Note 18. Redeemable Noncontrolling Interests

As discussed in Note 1, during the quarter ended December 31, 2020, Tongmei entered into the Capital Investment Agreements with Investors that invested approximately $48.1 million in the form of redeemable noncontrolling interests representing 7.06% of the outstanding shares of 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 entire approximately $49 million investment on January 25, 2021, at which time the Investors owned a redeemable noncontrolling interest in Tongmei of 7.28%. The initial carrying amount of the redeemable noncontrolling interest was recorded at fair value on the date of issuance of Tongmei’s common stock, net of issuance costs and presented in temporary equity on the condensed consolidated balance sheets. This classification is due to the existence of certain contingencies that could result in potential redemption at the fixed purchase price as described below. We currently do not believe that this is probable thus no amortization of the issuance costs has been recorded.

Pursuant to the Capital Investment Agreements with the Investors, each Investor has the right to require AXT to redeem any or all Tongmei shares held by such Investor at the original purchase price paid by such Investor, without interest, in the event the IPO fails to pass the audit of the Shanghai Stock Exchange, is not approved by the Chinese Securities Regulatory Commission (“CSRC”) or Tongmei cancels the IPO application. The aggregate redemption amount is approximately $49 million, subject to the foreign exchange rate variable at time of redemption.

Tongmei submitted its IPO application to the Shanghai Stock Exchange in December 2021 and it was formally accepted for review on January 10, 2022. The Shanghai Stock Exchange approved the IPO application on July 12, 2022. On August 1, 2022, the CSRC accepted for review Tongmei’s IPO application. On July 8, 2026, the STAR Market accepted Tongmei's withdrawal of its IPO application. The withdrawal gave rise to a redemption right: each Investor has the right, but not the obligation, to require us to redeem its investment, and we have the right, but not the obligation, to redeem each Investor’s investment, in each case for a price equal to the original amount invested, without interest or any other return. Because the redemption price is fixed in RMB, the U.S. dollar amount payable will vary with the RMB/USD exchange rate. We are in discussions with each Investor to determine whether it wishes to continue its investment as Tongmei advances toward an application for a Hong Kong Stock Exchange listing, or to have its investment redeemed in whole or in part. We have sufficient funds to redeem the Investors' investments in full should full redemption be required.

The components of the change in redeemable noncontrolling interests for the six months ended June 30, 2026 are presented in the following table (in thousands):