Note 6. 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.

Our direct investments are summarized below (in thousands):


	Investment Balance as of
	December 31,		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	63	%
	$	5,269	$	5,269

Donghai County Dongfang High Purity Electronic Materials Co., Ltd.	$	1,473	$	1,498	Equity	46	%
Xilingol Tongli Germanium Co. Ltd.		3,190		4,000	Equity	25	%
Emeishan Jia Mei High Purity Metals Co., Ltd.		915		1,101	Equity	25	%
	$	5,578	$	6,599

Our ownership of 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 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 63%. On November 2, 2017, BoYu raised additional capital in the amount of $2 million in cash from a third-party investor through the issuance of shares equivalent to 10% ownership of BoYu. As a result, our ownership of BoYu was diluted from 70% to 63%. We continue to consolidate BoYu as we have a controlling financial interest and have majority control of the board and accordingly no gain was recognized as a result of this equity transaction. 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, ordinary course of business capital expenditures, and decisions concerning sales of finished product, are made by local management with regular guidance and input from us.

During 2017, 2016, and 2015, the three consolidated joint ventures generated $2.1 million, $0.1 million and $0.8 million of income, respectively, of which a loss of $0.1 million, $0.7 million and $0.3 million, respectively were allocated to noncontrolling interests, resulting in $2.2 million, $0.8 million and $1.2 million of income, 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 consolidated balance sheets and totaled $5.6 million and $6.6 million as of December 31, 2017 and 2016, respectively. 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.

These three equity investment entities generated for AXT an equity loss of $0.9 million, $1.2 million and $43,000 for the year ended December 31, 2017, 2016 and 2015, respectively, which was recorded as “Equity in (loss) earnings of unconsolidated joint ventures” in the consolidated statements of operations.

Net income recorded from all of the consolidated joint ventures and these three equity investment entities was $1.3 million for the year ended December 31, 2017. Net loss recorded from all of the consolidated joint ventures and these three equity investment entities was $0.4 million for the year ended December 31, 2016. Net income recorded from all of the consolidated joint ventures and these three equity investment entities was $1.1 million for the years ended December 31, 2015.

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 December 31, 2017 and 2016, 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 $4.7 million, respectively.

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 years ended December 31, 2017, 2016, and 2015, respectively:


							Our share for the
		Year Ended					Year Ended
		December 31,					December 31,
	2017		2016		2015		2017		2016		2015
Net revenue	$	24,053	$	23,266	$	35,732	$	6,152	$	6,124	$	9,007
Gross profit (loss)		1,739		(2,191)		8,429		482		(511)		1,975
Operating (loss) income		(3,676)		(6,869)		2,965		(938)		(1,724)		588
Net (loss) income		(4,798)		(7,428)		2,850		(1,381)		(1,891)		558

Excluding one fully impaired entity, these minority investment entities that are not consolidated, but rather are accounted for under the equity method, had the following summarized balance sheet information (in thousands) for the years ended December 31, 2017 and 2016, respectively:


	As of December 31,
	2017		2016
Current assets	$	33,415	$	31,672
Noncurrent assets		28,964		29,701
Current liabilities		27,274		23,412
Noncurrent liabilities		180		406

Our portion of the entity loss, excluding impairment charges, from all seven minority investment entities that are not consolidated and are accounted for under the equity method were a loss of $1.4 million, a loss of $2.0 million, and an income of $462,000 for the years ended December 31, 2017, 2016, and 2015, respectively. Dividends received from these minority investment entities were $0, $0 and $305,000 for the years ended December 31, 2017, 2016, and 2015, respectively. Excluding one fully impaired entity, undistributed retained earnings relating to our investments in these minority investment entities amounted to $3.6 million and $4.9 million as of December 31, 2017 and 2016, respectively.