EURO TECH HOLDINGS COMPANY LIMITED
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(Exact name of Registrant as specified in its charter)
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EURO TECH HOLDINGS COMPANY LIMITED
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(Translation of Registrant’s name into English)
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British Virgin Islands
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(Jurisdiction of incorporation or organization)
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18/F Gee Chang Hong Centre, 65 Wong Chuk Hong Road, Hong Kong
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(Address of principal executive offices)
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T.C. Leung,
FAX: 852-28734887
18/F Gee Change Hong Centre,
65 Wong Chuk Hong Road,
Hong Kong
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(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
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Name of each exchange on which registered: NASDAQ
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Ordinary Shares, no par value
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Not Applicable
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(Title of Class)
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Not Applicable
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(Title of Class)
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2,069,223 Ordinary Shares.
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Large accelerated filer
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o
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Accelerated filer o
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Non-accelerated filer
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þ
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U.S. GAAP
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þ |
International Financial Reporting Standards as issued
by the International Accounting Standards Board
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o |
Other
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o |
PART III
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||||
ITEM 18.
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FINANCIAL STATEMENTS
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4
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ITEM 19.
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EXHIBITS
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5
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Euro Tech Holdings Company Limited
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||||
Report of Independent Registered Public Accounting Firm
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F-2 | |||
Consolidated balance sheets
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F-4 | |||
Consolidated statements of income
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F-5 | |||
Consolidated statements of cash flows and changes in shareholders’ equity
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F-7 | |||
Zhejiang Tianlan Environmental Protection Technology Company Limited
|
||||
Report of Independent Registered Public Accounting Firm
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F-37 | |||
Consolidated Balance Sheet
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F-39 | |||
Consolidated Statements of Income,
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F-40 | |||
Cash flows and changes in Shareholders’ equity
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F-41 |
Exhibit No.
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Description
|
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
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||
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
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Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
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||
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
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||
*
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Filed Herewith.
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EURO TECH HOLDINGS COMPANY LIMITED
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|||
(REGISTRANT)
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|||
Dated: July 11, 2013 |
/s/ T.C. Leung
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||
T.C. Leung,
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|||
Chief Executive Officer and Chairman of the Board of Directors
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2012
|
2011
|
||||||||||
Note
|
US$’000
|
US$’000
|
|||||||||
Assets
|
|||||||||||
Current assets:
|
|||||||||||
Cash and cash equivalents
|
7,468 | 5,339 | |||||||||
Restricted cash
|
839 | 246 | |||||||||
Accounts receivable, net
|
6 | 3,089 | 3,744 | ||||||||
Prepayments and other current assets
|
7 | 848 | 1,773 | ||||||||
Inventories
|
8 | 653 | 583 | ||||||||
Total current assets
|
12,897 | 11,685 | |||||||||
Property, plant and equipment, net
|
9 & 22(iii)
|
945 | 1,058 | ||||||||
Interests in affiliates
|
10 | 9,772 | 9,763 | ||||||||
Goodwill
|
13 | 1,071 | 1,071 | ||||||||
Deferred tax assets
|
4 | 262 | 287 | ||||||||
Total assets
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24,947 | 23,864 | |||||||||
Liabilities and shareholders’ equity
|
|||||||||||
Current liabilities:
|
|||||||||||
Accounts payable
|
3,713 | 2,875 | |||||||||
Other payables and accrued expenses
|
11 | 2,985 | 2,658 | ||||||||
Taxation payable
|
493 | 422 | |||||||||
Total current liabilities
|
7,191 | 5,955 | |||||||||
Commitments and contingencies
|
20 | - | - | ||||||||
Shareholders’ equity:
|
|||||||||||
Ordinary share, 20,000,000 (2011: 20,000,000) shares authorised; 2,229,609 (2011: 2,229,628) shares issued
|
12 | 123 | 123 | ||||||||
Additional paid-in capital
|
9,533 | 9,533 | |||||||||
Treasury stock, 160,386 (2011: 151,747) shares at cost
|
14 | (766 | ) | (733 | ) | ||||||
PRC statutory reserves
|
15 | 311 | 274 | ||||||||
Accumulated other comprehensive income
|
731 | 731 | |||||||||
Retained earnings
|
5,905 | 6,371 | |||||||||
Equity attributable to shareholders of Euro Tech
|
15,837 | 16,299 | |||||||||
Non-controlling interest
|
1,919 | 1,610 | |||||||||
Total shareholders’ equity
|
17,756 | 17,909 | |||||||||
Total liabilities and shareholders’ equity
|
24,947 | 23,864 |
2012
|
2011
|
2010
|
|||||||||||||
Note
|
US$’000
|
US$’000
|
US$’000
|
||||||||||||
Revenues
|
|||||||||||||||
Trading and manufacturing
|
10,866 | 11,437 | 13,745 | ||||||||||||
Engineering
|
10,779 | 8,776 | 8,560 | ||||||||||||
Total revenues
|
22(i) & (ii)
|
21,645 | 20,213 | 22,305 | |||||||||||
Cost of revenues
|
|||||||||||||||
Trading and manufacturing
|
(8,230 | ) | (8,810 | ) | (10,861 | ) | |||||||||
Engineering
|
(7,250 | ) | (6,512 | ) | (5,703 | ) | |||||||||
Total cost of revenues
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(15,480 | ) | (15,322 | ) | (16,564 | ) | |||||||||
Gross profit
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6,165 | 4,891 | 5,741 | ||||||||||||
Selling and administrative expenses
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(6,224 | ) | (6,565 | ) | (7,119 | ) | |||||||||
Operating loss
|
(59 | ) | (1,674 | ) | (1,378 | ) | |||||||||
Interest income
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46 | 60 | 42 | ||||||||||||
Other income, net
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3 | 48 | 82 | 9 | |||||||||||
