EURO TECH HOLDINGS COMPANY LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
|
|
|
Additional
paid-in
capital
|
|
Accumulated
other
com-
prehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
January 1, 2014
|
2,229,609
|
123
|
9,533
|
(766
)
|
784
|
315
|
5,883
|
2,005
|
17,877
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(123
)
|
(169
)
|
(292
)
|
Other comprehensive
loss: Foreign exchange translation adjustment
|
-
|
-
|
-
|
-
|
(8
)
|
-
|
-
|
(7
)
|
(15
)
|
Dividend
paid/payable to non-controlling interest
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(42
)
|
(42
)
|
Stock-based
compensation expense
|
-
|
-
|
2
|
-
|
-
|
-
|
-
|
-
|
2
|
Balance as of
December 31, 2014
|
2,229,609
|
123
|
9,535
|
(766
)
|
776
|
315
|
5,760
|
1,787
|
17,530
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(616
)
|
(391
)
|
(1,007
)
|
Purchase 7,314
shares of treasury stock
|
-
|
-
|
-
|
(20
)
|
-
|
-
|
-
|
-
|
(20
)
|
Other comprehensive
loss: Foreign exchange translation adjustment
|
-
|
-
|
-
|
-
|
23
|
-
|
-
|
(86
)
|
(63
)
|
Stock-based
compensation expense
|
-
|
-
|
16
|
-
|
-
|
-
|
-
|
-
|
16
|
Balance as of
December 31, 2015
|
2,229,609
|
123
|
9,551
|
(786
)
|
799
|
315
|
5,144
|
1,310
|
16,456
|
Net
income
|
-
|
-
|
-
|
-
|
-
|
-
|
231
|
(73
)
|
158
|
Other comprehensive
income: Foreign exchange translation adjustment
|
-
|
-
|
-
|
-
|
58
|
-
|
-
|
(54
)
|
4
|
Appropriation of
reserves
|
-
|
-
|
-
|
-
|
-
|
37
|
(37
)
|
-
|
-
|
Balance as of
December 31, 2016
|
2,229,609
|
123
|
9,551
|
(786
)
|
857
|
352
|
5,338
|
1,183
|
16,618
|
The
accompanying notes are an integral part of these consolidated
financial statements.
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
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
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
|
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
|
|
|
|
|
|
|
|
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
|
|
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. (“Blue
Sky”)
|
|
19.7%
*
|
|
The
PRC
|
|
Design,
general contract, equipment manufacturing, installation, testing
and operation management of the treatment of waste gases
emitted
|
|
|
|
|
|
|
|
Zhejiang 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)
|
* The
Group interest in Blue Sky has been counted for as an affiliate
using the equity method as the Group has representation in both the
Board and Executive Committee of Blue Sky, and the ability to
participate in the decision-making process.
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, are included in the consolidated financial
statements, if applicable. All material intercompany balances and
transactions have been eliminated on consolidation.
The
Group identified that a retail shop established in the PRC
qualified as variable interest entities as defined in ASC 810-10.
This retail shop was 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 this
retail shop and, accordingly, consolidated their financial
statements. The Company has a controlling financial interest in
this retail shop 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 shop’s residual returns. Total assets
and liabilities of this consolidated VIE total US$9,179 and
US$1,626, as of December 31, 2015, respectively. This VIE had
ceased operation since October 2016.
(b)
Subsidiaries
and affiliates
A
subsidiary is a company in which the Company, directly or
indirectly, controls more than one half of the voting power; has
the power to appoint or remove the majority of the members of the
board of directors; to cast a majority of votes at the meeting of
the board of directors or to govern the financial and operating
policies of the investee under a statute or agreement among the
shareholders or equity holders.
An
investment 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.
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. 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 expenses include payroll, employee benefits and other
related expenses associated with product development. Research and
development expenses also include third-party development and
programming costs. Such costs included in research and development
expense until the point that technological feasibility is reached.
Once technological feasibility is reached, such costs are
capitalized and amortized to the cost of revenue over the estimated
lives of the products.
Research and
development costs (“R&D” costs) are expensed as
incurred. The R&D costs amounted to approximately US$475,000,
US$852,000 and US$631,000 for the years ended December 31, 2016,
2015 and 2014 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$13,000, US$17,000 and US$44,000 for the years December 31, 2016,
2015 and 2014 respectively and were included in “Selling and
Administrative” expenses
in the Group’s consolidated
statements of income.
EURO
TECH HOLDINGS COMPANY LIMITED
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
Summary
of significant accounting policies (Continued)
The
Group accounts for income and deferred tax under the provision of
FASB ASC Subtopic 740-10, 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
2016, 2015 and 2014.
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.
(g)
Cash
and Cash Equivalents
Cash
and cash equivalents consist of bank deposits with original
maturities of three months or less, all of which are unrestricted
as to withdrawal and uninsured.
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.
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.
EURO
TECH HOLDINGS COMPANY LIMITED
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
Summary
of significant accounting policies (Continued)
(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
|
The
Group has adopted FASB ASC Subtopic 360-10, Property, Plant, and
Equipment, 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 was no
impairment losses recorded during each of the three years ended
December 31, 2016.
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.
EURO
TECH HOLDINGS COMPANY LIMITED
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
Summary
of significant accounting policies (Continued)
Goodwill represents the excess of the purchase price in a business
combination over the fair value of the net tangible and intangible
assets acquired. Under ASC 350, goodwill is not amortized, but
rather is subject to an annual impairment test. Goodwill is tested
for impairment at the reporting unit level by comparing the fair
value of the reporting unit with its carrying value. The Company
performs its annual impairment analysis of goodwill in the fourth
quarter of the year, or more often if there are indicators of
impairment present.
The provisions of ASC 350 require that a two-step impairment test
be performed on goodwill at the level of the reporting units. In
the first step, or Step 1, the Company compares the fair value of
each reporting unit to its carrying value. If the fair value
exceeds the carrying value of the net assets, goodwill is
considered not impaired, and the Company is not required to perform
further testing. If the carrying value of the net assets exceeds
the fair value, then the Company must perform the second step, or
Step 2, of the impairment test in order to determine the implied
fair value of goodwill. To determine the fair value used in Step 1,
the Company uses discounted cash flows. If and when the Company is
required to perform a Step 2 analysis, determining the fair value
of its net assets and its off-balance sheet intangibles would
require it to make judgments that involve the use of significant
estimates and assumptions.
(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.
(p)
Derivative
Instruments and Hedging Activities
ASC
815, "Derivatives and Hedging" ("ASC 815"), as amended, requires
the Company to recognize all derivatives on the balance sheet at
fair value. Derivatives that are not hedges must be adjusted to
fair value through income (loss). If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of
derivatives are either offset against the change in fair value of
the hedged assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the
hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value is immediately recognized in
earnings. The Company uses derivatives to hedge certain cash flow
foreign currency exposures in order to further reduce the Group's
exposure to foreign currency risks.
EURO
TECH HOLDINGS COMPANY LIMITED
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
Summary
of significant accounting policies (Continued)
(q)
Fair
Value Measurement
ASC
820 defines fair value as the price that would be received from
selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
When determining the fair value measurements for assets and
liabilities required or permitted to be recorded at fair value, the
Group considers the principal or most advantageous market in which
it would transact and it considers assumptions that market
participants would use when pricing the asset or
liability.
ASC
820 establishes a fair value hierarchy that requires an entity to
maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. A financial
instrument’s categorization within the fair value hierarchy
is based upon the lowest level of input that is significant to the
fair value measurement. ASC 820 establishes three levels of inputs
that may be used to measure fair value:
Level
1 – Valuations based on unadjusted quoted prices in active
markets for identical assets or liabilities that the Group holds.
An active market for the asset or liability is a market in which
transactions for the asset or liability occur with sufficient
frequency and volume to provide pricing information on an ongoing
basis.
Level
2 – Valuation based on quoted prices in markets that are not
active for which all significant inputs are observable, either
directly or indirectly.
Level
3 – Valuations based on inputs that are unobservable and
significant to the overall fair value measurement.
The
Group adopted ASC 820, Fair Value Measurements and Disclosures, for
all financial assets and liabilities and nonfinancial assets and
liabilities that are recognized or disclosed at fair value in the
consolidated financial statements on a recurring basis (at least
annually).
Financial
instruments include cash, accounts receivable, prepayments and
other receivables, short-term borrowings from banks, accounts
payable and accrued expenses and other payables. The carrying
amounts of cash, accounts receivable, prepayments and other
receivables, short-term loans, accounts payable and accrued
expenses approximate their fair value due to the short term
maturities of these instruments.
The
fair values of current financial assets and liabilities carried at
amortized cost approximate their carrying amounts.
EURO
TECH HOLDINGS COMPANY LIMITED
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
Summary
of significant accounting policies (Continued)
The
Group has adopted FASB ASC Subtopic 220-10, 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.
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.
(t)
Net
income per Ordinary Share
Net
income per ordinary share is computed in accordance with FASB ASC
Subtopic 260-10, 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.
(u)
Stock-based
Compensation
The
Group accounts for stock-based compensation in accordance with ASC
718, "Compensation-Stock Compensation" ("ASC 718"). ASC 718
requires companies to estimate the fair value of equity-based
payment awards on the date of grant using an option-pricing model.
The value of the portion of the award that is ultimately expected
to vest is recognized as an expense over the requisite service
periods in the Company's consolidated statement of
operations.
The Group recognizes compensation expenses for the value of its
awards, based on the straight-line method over the requisite
service period of each of the awards, net of estimated forfeitures.
ASC 718 requires forfeitures to be estimated at the time of grant
and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.
EURO
TECH HOLDINGS COMPANY LIMITED
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
Summary
of significant accounting policies (Continued)
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.
(w)
Related Parties
Related parties
are affiliates of the enterprise; entities for
which investments are accounted for by the equity method by the
enterprise; trusts for the benefit of employees, such as pension
and profit-sharing trusts that are managed by or under the
trusteeship of management; principal owners of the enterprise; its
management; members of the immediate families of principal owners
of the enterprise and its management; and other parties with which
the enterprise 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. Another party also is a
related party if it 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.
The
Company’s segment reporting is prepared in accordance with
FASB ASC Subtopic 280-10, Segment Reporting. 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.
EURO
TECH HOLDINGS COMPANY LIMITED
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
Summary
of significant accounting policies (Continued)
(y)
Recent Accounting
Pronouncements
In May
2014, the FASB issued ASU 2014-09, Revenue from Contracts with
Customers, which provides guidance for revenue recognition. The
standard’s core principle is that a company will recognize
revenue when it transfers promised goods or services to customers
in an amount that reflects the consideration to which the company
expects to be entitled in exchange for those goods or services. In
doing so, companies will need to use more judgment and make more
estimates than under today’s guidance. These may include
identifying performance obligations in the contract, estimating the
amount of variable consideration to include in the transaction
price and allocating the transaction price to each separate
performance obligation. This guidance was deferred by ASU 2015-14,
issued by the FASB in August 2015, and this new accounting guidance
will be effective for the interim and annual period beginning after
December 31, 2019. The Company is currently in the process of
evaluating the impact of adoption of this ASU on the Company's
Consolidated and Combined Financial Statements.
In
April 2015, the FASB issued ASU 2015-03, Simplifying the
Presentation of Debt Issuance Costs, which changes the required
presentation of debt issuance costs from an asset on the balance
sheet to a deduction from the related debt liability. This new
accounting guidance will be effective for interim and annual period
beginning after December 31, 2017. The adoption of this guidance is
not expected to have a material impact on the Company's
Consolidated and Combined Financial Statements.
In
April 2015, the FASB issued ASU 2015-05, Customers' Accounting for
Fees Paid in a Cloud Computing Arrangement, which clarifies the
circumstances under which a cloud computing customer would account
for the arrangement as a license of internal-use software under ASC
350-40. This new accounting guidance will be effective for the
interim and annual period beginning after December 31, 2017. The
adoption of this guidance is not expected to have a material impact
on the Company's Consolidated and Combined Financial
Statements.
EURO
TECH HOLDINGS COMPANY LIMITED
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
Summary
of significant accounting policies (Continued)
(y)
Recent
Accounting Pronouncements (Continued)
In
January 2016, the FASB has issued Accounting Standards Update
(“ASU”) No. 2016-01, Financial Instruments –
Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities. The new guidance is intended to
improve the recognition and measurement of financial instruments.
The new guidance makes targeted improvements to existing U.S. GAAP
by: (1) requiring equity investments (except those accounted for
under the equity method of accounting, or those that result in
consolidation of the investee) to be measured at fair value with
changes in fair value recognized in net income. Requiring public
business entities to use the exit price notion when measuring the
fair value of financial instruments for disclosure purposes; (2)
Requiring separate presentation of financial assets and financial
liabilities by measurement category and form of financial asset
(i.e., securities or loans and receivables) on the balance sheet or
the accompanying notes to the financial statements; (3) Eliminating
the requirement for public business entities to disclose the
method(s) and significant assumptions used to estimate the fair
value that is required to be disclosed for financial instruments
measured at amortized cost on the balance sheet; and. (4) Requiring
a reporting organization to present separately in other
comprehensive income the portion of the total change in the fair
value of a liability resulting from a change in the
instrument-specific credit risk (also referred to as “own
credit”) when the organization has elected to measure the
liability at fair value in accordance with the fair value option
for financial instruments. The new guidance is effective for public
companies for fiscal years beginning after December 15, 2017,
including interim periods within those fiscal years. The Company
does not anticipate that this adoption will have a significant
impact on its financial position, results of operations, or cash
flows.
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842),
which supersedes the existing guidance for lease accounting, Leases
(Topic 840). ASU 2016-02 requires lessees to recognize leases on
their balance sheets, and leaves lessor accounting largely
unchanged. The amendments in this ASU are effective for fiscal
years beginning after December 15, 2018 and interim periods within
those fiscal years. Early application is permitted for all
entities. ASU 2016-02 requires a modified retrospective approach
for all leases existing at, or entered into after, the date of
initial application, with an option to elect to use certain
transition relief. he Company does not anticipate that this
adoption will have a significant impact on its financial position,
results of operations, or cash flows.
In
April 2016, the FASB released ASU 2016-09, Compensation - Stock
Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting. The ASU includes multiple provisions intended
to simplify various aspects of the accounting for share-based
payments. While aimed at reducing the cost and complexity of the
accounting for share-based payments, the amendments are expected to
significantly impact net income, EPS, and the statement of cash
flows. Implementation and administration may present challenges for
companies with significant share-based payment activities. The ASU
is effective for public companies in annual periods beginning after
December 15, 2016, and interim periods within those years. The
Company does not anticipate that this adoption will have a
significant impact on its financial position, results of
operations, or cash flows.
