH PIT DENSITY (EPD) SEMI-INSULATING III-V WAFERS	USA	US 8361225 B2
7	LOW ETCH PIT DENSITY (EPD) SEMI-INSULATING GAAS WAFERS	USA	7,566,641
8	PRODUCTION METHOD FOR GALLIUM-BASED MATERIALS AND GROUP-III-BASED MATERIALS	Japan	6008144
9	GROWTH SYSTEM, METHOD AND SUBSTRATES FOR SINGLE CRYSTAL GERMANIUM	Japan	JP 5497053
10	SYSTEMS, METHODS AND SOLUTIONS FOR CHEMICAL POLISHING OF GAAS WAFERS	USA	US 8,318,042 B2
11	METHODS FOR MANUFACTURING MONOCRYSTALLINE GERMANIUM INGOTS/WAFERS HAVING LOW MICRO-PIT DENSITY (MPD)	Europe	EP2510138B1
12	METHOD FOR THE PRODUCTION OF LOW MICRO-PIT DENSITY (MPD) GERMANIUM INGOTS AND APPARATUS FOR THE GROWTH OF GERMANIUM CRYSTAL	Japan	5671057
13	CRYSTAL GROWTH APPARATUS AND METHOD	USA	US 8,231,727 B2

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

14	GERMANIUM INGOTS/WAFERS HAVING LOW MICRO-PIT DENSITY (MPD) AND SYSTEMS AND METHODS FOR THEIR MANUFACTURE	Taiwan, China	I 513865
15	SYSTEMS, METHODS AND SUBSTRATES OF MONOCRYSTALLINE GERMANIUM CRYSTAL GROWTH	USA	US 8,506,706 B2
16	GERMANIUM INGOTS/WAFERS HAVING LOW MICRO-PIT DENSITY (MPD) AS WELL AS SYSTEMS AND METHODS FOR MANUFACTURING SAME	USA	US 8,647,433 B2

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

Appendix IV: Main Trademarks Licensed by AXT to the Issuer and Its Controlled Subsidiaries

1. Main domestic trademarks that AXT licenses the Issuer and its controlled subsidiaries for use


Serial No.	Trademark No.	Trademark
1	G1097820
2	1728076
3	5536582

Note: Serial No. 4 is under registration.

2. Main overseas trademarks that AXT licenses the issuer and its controlled subsidiaries for use

Serial No.	Trademark No.	Country/region
1	01001812	Taiwan, China
2	01543232
3	00964723
4	1097820	Japan
5	4490456
6	4488361
7	1097820	Norway
8	2981244	USA
9	3725141

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Beijing Tongmei Xtal Technology Co., Ltd.	Prospectus

10	1097820	South Korea
11	526305
12	519696
13	1097820	Iceland
14	010346179	EU
15	UK00910346179	UK
16	1097820	Worldwide

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Exhibit 99.2

Sponsorship Letter for Offering

Issued by Haitong Securities Co., Ltd.

in Respect of

Initial Public Offering and Listing on the

STAR Market of Beijing Tongmei Xtal

Technology Co., Ltd.

Sponsor (Lead Underwriter)

(No.689 Guangdong Road, Shanghai)

July 2022

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Statement

Pursuant to the Company Law of the People’s Republic of China (hereinafter referred to as the “Company Law”), the Securities Law of the People’s Republic of China (hereinafter referred to as the “Securities Law”), the Administrative Measures on the Sponsorship of Securities Offering and Listing (hereinafter referred to as the “Sponsorship Administration Measures”), the Administrative Measures on the Registration of the Initial Public Offering of Stocks on the Science and Technology Innovation Board (for Trial Implementation) (hereinafter referred to as the “Registration Administration Measures”), the Rules on the Listing of Stocks on the Science and Technology Innovation Board of Shanghai Stock Exchange (hereinafter referred to as the “Listing Rules”) and other applicable laws, administrative regulations and rules of the China Securities Regulatory Commission (hereinafter referred to as the “CSRC”) and Shanghai Stock Exchange, the Sponsor and sponsor representatives issue this Sponsorship Letter for Offering in good faith and with due care in strict accordance with its business rules, industry practices and code of ethics that are formulated in accordance with the law, and warrant the authenticity, accuracy and completeness of the documents issued.

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Table of Content


Section I Basic information of this Securities Offering	4
I. Name of the Sponsor for this Securities Offering	4
II. Sponsor representatives designated by the Sponsor and their practices in the sponsorship business	4
III. Project assistant and other persons involved in this Project designated by the Sponsor	4
IV. Basic information of the Issuer of this sponsorship	5
V. Type of this Securities Offering	5
VI. Plan on this Securities Offering	5
VII. Statement on whether there is any circumstance under which the Sponsor’s performance of its sponsorship duties in a fair manner may be affected	6
VIII. Internal review procedure and opinion of the Sponsor on this Securities Offering and listing	7
Section II Undertakings of the Sponsor	11
Section III Recommendations for this Securities Offering	13
I. Decision-making procedure performed for this Securities Offering	13
II. Description of the satisfaction by the Issuer of the positioning of the STAR Market	13
III. This Securities Offering meets the issuance conditions stipulated by the Securities Law	16
IV. This Securities Offering meets the issuance conditions stipulated by the Administrative Measures for Registration	18
V. Verification of the filing of the Issuer’s private equity investment fund filing	24
VI. Verification conclusion of the Issuer’s operating status after the deadline for audit	24
VII. Main risks of the Issuer	25
VIII. Analysis of the Issuer’s market prospect	31
IX. Verification of the paid engagement of third-party agencies and individuals and other related activities	34
X. Sponsorship conclusion of the Sponsor for this Securities Offering and listing	35
Appendix:	35
Special Power of Attorney for Representative of Sponsor Issued by Haitong Securities Co., Ltd. in Respect of the IPO and Listing on the STAR Market of Beijing Tongmei Xtal Technology Co., Ltd	37

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Section I Basic information of this Securities Offering

I. Name of the Sponsor for this Securities Offering

Haitong Securities Co., Ltd. (hereinafter referred to as “Haitong Securities” or the “Sponsor”)

II. Sponsor representatives designated by the Sponsor and their practices in the sponsorship business

The Sponsor designates ZHONG Zhuke and WU Ting as sponsor representatives for the initial public offering and listing of shares of Beijing Tongmei Xtal Technology Co., Ltd. (hereinafter referred to as the “Issuer”, the “Company” or “Beijing Tongmei”) on the STAR Market (hereinafter referred to as this “Offering”).

ZHONG Zhuke: a sponsor representative of this Project, a senior VP of the Investment Banking Headquarter of Haitong Securities. He has been engaged in the investment banking business since 2015. He has mainly participated in the private placement of HEAG, the major asset restructuring of GQY Video & Telecom, the IPO of CSII, the private placement of CSII on the ChiNext Market, the IPO of Hualian Porcelain Industry, the IPO of CAINA TECHNOLOGY, the major asset restructuring of DONGHAO LANSHENG, etc.

WU Ting: a sponsor representative of this Project, a senior manager of the Investment Banking Headquarter of Haitong Securities. He has been engaged in the investment banking business since 2017. He has mainly participated in the IPO of Shandong Jingdao Microelectronics, the public offering of Fengguang Precision Machinery on the NEEQ Select, etc.

III. Project assistant and other persons involved in this Project designated by the Sponsor

Project assistant and his practices in the sponsorship business

The Sponsor designates XI Hua as the project assistant for this Offering.

XI Hua: the project assistant of this Project, a senior manager of the Investment Banking Headquarter of Haitong Securities. He has been engaged in the investment

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banking business since 2020. He has mainly participated in the IPO of ACM Research, the IPO of Masteck, etc.

Other members of the project team

Other members of the project team of this Offering: ZHANG Bowen, LI Ling and WANG Jianwei

IV. Basic information of the Issuer of this sponsorship


Company Name (in Chinese):	北京通美晶体技术股份有限公司
Company Name (in English)	Beijing Tongmei Xtal Technology Co., Ltd
Legal Representative	MORRIS SHEN-SHIH YOUNG
Share Capital:	RMB 885,426,756
Date of Incorporation of Limited Company:	September 25, 1998
Date of Incorporation of Joint Stock Company	April 16, 2021
Domicile:	No. 4, East 2nd Street, Tongzhou Industrial Development Zone, Beijing
Scope of Business:	Production of monocrystalline polished wafers and related semiconductor materials and ultra-purity elements; R&D of monocrystalline polished wafers and related semiconductor materials and ultra-purity elements; sale of self-produced products; wholesale, commission-based agency (except auction) and import and export (not involving commodities under the state-owned trade management, and in case of involving any commodity subject to the quota or license management, the application shall be made therefor in accordance with applicable regulations of the State), providing consultation, technology and after-sales services. (The market entity independently chooses its businesses and carries out business activities in accordance with the law; for businesses that are subject to approval in accordance with the law, it will carry out business activities in accordance with the approved content after being approved by relevant authorities; it is not allowed to engage in business activities that are prohibited and restricted by the State and industrial policies of this city)

V. Type of this Securities Offering

Initial public offering and listing of shares of Beijing Tongmei Xtal Technology Co., Ltd. on the STAR Market.

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VI. Plan on this Securities Offering


Type of shares		RMB-denominated ordinary shares (A-shares)
Par value per share		RMB1.00 per share
Number of shares offered		Up to 98,390,000 shares will be offered in this public offering, representing at least 10.00% of the total share capital of the Company immediately after the completion of this Offering. No existing shareholder will publicly sell any share through this Offering
Post-offering total share capital		Up to 983,816,756 shares
Mode of pricing		The Issuer and the Lead Underwriter will inquire with professional institutional investors such as securities companies, fund management companies, trust companies, finance companies, insurance companies, qualified foreign institutional investors, and PE fund managers registered with the Securities Association of China, to determine the offering price of shares
Mode of offering		The shares will be offered through inquiry of and allocation to offline enquiry targets and online subscription, or in such other manner as approved by the securities regulatory authorities.
Targets of offering		Qualified enquiry targets and individuals, corporations and other investors who have opened accounts on the STAR Market of the Shanghai Stock Exchange, except for those prohibited by the applicable laws and regulations of the State.
Mode of underwriting		Standby underwriting
Proposed place of listing		Shanghai Stock Exchange

VII. Statement on whether there is any circumstance under which the Sponsor’s performance of its sponsorship duties in a fair manner may be affected

Haitong Innovation, Haitong New Driving Force and Haitong New Energy hold 1.4859%, 1.3373% and 0.5201% of the Issuer’s shares respectively. The fund manager of both Haitong New Driving Force and Haitong New Energy and the executive partner of Haitong New Driving Force is Haitong New Energy Private Equity Investment Management Co., Ltd. Haitong Innovation holds 49.40% equity interest in Haitong New Energy, Haitong Capital Co., Ltd. holds 0.50% and 19.33% equity interest in Haitong New Energy and Haitong New Driving Force respectively. Both the indirect shareholder of Haitong New Energy Private Equity Investment Management Co., Ltd. and the controlling shareholder of Haitong Capital Co., Ltd. and Haitong Innovation is Haitong Securities.

The Sponsor will arrange relevant subsidiaries to participate in the strategic placement of the Issuer in this Offering in accordance with relevant rules of the Exchange.

Except for the above, neither the Sponsor nor any of its controlling shareholder, actual controller, or significant related parties holds any share in the Issuer or any of its controlling

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shareholder, actual controller, or significant related parties.

Neither the Issuer nor any of its controlling shareholder, actual controller, or significant related parties holds any share in the Sponsor or any of its controlling shareholder, actual controller, or significant related parties;
None of the sponsor representatives and their spouses, directors, supervisors and senior executives of the Sponsor holds any share in the Issuer or any of its controlling shareholder, actual controller or significant related parties, or holds a position in the Issuer or any of its controlling shareholder, actual controller or significant related parties;
There is no mutual security, financing or any other relationship between the controlling shareholder, actual controller or significant related parties of the Sponsor and the controlling shareholder, actual controller or significant related parties of the Issuer;
There is no other related party relationship between the Sponsor and the Issuer.

VIII. Internal review procedure and opinion of the Sponsor on this Securities Offering and listing

(I) Internal review procedure

With respect to this Offering, Haitong Securities has completed the three-stage procedure, i.e., project review, application review and internal review.

Project review

The Sponsor reviewed the sponsored project by way of the sponsored project review committee (hereinafter referred to as the “Project Review Committee”), and the members of the review committee will vote on the project on the basis of their independent judgment to determine whether the project should be approved or not. The specific procedure thereof is as follows:

(1) Each securities offering project that is proposed to be recommended by Haitong Securities as a sponsor to the CSRC and the Shanghai Stock Exchange shall be initiated in accordance with the Implementation Rules on the Review of Sponsored Projects of Haitong Securities Co., Ltd.

(2) The project team is responsible for preparing the project application documents.

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The project application documents of the project team shall be submitted to the quality control department after such documents have been approved by the person in charge of the project and the relevant leader; the quality control department will review and issue an audit opinion which will be submitted to the project review meeting for review; the project will be initiated after the project review meeting has reviewed and approved it.

(3) A complete project team shall be established for the project that has been approved to be initiated, to carry out due diligence and document production, establish and improve working drafts of the project due diligence.

Application review

The Sponsor reviewed the sponsored project by way of the sponsored project application review committee (hereinafter referred to as the “Application Review Committee”). The members of the review committee vote on the project on the basis of their independent judgment and decide whether the project is submitted to the company for internal review. The specific procedure is as follows:

(1) Before the project team applies to commence the application review procedure, it must complete the acquisition and collection of work drafts generated during the on-site due diligence phase and submit them to the quality control department for acceptance. If such working drafts are accepted, the project team may apply for commencing the review process of the application review meeting.

(2) The project team is required to go through the project application review procedure after the application documents for the offering are completed and before the application for the internal review is made. The application review shall be submitted by the project team and submitted to the quality control department after it has been reviewed and approved by the sponsor representatives and the relevant leader. The quality control department will issue a review opinion which will be submitted to the application review meeting for consideration.

(3) For a project that has been reviewed and approved by the application review meeting, the project team shall promptly improve the application documents for the offering in accordance with the modification advice of the review meeting and submit the

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application documents for the internal review to the internal review department as required and apply for the internal review.

Internal review

The internal review department is an internal review department in relation to the investment banking business of the Sponsor, and is responsible for the daily affairs of the internal review committee (hereinafter referred to as the “Internal Review Committee”) of the investment banking business of Haitong Securities. The internal review department carries out the output management and terminal risk control of investment banking projects by way of company-level review and performs the duty of finally approving and determining the submission, reporting, issuance or disclosure of materials and documents in the name of the company. The Internal Review Committee performs its duties by holding internal review meetings and decides whether to recommend to the CSRC and the Shanghai Stock Exchange the offering and listing of shares, convertible bonds and other securities of an issuer. The members of the Internal Review Committee independently present their opinions based on their respective duties. The specific workflow is as follows:

(1) The investment banking department will submit all the application documents to the internal review department, if the relevant materials are not complete, they will not be accepted. The list of application documents to be submitted shall be determined by the internal review department.

(2) The internal review department is responsible for the pre-review of application documents before they are submitted to the Internal Review Committee.

(3) The internal review department is responsible for delivering the application documents to the members of the Internal Review Committee and notifying the time of internal review meetings, and the application documents will be reviewed by the members of the Internal Review Committee.

(4) The internal review department carries out its reviews in accordance with the Rules on the Review of Investment Banking Projects of Haitong Securities Co., Ltd.

(5) Hold internal review meetings to review projects.

(6) The internal review department summarizes and sorts out the review opinions of

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the members of the Internal Review Committee, and feeds them back to the investment banking department and project staff.

(7) The investment banking department and project staff shall respond to the internal review opinions and perform supplementary due diligence (if necessary) based on the internal review opinions and modify the application documents accordingly.

(8) The internal department reviews the responses to and implementation of the internal review opinions.

(9) The members of the Internal Review Committee independently exercise their voting rights and cast their votes, and the internal review body makes internal review decisions which will be signed and confirmed by the members of the Internal Review Committee who are present at the meetings.

(10) A project that has been approved by the Internal Review Committee at a meeting through voting must go through the company’s internal approval procedure before being submitted to any third party.

(II) Opinion of the Internal Review Committee

On December 2, 2021, the Internal Review Committee of the Sponsor held an internal review meeting on the application for an initial public offering and listing of shares of Beijing Tongmei Xtal Technology Co., Ltd on the STAR Market. After voting, the Internal Review Committee considered that the Issuer’s application documents are in compliance with the requirements contained in the relevant laws, regulations, and normative documents in relation to initial public offerings and listings on the STAR Market, and agreed to recommend the Issuer’s shares to be offered and listed.

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Section II Undertakings of the Sponsor

The Sponsor undertakes that:

I. The Sponsor has conducted due diligence and prudential verification on the Issuer, its controlling shareholder, and actual controller in accordance with laws, administrative regulations, and the rules of the CSRC and the Shanghai Stock Exchange, and agrees to recommend the Issuer’s securities to be offered and listed, and accordingly issue this Sponsorship Letter for Offering.

II. Through the due diligence and prudential verification of application documents, the Sponsor:

has sufficient reasons to believe that the Issuer complies with laws and regulations and the relevant rules of the CSRC and the Shanghai Stock Exchange with respect to the offering and listing of securities;
has sufficient reasons to believe that the Issuer’s application documents and information disclosure materials have no false record, misleading representation or material omission;
has sufficient reasons to believe that the Issuer and its directors have sufficient and reasonable basis for expressing opinions in the application documents and information disclosure materials;
has sufficient reasons to believe that there is no substantial difference between the application documents, information disclosure materials and opinions expressed by the securities service agencies;
warrants that the designated sponsor representatives and relevant staff members of the Sponsor are diligent and responsible and have conducted due diligence and prudential verification on the Issuer’s application documents and information disclosure materials;
warrants that the Sponsorship Letter and other documents in relation to its performance of sponsorship duties have no false record, misleading representation or material omission;
warrants that the professional services and professional opinions provided to the

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Issuer are in compliance with laws, administrative regulations, rules of the CSRC and industry standards;

voluntarily accept the regulatory measures imposed by the CSRC in accordance with the Administrative Measures on the Sponsorship of Securities Offering and Listing;
other matters as required by the CSRC.

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Section III Recommendations for this Securities Offering

I. Decision-making procedure performed for this Securities Offering

The Sponsor has verified the implementation of the decision-making procedure for this Offering on an item-by-item basis. Upon verification, the Sponsor considers that the Issuer has fulfilled the decision-making procedure as stipulated in the Company Law, the Securities Law and the Registration Administration Measures and the provisions of the CSRC and the Shanghai Stock Exchange, the details of which are specified as follows:

Process of review by the board of directors

On November 29, 2021, the Company held the seventh meeting of the first board of directors, reviewed and passed the Proposal on the Company’s Initial Public Offering and STAR Market Listing of Shares, the Proposal on the Use of Funds Raised by the Company’s Initial Public Offering of Shares, the Proposal on the Plan Concerning the Distribution of Profits Accumulated Before the Company’s Initial Public Offering of Shares, the Proposal on Requesting the General Meeting of Shareholders to Authorize the Board of Directors to Deal with the Specific Matters in relation to the Company’s Initial Public Offering and STAR Market Listing of Shares and other proposals in relation to this Offering and listing.

Process of review by the general meeting of shareholders

On December 15, 2021, the Company held the second extraordinary general meeting of shareholders in 2021, reviewed and passed the Proposal on the Company’s Initial Public Offering and STAR Market Listing of Shares, the Proposal on the Use of Funds Raised by the Company’s Initial Public Offering of Shares, the Proposal on the Plan Concerning the Distribution of Profits Accumulated Before the Company’s Initial Public Offering of Shares, the Proposal on Requesting the General Meeting of Shareholders to Authorize the Board of Directors to Deal with the Specific Matters in relation to the Company’s Initial Public Offering and STAR Market Listing of Shares and other proposals in relation to this Offering and listing.

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

(I) Issuer satisfies the requirement of the STAR Market for industry

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The Company are mainly engaged in the R&D, production and sale of InP substrates, GaAs substrates, germanium substrates, PBN materials (PBN crucible, PBN plate, etc.) and high-purity materials (high-purity gallium with the purity of 6N, 7N and 8N, gallium-magnesium alloy, indium-magnesium alloy, etc.).

According to the Guidelines on the Industrial Classification for the Listed Companies (2012 Revision) of the CSRC, the Company is classified into the “C39 computer, communication and other electronic equipment manufacturing industry” under “C manufacturing industry”. According to the Industrial Classification for National Economic Activities (GB/T 4754-2017) of the Standardization Administration, the Company is classified into the “C398 manufacturing of electronic components and special-purpose electronic materials” under the “C39 computer, communication and other electronic equipment manufacturing industry”.

In addition, according to the Classification of Strategic Emerging Industries (2018) (No.23 Order of the National Bureau of Statistics) of the National Bureau of Statistics, the main products of the Company are classified into “1.2.3 Manufacturing of high energy storage and critical electronic materials” and “3.4.3.1 Manufacturing of semiconductor crystals”.

Semiconductor materials, as an important part in the upstream of the semiconductor industry chain, play a key role in the manufacturing of semiconductor products like integrated circuits and discrete devices, and have great significance in the upgrade of the industrial structure of China and the development of national economy. In order to promote the development of the semiconductor industry, strengthen the ability of industrial innovation and international competitiveness, propel the transformation of traditional industries and product upgrades, and further promote the continued, rapid and healthy development of the national economy, China has introduced a series of policies to encourage and support the development of the semiconductor industry in recent years, creating a sound policy environment for the development of the semiconductor industry.

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“(1) the new generation of information technology, mainly including semiconductor and integrated circuit, electronic information, next-generation information networks, artificial intelligence, big data, cloud computing, software, Internet, IoT, smart hardware, etc.”; the main business of the Issuer is in line with the industry into which the Issuer is classified, and there is no significant difference with the industry into which its comparable companies are classified.

(II) Verification on the Issuer’s satisfaction of the requirement for science and technology innovation attributes

The Company’s aggregate R&D expenses in 2019, 2020 and 2021 amount to RMB 162,101,000, accounting for 8.52% of the aggregate operating revenue in the past three years, the aggregate R&D expenses in the last three years account for more than 5% of the aggregate operating revenue in the last three years, the Company therefore satisfies the requirement set forth in Article 1(1) of the Guide on Assessment of Science and Technology Innovation Attributes (for Trial Implementation).

As of December 31, 2021, the Company’s R&D personnel account for 13.40% of the total number of employees, R&D personnel account for no less than 10% of the total number of employees in relevant year, the Company therefore satisfies the requirement set forth in Article 1(2) of the Guide on Assessment of Science and Technology Innovation Attributes (for Trial Implementation).

As of June 30, 2022, the Company owns 52 issued invention patents in China, and 9 invention patents abroad; and the Issuer’s revenue from products using core technologies accounted for 99.99%, 99.99% and 99.61% of the operating revenue in 2019 to 2021 respectively, there are more than 5 invention patents (including national defense patents) from which the main business income is derived, the Company therefore satisfies the requirement set forth in Article 1(3) of the Guide on Assessment of Science and Technology Innovation Attributes (for Trial Implementation).

The Company’s operating revenue was RMB 462‚226‚800, RMB 583‚170‚400 and RMB 857,345,200 in 2019, 2020 and 2021 respectively, the operating revenue of the Company in the most recent year is more than RMB 300,000,000, the Company therefore satisfies the requirement set forth in Article 1(4) of the Guide on Assessment of Science

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and Technology Innovation Attributes (for Trial Implementation).

As of June 30, 2022, the Company owned 61 invention patents, including 52 issued invention patents in China and 9 invention patents abroad, a total of 52 upon deduplication; there are 52 invention patents (including national defense patents) in total which constitute the Company’s core technologies and relate to the Company’s main business income (upon deduplication). Those patents are used for monocrystal growth, wafer cutting, edge trimming, grinding, polishing, cleaning and other processes, the production of PBN materials and other high-purity materials, and other main processes, and conform to Article 6 of the Tentative Provisions for Application for and Recommendation of Listing of Enterprises on the STAR Market of the Shanghai Stock Exchange (April 2021 Revision).

To sum up, the Company complies with Article 5 of the Tentative Provisions for Application for and Recommendation of Listing of Enterprises on the STAR Market of the Shanghai Stock Exchange (April 2021 Revision), and complies with the provision that “there are more than 50 invention patents (including national defense patents) which constitute core technologies and relate to the main business revenue” under Article 6.

(III) Upon verification, the Sponsor considers that the Issuer owns the science and technology innovation attributes, and accordingly satisfies the positioning of the STAR Market.

III. This Securities Offering meets the issuance conditions stipulated by the Securities Law

The Sponsor has verified the Issuer’s compliance with the Securities Law on a case-by-case basis regarding the IPO of new shares. Upon verification, the Sponsor believes that the Issuer’s current offering complies with the issuance conditions stipulated by the Securities Law. Details are as follows:

The Issuer has a sound and well-functioning organizational structure

The Issuer’s Articles of Association are legal and valid, and the Board of Shareholders, Board of Directors, Board of Supervisors and independent directors have sound systems and are able to perform their duties effectively according to law; the Issuer has the functional departments required for business operation, which are running well.

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The Issuer has a sound and well-functioning organizational structure, which is in compliance with Clause 1 (1) of Article 12 of the Securities Law.

The Issuer has the ability to continue its operation

In 2019, 2020 and 2021, the Issuer achieved operating revenues of RMB 462,226,800, RMB 583,170,400 and RMB 857,345,200 respectively. The net profits attributable to shareholders of the parent company were RMB -33,389,000, RMB 48,221,900, and RMB 94,587,600 respectively.

The Issuer’s current main scope of business or investment can guarantee its sustainable development. Its business model and investment plans are stable, its market prospects are sound, and there are no existing or foreseeable major adverse changes in the industry’s business environment or market demand.

The Issuer has the ability to continue its operation and meets the provisions under Clause 1 (2) of Article 12 of the Securities Law.

An unqualified audit report has been issued regarding the Issuer’s financial statements for the past three years

Ernst & Young Hua Ming Certified Public Accountants (Special General Partnership) has issued an unqualified audit report on the Issuer’s financial statements for the past three years. Ernst & Young Hua Ming Certified Public Accountants (Special General Partnership) believes that in all material aspects, Beijing Tongmei’s financial statements are prepared based on the Accounting Standards for Business Enterprises and fairly reflect Beijing Tongmei’s merger and the Company’s financial status on December 31, 2019, December 31, 2020 and December 31, 2021 as well as the merger and the Company’s operating results and cash flow for 2019, 2020 and 2021.

An unqualified audit report has been issued regarding the Issuer’s financial statements for the past three years, which complies with the provisions under Clause 1 (3) of Article 12 of the Securities Law.

The Issuer, as well as its controlling shareholder and actual controller, has not committed corruption, bribery, embezzlement of properties, misappropriation of properties, disruption of the order of the socialist market economy or any other crimes in the past three

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years

The Issuer has no actual controller, and the Issuer and its controlling shareholders have conscientiously implemented relevant national and local laws and regulations in the past three years, without committing corruption, bribery, embezzlement of properties, misappropriation of properties, disruption of the order of the socialist market economy or any other crimes.

The Issuer abides by the provisions under Clause 1 (4) of Article 12 of the Securities Law.

To sum up, the Sponsor believes that the Issuer meets the issuance conditions stipulated by the Securities Law.

IV. This Securities Offering meets the issuance conditions stipulated by the Administrative Measures for Registration

The Sponsor has verified terms related to the Issuer and the issuance on a case-by-case basis in accordance with the Administrative Measures for Registration. Upon verification, the Sponsor believes that the Issuer’s current offering complies with relevant regulations of the CSRC on IPO and listing on the STAR Market. The Sponsor’s conclusive opinions, verification process and factual basis are as follows:

(I) The subject qualification of the Issuer

The Issuer is a joint stock limited company established according to law and has been in the “going concern” status for more than 3 years with a sound and well-functioning organizational structure, and its relevant organizations and personnel can perform their duties legally.

Where a limited liability company is transformed into a joint stock limited company by converting its original net book asset value into shares as a whole, the duration of the “going concern” status may be counted from the date of incorporation of the limited liability company.

The Sponsor has reviewed the Issuer’s industrial and commercial files, business license and other relevant materials. On September 9, 1998, the Foreign Economic Relations and Trade Commission, Tongzhou District, Beijing issued the Official Reply on

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Contracts, Articles of Association and Composition of the Board of Directors Regarding the Incorporation of Beijing Tongmei Xtal Technology Co., Ltd ([1998] Tong Wai Jing Mao Fa No. 93), which agreed to the incorporation of Beijing Tongmei Xtal Technology Co., Ltd. (predecessor of the Issuer, hereinafter referred to as “Tongmei Limited”) as a joint venture incorporated by Head Office of Tongzhou Industrial Development Zone, Beijing and AXT, with a registered capital of USD 3.06 million. On September 15, 1998, the Beijing Municipal People’s Government issued the Certificate of Approval for Foreign-Invested Enterprises of the People’s Republic of China to Tongmei Co., Ltd. (Wai Jing Mao Jing Zi [1998] No. 00455). On September 25, 1998, Tongmei Limited obtained the Business License for Corporate Legal Person issued by the State Administration for Industry and Commerce.

On April 16, 2021, with the unanimous consent of all the promoters at the Issuer’s founding conference, the audited net assets of Tongmei Limited of RMB 1,345,479,418 as of January 31, 2021 would be converted into 885,426,756 shares at the ratio of 1:0.6581, and the remaining RMB 460,052,662 was accrued to the capital reserve, to initiate the incorporation of Beijing Tongmei Xtal Technology Co., Ltd by way of overall change. On April 16, 2021, the Market Supervision Administration of Tongzhou District, Beijing issued a new business license (unified social credit code: 91110000700004889C).

To sum up, the Issuer is a joint stock limited company incorporated and validly existing in accordance with the provisions under Article 10 of the Administrative Measures for Registration.

The Issuer has been transformed into a joint stock limited company through the conversion of the former limited company’s net book asset value into shares as a whole. The Company has been running continuously for more than three years as of the date of incorporation of the limited company, which complies with the provisions under Article 10 of the Administrative Measures for Registration.

(II) The Issuer’s finance and internal control

The accounting standards of the Issuer as well as the preparation and disclosure of its financial statements comply with the Accounting Standards for Enterprises and relevant information disclosure rules, and fairly reflect the Issuer’s financial status,

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operating results and cash flow in all material aspects, regarding which a certified public accountant have issued an unqualified audit report.

The Issuer’s internal control system is sound and effectively implemented, which can reasonably guarantee the Company’s operational efficiency, legal compliance as well as the reliability of its financial statements, and an unqualified internal control verification report has been issued by a certified public accountant.

The Sponsor has reviewed the Issuer’s relevant financial management system and confirmed the Issuer’s accounting standards; Ernst & Young Hua Ming Certified Public Accountants (Special General Partnership) issued a standard unqualified Audit Report, and in all material aspects, the Issuer’s financial statements are prepared based on the Accounting Standards for Business Enterprises and fairly reflect the Issuer’s financial status, operating results and cash flow during the reporting period, and comply with Clause 1, Article 11 of the Administrative Measures for Registration.
The Sponsor has reviewed the Issuer’s internal control system and confirmed that the Issuer’s internal control is effective in all material aspects. Ernst & Young Hua Ming Certified Public Accountants (Special General Partnership) issued the “Internal Control Audit Report, stating that “As of on December 31, 2021, Beijing Tongmei’s internal control regarding financial statements specified in the internal control report has effectively maintained the internal control regarding financial statements established in accordance with the Basic Standards for Enterprise Internal Control (Cai Kuai [2008] No. 7) in all material aspects.” It complies with the provisions of Clause 2, Article 11 of the Administrative Measures for Registration.

(III) The Issuer’s “going concern” status

The Issuer has a complete business system and has the ability to operate independently and continuously in the market:

1. The assets are complete, the business and personnel, finance and organizations are independent, and there is no horizontal competition with controlling shareholders, actual controllers and other companies controlled thereby that would have material adverse effects on the Issuer or related-party transactions

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that seriously affect independence or that are obviously unfair.

To gain an in-depth understanding of the Issuer’s business model, the Sponsor has reviewed the Issuer’s major contracts, interviewed major clients and suppliers through on-site visits and videos, and had interviews with the Issuer’s major functional departments, senior officers and controlling shareholders, so as to understand the Issuer’s organizational structure, business process and actual operating conditions. The Sponsor has confirmed that the Issuer has a complete business system and has the ability to operate independently and continuously in the market. Upon verification, the Issuer’s assets are complete, the business and personnel, finance and organizations are independent, which comply with the provisions under Clause 1, Article 12 of the Administrative Measures for Registration.

2. The Issuer’s main business, control rights, management team and core technical personnel are stable. There have been no major adverse changes in its main business, directors, senior officers or core technical personnel in the past two years; the ownership of the Issuer’s shares held by shareholders controlled by the controlling shareholders, controlled shareholders and actual controllers is clear. The controller has not been changed in the past two years, and there are no major ownership disputes that may lead to any change of the control right.

The Sponsor has reviewed the Issuer’s Articles of Association, resolutions and minutes of meetings of the Board of Directors and general meetings, reviewed the industrial and commercial registration documents, reviewed the Issuer’s financial statements, and confirmed the stability of the Issuer’s main business, management team and core technical personnel; There have been no major adverse changes in its main business, directors, senior officers or core technical personnel in the past two years; the ownership of the Issuer’s shares held by shareholders controlled by the controlling shareholders and controlled shareholders is clear. The controller has not been changed in the past two years, and there are no major ownership disputes that may lead to any change of the control right. The Issuer abides by Clause 2, Article 12 of the Administrative Measures for Registration.

3. The Issuer does not have any major ownership disputes on main assets, core technologies, trademarks, etc., major debt repayment risks, major guarantees,

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litigations, arbitrations and other contingencies, or major changes in the business environment that have occurred or will occur and other issues that have material adverse impact on the Issuer’s “going concern” status.

The Sponsor has reviewed the ownership documents of the Issuer’s main assets, core technologies, trademarks, etc., and confirmed that the ownership of the Issuer’s main assets, core technologies, trademarks, etc., is clear, and there are no major ownership disputes. The Sponsor has obtained the Issuer’s relevant credit record documents from the bank, and checked the Issuer’s relevant litigation and arbitration documents. The Issuer has no major debt repayment risks, and has no guarantees, litigations, arbitrations and other major contingencies that have impact on the “going concern” status.

The Sponsor has reviewed and analyzed relevant industry research materials, industry analysis reports, industry development plans formulated by competent industry authorities, etc., interviewed the Issuer’s senior officers, verified and analyzed the Issuer’s operating materials, financial statements, audit reports, etc., and confirmed that there are no major changes in the business environment that have occurred or will occur and other issues that have material adverse impact on the Issuer’s “going concern” status. The Issuer abides by Clause 3, Article 12 of the Administrative Measures for Registration.

(IV) Standardized operation of the Issuer

1. The Issuer’s production and operation comply with laws and administrative regulations, and comply with national industrial policies.

The Sponsor has reviewed the Issuer’s Articles of Association, reviewed relevant laws and regulations of the industry and national industrial policies, reviewed various government permits, title certificates or approval documents required for the production and operation of the Issuer, checked the Issuer’s production and operation premises, confirmed the Issuer’s main scope of business is the production of single crystal polished wafers and related semiconductor materials and ultra-pure elements; R&D of single crystal polished wafers and related semiconductor materials and ultra-pure elements; sale of its own products; wholesale of semiconductor materials and products, commissioned agency services (except auction), import and export (not involving commodities under state-owned trade management, any commodities involving quota and license management shall be

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subject to application in accordance with relevant national regulations); provision of consulting, technology and after-sales services. The Issuer’s production and operation comply with laws, administrative regulations and the Company’s Articles of Association, and comply with national industrial policies. Therefore, the Issuer abides by the Clause 1, Article 13 of the Administrative Measures for Registration.

2. In the past 3 years, the Issuer and its controlling shareholders and actual controllers have not committed corruption, bribery, embezzlement of properties, misappropriation of properties, disruption of the order of the socialist market economy or any other crimes, and have not committed any fraudulent issuance, major information disclosure violation or other major violations of the law involving national security, public safety, ecological safety, production safety, public health and safety and other areas.

No Directors, supervisors and senior officers have been subject to any administrative penalties imposed by the CSRC in the past three years, or have been investigated by the judicial organ for suspected crimes, or have been investigated by the CSRC for suspected violations of laws and regulations, which are still pending.

The Sponsor has obtained the explanation of the Issuer and its controlling shareholders regarding violations of laws and regulations, obtained documentary evidence issued by relevant departments and legal opinions issued by overseas lawyers, and confirmed that the Issuer and its controlling shareholders have not committed corruption, bribery, embezzlement of properties, misappropriation of properties, disruption of the order of the socialist market economy or any other crimes, and have not committed any fraudulent issuance, major information disclosure violation or other major violations of the law involving national security, public safety, ecological safety, production safety, public health and safety and other areas. Therefore, the Issuer abides by the Clause 2, Article 13 of the Administrative Measures for Registration.

The Sponsor has reviewed the announcements of the CSRC and the Stock Exchange, interviewed the Issuer’s directors, supervisors and senior officers, and obtained declaration documents from relevant personnel, and confirmed that no Directors, supervisors and senior officers have been subject to any administrative penalties imposed by the CSRC in

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the past three years, or have been investigated by the judicial organ for suspected crimes, or have been investigated by the CSRC for suspected violations of laws and regulations, which are still pending. Therefore, the Issuer abides by the Clause 3, Article 13 of the Administrative Measures for Registration.

V. Verification of the filing of the Issuer’s private equity investment fund filing

Upon verification by the Sponsor, as of the date of this Letter, the Issuer’s shareholders Haitong New Driving Force Equity Investment Fund Partnership (Limited Partnership), Liaoning Haitong New Energy Low-Carbon Industry Equity Investment Co., Ltd., Fujian Province Anxin Industry Investment Fund Partnership (Limited Partnership), Jinggangshan Meicheng Equity Investment Partnership (Limited Partnership), Hefei Walden II IC Industry Investment Partnership (Limited Partnership) (Limited Partnership), Qingdao Xinxingyi Equity Investment Fund Partnership (Limited Partnership) , Shangrong Baoying (Ningbo) Investment Center (Limited Partnership), Xiamen Heyongzhicheng Equity Investment Partnership (Limited Partnership) and Liaoning Zhuomei High-Tech Equity Investment Fund Partnership (Limited Partnership) are private equity investment funds regulated by the private equity fund rules, and the foregoing entities have already gone through the registration of fund managers and the filing of private equity investment funds.

VI. Verification conclusion of the Issuer’s operating status after the deadline for audit

Upon verification, the Sponsor considers that: during the period from the deadline for the audit of financial statements to the issuance sponsorship date, the Issuer is in good operating conditions, there are no major changes in the Issuer’s business model, the purchase scale and purchase prices of major raw materials, the production model, sales scale and sales prices of major products, the composition of major clients and suppliers and major tax policies, and there are no other major matters that may affect the judgment of investors.

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VII. Main risks of the Issuer

(I) Relevant risks in the listing of the Company and its controlling shareholder AXT respectively on the STAR Market and NASDAQ

After the current listing of the Company’s A-shares, the Company and its controlling shareholder AXT will respectively be listed on the STAR Market and NASDAQ. The Company and AXT shall abide by laws and regulations and listing supervision requirements of regulatory authorities of the two places Meanwhile. Information that needs to be disclosed publicly according to law shall be disclosed at both places Meanwhile.

Due to differences in laws and regulations as well as regulatory concepts between China and the United States, the Company and AXT are governed by different accounting standards and different regulatory requirements. Thus, there will be certain differences in specific accounting treatments and financial information disclosure. Meanwhile, due to differences in information disclosure requirements for listed companies raised by the securities regulatory authorities as well as differences in languages, cultures and expression habits, differences in the composition of investors and investment philosophies in China and the United States and differences in the specific conditions of the capital market, there may be differences between the stock price of the Company listed on the STAR Market and that listed on NASDAQ. This difference and AXT’s stock price fluctuations may affect the stock price of the Company listed on the STAR Market.

On December 18, 2020, the Holding Foreign Companies Accountable Act became law officially in the United States. It is stipulated by the “Holding Foreign Companies Accountable Act” that, starting from 2021, if the U.S. Securities and Exchange Commission (hereinafter referred to as the “SEC”) determines that a foreign company listed in the United States has hired any foreign (as opposed to the U.S., the same below) auditor that cannot be inspected by the U.S. Public Company Accounting Oversight Board (hereinafter referred to as “PCAOB”) for three consecutive years, the SEC will prohibit its securities registered in the U.S. from being traded on any U.S. national securities exchange (such as the NASDAQ or NYSE) or through over-the-counter trading.

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list of pre-delisted companies. If a listed company is included in the list of pre-delisted companies for three consecutive years, the SEC will prohibit such company from trading its shares in any U.S. securities market.

As of the signing date of this Prospectus, AXT has not been included by the PCAOB in the list of pre-delisted companies.

AXT has disclosed in the Risk Factors chapter of its released 2021 Annual Report (FORM 10-K) the risk of being included by PCAOB in the list of pre-delisted companies. AXT believes that the possibility of its being included in the list of pre-delisted companies still cannot be ruled out.

(II) Integration of subsidiaries and management risks

During the reporting period, the Company completed the acquisition of Chaoyang Tongmei, Baoding Tongmei, Chaoyang Jinmei, Nanjing Jinmei, Beijing Boyu, AXT-Tongmei and other companies through the merger of companies under the same control. Such companies are mainly engaged in the R&D, production and sale of GaAs substrates, PBN materials and other high-purity materials, as well as overseas purchase and overseas sale of semiconductor substrate materials, mainly in the United States. After the merger of the above subjects, the Company carried out their integration in operation management, R&D activities and other aspects. As of now, the business has been operated for over 12 months since the reorganization, and the operation is in good condition. However, if the Company fails to effectively implement the integration and management of the subsidiaries it holds, the Company’s future business activities may be affected to some extent.

(III) Dependence on some key raw material suppliers and risk in raw material price fluctuations

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term stable supply of the raw materials to the Company, so that the Company’s production and operation will be affected, leading to the failure to deliver products in time. In addition, the delayed supply of raw materials by a supplier may increase the production cost of the Company, and lead to delayed or reduced production, which will further affect the Company’s revenues and operating results.

(IV) The relocation of the factory resulted in risks in fluctuation of the gross profit margin of the products and the failure to meet the expected capacity with the new production line

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proficiency of the production staff. Thus, the Company’s production lines in Chaoyang, Liaoning and Baoding, Hebei are at the risk of not being able to achieve the design capacity stably, which may also result in fluctuations in the Company’s product gross profit margin to a certain extent.

(V) Operating risk in relation to germanium substrates

(VI) 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

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

(VII) Risks arising from changes in regulatory policies of the industry

The Company mainly operates in China, and its production and operation shall comply with relevant Chinese laws and regulations on production safety, environmental protection, use of hazardous chemicals, etc. In 2003, gallium was included in the “Catalogue of Hazardous Chemicals”. In 2015, gallium arsenide was listed as a dangerous chemical by the State Administration of Work Safety. The continuous tightening of regulatory policies in the industry requires the Company to strengthen the management of production, to ensure the legality and compliance of its production and operation. If the Company and its subsidiaries fail to comply with the relevant laws and regulations, they may have to assume heavy liabilities or be subject to the suspension of relevant business due to the removal of hazardous waste, personal injury or administrative punishment. The occurrence of the foregoing events may have material adverse impact on the Company’s business, financial status and operating results.

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(VIII) Risks in technology renewal

In the development of semiconductor materials, with technological breakthroughs in silicon-based materials, there is a risk that gallium arsenide substrates may be replaced by SOIs (SOIs) in radio frequency devices and other application fields. SOIs have certain performance advantages over silicon substrates. Though the radio frequency devices manufactured with SOIs are not as good as products manufactured with gallium arsenide substrates in terms of power consumption, heat generation and transmission speed for the time being, their cost is lower than that of gallium arsenide substrates, and the former has partially substituted the latter in smart phone and other application fields. If the cost performance of SOIs or other new substrate products is further improved and gains broader recognition in the market, or is used in more application scenarios, the scope of application of III-V compound semiconductor substrate materials will be narrowed, which may have adverse impact on the Company’s business and operating results.

(IX) Risks in market competition

The industry which the Company is engaged in has a high degree of market concentration. The III-V compound semiconductor substrate and germanium substrate products manufactured by the Company compete directly with Sumitomo, JX of Japan, Freiberger, Umicore and other international leading companies worldwide. All of the foregoing international competitors have strong R&D capabilities, technical reserves, sales channels and market reputation, and may also develop more advanced technologies and launch more competitive new products. Meanwhile, these competitors also have core technologies that are similar to the Company’s VGF technology.

With the continuous growth of the semiconductor terminal application market in China, the market of compound semiconductor materials has been developing rapidly, and new projects of III-V compound semiconductor materials are also emerging. The Company will face competitions from both international leading companies and new Chinese entrants, leading to the decline of prices of the Company’s products. If the Company is unable to deal with such competition effectively, the Company’s operating revenues, operating results and financial status will be affected adversely.

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(X) Risk in the loss of key personnel

The industry which the Company is engaged in is highly technology-intensive, and there is a large demand for professional talents, especially R&D personnel and outstanding management staff. With the continuous growth of market demand and the increasingly fierce competition in the industry, the competition for professional technical talents in the semiconductor materials industry has been intensifying. If the Company is unable to provide a better platform for development, salary packages that are more competitive in the market and good R&D conditions, the Company may be exposed to the risk of losing key personnel. The loss of key personnel of the Company will have adverse impact on its business.

(XI) Risk in the leakage of core technologies

With the long-term technology R&D and process accumulation, the Company has owned a series of independent intellectual property rights and technical know-hows. The Company attaches much importance to the protection of its core technologies. However, if the network security system of the Company or its suppliers cannot avoid unauthorized accesses, complex network attacks, or the any intellectual property right or technical know-how of the Company is leaked due to the improper handling of sensitive data by the Company’s employees or suppliers, the Company’s reputation and competitive position may be seriously endangered, which will further affect the Company’s business development and operating results adversely.

VIII. Analysis of the Issuer’s market prospect

1. Global industrial transfer brings important opportunities for the development of China’s semiconductor industry

In the history, the global semiconductor industry chain has experienced two geographical industrial transfers. The first transfer was from the United States to Japan in the 1970s, and the second transfer was from Japan to South Korea and Taiwan, China in the 1980s. At present, the global semiconductor industry is in the process of transferring to the Chinese mainland. Semiconductor materials are still a relatively weak link in the semiconductor industry of China. Under the background of the transfer of the semiconductor industry to the Chinese mainland, the Chinese mainland, as the world’s

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largest semiconductor terminal application market, is expected to attract more domestic and foreign semiconductor companies to build their factories in the Chinese mainland, which will further enhance the overall development of the domestic compound semiconductor industry chain. It is expected that in the future, the supporting environment of the compound semiconductor industry chain in the Chinese mainland will be greatly improved, and the market share will keep expanding.

2. New opportunities brought by new demands generated by new applications

Although III-V compound semiconductor substrate materials have excellent performance, they have been limited by the small scale of the downstream application market and their high costs for a long time. As a result, their market scale is much smaller than that of silicon substrate materials. However, in recent years, a number of new application fields for III-V compound semiconductors have emerged, bringing incremental markets for substrate companies, such as Mini LED, Micro LED, wearable device sensors, automotive LIDAR, biometric lasers, etc. Such demands are all in the process of industrialization. Due to the low base of the III-V compound substrate market scale, the turnover of each of the foregoing markets will have a significant driving effect on the entire III-V semiconductor substrate market. Besides, for the inherent application field of III-V compound semiconductors, in the markets for optical modules in base stations and data centers, smart phones and base station radio frequency devices, the rapid development of 5G communications, big data and cloud computing has also brought new opportunities to the construction of 5G base stations, the construction of data centers and upgrade of 5G smartphone, all of which are great growth points in the III-V semiconductor substrate market.

3. Technical features and advantages of the Issuer’s products

Since its incorporation, the Company has been insisting driving development with independent innovation, focusing on the R&D and innovation of new products, new technologies and new processes. With years of continuous R&D and process improvement, the Company has formed a profound technical accumulation.

As of June 30, 2022, the Company possesses 61 invention patents in total, including 52 domestic invention patents and 9 overseas invention patents. It also possesses a large number of know-hows of processes and formulations. The Company has formed an

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independent and controllable core technology system related to III-V compound semiconductor materials. Besides, the Company also boasts the “Specialized Novel SMEs of Beijing”, the national post-doctoral research station, Beijing Science and Technology Research and Development Institution, the 13th “Beijing Enterprise Technology Center” of Beijing and other qualifications and awards.

The Company has worked with major domestic colleges and scientific research institutions in the field of semiconductor materials, to jointly promote the industrialization of scientific and technological achievements and promote the in-depth integration of production, education and research. Relevant institutions that work with the Company include the Chinese Academy of Sciences, Massachusetts Institute of Technology, California Institute of Technology, Peking University, University of Science and Technology of China, Shanghai Jiao Tong University, Xiamen University, etc.

The Company’s existing products include indium phosphide substrates of 2-6 inches, gallium arsenide substrates of 1-8 inches, germanium substrates of 2-6 inches, PBN materials and high-purity gallium (with purity of 6N, 7N & 8N), etc. Its products are widely used in 5G communications, data centers, new-generation display, artificial intelligence, unmanned driving, wearable devices, aerospace and many other areas.

The commercial application of a new technology is a long process, which will often experience demonstration, trial production, mass production, promotion and other steps. As early as the stage of demonstration and application of 5G communications, data centers, new-generation display (Mini LED and Micro LED), unmanned driving and other technologies, the Company has already delivered prototypes of the products to downstream clients, colleges and other organizations. The Company has continuously communicated with downstream clients on product performance parameters, to accurately grasp client needs, and also predict the commercialization prospect of the new technology in advance, so as to seize opportunities in the market.

With reliable product quality and sound goodwill, the Company has become one of the most competitive companies in the III-V compound semiconductor material industry of the world. According to Yole’s statistics, in 2020, the market share of the Company’s indium phosphide substrate products ranked second in the world, and in 2019, the market share of the Company’s gallium arsenide substrate products ranked fourth in the world.

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IX. Verification of the paid engagement of third-party agencies and individuals and other related activities

Based on the Opinions on Strengthening the Prevention and Control of Risks for Integrity Practices in the Engagement of Third Parties by Securities Companies in Investment Banking Business (Zheng Jian Hui Gong Gao [2018] No. 22), the Sponsor’s paid engagement of various third parties and individuals for the current sponsorship business (hereinafter referred to as “Third Parties”) and other related activities have been verified. Details are as follows:

Verification of the Sponsor’s paid engagement of Third Parties and other related activities

The Sponsor has not directly or indirectly engaged any Third Party with compensation in the current sponsorship business, and there is no undisclosed engagement of any Third Party.

Verification of the Issuer’s paid engagement of Third Parties and other related activities

The Sponsor has carried out a special inspection on the Issuer’s paid engagement of Third Parties and other related activities. Upon verification, the Issuer has directly or indirectly engaged other third parties with compensation in addition to the securities service agencies such as law firms, accounting firms and assets appraisal agencies that are required to be engaged for such projects according to law. Details are as follows:

To prepare the feasibility study report of the investment project with raised funds, the Issuer engaged Beijing S&P Consulting Co., Ltd. for relevant consulting services, and the Issuer has already paid RMB 226,600.

To translate the Company’s documents in foreign languages, the Issuer has engaged Beijing Tianyi Times Translation Co., Ltd. for translation services and for the presentation of relevant translation documents. The cost charged by Beijing Tianyi Times Translation Co., Ltd. engaged by the Company is calculated based on the number of times of translation and the contents of translation. As of the date of the Letter, the Issuer has already paid RMB 402,400.

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Upon verification by the Sponsor, the Issuer’s relevant engagement behaviors comply with laws and regulations.

X. Sponsorship conclusion of the Sponsor for this Securities Offering and listing

As entrusted by Beijing Tongmei Xtal Technology Co., Ltd., Haitong Securities Co., Ltd. has acted as the Sponsor for the Company’s IPO and listing on the STAR Market. In line with industry-accepted business standards, ethics, and diligence, the Sponsor has conducted full due diligence and prudent verification on the Issuer’s issuance conditions, existing major problems and risks, development prospect, etc., performed stringent internal review procedures regarding the current issuance, and passed the review by the Core Committee of Haitong Securities.

The Sponsor hereby draws the following recommendation conclusion for the current issuance of the Issuer’s securities:

The Issuer abides by requirements for the IPO and listing on the STAR Market under the Company Law of the People’s Republic of China, the Securities Law of the People’s Republic of China, the Administrative Measures for Registration of IPO on the STAR Market (Trial), the Listing Rules for the STAR Market of the Shanghai Stock Exchange and other laws regulations and normative documents, there are no false records, misleading representations or major omissions in application documents for the issuance. Beijing Tongmei Xtal Technology Co., Ltd has sound internal management, standardized business operation and good development prospect, and has met the basic conditions for IPO and listing on the STAR Market. Therefore, the Sponsor agrees to recommend Beijing Tongmei Xtal Technology Co., Ltd to apply for IPO and listing on the STAR Market, and assume relevant sponsorship liabilities.

Appendix:

Special Power of Attorney for Representative of Sponsor from Haitong Securities Co., Ltd. in Respect of the IPO and Listing on the STAR Market of Beijing Tongmei Xtal Technology Co., Ltd

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(The following space is left blank intentionally, and is only for the signing and stamping of the Haitong Securities Co., Ltd.’s Sponsorship Letter for Offering in respect of Initial Public Offering and STAR Market Listing of Shares of Beijing Tongmei Xtal Technology Co., Ltd.)


Signature of the co-organizer:

	XI Hua
		July 29, 2022




ZHONG Zhuke	WU Ting
		July 29, 2022

Signature of the responsible person of the sponsorship business department:


	JIANG Chengjun
		July 29, 2022
Signature of the responsible person for internal review:


	ZHANG Weidong
		July 29, 2022
Signature of the responsible person for sponsorship business:


	REN Peng
		July 29, 2022
Signature of the general manager of the Sponsor:


	LI Jun
		July 29, 2022
Signature of the chairman and legal representative of the Sponsor:


	ZHOU Jie
		July 29, 2022

Sponsor: Haitong Securities Co., Ltd.

July 29, 2022

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Special Power of Attorney for Representative of Sponsor Issued by

Haitong Securities Co., Ltd. in Respect of the IPO and Listing on the

STAR Market of Beijing Tongmei Xtal Technology Co., Ltd

As prescribed by the Administrative Measures for Securities Issuance and Listing Sponsorship Business and relevant documents, this company hereby designates ZHONG Zhuke and WU Ting as the sponsor’s representatives for the IPO and listing on the STAR Market of Beijing Tongmei Xtal Technology Co., Ltd., in charge of the due diligence sponsorship, continuous supervision and other sponsorship work for the Company’s listing. The co-organizer of the project is XI Hua.

It is hereby authorized.

Signature of the representative of the Sponsor:



	ZHONG Zhuke		WU Ting

Signature of the legal representative of the Sponsor:



	ZHOU Jie

Sponsor: Haitong Securities Co., Ltd.

July 29, 2022 3-1-2-37

Exhibit 99.3 Sponsorship Letter for Listing

Issued by Haitong Securities Co., Ltd.

in Respect of

Initial Public Offering and Listing on the

STAR Market of Beijing Tongmei Xtal

Technology Co., Ltd.

Sponsor (Lead Underwriter)

(No.689 Guangdong Road, Shanghai)

July 2022

Statement

Pursuant to the Company Law of the People’s Republic of China (hereinafter referred to as the “Company Law”), the Securities Law of the People’s Republic of China (hereinafter referred to as the “Securities Law”), the Administrative Measures on the Sponsorship of Securities Offering and Listing (hereinafter referred to as the “Sponsorship Administration Measures”), the Administrative Measures on the Registration of the Initial Public Offering of Stocks on the Science and Technology Innovation Board (for Trial Implementation) (hereinafter referred to as the “Registration Measures”), the Rules on the Listing of Stocks on the Science and Technology Innovation Board of Shanghai Stock Exchange (hereinafter referred to as the “Listing Rules”) and other applicable laws, administrative regulations and rules of the China Securities Regulatory Commission (hereinafter referred to as the “CSRC”) and Shanghai Stock Exchange, the Sponsor and sponsor representatives issue this Sponsorship Letter for Listing in good faith and with due care in strict accordance with its business rules and industry self-regulatory practices that are formulated in accordance with the law, and warrant that the documents issued are authentic, accurate and complete.

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I. Basic information of the Issuer

(I) Basic information of the Issuer


Issuer	北京通美晶体技术股份有限公司
English Name	Beijing Tongmei Xtal Technology Co., Ltd.
Registered Capital	RMB 885,426,756
Legal Representative	MORRIS SHEN-SHIH YOUNG
Date of Incorporation of <br>Limited Company	September 25, 1998
Date of Incorporation of<br>Joint Stock Company	April 16, 2021
Scope of Business	Production of monocrystalline polished wafers and related semiconductor materials and ultra-purity elements; R&D of monocrystalline polished wafers and related semiconductor materials and ultra-purity elements; sale of self-produced products; wholesale, commission-based agency (except auction) and import and export (not involving commodities under the state-owned trade management, and in case of involving any commodity subject to the quota or license management, the application shall be made therefor in accordance with applicable regulations of the State), providing consultation, technology and after-sales services. (The market entity independently chooses its businesses and carries out business activities in accordance with the law; for businesses that are subject to approval in accordance with the law, it will carry out business activities in accordance with the approved content after being approved by relevant authorities; it is not allowed to engage in business activities that are prohibited and restricted by the State and industrial policies of this city)

(II) Main business, core technologies and level of R&D

Beijing Tongmei Xtal Technology Co., Ltd. (hereinafter referred to as the “Issuer”, “Company” or “Beijing Tongmei”), as a globally well-known semiconductor material technology enterprise, mainly engages in the research, development, production, and sales of InP substrates, GaAs substrates, germanium substrates, PBN materials, and other high-purity materials. The InP substrate, GaAs substrate, and germanium substrate products of the Company may be used to produce RF devices, optical modules, LEDs (mini LEDs and micro LEDs), lasers, detectors, sensors, space solar cell and other devices, having a broad scope of application in 5G communications, data centers, new generation display, artificial intelligence, unmanned driving, wearable device, aerospace, etc. The PBN materials and other high-purity materials products of the Company guarantee the high-quality supply of upstream materials for the Company’s semiconductor substrates at the very source, with a

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broad scope of application in compound semiconductor, semiconductor devices, OLED, LED, and other industries.

The Company is ranked in the first tier, among main competitors Sumitomo, JX of Japan, and Freiberger, in the global industry of III-V compound semiconductor materials. In the future, given the gradual migration of the semiconductor industry chain to China and maturing downstream industries, including 5G communications, data centers, new generation display, etc., the Company has the potential of developing into a leader for global III-V compound semiconductor substrate materials by making the most of the development opportunities on emerging markets in a new industrial cycle.

(III) Main operating and financial data and indicators

Item	December 31, 2021	December 31, 2020	December 31, 2019
Total assets (in RMB 0’000)	197,898.70	180,304.38	133,621.60
Equity attributable to owners of the parent (in RMB 0’000)	140,817.16	97,181.93	90,194.28
Debt-to-asset ratio (parent company)	16.71%	38.88%	44.24%
Item	2021	2020	2019
Operating revenue (in RMB 0’000)	85,734.52	58,317.04	46,222.68
Net profit (in RMB 0’000)	9,403.45	6,027.42	-2,806.35
Net profit attributable to the shareholders of the Issuer (in RMB 0’000)	9,458.76	4,822.19	-3,338.90
Net profit attributable to shareholders of the parent after deduction of extraordinary gain or loss (in RMB 0’000)	8,992.18	898.18	-1,505.14

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Basic earnings per share (RMB)	0.11	N/A	N/A
Diluted earnings per share (RMB)	0.11	N/A	N/A
Weighted average return on net assets	7.88%	5.04%	-3.68%
Net cash flows from operating activities (in RMB 0’000)	-1,953.44	5,525.03	9,767.77
Cash dividends (in RMB 0’000)	-	-	-
Ratio of R&D expenses to operating revenue	10.52%	7.73%	5.80%

(IV) Main risks of the Issuer

1. Relevant risks in the listing of the Company and its controlling shareholder AXT respectively on the STAR Market and NASDAQ.

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auditor that cannot be inspected by the U.S. Public Company Accounting Oversight Board (hereinafter referred to as “PCAOB”) for three consecutive years, the SEC will prohibit its securities registered in the U.S. from being traded on any U.S. national securities exchange (such as the NASDAQ or NYSE) or through over-the-counter trading.

As of the signing date of this Prospectus, AXT has not been included by the PCAOB in the list of pre-delisted companies.

2. Integration of subsidiaries and management risks

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3. Dependence on some key raw material suppliers and risk in raw material price fluctuations

The main raw materials required for the Company’s production include gallium metal, germanium ingots, quartz materials, high-purity arsenic, indium phosphide polycrystalline, boron trichloride, etc. The cost of raw materials accounts for a relatively high proportion in the production cost, and their price fluctuations will have certain impact on the Company’s performance. The Company usually purchases the foregoing main raw materials through purchase orders. As the above raw materials are not bulk commodities and there are few suppliers in the market, the Company relies on some key raw material suppliers to a certain extent, and the relevant suppliers may be unable to guarantee the long-term stable supply of the raw materials to the Company, so that the Company’s production and operation will be affected, leading to the failure to deliver products in time. In addition, the delayed supply of raw materials by a supplier may increase the production cost of the Company, and lead to delayed or reduced production, which will further affect the Company’s revenues and operating results.

4. The relocation of the factory resulted in risks in fluctuation of the gross profit margin of the products and the failure to meet the expected capacity with the new production line

After the relocation of the GaAs production line, the InP substrates and germanium

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substrates need to assume a larger part of depreciation of fixed assets. Meanwhile, the Company has also reassigned the original GaAs substrate workshop staff in Beijing to InP substrate and germanium substrate workshops, and the idle production capacity of GaAs substrates has not been fully converted into the production capacity of InP substrate and germanium substrates, resulting in fluctuations in the gross profit margin of the Company’s InP substrate and germanium substrate products to a certain extent.

5. Operating risk in relation to germanium substrates

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of germanium substrates of the Company in the domestic market dropped from RMB289.04/piece to RMB226.23/piece, a decline of 7.89%. The entry of Yunnan Germanium and other domestic competitors has resulted in intensified competition in the germanium substrate market. If the Company is unable to maintain a competitive advantage in the production of the existing products and the development of new products, there is a risk that the Company’s share in the germanium substrate market will be reduced, the revenue or gross profit of the Company generated therefrom may be further decreased.

6. Risk of intensification of international trade disputes

7. Risks arising from changes in regulatory policies of the industry

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chemical by the State Administration of Work Safety. The continuous tightening of regulatory policies in the industry requires the Company to strengthen the management of production, to ensure the legality and compliance of its production and operation. If the Company and its subsidiaries fail to comply with the relevant laws and regulations, they may have to assume heavy liabilities or be subject to the suspension of relevant business due to the removal of hazardous waste, personal injury or administrative punishment. The occurrence of the foregoing events may have material adverse impact on the Company’s business, financial status and operating results.

8 . Risks in technology renewal

9. Risks in market competition

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10. Risk in the loss of key personnel

11. Risk in the leakage of core technologies

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II. Particulars of this Offering by the Issuer

Type of shares	RMB-denominated ordinary shares (A-shares)
Par value per share	RMB1.00 per share
Number of shares offered	Up to 98,390,000 shares will be offered in this public offering, representing at least 10.00% of the total share capital of the Company immediately after the completion of this Offering. No existing shareholder will publicly sell any share through this Offering
Post-offering total share capital	Up to 983,816,756 shares
Mode of pricing	The Issuer and the Lead Underwriter will inquire with professional institutional investors such as securities companies, fund management companies, trust companies, finance companies, insurance companies, qualified foreign institutional investors, and PE fund managers registered with the Securities Association of China, to determine the offering price of shares
Mode of offering	The shares will be offered through inquiry of and allocation to offline enquiry targets and online subscription, or in such other manner as approved by the securities regulatory authorities.
Targets of offering	Qualified enquiry targets and individuals, corporations and other investors who have opened accounts on the STAR Market of the Shanghai Stock Exchange, except for those prohibited by the applicable laws and regulations of the State.
Mode of underwriting	Standby underwriting
Proposed place of listing	Shanghai Stock Exchange

III. Project sponsor representatives, assistant and other members of the project team for this securities offering

(I) Project sponsor representatives

The Sponsor designates ZHONG Zhuke and WU Ting as sponsor representatives for the initial public offering and listing of shares of Beijing Tongmei Xtal Technology Co., Ltd. on the STAR Market (hereinafter referred to as this “Offering”).

WU Ting: a sponsor representative of this Project, a senior manager of the Investment Banking Headquarter of Haitong Securities. He has been engaged in the investment

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banking business since 2017. He has mainly participated in the IPO of Shandong Jingdao Microelectronics, the public offering of FENGGUANG PRECISION MACHINERY on the NEEQ Select, etc.

(II) Project assistant

The Sponsor designates XI Hua as the project assistant for this Offering.

XI Hua: the project assistant of this Project, a senior manager of the Investment Banking Headquarter of Haitong Securities. He has been engaged in the investment banking business since 2020. He has mainly participated in the IPO of ACM Research, the IPO of Masteck, etc.

(III) Other members of the project team

Other members of the project team of this Offering: ZHANG Bowen, LI Ling and WANG Jianwei.

IV. Statement on whether there is any circumstance under which the Sponsor’s performance of its sponsorship duties in a fair manner may be affected

Haitong Innovation, Haitong New Driving Force and Haitong New Energy hold 1.4859%, 1.3373% and 0.5201% of the Issuer’s shares respectively. The fund manager of both Haitong New Driving Force and Haitong New Energy and the executive partner of Haitong New Driving Force is Haitong New Energy Private Equity Investment Management Co., Ltd. Haitong Innovation holds 49.40% equity interest in Haitong New Energy, Haitong Capital Co., Ltd. holds 0.50% and 19.33% equity interest in Haitong New Energy and Haitong New Driving Force respectively. Both the indirect shareholder of Haitong New Energy Private Equity Investment Management Co., Ltd. and the controlling shareholder of Haitong Capital Co., Ltd. and Haitong Innovation is Haitong Securities.

The Sponsor will arrange relevant subsidiaries to participate in the strategic placement of the Issuer in this Offering in accordance with relevant rules of the Exchange.

Except for the above, neither the Sponsor nor any of its controlling shareholder, actual controller, or significant related parties holds any share in the Issuer or any of its controlling

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shareholder, actual controller, or significant related parties.

Neither the Issuer nor any of its controlling shareholder, actual controller, or significant related parties holds any share in the Sponsor or any of its controlling shareholder, actual controller, or significant related parties;
None of the sponsor representatives and their spouses, directors, supervisors and senior executives of the Sponsor holds any share in the Issuer or any of its controlling shareholder, actual controller or significant related parties, or holds a position in the Issuer or any of its controlling shareholder, actual controller or significant related parties;
There is no mutual security, financing or any other relationship between the controlling shareholder, actual controller or significant related parties of the Sponsor and the controlling shareholder, actual controller or significant related parties of the Issuer;
There is no other related party relationship between the Sponsor and the Issuer.

V. Undertakings of the Sponsor

The Sponsor undertakes that:

I. The Sponsor has conducted due diligence and prudential verification on the Issuer, its controlling shareholder, and actual controller in accordance with laws, regulations, and the relevant rules of the CSRC and the Shanghai Stock Exchange, and has fully understood the operating conditions of the Issuer and the risks and problems the Issuer faces, and completed the corresponding internal review procedure.

The Sponsor agrees to recommend the Issuer’s securities to be offered and listed in this Offering, has corresponding sponsorship working papers to support the same and accordingly issues this Sponsorship Letter for Listing.

II. Through the due diligence and prudential verification of application documents, the Sponsor:

has sufficient reasons to believe that the Issuer complies with laws and regulations and the relevant rules of the CSRC and the Shanghai Stock Exchange with respect to the offering and listing of securities;
has sufficient reasons to believe that the Issuer's application documents and

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information disclosure materials have no false record, misleading representation or material omission;

has sufficient reasons to believe that the Issuer and its directors have sufficient and reasonable basis for expressing opinions in the application documents and information disclosure materials;
has sufficient reasons to believe that there is no substantial difference between the application documents, information disclosure materials and opinions expressed by the securities service agencies;
warrants that the designated sponsor representatives and relevant staff members of the Sponsor are diligent and responsible and have conducted due diligence and prudential verification on the Issuer’s application documents and information disclosure materials;
warrants that the Sponsorship Letter and other documents in relation to its performance of sponsorship duties have no false record, misleading representation or material omission;
warrants that the professional services and professional opinions provided to the Issuer are in compliance with laws, administrative regulations, rules of the CSRC and industry standards;
voluntarily accept the regulatory measures imposed by the CSRC in accordance with the Administrative Measures on the Sponsorship of Securities Offering and Listing;
other matters as required by the CSRC.

VI. Decision-making procedure performed for this Securities Offering

The Sponsor has verified the implementation of the decision-making procedure for this Offering. Upon verification, the Sponsor considers that the Issuer has fulfilled the decision-making procedure as stipulated in the Company Law, the Securities Law and the provisions of the CSRC and the Shanghai Stock Exchange, the details of which are specified as follows:

Process of review by the board of directors

On November 29, 2021, the Company held the seventh meeting of the first board of

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directors, reviewed and passed the Proposal on the Company’s Initial Public Offering and STAR Market Listing of Shares, the Proposal on the Use of Funds Raised by the Company’s Initial Public Offering of Shares, the Proposal on the Plan Concerning the Distribution of Profits Accumulated Before the Company’s Initial Public Offering of Shares, the Proposal on Requesting the General Meeting of Shareholders to Authorize the Board of Directors to Deal with the Specific Matters in relation to the Company’s Initial Public Offering and STAR Market Listing of Shares and other proposals in relation to this Offering and listing.

Process of review by the general meeting of shareholders

VII. The Sponsor’s description of the satisfaction by the Issuer of the positioning of the STAR Market

(I) Issuer satisfies the requirement of the STAR Market for industry

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Activities (GB/T 4754-2017) of the Standardization Administration, the Company is classified into the “C398 manufacturing of electronic components and special-purpose electronic materials” under the “C39 computer, communication and other electronic equipment manufacturing industry”.

Upon verification, the industry where the Issuer operates is the industry of “manufacturing of semiconductor materials”, which fall into the industry specified under Article 3 of Tentative Provisions for Application for and Recommendation of Listing of Enterprises on the STAR Market of the Shanghai Stock Exchange, which stipulates that “(1) the new generation of information technology, mainly including semiconductor and integrated circuit, electronic information, next-generation information networks, artificial intelligence, big data, cloud computing, software, Internet, IoT, smart hardware, etc.”; the main business of the Issuer is in line with the industry into which the Issuer is classified, and there is no significant difference with the industry into which its comparable companies are classified.

(II) Verification on the Issuer’s satisfaction of the requirement for science and technology innovation attributes

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As of June 30, 2021, the Company owned 61 invention patents, including 52 issued invention patents in China and 9 invention patents abroad, a total of 52 upon deduplication; there are 52 invention patents (including national defense patents) in total which constitute the Company’s core technologies and relate to the Company’s main business income (upon deduplication). Those patents are used for monocrystal growth, wafer cutting, edge trimming, grinding, polishing, cleaning and other processes, the production of PBN materials and other high-purity materials, and other main processes, and conforms to

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Article 6 of the Tentative Provisions for Application for and Recommendation of Listing of Enterprises on the STAR Market of the Shanghai Stock Exchange (April 2021 Revision).

(III) Upon verification, the Sponsor considers that the Issuer owns the science and technology innovation attributes, and accordingly satisfies the positioning of the STAR Market.

VIII. The Sponsor’s statement about the compliance of this securities offering with the issuance conditions

The Sponsor has verified the Issuer’s compliance with the listing conditions under the Listing Rules on a case-by-case basis. Upon verification, the Sponsor believes that the Issuer’s current offering complies with the issuance conditions stipulated by the Listing Rules. Details are as follows:

(I) Compliance with the issuance conditions stipulated by the CSRC

The subject qualification of the Issuer

(1) The Sponsor has reviewed the Issuer’s industrial and commercial files, business license and other relevant materials. On September 9, 1998, the Foreign Economic

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Relations and Trade Commission, Tongzhou District, Beijing issued the Official Reply on Contracts, Articles of Association and Composition of the Board of Directors Regarding the Incorporation of Beijing Tongmei Xtal Technology Limited ([1998] Tong Wai Jing Mao Fa No. 93), which agreed to the incorporation of Beijing Tongmei Xtal Technology Co., Ltd. (predecessor of the Issuer, hereinafter referred to as “Tongmei Limited”) as a joint venture incorporated by Head Office of Tongzhou Industrial Development Zone, Beijing and AXT, with a registered capital of USD 3.06 million. On September 15, 1998, the Beijing Municipal People’s Government issued the Certificate of Approval for Foreign-Invested Enterprises of the People’s Republic of China to Tongmei Co., Ltd. (Wai Jing Mao Jing Zi [1998] No. 00455). On September 25, 1998, Tongmei Limited obtained the Business License for Corporate Legal Person issued by the State Administration for Industry and Commerce.

On April 16, 2021, with the unanimous consent of all the promoters at the Issuer’s founding conference, the audited net assets of Tongmei Limited of RMB 1,345,479,418 as of January 31, 2021 would be converted into 885,426,756 shares at the ratio of 1:0.6581, and the remaining RMB 460,052,662 was accrued to the capital reserve, to initiate the incorporation of Beijing Tongmei Xtal Technology Limited by way of overall change. On April 16, 2021, the Market Supervision Administration of Tongzhou District, Beijing issued a new business license (unified social credit code: 91110000700004889C).

To sum up, the Issuer is a joint stock limited company incorporated and validly existing in accordance with the provisions under Article 10 of the Administrative Measures for Registration.

(2) The Issuer has been transformed into a joint stock limited company through the conversion of the former limited company’s net book asset value into shares as a whole. The Company has been running continuously for more than three years as of the date of incorporation of the limited company, which complies with the provisions under Article 10 of the Administrative Measures for Registration.

The Issuer’s finance and internal control

The accounting standards of the Issuer as well as the preparation and disclosure of its financial statements comply with the Accounting Standards for Enterprises and relevant

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information disclosure rules, and fairly reflect the Issuer’s financial status, operating results and cash flow in all material aspects, regarding which a certified public accountant have issued an unqualified audit report.

(1) The Sponsor has reviewed the Issuer’s relevant financial management system and confirmed the Issuer’s accounting standards; Ernst & Young Hua Ming Certified Public Accountants (Special General Partnership) issued a standard unqualified Audit Report, and in all material aspects, the Issuer’s financial statements are prepared based on the Accounting Standards for Business Enterprises and fairly reflect the Issuer’s financial status, operating results and cash flow during the reporting period, and comply with Clause 1, Article 11 of the Administrative Measures for Registration.

(2) The Sponsor has reviewed the Issuer’s internal control system and confirmed that the Issuer’s internal control is effective in all material aspects. Ernst & Young Hua Ming Certified Public Accountants (Special General Partnership) issued the “Internal Control Audit Report, stating that “As of December 31, 2021, Beijing Tongmei’s internal control regarding financial statements specified in the internal control report has effectively maintained the internal control regarding financial statements established in accordance with the “Basic Standards for Enterprise Internal Control” (Cai Kuai [2008] No. 7) in all material aspects.” It complies with the provisions of Clause 2, Article 11 of the Administrative Measures for Registration.

The Issuer’s “going concern” status

The Issuer has a complete business system and has the ability to operate independently and continuously in the market:

(1) The assets are complete, the business and personnel, finance and organizations are independent, and there is no horizontal competition with controlling shareholders, actual controllers and other companies controlled thereby that would have material adverse

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effects on the Issuer or related-party transactions that seriously affect independence or that are obviously unfair.

(2) The Issuer’s main business, control rights, management team and core technical personnel are stable. There have been no major adverse changes in its main business, directors, senior officers or core technical personnel in the past two years; the ownership of the Issuer’s shares held by shareholders controlled by the controlling shareholders, controlled shareholders and actual controllers is clear. The controller has not been changed in the past two years, and there are no major ownership disputes that may lead to any change of the control right.

(3) The Issuer does not have any major ownership disputes on main assets, core technologies, trademarks, etc., major debt repayment risks, major guarantees, litigations,

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arbitrations and other contingencies, or major changes in the business environment that have occurred or will occur and other issues that have material adverse impact on the Issuer’s “going concern” status.

The Sponsor has reviewed the ownership documents of the Issuer’s main assets, core technologies, trademarks, etc., and confirmed that the ownership of the Issuer’s main assets, core technologies, trademarks, etc., is clear, and there are no major ownership disputes. The Sponsor has obtained the Issuer’s relevant credit record documents from the bank, and checked the Issuer’s relevant litigation and arbitration documents. The Issuer has no major debt repayment risks, and has no guarantees, litigations, arbitrations and other major contingencies that have impact on the “going concern” status.

The Sponsor has reviewed and analyzed relevant industry research materials, industry analysis reports, industry development plans formulated by competent industry authorities, etc., interviewed the Issuer’s senior officers, verified and analyzed the Issuer’s operating materials, financial statements, audit reports, etc., and confirmed that there are no major changes in the business environment that have occurred or will occur and other issues that have material adverse impact on the Issuer’s “going concern” status. The Issuer abides by Clause 3, Article 12 of the Administrative Measures for Registration.

Standardized operation of the Issuer

(1) The Issuer’s production and operation comply with laws and administrative regulations, and comply with national industrial policies.

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(2) In the past 3 years, the Issuer and its controlling shareholders and actual controllers have not committed corruption, bribery, embezzlement of properties, misappropriation of properties, disruption of the order of the socialist market economy or any other crimes, and have not committed any fraudulent issuance, major information disclosure violation or other major violations of the law involving national security, public safety, ecological safety, production safety, public health and safety and other areas.

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or have been investigated by the CSRC for suspected violations of laws and regulations, which are still pending. Therefore, the Issuer abides by the Clause 3, Article

(II) The total share capital after the issuance shall be no less than RMB 30 million

The total equity of the Issuer is RMB 885,426,756. According to the resolution of the Issuer’s general meeting, the Issuer intends to offer publicly no more than 98,390,000 shares. After the issuance, the total number of shares of the Issuer will not exceed 983,816,756 shares, and the total share capital after the issuance will be no less than RMB 30 million.

(III) The publicly offered shares account for more than 25% of the Company’s total shares; if the Company’s total share capital exceeds RMB 400 million, the publicly issued shares shall account for more than 10%

The total equity of the Issuer is RMB 885,426,756. According to the resolution of the issuer’s general meeting of shareholders, the issuer intends to publicly issue no more than 98,390,000 shares, accounting for no less than 10% of the total share capital after the issuance.

(IV) Compliance of the market value and financial indicators comply with relevant regulations

The listing standard selected by the Issuer is Paragraph (4), Article 2.1.2, Chapter II of the “Listing Rules for the STAR Market of the Shanghai Stock Exchange”: The estimated market value shall be no less than RMB 3 billion, and the operating revenues in the past year shall be no less than RMB 300 million.

According to the “Audit Report” of a standard unqualified audit opinion issued by Ernst & Young Hua Ming Certified Public Accountants (Special General Partnership), the Issuer’s operating revenues in the past year was RMB 857 million, which is in line with the standard of RMB 300 million for operating revenues of the past year.

Based on the equity transfer and the valuation of domestic listings of comparable companies during the reporting period, the Issuer’s estimated market value is no less than RMB 3 billion, which is in line with the market value indicator in the selected listing standard. The specific listing standard selected by the Issuer meets the requirements under

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Paragraph (4), Article 2.1.2 of the Listing Rules for the STAR Market of the Shanghai Stock Exchange.

IX. The Sponsor’s Arrangement for the Continuous Supervision and Guidance of the Issuer

The period of continuous supervision and guidance is the remaining period of the year when the securities are listed and the following 3 complete fiscal years.
In the event that there are sufficient reasons to be convinced that the Issuer may have violated any laws or regulations or committed other improper acts, the Issuer shall be urged to make an explanation and correct it within a required time limit; if the circumstances are severe, it shall be reported to the CSRC and the Shanghai Stock Exchange.
As prescribed by the information disclosure provisions of the CSRC and the Shanghai Stock Exchange, a public statement shall be made on the Issuer’s violation of laws and regulations.
Supervise and guide the Issuer to effectively implement and improve the system to prevent major shareholders and other related parties from occupying the Issuer’s resources improperly.
Supervise and guide the Issuer to effectively implement and improve the internal control system to prevent its senior officers from impairing the Issuer’s interests by taking advantage of their positions.
Supervise and guide the Issuer to effectively implement and improve the system to ensure the fairness and compliance of related-party transactions, and express opinions on related-party transactions.
Supervise and guide the Issuer to perform its obligation of information disclosure, review information disclosure documents and other documents submitted to the CSRC and the Stock Exchanges.
Continue to pay attention to the Issuer’s use of the raised funds, the implementation of its investment projects and other commitments.

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9. Continue to pay attention to the Issuer’s activities such as guarantees provided to other parties, and express corresponding opinions.

Other tasks assigned by the CSRC and under the sponsorship agreement.

X. Contact information of the Sponsor and the Sponsor’s Representatives

Sponsor: Haitong Securities Co., Ltd.

Sponsor’s representatives: ZHONG Zhuke and WU Ting

Address: 689 Guangdong Road, Shanghai

Tel: 021-23219000

Fax: 021-63411627

XI. Other Matters to be Explained as Deemed as Necessary by the Sponsor

The Sponsor has no other matters to be explained.

XII. Recommendation Conclusion of the Sponsor for the Current Listing

The Sponsor considers that: the Issuer abides by the Company Law, the Securities Law, the Administrative Measures for Registration of IPO on the STAR Market (Trial), Listing Rules for the STAR Market of the Shanghai Stock Exchange and other laws regulations and normative documents. The Issuer meets the position of the STAR Market and is qualified to be listed on the STAR Market of the Shanghai Stock Exchange. The Sponsor agrees to recommend Beijing Tongmei Xtal Technology Limited for its IPO and listing on the STAR Market and assumes relevant sponsorship liabilities.

The Sponsor hereby makes the recommendation for approval!

(The following space is left blank intentionally.)

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(The following space is left blank intentionally, and is only for the signing and stamping of the Haitong Securities Co., Ltd.’s Sponsorship Letter for Listing in respect of Initial Public Offering and STAR Market Listing of Shares of Beijing Tongmei Xtal Technology Co., Ltd.)

Signature of the co-organizer:

	XI Hua
		July 29, 2022




ZHONG Zhuke	WU Ting
		July 29, 2022

Signature of the responsible person for internal review:


	ZHANG Weidong
		July 29, 2022

Signature of the responsible person for sponsorship business:


	REN Peng
		July 29, 2022

Signature of the general manager of the Sponsor:


	LI Jun
		July 29, 2022

Signature of the chairman and legal representative of the Sponsor:


	ZHOU Jie
		July 29, 2022

		Sponsor: Haitong Securities Co., Ltd.

