Investments in Foreign Joint Venture | 4. Investments 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). The Company made an initial investment of $1.0 million in 2006 when BOMAY was formed, then a second investment of $1.0 million in 2007. The Company made no sales to its joint venture in the six months ended June 30, 2019 and 2018. Below is summary financial information for BOMAY at June 30, 2019 and December 31, 2018 and operational results for the three and six months ended June 30, 2019 and 2018 in U.S. dollars (in thousands, unaudited): June 30, 2019 December 31, 2018 Assets: Total current assets $ 67,322 $ 59,124 Total non-current assets 3,337 5,742 Total assets $ 70,659 $ 64,866 Liabilities and equity: Total liabilities $ 44,685 $ 38,732 Total joint ventures’ equity 25,974 26,134 Total liabilities and equity $ 70,659 $ 64,866 Three Months Ended June 30, Six Months Ended June 30, 2019 2018 2019 2018 Revenue $ 17,284 $ 12,231 $ 28,784 $ 20,309 Gross Profit $ 2,479 $ 1,912 $ 4,440 $ 3,697 Earnings $ 1,097 $ 710 $ 1,759 $ 1,137 The following is a summary of activity in investments in foreign joint ventures for the six months ended June 30, 2019 in U.S. dollars (in thousands, unaudited): June 30, 2019 Investments in BOMAY* Balance at the beginning of the year $ 2,033 Undistributed earnings: Balance at beginning of year 7,793 Equity in earnings 703 Dividend distributions (799 ) Balance at end of period 7,697 Foreign currency translation: Balance at beginning of year 154 Change during the period 5 Balance at end of period 159 Total investment in BOMAY at June 30, 2019 $ 9,889 * Accumulated statutory reserves in equity method investments of $2.81 million at June 30, 2019 and December 31, 2018, respectively, are included in AETI’s consolidated retained earnings. 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. 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 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 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 June 30, 2019. |