EURO
TECH HOLDINGS COMPANY LIMITED
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
Summary
of significant accounting policies (Continued)
(y)
Recent Accounting
Pronouncements (Continued)
In
April 2016, FASB issued Accounting Standards Update No. 2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying
Performance Obligations and Licensing. The amendments clarify the
following two aspects of Topic 606: (a) identifying performance
obligations; and (b) the licensing implementation guidance. The
amendments do not change the core principle of the guidance in
Topic 606. The effective date and transition requirements for the
amendments are the same as the effective date and transition
requirements in Topic 606. Public entities should apply the
amendments for annual reporting periods beginning after December
15, 2017, including interim reporting periods therein (i.e.,
January 1, 2018, for a calendar year entity). Early application for
public entities is permitted only as of annual reporting periods
beginning after December 15, 2016, including interim reporting
periods within that reporting period. The Company does not
anticipate that this adoption will have a significant impact on its
financial position, results of operations, or cash
flows.
In May
2016, the FASB issued ASU No. 2016-11 Revenue Recognition (Topic
605) and Derivatives and Hedging (Topic 815); Rescission of SEC
Guidance Because of Accounting Standards Updates 2014-09 and
2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF
Meeting, which is rescinding certain SEC Staff Observer comments
that are codified in Topic 605, Revenue Recognition, and Topic 932,
Extractive Activities—Oil and Gas, effective upon adoption of
Topic 606. The Company does not anticipate that this adoption will
have a significant impact on its financial position, results of
operations, or cash flows.
In May
2016, FASB issued ASU No. 2016-12—Revenue from Contracts with
Customers (Topic 606); Narrow-Scope Improvements and Practical
Expedients, which is intended to not change the core principle of
the guidance in Topic 606, but rather affect only the narrow
aspects of Topic 606 by reducing the potential for diversity in
practice at initial application and by reducing the cost and
complexity of applying Topic 606 both at transition and on an
ongoing basis. The Company does not anticipate that this adoption
will have a significant impact on its financial position, results
of operations, or cash flows.
In
August 2016, the FASB issued ASU No. 2016-15, Statement of Cash
Flows (Topic 230): Classification of Certain Cash Receipts and Cash
Payments, to provide guidance on the presentation and
classification of certain cash receipts and cash payments on the
statement of cash flows. The guidance specifically addresses cash
flow issues with the objective of reducing the diversity in
practice. The guidance will be effective for the Company in fiscal
year 2018, but early adoption is permitted. The Company does not
anticipate that this adoption will have a significant impact on its
financial position, results of operations, or cash
flows.
In
October 2016, the FASB issued ASU No. 2016-17, Consolidation (Topic
810): Interest Held through Related Parties That Are under Common
Control, to provide guidance on the evaluation of whether a
reporting entity is the primary beneficiary of a VIE by amending
how a reporting entity, that is a single decision maker of a VIE,
treats indirect interests in that entity held through related
parties that are under common control. The amendments are effective
for public business entities for fiscal years beginning after
December 15, 2016, including interim periods within those fiscal
years. Early adoption is permitted, including adoption in an
interim period. The Company does not anticipate that this adoption
will have a significant impact on its financial position, results
of operations, or cash flows.
EURO
TECH HOLDINGS COMPANY LIMITED
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
Summary
of significant accounting policies (Continued)
(y)
Recent
Accounting Pronouncements (Continued)
In
November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash
Flows: Restricted Cash". The amendments address diversity in
practice that exists in the classification and presentation of
changes in restricted cash on the statement of cash flows. The
amendment is effective for public companies for fiscal years
beginning after December 15, 2017, including interim periods within
those fiscal years. The Company does not anticipate that this
adoption will have a significant impact on its financial position,
results of operations, or cash flows.
The
Company has considered all new accounting pronouncements and has
concluded that there are no new pronouncements that may have a
material impact on results of operations, financial condition, or
cash flows, based on current information.
|
|
|
|
|
|
|
|
|
|
|
|
Exchange (loss),
net
|
(75
)
|
(75
)
|
(12
)
|
Rental
income
|
80
|
84
|
77
|
|
5
|
9
|
65
|
The
Company is exempt from taxation in the British Virgin Islands
(“BVI”).
Euro
Tech (Far East) Limited and Euro Tech (China) Limited provided for
Hong Kong profits tax at a rate of 16.5% in year 2016 (2015 and
2014: 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% (2015 and 2014: 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. As
of December 31, 2016, ETTS had an assessable loss carried forward
of US$746,808 as agreed by the local tax authority to offset its
profit for the forth coming years (2015: US$588,103 and 2014:
US$506,117). Such loss will expire in 5 years.
EURO
TECH HOLDINGS COMPANY LIMITED
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
4
Income
taxes (Continued)
Shanghai Euro Tech
Limited (“SET”), a subsidiary of the Company, provides
for PRC Enterprise Income Tax at a rate of 25% (2015 and 2014:
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. As of December 31, 2016, SET
had an assessable loss carried forward of US$256,664 as agreed by
the local tax authority to offset its profit for the forth coming
years (2015: US$284,173 and 2014: US$390,290). Such loss will
expire in 5 years.
Shanghai Euro Tech
Environmental Engineering Limited (“SETEE”), a
subsidiary of the Company, provides for PRC Enterprise Income Tax
at a rate of 25% (2015 and 2014: 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. As of December 31, 2016, SETEE had an assessable loss
carried forward of US$1,074,609 as agreed by the local tax
authority to offset its profit for the forth coming years (2015:
US$1,363,392 and 2014: US$1,635,072). Such loss will expire in 5
years.
Yixing
Pact Environmental Technology Co. (“Yixing), a subsidiary of
the Company, provides for PRC Enterprise Income Tax at a rate of
25% (2015 and 2014: 25%), after offsetting losses brought forward,
if any, on the basis of its income for financial reporting
purposes, adjusting for income and expense items which are not
assessable or deductible for PRC Enterprise Income Tax purposes. As
of December 31, 2016, Yixing had an assessable loss carried forward
of US$ Nil as agreed by the local tax authority to offset its
profit for the forth coming years (2015: US$994,025). Such loss
will expire in 5 years.
Chongqing Euro Tech
Rizhi Technology Co., Ltd (“CQ”), Rizhi Euro Tech
Instrument (Shaanxi) Co., Ltd (“RZ”) and Guangzhou Euro
Tech Environmental Equipment Co., Ltd (“GZ”) 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. CQ, RZ and GZ had an assessable loss carried
forward of US$124,025, US$60,980 and US$320,545 respectively as
agreed by the local tax authority to offset its profit for the
forth coming years (2015: US$139,068, US$76,029 and US$385,183).
Such loss will expire in 5 years.
VIEs of
the Group provide for PRC Enterprise Income Tax at a rate of 25%
(2015 and 2014: 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$1.2 million at December 31, 2016
(2015: US$1.1 million and 2014: US$2.2 million) 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)
Loss
before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
The PRC and Hong
Kong
|
(640
)
|
(1,904
)
|
(879
)
|
The
provision / (credit) for income taxes consist of:
|
|
|
|
|
|
|
|
Current tax
expenses:
|
|
|
|
The PRC and Hong
Kong
|
212
|
(72
)
|
8
|
Total current
provision / (credit)
|
212
|
(72
)
|
8
|
|
|
|
|
Deferred tax
expenses:
|
|
|
|
The PRC and Hong
Kong
|
16
|
25
|
10
|
Total deferred
provision
|
16
|
25
|
10
|
The
principal reconciling items from income tax computed at the
statutory rates and at the effective income tax rates are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
Computed tax using
respective companies’ statutory tax rates
|
(136
)
|
(177
)
|
(194
)
|
Change in valuation
allowances
|
350
|
455
|
93
|
Under-provision for
income tax in prior years
|
-
|
(69
)
|
-
|
Non-deductible
expenses
|
14
|
(256
)
|
119
|
Total provision /
(credit) for income tax at effective tax rate
|
228
|
(47
)
|
18
|
EURO
TECH HOLDINGS COMPANY LIMITED
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
4
Income
taxes (Continued)
The
components of deferred tax assets are as follows:
|
|
|
|
|
|
|
|
|
Tax
losses
|
838
|
1,159
|
Temporary
differences
|
(2
)
|
1
|
Less: Valuation
allowances
|
(650
)
|
(958
)
|
Net deferred tax
assets
|
186
|
202
|
5
Net
income per ordinary share
The
calculation of the basic and diluted net income per ordinary share
is based on the following data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of ordinary shares for the purposes of basic net income per
share
|
2,061,909
|
2,063,738
|
2,069,223
|
Effect of dilutive
potential ordinary shares:
Stock
options
|
-
|
-
|
-
|
Weighted average
number of ordinary shares for the purposes of diluted net income
per share
|
2,061,909
|
2,063,738
|
2,069,223
|
6
Accounts
receivable, net
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
4,431
|
4,557
|
Less: Allowance for
doubtful debts
|
(38
)
|
(57
)
|
|
4,393
|
4,500
|
The
following is an age analysis of past due account receivables as of
December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
Current
|
1,789
|
2,762
|
30-59 days past
due
|
1,072
|
633
|
60-89 days past
due
|
852
|
635
|
Greater than 90
days
|
680
|
470
|
|
4,393
|
4,500
|
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.
|
|
|
|
|
|
|
|
|
Cost &
estimated earnings in excess of billings
|
343
|
144
|
Deposit
paid
|
70
|
57
|
Prepayment
|
221
|
59
|
Other
receivables
|
156
|
214
|
Other tax
recoverable
|
25
|
26
|
|
815
|
500
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
97
|
131
|
Work in
progress
|
29
|
39
|
Finished
goods
|
218
|
387
|
|
344
|
557
|
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, 2016, and 2015
provision for obsolete and slow moving inventories amounted to
US$53,000 and US$5,000, respectively, which were charged to cost of
revenue in Consolidated Statements of Income.
EURO
TECH HOLDINGS COMPANY LIMITED
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
9
Property,
plant and equipment
|
|
|
|
|
|
|
|
|
Office
premises
|
1,866
|
1,866
|
Leasehold
improvements
|
155
|
157
|
Furniture, fixtures
and office equipment
|
581
|
635
|
Motor
vehicles
|
188
|
155
|
Testing
equipment
|
30
|
30
|
|
2,820
|
2,843
|
|
|
|
Less: Accumulated
depreciation
|
(2,049
)
|
(2,070
)
|
|
771
|
773
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
charge
|
55
|
56
|
88
|
10
Interests
in affiliates
Investments in
affiliates are accounted for using the equity method of
accounting.
The
Company is holding 19.7% equity interests in Zhejiang Tianlan
Environmental Protection Technology Co. Ltd. A company incorporated
in the PRC, with total cost of investment US$5,540,000. Blue Sky
provides a comprehensive service for design, general contract,
equipment manufacturing, installation, testing and operation
management of the treatment of waste gases emitted from various
boilers and industrial furnaces of power plants, steel works and
chemical plants since 2000.
Blue
Sky has recently received approval from the National Equities
Exchange and Quotations (“NEEQ”) to list its shares on
the New Third Board in the People’s Republic of China
(“PRC”) on November 17, 2015.
The
Group interest in Blue Sky has been counted for as an affiliate
using the equity method as the Group has representation in both the
Board and Executive Committee of Blue Sky, and the ability to
participate in the decision-making process.
During
the year, the Group’s equity in Blue Sky was diluted
subsequent to the issuance of new ordinary shares by Blue Sky to
other shareholders. A net profit on deemed disposal of an affiliate
of USD24,000 had been recognized in the consolidated statement of
operations and comprehensive income for that year.
EURO
TECH HOLDINGS COMPANY LIMITED
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
10
Interests
in affiliates (Continued)
A
summary of the financial information of the affiliate, Zhejiang
Tianlan Environmental Protection Technology Co. Ltd, is set forth
below:
|
|
|
Balance
Sheet:
|
|
|
|
|
|
Current
assets
|
46,297
|
57,432
|
|
|
|
Non-current
assets
|
25,847
|
26,587
|
Total
assets
|
72,144
|
84,019
|
|
|
|
Total
liabilities
|
(45,372
)
|
(58,149
)
|
|
|
|
Total
shareholders’ equity
|
26,772
|
25,870
|
|
|
|
Operating
results:
|
|
|
|
|
|
Net
sales
|
43,226
|
66,899
|
|
|
|
Operating
income
|
3,841
|
4,260
|
|
|
|
Net
income
|
3,473
|
3,458
|
EURO
TECH HOLDINGS COMPANY LIMITED
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
10
Interests
in affiliates (Continued)
The
Company is holding 20% equity interests in Zhejiang Jia Huan
Electronic Co. Ltd. (“Jia Huan”), a company
incorporated in the PRC, with total cost of investment
US$2,486,000. Jia Huan provides a comprehensive service for
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:
|
|
|
Balance
Sheet:
|
|
|
|
|
|
|
|
|
Current
assets
|
22,021
|
22,693
|
|
|
|
Non-current
assets
|
4,079
|
4,717
|
Total
assets
|
26,100
|
27,410
|
|
|
|
Total
liabilities
|
(11,694
)
|
(13,627
)
|
|
|
|
Total
shareholders’ equity
|
14,406
|
13,783
|
|
|
|
Operating
results:
|
|
|
|
|
|
Net
sales
|
16,684
|
18,481
|
|
|
|
Operating
income
|
1,586
|
1,316
|
|
|
|
Net
income
|
1,564
|
788
|
11
Other
payables and accrued expenses
Other
payables and accrued expenses mainly represent deposits received
from customers and accruals for operating expenses.
|
|
|
|
|
|
|
|
|
Dividend
payables
|
79
|
84
|
Deposit received
from customer
|
1,113
|
558
|
Rental deposit
received
|
14
|
18
|
Other
payables
|
994
|
764
|
Other tax
payables
|
58
|
202
|
|
2,258
|
1,626
|
EURO
TECH HOLDINGS COMPANY LIMITED
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
During
the years ended December 31, 2016 and 2015, there was no movement
with the Company’s issued ordinary shares and outstanding
shares.
The
Company accounts for acquisitions of subsidiaries in accordance
with FASB ASC Subtopic 805-10, 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, 2016, 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,
2016). Based on management’s assessment, the Company
determined that there was no impairment of goodwill as of December
31, 2016 and 2015.
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 total consideration of approximately
US$94,000. The Company repurchased a total of 8,639 shares of
ordinary share during 2012 for total consideration of approximately
US$33,000
.
The
Company authorised a stock buyback program in January 2015 pursuant
to which up to 60,000 shares, but not to exceed US$150,000 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 7,314 shares of
ordinary share during 2015 for total consideration of approximately
US$20,000.
EURO
TECH HOLDINGS COMPANY LIMITED
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
15
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.
(i)
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$3,520,000 as at
December 31, 2016 (2015:US$3,457,000 and 2014:
US$3,357,000).
(ii)
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.
(iii)
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.