(Loss)/gain on disposal of fixed assets
|
(22 | ) | 328 | 1 | |||||||||||
Profit/(loss) before income taxes and equity in profit of affiliates
|
13 | (1,204 | ) | (1,326 | ) | ||||||||||
Income (taxes)/benefit
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4 | (142 | ) | 63 | (154 | ) | |||||||||
Equity in profit of affiliates
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9 | 1,131 | 723 | ||||||||||||
Net (loss) for the year
|
(120 | ) | (10 | ) | (757 | ) | |||||||||
Less: net (income)/loss attributable to non-controlling interest
|
(309 | ) | 531 | (330 | ) | ||||||||||
Net (loss)/income attributable to the Company
|
(429 | ) | 521 | (1,087 | ) | ||||||||||
Other comprehensive loss
|
|||||||||||||||
Net loss
|
(120 | ) | (10 | ) | (757 | ) | |||||||||
Foreign exchange translation adjustments
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- | 215 | 177 | ||||||||||||
Comprehensive (loss)/income
|
(120 | ) | 205 | (580 | ) | ||||||||||
Less: Comprehensive (income)/loss attributable to non-controlling interest
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(309 | ) | 442 | (397 | ) | ||||||||||
Comprehensive (loss)/income attributable to the Company
|
(429 | ) | 647 | (977 | ) |
|
2012
|
2011
|
2010
|
||||||||||||
Note |
US$’000
|
US$’000
|
US$’000
|
||||||||||||
Net (loss)/income per ordinary share
|
|||||||||||||||
- Basic
|
$ | US(0.21 | ) | $ | US0.25 | $ | US(0.52 | ) | |||||||
- Diluted
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$ | US(0.21 | ) | $ | US0.25 | $ | US(0.51 | ) | |||||||
Weighted average number of ordinary shares outstanding
|
|||||||||||||||
- Basic
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5 | 2,070,685 | 2,087,922 | 2,099,894 | * | ||||||||||
- Diluted
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5 | 2,076,315 | 2,102,199 | 2,143,375 | * |
2012
|
2011
|
2010
|
||||||||||
US$’000
|
US$’000
|
US$’000
|
||||||||||
Cash flows from operating activities:
|
||||||||||||
Net (loss)/income
|
(429 | ) | 521 | (1,087 | ) | |||||||
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
|
||||||||||||
Depreciation of property, plant and equipment
|
130 | 182 | 170 | |||||||||
Loss/(gain) on disposal of property, plant and equipment
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22 | (328 | ) | (1 | ) | |||||||
Non-controlling interest in profits/(loss) of subsidiaries
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309 | (531 | ) | 330 | ||||||||
Equity in profit of affiliates
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(9 | ) | (1,131 | ) | (723 | ) | ||||||
Deferred tax assets
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25 | (18 | ) | (79 | ) | |||||||
Decrease/(increase) in current assets:
|
||||||||||||
Accounts receivable, net
|
655 | (70 | ) | 2,389 | ||||||||
Prepayments and other current assets
|
925 | (150 | ) | (923 | ) | |||||||
Inventories
|
(70 | ) | 737 | (54 | ) | |||||||
Increase/(decrease) in current liabilities:
|
||||||||||||
Accounts payable
|
838 | (271 | ) | (738 | ) | |||||||
Other payables and accrued expenses
|
327 | (671 | ) | 418 | ||||||||
Taxation payable
|
71 | (185 | ) | 14 | ||||||||
Net cash provided by /(used in) operating activities
|
2,794 | (1,915 | ) | (284 | ) | |||||||
Cash flows from investing activities:
|
||||||||||||
Purchase of property, plant and equipment
|
(41 | ) | (63 | ) | (112 | ) | ||||||
Proceeds on disposal of property, plant and equipment
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2 | 491 | 9 | |||||||||
Purchase of non-controlling interest of subsidiaries
|
- | (238 | ) | (73 | ) | |||||||
Dividend received from affiliates
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- | 779 | 76 | |||||||||
Investments in affiliates
|
- | (435 | ) | (262 | ) | |||||||
Restricted cash for issuance of bank guarantees
|
(593 | ) | 563 | (348 | ) | |||||||
Dividend paid to non-controlling interest
|
- | - | ||||||||||
Net cash (used in)/provided by investing activities
|
(632 | ) | 1,097 | (710 | ) | |||||||
Cash flows from financing activities:
|
||||||||||||
Issuance of ordinary shares on exercise of options
|
- | - | 33 | |||||||||
Purchase of treasury stock
|
(33 | ) | (94 | ) | (105 | ) | ||||||
Net cash used in financing activities
|
(33 | ) | (94 | ) | (72 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents
|
- | 121 | 171 | |||||||||
Net increase/(decrease) in cash and cash equivalents
|
2,129 | (791 | ) | (895 | ) | |||||||
Cash and cash equivalents, beginning of year
|
5,339 | 6,130 | 7,025 | |||||||||
Cash and cash equivalents, end of year
|
7,468 | 5,339 | 6,130 | |||||||||
Supplementary information
|
US$’000
|
US$’000
|
US$’000
|
|||||||||
Interest received
|
46 | 60 | 42 | |||||||||
Income taxes paid
|
8 | 176 | 219 |
Number of
ordinary
|
Ordinary
share
|
Additional
paid-in
capital
|
Treasury
stock
|
Accumulated
other com-
prehensive
income
|
PRC
statutory reserves
|
Retained
earnings
|
Non-controlling interest
|
Total
|
||||||||||||||||||||||||||||
share |
US$’000
|
US$’000
|
US$’000
|
US$’000
|
US$’000
|
US$’000
|
US$’000
|
US$’000
|
||||||||||||||||||||||||||||
Balance as of January 1, 2010
|
2,220,369 | 122 | 9,501 | (534 | ) | 487 | 222 | 6,989 | 2,145 | 18,932 | ||||||||||||||||||||||||||
Net loss
|
- | - | - | - | - | - | (1,087 | ) | 330 | (757 | ) | |||||||||||||||||||||||||
Other comprehensive income: Foreign exchange translation adjustment
|
- | - | - | - | 110 | - | - | 67 | 177 | |||||||||||||||||||||||||||
Purchase of treasury stock
|
- | - | - | (105 | ) | - | - | - | - | (105 | ) | |||||||||||||||||||||||||
Exercise of stock options
|
9,259 | 1 | 32 | - | - | - | - | - | 33 | |||||||||||||||||||||||||||
Appropriation of reserves
|
- | - | - | - | - | 53 | (53 | ) | - | - | ||||||||||||||||||||||||||
Dividend paid/payable to non-controlling interest
|
- | - | - | - | - | - | - | (106 | ) | (106 | ) | |||||||||||||||||||||||||
Purchase of non-controlling interest
|
- | - | - | - | 8 | - | - | (81 | ) | (73 | ) | |||||||||||||||||||||||||
Balance as of December 31, 2010
|
2,229,628 | 123 | 9,533 | (639 | ) | 605 | 275 | 5,849 | 2,355 | 18,101 | ||||||||||||||||||||||||||
Net loss
|
521 | (531 | ) | (10 | ) | |||||||||||||||||||||||||||||||
Other comprehensive income: Foreign exchange translation adjustment
|
- | - | - | - | 126 | - | - | 89 | 215 | |||||||||||||||||||||||||||
Purchase of treasury stock
|
- | - | - | (94 | ) | - | - | - | - | (94 | ) | |||||||||||||||||||||||||
Appropriation of reserves
|
- | - | - | - | - | (1 | ) | 1 | - | - | ||||||||||||||||||||||||||
Dividend paid/payable to non-controlling interest
|
- | - | - | - | - | - | - | (76 | ) | (76 | ) | |||||||||||||||||||||||||
Purchase of non-controlling interest
|
- | - | - | - | - | - | - | (227 | ) | (227 | ) | |||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2011
|
2,229,628 | 123 | 9,533 | (733 | ) | 731 | 274 | 6,371 | 1, 610 | 17,909 | ||||||||||||||||||||||||||
Net loss
|
- | - | - | - | - | - | (429 | ) | 309 | (120 | ) | |||||||||||||||||||||||||
Purchase of treasury stock
|
- | - | - | (33 | ) | - | - | - | - | (33 | ) | |||||||||||||||||||||||||
Appropriation of reserves
|
- | - | - | - | - | 37 | (37 | ) | - | - | ||||||||||||||||||||||||||
Cancellation of fractional shares
|
(19 | ) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||
Balance as of December 31, 2012
|
2,229,609 | 123 | 9,533 | (766 | ) | 731 | 311 | 5,905 | 1,919 | 17,756 |
|
EURO TECH HOLDINGS COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
1
|
Organisation and principal activities
Euro Tech Holdings Company Limited (the “Company”) was incorporated in the British Virgin Islands on September 30, 1996.