		July 29, 2022

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Exhibit 99.4

Exhibit 99.5<br><br><br><br>Beijing Tongmei Xtal Technology Co., Ltd.<br><br><br>Audited Financial Statements<br><br><br><br>For the Years of 2019, 2020 and 2021
Exhibit 99.5<br><br>Beijing Institute of Certified Public Accountants<br><br>Unified Business Report Coding<br>Filing System<br><br>Unified Business Filing Code:<br><br>110002432022923000575<br><br>Report Title:<br><br>Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Auditor’s Report for Three Years of 2019,<br>2020 and 2021<br><br>Report Ref.:<br><br>EY (2022) Shen Zi No. 61641535_ B01<br><br>Name of Audited<br>(Inspected)<br>Entity:<br><br>Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Name of Accounting Firm:<br><br>Ernst<br><br>&<br><br>Young<br><br>Huaming<br><br>Certified Public<br>Accountants (Special General Partnership)<br><br>Business Type:<br><br>Audit of Financial Statements<br><br>Opinion Type:<br><br>Unqualified Opinion<br><br>Repor<br>t Date:<br><br>March 15, 2022<br><br>Filing Date:<br><br>March 17, 2022<br><br>Signed CPA:<br><br>CHEN Xiaosong (310000012097),<br><br>LU Yang (110002430428)<br><br><br>(The information can be<br>queried<br><br>by scanning the QR code or entering the filing<br>code on the official website of the Beijing Institute of Certified Public<br>Accountants<br>..<br>)<br><br>Note: This filing information only certifies that the report mentioned herein has<br>been filed with the Beijing Institute<br><br>of Certified Public Accountants,<br>and does not<br>represent that<br><br>the Beijing Institute of Certified Public Accountants<br>makes any<br>form of guarantee for the content of the report in any sense<br>..
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Exhibit 99.5<br><br>Beijing Tongmei Xtal Technology Co., Ltd.<br><br><br><br><br><br><br>Table of Contents<br><br><br><br><br><br><br><br><br><br>Pages<br><br>Auditor<br>’<br>s Report<br><br><br>1<br>-<br>4<br><br>Audited Financial Statements<br><br><br>Consolidated Balance Sheet<br><br>5<br>-<br>6<br><br>Consolidated Income Statement<br><br>7<br>-<br>8<br><br>Consolidated Statement of<br>Changes in Shareholders<br>’<br>/Owners<br>’<br><br>Equity<br><br>9<br>-<br>11<br><br>Consolidated Cash Flow Statement<br><br>12<br>-<br>13<br><br>Balance Sheet of the Company<br><br>14<br>-<br>15<br><br>Income Statement of the Company<br><br>16<br><br>Statement of Changes in Shareholders<br>’<br>/Owners<br>’<br><br>Equity of the Company<br><br>17<br>-<br>19<br><br>Cash Flow<br>Statement of the Company<br><br>20<br>-<br>21<br><br>Notes to the Financial Statements<br><br><br>22<br>-<br>246<br><br>Supplementary Information<br><br><br>1.<br><br>Non<br>-<br>recurring Income Statement<br><br><br><br>2.<br>Return on Net Assets and Earnings Per Share
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1<br><br>3<br>-<br>2<br>-<br>1<br>-<br>4<br><br>Auditor<br>’<br>s<br>Report<br><br><br>EY (2022) Shen Zi No. 61641535_B01<br><br>Beijing Tongmei Xtal Technology Co., Ltd.<br><br><br><br>To all shareholders of Beijing Tongmei Xtal Technology Co., Ltd.:<br><br><br>I. Opinion<br><br><br>We have audited the financial statements of Beijing Tongmei Xtal Technology Co., Ltd. (the<br>“<br>Company<br>”<br>),<br>includin<br>g<br>the consolidated and the company’s balance sheets<br>as of December 31,<br>2019, December 31, 2020 and December 31, 2021,<br>the consolidated and the co<br>mpany’s income<br>statements, statements of changes in shareholders’/owners’ equity, cash flow statements and<br>notes to relevant financial statements<br><br>for the years 2019, 2020 and 2021.<br><br><br>In our opinion, the<br>attached<br><br>financial statements of the Company are prepa<br>red in accordance<br>with the provisions of the Accounting Standards for Business Enterprises in all material respects,<br>and give a true and fair view of the consolidated and the company<br>’<br>s financial positions as of<br>December 31, 2019, December 31, 2020 and Dece<br>mber 31, 2021, as well as the consolidated<br>and the company<br>’<br>s operating results and cash flows for years 2019, 2020 and 2021.<br><br><br>II.<br>Basis<br>f<br>or Opinion<br><br><br>We conducted our audit in accordance with the<br>Chinese Auditing Standards<br><br>for Certified Public<br>Accountants<br>..<br>The<br>CPA's Responsibility for the Audit of Financial Statements<br><br>section of the<br>Auditor’s Report<br><br>further elaborates our responsibilities under these standards.<br><br>We are<br>independent of the Company and have fulfilled other prof<br>essional ethics responsibilities in<br>accordance with the Code of Professional Ethics for Certified Public Accountants in China. We<br>believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis<br>for our opinion.<br><br><br>III. Key<br>Audit Matters<br><br><br>Key audit matters are those matters that we, in our professional judgment, consider most<br>significant for the audit of the financial statements for the years 2019, 2020 and 2021. These<br>matters shall be addressed in the context of our audit of<br><br>the financial statements as a whole and<br>the formation of an audit opinion<br>, and we shall not express opinons on these matter<br>s<br><br>separately.<br>This is the background for our description of how each of the following matters was addressed<br>in the audit.
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2<br><br>3<br>-<br>2<br>-<br>1<br>-<br>5<br><br>We have fulfilled the responsibilities set forth in the CPA's Responsibility for the Audit of<br>Financial Statements section of this report, including those related to the key audit matters<br>mentioned. Accordingly, our audit work includes the implementation o<br>f audit procedures<br>designed to<br>address the assessed risk of material misstatement in the financial statements<br>.. The<br>results of our audit procedures, including the procedures for the following key audit matters,<br>have provided a basis for our overall audit op<br>inion on the financial statements.<br><br><br>The Key Audit Matter:<br><br>How the matter was addressed in our audit:<br><br>Revenue recognition<br><br><br>In 2021, 2020 and 2019, the<br>operating income in the<br>consolidated financial<br>statements amounted to<br>RMB857,345,238.40, RMB<br>583,170,404.87 and RMB<br>462,226,756.77, respectively.<br>Operating income is the key<br>performance indicator of<br>Beijing Tongmei Xtal<br>Technolo<br>gy Co., Ltd., which<br>has a significant impact on the<br>consolidated financial<br>statements. Therefore, we<br>identify the same as the key<br>audit matter.<br><br><br>The accounting policies and<br>disclosures of operating income<br>in the financial statements are<br>set out in notes II<br>I.22, III.24,<br>V.36 and XV.5 to the financial<br>statements.<br><br><br><br><br>In the audit of financial statements for years 2021, 2020<br>and 2019, t<br>he procedures we have implemented for revenue<br>include<br>:<br><br>(1)<br><br>Understand,<br>evaluate<br>and test management<br>’<br>s design<br>and implementation of internal revenue control;<br><br>(2)<br><br>Review key sales contracts or orders, identify key<br>contractual terms, and visit key customers to<br>understand and evaluate the management<br>’<br>s<br>accounting policies for the recognition of different<br>categori<br>es of operating income;<br><br>(3)<br><br>Carry out analytical review procedures to compare the<br>changes in various categories of income and gross<br>profit margin in 2021, 2020 and 2019, and make<br>comparative analysis with comparable companies in<br>the same industry;<br><br>(4)<br><br>Perform deta<br>iled tests to check supporting documents<br>related to revenue recognition, including sales<br>contracts or orders, shipment notes, sales invoices,<br>receipts, customs declaration, bill of lading and bank<br>receipt slips;<br><br>(5)<br><br>Carry out background investigation for major<br><br>customers to see whether there are matters that have a<br>significant impact on the Company<br>’<br>s statements;<br><br>(6)<br><br>Review sales contracts or orders, sales invoices,<br>receipts, customs<br>declarations,<br><br>and bills of lading and<br>other supporting documents for revenue transac<br>tions<br>before and after the balance sheet date.<br>At the same<br>time, check the bank accounts after the period to check<br>whether there are large sales returns or cut<br>-<br>off<br>problems<br>;<br><br>(7)<br><br>Combined with audit of accounts receivables, execute<br>confirmation procedure for th<br>e revenue transaction<br>volume and the balance of accounts receivable on the<br>balance sheet date,<br>and perform substitution tests on<br>the samples that have not been replied to<br>;<br><br>(8)<br><br>Check the disclosure of operating income in financial<br>statements.
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3<br><br>3<br>-<br>2<br>-<br>1<br>-<br>6<br><br>IV. Responsibi<br>lities of the Management and Those Charged with Governance For<br>Financial Statements<br><br><br>T<br>he management is responsible for the preparation and fair presentation of financial statements<br>in accordance with<br>the A<br>ccounting<br>S<br>tandards for<br>B<br>usiness<br>E<br>nterprises, and<br>for<br>designing,<br>implementing<br>and maintaining internal control<br>to ensure that<br><br>the financial statements<br><br>are free<br>from material misstatement due to fraud or error.<br><br><br>In preparing the financial statements, the<br>management<br><br>is<br><br>responsible for assess<br>ing the<br>Company<br>’<br>s ability to continue as a going concern, disclosing, as applicable, matters related to<br>going concern and using the going concern<br>assumption<br>unless liquidation, termination of<br>operations or no other realistic alternative is planned.<br><br><br>Those<br><br>charged with<br><br>governance<br><br>are<br>responsible for overseeing the Company<br>’<br>s financial<br>reporting process.<br><br><br>V. CPA<br>’<br>s Responsibility for the Audit of Financial Statements<br><br><br>Our objective is to obtain reasonable assurance that the financial statements<br>are<br><br>free from<br>material misstatement due to fraud or error, and to issue an<br>Auditor<br>’<br>s Report<br><br>that includes our<br>opinion. Reasonable assurance is a high level of assurance, but dose not guarantee that an audit<br>conducted in accordance with<br>Auditing Standards<br><br>will always detect a material misstatement<br>when it exists. Misstatements may rise from fraud<br><br>or error are considered material if it is<br>reasonably expected that misstatement, individually ot collectively, could affect economic<br>decisions made by users of the financial statements based on the financial statements.<br><br><br>As part of an audit in accordance<br>with Auditing Standards, we exercise professional judgment<br>and maintain professional skepticism throughout the audit. We also:<br><br><br>(1)<br><br>Identify and assess the risks of material misstatement of financial statements due to fraud<br>or error, design and implement audit<br><br>procedures to address these risks, and obtain<br>sufficient and appropriate audit evidence as a basis for the auditing opinion. The risk of<br>not detecting a material misstatement resulting from fraud is higher than that resulting<br>from error, as fraud may invo<br>lve collusion, forgery, intentional omissions,<br>misrepresentations, or overrunning internal control.<br><br><br>(2)<br><br>U<br>nderstand<br>the<br>internal control relevant to the audit in order to design<br>appropriate<br>audit<br>procedures but not for the purpose of expressing an opinion on t<br>he effectiveness of internal<br>control<br>s<br>..<br><br><br>(3)<br><br>Evaluate the appropriateness of accounting policies used and the r<br>ationality<br><br>of accounting<br>estimates and related disclosures made by the management.<br><br><br>(4)<br><br>Conclude on the appropriateness of the going concern assumption ad<br>opted by the<br>management<br>..<br><br>A<br>nd<br><br>based on the audit evidence obtained,<br>it is concluded<br><br>whether a<br>there is<br>material uncertainly<br><br>in<br>events or conditions that may<br>cause<br><br>significant doubt on the<br>Company<br>’<br>s ability to continue as a going concern. If we conclude that there is a material<br>uncertainty, we are required by the<br>A<br>uditing<br>S<br>tandards to<br>bring relevant disclosures in the<br>financial statements to the attention of the users of the statements in our<br>Audito<br>r’s Report<br>;<br><br>Auditor<br>’<br>s Report<br>;<br><br>if such disclosures are inadequate,<br>we should express unqualified<br>opinions<br>.. Our conclusions are based on<br>information available as of the<br>Auditor’s Report<br><br>date<br>Auditor<br>’<br>s Report<br>.. However, future events or conditions may cause the<br><br>Company to<br>be<br>unable<br><br>to continue as a going concern.
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4<br><br>3<br>-<br>2<br>-<br>1<br>-<br>7<br><br>(5)<br><br>Evaluate the overall presentation (including disclosure), structure and content of the<br>financial statements, and<br>evaluate<br>whether the financial statements<br>fairly reflect<br><br>relevant<br><br>transactions and events.<br><br><br>(6)<br><br>Obtain sufficient and appropriate audit evidence<br>on<br><br>the financial information of entities or<br>business activities<br>of<br><br>the Company to express<br>audit<br>opinion<br>s<br>on the financial statements.<br>We are responsible for<br>guiding<br>, supervisi<br>ng<br><br>and<br>executing<br><br>the group audit, and remain<br>solely responsible for our audit opinion<br>..<br><br><br>W<br>e communicate with those charged with governance<br>on the<br>scope<br>,<br><br>timing<br>,<br><br>and significant<br>audit findings<br><br>of the planned audit<br>, including<br>internal control deficiencies of concern identified<br>during the audit<br>..<br><br><br>We also provide those charged with governance<br>declarations of compliance<br><br>with ethical<br>requirements regarding independence, and communicate with them all relationships and other<br>matters that may reasonably be<br>considered to affect<br><br>our independence,<br>as well as<br><br>relevant<br>precautions, if applicable<br>..<br><br><br>From<br>our<br><br>communica<br>tion<br><br>with those charged with governance, we determine matters that were<br>of most significance in the audit of the financial statements for 2019, 2020 and 2021 and<br>thus<br>constituted key audit matters<br>.. W<br>e describe these matters in our<br>Auditor<br>’<br>s Report<br><br>unless law or<br>regulation precludes public disclosure about the matter or when, in extremely rare<br>circumstances, we determine that a matter should not be communicated in our report because<br>the adverse consequ<br>ences of doing so would reasonably be expected to outweigh the public<br>interest benefits of such communication.<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>(No Text Below)<br><br><br><br><br>Ernst & Young Huaming Certified Public<br>Accountants<br><br><br>Chinese CPA: CHEN Xiaosong<br><br>(Project Partner)<br><br><br><br><br><br><br><br>Chinese CPA: LU Yang<br><br><br><br><br>Beijing, China<br><br>March 15, 2022
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Consolidated Balance Sheet<br><br>December 31, 2019, December 31, 2020, and December 31, 2021<br><br>In RMB<br><br>Yuan<br><br><br>5<br><br>3<br>-<br>2<br>-<br>1<br>-<br>8<br><br><br>Assets<br><br>Note V<br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Current assets<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Cash and bank balances<br><br>1<br><br><br>173,268,353.70<br><br><br>388,755,642.43<br><br><br>107,376,657.08<br><br><br><br><br>Notes receivable<br><br>2<br><br><br>14,791,661.17<br><br><br>21,862,967.74<br><br><br>18,206,727.38<br><br><br>Accounts receivable<br><br>3<br><br><br>218,634,452.22<br><br><br>152,366,039.89<br><br><br>129,799,284.01<br><br><br><br><br>Receivables financing<br><br>4<br><br><br>61,883,885.84<br><br><br>29,854,223.07<br><br><br>15,222,595.14<br><br><br><br><br>Prepayments<br><br>5<br><br><br>7,795,086.06<br><br><br>5,227,195.36<br><br><br>3,247,217.70<br><br><br><br><br>Other receivables<br><br>6<br><br><br>1,241,421.56<br><br><br>8,478,982.75<br><br><br>4,431,107.50<br><br><br>Inventories<br><br>7<br><br><br>383,817,905.04<br><br><br>284,639,853.42<br><br><br>245,695,265.62<br><br><br>Non<br>-<br>current assets due<br>within one year<br><br>8<br><br><br>-<br><br><br>-<br><br><br>2,000,000.00<br><br><br>Other current assets<br><br>9<br><br><br>48,809,347.25<br><br><br>32,539,623.68<br><br><br>32,047,071.04<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Total current assets<br><br><br><br>910,242,112.84<br><br><br>923,724,528.34<br><br><br>558,025,925.47<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Non<br>-<br>current asset<br><br><br><br><br><br><br><br><br><br><br><br>Long<br>-<br>term accounts<br>receivable<br><br>10<br><br><br>-<br><br><br>1,982,947.59<br><br><br>2,982,947.59<br><br><br><br><br>Long<br>-<br>term equity<br>investments<br><br>11<br><br><br>28,229,232.52<br><br><br>34,795,289.61<br><br><br>28,831,582.10<br><br><br><br><br>Fixed assets<br><br>12<br><br><br>647,253,818.53<br><br><br>614,605,658.83<br><br><br>308,761,273.43<br><br><br>Construction<br>-<br>in<br>-<br>progress<br><br>13<br><br><br>218,832,054.69<br><br><br>122,637,987.23<br><br><br>332,609,288.25<br><br><br>Right<br>-<br>of<br>-<br>use assets<br><br>14<br><br><br>15,750,877.18<br><br><br>-<br><br><br>-<br><br><br>Intangible assets<br><br>15<br><br><br>81,098,011.69<br><br><br>59,404,517.70<br><br><br>58,409,993.81<br><br><br>Long<br>-<br>term deferred<br>expenses<br><br>16<br><br><br>16,270,911.87<br><br><br>8,273,994.81<br><br><br>4,354,785.19<br><br><br>Deferred income tax assets<br><br>17<br><br><br>35,644,215.51<br><br><br>31<br>,<br>926,793.57<br><br><br>15,311,096.00<br><br><br>Other non<br>-<br>current assets<br><br>18<br><br><br>25,665,796.93<br><br><br>5,692,107.70<br><br><br>26,929,084.86<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Total<br>non<br>-<br>current assets<br><br><br><br>1,068,744,918.92<br><br><br>879<br>,<br>319,297.04<br><br><br>778,190,051.23<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Total assets<br><br><br><br>1,978,987,031.76<br><br><br>1<br>,<br>803,043,825.38<br><br><br>1,336,215,976.70<br><br><br><br>Signed by:<br><br><br><br>Legal Representative:<br>MORRIS SHEN<br>-<br>SHIH YOUNG<br><br><br>Chief Accountant: HAO Ze<br><br>Person in<br>Charge of the<br><br>Accounting Office<br>: HAO Ze<br><br><br>The accompanying notes to the financial statements form an integral part of these financial statements.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Consolidated Balance Sheet (Continued)<br><br>December 31, 2019, December 31, 2020, and December 31, 2021<br><br>In RMB<br><br>Yuan<br><br><br>6<br><br>3<br>-<br>2<br>-<br>1<br>-<br>9<br><br><br>Liabilities and<br>shareholders<br>’<br>/owners<br>’<br><br>equity<br><br>Note V<br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Current liabilities<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Short<br>-<br>term borrowings<br><br>19<br><br><br>77,824,673.22<br><br><br>68,060,478.89<br><br><br>40,050,313.33<br><br><br>Accounts payable<br><br>20<br><br><br>122,512,602.84<br><br><br>144,640,852.50<br><br><br>109,420,672.63<br><br><br>Accounts received in<br>advance<br><br>21<br><br><br>-<br><br><br>-<br><br><br>912,554.07<br><br><br>Contract liabilities<br><br>22<br><br><br>5,153,911.67<br><br><br>1,777,199.43<br><br><br>-<br><br><br>Staff<br>remuneration payables<br><br>23<br><br><br>31,106,118.44<br><br><br>22,554,090.16<br><br><br>18,176,631.52<br><br><br>Taxes payable<br><br>24<br><br><br>5,560,297.45<br><br><br>7,791,750.49<br><br><br>9,336,506.41<br><br><br>Other payables<br><br>25<br><br><br>180,754,586.76<br><br><br>516,317,089.51<br><br><br>171,110,599.51<br><br><br>Non<br>-<br>current liabilities due<br>within one year<br><br>26<br><br><br>5,180,116.97<br><br><br>1,270,662.51<br><br><br>1,212,434.40<br><br><br>Other current liabilities<br><br><br><br>191,791.77<br><br><br>169,511.33<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br>Total current liabilities<br><br><br><br>428,284,099.12<br><br><br>762,581,634.82<br><br><br>350,219,711.87<br><br><br><br><br><br><br><br><br><br><br><br>Non<br>-<br>current liabilities<br><br><br><br><br><br><br><br><br><br>Lease<br>liabilities<br><br>27<br><br><br>12,731,559.35<br><br><br>-<br><br><br>-<br><br><br>Long<br>-<br>term accounts payable<br><br>28<br><br><br>6,293,999.48<br><br><br>11,845,887.69<br><br><br>13,116,550.20<br><br><br>Accrued liabilities<br><br>29<br><br><br>5,041,359.64<br><br><br>1,860,786.83<br><br><br>1,076,864.69<br><br><br>Deferred income<br><br>30<br><br><br>98,717,388.28<br><br><br>54,936,252.92<br><br><br>31,321,166.67<br><br><br><br><br><br><br><br><br><br><br><br>Total non<br>-<br>current liabilities<br><br><br><br>122,784,306.75<br><br><br>68,642,927.44<br><br><br>45,514,581.56<br><br><br><br><br><br><br><br><br><br><br><br>Total liabilities<br><br><br><br>551,068,405.87<br><br><br>831,224,562.26<br><br><br>395,734,293.43<br><br><br><br>Shareholders<br>’<br>/owners<br>’<br><br>equity<br><br><br><br><br><br><br><br><br><br><br>Share<br>capital/paid<br>-<br>in capital<br><br>31<br><br><br>885,426,756.00<br><br><br>817,676,478.00<br><br><br><br>301,106,668.53<br><br><br>Capital reserve<br><br>32<br><br><br>430,653,462.37<br><br><br>16,283,718.84<br><br><br><br>412,202,926.40<br><br><br>Other comprehensive<br>income<br><br><br><br>35,556.59<br><br><br>-<br><br><br><br>-<br><br><br>Special reserve<br><br>33<br><br><br>5,369,200.80<br><br><br>4,561,194.59<br><br><br><br>3,146,269.25<br><br><br>Surplus reserve<br><br>34<br><br><br>-<br><br><br>14,896,593.30<br><br><br><br>14,896,593.30<br><br><br>Undistributed profit<br><br>35<br><br><br>86<br>,<br>686,662.48<br><br><br>118<br>,<br>401,278.39<br><br><br><br>170,590,328.42<br><br><br><br><br><br><br><br><br><br><br><br><br>Total shareholders<br>’<br>/owners<br>’<br><br>equity attributable to the parent<br>company<br><br><br><br>1<br>,<br>408,171,638.24<br><br><br>971<br>,<br>819,263.12<br><br><br><br>901,942,785.90<br><br><br><br><br><br><br><br><br><br><br><br><br>Minority equity<br><br><br><br>19<br>,<br>746,987.65<br><br><br>-<br><br><br><br>38,538,897.37<br><br><br><br><br><br><br><br><br><br><br><br><br>Total shareholders<br>’<br>/owners<br>’<br><br>equity<br><br><br><br>1<br>,<br>427,918,625.89<br><br><br>971<br>,<br>819,263.12<br><br><br><br>940,481,683.27<br><br><br><br><br><br><br><br><br><br><br><br><br>Total liabilities and<br>shareholders<br>’<br>/owners<br>’<br><br>equity<br><br><br><br>1<br>,<br>978,987,031.76<br><br><br>1<br>,<br>803,043,825.38<br><br><br><br>1,336,215,976.70<br><br><br><br><br><br>Signed by:<br><br><br><br>Legal Representative: MORRIS SHEN<br>-<br>SHIH YOUNG<br><br>Chief Accountant: HAO Ze<br><br>Person in Charge of the<br><br>Accounting Office<br>: HAO Ze<br><br><br><br>The accompanying notes to the financial statements form an integral part of these financial statements.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Consolidated Income Statement<br><br>2019<br>,<br>2020<br><br>and<br>2021<br><br>In RMB<br><br>Yuan<br><br>7<br><br>3<br>-<br>2<br>-<br>1<br>-<br>10<br><br><br><br><br>Note V<br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Operating income<br><br>36<br><br><br>857,345,238.40<br><br><br>583<br>,<br>170,404.87<br><br><br>462<br>,<br>226,756.77<br><br><br>Less: operating costs<br><br>36<br><br><br>561<br>,<br>292,564.21<br><br><br>433<br>,<br>394,293.98<br><br><br>372<br>,<br>403,936.10<br><br><br>Tax and surcharges<br><br>37<br><br><br>10,493,973.02<br><br><br>8<br>,<br>416,862.36<br><br><br>7<br>,<br>345,136.49<br><br><br>Selling expenses<br><br>38<br><br><br>21<br>,<br>182,199.42<br><br><br>7<br>,<br>918,007.70<br><br><br>8<br>,<br>371,747.24<br><br><br>Administrative expenses<br><br>39<br><br><br>77<br>,<br>088,700.97<br><br><br>57,972,462.06<br><br><br>72,076,218.04<br><br><br>R&D<br>expenses<br><br>40<br><br><br>90<br>,<br>166,408.81<br><br><br>45,108,162.97<br><br><br>26,826,432.02<br><br><br>Financial expenses<br><br>41<br><br><br>4,911,966.14<br><br><br>(4,658,333.80<br>)<br><br><br>1<br>,<br>422,791.15<br><br><br>Including: interest expense<br><br><br><br>3,540,730.12<br><br><br>2<br>,<br>565,014.26<br><br><br>945<br>,<br>205.13<br><br><br>Interest income<br><br><br><br>1,614,165.98<br><br><br>464<br>,<br>078.68<br><br><br>452<br>,<br>879.62<br><br><br>Add: other income<br><br>42<br><br><br>5<br>,<br>976,587.69<br><br><br>2<br>,<br>220,026.59<br><br><br>3<br>,<br>268,444.83<br><br><br>Investment income<br><br>43<br><br><br>11,512,213.05<br><br><br>4<br>,<br>716,025.61<br><br><br>1<br>,<br>633,711.47<br><br><br>Including: incomes from<br>investments in associates and joint<br>ventures<br><br><br><br>10,089,454.38<br><br><br>5<br>,<br>963,707.51<br><br><br>2<br>,<br>478,774.79<br><br><br>Credit impairment loss<br><br>44<br><br><br>(1,827,597.56)<br><br><br>(1,439,657.45<br>)<br><br><br>(421,697.29<br>)<br><br><br>Assets impairment loss<br><br>45<br><br><br>(3,269,657.89<br>)<br><br><br>8<br>,<br>582,545.15<br><br><br>(14,101,844.18<br>)<br><br><br>Gains on disposal of assets<br><br>46<br><br><br>61,825.39<br><br><br>-<br><br><br>310<br>,<br>959.01<br><br><br><br><br><br><br><br><br><br><br><br>Operating profit/(loss)<br><br><br><br>104<br>,<br>662,796.51<br><br><br>49<br>,<br>097,889.50<br><br><br>(35,529,930.43<br>)<br><br><br>Add: non<br>-<br>operating income<br><br>47<br><br><br>1<br>,<br>198,073.33<br><br><br>4<br>,<br>365,239.64<br><br><br>16<br>,<br>586,940.46<br><br><br>Less: non<br>-<br>operating expenses<br><br>48<br><br><br>2,533,762.91<br><br><br>1<br>,<br>832,518.51<br><br><br>6<br>,<br>169,659.74<br><br><br><br><br><br><br><br><br><br><br><br>Total profit/(loss)<br><br><br><br>103<br>,<br>327,106.93<br><br><br>51<br>,<br>630,610.63<br><br><br>(25,112,649.71<br>)<br><br><br>Less: income tax expenses<br><br>50<br><br><br>9<br>,<br>292,569.01<br><br><br>(8,643,562.96<br>)<br><br><br>2<br>,<br>950,817.85<br><br><br><br><br><br><br><br><br><br><br><br>Net profit/(loss)<br><br><br><br>94<br>,<br>034,537.92<br><br><br>60<br>,<br>274,173.59<br><br><br>(28,063,467.56<br>)<br><br><br>Inc<br>luding: Net (loss)/profit of the<br>acquiree in business combination<br>involving enterprises under common<br>control before combination<br><br><br><br>(453,616.13<br>)<br><br><br>39<br>,<br>746,004.68<br><br><br>(19,845,196.54<br>)<br><br><br><br><br><br><br><br><br><br><br><br>Categorized by the nature of continuing<br>operation<br><br><br><br><br><br><br><br><br><br>Net<br>profit/(loss) from continuing<br>operations<br><br><br><br>94<br>,<br>034,537.92<br><br><br>60<br>,<br>274,173.59<br><br><br>(28,063,467.56<br>)<br><br><br><br><br><br><br><br><br><br><br><br>Categorized by ownership<br><br><br><br><br><br><br><br><br><br>Net profit/(loss) attributable to<br>shareholders/owners of the parent<br>company<br><br><br><br>94<br>,<br>587,550.27<br><br><br>48<br>,<br>221,880.01<br><br><br>(33,388,957.22<br>)<br><br><br>Profit or loss attributable to minority<br>shareholders<br><br><br><br>(553,012.35<br>)<br><br><br>12<br>,<br>052,293.58<br><br><br>5<br>,<br>325,489.66<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Signed by:<br><br><br><br>Legal Representative: MORRIS SHEN<br>-<br>SHIH YOUNG<br><br>Chief Accountant: HAO Ze<br><br>Person in Charge of the<br><br>Accounting Office<br>: HAO Ze<br><br><br><br>The accompanying notes to the financial statements form an integral part of these financial statements.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Consolidated Income Statement (Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>8<br><br>3<br>-<br>2<br>-<br>1<br>-<br>11<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Signed by:<br><br><br><br>Legal Representative: MORRIS SHEN<br>-<br>SHIH YOUNG<br><br>Chief Accountant: HAO Ze<br><br>Person in Charge of the<br><br>Accounting Office<br>: HAO Ze<br><br><br>The accompanying notes to the financial statements form an integral part of these financial statements.<br><br><br>Note V<br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br>Other comprehensive income that<br>will be reclassified to profit or loss<br><br><br><br><br><br><br><br><br>E<br>Exchange differences from<br>translation of financial statements<br><br><br>35<br>,<br>556.59<br><br><br>-<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br>Total comprehensive income/(loss)<br><br><br>94<br>,<br>070,094.51<br><br><br>60,274,173.59<br><br><br>(28,063,467.56)<br><br><br>Including:<br><br><br><br><br><br><br><br><br>Total comprehensive<br>income/(loss) attributable to<br>shareholders/owners of the parent<br>company<br><br><br>94<br>,<br>623,106.86<br><br><br>48,221,880.01<br><br><br>(33,388,957.22)<br><br><br>Total comprehensive<br>(loss)/income<br>attributable to minority<br>shareholders<br><br><br>(553,012.35<br>)<br><br><br>12,052,293.58<br><br><br>5,325,489.66<br><br><br><br><br><br><br><br><br><br><br>Earnings per share (RMB/Share)<br><br>51<br><br><br><br><br><br><br><br>Basic earnings per share<br><br><br>0.11<br><br><br>N/A<br><br><br>N/A<br><br><br>Diluted earnings per share<br><br><br>0.11<br><br><br>N/A<br><br><br>N/A
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Consolidated Statement of Changes in Shareholders<br>’<br>/Owners<br>’<br><br>Equity<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>9<br><br>3<br>-<br>2<br>-<br>1<br>-<br>12<br><br><br>2021<br><br><br><br><br><br><br>Shareholders<br>’<br><br>Equity Attributable to the Parent Company<br><br><br><br>Minority<br><br>equity<br><br><br><br>Total shareholders<br>’<br><br>equity<br><br><br><br><br><br><br>Paid<br>-<br>in capital<br><br><br><br>Capital reserve<br><br><br><br>Other<br>comprehensive<br>income<br><br><br>Special reserve<br><br><br>Surplus reserve<br><br><br><br>Undistributed<br>profit<br><br><br><br>Sub<br>-<br>total<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>I.<br><br>Balance at the end of<br>prior year and<br>balance at the beginning of current year<br>(Note)<br><br><br>817<br>,<br>676,478.00<br><br><br><br>16<br>,<br>283,718.84<br><br><br><br>-<br><br><br>4<br>,<br>561,194.59<br><br><br>14<br>,<br>896,593.30<br><br><br><br>118<br>,<br>401,278.39<br><br><br><br>971<br>,<br>819,263.12<br><br><br><br>-<br><br><br><br>971<br>,<br>819,263.12<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>II.<br><br>Change in current year<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>(I)<br><br>Total comprehensive income<br><br><br>-<br><br><br><br>-<br><br><br><br>35<br>,<br>556.59<br><br><br>-<br><br><br>-<br><br><br><br>94<br>,<br>587,550.27<br><br><br><br>94<br>,<br>623,106.86<br><br><br><br>(553,012.35<br><br>)<br><br><br>94<br>,<br>070,094.51<br><br><br><br>(II)<br><br>Capital invested and reduced by<br>shareholders<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>1.<br><br>Ordinary shares invested by<br>shareholders<br><br><br>67<br>,<br>750,278.00<br><br><br><br>260<br>,<br>984,230.00<br><br><br><br>-<br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>328<br>,<br>734,508.00<br><br><br><br>-<br><br><br><br>328<br>,<br>734,508.00<br><br><br><br>2.<br><br>Amount of share<br>-<br>based payment<br>included in shareholders<br>’<br><br>equity<br><br><br>-<br><br><br><br>10<br>,<br>029,835.43<br><br><br><br>-<br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>10<br>,<br>029,835.43<br><br><br><br>-<br><br><br><br>10<br>,<br>029,835.43<br><br><br><br>3.<br><br>Capital invested by shareholders of<br>subsidiaries<br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>20<br>,<br>300,000.00<br><br><br><br>20<br>,<br>300,000.00<br><br><br><br>4.<br><br>Others<br><br><br>-<br><br><br><br>2<br>,<br>156,918.62<br><br><br><br>-<br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>2<br>,<br>156,918.62<br><br><br><br>-<br><br><br><br>2<br>,<br>156,918.62<br><br><br><br>(III)<br><br>Internal carry forward of shareholders<br>’<br><br>equity<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>1.<br><br>Shareholding system reform<br><br><br>-<br><br><br><br>141<br>,<br>198,759.48<br><br><br><br>-<br><br><br>-<br><br><br>(14,896,593.30<br><br>)<br><br><br>(126,302,166.18<br><br>)<br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>(IV)<br><br>Special reserve<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>1.<br><br>Transfer to special reserve in current<br>year<br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br>2<br>,<br>381,753.04<br><br><br>-<br><br><br><br>-<br><br><br><br>2<br>,<br>381,753.04<br><br><br><br>-<br><br><br><br>2<br>,<br>381,753.04<br><br><br><br>2.<br><br>Amount utilized in current year<br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br>(1,573,746.83<br><br>)<br><br>-<br><br><br><br>-<br><br><br><br>(1,573,746.83<br><br>)<br><br><br>-<br><br><br><br>(1,573,746.83<br><br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>III.<br><br>Balance at the end of current year<br><br><br>885<br>,<br>426,756.00<br><br><br><br>430<br>,<br>653,462.37<br><br><br><br>35<br>,<br>556.59<br><br><br>5<br>,<br>369,200.80<br><br><br>-<br><br><br><br>86<br>,<br>686,662.48<br><br><br><br>1<br>,<br>408,171,638.24<br><br><br><br>19<br>,<br>746,987.65<br><br><br><br>1<br>,<br>427,918,625.89<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Note:<br>Since January 1, 2021, t<br>he group has carried out accounting in accordance with the rev<br>ised lease standards, the application of which<br>does not<br><br>impact retained<br>earnings at the beginning of 2021.<br><br><br><br>Signed by:<br><br><br>Legal Representative: MORRIS SHEN<br>-<br>SHIH YOUNG<br><br>Chief Accountant: HAO Ze<br><br>Person in Charge of the<br><br>Accounting Office<br>: HAO Ze<br><br><br><br>The<br>accompanying notes to the financial statements form an integral part of these financial statements.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Consolidated<br>Statement of Changes in Shareholders<br>’<br>/Owners<br>’<br><br>Equity (Continued)<br><br>2019, 2020 and 2021<br><br><br><br><br><br><br>In RMB<br><br>Yuan<br><br>10<br><br>3<br>-<br>2<br>-<br>1<br>-<br>13<br><br><br>2020<br><br><br><br><br><br>Shareholders<br>’<br><br>E<br>quity<br>A<br>ttributable to the<br>P<br>arent<br>C<br>ompany<br><br><br><br>Minority<br><br>equity<br><br><br><br>Total shareholders<br>’<br><br>equity<br><br><br><br><br><br><br>Paid<br>-<br>in capital<br><br><br><br>Capital reserve<br><br><br><br><br>Special reserve<br><br><br>Surplus reserve<br><br><br><br>Undistributed<br>profit<br><br><br><br>Sub<br>-<br>total<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>I.<br><br>Balance at the end of prior year and balance at<br>the beginning of current year<br><br><br>301,106,668.53<br><br><br><br>412<br>,<br>202,926.40<br><br><br><br><br>3<br>,<br>146,269.25<br><br><br>14,896,593.30<br><br><br><br>170<br>,<br>590,328.42<br><br><br><br>901<br>,<br>942,785.90<br><br><br><br>38<br>,<br>538,897.37<br><br><br><br>940<br>,<br>481,683.27<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>II.<br><br>Change in current year<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>(I)<br><br>Total comprehensive income<br><br><br>-<br><br><br><br>-<br><br><br><br><br>-<br><br><br>-<br><br><br><br>48<br>,<br>221,880.01<br><br><br><br>48<br>,<br>221,880.01<br><br><br><br>12<br>,<br>052,293.58<br><br><br><br>60<br>,<br>274,173.59<br><br><br><br>(II)<br><br>Capital invested and reduced by shareholders<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>1.<br><br>Amount of sh<br>are<br>-<br>based payment included in<br>shareholders’ equity<br><br><br>-<br><br><br><br>2<br>,<br>783,665.77<br><br><br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>2<br>,<br>783,665.77<br><br><br><br>-<br><br><br><br>2<br>,<br>783,665.77<br><br><br><br>2.<br><br>Business combination involving enterprises<br>under common control<br><br><br>451<br>,<br>139,709.47<br><br><br><br>(406,281,939.19<br>)<br><br><br><br><br>-<br><br><br>-<br><br><br><br>(44,857,770.28<br>)<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>3.<br><br>Acquisition of minority equity by the parent<br>company before business combination<br>involving enterprises under common control<br><br><br>-<br><br><br><br>3<br>,<br>744,037.93<br><br><br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>3<br>,<br>744,037.93<br><br><br><br>（<br>3,744,037.93)<br><br><br><br>-<br><br><br><br>4.<br><br>Acquisition of minority equity in subsidiaries<br>originally held by the parent company<br><br><br>65,430,100.00<br><br><br><br>-<br><br><br><br><br>-<br><br><br>-<br><br><br><br>(30,542,025.71<br>)<br><br><br><br>34<br>,<br>888,074.29<br><br><br><br>(34,888,074.29)<br><br><br><br>-<br><br><br><br>5.<br><br>Capital increase by minority shareholders of<br>subsidiaries before business combination<br>involving enterprises under common control<br><br><br>-<br><br><br><br>-<br><br><br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>2<br>,<br>730,000.00<br><br><br><br>2<br>,<br>730,000.00<br><br><br><br>6.<br><br>Others<br><br><br>-<br><br><br><br>3<br>,<br>835,027.93<br><br><br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>3<br>,<br>835,027.93<br><br><br><br>-<br><br><br><br>3<br>,<br>835,027.93<br><br><br><br>(III)<br><br>Profit distribution<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>1.<br><br>Distribution to shareholders<br><br><br>-<br><br><br><br>-<br><br><br><br><br>-<br><br><br>-<br><br><br><br>(25,011,134.05<br>)<br><br><br><br>(25,011,134.05<br>)<br><br><br><br>(14,689,078.73<br>)<br><br><br><br>(39,700,212.78<br>)<br><br><br><br>(IV)<br><br>Special reserve<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>1.<br><br>Transfer to special reserve in current year<br><br><br>-<br><br><br><br>-<br><br><br><br><br>5<br>,<br>937,734.27<br><br><br>-<br><br><br><br>-<br><br><br><br>5<br>,<br>937,734.27<br><br><br><br>-<br><br><br><br>5<br>,<br>937,734.27<br><br><br><br>2.<br><br>Amount utilized in current year<br><br><br>-<br><br><br><br>-<br><br><br><br><br>(4,522,808.93<br>)<br><br><br>-<br><br><br><br>-<br><br><br><br>(4,522,808.93<br>)<br><br><br><br>-<br><br><br><br>(4,522,808.93<br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>III.<br><br>Balance at the end of current year<br><br><br>817,676,478.00<br><br><br><br>16<br>,<br>283,718.84<br><br><br><br><br>4<br>,<br>561,194.59<br><br><br>14,896,593.30<br><br><br><br>118<br>,<br>401,278.39<br><br><br><br>971<br>,<br>819,263.12<br><br><br><br>-<br><br><br><br>971<br>,<br>819,263.12<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Note:<br>Since January 1, 202<br>0<br>, the group has carried out accounting in accordance with the revised lease standards, the application of which does not impa<br>ct t<br>he<br>retained earnings at the beginning of 202<br>0<br>..<br>..<br><br><br>Signed by:<br><br><br>Legal Representative: MORRIS SHEN<br>-<br>SHIH YOUNG<br><br>Chief Accountant: HAO Ze<br><br>Person in Charge of the<br><br>Accounting Office<br>: HAO Ze<br><br><br>The accompanying notes to the financial statements form an integral part of these financial statements.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Consolidated<br>Statement of Changes in Shareholders<br>’<br>/Owners<br>’<br><br>Equity (Continued)<br><br>2019, 2020 and 2021<br><br><br><br><br><br><br>In RMB<br><br>Yuan<br><br>11<br><br>3<br>-<br>2<br>-<br>1<br>-<br>14<br><br><br>2019<br><br><br><br><br>Shareholders’<br>E<br>quity<br>A<br>ttributable to the<br>P<br>arent<br>C<br>ompany<br><br><br><br>Minority<br><br>equity<br><br><br><br>Total shareholders<br>’<br><br>equity<br><br><br><br><br><br><br>Paid<br>-<br>in capital<br><br><br><br>Capital reserve<br><br><br><br>Special reserve<br><br><br>Surplus reserve<br><br><br><br>Undistributed profit<br><br><br><br>Sub<br>-<br>total<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>I.<br><br>Balance at the end of prior year<br><br><br>301,106,668.53<br><br><br><br>318,032,985.74<br><br><br><br>814,845.15<br><br><br>14,896,593.30<br><br><br><br>204,232,102.01<br><br><br><br>839,083,194.73<br><br><br><br>36,099,743.15<br><br><br><br>875,182,937.88<br><br><br><br>Add:<br><br>Changes in accounting policies<br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br>-<br><br><br><br>(252,816.37<br>)<br><br><br><br>(252,816.37<br>)<br><br><br><br>(93,309.68<br>)<br><br><br><br>(346,126.05<br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>II.<br><br>Balance at the beginning of current year<br><br><br>301,106,668.53<br><br><br><br>318,032,985.74<br><br><br><br>814,845.15<br><br><br>14,896,593.30<br><br><br><br>203,979,285.64<br><br><br><br>838,830,378.36<br><br><br><br>36,006,433.47<br><br><br><br>874,836,811.83<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>III.<br><br>Change in current year<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>(I)<br><br>Total comprehensive loss<br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br>-<br><br><br><br>(33,388,957.22<br>)<br><br><br><br>(33,388,957.22<br>)<br><br><br><br>5,325,489.66<br><br><br><br>(28,063,467.56<br>)<br><br><br><br>(II)<br><br>Capital invested and reduced by<br>shareholders<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>1.<br><br>Amount of share<br>-<br>based payment included in<br>shareholders’ equity<br><br><br>-<br><br><br><br>2<br>,<br>304,073.59<br><br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>2<br>,<br>304,073.59<br><br><br><br>-<br><br><br><br>2<br>,<br>304,073.59<br><br><br><br>2.<br><br>Capital invested by the parent company in<br>subsidiaries before business combination<br>involving<br>enterprises under common<br>control<br><br><br>-<br><br><br><br>89,380,295.00<br><br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>89,380,295.00<br><br><br><br>-<br><br><br><br>89,380,295.00<br><br><br><br>3.<br><br>Acquisition of minority equity by the parent<br>company before business combination<br>involving enterprises under common<br>control<br><br><br>-<br><br><br><br>50<br>,<br>188.76<br><br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>50<br>,<br>188.76<br><br><br><br>(50,188.76<br>)<br><br><br><br>-<br><br><br><br>4.<br><br>Others<br><br><br>-<br><br><br><br>2,435,383.31<br><br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>2,435,383.31<br><br><br><br>-<br><br><br><br>2,435,383.31<br><br><br><br>(III)<br><br>Profit distribution<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>1.<br><br>Distribution to shareholders<br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>(2,742,837.00<br>)<br><br><br><br>(2,742,837.00<br>)<br><br><br><br>(IV)<br><br>Special reserve<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>1.<br><br>Transfer to special reserve in current year<br><br><br>-<br><br><br><br>-<br><br><br><br>6,656,828.08<br><br><br>-<br><br><br><br>-<br><br><br><br>6,656,828.08<br><br><br><br>-<br><br><br><br>6,656,828.08<br><br><br><br>2.<br><br>Amount utilized in current year<br><br><br>-<br><br><br><br>-<br><br><br><br>(4,325,403.98<br>)<br><br><br>-<br><br><br><br>-<br><br><br><br>(4,325,403.98<br>)<br><br><br><br>-<br><br><br><br>(4,325,403.98<br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>IV.<br><br>Balance at the end of current year<br><br><br>301,106,668.53<br><br><br><br>412<br>,<br>202,926.40<br><br><br><br>3<br>,<br>146,269.25<br><br><br>14,896,593.30<br><br><br><br>170<br>,<br>590,328.42<br><br><br><br>901<br>,<br>942,785.90<br><br><br><br>38<br>,<br>538,897.37<br><br><br><br>940<br>,<br>481,683.27<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Signed by:<br><br><br>Legal Representative: MORRIS SHEN<br>-<br>SHIH YOUNG<br><br>Chief Accountant: HAO Ze<br><br>Person in Charge of the<br><br>Accounting Office<br>: HAO Ze<br><br><br>The<br>accompanying notes to the financial statements form an integral part of these financial statements.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Consolidated Cash Flow Statement<br><br>2019, 2020 and 2021<br><br>Yuan<br>In RMB<br><br>12<br><br>3<br>-<br>2<br>-<br>1<br>-<br>15<br><br><br><br><br>Note V<br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br><br><br>I.<br><br>Cash flow (used in)/from operating<br>activities<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Cash received from sale of goods or<br>rendering of labour services<br><br><br><br><br>698,495,982.42<br><br><br>509,916,365.87<br><br><br>479,191,179.41<br><br><br><br>Refunds of taxes<br><br><br><br><br>39,221,770.12<br><br><br>31,668,900.03<br><br><br>27,515,326.71<br><br><br><br>Other<br>cash received in relation to<br>operating activities<br><br>52<br><br><br><br>72,445,807.30<br><br><br>32,582,491.87<br><br><br>45,670,429.53<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Sub<br>-<br>total of cash inflows from<br>operating activities<br><br><br><br><br>810,163,559.84<br><br><br>574,167,757.77<br><br><br>552,376,935.65<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Cash paid for goods and labour<br>services<br><br><br><br><br>413,902,526.83<br><br><br>252,989,114.41<br><br><br>179,395,382.47<br><br><br><br>Cash paid to and on behalf of<br>employees<br><br><br><br><br>208,967,897.08<br><br><br>130,443,582.06<br><br><br>141,483,625.64<br><br><br><br>Payments of<br>t<br>axes<br><br><br><br><br>43,386,733.78<br><br><br>26,461,337.39<br><br><br>25,540,596.21<br><br><br><br>Other cash paid in relation to<br>operating activities<br><br>52<br><br><br><br>163,440,831.00<br><br><br>109,023,472.18<br><br><br>108,279,602.00<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Sub<br>-<br>total of cash outflows from<br>operating activities<br><br><br><br><br>829<br>,<br>697,988.69<br><br><br>518,917,506.04<br><br><br>454,699,206.32<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Net cash flow (used in)/from<br>operating activities<br><br>53<br><br><br><br>(19,534,428.85<br>)<br><br><br>55,250,251.73<br><br><br>97,677,729.33<br><br><br><br><br><br><br><br><br><br><br><br><br><br>II.<br><br>Cash flow used in investing activities<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Cash received from return on<br>investment<br><br><br><br><br>1,982,947.59<br><br><br>4,000,000.00<br><br><br>17,052.41<br><br><br><br>Cash receipts from investment<br>income<br><br><br><br><br>5,046,086.91<br><br><br>326,789.50<br><br><br>2,763,461.84<br><br><br><br>Net cash receipts from disposals of<br>fixed assets, intangible assets and<br>other long<br>-<br>term assets<br><br><br><br><br>555,682.30<br><br><br>2,972.99<br><br><br>343,958.25<br><br><br><br>Net cash<br>receipts from disposals of<br>subsidiaries and other business units<br><br><br><br><br>14,000,000.00<br><br><br>-<br><br><br>-<br><br><br><br>Other cash receipts relating to<br>investing activities<br><br>52<br><br><br><br>308,151.43<br><br><br>400,622.30<br><br><br>14,692.00<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Sub<br>-<br>total of cash inflows from<br>investing<br>activities<br><br><br><br><br>21,892,868.23<br><br><br>4,730,384.79<br><br><br>3,139,164.50<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Cash payments to acquire or construct<br>fixed assets, intangible assets and<br>other long<br>-<br>term assets<br><br><br><br><br>264,157,853.77<br><br><br>101,105,933.35<br><br><br>178,245,627.62<br><br><br><br>Cash payments to acquire<br>investments<br><br><br><br><br>-<br><br><br>1,000,000.00<br><br><br>1,000,000.00<br><br><br><br>Other cash<br>payments relating to<br>investing activities<br><br>53<br><br><br><br>-<br><br><br>691,872.56<br><br><br>735,064.50<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Sub<br>-<br>total of cash outflows from<br>investing activities<br><br><br><br><br>264<br>,<br>157,853.77<br><br><br>102,797,805.91<br><br><br>179,980,692.12<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Net cash flow used in investing<br>activities<br><br><br><br><br>(242,264,985.54<br>)<br><br><br>(98,067,421.12<br>)<br><br><br>(176,841,527.62<br>)<br><br><br><br>Signed by:<br><br><br>Legal Representative: MORRIS SHEN<br>-<br>SHIH YOUNG<br><br>Chief Accountant: HAO Ze<br><br>Person in Charge of the<br><br>Accounting Office<br>: HAO Ze<br><br><br>The accompanying notes to the financial statements form an integral part of these financial statements.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Consolidated Cash Flow Statement<br><br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>13<br><br>3<br>-<br>2<br>-<br>1<br>-<br>16<br><br><br><br><br>Note V<br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br><br><br>III.<br><br>Cash flow from financing activities<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Cash<br>received from investments<br><br><br><br><br>34,560,758.00<br><br><br>2<br>,<br>730,000.00<br><br><br>89<br>,<br>380,295.00<br><br><br><br>Including:<br>Cash received from<br>investments of subsidiaries<br>’<br>minority<br>shareholders<br><br><br><br><br>20,300,000.00<br><br><br>2<br>,<br>730,000.00<br><br><br>-<br><br><br><br>Cash receipts from borrowings<br><br><br><br><br>135,760,000.00<br><br><br>71<br>,<br>000,000.00<br><br><br>40<br>,<br>000,000.00<br><br><br><br>Other cash receipts relating to<br>financing activities<br><br>53<br><br><br><br>9,386,518.84<br><br><br>314<br>,<br>473,750.00<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Sub<br>-<br>total of cash inflows from<br>financing activities<br><br><br><br><br>179<br>,<br>707,276.84<br><br><br>388<br>,<br>203,750.00<br><br><br>129<br>,<br>380,295.00<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Cash repayments of borrowings<br><br><br><br><br>126<br>,<br>000,000.00<br><br><br>43,000,000.00<br><br><br>-<br><br><br><br>Cash payments for distribution of<br>dividends or profits or settlement of<br>interest expenses<br><br><br><br><br>3<br>,<br>156,446.36<br><br><br>18,315,061.48<br><br><br>11,358,203.67<br><br><br><br>Including: payments for<br>distribution of<br>dividends or profits to<br>minority shareholders of subsidiaries<br><br><br><br><br>-<br><br><br>14,689,078.73<br><br><br>-<br><br><br><br>Other cash payments relating to<br>financing activities<br><br>53<br><br><br><br>2<br>,<br>968,698.81<br><br><br>1,365,018.97<br><br><br>111,162.32<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Sub<br>-<br>total of cash outflows from<br>financing<br>activities<br><br><br><br><br>132<br>,<br>125,145.17<br><br><br>62,680,080.45<br><br><br>11,469,365.99<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Net cash flow from financing<br>activities<br><br><br><br><br>47<br>,<br>582,131.67<br><br><br>325,523,669.55<br><br><br>117,910,929.01<br><br><br><br><br><br><br><br><br><br><br><br><br><br>IV.<br><br><br>Effect of foreign exchange rate<br>changes on cash and cash<br>equivalents<br><br><br><br><br>(1,008,306.01<br>)<br><br><br>(1,589,214.81<br>)<br><br><br>436<br>,<br>480.92<br><br><br><br><br><br><br><br><br><br><br><br><br><br>V.<br><br>Net (decrease)/increase<br>in monetary<br>capital<br><br>and cash equivalents<br><br><br><br><br>(215,225,588.73<br>)<br><br><br>281<br>,<br>117,285.35<br><br><br>39<br>,<br>183,611.64<br><br><br><br>Add: opening balance of cash and<br>cash equivalents<br><br><br><br><br>388<br>,<br>493,942.43<br><br><br>107<br>,<br>376,657.08<br><br><br>68<br>,<br>193,045.44<br><br><br><br><br><br><br><br><br><br><br><br><br><br>VI.<br><br>Closing balance of cash and cash<br>equivalents<br><br>53<br><br><br><br>173<br>,<br>268,353.70<br><br><br>388<br>,<br>493,942.43<br><br><br>107<br>,<br>376,657.08<br><br><br><br>Signed by:<br><br><br><br>Legal Representative: MORRIS SHEN<br>-<br>SHIH YOUNG<br><br>Chief Accountant: HAO Ze<br><br>Person in Charge of the<br><br>Accounting Office<br>: HAO Ze<br><br><br><br>The<br>accompanying notes to the financial statements form an integral part of these financial statements.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>B<br>ala<br>n<br>ce<br><br>Sheet<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>14<br><br>3<br>-<br>2<br>-<br>1<br>-<br>17<br><br><br><br>Assets<br><br>Note XV<br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Current assets<br><br><br><br><br><br><br><br><br><br>Cash and bank balances<br><br><br><br>83,523,225.03<br><br><br>347,248,427.72<br><br><br>74,209,075.27<br><br><br>Notes receivable<br><br><br><br>14,575,572.80<br><br><br>20,521,471.09<br><br><br>18,206,727.38<br><br><br>Accounts receivable<br><br>1<br><br><br>255,871,239.75<br><br><br>182,196,538.27<br><br><br>149,808,186.42<br><br><br>Receivables financing<br><br><br><br>33,148,777.76<br><br><br>26,585,456.44<br><br><br>13,688,092.00<br><br><br>Prepayments<br><br><br><br>1,663,414.06<br><br><br>2,200,587.32<br><br><br>551,364.21<br><br><br>Other<br>receivables<br><br>2<br><br><br>87,709,024.03<br><br><br>63,736,743.20<br><br><br>64,573,530.62<br><br><br>Inventories<br><br><br><br>171,236,348.82<br><br><br>171,246,381.30<br><br><br>183,828,877.77<br><br><br>Other current assets<br><br><br><br>19,450,131.25<br><br><br>1,384,294.03<br><br><br>2,417,179.23<br><br><br><br><br><br><br><br><br><br><br><br>Total current assets<br><br><br><br>667,177,733.50<br><br><br>815,119,899.37<br><br><br>507,283,032.90<br><br><br><br><br><br><br><br><br><br><br><br>Non<br>-<br>current asset<br><br><br><br><br><br><br><br><br><br>Long<br>-<br>term accounts<br>receivable<br><br><br><br>155,350,798.44<br><br><br>107,333,746.03<br><br><br>85,360,011.58<br><br><br>Long<br>-<br>term equity<br>investments<br><br>3<br><br><br>580,887,351.44<br><br><br>570<br>,<br>135,768.73<br><br><br>10,984,620.44<br><br><br>Fixed assets<br><br><br><br>152,521,209.02<br><br><br>147,140,501.99<br><br><br>158,525,917.91<br><br><br>Construction<br>-<br>in<br>-<br>progress<br><br><br><br>16,741,925.67<br><br><br>22,905,060.55<br><br><br>21,308,883.83<br><br><br>Intangible assets<br><br><br><br>14,880,871.41<br><br><br>7,730,172.82<br><br><br>5,631,496.52<br><br><br>Long<br>-<br>term deferred<br>expenses<br><br><br><br>15,007,834.37<br><br><br>6,427,425.28<br><br><br>2,154,394.51<br><br><br>Deferred income tax assets<br><br><br><br>16,136,597.35<br><br><br>8,240,556.76<br><br><br>9,300,140.31<br><br><br>Other non<br>-<br>current assets<br><br><br><br>2,244,643.60<br><br><br>1,311,787.19<br><br><br>181,020.44<br><br><br><br><br><br><br><br><br><br><br><br>Total non<br>-<br>current assets<br><br><br><br>953,771,231.30<br><br><br>871<br>,<br>225,019.35<br><br><br>293,446,485.54<br><br><br><br><br><br><br><br><br><br><br><br>Total assets<br><br><br><br>1,620,948,964.80<br><br><br>1<br>,<br>686,344,918.72<br><br><br>800,729,518.44<br><br><br><br><br>Signed by:<br><br><br><br>Legal Representative: MORRIS SHEN<br>-<br>SHIH YOUNG<br><br>Chief Accountant: HAO Ze<br><br>Person in Charge of the<br><br>Accounting Office<br>: HAO Ze<br><br><br><br><br>The accompanying notes to the financial<br>statements form an integral part of these financial statements.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>B<br>ala<br>n<br>ce<br><br>Sheet<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>15<br><br>3<br>-<br>2<br>-<br>1<br>-<br>18<br><br><br><br>Liabilities and shareholders<br>’<br>/<br><br>owners<br>’<br><br>equity<br><br>Note<br>XV<br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Current liabilities<br><br><br><br><br><br><br><br><br><br>Short<br>-<br>term borrowings<br><br><br><br>50,052,694.44<br><br><br>38,049,590.00<br><br><br>40,050,313.33<br><br><br>Accounts payable<br><br><br><br>99,571,665.44<br><br><br>137,425,752.61<br><br><br>152,851,299.58<br><br><br>Accounts received in advance<br><br><br><br>-<br><br><br>-<br><br><br>140,000.00<br><br><br>Contract liabilities<br><br><br><br>641,681.42<br><br><br>236,074.50<br><br><br>-<br><br><br>Staff remuneration payables<br><br><br><br>14,968,132.96<br><br><br>11,330,906.74<br><br><br>9,662,485.58<br><br><br>Taxes payable<br><br><br><br>178,998.74<br><br><br>5,617,035.22<br><br><br>4,275,694.94<br><br><br>Other payables<br><br><br><br>95,592,179.35<br><br><br>461,154,113.13<br><br><br>146,186,625.34<br><br><br>Long<br>-<br>term accounts<br>payable due<br>within one year<br><br><br><br>1,597,917.21<br><br><br>-<br><br><br>-<br><br><br>Other current liabilities<br><br><br><br>83,418.58<br><br><br>35,275.50<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br>Total current liabilities<br><br><br><br>262,686,688.14<br><br><br>653,848,747.70<br><br><br>353,166,418.77<br><br><br><br><br><br><br><br><br><br><br><br>Non<br>-<br>current liabilities<br><br><br><br><br><br><br><br><br><br>Long<br>-<br>term<br>accounts payable<br><br><br><br>6,293,999.48<br><br><br>-<br><br><br>-<br><br><br>Accrued liabilities<br><br><br><br>1,847,823.47<br><br><br>1,860,786.83<br><br><br>1,076,864.69<br><br><br><br><br><br><br><br><br><br><br><br>Total non<br>-<br>current liabilities<br><br><br><br>8,141,822.95<br><br><br>1,860,786.83<br><br><br>1,076,864.69<br><br><br><br><br><br><br><br><br><br><br><br>Total liabilities<br><br><br><br>270,828,511.09<br><br><br>655,709,534.53<br><br><br>354,243,283.46<br><br><br><br>Shareholders<br>’<br>/<br>owners<br>’<br><br>equity<br><br><br><br><br><br><br><br><br><br>Share capital/paid<br>-<br>in capital<br><br><br><br>885,426,756.00<br><br><br>817<br>,<br>676,478.00<br><br><br>301<br>,<br>106,668.53<br><br><br>Capital reserve<br><br>4<br><br><br>467<br>,<br>591,370.59<br><br><br>57<br>,<br>794,585.78<br><br><br>10<br>,<br>029,686.16<br><br><br>Surplus reserve<br><br><br><br>-<br><br><br>14<br>,<br>896,593.30<br><br><br>14<br>,<br>896,593.30<br><br><br>(Loss to offset)/<br>Undistributed<br>profit<br><br><br><br>(2,897,672.88<br><br>)<br><br>140<br>,<br>267,727.11<br><br><br>120<br>,<br>453,286.99<br><br><br><br><br><br><br><br><br><br><br><br>Total shareholders<br>’<br>/<br>owners<br>’<br><br>equity<br><br><br><br>1<br>,<br>350,120,453.71<br><br><br>1<br>,<br>030,635,384.19<br><br><br>446<br>,<br>486,234.98<br><br><br><br><br><br><br><br><br><br><br><br>Total liabilities and<br>shareholders<br>’<br>/<br><br>owners<br>’<br><br>equity<br><br><br><br>1<br>,<br>620,948,964.80<br><br><br>1<br>,<br>686,344,918.72<br><br><br>800<br>,<br>729,518.44<br><br><br><br><br><br>Signed by:<br><br><br><br>Legal Representative: MORRIS SHEN<br>-<br>SHIH YOUNG<br><br>Chief Accountant: HAO Ze<br><br>Person in Charge of the<br><br>Accounting Office<br>: HAO Ze<br><br><br><br>The accompanying notes to the financial statements form an integral part of these financial statements.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Income Statement<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>16<br><br>3<br>-<br>2<br>-<br>1<br>-<br>19<br><br><br><br><br>Note<br>XV<br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Operating income<br><br>5<br><br><br>364,596,697.16<br><br><br>408<br>,<br>006,748.51<br><br><br>357<br>,<br>284,677.79<br><br><br>Less: operating costs<br><br>5<br><br><br>326<br>,<br>650,830.69<br><br><br>337<br>,<br>939,037.52<br><br><br>312<br>,<br>636,627.13<br><br><br>Tax and surcharges<br><br><br><br>3,750,244.37<br><br><br>4<br>,<br>214,848.53<br><br><br>4<br>,<br>051,738.50<br><br><br>Selling expenses<br><br><br><br>2,185,902.05<br><br><br>3<br>,<br>426,807.86<br><br><br>2<br>,<br>925,959.29<br><br><br>Administrative expenses<br><br><br><br>28,118,593.87<br><br><br>28,706,141.07<br><br><br>27,732,724.57<br><br><br>R&D expenses<br><br><br><br>38<br>,<br>253,568.63<br><br><br>24,826,123.18<br><br><br>14,950,195.11<br><br><br>Financial expenses<br><br><br><br>(1,058,354.36)<br><br><br>(7,637,404.58<br>)<br><br><br>1<br>,<br>187,923.19<br><br><br>Including: interest expense<br><br><br><br>2,789,971.57<br><br><br>578<br>,<br>535.93<br><br><br>274<br>,<br>994.48<br><br><br>Interest income<br><br><br><br>3,825,101.26<br><br><br>-<br><br><br>-<br><br><br>Add: other income<br><br><br><br>1<br>,<br>397,017.69<br><br><br>333<br>,<br>155.51<br><br><br>2<br>,<br>180,907.00<br><br><br>Investment income<br><br>6<br><br><br>1,577,656.91<br><br><br>729<br>,<br>922.26<br><br><br>(686,196.07<br>)<br><br><br>Including: income<br>from<br>investments in associates and joint<br>ventures<br><br><br><br>761,307.20<br><br><br>1<br>,<br>330,443.96<br><br><br>207<br>,<br>410.78<br><br><br>Credit impairment loss<br><br><br><br>(1,086,256.88)<br><br><br>330<br>,<br>186.15<br><br><br>(397,043.78<br>)<br><br><br>Assets impairment loss<br><br><br><br>645,292.93<br><br><br>4<br>,<br>493,898.69<br><br><br>(10,197,188.99<br>)<br><br><br>Gains on disposal of<br>assets<br><br><br><br>7,396,814.06<br><br><br>-<br><br><br>784<br>,<br>926.70<br><br><br><br><br><br><br><br><br><br><br><br>Operating (loss)/profit<br><br><br><br>(23,373,563.38<br>)<br><br><br>22<br>,<br>418,357.54<br><br><br>(14,515,085.14<br>)<br><br><br>Add: non<br>-<br>operating income<br><br><br><br>134<br>,<br>584.38<br><br><br>52<br>,<br>554.14<br><br><br>175<br>,<br>181.46<br><br><br>Less: non<br>-<br>operating expenses<br><br><br><br>1,520,295.40<br><br><br>976<br>,<br>954.82<br><br><br>739<br>,<br>944.70<br><br><br><br><br><br><br><br><br><br><br><br>Total (loss)/profit<br><br><br><br>(24,759,274.40)<br><br><br>21<br>,<br>493,956.86<br><br><br>(15,079,848.38<br>)<br><br><br>Less: income tax expenses<br><br><br><br>(7,896,040.59<br>)<br><br><br>1<br>,<br>679,516.74<br><br><br>(2,271,849.00<br>)<br><br><br><br><br><br><br><br><br><br><br><br>Net (loss)/profit<br><br><br><br>(16,863,233.81<br>)<br><br><br>19<br>,<br>814,440.12<br><br><br>(12,807,999.38<br>)<br><br><br>Including: net (loss)/profit from<br>continuing operation<br><br><br><br>(16,863,233.81<br>)<br><br><br>19<br>,<br>814,440.12<br><br><br>(12,807,999.38<br>)<br><br><br><br><br><br><br><br><br><br><br><br>Total comprehensive (loss)/income<br><br><br><br>(16,863,233.81<br>)<br><br><br>19<br>,<br>814,440.12<br><br><br>(12,807,999.38<br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br>Signed by:<br><br><br><br>Legal Representative: MORRIS SHEN<br>-<br>SHIH YOUNG<br><br>Chief Accountant: HAO Ze<br><br>Person in Charge of the<br><br>Accounting Office<br>: HAO Ze<br><br><br><br><br>The accompanying notes to the financial statements form an integral part of these financial statements.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Statement of Changes in Shareholders<br>’<br>/Owners<br>’<br><br>Equity<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>17<br><br>3<br>-<br>2<br>-<br>1<br>-<br>20<br><br><br><br>2021<br><br><br><br><br>Paid<br>-<br>in capital<br><br><br><br>Capital reserve<br><br><br><br>Special reserve<br><br><br>Surplus reserve<br><br><br><br>Undistributed<br>profit<br>/(loss to offset)<br><br><br><br>Total shareholders<br>’<br><br>equity<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>I.<br><br>Balance at the end of prior year and balance at the<br>beginning of current year<br><br><br>817<br>,<br>676,478.00<br><br><br><br>57<br>,<br>794,585.78<br><br><br><br>-<br><br><br>14<br>,<br>896,593.30<br><br><br><br>140<br>,<br>267,727.11<br><br><br><br>1<br>,<br>030,635,384.19<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>II.<br><br>Change in current year<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>(I)<br><br>Total comprehensive loss<br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br>-<br><br><br><br>(16,863,233.81<br>)<br><br><br><br>(16,863,233.81<br>)<br><br><br>(II)<br><br>Capital invested and reduced by shareholders<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>1.<br><br>Ordinary shares invested by shareholders<br><br><br>67<br>,<br>750,278.00<br><br><br><br>260<br>,<br>984,230.00<br><br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>328<br>,<br>734,508.00<br><br><br>2.<br><br>Business combination involving enterprises under<br>common control<br><br><br>-<br><br><br><br>1<br>,<br>421,696.83<br><br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>1<br>,<br>421,696.83<br><br><br>3.<br><br>Amount of share<br>-<br>based payment included in<br>shareholders’ equity<br><br><br>-<br><br><br><br>5<br>,<br>456,040.01<br><br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>5<br>,<br>456,040.01<br><br><br>4.<br><br>Others<br><br><br>-<br><br><br><br>736<br>,<br>058.49<br><br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>736<br>,<br>058.49<br><br><br>(III)<br><br>Internal carry forward of shareholders' equity<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>1.<br><br>Shareholding system reform<br><br><br>-<br><br><br><br>141<br>,<br>198,759.48<br><br><br><br>-<br><br><br>(14,896,593.30<br>)<br><br><br><br>(126,302,166.18<br>)<br><br><br><br>-<br><br><br>(IV)<br><br>Special reserve<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>1.<br><br>Transfer to special reserve in current year<br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br>2.<br><br>Amount utilized in current year<br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>III.<br><br>Balance at the end of current year<br><br><br>885<br>,<br>426,756.00<br><br><br><br>467<br>,<br>5<br>91,370.59<br><br><br><br>-<br><br><br>-<br><br><br><br>(2,897,672.88<br>)<br><br><br><br>1<br>,<br>350,120,453.71<br><br><br><br>Note:<br>Since January<br>1, 2021, t<br>he Company has carried out accounting in accordance with the revised lease standards, the application of which<br>does not<br><br>impact the<br>retained earnings at the beginning of 2021.<br><br><br><br>Signed by:<br><br><br>Legal Representative: MORRIS SHEN<br>-<br>SHIH YOUNG<br><br>Chief Accou<br>ntant: HAO Ze<br><br>Person in Charge of the<br><br>Accounting Office<br>: HAO Ze<br><br><br><br><br>The accompanying notes to the<br>financial statements form an integral part of these financial statements.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Statement of Changes in Shareholders<br>’<br>/Owners<br>’<br><br>Equity (Continued)<br><br>2019, 2020 and<br>2021<br><br>In RMB<br><br>Yuan<br><br>18<br><br>3<br>-<br>2<br>-<br>1<br>-<br>21<br><br><br><br>2020<br><br><br><br><br><br>Paid<br>-<br>in capital<br><br><br><br>Capital reserve<br><br><br><br>Special reserve<br><br><br>Surplus reserve<br><br><br><br>Undistributed profit<br><br><br><br>Total shareholders<br>’<br><br>equity<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>I.<br><br>Balance at the end of prior year and balance at the<br>beginning of current year<br><br><br>301,106,668.53<br><br><br><br>10<br>,<br>029,686.16<br><br><br><br>-<br><br><br>14,896,593.30<br><br><br><br>120<br>,<br>453,286.99<br><br><br><br>446<br>,<br>486,234.98<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>II.<br><br>Change in current year<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>(I)<br><br>Total comprehensive income<br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br>-<br><br><br><br>19<br>,<br>814,440.12<br><br><br><br>19<br>,<br>814,440.12<br><br><br>(II)<br><br>Capital invested and reduced by shareholders<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>1.<br><br>Acquisition of minority equity<br><br><br>65<br>,<br>430,100.00<br><br><br><br>23<br>,<br>921,549.42<br><br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>89<br>,<br>351,649.42<br><br><br>2.<br><br>Business combination involving enterprises under<br>common control<br><br><br>451<br>,<br>139,709.47<br><br><br><br>17<br>,<br>329,345.44<br><br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>468<br>,<br>469,054.91<br><br><br>3.<br><br>Amount of share<br>-<br>based payment included in<br>shareholders’ equity<br><br><br>-<br><br><br><br>2<br>,<br>678,976.84<br><br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>2<br>,<br>678,976.84<br><br><br>4.<br><br>Others<br><br><br>-<br><br><br><br>3<br>,<br>835,027.92<br><br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>3,835,027.92<br><br><br>(III)<br><br>Special reserve<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>1.<br><br>Transfer to special reserve in current year<br><br><br>-<br><br><br><br>-<br><br><br><br>3<br>,<br>486,423.39<br><br><br>-<br><br><br><br>-<br><br><br><br>3<br>,<br>486,423.39<br><br><br>2.<br><br>Amount utilized in current year<br><br><br>-<br><br><br><br>-<br><br><br><br>(3,486,423.39<br>)<br><br><br>-<br><br><br><br>-<br><br><br><br>(3,486,423.39<br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>III.<br><br>Balance at the end of current year<br><br><br>817<br>,<br>676,478.00<br><br><br><br>57<br>,<br>794,585.78<br><br><br><br>-<br><br><br>14,896,593.30<br><br><br><br>140<br>,<br>267,727.11<br><br><br><br>1<br>,<br>030,635,384.19<br><br><br><br>Note:<br>Since J<br>anuary 1, 2020, t<br>he Company has carried out accounting in accordance with the revised revenue standards, the application of which<br>does not<br><br>impact<br>the retained earnings at the beginning of 2020.<br><br><br><br>Signed by:<br><br><br><br>Legal Representative: MORRIS SHEN<br>-<br>SHIH YOUNG<br><br>Chief Accountant: HAO Ze<br><br>Person in Charge of the<br><br>Accounting Office<br>: HAO Ze<br><br><br><br>The accompanying notes to the financial statements form an integral part of these financial statements.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Statement of Changes in Shareholders<br>’<br>/Owners<br>’<br><br>Equity (Continued)<br><br>2019, 2020 and<br>2021<br><br>In RMB<br><br>Yuan<br><br>19<br><br>3<br>-<br>2<br>-<br>1<br>-<br>22<br><br><br><br>2019<br><br><br><br><br><br>Paid<br>-<br>in capital<br><br><br><br>Capital reserve<br><br><br><br>Special reserve<br><br><br>Surplus reserve<br><br><br><br>Undistributed profit<br><br><br><br>Total<br>shareholders'<br>equity<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>I.<br><br>Balance at the end of prior year<br><br><br>301,106,668.53<br><br><br><br>5<br>,<br>291,025.86<br><br><br><br>-<br><br><br>14,896,593.30<br><br><br><br>133<br>,<br>305,343.98<br><br><br><br>454<br>,<br>599,631.67<br><br><br>Add:<br><br>Changes in<br>accounting policies<br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br>-<br><br><br><br>(44,057.61<br>)<br><br><br><br>(44,057.61<br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>II.<br><br>Balance at the beginning of current year<br><br><br>301,106,668.53<br><br><br><br>5<br>,<br>291,025.86<br><br><br><br>-<br><br><br>14,896,593.30<br><br><br><br>133<br>,<br>261,286.37<br><br><br><br>454<br>,<br>555,574.06<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>III.<br><br>Change in current year<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>(I)<br><br>Total comprehensive loss<br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br>-<br><br><br><br>(12,807,999.38<br>)<br><br><br><br>(12,807,999.38<br>)<br><br><br>(II)<br><br>Capital invested and reduced by shareholders<br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br>1.<br><br>Amount of share<br>-<br>based payment included in<br>owners<br>’<br><br>equity<br><br><br>-<br><br><br><br>2,303,276.99<br><br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>2,303,276.99<br><br><br>2.<br><br>Others<br><br><br>-<br><br><br><br>2,435,383.31<br><br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>2,435,383.31<br><br><br>(III)<br><br>Special reserve<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>1.<br><br>Transfer to special reserve in current year<br><br><br>-<br><br><br><br>-<br><br><br><br>3<br>,<br>650,026.51<br><br><br>-<br><br><br><br>-<br><br><br><br>3<br>,<br>650,026.51<br><br><br>2.<br><br>Amount utilized in current year<br><br><br>-<br><br><br><br>-<br><br><br><br>(3,650,026.51<br>)<br><br><br>-<br><br><br><br>-<br><br><br><br>(3,650,026.51<br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>IV.<br><br>Balance at the end of current year<br><br><br>301<br>,<br>106,668.53<br><br><br><br>10<br>,<br>029,686.16<br><br><br><br>-<br><br><br>14<br>,<br>896,593.30<br><br><br><br>120<br>,<br>453,286.99<br><br><br><br>446<br>,<br>486,234.98<br><br><br><br><br><br><br>Signed by:<br><br><br><br>Legal Representative: MORRIS SHEN<br>-<br>SHIH YOUNG<br><br>Chief Accountant: HAO Ze<br><br>Person in Charge of the<br><br>Accounting Office<br>: HAO Ze<br><br><br><br>The accompanying notes to the financial statements form an integral part of these financial statements.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Cash Flow Statement<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>20<br><br>3<br>-<br>2<br>-<br>1<br>-<br>23<br><br><br><br><br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br><br><br>I.<br><br>Cash flow (used in)/from operating<br>activities:<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Cash received from sale of goods or<br>rendering of labour services<br><br><br><br><br>256,231,539.85<br><br><br>286,410,889.09<br><br><br>330,655,074.13<br><br><br><br>Refunds of taxes<br><br><br><br><br>6,394,856.73<br><br><br>13,559,704.67<br><br><br>11,189,645.53<br><br><br><br>Ot<br>her cash received in relation to<br>operating activities<br><br><br><br><br>3,248,057.09<br><br><br>6,098,913.63<br><br><br>5,599,448.94<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Sub<br>-<br>total of cash inflows from<br>operating activities<br><br><br><br><br>265<br>,<br>874,453.67<br><br><br>306,069,507.39<br><br><br>347,444,168.60<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Cash paid for goods and labour<br>services<br><br><br><br><br>233,701,559.79<br><br><br>174,987,115.43<br><br><br>161,987,435.35<br><br><br><br>Cash paid to and on behalf of<br>employees<br><br><br><br><br>91,608,674.96<br><br><br>77,400,686.64<br><br><br>82,929,221.15<br><br><br><br>Payments of taxes<br><br><br><br><br>13,602,962.23<br><br><br>4,109,708.71<br><br><br>10,773,115.99<br><br><br><br>Other cash paid in relation to<br>operating activities<br><br><br><br><br>66,386,565.65<br><br><br>47,305,042.39<br><br><br>55,234,816.52<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Sub<br>-<br>total of cash outflows from<br>operating activities<br><br><br><br><br>405<br>,<br>299,762.63<br><br><br>303,802,553.17<br><br><br>310,924,589.01<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Net cash flow (used in)/from<br>operating activities<br><br><br><br><br>(139,425,308.96<br>)<br><br><br>2,266,954.22<br><br><br>36,519,579.59<br><br><br><br><br><br><br><br><br><br><br><br><br><br>II.<br><br>Cash flow used in investing activities:<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Cash received from return on<br>investment<br><br><br><br><br>1,982,947.59<br><br><br>-<br><br><br>1,017,052.41<br><br><br><br>Cash receipts from investment income<br><br><br><br><br>171,145.50<br><br><br>287,340.13<br><br><br>263,461.84<br><br><br><br>Net cash receipts from disposals of<br>fixed assets, intangible assets and<br>other long<br>-<br>term assets<br><br><br><br><br>-<br><br><br>503,697.77<br><br><br>165,172.80<br><br><br><br>Net cash<br>receipts from disposals of<br>subsidiaries and other business units<br><br><br><br><br>14<br>,<br>000,000.00<br><br><br>-<br><br><br>-<br><br><br><br>Other cash receipts relating to<br>investing activities<br><br><br><br><br>212<br>,<br>892.60<br><br><br>400,622.30<br><br><br>14,692.00<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Sub<br>-<br>total of cash inflows from<br>investing activities<br><br><br><br><br>16<br>,<br>366,985.69<br><br><br>1,191,660.20<br><br><br>1,460,379.05<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Cash payments to acquire or construct<br>fixed assets, intangible assets and<br>other long<br>-<br>term assets<br><br><br><br><br>93<br>,<br>446,182.80<br><br><br>23,932,535.86<br><br><br>22,631,788.81<br><br><br><br>Cash payments to acquire investments<br><br><br><br><br>61<br>,<br>700,006.50<br><br><br>15,418,178.82<br><br><br>14,233,106.92<br><br><br><br>Other cash payments relating to<br>investing activities<br><br><br><br><br>9<br>,<br>000,000.00<br><br><br>691,872.56<br><br><br>735,064.50<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Sub<br>-<br>total of cash outflows from<br>investing activities<br><br><br><br><br>164<br>,<br>146,189.30<br><br><br>40,042,587.24<br><br><br>37,599,960.23<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Net cash flow used in investing<br>activities<br><br><br><br><br>(147,779,203.61<br>)<br><br><br>(38,850,927.04<br><br>）<br><br>(36,139,581.18<br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Signed by:<br><br><br>Legal Representative: MORRIS SHEN<br>-<br>SHIH YOUNG<br><br>Chief Accountant: HAO Ze<br><br>Person in Charge of the<br><br>Accounting Office<br>: HAO Ze<br><br><br>The accompanying notes to the financial statements form an integral part of these financial<br>statements.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Cash Flow Statement (Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>21<br><br>3<br>-<br>2<br>-<br>1<br>-<br>24<br><br><br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br><br><br>III.<br><br>Cash flow from financing activities:<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Cash received from investments<br><br><br><br><br>14<br>,<br>260,758.00<br><br><br>-<br><br><br>-<br><br><br><br>Cash receipts from borrowings<br><br><br><br><br>88<br>,<br>000,000.00<br><br><br>38,000,000.00<br><br><br>40,000,000.00<br><br><br><br>Other cash<br>receipts relating to<br>financing activities<br><br><br><br><br>-<br><br><br>314,473,750.00<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Sub<br>-<br>total of cash inflows from<br>financing activities<br><br><br><br><br>102<br>,<br>260,758.00<br><br><br>352,473,750.00<br><br><br>40,000,000.00<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Cash repayments of borrowings<br><br><br><br><br>76<br>,<br>000,000.00<br><br><br>40,000,000.00<br><br><br>-<br><br><br><br>Cash payments for distribution of<br>dividends or profits or settlement of<br>interest expenses<br><br><br><br><br>2<br>,<br>399,609.41<br><br><br>1,918,171.99<br><br><br>608,615.00<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Sub<br>-<br>total of cash outflows from<br>financing activities<br><br><br><br><br>78<br>,<br>399,609.41<br><br><br>41,918,171.99<br><br><br>608,615.00<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Net cash flow from financing<br>activities<br><br><br><br><br>23<br>,<br>861,148.59<br><br><br>310,555,578.01<br><br><br>39,391,385.00<br><br><br><br><br><br><br><br><br><br><br><br><br><br>IV.<br><br><br>Impact of foreign exchange rate<br>changes on cash and cash equivalents<br><br><br><br><br>(381,838.71<br>)<br><br><br>(932,252.74<br>)<br><br><br>169,122.48<br><br><br><br><br><br><br><br><br><br><br><br><br><br>V.<br><br>Net (decrease) increase<br>in monetary<br>capital<br><br>and cash equivalents<br><br><br><br><br>(263,725,202.69<br>)<br><br><br>273,039,352.45<br><br><br>39,940,505.89<br><br><br><br>Add: opening balance of cash and<br>cash equivalents<br><br><br><br><br>347,248,427.72<br><br><br>74,209,075.27<br><br><br>34,268,569.38<br><br><br><br><br><br><br><br><br><br><br><br><br><br>VI.<br><br>Closing balance of cash and cash<br>equivalents<br><br><br><br><br>83<br>,<br>523,225.03<br><br><br>347,248,427.72<br><br><br>74,209,075.27<br><br><br><br><br>Signed by:<br><br><br><br>Legal Representative: MORRIS SHEN<br>-<br>SHIH YOUNG<br><br>Chief Accountant: HAO Ze<br><br>Person in Charge of the<br><br>Accounting Office<br>: HAO Ze<br><br><br><br>The accompanying notes to the financial statements form an integral part of these financial statements.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial<br>Statements<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>22<br><br>3<br>-<br>2<br>-<br>1<br>-<br>25<br><br>I.<br><br>Basic Information<br><br><br>Established on September 25, 1998, Beijing Tongmei Xtal Technology Co., Ltd.<br>(formerly known as<br>“<br>Beijing Tongmei Xtal Technology Limited<br>”<br>, the<br>“<br>Company<br>”<br>) is<br>a limited liability company incorporated in Beijing, the People<br>’<br>s Republic of China<br>with the Unified Social Credit Code of 91110000700004889C, and its domicile at No.<br>4<br><br>Dong Er<br><br>Street, Tongzhou Industrial Development Zone, Beijing.<br><br><br>On September 25, 1998, with the Approval under Ref. Wai Jing Mao Jing Zi [1998]<br>No. 004<br>55 issued by the Beijing Municipal People<br>’<br>s Government, the Company was<br>jointly invested and established<br>as a Sino foreign joint venture (limited liability<br>company)<br><br>by Beijing Tongzhou Industrial Development Zone Company<br><br>and AXT, Inc.,<br>with<br><br>a<br>registered capital of USD3.06 million, of which AXT, Inc. and Beijing Tongzhou<br>Industrial Development Zone Company<br><br>respectively subscribed US<br>D<br>3.0294 million<br>and US<br>D<br>30<br>,<br>600<br>.. On October 26, 1998<br>,<br>AXT, Inc. paid a registered capital of<br>USD250,000<br><br>in<br><br>monetary c<br>apital.<br>On<br>November<br>17,1998, AXT, Inc. paid a registered<br>capital of USD 209<br>,<br>000 in monetary capital.<br><br>On December 8,1998, Beijing Tongzhou<br>Industrial Development Zone Company contributed USD30,600<br>in<br><br>intangible assets.<br>As of December 8,1998, Beijing Tongzho<br>u Industrial Development Zone Company<br>has<br><br>made a total contribution of USD30,600 with intangible assets, and AXT, Inc.<br>has<br><br>made<br>a total contribution of USD459,000<br>in monetary capital<br>.. The above capital contributions<br>were verified by Beijing Wenqi Certified Public Accountants Co., Ltd. who issued the<br>Capital Verification Report with Ref. <98> Wen Yan Zi No. 031 accordingly.<br><br><br>On March 5, 1999, AXT, Inc. paid a registered capital of USD1<br><br>million<br>in monetary<br>capital<br>.. As of March 5, 1999,<br>Beijing Tongzhou Industrial Development Zone<br>Company<br><br>has<br><br>contributed USD30<br>,<br>600<br><br>intotal<br>, and AXT, Inc.<br>has contributed<br><br>USD1<br>,<br>459<br>,<br>000 in total. Zhongda<br>Certified Public Accountants Co., Ltd.<br><br>verified the<br>above<br><br>capital contributions and issued the<br>Capital Verification Report<br><br>with Ref. <1999><br>D<br>a<br><br>Yan Zi No. 2003<br><br>accordingly<br>..<br><br><br>On<br>November<br>8,1999, AXT, Inc. paid a registered capital of US<br>D<br>42<br>,<br>300<br><br>in monetary<br>capital.<br><br>O<br>n<br>November<br>11,1999,<br>it<br>paid a registered capital<br>of USD300<br>,<br>000<br>,<br>in monetary<br>capital<br>.. As of<br>November<br>11,1999,<br>Beijing Tongzhou Industrial Development Zone<br>Company<br><br>has<br><br>contributed USD30<br>,<br>600 and AXT,<br><br>Inc.<br><br>has<br><br>contributed<br>USD1<br>,<br>801<br>,<br>300.<br>Beijing Zhongyucai<br><br>Certified Public Accountants Co., Ltd.<br>verified the<br>said capital<br>contribution<br>s<br><br>and issued<br>the Capital Verification Report with Ref. (<br>99<br>) Z<br>hongyucai Yan<br>Zi No. 017<br><br>accordingly<br>..<br><br><br>On<br>June<br><br>28, 2000, AXT, Inc. paid a registered capital of USD1<br>,<br>228<br>,<br>100<br>in moneta<br>ry<br>capital<br>.. As of<br>June<br><br>28, 2000,<br>Beijing Tongzhou Industrial Development Zone Company<br><br>has<br><br>contributed USD30<br>,<br>600<br><br>in total,<br><br>and<br>AXT, Inc.<br><br>has<br><br>contributed<br>USD3<br>,<br>029<br>,<br>400 in<br>total,<br>with the<br>registered capital<br>of<br><br>USD3<br>,<br>060<br>,<br>000<br><br>having been fully paid<br>..<br>Beijing<br>Zhong<br>yucai<br><br>Certified Public Accountants Co., Ltd.<br><br>verified the above capital<br>contributions<br><br>and issued<br><br>the<br>Capital Verification Report<br><br>with Ref. (2000) Zhongyucai<br>Yan Zi<br><br>No. 018.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>23<br><br>3<br>-<br>2<br>-<br>1<br>-<br>26<br><br><br>I. Basic Information (Continued)<br><br><br>On<br>July<br>24,<br><br>2000,<br>Beijing Tongzhou Foreign Economic Relations and Trade<br>Commission<br><br>issued the Approval with Ref.<br>[2000]<br>T<br>ong<br><br>W<br>ai<br><br>J<br>ing<br><br>M<br>ao No. 81<br>,<br>permitting transfer by Beijing Tongzhou Industrial Development Zone Company of<br><br>all<br>its 1% shares in the joint venture to A<br>XT, Inc.<br>,<br>agreed to change the<br>C<br>ompany from a<br>joint venture to a wholly<br>-<br>owned enterprise, and agreed to increase the registered capital<br>of the<br>C<br>ompany from the original US<br>D<br>3.06 million to US<br>D<br>5.06 million.<br><br><br>On September 15, 2000, AXT, Inc. paid a registered<br><br>capital of USD1<br><br>million<br>in<br>monetary capital<br>.. As of september15,<br><br>2000,<br>Beijing Tongzhou Industrial Development<br>Zone Company<br><br>has<br><br>completed the equity transfer,<br>and<br>AXT, Inc.<br><br>has<br><br>made a total<br>contribution of<br>US<br>D<br>4.06 million.<br>Beijing Zhongyucai<br><br>Certified Public Accountants Co.,<br>Ltd.<br><br>verified the above<br>-<br>mentioned capital contribution<br><br>and issued<br>the Capital<br>Verification Report for Change Registration with Ref. (<br>2000<br>)<br><br>Zhongyucai<br><br>Yan Zi No.<br>021<br><br>accordingly<br>..<br><br><br>On<br>February<br>20,<br><br>2001, AXT, Inc. paid a regi<br>stered capital of USD1<br><br>million<br>in monetary<br>capital<br>.. As of<br>February<br>21,<br><br>2001, AXT, Inc.<br>has<br><br>contributed<br>a total of<br>USD5.06 million<br>and paid up a registered capital of USD 5.06 million<br>..<br><br>Beijing Zhongyucai<br><br>Certified<br>Public Accountants Co., Ltd.<br><br>verified the a<br>bove<br>capital<br>contribution<br><br>and issued the<br>Capital Verification Report<br><br>with Ref. (<br>2001<br>)<br><br>Zhongyucai Yan Zi<br><br>No. 007<br><br>accordingly<br>..<br><br><br>On<br>A<br>pril<br><br>5,<br><br>2001,<br>Beijing Tongzhou Foreign Economic Relations and Trade<br>Commission<br><br>granted the Approval with Ref. J<br>ing<br><br>J<br>ing<br><br>M<br>ao<br>Zi [2001] No. 210<br>,<br>permitting increase of the Company<br>’<br>s<br>registered capital from the original US<br>D<br>5.06<br>million to US<br>D<br>15.06 million. On<br>June<br>11,<br><br>2001, AXT, Inc. paid a registered capital of<br>USD1.5 million<br>in monetary capital<br>.. As of<br>June<br>11,<br><br>2001, AXT, Inc.<br>has<br><br>contributed<br>USD6.56 million in total. Beijing Jingcheng<br>Certified Public Accountants Co., Ltd.<br><br>verified the above<br>capital<br>contribution<br><br>and issued the<br>Capital Verification Report<br><br>with<br>Ref. Jingcheng Kuai Yan Zi<br>(2001) No. 058<br><br>accordingly<br>..<br><br><br>On<br>July<br>5,<br><br>2001,<br><br>AXT, Inc. paid a registered capital of USD3<br><br>million<br>in monetary<br>capital<br>.. As of<br>July<br>5,<br><br>2001, AXT, Inc.<br>has<br><br>contributed a total of USD9.56 million.<br>Beijing Jingcheng<br>Certified Public Accountants Co., Ltd.<br><br>verified the above<br>capital<br>contribution<br><br>and issued<br>the<br>Capital Verification Report<br><br>with Ref. Jingcheng Kuai Yan<br>Zi<br>(2001) No. 067.<br><br><br>On<br>January<br>28,<br><br>2002, AXT, Inc. paid a registered capital of USD1<br><br>million<br>in monetary<br>capital<br>.. As of<br>January<br>28,2002, AXT, Inc.<br>has<br><br>contributed USD10.56 million in total.<br>Beijing Jingcheng<br>Certified Public Accountants Co., Ltd.<br><br>verified the above<br>capital<br>contribution<br><br>and issued the<br>Capital Verification Report<br><br>with Ref. Jingcheng Kuai Yan<br>Zi<br><br>(2002) No. 014<br><br>accordingly<br>..
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>24<br><br>3<br>-<br>2<br>-<br>1<br>-<br>27<br><br><br><br>I. Basic Inf<br>ormation (Continued)<br><br><br>On<br>June<br>26,<br><br>2002, AXT, Inc. paid a registered capital of USD1<br><br>million<br>in monetary<br>capital<br>.. As of<br>June<br>26,<br><br>2002, AXT, Inc.<br>has<br><br>contributed USD11.56 million in total.<br>Beijing Jingcheng<br>Certified Public Accountants Co., Ltd.<br><br>verified the<br><br>above<br>capital<br>contribution<br><br>and issued the<br>Capital Verification Report<br><br>with Ref. Jingcheng Kuai Yan<br>Zi<br><br>(2002) No. 039<br><br>accordingly<br>..<br><br><br>On<br>July<br>20,<br><br>2002, AXT, Inc.<br>increased its paid in capital by US<br>D<br>193<br>,<br>4700 from the<br>undistributed profits of the<br>company<br>.. As of<br>July<br>20,<br><br>2002, AXT, Inc.<br>has<br><br>made a<br>total<br>contribution of USD13.4947 million. Beijing<br>TOPSON<br><br>Certified Public Accountants<br>Co., Ltd.<br><br>verified the above<br>capital<br>contribution<br>,<br><br>issuing<br><br>the<br><br>Capital Verification Report<br><br>with Ref.<br>TOPSON<br><br>Yan Zi [200<br>2] No. 2049<br><br>accordingly<br>..<br><br><br>On August 8, 2002, AXT, Inc. paid a registered capital of USD1.5653 million<br>in<br>monetary capital<br>.. As of August 8, 2002, AXT, Inc.<br>has<br><br>contributed USD15.06 million<br>in total<br>and paid US<br>D<br>15.06 million in registered capital<br>.. Beijing<br>TO<br>PSON<br><br>Certified<br>Public Accountants Co., Ltd.<br><br>verified the above<br>capital<br>contribution<br><br>and issued the<br>Capital Verification Report<br><br>with Ref.<br>TOPSON<br><br>Yan Zi [2002] No. 2057<br><br>accordingly<br>..<br><br><br>The Company increased its registered capital from USD8 million to USD23.06 million<br>according to its resolution dated September 30, 2002 on amending the articles of<br>association. On May 26, 2003, AXT, Inc. converted the Company<br>’<br>s capital reserve into<br>paid<br>-<br>in<br><br>capital of USD1,669,100. As of May 26, 2003, AXT, Inc.<br>has<br><br>contributed<br>USD16.7291 million in total. Beijing TOPSON Certified Public Accountants Co., Ltd.<br>verified the above capital contribution, issuing the Capital Verification Report<br>with Ref.<br>TOPSON Yan Zi [2003] No. 2022 therefor.<br><br><br>On<br>M<br>ay<br><br>18,<br><br>2004, AXT, Inc.<br>converted<br><br>the<br>Company<br>’<br>s<br>undistributed profits<br><br>to<br><br>paid<br>-<br>in<br>capital<br>of<br><br>USD5<br>,<br>056<br>,<br>700. As of<br>M<br>ay<br><br>18,<br><br>2004, AXT, Inc.<br>has<br><br>made a total contribution<br>of<br>USD21.7858 million.<br>The above capital contr<br>ibutions were verified by Beijing<br>TOPSON Certified Public Accountants Co., Ltd.<br><br>who<br>issued the<br>Capital Verification<br>Report<br><br>with Ref.<br>TOPSON Yan Zi<br><br>[2004] No. 2012<br><br>accordingly<br>..<br><br><br>On<br>July<br>20,<br><br>2005, AXT, Inc.<br>, through conversion of<br><br>the<br>Company<br>’<br>s<br>undistributed<br>profits<br>,<br>increased<br>the<br>paid<br>-<br>in capital<br><br>by<br><br>USD1<br>,<br>274<br>,<br>200. As of<br>July<br>20,2005, AXT, Inc.<br>has<br><br>contributed US<br>D<br>23.06 million in total<br>, with the registered capital of<br>US<br>D<br>23.06<br>million<br>having been fully paid<br>..<br>Beijing TOPSON Certified Public Accountants Co.,<br>Ltd.<br><br>verified the above<br>capital<br>contribution<br><br>and issued the<br>Capital Verification Report<br><br>with<br>Ref.<br>TOPSON Yan Zi<br><br>[2005] No. 2017<br><br>accordingly<br>..
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>25<br><br>3<br>-<br>2<br>-<br>1<br>-<br>28<br><br>I. Basic Information (Continued)<br><br><br>According to the resolution of its board of directors and the resolution on ame<br>nding its<br>articles of association dated June 20, 2006, the Company increased its registered capital<br>from USD2.28 million to USD25.34 million. On September 11, 2006, AXT, Inc.<br>converted the Company<br>’<br>s undistributed profits to paid<br>-<br>in capital of USD2.28 milli<br>on.<br>As of September 11, 2006, AXT, Inc.<br>has<br><br>contributed a total of USD25.34 million<br>a<br>nd<br>paid in the registered capital of USD 25.34 million<br>.. Beijing TOPSON Certified Public<br>Accountants Co., Ltd. verified the above capital contribution, issuing the Capital<br>Verification Report<br>with Ref.<br>TOPSON Yan Zi [2006] No. 2040 accordingly.<br><br><br>According to the resolution of its board of directors and the resolution on amending its<br>articles of association dated November 1, 2007, the Company increased its registered<br>capital<br>from USD4.79 million to USD30.13 million. On December 8, 2007, AXT, Inc.<br>converted the Company<br>’<br>s undistributed profits to paid<br>-<br>in capital of USD3.194 million.<br>As of December 18, 2007, AXT, Inc.<br>has<br><br>made a total contribution of USD28.534<br>million. The above<br>capital contributions were verified by Beijing TOPSON Certified<br>Public Accountants Co., Ltd. who issued the Capital Verification Report<br>with Ref.<br>TOPSON Yan Zi [2007] No. 2033 therefor.<br><br><br>On August 12, 2008, AXT, Inc.<br>converted the Company<br>’<br>s<br><br>undistributed p<br>rofits<br><br>to<br>paid<br>-<br>in capital<br>of<br><br>USD1.596 million. As of August 12, 2008, AXT, Inc.<br>has<br><br>contributed<br>USD30.13 million<br>in total<br>and paid in the registered capital of USD 30.13 million<br>..<br>Beijing TOPSON Certified Public Accountants Co., Ltd.<br><br>verified the<br>capital<br>contribution<br><br>and issued the<br>Capital Verification Report<br><br>with Ref.<br>TOPSON Yan Zi<br><br>[2008] No. 2033<br><br>accordingly<br>..<br><br><br>As per the resolution of its board of directors dated May 11, 2011, the Company<br>increased its registered capital from USD9 m<br>illion to USD39.13 million. On September<br>9, 2011, AXT, Inc. paid a registered capital of USD4 million<br>in monetary capital<br>.. As of<br>October 12, 2011, AXT, Inc.<br>has<br><br>made a total contribution of USD34.13 million.<br>Beijing TOPSON Certified Public Accountants Co.,<br><br>Ltd. verified the capital<br>contributions, issuing the Capital Verification Report<br>with Ref.<br>TOPSON Yan Zi [2011]<br>No. 2027 therefor.<br><br><br>On<br>February<br>2,<br><br>2012, AXT, Inc. paid a registered capital of USD5<br><br>million<br>in monetary<br>capital<br>.. As of<br>February<br>13,<br><br>2012, AXT,<br><br>Inc.<br>has<br><br>contributed a total of<br><br>USD39.13 million<br><br>and paid in the registered capital of USD 39.13 million<br>..<br>Beijing TOPSON Certified<br>Public Accountants Co., Ltd.<br><br>verified the<br>capital<br>contribution<br><br>and issued the<br>Capital<br>Verification Report<br><br>with Ref.<br>TOPSON Y<br>an Zi<br><br>[2012] No. 2010<br><br>therefor<br>..
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>26<br><br>3<br>-<br>2<br>-<br>1<br>-<br>29<br><br><br>I. Basic Information (Continued)<br><br><br>On December 14, 2020, the Company made an industrial and commercial change in the<br>currency of its registered capital,<br>changing<br><br>its registered capital from the original<br>USD39.13 million to RMB301,106,668.53<br><br>and the paid in capital of RMB<br>301<br>,<br>106<br>,<br>668.53.<br><br>Acc<br>ording to the resolution of the general meeting dated December 25,<br>2020, the relevant agreements and the amended articles of association, the registered<br>capital was increased by RMB519,853,650.47. Upon the change, the Company<br>’<br>s<br>registered capital amounted<br>to RMB820,960,319.00<br>..<br><br>AXT, Inc. subscribed RMB<br>451139709.47 with its 100.00% equity of<br><br>Baoding<br><br>Tongmei<br><br>Xtal Manufacture Co., Ltd.,<br>Chaoyang Tongmei<br><br>Xtal Technology Co., Ltd., Nanjing Jinmei Gallium Co., Ltd.,<br>91.50% equity<br>of<br>Chaoyang Jinmei Gallium Co.,<br>Ltd. and 67.00% equity<br>of<br><br>Beijing<br>Boyu Semiconductor Vessel Craftwork Technology Co., Ltd.<br><br>accounting for 54.95%<br>of the registered capital<br>;<br><br>Beijing<br>B<br>omeilian Special Ceramics Co., Ltd. subscribed<br>RMB 50<br>,<br>981<br>,<br>400.00 with its 27.00% equity of<br>Beijing Boyu Semiconductor Vessel<br>Craftwork Technology Co., Ltd.<br>, accounting for 6.21% of the registered capital<br>;<br><br>Zhongke Hengye (Tianjin)<br><br>Technology Development Partnership (L.P.)<br><br>subscribed<br>RMB 11<br>,<br>329<br>,<br>200.00 with its 6.00<br>% equity of<br>Beijing Boyu Semiconductor Vessel<br>Craftwork Technology Co., Ltd.<br>, accounting for 1.38% of the registered capital<br>;<br><br>Nanjing Jinchao Business Management Partnership (L.P.) subscribed RMB<br>3<br>,<br>119<br>,<br>500.00 with its 8.50% equity of Chaoyang Jinmei Galliu<br>m Co., Ltd., accounting<br>for 0.38% of the registered capital<br>;<br><br>Beijing Dingmei Technology Development Center<br>(L.P.) subscribed RMB 1<br>,<br>729<br>,<br>136.00 in currency, accounting for 0.21% of the<br>registered capital;<br><br>Beijing Liaoyan Technology Development Center (L.P.)<br><br>subscribed<br>RMB 697<br>,<br>721.00 in currency, accounting for 0.08% of the registered capital<br>;<br><br>Boyu<br>Hengye (Tianjing) Technology Development Partnership (L.P.) subscribed RMB<br>637<br>,<br>050.00 in currency, accounting for 0.08% of the registered capital;<br><br>Boyu<br>Yingchuang (Tianjing) Technology Development Partnership (L.P.) subscribed RMB<br>219934.00 in currency, accounting for 0.03% of the registered capital.<br><br>The business<br>license of the<br>C<br>ompany was renewed by<br><br>Beijing Tongzhou District Administration for<br>Market Reg<br>ulation on December 29, 2020, and the registration of foreign trade operator<br>was completed on January 8, 2021.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>27<br><br>3<br>-<br>2<br>-<br>1<br>-<br>30<br><br>I. Basic Information (Continued)<br><br><br>According to the resolution of the general meeting dated January 21, 2021, the amended<br>articles of association and the relevant executed agreements, the Company applied to<br>increase its registered capital by RMB64,466,437.00<br>and the changed registered capit<br>al<br>was<br>RMB 885,426,756.00. Among the changed registered capital, RMB13,156,415.00,<br>accounting for 1.49% of such registered capital, was subscribed to by<br>Haitong<br><br>Innovation<br><br>Securities Investment Co., Ltd.; RMB11,840,774.00, accounting<br>for 1.34% of such regis<br>tered capital, was subscribed to by Liaoning Haitong New<br>Driving Force Equity Investment Fund Partnership (L.P.); RMB8,942,416.00,<br>accounting for 1.01% of such registered capital, was subscribed to by Fujian Anxin<br>Industrial Investment Fund Partnership (L.<br>P.); RMB6,955,797.00, accounting for 0.79%<br>of such registered capital, was subscribed to by Hefei Huadeng II Integrated Circuit<br>Industrial Investment Fund Partnership (L.P.); RMB5,961,172.00, accounting for 0.67%<br>of such registered capital, was subscribed<br>to by Jinggangshan Meicheng Equity<br>Investment Partnership (L.P.); RMB4,604,745.00, accounting for 0.52% of such<br>registered capital, was subscribed to by Liaoning Haitong New Energy Low<br>-<br>carbon<br>Industry Equity Investment Fund Co., Ltd.; RMB3,974,553.00, acco<br>unting for 0.45%<br>of such registered capital, was subscribed to by Qingdao Xinxing I Equity Investment<br>Fund Partnership (L.P.); RMB3,974,553.00, accounting for 0.45% of such registered<br>capital, was subscribed to by Qiji (Hangzhou) Investment Counseling Co.,<br><br>Ltd.;<br>RMB1,766,907.00, accounting for 0.20% of such registered capital, was subscribed to<br>by Gongqingcheng Yihua Tongze Investment Partnership (L.P.); RMB1,315,642.00,<br>accounting for 0.15% of such registered capital, was subscribed to by Shangrong<br>Baoyin<br>g (Ningbo) Investment Center (L.P.); RMB993,611.00, accounting for 0.11% of<br>such registered capital, was subscribed to by Hangzhou Jingyue Technology<br>Development Partnership (L.P.); RMB860,468.00, accounting for 0.10% of such<br>registered capital, was subscr<br>ibed to by Xiamen Heyong Zhicheng Equity Investment<br>Partnership (L.P.); and RMB119,384.00, accounting for 0.01% of such registered<br>capital, was subscribed to by Lumentime Semiconductor Equipment (Shanghai) Co.,<br>Ltd.. Meanwhile, the registered capital of RM<br>B4,907,343.00 held by Beijing Bomeilian<br>Special Ceramics Co., Ltd. was transferred to AXT, Inc., and that of<br>RMB10,463,911.00 held by Zhongke Hengye (Tianjin) Technology Development<br>Partnership (L.P.) was transferred to Liaoning Zhuomei Hi<br>-<br>tech Equity Inve<br>stment<br>Fund Partnership (L.P.). A business license of the Company was issued by Beijing<br>Tongzhou District Administration for Market Regulation on January 25, 2021, and the<br>registration of foreign trade operator was completed on January 28, 2021.<br><br><br>As of Jan<br>uary 28, 2021, the above<br>-<br>mentioned subscribed capital contributions have<br>been fully paid.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>28<br><br>3<br>-<br>2<br>-<br>1<br>-<br>31<br><br><br>I. Basic Information (Continued)<br><br><br>On April 16, 2021,<br>pursuant<br><br>to<br><br>the<br><br>general<br><br>meeting<br><br>resolution<br>and the<br>initiato<br>r<br>agreement of the<br>C<br>ompany, the<br>former<br><br>shareholders of the<br>C<br>ompany<br>,<br><br>namely<br>AXT,<br><br>Inc.<br>, Beijing Bomeilian Special Ceramics Co., Ltd., Haitong<br><br>Innovation<br><br>Securities<br>Investment Co., Ltd., Liaoning Haitong New Driving Force Equity Investment Fund<br>Partnership (L.P.), Liaoning Zhuomei Hi<br>-<br>tech Equity<br><br>Investment Fund Partnership<br>(L.P.), Fujian Anxin Industrial Investment Fund Partnership (L.P.), Hefei Huadeng II<br>Integrated Circuit Industrial Investment Fund Partnership (L.P.), Jinggangshan<br>Meicheng Equity Investment Partnership (L.P.), Liaoning Haitong<br><br>New Energy Low<br>-<br>carbon Industry Equity Investment Fund Co., Ltd., Qingdao Xinxing I Equity<br>Investment Fund Partnership (L.P.), Qiji (Hangzhou) Investment Counseling Co., Ltd.,<br>Nanjing Jinchao Business Management Partnership (L.P.), Gongqingcheng Yihua<br>Tong<br>ze Investment Partnership (L.P.), Beijing Dingmei Technology Development<br>Center (L.P.), Shangrong Baoying (Ningbo) Investment Center (L.P.), Hangzhou<br>Jingyue Technology Development Partnership (L.P.), Zhongke Hengye (Tianjin)<br>Technology Development Partner<br>ship (L.P.), Xiamen Heyong Zhicheng Equity<br>Investment Partnership (L.P.), Beijing Liaoyan Technology Development Center (L.P.),<br>Boyu Hengye (Tianjing) Technology Development Partnership (L.P.), Boyu<br>Yingchuang (Tianjing) Technology Development Partnership<br>(L.P.) and Lumentime<br>Semiconductor Equipment (Shanghai) Co., Ltd., in their capacities of<br>initiator<br>s<br>,<br>restructured Beijing Tongmei Xtal Technology Limited as a whole<br>into a joint stock<br>limited company in accordance with the law.<br>The<br>initiators<br><br>were grante<br>d equity in<br>proportion to their<br>actual contribution<br>s to<br><br>Beijing Tongmei Xtal Technology Limited<br>,<br>based on the<br>audited net assets of the<br>C<br>ompany<br>in the amount of RMB<br>1<br>,<br>345<br>,<br>479<br>,<br>418.19<br><br>as of<br>January<br><br>31, 2021<br>, of which RMB<br>885<br>,<br>426<br>,<br>756<br>..00 was converted into<br>885<br>,<br>4<br>26<br>,<br>756<br>shares<br>, the total shares,<br><br>at a ratio of 1:1<br><br>with a par value of<br>RMB<br>1<br><br>per share,<br><br>and the<br>remainder of RMB<br>460<br>,<br>052<br>,<br>662.19<br><br>was included as<br><br>the capital reserve.<br><br>The<br>restructuring was<br>verified by<br>Ernst & Young Huaming<br><br>Certified Public Accountants<br><br>who<br><br>issued<br>the Capital Verification Report with Ref.<br>E<br>Y<br>(2021) Y<br>an<br>Z<br>i<br><br>No. 61641535_<br><br>B03<br><br>therefor<br>.. On April 16, 2021, the<br>C<br>ompany registered with<br>Beijing Tongzhou<br>District Administration for Market Regulation<br><br>and obtained a bus<br>iness license<br>having<br><br>the registration number of “9111000070004889<br>C<br>”.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>29<br><br>3<br>-<br>2<br>-<br>1<br>-<br>32<br><br>I. Basic Information (Continued)<br><br><br>The Company<br>’<br>s ownership structure as of December 31, 2021 is as follows:<br><br><br>Shareholder Name<br><br>Registered capital<br>and share capital<br><br><br>Proportio<br>n (%)<br><br><br>RMB<br><br><br><br><br><br><br><br>AXT,<br><br>Inc.<br><br>757<br>,<br>153,721.00<br><br><br>85.51 %<br><br>Beijing Bomeilian Special Ceramics Co., Ltd.<br><br>46<br>,<br>074,057.00<br><br><br>5.20 %<br><br>Haitong<br><br>Innovation<br><br>Securities Investment Co., Ltd.<br><br>13<br>,<br>156,415.00<br><br><br>1.49 %<br><br>Liaoning Haitong New Driving Force Equity<br>Investment Fund<br>Partnership (L.P.)<br><br>11<br>,<br>840,774.00<br><br><br>1.34 %<br><br>Liaoning Zhuomei Hi<br>-<br>tech Equity Investment Fund Partnership (L.P.)<br><br>10<br>,<br>463,911.00<br><br><br>1.18 %<br><br>Fujian Anxin Industrial Investment Fund Partnership (L.P.)<br><br>8<br>,<br>942,416.00<br><br><br>1.01 %<br><br>Hefei Huadeng<br><br>II Integrated Circuit Industrial Investment Fund<br>Partnership (L.P.)<br><br>6<br>,<br>955,797.00<br><br><br>0.79 %<br><br>Jinggangshan Meicheng Equity Investment Partnership (L.P.)<br><br>5<br>,<br>961,172.00<br><br><br>0.67 %<br><br>Liaoning Haitong New Energy Low<br>-<br>carbon Industry Equity Investment<br>Fund Co., Ltd.<br><br>4<br>,<br>604,745.00<br><br><br>0.52 %<br><br>Qingdao Xinxing I Equity Investment Fund Partnership (L.P.)<br><br>3<br>,<br>974,553.00<br><br><br>0.45 %<br><br>Qiji (Hangzhou) Investment Counseling Co., Ltd.<br><br>3<br>,<br>974,553.00<br><br><br>0.45 %<br><br>Nanjing Jinchao<br><br>Business Management Partnership (L.P.)<br><br>3<br>,<br>119,500.00<br><br><br>0.35 %<br><br>Gongqingcheng Yihua Tongze Investment Partnership (L.P.)<br><br>1<br>,<br>766,907.00<br><br><br>0.20 %<br><br>Beijing Dingmei Technology Development Center (L.P.)<br><br>1<br>,<br>729,136.00<br><br><br>0.20 %<br><br>Shangrong Baoying<br><br>(Ningbo) Investment Center (L.P.)<br><br>1<br>,<br>315,642.00<br><br><br>0.15 %<br><br>Hangzhou Jingyue Technology Development Partnership (L.P.)<br><br>993<br>,<br>611.00<br><br><br>0.11 %<br><br>Zhongke Hengye (Tianjin) Technology Development Partnership (L.P.)<br><br>865<br>,<br>289.00<br><br><br>0.10 %<br><br>Xiamen Heyong Zhicheng<br><br>Equity Investment Partnership (L.P.)<br><br>860<br>,<br>468.00<br><br><br>0.10 %<br><br>Beijing Liaoyan Technology Development Center (L.P.)<br><br>697<br>,<br>721.00<br><br><br>0.08 %<br><br>Boyu Hengye (Tianjing) Technology Development Partnership (L.P.)<br><br>637<br>,<br>050.00<br><br><br>0.07 %<br><br>Boyu Yingchuang (Tianjing)<br>Technology Development Partnership (L.P.)<br><br>219<br>,<br>934.00<br><br><br>0.02 %<br><br>Lumentime Semiconductor Equipment (Shanghai) Co., Ltd.<br><br>119<br>,<br>384.00<br><br><br>0.01 %<br><br><br><br><br><br>Total<br><br>885<br>,<br>426,756.00<br><br><br>100.00 %<br><br><br>The main business activities of<br>Beijing Tongmei Xtal<br><br>Technology Co., Ltd. and its<br>subsidiaries (the<br>“<br>Group<br>”<br>)<br>are<br>: production, research and development of single crystal<br>polished wafers and related semiconductor materials and ultra pure elements; sale of<br>self<br>-<br>produced products; wholesale, acting as commission<br><br>agency (except for auction),<br>import and export of semiconductor materials and products (not involving state trading<br>commodities, with commodities involving quota and license management to be<br>handled upon application in accordance with relevant provisions<br><br>of the state), and<br>rendering of consulting, technology and after<br>-<br>sales services.<br><br><br>AXT, Inc. is the parent company and ultimate parent company of the Group.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>30<br><br>3<br>-<br>2<br>-<br>1<br>-<br>33<br><br>I. Basic Information (Continued)<br><br><br>The financial statements have been approved by the<br>Company<br>’<br>s board of directors on<br>March 15, 2022.<br><br><br>The consolidation scope of the consolidated financial statements is determined on the<br>basis of control. See Note VI for changes during the reporting period.<br><br><br>II. Basis of Preparation of Financial Statements<br><br><br>The financial statements are prepared in accordance with the<br>Accounting Standards for<br>Business Enterprises<br>-<br><br>Basic Standards<br><br>promulgated by the Ministry of Finance and<br>such specific accounting standards, application guidelines, interpretations and other<br>r<br>elevant provisions issued and revised thereafter (collectively<br><br>referred to as<br>the<br>“<br>Accounting Standards for Business Enterprises<br>”<br>).<br><br><br>The financial statements are presented on a going concern basis.<br><br><br>In the preparation of the financial statements,<br>except for certain financial instruments,<br>the historical cost is taken as the valuation principle. If the asset decreases in value, the<br>provision for impairment of assets should be made according to relevant regulations.<br><br><br>III.<br><br>Significant Accounting Polici<br>es and Accounting Estimates<br><br><br>The Group, based on its actual production and operation characteristics, developed<br>specific accounting policies and accounting estimates which are mainly reflected in bad<br>debt provision for receivables, accounting method<br><br>of inv<br>entories<br>, depreciation of fixed<br>assets, amortization of intangible asset, recognition and measurement of revenue, etc.<br><br><br>1.<br><br>Statement of compliance with Accounting Standards for Business<br><br>Enterprises<br><br><br>T<br>he financial statements have been prepared in accordanc<br>e with the Accounting<br>Standards for Business Enterprise<br>s,<br>and present truly and completely, the<br>Company<br>’<br>s<br>and the<br>Group's financial position as of 31 December 201<br>9, 31 December 2020 and 31<br>December 2021<br>, and the results of operations and cash flows for<br>the year<br>s<br><br>then ended.<br><br><br>2.<br><br>Accounting period<br><br><br>T<br>he Group has adopted the calendar year as its accounting year, i.e. from 1 January to<br>31 December.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>31<br><br>3<br>-<br>2<br>-<br>1<br>-<br>34<br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>3.<br><br>Recording<br>currency<br><br><br>T<br>he<br>Group<br>choose<br>s<br><br>RMB as<br>its recording<br>currency<br><br>and<br><br>adopts RMB to prepare<br>the<br>financial statements<br>.. All amounts are presented in RMB unless otherwise specified.<br><br><br>The subsidiaries of the Group take the<br>currenc<br>ies<br><br>of the primary economic<br>environment<br>s<br><br>in which th<br>e<br>y<br><br>operate<br><br>as their recording currencies, which are translated<br>into RMB in preparing the financial statements.<br><br><br>4.<br><br>Business combination<br><br><br>Business combinations are classified into business combinations involving enterprises<br>under common control and business<br><br>combinations not involving enterprises under<br>common control.<br><br><br>Business combinations involving enterprises under common control<br><br><br>A business combination involving enterprises under common control is a business<br>combination in which all of the<br>participating<br>enterprises are ultimately<br>rather<br><br>than<br><br>transitor<br>ily<br><br>controlled by the same party or parties both before and after the<br>combination.<br><br>For a<br>business combination involving enterprises under common control<br>,<br>the party that obtains control over the other particip<br>ating enterprises at the combining<br>date is the combining party, while the other participating enterprises are the combined<br>party. The combining date is the date on which the combining party obtains control<br>over the combined party.<br><br><br>Assets and liabilities obtained<br>by the combining party through business combination<br>involving enterprises under common control (including the goodwill arising from the<br>ultimate controlling party<br>’<br>s acquisition of the combined party)<br>shall be<br>accounted for<br>o<br>n the basis of the<br><br>carrying amounts recorded<br>in the financial statements of the ultimate<br>controlling party<br><br>at the date of the combination. The difference between the carrying<br>amount of the net assets obtained and the carrying amount of the consideration pa<br>id<br><br>for<br>the combination<br><br>(or total par value of the issued shares)<br><br>is adjusted to the share premium<br>in capital reserve. If the share premium is not sufficient to absorb the difference, any<br>excess shall be adjusted against retained earnings.<br><br><br>Where a<br><br>business<br><br>combination involving enterprises under common control<br><br>is achieved<br>in steps through multiple transactions, to the extent that the combining party and the<br>combined party are under the common control of the ultimate controlling party, the<br>assets and liabili<br>ties of the combined party are included in the comparative financial<br>statements of the consolidated financial statements, and the increase in net assets due<br>to the combination is adjusted against the shareholders<br>’<br><br>equity in the comparative<br>financial statem<br>ents.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>32<br><br>3<br>-<br>2<br>-<br>1<br>-<br>35<br><br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>5.<br><br>Consolidated financial statements<br><br><br>The scope of consolidation of the consolidated financial statements is determined based<br>on control and includes the financial state<br>ments of the Company and all its subsidiaries.<br>A subsidiary<br>herein refers to<br><br>an entity controlled by the Company (inclusive of the<br>divisible part of an enterprise and investee, as well as the structured entity controlled<br>by the Company, etc.)<br><br><br>In preparing<br><br>the consolidated financial statements, the subsidiaries adopt the accounting<br>year/period and accounting policies that are consistent with that of the Company. The<br>assets, liabilities, equity, revenue, expenses and cash flows arising from intra<br>-<br>group<br>trans<br>action are eliminated in full upon consolidation.<br><br><br>Where the loss attributable to minority shareholders of the subsidiary exceed their<br>shares of shareholders<br>’<br><br>equity of the subsidiary at the beginning of the period, the<br>excess is still charged against mino<br>rity interests.<br><br><br>For a subsidiary acquired through business combination involving enterprises under<br>common control, the results of operation and cash flows of the combined party are<br>included in the consolidated financial statements since the beginning of t<br>he period of<br>combination. In preparing the comparative consolidated financial statements, the<br>related items in the financial statements of prior period are adjusted as if the reporting<br>entity arising from the combination has always existed since it came in<br>to control of the<br>ultimate controlling party.<br><br><br>Where the change in relevant facts and circumstances results in the changes in one or<br>several elements of control, the Group will reassess whether it has control of the<br>investee.<br><br><br>The changes in<br>minority interests that do not result in loss of control are accounted for<br>as equity transactions.<br><br><br>6.<br><br>Cash and cash equivalents<br><br><br>Cash refers to cash on hand and deposits that can be readily withdrawn on demand.<br>Cash equivalents refer to the Group's short<br>-<br>term, highly liquid investments that are<br>readily convertible to known amounts of cash and which are subject to an insignificant<br>risk of changes in value<br>..
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>33<br><br>3<br>-<br>2<br>-<br>1<br>-<br>36<br><br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>7.<br><br>Translation of tra<br>nsactions and financial statements denominated in<br>foreign<br><br><br>currencies<br><br><br>For transactions denominated in foreign currencies, the Group translates the foreign<br>currency amounts into recording currency amounts.<br><br><br>A foreign currency transaction is<br>translated int<br>o recording currency<br>, on initial<br>recognition, by applying<br>the<br><br>spot exchange rate on the date of transaction<br>.. At the<br>balance sheet date, the foreign currency monetary items are translated by applying the<br>spot exchange rates prevailing at the balance sheet d<br>ate. The resulting differences from<br>settlement and translation of foreign currency monetary items are included in profit or<br>loss for the period, except that exchange differences related to a specific<br>-<br>purpose<br>borrowing denominated in foreign currency that q<br>ualify for capitalization are accounted<br>for according to the principle of capitalization. Foreign currency non<br>-<br>monetary items<br>measured at historical cost are translated to the amounts in recording currency at the<br>spot exchange rates on the dates of the tra<br>nsactions and the amounts in recording<br>currency remain unchanged. Foreign currency non<br>-<br>monetary items measured at fair<br>value are re<br>-<br>translated at the spot exchange rate on the date the fair value is determined,<br>and the resulting difference is recognized in<br><br>profit and loss or as other comprehensive<br>income.<br><br><br>For foreign operations, the Group translate the recording currency into RMB when<br>preparing the financial statements: items of assets and liabilities in the balance sheet are<br>translated by applying the spo<br>t exchange rate prevailing at the balance sheet date, while<br>the items of shareholder<br>’<br>s equity other than<br>“<br>undistributed profit<br>”<br><br>are translated by<br>applying the spot exchange rate on the date of transaction; the items of revenue and<br>expenses in income statem<br>ent are translated by the applying the weighted average<br>exchange rate for the period in which the transaction is incurred (unless the fluctuation<br>in exchange rate makes such exchange rate inappropriate, in which case the spot<br>exchange rate on the date of t<br>ransaction is applied). The differences of translation of<br>financial statements denominated in foreign currencies arising from the above<br>translations are recognized as other comprehensive income. Upon disposal of foreign<br>operations, other comprehensive inco<br>me relating to such foreign operations are<br>transferred to profit or loss for the period of disposal. For partial disposal, the amount<br>transferred to profit or loss is calculated according to the proportion of disposal.<br><br><br>Foreign currency cash flows and cash<br><br>flows of overseas subsidiaries are translated by<br>applying the average exchange rate for the period in which the cash flows are incurred<br>(unless the fluctuation in exchange rate makes such exchange rate inappropriate, in<br>which case the spot exchange rate o<br>n the date when the cash flows are incurred is<br>applied). The effect of foreign exchange rate changes on cash are treated as<br>reconciliation items and separately presented in the cash flow statement.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>34<br><br>3<br>-<br>2<br>-<br>1<br>-<br>37<br><br><br>III.<br><br>Significant Accounting Policies and<br>Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>8.<br><br>Financial instruments<br><br><br>A financial instrument is a contract that forms a financial asset of an entity and forms a<br>financial liability or equity instrument of other entities.<br><br><br>Recognition and derecognition of financial<br>instruments<br><br><br>A f<br>inancial asset<br>or<br>financial liabilit<br>y<br><br>is<br>recognized when the Group becomes a party to<br>the contractual provisions of the<br>financial<br>instrument.<br><br><br>The Group derecognizes a financial asset (or part of it, or part of a group of similar<br>financial<br><br>assets), i.e. write off from its account and balance sheet, when all the following<br>criteria are satisfied:<br><br><br>(1)<br><br>The rights to the cash flows from the financial asset become expired;<br><br>(2)<br><br>The group has transferred the rights to the cash flows of the financial asset<br>, or<br>assumed the obligation to immediately pay the cash flows received to third party<br>in full amount under the<br>“<br>pass<br>-<br>through arrangement<br>”<br>; and (a) has transferred<br>substantially all the risks and rewards of the ownership of the financial asset, or (b)<br>has neither transferred nor retained substantially all the risks and rewards of the<br>ownership of the financial asset, but has not retained control of the financial asset.<br><br><br>If the obligations under a financial liability have been satisfied, canceled or beco<br>me<br>expired, the financial liability is derecognized. If an existing financial liability is<br>replaced by the same creditor with another financial liability having completely<br>different terms in substance, or the terms and conditions of the existing liability<br>have<br>been substantially changed, such replacement or change is accounted for as<br>derecognition of the original liability and recognition of a new liability, with any<br>resulting difference included in profit or loss for the period.<br><br><br>All regular way<br>purchases or sales of financial assets are recogni<br>z<br>ed and derecogni<br>z<br>ed<br>on a trade date basis<br>.. R<br>egular way purchases or sales of financial assets<br><br>refer<br><br>to<br><br>the<br>financial assets are received or delivered within the period stipulated by laws and<br>regulation or<br>general practices in accordance with the contractual provisions. Trade date<br>refers to<br><br>the date of purchase or sale of the financial assets as committed by the Group.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>35<br><br>3<br>-<br>2<br>-<br>1<br>-<br>38<br><br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>8.<br><br>Finan<br>cial instruments<br>-<br><br>continued<br><br><br>Classification and measurement of financial assets<br><br><br>On initial recognition, the Group’s financial assets are classified into financial assets at<br>fair value through profit or loss<br><br>(<br>“<br>FVPL<br>”<br>)<br>, financial assets at<br><br>amortized cost<br><br>an<br>d<br>financial assets<br><br>at fair value through other comprehensive income (<br>“<br>FVTOCI<br>”<br>)<br>according to the business model applied to manage the financial assets and the<br>characteristics of the contractual cash flows from the financial assets.<br><br><br>Financial assets are<br>measured at fair value upon initial recognition. However, the<br>accounts receivable or notes receivable arising from sales of goods or rendering of<br>services are initially measured at transaction price as they do not contain significant<br>financing components o<br>r the financing component that does not exceeding one year is<br>not considered.<br><br><br>For financial assets at FVTPL, relevant transaction costs are immediately included in<br>profit or loss for the period. The transaction costs of other categories of financial<br>asset<br>s are included in their initially recognized amount.<br><br><br>The subsequent measurement of financial assets depends on its classification:<br><br><br>Debt instrument investments measured at amortized cost<br><br><br>A financial asset is classified as at amortized cost if all the<br>following criteria are<br>satisfied: the financial asset is managed within a business model whose objective is to<br>hold the financial asset in order to collect contractual cash flows; and the contractual<br>terms of the financial asset give rise on specific dates<br><br>to cash flows that are solely<br>payment of principal and interest on the principal amount outstanding. For such<br>category of financial assets, the interest income is calculated using effective interest<br>method, and the gains or losses on derecognition, change<br><br>or impairment are included in<br>profit or loss for the period.<br><br><br>Debt instrument investments at FVTOCI<br><br><br>A financial asset is classified as at FVTOCI if all the following criteria are satisfied: the<br>financial asset is managed within a business model whose obj<br>ective is achieve by both<br>collecting contractual cash flows and selling the financial asset; and the contractual<br>terms of the financial asset give rise on specific dates to cash flows that are solely<br>payment of principal and interest on the principal amoun<br>t outstanding. For such<br>category of financial assets, the interest income is calculated using effective interest<br>method. Except for interest income, impairment losses and exchange differences which<br>are recognized in profit or loss for the period, other cha<br>nges in fair value are included<br>in other comprehensive income. Upon derecognition of the financial asset, the
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>36<br><br>3<br>-<br>2<br>-<br>1<br>-<br>39<br><br>accumulated gains or losses previously recognized in other comprehensive income are<br>transferred to profit or loss for the period.<br><br><br>III.<br><br>Significa<br>nt Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>8.<br><br>Financial instruments<br>-<br><br>continued<br><br><br>Classification and measurement of financial assets<br>-<br><br>continued<br><br><br>Financial assets at FVTPL<br><br><br>The financial assets other than the above financial assets at<br>amortized cost and financial<br>assets at FVTOCI are classified as financial assets at FVTPL. Financial assets at FVTPL<br>are subsequently measured at fair value with changes in fair value included in profit or<br>loss for the period.<br><br><br>Classification and<br>measurement of financial liabilities<br><br><br>The Group<br>’<br>s financial liabilities, upon initial recognition, are classified as financial<br>liabilities at FVTPL and other financial liabilities. For financial liabilities at FVTPL,<br>relevant transaction costs are immediat<br>ely recognized in profit or loss. Relevant<br>transaction costs of other financial liabilities are included in the initially recognized<br>amount.<br><br><br>Subsequent measurement of financial liabilities depends on the classification:<br><br><br>F<br>inancial liabilities at FVTPL<br><br><br>F<br>i<br>nancial liabilities at FVTPL<br><br>include held<br>-<br>for<br>-<br>trading financial liabilities (inclusive of<br>derivative financial liabilities) and financial liabilities designated as at FVTPL upon<br>initial recognition. Held<br>-<br>for<br>-<br>trading financial liabilities (inclusive of deri<br>vative<br>financial liabilities) are subsequently measured at fair value, with changes in fair value<br>included in profit or loss for the period. Financial liabilities designated as at FVTPL are<br>subsequent measured at fair value, with fair value changes include<br>d in profit or loss for<br>the period, except that the fair value changes arising from the changes in the Group<br>’<br>s<br>own credit risk which are included in other comprehensive income; if the recognition<br>of fair value changes arising from the changes in the Group<br>’<br>s own credit risk in other<br>comprehensive income will result in or enlarge the accounting mismatch in profit or<br>loss, the Group will recognize all the fair value changes (including those arising from<br>the changes in the Group<br>’<br>s own credit risk) in profit or<br>loss for the period.<br><br><br>Other financial liabilities<br><br><br>For such financial liabilities, the effective interest rate method is used for subsequent<br>measurement at amortized cost.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>37<br><br>3<br>-<br>2<br>-<br>1<br>-<br>40<br><br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>8.<br><br>Financial instruments<br>-<br><br>continued<br><br><br>Impairment of financial instruments<br><br><br>The Group accounts for the impairment and recognizes loss allowance for financial<br>assets at amortized cost and debt instrument investments at FVTOCI on the basis of<br>expec<br>ted credit loss (<br>“<br>ECL<br>”<br>).<br><br><br>For receivables and contract assets that do not contain significant financing component,<br>the Group applies simplified approach to measure the loss allowance at an amount<br>equivalent to lifetime ECL.<br><br><br>For receivables containing sign<br>ificant financing component, the Group selects to apply<br>simplified approach to measure the loss allowance at an amount equivalent to lifetime<br>ECL.<br><br><br>For financial assets other than above financial assets measured using simplified<br>approach, the Group assesse<br>s at each balance sheet date whether the credit risk of the<br>financial assets has increased significantly since initial recognition. If the credit risk has<br>not increased significantly since initial recognition, the Group categorize the financial<br>assets as a<br>t stage 1 and measures the loss allowance at an amount equivalent to 12<br>-<br>month ECL, and calculates the interest income by applying effective interest rate to the<br>carrying amount of the financial assets; If the credit risk has increased significantly<br>since i<br>nitial recognition but the financial assets have not become credit<br>-<br>impaired, the<br>Group categorize the financial assets as at stage 2 and measures the loss allowance at<br>an amount equivalent to lifetime ECL, and calculates the interest income by applying<br>eff<br>ective interest rate to the carrying amount of the financial assets; If the financial<br>assets have become credit<br>-<br>impaired after initial recognition, the Group categorize the<br>financial assets as at stage 3 and measures the loss allowance at an amount equival<br>ent<br>to lifetime ECL, and calculates the interest income by applying effective interest rate to<br>the amortized cost of the financial assets.<br><br><br>The Group assesses the expected credit loss of financial instruments on individual and<br>portfolio basis. The Group as<br>sesses the expected credit loss of accounts receivable,<br>receivables financing, notes receivable, other receivables and long<br>-<br>term accounts<br>receivable on the basis of portfolio of aging after taking into account the credit risk<br>characteristics of different c<br>ustomers.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>38<br><br>3<br>-<br>2<br>-<br>1<br>-<br>41<br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>8.<br><br>Financial instruments<br>-<br><br>continued<br><br><br>Impairment of financial instruments<br><br>-<br><br>continued<br><br><br>For accounts receivable categorized into portfolios, where there is clear evidence<br>indicating that the receivables can not be recovered or possibility to recover the<br>receivables is minor, a full amount or partial bad debt provision shall be made. The<br>clear<br><br>evidences include bankruptcy, death or insolvency of the debtor, the trade<br>receivable that can not be recovered through litigation or collection, severely inadequate<br>cash flows, etc. In addition, the Group, at the end of each quarter, measures bad debt<br>pr<br>ovision at an amount equivalent to lifetime ECL. The Group categorizes the accounts<br>receivable into two levels by risk characteristics, including:<br><br><br>Level 1 portfolio, i.e. portfolio with low risk, representing the related parties of the<br>Group and entities<br>under the large<br>-<br>sized group with the background of state<br>-<br>owned<br>assets;<br><br>Level 2 portfolio, i.e. portfolio with medium risk, representing other entities other than<br>those included in level 1.<br><br><br>The Group assesses the above two portfolios of accounts receiva<br>ble respectively using<br>ECL model. The expected credit loss ratios are set out in Note V, 3.<br><br><br>Criteria of determining significant increase in credit risk, definition of credit<br>-<br>impaired<br>assets, assumptions on measurement of ECL are set out in Note VIII, 3.<br><br><br>When the Group is no longer reasonably certain that the contractual cash flows from<br>the financial assets can be fully or partially recovered, the Group directly write down<br>the carrying amount of the financial assets.<br><br><br>Offsetting of financial<br>instruments<br><br><br>Where the Group has a legal right that is currently enforceable to set off the recognized<br>financial asset and financial liability, and intends either to settle on a net basis, or to<br>realize the financial asset and settled the financial liabili<br>ty simultaneously, a financial<br>asset and a financial liability shall be offset and the net amount is presented on the<br>balance sheet.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>39<br><br>3<br>-<br>2<br>-<br>1<br>-<br>42<br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br><br>8.<br><br>Financial instruments<br>-<br><br>continued<br><br><br>Trans<br>fer of financial assets<br><br><br>A financial asset is derecognized by the Group when substantially all the risks and<br>rewards of ownership of the financial asset is transferred to the transferee; otherwise,<br>the financial asset is not derecognized.<br><br><br>Where the<br>Group neither transfers nor retains substantially all the risks and rewards of<br>ownership of a financial asset, the accounting treatments are respectively as follows: if<br>the Group has not retained control of the financial asset, the Group derecognize the<br>fi<br>nancial asset and recognizes the resulting assets and liabilities; if the Group has<br>retained control of the financial asset, the Group recognizes the financial asset to the<br>extent of its continuing involvement in the transferred asset and recognizes an<br>ass<br>ociated liability.<br><br><br>9.<br><br>Inventories<br><br><br>Inventories include raw materials, work<br>-<br>in<br>-<br>progress, semi<br>-<br>finished goods, goods on<br>hand and goods in transit.<br><br><br>Inventories are initially measured at cost. Cost of inventories comprises costs of<br>purchase, costs of convers<br>ion and other costs. The actual cost of inventories in transit<br>is determined using weighted average method.<br><br><br>The perpetual inventory system is maintained for stock system<br>..<br><br><br>At the balance sheet date, inventories are measured at the lower of cost and net<br>reali<br>z<br>able value. If the net reali<br>z<br>able value is below the cost of inventories, a provision<br>for decline in value of inventories is made<br><br>and included in profit or loss for the period.<br>If the factors that previously caused the provision for decline in value<br>of inventories no<br>longer exist so that the net realizable value of inventories is higher than their cost, the<br>original provision for decline in value is reversed and the reversal is included in profit<br>or loss for the period. For auxiliary materials,<br>semi<br>-<br>f<br>inished goods and finished goods<br><br>with inventory aging over one year, a provision for decline in value of inventories is<br>made. Meanwhile, the provision for decline in value of inventories that are separately<br>identified as metamorphic, damaged or unusable is<br><br>made on individual basis.<br><br><br>Net reali<br>z<br>able value is the estimated selling price in the ordinary course of business less<br>the estimated costs of completion, the estimated costs necessary to make the sale and<br>relevant taxes.<br>The provision for decline in value<br><br>of inventories of raw materials and<br>finished good is made on individual basis/ by category.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>40<br><br>3<br>-<br>2<br>-<br>1<br>-<br>43<br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>10.<br><br>Long<br>-<br>term equity investments<br><br><br>Long<br>-<br>term equity investments include equity<br>investments in subsidiaries, joint ventures<br>and associates.<br><br><br>For a long<br>-<br>term equity investment acquired through business combination involving<br>enterprises under common control, the initial investment cost is the attributable share<br>of the carrying amount of<br><br>the owners<br>’<br><br>equity of combined party at the date of the<br>combination in the financial statements of the ultimate controlling party; the difference<br>between the initial investment cost and the carrying amount of the consideration of the<br>combination is adjust<br>ed to capital reserve (if the balance of capital reserve is not<br>sufficient to absorb the difference, any excess is adjusted to retained earnings); upon<br>disposal of the investment, other comprehensive income recognized prior to the<br>combination date is accou<br>nted for by adopting the same basis as if relevant assets and<br>liabilities are directly disposed by the investee, and the shareholders<br>’<br><br>equity recognized<br>due to changes in shareholders<br>’<br><br>equity other than net profit or loss, other comprehensive<br>income and pr<br>ofit distribution is transferred to profit or loss for the period; therein, the<br>amount remained as long<br>-<br>term equity investments after the disposal are carried forward<br>in proportion, while the amount transferred to financial instruments are carried forward<br>in full amount. For a long<br>-<br>term equity investment acquired through business<br>combination not involving enterprises under common control, the initial investment<br>cost is the cost of combination (where the business combination not involving<br>enterprises under c<br>ommon control is achieved in steps through multiple transactions,<br>the initial investment cost is the aggregate of the carrying amount of the equity<br>investments in the acquiree prior the to acquisition date and the additional investment<br>cost at the acquisit<br>ion date). The cost of combination comprises the aggregate fair value<br>of the assets transferred, liabilities incurred or assumed and equity securities issued by<br>the acquirer; upon disposal of the investment, other comprehensive income recognized<br>under cost<br><br>method prior to the acquisition date is accounted for by adopting the same<br>basis as if relevant assets and liabilities are directly disposed by the investee, and the<br>shareholders<br>’<br><br>equity recognized due to changes in shareholders<br>’<br><br>equity other than net<br>pro<br>fit or loss, other comprehensive income and profit distribution is transferred to profit<br>or loss for the period; therein, the amount remained as long<br>-<br>term equity investments<br>after the disposal are carried forward in proportion, while the amount transferred<br><br>to<br>financial instruments are carried forward in full amount. For a long<br>-<br>term equity<br>investment other than those acquired through business combination, the initial<br>investment cost is determined as follows: for a long<br>-<br>term equity investment acquired<br>throug<br>h cash payment, the initial investment cost is the aggregate of the purchase price,<br>directly related cost incurred to acquire the long<br>-<br>term equity investment, tax and other<br>necessary expenditures; for a long<br>-<br>term equity investment acquired by issuing equit<br>y<br>securities, the initial investment cost is the fair value of the equity securities.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>41<br><br>3<br>-<br>2<br>-<br>1<br>-<br>44<br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>10.<br><br>Long<br>-<br>term equity investments<br>-<br><br>continued<br><br><br>For a long<br>-<br>term equity investment where<br>the Company has control over the investee, it<br>is accounted for using cost method in the Company<br>’<br>s separate financial statements.<br>Control exits when the investor has power over the investee; is exposed, or has rights,<br>to variable returns from its involvemen<br>ts in the investee<br>’<br>s activities; and has the ability<br>to use its power over the investee to affect its returns.<br><br><br>Under the cost method, the long<br>-<br>term equity investment is measured at its initial<br>investment cost. The addition or recovery of investment is adj<br>usted to the cost of the<br>long<br>-<br>term equity investment. The cash dividend or profit declared by the investee is<br>recognized as investment income for the current period.<br><br><br>Where the Group has joint control or significant influence over the investee, the long<br>-<br>te<br>rm equity investment is accounted for using equity method. Joint control is the<br>contractually agreed sharing of control of an arrangement, which exists only when<br>decisions about the relevant activities require the unanimous consent of the parties<br>sharing c<br>ontrol. Significant influence is the power to participate in the financial and<br>operating policy decisions of the investee but is not control or joint control over theses<br>policies.<br><br><br>Under equity method, where the initial investment cost of a long<br>-<br>term equit<br>y investment<br>exceeds the Group<br>’<br>s share of the fair value of the investee<br>’<br>s identifiable net assets at<br>the time of acquisition, the difference is included in the initial investment cost of the<br>long<br>-<br>term equity investment; where the initial investment cost o<br>f a long<br>-<br>term equity<br>investment is less than the Group<br>’<br>s share of the fair value of the investee<br>’<br>s identifiable<br>net assets at the time of acquisition, the difference is recognized in profit or loss for the<br>period, and the cost of the long<br>-<br>term equity inves<br>tment is adjusted accordingly.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>42<br><br>3<br>-<br>2<br>-<br>1<br>-<br>45<br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>10.<br><br>Long<br>-<br>term equity investments<br>-<br><br>continued<br><br><br>Under the equity method, the Group recognizes its share of the net profit or loss and<br>other comprehensive income of the investee as investment income and other<br>comprehensive income respectively, and adjust the carrying amount of the long<br>-<br>term<br>equity invest<br>ment accordingly. The Group recognizes its share of the investee<br>’<br>s net<br>profit or loss based on the fair value of the invetee<br>’<br>s identifiable assets at the acquisition<br>date after eliminating the proportional share of profit or loss of the investee arising fr<br>om<br>intra<br>-<br>group transactions with associates and joint ventures (however the intra<br>-<br>group<br>transaction loss which represents the impairment loss of transferred assets should be<br>recognized in full amount) according to the Group<br>’<br>s accounting policies and accoun<br>ting<br>period and making appropriate adjustments to the investee<br>’<br>s net profit, except that the<br>assets invested or sold by the Group constitute a business. The attributable share is<br>calculated based on the profit or cash dividend declared by the investee, and<br><br>is charged<br>against the carrying amount of long<br>-<br>term equity investment accordingly. The Group<br>recognizes the net loss of the investee to the extent that carrying amount of the long<br>-<br>term equity investment and other long<br>-<br>term interests that in substance cons<br>titute a net<br>investment in the investee are reduced to zero, except that the Group assumes the<br>obligation to undertake additional loss. Other changes in shareholder<br>’<br><br>equity other than<br>net profit or loss, other comprehensive income and profit distribution a<br>re adjusted<br>against the carrying amount of long<br>-<br>term equity investment and included in<br>shareholders<br>’<br><br>equity.<br><br><br>Upon disposal of long<br>-<br>term equity investment, the difference between the carrying<br>amount and considerations received is included in profit or loss<br><br>for the period. For a<br>long<br>-<br>term equity investment under equity method, where the equity method is no longer<br>applied due to disposal of the investment, other comprehensive income previously<br>calculated under equity method are treated by adopting the same ba<br>sis as if relevant<br>assets and liabilities are directly disposed by the investee, while the shareholders<br>’<br><br>equity<br>recognized due to changes in shareholder<br>’<br>s equity of the investee other than net profit<br>or loss, other comprehensive income and profit distribut<br>ion is transferred to profit or<br>loss for the period in full amount; where the equity method remain unchanged, other<br>comprehensive income previously calculated under equity method are treated by<br>adopting the same basis as if relevant assets and liabilities<br>are directly disposed by the<br>investee and is transferred to profit or loss for the period in proportion, while the<br>shareholders<br>’<br><br>equity recognized due to changes in shareholder<br>’<br>s equity of the investee<br>other than net profit or loss, other comprehensive inc<br>ome and profit distribution is<br>transferred to profit or loss for the period in proportion.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>43<br><br>3<br>-<br>2<br>-<br>1<br>-<br>46<br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>11.<br><br>Fixed assets<br><br><br>A fixed asset is recognized only when it is probable that economic b<br>enefits associated<br>with the asset will flow to the Group and the cost of the asset can be measured reliably.<br>Subsequent expenditures incurred for the fixed asset are included in the cost of the fixed<br>asset if<br>they satisfy the recognition criteria<br>..<br>Meanwhile the carrying amount of the<br>replaced part is derecognized. Other subsequent expenditures are recognized in profit<br>or loss in the period in which they are incurred.<br><br><br>F<br>ixed assets are initially measured at cost<br>.. The acquisition cost of a fixed asset<br><br>comprises the purchase price, relevant tax, other expenditures that are incurred before<br>the fixed asset is available for intended use and are directly attributable to such asset.<br><br><br>A fixed asset is depreciated over its useful life using straight<br>-<br>line metho<br>d. The useful<br>life, estimated net residual value rate and annual depreciation rate of each category of<br>fixed assets are as follows:<br><br><br><br><br>Useful life<br><br><br><br>E<br>stimated net<br>residual value rate<br><br><br><br>A<br>nnual<br>depreciation rate<br><br><br><br><br><br><br><br><br><br><br><br><br>Buildings<br><br><br>20<br><br>years<br><br><br><br>0.00%<br><br><br><br>5.00%<br><br><br>Machinery and equipment<br><br><br>5<br><br>-<br><br>20<br><br>years<br><br><br><br>0.00%<br><br><br><br>5.00%<br>-<br>20.00%<br><br><br>Tool and fixtures<br><br><br>3<br><br>-<br><br>5<br><br>years<br><br><br><br>0.00%<br><br><br><br>20.00%<br>-<br>33.33%<br><br><br>Motor vehicles<br><br><br>4<br><br>-<br><br>5<br><br>years<br><br><br><br>0.00%<br><br><br><br>20.00%<br>-<br>25.00%<br><br><br>Office equipment<br><br><br>5<br><br>years<br><br><br><br>0.00%<br><br><br><br>20.00%<br><br><br><br><br>Fixed assets held<br>under finance lease are depreciated by adopting the policies that are<br>consistent with that for self<br>-<br>owned fixed assets. Where the Group is reasonably certain<br>to obtain the ownership of the leased assets upon expiry of the lease term, the<br>depreciation is ch<br>arged over the useful life of the leased asset. Where the Group is not<br>reasonably certain to obtain the ownership of the leased assets upon expiry of the lease<br>term, the depreciation period is the shorter of the lease term and useful life of the leased<br>ass<br>et. (<br>Applicable<br><br>prior to 1 January 2021)<br><br><br>T<br>he Group reviews the useful life and estimated net residual value of a fixed asset and<br>the depreciation method applied at least once at each financial year<br>-<br>end, and<br>makes<br>adjustments as necessary.<br><br><br>12.<br><br>Constructio<br>n in progress<br><br><br>The cost<br><br>of construction in progress is determined based on actual construction<br>expenditures, including<br>various<br>necessary<br>construction expenditures during the<br>construction period and other relevant costs.<br><br><br>Construction in progress is transferred to a fixed asset when it is ready for intended use<br>..
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>44<br><br>3<br>-<br>2<br>-<br>1<br>-<br>47<br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>13.<br><br>Borrowing costs<br><br><br>Borrowing costs<br>refer to<br><br>interest and other related costs incurred on borrowings, and<br>comprise borrowing interest, amortization of discounts or premium, ancillary costs<br>incurred with the arrangement of borrowings, and exchange differen<br>ces arising from<br>foreign currency borrowings.<br><br><br>Borrowing costs directly attributable to the acquisition, construction or production of<br>qualifying asset are capitalized. Other borrowing costs are included in profit or loss for<br>the period. The qualifying asset<br>refers to<br><br>an asset (such as fixed asset, inv<br>estment<br>properties or inventories) that requires acquisition, construction or production activities<br>for a relatively long period before it is ready for intended use or sale.<br><br><br>Capitalization of borrowing costs commences when all of the following criteria ar<br>e<br>satisfied:<br><br><br>(1)<br><br>expenditures for the asset are incurred;<br><br>(2)<br><br>the borrowing costs are incurred; and<br><br>(3)<br><br>activities relating to the acquisition, construction or production of the asset that are<br>necessary to prepare the asset for its intended use or sale have commenced<br>..<br><br><br>Capitalization of borrowing costs ceases when the qualifying asset being acquired,<br>constructed or produced becomes ready for its intended use or sale. Subsequent<br>borrowing costs are included in profit or loss for the period.<br><br><br>During the<br>capitalization period, the amount of interest capitalized in each accounting<br>period is determined as follows:<br><br><br>(1)<br><br>where funds are borrowed under a specific<br>-<br>purpose borrowing, the amount of<br>interest to be capitalized is the actual interest expense incurred on<br>the borrowing<br>for the period less any interest income or investment income earned from<br>temporary deposit or investment of those funds;<br><br>(2)<br><br>where funds are borrowed under a general<br>-<br>purpose borrowing, the Group<br>determines the amount of interest to be capitalized<br><br>by applying the weighted<br>average interest rates applicable to the general<br>-<br>purpose borrowings to the weighted<br>average of the excess of cumulative expenditures on the asset over the amounts of<br>specific<br>-<br>purpose borrowings.<br><br><br>Capitali<br>z<br>ation of borrowing costs<br><br>is suspended during periods in which the acquisition,<br>construction or production of a qualifying asset is suspended abnormally and when the<br>suspension is for a continuous period of more than 3 months.<br>The borrowing cost<br>incurred during the suspension peri<br>od are recognized as expenses and included in profit<br>or loss for the period<br><br>until the acquisition, construction or production of the asset is<br>resumed<br>..
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>45<br><br>3<br>-<br>2<br>-<br>1<br>-<br>48<br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>14.<br><br>Right<br>-<br>of<br>-<br>use assets (a<br>pplicable from 1 January 2021)<br><br><br>The Group<br>’<br>s right<br>-<br>of<br>-<br>use assets mainly include machinery and equipment and<br>buildings.<br><br><br>At the commencement date, the Group recognizes its rights to use the leased assets<br>within the lease term as right<br>-<br>of<br>-<br>use assets. The cost<br><br>of right<br>-<br>of<br>-<br>use assets comprises:<br>initial measurement amount of the lease liability; lease payments on or prior to the<br>commencement date, less lease incentives, if any; initial direct cost incurred to the<br>lessee; cost expected to be incurred to the lessee<br><br>to dismantle or remove the leased<br>assets, restore the site where the leased assets are located or restore the leased assets to<br>the conditions specified in the contractual provisions of the lease. The right<br>-<br>of<br>-<br>use<br>assets are subsequently depreciated over t<br>he useful life using straight<br>-<br>line method.<br>Where the Group is reasonably certain to obtain the ownership of the leased assets upon<br>expiry of the lease term, the depreciation is charged over the remaining useful life of<br>the leased asset. Where the Group is<br>not reasonably certain to obtain the ownership of<br>the leased assets upon expiry of the lease term, the depreciation period is the shorter of<br>the lease term and remaining useful life of the leased asset.<br><br><br>The Group remeasures the lease liability at the pres<br>ent value of revised lease payments,<br>and adjusts the carrying amount of the right<br>-<br>of<br>-<br>use assets accordingly. If the carrying<br>amount of the right<br>-<br>of<br>-<br>use assets has been reduced to zero, while the lease liability still<br>needs to be reduced, the remaining amou<br>nt is included in profit or loss for the period.<br><br><br>15.<br><br>Intangible assets<br><br><br>Intangible assets are recognized and initially measured at cost only when it is probable<br>that the economic benefits associated with them will flow to the Group and their cost<br>can be m<br>easured reliably.<br><br>However, intangible assets acquired through business<br>combination not involving enterprises under common control<br>are<br><br>separately recognized<br>as intangible asset and measured at fair value if its fair value can be<br>measured reliably<br>..<br><br><br>The useful life of an intangible asset is determined based on the period for which the<br>asset is expected to bring economic benefits to the<br>Group. Where the period for which<br>the asset is expected to bring economic benefits to the Group is unforeseeable, the<br>intangible asset is considered as an intangible asset with indefinite useful life.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>46<br><br>3<br>-<br>2<br>-<br>1<br>-<br>49<br><br><br><br>III.<br><br>Significant Accounting Policies and Accounting<br><br>Estimates<br><br><br>-<br><br>continued<br><br><br>15.<br><br>Intangible assets<br>-<br><br>continued<br><br><br>The useful lives of various intangible assets are as follows:<br><br><br><br><br>Useful life<br><br><br><br><br><br><br>Land use rights<br><br><br>50<br><br>years<br><br><br>Software<br><br><br>10<br><br>years<br><br><br>P<br>atent<br>use rights<br><br><br>6<br><br>years<br><br><br><br>The land use rights obtained by the Group are usually accounted for as intangible assets.<br>For self<br>-<br>developed and constructed plants, etc., relevant land use rights and buildings<br>are accounted for as intangible assets and fixed assets respectively. The pric<br>e paid for<br>outsourced land and buildings is allocated between land use right and buildings, or<br>treated as fixed assets in its entirety if it can not be reasonably allocated.<br><br><br>An intangible asset with a finite useful life is amortized over its useful life u<br>sing<br>straight<br>-<br>line method. T<br>he Group reviews the useful life and the depreciation method<br>of<br>an intangible asset with a finite useful life<br>at least once at each financial year<br>-<br>end, and<br>makes adjustments as necessary.<br><br><br>The Company has no intangible assets wi<br>th indefinite useful li<br>ves<br>..<br><br><br>The Group categories the internal R&D cost into expenditure during the research phase<br>and expenditure during the development phase. Expenditure during the research phase<br>is included in profit or loss for the period when it is i<br>ncurred. Expenditure during the<br>development phase is capitalized only when all the following criteria are satisfied, i.e.<br>it is technically feasible to complete the intangible asset so that it will be available for<br>use or sale; the Group has the intention<br>to complete the intangible asset and use or sell<br>it; the Group can demonstrate the was in which the intangible asset will generate<br>economic benefits, including the evidence of the existence of a market for the output of<br>the intangible asset or the intangib<br>le asset itself or if it is to be used internally, the<br>usefulness of the intangible asset; the availability of adequate technical, financial and<br>other resources to complete the development and the ability to use or sell the intangible<br>asset; and the expend<br>iture attributable to the intangible asset during its development<br>phase can be reliably measured. Otherwise, the expenditure during the development<br>phase is included in profit or loss for the period when it is incurred.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>47<br><br>3<br>-<br>2<br>-<br>1<br>-<br>50<br><br><br>III.<br><br>Significant Accounting Poli<br>cies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>16.<br><br>Impairment of assets<br><br><br>The Group determines the impairment of assets other than inventories, deferred income<br>tax and financial assets using the following method:<br><br><br>The Group assesses at each balance sheet date<br>whether there is any indication that the<br>assets may be impaired. If there is any indication that the assets may be impaired, the<br>Group will estimate the recoverable amounts and perform impairment test. Goodwill<br>arising fro business combination and intangib<br>le asset with indefinite useful life are<br>tested for impairment annually, irrespective of whether there is any indication that the<br>assets may be impaired. Intangible assets not yet available for use are also tested for<br>impairment annually.<br><br><br>The<br>recoverable amount of an asset is the higher of its fair value less costs of disposal<br>and the present value of the future cash flows expected to be derived from the asset.<br>The recoverable amount is estimated on individual basis; if it is not practical to e<br>stimate<br>the recoverable amount of an individual asset, the recoverable amount of the asset group<br>to which the asset belongs will be estimated. The asset group is determined based on<br>whether the cash inflows from the asset group are independent from the cas<br>h inflows<br>from other assets or asset groups.<br><br><br>If the recoverable amount of an asset or an asset group is less than its carrying amount,<br>the Group reduces the carrying amount to the recoverable amount. The reduced amount<br>is<br>recognized<br><br>in profit or loss for<br>the period and a provision for impairment losses of<br>the asset is made for the deficit.<br><br><br>Once an impairment loss is recognized for above asset, it will not be<br><br>reversed in any<br>subsequent accounting period.<br><br><br>17.<br><br>Long<br>-<br>term deferred expenses<br><br><br>Long<br>-<br>term<br>deferred expenses are amortized using straight<br>-<br>line method. The<br>amortization periods are as follows:<br><br><br><br><br><br><br>Amortization period<br><br><br><br><br><br><br><br><br>Cross<br>-<br>licensing fee of patents<br><br><br><br><br>9<br><br>years<br><br><br>leasehold improvements<br><br><br><br><br>5<br><br>years<br><br><br>Plant renovation costs<br><br><br><br><br>3<br><br>-<br><br>30<br><br>years