EURO
TECH HOLDINGS COMPANY LIMITED
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
2014
Officers’ Stock Option and Incentive Plan
Effective November
22, 2014, the Company entered into a stock option contract with a
Business Development Manager of Yixing Pact Environmental
Technology Co., Ltd, granting the optionee the right to purchase
20,692 Ordinary Shares, 1% of the Company’s issued and
outstanding shares, at an exercise price of $3.44 per share. The
exercise price was determined by the average closing price of the
Company’s as reported by NASDAQ for a ten day period prior to
the end of the Business Development Manager’s probationary
period on November 22, 2014, the effective date of the stock option
contract. The stock options granted are exercisable three years
after the effective date and terminate five years after the
effective date. In the event of the optionee’s termination,
except for his resignation, the options may be exercisable within
three months of the termination. In the event of optionee’s
death, retirement or disability, he or his legal representative
shall have up to one year to exercise the option.
The
Company estimate the fair value of the options granted under the
Binomial pricing model.
Changes
in outstanding options under various plans mentioned above were as
follows:
|
|
|
|
|
|
Weighted
average
exercise
price
|
|
Weighted
average
exercise
price
|
|
Weighted
average
exercise
price
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of year
|
20,692
|
3.44
|
20,692
|
3.44
|
-
|
-
|
Granted
|
|
|
-
|
-
|
20,692
|
3.44
|
Cancelled/Expired
|
(20,692
)
|
(3.44
)
|
-
|
-
|
-
|
-
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
-
|
Outstanding, end of
year
|
-
|
-
|
20,692
|
3.44
|
20,692
|
3.44
|
|
|
|
|
|
|
|
Exercisable, end of
year
|
-
|
-
|
-
|
-
|
-
|
-
|
As of
December 31, 2016, 2015 and 2014, there was no unrecognised
stock-based compensation expense related to unvested stock
options.
The
Group adopted the provisions of ASC 718-10, which requires us to
recognise expense related to the fair value of our stock-based
compensation awards, including employee stock options.
EURO
TECH HOLDINGS COMPANY LIMITED
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
16
Stock
options (Continued)
The
Binomial option-pricing model is used to estimate the fair value of
the options granted. This requires the input of subjective
assumptions, including the expected volatility of stock price,
expected option term, expected risk-free rate over the expected
option term and expected dividend yield rate over the expected
option term. Because changes in subjective input assumptions can
materially affect the fair value estimate, in directors’
opinion, the existing model may not necessarily provide a
realisable measure of the fair value of the stock options. Expected
volatility is based on historical volatility in the 180 days prior
to the issue of the options. Expected option term and dividend
yield rate are based on historical trends. Expected risk-free rate
is based on US Treasury securities with similar maturities as the
expected terms of the options at the date of grant.
Prior
to December 1, 2000, the Group had only one defined contribution
pension plan for all its Hong Kong employees. Under this plan, all
employees were entitled to pension benefits equal to their own
contributions plus 50% to 100% of individual fund account balances
contributed by the Group, depending on their years of service with
the Group. The Group was required to make specific contributions at
approximately 10% of the basic salaries of the employees to an
independent fund management company.
With
the introduction of the Mandatory Provident Fund Scheme, a defined
contribution scheme managed by an independent trustee on 1st
December, 2000, the Group and its employees who joined the Group
subsequently make monthly contributions to the scheme at 5% of the
employee’s cash income as defined under the Mandatory
Provident Fund legislation. Under the MPF scheme, the employer and
its employees are each required to make contributions to the plan
at 5% of the employees' relevant income, subject to a cap of
monthly relevant income of HK$25,000 or HK$30,000 (effective from 1
June 2015). Contributions to the plan vest
immediately.
As
stipulated by the rules and regulations in the PRC, the Group
contributes to state-sponsored retirement plans for its employees
in Mainland China. The Group contribution range from 14% to 21% of
the basic salaries of its employees, and has no further obligations
for the actual payment of pension or post-retirement benefits
beyond the annual contributions. The state-sponsored retirement
plans are responsible for the entire pension obligations payable to
retired employees.
During
the years ended December 31, 2016, 2015 and 2014, the aggregate
contributions of the Group to the aforementioned pension plans and
retirement benefit schemes were approximately US$314,000,
US$458,000 and US$378,000 respectively.
EURO
TECH HOLDINGS COMPANY LIMITED
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
18
Risk
factor and Derivative Instruments
Financial risk
factors
The
Group’s activities expose it to a variety of financial risks:
foreign exchange rate risk and credit risk.
The
Group has no significant concentration of credit risk. The Group
has policies in place to ensure that sales of products are made to
customers with an appropriate credit history. The Group has
policies that limit the amount of credit exposure to any customers.
Derivative counterparties and cash transactions are limited to high
credit quality banks.
Financial risk
factors (continued)
(ii)
Foreign exchange
risk
The
Group operates in Hong Kong, the PRC and trades with both local and
overseas customers, and is exposed to foreign exchange risk arising
from various currency exposures, primarily with respect to
purchases in, Hong Kong dollar, Renminbi and Euro. Foreign exchange
risk arises from committed and unmatched future commercial
transactions, such as confirmed import purchase orders and sales
orders, recognised assets and liabilities, and net investment in
the PRC operations. The Group uses derivative financial instruments
such as foreign exchange contracts to hedge certain foreign
currency exposures.
The
Group’s prevailing risk management policy is to hedge the net
committed transactions (mainly sales and import purchases) in each
major currency.
The
Company’s policy generally permits the use of derivatives if
they are associated with underlying assets or liabilities,
forecasted transactions, or legally binding rights or obligations.
There were no such derivatives during the years ended December 31,
2016, 2015 and 2014.
19
Related
party transactions
Other
than compensation to directors and stock options available to the
directors, there were no transactions with other related parties in
the years 2016, 2015 and 2014.
EURO
TECH HOLDINGS COMPANY LIMITED
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
20
Commitments
and contingencies
The
Group has various operating lease agreements for office and
industrial premises. Rental expenses for the years ended December
31, 2016, 2015 and 2014 were approximately US$297,000, US$297,000
and US$293,000, respectively. Future minimum rental payments as of
December 31, 2016, under agreements classified as operating leases
with non-cancellable terms amounted to US$341,000 of which
US$225,000 are payable in the year 2017 and US$116,000 are payable
within years 2018 to 2022.
As at
December 31, 2016, 2015 and 2014, the Group had various banking
facilities available for overdraft, import and export credits and
foreign exchange contracts from which the Group can draw up to
approximately US$1,660,000, US$1,660,000 and US$1,660,000
respectively, of which approximately
US$956,000, US$85,000 and US$68,000 was utilised
for issuance of bank guarantees.
(iii)
Non-controlling
interest put option
The
Group granted the non-controlling interest of Yixing Pact
Environmental Technology Co., Ltd and Pact Asia Pacific Limited a
put option, which is effective from 2009, requiring the Group to
acquire part or all remaining shares of these two companies at a
purchase price per share calculated by 5.2 times of their average
net income for the three prior fiscal years divided by total number
of shares outstanding at the time of exercise of such
option.
Shanghai
Euro Tech Environmental Engineering Limited
(“SETEE”)
SETEE
is a plaintiff in a civil action claiming from the defendant for
outstanding debts of approximately of USD 416,000. The litigation
has not been concluded, but having taken legal advice, the
directors are of the opinion that no provision is required to be
made in the consolidated financial statements since based on the
evidence that SETEE has a reasonable chance of recovering the whole
debts.
21
Fair
value of financial instruments
The
carrying values of financial instruments, which consist of cash and
cash equivalents, accounts receivable and accounts payable, bills
receivable, bills payable, other payables and balances with related
companies approximate their fair values due to the short-term
nature of these instruments.
EURO
TECH HOLDINGS COMPANY LIMITED
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(i)
The Group reports
under two segments: Trading and manufacturing, and
Engineering.
Operating income
represents total revenues less operating expenses, excluding other
expense, interest and income taxes. The identifiable assets by
segment are those used in each segment’s operations.
Intersegment transactions are not significant and have been
eliminated to arrive at consolidated totals.
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
Trading and
manufacturing
|
13,721
|
12,256
|
11,647
|
Engineering
|
8,757
|
6,046
|
7,175
|
|
22,478
|
18,302
|
18,822
|
Operating
loss
|
|
|
|
Trading and
manufacturing
|
(346
)
|
(187
)
|
(214
)
|
Engineering
|
(209
)
|
(1,624
)
|
(640
)
|
Unallocated
corporate expenses
|
(115
)
|
(147
)
|
(117
)
|
|
(670
)
|
(1,958
)
|
(971
)
|
|
|
|
|
|
|
|
|
Depreciation:
|
|
|
|
Trading and
manufacturing
|
43
|
46
|
67
|
Engineering
|
12
|
10
|
21
|
|
55
|
56
|
88
|
Capital
Expenditures, Gross
|
|
|
|
Trading and
manufacturing
|
12
|
11
|
2
|
Engineering
|
48
|
10
|
8
|
|
60
|
21
|
10
|
|
|
|
|
|
|
Assets
|
|
|
Trading and
manufacturing
|
5,463
|
5,050
|
Engineering
|
17,641
|
16,220
|
|
23,104
|
21,270
|
Liabilities
|
|
|
Trading and
manufacturing
|
3,208
|
2,468
|
Engineering
|
3,278
|
2,346
|
|
6,486
|
4,814
|
EURO
TECH HOLDINGS COMPANY LIMITED
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
22
Segment
information (Continued)
(ii)
Geographical
analysis of revenue by customer location is as
follows:
|
|
|
|
|
|
|
|
Revenue
-
|
|
|
|
The
PRC
|
10,604
|
9,327
|
10,950
|
Hong
Kong
|
11,687
|
8,726
|
6,177
|
Others
|
187
|
249
|
1,695
|
|
22,478
|
18,302
|
18,822
|
(iii)
Long-lived assets
(1)
Geographical
analysis of long-lived assets is as follows:
|
|
|
|
|
|
|
|
|
Hong
Kong
|
480
|
501
|
The
PRC
|
291
|
272
|
|
771
|
773
|
(1)
Long-lived assets
represent property, plant and equipment, net.
(iv)
Major suppliers
Details
of individual suppliers accounting for more than 5% of the
Group’s purchases are as follows:
|
|
|
|
|
|
|
|
Supplier
A
|
63
%
|
39
%
|
33
%
|
Supplier
B
|
7
%
|
11
%
|
11
%
|
Supplier
C
|
5
%
|
6
%
|
6
%
|
Supplier
D
|
5
%
|
5
%
|
6
%
|
|
|
|
|
EURO
TECH HOLDINGS COMPANY LIMITED
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
22
Segment
information (Continued)
(v)
Major
customers
Details
of individual customers accounting for more than 5% of the
Group’s revenue are as follows:
|
|
|
|
|
|
|
|
Customer
A
|
13
%
|
11
%
|
-
|
Customer
B
|
6
%
|
-
|
-
|
Customer
C
|
6
%
|
-
|
-
|
Customer
D
|
-
|
11
%
|
-
|
Customer
E
|
-
|
6
%
|
-
|
Customer
F
|
-
|
5
%
|
-
|
23
Subsequent events
The
Company has evaluated all events or transactions that occurred
through the date the consolidated financial statements were issued,
and has determined that there were no material recognizable nor
subsequent events or transactions which would require recognition
or disclosure in the consolidated financial
statements.
ZHEJIANG TIANLAN ENVIRONMENTAL PROTECTION
TECHNOLOGY COMPANY LIMITED
INDEX TO FINANCIAL STATEMENTS
Consolidated Financial Statements for the Years Ended December
2016, 2015 and 2014
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
40
|
Consolidated
Balance Sheets As Of December 2016 And 2015
|
41
|
Consolidated
Statements of Income and Comprehensive Income for the Years Ended
December 2016, 2015 and 2014
|
42
|
Consolidated
Statements of Cash Flows for the Years Ended December 2016, 2015
and 2014
|
43
|
Consolidated
Statements of Shareholders’ Equity for the Years Ended
December 2016, 2015 and 2014
|
44
|
Note to
Consolidated Financial Statements
|
45 to
63
|
Report of Independent Registered Public Accounting
Firm
To the Directors and Stockholders of
Zhejiang Tianlan Environmental Protection Technology Company
Limited
We have audited the accompanying consolidated balance sheet of
Zhejiang Tianlan Environmental Protection Technology Company
Limited (the “Company”) and its subsidiaries
(hereinafter collectively referred to as the “Group”)
as of December 31, 2016 and 2015, and the related consolidated
statements of operations and comprehensive income/(loss), changes
in shareholders’ equity and cash flows for the each of the
years ended in the three-years period ended December 31,
2016. These financial statements are the responsibility
of the Company’s management. Our responsibility is
to express an opinion on these financial statements based on our
audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United
States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of the Company's internal control over
financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
balance sheets of the Company and its subsidiaries as of December
31, 2016 and 2015 and the consolidated results of their operations
and their cash flows for each of the years in the three-years
period December 31, 2016, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Centurion ZD CPA Ltd.
Centurion ZD CPA Ltd. (fka
DCAW (CPA) Ltd. as successor to
Dominic K.F. Chan & Co.)
Certified Public Accountants
Hong Kong,
April 26, 2017
ZHEJIANG TIANLAN
ENVIRONMENTAL
PROTECTION TECHNOLOGY
COMPANY
LIMITED
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2016 AND 2015
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
|
33,545
|
35,635
|
Accounts
receivable, net
|
7
|
165,100
|
207,907
|
Prepayments and
other current assets
|
8
|
111,057
|
119,558
|
Other tax
receivables
|
5
|
215
|
5
|
Inventories
|
9
|
13,105
|
12,111
|
|
|
|
|
Total current
assets
|
|
323,022
|
375,216
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net
|
10
|
149,840
|
161,731
|
Intangible asset,
net
|
11
|
1,375
|
1,548
|
Land use right,
net
|
12
|
5,747
|
5,896
|
Deferred tax
assets
|
4
|
5,864
|
4,527
|
Other non-current
asset
|
6
|
17,512
|
-
|
|
|
|
|
|
|
|
|
Total
assets
|
|
503,360
|
548,918
|
|
|
|
|
|
|
|
|
Liabilities and
shareholders’ equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
Short term
borrowings
|
13
|
25,000
|
45,000
|
Accounts
payable
|
|
117,939
|
176,981
|
Other payables and
accrued expenses
|
14
|
51,183
|
40,775
|
Other taxes
payable
|
5
|
7,490
|
8,423
|
Income tax
payable
|
|
3,262
|
994
|
|
|
|
|
Total current
liabilities
|
|
204,874
|
272,173
|
|
|
|
|
Non-Current
liabilities:
|
|
|
|
Long term
borrowings
|
15
|
111,691
|
107,732
|
|
|
|
|
Commitments and
contingencies
|
21
|
-
|
-
|
|
|
|
|
Total
liabilities
|
|
316,565
|
379,905
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
Share
capital
81,372,000
(2015: 80,172,000) shares issued
|
|
81,372
|
80,172
|
Capital
reserve
|
17
|
26,480
|
24,217
|
PRC statutory
reserves
|
16
|
11,636
|
9,094
|
Retained
earnings
|
|
65,394
|
53,928
|
|
|
|
|
Equity attributable
to shareholders of Zhejiang Tianlan Environmental Protection
Technology Company Limited
|
|
184,882
|
167,411
|
Non-controlling
interest
|
|
1,913
|
1,602
|
|
|
|
|
Total
shareholders’ equity
|
|
186,795
|
169,013
|
|
|
|
|
Total liabilities
and shareholders’ equity
|
|
503,360
|
548,918
|
The
accompanying notes are an integral part of these consolidated
financial statements.
