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Investments in Privately-held Companies | 12 Months Ended
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Dec. 31, 2018
Investments in Privately-held Companies |
Investments in Privately-held Companies | 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 |  | 2018 |  | 2017 |  | Method |  | Percentage |
Beijing JiYa Semiconductor Material Co., Ltd. |  | $ | 3,331 |  | $ | 3,331 |  | Consolidated |  | 46 | %
Nanjing JinMei Gallium Co., Ltd. |  |  | 592 |  |  | 592 |  | Consolidated |  | 97 | %
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. |  | $ | 1,416 |  | $ | 1,473 |  | Equity |  | 46 | %
Xilingol Tongli Germanium Co. Ltd. |  |  | 1,700 |  |  | 3,190 |  | Equity |  | 25 | %
Emeishan Jia Mei High Purity Metals Co., Ltd. |  |  | 842 |  |  | 915 |  | Equity |  | 25 | %
|  | $ | 3,958 |  | $ | 5,578 |  |  |  |  |
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 97%. Before June 15, 2018, our ownership of JinMei was 83%. On June 15, 2018, we purchased a 12% ownership interest from one of the minority owners for $1.4 million. The $1.4 million is scheduled to be paid in two installments. On June 15, 2018, we paid the first installment of $163,000. The second installment of $1.2 million is scheduled to be paid after the completion of the relocation of JinMei’s headquarters and manufacturing operations and was included in “Accrued liabilities” in our consolidated balance sheets. As a result, our ownership of JinMei increased from 83% to 95%. In September 2018, we purchased a 2% ownership interest from one of the three remaining minority owners for $252,000. As a result, our ownership of JinMei increased from 95% to 97%. 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 2018, 2017 and 2016, the three consolidated joint ventures generated $5.5 million, $2.1 million and $0.1 million of income, respectively, of which an income of $1.4 million, a loss of $0.1 million and a loss of $0.7 million, respectively were allocated to noncontrolling interests, resulting in $4.1 million, $2.2 million and $0.8 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 $4.0 million and $5.6 million as of December 31, 2018 and 2017, 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 $1.6 million, $0.9 million and $1.2 million for the year ended December 31, 2018, 2017 and 2016, 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 $2.6 million for the year ended December 31, 2018. 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. 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, 2018 and 2017, our consolidated joint ventures included these minority investments in “Other assets” in the consolidated balance sheets with a carrying value of $4.5 million and $4.3 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, 2018, 2017 and 2016, respectively:
|  |  |  |  |  |  |  |  |  | Our share for the |
|  |  | Year Ended |  | Year Ended |
|  |  | December 31, |  | December 31, |
|  | 2018 |  | 2017 | 2016 |  | 2018 |  | 2017 |  | 2016 |
Net revenue |  | $ | 33,212 |  | $ | 24,053 | $ | 23,266 |  | $ | 8,549 |  | $ | 6,152 |  | $ | 6,124 |
Gross profit (loss) |  |  | 6,457 |  |  | 1,739 |  | (2,191) |  |  | 1,675 |  |  | 482 |  |  | (511) |
Operating (loss) |  |  | (3,152) |  |  | (3,676) |  | (6,869) |  |  | (778) |  |  | (938) |  |  | (1,724) |
Net (loss) |  |  | (4,750) |  |  | (4,798) |  | (7,428) |  |  | (1,080) |  |  | (1,381) |  |  | (1,891) |
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) as of December 31, 2018 and 2017, respectively:
|  | As of December 31, |
|  | 2018 |  | 2017 |
Current assets |  | $ | 31,525 |  | $ | 33,415 |
Noncurrent assets |  |  | 26,889 |  |  | 28,964 |
Current liabilities |  |  | 24,670 |  |  | 27,274 |
Noncurrent liabilities |  |  | 112 |  |  | 180 |
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 $1.1 million, $1.4 million, and $2.0 million for the years ended December 31, 2018, 2017 and 2016, respectively. Dividends received from these minority investment entities were $0 for each of the years ended December 31, 2018, 2017 and 2016. Excluding one fully impaired entity, undistributed retained earnings relating to our investments in these minority investment entities amounted to $2.5 million and $3.6 million as of December 31, 2018 and 2017, respectively.

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- Definition The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -URI http://asc.fasb.org/topic&trid=2196965 + Details
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