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>48<br><br>3<br>-<br>2<br>-<br>1<br>-<br>51<br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>18.<br><br>Staff remuneration<br><br><br>Staff remuneration<br><br>refers<br><br>to various<br>remuneration<br>s and compensations other than share<br>-<br>based payments provided to staff by the Group in<br>exchange for the staff<br>’<br>s service or for<br>termination of employment. Staff remuneration comprise short<br>-<br>term remuneration,<br>post<br>-<br>employment benefits, termination benefits and other long<br>-<br>term staff benefits. The<br>benefits provided by the Group to the spouse, chi<br>ldren, dependant, family dependant<br>and other beneficiaries of the deceased staff are also staff remunerations.<br><br><br>Short<br>-<br>term remuneration<br><br><br>In an accounting period in which the staff has rendered service to the Group, the short<br>-<br>term remuneration incurred is r<br>ecognized as a liability and either included in profit or<br>loss for the period or charged to cost of related assets.<br><br><br>Post<br>-<br>employment benefits (defined contribution plan)<br><br><br>The Group<br>’<br>s staff participate the pension insurance and unemployment insurance plans<br>managed by local government. Relevant expenditures are either included profit or loss<br>for the period or charged to cost of related assets when they are incurred.<br><br><br>Termination benefits<br><br><br>Where the Group provides staff with termination benefits, the staff rem<br>uneration<br>liability arising from termination benefits is recognized in profit or loss for the period<br>at the earlier of: when the Group cannot unilaterally withdraw from the termination plan<br>or redundancy offer; and when the Group recognizes the restructuri<br>ng cost or expenses<br>that involve the payment of termination benefits.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>49<br><br>3<br>-<br>2<br>-<br>1<br>-<br>52<br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>19.<br><br>Lease liabilities (applicable from 1 January 2021)<br><br><br>At the commence date a lease (exclusive of<br>short<br>-<br>term lease and lease of low<br>-<br>value<br>asset), the Group recognizes the present value of the unpaid lease payment as a lease<br>liability. In calculating the present value of the lease payment, the Group adopts the<br>interest rate implicit in the lease as the<br>discount rate; if the interest rate implicit in the<br>lease cannot be readily determined, the lessee<br>’<br>s incremental borrowing rate is adopted<br>as the discount rate. The Group adopts the constant periodic rate of interest to calculate<br>the interest expense of le<br>ase liabilities for each period within the lease term, and<br>included it in profit or loss for the period unless otherwise specified. The variable lease<br>payments not included in the measurement of lease liability are included in profit or<br>loss for the period<br><br>when they are incurred unless otherwise specified.<br><br><br>After the commencement date of a lease, if there is change in the in<br>-<br>substance fixed<br>lease payments, amounts expected to be payable under the residual value guarantees,<br>the index or rate used to determin<br>e the lease payments, the results of assessment of<br>purchase option, renewal option or termination option or the actual exercise of the<br>options, the Group remeasures the lease liability on the basis of the revised lease<br>payments.<br><br><br>20.<br><br>Accrued liabilities<br><br><br>E<br>xcept for the contingent considerations and the contingent liabilities assumed in<br>business combination not involving enterprises under common control, the obligations<br>relating to contingencies are recognized as accrued liabilities when all the following<br>cr<br>iteria are satisfied:<br><br><br>(<br>1<br>)<br><br>the obligation is a present obligation assumed by the Group;<br><br>(2)<br><br>it is probable that an outflow of economic benefits will be required to satisfy the<br><br>obligation; and<br><br><br>(3)<br><br>the amount of the obligation can be measured<br>reliably.<br><br><br><br>The accrued liabilities are initially measured at the best estimate of the consideration<br>required to satisfy the present obligation, taking into account factors pertaining to a<br>contingency such as the risks, uncertainties and time value of mone<br>y. The carrying<br>amount of the accrued liabilities is reviewed at each balance sheet date. If there is clear<br>evidence indicating that the carrying amount cannot reflect the currently best estimate,<br>the carrying amount is adjusted according to the currently<br>best estimate.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>50<br><br>3<br>-<br>2<br>-<br>1<br>-<br>53<br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>21.<br><br>Share<br>-<br>based payments<br><br><br>Share<br>-<br>based payments include equity<br>-<br>settled share<br>-<br>based payments and cash<br>-<br>settled<br>share<br>-<br>based payments. Equity<br>-<br>settled share<br>-<br>based payments<br>refer to<br><br>the transactions<br>settled by the Group using share or other equity instrument as considerations in<br>exchange<br>for service.<br><br><br>Equity<br>-<br>settled share<br>-<br>based payments in exchange for services rendered by employees<br>are measured at the fair value of the equity instruments granted to employees. Such<br>amount is recognized as related costs or expenses at the grant date if the<br>equity<br>instruments vest immediately, with a corresponding increase in capital surplus; if the<br>equity instruments vest only when the service for the vesting period is completed or the<br>specified performance is satisfied, at each balance sheet date during the<br><br>vesting period,<br>the Group makes the best estimate of the number of equity instruments expected to vest<br>and recognizes the services received in the current period in related costs or expenses<br>at the fair value at the grant date , with a corresponding incre<br>ase in capital surplus. The<br>fair value of the equity instrument is determined using<br>Black<br>-<br>Scholes<br><br>model,<br>discounted cash flow approach and binomial trees method. Details are set out in Note<br>XI.<br><br><br>For share<br>-<br>based payments that are finally not exercised due t<br>o failure to satisfy the non<br>-<br>market conditions and/ or restrictions of service period, no cost or expense is<br>recognized. Where the market conditions or non<br>-<br>vesting conditions are specified in the<br>share<br>-<br>based payment agreement, it is deemed as exercisable i<br>f all the other conditions<br>on performance and/ or service period are satisfied, irrespective of whether the market<br>conditions or non<br>-<br>vesting conditions are satisfied.<br><br><br>If the terms of the equity<br>-<br>settled share<br>-<br>based payments are modified, the services<br>recei<br>ved are recognized at least in accordance with the circumstances where the terms<br>are not modified. In addition, for modification that increases the fair value of the equity<br>instruments granted, or the changes that are beneficial to the staff at the modific<br>ation<br>date, the Group recognizes an increase in services received.<br><br><br>If the equity<br>-<br>settled share<br>-<br>based payments are canceled, the Group accounts for the<br>cancellation as an acceleration of vesting, and recognizes immediately the amount that<br>otherwise would h<br>ave been recognized over the remainder of the vesting period. When<br>the staff or counterparty can choose whether to meet the non<br>-<br>vesting condition but the<br>condition is not met during the vesting period, the Group treats it as a cancellation of<br>the equity<br>-<br>se<br>ttled share<br>-<br>based payments. However, where a new equity instrument is<br>granted and the new equity instrument is deemed as<br>a<br><br>replacement of the canceled<br>equity instrument at the grant date, the alternative equity instrument is treated in the<br>same manner as m<br>odification of the terms and conditions of the original equity<br>instrument.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>51<br><br>3<br>-<br>2<br>-<br>1<br>-<br>54<br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>22.<br><br>Revenue fro contracts with customers (applicable from 1 January 2020)<br><br><br>The Group recognizes revenu<br>e when the performance obligations under the contract are<br>satisfied, i.e. when the customer obtains control of underlying goods or services.<br>Obtaining the control of underlying goods or services represents that the customer is<br>able to direct the use of the<br><br>goods or provision of the services and obtain substantially<br>all the economic benefits from the use of the goods or provision of the services.<br><br><br>Contract of sales of goods<br><br><br>Usually, the Group<br>’<br>s contracts of sales of goods with customers only<br>comprise the<br>obligation to transfer compound semiconductor substrate materials, PBN crucibles,<br>high purity metals and compounds and other goods. The Group generally recognizes<br>revenue at the point in time when the customer obtains control of relevant goods<br><br>on the<br>basis of comprehensively considering the following factors: the present right to<br>payment for the goods, transfer of substantially all the risks and rewards of the<br>ownership of the goods, transfer of legal title of the goods, transfer of the physica<br>l asset<br>of the goods, customer<br>’<br>s acceptance of the goods.<br><br><br>The Group recognizes revenue from sales of products upon the completion of the<br>obligation of delivery of goods by transporting the products to the agreed location and<br>acceptance or use of the<br>products by the customers.<br><br><br>Contract of rendering services<br><br><br>The Group<br>’<br>s contract of rendering services with customers usually<br>contains<br><br>the<br>performance obligation of delivery of the crucibles to designated location after<br>repairing. The Group accounts for it<br><br>as a performance obligation satisfied at a point in<br>time and recognizes revenue at the point in time when underlying product is delivered<br>to designated location.<br><br><br>Warranty obligation<br><br><br>According to the contractual provisions, laws and regulations, the Grou<br>p provides<br>warranty for the goods sold. For assurance<br>-<br>type warranty that assures the customer that<br>the goods sold comply with the predefined standards, the Group makes accounting<br>treatment in accordance with Note III, 20. For service<br>-<br>type warranty that pr<br>ovides a<br>separate service other than assuring the customer that the goods sold comply with the<br>predefined standards, the Group accounted for it as a separate performance obligation,<br>and allocate part of the transaction price to service<br>-<br>type warranty accord<br>ing to the<br>relatively stand<br>-<br>alone selling price of the goods and service<br>-<br>type warranty, and<br>recognizes revenue when the customer obtains control of the service. In assessing<br>whether the warranty provides customer with a separate service other than assuring<br><br>the<br>customer that the goods sold comply with the predefined standards, the Group takes<br>into account whether the warranty is a legal requirement,<br><br>the warranty period and the<br>nature of Group<br>’<br>s commitments to perform the obligation.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>52<br><br>3<br>-<br>2<br>-<br>1<br>-<br>55<br><br><br>III.<br><br>Significant Accoun<br>ting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>23.<br><br>Contract assets and contract liabilities (applicable from 1 January 2020)<br><br><br>Contract assets<br><br><br>Contract assets re<br>fer to<br>the rights to considerations for goods or services transferred to<br>customers, and the rights depend on factors other than passage of time.<br><br><br>Contract liabilities<br><br><br>Contract liabilities<br>refer to<br>the obligations to transfer goods or services to customers for<br>the considerations received or receivable from the customers, e.g.<br>the payment received<br>by an entity before it transfers the promised goods or services.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>53<br><br>3<br>-<br>2<br>-<br>1<br>-<br>56<br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br>-<br><br><br>continued<br><br><br>24.<br><br>Revenue (applicable prior to 1 January 2020)<br><br><br>Revenue is recognized when it is probable<br><br>that the economic benefits will flow to the<br>Group and the amount can be measured reliably, if all the following criteria are<br>satisfied.<br><br><br>Revenue from sales of goods<br><br><br>The revenue from sales of goods is recognized when the Group has transferred to the<br>buyer<br><br>the significant risks and rewards of ownership of the goods, and retains neither<br>continuing managerial involvement to the degree usually associated with ownership nor<br>effective control over the goods sold, and the cost incurred or to be incurred can be<br>me<br>asured reliably. The amount of revenue from sales of goods is determined based on<br>the contract or agreement price received or receivable from the buyer, unless the<br>contract or agreement price received or receivable from the buyer is not fair; where the<br>con<br>tract or agreement price is collected in a deferred manner, which is substantially of<br>financing nature, the amount of revenue is determined based on the fair value of the<br>contract or agreement price.<br><br><br>Revenue from rendering of services<br><br><br>The Group recognizes revenue from rendering of services upon completion and<br>delivery of the service to customers. The total revenue from rendering of services is<br>determined based on the contract or agreement price received or receivable from the<br>party rece<br>iving the service, unless the contract or agreement price received or receivable<br>is not fair.<br><br><br>Lease income<br><br><br>The rental income from operating lease is recognized in profit or loss for each period<br>within the lease term using straight<br>-<br>line method. The variab<br>le lease payments not<br>included in lease receipts are included in profit or loss for the period when they are<br>incurred.<br><br><br>Interest income<br><br><br>The interest income is calculated using the effective interest rate based on the length of<br>time for which the Group<br>’<br>s m<br>onetary funds are used by others.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>54<br><br>3<br>-<br>2<br>-<br>1<br>-<br>57<br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>25.<br><br>Government grants<br><br><br>A government grant is recognized only when the Group can comply with the conditions<br>attaching to the grant and the<br>Group will receive the grant. If a government grant is in<br>the form of non<br>-<br>monetary asset, it is measured at fair value; if the fair value cannot be<br>reliably determined, it is measured at a nominal amount.<br><br><br>Where the government document specifies that the g<br>overnment grant shall be used to<br>form a long<br>-<br>term asset through acquisition, construction or in other manners, the<br>government grant is treated as a government grant related to asset; where the purpose<br>of the government grant is not specified in the governm<br>ent document, it is determined<br>based on the necessary basic conditions to obtain the grant. Specifically, the<br>government grant, of which the basic condition is to form a long<br>-<br>term asset through<br>acquisition, construction or in other manners, is a government<br><br>grant related to asset;<br>otherwise it is a government grant related to income.<br><br><br>For a government grant related to income, if the grant is a compensation for related<br>expenses or losses to be incurred in subsequent periods, the grant is recognized as<br>deferred income, and recognized in profit or loss over the periods in which the related<br>costs or losses are recognized; if the grant is a compensation for related expenses or<br>losses already incurred, the grant is recognized immediately in profit or loss fo<br>r the<br>period.<br><br><br>A government grant related to an asset is recognized as deferred income, and evenly<br>amortized to profit or loss over the useful life of the related assets using a reasonable,<br>systematic method (but a government grant measured at a nominal am<br>ount is<br>immediately recognized in profit or loss). If the related assets are sold, transferred,<br>retired or damaged before the expiry of the useful life, the undistributed deferred<br>income is transferred to gains or losses on disposal of assets for the curre<br>nt period.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>55<br><br>3<br>-<br>2<br>-<br>1<br>-<br>58<br><br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>26.<br><br>Income tax<br><br><br>Income tax includes current income tax and deferred income tax. Income tax is<br>accounted for as income tax expense or income and included in profit o<br>r loss for the<br>period, except that the income tax arising from business combination or related to a<br>transaction or event that is directly included in shareholders equity are adjusted to<br>goodwill or included shareholders<br>’<br><br>equity respectively.<br><br><br>The Group mea<br>sures the current income tax liabilities or assets formed in the current<br>period and previous periods at the amount of income tax expected to be paid or refunded<br>in accordance with tax laws.<br><br><br>The Group recognizes deferred income tax assets using the balance<br><br>sheet liability<br>method on the basis the temporary difference between the carrying amounts of the<br>assets or liabilities at the balance sheet date and their tax base, and the temporary<br>difference between the nil carrying amount of those items that are not r<br>ecognized as<br>assets or liabilities and their tax base can be determined according to tax laws.<br><br><br>Deferred income tax liabilities are recognized for all taxable temporary differences,<br>except that:<br><br><br>(<br>1<br>)<br><br>the taxable temporary differences are arising from the following transactions:<br>initial recognition of goodwill, or initial recognition of assets or liabilities<br>arising from the transactions with the following characteristic: the transaction is<br>not a busine<br>ss combination and affects neither the accounting profit nor the<br>taxable income or deductible losses;<br><br>(2)<br><br>for temporary differences related to investments in subsidiaries, joint ventures<br>and associates, the timing of the reversal of the temporary differenc<br>es can be<br>controlled and it is probable that the temporary differences will not be reversed<br>in the foreseeable future.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>56<br><br>3<br>-<br>2<br>-<br>1<br>-<br>59<br><br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>26.<br><br>Income tax<br>-<br><br>continued<br><br><br>For deductible<br>temporary differences, deductible losses and tax credits that can be<br>carried forward to subsequent years, the Group recognizes the deferred income tax<br>assets to the extent that it is probable that the Group will obtain future taxable profits<br>against which<br>the deductible temporary differences, deductible losses and tax credits<br>can be utilized, except that:<br><br><br>(1)<br><br>the temporary differences are arising from the following transactions: the<br>transaction is not a business combination and affects neither the accounti<br>ng<br>profit nor the taxable income or deductible losses;<br><br>(2)<br><br>for temporary differences related to investments in subsidiaries, joint ventures<br>and associates, deferred income tax assets are recognized when all the following<br>criteria are satisfied: it is proba<br>ble that the temporary differences will be<br>reversed in the foreseeable future, and it is probable that future taxable profits,<br>against which the temporary differences can be utilized, will be available.<br><br><br>At the balance sheet date, the Group measures the de<br>ferred income tax assets and<br>deferred tax liabilities at the tax rates, according to tax laws, that are expected to be<br>applied in the period in which the asset is realized or the liability is settled, and reflects<br>the income tax effect of the manner in whi<br>ch the asset is expected to be recovered or<br>the liability is expected to be settled at the balance sheet date.<br><br><br>At the balance sheet date, the carrying amount of deferred income tax assets is reviewed<br>and reduced if it is no longer probable that sufficient<br><br>taxable profits will be available in<br>the future to allow the benefit of deferred income tax assets to be utilized. At the balance<br>sheet date, the Group re<br>-<br>assesses the unrecognized deferred income tax assets, and<br>recognizes deferred income tax assets to t<br>he extent that it is probable sufficient taxable<br>profits will be available to allow the reversal of all or part of the deferred income tax<br>assets.<br><br><br>Deferred income tax assets and deferred income tax liabilities are offset and presented<br>on a net basis if al<br>l the following criteria are satisfied: the Group has a legal right to<br>settle current income tax assets and current income tax liabilities on a net basis; the<br>deferred income tax assets and deferred income tax liabilities relate to income taxes<br>levied by t<br>he same taxation authority on either the same taxable entity or different<br>taxable entities which intend either to settle current income tax assets and current<br>income tax liabilities on a net basis or to realize the the assets and liabilities<br>simultaneously<br>, in each future period in which significant amounts of deferred income<br>tax assets or liabilities are expected to be reversed.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>57<br><br>3<br>-<br>2<br>-<br>1<br>-<br>60<br><br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>27.<br><br>Leasing (applicable from 1 January 2021)<br><br><br>Identification of lease<br><br><br>At the inception date of a contract, the Group assesses whether the contract is, or<br>contains, a lease. A contract is, or contains, a lease if the contract conveys the right to<br>control the use of an identified asset for a period of<br>time in exchange for<br>consideration. In order to determine whether the contract conveys the right to control<br>the use of an identified asset for a period of time, the Group assesses whether the<br>customer has the right to receive substantially all the economic<br><br>benefits from the use<br>of the identified asset in the period of use, and has the right to direct the use of the<br>identified asset in the period of use.<br><br><br>Identification of a separate lease<br><br><br>Where a contract contains multiple separate leases, the Group splits<br><br>the contracts and<br>accounts for the separate leases respectively. The right to use an identified asset<br>constitute a separate lease if all the following criteria are satisfied:<br><br><br>(1)<br><br>the lessee may be benefit from use of the asset on its own or together with oth<br>er<br>resources that are readily available to the lessee; and<br><br>(2)<br><br>the asset is not highly dependent on, or highly interrelated with, other assets in<br>the contract.<br><br><br>Assessment of lease term<br><br><br>Lease term is the non<br>-<br>cancellable period for which the Group is entitled to use the leased<br>asset. Where the Group has a renewal option, i.e. the option to renew the lease of the<br>asset, and is reasonably certain to exercise the option, the lease term also i<br>ncludes the<br>period covered by the renewal option. Where the Group has a termination option, i.e.<br>the right to terminate the lease of the asset, but is reasonably certain not to exercise the<br>option, the lease term also includes the period covered by the ter<br>mination option. Upon<br>occurrence of a significant event or change that is within the control of the Group and<br>affects whether the Group is reasonably certain to exercise corresponding option, the<br>Group reassesses whether it is reasonably certain to exercis<br>e<br>a<br><br>renewal option, purchase<br>option or not to exercise a termination option.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>58<br><br>3<br>-<br>2<br>-<br>1<br>-<br>61<br><br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>27.<br><br>Leasing (applicable from 1 January 2021)<br>-<br><br>continued<br><br><br>As a lessee<br><br><br>The general<br>accounting treatments of the Group as a lessee are set out in Note III,14<br>and Note III,19.<br><br><br>Lease modifications<br><br><br>A lease modification is a change in the scope of a lease, the consideration for a lease,<br>or the lease term, that was not part of the original t<br>erms and conditions of the lease,<br>including addition or termination of the right to use one or more assets, extension or<br>shortening of the lease term specified in the contract, etc.<br><br><br>A lease modification is accounted for as a separate lease if all the foll<br>owing criteria are<br>satisfied:<br><br><br>(1)<br><br>the modification increases the scope of the lease by adding the right to use one<br>or<br><br>more<br><br>leased assets; and<br><br>(2)<br><br>the consideration for the lease increases by an amount commensurate with the<br>stand<br>-<br><br>alone price for the increase in scope as adjusted according to the circumstances<br>of the<br><br>contract.<br><br><br>Where a lease modification is not accounted for a separate lease, at the modification<br>date, the Group re<br>-<br>determines the lease term and recalculates the lea<br>se liabilities by<br>discounting the revised lease payments using the revised discount rate. In calculating<br>the present value of the revised lease payments, the Group adopts the interest rate<br>implicit in the lease for the remainder of the lease term as the di<br>scount rate; if the interest<br>rate implicit in the lease for the remainder of the lease term cannot be readily<br>determined, the Group<br>’<br>s incremental borrowing rate at the effective date of the<br>modification is adopted.<br><br><br>In respect of above impacts of adjustmen<br>ts to lease liabilities, the Group<br>’<br>s accounting<br>treatments are as follows:<br><br><br>(1)<br><br>where the lease modification decreases the scope of the lease or shortens the lease<br>term, the Group reduces the carrying amount of the right<br>-<br>of<br>-<br>use assets to reflect<br>the partial or<br><br>full termination of the lease. Any gains or loss relating to the partial<br>or full termination of the lease are included in profit or loss for the period;<br><br>(2)<br><br>for other lease modifications, the Group makes corresponding adjustment to the<br>carrying amount of the<br>right<br>-<br>of<br>-<br>use assets.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>59<br><br>3<br>-<br>2<br>-<br>1<br>-<br>62<br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>27.<br><br>Leasing (applicable from 1 January 2021)<br>-<br><br>continued<br><br><br>Short<br>-<br>term leases and leases of low<br>-<br>value assets<br><br><br>The Group accounts for a lease that, at the<br>commencement date, has a lease term of 12<br>months or less and does not contain a purchase option as a short<br>-<br>term lease; and<br>accounts for a lease of an asset with a value, when new, not exceeding RMB<br><br>40,000.00<br><br>as a lease of a low<br>-<br>value asset. Where the Group<br><br>subleases or expects to sublease a<br>leased asset, the head lease does not qualify as a lease of a low<br>-<br>value asset. For short<br>-<br>term leases and leases of low<br>-<br>value assets, the Group elects not to recognize right<br>-<br>of<br>-<br>use assets and lease liabilities and include<br><br>the lease payments in cost of related assets<br>or profit or loss for each period within the lease term using straight<br>-<br>line method.<br><br><br>28.<br><br>Leasing (applicable prior to 1 January 2021)<br><br><br>A finance lease is a lease that transfers substantially all the risks and r<br>ewards incidental<br>to ownership of an underlying asset to the lessee. All other leases are operating leases.<br><br><br>As the lessee under operating lease<br><br><br>The rental expenditure of<br>an<br><br>operating lease is included in cost of related assets or profit<br>or loss over the<br>periods within the lease term using straight<br>-<br>line method. Contingent<br>rents is included in profit or loss for the period when incurred.<br><br><br>As the lessee under finance lease<br><br><br>An<br>asset<br><br>held under a finance lease is recorded, at the commencement date of the leas<br>e,<br>at the lower of the fair value of the leased asset and minimum lease payments at the<br>inception date of the lease, and the long<br>-<br>term payables are recorded at the amount of<br>minimum lease payments, with any difference accounted for as unrecognized financin<br>g<br>expenses and amortized over the periods within the lease term using effective interest<br>method. Contingent rents are included in profit or loss for the period when incurred.<br><br><br>29.<br><br>Profit distribution<br><br><br>The Company<br>’<br>s cash dividends are recognized as<br>liabilities after they are approved by<br>the shareholders<br>’<br><br>meeting (applicable after the reform of joint<br>-<br>stock system, i.e. since<br>16 April 2021). Prior to the reform of joint<br>-<br>stock system, i.e. before 16 April 2021, as<br>the board of directors is authorized to<br><br>approve cash dividends in accordance with the<br>Articles of Association of the Company, the cash dividends are recognized as liabilities<br>upon approval of the board of directors prior to the reform of joint<br>-<br>stock system.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>60<br><br>3<br>-<br>2<br>-<br>1<br>-<br>63<br><br><br>I<br>II.<br><br>Significant Accounting Polici<br>es and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>30.<br><br>Safety production cost<br><br><br>Safety production cost appropriated as per regulations are included in cost of related<br>product or profit or loss for the period, as well as special reserve; upon use of the safety<br>produc<br>tion cost, on the basis of whether a fixed asst is formed, the respective accounting<br>treatments are as follows: cost expenditures are directly charged against special reserve;<br>if a fixed asset is formed, the expenditures incurred are aggregated and recogni<br>zed as a<br>fixed asset when it is ready for intended use, meanwhile, it is charged against special<br>reserve by equivalent amount, with equivalent accumulated depreciation recognized.<br><br><br>31.<br><br>Fair value measurement<br><br><br>The Group measures the receivables<br>financing at fair value at each balance sheet date.<br>Fair value is the price that would be received to sell an asset o paid to transfer a liability<br>in an orderly transaction between market participants at the measurement date. The<br>Group measures relevant as<br>sets and liabilities at fair value, assuming that the orderly<br>transaction of selling an asset or transfer of a liability is conducted in the primary market<br>of the underlying asset or liability; if there is no primary market for the asset or liability,<br>the<br>Group assumes that the transaction is conducted at most favorable market for the<br>underlying asset or liability. Primary market (or most favorable market) is a trading<br>market that the Group may enter at the measurement date. The Group adopts the<br>assumptions<br><br>used by the market participants when pricing the asset or liability for the<br>purpose of maximum the economic benefits.<br><br><br>When measuring non<br>-<br>financial assets at fair value, consideration is given to the ability<br>of a participant to generate economic benefits<br>fro the use of the asset for its best use or<br>the ability to generate economic benefits from the sale of the asset to other market<br>participants who are able to use it for its best use.<br><br><br>The Group adopts currently applicable valuation technique that is suppo<br>rted by<br>sufficient available data and other information, giving priority to observable inputs. The<br>unobservable inputs are used only when the observable inputs are not available or not<br>practically available.<br><br><br>For assets and liabilities measured or<br>disclosed at fair value in the financial statements,<br>the level of their fair value measurement is determined based on the inputs of the lowest<br>level that are significant to the fair value measurement in its entirety: Level 1 inputs are<br>quoted prices (unadj<br>usted) in active markets for identical assets or liabilities that are<br>available at the measurement date; level 2 inputs are inputs, other than level 1 inputs,<br>that are observable for the asset or liability, either directly or indirectly; level 3 inputs<br>are<br><br>unobservable inputs for the asset or liability.<br><br><br>At each balance sheet date, the Group reassesses the assets and liabilities that are<br>measured at fair value on a recurring basis in the financial statements to determine<br>whether there is any transfer betwee<br>n levels of fair value measurement.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>61<br><br>3<br>-<br>2<br>-<br>1<br>-<br>64<br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>32.<br><br>Critical accounting judgements and estimates<br><br><br>In preparing the financial statements, the management is required to make judgements,<br>estim<br>ates and assumptions, these judgements, estimates and assumptions will affect the<br>presentation amount and disclosures of revenue, expenses, assets and liabilities, as well<br>as the disclosures of the contingent liabilities at the balance sheet date. The unce<br>rtainties<br>of these assumptions and estimates may result in significant adjustments to the carrying<br>amount of the affected assets or liabilities.<br><br><br>Judgements<br><br><br>In application of the Group<br>’<br>s accounting policies, the management made the following<br>judgements that have significant impacts on the amounts recognized in the financial<br>statements:<br><br><br>Business model<br><br><br>The classification of financial assets upon initial recognition depends on the business<br>model adopted by the Group to manage the financial asse<br>ts. In determining the business<br>model, the Group takes into account the way in which the performance of the financial<br>asset is reported to the key management personnel, risks affecting the performance of<br>the financial asset, the way in which the financial<br>asset is managed and the way in which<br>relevant business managers are compensated. In assessing whether the objective of the<br>business model is to collect contractual cash flows, the Group is required to make<br>analysis and judgements on the reason, timing, fr<br>equency and value of the sales of the<br>financial asset before its maturity.<br><br><br>Characteristics of the contractual cash flows<br><br><br>The classification of financial assets upon initial recognition depends on the<br>characteristics of the contractual cash flows from<br>the financial assets. This requires the<br>Group to determine whether the contractual cash flows are solely payment of principal<br>and interest on principal amount outstanding. Specifically, in assessing the revision of<br>the time value of money, the Group needs<br>to determine whether there is significant<br>difference compared to the benchmark cash flows; and, for financial asset with the<br>feature of early repayment, the Group needs to determine whether the fair value of the<br>feature of early repayment is minor.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>62<br><br>3<br>-<br>2<br>-<br>1<br>-<br>65<br><br><br><br>III<br>..<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>32.<br><br>Critical accounting judgements and estimates<br>-<br><br>continued<br><br><br>Uncertainties of estimates<br><br><br>The following are key assumptions on future and other key sources of<br>uncertainties of<br>estimates at the balance sheet date, which may result in significant adjustments to the<br>carrying amounts of assets and liabilities in future accounting periods.<br><br><br>Impairment of financial instruments<br><br><br>The Group assesses the impairment of financial instruments using ECL model. The<br>application of ECL model requires the Group to make significant judgements and<br>estimates, taking into account all reasonable and supportable information, including<br>forward<br>-<br>look<br>ing information. In making these judgements and estimates, the Group<br>concludes the expected changes in credit risks of the debtor on the basis of historical<br>repayments, in combination with economic policies, macro economic index, industrial<br>risks, etc. Dif<br>ferent estimates may affect the provision for impairment, therefore the<br>impairment provision made may be different fro the actual future impairment losses.<br><br><br>Impairment of non<br>-<br>current assets other than financial assets (exclusive of goodwill)<br><br><br>The Group det<br>ermines whether there is indication that the non<br>-<br>current assets other than<br>financial assets may be impaired at the balance sheet date. The non<br>-<br>current assets other<br>than financial assets are tested for impairment when there is indication that the carrying<br>a<br>mount cannot be recovered. An impairment has occurred when the carrying amount of<br>an asset or asset group is higher than its recoverable amount, i.e. the higher of fair value<br>net of the cost of disposal and the present value of expected future cash flows.<br>The fair<br>value net of cot of disposal is determined by reference to the contractual selling price<br>or observable market price of similar assets in a fair transaction less the incremental<br>cost directly attributable to the disposal of the asset. In estimating<br><br>the present value of<br>future cash flows, the management is required to estimate the future cash flows of the<br>asset or asset group, and determines the present value of future cash flows by applying<br>appropriate discount rate.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>63<br><br>3<br>-<br>2<br>-<br>1<br>-<br>66<br><br><br><br>III.<br><br>Significant Accounting<br><br>Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>32.<br><br>Critical accounting judgements and estimates<br>-<br><br>continued<br><br><br>Uncertainties of estimates<br><br>-<br><br>continued<br><br><br>Deferred income tax assets<br><br><br>Deferred income tax assets should be recognized for all unutilized deductible losses to<br>the extent that sufficient taxable profits will be available to offset the deductible losses.<br>This requires the management to use much judgements to estimate the timing<br><br>and<br>amount of available future taxable profits and takes into account the overall tax strategy<br>to determine the amount of deferred income tax assets to be recognized.<br><br><br>Warranty<br><br><br>For portfolio of contracts with similar characteristics, the Group makes reas<br>onable<br>estimates on the basis of historical warranty data, current status, taking into<br>consideration of all the relevant information such as improvement of product, market<br>changes, etc. The estimated warranty rate may be different from the actual results.<br>The<br>Group reassesses the warranty rate at least at each balance sheet date, and determines<br>the accrued liabilities on the basis of the reassessed warranty rate.<br><br><br>Incremental borrowing rate of the lessee<br><br><br>For leases of which the implicit interest rate canno<br>t be readily determined, the Group<br>adopts the lessee<br>’<br>s incremental interest rate as the discount rate to calculate the present<br>value of lease payment. In determining the incremental borrowing rate, the Group,<br>based on its economic environment, takes the ob<br>servable interest rate as the reference<br>basis. On such basis, the Group determines the appropriate incremental borrowing rate<br>according to its circumstances, taking into account the specific information of the lease<br>such as conditions of the underlying ass<br>et, lease term and amount of lease liabilities.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>64<br><br>3<br>-<br>2<br>-<br>1<br>-<br>67<br><br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>33.<br><br>Changes in accounting policies and accounting estimates<br><br><br>Changes in accounting policies<br><br><br>New Revenue Standards<br><br><br>In<br>2017, the Ministry of Finance released the revised Accounting Standards for<br>Business Enterprises No.4<br>-<br><br>Revenue (<br>“<br>New Revenue Standards<br>”<br>). The Group adopts<br>the above newly revised standards since 1 January 2020. According to the transition<br>provisions, the<br>information of comparative periods is not adjusted. The differences<br>arsing from the initial application of the new standards compared to the prevailing<br>standards are retrospectively adjusted to the retained earnings at the beginning of the<br>current period (<br>i.e. 1 January 2020).<br><br><br>The New Revenue Standards introduces a new revenue recognition model to regulate<br>the revenue from contracts with customers. Under the New Revenue Standards, the<br>revenue recognition method should reflect the pattern in which the enti<br>ty transfers the<br>goods or rendering services to the customers, and the amount of revenue should reflect<br>the amount of consideration that the entity is entitled to for transfer of these goods or<br>services to customers. Meanwhile, the New Revenue Standards al<br>so has provisions on<br>the judgements and estimates required in each link of revenue recognition.<br><br><br>Adjustments of related items in the financial statement at the beginning of the year of<br>initial application due to the Group<br>’<br>s initial application of the New R<br>evenue<br>Standards:<br><br><br><br><br>Under the New<br>Revenue<br>Standards<br><br><br><br>Under the original<br>standards<br><br><br><br>Adjusted amount<br><br><br><br><br>1/1/<br>2020<br><br><br><br>31/12/<br>2019<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Liabilities:<br><br><br><br><br><br><br><br><br><br><br>Contract liabilities<br><br><br>807,569.97<br><br><br><br>-<br><br><br><br>807,569.97<br><br><br>Other current liabilities<br><br><br>104,984.10<br><br><br><br>-<br><br><br><br>104,984.10<br><br><br>Accounts received in<br>advance<br><br><br>-<br><br><br><br>912,554.07<br><br><br><br>(912,554.07<br><br>)
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>65<br><br>3<br>-<br>2<br>-<br>1<br>-<br>68<br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>33.<br><br>Changes in accounting policies and accounting estimates<br>-<br><br>continued<br><br><br>Changes in accounting policies<br><br>-<br><br>continued<br><br><br>New Revenue Standards<br>-<br><br>continued<br><br><br>Adjustments of related items in the financial statement at the beginning of the year of<br>initial application due to the Company<br>’<br>s initial application of the New Revenue<br>Standards<br>:<br><br><br><br><br>Under the New<br>Revenue Standards<br><br><br><br>Under the original<br>standards<br><br><br><br>Adjusted amount<br><br><br><br><br>1/1/<br>2020<br><br><br><br>31/12/<br>2019<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Liabilities:<br><br><br><br><br><br><br><br><br><br><br>Contract liabilities<br><br><br>123,893.81<br><br><br><br>-<br><br><br><br>123,893.81<br><br><br>Other current liabilities<br><br><br>16,106.19<br><br><br><br>-<br><br><br><br>16,106.19<br><br><br>Accounts received in<br>advance<br><br><br>-<br><br><br><br>140,000.00<br><br><br><br>(140,000.00<br><br>)<br><br><br><br>New Lease Standards<br><br><br>In 2018, the Ministry of Finance released the revised Accounting Standards for<br>Business Enterprises No.21<br>-<br><br>Leases (<br>“<br>New Lease Standards<br>”<br>). The New Lease<br>Standards adopts a singe model that is similar to the prevailing accounting treatment of<br>finance lease, requiring the lessee to recognize right<br>-<br>of<br>-<br>use assets and lease liabilities<br>for all leases other than short<br>-<br>term leases and leases of l<br>ow<br>-<br>value assets, and to<br>recognize depreciation and interest expense respectively. The Group adopts the New<br>Lease Standards for accounting treatments from 1 January 2021. According to the<br>transition provisions, the information of comparative periods is not<br>adjusted. The<br>differences arsing from the initial application of the New Lease Standards compared to<br>the prevailing lease standards are retrospectively adjusted to the retained earnings at the<br>beginning of 2021.<br><br><br>(1)<br><br>For finance leases prior to the initial app<br>lication date, the Group measures the<br>right<br>-<br>of<br>-<br>use assets and lease liabilities at the original carrying amount of the<br>assets held under finance lease and finance lease payable respectively;<br><br>(2)<br><br>For operating leases prior to the initial application date, the G<br>roup measures the<br>lease liabilities at the present value of remaining lease payments discounted<br>using the incremental borrowing rate at the initial application date, and measures<br>the right<br>-<br>of<br>-<br>use assets for each lease at the amount equivalent to lease liab<br>ilities<br>as adjusted for prepaid rent, if necessary;<br><br>(3)<br><br>The Group performs impairment test for right<br>-<br>of<br>-<br>use assets and makes<br>corresponding accounting treatments in accordance withe Note III, 16.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>66<br><br>3<br>-<br>2<br>-<br>1<br>-<br>69<br><br><br>III.<br><br>Significant Accounting Policies and Accounting<br>Estimates<br><br><br>-<br><br>continued<br><br><br>33.<br><br>Changes in accounting policies and accounting estimates<br>-<br><br>continued<br><br><br>Changes in accounting policies<br><br>-<br><br>continued<br><br><br>New Lease Standards<br>-<br><br>continued<br><br><br>For operating leases of which the underlying asset is a low<br>-<br>value asset or<br>operating<br>leases that will be completed within 12 months which are existed prior to the initial<br>application date, the Group adopts simplified treatment and elects not to recognize<br>right<br>-<br>of<br>-<br>use assets and lease liabilities. In addition, for operating leases<br><br>prior to the<br>initial application date, the Group adopts the following simplified treatments:<br><br><br>(1)<br><br>when measuring the lease liabilities, the same discount rate is adopted for leases<br>with similar characteristics; the initial direct cost may not be included in t<br>he<br>measurement of right<br>-<br>of<br>-<br>use assets;<br><br>(2)<br><br>where the contract contains a renewal option or termination option, the Group<br>determines the lease term on the basis of the actual exercise of options prior to<br>the initial application date and other latest information<br>;<br><br>(3)<br><br>as an alternative for impairment test of right<br>-<br>of<br>-<br>use assets, the Group assesses<br>whether the contract containing a lease is an onerous contract at the initial<br>application date, and adjust the right<br>-<br>of<br>-<br>use assets according to the loss<br>allowance recognized<br><br>in balance sheet prior to the initial application date;<br><br>(4)<br><br>for lease modifications prior to the initial application date, the Group makes<br>accounting treatments according to the final arrangements of the lease<br>modifications.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>67<br><br>3<br>-<br>2<br>-<br>1<br>-<br>70<br><br><br><br>III.<br><br>Significant Accounting P<br>olicies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>33.<br><br>Changes in accounting policies and accounting estimates<br>-<br><br>continued<br><br><br>Changes in accounting policies<br><br>-<br><br>continued<br><br><br>New Lease Standards<br>-<br><br>continued<br><br><br>For outstanding minimum lease payments under the<br>significant operating leases<br>disclosed in the 2020 financial statements, the Group<br>’<br>s adjustments of differences<br>between the present value discounted at the incremental borrowing rate of the Group as<br>the lessee at 1 January 2021 and the lease liabilities re<br>cognized in balance sheet at 1<br>January 2021 are as follows:<br><br><br>Significant operating leases at 31<br>December<br>2020<br><br><br><br>Minimum lease payments<br><br><br>150,119.42<br><br>Less: Lease payments under simplified<br>approach<br><br><br>98,462.28<br><br>Including: Leases of which the<br>remaining lease term is less<br>than 12 moths<br><br><br><br>98,462.28<br><br><br><br><br>Lease payments<br><br><br>51,657.14<br><br><br><br><br>Incremental borrowing rate<br><br><br>3.92%<br><br><br><br><br>Present value of operating lease payments<br>at 1 January<br>2021<br><br><br>48,721.27<br><br>Add: Present value of finance lease<br>payable at 31 December<br>2020<br><br><br>13,116,550.20<br><br>Less: Prepayments for lease at 31<br>December<br>2020<br><br><br>-<br><br><br><br><br>Lease liabilities at 1 January<br>2021<br><br><br>13,165,271.47<br><br><br><br><br><br>In addition, from the initial application date, the cash<br>repayments of principal and<br>interest of lease liabilities are included in cash flows from financing activities in the<br>income statement, while the lease payments on short<br>-<br>term leases and leases of low<br>-<br>value assets that are accounted for using simplified app<br>roach and the variable lease<br>payments that are not included in the measurement of lease liabilities are still included<br>in cash outflows from operating activities.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br><br>68<br><br>3<br>-<br>2<br>-<br>1<br>-<br>71<br><br><br><br>III.<br><br>Significant Accounting Policies and Accounting Estimates<br><br><br>-<br><br>continued<br><br><br>33.<br><br>Changes<br><br>in accounting policies and accounting estimates<br>-<br><br>continued<br><br><br>Changes in accounting policies<br><br>-<br><br>continued<br><br><br>The key effects of retrospective adjustments resulting from above changes in<br>accounting policies are as follows:<br><br><br>The Group<br><br><br>2021<br><br><br><br><br>Prior to<br>changes in<br>accounting policies<br><br><br><br>Changes in accounting policies<br><br><br><br>After the changes in<br>accounting policies<br><br><br><br><br>31/12/<br>20<br>20<br><br><br><br>Effect of New<br>Revenue Standards<br><br><br><br><br>Effect of other changes in<br>presentation of financial<br>statements<br><br><br><br>1/1/<br>202<br>1<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Other current assets<br><br><br>32,539,623.67<br><br><br><br>(46,629.59<br><br>)<br><br><br><br>-<br><br><br><br>32,492,994.08<br><br><br>Fixed assets<br><br><br>614,605,658.83<br><br><br><br>(12,698,975.48<br><br>)<br><br><br><br>-<br><br><br><br>601,906,683.35<br><br><br>Right<br>-<br>of<br>-<br>use assets<br><br><br>-<br><br><br><br>13,145,549.60<br><br><br><br><br>-<br><br><br><br>13,145,549.60<br><br><br>N<br>on<br>-<br>current liabilities due<br>within one<br>year<br><br><br>1,270,662.51<br><br><br><br>(1,270,662.51<br><br>)<br><br><br><br>-<br><br><br><br>-<br><br><br>Lease liabilities<br><br>due within<br>one year<br><br><br>-<br><br><br><br>1,333,763.21<br><br><br><br><br>-<br><br><br><br>1,333,763.21<br><br><br>Lease liabilitie<br>s<br><br><br>-<br><br><br><br>12,182,731.52<br><br><br><br><br>-<br><br><br><br>12,182,731.52<br><br><br>Long<br>-<br>term accounts payable<br><br><br>11,845,887.69<br><br><br><br>(11,845,887.69<br><br>)<br><br><br><br>-<br><br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>2020<br><br><br><br><br>Prior to changes in<br>accounting policies<br><br><br><br>Changes in accounting policies<br><br><br><br>After the changes in<br>accounting policies<br><br><br><br><br>31/12/<br>2019<br><br><br><br>Effect of New<br>Revenue Standards<br><br><br><br><br>Effect of other changes in<br>presentation of financial<br>statements<br><br><br><br>1/1/<br>2020<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Accounts received in advance<br><br><br>912,554.07<br><br><br><br>(912,554.07<br><br>)<br><br><br><br>-<br><br><br><br>-<br><br><br>Contract liabilities<br><br><br>-<br><br><br><br>807,569.97<br><br><br><br><br>-<br><br><br><br>807,569.97<br><br><br>Other current liabilities<br><br><br>-<br><br><br><br>104,984.10<br><br><br><br><br>-<br><br><br><br>104,984.10<br><br><br><br>The Company<br><br><br>2020<br><br><br><br><br>Prior to changes in<br>accounting policies<br><br><br><br>Changes in accounting policies<br><br><br><br>After the changes in<br>accounting policies<br><br><br><br><br>31/12/<br>2019<br><br><br><br>Effect of New<br>Revenue Standards<br><br><br><br><br>Effect of other changes in<br>presentation of<br>financial<br>statements<br><br><br><br>1/1/<br>2020<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Accounts received in advance<br><br><br>140,000.00<br><br><br><br>(140,000.00<br><br>)<br><br><br><br>-<br><br><br><br>-<br><br><br>Contract liabilities<br><br><br>-<br><br><br><br>123,893.81<br><br><br><br><br>-<br><br><br><br>123,893.81<br><br><br>Other current liabilities<br><br><br>-<br><br><br><br>16,106.19<br><br><br><br><br>-<br><br><br><br>16,106.19
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>69<br><br>3<br>-<br>2<br>-<br>1<br>-<br>72<br><br><br>IV. Taxes<br><br>1. Main taxes and tax rates<br><br>VAT<br><br>the output tax of the Company and its subsidiaries in<br>mainland China<br><br>for selling goods and providing<br>services was calculated at 16% and 6% of the taxable<br>income resp<br>ectively before March 31, 2019. The output<br>tax shall be calculated at 13% and 6% of the taxable<br>income respectively, and the VAT shall be calculated<br>and paid at the difference after deducting the input tax<br>allowed to be deducted in the current period. From<br><br>April 1, 2019; the Company has the right to operate<br>import and export, and the VAT of export products is<br>subject to the export tax rebate policy of<br>“<br>Exemption,<br>Credit and Refund<br>”<br>.. The tax rebate rate of export<br>products is 13% from January 1, 2019 to Decem<br>ber 31,<br>2021. The export tax rebate rate of the Group<br>’<br>s<br>subsidiary,<br>Beijing Boyu Semiconductor Vessel<br>Craftwork Technology Co., Ltd.<br>, is 13% from January<br>1, 2019. Overseas subsidiaries of the Group are not<br>subject to VAT.<br><br><br>Urban maintenance and<br>construction tax<br><br>the Company and its subsidiaries in<br>mainland China<br><br>shall pay 7% and 5% of the actually paid turnover tax.<br><br><br>Education surcharge<br><br>the Company and its subsidiaries in<br>mainland China<br><br>shall pay 3% of the actually paid turnover tax.<br><br><br>Local educ<br>ation surcharge<br><br>the Company and its subsidiaries in<br>mainland China<br><br>shall pay 2% of the actually paid turnover tax.<br><br><br>Land use tax<br><br>the Company and its subsidiaries in<br>mainland China<br><br>shall pay land use tax according to the land use area of<br>RMB1.5, RMB3.6 and RMB4/m<br>2<br>/year.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>70<br><br>3<br>-<br>2<br>-<br>1<br>-<br>73<br><br>IV. Taxes (Continued)<br><br>1. Main taxes and tax rates (Continued)<br><br>Property tax<br><br>1.2% of the residual value after deducting 30% from<br>the original value of the property shall be paid if the<br>Company and its subsidiaries in<br>mainland China<br><br>are<br>levied ad valorem.<br><br><br>Stamp tax<br><br>the Company and its subsidiaries in<br>mainland China<br><br>shall pay stamp<br><br>tax according to the taxable items of<br>stamp tax and the corresponding tax rates according to<br>the tax law.<br><br><br>Enterprise income tax<br><br>the Company obtained the high<br>-<br>tech enterprise<br>certification on October 25, 2017, and passed the high<br>-<br>tech enterprise review on December 2, 2020. The<br>Company will enjoy the preferential tax policy of<br>levying enterprise income tax at the rate of 15% for<br>thre<br>e years from the year of obtaining the high<br>-<br>tech<br>enterprise certification according to the<br>Enterprise<br>Income Tax Law of the People’s Republic of China<br>..<br>The income tax of subsidiaries established in the<br>United States shall be calculated and paid according t<br>o<br>the tax laws of the country where they are located. For<br>the tax preference enjoyed by the Company and its<br>subsidiaries in<br>mainland China<br><br>according to law, see<br>IV. 2 Tax Preference.<br><br><br>Individual Income Tax<br><br>the Company withholds and pays individual income<br>tax<br>according to the tax law.<br><br><br>Tariff<br><br>the Company pays tariff at 0% to 40.33% of the price<br>of imported goods according to the tax law.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>71<br><br>3<br>-<br>2<br>-<br>1<br>-<br>74<br><br>IV. Taxes (Continued)<br><br>2. Tax Preference<br><br>Research and development expense plus deduction<br><br>Since 2018, according to the<br>Notice on Increasing the Pretax Plus Deduction Ratio of<br>Research and Development Expenses<br><br>(CS [2018] No. 99) issued by the Ministry of<br>Finance, the State Administration of Taxation and the Ministry of Science and<br>Technology, if the<br>R&D<br><br>costs actually incurred by an enterprise in carrying out<br>R&D<br><br>activities do not form intangible assets and are<br><br>included in the current profits and losses,<br>they shall be deducted according to the actual provisions, then 75% of the actual amount<br>shall be added and deducted before tax.<br><br>From 2021, according to the<br>Announcement on Further Improving the Pretax Plus<br>Dedu<br>ction Policy for R&D<br>C<br>osts<br><br>(CS [2021] No. 13) issued by the Ministry of Finance<br>and the State Administration of Taxation, if the<br>R&D<br><br>costs actually incurred by<br>manufacturing enterprises in<br>R&D<br><br>activities have not formed intangible assets and are<br>included i<br>n the current profits and losses, 100% of the actual amount shall be added and<br>deducted before tax from January 1, 2021 based on actual deduction as required.<br><br>The Group<br>’<br>s expenses meeting the above provisions shall be deducted while calculating<br>the taxable<br><br>income.<br><br>Deferred use of recoverable losses<br><br>According to CS [2018] No. 76, from January 1, 2018, the outstanding losses incurred<br>in the five years prior to the qualification year of enterprises qualified as high<br>-<br>tech<br>enterprises or technology<br>-<br>based small a<br>nd medium<br>-<br>sized enterprises in that year are<br>allowed to be carried forward for subsequent years, and the maximum<br>carryforward<br><br>period is extended from 5 years to 10 years.<br><br>The Group<br>’<br>s outstanding losses that meet the above provisions can be carried forward<br>and made up within 10 years at most.<br><br>Preferential income tax policies<br><br>The Company obtained the High<br>-<br>tech Enterprise Certificate on October 25, 2017, with<br>the Certificate No. [GR201711003982] and the validity period of three years. The<br>Company passed the hi<br>gh<br>-<br>tech enterprise review on December 2, 2020 and obtained<br>the High<br>-<br>tech Enterprise Certificate with the Certificate No. [GR202011006218] and<br>the validity period of three years. According to the<br>Enterprise Income Tax Law of the<br>People’s Republic of China<br>,<br>the<br>Regulations for the Implementation of the Enterprise<br>Income Tax Law of the People’s Republic of China<br>, and the<br>Administrative Measures<br>for the Recognition of High<br>-<br>tech Enterprises<br><br>(GKFH [2016] No. 172), the income tax<br>rate of the Company in 2019, 2020<br>and 2021 is 15%.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>72<br><br>3<br>-<br>2<br>-<br>1<br>-<br>75<br><br>IV. Taxes (Continued)<br><br>2. Tax incentives (Continued)<br><br>Preferential income tax policies<br><br>(Continued)<br><br>Baoding Tongmei Xtal<br><br>Manufacture Co., Ltd., a subsidiary of the Company, applies<br>the income tax rate of 25% in 2019. Baoding Tongmei Xtal Manufacture Co., Ltd., a<br>subsidiary of the Company, obtained the High<br>-<br>tech Enterprise Certificate on November<br>5, 2020. The Certificate No.<br><br>is [GR202013002302], and the validity period is three<br>years. According to the<br>Enterprise Income Tax Law of the People’s Republic of China<br>,<br>the<br>Regulations for the Implementation of the Enterprise Income Tax Law of the<br>People’s Republic of China<br>, and the<br>A<br>dministrative Measures for the Recognition of<br>High<br>-<br>tech Enterprises<br><br>(GKFH [2016] No. 172), the income tax rate of Baoding<br>Tongmei Xtal Manufacture Co., Ltd. in 2020 and 2021 is 15%.<br><br>Beijing Boyu Semiconductor Vessel Craftwork Technology Co., Ltd.<br>, a subsid<br>iary of<br>the Company, obtained the High<br>-<br>tech Enterprise Certificate on August 10, 2017. The<br>Certificate No. [GR201711001205], and the validity period is three years.<br>Beijing Boyu<br>Semiconductor Vessel Craftwork Technology Co., Ltd.<br>, a subsidiary of the Compa<br>ny,<br>passed the high<br>-<br>tech enterprise review on December 2, 2020 and obtained the High<br>-<br>tech Enterprise Certificate with the Certificate No. [GR202011005612] and the validity<br>period of three years. According to the<br>Enterprise Income Tax Law of the People’s<br>Re<br>public of China<br>, the<br>Regulations for the Implementation of the Enterprise Income<br>Tax Law of the People’s Republic of China<br>, and the<br>Administrative Measures for the<br>Recognition of High<br>-<br>tech Enterprises<br><br>(GKFH [2016] No. 172), the income tax rate of<br>Beijing B<br>oyu Semiconductor Vessel Craftwork Technology Co., Ltd.<br><br>in 2019, 2020<br>and 2021 is 15%.<br><br>Boyu (Chaoyang) Semiconductor Technology Co., Ltd., a subsidiary of the Company,<br>obtained the High<br>-<br>tech Enterprise Certificate on December 2, 2019. The Certificate No.<br>[<br>GR201921000967] and the validity period is three years. According to the<br>Enterprise<br>Income Tax Law of the People’s Republic of China<br>, the<br>Regulations for the<br>Implementation of the Enterprise Income Tax Law of the People’s Republic of China<br>,<br>the<br>Administrat<br>ive Measures for the Recognition of High<br>-<br>tech Enterprises<br><br>(GKFH<br>[2016] No. 172) and other relevant provisions, the income tax rate of Boyu (Chaoyang)<br>Semiconductor Technology Co., Ltd. in 2019, 2020 and 2021 is 15%.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>73<br><br>3<br>-<br>2<br>-<br>1<br>-<br>76<br><br><br><br>IV. Taxes (Continued)<br><br>2. Tax incentiv<br>es (Continued)<br><br>Preferential income tax policies<br><br>(Continued)<br><br>Chaoyang Jinmei<br><br>Gallium Co., Ltd., a subsidiary of the Company, applies the income<br>tax rate of 25% in 2019. Chaoyang Jinmei Gallium Co., Ltd., a subsidiary of the<br>Company, obtained the High<br>-<br>tech Enterprise Certificate on December 1, 2020. The<br>Certificate No. is [GR202021<br>001927], and the validity period is three years. According<br>to the<br>Enterprise Income Tax Law of the People’s Republic of China<br>, the<br>Regulations<br>for the Implementation of the Enterprise Income Tax Law of the People’s Republic of<br>China<br>, and the<br>Administrative<br><br>Measures for the Recognition of High<br>-<br>tech Enterprises<br><br>(GKFH [2016] No. 172), the income tax rate of Chaoyang Jinmei Gallium Co., Ltd. in<br>2020 and 2021 is 15%.<br><br>Chaoyang Tongmei Xtal<br><br>Technology Co., Ltd., a subsidiary of the Company, applies<br>the income tax rate of 25% in 2020 and before. Chaoyang Tongmei Xtal Technology<br>Co., Ltd., a subsidiary of the Company, obtained the High<br>-<br>tech Enterprise Certificate<br>on December 14, 2021. The Cert<br>ificate No. is [GR202121000903], and the validity<br>period is three years. According to the<br>Enterprise Income Tax Law of the People’s<br>Republic of China<br>, the<br>Regulations for the Implementation of the Enterprise Income<br>Tax Law of the People’s Republic of China<br>, and the<br>Administrative Measures for the<br>Recognition of High<br>-<br>tech Enterprises<br><br>(GKFH [2016] No. 172), the income tax rate of<br>Chaoyang Tongmei<br><br>Xtal Technology Co., Ltd.in 2021 is 15%.<br><br>According to the Notice on Implementing the Preferential Tax Reduction an<br>d<br>Exemption Policy for Small and Micro Enterprises (CS [2019] No. 13) issued by the<br>Ministry of Finance and the State Administration of Taxation, from January 1, 2019 to<br>December 31, 2021, the portion of the annual taxable income of small and micro profit<br>enterprises that does not exceed<br>RMB<br>1 million will be included in the taxable income<br>at a reduced rate of 25% and the corporate income tax will be paid at a rate of 20%; the<br>portion of the annual taxable income exceeding<br>RMB<br>1 million but not exceeding<br>RMB<br>3<br><br>million shall be included in the taxable income at a reduced rate of 50%, and the<br>enterprise income tax shall be paid at a rate of 20%. Boyu (Tianjin) Semiconductor<br>Materials Co., Ltd., a subsidiary of the Company, paid corporate income tax as small<br>and m<br>icro enterprises in 2019 and 2020. Boyu (Tianjin) Semiconductor Materials Co.,<br>Ltd., a subsidiary of the Company, obtained the High<br>-<br>tech Enterprise Certificate on<br>November 25, 2021. The Certificate No. is [GR202112001913], which is valid for three<br>years. A<br>ccording to the<br>Enterprise Income Tax Law of the People’s Republic of China<br>,<br>the<br>Regulations for the Implementation of the Enterprise Income Tax Law of the<br>People’s Republic of China<br>, and the<br>Administrative Measures for the Recognition of<br>High<br>-<br>tech Enterpr<br>ises<br><br>(GKFH [2016] No. 172), Boyu (Tianjin) Semiconductor<br>Materials Co., Ltd. in 2021 is 15%.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>74<br><br>3<br>-<br>2<br>-<br>1<br>-<br>77<br><br><br><br>IV. Taxes (Continued)<br><br>2. Tax incentives (Continued)<br><br>VAT preferential policies<br><br>According to the<br>Announcement on Clarifying the Final VAT Rebate Policy for Some<br>A<br>dvanced Manufacturing Industries<br><br>(Announcement No. 84, 2019 of the Ministry of<br>Finance and the State Administration of Taxation), the<br>Announcement on Policies<br>Related to Deepening the Reform of VAT<br><br>(Announcement No. 39, 2019 of the State<br>Administration of Taxation and the General Administration of Customs) and the<br>Announcement of the State Administration of Taxation on Matters Related to the Tax<br>Refund of VAT at the End of the Period<br><br>(Announcement N<br>o. 20, 2019 of the State<br>Administration of Taxation) have been approved by the competent tax authorities,<br>Baoding Tongmei Xtal Manufacture Co., Ltd., a subsidiary of the Company, received<br>RMB<br>3,803,922.81 and<br>RMB<br>3,510,064.66 of VAT rebate in 2019 and 2020<br>r<br>espectively; Chaoyang Tongmei Xtal Technology Co., Ltd., a subsidiary of the<br>Company, received refunds of VAT allowance of<br>RMB<br>9,932,435.80,<br>RMB<br>6,431,304.92 and<br>RMB<br>5,942,561.40 in 2019, 2020 and 2021 respectively; Boyu<br>(Tianjin) Semiconductor Materials Co.,<br><br>Ltd., a subsidiary of the Company, received a<br>VAT rebate of RMB1,772,989.37 and RMB1,304,737.44 in 2020 and 2021<br>respectively.<br><br>Preferential policies for property tax and urban land use tax<br><br>According to the provisions of Article 14 of the<br>Notice on Printin<br>g and Distributing<br>Several Policies and Measures to Support the Production and Operation of Small and<br>Medium<br>-<br>sized Enterprises in Response to the<br>Covid<br>-<br>19<br><br>Pandemic<br><br>Infected by Novel<br>Coronavirus in Liaoning Province<br><br>(LZF [2020] No. 6), it is really difficul<br>t to pay real<br>estate tax and urban land use tax due to the serious losses of enterprises caused by the<br>pandemic<br><br>and the significant impact on their normal production and operation activities,<br>halving the property tax and urban land use tax will be applied<br>for. In 2020, Chaoyang<br>Tongmei Xtal Technology Co., Ltd., a subsidiary of the Company, reduced and<br>exempted property tax and urban land use tax by<br>RMB<br>95,408.88 and RMB41,837.85<br>respectively; the reduction and exemption of property tax and urban land use ta<br>x by<br>Boyu (Chaoyang) Semiconductor Technology Co., Ltd., a subsidiary of the Company,<br>are<br>RMB<br>16,090.14 and<br>RMB<br>15,709.69 respectively.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>75<br><br>3<br>-<br>2<br>-<br>1<br>-<br>78<br><br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>1. Cash and bank balance<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Cash on hand<br><br><br><br>12,846.89<br><br><br>29,492.00<br><br><br>34,648.67<br><br><br>Bank Deposit<br><br><br><br>173,255,506.81<br><br><br>388,464,450.43<br><br><br>107,342,008.41<br><br><br>Other Cash and bank<br>balance<br><br><br><br>-<br><br><br>261,700.00<br><br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>173,268,353.70<br><br><br>388,755,642.43<br><br><br>107,376,657.08<br><br><br>Including:<br>T<br>otal amount of<br>funds restricted<br>for use due to<br>mortgage,<br>pledge or<br>freezing<br><br><br><br>-<br><br><br>261,700.00<br><br><br>-<br><br><br><br>Note 1: for the use of funds restricted by mortgage, pledge or freezing, see Note V 54<br>Assets with Restricted Ownership or Use Right.<br><br>The cash and bank balance deposited abroad by the Group was US$4,325,288.91,<br>equivalent to<br>RMB<br>27,576,744.50 as of December 31, 2021. The Group had no cash and<br>bank balance deposited abroad as of December 31, 2<br>020 and December 31, 2019.<br><br>Interest income from bank demand deposits is obtained at the interest rate of bank<br>demand deposits. The deposit period of short<br>-<br>term time deposits is mainly 7 days, and<br>interest income is obtained according to the corresponding b<br>ank time deposit interest<br>rate.<br><br>2. Notes receivable<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Commercial Acceptance Bill<br><br><br><br>14,891,453.65<br><br><br>22,017,290.79<br><br><br>18,345,207.46<br><br><br><br><br><br><br><br><br><br><br><br>Less: Bad Debt Provision for<br>Notes<br>receivable<br><br><br><br>99,792.48<br><br><br>154,323.05<br><br><br>138,480.08<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>14,791,661.17<br><br><br>21,862,967.74<br><br><br>18,206,727.38<br><br><br><br>The ownership of notes receivable of the Group with face<br>value<br>of<br>RMB<br>2,029,949.76,<br>RMB<br>7,492,990.59 and<br>RMB<br>7,995,197.76 is restricted as of<br>December 31, 2021, 2020<br>and 2019. See Note V 54.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>76<br><br>3<br>-<br>2<br>-<br>1<br>-<br>79<br><br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>2. Notes receivable (continued)<br><br>Notes receivable that have<br><br>been endorsed but are not yet due on the balance sheet date<br>are as follows:<br><br><br><br>December 31, 2021<br><br><br><br><br><br>December 31, 2020<br><br><br>Year<br>-<br>end balance<br><br><br><br><br>Derecognition<br><br><br><br>Recognition not<br>terminated<br><br><br><br>Derecognition<br><br><br><br>Recognition not<br>terminated<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Book value of commercial<br>acceptance bill<br><br><br>-<br><br><br><br>2,029,949.76<br><br><br><br>-<br><br><br><br><br>7,492,990.59<br><br><br><br><br><br><br><br><br>December 31, 2019<br><br><br>Year<br>-<br>end balance<br><br><br><br><br><br><br><br><br><br><br>Derecognition<br><br><br><br>Recognition not<br>terminated<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Book value of commercial<br>acceptance bill<br><br><br><br><br><br><br><br><br>-<br><br><br><br><br>7,995,197.76<br><br><br><br>The Group did not convert bills into accounts receivable due to the drawer<br>’<br>s non<br>-<br>performance on December 31, 2021, 2020 and 2019.<br><br>Changes in bad debt provision for notes receivable are as follows:<br><br><br><br>Beginning<br>balance<br><br><br><br>Accrued this year<br><br><br><br>Reversal of<br>current year<br><br><br><br>Written off this<br>ye<br>ar<br><br><br><br>Year<br>-<br>end balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>2021<br><br><br>154,323.05<br><br><br><br>99,792.48<br><br><br><br>(154,323.05<br><br>)<br><br><br>-<br><br><br><br>99,792.48<br><br><br>2020<br><br><br>138,480.08<br><br><br><br>154,323.05<br><br><br><br>(138,480.08<br><br>)<br><br><br>-<br><br><br><br>154,323.05<br><br><br>2019<br><br><br>74,465.30<br><br><br><br>138,480.08<br><br><br><br>(74,465.30<br><br>)<br><br><br>-<br><br><br><br>138,480.08
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>77<br><br>3<br>-<br>2<br>-<br>1<br>-<br>80<br><br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>2.<br><br>Notes receivable (continued)<br><br><br><br>December 31, 2021<br><br><br><br><br>Book balance<br><br><br>Bad debt reserves<br><br><br>Book value<br><br><br><br><br>Amount<br><br><br>Proporti<br>on<br><br><br>Amount<br><br><br>Accrual<br>proportion<br><br><br><br><br><br><br><br><br>(%)<br><br><br><br><br>(%)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Combination by credit risk<br>characteristics<br><br>Provision for bad debts<br><br>-<br>Commercial acceptance<br>bill<br><br><br>14,891,453.65<br><br><br>100.00<br><br><br>99,792.48<br><br><br>0.67<br><br><br>14,791,661.17<br><br><br><br><br><br>December 31, 2020<br><br><br><br><br>Book balance<br><br><br>Bad debt reserves<br><br><br>Book value<br><br><br><br><br>Amount<br><br><br>Proporti<br>on<br><br><br>Amount<br><br><br>Accrual<br>proportion<br><br><br><br><br><br><br><br><br>(%)<br><br><br><br><br>(%)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Combination by credit risk<br>characteristics<br><br>Provision for bad<br>debts<br><br>-<br>Commercial<br>acceptance bill<br><br><br>22,017,290.79<br><br><br>100.00<br><br><br>154,323.05<br><br><br>0.70<br><br><br>21,862,967.74<br><br><br><br><br><br>December 31, 2019<br><br><br><br><br>Book balance<br><br><br>Bad debt reserves<br><br><br>Book value<br><br><br><br><br>Amount<br><br><br>Proporti<br>on<br><br><br>Amount<br><br><br>Accrual<br>proportion<br><br><br><br><br><br><br><br><br>(%)<br><br><br><br><br>(%)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Combination by credit risk<br>characteristics<br><br>Provision for bad debts<br><br>-<br>Commercial<br>acceptance bill<br><br><br>18,345,207.46<br><br><br>100.00<br><br><br>138,480.08<br><br><br>0.75<br><br><br>18,206,727.38<br><br><br><br>The Group made provision for bad debt of notes receivable in 2021, 2020 and 2019 of<br>RMB<br>99,792.48,<br>RMB<br>154,323.05 and<br>RMB<br>138,480.08.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>78<br><br>3<br>-<br>2<br>-<br>1<br>-<br>81<br><br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>3.<br>Accounts receivable<br><br>The credit period of accounts receivable is usually about 1 to 3 months. Accounts<br>receivable do not bear interest.<br><br>The aging analysis of accounts receivable is as follows:<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Within 1 year<br><br><br><br><br>218,260,201.08<br><br><br>152,767,328.58<br><br><br><br>126,384,559.81<br><br><br>1 to 2 years<br><br><br><br><br>2,911,889.47<br><br><br>213,442.47<br><br><br><br>3,976,930.88<br><br><br>2 to 3 years<br><br><br><br><br>8,000.00<br><br><br>119,700.00<br><br><br><br>501,546.81<br><br><br>More than 3 years<br><br><br><br><br>779,816.36<br><br><br>660,116.36<br><br><br><br>269,569.55<br><br><br><br><br><br><br>221,959,906.91<br><br><br>153,760,587.41<br><br><br><br>131,132,607.05<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Less:<br>B<br>ad debt reserves of<br>accounts receivable<br><br><br><br><br>3,325,454.69<br><br><br>1,394,547.52<br><br><br><br>1,333,323.04<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>218,634,452.22<br><br><br>152,366,039.89<br><br><br><br>129,799,284.01<br><br><br><br><br><br>December 31, 2021<br><br><br><br><br>Book balance<br><br><br>Bad debt reserves<br><br><br>Book value<br><br><br><br><br>Amount<br><br><br>Proportio<br>n<br><br><br>Amount<br><br><br>Accrual<br>proportio<br>n<br><br><br><br><br><br><br><br><br>(%)<br><br><br><br><br>(%)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Single provision for bad debts<br><br><br>1,886,905.47<br><br><br>0.85<br><br><br>1,886,905.47<br><br><br>100.00<br><br><br>-<br><br><br>Withdrawing bad debt reserves<br>according to the combination of credit<br>risk characteristics<br><br><br>220,073,001.44<br><br><br>99.15<br><br><br>1,438,549.22<br><br><br>0.65<br><br><br>218,634,452.22<br><br><br>Including:<br>L<br>ow risk customers<br><br><br>16,393,682.10<br><br><br>7.39<br><br><br>8,196.84<br><br><br>0.05<br><br><br>16,385,485.26<br><br><br>Medium risk customers<br><br><br>203,679,319.34<br><br><br>91.76<br><br><br>1,430,352.38<br><br><br>0.70<br><br><br>202,248,966.96<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>221,959,906.91<br><br><br>100.00<br><br><br>3,325,454.69<br><br><br><br><br>218,634,452.22<br><br><br><br><br><br>December 31, 2020<br><br><br><br><br>Book balance<br><br><br>Bad debt reserves<br><br><br>Book value<br><br><br><br><br>Amount<br><br><br>Proportio<br>n<br><br><br>Amount<br><br><br>Accrual<br>proportio<br>n<br><br><br><br><br><br><br><br><br>(%)<br><br><br><br><br>(%)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Single provision for bad debts<br><br><br>730,855.47<br><br><br>0.48<br><br><br>730,855.47<br><br><br>100.00<br><br><br>-<br><br><br><br>Withdrawing bad debt reserves<br>according to the combination of credit<br>risk characteristics<br><br><br>153,029,731.94<br><br><br>99.52<br><br><br>663,692.05<br><br><br>0.43<br><br><br>152,366,039.89<br><br><br>Including:<br>L<br>ow risk customers<br><br><br>67,945,922.00<br><br><br>44.19<br><br><br>40,213.39<br><br><br>0.06<br><br><br>67,905,708.61<br><br><br>Medium risk customers<br><br><br>85,083,809.94<br><br><br>55.33<br><br><br>623,478.66<br><br><br>0.73<br><br><br>84,460,331.28<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>153,760,587.41<br><br><br>100.00<br><br><br>1,394,547.52<br><br><br><br><br>152,366,039.89
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>79<br><br>3<br>-<br>2<br>-<br>1<br>-<br>82<br><br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>3. Accounts<br>receivable (continued)<br><br><br><br>December 31, 2019<br><br><br><br><br>Book balance<br><br><br>Bad debt reserves<br><br><br>Book value<br><br><br><br><br>Amount<br><br><br>Proportio<br>n<br><br><br>Amount<br><br><br>Accrual<br>proportio<br>n<br><br><br><br><br><br><br><br><br>(%)<br><br><br><br><br>(%)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Single provision for bad debts<br><br><br>392,155.47<br><br><br>0.30<br><br><br>392,155.47<br><br><br>100.00<br><br><br>-<br><br><br>Withdrawin<br>g bad debt reserves<br>according to the combination of credit<br>risk characteristics<br><br><br>130,740,451.58<br><br><br>99.70<br><br><br>941,167.57<br><br><br>0.72<br><br><br>129,799,284.01<br><br><br>Including:<br>L<br>ow risk customers<br><br><br>81,206,544.21<br><br><br>61.93<br><br><br>54,986.43<br><br><br>0.07<br><br><br>81,151,557.78<br><br><br>Medium ris<br>k customers<br><br><br>49,533,907.37<br><br><br>37.77<br><br><br>886,181.14<br><br><br>1.79<br><br><br>48,647,726.23<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>131,132,607.05<br><br><br>100.00<br><br><br>1,333,323.04<br><br><br><br><br>129,799,284.01<br><br><br><br>As of December 31, 2021, the accounts receivable for which bad debt reserves are<br>individually accrued are as follows:<br><br><br><br>Book balance<br><br><br><br>Bad debt reserves<br><br><br><br>Expected<br>Credit<br><br><br><br>Accrual Reason<br><br><br><br><br><br><br><br><br><br><br>Loss Rate<br><br><br><br><br><br><br><br><br><br><br><br><br><br>(%)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Shanxi Jubian Technology Co., Ltd.<br><br><br>1,156,050.00<br><br><br><br>1,156,050.00<br><br><br><br>100.00<br><br><br><br>Termination of<br>cooperation<br><br><br>Beijing Parker Trading Co., Ltd.<br><br><br>403,942.47<br><br><br><br>403,942.47<br><br><br><br>100.00<br><br><br><br>Abnormal<br>operation<br><br><br>Beijing Times Chip Lights SCI<br>-<br>TECH Co.,<br>Ltd.<br><br><br>165,349.00<br><br><br><br>165,349.00<br><br><br><br>100.00<br><br><br><br>Termination of<br>cooperation<br><br><br>Miyasole Equipment Integration Fujian Co.,<br>Ltd.<br><br><br>119,700.00<br><br><br><br>119,700.00<br><br><br><br>100.00<br><br><br><br>Litigation disputes<br><br><br>Shanxi<br>Changzhi High<br>-<br>tech Huashang<br>Optoelectronics Co., Ltd.<br><br><br>40,500.00<br><br><br><br>40,500.00<br><br><br><br>100.00<br><br><br><br>Termination of<br>cooperation<br><br><br>Hefei IRICO Epilight Technology Co., Ltd.<br><br><br>1,364.00<br><br><br><br>1,364.00<br><br><br><br>100.00<br><br><br><br>Termination of<br>cooperation<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>1,886,905.47<br><br><br><br>1,886,905.47
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>80<br><br>3<br>-<br>2<br>-<br>1<br>-<br>83<br><br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>3.<br><br>Accounts receivable (continued)<br><br>As of December 31, 2020, the accounts receivable for which bad debt reserves are<br>individually accrued are as follows:<br><br><br><br>Book balance<br><br><br><br>Bad debt reserves<br><br><br><br>Expected<br>Credit<br><br><br><br>Accrual Reason<br><br><br><br><br><br><br><br><br><br><br>Loss<br>Rate<br><br><br><br><br><br><br><br><br><br><br><br><br><br>(%)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Beijing Parker Trading Co., Ltd.<br><br><br>403,942.47<br><br><br><br>403,942.47<br><br><br><br>100.00<br><br><br><br>Abnormal<br>operation<br><br><br>Beijing Times Chip Lights SCI<br>-<br>TECH Co.,<br>Ltd.<br><br><br>165,349.00<br><br><br><br>165,349.00<br><br><br><br>100.00<br><br><br><br>Termination of<br>cooperation<br><br><br>Miyasole Equipment Integration Fujian Co.,<br>Ltd.<br><br><br>119,700.00<br><br><br><br>119,700.00<br><br><br><br>100.00<br><br><br><br>Litigation disputes<br><br><br>Shanxi<br>Changzhi High<br>-<br>tech Huashang<br>Optoelectronics Co., Ltd.<br><br><br>40,500.00<br><br><br><br>40,500.00<br><br><br><br>100.00<br><br><br><br>Termination of<br>cooperation<br><br><br>Hefei IRICO Epilight Technology Co., Ltd.<br><br><br>1,364.00<br><br><br><br>1,364.00<br><br><br><br>100.00<br><br><br><br>Termination of<br>cooperation<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>730,855.47<br><br><br><br>730,855.47<br><br><br><br><br><br><br><br><br><br>As of December 31, 2019, the accounts receivable for which bad debt<br>reserves are<br>individually accrued are as follows:<br><br><br><br>Book balance<br><br><br><br>Bad debt reserves<br><br><br><br>Expected<br>Credit<br><br><br><br>Accrual Reason<br><br><br><br><br><br><br><br><br><br><br>Loss Rate<br><br><br><br><br><br><br><br><br><br><br><br><br><br>(%)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Beijing Parker Trading Co., Ltd.<br><br><br>184,942.47<br><br><br><br>184,942.47<br><br><br><br>100.00<br><br><br><br>Abnormal<br>operation<br><br><br>Beijing Times Chip Lights SCI<br>-<br>TECH Co.,<br>Ltd.<br><br><br>165,349.00<br><br><br><br>165,349.00<br><br><br><br>100.00<br><br><br><br>Termination of<br>cooperation<br><br><br>Shanxi<br>Changzhi High<br>-<br>tech Huashang<br>Optoelectronics Co., Ltd.<br><br><br>40,500.00<br><br><br><br>40,500.00<br><br><br><br>100.00<br><br><br><br>Termination of<br>cooperation<br><br><br>Hefei IRICO Epilight Technology Co., Ltd.<br><br><br>1,364.00<br><br><br><br>1,364.00<br><br><br><br>100.00<br><br><br><br>Termination of<br>cooperation<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>392,155.47<br><br><br><br>392,155.47
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>81<br><br>3<br>-<br>2<br>-<br>1<br>-<br>84<br><br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>3. Accounts receivable<br><br>(continued)<br><br>Accounts receivable for which bad debt reserves are accrued according to the<br>combination of credit risk<br>characteristics are as follows:<br><br>Low risk customers<br><br><br><br>December 31, 2021<br><br><br><br><br><br>Book of the estimated<br>default<br><br><br><br>Expected credit<br>loss rate<br><br>(%)<br><br><br><br>Expected credit loss of<br>the entire duration<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Within 1 year<br><br><br>15,167,582.10<br><br><br><br>0.05<br><br><br><br>7,583.79<br><br><br><br>1 to 2 years<br><br><br>1,226,100.00<br><br><br><br>0.05<br><br><br><br>613.05<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>16,393,682.10<br><br><br><br>0.05<br><br><br><br>8,196.84<br><br><br><br><br><br><br>December 31, 2020<br><br><br><br><br><br>Book of the estimated<br>default<br><br><br><br>Expected credit<br>loss rate<br><br>(%)<br><br><br><br>Expected credit loss of<br>the entire duration<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Within 1 year<br><br><br>67,945,922.00<br><br><br><br>0.06<br><br><br><br>40,213.39<br><br><br><br><br><br><br>December 31, 2019<br><br><br><br><br><br>Book of the estimated<br>default<br><br><br><br>Expected credit<br>loss rate<br><br>(%)<br><br><br><br>Expected credit loss of<br>the<br>entire duration<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Within 1 year<br><br><br>77,579,010.33<br><br><br><br>0.07<br><br><br><br>52,447.16<br><br><br>1 to 2 years<br><br><br>3,627,533.88<br><br><br><br>0.07<br><br><br><br>2,539.27<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>81,206,544.21<br><br><br><br>0.07<br><br><br><br>54,986.43
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>82<br><br>3<br>-<br>2<br>-<br>1<br>-<br>85<br><br><br><br>V. Notes to Main Items of Consolidated Financial<br>Statements<br><br>(Continued)<br><br>3. Accounts receivable<br><br>(continued)<br><br>Accounts receivable for which bad debt reserves are accrued according to the<br>combination of credit risk characteristics are as follows: (Continued)<br><br>Medium risk customers<br><br><br><br>December 31, 2021<br><br><br><br><br><br>Book of the estimated<br>default<br><br><br><br>Expected credit<br>loss rate<br><br>(%)<br><br><br><br>Expected credit loss of<br>the entire duration<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Within 1 year<br><br><br>203,092,618.98<br><br><br><br>0.45<br><br><br><br>913,916.79<br><br><br><br>1 to 2 years<br><br><br>125,797.00<br><br><br><br>44.34<br><br><br><br>55,772.23<br><br><br><br>2 to 3 years<br><br><br>8,000.00<br><br><br><br>97.00<br><br><br><br>7,760.00<br><br><br><br>More than 3 years<br><br><br>452,903.36<br><br><br><br>100.00<br><br><br><br>452,903.36<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>203,679,319.34<br><br><br><br>0.70<br><br><br><br>1,430,352.38<br><br><br><br><br><br><br>December 31, 2020<br><br><br><br><br><br>Book of the estimated<br>default<br><br><br><br>Expected credit<br>loss rate<br><br>(%)<br><br><br><br>Expected credit loss<br>of the entire duration<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Within 1 year<br><br><br>84,602,406.58<br><br><br><br>0.19<br><br><br><br>159,673.77<br><br><br><br>1 to 2 years<br><br><br>28,500.00<br><br><br><br>38.25<br><br><br><br>10,901.53<br><br><br><br>2 to 3 years<br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>More than 3 years<br><br><br>452,903.36<br><br><br><br>100.00<br><br><br><br>452,903.36<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>85,083,809.94<br><br><br><br>0.73<br><br><br><br>623,478.66<br><br><br><br><br><br><br>December 31, 2019<br><br><br><br><br><br>Book of the estimated<br>default<br><br><br><br>Expected credit<br>loss rate<br><br>(%)<br><br><br><br>Expected credit loss of<br>the entire duration<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Within 1 year<br><br><br>48,620,607.01<br><br><br><br>0.39<br><br><br><br>189,938.19<br><br><br>1 to 2 years<br><br><br>349,397.00<br><br><br><br>39.41<br><br><br><br>137,689.42<br><br><br>2 to 3 years<br><br><br>501,546.81<br><br><br><br>98.93<br><br><br><br>496,196.98<br><br><br>More than 3 years<br><br><br>62,356.55<br><br><br><br>100.00<br><br><br><br>62,356.55<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>49,533,907.37<br><br><br><br>1.79<br><br><br><br>886,181.14
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>83<br><br>3<br>-<br>2<br>-<br>1<br>-<br>86<br><br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>3.<br><br>Accounts receivable<br><br>(continued)<br><br>Changes in bad debt reserves of accounts receivable are as follows:<br><br><br><br>Beginning<br>balance<br><br><br><br>Accrued this year<br><br><br><br>Recovered or<br>reversed this<br>year<br><br><br><br>Written off this<br>ye<br>ar<br><br><br><br>Year<br>-<br>end balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>2021<br><br><br>1,394,547.52<br><br><br><br>2,150,111.46<br><br><br><br>(219,204.29<br><br>)<br><br><br>-<br><br><br><br>3,325,454.69<br><br><br>2020<br><br><br>1,333,323.04<br><br><br><br>407,253.60<br><br><br><br>(346,029.12<br><br>)<br><br><br>-<br><br><br><br>1,394,547.52<br><br><br>2019<br><br><br>975,640.53<br><br><br><br>377,274.22<br><br><br><br>(19,591.71<br><br>)<br><br><br>-<br><br><br><br>1,333,323.04<br><br><br><br>As of December 31, 2021, the top five customers with<br>closing balance are as follows:<br><br><br><br><br>Book balance<br><br><br><br>Scale (%<br><br>)<br><br><br><br><br><br><br><br><br>Nanchang Kingsoon Optoelectronic Co., Ltd.<br><br><br>22,241,681.87<br><br><br><br>10.02<br><br><br>OSRAM OPTO SEMICONDUCTORS GMBH<br><br><br>19,790,373.63<br><br><br><br>8.92<br><br><br>Epi Solution Technology Co., Ltd.<br><br><br>17,487,021.00<br><br><br><br>7.88<br><br><br>China Electronics Technology Group Corporation<br><br><br>16,393,682.10<br><br><br><br>7.39<br><br><br>LANDMARK OPTOELECTRONICS INC.<br><br><br>14,438,250.83<br><br><br><br>6.50<br><br><br><br><br><br><br><br><br><br><br><br>90,351,009.43<br><br><br><br>40.71<br><br><br>As of December 31, 2020, the top five customers with closing balance are as follows:<br><br><br><br>Book<br>balance<br><br><br><br>Scale (%<br><br>)<br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>53,762,553.90<br><br><br><br>34.97<br><br><br>Nanchang Kingsoon Optoelectronic Co., Ltd.<br><br><br>18,412,841.15<br><br><br><br>11.98<br><br><br>China Electronics Technology Group Corporation<br><br><br>14,785,192.10<br><br><br><br>9.62<br><br><br>Epi Solution Technology Co., Ltd.<br><br><br>10,086,946.00<br><br><br><br>6.56<br><br><br>Suzhou Everbright Photonics Co., Ltd.<br><br><br>6,617,220.00<br><br><br><br>4.30<br><br><br><br><br><br><br><br><br><br><br><br>103,664,753.15<br><br><br><br>67.43
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>84<br><br>3<br>-<br>2<br>-<br>1<br>-<br>87<br><br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>3. Accounts receivable<br><br>(continued)<br><br>As of December 31,<br>2019, the top five customers with closing balance are as follows:<br><br><br><br>Book balance<br><br><br><br>Scale (%<br><br>)<br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>63,678,984.23<br><br><br><br>48.56<br><br><br>China Electronics Technology Group Corporation<br><br><br>17,527,559.98<br><br><br><br>13.37<br><br><br>Nanchang Kingsoon<br><br>Optoelectronic Co., Ltd.<br><br><br>16,652,093.32<br><br><br><br>12.70<br><br><br>Epi Solution Technology Co., Ltd.<br><br><br>11,674,530.90<br><br><br><br>8.90<br><br><br>Suzhou Everbright Photonics Co., Ltd.<br><br><br>5,611,600.00<br><br><br><br>4.28<br><br><br><br><br><br><br><br><br><br><br><br>115,144,768.43<br><br><br><br>87.81<br><br><br><br>The ownership of accounts receivable with the year<br>-<br>end balance of<br>RMB<br>10,673,996.84<br>of the Group was restricted as of December 31, 2020. The ownership of accounts<br>receivable was not restricted as of December31, 2019 and December 31, 2021. See Note<br>V 54.<br><br>4. Receivables financing<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Balance of book<br>value of bank<br>acceptance bill<br><br><br><br>62,276,352.97<br><br><br>30,086,848.50<br><br><br>15,312,029.70<br><br><br><br><br><br><br><br><br><br><br><br>Less: Change and<br>other changes in fair<br>value<br><br><br><br>392,467.13<br><br><br>232,625.43<br><br><br>89,434.56<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>61,883,885.84<br><br><br>29,854,223.07<br><br><br>15,222,595.14<br><br><br><br>The receivables financing that have<br><br>been endorsed but have not yet matured on the<br>balance sheet date is as follows:<br><br><br><br><br><br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br><br>Derecognition<br><br><br><br>Recognition not<br>terminated<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Book value of bank acceptance bill<br><br><br><br><br><br><br><br><br>21,082,947.24<br><br><br><br>10,975,589.70<br><br><br><br><br><br><br>December 31, 2021<br><br><br><br><br><br>December 31, 2020<br><br><br>Year<br>-<br>end balance<br><br><br><br><br>Derecognition<br><br><br><br>Recognition not<br>terminated<br><br><br><br>Derecognition<br><br><br><br>Recognition not<br>terminated<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Book value of bank acceptance bill<br><br><br>82,843,799.57<br><br><br><br>15,300,741.53<br><br><br><br>51,088,631.47<br><br><br><br>12,135,852.98
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>85<br><br>3<br>-<br>2<br>-<br>1<br>-<br>88<br><br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>4. Receivables financing<br><br>(continued)<br><br>The Group has no external pledge receivables financing on December 31,<br>2021, 2020<br>and 2019.<br><br>The financing ownership of the Group<br>’<br>s receivables with<br>book value<br><br>of<br>RMB<br>15,224,856.38,<br>RMB<br>12,045,573.32 and<br>RMB<br>10,931,250.13 was restricted as of<br>December 31, 2021, 2020 and 2019. See Note V 54.<br><br>5. Prepayments<br><br>The aging analysis of pr<br>epayments is as follows:<br><br><br><br>December 31, 2021<br><br><br><br><br>December 31, 2020<br><br><br><br><br><br>Book balance<br><br><br><br>Proportion (%)<br><br><br><br>Book balance<br><br><br><br>Proportion (%)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Within 1 year<br><br><br>7,729,478.06<br><br><br><br>99.16<br><br><br><br>5,209,260.95<br><br><br><br>99.66<br><br><br>1 to 2 years<br><br><br>58,070.00<br><br><br><br>0.74<br><br><br><br>13,806.79<br><br><br><br>0.26<br><br><br>2 to 3 years<br><br><br>3,518.00<br><br><br><br>0.05<br><br><br><br>4,127.62<br><br><br><br>0.08<br><br><br>More than 3 years<br><br><br>4,020.00<br><br><br><br>0.05<br><br><br><br>-<br><br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>7,795,086.06<br><br><br><br>100.00<br><br><br><br>5,227,195.36<br><br><br><br>100.00<br><br><br><br><br><br><br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Book balance<br><br><br><br>Proportion (%)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Within 1 year<br><br><br><br><br><br><br><br><br>3,214,640.18<br><br><br><br>99.00<br><br><br>1 to 2 years<br><br><br><br><br><br><br><br><br>32,577.52<br><br><br><br>1.00<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>3,247,217.70<br><br><br><br>100.00<br><br><br>There is no significant prepayment with an aging of more than 1 year in the report<br>period.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>86<br><br>3<br>-<br>2<br>-<br>1<br>-<br>89<br><br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>5. Prepayments (continued)<br><br>The top<br>five prepayment balances are as follows as of December 31, 2021:<br><br>Company Name<br><br>Relationship with<br>the Group<br><br>Year<br>-<br>end balance<br><br><br>Proportion in<br>Prepayment<br>Balance Total<br>Amount (%)<br><br><br><br><br><br><br>State Grid Corporation of China<br><br>Third Party<br><br>1,850,275.55<br><br><br>23.74<br><br>Beijing Branch of Centennial Life Insurance Co., Ltd.<br><br>Third Party<br><br>1,089,495.00<br><br><br>13.98<br><br>Kazuo Ganghua Gas Co., Ltd.<br><br>Third Party<br><br>1,010,195.52<br><br><br>12.96<br><br>TOKO SHOJI CO., LTD.<br><br>Third Party<br><br>385,688.40<br><br><br>4.95<br><br>Dingxing Huaao<br><br>Natural Gas Co., Ltd.<br><br>Third Party<br><br>275,000.00<br><br><br>3.53<br><br><br><br><br><br><br><br><br>4,610,654.47<br><br><br>59.16<br><br><br>The top five prepayment balances are as follows as of December 31, 2020:<br><br>Company Name<br><br>Relationship with<br>the Group<br><br>Year<br>-<br>end balance<br><br><br>Proportion in<br>Prepayment<br>Balance<br>Total<br>Amount (%)<br><br><br><br><br><br><br>State Grid Corporation of China<br><br>Third Party<br><br>2,252,585.93<br><br><br>43.09<br><br>Beijing Branch of Huanghe Property Insurance Co.,<br>Ltd.<br><br>Third Party<br><br>828,180.00<br><br><br>15.84<br><br>Kazuo Ganghua Gas Co., Ltd.<br><br>Third Party<br><br>501,871.33<br><br><br>9.60<br><br>Dingxing Huaao<br><br>Natural Gas Co., Ltd.<br><br>Third Party<br><br>389,819.36<br><br><br>7.46<br><br>MOMENTIVEPERFORMANCEMATERIAL<br><br>Third Party<br><br>125,930.57<br><br><br>2.41<br><br><br><br><br><br><br><br><br>4,098,387.19<br><br><br>78.40<br><br><br>The top five prepayment balances are as follows as of December 31, 2019:<br><br>Company Name<br><br>Relationship with<br>the<br>Group<br><br>Year<br>-<br>end balance<br><br><br>Proportion in<br>Prepayment<br>Balance Total<br>Amount (%)<br><br><br><br><br><br><br>State Grid Corporation of China<br><br>Third Party<br><br>1,598,109.88<br><br><br>49.21<br><br>Kazuo Ganghua Gas Co., Ltd.<br><br>Third Party<br><br>302,581.80<br><br><br>9.32<br><br>Dingxing Huaao<br><br>Natural Gas Co., Ltd.<br><br>Third Party<br><br>262,400.00<br><br><br>8.08<br><br>Beijing Zhongguancun Technology Financing<br>Guarantee Co., Ltd.<br><br>Third Party<br><br>220,480.00<br><br><br>6.79<br><br>Beijing<br>R&G<br><br>Certified<br>Tax Agent<br>s<br><br>Co., Ltd.<br><br>Third Party<br><br>100,000.00<br><br><br>3.08<br><br><br><br><br><br><br><br><br>2,483,571.68<br><br><br>76.48
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>87<br><br>3<br>-<br>2<br>-<br>1<br>-<br>90<br><br><br><br>V.<br>Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>6. Other receivables<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Other receivables<br><br><br><br>1,241,421.56<br><br><br>8,478,982.75<br><br><br>4,300,100.61<br><br><br>Interest receivable<br><br><br><br>-<br><br><br>-<br><br><br>131,006.89<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>1,241,421.56<br><br><br>8,478,982.75<br><br><br>4,431,107.50<br><br><br><br>The aging analysis of other receivables is as follows:<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Within 1 year<br><br><br><br>188,659.51<br><br><br>6,552,733.78<br><br><br>1,260,200.46<br><br><br>1 to 2 years<br><br><br><br>481,898.08<br><br><br>279,939.82<br><br><br>1,451,399.23<br><br><br>2 to 3 years<br><br><br><br>451,264.82<br><br><br>1,431,399.23<br><br><br>1,569,000.00<br><br><br>More than 3 years<br><br><br><br>1,474,099.15<br><br><br>1,627,499.92<br><br><br>69,500.92<br><br><br><br><br><br>2,595,921.56<br><br><br>9,891,572.75<br><br><br>4,350,100.61<br><br><br><br><br><br><br><br><br><br><br><br>Less:<br>B<br>ad<br>debt reserves of<br>other receivables<br><br><br><br>1,354,500.00<br><br><br>1,412,590.00<br><br><br>50,000.00<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>1,241,421.56<br><br><br>8,478,982.75<br><br><br>4,300,100.61
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>88<br><br>3<br>-<br>2<br>-<br>1<br>-<br>91<br><br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>6.<br><br>Other receivables (continued)<br><br>Other<br>receivables are classified as follows by nature:<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Bond<br><br><br><br>2,138,599.00<br><br><br>3,626,547.31<br><br><br>2,906,399.23<br><br><br>Prepaid expenses<br><br><br><br>-<br><br><br>400,575.75<br><br><br>698,520.07<br><br><br>Deposit<br><br><br><br>301,063.25<br><br><br>365,264.74<br><br><br>608,964.74<br><br><br>Relocation<br>compensation<br><br><br><br>-<br><br><br>4,290,411.00<br><br><br>-<br><br><br>Taxes paid on behalf<br><br><br><br>-<br><br><br>1,053,127.34<br><br><br>-<br><br><br>Others<br><br><br><br>156,259.31<br><br><br>155,646.61<br><br><br>136,216.57<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>2,595,921.56<br><br><br>9,891,572.75<br><br><br>4,350,100.61<br><br><br><br>Changes in bad debt<br>reserves of other receivables accrued according to 12<br>-<br>month<br>expected credit losses and expected credit losses for the entire duration are as follows:<br><br>2021<br><br><br><br>Phase I<br><br><br><br>Phase II<br><br><br><br>Phase III<br><br><br>Total<br><br><br><br><br>Expected credit loss in<br>the next 12 months<br><br>Expected credit loss of<br>the entire duration<br><br>Financial assets of credit<br>incurred impaired<br><br><br><br><br><br><br><br><br><br><br><br><br>(Expected credit loss<br>of the entire duration)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Beginning balance<br><br><br>-<br><br><br><br>-<br><br><br><br>1,412,590.00<br><br><br>1,412,590.00<br><br><br>Recovered or reversed this<br>year<br><br><br>-<br><br><br><br>-<br><br><br><br>(58,090.00<br><br>)<br><br>(58,090.00<br><br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br>Year<br>-<br>end balance<br><br><br>-<br><br><br><br>-<br><br><br><br>1,354,500.00<br><br><br>1,354,500.00<br><br><br>2020<br><br><br><br>Phase I<br><br><br><br>Phase II<br><br><br><br>Phase III<br><br><br>Total<br><br><br><br><br>Expected credit loss in<br>the next 12 months<br><br>Expected credit loss of<br>the entire duration<br><br>Financial<br>assets of credit<br>incurred impaired<br><br><br><br><br><br><br><br><br><br><br><br><br>(Expected credit loss<br>of the entire duration)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Beginning balance<br><br><br>-<br><br><br><br>-<br><br><br><br>50,000.00<br><br><br>50,000.00<br><br><br>Accrued this year<br><br><br>-<br><br><br><br>-<br><br><br><br>1,362,590.00<br><br><br>1,362,590.00<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Year<br>-<br>end balance<br><br><br>-<br><br><br><br>-<br><br><br><br>1,412,590.00<br><br><br>1,412,590.00
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>89<br><br>3<br>-<br>2<br>-<br>1<br>-<br>92<br><br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>6. Other receivables (continued)<br><br>Changes in bad debt reserves of other receivables accrued according to 12<br>-<br>month<br>expected credit losses and<br>expected credit losses for the entire duration are as follows:<br>(Continued)<br><br>2019<br><br><br><br>Phase I<br><br><br><br>Phase II<br><br><br><br>Phase III<br><br><br>Total<br><br><br><br><br>Expected credit loss in<br>the next 12 months<br><br>Expected credit loss of<br>the entire duration<br><br>Financial assets of credit<br>incurred<br>impaired<br><br><br><br><br><br><br><br><br><br><br><br><br>(Expected credit loss<br>of the entire duration)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Beginning and ending<br>balance<br><br><br>-<br><br><br><br>-<br><br><br><br>50,000.00<br><br><br>50,000.00<br><br><br><br>Changes in bad debt reserves of other receivables are as follows:<br><br><br><br>Beginning<br>balance<br><br><br><br>Accrued this<br>year<br><br><br><br>Recovered or<br>reversed this<br>year<br><br><br><br>Written off this<br>ye<br>ar<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>2021<br><br><br>1,412,590.00<br><br><br><br>-<br><br><br><br>(58,090.00<br><br>)<br><br><br>-<br><br><br><br>1,354,500.00<br><br><br>2020<br><br><br>50,000.00<br><br><br><br>1,362,590.00<br><br><br><br>-<br><br><br><br>-<br><br><br><br>1,412,590.00<br><br><br>2019<br><br><br>50,000.00<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>50,000.00<br><br><br><br>As of December 31, 2021, the top five other receivables are as follows:<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br>Proportion in<br>total<br>balance of<br>other receivables<br>（<br>%<br>）<br><br><br><br>Nature<br><br><br><br>Account age<br><br><br><br>Year<br>-<br>end<br>balance of bad<br>debt reserves<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Tianjin Jingjin Zhongguancun<br>Technology City Development Co., Ltd.<br><br><br>1,354,500.00<br><br><br><br>52.18<br><br><br><br>Bond<br><br><br><br>More than 3 years<br><br><br><br>1,354,500.00<br><br><br>Human Resources and Social Security<br>Bureau of Kazuo County<br><br><br>696,300.00<br><br><br><br>26.82<br><br><br><br>Bond<br><br><br><br>1 to 2 years, 2 to 3<br>years<br><br><br><br>-<br><br><br>State Grid Tianjin Electric Power Bureau<br><br><br>192,000.00<br><br><br><br>7.40<br><br><br><br>Deposit<br><br><br><br>2 to 3 years<br><br><br><br>-<br><br><br>Beijing Kaibao Technology Service Co.,<br>Ltd.<br><br><br>87,799.00<br><br><br><br>3.38<br><br><br><br>Bond<br><br><br><br>Within 1 year, 1 to 2<br>years,<br><br>More than 3 years<br><br><br><br>-<br><br><br>Nanjing Social Security Center<br><br><br>72,000.00<br><br><br><br>2.77<br><br><br><br>Insurance<br>Reimburse<br>ment<br><br><br><br>Within 1 year<br><br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>2,402,599.00<br><br><br><br>92.55<br><br><br><br><br><br><br><br><br><br>1,354,500.00
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>90<br><br>3<br>-<br>2<br>-<br>1<br>-<br>93<br><br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>6.<br><br>Other receivables (continued)<br><br>As of December 31, 2020, the top<br>five other receivables are as follows:<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br>Other receivables<br><br><br><br>Nature<br><br><br><br>Account age<br><br><br><br>Bad debt<br>reserves<br><br><br><br><br><br><br><br>Total balance<br><br><br><br><br><br><br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br><br><br><br><br>Proportion of (%)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Tongzhou District People’s Government<br>Housing Expropriation Office<br><br><br>4,290,411.00<br><br><br><br>43.37<br><br><br><br>Relocation<br>compensation<br><br><br><br>Within 1 year<br><br><br><br>-<br><br><br>Management Committee of Chaoyang<br>Kazuo Economic Development Zone<br><br><br>1,500,000.00<br><br><br><br>15.16<br><br><br><br>Bond<br><br><br><br>More than 3 years<br><br><br><br>-<br><br><br>AXT, Inc.<br><br><br>1,453,703.09<br><br><br><br>14.70<br><br><br><br>Prepaid<br>expenses<br><br>Tax paid on<br>behalf<br><br><br><br>Within 1 year<br><br><br><br>-<br><br><br>Tianjin Jingjin Zhongguancun<br>Technology City Development Co., Ltd.<br><br><br>1,354,500.00<br><br><br><br>13.69<br><br><br><br>Bond<br><br><br><br>2 to 3 years<br><br><br><br>1,354,500.00<br><br><br>Human Resources and Social Security<br>Bureau of Kazuo County<br><br><br>696,300.00<br><br><br><br>7.04<br><br><br><br>Bond<br><br><br><br>Within 1 year, 1 to 2<br>years<br><br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>9,294,914.09<br><br><br><br>93.96<br><br><br><br><br><br><br><br><br><br>1,354,500.00<br><br><br><br>As of December 31, 2019, the top five other receivables are as follows:<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br>Proportion in<br>total balance of<br>other receivables<br>（<br>%<br>）<br><br><br><br>Nature<br><br><br><br>Account age<br><br><br><br>Year<br>-<br>end<br>balance of bad<br>debt reserves<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Management Committee of Chaoyang<br>Kazuo Economic Development Zone<br><br><br>1,500,000.00<br><br><br><br><br>34.48<br><br><br><br>Bond<br><br><br><br>2 to 3 years<br><br><br><br>-<br><br><br>Tianjin Jingjin Zhongguancun<br>Technology City Development Co., Ltd.<br><br><br>1,354,500.00<br><br><br><br><br>31.14<br><br><br><br>Bond<br><br><br><br>1 to 2 years<br><br><br><br>-<br><br><br>AXT, Inc.<br><br><br>698,520.07<br><br><br><br><br>16.06<br><br><br><br>Prepaid<br>expenses<br><br><br><br>Within 1 year<br><br><br><br>-<br><br><br>Human Resources and Social Security<br>Bureau of Kazuo County<br><br><br>236,300.00<br><br><br><br><br>5.43<br><br><br><br>Deposit<br><br><br><br>Within 1 year<br><br><br><br>-<br><br><br>Tianjin Electric Power Bureau of State<br>Grid<br><br><br>192,000.00<br><br><br><br><br>4.41<br><br><br><br>Electricity<br>Deposit<br><br><br><br>Within 1 year<br><br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>3,981,320.07<br><br><br><br>91.52<br><br><br><br><br><br><br><br><br><br>-<br><br><br><br>There was no balance of government subsidies receivable as of December 31, 2021.<br><br>As of December 31, 2020, the government subsidies receivable are as follows:<br><br><br><br><br>Subsidy items<br><br><br><br><br><br>Amount<br><br><br><br><br><br>Account<br>age<br><br><br><br><br><br>Estimated collection time, amount and basis<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Tongzhou District People’s<br>Government Housing<br>Expropriation Office<br><br><br><br>Relocation<br>compensation<br><br><br><br>4,290,411.00<br><br><br><br>Within 1<br>year<br><br><br><br>It is estimated that<br>RMB<br>4,290,411.00 was<br>recovered in 2021<br><br>Basis:<br>Compensation Agreement for<br>Expropriation of Non<br>-<br>residential Houses on<br>State<br>-<br>owned Land in Bid Sections I, II and<br>III of Phase II of Shanty Town<br>Reconstruction Around Dongfang Plant<br><br><br><br>There was no balance of government subsidies receivable as of<br>December 31, 2019.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>91<br><br>3<br>-<br>2<br>-<br>1<br>-<br>94<br><br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br><br>7. Inventory<br><br><br><br><br>December 31, 2021<br><br><br><br>December 31, 2020<br><br><br><br><br>Book balance<br><br><br><br>Depreciation<br>reserves<br><br>/Provision for<br>impairment<br><br><br><br>Book value<br><br><br><br>Book balance<br><br><br><br>Depreciation<br>reserves<br><br>/Provision for<br>impairment<br><br><br><br>Book value<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Raw materials<br><br><br>66,556,134.91<br><br><br><br>3,558,589.69<br><br><br><br>62,997,545.22<br><br><br><br>101,014,979.23<br><br><br><br>4,805,254.63<br><br><br><br>96,209,724.60<br><br><br>Semi<br>-<br>finished<br>products<br><br><br>120,528,106.94<br><br><br><br>6,162,898.29<br><br><br><br>114,365,208.65<br><br><br><br>87,469,481.74<br><br><br><br>6,070,073.36<br><br><br><br>81,399,408.38<br><br><br>Unfinished<br>products<br><br><br>127,630,107.95<br><br><br><br>328,118.58<br><br><br><br>127,301,989.37<br><br><br><br>74,353,269.73<br><br><br><br>232,104.17<br><br><br><br>74,121,165.56<br><br><br>Goods in stock<br><br><br>66,214,947.68<br><br><br><br>7,166,980.89<br><br><br><br>59,047,966.79<br><br><br><br>35,580,215.08<br><br><br><br>3,450,682.09<br><br><br><br>32,129,532.99<br><br><br>Goods upon<br>delivery<br><br><br>20,105,195.01<br><br><br><br>-<br><br><br><br>20,105,195.01<br><br><br><br>780,021.89<br><br><br><br>-<br><br><br><br>780,021.89<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>401,034,492.49<br><br><br><br>17,216,587.45<br><br><br><br>383,817,905.04<br><br><br><br>299,197,967.67<br><br><br><br>14,558,114.25<br><br><br><br>284,639,853.42<br><br><br><br><br><br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br><br><br>Book balance<br><br><br><br>Depreciation<br>reserves<br><br>/Provision for<br>impairment<br><br><br><br>Book value<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Raw materials<br><br><br><br><br><br><br><br><br><br><br><br>42,410,702.23<br><br><br><br>6,057,103.23<br><br><br><br>36,353,599.00<br><br><br>Semi<br>-<br>finished<br>products<br><br><br><br><br><br><br><br><br><br><br><br>110,934,032.59<br><br><br><br>8,977,180.70<br><br><br><br>101,956,851.89<br><br><br>Unfinished<br>products<br><br><br><br><br><br><br><br><br><br><br><br>76,895,831.00<br><br><br><br>5,885,726.97<br><br><br><br>71,010,104.03<br><br><br>Goods in stock<br><br><br><br><br><br><br><br><br><br><br><br>39,051,539.49<br><br><br><br>2,676,828.79<br><br><br><br>36,374,710.70<br><br><br>Goods upon<br>delivery<br><br><br><br><br><br><br><br><br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>269,292,105.31<br><br><br><br>23,596,839.69<br><br><br><br>245,695,265.62<br><br><br>Changes in inventory depreciation reserves are as follows:<br><br>2021<br><br><br><br>Beginning<br>balance<br><br><br><br>Accrued this<br>year<br><br><br><br>Decrease this<br>year<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br><br><br><br><br><br><br><br>R<br>eversal or<br>writeoff<br><br><br><br>Others<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Raw materials<br><br><br>4,805,254.63<br><br><br><br>1,153,635.23<br><br><br><br>2,400,300.17<br><br><br><br>-<br><br><br><br>3,558,589.69<br><br><br>Semi<br>-<br>finished products<br><br><br>6,070,073.36<br><br><br><br>2,313,592.86<br><br><br><br>2,220,767.93<br><br><br><br>-<br><br><br><br>6,162,898.29<br><br><br>Unfinished products<br><br><br>232,104.17<br><br><br><br>328,118.58<br><br><br><br>232,104.17<br><br><br><br>-<br><br><br><br>328,118.58<br><br><br>Goods in stock<br><br><br>3,450,682.09<br><br><br><br>5,246,929.50<br><br><br><br>1,530,630.70<br><br><br><br>-<br><br><br><br>7,166,980.89<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>14,558,114.25<br><br><br><br>9,042,276.17<br><br><br><br>6,383,802.97<br><br><br><br>-<br><br><br><br>17,216,587.45
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>92<br><br>3<br>-<br>2<br>-<br>1<br>-<br>95<br><br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>7. Inventory (Continued)<br><br>Changes in inventory depreciation reserves are as follows: (Continued)<br><br>2020<br><br><br><br>Beginning<br>balance<br><br><br><br>Accrued this<br>year<br><br><br><br>Decrease this year<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br><br><br><br><br><br><br><br>Reversal or<br>writeoff<br><br><br><br>Others<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Raw materials<br><br><br>6,057,103.23<br><br><br><br>1,347,296.18<br><br><br><br>2,599,144.78<br><br><br><br>-<br><br><br><br>4,805,254.63<br><br><br>Semi<br>-<br>finished products<br><br><br>8,977,180.70<br><br><br><br>2,012,235.83<br><br><br><br>4,919,343.17<br><br><br><br>-<br><br><br><br>6,070,073.36<br><br><br>Unfinished products<br><br><br>5,885,726.97<br><br><br><br>232,104.17<br><br><br><br>5,885,726.97<br><br><br><br>-<br><br><br><br>232,104.17<br><br><br>Goods in stock<br><br><br>2,676,828.79<br><br><br><br>2,130,267.93<br><br><br><br>1,356,414.63<br><br><br><br>-<br><br><br><br>3,450,682.09<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>23,596,839.69<br><br><br><br>5,721,904.11<br><br><br><br>14,760,629.55<br><br><br><br>-<br><br><br><br>14,558,114.25<br><br><br>2019<br><br><br><br>Beginning<br>balance<br><br><br><br>Accrued this<br>year<br><br><br><br>Decrease this year<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br><br><br><br><br><br><br><br>Reversal or<br>writeoff<br><br><br><br>Others<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Raw materials<br><br><br>2,693,877.28<br><br><br><br>4,007,359.92<br><br><br><br>644,133.97<br><br><br><br>-<br><br><br><br>6,057,103.23<br><br><br>Semi<br>-<br>finished products<br><br><br>2,847,973.61<br><br><br><br>8,264,514.23<br><br><br><br>2,135,307.14<br><br><br><br>-<br><br><br><br>8,977,180.70<br><br><br>Unfinished products<br><br><br>1,571,620.98<br><br><br><br>5,885,726.97<br><br><br><br>1,571,620.98<br><br><br><br>-<br><br><br><br>5,885,726.97<br><br><br>Goods in stock<br><br><br>2,576,395.43<br><br><br><br>1,099,297.04<br><br><br><br>998,863.68<br><br><br><br>-<br><br><br><br>2,676,828.79<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>9,689,867.30<br><br><br><br>19,256,898.16<br><br><br><br>5,349,925.77<br><br><br><br>-<br><br><br><br>23,596,839.69<br><br><br><br>The writeoff of inventory falling price reserves in 2021, 2020 and 2019 means that the<br>inventory falling price reserves are carried forward with the sale or requisition of<br>inventory.<br><br>The Group has no inventory<br><br>with limited ownership as of December 31, 2021, 2020<br>and 2019.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>93<br><br>3<br>-<br>2<br>-<br>1<br>-<br>96<br><br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>8. Non<br>-<br>current assets due within one year<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Long<br>-<br>term accounts<br>receivable due within one<br>year<br><br><br><br>-<br><br><br>-<br><br><br>2,000,000.00<br><br><br>9.<br><br>Other current assets<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Input tax to be deducted<br><br><br><br>26,657,113.81<br><br><br>28,519,154.78<br><br><br>31,378,370.62<br><br><br>Listing intermediary fee<br><br><br><br>15,699,130.32<br><br><br>1,307,250.00<br><br><br>-<br><br><br>Deferred expenses<br><br><br><br>2,458,499.46<br><br><br>1,087,047.63<br><br><br>592,084.17<br><br><br>Enterprise income tax<br>prepaid<br><br><br><br>3,830,572.36<br><br><br>1,626,171.27<br><br><br>76,616.25<br><br><br>Others<br><br><br><br>164,031.30<br><br><br>-<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>48,809,347.25<br><br><br>32,539,623.68<br><br><br>32,047,071.04<br><br><br>10.<br><br>Long<br>-<br>term accounts receivable<br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br><br><br>Book<br>balance<br><br><br>Bad debt<br>reserves<br><br><br>Book value<br><br><br>Book<br>balance<br><br><br>Bad debt<br>reserves<br><br><br>Book value<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Loan<br><br><br>-<br><br><br>-<br><br><br>-<br><br><br>1,982,947.59<br><br><br>-<br><br><br>1,982,947.59<br><br><br>Less:<br>L<br>ong<br>-<br>term accounts<br>receivable due within<br>one year<br><br><br>-<br><br><br>-<br><br><br>-<br><br><br>-<br><br><br>-<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>-<br><br><br>-<br><br><br>-<br><br><br>1,982,947.59<br><br><br>-<br><br><br>1,982,947.59<br><br><br><br><br><br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br>Book<br>balance<br><br><br>Bad debt<br>reserves<br><br><br>Book value<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Loan<br><br><br><br><br><br><br><br><br>4,982,947.59<br><br><br>-<br><br><br>4,982,947.59<br><br><br>Less:<br>L<br>ong<br>-<br>term accounts<br>receivable due within<br>one year<br><br><br><br><br><br><br><br><br>2,000,000.00<br><br><br>-<br><br><br>2,000,000.00<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>2,982,947.59<br><br><br>-<br><br><br>2,982,947.59
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>94<br><br>3<br>-<br>2<br>-<br>1<br>-<br>97<br><br><br><br>V. Notes to Main Items of Consolidated<br>Financial Statements<br><br>(Continued)<br><br>10. Long<br>-<br>term accounts receivables (Continued)<br><br>Note 1: Beijing Tongmei Xtal Technology Co., Ltd. lent<br>RMB<br>5,000,000.00 to the<br>related party Jinmei Gallium (Maanshan<br>) Co., Ltd. for its daily business activities on<br>July 1, 2017, with an annual interest rate of 4.9% and a loan period from July 1, 2017<br>to June 30, 2023. The repayment plan is to repay 20% of the loan principal at the end<br>of 2021, 40% of the loan principal<br><br>in 2022 and the remaining loan before June 30, 2023.<br>The balance of loan principal was<br>RMB<br>0,<br>RMB<br>1,982,947.59 and<br>RMB<br>1,982,947.59,<br>respectively as of December 31, 2021, 2020 and 2019. For details, see Note X 6 (3)<br>Related Party Relationships and Transactio<br>ns<br>-<br><br>balance of related party receivables.<br><br>Note 2: He Junfang, a key manager of<br>Beijing Boyu Semiconductor Vessel Craftwork<br>Technology Co., Ltd.<br>, pledged his equity in Beijing Bomeilian Special Ceramics Co.,<br>Ltd. and obtained the following loans from<br>Beijin<br>g Boyu Semiconductor Vessel<br>Craftwork Technology Co., Ltd.<br>:<br>Beijing Boyu Semiconductor Vessel Craftwork<br>Technology Co., Ltd.<br><br>lent<br>RMB<br>2,000,000.00 to He Junfang on December 1, 2017, the<br>annual interest rate is 2.72%, and the loan term is from December 1, 20<br>17 to November<br>30, 2020. In January 2019, He Junfang obtained a loan of<br>RMB<br>1,000,000.00 from<br>Beijing Boyu Semiconductor Vessel Craftwork Technology Co., Ltd.<br><br>The loan period<br>is from January 31, 2019 to December 31, 2024, with an annual interest rate of 2.7<br>2%.<br>The loan balance was<br>RMB<br>0,<br>RMB<br>0 and<br>RMB<br>3<br>,0<br>00,000.00, respectively as of<br>December 31, 2021, 2020 and 2019. For details, see Note X 6 (3)<br>Related Party<br>Relationships and Transactions<br>-<br><br>balance of related party receivables.<br><br>The management of the Group beli<br>eves that there is no need to withdraw bad debt<br>reserves for long<br>-<br>term accounts receivables as of December 31, 2021, 2020 and 2019.<br><br>11. Long<br>-<br>term equity investments<br><br>2021<br><br><br><br>Beginning<br>balance<br><br><br><br><br>Change in current year<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br>Provision<br>for<br>impairment<br>at the end of<br>the year<br><br><br><br><br><br><br>Investment profit<br>and loss under<br>equity method<br><br><br>Other equity<br>changes<br><br><br>Declared cash<br>dividends<br><br><br><br>disposal<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Joint venture<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Donghai Dongfang<br>Hi<br>-<br>purity Electronic<br>Materials Co., Ltd.<br><br><br>12,315,064.40<br><br><br><br>761,307.20<br><br><br>-<br><br><br>-<br><br><br><br>(13,076,371.60<br><br>)<br><br><br>-<br><br><br><br>-<br><br><br>Xiaoyi Xing’an<br>Gallium Co., Ltd.<br><br><br>22,480,225.21<br><br><br><br>9,328,147.18<br><br><br>1,420,860.13<br><br><br>(5,000,000.00<br><br>)<br><br><br>-<br><br><br><br>28,229,232.52<br><br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>34,795,289.61<br><br><br><br>10,089,454.38<br><br><br>1,420,860.13<br><br><br>(5,000,000.00<br><br>)<br><br><br>(13,076,371.60<br><br>)<br><br><br>28,229,232.52<br><br><br><br>-
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>95<br><br>3<br>-<br>2<br>-<br>1<br>-<br>98<br><br><br><br>V. Notes to Main Items of<br>Consolidated Financial Statements<br><br>(Continued)<br><br>11. Long<br>-<br>term equity investments (continued)<br><br>2020<br><br><br><br>Beginning<br>balance<br><br><br><br>Change in current year<br><br><br><br>Year<br>-<br>end balance<br><br><br><br>Provision for<br>impairment at<br>the end of the<br>year<br><br><br><br><br><br><br>Investment profit<br>and loss under<br>equity method<br><br><br><br>Declared cash<br>dividends<br><br><br><br>Others<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Joint venture<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Donghai Dongfang Hi<br>-<br>purity Electronic<br>Materials Co., Ltd.<br><br><br>10,984,620.44<br><br><br><br>1,330,443.96<br><br><br><br>-<br><br><br><br>-<br><br><br><br>12,315,064.40<br><br><br><br>-<br><br><br>Xiaoyi Xing’an Gallium<br>Co., Ltd.<br><br><br>17,846,961.66<br><br><br><br>4,633,263.55<br><br><br><br>-<br><br><br><br>-<br><br><br><br>22,480,225.21<br><br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>28,831,582.10<br><br><br><br>5,963,707.51<br><br><br><br>-<br><br><br><br>-<br><br><br><br>34,795,289.61<br><br><br><br>-<br><br><br>2019<br><br><br><br>Beginning<br>balance<br><br><br><br>Change in current year<br><br><br><br>Year<br>-<br>end balance<br><br><br><br>Provision for<br>impairment at<br>the end of the<br>year<br><br><br><br><br><br><br>Investment profit<br>and loss under<br>equity method<br><br><br><br>Declared cash<br>dividends<br><br><br><br>Others<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Joint venture<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Donghai Dongfang Hi<br>-<br>purity Electronic<br>Materials Co., Ltd.<br><br><br>10,777,209.66<br><br><br><br>207,410.78<br><br><br><br>-<br><br><br><br>-<br><br><br><br>10,984,620.44<br><br><br><br>-<br><br><br>Xiaoyi Xing’an Gallium<br>Co., Ltd.<br><br><br>18,075,597.65<br><br><br><br>2,271,364.01<br><br><br><br>(2,500,000.00<br><br>)<br><br><br>-<br><br><br><br>17,846,961.66<br><br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>28,852,807.31<br><br><br><br>2,478,774.79<br><br><br><br>(2,500,000.00<br><br>)<br><br><br>-<br><br><br><br>28,831,582.10<br><br><br><br>-<br><br><br><br>The management of the Group believes that there is no need to make provision for<br>impairment of long<br>-<br>term equity investment as of December 31, 202<br>1, 2020 and 2019.<br><br>See Note VII 2:<br>Equity in joint ventures and associates<br><br>for the proportion of equity held<br>by Tongmei Xtal Group in the above associated enterprises.<br><br>75,221,510.48<br><br>12. Fixed assets<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31,<br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Fixed assets<br><br><br><br>647,253,818.53<br><br><br>614,605,658.83<br><br><br>308,761,273.43
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>96<br><br>3<br>-<br>2<br>-<br>1<br>-<br>99<br><br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>12. Fixed assets (continued)<br><br>2021<br><br><br><br>Houses and<br>buildings<br><br><br><br>Machinery<br>equipment<br><br><br><br>Tools and<br>instruments<br><br><br><br>Means of<br>transport<br><br><br><br>Office<br>equipment<br><br><br><br><br>Total<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Original value<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Balance at the end of last<br>year<br><br><br>622,123,773.31<br><br><br><br>351,412,883.53<br><br><br><br>46,367,506.23<br><br><br><br>8,505,063.33<br><br><br><br>5,127,095.41<br><br><br><br>1,033,536,321.81<br><br><br>Impact of changes in<br>accounting policies<br>-<br><br>the<br>modified lease standards<br>apply<br><br><br>-<br><br><br><br>(14,794,922.80<br><br>)<br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>(14,794,922.80<br><br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Beginning balance<br><br><br>622,123,773.31<br><br><br><br>336,6<br>17,960.73<br><br><br><br>46,367,506.23<br><br><br><br>8,505,063.33<br><br><br><br>5,127,095.41<br><br><br><br>1,018,741,399.01<br><br><br>Purchase<br><br><br>154,869.94<br><br><br><br>11,227,547.42<br><br><br><br>6,306,932.11<br><br><br><br>707,079.65<br><br><br><br>546,093.37<br><br><br><br>18,942,522.49<br><br><br>Transfer in from<br>construction<br>-<br>in<br>-<br>progress<br><br><br>46,278,672.56<br><br><br><br>34,336,520.01<br><br><br><br>4,916,274.26<br><br><br><br>-<br><br><br><br>232,196.43<br><br><br><br>85,763,663.26<br><br><br>Disposal or scrap<br><br><br>-<br><br><br><br>(5,551,690.60<br><br>)<br><br><br>(5,056,882.69<br><br>)<br><br><br>-<br><br><br><br>(801,041.63<br><br>)<br><br><br>(11,409,614.92<br><br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Year<br>-<br>end balance<br><br><br>668,557,315.81<br><br><br><br>376,630,337.56<br><br><br><br>52,533,829.91<br><br><br><br>9,212,142.98<br><br><br><br>5,104,343.58<br><br><br><br>1,112,037,969.84<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Accumulated<br>depreciation<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Balance at the end of last<br>year<br><br><br>135,022,224.01<br><br><br><br>240,425,881.81<br><br><br><br>30,857,748.04<br><br><br><br>6,855,725.80<br><br><br><br>3,960,908.90<br><br><br><br>417,122,488.56<br><br><br>Impacts of changes in<br>accounting policies<br><br><br>-<br><br><br><br>(2,095,947.32<br><br>)<br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>(2,095,947.32<br><br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Beginning balance<br><br><br>135,022,224.01<br><br><br><br>238,3<br>29,934.49<br><br><br><br>30,857,748.04<br><br><br><br>6,855,725.80<br><br><br><br>3,960,908.90<br><br><br><br>415,026,541.24<br><br><br>Accrual<br><br><br>31,830,815.71<br><br><br><br>15,096,368.95<br><br><br><br>8,565,560.71<br><br><br><br>671,859.37<br><br><br><br>438,481.61<br><br><br><br>56,603,086.35<br><br><br>Disposal or scrap<br><br><br>-<br><br><br><br>(5,027,241.65<br><br>)<br><br><br>(3,445,235.21<br><br>)<br><br><br>-<br><br><br><br>(792,358.53<br><br>)<br><br><br>(9,264,835.39<br><br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Year<br>-<br>end balance<br><br><br>166,853,039.72<br><br><br><br>248,399,061.79<br><br><br><br>35,978,073.54<br><br><br><br>7,527,585.17<br><br><br><br>3,607,031.98<br><br><br><br>462,364,792.20<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Provision for impairment<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Beginning balance<br><br><br>-<br><br><br><br>1,808,174.42<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>1,808,174.42<br><br><br>Accrued this year<br><br><br>-<br><br><br><br>611,184.69<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>611,184.69<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Year<br>-<br>end balance<br><br><br>-<br><br><br><br>2,419,359.11<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>2,419,359.11<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Book value<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>End of the year<br><br><br>501,704,276.09<br><br><br><br>125,811,916.66<br><br><br><br>16,555,756.37<br><br><br><br>1,684,557.81<br><br><br><br>1,497,311.60<br><br><br><br>647,253,818.53<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Beginning of the year<br><br><br>487,101,549.30<br><br><br><br>96,479,851.82<br><br><br><br>15,509,758.19<br><br><br><br>1,649,337.53<br><br><br><br>1,166,186.51<br><br><br><br>601,906,683.35<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Book value includes<br>fully depreciated and still<br>in<br>use (original value)<br><br><br>21,560,812.68<br><br><br><br>152,588,292.40<br><br><br><br>13,933,532.56<br><br><br><br>5,704,262.16<br><br><br><br>2,398,948.12<br><br><br><br>196,185,847.92
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>97<br><br>3<br>-<br>2<br>-<br>1<br>-<br>100<br><br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>12. Fixed<br>assets (continued)<br><br>2020<br><br><br><br>Houses and<br>buildings<br><br><br><br>Machinery<br>equipment<br><br><br><br>Tools and<br>instruments<br><br><br><br>Means of<br>transport<br><br><br><br>Office<br>equipment<br><br><br><br><br>Total<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Original value<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Beginning balance<br><br><br>292,493,548.00<br><br><br><br>337,458,319.55<br><br><br><br>48,103,137.78<br><br><br><br>8,414,045.63<br><br><br><br>4,865,452.66<br><br><br><br>691,334,503.62<br><br><br>Purchase<br><br><br>-<br><br><br><br>6,987,249.56<br><br><br><br>2,232,920.42<br><br><br><br>91,017.70<br><br><br><br>479,770.67<br><br><br><br>9,790,958.35<br><br><br>Transfer in from<br>construction<br>-<br>in<br>-<br>progress<br><br><br>329,630,225.31<br><br><br><br>11,336,127.79<br><br><br><br>4,578,051.78<br><br><br><br>-<br><br><br><br>31,239.31<br><br><br><br>345,575,644.19<br><br><br>Disposal or scrap<br><br><br>-<br><br><br><br>(4,368,813.37<br><br>)<br><br><br>(8,546,603.75<br><br>)<br><br><br>-<br><br><br><br>(249,367.23<br><br>)<br><br><br>(13,164,784.35<br><br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Year<br>-<br>end balance<br><br><br>622,123,773.31<br><br><br><br>351,412,883.53<br><br><br><br>46,367,506.23<br><br><br><br>8,505,063.33<br><br><br><br>5,127,095.41<br><br><br><br>1,033,536,321.81<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Accumulated<br>depreciation<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Beginning balance<br><br><br>111,221,556.56<br><br><br><br>229,187,304.34<br><br><br><br>30,772,962.93<br><br><br><br>6,166,008.41<br><br><br><br>3,873,403.82<br><br><br><br>381,221,236.06<br><br><br>Ac<br>crual<br><br><br>23,800,667.45<br><br><br><br>15,322,947.54<br><br><br><br>7,999,491.37<br><br><br><br>689,717.39<br><br><br><br>336,872.31<br><br><br><br>48,149,696.06<br><br><br>Disposal or scrap<br><br><br>-<br><br><br><br>(4,084,370.07<br><br>)<br><br><br>(7,914,706.26<br><br>)<br><br><br>-<br><br><br><br>(249,367.23<br><br>)<br><br><br>(12,248,443.56<br><br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Year<br>-<br>end balance<br><br><br>135,022,224.01<br><br><br><br>240,425,881.81<br><br><br><br>30,857,748.04<br><br><br><br>6,855,725.80<br><br><br><br>3,96<br>0,908.90<br><br><br><br>417,122,488.56<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Provision for<br>impairment<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Beginning balance<br><br><br>-<br><br><br><br>1,351,994.13<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>1,351,994.13<br><br><br>Accrued this year<br><br><br>-<br><br><br><br>456,180.29<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>456,180.29<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Year<br>-<br>end balance<br><br><br>-<br><br><br><br>1,808,174.42<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>1,808,174.42<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Book value<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>End of the year<br><br><br>487,101,549.30<br><br><br><br>109,178,827.30<br><br><br><br>15,509,758.19<br><br><br><br>1,649,337.53<br><br><br><br>1,166,186.51<br><br><br><br>614,605,658.83<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Beginning of the year<br><br><br>181,271,991.44<br><br><br><br>106,919,021.08<br><br><br><br>17,330,174.85<br><br><br><br>2,248,037.22<br><br><br><br>992,048.84<br><br><br><br>308,761,273.43<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Book value includes<br>fully depreciated and<br>still in use (original<br>value)<br><br><br>-<br><br><br><br>143,331,764.40<br><br><br><br>13,069,096.16<br><br><br><br>4,204,754.01<br><br><br><br>3,078,311.97<br><br><br><br>163,683,926.54
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>98<br><br>3<br>-<br>2<br>-<br>1<br>-<br>101<br><br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>12. Fixed assets (continued)<br><br>2019<br><br><br><br>Houses and<br>buildings<br><br><br><br>Machinery<br>equipment<br><br><br><br>Tools and<br>instruments<br><br><br><br>Means of<br>transport<br><br><br><br>Office<br>equipment<br><br><br><br><br>Total<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Original value<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Beginning balance<br><br><br>266,558,072.67<br><br><br><br>311,552,199.82<br><br><br><br>45,914,569.07<br><br><br><br>8,823,522.51<br><br><br><br>5,731,803.19<br><br><br><br>638,580,167.26<br><br><br>Purchase<br><br><br>-<br><br><br><br>18,793,097.69<br><br><br><br>1,558,573.79<br><br><br><br>67,522.12<br><br><br><br>232,285.65<br><br><br><br>20,651,479.25<br><br><br>Tr<br>ansfer in from<br>construction<br>-<br>in<br>-<br>progress<br><br><br>29,698,461.11<br><br><br><br>13,803,670.91<br><br><br><br>4,481,584.77<br><br><br><br>-<br><br><br><br>38,280.00<br><br><br><br>48,021,996.79<br><br><br>Disposal or scrap<br><br><br>(3,762,985.78<br><br>)<br><br><br>(6,690,648.87<br><br>)<br><br><br>(3,851,589.85<br><br>)<br><br><br>(476,999.00<br><br>)<br><br><br>(1,136,916.18<br><br>)<br><br><br>(15,919,139.68<br><br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Year<br>-<br>end balance<br><br><br>292,493,548.00<br><br><br><br>337,458,319.55<br><br><br><br>48,103,137.78<br><br><br><br>8,414,045.63<br><br><br><br>4,865,452.66<br><br><br><br>691,334,503.62<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Accumulated<br>depreciation<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Be<br>ginning balance<br><br><br>96,128,434.04<br><br><br><br>221,573,744.55<br><br><br><br>26,340,339.49<br><br><br><br>5,926,224.59<br><br><br><br>4,654,599.10<br><br><br><br>354,623,341.77<br><br><br>Accrual<br><br><br>15,838,491.90<br><br><br><br>14,055,196.89<br><br><br><br>7,695,120.41<br><br><br><br>716,782.82<br><br><br><br>342,159.02<br><br><br><br>38,647,751.04<br><br><br>Di<br>sposal or scrap<br><br><br>(745,369.38<br><br>)<br><br><br>(6,441,637.10<br><br>)<br><br><br>(3,262,496.97<br><br>)<br><br><br>(476,999.00<br><br>)<br><br><br>(1,123,354.30<br><br>)<br><br><br>(12,049,856.75<br><br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Year<br>-<br>end balance<br><br><br>111,221,556.56<br><br><br><br>229,187,304.34<br><br><br><br>30,772,962.93<br><br><br><br>6,166,008.41<br><br><br><br>3,873,403.82<br><br><br><br>381,221,236.06<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Provision for<br>impairment<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Beginning balance<br><br><br>-<br><br><br><br>1,157,122.34<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>1,157,122.34<br><br><br>Accrued this year<br><br><br>-<br><br><br><br>194,871.79<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>194,871.79<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Year<br>-<br>end balance<br><br><br>-<br><br><br><br>1,351,994.13<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>1,351,994.13<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Book value<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>End of the year<br><br><br>181,271,991.44<br><br><br><br>106,919,021.08<br><br><br><br>17,330,174.85<br><br><br><br>2,248,037.22<br><br><br><br>992,048.84<br><br><br><br>308,761,273.43<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Beginning of the year<br><br><br>170,429,638.63<br><br><br><br>88,821,332.93<br><br><br><br>19,574,229.58<br><br><br><br>2,897,297.92<br><br><br><br>1,077,204.09<br><br><br><br>282,799,703.15<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Book value includes<br>fully depreciated and<br>still in use (original<br>value)<br><br><br>-<br><br><br><br>140,873,245.50<br><br><br><br>17,398,642.79<br><br><br><br>4,204,754.01<br><br><br><br>3,138,683.24<br><br><br><br>165,615,325.54<br><br><br><br>Fixed assets under financing lease<br>-<br><br>machinery and equipment are as follows:<br><br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br>Original value<br><br><br>14,794,922.80<br><br><br>14,794,922.80<br><br><br>Accumulated depreciation<br><br><br>(2,095,947.32<br><br>)<br><br>(616,455.10<br><br>)<br><br><br><br><br><br><br><br>Book value<br><br><br>12,698,975.48<br><br><br>14,178,467.70
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>99<br><br>3<br>-<br>2<br>-<br>1<br>-<br>102<br><br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>12.<br><br>Fixed assets<br>(continued)<br><br>The Group has no temporarily idle fixed assets as of December 31, 2021, 2020 and<br>2019.<br><br>The Group has no operating leased fixed assets as of December 31, 2021, 2020 and<br>2019.<br><br>As of December 31, 2021, the fixed assets for which the<br>Certificate of title has not been<br>completed are as follows:<br><br><br><br><br>Book value<br><br><br><br><br><br>Not completed<br><br><br><br><br><br><br><br><br><br>Reason of Title Certificate<br><br><br><br><br><br><br><br><br><br>Extension of Beijing Tongmei Xtal No. 1<br>-<br>6 Plants<br><br><br><br>24,940,915.21<br><br><br><br>The formalities are<br>incomplete and have not<br>been completed yet<br><br><br>Beijing Tongmei Xtal No. 9 Plant<br><br><br>16,572,276.64<br><br><br><br>The formalities are<br>incomplete and have not<br>been completed yet<br><br><br>Beijing Tongmei Xtal No. 4 Plant<br><br><br>12,769,908.66<br><br><br><br>The formalities are<br>incomplete and have not<br>been completed yet<br><br><br>Beijing Tongmei Xtal No. 7 Plant<br><br><br>3,783,764.94<br><br><br><br>The formalities are<br>incomplete and have not<br>been completed yet<br><br><br>Beijing Tongmei Xtal New Chemical Warehouse<br><br><br>1,922,231.37<br><br><br><br>The formalities are<br>incomplete and have not<br>been completed yet<br><br><br>Extension of Beijing Tongmei Xtal No. 8<br>-<br>9 Plants<br><br><br>1,312,945.06<br><br><br><br>The formalities are<br>incomplete and have not<br>been completed yet<br><br><br>New Part of Beijing Tongmei Xtal Security Room<br><br><br>264,358.88<br><br><br><br>The formalities are<br>incomplete and have not<br>been<br>completed yet<br><br><br>Baoding Tongmei Xtal 7# Class A Warehouse<br><br><br>3,291,608.77<br><br><br><br>In process, not yet<br>completed<br><br><br>Baoding Tongmei Xtal 4# Boiler Room<br><br><br>2,233,945.00<br><br><br><br>In process, not yet<br>completed<br><br><br>Baoding Tongmei Xtal Solid Waste Warehouse<br><br><br>3,311,950.45<br><br><br><br>In process, not yet<br>completed<br><br><br>Chaoyang Jinmei Complex<br><br><br>4,452,525.90<br><br><br><br>In process, not yet<br>completed<br><br><br><br><br><br><br><br><br><br>Total<br><br><br>74,856,430.88
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>100<br><br>3<br>-<br>2<br>-<br>1<br>-<br>103<br><br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>12. Fixed assets<br>(continued)<br><br>As of December 31, 2020, the fixed assets for which the Certificate of title has not been<br>completed are as follows:<br><br><br><br><br>Book value<br><br><br><br><br><br>Not completed<br><br><br><br><br><br><br><br><br><br>Reason of Title Certificate<br><br><br><br><br><br><br><br><br><br>Extension of Beijing Tongmei Xtal No. 1<br>-<br>6 Plants<br><br><br><br>25,516,265.46<br><br><br><br>The formalities are<br>incomplete and have not been<br>completed yet<br><br><br>Beijing Tongmei Xtal No. 9 Plant<br><br><br>12,609,173.78<br><br><br><br>The formalities are<br>incomplete and have not been<br>completed yet<br><br><br>Beijing Tongmei Xtal No. 4 Plant<br><br><br>12,543,739.24<br><br><br><br>The formalities are<br>incomplete and have not been<br>completed yet<br><br><br>Beijing Tongmei Xtal No. 7 Plant<br><br><br>3,626,045.19<br><br><br><br>The formalities are<br>incomplete and have not been<br>completed yet<br><br><br>Beijing Tongmei Xtal New Chemical Warehouse<br><br><br>1,986,031.50<br><br><br><br>The formalities are<br>incomplete and have not been<br>completed yet<br><br><br>Extension of Beijing Tongmei Xtal No. 8<br>-<br>9 Plants<br><br><br>1,357,064.44<br><br><br><br>The formalities are<br>incomplete and have not been<br>completed yet<br><br><br>New Part of Beijing Tongmei Xtal Security Room<br><br><br>273,185.85<br><br><br><br>The formalities are<br>incomplete and have not been<br>completed yet<br><br><br>Baoding Tongmei Generation Motor Room<br><br><br>708,256.88<br><br><br><br>In process, not yet completed<br><br><br>Baoding Tongmei Xtal 7# Class A Warehouse<br><br><br>3,471,151.07<br><br><br><br>In process, not yet completed<br><br><br>Baoding Tongmei Xtal 4# Boiler Room<br><br><br>2,357,481.13<br><br><br><br>In process, not yet completed<br><br><br>Chaoyang Tongmei Xtal<br><br>Power Distribution Room<br>(Phase I)<br><br><br>12,759,705.02<br><br><br><br>Completed on November 8,<br>2021<br><br><br>Chaoyang Tongmei Xtal Class A Plant<br><br><br>13,661,261.34<br><br><br><br>Completed on November 8,<br>2021<br><br><br>Chaoyang Gold Nail Salon Workshop and Its<br>Supporting Facilities<br><br><br>10,289,173.20<br><br><br><br>Completed on November 12,<br>2021<br><br><br><br><br><br><br><br><br><br>Total<br><br><br>101,158,534.10<br><br><br><br><br><br>As of December 31, 2019, the fixed assets for which the Certificate of title has not been<br>completed are as follows:<br><br><br><br><br>Book value<br><br><br><br><br><br>Not completed<br><br><br><br><br><br><br><br><br><br>Reason of<br>Title Certificate<br><br><br><br><br><br><br><br><br><br>Extension of Beijing Tongmei Xtal No. 1<br>-<br>6 Plants<br><br><br><br>27,807,927.85<br><br><br><br>The formalities are<br>incomplete and have not<br>been completed yet<br><br><br>Beijing Tongmei Xtal No. 9 Plant<br><br><br>13,748,953.29<br><br><br><br>The formalities are<br>incomplete and have not<br>been completed yet<br><br><br>Beijing Tongmei Xtal No. 4 Plant<br><br><br>11,119,764.06<br><br><br><br>The formalities are<br>incomplete and have not<br>been completed yet<br><br><br>Beijing Tongmei Xtal No. 7 Plant<br><br><br>4,508,501.27<br><br><br><br>The formalities are<br>incomplete and have not<br>been completed yet
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>101<br><br>3<br>-<br>2<br>-<br>1<br>-<br>104<br><br>Beijing Tongmei Xtal New Chemical Warehouse<br><br><br>2,170,778.62<br><br><br><br>The formalities are<br>incomplete and have not<br>been completed yet<br><br><br>Extension of Beijing Tongmei Xtal No. 8<br>-<br>9 Plants<br><br><br>1,470,588.44<br><br><br><br>The formalities are<br>incomplete and have not<br>been<br>completed yet<br><br><br>New Part of Beijing Tongmei Xtal Security Room<br><br><br>297,341.46<br><br><br><br>The formalities are<br>incomplete and have not<br>been completed yet<br><br><br>Chaoyang Tongmei Xtal Class A Plant<br><br><br>4,169,693.45<br><br><br><br>Completed on November 8,<br>2021<br><br><br><br><br><br><br><br><br><br>Total<br><br><br>65,293,548.44<br><br><br><br><br><br><br>The ownership of fixed assets with<br>book value<br><br>of<br>RMB<br>150,305,117.02,<br>RMB<br>75,383,575.00 and<br>RMB<br>52,966,875.00 is restricted as of December 31, 2021,<br>2020 and 2019. See Note V 54.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>102<br><br>3<br>-<br>2<br>-<br>1<br>-<br>105<br><br><br><br>V. Notes to Main Items of Consolidated Financial<br>Statements<br><br>(Continued)<br><br>13.<br><br>Construction<br>-<br>in<br>-<br>progress<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Construction<br>-<br>in<br>-<br>progress<br><br><br><br>218,832,054.69<br><br><br>122,637,987.23<br><br><br>332,609,288.25<br><br><br><br>Construction<br>-<br>in<br>-<br>progress<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br><br><br>Book balance<br><br><br>Provision for<br>impairment<br><br><br>Book value<br><br><br>Book balance<br><br><br>Provision for<br>impairment<br><br><br>Book value<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>High<br>-<br>purity arsenic<br>project<br><br><br>54,288,877.91<br><br><br>-<br><br><br>54,288,877.91<br><br><br>-<br><br><br>-<br><br><br>-<br><br><br>GaAs crystal<br>semiconductor<br>materials production<br>project<br><br><br>50,231,915.01<br><br><br>-<br><br><br>50,231,915.01<br><br><br>27,082,086.19<br><br><br>-<br><br><br>27,082,086.19<br><br><br>High<br>-<br>purity<br>semiconductor<br>preliminary<br>materials production<br>project<br><br><br>30,180,263.96<br><br><br>-<br><br><br>30,180,263.96<br><br><br>25,659,443.39<br><br><br>-<br><br><br>25,659,443.39<br><br><br>InP single<br>crystal wafer<br>production project<br><br><br>22,645,133.16<br><br><br>-<br><br><br>22,645,133.16<br><br><br>16,169,810.74<br><br><br>-<br><br><br>16,169,810.74<br><br><br>Single crystal wafer<br>and related<br>semiconductor<br>material production<br>project<br><br><br>9,969,657.66<br><br><br>-<br><br><br>9,969,657.66<br><br><br>11,266,125.20<br><br><br>-<br><br><br>11,266,125.20<br><br><br>PBN<br>Product Project II<br><br><br>9,091,115.67<br><br><br>-<br><br><br>9,091,115.67<br><br><br>6,954,953.24<br><br><br>-<br><br><br>6,954,953.24<br><br><br>InP crystal growth and<br>wafer processing and<br>production expansion<br>project<br><br><br><br>7,818,517.23<br><br><br>-<br><br><br>7,818,517.23<br><br><br>18,289,638.84<br><br><br>-<br><br><br>18,289,638.84<br><br><br>PBN product project I<br><br><br>5,346,291.02<br><br><br>-<br><br><br>5,346,291.02<br><br><br>-<br><br><br>-<br><br><br>-<br><br><br>Germanium Crystal<br>Growth and Wafer<br>Processing and<br>Production Expansion<br>Project<br><br><br>1,789,573.61<br><br><br>-<br><br><br>1,789,573.61<br><br><br>-<br><br><br>-<br><br><br>-<br><br><br>Gaas<br><br>Crystal Synthesis<br>and Growth and Wafer<br>Processing Expansion<br>Project<br><br><br>6,084,800.65<br><br><br>(6,084,800.65<br><br>)<br><br>-<br><br><br>8,406,484.22<br><br><br>(6,084,800.65<br><br>)<br><br>2,321,683.57<br><br><br>Others<br><br><br>28,015,569.13<br><br><br>(544,859.67<br><br>)<br><br>27,470,709.46<br><br><br>15,439,105.73<br><br><br>(544,859.67<br><br>)<br><br>14,894,246.06<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>225,461,715.01<br><br><br>(6,629,660.32<br><br>)<br><br>218,832,054.69<br><br><br>129,267,647.55<br><br><br>(6,629,660.32<br><br>)<br><br>122,637,987.23
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to the Financial Statements<br>(Continued)<br><br>2019, 2020 and 2021<br><br>In RMB<br><br>Yuan<br><br>103<br><br>3<br>-<br>2<br>-<br>1<br>-<br>106<br><br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>13.<br>Construction<br>-<br>in<br>-<br>progress (continued)<br><br>Construction<br>-<br>in<br>-<br>progress (continued)<br><br><br><br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br>Book balance<br><br><br>Provision for<br>impairment<br><br><br>Book value<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>InP crystal growth and<br>wafer processing and<br>production expansion<br>project<br><br><br><br><br><br><br><br><br><br>8,829,506.07<br><br><br>-<br><br><br>8,829,506.07<br><br><br>Germanium Crystal<br>Growth and Wafer<br>Processing and<br>Production Expansion<br>Project<br><br><br><br><br><br><br><br><br>-<br><br><br>-<br><br><br>-<br><br><br>Gaas<br><br>Crystal Synthesis<br>and Growth and Wafer<br>Processing Expansion<br>Project<br><br><br><br><br><br><br><br><br><br>12,635,462.91<br><br><br>(6,084,800.65<br><br>)<br><br>6,550,662.26<br><br><br>Single crystal wafer<br>and related<br>semiconductor<br>material production<br>project<br><br><br><br><br><br><br><br><br>151,664,051.20<br><br><br>-<br><br><br>151,664,051.20<br><br><br>PBN<br>product project I<br><br><br><br><br><br><br><br><br>-<br><br><br>-<br><br><br>-<br><br><br>PBN Product Project II<br><br><br><br><br><br><br><br><br>11,014,349.93<br><br><br>-<br><br><br>11,014,349.93<br><br><br>GaAs crystal<br>semiconductor<br>materials production<br>project<br><br><br><br><br><br><br><br><br>95,487,792.58<br><br><br>-<br><br><br>95,487,792.58<br><br><br>InP single crystal wafer<br>production project<br><br><br><br><br><br><br><br><br>13,406,656.44<br><br><br>-<br><br><br>13,406,656.44<br><br><br>High<br>-<br>purity<br>semiconductor<br>preliminary<br>materials production<br>project<br><br><br><br><br><br><br><br><br>1,388,043.42<br><br><br>-<br><br><br>1,388,043.42<br><br><br>Others<br><br><br><br><br><br><br><br><br>46,725,637.56<br><br><br>(2,457,411.21<br><br>)<br><br>44,268,226.35<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>341,151,500.11<br><br><br>(8,542,211.86<br><br>)<br><br>332,609,288.25
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br><br>In<br>RMB<br><br>Yuan<br><br>104<br><br>3<br>-<br>2<br>-<br>1<br>-<br>107<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>13.<br>Construction<br>-<br>in<br>-<br>progress (continued)<br><br>Construction<br>-<br>in<br>-<br>progress(continued)<br><br>Changes of important construction<br>-<br>in<br>-<br>progress in 2021 are as follows:<br><br><br><br>Budget<br><br><br><br>Beginning balance<br><br><br><br>Increase this year<br><br><br><br>Transfer in this<br>year’s fixed<br>assets<br><br><br><br>Other<br>decreases<br><br><br><br>Year<br>-<br>end balance<br><br><br><br>Source of<br>funds<br><br><br><br>Proportion of<br>project input<br>in budget (%)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Gaas<br><br>Crystal Synthesis and Growth and Wafer<br>Processing Expansion Project<br><br><br>46,925,412.50<br><br><br><br>8,406,484.22<br><br><br><br>6,648,899.52<br><br><br><br>4,382,920.70<br><br><br><br>4,587,662.39<br><br><br><br>6,084,800.65<br><br><br><br>Own funds<br><br><br><br>90.38<br><br><br>Germanium Crystal Growth and Wafer<br>Processing and Production<br>Expansion Project<br><br><br>8,627,203.45<br><br><br><br>-<br><br><br><br>3,998,261.32<br><br><br><br>2,208,687.71<br><br><br><br>-<br><br><br><br>1,789,573.61<br><br><br><br>Own funds<br><br><br><br>65.90<br><br><br>InP crystal growth and wafer processing and<br>production expansion project<br><br><br>69,681,363.98<br><br><br><br>18,289,638.84<br><br><br><br>16,380,634.07<br><br><br><br>26,520,662.08<br><br><br><br>331,093.60<br><br><br><br>7,818,517.23<br><br><br><br>Own funds<br><br><br><br>78.77<br><br><br>Single crystal wafer and related semiconductor<br>material production project<br><br><br>242,324,476.06<br><br><br><br>11,266,125.20<br><br><br><br>21,114,150.43<br><br><br><br>21,020,065.60<br><br><br><br>1,390,552.37<br><br><br><br>9,969,657.66<br><br><br><br>Own funds<br><br><br><br>72.41<br><br><br>PBN<br>product project I<br><br><br>50,230,000.00<br><br><br><br>-<br><br><br><br>5,448,457.32<br><br><br><br>51,168.14<br><br><br><br>50,998.16<br><br><br><br>5,346,291.02<br><br><br><br>Own funds<br><br><br><br>79.22<br><br><br>PBN Product Project II<br><br><br>72,330,000.00<br><br><br><br>6,954,953.24<br><br><br><br>15,592,038.64<br><br><br><br>12,572,037.13<br><br><br><br>883,839.08<br><br><br><br>9,091,115.67<br><br><br><br>Own funds<br><br><br><br>66.85<br><br><br>GaAs<br>crystal semiconductor materials<br>production project<br><br><br>192,631,834.71<br><br><br><br>27,082,086.19<br><br><br><br>34,585,876.42<br><br><br><br>11,164,577.87<br><br><br><br>271,469.73<br><br><br><br>50,231,915.01<br><br><br><br>Own funds<br><br><br><br>80.00<br><br><br>InP single crystal wafer production project<br><br><br>34,757,135.14<br><br><br><br>16,169,810.74<br><br><br><br>8,085,093.21<br><br><br><br>-<br><br><br><br>1,609,770.79<br><br><br><br>22,645,133.16<br><br><br><br>Own funds<br><br><br><br>86.11<br><br><br>High<br>-<br>purity semiconductor preliminary<br>materials production project<br><br><br>76,926,964.74<br><br><br><br>25,659,443.39<br><br><br><br>10,997,129.83<br><br><br><br>6,476,309.26<br><br><br><br>-<br><br><br><br>30,180,263.96<br><br><br><br>Own funds<br><br><br><br>92.79<br><br><br>High<br>-<br>purity arsenic project<br><br><br>92,428,298.00<br><br><br><br>-<br><br><br><br>54,292,113.39<br><br><br><br>-<br><br><br><br>3,235.48<br><br><br><br>54,288,877.91<br><br><br><br>Own funds<br><br><br><br>58.74<br><br><br>Others<br><br><br>82,406,327.93<br><br><br><br>15,439,105.73<br><br><br><br>17,634,466.03<br><br><br><br>1,367,234.77<br><br><br><br>3,690,767.86<br><br><br><br>28,015,569.13<br><br><br><br>Own funds<br><br><br><br>98.92<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>969,269,016.51<br><br><br><br>129,267,647.55<br><br><br><br>194,777,120.18<br><br><br><br>85,763,663.26<br><br><br><br>12,819,389.46<br><br><br><br>225,461,715.01
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br><br>In<br>RMB<br><br>Yuan<br><br>105<br><br>3<br>-<br>2<br>-<br>1<br>-<br>108<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>13. Construction<br>-<br>in<br>-<br>progress (continued)<br><br>Construction<br>-<br>in<br>-<br>progress (continued)<br><br>Changes of important construction<br>-<br>in<br>-<br>progress in 2020 are as follows:<br><br><br><br>Budget<br><br><br><br>Beginning<br>balance<br><br><br><br>Increase this year<br><br><br><br>Transfer in this<br>year’s fixed assets<br><br><br><br>Other decreases<br><br><br><br>Year<br>-<br>end balance<br><br><br><br>Source of<br>funds<br><br><br><br>Proportion of<br>project input in<br>budget (%)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Gaas Crystal Synthesis and Growth and Wafer<br>Processing Expansion Project<br><br><br>46,925,412.50<br><br><br><br>12,635,462.91<br><br><br><br>1,692,082.41<br><br><br><br>1,396,216.09<br><br><br><br>4,524,845.01<br><br><br><br>8,406,484.22<br><br><br><br>Own funds<br><br><br><br>76.21<br><br><br>InP crystal growth and wafer processing and<br>production expansion project<br><br><br>69,681,363.98<br><br><br><br>8,829,506.07<br><br><br><br>17,397,692.50<br><br><br><br>6,661,873.04<br><br><br><br>1,275,686.69<br><br><br><br>18,289,638.84<br><br><br><br>Own funds<br><br><br><br>55.26<br><br><br>Single crystal wafer and related semiconductor<br>material production project<br><br><br>242,324,476.06<br><br><br><br>151,664,051.20<br><br><br><br>19,364,179.72<br><br><br><br>159,701,760.89<br><br><br><br>60,344.83<br><br><br><br>11,266,125.20<br><br><br><br>Own funds<br><br><br><br>63.70<br><br><br>PBN Product Project II<br><br><br>72,330,000.00<br><br><br><br>11,014,349.93<br><br><br><br>16,813,562.18<br><br><br><br>20,872,958.87<br><br><br><br>-<br><br><br><br>6,954,953.24<br><br><br><br>Own funds<br><br><br><br>45.29<br><br><br>GaAs crystal semiconductor materials<br>production project<br><br><br>192,631,834.71<br><br><br><br>95,487,792.58<br><br><br><br>15,073,241.89<br><br><br><br>81,570,869.89<br><br><br><br>1,908,078.39<br><br><br><br>27,082,086.19<br><br><br><br>Own funds<br><br><br><br>62.05<br><br><br>InP single crystal wafer production project<br><br><br>34,757,135.14<br><br><br><br>13,406,656.44<br><br><br><br>8,438,622.02<br><br><br><br>1,979,837.95<br><br><br><br>3,695,629.77<br><br><br><br>16,169,810.74<br><br><br><br>Own funds<br><br><br><br>62.85<br><br><br>High<br>-<br>purity semiconductor preliminary<br>materials production project<br><br><br>73,554,562.83<br><br><br><br>1,388,043.42<br><br><br><br>57,253,946.51<br><br><br><br>32,982,546.54<br><br><br><br>-<br><br><br><br><br>25,659,443.39<br><br><br><br>Own funds<br><br><br><br>80.92<br><br><br>Others<br><br><br>76,430,033.07<br><br><br><br>46,725,637.56<br><br><br><br>15,014,671.03<br><br><br><br>40,409,580.92<br><br><br><br>5,891,621.94<br><br><br><br>15,439,105.73<br><br><br><br>Own funds<br><br><br><br>86.87<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>808,634,818.29<br><br><br><br>341,151,500.11<br><br><br><br>151,047,998.26<br><br><br><br>345,575,644.19<br><br><br><br>17,356,206.63<br><br><br><br>129,267,647.55
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br><br>In<br>RMB<br><br>Yuan<br><br>106<br><br>3<br>-<br>2<br>-<br>1<br>-<br>109<br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>13. Construction<br>-<br>in<br>-<br>progress (continued)<br><br>C<br>onstruction<br>-<br>in<br>-<br>progress(continued)<br><br>Changes of important construction<br>-<br>in<br>-<br>progress in 2019 are as follows:<br><br><br><br>Budget<br><br><br><br>Beginning balance<br><br><br><br>Increase this year<br><br><br><br>Transfer in this<br>year’s fixed<br>assets<br><br><br><br>Other decreases<br><br><br><br>Year<br>-<br>end balance<br><br><br><br>Source of<br>funds<br><br><br><br>Proportion of<br>project input<br>in budget (%)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Gaas Crystal Synthesis and Growth and Wafer<br>Processing Expansion Project<br><br><br>46,925,412.50<br><br><br><br>13,906,409.75<br><br><br><br>5,353,505.59<br><br><br><br>5,689,193.06<br><br><br><br>935,259.37<br><br><br><br>12,635,462.91<br><br><br><br>Own funds<br><br><br><br>72.60<br><br><br>Germanium Crystal Growth and Wafer<br>Processing and Production Expansion Project<br><br><br>3,836,773.54<br><br><br><br>981,080.72<br><br><br><br>-<br><br><br><br>981,080.72<br><br><br><br>-<br><br><br><br>-<br><br><br><br>Own funds<br><br><br><br>43.96<br><br><br>InP crystal growth and wafer processing and<br>production expansion project<br><br><br>69,681,363.98<br><br><br><br>1,937,855.77<br><br><br><br>9,731,618.75<br><br><br><br>2,839,968.45<br><br><br><br>-<br><br><br><br>8,829,506.07<br><br><br><br>Own funds<br><br><br><br>30.29<br><br><br>Single crystal wafer and related semiconductor<br>material production project<br><br><br>242,324,476.06<br><br><br><br>122,436,690.81<br><br><br><br>34,024,276.44<br><br><br><br>4,796,916.05<br><br><br><br>-<br><br><br><br>151,664,051.20<br><br><br><br>Own funds<br><br><br><br>55.70<br><br><br>PBN product project I<br><br><br>50,230,000.00<br><br><br><br>15,035,830.95<br><br><br><br>6,792,199.90<br><br><br><br>21,828,030.85<br><br><br><br>-<br><br><br><br>-<br><br><br><br>Own funds<br><br><br><br>68.38<br><br><br>PBN Product Project II<br><br><br>72,330,000.00<br><br><br><br>-<br><br><br><br>12,646,005.38<br><br><br><br>1,631,655.45<br><br><br><br>-<br><br><br><br>11,014,349.93<br><br><br><br>Own funds<br><br><br><br>22.04<br><br><br>GaAs crystal semiconductor materials<br>production project<br><br><br>192,631,834.71<br><br><br><br>26,017,011.01<br><br><br><br>74,853,684.32<br><br><br><br>5,382,902.75<br><br><br><br>-<br><br><br><br>95,487,792.58<br><br><br><br>Own funds<br><br><br><br>54.22<br><br><br>InP single crystal wafer production project<br><br><br>34,757,135.14<br><br><br><br>7,869,727.28<br><br><br><br>5,536,929.16<br><br><br><br>-<br><br><br><br>-<br><br><br><br>13,406,656.44<br><br><br><br>Own funds<br><br><br><br>38.57<br><br><br>High<br>-<br>purity semiconductor preliminary<br>materials production project<br><br><br>73,554,562.83<br><br><br><br>1,101,177.00<br><br><br><br>2,025,150.02<br><br><br><br>1,738,283.60<br><br><br><br>-<br><br><br><br>1,388,043.42<br><br><br><br>Own funds<br><br><br><br>4.54<br><br><br>Others<br><br><br>76,430,033.07<br><br><br><br>22,786,829.83<br><br><br><br>27,755,911.63<br><br><br><br>3,133,965.86<br><br><br><br>683,138.04<br><br><br><br>46,725,637.56<br><br><br><br>Own funds<br><br><br><br>67.23<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>862,701,591.83<br><br><br><br>212,072,613.12<br><br><br><br>178,719,281.19<br><br><br><br>48,021,996.79<br><br><br><br>1,618,397.41<br><br><br><br>341,151,500.11
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>107<br><br>3<br>-<br>2<br>-<br>1<br>-<br>110<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>13. Construction<br>-<br>in<br>-<br>progress (continued)<br><br>Construction<br>-<br>in<br>-<br>progress (continued)<br><br>The ownership of construction<br>-<br>in<br>-<br>progress with<br>book value<br><br>of<br>RMB<br>84,681,020.95,<br>RMB<br>0 and<br>RMB<br>26,112,000.00 is restricted as of December 31, 2021, 2020 and 2019.<br>See Note V 54.<br><br>14. Right<br>-<br>of<br>-<br>use assets<br><br>2021<br><br><br><br>Houses and<br>bui<br>ldings<br><br><br><br>Machinery<br>equipment<br><br><br><br><br><br>Total<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Cost<br><br><br><br><br><br><br><br><br><br><br><br><br>Balance at the end of last year<br><br><br>-<br><br><br><br><br>-<br><br><br><br><br><br><br>-<br><br><br><br>Impact of policy change<br><br><br>48,721.27<br><br><br><br>14,794,922.80<br><br><br><br><br><br>14,843,644.07<br><br><br>Beginning balance<br><br><br>48,721.27<br><br><br><br>14,794,922.80<br><br><br><br><br><br>14,843,644.07<br><br><br>Increase<br><br><br>6,135,703.16<br><br><br><br>-<br><br><br><br><br><br>6,135,703.16<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Year<br>-<br>end balance<br><br><br>6,184,424.43<br><br><br><br>14,794,922.80<br><br><br><br><br><br>20,979,347.23<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Accumulated depreciation<br><br><br><br><br><br><br><br><br><br><br><br><br>Balance at the end of last year<br><br><br>-<br><br><br><br><br>-<br><br><br><br><br><br><br>-<br><br><br><br>Impact of policy change<br><br><br>-<br><br><br><br>2,095,947.34<br><br><br><br><br><br>2,095,947.34<br><br><br>Beginning balance<br><br><br>-<br><br><br><br>2,095,947.34<br><br><br><br><br><br>2,095,947.34<br><br><br>Accrual<br><br><br>1,653,030.47<br><br><br><br>1,479,492.24<br><br><br><br><br><br>3,132,522.71<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Year<br>-<br>end balance<br><br><br>1,653,030.47<br><br><br><br>3,575,439.58<br><br><br><br><br><br>5,228,470.05<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Book value<br><br><br><br><br><br><br><br><br><br><br><br><br>End of the year<br><br><br>4,531,393.96<br><br><br><br>11,219,483.22<br><br><br><br><br><br>15,750,877.18<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Beginning of the year<br><br><br>48,721.27<br><br><br><br>12,698,975.46<br><br><br><br><br><br>12,747,696.73
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>108<br><br>3<br>-<br>2<br>-<br>1<br>-<br>111<br><br><br>V. Notes to Main Items of Consolidated<br>Financial Statements<br><br>(Continued)<br><br>15.<br><br>Intangible assets<br><br>2021<br><br><br><br>Land Use Right<br><br><br>Right to the use<br>of patent<br><br><br>Software<br><br><br>Total<br><br><br><br><br><br><br><br><br><br><br><br><br>Original value<br><br><br><br><br><br><br><br><br><br><br>Beginning balance<br><br><br>62,773,382.75<br><br><br>-<br><br><br>3,679,454.44<br><br><br>66,452,837.19<br><br><br>Purchase<br><br><br>15,745,425.82<br><br><br>8,012,577.20<br><br><br>743,594.71<br><br><br>24,501,597.73<br><br><br>Transfer in from construction<br>-<br>in<br>-<br>progress<br><br><br>-<br><br><br>-<br><br><br>384,383.05<br><br><br>384,383.05<br><br><br><br><br><br><br><br><br><br><br><br><br>Year<br>-<br>end balance<br><br><br>78,518,808.57<br><br><br>8,012,577.20<br><br><br>4,807,432.20<br><br><br>91,338,817.97<br><br><br><br><br><br><br><br><br><br><br><br><br>Accumulated amortization<br><br><br><br><br><br><br><br><br><br><br>Beginning balance<br><br><br>6,130,044.87<br><br><br>-<br><br><br>918,274.62<br><br><br>7,048,319.49<br><br><br>Accrual<br><br><br>1,430,389.66<br><br><br>1,335,429.54<br><br><br>426,667.59<br><br><br>3,192,486.79<br><br><br><br><br><br><br><br><br><br><br><br><br>Year<br>-<br>end balance<br><br><br>7,560,434.53<br><br><br>1,335,429.54<br><br><br>1,344,942.21<br><br><br>10,240,806.28<br><br><br><br><br><br><br><br><br><br><br><br><br>Book value<br><br><br><br><br><br><br><br><br><br><br>End of the year<br><br><br>70,958,374.04<br><br><br>6,677,147.66<br><br><br>3,462,489.99<br><br><br>81,098,011.69<br><br><br><br><br><br><br><br><br><br><br><br><br>Beginning of the year<br><br><br>56,643,337.88<br><br><br>-<br><br><br>2,761,179.82<br><br><br>59,404,517.70
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>109<br><br>3<br>-<br>2<br>-<br>1<br>-<br>112<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>15. Intangible assets (continued)<br><br>2020<br><br><br><br>Land Use Right<br><br><br><br>Software<br><br><br><br>Total<br><br><br><br><br><br><br><br><br><br><br><br><br>Original value<br><br><br><br><br><br><br><br><br><br><br>Beginning balance<br><br><br>62,773,382.75<br><br><br><br>1,271,819.18<br><br><br><br>64,045,201.93<br><br><br>Purchase<br><br><br>-<br><br><br><br>58,374.85<br><br><br><br>58,374.85<br><br><br>Transfer in from construction<br>-<br>in<br>-<br>progress<br><br><br>-<br><br><br><br>2,349,260.41<br><br><br><br>2,349,260.41<br><br><br><br><br><br><br><br><br><br><br><br><br>Year<br>-<br>en<br>d balance<br><br><br>62,773,382.75<br><br><br><br>3,679,454.44<br><br><br><br>66,452,837.19<br><br><br><br><br><br><br><br><br><br><br><br><br>Accumulated amortization<br><br><br><br><br><br><br><br><br><br><br>Beginning balance<br><br><br>4,874,181.53<br><br><br><br>761,026.59<br><br><br><br>5,635,208.12<br><br><br>Accrual<br><br><br>1,255,863.34<br><br><br><br>157,248.03<br><br><br><br>1,413,111.37<br><br><br><br><br><br><br><br><br><br><br><br><br>Year<br>-<br>en<br>d balance<br><br><br>6,130,044.87<br><br><br><br>918,274.62<br><br><br><br>7,048,319.49<br><br><br><br><br><br><br><br><br><br><br><br><br>Book va<br>lue<br><br><br><br><br><br><br><br><br><br><br>End of the year<br><br><br>56,643,337.88<br><br><br><br>2,761,179.82<br><br><br><br>59,404,517.70<br><br><br><br><br><br><br><br><br><br><br><br><br>Beginni<br>ng of the year<br><br><br>57,899,201.22<br><br><br><br>510,792.59<br><br><br><br>58,409,993.81
