INTRODUCTION
In this
Form 20-F, references to ”us”, “we”, the
“Company” and “Euro Tech” are to Euro Tech
Holdings Company Limited and its subsidiaries unless otherwise
expressly stated or the context otherwise requires.
Forward Looking Statements
This
annual report contains forward looking statements. Additional
written or oral forward looking statements may be made by the
Company from time to time in filings with the Commission or
otherwise. Such forward looking statements are within the meaning
of that term in Section 21E of the Securities Exchange Act of
1934 (the “Exchange Act”). Such statements may include,
but not be limited to, projections of revenues, income, or loss,
capital expenditures, plans for future operations, financing needs
or plans, and plans relating to products or services of the
Company, as well as assumptions relating to the foregoing. The
words “believe,” “expect,”
“anticipate,” “estimate,”
“project,” and similar expressions identify forward
looking statements, which speak only as of the date the statement
was made. Forward looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or
quantified. Future events and actual results could differ
materially from those set forth in, contemplated by, or underlying
the forward looking statements. Statements in this Annual Report,
including those contained in the sections entitled
Part I, Item 3D. “Risk Factors” and Item 5.
“Operating and Financial Review and Prospects” and the
notes to the Company’s Consolidated Financial Statements,
describe factors, among others, that could contribute to or cause
such differences.
GLOSSARY
The
following glossary of terms may be helpful in understanding the
terminology used in this Annual Report.
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Ambient
Air:
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Atmospheric
air (outdoor as opposed to indoor air).
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Anaerobic:
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Treating
waste water biologically in the absence of air.
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Atomic
Spectrometer:
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An
analytical instrument used to measure the presence of an element in
a substance by testing a sample which is aspirated into a flame and
atomized. The amount of light absorbed or emitted is measured. The
amount of energy absorbed or emitted is proportional to the
concentration of the element in the sample.
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Coalescer:
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A
process that coalesces smaller oil particles to form larger oil
particles that can readily float to a tank’s
surface.
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Colorimeter:
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An
analytical instrument that measures substance concentration by
color intensity when the substance reacts to a chemical
reagent.
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Human
Machine Interface Software:
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A type
of software to interface (or coordinate) the interaction between
machine or equipment and a human being.
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Lamella:
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Synthetic
media installed in a clarifier tank to assist in particle
flocculation (coming together in a “floc” or
“flakes”).
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Mass
Spectrometer:
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An
analytical instrument that separates and identifies chemical
constituents according to their mass-to-charge ratios and is used
to identify organic compounds.
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Membrane
Biological Reactor (MBR):
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A
suspended-growth bioreactor combined with a membrane liquid/solids
separation unit. The “MBR” uses an advanced membrane
technology that treats biological wastes to a quality level which
in many industries is sufficient for reuse or low-cost disposal to
sewers.
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Multi-Channel
Digital Recorder:
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A
device that measures and records more than one input of a digitized
signal (signal in the form of pulses).
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pH
Controller:
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A
process instrument that measures and controls the acidity or
alkalinity of a fluid.
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Reagent:
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A
chemical substance used to cause a chemical reaction and detect
another substance.
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Sequential
Batch Reactor (SBR):
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A
waste-water treatment process that combines aeration and settling
in one reactor tank thus saving on space. Used for the treatment of
industrial waste-water as well as municipal sewage. The SBR is a
batch process that is ideal for waste-waters of changing
characteristics.
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PART I
ITEM
1. IDENTITY OF DIRECTORS, SENIOR
MANAGEMENT AND ADVISERS
Not
Applicable.
ITEM
2. OFFER STATISTICS AND EXPECTED
TIMETABLE
Not
Applicable.
ITEM
3. KEY INFORMATION
ITEM
3A. SELECTED FINANCIAL DATA
SELECTED FINANCIAL INFORMATION
(Amounts
expressed in thousands, except share and per share data and unless
otherwise stated)
The
selected consolidated statement of operations and comprehensive
income/(loss) data for years ended December 31, 2017, 2016, and
2015 and the selected consolidated balance sheet data as of
December 31, 2017 and 2016 set forth below are derived from audited
consolidated financial statements of the Company included herein
and should be read in conjunction with, and are qualified in their
entirety by reference to such financial statements, including the
notes thereto and “Item 5. Operating and Financial Review and
Prospects.” The selected consolidated statement of operations
and comprehensive income/(loss) data for the years ended December
31, 2015 and 2014 and the selected consolidated balance sheet data
as of December 31, 2015, 2014 and 2013 set forth below are derived
from audited consolidated financial statements of the Company which
are not included herein.
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Balance Sheet Data:
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Cash and cash
equivalents
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3,380
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3,751
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2,480
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4,857
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5,406
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Working
capital(1)
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2,986
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3,101
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3,698
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5,267
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5,830
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Total
assets
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23,737
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23,104
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21,270
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23,399
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23,878
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Short-term
debt(2)
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97
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720
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0
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0
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0
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Net
assets
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17,107
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16,618
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16,456
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17,530
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17,877
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Capital
Stock
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123
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123
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123
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123
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123
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(1)
Current assets minus current liabilities.
(2)
Short-term debt includes short-term borrowings and current portion
of long-term bank loans.
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Statement of Operations and Comprehensive Income/(loss)
Data:
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Revenue
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17,350
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22,478
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18,302
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18,822
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18,602
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Cost of
revenue
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(12,937)
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(17,527)
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(14,259)
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(13,991)
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(13,138)
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Gross
profit
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4,413
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4,951
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4,043
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4,831
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5,464
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Finance
costs
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(11)
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(19)
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(4)
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-
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-
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Selling and
Administrative Expenses
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(4,976)
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(5,602)
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(5,997)
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(5,802)
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(5,719)
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Operating
loss
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(574)
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(670)
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(1,958)
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(971)
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(255)
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Interest
Income
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24
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18
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45
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27
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45
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Other
(losses)/income, net
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(14)
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5
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9
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65
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54
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Gain/(loss) on
disposal of property, plant and equipment
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-
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7
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-
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-
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(1)
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(Loss) before
taxes
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(564)
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(640)
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(1,904)
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(879)
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(157)
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Income taxes
(expense)/credit
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(28)
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(228)
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47
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(18)
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(73)
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Net gain on deemed
disposal of affiliate
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128
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24
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-
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-
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-
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Equity in income of
affiliates
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831
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1,002
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850
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605
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325
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Net Income/(Loss)
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367
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158
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(1,007)
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(292)
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95
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Add/less: net
loss/(income) attributable to non-controlling interest
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106
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73
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391
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169
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(113)
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Net income/(loss)
attributable to the Company
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473
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231
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(616)
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(123)
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(18)
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Other comprehensive
income/(loss)
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Net
income/(loss)
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367
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158
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(1,007)
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(292)
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95
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Foreign exchange
translation adjustments
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122
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4
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(63)
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(15)
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181
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Release of
translation reserves upon disposal of a subsidiary
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-
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-
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-
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(74)
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Comprehensive
income/(loss)
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489
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162
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(1,070)
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(307)
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202
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Add/less:
Comprehensive loss/(income) attributable to non-controlling
interest
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45
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127
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477
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176
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(167)
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Comprehensive
income/(loss) attributable to the Company
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534
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289
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(593)
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(131)
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35
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Net income/(loss)
per Ordinary Share-Basic
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0.23
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0.11
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(0.30)
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(0.06)
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(0.01)
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-Diluted
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0.23
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0.11
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(0.30)
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(0.06)
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(0.01)
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Weighted Average
Number of Ordinary Shares Outstanding
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Basic
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2,061,909
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2,061,909
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2,063,738
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2,069,223
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2,069,223
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Diluted
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2,061,909
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2,061,909
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2,063,738
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2,069,223
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2,069,223
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The
Company maintains its books and records in United States dollars
(“US$” or “U.S. Dollars”). Its
subsidiaries, retail shops and affiliates maintain their books and
records either in US$, Hong Kong dollars (“HK$” or
“Hong Kong Dollars”) or in Chinese Renminbi
(“RMB” or “Renminbi”).
The
Hong Kong dollar is freely convertible into other currencies
(including the U.S. dollar). Since 1983, the Hong Kong dollar has
effectively been officially linked to the U.S. dollar at the rate
of approximately HK$ 7.80 = US$ 1.00. However, the market exchange
rate of the Hong Kong dollar against the U.S. dollar continues to
be influenced by the forces of supply and demand in the foreign
exchange market. Exchange rates between the Hong Kong dollar and
other currencies are influenced by the rate between the U.S. dollar
and the Hong Kong dollar.
Since
1994, the conversion of Renminbi into foreign currencies, including
U.S. dollars, has been based on rates set by the People’s
Bank of China, which are set daily based on the previous
day’s interbank foreign exchange market rates. From 1994
through 2004, the official exchange rate for the conversion of
Renminbi to U.S. dollars was generally stable and maintained at the
rate of approximately RMB 8.30 = US$ 1.00. However, from 2013
through 2017, the Renminbi has fluctuated and at the end of 2017,
2016, 2015, 2014 and 2013, the exchange rates were approximately
RMB 6.5040=US$1.00, RMB 6.9445=US$1.00, RMB 6.4855= US$ 1.00, RMB
6.2069 = US$1.00 and RMB 6.0540 = US$ 1.00, respectively. The
value of the Renminbi fluctuates and is subject to changes in the
People’s Republic of China’s (“PRC”)
political and economic conditions.
The
high, low and average exchange rates are set forth
below:
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US$ to
RMB
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Fiscal year
("Fiscal")2013
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6.0540
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6.0540
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6.2456
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6.1480
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Fiscal
2014
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6.2069
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6.0428
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6.2611
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6.1612
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Fiscal
2015
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6.4855
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6.1931
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6.4900
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6.2854
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Fiscal
2016
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6.9445
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6.4571
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6.9593
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6.6444
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Fiscal
2017
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6.5040
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6.9651
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6.4347
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6.7371
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US$ to
HK$
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Fiscal
2013
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7.7538
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7.7417
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7.7656
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7.7566
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Fiscal
2014
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7.7502
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7.7500
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7.7677
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7.7524
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Fiscal
2015
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7.7564
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7.7493
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7.8240
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7.7549
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Fiscal
2016
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7.7555
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7.7504
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7.8267
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7.7624
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Fiscal
2017
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7.8129
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7.7528
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7.8292
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7.7951
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The Following Months
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US$ to
RMB
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October 2017
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6.5712
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6.6637
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6.6175
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November 2017
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6.5754
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6.6548
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6.6151
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December 2017
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6.5027
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6.6234
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6.5631
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January
2018
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6.2882
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6.5393
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6.4138
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February
2018
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6.2550
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6.3656
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6.3103
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March
2018
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6.2437
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6.3628
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6.3033
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US$ to
HK$
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October 2017
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7.7984
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7.8129
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7.8984
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November 2017
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7.7919
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7.8130
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7.8025
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December 2017
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7.8037
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7.8292
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7.8164
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January
2018
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7.8128
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7.8255
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7.8191
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February
2018
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7.8174
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7.8299
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7.8230
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March
2018
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7.8251
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7.8496
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7.8373
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ITEM 3D. RISK FACTORS
You
should carefully consider all of the information set forth in this
annual report and the following risk factors. The risks below are
not the only ones we face. Additional risks not currently known by
us or that we deem immaterial may also impair our business
operations. Our business, financial condition or results of
operations could be materially adversely effected by any of these
risks. This annual report also contains forward looking statements
that involve risks and uncertainties. Our results could materially
differ from those anticipated in these forward looking statements
as a result of certain factors, including the risks we face as
described below and elsewhere. See – “Forward Looking
Statements.”
Certain Risks Relating to Doing Business in Hong Kong and the
People’s Republic of China (the “PRC” or
“China”).
PRC Sovereignty over Hong Kong is Still Developing.
The
Company’s executive and principal offices are located in Hong
Kong, a Special Administrative Region of China (or
“SAR;” Hong Kong is sometimes herein referred to as the
“Hong Kong SAR”).
As
provided in the Sino-British Joint Declaration on the Question of
Hong Kong (the “Joint Declaration”) and the Basic
Law of the Hong Kong SAR of China (the “Basic Law”),
the Hong Kong SAR is provided a high degree of autonomy except in
foreign and defense affairs. The PRC’s political system and
policies are not practiced in Hong Kong. Under this principle of
“one country, two systems,” Hong Kong maintains a legal
system that is based on common law and is different from that of
the PRC.
There
is friction between Hong Kong residents pressing for greater
democracy and the new government leadership in Beijing. The formula
for the preservation of Hong Kong’s independent legal and
economic system under Chinese sovereignty has been referred to as
“one country, two systems.” There appears to
be a deep suspicion that Hong Kong’s democracy advocates are
being manipulated by the United States to cause difficulties at
China’s doorstep as regional tensions rise, i.e. as China has
been asserting territorial claims in the East and South China Seas.
The foregoing is raising concerns that civil liberties in Hong Kong
may be eroded in the years to come. At this point in time it is not
possible to predict if this trend will continue and what effect it
will have on the Company, if any.
The
Company’s results of operations and financial condition may
be influenced by the political situation in Hong Kong and by the
general state of the Hong Kong economy. See —
“Economic Stability Uncertain.”
There
can be no assurance that these past, or any prospective future,
changes in political, economic or commercial conditions in Hong
Kong and the PRC will not result in a material adverse effect upon
the Company.
Economic Stability in the Far East is Uncertain.
Some
economies in the Far East have suffered from an economic
instability. There can be no assurance that there will be a
recovery, most especially in light of the recent global economic
downturn. Continued growth in the PRC depends on an adequate supply
of energy. There is no assurance that adequate supplies of energy
can be developed or found to fuel the PRC’s continued
economic growth.
The PRC’s Economic, Political and Social Conditions; Slowdown
in Growth.
The PRC
economy differs from the economies of most developed countries in
many respects, including the amount of government involvement,
level of development, growth rate, and control of foreign exchange
and allocation of resources. While the PRC economy has experienced
significant growth in the past thirty years, growth has been
uneven, both geographically and among the various sectors of the
economy. The PRC government has implemented various measures to
encourage economic growth and guide the allocation of resources.
Some of these measures benefit the overall PRC economy, but may
also have a negative effect on us. For example, our financial
condition and results of operations may be adversely affected by
changes in applicable tax regulations, rates of currency exchange,
inflation and effects to curb inflation.
The PRC
economy appears to be moving from a planned economy to a more
market-oriented economy. Although the PRC government has
implemented measures since the late 1970s emphasizing the
utilization of market forces for economic reform, the reduction of
state ownership of productive assets and the establishment of
improved corporate governance in business enterprises, a
substantial portion of productive assets in the PRC are still owned
by the PRC government. In addition, the PRC government continues to
play a significant role in regulating industry development by
imposing industrial policies. The PRC government also exercises
significant control over the PRC’s economic growth through
the allocation of resources, controlling payment of foreign
currency-denominated obligations, setting monetary policy and
providing preferential treatment to particular industries or
companies. Recently, the Chinese economy experienced a steep
slowdown in growth from a 9.5% GDP in 2011 to 6.9% GDP in 2017 as
the Chinese government focuses on raising the incomes of the
average citizen and seek a national economy less driven by
investment and more by domestic consumer demand. In 2017, it
experienced a small increase to 6.9%, its first annual increase
since 2010. Although past predictions have not always proven
reliable, if these predictions prove accurate, they, as well as
future actions and policies of the PRC government, could suffer a
material adverse effect.
Also,
financial reporting suggests a real estate “bubble”
exists in the PRC. If a real estate “bubble” truly
exists in the PRC and it bursts, the PRC’s economy and the
Company could suffer a material adverse effect.
The
success of the Company’s activities in the PRC depends on the
Company’s continued ability to overcome circumstances
specifically effecting the industrial sector, including the
relatively poor infrastructure, road transportation and
communications network and an uncertain legal and regulatory
environment.
Economic Reforms May Not Continue or Impact Positively On the
Company; Changing Business Environment.
Over
the past several years, the PRC’s government has pursued
economic reform policies including encouraging private economic
activities and decentralization of economic deregulation. It
appears that the PRC government may not continue to pursue these
policies or may significantly alter them to our detriment from time
to time without notice. Changes in policies by the PRC government
resulting in changes in laws, regulations, or their interpretation,
or the imposition of confiscatory taxes, restrictions on currency
conversion and imports could materially and adversely affect our
business and operating results. From 2014 through 2017, the annual
growth rates in imports and exports were 0.4%, 14.1%, -5.5%, 5.9%
and 6.1%, -2.8%, -7.7%, 7.9%, respectively. The nationalization or
other expropriations of private enterprises by the PRC government
could result in a loss of our investments in actual funds and time
and effort, in China.
The
Company’s results at times may also be adversely effected by:
(1) changes in political, economic and social conditions in
the PRC; (2) changes in government policies such as changes in
laws and regulations (or their interpretation); (3) the
introduction of additional measures to control inflation;
(4) changes in the rate or method of taxation;
(5) imposition of additional restrictions on currency
conversion remittances abroad; (6) reduction in tariff
protection and other import restrictions; and (7) a return to
the more centrally-planned economy that existed
previously.
We Are Subject To International Economic And Political Risks, Over
Which We Have Little Or No Control.
Doing
business entirely outside the United States subjects us to various
risks, including changing economic and political conditions,
exchange controls, currency fluctuations, armed conflicts and
unexpected changes in United States and foreign laws relating to
tariffs, trade restrictions, transportation regulations, foreign
investments and taxation. We have no control over most of these
risks and other unforeseeable risks and may be unable to anticipate
changes in international economic and political conditions and,
therefore, unable to alter our business practice in time to avoid
the adverse effect of any of these changes.
The International Financial Crisis and Economic Conditions May Have
A Material Adverse Impact on Our Business and Financial
Conditions.
With
deteriorating worldwide economies, global markets have experienced
significant turmoil and upheavals characterized by extreme
volatility and the volatility in prices and securities and
commodities, diminished credit availability, inability to access
capital markets, waves of bankruptcies, high unemployment and
declining consumer and business confidence. It appears that
international economic deterioration has negatively impacted our
revenue and other results of operation. We cannot predict the short
and long-term impact of these events on our business and financial
condition that may be materially and adversely affected in the
future.
Our Revenue and Net Income may be Materially and Adversely Affected
by any Economic Slowdown in China.
The PRC
government has in recent years implemented a number of measures to
control the rate of economic growth, including by raising interest
rates and adjusting deposit reserve ratios for commercial banks as
well as by implementing other measures designed to tighten credit
and liquidity. These measures have contributed to a slowdown of the
PRC economy. According to the National Bureau of Statistics of
China, China's GDP growth rate was 6.9% in 2017. Any continuing or
worsening slowdown could significantly reduce domestic commerce in
China. An economic downturn, whether actual or perceived, a further
decrease in economic growth rates or an otherwise uncertain
economic outlook in China or any other market in which we may
operate could have a material adverse effect on our business,
financial condition and results of operations.
We May be Impacted by Inflation in PRC.
In
recent years, the PRC has not experienced significant inflation,
and thus inflation has not had a significant effect on our business
historically. In response to the increased inflation rate during
2004, the Chinese government announced measures to restrict lending
and investment in the PRC in order to reduce inflationary pressure
on the PRC’s economy; More recently, the average inflation
rate has increased by 2.6%, 1.9%, 1.4%, 2.0% and 1.6% in 2013,
2014, 2015, 2016 and 2017, respectively. Efforts by the PRC to curb
inflation may also curb economic growth, increase our overhead
costs and adversely affect our sales. Inflationary increases cause
a corresponding increase in our general overhead. If the PRC rate
of inflation continues to increases, the Chinese government may
introduce further measures intended to reduce the inflation rate in
the PRC. Any such measures adopted by the Chinese government may
not be successful in reducing or slowing the increase in the
PRC’s inflation rate. A sustained or increased inflation in
the PRC may have an adverse impact on the PRC’s economy and
may materially and adversely affect our business and financial
results.
The PRC legal system embodies uncertainties which could limit the
available legal protections and expand the government’s
power.
The PRC
legal system is a civil law system based on written statutes.
