INVESTMENTS IN FOREIGN JOINT VENTURES

12 Months Ended

Dec. 31, 2021

Equity Method Investments and Joint Ventures [Abstract]

BOMAY

We hold 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 2021 and 2020.

We account for our 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. The Company considers dividend distributions received from its equity method investments which do not exceed cumulative equity in earnings subsequent to the date of investment to be a return on investment and classifies these distributions as operating activities in the accompanying consolidated statements of cash flows.

The tables below present a summary of BOMAY's assets and liabilities and its operational results as of and for the years ended December 31, 2021 and 2020 in U.S. dollars (in thousands):


	Year Ended December 31,
	2021		2020
Revenue	$	72,884	$	66,260
Gross Profit	13,923		12,066
Earnings	5,041		6,521


	December 31,
	2021		2020
Assets:
Total current assets	$	75,249	$	51,811
Total non-current assets	3,544		7,136
Total assets	$	78,793	$	58,947
Liabilities and equity:
Total liabilities	$	45,253	$	26,355
Total joint ventures’ equity	33,540		32,592
Total liabilities and equity	$	78,793	$	58,947

The following is a summary of activity in our investment in BOMAY for the years ended December 31, 2021 and 2020 in U.S. dollars (in thousands):


	At December 31,
Investments in BOMAY(1)(2)	2021		2020
Fair value at merger	$	9,333	$	9,333
Undistributed earnings:
Balance at beginning of period	1,908		1,257
Equity in earnings	2,146		2,705
Dividend distributions	(2,089)		(2,054)
Balance at end of period	1,965		1,908
Foreign currency translation:
Balance at beginning of period	656		(69)
Change during the period	371		725
Balance at end of period	1,027		656
Total investment in BOMAY at end of period	$	12,325	$	11,897

_______________

(1)Accumulated statutory reserves in equity method investments of $2.66 million at December 31, 2021 and 2020 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)The Company’s initial investment in BOMAY differed from the Company’s 40% share of BOMAY’s equity as a result of applying fair value accounting pursuant to ASC 805. The basis difference is being accreted over eight years (the expected life of the joint venture) and summarized in the following table at December 31, 2021 and 2020 (amounts in thousands):


	December 31,
	2021		2020
Original basis difference	$	1,165	$	1,165
Less accumulated accretion	(314)		(185)
Net remaining basis difference, net at end of period	$	851	$	980

The Company's accretion during the years ended December 31, 2021 and 2020 totaled approximately $129 thousand and $129 thousand, respectively, and is included in income from equity investments in foreign joint ventures in the accompanying Consolidated Statement of Operations.

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, 2021.

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, 2021 and 2020, the Company has not made any material investments in Energía Superior.