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>110<br><br>3<br>-<br>2<br>-<br>1<br>-<br>113<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>15. Intangible assets (continued)<br><br>2019<br><br><br><br>Land Use Right<br><br><br><br>Software<br><br><br><br>Total<br><br><br><br><br><br><br><br><br><br><br><br><br>Original value<br><br><br><br><br><br><br><br><br><br><br>Beginning balance<br><br><br>61,946,982.75<br><br><br><br>1,233,762.38<br><br><br><br>63,180,745.13<br><br><br>Purchase<br><br><br>826,400.00<br><br><br><br>-<br><br><br><br>826,400.00<br><br><br>Transfer in from construction<br>-<br>in<br>-<br>progress<br><br><br>-<br><br><br><br>38,056.80<br><br><br><br>38,056.80<br><br><br><br><br><br><br><br><br><br><br><br><br>Year<br>-<br>en<br>d balance<br><br><br>62,773,382.75<br><br><br><br>1,271,819.18<br><br><br><br>64,045,201.93<br><br><br><br><br><br><br><br><br><br><br><br><br>Accumulated amortization<br><br><br><br><br><br><br><br><br><br><br>Beginning balance<br><br><br>3,330,452.85<br><br><br><br>636,589.21<br><br><br><br>3,967,042.06<br><br><br>Accrual<br><br><br>1,543,728.68<br><br><br><br>124,437.38<br><br><br><br>1,668,166.06<br><br><br><br><br><br><br><br><br><br><br><br><br>Year<br>-<br>en<br>d balance<br><br><br>4,874,181.53<br><br><br><br>761,026.59<br><br><br><br>5,635,208.12<br><br><br><br><br><br><br><br><br><br><br><br><br>Book va<br>lue<br><br><br><br><br><br><br><br><br><br><br>End of the year<br><br><br>57,899,201.22<br><br><br><br>510,792.59<br><br><br><br>58,409,993.81<br><br><br><br><br><br><br><br><br><br><br><br><br>Beginni<br>ng of the year<br><br><br>58,616,529.90<br><br><br><br>597,173.17<br><br><br><br>59,213,703.07<br><br><br><br>The management of the Group believes that there is no need to make provision for<br>impairment of intangible assets as of December 31, 2021, 2020 and 2019.<br><br>The Group has no intangible assets formed<br>through internal research and development<br>as of December 31, 2021, 2020 and 2019.<br><br>There is no intangible asset without Property Right Certificate as of December 31, 2021.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>111<br><br>3<br>-<br>2<br>-<br>1<br>-<br>114<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>15.<br><br>Intangible assets<br><br>(continued)<br><br>As of December 31, 2020, the intangible assets for which the Property Right Certificate<br>has not been completed are as follows:<br><br><br><br>Book value<br><br><br><br>Not completed<br><br><br><br><br><br><br><br>Reason of Title<br>Certificate<br><br><br><br><br><br><br><br><br><br>3.3 mu land use right of Chaoyang Jinmei Gallium<br>Co., Ltd.<br><br><br>537,702.67<br><br><br><br>Completed on<br>November 12, 2021<br><br><br><br><br>As of December 31, 2019, the intangible assets for which the Property Right Certificate<br>has not been completed are as follows:<br><br><br><br>Book value<br><br><br><br>Not<br>completed<br><br><br><br><br><br><br><br>Reason of Title<br>Certificate<br><br><br><br><br><br><br><br><br><br>3.3 mu land use right of Chaoyang Jinmei Gallium<br>Co., Ltd.<br><br><br>530,000.00<br><br><br><br>Completed on<br>November 12, 2021<br><br><br><br><br>The ownership of intangible assets with<br>book value<br><br>of<br>RMB<br>39,854,951.53,<br>RMB<br>12,463,863.56 and<br>RMB<br>12,725,343.21 is restricted as of December 31, 2021,<br>2020 and 2019. See Note V 54.<br><br>16.<br><br>Long<br>-<br>term deferred expenses<br><br>2021<br><br><br><br>Beginning<br>balance<br><br><br><br>Increase this<br>year<br><br><br><br>Amortization<br>this year<br><br><br><br>Other<br>decreases<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Improvement cost of fixed<br>assets under operating lease<br><br><br>219,082.62<br><br><br><br>82,706.88<br><br><br><br>69,578.56<br><br><br><br>-<br><br><br><br>232,210.94<br><br><br>Plant reconstruction cost<br><br><br>8,054,912.19<br><br><br><br>3,675,766.88<br><br><br><br>4,258,865.38<br><br><br><br>-<br><br><br><br>7,471,813.69<br><br><br>Patent cross licensing fee<br><br><br>-<br><br><br><br>9,637,748.15<br><br><br><br>1,070,860.91<br><br><br><br>-<br><br><br><br>8,566,887.24<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>8,273,994.81<br><br><br><br>13,396,221.91<br><br><br><br>5,399,304.85<br><br><br><br>-<br><br><br><br>16,270,911.87
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>112<br><br>3<br>-<br>2<br>-<br>1<br>-<br>115<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>16.<br><br>Long<br>-<br>term deferred expenses<br>(continued)<br><br>2020<br><br><br><br>Beginning<br>balance<br><br><br><br>Increase this<br>year<br><br><br><br>Amortization<br>this year<br><br><br><br>Other<br>decreases<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Improvement cost of fixed<br>assets under operating lease<br><br><br>213,737.41<br><br><br><br>81,188.12<br><br><br><br>52,865.46<br><br><br><br>22,977.45<br><br><br><br>219,082.62<br><br><br>Plant reconstruction cost<br><br><br>4,141,047.78<br><br><br><br>7,266,021.49<br><br><br><br>3,065,440.78<br><br><br><br>286,716.30<br><br><br><br>8,054,912.19<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>4,354,785.19<br><br><br><br>7,347,209.61<br><br><br><br>3,118,306.24<br><br><br><br>309,693.75<br><br><br><br>8,273,994.81<br><br><br>2019<br><br><br><br>Beginning<br>balance<br><br><br><br>Increase this<br>year<br><br><br><br>Amortization<br>this year<br><br><br><br>Other<br>decreases<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Improvement cost of fixed<br>assets under operating lease<br><br><br>1,754,302.00<br><br><br><br>198,075.17<br><br><br><br>181,471.55<br><br><br><br>1,557,168.21<br><br><br><br>213,737.41<br><br><br>Plant reconstruction cost<br><br><br>5,256,253.06<br><br><br><br>1,141,950.86<br><br><br><br>2,257,156.14<br><br><br><br>-<br><br><br><br>4,141,047.78<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>7,010,555.06<br><br><br><br>1,340,026.03<br><br><br><br>2,438,627.69<br><br><br><br>1,557,168.21<br><br><br><br>4,354,785.19
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>113<br><br>3<br>-<br>2<br>-<br>1<br>-<br>116<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>17. Deferred income tax assets<br><br>Deferred<br>income tax assets not offset:<br><br><br><br>December 31, 2021<br><br><br><br>December 31, 2020<br><br><br><br><br>Deductible<br>temporary<br>differences<br><br><br><br>Deferred<br>income tax<br>assets<br><br><br><br>Deductible<br>temporary<br>differences<br><br><br><br>Deferred<br>income tax<br>assets<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Deferred income tax assets<br><br><br><br><br><br><br><br><br><br><br><br><br><br>Provision for asset impairment<br><br><br>30,621,063.99<br><br><br><br>4,605,262.33<br><br><br><br><br>26,297,475.87<br><br><br><br><br>4,274,877.00<br><br><br>Unrealized profits from<br>internal transactions<br><br><br>13,058,838.84<br><br><br><br>1,958,825.83<br><br><br><br><br>11,471,163.61<br><br><br><br><br>1,720,674.54<br><br><br>Deductible loss<br><br><br>111,877,280.01<br><br><br><br>16,958,243.39<br><br><br><br><br>81,562,960.60<br><br><br><br><br>12,635,498.99<br><br><br>Government grants<br><br><br>30,825,907.63<br><br><br><br>4,623,886.14<br><br><br><br><br>32,454,004.46<br><br><br><br><br>6,642,846.43<br><br><br>Accrued liabilities<br><br><br>4,370,264.66<br><br><br><br>831,296.31<br><br><br><br><br>1,860,786.83<br><br><br><br><br>279,118.02<br><br><br>Investment gain<br>from<br>receivables financing<br><br><br>367,209.17<br><br><br><br>70,118.75<br><br><br><br><br>217,969.03<br><br><br><br><br>34,760.23<br><br><br>Tax difference of fixed assets<br><br><br>36,961,601.13<br><br><br><br>5,554,168.23<br><br><br><br><br>40,440,917.68<br><br><br><br><br>6,214,699.95<br><br><br>Accrued but unpaid expenses<br><br><br>5,794,002.37<br><br><br><br>1,042,414.53<br><br><br><br><br>800,136.68<br><br><br><br><br>124,318.41<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>233,876,167.80<br><br><br><br>35,644,215.51<br><br><br><br>195,105,414.76<br><br><br><br>31,926,793.57<br><br><br><br><br><br><br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br>Deductible<br>temporary<br>differences<br><br><br><br>Deferred<br>income tax<br>assets<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Deferred income tax<br>assets<br><br><br><br><br><br><br><br><br><br><br><br><br><br>Provision for asset impairment<br><br><br><br><br><br><br><br><br>27,854,739.29<br><br><br><br>4,178,210.89<br><br><br>Unrealized profits from<br>internal transactions<br><br><br><br><br><br><br><br><br>9,131,021.40<br><br><br><br>1,369,653.21<br><br><br>Deductible loss<br><br><br><br><br><br><br><br><br>3,218,058.46<br><br><br><br>482,708.77<br><br><br>Government grants<br><br><br><br><br><br><br><br><br>13,520,700.00<br><br><br><br>2,701,025.00<br><br><br>Accrued liabilities<br><br><br><br><br><br><br><br><br>1,076,864.69<br><br><br><br>161,529.70<br><br><br>Investment gain from<br>receivables financing<br><br><br><br><br><br><br><br><br>65,173.77<br><br><br><br>10,105.88<br><br><br>Tax difference of fixed assets<br><br><br><br><br><br><br><br><br>33,429,735.83<br><br><br><br>5,035,093.20<br><br><br>Accrued but unpaid<br>expenses<br><br><br><br><br><br><br><br><br>9,120,579.02<br><br><br><br>1,372,769.35<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>97,416,872.46<br><br><br><br>15,311,096.00
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>114<br><br>3<br>-<br>2<br>-<br>1<br>-<br>117<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>17. Deferred income tax assets (continued)<br><br>Deductible temporary<br>differences and deductible losses of unrecognized deferred<br>income tax assets are as follows:<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br>Deductible temporary<br>differences<br><br><br><br>-<br><br><br>4,561,194.61<br><br><br><br>31,812,622.65<br><br>Deductible loss<br><br><br><br>-<br><br><br>-<br><br><br><br><br>46,274,124.53<br><br><br><br><br><br><br><br><br><br><br><br><br>-<br><br><br>4,561,194.61<br><br><br>78,086,747.18<br><br>Deductible losses of unrecognized deferred income tax assets will expire in the<br>following years:<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>2022<br><br><br><br>-<br><br><br>-<br><br><br><br>5,497,101.29<br><br><br>2023<br><br><br><br>-<br><br><br>-<br><br><br><br>16,939,919.63<br><br><br>2024<br><br><br><br>-<br><br><br>-<br><br><br><br>23,837,103.61<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>-<br><br><br>-<br><br><br><br>46,274,124.53<br><br><br>The accumulated deductible losses of unrecognized deferred income tax assets<br>generated by the subsidiary Boyu (Tianjin) Semiconductor Materials Co., Ltd. in 2021,<br>2020 and 2019 are<br>RMB<br>0,<br>RMB<br>0 and<br>RMB<br>600,908.40 respectively, which can be used<br>in the next fi<br>ve years from the year of occurrence; the subsidiary Baoding Tongmei Xtal<br>Manufacture Co., Ltd. obtained the High<br>-<br>tech Enterprise Certificate in 2020. The<br>accumulated deductible losses of unrecognized deferred income tax assets in 2021,<br>2020 and 2019 are<br>R<br>MB<br>0,<br>RMB<br>0 and<br>RMB<br>45,673,216.13 respectively, which can be<br>used in the next 10 years from the year of occurrence.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>115<br><br>3<br>-<br>2<br>-<br>1<br>-<br>118<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>18. Other non<br>-<br>current assets<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Prepayment for land use right<br>purchase<br><br><br><br>14,700,000.00<br><br><br>-<br><br><br>-<br><br><br>Prepayment for equipment<br><br><br><br>10,655,796.93<br><br><br>5,617,795.77<br><br><br>2,602,977.44<br><br><br>Advance payment for project<br><br><br><br>310,000.00<br><br><br>74,311.93<br><br><br>24,326,107.42<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>25,665,796.93<br><br><br>5,692,107.70<br><br><br>26,929,084.86<br><br><br>19. Short<br>-<br>term borrowings<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Mortgage loan<br><br><br><br>30,000,000.00<br><br><br>38,000,000.00<br><br><br>40,000,000.00<br><br><br>Guaranteed loan<br><br><br><br>20,000,000.00<br><br><br>10,000,000.00<br><br><br>-<br><br><br>Pledge loan<br><br><br><br>17,760,000.00<br><br><br>20,000,000.00<br><br><br>-<br><br><br>Credit loan<br><br><br><br>10,000,000.00<br><br><br>-<br><br><br>-<br><br><br>Accrued interest<br><br><br><br>64,673.22<br><br><br>60,478.89<br><br><br>50,313.33<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>77,824,673.22<br><br><br>68,060,478.89<br><br><br>40,050,313.33<br><br><br>In 2021, 2020 and 2019, the annual<br>interest rates of the above borrowings are 3.550%<br>-<br>4.220%, 2.900%<br>-<br>4.6980% and 4.6380%<br>-<br>4.6980%, respectively.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>116<br><br>3<br>-<br>2<br>-<br>1<br>-<br>119<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>19. Short<br>-<br>term borrowings (continued)<br><br>Mortgage loan<br><br>December 31, 2021<br><br>On September 22, 2021, the Company signed a Working Capital Loan Contract with<br>Beijing Tongzhou Branch of Bank of Communications Co., Ltd. with the number of<br>29211074. The loan amount was<br>RMB<br>20,000,000.00, the loan period was from<br>September 30, 2021 to Sep<br>tember 23, 2022, and the annual interest rate was 4.000%.<br><br>On November 19, 2021, the Company signed a Working Capital Loan Contract with<br>Beijing Tongzhou Branch of Bank of Communications Co., Ltd. with the number of<br>29211090. The loan amount was<br>RMB<br>10,000,0<br>00.00, the loan period was from<br>November 26, 2021 to November 15, 2022, and the annual interest rate was 4.000%.<br><br>The above two loans are the<br>master contract<br>s under the Maximum Amount Mortgage<br>Contract (No. 29211074). Chaoyang Tongmei Xtal Technology Co., L<br>td., a subsidiary<br>of the Company, provides guarantee with its state<br>-<br>owned construction land use right<br>and the ownership of houses (structures) as collateral, and the maximum amount of<br>creditor's rights guaranteed by the mortgage is<br>RMB<br>115,970,000.00, for t<br>he<br>corresponding fixed assets<br>-<br><br>buildings with a book value of RMB125,369,356.33,<br>construction<br>-<br>in<br>-<br>progress with a book value of RMB75,589,905.28 and intangible assets<br>-<br><br>land with a book value of RMB33,352,904.86, see Note V 54. The above borrowings<br>have no<br>t been repaid due as of the date of the Report.<br><br>December 31, 2020<br><br>On October 12, 2020, the Company signed a Working Capital Loan Contract with<br>Beijing Tongzhou Branch of Bank of China Limited, with a loan amount of<br>RMB<br>38,000,000.00, a loan period from October 14, 2020 to April 14, 2021, and an<br>annual interest rate of 4.6980%. The Loan Contract is a single agreement under the<br>Credit Line Agreement. The credit line provided by Beijing Tongzhou Branch of Bank<br>of China Limi<br>ted to the Company is<br>RMB<br>62,000,000.00, and the credit period is from<br>September 24, 2020 to September 21, 2021. Meanwhile, the Loan Contract is the<br>master<br>contract<br><br>under the Maximum Mortgage Contract. Baoding Tongmei Xtal Manufacture<br>Co., Ltd., a subsidiar<br>y of the Company, uses its industrial real estate located at the east<br>side of the new 107 National Highway in Dingxing County, Baoding City, Hebei<br>Province and the state<br>-<br>owned land construction and use right shared by other industrial<br>real estate except 1,<br><br>6 and 7 as collateral, Refer to Note V 54 for intangible assets with<br>a book value of RMB12,463,863.56<br>-<br><br>land use rights and fixed assets with a book value<br>of<br>RMB<br>75,383,575.00<br>-<br><br>houses and buildings. The above borrowings have been repaid<br>in full on April 2<br>1, 2021.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>117<br><br>3<br>-<br>2<br>-<br>1<br>-<br>120<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>19. Short<br>-<br>term borrowings (continued)<br><br>Mortgage loans (Continued)<br><br>December 31, 2019<br><br>On July 17, 2019, the Company signed a Working Capital Loan Contract with Beijing<br>Tongzhou<br><br>Branch of Bank of China Limited, with a total loan amount of<br>RMB<br>40,000,000.00. The loan period is from June 19, 2019 to July 31, 2020, 12 months<br>from the actual withdrawal date, and the annual interest rate of the loan is 4.6980%; the<br>Loan Contract is a s<br>ingle agreement under the Credit Line Agreement. The credit line<br>provided by Tongzhou Branch of Bank of China Limited Beijing to the Company is<br>RMB<br>40,000,000.00, and the credit period is from July 17, 2019 to June 2, 2020.<br>Meanwhile, the Loan Contract is t<br>he<br>master contract<br><br>under the maximum mortgage<br>contract. Baoding Tongmei Xtal Manufacture Co., Ltd., a subsidiary of the Company,<br>uses its industrial real estate located at the east side of the new 107 National Highway<br>in Dingxing County, Baoding City, Hebe<br>i Province and the state<br>-<br>owned land<br>construction and use right shared by other industrial real estate except 1, 6 and 7 as<br>collateral, for intangible assets with a book value of RMB12,725,343.21<br>-<br><br>land use<br>rights, fixed assets with a book value of<br>RMB<br>52,96<br>6,875.00<br>-<br><br>buildings and<br>construction<br>-<br>in<br>-<br>progress with a book value of RMB26,112,000.00, see Note V 54. The<br>above borrowings have been repaid in full on August 10, 2020.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>118<br><br>3<br>-<br>2<br>-<br>1<br>-<br>121<br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>19. Short<br>-<br>ter<br>m borrowings (continued)<br><br>Guaranteed loan<br><br>December 31, 2021<br><br>On December 7, 2021, the Company submitted the Withdrawal Application No.<br>TK2112071703021 to Beijing Branch of China Merchants Bank Co., Ltd. The total<br>loan amount was<br>RMB<br>10,000,000.00, the loan pe<br>riod was from December 7, 2021 to<br>December 6, 2022, and the annual interest rate was 3.550%. The Loan Contract is a<br>single agreement under the Credit Line Agreement No. 2021 Jiuxianqiao Credit 1176.<br>The credit line provided by Beijing Branch of China Merch<br>ants Bank Co., Ltd. to the<br>Company is<br>RMB<br>10,000,000.00, and the credit period is from December 7, 2021 to<br>December 5, 2022. The Loan Contract is guaranteed by Beijing Capital Financing<br>Guarantee Co., Ltd. and the maximum amount irrevocable guarantee No. 20<br>21<br>Jiuxianqiao Credit 1176 and the Entrusted Guarantee Contract No. CGIG2021 No. 4625<br>were signed. The maximum amount of guarantee is<br>RMB<br>10,000,000.00. Meanwhile,<br>counter guarantee was provided for the guarantee: 1) Chaoyang Tongmei Xtal<br>Technology Co., Lt<br>d., a subsidiary of the Company, provided counter guarantee in the<br>form of joint liability guarantee and signed the Credit Counter Guarantee Contract No.<br>CGIG2021 No. 4625 0002; 2) Baoding Tongmei Xtal Manufacture Co., Ltd., a<br>subsidiary of the Company, pr<br>ovided counter guarantee in the form of joint and several<br>liability guarantee and signed the Credit Counter Guarantee Contract No. CGIG2021<br>No. 4625 No. 0001.<br><br>On December 10, 2021,<br>Beijing Boyu Semiconductor Vessel Craftwork Technology<br>Co., Ltd.<br>, a subsidi<br>ary of the Company, signed a Working Capital Loan Contract No.<br>2021 (Tongzhou) Zi No. 02856 with Beijing Tongzhou Branch of Industrial and<br>Commercial Bank of China, with a total loan amount of<br>RMB<br>10,000,000.00 and a loan<br>period from December 22, 2021 to De<br>cember 22, 2022, the annual interest rate of the<br>loan is 3.87%. Meanwhile, it signed a strategic cooperation agreement with Beijing<br>Tongzhou Branch of Industrial and Commercial Bank of China Limited. The credit line<br>provided by Beijing Tongzhou Branch of I<br>ndustrial and Commercial Bank of China<br>Limited to the Company is<br>RMB<br>10,000,000.00, all of which are under working capital<br>loans, bank guarantees and acceptance bills. The credit period is from December 10,<br>2021 to December 9, 2023. The Loan Contract is gua<br>ranteed by Beijing Zhongguancun<br>Technology Financing Guarantee Co., Ltd. and the Entrusted Guarantee Contract No.<br>WT1441<br>-<br>1 in 2021 is signed. Meanwhile, counter guarantee was provided for the<br>guarantee: Boyu (Tianjin) Semiconductor Materials Co., Ltd., a s<br>ubsidiary of the<br>Company, provided counter guarantee with the real estate in the Property Right<br>Certificate No. Jin (2021) Baodi District Real Estate No. 7071577 as collateral, and the<br>collateral were fixed assets<br>-<br><br>houses and buildings with a book value of<br><br>RMB<br>24,935,760.69 for the construction<br>-<br>in<br>-<br>progress with a book value of<br>RMB<br>9,091,115.67 and the intangible assets with a book value of<br>RMB<br>6,502,046.67,<br>see Notes V and 54. The maximum amount of Counter Guarantee (Real Estate<br>Mortgage) Contract No. DYF1441 in 2021 was signed, and the maximum amount of<br>principal balance of the guaranteed principal creditor's right was<br>RMB<br>15,000,000.00.<br><br>As of t<br>he date of the Report, the above borrowings have not been repaid due.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>119<br><br>3<br>-<br>2<br>-<br>1<br>-<br>1<br>22<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>19. Short<br>-<br>term borrowings (continued)<br><br>Guaranteed borrowings (Continued)<br><br>December 31, 2020<br><br>On December 18, 2020, the Company's subsidiary,<br>Beijing Boyu Semiconductor Vessel<br>Craftwork Technology Co., Ltd.<br><br>signed a Working Capital Loan Contract with Beijing<br>Tongzhou Branch of Industrial and Commercial Bank of China, with a total loan<br>amount of<br>RMB<br>10,000,000.00, a loan period from December 22, 2020 to December 20,<br>2021, and an annual interest rate of 3.9200%. The Loan Contract is guaranteed by<br>Beijing Zhongguancun Technology Financing Guarantee Co., Ltd., and the maximum<br>amount of guarantee contract<br><br>and the maximum amount of guarantee contract are<br>signed. The maximum amount of guarantee is RMB15,000,000.00. Meanwhile, counter<br>guarantee was provided for the guarantee: 1) Boyu (Tianjin) Semiconductor Materials<br>Co., Ltd., a subsidiary of the Company, an<br>d He Junfang, its general manager, provided<br>counter guarantee in the form of guarantee and signed the Maximum Counter Guarantee<br>(Guarantee) Contract; 2)<br>Beijing Boyu Semiconductor Vessel Craftwork Technology<br>Co., Ltd.<br>, a subsidiary of the Company, provided<br><br>counter guarantee with all accounts<br>receivable of RMB12,733,341.37 formed before the main debt was paid off as collateral,<br>and signed the maximum counter guarantee (pledge of accounts receivable); 3) Boyu<br>(Tianjin) Semiconductor Materials Co., Ltd., a sub<br>sidiary of the Company, has entered<br>into the Maximum Counter Guarantee (Real Estate Mortgage) Contract by providing<br>counter guarantee with its construction<br>-<br>in<br>-<br>progress<br>-<br><br>Production Workshop I,<br>Production Workshop II,<br>R&D<br><br>Workshop, comprehensive station bui<br>lding and guard<br>room at the intersection of Zongyi Road and Heng’er Road, Baodi District, Tianjin as<br>collateral. Among them, the mortgage of the above real estate has not been handled as<br>of December 13, 2021. The available amount<br>RMB<br>10,000,000.00 before th<br>e mortgage<br>registration of the real estate is completed according to the agreement in the maximum<br>amount entrusted guarantee contract.<br><br>December 31, 2019<br><br>None.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>120<br><br>3<br>-<br>2<br>-<br>1<br>-<br>123<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>19. Short<br>-<br>term borrowin<br>gs (continued)<br><br>Pledge loan<br><br>December 31, 2021<br><br>(1)<br><br>On September 16, 2021, the Company<br>’<br>s subsidiary Chaoyang Jinmei Gallium<br>Industry Co., Ltd. signed a Domestic Comprehensive Factoring Agreement No.<br>2021DF506 with Beijing Branch of Bank of China Limited to factor<br>ing the accounts<br>receivable of Company. The credit line is<br>RMB<br>10,000,000.00, with a period from<br>September 16, 2021 to March 17, 2022, and the financing cost is 3.850%. The<br>factoring has not been returned due as of the date of the Report.<br><br>(2)<br><br>On September 16, 2<br>021, the Company<br>’<br>s Subsidiary<br>Beijing Boyu Semiconductor<br>Vessel Craftwork Technology Co., Ltd.<br><br>signed the domestic comprehensive<br>Factoring Agreement No. 2021DF505 with Beijing Branch of Bank of China<br>Limited to factoring the accounts receivable of the Comp<br>any. The credit line was<br>RMB<br>7,760,000.00 and the term is from September 16, 2021 to March 17, 2022, the<br>financing cost was 3.850%. The factoring has not been returned due as of the date<br>of the Report.<br><br>December 31, 2020<br><br>(1)<br><br>On September 29, 2020, Chaoyang<br>Jinmei Gallium Industry Co., Ltd., a subsidiary<br>of the Company, signed a domestic comprehensive Factoring Agreement with<br>Beijing Branch of Bank of China Limited to factoring the accounts receivable of<br>the Company. The credit line is<br>RMB<br>10,000,000.00, and t<br>he period is from<br>September 29, 2020 to September 21, 2021. The financing cost is 2.9000%. The<br>factoring loan has expired on March 22, 2021 as of the date of the Report.<br><br><br>(2)<br><br>On September 29, 2020, the Company's subsidiary<br>Beijing Boyu Semiconductor<br>Vessel Craftwork Technology Co., Ltd.<br><br>signed a Domestic Comprehensive<br>Factoring Agreement with Beijing Branch of Bank of China Limited, to factoring<br>the accounts receivable of the C<br>ompany. The credit line is<br>RMB<br>10,000,000.00, and<br>the period is from September 28, 2020 to September 21, 2021. The financing cost<br>is 2.9000%. The factoring loan has expired on March 21, 2021 as of the date of the<br>Report.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>121<br><br>3<br>-<br>2<br>-<br>1<br>-<br>124<br><br><br>V. Notes to Main Items of Consolid<br>ated Financial Statements<br><br>(Continued)<br><br>19. Short<br>-<br>term borrowings (continued)<br><br>Pledged loans (Continued)<br><br>December 31, 2019<br><br>None.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>122<br><br>3<br>-<br>2<br>-<br>1<br>-<br>125<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>19. Short<br>-<br>term borrowings (continued)<br><br>Credit loan<br><br>Decemb<br>er 31, 2021<br><br>On December 8, 2021, the Company submitted the withdrawal application No.<br>TK2112081113072 to Beijing Branch of China Merchants Bank Co., Ltd. The loan<br>amount was<br>RMB<br>10,000,000.00, the loan period was from September 22, 2021 to<br>November 15, 2022<br>, and the annual interest rate was 4.220%. The Loan Contract is a<br>single agreement under the Credit Line Agreement No. 2021 Jiuxianqiao Credit 1205.<br>The credit line provided by Beijing Branch of China Merchants Bank Co., Ltd. to the<br>Company is<br>RMB<br>10,000,00<br>0.00, and the credit period is from December 6, 2021 to<br>December 2, 2022. As of the date of the Report, the above borrowings have not been<br>repaid due.<br><br>December 31, 2020<br><br>None.<br><br>December 31, 2019<br><br>None.<br><br>The Group has no overdue loans as of December 31,<br>2021, 2020 and 2019.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>123<br><br>3<br>-<br>2<br>-<br>1<br>-<br>126<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>20. Accounts payable<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Materials payable<br><br><br><br>122,512,602.84<br><br><br>144,640,852.50<br><br><br>109,420,672.63<br><br><br>As of December 31, 2021, important accounts payable with an aging of more than 1<br>year are listed as follows:<br><br><br><br>Amount payable<br><br><br><br>Reason for outstanding<br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>34,286,138.73<br><br><br><br>Parent Company’s<br>financial support to<br>domestic subsidiaries<br><br><br>As of December 31, 2020, important accounts payable with an aging of more than 1<br>year are listed as follows:<br><br><br><br>Amount payable<br><br><br><br>Reason for outstanding<br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>63,284,340.43<br><br><br><br>Parent Company<br>’<br>s<br>financial support to<br>domestic subsidiaries<br><br><br>As of December 31, 2019, important accounts payable with an aging of more than 1<br>year are listed as follows:<br><br><br><br>Amount payable<br><br><br><br>Reason for outstanding<br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>15,895,504.30<br><br><br><br>Parent Company<br>’<br>s<br>financial support to<br>domestic subsidiaries
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>124<br><br>3<br>-<br>2<br>-<br>1<br>-<br>127<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>21. Accounts received in advance<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Payment for goods<br><br><br><br>-<br><br><br>-<br><br><br>912,554.07<br><br><br><br>There is<br><br>no important accounts received in advance with an aging of more than one year<br>on December 31, 2021, 2020 and 2019.<br><br>22. Contract liabilities<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Contract payment<br>received in advance<br><br><br><br>5,153,911.67<br><br><br>1,777,199.43<br><br><br>-<br><br><br>23. Staff remuneration payables<br><br>2021<br><br><br><br>Beginning<br>balance<br><br><br><br>Increase this<br>year<br><br><br><br>Decrease this<br>year<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Short<br>-<br>term compensation<br><br><br>22,496,721.89<br><br><br><br>199,323,762.54<br><br><br><br>191,642,070.70<br><br><br><br>30,178,413.73<br><br><br>Post<br>-<br>employment benefits<br>(defined contribution plan)<br><br><br>57,368.27<br><br><br><br>18,199,006.94<br><br><br><br>17,328,670.50<br><br><br><br>927,704.71<br><br><br>Termination benefits<br><br><br>-<br><br><br><br>502,879.00<br><br><br><br>502,879.00<br><br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>22,554,090.16<br><br><br><br>218,025,648.48<br><br><br><br>209,473,620.20<br><br><br><br>31,106,118.44<br><br><br>2020<br><br><br><br>Beginning<br>balance<br><br><br><br>Increase this<br>year<br><br><br><br>Decrease this<br>year<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Short<br>-<br>term compensation<br><br><br>17,325,452.11<br><br><br><br>137,224,678.66<br><br><br><br>132,053,408.88<br><br><br><br>22,496,721.89<br><br><br>Post<br>-<br>employment benefits<br>(defined contribution plan)<br><br><br>851,179.41<br><br><br><br>1,143,965.66<br><br><br><br>1,937,776.80<br><br><br><br>57,368.27<br><br><br>Termination benefits<br><br><br>-<br><br><br><br>333,804.12<br><br><br><br>333,804.12<br><br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>18,176,631.52<br><br><br><br>138,702,448.44<br><br><br><br>134,324,989.80<br><br><br><br>22,554,090.16
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>125<br><br>3<br>-<br>2<br>-<br>1<br>-<br>128<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>23. Staff remuneration payables (continued)<br><br>2019<br><br><br><br>Beginning<br>balance<br><br><br><br>Increase this<br>year<br><br><br><br>Decrease this<br>year<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Short<br>-<br>term compensation<br><br><br>16,950,059.10<br><br><br><br>119,088,102.10<br><br><br><br>118,712,709.09<br><br><br><br>17,325,452.11<br><br><br>Post<br>-<br>employment benefits<br>(defined contribution plan)<br><br><br>1,035,149.06<br><br><br><br>13,977,674.40<br><br><br><br>14,161,644.05<br><br><br><br>851,179.41<br><br><br>Termination benefits<br><br><br>-<br><br><br><br>11,031,921.50<br><br><br><br>11,031,921.50<br><br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>17,985,208.16<br><br><br><br>144,097,698.00<br><br><br><br>143,906,274.64<br><br><br><br>18,176,631.52<br><br><br>Short<br>-<br>term compensation is as follows:<br><br>2021<br><br><br><br>Beginning<br>balance<br><br><br><br>Increase this<br>year<br><br><br><br>Decrease this<br>year<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Wages, bonuses, allowances and<br>subsidies<br><br><br>20,808,209.10<br><br><br><br>169,456,263.29<br><br><br><br>161,578,666.85<br><br><br><br>28,685,805.54<br><br><br>Employee welfare<br><br><br>189,465.00<br><br><br><br>10,120,522.36<br><br><br><br>10,101,337.36<br><br><br><br>208,650.00<br><br><br>Social insurance premium<br><br><br>600,001.45<br><br><br><br>11,526,830.68<br><br><br><br>11,647,666.13<br><br><br><br>479,166.00<br><br><br>Including: medical insurance<br><br><br>593,877.45<br><br><br><br>11,058,208.76<br><br><br><br>11,193,047.17<br><br><br><br>459,039.04<br><br><br>Industrial injury<br>insurance premium<br><br><br>3,340.00<br><br><br><br>415,431.93<br><br><br><br>398,644.97<br><br><br><br>20,126.96<br><br><br>Maternity insurance<br>premium<br><br><br>2,784.00<br><br><br><br>53,189.99<br><br><br><br>55,973.99<br><br><br><br>-<br><br><br><br>Housing Provident Fund<br><br><br>689,421.00<br><br><br><br>7,772,079.89<br><br><br><br>7,900,185.89<br><br><br><br>561,315.00<br><br><br>Labor union funds and employee<br>education funds<br><br><br>209,625.34<br><br><br><br>448,066.32<br><br><br><br>414,214.47<br><br><br><br>243,477.19<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>22,496,721.89<br><br><br><br>199,323,762.54<br><br><br><br>191,642,070.70<br><br><br><br>30,178,413.73
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>126<br><br>3<br>-<br>2<br>-<br>1<br>-<br>129<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>23. Staff remuneration payables (continued)<br><br>Short<br>-<br>term compensation is as follows: (Continued)<br><br>2020<br><br><br><br>Beginning<br>balance<br><br><br><br>Increase this<br>year<br><br><br><br>Decrease this<br>year<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Wages, bonuses, allowances and<br>subsidies<br><br><br>15,755,393.53<br><br><br><br>116,528,067.74<br><br><br><br>111,475,252.17<br><br><br><br>20,808,209.10<br><br><br>Employee welfare<br><br><br>94,400.00<br><br><br><br>8,305,045.49<br><br><br><br>8,209,980.49<br><br><br><br>189,465.00<br><br><br>Social insurance premium<br><br><br>750,873.83<br><br><br><br>6,776,948.85<br><br><br><br>6,927,821.23<br><br><br><br>600,001.45<br><br><br>Including: medical insurance<br><br><br>687,235.30<br><br><br><br>6,640,350.13<br><br><br><br>6,733,707.98<br><br><br><br>593,877.45<br><br><br>Industrial injury<br>insurance premium<br><br><br>23,412.83<br><br><br><br>37,879.88<br><br><br><br>57,952.71<br><br><br><br>3,340.00<br><br><br>Maternity insurance<br>premium<br><br><br>40,225.70<br><br><br><br>98,718.84<br><br><br><br>136,160.54<br><br><br><br>2,784.00<br><br><br>Housing Provident Fund<br><br><br>541,644.00<br><br><br><br>5,384,332.83<br><br><br><br>5,236,555.83<br><br><br><br>689,421.00<br><br><br>Labor union funds and employee<br>education funds<br><br><br>183,140.75<br><br><br><br>230,283.75<br><br><br><br>203,799.16<br><br><br><br>209,625.34<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>17,325,452.11<br><br><br><br>137,224,678.66<br><br><br><br>132,053,408.88<br><br><br><br>22,496,721.89<br><br><br>2019<br><br><br><br>Beginning<br>balance<br><br><br><br>Increase this<br>year<br><br><br><br>Decrease this<br>year<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Wages, bonuses, allowances and<br>subsidies<br><br><br>15,725,642.66<br><br><br><br>96,691,569.81<br><br><br><br>96,661,818.94<br><br><br><br>15,755,393.53<br><br><br>Employee welfare<br><br><br>58,050.00<br><br><br><br>7,876,347.40<br><br><br><br>7,839,997.40<br><br><br><br>94,400.00<br><br><br>Social insurance premium<br><br><br>775,581.32<br><br><br><br>8,929,123.23<br><br><br><br>8,953,830.72<br><br><br><br>750,873.83<br><br><br>Including: medical insurance<br><br><br>682,522.16<br><br><br><br>7,644,813.02<br><br><br><br>7,640,099.88<br><br><br><br>687,235.30<br><br><br>Industrial injury<br>insurance premium<br><br><br>45,812.85<br><br><br><br>629,544.37<br><br><br><br>651,944.39<br><br><br><br>23,412.83<br><br><br>Maternity insurance<br>premium<br><br><br>47,246.31<br><br><br><br>654,765.84<br><br><br><br>661,786.45<br><br><br><br>40,225.70<br><br><br>Housing Provident Fund<br><br><br>231,171.00<br><br><br><br>5,412,668.62<br><br><br><br>5,102,195.62<br><br><br><br>541,644.00<br><br><br>Labor union funds and employee<br>education funds<br><br><br>159,614.12<br><br><br><br>178,393.04<br><br><br><br>154,866.41<br><br><br><br>183,140.75<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>16,950,059.10<br><br><br><br>119,088,102.10<br><br><br><br>118,712,709.09<br><br><br><br>17,325,452.11
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>127<br><br>3<br>-<br>2<br>-<br>1<br>-<br>130<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>23. Staff remuneration payables (continued)<br><br>The defined contribution plan is as follows:<br><br>2021<br><br><br><br>Beginning<br>balance<br><br><br><br>Increase this year<br><br><br><br>Decrease this<br>year<br><br><br><br>Year<br>-<br>end balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Basic endowment<br>insurance premium<br><br><br>55,969.04<br><br><br><br>17,786,653.15<br><br><br><br>16,930,493.82<br><br><br><br>912,128.37<br><br><br>Unemployment<br>insurance premium<br><br><br>1,399.23<br><br><br><br>412,353.79<br><br><br><br>398,176.68<br><br><br><br>15,576.34<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>57,368.27<br><br><br><br>18,199,006.94<br><br><br><br>17,328,670.50<br><br><br><br>927,704.71<br><br><br>2020<br><br><br><br>Beginning<br>balance<br><br><br><br>Increase this year<br><br><br><br>Decrease this<br>year<br><br><br><br>Year<br>-<br>end balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Basic endowment<br>insurance premium<br><br><br>809,398.15<br><br><br><br>1,093,859.26<br><br><br><br>1,847,288.37<br><br><br><br>55,969.04<br><br><br>Unemployment<br>insurance premium<br><br><br>41,781.26<br><br><br><br>50,106.40<br><br><br><br>90,488.43<br><br><br><br>1,399.23<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>851,179.41<br><br><br><br>1,143,965.66<br><br><br><br>1,937,776.80<br><br><br><br>57,368.27<br><br><br>2019<br><br><br><br>Beginning<br>balance<br><br><br><br>Increase this year<br><br><br><br>Decrease this<br>year<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Basic endowment<br>insurance premium<br><br><br>992,379.89<br><br><br><br>13,397,252.03<br><br><br><br>13,580,233.77<br><br><br><br>809,398.15<br><br><br>Unemployment<br>insurance premium<br><br><br>42,769.17<br><br><br><br>580,422.37<br><br><br><br>581,410.28<br><br><br><br>41,781.26<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>1,035,149.06<br><br><br><br>13,977,674.40<br><br><br><br>14,161,644.05<br><br><br><br>851,179.41
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>128<br><br>3<br>-<br>2<br>-<br>1<br>-<br>131<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>24. Taxes payable<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>VAT<br><br><br><br>947,650.45<br><br><br><br>400,164.21<br><br><br><br>154,554.04<br><br><br>Corporate income tax<br><br><br><br>2,969,921.17<br><br><br><br>5,454,367.37<br><br><br><br>8,830,753.17<br><br><br>Individual income tax<br><br><br><br>112,380.15<br><br><br><br>240,774.20<br><br><br><br>194,394.39<br><br><br>Urban maintenance and<br>construction tax<br><br><br><br>152,423.06<br><br><br><br>139,905.74<br><br><br><br>10,372.88<br><br><br>Education surcharges<br><br><br><br>80,082.01<br><br><br><br>83,943.45<br><br><br><br>4,602.65<br><br><br>Local education surcharges<br><br><br><br>53,388.01<br><br><br><br>55,962.30<br><br><br><br>3,068.44<br><br><br>Property tax<br><br><br><br>981,473.30<br><br><br><br>831,987.12<br><br><br><br>57,907.54<br><br><br>Land use tax<br><br><br><br>60,482.86<br><br><br><br>27,891.90<br><br><br><br>27,891.90<br><br><br>Stamp duty<br><br><br><br>92,678.20<br><br><br><br>556,754.20<br><br><br><br>31,761.40<br><br><br>Others<br><br><br><br>109,818.24<br><br><br>-<br><br><br><br>21,200.00<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>5,560,297.45<br><br><br>7,791,750.49<br><br><br>9,336,506.41
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>129<br><br>3<br>-<br>2<br>-<br>1<br>-<br>132<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>25. Other<br>payables<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Dividends payable<br><br><br><br><br>29,746,000.00<br><br><br>29,746,000.00<br><br><br>8,200,000.00<br><br><br>Other payables<br><br><br><br><br>151,008,586.76<br><br><br>486,571,089.51<br><br><br>162,910,599.51<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>180,754,586.76<br><br><br>516,317,089.51<br><br><br>171,110,599.51<br><br><br>Dividends payable<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br><br><br>29,746,000.00<br><br><br>29,746,000.00<br><br><br>8,200,000.00<br><br><br><br>On December 31, 2021, the Group's unpaid dividends payable for more than one year<br>were<br>RMB<br>29,746,000.00 (December 31, 2020:<br>RMB<br>8,200,000.00).<br><br>The reason for the non<br>-<br>payment for more than one year is the temporary financial<br>support of the parent<br>Company to its domestic subsidiaries.<br><br>Other payables<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Project and equipment<br>payment<br><br><br><br><br>99,688,095.23<br><br><br>151,832,824.36<br><br><br>147,190,414.32<br><br><br>Current accounts of related<br>parties<br><br><br><br><br>30,849,274.44<br><br><br>9,434,269.81<br><br><br>8,430,620.51<br><br><br>Accrued expenses<br><br><br><br><br>3,738,838.85<br><br><br>2,827,048.35<br><br><br>2,289,809.37<br><br><br>Withholding and payment of<br>income tax<br><br><br><br><br><br><br>1,394,000.00<br><br><br>2,394,000.00<br><br><br>-<br><br><br>Agency commission<br><br><br><br>2,250,428.33<br><br><br>1,390,152.37<br><br><br>1,576,871.33<br><br><br>Professional service fee<br><br><br><br>5,684,571.04<br><br><br>236,240.90<br><br><br>286,597.92<br><br><br>Financing fund<br><br><br><br>-<br><br><br>314,473,750.00<br><br><br>-<br><br><br>Others<br><br><br><br>7,403,378.87<br><br><br>3,982,803.72<br><br><br>3,136,286.06<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>151,008,586.76<br><br><br>486,571,089.51<br><br><br>162,910,599.51<br><br><br>As of December 31, 2021, important other payables with an aging of more than 1 year<br>are as follows:<br><br><br><br>Amount payable<br><br><br><br>Reason for outstanding<br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>26,340,804.72<br><br><br><br>In order to support the development of<br>domestic<br>subsidiaries, AXT, Inc,<br><br>deferred collection from domestic<br>subsidiaries
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>130<br><br>3<br>-<br>2<br>-<br>1<br>-<br>133<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>25. Other payables<br><br>(continued)<br><br>Other payables (continued)<br><br>As of December 31, 2020,<br>important other payables with an aging of more than 1 year<br>are as follows:<br><br><br><br>Amount payable<br><br><br><br>Reason for outstanding<br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>87,585,579.96<br><br><br><br>In order to support the development of<br>domestic subsidiaries, AXT, Inc,<br>deferred collection from<br>domestic<br>subsidiaries<br><br><br>As of December 31, 2019, important other payables with an aging of more than 1 year<br>are as follows:<br><br><br><br>Amount payable<br><br><br><br>Reason for outstanding<br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br><br>85,009,727.21<br><br><br><br>In order to support the development of<br>domestic subsidiaries, AXT, Inc,<br>deferred collection from domestic<br>subsidiaries<br><br><br>Karaqin Left Wing Mongolian<br>Autonomous County Construction<br>Engineering Company<br><br><br>1,549,268.05<br><br><br><br><br>Outstanding engineering payment<br><br><br><br><br><br><br><br><br><br><br><br>86,558,995.26<br><br><br><br><br><br>26.<br><br>Non<br>-<br>current liabilities due within one year<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Long<br>-<br>term accounts payable<br>due within one year<br><br><br><br>1,597,917.21<br><br><br>1,270,662.51<br><br><br>1,212,434.40<br><br><br>Lease liabilities due within<br>one year<br><br><br><br>3,582,199.76<br><br><br>-<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>5,180,116.97<br><br><br>1,270,662.51<br><br><br>1,212,434.40
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>131<br><br>3<br>-<br>2<br>-<br>1<br>-<br>134<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>27.<br><br>Lease liabilities<br><br><br>December 31, 2021<br><br><br><br><br><br>Lease payables<br><br>16,313,759.11<br><br><br>Less:<br>Non<br>-<br>current liabilities due within one year<br><br>3,582,199.76<br><br><br><br><br><br><br>12,731,559.35<br><br><br>28.<br><br>Long<br>-<br>term accounts payable<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Long<br>-<br>term accounts payable<br><br><br><br>6,293,999.48<br><br><br>11,845,887.69<br><br><br>13,116,550.20<br><br><br>Long<br>-<br>term accounts payable<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Finance lease payables<br><br><br><br>-<br><br><br>15,965,000.00<br><br><br>17,825,000.00<br><br><br>Patent cross licensing fee payable<br><br><br><br>8,925,980.00<br><br><br>-<br><br><br>-<br><br><br>Less:<br>unrecognized financing<br>expenses<br><br><br><br>1,034,063.31<br><br><br>2,848,449.80<br><br><br>3,496,015.40<br><br><br><br><br><br>7,891,916.69<br><br><br>13,116,550.20<br><br><br>14,328,984.60<br><br><br><br><br><br><br><br><br><br><br><br>Less: Long<br>-<br>term accounts payable<br>due within one year<br><br><br><br>1,597,917.21<br><br><br>1,270,662.51<br><br><br>1,212,434.40<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>6,293,999.48<br><br><br>11,845,887.69<br><br><br>13,116,550.20
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>132<br><br>3<br>-<br>2<br>-<br>1<br>-<br>135<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>29. Accrued liabilities<br><br>2021<br><br><br><br>Beginning<br>balance<br><br><br><br>Increase this<br>year<br><br><br><br>Decrease this<br>year<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Product quality<br>assurance<br><br><br>1,860,786.83<br><br><br><br>4,518,807.75<br><br><br><br>1,745,070.54<br><br><br><br>4,634,524.04<br><br><br><br>Note<br>1<br><br><br>Pending litigation<br><br><br>-<br><br><br><br>406,835.60<br><br><br><br>-<br><br><br><br>406,835.60<br><br><br><br>Note<br>2<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>1,860,786.83<br><br><br><br>4,925,643.35<br><br><br><br>1,745,070.54<br><br><br><br>5,041,359.64<br><br><br><br><br><br>2020<br><br><br><br>Beginning<br>balance<br><br><br><br>Increase this<br>year<br><br><br><br>Decrease this<br>year<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Product quality<br>assurance<br><br><br>1,076,864.69<br><br><br><br>2,497,196.22<br><br><br><br>1,713,274.08<br><br><br><br>1,860,786.83<br><br><br><br>Note<br>1<br><br><br>2019<br><br><br><br>Beginning<br>balance<br><br><br><br>Increase this<br>year<br><br><br><br>Decrease this<br>year<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Product quality<br>assurance<br><br><br>702,977.80<br><br><br><br>1,449,001.76<br><br><br><br>1,075,114.87<br><br><br><br>1,076,864.69<br><br><br><br>Note<br>1<br><br><br><br>Note 1: The product quality assurance in the estimated liabilities is the quality assurance<br>service provided by the Group to customers for the sold goods within the quality<br>assurance period.<br><br>Note 2: The pending litigation in the<br>estimated liabilities is labor dispute litigation,<br>and the Group recognizes the estimated liabilities based on the best estimate of<br>the estimated compensation amount.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>133<br><br>3<br>-<br>2<br>-<br>1<br>-<br>136<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>30.<br>Deferred income<br><br>2021<br><br><br><br>Beginning<br>balance<br><br><br><br>Increase this year<br><br><br><br>Decrease this<br>year<br><br><br><br>Year<br>-<br>end balance<br><br><br>Job<br>stabilization<br>subsidy<br><br><br>968,896.83<br><br><br><br>-<br><br><br><br><br>968,896.83<br><br><br><br>-<br><br><br><br>Enclave<br>subsidy<br><br><br>22,778,039.42<br><br><br><br>5,000,000.00<br><br><br><br>1,243,104.73<br><br><br><br>26,534,934.69<br><br><br>Project construction<br>subsidy<br><br><br>31,189,316.67<br><br><br><br>41,811,000.00<br><br><br><br>817,863.08<br><br><br><br>72,182,453.59<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>54,936,252.92<br><br><br><br>46,811,000.00<br><br><br><br>3,029,864.64<br><br><br><br>98,717,388.28<br><br><br>2020<br><br><br><br>Beginning<br>balance<br><br><br><br>Increase this year<br><br><br><br>Decrease this<br>year<br><br><br><br>Year<br>-<br>end balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Job<br>stabilization<br>subsidy<br><br><br>-<br><br><br><br>968,896.83<br><br><br><br>-<br><br><br><br>968,896.83<br><br><br>Enclave<br>subsidy<br><br><br>-<br><br><br><br>23,210,000.00<br><br><br><br>431,960.58<br><br><br><br>22,778,039.42<br><br><br>Project construction<br>subsidy<br><br><br>31,321,166.67<br><br><br><br>530,000.00<br><br><br><br>661,850.00<br><br><br><br>31,189,316.67<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>31,321,166.67<br><br><br><br>24,708,896.83<br><br><br><br>1,093,810.58<br><br><br><br>54,936,252.92<br><br><br>2019<br><br><br><br>Beginning<br>balance<br><br><br><br>Increase this year<br><br><br><br>Decrease this<br>year<br><br><br><br>Year<br>-<br>end balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Project construction<br>subsidy<br><br><br>13,778,100.00<br><br><br><br>18,500,000.00<br><br><br><br>956,933.33<br><br><br><br>31,321,166.67
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>134<br><br>3<br>-<br>2<br>-<br>1<br>-<br>137<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>30. Deferred income (continued)<br><br>The job stabilization subsidy in 2020 is: the subsidiary Baoding Tongmei Xtal<br>Manufacture Co., Ltd. received the special fund for job stabilization subsidy allocated<br>by Dingxing County unemployment insurance on November 20, 2020 and the special<br>fund for in<br>dustrial enterprise structure adjustment allocated by Dingxing County<br>Financial Centralized Payment Center on December 22, 2020, it is used for the<br>subsequent payment of social insurance premiums, job transfer training, skill upgrading<br>training, employee l<br>iving subsidies and other expenditures related to stable employment<br>for employees requested by Bureau of Human Resources & Social Security of Baoding.<br><br>The enclave subsidy from 2020 to 2021 is: the subsidiary Chaoyang Jinmei Gallium<br>Industry Co., Ltd. recei<br>ved the enterprise production project construction subsidy of<br>RMB<br>5,000,000.00 from the Management Committee of Chaoyang Kazuo Economic<br>Development Zone in 2021. In 2020, the subsidiary Chaoyang Tongmei<br><br>Xtal<br>Technology Co., Ltd. received the enterprise prod<br>uction project construction subsidy<br>of<br>RMB<br>14,710,000.00 from the development and Reform Bureau of Karaqin Left Wing<br>Mongolian Autonomous County, Chaoyang Jinmei gallium Industry Co., Ltd. received<br>the enterprise production project construction subsidy of R<br>MB5,000,000.00 from the<br>Management Committee of Chaoyang Kazuo Economic Development Zone,Boyu<br>(Chaoyang) Semiconductor Technology Co., Ltd.received the enterprise production<br>project construction subsidy of RMB3,500,000.00 allocated by the development and<br>R<br>eform Bureau of Karaqin Left Wing Mongolian Autonomous County.<br><br>The project construction subsidy from 2019 to 2021 is: the subsidiary Chaoyang<br>Tongmei Xtal Technology Co., Ltd. received the enterprise project construction subsidy<br>of<br>RMB<br>26,723,000.00 from th<br>e Management Committee of Chaoyang Kazuo<br>Economic Development Zone in 2021, The subsidiary Chaoyang Xinmei High<br>-<br>purity<br>Semiconductor Materials Co., Ltd. received the enterprise project construction subsidy<br>of<br>RMB<br>15,088,000.00 from the Management Committee<br>of Chaoyang Kazuo<br>Economic Development Zone. In 2020, the subsidiary Chaoyang Jinmei Gallium<br>Industry Co., Ltd. received an enterprise project construction subsidy of<br>RMB<br>530,000.00 from the Management Committee of Chaoyang Kazuo Economic<br>Development Zone. In 2019, the subsidiary Chaoyang Tongmei Xtal Technology Co.,<br>Ltd. received an enterprise project construction subsidy of<br>RMB<br>18,500,000.00 from the<br>Management Committee o<br>f Chaoyang Kazuo Economic Development Zone.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>135<br><br>3<br>-<br>2<br>-<br>1<br>-<br>138<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>30. Deferred income (continued)<br><br>As of December 31, 2021, the liability items involving government subsidies are as<br>follows:<br><br><br><br>Beginning<br>ba<br>lance<br><br><br><br>Newly added<br>this year<br><br><br><br>Included in other<br>income /non<br>-<br>operating income<br>this year<br><br><br><br>Other<br>changes<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br>Related to<br>assets /<br>income<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Enclave subsidy<br><br><br>22,778,039.42<br><br><br><br>5,000,000.00<br><br><br><br>1,243,104.73<br><br><br><br>-<br><br><br><br>26,534,934.69<br><br><br><br>Asset related<br><br><br>Project construction<br>subsidy<br><br><br>31,189,316.67<br><br><br><br>41,811,000.00<br><br><br><br>817,863.08<br><br><br><br>-<br><br><br><br>72,182,453.59<br><br><br><br>Asset related<br><br><br>Job stabilization<br>subsidy<br><br><br>968,896.83<br><br><br><br>-<br><br><br><br>968,896.83<br><br><br><br>-<br><br><br><br>-<br><br><br><br>Revenue related<br><br><br>As of December 31, 2020, the liability items involving government subsidies are as<br>follows:<br><br><br><br>Beginning<br>balance<br><br><br><br>Newly added<br>this year<br><br><br><br>Included in other<br>income /non<br>-<br>operating income<br>this year<br><br><br><br>Other<br>changes<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br>Related to<br>assets /<br>income<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Enclave subsidy<br><br><br>-<br><br><br><br>23,210,000.00<br><br><br><br>431,960.58<br><br><br><br>-<br><br><br><br>22,778,039.42<br><br><br><br>Asset related<br><br><br>Project construction<br>subsidy<br><br><br>31,321,166.67<br><br><br><br>530,000.00<br><br><br><br>661,850.00<br><br><br><br>-<br><br><br><br>31,189,316.67<br><br><br><br>Asset related<br><br><br>Job stabilization<br>subsidy<br><br><br>-<br><br><br><br>968,896.83<br><br><br><br>-<br><br><br><br>-<br><br><br><br>968,896.83<br><br><br><br>Revenue related<br><br><br>As of December 31, 2019, the liability items involving government subsidies are as<br>follows:<br><br><br><br>Beginning<br>balance<br><br><br><br>Newly added<br>this year<br><br><br><br>Included in other<br>income /non<br>-<br>operating income this<br>year<br><br><br><br>Other<br>changes<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br>Related to<br>assets /<br>income<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Project construction<br>subsidy<br><br><br>13,778,100.00<br><br><br><br>18,500,000.00<br><br><br><br>956,933.33<br><br><br><br>-<br><br><br><br>31,321,166.67<br><br><br><br>Asset related
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial<br>Statements (Continued)<br><br>2019, 2020 and 2021<br><br><br>In<br>RMB<br><br>Yu<br>an<br><br><br>136<br><br>3<br>-<br>2<br>-<br>1<br>-<br>139<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>31. Share capital/paid<br>-<br>in capital<br><br>2021<br><br><br><br><br>Beginning balance<br><br><br><br>Increase / decrease in current year<br><br><br><br>Year<br>-<br>end balance<br><br><br><br><br><br><br><br><br><br>Capital increase<br><br><br><br><br><br>Assignment /<br>(transfer)<br><br><br><br><br><br>Subtotal<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>752,246,378.00<br><br><br><br>-<br><br><br><br>4,907,343.00<br><br><br><br>4,907,343.00<br><br><br><br>757,153,721.00<br><br><br>Beijing Bomeilian Special Ceramics Co., Ltd.<br><br><br>50,981,400.00<br><br><br><br>-<br><br><br><br>(4,907,343.00<br><br>)<br><br><br>(4,907,343.00<br><br>)<br><br><br>46,074,057.00<br><br><br>Haitong<br><br>Innovation<br><br>Securities Investment Co., Ltd.<br><br><br>-<br><br><br><br>13,156,415.00<br><br><br><br>-<br><br><br><br>13,156,415.00<br><br><br><br>13,156,415.00<br><br><br>Liaoning Haitong New Driving Force Equity Investment Fund<br>Partnership<br>(L.P.)<br><br><br>-<br><br><br><br>11,840,774.00<br><br><br><br>-<br><br><br><br>11,840,774.00<br><br><br><br>11,840,774.00<br><br><br>Liaoning Zhuomei Hi<br>-<br>tech Equity Investment Fund Partnership<br>(L.P.)<br><br><br>-<br><br><br><br>-<br><br><br><br>10,463,911.00<br><br><br><br>10,463,911.00<br><br><br><br>10,463,911.00<br><br><br>Fujian Anxin Industrial Investment Fund Partnership<br>(L.P.)<br><br><br>-<br><br><br><br>8,942,416.00<br><br><br><br>-<br><br><br><br>8,942,416.00<br><br><br><br>8,942,416.00<br><br><br>Hefei<br>Huadeng II Integrated Circuit Industrial Investment Fund<br>Partnership<br>(L.P.)<br><br><br>-<br><br><br><br>6,955,797.00<br><br><br><br>-<br><br><br><br>6,955,797.00<br><br><br><br>6,955,797.00<br><br><br>Jinggangshan Meicheng Equity Investment Partnership<br>(L.P.)<br><br><br>-<br><br><br><br>5,961,172.00<br><br><br><br>-<br><br><br><br>5,961,172.00<br><br><br><br>5,961,172.00<br><br><br>Liaoning Haitong New Energy Low<br>-<br>carbon Industry Equity<br>Investment Fund Co., Ltd.<br><br><br>-<br><br><br><br>4,604,745.00<br><br><br><br>-<br><br><br><br>4,604,745.00<br><br><br><br>4,604,745.00<br><br><br>Qingdao Xinxing I Equity Investment Fund Partnership<br>(L.P.)<br><br><br>-<br><br><br><br>3,974,553.00<br><br><br><br>-<br><br><br><br>3,974,553.00<br><br><br><br>3,974,553.00
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial<br>Statements (Continued)<br><br>2019, 2020 and 2021<br><br><br>In<br>RMB<br><br>Yu<br>an<br><br><br>137<br><br>3<br>-<br>2<br>-<br>1<br>-<br>140<br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>31. Share capital/paid<br>-<br>in capital (continued)<br><br>2021<br>(Continued)<br><br><br><br>Beginning balance<br><br><br><br>Increase / decrease in current year<br><br><br><br>Year<br>-<br>end balance<br><br><br><br><br><br><br><br><br><br>Capital increase<br><br><br><br><br><br>Assignment /<br>(transfer)<br><br><br><br><br><br>Subtotal<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Qiji (Hangzhou) Investment Counseling Co., Ltd.<br><br><br>-<br><br><br><br>3,974,553.00<br><br><br><br>-<br><br><br><br>3,974,553.00<br><br><br><br>3,974,553.00<br><br><br>Nanjing Jinchao Business Management Partnership<br>(L.P.)<br><br><br>3,119,500.00<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>3,119,500.00<br><br><br>Gongqingcheng Yihua Tongze Investment Partnership<br>(L.P.)<br><br><br>-<br><br><br><br>1,766,907.00<br><br><br><br>-<br><br><br><br>1,766,907.00<br><br><br><br>1,766,907.00<br><br><br>Beijing Dingmei Technology Development Center<br>(L.P.)<br><br><br>-<br><br><br><br>1,729,136.00<br><br><br><br>-<br><br><br><br>1,729,136.00<br><br><br><br>1,729,136.00<br><br><br>Shangrong<br><br>BAOYING (Ningbo) Investment Center<br>(L.P.)<br><br><br>-<br><br><br><br>1,315,642.00<br><br><br><br>-<br><br><br><br>1,315,642.00<br><br><br><br>1,315,642.00<br><br><br>Hangzhou Jingyue Technology Development Partnership<br>(L.P.)<br><br><br>-<br><br><br><br>993,611.00<br><br><br><br>-<br><br><br><br>993,611.00<br><br><br><br>993,611.00<br><br><br>Zhongke Hengye<br><br>(Tianjin) Technology Development Partnership<br>(L.P.)<br><br><br>11,329,200.00<br><br><br><br>-<br><br><br><br>(10,463,911.00<br><br>)<br><br><br>(10,463,911.00<br><br>)<br><br><br>865,289.00<br><br><br>Xiamen Heyong Zhicheng Equity Investment Partnership<br>(L.P.)<br><br><br>-<br><br><br><br>860,468.00<br><br><br><br>-<br><br><br><br>860,468.00<br><br><br><br>860,468.00<br><br><br>Beijing Liaoyan Technology Development Center<br>(L.P.)<br><br><br>-<br><br><br><br>697,721.00<br><br><br><br>-<br><br><br><br>697,721.00<br><br><br><br>697,721.00<br><br><br>Boyu Hengye (Tianjing) Technology Development Partnership<br>(L.P.)<br><br><br>-<br><br><br><br>637,050.00<br><br><br><br>-<br><br><br><br>637,050.00<br><br><br><br>637,050.00<br><br><br>Boyu Yingchuang (Tianjing) Technology Development Partnership<br>(L.P.)<br><br><br>-<br><br><br><br>219,934.00<br><br><br><br>-<br><br><br><br>219,934.00<br><br><br><br>219,934.00<br><br><br>Lumentime Semiconductor Equipment (Shanghai) Co., Ltd.<br><br><br>-<br><br><br><br>119,384.00<br><br><br><br>-<br><br><br><br>119,384.00<br><br><br><br>119,384.00<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>817,676,478.00<br><br><br><br>67,750,278.00<br><br><br><br>-<br><br><br><br>67,750,278.00<br><br><br><br>885,426,756.00<br><br><br>In April, 2021, the Company implemented the shareholding system reform, and officially changed its name to<br>“<br>Beijing Tongmei Xtal T<br>echnology<br>Co., Ltd.<br>”<br>, formerly known as<br>“<br>Beijing Tongmei Xtal Technology Limited<br>”<br>.. According to the resolution of the shareholders<br>’<br><br>meeting held on<br>January 21, 2021, the amended articles of association and the signed agreement, the Company applied to incre<br>ase the registered capital by<br>RMB<br>64,466,437.00, and the changed registered capital was<br>RMB<br>885,426,756.00. See Note I<br>B<br>asic<br>I<br>nformation for specific changes in paid in<br>capital.
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br><br>138<br><br>3<br>-<br>2<br>-<br>1<br>-<br>141<br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>31.<br><br>Share capital/paid<br>-<br>in capital (continued)<br><br>2020<br><br><br><br>Beginning balance<br><br><br><br>Increase / decrease in current year<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br><br><br><br><br>Increase this year<br><br><br><br>Decrease this<br>year<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>301,106,668.53<br><br><br><br>451,139,709.47<br><br><br><br>-<br><br><br><br>752,246,378.00<br><br><br>Beijing Bomeilian<br><br>Special Ceramics Co., Ltd.<br><br><br>-<br><br><br><br>50,981,400.00<br><br><br><br>-<br><br><br><br>50,981,400.00<br><br><br>Zhongke Hengye (Tianjin) Technology<br>Development Partnership<br>(L.P.)<br><br><br><br>-<br><br><br><br><br>11,329,200.00<br><br><br><br>-<br><br><br><br><br>11,329,200.00<br><br><br>Nanjing Jinchao<br><br>Business Management<br>Partnership<br>(L.P.)<br><br><br>-<br><br><br><br>3,119,500.00<br><br><br><br>-<br><br><br><br>3,119,500.00<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>301,106,668.53<br><br><br><br>516,569,809.47<br><br><br><br>-<br><br><br><br>817,676,478.00<br><br><br><br>The increase of paid in capital in 2020 was due to the implementation of the capital<br>increase and<br>share allotment plan by the Company. According to the resolution of the<br>Shareholders' Meeting and the amended articles of association, the registered capital<br>was increased from RMB301,106,668.53 to RMB820,960,319.00, and the newly<br>increased registered capi<br>tal was RMB519,853,650.47. On December29,2020, the<br>Company handled the industrial and commercial change registration at Beijing<br>Administration for Industry and Commerce. As of December 31, 2020, the paid in<br>capital has increased to RMB817,676,478.00.<br><br>2019<br><br><br><br><br><br><br>Beginning balance<br><br><br><br>Increase / decrease in current year<br><br><br><br>Year<br>-<br>end<br>balance<br><br><br><br><br><br><br><br>Increase this year<br><br><br><br>Decrease this<br>year<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>301,106,668.53<br><br><br><br>-<br><br><br><br>-<br><br><br><br>301,106,668.53
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continue<br>d)<br><br>2019, 2020 and 2021<br><br><br>In<br>RMB<br><br>Yuan<br><br><br>139<br><br>3<br>-<br>2<br>-<br>1<br>-<br>142<br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>32.<br><br>Capital surplus<br><br>2021<br><br><br><br>Beginning balance<br><br><br>Increase this year<br><br><br><br>Decrease this year<br><br><br>Year<br>-<br>end balance<br><br><br><br><br><br><br>Business<br>combination<br>under the<br>same control<br><br><br>Capital increase<br><br><br>Shareholding<br>system reform<br><br><br>Others<br><br><br><br>Shareholding system<br>reform<br><br><br>Business<br>combination<br>under the<br>same control<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Capital premium<br><br><br>-<br><br><br>6.51<br><br><br>260,984,230.00<br><br><br>-<br><br><br>-<br><br><br><br>(260,984,230.00<br><br>)<br><br>(6.51<br><br>)<br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Share premium<br><br><br>-<br><br><br>-<br><br><br>-<br><br><br>418,801,767.32<br><br><br>-<br><br><br><br>-<br><br><br>-<br><br><br>418,801,767.32<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Other capital<br>surplus<br><br><br>16,283,718.84<br><br><br>-<br><br><br>-<br><br><br>-<br><br><br>12,186,754.05<br><br><br><br>(16,618,777.84<br><br>)<br><br>-<br><br><br>11,851,695.05<br><br><br>Including:<br>share<br>-<br>based payment<br><br><br>6,798,627.03<br><br><br>-<br><br><br>-<br><br><br>-<br><br><br>10,029,835.43<br><br><br><br>(6,731,288.14<br><br>)<br><br>-<br><br><br>10,097,174.32<br><br><br>Others<br><br><br>9,485,091.81<br><br><br>-<br><br><br>-<br><br><br>-<br><br><br>2,156,918.62<br><br><br><br>(9,887,489.70<br><br>)<br><br>-<br><br><br>1,754,520.73<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>16,283,718.84<br><br><br>6.51<br><br><br>260,984,230.00<br><br><br>418,801,767.32<br><br><br>12,186,754.05<br><br><br><br>(277,603,007.84<br><br>)<br><br>(6.51<br><br>)<br><br>430,653,462.37<br><br><br>Reasons for changes in capital surplus:<br><br>Note 1: in this year, the Company's employees held the stock payment formed by the parent Company's options and restricted sh<br>ares, which<br>increased the capital surplus by<br>RMB<br>6,910,898.45. The Company granted four shareholders of the employee stock ownership<br><br>platform, including<br>Beijing Dingmei Technology Development Center<br>(L.P.)<br>, Beijing Liaoyan Technology Development Center<br>(L.P.)<br><br>and Boyu Hengye (Tianjing)<br>Technology Development Partnership and Boyu Yingchuang<br>Technology<br><br>Development Partnership<br>(L.P.)<br><br>incr<br>eased the capital surplus by<br>RMB2,657,642.59. The Company granted stock options to the Group's employees, and the capital surplus increased by RMB461,294.<br>39.<br><br>Note 2: The sinking of the general manager's salary expenses of the Group's Parent Company this year resulted in an increase<br>of<br>RMB<br>736,058.49 in the capital surplus.<br><br>Note 3: In this year, the Group recognized other capital surpluss of<br>RMB<br>1,420,860.13 for t<br>he special reserves of the associated enterprise<br>Xiaoyi<br>Xing’an Gallium Co., Ltd.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continue<br>d)<br><br>2019, 2020 and 2021<br><br><br>In<br>RMB<br><br>Yuan<br><br><br>140<br><br>3<br>-<br>2<br>-<br>1<br>-<br>143<br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>32. Capital surplus (continued)<br><br>2020<br><br><br><br>Beginning balance<br><br><br>Increase this year<br><br><br><br>Decrease this year<br><br><br><br>Year<br>-<br>end balance<br><br><br><br><br><br><br>Acquisition of<br>minority interests<br><br><br>Capital increase<br><br><br>Others<br><br><br><br>Business combination<br>under the same control<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Capital premium<br><br><br>402,537,901.26<br><br><br>27,665,587.35<br><br><br>17,329,345.44<br><br><br>-<br><br><br><br>(<br>447,532,834.05<br><br>)<br><br><br>-<br><br><br>Including: minority interests<br>acquired by the parent<br>Company before<br>business merger under<br>the same control<br><br><br>-<br><br><br>3,744,037.93<br><br><br>-<br><br><br>-<br><br><br><br>(3,744,037.93<br><br>)<br><br><br>-<br><br><br><br>Business combination under<br>the same control<br><br><br>402,537,901.26<br><br><br>-<br><br><br>17,329,345.44<br><br><br>-<br><br><br><br>(<br>419,867,246.70<br><br>)<br><br><br>-<br><br><br><br>Acquisition of minority<br>interests<br><br><br>-<br><br><br>23,921,549.42<br><br><br>-<br><br><br>-<br><br><br><br>(23,921,549.42<br><br>)<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Other capital surplus<br><br><br>9,665,025.14<br><br><br>-<br><br><br>-<br><br><br>6,618,693.70<br><br><br><br>-<br><br><br><br>16,283,718.84<br><br><br>Including:<br>share<br>-<br>based payment<br><br><br>4,014,961.26<br><br><br>-<br><br><br>-<br><br><br>2,783,665.77<br><br><br><br>-<br><br><br><br>6,798,627.03<br><br><br>Others<br><br><br>5,650,063.88<br><br><br>-<br><br><br>-<br><br><br>3,835,027.93<br><br><br><br>-<br><br><br><br>9,485,091.81<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>412,202,926.40<br><br><br>27,665,587.35<br><br><br>17,329,345.44<br><br><br>6,618,693.70<br><br><br><br>(<br>447,532,834.05<br><br>)<br><br><br>16,283,718.84
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continue<br>d)<br><br>2019, 2020 and 2021<br><br><br>In<br>RMB<br><br>Yuan<br><br><br>141<br><br>3<br>-<br>2<br>-<br>1<br>-<br>144<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>32. Capital surplus (continued)<br><br>Reasons for<br>changes in capital surplus:<br><br>Note 1: In November this year, AXT, Inc. acquired the minority interests of<br>Beijing Boyu Semiconductor Vessel Craftwork Technology Co., Ltd.<br>,<br>resulting in an increase in capital surplus of<br>RMB<br>3,744,037.93.<br><br>Note 2: In this year,<br>the Company increased capital surplus by RMB17,329,345.44 due to the capital increase and share allotment to Baoding<br>Tongmei Xtal Manufacture Co., Ltd., Chaoyang Tongmei Xtal Technology Co., Ltd., Chaoyang Jinmei gallium Industry Co., Ltd., N<br>anjing Jinmei<br>Gallium Industry Co., Ltd. and<br>Beijing Boyu Semiconductor Vessel Craftwork Technology Co., Ltd.<br><br>Note 3: In December this year, the Company acquired the minority interests of<br>Beijing Boyu Semiconductor Vessel Craftwork Technology Co.,<br>Ltd.<br><br>and Chaoyang Jinm<br>ei Gallium Industry Co., Ltd., resulting in an increase of capital surplus of<br>RMB<br>23,921,549.42.<br><br>Note 4: In this year, the Company's employees held the stock payment formed by the parent Company's options and restricted sh<br>ares, which<br>increased the capital surplus by<br>RMB<br>2,783,665.77.<br><br>Note 5: The sinking of the general manager's salary expenses of the G<br>roup's Parent Company this year resulted in an increase of<br>RMB<br>3,835,027.93<br>in the capital surplus.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continue<br>d)<br><br>2019, 2020 and 2021<br><br><br>In<br>RMB<br><br>Yuan<br><br><br>142<br><br>3<br>-<br>2<br>-<br>1<br>-<br>145<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>32. Capital surplus (continued)<br><br>2019<br><br><br><br><br>Beginning balance<br><br><br>Increase this year<br><br><br><br>Decrease this year<br><br><br><br>Year<br>-<br>end balance<br><br><br><br><br><br><br>Capital invested by<br>shareholders of<br>subsidiaries before<br>business combination<br>under the same<br>control<br><br><br>Acquisition of<br>minority interests<br><br><br>Others<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Capital premium<br><br><br>313,157,606.26<br><br><br>89,380,295.00<br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>402,537,901.26<br><br><br>Including: business combination<br>under the same control<br><br><br>313,157,606.26<br><br><br>89,380,295.00<br><br><br>-<br><br><br>-<br><br><br><br>-<br><br><br><br>402,537,901.26<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Other capital surplus<br><br><br>4,875,379.48<br><br><br>-<br><br><br>50,188.76<br><br><br>4,739,456.90<br><br><br><br>-<br><br><br><br>9,665,025.14<br><br><br>Including:<br>Share<br>-<br>based payment<br><br><br>1,710,887.67<br><br><br>-<br><br><br>-<br><br><br>2,304,073.59<br><br><br><br>-<br><br><br><br>4,014,961.26<br><br><br>Others<br><br><br>3,164,491.81<br><br><br>-<br><br><br>50,188.76<br><br><br>2,435,383.31<br><br><br><br>-<br><br><br><br>5,650,063.88<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>318,032,985.74<br><br><br>89,380,295.00<br><br><br>50,188.76<br><br><br>4,739,456.90<br><br><br><br>-<br><br><br><br>412,202,926.40<br><br><br>Reasons for changes in capital surplus:<br><br>Note 1: in this year, the shareholders of the subsidi<br>aries Chaoyang Tongmei Xtal Technology Co., Ltd.and Chaoyang Jinmei gallium Industry Co.,<br>Ltd. increased their capital, resulting in an increase of<br>RMB<br>89,380,295.00 in the capital surplus under the business combination under the same<br>control.<br><br>Note 2: In th<br>is year, the Company<br>’<br>s employees held the stock payment formed by the parent Company<br>’<br>s options and restricted shares, which<br>increased the capital surplus by<br>RMB<br>2,304,073.59.<br><br>Note 3: The sinking of the general manager<br>’<br>s salary expenses of the parent Company this year resulted in an increase of capital surplus of<br>RMB<br>2,435,383.31.
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>143<br><br>3<br>-<br>2<br>-<br>1<br>-<br>146<br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>33.<br><br>Special reserve<br><br>2021<br><br><br><br>Beginning<br>balance<br><br><br><br>Increase this year<br><br><br><br>Decrease this<br>year<br><br><br><br>Year<br>-<br>end balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Safety production cost<br><br><br>4,561,194.59<br><br><br><br>2,381,753.04<br><br><br><br>1,573,746.83<br><br><br><br>5,369,200.80<br><br><br>2020<br><br><br><br>Beginning<br>balance<br><br><br><br>Increase this year<br><br><br><br>Decrease this<br>year<br><br><br><br>Year<br>-<br>end balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Safety production cost<br><br><br>3,146,269.25<br><br><br><br>5,937,734.27<br><br><br><br>4,522,808.93<br><br><br><br>4,561,194.59<br><br><br>2019<br><br><br><br>Beginning<br>balance<br><br><br><br>Increase this year<br><br><br><br>Decrease this<br>year<br><br><br><br>Year<br>-<br>end balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Safety production cost<br><br><br>814,845.15<br><br><br><br>6,656,828.08<br><br><br><br>4,325,403.98<br><br><br><br>3,146,269.25<br><br><br>The Group withdraws the safety production fee month by month according to the<br>Extraction Standard of Hazardous Goods Production Enterprises Specified in the<br>Mana<br>gement Measures for the Extraction and Use of Enterprise Safety Production Fee<br>(CQ [2012] No. 16 Document). The withdrawal amount of the Group in 2019 was<br>RMB<br>6,656,828.08, that in 2020 was<br>RMB<br>5,937,734.27, and that in 2021 was<br>RMB<br>2,381,753.04. The safety p<br>roduction costs used and withdrawn during this period<br>were expenses.
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>144<br><br>3<br>-<br>2<br>-<br>1<br>-<br>147<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>34. Surplus reserve<br><br>2021<br><br><br><br>Beginning<br>balance<br><br><br><br>Increase this year<br><br><br><br>Decrease this year<br><br><br><br>Year<br>-<br>end balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Reserve Fund<br><br><br>7,629,429.59<br><br><br><br>-<br><br><br><br>(7,629,429.59<br><br>)<br><br><br>-<br><br><br>Employee welfare and<br>incentive fund<br><br><br>1,078,159.90<br><br><br><br>-<br><br><br><br>(1,078,159.90<br><br>)<br><br><br>-<br><br><br>Enterprise<br>development fund<br><br><br>6,189,003.81<br><br><br><br>-<br><br><br><br>(6,189,003.81<br><br>)<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>14,896,593.30<br><br><br><br>-<br><br><br><br>(14,896,593.30<br><br>)<br><br><br>-<br><br><br>The decrease of surplus reserve in 2021 is the offset of surplus reserve of<br>RMB<br>14,896,593.30 by the shareholding system reform of the Company.<br><br>2020<br><br><br><br>Beginning<br>balance<br><br><br><br>Increase this year<br><br><br><br>Decrease this year<br><br><br><br>Year<br>-<br>end balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Reserve Fund<br><br><br>7,629,429.59<br><br><br><br>-<br><br><br><br>-<br><br><br><br>7,629,429.59<br><br><br>Employee welfare and<br>incentive fund<br><br><br>1,078,159.90<br><br><br><br>-<br><br><br><br>-<br><br><br><br>1,078,159.90<br><br><br>Enterprise<br>development fund<br><br><br>6,189,003.81<br><br><br><br>-<br><br><br><br>-<br><br><br><br>6,189,003.81<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>14,896,593.30<br><br><br><br>-<br><br><br><br>-<br><br><br><br>14,896,593.30<br><br><br>2019<br><br><br><br>Beginning<br>balance<br><br><br><br>Increase this year<br><br><br><br>Decrease this<br>year<br><br><br><br>Year<br>-<br>end balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Reserve Fund<br><br><br>7,629,429.59<br><br><br><br>-<br><br><br><br>-<br><br><br><br>7,629,429.59<br><br><br>Employee welfare and<br>incentive fund<br><br><br>1,078,159.90<br><br><br><br>-<br><br><br><br>-<br><br><br><br>1,078,159.90<br><br><br>Enterprise<br>development fund<br><br><br>6,189,003.81<br><br><br><br>-<br><br><br><br>-<br><br><br><br>6,189,003.81<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>14,896,593.30<br><br><br><br>-<br><br><br><br>-<br><br><br><br>14,896,593.30
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>145<br><br>3<br>-<br>2<br>-<br>1<br>-<br>148<br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>35. Undistributed profit<br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Undistributed profit at the end<br>of last year<br><br><br><br>118,401,278.39<br><br><br>170,590,328.42<br><br><br>204,232,102.01<br><br><br>Add: changes in accounting<br>policies<br><br><br><br>-<br><br><br>-<br><br><br>(252,816.37<br><br>)<br><br>Undistributed profit at the<br>beginning of the year<br><br><br><br>118,401,278.39<br><br><br>170,590,328.42<br><br><br>203,979,285.64<br><br><br><br><br><br><br><br><br><br><br><br>Net profits/(loss)<br>attributable<br>to shareholders/owner of<br>the parent company<br><br><br><br>94,587,550.27<br><br><br>48,221,880.01<br><br><br>(33,388,957.22<br><br>)<br><br>Less: cash dividends payable<br>on ordinary shares<br><br><br><br>-<br><br><br>25,011,134.05<br><br><br>-<br><br><br>Business combination<br>under the same control<br><br><br><br>-<br><br><br>44,857,770.28<br><br><br>-<br><br><br><br>Purchase of minority<br>interests of<br>subsidiaries held by the<br>original parent<br>Company<br><br><br><br>-<br><br><br>30,542,025.71<br><br><br>-<br><br><br>Shareholding system<br>reform<br><br><br><br>126,302,166.18<br><br><br>-<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br>Undistributed profit at the end<br>of the year<br><br><br><br>86,686,662.48<br><br><br>118,401,278.39<br><br><br>170,590,328.42<br><br><br>36. Operating income and cost<br><br><br><br><br>2021<br><br><br><br><br><br>2020<br><br><br><br><br><br>Revenue<br><br><br><br>Cost<br><br><br><br>Revenue<br><br><br><br>Cost<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Main business<br><br><br><br>854,044,357.30<br><br><br><br>557,324,460.80<br><br><br><br>583,087,165.93<br><br><br><br>433,222,206.40<br><br><br><br>Other business<br><br><br><br>3,300,881.10<br><br><br><br>3,968,103.41<br><br><br><br>83,238.94<br><br><br><br>172,087.58<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>857,345,238.40<br><br><br><br>561,292,564.21<br><br><br><br>583,170,404.87<br><br><br><br>433,394,293.98<br><br><br><br><br><br><br><br><br><br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Revenue<br><br><br><br>Cost<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Main business<br><br><br><br><br><br><br><br><br><br>462,207,888.84<br><br><br><br>372,403,139.49<br><br><br><br>Other business<br><br><br><br><br><br><br><br><br><br>18,867.93<br><br><br><br>796.61<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>462,226,756.77<br><br><br><br>372,403,936.10<br><br><br>The operating income is listed as follows:<br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Selling goods<br><br><br><br>838,093,194.03<br><br><br>575,949,275.17<br><br><br>462,054,002.88<br><br><br>Provide labor service<br><br><br><br>19,252,044.37<br><br><br>7,221,129.70<br><br><br>172,753.89<br><br><br><br><br><br><br><br><br><br><br><br>Income from the<br>contracts with<br>customers<br><br><br><br>857,345,238.40<br><br><br>583,170,404.87<br><br><br>462,226,756.77
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>146<br><br>3<br>-<br>2<br>-<br>1<br>-<br>149<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>36. Operating income and costs (Continued)<br><br>The breakdown of<br>operating income from contracts with customers is as follows:<br><br>Reportable segment<br><br><br><br><br><br><br><br><br>2021<br><br><br><br>2020<br><br><br><br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Main business area<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Mainland China<br><br><br><br><br><br><br>438,739,210.10<br><br><br><br>247,073,717.20<br><br><br><br>181,839,782.83<br><br><br><br><br>USA<br><br><br><br><br><br><br>116,840,936.04<br><br><br><br>284,016,612.01<br><br><br><br>223,377,039.80<br><br><br>Europe<br><br><br><br><br><br>114,346,341.66<br><br><br><br>25,443,631.95<br><br><br><br>18,300,570.08<br><br><br>Taiwan, China<br><br><br><br><br><br>93,636,174.61<br><br><br><br>77,762.86<br><br><br><br>40,952.43<br><br><br>Japan<br><br><br><br><br><br>44,784,224.51<br><br><br><br>12,595,574.50<br><br><br><br>13,291,715.35<br><br><br>South Korea<br><br><br><br><br><br>24,666,143.13<br><br><br><br>13,899,765.56<br><br><br><br>25,334,293.59<br><br><br>Others<br><br><br><br><br><br>24,332,208.35<br><br><br><br>63,340.79<br><br><br><br>42,402.69<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>857,345,238.40<br><br><br><br>583,170,404.87<br><br><br><br>462,226,756.77<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Main product types<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Semiconductor substrate<br>material<br><br><br><br><br><br>626,751,808.66<br><br><br><br>443,460,587.35<br><br><br><br>357,712,916.09<br><br><br><br>PBN crucible<br><br><br><br><br><br>55,024,732.72<br><br><br><br>51,862,431.13<br><br><br><br>47,292,183.07<br><br><br><br>High<br>-<br>purity metal and<br>compound<br><br><br><br><br><br>122,010,030.57<br><br><br><br>55,014,206.24<br><br><br><br>25,319,177.31<br><br><br>Others<br><br><br><br><br><br>34,306,622.08<br><br><br><br>25,612,050.45<br><br><br><br>31,729,726.41<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>838,093,194.03<br><br><br><br>575,949,275.17<br><br><br><br>462,054,002.88<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Main service types<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Incoming material<br>processing service<br><br><br><br><br><br>762,455.24<br><br><br><br>-<br><br><br><br><br>172,753.89<br><br><br><br>Crucible precision<br>regeneration service<br><br><br><br><br><br>18,489,589.13<br><br><br><br>7,221,129.70<br><br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>19,252,044.37<br><br><br><br>7,221,129.70<br><br><br><br>172,753.89<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>857,345,238.40<br><br><br><br>583,170,404.87<br><br><br><br>462,226,756.77<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Revenue<br>recognition time<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Revenue recognition at a<br>certain point in time<br><br><br><br><br><br><br><br><br><br><br><br><br><br>Semiconductor substrate<br>material<br><br><br><br><br><br>626,751,808.66<br><br><br><br>443,460,587.35<br><br><br><br>357,712,916.09<br><br><br>PBN crucible<br><br><br><br><br><br>55,024,732.72<br><br><br><br>51,862,431.13<br><br><br><br>47,292,183.07<br><br><br>High<br>-<br>purity metal and<br>compound<br><br><br><br><br><br>122,010,030.57<br><br><br><br>55,014,206.24<br><br><br><br>25,319,177.31<br><br><br>Incoming material<br>processing service<br><br><br><br><br><br>762,455.24<br><br><br><br>-<br><br><br><br><br>172,753.89<br><br><br>Crucible precision<br>regeneration service<br><br><br><br><br><br>18,489,589.13<br><br><br><br>7,221,129.70<br><br><br><br>-<br><br><br><br>Others<br><br><br><br><br><br>34,306,622.08<br><br><br><br>25,612,050.45<br><br><br><br>31,729,726.41<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>857,345,238.40<br><br><br><br>583,170,404.87<br><br><br><br>462,226,756.77
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>147<br><br>3<br>-<br>2<br>-<br>1<br>-<br>150<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>36. Operating income and costs (Continued)<br><br>The revenue<br>recognized in the current period included in the book value of contract<br>liabilities at the beginning of the year is as follows:<br><br><br>2021<br><br><br>2020<br><br><br><br><br><br><br><br>Selling goods<br><br>1,724,999.43<br><br><br>860,354.07<br><br><br>The Group has no revenue recognized in the current period<br>from the performance<br>obligations that have been performed (or partially performed) in the previous period in<br>2021 and 2020.<br><br>The Group's information related to performance obligations is as follows:<br><br>Sales of industrial products<br><br>Perform performance obligatio<br>ns when delivering industrial products to customers. For<br>long<br>-<br>term cooperative customers, the contract price usually expires within 30 to 90 days<br>after the delivery of industrial products; For new customers, the contract price is usually<br>prepaid before the<br><br>delivery of industrial products.<br><br>Incoming material processing service<br><br>Perform performance obligations when delivering finished products processed with<br>supplied materials to customers. The contract price is usually due within 60 days after<br>the delivery of<br>industrial products.<br><br>Crucible precision regeneration service<br><br>Perform the performance obligation when delivering the cleaned crucible to the<br>customer. The contract price usually expires within 30 to 60 days after delivery of the<br>cleaned crucible.
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>148<br><br>3<br>-<br>2<br>-<br>1<br>-<br>151<br><br><br>V. Notes<br><br>to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>37. Tax and surcharges<br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Property tax<br><br><br><br>5,492,404.68<br><br><br>3,829,609.89<br><br><br>2,575,145.30<br><br><br>Urban maintenance and<br>construction tax<br><br><br><br>1,521,951.48<br><br><br>1,363,200.69<br><br><br>1,761,719.11<br><br><br>Land use tax<br><br><br><br>1,131,306.83<br><br><br>932,046.30<br><br><br>1,002,380.71<br><br><br>Stamp duty<br><br><br><br>866,661.59<br><br><br>916,311.20<br><br><br>403,847.90<br><br><br>Education surcharges<br><br><br><br>847,704.31<br><br><br>795,791.03<br><br><br>941,449.86<br><br><br>Local education<br>surcharges<br><br><br><br>565,136.19<br><br><br>530,527.38<br><br><br>627,633.22<br><br><br>Vehicle and vessel tax<br><br><br><br>25,001.23<br><br><br>23,371.16<br><br><br>23,186.34<br><br><br>Others<br><br><br><br>43,806.71<br><br><br>26,004.71<br><br><br>9,774.05<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>10,493,973.02<br><br><br>8,416,862.36<br><br><br>7,345,136.49<br><br><br>38. Selling expenses<br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Employee<br>compensation<br><br><br><br>9,902,589.14<br><br><br>2,606,609.79<br><br><br>1,971,059.81<br><br><br>Warranty fee<br><br><br><br>4,519,451.13<br><br><br>2,497,196.22<br><br><br>1,449,001.76<br><br><br>Agency fee<br><br><br><br>4,185,131.96<br><br><br>1,883,832.83<br><br><br>2,883,751.50<br><br><br>Share<br>-<br>based payment<br><br><br><br>1,625,662.00<br><br><br>57,356.74<br><br><br>41,612.03<br><br><br>Travel expenses<br><br><br><br>495,593.46<br><br><br>603,113.48<br><br><br>806,896.06<br><br><br>Depreciation and<br>amortization<br><br><br><br>33,089.48<br><br><br>40,328.34<br><br><br>60,016.76<br><br><br>Customs declaration<br>fee and freight<br><br><br><br>-<br><br><br>-<br><br><br>743,750.64<br><br><br>Others<br><br><br><br>420,682.25<br><br><br>229,570.30<br><br><br>415,658.68<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>21,182,199.42<br><br><br>7,918,007.70<br><br><br>8,371,747.24
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>149<br><br>3<br>-<br>2<br>-<br>1<br>-<br>152<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>39. Administrative expenses<br><br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Employee compensation<br><br><br><br>43,455,406.76<br><br><br>30,694,483.79<br><br><br>41,531,407.06<br><br><br>Depreciation and amortization<br><br><br><br>8,067,513.36<br><br><br>4,107,230.34<br><br><br>4,716,116.15<br><br><br>Service charge<br><br><br><br>6,021,547.72<br><br><br>2,517,772.74<br><br><br>3,477,608.19<br><br><br>Office expenses<br><br><br><br>5,561,822.59<br><br><br>4,106,496.37<br><br><br>3,346,714.81<br><br><br>Travel expenses<br><br><br><br>4,168,011.00<br><br><br>2,883,994.18<br><br><br>4,818,642.42<br><br><br>Share<br>-<br>based payment<br><br><br><br>2,629,196.26<br><br><br>1,187,259.17<br><br><br>948,504.84<br><br><br>Insurance premium<br><br><br><br>1,742,023.21<br><br><br>1,491,266.56<br><br><br>1,602,925.09<br><br><br>Water and electricity<br><br><br><br>1,116,291.02<br><br><br>587,367.12<br><br><br>1,003,464.41<br><br><br>Disability security<br>fund<br><br><br><br>740,963.67<br><br><br>194,765.89<br><br><br>1,204,657.80<br><br><br>Rental fee<br><br><br><br>636,976.00<br><br><br>552,594.17<br><br><br>582,077.00<br><br><br>Royalties<br><br><br><br>-<br><br><br>8,054,012.98<br><br><br>6,806,158.00<br><br><br>Others<br><br><br><br>2,948,949.38<br><br><br>1,595,218.75<br><br><br>2,037,942.27<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>77,088,700.97<br><br><br>57,972,462.06<br><br><br>72,076,218.04<br><br><br>40. R&D cost<br><br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Employee compensation<br><br><br><br><br><br>48,091,831.78<br><br><br>20,686,093.05<br><br><br>10,398,341.22<br><br><br>Raw materials consumed<br><br><br><br><br><br>28,910,563.19<br><br><br>14,048,364.98<br><br><br>8,006,405.37<br><br><br>Depreciation and amortization<br><br><br><br><br><br>3,961,378.45<br><br><br>2,524,492.29<br><br><br>1,498,915.12<br><br><br>Share<br>-<br>based payment<br><br><br><br><br><br>3,424,763.64<br><br><br>385,066.67<br><br><br>310,862.92<br><br><br>Water and electricity<br><br><br><br><br><br>1,792,348.37<br><br><br>1,730,013.68<br><br><br>1,043,944.44<br><br><br>Overhaul and processing cost<br><br><br><br><br><br>453,140.35<br><br><br>1,008,087.67<br><br><br>681,875.19<br><br><br>Finished product collection<br><br><br><br><br><br>35,269.54<br><br><br>3,683,866.29<br><br><br>4,129,589.63<br><br><br>Others<br><br><br><br><br><br>3,497,113.49<br><br><br>1,042,178.34<br><br><br>756,498.13<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>90,166,408.81<br><br><br><br>45,108,162.97<br><br><br><br>26,826,432.02
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>150<br><br>3<br>-<br>2<br>-<br>1<br>-<br>153<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>41.<br>Finance cost<br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Interest expense<br><br><br><br>3,540,730.12<br><br><br>2,565,014.26<br><br><br>945,205.13<br><br><br>Including: financial lease<br>interest expense<br><br><br><br>-<br><br><br>647,565.62<br><br><br>286,276.80<br><br><br>Interest expense of lease<br>liabilities<br><br><br><br>760,518.13<br><br><br>-<br><br><br>-<br><br><br>Long<br>-<br>term<br>accounts<br>payable interest expense<br><br><br><br>220,379.18<br><br><br>-<br><br><br>-<br><br><br>Less: Interest income<br><br><br><br>1,614,165.98<br><br><br>464,078.68<br><br><br>452,879.62<br><br><br>Exchange gain / loss<br><br><br><br>2,815,069.73<br><br><br>(6,879,034.91<br><br>)<br><br>1,271,072.06<br><br><br>Service Charge<br><br><br><br>570,748.50<br><br><br>360,051.92<br><br><br>135,289.82<br><br><br>Others<br><br><br><br>(400,416.23<br><br>)<br><br>(240,286.39<br><br>)<br><br>(475,896.24<br><br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br>4,911,966.14<br><br><br>(4,658,333.80<br><br>)<br><br>1,422,791.15<br><br><br>42. Other income<br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Government subsidies related to daily<br>activities<br><br><br><br>2,916,294.05<br><br><br>1,081,625.97<br><br><br>2,311,511.50<br><br><br>Refund of<br>service charge for<br>withholding individual and enterprise<br>income tax<br><br><br><br>30,429.00<br><br><br>44,590.04<br><br><br>-<br><br><br>Amortization of deferred income<br><br><br><br>3,029,864.64<br><br><br>1,093,810.58<br><br><br>956,933.33<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>5,976,587.69<br><br><br>2,220,026.59<br><br><br>3,268,444.83<br><br><br>Government<br>subsidies related to daily activities are as follows:<br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br>Related to assets /<br>income<br><br><br><br><br><br><br><br><br><br><br><br><br><br>Government incentives<br><br><br><br>1,655,589.00<br><br><br>80,000.00<br><br><br>-<br><br><br>Revenue related<br><br><br>Intellectual property subsidies<br><br><br><br>472,000.00<br><br><br>-<br><br><br>-<br><br><br>Revenue<br>related<br><br><br>Incentive fund of Social Security<br>Bureau<br><br><br><br>194,000.00<br><br><br>-<br><br><br>-<br><br><br>Revenue related<br><br><br>Incentive fund of the Bureau of<br>industry and information technology<br><br><br><br>100,000.00<br><br><br>-<br><br><br>-<br><br><br>Revenue related<br><br><br>Subsidies for talents of the two high<br>schools<br><br><br><br>100,000.00<br><br><br>200,000.00<br><br><br>100,000.00<br><br><br>Revenue related<br><br><br>Commercial Commission fund<br>subsidy<br><br><br><br>-<br><br><br>-<br><br><br>1,938,757.00<br><br><br>Revenue related<br><br><br>Special award and subsidy for<br>structural adjustment of industrial<br>enterprises<br><br><br><br>-<br><br><br>128,600.00<br><br><br>-<br><br><br>Revenue related<br><br><br>Enterprise<br>R&D<br><br>subsidy<br><br><br><br>80,000.00<br><br><br>393,645.00<br><br><br>32,361.00<br><br><br>Revenue related<br><br><br>Others<br><br><br><br>314,705.05<br><br><br>279,380.97<br><br><br>240,393.50<br><br><br>Revenue related<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>2,916,294.05<br><br><br>1,081,625.97<br><br><br>2,311,511.50
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>151<br><br>3<br>-<br>2<br>-<br>1<br>-<br>154<br><br><br>V. Notes to Main Items of Consolidated<br>Financial Statements<br><br>(Continued)<br><br>43. Investment gain<br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Long<br>-<br>term equity investment<br>income accounted by equity<br>method<br><br><br><br>10,089,454.38<br><br><br>5,963,707.51<br><br><br>2,478,774.79<br><br><br>Income from disposal of associates<br><br><br><br>923,628.40<br><br><br>-<br><br><br>-<br><br><br>Unrealized gains and losses in<br>counter current transactions<br><br><br><br>751,236.78<br><br><br>(572,954.38<br><br>)<br><br>54,843.24<br><br><br>Loss on fair value measurement of<br>bills<br><br><br><br>(560,257.94<br><br>)<br><br>(383,477.26<br><br>)<br><br>(179,534.05<br><br>)<br><br>Investment gain from foreign<br>exchange forward contracts<br><br><br><br>308,151.43<br><br><br>(291,250.26<br><br>)<br><br>(720,372.51<br><br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br>11,512,213.05<br><br><br>4,716,025.61<br><br><br>1,633,711.47<br><br><br>44. Credit impairment loss<br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Expected credit loss of Notes<br>receivable<br><br><br><br>54,530.57<br><br><br>(15,842.97<br><br>)<br><br>(64,014.78<br><br>)<br><br>Expected<br>credit loss of accounts<br>receivable<br><br><br><br>(1,940,218.13<br><br>)<br><br>(61,224.48<br><br>)<br><br>(357,682.51<br><br>)<br><br>Expected credit loss of other<br>receivables<br><br><br><br>58,090.00<br><br><br>(1,362,590.00<br><br>)<br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>(1,827,597.56<br><br>)<br><br>(1,439,657.45<br><br>)<br><br>(421,697.29<br><br>)<br><br>45. Asset impairment loss<br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Inventory depreciation<br>loss<br><br><br><br>(2,658,473.20<br><br>)<br><br>9,038,725.44<br><br><br>(13,906,972.39<br><br>)<br><br>Impairment loss of<br>fixed assets<br><br><br><br>(611,184.69<br><br>)<br><br>(456,180.29<br><br>)<br><br>(194,871.79<br><br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br>(3,269,657.89<br><br>)<br><br>8,582,545.15<br><br><br>(14,101,844.18<br><br>)<br><br>46. Income<br>from asset disposal<br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Income from disposal of fixed<br>assets<br><br><br><br>61,825.39<br><br><br>-<br><br><br>310,959.01
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>152<br><br>3<br>-<br>2<br>-<br>1<br>-<br>155<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>47. Non<br>-<br>operating income<br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Relocation<br>compensation<br><br><br><br>-<br><br><br>4,290,411.00<br><br><br>16,391,149.00<br><br><br>Insurance indemnity<br><br><br><br>1,002,223.07<br><br><br>8,687.19<br><br><br>97,243.86<br><br><br>Income from scrap<br>of fixed assets<br><br><br><br>-<br><br><br>1,874.28<br><br><br>18,828.30<br><br><br>Others<br><br><br><br>195,850.26<br><br><br>64,267.17<br><br><br>79,719.30<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>1,198,073.33<br><br><br>4,365,239.64<br><br><br>16,586,940.46<br><br><br>48. Non<br>-<br>operating expenses<br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Loss on non<br>-<br>current assets<br>damaged and scrapped<br><br><br><br>1,650,922.76<br><br><br>1,285,280.67<br><br><br>5,412,280.20<br><br><br>Public welfare donation<br>expenditure<br><br><br><br>-<br><br><br>150,000.00<br><br><br>-<br><br><br>Labor litigation fund<br><br><br><br>406,835.60<br><br><br>-<br><br><br>-<br><br><br>Administrative penalty<br><br><br><br>94,600.00<br><br><br>141,041.00<br><br><br>665,900.00<br><br><br>Others<br><br><br><br>381,404.55<br><br><br>256,196.84<br><br><br>91,479.54<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>2,533,762.91<br><br><br>1,832,518.51<br><br><br>6,169,659.74
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>153<br><br>3<br>-<br>2<br>-<br>1<br>-<br>156<br><br><br>V. Notes to Main Items of<br>Consolidated Financial Statements<br><br>(Continued)<br><br>49. Classification of expenses by nature<br><br>The supplementary information of the Group's operating costs, selling expenses,<br>administrative expenses and<br>R&D<br><br>costs by nature is as follows:<br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Raw materials consumed<br><br><br><br>449,515,985.72<br><br><br>207,693,401.96<br><br><br><br>182,536,129.17<br><br><br>Employee compensation<br><br><br><br>218,025,648.48<br><br><br>138,702,448.44<br><br><br><br>144,097,698.00<br><br><br>Depreciation and<br>amortization<br><br><br><br>68,065,925.95<br><br><br>52,681,113.67<br><br><br><br>42,754,544.79<br><br><br>Water and<br>electricity<br><br><br><br>51,817,522.89<br><br><br>42,676,843.61<br><br><br><br>41,229,959.54<br><br><br>Service charge<br><br><br><br>15,635,143.96<br><br><br>13,120,490.79<br><br><br><br>12,940,994.00<br><br><br>Customs declaration fee and<br>freight<br><br><br><br>10,906,053.66<br><br><br>3,603,071.94<br><br><br><br>3,234,753.53<br><br><br>Share<br>-<br>based payment<br><br><br><br>10,029,835.43<br><br><br>2,783,665.77<br><br><br><br>2,304,073.59<br><br><br>Safety production cost<br><br><br><br>8,285,806.15<br><br><br>12,091,585.51<br><br><br><br>10,928,295.26<br><br><br>Overhaul and processing<br>cost<br><br><br><br>7,809,138.82<br><br><br>5,637,219.61<br><br><br><br>4,032,882.43<br><br><br>Office expenses<br><br><br><br>6,663,076.70<br><br><br>4,909,539.70<br><br><br><br>3,995,716.36<br><br><br>Travel<br>expenses for<br>communication<br><br><br><br>6,150,510.72<br><br><br>3,607,163.41<br><br><br><br>5,969,820.78<br><br><br>Heating cost<br><br><br><br>4,906,393.61<br><br><br>4,219,034.80<br><br><br><br>3,073,682.13<br><br><br>Quality guarantee deposit<br><br><br><br>4,431,415.39<br><br><br>2,497,196.22<br><br><br><br>1,449,001.76<br><br><br>Agency fee<br><br><br><br>4,185,131.96<br><br><br>1,883,832.83<br><br><br><br>2,883,751.50<br><br><br>Hazardous waste disposal<br>fee<br><br><br><br>3,169,704.40<br><br><br>1,855,061.81<br><br><br><br>993,219.63<br><br><br>Royalties<br><br><br><br>-<br><br><br>8,054,012.98<br><br><br><br>6,806,158.00<br><br><br>Non<br>-<br>deductible input tax<br><br><br><br>-<br><br><br>-<br><br><br><br>3,115,748.16<br><br><br>Changes in inventories of<br>finished products and<br>products in process<br><br><br><br>(136,295,369.14<br><br>)<br><br>28,698,414.64<br><br><br><br>(551,636.91<br><br>)<br><br>Others<br><br><br><br>16,427,948.71<br><br><br>9,678,829.02<br><br><br><br>7,883,541.68<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>749,729,873.41<br><br><br>544,392,926.71<br><br><br><br>479,678,333.40<br><br><br>50. Income tax expense<br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Current income tax<br>expense<br><br><br><br>13,023,039.99<br><br><br>7,972,134.62<br><br><br>4,943,660.50<br><br><br>Deferred Income Tax<br>Expense<br><br><br><br>(3,730,470.98<br><br>)<br><br>(16,615,697.58<br><br>)<br><br>(1,992,842.65<br><br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br>9,292,569.01<br><br><br>(8,643,562.96<br><br>)<br><br>2,950,817.85
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>154<br><br>3<br>-<br>2<br>-<br>1<br>-<br>157<br><br><br>V. Notes to Main Items of<br>Consolidated Financial Statements<br><br>(Continued)<br><br>50. Income tax expense (Continued)<br><br>The relationship between income tax expense and total profit / (loss) is as follows:<br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Total profit / (loss)<br><br><br><br>103,327,106.93<br><br><br>51,630,610.63<br><br><br>(25,112,649.71<br><br>)<br><br><br><br><br><br><br><br><br><br><br>Income tax expense calculated at applicable tax<br>rate (Note)<br><br><br><br>15,499,066.04<br><br><br>7,744,591.59<br><br><br>(3,766,897.46<br><br>)<br><br>Effect of different tax rates applied to certain<br>subsidiaries<br><br><br><br>1,857,192.81<br><br><br>748,416.90<br><br><br>(2,998,884.59<br><br>)<br><br>Adjustment of current income tax in previous<br>periods<br><br><br><br>-<br><br><br>(574,559.17<br><br>)<br><br>(378,747.42<br><br>)<br><br>Profit and loss attributable to joint ventures and<br>associates<br><br><br><br>(2,810,086.33<br><br>)<br><br>(1,213,180.18<br><br>)<br><br>(612,742.18<br><br>)<br><br>Non<br>-<br>deductible expenses<br><br><br><br>2,280,963.50<br><br><br>2,201,710.10<br><br><br>1,996,874.64<br><br><br>Impact of tax rate change on deferred income tax<br>balance at the beginning of the period<br><br><br><br>2,632,912.73<br><br><br>117,763.95<br><br><br>-<br><br><br>Use of deductible losses of previous years<br><br><br><br>-<br><br><br>-<br><br><br>(876,832.87<br><br>)<br><br>Impact of<br>unrecognized deductible temporary<br>differences<br><br><br><br>-<br><br><br>-<br><br><br>6,389,334.23<br><br><br>Effect of unrecognized recoverable losses<br><br><br><br>-<br><br><br>-<br><br><br>5,913,492.08<br><br><br>Impact of recognition of deductible losses in<br>previous years<br><br><br><br>-<br><br><br>(6,900,737.95<br><br>)<br><br>-<br><br><br>Recognition of the impact of<br>deductible temporary<br>differences in previous years<br><br><br><br>-<br><br><br>(6,175,140.23<br><br>)<br><br>-<br><br><br>R&D<br><br>costs plus deduction<br><br><br><br>(10,167,479.74<br><br>)<br><br>(4,592,427.97<br><br>)<br><br>(2,714,778.58<br><br>)<br><br><br><br><br><br><br><br><br><br><br>Income tax expense calculated at the effective tax<br>rate of the Group<br><br><br><br>9,292,569.01<br><br><br>(8,643,562.96<br><br>)<br><br>2,950,817.85<br><br><br>Note: the income tax of the Group is accrued according to the estimated taxable income<br>obtained in China and the applicable tax rate.<br><br>51. Earnings per share<br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br>RMB/ share<br><br><br>RMB/ share<br><br><br>RMB/ share<br><br><br><br><br><br><br><br><br><br><br><br>Basic earnings per share<br><br><br><br>0.11<br><br><br>Not applicable<br><br><br>Not applicable<br><br><br><br><br><br><br><br><br><br><br><br>Diluted earnings per share<br><br><br><br>0.11<br><br><br>Not applicable<br><br><br>Not applicable<br><br><br><br>The basic earnings per share shall be calculated by dividing the current net<br>profit<br>attributable to the shareholders of common shares of the Company by the weighted<br>average number of common shares issued. The Company completed the industrial and<br>commercial change registration of share reform in April 2021, and earnings per share<br>is<br><br>not applicable in 2019 and 2020.<br><br>The option incentive plan issued by the Company on November 4, 2021 has anti<br>-<br>dilution to earnings per share, so the basic earnings per share in 2021 has not been<br>adjusted for dilution.
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>155<br><br>3<br>-<br>2<br>-<br>1<br>-<br>158<br><br><br>V. Notes to Main Items of Consolida<br>ted Financial Statements<br><br>(Continued)<br><br>52. Notes to items of cash flow statement<br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Other received and operating<br>activities<br><br>Related cash<br><br><br><br><br><br><br><br><br><br>GovernmentSubsidiary<br><br><br><br>49,757,723.05<br><br><br>25,835,112.84<br><br><br>20,811,511.50<br><br><br>Exchange gains<br><br><br><br>-<br><br><br>1,187,948.19<br><br><br>-<br><br><br>Non<br>-<br>operating income<br><br><br><br>5,488,484.33<br><br><br>72,954.36<br><br><br>16,568,112.16<br><br><br>Recovery of current<br>accounts<br><br><br><br>11,954,658.46<br><br><br>2,631,699.90<br><br><br>5,654,009.68<br><br><br>Interest income<br><br><br><br>1,568,079.07<br><br><br>268,296.07<br><br><br>287,296.11<br><br><br>Recovery of<br>prepaid<br>income tax<br><br><br><br>3,415,162.39<br><br><br>2,586,480.51<br><br><br>2,349,500.08<br><br><br>Recovery of restricted<br>Cash and bank balance<br><br><br><br>261,700.00<br><br><br>-<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>72,445,807.30<br><br><br>32,582,491.87<br><br><br>45,670,429.53<br><br><br><br><br><br><br><br><br><br><br>Other payments and<br>operating activities<br><br>Related cash<br><br><br><br><br><br><br><br><br>Payment of current<br>account<br><br><br><br>9,581,990.46<br><br><br>3,631,398.82<br><br><br>219,422.41<br><br>Manufacturing expenses<br><br><br><br>109,716,620.51<br><br><br>73,638,701.76<br><br><br>74,060,333.09<br><br>Selling expenses<br><br><br><br>8,749,416.81<br><br><br>2,946,422.74<br><br><br>5,218,274.04<br><br>Administrative expenses<br><br><br><br>27,781,791.81<br><br><br>23,589,031.67<br><br><br>25,214,378.73<br><br>R&D cost<br><br><br><br>6,564,258.37<br><br><br>4,048,927.44<br><br><br>2,424,160.67<br><br>Changes in restricted Cash<br>and bank balance<br><br><br><br>-<br><br><br>261,700.00<br><br><br>-<br><br>Finance cost<br><br><br><br>570,748.49<br><br><br>360,051.91<br><br><br>385,653.51<br><br>Non<br>-<br>operating expenses<br><br><br><br>476,004.55<br><br><br>547,237.84<br><br><br>757,379.55<br><br><br><br><br><br><br><br><br><br><br><br><br>163,440,831.00<br><br><br>109,023,472.18<br><br><br>108,279,602.00<br><br><br><br><br><br><br><br><br><br>Forward foreign exchange<br>income related to other<br>cash received in relation<br>to investing activities<br><br><br><br><br><br><br><br><br><br><br>308,151.43<br><br><br>400,622.30<br><br><br>14,692.00<br><br><br><br><br><br><br><br><br><br>Forward foreign exchange<br>losses related to other<br>cash paid in relation to<br>investing activities<br><br><br><br><br><br><br><br><br><br><br>-<br><br><br>691,872.56<br><br><br>735,064.50<br><br><br><br><br><br><br><br><br><br>Cash received from other<br>private financing related to<br>financing activities<br><br><br><br><br><br><br><br><br><br><br>-<br><br><br>314,473,750.00<br><br><br>-<br><br>Parent Company fund<br>lending<br><br><br><br>9,386,518.84<br><br><br>-<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br>9,386,518.84<br><br><br>314,473,750.00<br><br><br>-<br><br><br><br><br><br><br><br><br><br>Other cash payments related<br>to financing activities finance<br>lease payments<br><br><br><br><br><br><br><br><br><br><br>2,968,698.81<br><br><br>1,365,018.97<br><br><br>111,162.32
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>156<br><br>3<br>-<br>2<br>-<br>1<br>-<br>159<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>53. Supplementary information of cash flow statement<br><br>(1) Supplementary information of cash flow statement<br><br>Adjusting net profit / (loss) to cash<br>flow from operating activities:<br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Net profit / (loss)<br><br><br><br>94,034,537.92<br><br><br>60,274,173.59<br><br><br>(28,063,467.56<br><br>)<br><br>Plus: provision for asset impairment<br><br><br><br>3,269,657.89<br><br><br>(8,582,545.15<br><br>)<br><br>14,101,844.18<br><br><br>Provision for credit<br>impairment<br><br><br><br>1,827,597.56<br><br><br>1,439,657.45<br><br><br>443,107.64<br><br><br>Depreciation of fixed assets<br><br><br><br>56,603,086.35<br><br><br>48,149,696.06<br><br><br>38,647,751.04<br><br><br>Depreciation of right<br>-<br>of<br>-<br>use assets<br><br><br><br>3,132,522.71<br><br><br>-<br><br><br>-<br><br><br>Amortization of intangible assets<br><br><br><br>3,192,486.79<br><br><br>1,413,111.37<br><br><br>1,668,166.06<br><br><br>Amortization of long<br>-<br>term deferred<br>expenses<br><br><br><br>5,399,304.85<br><br><br>3,118,306.24<br><br><br>2,438,627.69<br><br><br>Expense of construction<br>-<br>in<br>-<br>progress<br><br><br><br>1,137,901.13<br><br><br>83,132.08<br><br><br>-<br><br><br>Income from disposal of fixed<br>assets, intangible assets and other<br>long<br>-<br>term assets<br><br><br><br>(61,825.39<br><br>)<br><br>-<br><br><br>(310,959.01<br><br>)<br><br>Loss on retirement of fixed assets<br><br><br><br>1,650,922.76<br><br><br>1,283,406.39<br><br><br>5,393,451.90<br><br><br>Share<br>-<br>based payment<br><br><br><br>10,029,835.43<br><br><br>2,783,665.77<br><br><br>2,304,073.59<br><br><br>Sinking of parent Company<br>expenses<br><br><br><br>736,058.49<br><br><br>3,835,027.93<br><br><br>2,435,383.31<br><br><br>Finance cost<br><br><br><br>618,582.46<br><br><br>(3,562,141.45<br><br>)<br><br>1,324,433.74<br><br><br>Investment gain<br><br><br><br>(11,512,213.05<br><br>)<br><br>(4,716,025.61<br><br>)<br><br>(1,633,711.47<br><br>)<br><br>Decrease of deferred income tax<br>assets<br><br><br><br>(3,717,421.94<br><br>)<br><br>(16,615,697.58<br><br>)<br><br>(2,053,923.72<br><br>)<br><br>(increase) / decrease in inventories<br><br><br><br>(101,836,524.82<br><br>)<br><br>(29,905,862.36<br><br>)<br><br>8,743,962.39<br><br><br>Increase in special reserves<br><br><br><br>808,006.21<br><br><br>1,414,925.34<br><br><br>2,331,424.10<br><br><br>Increase in deferred income<br><br><br><br>43,781,135.36<br><br><br>23,615,086.25<br><br><br>17,543,066.67<br><br><br>(Increase) / decrease in operating<br>receivables<br><br><br><br>(155,079,953.87<br><br>)<br><br>(88,869,891.69<br><br>)<br><br>36,295,303.12<br><br><br>Increase / (decrease) in operating<br>payables<br><br><br><br>25,700,637.53<br><br><br>60,665,181.48<br><br><br>(3,639,521.53<br><br>)<br><br>Counter current transaction<br><br><br><br>751,236.78<br><br><br>(572,954.38<br><br>)<br><br>54,843.24<br><br><br>Changes in accounting policies<br><br><br><br>-<br><br><br>-<br><br><br>(346,126.05<br><br>)<br><br><br><br><br><br><br><br><br><br><br>Net cash flows(used in)/generated from<br>operating activities<br><br><br><br>(19,534,428.85<br><br>)<br><br>55,250,251.73<br><br><br>97,677,729.33<br><br><br>Net change in cash and cash<br>equivalents:<br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Year<br>-<br>end balance of cash<br><br><br><br>173,268,353.70<br><br><br>388,493,942.43<br><br><br>107,376,657.08<br><br><br>Less: beginning balance of cash<br><br><br><br>388,493,942.43<br><br><br>107,376,657.08<br><br><br>68,193,045.44<br><br><br><br><br><br><br><br><br><br><br><br>Net decrease/increase of cash and cash<br>equivalents<br><br><br><br>(215,225,588.73<br><br>)<br><br>281,117,285.35<br><br><br>39,183,611.64
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>157<br><br>3<br>-<br>2<br>-<br>1<br>-<br>160<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>53. Supplementary information of cash flow statement<br><br>(Continued)<br><br>(2) Cash and cash equivalents<br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Cash<br><br><br><br>173,268,353.70<br><br><br>388,493,942.43<br><br><br>107,376,657.08<br><br><br>Including: cash on hand<br><br><br><br>12,846.89<br><br><br>29,492.00<br><br><br>34,648.67<br><br><br>Bank deposits available for<br>payment at any time<br><br><br><br>173,255,506.81<br><br><br>388,464,450.43<br><br><br>107,342,008.41<br><br><br><br><br><br><br><br><br><br><br><br>Balance of<br>cash and cash equivalents<br>at the end of the year<br><br><br><br>173,268,353.70<br><br><br>388,493,942.43<br><br><br>107,376,657.08<br><br><br>54. Assets with limited ownership or use right<br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Cash and bank balance<br><br><br><br>-<br><br><br>261,700.00<br><br><br>-<br><br><br>Note<br>1<br><br><br>Notes<br>receivable<br><br><br><br>2,029,949.76<br><br><br>7,492,990.59<br><br><br>7,995,197.76<br><br><br>Note<br>2<br><br><br>Receivables financing<br><br><br><br>15,224,856.38<br><br><br>12,045,573.32<br><br><br>10,931,250.13<br><br><br>Note<br>2<br><br><br>Fixed assets<br><br><br><br>150,305,117.02<br><br><br>75,383,575.00<br><br><br>52,966,875.00<br><br><br>Note<br>3<br><br><br>Construction<br>-<br>in<br>-<br>progress<br><br><br><br>84,681,020.95<br><br><br>-<br><br><br>26,112,000.00<br><br><br>Note<br>3<br><br><br>Intangible assets<br><br><br><br>39,854,951.53<br><br><br>12,463,863.56<br><br><br>12,725,343.21<br><br><br>Note<br>3<br><br><br>Accounts receivable<br><br><br><br>-<br><br><br>10,673,996.84<br><br><br>-<br><br><br>Note<br>4<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>292,095,895.64<br><br><br>118,321,699.31<br><br><br>110,730,666.10<br><br><br><br><br><br>Note 1: As of December 31, 2020, the cash and bank balance with a book value of<br>RMB<br>261,700.00 was the deposit corresponding to the forward foreign exchange<br>contract with a nominal amount of USD 2,000,000.00 signed by the Company in<br>December2020. The forward exchange settlement date is January 26, 2021, and<br>the forward exchange rate was 1<br><br>US dollar to<br>RMB<br>6.5521.<br><br>Note 2: As of December 31, 2021, 2020 and 2019, the book value of commercial<br>acceptance bills endorsed but not due in Notes receivable is<br>RMB<br>2,029,949.76,<br>RMB<br>7,492,990.59 and<br>RMB<br>7,995,197.76.<br><br>On December 31, 2021, 2020 and 2019, the book value of bank acceptance bills<br>endorsed but not matured in receivables financing was<br>RMB<br>15,224,856.38,<br>RMB<br>12,045,573.32 and<br>RMB<br>10,931,250.13.<br><br>The above payment does not meet the conditions for derecognition but<br><br>has been<br>used for specified purposes. It is the payment for engineering equipment or goods<br>of the supplier.
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>158<br><br>3<br>-<br>2<br>-<br>1<br>-<br>161<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>54. Assets with restricted ownership or use right (Continued)<br><br>Note 3: On<br>November 19, 2021, the Company signed the Working Capital Loan<br>Contract (No. 29211074) with Beijing Tongzhou Branch of Bank of<br>Communications Co., Ltd. The loan amount was<br>RMB<br>20,000,000.00, the loan<br>period was from September 30, 2021 to September 23, 2022,<br><br>and the annual<br>interest rate was 4.000%. The above two loans are the<br>master contract<br>s under the<br>Maximum Amount Mortgage Contract (No. 29211074). Chaoyang Tongmei Xtal<br>Technology Co., Ltd., a subsidiary of the Company, provides guarantee with its<br>state<br>-<br>own<br>ed construction land use right and the ownership of houses (structures)<br>as collateral, and the maximum amount of creditor's rights guaranteed by the<br>mortgage is<br>RMB<br>115,970,000.00, the corresponding fixed assets<br>-<br><br>buildings with<br>a book value of<br>RMB<br>125,369,3<br>56.33, construction<br>-<br>in<br>-<br>progress with a book value<br>of RMB75,589,905.28 and intangible assets<br>-<br><br>land with a book value of<br>RMB33,352,904.86.<br><br>On December 10, 2021,<br>Beijing Boyu Semiconductor Vessel Craftwork<br>Technology Co., Ltd.<br>, a subsidiary of the Company, s<br>igned a Working Capital<br>Loan Contract No. 2021 (Tongzhou) Zi No. 02856 with Beijing Tongzhou<br>Branch of Industrial and Commercial Bank of China, with a total loan amount of<br>RMB<br>10,000,000.00 and a loan period from December 22, 2021 to December 22,<br>2022, the<br>annual interest rate of the loan is 3.87%. The Loan Contract is<br>guaranteed by Beijing Zhongguancun Technology Financing Guarantee Co.,<br>Ltd. and the Entrusted Guarantee Contract No. WT1441<br>-<br>1 in 2021 is signed.<br>Meanwhile, counter guarantee was provided for t<br>he guarantee: Boyu (Tianjin)<br>Semiconductor Materials Co., Ltd., a subsidiary of the Company, provided<br>counter guarantee with the Real Estate in the Property Right Certificate No. Jin<br>(2021) Baodi District Real Estate No. 7071577 as collateral, and the coll<br>ateral<br>were fixed assets<br>-<br><br>houses and buildings with a book value of<br>RMB<br>24,935,760.69, the construction<br>-<br>in<br>-<br>progress with a book value of<br>RMB<br>9,091,115.67 and the intangible assets with a book value of<br>RMB<br>6,502,046.67 signed the Maximum Counter Guarantee (Re<br>al Estate<br>Mortgage) Contract No. DYF1441 in 2021, and the maximum principal balance<br>of the guaranteed principal creditor's rights is RMB15,000,000.00.<br><br>On September 24, 2020, the Company signed a Credit Line Agreement with<br>Beijing Tongzhou Branch of Bank of<br><br>China Limited, and obtained a credit line<br>of<br>RMB<br>62,000,000.00. The credit period is from September 24, 2020<br><br>to<br>September 21, 2021. Meanwhile, the Company signed the maximum mortgage<br>contract with Bank of China Limited Beijing Tongzhou Branch, Baoding<br>Tongmei Xtal Manufacture Co., Ltd., a subsidiary of the Company, takes its<br>industrial real estate located in the<br><br>east of the new 107 National Highway in<br>Dingxing County, Baoding City, Hebei Province and the state<br>-<br>owned land<br>construction and use right shared by other industrial real estate except 1, 6 and 7<br>as collateral, and the corresponding intangible assets with<br>a book value of<br>RMB<br>12463863.56<br>-<br><br>land use right, fixed assets with book value of<br>RMB<br>75383,,575.00<br>-<br><br>houses and buildings.
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>159<br><br>3<br>-<br>2<br>-<br>1<br>-<br>162<br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>54. Assets with restricted ownership or use right<br>(Continued)<br><br>Note 3: (Continued) on July 17, 2019, the Company signed a Credit Line Agreement<br>with Tongzhou Branch of Bank of China Limited Beijing, and obtained a credit<br>line of<br>RMB<br>40,000,000.00. The credit period is from July 17, 2019 to June 2,<br>2020. Mea<br>nwhile, the Company signed the Maximum Mortgage Contract with<br>Bank of China Limited Beijing Tongzhou Branch, Baoding Tongmei Xtal<br>Manufacture Co., Ltd., a subsidiary of the Company, takes the state<br>-<br>owned land<br>construction and use right shared by its indust<br>rial real estate 1, 6 and 7 buildings<br>on the east side of the new 107 National Highway in Dingxing County, Baoding<br>City, Hebei Province and other industrial buildings except 1, 6 and 7 buildings<br>as collateral, and the corresponding book value of intangible<br><br>assets<br>-<br><br>land use<br>right fixed assets<br>-<br><br>buildings with book value of<br>RMB<br>52,966,875.00 and<br>construction<br>-<br>in<br>-<br>progress with book value of<br>RMB<br>26,112,000.00. As of<br>December 31, 2019, the used amount is<br>RMB<br>40,000,000.00.<br><br>Note 4: On December 26, 2019, the Group ent<br>rusted Beijing Zhongguancun<br>Technology Financing Guarantee to provide guarantee for the bank loan obtained<br>by<br>Beijing Boyu Semiconductor Vessel Craftwork Technology Co., Ltd.<br><br>from<br>Beijing Tongzhou Branch of Industrial and Commercial Bank of China Limited,<br>and signed the maximum amount entrusted guarantee contract and the entrusted<br>guarantee contract, with the maximum guarantee amount of<br>RMB<br>15,000,000.00.<br>Meanwhile, counter guarantee was provided for the guarantee: 1) Boyu (Tianjin)<br>Semiconductor Materials C<br>o., Ltd., a subsidiary of the Company, and He<br>Junfang, its general manager, provided counter guarantee in the form of<br>guarantee and signed the Maximum Counter Guarantee (Guarantee) Contract; 2)<br>Beijing Boyu Semiconductor Vessel Craftwork Technology Co., Lt<br>d.<br>, a<br>subsidiary of the Company, provided counter guarantee with its accounts<br>receivable of<br>RMB<br>10,673,996.84 as of December 31, 2020 as collateral, and<br>signed the maximum counter guarantee (pledge of accounts receivable); 3) Boyu<br>(Tianjin) Semiconductor Ma<br>terials Co., Ltd., a subsidiary of the Company, has<br>entered into the maximum counter guarantee (real estate mortgage) contract by<br>providing counter guarantee with its construction<br>-<br>in<br>-<br>progress<br>-<br><br>production<br>workshop I, production workshop II,<br>R&D<br><br>workshop, c<br>omprehensive station<br>building and guard room at the intersection of Zongyi Road and Henger Road,<br>Baodi District, Tianjin as collateral. Among them, the mortgage of the above real<br>estate has not been handled as of December 13, 2021. The available amount<br>RMB<br>10,000,000.00 before the mortgage registration of the real estate is<br>completed according to the agreement in the maximum amount entrusted<br>guarantee contract. On December 10, 2021, the Group and Beijing<br>Zhongguancun Technology Financing Guarantee Co., Ltd.<br>re<br>-<br>signed the<br>Entrusted Guarantee Contract No. WT1441<br>-<br>1 in 2021. Meanwhile, counter<br>guarantee was provided for the guarantee: Boyu (Tianjin) Semiconductor<br>Materials Co., Ltd., a subsidiary of the Company, provided counter guarantee<br>with the real estate in<br>the Certificate of title of Jin (2021) Baodi District Real<br>Estate No. 7071577 as collateral, and signed the Maximum Counter Guarantee<br>(real estate mortgage) Contract No. DTF1441 in 2021. The mortgage area is<br>13,565.47 m2, the land use right area is 16,715.<br>7 m2, the guarantee amount is<br>RMB<br>30,000,000.00, and the creditor's right period is from December 14, 2021<br>to December 14, 2023.
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>160<br><br>3<br>-<br>2<br>-<br>1<br>-<br>163<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>55. Foreign currency monetary items<br><br><br><br>December 31,<br>2021<br><br><br><br>December 31, 2020<br><br><br><br><br>Original<br>currency<br><br><br><br>Exchange<br>rate<br><br><br><br>Equivalent to<br>RMB<br><br><br><br>Original<br>currency<br><br><br><br>Exchange<br>rate<br><br><br><br>Equivalent to<br>RMB<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Cash and<br>bank balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Dollar<br><br><br>9,315,587.61<br><br><br><br>6.3757<br><br><br><br>59,393,391.93<br><br><br><br>2,069,539.45<br><br><br><br>6.5249<br><br><br><br>13,503,537.95<br><br><br>Yen<br><br><br>20,018,847.97<br><br><br><br>0.0554<br><br><br><br>1,109,044.18<br><br><br><br>30,681,512.00<br><br><br><br>0.0632<br><br><br><br>1,940,176.09<br><br><br>Euro<br><br><br>1,338.14<br><br><br><br>7.2197<br><br><br><br>9,660.97<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>60,512,097.08<br><br><br><br><br><br><br><br><br><br>15,443,714.04<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Accounts<br>receivable<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Dollar<br><br><br>13,128,925.12<br><br><br><br>6.3757<br><br><br><br>83,706,087.89<br><br><br><br>8,830,613.89<br><br><br><br>6.5249<br><br><br><br>57,618,872.57<br><br><br>Euro<br><br><br>16,412.50<br><br><br><br>7.2197<br><br><br><br>118,493.33<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>83,824,581.22<br><br><br><br><br><br><br><br><br><br>57,618,872.57<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Accounts<br>payable<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Dollar<br><br><br>6,828,380.24<br><br><br><br>6.3757<br><br><br><br>43,535,703.90<br><br><br><br>12,032,902.33<br><br><br><br>6.5249<br><br><br><br>78,513,484.41<br><br><br>Yen<br><br><br>42,860,000.00<br><br><br><br>0.0554<br><br><br><br>2,374,444.00<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br>Euro<br><br><br>72,500.00<br><br><br><br>7.2197<br><br><br><br>523,428.25<br><br><br><br>72,500.00<br><br><br><br>8.0250<br><br><br><br>581,812.50<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>46,433,576.15<br><br><br><br><br><br><br><br><br><br>79,095,296.91<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Other<br>receivables<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Dollar<br><br><br>122,799.99<br><br><br><br>6.3757<br><br><br><br>782,935.90<br><br><br><br>61,391.86<br><br><br><br>6.5249<br><br><br><br>400,575.75<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Other<br>payables<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Dollar<br><br><br>10,462,424.54<br><br><br><br>6.3757<br><br><br><br>66,705,280.14<br><br><br><br>15,533,322.34<br><br><br><br>6.5249<br><br><br><br>101,353,374.94<br><br><br>Yen<br><br><br>3,820,000.00<br><br><br><br>0.0554<br><br><br><br>211,628.00<br><br><br><br>588,000.00<br><br><br><br>0.0632<br><br><br><br>37,182.77<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>66,916,908.14<br><br><br><br><br><br><br><br><br><br>101,390,557.71
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>161<br><br>3<br>-<br>2<br>-<br>1<br>-<br>164<br><br><br>V. Notes to Main Items of Consolidated Financial Statements<br><br>(Continued)<br><br>55. Foreign currency monetary items (Continued)<br><br><br><br><br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br><br><br>Original<br>currency<br><br><br><br>Exchange<br>rate<br><br><br><br>Equivalent to<br>RMB<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Cash and<br>bank balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Dollar<br><br><br><br><br><br><br><br><br><br><br><br>4,915,501.66<br><br><br><br>6.9762<br><br><br><br>34,291,522.68<br><br><br>Yen<br><br><br><br><br><br><br><br><br><br><br><br>1,510.00<br><br><br><br>0.0641<br><br><br><br>96.77<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>34,291,619.45<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Accounts<br>receivable<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Dollar<br><br><br><br><br><br><br><br><br><br><br><br>9,680,069.46<br><br><br><br>6.9762<br><br><br><br>67,530,100.57<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Accounts<br>payable<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Dollar<br><br><br><br><br><br><br><br><br><br><br><br>8,762,991.93<br><br><br><br>6.9762<br><br><br><br>61,132,384.30<br><br><br>Yen<br><br><br><br><br><br><br><br><br><br><br><br>892,000.00<br><br><br><br>0.0641<br><br><br><br>57,164.71<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>61,189,549.01<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Other<br>receivables<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Dollar<br><br><br><br><br><br><br><br><br><br><br><br>100,129.02<br><br><br><br>6.9762<br><br><br><br>698,520.07<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Other<br>payables<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Dollar<br><br><br><br><br><br><br><br><br><br><br><br>14,637,545.13<br><br><br><br>6.9762<br><br><br><br>102,114,442.37<br><br><br>The important overseas operating entities in the consolidated statements of the Group<br>include AXT Tongmei, Inc., a subsidiary of the Company, whose main overseas<br>business place is Californ<br>ia, the United States, and the recording currency is US dollars.<br><br>The recording currency of the above<br>-<br>mentioned important overseas operating entities<br>has not changed during the reporting period.
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>162<br><br>3<br>-<br>2<br>-<br>1<br>-<br>165<br><br><br><br>VI.<br><br>Changes of Merger Scope<br><br><br>1.<br><br>Business<br>merger involving<br><br>enterprises under common control<br><br><br>In the year of 2021<br><br><br>On May 6<br>,<br><br>2021, the Board of Directors of the Company passed the resolution on the<br>acquisition of AXT<br>-<br>Tongmei, Inc. And on the same day,<br><br>the Company entered into an<br>Equity Acquisition Agreement with its parent company, AXT, Inc., which stipulate<br>d<br><br>that the transacti<br>on price is<br>USD<br>1.00, and the date of completion of the transaction<br>was<br><br>the date on which Beijing Tongmei obtain<br>ed<br><br>the necessary consent and approval for<br>outward direct investment from the Beijing Municipal Development and Reform<br>Commission and the Beijing<br>Municipal Bureau of Commerce (the “ODI Procedure”).<br>On May 14, 2021, the Company obtained the Certificate of Enterprise Overseas<br>Investment issued by the Beijing Municipal Bureau of Commerce and obtained the<br>Project Filing Notice from the Beijing Municipal<br><br>Development and Reform<br>Commission on May 18, 2021. The Company paid the consideration of<br>USD<br>1.00 on<br>June 30, 2021. AXT, Inc. is the parent company of the Company, and both before and<br>after the merger,both parties to the merger are controlled by the parent<br><br>company AXT,<br>Inc., and such control is not temporary, thus this<br>merger<br><br>is a business<br>merger involving<br><br>enterprises under common control, and the<br>merger<br><br>date was set to June 30, 2021.<br><br><br>The operating income,net loss and net cash flow of<br>AXT<br>-<br>Tongmei, Inc.<br><br>du<br>ring the<br>merger are as follows:<br><br><br><br><br><br>For the six months ended<br><br>June 30,2021<br><br><br><br><br><br><br><br><br>Operating income<br><br><br><br>108,375,863.86<br><br><br>Net loss<br><br><br><br>(453,616.13<br><br>)<br><br>Net cash flow from operational activities<br><br><br><br>21,743,438.37
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>163<br><br>3<br>-<br>2<br>-<br>1<br>-<br>166<br><br><br><br>VI.<br><br>Changes of Merger Scope<br><br>(continued)<br><br><br>1.<br><br>Business merger involving enterprises under common control (continued)<br><br><br>In the year of 2021<br><br>(continued)<br><br><br>The book values of assets and liabilities of AXT<br>-<br>Tongmei,<br><br>Inc.<br><br>on the date of merger<br>are as follows:<br><br><br><br><br><br>June<br><br>30, 2021<br><br><br><br><br><br><br><br>Cash<br>and bank balance<br><br><br><br><br>21,743,438.37<br><br><br>Accounts receivable<br><br><br><br>77,235,068.59<br><br><br>Other receivables<br><br><br><br>700,165.21<br><br><br>Inventories<br><br><br><br><br>15,946,783.34<br><br><br>Fixed assents<br><br><br><br>68,923.91<br><br><br>Other non<br>-<br>current assets<br><br><br><br>3,814,822.13<br><br><br>Deferred income tax assets<br><br><br><br>1,660,576.57<br><br><br>Right<br>-<br>of<br>-<br>use assets<br><br><br><br>4,531,581.66<br><br><br>Accounts payable<br><br><br><br>(102,211,234.68<br><br>)<br><br>Staff remuneration payables<br><br><br><br>(2,692,185.11<br><br>)<br><br>Taxes payable<br><br><br><br>(1,495,278.34<br><br>)<br><br>Other payables<br><br><br><br>(12,020,109.42<br><br>)<br><br>Non<br>-<br>current liabilities due within one year<br><br><br><br>(1,709,186.71<br><br>)<br><br>Accrued liabilities<br><br><br><br>(1,596,407.48<br><br>)<br><br>Lease liabilities<br><br><br><br>(2,555,254.70<br><br>)<br><br><br><br><br><br><br>Total<br><br><br><br>1,421,703.34<br><br><br><br><br><br><br><br>Difference in merger<br><br>(recorded in equity<br>)<br><br><br><br>(1,421,696.83<br><br>)<br><br><br><br><br><br><br>Consideration for merger<br><br><br><br>6.51
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>164<br><br>3<br>-<br>2<br>-<br>1<br>-<br>167<br><br>VI.<br><br>Changes of<br>Merger Scope<br><br>(continued)<br><br><br>1.<br><br>Business merger involving enterprises under common control (continued)<br><br><br>In the year of 2020<br><br><br>In December 2020, the increased registered capital of the Company was subscribed by<br>AXT, Inc.<br>,<br><br>the original parent company of Baoding<br><br>Ton<br>gmei<br><br>Xtal Manufacture Co.,<br>Ltd.,<br><br>Chaoyang Tongmei<br><br>Xtal Technology Co.,<br>Ltd.,<br><br>Nanjing Jinmei Gallium Co.,<br>Ltd.,<br><br>Chaoyang Jinmei Gallium Co.,<br>Ltd.<br>and<br>Beijing Boyu<br><br>Semiconductor Vessel Craftwork<br>Technology Co., Ltd.<br><br>(the “merged parties”)<br><br>and other original minority shareholders,<br>with 100% of the equity they held in the merged parties, referring details in<br>Notes<br>I<br>, the<br>Basic Information.<br>AXT, Inc. is the parent comp<br>any of the Company, and both before<br>and after the merger,both parties to the merger are controlled by the parent company<br>AXT, Inc., and such control is not temporary, thus this merger is a business combination<br>under the control of the same group.<br>On Decembe<br>r 25 and 29, 2020, the Company<br>signed the capital increase agreement and the equity transfer agreement with the<br>original shareholders of the merged parties, and the merged parties passed the resolution<br>of the board of directors on the change of shareholder<br>s and completed the change of the<br>new Articles of Association. The Company acquired control of the merged parties on<br>December 29, 2020, and the merger date was set to December 29, 2020.<br><br><br>The Company shall pay consideration for the Merger with the shares of<br><br>the increased<br>registered capital of the Company, and the details are as follows:<br><br><br>Merged parties<br><br><br>Shares of the increased<br>registered capital<br><br><br><br>Percentage of<br>voting rights<br><br><br><br><br>RMB<br><br><br><br>%<br><br><br><br><br><br><br><br><br><br>Baoding<br><br>Tongmei<br><br>Xtal Manufacture Co.,<br>Ltd.<br><br><br>105,949,809.47<br><br><br><br>12.96<br><br><br>Chaoyang Tongmei<br><br>Xtal Technology Co.,<br>Ltd.<br><br><br>117,460,000.00<br><br><br><br>14.37<br><br><br>Chaoyang Jinmei Gallium Co.,<br>Ltd.<br><br><br>33,580,500.00<br><br><br><br>4.11<br><br><br>Nanjing Jinmei Gallium Co.,<br>Ltd.<br><br><br>67,640,000.00<br><br><br><br>8.27<br><br><br>Beijing Boyu<br><br>Semiconductor Vessel<br>Craftwork Technology Co., Ltd.<br><br><br><br>126,509,400.00<br><br><br><br>15.47<br><br><br><br>The operating income, net profit/(loss) and net cash flow during the merger and each<br>reporting period are as follows:<br><br><br>(1)<br><br>Baoding<br><br>Tongmei<br><br>Xtal Manufacture Co.,<br>Ltd.<br><br><br><br>2020<br><br><br><br>2019<br><br><br><br><br><br><br><br><br><br>Operating profit<br><br><br>71,594,025.73<br><br><br><br>19,534,258.08<br><br><br>Net loss<br><br><br>(11,958,845.11<br><br>)<br><br><br>(29,022,358.11<br><br>)<br><br>Net cash flow<br><br><br>6,711,185.16<br><br><br><br>(2,918,850.24<br><br>)<br><br><br><br>VI.<br><br>Changes of Merger Scope<br><br>(continued)
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>165<br><br>3<br>-<br>2<br>-<br>1<br>-<br>168<br><br>1.<br><br>Business merger involving enterprises under<br>common control (continued)<br><br><br>The operating income, net profit/(loss) and net cash flow during the merger and each<br>reporting period are as follows<br><br>(<br>continued)<br>:<br><br><br>(2)<br><br>Chaoyang Tongmei<br><br>Xtal Technology Co.,<br>Ltd.<br><br><br><br><br>2020<br><br><br><br>2019<br><br><br><br><br><br><br><br><br><br>Operating income<br><br><br>60,180,591.80<br><br><br><br>24,701,626.37<br><br><br>Net profit/(loss)<br><br><br>1,357,992.52<br><br><br><br>(14,904,790.28<br><br>)<br><br>Net cash flow<br><br><br>(2,633,703.38<br><br>)<br><br><br>(981,650.47<br><br>)<br><br><br>(3)<br><br>Chaoyang Jinmei Gallium Co.,<br>Ltd.<br><br><br><br>2020<br><br><br><br>2019<br><br><br><br><br><br><br><br><br><br>Operating profit<br><br><br>38,907,060.00<br><br><br><br>10,956,168.73<br><br><br>Net<br>profit<br><br><br>12,874,677.91<br><br><br><br>2,586,249.41<br><br><br>Net cash flow<br><br><br>(9,142,991.18<br><br>)<br><br><br>11,494,403.75<br><br><br><br>(4)<br><br>Nanjing Jinmei Gallium Co.,<br>Ltd.<br><br><br><br>2020<br><br><br><br>2019<br><br><br><br><br><br><br><br><br><br>Operating profit<br><br><br>85,387,334.10<br><br><br><br>57,812,758.71<br><br><br>Net profit<br><br><br>7,890,208.81<br><br><br><br>7,560,894.11<br><br><br>Net cash flow<br><br><br>111,307.75<br><br><br><br>2,996,212.65<br><br><br><br>(5)<br><br>Beijing Boyu Semiconductor Vessel Craftwork Technology Co., Ltd.<br><br><br><br><br>2020<br><br><br><br>2019<br><br><br><br><br><br><br><br><br><br>Operating profit<br><br><br>111,497,232.81<br><br><br><br>94,922,957.04<br><br><br>Net profit<br><br><br>29,581,970.55<br><br><br><br>13,934,808.33<br><br><br>Net cash flow<br><br><br>13,293,834.55<br><br><br><br>(11,347,009.94<br><br>)
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>166<br><br>3<br>-<br>2<br>-<br>1<br>-<br>169<br><br><br>VI.<br><br>Changes of Merger Scope<br><br>(continued)<br><br><br>1.<br><br>Business merger involving enterprises under common control (continued)<br><br><br>The book values of assets and liabilities on the date of merger and the balance sheet<br>date during the reporting<br>period of Baoding<br><br>Tongmei<br><br><br>Xtal Manufacture Co.,<br>Ltd.<br>are as follows:<br><br><br><br><br><br><br>December 29, 2020<br><br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br>Cash and bank balance<br><br><br><br><br>8,472,487.38<br><br><br>1,761,302.22<br><br><br>Notes receivable<br><br><br><br><br>833,227.39<br><br><br>3,803,663.35<br><br><br>Accounts receivable<br><br><br><br><br>11,274,416.40<br><br><br>3,049,544.60<br><br><br>Receivables financing<br><br><br><br>99,887.00<br><br><br>3,995,822.22<br><br><br>Prepayments<br><br><br><br>1,148,693.36<br><br><br>995,452.97<br><br><br>Other receivables<br><br><br><br>329,671.86<br><br><br>65,675.00<br><br><br>Inventories<br><br><br><br><br>14,564,288.84<br><br><br>2,248,574.39<br><br><br>Other current assets<br><br><br><br><br>14,568,962.57<br><br><br>14,087,702.13<br><br><br>Fixed assets<br><br><br><br>239,190,864.05<br><br><br>91,349,519.51<br><br><br>Construction<br>-<br>in<br>-<br>progress<br><br><br><br>11,266,125.20<br><br><br>151,664,051.20<br><br><br>Intangible assets<br><br><br><br>12,542,829.67<br><br><br>12,816,154.04<br><br><br>Deferred income tax assets<br><br><br><br>11,872,214.80<br><br><br>-<br><br><br>Other<br>non<br>-<br>current assets<br><br><br><br>1,954,368.48<br><br><br>514,000.00<br><br><br>Accounts payable<br><br><br><br>(<br>76,797,989.80<br><br>)<br><br>(27,850,403.38<br><br>)<br><br>Contract liabilities<br><br><br><br>(809,569.35<br><br>)<br><br>-<br><br><br>Staff remuneration payables<br><br><br><br>(1,710,953.01<br><br>)<br><br>(758,870.22<br><br>)<br><br>Taxes payable<br><br><br><br>(762,728.87<br><br>)<br><br>(2,345.12<br><br>)<br><br>Other payables<br><br><br><br>(106,225,315.92<br><br>)<br><br>(103,730,708.51<br><br>)<br><br>Non<br>-<br>current liabilities due within<br>one year<br><br><br><br>(1,270,662.51<br><br>)<br><br>(1,212,434.40<br><br>)<br><br>Other current liabilities<br><br><br><br>(4,728.33<br><br>)<br><br>-<br><br><br>Long<br>-<br>term accounts payable<br><br><br><br>(11,845,887.69<br><br>)<br><br>(13,116,550.20<br><br>)<br><br>Deferred income<br><br><br><br>(968,896.83<br><br>)<br><br>-<br><br><br><br><br><br><br><br><br><br>Total<br><br><br><br>127,721,304.69<br><br><br>139,680,149.80<br><br><br><br><br><br><br><br><br><br>Difference in merger (recorded in<br>equity<br>)<br><br><br><br>(21,771,495.22<br><br>)<br><br><br><br><br><br><br><br><br><br><br>Consideration for merger<br><br><br><br>105,949,809.47
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>167<br><br>3<br>-<br>2<br>-<br>1<br>-<br>170<br><br><br><br>VI.<br><br>Changes of Merger Scope<br><br>(continued)<br><br><br>1.<br><br>Business merger involving enterprises under common control (continued)<br><br><br>The book values of assets and liabilities on the date of merger and the balance sheet<br>date during the reporting period of Chaoyang Tongmei<br><br>Xtal Technology Co.,<br>Ltd.<br>are<br>a<br>s follows:<br><br><br><br><br><br><br><br>December 29, 2020<br><br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br>Cash and bank balance<br><br><br><br><br><br>2,552,364.38<br><br><br><br>5,186,067.76<br><br><br><br>Notes receivable<br><br><br><br><br><br>199,000.00<br><br><br><br>1,166,807.40<br><br><br><br>Accounts receivable<br><br><br><br><br>19,397,788.36<br><br><br><br>22,076,810.90<br><br><br>Receivables<br>financing<br><br><br><br><br>4,233,835.25<br><br><br><br>1,947,330.75<br><br><br>Prepayments<br><br><br><br><br>1,136,681.69<br><br><br><br>287,473.31<br><br><br>Other receivables<br><br><br><br><br>286,300.00<br><br><br><br>286,300.00<br><br><br>Inventories<br><br><br><br><br>55,210,231.75<br><br><br>24,095,255.51<br><br><br><br>Other current assets<br><br><br><br><br><br>8,539,797.80<br><br><br><br>9,812,978.68<br><br><br><br>Fixed<br>assets<br><br><br><br><br>126,677,287.39<br><br><br><br>11,525,686.42<br><br><br>Construction<br>-<br>in<br>-<br>progress<br><br><br><br><br>55,852,404.85<br><br><br><br>147,233,959.87<br><br><br>Intangible assets<br><br><br><br><br>18,184,316.55<br><br><br><br>18,574,116.59<br><br><br>Deferred income tax assets<br><br><br><br>6,582,281.82<br><br><br>-<br><br><br>Other non<br>-<br>current assets<br><br><br><br><br>543,294.80<br><br><br><br>-<br><br><br><br><br>Accounts payable<br><br><br><br><br>(49,906,087.99<br><br>)<br><br><br>(12,956,781.05<br><br>)<br><br>Staff remuneration payables<br><br><br><br><br>(794,481.90<br><br>)<br><br><br>(177,001.53<br><br>)<br><br>Taxes payable<br><br><br><br><br>(449,997.12<br><br><br>)<br><br><br>(428,720.33<br><br><br>)<br><br>Other payables<br><br><br><br><br>(62,230,960.48<br><br>)<br><br><br>(57,685,124.83<br><br>)<br><br>Deferred income<br><br><br><br><br>(31,829,390.07<br><br>)<br><br><br>(17,821,666.67<br><br>)<br><br><br><br><br><br><br><br><br>Total<br><br><br><br>154,184,667.08<br><br><br>153,123,492.78<br><br><br><br><br><br><br><br><br><br>Difference in merger (recorded in<br>equity<br>)<br><br><br><br>(36,724,667.08<br><br><br>)<br><br><br><br><br><br><br><br><br><br><br>Consideration for merger<br><br><br><br>117,460,000.00
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>168<br><br>3<br>-<br>2<br>-<br>1<br>-<br>171<br><br><br><br>VI.<br><br>Changes of Merger Scope<br><br>(continued)<br><br><br>1.<br><br>Business merger involving enterprises under common control (continued)<br><br><br>The book values of assets and liabilities on the date of merger and the balance sheet<br>date during the reporting period of Chaoyang Jinmei Gallium Co.,<br>Ltd.<br>are as follows:<br><br><br><br><br><br><br>December 29, 2020<br><br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br>Cash and bank balance<br><br><br><br><br><br>2,430,821.70<br><br><br>11,573,812.88<br><br><br><br>Accounts receivable<br><br><br><br><br>18,207,422.19<br><br><br>8,096,310.28<br><br><br>Receivables financing<br><br><br><br><br>3,200,036.33<br><br><br>535,188.78<br><br><br>Prepayments<br><br><br><br><br>84,211.06<br><br><br>106,024.68<br><br><br>Other receivables<br><br><br><br><br>476,341.67<br><br><br>30,649.80<br><br><br>Inventories<br><br><br><br><br><br>5,892,669.97<br><br><br>7,591,170.63<br><br><br><br>Other current assets<br><br><br><br><br>2,485,432.33<br><br><br>631,944.54<br><br><br><br>Fixed assets<br><br><br><br><br>40,833,578.64<br><br><br>5,394,784.45<br><br><br>Construction<br>-<br>in<br>-<br>progress<br><br><br><br><br>25,659,443.39<br><br><br>1,388,043.42<br><br><br>Intangible assets<br><br><br><br><br>7,380,092.00<br><br><br>7,534,400.00<br><br><br>Deferred income tax assets<br><br><br><br><br>1,074,020.92<br><br><br>1,689,714.90<br><br><br>Other non<br>-<br>current assets<br><br><br><br><br>558,355.88<br><br><br>25,480,305.50<br><br><br>Short<br>-<br>term borrowings<br><br><br><br><br>(10,000,000.00<br><br>)<br><br>-<br><br><br>Accounts payable<br><br><br><br><br>(2,366,461.45<br><br>)<br><br>(9,556,066.92<br><br>)<br><br>Staff remuneration payables<br><br><br><br><br>(515,398.00<br><br>)<br><br>(234,500.00<br><br>)<br><br>Taxes payable<br><br><br><br><br>-<br><br><br><br>(2,684,157.00<br><br>)<br><br>Other payables<br><br><br><br><br>(51,625,430.63<br><br>)<br><br>(35,141,806.26<br><br>)<br><br>Deferred income<br><br><br><br><br>(12,087,150.00<br><br>)<br><br>(6,708,000.00<br><br>)<br><br><br><br><br><br><br><br><br>Total<br><br><br><br>31,687,986.00<br><br><br>15,727,819.68<br><br><br><br><br><br><br><br><br><br>Minority<br>interests<br><br><br><br>(3,854,564.14<br><br>)<br><br><br><br><br><br><br><br><br><br><br>Net assets of companies controlled<br>under the same group<br><br><br><br>27,833,421.86<br><br><br><br><br><br><br><br><br><br><br><br>Difference in merger (recorded in<br>equity<br>)<br><br><br><br>5,747,078.14<br><br><br><br><br><br><br><br><br><br><br><br>Consideration for merger<br><br><br><br>33,580,500.00
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>169<br><br>3<br>-<br>2<br>-<br>1<br>-<br>172<br><br><br><br>VI.<br><br>Changes of Merger Scope<br><br>(continued)<br><br><br>1.<br><br>Business merger involving enterprises under common control (continued)<br><br><br>The book values of assets and liabilities on the date of merger and the balance sheet<br>date during the reporting period of Nanjing Jinmei Gallium Co<br>..,<br>Ltd.<br>are as follows:<br><br><br><br><br><br><br>December 29, 2020<br><br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br>Cash and bank balance<br><br><br><br><br><br>4,856,394.74<br><br><br><br>4,745,086.99<br><br><br><br>Notes receivable<br><br><br><br><br>-<br><br><br><br><br><br>-<br><br><br><br><br>Accounts receivable<br><br><br><br><br>30,462,536.35<br><br><br><br>13,731,199.69<br><br><br>Receivables financing<br><br><br><br><br>3,145,403.60<br><br><br><br>657,175.94<br><br><br>Prepayments<br><br><br><br><br>20,524.99<br><br><br><br>17,012.49<br><br><br>Other receivables<br><br><br><br>32,991,827.17<br><br><br>35,129,003.97<br><br><br>Inventories<br><br><br><br><br><br>29,473,577.99<br><br><br><br>20,918,149.49<br><br><br><br>Other current assets<br><br><br><br><br>1,077,250.27<br><br><br>23,881.91<br><br><br><br>Long<br>-<br>term equity<br>investments<br><br><br><br><br>21,728,988.42<br><br><br><br>17,668,679.25<br><br><br>Fixed assets<br><br><br><br><br>251,957.98<br><br><br><br>390,374.19<br><br><br>Construction<br>-<br>in<br>-<br>progress<br><br><br><br><br>-<br><br><br><br><br><br>-<br><br><br><br><br>Long<br>-<br>term deferred expenses<br><br><br><br><br>-<br><br><br><br><br><br>-<br><br><br><br><br>Deferred income tax assets<br><br><br><br>70,171.57<br><br><br>56,697.94<br><br><br>Other non<br>-<br>current<br>assets<br><br><br><br><br>900.00<br><br><br><br>69,300.00<br><br><br>Accounts payable<br><br><br><br><br>(24,658,901.80<br><br>)<br><br><br>(1,982,834.66<br><br>)<br><br>Accounts received in advance<br><br><br><br><br>-<br><br><br><br><br>(642,875.45<br><br>)<br><br>Contract liabilities<br><br><br><br><br>(686,028.22<br><br>)<br><br><br>-<br><br><br><br><br>Staff remuneration payables<br><br><br><br><br>(1,905,308.34<br><br>)<br><br><br>(2,208,175.75<br><br>)<br><br>Taxes payable<br><br><br><br><br>(731,544.53<br><br>)<br><br><br>(1,788,223.79<br><br><br>)<br><br>Other payables<br><br><br><br><br>(375,518.61<br><br>)<br><br><br>(308,684.61<br><br>)<br><br><br><br><br><br><br><br><br>Total<br><br><br><br>95,722,231.58<br><br><br>86,475,767.60<br><br><br><br><br><br><br><br><br><br>Difference in merger (recorded in<br>equity<br>)<br><br><br><br>(28,082,231.58<br><br>)<br><br><br><br><br><br><br><br><br><br><br>Consideration for merger<br><br><br><br>67,640,000.00
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>170<br><br>3<br>-<br>2<br>-<br>1<br>-<br>173<br><br><br>VI.<br><br>Changes of Merger Scope<br><br>(continued)<br><br>1.<br><br>Business merger involving enterprises under common control (continued)<br><br><br>The book values of assets and liabilities on the date of merger and the balance sheet<br>date during the reporting period of<br>Beijing Boyu Semiconductor Vessel Craftwork<br>Technology Co., Ltd.<br><br>are as follows:<br><br><br><br><br><br>December 29, 2020<br><br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br>Cash and bank balance<br><br><br><br><br>23,195,146.51<br><br><br>9,901,311.96<br><br><br>Notes receivable<br><br><br><br><br>3,341,496.65<br><br><br>-<br><br><br>Accounts receivable<br><br><br><br>26,489,883.53<br><br><br>18,391,528.69<br><br><br>Receivables financing<br><br><br><br>4,006,569.89<br><br><br>976,714.24<br><br><br>Prepayments<br><br><br><br>1,409,694.61<br><br><br>1,289,890.04<br><br><br>Other<br>receivables<br><br><br><br>5,671,595.91<br><br><br>1,987,810.92<br><br><br>Inventories<br><br><br><br><br>11,217,838.13<br><br><br>10,719,718.44<br><br><br>Non<br>-<br>current liabilities due within one<br>year<br><br><br><br>-<br><br><br>2,000,000.00<br><br><br>Other current assets<br><br><br><br>4,483,886.67<br><br><br>5,073,384.54<br><br><br>Long<br>-<br>term accounts receivable<br><br><br><br>-<br><br><br>1,000,000.00<br><br><br>Fixed assets<br><br><br><br>63,479,083.89<br><br><br>44,414,434.86<br><br><br>Construction<br>-<br>in<br>-<br>progress<br><br><br><br>6,954,953.24<br><br><br>11,014,349.93<br><br><br>Intangible assets<br><br><br><br>1,846,569.53<br><br><br>2,200,390.68<br><br><br>Long<br>-<br>term deferred expenses<br><br><br><br>13,567,106.67<br><br><br>13,853,826.67<br><br><br>Deferred income tax<br>assets<br><br><br><br>3,319,451.35<br><br><br>3,091,340.29<br><br><br>Other non<br>-<br>current assets<br><br><br><br>1,323,401.32<br><br><br>684,458.92<br><br><br>Short<br>-<br>term borrowings<br><br><br><br>(20,010,888.89<br><br>)))<br><br>-<br><br><br>Accounts payable<br><br><br><br>(7,042,460.64<br><br>)<br><br>(4,421,995.10<br><br>)<br><br>Accounts received in advance<br><br><br><br>-<br><br><br>(129,678.62<br><br>)<br><br>Contract<br>liabilities<br><br><br><br>(818,725.03<br><br>)<br><br>-<br><br><br>Staff remuneration payables<br><br><br><br>(6,297,042.17<br><br>)<br><br>(5,135,598.44<br><br>)<br><br>Taxes payable<br><br><br><br>(230,444.76<br><br>)<br><br>(157,365.23<br><br>)<br><br>Other payables<br><br><br><br>(31,685,853.04<br><br>)<br><br>(5,803,840.71<br><br>)<br><br>Other current liabilities<br><br><br><br>(129,507.51<br><br>)<br><br>-<br><br><br>Deferred<br>income<br><br><br><br>(10,050,816.01<br><br>)<br><br>(6,791,500.00<br><br>)<br><br><br><br><br><br><br><br><br>Total<br><br><br><br>94,040,939.85<br><br><br>104,159,182.08<br><br><br><br><br><br><br><br><br><br>Minority interests<br><br><br><br>(31,033,510.15<br><br>)<br><br><br><br><br><br><br><br><br><br><br>Net assets of companies controlled under the<br>same group<br><br><br><br>63,007,429.70<br><br><br><br><br><br><br><br><br><br><br><br>Difference in merger (recorded in equity<br>)<br><br><br><br>63,501,970.30<br><br><br><br><br><br><br><br><br><br><br><br>Consideration for merger<br><br><br><br>126,509,400.00
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Beijing Tongmei Xtal<br><br>Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>171<br><br>3<br>-<br>2<br>-<br>1<br>-<br>174<br><br>VI.<br><br>Changes of Merger Scope<br><br>(continued)<br><br><br>2.<br><br>Changes of Merger Scope<br><br>due to other reasons<br><br><br>In February 2021,<br><br>a subsidiary of the<br>Company,<br><br>Chaoyang Xinmei High<br>-<br>purity<br>Semiconductor Materials Co.,<br>Ltd.,<br><br>was established in Chaoyang City, Liaoning<br>Province.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br><br><br>In<br>RMB<br><br>Yuan<br><br>172<br><br>3<br>-<br>2<br>-<br>1<br>-<br>175<br><br><br>VII.<br><br>Equity in Other Entities<br><br><br>1.<br><br><br>Equity in the subsidiaries of the Company<br><br><br>The subsidiaries of the Company are as follows:<br><br><br>Place of major<br>business<br><br><br>Place of<br>incorporati<br>on<br><br><br>Time and method of establishment<br><br><br>Business nature<br><br><br><br>Registered capital<br><br><br><br>Percentage of<br>shareholding<br><br>(<br>%<br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>direct<br><br><br><br>indirect<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Subsidiaries acquired through establishment or<br>investment, etc<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Chaoyang Xinmei High<br>-<br>purity Semiconductor<br>Materials Co.,<br>Ltd.<br><br>Chaoyang City,<br>Liaoning Province<br><br><br>Chaoyang<br>City,<br>Liaoning<br>Province<br><br><br>Invested and established by Beijing<br>Tongmei Xtal Technology Co.,<br>Ltd.<br>and its minority shareholders in<br>February<br><br>2021<br><br><br>Manufacture and sales of semiconductor<br>materials and chemical products<br><br><br><br><br>RMB20,000,000.00<br><br><br><br>58.5<br><br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Subsidiaries acquired by merger of enterprises<br>controlled under the same group<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Baoding Tongmei Xtal Manufacture Co.,<br>Ltd.<br><br>Baoding City<br><br>Hebei Province<br><br><br>Baoding<br>City<br><br>Hebei<br>Province<br><br><br>Invested and established by<br>AXT, Inc.<br>in<br><br>July<br><br>2017<br><br><br>R&D, production and sales of semiconductor<br>materials<br><br><br><br>RMB193,050,654.00<br><br><br><br>100<br><br><br><br>-<br><br><br><br>Note<br>2<br><br><br>Chaoyang Tongmei<br><br>Xtal Technology Co.,<br>Ltd.<br><br>Chaoyang City,<br>Liaoning Province<br><br><br>Chaoyang<br>City,<br>Liaoning<br>Province<br><br><br>Invested and established by<br>AXT, Inc.<br>in<br><br>October 2017<br><br><br>R&D,<br>production and sales of semiconductor<br>materials<br><br><br><br>RMB173,371,951.00<br><br><br><br>100<br><br><br><br>-<br><br><br><br>Note<br>1<br><br><br>Chaoyang Jinmei Gallium Co.,<br>Ltd.<br><br>Chaoyang City,<br>Liaoning Province<br><br><br>Chaoyang<br>City,<br>Liaoning<br>Province<br><br><br>Invested and established by<br>AXT, Inc.<br>in<br><br>July<br><br>2018<br><br><br>R&D, production and sales of gallium oxide,<br>indium, germanium and so on<br><br><br><br><br>RMB44,018,718.00<br><br><br><br>100<br><br><br><br>-<br><br><br><br>Note<br>1<br><br><br>Beijing Boyu Semiconductor Vessel Craftwork<br>Technology Co., Ltd.<br><br><br>Beijing<br><br><br>Beijing<br><br><br>Invested and established by<br>AXT, Inc.<br>and<br><br>its minority shareholders in<br>October 2002<br><br><br>Manufacture and sale of crucibles<br><br><br><br><br>RMB16,588,3<br>71.64<br><br><br><br>100<br><br><br><br>-<br><br><br><br>Note<br>1<br><br><br>Boyu (Chaoyang) Semiconductor Technology<br>Co.,<br>Ltd.<br><br>Chaoyang City,<br>Liaoning Province<br><br><br>Chaoyang<br>City,<br>Liaoning<br>Province<br><br><br>Invested and established by<br>Beijing<br>Boyu Semiconductor Vessel Craftwork<br>Technology Co., Ltd.<br><br>in<br>December<br><br>2017<br><br><br>Manufacture of crucibles<br><br><br><br>RMB10,000,000.00<br><br><br><br>-<br><br><br><br>100<br><br><br><br><br><br>Boyu (Tianjin) Semiconductor Materials Co.,<br>Ltd.<br><br>Tianjin<br><br><br>Tianjin<br><br><br>Invested and established by<br>Beijing<br>Boyu Semiconductor Vessel Craftwork<br>Technology Co., Ltd.<br><br>in August<br><br>2013<br><br><br>Manufacture of crucibles<br><br><br><br><br>RMB30,000,000.00<br><br><br><br>-<br><br><br><br>100<br><br><br><br><br><br>Nanjing Jinmei Gallium Co.,<br>Ltd.<br><br>Nanjing City<br><br>Jiangsu Province<br><br><br>Nanjing<br>City<br><br>Jiangsu<br>Province<br><br><br>Invested and established by<br>AXT, Inc.<br>and<br><br>its minority shareholders in<br>September<br><br>2000<br><br><br>sales of semiconductor materials and chemical<br>products<br><br><br><br>RMB5,795,230.00<br><br><br><br>100<br><br><br><br>-<br><br><br><br>Note<br>1<br><br><br>AXT<br>-<br>Tongmei, Inc.<br><br>California, USA<br><br><br>Delaware,<br>USA<br><br><br>Invested and established by<br>AXT, Inc.<br>in<br><br>December, 2020<br><br><br>sales of semiconductor materials<br><br><br><br>USD<br>1.00<br><br><br><br>100<br><br><br><br>-
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br><br><br>In<br>RMB<br><br>Yuan<br><br>173<br><br>3<br>-<br>2<br>-<br>1<br>-<br>176<br><br><br>Note<br>1:<br><br>In December 2020, the registered capital of Chaoyang Tongmei<br><br>Xtal Technology Co.,<br>Ltd.,<br>Chaoyang Jinmei Gallium Co.,<br>Ltd.,<br>Beijing<br>Boyu<br><br>Semiconductor Vessel Craftwork Technology Co., Ltd.<br><br>and Nanjing Jinmei Gallium Co.,<br>Ltd.<br>changed from US dollars to RMB, referring<br>the paid<br>-<br>in capital of subsidiaries of the Company for details.<br><br><br><br>Note<br>2:<br><br>In January<br><br>2021, the registered capital of Baoding<br><br>Tongmei<br><br>Xtal Manufacture Co.,<br>Ltd.<br>changed from US dollars to RMB, referring the<br>paid<br>-<br>in capital of subsidiaries of the Company for details.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br><br><br>In<br>RMB<br><br>Yuan<br><br>174<br><br>3<br>-<br>2<br>-<br>1<br>-<br>177<br><br>VII.<br><br>Equity in Other Entities<br><br>(continued)<br><br><br>1.<br><br>Equity in subsidiaries of the Company<br><br>(continued)<br><br><br>Details of<br>subsidiaries of the Company are as follows<br><br>(continued)<br>:<br><br><br>Changes in paid<br>-<br>in capital of subsidiaries of the Company are as follows<br>：<br><br><br>Currency<br><br><br>Balance on 1<br>January,2019<br><br><br>Increase in 2019<br><br><br>Increase in 2020<br><br><br>Changes in<br>currencies in 2020<br><br><br>Increase in 2021<br><br><br>Balance on<br>December 31, 2021<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Baoding Tongmei Xtal<br>Manufacture Co.,<br>Ltd.<br><br>USD<br><br><br>29,510,000.00<br><br><br>-<br><br><br>-<br><br><br>(29,510,000.00<br><br>)<br><br>-<br><br><br>-<br><br>RMB<br><br><br>N/A<br><br><br>N/A<br><br><br>N/A<br><br><br>193,050,654.00<br><br><br>-<br><br><br>193,050,654.00<br><br>Chaoyang Tongmei Xtal<br>Technology Co.,<br>Ltd.<br><br>USD<br><br><br>14,400,000.00<br><br><br>11,210,000.00<br><br><br>-<br><br><br>(25,610,000.00<br><br>)<br><br>-<br><br><br>-<br><br>RMB<br><br><br>N/A<br><br><br>N/A<br><br><br>N/A<br><br><br>173,371,951.00<br><br><br>-<br><br><br>173,371,951.00<br><br>Chaoyang Jinmei Gallium Co.,<br>Ltd.<br><br>USD<br><br><br>N/A<br><br><br>1,820,000.00<br><br><br>384,593.58<br><br><br>(2,204,593.58<br><br>)<br><br>-<br><br><br>-<br><br>RMB<br><br><br>N/A<br><br><br>N/A<br><br><br>N/A<br><br><br>15,539,524.00<br><br><br>-<br><br><br>15,539,524.00<br><br>Nanjing Jinmei Gallium Co.,<br>Ltd.<br><br>USD<br><br><br>700,000.00<br><br><br>-<br><br><br>-<br><br><br>(700,000.00<br><br>)<br><br>-<br><br><br>-<br><br>RMB<br><br><br>N/A<br><br><br>N/A<br><br><br>N/A<br><br><br>5,795,230.00<br><br><br>-<br><br><br>5,795,230.00<br><br>Beijing Boyu<br><br>Semiconductor<br>Vessel Craftwork Technology<br>Co., Ltd.<br><br><br>USD<br><br><br>2,353,300.00<br><br><br>-<br><br><br>-<br><br><br>(2,353,300.00<br><br>)<br><br>-<br><br><br>-<br><br>RMB<br><br><br>N/A<br><br><br>N/A<br><br><br>N/A<br><br><br>16,588,371.64<br><br><br>-<br><br><br>16,588,371.64<br><br>Boyu (Chaoyang)<br>Semiconductor Technology Co.,<br>Ltd.<br><br>RMB<br><br><br>10,000,000.00<br><br><br>-<br><br><br>-<br><br><br>-<br><br><br>-<br><br><br>10,000,000.00<br><br>Boyu (Tianjin) Semiconductor<br>Materials Co.,<br>Ltd.<br><br>RMB<br><br><br>15,000,000.00<br><br><br>-<br><br><br>15,000,000.00<br><br><br>-<br><br><br>-<br><br><br>30,000,000.00<br><br>Chaoyang Xinmei High<br>-<br>purity<br>Semiconductor Materials Co.,<br>Ltd.<br><br>RMB<br><br><br>N/A<br><br><br>N/A<br><br><br>N/A<br><br><br>N/A<br><br><br>20,000,000.00<br><br><br>20,000,000.00<br><br>AXT<br>-<br>Tongmei, Inc.<br><br>USD<br><br><br>N/A<br><br><br>N/A<br><br><br>N/A<br><br><br>N/A<br><br><br>1.00<br><br><br>1.00
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>175<br><br>3<br>-<br>2<br>-<br>1<br>-<br>178<br><br>VII.<br><br>Equity in Other Entities<br><br>(continued)<br><br><br>1.<br><br>Equity in subsidiaries of the Company<br><br>(continued)<br><br><br>Details of subsidiaries of the Company are as<br>follows<br><br>(continued)<br>:<br><br><br>Subsidiaries with significant minority equity are as follows:<br><br><br>2021<br><br><br><br>Minority<br>shareholder<br>s<br><br><br><br>Profit and loss<br>attributable to<br><br><br><br>Dividends paid to<br><br><br><br>Minority shareholders<br>exited<br><br><br><br>Accumulated<br>minority equity<br><br><br><br><br>P<br>ercentage<br>of<br>shareholdin<br>g<br><br><br><br>minority<br>shareholders<br><br><br><br>minority<br>shareholders<br><br><br><br>and transfer minority<br>equity<br><br><br><br><br>at the end of the<br>period<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Chaoyang Xinmei High<br>-<br>purity Semiconductor<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Materials Co.,<br>Ltd.<br><br><br>41.5%<br><br><br><br>(553,012.35<br><br>)<br><br><br>-<br><br><br><br>-<br><br><br><br>19,746,987.65<br><br><br><br>2020<br><br><br><br><br>Minority<br>shareholder<br>s<br><br><br><br>Profit and loss<br>attributable to<br><br><br><br>Dividends paid to<br><br><br><br>Minority shareholders<br>exited<br><br><br><br>Accumulated<br>minority equity<br><br><br><br><br><br>Percentage<br>of<br>shareholdin<br>g<br><br><br><br>minority<br>shareholders<br><br><br><br>minority<br>shareholders<br><br><br><br>and transfer minority<br>equity<br><br><br><br><br>at the end of the<br>period<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Beiji<br>ng Boyu<br>Semiconductor<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Vessel Technology<br>Co.,<br>Ltd.<br><br><br>-<br><br><br><br>10,927,729.44<br><br><br><br>14,689,078.73<br><br><br><br>31,033,510.15<br><br><br><br>-<br><br><br>Not<br>e<br>1<br><br>Chaoyang Jinmei Gallium<br>Co.,<br>Ltd.<br><br><br>-<br><br><br><br>1,124,564.14<br><br><br><br>-<br><br><br><br>3,854,564.14<br><br><br><br>-<br><br><br>Not<br>e<br>2<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>12,052,293.58<br><br><br><br>14,689,078.73<br><br><br><br>34,888,074.29<br><br><br><br>-<br><br><br><br>Notes<br>1: On<br>November 20, 2020<br>, a shareholder of<br>Beijing Boyu Semiconductor Vessel<br>Craftwork Technology Co., Ltd.<br>,<br>Ulrich Goetz, transferred its 4% equity and 6% equity<br>in<br>Beijing Boyu Semiconductor Vessel Craftwork Technology Co., Ltd.<br><br>to<br>AXT, Inc.<br><br>and Zhongke Hengye<br><br>(Tianjin) Technology Development Partnership<br><br>(L.P.)<br><br>for<br>USD<br>1.6 million and<br>USD<br>2.4 million respective<br>ly.<br><br>After the completion of the transfer,<br><br>AXT, Inc.<br>, Beijing Bomeilian Special Ceramics Co.,<br>Ltd.,<br>and Zhongke Hengye<br><br>(Tianjin) Technology Development Partnership<br><br>(L.P.)<br><br>hold 67%, 27% and 6% of the<br>shares of<br>Beijing Boyu<br><br>Semiconductor Vessel Craftwork Technology Co., Ltd.<br><br>respectively. On December 29, 2020, the increased capital of the Company was<br>subscribed by the aforementioned shareholders of<br>Beijing Boyu Semiconductor Vessel<br>Craftwork Technology Co., Ltd.<br><br>with their 1<br>00% of the equity in the merged parties.<br>After the completion of the capital contribution, the Company holds 100% of the equity<br>of<br>Beijing Boyu Semiconductor Vessel Craftwork Technology Co., Ltd.<br><br><br><br>Notes<br>2: On June 4, 2020, Nanjing Jinchao Business Managem<br>ent Partnership increased<br>its capital to Chaoyang Jinmei Gallium Co.,<br>Ltd.<br>by<br>USD<br>557,382, and since then AXT,<br>Inc. and Nanjing Jinchao Business Management Partnership hold 91.5% and 8.5% of<br>the equity of C Chaoyang Jinmei Gallium Co.,<br>Ltd.<br>respectively. On<br><br>December<br><br>25<br>,<br>2020, the increased registered capital of the Company was subscribed by the<br>aforementioned shareholders of Chaoyang Jinmei Gallium Co.,<br>Ltd.<br>with their 100% of
