Investments in Foreign Joint Ventures

BOMAY. As a result of the completion of the Share Exchange on July 26, 2019, the Company holds a 40% interest in BOMAY Electric Industries Company, Ltd. (“BOMAY”) which builds electrical systems for sale in China. The majority partner in this foreign joint venture is Baoji Oilfield Machinery Co., Ltd. (a subsidiary of China National Petroleum Corporation), who owns 51%. The remaining 9% is owned by AA Energies, Inc.

The Company made no sales to its joint venture during 2019.

Below is summary financial information for BOMAY at December 31, 2019 and operational results for the period from July 27, 2019 to December 31, 2019 in U.S. dollars (in thousands):



	December 31, 2019
Assets:
Total current assets	$	81,247
Total non-current assets	5,775
Total assets	$	87,022
Liabilities and equity:
Total liabilities	$	58,176
Total joint ventures’ equity	28,846
Total liabilities and equity	$	87,022



	July 27 - December 31,
	2019

Revenue	$	50,421
Gross Profit	7,182
Earnings	3,143

The following is a summary of activity in our investment in BOMAY for the period from July 27, 2019 to December 31, 2019 in U.S. dollars (in thousands):



	December 31, 2019
Investments in BOMAY⁽¹⁾
Balance at July 26, 2019	$	9,333
Undistributed earnings:
Balance at July 26, 2019	—
Equity in earnings	1,257
Dividend distributions	—
Balance at end of period	1,257
Foreign currency translation:
Balance at July 26, 2019	—
Change during the period	(69		)
Balance at end of period	(69		)
Total investment in BOMAY at December 31, 2019 (2)	$	10,521

________

(1)

Accumulated statutory reserves in equity method investments of $2.81 million at December 31, 2019 is included in our investment in BOMAY. In accordance with the People’s Republic of China, (“PRC”), regulations on enterprises with foreign ownership, an enterprise established in the PRC with foreign ownership 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.

(2)

At December 31, 2019, the Company’s investment in BOMAY of $10.5 million differs from the Company’s 40% share of BOMAY’s equity of $11.5 million as a result of applying fair value accounting pursuant to ASC 805. The basis difference of approximately $1.0 million will be accreted over the remaining nine year life of the joint venture. The Company's accretion during the year ended December 31, 2019 totaled approximately $54 thousand and is included in income from equity investments in foreign joint ventures in the accompanying consolidated statement of operations.

The Company accounts for its investment in BOMAY using the equity method of accounting. Under the equity method, the Company’s share of the joint venture operations earnings or losses is recognized in the consolidated statements of operations as equity income (loss) from foreign joint venture operations. Joint venture income increases the carrying value of the joint venture and joint venture losses reduce the carrying value. Dividends received from the joint venture reduce the carrying value. In accordance with our long-lived asset policy, when events or circumstances indicate the carrying amount of an asset may not be recoverable, management tests long-lived assets for impairment. If the estimated future cash flows are projected to be less than the carrying amount, an impairment write-down (representing the carrying amount of the long-lived asset which exceeds the present value of estimated expected future cash flows) would be recorded as a period expense. 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 at December 31, 2019.

Energía Superior. On August 20, 2019, we completed the formation of Energía Superior, a joint venture with CryoMex, to pursue investments in distributed natural gas production and distribution assets in Mexico. CryoMex is controlled by Grupo CLISA, a Monterrey, Mexico-based developer and operator of businesses in multiple end markets including energy. We own a 50% interest in Energía Superior.

As of December 31, 2019, the Company has not made any material investments in Energía Superior.