Unlike common law systems, it is a system in which decided legal
cases have little precedential value. In 1979, the PRC government
began to promulgate a comprehensive system of laws and regulations
governing economic matters in general. The overall effect of
legislation over the past three decades has significantly enhanced
the protections afforded to various forms of foreign investment in
China. However, these laws, regulations and legal requirements
change frequently, and their interpretation and enforcement involve
uncertainties. For example, we may have to resort to administrative
and court proceedings to enforce the legal protection that we enjoy
either by law or contract. However, since PRC administrative and
court authorities have significant discretion in interpreting and
implementing statutory and contractual terms, it may be more
difficult to evaluate the outcome of administrative and court
proceedings and the level of legal protection we enjoy than in more
developed legal systems. In addition, such uncertainties, including
the inability to enforce our contracts, could materially and
adversely affect our business and operations. Furthermore, the PRC
legal system is based in part on government policies and internal
rules (some of which are not published on a timely basis or at all)
that may have a retroactive effect. As a result, we may not be
aware of our violation of these policies and rules until sometime
after the violation. In addition, any litigation in China may be
protracted and result in substantial costs and diversion of
resources and management attention. Furthermore, intellectual
property rights and confidentiality protections in China may not be
as effective as in the United States or other countries.
Accordingly, we cannot predict the effect of future developments in
the PRC legal system, particularly with regard to the media,
ecommerce, education, advertising and retail industries, including
the promulgation of new laws, changes to existing laws or the
interpretation or enforcement thereof, or the preemption of local
regulations by national laws. These uncertainties could limit the
legal protections available to us, and our foreign investors,
including you.
The PRC Government Imposes Currency Controls.
The PRC
government imposes controls on the convertibility of the RMB into
foreign currencies and, in certain cases, the remittance of
currency out of China. We receive substantial part of our revenues
in RMB. Under existing PRC foreign exchange regulations, payments
of current account items, including profit distributions, interest
payments and trade and service-related foreign exchange
transactions, can be made in foreign currencies without prior
approval by complying with certain procedural requirements.
However, approval from or registration with appropriate government
authorities is required where RMB is to be converted into foreign
currency and remitted out of China to pay capital expenses such as
the repayment of loans denominated in foreign currencies. The PRC
government may also at its discretion restrict access to foreign
currencies for current account transactions in the
future.
There is a Foreign Currency Risk.
The
Company operates in Hong Kong, the PRC and trades with both local
and overseas customers and suppliers, and is exposed to foreign
exchange risk arising from various currency exposures, primarily
with respect to purchases in, Hong Kong dollar, Renminbi, US
dollars, the Japanese yen and Euro. Foreign exchange risk arises
from committed and unmatched future commercial transactions, such
as confirmed import purchase orders and sales orders, recognized
assets and liabilities, and net investment in the PRC
operations.
Because our revenues are generated in Renminbi and our results are
reported in U.S. dollars, ongoing devaluation of the Renminbi could
negatively impact our results of operations.
The
value of the Renminbi against the U.S. dollar and other currencies
is affected by, among other things, changes in China’s
political and economic conditions and China’s foreign
exchange policies. The conversion of Renminbi into foreign
currencies, including U.S. dollars, is based on rates set by the
People’s Bank of China. The PRC government allowed the
Renminbi to appreciate more than 20% against the U.S. dollar
between July 2005 and July 2008. Between July 2008 and June 2010,
this appreciation halted and the exchange rate between the Renminbi
and the U.S. dollar remained within a narrow band. From June 2010
through January 2014, the PRC government allowed the Renminbi to
appreciate slowly against the U.S. dollar again, though there were
periods during that time when the U.S. dollar appreciated against
the Renminbi as well. In April 2012, the PRC government announced
that it would allow more RMB exchange rate fluctuation. However, it
remains unclear how this announcement might be implemented. There
remains significant international pressure on the PRC government to
adopt a more flexible currency policy, which could result in
greater fluctuation of the RMB against the U.S. dollar. From June
2010 to January 2014, the RMB has appreciated against the U.S.
dollar from approximately RMB6.82 per U.S. dollar to RMB6.05 per
U.S. dollar, reaching a new historical height, followed by the RMB
depreciating against the U.S. dollar to RMB6.48 per U.S. dollar on
December 31, 2015, with further depreciation to RMB6.94 per U.S.
dollar by December 31, 2016, and RMB 6.50 per U.S. dollar by
December 31, 2017. It is difficult to predict how market forces or
PRC or U.S. government policy may impact the exchange rate between
the Renminbi and the U.S. dollar in the future. There remains
significant international pressure on the Chinese government to
adopt a flexible currency policy to allow the Renminbi to
appreciate against the U.S. dollar. Significant revaluation of the
Renminbi may have a material adverse effect on your investment.
Substantial part of our revenues and costs are denominated in
Renminbi.
Very
limited hedging options are available in China to reduce our
exposure to exchange rate fluctuations. To date, we have not
entered into any hedging transactions in an effort to reduce our
exposure to foreign currency exchange risk. While we may decide to
enter into hedging transactions in the future, the availability and
effectiveness of these hedges may be limited and we may not be able
to adequately hedge our exposure or at all. In addition, our
currency exchange losses may be magnified by PRC exchange control
regulations that restrict our ability to convert Renminbi into
foreign currency. As a result, fluctuations in exchange rates may
have a material adverse effect on your investment.
The PRC has had Turbulent Relations with the United States of
America (the “United States” or the
“U.S”).
Differences between
the United States and PRC governments on some political issues
continue occasionally to color their relationship. These occasional
controversies could materially and adversely affect our business
and operations. Political or trade friction between the two
countries could also materially and adversely affect the market
price of our ordinary shares (“Ordinary Shares”),
whether or not they adversely affect our business.
Certain Risks Relating to the Company’s
Business.
Our Operating Results may Fluctuate Significantly from Year to
Year. We Cannot be Certain that we will Achieve or Maintain
Profitability in the Future.
Our
operating results historically have been difficult to predict and
have at times significantly fluctuated from year to year due to a
variety of factors, many of which are outside of our
control.
During Fiscal 2017, the Company had revenues of approximately
US$17,350,000, operating losses of approximately US$574,000, and
losses before income tax of approximately US$564,000. The
principal reason for the operating losses for Fiscal 2017 was
decrease in revenue, and research and development costs incurred of
approximately US$163,000. During Fiscal 2016, the Company had
revenues of approximately US$22,478,000, operating losses of
approximately US$670,000, and losses before income tax of
approximately US$640,000. The principal reason for the operating
losses for Fiscal 2016 was research and development costs of
approximately US$475,000. During Fiscal 2015, the Company had
revenues of approximately US$18,302,000, operating losses of
approximately US$1,958,000, and losses before income tax of
approximately US$1,904,000. The principal reason for the operating
losses for Fiscal 2015 was a drop in sales revenue and gross margin
from engineering activities.
As a
result of these factors, comparing our operating results on a
period-to-period basis may not be meaningful, and you should not
rely on our past results as an indication of our future
performance. Our operating expenses do not always vary directly
with revenue and may be difficult to adjust in the short term. As a
result, if revenue for a particular year or quarter is below our
expectations, we may not be able to proportionately reduce
operating expenses for that period, and therefore such a revenue
shortfall would have a disproportionate effect on our operating
results for that period.
Future Plans to Increase Revenue, Decrease Losses and Achieve
Profitability are Uncertain.
The
Company has been attempting to stem the decline in revenue by
streamlining its activities. The Company has reduced its staff,
consolidated offices and is trying to improve staff efficiencies.
To date, this effort has not been successful, but the Company plans
to continue these economizing efforts. In addition, the
Company has obtained formal certification from
China’s Classification Society (“CCS”) for and
from the U.S. Coast Guard for use as an Alternate Management
Systems (“AMS”) in U.S. waters for its 200, 300,
500, 750, 1200 and 1250 Cubic Meters per hour BWTS, as well as RS
type approval (Russian Maritime Register) for its 300 Cubic Meters
per hour BWTS. The Company also received an anti-explosion
certificate from China National Quality Supervision and Test Centre
for Explosion Protected Electrical Products for its BWTS in
2017.
During
2015, the Company entered into a contract to supply a 300 Cubic
Meters per hour BWTS for a maritime institute in Jiangsu, and such
goods were delivered in 2016. It also received an order for one set
of P-300 BWTS for a scientific research ship from Russia in 2017.
In addition, in 2018, it received a PRC government grant for port
ballast solution. The Company is commencing a barge and port R&D
product development project as part of its efforts to continue to
be a pioneer of research and development for ballast water
technology in Asia. The Company hopes to receive revenues
from orders to retrofit and install its ballast water treatment
process into ocean going vessels and is working on a number of
sales quotations. However, the intake of retrofit orders may be
affected by, among other things, the decision of International
Maritime Organization (“IMO”), a specialized agency of the United
Nations that serves as the global standard-setting authority for
the safety, security and environmental performance of international
shipping, to extend the phase-in period for ballast water system
retrofits until September 2019, the success of the Company’s
marketing and sales efforts, and by the acceptance of the
Company’s products by customers. There can be no
assurance that the Company’s continued streamlining efforts,
or that sales of its ballast water treatment process, will be
successful or, if successful, that these efforts will result in a
reduction in losses, an increase in revenues and/or the achievement
of profitability by the Company.
We Have Made And May Make Further Acquisitions Without Your
Approval.
Although we
endeavor to evaluate the risks inherent in any particular
acquisition, there can be no assurance that we will properly or
accurately ascertain all such risks. We will have virtually
unrestricted flexibility in identifying and selecting prospective
acquisition candidates and in deciding if they should be acquired
for cash, equity or debt, and in what combination of cash, equity
and/or debt.
We have
taken equity positions in related businesses. We will not seek
stockholder approval for any additional acquisitions unless
required by applicable law and regulations. Our stockholders may
not have an opportunity to review financial and other information
on acquisition candidates prior to consummation of any acquisitions
under almost all circumstances.
Investors will be
relying upon our management, upon whose judgment the investor must
depend, with only limited information concerning management’s
specific intentions.
There
can be no assurance that the Company will locate and successfully
complete any such additional acquisitions, or any acquisition will
perform as anticipated, will not result in significant unexpected
liabilities or will ever contribute significant revenues or profits
to the Company or that the Company will not lose its entire
investment in any acquisition.
Dependence upon Management.
The
Company is dependent upon the services of its executive
officers, in particular Mr. T.C. Leung, the Chairman of the
Company’s Board of Directors and its Chief Executive Officer.
The business of the Company could be adversely affected by the loss
of services of, or a material reduction in the amount of time
devoted to the Company by its executive officers. The Company does
not maintain “Key Man” life insurance on the lives of
any of its officers and directors. See – Item 6.
“Directors, Senior Management and
Employees.”
Material Adverse Effect upon the Company of PRC’s Credit
Restrictions.
The
Company faces increasing competition from other distributors of
substantially similar products and manufacturers themselves, both
foreign and Chinese. The Company faces its principal competition
from foreign manufacturers and other distributors of their products
situated in Hong Kong and the PRC. Competition may cause purchaser
demands for price reductions and reduced profit
margin.
Competition with Vendors.
As the
Company assembles products of the kind that it presently
distributes, the Company may directly compete with certain of its
vendors. Any such direct competition may adversely affect its
relationship with its vendors.
Dependence on Vendors; Lack of Long Term Arrangements; Loss of
Vendors.
The
Company distributes supplies manufactured by a number of vendors.
Thermo Fisher Scientific Group (“Thermo”), Stanford
Research Systems, Inc. (“Stanford”) and Hach Company
(“Hach”) are among the Company’s largest
suppliers, pursuant to short term arrangements. Although
alternative sources of supply exist, there can be no assurance that
the termination of the Company’s relationship with any of the
above or other vendors would not have an adverse effect on the
Company’s operations due to the Company’s dependence on
these vendors. A substantial number of the Company’s
suppliers have been selling their products into China directly and
through other distributors. During Fiscal 2015, our sales revenue
from trading activities slightly increased by approximately 5%.
During Fiscal 2016, our sales revenue from trading activities
increased by approximately 12%. During Fiscal 2017, our sales
revenue from trading activities decreased by approximately 20%. A
loss of a substantial vendor or substantial number of our other
vendors and/or our competing with them would have a material
adverse effect on our revenues from trading
activities.
The loss of any of our key customers could reduce our revenues and
our profitability.
For the
year ended December 31, 2017, sales to our four largest customers
amounted in the aggregate to approximately 27% of our total
revenue. For the year ended December 31, 2016, sales to our three
largest customers amounted in the aggregate to approximately 25% of
our total revenue. For the year ended December 31, 2015, sales to
our four largest customers amounted in the aggregate to
approximately 33% of our total revenue. There can be no assurance
that we will maintain or improve the relationships with these
customers, or that we will be able to continue to supply these
customers at current levels or at all. Any failure to pay by these
customers could have a material negative effect on our
company’s business. In addition, having a relatively small
number of customers may cause our half yearly or annual results to
be inconsistent, depending upon when these customers pay for
outstanding invoices.
During
the years ended December 31, 2017, 2016 and 2015, respectively, we
had one, one, and two customers, respectively, that accounted for
10% or more of our revenues.
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Customer Name
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Year Ended
December 31,
2017
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Year Ended
December 31,
2016
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Year Ended
December 31,
2015
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Customer
A
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10%
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13%
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11%
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Customer
B
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-
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11%
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If we
cannot maintain long-term relationships with these major customers,
the loss of our sales to them could have an adverse effect on our
business, financial condition and results of
operations.
Risks Relating To the Company Itself; Control by T.C. Leung;
Potential Conflict of Interests.
T.C.
Leung, the Company’s Chairman of the Board and Chief
Executive Officer, as a practical matter, is able to nominate and
cause the election of all the members of the Company’s Board
of Directors, control the appointment of its officers and the
day-to-day affairs and management of the Company. As a consequence,
Mr. Leung can have the Company managed in a manner that would
be in his own interests and not in the interests of the other
shareholders of the Company. See – Item 6. “Directors,
Senior Management and Employees” and Item 7. “Major
Shareholders and Related Party Transactions.”
Certain Legal Consequences of Incorporation in the British Virgin
Islands; Rights of Shareholders Not As Extensive As In U.S.
Corporations.
Principles of
British Virgin Islands (“BVI”) corporate law relating
to such matters as the validity of the Company procedures, the
fiduciary duties of management and the rights of the
Company’s shareholders may differ from those that would apply
if the Company were incorporated in a jurisdiction within the
United States.
The
rights of shareholders under BVI law are not as extensive as the
rights of shareholders under legislation or judicial precedent in
many United States jurisdictions. Under United States law, majority
and controlling shareholders generally have certain
“fiduciary” responsibilities to the minority
shareholders. United States shareholder action must be taken in
good faith and actions by controlling shareholders in a United
States jurisdiction and executive compensation which are obviously
unreasonable may be declared null and void.
The BVI
law protecting the interests of the minority shareholders is not as
protective in all circumstances as the law protecting minority
shareholders in United States jurisdictions. The shareholders of
the Company may have more difficulty in protecting their interests
in the face of actions by the Company’s Board of Directors,
and may have more limited rights, than they might have as
shareholders of a company incorporated in many United States
jurisdictions.
Anti-Takeover Provisions.
The
Company has 5,000,000 shares of “blank check preferred
stock” authorized. The “blank check preferred
stock” is intended to strengthen the Company’s ability
to resist an unsolicited takeover bid and may be deemed to have an
anti-takeover effect. The Board of Directors has the right to fix
the rights, terms and preferences at the time of issue of
“blank check preferred stock” without further action by
our shareholders.
Uncertainty of Enforcing United States Judgments.
There
is some uncertainty whether BVI courts would enforce judgments of
the courts of the United States and of other foreign jurisdictions,
or enforce actions brought in the BVI which are based upon the
securities laws of the United States. A final monetary judgment
obtained in the United States will be treated as a cause of action
in itself by the BVI courts so that no retrial of the issues would
be necessary, provided that material preconditions are met and the
proceedings pursuant to which judgment was obtained were not
contrary to the rules of natural justice.
All of
the Company’s directors and executive officers reside outside
of the United States, service of process upon the Company and such
persons may be difficult to effect in the United States upon all
such directors and officers.
All of
the Company’s assets are and will be located outside of the
United States, in Hong Kong and the PRC, and any judgment obtained
in the United States may not be enforced in those jurisdictions.
Hong Kong courts will not directly enforce against the Company or
such persons judgments obtained in the United States. There is also
substantial doubt as to the enforceability in the PRC of actions to
enforce judgments of the United States’ courts arising out of
or based on the ownership of the securities, including judgments
arising out of or based on the civil liability provisions of United
States federal or state securities laws or otherwise. See —
“Certain Legal Consequences of Incorporation in the British
Virgin Islands; Rights of Shareholders not as Extensive as in U.S.
Corporations.”
Being a Foreign Private Issuer Exempts Us from Certain SEC and
NASDAQ Stock Market (“NASDAQ”)
Requirements.
We are
a foreign private issuer within the meaning of
rules promulgated under the Securities Exchange Act of 1934
(the “Exchange Act”). As such, with certain
limitations, we are exempt from certain provisions applicable to
United States public companies including: (1) the
rules under the Exchange Act requiring the filing with the
Commission of quarterly reports on Form 10-Q or current
reports on Form 8-K; (2) the sections of the Exchange Act
regulating the solicitation of proxies, consents or authorizations
in respect of a security registered under the Exchange Act;
(3) the provisions of Regulation FD aimed at preventing
issuers from making selective disclosures of material information;
and (4) the sections of the Exchange Act requiring insiders to
file public reports of their stock ownership and trading activities
and establishing insider liability for profits realized from any
“short-swing” trading transaction (i.e., a purchase and
sale, or sale and purchase, of the issuer’s equity securities
within less than six months). Because of these exemptions,
investors are not afforded the same protections or information
generally available to investors holding shares in public companies
organized in the United States.
Our Securities Must Continue To Meet Qualitative And Quantitative
Listing Maintenance Criteria For NASDAQ; Recent Deficiency
Cured.
Our
securities are quoted and traded on NASDAQ. There can be no
assurance that we will continue to meet both the qualitative and
quantitative criteria for continued quotation and trading of our
securities on NASDAQ. One of NASDAQ’s listing requirements is
the maintenance of a closing bid price of US$ 1.00 per share.
During periods of time in 2008 and 2009 the Company was not in
compliance with that requirement but NASDAQ had generally suspended
that requirement and others due to market conditions and/or the
US$1.00 per share bid price was not met for a sufficient period of
time to cause a NASDAQ deficiency action.
On
September 20, 2011, the Company was notified by NASDAQ that it was
not in compliance with NASDAQ’s listing maintenance rule for
failing to have a bid price of at least US$1.00 per share for the
prior thirty trading days. In January 2012, the Company effected a
combination or reverse stock split of its issued Ordinary Shares,
and thereafter, in February 2012, the Company received a letter
from NASDAQ advising that it had regained compliance with
NASDAQ’s maintenance listing requirements.
No
assurance can be given that we will continue to meet
applicable NASDAQ
continued listing standards. Failure to meet applicable
NASDAQ
continued listing standards could result in a delisting of our
common stock. A delisting of our common stock from
NASDAQ could
materially reduce the liquidity of our common stock and result in a
corresponding material reduction in the price of our common stock.
In addition, delisting could harm our ability to raise capital
through alternative financing sources on terms acceptable to us, or
at all, and may result in the potential loss of confidence by
investors, employees and fewer business development opportunities.
See—“We Are Also Required To Meet Certain, But Not All
Corporate Governance Criteria Applicable to NASDAQ Listed
Issuers.”
We Are Also Required To Meet Certain, But Not All, Corporate
Governance Criteria Applicable To NASDAQ Listed
Issuers.
Although, in the
past, we have been able to satisfy corporate governance criteria
applicable to NASDAQ listed issuers, those criteria are difficult
to comply with and include, among other things: (a) a
heightened degree of independence of members of the board of
directors with independent directors to, among other things: hold
regular meetings among themselves only; (b) establishment of a
code of conduct addressing compliance with laws; and (c) a
limit on payments to independent directors and their family members
(other than for services on the board of directors).
These
corporate governance requirements and a strict definition of
“independent director” make it more difficult to find
independent directors for our Board of Directors. There is intense
competition for qualified independent directors, including those
persons with accounting experience and financial statement acumen
to serve on audit committees. We believe that continued compliance
with the corporate governance requirements applicable to NASDAQ
listed issuers may be difficult and increase our costs and expenses
as the costs of finding and compensating independent directors
escalate and the costs of administering their new powers and
responsibilities is an added financial burden. If we are unable to
attract and keep a sufficient number of independent directors
willing to take on the responsibilities imposed by such
rules on what we believe to be commercially reasonable terms,
our securities may be delisted from NASDAQ. See—“Being
a ‘Controlled Company’ Exempts Us from Certain Other
Corporate Governance Criteria Applicable to NASDAQ Listed
Issuers.”
