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Note 5 - Investment in Foreign Joint Venture

6 Months Ended

Jun. 30, 2025

Notes to Financial Statements

Equity Method Investments and Joint Ventures Disclosure [Text Block]

5. INVESTMENT IN FOREIGN JOINT VENTURE

The Company holds a 40% interest in BOMAY, which builds electrical systems. 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, 2025 and 2024.

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 Condensed 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 Condensed Consolidated Statements of Cash Flows.

The tables below present a summary of BOMAY's assets, liabilities and equity at June 30, 2025 and December 31, 2024, and its operational results for the three and six months ended June 30, 2025 and 2024 in U.S. dollars (in thousands):

		*June 30,*				*December 31,*
		*2025*				*2024*
Assets:
Total current assets		$	110,151			$	124,253
Total non-current assets			9,008				9,496
Total assets		$	119,159			$	133,749
Liabilities and equity:
Total liabilities		$	89,335			$	101,562
Total joint ventures’ equity			29,824				32,187
Total liabilities and equity		$	119,159			$	133,749

		*Three Months Ended*								*Six Months Ended*
		*June 30,*								*June 30,*
		*2025*				*2024*				*2025*				*2024*
Revenue		$	29,488			$	22,062			$	51,198			$	39,301
Gross profit		$	2,878			$	2,436			$	4,983			$	5,066
Net income		$	219			$	770			$	1,180			$	1,307

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, 2025 in U.S. dollars (in thousands):

		Initial Investment at Merger ⁽¹⁾, ⁽²⁾				*Undistributed Earnings*				*Cumulative Foreign Exchange Translation Adj*				*Investment in BOMAY*
Balance at December 31, 2024		$	9,333			$	3,021			$	(695	)		$	11,659
Income from Equity Investment			—				537				—				537
Less: dividend distributions			—				(1,637	)			—				(1,637	)
Foreign currency translation gain (loss)			—				—				201				201
Balance at June 30, 2025		$	9,333			$	1,921			$	(494	)		$	10,760

(1)

Accumulated statutory reserves in equity method investments of $2.7 million at June 30, 2025 and December 31, 2024 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 an original period of nine years (the expected life of the joint venture). The Company's accretion during the three and six months ended June 30, 2025 and 2024 was approximately $32 thousand and $65 thousand for both years, respectively and is included in income from equity investment in foreign joint venture in the accompanying Condensed Consolidated Statements of Operations. The remaining basis difference, net of accumulated accretion at June 30, 2025 and December 31, 2024 is summarized in the following table (in thousands):

		*June 30,*				*December 31,*
		*2025*				*2024*
Original basis difference		$	1,165			$	1,165
Less accumulated accretion			(767	)			(702	)
Net remaining basis difference at end of period		$	398			$	463

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, 2025.