Investments in Privately-Held Raw Material Companies (Tables)

9 Months Ended

Sep. 30, 2024

Investments in Privately-Held Raw Material Companies

Summary of investments

As of September 30, 2024, the investments are summarized below (in thousands):

	Investment Balance as of
	September 30,		December 31,		Accounting	Ownership	*
Company	2024		2023		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.	$	4,681		3,806	Equity	39	%
Xiaoyi XingAn Gallium Co., Ltd.		4,969		5,516	Equity	** 25	%
ChaoYang KaiMei Quartz Co., Ltd.		3,883		3,154	Equity	***** 40	%
	$	13,533	$	12,476
Emeishan Jia Mei High Purity Metals Co., Ltd.		551		551	Fair value	****** 10	%
	$	551	$	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 September 30, 2024, 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.

Schedule of gain (loss) on sale and re measurement of equity method investments

	Amount
	(in thousands)
Fair value of the consideration received	$	779
Foreign income tax withholding		48
Carrying value of 15% of Emeishan Jia Mei High Purity Metals Co., Ltd.		(252)
Gain recognized on sale of 15% of Emeishan Jia Mei High Purity Metals Co., Ltd.	$	575
	Amount
	(in thousands)
Fair value of the retained investment in Emeishan Jia Mei High Purity Metals Co., Ltd.	$	551
Carrying value of retained noncontrolling investment (10%)		(168)
Gain on retained noncontrolling investment due to remeasurement (10%)	$	383

	Amount
	(in thousands)
Fair value of the consideration received	$	585
Carrying value of 46% of Donghai County Dongfang High Purity Electronic Materials Co., Ltd.		(1,710)
Loss recognized on sale of 46% of Donghai County Dongfang High Purity Electronic Materials Co., Ltd.	$	(1,125)

Summarized income information

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 nine months ended September 30, 2024 and 2023:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
Net revenue	$	10,473	$	8,834	$	27,915	$	24,486
Gross profit	$	4,876	$	2,620	$	12,966	$	8,174
Operating income	$	4,135	$	1,962	$	11,541	$	7,134
Net income	$	3,443	$	1,449	$	8,624	$	6,307