Being A “Controlled Company” Exempts Us From Certain
Other Corporate Governance Criteria Applicable To NASDAQ Listed
Issuers.
As a
result of T.C. Leung, the Company’s Chairman of
the Board and Chief Executive Officer, beneficially owning the
majority voting power of our Ordinary Shares, we are a
“controlled company” as that term is defined in
rules and regulations applicable to NASDAQ listed issuers. As
a “controlled company,” we are not required to comply
with certain NASDAQ corporate governance criteria including, among
other things, the requirements that the majority of our Board be
independent directors, and their having the authority to approve
director nominations and executive officer
compensation.
We Are Not Subject To Various Corporate Governance Measures, Which
May Result In Shareholders Having Limited
Protections.
The
Sarbanes-Oxley Act of 2002 (“SOX”), has resulted in the
adoption of various corporate governance measures by securities
exchanges and NASDAQ designed to promote the integrity of the
corporate management and the securities markets. Being a
“controlled company,” we are exempt from many, but not
all, of those requirements. Furthermore, the absence of such
practices with respect to our Company may leave our shareholders
without protections against interested director transactions,
conflicts of interest and similar matters.
We May Be Exposed To Potential Risks Relating To Our Internal
Controls Over Financial Reporting.
Pursuant to
Section 404 of SOX, the SEC adopted rules requiring
public companies to include a report of management on the
Company’s internal controls over financial reporting in their
annual reports, including Form 20-F.
We
expend significant resources in developing and maintaining the
necessary documentation and testing procedures required by SOX,
there is a risk that we will not maintain compliance with all of
these requirements.
In the
event we identify significant deficiencies or material weaknesses
in our internal controls that we cannot remediate in a timely
manner our ability to obtain equity or debt financing could suffer
and the market price of our shares could decline.
The market price of our Ordinary Shares may be volatile or may
decline regardless of our operating performance, and you may not be
able to resell your shares at or above the price you
paid.
The
trading price for our Ordinary Shares has fluctuated since we first
listed our Ordinary Shares. Over the past two years, the trading
price of our Ordinary Shares has ranged from US$1.45 to US$5.65 per
common share, and the last reported trading price on April 20, 2018
was US$2.45 per Ordinary Share. The market price of our Ordinary
Shares may fluctuate significantly in response to numerous factors,
many of which are beyond our control, including:
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changes
in the general environment and the outlook of the segments in which
we operate;
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regulatory
developments in the segments in which we operate;
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actual
or anticipated fluctuations in our half yearly or annual results of
operations;
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changes
in financial estimates by securities research
analysts;
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negative
market studies or reports;
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changes
in performance and valuation of our peer or comparable
companies;
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announcements
by us or our competitors of new services, acquisitions, strategic
relationships, joint ventures or capital commitments;
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changes
in our senior management;
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sales
or anticipated sales of additional ordinary shares;
and
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fluctuations
in the exchange rate between the Renminbi and the U.S.
dollar.
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In
addition, the securities markets in the United States, China and
elsewhere have from time to time experienced significant price and
volume fluctuations that are not related to the operating
performance of particular companies. These market fluctuations may
also materially and adversely affect the market price of the
Ordinary Shares.
There Are Risks In Purchasing Low-Priced Securities.
If our
securities were to be suspended or delisted from NASDAQ, they could
be subject to rules under the Exchange Act which impose
additional sales practice requirements on broker-dealers who sell
such securities to persons other than established clients and
“accredited investors.” For transactions covered by
such rules, a broker-dealer must make a special suitability
determination of the purchaser and have received the
purchaser’s written consent to the transaction prior to the
sale. Consequently, such rules may affect the ability of
broker-dealers to sell our securities and the ability to sell any
of our securities in any secondary market that may develop for such
securities. In the event our securities are no longer listed on
NASDAQ or are not otherwise exempt from the provisions of the
SEC’s “penny stock” rules, such rules may
also affect the ability of broker-dealers and investors to sell our
securities.
We May Be Considered To Be A Passive Foreign Investment Company For
The 2017 Calendar Year And May Be A Passive Foreign Investment
Company For Future Years, Which Would Result In Adverse U.S.
Federal Income Tax Consequences To U.S. Holders Of Our Ordinary
Shares.
A
non-U.S. corporation will be considered a passive foreign
investment company (“PFIC”) for U.S. income tax
purposes, for any taxable year if either (i) at least 75% of
its gross income is passive income or (ii) at least 50% of the
value of its assets (based on an average of the quarterly values of
the assets during a taxable year) is attributable to assets that
produce or are held for the production of passive income. The
annual PFIC determination to be made by a U.S. holder of our
ordinary shares is an inherently factual determination and there is
limited guidance regarding the application of the PFIC rules to
specific situations. We currently hold a substantial amount of cash
and cash equivalents, and investments in PRC enterprises, and the
value of our goodwill and other assets may be based in part on the
market price of our ordinary shares, which has experienced
significant fluctuations. Although the determination of PFIC status
is subject to factual uncertainties because it depends upon the
valuation of our ordinary shares, as well as our goodwill and other
assets and income, we are uncertain if we would be considered to be
a PFIC for 2017. In addition, as the determination of PFIC status
is made on an annual basis and depends on variables over which we
have limited control, there can be no assurance that we will not be
a PFIC for 2017 or any future years. If we are a PFIC in any year,
U.S. holders will be subject to certain adverse United States
federal income tax consequences, and are urged to consult with his
or her tax advisor. See— Item 10. “Taxation—United
States Federal Income Taxation .”
If We Become Directly Subject to the Recent Scrutiny Involving
U.S.-Listed Chinese Companies, We May Have to Expend Significant
Resources to Investigate and/or Defend the Matter, Which Could Harm
our Business Operations, Stock Price and Reputation and Could
Result in a Complete Loss of Your Investment in Us.
U.S.
listed companies that have substantial operations in China have
been the subject of intense scrutiny by investors, financial
commentators and regulatory agencies. Much of the scrutiny has
centered on financial and accounting irregularities and mistakes, a
lack of effective internal controls over financial reporting and,
in many cases, allegations of fraud. As a result of the scrutiny,
the publicly traded stock of many U.S. listed China-based companies
that have been the subject of such scrutiny has sharply decreased
in value. Many of these companies are now subject to shareholder
lawsuits and/or SEC enforcement actions that are conducting
internal and/or external investigations into the allegations. If we
become the subject of any unwarranted scrutiny, even allegations
that are not true, we may have to expend significant resources to
investigate such allegations and/or defend the Company. Such
investigations or allegations will be costly and time-consuming and
distract our management from our business plan and could result in
our reputation being harmed and our stock price could decline as a
result of such allegations, regardless of the truthfulness of the
allegations.
ITEM 4. INFORMATION ON THE
COMPANY
ITEM 4A. HISTORY AND DEVELOPMENT OF THE
COMPANY
The
Company was organized under the laws of the BVI on
September 30, 1996 for the purposes of raising capital and for
acquiring all the outstanding capital stock of Euro Tech (Far East)
Limited ("Far East"), a Hong Kong corporation involved in the
distribution of advanced water treatment equipment. In
March 1997, the Company acquired all the issued and
outstanding capital stock of Far East and it became a wholly-owned
subsidiary and was the primary operational entity of the
Company.
Yixing
Pact Environmental Technology Company Limited
(“Yixing”) and Pact Asia Pacific Limited
(“Pact,” collectively with “Yixing”,
“Pact-Yixing”), companies engaged in the water and
waste-water treatment solution business, became our majority-owned
subsidiaries in 2005, and we acquired additional two percent (2%)
and five percent (5%) equity interests in Pact and Yixing in
January 2010 and July 2011, respectively.
Pact-Yixing,
situated in Shanghai, specialize in the design, manufacture and
operation of water and waste-water treatment plants in several
industries situated in China. Pact-Yixing, through agents and
business alliances, also conduct similar operations in the Middle
East.
We
established Shanghai Euro Tech Environmental Engineering Company
Ltd. (“Shanghai Environmental”) as a wholly-owned
subsidiary under the laws of the PRC, to carry on our environmental
engineering department with that line of business and its personnel
transferred from our subsidiary, Far East. Shanghai Environmental
is focusing on our water and waste-water treatment engineering
business. We are scaling down this company to avoid duplication of
costs and efforts as we have a 58% equity interest in Pact-Yixing
which operate similar business activities. Shanghai Environmental
is just completing its outstanding projects and had made an
operating loss of approximately US$105,000 in Fiscal 2016 and
US$137,000 in Fiscal 2017 and we plan to wind it down upon
collection of outstanding account receivable.
China’s rapid
economic growth had led it to become one of the world’s
largest emitters of sulfur dioxide. The damage due to acid rain
caused by sulfur dioxide is vast, and is also affecting the
neighboring countries as air currents transport sulfur dioxide. To
tackle these environmental and geo-political issues, China has
established targets to reduce key pollutants, namely, sulfur
dioxide, nitrogen oxides and suspended particulates. Heavy
polluters are being warned to reduce their emissions or face
penalties. We believe that as a result, the demand of
desulphurization and dust removal equipment will increase
accordingly.
Far
East owns a 19.4% (2016:19.7%) equity interest in Zhejiang Tianlan
Environmental Protection Technology Co. Ltd. (“Blue
Sky”), founded in 2000. Blue Sky provides design and general
contracting services, equipment manufacturing, installation,
testing and operation management for the purification treatment of
industrial waste gases (specifically as desulphurization, flue gas
de-nitration, dust removal) emitted from various boilers and
industrial furnaces of power plants, steelworks and chemical
plants. By securing an equity stake in Blue Sky’s business,
we have a strategic partner to work within China’s
environmental protection business. With Blue Sky’s technology
and technical support, we believe we are able to provide services
and environmental solutions not only for water and waste-water
treatment but also for air pollution control for industrial clients
in China. Blue Sky's revenue increased during Fiscal 2015,
decreased during Fiscal 2016, and increased during Fiscal 2017 and
net income has steadily increased during Fiscal 2015, 2016 and
2017. Blue Sky listed its shares on the New Third Board since
November 17, 2015 and it suspended trading from August 15, 2017 and
resumed trading on February 2, 2018. The New Third Board in the
PRC, a national over-the-counter market in the PRC regulated by the
China Securities Regulatory Commission, serves as a trading
platform for small and medium-sized enterprises. Any new issuance
of Blue Sky's shares on the New Third Board will dilute our
ownership in Blue Sky. On the other hand, the New Third Board
provides us with an exit channel to sell our position in Blue Sky
if the price is attractive. At the first 2018 General Meeting of
Blue Sky’s shareholders held on January 25, 2018, it was
resolved that Blue Sky should sell all of its shareholding in its
wholly-owned subsidiary, Zhejiang Tianlan Environmental Engineering
and Design Company Limited (‘Blue Sky Engineering’) to
two of Blue Sky’s shareholders, including the major
shareholder. After the General Meeting, some shareholders and their
representatives (including the Company) expressed opposition to the
sale, based upon, among other things, the fact that Blue Sky
Engineering holds an Engineering design Qualification Certificate
(Class A) (the “Engineering Certificate”) in the PRC,
and if disposed, Blue Sky would thereby be rendered unable to
conduct any engineering design business. In light of such
opposition, management of Blue Sky sought the views of its
shareholders, who indicated preference for the termination of the
disposal of Blue Sky Engineering. As a result, the secretary of
Blue Sky’s board of directors has informed the Company that
Blue Sky would consult the related professional parties and duly
decide and resolve upon this matter in accordance with the
law.
We have
a 20% equity interest in Zhejiang Jia Huan Electronic Co. Ltd.,
(“Jia Huan”). Jia Huan has been in the environmental
protection business since 1969. Approximately 95% of Jia
Huan’s business has historically been related to air
pollution control and less than 5% has been related to water and
wastewater treatment. Jia Huan designs and manufactures automatic
control systems and electric voltage control equipment for
electrostatic precipitators which are used as air purification
equipment for power plants, cement plants and incinerators to
remove and collect dust and pollutants from exhaust
stacks.
In
Fiscal 2017, Blue Sky and Jia Huan made income contribution of
approximately US$712,000 and US$119,000, respectively, to the
Company. In Fiscal 2016, Blue Sky and Jia Huan made income
contribution of approximately US$689,000 and US$313,000,
respectively, to the Company. In Fiscal 2015, Blue Sky and Jia
Huan made income contribution of approximately US$663,000 and
US$187,000, respectively, to the Company. China’s 13th
Five Year Plan promotes a cleaner and greener economy, with strong
commitments to environmental management and protection, clean
energy and emissions controls, ecological protection and security,
and the development of green industries. This demonstrates a clear
focus on charting a sustainable course for the economy in the
long-term and the desire to play a global role in curbing
greenhouse gas emissions. Management believes such development in
the Chinese government policy will benefit our business as well as
those of these two affiliates.
On
March 5, 2018, Far East entered into an Equity Transfer Agreement
to sell its 20% equity stake of Jia Huan for a purchase price of
RMB31,312,500 to Ms. Jin Lijuan, the wife of the holder of the
remaining 80% equity stake of Jia Huan. The completion of the
transaction is subject to completion of all closing formalities,
including the need to obtain approval and registration with the
relevant governmental authorities. The purchase price is required
to be paid by the Purchaser within 15 days of obtaining the
required approval and registration (the “Closing
Date”). In accordance with the terms of the Agreement, the
purchaser paid RMB1,000,000 to Far East, and the purchaser’s
husband pledged 20% of his stake in Jia Huan as security for
purchaser’s performance of her payment obligation. If the
purchaser fails to perform her obligations as agreed herein, Far
East shall have priority in receiving payment in accordance with
laws by way of disposition, auction or sale of such pledged
equities. Finally, the Purchaser’s husband and Jia Huan shall
be jointly and severally liable for guaranteeing the
Purchaser’s performance of her payment obligation under the
Agreement, and the Purchaser's husband and Jia
Huan have issued a separate letter of commitment to Far East to
undertake such joint and several guarantee liability.
ITEM 4B. BUSINESS OVERVIEW
The
Company had been primarily a distributor of a wide range of
advanced water treatment equipment, laboratory instruments,
analyzers, test kits and related supplies and power generation
equipment (including recorders and power quality analyzers). The
Company acts as an exclusive and non-exclusive distributor for
well-known manufacturers of such equipment, primarily to commercial
customers and governmental agencies or instrumentalities in Hong
Kong and the PRC.
The
Company distributes products through its Hong Kong headquarters,
its trading companies and representative offices in Beijing,
Shanghai, Guangzhou, Chongqing, Xi´An, and Shenyang. The
Company’s PRC trading subsidiaries are Chongqing Euro Tech
Rizhi Technology Co., Ltd, Rizhi Euro Tech Instrument (Shaanxi)
Co., Ltd and Guangzhou Euro Tech Environmental Equipment Co.,
Ltd.
Laboratory
instruments, analyzers and test kits are used to analyze the
chemical content and ascertain the level of impurities or other
contaminants in water. The Company distributes analytical re-agents
and chemicals to support testing systems of laboratory and portable
instruments, process analyzers and portable test kits and assist in
the analysis process. The Company offers a wide variety of test
kits to test water quality. The Company believes that these
portable test kits are easy to use and preadapted for rugged field
use. These test kits are used to monitor drinking water
distribution systems.
Laboratory and
portable instruments generally consist of analytical instruments
including, but not limited to the following: spectrophotometers,
colorimeters, turbidimeters, ion-selective electrodes, chemical
oxygen demand apparati, digestion apparati, and precision re-agent
dispensing devices which are used to test and monitor impurities
and contaminants in water systems. See
“Glossary.”
The
Company also distributes continuous-reading process analyzers,
process turbidimeters, pH controllers and analyzer accessories.
These products are generally used to monitor and control drinking
water quality to ensure that water treatment procedures comply with
regulatory standards. See –
“Glossary.”
In
2005, we acquired Pact-Yixing to allow the Company to bid on larger
water, waste-water and power generation projects. The Company
believes that the Pact-Yixing business is complementary to the
Company’s business as the Company expects to have a
competitive advantage by offering customers and potential customers
not only hardware but solutions to engineering problems as
well.
Pact-Yixing
completed a substantial number of industrial water and waste-water
treatment projects in the PRC. The majority of these projects are
for large multinational manufacturing facilities for clients from
the USA, Europe and Japan. Process design as well as mechanical and
electrical engineering are completed in-house and manufacturing
contracted to approved fabricators of components. Fabrication
drawings are also done in-house for submittal to said fabricators
under the supervision of Pact-Yixing’s quality control
engineers.
Pact-Yixing’s
clients cover a varied spectrum of industries covering
semiconductor, pharmaceutical, petrochemicals, auto and auto parts,
steel, food and beverage and beauty products.
The
water and waste-water treatment processes applied at Pact-Yixing
cover chemical, physical, biological and membrane separation.
Combinations of those processes are normally used to treat a
specific industrial process feed or effluent. With respect to the
water treatment side of Pact-Yixing’s business, they design
and build filtration equipment, ion-exchange softeners and
demineralizers, reverse osmosis, electro-deionization, chemical
treatment systems and package type mobile water treatment plants.
As for waste-water treatment, Pact-Yixing design and build
biological treatment systems, oil coalescers, dissolved air
flotation, lamella clarifiers, chemical reactor tanks,
ultrafiltration, microfiltration, dewatering systems and package
type mobile sewage treatment plants. Biological treatment plants
cover both aerobic and anaerobic processes. State-of-the-art
aerobic processes of SBR (sequential batch reactors) and MBR
(membrane biological reactors) are technologies also covered by
Pact-Yixing. See
– “Glossary.”
In
2006, Pact-Yixing commenced selling water and waste-water treatment
equipment. Pact and Engineering FZC (“PACTFZC”), a
Middle Eastern water treatment company based in Dubai, and a third
party formed a joint venture (the “JV”). Pact invested
US$300,000 and had a 60% controlling interest of the JV, PACTFZC,
majority owned by George Hayek, Pact-Yixing’s managing
director, and a third party each invested US$100,000 in
consideration for 20% interests. In 2013, The JV was liquidated and
its business has been taken over by Pact-Yixing.
We
continue the process of shifting our emphasis from the distribution
of instruments and equipment to engineering and manufacturing
activities. Revenues from our trading activities have fallen-off as
a substantial number of our suppliers have been selling their
products into China directly and through other distributors. Many
of these other distributors are local Chinese companies and can
operate with a lower overhead.
During
Fiscal 2015, there were slight increases in revenues from trading
activities. Revenue from Pact-Yixing decreased in 2015, while
Shanghai Environmental incurred an operating loss of US$558,000. In
addition, we incurred research and development costs of
approximately US$851,000 in 2015 relating to BWTS and Pact-Yixing
incurred an operating loss of approximately US$1,084,000. This
resulted in operating loss from engineering activities of
approximately US$1,624,000.
During
Fiscal 2016, there were increases in revenues from both trading and
engineering activities. Revenue from Pact-Yixing increased
significantly in 2016 to US$8,757,000, while Shanghai Environmental
incurred an operating loss of US$105,000. In addition, we incurred
research and development costs of approximately US$475,000 in 2016
relating to BWTS and Pact-Yixing incurred an operating loss of
approximately US$104,000. This resulted in operating loss from
engineering activities of approximately US$209,000. We continue to
scale down Shanghai Environmental to avoid duplication of costs and
efforts, as Pact-Yixing operate similar business activities, and we
plan to wind it down upon collection of outstanding accounts
receivable.
During
Fiscal 2017, there were decreases in revenues from both trading and
engineering activities. Revenue from Pact-Yixing decreased in 2017
to US$6,349,000, while Shanghai Environmental incurred an operating
loss of US$137,000. In addition, we incurred research and
development costs of approximately US$163,000 in 2017 relating to
BWTS and Pact-Yixing incurred an operating loss of approximately
US$169,000. This resulted in operating loss from engineering
activities of approximately US$306,000. We continue to scale down
Shanghai Environmental to avoid duplication of costs and efforts,
as Pact-Yixing operate similar business activities, and we plan to
wind it down upon collection of outstanding accounts
receivable.
