Note 7. Investments in Privately-Held 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. We have six direct investments. Our consolidated subsidiaries have also made investments in private companies. We have four indirect investments. These companies form part of our overall supply chain.

The six direct investments are summarized below (in thousands):


	Investment Balance as of
	June 30,		December 31,		Accounting	Ownership
Company	2017		2016		Method	Percentage
Beijing JiYa Semiconductor Material Co., Ltd.	$	3,331	$	3,331	Consolidated	46	%
Nanjing JinMei Gallium Co., Ltd.		592		592	Consolidated	83	%
Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd.		1,346		1,346	Consolidated	70	%
	$	5,269	$	5,269

Donghai County Dongfang High Purity Electronic Materials Co., Ltd.	$	1,394	$	1,498	Equity	46	%
Xilingol Tongli Germanium Co. Ltd.		3,813		4,000	Equity	25	%
Emeishan Jia Mei High Purity Metals Co., Ltd.		985		1,101	Equity	25	%
	$	6,192	$	6,599

Our ownership of JiYa is 46%. We continue to consolidate JiYa as we are the founding and largest shareholder, appoint the general manager and controller and have the ability to exercise control in substance over the long-term strategic decisions made. Our Chief Executive Officer is chairman of the JiYa board and we have appointed one other representative, Davis Zhang, to serve on the board. Mr. Zhang was an executive officer of AXT for 27 years. Further, our Chief Financial Officer, Gary Fischer, is on the board of supervisors of JiYa.

Our ownership of JinMei is 83%. We continue to consolidate JinMei as we have a controlling financial interest and have majority control of the board. Our Chief Executive Officer is chairman of the JinMei board and we have appointed two other representatives to serve on the board.

Our ownership of BoYu is 70%. We continue to consolidate BoYu as we have a controlling financial interest and have majority control of the board. Our Chief Executive Officer is chairman of the BoYu board and we have appointed two other representatives to serve on the board.

Although we have representation on the board of directors of each of these 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 decisions concerning sales of finished products, are made by local management with regular guidance and input from us.

During the three months ended June 30, 2017 and 2016, the three consolidated joint ventures generated an income of $208,000 and a loss of $306,000, respectively, of which a loss of $132,000 and a loss of $353,000, respectively, were allocated to noncontrolling interests, resulting in an income of $340,000 and an income of $47,000, respectively, to our net income. During the six months ended June 30, 2017 and 2016, the three consolidated joint ventures generated an income of $196,000 and a loss of $481,000, respectively, of which a loss of $372,000 and a loss of $462,000 respectively, were allocated to noncontrolling interests, resulting in an income of $568,000 and a loss of $19,000, respectively, to our net income.

For AXT’s three direct minority investment entities that are not consolidated, the investment balances are included in “Other assets” in our condensed consolidated balance sheets and totaled $6.2 million and $6.6 million as of June 30, 2017 and December 31, 2016. We own 46% of the ownership interests in one of these companies and 25% in each of the other two companies. These three companies are not considered variable interest entities because:

all three companies 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.

We also maintain four minority investments indirectly in privately-held companies through our consolidated joint ventures. JiYa holds three investments and JinMei holds one investment. These minority investments are accounted for under the equity method in the books of our consolidated joint ventures. As of June 30, 2017 and December 31, 2016, our consolidated joint ventures included these minority investments in “Other assets” in our condensed consolidated balance sheets with a carrying value of $4.2 million and $4.7 million, respectively.

There were no impairment charges in the three months ended June 30, 2017. The six months ended June 30, 2017 include an impairment charge of $313,000 for one of the gallium companies. During the first quarter of 2017, management determined that it is unlikely that this company will recover from the difficult pricing environment and we had written the investment down to zero.

AXT’s three direct minority investment entities and the three minority investments of JiYa and the one minority investment of JinMei are not consolidated and are accounted for under the equity method. Excluding one fully impaired entity, the equity entities had the following summarized income information (in thousands) for the three and six months ended June 30, 2017 and 2016.


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Net revenue	$	5,908	$	7,245	$	11,363	$	10,752
Gross profit (loss)	$	4,277	$	(481)	$	7,999	$	(435)
Operating loss	$	(794)	$	(1,422)	$	(1,631)	$	(2,540)
Net loss	$	(818)	$	(1,390)	$	(2,523)	$	(3,098)

Our portion of the entity loss from these seven minority investment entities that are not consolidated and are accounted for under the equity method were $188,000 and $400,000 for the three months ended June 30, 2017 and 2016, respectively. Our portion of the entity loss, including impairment charges, from these seven minority investment entities that are not consolidated and are accounted for under the equity method were a loss of $1.1 million and $856,000 for the six months ended June 30, 2017 and 2016, respectively.