U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
x
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the quarterly period ended September 30, 2012
¨
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from ___________ to ___________.
Commission File Number 001-34427
Tri-Tech Holding Inc.
(Exact name of registrant as specified
in its charter)
Cayman Islands
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Not Applicable
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(State or other jurisdiction of
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(I.R.S. employer
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incorporation or organization)
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identification number)
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16th Floor of Tower B, Renji Plaza
101 Jingshun Road, Chaoyang District
Beijing 100102 China
(Address of principal executive offices
and zip code)
+86 (10) 5732-3666
(Registrant’s telephone number, including
area code)
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x
No
¨
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer
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¨
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Accelerated filer
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¨
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Non-accelerated filer (Do not check if a smaller reporting company)
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¨
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Smaller reporting company
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x
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Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
¨
No
x
Indicate the number of shares outstanding of each of the issuer’s
classes of common stock, as of the latest practicable date.
The Company is authorized to issue 30,000,000 ordinary shares,
$0.001 par value per share. As of November 14, the Company has 8,218,406 ordinary shares outstanding, excluding 21,100 treasury
shares.
TRI-TECH HOLDING INC.
FORM 10-Q
INDEX
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
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ii
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PART I.
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FINANCIAL INFORMATION
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1
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Item 1.
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Financial Statements
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1
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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1
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Item 3.
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Quantitative and Qualitative Disclosures about Market Risk
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15
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Item 4.
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Controls and Procedures
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15
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PART II.
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OTHER INFORMATION
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16
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Item 1.
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Legal Proceedings
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16
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Item 1A.
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Risk Factors
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16
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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16
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Item 3.
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Defaults Upon Senior Securities
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16
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Item 4.
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Mine Safety Disclosures
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16
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Item 5.
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Other Information
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16
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Item 6.
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Exhibits
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16
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FINANCIAL STATEMENTS
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F-1
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SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This document contains certain statements
of a forward-looking nature. Such forward-looking statements, including but not limited to projected growth, trends and strategies,
future operating and financial results, financial expectations and current business indicators are based upon current information
and expectations and are subject to change based on factors beyond the control of the Company. Forward-looking statements typically
are identified by the use of terms such as “look,” “may,” “should,” “might,” “believe,”
“plan,” “expect,” “anticipate,” “estimate” and similar words, although some forward-looking
statements are expressed differently. The accuracy of such statements may be impacted by a number of business risks and uncertainties
that could cause actual results to differ materially from those projected or anticipated, including but not limited to the following:
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•
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the timing of the development of future products;
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•
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projections of revenue, earnings, capital structure and other financial items;
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•
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statements of the Company’s plans and objectives;
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•
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statements regarding the capabilities of its business operations;
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•
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statements of expected future economic performance;
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•
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statements regarding competition in its market; and
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•
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assumptions underlying statements regarding the Company or its business.
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Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to update
this forward-looking information. Nonetheless, the Company reserves the right to make such updates from time to time by press release,
periodic report or other method of public disclosure without the need for specific reference to this Report. No such update shall
be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any
other updates.
PART I. FINANCIAL
INFORMATION
Item 1.
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Financial Statements
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See the financial statements following the
signature page of this report, which are incorporated herein by reference.
Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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The following discussion contains, in
addition to historical information, forward-looking statements that involve risks and uncertainties. The actual results could
differ materially from those described herein.
Company Overview
Tri-Tech Holding
Inc. (the “Company” or “we”) is a leading provider of integrated solutions, products and technologies to
water resource management and environmental protection industries. The Company has
successfully
implemented projects throughout the world, including China, India, the Middle East and North America..
The Company aims to provide tailored solutions
to complex environmental challenges faced by both public and private sectors in China and beyond. Its clientele consists of a combination
of government agencies, municipalities, and industrial entities.
The Company’s principal executive
offices are located at the 16th Floor of Tower B, Renji Plaza, 101 Jingshun Road, Chaoyang District, Beijing 100102 China. The
telephone number at this address is +86 (10) 5732-3666. Its ordinary shares are traded on the NASDAQ Capital Market under the symbol
“TRIT.” The Company’s website, www.tri-tech.cn, provides a variety of information including current, quarterly
and annual reports.
Principal Products, Services and Their Markets
The Company operates in three segments:
(i) Water, Wastewater Treatment and Municipal Infrastructure (“WWTM”), (ii) Water Resource Management System
and Engineering Services (“WRME”), and (iii) Industrial Pollution Control and Safety (“IPCS”). Through
its subsidiaries, variable interest entities (“VIE”) and joint venture partnership, the Company:
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·
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Provides proprietary and third-party products, integrated systems and other services
for
the purposes of water resource monitoring, development, utilization and protection;
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·
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Designs water works and customized facilities for reclaiming and reusing water and sewage treatment for China’s municipalities;
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·
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Designs systems that
track
natural waterway levels for flood and
drought control, monitor groundwater quality, manage water resources and irrigation systems; and
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·
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Provides systems for volatile organic compound (“VOC”) abatement, odor control, water and wastewater treatment,
water recycling facilities design, project engineering, procurement and construction for petroleum refineries, petrochemical and
power plants as well as safe and clean production technologies for oil and gas field exploration and pipelines.
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Business Segments
Segment 1: Water,
Wastewater Treatment and Municipal Infrastructure (“WWTM”)
WWTM focuses on municipal water supply and
distribution, wastewater treatment and gray water recycling, through the procurement and construction of proprietary build-transfer-operation
(“BTO”) processing equipment and processing control systems. The Company also provides municipal facilities engineering
and operation management services for related infrastructure construction projects.
Segment 2: Water
Resource Management System and Engineering Service (“WRME”)
WRME involves projects relating to water
resource management, flood control and forecasting, irrigation systems, and similar ventures through system integration of proprietary
and third-party hardware and software products. For government agencies, the Company designs systems that track natural waterway
levels for drought control, monitor groundwater quality, and generally manage water resources and irrigation systems.
Segment 3: Industrial
Pollution Control and Safety (“IPCS”)
Equipped with a variety of technologies
and products, such as zero liquid discharge (“ZLD”),multi-effect evaporation, multi-flash evaporation, as well as emissions
control, IPCS focuses on industrial water, wastewater treatment and seawater desalination for industrial production and pollution
control in the petroleum and power industries. Projects in this segment include
traditional
Engineering
Procurement Construction (“EPC”) of equipment and modules, and the operation and maintenance of industrial wastewater
treatment plants. For petroleum refineries, petrochemical factories and power plants, the Company provides systematic solutions
for volatile organic compound abatement, odor control, water and wastewater treatment, and water recycling. The Company also provides
safe and clean production technologies for oil and gas field exploration and pipeline transportation.
Critical Accounting Policies
Estimates and Assumptions
The preparation
of financial statements requires management to make numerous estimates and
assumptions that affect the amounts reported
in the consolidated financial statements and accompanying notes. Changes in these estimates and assumptions may have financial
impacts on recognition and disclosure of assets, liabilities, equity, revenues and expenses. However, we believe that these estimates
used in preparing our financial statements are based on our best professional judgment, and are reasonable and prudent.
The most complex and subjective estimates
and assumptions that present the greatest amount of uncertainty relate to the recognition of revenue under the percentage of completion
method recording, business combination, the allowance for doubtful accounts, long term contract collectability, impairment of fixed
assets and intangible assets, and income tax. We evaluate all of these estimates and judgments on an on-going basis.
Below are the most critical estimates and assumptions
we
make in preparing the consolidated financial
statements.
Revenue Recognition
Our revenues consist primarily
of three categories: (i) System Integration, (ii) Hardware Product Sales, and (iii) Software Product Sales. The Company recognizes
revenue when the consideration to be received is fixed or determinable, products delivered, or services rendered, and collectability
ensured.
For system integration, sales contracts
are structured with fixed price. The contract periods range from two months to approximately three years in length. We recognize
revenue of these contracts following the percentage-of-completion method, measured by different stages in accordance with ASC 605-35,
“Construction-Type and Production-Type Contracts.” Only if the actual implementation status meets the established stages
of completion will we recognize the relevant portion of the revenue. There are four major stages for the system integration revenue
recognition: (a) the completion of project design, (b) the delivery of products, (c) the completion of debugging, and (d) inspection
and acceptance.
For hardware product sales, we
recognize revenue only when all products are delivered and the acceptance confirmations are signed by the customers, according
to ASC 605-10, “Revenue Recognition.” We are not obligated for any repurchase or return of the goods.
We also sell software products.
These software product sales do not include any additional services such as maintenance or technical support. We recognize revenue
under ASC 985-605, “Software Revenue Recognition” according to the acceptance of delivery revenue recognition method.
At the end of each reporting period, we recognize the contract amount as revenue only if all software products have been delivered
and the customer acceptance confirmation has been signed.
If unapproved change orders or
claims occur in the future, in accounting for contracts, we follow paragraphs 30 and 31 of ASC 605-35-25, “Construction-Type
and Production-Type Contracts.” We recognize revenue from unapproved change orders or claims only to the extent that contract
costs relating to the unapproved change orders or claims have been incurred, and only if it is probable that such unapproved change
orders or claims will result in additional contract revenue and the amount of such additional revenue can be reliably estimated.
To date, we have not experienced any unapproved change orders in our ordinary business operation.
We present all sales revenue net
of VAT. Our products sold in China are generally subject to Chinese VAT of 17% of the sales price, except for certain proprietary
software sales which will only be subject to an effective tax rate of 3%. The VAT payable may be offset by VAT paid by us on purchased
raw materials and other materials included in the cost of projects or producing the finished product.
We record revenue in excess of
billings as “unbilled revenue”. For revenues accounted for under this account, we expect the amounts to be collected
within one year. For those with collection periods in excess of one year, we classify them under “long-term unbilled revenue”
on the consolidated balance sheets.
The Company obtained several contracts with
a billing cycle of over three years in the past two years. The discounted revenues from those contracts are recorded and the discount
rate is the 3-year nominal interest rate of 5.4%, set by the People’s Bank of China, China’s central bank. For the
contract where a discount rate is specified, such specified rate is applied. These projects are funded by local governments with
central government project appropriations, so the Company does not ascribe any collection risk on such projects.
Accounts Receivable
Given the characteristics of the clientele,
we are confident that our accounts receivable are of good quality even though our accounts receivable days are relatively long
compared with companies in other industries. Our finance team is constantly monitoring the accounts receivable quality and the
process and assumptions used in bad debt provision. In case of any event that indicates accounts receivable quality deterioration,
management will reassess the bad debt provision within the period such event occurs.
We recognize accounts receivable initially
at fair value less an allowance for doubtful accounts. We make an allowance for doubtful accounts based on the aging of accounts
receivable and on any specifically identified accounts receivable that may become uncollectible. We maintain allowances for doubtful
accounts for estimated losses resulting from the failure of customers to make required payments in the relevant time periods. We
review the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability
of individual balances. In evaluating the collectability of individual receivable balances, we consider many factors, including
the age of the balance, the customer’s historical payment history and current credit-worthiness and current economic trends.
The amount of the provision, if any, is recognized in the consolidated statement of operations within “general and administrative
expenses.”
While the collection period for
some of the long-term contracts, such as the build-and-transfer projects, can be as long as two years, given that our clients are
primarily government agencies supported by provincial budgets and large state-owned enterprises with sufficient liquidity, we believe
the collectability of accounts receivable is secure, long-term or short-term.
Impairment of Assets and Intangible Assets
We
monitor the
carrying value of our long-lived assets for potential impairment whenever events or changes in circumstances indicate that their
carrying amounts may not be recoverable.
To the extent the estimated undiscounted future cash inflows attributable to the
asset, less estimated undiscounted future cash outflows, are less than the carrying amount, we recognize an impairment loss in
an amount equal to the difference between the carrying value of such assets and fair value. No impairment indicator is noted in
the prior or current periods.
We evaluate the periods of depreciation
and amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives.
Estimating
future cash flows require significant judgment, and projections may vary from the cash flows eventually realized which could impact
our
ability to accurately assess whether an asset has been impaired.
For goodwill,
we
assess for impairment at period end or whenever events or changes indicate that, more likely
than not, the carrying value of goodwill has been impaired. We use the income approach to estimate the fair value of the goodwill.
The income approach is based on the long-term projected future cash flows of the operating segments. We discount the estimated
cash flows to present value using a weighted-average cost of capital that considers factors such as the timing of the cash flows
and the risks inherent in those cash flows. We believe that this approach is the most reasonable because it provides a fair value
estimate based upon the operating segments’ expected long-term performance considering the economic and market conditions
that generally affect our business.
Taxation
Pursuant to the new EIT Law and supplementary
regulations, only high-tech companies that have been re-certified as such under the new criteria are granted the preferential enterprise
income tax rate of 15%. TTB received a preferential income tax rate of 7.5% from January 1, 2009 to December 31, 2011,
after which
the EIT rate became 15% as TTB continues to qualify as a high-tech company.
For revenues generated from those parts
of our software solutions which are recognized by and registered with government authorities and meet government authorities’
requirements to be treated as software products, we are entitled to receive a refund of 14% on the total VAT paid at a rate of
17%. Revenues from software products other than the above are subject to full VAT at 17%. In addition, we are currently exempted
from sales tax for revenues generated from development and transfer of tailor-made software solutions for clients. Further, revenues
from consulting services are subject to a 5% sales tax. Qualified to issue VAT invoices, we need to maintain a certain amount of
revenue that is taxable by VAT. As such, we may have to refuse some of the tax exemption benefits in our tailor-made software development
business and pay VAT for those parts of the revenue in order to maintain minimum VAT revenue thresholds. This practice may cease
to apply if more of the software products become recognized and registered as software products in the PRC.
PRC Value-Added Tax
Our products sold in China are generally
subject to a Chinese VAT at a rate of 17%. Proprietary software sales are subject to business tax of 5%. The VAT may be offset
by VAT we pay on raw materials and other materials included in the cost of producing our finished product. Accrued VAT payables from
Yanyu, Tranhold and BSST are subject to urban maintenance and construction tax and additional education fees, which are accounted
for as 0.5% of the total sales value.
PRC Business Tax
Part of revenues from services provided
by TTB, Yanyu, Tranhold and BSST are mostly subject to a Chinese business tax of 5% and surtax of 0.5%. One of the projects in
Tianjin is subject to a 3% business tax. We pay business tax on gross revenues generated from our shipping agency services minus
the costs of services, which are paid on behalf of our customers. The Business tax was terminated in some provinces or categories
of China from September,2012, some the Company’s revenues per subjected to Business Tax will subject to a 6% VAT.
Recently Issued Accounting Pronouncements
In July 2012, the FASB issued ASU 2012-02,
“Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment." This ASU simplifies
how entities test indefinite-lived intangible assets for impairment which improve consistency in impairment testing requirements
among long-lived asset categories. These amended standards permit an assessment of qualitative factors to determine whether it
is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. For assets
in which this assessment concludes it is more likely than not that the fair value is more than its carrying value, these amended
standards eliminate the requirement to perform quantitative impairment testing as outlined in the previously issued standards.
The guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012,
early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s (consolidated)
financial position and results of operations.
Revenues by Segment
In the three and nine months ended
September 30, 2012, Segment 1 contributed 35.4% and 38.4%, respectively of the total revenues; Segment 2 contributed
36.7% and 35.3%, respectively; and Segment 3 contributed the remaining 27.9% and 26.3%, respectively.
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Three Months Ended September 30, 2012
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Segment 1:
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%
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Segment 2:
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%
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Segment 3:
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%
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Total:
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%
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System Integration
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$
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6,263,243
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97.4
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%
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$
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5,244,660
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78.7
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%
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$
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4,873,996
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96.4
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%
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$
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16,381,899
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90.3
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%
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Hardware Products
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$
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167,694
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2.6
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%
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$
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1,415,778
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|
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21.3
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%
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$
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181,440
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3.6
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%
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$
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1,764,912
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9.7
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%
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Total Revenues
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$
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6,430,937
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35.4
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%
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$
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6,660,438
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36.7
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%
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$
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5,055,436
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27.9
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%
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$
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18,146,811
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100.0
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%
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The following table provides revenue percentage for each segment
and category for the nine months ended September 30, 2012.
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Nine Months Ended September 30, 2012
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Segment 1:
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%
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Segment 2:
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%
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Segment 3:
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%
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Total:
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%
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System Integration
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$
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23,024,644
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99.3
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%
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$
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18,639,808
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87.3
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%
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$
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14,991,879
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94.5
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%
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$
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56,656,331
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93.8
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%
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Hardware Products
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$
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167,694
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0.7
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%
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$
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2,711,220
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12.7
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%
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$
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873,412
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5.5
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%
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$
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3,752,326
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6.2
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%
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Total Revenues
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$
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23,192,338
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38.4
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%
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$
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21,351,028
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35.3
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%
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$
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15,865,291
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|
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26.3
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%
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$
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60,408,657
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|
|
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100.0
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%
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Backlog and Pipeline for 2012
Backlog represents the uncompleted
projects we have in the current period. The following table provides backlog by segment as of September 30, 2012 and June
30, 2012, respectively. The percentage of change reflects both conversion of backlog to revenue and replacement of completed
projects with new projects.
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September 30, 2012
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June 30, 2012
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|
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$
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% of Total
Backlog
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|
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$
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% of Total
Backlog
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|
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% Change
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Segment 1:
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38.8 million
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55.1
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%
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41.9 million
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52.9
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%
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(7.4
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)%
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Segment 2:
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7.9 million
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|
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11.2
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%
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12.2 million
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|
|
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15.4
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%
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|
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(35.2
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)%
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Segment 3:
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23.7 million
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33.7
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%
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25.1 million
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|
|
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31.7
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%
|
|
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(5.6
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)%
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Total
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70.4 million
|
|
|
|
100.0
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%
|
|
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79.2 million
|
|
|
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100.0
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%
|
|
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(11.1
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)%
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Pipeline represents the values of projects
we have been actively pursuing. The pipeline by the end of September 30, 2012 was $86.7 million in Segment 1, $5.2 million in
Segment 2 and $47.1 million in Segment 3.
Secured
projects move from pipeline into backlog and backlog to revenue based on percentage of completion, sometimes simultaneously.
The Company’s backlog represents the
amount of contract work remaining to be completed, that is, revenues from existing contracts and work in progress expected to be
recognized in current period, based on the assumption that these projects will be completed on time according to the project schedules.
Operational Results Overview and Business Trends
The operational result overview and business trends are as follows, contract amounts represent the total amount of signed contracts in certain quarters.
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Operational Result
|
|
|
|
Three Months Ended
March 31, 2012
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Three Months Ended
June 30, 2012
|
|
Three Months Ended
September 30, 2012
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Segment 1
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Contract Amount
|
$
|
1,464,966
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$
|
3,113,749
|
$
|
3,233,149
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|
Revenue
|
$
|
8,406,973
|
$
|
8,354,428
|
$
|
6,430,937
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Cash received
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$
|
2,553,003
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$
|
12,392,186
|
$
|
7,972,865
|
Segment 2
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Contract Amount
|
$
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13,219,454
|
$
|
10,426,373
|
$
|
3,682,382
|
|
Revenue
|
$
|
6,254,590
|
$
|
8,436,000
|
$
|
6,660,438
|
|
Cash received
|
$
|
3,111,764
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$
|
9,047,913
|
$
|
8,376,037
|
Segment 3
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Contract Amount
|
$
|
7,298,036
|
$
|
6,994,743
|
$
|
5,709,685
|
|
Revenue
|
$
|
4,559,749
|
$
|
6,250,106
|
$
|
5,055,436
|
|
Cash received
|
$
|
1,567,111
|
$
|
3,853,130
|
$
|
2,042,494
|
Strategies for Growth
Segment 1: Water, Wastewater Treatment
and Municipal Infrastructure
Strengthened by our core compentence
as an EPC contractor, we will continue seeking BTO and BOT opportunities with favorable payment terms and well-managed risk
factors for municipal water/wastewater treatment and water supply, a tendency that has been revealing in the Chinese water
market.
Segment 2: Water Resources Management
Systems and Engineering Services
Under favorable governmental
policies, we will focus on expanding market share in flash flood and river hydrologic monitoring in China and upgrading
water resources management programs. Integrated with our technical competence on water informatization, water distribution
management in irrigation is one of our future growth goals.
Segment 3: Industrial Pollution Control
and Safety
Supported with our R&D and
manufacturing center in Baoding, we will develop our core technical competences in thermal evaporation and membrane
technologies, such as mechanical vapor compression (MVC) and multi-effect distillation (MED), for the application in
industrial wastewater zero liquid discharge (ZLD) and seawater desalination. Our VOC
treatment services are strengthening our auxiliary value in this segment.