Euro Tech (Far East) Limited (“Far East”) is the principal operating subsidiary of the Company. It is principally engaged in the marketing and trading of water and waste water related process control, analytical and testing instruments, disinfection equipment, supplies and related automation systems in Hong Kong and in the People’s Republic of China (the “PRC”).
Details of the Company’s significant subsidiaries and affiliates are summarised as follows:
|
Name
|
Percentage of
equity ownership
|
Place of
incorporation
|
Principal activities
|
|||
Subsidiaries:
|
||||||
Euro Tech (Far East) Limited
|
100% |
Hong Kong
|
Marketing and trading of water and waste water related process control, analytical and testing instruments, disinfection equipment, supplies and related automation systems
|
|||
Euro Tech (China) Limited
|
100% |
Hong Kong
|
Inactive
|
|||
ChinaH2O.com Limited***
|
100% |
Hong Kong
|
Internet content provider and provision of marketing services for environmental industry to the Company and its subsidiaries
|
|||
Euro Tech Trading (Shanghai) Limited
|
100% |
The PRC
|
Marketing and trading of water and waste water related process control, analytical and testing instruments, disinfection equipment, supplies and related automation systems
|
|||
Shanghai Euro Tech Limited
|
100% |
The PRC
|
Manufacturing of analytical and testing equipment
|
|||
Shanghai Euro Tech Environmental Engineering Company Limited
|
100% |
The PRC
|
Undertaking water and waste-water treatment engineering projects
|
|||
Chongqing Euro Tech Rizhi Technology Co., Ltd
|
100% |
The PRC
|
Marketing and trading of water and waste water related process control, analytical and testing instruments, disinfection equipment, supplies and related automation systems
|
|
EURO TECH HOLDINGS COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
1
|
Organisation and principal activities (Continued)
|
Name
|
Percentage of
equity ownership
|
Place of
incorporation
|
Principal activities
|
|||
Rizhi Euro Tech Instrument (Shaanxi) Co., Ltd
|
100% |
The PRC
|
Marketing and trading of water and waste water related process control, analytical and testing instruments, disinfection equipment, supplies and related automation systems
|
|||
Guangzhou Euro Tech Environmental Equipment Co., Ltd
|
100% |
The PRC
|
Marketing and trading of water and waste water related process control, analytical and testing instruments, disinfection equipment, supplies and related automation systems
|
|||
Yixing Pact Environmental Technology Co., Ltd
|
58%* |
The PRC
|
Design, manufacture and operation of water and waste water treatment machinery and equipment
|
|||
Pact Asia Pacific Limited **
|
58%* |
The British Virgin Islands
|
Producing and selling of environment protection equipment, undertaking environment protection projects and providing relevant technology advice, training and services
|
|||
Affiliates:
|
||||||
Zhejiang Tianlan Environmental Protection Technology Co. Ltd. (Formerly known as Zhejiang Tianlan Desulfurization and Dust–Removal Co. Ltd.)
|
20% |
The PRC
|
Design, general contract, equipment manufacturing, installation, testing and operation management of the treatment of waste gases emitted
|
|||
Zhejaing Jia Huan Electronic Co. Ltd.
|
20% |
The PRC
|
Design and manufacturing automatic control systems and electric voltage control equipment for electrostatic precipitators (air purification equipment)
|
*
|
In the year 2011, the Company additionally acquired 5% equity interest of these two companies.
|
**
|
The subsidiary of Pact Asia Pacific Limited, Pact Environmental Equipment Co., Ltd was deregistered on January 11, 2013.
|
***
|
The subsidiary was deregistered on February 17, 2012.
|
|
EURO TECH HOLDINGS COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
2
|
Summary of significant accounting policies
|
(a)
|
Basis of Consolidation
The consolidated financial statements include the accounts of Euro Tech Holdings Company Limited and its subsidiaries (the “Group”). The financial statements of variable interest entities (“VIEs”), as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 810-10, Consolidation(previously FASB Interpretation No. 46 (R), “Consolidation of Variable Interest Entities”) , are included in the consolidated financial statements, if applicable. All material intercompany balances and transactions have been eliminated on consolidation.