Our
Growth Strategy
We are
focusing our trading activities in Hong Kong, Macau and Guangdong
under a more productive operation. These cities are located close
to our Hong Kong headquarters, our customers are more concentrated
in these cities rendering customer support easier while incurring
less travel expenses and while supporting distributorships in these
cities as opposed to distributorships throughout China. We will
continue our efforts to control costs to enhance operational
efficiency. At the same time we will place greater focus at the
manufacturing level on the chemical reagent business that the
Company believes is very profitable and easier to sell. These
chemical reagents are manufactured in our plant in Shanghai. These
reagents include but are not limited to chemical oxygen demand
(COD) analyzers, fine carbon tetrachloride, total nitrogen and free
chlorine. These reagents are used by water and wastewater treatment
plants and other industries such as beverage, as consumables with
the water analyzers to monitor the quality of the water/ discharged
water. To date, our existing distribution network for these
products has not been that effective, although in 2013 we received
three engineering contracts from two foreign companies outside
China and one company in China worth about US$ 2.3 million. Two of
said contracts were completed in Fiscal 2013 and the remaining one
contract was completed in Fiscal 2014. In 2016, we received a
contract worth about US$ 6 million from a foreign mobile phone
company that covers design, supply, installation and the
commissioning of industrial wastewater treatment and scrubber
systems for its OEM plants in Shanghai, Shenzhen and Zhengzhou,
China. This contract was completed in Fiscal 2017. We have been
investing significant portion of our resources to developing our
BWTS for the global market and feet positive about our ability to
expand our worldwide customer base by working closely and actively
with some international engineering companies because of
Pact-Yixing’s competitive prices and the high quality of its
services, although no assurance can be given.
Our
plans for the near term also include use of our
“on-line” product sales (via www.yibaynet.com.cn) will
allow us to continue to offer products at lower prices than our
competitors. This website is not that effective at this
moment.
The
Company believes that by assembling the products it distributes it
may realize increased gross profit margins and greater revenues and
net income than if it remains only a product distributor. During
the next twelve months, we intend to assemble and/or manufacture
additional products, and seek opportunities with our suppliers to
assemble their products, secure manufacturing and/or assembly
facilities. We have begun to promote our BWTS product that
currently treats wastewater at a rate of 200, 300, 500, 750, 1,200
and 1,250 cubic meters per hour.
We also
anticipate that an additional US$300,000 in research and
development costs will be expended on similar projects and
potential research and development projects for the development of
BWTS, portable ballast water checker, air and water testing
equipment and monitoring equipment during Fiscal 2018.
Future Planning and Expansion
We
continuously search for products and equipment with substantial
market potential for design and development. For example,
international shipping ballast water cargo stowaway species and
microorganisms that create unpredictable ecosystem contaminations
as ballast water tanks are emptied or refilled at ports of call.
Pact has been attempting to develop a non-chemical BWTS since late
2010. In 2012, Pact successfully completed and passed the land
based test requirement, and, in 2014, Pact passed ship board
testing and obtained CCS certification in the PRC and
compliance with the IMO convention. In September 2016, the
International Maritime Organization received acceptance from 52
States, representing approximately 35% of world merchant shipping
tonnage. This triggered the applicability of the entry into force
of the Ballast Water Management Convention, which occurred on
September 8, 2017. In July 2017, IMO decided that the phase-in period for
ballast water system retrofits will start on September 8,
2019. Meanwhile,
the Company is currently looking for strategic investors who are
interested in providing financing for the application of
the United States
Coast Guard (“USCG”) Type Approval for its BWTS
in order to enlarge is market coverage.
We
anticipate that the costs of any such acquisition or product
development would be drawn from our general working capital and,
possibly, by seeking strategic partners such as companies in the
BWM Convention shipping industries or funding raising from
substantial investors, and by private sales of our securities. We
have no commitments or received no indications of interest for the
private sales of our securities.
Product Distribution and Other Services
Scientific Instruments . The Company distributes
analytical instruments, environmental quality monitoring
instruments, sample pre-treatment equipment and general purpose
laboratory instruments. Analytical instruments include, but are not
limited to, chromatographs, mass spectrometers, flow injector
analyzers, automated sample preparation workstations and atomic
spectrometers. Environmental monitoring instruments include both
air and water quality monitoring instruments. Air quality
monitoring instruments are generally divided into those which
monitor ambient (i.e., atmospheric) air, and those which monitor
pollution sources. The revenue from sales of air quality monitoring
instruments is nominal as the Company has not been able to acquire
a distributorship for air quality instruments from brand name
manufactures that we believe engage in direct customer sales or
rely on their existing distributors. Sample pre-treatment
equipment is used to clean-up the sample prior to chemical analysis
for checking pesticides and drug residues in food. Additionally,
the Company offers general purpose laboratory instruments including
a variety of water quality monitoring and analysis equipment, such
as continuous reading process analyzers, process turbidimeters, pH
controllers, and test kits for monitoring chemical content in water
(i.e., chlorine, fluorides, etc.). See –
“Glossary.”
Customers for the
analytical instruments include government agencies, academic and
research institutions, major laboratories and beverage producers,
including analytical system to the Hong Kong Government Laboratory
for analysis of persistent organic pollutants (POPs) and pesticides
in the environment. Customers for water quality monitoring
instruments also include government agencies. Customers for sample
pre-treatment equipment are mainly different laboratories of major
cities under the Administration of Quality Supervision, Inspection
and Quarantine in the PRC. The Company derived approximately 67.5%,
75.0% and 64.7% of its revenues from the sale of scientific
instruments during Fiscal 2017, 2016 and 2015, respectively.
Power Solutions and Process Automation
Products. The Company distributes general testing and
measuring equipment including multi-channel digital and analogue
recorders, signal amplifiers and calibration equipment for energy
conservation, renewable energy equipment, power quality analyzers,
continuous emissions monitoring systems and air pollution control
systems to industries including power plants, railway and
aero-space industries, utilities, educational institutions and
telecommunications companies.
The
Company also provides process control systems specifically designed
for the industrial needs of clients including sensors, temperature
gauges, pressure gauges, power and energy consumption meters, flow
meters, valves, temperature and pressure transmitters and control
devices, temperature and pressure calibrators, moisture, power,
energy and harmonic analyzers. Customers for the foregoing
distributed products include government water supply agencies,
water treatment facilities, power and electric companies,
petrochemical plants and instrument
manufacturers.
In
conjunction with the distribution of products such as programmable
logic controllers, telemetry units and supervisory control and data
acquisition (SCADA) systems and software, the Company also provides
systems engineering to government agencies, waste-water treatment
and power generation plants and beverage producers. Specific
services provided include automated control system design, the
operation and management of various waste-water, water and power
generation projects. We endeavor to introduce, develop, and promote
new and advanced technologies, products, and appropriate technical
developments from abroad. We have also been cooperating with
established technology companies and engage in systems and special
projects in Programmable Logic Control, Telemetry unit, SCADA
systems, Human Machine Interface Software and Sequential Event
Recording.
The
Company derived approximately 31.2%, 23.6% and 33.6% of revenues
from the sale of Power Solutions and Process during Fiscal 2017,
2016 and 2015, respectively.
Technical Support. The
Company’s technical support staff provides customers with
maintenance, installation assistance, and calibration services, and
assists sales personnel in giving technical advice to and
performing product demonstrations for customers. The Company
derived approximately 1.3%, 1.4% and 1.7% of its revenues from
technical support operations during Fiscal 2017, 2016 and 2015,
respectively.
Customers. During Fiscal 2017, the
Company distributed products to approximately 1,000 customers,
located in Hong Kong, the PRC and Macau such as the Hong Kong
Environmental Protection Department, Hong Kong Water Supplies
Department, Government Laboratory, Drainage Services Department,
and various Environmental Monitoring Centers in the PRC. The
Company does not believe that any single customer is material to
its operations.
Manufacturing and Product Assembly Operations
The
Company, through its PRC subsidiary, Shanghai Euro Tech Limited
located in the Pudong Jin Qiao Export Processing Zone of Shanghai,
engages in the development, production, sales and servicing of
environmental equipment, including the development of modern
laboratory analyzers, on-line measuring equipment and other
analyzers for chemicals. Our products are “tailor-made”
for the diversified needs of equipment users. Main products include
infrared photometric oil analyzer (“IPOA”), COD
analyzers, total organic carbon (“TOC”) analyzer,
turbidity meters, total suspended solid analyzers, dissolved oxygen
analyzers, various types of spectrophotometers as well as a full
spectrum of matching chemical reagents. We also offer turbidity
meters manufactured by the Company and directed at water treatment
plants, environmental monitoring status, and hydrological stations.
We also offer our own TOC analytical instrument that measures the
degree of the pollution. We have also upgraded other existing
instruments and developed a quick response COD test instrument for
use on surface water, underground water and domestic and industrial
wastewater. Additionally, we offer a flue gas emissions analyzer
for use in environmental compliance monitoring. We also
developed energy meters (devices measuring electric energy
consumption and corresponding carbon dioxide emissions) and water
toxicity analysis instruments. Although it takes substantial time,
effort and expense to develop, test and market a product, our sales
of the TOC analyzer and the flue gas emissions analyzer have been
nominal to date. We have been unable to find a suitable market to
sell the energy meters. We have developed evaporator for extraction
of organic solvents to remove the impurities prior to chemical
analysis and are developing a larger size evaporator. Our customers
are analyzing environmental pollutants, toxic substances such as
pesticides and drug residues in food, drugs in clinical or forensic
applications. We started test sale of this product in second half
of fiscal 2015 and received orders of 14 sets in 2017 (sold 9 sets
in 2016). The Company has developed a handheld ballast water
checker which is the first handheld rapid indicative compliance
instrument made in China, based on well accepted PAM fluorescence
Technology. The instrument is a very powerful screening tool for
ship owners, compliance officers, ship builders and BWTS providers.
The company is now one of the few qualified local and foreign
candidates to participate in China Marine Safety
Administration’s (“MSA”) evaluation of indicative
testing instruments to be used by Port State Control officers for
compliance test according to IMO D2 standard. The unofficial
reports of comparison data between our instrument and lab test
results indicated that our instrument readings trend followed the
actual lab test results closely. We have also applied for patent
approval in China and got the environmental testing certificate
according to Chinese Standard GB/T 11606-2007 from Shanghai
Institute of Measurement and Technology. We are doing the ground
work of promoting our instrument to ship owners, shipping service
and equipment providers, ship builders, BWTS manufacturers and
local MSA. We also participated in trade shows like Marintec China
in Shanghai in last December. Although the regulation is not
enforced now, we are getting market awareness of our product
application. Shanghai Euro Tech Limited achieved its economic
breakeven point in Fiscal 2014.
Sources of Supply
The
Company distributes products manufactured by a substantial number
of major American, European and Japanese corporations, including
Thermo, Stanford and Hach, which are the Company’s largest
suppliers, with purchases from them accounting for approximately
39%, 11% and 6%, during Fiscal 2015, 63%, 7% and 5% during
fiscal 2016, and 45%, 10% and 9% during Fiscal 2017, respectively.
The Company has exclusivity agreements for specified geographic
areas with many of its suppliers for certain products. Those
agreements do not encompass all products distributed by the Company
or all of the market areas serviced by the Company. In addition,
some of these agreements are memorialized not as formal contracts
but rather through other acknowledgements or correspondence which
may contain a vague, if any, description of the terms and
conditions of such agreement or arrangement, and therefore may be
unenforceable. The Company has agreements with Hach. The
Company has an Agreement with Thermo granting the Company rights to
sell Thermo’s Mass Spec Products to the Government and
hospitals in Hong Kong which is valid until March 31, 2019. The
Company has only an Authorization Letter from Stanford appointing
the Company as Stanford’s sales representative in the PRC and
Hong Kong. Although alternative sources of supply exist, there can
be no assurance that the termination of the Company’s
relationship with any of the above or other vendors would not have
an adverse effect on operations.
Regulatory
Environment
Concerns about and
awareness of pollution problems and environmental issues have grown
at all levels of PRC government as the PRC experienced economic
growth. Environmental protection laws and strict regulations have
been enacted and are buttressed by increased budget allocations for
environmental regulation, monitoring and enforcement. The
PRC’s primary environmental protection agency is the Ministry
of Ecology and Environment (“MEE”) which replaces
Ministry of Environmental Protection (“MEP”) after the
13th
National People’s Congress held in March 2018. The new
streamlined ministry is a sign of China’s upgraded dedication
to the task of improving its environment in 2015 (latest number we
can get), there were 2810 monitoring centers in China. In the
19th
Five-Year Program (2016-2020), MEE launched three major campaigns
of prevention and control of environment. They are Action Plans for
Air Pollution Control, Water Pollution and Soil Pollution. Special
action had been taken at Beijing-Tianjin-Hebei region and Yangtze
River economic belt for air and water respectively. Major
indicators to assess air quality are SO2, NOX, PM10 & PM2.5.
Indicators for water are COD, petroleum oil, Total Nitrogen, Total
Phosphorus, ammonia nitrogen. We are making these instruments. MEP
had already rolled out soil pollution action plan in 2016. In-depth
investigation on soil environment quality, building monitoring
network and improvement of soil quality information management are
ongoing. The government’s goal is to have 90% of safe
utilization of polluted farmland. Now the government is outsourcing
the tests to commercial testing labs. Heavy metals and organic
pollutants are being analyzed. Our concentrator automates
evaporation and improve data quality for organic analysis. There
can be no assurance that the agencies will continue to use the
Company’s products for these purposes, or that other market
competitors will not enter the market with superior products,
distribution systems or more competitive prices. See –
“Competition.”
Competition
The
Company faces competition from other distributors of substantially
similar products as well as the manufacturers of such products, and
in both foreign and Chinese markets. The Company faces its
principal competition from manufacturers and other distributors of
its core products located in Hong Kong and the PRC. Moreover, the
Company has implemented plans to assemble products of the kind that
it presently distributes (see – “Manufacturing and
Product Assembly Operations”). Assembly operations have
developed to the stage where some products have already been
presented to the market and the Company is in direct and
unavoidable competition with certain of its vendors. There can be
no assurance that the existence of this direct competition will not
impair the Company’s ability or such competitor’s
willingness to continue providing other products for continued
distribution by the Company and that such a development would not
materially adversely affect the Company’s core
business.
During
Fiscal 2017, 2016 and 2015, the Company’s gross profit
margins were approximately 25%, 22% and 22%, respectively. The
Company believes that it competes with the PRC manufacturers on the
basis of quality and technology. The Company believes it offers
foreign-manufactured products which are of higher quality and use
more advanced technology than products manufactured in the PRC. The
Company believes that it competes with foreign manufacturers and
other distributors of their products on the basis of the
Company’s more extensive distribution network and an
established reputation. Pact-Yixing focuses on a market of
providing water and waste water treatment services to multinational
companies. The Company competes in this market based upon the
quality of its products and having a knowledgeable staff, but faces
competition from large PRC and multinational engineering companies,
that, in the Company’s view, market their services based upon
low pricing as opposed to quality of service.
Website
The
Company has an internet platform located at
http://www.chinah2o.com. The website is directed toward
environmental businesses in China. The website provides
environmental news, directories of western suppliers, potential
clients in China, and advertisement space but has not generated
sufficient external revenue and is now being operated directly
through the Company instead of through a subsidiary deregistered in
February 2012.
The
Company, through its subsidiary, Euro Tech Trading (Shanghai)
Limited, a PRC corporation, has an internet platform. The website
is located at http://www.yibaynet.com.cn. The website is an
instrument sourcing platform under which potential customers can
ask for sales quotations and place orders via internet. It can
replace some functions of the closed retail shops.
Sales and Marketing
The
Company distributes products through its principal office located
in Hong Kong and its representative PRC offices located in Beijing,
and its wholly-owned trading/retail companies and their
representative offices in Shanghai, Chongqing, Guangzhou and
Shenyang. During Fiscal 2015, the Company had a marketing and sales
force of 26 people who are paid a salary plus a
sales-based commission. During Fiscal 2016, the Company had a
marketing and sales force of 21 people who are paid a salary
plus a sales-based commission. During Fiscal 2017, the
Company had a marketing and sales force of 16 people who are paid a
salary plus a sales-based commission. Our sales staff assists
customers in selecting the equipment, auxiliary parts and products
to suit customer specifications. We will continue to consolidate
our operations by closing companies and offices that do not appear
to be contributing to the Company.
Our
remaining sales subsidiaries are located in: Shanghai, Chongqing,
Guangzhou and Xi’an. We are now closing Xi’an
subsidiary.
Our
remaining representative office is located in: Beijing and
Shenyang. The representative office in Beijing is a liaison office
of Far East, and the representative office in Shenyang is a sales
office of Shanghai Euro Tech Limited while the sales subsidiaries
are actually engaged in sales of the Company's products and
assisting customers in the use of our products.
Litigation
From
time to time, we are subject to legal proceedings, investigations
and claims incidental to the conduct of our business. We are not
currently a party to any legal proceeding or investigation which,
in the opinion of our management, is likely to have a material
adverse effect on our business, financial condition or results of
operations. Shanghai Euro Tech Environmental Engineering Company
Limited (“Shanghai Environmental”), our wholly-owned
subsidiary, filed a civil action claim in the Baise Intermediate
People’s Court of Guangxi Zhaung Autonomous Region against
GuangXi Tiandong Industrial Investment Development Co., Ltd., for
outstanding accounts receivable debts of approximately of
US$416,000. The litigation has not been concluded.
ITEM 4C. ORGANIZATIONAL STRUCTURE
Euro
Tech Holdings Company Limited was incorporated in the British
Virgin Islands on September 30, 1996.
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
PRC.
Details
of the Company’s current significant subsidiaries are
summarized 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 Trading (Shanghai) Limited
|
|
100%
|
|
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%
|
|
PRC
|
|
Manufacturing
of analytical and testing equipment
|
|
|
|
|
|
|
|
|
|
Shanghai Euro Tech
Environmental Engineering Company Limited
|
|
100%
|
|
PRC
|
|
Undertaking
water and waste-water treatment engineering projects
|
|
|
|
|
|
|
|
|
|
Chongqing Euro Tech
Rizhi Technology Co., Ltd
|
|
100%
|
|
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%
|
|
PRC
|
|
Marketing
and trading of water and waste water related process control,
analytical and testing instruments, disinfection equipment,
supplies and related automation systems
|
|
|
|
|
|
|
|
|
|
Guangzhou Euro Tech
Environmental Equipment Co., Ltd
|
|
100%
|
|
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%
|
|
PRC
|
|
Design,
manufacturing and operation of water and waste water treatment
machinery and equipment
|
|
|
|
|
|
|
|
|
|
Pact
Asia Pacific Limited
|
|
58%
|
|
British
Virgin Islands
|
|
Selling
of environmental protection equipment, undertaking environment
protection projects and providing relevant technology advice,
training and services
|
|
|
|
|
|
|
|
|
|
Affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zhejiang Tianlan
Environmental Protection Technology Co. Ltd.
|
|
19.4%
|
|
PRC
|
|
Design,
general contract, equipment manufacturing, installation, testing
and operation management of the treatment of waste gases
emitted
|
|
|
|
|
|
|
|
|
|
Zhejiang Jiahuan
Electronic Co. Ltd.(1)
|
|
20%
|
|
PRC
|
|
Design
and manufacturing of automatic control systems and electric voltage
control equipment for electrostatic precipitators (air purification
equipment)
|
(1) On March 5, 2018, we entered into an Equity
Transfer Agreement to sell our 20% equity stake of Jia Huan. The
completion of the transaction is subject to completion of all
closing formalities, including the need to obtain approval and
registration with the relevant governmental authorities. For a
complete description of the terms of the Agreement, see
“Item 4A. History And Development of the
Company.”
ITEM 4D. PROPERTY, PLANT AND
EQUIPMENT
The
Company has various operating lease agreements for office and
industrial premises. Rental expenses for the year ended December
31, 2017 were approximately US$324,000. Future minimum rental
payments as of December 31, 2017, under the agreements classified
as operating leases with non-cancellable terms amounted to
US$193,000, of which US$157,000 are payable in the year 2018 and
US$36,000 are payable within years 2019 to 2023.
The
Company maintains an executive office at Unit C and D, 18/F Gee
Chang Hong Centre, 65 Wong Chuk Hang Road, Hong Kong. The Company
occupies approximately 7,000 square feet of office and warehouse
storage space under a two year lease that expires in May 2019
with a monthly rental payment of approximately US$7,282. The
warehouse storage space is used to hold products for distribution
to our customers via common carriers.
The
Company owns approximately 1,200 square feet of space in a building
in Hong Kong. This property is now vacant, and the Company is
looking to let it to a third party.