R&D and Manufacturing Facility
This facility is an essential part of
our Company strategy to facilitate the business transition and sustainable development, in which we will centralize the
production of common parts for each segment while developing core technologies in thermal evaporators and membrane for
practical utilization.
Funding for
Continuous Growth
We are actively
working with local Chinese banks for possible financial support. In August 2012, we secured a credit line of $6.3 million from
China Merchants Bank, $2.4 million of which was used in quarter three to fund our payments to suppliers.
The remaining $3.9 million is to be used for project guarantees. The credit lines are to increase our financial flexibility and
to optimize the efficiency of our capital structure.
In addition to the lines of credit, we worked
with Nanjing Bank and issued a corporate bond of $7.89 million in September 2012, adding a new avenue to fuel our growth.
Principal Suppliers
As independent as we are at selecting general
suppliers, we are planning to further develop strategic partnerships with suppliers who provide the Company with key components
that contribute to a large portion of our costs.
Customers and Marketing/Distribution Methods
Our top five customers collectively
represented approximately 45.9% and 72.7% of our total revenue for the three months ended September 30, 2012 and 2011,
respectively. Although we are dependent on our large clients to a certain degree, unlike other commercial businesses,
collectability of accounts receivables is relatively secure because our client base consists primarily of government
agencies or large state-owned enterprises.
Government Regulation and Approval
In August 2012, the Company, through one
of its subsidiaries, received approvals from the Reserve Bank of India to establish project offices in Buxar, Begusarai and Hajipur
in Bihar, India.
Employees
As of September 30, 2012, we had
474 total employees of whom 202 (42.6%) were in technical support and project management, 109 (23.0%) were in sales,
13 (2.7%) were in research and development, 47 (10.0%) were in finance, and the remaining 103 (21.7%) were in general and
administrative functions.
According to the
Company’s financial performance and economic downturn situations, the management is very closely examining and
evaluating the manpower vs. workload, and exploring possible measures to cut the expenses, including streamlining the
workforce if necessary.
Results of Operations
Overview for the Three and Nine Months Ended September
30, 2012 and 20
1
1
Our operating revenues are primarily derived
from system design and integration, hardware product design and manufacturing and sales. Our second quarter results reflected stable
growth.
Highlights of our financial results during
the three months ended September 30, 2012 include:
|
·
|
Total revenues decreased to $18,146,811 in the third quarter of 2012, a decrease of 24.4%, from $23,988,988 in the same
period of 2011. This decrease is primarily attributable to the progress of Ordos and India projects. The Ordos project had
approached the end, while the India projects were slow to receive Indian regulatory approvals and
had less
progress than
expected.
|
|
·
|
Total cost of revenues decreased by $4,428,708 from $17,910,439 in the third quarter of 2011 to $13,481,731 in the third quarter
of 2012. This decrease is due to the decrease of related revenue.
|
|
·
|
Total operating expenses were $4,946,707 for the third quarter of 2012, an increase of 68.0%, compared with the amount in the
same period of 2011. Having a big amount of pipeline, we expanded the headcount of sales and administration in quarter three, actively
pursuing new projects. This expansion caused the increase of operating expenses.
|
|
·
|
Operating loss was $
281,627
in the third quarter of 2012, compared with operating income
of $
3,134,666
in the third quarter of 2011, representing
1.6
%
and
13.1
% of total revenues in the third quarter of 2012 and 2011, respectively. The decrease
was due to the decreased revenue and increased expenses mentioned above.
|
|
·
|
Net loss attributable to TRIT was $677,022 for the
third
quarter
of 2012.
|
The following are the operating results
for the three months ended September 30, 2012 and 2011:
|
|
Three Months Ended September 30, 2012 ($)
|
|
|
% of
Sales
|
|
|
Three Months
Ended September 30, 2011 ($)
|
|
|
% of
Sales
|
|
|
Change ($)
|
|
|
Change
(%)
|
|
Revenue
|
|
|
18,146,811
|
|
|
|
100.0
|
%
|
|
|
23,988,988
|
|
|
|
100.0
|
%
|
|
|
(5,842,177
|
)
|
|
|
(24.4
|
)%
|
Cost of Revenues
|
|
|
13,481,731
|
|
|
|
74.3
|
%
|
|
|
17,910,439
|
|
|
|
74.7
|
%
|
|
|
(4,428,708
|
)
|
|
|
(24.7
|
)%
|
Selling and Marketing Expenses
|
|
|
1,031,607
|
|
|
|
5.7
|
%
|
|
|
519,451
|
|
|
|
2.2
|
%
|
|
|
512,156
|
|
|
|
98.6
|
%
|
General and Administrative Expenses
|
|
|
3,908,026
|
|
|
|
21.5
|
%
|
|
|
2,393,836
|
|
|
|
10.0
|
%
|
|
|
1,514,190
|
|
|
|
63.3
|
%
|
Research and Development Expenses
|
|
|
7,074
|
|
|
|
0.0
|
%
|
|
|
30,596
|
|
|
|
0.1
|
%
|
|
|
(23,522
|
)
|
|
|
(76.9
|
)%
|
Total Operating Expenses
|
|
|
4,946,707
|
|
|
|
27.3
|
%
|
|
|
2,943,883
|
|
|
|
12.3
|
%
|
|
|
2,002,824
|
|
|
|
68.0
|
%
|
Operating Income
|
|
|
(281,627
|
)
|
|
|
(1.6
|
)%
|
|
|
3,134,666
|
|
|
|
13.1
|
%
|
|
|
(3,416,293
|
)
|
|
|
(109.0
|
)%
|
Other Expenses
|
|
|
583,571
|
|
|
|
3.2
|
%
|
|
|
171,262
|
|
|
|
0.7
|
%
|
|
|
412,309
|
|
|
|
240.7
|
%
|
(Loss) Income before Provision for Income Taxes
|
|
|
(865,198
|
)
|
|
|
(4.8
|
)%
|
|
|
2,963,404
|
|
|
|
12.4
|
%
|
|
|
(3,828,602
|
)
|
|
|
(129.2
|
)%
|
Provision for Income Taxes
|
|
|
-
|
|
|
|
-
|
%
|
|
|
499,577
|
|
|
|
2.1
|
%
|
|
|
(499,577
|
)
|
|
|
(100.0
|
)%
|
Net Income
|
|
|
(865,198
|
)
|
|
|
(4.8
|
)%
|
|
|
2,463,827
|
|
|
|
10.3
|
%
|
|
|
(3,329,025
|
)
|
|
|
(135.1
|
)%
|
Less: Net (Loss) Income Attributable to Noncontrolling Interests
|
|
|
(188,176
|
)
|
|
|
(1.0
|
)%
|
|
|
526,724
|
|
|
|
2.2
|
%
|
|
|
(714,900
|
)
|
|
|
(135.7
|
)%
|
Net (Loss) Income Attributable to TRIT
|
|
|
(677,022
|
)
|
|
|
(3.7
|
)%
|
|
|
1,937,103
|
|
|
|
8.1
|
%
|
|
|
(2,614,125
|
)
|
|
|
(135.0
|
)%
|
Critical Performances
for the nine months ended September 30, 2012 include:
|
·
|
Total revenues decreased to $60,408,657 from $61,744,086, a decrease of 2.2%.
|
|
·
|
Cost of revenues decreased to $44,702,011 in the nine-month period in 2012 from $45,351,139 for the same period last year,
a decrease of 1.4%.
|
|
·
|
Total operating expenses increased to $12,902,857 in the first nine months of 2012 from $7,746,176 in the same period 2011,
an increase of 66.6%. The most significant contributor to this increase is general and administrative expenses, which increased
by 57.8%, from the nine-month period in 2011. Having discouraged revenue for the previous quarter, we increased the headcounts
and adjusted our structures hoping to win more tenders, which led to an increase in operating expenses.
|
|
·
|
Operating income for the nine months ended September 30, 2012 was $2,803,789 compared to $8,646,771 for the same period last
year, representing a decrease of 67.6%.
|
|
·
|
Net income attributable to TRIT was
$2,131,990, a decrease of 60.5%, from $5,397,772 for the same period last year.
|
The following
are the operating results for the nine months ended September 30, 2012 and 2011:
|
|
Nine Months Ended September 30, 2012 ($)
|
|
|
% of Sales
|
|
|
Nine Months
Ended September 30, 2011 ($)
|
|
|
% of Sales
|
|
|
Change ($)
|
|
|
Change (%)
|
|
Revenue
|
|
|
60,408,657
|
|
|
|
100.0
|
%
|
|
|
61,744,086
|
|
|
|
100.0
|
%
|
|
|
(1,335,429
|
)
|
|
|
(2.2
|
)%
|
Cost of Revenues
|
|
|
44,702,011
|
|
|
|
74.0
|
%
|
|
|
45,351,139
|
|
|
|
73.5
|
%
|
|
|
(649,128
|
)
|
|
|
(1.4
|
)%
|
Selling and Marketing Expenses
|
|
|
2,806,453
|
|
|
|
4.6
|
%
|
|
|
1,305,774
|
|
|
|
2.1
|
%
|
|
|
1,500,679
|
|
|
|
114.9
|
%
|
General and Administrative Expenses
|
|
|
10,008,932
|
|
|
|
16.6
|
%
|
|
|
6,343,062
|
|
|
|
10.3
|
%
|
|
|
3,665,870
|
|
|
|
57.8
|
%
|
Research and Development Expenses
|
|
|
87,472
|
|
|
|
0.1
|
%
|
|
|
97,340
|
|
|
|
0.2
|
%
|
|
|
(9,868
|
)
|
|
|
(10.1
|
)%
|
Total Operating Expenses
|
|
|
12,902,857
|
|
|
|
21.4
|
%
|
|
|
7,746,176
|
|
|
|
12.5
|
%
|
|
|
5,156,681
|
|
|
|
66.6
|
%
|
Operating Income
|
|
|
2,803,789
|
|
|
|
4.6
|
%
|
|
|
8,646,771
|
|
|
|
14.0
|
%
|
|
|
(5,842,982
|
)
|
|
|
(67.6
|
)%
|
Other Expenses
|
|
|
327,016
|
|
|
|
0.5
|
%
|
|
|
268,396
|
|
|
|
0.4
|
%
|
|
|
58,620
|
|
|
|
21.8
|
%
|
Income before Provision for Income Taxes
|
|
|
2,476,773
|
|
|
|
4.1
|
%
|
|
|
8,378,375
|
|
|
|
13.6
|
%
|
|
|
(5,901,602
|
)
|
|
|
(70.4
|
)%
|
Provision for Income Taxes
|
|
|
601,555
|
|
|
|
1.0
|
%
|
|
|
1,344,636
|
|
|
|
2.2
|
%
|
|
|
(743,081
|
)
|
|
|
(55.3
|
)%
|
Net Income
|
|
|
1,875,218
|
|
|
|
3.1
|
%
|
|
|
7,033,739
|
|
|
|
11.4
|
%
|
|
|
(5,158,521
|
)
|
|
|
(73.3
|
)%
|
Less: Net (Loss) Income Attributable to Noncontrolling Interests
|
|
|
(256,772
|
)
|
|
|
(0.4
|
)%
|
|
|
1,635,967
|
|
|
|
2.6
|
%
|
|
|
(1,892,739
|
)
|
|
|
(115.7
|
)%
|
Net Income Attributable to TRIT
|
|
|
2,131,990
|
|
|
|
3.5
|
%
|
|
|
5,397,772
|
|
|
|
8.7
|
%
|
|
|
(3,265,782
|
)
|
|
|
(60.5
|
)%
|
Revenues
Our revenues are subject to value added
tax (“VAT”), business tax, urban maintenance and construction tax and additional education surcharges. Among the above
taxes, VAT has been deducted from the calculation of revenues.
Our total revenues for the third quarter of 2012 were $18,146,811,
a decrease of $5,842,177, or 24.4%, compared with the same period last year. This decrease is primarily attributable to a decrease
in the system integration category, from $23,650,312 in the third quarter of 2011 to $16,381,899 in the same period for 2012,
or a decrease of 30.7%. We evaluated the potential projects we have been tracking for bidding purposes and removed the BT projects
in domestic market to reduce the pressure or risk to cash flow, as these projects typically require significant amounts of capital
to be tied up for relatively long periods.
For the nine months ended September 30,
2012, total revenues reached $60,408,657. System integration constituted 93.8% of the total revenue. Hardware product sales revenue
constituted the remaining 6.2%.
Cost of Revenues
Cost of revenues is based on total actual
costs incurred plus estimated costs to completion applied to the percentage of completion as measured at different stages. It
includes material costs, equipment costs, transportation costs, processing costs, packaging costs, quality inspection and control,
outsourced construction service fees and other costs that directly relate to the execution of the services and delivery of projects.
Cost of revenues also includes freight charges, purchasing and receiving costs and inspection costs when they are incurred.
Total cost of revenues was $13,481,731 for
the third quarter of 2012, a decrease of $4,428,708, from $17,910,439 in the third quarter of 2011. The system integration category,
which was the largest contributor to the revenue decrease, was also the largest contributor to the decrease in cost of revenues,
totaling $12,110,593. The decrease in cost of revenues in the system integration category was $5,541,421, from $17,652,014 in the
third quarter of 2011. The decrease is mainly a result of the decrease in total revenues.
Total cost of revenues for the nine months
ended September 30, 2012 was $44,702,011, a decrease of 1.4%, compared to $45,351,139 for the same period in 2011. The cost for
system integration category, totaling $42,303,768, had a decrease of $1,621,571, from $43,925,339 in the same period 2011, while
the total hardware products cost increased from $1,424,055 in the same period last year to $2,398,243.
Our gross margin increased from 25.3% in
the third quarter of 2011 to 25.7% in the third quarter of 2012.
The gross margin for the nine months ended
September 30, 2012 and 2011 was 26.0% and 26.5%, respectively.
Our strategy is to carefully choose higher-margin
projects. In the next two to three years, we will continue to look for ways to minimize the negative impact on our gross margin
through optimizing product and system design, leveraging bargaining power in procurement, and exploring supply chain financing
and local equipment sourcing.
Selling and Marketing Expenses
Selling and marketing
expenses consist primarily of compensation, marketing, travel and business entertainment expenses.
In the third quarter
of 2012, total selling and marketing expenses increased by 98.6%, from $519,451 in the third quarter of 2011 to $1,031,607 in the
same period of 2012. This was a result of an increase in compensation-related expenses of $359,425 from $192,778 in the third quarter
of 2011 to $552,203 in the same period of 2012, an increase in other selling expenses of $47,173 from $195,589 in the third quarter
of 2011 to $242,762 in the same period of 2012, an increase in travel expenses of $80,847, from $61,061 in the third quarter of
2011 to $141,908 in the same period of 2012, and an increase in entertainment expenses of $24,711 from $70,023 in the third quarter
of 2011 to $94,734 in the same period of 2012. Increased headcount of sales elevated the total amount of every related expense
such as travel expenses, compensation-related expenses, and entertainment expenses.
The selling and marketing expenses for
the nine months ended September 30, 2012 totaled $2,806,453, an increase of $1,500,679 from $1,305,774 for the same period
last year. This increase was mainly due to headcount increase in sales and rapid geographic expansion. Compensation-related
costs increased from $487,668 for the nine-month period ended September 30, 2011 to $1,260,994 for the same period this year,
an increase of $773,326. Travel expenses increased from $196,833 for the nine-month period ended September 30, 2011 to
$381,168 for the same period this year, an increase of $184,335. Other selling expenses increased from $403,498 for the
nine-month period ended September 30, 2011 to $851,312 for the same period this year, an increase of $447,814. Consisting
mainly of employee benefits, business promotion, office expenses, vehicle maintenance and bidding expenses, the significant
increase in other selling and marketing expenses came mainly from business promotion and bidding expenses. Entertainment
expenses increased by $95,205 from $217,774 in the first nine months of 2011 to $312,979 for the same period of 2012.
Selling and marketing expenses for the three
and nine months ended September 30, 2012 took up approximately 5.7% and 4.6% of total revenues, respectively.
General and Administrative Expenses
General and administrative
expenses consist primarily of compensation costs, rental expenses, professional fees, and other overhead expenses. General
and administrative expenses increased by $1,514,190 from $2,393,836 in the third quarter of 2011 to $3,908,026 in the
third quarter of 2012. Of this increase, $196,822 was for officers’ salaries, which increased from $223,034 in the
third quarter of 2011 to $419,856 in the third quarter of 2012. Salaries for mid-level management, technical support team,
and other office staff increased by $219,369 from $548,135 in the third quarter of 2011 to $767,504 in the third quarter of
2012. Of other human resource expenses, endowment and other social insurance increased by 94.6% and 40.6%, respectively,
to $100,482 and $126,339, in the third quarter of 2012. Rent increased by 42.0%, from $203,604 in the third quarter of 2011
to $289,033 in the third quarter of 2012 due to office relocation. Professional fees decreased by 16.1%, from $252,629
to $212,007, which was mainly for consulting and legal services. Amortization of intangible assets and software increased
by $16,862, from $195,608 in the third quarter of 2011 to $212,470 in the same period of 2012. This increase was due to
the purchase of certain software and intangible assets in our acquired subsidiaries and the amortization of land use
rights. Depreciation expense increased by $17,058, from $62,139 in the third quarter of 2011 to $79,197 in the third quarter
of 2012. Other general and administrative expenses increased by 121.8%, from $766,993 to $1,701,138 in the third quarter
of 2012, including mainly office expenses, utilities, travel, communication and other services support. Increased
headcount raised the total amount of related expense such as salaries, insurance and travel expenses. We had a $421,376
option expense as a part of other general and administrative expense in quarter three; in addition, our provision for bad
debt also affected our general and administrative expenses.
In the first nine months of 2012, we strengthened
our administrative support, including human resources and finance functions. Many highly qualified professionals joined us to support
the revenue growth. Total general and administrative expenses for the nine months ended September 30, 2012 was $10,008,932, an
increase of $3,665,870 from $6,343,062 for the same period last year. Of this increase, $1,006,622 was for compensation-related
costs. Of other human resource expenses, endowment and other social insurance increased by 59.1% and 77.2% respectively, or $93,677
and $168,351, in the first nine months of 2012. Rent increased by 44.9% from $563,217 in the first nine months of 2011 to $816,350
in the same period of 2012. Professional fees increased 29.8%, from $603,666 in the first nine month of 2011 to $783,609 for the
same period of 2012, mainly due to the exploration of new business. Amortization and depreciation increased by $174,910 and $55,732
respectively. Other general and administrative overhead increased by $1,733,675 for the first nine months of 2012 compared to the
same period last year.
General and administrative expenses for
the three months and nine months ended September 30, 2012 took up approximately 21.5% and 16.6% of total revenues, respectively.
Provision for Income Tax
We provide for deferred income taxes using
the asset and liability method. Under this method, we recognize deferred income taxes for tax credits, net operating losses available
for carry-forwards and significant temporary differences. We classify deferred tax assets and liabilities as current or non-current
based upon the classification of the related asset or liability in the financial statements or the expected timing of their reversal
if they do not relate to a specific asset or liability. We provide a valuation allowance to reduce the amount of deferred tax assets
if it is considered more likely than not that some portion or all of the deferred tax assets will not be realized.
Our operations are subject to income and
transaction taxes of China and India. Significant estimates and judgments are required in determining our provision for income
taxes. Some of these estimates are based on interpretations of existing tax laws or regulations, as well as predictions related
to future changes in these laws and regulations. The ultimate amount of tax liability may be uncertain as a result. We do not
anticipate any events which could change these uncertainties.
We, including our subsidiaries and VIEs, are subject to income taxes
on an entity level for income arising in or derived from the tax jurisdictions in which each entity is domiciled. According to
the New Enterprise Income Tax Law in China, the unified enterprise income tax (“EIT”) rate is 25%. However, five of
our subsidiaries are eligible for certain favorable tax policies for being high-tech companies
.
|
EIT Rates For The
|
|
Nine Months Ended September 30,
|
|
2012
|
|
2011
|
|
%
|
|
%
|
TTB
|
15
|
|
7.5
|
BSST
|
15
|
|
15
|
Yanyu
|
15
|
|
15
|
Tranhold
|
25
|
|
25
|
TTA
|
25
|
|
25
|
Baoding
|
15
|
|
15
|
Yuanjie
|
15
|
|
15
|
Buerjin
|
25
|
|
—
|
Xushui
|
25
|
|
—
|
Consolidated Effective EIT
|
24
|
|
16
|
The favorable income tax treatment for TTB
at 7.5% expired at the end of 2011. Thereafter, the EIT rate became 15%, since TTB continues to qualify as a high-tech company.