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>176<br><br>3<br>-<br>2<br>-<br>1<br>-<br>179<br><br>the equity in the merged parties. After the completion of the capital contribution<br>, the<br>Company holds 100% of the equity of Chaoyang Jinmei Gallium Co.,<br>Ltd.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>177<br><br>3<br>-<br>2<br>-<br>1<br>-<br>180<br><br>VII.<br><br>Equity in Other Entities<br><br>(continued)<br><br><br>1.<br><br>Equity in subsidiaries of the Company<br><br>(continued)<br><br><br>Details of subsidiaries of the Company are as follows<br><br>(continued)<br>:<br><br><br>Subsidiaries with significant minority equity are as follows<br><br>(continued)<br>:<br><br><br>2019<br><br><br><br><br>Minority<br>shareholder<br>s<br><br><br><br>Profit and loss<br>attributable to<br><br><br><br>Dividends paid to<br><br><br><br>Minority shareholders<br>exited<br><br><br>Accumulated<br>minority equity<br><br><br><br><br><br>Percen<br>tage<br>of<br>shareholdin<br>g<br><br><br><br>minority<br>shareholders<br><br><br><br>minority<br>shareholders<br><br><br><br>and transfer minority<br>equity<br><br><br><br>at the end of the<br>period<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Beijing Boyu<br>Semiconductor<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Vessel Technology<br>Co.,<br>Ltd.<br><br><br>37%<br><br><br><br>5,155,879.08<br><br><br><br>-<br><br><br><br>-<br><br><br>38,538,897.37<br><br><br><br>Nanjing Jinmei Gallium<br>Co.,<br>Ltd.<br><br><br>-<br><br><br><br>76,300.90<br><br><br><br>2,742,837.00<br><br><br><br>50,188.76<br><br><br>-<br><br><br>注<br>3<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>5,232,179.98<br><br><br><br>2,742,837.00<br><br><br><br>50,188.76<br><br><br>38,538,897.37<br><br><br><br><br>Notes<br>3: On February 25, 2019, Feng Yi, an individual shareholder of Nanjing Jinmei<br>Gallium Co.,<br>Ltd.,<br><br>transferred his 1% equity in Nanjing Jinmei Gall<br>ium Co.,<br>Ltd.<br>to<br>AXT, Inc. for RMB890,600. After the completion of the transfer, AXT, Inc. and Fan<br>Jiahua held 98% and 2% of the equity of Nanjing Jinmei Gallium Co.,<br>Ltd.<br>respectively;<br>On May 20, 2019, Fan Jiahua, an individual shareholder of Nanjing Jinm<br>ei Gallium<br>Co.,<br>Ltd.,<br><br>transferred his 2% equity in Nanjing Jinmei Gallium Co.,<br>Ltd.<br>to AXT, Inc.<br>for RMB1,781,200, and after the completion of the transfer, AXT, Inc. holds 100% of<br>the equity of Nanjing Jinmei Gallium Co.,<br>Ltd.<br><br><br>Chaoyang Xinmei<br><br>High<br>-<br>purity Semiconductor Materials Co.,<br>Ltd.<br><br><br><br><br>December 31, 2021<br><br><br><br><br><br><br><br>Current assets<br><br><br><br>8,683,388.19<br><br><br>Non<br>-<br>current assets<br><br><br><br>72,064,928.29<br><br><br><br><br><br><br><br>Total assets<br><br><br><br>80,748,316.48<br><br><br><br><br><br><br><br>Current liabilities<br><br><br><br>25,992,876.37<br><br><br>Non<br>-<br>current<br>liabilities<br><br><br><br>15,088,000.00<br><br><br><br><br><br><br><br>Total liabilities<br><br><br><br>41,080,876.37<br><br><br><br><br><br><br><br>Operating income<br><br><br><br>-<br><br><br>Net loss<br><br><br><br><br>(<br>1,332,559.89<br><br>)<br><br>Comprehensive loss in total<br><br><br><br><br>(<br>1,332,559.89<br><br>)<br><br><br><br><br><br><br>Net cash flow used in operating<br>activities<br><br><br><br>(5,055,678.70<br><br>)
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>178<br><br>3<br>-<br>2<br>-<br>1<br>-<br>181<br><br>VII.<br><br>Equity in Other Entities<br><br>(continued)<br><br><br>1.<br><br>Equity in subsidiaries of the Company<br><br>(continued)<br><br><br>Details of subsidiaries of the Company are as follows<br><br>(continued)<br>:<br><br><br>Subsidiaries with<br>significant minority equity are as follows<br><br>(continued)<br>:<br><br><br>Beijing Boyu Semiconductor Vessel Craftwork Technology Co., Ltd.<br><br><br><br><br><br>December 31, 2020<br><br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br>Current liabilities<br><br><br><br>79,816,111.90<br><br><br><br>50,340,358.83<br><br><br>Non<br>-<br>current<br>liabilities<br><br><br><br>90,490,566.00<br><br><br><br>76,258,801.35<br><br><br><br><br><br><br><br><br><br><br>Total assets<br><br><br><br>170,306,677.90<br><br><br><br>126,599,160.18<br><br><br><br><br><br><br><br><br><br><br>Current liabilities<br><br><br><br>66,214,922.04<br><br><br><br>15,648,478.10<br><br><br>Non<br>-<br>current liabilities<br><br><br><br>10,050,816.01<br><br><br><br>6,791,500.00<br><br><br><br><br><br><br><br><br><br><br>Total<br>liabilities<br><br><br><br>76,265,738.05<br><br><br><br>22,439,978.10<br><br><br><br><br><br><br><br><br><br><br>Operating income<br><br><br><br>111,497,232.81<br><br><br><br>94,922,957.04<br><br><br>Net profit<br><br><br><br>29,581,970.55<br><br><br><br>13,934,808.33<br><br><br>Comprehensive profit in total<br><br><br><br>29,581,970.55<br><br><br><br>13,934,808.33<br><br><br><br><br><br><br><br><br><br><br>Net cash flows from<br>operating activities<br><br><br><br>23,294,336.58<br><br><br><br>12,701,169.67
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>179<br><br>3<br>-<br>2<br>-<br>1<br>-<br>182<br><br>VII.<br><br>Equity in Other Entities<br><br>(continued)<br><br><br>1.<br><br>Equity in subsidiaries of the Company<br><br>(continued)<br><br><br>Details of subsidiaries of the Company are as follows<br><br>(continued)<br>:<br><br><br>Subsidiaries with<br>significant minority equity are as follows<br><br>(continued)<br>:<br><br><br>Nanjing Jinmei Gallium Co.,<br>Ltd.<br><br><br><br><br>December 31, 2019<br><br><br><br><br><br><br><br>Current liabilities<br><br><br><br>75,221,510.48<br><br><br>Non<br>-<br>current liabilities<br><br><br><br>18,185,051.38<br><br><br><br><br><br><br><br>Total assets<br><br><br><br>93,406,561.86<br><br><br><br><br><br><br><br>Current liabilities<br><br><br><br>6,930,794.26<br><br><br>Non<br>-<br>current liabilities<br><br><br><br>-<br><br><br><br><br><br><br><br>Total liabilities<br><br><br><br>6,930,794.26<br><br><br><br><br><br><br><br>Operating income<br><br><br><br>57,812,758.71<br><br><br>Net profit<br><br><br><br>7,560,894.11<br><br><br>Comprehensive profit in total<br><br><br><br>7,560,894.11<br><br><br><br><br><br><br><br>Net cash flows from<br>operating activities<br><br><br><br>3,734,212.62<br><br><br><br>2.<br><br>Equity in joint ventures and associates<br><br><br><br><br>Place of<br>major<br>business<br><br><br>Place of<br>incorporatio<br>n<br><br><br>Business nature<br><br><br><br>Registered<br>capital<br><br><br>Percentage of<br>shareholding<br><br>(<br>%<br>)<br><br><br>accountin<br>g<br><br><br><br><br><br><br><br><br><br><br><br><br><br>direct<br><br><br><br>indirec<br>t<br><br><br><br><br><br>Associates<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Donghai Dongfang Hi<br>-<br>purity<br>Electronic Materials Co.,<br>Ltd.<br><br>Lianyungang<br>city<br><br><br>Lianyungan<br>g city<br><br>Jiangsu<br>province<br><br><br>Manufacture and<br>sales of<br>semiconductor<br>materials<br><br><br><br>RMB31 million<br><br><br>-<br><br><br><br>-<br><br><br>Equity<br>method<br><br><br>Not<br>e<br>1<br><br>Xiaoyi Xing’an Gallium Co.,<br>Ltd.<br><br>Xiaoyi city<br><br><br>Lvliang city<br><br>Shanxi<br>province<br><br><br>Manufacture and<br>sales of gallium<br>products<br><br><br><br>RMB10 million<br><br><br>25.00<br><br><br><br>-<br><br><br>Equity<br>method<br><br><br><br>Jinmei Gall<br>ium (Ma’anshan) Co.,<br>Ltd.<br><br>Ma’anshan<br>city<br><br><br>Ma’anshan<br>city<br><br>Anhui<br>Province<br><br><br>Manufacture and<br>sales of gallium<br>products<br><br><br><br>USD<br>0.2 million<br><br><br>10.00<br><br><br><br>-<br><br><br>Equity<br>method<br><br><br>Not<br>e<br>2<br><br>Notes<br>1: On November 11, 2021, the Board of Directors of the Group passed the<br>resolution on the sale of the equity in its shareholding company, Donghai Dongfang Hi<br>-<br>purity Electronic Materials Co.,<br>Ltd.,<br><br>and decided to transfer all 45.97% of the equity<br>in Donghai<br><br>Dongfang Hi<br>-<br>purity Electronic Materials Co.,<br>Ltd.<br>held by Beijing Tongmei<br>Xtal Technology Co.,<br>Ltd.<br>to Chaoyang Limei Semiconductor Technology Co.,<br>Ltd.<br>And On November 19, 2021, the two parties signed an equity transfer agreement, which<br>stipulates that t<br>he consideration for the transfer would be RMB14 million, and the<br>transfer of shareholders’ rights will be completed from the date of completion of the<br>registration procedures for the change of industry and commerce. On<br>November 24,
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>180<br><br>3<br>-<br>2<br>-<br>1<br>-<br>183<br><br>2021<br>, Donghai Dongfang<br>Hi<br>-<br>purity Electronic Materials Co.,<br>Ltd.<br>completed the<br>registration of industrial and commercial changes.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>181<br><br>3<br>-<br>2<br>-<br>1<br>-<br>184<br><br><br>VII.<br><br>Equity in Other Entities<br><br>(continued)<br><br><br>2.<br><br>Equity in joint ventures and associates<br><br>(continued)<br><br><br>Notes<br>2: The total<br>USD<br>5.96 million<br><br>registered capital of the associate of the Group,<br>Jinmei Gallium (Maanshan) Co.,<br>Ltd.<br>is subscribed by AXT, Inc. and<br>Beijing Boyu<br>Semiconductor Vessel Craftwork Technology Co., Ltd.<br><br>with<br>USD<br>5.36 million and<br>USD<br>0.6 million respectively, and the date of capi<br>tal contribution will be December 30,<br>2027. The Board of Directors is the highest authority of Jinmei Gallium (Maanshan)<br>Co.,<br>Ltd.<br>and the Board of Directors is composed of three directors, of which<br>Beijing<br>Boyu Semiconductor Vessel Craftwork Technology Co<br>.., Ltd.<br><br>has a director seat, and<br>Beijing Boyu Semiconductor Vessel Craftwork Technology Co., Ltd.<br><br>has a significant<br>influence on Jinmei Gallium (Maanshan) Co.,<br>Ltd.,<br><br>and the accounting will be based on<br>the equity method. JJinmei Gallium (Maanshan) Co.,<br>Ltd<br>..<br>is engaged in the production<br>of semiconductor raw materials. In November 2018, the Company passed the<br>amendment to the Articles of Association, reducing its capital of Jinmei Gallium<br>(Maanshan) Co.,<br>Ltd.<br>to<br>USD<br>200,000. And AXT, Inc. and<br>Beijing Boyu Semi<br>conductor<br>Vessel Craftwork Technology Co., Ltd.<br><br>subscribed 90% and 10% of its registered<br>capital respectively. As of December 31, 2021,<br>Beijing Boyu Semiconductor Vessel<br>Craftwork Technology Co., Ltd.<br><br>has not paid the corresponding subscribed capital of<br>US<br>D<br>20,000. The outstanding losses of Jinmei Gallium (Maanshan) Co.,<br>Ltd.<br>on<br>December 31, 2021, December 31, 2020 and December 31, 2019 were<br>RMB879,563.62, RMB803,908.63 and RMB625,464.36 respectively.<br><br><br>A major associate of the Group, Donghai Dongfang Hi<br>-<br>puri<br>ty Electronic Materials Co.,<br>Ltd.,<br>as a strategic partner of the Group, is engaged in the production of semiconductor<br>raw materials,<br><br>accounting with the equity method, and this investment is of strategic<br>importance for the activities of the Group.<br><br><br><br>The ta<br>ble below shows the financial information of Donghai Dongfang Hi<br>-<br>purity<br>Electronic Materials Co.,<br>Ltd.<br>:<br><br><br><br><br><br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Current assets<br><br><br><br><br><br>8,595,539.02<br><br><br>4,653,395.11<br><br><br>Non<br>-<br>current assets<br><br><br><br><br><br>18,710,298.20<br><br><br>19,918,219.88<br><br><br>Total assets<br><br><br><br><br><br>27,305,837.22<br><br><br>24,571,614.99<br><br><br><br><br><br><br><br><br><br><br><br>Current liabilities<br><br><br><br><br><br>508,450.29<br><br><br>670,266.21<br><br><br>Total liabilities<br><br><br><br><br><br>508,450.29<br><br><br>670,266.21<br><br><br><br><br><br><br><br><br><br><br><br>Equity attributable to the parent<br>company<br><br><br><br><br><br>26,797,386.93<br><br><br>23,901,348.78<br><br><br>Shares of net assets in proportion<br>to shareholding<br><br><br><br><br><br>12,315,064.40<br><br><br>10,984,620.44<br><br><br>The book value of investment<br><br><br><br><br><br>12,315,064.40<br><br><br>10,984,620.44<br><br><br><br><br><br><br>For the ten months<br>ended<br><br>October 31,<br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Operating income<br><br><br><br>9,658,933.37<br><br><br>14,290,012.09<br><br><br>8,682,446.45<br><br><br>Income tax expenses<br><br><br><br>212,217.06<br><br><br>-<br><br><br>-<br><br><br>Net profit<br><br><br><br>1,648,555.26<br><br><br>2,896,038.15<br><br><br>450,893.01<br><br><br>Comprehensive profit in total<br><br><br><br>1,648,555.26<br><br><br>2,896,038.15<br><br><br>450,893.01
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>182<br><br>3<br>-<br>2<br>-<br>1<br>-<br>185<br><br>Special reserve<br><br><br><br>148,879.03<br><br><br>-<br><br><br>-
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>183<br><br>3<br>-<br>2<br>-<br>1<br>-<br>186<br><br>VII.<br><br>Equity in Other Entities<br><br>(continued)<br><br><br>2.<br><br><br>Equity in joint ventures and associates<br><br>(continued)<br><br><br>The table below shows the financial information of Xiaoyi Xing’an Gallium Co.,<br>Ltd.<br>:<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Current assets<br><br><br><br>107,109,616.61<br><br><br>110,104,734.08<br><br><br>95,934,923.30<br><br><br>Non<br>-<br>current assets<br><br><br><br>21,992,399.71<br><br><br>21,015,134.79<br><br><br>22,858,510.81<br><br><br>Total assets<br><br><br><br>129,102,016.32<br><br><br>131,119,868.87<br><br><br>118,793,434.11<br><br><br><br><br><br><br><br><br><br><br><br>Current<br>liabilities<br><br><br><br>16,185,086.28<br><br><br>41,198,968.03<br><br><br>47,405,587.48<br><br><br>Total liabilities<br><br><br><br>16,185,086.28<br><br><br>41,198,968.03<br><br><br>47,405,587.48<br><br><br><br><br><br><br><br><br><br><br><br>Equity attributable to the parent<br>company<br><br><br><br>112,916,930.04<br><br><br>89,920,900.84<br><br><br>71,387,846.63<br><br><br>Shares of net assets in<br>proportion<br>to shareholding<br><br><br><br>28,229,232.51<br><br><br>22,480,225.21<br><br><br>17,846,961.66<br><br><br>The book value of investment<br><br><br><br>28,229,232.51<br><br><br>22,480,225.21<br><br><br>17,846,961.66<br><br><br><br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Operating income<br><br><br><br>124,748,202.72<br><br><br>85,613,371.82<br><br><br>77,579,779.13<br><br><br>Income tax expenses<br><br><br><br>13,949,055.36<br><br><br>4,670,286.20<br><br><br>3,583,164.78<br><br><br>Net profit<br><br><br><br>41,847,166.07<br><br><br>17,568,623.49<br><br><br>8,807,142.14<br><br><br>Comprehensive profit in total<br><br><br><br>41,847,166.07<br><br><br>17,568,623.49<br><br><br>8,807,142.14<br><br><br>Special reserve<br><br><br><br>5,683,440.50<br><br><br>4,534,577.37<br><br><br>3,570,146.65<br><br><br>Distribution of cash dividends<br><br><br><br>(20,000,000.00<br><br>)<br><br>-<br><br><br>(10,000,000.00<br><br>)
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>184<br><br>3<br>-<br>2<br>-<br>1<br>-<br>187<br><br>VIII.<br><br>Risks Associated with Financial Instruments<br><br><br>1.<br><br>Classification of financial instruments<br><br><br>Book values of different<br>financial instruments at the balance sheet date are as follows:<br><br><br>December 31, 2021<br><br><br>Financial assets<br><br><br><br><br>Financial assets measured<br><br>at amortized cost<br><br><br>Financial assets measured at<br>fair value and whose<br>changes are included in<br>other comprehensive income<br><br><br><br>Total<br><br><br><br><br><br><br><br><br><br><br><br>Cash and bank<br>balance<br><br><br>173,268,353.70<br><br><br>-<br><br><br><br>173,268,353.70<br><br><br>Notes receivable<br><br><br>14,791,661.17<br><br><br>-<br><br><br><br>14,791,661.17<br><br><br>Accounts<br>receivable<br><br><br>218,634,452.22<br><br><br>-<br><br><br><br>218,634,452.22<br><br><br>Receivables<br>financing<br><br><br>-<br><br><br>61,883,885.84<br><br><br><br>61,883,885.84<br><br><br>Other receivables<br><br><br>1,241,421.56<br><br><br>-<br><br><br><br>1,241,421.56<br><br><br><br><br><br><br><br><br><br><br><br><br><br>407,935,888.65<br><br><br>61,883,885.84<br><br><br><br>469,819,774.49<br><br><br><br>Financial liabilities<br><br><br><br><br><br><br>Financial liabilities measured<br>at amortized cost<br><br><br><br>Total<br><br><br><br><br><br><br><br><br><br><br><br>Short<br>-<br>term<br>borrowings<br><br><br><br><br>77,824,673.22<br><br><br><br>77,824,673.22<br><br><br>Accounts<br>receivable<br><br><br><br><br>122,512,602.84<br><br><br><br>122,512,602.84<br><br><br>Other payables<br><br><br><br><br>180,754,586.76<br><br><br><br>180,754,586.76<br><br><br>Non<br>-<br>current<br>liabilities due<br>within one year<br><br><br><br><br>1,597,917.21<br><br><br><br>1,597,917.21<br><br><br>Long<br>-<br>term<br>accounts payable<br><br><br><br><br>6,293,999.48<br><br><br><br>6,293,999.48<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>388,983,779.51<br><br><br><br>388,983,779.51
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>185<br><br>3<br>-<br>2<br>-<br>1<br>-<br>188<br><br><br>VIII.<br><br>Risks Associated with Financial Instruments<br><br>(continued)<br><br><br>1.<br><br>Classification of financial instruments<br><br>(continued)<br><br><br>Book values of different financial instruments at the balance sheet date are as follows<br><br>(continued)<br>:<br><br><br>December 31, 2020<br><br><br>Financial assets<br><br><br><br><br><br>Financial assets measured<br><br>at amortized cost<br><br><br>Financial assets measured at<br>fair value and whose changes<br>are included in other<br>comprehensive income<br><br><br><br>Total<br><br><br><br><br><br><br><br><br><br><br><br>Cash and bank<br>balance<br><br><br>388,755,642.43<br><br><br>-<br><br><br><br>388,755,642.43<br><br><br>Notes receivable<br><br><br>21,862,967.74<br><br><br>-<br><br><br><br>21,862,967.74<br><br><br>Accounts<br>receivable<br><br><br>152,366,039.89<br><br><br>-<br><br><br><br>152,366,039.89<br><br><br>Receivables<br>financing<br><br><br>-<br><br><br>29,854,223.07<br><br><br><br>29,854,223.07<br><br><br>Other receivables<br><br><br>8,478,982.75<br><br><br>-<br><br><br><br>8,478,982.75<br><br><br>Long<br>-<br>term<br>accounts receivable<br><br><br>1,982,947.59<br><br><br>-<br><br><br><br>1,982,947.59<br><br><br><br><br><br><br><br><br><br><br><br><br><br>573,446,580.40<br><br><br>29,854,223.07<br><br><br><br>603,300,803.47<br><br><br><br>Financial liabilities<br><br><br><br><br><br><br>Financial liabilities measured<br>at amortized cost<br><br><br><br>Total<br><br><br><br><br><br><br><br><br><br><br><br>Short<br>-<br>term<br>borrowings<br><br><br><br><br>68,060,478.89<br><br><br><br>68,060,478.89<br><br><br>Accounts payable<br><br><br><br><br>144,640,852.50<br><br><br><br>144,640,852.50<br><br><br>Other payables<br><br><br><br><br>516,317,089.51<br><br><br><br>516,317,089.51<br><br><br>Non<br>-<br>current<br>liabilities due<br>within one year<br><br><br><br><br>1,270,662.51<br><br><br><br>1,270,662.51<br><br><br>Long<br>-<br>term<br>accounts payable<br><br><br><br><br>11,845,887.69<br><br><br><br>11,845,887.69<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>742,134,971.10<br><br><br><br>742,134,971.10
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>186<br><br>3<br>-<br>2<br>-<br>1<br>-<br>189<br><br><br>VIII.<br><br>Risks Associated with Financial Instruments<br><br>(continued)<br><br><br>1.<br><br>Classification of financial instruments<br><br>(continued)<br><br><br>Book values of different financial instruments at the balance sheet date are as follows<br><br>(continued)<br>:<br><br><br>December 31, 2019<br><br><br>Financial assets<br><br><br><br><br><br><br>Financial assets measured<br><br>at amortized cost<br><br><br>Financial assets measured at<br>fair value and whose changes<br>are included in other<br>comprehensive income<br><br><br><br>Total<br><br><br><br><br><br><br><br><br><br><br><br>Cash and bank<br>balance<br><br><br>107,376,657.08<br><br><br>-<br><br><br><br>107,376,657.08<br><br><br>Notes receivable<br><br><br>18,206,727.38<br><br><br>-<br><br><br><br>18,206,727.38<br><br><br>Accounts<br>receivable<br><br><br>129,799,284.01<br><br><br>-<br><br><br><br>129,799,284.01<br><br><br>Receivables<br>financing<br><br><br>-<br><br><br>15,222,595.14<br><br><br><br>15,222,595.14<br><br><br>Other receivables<br><br><br>4,431,107.50<br><br><br>-<br><br><br><br>4,431,107.50<br><br><br>Non<br>-<br>current assets<br><br><br><br><br><br><br><br><br><br>due within one<br>year<br><br><br>2,000,000.00<br><br><br>-<br><br><br><br>2,000,000.00<br><br><br>Long<br>-<br>term<br>accounts receivable<br><br><br>2,982,947.59<br><br><br>-<br><br><br><br>2,982,947.59<br><br><br><br><br><br><br><br><br><br><br><br><br><br>264,796,723.56<br><br><br>15,222,595.14<br><br><br><br>280,019,318.70<br><br><br><br>Financial liabilities<br><br><br><br><br><br><br>Financial liabilities measured<br>at amortized cost<br><br><br><br>Total<br><br><br><br><br><br><br><br><br><br><br><br>Short<br>-<br>term<br>borrowings<br><br><br><br><br>40,050,313.33<br><br><br><br>40,050,313.33<br><br><br>Accounts payable<br><br><br><br><br>109,420,672.63<br><br><br><br>109,420,672.63<br><br><br>Other payables<br><br><br><br><br>171,110,599.51<br><br><br><br>171,110,599.51<br><br><br>Non<br>-<br>current<br>liabilities due<br>within one year<br><br><br><br><br>1,212,434.40<br><br><br><br>1,212,434.40<br><br><br>Long<br>-<br>term<br>accounts payable<br><br><br><br><br>13,116,550.20<br><br><br><br>13,116,550.20<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>334,910,570.07<br><br><br><br>334,910,570.07
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>187<br><br>3<br>-<br>2<br>-<br>1<br>-<br>190<br><br>VIII.<br><br>Risks Associated with Financial Instruments<br><br>(continued)<br><br><br>2.<br><br>Transfer of financial assets<br><br><br>Financial assets that have been transferred but not fully derecognized<br><br><br>On<br>December 31, 2021<br>,<br>December 31, 2020<br><br>and<br>December 31, 2019<br>, the face amounts<br>of the unexpired bank acceptances endorsed by the Group to suppliers for the settlement<br>of accounts payable and other payables were RMB15,300,741.53, RMB12,135,852.98<br>and RMB10,975,589.70; The face amounts of the unmatured trade acceptan<br>ces<br>endorsed by the Group to suppliers for the settlement of accounts payable and other<br>payables are RMB2,029,949.76, RMB7,492,990.59 and RMB7,995,197.76. The Group<br>considers that the Group retains substantially all of their risks and rewards, including<br>th<br>e risk of default associated with them, and therefore continues to fully recognize them<br>and the accounts payable settled by them. After endorsement, the Group reserves no<br>right to use them, including the right to sell, transfer or pledge them to other thir<br>d<br>parties. As<br>of<br><br>December 31, 2021<br>,<br>December 31, 2020<br><br>and<br>December 31, 2019<br>, the<br>book values of the accounts payable of the Group settled with them were in total<br>RMB17,330,691.29, RMB19,828,843.57 and RMB18,970,787.46.<br><br><br>Transferred financial assets that ha<br>ve been fully deidentified but continue to be involved<br><br><br>On<br>December 31, 2021<br>,<br>December 31, 2020<br><br>and<br>December 31, 2019<br>, the face amounts<br>of the unexpired bank acceptances endorsed by the Group to suppliers for settlement of<br>accounts payable and other payabl<br>es were RMB82,843,799.57, RMB51,088,631.47<br>and RMB21,082,947.24.<br>As of<br><br>December 31, 2021<br>,<br>December 31, 2020<br><br>and<br>December<br>31, 2019<br>, their maturities were of 1 to 12 months, and the holders of these bank<br>acceptances have the right to seek recourse against th<br>e Group if the accepting bank<br>refuses to pay (“continuous involvement”) in accordance with the relevant provisions<br>of the Bills Act. The Group considers that the Group has transferred almost all of their<br>risks and rewards and therefore terminates the recog<br>nition of the book values of them<br>and the accounts payable settled by them. The maximum loss and undiscounted cash<br>flow of continuous involvement and redemption are equal to their carrying amounts.<br>The Group believes that the continuous involvement will le<br>ad no major fair value.<br><br><br>In FY2021, FY2020 and FY2019, the Group did not recognize gains or losses on its<br>transfer date. The Group had no gains or expenses for the year and for the year<br>accumulated resulting from the continuous involvement in the financial<br><br>assets of<br>derecognition. The proportion of the endorsed amount to the amount received of the<br>acceptances occurred in a roughly balanced form in FY2021, FY2020 and FY2019.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>188<br><br>3<br>-<br>2<br>-<br>1<br>-<br>191<br><br>VIII.<br><br>Risks Associated with Financial Instruments<br><br>(continued)<br><br><br>3.<br><br><br>Risks of<br>financial instruments<br><br><br>The Group faces risks in different financial instruments in its day<br>-<br>to<br>-<br>day activities,<br>mainly including credit risk, liquidity risk and market risk taking exchange rate risk into<br>account. The major financial instruments of the Group<br>include cash and bank balance,<br>borrowings,<br>notes receivable<br><br>and accounts receivable, receivables financing, accounts<br>payable, other receivables, other payables, long<br>-<br>term receivables and long<br>-<br>term<br>payables. The risks associated with these financial instrum<br>ents and the risk management<br>strategies adopted by the Group to mitigate them are described below.<br><br><br>Credit risk<br><br><br>Besides related parties, the Group only trades with the recognized third parties with<br>sound reputation.<br><br>According to policies of the Group, a credit check is required for all<br>customers who require transactions by credit. In addition, the Group continuously<br>monitors its balance of accounts receivable to ensure that the Group is not exposed to<br>the risk of sig<br>nificant bad debts. For transactions that are not settled in the accounting<br>base currency of the relevant business unit, the Group does not provide credit trading<br>conditions unless specifically approved by the credit control department of the Group.<br><br><br>These<br><br>financial instruments have a low credit risk as the counterparties to cash and bank<br>balance and bank acceptances receivable are banks with a sound reputation and high<br>credit rating.<br><br><br>Other financial assets of the Group include monetary funds and other rec<br>eivables, etc.,<br>whose credit risk arises from defaults of counterparties and the maximum risk exposure<br>is equal to the carrying amount of these instruments.<br><br><br>Besides related parties, the Group only trades with the recognized third parties with<br>sound reputa<br>tion, thus no collateral is required. As<br>of<br><br>December 31, 2021<br>,<br>December<br>31, 2020<br><br>and<br>December 31, 2019<br>, the Group had a specific concentration of credit risks,<br>with 10.02%, 34.97%, 48.56% and 40.71%, 67.43% and 87.81% of the Group’s<br>accounts receivable bei<br>ng the largest and top five customers respectively. The Group<br>holds no collateral or other credit enhancements in respect of the balance of these<br>accounts receivable.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>189<br><br>3<br>-<br>2<br>-<br>1<br>-<br>192<br><br><br>VIII.<br><br>Risks Associated with Financial Instruments<br><br>(continued)<br><br><br>3.<br><br>Risks of<br>financial instruments<br><br>(continued)<br><br><br><br>Credit risk<br><br>(continued)<br><br><br>T<br>he criteria for judging the significant increase in credit risk<br><br>The Group assesses at each balance sheet date whether there is significant increase in<br>credit risk of the relevant financial instruments since the initial recognition. While<br>determining whether credit risk has increased significantly since initial recognit<br>ion, the<br>Group considers obtaining reasonable and evidenced information, including qualitative<br>and quantitative analysis based on the Group’s historical data, external credit risk<br>ratings and forward<br>-<br>looking information, without unnecessary additional cost<br>s or<br>efforts.On the basis of a single financial instrument or a portfolio of financial<br>instruments with similar credit risk characteristics, the Group compares the risk of<br>default on the balance sheet date with the risk of default on the initial recognitio<br>n date<br>to to determine the changes in the risk of default that are expected to occur during the<br>life span of a Financial Instrument.<br><br><br>The Group considers that the credit risk of financial instruments has increased<br>significantly when one or more of the foll<br>owing quantitative, qualitative or capped<br>indicators are triggered:<br><br><br>(1)<br><br>The quantitative criterion is mainly that the probability of default in the<br>remaining period of the reporting date increases by more than a certain percentage from<br>the initial confirmatio<br>n;<br><br>(2)<br><br>The qualitative criteria are mainly significant adverse changes in the debtor's<br>operating or financial situation, early warning of customer lists, etc.;<br><br>(3)<br><br>The capping indicator is that the debtor's contract payments (including principal<br>and<br>interest) are more than 30 days overdue.<br><br><br>Definition of assets that have incurred credit impairment<br><br>The Group adopted the defining criteria consistent with the internal credit risk<br>management objectives for the relevant financial instruments and took quant<br>itative and<br>qualitative indicators into account to determine whether credit impairment has<br>occurred. When assessing whether a debtor has incurred credit impairment, the Group<br>mainly considers the following factors:<br><br><br>(1)<br><br>The issuer or the debtor has incurred si<br>gnificant financial difficulties;<br><br>(2)<br><br>The debtor breaches the contract, such as default or overdue payment of interest<br>or principal;<br><br>(3)<br><br>The creditor gives concessions to the debtor that would not have been made<br>under any other circumstances for economic or contra<br>ctual reasons related to the<br>debtor's financial difficulties;<br><br>(4)<br><br>The debtor is likely to become insolvent or undergo other financial<br>reorganizations;<br><br>(5)<br><br>The financial difficulties of the issuer or debtor lead to the disappearance of the<br>active market for the fin<br>ancial asset;
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>190<br><br>3<br>-<br>2<br>-<br>1<br>-<br>193<br><br>(6)<br><br>Purchase or origin of a financial asset at a substantial discount that reflects the<br>fact of credit impairment.<br><br><br>Credit impairment of financial assets may be the result of a combination of events, and<br>not necessarily a separately identifiable<br>event.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>191<br><br>3<br>-<br>2<br>-<br>1<br>-<br>194<br><br>VIII.<br><br>Risks Associated with Financial Instruments<br><br>(continued)<br><br><br>3.<br><br>Risks of financial instruments<br><br>(continued)<br><br><br>Credit risk<br><br>(continued)<br><br><br>Parameters for the measurement of expected credit impairment<br><br><br>Depending on whether there has been a<br>significant increase in credit risk and whether<br>credit impairment has occurred, the Group measures impairment provisions for<br>different assets at expected credit losses for 12 months or the entire duration of the<br>period respectively. Key parameters for the<br>expected credit loss measurement include<br>the probability of default, the default loss ratio, and the exposure to default risk. Taking<br>into account quantitative analysis and forward<br>-<br>looking information on historical<br>statistical data (e.g. counterparty ratin<br>g, collateral type, way of repayment, etc.),<br><br>the<br>Group establishes a model of the probability of default, the default loss ratio and the<br>exposure to default risk.<br><br><br><br>Relevant definitions are as follows:<br><br>(1)<br><br>Probability of default is the likelihood that the debt<br>or will not be able to perform<br>its repayment obligations for the next 12 months or for the remaining duration. The<br>probability of default of the Group is adjusted on the basis of the results of the migration<br>rate model and credit rating model, inputting fo<br>rward<br>-<br>looking information, to reflect<br>the probability of default of the debtor against the current macroeconomic environment;<br><br>(2)<br><br>The default loss ratio refers to the expectations of the Group to the extent of loss<br>resulting from the exposure of default risk.<br>The loss rate of default varies according to<br>the type of counterparties, the way and priority of recourse, and the collateral. The loss<br>rate of default is the percentage of the exposure loss at the time of default, calculated<br>based on the future 12 months<br>or the entire duration of the period;<br><br><br>(3)<br><br>Default exposure refers to the amount by which the Group shall be reimbursed<br>in the event of a default for the next 12 months or for the remaining duration.<br><br><br>The assessment of a significant increase in credit risk and<br><br>the calculation of expected<br>credit impairment involve forward<br>-<br>looking information. Through historical data<br>analysis, the Group identifies key economic indicators that affect credit risk and<br>expected credit losses of each business type.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>192<br><br>3<br>-<br>2<br>-<br>1<br>-<br>195<br><br><br>VIII.<br><br>Risks<br>Associated with Financial Instruments<br><br>(continued)<br><br><br>3.<br><br>Risks of financial instruments<br><br>(continued)<br><br><br>Credit risk<br><br>(continued)<br><br><br><br>Credit risk exposure<br><br><br>Risk exposures graded by internal credit rating:<br><br><br>December 31, 2021<br><br><br><br>Book balance (unsecured)<br><br><br><br><br>Expected credit loss<br><br><br><br><br>Expected credit loss<br><br><br>Total<br><br><br><br><br>in the future 12<br>months<br><br><br><br>In the whole duration<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Cash and bank<br>balance<br><br><br>173,268,353.70<br><br><br><br>-<br><br><br>173,268,353.70<br><br><br>Notes<br>receivable<br><br><br>-<br><br><br><br>14,791,661.17<br><br><br>14,791,661.17<br><br><br>Accounts<br>receivable<br><br><br>-<br><br><br><br>218,634,452.22<br><br><br>218,634,452.22<br><br><br>Receivables<br>financing<br><br><br>61,883,885.84<br><br><br><br>-<br><br><br>61,883,885.84<br><br><br>Other<br>receivables<br><br><br>1,241,421.56<br><br><br><br>-<br><br><br>1,241,421.56<br><br><br><br><br><br><br><br><br><br><br><br><br><br>236,393,661.10<br><br><br><br>233,426,113.39<br><br><br>469,819,774.49<br><br><br><br>December 31, 2020<br><br><br><br>Book balance (unsecured)<br><br><br><br><br>Expected credit loss<br><br><br><br><br>Expected credit loss<br><br><br>Total<br><br><br><br><br>in the future 12<br>months<br><br><br><br>in the whole duration<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Cash and bank<br>balance<br><br><br>388,755,642.43<br><br><br><br>-<br><br><br>388,755,642.43<br><br><br>Notes<br>receivable<br><br><br>-<br><br><br><br>21,862,967.74<br><br><br>21,862,967.74<br><br><br>Accounts<br>receivable<br><br><br>-<br><br><br><br>152,366,039.89<br><br><br>152,366,039.89<br><br><br>Receivables<br>financing<br><br><br>29,854,223.07<br><br><br><br>-<br><br><br>29,854,223.07<br><br><br>Other<br>receivables<br><br><br>8,478,982.75<br><br><br><br>-<br><br><br>8,478,982.75<br><br><br>Long<br>-<br>term<br>accounts<br>receivable<br><br><br>1,982,947.59<br><br><br><br>-<br><br><br>1,982,947.59
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>193<br><br>3<br>-<br>2<br>-<br>1<br>-<br>196<br><br><br><br>429,071,795.84<br><br><br><br>174,229,007.63<br><br><br>603,300,803.47
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>194<br><br>3<br>-<br>2<br>-<br>1<br>-<br>197<br><br>VIII.<br><br>Risks Associated with Financial Instruments<br><br>(continued)<br><br><br>3.<br><br>Risks of financial instruments<br><br>(continued)<br><br><br>Credit risk<br><br>(continued)<br><br><br>Credit risk exposure<br><br>(continued)<br><br><br>Risk exposures graded by internal credit rating<br><br>(continued)<br>:<br><br><br><br>December 31, 2019<br><br><br><br><br>Book balance (unsecured)<br><br><br><br><br>Expected credit loss<br><br><br><br><br>Expected credit loss<br><br><br>Total<br><br><br><br><br>in the future 12<br>months<br><br><br><br>in the whole duration<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Cash and bank<br>balance<br><br><br>107,376,657.08<br><br><br><br>-<br><br><br>107,376,657.08<br><br><br>Notes<br>receivable<br><br><br>-<br><br><br><br>18,206,727.38<br><br><br>18,206,727.38<br><br><br>Accounts<br>receivable<br><br><br>-<br><br><br><br>129,799,284.01<br><br><br>129,799,284.01<br><br><br>Receivables<br>financing<br><br><br>15,222,595.14<br><br><br><br>-<br><br><br>15,222,595.14<br><br><br>Other<br>receivables<br><br><br>4,431,107.50<br><br><br><br>-<br><br><br>4,431,107.50<br><br><br>Non<br>-<br>current<br>assets due<br>within one year<br><br><br>2,000,000.00<br><br><br><br>-<br><br><br>2,000,000.00<br><br><br>Long<br>-<br>term<br>accounts<br>receivable<br><br><br>2,982,947.59<br><br><br><br>-<br><br><br>2,982,947.59<br><br><br><br><br><br><br><br><br><br><br><br><br><br>132,013,307.31<br><br><br><br>148,006,011.39<br><br><br>280,019,318.70
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>195<br><br>3<br>-<br>2<br>-<br>1<br>-<br>198<br><br>VIII.<br>Risks Associated with Financial Instruments<br><br>(continued)<br><br><br>3.Risks of financial instruments<br><br>(continued)<br><br><br><br>Liquidity risk<br><br><br>The Group adopts the circulating liquidity planning instrument to manage the risk of<br>shortage of funds, which takes into<br>account both the maturity date of its financial<br>instruments and the estimated cash flows from operations of the Group.<br><br><br>The table below summarizes the maturity analysis of financial liabilities based on<br>undiscounted contractual cash flows:<br><br><br>December 31, 20<br>21<br><br><br><br><br><br>Within 1 year<br><br><br><br>1 to 2 years<br><br><br><br>2 to 5 years<br><br><br><br>More than 5<br><br>years<br><br><br><br>Total<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Short<br>-<br>term borrowings<br><br><br>79,881,367.66<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>79,881,367.66<br><br><br>Accounts receivable<br><br><br>122,512,602.84<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>122,512,602.84<br><br><br>Other payables<br><br><br>180,754,586.76<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>180,754,586.76<br><br><br>Non<br>-<br>current liabilities due<br>within one year<br><br><br>6,229,603.90<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>6,229,603.90<br><br><br>Lease liabilities<br><br><br>-<br><br><br><br>3,941,110.27<br><br><br><br>5,614,430.20<br><br><br><br>4,805,000.00<br><br><br><br>14,360,540.47<br><br><br>Long<br>-<br>term accounts<br>payable<br><br><br>-<br><br><br><br>1,912,710.00<br><br><br><br>3,187,850.00<br><br><br><br>1,912,710.00<br><br><br><br>7,013,270.00<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>389,378,161.16<br><br><br><br>5,853,820.27<br><br><br><br>8,802,280.20<br><br><br><br>6,717,710.00<br><br><br><br>410,751,971.63<br><br><br><br>December 31, 2020<br><br><br><br><br><br>Within 1 year<br><br><br><br>1 to 2 years<br><br><br><br>2 to 5 years<br><br><br><br>More than 5<br><br><br>years<br><br><br><br>Total<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Short<br>-<br>term borrowings<br><br><br>68,955,633.67<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>68,955,633.67<br><br><br>Accounts receivable<br><br><br>144,640,852.50<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>144,640,852.50<br><br><br>Other payables<br><br><br>516,317,089.51<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>516,317,089.51<br><br><br>Non<br>-<br>current liabilities due<br>within one year<br><br><br>1,860,000.00<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>1,860,000.00<br><br><br>Long<br>-<br>term accounts payable<br><br><br>-<br><br><br><br>1,860,000.00<br><br><br><br>5,580,000.00<br><br><br><br>6,665,000.00<br><br><br><br>14,105,000.00<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>731,773,575.68<br><br><br><br>1,860,000.00<br><br><br><br>5,580,000.00<br><br><br><br>6,665,000.00<br><br><br><br>745,878,575.68<br><br><br><br>December 31, 2019<br><br><br><br><br><br>Within 1 year<br><br><br><br>1 to 2 years<br><br><br><br>2 to 5 years<br><br><br><br>More than 5<br><br>years<br><br><br><br>Total<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Short<br>-<br>term borrowings<br><br><br>41,201,753.33<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>41,201,753.33<br><br><br>Accounts receivable<br><br><br>109,420,672.63<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>109,420,672.63<br><br><br>Other payables<br><br><br>171,110,599.51<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>171,110,599.51
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>196<br><br>3<br>-<br>2<br>-<br>1<br>-<br>199<br><br>Non<br>-<br>current liabilities due<br>within one year<br><br><br>1,860,000.00<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>1,860,000.00<br><br><br>Long<br>-<br>term accounts payable<br><br><br>-<br><br><br><br>1,860,000.00<br><br><br><br>5,580,000.00<br><br><br><br>8,525,000.00<br><br><br><br>15,965,000.00<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>323,593,025.47<br><br><br><br>1,860,000.00<br><br><br><br>5,580,000.00<br><br><br><br>8,525,000.00<br><br><br><br>339,558,025.47
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>197<br><br>3<br>-<br>2<br>-<br>1<br>-<br>200<br><br><br>VIII.<br><br>Risks Associated with Financial Instruments<br><br>(continued)<br><br><br>3.<br><br>Risks of financial instruments<br><br>(continued)<br><br><br>Market risk<br><br><br>Exchange<br>rate risk<br><br><br>The Group is exposed to transactional exchange rate risk, which arises from sales or<br>purchases of operating units in currencies other than their accounting base currency.<br>Approximately 16.81%, 57.63% and 60.66% of the Group’s sales in 2021, 2020<br><br>and<br>2019 were denominated in currencies other than the their accounting base currency of<br>the operating units in which the sales occurred, while 12.73%, 12.52% and 19.74% of<br>costs were denominated in currencies other than the accounting base currency of th<br>e<br>business units.<br><br><br>By<br>December 31, 2021<br>,<br>December 31, 2020<br><br>and<br>December 31, 2019<br>, the Group did not<br>hedge its foreign currency sales.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>198<br><br>3<br>-<br>2<br>-<br>1<br>-<br>201<br><br>VIII.<br><br>Risks Associated with Financial Instruments<br><br>(continued)<br><br><br>3.<br><br>Risks of financial instruments<br><br>(continued)<br><br><br>Market ris<br>k<br><br>(continued)<br><br><br>Exchange rate risk<br><br>(continued)<br><br><br><br>The table below is a sensitivity analysis of exchange rate risk, reflecting its influence<br>on the net profit and loss (due to changes in the fair value of monetary assets and<br>monetary liabilities) and<br>other net comprehensive income after tax (due to changes in<br>the fair value of foreign exchange forward contracts) under a reasonable and possible<br>change in the exchange rate of the US dollar, Japanese yen and euro, while all other<br>variables remain constant<br>..<br><br><br>December 31, 2021<br><br><br><br><br><br>USD exchange<br>rate<br><br>Increase/<br>(Decrease)<br><br>%<br><br><br><br>Net gains and<br>loss<br>Increase/(Decre<br>ase)<br><br><br><br>Net<br>comprehensive<br>income after tax<br>Increase/(Decre<br>ase)<br><br><br><br>Total equity<br>Increase/(Decre<br>ase)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>RMB<br>depreciates against the<br>US<br>dollar<br><br><br>5<br><br><br><br>1,919,651.57<br><br><br><br>-<br><br><br><br>1,919,651.57<br><br><br>RMB<br>appreciates against the<br>US dollar<br><br><br>5<br><br><br><br>(1,919,651.57<br><br>)<br><br><br>-<br><br><br><br>(1,919,651.57<br><br>)<br><br><br><br><br>Japanese yen<br>exchange rate<br><br>Increase/<br>(Decrease)<br><br>%<br><br><br><br>Net gains and<br>loss<br>Increase/(Decre<br>ase)<br><br><br><br>Net<br>comprehensive<br>income<br>after tax<br>Increase/(Decre<br>ase)<br><br><br><br>Total equity<br>Increase/(Decre<br>ase)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>RMB<br>depreciates against the<br>Japanese yen<br><br><br>5<br><br><br><br>(65,621.08<br><br>)<br><br><br>-<br><br><br><br>(65,621.08<br><br>)<br><br>RMB appreciates<br><br>against the<br>Japanese yen<br><br><br>5<br><br><br><br>65,621.08<br><br><br><br>-<br><br><br><br>65,621.08<br><br><br><br><br><br>Euro<br>exchange<br>rate<br><br>Increase/<br>(Decrease)<br><br>%<br><br><br><br>Net gains and<br>loss<br>Increase/(Decre<br>ase)<br><br><br><br>Net<br>comprehensive<br>income after tax<br>Increase/(Decre<br>ase)<br><br><br><br>Total equity<br>Increase/(Decre<br>ase)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>RMB depreciates<br><br>against the<br>euro<br><br><br>5<br><br><br><br>(17,231.03<br>)<br><br><br><br>-<br><br><br><br>(17,231.03<br>)<br><br><br>RMB appreciates<br><br>against the<br>euro<br><br><br>5<br><br><br><br>17,231.03<br><br><br><br>-<br><br><br><br>17,231.03<br><br><br><br>VIII.<br><br>Risks Associated with Financial Instruments<br><br>(continued)<br><br><br>3.<br><br>Risks of financial instruments<br><br>(continued)
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>199<br><br>3<br>-<br>2<br>-<br>1<br>-<br>202<br><br><br>Market risk<br><br>(continued)<br><br><br>Exchange rate risk<br><br>(continued)<br><br><br><br>December 31, 2020<br><br><br><br><br>USD exchange<br>rate<br><br>Increase/<br>(Decrease)<br><br>%<br><br><br><br>Net gains and<br>loss<br>Increase/(Decre<br>ase)<br><br><br><br>Net<br>comprehensive<br>income after tax<br>Increase/(Decre<br>ase)<br><br><br><br>Total equity<br>Increase/(Decre<br>ase)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>RMB depreciates<br><br>against the<br>US dollar<br><br><br>5<br><br><br><br>(4,584,011.94<br>)<br><br><br><br>-<br><br><br><br>(4,584,011.94<br>)<br><br><br>RMB appreciates<br><br>against the<br>US dollar<br><br><br>5<br><br><br><br>4,584,011.94<br><br><br><br>-<br><br><br><br>4,584,011.94<br><br><br><br><br><br>Japanese yen<br>exchange rate<br><br>Increase/<br>(Decrease)<br><br>%<br><br><br><br>Net gains and<br>loss<br>Increase/(Decre<br>ase)<br><br><br><br>Net<br>comprehensive<br>income after tax<br>Increase/(Decre<br>ase)<br><br><br><br>Total equity<br>Increase/(Decre<br>ase)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>RMB depreciates<br><br>against the<br>Japanese yen<br><br><br>5<br><br><br><br>80,877.22<br><br><br><br>-<br><br><br><br>80,877.22<br><br><br>RMB appreciates<br><br>against the<br>Japanese yen<br><br><br>5<br><br><br><br>(80,877.22<br>)<br><br><br><br>-<br><br><br><br>(80,877.22<br>)<br><br><br><br><br><br>Euro exchange<br>rate<br><br>Increase/<br>(Decrease)<br><br>%<br><br><br><br>Net gains and<br>loss<br>Increase/(Decre<br>ase)<br><br><br><br>Net<br>comprehensive<br>income after tax<br>Increase/(Decre<br>ase)<br><br><br><br>Total equity<br>Increase/(Decre<br>ase)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>RMB depreciates<br><br>against the<br>euro<br><br><br>5<br><br><br><br>(24,727.03<br><br>)<br><br><br>-<br><br><br><br>(24,727.03<br>)<br><br><br>RMB appreciates<br><br>against the<br>euro<br><br><br>5<br><br><br><br>24,727.03<br><br><br><br>-<br><br><br><br>24,727.03
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>200<br><br>3<br>-<br>2<br>-<br>1<br>-<br>203<br><br>VIII.<br><br>Risks Associated with Financial Instruments<br><br>(continued)<br><br><br>3.<br><br>Risks of financial instruments<br><br>(continued)<br><br><br>Market risk<br><br>(continued)<br><br><br>Exchange rate risk<br><br>(continued)<br><br><br><br><br>December 31, 2019<br><br><br><br><br>USD exchange<br>rate<br><br>Increase/<br>(Decrease)<br><br>%<br><br><br><br>Net gains and<br>loss<br>Increase/(Decre<br>ase)<br><br><br><br>Net<br>comprehensive<br>income after tax<br>Increase/(Decre<br>ase)<br><br><br><br>Total equity<br>Increase/(Decre<br>ase)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>RMB depreciates<br><br>against the<br>US dollar<br><br><br>5<br><br><br><br>(2,652,665.56<br>)<br><br><br><br>-<br><br><br><br>(2,652,665.56<br>)<br><br><br>RMB appreciates<br><br>against the<br>US dollar<br><br><br>5<br><br><br><br>2,652,665.56<br><br><br><br>-<br><br><br><br>2,652,665.56<br><br><br><br><br><br>Japanese yen<br>exchange rate<br><br>Increase/<br>(Decrease)<br><br>%<br><br><br><br>Net gains and<br>loss<br>Increase/(Decre<br>ase)<br><br><br><br>Net<br>comprehensive<br>income after tax<br>Increase/(Decre<br>ase)<br><br><br><br>Total equity<br>Increase/(Decre<br>ase)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>RMB depreciates<br><br>against the<br>Japanese yen<br><br><br>5<br><br><br><br>(2,425.39<br>)<br><br><br><br>-<br><br><br><br>(2,425.39<br>)<br><br><br>RMB<br>appreciates<br><br>against the<br>Japanese yen<br><br><br>5<br><br><br><br>2,425.39<br><br><br><br>-<br><br><br><br>2,425.39
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>201<br><br>3<br>-<br>2<br>-<br>1<br>-<br>204<br><br>VIII.<br><br>Risks Associated with Financial Instruments<br><br>(continued)<br><br><br>4.<br><br>Capital management<br><br><br>The primary objective of the Group’s capital management is to ensure that the Group<br>is<br>capable of continuing operation and maintains healthy capital ratios to support<br>business development and maximize shareholder value.<br><br><br>The Group manages and adjusts the capital structure in accordance with the economic<br>situation and changes in the risk char<br>acteristics of related assets. In order to maintain or<br>adjust the capital structure, the Group may adjust the distribution of profits to<br>shareholders, return capital to shareholders or issue new shares. The Group is not<br>subject to external mandatory capita<br>l requirements. There were no changes in capital<br>management objectives, policies or procedures in 2021, 2020 and 2019.<br><br><br>IX.<br><br>Disclosure of<br>F<br>air<br>V<br>alue<br><br><br>1.<br><br>Assets measured at fair value<br><br><br>December 31, 2021<br><br><br><br><br><br>Inputs used in fair value measurement<br><br><br><br><br><br>Active market<br>quote<br><br><br><br><br><br>Important<br>observable input<br>values<br><br><br><br><br><br>Significant un<br>-<br>observable input<br>values<br><br><br><br><br><br>Total<br><br>T<br><br><br><br><br>(the first level)<br><br><br><br><br><br>(the second<br>level)<br><br><br><br><br><br>(the third level)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Receivables financing<br><br><br><br>-<br><br><br><br>61,883,885.84<br><br><br><br>-<br><br><br><br>61,883,885.84<br><br><br><br>December 31, 2020<br><br><br><br><br><br>Inputs used in fair value measurement<br><br><br><br><br><br>Active market<br>quote<br><br><br><br><br><br>Important<br>observable input<br>values<br><br><br><br><br><br>Significant<br>un<br>-<br>observable input<br>values<br><br><br><br><br><br>Total<br><br><br><br><br><br><br>(the first level)<br><br><br><br><br><br>(the second<br>level)<br><br><br><br><br><br>(the third level)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Receivables financing<br><br><br><br>-<br><br><br><br>29,854,223.07<br><br><br><br>-<br><br><br><br>29,854,223.07<br><br><br><br>December 31, 2019<br><br><br><br><br><br>Inputs used in fair value measurement<br><br><br><br><br><br>Active market<br>quote<br><br><br><br><br><br>Important<br>observable input<br>values<br><br><br><br><br><br>Significant<br>un<br>-<br>observable input<br>values<br><br><br><br><br><br>Total<br><br><br><br><br><br><br>(the first level)<br><br><br><br><br><br>(the second<br>level)<br><br><br><br><br><br>(the third level)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Receivables financing<br><br><br><br>-<br><br><br><br>15,222,595.14<br><br><br><br>-<br><br><br><br>15,222,595.14
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>202<br><br>3<br>-<br>2<br>-<br>1<br>-<br>205<br><br><br>IX.<br><br>Disclosure of fair value<br><br>(continued)<br><br><br>2.<br><br><br>Assessment of fair value<br><br><br>Fair value of financial instruments<br><br><br>The management has assessed cash and bank balance, accounts receivable,<br>notes<br>receivable<br>, other receivables, short<br>-<br>term borrowings, accounts payable, other payables<br>and non<br>-<br>current liabilities due within one year. And because their residual maturity is<br>not<br><br>long, their fair value is similar to their book value.<br><br><br>The fair value of long<br>-<br>term payables and long<br>-<br>term receivables is determined by the<br>discounted future cash flow method, and the market rate of return of other financial<br>instruments with similar contr<br>act terms, credit risk and residual maturity is used as the<br>discount rate. On<br>December 31, 2021<br>,<br>December 31, 2020<br><br>and<br>December 31, 2019<br>, the<br>result of non<br>-<br>performance risk assessment for long<br>-<br>term payables itself was not<br>significant.<br><br><br>The fair value of fi<br>nancial assets and financial liabilities is determined by the amount<br>of assets exchanged or debts settled voluntarily between two parties familiar with the<br>situation in an arm's length transaction,<br><br>rather than the amount in the case of forced sale<br>or liqui<br>dation.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>203<br><br>3<br>-<br>2<br>-<br>1<br>-<br>206<br><br><br>X.<br><br>Related Party Relationships and Transactions<br><br><br>1.<br><br>Parent company<br><br><br><br><br>Place of<br>incorporation<br><br><br><br>Business nature<br><br><br><br>Issued share<br>capital<br><br><br><br>Shareholding<br>percentage in the<br>Company<br><br><br><br>Voting right<br>percentage in the<br>Company<br><br><br><br><br><br><br><br><br><br><br>USD<br><br><br><br><br>(<br>%<br>)<br><br><br><br><br>(<br>%<br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>California, USA<br><br><br><br>Investment holding<br><br><br><br>42,770.68<br><br><br><br>85.5129<br><br><br><br>85.5129<br><br><br><br>The ultim<br>ate controller of the Company is AXT, Inc. Before February 28, 2021, main<br>business of AXT, Inc. is the sales of semiconductor substrate materials, and since<br>March<br>1, 2021<br>,<br>its<br><br>main business becomes investment holding.<br><br><br>2.<br><br>Subsidiaries<br><br><br>Please refer<br>Notes<br>VII.1 for details of subsidiaries.<br><br><br>3.<br><br>Joint ventures& Associates<br><br><br>Please refer<br>Notes<br>VII.2 for details of joint ventures and associates.<br><br><br>4.<br><br>Other related parties<br><br><br><br>Relations with<br>related parties<br><br><br><br><br><br>Chaoyang Limei Semiconductor Technology Co.,<br>Ltd.<br><br>The company is controlled by its<br>parent company<br><br><br>Xilingol Tongli Germanium Co.,<br>Ltd.<br><br>The company is significantly<br>influenced by its parent company<br><br><br>Mount Emei Jiamei<br><br>Hi<br>-<br>purity Materials Co.,<br>Ltd.<br><br>The company is significantly<br>influenced by its parent company<br><br><br>Beijing Jiya Semiconductor Materials Co.,<br>Ltd.<br><br>The company is significantly<br>influenced by its parent company<br><br><br>Donghai Dongfang<br><br>Hi<br>-<br>purity Electronic Materials Co.,<br>Ltd.<br><br>The company is the associate of<br>the subsidiary controlled by its<br>parent company<br><br><br>Donghai County Juqing Trading Co.,<br>Ltd.<br><br>The company is controlled by<br>the actual controller of Donghai<br>Dongfang Hi<br>-<br>purity Electronic<br>Materials Co., Ltd<br><br><br>He Junfang<br><br>Individual shareholder holding<br>more than 5% of the shares
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>204<br><br>3<br>-<br>2<br>-<br>1<br>-<br>207<br><br>..<br><br>X.<br><br>Related Party Relationships and Transactions<br><br>(continued)<br><br><br>5.<br><br>Major transactions between the Group and its related parties<br><br><br>(1)<br><br>Commodities and Services Transactions with related parties<br><br><br>Purchasing commodities and accepting labor services from related parties<br><br><br><br>Note<br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>(<br>1<br>)<br>a<br><br><br><br>7,795,267.80<br><br><br>21,787,518.49<br><br><br>10,209,685.64<br><br><br>Xiaoyi Xing’an Gallium<br><br><br><br><br><br><br><br><br><br><br>Co.,<br>Ltd.<br><br><br>(<br>1<br>)<br>b<br><br><br><br>63,667,494.73<br><br><br>30,755,319.45<br><br><br>6,099,823.00<br><br><br>Donghai County Juqing<br>Trading<br><br>Co.,<br>Ltd.<br><br><br>(<br>1<br>)<br>c<br><br><br><br>3,140,707.97<br><br><br>-<br><br><br>-<br><br><br>Donghai Dongfang<br><br>Hi<br>-<br>purity Electronic<br><br><br><br><br><br><br><br><br><br><br>Materials Co.,<br>Ltd.<br><br><br>(<br>1<br>)<br>c<br><br><br><br>665,568.08<br><br><br>9,065,398.28<br><br><br>7,899,692.46<br><br><br>Xilingol Tongli<br>Germanium<br><br><br><br><br><br><br><br><br><br><br>Co.,<br>Ltd.<br><br><br>(<br>1<br>)<br>d<br><br><br><br>4,695,033.79<br><br><br>-<br><br><br>7,645,697.07<br><br><br>Beijing Jiya<br>Semiconductor<br>Materials Co.,<br>Ltd.<br><br><br>(<br>1<br>)<br>e<br><br><br><br>6,925,663.60<br><br><br>-<br><br><br>-<br><br><br>Mount Emei Jiamei Hi<br>-<br>purity Materials<br><br><br><br><br><br><br><br><br><br><br>Co.,<br>Ltd.<br><br><br>(<br>1<br>)<br>f<br><br><br><br>886,460.24<br><br><br>-<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>87,776,196.21<br><br><br>61,608,236.22<br><br><br>31,854,898.17<br><br><br><br>Selling commodities and<br>providing labor services to related parties<br><br><br><br>Note<br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>(<br>1<br>)<br>g<br><br><br><br>59,796,999.94<br><br><br>281,965,067.67<br><br><br>221,449,835.93<br><br><br>Xiaoyi Xing’an Gallium<br><br><br><br><br><br><br><br><br><br><br><br>Co.,<br>Ltd.<br><br><br>(<br>1<br>)<br>h<br><br><br><br>16,460.18<br><br><br>12,610.62<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>59,813,460.12<br><br><br>281,977,678.29<br><br><br>221,449,835.93<br><br><br><br>(2)<br><br>Assets transfer of related parties<br><br><br>Purchase equipment from related parties<br><br><br><br>Note<br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>(<br>2<br>)<br><br><br><br>5,760,489.21<br><br><br>6,025,411.90<br><br><br>11,596,903.37
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>205<br><br>3<br>-<br>2<br>-<br>1<br>-<br>208<br><br>X.<br><br>Related Party<br>Relationships and Transactions<br><br>(continued)<br><br><br>5.<br><br>Major transactions between the Group and its related parties<br><br>(continued)<br><br><br>(3)<br><br>Money borrowing and lending with related parties<br><br><br><br>Money borrowing<br><br><br><br>Notes<br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>(<br>3<br>)<br>a<br><br><br><br>9,386,518.84<br><br><br>-<br><br><br>-<br><br><br><br>Money lending<br><br><br><br>Note<br><br><br><br>2021<br><br><br>2020<br><br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br><br><br>He Junfang<br><br><br>(<br>3<br>)<br>b<br><br><br><br>-<br><br><br>1,000,000.00<br><br><br><br>1,000,000.00<br><br><br><br>Repayment of money lending<br><br><br><br>Note<br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br><br>He Junfang<br><br><br>(<br>3<br>)<br>b<br><br><br><br>-<br><br><br>4,000,000.00<br><br><br>-<br><br><br>Jinmei<br><br>Gallium<br>(Maanshan) Co.,<br>Ltd.<br><br><br><br>(<br>3<br>)<br>c<br><br><br><br>1,982,947.59<br><br><br>-<br><br><br>17,052.41<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>1,982,947.59<br><br><br>4,000,000.00<br><br><br>17,052.41<br><br><br><br>Income from interest<br><br><br><br>Note<br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br><br>He Junfang<br><br><br>(<br>3<br>)<br>b<br><br><br><br>-<br><br><br>102,590.30<br><br><br>72,645.82<br><br><br>Jinmei<br><br>Gallium<br>(Maanshan) Co.,<br>Ltd.<br><br><br><br>(<br>3<br>)<br>c<br><br><br><br>46,086.91<br><br><br>93,192.31<br><br><br>92,937.69<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>46,086.91<br><br><br>195,782.61<br><br><br>165,583.51<br><br><br><br>Accepting guarantees from related parties<br><br><br>The guaranteed loan balance of<br>RMB<br>10,000,000.00 of the Group on<br>December 31, 2020<br><br>and<br>December 31, 2021<br><br>was guaranteed by, and the subsidiary of the Group,Boyu<br>(Tianjin) Semiconductor Materials Co.,<br>Ltd.<br>provided Beijing Zhongguancun<br>Technology Financing Guarantee Co.,<br>Ltd.<br>the counter<br>-<br>gua<br>rantee in the form of<br>maximum mortgage, please referring to<br>Notes<br>V.19 and<br>Notes<br>V.54 for details.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>206<br><br>3<br>-<br>2<br>-<br>1<br>-<br>209<br><br>X.<br><br>Related Party Relationships and Transactions<br><br>(continued)<br><br><br>5.<br><br>Major transactions between the Group and its related parties<br><br>(continued)<br><br><br>(4)<br><br>Other<br>related<br>-<br>party transactions<br><br><br><br><br>Note<br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br><br><br><br><br><br><br><br><br><br><br>Royalties<br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>(<br>4<br>)<br>a<br><br><br><br>-<br><br><br>8,054,012.98<br><br><br>6,806,158.00<br><br><br><br><br><br><br><br><br><br><br><br><br>Remuneration for key<br>management<br>personnel<br><br><br>(<br>4<br>)<br>b<br><br><br><br>7,637,211.84<br><br><br>7,352,349.42<br><br><br>6,022,714.74<br><br><br>Thereof<br>：<br>payment of<br>AXT, Inc.<br><br><br><br><br>736,058.49<br><br><br>3,835,027.93<br><br><br>2,435,383.31<br><br><br><br><br><br><br><br><br><br><br><br><br>Staff remuneration<br><br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>(<br>4<br>)<br>c<br><br><br><br>415,606.56<br><br><br>1,049,938.95<br><br><br>1,070,539.83<br><br><br><br><br><br><br><br><br><br><br><br><br>Cost payment on<br>behalf<br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>(<br>4<br>)<br>d<br><br><br><br>415,359.60<br><br><br>1,796,570.76<br><br><br>2,525,242.47<br><br><br><br><br><br><br><br><br><br><br><br><br>Option liquidation<br>payment on behalf<br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>(<br>4<br>)<br>e<br><br><br><br>1,227,177.09<br><br><br>2,000,752.04<br><br><br>440,063.28<br><br><br><br><br><br><br><br><br><br><br><br><br>Accepting cost<br>payment on behalf<br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>(<br>4<br>)<br>f<br><br><br><br>-<br><br><br>309,794.65<br><br><br>728,052.30<br><br><br><br><br><br><br><br><br><br><br><br><br>Rent in fixed assets<br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>(<br>4<br>)<br>g<br><br><br><br>5,135,792.54<br><br><br>-<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br>Rent payment<br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>(<br>4<br>)<br>g<br><br><br><br>1,506,765.23<br><br><br>-<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br>Licensing purchase<br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>(<br>4<br>)<br>h<br><br><br><br>8,012,577.20<br><br><br>-<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br>Cross<br>-<br>use right<br>purchase<br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>(<br>4<br>)<br>i<br><br><br><br>9,637,748.15<br><br><br>-<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br>Money collection on<br>behalf<br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>(<br>4<br>)<br>j<br><br><br><br>23,603,117.40<br><br><br>-<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br>Accepting money<br>collection on behalf<br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>(<br>4<br>)<br>j<br><br><br><br>10,248,264.99<br><br><br>-<br><br><br>-
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>207<br><br>3<br>-<br>2<br>-<br>1<br>-<br>210<br><br><br>X.<br><br>Related Party Relationships and Transactions<br><br>(continued)<br><br><br>5.<br><br>Major transactions between the Group and its related parties<br><br>(continued)<br><br><br>(4)<br><br>Other related<br>-<br>party transactions<br><br>(continued)<br><br><br><br><br>Note<br><br><br><br>2021<br><br><br>2020<br><br><br>2019<br><br><br>Payment received for<br>offset<br>transactions<br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>(<br>4<br>)<br>k<br><br><br><br>12,986,782.61<br><br><br>-<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br>Sale of equity in<br>Associates<br><br><br><br><br><br><br><br><br><br><br>Chaoyang Limei<br>Semiconductor<br>Technology Co.,<br>Ltd.<br><br><br><br>(<br>4<br>)<br>m<br><br><br><br>14,000,000.00<br><br><br>-<br><br><br>-<br><br><br><br>Note<br>：<br><br><br>(<br>1<br>)<br><br>Commodities and labor transactions with<br>related parties<br><br><br>(<br>a<br>)<br><br>At the purchasing price of AXT, Inc. from third parties,<br><br>the Group purchased<br>high<br>-<br>purity arsenic, indium phosphide polycrystalline and other raw materials,<br>semi<br>-<br>finished products from<br>AXT, Inc.<br>, with the worth of<br>RMB<br>10,209,685.64,<br>RMB<br>21,787,518.49 and<br>RMB<br>7,795,267.80 in 2019, 2020 and 2021<br>respectively.<br><br><br>(<br>b<br>)<br><br>At the price negotiated on the basis of the market price of similar products, the<br>Group purchased raw gallium products from Xiaoyi Xing’an Gallium Co.,<br>Ltd.,<br><br>with<br><br>the worth of RMB6,099,823.00, RMB30,755,319.45 and<br>RMB63,667,494.73 in 2019, 2020 and 2021,<br><br>respectively.<br><br><br>(<br>c<br>)<br><br>At the price negotiated on the basis of the market price of similar products, the<br>Group purchased high<br>-<br>purity arsenic products from Donghai Dongfang Hi<br>-<br>purity Electronic Materials Co.,<br>Ltd.,<br><br>with the worth of<br>RMB<br>7,899,692.46,<br>RMB<br>9,065,398.28 and<br>RMB<br>629,380<br>..53 in 2019, 2020 and 2021 respectively.<br>At the price negotiated on the basis of the market price of similar products, the<br>Group purchased high<br>-<br>purity arsenic products from Donghai County Juqing<br>Trading Co.,<br>Ltd.<br>controlled by Li Bo, the actual controller<br>of Donghai<br>Dongfang Hi<br>-<br>purity Electronic Materials Co.,<br>Ltd.,<br><br>with the worth of<br>RMB<br>3,140,707.97 in 2021.<br><br><br>(<br>d<br>)<br><br>The Group purchased germanium ingot products of<br>RMB<br>7,645,697.07 and<br>RMB<br>4,695,033.79 from Xilingol Tongli Germanium Co.,<br>Ltd.<br>at the market<br>price o<br>f similar products in 2019 and 2021 respectively. In 2020, the Group did<br>not purchase from Xilingol Tongli Germanium Co.,<br>Ltd.<br><br><br>(<br>e<br>)<br><br>At the market price of similar products and on the basis of negotiation, the<br>Group purchased raw gallium products of<br>RMB<br>6,9<br>25,663.60 from Beijing Jiya<br>Semiconductor Materials Co.,<br>Ltd.<br>in 2021. In 2019 and 2020, the Group did<br>not purchase from Beijing Jiya Semiconductor Materials Co.,<br>Ltd.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>208<br><br>3<br>-<br>2<br>-<br>1<br>-<br>211<br><br>X.<br><br>Related Party Relationships and Transactions<br><br>(continued)<br><br><br>5.<br><br>Major<br>transactions between the Group and its related parties<br><br>(continued)<br><br><br>Note<br>:<br><br>(continued)<br><br><br>(<br>1<br>)<br><br>Commodities and labor transactions with related parties<br><br>(continued)<br><br><br><br>(<br>f<br>)<br><br>At the market price of similar products and on the basis of negotiation, the<br>Group purchased high<br>-<br>purity arsenic products of<br>RMB<br>886,460.24 from Mount<br>Emei Jiamei Hi<br>-<br>purity Materials Co.,<br>Ltd.<br>in 2021. In 2019 and 2020, the Group<br>did not purchase from Mount<br><br>Emei Jiamei Hi<br>-<br>purity Materials Co.,<br>Ltd.<br><br><br>(<br>g<br>)<br><br>At the price including cost and a certain profit margin, the Group sold<br>semiconductor substrate material products of<br>RMB<br>221,449,835.93,<br>RMB<br>281,779,913.81 and<br>RMB<br>59,635,550.98 to AXT,<br>Inc. in<br><br>2019, 2020 and<br>2021 respectively. At the market price of similar products and on the basis of<br>negotiation, the Group sold crystal growth crucibles of<br>RMB<br>185,153.86 and<br>RMB<br>161,448.96 to AXT,<br>Inc. in<br><br>2020 and 2021 respectively. The Group did<br>not sell crysta<br>l growth crucibles to AXT,<br>Inc. in<br><br>2019.<br><br><br>(<br>h<br>)<br><br>At the market price of similar products and on the basis of negotiation, the<br>Group sold high<br>-<br>purity gallium products of<br>RMB<br>12,610.62 and<br>RMB<br>16,460.18<br>to Xiaoyi Xing’an Gallium Co.,<br>Ltd.<br>in 2020 and 2021 respect<br>ively. The Group<br>did not sell to Xiaoyi Xing’an Gallium Co.,<br>Ltd.<br>in 2019.<br><br><br>(<br>2<br>)<br><br>At the market price of similar products, the Group purchased professional<br>equipment for semiconductor substrate material production of<br>RMB<br>11,596,903.37,<br>RMB<br>6,025,411.90 and<br>RMB<br>5,760,489.21 from AXT,<br>Inc.<br>in<br><br>2019, 2020 and 2021 respectively.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>209<br><br>3<br>-<br>2<br>-<br>1<br>-<br>212<br><br>X.<br><br>Related Party Relationships and Transactions<br><br>(continued)<br><br><br>5.<br><br>Major transactions between the Group and its related parties<br><br>(continued)<br><br><br>Note<br>:<br><br>(continued)<br><br><br><br>(<br>3<br>)<br><br>Money borrowing and<br>lending with related parties<br><br><br>(a)<br><br>In 2021, the Group borrowed<br>RMB<br>9,386,518.84 from AXT, Inc. for the initial<br>operation of its US subsidiary. According to the loan agreement with AXT, Inc., the<br>loan agreement stipulates that there is no interest, no guarantee o<br>r pledge.<br><br><br>(b)<br><br>According to the loan contract signed with He Junfang in December 2017,<br>Beijing Boyu Semiconductor Vessel Craftwork Technology Co., Ltd.<br><br>lent<br>RMB<br>2,000,000.00 to He Junfang<br><br>at an annual interest rate of 2.75%. The duration of<br>the loan was from<br>December 1, 2017<br><br>to<br>November 30, 2020<br>.. It signed simultaneously<br>an Equity Pledge Contract with He Junfang, which stipulated that He Junfang pledged<br>66.67% of his equity in Beijing Bome<br>ilian Special Ceramics Co.,<br>Ltd.<br>held by him to<br>provide guarantee for the above loans;<br><br><br>According to the loan contract signed with He Junfang in January 2019,<br>Beijing<br>Boyu Semiconductor Vessel Craftwork Technology Co., Ltd.<br><br>lent<br>RMB1,000,000.00 to He Junfa<br>ng at an annual interest rate of 2.75%. The loan<br>duration is from<br>January 31, 2019<br><br>to<br>December 31, 2024<br>.. It signed<br>simultaneously an Equity Pledge Contract with He Junfang, which stipulated<br>that He Junfang pledged 66.67% of his equity in Beijing Bomeilian<br>Special<br>Ceramics Co.,<br>Ltd.<br>held by him to provide guarantee for the above loans;<br><br><br>According to the resolution of the Board of Directors of Beijing Boyu<br>Semiconductor Vessel Technology Co.<br>Ltd.<br>on January 16, 2020, and the loan<br>contract signed with He Junfa<br>ng in March 2020,<br>Beijing Boyu Semiconductor<br>Vessel Craftwork Technology Co., Ltd.<br><br>lent RMB1,000,000.00 to He Junfang<br>at an annual interest rate of 2.75%. The loan duration is from March 1, 2020 to<br>December 31, 2024<br>.. It signed simultaneously an Equity Pledg<br>e Contract with<br>He Junfang, which stipulated that He Junfang pledged 66.67% of his equity in<br>Beijing Bomeilian Special Ceramics Co.,<br>Ltd.<br>held by him to provide guarantee<br>for the above loans.<br><br><br>The above three loans totaling<br>RMB<br>4,000,000.00 were fully recov<br>ered in<br>December 2020.<br><br><br>According to the loan agreements, the Group recognized the interest income<br>from He Junfang of<br>RMB<br>72,645.82 and<br>RMB<br>102,590.30 in 2019 and 2020<br>respectively, which were fully recovered in December 2020.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>210<br><br>3<br>-<br>2<br>-<br>1<br>-<br>213<br><br>X.<br><br>Related Party<br>Relationships and Transactions<br><br>(continued)<br><br><br>5.<br><br>Major transactions between the Group and its related parties<br><br>(continued)<br><br><br>Note<br>:<br><br>(continued)<br><br><br>(<br>3<br>)<br><br>Money borrowing and lending with related parties<br><br>(continued)<br><br><br><br>（<br>a<br>）<br><br>The Group recovered loans of<br>RMB<br>3,000,000.00,<br>RMB<br>17,052.41 and<br>RMB<br>1,982,947.59 from Jinmei Gallium (Maanshan) Co.,<br>Ltd.<br>in 2018, 2019<br>and 2021 respectively. The loan was lent by the Group in 2017 with the principal<br>of<br>RMB<br>5,000,000.00, the duration from Jul<br>y 1, 2017 to June 30, 2023, and the<br>annual interest rate of 4.90%. The repayment agreement is: the first repayment<br>of 20% by the end of 2021, the second repayment of 40% by the end of 2022,<br>and the third repayment at maturity, and early repayment is possib<br>le.<br><br><br>According to the loan agreement, the Group received interest income of<br>RMB<br>92,937.69,<br>RMB<br>93,192.31 and<br>RMB<br>46,086.91 from Jinmei Gallium<br>(Maanshan) Co.,<br>Ltd.<br>in 2019, 2020 and 2021 respectively.<br><br><br>(1)<br><br>Other related party transactions<br><br><br>(a)<br><br>The Group recognized royalties of<br>RMB<br>6,806,158.00 and<br>RMB<br>8,054,012.98 to<br>AXT,<br>Inc. in<br><br>2019 and 2020 respectively. AXT, Inc. and Beijing Tongmei Xtal<br>Technology Co.,<br>Ltd.<br>have agreed that AXT, Inc.charges<br><br>a royalty of 5% of<br>Beijing Tongmei Xtal Technology Co.,<br>Ltd.<br>’s sales to third<br>-<br>party customers in<br>mainland China every year. In November 2021, the Group and AXT, Inc. signed<br>a licensing purchase contract, which took effect in January 2021. The Group has<br>st<br>opped paying royalties since 2021.<br><br><br>(b)<br><br>The remuneration expenses of key management personnel undertaken by AXT,<br>Inc. for the Group were<br>RMB<br>2,435,383.31,<br>RMB<br>3,835,027.93 and<br>RMB<br>736,058.49 in 2019, 2020 and 2021 respectively.<br><br><br>(c)<br><br>The Group paid<br>RMB<br>1,070,539.83,<br>RM<br>B<br>1,049,938.95 and<br>RMB<br>415,606.56 to<br>the employees of AXT,<br>Inc. in<br><br>2019, 2020 and 2021 respectively.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>211<br><br>3<br>-<br>2<br>-<br>1<br>-<br>214<br><br>X.<br><br>Related Party Relationships and Transactions<br><br>(continued)<br><br><br>5.<br><br>Major transactions between the Group and its related parties<br><br>(continued)<br><br><br>Note<br>:<br><br>(continued)<br><br><br>(4)<br><br>Other related party transactions<br><br>(continued)<br><br><br>(d)<br><br>The freight and other expenses paid by the Group on behalf of AXT, Inc. were<br>RMB<br>2,525,242.47,<br>RMB<br>1,796,570.76 and<br>RMB<br>415,359.60 in 2019, 2020 and<br>2021 respectively.<br><br><br>(e)<br><br>The amount of stock consideration paid by the Group on behalf AXT, Inc. to its<br>domestic employees was<br>RMB<br>440,063.28,<br>RMB<br>2,000,752.04 and<br>RMB<br>1,227,177.09 in 2019, 2020 and 2021 respectively.<br><br><br>(f)<br><br>The amount of employee travel expenses and freight costs paid by<br>the Group on<br>behalf of AXT, Inc. was<br>RMB<br>728,052.30 and<br>RMB<br>309,794.65 in 2019 and<br>2020 respectively.<br><br><br>(g)<br><br>In 2021, the Group rent real estate from AXT, Inc. as work place and confirmed<br>the right<br>-<br>of<br>-<br>use asset of<br>RMB<br>5,135,792.54. In 2021, the Group paid<br>RMB<br>1,506,<br>765.23 as rental expense.<br><br><br>(h)<br><br>In 2021, the Group purchased licensing from AXT, Inc.with<br>USD<br>1,228,000.00,<br>equivalent to<br>RMB<br>8,012,577.20. In 2021, the amortization amount of licensing<br>was<br>RMB<br>1,335,429.54.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>212<br><br>3<br>-<br>2<br>-<br>1<br>-<br>215<br><br>X.<br><br>Related Party Relationships and<br>Transactions<br><br>(continued)<br><br><br>5.<br><br>Major transactions between the Group and its related parties<br><br>(continued)<br><br><br>Note<br>:<br><br>(continued)<br><br><br>(4)<br><br>Other related party transactions<br><br>(continued)<br><br><br>(i)<br><br>AXT, Inc. signed a cross<br>-<br>use licensing agreement with Japan’s Sumitomo<br>Electric Co.,<br>Ltd<br>..<br>in 2020. The agreement covers a duration from January 1,<br>2020 to December 31, 2029. In November 2021, the Group, as the main<br>beneficiary of the above<br>-<br>mentioned cross<br>-<br>use licensing agreement, signed an<br>agreement with AXT, Inc. to undertake the long<br>-<br>term p<br>ayment obligations of<br>the above<br>-<br>mentioned cross<br>-<br>use licensing totaling USD1,700,000.00, equivalent<br>to<br>RMB<br>9,637,748.15. The payment plan is to pay USD300,000.00 on April 30<br>of each year from 2021 to 2024 and USD 100,000.00 on April 30 of each year<br>from 2025 to mid<br>-<br>2029. As of<br>December 31, 2021<br>, the Group has not paid the<br>above royalties to AXT, Inc. In 2021, t<br>he Group amortizes<br>RMB<br>1,070,860.90<br>for the licensing fee for this patented technology.<br><br><br>(j)<br><br>In 2021, the US subsidiary of the Group received payment of USD<br>3,702,043.29, equivalent to<br>RMB<br>23,603,117.40 for goods on behalf of AXT,<br>Inc. Before the reporting date, all the payment for goods was transferred to<br>AXT, Inc.; AXT, Inc. collected payment for<br><br>goods of USD 1,607,394.48,<br>equivalent to<br>RMB<br>10,248,264.99 on behalf of the US subsidiary of the Group.<br>And before the report date, all the payment AXT, Inc. received was transferred<br>to the US subsidiary of the Group.<br><br><br>(k)<br><br>Starting from March 2021, AXT<br>-<br>Tongmei<br>, Inc., the US subsidiary of the Group,<br>would carry out overseas sales activities and switch to the same supplier at the<br>request of end customers. AXT, Inc. sold to<br>AXT<br>-<br>Tongmei, Inc.<br><br>products<br>purchased from the issuer for which sales revenue has not yet b<br>een confirmed,<br>with the amount totaling<br>RMB<br>12,986,782.61. AXT<br>-<br>Tongmei, Inc. offset the<br>purchase with the sales of issuer to AXT, Inc. The Group has received the above<br>corresponding amount of<br>RMB<br>12,986,782.61 from AXT, Inc.<br><br><br>(l)<br><br>On<br>March 1, 2021<br>, AXT, Inc. and<br>the Company signed the Trademark License<br>Agreement, which stipulates that AXT, Inc. granted the Company and its<br>subsidiaries a unique, exclusive and irrevocable right with exemption of the<br>royalty to license the use of the trademark, and as an integral par<br>t of the<br>company name of the group, the licensed trademark is used for the manufacture,<br>marketing and sales of the product; the license duration starts from<br>March 1,<br>2021<br><br>with permanent validity.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>213<br><br>3<br>-<br>2<br>-<br>1<br>-<br>216<br><br>X.<br><br>Related Party Relationships and Transactions<br><br>(continued<br>)<br><br><br>5.<br><br>Major transactions between the Group and its related parties<br><br>(continued)<br><br><br>Note<br>:<br><br>(continued)<br><br><br>（<br>4<br>）<br><br>Other related party transactions<br><br>(continued)<br><br><br>（<br>m<br>）<br><br>Beijing Tongmei Xtal Technology Co.,<br>Ltd.<br>and Chaoyang Tongmei<br><br>Xtal<br>Technology Co.,<br>Ltd.<br>signed the Equity Transfer Agreement on November 19,<br>2021. The content of the agreement is: Beijing Tongmei Xtal Technology Co.,<br>Ltd.<br>Will transfer its 45.9677% equity in Donghai Dongfang<br><br>Hi<br>-<br>purity<br>Electronic Materials Co.,<br>Ltd.<br>to Chaoyang Limei Semiconductor Technology<br>Co.,<br>Ltd.<br>at the price of<br>RMB<br>14,000,000.00. Since the completion of changes<br>in the industrial and commercial registration procedures, Beijing Tongmei Xtal<br>Technology Co.,<br>Ltd.<br>Enjoys no shareholder rights. Beijing Tongmei Xtal<br>Technology Co.,<br>Ltd.<br>received the equity consideration of<br>RMB<br>14,000,000.00<br>on<br>November 23, 2021<br>.. The equity changes in industrial and commercial<br>registration has been completed on<br>November 24, 2021<br>.. B<br>efore the transfer, the<br>book value of the long<br>-<br>term equity investment in Donghai Dongfang Hi<br>-<br>purity<br>Electronic Materials Co.,<br>Ltd.<br>held by the Group was<br>RMB<br>13,076,371.60.<br><br><br>6.<br><br>Receivable balance from related parties<br><br><br>(1)<br><br>Account receivable<br><br><br><br><br>December 31,<br>2021<br><br><br>December 31, 2020<br><br><br><br><br>Book balance<br><br><br>Bad<br>-<br>debt provision<br><br><br>Book balance<br><br><br>Bad<br>-<br>debt<br>provision<br><br><br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>-<br><br><br>-<br><br><br>53,762,553.90<br><br><br>37,946.48<br><br><br><br><br><br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br>Book balance<br><br><br>Bad<br>-<br>debt<br>provision<br><br><br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br><br><br><br><br>63,678,984.23<br><br><br>44,575.29
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>214<br><br>3<br>-<br>2<br>-<br>1<br>-<br>217<br><br><br>X.<br><br>Related Party Relationships and Transactions<br><br>(continued)<br><br>4.<br><br><br>Receivable balance from related parties<br><br>(continued)<br><br><br>(2)<br><br>Other receivables<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br><br><br>Book balance<br><br><br>Bad<br>-<br>debt provision<br><br><br>Book<br>balance<br><br><br>Bad<br>-<br>debt provision<br><br><br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br>-<br><br><br>-<br><br><br>1,453,703.09<br><br><br>-<br><br><br><br><br><br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br>Book balance<br><br><br>Bad<br>-<br>debt provision<br><br><br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br><br><br><br><br>698,520.07<br><br><br>-<br><br><br><br>(3)<br><br>Long<br>-<br>term accounts receivable<br><br><br><br><br>December 31, 2021<br><br><br>December 31,<br>2020<br><br><br><br><br>Book balance<br><br><br>Bad<br>-<br>debt provision<br><br><br>Book balance<br><br><br>Bad<br>-<br>debt provision<br><br><br><br><br><br><br><br><br><br><br><br><br>Jinmei Gallium<br>(Maanshan) Co.,<br>Ltd.<br><br><br>-<br><br><br>-<br><br><br>1,982,947.59<br><br><br>-<br><br><br><br><br><br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br>Book balance<br><br><br>Bad<br>-<br>debt provision<br><br><br><br><br><br><br><br><br><br><br><br><br>He Junfang<br><br><br><br><br><br><br>3,000,000.00<br><br><br>-<br><br><br>Jinmei Gallium<br>(Maanshan) Co.,<br>Ltd.<br><br><br><br><br><br><br>1,982,947.59<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br>Less: Non<br>-<br>current<br>assets due within<br><br><br><br><br><br><br><br><br><br><br><br>one year<br><br><br><br><br><br><br>2,000,000.00<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>2,982,947.59<br><br><br>-
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>215<br><br>3<br>-<br>2<br>-<br>1<br>-<br>218<br><br>X.<br><br>Related Party Relationships and<br>Transactions<br><br>(continued)<br><br><br>6.<br><br>Receivable balance from related parties<br><br>(continued)<br><br><br>(4)<br><br>Non<br>-<br>current assets due within one year<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br><br><br>Book balance<br><br><br>Bad<br>-<br>debt provision<br><br><br>Book balance<br><br><br>Bad<br>-<br>debt provision<br><br><br><br><br><br><br><br><br><br><br><br><br>He<br>Junfang<br><br><br>-<br><br><br>-<br><br><br>-<br><br><br>-<br><br><br><br><br><br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br>Book balance<br><br><br>Bad<br>-<br>debt provision<br><br><br><br><br><br><br><br><br><br><br><br><br>He Junfang<br><br><br><br><br><br><br>2,000,000.00<br><br><br>-<br><br><br><br>Except for long<br>-<br>term receivables and non<br>-<br>current assets due within one year,<br>receivables from related parties bear no interest and guarantee and have no fixed<br>repayment period. The long<br>-<br>term receivables at the end of 2019 and 2020 are the long<br>-<br>term loans o<br>f the Group to Jinmei Gallium (Maanshan) Co.,<br>Ltd.<br>and to key<br>management personnel He Junfang, referring to<br>Notes<br>V.10 for details.<br><br><br>7.<br><br>Payable balance to related parties<br><br><br>(1)<br><br>Accounts payable<br><br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br><br>39,176,391.44<br><br><br>88,027,704.07<br><br><br>71,881,479.63<br><br><br>Xiaoyi Xing’an<br>Gallium Co.,<br>Ltd.<br><br><br><br>12,105,603.00<br><br><br>11,744,175.38<br><br><br>1,008,000.00<br><br><br>Donghai Dongfang<br>Hi<br>-<br>purity Electronic<br>Materials Co.,<br>Ltd.<br><br><br><br>711,200.00<br><br><br>711,200.00<br><br><br>-<br><br><br>Beijing Jiya<br>Semiconductor Materials<br>Co.,<br>Ltd.<br><br><br><br>44,000.00<br><br><br>-<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>52,037,194.44<br><br><br>100,483,079.45<br><br><br>72,889,479.63<br><br><br><br>(2)<br><br>Other payables<br>-<br><br>equipment purchase<br><br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br><br>30,121,539.95<br><br><br>91,848,910.28<br><br><br>92,106,950.54
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>216<br><br>3<br>-<br>2<br>-<br>1<br>-<br>219<br><br>X.<br><br>Related Party Relationships and Transactions<br><br>(continued)<br><br><br>7.<br><br>Payable balance to related parties<br><br>(continued)<br><br><br><br>(3)<br><br>Other payables<br>-<br><br>royalties/licensing<br><br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31,<br>2019<br><br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br><br>7,046,423.70<br><br><br>7,697,661.25<br><br><br>6,876,727.55<br><br><br><br>(4)<br><br>Other payables<br>-<br><br>cross<br>-<br>use licensing<br><br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br><br>1,912,710.00<br><br><br>-<br><br><br>-<br><br><br><br>(5)<br><br>Other payables<br>-<br><br>others<br><br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br><br>21,890,140.74<br><br><br>1,736,608.56<br><br><br>1,553,892.96<br><br><br><br>(6)<br><br>Dividends payable<br><br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br><br>29,746,000.00<br><br><br>29,746,000.00<br><br><br>8,200,000.00<br><br><br><br>(7)<br><br>Long<br>-<br>term accounts payable due within one year<br><br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br><br>1,597,917.21<br><br><br>-<br><br><br>-<br><br><br><br>(8)<br><br>Long<br>-<br>term accounts payable<br><br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>AXT, Inc.<br><br><br><br>6,293,999.48<br><br><br>-<br><br><br>-<br><br><br><br>Amounts payable to related parties bear no interest and guarantee and<br><br>have no fixed<br>repayment terms except for long<br>-<br>term accounts payable due within one year and long<br>-<br>term accounts<br>payable.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>217<br><br>3<br>-<br>2<br>-<br>1<br>-<br>220<br><br><br>XI. Share<br>-<br>based Payment<br><br><br>1.<br><br>Share<br>-<br>based Payment Overview<br><br><br><br><br><br>Year 2021<br><br><br>Year 2020<br><br><br>Year 2019<br><br><br><br><br><br><br><br><br><br><br><br>Total equity instruments granted<br><br><br><br>10,532,411.84<br><br><br>9,067,998.54<br><br><br>-<br><br><br>Total equity<br>instruments exercised<br><br><br><br>-<br><br><br>-<br><br><br>-<br><br><br>Remaining contractual life of stock options issued<br>and outstanding at the end of the year<br><br><br><br>1039 days<br><br>and 1404 days<br><br><br><br><br>1,088 days<br><br><br>-<br><br><br><br><br><br><br>Year 2021<br><br><br>Year 2020<br><br><br>Year 2019<br><br><br><br><br><br><br><br><br><br><br><br>Total employee services<br>received through<br>share<br>-<br>based payment<br><br><br><br>3,118,936.98<br><br><br>-<br><br><br>-<br><br><br><br>Including the followed equity<br>-<br>settled share<br>-<br>based payment<br>：<br><br><br><br><br>Year 2021<br><br><br>Year<br>2020<br><br><br>Year<br>2019<br><br><br><br><br><br><br><br><br>Method of determining the fair value of equity instruments at<br>the date of grant<br><br><br>Discounted cash flow method and binary<br>tree method<br><br><br>-<br><br><br>-<br><br>Method for determining the best estimate of the number of<br>exercisable equity instruments<br><br><br>Revise the number of equity instruments<br>expected to become exercisable by<br>referring to the<br><br>equity instrument grant agreement and<br>making the best estimate based on<br>subsequent information such as the latest<br>changes in the number of exercisable<br>employees<br><br><br><br>-<br><br><br>-<br><br>Accumulated amount of equity<br>-<br>settled share<br>-<br>based payment<br>recognized in capital surplus<br><br><br>3,118,936.98<br><br><br>-<br><br><br>-<br><br>Total expense recognized for equity<br>-<br>settled share<br>-<br>based<br>payment<br><br><br>3,118,936.98<br><br><br>-<br><br><br>-<br><br>Including:<br><br><br><br><br><br><br><br>Total employee stock ownership<br>platform expense<br>recognized for equity<br>-<br>settled share<br>-<br>based payment<br><br><br>2,657,642.59<br><br><br>-<br><br><br>-<br><br>Total stock option expense recognized for equity<br>-<br>settled<br>share<br>-<br>based payment<br><br><br>461,294.39<br><br><br>-<br><br><br>-<br><br><br>Note 1: The Board of Directors passed a resolution on December 25, 2020, agreeing<br>to increase the registered capital of the Company by CNY519,853,650.47. Four new<br>shareholders on the employee stock ownership platform, including Beijing Dingmei<br>Technology D<br>evelopment Center<br>(L.P.)<br>, Beijing Liaoyan Technology Development<br>Center<br>(L.P.)<br>, Boyu Hengye (Tianjin) Technology Development Partnership, and<br>Boyu Yingchuang Technology Development Partnership<br>(L.P.)<br>, subscribed a total<br>registered capital of CNY3,283,841 a<br>nd paid up a capital increase of CNY4,330,000<br>in cash in January 2021 at a price of CNY1.32 per registered capital increase. The<br>Company engaged a third<br>-<br>party valuer qualified to practice securities to assist it in<br>evaluating the fair value of these restri<br>cted shares. The discounted cash flow method<br>combined with the terms of the restricted shares was used to perform the valuation<br>of the restricted shares. The unit fair value on the date of grant was evaluated to be<br>CNY4.08. This employee stock ownership pl<br>atform capital increase meets the share<br>-<br>based payment requirements.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>218<br><br>3<br>-<br>2<br>-<br>1<br>-<br>221<br><br><br><br>XI. Share<br>-<br>based Payment (Continued)<br><br><br>1.<br><br>Share<br>-<br>based Payment Overview (Continued)<br><br><br>The service period for the Company’s share<br>-<br>based payment granted to the employee<br>stock<br>ownership platform is 36 months from the date of the employee’s acquisition of<br>equity/property shares on the platform. If 12 months have elapsed since the date of the<br>employee’s acquisition of the equity/property shares and the contributor is still<br>employe<br>d by the Company or its subsidiaries at that time, the contributor shall<br>automatically acquire the rights corresponding to 1/3 of the equity/property shares held<br>by him/her; if 24 months have elapsed since the date of the employee’s acquisition of<br>the equi<br>ty/property shares and the contributor is still employed by the Company or its<br>subsidiaries at that time, the contributor shall automatically acquire the rights<br>corresponding to 1/3 of the equity/property shares held by him/her; if 36 months have<br>elapsed s<br>ince the date of the employee’s acquisition of the equity/property shares and<br>the contributor is still employed by the Company or its subsidiaries at that time, the<br>contributor shall automatically acquire the rights corresponding to 1/3 of the<br>equity/prope<br>rty shares held by him/her. If the employee leaves the Company or its<br>subsidiaries for any reason before the service period expires, the employee shall transfer<br>all the equity/property shares held by him/her on the employee stock ownership<br>platform to the<br>administrator of the platform or any other person designated by the<br>administrator. Unless otherwise agreed in the Company’s employee stock ownership<br>administrative measures or agreed in writing by the administrator of the employee stock<br>ownership platform,<br><br>the transfer price shall be the paid<br>-<br>in capital plus interest.<br><br><br>Unless there is a lock<br>-<br>up requirement for the position held by the employee in the<br>Company or the employee has made another commitment to the stock ownership<br>platform, the employee’s equity/p<br>roperty shares held in the platform can be released<br>from sale restriction from the date after the expiration of the statutory lock<br>-<br>up period,<br>provided that the employee has continuously provided labor services within the agreed<br>service period. If there are<br><br>other restrictive requirements in laws and regulations on the<br>percentage and manner of reduction, the quantity and requirements of reduction as<br>stipulated in laws and regulations shall prevail. The employee may sell/reduce his/her<br>share of equity/property<br><br>that has been released from the sale restriction through the<br>employee stock ownership platform to realize the proceeds of indirectly held equity in<br>the Company through the platform. Such operations shall be fully arranged and<br>executed by the administrator<br><br>of the employee stock ownership platform.<br><br><br>The Company recognizes share<br>-<br>based payment expense in installments over the service<br>period. In 2021, the share<br>-<br>based payment granted to the employee stock ownership<br>platform recognized by the Company was CNY2,657<br>,642.59, which was recorded in<br>current profit or loss.<br><br><br>The fair value of equity<br>-<br>settled stock options at the date of grant was estimated using<br>the discounted cash flow method in conjunction with the terms and conditions of the<br>restricted share<br>grant. Input variables for the model used for employee stock ownership<br>platform share<br>-<br>based payment: probability of exercise 40%, expected dividend rate 0%,<br>and weighted average cost of capital 14%.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>219<br><br>3<br>-<br>2<br>-<br>1<br>-<br>222<br><br><br>Note 2: The Board of Directors resolved on November 4, 2<br>021 to grant stock options<br>to a total of 171 directors and senior management of the Company and core<br>management,<br>core technicians<br><br>and core business personnel of the Company and its<br>holding subsidiaries.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>220<br><br>3<br>-<br>2<br>-<br>1<br>-<br>223<br><br><br><br>XI. Share<br>-<br>based Payment (Continued)<br><br><br>1.<br><br>Share<br>-<br>ba<br>sed Payment Overview (Continued)<br><br><br>The stock options are exercised in two tranches after 36 months of grant, and the<br>exercisable quantity of each tranche is 1/2 of the total number of stock options. The<br>exercise period for the first tranche is from the day<br>after the 36<br>th<br><br>month (completion of<br>the third anniversary) from the date of grant to the 48<br>th<br><br>month from the date of grant,<br>and the exercise period for the second tranche is from the day after the 48<br>th<br><br>month<br>(completion of the fourth anniversary) from the<br>date of grant to the 60<br>th<br><br>month from the<br>date of grant. The exercise price of the above stock options is determined based on the<br>trading price of the latest investor capital increase, and the exercise price is CNY5.03.<br><br><br>If the incentive recipient is a supe<br>rvisor or independent director or cannot receive<br>incentive due to job change, the options that are not exercisable shall be voided, the<br>stock options that are exercisable but not yet exercised shall be exercised within 3<br>months from the date of occurrence<br>of the situation, and the shares obtained by<br>exercising the options shall not be disposed of. If the incentive recipient changes his or<br>her position due to violation of law or discipline and causing loss to the Company,<br>serious violation of company rules a<br>nd regulations, or being held criminally responsible,<br>or if the Company cancels or terminates the employment relationship with the incentive<br>recipient due to the aforementioned reasons, incompetence or other circumstances, the<br>options that are not exercisa<br>ble shall be voided, the stock options that are exercisable<br>but not yet exercised shall not be exercised and shall be cancelled by the Company, and<br>the shares obtained by exercising the options shall not be disposed of. If the<br>employment contract of the in<br>centive recipient expires and is not renewed, or the<br>incentive recipient resigns voluntarily, the options that are not excisable shall be voided,<br>and the options that are exercisable but not yet exercised shall not be exercised and shall<br>be cancelled by th<br>e Company. If the Company is listed at that time, the exercised shares<br>shall not be disposed of. If the incentive recipient leaves the Company due to layoff or<br>other reasons (excluding the violation of law and discipline, incompetence and other<br>circumstanc<br>es), the options that are not exercisable shall be voided, the options that are<br>exercisable but not yet exercised shall be exercised within 3 months from the date of<br>occurrence of the situation, and the shares obtained by exercising the options shall not<br>b<br>e disposed of. If the incentive recipient leaves the Company through normal retirement,<br>the options that are not exercisable shall be voided, the options that are exercisable but<br>not yet exercised shall be exercised within 3 months from the date of occurre<br>nce of the<br>situation, and the shares obtained by exercising the options shall not be disposed of. If<br>the incentive recipient continues to work in the Company after retirement in the form<br>of reemployment or other forms, the options shall not be disposed of.<br><br>If the incentive<br>recipient leaves the company due to incapacity, the options that are not exercisable shall<br>be voided, the options that are exercisable but not yet exercised shall be exercised<br>within 3 months from the date of occurrence of the situation,<br>and the shares obtained<br>by exercising the options shall not be disposed of. If the incentive recipient dies<br>(including declared death) or disappears, the options that are not exercisable shall be<br>voided, the options that are exercisable but not yet exercis<br>ed shall be exercised by the<br>heirs of the incentive recipient within 3 months from the date of occurrence of the<br>situation, and the shares obtained by exercising the options shall not be disposed of. If
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>221<br><br>3<br>-<br>2<br>-<br>1<br>-<br>224<br><br>the incentive recipient works in a subsidiary of the<br>Company, and if the Company loses<br>control of the subsidiary and the incentive recipient does not stay in the Company or<br>other subsidiaries of the Company, the options that are not exercisable shall be voided,<br>the options that are exercisable but not yet ex<br>ercised shall be exercised within 3 months<br>from the date of occurrence of the situation, and the shares obtained by exercising the<br>options shall not be disposed of. If the incentive recipient violates the non<br>-<br>competition<br>agreement within the non<br>-<br>competitio<br>n period after leaving the Company due to the<br>above reasons, the Company reserves the right to recover the difference between the<br>fair price at the time of grant and the exercise price.<br><br><br>After the Company is listed, if the incentive recipient holds shares<br>of the Company by<br>exercising options, he/she may sell the shares in the secondary market and enjoy the<br>proceeds. The sale of the Company’s shares through the secondary market by the<br>incentive recipient shall meet the relevant regulations on stock lock<br>-<br>up,<br>transfer limit<br>and trading rules in the place where the Company is listed. The incentive recipient may<br>directly gain from the reduction of the Company’s shares through his/her personal<br>securities accounts.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>222<br><br>3<br>-<br>2<br>-<br>1<br>-<br>225<br><br><br><br>XI. Share<br>-<br>based Payment (Continued)<br><br><br>1.<br><br>Share<br>-<br>based Payment Overview (Continued)<br><br><br>The Company engaged a third<br>-<br>party valuer qualified to practice securities to assist it in<br>evaluating the fair value of these stock options. The discounted cash flow method<br>combined with the grant terms of the stock<br><br>options was used to perform the valuation,<br>of which: (1) The fair value of the first tranche of stock options for directors and senior<br>management of the Company is CNY1.39 and the fair value of the second tranche of<br>stock options is CNY1.53; (2) The fair<br>value of the first tranche of stock options for the<br>core management,<br>core technicians<br><br>and core business personnel of the Company and<br>its subsidiaries is CNY1.37 and the fair value of the second tranche of stock options is<br>CNY1.51. This stock option grant m<br>eets the share<br>-<br>based payment requirements.<br><br><br>The Company recognizes share<br>-<br>based payment expense in installments over the service<br>period. In 2021, the share<br>-<br>based payment granted to the stock options recognized by<br>the Company was CNY461,294.39, which was rec<br>orded in current profit or loss.<br><br><br>The fair value of equity<br>-<br>settled stock options at the date of grant was estimated using<br>the binary tree method in conjunction with the terms and conditions of the stock option<br>grant. Input variables for the model used for<br>stock options share<br>-<br>based payment: (1)<br>The first tranche of stock options for directors and senior management of the Company:<br>severance rate 0%, expected dividend rate 0%, weighted average cost of capital 14%;<br>(2)The second tranche of stock options for dir<br>ectors and senior management of the<br>Company: severance rate 0%, expected dividend rate 0%, weighted average cost of<br>capital 14%; (3) The first tranche of stock options for core management,<br>core<br>technicians<br><br>and core business personnel of the Company and its<br><br>subsidiaries: severance<br>rate 9%, expected dividend rate 0%, weighted average cost of capital 14%; (4)The<br>second tranche of stock options for core management,<br>core technicians<br><br>and core<br>business personnel of the Company and its subsidiaries: severance rate<br>9%, expected<br>dividend rate 0%, weighted average cost of capital 14%.<br><br><br>2.<br><br>Others<br><br><br>In May 2015, AXT,<br><br>Inc., the Group’s controlling shareholder, adopted the 2015 Equity<br>Incentive Plan (hereinafter referred to as “2015 Plan”), under which it granted stock<br>options and restricted shares to the Group’s employees. The 2015 Plan is still in effect.<br>Under the 2015 Plan, AXT,<br><br>Inc. made share<br>-<br>based payments to the employees of the<br>Group in the amount equivalent to CNY2,304,073.59, CNY2,783,665.77 and<br>CNY6,910,898.4<br>4 in 2019, 2020 and 2021, respectively, which were recognized in the<br>Group’s current profit and loss.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>223<br><br>3<br>-<br>2<br>-<br>1<br>-<br>226<br><br><br><br>XII. Commitments and Contingencies<br><br><br>1.<br><br>Important Commitments<br><br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Capital<br>commitments<br>already contracted but<br>not yet provided for<br><br><br><br><br><br><br><br><br><br><br><br>60,669,316.04<br><br><br>35,857,679.55<br><br><br>66,051,435.39<br><br><br><br>There are no unrecognized commitments related to investments in joint ventures.<br><br><br>There are no significant contingencies.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>224<br><br>3<br>-<br>2<br>-<br>1<br>-<br>227<br><br><br><br>XIII.<br>Events after the Balance Sheet Date<br><br><br>None.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>225<br><br>3<br>-<br>2<br>-<br>1<br>-<br>228<br><br><br><br>XIV. Other Important Matters<br><br><br>1.<br><br>Segment Report<br><br><br>Operating Segment<br><br><br>The Group is engaged in the production and sale of semiconductor substrate materials<br>and related products, which calls for a single<br>operating segment based on operational<br>management needs. Therefore, more detailed information on operating segment is not<br>required.<br><br><br>Other Information<br><br><br>Product and Service Information<br><br><br>Revenue from External Transactions<br><br><br><br><br><br>Year 2021<br><br><br>Year 2020<br><br><br>Year<br>2019<br><br><br><br><br><br><br><br><br><br><br><br>Semiconductor substrate<br>materials<br><br><br><br>626,751,808.66<br><br><br>443,460,587.35<br><br><br>357,712,916.09<br><br><br>PBN crucible<br><br><br><br>55,024,732.72<br><br><br>51,862,431.13<br><br><br>47,292,183.07<br><br><br>High<br>-<br>purity metals and<br>compounds<br><br><br><br>122,010,030.57<br><br><br>55,014,206.24<br><br><br>25,319,177.31<br><br><br>Contract processing service<br><br><br><br>762,455.24<br><br><br>-<br><br><br><br>172,753.89<br><br><br>Crucible precision regeneration<br>service<br><br><br><br>18,489,589.13<br><br><br>7,221,129.70<br><br><br>-<br><br><br><br>Others<br><br><br><br>34,306,622.08<br><br><br>25,612,050.45<br><br><br>31,729,726.41<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>857,345,238.40<br><br><br>583,170,404.87<br><br><br>462,226,756.77<br><br><br><br>Geographic Information<br><br><br>Revenue from External Transactions<br><br><br><br><br><br>Year 2021<br><br><br>Year 2020<br><br><br>Year 2019<br><br><br><br><br><br><br><br><br><br><br><br>Mainland China<br><br><br><br>438,739,210.10<br><br><br>247,073,717.20<br><br><br>181,839,782.83<br><br><br>United States<br><br><br><br>116,840,936.04<br><br><br>284,016,612.01<br><br><br>223,377,039.80<br><br><br>Europe<br><br><br><br>114,346,341.66<br><br><br>25,443,631.95<br><br><br>18,300,570.08<br><br><br>Taiwan<br><br><br><br>93,636,174.61<br><br><br>77,762.86<br><br><br>40,952.43<br><br><br>Japan<br><br><br><br>44,784,224.51<br><br><br>12,595,574.50<br><br><br>13,291,715.35<br><br><br>Korea<br><br><br><br>24,666,143.13<br><br><br>13,899,765.56<br><br><br>25,334,293.59<br><br><br>Others<br><br><br><br>24,332,208.35<br><br><br>63,340.79<br><br><br>42,402.69<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>857,345,238.40<br><br><br>583,170,404.87<br><br><br>462,226,756.77<br><br><br><br>Revenue from external transactions is attributed to the region in which the customer is<br>located.<br><br><br>Europe: Mainly Germany and Netherlands.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>226<br><br>3<br>-<br>2<br>-<br>1<br>-<br>229<br><br><br><br>XIV.<br>Other Important Matters<br><br>(Continued)<br><br><br>1<br>..<br><br>Segment Report<br><br>(Continued)<br><br><br>Other Information<br><br>(Continued)<br><br><br>Geographic Information<br><br>(Continued)<br><br><br>Total Non<br>-<br>current Assets<br><br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Mainland China<br><br><br><br>1,022,412,877.13<br><br><br>845,409,555.88<br><br><br>759,896,007.64<br><br><br>United States<br><br><br><br>10,687,826.28<br><br><br>-<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>1,033,100,703.41<br><br><br>845,409,555.88<br><br><br>759,896,<br>007.6<br>4<br><br><br><br>Non<br>-<br>current assets are attributed to the region in which the asset is located, excluding<br>financial assets and deferred income tax assets.<br><br><br>Key Customer Information<br><br><br>The amounts of operating income (revenue generated amounting to 10% or more of the<br>Group’s revenue) from a single customer (including all entities known to be under the<br>control of that customer) are as follows<br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br><br>Revenue<br><br><br>Percentage<br><br><br>Revenue<br><br><br>Percentage<br><br><br><br><br><br>(%)<br><br><br><br><br>(%)<br><br><br><br><br><br><br><br><br><br><br>AXT,Inc.<br><br><br>N/A<br><br><br>N/A<br><br><br>281,965,067.67<br><br><br>48<br><br><br><br><br><br><br>December 31, 2019<br><br><br><br><br><br><br><br>Revenue<br><br><br>Percentage<br><br><br><br><br><br><br><br><br><br>(%)<br><br><br><br><br><br><br><br><br><br><br>AXT,Inc.<br><br><br><br><br><br><br>221,449,835.93<br><br><br>48<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>221,449,835.93<br><br><br>48
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>227<br><br>3<br>-<br>2<br>-<br>1<br>-<br>230<br><br><br><br>XIV. Other Important Matters<br><br>(Continued)<br><br><br>2.<br><br>Leasing<br><br><br>（<br>1<br>）<br><br>As the Lessee<br><br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Interest<br>expense on lease<br>liabilities<br><br><br><br>760,518.13<br><br><br>-<br><br><br>-<br><br><br>Simplified short<br>-<br>term lease<br>expense recognized in<br>current profit and loss<br><br><br><br>847,192.16<br><br><br>-<br><br><br>-<br><br><br>Total cash outflows related to<br>leases<br><br><br><br>4,583,577.41<br><br><br>-<br><br><br>-<br><br><br><br>The assets leased by the Group include<br>premises, buildings, machinery, and equipment<br>used during operations. The lease terms for such assets are normally 1 to 10 years.<br><br><br>Leases committed but not yet commenced<br><br>The expected future annual cash outflows for leases to which the Group is<br>committed<br>but have not yet commenced are as follows:<br><br><br><br><br><br><br><br><br><br><br>Year 2021<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Less than 1 year (including 1 year)<br><br><br><br><br><br><br>91,671.00<br><br><br><br>1 to 2 years (including 2 years)<br><br><br><br><br><br><br>3,805.00<br><br><br><br>2 to 3 years (including 3 years)<br><br><br><br><br><br><br>-<br><br><br><br>Over 3 years<br><br><br><br><br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>95,476.00<br><br><br><br><br>Finance Lease<br><br>(for year 2020 only)<br><br><br>As at<br><br>December 31, 2020, the balance of unrecognized financing costs was<br>CNY2,848,449.80, which was apportioned over the periods of the lease term using the<br>real interest method. According to the lease contract with the lessor, the minimum lease<br>payments for no<br>n<br>-<br>cancellable leases are as follows:<br><br><br><br><br><br><br>Year 2020<br><br><br><br>Year 2019<br><br><br><br><br><br><br><br><br><br><br><br>Less than 1 year (including 1 year)<br><br><br><br>1,860,000.00<br><br><br><br>1,860,000.00<br><br><br>1 to 2 years (including 2 years)<br><br><br><br>1,860,000.00<br><br><br><br>1,860,000.00<br><br><br>2 to 3 years (including 3 years)<br><br><br><br>1,860,000.00<br><br><br><br>1,860,000.00<br><br><br>Over 3 years<br><br><br><br>10,385,000.00<br><br><br><br>12,245,000.00<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>15,965,000.00<br><br><br><br>17,825,000.00
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>228<br><br>3<br>-<br>2<br>-<br>1<br>-<br>231<br><br><br><br>XIV. Other Important Matters<br><br>(Continued)<br><br><br>2.<br><br>Leasing<br><br><br>Finance Lease<br><br>(for year 2020 only)<br>(Continued)<br><br><br>See Note V.12 for<br>fixed assets acquired through finance lease.<br><br><br>Major Operating Leases<br><br>(for year 2020 only)<br><br><br>According to the lease contract with the lessor, the minimum lease payments for non<br>-<br>cancellable leases are as follows:<br><br><br>Major operating leases: According to the leas<br>e contract with the lessor, the minimum<br>lease payments for non<br>-<br>cancellable leases are as follows:<br><br><br><br><br><br><br>Year 2020<br><br><br>Year 2019<br><br><br><br><br><br><br><br><br><br><br>Less than 1 year (including 1 year)<br><br><br>124,290.85<br><br><br>281,854.84<br><br><br>1 to 2 years (including 2 years)<br><br><br>25,828.57<br><br><br>-<br><br><br>2 to 3<br>years (including 3 years)<br><br><br>-<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>150,119.42<br><br><br>281,854.84<br><br><br><br>Other Leasing Information<br><br><br>See Note V.14 for right<br>-<br>of<br>-<br>use assets; see Note V.26 and V.27 for lease liabilities.<br><br><br>3.<br><br>Comparative Data<br><br><br>As described in Note III.33, the<br>accounting treatment and presentation of certain items<br>in the financial statements and the amounts in the financial statements have been<br>modified to conform to the new requirements because of the change in accounting<br>policy. Accordingly, certain prior year<br>s’ data have been adjusted and certain<br>comparative data have been reclassified and restated to conform to the current year’s<br>presentation and accounting treatment requirements.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>229<br><br>3<br>-<br>2<br>-<br>1<br>-<br>232<br><br><br><br>XV. Notes to<br>Main Items<br><br>of the Financial Statements<br><br><br>1.<br><br>Accounts Receivabl<br>e<br><br><br>The credit period for accounts receivable is usually 3 months. Accounts receivable do<br>not bear interest.<br><br><br>The ageing analysis of accounts receivable is as follows:<br><br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Less than 1<br>year<br><br><br><br>216,970,423.29<br><br><br>154,647,875.51<br><br><br>126,021,842.60<br><br><br>1 to 2 years<br><br><br><br>24,244,221.62<br><br><br>8,442,613.46<br><br><br>22,114,875.62<br><br><br>2 to 3 years<br><br><br><br>7,725,563.21<br><br><br>16,986,665.94<br><br><br>2,084,192.70<br><br><br>Over 3 years<br><br><br><br>8,408,084.01<br><br><br>2,455,648.29<br><br><br>269,569.55<br><br><br><br><br><br>257,348,292.13<br><br><br>182,532,803.20<br><br><br>150,490,480.47<br><br><br><br><br><br><br><br><br><br><br><br><br>Less: Provision for bad<br>debts of accounts<br>receivable<br><br><br><br>1,477,052.38<br><br><br>336,264.93<br><br><br>682,294.05<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>255,871,239.75<br><br><br>182,196,538.27<br><br><br>149,808,186.42<br><br><br><br><br><br>December 31, 2021<br><br><br><br><br>Book<br>Balance<br><br><br>Provision for Bad Debts<br><br><br>Book Value<br><br><br><br><br>Amount<br><br><br>Percentag<br>e<br><br><br>Amount<br><br><br>Accrual<br>Proportio<br>n<br><br><br><br><br><br><br><br><br>（<br>%<br>）<br><br><br><br><br>（<br>%<br>）<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Single provision for bad debts<br><br><br>1,363,263.00<br><br><br>0.53<br><br><br>1,363,263.00<br><br><br>100.00<br><br><br>-<br><br><br>Combined provision for bad debts<br>based<br>on credit risk characteristics<br><br><br>255,985,029.13<br><br><br>99.47<br><br><br>113,789.38<br><br><br>0.04<br><br><br>255,871,239.75<br><br><br>Including<br>: Low risk customers<br><br><br>13,628,911.66<br><br><br>5.30<br><br><br>19,037.04<br><br><br>0.14<br><br><br>13,609,874.62<br><br><br>Medium risk customers<br><br><br>66,528,700.52<br><br><br>25.85<br><br><br>94,752.34<br><br><br>0.14<br><br><br>66,433,948.18<br><br><br>Combination of related<br>parties within the scope of<br>consolidation<br><br><br>175,827,416.95<br><br><br>68.32<br><br><br>-<br><br><br>-<br><br><br>175,827,416.95<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>257,348,292.13<br><br><br>100.00<br><br><br>1,477,052.38<br><br><br><br><br>255,871,239.75<br><br><br><br><br><br>December 31, 202<br>0<br><br><br><br><br>Book Balance<br><br><br>Provision for Bad Debts<br><br><br>Book Value<br><br><br><br><br>Amount<br><br><br>Percentag<br>e<br><br><br>Amount<br><br><br>Accrual<br>Proportio<br>n<br><br><br><br><br><br><br><br><br>（<br>%<br>）<br><br><br><br><br>（<br>%<br>）<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Single provision for bad debts<br><br><br>207,213.00<br><br><br>0.12<br><br><br>207,213.00<br><br><br>100.00<br><br><br>-<br><br><br><br>Combined provision for bad debts based<br>on credit risk characteristics<br><br><br>182,325,590.20<br><br><br>99.88<br><br><br>129,051.93<br><br><br>0.07<br><br><br>182,196,538.27<br><br><br>Including<br>: Low risk customers<br><br><br>56,757,289.16<br><br><br>31.09<br><br><br>39,730.10<br><br><br>0.07<br><br><br>56,717,559.06<br><br><br>Medium risk customers<br><br><br>65,363,546.83<br><br><br>35.81<br><br><br>89,321.83<br><br><br>0.14<br><br><br>65,274,225.00<br><br><br>Combination of related<br>parties within the<br>scope of<br>consolidation<br><br><br>60,204,754.21<br><br><br>32.98<br><br><br>-<br><br><br><br>-<br><br><br><br>60,204,754.21<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>182,532,803.20<br><br><br>100.00<br><br><br>336,264.93<br><br><br><br><br>182,196,538.27
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>230<br><br>3<br>-<br>2<br>-<br>1<br>-<br>233<br><br><br><br>XV. Notes to<br>Main Items<br><br>of the Financial Statements (Continued)<br><br><br>1.<br><br>Accounts Receivable (Continued)<br><br><br><br><br>December 31, 2019<br><br><br><br><br>Book Balance<br><br><br>Provision for Bad Debts<br><br><br>Book Value<br><br><br><br><br>Amount<br><br><br>Percentag<br>e<br><br><br>Amount<br><br><br>Accrual<br>Proportio<br>n<br><br><br><br><br><br><br><br><br>（<br>%<br>）<br><br><br><br><br>（<br>%<br>）<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Single<br>provision for bad debts<br><br><br>207,213.00<br><br><br>0.14<br><br><br>207,213.00<br><br><br>100.00<br><br><br>-<br><br><br><br>Combined provision for bad debts based<br>on credit characteristics<br><br><br>150,283,267.47<br><br><br>99.86<br><br><br>475,081.05<br><br><br>0.32<br><br><br>149,808,186.42<br><br><br>Including<br>: Low risk customers<br><br><br>78,316,964.72<br><br><br>52.04<br><br><br>54,821.87<br><br><br>0.07<br><br><br>78,262,142.85<br><br><br>Medium risk customers<br><br><br>43,059,668.93<br><br><br>28.61<br><br><br>420,259.18<br><br><br>0.98<br><br><br>42,639,409.75<br><br><br>Combination of related<br>parties within the scope of<br>consolidation<br><br><br>28,906,633.82<br><br><br>19.21<br><br><br>-<br><br><br><br>-<br><br><br><br>28,906,633.82<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>150,490,480.47<br><br><br>100.00<br><br><br>682,294.05<br><br><br><br><br>149,808,186.42<br><br><br><br>As at<br><br>December 31, 2021, the accounts receivable with single provision for bad debts<br>were as follows<br>：<br><br><br><br><br>Book Value<br><br><br><br>Provision for Bad<br>Debts<br><br><br><br>Expected<br>Credit Loss<br>Ratio<br><br><br><br>Reason for Accrual<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Shanxi Jubian<br><br>Technology Co., Ltd.<br><br><br>1,156,050.00<br><br><br><br>1,156,050.00<br><br><br><br>100%<br><br><br><br>Termination of<br>cooperation<br><br><br>Beijing Times Chip Lights SCI<br>-<br>TECH<br>Co., Ltd.<br><br><br>165,349.00<br><br><br><br>165,349.00<br><br><br><br>100%<br><br><br><br>Termination of<br>cooperation<br><br><br>Shanx<br>i<br>Changzhi High<br>-<br>tech Huashang<br>Optoelectronics Co., Ltd.<br><br><br>40,500.00<br><br><br><br>40,500.00<br><br><br><br>100%<br><br><br><br>Termination of<br>cooperation<br><br><br>Hefei<br><br>IRICO Epilight Technology Co.,<br>Ltd.<br><br><br>1,364.00<br><br><br><br>1,364.00<br><br><br><br>100%<br><br><br><br>Termination of<br>cooperation<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>1,363,263.00<br><br><br><br>1,363,263.00<br><br><br><br><br><br><br><br><br><br>As at<br><br>December 31, 2020, the accounts receivable with single provision for bad debts<br>were as follows<br>：<br><br><br><br><br>Book Balance<br><br><br><br>Provision for Bad<br>Debts<br><br><br><br>Expected Credit<br><br><br><br>Reason for Accrual<br><br><br><br><br><br><br><br><br><br><br>Loss Ratio<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Beijing Times Chip Lights SCI<br>-<br>TECH<br>Co., Ltd.<br><br><br>165,349.00<br><br><br><br>165,349.00<br><br><br><br>100%<br><br><br><br>Termination of<br>cooperation<br><br><br>Shanxi Changzhi High<br>-<br>tech Huashang<br>Optoelectronics Co., Ltd.<br><br><br>40,500.00<br><br><br><br>40,500.00<br><br><br><br>100%<br><br><br><br>Termination of<br>cooperation<br><br><br>Hefei IRICO Epilight Technology Co.,<br>Ltd.<br><br><br>1,364.00<br><br><br><br>1,364.00<br><br><br><br>100%<br><br><br><br>Termination of<br>cooperation<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>207,213.00<br><br><br><br>207,213.00<br><br><br><br><br><br><br><br><br><br>As at<br><br>December 31, 2019, the accounts receivable with single provision for bad debts<br>were as follows<br>：
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>231<br><br>3<br>-<br>2<br>-<br>1<br>-<br>234<br><br><br><br>Book Balance<br><br><br><br>Provision for Bad<br>Debts<br><br><br><br>Expected Credit<br>Loss Ratio<br><br><br><br>Reason for Accru<br><br>a<br>l<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Beijing Times Chip Lights SCI<br>-<br>TECH<br>Co., Ltd.<br><br><br>165,349.00<br><br><br><br>165,349.00<br><br><br><br>100%<br><br><br><br>Termination of<br>cooperation<br><br><br>Shanxi Changzhi High<br>-<br>tech Huashang<br>Optoelectronics Co., Ltd.<br><br><br>40,500.00<br><br><br><br>40,500.00<br><br><br><br>100%<br><br><br><br>Termination of<br>cooperation<br><br><br>Hefei IRICO Epilight Technology Co.,<br>Ltd.<br><br><br>1,364.00<br><br><br><br>1,364.00<br><br><br><br>100%<br><br><br><br>Termination of<br>cooperation<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>207,213.00<br><br><br><br>207,213.00<br><br><br><br><br><br><br><br><br><br><br>XV. Notes to<br>Main Items<br><br>of the Financial Statements (Continued)<br><br><br>1.<br><br>Accounts Receivable (Continued)<br><br><br>The accounts receivable with combined provision for bad debts based on credit risk<br>characteristics are as follows:<br><br><br>Low Risk Customers<br><br><br><br><br>December 31, 2021<br><br><br><br><br><br>Estimated Book<br>Balance in Default<br><br><br><br>Expected Credit<br>Loss Ratio<br><br>（<br>%<br>）<br><br><br><br>Expected Credit Loss<br>throughout the<br>Duration<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Less than 1 year<br><br><br>12,402,811.66<br><br><br><br>0.14<br><br><br><br>17,284.33<br><br><br><br>1 to 2 years<br><br><br>1,226,100.00<br><br><br><br>0.14<br><br><br><br>1,752.71<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>13,628,911.66<br><br><br><br>0.14<br><br><br><br>19,037.04<br><br><br><br><br><br><br>December 31, 2020<br><br><br><br><br><br>Estimated Book<br>Balance in Default<br><br><br><br>Expected Credit<br>Loss Ratio<br><br>（<br>%<br>）<br><br><br><br>Expected Credit Loss<br>throughout the<br>Duration<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Less than 1 year<br><br><br>56,757,289.16<br><br><br><br>0.07<br><br><br><br>39,730.10<br><br><br><br><br><br><br>December 31, 2019<br><br><br><br><br><br>Estimated Book<br>Balance in Default<br><br><br><br>Expected Credit<br>Loss Ratio<br><br>（<br>%<br>）<br><br><br><br>Expected Credit Loss<br>throughout the<br>Duration<br><br><br><br><br><br><br><br><br><br><br><br><br>Less than 1 year<br><br><br>74,689,430.84<br><br><br><br>0.07<br><br><br><br>52,282.60<br><br><br>1 to 2 years<br><br><br>3,627,533.88<br><br><br><br>0.07<br><br><br><br>2,539.27<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>78,316,964.72<br><br><br><br>0.07<br><br><br><br>54,821.87
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>232<br><br>3<br>-<br>2<br>-<br>1<br>-<br>235<br><br><br><br>XV. Notes to<br>Main Items<br><br>of the Financial Statements (Continued)<br><br><br>1.<br><br>Accounts Receivable (Continued)<br><br><br>The accounts receivable with combined provision for bad debts based on credit risk<br>characteristics are as follows: (Continued)<br><br><br>Medium Risk Customers<br><br><br><br><br>December 31, 2021<br><br><br><br><br><br>Estimated Book<br>Balance in Default<br><br><br><br>Expected Credit<br>Loss Ratio<br><br>（<br>%<br>）<br><br><br><br>Expected Credit Loss<br>throughout the<br>Duration<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Less than 1 year<br><br><br>66,379,843.97<br><br><br><br>0.03<br><br><br><br>20,124.73<br><br><br><br>1 to 2 years<br><br><br>78,500.00<br><br><br><br>11.80<br><br><br><br>9,262.80<br><br><br><br>2 to 3 years<br><br><br>8,000.00<br><br><br><br>37.60<br><br><br><br>3,008.26<br><br><br><br>Over 3 years<br><br><br>62,356.55<br><br><br><br>100.00<br><br><br><br>62,356.55<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>66,528,700.52<br><br><br><br>0.14<br><br><br><br>94,752.34<br><br><br><br><br><br><br>December 31, 2020<br><br><br><br><br><br>Estimated Book<br>Balance in Default<br><br><br><br>Expected Credit<br>Loss Ratio<br><br>（<br>%<br>）<br><br><br><br>Expected Credit Loss<br>throughout the<br>Duration<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Less than 1 year<br><br><br>65,293,190.28<br><br><br><br>0.04<br><br><br><br>26,117.28<br><br><br><br>1 to 2 years<br><br><br>8,000.00<br><br><br><br>10.60<br><br><br><br>848.00<br><br><br><br>2 to 3 years<br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>Over 3 years<br><br><br>62,356.55<br><br><br><br>100.00<br><br><br><br>62,356.55<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>65,363,546.83<br><br><br><br>0.14<br><br><br><br>89,321.83<br><br><br><br><br><br><br>December 31, 2019<br><br><br><br><br><br>Estimated Book<br>Balance in Default<br><br><br><br>Expected Credit<br>Loss Ratio<br><br>（<br>%<br>）<br><br><br><br>Expected Credit Loss<br>throughout the<br>Duration<br><br><br><br><br><br><br><br><br><br><br><br><br>Less than 1 year<br><br><br>42,684,912.38<br><br><br><br>0.29<br><br><br><br>123,786.25<br><br><br>1 to 2 years<br><br><br>201,400.00<br><br><br><br>61.72<br><br><br><br>124,304.08<br><br><br>2 to 3 years<br><br><br>111,000.00<br><br><br><br>98.93<br><br><br><br>109,812.30<br><br><br>Over 3 years<br><br><br>62,356.55<br><br><br><br>100.00<br><br><br><br>62,356.55<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>43,059,668.93<br><br><br><br>0.98<br><br><br><br>420,259.18
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>233<br><br>3<br>-<br>2<br>-<br>1<br>-<br>236<br><br><br><br>XV. Notes to<br>Main Items<br><br>of the Financial Statements (Continued)<br><br><br>1.<br><br>Accounts Receivable (Continued)<br><br><br>The accounts receivable with combined provision for bad debts based on credit risk<br>characteristics are as follows: (Continued)<br><br><br>Combination of<br>Related Parties within the Scope of Consolidation<br><br><br><br><br>December 31, 2021<br><br><br><br><br><br>Estimated Book<br>Balance in Default<br><br><br><br>Expected Credit<br>Loss Ratio<br><br><br><br>Expected Credit Loss<br>throughout the<br>Duration<br><br><br><br><br><br><br><br><br>（<br>%<br>）<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Less than 1 year<br><br><br>138,187,767.66<br><br><br><br>-<br><br><br><br>-<br><br><br><br>1 to 2 years<br><br><br>21,783,571.62<br><br><br><br>-<br><br><br><br>-<br><br><br><br>2 to 3 years<br><br><br>7,717,563.21<br><br><br><br>-<br><br><br><br>-<br><br><br><br>Over 3 years<br><br><br>8,138,514.46<br><br><br><br>-<br><br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>175,827,416.95<br><br><br><br>-<br><br><br><br>-<br><br><br><br><br><br><br>December 31, 2020<br><br><br><br><br><br>Estimated Book<br>Balance in Default<br><br><br><br>Expected Credit<br>Loss Ratio<br><br><br><br>Expected Credit Loss<br>throughout the<br>Duration<br><br><br><br><br><br><br><br><br>（<br>%<br>）<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Less than 1 year<br><br><br>32,810,282.11<br><br><br><br>-<br><br><br><br>-<br><br><br><br>1 to 2 years<br><br><br>8,434,613.46<br><br><br><br>-<br><br><br><br>-<br><br><br><br>2 to 3 years<br><br><br>16,986,665.94<br><br><br><br>-<br><br><br><br>-<br><br><br><br>Over 3 years<br><br><br>1,973,192.70<br><br><br><br>-<br><br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>60,204,754.21<br><br><br><br>-<br><br><br><br>-<br><br><br><br><br><br><br>December 31, 2019<br><br><br><br><br><br>Estimated Book<br>Balance in Default<br><br><br><br>Expected Credit<br>Loss Ratio<br><br><br><br>Expected Credit Loss<br>throughout the<br>Duration<br><br><br><br><br><br><br><br>（<br>%<br>）<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Less than 1 year<br><br><br>8,647,499.38<br><br><br><br>-<br><br><br><br>-<br><br><br>1 to 2 years<br><br><br>18,285,941.74<br><br><br><br>-<br><br><br><br>-<br><br><br>2 to 3 years<br><br><br>1,973,192.70<br><br><br><br>-<br><br><br><br>-<br><br><br>Over 3 years<br><br><br>-<br><br><br><br><br>-<br><br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>28,906,633.82<br><br><br><br>-<br><br><br><br>-
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>234<br><br>3<br>-<br>2<br>-<br>1<br>-<br>237<br><br><br><br>XV. Notes to<br>Main Items<br><br>of the Financial Statements (Continued)<br><br>1.<br><br>Accounts Receivable (Continued)<br><br><br>The changes in the provision for bad debts of accounts receivable are as follows<br>：<br><br><br><br><br>Opening<br>Balance<br><br><br><br>Current Year<br>Accrual<br><br><br><br>Recovered or<br>Reversed<br>during the Year<br><br><br><br><br>Current Year<br>Write<br>-<br>offs<br><br><br><br>Closing Balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Year 2021<br><br><br>336,264.93<br><br><br><br>1,272,403.65<br><br><br><br>（<br>131,616.20<br><br>）<br><br><br>-<br><br><br><br>1,477,052.38<br><br><br>Year 2020<br><br><br>682,294.05<br><br><br><br>-<br><br><br><br>(346,029.12<br><br>)<br><br><br>-<br><br><br><br>336,264.93<br><br><br>Year 2019<br><br><br>611,466.47<br><br><br><br>70,827.58<br><br><br><br>-<br><br><br><br>-<br><br><br><br>682,294.05<br><br><br><br>As at December 31,2021, the top five customers in terms of ending balance were as<br>follows:<br><br><br><br><br>Book Balance<br><br><br><br>Percentage<br>（<br>%<br>）<br><br><br><br><br><br><br><br><br><br>Baoding Tongmei Xtal Manufacture Co., Ltd.<br><br><br>86,320,163.64<br><br><br><br>33.54<br><br><br>AXT<br>-<br>Tongmei,Inc.<br><br><br>69,464,362.40<br><br><br><br>26.99<br><br><br>Nanchang Kingsoon Co., Ltd.<br><br><br>22,221,681.87<br><br><br><br>8.63<br><br><br>Chaoyang Tongmei Xtal Technology Co., Ltd.<br><br><br>20,042,890.91<br><br><br><br>7.79<br><br><br>China Electronics Technology Group Corporation<br><br><br>13,628,911.66<br><br><br><br>5.30<br><br><br><br><br><br><br><br><br><br><br><br>211,678,010.48<br><br><br><br><br>82.25<br><br><br><br>As at December 31,2020, the top five customers in terms of ending balance were as<br>follows:<br><br><br><br><br>Book Balance<br><br><br><br>Percentage<br>（<br>%<br>）<br><br><br><br><br><br><br><br><br><br>Baoding Tongmei Xtal Manufacture Co., Ltd.<br><br><br>49,086,020.34<br><br><br><br>26.89<br><br><br>AXT,Inc.<br><br><br>43,313,137.50<br><br><br><br>23.73<br><br><br>Nanchang Kingsoon Co., Ltd.<br><br><br>18,412,841.15<br><br><br><br>10.09<br><br><br>China Electronics Technology Group Corporation<br><br><br>13,444,151.66<br><br><br><br>7.37<br><br><br>Chaoyang Tongmei Xtal Technology Co., Ltd.<br><br><br>11,118,733.87<br><br><br><br>6.09<br><br><br><br><br><br><br><br><br><br><br><br>135,374,884.52<br><br><br><br>74.17<br><br><br><br>As at December 31,2019, the top five customers in terms of ending balance were as<br>follows:<br><br><br><br><br>Book Balance<br><br><br><br>Percentage<br>（<br>%<br>）<br><br><br><br><br><br><br><br><br><br>AXT,Inc.<br><br><br>61,037,921.18<br><br><br><br>40.56<br><br><br>Baoding Tongmei Xtal Manufacture Co., Ltd.<br><br><br>19,781,770.75<br><br><br><br>13.14<br><br><br>China<br>Electronics Technology Group Corporation<br><br><br>17,279,043.54<br><br><br><br>11.48<br><br><br>Nanchang Kingsoon Co., Ltd.<br><br><br>16,652,093.32<br><br><br><br>11.07<br><br><br>Epi Solution Technology Co., Ltd.<br><br><br>11,674,530.90<br><br><br><br>7.76<br><br><br><br><br><br><br><br><br><br><br><br>126,425,359.69<br><br><br><br>84.01
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>235<br><br>3<br>-<br>2<br>-<br>1<br>-<br>238<br><br><br>XV. Notes to<br>Main Items<br><br>of the Financial Statements (Continued)<br><br><br>2.<br><br>Other Receivables<br><br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Other receivables<br><br><br><br>87,709,024.03<br><br><br>63,736,743.20<br><br><br>64,573,530.62<br><br><br><br>The ageing analysis of other receivables is as<br>follows:<br><br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Less than 1 year<br><br><br><br>58,078,012.04<br><br><br>13,530,331.21<br><br><br>23,425,936.57<br><br><br>1 to 2 years<br><br><br><br>-<br><br><br>20,538,542.26<br><br><br>37,153,032.10<br><br><br>2 to 3 years<br><br><br><br>1,467,542.26<br><br><br>25,673,307.78<br><br><br>3,776,462.03<br><br><br>Over 3 years<br><br><br><br>28,163,469.73<br><br><br>3,994,561.95<br><br><br>218,099.92<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>87,709,024.03<br><br><br>63,736,743.20<br><br><br>64,573,530.62<br><br><br>Less: Provision for<br>bad debts of other<br>receivables<br><br><br><br>-<br><br><br>-<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>87,709,024.03<br><br><br>63,736,743.20<br><br><br>64,573,530.62<br><br><br><br>By nature, other receivables are classified as follows:<br><br><br><br><br><br>December 31, 2021<br><br><br>December 31, 2020<br><br><br>December 31, 2019<br><br><br><br><br><br><br><br><br><br><br><br>Account current<br>with related<br>parties<br><br><br><br>87,677,925.60<br><br><br>62,188,887.82<br><br><br>63,041,730.70<br><br><br>Security deposit<br><br><br><br>-<br><br><br>1,500,000.00<br><br><br>1,500,000.00<br><br><br>Deposit<br><br><br><br>31,098.43<br><br><br>13,699.92<br><br><br>13,699.92<br><br><br>Reserve<br><br><br><br>-<br><br><br>34,155.46<br><br><br>18,100.00<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>87,709,024.03<br><br><br>63,736,743.20<br><br><br>64,573,530.62
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>236<br><br>3<br>-<br>2<br>-<br>1<br>-<br>239<br><br><br><br>XV. Notes to<br>Main Items<br><br>of the Financial Statements (Continued)<br><br><br>2.<br><br>Other Receivables (Continued)<br><br><br>As at December 31, 2021, December 31, 2020 and December 31, 2019, the management<br>of the Group considered that no provision for impairment of other receivables was<br>necessary.<br><br><br>As at<br><br>December 31, 2021, the top five customers in terms of the amounts of other<br>receivables were as follows:<br><br><br><br><br>Closing Balance<br><br><br><br>As a Percentage<br>of the Total<br>Balance of Other<br>Receivables<br><br>（<br>%<br>）<br><br><br><br><br>Nature<br><br><br><br>Account Age<br><br><br><br><br>Provision<br>for Bad<br>Debts<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Closing<br>Balanc<br>e<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Baoding Tongmei Xtal Manufacture Co.,<br>Ltd.<br><br><br>46,554,525.08<br><br><br><br>53.08<br><br><br><br>Equipment sales<br><br><br><br>Less than 1 year<br><br>2 to 3 years<br><br>Over 3 years<br><br><br><br>-<br><br><br>Chaoyang Jinmei Gallium Co., Ltd.<br><br><br>24,168,936.02<br><br><br><br>27.56<br><br><br><br>Loan<br><br><br><br>Less than 1<br>year<br><br><br><br>-<br><br><br>Chaoyang Tongmei Xtal Technology Co.,<br>Ltd.<br><br><br>16,754,464.50<br><br><br><br>19.10<br><br><br><br>Equipment sales<br><br>Interest<br><br><br><br>Less than 1 year<br><br>2 to 3 years<br><br>Over 3 years<br><br><br><br>-<br><br><br>Nanjing Jinmei Gallium Co., Ltd.<br><br><br>200,000.00<br><br><br><br>0.23<br><br><br><br>Loan<br><br><br><br>Over 3 years<br><br><br><br>-<br><br><br>Beijing<br>Huanyu Jinghui Jingcheng Gas<br>Technology Co., Ltd.<br><br><br>16,598.51<br><br><br><br>0.02<br><br><br><br>Deposit<br><br><br><br>Less than 1 year<br><br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>87,694,524.11<br><br><br><br>99.99<br><br><br><br><br><br><br><br><br><br>-<br><br><br><br>As at<br><br>December 31, 2020, the top five customers in terms of the amounts of other<br>receivables were as follows:<br><br><br><br><br>Closing Balance<br><br><br><br>As a Percentage<br>of the Total<br>Balance of Other<br>Receivables<br><br>（<br>%<br>）<br><br><br><br>Nature<br><br><br><br>Account Age<br><br><br><br>Provision for<br>Bad Debts<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Closing Balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Chaoyang Jinmei Gallium Co., Ltd.<br><br><br>32,171,000.00<br><br><br><br>50.47<br><br><br><br>Equipment sales<br><br><br><br>Less than 1 year<br><br>1 to 2 years<br><br><br><br>-<br><br><br>Baoding Tongmei Xtal Manufacture Co.,<br>Ltd.<br><br><br>28,449,508.66<br><br><br><br>44.64<br><br><br><br>Equipment sales<br><br><br><br>1 to 2 years<br><br>2 to 3<br>years<br><br>Over 3 years<br><br><br><br>-<br><br><br>Chaoyang Kazuo Economic Development<br>Zone Administrative Committee<br><br><br>1,500,000.00<br><br><br><br>2.35<br><br><br><br>Security deposit<br><br><br><br>Over 3 years<br><br><br><br><br>-<br><br><br>Chaoyang Tongmei Xtal Technology Co.,<br>Ltd.<br><br><br>967,803.41<br><br><br><br>1.52<br><br><br><br>Equipment sales<br><br><br><br>1 to 2 years<br><br>2 to 3<br>years<br><br><br><br>-<br><br><br>AXT,<br><br>Inc.<br><br><br>400,575.75<br><br><br><br>0.63<br><br><br><br>Royalty<br><br>Freight<br><br><br><br>Less than 1 year<br><br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>63,488,887.82<br><br><br><br>99.61<br><br><br><br><br><br><br><br><br><br>-
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>237<br><br>3<br>-<br>2<br>-<br>1<br>-<br>240<br><br><br><br>XV. Notes to<br>Main Items<br><br>of the Financial Statements (Continued)<br><br><br>2.<br><br>Other Receivables (Continued)<br><br><br>As at<br><br>December 31, 2019, the top five customers in terms of the amounts of other<br>receivables were as follows:<br><br><br><br><br>Closing Balance<br><br><br><br>As a Percentage<br>of the Total<br>Balance of Other<br>Receivables<br><br>（<br>%<br>）<br><br><br><br>Nature<br><br><br><br>Account Age<br><br><br><br>Provision for<br>Bad Debts<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Closing Balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Chaoyang Jinmei Gallium Co., Ltd.<br><br><br>30,771,000.00<br><br><br><br>47.65<br><br><br><br>Equipment sales<br><br><br><br>Less than 1 year<br><br>1 to 2 years<br><br><br><br>-<br><br><br>Baoding Tongmei Xtal Manufacture Co.,<br>Ltd.<br><br><br>28,449,508.66<br><br><br><br>44.06<br><br><br><br>Equipment sales<br>and interest<br><br><br><br><br>Less<br>than 1 year<br><br>1 to 2 years<br><br>2 to 3 years<br><br><br><br>-<br><br><br>Chaoyang Kazuo Economic Development<br>Zone Administrative Committee<br><br><br>1,500,000.00<br><br><br><br>2.32<br><br><br><br>Security deposit<br><br><br><br>2 to 3 years<br><br><br><br>-<br><br><br>Chaoyang Tongmei Xtal Technology Co.,<br>Ltd.<br><br><br>1,468,527.73<br><br><br><br>2.27<br><br><br><br>Equipment<br>sales<br>and loan<br><br><br><br><br>Less than 1 year<br><br>1 to 2 years<br><br><br><br>-<br><br><br>Beijing Boyu Semiconductor Vessel<br>Craftwork Technology Co., Ltd.<br><br><br>1,454,174.24<br><br><br><br>2.25<br><br><br><br>Fees paid on<br>behalf of<br>customer<br><br><br><br>Less than 1 year<br><br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>63,643,210.63<br><br><br><br>98.55<br><br><br><br><br><br><br><br><br><br>-
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>238<br><br>3<br>-<br>2<br>-<br>1<br>-<br>241<br><br><br><br>XV. Notes to<br>Main Items<br><br>of the Financial Statements (Continued)<br><br><br>3.<br><br>Long<br>-<br>term Equity Investments<br><br><br>Year 2021<br><br><br><br><br>Opening Balance<br><br><br><br><br>Current Year Changes<br><br><br><br>Year<br>-<br>end<br><br>Book Value<br><br><br><br><br><br><br><br>Investment Increase<br><br><br><br>Investment Profit and<br>Loss under the Equity<br>Method<br><br><br><br><br>Disposal<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Subsidiary<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Beijing Boyu<br><br>Semiconductor Vessel<br>Craftwork Technology<br>Co., Ltd.<br><br><br>148,099,134.07<br><br><br><br>632,440.71<br><br><br><br>-<br><br><br><br>-<br><br><br><br>148,731,574.78<br><br><br>Chaoyang Jinmei Gallium<br>Co., Ltd.<br><br><br>32,093,366.91<br><br><br><br>-<br><br><br><br>-<br><br><br><br>-<br><br><br><br>32,093,366.91<br><br><br>Baoding Tongmei Xtal<br>Manufacture Co., Ltd.<br><br><br>127,721,304.69<br><br><br><br>35,849.89<br><br><br><br>-<br><br><br><br>-<br><br><br><br>127,757,154.58<br><br><br>Chaoyang Tongmei Xtal<br>Technology Co., Ltd.<br><br><br>154,184,667.08<br><br><br><br>85,115.40<br><br><br><br>-<br><br><br><br>-<br><br><br><br>154,269,782.48<br><br><br>Nanjing Jinmei Gallium<br>Co., Ltd.<br><br><br>95,722,231.58<br><br><br><br>107,345.93<br><br><br><br>-<br><br><br><br>-<br><br><br><br>95,829,577.51<br><br><br>Chaoyang Xinmei High<br>-<br>purity Semiconductor<br>Materials Co., Ltd.<br><br><br>-<br><br><br><br>20,700,000.00<br><br><br><br>-<br><br><br><br>-<br><br><br><br>20,700,000.00<br><br><br>AXT<br>-<br>TongmeiInc.<br><br><br>-<br><br><br><br>1,505,895.18<br><br><br><br>-<br><br><br><br>-<br><br><br><br>1,505,895.18<br><br><br>Associates<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Donghai Dongfang Hi<br>-<br>purity Electronic Materials<br>Co., Ltd.<br><br><br>12,315,064.40<br><br><br><br>-<br><br><br><br>761,307.20<br><br><br><br>(13,076,371.60<br><br>)<br><br><br>-<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>570,135,768.73<br><br><br><br>23,066,647.11<br><br><br><br>761,307.20<br><br><br><br>(13,076,371.60<br><br>)<br><br><br>580,887,351.44<br><br><br><br>Year 2020<br><br><br><br><br>Opening Balance<br><br><br><br>Current Year Changes<br><br><br><br>Year<br>-<br>end<br><br>Book Value<br><br><br><br><br><br><br>Investment Increase<br><br><br><br>Investment Profit and<br>Loss under the Equity<br>Method<br><br><br><br>Cash<br>Dividends<br>Declared<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Subsidiary<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Beijing Boyu<br>Semiconductor Vessel<br>Craftwork Technology<br>Co., Ltd.<br><br><br>-<br><br><br><br>148,099,134.07<br><br><br><br>-<br><br><br><br>-<br><br><br><br>148,099,134.07<br><br><br>Chaoyang Jinmei Gallium<br>Co., Ltd.<br><br><br>-<br><br><br><br>32,093,366.91<br><br><br><br>-<br><br><br><br>-<br><br><br><br>32,093,366.91<br><br><br>Baoding Tongmei Xtal<br>Manufacture Co., Ltd.<br><br><br>-<br><br><br><br>127,721,304.69<br><br><br><br>-<br><br><br><br>-<br><br><br><br>127,721,304.69<br><br><br>Chaoyang Tongmei Xtal<br>Technology Co., Ltd.<br><br><br>-<br><br><br><br>154,184,667.08<br><br><br><br>-<br><br><br><br>-<br><br><br><br>154,184,667.08<br><br><br>Nanjing Jinmei Gallium<br>Co., Ltd.<br><br><br>-<br><br><br><br>95,722,231.58<br><br><br><br>-<br><br><br><br>-<br><br><br><br>95,722,231.58<br><br><br>Associates<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Donghai Dongfang Hi<br>-<br>purity Electronic Materials<br>Co., Ltd.<br><br><br>10,984,620.44<br><br><br><br>-<br><br><br><br>1,330,443.96<br><br><br><br>-<br><br><br><br>12,315,064.40<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>10,984,620.44<br><br><br><br>557,820,704.33<br><br><br><br>1,330,443.96<br><br><br><br>-<br><br><br><br>570,135,768.73
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>239<br><br>3<br>-<br>2<br>-<br>1<br>-<br>242<br><br><br><br>XV. Notes to<br>Main Items<br><br>of the Financial Statements (Continued)<br><br><br>3.<br><br>Long<br>-<br>term Equity Investments (Continued)<br><br><br>Year 2019<br><br><br><br><br>Opening Balance<br><br><br><br>Current Year Changes<br><br><br><br>Year<br>-<br>end<br><br>Book<br>Value<br><br><br><br><br><br><br>Investment Increase<br><br><br><br>Investment Profit and<br>Loss under the Equity<br>Method<br><br><br><br>Cash Dividends<br>Declared<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Associates<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Donghai Dongfang Hi<br>-<br>purity Electronic<br>Materials Co., Ltd.<br><br><br><br>10,777,209.66<br><br><br><br>-<br><br><br><br>207,410.78<br><br><br><br>-<br><br><br><br>10,984,620.44<br><br><br><br>As at December 31, 2021, December 31, 2020 and December 31, 2019, the management<br>of the Group considered that no provision for impairment of long<br>-<br>term equity<br>investments was<br><br>necessary.<br><br><br>4.<br><br>Capital Surplus<br><br><br>Year 2021<br><br><br><br><br>Opening Balance<br><br><br>Current Year<br>Increase<br><br><br>Current Year<br>Decrease<br><br><br>Closing Balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br>Capital Pr<br>emium<br><br><br>41,250,894.86<br><br><br>262,405,926.83<br><br><br>(302,235,124.86<br><br>)<br><br>1,421,696.83<br><br><br><br>Including<br>: Business combination under<br>common control<br><br><br>17,329,345.44<br><br><br>-<br><br><br>(17,329,345.44<br><br>)<br><br>-<br><br><br><br>Acquisition of minority interests<br><br><br>23,921,549.42<br><br><br>-<br><br><br>(23,921,549.42<br><br>)<br><br>-<br><br><br><br>Capital increase<br><br><br>-<br><br><br>260,984,230.00<br><br><br>(260,984,230.00<br><br>)<br><br>-<br><br><br><br>Business combination under<br>common control (Note 1)<br><br><br>-<br><br><br>1,421,696.83<br><br><br>-<br><br><br>1,421,696.83<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Share Capital Premium<br><br><br><br><br><br><br><br><br><br><br><br>Including<br>: Shareholding system reform<br><br><br>-<br><br><br>460,052,662.19<br><br><br>-<br><br><br>460,052,662.19<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Other Capital Surplus<br><br><br>16,543,690.92<br><br><br>6,192,098.50<br><br><br>(16,618,777.85<br><br>)<br><br>6,117,011.57<br><br><br><br>Including<br>: Share<br>-<br>based payment<br><br><br>6,693,141.50<br><br><br>5,456,040.01<br><br><br>(6,731,288.15<br><br>)<br><br>5,417,893.36<br><br><br><br>Others<br><br><br>9,<br>850,549.42<br><br><br>736,058.49<br><br><br>(9,887,489.70<br><br>)<br><br>699,118.21<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>57,794,585.78<br><br><br>728,650,687.52<br><br><br>(318,853,902.71<br><br>)<br><br>467,591,370.59<br><br><br><br><br>Note 1: The increase in capital surplus of CNY1,421,696.83 resulted from the<br>acquisition of AXT<br>-<br>Tongmei, Inc., a U.S. subsidiary of AXT, Inc., by Beijing Tongmei<br>Xtal Technology Co., Ltd. for a consideration of USD1 on June 30, 2021.
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>240<br><br>3<br>-<br>2<br>-<br>1<br>-<br>243<br><br><br><br>XV. Notes to<br>Main I<br>tems<br><br>of the Financial Statements (Continued)<br><br><br>4.<br><br>Capital Surplus (Continued)<br><br><br>Year 2020<br><br><br><br><br>Opening Balance<br><br><br>Current Year<br>Increase<br><br><br>Current Year<br>Decrease<br><br><br>Closing Balance<br><br><br><br><br><br><br><br><br><br><br><br><br>Capital Premium<br><br><br>-<br><br><br>41,250,894.86<br><br><br>-<br><br><br>41,250,894.86<br><br><br>Including<br>:<br>Business<br>combination under<br><br>common control (Note 1)<br><br><br>-<br><br><br>17,329,345.44<br><br><br>-<br><br><br>17,329,345.44<br><br><br>Acquisition of<br>minority interests<br><br><br>-<br><br><br>23,921,549.42<br><br><br>-<br><br><br>23,921,549.42<br><br><br><br><br><br><br><br><br><br><br><br><br>Other Capital Surplus<br><br><br>10,029,686.16<br><br><br>6,514,004.76<br><br><br>-<br><br><br>16,543,690.92<br><br><br>Including<br>: Share<br>-<br>based<br>payment<br><br><br>4,014,164.66<br><br><br>2,678,976.84<br><br><br>-<br><br><br>6,693,141.50<br><br><br>Others<br><br><br>6,015,521.50<br><br><br>3,835,027.92<br><br><br>-<br><br><br>9,850,549.42<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>10,029,686.16<br><br><br>47,764,899.62<br><br><br>-<br><br><br>57,794,585.78<br><br><br><br>Note 1: The increase in capital surplus of CNY17,329,345.44 resulted from the<br>acquisition of Baoding Tongmei Xtal Manufacture Co., Ltd., Chaoyang Tongmei Xtal<br>Technology Co., Ltd., Nanjing Jinmei Gallium Co., Ltd., Chaoyang Jinmei Gallium<br>Co., Ltd., and<br>Be<br>ijing Boyu Semiconductor Vessel Craftwork Technology Co., Ltd.<br>,<br>which were subsidiaries controlled by AXT, Inc., by the former Beijing Tongmei Xtal<br>Technology Limited through the issuance of equity instruments on December 25, 2020.<br><br><br>Year 2019<br><br><br><br><br>Opening Ba<br>lance<br><br><br>Current Year<br>Increase<br><br><br>Current Year<br>Decrease<br><br><br>Closing Balance<br><br><br><br><br><br><br><br><br><br><br><br><br><br>Other Capi<br>tal Surplus<br><br><br>5,291,025.86<br><br><br>4,738,660.30<br><br><br>-<br><br><br>10,029,686.16<br><br><br><br>Including<br>: Share<br>-<br>based<br>payment<br><br><br>1,710,887.67<br><br><br>2,303,276.99<br><br><br>-<br><br><br>4,014,164.66<br><br><br><br>Others<br><br><br>3,<br>580,138.19<br><br><br>2,435,383.31<br><br><br>-<br><br><br>6,015,521.50<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>5,291,025.86<br><br><br>4,738,660.30<br><br><br>-<br><br><br>10,029,686.16
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>241<br><br>3<br>-<br>2<br>-<br>1<br>-<br>244<br><br><br><br>XV. Notes to<br>Main Items<br><br>of the Financial Statements (Continued)<br><br><br><br>5.<br><br>Operating Income and Costs<br><br><br><br><br>Year 2021<br><br><br><br>Year 2020<br><br><br><br><br>Revenue<br><br><br><br>Cost<br><br><br><br>Revenue<br><br><br><br>Cost<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Main Business<br><br><br>350,988,962.16<br><br><br><br>313,140,084.08<br><br><br><br>401,600,024.50<br><br><br><br>331,610,432.72<br><br><br>Other Businesses<br><br><br>13,607,735.00<br><br><br><br>13,510,746.61<br><br><br><br>6,406,724.01<br><br><br><br>6,328,604.80<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>364,596,697.16<br><br><br><br>326,650,830.69<br><br><br><br>408,006,748.51<br><br><br><br>337,939,037.52<br><br><br><br><br><br><br><br><br>Year 2019<br><br><br><br><br><br><br><br><br><br><br>Revenue<br><br><br><br>Cost<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>Main Business<br><br><br><br><br><br><br><br><br>356,495,623.45<br><br><br><br>312,002,108.09<br><br><br>Other Businesses<br><br><br><br><br><br><br><br><br>789,054.34<br><br><br><br>634,519.04<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>357,284,677.79<br><br><br><br>312,636,627.13<br><br><br><br>The operating income is presented as follows:<br><br><br><br><br><br>Year 2021<br><br><br>Year 2020<br><br><br>Year 2019<br><br><br><br><br><br><br><br><br><br><br><br>Revenue generated from<br>contracts with customers<br><br><br><br><br>364,431,322.16<br><br><br>407,849,248.51<br><br><br>357,127,177.79<br><br><br>Lease income<br><br><br><br>165,375.00<br><br><br>157,500.00<br><br><br>157,500.00<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>364,596,697.16<br><br><br>408,006,748.51<br><br><br>357,284,677.79
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>242<br><br>3<br>-<br>2<br>-<br>1<br>-<br>245<br><br><br><br>XV. Notes to<br>Main Items<br><br>of the Financial Statements (Continued)<br><br><br>5.<br><br>Operating Income and Costs (Continued)<br><br><br>The breakdown of operating income arising from<br>contracts with customers is as<br>follows:<br><br><br>Segment<br><br><br><br><br>Year 2021<br><br><br>Year 2020<br><br><br>Year 2019<br><br><br><br><br><br><br><br><br><br><br><br><br>Main Business Areas<br><br><br><br><br><br><br><br><br><br><br>United States<br><br><br><br><br>135,955,509.30<br><br><br>217,840,178.13<br><br><br>213,520,511.63<br><br><br>Mainland China<br><br><br><br><br>228,641,187.86<br><br><br>190,166,570.38<br><br><br>143,764,166.16<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>364,596,697.16<br><br><br>408,006,748.51<br><br><br>357,284,677.79<br><br><br><br><br><br><br><br><br><br><br><br><br>Main Product Types<br><br><br><br><br><br><br><br><br><br><br>Semiconductor<br>substrate material<br><br><br><br><br>350,988,962.16<br><br><br>401,600,024.50<br><br><br>356,495,623.45<br><br><br>Others<br><br><br><br><br>13,442,360.00<br><br><br>6,249,224.01<br><br><br>631,554.34<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>364,431,322.16<br><br><br>407,849,248.51<br><br><br>357,127,177.79<br><br><br><br><br><br><br><br><br><br><br><br><br>Main Service Types<br><br><br><br><br><br><br><br><br><br><br>Others<br><br><br><br><br>165,375.00<br><br><br>157,500.00<br><br><br>157,500.00<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>165,375.00<br><br><br>157,500.00<br><br><br>157,500.00<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>364,596,697.16<br><br><br>408,006,748.51<br><br><br>357,284,677.79<br><br><br><br><br><br><br><br><br><br><br><br><br>Revenue Recognition<br>Time<br><br><br><br><br><br><br><br><br><br><br>Revenue recognition at a<br>point in time<br><br><br><br><br><br><br><br><br><br><br>Semiconductor<br>substrate material<br><br><br><br><br>350,988,962.16<br><br><br>401,600,024.50<br><br><br>356,495,623.45<br><br><br>Others<br><br><br><br><br>13,442,360.00<br><br><br>6,249,224.01<br><br><br>631,554.34<br><br><br><br><br><br><br><br><br><br><br><br><br>Revenue recognition<br>over a period<br><br><br><br><br><br><br><br><br><br><br>Lease income<br><br><br><br><br>165,375.00<br><br><br>157,500.00<br><br><br>157,500.00<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>364,596,697.16<br><br><br>408,006,748.51<br><br><br>357,284,677.79
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>243<br><br>3<br>-<br>2<br>-<br>1<br>-<br>246<br><br><br><br>XV. Notes to<br>Main Items<br><br>of the Financial Statements (Continued)<br><br><br>5.<br><br>Operating Income and Costs (Continued)<br><br><br>Revenue recognized in the current year and included in the opening book value of<br>contract liabilities is as follows:<br><br><br><br>Year 2021<br><br><br>Year 2020<br><br><br><br><br><br><br><br>Sales of Goods<br><br>183,874.50<br><br><br>69,600.00<br><br><br><br>The Group has no performance obligations that have been fulfilled (or partially<br>fulfilled) in prior periods for which revenue is recognized in the current period in 2021<br>and 2020.<br><br><br>Information relating to the Group’s performance obligations is as follows:<br><br><br>Sales of Industrial Products<br><br>Performance obligations are fulfilled upon delivery of industrial products to customers.<br>For long<br>-<br>term customers, the contract price is usually due<br>30 to 90 days after delivery<br>of the industrial products. For new customers, the contract price is usually prepaid prior<br>to delivery of the industrial products.<br><br><br>Contract Processing Service<br><br>Performance obligations are fulfilled upon delivery of the finished<br><br>products to<br>customers. The contract price is usually due within 60 days after delivery of the<br>industrial products.<br><br><br>6.<br><br>Investment Gains<br><br><br><br><br><br>Year 2021<br><br><br>Year 2020<br><br><br>Year 2019<br><br><br><br><br><br><br><br><br><br><br><br>Income from long<br>-<br>term equity<br>investments accounted for by the<br>equity<br>method<br><br><br><br>761,307.20<br><br><br>1,330,443.96<br><br><br>207,410.78<br><br><br>Proceeds from disposal of associates<br><br><br><br>923,628.40<br><br><br>-<br><br><br>-<br><br><br>Loss on the fair value of notes<br><br><br><br>(320,171.29<br><br>)<br><br>(309,271.44<br><br>)<br><br>(<br>173,234.35<br><br>)<br><br>Investment losses suffered from foreign<br>exchange forward<br>contracts<br><br><br><br>212,892.60<br><br><br>(291,250.26<br><br>)<br><br>(<br>720,372.50<br><br>)<br><br><br><br><br><br><br><br><br><br><br><br><br><br>1,577,656.91<br><br><br>729,922.26<br><br><br>(686,196.07<br><br>)
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Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>244<br><br>3<br>-<br>2<br>-<br>1<br>-<br>247<br><br><br><br>1.<br><br>Non<br>-<br>recurring Profit and Loss Statement<br><br><br><br><br><br><br><br><br><br>Amounts in 2021<br><br><br><br><br><br><br><br><br><br><br>Profit and loss on the disposal of non<br>-<br>current assets, including the write<br>-<br>off part<br>of the provision for impairment of<br>assets<br><br><br><br><br><br>(665,468.97<br><br>)<br><br>Government subsidies included in current profit and loss (except those closely<br>related to normal business operations, consistent with national policies and<br>regulations, and continuously enjoyed according to certain<br>standard quota or<br>fixed amount)<br><br><br><br><br><br>5,976,587.69<br><br><br>Charges to non<br>-<br>financial enterprises for capital utilization included in current<br>profit and loss<br><br><br><br><br><br>46,086.91<br><br><br>Net profit and loss for the period from the beginning of the period to the date of<br>consolidation of a subsidiary resulting from a business combination under<br>common control<br><br><br><br><br><br>(453,616.13<br><br>)<br><br>Gains or losses from changes in the fair value of financial assets held for trading,<br>derivative financial assets, financial liabilities held for<br>trading, and derivative<br>financial liabilities, and investment gains from the disposal of financial assets<br>held for trading, derivative financial assets, financial liabilities held for trading,<br>derivative financial liabilities, and other debt investments, o<br>ther than those<br>effectively hedged in connection with the Company’s normal business<br>operations<br><br><br><br><br><br>308,151.43<br><br><br>Reversal of provision for impairment of receivables separately tested for<br>impairment<br><br><br><br><br><br>58,090.00<br><br><br>Non<br>-<br>operating income and expenses<br>other than those mentioned above<br><br><br><br><br><br>315,233.18<br><br><br>Subtotal<br><br><br><br><br><br>5,585,064.11<br><br><br>Income tax effects<br><br><br><br><br><br>919,225.65<br><br><br><br><br><br><br><br><br><br><br><br><br><br>Total<br><br><br><br><br><br><br><br><br><br>4,665,838.46<br><br><br><br><br><br><br><br><br>Amounts in 2020<br><br><br><br><br><br><br><br><br><br>Profit and loss on the disposal of non<br>-<br>current assets,<br>including the write<br>-<br>off part<br>of the provision for impairment of assets<br><br><br><br><br><br>(801,806.84<br><br>)<br><br>Government subsidies included in current profits and losses (except those closely<br>related to normal business operations, consistent with national policies and<br>regulations, and continuously enjoyed according to certain standard quota or<br>fixed amount)<br><br><br><br><br><br>333,155.51<br><br><br>Charges to non<br>-<br>financial enterprises for capital utilization included in current<br>profit and loss<br><br><br><br><br><br>287,340.13<br><br><br>Net profit and loss for the<br>period from the beginning of the period to the date of<br>consolidation of a subsidiary resulting from a business combination under<br>common control<br><br><br><br><br><br>39,746,004.68<br><br><br>Gains or losses from changes in the fair value of financial assets held for trading,<br>derivative financial assets, financial liabilities held for trading, and derivative<br>financial liabilities, and investment gains from the disposal of financial assets<br>held for trading, derivative financial assets, financial liabilities held for trading,<br>der<br>ivative financial liabilities, and other debt investments, other than those<br>effectively hedged in connection with the Company’s normal business<br>operations<br><br><br><br><br><br>(291,250.26<br><br>)<br><br>Non<br>-<br>operating income and expenses other than those mentioned above<br><br><br><br><br><br>(122,593.84<br><br>)<br><br>Subtotal<br><br><br><br><br><br>39,150,849.38<br><br><br>Income tax effects<br><br><br><br><br><br>(89,273.29<br><br>)<br><br><br><br><br><br><br><br><br>Total<br><br><br><br><br><br>39,240,122.67
---
Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>245<br><br>3<br>-<br>2<br>-<br>1<br>-<br>248<br><br><br><br>1.<br><br>Non<br>-<br>recurring Profit and Loss Statement (Continued)<br><br><br><br><br><br><br><br><br><br>Amounts in 2019<br><br><br><br><br><br><br><br><br><br>Profit and loss on the disposal of non<br>-<br>current assets, including the write<br>-<br>off part<br>of the provision for<br>impairment of assets<br><br><br><br><br><br>196,066.25<br><br><br>Government subsidies included in current profits and losses (except those closely<br>related to normal business operations, consistent with national policies and<br>regulations, and continuously enjoyed according to<br>certain standard quota or<br>fixed amount)<br><br><br><br><br><br>2,180,907.00<br><br><br>Charges to non<br>-<br>financial enterprises for capital utilization included in current<br>profit and loss<br><br><br><br><br><br>92,937.69<br><br><br>Net profit and loss for the period from the beginning of the period to the date of<br>consolidation of a subsidiary resulting from a business combination under<br>common control<br><br><br><br><br><br>(19,845,196.54<br><br>)<br><br>Gains or losses from changes in the fair value of financial assets held for trading,<br>derivative financial assets, financial<br>liabilities held for trading, and derivative<br>financial liabilities, and investment gains from the disposal of financial assets<br>held for trading, derivative financial assets, financial liabilities held for trading,<br>derivative financial liabilities, and othe<br>r debt investments, other than those<br>effectively hedged in connection with the Company's normal business operations<br><br><br><br><br><br>（<br>720,372.50<br><br>）<br><br>Non<br>-<br>operating income and expenses other than those mentioned above<br><br><br><br><br><br>24,097.21<br><br><br>Subtotal<br><br><br><br><br><br>(18,071,560.89<br><br>)<br><br>Income tax effects<br><br><br><br><br><br>266,045.35<br><br><br><br><br><br><br><br><br><br>Total<br><br><br><br><br><br>(18,337,606.24<br><br>)
---
Beijing Tongmei Xtal Technology Co., Ltd.<br><br>Notes to Financial Statements (Continued)<br><br>2019, 2020 and 2021<br><br>In<br>RMB<br><br>Yuan<br><br>246<br><br>3<br>-<br>2<br>-<br>1<br>-<br>249<br><br><br><br>2.<br><br>Return on Equity and Earnings per Share<br><br><br>Year 2021<br><br><br><br><br>Weighted Average Return on<br>Equity<br>（<br>%<br>）<br><br><br><br>Earnings per Share<br><br><br><br><br><br><br><br>Basic<br><br><br><br>Diluted<br><br><br><br><br><br><br><br><br><br><br><br><br>Net profit attributable to ordinary<br>shareholders of the Company<br><br><br>7.88<br><br><br><br>0.11<br><br><br><br>0.11<br><br><br>Net profit attributable to ordinary<br>shareholders of the Company after<br>deducting non<br>-<br>recurring profit and loss<br><br><br>7.56<br><br><br><br>0.10<br><br><br><br>0.10<br><br><br><br>Year 2020<br><br><br><br><br>Weighted Average Return on<br>Equity<br>（<br>%<br>）<br><br><br><br>Earnings per<br>Share<br><br><br><br><br><br><br><br>Basic<br><br><br><br>Diluted<br><br><br><br><br><br><br><br><br><br><br><br><br>Net profit attributable to ordinary<br>shareholders of the Company<br><br><br>5.04<br><br><br><br>N/A<br><br><br><br>N/A<br><br><br>Net profit attributable to ordinary<br>shareholders of the Company after<br>deducting non<br>-<br>recurring profit and loss<br><br><br>0.94<br><br><br><br>N/A<br><br><br><br>N/A<br><br><br><br>Year 2019<br><br><br><br><br>Weighted Average Return on<br>Equity<br>（<br>%<br>）<br><br><br><br>Earnings per Share<br><br><br><br><br><br><br><br>Basic<br><br><br><br>Diluted<br><br><br><br><br><br><br><br><br><br><br><br><br>Net profit attributable to ordinary<br>shareholders of the Company<br><br><br>（<br>3.68<br><br>）<br><br><br>N/A<br><br><br><br>N/A<br><br><br>Net profit attributable to ordinary<br>shareholders of the<br>Company after<br>deducting non<br>-<br>recurring profit and loss<br><br><br>（<br>1.66<br><br>）<br><br><br>N/A<br><br><br><br>N/A<br><br><br><br>The Group has no dilutive potential ordinary shares.
---