The
Company’s two representative offices are rented by the
Company pursuant to short-term leases with an aggregate rent of
approximately US$996 per month.
Euro
Tech Trading (Shanghai) Limited has two offices rented pursuant to
short term leases, at an aggregate monthly rent of approximately
US$1,042. Shanghai Euro Tech Limited’s premises are rented
pursuant to a short term lease for a monthly rent of approximately
US$3,608. Shanghai Euro Tech Environmental Engineering Company
Limited's premises are also rented pursuant to a short term lease
for a monthly rent of approximately US$1,048.
Yixing
occupies a 700 square meter facility in Shanghai, pursuant to a
three year lease expiring in January 2020, providing for a
monthly rent of approximately US$12,981.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND
PROSPECTS
Overview. The Company is engaged in two
different major segments, namely trading and manufacturing and
engineering.
For the
trading segments, the Company is a distributor of a wide range of
advanced water treatment equipment, laboratory instruments,
analyzers, test kits and related supplies and power generation
equipment (including recorders and power quality
analyzers).
For the
engineering segment, the Company, through its PRC subsidiary,
Shanghai Euro Tech Limited located in the Pudong Jin Qiao Export
Processing Zone of Shanghai, engages in the development,
engineering, production, sales and servicing of environmental
protection equipment, and energy conservation and related products.
Through its majority owned subsidiaries, Pact-Yixing, its
wholly-owned subsidiary, Shanghai Environmental, and its minority
owned affiliates, Blue Sky and Jia Huan, the Company also engages
in water and waste-water treatment engineering and air pollution
control business.
ITEM 5A. OPERATING RESULTS
Background - Political and Economic Conditions in Hong Kong and the
PRC
The
Company’s operations are located almost entirely within, and
revenues are almost entirely generated from Hong Kong and the PRC.
Set forth below are the approximate percentage of the
Company’s sales made to customers in the PRC and Hong Kong
for the fiscal years indicated:
|
Fiscal Year
|
|
|
|
|
|
|
|
2015
|
51%
|
48%
|
|
2016
|
47%
|
52%
|
|
2017
|
45%
|
53%
|
Sales
to customers situated in Macau and elsewhere through Fiscal 2017
were nominal. This makes the Company particularly susceptible to
changes in the political and economic climate of either Hong Kong
or the PRC.
Hong Kong. Hong Kong has been one
of the prime centers for commercial activity and economic
development recently in Southeast Asia. On July 1, 1997,
sovereignty over Hong Kong was transferred from the United Kingdom
to the PRC. As provided in the Sino-British Joint Declaration and
the Basic Law, the Hong Kong SAR is provided a high degree of
autonomy except in foreign and defense affairs. The Basic Law
provides that the Hong Kong SAR is to have its own legislature,
legal and judicial system and full economic autonomy for 50 years
after the transfer of sovereignty. Based on the current political
conditions and the Company’s understanding of the Basic Law,
the Company does not believe that the transfer of sovereignty over
Hong Kong has had or will have an adverse impact on its financial
and operating environment. Although the Chinese government has
pledged to maintain the economic and political autonomy of Hong
Kong over its internal affairs, there is no assurance that such
pledge will continue to be honored if there are changes in the
Chinese political or economic climate. Sales in Hong Kong,
expressed as a percentage of our revenue, increased by 15% in
Fiscal 2015 as compared with Fiscal 2014. Sales in Hong Kong,
expressed as a percentage of our revenue, increased by 4% in Fiscal
2016 as compared with Fiscal 2015. Sales in Hong Kong,
expressed as a percentage of our revenue, increased by 1% in Fiscal
2017 as compared with Fiscal 2016. See – Item 3D.
“Key Information — Risk Factors.”
PRC. The PRC has been a socialist
state since 1949. For more than half a century, the PRC’s
economy has been, and presently continues to be, a socialist
economy operating under government controls promulgated under
various state plans adopted by central Chinese government
authorities and implemented, to a large extent, by provincial and
local authorities who may set production and development targets.
However, since approximately the early 1980s, the PRC’s
national government has undertaken certain reforms to permit
greater provincial and local economic autonomy and private economic
activities. Any change in political or economic conditions may
substantially adversely affect these reform initiatives and, in
turn, the Company. Sales in the PRC, expressed as a percentage of
total revenue, decreased by 8% in Fiscal 2014 as compared with
Fiscal 2013. The decrease was primarily due to a decrease in
engineering revenues from the PRC as a result of competition from
companies offering similar services, which we believe to be of
lower quality than our services, at lower prices. Sales in the
PRC, expressed as a percentage of total revenue, decreased by 4% in
Fiscal 2016 as compared with Fiscal 2015. The decrease was
primarily due to the fact that the increase in sales in PRC were
less than the overall increase in sales of the Company. Sales in
the PRC, expressed as a percentage of total revenue, decreased by
2% in Fiscal 2017 as compared with Fiscal 2016. The decrease was
primarily due to a decrease in engineering revenue in PRC. See
– Item 3D. “Key Information — Risk
Factors.”
Results from Operations
The
following operating and financial review should be read in
conjunction with the Consolidated Financial Statements and notes
thereto appearing elsewhere in this Annual Report. All financial
data referred to in the following discussion has been prepared in
accordance with accounting principles generally accepted in the
United States (“US GAAP”).
The
following table presents selected statement of operations data
expressed in thousands of US$ and as a percentage of revenue
for the Company’s fiscal years indicated below:
|
|
|
|
|
|
|
|
Revenue
|
17,350
|
100%
|
22,478
|
100%
|
18,302
|
100%
|
18,822
|
100%
|
18,602
|
100%
|
|
Cost of
revenue
|
12,937
|
74.6%
|
17,527
|
78.0%
|
14,259
|
77.9%
|
13,991
|
74.3%
|
13,138
|
70.6%
|
|
Gross
Profit
|
4,413
|
25.4%
|
4,951
|
22.0%
|
4,043
|
22.1%
|
4,831
|
25.7%
|
5,464
|
29.4%
|
|
Selling and
administrative expenses
|
4,976
|
28.7%
|
5,602
|
24.9%
|
5,997
|
32.8%
|
5,802
|
30.8%
|
5,719
|
30.7%
|
|
Loss before income
Taxes
|
(564)
|
-3.3%
|
(640)
|
-2.8%
|
(1,904)
|
-10.4%
|
(879)
|
-4.7%
|
(157)
|
-0.8%
|
|
Income taxes
(expense)/credit
|
(28)
|
-0.2%
|
(228)
|
-1.0%
|
47
|
0.3%
|
(18)
|
-0.1%
|
(73)
|
-0.4%
|
|
Equity in income of
Affiliates
|
831
|
4.8%
|
1,002
|
4.5%
|
850
|
4.6%
|
605
|
3.2%
|
325
|
1.7%
|
|
Net
income/(loss)
|
367
|
2.1%
|
158
|
0.7%
|
(1,007)
|
-5.5%
|
(292)
|
-1.6%
|
95
|
0.5%
|
|
Net loss/(income)
attributable to Non-controlling interest
|
106
|
0.6%
|
73
|
0.3%
|
391
|
2.1%
|
169
|
0.9%
|
(113)
|
-0.6%
|
|
Net income/(loss)
attributable to the Company
|
473
|
2.7%
|
231
|
1.0%
|
(616)
|
-3.4%
|
(123)
|
-0.7%
|
(18)
|
-0.1%
|
Fiscal Year Ended December 31, 2017 Compared to Fiscal Year
Ended December 31, 2016
Revenue; Gross Profit and Cost of Revenue.
Revenue decreased by approximately US$5,128,000 or 22.8% to
approximately US$17,350,000 in Fiscal 2017 from approximately
US$22,478,000 in Fiscal 2016. Revenue from trading and
manufacturing activities and engineering activities decreased by
approximately US$2,720,000 and US$2,408,000, respectively. The
decrease in revenues from trading and manufacturing activities was
principally due to drop in big system sales. The decrease in
revenues from engineering activities was principally because there
was a big contract from a foreign mobile phone company received in
Fiscal 2016. Pact-Yixing’s revenues of approximately
US$6,349,000 and US$8,757,000 were included in our revenues in
Fiscal 2017 and Fiscal 2016, respectively.
Gross
profits decreased by approximately US$538,000 or 10.9% to
approximately US$4,413,000 for Fiscal 2017 as compared to
approximately US$4,951,000 for Fiscal 2016. During
Fiscal 2017, the Company’s cost of revenue was approximately
US$12,937,000 or 74.6% of revenues, in comparison to approximately
US$17,527,000 or 78.0% for Fiscal 2016. Cost of revenue expressed
as a percentage of revenue decreased by 3.4% in Fiscal 2017 as
compared with Fiscal 2016. This change was principally due to drop
in trading activities of big system sales which were of lower gross
margin. Pact-Yixing contributed approximately US$1,975,000 to our
gross profit in Fiscal 2017, a decrease of approximately US$601,000
from Fiscal 2016.
Selling and Administrative Expenses.
Selling and administrative expenses were approximately US$4,976,000
in Fiscal 2017, a decrease of approximately US $626,000 or 11.2%
from approximately US$5,602,000 in Fiscal 2016. The decrease was
largely due to tight control over overheads spent. The research and
development expenses decreased from approximately US$475,000 in
Fiscal 2016 to approximately US$163,000 in Fiscal
2017.
Equity in Income of Affiliates. Equity
in income of affiliates was approximately US$831,000 in Fiscal
2017, a decrease of approximately US$171,000 or 17.1% from
approximately US$1,002,000 in Fiscal 2016 because of decrease in
contribution for Jia Huan.
Interest Income. Interest income in Fiscal 2017 was
approximately US$24,000 as compared to approximately US$18,000 in
Fiscal 2016.
Other (losses)/income. Other income decreased by
approximately US$19,000 to approximately US$(14,000) in Fiscal 2017
from approximately US$5,000 in Fiscal 2016. The decrease in other
income was principally due to decrease in rental income of
US$48,000 as one property was vacant during Fiscal
2017.
Income Taxes. Tax expenses of approximately
US$28,000 in Fiscal 2017 as compared to approximately US$228,000 in
Fiscal 2016. This change was primarily the result of a
decrease in net taxable income for Fiscal 2017.
Net Income. Profit from continuing operations was
approximately US$473,000 in Fiscal 2017 as compared
to approximately US$231,000 in Fiscal 2016. This change was
primarily due to decrease in operating loss and income
taxes.
Fiscal Year Ended December 31, 2016 Compared to Fiscal Year
Ended December 31, 2015
Revenue; Gross Profit and Cost of Revenue.
Revenue increased by approximately US$4,176,000 or 22.8% to
approximately US$22,478,000 in Fiscal 2016 from approximately
US$18,302,000 in Fiscal 2015. Revenue from trading and
manufacturing activities and engineering activities increased by
approximately US$1,465,000 and US$2,711,000, respectively. The
increase in revenues from engineering activities was principally
due to receipt of a contract from a foreign mobile phone company.
Pact-Yixing’s revenues of approximately US$8,757,000 and
US$5,994,000 were included in our revenues in Fiscal 2016 and
Fiscal 2015, respectively.
Gross
profits increased by approximately US$908,000 or 22.5% to
approximately US$4,951,000 for Fiscal 2016 as compared to
approximately US$4,043,000 for Fiscal 2015. During
Fiscal 2016, the Company’s cost of revenue was approximately
US$17,527,000 or 78.0% of revenues, in comparison to approximately
US$14,259,000, or 77.9% for Fiscal 2015. Cost of revenue expressed
as a percentage of revenue increased by 0.1% in Fiscal 2016 as
compared with Fiscal 2015. Pact-Yixing contributed approximately
US$2,576,000 to our gross profit in Fiscal 2016, an increase of
approximately US$910,000 from Fiscal 2015.
Selling and Administrative Expenses.
Selling and administrative expenses were approximately US$5,602,000
in Fiscal 2016, a decrease of approximately US $395,000 or 6.6%
from approximately US$5,997,000 in Fiscal 2015. The decrease was
largely due to a decrease in research and development expenses
resulting from BWTS. The research and development expenses
decreased from approximately US$851,000 in Fiscal 2015 to
approximately US$475,000 in Fiscal 2016.
Equity in Income of Affiliates. Equity
in income of affiliates was approximately US$1,002,000 in Fiscal
2016, an increase of approximately US$152,000 or 17.9% from
approximately US$850,000 in Fiscal 2015 because of increase in
sales revenue of the affiliates.
Interest Income. Interest income in Fiscal 2016 was
approximately US$18,000 as compared to approximately US$45,000 in
Fiscal 2015.
Other Income. Other income decreased by approximately
US$4,000, or 44%, to approximately US$5,000 in Fiscal 2016 from
approximately US$9,000 in Fiscal 2015. The decrease in other income
was principally due to decrease in rental
income.
Income Taxes. Tax expenses of approximately
US$228,000 in Fiscal 2016 as compared to tax credit of
approximately US$47,000 in Fiscal 2015. This change was
primarily the result of an increase in net taxable income for
Fiscal 2016.
Net Income. Profit from continuing operations was
approximately US$231,000 in Fiscal 2016 as compared to loss from
continuing operations of approximately US$616,000 in Fiscal
2015. This change was primarily due to an increase in sales
revenue, decrease in selling and administrative expenses and
increase in profit contribution from affiliates.
ITEM 5B. LIQUIDITY AND CAPITAL
RESOURCES
The
Company has primarily used its own funds to finance accounts
receivable, inventories, and capital expenditures including
purchases of property, office furniture and equipment, computers
and calibration equipment. The Company has historically met its
cash requirements from cash flows from operations, short-term
borrowings, bank lines of credit, and long-term mortgage bank
loans. The Company expects, but can make no assurances that its
present cash reserves, cash from operations and existing available
bank credit facilities exercises would be sufficient to fund its
future capital expenditure requirements. Working capital at the end
of Fiscal 2017 and Fiscal 2016 were approximately US$2,986,000 and
US$3,101,000, respectively.
As of
December 31, 2017, we had approximately US$3,380,000 in cash
and cash equivalents, compared to approximately US$3,751,000 in
cash and cash equivalents as of December 31, 2016. Net cash
provided by / (used in) operating activities was US$652,000 for the
year ended December 31, 2017 as compared to US$153,000 for the year
ended December 31, 2016 and (US$2,972,000) for the year ended
December 31, 2015. Net cash provided by investing activities was
US$272,000, US$199,000 and US$271,000 for the years ended December
31, 2017, 2016 and 2015, respectively. Net cash (used in)/provided
by financing activities was (US$623,000) for the year ended
December 31, 2017 as a result of repayment of bank borrowings
related to finance trade purchases, as compared to US$720,000 for
the year ended December 31, 2016 and (US$20,000) for the year ended
December 31, 2015.
The
Company had various banking facilities available for overdraft,
import and export credits and foreign exchange contracts
from which the Company could have accessed up to approximately
US$897,000 at December 31, 2017. These credit facilities were
obtained on the conditions that, among other things, the Company
pledge rented out property of approximately 1,200 square feet in
Hong Kong as security, not create a charge or lien on its other
assets in favor of third parties without such bank’s consent,
and the Company maintaining a certain level of net
worth.
Cash
decreased from approximately US$3,751,000 at the end of Fiscal 2016
to US$3,380,000 at the end of Fiscal 2017. The principal reason for
the decrease in cash was net cash outflow for financing
activities.
The
Company’s accounts receivable, net decreased from
approximately US$4,393,000 at the end of Fiscal 2016 to
US$3,808,000 at the end of Fiscal 2017. The amount of receivables
subject to collection is expected to be received under normal
commercial trading terms.
The
Company’s inventories, net increased from approximately
US$344,000 at the end of Fiscal 2016 to US$496,000 at the end of
Fiscal 2017.
The
Company’s capital expenditures were approximately US$18,000
and US$60,000 in Fiscal 2017 and Fiscal 2016, respectively. Capital
expenditures during Fiscal 2017 and Fiscal 2016 were incurred
primarily in connection with the purchase of office equipment,
furniture and fixtures. The Company continues to develop new
products, for example, non-chemical ballast water treatment system.
If such products developments are indeed made, the Company may
expect to incur significantly larger capital expenditures, for
which the Company presently intends, but as to which no assurance
can be made, to use existing cash reserves, cash from operations
and available bank credit facilities.
Goodwill
Goodwill related to
the engineering segment which is profitable. As of
December 31, 2017, we completed the annual impairment test.
Based on the result of the first step of the test, the Company
determined that there was no impairment of goodwill.
Anticipated Future Resources and Uses of Cash
The
Company has historically funded its working capital, capital
expenditure, investing and expansions needs from operations,
available bank credit facilities and proceeds from the issuances of
our ordinary shares and expects to continue funding these
requirements from operations and available bank credit facilities.
The Company may use its funds to form strategic alliances with
third parties, invest in product research and development, or
expand its sales offices or, with third parties, seek to acquire
new products or form strategic alliances. The Company expects, but
can make no assurances that its present cash reserves, cash from
operations and existing available bank credit facilities would be
sufficient to fund its future cash requirements.
Inflation
The
Company believes generally that past declining rates of inflation
in the PRC have had a positive effect on its results from
operations. As a result of the recent rise in the rate of inflation
in the PRC, we anticipate increases in the overhead costs of our
PRC affiliates and offices. The Company believes, although no
assurance can be given, that as credit restrictions are gradually
lifted, it will be able to increase prices in the market for its
products and thus realize increased profit margins.
Critical Accounting Policies and Estimate
Basis of Consolidation
The
consolidated financial statements include the financial statements
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.
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.
Investments in
companies in which the Group has significant influence (ownership
interest of between 20% and 50%) but less than controlling
interests, are accounted for by the equity method. Income on
intercompany sales, not yet realized outside of the Group, was
eliminated. The Group also reviews these investments for impairment
whenever events indicate the carrying amount may not be
recoverable.
In
accordance with ASC Topic 323-10-40-1, a change in the
Group's proportionate
share of an investee's equity, resulting from issuance of shares by
the investee to third parties, is accounted for as if the Group had
sold a proportionate share of its investment. Any gain or
loss resulting from an investee's share issuance is recognized in
earnings.
Management
evaluates investments in affiliated companies, for evidence of
other-that-temporary declines in value. Such evaluation is
dependent on the specific facts and circumstances and includes
analysis of relevant financial information (e.g. budgets, business
plans, financial statements, etc.). During the years ended December
31, 2017 and 2016, no impairment was identified.
Revenue Recognition
The
Group’s main source of revenue is the sale of water and waste
water related process control, analytical and testing instruments,
disinfection equipment, supplies and related automation systems.
Revenues are recognized when delivery has occurred and, where
applicable, after installation has been completed, there is a
persuasive evidence of an arrangement, the fee is fixed or
determinable and collection of the related receivable is reasonably
assured and no further obligations exist. In case where delivery
has occurred but the required installation has not been performed,
the Group does not recognize the revenues until the installation is
completed.
The Group’s revenues are recognized as follows:
1.
Revenues from sales are
recognized when title and risk of loss of the product pass to the
customer (usually upon delivery).
2.
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 is 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. 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, engineering contract revenues are recognised using the
completed contract method.
Taxation
The
Group accounts for income and deferred tax under the provision of
FASB ASC Subtopic 740-10, Income Taxes, in accordance with 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.
In
accordance with ASC 740-10, the Group 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 Group recognises interest and/or penalties, if any,
related to income tax matters in income tax expense (Nil for the
years ended December 31, 2017, 2016 and 2015). The Group did not
have such uncertain tax positions in 2017, 2016 and 2015. The Group
is subject to examination of tax authorities in the United States
of America (open for audit for 2015 to 2017), Hong Kong (open for
audit for 2011 to 2017) and PRC (open for audit for 2015 to
2017).
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 the consolidated statements of operations and
comprehensive income / (loss) for the period that includes the
enactment date.
Impairment for long lived assets
The
Group adheres to 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 fair value and comparing such amount to the carrying
amount of the assets. An impairment loss, if one exists, is then
measured by the excess of carrying value over fair value. 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 its 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 in the
period ended December 31, 2017.
Goodwill
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.
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 recognized in the
consolidated statements of operations and
comprehensive income / (loss) during the year in which they
occur. Translation adjustments on subsidiaries’ equity are
included as accumulated comprehensive income or loss.
Use of Estimates
The
preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of
America (“GAAP”) requires management to make estimates
and assumptions that affect the amounts that are reported in the
consolidated financial statements and accompanying disclosures.