There is no provision for income tax for the third quarter of 2012.
We have not recorded tax provision for
U.S. tax purposes, as we have no assessable profits arising in or derived from the United States and we intend to permanently
reinvest accumulated earnings in the PRC operations.
Net (Loss) Income before Income Taxes
In the quarter ended September
30, 2012, our net loss before provision for income taxes was $865,198; a decrease of $3,828,602 compared to net income
of $2,963,404 in the same period in 2011.There is no provision for income tax for the third quarter of 2012. In the
third quarter of 2012, net loss attributable to shareholders of TRIT was $677,022, a decrease of $2,614,125, from net income
of $1,937,103 for the same period of 2011.
For the nine months ended September 30, 2012,
our net income before provision for income taxes decreased by 70.4%, from $8,378,375 for the same period last year to $2,476,773.
The provision for income taxes decreased by 55.3%, from $1,344,636 to $601,555. The net income attributable to the shareholders
of TRIT was $2,131,990, a decrease of 60.5%, from $5,397,772 for the same period in 2011. The net income decreased because revenues
did not increase whereas expenses grew quickly to meet increasing business demands. Moreover, we granted options in the second
and third quarters which led to a non-cash option expense of $0.9 million.
Liquidity and Capital Resources
As highlighted in the consolidated statements
of cash flows, our liquidity and available capital resources are impacted by four key components: (i) cash and cash equivalents,
(ii) operating activities, (iii) financing activities, and (iv) investing activities.
Consolidated cash flows for the nine months
ended September 30, 2012 and 2011 were as follow:
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
2012 ($)
|
|
|
2011 ($)
|
|
|
Change
($)
|
|
Net Cash Used in Operating Activities
|
|
|
(17,011,378
|
)
|
|
|
(15,235,658
|
)
|
|
|
(1,775,720
|
)
|
Net Cash Used in Investing Activities
|
|
|
(1,018,357
|
)
|
|
|
(3,164,394
|
)
|
|
|
2,146,037
|
|
Net Cash Provided by Financing Activities
|
|
|
18,160,085
|
|
|
|
7,436,530
|
|
|
|
10,723,555
|
|
Effects of Exchange Rate Changes on Cash and Cash Equivalents
|
|
|
960,482
|
|
|
|
606,782
|
|
|
|
353,700
|
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
|
|
1,090,832
|
|
|
|
(10,356,740
|
)
|
|
|
11,447,572
|
|
Cash and Cash Equivalents, Beginning of Period
|
|
|
11,935,746
|
|
|
|
23,394,995
|
|
|
|
(11,459,249
|
)
|
Cash and Cash Equivalents, End of Period
|
|
|
13,026,578
|
|
|
|
13,038,255
|
|
|
|
(11,677
|
)
|
Cash and Cash Equivalents
As of September 30, 2012, our cash and cash
equivalents amounted to $
13,026,578
. The restricted cash as of September 30, 2012 and December
31, 2011 amounted to $
5,468,583
and $4,629,878, respectively, which are not included in the total
amount of cash and cash equivalents. The restricted cash consisted of deposits as collateral for the issuance of letters of credit.
Our subsidiaries that own these deposits do not have material cash obligations to any third parties. Therefore, the restriction
does not impact our liquidity.
Operating Activities
Net cash used in operating activities
was $
17,011,378
for the nine months ended September 30, 2012, compared with $15,235,658 in
the same period in 2011. The increase of $
1,775,720
in operating cash outflow was mainly
attributable to our rapid growth and aggressive expansion in new markets in forms of accounts receivables and unbilled
receivables. Net accounts receivable increased from $19,888,084
on
December 31, 2011 to $20,529,940
on September 30, 2012,
an increase of $641,856. Current
unbilled revenue increased from $7,254,830 on December 31, 2011
to $19,632,473 on September 30, 2012, an increase of $12,377,643.
|
|
September 30, 2012 ($)
|
|
|
December 31, 2011
|
|
|
Change
|
|
|
Change
|
|
|
|
(unaudited)
|
|
|
($)
|
|
|
($)
|
|
|
(%)
|
|
Cash
|
|
|
13,026,578
|
|
|
|
11,935,746
|
|
|
|
1,090,832
|
|
|
|
9.1
|
%
|
Restricted cash, current
|
|
|
2,920,692
|
|
|
|
2,087,920
|
|
|
|
832,772
|
|
|
|
39.9
|
%
|
Accounts receivable
|
|
|
21,697,027
|
|
|
|
20,507,146
|
|
|
|
1,189,881
|
|
|
|
5.8
|
%
|
Allowance for doubtful accounts
|
|
|
(1,167,087
|
)
|
|
|
(619,062
|
)
|
|
|
(548,025
|
)
|
|
|
88.5
|
%
|
Accounts receivable, net
|
|
|
20,529,940
|
|
|
|
19,888,084
|
|
|
|
641,856
|
|
|
|
3.2
|
%
|
Current unbilled revenue
|
|
|
19,632,473
|
|
|
|
7,254,830
|
|
|
|
12,377,643
|
|
|
|
170.6
|
%
|
Investing Activities
Net cash used in investing activities was
$
1,018,357
during the nine months ended September 30, 2012, a decrease of $
2,146,037
from net cash used in investing activities of $
3,164,394
in the same period of 2011. Currently
we do not plan to add capital expenditure on the construction of our Baoding facility as it is close to completion.
Financing Activities
The cash provided by financing activities
was $18,160,085 in the nine months ended September 30, 2012, compared to $7,436,530 in the same period of 2011. The increase was
due to increased bank borrowings and the corporate bond issued in September 2012.
Effect of Exchange Rate Changes on Cash and Cash Equivalents
The net effect of exchange
rate changes was a gain of $
960,482
in the nine months ended September 30, 2012, compared
to a gain of $606,782 in the same period of 2011.
Restricted Net Assets
Our ability to pay dividends is primarily
dependent on receiving distributions of funds from our subsidiaries, VIEs and other affiliates entities, which is restricted by
certain regulatory requirements. Relevant Chinese statutory laws and regulations permit payments of dividends by our Chinese affiliates
only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. In addition,
our PRC affiliates are required to set aside at least 10% of their after-tax profit after deducting any accumulated deficit based
on PRC accounting standards each year to our general reserves until the accumulated amount of such reserves reach 50% of our registered
capital. These reserves are not distributable as cash dividends. Our off-shore subsidiaries, TIS and Tri-Tech International Investment,
Inc. (“TTII
”
), do not have material cash obligations to third parties. Therefore,
the dividend restriction does not impact our liquidity. There is no significant difference between accumulated profit calculated
pursuant to PRC accounting standards and that pursuant to U.S. GAAP. As of September 30, 2012 and December 31, 2011, restricted
retained earnings were $1,866,994 for both, and restricted net assets were $4,446,696 and $4,553,729, respectively. Unrestricted
retained earnings as of September 30, 2012 and December 31, 2011 were $21,814,376 and $19,682,386, respectively, which were the
amounts available for distribution in the form of dividends or for reinvestment.
Working Capital and Cash Flow Management
As of September 30, 2012, our working capital
was $
11,425,602
, with current assets totaling $82,401,496 and current liabilities totaling $70,975,894.
Of the current assets, cash and cash equivalents was $13,026,578.
The Company believes its existing balances
of cash, cash equivalents and marketable securities will be sufficient to satisfy its working capital needs, capital asset purchases,
outstanding commitments, common stock repurchases, dividends on its common stock and other liquidity requirements associated with
its existing operations over the next 12 months.
However, we may require additional cash
to undertake larger projects or to complete strategic acquisitions in the future. In the event our current capital is insufficient
to fund these and other business plans, we may take the following actions to meet such working capital needs:
|
·
|
We may look into the possibility of optimizing our funding structure by obtaining short- and/or long-term debt through commercial
loans. We are actively exploring opportunities with other major Chinese banks, such as ICBC and CITIC Bank, and we expect to acquire
additional lines of credit to gain more project opportunities in the future. Other financing instruments into which we are currently
looking include supply chain financing, project financing, trust fund financing and capital leasing.
|
|
·
|
We may improve our collection of accounts receivable. Most of our clients are central, provincial and local governments. We
believe that our clients are in good financial conditions. Therefore, we expect good collectability from relatively high accounts
receivables. The accounts receivable collection should catch up with our rapid growth in the near future. Given the high interest
rate on unpaid contract price for long-term projects, it is possible that some clients may choose to pay before interests start
to accrue.
|
Segment Information
We have three reportable operating segments.
The segments are grouped according to the types of goods and services provided and the types of clients that use such goods and
services. Total sales and costs are divided among these three segments. We assess each segment’s performance based on net
revenue and gross profit on contribution margin.
Segment 1: Water, Wastewater Treatment and Municipal Infrastructure
The following are the operating results
for the three months ended and nine months ended September 30, 2012 and 2011 for Segment 1:
|
|
Three months ended September 30,
|
|
|
|
|
|
|
2012 ($)
|
|
2011 ($)
|
|
Change ($)
|
|
Change
|
|
(%)
|
Revenues
|
|
6,430,937
|
|
15,544,356
|
|
(9,113,419)
|
|
(58.6)
|
|
%
|
Cost of Revenues
|
|
4,892,045
|
|
11,479,642
|
|
(6,587,597)
|
|
(57.4)
|
|
%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
Selling and Marketing Expenses
|
|
342,626
|
|
193,088
|
|
149,538
|
|
77.4
|
|
%
|
General and Administrative Expenses
|
|
1,990,661
|
|
1,505,191
|
|
485,470
|
|
32.3
|
|
%
|
Research and Development Expenses
|
|
6,087
|
|
9,310
|
|
(3,223)
|
|
(34.6)
|
|
%
|
Total Operating Expenses
|
|
2,339,374
|
|
1,707,589
|
|
631,786
|
|
37.0
|
|
%
|
Other Income (Expenses)
|
|
(351,926 )
|
|
(141,909)
|
|
(210,017)
|
|
148.0
|
|
%
|
(Loss) Income before Provision for Income Taxes
|
|
(1,152,408)
|
|
2,215,216
|
|
(3,367,624)
|
|
(152.0)
|
|
%
|
|
|
Nine months ended September 30,
|
|
|
|
|
|
|
|
|
2012 ($)
|
|
2011 ($)
|
|
Change ($)
|
|
Change
|
|
(%)
|
Revenues
|
|
23,192,338
|
|
45,218,375
|
|
(22,026,037)
|
|
(48.7)
|
|
%
|
Cost of Revenues
|
|
17,144,264
|
|
33,691,392
|
|
(16,547,128)
|
|
(49.1)
|
|
%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
Selling and Marketing Expenses
|
|
790,773
|
|
446,023
|
|
344,750
|
|
77.3
|
|
%
|
General and Administrative Expenses
|
|
4,910,928
|
|
3,443,092
|
|
1,467,836
|
|
42.6
|
|
%
|
Research and Development Expenses
|
|
18,005
|
|
17,246
|
|
759
|
|
4.4
|
|
%
|
Total Operating Expenses
|
|
5,719,706
|
|
3,906,361
|
|
1,813,345
|
|
46.4
|
|
%
|
Other Income (Expenses)
|
|
96,243
|
|
(181,925)
|
|
278,168
|
|
(152.9)
|
|
%
|
Income before Provision for Income Taxes
|
|
424,611
|
|
7,438,697
|
|
(7,014,086)
|
|
(94.3)
|
|
%
|
Segment 2: Water Resource Management System and Engineering
Services
The following are the operating results
for the three months ended and nine months ended September 30, 2012 and 2011 for Segment 2:
|
|
Three months ended September 30,
|
|
|
|
|
|
|
|
|
2012 ($)
|
|
2011 ($)
|
|
Change ($)
|
|
Change
|
|
(%)
|
Revenues
|
|
6,660,438
|
|
3,499,953
|
|
3,160,485
|
|
90.3
|
|
%
|
Cost of Revenues
|
|
5,082,450
|
|
2,499,569
|
|
2,582,881
|
|
103.3
|
|
%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
Selling and Marketing Expenses
|
|
401,894
|
|
251,978
|
|
149,916
|
|
59.5
|
|
%
|
General and Administrative Expenses
|
|
887,655
|
|
384,287
|
|
503,368
|
|
131.0
|
|
%
|
Research and Development Expenses
|
|
987
|
|
5,711
|
|
(4,724)
|
|
(82.7)
|
|
%
|
Total Operating Expenses
|
|
1,290,536
|
|
641,976
|
|
648,560
|
|
101.0
|
|
%
|
Other Expenses
|
|
(66,171)
|
|
(31,273)
|
|
(34,898)
|
|
111.6
|
|
%
|
Income before Provision for Income Taxes
|
|
221,281
|
|
327,135
|
|
(105,854)
|
|
(32.4)
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
|
|
|
|
|
|
2012 ($)
|
|
2011 ($)
|
|
Change ($)
|
|
Change
|
|
(%)
|
Revenues
|
|
21,351,028
|
|
7,455,482
|
|
13,895,546
|
|
186.4
|
|
%
|
Cost of Revenues
|
|
15,692,903
|
|
4,944,921
|
|
10,747,982
|
|
217.4
|
|
%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
Selling and Marketing Expenses
|
|
1,285,668
|
|
617,710
|
|
667,958
|
|
108.1
|
|
%
|
General and Administrative Expenses
|
|
2,417,949
|
|
1,126,621
|
|
1,291,326
|
|
114.6
|
|
%
|
Research and Development Expenses
|
|
69,467
|
|
53,959
|
|
15,508
|
|
28.7
|
|
%
|
Total Operating Expenses
|
|
3,773,084
|
|
1,798,290
|
|
1,974,794
|
|
109.8
|
|
%
|
Other Expenses
|
|
(128,413)
|
|
(61,568)
|
|
(66,845)
|
|
108.6
|
|
%
|
Income before Provision for Income Taxes
|
|
1,756,628
|
|
650,703
|
|
1,105,925
|
|
170.0
|
|
%
|
Segment 3: Industrial Pollution Control and Safety
The following are the operating results
for the three months ended and nine months ended September 30, 2012 and 2011 for Segment 3:
|
|
Three months ended September 30,
|
|
|
|
|
|
|
|
|
2012 ($)
|
|
2011 ($)
|
|
Change ($)
|
|
Change
|
|
(%)
|
Revenues
|
|
5,055,436
|
|
4,944,679
|
|
110,757
|
|
2.2
|
|
%
|
Cost of Revenues
|
|
3,507,236
|
|
3,931,228
|
|
(423,992)
|
|
(10.8)
|
|
%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
Selling and Marketing Expenses
|
|
287,087
|
|
74,385
|
|
212,702
|
|
285.9
|
|
%
|
General and Administrative Expenses
|
|
1,029,710
|
|
504,358
|
|
525,352
|
|
104.2
|
|
%
|
Research and Development Expenses
|
|
-
|
|
15,575
|
|
(-15,575)
|
|
(-100)
|
|
%
|
Total Operating Expenses
|
|
1,316,797
|
|
594,318
|
|
722,479
|
|
121.6
|
|
%
|
Other (Expenses) Income
|
|
(165,474)
|
|
1,920
|
|
(167,394)
|
|
(8,718.4)
|
|
%
|
Income before Provision for Income Taxes
|
|
65,929
|
|
421,053
|
|
(355,124)
|
|
(84.3)
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
|
|
|
|
|
|
2012 ($)
|
|
2011 ($)
|
|
Change ($)
|
|
Change
|
|
(%)
|
Revenues
|
|
15,865,291
|
|
9,070,229
|
|
6,795,062
|
|
74.9
|
|
%
|
Cost of Revenues
|
|
11,864,844
|
|
6,714,826
|
|
5,150,018
|
|
76.7
|
|
%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
Selling and Marketing Expenses
|
|
730,012
|
|
242,040
|
|
487,972
|
|
201.6
|
|
%
|
General and Administrative Expenses
|
|
2,680,055
|
|
1,773,350
|
|
906,705
|
|
51.1
|
|
%
|
Research and Development Expenses
|
|
-
|
|
26,135
|
|
(-26,135)
|
|
(-100)
|
|
%
|
Total Operating Expenses
|
|
3,410,067
|
|
2,041,525
|
|
1,368,542
|
|
67.0
|
|
%
|
Other Expenses
|
|
(294,846)
|
|
(24,903)
|
|
(269,943)
|
|
1,084.0
|
|
%
|
Income before Provision for Income Taxes
|
|
295,534
|
|
288,975
|
|
6,559
|
|
2.3
|
|
%
|
Assets attributable to each segment as of
September 30, 2012 and 2011 are shown below:
Segment Assets
|
|
Segment 1
|
|
|
Segment 2
|
|
|
Segment 3
|
|
|
Total
|
|
As of September 30, 2012
|
|
$
|
91,049,401
|
|
|
$
|
41,901,841
|
|
|
$
|
32,294,133
|
|
|
$
|
165,245,375
|
|
As of December 31, 2011
|
|
$
|
84,910,147
|
|
|
$
|
26,081,474
|
|
|
$
|
27,659,057
|
|
|
$
|
138,650,678
|
|
Contractual Obligations and Commercial
Commitments
Operating Leases
As of September 30, 2012, we had commitments
under certain operating leases, which require annual minimum rental payments as follows:
For the Years Ended December 31,
|
|
|
Amount
|
|
|
2012
|
|
|
$
|
304,540
|
|
|
2013
|
|
|
|
854,162
|
|
|
2014
|
|
|
|
517,233
|
|
|
2015
|
|
|
|
92,110
|
|
|
Total
|
|
|
$
|
1,768,045
|
|
Our leased properties are principally located
in Beijing and are used for administration and research and development purposes. The terms of these operating leases vary from
one to five years. Pursuant to the lease terms, when the contracts expire, we have the right to extend them with new negotiated
prices. The leases are renewable subject to negotiation. Rental expenses were $289,033 and $203,604 for the quarter ended September
30, 2012 and 2011, respectively.
Product Warranties
Our warranty policy generally is to replace
parts at no additional charge if they become defective within one year after deployment. Historically, failure of product parts
due to materials used or workmanship has not been significant. We have not incurred any material unexpected costs associated with
servicing warranties. We continuously evaluate and estimate our potential warranty obligations, and record the related warranty
obligation when the estimated amount becomes material at the time revenue is recorded.
Capital Expenditures
In the past, the capital expenditures were
mainly for purchases of computers and other office equipment to support our daily business activities. Our capital expenditures
will increase in the near term as our business continues to grow and as the construction of our research and development facilities
in Tianjin progresses. The construction of the research and development center consists of three phases. Phase one has been completed.
Completion of phases two and three of the construction are planned towards the end of 2013. The total capital investment is expected
to be $20 million.
Seasonality
The Company’s operating revenues normally
tend to fluctuate due to different project stages and U.S. GAAP requirements on revenue recognition. As the scope of our business
extended to the civil construction activities, certain destructive weather conditions that tend to occur during the winter often
impact the progress of our projects. Certain weather conditions, including severe winter storms, may result in the temporary suspension
of outdoor operations, which can significantly affect the operating results of the affected regions.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements
for the three and nine months ended September 30, 2012 or 2011.
Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk
|
Not applicable.
Item 4.
|
Controls and Procedures
|
Disclosure Controls and Procedures
As of September 30, 2012, the Company carried
out an evaluation, under the supervision of and with the participation of management, including the Company’s chief executive
officer and chief financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls
and procedures. Based on the foregoing, the chief executive officer and chief financial officer concluded that the Company’s
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were
effective.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s
internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) during the three
month ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s
internal control over financial reporting.
PART II.
OTHER INFORMATION
Item 1.
|
Legal Proceedings
|
None.
Not applicable.
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
|
(b)
|
The section entitled “Use of Proceeds” from the registration statement filed on January 8, 2010, as amended (the “Registration Statement”) is incorporated herein by reference. The effective date of the Registration Statement is April 14, 2010, and the Commission file number assigned to the Registration Statement is 333-164273. The Registration Statement registers the offering of up to 2,366,833 ordinary shares (subject to amendment in accordance with the Securities Act of 1933 and the rules and regulations promulgated thereunder) (the “Offering”). As of September 30, 2012, the Company has spent proceeds from the Offering in accordance with the following chart:
|
Description of Use
|
|
Proposed
Expenditure
Amount
|
|
|
Actual Expenditures
Through September 30,
2012
|
|
|
Percentage
Expended
|
|
Working Capital
|
|
$
|
18,973,000
|
|
|
$
|
18,973,000
|
|
|
|
100.00
|
%
|
Mergers & Acquisitions
|
|
|
6,120,000
|
|
|
|
3,520,858
|
|
|
|
57.53
|
%
|
New Product Development
|
|
|
3,366,000
|
|
|
|
2,745,752
|
|
|
|
81.57
|
%
|
Sales & Marketing
|
|
|
2,142,000
|
|
|
|
2,142,000
|
|
|
|
100.00
|
%
|
Total
|
|
$
|
30,601,000
|
|
|
$
|
27,381,610
|
|
|
|
89.48
|
%
|
(c) None.