ZHEJIANG TIANLAN
ENVIRONMENTAL
PROTECTION TECHNOLOGY
COMPANY
LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME /
(LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
289,086
|
419,275
|
396,424
|
|
|
|
|
Cost of
revenue
|
|
(202,869
)
|
(331,875
)
|
(313,776
)
|
Gross
profit
|
|
86,217
|
87,400
|
82,648
|
|
|
|
|
Selling and
administrative expenses
|
|
(60,528
)
|
(60,702
)
|
(66,343
)
|
Operating
income
|
|
25,689
|
26,698
|
16,305
|
|
|
|
|
Loss on disposal of
a subsidiary
|
|
(35
)
|
-
|
-
|
Interest
income
|
|
70
|
166
|
148
|
Interest
expenses
|
|
(1,577
)
|
(4,710
)
|
(6,272
)
|
Other income,
net
|
3
|
3,456
|
2,773
|
4,595
|
Income before
income taxes
|
|
27,603
|
24,927
|
14,776
|
|
|
|
|
|
Income
taxes
|
4
|
(4,961
)
|
(3,174
)
|
(768
)
|
Net income and
total comprehensive income
|
|
22,642
|
21,753
|
14,008
|
Net (income) / loss
and total comprehensive (income) / loss attributable to
non-controlling interest
|
|
586
|
(82
)
|
(8
)
|
Net income and
total comprehensive income attributable to shareholders of Zhejiang
Tianlan Environmental Protection Technology Company
Limited
|
|
23,228
|
21,671
|
14,000
|
The
accompanying notes are an integral part of these consolidated
financial statements.
ZHEJIANG TIANLAN
ENVIRONMENTAL
PROTECTION TECHNOLOGY
COMPANY
LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
|
|
|
|
|
|
|
|
Cash flows from
operating activities:
|
|
|
|
Net
income
|
22,642
|
21,753
|
14,008
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
Depreciation of
property, plant and equipment
|
14,144
|
8,473
|
2,985
|
Amortisation of
intangible asset
|
575
|
193
|
239
|
Amortisation of
land use right
|
149
|
149
|
149
|
Written off of
motor vehicles
|
-
|
5
|
-
|
Loss on disposal of
property, plant and equipment
|
15
|
-
|
225
|
(Gain) on disposal
of intangible asset
|
-
|
-
|
(150
)
|
Deferred tax
assets
|
(1,337
)
|
(177
)
|
(1,391
)
|
Other non-current
asset
|
(17,512
)
|
-
|
-
|
(Increase) /
decrease in current assets:
|
|
|
|
Accounts
receivable, net
|
42,807
|
(51,299
)
|
(9,481
)
|
Prepayments and
other current assets
|
8,501
|
57,251
|
(19,654
)
|
Other tax
receivables
|
(20
)
|
1,045
|
(1,045
)
|
Inventories
|
(994
)
|
3,943
|
(1,078
)
|
Increase /
(decrease) in current liabilities:
|
|
|
|
Accounts
payable
|
(59,042
)
|
(57
)
|
77,861
|
Other payables and
accrued expenses
|
10,408
|
(72,663
)
|
37,075
|
Other taxes
payable
|
(933
)
|
(479
)
|
1,034
|
Income tax
payable
|
2,268
|
934
|
(449
)
|
|
|
|
|
Net cash provided
by / (used in) operating activities
|
21,481
|
(30,929
)
|
100,328
|
|
|
|
|
Cash flows from
investing activities:
|
|
|
|
|
|
|
|
Purchase of
intangible asset
|
(402
)
|
-
|
-
|
Purchase of
property, plant and equipment
|
(3,368
)
|
(8,285
)
|
(117,966
)
|
Sales proceed from
a subsidiary (note 1)
|
1,000
|
-
|
-
|
Sales proceed form
intangible assets
|
-
|
-
|
420
|
Sales proceed from
property, plant and equipment
|
1,100
|
-
|
923
|
|
|
|
|
Net cash (used in)
investing activities
|
(1,670
)
|
(8,285
)
|
(116,623
)
|
|
|
|
|
Cash flows from
financing activities:
|
|
|
|
|
|
|
|
Proceeds from
issuance of shares
|
3,360
|
-
|
-
|
Repayment of bank
borrowings
|
(70,000
)
|
(174,900
)
|
(104,690
)
|
Advance of short
bank borrowings
|
50,000
|
122,000
|
137,900
|
Dividend paid to
owners
|
(9,220
)
|
(9,180
)
|
(9,180
)
|
Advance of long
term borrowings
|
3,959
|
107,732
|
-
|
|
|
|
|
Net cash (used in)
/ provided by financing activities
|
(21,901
)
|
45,652
|
24,030
|
|
|
|
|
Net (decrease) /
increase in cash and cash equivalents
|
(2,090
)
|
6,438
|
7,735
|
Cash and cash
equivalents, beginning of year
|
35,635
|
29,197
|
21,462
|
|
|
|
|
Cash and cash
equivalents, end of year
|
33,545
|
35,635
|
29,197
|
|
|
|
|
Supplementary
information
|
|
|
|
|
|
|
|
Interest
received
|
70
|
166
|
148
|
Interest
paid
|
1,577
|
6,429
|
6,272
|
Income tax
paid
|
4,245
|
3,310
|
2,263
|
The
accompanying notes are an integral part of these consolidated
financial statements.
ZHEJIANG TIANLAN
ENVIRONMENTAL
PROTECTION TECHNOLOGY
COMPANY
LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as
of
January 1,
2014
|
61,200
|
43,189
|
5,517
|
40,194
|
1,512
|
151,612
|
Net
income
|
-
|
-
|
-
|
14,000
|
8
|
14,008
|
Dividend
paid
|
-
|
-
|
-
|
(9,180
)
|
-
|
(9,180
)
|
Appropriation
of
reserves
|
-
|
-
|
1,304
|
(1,304
)
|
-
|
-
|
|
|
|
|
|
|
|
Balance as
of
December 31,
2014
|
61,200
|
43,189
|
6,821
|
43,710
|
1,520
|
156,440
|
Net
income
|
-
|
-
|
-
|
21,671
|
82
|
21,753
|
Dividend
paid
|
-
|
-
|
-
|
(9,180
)
|
-
|
(9,180
)
|
Appropriation of
reserves
|
-
|
-
|
2,273
|
(2,273
)
|
-
|
-
|
Issue share capital
by transfer from statutory reserves
|
18,972
|
(18,972
)
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Balance as
of
December 31,
2015
|
80,172
|
24,217
|
9,094
|
53,928
|
1,602
|
169,013
|
Net
income
|
-
|
-
|
-
|
23,228
|
(586
)
|
22,642
|
Dividend
paid
|
-
|
-
|
-
|
(9,220
)
|
-
|
(9,220
)
|
Appropriation of
reserves
|
|
|
2,542
|
(2,542
)
|
-
|
-
|
Deemed disposal of
subsidiary
|
-
|
103
|
-
|
-
|
897
|
1,000
|
Issue share
capital
|
1,200
|
2,160
|
-
|
-
|
-
|
3,360
|
Balance as
of
December 31,
2016
|
81,372
|
26,480
|
11,636
|
65,394
|
1,913
|
186,795
|
The
accompanying notes are an integral part of these consolidated
financial statements.
ZHEJIANG TIANLAN
ENVIRONMENTAL
PROTECTION TECHNOLOGY
COMPANY
LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1
Organisation
and principal activities
Zhejiang Tianlan Environmental Protection
Technology Company Limited
(the “Company”) was
incorporated in
Hangzhou City,
Zhejiang Province, the People's Republic of China
(“PRC”) on May 18, 2000. The Company is a limited
company by shares with an operating period up to August 5,
2037.
The
Company provides a comprehensive service for design, general
contract, equipment manufacturing, installation, testing and
operation management of the treatment of waste gases emitted from
various boilers and industrial furnaces of power plants, steel
works and chemical plants since 2000.
The
Company has recently received approval from the National Equities
Exchange and Quotations (“NEEQ”) to list its shares on
the New Third Board in the People’s Republic of China
(“PRC”) on November 17, 2015.
Details
of the Company’s subsidiaries are summarised as
follows:
Name
|
|
Percentage of equity ownership
|
|
Place of incorporation
|
|
Principal activities
|
|
|
2016
|
|
2015
|
|
|
|
|
Zhejiang Tianlan Environmental Engineering and Design Company
Limited
|
|
100%
|
|
100%
|
|
PRC
|
|
Provision of maintenance services of environmental protection
equipment
|
|
|
|
|
|
|
|
|
|
Hangzhou Tianlan Environmental Protection Equipments Company
Limited
|
|
51%
|
|
51%
|
|
PRC
|
|
Manufacturing and installation services of environmental protection
equipment
|
Shihezi Tianlan Environmental Protection Technology Company
Limited
|
|
100%
|
|
100%
|
|
PRC
|
|
Provision of maintenance services of environmental protection
equipment
|
Da Tong Tianlan Environmental Protection Technology Service Company
Limited *
|
|
-%
|
|
100%
|
|
PRC
|
|
Provision of maintenance services of environmental protection
equipment
|
|
|
|
|
|
|
|
|
|
Hangzhou Tianlian
Environmental
Testing
Technology Company Limited
**
|
|
80%
|
|
100%
|
|
PRC
|
|
Provision of testing services of environmental protection
equipment
|
* On
April 19, 2016, the board of director approved the de-registration
of subsidiary. The subsidiary was closed on August 25,
2016.
** The
Company was incorporated on October 28, 2015. On April 17, 2016,
the board of director approved the sales of 1,000,000 ordinary
shares at a price RMB 1.00 per shares, which in the aggregate
amount the gross proceeds of RMB 1,000,000 to the third
parties.
ZHEJIANG TIANLAN
ENVIRONMENTAL
PROTECTION TECHNOLOGY
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
Zhejiang Tianlan Environmental
Protection Technology Company Limited
and its subsidiaries
(the “Group”). In preparing the consolidated financial
statements presented herewith, all significant intercompany
balances and transactions have been eliminated on
consolidation.
A
subsidiary is a company in which the Company, directly or
indirectly, controls more than one half of the voting power; has
the power to appoint or remove the majority of the members of the
board of directors; to cast a majority of votes at the meeting of
the board of directors or to govern the financial and operating
policies of the investee under a statute or agreement among the
shareholders or equity holders.
An
investment 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.
The
Group’s main source of revenue is the construction and
installation services of environmental protection equipment for
flue gas desulphurization, dust removal and flue gas denitration.
Revenues are recorded under the percentage of completion method in
accordance with FASB ASC Subtopic 605-35, Revenue Recognition
— Construction-Type and 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 expenses include payroll, employee benefits and other
related expenses associated with product development. Research and
development expenses also include third-party development and
programming costs. Such costs re included in research and
development expense until the point that technological feasibility
is reached. Once technological feasibility is reached, such costs
are capitalized and amortized to the cost of revenue over the
estimated lives of the products.
Research and
development costs (“R&D” costs) are expensed as
incurred. The R&D costs amounted to approximately
RMB13,808,000, RMB18,895,000 and RMB21,796,000 for the years ended
December 31, 2016, 2015 and 2014 respectively and were included in
“Selling and Administrative” expenses in the
Group’s consolidated statements of income.
ZHEJIANG TIANLAN
ENVIRONMENTAL
PROTECTION TECHNOLOGY
COMPANY
LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(e)
Advertising
and promotional expenses
Advertising and
promotional expenses (“A&P” expenses) are expensed
as incurred. The A&P expenses amounted to approximately
RMB58,000, RMB24,000 and RMB11,000 for the years December 31, 2016,
2015 and 2014 respectively and were included in “Selling and
Administrative” expenses in the Group’s consolidated
statements of income.
The
Group accounts for income and deferred tax under the provision of
FASB ASC Subtopic 740-10, 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
2016, 2015 and 2014.
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.
(g)
Cash
and Cash Equivalents
Cash
and cash equivalents consist of bank deposits with original
maturities of three months or less, all of which are unrestricted
as to withdrawal and uninsured.
(h)
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.
According to
construction contracts signed with the customers, an amount ranged
from 5%-20% of contract sum will only be receivable one year after
the final inspection report issued by relevant department of
Ministry of Environmental Protection. As of December 31, 2016,
accounts receivable in more than one year amounted to RMB46,624,000
(2015: RMB57,623,000).
Inventories are
stated at the lower of cost or market determined using the weighted
average method which approximates cost and estimated net realizable
value. Cost of work in progress and finished goods comprise direct
material, direct production costs and an allocated portion of
production overhead costs based on normal operating
capacity.
ZHEJIANG TIANLAN
ENVIRONMENTAL
PROTECTION TECHNOLOGY
COMPANY
LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
Summary
of significant accounting policies - Continued
(j)
Property,
Plant and Equipment and Land Use Right
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.
Land in the PRC is owned by the PRC government. The government in
the PRC, according to PRC Law, may sell the right to use the land
for a specific period for time. Thus, all of the Company’s
land purchases in the PRC are considered to be leasehold land and
classified as land use right.
Depreciation of
property, plant and equipment and amortization of land use right
are computed using the straight-line method over the assets’
estimated useful lives as follows:
Land use
right
|
|
Over terms of the
leases
|
Office
premises
|
|
47-50 years, with
5% residual value
|
Leasehold
improvements
|
|
over terms of the
leases or the useful lives whichever is less, with 5% residual
value
|
Plant and
machineries
|
|
5 to 10 years, with
5% residual value
|
Furniture, fixtures
and office
equipment
|
|
3 to 5 years, with
5% residual value
|
Motor
vehicles
|
|
1 to 8 years, with
5% residual value
|
The
Company amortizes its intangible assets with definite lives over
their estimated useful lives and reviews these assets for
impairment. The Company is currently amortizing its acquired
intangible assets with definite lives over periods generally
ranging between five to twenty years.
The
Group has adopted FASB ASC Subtopic 360-10, Property, Plant, and
Equipment, 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, 2016.
ZHEJIANG TIANLAN
ENVIRONMENTAL
PROTECTION TECHNOLOGY
COMPANY
LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
Summary
of significant accounting policies - Continued
(m)
Government
grant income
Government grant
income consisted of receipt of funds to subsidize the investment
cost of information technology system development and market
development in China. No present or future obligation arises from
the receipt of such amount.
