Redeemable Noncontrolling Interests

12 Months Ended

Dec. 31, 2022

Redeemable Noncontrolling Interests

Redeemable Noncontrolling Interests

Note 18. Redeemable Noncontrolling Interests

As discussed in Note 1, during the quarter ended December 31, 2020, Tongmei entered into the Capital Investment Agreements with Investors that invested approximately $48.1 million in the form of redeemable noncontrolling interests representing 7.06% of the outstanding shares of 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 entire approximately $49 million investment on January 25, 2021, at which time the Investors owned a redeemable noncontrolling interest in Tongmei of 7.28%. The initial carrying amount of the redeemable noncontrolling interest was recorded at fair value on the date of issuance of Tongmei’s common stock, net of issuance costs and presented in temporary equity on the consolidated balance sheets. This classification is due to the existence of certain contingencies that could result in potential redemption at the fixed purchase price as described below. We currently do not believe that this is probable thus no amortization of the issuance costs has been recorded.

Pursuant to the Capital Investment Agreements with the Investors, each Investor has the right to require AXT to redeem any or all Tongmei shares held by such Investor at the original purchase price paid by such Investor, without interest, in the event the IPO fails to pass the audit of the Shanghai Stock Exchange, is not approved by the Chinese Securities Regulatory Commission (“CSRC”) or Tongmei cancels the IPO application. The aggregate redemption amount is approximately $49 million, subject to the foreign exchange rate variable at time of redemption.

Tongmei submitted its IPO application to the Shanghai Stock Exchange in December 2021 and it was formally accepted for review on January 10, 2022. The Shanghai Stock Exchange approved the IPO application on July 12, 2022. On August 1, 2022, the CSRC accepted for review Tongmei’s IPO application. 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. Subject to review and approval by the CSRC and other authorities, Tongmei hopes to accomplish this goal in the coming months. The listing of Tongmei on the STAR Market will not change the status of AXT as a U.S. public company.

The components of the change in redeemable noncontrolling interests for the years ended December 31, 2022 and 2021 are presented in the following table (in thousands):

Balance as of January 1, 2021	$	47,563
Increase in redeemable noncontrolling interests due to issuance of Tongmei's common stock		1,514
Increase in redeemable noncontrolling interests due to transfer of subsidiary with noncontrolling interests		1,241
Increase in redeemable noncontrolling interests due to formation of new subsidiary with noncontrolling interests		132
Equity issuance costs incurred		(2,591)
Stock-based compensation attributable to redeemable noncontrolling interests		40
Net income attributable to redeemable noncontrolling interests		889
Effect of foreign currency translation attributable to redeemable noncontrolling interests		279
Effect of foreign currency translation on redeemable noncontrolling interests		1,318
Balance as of December 31, 2021		50,385
Investment in subsidiary with redeemable noncontrolling interest		471
Equity issuance costs incurred		(2,699)
Stock-based compensation attributable to redeemable noncontrolling interests		(36)
Net income attributable to redeemable noncontrolling interests		1,598
Effect of foreign currency translation on redeemable noncontrolling interests		(3,962)
Effect of foreign currency translation attributable to redeemable noncontrolling interests		(911)
Balance as of December 31, 2022	$	44,846