Item 3.
|
Defaults Upon Senior Securities
|
None.
Item 4.
|
Mine Safety Disclosures.
|
Not applicable.
Item 5.
|
Other Information
|
None.
The following exhibits are filed herewith:
Exhibit
|
|
|
Number
|
|
Document
|
|
|
|
3(i).1
|
|
Amended and Restated Articles of Association of the Registrant
(1)
|
|
|
|
3(ii).1
|
|
Amended and Restated Memorandum of Association of the Registrant
(1)
|
|
|
|
4.1
|
|
Specimen Share Certificate
(1)
|
|
|
|
10.1
|
|
Translation of Form of Employment Agreement between Registrant and Executive Officer of the Registrant
(1)
|
|
|
|
10.2
|
|
Translation of Exclusive Technical and Consulting Service Agreement for Tranhold
(1)
|
|
|
|
10.3
|
|
Translation of Management Fee Payment Agreement for Tranhold
(1)
|
|
|
|
10.4
|
|
Translation of Proxy Agreement for Tranhold
(1)
|
|
|
|
10.5
|
|
Translation of Equity Interest Pledge Agreement for Tranhold
(1)
|
|
|
|
10.6
|
|
Translation of Exclusive Equity Interest Purchase Agreement for Tranhold
(1)
|
|
|
|
10.7
|
|
Translation of Exclusive Technical and Consulting Service Agreement for Yanyu
(1)
|
|
|
|
10.8
|
|
Translation of Management Fee Payment Agreement for Yanyu
(1)
|
|
|
|
10.9
|
|
Translation of Proxy Agreement for Yanyu
(1)
|
|
|
|
10.10
|
|
Translation of Equity Interest Pledge Agreement for Yanyu
(1)
|
|
|
|
10.11
|
|
Translation of Exclusive Equity Interest Purchase Agreement for Yanyu
(1)
|
|
|
|
10.14
|
|
Translation of Operating Agreement for Yanyu
(1)
|
|
|
|
10.15
|
|
Translation of Operating Agreement for Tranhold
(1)
|
|
|
|
10.16
|
|
Translation of Exclusive Technical and Consulting Service Agreement for BSST
(2)
|
|
|
|
10.17
|
|
Translation of Management Fee Payment Agreement for BSST
(2)
|
|
|
|
10.18
|
|
Translation of Operating Agreement for BSST
(2)
|
|
|
|
10.19
|
|
Translation of Equity Interest Pledge Agreement for BSST
(2)
|
|
|
|
10.20
|
|
Translation of Exclusive Equity Interest Purchase Agreement for BSST
(2)
|
|
|
|
10.21
|
|
Translation of Proxy Agreement for BSST
(2)
|
|
|
|
10.22
|
|
2011 Stock Option Plan
(3)
|
|
|
|
21.1
|
|
Subsidiaries of the Registrant
(5)
|
|
|
|
31.1
|
|
Certifications pursuant to Rule 13a-14(a) or 15(d)-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(6)
|
|
|
|
31.2
|
|
Certifications pursuant to Rule 13a-14(a) or 15(d)-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(6)
|
|
|
|
32.1
|
|
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(6)
|
|
|
|
32.2
|
|
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(6)
|
|
|
|
99.2
|
|
Audit Committee Charter
(7)
|
|
|
|
101.INS
|
|
XBRL Instance Document
(8)
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document
(8)
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
(8)
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
(8)
|
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
(8)
|
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
(8)
|
|
(1)
|
Incorporated by reference to the registrant’s registration statement on Form S-1, File no. 333-158393, filed on April 3, 2009, as amended.
|
|
(2)
|
Incorporated by reference to the registrant’s Form 10-K, SEC Accession No. 0001193125-11-080197, filed on March 29, 2011.
|
|
(3)
|
Incorporated by reference to the registrant’s Form 10-K, SEC Accession No. 0001144204-12-017170, filed on March 26, 2012.
|
|
(4)
|
Incorporated by reference to the registrant’s Form 10-Q, SEC Accession No. 0001144204-11-064756, filed on November 15, 2011.
|
|
(5)
|
Incorporated by reference to the registrant’s Form 10-Q, SEC Accession No. 0001144204-12-028710, filed on May 15, 2012.
|
|
(6)
|
Filed herewith.
|
|
(7)
|
Incorporated by reference to the registrant’s Form 10-K, SEC Accession No. 0001193125-10-065797, filed on March 24, 2010.
|
|
(8)
|
Furnished herewith. In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.
|
SIGNATURE
In accordance with the requirements of the
Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
Tri-Tech Holding Inc.
|
|
|
|
November 14, 2012
|
By:
|
/s/ Peter Dong
|
|
|
Peter Dong
|
|
|
Chief Financial Officer
|
|
|
(Principal Financial and Accounting Officer) and
|
|
|
Duly Authorized Officer
|
TRI-TECH HOLDING INC. AND SUBSIDIARIES
Consolidated Financial Statements
For the quarters ended September 30, 2012
and 2011
TRI-TECH HOLDING INC. AND SUBSIDIARIES
Index to Financial Statements
|
|
|
|
|
|
|
Page
|
|
CONSOLIDATED BALANCE SHEETS
|
|
|
F-1
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
|
|
|
F-2
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
F-3
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
F-4 – F-30
|
|
TRI-TECH HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
September 30, 2012
|
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
|
2011
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
13,026,578
|
|
|
$
|
11,935,746
|
|
Restricted cash
|
|
|
2,920,692
|
|
|
|
2,087,920
|
|
Accounts receivable, net of allowance for doubtful accounts of $1,167,087 and $619,062 as of September 30, 2012 and December 31, 2011, respectively
|
|
|
20,529,940
|
|
|
|
19,888,084
|
|
Unbilled revenue
|
|
|
19,632,473
|
|
|
|
7,254,830
|
|
Other current assets
|
|
|
4,917,800
|
|
|
|
2,761,548
|
|
Inventories
|
|
|
7,266,887
|
|
|
|
7,705,752
|
|
Deposits on projects
|
|
|
3,467,045
|
|
|
|
1,212,691
|
|
Prepayments to suppliers and subcontractors
|
|
|
10,640,081
|
|
|
|
4,908,697
|
|
Total current assets
|
|
|
82,401,496
|
|
|
|
57,755,268
|
|
Long-term unbilled revenue
|
|
|
61,058,928
|
|
|
|
59,298,740
|
|
Long-term accounts receivables
|
|
|
232,055
|
|
|
|
—
|
|
Plant and equipment, net
|
|
|
1,519,201
|
|
|
|
1,436,838
|
|
Construction in progress
|
|
|
5,094,752
|
|
|
|
4,566,934
|
|
Intangible assets, net
|
|
|
10,949,774
|
|
|
|
11,609,662
|
|
Long-term restricted cash
|
|
|
2,547,891
|
|
|
|
2,541,958
|
|
Goodwill
|
|
|
1,441,278
|
|
|
|
1,441,278
|
|
Total Assets
|
|
$
|
165,245,375
|
|
|
$
|
138,650,678
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
4,443,231
|
|
|
$
|
11,401,187
|
|
Notes payable
|
|
|
—
|
|
|
|
1,176,197
|
|
Costs accrual on projects
|
|
|
26,398,736
|
|
|
|
19,402,047
|
|
Advance from customers
|
|
|
3,352,133
|
|
|
|
1,886,607
|
|
Loans from third party companies and individual
|
|
|
5,010,532
|
|
|
|
972,196
|
|
Amount due to shareholders
|
|
|
1,103,927
|
|
|
|
—
|
|
Amount due to noncontrolling interest investor
|
|
|
7,386,848
|
|
|
|
6,057,250
|
|
Other payables
|
|
|
1,529,814
|
|
|
|
687,336
|
|
Other taxes payable
|
|
|
5,513,608
|
|
|
|
3,067,350
|
|
Accrued liabilities
|
|
|
423,998
|
|
|
|
379,357
|
|
Payable on investment consideration
|
|
|
582,966
|
|
|
|
895,000
|
|
Income taxes payable
|
|
|
—
|
|
|
|
154,519
|
|
Deferred income taxes
|
|
|
976,259
|
|
|
|
358,519
|
|
Short-term bank borrowing (including VIE short-term borrowing of the consolidated VIEs without recourse to Tri-Tech Holdings of $7,945,689 and $2,296,895 as of September 30, 2012 and December 31, 2011, respectively)
|
|
|
14,253,842
|
|
|
|
8,010,365
|
|
Total current liabilities
|
|
|
70,975,894
|
|
|
|
54,447,930
|
|
Long-term bank borrowing
|
|
|
19,977
|
|
|
|
—
|
|
Corporate bond
|
|
|
7,891,889
|
|
|
|
—
|
|
Noncurrent deferred income taxes
|
|
|
3,518,279
|
|
|
|
3,455,823
|
|
Total Liabilities
|
|
|
82,406,039
|
|
|
|
57,903,753
|
|
Equity
|
|
|
|
|
|
|
|
|
Tri-Tech Holding Inc. shareholders' equity
|
|
|
|
|
|
|
|
|
Ordinary shares ($0.001 par value, 30,000,000 shares authorized; 8,239,506 and 8,203,299 shares issued as of September 30, 2012 and December 31, 2011, respectively)
|
|
|
8,239
|
|
|
|
8,203
|
|
Additional paid-in-capital
|
|
|
49,954,116
|
|
|
|
48,772,307
|
|
Statutory reserves
|
|
|
1,866,994
|
|
|
|
1,866,994
|
|
Retained earnings
|
|
|
21,814,376
|
|
|
|
19,682,386
|
|
Treasury shares (21,100 shares in treasury as of September 30, 2012 and December 31, 2011, respectively)
|
|
|
(193,750
|
)
|
|
|
(193,750
|
)
|
Accumulated other comprehensive income
|
|
|
3,496,548
|
|
|
|
4,593,046
|
|
Total Tri-Tech Holding Inc. shareholders' equity
|
|
|
76,946,523
|
|
|
|
74,729,186
|
|
Noncontrolling interests
|
|
|
5,892,813
|
|
|
|
6,017,739
|
|
Total shareholders' equity
|
|
|
82,839,336
|
|
|
|
80,746,925
|
|
Total liabilities and equity
|
|
$
|
165,245,375
|
|
|
$
|
138,650,678
|
|
See notes to consolidated
financial statements
TRI-TECH HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
|
|
For The Three Months Ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
System integration
|
|
|
16,381,899
|
|
|
|
23,650,312
|
|
Hardware products
|
|
|
1,764,912
|
|
|
|
327,768
|
|
Software products
|
|
|
—
|
|
|
|
10,908
|
|
Total revenues
|
|
|
18,146,811
|
|
|
|
23,988,988
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
System integration
|
|
|
12,110,593
|
|
|
|
17,652,014
|
|
Hardware products
|
|
|
1,371,138
|
|
|
|
256,680
|
|
Software products
|
|
|
—
|
|
|
|
1,745
|
|
Total cost of revenues
|
|
|
13,481,731
|
|
|
|
17,910,439
|
|
Gross profit
|
|
|
4,665,080
|
|
|
|
6,078,549
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Selling and marketing expenses
|
|
|
1,031,607
|
|
|
|
519,451
|
|
General and administrative expenses
|
|
|
3,908,026
|
|
|
|
2,393,836
|
|
Research and development expenses
|
|
|
7,074
|
|
|
|
30,596
|
|
Total operating expenses
|
|
|
4,946,707
|
|
|
|
2,943,883
|
|
(Loss) Income from operations
|
|
|
(281,627
|
)
|
|
|
3,134,666
|
|
Other expense:
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
41,428
|
|
|
|
(105,129
|
)
|
Interest income
|
|
|
27,205
|
|
|
|
11,079
|
|
Interest expense
|
|
|
(652,204
|
)
|
|
|
(37,212
|
)
|
Fair Value change on contingent investment consideration
|
|
|
—
|
|
|
|
(40,000
|
)
|
Total other expenses
|
|
|
(583,571
|
)
|
|
|
(171,262
|
)
|
(Loss) Income before provision for income taxes
|
|
|
(865,198
|
)
|
|
|
2,963,404
|
|
Provision for income taxes
|
|
|
—
|
|
|
|
499,577
|
|
Net (loss) income
|
|
|
(865,198
|
)
|
|
|
2,463,827
|
|
Less: Net (loss) income attributable to noncontrolling interests
|
|
|
(188,176
|
)
|
|
|
526,724
|
|
Net (loss) income attributable to Tri-Tech Holding Inc. shareholders
|
|
$
|
(677,022
|
)
|
|
$
|
1,937,103
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(865,198
|
)
|
|
|
2,463,827
|
|
Foreign currency translation adjustment
|
|
|
(1,402,386
|
)
|
|
|
1,155,540
|
|
Comprehensive (loss) income
|
|
|
(2,267,584
|
)
|
|
|
3,619,367
|
|
Less: Comprehensive (loss) income attributable to noncontrolling interests
|
|
|
(204,827
|
)
|
|
|
717,207
|
|
Comprehensive (loss) income attributable to Tri-Tech Holding Inc.
|
|
$
|
(2,062,757
|
)
|
|
$
|
2,902,160
|
|
Net (loss) income attributable to Tri-Tech Holding Inc. shareholders per share are:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.08
|
)
|
|
$
|
0.24
|
|
Diluted
|
|
$
|
(0.08
|
)
|
|
$
|
0.24
|
|
Weighted average number of ordinary shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
8,215,536
|
|
|
|
8,160,407
|
|
Diluted
|
|
|
8,215,536
|
|
|
|
8,160,407
|
|
See notes to consolidated
financial statements
TRI-TECH HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|
|
For The Nine Months Ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
System integration
|
|
|
56,656,331
|
|
|
|
59,404,359
|
|
Hardware products
|
|
|
3,752,326
|
|
|
|
2,328,819
|
|
Software products
|
|
|
—
|
|
|
|
10,908
|
|
Total revenues
|
|
|
60,408,657
|
|
|
|
61,744,086
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
System integration
|
|
|
42,303,768
|
|
|
|
43,925,339
|
|
Hardware products
|
|
|
2,398,243
|
|
|
|
1,424,055
|
|
Software products
|
|
|
—
|
|
|
|
1,745
|
|
Total cost of revenues
|
|
|
44,702,011
|
|
|
|
45,351,139
|
|
Gross profit
|
|
|
15,706,646
|
|
|
|
16,392,947
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Selling and marketing expenses
|
|
|
2,806,453
|
|
|
|
1,305,774
|
|
General and administrative expenses
|
|
|
10,008,932
|
|
|
|
6,343,062
|
|
Research and development expenses
|
|
|
87,472
|
|
|
|
97,340
|
|
Total operating expenses
|
|
|
12,902,857
|
|
|
|
7,746,176
|
|
Income from operations
|
|
|
2,803,789
|
|
|
|
8,646,771
|
|
Other expense:
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
1,124,812
|
|
|
|
(255,916
|
)
|
Interest income
|
|
|
109,749
|
|
|
|
71,687
|
|
Interest expense
|
|
|
(1,647,135
|
)
|
|
|
(44,167
|
)
|
Fair Value change on contingent investment consideration
|
|
|
7,000
|
|
|
|
(40,000
|
)
|
Investment gain
|
|
|
78,558
|
|
|
|
—
|
|
Total other expenses
|
|
|
(327,016
|
)
|
|
|
(268,396
|
)
|
Income before provision for income taxes
|
|
|
2, 476,773
|
|
|
|
8,378,375
|
|
Provision for income taxes
|
|
|
601,555
|
|
|
|
1,344,636
|
|
Net income
|
|
|
1,875,218
|
|
|
|
7,033,739
|
|
Less: Net (loss) income attributable to noncontrolling interests
|
|
|
(256,772
|
)
|
|
|
1,635,967
|
|
Net income attributable to Tri-Tech Holding Inc. shareholders
|
|
$
|
2,131,990
|
|
|
$
|
5,397,772
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,875,218
|
|
|
|
7,033,739
|
|
Foreign currency translation adjustment
|
|
|
(1,113,149
|
)
|
|
|
2,502,743
|
|
Comprehensive income
|
|
|
762,069
|
|
|
|
9,536,482
|
|
Less: Comprehensive (loss) income attributable to noncontrolling interests
|
|
|
(253,030
|
)
|
|
|
1,892,613
|
|
Comprehensive income attributable to Tri-Tech Holding Inc.
|
|
$
|
1,015,099
|
|
|
$
|
7,643,869
|
|
Net income attributable to Tri-Tech Holding Inc. shareholders per share are:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.26
|
|
|
$
|
0.67
|
|
Diluted
|
|
$
|
0.26
|
|
|
$
|
0.66
|
|
Weighted average number of ordinary shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
8,201,771
|
|
|
|
8,116,802
|
|
Diluted
|
|
|
8,201,771
|
|
|
|
8,125,590
|
|
See notes to consolidated financial statement
TRI-TECH HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
For The Nine Months Ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income before allocation to noncontrolling interests
|
|
$
|
1,875,218
|
|
|
$
|
7,033,739
|
|
Adjustments to reconcile net income to cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Amortization of share-based compensation expense
|
|
|
951,964
|
|
|
|
276,474
|
|
Amortization of warrants
|
|
|
—
|
|
|
|
45,491
|
|
Depreciation and amortization
|
|
|
873,276
|
|
|
|
682,010
|
|
Provision for doubtful accounts
|
|
|
554,033
|
|
|
|
296,173
|
|
Loss on disposal of plant and equipment
|
|
|
—
|
|
|
|
5,657
|
|
Gain on investment in joint venture
|
|
|
(78,558
|
)
|
|
|
—
|
|
Deferred income taxes
|
|
|
680,196
|
|
|
|
361,630
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,341,555
|
)
|
|
|
1,571,166
|
|
Unbilled revenue
|
|
|
(14,579,623
|
)
|
|
|
(38,280,759
|
)
|
Restricted cash
|
|
|
(850,229
|
)
|
|
|
(638,708
|
)
|
Other current assets
|
|
|
(3,922,470
|
)
|
|
|
(111,996
|
)
|
Inventories
|
|
|
391,186
|
|
|
|
(1,385,434
|
)
|
Prepaid expenses
|
|
|
(246,535
|
)
|
|
|
—
|
|
Prepayments
|
|
|
(5,544,557
|
)
|
|
|
(5,938,596
|
)
|
Accounts payable
|
|
|
(7,058,085
|
)
|
|
|
852,108
|
|
Notes payable
|
|
|
(1,173,199
|
)
|
|
|
—
|
|
Cost accrual on projects
|
|
|
7,135,547
|
|
|
|
12,135,018
|
|
Advance from customers
|
|
|
1,525,756
|
|
|
|
19,212
|
|
Billings in excess of revenue
|
|
|
—
|
|
|
|
(30,593
|
)
|
Other payables
|
|
|
1,084,635
|
|
|
|
5,821,712
|
|
Other taxes payable
|
|
|
2,898,619
|
|
|
|
—
|
|
Accrued liabilities
|
|
|
(56,228
|
)
|
|
|
751,401
|
|
Taxes payable
|
|
|
(130,769
|
)
|
|
|
1,298,637
|
|
Net cash used in operating activities
|
|
|
(17,011,378
|
)
|
|
|
(15,235,658
|
)
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Payment in business acquisition
|
|
|
(35,273
|
)
|
|
|
(488,000
|
)
|
Cash paid on investment consideration
|
|
|
(82,159
|
)
|
|
|
—
|
|
Cash acquired from business combination
|
|
|
—
|
|
|
|
825,395
|
|
Cash proceeds from disposal of plant and equipment
|
|
|
—
|
|
|
|
4,311
|
|
Payment to purchase plant and equipment
|
|
|
(262,584
|
)
|
|
|
(298,925
|
)
|
Cash paid to acquire intangible asset
|
|
|
(36,914
|
)
|
|
|
(1,444,294
|
)
|
Cash paid for construction in progress
|
|
|
(557,279
|
)
|
|
|
(289,274
|
)
|
Collection of loan to third-party companies
|
|
|
105,230
|
|
|
|
—
|
|
Payment of loan to third-party companies
|
|
|
(149,378
|
)
|
|
|
(1,473,607
|
)
|
Net cash used in investing activities
|
|
|
(1,018,357
|
)
|
|
|
(3,164,394
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from bank borrowings
|
|
|
14,050,056
|
|
|
|
6,853,470
|
|
Payment of bank borrowing
|
|
|
(7,734,796
|
)
|
|
|
—
|
|
Proceeds from amounts due from shareholders
|
|
|
1,105,077
|
|
|
|
—
|
|
Proceeds from the issuance of corporate bond
|
|
|
7,893,407
|
|
|
|
—
|
|
Proceeds from loan from third-party companies and individual
|
|
|
5,015,222
|
|
|
|
—
|
|
Payment of loan from third-party companies
|
|
|
(962,768
|
)
|
|
|
(43,540
|
)
|
Proceeds from loan from noncontrolling shareholders
|
|
|
773,554
|
|
|
|
—
|
|
Payment of loan from noncontrolling shareholders
|
|
|
(1,979,667
|
)
|
|
|
—
|
|
Payment of installment of purchasing vehicle
|
|
|
—
|
|
|
|
(15,344
|
)
|
Capital Injection by noncontrolling shareholders
|
|
|
—
|
|
|
|
187,935
|
|
Proceeds from exercising options into ordinary shares
|
|
|
—
|
|
|
|
454,009
|
|
Net cash provided by financing activities
|
|
|
18,160,085
|
|
|
|
7,436,530
|
|
Effect of exchange rate fluctuation on cash and cash equivalents
|
|
|
960,482
|
|
|
|
606,782
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
1,090,832
|
|
|
|
(10,356,740
|
)
|
Cash and cash equivalents, beginning of period
|
|
$
|
11,935,746
|
|
|
$
|
23,394,995
|
|
Cash and cash equivalents, end of period
|
|
$
|
13,026,578
|
|
|
$
|
13,038,255
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure for cash flow information:
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
|
157,016
|
|
|
|
96,490
|
|
Interest paid on debt
|
|
|
684,202
|
|
|
|
44,167
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure for noncash investing activity:
|
|
|
|
|
|
|
|
|
Fair value change on contingent consideration payable
|
|
|
7,000
|
|
|
|
—
|
|
Gain on long-term investment to India Joint Venture
|
|
|
78,558
|
|
|
|
—
|
|
Issued 30,207 and 35,974 ordinary shares as one of the consideration in business combination
|
|
|
229,875
|
|
|
|
277,000
|
|
Addition in land use right by transferring from long-term prepayment
|
|
|
—
|
|
|
|
5,547,907
|
|
Payable to purchase intangible assets during the business combination
|
|
|
—
|
|
|
|
735,000
|
|
See notes to consolidated financial statement
Tri-Tech Holding Inc. (“TRIT”),
incorporated in the Cayman Islands, through its subsidiaries and contractually-controlled variable interest entities (“VIE”)
(collectively the “Company”), provides self-manufactured, proprietary or third-party products, system integration and
other services in the following three segments: Water, Wastewater Treatment and Municipal Infrastructure, Water Resource Management
System and Engineering Service, and Industrial Pollution Control and Safety.