The Group identified that certain retail shops established in the PRC qualified as variable interest entities as defined in ASC 810-10. The retail shops are principally engaged in the retailing business of water and waste water related process control, analytical and testing instruments, disinfection equipment, supplies and related automation systems. The Company is the primary beneficiary of these retail shops and, accordingly, consolidated their financial statements. The Company has a controlling financial interest in these retail shops and is subject to a majority of the risk of loss from the retailing activities, and is entitled to receive a majority of the retail shops’ residual returns. Total assets and liabilities of these consolidated VIEs total US$14,204 and US$3,581, as of December 31, 2012 and US$15,564 and US$3,504, as of December 31, 2011, respectively. The cumulative losses on consolidating these VIEs in the Group’s consolidated statement of income in 2012 were US$275,232 (2011: losses of US$244,024 and 2010: losses of US$112,637), including taxes of US$1,262 (2011: US$2,222 and 2010: US$3,826). The assets of the entities consist mainly of cash and bank balances, trade and other receivables, inventories and property, plant and equipment. The creditors of these VIEs do not have a recourse to the general credit of the Group. The Group will provide for all necessary financing for the VIEs.
|
(b)
|
Subsidiaries and affiliates
A subsidiary is a company in which the Company holds, directly or indirectly, more than 50% of its outstanding voting share capital and over which it is able to exercise control.
Investments in business entities in which the Company does not have control, but has the ability to exercise significant influence over operating and financial policies (generally 20-50 percent ownership), are accounted for using the equity method of accounting.
|
(c)
|
Revenue Recognition
The Group’s main source of revenue is the sale of water and waste water related process control, analytical and testing instruments, disinfection equipment, supplies and related automation systems. The Company recognises revenue when the product is delivered and the title is transferred. For certain products where installation is necessary, revenue is recognised upon completion of installation. Revenue earned from customer support services, which represents a minor percentage of total revenues, is recognised when such services are provided.
|
|
EURO TECH HOLDINGS COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
2
|
Summary of significant accounting policies (Continued)
|
(c)
|
Revenue Recognition (Continued)
Revenues and profits in long term fixed price contracts or engineering income are recognised using the percentage of completion method in accordance with FASB ASC Subtopic 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts, (previously Statement of Position (“SOP”) 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts”). This approach primarily based on contract costs incurred to date compared with total estimated contract costs. Changes to total estimated contract costs or losses, if any, are recognised in the period they are determined. Revenues recognised in excess of amounts billed are classified as costs and estimated earnings in excess of billings on uncompleted contracts. Essentially all of such amounts are expected to be billed and collected within one year and are classified as current assets. Billings in excess of costs and estimated earnings on uncompleted contracts are classified as current liabilities. When reasonably dependable estimates cannot be made, construction contract revenues are recognised using the completed contract method.
|
(d)
|
Research and Development Costs
Research and development costs (“R&D” costs) are expensed as incurred. The R&D costs amounted to approximately US$930,000, US$200,000 and US$24,000 for the years ended December 31, 2012, 2011 and 2010 respectively and were included in “Selling and Administrative” expenses in the Group’s consolidated statements of income.
|
(e)
|
Advertising and promotional expenses
Advertising and promotional expenses (“A&P” expenses) are expensed as incurred. The A&P expenses amounted to approximately US$21,000, US$61,000 and US$63,000 for the years December 31, 2012, 2011 and 2010 respectively and were included in “Selling and Administrative” expenses in the Group’s consolidated statements of income.
|
(f)
|
Taxation
The Group accounts for income and deferred tax under the provision of FASB ASC Subtopic 740-10, Income Taxes, (previously Statement of Financial Accounting Standards (“SFAS”) No. 109: “Accounting for Income Taxes”), under which deferred taxes are recognised for all temporary differences between the applicable tax balance sheets and the consolidated balance sheet. Deferred tax assets and liabilities are recognised for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. ASC 740-10 also requires the recognition of the future tax benefits of net operating loss carry forwards. A valuation allowance is established when the deferred tax assets are not expected to be realised within a reasonable period of time.
In accordance with ASC 740-10, the Company recognises tax benefits that satisfy a greater than 50% probability threshold and provides for the estimated impact of interest and penalties for such tax benefits. The Company did not have such uncertain tax positions in 2012, 2011 and 2010.
Deferred tax assets and liabilities are measured using the enacted tax rates expected to be applicable for taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognised in income for the period that includes the enactment date.
|
|
EURO TECH HOLDINGS COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
2
|
Summary of significant accounting policies (Continued)
|
(g)
|
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and demand deposits with banks.
|
(h)
|
Restricted Cash
Restricted cash represents cash deposits retained with banks in the PRC for issuance of performance guarantees to the customers. The amount is expected to be released within one year after the balance sheet date.
|
(i)
|
Receivables and Other Assets
Receivables and other assets are recorded at their nominal values. Doubtful debt allowances are provided for identified individual risks for these line items. If the loss of a certain part of the receivables is probable, doubtful debt allowances are provided to cover the expected loss. Receivables are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
|
(j)
|
Inventories
Inventories are stated at the lower of cost, on the first-in, first-out method, or market value. Costs include purchase and related costs incurred in bringing each product to its present location and condition. Market value is calculated based on the estimated normal selling price, less further costs expected to be incurred for disposal. Allowance is made for obsolete, slow moving or defective items, where appropriate.
|
(k)
|
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Gains or losses on disposal are reflected in current operations. Major expenditures for betterments and renewals are capitalised. All ordinary repair and maintenance costs are expensed as incurred. Depreciation of property, plant and equipment is computed using the straight-line method over the assets’ estimated useful lives as follows:
|
Office premises
|
47 to 51 years
|
Leasehold improvements
|
over terms of the leases or the useful lives whichever is less
|
Furniture, fixtures and office equipment
|
3 to 5 years |
Motor vehicles
|
4 years |
Testing equipment
|
3 years
|
|
EURO TECH HOLDINGS COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
2
|
Summary of significant accounting policies (Continued)
|
(l)
|
Impairment
The Group has adopted FASB ASC Subtopic 360-10, Property, Plant, and Equipment, (previously SFAS No. 144: “Accounting for Impairment or Disposal of Long-Lived Assets”) which requires impairment losses to be recorded for property, plant and equipment to be held and used in operations when indicators of impairment are present. Reviews are regularly performed to determine whether the carrying value of assets is impaired. The Group determines the existence of such impairment by measuring the expected future cash flows (undiscounted and without interest charges) and comparing such amount to the carrying amount of the assets. An impairment loss, if one exists, is then measured as the amount by which the carrying amount of the asset exceeds the discounted estimated future cash flows. Assets to be disposed of are reported at the lower of the carrying amount or fair value of such assets less costs to sell. Asset impairment charges are recorded to reduce the carrying amount of the long-lived asset that will be sold or disposed of to their estimated fair values. Charges for the asset impairment reduce the carrying amount of the long-lived assets to their estimated salvage value in connection with the decision to dispose of such assets. There were no impairment losses recorded during each of the three years ended December 31, 2012.
