TRI-TECH HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
March 31,
2013
|
|
|
December 31,
2012
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
6,014,862
|
|
|
$
|
8,098,657
|
|
Restricted cash
|
|
|
4,977,526
|
|
|
|
4,352,443
|
|
Accounts and notes receivable, net of allowance for doubtful accounts of $1,549,227
and $1,475,771 as of March 31, 2013 and December 31, 2012, respectively
|
|
|
19,689,826
|
|
|
|
18,598,110
|
|
Unbilled revenue
|
|
|
28,267,776
|
|
|
|
27,954,525
|
|
Other current assets
|
|
|
3,618,626
|
|
|
|
3,825,770
|
|
Inventories
|
|
|
9,677,020
|
|
|
|
8,459,073
|
|
Deposits on projects
|
|
|
1,285,829
|
|
|
|
1,469,550
|
|
Prepayments to suppliers and subcontractors
|
|
|
12,982,888
|
|
|
|
9,353,490
|
|
Total current assets
|
|
|
86,514,353
|
|
|
|
82,111,618
|
|
Long-term unbilled revenue
|
|
|
42,624,081
|
|
|
|
51,219,694
|
|
Long-term accounts receivable
|
|
|
517,748
|
|
|
|
413,770
|
|
Plant and equipment, net
|
|
|
1,672,292
|
|
|
|
1,764,784
|
|
Construction in progress
|
|
|
5,537,946
|
|
|
|
5,359,466
|
|
Intangible assets, net
|
|
|
10,750,434
|
|
|
|
10,902,932
|
|
Long-term restricted cash
|
|
|
2,546,439
|
|
|
|
3,464,524
|
|
Goodwill
|
|
|
1,441,278
|
|
|
|
1,441,278
|
|
Total Assets
|
|
$
|
151,604,571
|
|
|
$
|
156,678,066
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
4,732,420
|
|
|
$
|
5,890,511
|
|
Costs accrual on projects
|
|
|
22,165,069
|
|
|
|
23,637,751
|
|
Advance from customers
|
|
|
865,281
|
|
|
|
1,157,247
|
|
Loans from third party companies and individual
|
|
|
4,619,651
|
|
|
|
6,400,659
|
|
Amount due to noncontrolling interest investor
|
|
|
6,525,751
|
|
|
|
9,047,068
|
|
Amount due to related party
|
|
|
1,668,604
|
|
|
|
1,656,420
|
|
Other payables
|
|
|
581,208
|
|
|
|
461,258
|
|
Taxes payable
|
|
|
6,021,909
|
|
|
|
5,577,533
|
|
Accrued liabilities
|
|
|
524,101
|
|
|
|
485,354
|
|
Payable on investment consideration
|
|
|
582,966
|
|
|
|
582,966
|
|
Deferred income taxes
|
|
|
2,040,315
|
|
|
|
1,782,786
|
|
Deferred revenue
|
|
|
264,386
|
|
|
|
289,485
|
|
Short-term bank borrowing (including VIE short-term borrowing
of the consolidated VIEs without recourse to Tri-Tech Holdings of $6,221,064 and $2,754,158 as of March 31, 2013 and December
31, 2012, respectively)
|
|
|
11,006,593
|
|
|
|
8,150,041
|
|
Total current liabilities
|
|
|
61,598,254
|
|
|
|
65,119,079
|
|
Noncurrent deferred income taxes
|
|
|
3,489,747
|
|
|
|
3,699,790
|
|
Long-term bank borrowings
|
|
|
16,475
|
|
|
|
17,976
|
|
Corporate Bond
|
|
|
7,935,122
|
|
|
|
7,935,122
|
|
Total Liabilities
|
|
|
73,039,598
|
|
|
|
76,771,967
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Tri-Tech Holding Inc. shareholders' equity
|
|
|
|
|
|
|
|
|
Ordinary shares ($0.001 par value, 30,000,000 shares authorized; 8,259,506 and 8,259,506 shares issued
as of March 31, 2013 and December 31, 2012, respectively; 8,238,406 and 8,238,406 shares outstanding as of March 31, 2013