TRIT currently has
thirteen
subsidiaries and VIEs: (1) Tri-Tech International Investment, Inc. (“TTII”), (2) Tri-Tech (Beijing) Co., Ltd. (“TTB”),
(3) Beijing Satellite Science & Technology Co. (“BSST”), (4) Tianjin Baoding Environmental Technology Co., Ltd.
(“Baoding”), (5) Tranhold Environmental (Beijing) Tech Co., Ltd. (“Tranhold”), (6) Beijing Yanyu Water
Tech Co., Ltd. (“Yanyu”), (7) Tri-Tech Infrastructure LLC, a Delaware limited liability company (“TIS”),
(8) Ordos Tri-Tech Anguo Investment Co., Ltd. (“TTA”), (9) Beijing Huaxia Yuanjie Water Technology Co., Ltd (“Yuanjie”),
(10) Buerjin Tri-Tech Industrial Co. Ltd. (“Buerjin”)
, (11) Tri-Tech Infrastructure (India)
Pvt., Ltd. (“TII”), (12) Xushui Tri-Tech Sheng Tong Investment Co.,Ltd (“Xushui”), and (13)
Tri-Tech
India Pvt., Ltd. (“TTI”)
.
The corporate structure is as follow:
Through a series of contractual agreements
entered into in 2008 and 2010, the Company is deemed to be the sole indirect interest holder of Tranhold and BSST, and the indirect
interest holder of 92.86% equity ownership in Yanyu. According to the provisions of ASC 810, “Consolidation”, Tranhold,
Yanyu and BSST are consolidated in the Company’s financial statements. For BSST, the Company also applied the consolidation
procedures required by ASC 805 “Business Combinations”.
To expand its technical and geological market
profile, on June 9, 2011, the Company acquired the total operating assets of J&Y International Inc. (“J&Y”),
inclusive of its technical know-how, design prints, etc. J&Y subsequently became the J&Y Water Division of the Company’s
US subsidiary, TIS, according to the terms. J&Y’s business, including design and production of industrial chemical water
recovery, desalination plants, domestic and industrial wastewater treatment systems and reverse osmosis filtration systems, are
integrated into that of TIS.
On June 18, 2011, TTB entered into an investment
agreement with Yuanjie and Yuanjie’s original shareholder to increase the capital investment in Yuanjie. The total investment
from TTB was RMB10,990,500, or approximately $1,704,085, and TRIT acquired 51% of control over Yuanjie after increasing its capital
investment in Yuanjie.
On August 23, 2011, Buerjin was established
for projects in the Xinjiang province, especially in Buerjin County. The registered capital amount is RMB10,000,000, or $1,573,589,
and RMB6,000,000, or $937,690, has been paid in. The Company has 80% of control over this newly established subsidiary.
On March 8, 2012,
Xushui
was established in Hebei Province. The registered capital amount is RMB15,000,000, or $2,372,104. TTB has 100% of control over
Xushui. RMB3,000,000, or $474,421, has been paid.
On May 19, 2012, TIS increased its equity
ownership in TII from 30% to 76%, and became the controlling shareholder. The total investment from TIS was INR 2,217,000, or $55,886.
The amount included initial investment of INR300,000 on October 19, 2011, which was adjusted to $20,613 due to the gain of TII
from October 19, 2011 to May 19, 2012 and investment consideration of INR1,917,000, or $35,273 on May 19, 2012. TII was established
for the purpose to support the India project business.
On August 30, 2012, TTB and TIS established
a wholly owned entity in India, Tri-Tech India Pvt., Ltd. (“TTI”). TTB owns 99% of the equity interest and TIS owns
1%. The registered capital was $2,000, which was fully paid in October 2012.
The Company’s principal geographic
market is the People’s Republic of China (“PRC”). As PRC laws and regulations prohibit or restrict non-PRC companies
to engage in certain government-related businesses, the Company provides its services in the PRC through Tranhold and Yanyu, both
Chinese legal entities holding qualifications and permits necessary to conduct government-related services in the PRC. In order
to avoid any restrictions that Tranhold or Yanyu might encounter during future business development, the Company concluded that
TTII does not have parent-subsidiary relationship with either Tranhold or Yanyu.
By November 28, 2008, the Company had
completed two stages of reorganization. The Company first recalled its shares from the original shareholders of Tranhold and Yanyu.
These shareholders are major shareholders, directors, executives, officers and key employees of the Company. From a legal perspective,
Tranhold and Yanyu returned to their status prior to the acquisitions in 2007. Concurrently, on November 28, 2008, the Company
signed and executed with Tranhold and Yanyu a series of contractual agreements with a 25-year, renewable term. These contractual
agreements require the pledge of the original shareholders’ equity interests and share certificates of the VIEs. At any time
during the agreement period, the Company has absolute rights to acquire any portion of the equity interests of those
VIEs under no-cost conditions. In addition, the Company has absolute rights to appoint directors and officers of those VIEs and
to obtain the profits from those VIEs.
|
2.
|
Summary of Significant Accounting Policies
|
Principles of consolidation and basis
of presentation
The accompanying consolidated balance sheet
as of December 31, 2011, which has been derived from audited financial statements, and the unaudited interim consolidated financial
statements as of September 30, 2012 and for the three month and nine month periods ended September 30, 2012 and 2011 have been
prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information
and footnote disclosures, which are normally included in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America, have been condensed or omitted pursuant to such rules and regulations, although
we believe that the disclosures made are adequate to provide for fair presentation. The interim financial information should be
read in conjunction with the Financial Statements and the notes thereto, included in the Company’s Annual Report on Form
10-K for the fiscal year ended December 31, 2011, previously filed with the SEC.
In the opinion of management, all adjustments
(which include normal recurring adjustments) necessary to present a fair statement of the Company’s consolidated financial
position as of September 30, 2012, its consolidated results of operations and cash flows for the three month and nine month periods
ended September 30, 2012 and 2011, as applicable, have been made. The interim results of operations are not necessarily indicative
of the operating results for the full fiscal year or any future periods.
The Company compiles its daily financial
records in accordance with the generally accepted accounting principles of the PRC (“PRC GAAP”) and converts its financial
statements according to accounting principles generally accepted in the United States of America (“US GAAP”) when
reporting.
Use of Estimates
The preparation of financial statements
in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Management believes that the estimates used in preparing its financial
statements are reasonable and prudent. Actual results could differ from these estimates.
Certain of the Company’s accounting
policies require higher degrees of professional judgment than others in their application. These include the recognition of revenue
under the percentage of completion method, the allowance for doubtful accounts, long term contract collectability, impairment of
fixed assets and intangible assets, income tax and contingent investment payables. Management evaluates all of its estimates and
judgments on an on-going basis.
Cash and Cash Equivalents
The Company considers all highly liquid
investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents are composed
primarily of time deposits and investments in money market accounts and are stated at cost which approximates fair value.
Restricted Cash
The current restricted cash balance at September
30, 2012 and December 31, 2011 was $2,920,692 and $2,087,920, respectively. The long-term restricted cash balance at September
30, 2012 and December 31, 2011 was $2,547,891 and $2,541,958, respectively. The restricted cash was deposited as collateral in
exchange of the issuance of letters of credit.
Accounts and Notes Receivable
Accounts and notes receivable are recorded
at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts as needed. The allowance
for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing
accounts receivable. The Company makes an allowance for doubtful accounts based on the aging of accounts receivable and on any
specifically identified accounts receivable that may become uncollectible.
Inventories
The Company values inventory at the lower
of cost or net realizable value and determines inventory using the weighted average cost method. Inventory consists of raw materials,
finished goods, and work-in-progress, which includes the cost of direct labor, materials and direct overhead costs related to the
projects.
Long-term Unbilled Receivables
The Company obtained several Build-Transfer
(“BT”) contracts with billing cycles of over three years in recent years. Due to the nature of the BT projects, the
related revenue has been discounted and recorded as long-term unbilled receivables and the discount rate is the 3-year nominal
interest rate of 5.4%, set by the People’s Bank of China, the PRC’s central bank. For the contract that a specific
discount rate is agreed in the contract, that specific rate is applied. These projects are funded by local governments with central
government project appropriation, so the Company does not have any collection risk on such projects.
Plant and Equipment
The Company states plant and equipment
at cost less accumulated depreciation. The Company computes depreciation using the straight-line method over the estimated useful
lives of the assets with a 3%-5% estimated residual value.
Estimated useful lives of the
Company’s assets are as follows:
Asset
|
|
Useful Life
|
Buildings and improvements
|
|
|
40-50 years
|
Transportation equipment
|
|
|
5-10 years
|
Machinery
|
|
|
10 years
|
Office equipment
|
|
|
5 years
|
Furniture
|
|
|
5 years
|
The Company eliminates the cost and related
accumulated depreciation of assets sold or otherwise retired from the accounts and includes any gain or loss in the statement of
income as an offset or increase to other income (expense) for the period. The Company charges maintenance, repairs and minor renewals
directly to expense as incurred, and capitalizes major additions and betterments to buildings and equipment.
Valuation of Long-Lived Assets
The Company reviews the carrying value
of its long-lived assets, including plant and equipment, and finite life intangibles whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. To the extent the estimated undiscounted future cash inflows attributable
to the asset, less estimated undiscounted future cash outflows, are less than the carrying amount, the Company recognizes an impairment
loss in an amount equal to the difference between the carrying value of such assets and fair value. No impairment indicator is
noted in the prior or current years. The Company reports assets for which there is a committed disposition plan, whether through
sale or abandonment, at the lower of carrying value or fair value less costs to sell. No such assets are identified in prior and
current years.
The Company evaluates the periods of depreciation
and amortization to determine whether subsequent events and circumstances cause revised estimates of useful lives.
Intangible Assets
The Company amortizes acquired intangible
assets with definite lives on a straight-line basis over their expected useful economic lives. The Company also performs impairment
test if events or changes in circumstances indicate that the assets might be impaired.
|
|
Useful Life
|
|
Proprietary technology relating to sewage, municipal solid waste treatment and tail gas purification
|
|
20 years
|
|
Proprietary technology relating to low energy consumption data transmission system
|
|
20 years
|
|
Large region environmental management system
|
|
10 years
|
|
Mobile web management system
|
|
10 years
|
|
Database management system
|
|
10 years
|
|
Pollution reduction checking assistant
|
|
10 years
|
|
Water pollution control infrastructure
|
|
10 years
|
|
Software-gas flow
|
|
20 years
|
|
Software-oil mixing
|
|
20 years
|
|
Software-crude blending
|
|
10 years
|
|
Customer relationship
|
|
5 years
|
|
Land use right
|
|
50 years
|
|
Know-how
|
|
8-10 years
|
|
Contract backlog
|
|
1 year
|
|
Goodwill
Goodwill represents the excess of the fair
value of consideration transferred (plus the fair value of the non-controlling interest, if any) over fair value of the net assets
acquired (including recognized intangibles). Goodwill is not amortized; rather, impairment tests are performed at least annually
or more frequently if circumstances indicate impairment may have occurred. If impairment exists, goodwill is immediately written
down to fair value and the loss is recognized in the consolidated income statements. The Company assesses impairment at period
end or whenever events or changes indicate that, more likely than not, the carrying value of goodwill has been impaired. The Company
uses the income approach to estimate the fair value of the reporting unit of the goodwill. The income approach is based on the
long-term projected future cash flows of the operating segments. The Company discounts the estimated cash flows to present value
using a weighted-average cost of capital that considers factors such as the timing of the cash flows and the risks inherent in
those cash flows.
Revenue Recognition
The Company’s revenues consist primarily
of three categories: (i) System Integration, (ii) Hardware Product Sales, and (iii) Software Product Sales. The Company recognizes
revenue when there is evidence of an arrangement, the consideration to be received is fixed or determinable, products are delivered,
or services rendered, and collectability is assured.
For System Integration, sales contracts
are usually structured with fixed price or fixed unit price. The contract periods range from two months to approximately three
years in length. The Company recognizes revenue from these contracts following the percentage-of-completion method, measured by
different stages of completion in accordance with ASC 605-35, “Construction-Type and Production-Type Contracts”. Only
if the actual implementation status meets the established stage will the Company recognize the relevant portion of the revenue.
There are four major stages for the System Integration revenue recognition: (a) the completion of project design, (b) the delivery
of products, (c) the completion of debugging, and (d) inspection and acceptance. For BT projects, such as the Ordos drinking water
plant project, the Company recognizes the project revenue using the man-power hours as the measurement for percentage of completion.
Provided unapproved change orders or claims
occur in the future, in accounting for contracts, we follow Paragraphs 30 and 31 of ASC 605-35-25, “Construction-Type and
Production-Type Contracts”. The Company recognizes revenue from unapproved change orders or claims only to the extent that
contract costs relating to the unapproved change orders or claims have been incurred, and only if it is probable that such unapproved
change orders or claims will result in additional contract revenue and the amount of such additional revenue can be reliably estimated.
Until today, no unapproved change order have been experienced in the ordinary business operation.
For Hardware Product Sales, the Company
recognizes the revenue only when all products are delivered and the acceptance confirmations are signed by the customers, according
to ASC 605-10, “Revenue Recognition”. The Company is not obligated for any repurchase or return of the goods.
The Company also sells software products.
These software product sales do not include any additional services such as maintenance or technical support. The Company recognizes
revenue under ASC 985-605, “Software Revenue Recognition” according to acceptance of delivery revenue recognition method.
At the end of each reporting period, the Company recognizes the contract amount as revenue only if all software products have been
delivered and the customer acceptance confirmation has been signed.
The Company presents all sales revenue net
of a value-added tax (“VAT”). The Company’s products sold in China are generally subject to a Chinese VAT of
17% of the sales price, except for certain proprietary software sales which will only be subject to an effective tax rate of 3%.
The VAT payable may be offset by VAT paid by the Company on purchased raw materials and other materials included in the cost of
projects or producing the finished product.
The Company records revenue in excess of
billings as “unbilled revenue”. For revenues accounted for under this account, we expect the amounts to be collected
within one year. For those with a collection period longer than one year, we classify them under “Long-term unbilled revenue”
on the consolidated balance sheets.
Research and Development (R&D)
Research and development expenses include
salaries for R&D staff, consultant fees, supplies and materials, as well as other overhead such as depreciation, facilities,
utilities, and other R&D related expenses. The Company expenses costs for the development of new software products and substantial
enhancements to existing software products as incurred until technological feasibility has been established, at which time any
additional costs are capitalized. The management of the Company is responsible for assessing the establishment of technological
feasibility in accordance with ASC 985-20, “Costs of Software to Be Sold, Leased, or Marketed”.
Foreign Currency Translation
The Company uses the United States dollar
(“USD”) as its reporting currency. The functional currency of TRIT, TTII and TIS is USD, the functional currency of
TII is India National Rupee (“INR”), the functional currency of TRIT’s subsidiaries in China is Renminbi (“RMB”).
The Company translates monetary assets and liabilities denominated in currencies other than United States dollars into USD at the
exchange rate ruling at the balance sheet date. The Company converts non-USD transactions during the year into USD with the prevailing
exchange rate on the transaction dates.
The Chinese subsidiaries of TRIT maintain
their financial records in RMB. The value of the assets and liabilities were converted with the exchange rate on the balance sheet
date; and their revenue and expenses with a weighted average exchange rate for the reporting period. The Company reflects translation
adjustments as “Accumulated other comprehensive income (loss)” in shareholders’ equity.
Transaction gains and losses that arise
from exchange rate fluctuations on transactions in a currency other than the functional currency are recognized as foreign currency
transaction gain or loss in the result of operations as incurred.
Translation adjustments amounted to $3,496,548
and $4,593,046 as of September 30, 2012 and December 31, 2011, respectively. The Company translated balance sheet amounts with
the exception of equity at September 30, 2012 at RMB6.3410 to US$1.00 and INR52.5000 to US$1.00 as compared to RMB6.3009 to US$1.00
at December 31, 2011 and INR54.3478 to US$1.00 at May 19, 2012. The Company stated equity accounts at their historical rate.
The average translation rates applied to income statement accounts for the three-month periods ended September 30, 2012 and 2011
were RMB6.3344 and RMB6.4176 to US$1.00, respectively. The average translation rates applied to income statement accounts for the
nine-month periods ended September 30, 2012 and 2011 were RMB6.3170 and RMB6.4975 to US$1.00, respectively. The average translation
rates applied to income statement accounts from May 19, 2012 to September 30, 2012 was INR55.1778 to US$1.00.
The translation rates between RMB and
USD are according to State Administration of Foreign Exchange. The translation rates between INR and USD are according to Oanda.com.
Income Taxes
The Company provides for deferred income
taxes using the asset and liability method. Under this method, the Company recognizes deferred income taxes for tax credits and
net operating losses available for carry-forwards and significant temporary differences. The Company classifies deferred tax assets
and liabilities as current or non-current based upon the classification of the related asset or liability in the financial statements
or the expected timing of their reversal if they do not relate to a specific asset or liability. The Company provides a valuation
allowance to reduce the amount of deferred tax assets if it is considered more likely than not that some portion or all of the
deferred tax assets will not be realized.
The Company adopted Financial Accounting
Standards Board (“FASB”) accounting standard codification 740 (ASC 740), as of January 1, 2007. The Company recognizes
a tax position as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax
examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that the
Company believes is more than 50% likely to be realized on examination. For tax positions not meeting the “more likely than
not” test, the Company does not record it as a tax benefit. The Company also adopts ASC 740 guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosures, and transition. It had no effect on the Company’s financial
statements as of September 30, 2012 and December 31, 2011. The Company did not have any significant unrecognized uncertain tax
positions as of September 30, 2012 and December 31, 2011.