|
(m)
|
Operating Leases
Leases where substantially all the risks and rewards of ownership of the leased assets remain with the lessors are accounted for as operating leases. Rental payments under operating leases are charged to expense on the straight-line basis over the period of the relevant leases.
|
(n)
|
Goodwill
The Group has adopted FASB ASC Subtopic 350-10, Intangibles – Goodwill and Other (previously SFAS No.142: “Goodwill and other intangible assets”) which requires the performance of an impairment test on an annual basis.
|
(o)
|
Foreign Currency Translation
The Company maintains its books and records in United States dollars. Its subsidiaries and affiliates maintain their books and records either in Hong Kong dollars or Chinese Renminbi (“functional currencies”). Foreign currency transactions during the year are translated into the respective functional currencies at the applicable rates of exchange at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the respective functional currencies using the exchange rates prevailing at the balance sheet dates. Gains or losses from foreign currency transactions are recognised in the consolidated statements of income during the year in which they occur. Translation adjustments on subsidiaries’ equity are included as accumulated comprehensive income or loss.
|
|
EURO TECH HOLDINGS COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
2
|
Summary of significant accounting policies (Continued)
|
(p)
|
Derivative Instruments and Hedging Activities
FASB ASC Subtopic 815-10, Derivates and Hedging, (previously SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), as amended by SFAS No. 137, “Accounting for Derivative Instruments and Hedging Activities – Deferral of the Effective Date of FASB Statement No. 133 – an amendment of FASB Statement No. 133”, and SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities – an amendment of FASB Statement No. 133”, as well as the interpretations of the Derivatives Implementation Group (“DIG”), are applied as amended by SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”). ASC 815-10 contains accounting and reporting standards for hedging accounting and for derivative financial instruments, including certain derivative financial instruments embedded in other contracts.
ASC 815-10 requires that all derivatives be recognised as either assets or liabilities in the consolidated balance sheet and measured at fair value. Depending on the documented designation of a derivative instrument, any change in fair value is recognised either in net income or shareholders’ equity (as a component of accumulated other comprehensive income).
Fair values of derivative instruments are classified as operating assets or liabilities. Changes in fair value of derivative instruments affecting income are classified as other operating income or expenses. Please see note 18 for additional information regarding the Company’s use of derivative instruments.
|
(q)
|
Comprehensive Income
The Group has adopted FASB ASC Subtopic 220-10, Comprehensive Income, (previously SFAS No. 130: “Reporting Comprehensive Income,”) which requires the Group to report all changes in equity during a period, except for those resulting from investment by owners and distribution to owners, in the financial statements for the period in which they are recognised. The Group has presented comprehensive income, which encompasses net income and foreign currency translation adjustments, in the consolidated statement of changes in shareholders’ equity.
|
(r)
|
Ordinary Share
On November 22, 2011, the Company filed Amended and Restated Memorandum and Articles of Association with the Registry of Corporate Affairs of the BVI Financial Services Commission that on November 29, 2011 became effective as of the filing date to amend the Company’s ordinary shares of US$0.01 par value capital stock to no par value capital stock. Treasury stock is accounted for using the cost method. When treasury stock is reissued, the value is computed and recorded using a weighted-average basis.
|
|
EURO TECH HOLDINGS COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
2
|
Summary of significant accounting policies (Continued)
|
(s)
|
Net income per Ordinary Share
Net income per ordinary share is computed in accordance with FASB ASC Subtopic 260-10, Earnings Per Share, (previously SFAS No. 128 “Earnings Per Share”), by dividing the net income by the weighted average number of shares of ordinary share outstanding during the period. The Company reports both basic earnings per share, which is based on the weighted average number of ordinary shares outstanding, and diluted earnings per share, which is based on the weighted average number of ordinary shares outstanding and all dilutive potential ordinary shares outstanding.
Outstanding stock options are the only dilutive potential shares of the Company.
|
(t)
|
Stock-based Compensation
The Group adopted the provisions of FASB ASC Subtopic 718-10, Compensation – Stock Compensation), (previously SFAS No. 123 (revised 2004) (SFAS No. 123(R)), Share-Based Payment) which requires the Group to recognise expense related to the fair value of our stock-based compensation awards, including employee stock options.
|
(u)
|
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts that are reported in the consolidated financial statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may be different from the estimates.
|
(v)
|
Related Parties
Entities are considered to be related to the Group if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Group. Related parties also include principal owners of the Group, its management, members of the immediate families of principal owners of the Group and its management and other parties with which the Group may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.
|
|
EURO TECH HOLDINGS COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
2
|
Summary of significant accounting policies (Continued)
|
(w)
|
Segment Information
The Company’s segment reporting is prepared in accordance with FASB ASC Subtopic 280-10, Segment Reporting, (previously SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”). The management approach required by ASC 280-10 designates that the internal reporting structure that is used by management for making operating decisions and assessing performance should be used as the source for presenting the Company’s reportable segments. The Company categorises its operations into two business segments: Trading and manufacturing, and Engineering.
|
(x)
|
Recent Accounting Pronouncements
On May 12, 2011, the FASB issued ASU 2011-04. The ASU is the result of joint efforts by the FASB and the International Accounting Standards Board (“IASB”) to develop a single, converged fair value framework. Thus, there are few differences between the ASU and its international counterpart, IFRS 13. This ASU is largely consistent with existing fair value measurement principles in U.S. GAAP; however it expands ASC 820’s existing disclosure requirements for fair value measurements and makes other amendments. The ASU is effective for interim and annual periods beginning after December 15, 2011. The adoption of ASU 2011-04 did not have a material effect on the financial position, results of operations or cash flows of the Company.
On June 16, 2011, the FASB issued ASU 2011-05, which revises the manner in which entities present comprehensive income in their financial statements. The new guidance removes the presentation options in ASC 220 and requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. The ASU does not change the items that must be reported in other comprehensive income. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of ASU 2011-05 did not have a material effect on the financial position, results of operations or cash flows of the Company. .