Exhibit 99.5

Legal Opinion

from King & Wood Mallesons

on Initial Public Offering and Listing on the STAR Market of Beijing Tongmei Xtal Technology Co., Ltd.

To Beijing Tongmei Xtal Technology Co., Ltd.,

King & Wood Mallesons (hereinafter referred to as “KWM” or “we”) has been appointed by Beijing Tongmei Xtal Technology Co., Ltd. (hereinafter referred to as the “Issuer”) to act as the special legal counsel to the Issuer in connection with its Initial Public Offering and Listing on the STAR Market (hereinafter referred to as this “Offering”).

This Legal Opinion was issued in respect of this Offering based on the generally accepted business standards, code of ethics and the care and diligence principle in accordance with the prevailing laws, administrative regulations, rules and normative documents of the People’s Republic of China (hereinafter referred to as “China”, for the purpose of this Legal Opinion, excluding Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan), including the Securities Law of the People’s Republic of China (hereinafter referred to as the “Securities Law”), the Company Law of the People’s Republic of China (hereinafter referred to as the “Company Law”), the Measures for the Administration of the Registration of Initial Public Offering of Shares on the STAR Market (for Trial Implementation) (hereinafter referred to as the “IPO Registration Measures”), the Measures for the Administration of the Provision of Securities Legal Services by Law Firms (hereinafter referred to as the “Measures for the Administration of the Provision of Securities Legal Services”), the Rules for the Securities Legal Practices of Law Firms (for Trial Implementation) (hereinafter referred to as the “Rules for the Securities Legal Practices”) and the Compilation 3-3-1-1

Rules No. 12 for Information Disclosure by Companies Offering Securities to the Public - Legal Opinion and Lawyer’s Report on Public Offering of Securities (hereinafter referred to as “Compilation Rules No. 12”), and the relevant provisions of the China Securities Regulatory Commission (hereinafter referred to as “CSRC”).

Based on the above-mentioned laws, administrative regulations, rules and normative documents and relevant provisions of CSRC and the facts that have occurred or existed before the date of this Legal Opinion, having strictly performed their statutory duties, followed the principles of diligence and good faith and fully investigated and verified the matters related to this Offering of the Issuer, we and the responsible lawyers guarantee that the facts identified in this Legal Opinion are true, accurate and complete, and the concluding opinions on this Offering are legal and accurate and do not contain false records, misleading statements or material omissions, and assume relevant legal liabilities.

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Introduction

In order to issue this Legal Opinion, we have prepared and implemented an audit plan in accordance with the relevant provisions of the Measures for the Administration of the Provision of Securities Legal Services and the Rules for the Securities Legal Practices, collected evidential materials in person, and reviewed the documents required to be reviewed in accordance with the regulations and other documents that we consider necessary to be reviewed. On the basis of the Issuer’s assurance that it has provided the original written materials, copies, photocopies, confirmation letters or certificates required by us for the issuance of this Legal Opinion, that the documents and materials provided to us are true, accurate, complete and valid, and there are no concealed records, misrepresentations or material omissions, and that where the documents and materials are copies or photocopies, they are consistent and in conformity with the originals, we have independently, objectively and impartially followed the principles of prudence and materiality, and reasonably and adequately checked and confirmed the relevant facts through various methods such as interviews, written examinations, field investigations, inquiries, external confirmations or reviews.

In this Legal Opinion and the Lawyer's Report on Initial Public Offering and Listing on the STAR Market of Beijing Tongmei Xtal Technology Co., Ltd. (hereinafter referred to as the “Lawyer's Report”), we only express the opinion on the legal issues related to this Offering of the Issuer, and do not express any opinion on non-legal issues such as those related to accounting, auditing and asset valuation. We express our opinion only in accordance with the prevailing laws and regulations in China and do not express any opinion in accordance with any laws outside China. We do not express any opinion on non-legal issues such as accounting, auditing and asset valuation and on legal issues outside China, and has fulfilled the necessary duty of care when quoting certain data and conclusions from relevant accounting reports, audit reports, asset valuation reports and legal opinions outside China in this Legal Opinion and the Lawyer's Report. However, such quotations are not deemed to be any express or implied guarantee of the truth and accuracy of such data and conclusions. We are not appropriately qualified to verify and evaluate such data.

This Legal Opinion and the Lawyer's Report are only for the purpose of this Offering of the Issuer and shall not be used for any other purposes. We agree to submit this Legal Opinion and the Lawyer's Report with other materials as legal documents necessary for the Issuer to

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apply for this Offering and to assume relevant legal liabilities. We agree that the Issuer may quote the relevant contents of this Legal Opinion or the Lawyer's Report at its own discretion or in accordance with the review requirements of the CSRC in the Prospectus (for filing purpose) prepared by the Issuer for this Offering, provided that the Issuer shall not cause any legal ambiguity or misinterpretation as a result of such quotation. We have the right to re-examine and confirm the contents of the above-mentioned relevant documents.

For the purpose of this Legal Opinion, unless the context otherwise indicates, the following terms or abbreviations in the left column shall correspond to the meanings or full names in the right column:


Beijing Tongmei/ the Company/Issuer	means	Beijing Tongmei Xtal Technology Co., Ltd.
Tongmei Limited	means	Beijing Tongmei Xtal Technology Limited, the predecessor of the Issuer
Beijing Tongmei Technology R&D Center	means	Technology R&D Center of Beijing Tongmei Xtal Technology Co., Ltd., a branch of Beijing Tongmei
Baoding Tongmei	means	Baoding Tongmei Xtal Manufacture Co., Ltd., a wholly owned subsidiary of the Issuer
Chaoyang Tongmei	means	Chaoyang Tongmei Xtal Technology Co., Ltd., a wholly owned subsidiary of the Issuer
Nanjing Jinmei	means	Nanjing Jinmei Gallium Co., Ltd., a wholly owned subsidiary of the Issuer
Chaoyang Jinmei	means	Chaoyang Jinmei Gallium Co., Ltd., a wholly owned subsidiary of the Issuer
Beijing Boyu	means	Beijing Boyu Semiconductor Vessel Technology Co., Ltd., a wholly owned subsidiary of the Issuer

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Beijing Boyu Tongzhou Branch	means	Beijing Boyu Semiconductor Vessel Technology Co., Ltd. Tongzhou Branch, a branch of Beijing Boyu
Tianjin Boyu	means	Boyu (Tianjin) Semiconductor Materials Co., Ltd., a wholly owned subsidiary of Beijing Boyu
Chaoyang Boyu	means	Boyu (Chaoyang) Semiconductor Materials Co., Ltd., a wholly owned subsidiary of Beijing Boyu
Chaoyang Xinmei	means	Chaoyang Xinmei High-purity Semiconductor Materials Co., Ltd., a subsidiary controlled by the Issuer
Chaoyang Limei	means	Chaoyang Limei Semiconductor Technology Co., Ltd., in which AXT holds 100% equity interests
Maanshan Gallium	means	Jinmei Gallium (Maanshan) Co., Ltd., in which AXT holds 90% equity interests and Beijing Boyu holds 10% equity interests
Dongfang Hi-purity	means	Donghai Dongfang Hi-purity Electronic Materials Co., Ltd.
AXT-Tongmei	means	AXT-Tongmei Inc., a wholly owned subsidiary of the Issuer, a company incorporated in the U.S.A.
AXT	means	AXT, Inc., the controlling shareholder of the Issuer, a company listed on the NASDAQ under the symbol “AXTI”
Jinchao Business Management	means	Nanjing Jinchao Business Management Partnership (LP)
Beijing Bomeilian	means	Beijing Bomeilian Special Ceramics Co., Ltd.
Zhongke Hengye	means	Zhongke Hengye (Tianjin) Technology Development Partnership (LP)

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Beijing Dingmei	means	Beijing Dingmei Technology Development Center (LP)
Beijing Liaoyan	means	Beijing Liaoyan Technology Development Center (LP)
Boyu Yingchuang	means	Boyu Yingchuang (Tianjing) Technology Development Partnership (LP)
Boyu Hengye	means	Boyu Hengye (Tianjing) Technology Development Partnership (LP)
Haitong New Driving Force	means	Liaoning Haitong New Driving Force Equity Investment Fund Partnership (LP)
Haitong New Energy	means	Liaoning Haitong New Energy Low-carbon Industry Equity Investment Fund Co., Ltd.
Haitong Innovation	means	Haitong Innovation Securities Investment Co., Ltd.
Anxin Industrial Investment	means	Fujian Anxin Industrial Investment Fund Partnership (LP)
Jinggangshan Meicheng	means	Jinggangshan Meicheng Equity Investment Partnership (LP)
Huadeng II	means	Hefei Huadeng II Integrated Circuit Industrial Investment Fund Partnership (LP)
Qingdao Xinxing	means	Qingdao Xinxing I Equity Investment Fund Partnership (LP)
Qiji Hangzhou	means	Qiji (Hangzhou) Investment Counseling Co., Ltd.
Gongqingcheng Yihua	means	Gongqingcheng Yihua Tongze Investment Partnership (LP)
Shangrong Baoying	means	Shangrong Baoying (Ningbo) Investment Center (LP)

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Xiamen Heyong	means	Xiamen Heyong Zhicheng Equity Investment Partnership (LP)
Hangzhou Jingyue	means	Hangzhou Jingyue Technology Development Partnership (LP)
Lumentime Semiconductor	means	Lumentime Semiconductor Equipment (Shanghai) Co., Ltd.
Liaoning Zhuomei	means	Liaoning Zhuomei Hi-tech Equity Investment Fund Partnership (LP)
Sponsor/Lead Underwriter/Haitong Securities	means	Haitong Securities Co., Ltd.
Ernst & Young	means	Ernst & Young Huaming Certified Public Accountants (Special General Partnership)
KWM/We	means	King & Wood Mallesons
American Legal Opinion on AXT	means	Legal opinion on AXT issued by Burks Johansson LLP, an American law firm
Legal Opinion on AXT-Tongmei	means	Legal opinion on AXT-Tongmei issued by Burks Johansson LLP, an American law firm
A-shares	means	Domestically listed RMB-denominated ordinary shares
CSRC	means	China Securities Regulatory Commission
SSE	means	Shanghai Stock Exchange
SEC	means	United States Securities and Exchange Commission
NASDAQ	means	The NASDAQ Stock Market

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This Offering	means	Initial public offering and STAR market listing of RMB-denominated ordinary shares of the Issuer
This Legal Opinion	means	Legal Opinion from King & Wood Mallesons on Initial Public Offering and Listing on the STAR Market of Beijing Tongmei Xtal Technology Co., Ltd.
Lawyer's Report	means	Lawyer's Report of King & Wood Mallesons on Initial Public Offering and Listing on the STAR Market of Beijing Tongmei Xtal Technology Co., Ltd.
Prospectus (for filing purpose)	means	Prospectus of Beijing Tongmei Xtal Technology Co., Ltd. in respect of Initial Public Offering and Listing on the STAR Market (for filing purpose)
Audit Report	means	the Audit Report (report No.: Ernst & Young Hua Ming (2021) Shen No. 61641535_B02) issued by Ernst & Young on December 9, 2021
Internal Control Report	means	the Internal Control Audit Report (report No.: Ernst & Young Hua Ming (2021) Zhuan No. 61641535_B04) issued by Ernst & Young on December 9, 2021
Company Law	means	the Company Law of the People’s Republic of China (as amended for the 4^th^ time according to the Decision on Revising the Company Law of the People’s Republic of China at the 6^th^ session of the Standing Committee of the 13^th^ National People’s Congress on October 26, 2018)
Securities Law	means	the Securities Law of the People’s Republic of China (as amended for the 2^nd^ time at the 15^th^ session of the Standing Committee of the 13^th^ National People’s Congress on December 28, 2019)

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IPO Registration Measures	means	the Measures for the Administration of the Registration of Initial Public Offering of Shares on the STAR Market (for Trial Implementation) (CSRC Order No. 174)
STAR Market Listing Rules	means	Rules Governing the Listing of Stocks on the Science and Technology Innovation Board of Shanghai Stock Exchange (SSE [2020] No. 101)
Compilation Rules No. 12	means	the Compilation Rules No. 12 for Information Disclosure by Companies Offering Securities to the Public - Legal Opinion and Lawyer’s Report on Public Offering of Securities (CSRC [2001] No. 37)
Measures for the Administration of the Provision of Securities Legal Services	means	the Measures for the Administration of the Provision of Securities Legal Services by Law Firms (CSRC Order No. 41)
Rules for the Securities Legal Practices	means	the Rules for the Securities Legal Practices of Law Firms (for Trial Implementation) (CSRC and Ministry of Justice Announcement [2010] No. 33)
Measures for Private Funds	means	Interim Measures for the Supervision and Administration of Private Investment Funds (CSRC Order No. 105)
Measures for the Registration and Recordation of Private Funds (for Trial Implementation)	means	the Measures for the Registration of Private Investment Fund Managers and the Recordation of Funds (for Trial Implementation) (Asset Management Association of China [2014] No. 1)
AOA	means	the Articles of Association of the Issuer then in force, as required by the context
Draft AOA	means	the Articles of Association of Beijing Tongmei Xtal Technology Co., Ltd. (draft) prepared by the Issuer for the

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		purpose of this Offering (as approved by the Issuer at the 2^nd^ Extraordinary General Meeting of 2021 held on December 15, 2021 and will take effect from the date of completion of Initial Public Offering and Listing on the STAR Market of the Issuer)
Reporting period	means	the years ended December 31, 2018, December 31, 2019, December 31, 2020 and the six months ended June 30, 2021
China	means	The People’s Republic of China (for the purpose of this Legal Opinion, excluding the Hong Kong Special Administrative Region, the Macau Special Administrative Region and Taiwan)
RMB	means	RMB Yuan, unless otherwise stated

Note: In case of any difference between the total and the sum of each subdivision or between the number of decimal places and the original data for the data quoted in this Legal Opinion, it may be due to different exact digits or rounding.

The following Legal Opinion was issued based on the generally accepted business standards, code of ethics and the care and diligence principle:

I.	Approval and authorization of this Offering

(I) Approval of this Offering

According to the notice, proposal and resolution of the board of directors and the general meeting of shareholders provided by the Issuer and verified by our lawyers, the Issuer convened the 7^th^ session of the first board of directors on November 29, 2021, and deliberated and approved the Proposal on Initial Public Offering and Listing on the STAR Market of the Company, the Proposal on Use of Proceeds from the Initial Public Offering of Shares of the Company, the Proposal on Distribution Policy for Rolled-over Profits Before the Initial Public Offering of Shares of the Company, the Proposal on Requesting the General Meeting of Shareholders to Authorize the Board of Directors to Deal with Matters in Relation to Initial Public Offering and Listing on the STAR Market of the Company and other proposals related

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to this Offering of the Issuer, and proposed to convene the 2^nd^ extraordinary general meeting of shareholders in 2021 to request the general meeting of shareholders to deliberate such proposals.

On December 15, 2021, the Issuer convened the 2^nd^ extraordinary general meeting of shareholders in 2021, and deliberated and approved the Proposal on the Company’s Application for Initial Public Offering and Listing on the STAR Market, the Proposal on Use of Proceeds from the Initial Public Offering of Shares of the Company, the Proposal on Distribution Policy for Rolled-over Profits Before the Initial Public Offering of Shares of the Company, the Proposal on Requesting the General Meeting of Shareholders to Authorize the Board of Directors to Deal with Matters in Relation to Initial Public Offering and Listing on the STAR Market of the Company and other proposals related to this Offering of the Issuer.

After verification, we are of the opinion that the above-mentioned board of directors and general meeting of shareholders of the Issuer have made resolutions to approve this Offering in accordance with the relevant laws and regulations including the Company Law and the procedures as stipulated in the AOA; the resolutions made by the above-mentioned board of directors and general meeting of shareholders of the Issuer to approve this Offering are legal and valid.

(II) Authorization of this Offering

Pursuant to the Proposal on Requesting the General Meeting of Shareholders to Authorize the Board of Directors to Deal with Matters in Relation to Initial Public Offering and Listing on the STAR Market of the Company, which was deliberated and approved at the 2^nd^ extraordinary general meeting of shareholders of the Issuer in 2021, the general meeting of shareholders agreed to authorize the board of directors to deal with matters in relation to this Offering.

After verification by our lawyers, in accordance with the Company Law and other laws and regulations and the relevant provisions of the AOA, we are of the opinion that the board of directors has been authorized by the 2^nd^ extraordinary general meeting of shareholders of the Issuer in 2021 to deal with matters in relation to this Offering, and the scope and procedures of such authorization are legal and valid.

(III) Overseas regulatory requirements involved in this Offering

AXT, the controlling shareholder of the Issuer, is a company incorporated in the State of California, United States in December 1986 and listed on NASDAQ in the United States in May 1998. The listing of the Issuer, a spin-off from AXT, on the STAR Market is in compliance with the relevant overseas regulatory requirements, details of which are as follows:

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The board of directors of AXT made a resolution on December 1, 2021 (US Local Time), agreeing to the Issuer’s submission of the application to the SSE for this Offering and authorizing MORRIS SHEN-SHIH YOUNG^1^, the Chief Executive Officer, among others, to act on behalf of AXT in connection with this Offering.

According to the Legal Opinion issued by Burks Johansson LLP, an American law firm, “The shareholders of AXT have no right to vote on or consent to the approval and authorization of this Offering”; “this Offering is not subject to any applicable authorization, consent, approval or any other action by any government authority or regulatory agency in the State of Delaware, NASDAQ or SEC that has jurisdiction over AXT, nor is it subject to the notification, filing or any other procedures”; the information disclosure made by AXT concerning this Offering is “in compliance with the information disclosure requirements of Delaware General Corporation Law, NASDAQ, and SEC concerning the application of listing submitted by Beijing Tongmei and the listing on the STAR Market”.

In summary, we are of the view that the Issuer has obtained internal approval and authorization for this Offering and is subject to the listing review by the SSE and the registration procedures by the CSRC in accordance with the law; upon completion of this Offering, the Issuer’s shares will be listed and traded on the SSE subject to the review and approval of the SSE.

II.	Qualifications of the entity in this Offering

(I) The Issuer is a joint stock limited company established in accordance with the Company Law and other laws and regulations as well as departmental rules. It now holds the Business License (unified social credit code: 91110000700004889C) issued by Beijing Tongzhou District Administration for Market Regulation. The registered capital is RMB 885,426,756; the domicile is located at 4 East 2nd Street, Industrial Development Zone, Tongzhou District, Beijing; the legal representative is MORRIS SHEN-SHIH YOUNG; the type is joint stock limited company (foreign-invested, unlisted); the date of establishment is September 25, 1998; the business term is from September 25, 1998 to permanent; the business scope includes production of single crystal polished wafers and related semiconductor materials and ultra-pure elements; R&D of single crystal polished wafers and related semiconductor materials and ultra-pure elements; sales of self-produced products; engaging in

^1^ He is the Chairman of the Issuer and a U.S. citizen with passport number of 54616 ****, and his Chinese and English names (莫里斯·杨 and杨盛世 in Chinese and MORRIS SHEN-SHIH YOUNG, MORRIS YOUNG, MORRIS S. YOUNG in English) are collectively referred to in this Legal Opinion as MORRIS SHEN-SHIH YOUNG.

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wholesale of semiconductor materials and products, commission agency (except auction), import and export (commodities that are not subject to state trade management; for commodities that are subject to quota and license management, an application shall be made in accordance with relevant regulations of the State), and providing consulting, technology and after-sales service. (The market entity independently chooses its businesses and carries out business activities in accordance with the law; for businesses that are subject to approval in accordance with the law, it will carry out business activities in accordance with the approved content after being approved by relevant authorities; it is not allowed to engage in business activities that are prohibited and restricted by the State and industrial policies of this city.)

(II) The Issuer is a joint stock limited company based on the overall change of book net asset value of Tongmei Limited which was incorporated on September 25, 1998. As of the date hereof, it has been operating as a going concern for more than three years.

(III) The Issuer has established the general meeting of shareholders, the board of directors and the board of supervisors in accordance with the Company Law and other laws and regulations. The board of directors has Strategy Committee, Audit Committee, Nomination Committee, and Remuneration and Appraisal Committee. The Issuer has also established the working regulations for independent directors, board secretary and special committees under the board of directors, engaged executives such as general manager, deputy general manager, financial director and board secretary, and set up several functional departments. The Issuer has a sound and well-functioning organizational structure, with relevant bodies and personnel performing their duties in accordance with the law.

(IV) According to the Issuer's statements and our lawyers’ searches in the National Enterprise Credit Information Publicity System (website: http://www.gsxt.gov.cn/index.html, the same below) and reference of the Issuer's industrial and commercial registration data, as of the date hereof, the Issuer's business activities are validly existing, and there are no circumstances where the Issuer shall be terminated as stipulated under the Company Law and other laws, regulations, normative documents and the AOA. As stated in "VIII. Business of the Issuer" herein, the business scope and mode of operation of the Issuer comply with the provisions of relevant laws, regulations and normative documents, and the Issuer exists in accordance with the law, and there are no legal obstacles affecting its ability to continue as a going concern.

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To sum up, we believe that, the Issuer is a joint-stock company that is duly established and has been operating as a going concern for more than three years. It has a sound and good organizational structure with relevant bodies and personnel performing their duties in accordance with the law. It is duly and validly existing and there are no circumstances where the Issuer shall be terminated as stipulated under laws, regulations, normative documents and the AOA. The Issuer has the qualifications of the entity in this Offering.

III.	Substantive conditions for this Offering

(I)This Offering meets the relevant conditions stipulated in the Securities Law

1.According to the organization chart, corporate governance regulations and meeting documents provided by the Issuer, the statements and undertakings of the Issuer, and through the interviews with the relevant responsible persons of the Company by our lawyers, the Issuer has, in accordance with the Company Law and other relevant laws, regulations, normative documents and the AOA of the Company, established the general meeting of shareholders, the board of directors and the board of supervisors, and set up special committees such as Strategy Committee, Audit Committee, Nomination Committee, and Remuneration and Appraisal Committee under the board of directors; elected directors (including independent directors) and supervisors (including employee supervisors); engaged the general manager, deputy general manager, financial director, board secretary and other executives, and set up relevant functional departments; formulated corporate governance regulations such as Rules of Procedure for General Meeting of Shareholders, Rules of Procedure for the Board of Directors, Rules of Procedure for the Board of Supervisors, Working Rules for General Manager, Working Regulations for Independent Directors, Working Regulations for Board Secretary, Measures for the Administration of Related Party Transactions, Management Regulations on External Guarantees, Management Regulations on External Investment and Internal Audit Regulations. The Issuer has standardized corporate governance structure, perfect internal management regulations, and sound and well-functioning organizational structure, with relevant bodies and personnel performing their duties in accordance with the law, which is in line with the provisions of Item (1) of Paragraph 1 of Article 12 of the Securities Law.

2.According to the Audit Report, the Issuer's statements and undertakings, and through the interviews with the Issuer’s financial director by our lawyers, the Issuer's net profits attributable to shareholders of the parent company for the years ended December 31, 2018, December 31, 2019, December 31, 2020 and for the six months ended June 30, 2021 (based on the lower before and after deducting non-recurring gains and losses) are RMB24.7575 million, RMB-33.389 million, RMB8.9818 million and RMB38.984 million respectively. The Issuer

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has the ability to continue as a going concern, which is in line with the provisions of Item (2) of Paragraph 1 of Article 12 of the Securities Law.

3.Ernst & Young has issued a standard unqualified Audit Report for this Offering, which is in line with the provisions of Item (3) of Paragraph 1 of Article 12 of the Securities Law.

4.According to the Issuer's Enterprise Credit Information Publicity Report and American Legal Opinion on AXT, the statements and undertakings of the Issuer and its controlling shareholder, and through our lawyers’ searches in the National Enterprise Credit Information Publicity System, China Judgments Online (website: http://wenshu.court.gov.cn/, the same below), China Enforcement Information Disclosure (website: http://zxgk.court.gov.cn/, the same below), People's Court Announcement (website: http://rmfygg.court.gov.cn/, the same below) and 12309 (website: https://www.12309.gov.cn/, the same below), as well as our questionnaire survey and interview with the general manager of the Issuer, the Issuer and its controlling shareholder committed no criminal offences including corruption, bribery, embezzlement of property, misappropriation of property or destruction of the order of the socialist market economy in the last three years, which is in line with the provisions of Item (4) of Paragraph 1 of Article 12 of the Securities Law.

(II)This Offering meets the relevant conditions stipulated in the Company Law

1.According to the Prospectus (for filing purpose) and the resolution of the second extraordinary general meeting of shareholders of the Issuer in 2021, the shares issued by the Issuer this time are RMB-denominated ordinary shares (A shares) listed in China with the par value of RMB 1.00 per share. The offering conditions and prices of each share are the same, and each share has the same rights, which is in line with the provisions of Article 126 of the Company Law.

2.According to the Proposal on Requesting the General Meeting of Shareholders to Authorize the Board of Directors to Deal with Matters in Relation to Initial Public Offering and Listing on the STAR Market of the Company, which was reviewed and approved by the Issuer at the second extraordinary general meeting of shareholders in 2021, the general meeting of shareholders of the Issuer has made resolutions on the type, quantity, pricing, date, object and other matters of this Offering, which is in line with the provisions of Article 133 of the Company Law.

(III)This Offering meets the relevant conditions stipulated in the IPO Registration Measures

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1.	The Issuer is a joint stock limited company that is duly established and has been operating as a going concern for more than three years

As stated in "II. Qualifications of the entity in this Offering” herein, the Issuer is a joint stock limited company that is duly established and has been operating as a going concern for more than three years; The Issuer has a sound and well-functioning organizational structure, with relevant bodies and personnel performing their duties in accordance with the law, which is in line with the provisions of Article 10 of the IPO Registration Measures.

2.According to the Audit Report and the Issuer's statements, the Issuer's basic accounting work standards, the preparation and disclosure of financial statements comply with the provisions of the Accounting Standards for Business Enterprises and relevant information disclosure rules, and fairly reflect the Issuer's financial condition, operating results and cash flow in all material respects. Ernst & Young has issued a standard unqualified Audit Report. According to the Internal Control Report and the Issuer's statements, the Issuer's internal control system is sound and has been effectively implemented, which can reasonably guarantee the Company's operational efficiency, legal compliance and reliability of financial reports. Ernst & Young has issued the Internal Control Report with unqualified conclusions, which is in line with the provisions of Article 11 of the IPO Registration Measures.

3.	The Issuer has complete business and has the ability to continue as a going concern independently and directly face the market

(1)As stated in "V. Independence of the Issuer" herein, the Issuer's assets are complete and its business, personnel, finance and bodies are independent; as stated in "IX. Related Party Transactions and Horizontal Competition" herein, there is no horizontal competition that has a material adverse impact on the Issuer or related party transaction that seriously affects independence or is obviously unfair between the Issuer and the controlling shareholder and other enterprises controlled by the Issuer, which is in line with the provisions of Item (1) of Article 12 of the IPO Registration Measures.

(2)As stated in "VI. Promoters and shareholders", "VIII. Business of the Issuer" and "XV. Directors, supervisors and senior executives of the Issuer and changes thereof” herein, the Issuer's main business, control, management team and core technicians are stable, and there have been no material adverse changes in the main business, directors, executives and core technicians in the last two years; as of the date hereof, the ownership of the Issuer's shares held by the controlling shareholder and the shareholders controlled by the controlling shareholder is clear, and there is no material ownership dispute that may lead to the possible change of control, which is in line with the provisions of Item (2) of Article 12 of the IPO Registration Measures.

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(3)As stated in "X. Main Property of the Issuer", "XI. Material creditor's rights and debts of the Issuer" and "XXI. Litigation, arbitration or administrative punishment" herein, the Issuer has no material ownership dispute over main assets, core technologies, trademarks, etc., material risk of debt, material guarantee, litigation, arbitration and other contingencies, or material change in the business environment that has or will occur and has a material adverse impact on its ability to continue as a going concern, which is in line with the provisions of Item (3) of Article 12 of the IPO Registration Measures.

4.	The Issuer's production and operation comply with the provisions of laws and administrative regulations and the national industrial policies

(1)As stated in "VIII. Business of the Issuer" herein, the business scope of the Issuer is "Production of single crystal polished wafers and related semiconductor materials and ultra-pure elements; R&D of single crystal polished wafers and related semiconductor materials and ultra-pure elements; sales of self-produced products; engaging in wholesale of semiconductor materials and products, commission agency (except auction), import and export (commodities that are not subject to state trade management; for commodities that are subject to quota and license management, an application shall be made in accordance with relevant regulations of the State), and providing consulting, technology and after-sales service. (The market entity independently chooses its businesses and carries out business activities in accordance with the law; for businesses that are subject to approval in accordance with the law, it will carry out business activities in accordance with the approved content after being approved by relevant authorities; it is not allowed to engage in business activities that are prohibited and restricted by the State and industrial policies of this city.)”. According to the Prospectus (for filing purpose) and the Issuer's statements, the Issuer's main business is the research, development, production, and sales of InP substrates, GaAs substrates, germanium substrates, PBN materials, and other high-purity materials, which belongs to the scope of encouraged industries stipulated in the Catalogue for the Guidance of Industrial Structure Adjustment (2019 Edition), and does not belong to the industries given special management measures for foreign investment access by the Special Management Measures for Foreign Investment Access (Negative List) (2020 Edition). Therefore, the Issuer's main business is in line with the relevant national industrial policies for foreign-invested enterprises. Through our lawyers’ reference of the Catalogue for the Guidance of Industrial Structure Adjustment (2019 Edition) promulgated by the National Development and Reform Commission, the Issuer's existing operations do not involve the restricted and eliminated industries listed in the aforesaid catalogue. According to the certification documents issued by relevant government departments such as industry and commerce, taxation and environmental protection and the Issuer's statements, and as verified by our lawyers, the Issuer's production and operation comply with the provisions of laws and

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administrative regulations, the national industrial policies, which is in line with the provisions of Paragraph 1 of Article 13 of the IPO Registration Measures.

(2)According to the Issuer's Enterprise Credit Information Publicity Report and U.S. Legal Opinion, the statements and undertakings of the Issuer and its controlling shareholder, and through our lawyers’ searches in the websites of the National Enterprise Credit Information Publicity System, China Judgments Online, China Enforcement Information Disclosure, People's Court Announcement, 12309, China Securities Regulatory Commission (website: http://www.csrc.gov.cn/, the same below), China Securities Regulatory Commission Securities and Futures Market Dishonesty Record Inquiry Platform (website: http://neris.csrc.gov.cn/shixinchaxun/, the same below), Credit China (website: https://www.creditchina.gov.cn/, the same below), the Issuer and its controlling shareholder committed no criminal offences including corruption, bribery, embezzlement of property, misappropriation of property or destruction of the order of the socialist market economy, and have no fraudulent issuance, material information disclosure violations or other material illegal acts involving national security, public safety, ecological safety, production safety, public health and safety, etc. in the last three years, which is in line with the provisions of the Paragraph 2 of Article 13 of the IPO Registration Measures.

(3)According to the certificate of no criminal record issued by the relevant public security organ, the questionnaire signed by the directors, supervisors and executives of the Issuer, and the notice on the results of handling the external service business of credit archives issued by Beijing Securities Regulatory Bureau of China Securities Regulatory Commission, and our lawyers’ searches in the websites of China Securities Regulatory Commission, China Judgments Online, China Enforcement Information Disclosure, China Securities Regulatory Commission Securities and Futures Market Dishonesty Record Inquiry Platform and Credit China, the directors, supervisors and executives of the Issuer have not been subject to administrative punishment by the China Securities Regulatory Commission in the last three years, or been placed on file for investigation by judicial organs for suspected crimes or been placed on file for investigation by China Securities Regulatory Commission for suspected violations of laws and regulations and there is no clear conclusion, etc., which is in line with the provisions of Paragraph 3 of Article 13 of the IPO Registration Measures.

(IV)This Offering meets the relevant conditions stipulated in the STAR Market Listing Rules

1.As stated in "III. Substantive conditions for this Offering" herein, this Offering complies with the relevant provisions of the Securities Law, the Company Law and the IPO Registration Measures, which is in line with the provisions of Item (1) of Paragraph 1 of Article 2.1.1 of the STAR Market Listing Rules.

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2.According to the Business License, the AOA and the Prospectus (for filing purpose) of the Issuer that are currently in force, the total share capital of the Issuer before this Offering is RMB 885,426,756, and the Issuer intends to issue no more than 98.39 million shares to the public, the total share capital after this Offering is not less than RMB30 million, which is in line with the provisions of Item (2) of Paragraph 1 of Article 2.1.1 of the STAR Market Listing Rules.

3.According to the Prospectus (for filing purpose) and the resolution of the second extraordinary general meeting of shareholders of the Issuer in 2021, after the completion of this Offering, the number of shares publicly issued by the Issuer will reach more than 10% of the total number of shares issued by the Issuer after this Offering, which is in line with the provisions of Item (3) of Paragraph 1 of Article 2.1.1 of the STAR Market Listing Rules.

4.According to the Analysis Report of Haitong Securities Co., Ltd. on the Estimated Market Value of Beijing Tongmei Xtal Technology Co., Ltd. issued by Haitong Securities and combined with the Issuer's external equity financing during the reporting period, the Issuer's estimated market value of this Offering is not less than RMB3 billion; according to the Audit Report, the Issuer's operating income in the latest year is not less than RMB300 million, which meets the market value and financial index standards stipulated in Item (4) of Paragraph 1 of Article 2.1.2 of and the provisions of Item (4) of Paragraph 1 of Article 2.1.1 of the STAR Market Listing Rules.

To sum up, we believe that this Offering of the Issuer complies with the relevant provisions of the Securities Law, the Company Law, the IPO Registration Measures and the STAR Market Listing Rules for Initial Public Offering and Listing on the STAR Market, and the Issuer has the substantive conditions for this Offering.

IV.	Incorporation of the Issuer

The Issuer is a joint stock limited company established through overall change of Tongmei Limited in accordance with the law, with a total of 22 promoters who are all shareholders before the overall change of Tongmei Limited. As verified by our lawyers, the procedures, qualifications, conditions and methods established by the Issuer comply with the provisions of relevant laws, regulations and normative documents.

During the incorporation of the Issuer, all shareholders of Tongmei Limited signed the Promoter Agreement on the overall change of Tongmei Limited into the Issuer. As reviewed by our lawyers, the contents of the Promoter Agreement comply with the Company Law and other

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relevant laws, regulations and normative documents, which will not lead to potential disputes over the incorporation of the Issuer.

As verified by our lawyers, the Issuer has fulfilled the necessary procedures such as asset appraisal and capital verification during the incorporation process, which is in line with the provisions of the Company Law and other relevant laws, regulations and normative documents.

On April 16, 2021, the Issuer held the founding meeting and the first general meeting of shareholders, and reviewed and passed the proposal related to the overall change and incorporation of the Issuer. As verified by our lawyers, the procedures for convening the founding meeting of the Issuer and the matters discussed comply with the provisions of the Company Law and other relevant laws, regulations and normative documents.

V.	Independence of the Issuer

(I) According to the Audit Report, the list of assets provided by the Issuer and the Issuer's statements, and as verified by our lawyers, as of the date hereof, the assets of the Issuer are independent and complete.

(II) According to the Audit Report, the list of assets provided by the Issuer and the Issuer's statements, and as verified by our lawyers, as of the date hereof, the business of the Issuer is independent.

(III) According to the statements of the Issuer and the list of financial personnel provided by it, and the confirmation letter issued by the financial personnel and executives of the Issuer, and as verified by our lawyers by consulting the Labor Contract signed by the Issuer, its executives and financial personnel, and interviewing the heads of relevant human resources and financial departments, as of the date hereof, the personnel of the Issuer are independent.

(IV) According to the Audit Report, Internal Control Report and the Issuer's statements, and as verified by our lawyers through interviews with the Issuer's financial director, as of the date hereof, the Issuer is financially independent.

(V) According to the Internal Control Report, AOA and other internal governance regulations of the Company and the Issuer's statements, and as verified by our lawyers, as of the date hereof, the Issuer is organizationally independent.

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(VI) According to the Internal Control Report, the Issuer's statements, the on-the-spot investigation results of the Issuer's main business premises and the interviews with the relevant business responsible personnel of the Issuer by our lawyers, and as verified by our lawyers, as of the date hereof, the Issuer has a complete business system and the ability to operate independently and directly face the market.

VI.	Promoters and shareholders

(I) Eligibility of promoters

Upon verification by our lawyers, the Issuer has an aggregate of 22 promoters, being AXT, Jinchao Business Management, Beijing Bomeilian, Zhongke Hengye, Beijing Dingmei, Beijing Liaoyan, Boyu Yingchuang, Boyu Hengye, Haitong New Driving Force, Haitong New Energy, Haitong Innovation, Anxin Industrial Investment, Jinggangshan Meicheng, Huadeng II, Qingdao Xinxing, Qiji Hangzhou, Gongqingcheng Yihua, Shangrong Baoying, Xiamen Heyong, Hangzhou Jingyue, Lumentime Semiconductor and Liaoning Zhuomei, all of whom are legally existing companies or partnerships having the eligibility for acting as promoters and making capital contributions as stipulated in the Company Law and other relevant laws, regulations and normative documents.

(II) Number, domiciles and contribution ratios of promoters

Upon verification by the our lawyers, the number, domiciles and contribution ratios of the Issuer’s promoters comply with the provisions of the Company Law and other relevant laws, regulations and normative documents.

(III) Existing shareholders of the Issuer

As of the date hereof, the Issuer has 22 shareholders in total, with the equity structure as follows:


S/N	Name of shareholder	Number of shares	Shareholding ratio (%)
1	AXT	757,153,721	85.5129
2	Jinchao Business Management	3,119,500	0.3523

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S/N	Name of shareholder	Number of shares	Shareholding ratio (%)
3	Beijing Bomeilian	46,074,057	5.2036
4	Zhongke Hengye	865,289	0.0977
5	Beijing Dingmei	1,729,136	0.1953
6	Beijing Liaoyan	697,721	0.0788
7	Boyu Yingchuang	219,934	0.0248
8	Boyu Hengye	637,050	0.0719
9	Haitong New Driving Force	11,840,774	1.3373
10	Haitong New Energy	4,604,745	0.5201
11	Haitong Innovation	13,156,415	1.4859
12	Anxin Industrial Investment	8,942,416	1.0100
13	Jinggangshan Meicheng	5,961,172	0.6733
14	Huadeng II	6,955,797	0.7856
15	Qingdao Xinxing	3,974,553	0.4489
16	Qiji Hangzhou	3,974,553	0.4489
17	Gongqingcheng Yihua	1,766,907	0.1996
18	Shangrong Baoying	1,315,642	0.1486
19	Xiamen Heyong	860,468	0.0972
20	Hangzhou Jingyue	993,611	0.1122
21	Lumentime Semiconductor	119,384	0.0135

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S/N	Name of shareholder	Number of shares	Shareholding ratio (%)
22	Liaoning Zhuomei	10,463,911	1.1818
Total		885,426,756	100

Upon verification by our lawyers, the number, domiciles and contribution ratios of the Issuer’s existing shareholders comply with the provisions of the Company Law and other relevant laws, regulations and normative documents. Meanwhile, the Issuer’s shareholders have, to the extent they are privately offered investment funds or privately offered investment fund managers, fulfilled the registration or filing procedures in accordance with the Interim Measures for the Supervision and Administration of Private Investment Funds as well as the Measures for the Registration of Private Investment Fund Managers and the Recordation of Funds (for Trial Implementation), among other relevant laws and regulations, being eligible for acting as shareholders and making capital contributions as provided for in the Company Law and other relevant laws, regulations and normative documents.

(IV) Number, domiciles and contribution ratios of existing shareholders

(V) Performance by the existing institutional shareholders of the filing procedures for privately offered investment funds

Pursuant to the business licenses as well as the industrial and commercial information of the existing institutional shareholders provided by the Issuer, and upon our lawyers’ inquiry through the website of the Asset Management Association of China (at http://gs.amac.org.cn), we believe that the Issuer’s shareholders who are identified as privately offered fund institutions by the Measures for Private Funds and the Measures for the Registration and Recordation of Private Funds (for Trial Implementation) have fulfilled the filing procedures for privately offered investment funds in accordance with the provisions thereof.

(VI) New shareholders before the application

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According to the Issuer’s industrial and commercial registration information, register of shareholders and statement, in the year prior to the Issuer’s application there are 21 shareholders investing in the Issuer, who are Jinchao Business Management, Beijing Bomeilian, Zhongke Hengye, Beijing Dingmei, Beijing Liaoyan, Boyu Yingchuang, Boyu Hengye, Haitong New Driving Force, Haitong New Energy, Haitong Innovation, Anxin Industrial Investment, Jinggangshan Meicheng, Huadeng II, Qingdao Xinxing, Qiji Hangzhou, Gongqingcheng Yihua, Shangrong Baoying, Xiamen Heyong, Hangzhou Jingyue, Lumentime Semiconductor and Liaoning Zhuomei. For the basic information of the new shareholders, reasons for their investment, share prices and pricing basis, refer to “(VI) New shareholders before the application” in “VI. Promoters and shareholders” of Lawyer's Report.

Based on the relevant capital increase agreements, additional capital payment documents of, as well as the statements and undertakings issued by, the new shareholders, and upon our lawyers’ inquiry through the websites of China Judgments Online and China Enforcement Information Disclosure, among others, we believe that the new shareholders have true intentions to invest in the Issuer without dispute, whether existing or potential, with the Issuer. For details of the association relationship among the new shareholders, refer to “(VI) New shareholders before the Application” of “VI. Promoters and shareholders” of Lawyer's Report. Additionally, there is no kinship, association, entrusted shareholding, trust shareholding or other tunneling arrangement between the new shareholders of the Issuer, on the one part, and other shareholders, directors, supervisors and executives of the Issuer, and the heads, executives and handling persons of the intermediaries for this offering, on the other part.

According to the business licenses, articles of association, partnership agreements of, as well as the statements and undertakings issued by, the new shareholders, we, upon verification, opine that the Issuer’s new shareholders are eligible for acting as shareholders under laws and regulations, and the lock-up periods they are subject to comply with the relevant provisions of the Guidelines for the Application of Regulatory Rules - Disclosure of Information on Shareholders by Enterprises Applying for Initial Public Offerings.

(VII) Employee stock ownership plans

Based on the currently effective partnership agreements, industrial and commercial registration information of, and the statements and undertakings issued by, the employee stock ownership

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platforms, as well as the Issuer’s statements, we, upon verification, opine that the employee stock ownership plans have made commitments on share lock-up periods as required by laws and regulations and run in a normative manner, without need for fulfillment of any registration and filing procedures.

(VIII) Removal of shareholders’ special rights

Upon verification, we opine that the removal of the Issuer’s special rights complies with the provisions of Article 10 of the Questions and Answers by the Shanghai Stock Exchange on Examination of the Listing of Stock on the Science and Technology Innovation Board (II).

(IX) Controlling shareholder and de facto controller of the Issuer

As of the date hereof, AXT, by holding 757,153,721 shares of stock, accounting for 85.5129% of the total share capital, in the Issuer, acts as the controlling shareholder of the Issuer.

Based on the U.S. Legal Opinion, as well as the documents and confirmation provided by the controlling shareholder, there is no de facto controller of the Issuer who can exercise actual control over the Company’s conduct through investment relationship, agreements or other arrangements during the reporting period.

(X) Upon verification by our lawyers, the assets invested by the promoters in the Issuer have clearly-established ownership, without legal obstacles for each promoter to invest the same in the Issuer.

(XI) Upon verification by our lawyers, the Issuer was established by way of overall restructuring from a limited liability company to a joint stock limited company. The Issuer is free from any stock discount investment by having its wholly-owned subsidiaries or other enterprises first canceled or by using its equities in other enterprises.

(XII) The Issuer, in its establishment, was overall restructured from a limited liability company to a joint stock limited company. Each promoter owns shares in the Issuer by converting the net assets corresponding to the equity formed by its contribution to Tongmei Limited. All the assets, business, creditor’s rights and debts of Tongmei Limited are inherited by the Issuer. There is no need for changing the certificates of ownership of the assets or rights invested by the promoters into the Issuer.

VII.	Share capital of the Issuer and its evolution

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(I) Share capital structure of the Issuer at the time of its establishment

The Issuer is a joint stock limited company established through the overall restructuring of Tongmei Limited under law, with a total of 22 promoters composing of AXT, Jinchao Business Management, Beijing Bomeilian, Zhongke Hengye, Beijing Dingmei, Beijing Liaoyan, Boyu Yingchuang, Boyu Hengye, Haitong New Driving Force, Haitong New Energy, Haitong Innovation, Anxin Industrial Investment , Jinggangshan Meicheng, Huadeng II, Qingdao Xinxing, Qiji Hangzhou, Gongqingcheng Yihua , Shangrong Baoying, Xiamen Heyong, Hangzhou Jingyue, Lumentime Semiconductor and Liaoning Zhuomei, who represent all shareholders of Tongmei Limited before the restructuring. The share capital structure of the Issuer at the time of its establishment is as follows:

				<br><br>
S/N	Name of shareholder	Number of shares	Mode of contribution	Shareholding ratio<br><br>(%)
1	AXT	757,153,721	Overall conversion of net assets into shares	85.5129
2	Jinchao Business Management	3,119,500	Overall conversion of net assets into shares	0.3523
3	Beijing Bomeilian	46,074,057	Overall conversion of net assets into shares	5.2036
4	Zhongke Hengye	865,289	Overall conversion of net assets into shares	0.0977

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S/N	Name of shareholder	Number of shares	Mode of contribution	Shareholding ratio<br><br>(%)
5	Beijing Dingmei	1,729,136	Overall conversion of net assets into shares	0.1953
6	Beijing Liaoyan	697,721	Overall conversion of net assets into shares	0.0788
7	Boyu Yingchuang	219,934	Overall conversion of net assets into shares	0.0248
8	Boyu Hengye	637,050	Overall conversion of net assets into shares	0.0719
9	Haitong New Driving Force	11,840,774	Overall conversion of net assets into shares	1.3373
10	Haitong New Energy	4,604,745	Overall conversion of net assets into shares	0.5201
11	Haitong Innovation	13,156,415	Overall conversion of net assets into shares	1.4859
12	Anxin Industrial Investment	8,942,416	Overall conversion of net assets into shares	1.0100

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S/N	Name of shareholder	Number of shares	Mode of contribution	Shareholding ratio<br><br>(%)
13	Jinggangshan Meicheng	5,961,172	Overall conversion of net assets into shares	0.6733
14	Huadeng II	6,955,797	Overall conversion of net assets into shares	0.7856
15	Qingdao Xinxing	3,974,553	Overall conversion of net assets into shares	0.4489
16	Qiji Hangzhou	3,974,553	Overall conversion of net assets into shares	0.4489
17	Gongqingcheng Yihua	1,766,907	Overall conversion of net assets into shares	0.1996
18	Shangrong Baoying	1,315,642	Overall conversion of net assets into shares	0.1486
19	Xiamen Heyong	860,468	Overall conversion of net assets into shares	0.0972
20	Hangzhou Jingyue	993,611	Overall conversion of net assets into shares	0.1122

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S/N	Name of shareholder	Number of shares	Mode of contribution	Shareholding ratio<br><br>(%)
21	Lumentime Semiconductor	119,384	Overall conversion of net assets into shares	0.0135
22	Liaoning Zhuomei	10,463,911	Overall conversion of net assets into shares	1.1818
Total		885,426,756	-	100

Upon verification, we believe that the equity setting and capital structure of the Issuer at the time of its establishment are legal and effective, without any disputes over and risks in the definition and confirmation of ownership.

(II) Previous equity changes of the Issuer and its predecessor

Based on the industrial and commercial archives, capital verification reports, capital increase agreements, equity transfer agreements and other documents provided by the Issuer, in addition to the overall restructuring of Tongmei Limited into a joint stock limited company according to law, during the period from the establishment of Tongmei Limited on September 25, 1998 to the date hereof, there are 8 capital increases, 12 paid-in capital changes and 2 equity transfers on the part of the Issuer and Tongmei Limited. For details, refer to “(II) Previous equity changes of the Issuer and its predecessor” in Section VII of Lawyer's Report.

Our lawyers note that, with respect to the initial equity transfer of Tongmei Limited in August 2000, both the transferor and the transferee thereto failed to locate the relevant archives regarding the audit evaluation of the state-owned equity transfer and the collection of the equity transfer price since a long time has elapsed. Nevertheless, given an equity transfer agreement has been entered into by both parties to the equity transfer, the approval and industrial and commercial change procedures with Beijing Tongzhou District Foreign Economic Relations and Trade Commission have been completed for the equity transfer, no relevant ownership

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dispute has arisen between both parties over the past 20 years or more, and Beijing Tongzhou Industry Development Zone General Company as the transferor has issued a statement confirming the above equity transfer, we opine that such equity transfer has been completed, there is no dispute over ownership of the Issuer’s equity, and the matters mentioned above constitute no substantive obstacles to this Offering.

Upon verification by our lawyers, except for the above circumstances, the previous equity changes of the Issuer and Tongmei Limited are legal, compliant, true and effective.

(III) Pledge over shares of the Issuer

Based on the industrial and commercial registration information, statements and undertakings provided by the Issuer, as well as the statements and undertakings issued by the Issuer’s shareholders, and upon our lawyers’ inquiry through the National Enterprise Credit Information Publicity System, there is no pledge over shares held by the Issuer’s shareholders in the Issuer as of the date hereof.

VIII.	Business of the Issuer

(I)Business scope and mode of operation

According to the current effective Business License held by the Issuer, and subject to public verification by our lawyers through the National Enterprise Credit Information Publicity System, the business scope of the Issuer is as follows: “Production of single crystal polished wafers and related semiconductor materials and ultra-pure elements; R&D of single crystal polished wafers and related semiconductor materials and ultra-pure elements; sales of self-produced products; engaging in wholesale of semiconductor materials and products, commission agency (except auction), import and export (commodities that are not subject to state trade management; for commodities that are subject to quota and license management, an application shall be made in accordance with relevant regulations of the State), and providing consulting, technology and after-sales service. (The market entity independently chooses its businesses and carries out business activities in accordance with the law; for businesses that are subject to approval in accordance with the law, it will carry out business activities in accordance with the approved content after being approved by relevant authorities; it is not allowed to engage in business activities that are prohibited and restricted by the State and industrial policies of this city.)”

According to the Prospectus (for filing purpose), the Audit Report, the current effective Business License of the Issuer and its domestic controlled subsidiaries and the statements and

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undertakings of the Issuer, and subject to verification by our lawyers of the Issuer’s business qualification and license, certificate of asset ownership and major business contracts, the main business of the Issuer during the reporting period is R&D, production and sales of InP substrates, GaAs substrates, germanium substrates, PBN and other high-purity materials.

Subject to verification by our lawyers, the business scope and mode of operation of the Issuer and its domestic controlled subsidiaries conform to the provisions of relevant laws, regulations and normative documents.

(II)Overseas business

According to the statement of the Issuer and the Legal Opinion on AXT-Tongmei, as of the date of this Legal Opinion, AXT-Tongmei, an overseas subsidiary of the Issuer, is a company legally established and validly existing under the laws of its registration place, and its business operation complies with the laws of its registration place.

(III)Business change

According to the Prospectus (for filing purpose), the Audit Report, the business licenses of the Issuer and its predecessor Tongmei Limited since their establishment, the business archives, the major business contracts and the statements and undertakings of the Issuer, the business scope of the Issuer remains unchanged during the reporting period, with the main business of R&D, production and sales of InP substrates, GaAs substrates, germanium substrates, PBN and other high-purity materials, and there has been no material adverse change in the main business in the last two years.

(IV)Main business qualifications and licenses

Subject to verification by our lawyers, as of the date of this Legal Opinion, the Issuer and its domestic controlled subsidiaries have obtained the business qualifications and licenses required to carry out their main business.

(V)Prominent main business of the Issuer

According to the Prospectus (for filing purpose), the Audit Report and the statements and undertakings of the Issuer, the main business income of the Issuer for the years ended December 31, 2018, December 31, 2019, December 31, 2020 and for the six months ended June 30, 2021 is RMB 487,234,000, RMB 462,207,900, RMB 583,087,200 and RMB 390,895,600 respectively, accounting for 99.38%, 99.99%, 99.99% and 99.32% of the Issuer’s operating income in the same period respectively. The operating income of the Issuer in the

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reporting period is mainly its main business income, and the main business of the Issuer is prominent.

(VI)Ability of the Issuer to operate as a going concern

According to the Prospectus (for filing purpose), the Audit Report, the current effective Business License of the Issuer and its domestic controlled subsidiaries and the statements and undertakings of the Issuer, and subject to verification by our lawyers, the Issuer exists in accordance with the law, the main financial indicators of the Issuer are good, there is no failure to pay the maturing debt, and there is no legal obstacles affecting its ability to operate as a going concern.

IX.	Related party transactions and horizontal competition

(I)Related parties

According to the Company Law, the Accounting Standard for Business Enterprises No. 36 -- Disclosure of Related Parties, the STAR Market Listing Rules and other laws and regulations, the Audit Report and the representations of the Issuer, and subject to consulting by our lawyers of the questionnaires signed by the directors, supervisors, senior executives and other relevant subjects of the Issuer and its controlling shareholders and the Legal Opinions issued by foreign lawyers, and search and inquiry through National Enterprise Credit Information Publicity System and other websites, as well as interviews with the relevant personnel of the Issuer, the main related parties of the Issuer during the reporting period are detailed in Part IX of the Lawyer's Report.

(II)Related party transactions

According to the Audit Report, the agreements related to related party transactions provided by the Issuer, the financial vouchers, the internal decision-making procedure documents of the Issuer in respect of the related party transactions and other relevant materials as well as the representations of the Issuer, the main related party transactions between the Issuer and its related parties during the reporting period are detailed in Part IX of the Lawyer's Report.

Subject to verification by our lawyers, the Issuer held the second extraordinary general meeting in 2021 on December 15, 2021, at which the Motion on the Confirmation of Related Party Transactions between January 1, 2018 and June 30, 2021 was deliberated and approved to confirm the related party transactions of the Issuer between January 1, 2018 and June 30, 2021.

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(III)Decision-making procedures of related party transactions

The Issuer’s Draft AOA, Rules of Procedure for General Meeting of Shareholders of Beijing Tongmei Xtal Technology Co., Ltd., Rules of Procedure for the Board of Directors of Beijing Tongmei Xtal Technology Co., Ltd., Measures for the Administration of Related Party Transactions of Beijing Tongmei Xtal Technology Co., Ltd. and other internal governance regulations have clearly defined the decision-making authority and procedures of related party transactions and the fair decision-making procedures of related party transactions.

(IV)Opinions of independent directors on related party transactions

All the independent directors of the Issuer have issued the opinions of independent directors that: during the reporting period, the business transaction mode and transaction price of the Company and AXT are determined by AXT’s organizational structure and long-term business development mode, and are reasonable to a certain extent; since March 2021, the Company has been selling products to overseas customers through AXT-Tongmei, and after AXT completes the sales contract signed before March 2021, it no longer carries out sales business, which has no adverse impact on the Company. In addition, related party transactions between the Company and related parties during the reporting period have followed the principles of fairness, voluntariness and rationality, have been priced fairly, and have not damaged the interests of the Company and non-related shareholders.

(V)Measures to reduce and regulate related party transactions

In order to reduce and regulate the future possible related party transactions between the Company and related parties, and to ensure that the interests of minority shareholders of the Company will not be damaged, AXT, the controlling shareholder of the Issuer, has issued the Letter of Commitment on Regulating and Reducing Related Party Transactions to regulate and reduce related party transactions.

(VI)Horizontal competition

According to the commitment issued by the controlling shareholder and subject to verification by our lawyers, as of the date of this Legal Opinion, there is no horizontal competition between the Issuer and the controlling shareholder and other enterprises under its control.

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In order to avoid the future potential horizontal competition, AXT, the controlling shareholder of the Issuer, has issued the Letter of Commitment on Avoiding Horizontal Competition.

(VII)Disclosure by the Issuer of related party transactions and horizontal competition

The Prospectus (for filing purpose) has fully disclosed the related party transactions of the Issuer and the measures to avoid horizontal competition, without any material omission or concealment.

X.	Main property of the Issuer

(I)Private property and land use right

According to the list of buildings provided by the Issuer, the title certificate, the results of inquiry on real estate registration, the Audit Report and the Legal Opinion on AXT-Tongmei, and subject to verification by our lawyers, as of the date of this Legal Opinion, the Issuer and its controlled subsidiaries have obtained the ownership certificate of 44 main properties, with a total floor area of 118,530.11 square meters; the Issuer and its controlled subsidiaries have obtained ownership certificates for a total of 26 land use rights with a total area of 376,143.00 square meters. Upon verification, we believe that the Issuer and its controlled subsidiaries legally own the house ownership and land use rights of which the ownership certificate has been obtained, and there is no property right dispute or potential property right dispute.

According to the list of buildings, drawings, construction procedures and other documents provided by the Issuer, and subject to confirmation by our lawyers through interview with the relevant person in charge of the Issuer, as of the date of this Legal Opinion, the Issuer and Baoding Tongmei, its controlled subsidiaries, have some buildings with no title certificate obtained, as detailed below:

1.Issuer

The total area of the main buildings for which the Issuer has not obtained a title certificate is about 19,244.15 square meters, accounting for a small proportion of about 13.60% in the total area of the main properties owned by the Issuer and its controlled subsidiaries, as detailed

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in “(I) Private Property and Land Use Right” in Part X of the Lawyer's Report. Such buildings are located in the factory of the Issuer in Tongzhou District, Beijing, mainly involving partial plants of InP substrates, the power distribution room, the warehouse, and the canteen, etc. According to the representations of the Issuer, due to historical objective reasons, including the remote past of constructing the buildings, positioning of Tongzhou District as the Beijing Municipal Administrative Center, and industry adjustment in Tongzhou District, the Issuer has not obtained the title certificates for the buildings above, and is subject to risks that the competent authority may order to stop using such buildings.

In view of the above situation, according to the representations of the Issuer and subject to confirmation by our lawyers through interview with the relevant person in charge of the Issuer, the InP project in Kazuo Factory has been approved by the local government and is expected to enter the production and commissioning stage in 2022. In the future, if a government authority in Beijing requires the InP plant without the ownership certificate to stop production, the Company has reserved enough space and related facilities in Kazuo Factory to relocate the InP furnace in the plant to ensure effective production. According to the representations of the Issuer, except for the InP production plant and its affiliated houses, no other building without a title certificate is main production and operation property of the Issuer at present, and the absence of a title certificate for the above buildings will not cause material adverse effect on the production and operation of the Issuer.

On July 29, 2021, Beijing Municipal Commission of Planning and Natural Resources issued a Notice on Query of Compliance Information about the Company to be Listed (Gui Zi Fa Shen Cha [2021] No. 0151), confirming that “no punishment information at this Commission has been found during January 1, 2018 to June 30, 2021” with respect to the Issuer; on July 30, 2021, Beijing Municipal Commission of Housing and Urban-rural Development issued the Result of Query of Compliance Information about the Company to be Listed (No. 2021-264), confirming that “from January 1, 2018 to June 30, 2021, this Commission has not imposed administrative punishments on Beijing Tongmei Xtal Technology Co., Ltd.”

In summary, given that the proportion of the area of the Issuer’s buildings with no title certificate in the total area of the main properties owned by the Issuer and its controlled subsidiaries is low, the Issuer has formulated corresponding response plans for the InP production plant and its affiliated houses, no other building without a title certificate is main

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production and operation property of the Issuer at present, the absence of a title certificate for the above buildings will not cause material adverse effect on the production and operation of the Issuer, and the Issuer has not received any administrative punishment from the competent authorities due to such absence during the reporting period, we believe that the absence of a title certificate for some buildings of the Issuer will not cause substantive obstacles in this offering.

2.Baoding Tongmei

Partial auxiliary buildings for the single wafer and related semiconductor material production project (section I, phase I) at Baoding Tongmei are going through inspection and acceptance formalities at present, and will obtain the title certificate of real estate in accordance with law after such inspection and acceptance. Specifically, such buildings include a chemical warehouse, a waste solvent warehouse, a solid waste warehouse/hazardous waste warehouse, a water treatment and heating station, with a total floor area of 3,766.03 square meters. According to the construction work planning permit, construction work construction permit, and other relevant construction procedure documents provided by Baoding Tongmei, and subject to confirmation by our lawyers through interviews with the relevant person in charge, there are no substantive obstacles in obtaining the title certificate of real estate for such buildings.

(II)Leased property

According to the house lease contract, the ownership certificate of the leased property provided by the Issuer and the Issuer's statements, and subject to consulting by our lawyers of the Legal Opinion on AXT-Tongmei, as of the date of this Legal Opinion, the Issuer and its controlled subsidiaries have rented 4 houses with a total area of about 2,377.04 square meters from third partied for official business of the Issuer and its controlled subsidiaries.

According to the information provided by the Issuer, the representations of the Issuer, and subject to verification by our lawyers, the domestic properties leased by the Issuer and its domestic controlled subsidiaries (with a total leased area of about 568.50 square meters) has not been registered and filed for property lease. However, this situation will not cause substantive legal obstacles for the Issuer and its controlled subsidiaries to use such leased properties in accordance with law.

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(III)Construction-in-progress

According to the Audit Report, materials and notes provided by the Issuer, as of June 30, 2021, the Issuer’s construction-in-progress includes InP crystal growth and wafer processing and production expansion project, germanium crystal growth and wafer processing and production expansion project, GaAs crystal synthesis and growth and wafer processing expansion project, single wafer and related semiconductor material production project (section I, phase I), PBN product project, GaAs crystal semiconductor material production project, InP single wafer production project, high-purity semiconductor preliminary material production project, high-purity arsenic project, etc., with a total book balance of RMB 165,200,573.37.

As of June 30, 2021, the book balance of Chaoyang Xinmei’s high-purity arsenic project under construction is RMB 19,793,074.02. As of the date of this Legal Opinion, the project is in the process of applying for construction land, planning and construction permits, etc. On November 22, 2021, the Natural Resources Bureau of Kharachin Left-wing Mongol Autonomous County issued the Certificate, confirming that the “land used for the project constructed by Chaoyang Xinmei conforms to the land use policy, relevant procedures are being handled, it is expected that there is no substantive obstacle in the handling of relevant procedures, and the Bureau will not thereby punish the company and its related personnel. From the date of establishment of the company to the date of this certificate, the company has no violation of laws and regulations”. On November 22, 2021, the Management Committee of Chaoyang Kazuo Economic Development Zone issued the Certificate, confirming that Chaoyang Xinmei “can normally apply for construction land use permit, planning permit of construction engineering, and construction permit of construction engineering for the project constructed by it, it is expected that there is no substantive obstacle in the handling of such procedures, and the Bureau will not thereby punish the company and its related personnel. From the date of establishment of the company to the date of this certificate, the company has no violation of laws and regulations”.

(IV)Intellectual Property

1.Registered trademark

(1)Private trademark

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According to the trademark registration certificate provided by the Issuer and the trademark archives issued by China National Intellectual Property Administration, and subject to search and inquiry by our lawyers at http://sbj.cnipa.gov.cn/sbcx/, as of September 30, 2021, the Issuer and its controlled subsidiaries have obtained 6 registered trademarks in China, as detailed in “(IV) Intellectual Property” in Part X of the Lawyer's Report.

Upon verification, we believe that the Issuer and its controlled subsidiaries legally own the above registered trademarks in China, which are not subject to pledge, judicial seizure and other restrictions of rights.

(2)Licensed trademark

On November 4, 2021, AXT signed a Trademark License Agreement with the Issuer. AXT granted to the Issuer and its subsidiaries a non-transferable, exclusive, irrevocable, royalty-free trademark license to use the trademark as an integral part of the Issuer’s corporate name for the manufacture, marketing and sale of products. The license term begins on March 1, 2021 and is valid forever. According to the Trademark License Agreement, the licensed trademarks include AXT’s trademarks in multiple countries and regions, as detailed in “(IV) Intellectual Property” in Part X of the Lawyer's Report.

2.Patent

(1)Private patent

According to the certificate of patent provided by the Issuer and the certificate issued by China National Intellectual Property Administration, and subject to search and inquiry by our lawyers at http://cpquery.sipo.gov.cn/, as of September 30, 2021, the Issuer and its controlled subsidiaries have been granted 82 patents in China, as detailed in “(IV) Intellectual Property” in Part X of the Lawyer's Report.

According to the Legal Opinion on AXT-Tongmei and the patent verification opinions issued by Clements Bernard Walker PLLC, Studio Torta S.p.A, RYUKA IP LAW FIRM and Lianbang International Patent and Trademark Office, as of September 30, 2021, the Issuer and its controlled subsidiaries have been granted 9 patents in China, as detailed in “(IV) Intellectual Property” in Part X of the Lawyer's Report.

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Upon verification, we believe that the Issuer and its controlled subsidiaries legally own the above granted patents in China, which are not subject to pledge, judicial seizure and other restrictions of rights.

(2)Licensed patent

According to the license agreement provided by the Issuer and the Legal Opinion issued by the American lawyer, and subject to confirmation by our lawyers through interview with the relevant person in charge of the Issuer, the Issuer has been licensed to use patent, as detailed in “(IV) Intellectual Property” in Part X of the Lawyer's Report.

3.Computer software copyright

According to the certificate of computer software copyright provided by the Issuer and subject to inquiry by our lawyers at https://register.ccopyright.com.cn/query.html, as of September 30, 2021, the Issuer and its domestic controlled subsidiaries have obtained computer software copyright registration certificate for a total of 7 computer software copyrights, as detailed in “(IV) Intellectual Property” in Part X of the Lawyer's Report.

Upon verification, we believe that the Issuer and its controlled subsidiaries legally own the above computer software copyrights for which registration certificate has been obtained, which are not subject to pledge, judicial seizure and other restrictions of rights.

4.Domain name

According to the certificate of domain name provided by the Issuer and subject to inquiry by our lawyers at https://beian.miit.gov.cn, the Issuer and its controlled subsidiaries have 5 domain names, as detailed in “(IV) Intellectual Property” in Part X of the Lawyer's Report.

Upon verification, we believe that the Issuer and its controlled subsidiaries legally own the above domain names.

(V)Main production and operation equipment

According to the Audit Report and the schedule of fixed assets provided by the Issuer, as of June 30, 2021, the main production and operation equipment of the Issuer includes machinery and equipment, tools and instruments, transportation tools and office equipment, and the book value of machinery and equipment is RMB106,986,400, the book value of tools

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and instruments is RMB15,620,400, the book value of transportation tools is RMB1,847,200, and the book value of office equipment is RMB1,218,500.

According to the representations and confirmation of the Issuer, and subject to spot check by our lawyers of the purchase vouchers for the main production and operation equipment of the Issuer and its domestic controlled subsidiaries and field inspection of some operating equipment, we believe that the Issuer and its domestic controlled subsidiaries legally own the main equipment required for production and operation.

(VI)External investment by the Issuer

According to the Audit Report and the representations of the Issuer, etc., as of the date of this Legal Opinion, the Issuer has 9 controlled subsidiaries in total (Baoding Tongmei, Chaoyang Tongmei, Nanjing Jinmei, Beijing Boyu, Tianjin Boyu, Chaoyang Boyu, Chaoyang Xinmei and AXT-Tongmei), 2 branches (Beijing Tongmei Technology R&D Center and Beijing Boyu Tongzhou Branch), and 2 joint stock companies (Xing’an Gallium and Maanshan Gallium), as detailed in Part X of the Lawyer's Report. We believe that, as of the date of this Legal Opinion, the above controlled subsidiaries and joint stock companies of the Issuer are established and exist legally.

(VII)Restrictions on ownership or use of main property

According to the certificate of registration of real estate right, the real estate register, the mortgage agreement provided by the Issuer and the statements and undertakings of the Issuer, 3 real estate rights owned by Baoding Tongmei, 5 real estate rights owned by Chaoyang Tongmei and 1 real estate right owned by Tianjin Boyu have been mortgaged and subject to mortgage registration.

Subject to verification by our lawyers, as of the date of this Legal Opinion, except for the above circumstances, there is no ownership dispute or potential dispute over the main property owned by the Issuer and its controlled subsidiaries, and there is no guarantee or other restrictions of rights.

XI.	Material creditor’s rights and debts of the Issuer

(I)Material contracts

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According to the contracts or purchase orders provided by the Issuer, the material contracts the Issuer and its controlled subsidiaries have performed or are performing, as set forth in Annex XI to the Lawyer's Report.

The contents and forms of the above material contracts do not violate the prohibitive provisions of laws and administrative regulations according to the Issuer’s statements and undertakings, the legal opinions issued by overseas lawyers and the relevant contracts reviewed by our lawyers, and interviews with or external confirmations from the Issuer’s major customers, suppliers, etc. with respect to their association with the Issuer and performance of their agreements with the Issuer, and personal interviews with the Issuer’s senior executives; Some of the material contracts being performed by the Issuer are signed by Tongmei Limited. The Issuer is changed from Tongmei Limited as a whole and has succeeded to all the rights and obligations of Tongmei Limited. Therefore, considering the Issuer acts as a party to the above material contracts, no substantive legal obstacles prevent it from the performance of such contracts.

(II)Debt of material infringements

The Issuer and its domestic controlled subsidiaries have no material infringement debt arising from intellectual property rights, product quality, work safety, personal rights and other reasons during the reporting period, according to the certificates issued by administrations for industry and commerce, taxation, social insurance and housing provident fund and other relevant authorities governing the Issuer and its domestic controlled subsidiaries, the Issuer’s statements and undertakings, and our searches in the official websites of the relevant authorities governing the Issuer and its domestic controlled subsidiaries, China Judgements Online, China Enforcement Information Disclosure website and Credit China website and other websites and the interviews with the relevant department heads of the Issuer.

(III)Material creditor’s rights and debts and guarantee between the Issuer and its affiliates

According to the Audit Report and the Issuer’s statements and undertakings, and our interviews with the financial director of the Issuer, as of the end of the reporting period, there is no other material creditor’s right and debt between the Issuer and its affiliates, nor any other mutual guarantee, except for the information disclosed in the Lawyer's Report.

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(IV)Legality of the Issuer’s other receivables and other payables with large amount

According to the details of other receivables and other payables provided by the Issuer and the Issuer’s statements and undertakings, and our verification, except for the intercompany funds between the Issuer and its affiliates disclosed in the Lawyer's Report, the Issuer’s other receivables and other payables with large amount were incurred due to normal business activities, which are legal and effective.

XII.	Significant asset changes and mergers and acquisitions of the Issuer

(I)Capital increases, mergers, spin-offs and reductions in registered capital of the Issuer

As verified by our lawyers, from the establishment of Tongmei Limited to the date of this Legal Opinion, there have been eight capital increases and no mergers, spin-offs or reductions in registered capital, as detailed in “(2) Previous changes in shareholdings of the Issuer and its predecessors” of Part VII of the Lawyer's Report.

(II)Acquisition or sale of the Issuer’s material assets

In order to solve horizontal competitions and integrate its domestic business resources in China, the Issuer conducted an asset restructuring in December 2020.

In order to adjust and optimize the corporate structure and satisfy its business development, the Issuer acquired 100% equity of AXT-Tongmei during the reporting period.

To satisfy the needs of the Issuer’s business development, upon consideration of the actual situation of Dongfang Hi-Purity at the same time, the Issuer sold its 45.9677% equity in Dongfang Hi-Purity to Chaoyang Limei.

Upon verification by our lawyers, the necessary procedures required by the law for the above asset restructuring and the equity acquisition and sale have been fulfilled, comply with the provisions of laws and regulations, and are legal and effective.

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(III)Material asset changes and mergers and acquisitions to be carried out by the Issuer

According to the Issuer’s statements and undertakings and our interviews with the relevant department heads of the Issuer, as of the date of this Legal Opinion, the Issuer has no plans or arrangements for material assets replacement, asset divestiture, sale or acquisition of material assets.

XIII.	Formulation and amendment of the Issuer’s AOA

(I)Formulation of the AOA of the Issuer

The current effective AOA of the Issuer was deliberated and adopted by the establishment meeting and first general meeting held by the Issuer on April 16, 2021, and has gone through the formalities of industrial and commercial filing and registration in Beijing Tongzhou District Administration for Market Regulation.

After verification, we believe that the Issuer has fulfilled the necessary legal procedures for the formulation of the current effective AOA, and its contents comply with the provisions of the current laws, regulations and normative documents.

(II)Amendments to AOA of the Issuer in the last three years

Upon verification by our lawyers, the formulation of AOA of the Issuer and the previous amendments in the last three years have fulfilled the necessary legal procedures, and its contents comply with the provisions of the laws, regulations and normative documents at that time.

(III)AOA then applicable after this Offering

On December 15, 2021, the second extraordinary general meeting of the Issuer in 2021 deliberated and adopted the Draft AOA after the Listing, which shall come into force from the date of the Issuer’s IPO and listing on the STAR Market of the Shanghai Stock Exchange.

After reviewing the Draft AOA after the Listing, our lawyers believe that contents of the Draft AOA after the Listing applicable after this Offering formulated by the Issuer comply with the provisions of the Company Law, the STAR Market Listing Rules, the Guidelines for the

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Articles of Association of Listed Companies, the Code of Corporate Governance of Listed Companies and other laws, regulations and normative documents.

XIV.Rules of procedure and standardized operation of the Issuer’s general meeting, board of directors and board of supervisors

（1）Issuer’s organization

According to the AOA, the relevant corporate governance regulations of the Issuer, the relevant documents of the general meeting, the board of directors and the board of supervisors of the Issuer and the Issuer’s statements and undertakings, and our verification, the Issuer has established the general meeting, the board of directors and the board of supervisors in accordance with the provisions of the Company Law and the AOA, and the board of directors has four special committees, including Audit Committee, Remuneration and Appraisal Committee committee, Nomination Committee and Strategy Committee, and the Issuer has elected the company’s directors, independent directors, supervisors and employee supervisors, and employed senior executives such as the general manager, deputy general manager, board secretary and financial director. Therefore, the Issuer has a sound organizational structure.

（2）Rules of procedure of the general meeting, the board of directors and the board of supervisors of the Issuer

According to the Issuer’s relevant corporate governance regulations and its statements and undertakings, the Issuer has formulated the Rules of Procedure for General Meeting of Shareholders, the Rules of Procedure for the Board of Directors and the Rules of Procedure for the Board of Supervisors in accordance with the Company Law, the AOA and with reference to the Rules for the General Assemblies of Shareholders of Listed Companies. In order to standardize the work of the four special committees under the board of directors, the Issuer has formulated the Working Rules for Audit Committee, the Working Rules for Remuneration and Appraisal Committee, the Working Rules for Nomination Committee, and the Working Rules for Strategy Committee. Therefore, the Issuer has sound rules of procedure for the general

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meeting, the board of directors and the board of supervisors, which comply with relevant laws, regulations and normative documents.

（3）Convening of previous general meetings of shareholders, meetings of board of directors and meetings of board of supervisors of the Issuer

According to the documents and materials provided by the Issuer, such as the notice, meeting proposal, meeting resolution and meeting minutes of the previous general meetings of shareholders, and meetings of the board of directors and the board of supervisors since the establishment of the Joint Stock Company, we believe that the convening, resolution content and signing of the previous general meetings of shareholders, and meetings of the board of directors and the board of supervisors after the overall change of Tongmei Limited into and establishment of the Issuer are legal, compliant, true and effective.

（4）Previous authorization or major decisions of the Issuer’s general meeting or meetings of the board of directors

According to the resolutions, minutes and other documents of the previous general meetings of shareholders and meetings of the board of directors after the overall change of Tongmei Limited into and establishment of the Issuer, the previous authorization or major decision-making activities of the previous general meetings of shareholders or meetings of the board of directors after the overall change of Tongmei Limited into and establishment of the Issuer fall within the terms of reference of the general meeting or the board of directors provided by the Company Law, the AOA and relevant internal governance regulations, which are legal, compliant, true and effective.

XV.	Directors, supervisors and senior executives of the Issuer and changes thereof

(I)The incumbent directors, supervisors and senior executives of the Issuer and their concurrent posts

As of the date of this Legal Opinion, the board of directors of the Issuer consists of 9 directors, including 3 independent directors; The board of supervisors of the Issuer is composed of 3 supervisors, including one employee representative supervisor; There are 5 senior

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executives in the Issuer, including Vincent Wensen LIU^2^ as the general manager, WANG Yuxin and GUO Tao as the deputy general managers, HAO Ze as the deputy general manager and financial director, and SONG Jing as the deputy general manager and board secretary. See Part XV of the Lawyer's Report for details.

Upon verification by our lawyers, the appointment of directors, supervisors and senior executives of the Issuer complies with the provisions of relevant laws, regulations, normative documents and the AOA.

(II)Core technicians of the Issuer

As of the date of this Legal Opinion, the Issuer has four core technicians, namely MORRIS SHEN-SHIH YOUNG, Vincent Wensen LIU, WANG Yuanli and REN Diansheng.

(III)Changes to directors, supervisors, senior executives and core technicians of the Issuer in the past two years

After verification, we believe that the changes to directors, supervisors and senior executives of the Issuer in the past two years have fulfilled the necessary legal procedures, and there are no significant adverse changes in the directors, senior executives and core technicians of the Issuer in the past two years, which is in compliance with the provisions of Article 12.2 of IPO Registration Measures.

(IV)Independent directors of the Issuer

The board of directors of the Issuer has three independent directors, namely ZHAO Lun, PANG Fengzheng and LIU Yanfeng. According to the resumes and questionnaires provided by the independent directors, the provisions on the relevant terms of reference of the independent directors provided by the AOA and the Working Regulations for Independent Directors, and the Issuer’s statements and undertakings, the qualifications and terms of reference of the Issuer’s independent directors are in compliance with with the laws, regulations and relevant provisions of the CSRC.

XVI.	Issuer’s tax

(I)Main taxes and tax rates of the Issuer and its domestic controlled subsidiaries in China offering and

^2^ He is the general manager of the Issuer, an American citizen, and holder of passport number: 54576****, and his Chinese and English names (Chinese name is 刘文森, English name is Vincent Wensen LIU) are collectively referred to as Vincent Wensen LIU in this Legal Opinion.

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According to the Audit Report, the supporting documents issued by relevant competent tax authorities and the Issuer’s statements and undertakings, and our verification, the applicable taxes and tax rates of the Issuer and its domestic controlled subsidiaries in China during the reporting period comply with the requirements of current laws, regulations and normative documents.

(II)Main tax preferences enjoyed by the Issuer and its domestic controlled subsidiaries in China

According to the Audit Report and the Issuer’s statements, after verification, we believe that the tax preferences enjoyed by the Issuer and its domestic controlled subsidiaries in China during the reporting period is legal, compliant, true and effective.

(III)Main financial government grants enjoyed by the Issuer and its domestic controlled subsidiaries in China

According to the Audit Report, the Issuer’s statements and the materials provided thereby, we believe that the main financial government grants enjoyed by the Issuer and its domestic controlled subsidiaries in China during the reporting period do not violate Chinese laws and regulations.

(IV)Tax payment of the Issuer and its domestic controlled subsidiaries in China over the past three years

Because Beijing Boyu failed to fulfil tax filing requirements and submit tax returns within the prescribed time limit, on July 3, 2018, the No.1 Tax Office of Beijing Tongzhou District Tax Service of the State Taxation Administration issued a Decision on Tax Administrative Penalties (Tong Yi Di Shui Jian Fa [2018] No. 37) to Beijing Boyu, and imposed an administrative penalty of RMB100 according to law.

On August 3, 2021, the No.1 Tax Office of Beijing Tongzhou District Tax Service issued a Certificate of No Tax Arrears, confirming that “after searches in the tax collection and management information system, as of July 28, 2021, no tax arrears are found to be payable” by Beijing Boyu.

Since Tianjin Boyu failed to declare its value-added tax and submit tax returns within the prescribed time limit (April 15, 2018) during the tax period from March 1, 2018 to March 31, 2018, Baoping Tax Office of Tianjin Baodi District Tax Service of the State Taxation Administration issued a Decision on Tax Administrative Penalties (Jin Bao Guo Shui San Jian Fa [2018] No. 66) to Tianjin Boyu on May 15, 2018, and imposed an administrative penalty of RMB200 according to law.

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On August 5, 2021, Baoping Tax Office of Tianjin Baodi District Tax Service issued a certificate confirming that there were no other punishment for violation of relevant laws and regulations by Tianjin Boyu since January 1, 2018, except for the Decision on Tax Administrative Penalties (Jin Bao Guo Shui San Jian Fa [2018] No. 66) issued by the Office.

According to the Issuer’s statements and the payment information search results, bank vouchers and other materials provided thereby, and our verification, Beijing Boyu and Tianjin Boyu were fined RMB100 and RMB200 respectively by the tax authorities for failing to fulfil tax filing requirements on time. Both Beijing Boyu and Tianjin Boyu have paid the fines in full. According to Article 62 of the Law of the People’s Republic of China on the Administration of Taxation Collection: “If a taxpayer fails to fulfil tax filing requirements and submit tax returns within a prescribed time limit, or a withholding agent fails to submit a tax withholding or collection and payment report and relevant materials to tax authorities within a prescribed time limit, tax authorities shall order it to make corrections within a time limit and may impose a fine of no more than RMB2,000; if the violation is serious, it may impose a fine of no less than RMB2,000 but no more than RMB10,000.”, and considering the fines imposed by the above tax authorities are RMB 100 and RMB200, which are small and not serious and both Beijing Boyu and Tianjin Boyu have rectified and paid the fines accordingly, we believe that the above tax violations by Beijing Boyu and Tianjin Boyu do not constitute material violations of tax laws, and the above tax penalties do not constitute material tax penalties.

According to the Issuer’s statements and undertakings and the supporting documents issued by the competent tax authorities governing the Issuer and its domestic controlled subsidiaries in China, after verification, we believe that the Issuer and its domestic controlled subsidiaries in China have not committed any material violations of tax laws or not been subject to material tax penalties by the tax authorities during the reporting period.

XVII.	Protection environment, product quality, technology and other standards of the Issuer

(I) Environmental protection of the Issuer

According to the Prospectus (for filing purpose) and the Issuer's statements, the Issuer is mainly engaged in the research and development, production and sale of InP substrates, GaAs substrates, germanium substrates, PBN materials, and other high-purity materials. The main environmental pollutants involved in the production and operation process during the reporting period include exhaust gas, wastewater, solid waste and noise.

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According to the information, explanations and commitments provided by the Issuer, through interviewing with relevant heads of the Issuer by our lawyers, and searches and inquiries on the website of the Ministry of Ecology and Environment (URL: http://www.mee.gov.cn/), websites of the ecological environment departments in the places where the Issuer and its domestic controlled subsidiaries are located, the Credit China website, and the National Enterprise Credit Information Publicity System, during the reporting period, the Issuer and its domestic controlled subsidiaries received a total of 5 environmental protection administrative penalties; details of which are as follows:

(1) Issuer

Due to the Issuer’s behavior of not setting up hazardous waste identification marks in the hazardous waste (cutting mud) storage site, on July 17, 2018, the Beijing Tongzhou District Ecological Environment Bureau issued a Decision on Administrative Penalty (THJFZ [2018] No. 082), imposing an administrative penalty of RMB20,000 in accordance with laws;

Because a small amount of waste acetic acid was scattered on the ground of the hazardous waste (cutting mud) storage site of the Issuer, on July 17, 2018, the Beijing Tongzhou District Ecological Environment Bureau issued a Decision on Administrative Penalty (THJFZ [2018] No. 104), imposing an administrative penalty of RMB20,000 in accordance with laws;

Because the Issuer stored the germanium-containing kerosene (belonging to the hazardous waste specified in the National Hazardous Waste List) produced in the production process in green tin drums, without posting hazardous waste identification signs, on January 21, 2019, Beijing Ecological Environment Bureau issued a Decision on Administrative Penalty (JHJJCFZ [2018] No. 5), imposing a fine of RMB12,000 on the Issuer in accordance with laws;

Due to the Issuer’s failure to report abnormal pH data within the prescribed time limit and failure to ensure the normal operation of the automatic monitoring facilities for water pollutant discharge, on June 1, 2020, the Beijing Tongzhou District Ecological Environment Bureau issued a Decision on Administrative Penalty (THJFZ [2020] No. 080), imposing a fine of RMB20,000 on the Issuer in accordance with laws.

According to our lawyers’ interviews with the staff of the Beijing Tongzhou District Ecological Environment Bureau and the Beijing Ecological Environment Bureau, the Issuer has paid the fine as scheduled and completed the rectification of the problems involved in aforesaid administrative penalties in accordance with the requirements of laws and relevant departments. In addition, since the problems involved in aforesaid administrative penalties did not cause major environmental pollution, they were not considered to be material administrative penalties, and did not constitute major environmental violations.

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(2) Baoding Tongmei

Because Baoding Tongmei did not obtain a pollutant discharge permit to discharge pollutants, on May 14, 2019, Dingxing County Ecological Environment Bureau issued a Decision on Administrative Penalty (DHF [2019] No. 80) to it, imposing an administrative penalty of RMB200,000.

In response to the aforesaid administrative penalty, Dingxing County Branch of Baoding Ecological Environment Bureau issued a Certificate on July 22, 2021, confirming that “the company has paid the fine as scheduled and completed rectification in accordance with laws and the requirements of this Bureau; the violation did not cause major environmental pollution and does not constitute a serious situation.”

In summary, we believe that the overall production and operation of the Issuer and its domestic controlled subsidiaries comply with national and local environmental protection regulations and requirements. During the reporting period, the Issuer and its domestic controlled subsidiaries did not encounter any major environmental accidents, nor received any material administrative penalties in relation to environmental protection.

(II) The Issuer's product quality and technical standards

According to the Audit Report, the information and explanation provided by the Issuer, the certification of the market quality supervision department and the verification made by our lawyers, the Issuer and its domestic controlled subsidiaries did not receive any material administrative penalties imposed by quality supervision department due to product quality and other issues.

XVIII.	Labor and social security of the Issuer ****

(I) Labor Contracts

According to the labor contracts, other materials and instructions provided by the Issuer and the verification made by our lawyers, the Issuer and its domestic subsidiaries have signed labor contracts with employees in accordance with the Labor Law of the People's Republic of China and other relevant laws and regulations, and the employees enjoy corresponding rights and assume corresponding obligations thereunder.

(II) Social insurance and housing provident fund

According to the certificates issued by the social insurance management department and housing provident fund management department where the Issuer and its controlling

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subsidiaries are located, the Issuer’s statement and verification made by our lawyers, the Issuer did not receive any penalties from the administrative department and the housing provident fund administrative department due to major violations of laws and regulations during the reporting period.

(III) The situation of labor dispatch

During the reporting period, the Issuer's labor dispatch ratio exceeded the upper limit (10%) stipulated in The Interim Provisions on Labor Dispatch. The Issuer has made rectifications in response to the above situation. As of September 30, 2021, the proportion of the dispatched workers of the Issuer to its total workers (including dispatched workers) complies with The Interim Provisions on Labor Dispatch and other relevant regulations.

XIX.	Application of funds raised by the Issuer ****

(I) After verification by our lawyers, the project in which the Issuer’s offering proceeds invest has been reviewed and approved by the Issuer’s general meeting, and obtained necessary internal approvals and authorizations as well as the investment filing documents issued by the Management Committee of Chaoyang Kazuo Economic Development Zone, the competent government authority. As of the date of this Legal Opinion, the gallium arsenide semiconductor material project has not yet obtained the environment evaluation approval document. The Management Committee of Chaoyang Kazuo Economic Development Zone has issued an explanatory document confirming that the project meets the relevant requirements of the national environmental protection policy, and it is expected that there are no substantial obstacles to the handling of environmental protection formalities required for construction of this project. The land used for the project in which the offering proceeds invest has obtained the title deed issued by the competent government department, which complies with the land policy and urban planning, and there is no risk that the land for investment can not be obtained.

(II) After verification by our lawyers, the Issuer’s use of the funds raised this time does not involve mergers or acquisitions of other companies.

(III) After verification by our lawyers, the project in which the Issuer’s offering proceeds invest complies with the national industrial policy, environmental protection, land management and other laws, regulations and rules.

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XX.	Business development goal of the Issuer

According to the Prospectus (for filing purpose) and the Issuer's statements, the Issuer's development goal is to become a global leader in III-V compound semiconductor substrate materials. In order to achieve its development goal, the company has formulated a clear development strategy: firstly, to expand the production capacity of existing products: in the context of the continuous growth of the existing market, the company's production capacity is lower than that of its main competitors and is in a disadvantageous competitive position, so the company urgently needs to expand its supply capacity; secondly, to accelerate the capacity building and market development of large-size substrate products: as downstream applications such as 5G communications and new-generation displays enter into a new round of investment cycle, new production lines for downstream customers are likely to switch to larger sizes, so the company needs to form a large-scale supply capacity for large-size substrate products as soon as possible, seizing market opportunities in the new round of industry cycle; thirdly, to pay close attention to the frontiers of global technology and continue to broaden the application scenarios of III-V compound semiconductors. The Company pays close attention to new technologies, new devices and new application scenarios in the academic and industrial circles, actively cooperates with the R&D process of downstream customers, and introduces its substrate products into new application scenarios in advance.

We believe that the Issuer’s business development goal is consistent with its primary business, complying with laws, regulations and regulatory documents, and there are no potential legal risks.

XXI.	Litigation, arbitration or administrative punishment

(I) The Issuer and its controlled subsidiaries

Major litigation and arbitration

According to the information, descriptions and promises provided by the Issuer, and through interviewing with relevant heads of the Issuer by our lawyers and searches and inquiries in websites such as Credit China, the National Enterprise Credit Information Publicity System, China Enforcement Information Disclosure, China Judicial Documents Network, People's Court Announcement Network and 12309 China Procuratorial Network, as of the date of this Legal Opinion, the Issuer does not have any outstanding litigation or arbitration case with a single disputed amount (principal) of more than RMB 500,000.

Administrative punishments

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According to the decisions on administrative penalties, payment vouchers and other information and commitments provided by the Issuer, the Audit Report, and through interviewing with relevant heads of the Issuer by our lawyers and searches and inquiries in public channels such as Credit China, the national enterprise credit information publicity system and websites of government competent authorities, during the reporting period, the Issuer and its domestic controlled subsidiaries received a total of 22 administrative penalties. Based on the written certificates issued by the relevant competent authority certifying no major violation of laws or no material administrative punishment, the interviews with the staff of the competent authority by our lawyers, and the analysis of factors such as the basis and decision of the penalty, the circumstances of the violation and the amount of fines, we believe that aforesaid administrative penalties received by the Issuer and its domestic controlled subsidiaries during the reporting period are not major violations of laws.

(II) Major shareholders who hold more than 5% of the Issuer’s shares

The major shareholders holding more than 5% of the Issuer's shares are AXT and Beijing Bomeilian. According to the American Legal Opinion on AXT, statements and undertakings issued by AXT and Beijing Bomeilian, and through interviewing with relevant heads by our lawyers and searches on Credit China, National Enterprise Credit Information Publicity System, China Enforcement Information Disclosure, China Judicial Documents Internet, People’s Court Announcement Network, and 12309 China Procuratorial Network, as of the date of this Legal Opinion, the major shareholders AXT and Beijing Bomeilian who hold more than 5% of the Issuer’s shares are not involved in any outstanding or threatened major litigation, arbitration or administrative punishment.

(III) Chairman and general manager of the Issuer

According to the questionnaire filled out by the Issuer’s chairman MORRIS SHEN-SHIH YOUNG and general manager Vincent Wensen LIU, and through interviewing with them by ours lawyers and searches on the securities and futures market discredit record inquiry platform, China Enforcement Information Disclosure website, China Judicial Documents Network, the People’s Court Announcement network and 12309 China Procuratorial Network, as of the date of this Legal Opinion, the Issuer’s chairman MORRIS SHEN-SHIH YOUNG or general manager Vincent Wensen LIU is not involved in any outstanding or threatened material litigation, arbitration or administrative punishment.

XXII.	Relevant commitments and restrictive measures involved in this Offering

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Upon verification by our lawyers, the Issuer’s shareholders, directors, supervisors, senior executives, core technicians and other relevant responsible entities have signed the relevant commitments involved in this Offering; the Issuer and its controlling shareholders and other relevant responsible entities have signed the restrictive measures on failure to perform relevant commitments, which complies with laws and relevant requirements of Opinions of CSRC on Promotion of Reform of The Initial Public Offering System with respect to relevant responsible entities, that is, relevant responsible entities shall raise restrictive measures on failure to perform relevant commitments when they make public commitments.

At the same time, the Issuer has analyzed the impact of this Offering on the dilution of immediate returns, and formulated compensation measures for the dilution of immediate returns. The Issuer’s directors, senior executives and controlling shareholders have made commitments to ensure the effective implementation of the Issuer’s measures to fill up returns in accordance with the requirements of the Guiding Opinions on Matters Related to Dilution of Immediate Returns by IPO, Refinancing and Major Asset Restructuring. The seventh session of the Issuer's first board of directors has formulated a proposal on the analysis of diluted immediate returns and specific measures to fill up immediate returns, which has been reviewed and approved by the Issuer's second extraordinary general meeting in 2021.

XXIII.	Evaluation of legal risks in the Issuer's Prospectus (for filing purpose) ****

Our lawyers have participated in the preparation and discussion of the Prospectus (for filing purpose), and have reviewed the Prospectus (for filing purpose), especially its contents quoting this Legal Opinion and Lawyer's Report. We believe that there is no contradiction between the relevant content of this Legal Opinion quoted in the Issuer's Prospectus (for filing purpose) and this Legal Opinion. We have no objection to quotation of relevant content of this Legal Opinion by Issuer’s Prospectus (for filing purpose), and confirms that the Prospectus (for filing purpose) will not have false records, misleading statement or material omission due to quotation of the content of this Legal Opinion.

XXIV.	Other matters to be explained in Lawyers’ Opinion

(I) The Issuer's option incentive plan for employees

According to the information provided and the explanation issued by the Issuer, the Issuer has a 2021 stock option incentive plan formulated before the IPO application and implemented after the listing. For details, please refer to Part 24 of the Lawyer's Report.

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(II) The controlling shareholder’s stock options and restricted stocks obtained by the Issuer’s employees

According to the AXT equity incentive plan, grant documents, statistics and American Legal Opinion on AXT provided by the Issuer, some employees of the Issuer hold stock options and restricted stocks granted by AXT. As of June 30, 2021, the Issuer’s employees held a total of 316,187 stock options of AXT, and held a total of 533,986 restricted shares of AXT.

XXV.	Overall conclusive opinions on this Offering

In summary, we believe that the Issuer meets the conditions stipulated by the Securities Law, the Company Law, the IPO Registration Measures, the STAR Market Listing Rules and other relevant laws, regulations and regulatory documents with respect to Initial Public Offering and Listing on the STAR Market, and there is no record of material violations of laws and regulations in the past three years. We have no objection to quotation of relevant contents of this Legal Opinion and the Lawyer's Report by Issuer’s Prospectus (for filing purpose), and confirms that the Prospectus (for filing purpose) will not have false records, misleading statement or material omission due to quotation of the contents of this Legal Opinion and the Lawyer's Report. This Offering of the Issuer remains subject to approval of the Shanghai Stock Exchange and registration with the China Securities Regulatory Commission; after the completion of this Offering, approval of the Shanghai Stock Exchange is required before the Issuer's shares can be listed and traded on the Shanghai Stock Exchange.

This Legal Opinion is made in four originals.

(No text below, followed by the signature page)

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(No text on this page; it is the signature page of Legal Opinion of King & Wood Mallesons on Initial Public Offering and Listing on the STAR Market of Beijing Tongmei Xtal Technology Co., Ltd.)

	<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>
King & Wood Mallesons (seal)	<br><br>Handling lawyers: XU Hui<br><br><br><br>YANG Zhenhua<br><br><br><br>WANG Anrong<br><br><br><br>Head: WANG Ling<br><br>

December 25, 2021

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The Supplementary Legal Opinion (I) of King & Wood Mallesons on Initial Public Offering and Listing of Beijing Tongmei Xtal Technology Co., Ltd. on the Science and Innovation Board

To: Beijing Tongmei Xtal Technology Co., Ltd.

King & Wood Mallesons (hereinafter referred to as We/Us) is entrusted by Beijing Tongmei Xtal Technology Co., Ltd. (hereinafter referred to as the “Issuer”) to be the Specialized Legal Adviser for the Initial Public Offering and Listing on the Science and Innovation Board of the Issuer (hereinafter referred to as the “Offering and Listing”).

The Legal Opinion of King & Wood Mallesons on Initial Public Offering and Listing of Beijing Tongmei Xtal Technology Co., Ltd. on the Science and Innovation Board (hereinafter referred to as the “Legal Opinion”) and the Lawyer’s Work Report of King & Wood Mallesons on Initial Public Offering and Listing of Beijing Tongmei Xtal Technology Co., Ltd. on the Science and Innovation Board have been issued on December 25, 2021 regarding the offering and listing matters, according to the Securities Law of the People’s Republic of China (hereinafter referred to as the “Securities Law”), the Company Law of the People’s Republic of China (hereinafter referred to as the “Company Law”), the Administrative Measures for the

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Registration of Initial Public Offering of Shares on the Science and Innovation Board (Trial) (hereinafter referred to as the “Administrative Measures for the Registration of Initial Public Offering”), the Administrative Measures for Securities Legal Business of Law Firms (hereinafter referred to as the “Administrative Measures for Securities Legal Business”), the Practical Rules for Securities Legal Business of Law Firms (Trial) (hereinafter referred to as the “Practical Rules of Securities Legal Business”), No. 12 Rules for the Preparation and Reporting of Information Disclosure by Public Securities Companies- Legal Opinions and Lawyers' Work Report on Public Securities Issuance (hereinafter referred to as “No. 12 Rules for the Preparation and Reporting”), Guidelines for the Application of Regulatory Rules- Law No. 2: Detailed Practical Rules of Law Firms Engaged in the Legal Business of Initial Public Offering and Listing (hereinafter referred to as the “Detailed Practical Rules of Initial Legal Business”) and other existing effective laws, administrative rules, regulations and normative documents in the People’s Republic of China (hereinafter referred to as “China”), (for the purpose of the Supplementary Legal Opinion, excluding Hongkong Special Administrative Region, Macao Special Administrative Region and Taiwan Region), and the relevant provisions of China Securities Regulatory Commission (hereinafter referred to as the “CSRC”), and based on the business standards, moral rules and diligent diligence spirit recognized by the practice of law.

The handling lawyers of us have reviewed the relevant legal matters according to the requirements of SZKS (Review) [2022] No. 66 - the Inquiry Letter on the First Round Examination of the Application Documents of Beijing Tongmei Xtal Technology Co., Ltd. for Initial Public Offering and Listing on the Science and Innovation Board (hereinafter referred to as the “Inquiry Letter”) issued by Shanghai Stock Exchange on February 9, 2022; meanwhile, whereas, Ernst & Young was entrusted by the Issuer to review the financial and accounting statements of the Issuer until December 31, 2021, and issued Ernst & Young Hua Ming (2022) Shen Zi No. 61641535_B01 Audit Report on Beijing Tongmei Xtal Technology Co., Ltd. (hereinafter referred to as the “Updated Audit Report”) as well as Ernst & Young Hua Ming (2022) Zhuan Zi No. 61641535_B03 Internal Control Audit Report on Beijing Tongmei Xtal

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Technology Co., Ltd. (hereinafter referred to as the “Updated Internal Control Report”) respectively on March 15, 2022, the handling lawyers of the King & Wood Mallesons supplemented the audit of legal matters involved in the relevant changes of the Offering and Listing of the Issuer for the period from the relevant deadline of the Period from July 1, 2021 to December 31, 2021 (hereinafter referred to as the “Period” ) or the Legal Opinion to the relevant deadline of the Supplementary Legal Opinion, and issued the Supplementary Legal Opinion, and updated the Lawyer’s Work Report of us on Initial Public Offering and Listing of Beijing Tongmei Xtal Technology Co., Ltd. on the Science and Innovation Board (hereinafter referred to as the “Lawyer’s Work Report”). The “Reporting Period” mentioned in the Supplementary Legal Opinion refers to 2019, 2020 and 2021.

