Note 6. Investments in 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.

The investments are summarized below (in thousands):


	Investment Balance as of
	September 30,		December 31,		Accounting	Ownership
Company	2015		2014		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.	$	1,557	$	1,723	Equity	46	%
Xilingol Tongli Germanium Co. Ltd.		5,606		5,351	Equity	25	%
Emeishan Jia Mei High Purity Metals Co., Ltd.		1,082		1,021	Equity	25	%
	$	8,245	$	8,095

Our ownership of Beijing JiYa Semiconductor Material Co., Ltd. (“JiYa”) is 46%. We continue to consolidate JiYa as we have significant influence on management and have majority control of the board. 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, resigned in Q2 2015, and remains active as an advisor and consultant of AXT. In addition, another board member assigns his voting right on the board to AXT which gives AXT controlling interest of the five person board. 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 significant influence in management 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 significant influence in management 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 boards 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 product, are made by local management with some inputs from us.

During the three months ended September 30, 2015 and 2014, the three consolidated joint ventures generated $0.5 million and $1.1 million of income, respectively, of which $5,000 and $226,000, respectively, were allocated to non-controlling interests, resulting in $454,000 and $837,000 of income, respectively, to our net income (loss). During the nine months ended September 30, 2015 and 2014, the three consolidated joint ventures generated $1.7 million and $2.9 million of income, respectively, of which $257,000 and $673,000, respectively, were allocated to non-controlling interests, resulting in $1.4 million and $2.2 million of income, respectively, to our net income (loss).

For the three minority investment entities that are not consolidated, the investment balances are included in “other assets” in our condensed consolidated balance sheets and totaled $8.2 million and $8.1 million as of September 30, 2015 and December 31, 2014. 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 minority investments indirectly in privately-held companies through our consolidated joint ventures. These minority investments are accounted for under the equity method in the books of our consolidated joint ventures. As of September 30, 2015 and December 31, 2014, our consolidated joint ventures included these minority investments in “other assets” in the consolidated balance sheets with a carrying value of $4.3 million and $4.0 million, respectively.

The minority investment entities that are not consolidated are accounted for under the equity method and had the following summarized income information (in thousands) for the three and nine months ended September 30, 2015 and 2014.


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2015		2014		2015		2014
Net revenue	$	9,631	$	11,487	$	29,960	$	38,433
Gross profit	$	2,324	$	5,371	$	8,244	$	17,458
Operating income	$	829	$	2,289	$	4,172	$	8,377
Net income	$	805	$	1,759	$	3,546	$	6,485

Our portion of the entity earnings from the minority investment entities that are not consolidated and are accounted for under the equity method were $167,000 and $390,000 for the three months ended September 30, 2015 and 2014, respectively, and $777,000 and $1.5 million for the nine months ended September 30, 2015 and 2014, respectively.

During the second quarter of 2015, we re-classified our minority investments under the cost method as an available-for-sale security when we determined that there was sufficient trading volume in the exchange for the stock to be deemed readily marketable. As of September 30, 2015, we do not maintain any investments under the cost method. As of December 31, 2014, our investments in this unconsolidated company had a carrying value of $200,000 and were included in “other assets” in the condensed consolidated balance sheets.