The Company’s operations are subject
to income and transaction taxes in China and India. Significant estimates and judgments are required in determining the Company’s
provision for income taxes. Some of these estimates are based on interpretations of existing tax laws or regulations. The ultimate
amount of tax liability may be uncertain as a result. The Company does not anticipate any events which could change these uncertainties.
Share-based Compensation
The Company adopted the fair value recognition
provisions of ASC 718, “Compensation—Stock Compensation” and ASC 505-50, “Equity-Based Payments to Non-Employees”.
The Company recognizes compensation expense
for all share-based payment awards made to the employees and directors. The fair value of share-based compensation cost is measured
at the grant date based on the value of the award and is recognized as expense over the vesting period. Determining the fair value
of share-based awards at the grant date requires considerable judgment, including estimating expected volatility, expected term
and risk-free rate. The expected term is based upon the period of time for which the share option is expected to be outstanding.
The expected volatility of the share options is based upon the historical volatility of our share price. The risk-free interest
rate assumption is based upon China international bond rates for a comparable period. If factors change and we employ different
assumptions, share-based compensation expense may differ significantly from what we have recorded in the past.
Earnings per Share
Basic EPS excludes dilution and is computed
by dividing net income (loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue ordinary
shares (convertible preferred stock, forward contract, warrants to purchase ordinary share, contingently issuable shares, ordinary
share options and warrants and their equivalents using the treasury stock method) were exercised or converted into ordinary shares.
The Company excludes potential ordinary shares in the diluted EPS computation in periods of losses from continuing operations,
as their effect would be anti-dilutive.
The Company has granted 975,516 options
to our key employees and 185,000 warrants to the placement agent in our IPO and to our investor relations consultant, all of which
are included when calculating the diluted earnings per share. As of September 30, 2012, 93,700 options had been exercised at a
price equal to $6.75 per share, and 170,000 warrants had been exercised at a price equal to $8.10 per share.
During the first financing after IPO,
the Company has also agreed to issue the underwriters a warrant to purchase a number of ordinary shares equal to an aggregate of
10% of the ordinary shares sold in the offering, excluding over-allotments. The warrants will have an exercise price equal to 145%
of the offering price. Accordingly, in April 2010, the Company issued 214,275 warrants with exercise price per share of $20.30.
These warrants have anti-dilutive effect due to the fact that the weighted average exercise price per share of these warrants is
higher than the weighted average market price per share of ordinary share during the three-month and nine-month periods ended September
30, 2012 and 2011.
Comprehensive Income
Comprehensive income includes all changes
in equity except those resulting from investments by owners and distributions to owners. The Company has chosen to report comprehensive
income in the statements of income and comprehensive income.
Financial Instruments
The Company carries financial instruments,
which consists of cash and cash equivalents, accounts receivable, accounts payable, short-term bank borrowings and other payables
at cost, which approximate fair value due to the short-term nature of these instruments. The Company does not use derivative instruments
to manage risks.
Segments
The Company identifies segments by reference
to its internal organization structure and the factors that management uses to make operating decisions and assess performance.
Recently Issued Accounting Pronouncements
In July 2012, the FASB issued ASU 2012-02,
“Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment." This ASU simplifies
how entities test indefinite-lived intangible assets for impairment which improve consistency in impairment testing requirements
among long-lived asset categories. These amended standards permit an assessment of qualitative factors to determine whether it
is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. For assets
in which this assessment concludes it is more likely than not that the fair value is more than its carrying value, these amended
standards eliminate the requirement to perform quantitative impairment testing as outlined in the previously issued standards.
The guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012,
early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s (consolidated)
financial position and results of operations.
J&Y International Inc.
To expand its technical and geological market
profile, on June 9, 2011, the Company acquired the total operating assets of J&Y International Inc. (“J&Y”),
a water treatment company based in Wisconsin, USA, inclusive of its technology know-how, design prints, etc. The total purchase
price was estimated to be $1,500,000 in the form of cash and ordinary shares as of the acquisition date, of which $488,000 payment
in cash and 35,974 ordinary shares, at the price on the trading day prior to the closing at $7.61 per share with a total amount
of $277,000, should be paid and issued at closing. The remaining payment of $735,000 subject to adjustment was deferred and paid
by the issuance of ordinary shares, including:
|
1)
|
$200,000 payable upon a specific contract granted. In November 2011, the Company earned the specific contract. The amount was paid in April 2012, by issuing 30,207 ordinary shares at a price equal to $7.61 per share.
|
|
2)
|
$200,000 payable upon a specific contract completion and receipt of payment excluding retainer. The contract is expected to complete by the end of year 2012.
|
|
3)
|
$335,000 payable based on the specific threshold of performance EBITDA generated in connection with a specific contract. By the date of issuing financial statements, the amount was not paid. The amount will be subject to the performance EBITDA.
|
|
4)
|
If the seller sells the issued shares at a price less than $7.61 within one calendar year after the expiration of the restriction period, the Company shall pay the seller shortfall in cash as the make good amount.
|
The above contingent consideration was classified
as a liability as of June 9, 2011, the closing date. The fair value of the contingent consideration as of September 30, 2012 and
December 31, 2011was estimated at $888,000 and $895,000 pursuant to the official appraisal reports from an assessment agency. $305,034
was paid during the nine-month period ended September 30, 2012, out of which $75,159 was paid in cash and $229,875 was paid by
issuing 30,207 ordinary shares at a price equal to $7.61 per share. The outstanding contingent consideration payable as of September
30, 2012 and December 31, 2011 was $582,966 and $895,000, respectively.
Tri-Tech Infrastructure (India) Pvt., Ltd.
On October 19, 2011, the Company invested
INR 300,000, or US$6,985 to TII, to obtain 30% of the equity interest. TII was a joint venture partnership of the Company, and
the investment was accounted for using equity method. The carrying value of the investment was adjusted to $20,613 at May 19, 2012,
due to the gain of TII’s financial results from October 19, 2011 to May 19, 2012.
On May 19, 2012, the Company acquired additional
46% of TII’s equity interest, and became the controlling shareholder of TII. The total investment from TIS was INR 2,217,000,
or $55,886. The amount included an initial investment of INR300,000 on October 19, 2011, which was adjusted to $20,613 due to the
gain of TII from October 19, 2011 to May 19, 2012 and investment consideration of INR1,917,000, or $35,273 on May 19, 2012.
The fair value of TII's identifiable net
asset as of May 19, 2012 was:
Cash and cash equivalents
|
|
$
|
42,256
|
|
Prepayments to suppliers
|
|
|
317,955
|
|
Plant and equipment, net
|
|
|
62,224
|
|
Other assets
|
|
|
2,240
|
|
Accounts payable
|
|
|
(197,713
|
)
|
Other liabilities
|
|
|
(77,185
|
)
|
Total identifiable net assets
|
|
$
|
149,777
|
|
The following table represents the consideration
allocation based on fair value on May 19, 2012:
Total identifiable net assets attributed to TRIT
|
|
$
|
113,831
|
|
Noncontrolling interest
|
|
|
35,946
|
|
Total consideration from WOFE and noncontrolling shareholder
|
|
$
|
149,777
|
|
The excess of identifiable net assets attributed
to TRIT over total investment consideration, $57,945, was recorded as gain in the investment. No goodwill was recognized in this
investment.
The unaudited pro forma financial information
shown below does not attempt to project the future results of operations of the combined entity.
|
|
Revenue
|
|
|
Net (loss)
income before allocation to noncontrolling interests
|
|
Actual amount from May 19 to September 30, 2012 generated from TII (Unaudited)
|
|
$
|
478,560
|
|
|
$
|
(412,278
|
)
|
Supplemental pro forma from January 1 to September 30, 2012 (Unaudited)
|
|
$
|
60,408,657
|
|
|
$
|
1,004,153
|
|
Supplemental pro forma from January 1 to September 30, 2011 (Unaudited)
|
|
$
|
61,744,086
|
|
|
$
|
7,033,739
|
|
Supplemental pro forma
in revenue:
Revenue
|
TII
|
TRIT Group
|
Elimination
|
Combined
|
January 1, 2012–September 30, 2012 (Unaudited)
|
$
|
1,036,600
|
$
|
60,408,657
|
$
|
(1,036,600)
|
$
|
60,408,657
|
January 1, 2011–September 30, 2011 (Unaudited)
|
$
|
—
|
$
|
61,744,086
|
$
|
—
|
$
|
61,744,086
|
Supplemental pro forma
in net (loss) income before allocation to noncontrolling interests:
Net (loss) income before allocation to
noncontrolling interests
|
TII
|
TRIT Group
|
Elimination
|
Combined
|
January 1, 2012–September 30, 2012 (Unaudited)
|
$
|
(300,837)
|
$
|
1,512,310
|
$
|
(207,320)
|
$
|
1,004,153
|
January 1, 2011–September 30, 2011 (Unaudited)
|
$
|
—
|
$
|
7,033,739
|
$
|
—
|
$
|
7,033,739
|
Tri-Tech India Pvt., Ltd.
On August 30, 2012, TTB and TIS established
a wholly owned entity in India, Tri-Tech India Pvt., Ltd (“TTI”). TTB and TIS own 99% and 1% of the equity interest,
respectively. The registered capital was $2,000, which was fully paid in October 2012. Up to now, TTI has no business operation.
|
4.
|
Variable Interest Entities
|
VIEs are entities that have either a total
equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial
support, or whose equity investors lack the characteristics of a controlling financial interest, such as through voting rights,
right to receive the expected residual returns of the entity or obligation to absorb the expected losses of the entity. The variable
interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary and must consolidate
the VIE. TRIT is deemed to have a controlling financial interest and be the primary beneficiary of the entities mentioned in Note
1 above, because it has both of the following characteristics:
1. power to direct activities of a VIE that
most significantly impact the entity’s economic performance, and
2. obligation to absorb losses of the entity
that could potentially be significant to the VIE or right to receive benefits from the entity that could potentially be significant
to the VIE.
TRIT’s VIEs include: Tranhold, Yanyu
and BSST. TRIT is involved in each VIE and understands the purpose and design of these entities. It also performs a significant
role in these entities’ ongoing business. It is obligated to absorb losses of the VIE entities as well as benefit from them.
Therefore, the VIEs are consolidated in the Company’s 2011 and 2010 consolidated financial statements. These VIEs are continually
monitored by the Company to determine if any events have occurred that could cause its primary beneficiary status to change.
On July 26, 2010, the Company signed
and executed with BSST a series of contractual agreements with a 25-year, renewable term. These contractual agreements require
the pledge of the original shareholders’ equity interests and share certificates of the VIEs. At any time during the agreement period, the
Company has absolute rights to acquire any portion of the equity interests of those VIEs under no-cost conditions. On August 6,
2010, the effective date of the agreements, the Company became the primary beneficiary of BSST. At the same time, the Company paid
the consideration of $3.8 million, including $1,447,000 in cash and 260,000 in the Company’s ordinary shares at the market
value of $8.98 per share in the amount of $2,334,800. The Company will expand its market in the petrochemical industries through
BSST since it is a consulting, engineering, design, system integration and project management services company specializing in
the fields of control and instrument automation, safety and emergency response for the oil, gas and petrochemical industries.
These agreements consist of the following:
Exclusive Technical and Consulting Service
Agreement
-- Each of Yanyu, Tranhold and BSST has entered into an Exclusive Technical and Consulting Service Agreement with
TTB, which agreement provides that TTB will be the exclusive provider of technical and consulting services to Yanyu, Tranhold and
BSST, as appropriate, and that each of them will in turn pay 90% of its profits (other than net profits allocable to the State-Owned
Entities (“SOE”) Shareholder of Yanyu) to TTB for such services. In addition to such payment, Yanyu, Tranhold and BSST
agree to reimburse TTB for TTB’s expenses (other than TTB’s income taxes) incurred in connection with its provision
of services under the agreement. Payments will be made on a quarterly basis, with any overpayment or underpayment to be reconciled
once each of Tranhold’s, Yanyu’s and BSST’s annual net profits, as applicable, are determined at its fiscal year
end. Any payment from TTB to TTII would need to comply with applicable Chinese laws affecting payments from Chinese companies to
non-Chinese companies. Although based on this agreement TTB is only entitled to 90% of net profits (other than net profits allocable
to the SOE Shareholder of Yanyu), TTB also entitled the remaining share of the net profits of the VIEs through dividends per the
Proxy Agreement as discussed below. The Company relies on dividends paid by TTB for its cash needs, and TTB relies on payments
from Yanyu, Tranhold and BSST to be able to pay such dividends to the Company.
Management Fee Payment Agreement
-- Each of the shareholders of Yanyu, Tranhold and BSST (other than Beijing Yanyu Communications Telemetry United New Technology
Development Department, a Chinese State Owned Entity (the “SOE Shareholder”) of Yanyu) has entered into a Management
Fee Payment Agreement, which provides that, in the event TTB exercises its rights to purchase the equity interests of the Yanyu
or Tranhold or BSST shareholders (other than those owned by the SOE Shareholder of Yanyu) under the Equity Interest Purchase Agreements,
such shareholders shall pay a Management Fee to TTB in an amount equal to the amount of the Transfer Fee received by the such
shareholders under the Equity Interest Purchase Agreement.
Proxy Agreement
-- Each of the shareholders
of Yanyu, Tranhold and BSST (other than the SOE Shareholder of Yanyu) has executed a Proxy Agreement authorizing TTB to exercise
any and all shareholder rights associated with his ownership in Yanyu or Tranhold or BSST, as appropriate, including the right
to attend shareholders’ meetings, the right to execute shareholders’ resolutions, the right to sell, assign, transfer
or pledge any or all of the equity interest in Yanyu or Tranhold or BSST, as appropriate, and the right to vote such equity interest
for any and all matters.
Equity Interest Pledge Agreement
-- TTB and the shareholders of each of Tranhold, BSST and Yanyu, (other than the SOE Shareholder of Yanyu) have entered in Equity
Interest Pledge Agreements, pursuant to which each such shareholder pledges all of his shares of Tranhold, Yanyu or BSST, as appropriate,
to TTB. If Tranhold, Yanyu or BBST or any of its respective shareholders (other than the SOE Shareholder of Yanyu) breaches its
respective contractual obligations, TTB, as pledgee, will be entitled to certain rights, including the right to foreclose on the
pledged equity interests. Such Tranhold, BSST and Yanyu shareholders have agreed not to dispose of the pledged equity interests
or take any actions that would prejudice TTB’s interest. According to this agreement, TTB has absolute rights to obtain
any and full dividends related to the equity interest pledged during the term of the pledge.
Exclusive Equity Interest Purchase Agreement
-- Each of the shareholders of Tranhold, Yanyu and BSST (other than the SOE Shareholder of Yanyu) has entered into an Exclusive
Equity Interest Purchase Agreement, which provides that TTB will be entitled to acquire such shares from the current shareholders
upon certain terms and conditions, if such a purchase is or becomes allowable under PRC laws and regulations. The Exclusive Equity
Interest Purchase Agreement also prohibits the current shareholders of each of Tranhold, Yanyu and BSST, (other than the SOE Shareholder
of Yanyu) from transferring any portion of their equity interests to anyone other than TTB. TTB has not yet taken any corporate
action to exercise this right of purchase, and there is no guarantee that it will do so or will be permitted to do so by applicable
law at such time as it may wish to do so.
Operating Agreements
-- TTB, Tranhold,
Yanyu and each of their respective shareholders (other than the SOE Shareholder of Yanyu) have entered into an Operating Agreement
on July 3, 2009, TTB, BSST and each of their respective shareholders have entered into an Operating Agreement on July 26,
2010, which requires TTB to guarantee the obligations of each of Tranhold, Yanyu and BSST in their business arrangements with third
parties. Each of Tranhold, Yanyu and BSST, in return, agrees to pledge its accounts receivable and all of its assets to TTB. Moreover,
each of Tranhold, Yanyu and BSST, agrees that without the prior consent of TTB, such company will not engage in any transactions
that could materially affect its assets, liabilities, rights or operations, including, without limitation, incurrence or assumption
of any indebtedness, sale or purchase of any assets or rights, incurrence of any encumbrance on any of its assets or intellectual
property rights in favor of a third party or transfer of any agreements relating to its business operation to any third party.
Pursuant to these operating agreements, TTB provides guidance and instructions on each of Tranhold, Yanyu and BSST’s daily
operations and financial affairs. The contracting shareholders of each of Tranhold, Yanyu and BSST, must designate the candidates
recommended by TTB as their representatives on their respective boards of directors. TTB has the right to appoint and remove senior
executives of each of Tranhold, Yanyu and BSST.
Assets recognized as a result of consolidating
VIEs do not represent additional assets that could be used to satisfy claims against the Company’s general assets. Conversely,
liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general
assets; rather, they represent claims against the specific assets of the consolidated VIEs.
The Company is the primary beneficiary of
Tranhold, Yanyu and BSST, VIEs. Accordingly, the assets and liabilities of VIEs are included in the accompanying consolidated balance
sheets.
Only the assets of the VIE can be used to
settle the obligation of the VIE. Conversely, liabilities recognized by the consolidated VIE do not represent additional claims
on the Company’s assets.
The total assets and
liabilities of our consolidated VIEs as of September 30, 2012 and December 31, 2011 are shown as below, which exclude intercompany
balances that are eliminated among the VIEs.
|
|
September 30, 2012
|
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
|
2011
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,886,885
|
|
|
$
|
4,414,701
|
|
Restricted cash
|
|
|
631,271
|
|
|
|
1,192,134
|
|
Accounts receivable, net
|
|
|
21,425,283
|
|
|
|
19,310,636
|
|
Unbilled revenue
|
|
|
5,085,967
|
|
|
|
4,361,317
|
|
Other current assets
|
|
|
19,931,874
|
|
|
|
8,790,816
|
|
Inventories
|
|
|
5,747,731
|
|
|
|
5,950,510
|
|
Deposits on projects
|
|
|
1,764,434
|
|
|
|
983,013
|
|
Prepayments to suppliers and subcontractors
|
|
|
12,127,806
|
|
|
|
1,387,119
|
|
Total current assets
|
|
|
68,601,251
|
|
|
|
46,390,246
|
|
Long-term unbilled revenue
|
|
|
2,085,687
|
|
|
|
2,154,667
|
|
Plant and equipment, net
|
|
|
474,313
|
|
|
|
511,160
|
|
Intangible assets, net
|
|
|
3,838,518
|
|
|
|
4,138,012
|
|
Long-term investment
|
|
|
—
|
|
|
|
5,855,566
|
|
Long-term restricted cash
|
|
|
48,672
|
|
|
|
26,834
|
|
Total Assets
|
|
$
|
75,048,441
|
|
|
$
|
59,076,485
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
6,133,415
|
|
|
|
1,394,883
|
|
Notes payable
|
|
|
—
|
|
|
|
1,176,197
|
|
Costs accrual on projects
|
|
|
10,359,603
|
|
|
|
8,104,579
|
|
Customer deposits
|
|
|
9,384,821
|
|
|
|
1,920,597
|
|
Loans from third party companies and individual
|
|
|
430,774
|
|
|
|
—
|
|
Other payables
|
|
|
20,610,297
|
|
|
|
19,944,048
|
|
Income taxes payable
|
|
|
654,981
|
|
|
|
10,096
|
|
Deferred income taxes
|
|
|
—
|
|
|
|
328,419
|
|
Short-term bank borrowing
|
|
|
7,945,689
|
|
|
|
2,296,895
|
|
Total current liabilities
|
|
|
55,519,580
|
|
|
|
35,175,714
|
|
Total Liabilities
|
|
$
|
55,519,580
|
|
|
$
|
35,175,714
|
|
For the nine-month period ended September
30, 2012, the financial performance of the VIEs reported in the consolidated statements of income and comprehensive income includes
sales of approximately US$32,487,222, cost of sales of approximately US$25,065,264, operating expenses of approximately US$6,178,539
and net income of approximately US$674,325.
As of September 30, 2012, the Company has
made deposits several times totaling $5,468,583 as collateral in exchange of the issuance of letters of credit. The restricted
cash aggregating $2,920,692 will expire within the next 12 months. The remaining balance of $2,547,891 expires after September
2013, and is classified under long-term restricted cash.
|
6.
|
Accounts Receivable, Net
|
Based on the Company’s assessment,
management believes the net balance on each balance sheet date herein was collectable. The gross balance and bad debt provision
as of September 30, 2012 and December 31, 2011 are as the following:
|
|
September 30, 2012
|
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
|
2011
|
|
Accounts receivable, gross
|
|
$
|
21,697,027
|
|
|
$
|
20,507,146
|
|
Less bad debt provision
|
|
|
(1,167,087
|
)
|
|
|
(619,062
|
)
|
Accounts receivable, net
|
|
$
|
20,529,940
|
|
|
$
|
19,888,084
|
|
The Company records
revenue from system integration contracts using the percentage-of-completion method. As of September 30, 2012 and December 31,
2011, the Company had $20,139,080 and $19,826,397 respectively, of accounts receivables using the percentage-of-completion method.