and December 31, 2012, respectively)
|
|
|
8,259
|
|
|
|
8,259
|
|
Additional paid-in-capital
|
|
|
50,257,633
|
|
|
|
50,119,428
|
|
Statutory reserves
|
|
|
2,246,910
|
|
|
|
2,246,910
|
|
Retained earnings
|
|
|
15,939,623
|
|
|
|
17,038,396
|
|
Treasury shares (21,100 shares in treasury as of March 31, 2013 and December 31, 2012, respectively)
|
|
|
(193,750
|
)
|
|
|
(193,750
|
)
|
Accumulated other comprehensive income
|
|
|
4,891,220
|
|
|
|
5,086,827
|
|
Total Tri-Tech Holding Inc. shareholders' equity
|
|
|
73,149,895
|
|
|
|
74,306,070
|
|
Noncontrolling interests
|
|
|
5,415,078
|
|
|
|
5,600,029
|
|
Total equity
|
|
|
78,564,973
|
|
|
|
79,906,099
|
|
Total Liabilities and Equity
|
|
$
|
151,604,571
|
|
|
$
|
156,678,066
|
|
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 March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
System integration
|
|
$
|
9,137,158
|
|
|
$
|
18,532,662
|
|
Hardware products
|
|
|
1,341,670
|
|
|
|
688,650
|
|
Total revenues
|
|
|
10,478,828
|
|
|
|
19,221,312
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
System integration
|
|
|
7,180,386
|
|
|
|
13,584,217
|
|
Hardware products
|
|
|
963,749
|
|
|
|
419,595
|
|
Total cost of revenues
|
|
|
8,144,135
|
|
|
|
14,003,812
|
|
Gross profit
|
|
|
2,334,693
|
|
|
|
5,217,500
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Selling and marketing expenses
|
|
|
1,044,526
|
|
|
|
838,993
|
|
General and administrative expenses
|
|
|
2,899,011
|
|
|
|
2,853,360
|
|
Research and development expenses
|
|
|
9,162
|
|
|
|
68,870
|
|
Total operating expenses
|
|
|
3,952,699
|
|
|
|
3,761,223
|
|
(Loss) Income from operations
|
|
|
(1,618,006
|
)
|
|
|
1,456,277
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
1,187,348
|
|
|
|
672,495
|
|
Interest income
|
|
|
10,268
|
|
|
|
41,774
|
|
Interest expense
|
|
|
(772,118
|
)
|
|
|
(435,773
|
)
|
Investment gain
|
|
|
—
|
|
|
|
5,409
|
|
Fair Value change on contingent investment
consideration
|
|
|
—
|
|
|
|
7,000
|
|
Total other income (expenses), net
|
|
|
425,498
|
|
|
|
290,905
|
|
(Loss) Income before provision for income taxes
|
|
|
(1,192,508
|
)
|
|
|
1,747,182
|
|
Provision for income taxes
|
|
|
54,749
|
|
|
|
314,493
|
|
Net (loss) income
|
|
|
(1,247,257
|
)
|
|
|
1,432,689
|
|
Less: Net (loss) income attributable to noncontrolling interests
|
|
|
(148,484
|
)
|
|
|
(5,436
|
)
|
Net (loss) income attributable to Tri-Tech Holding Inc.
shareholders
|
|
$
|
(1,098,773
|
)
|
|
$
|
1,438,125
|
|
Net (loss) income
|
|
|
(1,247,257
|
)
|
|
|
1,432,689
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(232,074
|
)
|
|
|
193,353
|
|
Comprehensive (loss) income
|
|
|
(1,479,331
|
)
|
|
|
1,626,042
|
|
Less: Comprehensive (loss) income attributable to noncontrolling
interests
|
|
|
(184,951
|
)
|
|
|
8,429
|
|
Comprehensive (loss) income attributable to Tri-Tech Holding
Inc.