Government grants
are recognized in the consolidated balance sheet initially when
there is reasonable assurance that they will be received and that
the Group will comply with the conditions attaching to them. Grants
that compensate the Group for expenses incurred are recognized as
income in consolidated statement of operations on a systematic
basis in the same periods in which the expenses are incurred.
Grants that compensate the Group for the cost of an asset are
deducted from the carrying amount of the asset and consequently are
effectively recognized in consolidated statement of operations over
the useful life of the asset by way of reduced depreciation
expenses.
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.
The
Group has adopted FASB ASC Subtopic 220-10, 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, in the consolidated statement
of changes in shareholders’ equity.
Paid
in capital refers to the registered capital paid up by the
shareholders of the Company.
On
December 17, 2015, the Company increased the number of registered
shares by 18,972,000 shares. The paid up capital were increased by
RMB 18,972,000 transferred from the capital reserves, which is
agreed by the shareholders and the board of directors.
At
the year end of December 31, 2015, there were 80,172,000 shares
were issued.
On
June 2, 2016, the Company increased the number of paid up shares by
1,200,000 at a price RMB 2.80 per shares, which in the aggregative
amount the gross proceeds of RMB 3,360,000 to the existing
shareholders.
At
the year end of December 31, 2016, there were 81,372,000 shares
were issued.
ZHEJIANG TIANLAN
ENVIRONMENTAL
PROTECTION TECHNOLOGY
COMPANY
LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
Summary
of significant accounting policies - Continued
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 Group may
undertake in the future, actual results may be different from the
estimates.
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.
(s)
Fair
Value Measurement
ASC
820 defines fair value as the price that would be received from
selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
When determining the fair value measurements for assets and
liabilities required or permitted to be recorded at fair value, the
Group considers the principal or most advantageous market in which
it would transact and it considers assumptions that market
participants would use when pricing the asset or
liability.
ASC
820 establishes a fair value hierarchy that requires an entity to
maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. A financial
instrument’s categorization within the fair value hierarchy
is based upon the lowest level of input that is significant to the
fair value measurement. ASC 820 establishes three levels of inputs
that may be used to measure fair value:
ZHEJIANG TIANLAN
ENVIRONMENTAL
PROTECTION TECHNOLOGY
COMPANY
LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
Summary
of significant accounting policies - Continued
(s)
Fair
Value Measurement - Continued
Level
1 – Valuations based on unadjusted quoted prices in active
markets for identical assets or liabilities that the Group holds.
An active market for the asset or liability is a market in which
transactions for the asset or liability occur with sufficient
frequency and volume to provide pricing information on an ongoing
basis.
Level
2 – Valuation based on quoted prices in markets that are not
active for which all significant inputs are observable, either
directly or indirectly.
Level
3 – Valuations based on inputs that are unobservable and
significant to the overall fair value measurement.
The
Group adopted ASC 820, Fair Value Measurements and Disclosures, for
all financial assets and liabilities and nonfinancial assets and
liabilities that are recognized or disclosed at fair value in the
consolidated financial statements on a recurring basis (at least
annually).
Financial
instruments include cash, accounts receivable, prepayments and
other receivables, short-term borrowings from banks, accounts
payable and accrued expenses and other payables. The carrying
amounts of cash, accounts receivable, prepayments and other
receivables, short-term loans, accounts payable and accrued
expenses approximate their fair value due to the short term
maturities of these instruments.
The
fair values of current financial assets and liabilities carried at
amortized cost approximate their carrying amounts.
(t)
Recent Accounting
Pronouncements
In May
2014, the FASB issued ASU 2014-09, Revenue from Contracts with
Customers, which provides guidance for revenue recognition. The
standard’s core principle is that a company will recognize
revenue when it transfers promised goods or services to customers
in an amount that reflects the consideration to which the company
expects to be entitled in exchange for those goods or services. In
doing so, companies will need to use more judgment and make more
estimates than under today’s guidance. These may include
identifying performance obligations in the contract, estimating the
amount of variable consideration to include in the transaction
price and allocating the transaction price to each separate
performance obligation. This guidance was deferred by ASU 2015-14,
issued by the FASB in August 2015, and this new accounting guidance
will be effective for the interim and annual period beginning after
December 31, 2019. The Company is currently in the process of
evaluating the impact of adoption of this ASU on the Company's
Consolidated and Combined Financial Statements.
In
April 2015, the FASB issued ASU 2015-03, Simplifying the
Presentation of Debt Issuance Costs, which changes the required
presentation of debt issuance costs from an asset on the balance
sheet to a deduction from the related debt liability. This new
accounting guidance will be effective for interim and annual period
beginning after December 31, 2017. The adoption of this guidance is
not expected to have a material impact on the Company's
Consolidated and Combined Financial Statements.
ZHEJIANG TIANLAN
ENVIRONMENTAL
PROTECTION TECHNOLOGY
COMPANY
LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
Summary
of significant accounting policies - Continued
(t)
Recent Accounting
Pronouncements - Continued
In
April 2015, the FASB issued ASU 2015-05, Customers' Accounting for
Fees Paid in a Cloud Computing Arrangement, which clarifies the
circumstances under which a cloud computing customer would account
for the arrangement as a license of internal-use software under ASC
350-40. This new accounting guidance will be effective for the
interim and annual period beginning after December 31, 2017. The
adoption of this guidance is not expected to have a material impact
on the Company's Consolidated and Combined Financial
Statement
In
January 2016, the FASB has issued Accounting Standards Update
(“ASU”) No. 2016-01, Financial Instruments –
Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities. The new guidance is intended to
improve the recognition and measurement of financial instruments.
The new guidance makes targeted improvements to existing U.S. GAAP
by: (1) requiring equity investments (except those accounted for
under the equity method of accounting, or those that result in
consolidation of the investee) to be measured at fair value with
changes in fair value recognized in net income. Requiring public
business entities to use the exit price notion when measuring the
fair value of financial instruments for disclosure purposes; (2)
Requiring separate presentation of financial assets and financial
liabilities by measurement category and form of financial asset
(i.e., securities or loans and receivables) on the balance sheet or
the accompanying notes to the financial statements; (3) Eliminating
the requirement for public business entities to disclose the
method(s) and significant assumptions used to estimate the fair
value that is required to be disclosed for financial instruments
measured at amortized cost on the balance sheet; and. (4) Requiring
a reporting organization to present separately in other
comprehensive income the portion of the total change in the fair
value of a liability resulting from a change in the
instrument-specific credit risk (also referred to as “own
credit”) when the organization has elected to measure the
liability at fair value in accordance with the fair value option
for financial instruments. The new guidance is effective for public
companies for fiscal years beginning after December 15, 2017,
including interim periods within those fiscal years. The Company
does not anticipate that this adoption will have a significant
impact on its financial position, results of operations, or cash
flows.
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842),
which supersedes the existing guidance for lease accounting, Leases
(Topic 840). ASU 2016-02 requires lessees to recognize leases on
their balance sheets, and leaves lessor accounting largely
unchanged. The amendments in this ASU are effective for fiscal
years beginning after December 15, 2018 and interim periods within
those fiscal years. Early application is permitted for all
entities. ASU 2016-02 requires a modified retrospective approach
for all leases existing at, or entered into after, the date of
initial application, with an option to elect to use certain
transition relief. he Company does not anticipate that this
adoption will have a significant impact on its financial position,
results of operations, or cash flows.
ZHEJIANG TIANLAN
ENVIRONMENTAL
PROTECTION TECHNOLOGY
COMPANY
LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
Summary
of significant accounting policies - Continued
(t)
Recent
Accounting Pronouncements – Continued
In
April 2016, the FASB released ASU 2016-09, Compensation - Stock
Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting. The ASU includes multiple provisions intended
to simplify various aspects of the accounting for share-based
payments. While aimed at reducing the cost and complexity of the
accounting for share-based payments, the amendments are expected to
significantly impact net income, EPS, and the statement of cash
flows. Implementation and administration may present challenges for
companies with significant share-based payment activities. The ASU
is effective for public companies in annual periods beginning after
December 15, 2016, and interim periods within those years. The
Company does not anticipate that this adoption will have a
significant impact on its financial position, results of
operations, or cash flows.
In
April 2016, FASB issued Accounting Standards Update No. 2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying
Performance Obligations and Licensing. The amendments clarify the
following two aspects of Topic 606: (a) identifying performance
obligations; and (b) the licensing implementation guidance. The
amendments do not change the core principle of the guidance in
Topic 606. The effective date and transition requirements for the
amendments are the same as the effective date and transition
requirements in Topic 606. Public entities should apply the
amendments for annual reporting periods beginning after December
15, 2017, including interim reporting periods therein (i.e.,
January 1, 2018, for a calendar year entity). Early application for
public entities is permitted only as of annual reporting periods
beginning after December 15, 2016, including interim reporting
periods within that reporting period. The Company does not
anticipate that this adoption will have a significant impact on its
financial position, results of operations, or cash
flows.
In May
2016, the FASB issued ASU No. 2016-11 Revenue Recognition (Topic
605) and Derivatives and Hedging (Topic 815); Rescission of SEC
Guidance Because of Accounting Standards Updates 2014-09 and
2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF
Meeting, which is rescinding certain SEC Staff Observer comments
that are codified in Topic 605, Revenue Recognition, and Topic 932,
Extractive Activities—Oil and Gas, effective upon adoption of
Topic 606. The Company does not anticipate that this adoption will
have a significant impact on its financial position, results of
operations, or cash flows.
In May
2016, FASB issued ASU No. 2016-12—Revenue from Contracts with
Customers (Topic 606); Narrow-Scope Improvements and Practical
Expedients, which is intended to not change the core principle of
the guidance in Topic 606, but rather affect only the narrow
aspects of Topic 606 by reducing the potential for diversity in
practice at initial application and by reducing the cost and
complexity of applying Topic 606 both at transition and on an
ongoing basis. The Company does not anticipate that this adoption
will have a significant impact on its financial position, results
of operations, or cash flows.
ZHEJIANG TIANLAN
ENVIRONMENTAL
PROTECTION TECHNOLOGY
COMPANY
LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
Summary
of significant accounting policies - Continued
(t)
Recent
Accounting Pronouncements – Continued
In
August 2016, the FASB issued ASU No. 2016-15, Statement of Cash
Flows (Topic 230): Classification of Certain Cash Receipts and Cash
Payments, to provide guidance on the presentation and
classification of certain cash receipts and cash payments on the
statement of cash flows. The guidance specifically addresses cash
flow issues with the objective of reducing the diversity in
practice. The guidance will be effective for the Company in fiscal
year 2018, but early adoption is permitted. The Company does not
anticipate that this adoption will have a significant impact on its
financial position, results of operations, or cash
flows.
In
October 2016, the FASB issued ASU No. 2016-17, Consolidation (Topic
810): Interest Held through Related Parties That Are under Common
Control, to provide guidance on the evaluation of whether a
reporting entity is the primary beneficiary of a VIE by amending
how a reporting entity, that is a single decision maker of a VIE,
treats indirect interests in that entity held through related
parties that are under common control. The amendments are effective
for public business entities for fiscal years beginning after
December 15, 2016, including interim periods within those fiscal
years. Early adoption is permitted, including adoption in an
interim period. The Company does not anticipate that this adoption
will have a significant impact on its financial position, results
of operations, or cash flows.
In
November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash
Flows: Restricted Cash". The amendments address diversity in
practice that exists in the classification and presentation of
changes in restricted cash on the statement of cash flows. The
amendment is effective for public companies for fiscal years
beginning after December 15, 2017, including interim periods within
those fiscal years. The Company does not anticipate that this
adoption will have a significant impact on its financial position,
results of operations, or cash flows.
The
Company has considered all new accounting pronouncements and has
concluded that there are no new pronouncements that may have a
material impact on results of operations, financial condition, or
cash flows, based on current information.
|
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal of
intangible asset
|
-
|
-
|
150
|
(Loss) / Gain on
disposal of property, plant and equipment
|
(15
)
|
-
|
7
|
Subsidy
income
|
3,360
|
2,617
|
4,163
|
Sales of scrapped
materials
|
3
|
6
|
6
|
Investment
income
|
412
|
-
|
-
|
Others
|
(304
)
|
150
|
269
|
|
|
|
|
|
3,456
|
2,773
|
4,595
|
ZHEJIANG TIANLAN
ENVIRONMENTAL
PROTECTION TECHNOLOGY
COMPANY
LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
According to
relevant PRC tax laws and regulations, entities incorporated in the
PRC are subject to Enterprise Income Tax (“EIT”) at a
statutory rate of 25% or reduced national EIT rates of 15% for
certain High and New Technology Enterprises (“HNTE”) on
PRC taxable income.
Zhejiang Tianlan
Environmental Protection Technology Company Limited
and
Hangzhou Tianlan Environmental Protection Equipment Company Limited
are classified as HNTE which enjoyed a preferential tax rate of
15%.
During
the year ended December 31, 2016 and 2015, the PRC tax laws and
regulations have launched a tax reduction scheme for small
enterprises, Hangzhou Tianlan Environmental Engineering and Design
Company Limited, Shihezi Tianlan Environmental Protection
Technology Company Limited, Da Tong Tianlan Environmental
Protection Technology Service Company Limited and Hangzhou Tianlan
Environmental Testing Technology Company Limited are entitled to
enjoy this tax benefit. It, thus, subjects to Enterprise Income Tax
rate of
10%
only.
The
provision for income taxes consists of:
|
|
|
|
|
|
|
|
Current PRC
EIT:
|
|
|
|
Domestic
|
6,298
|
3,351
|
2,159
|
|
|
|
|
Income
taxes
|
6,298
|
3,351
|
2,159
|
|
|
|
|
|
|
|
|
Deferred tax
benefit:
|
(1,337
)
|
(177
)
|
(1,391
)
|
|
|
|
|
Total deferred
taxes
|
(1,337
)
|
(177
)
|
(1,391
)
|
The
principal reconciling items from income tax computed at the
statutory rates and at the effective income tax rates are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
Income before
income taxes
|
27,603
|
24,927
|
14,776
|
|
|
|
|
Computed tax using
respective companies’ statutory tax rates
|
4,078
|
3,767
|
2,216
|
(Over)-provision
for income tax in prior years
|
57
|
-
|
(2,418
)
|
Permanent
difference
|
(82
)
|
-
|
-
|
Temporary
differences
|
(1,337
)
|
(177
)
|
1,575
|
Tax effect of
revenue not subject to tax
|
(901
)
|
(1,068
)
|
(695
)
|
Tax effect of
expenses not deductible for tax purposes
|
2,732
|
596
|
90
|
Tax effect of
unused tax losses not recognized
|
414
|
56
|
-
|
|
|
|
|
Total provision for
income tax at effective tax rate
|
4,961
|
3,174
|
768
|
ZHEJIANG TIANLAN
ENVIRONMENTAL
PROTECTION TECHNOLOGY
COMPANY
LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4
Income
taxes - Continued
The
components of deferred tax assets are as follows:
|
|
|
|
|
|
|
|
|
Tax
losses
|
-
|
-
|
Allowance for
doubtful debts
|
5,864
|
4,527
|
|
|
|
Net deferred tax
assets
|
5,864
|
4,527
|
Other
taxes payable comprises mainly Valued-Added Tax (“VAT”)
and Business Tax (“BT”). The Group is subject to output
VAT levied at the rate of 17% or 11% of the revenue from sales of
equipment. The input VAT paid on purchases of materials and other
direct inputs can be used to offset the output VAT levied on
operating revenue to determine the net VAT payable or recoverable.