All of the Company’s accounts receivable as of September 30, 2012 is expected to be collected within the next twelve months.
The allowance is based
on the age of receivables and a specific identification of receivables considered at risk of collection. The following analysis
details the changes in the Company’s allowances for doubtful accounts:
|
|
September 30, 2012
|
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
|
2011
|
|
Balance at beginning of the period
|
|
$
|
619,062
|
|
|
$
|
427,020
|
|
Increase in allowances during the period
|
|
|
548,885
|
|
|
|
219,456
|
|
Reversal in allowances during the period
|
|
|
(860
|
)
|
|
|
(27,135
|
)
|
Write-offs during the period
|
|
|
—
|
|
|
|
(279
|
)
|
Balance at the end of the period
|
|
$
|
1,167,087
|
|
|
$
|
619,062
|
|
For revenues accounted for under this account,
we expect the amounts to be collected within one year. For those with a collection period longer than one year, we classify them
under “Long-term unbilled revenue” on the consolidated balance sheets.
The unbilled revenue as of September 30,
2012 and December 31, 2011 are as the following:
|
|
September 30, 2012
|
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
|
2011
|
|
Current unbilled revenue
|
|
$
|
19,632,473
|
|
|
$
|
7,254,830
|
|
Long-term unbilled revenue
|
|
|
61,058,928
|
|
|
|
59,298,740
|
|
Total unbilled revenue
|
|
$
|
80,691,401
|
|
|
$
|
66,553,570
|
|
As of September 30, 2012, $1,577,038 of
the current unbilled revenue, and $46,828,566 of the long-term unbilled revenue was related to the Ordos project. The remaining
balance was for various other on-going projects. All of the balances are considered collectible.
Other current assets consisted of the following:
|
|
September 30, 2012
|
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
|
2011
|
|
Advances to staff
|
|
$
|
1,145,594
|
|
|
$
|
772,770
|
|
Loan to third-party companies
|
|
|
1,446,223
|
|
|
|
1,207,119
|
|
Rental deposit
|
|
|
320,484
|
|
|
|
186,710
|
|
Prepaid expenses
|
|
|
439,064
|
|
|
|
191,845
|
|
Tax refund receivable
|
|
|
467,299
|
|
|
|
—
|
|
Others
|
|
|
1,099,136
|
|
|
|
403,104
|
|
Total
|
|
$
|
4,917,800
|
|
|
$
|
2,761,548
|
|
Advances to staff were mainly for staff
with long term assignment overseas for sales and project related work.
Loans to third-party companies were made
to business partners for working capital purpose. $500,000 is due before the end of 2012 with 6% annualized interest rate,
$157,704
is for one year with annualized interest rate of 12%, the remaining $788,519 is for period less than one year without interest
.
The interest income for these loans was $76,177 as of September 30, 2012, which was included in others.
Tax refund receivable of $467,299 was due
to the purchases for overseas projects. The tax refund was approved by local tax bureau in the quarter ended June 30, 2012, and
the amount is expected to be collected in early 2013.
Inventories consisted of the following:
|
|
September 30, 2012
|
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
|
2011
|
|
Raw materials
|
|
$
|
1,955,510
|
|
|
$
|
1,835,715
|
|
Finished goods
|
|
|
746,014
|
|
|
|
589,887
|
|
Project work-in-progress
|
|
|
4,565,363
|
|
|
|
5,280,150
|
|
Total
|
|
$
|
7,266,887
|
|
|
$
|
7,705,752
|
|
The Company reviews its inventory periodically
for possible obsolete goods and to determine if any reserves are necessary for potential obsolescence. As of September 30, 2012
and December 31, 2011, the Company determined that no reserves were necessary.
Deposits on Projects consisted of the following:
|
|
September 30, 2012
|
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
|
2011
|
|
Current:
|
|
|
|
|
|
|
|
|
Contract deposit
|
|
$
|
2,800,735
|
|
|
$
|
659,568
|
|
Bidding deposit
|
|
|
666,310
|
|
|
|
553,123
|
|
Total
|
|
$
|
3,467,045
|
|
|
$
|
1,212,691
|
|
Contract deposits are paid to customers
for the promise that the service or products will be properly and timely provided. Bidding deposits are paid as a deposit for project
bidding process. All of the deposits will be collected within one year.
|
11.
|
Plant and Equipment, Net
|
Plant and equipment consist of the following:
|
|
September 30, 2012
|
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
|
2011
|
|
Transportation equipment
|
|
$
|
977,290
|
|
|
$
|
857,812
|
|
Office equipment
|
|
|
596,924
|
|
|
|
435,952
|
|
Furniture
|
|
|
440,430
|
|
|
|
402,842
|
|
Buildings
|
|
|
269,798
|
|
|
|
271,515
|
|
Machinery and equipment
|
|
|
138,852
|
|
|
|
137,217
|
|
Total plant and equipment
|
|
|
2,423,294
|
|
|
|
2,105,338
|
|
Less accumulated depreciation
|
|
|
(904,093
|
)
|
|
|
(668,500
|
)
|
Plant and equipment, net
|
|
$
|
1,519,201
|
|
|
$
|
1,436,838
|
|
The depreciation expense for the quarter
ended September 30, 2012 and 2011 amounted to $79,197 and $62,139, respectively. The depreciation expense for the nine month ended
September 30, 2012 and 2011 amounted to $233,835 and $178,103, respectively.
|
12.
|
Construction in Progress
|
The construction in progress account captures
the balance of construction in progress for the Company’s Baoding research, development and production base in Baodi, Tianjin
area. Baoding focuses on technology development, software development, pilot testing, manufacturing and pre-installation/pre-assembly
preparation of its proprietary products. The construction of the Baoding research, development and production facility officially
started in September 2011, and is expected to complete by end of year 2013. As of September 30 2012, the construction in progress
of the Baoding facility totaled at $
5,094,752.
|
13.
|
Intangible Assets, Net
|
Intangible assets mainly consist of patents,
software, customer lists, land use right and know-how. The patents were invested as capital contribution by the shareholders of
Tranhold and Yanyu, and were recorded at the appraisal value as stipulated by the local regulatory authority. According to ASC
845-10-S99, transfers of nonmonetary assets to a company by its promoters or shareholders in exchange for shares prior to or at
the time of the company’s initial public offering normally should be recorded at the transferors’ historical cost basis
determined under US GAAP. The effect from the inclusion of the contributed patents at its fair value instead of historical cost
was immaterial. Software was purchased from third parties at the acquisition cost.
All the intangible assets have definite
lives, and are amortized on a straight-line basis over their expected useful economic lives. The original costs and accumulated
amortization as of September 30, 2012 and December 31, 2011 are as follows:
|
|
September 30,2012
|
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
|
2011
|
|
Patents
|
|
$
|
2,045,366
|
|
|
$
|
2,021,375
|
|
Software
|
|
|
2,860,748
|
|
|
|
2,878,954
|
|
Customer list
|
|
|
1,276,012
|
|
|
|
1,280,378
|
|
Land use right
|
|
|
5,687,983
|
|
|
|
5,724,181
|
|
Know-how
|
|
|
1,215,154
|
|
|
|
1,218,496
|
|
Contract backlog
|
|
|
58,350
|
|
|
|
58,722
|
|
Total intangible assets
|
|
|
13,143,613
|
|
|
|
13,182,106
|
|
Less accumulated amortization
|
|
|
(2,193,839
|
)
|
|
|
(1,572,444
|
)
|
Intangible assets, net
|
|
$
|
10,949,774
|
|
|
$
|
11,609,662
|
|
In November 2010, $5,284,854 was paid for
a land use right, the amount of which was recorded as long-term prepayment on land use right purchased as of December 31, 2010.
On January 18, 2011, the land use right was transferred and accepted by the Company, and the amount started to be included in intangible
assets. The amortization of the land use right for 50 years started in January 2011.
The amortization expense for the quarters
ended September 30, 2012 and 2011 amounted to $212,470 and $195,608, respectively. The amortization expense for nine months ended
September 30, 2012 and 2011 amounted to $640,345 and $465,435, respectively.
The amortization expense for the following
five years and thereafter is expected to be as follows:
For the Year Ending December 31,
|
Amount
|
2012
|
$
|
205,265
|
2013
|
|
810,596
|
2014
|
|
810,596
|
2015
|
|
753,429
|
2016
|
|
604,243
|
Thereafter
|
|
7,765,645
|
Total
|
$
|
10,949,774
|
|
14.
|
Investment in Joint Venture
|
On October 18, 2011, TIS entered into an
agreement to establish a joint venture, Tri-Tech Infrastructure (India), Pvt. Ltd., with Allied Energy Systems Pvt. Ltd., for the
purpose of market development in India.
On October 19, 2011, the capital injection
in the amount of INR 300,000, or US$6,985, was made to the joint venture. Total registered capital of the joint venture is INR1,000,000,
or $20,833. TIS took up 30% of the ownership. Equity method is adopted for the long-term investment.
For the year ended December 31, 2011, net
loss for the India joint venture was INR3,385,463, or $66,017. TIS should bear the net loss of INR1,015,639, or $19,805. Since
the net loss is more than the long-term investment, only $6,985 was offset and the remaining loss of $12,820 will be net-off against
earnings in the future.
For the quarter ended March 31, 2012, net
profit for the India joint venture was INR3,053,119, or $60,762. TIS should earn the net profit of INR915,936, or $18,229. After
net off $12,820 of the loss brought forward from prior year, $5,409 was recognized as gain on investment in the joint venture for
the quarter ended March 31, 2012.
For the period from April 1 to May 19, 2012,
net profit for the India joint venture was INR2,655,392, or $50,679. TIS should earn the net profit of INR796,618, or $15,204,
which was recognized as gain on investment in the joint venture for the period.
On May 19, 2012, TIS acquired additional
46% of TII’s equity interest, and became the controlling shareholder of TII. The additional investment consideration was
INR1,917,000, or $35,273. TII was consolidated into TIS since that day.
|
15.
|
Accounts Payable and Costs Accrual on Projects
|
This account contains the accounts payable
to suppliers and accruals of costs incurred in the projects in accordance with the percentage of completion method.
Accounts payable and project accruals
based on progress consisted of
the
following:
|
|
September 30, 2012
|
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
|
2011
|
|
Accounts payable
|
|
$
|
4,443,231
|
|
|
$
|
11,401,187
|
|
Costs accrual on projects
|
|
|
26,398,736
|
|
|
|
19,402,047
|
|
Total
|
|
$
|
30,841,967
|
|
|
$
|
30,803,234
|
|
Of the total accounts payable, $720,385
was related to building new factories and warehouses in Tianjin. The remaining balance was for various other on-going projects.
Of the total costs accrual on projects,
$5,286,623, was related to the Ordos projects, which was also the main reason for the increase of the ending balance, and $10,821,666
was related to the India projects. The remaining balance was for various other on-going projects.
|
16.
|
Loan from Third-party Companies and Individual
|
The loan from third-party companies and
individual as of September 30, 2012 and December 31, 2011 were:
|
|
September 30, 2012
|
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
|
2011
|
|
Nuwell Asia Limited
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
Lin Bin
|
|
|
1,150,000
|
|
|
|
—
|
|
Beijing Liyuanshida Technology Co., Ltd
|
|
|
2,929,758
|
|
|
|
—
|
|
Beijing Sridi Technology Co., Ltd
|
|
|
430,774
|
|
|
|
221,183
|
|
Beijing Linkhead Technology Co., Ltd
|
|
|
—
|
|
|
|
251,013
|
|
Loan from third-party companies and individual
|
|
$
|
5,010,532
|
|
|
$
|
972,196
|
|
Of the loan from third-party companies and
individual, $500,000 was with interest of 1.0% per month and due before the end of 2012. $4,079,758 was with interest of 2.0%,
per month and due before the end of 2012, the remaining was with no interest. The accrued interest expense was $65,458 as of September
30, 2012, which was included in interest expenses payable in other payables.
|
17.
|
Amounts due to shareholders
|
Amounts due to shareholders as of September
30, 2012 and December 31, 2011 were:
|
|
September 30, 2012
|
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
|
2011
|
|
Warren Zhao
|
|
$
|
946,223
|
|
|
$
|
—
|
|
Peter Dong
|
|
|
157,704
|
|
|
|
—
|
|
Total Other Payables
|
|
$
|
1,103,927
|
|
|
$
|
—
|
|
The amounts due to shareholders were all
with a term of two months, due in November 2012. The monthly interest rate was 1%.
|
18.
|
Amount due to Noncontrolling Interest Investor
|
The amount due to noncontrolling interest
investor as of September 30, 2012 and December 31, 2011 were:
|
|
September 30, 2012
|
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
|
2011
|
|
Amount due to noncontrolling interest investor
|
|
$
|
7,386,848
|
|
|
$
|
6,057,250
|
|
Amount due to noncontrolling interest investor
|
|
$
|
7,386,848
|
|
|
$
|
6,057,250
|
|
The amount due to noncontrolling interest
investor, $7,386,848, was principal amount for short-term loan from the minority interest investor from TTA, with interest of 1.5%
per month due before the end of 2012. The accrued interest expense was $1,291,375 as of September 30, 2012, which was included
in other payables. The purpose of this short-term loan was mainly to reduce temporary operational cash pressure.
Other payables were non-project related
as shown below:
|
|
September 30, 2012
|
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
|
2011
|
|
Interest payable
|
|
$
|
1,356,833
|
|
|
$
|
500,298
|
|
Others
|
|
|
172,981
|
|
|
|
187,038
|
|
Total Other Payables
|
|
$
|
1,529,814
|
|
|
$
|
687,336
|
|
Other taxes payable were as shown below:
|
|
September 30, 2012
(Unaudited)
|
|
|
December 31,
2011
|
|
Value-added tax payable
|
|
$
|
3,851,040
|
|
|
$
|
1,367,517
|
|
Business tax payable
|
|
|
1,472,767
|
|
|
|
1,228,441
|
|
Others
|
|
|
189,801
|
|
|
|
471,392
|
|
Total other taxes payable
|
|
$
|
5,513,608
|
|
|
$
|
3,067,350
|
|
The increase of value-added tax payable
balance was because that the payment of value-added tax will be a period of time later than the revenue recognition, at the time
of billing to customer.
On September 26, 2012, TTB issued Bonds
worth an aggregate of $7.89 million. The Bonds were issued to sophisticated investors including financial institutions, and will
be traded on an inter-bank bond market. The Bonds will have a term of three years and will carry an interest rate of 6.2%, which
will be paid annually on September 21. Principal on the Bonds will be paid at maturity on September 26, 2015.
The below table presents the bank borrowing
interest rates and the amount borrowed as of September 30, 2012 and December 31, 2011.
Bank Name
|
|
Annual
interest
rate
|
|
Terms
|
|
As of
September 30,
2012
(Unaudited)
|
|
|
As of
December 31, 2011
|
|
Bank of Hangzhou
|
|
7.216%
|
|
04/15/2011 - 04/14/2012
|
|
$
|
—
|
|
|
$
|
555,476
|
|
Bank of Hangzhou
|
|
7.216%
|
|
06/27/2011 - 06/26/2012
|
|
|
—
|
|
|
|
952,245
|
|
Bank of Hangzhou
|
|
7.216%
|
|
07/27/2011 - 07/26/2012
|
|
|
—
|
|
|
|
789,174
|
|
Citic Bank
|
|
8.528%
|
|
09/27/2011 - 09/27/2012
|
|
|
—
|
|
|
|
4,761,225
|
|
Bank of Hangzhou
|
|
7.872%
|
|
11/30/2011 - 11/29/2012
|
|
|
946,223
|
|
|
|
952,245
|
|
Bank of Hangzhou
|
|
7.872%
|
|
03/20/2012 - 03/19/2013
|
|
|
630,815
|
|
|
|
—
|
|
Industrial and Commercial Bank of China
|
|
6.560%
|
|
03/31/2012 - 03/29/2013
|
|
|
2,365,557
|
|
|
|
—
|
|
Industrial and Commercial Bank of China
|
|
6.560%
|
|
04/06/2012 - 03/29/2013
|
|
|
1,577,038
|
|
|
|
—
|
|
Bank of Hangzhou
|
|
7.872%
|
|
04/19/2012 - 04/18/2013
|
|
|
36,177
|
|
|
|
—
|
|
Bank of Hangzhou
|
|
7.216%
|
|
04/28/2012 - 04/26/2013
|
|
|
335,094
|
|
|
|
—
|
|
Industrial and Commercial Bank of China
|
|
6.560%
|
|
05/25/2012 - 03/29/2013
|
|
|
788,519
|
|
|
|
—
|
|
Industrial and Commercial Bank of China
|
|
6.435%
|
|
06/27/2012 - 12/26/2012
|
|
|
2,054,784
|
|
|
|
—
|
|
Industrial and Commercial Bank of China
|
|
6.000%
|
|
07/26/2012 - 07/25/2013
|
|
|
3,154,077
|
|
|
|
—
|
|
China Merchants Bank
|
|
7.200%
|
|
08/31/2012 - 08/31/2013
|
|
|
1,934,417
|
|
|
|
—
|
|
China Merchants Bank
|
|
7.200%
|
|
08/31/2012 - 08/30/2013
|
|
|
431,141
|
|
|
|
—
|
|
Short-term bank borrowings
|
|
|
|
|
|
|
14,253,842
|
|
|
|
8,010,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Credit and Investment Corporation of India
Bank LTD
|
|
12.25%
|
|
01/15/2012 – 01/14/2015
|
|
|
9,550
|
|
|
|
—
|
|
Industrial Credit and Investment Corporation of India
Bank LTD
|
|
11.99%
|
|
05/01/2012 - 04/30/2016
|
|
|
10,427
|
|
|
|
—
|
|
Long-term bank borrowings
|
|
|
|
|
|
|
19,977
|
|
|
|
—
|
|
Total bank borrowings
|
|
|
|
|
|
$
|
14,273,819
|
|
|
$
|
8,010,365
|
|
$7,7,34,796 of the short-term bank borrowings
was repaid by the Company during the nine month period ended September 30, 2012. All of the bank borrowings are credit loans.
We are subject to income taxes on the entity
level for income arising in or derived from the tax jurisdictions in which each entity is domiciled. According to the New Enterprise
Income Tax Law (“NEITL”) in China, unified Enterprise Income Tax rate is 25%. However, five of our eight subsidiaries
and VIEs in China are subject to certain favorable tax policies as high-tech companies.
The Company has not recorded tax provision
for U.S. tax purposes as it has no assessable profits arising in or derived from the United States and intends to reinvest accumulated
earnings in its PRC operations.
