Investments in Foreign Joint Ventures

6 Months Ended

Jun. 30, 2022

Equity Method Investments and Joint Ventures [Abstract]

INVESTMENT IN FOREIGN JOINT VENTURE

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), which owns 51%. The remaining 9% is owned by AA Energies, Inc. The Company made no sales to its joint venture during the three and six months ended June 30, 2022 and 2021.

The tables below present a summary of BOMAY's assets and liabilities and equity at June 30, 2022 and December 31, 2021, and its operational results for the three and six months ended June 30, 2022 and 2021 in U.S. dollars (in thousands, unaudited):


	June 30, 2022		December 31, 2021
Assets:
Total current assets	$	72,205	$	75,249
Total non-current assets	3,234		3,544
Total assets	$	75,439	$	78,793
Liabilities and equity:
Total liabilities	$	45,269	$	45,253
Total joint ventures’ equity	30,170		33,540
Total liabilities and equity	$	75,439	$	78,793


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenue	$	32,647	$	19,005	$	42,726	$	33,221
Gross Profit	3,696		2,458		5,305		4,691
Earnings	1,820		1,265		2,143		2,235

The table below presents the components of our investment in BOMAY and a summary of the activity within those components for the six months ended June 30, 2022 in U.S. dollars (in thousands, unaudited):


	Initial Investment at Merger (1), (2)		Undistributed Earnings		Cumulative Foreign Exchange Translation Adj		Investment in BOMAY
Balance at December 31, 2021	$	9,333	$	1,965	$	1,027	$	12,325
Equity in earnings	—		921		—		921
Less: dividend distributions	—		(1,550)		—		(1,550)
Foreign currency translation gain (loss)	—		—		(704)		(704)
Balance at June 30, 2022	$	9,333	$	1,336	$	323	$	10,992

_______________

(1)Accumulated statutory reserves in equity method investments of $2.7 million at June 30, 2022 and December 31, 2021 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). The Company's accretion during the six months ended June 30, 2022 and 2021 totaled approximately $63 thousand and $65 thousand, respectively, and is included in income from equity investments in foreign joint ventures in the accompanying Condensed Consolidated Statement of Operations. The remaining basis difference, net of accumulated accretion at June 30, 2022 and December 31, 2021 is summarized in the following table (amounts in thousands):


	June 30, 2022		December 31, 2021
Original basis difference	$	1,165	$	1,165
Less accumulated accretion	(377)		(314)
Net remaining basis difference, net at end of period	$	788	$	851

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 of our investment in BOMAY is necessary for the period ending June 30, 2022.