|
|
$
|
(1,294,380
|
)
|
|
$
|
1,617,613
|
|
Net (loss) income attributable to Tri-Tech Holding Inc. shareholders per share
are:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.13
|
)
|
|
$
|
0.18
|
|
Diluted
|
|
$
|
(0.13
|
)
|
|
$
|
0.17
|
|
Weighted average number of ordinary shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
8,238,406
|
|
|
|
8,208,480
|
|
Diluted
|
|
|
8,238,406
|
|
|
|
8,317,224
|
|
See notes to consolidated
financial statements
TRI-TECH HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
For The Three Months
Ended March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(1,247,257
|
)
|
|
$
|
1,432,689
|
|
Adjustments to reconcile net (loss) income to cash used in operating activities:
|
|
|
|
|
|
|
|
|
Amortization of share-based compensation expense
|
|
|
138,205
|
|
|
|
90,913
|
|
Depreciation and amortization
|
|
|
309,944
|
|
|
|
285,479
|
|
Provision for doubtful accounts
|
|
|
65,773
|
|
|
|
152,717
|
|
Loss on disposal of plant and equipment
|
|
|
12,003
|
|
|
|
—
|
|
Deferred income taxes
|
|
|
54,749
|
|
|
|
314,493
|
|
Fair value change on contingent investment consideration
|
|
|
—
|
|
|
|
(7,000
|
)
|
Gain on investment in joint venture
|
|
|
—
|
|
|
|
(5,409
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts and notes receivable
|
|
|
(1,241,770
|
)
|
|
|
(3,160,643
|
)
|
Unbilled revenue
|
|
|
8,289,666
|
|
|
|
(8,837,581
|
)
|
Restricted cash
|
|
|
316,761
|
|
|
|
280,518
|
|
Other current assets
|
|
|
386,473
|
|
|
|
(1,258,278
|
)
|
Inventories
|
|
|
(1,231,663
|
)
|
|
|
762,767
|
|
Prepaid expenses
|
|
|
(38,225
|
)
|
|
|
(133,743
|
)
|
Prepayments
|
|
|
(3,574,243
|
)
|
|
|
(267,700
|
)
|
Accounts payable
|
|
|
(1,397,701
|
)
|
|
|
(5,294,693
|
)
|
Notes payable
|
|
|
—
|
|
|
|
(59,248
|
)
|
Cost accrual on projects
|
|
|
(1,556,734
|
)
|
|
|
10,693,084
|
|
Advance from customers
|
|
|
(401,072
|
)
|
|
|
(634,643
|
)
|
Other payables
|
|
|
(32,707
|
)
|
|
|
(1,856,643
|
)
|
Taxes payable
|
|
|
427,581
|
|
|
|
(154,840
|
)
|
Accrued liabilities
|
|
|
53,717
|
|
|
|
(74,183
|
)
|
Deferred revenue
|
|
|
(26,546
|
)
|
|
|
—
|
|
Net cash used in operating activities
|
|
|
(693,046
|
)
|
|
|
(7,731,944
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Cash proceeds from disposal of plant and equipment
|
|
|
1,150
|
|
|
|
—
|
|
Payment to purchase plant and equipment
|
|
|
(27,718
|
)
|
|
|
(118,550
|
)
|
Cash paid for construction in progress
|
|
|
(150,719
|
)
|
|
|
(41,125
|
)
|
Payment in business acquisition
|
|
|
—
|
|
|
|
(75,159
|
)
|
Payment of loan to joint venture
|
|
|
—
|
|
|
|
(250,000
|
)
|
Payment of loan to third-party companies
|
|
|
—
|
|
|
|
(190,253
|
)
|
Collection of loan to third-party companies
|
|
|
—
|
|
|
|
300,000
|
|
Net cash used in investing activities
|
|
|
(177,287
|
)
|
|
|
(375,087
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from bank borrowings
|
|
|
4,243,848
|
|
|
|
3,408,695
|
|
Payment of bank borrowing
|
|
|
(1,435,083
|
)
|
|
|
—
|
|
Proceeds from loan from third-party companies
|
|
|
—
|
|
|
|
215,620
|
|
Payment of loan from third-party companies
|
|
|
(1,291,799
|
)
|
|
|
(307,258
|
)
|
Payment of loan from non-controlling shareholders
|
|
|
(2,882,854
|
)
|
|
|
—
|
|
Net cash (used in) provided by financing activities
|
|
|
(1,365,888
|
)
|
|
|
3,317,057
|
|
|
|
|
|
|
|
|
|
|
EFFECTS OF EXCHANGE RATE CHANGE IN CASH
|
|
|
152,426
|
|
|
|
394,818
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH
|
|
|
(2,083,795
|
)
|
|
|
(4,395,156
|
)
|
|
|
|
|
|
|
|
|
|
CASH, beginning of the period
|
|
|
8,098,657
|
|
|
|
11,935,746
|
|
CASH, end of the period
|
|
$
|
6,014,862
|
|
|
$
|
7,540,590
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure for cash flow information:
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
87,637
|
|
|
$
|
154,361
|
|
Interest paid on debt
|
|
$
|
534,748
|
|
|
$
|
151,606
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure for noncash investing activity:
|
|
|
|
|
|
|
|
|
Fair value change on contingent consideration payable
|
|
|
—
|
|
|
|
(7,000
|
)
|
Gain on long-term investment to India Joint Venture
|
|
|
—
|
|
|
|
5,409
|
|
See notes to consolidated
financial statements
TRI-TECH HOLDING INC. AND SUBSIDIARIES
|
NOTES TO CONSOLIDATED STATEMENTS
|
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
sixteen
subsidiaries, VIEs and joint venture partnership: (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”),
(13)Tri-Tech Beijing Co., Ltd. (Buxar)(“Buxar”), (14) Tri-Tech Beijing Co., Ltd. (Begusarai) (“Begusarai”),
(15) Tri-Tech Beijing Co., Ltd. (Hajipur) (“Hajipur”), and (16) Tri-tech India Pvt.,Ltd. (“WOS”).
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 July 2, 2012, TTB registered three project
offices in India, namely, Buxar, Begusarai and Hajiour. The registered capital of each of the project offices is 0, and they are
100% owned by TTB.
On August 30, 2012,
WOS
was established under the regulation of India, TTB injected $1,980 as the paid up capital holding 99% of WOS, while TIS paid up