The applicable statutory tax rates for our
subsidiaries and VIEs in the PRC are as follows:
|
Three Months Ended September 30,
(Unaudited)
|
|
2012 (%)
|
|
2011 (%)
|
TTB
|
15
|
|
7.5
|
BSST
|
15
|
|
15
|
Yanyu
|
15
|
|
15
|
Tranhold
|
25
|
|
25
|
TTA
|
25
|
|
25
|
Baoding
|
15
|
|
15
|
Yuanjie
|
15
|
|
25
|
Buerjin
|
25
|
|
25
|
Xushui
|
25
|
|
—
|
Consolidated Effective Income Tax Rate
|
18
|
|
17
|
|
Nine Months Ends September 30,
|
|
(Unaudited)
|
|
2012 (%)
|
|
2011 (%)
|
TTB
|
15
|
|
7.5
|
BSST
|
15
|
|
15
|
Yanyu
|
15
|
|
15
|
Tranhold
|
25
|
|
25
|
TTA
|
25
|
|
25
|
Baoding
|
15
|
|
15
|
Yuanjie
|
15
|
|
25
|
Buerjin
|
25
|
|
25
|
Xushui
|
25
|
|
—
|
Consolidated Effective income tax rate
|
24
|
|
16
|
The provision for income tax expense (benefit)
from operations consists of the following:
|
|
Three Months Ended September 30,
|
|
|
|
(Unaudited)
|
|
|
|
|
2012
|
|
|
|
2011
|
|
Current:
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
—
|
|
|
$
|
519,169
|
|
India
|
|
|
—
|
|
|
|
—
|
|
Deferred:
|
|
|
|
|
|
|
|
|
PRC
|
|
|
—
|
|
|
|
(19,592
|
)
|
Total income tax expense
|
|
$
|
—
|
|
|
$
|
499,577
|
|
|
|
Nine Months Ends September 30,
|
|
|
|
(Unaudited)
|
|
|
|
2012
|
|
|
2011
|
|
Current:
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
—
|
|
|
$
|
1,379,962
|
|
India
|
|
|
72,989
|
|
|
|
—
|
|
Deferred:
|
|
|
|
|
|
|
|
|
PRC
|
|
|
528,566
|
|
|
|
(35,326
|
)
|
Total income tax expense
|
|
$
|
601,555
|
|
|
$
|
1,344,636
|
|
Significant components of the Company’s
deferred tax liabilities are as follows:
|
|
September 30, 2012
(Unaudited)
|
|
|
December 31, 2011
|
|
Current:
|
|
|
|
|
|
|
|
|
Deferred income taxes:
|
|
|
|
|
|
|
|
|
Revenue recognition based on percentage of completion
|
|
|
976,259
|
|
|
|
358,519
|
|
Total current net deferred tax liabilities
|
|
$
|
976,259
|
|
|
$
|
358,519
|
|
Long-term:
|
|
|
|
|
|
|
|
|
Noncurrent deferred income taxes:
|
|
|
|
|
|
|
|
|
Revenue recognition based on percentage of completion
|
|
|
3,040,262
|
|
|
|
2,930,427
|
|
Intangible assets valuation in business combination
|
|
|
478,017
|
|
|
|
525,396
|
|
Total noncurrent net deferred tax liabilities
|
|
$
|
3,518,279
|
|
|
$
|
3,455,823
|
|
Income tax reconciliation for the three
months and nine months ended September 30, 2012 and 2011 are as follows:
|
|
Three Months Ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
PRC statutory tax rate
|
|
|
25
|
%
|
|
|
25
|
%
|
Taxable (loss) income
|
|
$
|
(865,198
|
)
|
|
$
|
2,963,404
|
|
Computed expected income tax expense
|
|
|
—
|
|
|
|
740,851
|
|
Effect of preferential tax rates
|
|
|
—
|
|
|
|
(241,274
|
)
|
Income tax expense
|
|
$
|
—
|
|
|
$
|
499,577
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
PRC statutory tax rate
|
|
|
25
|
%
|
|
|
25
|
%
|
Taxable income
|
|
$
|
2,476,773
|
|
|
$
|
8,378,375
|
|
Computed expected income tax expense
|
|
|
619,193
|
|
|
|
2,094,594
|
|
Effect of preferential tax rates
|
|
|
(17,638
|
)
|
|
|
(749,958
|
)
|
Income tax expense
|
|
$
|
601,555
|
|
|
$
|
1,344,636
|
|
As of September 30, 2012 and December 31,
2011, the Company has 229,274 warrants outstanding for ordinary shares. None of these warrants were exercised by September 30,
2012. During the quarters ended September 30, 2012 and 2011, the Company recorded warrant expenses as general and administrative
expenses with $0 and $15,164, respectively. During the nine month ended September 30, 2012 and 2011, the Company recorded warrants
as general and administrative expense with $0 and $45,491, respectively.
|
25.
|
Options Issued to Employees
|
TRIT’s 2009 Share Incentive Plan approved
by its shareholders permits the Company to offer up to 525,500 shares, options and other securities to its employees and directors.
On September 9, 2009, TRIT granted 525,500 share options with an exercise price equal to $6.75 to its senior management and
employees. The options will vest on a schedule spanning 5 years contingent upon continuous service and will have 10-year contractual
terms from September 9, 2009. The options will vest over five years at a rate of 20% per year, with the first 20% vesting
on September 9, 2010. Certain options provide for accelerated vesting upon a change in control (as defined in the employee share
option plan).
The fair value of options on the grant-date
of September 9, 2009 was $3.53 per share, which was estimated by using the Black-Scholes Model. The total fair value of the
options was $1,855,015. 313,500 and 210,200 options were vested as of September 30, 2012 and December 31, 2011, respectively. 93,700
and 93,700 options were exercised as of September 30, 2012 and December 31, 2011, respectively. A total of 9,000 and 5,400 options
were forfeited as of September 30, 2012 and December 31, 2011, respectively. The Company recognized compensation cost for awards
with graded vesting on a straight-line basis over the requisite service period for the award.
On June 5, 2012, TRIT granted 450,016 share
options to its senior management and directors, out of which 225,008 share options were with an exercise price equal to $7.63,
the exercise price for the remaining 225,008 share options will be the closing price of the Company’s ordinary shares on
January 1, 2013. 225,008 share options were vested immediately at the grant date, the remaining 225,008 share options will be vested
on January 1, 2013.
The fair value of the 255,008 share options
on the grant-date June 5, 2012 was $1.55 per share, which was estimated by Binominal Model. Valuation assumptions used in the Binominal
option-pricing model for options issued include (1) discount rate of 3.07% based upon China Sovereign Bonds yields in effect at
the time of the grant, (2) expected volatility of 38%, and (3) zero expected dividends. The total fair value of the options was
$348,762. The fair value of the remaining options, which will be vested on January 1, 2013, was estimated to be $2.7 per share.
$327,863 was amortized in current period.
The option compensation expenses recognized
were $421,376 and $92,497 for three months ended September 30, 2012 and 2011, respectively. The option compensation expenses recognized
were $951,964 and $276,474 for nine months ended September 30, 2012 and 2011, respectively.
The following table summarizes the outstanding
options, related weighted average fair value and life information as of September 30, 2012.
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of
Exercise
Price Per
Share
|
|
Number outstanding as of September 30, 2012
|
|
|
Weighted
Average
Fair Value
|
|
|
Weighted
average
Remaining Life
(Years)
|
|
|
Number Exercisable as
of September 30, 2012
|
|
|
Weighted Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$6.75 – 7.63
|
|
|
860,312
|
|
|
$
|
2.95
|
|
|
|
6.37
|
|
|
|
337,908
|
|
|
$
|
7.21
|
|
A summary of option activity under the employee
share option plan as of September 30, 2012 and 2011, and changes during the periods then ended is presented below:
Options
|
|
|
Number of shares
|
|
|
|
Exercise Price
|
|
|
|
Remaining Life(Years)
|
|
|
|
Aggregated Intrinsic Value
|
|
Outstanding as of January 01, 2012
|
|
|
426,400
|
|
|
$
|
6.75
|
|
|
|
2.69
|
|
|
$
|
—
|
|
Granted during the period
|
|
|
450,016
|
|
|
|
7.63
|
|
|
|
9.73
|
|
|
|
|
|
Exercised during the period
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited during the period
|
|
|
(16,104
|
)
|
|
|
6.75
|
|
|
|
2.57
|
|
|
|
|
|
Outstanding as of September 30, 2012
|
|
|
860,312
|
|
|
$
|
7.21
|
|
|
|
6.37
|
|
|
$
|
—
|
|
Options
|
|
Number of
shares
|
|
|
Exercise Price
|
|
|
Remaining Life(Years)
|
|
|
Aggregated Intrinsic Value
|
|
Outstanding as of January 01, 2011
|
|
|
525,500
|
|
|
$
|
6.75
|
|
|
|
3.69
|
|
|
$
|
2,107,255
|
|
Granted during the period
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised during the period
|
|
|
(93,700
|
)
|
|
|
6.75
|
|
|
|
3.51
|
|
|
|
|
|
Forfeited during the period
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of September 30, 2011
|
|
|
431,800
|
|
|
$
|
6.75
|
|
|
|
3.73
|
|
|
$
|
—
|
|
A summary of unvested options under the
employee share option plan as of September 30, 2012 and 2011, and changes during the periods then ended is presented below:
Options
|
|
Number of Shares
|
|
|
Weighted Average Fair Value
|
|
Unvested as of January 01, 2012
|
|
|
309,900
|
|
|
$
|
3.53
|
|
Granted during the period
|
|
|
450,016
|
|
|
|
1.55
|
|
Vested during the period
|
|
|
(328,308
|
)
|
|
|
1.55
|
|
Forfeited during the period
|
|
|
(16,104
|
)
|
|
|
3.53
|
|
Unvested as of September 30, 2012
|
|
|
415,504
|
|
|
$
|
2.95
|
|
|
|
|
|
|
|
|
|
|
Expected to vest thereafter
|
|
|
415,504
|
|
|
$
|
2.95
|
|
Options
|
|
Number of Shares
|
|
|
Fair Value
|
|
Unvested as of January 01, 2011
|
|
|
420,400
|
|
|
$
|
3.53
|
|
Granted during the period
|
|
|
—
|
|
|
|
|
|
Vested during the period
|
|
|
(105,100
|
)
|
|
|
3.53
|
|
Forfeited during the period
|
|
|
—
|
|
|
|
|
|
Unvested as of September 30, 2011
|
|
|
315,300
|
|
|
$
|
3.53
|
|
|
|
|
|
|
|
|
|
|
Expected to vest thereafter
|
|
|
315,300
|
|
|
$
|
3.53
|
|
|
26.
|
Net (Loss) Income per Ordinary Share
|
The following table presents a reconciliation
of basic and diluted net (loss) income per share:
|
|
Three Months Ended September 30,
|
|
|
|
(Unaudited)
|
|
|
|
2012
|
|
|
2011
|
|
Net (loss) income attributable to Tri-Tech Holding Inc
|
|
$
|
(677,022
|
)
|
|
$
|
1,937,103
|
|
Weighted-average shares of ordinary share used to compute basic net income per share
|
|
|
8,215,536
|
|
|
|
8,160,407
|
|
Effect of dilutive ordinary share equivalents:
|
|
|
|
|
|
|
|
|
Dilutive effect of warrants
|
|
|
—
|
|
|
|
—
|
|
Dilutive effect of employee stock options
|
|
|
—
|
|
|
|
—
|
|
Shares used in computing diluted net income per ordinary share
|
|
|
8,215,536
|
|
|
|
8,160,407
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per ordinary share
|
|
$
|
(0.08
|
)
|
|
$
|
0.24
|
|
Diluted net (loss) income per ordinary share
|
|
$
|
(0.08
|
)
|
|
$
|
0.24
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
(Unaudited)
|
|
|
|
2012
|
|
|
2011
|
|
Net income attributable to Tri-Tech Holding Inc
|
|
$
|
2,131,990
|
|
|
$
|
5,397,772
|
|
Weighted-average shares of ordinary share used to compute basic net income per share
|
|
|
8,201,771
|
|
|
|
8,116,802
|
|
Effect of dilutive ordinary share equivalents:
|
|
|
|
|
|
|
|
|
Dilutive effect of warrants
|
|
|
—
|
|
|
|
1,574
|
|
Dilutive effect of employee stock options
|
|
|
—
|
|
|
|
7,214
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income per ordinary share
|
|
|
8,201,771
|
|
|
|
8,125,590
|
|
|
|
|
|
|
|
|
|
|
Basic net income per ordinary share
|
|
$
|
0.26
|
|
|
$
|
0.67
|
|
Diluted net income per ordinary share
|
|
$
|
0.26
|
|
|
$
|
0.66
|
|
All warrants and options have anti-dilutive
effect due to the fact that the weighted average exercise price per share of these warrants and options are higher than the weighted
average market price per share of ordinary shares during the three-month and nine-month periods ended September 30, 2012. 229,275
warrants and 872,816 options will have dilutive effect if the weighted average exercise prices are lower than the weighted average
market price.
|
27.
|
Certain Significant Risks and Uncertainty
|
The Company’s substantial operations
are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced
by the political, economic and legal environments in the PRC and by the general state of the PRC economy. The Company’s operations
in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America
and West Europe. These include risks associated with, among others, the political, economic and legal environments and foreign
currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws
and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among
other things.
The Company has two major customers who
collectively represented approximately 26.9% of the Company’s revenue for the quarter ended September 30, 2012. One is for
India project, the unbilled revenue with this customer was $13,855,139 and $1,991,902 as of September 30, 2012 and December 31,
2011, respectively. The other is for a BT project in Xushui, the unbilled revenue balance was $8,689,452 and $857,114 as of September
30, 2012 and December 31, 2011, respectively. The five major customers represented approximately 45.9% and 48.6% of the Company’s
sales for the three and nine months ended September 30, 2012.
Our suppliers vary from project to project.
Many times, they are specifically appointed by the clients. Most of the material or equipment we purchase is non-unique and easily
available in the market. The prices for those purchases, although increasing, are relatively consistent and predictable. A specific
supplier might take up a significant percentage of our total purchase at a certain time for a large contract. However, the dependence
on a specific supplier usually ends when the project is completed. We do not rely on any single supplier for our long-term needs.
|
28.
|
Commitments and Contingencies
|
Operating Leases
As of September 30, 2012, the Company had
commitments under certain operating leases, requiring annual minimum rentals as follows:
For the Years Ended December 31,
|
Amount
|
2012
|
$
|
304,540
|
2013
|
|
854,162
|
2014
|
|
517,233
|
2015
|
|
92,110
|
Total
|
$
|
1,768,045
|
The leased properties are principally located
in the PRC and are used for administration and research and development purposes. The terms of these operating leases vary from
one to five years. Pursuant to the contracts, when they expire, we have the rights to extend them with new negotiated prices. Rental
expenses were $289,033 and $203,604 for the quarter ended September 30, 2012 and 2011, respectively. Rental expenses were $816,350
and $563,217 for the nine months ended September 30, 2012 and 2011, respectively.
Product Warranties
The Company’s warranty policy generally
is to replace parts if they become defective within one year after deployment at no additional charge. Historically, failure of
product parts due to materials or workmanship has not been significant. The Company has not incurred any material unexpected costs
associated with servicing its warranties. The Company continuously evaluates and estimates its potential warranty obligations,
and records the related warranty obligation when the estimated amount becomes material at the time revenue is recorded.
The Company has three reportable operating
segments. The segments are grouped with references to the types of services provided and the types of clients that use those services.
As TTB and its subsidiaries and VIEs conduct business under the three segments, the total sales and costs are divided accordingly
into three segmental portions. The Company’s Chief Executive Officer is the chief operating decision maker, and he assesses
each segment’s performance based on net revenues and gross profit on contribution margin. The three reportable operating
segments are:
Segment 1:
Water, Wastewater Treatment
and Municipal Infrastructure
Municipal water supply and distribution,
wastewater treatment and gray water reuse engineering, procurement, and construction (EPC), build-transfer (BT); proprietary
process control systems, process equipment integrated, and proprietary odor control systems, and other municipal facilities engineering,
operation management, and related infrastructure construction projects.
Segment 2:
Water Resource Management
System and Engineering Service
Water resources protection and allocation,
flood control and forecasting, irrigation systems, related system integration, proprietary hardware and software products, etc.
Segment 3:
Industrial Pollution Control and
Safety
Provide systems for volatile organic compounds
(VOC) abatement, odor control, water and wastewater treatment, water recycling facilities design, engineering, procurement and
construction for oil, gas, petrochemical and power industries, safety and clean production technologies for oil, gas exploration
and pipeline.
For
the Three Months Ended September 31, 2012 and 2011 (Unaudited)
|
|
|
Segment 1
|
|
|
Segment 2
|
|
|
Segment 3
|
|
|
Total
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Revenues
|
|
$
|
6,430,937
|
|
|
|
15,544,356
|
|
|
|
6,660,438
|
|
|
|
3,499,953
|
|
|
|
5,055,436
|
|
|
|
4,944,679
|
|
|
$
|
18,146,811
|
|
|
|
23,988,988
|
|
Cost of revenues
|
|
|
4,892,045
|
|
|
|
11,479,642
|
|
|
|
5,082,450
|
|
|
|
2,499,569
|
|
|
|
3,507,236
|
|
|
|
3,931,228
|
|
|
|
13,481,731
|
|
|
|
17,910,439
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and Marketing Expenses
|
|
|
342,626
|
|
|
|
193,088
|
|
|
|
401,894
|
|
|
|
251,978
|
|
|
|
287,087
|
|
|
|
74,385
|
|
|
|
1,031,607
|
|
|
|
519,451
|
|
General and Administrative
Expenses
|
|
|
1,990,661
|
|
|
|
1,505,191
|
|
|
|
887,655
|
|
|
|
384,287
|
|
|
|
1,029,710
|
|
|
|
504,358
|
|
|
|
3,908,026
|
|
|
|
2,393,836
|
|
Research
and Development
|
|
|
6,087
|
|
|
|
9,310
|
|
|
|
987
|
|
|
|
5,711
|
|
|
|
—
|
|
|
|
15,575
|
|
|
|
7,074
|
|
|
|
30,596
|
|
Total
operating expenses
|
|
|
2,339,374
|
|
|
|
1,707,589
|
|
|
|
1,290,536
|
|
|
|
641,976
|
|
|
|
1,316,797
|
|
|
|
594,318
|
|
|
|
4,946,707
|
|
|
|
2,943,883
|
|
Other
income (expenses), net
|
|
|
(351,926
|
)
|
|
|
(141,909
|
)
|
|
|
(66,171
|
)
|
|
|
(31,273
|
)
|
|
|
(165,474
|
)
|
|
|
1,920
|
|
|
|
(583,571
|
)
|
|
|
(171,262
|
)
|
Income
(loss) before income taxes
|
|
$
|
(1,152,408
|
)
|
|
|
2,215,216
|
|
|
|
221,281
|
|
|
|
327,135
|
|
|
|
65,929
|
|
|
|
421,053
|
|
|
$
|
(865,198
|
)
|
|
|
2,963,404
|
|
For
the Nine Months Ended September 30, 2012 and 2011 (Unaudited)
|
|
|
Segment 1
|
|
|
Segment 2
|
|
|
Segment 3
|
|
|
Total
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Revenues
|
|
$
|
23,192,338
|
|
|
|
45,218,375
|
|
|
|
21,351,028
|
|
|
|
7,455,482
|
|
|
|
15,865,291
|
|
|
|
9,070,229
|
|
|
$
|
60,408,657
|
|
|
|
61,744,086
|
|
Cost of revenues
|
|
|
17,144,264
|
|
|
|
33,691,392
|
|
|
|
15,692,903
|
|
|
|
4,944,921
|
|
|
|
11,864,844
|
|
|
|
6,714,826
|
|
|
|
44,702,011
|
|
|
|
45,351,139
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and Marketing Expenses
|
|
|
790,773
|
|
|
|
446,023
|
|
|
|
1,285,668
|
|
|
|
617,710
|
|
|
|
730,012
|
|
|
|
242,040
|
|
|
|
2,806,453
|
|
|
|
1,305,773
|
|
General and Administrative
Expenses
|
|
|
4,910,928
|
|
|
|
3,443,092
|
|
|
|
2,417,949
|
|
|
|
1,126,621
|
|
|
|
2,680,055
|
|
|
|
1,773,350
|
|
|
|
10,008,932
|
|
|
|
6,343,063
|
|
Research
and Development
|
|
|
18,005
|
|
|
|
17,246
|
|
|
|
69,467
|
|
|
|
53,959
|
|
|
|
—
|
|
|
|
26,135
|
|
|
|
87,472
|
|
|
|
97,340
|
|
Total
operating expenses
|
|
|
5,719,706
|
|
|
|
3,906,361
|
|
|
|
3,773,084
|
|
|
|
1,798,290
|
|
|
|
3,410,067
|
|
|
|
2,041,525
|
|
|
|
12,902,857
|
|
|
|
7,746,176
|
|
Other
income (expenses), net
|
|
|
96,243
|
|
|
|
(181,925
|
)
|
|
|
(128,413
|
)
|
|
|
(61,568
|
)
|
|
|
(294,846
|
)
|
|
|
(24,903
|
)
|
|
|
(327,016
|
)
|
|
|
(268,396
|
)
|
Income
before income taxes
|
|
$
|
424,611
|
|
|
|
7,438,697
|
|
|
|
1,756,628
|
|
|
|
650,703
|
|
|
|
295,534
|
|
|
|
288,975
|
|
|
$
|
2,476,773
|
|
|
|
8,378,375
|
|
Assets by Segment
The Company evaluates its assets by segment
to generate information needed for internal control, resource allocation and performance assessment. This information also helps
management to establish a basis for asset realization, determine insurance coverage, assess risk exposure, and meet requirements
for external financial reporting.
Segment assets of the Company are as follows:
Segment Assets
|
|
Segment 1
|
|
|
Segment 2
|
|
|
Segment 3
|
|
|
Total
|
|
As of September 30, 2012 (Unaudited)
|
|
$
|
91,049,401
|
|
|
$
|
41,901,841
|
|
|
$
|
32,294,133
|
|
|
$
|
165,245,375
|
|
As of December 31, 2011
|
|
$
|
84,910,147
|
|
|
$
|
26,081,474
|
|
|
$
|
27,659,057
|
|
|
$
|
138,650,678
|
|
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