In December 2011, FASB issued Accounting Standards Update 2011-11, Balance Sheet - Disclosures about Offsetting Assets and Liabilities” to enhance disclosure requirements relating to the offsetting of assets and liabilities on an entity's balance sheet. The update requires enhanced disclosures regarding assets and liabilities that are presented net or gross in the statement of financial position when the right of offset exists, or that are subject to an enforceable master netting arrangement. The new disclosure requirements relating to this update are retrospective and effective for annual and interim periods beginning on or after January 1, 2013. The update only requires additional disclosures, as such, we do not expect that the adoption of this standard will have a material impact on our results of operations, cash flows or financial condition.
|
|
EURO TECH HOLDINGS COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
2
|
Summary of significant accounting policies (Continued)
|
(x)
|
Recent Accounting Pronouncements (continued)
In July 2012, FASB issued Accounting Standards Update 2012-02, Balance Sheet- Intangibles- Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment is an Amendment to FASB Accounting Standards Update 2011-08. The objective of the amendments in this Update is to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. The amendments permit an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance.
In February 2013, FASB issued Accounting Standards Update 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force). This guidance requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date. This stipulates that (1) it will include the amount the entity agreed to pay for the arrangement between them and the other entities that are also obligated to the liability and (2) any additional amount the entity expects to pay on behalf of the other entities. The objective of this update is to provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements. The amendments in this update are effective for fiscal periods (and interim reporting periods within those years) beginning after December 15, 2013. This standard is not expected to have a material impact on the Company’s reported results of operations or financial position.
In February 2013, FASB issued Accounting standards update 2013-02, Comprehensive Income Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income. This update requires an entity to provide information amount the amount reclassified out of accumulated other comprehensive income by component. The entity is also required to disclose significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting periods. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other discourses required under U.S. GAAP that provide additional detail about those amounts. The objective in this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments in this update should be applied prospectively for reporting periods beginning after December 15, 2012. This standard is not expected to have a material impact on the Company’s reported results of operations or financial position.
Management does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have an effect on the accompanying financial statements.
|
|
EURO TECH HOLDINGS COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
3
|
Other income, net
|
2012
|
2011
|
2010
|
||||||||||
US$’000
|
US$’000
|
US$’000
|
||||||||||
Exchange (loss)/gain, net
|
(17 | ) | 26 | (17 | ) | |||||||
Rental income
|
65 | 56 | 26 | |||||||||
48 | 82 | 9 |
4
|
Income taxes
The Company is exempt from taxation in the British Virgin Islands (“BVI”).
On March 16, 2007, the PRC National People’s Congress passed the Enterprise Income Tax Law (“Income Tax Law”), which became effective January 1, 2008 and applies a unified income tax rate for foreign invested enterprises and domestic enterprise. The Income Tax Law is effective immediately for companies previously subject to higher taxation rates and provides a five-year transition period from its effective date for those enterprises which were established before the effective date of the new tax law and previously entitled to a preferential tax treatment.
On December 26, 2007, the State Council and on February 20, 2008 the Ministry of Finance issued implementation guidelines (“Guidelines”) setting out how the transition of tax rates will occur. The Guidelines state that those enterprises which enjoyed a preferential tax rate of 15% are eligible for a graduated rate increase to 25% over the 5-year period beginning from January 1, 2008. The applicable rates under such an agreements for such enterprises are 18%, 20%, 22%, 24% and 25% for 2008, 2009, 2010, 2011, 2012 and thereafter, respectively. In addition, foreign investment manufacturing enterprises which have not fully utilised any preferential tax treatments, such as tax holidays or reduced rates of taxation, will be able to continue to receive them during the transitional period. The Group has applied the applicable rates in relation to deferred tax balances.
Euro Tech (Far East) Limited, Euro Tech (China) Limited and ChinaH2O.com Limited provided for Hong Kong profits tax at a rate of 16.5% in year 2012 (2011 and 2010: 16.5%) on the basis of their income for financial reporting purposes, adjusting for income and expense items which are not assessable or deductible for profits tax purposes.
Euro Tech Trading (Shanghai) Limited (“ETTS”), a subsidiary of the Company, provides for PRC Enterprise Income Tax at a rate of 25% (2011: 24%, 2010: 22%), after offsetting losses brought forward, if any, on the basis of its income for financial reporting purposes, adjusting for income and expense items which are not assessable or deductible for PRC Enterprise Income Tax purposes. As of December 31, 2012, ETTS had an assessable loss carried forward of US$287,675 as agreed by the local tax authority to offset its profit for the forth coming years (2011: US$169,369). Such loss will expire in 5 years.
|
|
EURO TECH HOLDINGS COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
4
|
Income taxes (Continued)
In accordance with the relevant income tax laws and regulations applicable to foreign investment enterprises in the PRC, Shanghai Euro Tech Limited (“SET”), a subsidiary of the Company, is exempt from the PRC Enterprise Income Tax for two years starting from 2008, after offsetting losses brought forward, if any, followed by a 50% reduction for the next three years thereafter. As of December 31, 2012, SET had an assessable loss carried forward of US$482,340 as agreed by the local tax authority to offset its profit for the forth coming years (2011: US$387,543). Such loss will expire in 5 years.
According to the relevant PRC tax rules and regulations, Shanghai Euro Tech Environmental Engineering Limited (“SETEE”) is exempt from the PRC Enterprise Income Tax for two years starting from 2007, after offsetting losses brought forward, if any, followed by a 50% reduction for the next three years thereafter. As of December 31, 2012, SETEE had an assessable loss carried forward of US$1,418,936 as agreed by the local tax authority to offset its profit for the forth coming years (2011: US$1,106,994). Such loss will expire in 5 years. Chongqing Euro Tech Rizhi Technology Co., Ltd, Rizhi Euro Tech Instrument (Shaanxi) Co., Ltd and Guangzhou Euro Tech Environmental Equipment Co., Ltd provide for PRC Enterprise Income Tax at a rate of 25%, after offsetting losses brought forward, if any, on the basis of its income for financial reporting purposes, adjusting for income and expense items which are not assessable or deductible for PRC Enterprise Income Tax purposes.
According to the relevant PRC tax rules and regulations, Yixing Pact Environmental Technology Co., Ltd is registered in Shanghai as Foreign Owned Enterprise that are entitled to Enterprise Income Tax rate of 25% (2011 and 2010: 25%).
VIEs of the Group provide for PRC Enterprise Income Tax at a rate of 25% (2011 and 2010: 25% ), after offsetting losses brought forward, if any, on the basis of its income for financial reporting purposes, adjusting for income and expense items which are not assessable or deductible for PRC Enterprise Income Tax purposes.