Although these estimates are based on management’s best
knowledge of current events and actions that the Group may
undertake in the future, actual results may be different from the
estimates.
Related Parties
Related
parties are affiliates
of the Group; entities for which investments are accounted for by
the equity method by the Group;
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 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. 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.
Recently Issued Accounting Pronouncements
In
May 2014, the Financial Accounting Standards Board (the "FASB")
issued ASU 2014-09, "Revenue from Contracts with Customers", also
known as the "New Revenue Standard". This update is the result of a
collaborative effort by the FASB and the International Accounting
Standards Board to simplify revenue recognition guidance, remove
inconsistencies in the application of revenue recognition, and to
improve comparability of revenue recognition practices across
entities, industries, jurisdictions, and capital markets. The core
principle of the guidance is that an entity should recognize
revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the
entity expects to receive for those goods or services. The New
Revenue Standard is applied through the following five-step
process:
|
1.
Identify the contract(s) with a customer.
|
|
2.
Identify the performance obligation in the contract.
|
|
3.
Determine the transaction price.
|
|
4.
Allocate the transaction price to the performance obligations in
the contract.
|
|
5.
Recognize revenue when (or as) the entity satisfies a performance
obligation.
|
For
a public entity, this update is effective for annual and interim
reporting periods beginning after December 15, 2017 with early
adoption permitted. This standard can be applied on either a
retrospective or modified retrospective approach. Since May, 2014,
a number of ASU's have been issued which further refine the
original guidance issued under ASU 2014-09 and are effective in
conjunction with this original standard.
The
Group established an implementation approach to assess the impact
of the new revenue guidance on its operations, consolidated
financial statements and related disclosures. This assessment
included (1) performing contract analyses for each revenue stream
identified, (2) assessing the noted differences in recognition and
measurement that may result from adopting this new standard, (3)
performing detailed analyses of contracts with large customers, and
(4) performing transaction level testing for consistency with
contract provisions that affect revenue recognition. The Group
evaluated the potential impacts of the new standard on its existing
revenue recognition policies and procedures during the fiscal year
ended December 31, 2017, and determined that the Group’s
performance obligations are met at goods/service delivery point,
with no other material obligations. The Group further determined
that its warranty terms are consistent. The Group also determined
that there were no incremental disaggregated revenue disclosures
required in our consolidated financial statements. Based on the
results of the evaluation, adoption of the new standard will not
have a material impact on our consolidated financial statements.
The New Revenue Standard became effective for us on January 1, 2018
and was applied on a retrospective basis, with no cumulative effect
of adoption to any of the consolidated financial statement line
items.
In
January 2016, the FASB issued ASU 2016-01, "Financial
Instruments – Recognition and Measurement of Financial Assets
and Financial Liabilities (Topic 825)". ASU 2016-01 revises the
classification and measurement of investments in certain equity
investments and the presentation of certain fair value changes for
certain financial liabilities measured at fair value. ASU 2016-01
requires the change in fair value of many equity investments to be
recognized in net income. ASU 2016-01 is effective for interim and
annual periods beginning after December 15, 2017, with early
adoption permitted. Adopting ASU 2016-01 will result in a
cumulative effect adjustment to the Group's retained earnings as of
the beginning of the year of adoption. The Group does not expect
the adoption of ASU 2016-01 to have a material impact on its
consolidated financial statements because there are no material
investments in certain equity investments and financial liabilities
measured at fair value.
In
February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)".
The objective of this update is to increase transparency and
comparability among organizations by recognizing lease assets and
lease liabilities on the balance sheet and disclosing key
information about leasing arrangements. ASU 2016-02 is effective
for fiscal years beginning after December 15, 2018, including
interim periods within those annual periods and is to be applied
utilizing a modified retrospective approach. The Group does not
expect the adoption of ASU 2016-02 to have a material impact on its
consolidated financial statements because there are no material
operating leases.
In June
2016, the FASB issued ASU 2016-13, “Financial Instruments
—Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments:, which is effective for fiscal years
beginning after December 15, 2019. Among other things, these
amendments require the measurement of all expected credit losses
for financial assets held at the reporting date based on historical
experience, current conditions, and reasonable and supportable
forecasts. Financial institutions and other organizations will now
use forward-looking information to better inform their credit loss
estimates. Many of the loss estimation techniques applied today
will still be permitted, although the inputs to those techniques
will change to reflect the full amount of expected credit losses.
In addition, the ASU amends the accounting for credit losses on
available-for-sale debt securities and purchased financial assets
with credit deterioration. The Group
does not expect the adoption of ASU 2016-13 to have a material
impact on its consolidated financial statements because there are
no material expected credit losses for financial assets, no
available-for-sale debt securities and no purchased financial
assets with credit deterioration.
In
August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows
– (Topic 230): Classification of Certain Cash Receipts and
Cash Payments". ASU 2016-15 addresses eight specific cash flow
issues with the objective of reducing the existing diversity in
practice. ASU 2016-15 is effective for fiscal years, and for
interim periods within those years, beginning after December 15,
2017. Early application is permitted. The Group does not expect the
adoption of ASU 2016-15 to have a material impact on its
consolidated financial statements because for distributions
received from equity method Investees, it is already using the
nature of the distribution approach.
In
November 2016, the FASB issued
ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted
Cash”, which is effective for fiscal years beginning after
December 15, 2017. These amendments s require that a statement of
cash flows explain the change during the period in the total of
cash, cash equivalents, and amounts generally described as
restricted cash or restricted cash equivalents. As a result,
amounts generally described as restricted cash and restricted cash
equivalents should be included with cash and cash equivalents when
reconciling the beginning-of-period and end-of-period total amounts
shown on the statement of cash flows. The amendments do not provide
a definition of restricted cash or restricted cash equivalents.
The Group adopted ASU 2016-18
effective January 1, 2017. The adoption of this guidance did not
have a material impact on our consolidated financial
statements.
In
January 2017, the FASB issued ASU 2017-01, “Business
Combinations (Topic 805): Clarifying the Definition of a
Business”, which is effective for fiscal years beginning
after December 15, 2017. These amendments clarify the definition of
a business. The amendments affect all companies and other reporting
organizations that must determine whether they have acquired or
sold a business. The definition of a business affects many areas of
accounting including acquisitions, disposals, goodwill, and
consolidation. The amendments are intended to help companies and
other organizations evaluate whether transactions should be
accounted for as acquisitions (or disposals) of assets or
businesses. The Group does not expect
the adoption of ASU 2017-01 to have a material impact on its
consolidated financial statements because no planned business
combination is to be made.
In
January 2017, the "FASB" issued ASU 2017-04, "Intangibles –
Goodwill and Other – (Topic 350): Simplifying the Test for
Goodwill Impairment". ASU 2017-04 simplifies the accounting for
goodwill impairment by removing the requirement to calculate the
implied fair value. Instead, it requires that an entity records an
impairment charge based on the excess of a reporting unit's
carrying amount over its fair value. An entity still has the option
to perform the qualitative assessment for a reporting unit to
determine if the quantitative impairment test is necessary. ASU
2016-15 is effective for fiscal years, and for interim periods
within those years, beginning after December 15, 2019. Early
adoption is permitted for interim or annual goodwill impairment
tests performed on testing dates after January 1, 2017. The Group
does not expect the adoption of ASU 2017-01 to have a material
impact on its consolidated financial statements because no planned
business combination is to be made and goodwill to be
derived.
In
March 2017, the FASB issued ASU 2017-07, “Compensation
— Retirement Benefits (Topic 715): Improving the Presentation
of Net Periodic Pension Cost and Net Periodic Postretirement
Benefit Cost”, which is effective for fiscal years beginning
after December 15, 2017. The amendments apply to all entities that
offer employees defined benefit pension plans, other postretirement
benefit plans, or other types of benefits accounted for under Topic
715, Compensation — Retirement Benefits. The amendments
require that an employer report the service cost component in the
same line item or items as other compensation costs arising from
services rendered by the pertinent employees during the period. The
other components of net benefit cost are required to be presented
in the income statement separately from the service cost component
and outside a subtotal of income from operations, if one is
presented. If a separate line item or items are used to present the
other components of net benefit cost, that line item or items must
be appropriately described. If a separate line item or items are
not used, the line item or items used in the income statement to
present the other components of net benefit cost must be disclosed.
The amendments also allow only the service cost component to be
eligible for capitalization when applicable (e.g., as a cost of
internally manufactured inventory or a self-constructed asset).
The Group does not expect the adoption
of ASU 2017-07 to have a material impact on its consolidated
financial statements because no material employees defined
benefit pension plans.
No
other new accounting pronouncements issued or effective during the
fiscal year have had or are expected to have a material impact on
the consolidated financial statements.
ITEM 5C. RESEARCH AND DEVELOPMENT, PATENTS AND
LICENSES
During
Fiscal 2017, 2016 and 2015, the Company expensed approximately
US$163,000, US$475,000 and US$852,000, respectively, on the
research and development of its products.
ITEM 5D. TREND INFORMATION
There
are increasing demands in the PRC for clean water, clean air,
greater industrial pollution controls, waste management and
electricity. We also see additional distributors competing with us.
However, given the political situation in the PRC, trends could
quickly disappear and we do not know if they will continue in the
future. We note that, as evidenced by our acquisition of
Pact-Yixing, we are placing greater emphasis on developing our
engineering solution business in an effort to capitalize on these
increased demands (clean water, pollution controls and waste
management).
The
Company believes that the expenses incurred in product development
may result in increases in revenue but such increases are unlikely
to allow for a recovery of the expenses for approximately the next
two years.
ITEM 5E. OFF BALANCE SHEET
ARRANGEMENTS
None.
ITEM 5F. TABULAR DISCLOSURE OF CONTRACTUAL
OBLIGATIONS
Payments Due By Period
|
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Leases
|
|
US$193,000
|
|
US$157,000
|
|
US$36,000
|
—
|
—
|
|
|
|
|
|
|
Total Contractual
Cash Obligations
|
|
US$193,000
|
|
US$157,000
|
|
US$36,000
|
—
|
—
|
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND
EMPLOYEES
ITEM 6A. DIRECTORS AND SENIOR MANAGEMENT
Information
concerning the Directors and Executive Officers of the Company are
as follows:
|
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
|
|
T.C.
Leung
|
|
74
|
|
Chairman
of the Board of Directors and Chief Executive Officer
|
|
|
|
|
|
|
|
Jerry
Wong
|
|
59
|
|
Director
and Chief Financial Officer
|
|
|
|
|
|
|
|
Alex
Sham
|
|
54
|
|
Director
|
|
|
|
|
|
|
|
Y.K.
Liang
|
|
88
|
|
Director
|
|
|
|
|
|
|
|
Fu Ming
Chen
|
|
69
|
|
Director
|
|
|
|
|
|
|
|
Janet
Cheang
|
|
62
|
|
Director
|
Set
forth below is a brief background of the executive officers and
directors based upon the information supplied by them to the
Company:
T.C. Leung has been Chief
Executive Officer and Chairman of the Board of Directors of both
the Company and Far East since their inception. Before establishing
Far East, Mr. Leung was an engineer for English Electric in
England, from 1965 to 1968, and Lockheed Aircraft in Hong Kong,
from 1968 to 1970. Mr. Leung also served as managing director
of Eurotherm (Far East) Ltd. (“Eurotherm”) between 1971
and 1992. From 1988 until he retired in February 2005,
Mr. Leung had also served as managing director of Eurotherm
Hong Kong. Mr. Leung received a Master’s degree in
Business Administration from the University of East Asia, Macau in
1986 and is a Chartered Engineer, a title bestowed upon a member of
the Council of Engineering Institutions in the United
Kingdom.
Jerry Wong has served as Director
and Chief Financial Officer of Far East since 1994 and has been
with Far East since 1987. Mr. Wong has been the Chief
Financial Officer and a Director of the Company since its
inception. From 1985 until 1987, Mr. Wong worked for MUA
Agencies Ltd., a subsidiary of a Hong Kong publicly listed company
engaged in the insurance business, as deputy manager of its
secretarial, legal and accounting department. From 1981 until 1985,
Mr. Wong served as a senior accountant in Price
Waterhouse-Hong Kong. He is a Fellow of the Association of
Chartered Certified Accountants in the United Kingdom and a
Certified Public Accountant in Hong Kong.
Alex Sham has been a Director of
the Company since its inception. Mr. Sham joined Far East in
1988 and has been its Sales Manager since 1993 and became a
Director of Far East in 1996. Mr. Sham received a Bachelor of
Science in Applied Chemistry from Hong Kong Baptist University in
1990. Prior to joining Far East, Mr. Sham was employed by the
Environmental Protection Department of the Hong Kong Government
from 1986 until 1988. Mr. Sham received a Master’s
Degree in Business Administration from the University of Adelaide
in 2003.
Y.K. Liang has been a Director of
the Company since February 1998. Mr. Liang was a director
of Wong Liang Consultants Ltd. (“Consultants”) and a
member of the certified public accounting firm of Y.K.
Liang & Co. (“LCO”). Mr. Liang has been a
director of Sammy Lau CPA Limited for more than the past six years.
Consultants is a general business consulting firm.
Fu Ming Chen has been a Director of the
Company since August 24, 2015. Mr. Chen has a background
in accounting and tax. He served as the Finance and Tax Manager of
Shanghai Huaxiang Woolen Dressing Co., Ltd. from 1995 to 2013.
Prior to that, from 1978 to 1994, he served as the Chief Accountant
at Gulu Chemical Factory, where he was a member of the senior
management. He held a County Township Audit Certificate issued by
Shanghai ChuanSha County People’s Government from 1991 to
2001 which authorized him to carry out audit of Township and
Village Enterprises in Shanghai ChuanSha County on behalf of local
tax authority. He also holds a Certificate of Accounting
Professional – Intermediate Level Accountant as well as a
Higher Professional Education Certificate issued by Shanghai
Television University. The Board believes Mr. Chen’s
qualifications to sit on the Board include his significant
experience with accounting and tax, as well as his leadership of
business organizations.
Janet Cheang has been a Director of the
Company since July 11,2017. She is currently director of Metta Fine
Arts Ltd. an online art gallery specializing in the promotion and
trading of contemporary arts. From 2007 to 2017, she founded and
operated Pinpoint Consultancy Limited, a business consultancy firm
specializing in business development and executive coaching for
companies operating in Hong Kong and mainland China. From 2003 to
2007, she was founding partner and managing director of
CultureTainment Services Ltd., responsible for business and brand
development consultancy and training projects. From 1997 to 2002,
she had worked for Estee Lauder (Hong Kong) Ltd. as the Brand
General Manager for Estee Lauder brand in Hong Kong and mainland
China. She holds a Master of Arts in Practical Philosophy, Lingnan
University, Hong Kong (2013), Master of Arts in Training and Human
Resource Development, University of Technology Sydney, Sydney
(2006) and Bachelor of Arts in Economics & Political Science,
Carleton University, Ottawa (1978).
Directors of the
Company serve until the next annual meeting of shareholders of the
Company and until their successors are elected and duly qualified.
Officers of the Company are elected annually by the Board of
Directors and serve at the discretion of the Board of
Directors.
Currently to our
knowledge, there is no material legal proceeding involving any
director, officer or holder of more than five percent of the
Company’s Ordinary Shares.
There
are no family relationships between any of the
above. There was no arrangement or understanding with
any major shareholders, customers, suppliers or others pursuant to
which any person above was selected as a director or member of
senior management.
Key
Employees
George Hayek, Managing Director. He is
the founder of Pact-Yixing and is a civil engineer (1967) and
post-graduate certificate holder in sanitary engineering and
environmental management from the American University of Beirut and
the University of California at Irvine (in 1971 and 1988,
respectively). Since 1971, he has occupied several key posts in
water and waste-water treatment companies in the USA, the UK,
Spain, Cyprus, The Middle East, Southeast Asia and the PRC. From
1998 to now, he has been the managing director of Pact-Yixing. His
international experience helped Pact in securing most of the
contracts with European and American multinational industries in
the PRC.
David YL Leung is the General
Manager of Yixing Pact Environmental Technology Co., Ltd, Shanghai.
His responsibility includes management of engineering, sales,
marketing, projects, and procurement. Before joining Yixing, he was
the Business Development Manager of Far East, the parent company of
Yixing Pact in Hong Kong, and has been working for the parent
company for more than 10 years. Mr. Leung has gained a solid sales
and marketing experience in distributing power, analytical and
scientific testing equipment in Hong Kong and Macau. He has also
worked for a high tech Japanese company focused on power and
electrical testing instrument in Japan from 2000 and 2001 as a
trainee. Mr. Leung is an environmental studies graduate from
Carleton University, Ottawa, Canada (1997) with a special focus on
Environmental Impact Assessment, and a Master of Management
graduate from Macquarie Graduate School of Management, Sydney
Australia (2010). Mr. David YL Leung is the son of Mr. T.C. Leung,
the Company’s Chief Executive Officer and Chairman of the
Board.
ITEM 6B. COMPENSATION.
From
the Company and its subsidiaries, for services rendered in all
capacities to the Company and its subsidiaries during Fiscal 2017,
T.C. Leung, the Chairman of the Board and Chief Executive Officer
received a yearly salary of US$194,000 (2016: US$ 195,000,
2015: US$ 191,000), Jerry Wong, Chief Financial Officer
received a yearly salary of US$108,000 (2016: US$ 108,000, 2015:
US$ 103,000) and George Hayek, a Key Employee of Yixing, received a
yearly salary of US$62,000 (2016: US$ 66,000,
2015: US$ 95,000). David YL Leung, a Key Employee of
Yixing
receives an annual salary of US$131,000 (2016: US$ 130,000,
2015: US$ 138,000) and is reimbursed for actual travel and
lodging expenses in Shanghai. There is no other information with
respect to the compensation paid by the Company and its
subsidiaries, for services rendered in all capacities to the
Company and its subsidiaries during Fiscal 2017 to the Chairman of
the Board and Chief Executive Officer and a Key Employee of the
Company. No other executive officer or employee received in excess
of US$ 100,000 as compensation during Fiscal 2017.
Compensation of
Directors.
Directors of the Company do not receive compensation for
their services as directors; however, Board of Directors authorize
the payment of compensation to the Directors for their attendance
at regular and annual meetings of the Board and for attendance at
committee meetings of the Board as is customary for similar
companies. Directors are reimbursed for their reasonable
out-of-pocket expenses in connection with their duties to the
Company.
Pension Plan. Prior to
December 1, 2000, Far East 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 50% to 100% of individual fund account balances
contributed by Far East, depending on their years of service with
Far East. Far East 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
December 1, 2000, Far East and its employees who joined Far
East subsequently makes monthly contributions to the scheme at 5%
of the employee’s cash income as defined under the Mandatory
Provident Fund Schemes
Ordinance. Contributions of both Far East and its employees
are subject to a cap of monthly relevant income of HK$25,000 or
HK$30,000 (effective from June 1, 2014) and thereafter
contributions are voluntary and are not subject to any limitation.
Far East and its employees made their first contributions in
December 2000.
As
stipulated by the rules and regulations in the PRC, the PRC
subsidiaries contribute to state-sponsored retirement plans for its
employees in the PRC. PRC subsidiaries' contribution range from 14%
to 20% 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, 2017, the aggregate contribution
of the Company to the aforementioned pension plans and retirement
benefit schemes was approximately US$281,000.
Company's
Stock Option Plan.
Effective on
November 22, 2014, the Company entered into a stock option contract
with a Business Development Manager of Yixing-Pact, 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 Ordinary Shares 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.
Changes
in outstanding stock option under plan 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
|
|
Cancelled
|
-
|
-
|
(20,692)
|
(3.44)
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding, end of
year
|
-
|
-
|
-
|
-
|
20,692
|
3.44
|
|
|
|
|
|
|
|
|
|
Exercisable, end of
year
|
-
|
-
|
-
|
-
|
-
|
-
|
As of
December 31, 2017, there were no options outstanding.
ITEM 6C. BOARD PRACTICES
The
term of each of the Company’s directors expires at the
election and qualification of their successors at the next annual
meeting of the Company’s shareholders, anticipated to be held
in September of this year. One director was appointed in July 2017
to fill the vacancy created by a former director’s
resignation. All of the Company’s six directors
were re-elected at the Company’s last annual meeting of
shareholders in October 2017. The Board has a standing Audit
Committee to assist the Board in carrying out its duties. The Audit
Committee has a written charter approved by the Board. The chair of
the Audit Committee determines the meeting agenda of the Audit
Committee. The Audit Committee members receive materials in advance
of Committee meetings allowing them to prepare for the
meeting.