The Supplementary Legal Opinion forms an integral part of the Legal Opinion and Lawyer’s Work Report issued by us. The premises, assumptions and definitions of relevant terms in the Legal Opinion and Lawyer’s Work Report of us are also applicable to the Supplementary Legal Opinion. The relevant interpretations or abbreviations of the Legal Opinion and the Lawyer’s Work Report shall also apply to the Supplementary Legal Opinion unless otherwise specified. For matters specially described in the Supplementary Legal Opinion, the description herein shall prevail.

We only expresses opinions on legal issues related to the Offering and Listing of the Issuer, and does not express opinions on non-legal professional matters, such as accounting, audit and asset evaluation in the Supplementary Legal Opinion. We only expresses opinions according to the current effective laws and regulations in China, and does not express opinions according to any laws outside China. We do not express opinions on non-legal professional matters, such as accounting, audit and asset evaluation and overseas legal matters. When quoting some data and conclusions of relevant Accounting Reports, Audit Report, Asset Evaluation Report and Overseas Legal Opinions in the Supplementary Legal Opinion, we have fulfilled the necessary duty of care, but such quoting is not regarded as any express or implied guarantee of us for the

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authenticity and accuracy of the conclusion on these data, since we are not qualified for verifying and evaluating such data.

The Supplementary Legal Opinion is only used by the Issuer for the purpose of the Offering and Listing, and shall not be used for any other purpose. We agree to take the Supplementary Legal Opinion as the necessary legal document for the Application for the Offering and Listing of Issuer, submit it to Shanghai Stock Exchange and the CSRC together with other Application materials for review, and bear corresponding legal liabilities for the Supplementary Legal Opinion issued according to the law. We agree that the Issuer shall quote the relevant contents of the Supplementary Legal Opinion in the relevant documents prepared for the Offering and Listing by itself or according to the review requirements of the CSRC and Shanghai Stock Exchange, but the Issuer shall not cause legal ambiguity or misinterpretation due to the quotation. We have the right to review and confirm the contents of the above relevant documents again.

According to the business standards, ethics and the spirit of diligence recognized by the practice of law, we have verified the issues related to the lawyer of the Issuer in the Inquiry Letter and the updated related to the Offering and Listing of the Issuer, and now issue the Supplementary Legal Opinion as follows:

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Table of Contents

Part I Reply to the Inquiry Letter	62
I. Question 1 of the Inquiry Letter: About Asset Restructuring	63
II. Question 2 of the Inquiry Letter: About Independence	67
III. Question 6 of Inquiry Letter: About Historical Evolution	79
IV. Question 19 of the Inquiry Letter: About Spin Off Listing	94
V. Question 20 of the Inquiry Letter: Other Questions	100
Part II Update of the Issuer’s Information Related to the Offering and Listing	106
I. Approval and Authorization of the Offering and Listing	106
II. Subject Qualification of the Offering and Listing	106
III. Substantive Conditions for the Offering and Listing	107
IV. Independence of the Issuer and Its Changes	112
V. Changes in Sponsors and Shareholders	112
VI. Share Capital of the Issuer and its Evolution	119
VII. Business of the Issuer	119
VIII. Related Party Transactions and Horizontal Competition and Their Changes	123
IX. Main Properties of the Issuer and Their Changes	129
X. Significant Changes in the Debt of the Issuer	136
XI. Significant Asset Changes and Mergers and Acquisitions of the Issuer	138
XII. Amendment to the Articles of Association of the Issuer	138
XIII. Rules of Procedure and Regulated Operation of the General Meeting of Shareholders, the Board of Directors and the Board of Supervisors of the Issuer	138
XIV. Directors, Supervisors, Senior Managers and Core Technicians of the Issuer and Their Changes	140
XV. Tax of the Issuer and its Changes	145
XVI. Environmental Protection, Product Quality, Technology and Other Standards of the Issuer	151
XVII. Labor and Social Security of the Issuer	152
XVIII. Application of Offering Proceeds by the Issuer	153
XIX. Litigation, Arbitration or Administrative Punishment	154
XX. Evaluation of the Legal Risk of the Issuer’s Prospectus	156
XXI. Other Issues to be Explained by the Attorney	156

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XXII. General Concluding Comments on the Offering and Listing	157
Annex I: New Land Use Right of the Issuer and Its Holding Subsidiaries Obtained the Ownership Certificate	159
Annex II: New Trademarks of the Issuer and Its Holding Subsidiaries	160
Annex III: New Patents of the Issuer and Its Holding Subsidiaries	162

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Part I Reply to the Inquiry Letter

I. Question 1 of the Inquiry Letter: About Asset Restructuring

According to the submissions, 1) in December 2020, with a view to combine business resources and settle the issue of horizontal competition, AXT and relevant shareholders added investment in the Issuer with 100% equities of Beijing Boyu, Baoding Tongmei, Chaoyang Tongmei, Nanjing Jinmei and Chaoyang Jinmei, which become the subsidiaries wholly owned by the Issuer after the capital increase; 2) the price of capital increase by AXT and relevant shareholders this time through restructuring is RMB1.36 per unit of registered capital, and the price of equity transfer and capital increase by the Issuer in January 2021 was RMB5.03/registered capital; 3) the Issuer was reissued Business License on December 29, 2020. Ernst & Young Hua Ming issued Capital Verification Report on January 28, 2021, confirming that the newly added registered capitals paid by investors have been received; 4) AXT is a NASDAQ listed company subject to accounting standard of US-GAAP, and the accounting standard implemented by the Issuer in this declaration is Chinese accounting standard; 5) in this asset restructuring, the Issuer believes that the ratios of total assets and business incomes of acquired entity and the Issuer were 91.94% and 33.41% respectively in 2019.

The Issuer is required to explain: (1) the transaction pricing method of the Company and acquired entities in this asset restructuring, evaluation of main parameters and fairness, the reason and reasonableness of large difference between the value estimated at this asset restructuring of the Company and the value estimated in January 2021 when the third party adds investment; (2) the time when the equities of five subsidiaries such as Beijing Boyu were transferred and included in consolidated statement, and the time when this asset restructuring was completed; (3) the main operating business, operation status, main financial data and applicable accounting standards of parent company and acquired entity during reporting period, calculation procedure of comparison of relevant financial indexes, and whether standard application is consistent; (4) business positioning and work division, specific products and mutual relation between the Company and its subsidiaries after asset restructuring; (5) the integration measures adopted by the Company in assets, business and personnel, and their effect, the measures and effect of controlling each subsidiary, and whether there is any risk of influencing stability of main operating business of the Company and effective control of subsidiaries.

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The Sponsor and Reporting Accountant are requested to explain the verification procedure performed for the valuation report of the Issuer and acquired entity in this asset restructuring, and give express opinions on fairness of transaction price.

The Sponsor and Issuer’s Attorney are requested to give express opinions on whether or not the Issuer meets relevant rules based on the time of completion of this asset restructuring and comparison of relevant financial indexes.

Reply:

(I) Whether the Issuer meets the requirements of relevant rules

1.Completion time of the asset restructuring

According to its industrial and commercial registration materials, the restructured party (acquired entity) involves following dates during procedure of this asset restructuring:

Items	Chaoyang Tongmei	Baoding Tongmei	Nanjing Jinmei	Chaoyang Jinmei	Beijing Boyu
Date of Equity Transfer Agreement	December 25, 2020	December 25, 2020	December 25, 2020	December 25, 2020	December 29, 2020
Date of resolutions of general meeting/board meeting	December 25, 2020	December 25, 2020	December 25, 2020	December 25, 2020	December 29, 2020
Date of modification of articles of association	December 25, 2020	December 25, 2020	December 25, 2020	December 25, 2020	December 29, 2020
Date of industrial and commercial modification	31 Dec. 2020	January 12, 2021	December 30, 2020	31 Dec. 2020	December 30, 2020

According to Capital Increase Agreement signed by restructuring party (Tongmei Limited) and original shareholders of restructured party (acquired entity), acquiring new equities of restructuring party by original shareholders of restructured party is subject to registration of industrial and commercial change and issuance of business license. Tongmei Limited completed industrial and commercial change for this asset restructuring and was reissued the new business license on December 29, 2020, therefore, original shareholders of restructured party acquired the new equities of restructuring party on December 29, 2020.

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In light of the provisions of Accounting Standards for Enterprises No.20 - Business Combination, the standards for judging the control of which restructuring party (Tongmei Limited) has over restructured party (acquired entity) and the actual circumstance is as follows:

No.	Conditions of realizing control transfer	Actual circumstance of control transfer
1	The contract or agreement of business combination has been adopted in the general meeting	The equity transfer agreement has been adopted in the meetings of board of directors or general meetings of the parties on December 25 or December 29, 2020.
2	The business combination has been approved by competent authority of the state (if necessary)	It is unnecessary for this asset restructuring to be approved by the competent authority of the state.
3	The parties participating in the combination have completed necessary formalities of transfer of property rights	The equity transfer agreement has been executed on December 25 or December 29, 2020, and the parties confirm that closing of relevant equities has been completed on the execution date of the agreement.
4	The combining or acquiring party has paid most of the combination price (usually more than 50%), and has capacity and plan to pay the remaining price	On December 29, 2020, original shareholders of restructured party acquired new equities of Tongmei Limited (consideration of restructuring), indicating that the restructuring party has paid all consideration of restructuring.
5	The combining or acquiring party has controlled the finance and business policies of the combined or acquired party, having corresponding benefits and assuming corresponding risks.	As at December 29, 2020, the restructuring party has controlled the finance and business policies of the restructured party, having shareholders’ rights and benefits, and assuming shareholders’ obligations and relevant risks.

As mentioned in aforesaid form, as at December 29, 2020, the control over restructured party (acquired entity) has been transferred to the Issuer, so it is deemed that this asset restructuring has been completed on December 29, 2020.

2.Comparison of relevant financial indicators

According to the Financial Statements of the Reorganizer (Tongmei Xtal) and the Reorganized Party (Acquired Subject) provided by the Issuer during the Reporting Period, and through the interview of our lawyers with the CFO of the Issuer, the calculation process of the comparison of relevant financial indicators of all parties in this asset reorganization is as follows:

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In RMB0’000

Entity/Item	Total assets at end of 2019	Operation revenue in 2019	Total profits of 2019
Beijing Tongmei A	80,072.95	35,728.47	-1,507.98
Baoding Tongmei B	28,635.15	1,953.43	-2,902.24
Chaoyang Tongmei C	24,219.28	2,470.16	-1,457.28
Chaoyang Jinmei D	7,005.23	1,095.62	360.31
Nanjing Jinmei E	9,340.66	5,781.28	942.58
Beijing Boyu F	12,659.92	9,492.30	1,541.82
Offsetting Transactions with Reorganizer G	-8,238.45	-8,856.82	-881.63
Total amount of acquired entity H(=B+C+D+E+F+G)	73,621.79	11,935.97	-2,396.44
Proportion (=H/A)	91.94%	33.41%	N/A

In accordance with the provisions of “Opinions on Application of Article 12 (No material change happens on main operating business of the Issuer in recent 3 years) of The Measures for the Administration of Initial Public Offering and Listing of Stocks - Opinions No. 3 on Application of Securities and Futures Laws” (hereinafter “Opinions No. 3”), If the Issuer restructures the same, similar or relevant businesses under the same corporate controlling person during the reporting period, and the total assets of the restructured party at the end of the accounting year immediately preceding the restructuring or its operating income or total profits of preceding accounting year are not less than 100% of corresponding item of the Issuer prior to restructuring, the Issuer cannot apply for public offering until it has operated for an accounting year after restructuring so that investors can know the overall operation after restructuring. If there is any related transaction between the restructured party and the Issuer in the accounting year prior to the restructuring, the total assets, operating income or total profits shall be calculated based on the standard after deducting such transaction.

As showed in aforesaid form, the total assets at end of 2019, the operating income and total profits of the restructured party in 2019 were less than corresponding items of the Issuer, so it does not fall in the circumstance stipulated by Opinions No. 3 where the application can only be made after operating for a full accounting year after restructuring; the time of completing this asset restructuring and comparison of relevant financial indexes comply with relevant laws and statutes.

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(II) Verification procedures and opinions

Our Attorney has carried out the following verification procedures with respect to the aforesaid issues:

Checking resolutions of general meetings and the board meetings, articles of association, equity transfer agreement, capital increase agreement, industrial & commercial registration materials and the new business license after change, consulting relevant provisions of Guide on Application of Accounting Standards for Business Enterprises No. 20 - Business Combinations, and checking the time of completion of this asset restructuring;
Checking financial statements of the restructuring party (Tongmei Limited) and the restructured party (acquired entities) within the reporting period offered by the Issuer, calculating the proportions of the total assets of the restructured party at the end of accounting year immediately preceding restructuring or the business income or total profits in the preceding accounting year to corresponding items of the Issuer prior to restructuring, and checking if complying with relevant laws and statutes such as Opinions No. 3.

Upon verification, we believe that the time of completing this asset restructuring is December 29, 2020; the total assets of the restructured party at end of 2019, and its business income and total profits for the year of 2019, are less than corresponding items of the Issuer, not falling in the circumstance stipulated by Opinions No. 3 where the application for public offering can only be made after operating for a full accounting year after restructuring; the time of completing this asset restructuring and comparison of relevant financial indexes comply with relevant laws and statutes.

II. Question 2 of the Inquiry Letter: About Independence

2.3

According to the submissions, 1) In November 2021, the Issuer signed a technology license agreement and a trademark license agreement with AXT, in which AXT granted its own intellectual property rights, authorized patents and pending patents to the Issuer and its holding subsidiaries, and granted a trademark license to the Issuer and its subsidiaries; 2) The Issuer owns 42 domestic invention patents, four (4) of which are jointly owned by the Issuer and AXT. The jointly owned patents are of great importance to the production and operation of the Issuer. No agreement or other arrangements

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between the Issuer and AXT have been signed in respect of the four (4) jointly owned patents, which the Issuer may use independently under the Patent Act.

The Issuer is required to explain: (1) whether the intellectual property rights such as patents, technologies and trademarks necessary for the Company’s production and operation have been transferred or authorized to the Company; (2) AXT has already no actual business, the reason for taking the licensing mode rather than transfer and the fairness of the license fee; (3) For the jointly owned patents, whether there are currently arrangements for licensing to third parties in the use and planning of AXT.

The Issuer’s Attorney shall check Q (1) and give a clear opinion.

Reply:

(I) Whether patents, technologies, trademarks and other intellectual property rights necessary for the Company’s production and operation have been transferred or authorized to the Company

1.Transfer or authorization of patent and technology

According to the List of Patent and Description Confirmation provided by AXT, as well as the Patent Verification Opinions issued by Clements Bernard Walker PLLC, Studio Torta S.p.A, RYUKA IP LAW FIRM, YOU ME PATENT & LAW FIRM, Norton Rose Fuibright Canada LLP, and Tsai, Lee & Chen’s International Trademark and Patent Office, and through the retrieval query on the China and Global Patent Examination Information Inquiry (Website: ), as of February 28, 2022, the authorized patents held by AXT and its subsidiaries except the Issuer are as follows:

			<br><br>
No.	Patent Name	Patentee	Country/<br><br>Regions	Application/Patent No.	Application Field
1	반도체결정들을 강성 지지물로 탄소도핑과 저항률제어 및 열경사도제어에 의해 성장시키기 위한 방법 및 장치	AXT	Korea	10-0966182	Single crystal growth

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			<br><br>
No.	Patent Name	Patentee	Country/<br><br>Regions	Application/Patent No.	Application Field
2	炭素ドーピング、抵抗率制御、温度勾配制御を伴う、剛性サポートを備える半導体結晶を成長させるための方法および装置	AXT	Japan	4324467	Single crystal growth
3	METHOD AND APPARATUS FOR GROWING SEMICONDUCTOR CRYSTALS WITH A RIGID SUPPORT WITH CARBON DOPING AND RESISTIVITY CONTROL AND THERMAL GRADIENT CONTROL	AXT	Canada	CA 2452542	Single crystal growth
4	炭素ドーピング、抵抗率制御、温度勾配制御を伴う、剛性サポートを備える半導体結晶を成長させるための方法および装置	AXT	Japan	5005651	Single crystal growth
5	METHOD AND APPARATUS FOR GROWING SEMICONDUCTOR CRYSTALS WITH A RIGID SUPPORT WITH CARBON DOPING AND RESISTIVITY CONTROL AND THERMAL GRADIENT CONTROL	AXT	The United States	US 6,896,729 B2	Single crystal growth
6	LOW ETCH PIT DENSITY (EPD) SEMI-INSULATING III-V WAFERS	AXT	The United States	US 8,361,225 B2	Single crystal growth
7	LOW ETCH PIT DENSITY (EPD) SEMI-INSULATING GAAS WAFERS	AXT	The United States	US 7,566,641 B2	Single crystal growth
8	ガリウムベース材料及び第ＩＩＩ族ベース材料の製造方法	AXT	Japan	6008144	Polycrystal synthesis
9	単結晶ゲルマニウムの結晶成長システム、方法および基板	AXT	Japan	5497053	Single crystal growth
10	SYSTEMS, METHODS AND SOLUTIONS FOR CHEMICAL POLISHING OF GAAS WAFERS	AXT	The United States	US 8,318,042 B2	Polishing
11	METHODS FOR MANUFACTURING MONOCRYSTALLINE GERMANIUM INGOTS/WAFERS	AXT	Europe	EP2510138B1	Single crystal growth

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			<br><br>
No.	Patent Name	Patentee	Country/<br><br>Regions	Application/Patent No.	Application Field
	HAVING LOW MICRO-PIT DENSITY (MPD)
12	マイクロピット密度（ＭＰＤ）が低いゲルマニウムのインゴットを製造する方法、およびゲルマニウム結晶を成長させる装置	AXT	Japan	5671057	Single crystal growth<br>furnace manufacturing
13	CRYSTAL GROWTH APPARATUS AND METHOD	AXT	The United States	US 8,231,727 B2	Single crystal growth<br>furnace manufacturing
14	微坑密度（ＭＰＤ）低之鍺鑄錠/晶圓及用於其製造之系統和方法	AXT	Taiwan, the PRC	I 513865	Single crystal growth
15	SYSTEMS, METHODS AND SUBSTRATES OF MONOCRYSTALLINE GERMANIUM CRYSTAL GROWTH	AXT	The United States	US 8,506,706 B2	Single crystal growth
16	GERMANIUM INGOTS/WAFERS HAVING LOW MICRO-PIT DENSITY (MPD) AS WELL AS SYSTEMS AND METHODS FOR MANUFACTURING SAME	AXT	The United States	US 8,647,433 B2	Single crystal growth
17	激光可调节深度标记系统和方法	AXT, Issuer	P. R. China	2008100006750	Measurement
18	制造低腐蚀坑密度半绝缘砷化镓晶片的方法及其产品	AXT, Issuer	P. R. China	2008100009388	Single crystal growth
19	锗晶体生长的方法和装置	AXT, Issuer	P. R. China	2008101770060	Single crystal growth
20	具有低微坑密度（MPD）的锗锭/晶圆和其制造系统及方法	AXT, Issuer	P. R. China	2010800022161	Single crystal growth
21	非水系二次電池	Tandie Technologies, LLC	Japan	JP5156826	Battery related fields

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No.	Patent Name	Patentee	Country/ Regions	Application/Patent No
22	非水二次电池	Tandie Technologies, LLC	P. R. China	2009801146313
23	NONAQUEOUS SECONDARY BATTERY	Tandie Technologies, LLC	The United States	US8669010
24	NONAQUEOUS SECONDARY BATTERY	Tandie Technologies, LLC	The United States	US8431267

On November 4, 2021, AXT signed a Technology License Agreement with the Company, stating that: AXT licenses all of its issued patents and pending patents and intellectual property rights (referring to trade secrets, contractual and licensing rights and other existing and/or future technology property rights, including updates and extensions thereof) to the Issuer and its controlling subsidiaries; The license covers the manufacture, use, sale, display, reproduction and distribution of gallium arsenide, indium phosphide and germanium crystals and substrate products worldwide; The license term is effective from January 1, 2021 and is valid forever.

In summary, all patents and technologies necessary for the Company’s production and operation have been transferred or authorized to the Company.

2.Transfer or authorization of trademark

According to the list of trademarks and the confirmation of description provided by AXT, and the trademark verification opinions issued by Clements Bernard Walker PLLC, Studio Torta S.P.A, RYUKA IP LAW FIRM and Tsai, Lee & Chen’s International Trademark and Patent Office, our lawyers have logged in to China Trademark Network (website: http://sbj.cnipa.gov.cn/sbcx/) for retrieval query, and checked the status of registered trademarks owned by AXT as of February 28, 2022 as follows.


No.	Trademark No.	Country/region	Trademark	Right Holder
1	G1097820	P. R. China		AXT
2	1728076	P. R. China		AXT

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No.	Trademark No.	Country/region	Right Holder
3	5536582	P. R. China	AXT
4	01001812	Taiwan, the PRC	AXT
5	01543232	Taiwan, the PRC	AXT
6	00964723	Taiwan, the PRC	AXT
7	1097820	Japan	AXT
8	4490456	Japan	AXT
9	4488361	Japan	AXT
10	1097820	Norway	AXT
11	2981244	The United States	AXT
12	3725141	The United States	AXT
13	1097820	Korea	AXT
14	526305	Korea	AXT
15	519696	Korea	AXT
16	1097820	Iceland	AXT
17	010346179	European Union	AXT

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No.	Trademark No.	Country/region	Trademark	Right Holder
18	UK00910346179	Britain		AXT
19	1097820	International		AXT

According to the instructions of the Company, the instructions of AXT and the interview with Chairman of AXT and the General Manager of the Issuer by our lawyers, the Company is in the semiconductor material industry, whose business development does not rely heavily on trademarks, so the above trademarks are not necessary for the production and operation of the Company. As a holding subsidiary of AXT, the Company mainly uses relevant trademark patterns in daily management of enterprise, internal identification in plant and product packaging. In order to ensure the continuity of the Company’s business management and trademark use, the Company signed a Trademark License Agreement with AXT on November 4, 2021, which stipulates that: AXT will license the above trademarks to the Company and its subsidiaries for free as an integral part of the Company’s corporate name for the manufacture, marketing and sale of products; The license term begins on March 1, 2021 and is valid forever.

In summary, AXT has licensed the relevant registered trademarks owned by itself to the Company for free.

(II) Verification procedures and opinions

Our Attorney has carried out the following verification procedures with respect to the aforesaid issues:

Refer to the patent list and description confirmation provided by AXT, as well as the patent verification opinions issued by Clements Bernard Walker PLLC, Studio Torta S.p.A, RYUKA IP LAW FIRM, YOU ME PATENT & LAW FIRM, Norton Rose Fuibright Canada LLP and Tsai, Lee & Chen’s International Trademark and Patent Office, log in China and international patent examination information query system (http://cpquery.sipo.gov.cn/) for retrieval query, and check AXT’s authorized patents and their application fields.
Refer to the Technology License Agreement signed by AXT and the Issuer and AXT’s description confirmation, interview the chairman of AXT and the general manager of the Issuer,

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and verify that AXT has licensed its owned patent to the Issuer.

Refer to the list of trademarks and the confirmation of description provided by AXT, and the trademark verification opinions issued by Clements Bernard Walker PLLC, Studio Torta S.P.A, RYUKA IP LAW FIRM and Tsai, Lee & Chen’s International Trademark and Patent Office, log in to China Trademark Network (website: http://sbj.cnipa.gov.cn/sbcx/) for retrieval query, and check the status of registered trademarks owned by AXT.
Refer to the Trademark License Agreement signed by AXT and the Issuer, and AXT’s description confirmation, interview the chairman of AXT and the general manager of the Issuer, and verify that AXT licenses its owned registered trademark to the Issuer.

After verification, we believe that:

All patents and technologies necessary for the Company’s production and operation have been transferred or authorized to the Company.
The Issuer belongs to the semiconductor material industry and does not have significant dependence on trademarks for business development; The relevant registered trademarks owned by AXT are not necessary trademarks for the Company’s production and operation, but in order to ensure the continuity of the Company’s business management and trademark use, AXT has licensed the relevant registered trademarks owned by itself free of charge to the Issuer for use.

2.5

The Sponsor and Issuer’s Attorney shall specify whether the Issuer business is complete, whether the relevant sales, procurement, assets, personnel and technology are confused with the controlling shareholders and the companies they control and share in and whether the Issuer has verification procedures, evidences and conclusions performed for the independent ability to continue operations directly to the market, and give a clear opinion on whether the Issuer meets the requirements of the relevant rules for business integrity and independence.

Reply:

( I ) Basic information of the Issuer

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According to the relevant materials, clarifications and confirmation letters provided by the Issuer and AXT, and through the interview with the chairmen of the Issuer and AXT by our Attorney, the relationship between the Issuer and its controlling shareholder AXT in terms of sales, procurement, assets, labor force, technology and so on, is as follows:

As regards sales and procurement, before March 2021, based on the unified arrangement within the Group, the Issuer sold semiconductor substrate material products and also purchased some main raw materials overseas through AXT. After March 2021, the business handover between AXT and AXT-Tongmei, a subsidiary of the Issuer, was completed whereupon AXT-Tongmei was independently responsible for overseas procurement and sales, while AXT no longer engaged in specific business after accomplishing the ongoing orders.

As regards assets and technology, in addition to independent plants, equipment and sound production processes, the Issuer has formed patented and non-patented technologies during production and R&D. In November 2021, the Company entered into a Technology License Agreement and a Trademark License Agreement with AXT, whereby it is agreed that AXT shall grant the Company and its controlled subsidiaries licenses to use AXT’s intellectual property rights, patents (whether issued or pending) and trademarks on a perpetual basis. In 2021, AXT-Tongmei, a subsidiary of the Company, rented real estate from AXT as office space against paying the corresponding rent, the real estate of which is only used by AXT-Tongmei for daily office work, without a material impact on the Company’s business and asset independence.

As regards labor force, since March 2021, AXT has handed over its business to AXT-Tongmei, with its relevant sales, procurement and R&D teams having signed labor contracts with the latter, while only retaining some necessary personnel to be responsible for information disclosures, investor relations, finances and other related matters in the US capital market. The Issuer independently perform funtions such as procurement, sales, R&D and management.

To sum up, the Issuer maintains its business integrity, having no confusion with AXT and the companies controlled or invested by the latter in respects of relevant sales, procurement, assets, labor force and technology. The Issuer has the ability to directly conduct market-oriented operations as an independent going concern.

(II) The verification procedures performed and the verification evidences on whether the business of the Issuer is complete, whether the

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relevant sales, procurement, assets, personnel and technology are confused with the controlling shareholders and the companies they control and share in, and whether the Issuer has the independent ability to continue operations directly to the market

On whether the business of the Issuer is complete, whether the relevant sales, procurement, assets, personnel and technology are confused with the controlling shareholders and the companies they control and share in, and whether the Issuer has the independent ability to continue operations directly to the market, The verification procedures performed by our Attorney and the verification evidences obtained are as follows:

Obtain the Issuer’s Audit Report, sales & purchase details, R&D investment details, equipment procurement details, fixed assets list, important fixed assets purchase contract and invoice, property ownership certificates such as certificate of real estate title and list & certificates of intellectual property rights, register of employees, salary payment record, organization chart and job description, department post work standard and system and fund statements of the bank account, check the Issuer’s sales and procurement, setup of financial department and R&D department and personnel composition,, understand the ownership and use of the Issuer’s assets, and check whether there is any ownership dispute in the important assets for the Issuer’s production and operation, whether these assets are occupied by the related party and whether the assets of the related party are used; judge whether the Issuer’s business is complete;
Understand the industry policies, industry data and industry development of the industry to which the Issuer belongs, obtain the income of the main customers of the Issuer, obtain the main financial data of the major customers of the Issuer, and check whether there are significant adverse changes; Check whether there are major disputes or lawsuits over trademarks, patents, proprietary technologies and other important assets or technologies that have a significant impact on the business operation or revenue realization of the Issuer; whether there are other circumstances that significantly affect or impair the ability to continue operations;
Obtain legal opinions on the controlling shareholder AXT, AXT information disclosure announcement documents, audit reports or financial statements, procurement and sales details, procurement and sales contracts, list of fixed assets, list of intellectual property rights, register

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of employees and fund statements of bank accounts issued by the American Attorney;check the historical development, industry involved, main business, main products, main raw materials, production process, assets, personnel composition and other basic information of AXT and its controlled enterprises; determine whether AXT and the companies it controls horizontally compete with the Issuer with significant adverse effects, and determine whether the Issuer’s related sales, purchases, assets, personnel and technology are confused with the controlling shareholders and the companies they control and participate in;

Refer to the transaction details of related sales and related purchase, related transactions contracts and transaction vouchers and trademarks & technology license contracts of the Issuer in the Reporting Period, obtain the information note and interview record for related transaction issued by the related party of the Issuer, check the amount and proportion and change trend of related transactions between the Issuer and related parties, and background and authenticity of related transactions, and judge whether the Issuer has related transactions that seriously affect its independence and whether it has the ability to directly face the market and continue to operate independently;
Obtain trademark and technology usage license agreement, fund lending contracts and vouchers signed by AXT and the Issuer; Check whether the Issuer has obtained necessary authorization to use the trademarks and technologies of related parties, and judge whether the production and operation of the Issuer is significantly dependent on the authorized trademarks and technologies;
Check the files on the Issuer’s real estate, land, patents, trademarks, software copyrights and other assets through public channels, and verify the accuracy and integrity of the Issuer’s assets in light of the closing balances of inventories, fixed assets, constructions in progress and intangible assets;
Obtain the Commitment Letter on Avoiding Horizontal Competition issued by AXT;
Check the sites for production and R&D of the Issuer and its subsidiaries on the spot, the production process of the Issuer for its products, and the approval and R&D records of R&D projects; interview with relevant personnel responsible for management, procurement, sales, finance and R&D to assess whether the Company operates independently in terms of production, supply, marketing, finance and R&D;

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9. Interview with the main customers and suppliers of the Issuer during the reporting period, as well as the main customers and suppliers after looking through AXT, to see the transaction contents, transaction terms and actual implementation thereof with customers and suppliers, the history of cooperation between both parties, the recognition of customers on the quality of the Company’s products, and whether they are associated with the Issuer or involve in financial disintermediation;

Inquire basic information of the Issuer’s main customers using public data to learn the position of the Company in the industry and the position of the Company’s products in its downstream application industry through the composition of customers;
Seek confirmations from the Issuer’s main customers and suppliers during the reporting period, as well as the main customers and suppliers after looking through AXT;
Check the account statements of the Issuer, and its controlling shareholder AXT (including main officers thereof), directors, supervisors, officers, sales and procurement principals, key financial personnel, key sales staff and key procurement personnel during the reporting period to establish whether there is any financial disintermediation and disbursement.

(III) Verification Conclusions and Opinions

After verification, we believe that:

The Issuer has an independent procurement, research & development, production, sales, finance departments and related personnel, with independent procurement & sales channels, and independent and complete business system, the Issuer’s business does not depend on related parties, and the business of the Issuer is complete and has the ability of independent and continuous operation directly facing the market;
As of the issuance date of the Supplementary Legal Opinion, AXT and other enterprises under its control have no actual production and operation business who have granted licenses on their patents, trademarks and other intellectual property rights to the Company for permanent use; In order to ensure the stability of raw material procurement of the Company and avoid supply interruption and shortage, the Company or the controlling shareholder AXT also deepened the cooperative relationship between both sides through equity participation. Beijing Jiya, Jiamei Hi-purity, Tongli Germanium and Dongfang Hi-purity invested by AXT

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all operate independently, with their main businesses being the upstream extension of the main business of the Issuer. There is no confusion between the Issuer and its controlling shareholders or the companies controlled or invested by the latter as to relevant sales, procurement, assets, personnel and technology;

The Issuer’s business is complete and has the ability to continue operation directly and independently in the market. There is no horizontal competition that has a material adverse effect on the Issuer between the Issuer and the controlling shareholders and other enterprises controlled by the Issuer, and there is no related transaction that seriously affects the independence of the Issuer, which complies with the requirements of business integrity and independence in related rules such as Article 12 of the Administrative Measures for the Registration of Initial Public Offerings of the Science and Technology Innovation Board, and Articles 4.1.3 & 4.1.4 of Section I Controlling Shareholder and Actual Controller in Chapter IV Internal Governance of Listing Rules of the Science and Technology Innovation Board.

III. Question 6 of Inquiry Letter: About Historical Evolution

6.1

According to the submissions, Beijing Tongzhou District Industrial Development Zone Corporation (hereinafter referred to as “Industrial Development Zone Corporation”) and AXT jointly established Tongmei Limited, the Issuer’s predecessor, in 1998. In 2001, Industrial Development Zone Corporation transferred its equity interests to AXT, thereby exiting from the Issuer. Industrial Development Zone Corporation was an enterprise owned by the whole people. According to the then applicable provisions, Industrial Development Zone Corporation should conduct an asset appraisal when it exited from Tongmei Limited and obtain a confirmation notice from the competent state-owned assets administration authorities in charge of examination and approval matters, or file the appraisal result with the competent state-owned assets administration authorities. Upon the verification by the intermediary agency, as it occurred a long time ago, the archival materials in relation to the equity transfer auditing appraisal and the receipt of equity transfer price have not been found.

The Issuer is required to explain: the necessary procedures to be performed for the exit of Industrial Development Zone Corporation and the performance thereof, the confirmation made by or filing with the competent state-owned assets authorities during

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the above process, the impact of the failure to find the documents in relation to the auditing appraisal and transfer price on the validity of the equity change, whether the exit of Industrial Development Zone Corporation complies with the relevant laws and regulations on the transfer of state-owned assets, impairs the legitimate rights and interests of the state, the collective and other third parties, or exists any dispute or potential risk.

The Issuer’s Attorney is requested to verify the above issues, explain the impact of the failure to find the documents in relation to the auditing appraisal and transfer price on the verification conclusions, and issue a clear opinion on the above issues.

Reply:

(I) Necessary procedures to be performed for the exit of Industrial Development Zone Corporation and the performance thereof, the confirmation made by or filing with the competent state-owned assets authorities during the above process

1.Specifics on the exit of Industrial Development Zone Corporation from Tongmei Limited

Based on the Issuer’s industrial and commercial archival materials, the specifics on the exit of Industrial Development Zone Corporation from Tongmei Limited are set forth below:

On June 27, 2000, Industrial Development Zone Corporation and AXT entered into the Equity Transfer Agreement, agreeing that the 1% equity interest (totaling USD30,600) held by Industrial Development Zone Corporation in Tongmei Limited is transferred to AXT, and the equity interest shall be transferred on the day immediately following the approval of the Beijing Foreign Economic and Trade Commission, and AXT shall pay USD30,600 to Industrial Development Zone Corporation in a lump sum.

On June 28, 2000, Tongmei Limited held a board meeting, approving that Industrial Development Zone Corporation transfers its 1% equity interest in Tongmei Limited to AXT.

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On July 2, 2000, Tongmei Limited held a board meeting, approving that the registered capital of Tongmei Limited is increased from USD3.06 million to USD5.06 million. On the same day, AXT signed the new articles of association of Beijing Tongmei Xtal Technology Limited.

On July 24, 2000, Beijing Tongzhou District Foreign Economic and Trade Commission issued the Reply on the Change of Enterprise Nature and the Increase in Investment Amount and Registered Capital of Beijing Tongmei Xtal Technology Limited ([2000] TWJM No. 81), agreeing that Industrial Development Zone Corporation transfers its 1% equity interest, i.e., USD30,600, in Tongmei Limited to AXT; agreeing that Beijing Tongmei will be converted from a joint venture into a wholly-owned enterprise; agreeing that the total investment of Beijing Tongmei will be increased from USD3.06 million to USD5.06 million after it becomes a wholly-owned enterprise, and the registered capital will be increased from USD3.06 million to USD5.06 million.

With respect to the above equity transfer and capital increase, Tongmei Limited obtained the Approval Certificate for Foreign-Invested Enterprise of the People’s Republic of China (WJMJZ Zi [1998] No. 0455) re-issued by the People’s Government of Beijing Municipality.

On August 30, 2000, Tongmei Limited obtained the Business License of Enterprise Legal Person re-issued by the State Administration for Industry and Commerce.

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

No.	Name of Shareholder	Subscribed capital contribution<br><br>(USD 0’000)	Paid in capital contribution<br><br>(USD0’000)	Shareholding Percentage<br><br>(%)
1	AXT	506	306	100.00
Total		506	306	100.00

2.Necessary procedures to be performed for the exit of Industrial Development Zone

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Corporation and the performance thereof, the confirmation made by or filing with the competent state-owned assets authorities during the above process

The relevant procedures to be performed by Industrial Development Zone Corporation for exiting from Tongmei Limited and the actual performance thereof are as follows:

S/N	Relevant procedures to be performed	Actual performance
1	Decision-making by the board of directors of Tongmei Limited<br>	On June 28, 2000, Tongmei Limited held a board meeting, approving that Industrial Development Zone Corporation transfers its 1% equity interest in Tongmei Limited to AXT
2	Approval by Beijing Tongzhou District Foreign Economic and Trade Commission	On July 24, 2000, the Beijing Tongzhou District Foreign Economic and Trade Commission issued the Reply on the Change of Enterprise Nature and the Increase in Investment Amount and Registered Capital of Beijing Tongmei Xtal Technology Limited ([2000] Tong Wai Jing Mao No. 81), agreeing that Industrial Development Zone Corporation transfers its 1% equity interest, i.e., USD30,600, in Tongmei Limited to AXT
3	Industrial and commercial change procedures	On August 30, 2000, Tongmei Limited obtained the Business License of Enterprise Legal Person re-issued by the State Administration for Industry and Commerce
4	Asset appraisal, and confirmation or filing procedures of appraisal results	Due to the long time span, the death or resignation of the original handlers and other reasons, no relevant archives on the procedures for the transfer of state-owned assets such as appraisal request, asset appraisal and confirmation of amount appraised regarding this equity transfer or the payment for the equity transfer price can be located; in order to solve historical problems, prevent the loss of state-owned assets and support the listing of the Issuer, the underlying equity transfer has been audited and appraised retrospectively according to the procedures and confirmed by the competent authorities, with the transfer price having been settled, which is thus in line with the relevant laws and regulations on the transfer of state-owned assets.

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Pursuant to the Administrative Measures on the Appraisal of State-owned Assets (State Council Order No. 91, November 1991) and the Rules on the Implementation of the Administrative Measures on the Appraisal of State-owned Assets (GZBF [1992] No. 36) and other applicable provisions, the exit of Industrial Development Zone Corporation from Tongmei Limited shall be subject to an asset appraisal, and is required to obtain a confirmation notice issued by the competent state-owned assets administrative authorities in charge of examination and approval matters, or file the appraisal result with the competent state-owned assets administration authorities.

According to the documents and clarifications from AXT and Industrial Development Zone Corporation, as well as the confirmation by interviewing with relevant principals of the People’s Government of Zhangjiawan Town, Tongzhou District, Beijing, the above equity transfer occurred in June 2000. Irrespective of efforts to find informed personnel and search relevant historical files with supports from the competent government authorities, no relevant archives on the procedures for the transfer of state-owned assets such as appraisal request, asset appraisal and confirmation of amount appraised regarding this equity transfer or the payment for the equity transfer price can be located due to the long time span, the death or resignation of the original handlers and other reasons, with defects thereon.

In view of the above, to solve historical problems, prevent the loss of state-owned assets and support the listing of the Issuer, relevant government departments of Tongzhou District have, under the organization of the People’s Government of Zhangjiawan Town, Tongzhou District, Beijing, jointly approved the implementation of retroactive audit and evaluation procedures on the above matters (taking May 31, 2000 as the base date), and determined that the People’s Government of Zhangjiawan Town, Tongzhou District, Beijing and the Tongzhou Management Committee of Zhongguancun Science Park (i.e. the Park Management Committee of the People’s Government of Tongzhou District, Beijing) shall jointly confirm the retrospective audit and appraisal results, and issue corresponding supporting materials according to the listing-related audit requirements.

Tihuasic (Beijing) Certified Public Accountants Co., Ltd. and Tianhua Xiangtong (Beijing) Assets Appraisal Co., Ltd. respectively issued the Audit Report of Beijing Tongmei Xtal Technology Co., Ltd. (Tianhua Zhengxin (2022) Shen Zi No. N006 ) and the Retrospective

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Assets Appraisal Report of All Interests of Shareholders in Beijing Tongmei Xtal Technology Co., Ltd. Involved by the Equity Value Intended to be Known by Beijing Tongzhou District Industrial Development Zone Corporation and Beijing Tongmei Xtal Technology Co., Ltd. (Tianhua Xiangtong (2022) No. 2-1). According to the retrospective audit and appraisal results, as of May 31, 2000, the value of equity interests of shareholders in Beijing Tongmei is RMB48.24 million; as calculated based on 1% equity interest, the value of equity interest held by Industrial Development Zone Corporation in Beijing Tongmei is RMB482,400. Upon the mutual agreement between Industrial Development Zone Corporation and AXT and the confirmation by entering into a written supplementary agreement, AXT shall pay Industrial Development Zone Corporation a sum of RMB1,101,686 in principal and interest for the equity transfer, and as of the date hereof, such amount has been fully paid

In March 2022, the superior competent authorities of Industrial Development Zone Corporation i.e. the People’s Government of Zhangjiawan Town, Tongzhou District, Beijing and the Tongzhou Management Committee of Zhongguancun Science Park jointly issued a Statement of Fact, confirming that “the appraisal method and result as used by the retrospective appraisal are reasonable, and accordingly, the equity transfer price is determined to be RMB482,400. Industrial Development Zone Corporation has received the equity transfer price and interest thereof, totaling RMB1,101,686 in full”; “The Industrial Development Zone Corporation has performed the retrospective appraisal procedure for its exit from Tongmei Limited, the transfer price has been paid in full, and the equity transfer is true and valid, in compliance with the relevant laws and regulations on the transfer of state-owned assets, without any damage to the legitimate rights and interests of the state, the collective and other third parties, and without any dispute or potential risk.” In addition, according to the interview with relevant leaders of the People’s Government of Zhangjiawan Town, Tongzhou District, Beijing by our lawyers, the quit procedures of the Development Zone Head Office from the Issuer are complete, and the equity transfer is true and effective.

In conclusion, the exit of Industrial Development Zone Corporation from Tongmei Limited has performed such procedures as the decision-making of the board of directors of Tongmei Limited, the approval of Beijing Tongzhou District Foreign Economic and Trade Commission and the industrial and commercial change procedure. The defects of failure to locate relevant archives on the procedures for the transfer of state-owned assets such as appraisal request, asset appraisal and confirmation of amount appraised regarding such equity

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transfer and the payment for the equity transfer price have been rectified by the entities involved having performed the retrospective appraisal procedures and obtained the confirmation from the competent authorities, and the transfer price has been settled, which is in compliance with the applicable laws and regulations on the transfer of state-owned assets.

(II) Impact of the failure to find the documents in relation to the auditing appraisal and transfer price on the validity of the equity change

According to the requirements on this offering and listing, AXT and the Issuer have applied to Industrial Development Zone Corporation for confirming the fact of the equity transfer. Industrial Development Zone Corporation issued a Statement of Fact on December 19, 2021, confirming that “Industrial Development Zone Corporation invested in and became a shareholder of Tongmei Limited in August 1998, and entered into the Equity Transfer Agreement with AXT, Inc. in June 2000, thereby transferring all shares held in Tongmei Limited to AXT, Inc., and the approval and industrial and commercial change procedures have been completed with Beijing Tongzhou District Foreign Economic and Trade Commission, AXT, Inc. therefore became the sole shareholder of Tongmei Limited”.

In addition, with respect to the defects of failure to locate relevant archives on the procedures for the transfer of state-owned assets such as appraisal request, asset appraisal and confirmation of amount appraised regarding this equity transfer or the payment for the equity transfer price, the superior competent authorities of Industrial Development Zone Corporation i.e. the People’s Government of Zhangjiawan Town of Tongzhou District, and Tongzhou Administrative Commission of Zhongguancun Science and Technology Park jointly issued a Statement of Fact on March 18, 2022, confirming that “the Industrial Development Zone Corporation has performed the retrospective appraisal procedure for its exit from Tongmei Limited, the transfer price has been paid in full, in compliance with the relevant laws and regulations on the transfer of state-owned assets, without any damage to the legitimate rights and interests of the state, the collective and other third parties, and without any dispute or potential risk”. According to the interview with the relevant leaders of the People’s Government of Zhangjiawan Town, Tongzhou District, Beijing by our lawyers, the procedures for the quit of the Development Zone Head Office from the Issuer are complete, and the equity transfer is true and effective.

In conclusion, we believe that, the failure to find the documents in relation to the auditing

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appraisal and transfer price.

(III) Whether the exit of Industrial Development Zone Corporation complies with the relevant laws and regulations on the transfer of state-owned assets, impairs the legitimate rights and interests of the state, the collective and other third parties, or exists any dispute or potential risk

As mentioned above, the People’s Government of Zhangjiawan Town, Tongzhou District, Beijing and the Tongzhou Management Committee of Zhongguancun Science Park as the superior competent authorities of Industrial Development Zone Corporation issued a Statement of Fact jointly on March 18, 2022 confirming that Industrial Development Zone Corporation has performed the retrospective appraisal procedure for its exit from Tongmei Limited, the transfer price has been paid in full, in compliance with the relevant laws and regulations on the transfer of state-owned assets, without any damage to the legitimate rights and interests of the state, the collective and other third parties, and without any dispute or potential risk.

(IV) Verification Procedures and Opinions

Our Attorney has carried out the following verification procedures with respect to the aforesaid issues:

Inspect the industrial and commercial archival materials of the Issuer and Industrial Development Zone Corporation, the resolution made by the board of directors with respect to the exit of Industrial Development Zone Corporation from Tongmei Limited and the approval of the Beijing Tongzhou District Foreign Economic and Trade Commission and the statements issued by the parties to the equity transfer, search for applicable laws and regulations at the time of the exit, assist the Issuer in communicating with Industrial Development Zone Corporation and the People’s Government of Zhangjiawan Town, Tongzhou District, Beijing to confirm the relevant circumstances of the exit, and verify the necessary procedures to be performed for the exit of Industrial Development Zone Corporation from Tongmei Limtied and the performance thereof.
Inspect the Audit Report of Beijing Tongmei Xtal Technology Co., Ltd. (Tianhua Zhengxin (2022) Shen Zi No. N006 ) and the Retrospective Assets Appraisal Report of All Interests of Shareholders in Beijing Tongmei Xtal Technology Co., Ltd. Involved by the Equity

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Value Intended to be Known by Beijing Tongzhou District Industrial Development Zone Corporation and Beijing Tongmei Xtal Technology Co., Ltd. (Tianhua Xiangtong (2022) No. 2-1) issued by Tihuasic (Beijing) Certified Public Accountants Co., Ltd. and Tianhua Xiangtong (Beijing) Assets Appraisal Co., Ltd. respectively, the equity transfer agreement and the supplements thereto, payment voucher of equity transfer price, the Statement of Fact issued by the People’s Government of Zhangjiawan Town, Tongzhou District, Beijing and the Tongzhou Management Committee of Zhongguancun Science Park as well as relevant documents provided thereby, and interview with the general manager of the Issuer, verify the retrospective appraisal procedures that have been performed for the exit and the confirmation obtained from the competent authorities.

Inspect the Statement of Fact issued by Industrial Development Zone Corporation and the People’s Government of Zhangjiawan Town, Tongzhou District, Beijing and Tongzhou Administrative Commission of Zhonguan Science and Technology Park for the exit, interviewed the relevant leaders of People’s Government of Zhangjiawan Town of Tongzhou District of Beijing City and verify the impact of the failure to find the documents in relation to the auditing appraisal and transfer price on the validity of the equity change, whether the exit of Industrial Development Zone Corporation complies with the relevant laws and regulations on the transfer of state-owned assets, impairs the legitimate rights and interests of the state, the collective and other third parties, or exists any dispute or potential risk.

After verification, we believe that:

The exit of Industrial Development Zone Corporation from Tongmei Limited has performed such procedures as the decision-making of the board of directors of Tongmei Limited, the approval of the Beijing Tongzhou District Foreign Economic and Trade Commission and the industrial and commercial change procedure. With respect to the defects of failure to locate relevant archives on the procedures for the transfer of state-owned assets such as appraisal request, asset appraisal and confirmation of amount appraised regarding this equity transfer and the payment for the equity transfer price, the relevant entities have performed the retrospective appraisal procedures and obtained the confirmation from the competent authorities to have such defects remedied, which is in compliance with relevant laws and regulations on the transfer of state-owned assets.
The failure to find the documents in relation to the auditing appraisal and transfer price

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will not affect the validity of the equity change or the verification conclusions made by our firm.

According to the Statement of Fact jointly issued by the People’s Government of Zhangjiawan Town, Tongzhou District, Beijing and Tongzhou Administrative Commission of Zhongguancun Science and Technology Park, and in light of our interviews with relevant persons in charge of the People’s Government of Zhangjiawan Town, Tongzhou District, Beijing, it is confirmed that Industrial Development Zone Corporation has performed the retrospective appraisal procedure for its exit from Tongmei Limited, the transfer price has been paid in full, in compliance with the relevant laws and regulations on the transfer of state-owned assets, without any damage to the legitimate rights and interests of the state, the collective and other third parties, and without any dispute or potential risk.

6.3 According to the Prospectus, 1) Nanjing Jinmei is jointly established by AXT and Nanjing Germanium Factory (later renamed China Germanium Co., Ltd.), which is invested with the extracting and purifying gallium technology. In June 2017, China Germanium Co., Ltd. transferred all its obligations and rights (shares) in the Joint Venture Contract to AXT; 2) AXT holds 5% equity of Nanjing Jinmei on behalf of Fan Jiahua, Feng Yi, Zong Hongxia and Zhang Fengxiang. From February 2018 to May 2019, AXT signed share quit agreements with Fan Jiahua, Feng Yi and Zong Hongxia (Zhang Fengxiang and Zong Hongxia were husband and wife, who died at the time of share quit). According to the interview with Zong Hongxia and the handling personnel of the above quit matters, Fan Jiahua, Feng Yi, Zong Hongxia and Zhang Fengxiang's true intention of holding shares in and quitting from Nanjing Jinmei Department indicated that the relevant funds have been paid, and there are no disputes or potential disputes over the establishment, process and dissolution of the holding.

The Issuer is required to explain: (1) the background of Nanjing Germanium Factory, whether it has completed the procedures necessary for the transfer of its obligations and rights (shares) under the joint venture contract to AXT, and whether such transfer is legal and in compliance with the law; (2) the background of and reasons for AXT’s holding of equity interest in Nanjing Jinmei on behalf of FAN Jiahua and other persons and the transfer of equity interest held by such persons; (3) the specific meaning of “persons handling the equity exit matter”, and whether there is any dispute or potential dispute in the establishment and termination of the nominee holding.

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The Issuer’s Attorney is required to verify the above and to render explicit opinions thereon.

Reply:

( I ) Background of Nanjing Germanium Factory, whether it has completed the procedures necessary for the transfer of its obligations and rights (shares) under the joint venture contract to AXT, and whether such transfer is legal and in compliance with the law

1.Background of Nanjing Germanium Factory

As indicated in the industrial and commercial registration materials of Nanjing Germanium Factory, Nanjing Germanium Factory was originally an enterprise owned by the whole people, its business scope was “main business: semiconductor materials (manufacturing); ancillary business: high-purity and ultra-high-purity non-ferrous metals; rare metals (smelting) precious metals (smelting) (excluding gold, silver, platinum)”. In July 2000, Nanjing Huajian Industry (Group) Co., Ltd. approved the conversion of Nanjing Germanium Factory into a joint-stock cooperative enterprise, its capital would be wholly funded by individuals; in May 2003, Nanjing Germanium Factory was changed into a limited liability company, and its name was changed into “Nanjing Germanium Factory Co., Ltd.”. Subsequently, the name of Nanjing Germanium Factory was successively changed into “China Germanium Limited” and “China Germanium Co., Ltd.” in August 2009 and December 2014.

According to the search result of our Attorney on the National Enterprise Credit Information Publicity System, the current basic information of Nanjing Germanium Factory is as follows:


Name:	China Germanium Co., Ltd.
Domicile:	No. 718 Jiangjun Avenue, Jiangning Development Zone, Nanjing
Unified Social Credit Code:	913201001348798234
Legal Representative:	WANG Qingwei
Registered Capital:	RMB39.6 million
Type of Company:	Limited Liability Company

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Business Scope:

R&D, production, sales and technical services of new energy materials and electronic materials; smelting of high-purity and ultra-high-purity non-ferrous metals, rare metals and precious metals; manufacturing, sales and information technology services of semiconductor materials and organic germanium; self-operated and commissioned import and export of commodities and technologies (except for commodities and technologies that are restricted or prohibited from being imported and exported by the state); leasing of devices and equipment; wholesale of hazardous chemicals (subject to the scope set forth in the license). (Businesses that are subject to approval in accordance with the law may be carried out only after being approved by relevant authorities.)

Term of Business

Indefinite period from October 16, 1990

Shareholders:

Nanjing Zhongge Investment Management Co., Ltd. holds 53.78% equity interest Xiamen Meihua Optoelectronics Technology Co., Ltd. holds 46.22% equity interest

2.Whether Nanjing Germanium Factory has completed the procedures necessary for the transfer of its obligations and rights (shares) under the joint venture contract to AXT, and whether such transfer is legal and in compliance with the law

In June 2017, Nanjing Germanium Factory transferred its obligations and rights (shares) under the Nanjing Jinmei joint venture contract to AXT. As indicated in the industrial and commercial registration materials of Nanjing Germanium Factory, when the above transfer took place, there were two shareholders of Nanjing Germanium Factory in total, i.e., Nanjing Zhongge Investment Management Co., Ltd. (a wholly-owned subsidiary of Xiamen Meihua Optoelectronics Technology Co., Ltd.) and Xiamen Meihua Optoelectronics Technology Co., Ltd. As indicated in the industrial and commercial registration materials of these companies and the search result of our Attorney on the National Enterprise Credit Information Publicity System, when the above-mentioned transfer occurs, the ultimate investors of these shareholders were all natural persons, and there is no state-owned shareholder.

On June 24, 2017, Nanjing Jinmei held a board meeting, approving that Nanjing Germanium Factory transfers all its obligations and rights (shares) under the joint venture contract to AXT at a price of RMB8,973,405. On the same day, Nanjing Germanium Factory and AXT entered into the Equity Transfer Agreement with respect to the above equity transfer.

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On June 24, 2017, AXT made a shareholders’ resolution that the shareholding percentage (cooperation interest) of AXT in Nanjing Jinmei was changed from 88% to 100%, the type of company was changed from a Sino-foreign cooperative foreign-invested enterprise to a wholly foreign-owned enterprise; the original articles of association and the original cooperation agreement were terminated, and the new articles of association of Nanjing Jinmei were adopted.

On September 11, 2017, Nanjing Jinmei obtained the Business License renewed by the Market Supervision and Administration Bureau of Jiangning District, Nanjing City.

In conclusion, Nanjing Germanium Factory has completed the procedures necessary for the transfer of its obligations and rights (shares) under the joint venture contract to AXT, which is in compliance with laws and regulations.

(II) Background of and reasons for AXT’s holding of equity interest in Nanjing Jinmei on behalf of FAN Jiahua and other persons and the transfer of equity interest held by such persons

AXT, as a nominee of FAN Jiahua, FENG Yi, ZONG Hongxia and ZHANG Fengxiang, held a total of 5% equity in Nanjing Jinmei. From February 2018 to May 2019, AXT signed a Equity Exit Agreement with FAN Jiahua, FENG Yi and ZONG Hongxia (ZHANG Fengxiang, the husband of ZONG Hongxia, was passed away at the time of equity exit) respectively, pursuant to which all nominee holding was canceled.

According to the statement of AXT and the confirmation by interviewing with the entrusting holders namely FAN Jiahua, FENG Yi and ZONG Hongxia, at the time of the establishment of Nanjing Jinmei, FAN Jiahua served as the general manager and ZONG Hongxia served as the deputy general manager, ZHANG Fengxiang served as the executive director and financial director, and FENG Yi served as a consultant in Nanjing Jinmei. To motivate the above persons, AXT transferred a total of 5% equity interest in Nanjing Jinmei to FAN Jiahua, FENG Yi, ZONG Hongxia and ZHANG Fengxiang in September 2000, as Nanjing Jinmei was incorporated as a Sino-foreign cooperative enterprise, no individual may

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be a Chinese partner to the enterprise, such part of equity interest was held by AXT on their behalf.

From February 2018 to May 2019, due to the advanced age of FAN Jiahua, FENG Yi and ZONG Hongxia, and the relocation of Nanjing Jinmei’s main production and operation site to another place, FAN Jiahua, FENG Yi and ZONG Hongxia requested to exit from Nanjing Jinmei and entered into the Equity Exit Agreement with AXT, agreeing to transfer all the equity interest held by them in Nanjing Jinmei to AXT. The above nominee holding has been completely released after consummation of such equity transfer. As of October 2020, FAN Jiahua, FENG Yi and ZONG Hongxia have received all the amounts payable for their equity exit.

(III) Specific meaning of “persons handling the equity exit matter”, and whether there is any dispute or potential dispute in the establishment and termination of the nominee holding

According to the interviews with HAO Ze, the deputy general manager and chief financial officer of the Issuer (who worked in the finance department of Nanjing Jinmei from September 2000 to March 2005) and CHEN Yu, a financial manager of Nanjing Jinmei, the specific matter that FAN Jiahua, FENG Yi and ZONG Hongxia exited from Nanjing Jinmei was handled by HAO Ze and CHEN Yu, and thus HAO Ze and CHEN Yu are the persons handling the equity exit matter.

To sum up, according to the confirmation by interviewing with all the entrusting holders FAN Jiahua FENG Yi and ZONG Hongxia other than the deceased ZHANG Fengxiang, as well as HAO Ze and CHEN Yu, the persons handling the equity exit matter, and upon our searching through public network, there is no dispute or potential dispute in the establishment and termination of the nominee holding.

(IV) Verification Procedures and Opinions

Our Attorney has carried out the following verification procedures with respect to the aforesaid issues:

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Inspect the industrial and commercial registration materials and articles of association of Nanjing Germanium Factory, and access to the National Enterprise Credit Information Publicity System to inquire about the background of Nanjing Germanium Factory.
Inspect the industrial and commercial registration materials of Nanjing Jinmei, as well as the relevant documents such as the equity transfer agreement, board resolution and shareholders’ resolution in relation to Nanjing Germanium Factory’s transfer of its obligations and rights (shares) under the joint venture contract to AXT, and log in the National Credit Information Announcement System about contribution conditions of the senior management of Nanjing Germanium Factory before transfer, and verify whether such transfer has completed necessary procedures and is in compliance with laws and regulations.
Inspect the nominee holding agreement and the equity exit agreement entered into by and among FAN Jiahua, FENG Yi, ZONG Hongxia and ZHANG Fengxiang and AXT, the certificates for the payment of equity exit price and the statement of AXT, and interview with FAN Jiahua, FENG Yi and ZONG Hongxia, whose shares were held by others on their behalf, and HAO Ze and CHEN Yu, the persons handling the equity exit matter, to understand the background of and reasons for the establishment and termination of the nominee holding.
Interview with FAN Jiahua, FENG Yi and ZONG Hongxia, whose shares were held by others on their behalf, and HAO Ze and CHEN Yu, the persons handling the equity exit matter, and access to public network for search and inquiry, and verify whether there is any dispute or potential dispute in the establishment and termination of the nominee holding.

After verification, we believe that:

Nanjing Germanium Factory has completed the procedures necessary for the transfer of its obligations and rights (shares) under the joint venture contract to AXT, which is in compliance with laws and regulations.
The background of and reasons for AXT’s holding of equity interest in Nanjing Jinmei on behalf of FAN Jiahua, FENG Yi, ZONG Hongxia and ZHANG Fengxiang and the transfer of equity interest held by such persons are reasonable.
The specific matter that FAN Jiahua, FENG Yi and ZONG Hongxia exited from Nanjing Jinmei was handled by HAO Ze and CHEN Yu, and thus HAO Ze and CHEN Yu are

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the persons handling the equity exit matter; there is no dispute or potential dispute in the establishment and termination of the nominee holding.

IV. Question 19 of the Inquiry Letter: About Spin Off Listing

According to the submissions, the Issuer’s application for this Offering and Listing has been approved and authorized by the board of directors of AXT, and AXT has conducted relevant information disclosures without obtaining any authorizations, consents, approvals or other actions from any governmental authority or regulatory agency in Delaware, NASDAQ and the U.S. Securities and Exchange Commission that have jurisdiction over AXT, and without performing notification, filing and other procedures.

The Issuer is required to explain: (1) Whether AXT has been involved in any government investigations, litigations, arbitrations or administrative penalties after its listing on NASDAQ. Whether there have been any major illegal acts in the last 3 years. Whether it has been subject to any inquiries from the U.S. SEC and NASD as a result of this Offering and Listing; (2) the impact of this Offering and Listing on AXT’s small and medium investors, and whether there are disputes or potential disputes between relevant shareholders.

The Issuer’s Attorney is required to verify the above and to render explicit opinions thereon.

Reply:

(I) Whether AXT has been involved in any government investigations, litigations, arbitrations or administrative penalties after its listing on NASDAQ. Whether there have been any major illegal acts in the last 3 years. Whether it has been subject to any inquiries from the U.S. SEC and NASD as a result of this Offering and Listing;

According to the Disclosure Letter issued by Wilson Sonsini Goodrich & Rosati, a law form in the U.S., the Statement & Confirmation Letter issued by AXT, the confirmation by the interview with AXT’s Chairman MORRIS SHEN-SHIH YOUNG, as well as the information found at the U.S. SEC website (https://www.sec.gov/) and the NASDAQ website

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(https://www.nasdaq.com/), AXT has been involved in and disclosed by announcement 1 government investigation and administrative punishment, 5 lawsuits and 2 arbitrations since its listing on NASDAQ, as detailed below:.


S/N	Type	Basic information	Progress and outcome
1	Government investigation, administrative punishment and lawsuit	In May 2000, AXT was fined USD313,655 by the California Occupational Safety and Health Administration for violating relevant health and safety regulations in an investigation of potential excessive hazardous substances at AXT’s production base.<br><br>On May 1, 2001, the Santa Clara Occupational Safety and Health Center filed a lawsuit with the Hayward High Court of Alameda County, California requesting to order AXT to stop the violation and impose civil punishments thereon on the ground that AXT used arsenic and inorganic arsenic compounds in its workplace against relevant provisions of the California Business and Professions Code, the California Proposition 65 and the California Occupational Safety and Health Act.	In March 2001, AXT reached a settlement with the California Occupational Safety and Health Administration for a fine of USD200,415. On June 24, 2002, AXT reached a settlement with the other party on relevant claims, under which AXT agreed to pay an amount of USD175,000 to the Santa Clara Occupational Safety and Health Center, with the corresponding settlement agreement having been signed, and the settlement being approved by the court on 20 September 2002.
2	Lawsuit	On April 15, 2003, Sumitomo Electric Industries, Ltd. (“Sumitomo”) filed a lawsuit with the Civil Division of Tokyo District Court, alleging that AXT and its Japanese traders infringed two patents held by Sumitomo in Japan, and seeking to order AXT to pay punitive damages of USD1.67 million together with related interest, bear	On October 8, 2004, AXT and Sumitomo reached a settlement on the litigation. On December 2, 2004, both parties entered into a global intellectual property cross licensing agreement subjecting AXT to pay Sumitomo royalties.

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		the litigation costs and stop selling GaAs substrates in Japan.	In January 2005, the patent-related lawsuit was withdrawn by Sumitomo.
3	Lawsuit	On June 11, 2003, Cree, Inc. filed a lawsuit with the Northern District Court of California, the United States, alleging that AXT infringed its patent rights and requesting AXT to compensate for the loss and stop the infringement. On July 23, 2003, AXT filed a counterclaim with the same court, denying its patent infringement and claiming that Cree, Inc. instituted the litigation in an attempt to interfere with the future business relations.	On March 5, 2004, AXT and Cree, Inc. reached a settlement agreement on the dispute between them.
4	Lawsuit	On October 15, 2004, a securities class action was filed by those who purchased shares of AXT during the period from February 6, 2001 to April 27, 2004 as the plaintiffs with the Northern District Court of California against AXT and its CTO as the defendants, on the grounds of false and misleading financial results announced during the above period.	On April 24, 2007, AXT reached a settlement agreement with the relevant plaintiffs on the class action.
5	Lawsuit	On June 1, 2005, two former employees and their minor children as the plaintiffs filed a lawsuit with the California Supreme Court against AXT, its CTO, former interim CEO, former security staff and a supplier as the defendants for personal injury due to exposure of infants in utero to high concentrations of gallium arsenide and methanol used for the production of GaAs	On April 23, 2007, both parties reached an agreement on the lawsuit, with the settlement fund covered by the insurance company.

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		wafer caused by general negligence and intentional tort, holding the defendants liable for loss of wages and other damages, including punitive damages.
6	Arbitration	In 2008, Steve X. Chen, a former employee, requested the arbitral tribunal to uphold his claim that his dismissal from AXT was based on race and nationality.	The claim of the former employee Steve X. Chen has been resolved without incurring any liability for compensation on the part of AXT.
7	Arbitration	In October 1998, a supplier filed an arbitration with the Arbitration Commission in Shenzhen, China, claiming that AXT failed to fulfill its obligation under the purchase contract with the supplier by failure to fully accept the germanium products.	A final award has been made by the arbitral tribunal under which AXT is not required to take any obligation.

No government investigations, lawsuits, arbitrations or administrative punishments other than the above have been disclosed by AXT via announcement since its listing on NASDAQ.

According to the Disclosure Letter issued by the US law firm Wilson Sonsini Goodrich & Rosati, the Statement & Confirmation Letter issued by AXT, the confirmation by the interview with AXT’s Chairman MORRIS SHEN-SHIH YOUNG, and the information available at the U.S. SEC website (https://www.sec.gov/) and the NASDAQ website (https://www.nasdaq.com/) through query, AXT has not committed any major illegal acts in the past three years, nor has it received any inquiries from the U.S. SEC or the NASDAQ as a result of this Offering and Listing.

(II) The impact of this Offering and Listing on AXT’s small and medium investors, and whether there are disputes or potential disputes between relevant shareholders.

1.The impact of this Offering and Listing on AXT’s small and medium investors

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According to the Legal Opinion issued by the US law firm Burks Johansson LLP, the Disclosure Letter issued by the US law firm Wilson Sonsini Goodrich & Rosati, the Statement & Confirmation Letter issued by AXT, the Plan for the Offering and Listing of the Issuer, and the information available at the U.S. SEC Website (Website: https://www.sec.gov/) and the NASDAQ Website (Website: https://www.nasdaq.com/) through inquiry by our lawyers, the Offering and Listing do not have a significant adverse impact on the legitimate rights and interests of small and medium-sized investors of AXT, see the details as follows:

(1) The number of shares issued by the Issuer in the Public Offering accounts for over 10% of the total number of shares after the Offering. AXT is still the controlling shareholder of the Issuer after the Offering and Listing, and the Issuers is the holding subsidiary within the scope of consolidated statements of AXT before and after the Offering and Listing.

(2) The Application for the Offering and Listing has been approved by the Board of Directors of AXT, and AXT has made a Written Information Disclosure on the Offering and Listing, thereby protecting the rights to know of the investors of AXT.

(3) The AXT’s spin-off of the Issuer for its listing on the Science and Technology Innovation Board will raise funds for the Issuer to build the proposed investment project and supplement the working capital, which is conducive to further standardizing the Issuer's internal governance, improving management level, and enhancing corporate and brand awareness, and promoting the sustainable and stable development.

(4) This Offering and Listing has not affected the corporate governance structure and shareholders’ rights of AXT.

(5) According to the Legal Opinion issued by Burks Johansson LLP, a law firm in U.S.: “Generally speaking, under the Delaware General Corporation Law, if any shareholders of AXT are dissatisfied with any decisions made by the broad of directors according to applicable governance practices, it can only obtain remediation through the sales of stocks in practice, and any other remediations require proof of wrongful or unlawful conduct. In addition, the directors of AXT have fiduciary duties to shareholders such as duty of care and duty of loyalty. If shareholders reasonably believe that the directors have violated their fiduciary duties and that they have suffered damages therefrom, they may file a lawsuit.”

In conclusion, this Offering and Listing will not have a material adverse impact on the

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legitimate rights and interests of small and medium investors in AXT.

2.Whether there are disputes or potential disputes among the relevant shareholders

According to the Disclosure Letter issued by Wilson Sonsini Goodrich & Rosati and the Statement & Confirmation Letter issued by AXT, and as confirmed by our Attorney’ interview with AXT’s Chairman MORRIS SHEN-SHIH YOUNG. This Offering and Listing application has been approved by the Board of Directors, and there have been no disputes or potential disputes among the relevant shareholders arising due to this Offering and Listing.

(III) Verification procedures and opinions

Our Attorney has carried out the following verification procedures with respect to the aforesaid issues:

Obtain and review AXT’s registration documents, the Prospectus, the Disclosure Letter issued by Wilson Sonsini Goodrich & Rosati, and the Statement & Confirmation Letter issued by AXT, and check the information available at the U.S. SEC website (https://www.sec.gov/) and the NASDAQ website (https:www.nasdaq.com/) to verify whether AXT has been subject to government investigations, lawsuits, arbitrations or administrative penalties after its listing on NASDAQ, whether there have been any major illegal acts in the last 3 years, and whether it has been subject to inquiries by the U.S. SEC and NASDAQ due to this Offering and Listing;
Obtain and review the Disclosure Letter issued by Wilson Sonsini Goodrich & Rosati, and the Statement & Confirmation Letter issued by AXT, and checked the information available at the U.S. SEC website (https://www.sec.gov/) and the NASDAQ website (https://www.nasdaq.com/) to verify the impact of this Offering and Listing on small and medium investors in AXT;
Obtain and review the Disclosure Letter issued by the U.S. law firm, Wilson Sonsini Goodrich & Rosati, and the Statement & Confirmation Letter issued by AXT, confirm the interview with the chairman of AXT, MORRIS SHEN-SHIH YOUNG, and check the information available at the U.S. SEC website (https://www.sec.gov/) and the NASDAQ website (https://www.nasdaq.com/) to verify whether there are any disputes or potential disputes between relevant shareholders related to this Offering and Listing.

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After verification, we believe that:

AXT has been involved in and disclosed by announcement 1 government investigation and administrative punishment, 5 lawsuits and 2 arbitrations, except for which, it has disclosed no other government investigations, lawsuits, arbitrations or administrative punishments in the announcements after listing on NASDAQ; AXT has not committed any major illegal acts in the past 3 years, nor has it been subject to any inquires from the U.S. SEC and the NASDAQ due to this Offering and Listing;
This Offering and Listing will not have a material adverse impact on the legitimate rights and interests of small and medium investors in AXT, and there have been no disputes or potential disputes between relevant shareholders due to this Offering and Listing.

V. Question 20 of the Inquiry Letter: Other Questions

20.3

According to the submissions, for the special rights clauses stipulated in the VAM Agreement, the investment institution and AXT agreed: if the Issuer fails to complete the qualified listing prior to December 31, 2022 (or any other date as agreed by all parties and agreed in writing), the repurchase clause will automatically resume its validity and be retroactive to the date of the signing of the Supplementary Agreement.

The Issuer is required to explain: whether the VAM Agreement within a deadline to resume its validity meets the requirements of the relevant rules.

The Sponsor and Issuer’s Attorney are required to verify the above and to render explicit opinions in accordance with the relevant provisions of the VAM Agreement.

Reply:

( I ) whether the VAM Agreement within a deadline to resume its validity meets the requirements of the relevant rules

1.Relevant contents of the VAM Agreement

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In January 2021, the Issuer increased capital and shares by introducing Haitong New Driving Force, Haitong New Energy, Haitong Innovation, Anxin Industrial Investment, Jinggangshan Meicheng, Huadeng II, Qingdao Xinxingyi, Qiji Hangzhou, Gongqingcheng Yihua, Shangrong Baoying, Xiamen Heyong, Hangzhou Jingyue and Lumentime Semiconductor and other investors (hereinafter collectively referred to as Investment Institutions). The Investment Institutions, the Issuer and AXT respectively signed the Capital Increase Agreement of Beijing Tongmei Xtal Technology Limited, the Supplementary Agreement to the Capital Increase Agreement of Beijing Tongmei Xtal Technology Limited (Supplementary Agreement) and the Supplementary Agreement II to the Capital Increase Agreement of Beijing Tongmei Xtal Technology Limited (Supplementary Agreement II) (hereinafter collectively referred to as the Transaction Documents)^3^ The VAM clauses in the Transaction Documents regarding the resumption of validity within a deadline are as follows:

(1) According to the Supplementary Agreement: the company fails to make an IPO before December 31, 2022 (if the company’s IPO is under review when the period expires, the repurchase will be postponed until the IPO is rejected or the company withdraws the application), or under other specific circumstances, the investment institutions have the right to require AXT to repurchase Company all or part of the equity held by the investment institutions in the company. In addition to the agreement of repurchasing equities, the Supplemental Agreement also contains special rights articles such as equity transfer limitation, preemptive right, priority in sale and anti-dilution. The Supplementary Agreement has been terminated automatically from the date when the Company formally submits IPO Application materials.

(2) According to the Supplementary Agreement II: as stipulated in Supplementary Agreement II: If the company fails to complete the qualified listing before the above-mentioned expected listing completion date, the repurchase clause stipulated in Article 8 of the

^3^In the Transaction Documents, references to “Party A” include Investment Institutions, references to “Party C” mean the AXT, and references to “Party B” and "Target Company" mean the Issuer. There are no major differences in the provisions of the Transaction Documents signed by each of the Investment Institutions, so they will not be repeated hereby.

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Supplementary Agreement will automatically resume its validity and will be effective retroactively from the date of the signing of the Supplementary Agreement. According to the repurchase terms, AXT shall be responsible for such equity repurchase, and the Issuer shall not be responsible for repurchasing the Company's equity held by the Investment Institution.

In order to terminate the above-mentioned VAM terms, the Investment Institution, the Issuer and AXT signed the Supplementary Agreement III on the Capital Increase Agreement of Beijing Tongmei Xtal Technology Co., Ltd. (hereinafter referred to as the “Supplementary Agreement III”) on March 21, 2022, with the main contents as follows:

“Article 1 The parties agree and acknowledge that the Supplementary Agreement has been automatically terminated on December 28, 2021 and will be invalid from the date hereof.

Article 2 From the date of signing this Agreement, the Supplementary Agreement II will be automatically terminated and will be invalid from the date hereof.

Article 3 The parties agree and acknowledge that on the day that Party B’s IPO has been rejected under the review of Shanghai Stock Exchange or refused for registration by China Securities Regulatory Commission or Party B has withdrawn its IPO application (hereinafter referred to as “repurchase circumstances”), Party A shall have the right to require Party C to repurchase part or all of Party B’s equity held by Party A, and Party C is obliged to repurchase part or all of Party B’s equity held by Party A upon Party A’s request.

Party A shall submit a repurchase request to Party C in writing within fifteen (15) working days from the date of Party B sending a written notice to Party A when any of the repurchase circumstances occurs, so that Party C has sufficient time for repurchase arrangements. Party C shall, within ninety (90) days after Party A submits the repurchase request in writing, enter into an equity transfer agreement with Party A regarding the equity repurchase described in this Agreement, and complete the payment of corresponding share repurchase price within the period stipulated in the relevant repurchase legal documents. The equity repurchase price is the actual investment amount paid when Party A obtains the equity.

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Article 4 The parties further agree that on the date of any of repurchase circumstances stipulated in Article 3 hereof, Party C also has the right to issue a repurchase notice to Party A in writing, and Party C will repurchase the Party B’s equity held by Party A at that time. The equity repurchase price is the actual investment amount paid when Party A obtains the equity.

In conclusion, the Supplementary Agreement and the Supplementary Agreement II have been terminated and will be invalid from the date of signing of these agreements. There is no longer any VAM clause with a time limit for resumption of validity between Investment Institutions and AXT.

2.Whether the VAM Agreement complies with the relevant rules and regulations

According to Supplementary Agreement III, there is an existing gambling agreement between the Investment Institution and AXT. Such agreement complies with the provisions of Article 10 of the Questions and Answers on the Review of the Offering and Listing of Stocks on the STAR Market of the Shanghai Stock Exchange (II), and the details are as follows:

Provisions of Article 10 of the Questions and Answers on the Review of the Offering and Listing of Stocks on the STAR Market of the Shanghai Stock Exchange (II)		Actual Situation of the Issuer	Compliant Or Not
Where PE, VC and other institutions agree on a valuation adjustment mechanism (generally referred to as a VAM Agreement) when making investments, in principle, the Issuer is required to clean up the VAM agreements before submission.		The special rights such as repurchase rights enjoyed by Investment Institutions under the Supplementary Agreement and Supplementary Agreement II have been terminated and are invalid from the beginning. Only on the day when the Issuer’s IPO has not been rejected by the Shanghai Stock Exchange or refused for registration by the China Securities Regulatory Commission, or the Issuer withdraws the IPO application, the Investment Institutions have the right to request AXT to repurchase part or all of the Issuer’s equity held by the Investment Institutions.	Compliant
Those agreements that meet the following requirements at the same time can be retained.	The Issuer is not a party to the VAM agreement.	The controlling shareholder AXT shall be responsible for share repurchase. The Issuer shall not be responsible for repurchasing the Company's equity held by the Investment Institution, and the Issuer is not a party to the Gambling Arrangement.	Compliant
		There is no agreement in the VAM Agreement that	The issuer has no actual controller, and AXT is the controlling shareholder of the issuer. If the repurchase conditions are triggered, AXT will repurchase the	Compliant

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	Actual Situation of the Issuer	Compliant Or Not
may lead to changes in the company’s control	relevant shares from the Investment Institution, and its shareholding ratio will further increase, which will not lead to changes in the Issuer’s control.
	VAM agreements are not linked to market value.	VAM repurchase agreements do not involve market capitalization-linked terms.	Compliant
	The VAM Agreement does not have any circumstances that seriously affect the Issuer’s ability to continue as a going concern or otherwise seriously affect the rights and interests of investors.	The Issuer is not a party to the VAM arrangement, and the relevant VAM agreement and arrangements does not have any circumstances that seriously affect the Issuer’s ability to continue as a going concern or otherwise seriously affect the rights and interests of investors.	Compliant

To sum up, the currently valid VAM Agreement between the Investment Institutions and AXT complies with the relevant requirements of Article 10 of the Questions and Answers on the Review of the Offering and Listing of Stocks on the STAR Market of the Shanghai Stock Exchange (II).

(II) Verification procedures and opinions

Our Attorney has carried out the following verification procedures with respect to the aforesaid issues:

Check the Capital Increase Agreement and its Supplementary Agreement signed by the Investment Institution, the Issuer and AXT, check the explanations and confirmations of the Investment Institutions and AXT, and check the specific contents of the special rights clause of the VAM Agreement;
Retrieve the relevant laws and regulations and exchange rules of the special rights clauses in the VAM Agreement, and check whether the VAM Agreement with a time limit to restore its validity meets the requirements of the relevant rules.

Upon verification, we believe that the agreement on the VAM clause with a time limit to

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restore its validity between the Investment Institutions and AXT has been terminated. The currently valid VAM Agreement complies with the relevant provisions of Article 10 of the Questions and Answers on the Review of the Offering and Listing of Stocks on the STAR Market of the Shanghai Stock Exchange (II).

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Part II Update of the Issuer’s Information Related to the Offering and Listing

I. Approval and Authorization of the Offering and Listing

The Approval and Authorization of the Offering and Listing by the Second Extraordinary General Meeting of Shareholders in 2021 held by the Issuer on December 15, 2021 are still valid, all proposals related to the Offering and Listing of the Issuer passed at the General Meeting of Shareholders shall remain valid according to the Meeting Documents of the Board of Directors and the General Meeting of Shareholders provided by the Issuer and verified by our lawyers, as of the issuance date of the Supplementary Legal Opinion.

According to the Legal Opinion issued by Burks Johansson LLP, “AXT’s shareholders do not have the right to vote or agree on the Approval and Authorization of the Offering and Listing”; “The IPO Application shall not be approved with any authorization, consent, approval or other action applicable to any government authority or regulatory agency in Delaware with jurisdiction over AXT, NASDAQ and SEC, nor perform notification, filing and other procedures”; AXT’s information disclosure on the Offering and Listing “conforms to the information disclosure requirements of Delaware General Company Law, NASDAQ and SEC on Beijing Tongmei’s Submission of Listing Application and Listing on the Science and Innovation Board”.

To sum up, we believe that the Offering and Listing of the Issuer have been approved and authorized by the Issuer, which shall be reviewed by Shanghai Stock Exchange according to law and reported to the CSRC to perform the issuance and registration procedures; the Issuer’s shares are listed and traded on Shanghai Stock Exchange after closing, which has yet to be reviewed and approved by Shanghai Stock Exchange.

II. Subject Qualification of the Offering and Listing

After verification by our lawyers, as of the issuance date of the Supplementary Legal Opinion, the Issuer is a joint-stock company established according to the law and has operated for more than three years continuously, has sound and good organizational structure, its

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relevant institutions and personnel can perform their duties according to the law, and exists effectively in accordance with the law. There has been no circumstance that needs to terminate it according to the laws, regulations, normative documents and the Articles of Association. the Issuer has the subject qualification of the Offering and Listing.

III. Substantive Conditions for the Offering and Listing

(I)The Offering and Listing meets the relevant conditions in the Securities Law

5.According to the Company Law and other relevant laws, regulations, normative documents and the Articles of Association, the Issuer has established the General Meeting of Shareholders, the Board of Directors and the Board of Supervisors, and set up special committees, such as Strategy Committee, Audit Committee, Nomination Committee and Remuneration and Assessment Committee under the Board of Directors; elected directors (including independent directors) and supervisors (including employee supervisors); the General Manager, Deputy General Manager, CFO, Secretary of the Board of Directors and other senior managers have been appointed, and relevant functional departments have been set up; the Rules of Procedure of the General Meeting of Shareholders, the Rules of Procedure of the Board of Directors, the Rules of Procedure of the Board of Supervisors, the Working Rules of the General Manager, the Working System of Independent Directors, the Working System of the Secretary of the Board of Directors, the Management Measures for Connected Transactions, the Management System for External Guarantees, the Management System for External Investment, the Internal Audit System and other corporate governance systems have been formulated. The Issuer has a standardized corporate governance structure and perfect internal management system, has a sound and well-functioning organization, and the relevant institutions and personnel can perform their duties according to law, conforming to the provisions of Paragraph 1 (1) of Article 12 of the Securities Law.

6.According to the Updated Audit Report, the net profits of the Issuer attributable to the shareholders of the Parent Company in 2019, 2020 and 2021 (calculated based on the lower one before and after deducting non-recurring profits and losses) were RMB-33.389 million, RMB8.9818 million and RMB89.9218 million, respectively. The Issuer has the ability of sustainable operation and conforms to the provisions of Paragraph 1 (2) of Article 12 of the

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Securities Law.

7.Ernst & Young has issued the Standard Unqualified Updated Audit Report for the Offering and Listing, conforming to the provisions of Item (3) of Paragraph 1 of Article 12 of the Securities Law.

8.According to the Enterprise Credit Information Publicity Report of the Issuer, the Legal Opinion on AXT issued by Burks Johansson LLP during the Reporting Period (hereinafter referred to as the “U.S. AXT’s Updated Legal Opinion”), explanation and commitment of the Issuer and its controlling shareholders, and through the inquiry of our lawyers on the National Enterprise Credit Information Publicity System and China Judgements Online (Website: http://wenshu.court.gov.cn/, the same below), China executive information disclosure network (Website: http://zxgk.court.gov.cn/, the same below), The People's Court Announcement (Website: http://rmfygg.court.gov.cn/, the same below), 12309 China Procuratorial Network (Website: https://www.12309.gov.cn/, the same below), as well as the interview with the Chairman and General Manager of the Issuer, the Issuer and its controlling shareholders have not committed any criminal crime of embezzlement, bribery, embezzlement of property, misappropriation of property or undermining the order of the socialist market economy in the past three years, conforming to the provisions of Paragraph 1 (4) of Article 12 of the Securities Law.

(II)The Offering and Listing meet the relevant conditions stipulated in the Company Law

3.According to the revised Prospectus of Beijing Tongmei Xtal Technology Co., Ltd. on Initial Public Offering and Listing on the Science and Innovation Board (Updated Version of 2021 Annual Report) (hereinafter referred to as the “Prospectus” (Updated Version of 2021 Annual Report)), and the resolution of the Issuer’s Second Interim General Meeting in 2021, the shares issued by the Issuer this time are domestic listed RMB common shares (A shares) with a par value of RMB1.00 per share. The issuance conditions and price of each share are the same, and each share has the same rights, conforming to the provisions of Article 126 of the Company Law.

4.Resolutions on the type, quantity, pricing method, issuance time, issuance object and other matters of the Public Offering of shares have been made at the General Meeting of

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Shareholders of the Issuer, conforming to the provisions of Article 133 of the Company Law.

(III)The Offering and Listing meets the relevant conditions in the Administrative Measures for Initial Registration

1.The Issuer is a joint stock limited company established according to the law and has operated for more than three years continuously; the Issuer has a sound and well-functioning organization, and relevant institutions and personnel can perform their duties according to law, conforming to Article 10 of the Administrative Measures for Initial Registration.

2.The Issuer’s basic accounting work is standardized according to the Updated Audit Report and the Issuer’s Notes, the preparation and disclosure of the financial statements comply with the Accounting Standards for Business Enterprises and relevant information disclosure rules, and fairly reflect the financial position, operating results and cash flow of the Issuer in all material aspects, Ernst & Young issued the Standard Unqualified Updated Audit Report. According to the Updated Internal Control Report and the Issuer’s Instructions, the Issuer’s Internal Control System is sound and effectively implemented, which can reasonably ensure the operation efficiency, legal compliance and the reliability of financial reports of the Company. Ernst & Young issued the Updated Internal Control Report with unqualified conclusions, conforming to Article 11 of the Administrative Measures for Initial Registration.

3.The Issuer’s business is complete and can operate independently and continuously in the market.

(4)The Issuer’s assets are complete, and its business, personnel, finance and institutions are independent; there is no horizontal competition between the Issuer and the controlling shareholders and other enterprises controlled by them that have significant adverse impacts on the Issuer, as well as related party transactions that seriously affect independence or are obviously unfair, conforming to the provisions of Article 12 (1) of the Administrative Measures for Initial Registration.

(5)The main business, control, management team and core technical personnel of the Issuer are stable, without major adverse changes in the main business, directors, senior managers and core technical personnel in the last two years; as of the Issuance Date of the Supplementary Legal Opinion, the ownership of the shares of the Issuer held by the controlling shareholders and the shareholders controlled by the controlling shareholders is clear, without

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major ownership dispute that may lead to the possible change of control, conforming to the provisions of Article 12 (2) of the Administrative Measures for Initial Registration.

(6)The Issuer has no major ownership disputes over major assets, core technologies, trademarks, etc., or major debt repayment risks, major contingencies, such as guarantees, litigation and arbitration, and major changes in the business environment that have or will have a significant adverse impact on the sustainable operation, conforming to the provisions of Article 12 (3) of the Administrative Measures for Initial Registration.

4.The production and operation of the Issuer comply with the provisions of laws and administrative regulations and the national industrial policies

(4)According to the certification documents issued by relevant government departments, such as industry and commerce, taxation and environmental protection and the instructions of the Issuer, and verified by our lawyers, the production and operation of the Issuer conforms to the provisions of laws and administrative regulations, national industrial policies and the provisions of Paragraph 1 of Article 13 of the Administrative Measures for Initial Registration.

(5)According to the Enterprise Credit Information Publicity Report of Issuer, U.S. AXT Updated Legal Opinion, the explanation and commitment of the Issuer and its controlling shareholders, and through the inquiry by our lawyers on the National Enterprise Credit Information Publicity System, China Judgements Online, China Executive Information Disclosure Network, the People’s Court Announcement, 12309 China Procuratorial Network and the Website of China Securities Regulatory Commission (Website: http://www.csrc.gov.cn/, the same below), the Website of the Securities and Futures Market Dishonesty Record Inquiry Platform of China Securities Regulatory Commission (Website: http://neris.csrc.gov.cn/shixinchaxun/, the same below), CREDITCHINA Website (Website: https://www.creditchina.gov.cn/, the same below), in the last three years, the Issuer and its controlling shareholders have not committed any criminal crime of embezzlement, bribery, embezzlement of property, misappropriation of property or undermining the order of the socialist market economy, and there have been no fraudulent issuance, illegal major information disclosure or other crimes involving national security, public security, ecological security, production safety, major violations in the fields of public health and safety comply with the provisions of Paragraph 2 of Article 13 of the Administrative Measures for Initial

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Registration.

(6)According to the certificate of no criminal record issued by the relevant public security organ, the questionnaire signed by the directors, supervisors and senior managers of the Issuer, the notice of handling results of foreign service business of integrity archives issued by Beijing Securities Regulatory Bureau of China Securities Regulatory Commission, and through the inquiry of our lawyers on the Website of China Securities Regulatory Commission, China Judicial Document Website, China Executive Information Disclosure Website according to the inquiry on the websites of the Securities and Futures Market Dishonesty Record Inquiry Platform of the CSRC and the Website of credit China, the directors, supervisors and senior managers of the Issuer have not been subject to the administrative punishment of the CSRC in the past three years, or have been placed on file for investigation by the judicial organ for suspected crimes or have been placed on file for investigation by the CSRC for suspected violations of laws and regulations, and there is no clear conclusion, conforming to the provisions of Paragraph 3, Article 13 of the Administrative Measures for Initial Registration.

(IV)The Offering and Listing conforms to the relevant conditions in the Listing Rules of the Science and Innovation Board

5.The Offering and Listing conforms to the relevant provisions of the Securities Law, the Company Law and the Administrative Measures for Initial Registration, as well as the provisions of Paragraph 1 (1) of Article 2.1.1 of the Listing Rules of the Science and Innovation Board.

6.According to the Current Valid Business License, Articles of Association and Prospectus of the Issuer (Updated 2021 Annual Report), the total share capital of the Issuer before the IPO was RMB885,426,756, the Issuer plans to issue no more than 98.39 million shares to the public, and the total share capital after the IPO will be no less than RMB30 million, conforming to the provisions of Paragraph 1 (2) of Article 2.1.1 of the Listing Rules of Science and Innovation Board.

7.According to the Prospectus (updated Version of 2021 Annual Report) and the Resolution of the Second Extraordinary General Meeting of the Issuer in 2021, the number of shares publicly issued by the Issuer will reach more than 10% of the total number of shares of the Issuer after closing, conforming to the provisions of Paragraph 1 (3) of Article 2.1.1 of the

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Listing Rules of Science and Innovation Board.

8.According to the Analysis Report of Haitong Securities Co., Ltd. on the Estimated Market Value of Beijing Tongmei Xtal Technology Co., Ltd. issued by Haitong Securities and in combination with the external equity financing of the Issuer during the Reporting Period, the estimated market value for the Offering and Listing of the Issuer is not less than RMB3 billion; according to the Updated Audit Report, the operating income of the Issuer in the most recent year is not less than RMB300 million, conforming to the market value and financial index standards specified in Item (4) of Paragraph 1 of Article 2.1.2 and Item (4) of Paragraph 1 of Article 2.1.1 of the Listing Rules of Science and Innovation Board.

To sum up, we believe that the Offering and Listing of the Issuer this time conforms to the relevant provisions of the Securities Law, the Company Law, the Administrative Measures for Initial Registration and the Listing Rules of the Science and Innovation Board for initial public Offering and Listing on the Science and Innovation Board, and the Issuer still meets the substantive conditions for the Offering and Listing.

IV. Independence of the Issuer and Its Changes

According to the Updated Audit Report, the Updated Internal Control Report, Current Valid Business License, Articles of Association, Internal Governance Documents and Other Written Materials of the Issuer, as well as the lawyer's interview with the CFO of the Issuer, the Issuer's assets are independent and complete, and its business and personnel, the financial and institutional independence has not changed, and it has a complete business system and the ability to operate independently directly facing the market.

V. Changes in Sponsors and Shareholders

(I)Issuers and shareholders

According to the industrial and commercial archives and other materials of the Issuer, as well as the Current Valid Business License/registration certificate, Articles of Association/Partnership Agreement, industrial and commercial registration materials of the Issuer’s shareholders, and verified by our lawyers, the changes in the Issuer’s basic information of shareholders from the issuance date of the Legal Opinion to the issuance date of the Supplementary Legal Opinion are as follows:

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1.AXT

According to the Register of Shareholders of AXT provided by the Issuer and the U.S. AXT’s Updated Legal Opinion, and through our lawyers’ inquiry of the information publicized on the Website of the CSRC, as of 31 December 2021, AXT had issued a total of 42,885,831 ordinary shares and 883,000 preferred shares.

As of December 31, 2021, the top five shareholders holding AXT common shares are as follows:

No.	Name of Shareholder	Number of shares (share)	Proportion in common shares (%)
1	Dimensional Fund Advisors, L.P.	3,007,836	7.01
2	BlackRock Institutional Trust Company, N.A.	2,482,352	5.79
3	Wellington Management Group LLP	2,098,281	4.89
4	The Vanguard Group, Inc.	1,959,470	4.57
5	Needham Investment Management LLC	1,547,850	3.61
Total		11,095,789	25.87

As of December 31, 2021, the top five shareholders holding AXT preferred shares are as follows:

No.	Name of Shareholder	Number of shares (share)	Proportion in preferred shares (%)
1	Opto-Tech Corp.	124,100	14.05
2	Robert Shih	99,524	11.27
3	Chiug-Hsin Wu	99,456	11.26
4	Steven Lin	78,806	8.92
5	James Lin	78,806	8.92
Total		480,692	54.42

2.Boyu Yingchuang

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According to the Business License and Partnership Agreement of Boyu Yingchuang, and through the inquiry of our lawyers on the National Enterprise Credit Information Publicity System, Boyu Yingchuang is a limited partnership established according to the laws of China. As of the issuance date of the Supplementary Legal Opinion, the proportion of shares held by Boyu Yingchuang in the Issuer is 0.0248%, and the basic information is as follows:

Name:	Boyu Yingchuang (Tianjin) Technology Development Partnership (limited partnership)
Main Business Premises:	Room 267-1, Building 3, Zhongguancun Science and Technology City Collaborative Development Center, the Intersection of Xihuan North Road and Tangtong Highway, Baodi District, Tianjin
Unified Social Credit Code:	91120224MA077FBD95
Executive Partner:	Wang Xin
Enterprise Type:	Limited partnership
Business Scope:	General items: technical services, technical development, technical consultation, technical Exchange, technology transfer and technology promotion; business management; and enterprise management consulting. (Except for the items to be approved according to law, the Company shall independently carry out business activities according to law with its Business License).
Term of Business	December 18, 2020 to long term

As of the issue date of the Supplementary Legal Opinion, the property share structure of Boyu Yingchuang is as follows:

Name of partner	Type of partner	Capital contribution<br><br>(RMB0’000)	Percentage of capital contribution<br><br>(%)
WANG Junyong	Limited partner	20	68.9655
Wang Xin	General partner	9	31.0345
Total	-	29.00	100.00

Boyu Yingchuang is the employee stock ownership platform of the Issuer, and the above partners are all employees of the Issuer.

3.Boyu Hengye

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According to the Business License and Partnership Agreement of Boyu Hengye, and through the inquiry of our lawyer in the National Enterprise Credit Information Publicity System, Boyu Hengye is a limited partnership established according to the laws of China. As of the issuance date of the Supplementary Legal Opinion, the proportion of shares held by Boyu Hengye in the Issuer is 0.0719%, and the basic information is as follows:

Name:	Boyu Hengye (Tianjin) Technology Development Partnership (limited partnership)
Main Business Premises:	Room 267-2, Building 3, Zhongguancun Science and Technology City Collaborative Development Center, the Intersection of Xihuan North Road and Tangtong Highway, Baodi District, Tianjin
Unified Social Credit Code:	91120224MA077FBB2D
Executive Partner:	WANG Yanjie
Enterprise Type:	Limited partnership
Business Scope:	General items: technical services, technical development, technical consultation, technical Exchange, technology transfer and technology promotion; business management; and enterprise management consulting. (Except for the items to be approved according to law, the Company shall independently carry out business activities according to law with its Business License).
Term of Business	December 18, 2020 to long term

As of the issue date of the Supplementary Legal Opinion, the property share structure of Boyu Hengye is as follows:

		<br><br>	<br><br>
Name of partner	Type of partner	Capital contribution<br><br>(RMB0’000)	Percentage of capital contribution<br><br>(%)
WANG Juan	Limited partner	9	10.7143
YANG Huanping	Limited partner	9	10.7143
WANG Junyong	Limited partner	9	10.7143
LIAN Lu	Limited partner	9	10.7143
WANG Chun	Limited partner	9	10.7143
XU Mengjian	Limited partner	9	10.7143
LIU Shuyue	Limited partner	6	7.1429

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Name of partner	Type of partner	Capital contribution<br><br>(RMB0’000)	Percentage of capital contribution<br><br>(%)
ZHANG Chunjing	Limited partner	3	3.5714
LIU Ying	Limited partner	3	3.5714
MAO Congjie	Limited partner	3	3.5714
WU Dan	Limited partner	3	3.5714
ZHANG Jiawei	Limited partner	3	3.5714
WANG Yanjie	General partner	9	10.7143
Total	-	84.00	100.00

Boyu Hengye is the employee stock ownership platform of the Issuer, and the above partners are all employees of the Issuer.

4.Haitong New Energy

According to the Business License and Articles of Association of Haitong New Energy, and through the inquiry of our lawyers on the National Enterprise Credit Information Publicity System, Haitong New Energy is a limited liability company established according to the laws of China. As of the issuance date of the Supplementary Legal Opinion, the proportion of shares held by Haitong New Energy in the Issuer is 0.5201%, and the basic information is as follows:


Name:	Liaoning Haitong New Energy Low-carbon Industry Equity Investment Co., Ltd.
Main Business Premises:	Room 812, No. 106 Qingnian Street, Shenhe District, Shenyang
Unified Social Credit Code:	91210103071526798U
Legal Representative:	CHENG Xiangting
Registered Capital:	RMB1 billion
Enterprise Type:	Limited Liability Company
Business Scope:	Permitted business items: investment in unlisted enterprises, investment in non-public Offering of shares of listed companies and related consulting services. General business items: equity investment management, venture capital management, equity investment, debt investment related to equity investment, industrial investment, venture

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	capital, participation in the establishment of equity investment enterprises, venture capital enterprises, and investment consulting. (Except for projects prohibited by laws and regulations and to be approved but not approved) (For projects that must be approved according to law, business activities can be carried out only with the approval of relevant departments.)
Term of Business	August 08, 2013 to August 07, 2043

As of the issuance date of the Supplementary Legal Opinion, the equity structure of Haitong New Energy is as follows:

Name of Shareholder	Amount of capital contribution (RMB0’000)	Percentage of capital contribution (%)
Haitong Innovation Securities Investment Co., Ltd.	49,400	49.40
Liaoning Energy Investment (Group) Co., Ltd.	49,000	49.00
Liaoning Holding (Group) Co., Ltd.	1,100	1.10
Haitong Investment Co., Ltd.	500	0.50
Total	100,000.00	100.00

5.Gongqingcheng Yihua

According to the Business License and Partnership Agreement of Gongqingcheng Yihua, and through the inquiry of our lawyers on the National Enterprise Credit Information Publicity System, Gongqingcheng Yihua is a limited partnership established under the laws of China. As of the issuance date of the Supplementary Legal Opinion, Gongqingcheng Yihua has a shareholding of 0.1996% in the Issuer. The basic information is as follows:


Name:	Gongqingcheng Yihua Tongze Investment Partnership (Limited Partnership)
Main Business Premises:	Gongqing City Foundation Town, Jiujiang, Jiangxi province
Unified Social Credit Code:	91360405MA39RWYJ7Q
Executive Partner:	WANG Yonggang
Enterprise Type:	Limited Partnership

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Business Scope:

General items: project investment, industrial investment. (Without the approval of the financial regulatory authorities, it is not allowed to engage in such financial services as deposit absorption, financing guarantee, financing on behalf of customers, and raising funds (financing) from the public.) (Except for the permitted business, it can independently carry out activities not prohibited or restricted by laws and regulations.)

Term of Business

December 10, 2020 to December 9, 2070

As of the date hereof, the property share structure of Gongqingcheng Yihua is as follows:

Name of partner	Type of partner	Capital contribution<br><br>(RMB0’000)	Percentage of capital contribution<br><br>(%)
ZHOU Zhenhong	Limited partner	130.4386	14.6199
WANG Yanwei	Limited partner	270.9109	30.3644
WANG Yonggang	General partner	490.8505	55.0157
Total	-	892.20	100.00

There is no other change in the basic information of the Issuer's shareholders as of the issuance date of the Supplementary Legal Opinion, except for the above changes. The existing shareholders of the Issuer are qualified for shareholders and making capital contributions as stipulated in the Company Law and other relevant laws, regulations and normative documents.

(II)Controlling Shareholder and Actual Controller of the Issuer

1.Controlling Shareholder of the Issuer

According to the Industrial and Commercial Registration File of the Issuer, the Articles of Association and the verification of our lawyers, as of the issuance date of the Supplementary Legal Opinion, AXT holds 757,153,721 shares of the Issuer, accounting for 85.5129% of the total share capital of the Issuer, and remains the controlling shareholder of the Issuer.

2.Actual controller of the Issuer

According to the Register of Shareholders of AXT and the U.S. AXT’s Updated Legal Opinion provided by the Issuer and verified by our lawyers, the situation that the Issuer has no actual controller has not changed as of the issuance date of the Supplementary Legal Opinion.

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VI. Share Capital of the Issuer and its Evolution

(I) Changes in equity of the Issuer

According to the Industrial and Commercial Registration File, the Register of Shareholders and the Articles of Association provided by the Issuer, the equity structure of the Issuer has not changed from the issuance date of the Legal Opinion to the issuance date of the Supplementary Legal Opinion.

(II) Pledge of shares of the Issuer

According to the Industrial and Commercial Registration File and their explanations and commitments issued by the Issuer and the explanations and commitments issued by the shareholders of the Issuer, and through the inquiry of our lawyers on the National Enterprise Credit Information Publicity System, there is no case that the Issuer’s shareholders pledge the Issuer’s shares held by them as of the issuance date of the Supplementary Legal Opinion.

VII. Business of the Issuer

(I) Business scope and mode

According to the Prospectus (Updated 2021 Annual Report), the Updated Audit Report, the Current Valid Business License of the Issuer and its domestic holding subsidiaries, the supporting documents issued by the industry and commerce, taxation and other relevant government departments where the Issuer and its domestic holding subsidiaries are located, and the statements and commitments of the Issuer, through the inquiry of our lawyers on the National Enterprise Credit Information Publicity System for inquiry, and through the verification of our lawyers on the Business Qualification and License, Asset Ownership Certificate and Major Business Contracts of the Issuer, the business scope and main business of the Issuer have not changed from the issuance date of the Legal Opinion to the issuance date of the Supplementary Legal Opinion.

In conclusion, we believe that the business scope and operation mode of the Issuer and its domestic holding subsidiaries comply with the provisions of relevant Chinese laws, regulations and normative documents.

(II) Overseas business

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According to the Issuer’s description and the Legal Opinion on the U.S. Tongmei issued by Burks Johansson LLP during the Reporting Period (hereinafter referred to as the “Updated Legal Opinion of the U.S. Tongmei”), as of the issuance date of the Supplementary Legal Opinion, the Issuer’s overseas holding subsidiary, the U.S. Tongmei, is a company legally established and effectively existing according to the law of its place of registration, the business operations comply with the provisions of the law of the place of registration.

(III) Main business of the Issuer

According to the Prospectus (Updated 2021 Annual Report), the Updated Audit Report, the Business License, Industrial And Commercial File, Major Business Contracts and the Issuer’s instructions and commitments that have been changed since the establishment of the Issuer and its predecessor Tongmei Xtal, the Issuer’s main businesses are indium phosphide substrate, gallium arsenide substrate, germanium substrate, R & D, production and sales of PBN materials and other high-purity materials as of the issuance date of the Supplementary Legal Opinion. The Issuer’s main business has not changed.

(IV) Main business qualification, certification or filing of the Issuer

After verification by our lawyers, as of the issuance date of the Supplementary Legal Opinion, the changes in business qualification, license, certification or filing obtained by the Issuer and its domestic subsidiaries are as follows:

1.Updated business qualifications and licenses

①Hazardous Chemicals Business License

Company Name	Certificate No.	Term of Validity	Scope of License	Issuing Authority
Beijing Tongmei	JTWHJZi [2022] 000011	March 17, 2022 to March 16, 2025	Gallium Arsenide	Beijing Tongzhou Emergency Management Bureau

②Pollutant Discharge Permit/Pollutant Discharge Registration Receipt of Fixed Pollution Source

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Company Name	Certificate Name	Certificate No.	Term of Validity	Issuing Authority
Baoding Tongmei	Pollutant Discharge Permit	91130600MA08UNK83T001U	August 16, 2021 to August 15, 2026	Baoding Administrative Review and Approval Bureau
Chaoyang Xinmei	Acknowledgment on Pollutant Discharge Registration of Fixed Pollution Sources	91211324MA10W1F79B001X	March 16, 2022 to March 15, 2027	National Information Platform for Pollutant Discharge Permit Management of the Ministry of Ecology and Environment

③Management System Certificate


Company Name	Certification Project	Certificate No.	Scope of Business	Issuing Authority	Term of Validity
Beijing Tongmei	Enterprise Intellectual Property Management System Certification	18120IP1535R0M	R & D, production and sales of gallium arsenide, indium phosphide and germanium crystal rods and wafers, and intellectual property management related to the procurement of the above processes	Zhonggui (Beijing) Certification Co., Ltd.	December 13, 2021 to December 27, 2023
Chaoyang Tongmei	Quality management system certification (ISO9000)	CN21/11296	Design and production of GaAs crystal rod and production of germanium crystal rod	SGS	December 07, 2021 to December 06, 2024

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Company Name	Certification Project	Certificate No.	Scope of Business	Issuing Authority	Term of Validity
Chaoyang Jinmei	Quality management system certification (ISO9000)	01121Q30262R0M	Design, development, production and service of gallium and its compound products; product design, development, production and service of indium and its compounds; production and service of boron oxide products	CESI Certification Co., Ltd.	December 15, 2021 to December 14, 2024

2.Cancelled business qualification and license

Company Name	Certificate No.	Term of Validity	Scope of License	Issuing Authority
Nanjing Jinmei	S (N) WHJ Zi (J) 00303	July 4, 2019 to July 3, 2022	Operation of Hazardous Chemicals	Nanjing Jiangning Emergency Management Bureau

As of the issuance date of the Supplementary Legal Opinion, the Issuer and its domestic subsidiaries have obtained the business qualifications and licenses required to carry out the main business. Other business qualifications and licenses of the Issuer and its domestic subsidiaries have not changed except for the above-mentioned changes.

(V) The main business of the Issuer is outstanding

According to the Prospectus (Updated 2021 Annual Report), the Updated Audit Report and the statements and commitments of the Issuer, the main business income of the Issuer in 2019, 2020 and 2021 is RMB462.2079 million, RMB583.0872 million and RMB854.0444 million respectively, accounting for 99.99%, 99.99% and 99.61% of the Issuer’s operating income in the same period respectively. The operating income of the Issuer during the Reporting Period mainly comes from its main business income, and the Issuer’s main business is outstanding.

(VI) The sustainable operation ability of the Issuer

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According to the Prospectus (Updated 2021 Annual Report), the Updated Audit Report, the Current Valid Business License of the Issuer and its domestic holding subsidiaries and the statements and commitments of the Issuer, and verified by our lawyers, as of the issuance date of this supplementary opinion, the Issuer has existed according to the law, and the main financial indicators of the Issuer are good without failure to pay due debts and legal obstacle affecting its sustainable operation.

VIII. Related Party Transactions and Horizontal Competition and Their Changes

(I)Related party

According to the Company Law, the Accounting Standards for Business Enterprises No. 36- Disclosure of Related Parties, the Listing Rules of the Science and Innovation Board and other laws and regulations, the Updated Audit Report and the Issuer’s description, and verified by our lawyers, the Issuer’s main related parties include:

1.Controlling Shareholder and Actual Controller

As of the issuance date of the Supplementary Legal Opinion, the controlling shareholder of the Issuer is AXT, and the Issuer has no actual controller.

2.Natural persons, legal representatives or other organizations that directly or indirectly hold more than 5% of the shares of the Issuer

As of the issuance date of the Supplementary Legal Opinion, natural persons, legal representatives or other organizations directly holding more than 5% of the shares of the Issuer include AXT and Beijing Bomeilian. Furthermore, as of December 31, 2021, dimensional Fund Advisors LP and BlackRock Inc. indirectly held more than 5% of the shares of the Issuer through AXT.

Zhongke Hengye holds 33.33% shares of Beijing Bomeilian. Meanwhile, He Junfang is the representative appointed by the shareholder holding 66.67% equity of Beijing Bomeilian, the limited partner and executive partner of Zhongke Hengye. Both Beijing Bomeilian and Zhongke Hengye are enterprises controlled by He Junfang, holding 5.2036% and 0.0977% shares of the Issuer respectively.

3.Holding subsidiaries and joint-stock companies of the Issuer

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As of the issuance date of the Supplementary Legal Opinion, the Issuer has 9 holding subsidiaries, including Baoding Tongmei, Chaoyang Tongmei, Nanjing Jinmei, Chaoyang Jinmei, Beijing Boyu, Tianjin Boyu, Chaoyang Boyu, Chaoyang Xinmei and U.S. Tongmei, and 2 joint-stock companies including Xing’an Gallium Industry and Ma’anshan Gallium Industry.

4.Legal representative or other organizations directly holding more than 5% of the shares of the Issuer, legal representatives or other organizations directly or indirectly controlled

As of the issuance date of the Supplementary Legal Opinion, the shareholders directly holding more than 5% of the shares of the Issuer are AXT and Beijing Bomeilian.

According to the U.S. AXT Updated Legal Opinion and the instructions of the Issuer, AXT holds 100% equity of Chaoyang Limei and Tandie Technologies, LLC and 90% equity of Ma’anshan Gallium Industry.

5.Directors, supervisors and senior managers of the Issuer and their close family members

For details of the current directors, supervisors and senior managers of the Issuer, see “XIV. Directors, Supervisors, Senior Managers and Core Technicians of the Issuer and Their Changes” in the Supplementary Legal Opinion. These personnel and their close family members are related parties of the Issuer.

6.Directors, supervisors, senior managers or other major leaders of legal representatives or other organizations that directly or indirectly control the Issuer

The controlling shareholder of the Issuer is AXT. According to the U.S. AXT Updated Legal Opinion, the public disclosure documents of AXT and the instructions of the Issuer, as of the Issuance Date of the Supplementary Legal Opinion, directors of AXT are MORRIS SHEN-SHIH YOUNG, David C. Chang, Jesse Chen, Christine Russell; MORRIS SHEN-SHIH YOUNG is the CEO of AXT, and Gary L. Fisher is the CFO and Secretary of AXT.

7.The directors, supervisors, senior managers of the Issuer and their close family members, the legal representatives that directly or indirectly control the Issuer, or the directors, supervisors, senior managers or other major leaders of other organizations, who directly or indirectly control or have important influence, or the above-mentioned persons (except

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independent directors) serve as directors’ legal representatives or other organizations other than the Issuer and its subsidiaries of senior managers

(1)Legal representatives or other organizations other than the Issuer and its subsidiaries that are directly or indirectly controlled or have significant influence by the directors, supervisors and senior managers of the Issuer, or the above-mentioned persons (except independent directors) serve as directors and senior managers

According to the Questionnaire signed by the directors, supervisors and senior managers of the Issuer and inquired by our Attorney on the National Enterprise Credit Information Publicity System, as of the Issuance Date of the Supplementary Legal Opinion, the legal representatives or other organizations directly or indirectly controlled by the directors, supervisors and senior managers of the Issuer or having important influence are mainly as follows:

Company Name	Investment situations
Beijing Liaoyan	Director Wang Yuxin is the Executive Partner and holds 18.4783% of the partnership share
Nanjing Jinchao Business Management Co., Ltd.	Director Guo Tao holds 50% equity
Beijing Chuang’an Microchip and Co., Ltd.	Zhao Lun, an independent director, holds 100% equity
Hefei Jixin Business Management Partnership	Zhao Lun, an independent director, is the executive partner and holds 50% of the partnership share
Beijing Chengdexin Certified Public Accountants (General Partnership)	Pang Fengzheng, an independent director, is the executive partner, holding 65% of the partnership share
Beijing Xinda Jiayuan Tax Accountant Agent Co., Ltd.	Pang Fengzheng, an independent director, holds 93% equity

The situation of legal representatives or other organizations other than the Issuer and its subsidiaries in which the directors, supervisors and senior managers of the Issuer serve as directors and senior managers. For details, please refer to “(I) the employment and part-time work of the current directors, supervisors and senior managers of the Issuer” in “XIV. Directors, Supervisors, Senior Managers and Core Technicians of the Issuer and Their Changes”.

(2)Legal representatives or other organizations other than the Issuer and its subsidiaries that are directly or indirectly controlled or have important influence by the close family

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members of the directors, supervisors and senior managers of the Issuer, or the above-mentioned persons (except independent directors) serve as directors and senior managers

Name	Relationship	Controlling or serving entity	Control or position
Zhou Hongyu	Spouse of director Wang Yuxin	Beijing Zhiheng Anye Technology Co., Ltd.	Manager, Executive Director, holding 100% equity
Song Guizhou	Younger brother of the spouse of independent director Liu Yanfeng	Cangzhou Hancheng Electronic Equipment Co., Ltd.	Manager, Executive Director, holding 80% equity

(3)Legal representatives or other organizations other than the Issuer and its subsidiaries that are directly or indirectly controlled or have significant influence by AXT’s directors, supervisors, senior managers or other main leaders, or the above-mentioned persons (except independent directors) serve as directors and senior managers

Name	AXT positions	Controlling or serving entity	Control or position
Gary L. Fischer	CFO and Secretary	Dongfang Hi-purity	Director
				Maanshan Gallium	Director
				Tandie Technologies, LLC	CFO and Secretary
Christine Russell	Director	QuickLogic Corporation	Director
				eGain Communications Corporation	Director
David C. Chang	Director	Global Maximum Educational Opportunities, Inc.	Chairman and CEO
				American Councils for International Education	Director
				Committee of 100	Director, Secretary
Jesse Chen	Director	Silicon Valley Taiwan Angels	Founding Chairman
				NCKU North America Alumni Foundation	Director and Chairman
				NCKU Global Academia-Industry Alliance	Chairman

8.Other related parties

Except for the above-mentioned related parties, other related parties of the Issuer also include natural persons, legal representatives or other organizations that have been associated

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with the Issuer during the Reporting Period, as well as other special relationships with the Issuer identified according to the principle of substance over form, which may lead to the preference of the interests of the Issuer, or within 12 months before the date of transaction, or within 12 months after the relevant transaction agreement takes effect or the arrangement is implemented, it shall be regarded as the related party of the Issuer.

During the Reporting Period, main other related parties of the Issuer are as follows:

No.	Name of related party	Related relationship
1	WEI GUO LIU	Once served as the director of the Company
2	DAVIS SHANXIANG ZHANG	Once served as the director of the Company
3	He Jianwu	Once served as the supervisor of the Company
4	Ulrich Goetz	He was a minority shareholder of Beijing Boyu
5	Beijing Zhiheng Xingda Technology Co., Ltd.	Director Wang Yuxin once served as Executive Director and General Manager, holding 50% equity; the Company was cancelled on August 23, 2021
6	Liaoning Zhonglan Opto-electronics Technology Co., Ltd.	Director Wang Huan once served as a director
7	Ningbo Ronbay Lithium Battery Material Co., Ltd.	Director Wang Huan once served as a director
8	Chaoyang Xinshuo Business Co., Ltd.	Minority shareholders of Chaoyang Xinmei
9	Donghai Juqing Trading Co., Ltd.	A wholly-owned subsidiary of Li Bo, the controlling shareholder of Dongfang Hi-purity
10	Shanxi Zhaofeng Gallium Co., Ltd.	Director MORRIS SHEN-SHIH YOUNG worked as the director before
11	Leonard J. LeBlanc	Former AXT director

(II)Related party transactions

According to the Updated Audit Report, the related party transaction related agreements, financial vouchers, internal decision-making procedure documents performed by the Issuer on

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such related party transactions and other relevant materials provided by the Issuer, as well as the instructions of the Issuer, and verified by our Attorney, the main related party transactions between the Issuer and related parties during the Reporting Period are detailed in Part IX of the Attorney’s Work Report.

After verification by our Attorney, the Issuer held the Second Extraordinary General Meeting of Shareholders in 2021 on December 15, 2021, deliberated and approved the proposal on confirming the related party transactions of the Company from January 1, 2018 to June 30, 2021, and confirmed the related party transactions of the Issuer between January 1, 2018 and June 30, 2021; the Issuer held the 11th Meeting of the First Board of Directors on March 15, 2022, deliberated and approved the proposal on confirming the connected transactions of the Company in 2021, and confirmed the connected transactions of the Issuer in 2021.

(III)Horizontal competition

As of the Issuance Date of the Supplementary Legal Opinion, the controlling shareholder of the Issuer is AXT, holding 757,153,721 shares of the Issuer, accounting for 85.5129% of the total share capital of the Issuer; the Issuer has no actual controller.

According to the Statement & Confirmation Letter issued by AXT, the controlling shareholder of the Issuer, our Attorney interviewed AXT's Chairman and inquired on the National Enterprise Credit Information Publicity System, as of the Issuance Date of the Supplementary Legal Opinion, except for the Issuer and its holding subsidiaries, the foreign investment enterprises of AXT include Chaoyang Limei, Tandie Technologies, LLC, Ma’anshan Gallium Industry, Beijing Jiya, Tongli Germanium, Jiamei Hi-purity and Dongfang Hi-purity, among which Chaoyang Limei, Tandie Technologies, LLC and Maanshan Gallium Industry are enterprises controlled by AXT without substantive business operation at present. As of the Issuance Date of the Supplementary Legal Opinion, there is no horizontal competition between the Issuer, controlled by controlling shareholder and other enterprises.

(IV)Disclosure of related party transactions and horizontal competition

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by the Issuer

After verification by our Attorney, as of the Issuance Date of the Supplementary Legal Opinion, connected transactions and measures of the Issuer to avoid horizontal competition have been fully disclosed in the Prospectus (2021 Updated Annual Report), without major omission or concealment.

IX. Main Properties of the Issuer and Their Changes

(I)Self-owned real estate and land use right

According to the List of Buildings, Property Right Certificate, Real Estate Registration Query Results, Updated Audit Report and American Tongmei Updated Legal Opinion provided by the Issuer and verified by our Attorney, the Issuer and its holding subsidiaries added a total of 1 land use right that has obtained the ownership certificate from the Issuance Date of the Legal Opinion to the Issuance Date of the Supplementary Legal Opinion, the total area of use right is 66,926 m^2^. For details of such new land use rights that have obtained ownership certificates, see “Annex I: the Issuer and its holding subsidiaries add land use rights that have obtained ownership certificates” in the Supplementary Legal Opinion.

Some supporting buildings of Baoding Tongmei single crystal wafer and related semiconductor material production project (Phase I and Part I) have completed the completion acceptance procedures, and the real estate property right certificate is handled at present. These buildings specifically include chemical warehouse, waste solvent warehouse, solid waste warehouse/ hazardous waste warehouse, water treatment and heating station, with a total construction area of 3,766.03 m^2^. According to the Construction Project Planning Permit, Construction Project Construction Permit and other relevant construction procedure documents provided by Baoding Tongmei and the Filing Certificate of Completion Acceptance of Construction Projects in Hebei Province issued by Dingxing County Administrative Review and Approval Bureau, and confirmed by the interview of our Attorney with the relevant leaders,

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it is expected that there is no substantive obstacle for these buildings to apply for the Real Estate Ownership Certificate.

The auxiliary buildings of 300 Tons High-Purity Semiconductor Preliminary Material Production Project of Chaoyang Jinmei are under the completion acceptance procedures, and the Real Estate Property Right Certificate will be handled after the acceptance is completed according to law. These buildings are mainly used for office, with a total construction area of 1,826.19 m^2^. According to the construction permit and other relevant construction procedure documents provided by Chaoyang Jinmei, and confirmed by the interview of our Attorney with the relevant leaders, it is expected that there is no substantive obstacle for these buildings to apply for the Real Estate Ownership Certificate.

(II)Leased property and land use right

According to the Legal Opinion of American Tongmei and the instructions of the Issuer, there was no change in the lease of main real estate from the Issuer and its holding subsidiaries to a third party from the Issuance Date of the Legal Opinion to the Issuance Date of the Supplementary Legal Opinion.

(III)Construction in progress

According to the Updated Audit Report, materials and instructions provided by the Issuer, as of December 31, 2021, the Issuer's projects under construction include Inp Crystal Growth and Wafer Processing and Production Expansion Project, Germanium Crystal Growth and Wafer Processing and Production Expansion Project, Gallium Arsenide Crystal Synthesis and Growth and Wafer Processing and Expansion Project, Monocrystalline Wafer and Related Semiconductor Material Production Project, PBN Product Project I, PBN Product Project II, Gallium Arsenide Crystal Semiconductor Material Production Project, Indium Phosphide Single Crystal Chip Production Project, High-Purity Semiconductor Preliminary Material Production Project, High-Purity Arsenic Project and others. The total book balance is RMB225,461,715.01.

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As of December 31, 2021, the book balance of Chaoyang Xinmei High-purity Arsenic Project under construction was RMB54,288,877.91. As of the Issuance Date of the Supplementary Legal Opinion, the project has obtained the Construction Land Planning License, the Construction Project Planning License, and the Real Estate Property Right Certificate (the content of the certificate is the use right of state-owned construction land) and the Construction Project Construction License, with the House Property Right Certificate and other procedures to be handled after completion and acceptance of the project. The Management Committee of Chaoyang Kazuo Economic Development Zone issued the Compliance Certificate on February 11, 2022, confirming that Chaoyang Xinmei expects that there are no substantive obstacles in the handling of the House Property Right Certificate, and the unit will not punish Chaoyang Xinmei and its related personnel; Chaoyang Xinmei has no violations of laws and regulations as of July 1, 2021 to the Issuance Date of this certificate.

(IV)Intellectual Property Right

1.	Registered trademark

According to the Trademark Registration Certificate provided by the Issuer and the trademark file issued by the State Intellectual Property Office, and through the inquiry of our Attorney on China Trademark Network (Website: http://sbj.cnipa.gov.cn/sbcx/), the Issuer and its holding subsidiaries acquired 17 new registered trademarks in China from October 1, 2021 to February 28, 2022. For details, see “Annex II: new registered trademarks of the Issuer and its holding subsidiaries” in the Supplementary Legal Opinion.

After verification, we believe that the Issuer and its holding subsidiaries legally own the above-mentioned new registered trademarks in China, without restrictions on the rights of pledge, judicial seizure and other registered trademarks.

2.	Patent

According to the Patent Certificate provided by the Issuer and the certificate issued by the State Intellectual Property Office, and through the inquiry of our Attorney on the China and

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Global Patent Examination Information Inquiry (Website: http://cpquery.sipo.gov.cn/), the Issuer and its holding subsidiaries added 37 patents granted with patent rights in China, and one patent has expired during the period from October 1, 2021 to February 28, 2022. For the details of these new patents, see “Annex III: new patents of the Issuer and its holding subsidiaries” of the Supplementary Legal Opinion. The details of expired patents are as follows:

Patentee	Patent Name	Patent Type	Patent Number	Date of patent application	Date of Authorization proclamation
Issuer	一种真空吸附陶瓷移动盘抛光机	Utility model	2012200402487	February 8, 2012	October 3, 2012

According to the Updated Legal Opinion of Tongmei and the Patent Verification Opinion issued by Clements Bernard Walker PLLC, Studio Torta S.p.A, RYUKA IP LAW FIRM and Tsai, Lee & Chen’s International Trademark and Patent Office, the patents owned by the Issuer and its holding subsidiaries outside China have not changed from October 1, 2021 to February 28, 2022.

After verification, we believe that as of February 28, 2022, the Issuer and its holding subsidiaries legally own the above newly granted patents in China, and the newly granted patents in China are not subject to pledge, judicial seizure and other rights restrictions.

3.	Computer software copyright

According to the Computer Software Copyright Certificate provided by the Issuer and the general query results of computer software registration issued by the Software Copyright Department of China Copyright Protection Center, and through the inquiry of our Attorney on the China Copyright Registration Query Service Platform (Website: https://register.ccopyright.com.cn/query.html), the copyright of computer software owned by the Issuer and its holding subsidiaries has not changed from October 1, 2021 to February 28, 2022.

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4.	Domain name

According to the domain name certificate provided by the Issuer and registered in the Domain Name Information Filing Management System of the Ministry of Industry and Information Technology (Website: http://www.beian.miit.gov.cn) according to the inquiry, the domain names owned by the Issuer and its holding subsidiaries remained unchanged from October 1, 2021 to February 28, 2022.

(V)Main production and operation equipment

According to the Updated Audit Report and the list of fixed assets provided by the Issuer, as of December 31, 2021, main production and operation equipment of the Issuer includes machinery and equipment, tools and instruments, means of transport and office equipment. The book value of machinery and equipment is RMB125.8119 million, the book value of tools and instruments is RMB16.5558 million, and the book value of transport means is RMB1.6846 million, the book value of office equipment is RMB1.4973 million.

According to the instructions of the Issuer and confirmation, and after our Attorney spot checked the purchase certificates of the main production and operation equipment of the Issuer and its domestic holding subsidiaries, and checked some operation equipment on the spot, we believe that the Issuer and its domestic holding subsidiaries have the main equipment required for production and operation according to law.

(VI)Subsidiaries, branches and joint-stock companies of the Issuer

1.	Subsidiary

The changes in the basic information of the subsidiaries of the Issuer from the Issuance Date of the Legal Opinion to the Issuance Date of the Supplementary Legal Opinion are as follows:

(1)Chaoyang Xinmei

1Basic information

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According to the Business License and Articles of Association of Chaoyang Xinmei, and through the inquiry of our Attorney in the National Enterprise Credit Information Publicity System, as of the Issuance Date of the Supplementary Legal Opinion, the basic information of Chaoyang Xinmei is as follows:

Name:	Chaoyang Xinmei High Purity Semiconductor Material Co., Ltd.
Unified Social Credit Code:	91211324MA10W1F79B
Legal Representative:	MORRIS SHEN-SHIH YOUNG
Domicile:	Kazuo Economic Development Zone, Chaoyang City, Liaoning Province
Registered Capital:	RMB 50,769,200
Type of Company:	Limited Liability Company (Invested or held by a natural person)
Business Scope:	General items: manufacturing of non-metallic mineral products, import and export of goods, import and export of Technology (except for items subject to approval according to law, carry out business activities independently according to law with Business License)
Date of establishment:	February 1, 2021
Term of operation:	February 1, 2021 to January 31, 2071
Equity structure:	No.	Name of Shareholder	Shareholding Percentage (%)
		1	Issuer	58.50
		2	Chaoyang Xinshuo Business Co., Ltd.	39.00
		3	Donghai Huafei Enterprise Management Consulting Co., Ltd.	2.50
		Total		100.00

② Changes

On December 26, 2021, Chaoyang Xinmei held a Shareholders’ Meeting and decided to increase the registered capital from RMB20 million to RMB50.7692 million, of which the Issuer subscribed RMB18 million in cash and Chaoyang Xinshuo Business Co., Ltd. subscribed RMB12 million in cash, Donghai Huafei Enterprise Management Consulting Co., Ltd. subscribed RMB769,200 in cash; the New Articles of Association were approved.

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On December 28, 2021, the Issuer, Chaoyang Xinshuo Business Co., Ltd. and Donghai Huafei Enterprise Management Consulting Co., Ltd. signed the Capital Increase Agreement and the Articles of Association of Chaoyang Xinmei High Purity Semiconductor Material Co., Ltd.

On January 7, 2022, Chaoyang Xinmei obtained the Business License renewed by the Market Supervision and Administration Bureau of Karaqin Left Wing Mongolian Autonomous County.

After this change, the equity structure of Chaoyang Xinmei is as follows:

No.	Name of Shareholder	Subscribed capital contribution<br><br>(RMB0’000)	Shareholding Percentage<br><br>(%)
1	Issuer	2,970.00	58.50
2	Chaoyang Xinshuo Business Co., Ltd.	1,980.00	39.00
3	Donghai Huafei Enterprise Management Consulting Co., Ltd.	126.92	2.50
Total		5,076.92	100.00

Except for the above circumstances, the basic information of the subsidiaries of the Issuer has not changed from the Issuance Date of the Legal Opinion to the Issuance Date of the Supplementary Legal Opinion.

2.	Subsidiary

From the Issuance Date of the Legal Opinion to the Issuance Date of the Supplementary Legal Opinion, the basic information of the Issuer and its subsidiaries has not changed.

3.	Joint stock company

(1)Maanshan Gallium

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On February 24, 2022, Ma’anshan Gallium held a board meeting, which resolved to de-register Maanshan Gallium and set up a liquidation group to liquidate the creditor’s rights and debts of Maanshan Gallium.

On March 10, 2022, Ma’anshan Taxation Bureau of the State Taxation Administration issued the Tax Clearance Certificate (MSESQQ [2022] No. 6655), confirming that all tax matters of Maanshan Gallium have been settled.

As of the Issuance Date of the Supplementary Legal Opinion, the cancellation of Ma’anshan Gallium Industry is in progress.

Except for the above circumstances, the basic situation of the holding companies of the Issuer have not changed from the Issuance Date of the Legal Opinion to the Issuance Date of the Supplementary Legal Opinion.

(VII)Restrictions on the ownership or use of major property

According to the Real Estate Ownership Certificate, real estate register, mortgage agreement and the instructions and commitments of the Issuer provided by the Issuer, and verified by our Attorney, there was no significant change in the restriction of rights of the main property owned by the Issuer and its holding subsidiaries from the Issuance Date of the Legal Opinion to the Issuance Date of the Supplementary Legal Opinion.

X. Significant Changes in the Debt of the Issuer

(I)Changes in major contracts

According to the contracts or order documents provided by the Issuer, for the major contracts performed and under performance by the Issuer and its holding subsidiaries, see Annex XI to the Attorney’s Work Report.

According to the instructions of the Issuer and commitments, the Legal Opinions issued by overseas Attorney, and our Attorney checked relevant contracts, conducting interviews or

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letters with the Issuer's main customers and suppliers on whether they have an association relationship with the Issuer, the performance of agreements between them and the Issuer, and interviewing the Issuer’s senior managers, the contents and forms of the above major Contracts do not violate the prohibitive provisions of laws and administrative regulations; among the major Contracts being performed by the Issuer, there are still some Contracts signed by Tongmei Xtal and the Issuer is established by the overall change of Tongmei Xtal and is the successor of the rights and obligations of Tongmei Xtal therefore, as the subject of the above major Contracts, there are no substantive legal obstacles to the performance of such contracts.

(II)Debt of major infringement

According to the certificates issued by the relevant competent departments of industry and commerce, taxation, social insurance and housing provident fund of the Issuer and its domestic holding subsidiaries, as well as the instructions and commitments of the Issuer, and through the inquiry of our Attorney on the official websites of the relevant competent departments of the Issuer and its domestic holding subsidiaries, China Judgement Online, China Execution Information Disclosure Website, the inquiry of CREDITCHINA and other websites and the interview with the relevant leaders of the Issuer confirmed that the Issuer and its domestic holding subsidiaries had no major infringement debts due to intellectual property rights, product quality, labor safety, personal rights and other reasons during the Reporting Period.

(III)Significant creditor’s rights and debt relationship and guarantee between the Issuer and related parties

According to the Updated Audit Report and the instructions of the Issuer and commitments, there is no other major creditor's right and debt relationship between the Issuer and its related parties or other mutual guarantee between the Issuer and its related parties during the period from July 1, 2021 to December 31, 2021, except as disclosed in the Supplementary Legal Opinion.

(IV)Legality of other receivables and other payables with large amount

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of Issuer

According to the Updated Audit Report and the instructions of the Issuer, as of December 31, 2021, according to the data of the consolidated financial statements, the Issuer's other receivables were RMB1.2414 million and other payables were RMB180.7546 million.

According to the details, descriptions and commitments of other receivables and other payables provided by the Issuer and verified by our Attorney, except for the capital transactions of related parties disclosed in the Supplementary Legal Opinion, other receivables and other payables with large amount of the Issuer occur due to normal business activities, which are legal and effective.

XI. Significant Asset Changes and Mergers and Acquisitions of the Issuer

According to the explanation of the Issuer and the verification of our Attorney, the Issuer has no major asset acquisition or sale from the Issuance Date of the Legal Opinion to the Issuance Date of the Supplementary Legal Opinion, and there are no plans or arrangements for the proposed major asset replacement, asset stripping, major asset sale or acquisition.

XII. Amendment to the Articles of Association of the Issuer

According to the Articles of Association, Industrial and Commercial File, Meeting Documents and other materials provided by the Issuer and the instructions of the Issuer, and through the inquiry of our Attorney on the National Enterprise Credit Information Publicity System for inquiry, the Articles of Association of the Issuer have not been modified from the Issuance Date of the Legal Opinion to the Issuance Date of the Supplementary Legal Opinion.

XIII. Rules of Procedure and Regulated Operation of the General Meeting of Shareholders, the Board of Directors and the Board of Supervisors of the Issuer

According to the confirmation of the Issuer and the verification of the Meeting Documents of the Issuer by our Attorney, from the Issuance Date of the Legal Opinion to the Issuance Date of the Supplementary Legal Opinion:

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(I) The organizational structure of the Issuer has not changed;

(II) The contents of the rules of procedure of the General Meeting of Shareholders, the Board of Directors and the Board of Supervisors of the Issuer have not changed;

(III) The Issuer does not hold the General Meeting of Shareholders, but held 4 Meetings of the Board of Directors and 3 Meetings of the Board of Supervisors. The main information is as follows:

1.Board of Directors

According to the relevant documents of the Board of Directors provided by the Issuer, the Board of Directors of the Issuer held 4 meetings from the Issuance Date of the Legal Opinion to the Issuance Date of the Supplementary Legal Opinion. The details are as follows:

No.	Conference Name	Meeting Time
1	The 9th Meeting of the First Board of Directors	December 31, 2021
2	The 10th Meeting of the First Board of Directors	February 28, 2022
3	The 11th Meeting of the First Board of Directors	March 15, 2022
4	The 12th Meeting of the First Board of Directors	March 24, 2022

2.Board of Supervisors

The Board of Supervisors of the Issuer held 3 Meetings from the Issuance Date of the Legal Opinion to the Issuance Date of the Supplementary Legal Opinion according to the relevant documents of the Board of Supervisors provided by the Issuer. The details are as follows:


No.	Conference Name	Meeting Time
1	The 10th Meeting of the First Board of Supervisors	December 31, 2021
2	The 11th Meeting of the First Board of Supervisors	March 15, 2022

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3	The 12th Meeting of the First Board of Supervisors	March 24, 2022

According to the documents and materials provided by the Issuer, such as the convening notice, meeting proposal, meeting resolution and meeting minutes of the above-mentioned Board of Directors and Board of Supervisors, we believe that the convening, resolution content and signing of the above-mentioned Board of Directors and Board of Supervisors of the Issuer are legal, compliant, true and effective.

XIV. Directors, Supervisors, Senior Managers and Core Technicians of the Issuer and Their Changes

(I)The current directors, supervisors and senior managers of the Issuer’s tenure and part-time jobs

As of the Issuance Date of the Supplementary Legal Opinion, the Board of Directors of the Issuer is composed of 9 directors, including 3 independent directors; the Board of Supervisors of the Issuer consists of 3 supervisors, including one employee representative supervisor; there are five senior managers of the Issuer, including Liu Wensen as the General Manager, Wang Yuxin and Guo Tao as the Deputy General Managers, Hao Ze as the Deputy General Manager and CFO, and Song Jing as the Deputy General Manager and Secretary of the Board of Directors. According to the Questionnaire signed by the above personnel, the positions and other main part-time jobs of the above personnel in the Issuer are as follows:

No.	Name	Position in the Issuer	Main part-time units	Concurrent position	Relationship between part-time units and Issuer
1	MORRIS SHEN-SHIH YOUNG	Chairman	AXT	Chairman and CEO	Controlling shareholders
						Tandie Technologies, LLC	CEO	Controlling shareholder holding subsidiary

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Main part-time units	Concurrent position	Relationship between part-time units and Issuer
Dongfang Hi-purity	Director	The company where the Director MORRIS SHEN-SHIH YOUNG works as the director
			Xing’an Gallium	Director	Joint stock company
			Maanshan Gallium	Director, General Manager	holding companies, controlling shareholders and subsidiaries
			Chaoyang Limei	Managers and Executive Directors	Controlling shareholder holding subsidiary
			Beijing Jiya	Vice Chairman	shareholding companies of controlling shareholders
			Tongli Germanium	Director	shareholding companies of controlling shareholders
			Shaanxi Huadian Resin Co., Ltd.^4^	Director	The company where the Director MORRIS SHEN-SHIH YOUNG

^4^ MORRIS SHEN-SHIH YOUNG has resigned as a director of the Company and is currently handling the formalities for the change of director.

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No.	Name	Position in the Issuer	Main part-time units	Concurrent position	Relationship between part-time units and Issuer
					works as the director
2	Liu Wensen	Director, General Manager	-	-	-
3	HAO Ze	Director, Deputy General Manager, Chief Financial Officer	Beijing Jiya	Director	shareholding companies of controlling shareholders
						Maanshan Gallium	Supervisor	holding companies, controlling shareholders and subsidiaries
4	WANG Yuxin	Director, Deputy General Manager	Beijing Liaoyan	Executive partner	Shareholders of Issuer
5	GUO Tao	Director, Deputy General Manager	Xing’an Gallium	Supervisor	Joint Stock Company
						Guangxi Tiandong Jinxin Rare Metal Materials Co., Ltd.	Supervisor	Xing'an Gallium Industry holding 30% of the Company
						Jiamei Hi-purity	Supervisor	shareholding companies of controlling shareholders
						Jinchao Business Management Co., Ltd.	General Manager and Executive Director	Director Guo Tao is also the Executive Director of the Company
6	Wang Huan	Director	SICC	Director	Director Wang Huan is also a

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No.	Name	Position in the Issuer	Main part-time units	Concurrent position	Relationship between part-time units and Issuer
					director of the Company
						Haitong New Energy Private Equity Investment Management Co., Ltd.	Director, Deputy General Manager	Director Wang Huan is also a director of the Company
						Brite Semiconductor (Shanghai) Co., Ltd.	Director	Director Wang Huan is also a director of the Company
						Liaoning Zhonglan Electronic Technology Co., Ltd.	Director	Director Wang Huan is also a director of the Company
						Suteng Innovation Technology Co., Ltd.	Director	Director Wang Huan is also a director of the Company
7	Zhao Lun	independent director	Beijing Chuangan Microchip and Co., Ltd.	Manager and Executive Director	-
						Hefei Jixin Business Management Partnership	Executive partner	-
						Hefei Jixin Shuochi Enterprise Management Co., Ltd.	Supervisor	-
						Ruili Integrated Circuit Co., Ltd.	General Manager
						ChangXin Memory Technologies, Inc.	Director, General Manager	-
						Beijing Jiuxin Technology Co., Ltd.	Manager and Executive Director	-
						Anhui Qihang Xinrui Private Equity Fund Management Co., Ltd.	Executive Director and	-

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No.	Name	Position in the Issuer	Main part-time units	Concurrent position	Relationship between part-time units and Issuer
				General Manager
						Changxin Xinju Equity Investment (Anhui) Co., Ltd.	Executive Director and General Manager
						Changxin Jidian (Beijing) Memory Technologies Co., Ltd.	Chairman
						ChangXin Xinqiao Memory Technologies, Inc.	Director, General Manager	-
						ChangXin Memory Technologies (Xi’an), Inc.	Director, General Manager
						ChangXin Memory Technologies (Shanghai), Inc.	Director, General Manager	-
8	Pang Fengzheng	independent director	Beijing Chengdexin Certified Public Accountants (General Partnership)	Executive partner	-
						Beijing Xinda Jiayuan Tax Accountant Agent Co., Ltd.	Managers and Executive Directors	-
9	Liu Yanfeng	independent director	Zhongzhi Capital Management Co., Ltd.	General Manager of Financial Management Center	-
10	Song Jing	Deputy General Manager and Secretary of the Board of Directors	-	-	-
11	Tian Guichun	Board of Supervisors Chairman	-	-	-
12	Chang Xiuxia	Supervisor	-	-	-
13	Liu Zhiyang	Supervisor	-	-	-

China registered residence is based on the Personal Credit Report of the Issuer, supervisor and senior management, the No Crime Certificate issued by the Public Security Department of

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China permanent residence or the place where China residence is registered, and the Questionnaire signed. According to the search and query of CREDITCHINA and other Websites, the directors, supervisors and senior managers of the Issuer are not prohibited from holding their posts as stipulated in Article 146 of the Company Law, are determined as prohibited from entering the securities market by the CSRC as stipulated in Article 221 of the Securities Law, or are directors and senior managers concurrently serving as supervisors.

In conclusion, we believe that the appointment of directors, supervisors and senior managers of the Issuer conforms to the provisions of relevant laws, regulations, normative documents and the Articles of Association.

(II)Changes in directors, supervisors and senior managers of the Issuer

According to the documents of the General Meeting of Shareholders, the Board of Directors and the Board of Supervisors provided by the Issuer, and through the inquiry of our Attorney in the National Enterprise Credit Information Publicity System, there was no change in the directors, supervisors and senior managers of the Issuer from the Issuance Date of the Legal Opinion to the Issuance Date of the Supplementary Legal Opinion.

(III)Changes in the core technical personnel of the Issuer

From the Issuance Date of the Legal Opinion to the Issuance Date of the Supplementary Legal Opinion, the core technical personnel of the Issuer have not changed.

XV. Tax of the Issuer and its Changes

(I)Main taxes and tax rates of the Issuer and its domestic holding subsidiaries

According to the Updated Audit Report and the instructions of the Issuer and commitments, the main taxes and tax rates applicable to the Issuer and its domestic holding subsidiaries during the Reporting Period are as follows:

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Tax Category	Tax Basis	Tax Rate
Value Added Tax	The output tax is calculated according to the taxable income, and the value-added tax is calculated and paid according to the difference after deducting the input tax allowed to be deducted in the current period	16%, 13% and 6%
Urban Maintenance and Construction Tax	The actually paid turnover tax	7% and 5%
EnterpriseIncome Tax	Calculated and paid according to taxable income	15%, 25% and 20%

According to the Updated Audit Report, the supporting documents issued by relevant competent tax authorities and the instructions and commitments of the Issuer, and verified by our Attorney, the taxes and tax rates applicable to the Issuer and its domestic holding subsidiaries during the Reporting Period comply with the requirements of current laws, regulations and normative documents.

