(6)

Advances to and Investments in Joint Venture Foreign Operations

The Company has a foreign joint venture agreement and holds a 40% interest in a Chinese company, BOMAY, which builds electrical systems for sale in China. The majority partner in this foreign joint venture is a subsidiary of a major Chinese oil company. M&I made an investment of $1.0 million in 2006 and made an additional $1.0 million investment in 2007. The Company's equity in the income of the foreign joint venture was $1.7 million and $2.3 million for the years ended December 31, 2011 and 2010, respectively. Sales made to the foreign joint venture was $259,000 and $71,000 for the years ended December 31, 2011 and 2010, respectively; however, in 2010 the Company reversed a $660,000 accrual originally recorded in 2007. Accounts receivable from BOMAY was $41,000 and $8,000 at December 31, 2011 and 2010, respectively.

The Company owns 41% of MIEFE which provides additional sales and technical support in Asia. The Company's equity in the income of the foreign joint venture was $10,000 and $56,000 for the years ended December 31, 2011 and 2010, respectively. Sales made to the foreign joint venture was $234,000 and $21,000 for the years ended December 31, 2011 and 2010, respectively. Accounts receivable from MIEFE was $29,000 and $0 at December 31, 2011 and 2010, respectively.

The company owns 49% of AAG, a Brazilian Limited Liability Company, formed in 2010. The Company's equity income of the foreign joint venture was $251,000 and a loss of $93,000 for the year ended December 31, 2011 and 2010, respectively. Sales made to the foreign joint venture was $58,000 and $0 for the years ended December 31, 2011 and 2010. Accounts receivable from AAG was $5,000 and $0 at December 31, 2011 and 2010.

The Company's equity in income of the foreign joint ventures was $1.9 million and $2.3 million for the years ended December 31, 2011 and 2010, respectively.

During 2011 and 2010, the Company recognized approximately $437,000 and $436,000, respectively, for employee related expenses.

Sales to foreign joint ventures' operations are made on an arm's length basis and intercompany profits, if any, are eliminated in consolidation. Summary financial information of BOMAY, MIEFE and AAG in U.S. dollars was as follows at December 31, 2011 and 2010 (in thousands):


	BOMAY				MIEFE				AAG
	2011		2010		2011		2010		2011		2010
	(in thousands)
Assets:
Total current assets	$	60,817	$	47,401	$	4,459	$	3,842	$	1,604	$	131
Total non-current assets		5,163		5,155		105		230		49		—

Total assets	$	65,980	$	52,556	$	4,564	$	4,072	$	1,653	$	131

Liabilities and equity:
Total liabilities	$	46,499	$	35,303	$	2,162	$	1,441	$	1,151	$	—
Total joint ventures equity		19,481		17,253		2,402		2,631		502		131

Total liabilities and equity	$	65,980	$	52,556	$	4,564	$	4,072	$	1,653	$	131

Gross sales	$	53,574	$	38,726	$	5,783	$	3,171	$	4,339	$	—
Net income		4,142		4,164		20		151		532		(125	)

The Company made certain adjustments to the reported results that it believes are necessary to comply with accounting principles generally accepted in the U.S.

The Company's investment in and advances to its foreign joint ventures operations were as follows as of December 31, 2011 and 2010:

The Company's investment in and advances to its foreign joint ventures' operations were as follows as of December 31, 2011 and 2010:


	2011												2010
	BOMAY*			MIEFE			AAG			TOTAL			BOMAY*			MIEFE			AAG			TOTAL
	(in thousands)												(in thousands)
Investment in joint ventures:
Balance, beginning of year	$	2,033		$	17		$	158		$	2,208		$	2,033		$	17		$	—		$	2,050
Ownership exchange		—			(3	)		—			(3	)		—			—			—			—
Additional amounts invested and advanced		—			—			126			126			—			—			158			158

Balance, end of year		2,033			14			284			2,331			2,033			17			158			2,208

Undistributed earnings:
Balance, beginning of year	$	4,221		$	990		$	(93	)	$	5,118		$	2,919		$	1,109		$	—		$	4,028
Equity in earnings (loss)		1,656			10			251			1,917			2,341			56			(93	)		2,304
Ownership exchange		—			(143	)		—			(143	)		—			—			—			—
Dividend distributions		(1,038	)		(118	)		—			(1,156	)		(1,039	)		(175	)		—			(1,214	)

Balance, end of year		4,839			739			158			5,736			4,221			990			(93	)		5,118

Foreign currency translation
Balance, beginning of year	$	767		$	282		$	—		$	1,049		$	223		$	147		$	—		$	370
Ownership exchange		—			(45	)		—			(45	)		—			—			—			—
Change during the year		273			(4	)		(32	)		237			544			135			—			679

Balance, end of year		1,040			233			(32	)		1,241			767			282			—			1,049

Investments, end of year	$	7,912		$	986		$	410		$	9,308		$	7,021		$	1,289		$	65		$	8,375

Accumulated statutory reserves in equity method investments of $1.3 million and $945,000 at December 31, 2011 and 2010, respectively are included in AETI's consolidated retained earnings. In accordance with the People's Republic of China, ("PRC"), regulations on enterprises with foreign operations, an enterprise established in the PRC with foreign operations is required to provide for certain statutory reserves, namely (i) General Reserve Fund, (ii) Enterprise Expansion Fund and (iii) Staff Welfare and Bonus Fund, which are appropriated from net profit as reported in the enterprise's PRC statutory accounts. A non-wholly-owned foreign invested enterprise is permitted to provide for the above allocation at the discretion of its board of directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends.

The Company accounts for its investments in foreign joint ventures' operations using the equity method of accountings. Under the equity method, the Company's share of the joint ventures' operations' earnings or loss is recognized in the statement of operations as equity income (loss) from foreign joint ventures' operations. Joint venture income increases the carrying value of the joint ventures and joint venture losses reduce the carrying value. Dividends received from the joint ventures reduce the carrying value. Each reporting period, the Company evaluates the carrying value of these equity method investments as to whether an impairment adjustment may be necessary. In making this evaluation, a variety of quantitative and qualitative factors are considered including national and local economic, political and market conditions, industry trends and prospects, liquidity and capital resources and other pertinent factors. Based on this evaluation for this reporting period, the Company does not believe an impairment adjustment is necessary.

During 2007, the Company's equity income in the reported results of BOMAY was net of certain expense adjustments totaling approximately $660,000 that were recorded to include management's estimate of warranty costs and management's estimate of a provision for doubtful accounts for contractual amounts due from BOMAY. In recording these adjustments, a variety of factors were considered by management including local operating conditions, potential warranty costs associated with introduction of new products in the Chinese market and uncertainty regarding the collectability of amounts due from BOMAY arising from certain contractual obligations. Based on the evaluation in the three months ended March 31, 2010, management determined that the allowance was no longer necessary.

This determination was based on a number of changed circumstances including the satisfaction of all past contractual obligations by BOMAY, good historical performance of its manufactured products and positive relationships built with local management that the Company believes have eliminated any collection issues on the contractual obligations. This change in estimate increased the carrying value of the investment by $660,000 and was included in our statements of operations as equity income from foreign joint ventures' operations for the year ended December 31, 2010.