Under the New Enterprise Income Tax Law and the implementation rules, profits of the PRC subsidiaries earned on or after January 1, 2008 and distributed by the PRC subsidiaries to foreign holding company are subject to a withholding tax at a rate of 10% unless reduced by tax treaty. Aggregate undistributed earnings of the Company’s subsidiaries located in the PRC that are available for distribution to the Company of approximately US$1.9 million at December 31, 2012 are intended to be reinvested, and accordingly, no deferred taxation has been made for the PRC dividend withholding taxes that would be payable upon the distribution of those amounts to the Company. Distributions made out of pre January 1, 2008 retained earnings will not be subject to the withholding tax.
|
|
EURO TECH HOLDINGS COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
4
|
Income taxes (Continued)
Profit/(loss before) income taxes/(benefit):
|
2012
|
2011
|
2010
|
||||||||||
US$’000
|
US$’000
|
US$’000
|
||||||||||
The PRC and Hong Kong
|
13 | (1,204 | ) | (1,326 | ) |
The provision for income taxes consists of:
|
2012
|
2011
|
2010
|
||||||||||
US$’000
|
US$’000
|
US$’000
|
||||||||||
Current tax expenses:
|
||||||||||||
The PRC and Hong Kong
|
117 | (46 | ) | 233 | ||||||||
Total current provision
|
117 | (46 | ) | 233 | ||||||||
Deferred tax benefit:
|
||||||||||||
The PRC and Hong Kong
|
25 | (17 | ) | (79 | ) | |||||||
Total deferred provision
|
25 | (17 | ) | (79 | ) |
The principal reconciling items from income tax computed at the statutory rates and at the effective income tax rates are as follows:
|
2012
|
2011
|
2010
|
||||||||||
US$’000
|
US$’000
|
US$’000
|
||||||||||
Computed tax using respective companies’ statutory tax rates
|
31 | (263 | ) | (203 | ) | |||||||
Change in valuation allowances
|
166 | 33 | 158 | |||||||||
Under-provision for income tax in prior years
|
- | (10 | ) | - | ||||||||
Non deductible expenses
|
(55 | ) | 177 | 199 | ||||||||
Total provision for income tax at effective tax rate
|
142 | (63 | ) | 154 |
|
EURO TECH HOLDINGS COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
4
|
Income taxes (Continued)
The components of deferred tax assets are as follows:
|
2012
|
2011
|
|||||||
US$’000
|
US$’000
|
|||||||
Tax losses
|
977 | 811 | ||||||
Temporary differences
|
(24 | ) | 1 | |||||
Less: Valuation allowances
|
(691 | ) | (525 | ) | ||||
Net deferred tax assets
|
262 | 287 |
5
|
Net income per ordinary share
The calculation of the basic and diluted net income per ordinary share is based on the following data:
|
2012
|
2011
|
2010
|
||||||||||
Number of shares
|
||||||||||||
Weighted average number of ordinary shares for the purposes of basic net income per share
|
2,070,685 | 2,087,922 | 2,099,894 | |||||||||
Effect of dilutive potential ordinary shares: Stock options
|
5,630 | 14,277 | 43,481 | |||||||||
Weighted average number of ordinary shares for the purposes of diluted net income per share
|
2,076,315 | 2,102,199 | 2,143,375 |
6
|
Accounts receivable, net
|
2012
|
2011
|
|||||||
US$’000
|
US$’000
|
|||||||
Accounts receivable
|
3,186 | 3,900 | ||||||
Less: Allowance for doubtful debts
|
(97 | ) | (156 | ) | ||||
3,089 | 3,744 |
The following is an age analysis of past due account receivables as of December 31, 2012 and 2011:
|
2012
|
2011
|
|||||||
US$’000
|
US$’000
|
|||||||
Current
|
1,698 | 2,324 | ||||||
30-59 days past due
|
440 | 730 | ||||||
60-89 days past due
|
302 | 92 | ||||||
Greater than 90 days
|
649 | 598 | ||||||
3,089 | 3,744 |
|
EURO TECH HOLDINGS COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
7
|
Prepayments and other current assets
Prepayment and other current assets mainly represent deposits for purchases and services, rental and utilities deposits, and prepaid expenses. The other current assets also include cost of estimated earnings in excess of billing.
Cost and estimated earnings in excess of billings
|
2012
|
2011
|
|||||||
US$’000
|
US$’000
|
|||||||
Contracts costs incurred plus estimated earnings
|
3,785 | 8,604 | ||||||
Less: Progress billings
|
(3,684 | ) | (8,098 | ) | ||||
Cost and estimated earnings in excess of billings
|
101 | 506 |
8
|
Inventories
|
2012
|
2011
|
|||||||
US$’000
|
US$’000
|
|||||||
Raw materials
|
147 | 142 | ||||||
Work in progress
|
59 | 74 | ||||||
Finished goods
|
447 | 367 | ||||||
653 | 583 |
Management continuously reviews obsolete and slow moving inventories and assesses the inventory valuation to determine if the provision is deemed appropriate. For the year ended December 31, 2012, and 2011, provision for obsolete and slow moving inventories amounted to US$10,000 and US$209,000, respectively, which were charged to cost of revenue in Consolidated Statements of Income.
|
9
|
Property, plant and equipment
|
2012
|
2011
|
|||||||
US$’000
|
US$’000
|
|||||||
Office premises
|
1,866 | 1,866 | ||||||
Leasehold improvements
|
158 | 151 | ||||||
Furniture, fixtures and office equipment
|
616 | 636 | ||||||
Motor vehicles
|
162 | 162 | ||||||
Testing equipment
|
87 | 84 | ||||||
2,889 | 2,899 | |||||||
Less: Accumulated depreciation
|
(1,944 | ) | (1,841 | ) | ||||
945 | 1,058 |
|
EURO TECH HOLDINGS COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
9
|
Property, plant and equipment (Continued)
|
2012
|
2011
|
2010
|
||||||||||
US$’000
|
US$’000
|
US$’000
|
||||||||||
Depreciation charge
|
130 | 182 | 170 |
10
|
Interests in affiliates
Investments in affiliates are accounted for using the equity method of accounting.
The Group acquired 20% equity interests in Zhejiang Tianlan Environmental Protection Technology Co. Ltd, (“Tianlan”), a company incorporated in the PRC for a total consideration of US$4,648,000 in 2007. In 2010, Tianlan increased its share capital and the Group further invested US$262,000 in order to maintain the share holding of 20% in Tianlan. In 2011, Tianlan increased its share capital and the Group further invested US$435,000 in order to maintain the share holding of 20% in Tianlan.