(II)Main tax preferences enjoyed by the Issuer and its domestic holding subsidiaries

According to the Updated Audit Report, the tax information provided by the Issuer and the Issuer's description, the main new tax preferences enjoyed by the Issuer and its domestic holding subsidiaries during the period from July 1, 2021 to December 31, 2021 are as follows:

Chaoyang Tongmei obtained the high-tech enterprise certificate on December 14, 2021, with the certificate number of GR202121000903 and the validity period of three years. According to the Enterprise Income Tax Law of the People’s Republic of China, the regulations for the implementation of the Enterprise Income Tax Law of the People’s Republic of China, and the administrative measures for the recognition of high-tech enterprises, Chaoyang Tongmei paid enterprise income tax at a preferential tax rate of 15% in 2021.

Tianjin Boyu obtained the high-tech enterprise certificate on November 25, 2021. The certificate number is GR202112001913 and the validity period is three years. According to the

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Enterprise Income Tax Law of the People’s Republic of China, the Regulations for the Implementation of the Enterprise Income Tax Law of the People’s Republic of China, and the Administrative Measures for the Recognition of High-Tech Enterprises, Tianjin Boyu paid enterprise income tax at a preferential tax rate of 15% in 2021.

(III)Main financial subsidies enjoyed by the Issuer and its domestic holding subsidiaries

According to the financial subsidies provided by the Issuer and the Updated Audit Report, the financial subsidies enjoyed by the Issuer and its domestic holding subsidiaries in 2021 are as follows:

No.	Entry Name	Subsidy Object	Amount (RMB)	Basis Or Approval Document
1	Enclave Subsidy	Chaoyang Jinmei	5,000,000.00	Notice on Issuing the Special Investment Plan of Kazuo County to Accelerate the Breakthrough in the Development of Northwest Liaoning in 2019
2	Project Construction Subsidy	Chaoyang Tongmei, Chaoyang Xinmei	41,811,000.00	Notes on the Project Award and Supplementary Funds of Chaoyang Tongmei Crystal Technology Co., Ltd., Notice on Issuing the Special Fund Index of Chaoyang Xinmei High-Purity Semiconductor Material Co., Ltd. (CKKCZ [2021] No. 3) and Management Measures for Special Funds of Development Zone
3	Government incentives	Beijing Tongmei, Chaoyang Jinmei, Chaoyang Tongmei, Tianjin Boyu, Chaoyang Boyu	1,655,589.00	Notice on Holding the Policy Training Meeting on Promoting High-Quality Development of Foreign Trade in 2021, Notice on Issuing the “Liaoning Innovative Regional Incentive Post Subsidy Fund Project” in Kazuo County, Notice on Allocating the Subsidy Fund for Sample Enterprises for Statistical Monitoring of Service Trade in 2021, and Notice of the Municipal Human Resources and Social Security Bureau on Carrying out the “Project + Team” in Tianjin in 2020, Notice on Special Application for Key Training; Notice of the Municipal Bureau of Industry and Information Technology and the Municipal Bureau of Finance on Proper Cultivation, Assessment and Reward of “Small Scale And Large Scale” enterprises in 2019
4	Intellectual property subsidy	Beijing Tongmei	472,000.00	Application Form of Beijing Patent Subsidy and Notice on Applying for Intellectual Property Subsidy, Reward and Subsidy Projects and Filing in Tongzhou District in 2021
5	Reward Fund of Social Security Bureau	Baoding Tongmei	194,000.00	Several policies of Dingxing County to Increase Investment Attraction and Further Support the High-Quality Development of Private Economy (Trial)

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No.	Entry Name	Subsidy Object	Amount (RMB)	Basis Or Approval Document
6	Reward Fund of the Bureau of Industry and Information Technology	Baoding Tongmei	100,000.00	Several policies of Dingxing County to Increase Investment Attraction and Further Support the High-Quality Development of Private Economy (Trial)
7	Subsidy for Talents of Two Types of Senior Talents	Beijing Tongmei	100,000.00	Statement on Checking the Employment of Talents in Tongzhou District “Canal Plan” in 2021
8	Enterprise R & D subsidy	Beijing Tongmei	80,000.00	Notice on the Application of Beijing Postdoctoral Funding in 2021
9	Others	-	314,705.05	-

According to the Updated Audit Report, the description and the materials provided by the Issuer, and verified by our Attorney, the above financial subsidies enjoyed by the Issuer and its domestic holding subsidiaries in 2021 do not violate national laws and regulations.

(IV)Tax situation

1.Beijing Tongmei

On February 18, 2022, the First Taxation Office of Beijing Tongzhou District Taxation Bureau of the State Administration of Taxation issued the Notice of Tax Related Information Query Results, confirming that Beijing Tongmei had not received administrative punishment from July 1, 2021 to February 18, 2022. On February 16, 2022, the First Tax Office of Beijing Tongzhou District Taxation Bureau issued the certificate of no tax arrears, confirming that Beijing Tongmei “has not found any tax arrears as of February 13, 2022 after querying the tax collection and Management Information System”.

2.Baoding Tongmei

On 7 February 2022, the Second Taxation Branch of Dingxing County Taxation Bureau

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of the State Administration of Taxation issued the Compliance Certificate, it is confirmed that Baoding Tongmei “from July 1, 2021 to the Issuance Date of this Certificate, the Company declared and paid taxes according to the provisions of relevant tax laws, regulations and normative documents. After our branch inquired in the Jinshan System, the Company has no tax arrears or administrative penalties of the Company has been found due to tax violations from July 1, 2021 to now”.

3.Chaoyang Tongmei

On February 8, 2022, the State Administration of Taxation Kazuo County Taxation Bureau Gongyingzi Taxation Branch issued the Compliance Certificate, confirmed that “from July 1, 2021 to the Issuance Date of this certificate, Chaoyang Tongmei Crystal Technology Co., Ltd. declared and paid taxes and fulfilled its tax payment obligations to the Bureau according to the law on time. The applicable taxes, tax rates and tax preferences comply with the requirements of national and local tax laws, regulations, departmental rules and normative documents, and there is no unpaid tax or other circumstance requiring supplementary payment, no case of tax evasion, tax evasion or default, failure to fulfill the obligation of tax withholding and payment, no violation of national and local tax law, regulation, departmental rule or normative document, no administrative punishment, investigation or handling by this bureau, and no ongoing or potential dispute or litigation with this bureau”.

4.Nanjing Jinmei

On February 18, 2022, the Tax Service Department of Nanjing Jiangning Economic and Technological Development Zone Taxation Bureau of the State Administration of Taxation issued the Notice of Tax Related Information Query Results, confirming that “Nanjing Jinmei Gallium Industry Co., Ltd. can fulfill its tax obligations from July 1, 2021 to February 18, 2022, and has not found any violation of relevant laws and regulations”.

5.Chaoyang Jinmei

On February 8, 2022, the Gongyingzi Taxation Branch of the State Administration of Taxation Kazuo County Taxation Bureau issued the Compliance Certificate, confirmed that from July 1, 2021 to the Issuance Date of this certificate, Chaoyang Jinmei Gallium Industry Co., Ltd. declared and paid taxes and fulfilled its tax payment obligations to the Bureau according to the law and on time. The applicable taxes, tax rates and tax preferences comply

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with the requirements of national and local tax laws, regulations, departmental rules and normative documents. There are no tax payable or other taxes to be paid back, no record, no violation of national and local tax laws, regulations, departmental rules or normative documents, no administrative punishment, investigation or handling by this bureau, and no ongoing or potential dispute or lawsuit with this bureau in the case of tax evasion, tax evasion or default, failure to perform the obligation of tax withholding and payment ".

6.Chaoyang Boyu

On February 10, 2022, the State Administration of Taxation Kazuo County Taxation Bureau Gongyingzi Taxation Branch issued the Compliance Certificate, confirmed that “from January 1, 2018 to the Issuance Date of this Certificate, Boyu (Chaoyang) Semiconductor Technology Co., Ltd. shall report and pay taxes and fulfill its tax payment obligations to the Bureau according to the law on time. The applicable taxes, tax rates and tax preferences enjoyed by Semiconductor Technology Co., Ltd. comply with the requirements of national and local tax laws, regulations, departmental rules and normative documents. There are no unpaid taxes or other supplementary taxes, no tax evasion, tax evasion or tax arrears, no violation of national and local tax laws, regulations, departmental rules or normative documents, no administrative punishment, investigation or handling by this bureau, and no ongoing or potential dispute or lawsuit with this bureau”.

7.Chaoyang Xinmei

On February 10, 2022, the State Administration of Taxation Kazuo County Taxation Bureau Gongyingzi Taxation Branch issued the Compliance Certificate, confirmed that “from July 1, 2021 to the Issuance Date of this certificate, Chaoyang Xinmei High-Purity Semiconductor Materials Co., Ltd. declared and paid taxes and fulfilled its tax payment obligations to the Bureau according to the law and on time. The applicable taxes, tax rates and tax preferences comply with the requirements of national and local tax laws, regulations, departmental rules and normative documents, and there are no tax payable or other taxes to be paid back, no cases of tax evasion, tax evasion or default, failure to fulfill the obligation of tax withholding and payment, no violation of national and local tax laws, regulations, departmental rules or normative documents, no administrative punishment, investigation or handling by this bureau, and no ongoing or potential disputes or litigation with this bureau”.

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8.Beijing Boyu

On February 9, 2022, the No. 1 Taxation Office of Beijing Tongzhou District Taxation Bureau of the State Administration of Taxation issued the Certificate of No Tax Arrears, confirmed that “no tax arrears of Beijing Boyu have been found as of February 6, 2022 after querying the tax collection and management information system”.

On March 2, 2022, the No. 1 Taxation Office of Beijing Tongzhou District Taxation Bureau of the State Administration of Taxation issued the Notice of Tax-related Information Query Result, confirming that Beijing Boyu has been subject to no administrative punishment during the period from July 1, 2021 to February 28, 2022.

9.Tianjin Boyu

On February 18, 2022, the Baoping Taxation Office of Tianjin Baodi District Taxation Bureau of the State Administration of Taxation issued the notice of tax related information query results, confirmed that after the query of the one household query function in the Golden Tax Phase III Tax Management System, the enterprise has declared and paid taxes and fulfilled its tax payment obligations According to the law on time, and there is no illegal tax registration information as of July 1, 2021. On February 18, 2022, Baoping Taxation Office of Tianjin Baodi District Taxation Bureau of the State Administration of Taxation issued the “Certification of No Tax Arrears”, confirmed that no tax arrears Tianjin Boyu had been found as of February 15, 2022 after querying the tax collection and management information system.

According to the instructions of the Issuer and commitments, the above supporting documents issued by the competent tax authorities of the Issuer and its domestic holding subsidiaries, and verified by our Attorney, we believe that the Issuer and its domestic holding subsidiaries have no major tax violations or major tax penalties by the tax authorities from July 1, 2021 to December 31, 2021.

XVI. Environmental Protection, Product Quality, Technology and Other Standards of the Issuer

(I)Environmental protection of the Issuer

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According to the information, explanation and commitment provided by the Issuer, and through the interview with the relevant leaders of the Issuer by our Attorney, through the inquiry on the Website of the Ministry of Ecological Environment of the People’s Republic of China (Website: http://www.mee.gov.cn/), the Website of the Ecological Environment Department, where the Issuer and its domestic holding subsidiaries are located, the Website of CREDITCHINA and the National Enterprise Credit Information Publicity System. From the Issuance Date of the Legal Opinion to the Issuance Date of the Supplementary Legal Opinion, the Issuer and its domestic holding subsidiaries do not violate the laws on environmental protection administrative punishment due to laws, regulations and normative documents.

(II)Product quality and technical standards of the Issuer

According to the certification documents issued by the Competent Quality and Technical Supervision Department of the Issuer and its domestic holding subsidiaries, the instructions and commitments of the Issuer, and the interview of with the relevant leaders of the Issuer by our Attorney, the Issuer and its domestic holding subsidiaries are not punished for violating laws, regulations and normative documents on quality and technical standards from the Issuance Date of the Legal Opinion to the Issuance Date of the Supplementary Legal Opinion.

XVII. Labor and Social Security of the Issuer

(I) Labor Contract

According to the materials and instructions provided by the Issuer and verified by our Attorney, the Issuer and its domestic holding subsidiaries have signed Labor Contracts with employees according to the Labor Law of the People’s Republic of China and other relevant laws and regulations, and employees enjoy corresponding rights and undertake corresponding obligations according to such Labor Contracts.

(II) Social insurance and housing accumulation fund

1.Payment of social insurance and housing accumulation fund

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According to the social insurance premium payment notice, reconciliation voucher of special social insurance payment card, provident fund remittance letter, employee roster, and instructions etc. provided by the Issuer, the Issuer and its domestic holding subsidiaries had 1,371 employees, 1,333 and 1,312 paid social insurance and housing provident fund by the Issuer and its domestic holding subsidiaries, respectively as of December 31, 2021.

2.The Issuer abides by laws and regulations on the management of social insurance and housing provident fund

According to the certificates of the Issuer and its domestic holding subsidiaries issued by the Social Insurance Management Department and the Housing Provident Fund Management Department, the instructions and confirmation of the Issuer, and verified by our Attorney, the Issuer was not punished by the Social Insurance Management Department and the Housing Provident Fund Management Department for major violations of laws and regulations during the Reporting Period.

(III) Labor Dispatch

During the Reporting Period, labor dispatch proportion of the Issuer exceeded the upper limit of 10% stipulated in the Interim Regulations on labor dispatch. The Issuer has rectified the above situations. As of December 31, 2021, 81 labor workers of the Issuer were dispatched, accounting for 5.48% of the total employment of the Company (including labor dispatch), conforming to the Interim Provisions on Labor Dispatch.

XVIII. Application of Offering Proceeds by the Issuer

(I) After verification by our Attorney, the projects to be invested by proceeds from this Offering have been deliberated and passed by the Issuer’s general meeting of shareholders, for which necessary internal approvals and authorizations, as well as investment filing documents from Chaoyang Kazuo Economic Development Zone Management Committee, the competent government authority, have been obtained. Regarding the GaAs semiconductor material project, it is expected that there will be no substantive obstacles to the handling of environmental protection-related procedures required for its construction as a statement has been issued by Chaoyang Kazuo Economic Development Zone Management Committee confirming it

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complies with the national environmental protection policy, though the EIA approval document is still pending as of the date hereof. Besides, the land for the underlying investment projects, on which a real estate ownership certificate has been issued by the competent government authority, meets with relevant land policies and urban planning without risk of unavailability.

(II) After verification by our Attorney, the financing of the Issuer does not involve mergers and acquisitions of other enterprises.

(III) Upon verification by our Attorney, the investment projects financed by the Issuer comply with the provisions of national industrial policies, environmental protection, land management and other laws, regulations and rules.

XIX. Litigation, Arbitration or Administrative Punishment

(I) The Issuer and its holding subsidiaries

Major litigations and arbitrations

According to the information, explanation and commitment provided by the Issuer, and through the interview with our Attorney, the relevant leaders of the Issuer and inquiring on CREDITCHINA, National Enterprise Credit Information Publicity System, China Execution Information Disclosure Network, China Judgements Online, The People’s Court Announcement and 12309 China Inspection Network for retrieval and query, from the Issuance Date of the Legal Opinion to the Issuance Date of the Supplementary Legal Opinion, the Issuer and its domestic holding subsidiaries have no outstanding major litigation and arbitration with a single dispute subject amount (leader) of more than RMB 500,000.

Administrative punishment

According to the instructions and commitments, such as administrative punishment decision and payment voucher, etc., and the Updated Audit Report provided by the Issuer, and through the interview with the relevant leaders of the Issuer by our Attorney, and the search and query through public channels, such as CREDITCHINA, the National Enterprise Credit Information Publicity System and the Website of the competent government departments, the

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Issuer and its domestic holding subsidiaries have not been subject to new administrative penalties from the Issuance Date of the Legal Opinion to the Issuance Date of the Supplementary Legal Opinion.

(II) Major shareholders holding more than 5% of the shares of the Issuer

The major shareholders holding more than 5% of the shares of the Issuer are AXT and Beijing Bomeilian.

According to the U.S. AXT Updated Legal Opinion, the statements and commitments issued by AXT and Beijing Bomeilian, and through the interview with relevant leaders by our Attorney, through inquiry on CREDITCHINA, National Enterprise Credit Information Publicity System, China execution information disclosure network, China Judgements Online, the People’s Court Announcement and 12309 China Procuratorial Network, from the Issuance Date of the Legal Opinion to the Issuance Date of the Supplementary Legal Opinion, AXT and Beijing Bomeilian, the major shareholders holding more than 5% of the shares of the Issuer, have no pending or foreseeable major litigation, arbitration or administrative punishment.

(III) Chairman and General Manager of the Issuer

According to the Questionnaire filled in by the Chairman of the Issuer, MORRIS SHEN-SHIH YOUNG, and the General Manager, Liu Wensen, and through the interview of our Attorney, and the search and query on the dishonesty record query platform of the securities and futures market, China Execution Information Disclosure Network, China Judgements Online, the People’s Court Announcement and 12309 China Procuratorial Network, from the Issuance Date of the Legal Opinion to the Issuance Date of the Supplementary Legal Opinion, there is no pending or foreseeable major litigation, arbitration or administrative punishment between the Chairman of the Issuer, MORRIS SHEN-SHIH YOUNG, and the General Manager, Liu Wensen.

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XX. Evaluation of the Legal Risk of the Issuer’s Prospectus

Our Attorney have participated in the preparation and discussion of the Prospectus (2021 Updated Annual Report), reviewed the Prospectus (2021 Updated Annual Report), especially the relevant contents of the Supplementary Legal Opinion, and confirmed that the Prospectus (2021 Updated Annual Report) have no false records due to the contents of the Supplementary Legal Opinion Misleading Statements or material omissions.

XXI. Other Issues to be Explained by the Attorney

(I) The Option Incentive Plan for Employees of the Issuer

On March 15, 2022, the Issuer held the 11th Meeting of the First Board of Directors and the 11th Meeting of the First Board of Supervisors, deliberated and adopted the Proposal on Canceling Partial Options Under the 2021 Stock Option Incentive Plan of the Company. Among the 171 incentive objects determined by the 2021 Stock Option Incentive Plan of the Issuer, 2 resigned from the Issuer, 2 gave up their stock options for personal reasons, and the Board of Directors, authorized by the First Extraordinary General Meeting in 2021 of the Issuer, cancelled the stock options granted to but not exercised by them. After cancellation, 171 incentive objects were adjusted from 167, and 7,302,036 stock options held by incentive objects were reduced from to 7,192,430. On the same day, the independent directors expressed their independent opinions.

(II) Acquisition of controlling shareholder stock options and restricted shares by the Issuer’s employees

According to the Equity Incentive Plan, grant documents and statistical tables of the AXT provided by the Issuer and the U.S. AXT Updated Legal Opinion, some employees of the Issuer hold stock options and restricted shares granted by AXT. The Issuer has held 280,557 AXT stock options and 495,867 AXT restricted shares as of December 31, 2021.

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XXII. General Concluding Comments on the Offering and Listing

In conclusion, we believe that as of the Issuance Date of the Supplementary Legal Opinion, the Issuer still meets the conditions for IPO and Listing on the Science and Innovation Board stipulated in the Securities Law, the Company Law, the Administrative Measures for Initial Registration, the Listing Rules of the Science and Innovation Board and other relevant laws, regulations and normative documents; the issuance of the Issuer has yet to be examined and approved by Shanghai Stock Exchange and reported to the CSRC for registration; the Shares of the Issuer are listed and traded on Shanghai Stock Exchange after closing, which has yet to be reviewed and approved by Shanghai Stock Exchange.

The Supplementary Legal Opinion is made in quadruplicate.

(There is no text below, followed by the signature page)

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(No text hereunder, which is the Signature Page of Supplementary Legal Opinion (I) of King & Wood Mallesons on the IPO and Listing of Beijing Tongmei Xtal Technology Co., Ltd. on the Science and Innovation Board)

King & Wood Mallesons (seal)

Handling lawyers: XU Hui

YANG Zhenhua

WANG Anrong

Head: WANG Ling

April 7, 2022

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Annex I: New Land Use Right of the Issuer and Its Holding Subsidiaries Obtained the Ownership Certificate

					<br><br>		<br><br>	<br><br>
No.	Right Holder	Certificate No.	Location:	Effective Validity to:	Land Type<br><br>(Purpose)	Type of Use Right	Area of Use Right<br><br>(m^2^)	Mortgages<br><br>Right
1	Chaoyang Xinmei	L (2022) Kazuo County <br>Real Estate Property Right <br>No. 20220000228	Tuchengzi Village, Gongyingzi <br>Town, Kazuo County	January 5, 2072	Industry	Transfer	66,926	No

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Annex II: New Trademarks of the Issuer and Its Holding Subsidiaries


No.	Right Holder	International Classification	Trademark	Application / Registration No.	Date of Registration	Effective Validity to:	Acquisition method	Other Rights
1	Issuer	1		55721295	November 14, 2021	November 13, 2031	original acquisition	No
2	Issuer	9		55687989	November 21, 2021	November 20, 2031	original acquisition	No
3	Issuer	1		55714231	November 21, 2021	November 20, 2031	original acquisition	No
4	Issuer	9		55716321	November 21, 2021	November 20, 2031	original acquisition	No
5	Issuer	9		55716308	November 21, 2021	November 20, 2031	original acquisition	No
6	Issuer	9		55711221	November 21, 2021	November 20, 2031	original acquisition	No
7	Issuer	1		55709726	November 21, 2021	November 20, 2031	original acquisition	No
8	Issuer	1		55705518	November 21, 2021	November 20, 2031	original acquisition	No
9	Issuer	9		55704744	November 21, 2021	November 20, 2031	original acquisition	No
10	Issuer	9		55702854	November 21, 2021	November 20, 2031	original acquisition	No

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No.	Right Holder	International Classification	Trademark	Application / Registration No.	Date of Registration	Effective Validity to:	Acquisition method	Other Rights
11	Issuer	1		55726043	January 14, 2022	January 13, 2032	original acquisition	No
12	Issuer	1		55723399	January 14, 2022	January 13, 2032	original acquisition	No
13	Issuer	1		55721305	January 21, 2022	January 20, 2032	original acquisition	No
14	Issuer	9		55718846	January 14, 2022	January 13, 2032	original acquisition	No
15	Issuer	1		55710866	January 21, 2022	January 20, 2032	original acquisition	No
16	Issuer	9		55699743	January 21, 2022	January 20, 2032	original acquisition	No
17	Chaoyang Jinmei	9		58530493	February 14, 2022	February 13, 2032	original acquisition	No

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Annex III: New Patents of the Issuer and Its Holding Subsidiaries


No.	Patentee	Patent Name	Patent Type	Patent Number	Application Date:	Date of Authorization proclamation	Acquisition method	Other Rights
1	Issuer	锗单晶片、其制法、晶棒的制法及单晶片的用途	Invention	2019104837484	May 31, 2019	October 19, 2021	original acquisition	No
2	Issuer	用于半导体晶棒腐蚀的篮具	Utility model	2021200989546	January 14, 2021	October 19, 2021	original acquisition	No
3	Issuer	油泥干燥设备	Utility model	202120096935X	January 14, 2021	October 29, 2021	original acquisition	No
4	Issuer	半导体晶片边形观察装置	Utility model	2021206433384	March 30, 2021	November 12, 2021	original acquisition	No
5	Issuer	控温和加热设备	Utility model	2021205067450	March 10, 2021	November 19, 2021	original acquisition	No
6	Issuer	用于清洗半导体晶片的旋转式花篮	Utility model	2021214021691	June 23, 2021	December 03, 2021	original acquisition	No
7	Issuer	通气式晶片盒	Utility model	2021214301048	June 25, 2021	December 07, 2021	original acquisition	No
8	Issuer	通气式圆盒	Utility model	2021214301118	June 25, 2021	December 07, 2021	original acquisition	No
9	Issuer	晶片包装盒的清洗装置	Utility model	202120981508X	May 10, 2021	December 28, 2021	original acquisition	No
10	Issuer	半导体晶片盒开盒器和晶片盒组合件	Utility model	2021212440296	June 04, 2021	January 07, 2022	original acquisition	No
11	Issuer	用于半导体晶片制造的固液分离系统以及加工设备	Utility model	2021219400270	August 18, 2021	February 01, 2022	original acquisition	No

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No.	Patentee	Patent Name	Patent Type	Patent Number	Application Date:	Date of Authorization proclamation	Acquisition method	Other Rights
12	Issuer	半导体衬底中的可控氧浓度	Invention Patent	2020102755196	March 27, 2013	February 11, 2022	original acquisition	No
13	Baoding Tongmei	一种立式固定旋转晶片甩干机	Utility model	2021209654088	May 08, 2021	October 22, 2021	original acquisition	No
14	Baoding Tongmei	一种水平甩干机自动平衡系统	Utility model	2021205678825	March 19, 2021	October 22, 2021	original acquisition	No
15	Baoding Tongmei	一种晶片单精抛用PVC药管	Utility model	2021217339776	July 28, 2021	December 03, 2021	original acquisition	No
16	Baoding Tongmei	一种放置半导体晶片的溢流水盒	Utility model	202121638853X	July 19, 2021	December 03, 2021	original acquisition	No
17	Baoding Tongmei	一种晶片甩干机辅助干燥装置	Utility model	2021215461275	July 08, 2021	December 03, 2021	original acquisition	No
18	Baoding Tongmei	一种用于半导体晶片加工的间距尺	Utility model	2021217188649	July 27, 2021	December 14, 2021	original acquisition	No
19	Baoding Tongmei	一种用于半导体晶片加工的具有孔位编号的游星轮	Utility model	202121621530X	July 16, 2021	December 14, 2021	original acquisition	No
20	Baoding Tongmei	半导体晶片清洗夹具	Utility model	2021212078680	June 01, 2021	December 21, 2021	original acquisition	No
21	Baoding Tongmei	用于干法清洗设备的晶圆支架	Utility model	2021217625528	July 30, 2021	February 01, 2022	original acquisition	No
22	Baoding Tongmei	一种半导体晶片抛光后拆卸用冲水装置	Utility model	2021215471440	July 08, 2021	February 25, 2022	original acquisition	No
23	Chaoyang Tongmei	半导体单晶材料加热炉	Utility model	2020231162037	December 22, 2020	January 04, 2022	original acquisition	No

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No.	Patentee	Patent Name	Patent Type	Patent Number	Application Date:	Date of Authorization proclamation	Acquisition method	Other Rights
24	Chaoyang Tongmei	半导体单晶成长坩埚	Utility model	2020231161636	December 22, 2020	January 04, 2022	original acquisition	No
25	Beijing Boyu	加热器	Appearance Design	2020307825054	December 18, 2020	November 12, 2021	original acquisition	No
26	Beijing Boyu	一种蒸镀原料加热设备测试炉	Utility model	2021220880476	September 01, 2021	February 01, 2022	original acquisition	No
27	Beijing Boyu, Tianjin Boyu, Chaoyang Boyu	一种坩埚用喷嘴的环形侧壁的变形纠正装置	Utility model	2021223992011	September 30, 2021	February 01, 2022	original acquisition	No
28	Beijing Boyu, Tianjin Boyu, Chaoyang Boyu	一种水冷套	Utility model	2021223992100	September 30, 2021	February 22, 2022	original acquisition	No
29	Tianjin Boyu and Chaoyang Boyu	一种氮化硼坩埚的气相沉积炉	Utility model	2021214972790	July 02, 2021	November 12, 2021	original acquisition	No
30	Tianjin Boyu and	一种金属丝加热器的制作工装	Utility model	2021214972663	July 02, 2021	December 07, 2021	original acquisition	No

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No.	Patentee	Patent Name	Patent Type	Patent Number	Application Date:	Date of Authorization proclamation	Acquisition method	Other Rights
	Chaoyang Boyu
31	Tianjin Boyu	一种钢丝卷内径调节装置	Utility model	2021220879939	September 01, 2021	January 18, 2022	original acquisition	No
32	Tianjin Boyu	一种垂直焊接工装	Utility model	2021220880404	September 01, 2021	January 18, 2022	original acquisition	No
33	Tianjin Boyu	一种可控制间距的钢丝成卷机	Utility model	2021220880599	September 01, 2021	February 01, 2022	original acquisition	No
34	Chaoyang Boyu	一种用于蒸镀设备束流件焊接的固定装置	Utility model	2021220880457	September 01, 2021	January 18, 2022	original acquisition	No
35	Chaoyang Boyu	一种金属筒焊接工装	Utility model	2021220881040	September 01, 2021	January 18, 2022	original acquisition	No
36	Chaoyang Boyu	一种捆扎装置	Utility model	2021220879604	September 01, 2021	February 15, 2022	original acquisition	No
37	Chaoyang Boyu	一种运输小车	Utility model	2021220879765	September 01, 2021	February 15, 2022	original acquisition	No

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King & Wood Mallesons

The Supplementary Legal Opinion (II) of King & Wood Mallesons on Initial Public Offering and Listing of Beijing Tongmei Xtal Technology Co., Ltd. on the Science and Innovation Board

To: Beijing Tongmei Xtal Technology Co., Ltd.

The Legal Opinion of King & Wood Mallesons on Initial Public Offering and Listing of Beijing Tongmei Xtal Technology Co., Ltd. on the Science and Innovation Board (hereinafter referred to as the “Legal Opinion”) and the Lawyer’s Work Report of King & Wood Mallesons on Initial Public Offering and Listing of Beijing Tongmei Xtal Technology Co., Ltd. on the Science and Innovation Board have been issued on December 25, 2021 regarding the offering and listing matters, and the Supplementary Legal Opinion (I) of King & Wood Mallesons on Initial Public Offering and Listing of Beijing Tongmei Xtal Technology Co., Ltd. on the Science and Innovation Board (hereinafter referred to as the “Supplementary Legal Opinion (I)”) has

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been issued on April 7, 2022, and the Lawyer’s Work Report of King & Wood Mallesons on Initial Public Offering and Listing of Beijing Tongmei Xtal Technology Co., Ltd. on the Science and Innovation Board (hereinafter referred to as the “Lawyer’s Work Report”) has been updated accordingly according to the Securities Law of the People’s Republic of China (hereinafter referred to as the “Securities Law”), the Company Law of the People’s Republic of China (hereinafter referred to as the “Company Law”), the Administrative Measures for the Registration of Initial Public Offering of Shares on the Science and Innovation Board (Trial) (hereinafter referred to as the “Administrative Measures for the Registration of Initial Public Offering”), the Administrative Measures for Securities Legal Business of Law Firms (hereinafter referred to as the “Administrative Measures for Securities Legal Business”), the Practical Rules for Securities Legal Business of Law Firms (Trial) (hereinafter referred to as the “Practical Rules of Securities Legal Business”), No. 12 Rules for the Preparation and Reporting of Information Disclosure by Public Securities Companies- Legal Opinions and Lawyers' Work Report on Public Securities Issuance (hereinafter referred to as “No. 12 Rules for the Preparation and Reporting”), Guidelines for the Application of Regulatory Rules- Law No. 2: Detailed Practical Rules of Law Firms Engaged in the Legal Business of Initial Public Offering and Listing (hereinafter referred to as the “Detailed Practical Rules of Initial Legal Business”) and other existing effective laws, administrative rules, regulations and normative documents in the People’s Republic of China (hereinafter referred to as “China”), (for the purpose of the Supplementary Legal Opinion, excluding Hongkong Special Administrative Region, Macao Special Administrative Region and Taiwan Region), and the relevant provisions of China Securities Regulatory Commission (hereinafter referred to as the “CSRC”), and based on the business standards, moral rules and diligent diligence spirit recognized by the practice of law.

The handling lawyers of King & Wood Mallesons supplemented the audit of relevant matters involved in the Offering and Listing of the Issuer, and issued the Supplementary Legal Opinion according to the requirements of SZKS (Review) [2022] No. 182 - the Inquiry Letter on the Second Round Examination of the Application Documents of Beijing Tongmei Xtal

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Technology Co., Ltd. for Initial Public Offering and Listing on the Science and Innovation Board (hereinafter referred to as the “Second Round Inquiry Letter”) issued by Shanghai Stock Exchange on April 26, 2022.

The Supplementary Legal Opinion forms an integral part of the Legal Opinion, Lawyer’s Work Report and the Supplementary Legal Opinion (I) issued by us. The premises and assumptions in the Legal Opinion, Lawyer’s Work Report and the Supplementary Legal Opinion (I) of us are also applicable to the Supplementary Legal Opinion. The relevant interpretations or abbreviations of the Legal Opinion, the Lawyer’s Work Report and the Supplementary Legal Opinion (I) shall also apply to the Supplementary Legal Opinion unless otherwise specified. For matters specially described in the Supplementary Legal Opinion, the description herein shall prevail.

We only express opinions on legal issues related to the Offering and Listing of the Issuer, and does not express opinions on non-legal professional matters, such as accounting, audit and asset evaluation in the Supplementary Legal Opinion. We only express opinions according to the current effective laws and regulations in China, and do not express opinions according to any laws outside China. We do not express opinions on non-legal professional matters, such as accounting, audit and asset evaluation and overseas legal matters. When quoting some data and conclusions of relevant Accounting Reports, Audit Report, Asset Evaluation Report and Overseas Legal Opinions in the Supplementary Legal Opinion, we have fulfilled the necessary duty of care, but such quoting is not regarded as any express or implied guarantee of us for the authenticity and accuracy of the conclusion on these data, since we are not qualified for verifying and evaluating such data.

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Supplementary Legal Opinion issued according to the law. We agree that the Issuer shall quote the relevant contents of the Supplementary Legal Opinion in the relevant documents prepared for the Offering and Listing by itself or according to the review requirements of the CSRC and Shanghai Stock Exchange, but the Issuer shall not cause legal ambiguity or misinterpretation due to the quotation. We have the right to review and confirm the contents of the above relevant documents again.

According to the business standards, ethics and the spirit of diligence recognized by the practice of law, we have verified the issues related to the Issuer’s Attorney in the Second Round Inquiry Letter, and now issue the Supplementary Legal Opinion as follows:

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Table of Contents


I. Question 1 of the Second Round Inquiry Letter: About Independence	171
II. Question 2 of the Second Round Inquiry Letter: About Business Reorganization	177
III. Question 6 of the Second Round Inquiry Letter: About R&D Staff and R&D Expenses	194
IV. Question 7 of the Second Round Inquiry Letter: About Legality and Compliance of Source of Core Technologies	197

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I. Question 1 of the Second Round Inquiry Letter**: About Independence**

1.4

The Sponsor and Issuer’s Attorney are advised to propose clear and definite verification opinions on whether the Issuer meets relevant requirements on independence as set out in Article 12 of the Measures for the Administration of the Registration of IPO Stocks on the Science and Technology Innovation Board (for Trial Implementation).

Reply:

(I) Whether the Issuer meets relevant requirements on independence as set out in Article 12 of the Measures for the Administration of the Registration of IPO Stocks on the Science and Technology Innovation Board (for Trial Implementation)

In accordance with Article 12 of the Measures for the Administration of the Registration of IPO Stocks on the Science and Technology Innovation Board (for Trial Implementation), requirements for independence to be met by the Issuer shall, specifically, include that: the Issuer has complete assets, independent business and personnel, finance and institution, has no horizontal competition with the controlling shareholder, the actual controller and other enterprises controlled by it, which has material adverse effects on the issuer, and has no affiliated transaction which seriously affects its independence or is evidently unfair. The Issuer meets these requirements for independence. The specific analysis is shown as follows:

In terms of assets, in November 2021, the Controlling Shareholder licensed its intellectual property rights, patents authorized and in application and relevant trademarks to the Company and its holding subsidiaries for permanent use. Such authorized patented technologies do not have a key impact in the current production and operation of the Company, and the relevant core technologies and patents of the Company are formed by independent research and development, and the relevant authorized trademarks are not ones necessary for the Company's

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production and operation. As of the date of this Supplementary Legal Opinion, the property rights of assets among the Issuer, Controlling Shareholder and other companies controlled by it are clearly defined. The Issuer legally owns the ownership or right to use of such intellectual property rights as land, houses, equipment, trademarks, and patents pertaining to its production and operation. It is evident that Issuer’s assets are independent and complete.

In terms of business, in March 2021, AXT-Tongmei and AXT performed their business transition for semiconductor substrate materials; in May 2021, the Issuer completed the acquisition of AXT-Tongmei, incorporating business systems such as overseas sales into the Issuer. Before such business transition, the overseas sales of the Issuer with respect to semiconductor substrate material products were undertaken by its Controlling Shareholder AXT based on the internal arrangement of the Group, while the Issuer purchased some major raw materials overseas through AXT. After the business transition, AXT-Tongmei, the Company’s subsidiary, was independently responsible for overseas procurement and sales. AXT would no longer engage in specific business after completing subsequent orders. As of the date of this Supplementary Legal Opinion, the Issuer carries out business independently according to law. Moreover, all its businesses are independent of its Controlling Shareholder, and other companies it controls. The Issuer's production, supply and marketing system has been independent and complete, and the business has been carried out well.

In terms of human resources, after the business tranisition, AXT only retained some necessary personnel to be responsible for information disclosure, investor relations, and financial affairs in the U.S. capital market. Its sales, procurement, R&D and some financial and administrative personnel have been transferred to AXT-Tongmei. As of the date of this Supplementary Legal Opinion, no senior executives of the Issuer such as General Manager, Deputy General Manager, Financial Superintendent, and Board Secretary hold any positions other than directors and supervisors in the Controlling Shareholder of the Issuer and other enterprises controlled by it. Nor do they get paid from the Controlling Shareholder of the Issuer and other companies it controls.

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In terms of finance, as of the date of this Supplementary Legal Opinion, the Issuer has an independent Financial Department with specialized financial personnel and an independent financial accounting system. Therefore, it can make financial decisions independently. Also, it has a standardized financial accounting system and a financial management system for its subsidiaries. The Issuer does not share bank accounts with the Controlling Shareholder of the Issuer and other companies it controls as it has established independent accounts for this purpose. No financial staff of the Issuer have concurrently hold offices in or get paid from the Controlling Shareholder and other companies it controls.

In terms of organization, as of the date of this Supplementary Legal Opinion, the Issuer has organized the General Meeting of Shareholders, the Board of Directors, the Board of Supervisors and other corporate governance structures in accordance with the Companies Law and the Articles of Association. What’s more, it has sound internal operation and management organizations and independent decision-making and execution organizations, facilitating that it can independently exercise the power of operation and management. In this case, there is no institutional confusion with the Controlling Shareholder of the Issuer and other companies it controls. After the completion of the asset reorganization, the Controlling Shareholder did not directly participate in the operation and management of the Company, and it exercised the relevant shareholder rights by exercising voting rights and nominating directors at the Company's shareholders' meeting/general meeting, and there was no situation in which it exceeded the authority of the board of directors to exercise the management right through the management or directly.

In terms of horizontal competition, in December 2020, AXT increased its capital to Beijing Tongmei with equity interests in Baoding Tongmei, Chaoyang Tongmei, Nanjing Jinmei, Chaoyang Jinmei and Beijing Boyu; in May 2021, the Issuer acquired AXT-Tongmei. After the completion of such reorganization and business transition, the Issuer has formed a complete industrial chain covering the research and development, production and sales of semiconductor substrate materials, the consumable PBN crucibles and important raw materials

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high-purity metals. As of the date of this Supplementary Legal Opinion, AXT and other enterprises which are controlled by AXT do not have any substantive business operations, nor do they have any horizontal competition with the Issuer.

In terms of related-party transactions, after the business transition, AXT-Tongmei, the Company’s subsidiary, was independently responsible for overseas procurement and sales and AXT would no longer engage in specific business after completing subsequent orders. In addition, the related-party transactions during the reporting period between the Company and related parties have all followed the principles of fairness, voluntariness and reasonableness. All these related-party transactions are at fair price without jeopardizing the benefits of the Company and non-related shareholders. As of the date of this Supplementary Legal Opinion, there are no related-party transactions that may seriously affect the Issuer's independence or lack of fairness.

In conclusion, the Issuer has complete assets, independent business and personnel, finance and institution, has no horizontal competition with the controlling shareholder, the actual controller and other enterprises controlled by it, which has material adverse effects on the issuer, and has no affiliated transaction which seriously affects its independence or is evidently unfair. Therefore, these comply with relevant requirements for independence in Article 12 of the Measures for the Administration of the Registration of IPO Stocks on the Science and Technology Innovation Board (for Trial Implementation).

(II) Verification procedures and opinions

Our Attorney has carried out the following verification procedures with respect to the aforesaid issues:

The Issuer provided Audit Report, sales and procurement details, documents of R&D input, equipment procurement details, fixed assets list, procurement contracts and invoices of important fixed assets, real estate certificates, lists and certificates of intellectual property rights, other asset ownership certificates, staff register, remuneration payment records, organizational

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chart, and responsibilities description, job standards and systems of departments, cash flow in bank accounts. Further, the setting of sales and procurement, finance, R&D, together with staffing, was checked to get hold of asset ownership and usage status. Moreover, the Issuer was inspected for any dispute over the ownership of the important assets produced and operated by the Issuer, and whether its assets were occupied or used by related parties;

Legal opinions issued by Burks Johansson LLP, a US law firm, on the Controlling Shareholder AXT, AXT’s information disclosure documents, audit reports or financial statements, details and contracts of procurement and sales, list of fixed assets, list of intellectual property rights, staff register, and cash flow in bank accounts were obtained. Further, the development history, industry, main business, products, raw materials, production process, assets, and staffing of AXT and the companies it controls were inspected. AXT and the companies it controls were further investigated for any horizontal competition that may have significant adverse effects on the Issuer, and whether related sales, procurement, assets, personnel, and technologies of the Issuer are confused with those of its Controlling Shareholder and the companies it controls or participates in;
The Issuer provided its explanations. Details of related-party sales and procurement transactions, related-party transaction contracts and transaction vouchers, trademarks and technology licensing contracts of the Issuer during the reporting period were inspected. The explanations of the Issuer’s related parties in terms of the related-party transactions and interview transcripts were obtained. The reasons for the Issuer's purchases from related parties, the impact of the suspension of purchases from Dongfang High-purity on the Company's production and operation and alternative measures, the specific circumstances of the production equipment from related-party purchases, the amount and proportion of related party transactions between the Issuer and related parties, changing trends, background and authenticity of the related party transactions were further investigated. Also, the Issuer was examined for any related-party transactions that seriously affect its independence;
Trademark, technology license agreements, capital lending contract and certificates

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signed by AXT and the Issuer were obtained. The Issuer was inspected for whether it has obtained necessary authorizations for using the trademarks and technologies of related parties, and whether the Issuer’s production and operation constitute a major reliance on the authorized trademarks and technologies;

Real estate, land, patents, trademarks, software copyrights and other assets through public channels, and the inventory of stock, fixed assets, construction in progress and intangible assets at the end of the period, and the accuracy and integrity of the assets, of the Issuer, were checked;
AXT issued the Letter of Commitment on Avoiding Horizontal Competition;
Production sites and R&D sites of the Issuer and its subsidiaries were investigated on the spot. Production process, project initiation of R&D projects, R&D records, of the Issuer were inspected. Interviews were conducted with the superintendents responsible for management, procurement, marketing, finance, and R&D of the Issuer, with a view to determining whether the Company operates independently in terms of production, supply, marketing, finance, and R&D;
The Issuer provided its explanations. Interview were conducted with main customers and suppliers during the reporting period, as well as those after asset restructuring with AXT, and confirmations with main customers after asset restructuring with AXT were carried out, for the purpose of understanding the transaction contents, terms, and actual implementation with these customers and suppliers, and their cooperation history, customers’ recognition of product quality of the Company, and determining whether there is a related-party relationship with the Issuer and financial disintermediation, and the situation relating to the business transition;
Main customers and suppliers, as well as those after asset restructuring with AXT during the reporting period, of the Issuer were executed the external confirmation procedure;

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10. The Issuer, its Controlling Shareholder AXT and its key management personnel, directors, supervisors, senior executives, sales and procurement superintendents, key financial personnel, key sales and procurement personnel, etc. were inspected for the cash flow in bank accounts during the reporting period, so as to determine whether they have financial disintermediation and advance payment, etc.;

The Issuer provided its explanations. The industrial and commercial files of the Issuer and its holding subsidiaries and the Company's internal governance related systems were inspected, and interviews with some outgoing directors were conducted to understand the establishment and operation of the Company's management organization, and the Company's management and control methods of its holding subsidiaries after the completion of the asset reorganization and to understand the reasons and effects of the changes in the Company's directors before and after the asset reorganization.

Through verification, we believe that, the Issuer has complete assets, independent business and personnel, finance and institution, has no horizontal competition with the controlling shareholder, the actual controller and other enterprises controlled by it, which has material adverse effects on the issuer, and has no affiliated transaction which seriously affects its independence or is evidently unfair. Therefore, these comply with relevant requirements for independence in Article 12 of the Measures for the Administration of the Registration of IPO Stocks on the Science and Technology Innovation Board (for Trial Implementation).

II. Question 2 of the Second Round Inquiry Letter**: About Business Reorganization**

According to the reply to the inquiry, (1) the Issuer considers that it has completed the asset reorganization on December 9, 2020 on the ground that the original shareholders of the reorganized entities have acquired the newly increased shares (consideration of reorganization) of Tongmei Limited, but the industrial and commercial change registration of Baoding Tongmei, one of the reorganized entities, was completed

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on January 12, 2021; (2) in May 2021, the Issuer acquired AXT-Tongmei from AXT.

The Issuer is required to explain: (1) the transaction process of the acquisition of Baoding Tongmei, the reasons why the Company considers that it acquired the control over Baoding Tongmei on December 9, 2020; (2) the reasons why the acquisition of AXT-Tongmei is not included in the scope of reorganization and the rationality thereof; (3) recalculation and comparison of indicators such as total assets, operating income and total profit of the reorganizing parties in 2020 after AXT-Tongmei is included in the scope of reorganization; (4) Details and relevant reasons of offsetting transactions among the reorganizing parties in 2019 and 2020.

The Sponsor, the Issuer’s Attorney and the Reporting Accountant are requested to conduct verifications and issue explicit opinions thereon.

Reply:

(I) Transaction process of the acquisition of Baoding Tongmei, the reasons why the Company considers that it acquired the control over Baoding Tongmei on December 29, 2020

1.Transaction process of the acquisition of Baoding Tongmei

According to the industrial and commercial registration data of the Issuer and Baoding Tongmei, the transaction process of the Issuer’s acquisition of Baoding Tongmei is as follows:


Time	Transaction Process
December 9, 2020	Beijing Zhongfeng Assets Appraisal Co., Ltd. issued the Asset Apprisal Report on the Total Equity Value of Baoding Tongmei Crystal Manufacturing Co., Ltd. involved in the Shareholders’ Proposed Transfer of Equity Interest in Baoding Tongmei Crystal Manufacturing Co., Ltd. (Zhong Feng Ping Bao Zi (2020) No. 01234).
December 25, 2020	The shareholder of Baoding Tongmei made a shareholders’ decision, agreeing that AXT would transfer all its 100% equity interest in Baoding Tongmei to Tongmei Limited; after the equity transfer, Baoding Tongmei would become a wholly owned subsidiary of Tongmei Limited; the nature of the company would

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Time	Transaction Process
	be changed from a limited liability company (sole proprietorship by a foreign legal person) to a limited liability company (sole proprietorship by a legal person).
		AXT and Tongmei Limited entered into the Equity Transfer Agreement, pursuant to which AXT agreed to transfer its 100% equity interest in Baoding Tongmei and the corresponding shareholder rights and obligations represented by such equity interest to Tongmei Limited, and Tongmei Limited agreed to accept the transfer of AXT’s 100% equity interest in Baoding Tongmei and the corresponding shareholder rights and obligations represented by such equity interest.
		Tongmei Limited held a shareholders’ meeting, agreeing that AXT would use its 100% equity interest in Baoding Tongmei as a consideration to subscribe for the newly increased registered capital of the Company; AXT and Tongmei Limited entered into the Capital Increase Agreement, providing that AXT would use its 100% equity interest in Baoding Tongmei as a consideration to subscribe for the newly increased registered capital of the Company.
		Tongmei Limited executed the new articles of association of Baoding Tongmei Crystal Manufacturing Co., Ltd.
December 29, 2020	Tongmei Limited completed the industrial and commercial change registration and obtained the business license issued by the Beijing Tongzhou District Administration for Market Regulation. AXT, the original shareholder of Baoding Tongmei, obtained the newly increased shares of Tongmei Limited (consideration of reorganization), that is, Tongmei Limited has paid all the consideration of reorganization.
January 12, 2021	Baoding Tongmei completed the industrial and commercial change registration and obtained the business license issued by the Dingxing County Administrative Review and Approval Bureau.

2.Reasons why the Company considers that it acquired the control over Baoding Tongmei on December 29, 2020

According to the industrial and commercial registration data of the Issuer and Baoding Tongmei and the explanations provided by the Company, in combination with the provisions of the application guide of the Accounting Standards for Business Enterprises No. 20 - Business Mergers, the determination standards and actual circumstances in relation to the Company’s completion of its control over Baoding Tongmei are as follows:

(1) The contract or agreement on the business merger has been approved by the

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shareholders’ meeting, etc.

On December 25, 2020, AXT and Tongmei Limited entered into the Equity Transfer Agreement which has been deliberated and approved by the shareholder of Baoding Tongmei.

(2) If the business merger is required to be approved by the relevant competent authorities of the state, such approval has been obtained.

Pursuant to applicable laws and regulations, the Company’s acquisition of 100% equity interest in Baoding Tongmei is not required to be approved by the relevant competent authorities of the state.

(3) The parties involved in the merger have gone through such procedures as necessary for the transfer of property rights

On December 25, 2020, AXT and Tongmei Limited entered into the Equity Transfer Agreement, agreeing that AXT would transfer its 100% equity interest in Baoding Tongmei to Tongmei Limited. The Agreement took effect on December 25, 2020, the parties thereto have confirmed that the relevant equity transfer has been completed on the same day, Tongmei Limited has become the sole shareholder of Baoding Tongmei on December 25, 2020.

(4) The merging party or the purchasing party has paid most of the merger price (generally more than 50%), and has the ability and plan to pay the remaining amount

According to the Equity Transfer Agreement and the Capital Increase Agreement entered into by and between Tongmei Limited and AXT, the consideration for Tongmei Limited’s acquisition of 100% equity interest in Baoding Tongmei is new shares issued by Tongmei Limited to AXT, and the acquisition of newly increased shares in Tongmei Limited by the original shareholders of Baoding Tongmei is subject to the consummation of the capital increase, the industrial and commercial change registration and the acquisition of the business license.

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On December 29, 2020, Tongmei Limited completed the industrial and commercial change registration with respect to the reorganization matters and obtained a new business license, that is, the original shareholders of Baoding Tongmei have obtained the newly increased shares in Tongmei Limited (consideration of reorganization). Accordingly, Tongmei Limited has paid the consideration for the equity transfer as agreed in the Equity Transfer Agreement on December 29, 2020.

(5) The merging party or the purchasing party has controlled the financial and operational policies of the merged party or the purchased party, and owns the corresponding benefits and bears the corresponding risks

According to the articles of association of Baoding Tongmei Crystal Manufacturing Co., Ltd. which was executed and entered into force on December 25, 2020, upon the completion of the reorganization, the body with the highest authority of Baoding Tongmei remains to be shareholders. Therefore, after Tongmei Limited becomes the sole shareholder of Baoding Tongmei, Tongmei Limited shall have the right to exercise relevant authorities as a shareholder in accordance with the Company Law and the articles of association of Baoding Tongmei, appoint and remove members of the board of directors of Baoding Tongmei, and thereby appoint and remove the management of Baoding Tongmei through the board of directors to exercise the control over Baoding Tongmei.

The Issuer, Baoding Tongmei and AXT, the original shareholder of Baoding Tongmei, jointly issued the Confirmation Letter on the Asset Reorganization, confirming that the transfer of equity interest in Baoding Tongmei has been completed on the date of signing the Equity Transfer Agreement; as of the date of the completion of such equity transfer, Tongmei Limited holds 100% equity interest in Baoding Tongmei, controls the financial and operational policies of Baoding Tongmei, has the rights and obligations as a shareholder of Baoding Tongmei, and owns corresponding benefits and bears corresponding risks.

In addition, according to the explanations provided by Baoding Tongmei and the Issuer

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and as confirmed through the interviews with the persons of Baoding Tongmei handling the industrial and commercial change registration and the officials of the industrial and commercial authorities by our lawyers, Baoding Tongmei submitted the application materials for the relevant change registration to market inspection and management authorities at the end of December 2020, but due to the government’s processing time and procedures, the industrial and commercial change registration was completed on January 12, 2021. In consideration of the fact that the Company Law, the Regulations on the Administration of Registration of Market Entities and other laws and regulations have no provision that the industrial and commercial change registration is a condition to the effectiveness of equity transfer, the industrial and commercial change registration of equity interest is only an administrative act, and such change is aimed at making the relevant registration matters of a company public and become effective against a bona fide third party, and the Equity Transfer Agreement does not list the industrial and commercial change registration as a precondition to the equity transfer. Therefore, regardless of whether the industrial and commercial change registration of Baoding Tongmei is completed, the effectiveness of the Equity Transfer Agreement and the equity transfer shall not be affected, nor does the time of completing such industrial and commercial change registration affect the time of completing the equity transfer.

As confirmed through the interviews with MORRIS SHEN-SHIH YOUNG, the Chairman of Baoding Tongmei, and VINCENT WENSEN LIU, the General Manager of Baoding Tongmei, by our lawyers, Tongmei Limited obtained 100% equity interest in Baoding Tongmei on December 25, 2020, becoming the sole shareholder of Baoding Tongmei, owning relevant rights as a shareholder in accordance with the law, and controlling the financial and operational policies of Baoding Tongmei, it has obtained the control over Baoding Tongmei. The fact that the relevant industrial and commercial change registration of Baoding Tongmei was completed on January 12, 2021 has no effect on Tongmei Limited’s control over Baoding Tongmei.

In conclusion, as of December 29, 2020, Tongmei Limited has obtained the control over Baoding Tongmei.

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(II) Reasons why the acquisition of AXT-Tongmei is not included in the scope of reorganization and the rationality thereof

1.The asset reorganization in December 2020 and the acquisition of AXT-Tongmei are two separate reorganizations implemented by the Company

To solve horizontal competition and integrate business resources, the Company implemented the asset reorganization in December 2020, upon the completion of such reorganization, the Company holds 100% equity interest in Beijing Boyu, Baoding Tongmei, Chaoyang Tongmei, Nanjing Jinmei and Chaoyang Jinmei. This reorganization is for production resources; after the completion of the said reorganization, the Company has integrated the supply of PBN crucibles, indium phosphide polycrystalline, high-purity gallium and other raw materials in the upstream of semiconductor substrate materials, and their main business covers the R&D, production and sale of semiconductor substrate materials, PBN materials and other high-purity materials. Before and after the reorganization, the Company fails to achieve the independent sale of overseas substrate materials. In this reorganization, the Company and the original shareholders of the reorganized parties entered into the Equity Transfer Agreement and the Capital Increase Agreement in December 2020, which have gone through the review procedure by the board of directors, the shareholders’ meeting or any other competent authority, and completed the payment of relevant amounts and the closing of assets in the same month.

According to the description of the Company, the Company’s acquisition of AXT-Tongmei is to make the Issuer directly face customers in the overseas substrate material market and further reduce related party transactions and horizontal competition, which is a further extension after the Company’s domestic reorganization, mainly intending to reorganize the channels for overseas procurement and the sales of semiconductor substrate materials. After the acquisition of AXT-Tongmei, the Issuer owns a full independent marketing ability in the overseas market. On May 6, 2021, the Company held a board meeting to review and approve the Company’s acquisition of 100% equity interest in AXT-Tongmei from AXT in cash. On

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the same day, Beijing Tongmei entered into the Share Transfer Agreement with AXT.

According to the description of the Company, as the Company’s overseas investment is subject to the pre-approval procedures such as overseas investment filing, and the time of completion of such procedures is uncertain, the acquisition of AXT-Tongmei was not deliberated by the Company in its board meeting held in December 2020. The acquisition of AXT-Tongmei was deliberated and approved by the Company’s board of directors in May 2021 separately, such acquisition and the reorganization in December 2020 are not conditional on each other.

In addition, the agreements signed by the related parties above did not require that the two organizations shall be preconditioned on each other.

In conclusion, the asset reorganization by the Company in December 2020 and the acquisition of AXT-Tongmei by the Company in May 2021 are two separate reorganizations implemented by the Issuer in the fiscal year or period immediately before the Issuer submitted its IPO application documents.

2.Non-existence of circumvention of the Opinions on the Application of “No Major Change in the Issuer’s Main Business in the Last Three Years” under Article 12 of the Administrative Measures on the Initial Public Offering and Listing of Stocks - the Opinions on the Application of the Securities and Futures Law No. 3 **(“**Opinions on the Application of the Securities and Futures Law No. 3”) in relation to the acquisition of AXT-Tongmei being not included in the scope of reorganization

(1) Relevant provisions of the Answers to Certain Questions on the IPO Business (Revised in June 2020)

According to the relevant provisions of “Question 36, Business Reorganization and Major Changes in Main Business” in the Answers to Certain Questions on the IPO Business (Revised in June 2020):

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“The business reorganization of an issuer occurred during the reporting period shall be determined separately based on whether the reorganized business and the issuer are under the same control. If the business reorganization is under the same control, it shall be determined and handled in accordance with the relevant requirements of the Opinions on the Application of the Securities and Futures Law No. 3; if the business reorganization is not under the same control, it usually includes the acquisition of the equity interest or operating assets of the reorganized party, increasing the capital of the issuer, merging the reorganized party or otherwise with the equity interest or operating assets of the reorganized party. The issuer and intermediaries may pay attention to the following factors: …”; “If multiple reorganizations occur within 12 months, the impact of the reorganization on the issuer’s total assets, net assets, operating income or total profit shall be calculated on a cumulative basis.”

Both the Company’s asset reorganization in December 2020 and the acquisition of AXT-Tongmei in May 2021 are business reorganizations under the same control. According to the regulations above, they shall be determined and handled in accordance with the relevant requirements of the Opinions on the Application of the Securities and Futures Laws No. 3.

(2) Relevant provisions of the Opinions on the Application of the Securities and Futures Law No. 3

According to the Opinions on the Application of the Securities and Futures Law No. 3, if an issuer has undergone multiple reorganizations in the fiscal year or period immediately before its submission of the IPO application documents, the impact of such reorganizations on the issuer’s total assets, operating income or total profit shall be calculated on a cumulative basis.

According to the Opinions on the Application of the Securities and Futures Law No. 3, the Issuer submitted its IPO application documents in December 2021, as required by the above provisions, the Issuer shall consolidate the reorganization (i.e., the reorganization of five entities, including Beijing Boyu) in the fiscal year immediately before its submission of IPO application documents; and the reorganization in the period immediately before its submission

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of IPO application documents (i.e., the acquisition of AXT-Tongmei) will be calculated. After separately calculating the impact of the two reorganizations on the Issuer’s total assets, operating income or total profit, and then adding up them. As AXT-Tongmei had not actually operated in 2020 and did not open any bank account, the amount of paid-in capital and related financial indicators are all zero, and the proportion of the total assets, operating income or total profit of AXT-Tongmei to the relevant financial indicators of the Issuer in 2020 is also zero. Therefore, the acquisition of AXT-Tongmei does not affect the comparison of indicators of the reorganizing parties such as total assets, operating income or total profit in 2020. The fact that the acquisition of AXT-Tongmei is not included in the scope of reorganization does not circumvent the Opinions on the Application of the Securities and Futures Law No. 3.

(III) Recalculation and comparison of indicators such as total assets, operating income and total profit of the reorganizing parties in 2020 after AXT-Tongmei is included in the scope of reorganization

1.Calculation based on the indicators of 2019

According to the financial statements of the reorganizing party (Tongmei Limited) and the reorganized party (the acquired party) provided by the Issuer during the reporting period, and upon confirmation through our interview with the CFO of the Issuer, in December 2020, the Issuer completed the acquisition of 5 entities including Beijing Boyu. The table below shows the comparison of relevant indicators of 2019:

In RMB0’000


Entity/Item	Total assets as at the end of 2019	Operating income in 2019	Total profit in 2019
Beijing Tongmei A	80,072.95	35,728.47	-1,507.98
Baoding Tongmei B	28,635.15	1,953.43	-2,902.24
Chaoyang Tongmei C	24,219.28	2,470.16	-1,457.28
Chaoyang Jinmei D	7,005.23	1,095.62	360.31
Nanjing Jinmei E	9,340.66	5,781.28	942.58

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Beijing Boyu F	12,659.92	9,492.30	1,541.82
Offsetting transactions against the reorganizing parties G	-8,238.45	-8,856.82	-881.63
Total amount of the acquired parties H=B+C+D+E+F+G	73,621.79	11,935.97	-2,396.44
Proportion (H/A)	91.94%	33.41%	158.92%

(1) The reorganization above is intended to integrate the industry chain, and the Company has been in operation for over one complete accounting year after the reorganization

The reorganized party Beijing Boyu is mainly responsible for the production and sales of PBN crucibles and other PBN materials, so as to provide PBN crucible consumables for the Issuer’s semiconductor substrate materials; the reorganized parties Nanjing Jinmei and Chaoyang Jinmei are responsible for the production and sales of high-purity gallium and other high-purity compounds, in which high-purity gallium is one of the main raw materials for the Issuer to produce gallium arsenide substrates; the reorganized parties Chaoyang Tongmei and Baoding Tongmei are mainly responsible for the production and sales of gallium arsenide, and its business and production line come from the Issuer’s production line that has been relocated.

In summary, the reorganization above is integration implemented focusing on the semiconductor substrate material business of the Issuer. The assets reorganization above did not lead to a change in the main business of the Issuer; instead, after the reorganization, related-party transactions are reduced and horizontal competition is avoided, which further enhanced the independence of the Issuer.

(2) Relevant indicators are in compliance with the relevant provisions of the Opinions on the Application of the Securities and Futures Law No. 3

According to the above, neither the total assets as of the end of 2019 nor the indicators related to the operating revenue of the year exceeded 100%, but the calculation result of the total profits exceeded 100% because the profits of both parties are negative. However, with reference to relevant cases and practices on the market at present, such conditions are not included for the scope of indicator calculation. For details, refer to the explanation below.

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In summary, with December 2020 as the completion time, the relevant indicators of 2019 are not subject to the circumstance provided in the Opinions on the Application of the Securities and Futures Law No. 3 that the Offering may be requested only after operation for a complete accounting year. Moreover, by now, the Company has been in operation for over a complete accounting year from the completion time of the reorganization.

(3) Relevant cases on the market

① Shenzhen Pacific Union Precision Manufacturing Co., Ltd.

During the reporting period, Shenzhen Pacific Union Precision Manufacturing Co., Ltd. established Put Tech (Hong Kong), and Put Tech (Hong Kong) acquired 100% equity interests in Pacific Union (Hong Kong). The total profit of the reorganized party is negative, and the Issuer did not include such total profits into the scope of calculation when explaining whether it was in compliance with the Opinions on the Application of the Securities and Futures Law No. 3. The information disclosed is as follows:

In RMB0’000


End of 2018/2018	Total assets	Operating revenue	Total profits
Book value of the reorganizing party ①	16,020.73	12,694.33	1,081.66
Book value of the reorganized party ②	3,750.72	7,997.49	-288.53
Proportion=②/①	23.41%	63.00%	-

② SICC Co., Ltd.

When SICC Co., Ltd. determined whether its acquisition of the equity interests in and assets of Tianyue Crystal in 2020 constituted major assets reorganization, given that the total profits of both the acquired entity and the acquiring entity in the previous year were negative, the impact on the total profits were not calculated. The information disclosed is as follows:

In RMB0’000


End of 2019/2019	Total assets	Operating revenue	Total profits
Book value of the reorganizing party ①	115,032.01	26,567.32	-16,531.68

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Book value of the reorganized party ②	42,413.92	122.56	-2,690.50
Proportion=②/①	36.87%	0.46%	-

③ Beijing Qilin Hesheng Network Technology Co., Ltd.

In 2016, Beijing Qilin Hesheng Network Technology Co., Ltd. acquired the overseas entities APEX and Cybertron under common control with Beijing Qilin Hesheng Network Technology Co., Ltd. Given that the total profits of the reorganizing party and the reorganized parties in the previous year were negative, the Company did not include such total profits in the scope of calculation when explaining whether it is in compliance with the Opinions on the Application of the Securities and Futures Law No. 3. The information disclosed is as follows:

In RMB0’000

End of 2015/2015	Total assets	Operating revenue	Total profits
Book value of the reorganizing party ①	5,366.64	-	-3,341.33
Book value of the reorganized party ②	3,670.03	5,516.54	-13,994.18
Proportion=②/①	68.39%	>100%	-

In summary, given that the total profits of both the Issuer and the reorganized party (excluding the related-party transaction with Tongmei Limited) were negative in 2019, and the loss of the reorganized party was greater than Tongmei Limited, this reorganization did not improve the total profits of Tongmei Limited in 2019; therefore, Tongmei Limited is not subject to the circumstance of making up profits, hence not subject to the circumstance provided in the Opinions on the Application of the Securities and Futures Law No. 3 that the offering may be requested only after operation for a complete accounting year. Moreover, by now, the Company has been in operation for over a complete accounting year from the completion time of the reorganization.

2.Calculation based on the indicators of 2020

According to the financial statements of the reorganizing party (Tongmei Limited) and the reorganized party (acquired party) provided by the Issuer during the reporting period, and

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through the interview of our lawyers with the CFO of the Issuer, if AXT-Tongmei is included in the scope of reorganization, the process of recalculating and comparing indicators such as total assets of the reorganizing parties at the end of 2020, and operating income and total profit of the reorganizing parties in 2020 is as follows:

In RMB0’000

Entity/Item	Total assets as at the end of 2020	Operating income in 2020	Total profit in 2020
Beijing Tongmei A	168,634.49	40,800.67	2,149.40
Baoding Tongmei B	32,811.80	7,159.40	-2,383.11
Chaoyang Tongmei C	29,939.56	6,018.06	-522.43
Chaoyang Jinmei D	10,828.24	3,890.71	1,559.89
Nanjing Jinmei E	12,407.95	8,538.73	886.41
Beijing Boyu F	17,030.67	11,149.72	3,361.01
AXT-Tongmei G	-	-	-
Offsetting transactions against the reorganizing parties H	-6,642.24	-8,840.99	-2,064.60
Total amount of the acquired parties I=B+C+D+E+F+G+H	96,375.98	27,915.63	837.18
Offset against the long-term equity investment held by the reorganizing parties in the reorganized parties J	-55,782.07	-	-
Excluding financing amount from an external investment institution of the reorganizing party K	-31,447.38	-	-
Percentage (I/(A+J))	85.40%	68.42%	38.95%
Proportion (I/(A+J+K))	118.39%	68.42%	38.95%

According to the table above, if AXT-Tongmei is included into the scope of reorganization, in 2020, the total assets, operating income, and total profit of the acquired entities excluding related-party transactions did not reach or exceed 100% of the relevant indicators of Tongmei Limited; therefore, it is not subject to the circumstance provided in the Opinions on the Application of the Securities and Futures Law No. 3 that the Offering may be requested only after operation for a complete accounting year. The indicator of total assets may

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exceed 100% only if May 2021 is taken as the completion time of the reorganization, the calculation is made based on the relevant indicators of 2020, and the additional capital contribution received by the Issuer from external investment institutions in 2020 are excluded.

From November to December 2020, 10 external institutions including Haitong New Energy entered into capital increase agreements and supplementary agreements with the Company, and such external institutions paid the additional capital contribution to the Issuer successively from November to December 2020 in the total of RMB314 million, including RMB149 million paid in November 2020 and RMB166 million paid in December 2020. The Issuer has made corresponding accounting treatment of the additional capital contributions received in November and December 2020. Such events are external financing acts occurred during the operation of the Issuer according to its needs.

In summary, in 2020, the total assets, operating income, and total profit of the acquired entities excluding related-party transactions did not reach or exceed 100% of the relevant indicators of Tongmei Limited; therefore, it is not subject to the circumstance provided in the Opinions on the Application of the Securities and Futures Law No. 3 that the offering may be requested only after operation for a complete accounting year.

(IV) Details and relevant reasons of offsetting transactions among the reorganizing parties in 2019 and 2020

Pursuant to the Opinions on the Application of the Securities and Futures Law No. 3, if an issuer reorganizes any identical, similar or related business under the same controller as a company during the reporting period, if the total assets of the reorganized party at the end of the fiscal year immediately before the reorganization or its total operating income or total profit in the last fiscal year reaches or exceeds 100% of the issuer’s corresponding item before the reorganization, in order to facilitate investors’ understanding of the overall operation after the reorganization, the issuer shall not apply for offering until it has operated for a full fiscal year. If the reorganized party has any related party transaction with the issuer before the reorganization in the fiscal year immediately before the reorganization, the total assets, operating income or total profit shall be calculated after deducting such transactions.

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According to the above provisions, the reorganized party has deducted the total assets, operating income or total profit of Beijing Tongmei. According to the explanations provided by the Company and through the interview of our lawyers with the CFO of the Issuer, the details of the offsetting transactions in 2019 and 2020 are as follows:

In RMB0’000


Entity/Item	2020	2019
Total assets
Notes receivable of the reorganized Party to Beijing Tongmei A	303.22	497.05
Accounts receivable of the reorganized party to Beijing Tongmei B	2,430.45	4,070.00
Receivable financing of the reorganized party to Beijing Tongmei C	691.47	594.30
Other receivables of the reorganized party to Beijing Tongmei D	3,217.10	3,077.10
Total amount offset against total assets E=A+B+C+D	6,642.24	8,238.45
Total revenue and profit
Operating income that should be offset by the reorganized party against Beijing Tongmei F	8,840.99	8,856.82
Operating costs of the reorganized party to Beijing Tongmei G	6,756.98	7,975.19
Interest expenses of the reorganized party to Beijing Tongmei H	19.41	-
Total amount offset against total profit I=F-G-H	2,064.60	881.63

(V) Verification procedures and opinions

Our Attorney has carried out the following verification procedures with respect to the aforesaid issues:

Inspecting the resolutions of the shareholders’ meeting, the resolutions of the board of directors, the articles of association, the Equity Transfer Agreement, the Capital Increase Agreement, the industrial and commercial registration materials, the new business license issued after the change, and other documents and materials involved in the asset reorganization, and the latest articles of association of Baoding Tongmei after the asset reorganization, the

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Company’s explanation and confirmation, inspecting the relevant provisions of the application guidance of the Accounting Standards for Business Enterprises No. 20 - Business Mergers, and verifying the transaction process of Tongmei Limited’s acquisition of Baoding Tongmei;

Inspecting the latest business license obtained by Tongmei Limited after the asset reorganization, the Confirmation Letter on the Asset Reorganization issued by the Issuer, Baoding Tongmei and AXT, interviewing with the persons of Baoding Tongmei handling the industrial and commercial change registration and the officials of the industrial and commercial authorities, interviewing and confirming with MORRIS SHEN-SHIH YOUNG, Chairman of Baoding Tongmei, and VINCENT WENSEN LIU, General Manager of Baoding Tongmei, and verifying the reasons why the Company considers that it acquired the control over Baoding Tongmei on December 29, 2020;
Inspecting the financial statements of the reorganizing party (Tongmei Limited) and the reorganized party (the acquired entity) provided by the Issuer for the reporting period, calculating the total assets at the end of the fiscal year immediately before the reorganization or the percentage of the operating income or total profit in the fiscal year immediately before the reorganization to the corresponding item of the Issuer before the reorganization, and verifying whether it complies with the relevant laws and regulations such as the Opinions on Application No. 3.

Through verification, we believe that:

As of December 29, 2020, Tongmei Limited has obtained the control over Baoding Tongmei, and the relevant reasons therefor are sufficient;
The asset reorganization in December 2020 and the acquisition of AXT-Tongmei are two separate reorganizations implemented by the Company, the relevant indicators in relation to the acquisition of AXT-Tongmei will not affect the indicators of the reorganized party in the Issuer’s asset reorganization in December 2020 accounting for the Issuer’s total assets, operating income, or total profit. The fact that the acquisition of AXT-Tongmei is not included

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in the scope of reorganization does not circumvent the Opinions on the Application of the Securities and Futures Law No. 3;

The total assets of the reorganized party at the end of 2019 and 2020, and the operating income and total profit of the reorganized party in 2019 and 2020 were lower than corresponding items of the Issuer, which is not the situation under which the entity shall not apply for offering until it has operated for a full fiscal year as provided for in the Opinions on the Application of the Securities and Futures Law No. 3.

III. Question 6 of the Second Round Inquiry Letter**: About R&D Staff and R&D Expenses**

According to the submissions, (1) the Issuer had 187 “technical R&D staff” at the end of 2021, accounting for 13.40% of the total number of employees; (2) at the end of each phase of the reporting period, the number of contract employees of the Issuer was 196, 202, 208 and 102 respectively; (3) The Issuer’s R&D expenses in 2021 were RMB90,166,400. The R&D expenses were mainly composed of employee compensation, raw materials and finished goods consumed, which increased significantly compared with 2020.

The Issuer is required to explain: (1) the distinction and specific composition of technical staff and R&D staff; (2) the reasons for the significant reduction in the number of contract employees in 2021, the replacement method of the original position functions, whether there is external undertaking of cost expenses, the detailed whereabouts of reduced contract employees, whether labor contract is signed for those becoming full members, and their continuous employment condition after the reporting period; (3) Combining with the aforesaid conditions, what is the impact of the Company’s calculation and classification accuracy of employees on calculation accuracy of proportion of R&D staff. Whether proportion of R&D staff conforms to relevant requirements for science and technology innovation evaluation indicators; (4) The reason

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for the great increase in employee compensation, raw materials and finished products consumed in the composition of R&D expenses in 2021.

The Sponsor and the Issuer’s Attorney are required to explain the verification procedures, verification proportion and verification conclusion regarding the whereabouts of reduced contract employees in 2021 and the signing of labor contracts with the Company for the employees who have become regular employees, etc.

Reply:

(I)The whereabouts of reduced contract employees in 2021 and the signing of labor contracts with the Company for the employees who have become regular employees, etc.

According to the Interim Provisions on Labor Dispatching, the employers shall strictly control the number of contract employees, which shall not exceed 10% of the total number of employees. During the reporting period, the Issuer had a situation where the number of contract employees exceeded the upper limit, i.e. 10% of the total number of employees as stipulated in the Interim Provisions on Labor Dispatching. According to the explanations provided by the Company and through the interviews with the relevant HR responsible persons of the Company by our lawyers, in order to ensure that the Company’s contract employees comply with the requirements of relevant laws and regulations, combined with past work performance and other relevant factors, the Company began to gradually negotiate and sign labor contracts with some contract employees, and hire them as regular employees of the Company.

According to the list of contract personnel in 2021 provided by the Company, the labor dispatch agreement and the explanations issued by the labor dispatch company, the whereabouts of the reduced contract employees in 2021 (including the contract personnel for the initial period and the new contract personnel for the current period) specifically include two aspects: some personnel terminated the labor dispatch relationship with the Company and no longer provided relevant services to the Company; and the remaining personnel directly signed

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labor contracts with the Company and become regular employees of the Company.

According to the information provided by the Company, such as the labor contract, employee roster and payroll of the regular employees, and through the interviews with the relevant HR responsible persons of the Company by our lawyers, the above-mentioned regular employees have signed written labor contracts with the Company.

(II) Verification procedures, verification proportion and verification conclusion

Regarding whereabouts of the reduced contract employees in 2021, and signing condition of labor contract by those becoming full members with the Company, our lawyers have executed the following verification procedures and the verification proportion is as follows:

Inquired the Company’s 2021 monthly name list of contract employees, employee roster at the end of 2020 and at the end of 2021, all labor dispatch agreements, all relevant qualification of labor dispatch company, labor contract of each employee becoming full member, departure document of each person who ends the dispatch relationship and no longer provides services to the Company, explanation issued by the labor dispatch company on the condition of labor dispatching, the explanation and confirmation issued by the Company, and made interview and confirmation with Head of Human Resources of the Company and relevant holding subsidiary, and verified the whereabouts of reduced contract employees in 2021;
Inquired labor contract of each contract employee becoming full member signed with the Company, 6 months of payroll before and after each contract employee becoming full member, the explanation and confirmation issued by the Company, and made interview and confirmation with Head of Human Resources of the Company and relevant holding subsidiary, and verified signing condition of labor contract by those becoming full members with the Company.

Upon verification, we believe that, among the Company’s reduced contract employees in

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2021, except that some personnel terminated their labor dispatch relationship with the Company and no longer provided relevant services to the Company, the remaining employees have all become full members, and have signed written labor contract with the Company.

IV. Question 7 of the Second Round Inquiry Letter**: About Legality and Compliance of Source of Core Technologies**

According to submissions, the main products of the Issuer include indium phosphide substrate, gallium arsenide substrate, germanium substrate, PBN material and other high-purity materials; based on technical R&D in past years, the Issuer has mastered core technologies in the fields of aforesaid products.

The Issuer is required to explain the source of its core technologies, whether or not originated from the research contents and results of relevant personnel in their former employers, whether or not infringing upon trade secrets, patents or other intellectual properties of other entities and relevant proofs, and whether or not there is any dispute or potential dispute with relevant entity; if any dispute exists, please specify its progress and its influence on R&D, production and operation of the Company.

The Sponsor and the Issuer’s Attorney are required to offer express verification opinions on the legality and compliance of source of core technologies of the Company.

Reply:

(I) The source of its core technologies, whether or not originated from the research contents and results of relevant personnel in their former employers

1.The source of its core technologies

According to the documents and explanations provided by the Company and through the interviews with the relevant responsible persons of the Company by our lawyers, the

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Company’s core technologies include polycrystal synthesis technology, single crystal growth furnace manufacturing technology, single crystal growth technology, cutting technology, grinding technology, cleaning technology, measurement technology, polishing technology, sealing packaging technology, material purification technology, pyrolytic boron nitride chemical vapor deposition technology, chemical vapor deposition reactor manufacturing technology.

The sources of the said core technologies and key research and development personnel are as follows:

Name of core technology		Source of technology	Key research and development personnel
Polycrystal synthesis technology	High-efficiency gallium arsenide polycrystal synthesis technology	Independent research and development	MORRIS SHEN-SHIH YOUNG
		High-efficiency indium phosphide polycrystal synthesis technology	Independent research and development	MORRIS SHEN-SHIH YOUNG
Single crystal growth furnace manufacturing technology	VGF crystal growth furnace manufacturing technology	Independent research and development	VINCENT WENSEN LIU
Single crystal growth technology	Semi-insulating gallium arsenide single crystal growth by vertical gradient condensation method and carbon doping control technology	Independent research and development	MORRIS SHEN-SHIH YOUNG
		Semi-conductive gallium arsenide single crystal growth by vertical gradient condensation method and uniform doping control technology	Independent research and development	MORRIS SHEN-SHIH YOUNG
		High-quality germanium single crystal growth by vertical gradient condensation method and doping control technology	Independent research and development	MORRIS SHEN-SHIH YOUNG

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Name of core technology		Source of technology	Key research and development personnel
	High-quality indium phosphide single crystal growth by vertical gradient condensation method and doping control technology	Independent research and development	MORRIS SHEN-SHIH YOUNG
		Control technology of oxygen concentration in gallium arsenide single crystal substrate	Independent research and development	MORRIS SHEN-SHIH YOUNG
		Automatic grinding process of crystal rod	Independent research and development	MORRIS SHEN-SHIH YOUNG
		Automatic corrosion process of crystal rod	Independent research and development	MORRIS SHEN-SHIH YOUNG
Cutting technology	Ultra-fine diamond wire cutting technology	Independent research and development	WANG Yuanli
		High-efficiency and low-stress fully automatic wafer cutting technology	Independent research and development	Wang Yuanli
Grinding technology	Fully automatic wafer thinning process	Independent research and development	Wang Yuanli
Cleaning technology	Fully automatic wafer cleaning process by wet method	Independent research and development	REN Diansheng
Measurement technology	Crystal inspection technology	Independent research and development	REN Diansheng
		Wafer inspection technology	Independent research and development	REN Diansheng
Polishing technology	Fully automatic wafer chemical mechanical polishing process	Independent research and development	WANG Yuanli
Sealing packaging technology	Preparation technology of epi-ready gallium arsenide wafer	Independent research and development	MORRIS SHEN-SHIH YOUNG

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Name of core technology		Source of technology	Key research and development personnel
	Preparation technology of epi-ready indium phosphide wafer	Independent research and development	MORRIS SHEN-SHIH YOUNG
		Preparation technology of epi-ready germanium sheet	Independent research and development	MORRIS SHEN-SHIH YOUNG
Material purification technology	Large density difference liquid-liquid extraction technology	Independent research and development	MORRIS SHEN-SHIH YOUNG
		High-efficiency electrolytic refining technology	Independent research and development	MORRIS SHEN-SHIH YOUNG
		Longitudinal temperature gradient partial crystallization technology	Independent research and development	MORRIS SHEN-SHIH YOUNG
		Preparation of high temperature sealant boron trioxide by atmospheric-vacuum two-step dehydration	Independent research and development	MORRIS SHEN-SHIH YOUNG
Pyrolytic boron nitride chemical vapor deposition technology	Pyrolytic boron nitride chemical vapor deposition technology	Independent research and development	HE Junfang
		Preparation technology of boron nitride-boron carbide-graphite composite heating body for high temperature electric heating	Independent research and development	HE Junfang
Chemical vapor deposition reactor manufacturing technology	Design technology of vapor deposition furnace for preparation of ultra-high purity pyrolytic boron nitride products	Independent research and development	HE Junfang

2.Core technicians of the Company

According to the questionnaires completed by the relevant core technicians of the Company, the employment of the Company’s core technicians before joining the Issuer is as follows:

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Core technicians	Employment before joining the Issuer
MORRIS SHEN-SHIH YOUNG	He founded AXT in the United States in 1986, and served as Chairman of the Company from October 2009 till now.
VINCENT WENSEN LIU	From 1983 to 1990, he served as the chief engineer of Beijing Automation Instrumentation Seventh Factory; from March 1993 to December 1998, he served as an engineer and production manager of AXT; since 1998, he has served as a deputy general manager, director and the general manager of the Company.
REN Diansheng	From April 1990 to February 2005, he served successively as an engineer, senior engineer, project leader, and head of technology department of the quality inspection center of the 46th Research Institute of China Electronics Technology Group. Since March 2005, he has served as a senior engineer of research and development department, senior manager of research and development department, and senior manager of wafer technology department of the Company. He currently serves as the technical director of the Company.
WANG Yuanli	From July 2003 to July 2005, he served as a postdoctoral fellow in the Key Laboratory of Semiconductor Materials Science of the Chinese Academy of Sciences; from July 2005 to the present, he has served as a senior engineer of research and development department, manager of research and development department, and deputy technical director of research and development department of the Company.

According to the explanations and confirmations provided by the Company and core technicians, the Company’s core technicians joined the Company more than ten years ago and mainly engage in research and development work according to the Company’s work arrangements. The Company’s patents and core technologies are developed by the main research and development personnel of related technologies after joining the Company, using the Company’s equipment, resources, personal knowledge, and technical reserves in their respective work and business positions, and do not involve the job inventions or other job achievements of relevant technical personnel in the original employer.

In conclusion, the Company's core technologies come from independent research and development, and there were no circumstances where the core technologies came from the research content and results of the relevant personnel when they previously worked in other organizations.

(II) Whether or not infringing upon trade secrets, patents or other intellectual properties of other entities and relevant proofs, and whether or not there is any dispute or potential dispute with relevant entity

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According to the explanations and confirmations provided by the Company and core technicians, and as confirmed through the interviews with MORRIS SHEN-SHIH YOUNG, the Chairman of the Company, and VINCENT WENSEN LIU, the General Manager of the Company, by our laywers, the Company insists on the technology development mode of independent R&D; its core technologies are obtained through independent R&D and do not infringe upon trade secrets, patents or other intellectual properties of other entities, and there is no dispute or potential dispute with relevant entity.

Through our lawyers’ search and query on CREDITCHINA, National Enterprise Credit Information Publicity System, China Execution Information Disclosure Network, China Judgements Online, the People’s Court Announcement and 12309 China Procuratorate Network, there is no litigation or arbitration involving core technologies.

According to the Trademark Registration Certificate, Patent Certificate and Computer Software Copyright Certificate provided by the Issuer and the trademark file and certification issued by the State Intellectual Property Office, and the query results of computer software registration profile issued by the Software Copyright Department of Copyright Protection Center of China, and through the inquiry of our Attorney on China Trademark Network (Website: http://sbj.cnipa.gov.cn/sbj/sbcx/), China and Global Patent Examination Information Inquiry System (Website: http://cpquery.cnipa.gov.cn/) and China Copyright Registration Query Service Platform (Website: https://register.ccopyright.com.cn/query.html), as at February 28, 2022, the Company owns 23 registered trademarks, 118 granted patents and 7 registered computer software copyrights. Based on results of public online enquiry, as of the date of this Supplementary Legal Opinion, such intellectual properties have not been pledged or otherwise encumbered, nor are they involved in any ownership dispute or potential dispute.

As a whole, the core technologies of the Company do not infringe upon trade secrets, patents or other intellectual properties of other entities, and there is no dispute or potential dispute between the Company and relevant entity.

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(III) Explanation about the suspected infringement of trade secret by the Company

The Company received a relevant Report Letter, alleging that: an involved employee of the Company participated in the research and development of PBN-PG composite heaters, PG process products, PBN clamping rods, and other core products during his employment at the reporting party, hence acquired core technologies of the reporting party, while such technology information was trade secret of the reporting party. At present, the involved employee is working for the Issuer and has acquired shares in the Issuer. The reporting party held that the Issuer and the involved employee were suspected of infringing the trade secret of the reporting party.

After self investigation by the Company into the reported matter above, the Company considers that all the core technologies above are developed independently with clear source, and therefore there is no infringement of the trade secret or other intellectual property rights of the reporting party. The details are as follows:

1.Relevant technologies and products involved in the reported matter

According to the interviews with the Attorney of the involved employee, the trade secrets involved in this case were related to the trade secrets of “the tooling of a PBN-PG composite heater PBN coating” and “a kind of PG coating preparation method of PBN-PG composite heater” asserted to be held by the reporting party. The above technology is related to the PBN field, but its corresponding products account for a relatively low percentage of revenue, so this technology is not one of the Company’s core technologies.

Pyrolytic graphite (PG), PBN-PG composite heater and PBN clamping rod described in the Report Letter belong to the products of Beijing Boyu, a controlled subsidiary of the Company, and do not involve technologies and products in the field of semiconductor substrates and high-purity materials, nor are they the main products in the field of PBN such as PBN crucibles.

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The Company’s main PBN products are closely related to semiconductors, OLEDs and other fields, and the production of III-V family and wide band-gap compound semiconductor substrates and crucibles for OLED evaporation sources requires the use of PBN materials produced by the Company. The PBN clamping rod, PBN-PG composite heater and PG coating are used for traveling wave tube for communication, CIGS evaporation and coating crucible respectively, and are not strongly related to the Company’s products which are mainly involved in the downstream field.

During the reporting period, the revenues from semiconductor substrate materials, high-purity metals and compounds, and other products are the main source of revenues of primary business of the Company; in 2021, the revenues from PBN materials only account for 9.05% of revenues from primary business, a relatively low percentage. The total revenues generated by PG related products and relevant products of PBN-PG composite heaters are RMB38,200, RMB336,900 and RMB483,200 respectively, accounting for 0.01%, 0.06% and 0.06% of business incomes of the Company respectively, and no PBN clamping rod is sold; the revenues from aforesaid products have little influence on the production and operation of the Company.

2.Basis of determining that the relevant core technologies of the Company did not infringe the trade secret of the reporting party

(1) The Company has the technical capability to independently develop these products

① The Company has developed its own chemical vapor deposition (CVD) technology and related equipment and processes, and has technical reserves for the development of related application products

In terms of technology, according to the description of the Company, the Company’s core technology in the CVD field is mainly reflected in the development of equipment and processes. The chemical vapor deposition reactor designed and manufactured by the Company has a unique structure. Not only one furnace can hold multiple samples, but also each mold substrate in the same furnace can both revolve and rotate at a high temperature of nearly 2,000 degrees,

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and the speed can be adjusted freely as needed, to ensure the thickness uniformity, component consistency and interlayer adhesion of each product. The Company has applied for a number of patent protections for technologies in the CVD field, and has designed and developed unique production processes and process parameters.

In terms of talents, the Company’s key research and development team in the CVD field is composed of a number of senior personnel with many years of research and development in the industry, which guarantees the necessary human resources for the Company to maintain constant technological innovation and continuous expansion. Mr. HE Junfang, one of the founders of Beijing Boyu, a controlled subsidiary of the Company, was graduated from School of Materials Science and Engineering of Harbin Institute of Technology and engaged in research efforts at Shenyang Institute of Metal Research, Chinese Academy of Sciences, studying CVD process and materials as the responsible person of the laboratory. The large-size high-purity PBN crucible and high-density, high-precision, low-loss PBN clamping rod developed by him have successively won the second and third prize of National S&T Progress Award in Shenyang and Liaoning. He also published many academic papers.

② The Company has many years of production experience in PBN materials and related fields, and has a rich product line

The Company’s main products in the PBN field are PBN materials and products, which are prepared using the above CVD technology. The Company is one of the earliest enterprises researching and developing, producing and selling PBN related products on a large scale in China. Since its establishment in 2002, it has been engaged in the research and development, production and sales of PBN related products for more than 20 years. According to the description of the Company, using self-developed chemical vapor deposition equipment, unique process technology and rich semiconductor material experience, and the Company constantly and iteratively optimizes the preparation process to produce PBN crucibles featured by high-purity, high-density, longer service life and high crystal formation rate, which has been highly praised by users at home and abroad. At present, the Company has developed and

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produced hundreds of PBN products with different varieties and specifications, with a rich range of products.

③ The Company has basic conditions such as off-the-shelf CVD equipment and underlying technology and experienced technical team for development of PG, PBN-PG composite heater and PBN clamping rod

According to the description of the Company, same as other PBN products, PG, PBN-PG composite heater and PBN clamping rod are all prepared using CVD process as the underlying technology, and the products are also prepared using the same CVD furnace as PBN, and the difference is mainly reflected in the different gas raw materials. Unlike the preparation of PBN, PG only needs a single gas to decompose into carbon, and the technical difficulty is relatively low. With years of research and development and product experience and leading advantages in CVD and PBN fields, the Company has created feasibility for the rapid and independent development of products with the same underlying technology such as PG, PBN-PG composite heater and PBN clamping rod. Therefore, after downstream customers issue procurement requirements, the Company has accumulated sufficient technologies, equipment and talents to respond to such requirements and research and develop and prepare the above products in a relatively short period of time.

(2) The technologies corresponding to relevant products of the Company are independently researched and developed by the Company itself, so the source of technologies is clear

① Research and development process of the Company’s PG preparation technology

According to the description of the Company, PG is a subdivision of graphite. Its performance is similar to PBN. It has the advantages of high purity, good compactness, and high temperature resistance; PBN is an insulator while PG is a conductor. Like PBN, PG is also prepared by CVD technology. In the high-temperature CVD furnace cavity, hydrocarbons (such as CH4, C3H6, C3H8) are introduced as reaction gases, decomposed into carbon under the

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set high temperature and vacuum, and grown on the surface of matrix such as graphite mold. After cooling, PG products of various shapes are formed. PG coatings, PBN-PG composite heaters and other products of different shapes and sizes can be made.

PG materials are mainly used as protective coatings. Mr. HE Junfang, one of the founders of Beijing Boyu, a controlled subsidiary of the Company, proposed in his paper “Application of PBN in the Preparation of Semiconductor Materials”: “PG deposited on a PBN substrate can be processed into a resistance heater. The output power of this heater can exceed 45 W/cm2, and it has excellent resistance to fast and frequent thermal cycles.” PG materials were also explicitly mentioned by the Company in the patent awarded in 2013, i.e. Vapor Deposition Furnace with Multi-Directional Air Inlet for Preparation of Pyrolytic Boron Nitride Products (patent number: CN201220429023.0), which shows that the Company has long known knowledge and research in the field of PG materials.

According to the materials provided by the Company, from the beginning of research in June 2018 to the completion of research and development in March 2019.

② The Company’s research and development process of PBN-PG composite heater

According to the description of the Company, the PBN-PG composite heater uses CVD deposition technology to deposit PBN, PG and PBN materials successively to obtain a three-layer composite structure of PBN/PG/PBN. According to specific requirements, it is processed into different shapes and sizes and used as a heater. The PBN-PG composite heater is organically combined by using the conductivity of PG as a heating wire and the insulation of PBN as a protective layer.

According to the description of the Company, On the basis of public technology, the Company conducts further research on the technical difficulties involved in customized products based on the customized product requirements proposed by customers. The Company used CVD technology in 2012 and also used C3H6and other hydrocarbons as raw materials to develop boron nitride-boron carbide-graphite (PBN-BC-C) composite heaters. In 2014, the

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Company was awarded the invention patent “A Boron Nitride-Boron Carbide-Graphite Composite Heating Element for High-Temperature Electric Heating” (patent number: ZL201210287536.7). It can be seen that the Company has long had research and layout in the field of PBN-related composite heaters.

According to the materials provided by the Company, from the beginning of research in June 2018 to the completion of research and development in May 2019.

③ Research and development process of the Company’s PBN clamping rod preparation technology

According to the description of the Company, PBN clamping rod is a ceramic rod used to clamp the spiral wire in an electronic tube, which plays a role of fixing, insulation and heat dissipation. The preparation method is as follows: the high-performance PBN plate is prepared by high-temperature CVD technology, and then cut and finely processed into a high-precision PBN rod with certain length, width and thickness.

HE Junfang, one of the founders of Beijing Boyu, successfully developed the PBN clamping rod in 1998, and applied for the invention patent titled “A Clamping Rod for Electronic Tubes” (CN1093685C) as the first inventor and was authorized.

According to the description of the Company, PBN has the characteristics of high precision, high thermal conductivity, low dielectric loss and easy processing. It is studied and applied as a new type of clamping material. Though the Company has mastered the PBN clamping rod preparation technology, it has not carried out sales of PBN clamping rods due to the low demand in the downstream market.

(3) The Company has been engaged in research and development of CVD technology and PBN materials for more than 20 years

Beijing Boyu was founded in 2002 while the reporting party was founded in 2011. Comparatively speaking, Beijing Boyu is one of the earliest enterprises in China to carry out

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PBN material industrialization and use CVD technology, and has a complete independent intellectual property system related to production and operation.

Beijing Boyu has been engaged in research and development of PBN materials according to CVD technology for more than 20 years. Its products are sold well in Europe, the United States, Japan, South Korea, Singapore, Taiwan and other countries and regions. It has successfully become a qualified supplier of many globally well-known enterprises. It further enriches the Company’s product line and expands the market area covered by the products.

(4) The involved employee is not a core technician of the Company, nor is he a core technician in PBN and related fields, and his contribution to the research and development of the Company’s products is limited

The involved employee joined the Company in May 2019, who is not a core technician of the Company, and has not formed any patent in the Company either. According to the Company’s description, and upon confirmation through our interview with relevant principals and employees, he is neither a core technician of the Company nor a core technician of Beijing Boyu, based on the followings:

① The fields in which the involved employee is engaged are of low relevance to the semiconductor industry

The Company is a world-famous semiconductor material technology enterprise, primarily engaged in the R&D, production and sales of indium phosphide substrates, gallium arsenide substrates, germanium substrates, PBN materials and other high-purity materials. The Company’s R&D, production and sales are carried out around the semiconductor industry. However, since joining the Company, the involved employee has been chiefly responsible for the R&D and production of metal heaters for evaporation (OLED evaporation point source) and the R&D of auxiliary PG and PBN-PG composite heaters, mainly in the fields of OLED and solar heaters with low relevance to the semiconductor industry.

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② The involved employee has been engaged in the material industry for a short time, having comparatively insufficient knowledge reserve and experience accumulation.

In the field of materials science, engineers need to have rich practical experience in all links of material production, who will only work out the best material preparation scheme through complex theoretical calculation in light of the different working conditions and application scenarios, and on the basis of balancing theoretical and actual conditions relying on the long-term accumulation of production process research, model design experience, and repeated verification and adjustment. The involved employee graduated from the Modern Science and Technology Faculty of Taiyuan University of Technology in 2016, majoring in the mechanical design, manufacturing and automation. He is relatively new to the profession and has a relatively short service term in Beijing Boyu, with competitively insufficient knowledge reserve and experience accumulation.

③ The remuneration of the involved employee has not been significantly improved since he joined the Company, and the Company has not identified him as a core technician

According to the description of the involved employee and the bank statements provided by him, after considering the living cost of his workplace, there has been no significant improvement on his remuneration after he joined the Company compared with that before his joining.

In addition, when the involved employee joined the Company in May 2019, no equity or option incentive terms were promised by the Company, as the Company had no A-share listing plan or equity incentive and employee stock ownership plan at that time. After his joining, the Company granted no AXT shares or options to him either. It can thus be seen that the Company has not regarded him as a core technician in terms of remuneration.

When the involved employee joined the Company, the Company has basically completed the research and development of the PG preparation technology, PBN-PG composite heater preparation technology, and PBN clamping rod preparation technology, with the subsequent

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work focusing on the change, designing, and continuous optimization of composite heaters with different structures and sizes for customers. Therefore, the Company’s PG preparation technology, PBN-PG composite heater preparation technology, and PBN clamping rod preparation technology are developed independently, for which this employee made limited contribution for the research and development of the Company’s relevant products.

(5) The Company has long had a layout of relevant products and technologies, and has been granted relevant patents before the involved employee’s joining

With years of R&D and product experience and advantages in the CVD and PBN fields, the Company has formed and been granted a number of relevant technical patents, including 2 protective layer-related patents and 2 composite heater-related patents, prior to joining of the involved employee, as detailed below:

Technical Direction	Patentee	Patent Title	Patent Type	Patent No.	Filing Date	Publication Date	Acquisition Method
Technologies related to pyrolytic graphite coating	Beijing Boyu	Evaporator crucible with silicon carbide protective layers	Utility model	2012204290118	Aug. 27, 2022	Mar. 13, 2013	Original acquisition
		Beijing Boyu	Evaporator crucible with pyrolyzed boron nitride protective layers	Utility model	2012204290122	Aug. 27, 2022	Mar. 13, 2013	Original acquisition
Technologies related to composite heater	Beijing Boyu	Heater with pyrolysis boron nitride protection layer	Utility model	2012204284780	Aug. 27, 2022	Apr. 10, 2013	Original acquisition

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	Beijing Boyu	Boron nitride-boron carbide-graphite composite heating element used for high temperature electric heating	Invention	2012102875367	Aug. 13, 2022	Jun. 4, 2014	Original acquisition

Note: According to the Company’s description, PG materials in the technologies related to pyrolytic graphite coating are mainly used for protection, so the patents formed by such technologies are mainly related to the protective layer technology, and the materials can be replaced.

(6) There is a significant difference on production between the products involved and the Company’s core products

According to the Company’s description, and upon confirmation through our interview with relevant principals, in term of material preparation method, PG is prepared using a single hydrocarbon (CH4, C3H6 or C3H8, etc.) as the reactant gas, while PBN is prepared using boron halide (BCl3 or BF3) and ammonia (NH3) as the reactant gases at the same time. PBN-PG composite heater is made of PBN material as the main body, coated with PG as heating wire and then with PBN layer. PBN clamping rod is one of PBN materials.

There are many differences in the production process of PBN and PG. The production process of PBN is more complicated and difficult to produce. Therefore, the products and technologies involved in PG this time will not affect the production of PBN materials, the Company’s core product. The grasping of two technologies at the same time by the Company is a requisite for production of PBN-PG composite heate. Therefore, the production technology of PBN-PG composite heater does not affect the production of PBN material, the Company’s core production.

In summary, the Company, the involved employee, and his Attorney believe that the

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relevant core technologies do not infringe the intellectual property rights such as the trade secrets of the reporting party.

(IV) Verification procedures and opinions

Our Attorney has carried out the following verification procedures with respect to the aforesaid issues:

Checking the list of core technologies of the Company and relevant documents, and its explanations and confirmation, questionnaires filled in by core technicians, interviewing relevant technical principals, investigating the specific R&D work engaged by core technicians in the Company, and checking the source of relevant core technologies of the Company;
Checking the regulations and flows in relation to R&D and production of the Company, obtaining explanations and confirmation from the core technicians and R&D principals of the Company, and checking whether or not core technologies of the Company originated from the research contents and results of relevant personnel in their former employers;
Through our lawyers’ search and query on CREDITCHINA, National Enterprise Credit Information Publicity System, China Execution Information Disclosure Network, China Judgements Online, the People’s Court Announcement and 12309 China Procuratorate Network, there is no litigation or arbitration involving core technologies.
Checking the Trademark Registration Certificate, Patent Certificate and Computer Software Copyright Certificate provided by the Issuer and the trademark file and certification issued by the State Intellectual Property Office, and the query results of computer software registration profile issued by the Software Copyright Department of Copyright Protection Center of China, and making the inquiry on China Trademark Network (Website: http://sbj.cnipa.gov.cn/sbj/sbcx/), China and Global Patent Examination Information Inquiry System (Website: http://cpquery.cnipa.gov.cn/) and China Copyright Registration Query Service Platform (Website: https://register.ccopyright.com.cn/query.html) to verify the Issuer's

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intellectual property rights, whether there are restrictions on rights such as pledges, and whether there are ownership disputes or potential disputes;

Checking the list of core technologies of the Company and relevant documents, obtaining explanations and confirmation from the core technicians and R&D principals of the Company, and logging on public website to search and check whether or not core technologies of the Company infringe upon trade secrets, patents or other intellectual properties of other entities, and whether or not there is any dispute or potential dispute between the Company and relevant entity;
Inspected the employment contract entered into by the involved employee with the Company, the interview and employment form, identity card, personal resume, the partnership agreement and certificate of capital contribution in relation to his acquisition of shares in Boyu Hengye, and checked the time and background ofhis employment with the Company and his acquisition of shares in the Company, and his working experience prior to his employment with the Company;
Inspected the samples of the Employment Contract and the Contract for Confidentiality and Use and Protection of Intangible Assets of Guojing provided by the involved employee, inspected the materials in relation to his departure from the Guojing and his bank statement for 12 months after his departure from Guojing; and obtained communication materials between the involved employee and the relevant responsible person of the reporting party, bank certificates in relation to relevant payments made by Guojing, the statement on relevant circumstances issued by the involved employee and the legal opinion issued by the Attorney, and checked whether the involved employee breaches any non-competition and confidentiality agreement;
Inspected the Audit Report, relevant sales contracts and detailed income statement, obtained the statement and confirmation letter issued by the Company, interviewed the relevant responsible persons of the Company and his Attorney, and checked the impact on the

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Company’s R&D, production and operation;

Inspected the Audit Report, relevant sales contracts and detailed income statement, interviewed core technicians and R&D leaders of the Company in the field of PBN, obtained the information on technical sources of technologies and products, such as the PBN-PG composite heater, PG process products and PBN clamping rod, and their income percentage in the Issuer’s actual business, the information on the extent of their impact on the Issuer’s production and R&D; interviewed the responsible persons of Beijing Boyu, and obtained the information on the income distribution and sources of core technologies of the Company’s products in the field of PBN.

Through verification, we believe that:

The core technologies of the Company have sources that comply with laws and regulations, not originating from the research contents and results of relevant personnel in their former employers;
The core technologies of the Company do not infringe upon trade secrets, patents or other intellectual properties of other entities, and there is no dispute or potential dispute between the Company and relevant entity.

The Supplementary Legal Opinion is made in quadruplicate.

(There is no text below, followed by the signature page)

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(No text hereunder, which is the Signature Page of Supplementary Legal Opinion (II) of King & Wood Mallesons on the IPO and Listing of Beijing Tongmei Xtal Technology Co., Ltd. on the Science and Innovation Board)

King & Wood Mallesons (seal)

Handling lawyers: XU Hui

YANG Zhenhua

WANG Anrong

Head: WANG Ling

June 16, 2022

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Supplementary Legal Opinion (III)

King & Wood Mallesons

the Initial Public Offering and STAR Market Listing of Shares of

Beijing Tongmei Xtal Technology Co., Ltd.

To Beijing Tongmei Xtal Technology Co., Ltd.,

Engaged by Beijing Tongmei Xtal Technology Co., Ltd. (the “Issuer”), King & Wood Mallesons (“we”) acts as the special legal counsel for the Issuer’s initial public offering and STAR Market listing of shares (the “Offering and Listing”).

In accordance with the Securities Law of the People’s Republic of China, the Company Law of the People’s Republic of China, the Administrative Measures for the Registration of Initial Public Offerings on the STAR Market (for Trial Implementation), the Administrative Measures on Law Firms Engaging in Securities Legal Services, the Rules on the Practice of Law Firms in Securities Legal Services (for Trial Implementation), the Rules for the Compilation of Information Disclosure Reports by Companies Publicly Issuing Shares No. 12 - Legal Opinions and Lawyer’s Reports on the Public Issuing of Shares, the Guidelines for the Application of Regulatory Rules - Law No. 2: Detailed Rules for the Practice of Law Firms Engaging in the Legal Services Related to Initial Public Offering and Listing and other laws, administrative regulations, rules and normative documents currently in force in the People’s

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Republic of China (which, for the sole purpose of this Supplementary Legal Opinion, shall exclude Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan Region, hereinafter “China”) and relevant rules of the China Securities Regulatory Commission (the “CSRC”), and following the recognized business standards, ethics and diligence spirit of the lawyer industry, we have issued the Legal Opinion of King & Wood Mallesons on the Initial Public Offering and STAR Market Listing of Shares of Beijing Tongmei Xtal Technology Co., Ltd. (the “Legal Opinion”) and the Attorney’s Work Report of King & Wood Mallesons on the Initial Public Offering and STAR Market Listing of Shares of Beijing Tongmei Xtal Technology Co., Ltd. on December 25, 2021 with respect to the Issuer’s issue of shares and listing, issued the Supplementary Legal Opinion (I) of King & Wood Mallesons on the Initial Public Offering and STAR Market Listing of Shares of Beijing Tongmei Xtal Technology Co., Ltd. (the “Supplementary Legal Opinion (I)”) and updated the Attorney’s Work Report of King & Wood Mallesons on the Initial Public Offering and STAR Market Listing of Shares of Beijing Tongmei Xtal Technology Co., Ltd. (the “Attorney’s Work Report”) accordingly on April 7, 2022, and issued the Supplementary Legal Opinion (II) of King & Wood Mallesons on the Initial Public Offering and STAR Market Listing of Shares of Beijing Tongmei Xtal Technology Co., Ltd. (the “Supplementary Legal Opinion (II)”) on June 16, 2022.

In accordance with the requirements of the Letter of Implementation of the Audit Center’s Opinions on Initial Public Offering and STAR Market Listing of Shares of Beijing Tongmei Xtal Technology Co., Ltd. (SZKS (Audit) [2022] No. 241) (the “Letter”) issued by Shanghai Stock Exchange on June 22, 2022, our lawyers conducted supplementary verification on the matters related to the Offering and Listing of the Issuer, revised the relevant reply content of the Letter of Inquiry and the Second-Round Letter of Inquiry involved in the Supplementary Legal Opinion (I) and Supplementary Legal Opinion (II) (highlighted in regular script) according to the relevant conditions, and thus issued this Supplementary Legal Opinion accordingly.

This Supplementary Legal Opinion constitutes an integral part of the Legal Opinion, the Attorney’s Work Report, the Supplementary Legal Opinion (I) and the Supplementary Legal Opinion (II) issued by us. The premises and assumptions based on which we issued the Legal Opinion, the Attorney’s Work Report, the Supplementary Legal Opinion (I) and the

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Supplementary Legal Opinion (II) are also applicable to this Supplementary Legal Opinion. Unless otherwise specified herein, relevant terms or abbreviations used in the Legal Opinion, the Attorney’s Work Report, the Supplementary Legal Opinion (I) and the Supplementary Legal Opinion (II) shall also apply to this Supplementary Legal Opinion. For any matter specially stated herein, such statement shall prevail.

In this Supplementary Legal Opinion, we express opinions only on the legal issues related to the Offering and Listing of the Issuer and do not express opinions on non-legal issues such as accounting, auditing and asset evaluation. We express opinions only in accordance with the current laws and regulations of China rather than any laws outside China. While we do not express opinions on non-legal issues such as accounting, auditing and asset evaluation and overseas legal issues, we have fulfilled the necessary duty of care when quoting some data and conclusions of relevant accounting reports, audit reports, asset evaluation reports and overseas legal opinions herein. Nevertheless, such quotation shall not be deemed as our express or implied warranty as to the authenticity and accuracy of such data or conclusions, and we are not qualified to verify and evaluate such data.

This Supplementary Legal Opinion can only be used by the Issuer for the purpose of this Offering and Listing and shall not be used for any other purpose. We agree that this Supplementary Legal Opinion is taken as a necessary legal document for the Issuer’s application for this Offering and Listing and submitted together with other application materials to the Shanghai Stock Exchange and the CSRC for examination, and bear corresponding legal liabilities for this Supplementary Legal Opinion according to law. We agree that the Issuer quotes relevant contents of this Supplementary Legal Opinion in the documents it prepares for this Offering and Listing by itself or in accordance with the review opinions of the CSRC and the Shanghai Stock Exchange, provided that the Issuer’s quotation shall not cause legal ambiguity or misinterpretation. We have the right to review and confirm the contents of the said documents again.

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Following the recognized business standards, ethics and diligence spirit of the lawyer industry, we have checked the questions related to the Issuer’s Attorney in the Letter and revised the relevant reply content, and hereby issue this Supplementary Legal Opinion as follows:

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Table of Contents


I. Q3 in the Letter of Implementation of Opinions	222
II. Revision of Relevant Reply Content in the Letter of Inquiry and the Second-Round Letter of Inquiry	236

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I. Q3 in the Letter of Implementation of Opinions

The Issuer is requested to further explain: (1) the Issuer’s pricing policy on related sales to AXT during the reporting period; (2) comparison between the Issuer’s price for sales to AXT and AXT’s price for sales to end customers, and the rationality of price difference.

The Sponsor , the Issuer’s Attorney and the Reporting Accountant are requested to conduct verifications and issue opinions thereon.

Reply:

(I) The Issuer’s pricing policy on related sales to AXT during the reporting period;

As stated by the Company, as the controlling shareholder of the Issuer, always subject to the uniform arrangement at the group level, AXT was responsible for the sales of semiconductor substrate materials in overseas markets. On the whole, the sales price of compound semiconductor substrates sold by the Company to AXT was determined based on the Issuer’s production cost plus a certain profit margin, and the latter is related to the positions and roles of the Company and AXT in the transaction chain. On the basis of the overall pricing policy, for the pricing policy for different types of substrate materials, the impact of the degree of competition in the market, the status of the Company’s products in the industry and other factors were taken into account.

An overall comparison between the overall sales price of GaAs, InP and germanium substrates sold by the Company to AXT and those of the same products sold by AXT to other parties during the reporting period is as follows:

Unit: RMB yuan/piece

Item	Aggregation of 2019-2021
		Price of products sold to AXT	Price of products sold by AXT to other parties	Difference
GaAs substrate	391.18	377.11	3.73%

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InP substrate	483.15	1,275.32	-62.12%
Germanium substrate	428.07	430.54	-0.57%

GaAs substrate: The difference between the price at which the Issuer sold germanium substrates to AXT and AXT’s price for sales to end customers was small, because: germanium substrates are mainly used for the production of germanium substrates GaAs solar cells, which are widely used in space power supply. In recent years, more manufacturers have joined the industry. In order to cope with increased competition and maintain market share, as long as the Issuer has obtained certain gross profits, the transaction price between the two parties is based on the price offered by AXT to other parties, and the sales price offered by the Company to AXT is reasonable.
InP substrate: The price at which the Company sold InP substrates to AXT is lower than AXT’s price for sales to end customers, mainly because: in the early reporting period, AXT made a great contribution to the market development, customer maintenance and application development of InP substrates, for which it bore high costs and expenses.

With the increase in the demand for InP substrates in the domestic market, the proportion of the sales volume has also increased. As a main sales subject in overseas markets, AXT has played a smaller and smaller role in the overall sales arrangement of InP substrates year by year during the reporting period. Therefore, the difference between the Company's selling price offered to AXT and that offered by AXT to other parties has also declined from -68.85% in 2019 to -59.41% in 2020, and reached -51.81% in 2021.

To sum up, the Company’s pricing on sales of InP substrates to AXT is reasonable.

Germanium substrate: The difference between the price at which the Issuer sold germanium substrates to AXT and AXT’s price for sales to end customers was small, the reason for which is as follows: germanium substrates are mainly used for the production of germanium substrates GaAs solar cells, which are widely used in space power supply. In recent years, more manufacturers have joined the industry. In order to cope with increased competition and maintain market share, as long as the Issuer has obtained certain gross profits, the transaction

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price between the two parties is based on the price offered by AXT to other parties. The Company’s pricing on sales to AXT is reasonable.

Reasons for differences in pricing strategies for different products of the Company

To sum up, the transaction prices of the GaAs substrates and germanium substrates sold by the Company to AXT were based on those of the same products sold by AXT to other parties, with almost no difference, while for InP substrates, there were certain differences. The main reasons are as follows:

(1) The competitive pattern of the products differs significantly, and the bargaining ability is different

Regarding GaAs substrate products, in 2019, the Company’s global market share was 13%, ranking fourth in the world. From the perspective of the overall competition pattern, there were a large number of companies engaged in GaAs substrate business around the world, and there were no significant differences between the Company and its international competitors such as Freiberger Compound Materials GmbH and Sumitomo in the technical level, product quality, application direction and other aspects. Thus, there was a fierce market competition.

Regarding germanium substrate products, currently, there are few application scenarios for germanium substrate products, which are mainly used in space solar cells. In the international market, due to the Company’s complete relocation of its germanium substrate production base to China, the Company’s germanium substrate products have gradually withdrawn from the U.S. aerospace market. At present, the Company’s overseas markets are mainly located in Europe and Asia, and Umicore has a higher market share in germanium substrate business than the Company. In the domestic market, as Yunnan Lincang Xinyuan Germanium Industrial Co., Ltd. has gradually entered into the market, market competition has been intensified to some extent.

As for InP substrate products, in 2020, the Company’s global market share was 36%, ranking second in the world, with a prominent market position and strong bargaining ability. Meanwhile, there are only a small number of companies that can provide InP substrates around the world, and the Company, Sumitomo and JX Nippon Mining & Metals Corporation have

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occupied 91% of the global InP substrate market share in 2020. Besides, the Company has certain advantages over Japanese manufacturers in terms of the downstream application technology development for InP substrates, holding a stronger position in the market of such products.

To sum up, the global market position and competitive advantages of the Company’s InP substrate products are stronger than those of its GaAs substrates and germanium substrates, and thus have stronger ability to bargain with the customers. From the perspective of transaction pricing with end customers, InP substrates have a higher profit margin in the market. Due to the different profit margins for different products, as long as the Company can obtain certain gross profits, there is a large room for increasing the price of InP substrate products for AXT.

(2) AXT has made great contributions to the market development, customer maintenance and application technology development of InP substrate products

Before 2015, due to the weak foundation of the domestic compound semiconductor sector, almost all the InP substrate products of the Company were sold to overseas markets. During the reporting period, with the fast development of the domestic semiconductor sector, the domestic sales proportion of the Company’s InP substrates continued to increase, while the overseas markets are still the main markets for the Company’s InP substrate products. For a long time, the market development, customer maintenance, client end application R&D and other work for InP substrate products in overseas markets have been carried out mainly by AXT. Thus, AXT has made great contributions to the promotion of InP substrates as well as the expansion thereof to wearable device sensors and other new application fields, and has also made great contributions to the global leading position seized by the Company with its InP substrate products.

During the reporting period, the Issuer’s sales revenues from AXT were RMB 221,449,800, RMB 281,965,100 and RMB 59,797 ,000 respectively, accounting for 47.91%, 48.35% and 6.97% of the revenues respectively. In March 2021, AXT switched its overseas semiconductor substrate material sales business and customers to AXT-Tongmei. In 2021, the

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Company completed the acquisition of AXT-Tongmei, AXT will no longer conduct sales business after the fulfillment of the existing orders, and since July 2021, the affiliated sales with AXT has been thoroughly terminated.

During the reporting period, the differences between the Company’s sales price to AXT and AXT’s sales price to end customers is reasonable. There was no benefit transfer in the transactions between the Company and AXT, and there was no adjustment to the Issuer’s profits through the above related-party transactions.

1. Overall pricing policy

During the reporting period, the products sold by the Company to AXT were mainly sold to OSRAM Opto Semiconductors GmbH (hereinafter referred to as “Osram”), Landmark Optoelectronics Corp. (hereinafter referred to as “Landmark”), Win Semiconductors Corp. (hereinafter referred to as “Win Semiconductor”) and other overseas customers. According to the statement of the Company and our lawyers’ communication and confirmation with the chairman, general manager and financial principal of the Company, the selling prices at which the Company sold compound semiconductor substrates to AXT were determined according to the production costs of the Issuer with the addition at a certain profit margin. During the reporting period, the transactions between the Company and AXT were priced with reference to the profit margin of the previous mode of processing materials supplied by customers, as well as the positions of both parties in the transaction chain, their functions in realizing the final sales process of the products, and the range of profit margins of comparable companies engaging in similar businesses in the Analysis Report for Transfer Price issued by a transfer price consulting institution.

2. Pricing principle by product

According to the statement of the Company and our lawyers’ communication and confirmation with the chairman, general manager and financial principal of the Company, for different products sold by the Company to AXT, different pricing principles have been

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determined based on market competition, future development prospect, the Company’s status in the industry and other factors that are different.

For GaAs substrates and germanium substrates, to determine the prices of products sold to AXT, the Company’s production cost, addition range and product parameters, as well as the prices offered by AXT to other parties, should be taken into account. For InP substrates, to determine the prices of products sold to AXT, the Company’s production cost, addition range and product parameters, as well as the contribution to and investment in the market development, customer maintenance and application R&D of InP substrates, should be taken into account. Details are as follows:

(1) The competition in GaAs substrates and germanium substrates in the international market is fierce, with customers that are good at price negotiation. Thus, prices offered by peer companies do not differ a lot, and the gross profit margin in the terminal market is also lower than that of InP substrates. On this basis, the Company needs to ensure its own profit space. Therefore, the prices of GaAs substrates and germanium substrates sold by the Company to AXT and those offered by AXT to other parties do not differ a lot.

Besides, the market size of GaAs substrates is growing fast. According to Yole’s statistics, the shipment volume of GaAs substrates in 2021 is expected to increase by 26.98% compared to that in 2020. With the expansion of the market size and the steady expansion of the Company’s capacity for GaAs substrate production, AXT, as a sales subject in overseas markets, has adopted price concessions, so as to expand its market share in the GaAs substrate market.

(2) For InP substrates, the Company, as the world’s second largest manufacturer in the market share, has a good bargaining ability and room for bargaining, with a relatively high gross profit margin. Besides, based on the role played by AXT in the development of overseas markets and the maintenance of customers and the costs it assumes, the Company has offered it a relatively low sales price.

In recent years, the market demand for InP substrates has expanded fast. During the reporting period, the Company’s sales of InP substrates increased by 61.48%, and its revenues increased by 156.85%. In addition, it became the semiconductor substrate material with the

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highest revenues in 2021. In the future, with the continuous increase in demands in optical communications, data centers, sensors and other application fields, and the gradual implementation of the domestic policy of “channel computing resources from the east to the west”, InP substrates still maintained a high growth trend. Thus, in terms of the Company’s strategic layout, InP substrates are also a focus of the Company layout both during the reporting period and in the future. Meanwhile, as AXT played the role of selling products in the overseas market from the perspective of the controlling shareholder at the early stage of the reporting period, the Company, in order to maintain its competitiveness in the global market, continued to expand its market share and gave certain concessions.

(3) Other impact factors

For the sales of semiconductor substrate products to AXT, the Company also takes into account factors related to the purchase volume and product parameters, such as the purchase volume and the substrate size, the difference in doping elements, the deviation of the positioning edge of the substrate, the corrosion pit density of the substrate, the thickness and thickness fluctuation value of the of the substrate, and the carrier concentration.

In summary, the price of products sold by the Company to AXT has certain fluctuations.

(II) Comparison between the Issuer’s price for sales to AXT and AXT’s price for sales to end customers, and the rationality of price difference.

According to the sales contracts, ledgers and other documents provided by the Company and the statements of the Company, and after our lawyers’ communication and confirmation with the chairman, general manager and financial principal of the Company, during the reporting period, the comparison between the price at which the Company sold products to AXT and AXT’s price for external sales is as follows:

In RMB/piece

Item	2021			2020			2019
		Price for sales to AXT	AXT’s price for sales to	Variation	Price for sales to AXT	AXT’s price for sales	Variation	Price for sales to AXT	AXT’s price for sales	Variation

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		other parties			to other parties			to other parties
GaAs substrates	347.36	342.11	1.53%	439.92	381.62	15.28%	352.88	395.01	-10.67%
InP substrates	662.39	1,375.43	-51.84%	500.58	1,233.37	-59.41%	415.80	1,334.73	-68.85%
Germanium substrates	389.15	435.92	-10.73%	438.06	438.14	-0.02%	427.30	431.77	-1.04%

The difference between the price at which the Company sold products to AXT and AXT’s price for external sales is mainly reflected in AXT’s services, customs duty, consignment sales, and difference in product specification and exchange rate caused by time difference, etc. The details are as follows:

The difference between the Company’s sales price to AXT and AXT’s sales price to end customers is reasonable. There was no benefit transfer in the transactions between the Company and AXT, and there was no adjustment to the Issuer’s profits through the above related-party transactions.

1.GaAs substrates

During the reporting period, the variation between the Company’s price for sales of GaAs substrates to AXT and the price it offers to other parties was small on the whole. The difference in 2019 and 2020 was relatively significant, mainly due to product specification and exchange rate differences caused by sales time difference. If the sales amount and quantity of GaAs substrates during the reporting period are combined, the price comparison will be as follows:

In RMB/piece

Item	Aggregation of 2019-2021
		Price for sales to AXT	AXT’s price for sales to other parties	Variation
GaAs substrates	391.18	377.11	3.73%

The difference between the price at which the Issuer sold GaAs substrates to AXT and AXT’s price for sales to end customers was small, because: GaAs substrates were highly competitive in the international market and its customers had strong bargaining power; in order

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to continue to expand GaAs substrates’ international market share, as long as the Issuer has obtained certain gross profits, the transaction price between the two parties is based on the price offered by AXT to other parties.

(1) Exchange rate fluctuation

As stated by the Company, the Issuer calculated the revenue from AXT based on the current weighted average exchange rate during which the transaction occurs, while AXT settled in JPY, USD, EUR, etc. on the one hand, and calculated the average price of its sales to other parties upon conversion at the ending exchange rate during the reporting period on the other hand. Thus, the comparison of the above prices was based on the trend of exchange rate fluctuations in each year. In 2019, the exchange rate of AXT was higher than that of the Company, so that the price of the products sold by the Company to AXT was lower than that of the same products sold by it to other parties; in 2020 and 2021, the exchange rate of AXT was lower than that of the Company, so that the price of the products sold by the Company to AXT was higher than that of the same products sold by it to other parties.

(2) Different sales time

As stated by the Company, as the time when the Company sold products to AXT was different from that when it sold products to other parties, there were differences in the specifications and unit price of the products sold by both parties at each phase of the reporting period. Meanwhile, during the reporting period, AXT settled payments with Osram and other customers by means by consignment, and adopted zero-inventory management. AXT could recognize the revenue only when the products were manufactured and claimed by it, resulting in the difference in the time of recognizing the revenue from products sold by Beijing Tongmei to AXT and the time of recognizing the revenue from products sold by AXT to Osram.

In summary, the difference between the price at which the Company sold GaAs substrates to AXT and AXT’s price for external sales is small, and the Company’s pricing on sales to AXT is reasonable.

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2.InP substrates

The price at which the Company sold InP substrates to AXT is lower than AXT’s price for sales to end customers, mainly because: in the early reporting period, AXT made a great contribution to the market development, customer maintenance and application development of InP substrates, and bore high costs and expenses.

Prior to 2015, due to the weak base of the domestic compound semiconductor industry, almost all of the Company’s InP substrates were sold to the overseas market. During the reporting period, with the rapid development of the domestic semiconductor industry, the domestic sales proportion of the Company’s InP substrates kept increasing, but the overseas market is still the Company’s main market of InP substrates at present. During the reporting period, the proportion of export quantity of the Company’s InP substrates was 79.88%, 77.18% and 59.77%, respectively. For a long time, AXT has mainly carried out market development, customer maintenance, application development and other work for the Company’s InP substrates in overseas markets, and has made a great contribution to the business of InP substrates.

The main customers of the Company’s InP substrates in overseas markets include IQE, Inc., Landmark Optoelectronics, Visual Photonics Epitaxy Co., Ltd., Win Semiconductor and other world-leading optical chip, optical module epilayer and device manufacturers. In order to ensure the stability of supply chain and smooth communication of process and R&D, the world’s leading optical chip, optical module epilayer and device companies prefer to purchase from overseas. At the beginning of the reporting period, AXT, as the subject of overseas sales and application development for the Company’s InP substrates, undertook the function of developing overseas customers and providing epitaxial performance matching research. During the reporting period, AXT’s sales and R&D expenditures were USD 4,508,400, USD 4,967,600 and USD 1,215,900, respectively, contributing significantly to overseas sales, customer maintenance and application development for InP substrates.

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For the above reasons, and based on the fact that the Company maintained a certain markup rate in the price of InP substrates sold to AXT, during the reporting period, the weighted average gross profit rate of InP substrates sold by the Company to AXT was 7.67%. Therefore, the price at which the Company sold InP substrates to AXT is reasonable.

3.Germanium substrates

On the whole, there is little difference between the price at which the Company sold products to AXT and AXT’s price for external sales in 2019 and 2020. The variation in 2021 was -10.73%, mainly due to the difference in product specification and exchange rate caused by sales time difference. AXT sold germanium substrates mainly to Osram, which implemented zero-inventory management mode. AXT could recognize revenue only when the products were used by its production personnel, so there was a difference between the revenue recognition period of germanium substrates sold by Beijing Tongmei to AXT and that of products sold by AXT to Osram. If the sales amount and quantity of germanium substrates during the reporting period are combined, the price comparison will be as follows:

In RMB/piece

Item	Aggregation of 2019-2021
		Price for sales to AXT	AXT’s price for sales to other parties	Variation
Germanium substrates	428.07	430.54	-0.57%

The difference between the price at which the Issuer sold germanium substrates to AXT and AXT’s price for sales to end customers was small, because: germanium substrates are mainly used for the production of germanium substrates GaAs solar cells, which are widely used in space power supply. In recent years, more manufacturers have joined the industry. In order to cope with increased competition and maintain market share, as long as the Issuer has obtained certain gross profits, the transaction price between the two parties is based on the price offered by AXT to other parties.

In summary, the difference between the price at which the Company sold germanium

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substrates to AXT and AXT’s price for external sales is small, and the Company’s pricing on sales to AXT is reasonable.

4.The Company no longer carries out related transactions with AXT, and there was no benefit transfer involved in the transactions between the Company and AXT during the reporting period, without material adverse impact on the Company

According to the statement of the Company and our lawyers’ communication and confirmation with the chairman, general manager and financial principal of the Issuer, the transaction mode and transaction price between the Company and AXT were determined by AXT’s organizational structure and long-term business development model. AXT, founded in California, the U.S. in December 1986, initially had a complete R&D and production system, and directly performed market exploitation. In 1998, AXT determined to start business in China; later, it gradually transferred its R&D and production system to China, and established Beijing Tongmei. Subsequently, AXT terminated its manufacturing operations in the U.S. and only retained overseas sales, overseas procurement and part of application research and development. The products sold by the Company to AXT were priced by a cost plus manner, which fixed the sales price; while AXT may enjoy certain price differences through selling the products to overseas customers, so as to ensure the normal operation of AXT and support its application development. At present, AXT-Tongmei has completed the business and customer transfer with AXT, and undertaken AXT’s overseas sales, purchase, and application development. AXT ceases to conduct sales business after performing the sales contracts signed prior to March 2021.

The Company held the Seventh Meeting and the Eleventh Meeting of the First Board of Directors for review of related transactions during the reporting period, which were approved by the general meeting of shareholders; the independent directors gave clear opinions on the legality of the review procedures performed for related transactions and the fairness of transaction prices during the reporting period.

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In addition, local tax authorities of the Company and its domestic subsidiaries have issued the “Compliance Certificate” or “Notification of Tax-related Information Inquiry Results”, which proved that “the Company declared and paid taxes in accordance with the relevant tax laws, regulations and normative documents during the reporting period; and there were no tax arrears or administrative penalties due to tax violations”.

In summary, the difference between the Company’s price for sales to AXT and AXT’s price for sales to end customers is reasonable. There was neither benefit transfer involved in the transactions between the Company and AXT nor adjustment of the Issuer’s profit through such related transactions, without material adverse impact on the Company. Since March 2021, the Company has sold products to overseas customers through AXT-Tongmei. AXT ceases to conduct sales business after performing the sales contracts signed prior to March 2021, and the related sales between the Company and AXT have been completely terminated.

(III) Verification procedures and opinions

With respect to the said matters, our lawyers performed the following verification procedures:

Inspecting the Company’s sales ledger to understand the products sold by the Company to AXT as well as the quantity, price and other information;
Inspecting AXT’s sales and procurement ledgers to learn information about AXT’s customers, sales prices and procurements from the Issuer;
Cross-comparing and analyzing the Company’s ledger for sales to AXT and AXT’s sales ledger to other parties;
Inspecting AXT’s main sales contracts, AXT’s sales related outbound delivery orders and statements, as well as AXT’s main procurement contracts, raw material warehouse warrants and other documents;

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5. Analyzing and comparing the price at which the Company sold products to AXT and the average selling price of products of the Company;

Inspecting industry reports issued by Yole Development, to learn the market share of the Company's products, the main usage of the products and other information;
Check the annual report of Yunnan Lincang Xinyuan Germanium Industry Co., Ltd., to learn the sales prices and other information of the Issuer's comparable companies in the same industry, and carry out a comparative analysis with the Company’s relevant data;
Communicating and confirming with relevant personnel of the Issuer and the controlling shareholder AXT and understanding the transactions between the Company and AXT; obtain the bank fund flow of the main beneficiary accounts and main payers of the Issuer and AXT, select samples to check the fund settlement of the Issuer and AXT, and check them with the Issuer's original bank receipt and payment vouchers;
Inspecting the materials of the board meetings and general meetings of shareholders related to the Company’s review of related transactions;
Inspecting the Analysis Report for Transfer Price issued by the transfer price consulting institution.

Upon verification, we believe that the difference between the Company’s price for sales to AXT and AXT’s price for sales to end customers is reasonable. There was neither benefit transfer involved in the transactions between the Company and AXT nor adjustment of the Issuer’s profit through such related transactions, without material adverse impact on the Company. Since March 2021, the Company has sold products to overseas customers through AXT-Tongmei. AXT ceases to conduct sales business after performing the sales contracts signed prior to March 2021, and the related sales between the Company and AXT have been completely terminated.

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II. Revision of Relevant Reply Content in the Letter of Inquiry and the Second-Round Letter of Inquiry

(I) About Q1 of the Letter of Inquiry**: Asset Restructuring**

The relevant contents of “I. Q1 of the Letter of Inquiry: Asset Restructuring” in Part I of the “Reply to the Letter of Inquiry” of the Supplementary Legal Opinion (I) are revised as follows:

“

**** (I) Whether the Issuer meets the requirements of relevant rules

3.Completion time of the asset restructuring

According to the industrial and commercial registration materials of the Restructured Party (the Acquired Entity), the relevant dates involved in the asset restructuring process of the Restructured Party (the Acquired Entity) are as follows:

Item	Chaoyang Tongmei	Baoding Tongmei	Nanjing Jinmei	Chaoyang Jinmei	Beijing Boyu
Date of Equity Transfer Agreement	December 25, 2020	December 25, 2020	December 25, 2020	December 25, 2020	December 29, 2020
Date of Resolution of Meeting of Board of Shareholders/Board of Directors	December 25, 2020	December 25, 2020	December 25, 2020	December 25, 2020	December 29, 2020
Date of Change of the Articles of Association	December 25, 2020	December 25, 2020	December 25, 2020	December 25, 2020	December 29, 2020
Industrial and Commercial Change Date	December 31, 2020	January 12, 2021	December 30, 2020	December 31, 2020	December 30, 2020

According to the Capital Increase Agreement signed between the Restructuring Party (Tongmei Limited) and the original shareholders of the Restructured Party (the Acquired Entity), the original shareholders of the Restructured Party shall obtain the new equity of the Restructuring Party subject to the completion of the industrial and commercial change

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registration of the capital increase and the acquisition of the business license. Tongmei Limited completed the industrial and commercial changes of the asset restructuring and obtained a new business license on December 29, 2020. Therefore, the original shareholders of the Restructured Party obtained the new equity of the Restructuring Party on December 29, 2020.

In combination with the provisions of the application guide of the Accounting Standards for Business Enterprises No. 20 - Business Combinations, the judgment criteria and actual conditions for the Restructuring Party (Tongmei Limited) to complete the control of the Restructured Party (the Acquired Entity) are as follows:


No.	Conditions for Control Transfer	Actual Situation of Control Transfer
1	The Business Merger Contract or Agreement has been approved by the General Meeting of Shareholders, etc.	The Equity Transfer Agreement has been reviewed and approved by the Board of Directors or Board of Shareholders and other authorities of all parties on December 25, 2020 or December 29, 2020
2	Business combinations to be examined and approved by the relevant national competent departments have been approved	This asset restructuring does not need to be approved by the relevant national departments
3	All parties involved in the merger have handled the necessary property rights handover procedures	The Equity Transfer Agreement has been signed on December 25, 2020 or December 29, 2020, and the parties confirm that the delivery of relevant equity has been completed on the date of signing of the Agreement
4	The Restructuring Party or Acquirer has paid most of the merger price (generally more than 50%), and has the ability and plan to pay the remaining amount	On December 29, 2020, the original shareholders of the Restructured Party obtained the new equity (restructuring consideration) of Tongmei Limited, so the Restructuring Party has paid all the restructuring consideration
5	The Restructuring Party or Acquirer has actually controlled the financial and operating policies of the Combined Party or the Acquiree, enjoying corresponding benefits and assuming corresponding risks	As of December 29, 2020, the Restructuring Party has actually controlled the financial and operating policies of the Restructured Party, enjoying the rights and obligations of the shareholders of the Restructured Party, enjoying the

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No.	Conditions for Control Transfer	Actual Situation of Control Transfer
		corresponding benefits and assuming the corresponding risks

The control right of the Restructured Party (the Acquired Entity) has been transferred to the Issuer as of December 29, 2020 as mentioned in the above table. Therefore, the Company completed the reorganization of Beijing Boyu, Baoding Tongmei, Chaoyang Tongmei, Nanjing Jinmei and Chaoyang Jinmei on December 29, 2020. The Company has operated for more than a complete fiscal year after completing the acquisition of Beijing Boyu, Baoding Tongmei, Chaoyang Tongmei, Nanjing Jinmei and Chaoyang Jinmei.

Comparison of relevant financial indicators

According to the financial statements of the restructuring party (Tongmei Limited) and the restructured parties (acquired entities) during the reporting period provided by the Issuer, as well as the interview with the Issuer’s financial head by our lawyer, the calculation process for a comparison of relevant financial indicators of the parties in the assets restructuring is as follows:

In RMB0’000

Entity/Item	Total assets at the end of 2019	Operating revenues in 2019	Total profits in 2019
Beijing Tongmei A	80,072.95	35,728.47	-1,507.98
Baoding Tongmei B	28,635.15	1,953.43	-2,902.24
Chaoyang Tongmei C	24,219.28	2,470.16	-1,457.28
Chaoyang Jinmei D	7,005.23	1,095.62	360.31
Nanjing Jinmei E	9,340.66	5,781.28	942.58
Beijing Boyu F	12,659.92	9,492.30	1,541.82
Current account offset against the restructuring party G	-8,238.45	-8,856.82	-881.63
Total amount of the acquired entities H (=B+C+D+E+F+G)	73,621.79	11,935.97	-2,396.44
Proportion ( =H/A )	91.94%	33.41%	158.92%

In accordance with the provisions of the Opinion on the Application of Article 12 of the Measures for the Administration of Initial Public Offerings and Listings Requiring that the

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Issuer’s Principal Business Has Not Changed Significantly in the Last 3 Years - Opinions No.3 on the Application of Securities and Futures Laws (the “Opinions on Application No. 3”), if the Issuer restructures the same, similar or relevant businesses under the same corporate controlling person during the reporting period, and the total assets of the restructured party at the end of the accounting year immediately preceding the restructuring or its operating income or total profits of preceding accounting year are not less than 100% of corresponding item of the Issuer prior to restructuring, the Issuer cannot apply for public offering until it has operated for an accounting year after restructuring so that investors can know the overall operation after restructuring. If there is any related transaction between the restructured party and the Issuer in the accounting year prior to the restructuring, the total assets, operating income or total profits shall be calculated based on the standard after deducting such transaction.

(II) Verification procedures and opinions

Our lawyers performed the following verification procedures to respond to the above matters:

Checked the resolutions of the meeting of the Board of Shareholders, the resolutions of the Board of Directors, the Articles of Association, the Equity Transfer Agreement, the Capital Increase Agreement, the Industrial and Commercial Registration Materials, the New Business License after change and other documents involved in the asset restructuring, checked the relevant provisions of the application guide of the Accounting Standards for Business Enterprises No. 20 - Business Combinations, and verified the completion time of the asset restructuring;
Checked the financial statements of the Restructuring Party (Tongmei Limited) and the Restructured Party (the Acquired Entity) provided by the Issuer during the Reporting Period, and calculated the proportion of the total assets of the Restructured Party at the end of the previous accounting year or the total operating income or profit of the previous accounting year in the corresponding items of the Issuer before the reorganization, and verified whether it complies with the relevant provisions of relevant laws and regulations, such as the Application Opinion No.3.

Upon verification, we believe that the Company completed the acquisition of five

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entities, including Beijing Boyu, Baoding Tongmei, Chaoyang Tongmei, Nanjing Jinmei and Chaoyang Jinmei on December 29, 2020, and has operated for more than a complete accounting year till now. The Company completed the acquisition of AXT-Tongmei in 2021, and the indicators of relevant entities in 2020 were lower than those of the corresponding items of the Issuer. The completion time of the asset restructuring and the comparison of relevant financial indicators complied with the relevant provisions of relevant laws and regulations.

”

(II) About Q2 of the Second-Round Letter of Inquiry**: Business Restructuring**

The relevant contents of “II. Q2 of the Second-Round Letter of Inquiry: Business Restructuring” of the Supplementary Legal Opinion (II) are revised as follows:

“

(III) Recalculation and comparison of indicators such as total assets, operating income and total profit of the parties to the restructuring in 2020 after inclusion of AXT-Tongmei into the scope of restructuring;

Calculated based on indicators of 2019

…

(2) Relevant indicators comply with relevant provisions of the Opinions No.3 on the Application of Securities and Futures Laws

It can be seen from the above that relevant indicators such as total assets at the end of 2019 and operating income for that year did not exceed 100%; that of total profit exceeded 100% in the calculation because both parties had negative profit, similar situations of which, however, were not included in the scope of indicators calculation. See the following discussion for details.

(3) Relevant cases in the market

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...

To sum up, in 2019, both the Issuer and the restructured party (after deducting the related transactions with Tongmei Limited) had a negative total profit, and the restructured party had a greater loss than Tongmei Limited. This restructuring led to no increase in the total profit of Tongmei Limited in 2019, and Tongmei Limited involved no fraudulent profits. Meanwhile, up to now, the Issuer has been operated for a full accounting year since completion of the restructuring.

…

(V) Verification procedures and opinions

Our lawyers performed the following verification procedures to respond to the above matters:

Checked the resolutions of the meeting of Board of Shareholders, the resolutions of the Board of Directors, the Articles of Association, the Equity Transfer Agreement, the Capital Increase Agreement, the Industrial and Commercial Registration Materials, the New Business License after change and other documents involved in the asset restructuring, the latest Articles of Association of Baoding Tongmei after the asset restructuring, the description and confirmation of the Company, and checked the relevant provisions of the application guide of the Accounting Standards for Business Enterprises No. 20 - Business Combinations, and verified the transaction process of Tongmei Limited acquiring Baoding Tongmei;
We checked the latest business license obtained by Tongmei Limited after the asset restructuring and the Letter of Confirmation on Asset Restructuring issued by the Issuer, Baoding Tongmei and AXT, interviewed the handling personnel of industrial and commercial change registration of Baoding Tongmei and the staff of the competent industrial and commercial department, and interviewed MORRIS SHEN-SHIH YOUNG, Chairman of Baoding Tongmei, and Liu Wensen, General Manager, and verified the basis on which the

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Company believes that the control right of Baoding Tongmei was realized on December 29, 2020;

Checked the financial statements of the Restructuring Party (Tongmei Limited) and the Restructured Party (the Acquired Entity) provided by the Issuer during the Reporting Period, and calculated the proportion of the total assets of the Restructured Party at the end of the previous accounting year or the total operating income or profit of the previous accounting year in the corresponding items of the Issuer before the reorganization, and verified whether it complies with the relevant provisions of relevant laws and regulations such as the Application Opinion No.3.

Upon verification, we believe that:

Tongmei Limited has gained control over Baoding Tongmei as of December 29, 2020, and the relevant basis is sufficient;
The asset restructuring in December 2020 and the acquisition of AXT-Tongmei were two restructuring acts implemented by the Company. The relevant indicators of the acquisition of AXT-Tongmei will not affect the indicators with respect to the Restructured Party’s proportion in the Issuer’s total assets, operating income or total profits in the Issuer’s asset restructuring in December 2020, the acquisition of AXT-Tongmei is not included in the scope of reorganization, and there is no situation to circumvent the Opinions on the Application of Securities and Futures Laws No.3；

3. In December 2020, the Issuer completed the acquisition of Beijing Boyu, Baoding Tongmei, Chaoyang Tongmei, Nanjing Jinmei and Chaoyang Jinmei, and has operated for more than a complete accounting year after the completion of the reorganization;

4. The Issuer completed the acquisition of AXT-Tongmei in 2021, and the total assets of the Restructured Party at the end of 2019 and 2020, as well as the total operating income and profits of 2019 and 2020 were lower than those of the corresponding items of the Issuer,

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which does not fall into the circumstance under which no application for issuance may be made until a complete accounting year has elapsed as stipulated in the Opinions on the Application of Securities and Futures Laws No.3.

”

This Supplementary Legal Opinion is in quadruplicate.

(End of the body text and followed by the signature and stamp page.)

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(No text in this page; it is the signature and stamp page for Supplementary Legal Opinion (III) of King & Wood Mallesons on the Initial Public Offering and STAR Market Listing of Shares of Beijing Tongmei Xtal Technology Co., Ltd.)

King & Wood Mallesons (seal)

Handling lawyers: XU Hui

YANG Zhenhua

WANG Anrong

Head: WANG Ling

July 4, 2022 3-3-1-244