The Company had two meetings of its Board of
Directors during Fiscal 2017, while its Audit Committee had
three meetings during Fiscal
2017.
The
Audit Committee assists the Board in monitoring the Company’s
financial accounting, internal controls, planning and reporting.
Among its duties, the Audit Committee:
|
|
●
|
reviews
the Company’s auditing, accounting and financial reporting
process;
|
|
|
|
|
|
|
●
|
reviews
the adequacy of the Company’s internal controls;
|
|
|
|
|
|
|
●
|
reviews
the independence, fee arrangements, audit scope, and performance of
the Company’s independent auditors, and recommends the
appointment or replacement of independent auditors to the Board of
Directors;
|
|
|
|
|
|
|
●
|
reviews
and approves all non-audit work, if any, to be performed by the
auditors;
|
|
|
|
|
|
|
●
|
reviews
the adequacy of the organizational structure;
|
|
|
|
|
|
|
●
|
reviews,
before release, the audited consolidated financial statements and
operating and financial review and prospects contained in the
Company’s Annual Report on Form 20-F, and recommends that the
Board of Directors submit these items to the shareholders’
meeting for approval;
|
|
|
|
|
|
|
●
|
provides
an open avenue of communication among the Company’s
independent auditors, financial and senior management, and the
Board of Directors;
|
|
|
|
|
|
|
●
|
reviews
and updates the Company’s Code of Business Conduct and Ethics
and ensure that there is a system to enforce the same and that this
Code complies with all applicable rules and
regulations;
|
|
|
|
|
|
|
●
|
ensures
that the Company’s management and auditors assess current
financial reporting issues and practices; and
|
|
|
|
|
|
|
●
|
reviews
and pre-approves both audit and non-audit services to be provided
by the Company’s auditors.
|
The
Audit Committee is currently composed of Y.K. Liang, Janet Cheang
and Fu Ming Chen. The Audit Committee’s “financial
expert” is Y.K. Liang. The Board has determined that the
membership of the Audit Committee meets the current independence
requirements of the NASDAQ listing standards as same applies to
private foreign issuers and the applicable rules and
regulations of the SEC because they are not currently employed by
us, and do not fall into any of the enumerated categories of who
cannot be considered independent in NASDAQ’s listing
standards.
ITEM 6D. EMPLOYEES
At
April 20, 2018, the Company (exclusive of Yixing-Pact) had
approximately 59 full-time employees. At December 31, 2017,
2016 and 2015, staffing levels were approximately as
follows:
|
|
|
|
|
|
Marketing and
sales
|
16
|
21
|
26
|
|
Administrative
|
27
|
28
|
30
|
|
Technical
|
16
|
16
|
19
|
|
Total full time
employees
|
59
|
65
|
75
|
At
April 20, 2018, Pact-Yixing had approximately 38 full-time
employees. As of December 31, 2017, 2016 and 2015,
respectively, staffing levels were approximately as follows:
Engineers - 30, 41 and 41; Administrative Persons - 8, 8 and
8.
The
Company is not subject to any collective bargaining agreement and
believes that its relations with its employees are good. The
Company’s Management consists of its officers and
directors.
ITEM 6E. SHARE OWNERSHIP
With
respect to the share ownership of the directors and senior
management of the Company, reference is made to Items 7
“Major Shareholders” and 7B. “Related Party
Transactions.”
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS
ITEM 7A. MAJOR SHAREHOLDERS
The
following table sets forth, as of April 20, 2018, certain
information concerning beneficial ownership of the Company’s
voting shares that date, with respect to (i) each person known
to the Company to own 5% or more of the outstanding Ordinary
Shares, (ii) each director and executive officer of the
Company, and (iii) all officers and directors of the Company
as a group. Based upon 2,061,909 shares of the Company’s
Ordinary Shares outstanding as of April 20, 2018. The
Company’s major shareholders do not have different voting
rights.
|
|
Amount and Nature of Beneficial Ownership(4)
|
Approximate Percentage Of Ordinary Shares Owned
|
|
|
|
|
|
T.C. Leung
(1)
|
1,059,924
|
51.4%
|
|
|
|
|
|
Alex
Sham(1)
|
53,722
|
2.6%
|
|
|
|
|
|
Jerry
Wong(1)
|
34,866
|
1.7%
|
|
|
|
|
|
Y.K.
Liang(1)
|
*
|
*
|
|
|
|
|
|
Fu Ming
Chen(1)
|
*
|
*
|
|
|
|
|
|
Janet
Cheang(1)
|
*
|
*
|
|
|
|
|
|
All Executive
Officers And Directors of the Company as a group (6
persons)
|
1,148,512
|
55.7%
|
*
Denotes Nil
|
(1)
|
The
address for the Company’s officers and directors is c/o Euro
Tech (Far East) Ltd., Unit D, 18/F Gee Chang Hong Centre, 65 Wong
Chuk Hang Road, Hong Kong.
|
ITEM 7B. RELATED PARTY TRANSACTIONS
See
– Item 6B. Compensation.
ITEM 8. FINANCIAL
INFORMATION
ITEM 8A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL
INFORMATION
|
Item
8A.1
|
See
– Item 18.
|
|
|
|
|
Item
8A.2
|
See
– Item 18.
|
|
|
|
|
Item
8A.3
|
See
– Report of Independent Registered Public Accounting Firms,
pages F-2 and F-3.
|
|
|
|
|
Item
8A.4
|
We have
complied with this requirement.
|
|
|
|
|
Item
8A.5
|
Not
applicable.
|
|
|
|
|
Item
8A.6
|
Not
applicable.
|
|
|
|
|
Item
8A.7
|
Legal
Proceedings. See – Item 4B. Business
Overview-Litigation.
|
|
|
|
|
Item
8A.8
|
Dividend
Policy.
|
The
Company has not paid cash dividends to date. The payment of cash
dividends, if any, in the future is within the discretion of the
Board of Directors. The payment of cash dividends, if any, in the
future will depend upon the Company’s earnings, capital
requirements and financial conditions and other relevant factors.
The Company’s Board of Directors does not presently intend to
declare any cash dividends in the foreseeable future, but instead
intends to retain all earnings, if any, for use in the Company and
Far East’s business operations.
ITEM 8B. SIGNIFICANT CHANGES
There
has not been any significant change since the date of the
annual consolidated
financial statements included in this Report.
ITEM 9. THE OFFERING AND
LISTING
ITEM 9A. LISTING DETAILS
The
Company has one class of securities presently registered: Ordinary
Shares. These securities are presently traded on the NASDAQ’s
Capital Market under the trading symbols
“CLWT”.
The
high and low prices for the Ordinary Shares in the periods
indicated, as reported by NASDAQ, are set forth
below:
|
Years Ended December 31,
|
|
|
|
|
|
|
|
2013
|
2.40
|
6.75
|
|
2014
|
2.56
|
6.24
|
|
2015
|
2.04
|
4.41
|
|
2016
|
1.46
|
4.43
|
|
2017
|
2.70
|
5.65
|
|
Quarters Ended
|
|
|
|
|
|
|
|
March 31,
2016
|
3.01
|
3.17
|
|
June 30,
2016
|
1.45
|
3.99
|
|
September 30,
2016
|
2.07
|
4.43
|
|
December 31,
2016
|
2.28
|
4.08
|
|
March 31,
2017
|
3.35
|
4.15
|
|
June 30,
2017
|
2.70
|
4.50
|
|
September 30,
2017
|
2.75
|
3.50
|
|
December 31,
2017
|
3.15
|
5.65
|
|
The Following Months
|
|
|
|
|
|
|
|
October
2017
|
3.15
|
3.90
|
|
November
2017
|
3.20
|
5.65
|
|
December
2017
|
3.20
|
4.15
|
|
January 2018
|
3.30
|
4.45
|
|
February 2018
|
2.55
|
3.49
|
|
March
2018
|
2.50
|
4.15
|
Based
upon information received from its transfer agent, the Company
believes that it has approximately 35 shareholders of record
including 905 beneficial owners of its Ordinary Shares held in
nominee names by large clearing houses.
ITEM 9C. MARKETS
See
– Item 9A. “Listing Details.”
ITEM 10. ADDITIONAL INFORMATION
ITEM 10B. MEMORANDUM AND ARTICLES OF ASSOCIATION
On
January 1, 2005, the BVI Business Companies Act, as amended, (the
“BC ACT”) came into force, with the objective of
replacing the now repealed International Business Companies Act (
the “IBC” Act ) over a 2 year transitional period. The
Company was incorporated under the IBC Act, on January 1, 2007, the
Company was automatically re-registered under the BC Act as a BVI
Business Company. Companies that were automatically re-registered
on January 1, 2007 were not required to submit a new
Memorandum and Articles of Association and certain key
sections of the IBC Act were “grandfathered” into the
BC Act: these are known as the “Transitional
Provisions”. The Transitional Provisions ensure that well
established and recognized concepts from the IBC Act, such as
“ authorized capital:, “capital accounts” and
“surplus accounts , remain relevant until such time as that
company elects to adopt and register a New Memorandum and Articles
of Association that fully conform with the BC Act. In November 2011
and January 2012, the Company filed an 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 and January 30, 2012 that became as of filing
with the BVI authorities to, among other things, (i) not apply the
Transitional Provisions and (ii) remove these concepts from the
Company’s charter documents eliminating a layer of
requirements that would otherwise apply to share divisions
(splits), combinations (reverse splits), redemptions and dividends.
The Company’s accounting treatment of share capital need not
change. Changes in the Company’s Amended and Restated
Memorandum are summarized in the Company’s Forms 6-K filed
with the SEC on November 30, 2011 and February 6,2012.The foregoing
Forms 6-K are hereby incorporated by reference as if fully stated
herein. Set forth below is a summary of certain terms of the
Amended and Restated Memorandum and Articles of
Association and the BC Act relating to the Company’s
securities. This description and the descriptions contained in the
Forms 6-K incorporated by reference does not purport to be complete
and is qualified in its entirety by reference to BVI statutory law
and the Amended and Restated Memorandum and Articles of
Association.
Holders
of the Company’s Ordinary Shares are entitled to one vote for
each whole share on all matters to be voted upon by shareholders,
including the election of directors. Holders of Ordinary Shares do
not have cumulative voting rights in the election of directors. All
shares of Ordinary Shares are equal to each other with respect to
liquidation and dividend rights. In the event of the liquidation of
the Company, all assets available for distribution to the holders
of Ordinary Shares are distributable among them according to their
respective share holdings. All of the outstanding shares of
Ordinary Shares of the Company are duly authorized, validly issued,
fully paid and non-assessable.
Pursuant to the
Company’s Memorandum and Articles of Association and pursuant
to the laws of the BVI, the Company’s Memorandum and Articles
of Association may be amended by a resolution of the Board of
Directors without shareholder approval. This includes amendments to
increase or reduce the authorized capital stock of the Company or
to increase or reduce the par value of its shares. The ability of
the Company to amend its Memorandum and Articles of Association
without shareholder approval could have the effect of delaying,
deterring or preventing a change in control of the Company without
any further action by the shareholders including but not limited
to, a tender offer to purchase the Common Stock at a premium over
then current market prices.
Under
United States law, majority and controlling shareholders generally
have certain “fiduciary” responsibilities to the
minority shareholders. Shareholder action must be taken in good
faith and actions by controlling shareholders which are obviously
unreasonable may be declared null and void. The BVI law protecting
the interests of the minority shareholders is not as protective in
all circumstances as the law protecting minority shareholders in
United States jurisdictions. While BVI law does not permit a
shareholder of a BVI company to sue its directors derivatively,
i.e., in the name of and for the benefit of the Company, and to sue
the Company and its directors for his benefit and the benefit of
others similarly situated, the circumstances in which any such
action may be brought that may be available in respect of any such
action may result in the rights of shareholders of a British Virgin
Island company being more limited than those rights of shareholders
in a United States company.
The
Board of Directors of the Company, without further shareholder
action, may issue shares of Preferred Stock in any number of series
and may establish as to each such series the designation and number
of shares to be issued and the relative rights and preferences of
the shares of each series, including provisions regarding voting
powers, redemption, dividend rights, rights upon liquidation and
conversion rights. The issuance of shares of Preferred Stock by the
Board of Directors could adversely affect the rights of holders of
Ordinary Shares by, among other matters, establishing preferential
dividends, liquidation rights and voting power. The Company has not
issued any shares of Preferred Stock and has no present intention
to issue shares of Preferred Stock. The issuance thereof could
discourage or defeat efforts to acquire control of the Company
through acquisition of Ordinary Shares.
Share Register and Voting Restrictions.
The Company maintains a share register at its registered
office in the BVI. The Company’s registered number is 200960.
The objects of the Company are to engage in any act or activity
that is not prohibited under any law of the BVI. Under the
Articles, the Company is not required to treat the holder of a
registered share in the Company as a shareholder until that
person’s name has been entered in the share register. The
holders of Ordinary Shares have one vote for each Ordinary Share
held of record. The holders of Preferred Shares have such voting
powers, full or limited, or no voting powers and such restrictions
as may be stated and expressed in the resolution providing for the
issuance of the Preferred Shares.
Shareholders Meeting. The
directors of the Company may convene meetings of the shareholders
of the Company at such times and in such manner and places within
or outside the BVI as the directors consider necessary or
desirable. Upon the written request of the shareholders holding ten
(10%) percent or more of the outstanding voting shares in the
Company the directors must convene a meeting of
shareholders.
A
shareholder may participate at a meeting of shareholders by
telephone or other electronic means, as long as all shareholders
participating in the meeting are able to hear each
other.
A
meeting of shareholders is duly constituted if, at the commencement
of the meeting, there are present in person or by proxy not less
than fifty (50%) percent of the votes of the shares or class series
of shares entitled to vote on resolutions of shareholders to be
considered at the meeting. If a quorum is not present, the meeting,
if convened upon the requisition of shareholders, shall be
dissolved; in any other case it shall stand adjourned to the next
business day at the same time and place or to such other time and
place as the directors may determine, and if at the adjourned
meeting there are present in person or by proxy not less than one
third of the votes of the shares or each class or series of shares
entitled to vote on the resolutions to be considered by the
meeting, those present shall constitute a quorum but otherwise the
meeting shall be dissolved.
Any
action that may be taken by the shareholders at a meeting may also
be taken by a resolution of shareholders consented to in writing or
by written electronic communication by a majority or greater number
of shares entitled to vote, without the need for any notice, but if
not an unanimous writing, a copy of such resolution shall be sent
to all non-consenting shareholders.
Pre-emptive Rights. The holders of
Ordinary Shares and Preferred Shares are not entitled to any
pre-emptive or similar rights.
Conflict of Interests. No
agreement or transaction between the Company and one or more of its
directors or any person in which any director has a financial
interest or to whom any director is related, including as a
director of that other person, is void and avoidable for this
reason only, or by reason only that the director is present at the
meeting of directors, or at the meeting of the committee of
directors that approves the agreement or transaction, or that the
vote or consent of the director is counted for that purpose, if the
material facts of the interest of each director in the agreement or
transaction and his interest in or relationship to any other party
to the agreement or transaction are disclosed in good faith, or are
known by the other directors. A director who has an interest in any
particular business to be considered at a meeting of directors or
shareholders may be counted for purposes of determining whether the
meeting is duly constituted.
Generally, no
purchase, redemption or other acquisition of shares shall be made
unless the directors determine that immediately after purchase,
redemption or other acquisition the Company will be able to satisfy
its liabilities as they become due in the ordinary course of its
business and the realizable value of the assets of the Company will
not be less than the sum of its total liabilities, other than
deferred taxes, as shown in the books of account, and its capital
and, in the absence of fraud, the decision of the directors as to
the realizable value of the assets of the Company is conclusive,
unless a question of law is involved.
Duration, Liquidation, Merger. The
Company shall continue until wound-up and dissolved by a resolution
of shareholders, or under the terms of any insolvency or
liquidation laws in force in the BVI. Under BVI law the Company may
merge with another company, including a parent company or
subsidiary, incorporated in the BVI, or in a jurisdiction outside
of the BVI where the laws of that jurisdiction permit the merger. A
merger must be authorized by the directors of the Company and
approved by the shareholders.
Board of Directors. The business
and affairs of the Company are managed by the directors who may
exercise all such powers of the Company as are not by BVI law or by
the Company’s Articles reserved to the shareholders of the
Company.
ITEM 10C. MATERIAL CONTRACTS
Except
as described below, during the two years period prior to the filing
of this Report, the Company did not enter into any material
contracts.
On
March 5, 2018, we entered into an Equity Transfer Agreement to sell
our 20% equity stake of Jia Huan. The completion of the transaction
is subject to completion of all closing formalities, including the
need to obtain approval and registration with the relevant
governmental authorities. For a complete description of the terms
of the Agreement, see “Item 4A.
History And Development of the Company.”
ITEM 10D. EXCHANGE CONTROLS
There
are no exchange control restrictions on payment of dividends on the
Company’s Ordinary Shares or on the conduct of the
Company’s operations either in Hong Kong, where the
Company’s principal executive offices are located, or the
BVI, where the Company is incorporated. There are no BVI laws which
impose foreign exchange controls on the Company or that effect the
payment of dividends, interest, or other payments to non-resident
holders of the Company’s securities. BVI laws and the
Company’s Memorandum and Articles of Association impose no
limitations on the right of non-resident or foreign owners to hold
the Company’s securities or vote the Company’s Ordinary
Shares. The PRC government has established a unified exchange rate
system and system of exchange controls to which the Company is
subject.
ITEM 10E. TAXATION
BVI
The
Company and Pact Asia
Pacific Limited are exempted from taxation in the
BVI.
HONG KONG
The
Company’s subsidiaries organized in Hong Kong, Far East and
Euro Tech (China) Limited, provide for Hong Kong profits tax at a
rate of 16.5% in 2017 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.
PRC
Euro
Tech Trading (Shanghai) Limited (“ETTS”), a subsidiary
of Far East, provides for PRC Enterprise Income Tax at a rate of
25% in 2017 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, 2017, ETTS
had an assessable loss carried forward of US$703,650 as agreed by
the local tax authority to offset its profit for the forth coming
years. Such loss will expire in 5 years.
Shanghai Euro Tech
Limited (“SET”), a subsidiary of Far East,
provides for the PRC Enterprise Income Tax of 25% in 2017. As of
December 31, 2017, SET had an assessable loss carried forward of
US$254,265 as agreed by the local tax authority to offset its
profit for the forth coming years. Such loss will expire in 5
years.
Shanghai Euro Tech
Environmental Engineering Limited (“SETEE”) provides
for the PRC Enterprise Income Tax of 25% in 2017. As of December
31, 2017, SETEE had an assessable loss carried forward of
US$895,579 as agreed by the local tax authority to offset its
profit for the forth coming years. Such loss will expire in 5
years. Chongqing Euro Tech Rizhi Technology Co., Ltd, Rizhi Euro
Tech Instrument (Shaanxi) Co., Ltd and Guangzhou Euro Tech
Environmental Equipment Co., Ltd provide for PRC Enterprise Income
Tax at a rate of 25% in 2017,
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.
Yixing-Pact
Environmental Technology Co., Ltd is registered in Shanghai as a
Foreign Owned Enterprise that is entitled to Enterprise Income Tax
rate of 25% in 2017.
Variable Interest
Entity ("VIE") of the Group provide for PRC Enterprise Income Tax
at a rate of 25% in 2017,
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 Far East's
subsidiaries located in the PRC that are available for distribution
to Far East of
approximately US$0.5 million at December 31, 2017 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 Far East.
Distributions made out of pre January 1, 2008 retained earnings
will not be subject to the withholding tax.
The
principle reconciling items from income tax computed at the
statutory tax rates and at the effective income tax rates are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computed tax using
respective companies’ statutory tax rates
|
(94)
|
(136)
|
(177)
|
|
Change in valuation
allowances
|
120
|
350
|
455
|
|
Under-provision for
income tax in prior years
|
-
|
-
|
(69)
|
|
Non deductible
expenses
|
2
|
14
|
(256)
|
|
Total
provision/(credit) for income tax at effective tax
rate
|
28
|
228
|
(47)
|
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 its net income to the
statutory reserve fund until such fund reaches 50% of its
registered capital. The statutory reserve fund can be utilized upon
the approval by the relevant authorities, to offset accumulated
losses or to increase its registered capital, provided that such
fund is maintained at a minimum of 25% of its registered
capital.
