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. Our consolidated subsidiaries have also made investments in private companies. These companies form part of our overall supply chain.

The investments are summarized below (in thousands):


	Investment Balance as of
	June 30,		December 31,		Accounting	Ownership
Company	2016		2015		Method	Percentage
Beijing JiYa Semiconductor Material Co., Ltd.	$	3,331	$	3,331	Consolidated	46	%
Nanjing Jin Mei 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.	$	1,489	$	1,524	Equity	46	%
Xilingol Tongli Germanium Co. Ltd.		4,895		5,343	Equity	25	%
Emeishan Jia Mei High Purity Metals Co., Ltd.		1,075		1,081	Equity	25	%
	$	7,459	$	7,948

Our ownership of Beijing JiYa Semiconductor Material Co., Ltd. (“JiYa”) is 46%. We continue to consolidate JiYa as we are the founding and largest shareholder, we 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 Nanjing Jin Mei Gallium Co., Ltd. (“Jin Mei”) is 83%. We continue to consolidate Jin Mei as we have a controlling financial interest and have majority control of the board. Our Chief Executive Officer is chairman of the Jin Mei board and we have appointed two other representatives to serve on the board.

Our ownership of Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd (“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, any capacity expansion and annual 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, 2016 and 2015, the three consolidated joint ventures generated a loss of $306,000 and an income of $647,000, respectively, of which a loss of $353,000 and a gain of $127,000 respectively, were allocated to non-controlling interests, resulting in an income of $47,000 and $520,000, respectively, to our net income (loss). During the six months ended June 30, 2016 and 2015, the three consolidated joint ventures generated a loss of $481,000 and an income of $1.2 million, respectively, of which a loss of $462,000 and a gain of $252,000 respectively, were allocated to non-controlling interests, resulting in a loss of $19,000 and an income of $947,000, respectively, to our net income (loss).

For AXT’s three minority investment entities that are not consolidated, the investment balances are included in “other assets” in our condensed consolidated balance sheets and totaled $7.4 million and $7.9 million as of June 30, 2016 and December 31, 2015. 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 Jin Mei 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, 2016 and December 31, 2015, our consolidated joint ventures included these minority investments in “other assets” in our condensed consolidated balance sheets with a carrying value of $3.7 million and $4.1 million, respectively.

AXT’s three direct minority investment entities and the three minority investments of JiYa and the one minority investment of Jin Mei are not consolidated and are accounted for under the equity method and had the following summarized income information (in thousands) for the three and six months ended June 30, 2016 and 2015.



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Net revenue	$	7,760	$	11,004	$	11,276	$	20,329
Gross profit	$	(629)	$	3,625	$	(579)	$	5,920
Operating (loss) income	$	(1,676)	$	2,292	$	(2,860)	$	3,343
Net (loss) income	$	(1,644)	$	1,784	$	(3,418)	$	2,741

Our portion of the entity earnings from these seven minority investment entities that are not consolidated and are accounted for under the equity method were a loss of $400,000 and a gain of $410,000 for the three months ended June 30, 2016 and 2015, respectively, and a loss of $856,000 and a gain of $610,000 for the six months ended June 30, 2016 and 2015, respectively.