Note 7 - Investments in Privately-Held Raw Material Companies

6 Months Ended

Jun. 30, 2025

Notes to Financial Statements

Equity Method Investments and Joint Ventures Disclosure [Text Block]

Note 7. Investments in Privately-Held Raw Material Companies

We have made strategic investments in private companies located in China in order to gain access at a competitive cost to raw materials that are critical to our substrate business. These companies form part of our overall supply chain strategy.

As of June 30, 2025, the investments are summarized below (in thousands):

	Investment Balance as of
	June 30,		December 31,		Accounting	Ownership
Company	2025		2024		Method	Percentage
Nanjing JinMei Gallium Co., Ltd.	$	592	$	592	Consolidated		** 85.5	%
ChaoYang JinMei Gallium Co., Ltd.		1,820		1,820	Consolidated		** 85.5	%
Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd.		1,346		1,346	Consolidated		** 85.5	%
ChaoYang ShuoMei High Purity Semiconductor Materials Co., Ltd.		3,122		3,122	Consolidated		**** 75.0	%
ChaoYang XinMei High Purity Semiconductor Materials Co., Ltd.		7,331		7,331	Consolidated		*** 58.5	%
	$	14,211	$	14,211
Beijing JiYa Semiconductor Material Co., Ltd.	$	4,177	$	4,867	Equity		39	%
Xiaoyi XingAn Gallium Co., Ltd.		5,515		5,304	Equity		** 25	%
ChaoYang KaiMei Quartz Co., Ltd.		4,638		3,895	Equity		***** 40	%
	$	14,330	$	14,066
Emeishan Jia Mei High Purity Metals Co., Ltd.		406		551	Fair value		****** 10	%
	$	406	$	551

* These percentages reflect the ownership currently in effect upon the completion of the reorganization in China and the ownership in effect upon the completion of the new capital funding by private equity investors in January 2021.

** In preparation for Tongmei’s application for a listing of shares in an IPO on the STAR Market, in late December 2020 we reorganized our entity structures in China. JinMei and BoYu and their subsidiaries, previously organized under AXT, Inc., were assigned to Tongmei and effectively merged with Tongmei although they retained their own respective legal entity status and are wholly owned subsidiaries of Tongmei. The 33% minority interest stakeholders of BoYu converted their ownership to a 7.59% minority interest in Tongmei. The 8.5% minority interest stakeholders, employees of JinMei, converted their ownership to a 0.38% minority interest in Tongmei. Further, a number of employees, key managers and contributors, purchased a 0.4% minority interest in Tongmei. In 2020, the Investors transferred approximately $48.1 million of new capital to Tongmei. An additional investment of approximately $1.5 million of new capital was funded in early January 2021. Under China regulations these investments must be formally approved by the appropriate government agency and are not deemed to be dilutive until such approval is granted. The government approved the approximately $49 million investment in its entirety on January 25, 2021 at which time the Investors owned a redeemable noncontrolling interest in Tongmei of 7.28%. As of June 30, 2025, Tongmei’s noncontrolling interests and redeemable noncontrolling interests totaled approximately 14.5%. AXT remains the controlling stakeholder of Tongmei and holds a majority of the Board of Director positions of Tongmei.

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

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

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

****** In May 2023, we sold 15% of our equity investments in Jia Mei to a third party. We now own 10% of Jia Mei and account for it under the fair value method.

In May 2023, we reduced our ownership in Jia Mei from 25% to 10% by selling a portion of our Jia Mei shares to a third party for approximately $827,000. Considering our decreased ownership and that we no longer have significant influence over its operations and financial policies, we adopted the fair value method of accounting to report on the investment in Jia Mei. As Jia Mei's equity interest is without a readily determinable fair value, we elected to use the measurement alternative to measure at cost, less any impairment, plus or minus fair value changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer.

The Jia Mei investment is reviewed for other-than-temporary declines in value on a quarterly basis. In May 2025, two unrelated investors entered into an agreement to invest approximately $360,000 each in Jia Mei, in exchange for an 8.9% ownership per investor. The signed agreement provided a market-based indication of Jia Mei's fair value. Based on the signed agreement, we recorded an impairment charge of $145,000 for Jia Mei investment during the six months ended June 30, 2025. Our ownership interest in Jia Mei remained at 10% as of June 30, 2025, pending the closing of the  May 2025 transaction.

Although we have representation on the board of directors of each of the privately held raw material companies, the daily operations of each of these companies are managed by local management and not by us. Decisions concerning their respective short-term strategy and operations, ordinary course of business capital expenditures and sales of finished product, are made by local management with regular guidance and input from us.

For AXT’s minority investment entities that are not consolidated, the investment balances are included in “Other assets” in our condensed consolidated balance sheets and totaled $14.7 million and $14.6 million as of June 30, 2025 and December 31, 2024, respectively. As of June 30, 2025, our ownership interests in ChaoYang KaiMei, JiYa, Xiaoyi XingAn Gallium Co., Ltd (“Xiaoyi XingAn”) and Jia Mei were 40%, 39%, 25%, and 10%, respectively. These minority investment entities are not considered variable interest entities because:

● all minority investment entities have sustainable businesses of their own;

● our voting power is proportionate to our ownership interests;

● we only recognize our respective share of the losses and/or residual returns generated by the companies if they occur; and

● we do not have controlling financial interest in, do not maintain operational or management control of, do not control the board of directors of, and are not required to provide additional investment or financial support to any of these companies.

In June 2022, July 2022 and August 2022, we received a dividend of $1.3 million from BoYu, $1.5 million from Xiaoyi XingAn and $0.1 million from JiYa, respectively. In April 2023, Xiaoyi XingAn distributed a dividend of $1.8 million to us. Additionally, in both April 2023 and November 2023, JiYa distributed dividends to us, totaling $2.0 million and $0.5 million, respectively. In May 2024 and November 2024, we received a dividend of $2.1 million from Xiaoyi XingAn and $0.3 million from JiYa, respectively. In April 2025, we received a $0.9 million dividend from JiYa. We have no current intentions to distribute to our investors earnings under our corporate structure. All of these distributions were paid to the PRC companies and the minority shareholders.

AXT’s minority investment entities are not consolidated and are accounted for under the equity method. The equity investment entities had the following summarized statements of operations information (in thousands) for the three and six months ended June 30, 2025 and 2024:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2025			2024		2025		2024
Net revenue	$	7,064		$	9,338	$	15,722	$	17,442
Gross profit	$	1,862		$	4,161	$	3,806	$	8,090
Operating income	$	1,010		$	4,035	$	2,292	$	7,406
Net income (loss)	$	(197	)	$	2,044	$	774	$	5,182

Our portion of the income and losses, including impairment charges, from these minority investment entities that are not consolidated and are accounted for under the equity method was a loss of $0.2 million and income of $0.6 million, respectively, for the three months ended June 30, 2025 and 2024. Our portion of the income and losses, including impairment charges, from these minority investment entities that are not consolidated and are accounted for under the equity method was income of $0.2 million and $1.5 million, respectively, for the six months ended June 30, 2025 and 2024.