A summary of the financial information of the affiliate, Zhejiang Tianlan Environmental Protection Technology Co. Ltd, is set forth below:
|
2012
|
2011
|
|||||||
Balance Sheet:
|
US$’000
|
US$’000
|
||||||
Current assets
|
57,431 | 49,064 | ||||||
Non-current assets
|
9,605 | 10,322 | ||||||
Total assets
|
67,036 | 59,386 | ||||||
Total liabilities
|
(42,889 | ) | (35,154 | ) | ||||
Total shareholders’ equity
|
24,147 | 24,232 |
2012
|
2011
|
|||||||
Operating results:
|
US$’000
|
US$’000
|
||||||
Net sales
|
44,543 | 45,966 | ||||||
Operating profits
|
616 | 6,899 | ||||||
Net (loss)/profits
|
(196 | ) | 6,407 |
|
EURO TECH HOLDINGS COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
10
|
Interests in affiliates (Continued)
The Group acquired 20% of the equity interests in Zhejiang Jia Huan Electronic Co. Ltd., (“Jia Huan”), a company incorporated in the PRC, for approximately US$2,610,000 in 2008. Jia Huan has been in the environmental protection business since 1969 and is based in Jin Hua, Zhejiang.
A summary of the financial information of the affiliate, Zhejiang Jia Huan Electronic Co. Ltd, is set forth below:
|
2012
|
2011
|
|||||||
Balance Sheet:
|
US$’000
|
US$’000
|
||||||
Current assets
|
17,371 | 16,645 | ||||||
Non-current assets
|
5,650 | 5,402 | ||||||
Total assets
|
23,021 | 22,047 | ||||||
Total liabilities
|
(9,893 | ) | (9,295 | ) | ||||
Total shareholders’ equity
|
13,128 | 12,752 |
2012
|
2011
|
|||||||
Operating results:
|
US$’000
|
US$’000
|
||||||
Net sales
|
12,631 | 8,151 | ||||||
Operating profits/(losses)
|
74 | (903 | ) | |||||
Net profits/(losses)
|
243 | (749 | ) |
11
|
Other payables and accrued expenses
Other payables and accrued expenses mainly represent deposits received from customers and accruals for operating expenses.
|
|
EURO TECH HOLDINGS COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
12
|
Ordinary share
During the year ended December 31, 2010, the Company issued 9,259 ordinary shares for stock options exercised.
During the year ended December 31, 2012 and 2011, there was no movement with the Company’s issued ordinary shares and the outstanding share.
On January 13, 2012, the company effected a two-for-eleven reverse split of its issued ordinary shares. The information contained hereinreflects retroactive effectof the reverse stock split for all period presented.
|
13
|
Goodwill
The Company accounts for acquisitions of subsidiaries in accordance with FASB ASC Subtopic 805-10, Business Combinations, (previously SFAS No. 141 “Business Combinations”). Goodwill represents the excess of acquisition cost over the estimated fair value of net assets acquired in relation to the acquisition of Yixing Pact Environmental Technology Co., Ltd and Pact Asia Pacific Limited in 2005.
As of December 31, 2012, the Company completed the annual impairment test (i.e. comparing the carrying amount of the net assets, including goodwill, with the fair value of the Company as of December 31, 2012). Based on management’s assessment, the Company determined that there was no impairment of goodwill as of December 31, 2012.
|
14
|
Treasury stock
The Company authorised a stock buyback program in July 2009 pursuant to which up to 54,546 shares, but not to exceed US$420,000 in value, of the Company’s ordinary share could be purchased in the open market from time to time as market and business conditions warrant. The Company repurchased a total of 4,843 shares and 7,000 shares of ordinary share during 2009 and 2010 for considerations of approximately US$34,000 and US$55,233, respectively.
The Company authorised a stock buyback program in August 2010 pursuant to which up to 54,546 shares, but not to exceed US$450,000 in value, of the Company’s ordinary share could be purchased in the open market from time to time as market and business conditions warrant. The Company repurchased a total of 6,482 shares of ordinary share during 2010 for considerations of approximately US$49,000. The Company repurchased a total of 16,935 shares of ordinary share during 2011 for considerations of approximately US$94,000. The Company repurchased a total of 8,639 shares of ordinary share during 2012 for considerations of approximately US$33,000.
There was no reissuance of treasury stock during each of the three years ended December 31, 2012.
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EURO TECH HOLDINGS COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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15
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PRC statutory reserves
Under the relevant PRC laws and regulations, the PRC subsidiaries are required to appropriate certain percentage of their respective net income to two statutory funds i.e. the statutory reserve fund and the statutory staff welfare fund. The PRC subsidiaries can also appropriate certain amount of their net income to the enterprise expansion fund.
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(i)
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Statutory reserve fund
Pursuant to applicable PRC laws and regulations, the PRC subsidiaries are required to allocate at least 10% of the companies’ net income to the statutory reserve fund until such fund reaches 50% of the companies’ registered capital. The statutory reserve fund can be utilised upon the approval by the relevant authorities, to offset accumulated losses or to increase registered capital of the companies, provided that such fund be maintained at a minimum of 25% of the companies’ registered capital.
Under the PRC laws and regulations, the Company’s PRC subsidiaries are restricted in their ability to transfer certain of their net assets to the Company in the form of dividend payments, loans or advances. The amounts restricted include paid-in capital and statutory reserves, as determined pursuant to PRC generally accepted accounting principles, totaling US$3,343,000 as at December 31, 2012 (2011:US$3,280,000).
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(ii)
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Statutory staff welfare fund
Pursuant to applicable PRC laws and regulations, the PRC subsidiaries are required to allocate certain amount of the companies’ net income to the staff welfare fund determined by the Company. The staff welfare fund can only be used to provide staff welfare facilities and other collective benefits to the companies’ employees. This fund is non-distributable other than upon liquidation of the PRC subsidiaries.
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(iii)
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Enterprise expansion fund
The expansion fund shall only be used to make up losses, expand the PRC subsidiaries’ production operations, or increase the capital of the subsidiaries. The expansion fund can be utilised upon approval by relevant authorities, to convert into registered capital and issue bonus capital to existing investors, provided that such fund be maintained at a minimum of 25% of the companies’ registered capital.
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EURO TECH HOLDINGS COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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16
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Stock options
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(i)
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2000 Stock Option Plan
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