BT is charged at a rate of 5% and 3% on the revenue from technique
services and installation services respectively.
6
Other
non-current assets
Other
non-current assets represent deposits for sales and lease back
agreement amounted to approximately to RMB17,512,000 (2015: RMB
Nil).
7
Accounts
receivable, net
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
204,166
|
238,325
|
Less: Allowance for
doubtful debts
|
(39,066
)
|
(30,418
)
|
|
|
|
|
165,100
|
207,907
|
The
following is an age analysis of past due account receivables as of
December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
Within 1
year
|
118,476
|
150,345
|
1 year – 2
years
|
31,340
|
44,393
|
2 years – 3
years
|
9,387
|
8,588
|
3 years – 4
years
|
4,593
|
3,881
|
4 years – 5
years
|
240
|
700
|
Greater than 5
years
|
1,064
|
-
|
|
|
|
|
165,100
|
207,907
|
|
|
|
ZHEJIANG TIANLAN
ENVIRONMENTAL
PROTECTION TECHNOLOGY
COMPANY
LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7
Accounts
receivable, net (Continued)
At
December 31, 2016, the trade receivables pledged as security for
the Company’s bank loans and third party’s loans
amounted to approximately RMB25,474,000 (2015:
RMB27,566,000).
8
Prepayments
and other current assets
Prepayment and
other current assets mainly represent deposits for bidding
projects, deposits for purchases and services and prepaid
expenses.
|
|
|
|
|
|
|
|
|
Cost and estimated
earnings in excess of billing
|
70,786
|
97,640
|
Prepayment
|
24,100
|
13,828
|
Other
receivables
|
14,851
|
8,090
|
Other current
assets
|
1,320
|
-
|
|
|
|
|
111,057
|
119,558
|
The
other current assets also include cost of estimated earnings in
excess of billing.
Cost
and estimated earnings in excess of billings
|
|
|
|
|
|
|
|
|
Contracts costs
incurred plus estimated earnings
|
389,534
|
160,634
|
Less: Progress
billings
|
(318,748
)
|
(62,994
)
|
|
|
|
Cost and estimated
earnings in excess of billings
|
70,786
|
97,640
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
5,606
|
6,586
|
Work in
progress
|
7,269
|
5,525
|
Finished
goods
|
230
|
-
|
|
|
|
|
13,105
|
12,111
|
ZHEJIANG TIANLAN
ENVIRONMENTAL
PROTECTION TECHNOLOGY
COMPANY
LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10
Property,
plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
Building and
leasehold improvements
|
56,665
|
56,696
|
Furniture, fixtures
and office equipment
|
9,660
|
9,919
|
Motor
vehicles
|
4,451
|
3,780
|
Plant and
machineries
|
115,349
|
114,617
|
Construction in
progress
|
211
|
-
|
|
|
|
|
186,336
|
185,012
|
|
|
|
Less: Accumulated
depreciation
|
(36,496
)
|
(23,281
)
|
|
|
|
|
149,840
|
161,731
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
charge
|
14,144
|
8,473
|
2,985
|
At
December 31, 2016, the net book value of property, plant and
equipment pledged as security for the Company’s bank loans
and third party’s loans amounted to approximately
RMB109,041,000 (2015: RMB120,830,000).
ZHEJIANG TIANLAN
ENVIRONMENTAL
PROTECTION TECHNOLOGY
COMPANY
LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
11
Intangible
assets, net
|
|
|
|
|
|
|
|
|
Patents
|
2,400
|
2,400
|
Others
|
567
|
165
|
|
|
|
|
2,967
|
2,565
|
|
|
|
Less: Accumulated
amortisation
|
(1,592
)
|
(1,017
)
|
|
|
|
|
1,375
|
1,548
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortisation
expense
|
575
|
193
|
239
|
The
following table represents the total estimated amortization of
intangible assets for the five succeeding fiscal years to December
31, 2016:
For
the Twelve Months Ending December 31,
|
Estimated
Amortization Expenses
|
|
|
|
|
2017
|
172
|
2018
|
172
|
2019
|
172
|
2020
|
172
|
2021
|
172
|
Thereafter
|
515
|
|
|
|
1,375
|
ZHEJIANG TIANLAN
ENVIRONMENTAL
PROTECTION TECHNOLOGY
COMPANY
LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
Land use
right
|
7,361
|
7,361
|
Less: Accumulated
amortisation
|
(1,614
)
|
(1,465
)
|
|
|
|
|
5,747
|
5,896
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortisation
expense
|
149
|
149
|
149
|
|
|
|
|
At
December 31, 2016, the land use right pledged as security for the
Company’s bank loans and third party’s loans amounted
to approximately RMB1,691,000 (2015: RMB1,737,000).
|
|
|
|
|
|
|
|
|
Bank loan borrowed
by the Company (note i)
|
20,000
|
40,000
|
Bank loan borrowed
by a subsidiary of the Company
(note
ii)
|
5,000
|
5,000
|
|
|
|
|
25,000
|
45,000
|
(i)
The bank loan is
denominated in Renminbi and repayable within 1 year. The bank loan
borrowed by the Company as of December 31, 2016 bear interest at
fixed rates 4.57% (2015: 4.62% to 6.47%) per annum. Interest paid
during the year ended December 31, 2016 was approximately
RMB1,221,000 (2015: RMB3,768,000 and 2014:
RMB4,688,000).
(ii)
The bank loan is
denominated in Renminbi and repayable within 1 year. The bank loan
borrowed by a subsidiary of the Company as of December 31, 2016
bear interest at fixed rates 5.22% (2015: 7.28%) per annum and are
secured by the subsidiary’s office premises and leasehold
improvements and land use right. Interest paid during the year
ended December 31, 2016 was approximately RMB154,000 (2015:
RMB369,000 and 2014: Nil).
ZHEJIANG TIANLAN
ENVIRONMENTAL
PROTECTION TECHNOLOGY
COMPANY
LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14
Other
payables and accrued expenses
|
|
|
|
|
|
|
|
|
Deposit received
from customers
|
35,225
|
26,749
|
Accrued
expenses
|
10,116
|
12,104
|
Other
payables
|
1,227
|
1,118
|
Deferred
income
|
4,610
|
799
|
Amount due to a
related company
|
5
|
5
|
|
|
|
|
51,183
|
40,775
|
|
|
|
|
|
|
|
|
|
Loan borrowed by
the Company
|
111,691
|
170,732
|
(i)
On May 15, 2015,
the Company signed a sales and lease back agreement with lessor A
with total principal of RMB 66,700,000 and repayable within 5
years. The third party loan is denominated in Renminbi. The third
party loan borrowed by the Company as of December 31, 2016 is bear
interest at fixed rates 5.27% (2015: 5.27%) per annum
and is secured by the Company’s
machinery A. Interest paid during the year ended December 31, 2016
was approximately RMB2,011,000 (2015: RMB1,719,000 and 2014: Nil)
and was incurred in “Cost of revenue” in the
Group’s consolidated statements of income.
(ii)
On December 9,
2015, the Company signed a sales and lease back agreement with
lessor B with total principal of RMB 87,560,000 and repayable
within 5 years. The third party loan is denominated in Renminbi.
The third party loan borrowed by the Company as of December 31,
2016 is bear interest at fixed rates 4.83% (2015: 4.83%) per
annum
and are secured by
the Company’s machinery B and the franchise, income and
account receivables generated from Machinery B. A. Interest paid
during the year ended December 31, 2016 was approximately
RMB3,192,000 (2015: Nil and 2014: Nil) and was incurred in
“Cost of revenue” in the Group’s consolidated
statements of income.
ZHEJIANG TIANLAN
ENVIRONMENTAL
PROTECTION TECHNOLOGY
COMPANY
LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
16
PRC
statutory reserves
Under
the relevant PRC laws and regulations, the Group is required to
appropriate certain percentage of their respective net income to
two statutory funds, namely the statutory reserve fund and the
statutory staff welfare fund.
(i)
Statutory reserve
fund
Pursuant to
applicable PRC laws and regulations, the Group is 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.
(ii)
Statutory staff
welfare fund
Pursuant to
applicable PRC laws and regulations, the Group is 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
Group.
17
Capital reserve
Capital
reserve represents capital contributions from shareholders in
excess of the paid-in capital amount.
As
stipulated by the rules and regulations in the PRC, the Group
contributes to state-sponsored retirement plans for its employees
in Mainland China. The Group contributes approximately ranging from
12% to 14%
of the basic
salaries of its employees, and has no further obligations for the
actual payment of pension or post-retirement benefits beyond the
annual contributions. The state-sponsored retirement plans are
responsible for the entire pension obligations payable to retired
employees.
During
the years ended December 31, 2016, 2015 and 2014, the aggregate
contributions of the Group to the aforementioned pension plans and
retirement benefit schemes were approximately RMB3,905,000,
RMB3,850,000 and RMB3,027,000 respectively.
The
Group’s activities expose itself mainly to credit
risk.
The
Group has no significant concentration of credit risk. The Group
has policies in place to ensure that sales of products are made to
customers with an appropriate credit history. The Group has
policies that limit the amount of credit exposure to any
customers.
ZHEJIANG TIANLAN
ENVIRONMENTAL
PROTECTION TECHNOLOGY
COMPANY
LIMITED
NOTES TO THE CONSOLDIATED FINANCIAL STATEMENTS
Amounts due from / (to) owners
There
were no transactions with related parties in the years 2016 and
2015 other than those disclosed in elsewhere in the financial
statements.
21
Commitments
and contingencies
The
Group has no rental expense during the year ended December 31, 2016
(2015 and 2014: RMB Nil). As of December 31, 2016, the Group has no
future minimum lease payments under non-cancellable operating
leases are payable in the year 2016.
The
Company is not currently a party to any legal proceeding,
investigation or claim which, in the opinion of the management, is
likely to have a material adverse effect on the business,
financial
On
December 22, 2016, the board of director approved the issuance and
allotment of 1,200,000 ordinary shares at a price RMB 6.00 per
shares, which in the aggregative amount the gross proceeds of RMB
7,200,000 to the existing shareholders. The shares were transferred
on New Third Board at March 31, 2017. The share allotment was no
material effect to the consolidated financial statement of the
Company as at December 31, 2016.
On
April 19, 2017, the Company reached an agreement to acquire 35%
share of a PRC company, the acquisition price is RMB 1 and the
Company is requested to invest RMB10,500,000 to the
associate.
The
Company has evaluated all events or transactions that occurred
through the date the consolidated financial statements were issued,
and has determined that there were no material recognizable nor
subsequent events or transactions which would require recognition
or disclosure in the consolidated financial
statements.
ZHEJIANG JIAHUAN ELECTRONIC COMPANY LIMITED
INDEX TO FINANCIAL STATEMENTS
Consolidated Financial Statements for the Years Ended December
2016, 2015 and 2014
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
65
|
Consolidated
Balance Sheets as at December 2016 And 2015
|
66
|
Consolidated
Statements of Income and Comprehensive Income / (Loss) for the
Years Ended December 2016, 2015 and 2014
|
67
|
Consolidated
Statements of Cash Flows for the Years Ended December 2016, 2015
and 2014
|
68
|
Consolidated
Statements of Shareholders’ Equity for the Years Ended
December 2016, 2015 and 2014
|
69
|
Note to
Consolidated Financial Statements
|
70 to
84
|
Report of Independent Registered Public Accounting
Firm
To the Directors and Stockholders of
Zhejiang Jiahuan Electronic Company Limited
We have audited the accompanying consolidated balance sheet of
Zhejiang Jiahuan Electronic Company Limited (the
“Company”) and its subsidiaries (hereinafter
collectively referred to as the “Group”) as of December
31, 2016 and 2015, and the related consolidated statements of
operations and comprehensive income / (loss), changes in
shareholders’ equity and cash flows for each of the years in
the three-years period ended December 31, 2016. These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United
States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of the Company's internal control over
financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
balance sheet of the Company and its subsidiaries as of December
31, 2016 and 2015 and the consolidated results of their operations
and their cash flows for each of the years in the three-years
period ended December 31, 2016, in conformity with accounting
principles generally accepted in the United States of
America.
/s/ Centurion ZD CPA Ltd.
Centurion ZD CPA Ltd. (fka
DCAW (CPA) Ltd. as successor to
Dominic K.F. Chan & Co.)
Certified Public Accountants
Hong Kong, April 26, 2017
ZHEJIANG JIAHUAN ELECTRONIC COMPANY LIMITED
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2016 AND 2015
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
|
6,595
|
7,303
|
Restricted
cash
|
|
1,498
|
1,490
|
Accounts
receivable, net
|
5
|
91,037
|
99,832
|
Notes
receivables
|
|
11,064
|
700
|
Other
receivables
|
6
|
15,442
|
17,472
|
Inventories
|
8
|
28,005
|
21,463
|
|
|
|
|
Total current
assets
|
|
153,641
|
148,260
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net
|
9
|
21,861
|
23,788
|
Land use right,
net
|
10
|
6,288
|
6,451
|
Intangible asset,
net
|
11
|
242
|
508
|
Long term
investment
|
7
|
69
|
69
|
|
|
|
|
Total
assets
|
|
182,101
|
179,076
|
|
|
|
|
|
|
|
|
Liabilities and
shareholders’ equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
Short term bank
loans
|
13
|
28,200
|
39,400
|
Note
payable
|
|
4,750
|
3,595
|
Accounts
payable
|
|
27,595
|
27,130
|
Other payables and
accrued expenses
|
12
|
13,911
|
10,223
|
Income tax
payable
|
|
1,466
|
2,892
|
|
|
|
|
Total current
liabilities
|
|
75,922
|
83,240
|
|
|
|
|
Other long term
liabilities
|
15
|
5,671
|
5,790
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
Share
capital
80,000,000 (2015:
11,250,000) shares issued
|
|
80,000
|
11,250
|
Capital
reserves
|
|
(1,399
)
|
8,542
|
PRC statutory
reserves
|
16
|
3,095
|
20,931
|
Retained
earnings
|
|
18,812
|
49,323
|
|
|
|
|
Total
shareholders’ equity
|
|
100,508
|
90,046
|
|
|
|
|
Total liabilities
and shareholders’ equity
|
|
182,101
|
179,076
|
The
accompanying notes are an integral part of these consolidated
financial statements.