Under
the PRC laws and regulations, the PRC subsidiaries are restricted
in their ability to transfer certain of their net assets 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,
2017.
(ii)
Statutory staff welfare fund.
Pursuant to
applicable PRC laws and regulations, the PRC subsidiaries are
required to allocate certain amount of its respective net income to
the statutory staff welfare funds determined by it. The statutory
staff welfare funds can only be used to provide staff welfare
facilities and other collective benefits to their employees. This
fund is non-distributable other than upon liquidation of the PRC
subsidiaries.
(iii)
Enterprise expansion fund.
The
enterprise expansion fund shall only be used to make up losses,
expand the PRC subsidiaries’ production operations, or
increase the capital of the subsidiaries. The enterprise
expansion fund can be utilized upon approval by relevant
authorities, to convert into registered capital and issue bonus
capital to existing investors, provided that such fund is
maintained at a minimum of 25% of it’s registered
capital.
UNITED STATES
The
following discussion is a summary of the material United States
federal income tax considerations that may be relevant to the
purchase, holding, ownership, disposition or sale of our ordinary
shares.
This
discussion is general in nature and does not discuss all aspects of
U.S. federal income taxation which may be important to particular
investors in light of their individual circumstances, including
investors subject to special U.S. taxation rules.
A U.S.
Holder holding or considering acquiring or disposing of our
ordinary shares is urged to consult his or her own tax advisor
concerning the U.S. federal, state, local and non-U.S. income and
other tax consequences of the holding, ownership, purchase,
disposition or sale of our ordinary shares in light of such U.S.
Holder’s particular circumstances.
A
“U.S. Holder” for purposes of this discussion is a
beneficial owner of ordinary shares that is, for U.S. federal
income tax purposes: (a) a citizen or resident of the United
States; (b) a corporation or other entity taxable as a corporation
created or organized in or under the laws of the United States, any
state thereof, or the District of Columbia; (c) an estate the
income of which is subject to U.S. federal income taxation,
regardless of its source; or (d) a trust if it is subject to the
primary supervision of a court within the United States and one or
more U.S. persons have the authority to control all substantial
decisions of the trust or has a valid election in effect under
applicable U.S. Treasury regulations to be treated as a U.S.
person. If a partnership holds our ordinary shares, the tax
treatment of a partner will generally depend on the status of the
partner and the activities of the partnership. A partner of a
partnership holding our ordinary shares is urged to consult its own
tax advisor regarding an investment in our ordinary
shares.
Passive foreign investment company
rules. A passive foreign investment company
(“PFIC”) for any taxable year in which either
(a) at least 75% of our gross income is passive income or
(b) at least 50% of the value (determined on the basis of a
quarterly average) of our assets is attributable to assets that
produce or are held for the production of passive income. For this
purpose, passive income generally includes dividends, interest,
royalties, rents (other than rents and royalties derived in the
active conduct of a trade or business and not derived from a
related person), annuities and gains from assets that produce
passive income.
The
annual PFIC determination to be made by a U.S. Holder of our
ordinary shares is an inherently factual determination and there is
limited guidance regarding the application of the PFIC rules to
specific situations. Although the determination of PFIC status is
subject to factual uncertainties because it depends upon the
valuation of our ordinary shares as well as our goodwill and other
assets and income. In addition, as the determination of PFIC status
is made on an annual basis and depends on variables over which we
have limited control, there can be no assurance that we will not be
classified as a PFIC for 2017 or any future calendar
years.
If we
are determined to be a PFIC for any taxable year, a U. S. Holder
could be treated as owning a proportionate share of some of our
subsidiaries and, in the absence of certain elections, will subject
to special rules that will have a penalizing effect on certain
“excess distributions” (as defined).
A U.S
Holder that holds our Ordinary Shares in any year in which we are
classified as a PFIC may make a “deemed sale” election
with respect to such ordinary shares in a subsequent taxable year
in which we are not classified as a PFIC. If you make a
valid deemed sale election with respect to your Ordinary Shares,
you will be treated as having sold all of your Ordinary Shares for
their fair market value on the last day of the last taxable year in
which we were a PFIC and such Ordinary Shares will no longer be
treated as PFIC stock. You will recognize gain (but not
loss), which will be subject to tax as an “excess
distribution” received on the last day of the last taxable
year in which we were a PFIC. Your basis in the Ordinary
Shares would be increased to reflect gain recognized, and your
holding period would begin on the day after we ceased to be a
PFIC.
Also, a
U. S. Holder may be required to file certain forms with the U.S.
Treasury Department.
A U.S.
Holder will generally recognize capital gain or loss upon the sale
or other disposition of our Ordinary Shares in an amount equal to
the difference between the amount realized upon the disposition and
the holder’s adjusted tax basis in such ordinary
shares. Any capital gain or loss will be long-term if
the Ordinary Shares have been held for more than one year and will
generally be United States source gain or loss for United States
foreign tax credit purposes.
Certain
U.S. Holders are required to report information to the Internal
Revenue Service relating to an interest in “specified foreign
financial assets,” including shares issued by a non-United
States corporation, for any year in which the aggregate value of
all specified foreign financial assets exceeds $50,000 (or a higher
dollar amount prescribed by the Internal Revenue Service), subject
to certain exceptions. These rules also impose penalties
if a holder is required to submit such information to the Internal
Revenue Service and fails to do so.
ITEM 10H. DOCUMENTS ON DISPLAY
The
documents that are exhibits to or incorporated by reference in this
annual report can be read at the U.S. SEC’s public reference
facilities at 100 F Street, N.E., Washington, DC 20549-2001 or on
the Commission’s website: www.sec.gov.
ITEM 10I. SUBSIDIARY INFORMATION
For
information on the Company’s subsidiaries see – Item
4C. The separate financial statements of Blue Sky and Jia Huan, as
required under Regulation S-X 210.3-09, entities in which the
Company owns a 20% equity interest are attached
hereto.
ITEM 11. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The
Company’s primary risk exposures arise from changes in
interest rates and foreign currency exchanges rates.
Foreign Currency Risks
The
Company is exposed to risk from changing foreign currency exchange
rates. The Company’s sales are denominated either in HK
dollar or RMB. The majority of the Company’s expenses and
cost of revenue are denominated in HK dollars, followed by RMB,
U.S. dollars, Japanese yen and the Euro. The Company is subject to
a variety of risks associated with changes among the relative value
of the U.S. dollar, HK dollar, RMB, Japanese yen and the Euro. The
Company does not currently adequately hedge its foreign exchange
positions. Any material increase in the value of the HK dollar,
RMB, Japanese yen and the Euro relative to the U.S. dollar would
increase the Company’s expenses and cost of revenue and
therefore would have a material adverse effect on the
Company’s business, financial condition and results of
operations.
Inflation
The
Company cannot accurately determine the precise effect of inflation
on its operations; however, it does not believe inflation has had a
material effect on sales or results of operations during the past
several years. Efforts by the PRC to curb inflation may also curb
economic growth, increase our overhead costs and adversely affect
our sales. If the PRC rate of inflation continues to increase, the
Chinese government may introduce further measures intended to
reduce the inflation rate in the PRC. Any such measures adopted by
the Chinese government may not be successful in reducing or slowing
the increase in the PRC’s inflation rate. Sustained or
increased inflation in the PRC may have an adverse impact on the
PRC’s economy and may materially and adversely affect our
business and financial results.
The
Company is currently not exposed to material future earnings or
cash flow exposures from changes in interest rates on debt
obligations as the Company had no material bank indebtedness in
Fiscal 2017. The Company does not currently anticipate entering
into interest rate swaps and/or similar instruments.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND
DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF
SECURITYHOLDERS
In November
2011 and February 2012 the Company restated its Memorandum and
Articles of Association. In January of 2012, the Company combined
or reverse split each eleven of its outstanding Ordinary Shares
into two shares of its Ordinary Shares. The reason for the
foregoing was to comply with NASDAQ Listing Rules.
On
September 20, 2011, the Company received a deficiency letter from
NASDAQ that the Company was no longer in compliance with
NASDAQ’s listing maintenance rule for failing to have a bid
price of at least US$ 1.00 per share for the prior thirty trading
days. In order to regain compliance, in January 2012, the Company
effected a combination or reverse split of its Ordinary
Shares.
To
facilitate the combination, Company changed the par value of its
Ordinary Shares from US$0.01 per share to no par
value.
The
Company had been originally incorporated under the International
Business Companies Act (the “IBC” Act). On January 1,
2005 the BVI Business Companies Act, (as amended, the “BC
Act”) came into force, with the objective of replacing the
IBC Act over a 2 year transitional period.
On
January 1, 2007, the Company was automatically re-registered under
the BC Act as a BVI Business Company. Companies that were so
automatically re-registered were not required to submit new
Memorandum and Articles of Association and certain key sections of
the IBC Act were “grandfathered” into the BC Act. See
– Item 10B. Memorandum and Articles of Association. In
December 2011 and January 2012, the Company filed Amended and
Restated Memorandum and Articles of Association with the Registry
of Corporate Affairs of the BVI Financial Services Commission to,
among other things, (i) not apply the Transitional Provisions and
(ii) remove these concepts from the Company's charter documents
eliminating a layer of requirements that would otherwise apply to
share divisions (splits), combinations (reverse splits),
redemptions and dividends. The Company's accounting treatment of
share capital need not change. Changes in the Company's Amended and
Restated Memorandum are summarized in the Company's Forms 6-K filed
with the SEC on November 30, 2011 and February 6,
2012.
ITEM 15. CONTROLS AND PROCEDURES
(a)
Evaluation of Disclosure Controls and
Procedures
Management,
including our Chief Executive Officer and Chief Financial Officer,
has conducted an evaluation of the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) as of the end of the period
covered by this annual report. Disclosure controls and procedures
are defined under SEC rules as controls and other procedures that
are designed to ensure that information required to be disclosed by
a company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within
required time periods. Disclosure controls and procedures include
controls and procedures designed to ensure that information is
accumulated and communicated to the issuer's management, including
its principal executive and principal financial officers, or
persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosures.
There
are inherent limitations to the effectiveness of any system of
disclosure controls and procedures, including the possibility of
human error and the circumvention or overriding of the controls and
procedures. Accordingly, even effective disclosure controls and
procedures can only provide reasonable assurance of achieving their
control objectives.
Based
upon that evaluation, our Chief Executive Officer and Interim Chief
Financial Officer has concluded that our disclosure controls and
procedures were effective as of December 31, 2017.
(b)
Management’s Annual Report on Internal Control over Financial
Reporting
Our
management, under the supervision of our Chief Executive Officer
and Chief Financial Officer, is responsible for establishing and
maintaining adequate internal control over financial reporting as
defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act.
Our internal control system was designed to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation and fair presentation of our consolidated financial
statements for external purposes in accordance with generally
accepted accounting principles. Our Chief Executive Officer and
Chief Financial Officer assessed the effectiveness of our internal
control over financial reporting as of December 31, 2017. In making
this assessment, they used the criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”).
Based on this assessment, our Chief Executive Officer and Chief
Financial Officer have concluded that, as of December 31, 2017, our
internal control over financial reporting is
effective.
Notwithstanding the
foregoing, all internal control systems, no matter how well
designed, have inherent limitations. Therefore, even those systems
were determined to be effective they may not prevent or detect
misstatements and can provide only reasonable assurance with
respect to financial statement preparation and presentation. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
(c)
Not Applicable
(d)
Changes in Internal Controls
There
were no changes in our internal controls that occurred during the
period covered by this annual report that has materially affected,
or is reasonably likely to materially affect our internal control
over financial reporting.
ITEM 16. [RESERVED]
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
The
Committee includes one non-employee director who meets the
independence and “financial expert” requirements and
two other members who meet the independence requirements of the
NASDAQ listing standards and the rules and regulations of the
SEC. The Committee includes Mr. Y.K. Liang the
“financial expert” on that committee. See Mr.
Liang’s biographical data in “Item 6A. Directors
and Senior Management” contained in this
Report.
Our
Audit Committee is comprised of Messrs. Y.K. Liang, Janet
Cheang, and Fu Ming Chen. Our board of directors has determined
Mr. Y.K. Liang as an "audit committee financial expert" as
such term is defined in Item 407 of Regulation S-K promulgated by
the SEC. Our board of directors has also determined both Janet
Cheang and Fu Ming Chen are independent directors as defined in
Rule 10A-3 of the Exchange Act and the NASDAQ listing
rules.
ITEM 16B. CODE OF
ETHICS
Our
Board of Directors has adopted a code of business conduct and
ethics that applies to our directors, officers and employees,
including certain provisions that specifically apply to our chief
executive officer, chief financial officer and any other persons
who perform similar functions for us. The Company agrees to
undertake to provide to any person without charge, a copy of our
code of business conduct and ethics within ten working days after
we receive such person’s written request addressed to our
offices set forth on the cover page of this Report.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
following table sets forth the aggregate fees by categories
specified below in connection with certain professional services
rendered by Union Power HK CPA Limited and Centurion ZD CPA Ltd.
(fka DCAW (CPA) Ltd. as successor to Dominic K. F. Chan & Co.)
who were the principal external auditors for fiscal years 2017 and
2016, respectively.
|
|
For the Year Ended December 31
|
|
|
|
|
|
|
|
|
|
Audit
fees(1)
|
150,000
|
121,000
|
|
Audit-related
fees(2)
|
|
Nil
|
|
Tax
fees(3)
|
|
Nil
|
|
All other
fees
|
|
Nil
|
Our
Audit Committee has adopted a pre-approval policy for the
engagement of our independent accountant to perform permitted audit
and non-audit services. Under this policy, which is designed to
assure that such engagements do not impair the independence of our
auditors, the Audit Committee pre-approves annually a range of
specific audit and non-audit services in the categories of Audit
Service, Audit-Related Services, Tax Services and other services
that may be performed by our independent accountants, and the
maximum pre-approved fees that may be paid as compensation for each
pre-approved service in those categories. Any proposed services
exceeding the maximum pre-approved fees require specific approval
by the Audit Committee.
|
(1)
|
“Audit
fees” means the aggregate fees billed in each of the fiscal
years listed for professional services rendered by our principal
auditors for the audit of our annual financial
statements.
|
|
(2)
|
“Audit-related
fees” means the aggregate fees billed in each of the fiscal
years listed for assurance and related services by our principal
auditors that are reasonably related to the performance of the
audit or review of our financial statements and are not reported
under “Audit fees.” Services comprising the fees
disclosed under the category of “Audit-related fees”
involve principally the performance of certain agreed upon
procedures for the years ended December 31, 2017 and 2016,
respectively.
|
|
(3)
|
“Tax
fees” means the aggregated fees billed in each of the years
listed for professional services rendered by our principal auditors
for tax compliance, tax advice and tax planning.
|
ITEM 16D. EXEMPTIONS FROM LISTING STANDARDS
The
Company is a “Controlled Company” as defined in
NASDAQ’s corporate governance rules as a majority of our
shares are owned by a “control person” T.C. Leung who
has disclosed his “control person” status in his
filings with the Commission. So long as that “controlled
company” status remains in effect, the Company will be exempt
from certain of NASDAQ corporate governance rules that,
including among other things, would require: (a) a majority of
our directors be independent; (b) the compensation of our
chief executive officer be determined or recommended by independent
directors; and (c) director nominations be determined or
recommended by independent directors.
The
Company believes it is in compliance with NASDAQ’s corporate
governance rules as in effect and intends to comply with the
changes to said rules no later than the date that they become
effective.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY ISSUER AND
AFFILIATED PURCHASERS
None.
Item 16F. CHANGE IN REGISTRANT'S
CERTIFYING ACCOUNTANT
On
January 25, 2018, our principal independent registered public
accounting firm, Centurion ZD CPA Limited
(“Centurion”), resigned from its engagement, effective
immediately.
On
January 26, 2018, the Company engaged Union Power HK CPA
Limited. (“UP Hong Kong”) to serve as the new
independent registered public accounting firm for the Company and
its subsidiaries. The decision to engage UP Hong Kong as
the Company’s principal independent registered public
accounting firm was approved by the Audit Committee of the Company
on January 26, 2018.
The
reports of Centurion on our
consolidated financial statements for the fiscal years ended
December 31, 2015 and 2016 did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles. During the
fiscal years ended December 31, 2015 and 2016, and in the
subsequent interim periods through January 25, 2018, there were no
disagreements with Centurion on any matter of accounting principles
or practices, financial statement disclosure or auditing scope and
procedure which, if not resolved to the satisfaction of Centurion,
would have caused Centurion to make reference to the matter in its
report.
PART III
ITEM 18. FINANCIAL STATEMENTS
The
following financial statements are filed as part of this annual
report on Form 20-F.
|
Euro Tech Holdings Company Limited
|
|
|
Reports of Independent Registered Public Accounting Firm
|
|
|
Consolidated Balance Sheets As Of December 31, 2017 and 2016
Consolidated Statements of Operations and Comprehensive Income / (Loss) for the
Years Ended December 31, 2017, 2016 and
2015
|
|
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
|
|
|
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2017, 2016 and 2015
|
|
|
Notes to the Consolidated Financial Statements
|
|
|
|
|
|
Zhejiang Tianlan Environmental Protection Technology Company Limited
|
|
|
Reports of Independent Registered Public Accounting Firm
|
|
|
Consolidated Balance Sheets As Of December 31, 2017 and 2016
Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016 and
2015
|
|
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017,
2016 and 2015
|
|
|
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2017, 2016 and 2015
|
|
|
Notes to the Consolidated Financial Statements
|
|
|
|
|
|
Zhejiang Jiahuan Electronic Co., Ltd.
|
|
|
Reports of Independent Registered Public Accounting Firm
|
|
|
Consolidated Balance Sheets As Of December 31, 2017 and 2016
|
|
|
Consolidated Statements of Operations for the
Years Ended December 31, 2017, 2016 and
2015
|
|
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
|
|
|
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2017, 2016 and 2015
|
|
|
Notes to the Consolidated Financial Statements
|
|
ITEM
19. EXHIBITS
Lists
of Exhibits
|
Exhibit No.
|
|
Description
|
|
|
|
|
|
|
|
Amended
and Restated Memorandum and Articles of Association
(1)
|
|
|
|
|
|
|
|
Amendments
to Exhibit 3.1 ( 2)
|
|
|
|
|
|
|
|
Registrant’s
Audit Committee Charter (3)
|
|
|
|
|
|
|
|
List of
Subsidiaries *
|
|
|
|
|
|
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 *
|
|
|
|
|
|
|
|
Certification
of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 *
|
|
|
|
|
|
|
|
Certification
of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 *
|
|
|
|
|
|
|
|
Certification
of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 *
|
|
|
|
|
|
101
..INS*
|
|
XBRL
Instance Document
|
|
|
|
|
|
101
..SCH*
|
|
XBRL
Taxonomy Extension Schema Document
|
|
|
|
|
|
101
..CAL*
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document
|
|
|
|
|
|
101
..DBF*
|
|
XBRL
Taxonomy Extension Definition Linkbase Document
|
|
|
|
|
|
101
..LAB*
|
|
XBRL
Taxonomy Extension Label Linkbase Document
|
|
|
|
|
|
101
..PRE*
|
|
XBRL
Taxonomy Extension Presentation Linkbase Document
|
* Filed
with this Annual Report on Form 20-F.
1. Incorporated
by reference, previously filed as an Exhibit to
Registrant’s Form 6-K on November 30, 2011.
2. Incorporated
by reference, previously filed as an Exhibit to
Registrant’s Form 6-K on February 6, 2012.
3. Incorporated
by reference, previously filed as an Exhibit to
Registrant’s Form 20-F filed on August 19,
2002
SIGNATURES
Pursuant to the
requirements of Section 12 of the Securities Exchange Act of
1934, the registrant hereby certifies that it meets all of the
requirements for filing on Form 20-F and that it has duly
caused and authorize the undersigned to sign this annual report on
its behalf.
|
|
EURO TECH HOLDINGS COMPANY LIMITED
|
|
|
|
(REGISTRANT)
|
|
|
|
|
|
|
|
May 14,
2018
|
By:
|
/s/ T.C.
Leung
|
|
|
|
|
T.C.
Leung
|
|
|
|
|
Chief
Executive Officer and Chairman of the Board of
Directors
|
|
|
|
|
(Principal
Executive Officer)
|
|