ZHEJIANG JIAHUAN ELECTRONIC COMPANY LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
111,585
|
115,515
|
99,908
|
|
|
|
|
Cost of
revenue
|
|
(65,304
)
|
(76,473
)
|
(72,490
)
|
Gross
profit
|
|
46,281
|
39,042
|
27,418
|
|
|
|
|
Selling and
administrative expenses
|
|
(35,671
)
|
(30,792
)
|
(21,090
)
|
Operating
income
|
|
10,610
|
8,250
|
6,328
|
Non-operating
income
|
|
922
|
-
|
-
|
Non-operating
expense
|
|
(1,518
)
|
-
|
-
|
Interest
expenses
|
|
(2,752
)
|
(3,861
)
|
(2,209
)
|
Other income,
net
|
3
|
4,592
|
1,408
|
1,075
|
Other expenses,
net
|
|
(5
)
|
-
|
-
|
Income before
income taxes
|
|
11,849
|
5,797
|
5,194
|
|
|
|
|
|
Income
taxes
|
4
|
(1,387
)
|
(861
)
|
(484
)
|
Net income and
total comprehensive income
|
|
10,462
|
4,936
|
4,710
|
The
accompanying notes are an integral part of these consolidated
financial statements.
ZHEJIANG JIAHUAN ELECTRONIC COMPANY LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
|
|
|
|
|
|
|
|
Cash flows from
operating activities:
|
|
|
|
Net
income
|
10,462
|
4,936
|
4,710
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
Depreciation of
property, plant and equipment
|
2,211
|
2,296
|
2,408
|
Loss on sale of
property, plant and equipment
|
147
|
|
|
Written off of
property, plant and equipment
|
-
|
32
|
-
|
Amortisation of
intangible asset
|
266
|
83
|
-
|
Amortisation of
land use right
|
163
|
163
|
163
|
Other
gains
|
-
|
(282
)
|
-
|
|
|
|
|
(Increase) /
decrease in current assets:
|
|
|
|
Accounts
receivable, net
|
8,795
|
(25,939
)
|
(6,448
)
|
Restricted
cash
|
(8
)
|
(21
)
|
-
|
Note
receivables
|
(10,364
)
|
5,004
|
(322
)
|
Other
receivables
|
2,030
|
(3,072
)
|
(6,074
)
|
Inventories
|
(6,542
)
|
10,786
|
5,909
|
Increase /
(decrease) in current liabilities:
|
|
|
|
Accounts
payable
|
465
|
2,269
|
1,767
|
Note
payable
|
1,155
|
3,595
|
-
|
Other payables and
accrued expenses
|
3,688
|
(3,145
)
|
2,131
|
Income tax
payable
|
(1,426
)
|
1,121
|
405
|
Other long-term
liability
|
(119
)
|
(133
)
|
(73
)
|
|
|
|
|
Net cash provided
by / (used in) operating activities
|
10,923
|
(2,307
)
|
4,576
|
|
|
|
|
Cash flows from
investing activities:
|
|
|
|
Purchase of
intangible asset
|
-
|
(591
)
|
-
|
Purchase of
property, plant and equipment
|
(613
)
|
(258
)
|
(664
)
|
Proceeds from
property, plant and equipment
|
182
|
-
|
-
|
|
|
|
|
Net cash (used in)
investing activities
|
(431
)
|
(849
)
|
(664
)
|
|
|
|
|
Cash flows from
financing activities:
|
|
|
|
Repayment of bank
borrowings
|
(39,400
)
|
(50,400
)
|
(50,300
)
|
Advance of bank
borrowings
|
28,200
|
63,200
|
50,100
|
(Decrease) /
Increase in amount due to shareholders
|
-
|
(5,470
)
|
(3,200
)
|
Dividend paid to
owners
|
-
|
-
|
(2,250
)
|
|
|
|
|
Net cash (used in)
/ provided by financing activities
|
(11,200
)
|
7,330
|
(5,650
)
|
|
|
|
|
Net (decrease) /
increase in cash and cash equivalents
|
(708
)
|
4,174
|
(1,738
)
|
Cash and cash
equivalents, beginning of year
|
7,303
|
3,129
|
4,867
|
|
|
|
|
Cash and cash
equivalents, end of year
|
6,595
|
7,303
|
3,129
|
Supplementary
information
|
|
|
|
|
|
|
|
Interest
received
|
54
|
44
|
17
|
Interest
paid
|
(2,752
)
|
(3,861
)
|
(2,209
)
|
Income tax
paid
|
(2,813
)
|
-
|
(79
)
|
Income tax
refund
|
-
|
260
|
-
|
The
accompanying notes are an integral part of these consolidated
financial statements.
ZHEJIANG JIAHUAN ELECTRONIC COMPANY LIMITED
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as
of
January 1,
2014
|
11,250
|
8,542
|
20,931
|
41,927
|
283
|
82,933
|
Net income and
total comprehensive income
|
-
|
-
|
-
|
4,710
|
-
|
4,710
|
Dividend
paid
|
-
|
-
|
-
|
(2,250
)
|
-
|
(2,250
)
|
Balance as
of
December 31,
2014
|
11,250
|
8,542
|
20,931
|
44,387
|
283
|
85,393
|
Net income and
total comprehensive income
|
-
|
-
|
-
|
4,936
|
-
|
4,936
|
Disposal of
Non-controlling interest
|
-
|
-
|
-
|
-
|
(283
)
|
(283
)
|
Balance as
of
December 31,
2015
|
11,250
|
8,542
|
20,931
|
49,323
|
-
|
90,046
|
Issued
share
|
27,777
|
(9,941
)
|
(17,836
)
|
-
|
-
|
-
|
Net income and
total comprehensive income
|
-
|
-
|
-
|
10,462
|
-
|
10,462
|
Dividend
paid
|
40,973
|
-
|
-
|
(40,973
)
|
-
|
-
|
Balance as
of
December 31,
2016
|
80,000
|
(1,399
)
|
3,095
|
18,812
|
-
|
100,508
|
The
accompanying notes are an integral part of these consolidated
financial statements.
ZHEJIANG JIAHUAN ELECTRONIC COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1
Organisation
and principal activities
Zhejiang Jiahuan Electronic Company Limited
(the “Company”) was established in the People’s
Republic of China (“PRC”) as a limited liability
company. The principal activities of the Company are design,
manufacturing and sales of automatic control systems and electric
voltage control equipment for electrostatic precipitators (air
purification equipment).
Details
of the Company’s subsidiaries are summarised as
follows:
Name
|
|
Percentage of equity ownership
|
|
Place of incorporation
|
|
Principal activities
|
|
|
2016
|
|
2015
|
|
|
|
|
Jinhua Jiahuan Puzhau New Energy Technology Co., Ltd*
|
|
-
|
|
-
|
|
PRC
|
|
Dormant
|
|
|
|
|
|
|
|
|
|
Zhejiang Jiahuan Xinyu Environmental Production Co.,
Ltd
|
|
100%
|
|
100%
|
|
PRC
|
|
Manufacturing and installation services of environmental production
equipment
|
*The
Company has been deregistered on September 1, 2015.
2
Summary
of significant accounting policies
(a)
Basis
of Consolidation
The
consolidated financial statements include the accounts of
Zhejiang Jiahuan Electronic Company
Limited
and its subsidiaries (the “Group”). In
preparing the consolidated financial statements presented herewith,
all significant intercompany balances and transactions have been
eliminated on consolidation.
A
subsidiary is a company in which the Company, directly or
indirectly, controls more than one half of the voting power; has
the power to appoint or remove the majority of the members of the
board of directors; to cast a majority of votes at the meeting of
the board of directors or to govern the financial and operating
policies of the investee under a statute or agreement among the
shareholders or equity holders
An
investment 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.
Revenue
from sale of automatic control systems, electric voltage control
equipment, environmental equipment, and solar and wind power
equipment is recognized when the product is delivered and the title
is transferred. For certain products where installation is
necessary, revenue is recognized upon completion of
installation.
ZHEJIANG JIAHUAN ELECTRONIC COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
Summary
of significant accounting policies
(d)
Research
and Development Costs
Research and
development expenses include payroll, employee benefits and other
related expenses associated with product development. Research and
development expenses also include third-party development and
programming costs. Such costs re included in research and
development expense until the point that technological feasibility
is reached. Once technological feasibility is reached, such costs
are capitalized and amortized to the cost of revenue over the
estimated lives of the products.
Research and
development costs (“R&D” costs) are expensed as
incurred. The R&D costs amounted to approximately RMB8,814,000,
RMB6,982,000 and RMB4,981,000 for the years ended December 31,
2016, 2015 and 2014 respectively and were included in
“Selling and Administrative” expenses in the
Group’s consolidated statements of income.
The
Group accounts for income and deferred tax under the provision of
FASB ASC Subtopic 740-10, 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
2016, 2015 and 2014.
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.
(f)
Cash
and Cash Equivalents
Cash
and cash equivalents include cash on hand and demand deposits with
banks.
Investments
comprise marketable securities which are classified as
available-for-sale securities and are carried at fair value with
unrealized gains and losses, et of taxes, reported as a separate
component of shareholders’ equity (deficit). The Company
determines any realized gains or losses on the sale of marketable
securities on a specific identification method, and records such
gains and losses as a component of other income (expense), net in
the consolidated statement of income.
ZHEJIANG JIAHUAN ELECTRONIC COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
Summary
of significant accounting policies – Continued
(h)
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.
Inventories are
stated at the lower of cost or market determined using the
first-in, first-out method. Costs included 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. Provision is made for obsolete, slow moving or defective
items, where appropriate.
(j)
Property,
Plant and Equipment and Land Use Right
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.
Land in
the PRC is owned by the PRC government. The government in the PRC,
according to PRC Law, may sell the right to use the land for a
specific period for time. Thus, all of the Company’s land
purchases in the PRC are considered to be leasehold land and
classified as land use right.
Construction in
progress is stated at cost less impairment losses. Cost comprises
direct costs of construction as well as borrowing costs capitalized
during the periods of construction and installation. Capitalisation
of these costs creases and the construction in progress is
transferred to the appropriate class of property, plant and
equipment when substantially all the activities necessary to
prepare the assets for their intended use are completed. No
depreciation is provided for in respect of construction in progress
until it is completed and read for its intended use.
Depreciation of
property, plant and equipment and amortization of land use right
are computed using the straight-line method over the assets’
estimated useful lives as follows:
Land use
right
|
|
50
years
|
Buildings
|
|
20
years
|
Plant and
machinery
|
|
5
to 20 years
|
Office
equipment
|
|
3
to 10 years
|
Motor
vehicles
|
|
5
to 10 years
|
The
Company amortizes its intangible assets with definite lives over
their estimated useful lives and reviews these assets for
impairment. The Company is currently amortizing its acquired
intangible assets with definite lives over periods generally
ranging between five to twenty years.
ZHEJIANG JIAHUAN ELECTRONIC COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
Summary
of significant accounting policies – Continued
The
Group has adopted FASB ASC Subtopic 360-10, Property, Plant, and
Equipment, 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, 2016, December 31, 2015 and December 31,
2014.
The
Group has adopted FASB ASC Subtopic 220-10, 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, in the consolidated statement
of changes in shareholders’ equity.
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 Group may
undertake in the future, actual results may be different from the
estimates.
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.
ZHEJIANG JIAHUAN ELECTRONIC COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
Summary
of significant accounting policies – Continued
(p)
Recent
Issue Accounting Standard
In May
2014, the FASB issued ASU 2014-09, Revenue from Contracts with
Customers, which provides guidance for revenue recognition. The
standard’s core principle is that a company will recognize
revenue when it transfers promised goods or services to customers
in an amount that reflects the consideration to which the company
expects to be entitled in exchange for those goods or services. In
doing so, companies will need to use more judgment and make more
estimates than under today’s guidance. These may include
identifying performance obligations in the contract, estimating the
amount of variable consideration to include in the transaction
price and allocating the transaction price to each separate
performance obligation. This guidance was deferred by ASU 2015-14,
issued by the FASB in August 2015, and this new accounting guidance
will be effective for the interim and annual period beginning after
December 31, 2019. The Company is currently in the process of
evaluating the impact of adoption of this ASU on the Company's
Consolidated and Combined Financial Statements.
In
April 2015, the FASB issued ASU 2015-03, Simplifying the
Presentation of Debt Issuance Costs, which changes the required
presentation of debt issuance costs from an asset on the balance
sheet to a deduction from the related debt liability. This new
accounting guidance will be effective for interim and annual period
beginning after December 31, 2017. The adoption of this guidance is
not expected to have a material impact on the Company's
Consolidated and Combined Financial Statements.
In
April 2015, the FASB issued ASU 2015-05, Customers' Accounting for
Fees Paid in a Cloud Computing Arrangement, which clarifies the
circumstances under which a cloud computing customer would account
for the arrangement as a license of internal-use software under ASC
350-40. This new accounting guidance will be effective for the
interim and annual period beginning after December 31, 2017. The
adoption of this guidance is not expected to have a material impact
on the Company's Consolidated and Combined Financial
Statements.
ZHEJIANG JIAHUAN ELECTRONIC COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
Summary
of significant accounting policies - Continued
(p)
Recent
Issue Accounting Standard - continued
In
January 2016, the FASB has issued Accounting Standards Update
(“ASU”) No. 2016-01, Financial Instruments –
Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities. The new guidance is intended to
improve the recognition and measurement of financial instruments.
The new guidance makes targeted improvements to existing U.S. GAAP
by: (1) requiring equity investments (except those accounted for
under the equity method of accounting, or those that result in
consolidation of the investee) to be measured at fair value with
changes in fair value recognized in net income. Requiring public
business entities to use the exit price notion when measuring the
fair value of financial instruments for disclosure purposes; (2)
Requiring separate presentation of financial assets and financial
liabilities by measurement category and form of financial asset
(i.e., securities or loans and receivables) on the balance sheet or
the accompanying notes to the financial statements; (3) Eliminating
the requirement for public business entities to disclose the
method(s) and significant assumptions used to estimate the fair
value that is required to be disclosed for financial instruments
measured at amortized cost on the balance sheet; and. (4) Requiring
a reporting organization to present separately in other
comprehensive income the portion of the total change in the fair
value of a liability resulting from a change in the
instrument-specific credit risk (also referred to as “own
credit”) when the organization has elected to measure the
liability at fair value in accordance with the fair value option
for financial instruments. The new guidance is effective for public
companies for fiscal years beginning after December 15, 2017,
including interim periods within those fiscal years. The Company
does not anticipate that this adoption will have a significant
impact on its financial position, results of operations, or cash
flows.
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842),
which supersedes the existing guidance for lease accounting, Leases
(Topic 840). ASU 2016-02 requires lessees to recognize leases on
their balance sheets, and leaves lessor accounting largely
unchanged. The amendments in this ASU are effective for fiscal
years beginning after December 15, 2018 and interim periods within
those fiscal years. Early application is permitted for all
entities. ASU 2016-02 requires a modified retrospective approach
for all leases existing at, or entered into after, the date of
initial application, with an option to elect to use certain
transition relief. he Company does not anticipate that this
adoption will have a significant impact on its financial position,
results of operations, or cash flows.
In
April 2016, the FASB released ASU 2016-09, Compensation - Stock
Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting. The ASU includes multiple provisions intended
to simplify various aspects of the accounting for share-based
payments. While aimed at reducing the cost and complexity of the
accounting for share-based payments, the amendments are expected to
significantly impact net income, EPS, and the statement of cash
flows. Implementation and administration may present challenges for
companies with significant share-based payment activities. The ASU
is effective for public companies in annual periods beginning after
December 15, 2016, and interim periods within those years. The
Company does not anticipate that this adoption will have a
significant impact on its financial position, results of
operations, or cash flows.
ZHEJIANG JIAHUAN ELECTRONIC COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
Summary
of significant accounting policies - Continued
(p)
Recent
Issue Accounting Standard - continued
In
April 2016, FASB issued Accounting Standards Update No. 2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying
Performance Obligations and Licensing. The amendments clarify the
following two aspects of Topic 606: (a) identifying performance
obligations; and (b) the licensing implementation guidance. The
amendments do not change the core principle of the guidance in
Topic 606. The effective date and transition requirements for the
amendments are the same as the effective date and transition
requirements in Topic 606. Public entities should apply the
amendments for annual reporting periods beginning after December
15, 2017, including interim reporting periods therein (i.e.,
January 1, 2018, for a calendar year entity). Early application for
public entities is permitted only as of annual reporting periods
beginning after December 15, 2016, including interim reporting
periods within that reporting period. The Company does not
anticipate that this adoption will have a significant impact on its
financial position, results of operations, or cash
flows.
In May
2016, the FASB issued ASU No. 2016-11 Revenue Recognition (Topic
605) and Derivatives and Hedging (Topic 815); Rescission of SEC
Guidance Because of Accounting Standards Updates 2014-09 and
2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF
Meeting, which is rescinding certain SEC Staff Observer comments
that are codified in Topic 605, Revenue Recognition, and Topic 932,
Extractive Activities—Oil and Gas, effective upon adoption of
Topic 606. The Company does not anticipate that this adoption will
have a significant impact on its financial position, results of
operations, or cash flows.
In May
2016, FASB issued ASU No. 2016-12—Revenue from Contracts with
Customers (Topic 606); Narrow-Scope Improvements and Practical
Expedients, which is intended to not change the core principle of
the guidance in Topic 606, but rather affect only the narrow
aspects of Topic 606 by reducing the potential for diversity in
practice at initial application and by reducing the cost and
complexity of applying Topic 606 both at transition and on an
ongoing basis. The Company does not anticipate that this adoption
will have a significant impact on its financial position, results
of operations, or cash flows.
In
August 2016, the FASB issued ASU No. 2016-15, Statement of Cash
Flows (Topic 230): Classification of Certain Cash Receipts and Cash
Payments, to provide guidance on the presentation and
classification of certain cash receipts and cash payments on the
statement of cash flows. The guidance specifically addresses cash
flow issues with the objective of reducing the diversity in
practice. The guidance will be effective for the Company in fiscal
year 2018, but early adoption is permitted. The Company does not
anticipate that this adoption will have a significant impact on its
financial position, results of operations, or cash
flows.
In
October 2016, the FASB issued ASU No. 2016-17, Consolidation (Topic
810): Interest Held through Related Parties That Are under Common
Control, to provide guidance on the evaluation of whether a
reporting entity is the primary beneficiary of a VIE by amending
how a reporting entity, that is a single decision maker of a VIE,
treats indirect interests in that entity held through related
parties that are under common control. The amendments are effective
for public business entities for fiscal years beginning after
December 15, 2016, including interim periods within those fiscal
years. Early adoption is permitted, including adoption in an
interim period. The Company does not anticipate that this adoption
will have a significant impact on its financial position, results
of operations, or cash flows.
ZHEJIANG JIAHUAN ELECTRONIC COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2
Summary
of significant accounting policies - Continued
(p)
Recent
Issue Accounting Standard - continued
In
November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash
Flows: Restricted Cash". The amendments address diversity in
practice that exists in the classification and presentation of
changes in restricted cash on the statement of cash flows. The
amendment is effective for public companies for fiscal years
beginning after December 15, 2017, including interim periods within
those fiscal years. The Company does not anticipate that this
adoption will have a significant impact on its financial position,
results of operations, or cash flows.
The
Company has considered all new accounting pronouncements and has
concluded that there are no new pronouncements that may have a
material impact on results of operations, financial condition, or
cash flows, based on current information.
(q)
Fair
Value Measurement
ASC
820 defines fair value as the price that would be received from
selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
When determining the fair value measurements for assets and
liabilities required or permitted to be recorded at fair value, the
Group considers the principal or most advantageous market in which
it would transact and it considers assumptions that market
participants would use when pricing the asset or
liability.
ASC
820 establishes a fair value hierarchy that requires an entity to
maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. A financial
instrument’s categorization within the fair value hierarchy
is based upon the lowest level of input that is significant to the
fair value measurement. ASC 820 establishes three levels of inputs
that may be used to measure fair value:
Level
1 – Valuations based on unadjusted quoted prices in active
markets for identical assets or liabilities that the Group holds.
An active market for the asset or liability is a market in which
transactions for the asset or liability occur with sufficient
frequency and volume to provide pricing information on an ongoing
basis.
Level
2 – Valuation based on quoted prices in markets that are not
active for which all significant inputs are observable, either
directly or indirectly.
Level
3 – Valuations based on inputs that are unobservable and
significant to the overall fair value measurement.
The
Group adopted ASC 820, Fair Value Measurements and Disclosures, for
all financial assets and liabilities and nonfinancial assets and
liabilities that are recognized or disclosed at fair value in the
consolidated financial statements on a recurring basis (at least
annually).
Financial
instruments include cash, accounts receivable, prepayments and
other receivables, short-term borrowings from banks, accounts
payable and accrued expenses and other payables. The carrying
amounts of cash, accounts receivable, prepayments and other
receivables, short-term loans, accounts payable and accrued
expenses approximate their fair value due to the short term
maturities of these instruments.
The
fair values of current financial assets and liabilities carried at
amortized cost approximate their carrying amounts.
ZHEJIANG JIAHUAN ELECTRONIC COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
Government
grant
|
3,115
|
200
|
73
|
Rental income
(i)
|
1,271
|
901
|
850
|
Interest
income
|
54
|
44
|
17
|
Sundry
income
|
152
|
263
|
135
|
|
|
|
|
|
4,592
|
1,408
|
1,075
|
(i)
Rental income under
operating leases is recognized on a straight-line basis over the
term of the relevant lease.
According to
relevant PRC tax laws and regulations, entities incorporated in the
PRC are subject to Enterprise Income Tax (“EIT”) at a
statutory rate of 25% or reduced national EIT rates for certain
High and New Technology Enterprises (“HNTE”) on PRC
taxable income.
Zhejiang Jiahuan
Electronic Company Limited
is classified as HNTE which
enjoyed a preferential tax rate of 15%.
The
provision for income taxes consists of:
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
1,387
|
861
|
484
|
ZHEJIANG JIAHUAN ELECTRONIC COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4
Income
taxes (continued)
The
principal reconciling items from income tax computed at the
statutory rates and at the effective income tax rates are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
Income before
income taxes
|
11,849
|
5,797
|
5,194
|
|
|
|
|
Computed tax using
respective companies’ statutory tax rates
|
2,326
|
1,119
|
1,299
|
Tax effect on
revenue not subject to tax
|
(930
)
|
(447
)
|
(537
)
|
(Over) / under
provision for income tax in prior years
|
(9
)
|
189
|
(278
)
|
|
|
|
|
Total provision for
income tax at effective tax rate
|
1,387
|
861
|
484
|
No
deferred tax assets or liabilities has been recognized in the
financial statements as the Company did not have material temporary
differences arising between the tax bases of assets and liabilities
and their carrying amounts as at 31 December, 2016, and
2015.
5
Accounts
receivable, net
|
|
|
|
|
|
|
|
|
Accounts
receivable, gross
|
91,069
|
99,864
|
Less: Allowance for
doubtful debts
|
(32
)
|
(32
)
|
Accounts
receivable, net
|
|
|
|
91,037
|
99,832
|
|
|
|
|
2016
|
2015
|
|
|
|
Allowance for
doubtful debts:
|
|
|
Balance at
beginning
|
(32
)
|
(131
)
|
Charged to
statement of income
|
|
|
Recovered
|
-
|
99
|
Balance at
end
|
|
|
|
(32
)
|
(32
)
|
ZHEJIANG JIAHUAN ELECTRONIC COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6
Prepayments
and other current assets
Prepayment and
other current assets mainly represent deposits for bidding
projects, deposits for purchases and services and prepaid
expenses.
|
|
|
|
|
|
|
|
|
Prepayments and
other receivables
|
11,994
|
13,039
|
Deposits
|
3,448
|
4,433
|
|
|
|
|
15,442
|
17,472
|
|
|
|
|
|
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term
investment:
|
|
|
|
|
Unlisted
investment
|
69
|
-
|
-
|
69
|
|
|
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term
investment:
|
|
|
|
|
Unlisted
investment
|
69
|
-
|
-
|
69
|
The
balance of investments has their market values close to their book
balance.
|
|
|
|
|
|
|
|
|
Raw
materials
|
6,529
|
5,603
|
Work in
progress
|
11,264
|
7,840
|
Finished
goods
|
10,212
|
8,020
|
|
|
|
|
28,005
|
21,463
|
ZHEJIANG JIAHUAN ELECTRONIC COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
9
Property,
plant and equipment
|
|
|
|
|
|
|
|
|
Buildings
|
34,724
|
34,493
|
Plant and
machinery
|
7,014
|
7,011
|
Office
equipment
|
1,206
|
1,148
|
Motor
vehicles
|
467
|
979
|
|
|
|
|
43,411
|
43,631
|
|
|
|
Less: Accumulated
depreciation
|
(21,550
)
|
(19,843
)
|
|
|
|
|
21,861
|
23,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
charge
|
1,707
|
2,296
|
2,408
|
Buildings with
carrying amount of approximately RMB34,724,000 and RMB34,493,000 as
of December 31, 2016 and 2015 respectively were pledged, along with
the land use right as discussed below, to secure the
Company’s short-term bank loans.
|
|
|
|
|
|
|
|
|
Land use
right
|
7,987
|
7,987
|
Less: Accumulated
amortisation
|
(1,699
)
|
(1,536
)
|
|
|
|
|
6,288
|
6,451
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortisation
expense
|
163
|
163
|
163
|
Land
use right with a carrying amount of approximately RMB6,288,000 and
RMB6,451,000 as of December 31, 2016 and 2015 was pledged, along
with the buildings discussed above, to secure the Company’s
short-term bank loans.
ZHEJIANG JIAHUAN ELECTRONIC COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
Software
|
591
|
591
|
|
|
|
|
591
|
591
|
|
|
|
Less: Accumulated
depreciation
|
(349
)
|
(83
)
|
|
|
|
|
242
|
508
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
expenses
|
266
|
83
|
-
|
12
Other
payables and accrued expenses
|
|
|
|
|
|
|
|
|
Deposit received
from customers
|
10,979
|
8,768
|
Accrued
expenses
|
2,795
|
1,210
|
Other
payables
|
137
|
245
|
|
|
|
|
13,911
|
10,223
|
The
short term loans as of December 31, 2016 bear interest at fixed
rates ranging from 4.568% to 6.630% per annum with maturity dates
from January 11, 2016 to August 6, 2016 and are secured by the
Company’s buildings and land use right. Interest paid during
the years ended December 31, 2016 and 2015 were approximately
RMB2,752,000 and RMB3,861,000 respectively.
14
Dividends
to shareholders
In the
fiscal year ended December 31, 2016 the Company declared dividend
of RMB40,973,000 to the shareholders for increase share capital.
(2015: RMBNil)
15
Other
long term liabilities
Other
long term liabilities represent accrued staff benefits and
subsidies received from the government in relation to an agreement
to meet certain profit and turnover targets until the balance can
be recognised as reserves of the Group. As the targets are yet to
be met, the balance remained in other long term
liabilities.
ZHEJIANG JIAHUAN ELECTRONIC COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
16
PRC
statutory reserves
Under
the relevant PRC laws and regulations, the Group is required to
appropriate certain percentage of their respective net income to
two statutory funds, namely the statutory reserve fund and the
statutory staff welfare fund.
(i)
Statutory reserve
fund
Pursuant to
applicable PRC laws and regulations, the Group is 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.
(ii)
Statutory staff
welfare fund
Pursuant to
applicable PRC laws and regulations, the Group is 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
Group.
As
stipulated by the rules and regulations in the PRC, the Group
contributes to the state-sponsored retirement plans for its
employees in Mainland China. The Group contributes approximately
26% of the basic salaries of its employees, and has no further
obligations for the actual payment of pension or post-retirement
benefits beyond the annual contributions. The state-sponsored
retirement plans are responsible for the entire pension obligations
payable to retired employees.
During
the year ended December 31, 2016 and 2015, the aggregate
contributions of the Group to the aforementioned pension plans and
retirement benefit schemes were approximately RMB1,799,000 and
RMB1,594,000 respectively.
18
Commitments
and contingencies
The
Group has no rental expense during the year ended December 31, 2016
(2015 and 2014: RMB Nil). As of December 31, 2016, the Group has no
future minimum lease payments under non-cancellable operating
leases are payable in the year 2016.
The
Company is not currently a party to any legal proceeding,
investigation or claim which, in the opinion of the management, is
likely to have a material adverse effect on the business,
financial
ZHEJIANG JIAHUAN ELECTRONIC COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
19
Future
Minimum rental receivable
As at
the end of the reporting period, the Company’s total future
minimum rental under non-cancellable operating leases are
receivable as follows:-
|
|
|
|
|
|
|
|
|
Within 1
year
|
791
|
750
|
After 1 year but
within 5 years
|
-
|
785
|
After 5
years
|
-
|
-
|
|
|
|
|
791
|
1,535
|
The
Group’s activities expose itself mainly to credit
risk.
The
Group has no significant concentration of credit risk. The Group
has policies in place to ensure that sales of products are made to
customers with an appropriate credit history. The Group has
policies that limit the amount of credit exposure to any
customers.
21
Fair
value of financial instruments
The
carrying values of financial instruments, which consist of cash and
cash equivalents, accounts receivable and accounts payable, bills
receivable, bills payable, other payables and balances with related
companies approximate their fair values due to the short-term
nature of these instruments.
The
Company has evaluated all events or transactions that occurred
through the date the consolidated financial statements were issued,
and has determined that there were no material recognizable nor
subsequent events or transactions which would require recognition
or disclosure in the consolidated financial
statements.
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