$20 as investment and holds 1% share of WOS.
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.
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2.
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Summary of Significant Accounting
Policies
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Principles of consolidation and basis of presentation
The accompanying consolidated balance sheet
as of December 31, 2012, which has been derived from the audited financial statements, and the unaudited interim consolidated
financial statements as of March 31, 2013 and for the three month periods ended March 31, 2013 and 2012 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, 2012, 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 March 31, 2013, and its consolidated results
of operations and cash flows for the three month periods ended March 31, 2013 and 2012, 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 March 31, 2013 and December 31, 2012 was $4,977,526 and $4,352,443,
respectively. The long-term restricted cash balance at March 31, 2013 and December 31, 2012 was $2,546,439 and $3,464,524, respectively.
The restricted cash was deposited as collateral in exchange of the issuance of letters of credit. For details, refer to Note 5
of these consolidated financial statements.
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 6.15%, 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
significant 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
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Useful Life
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Buildings and improvements
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|
40-50 years
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Transportation equipment
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|
5-10 years
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Machinery
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10 years
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Office equipment
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5 years
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Furniture
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|
5 years
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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.
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Useful Life
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Proprietary technology relating to sewage, municipal solid waste treatment and tail gas
purification
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20 years
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Proprietary technology relating to low energy consumption data transmission system
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20 years
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Large region environmental management system
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10 years
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Mobile web management system
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|
10 years
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Database management system
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|
10 years
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Pollution reduction checking assistant
|
|
10 years
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Water pollution control infrastructure
|
|
10 years
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Software-gas flow
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|
20 years
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Software-oil mixing
|
|
20 years
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Software-crude blending
|
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10 years
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Customer relationship
|
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5 years
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Land use right
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50 years
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Know-how
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|
8-10 years
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Contract backlog
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1 year
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Goodwill
Goodwill represents the excess of the fair
value of consideration transferred (plus the fair value of the non-controlling interest, if any) over the 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 annually
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 reporting units. 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 orders 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 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 billed
within one year. For those with a bill 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, Buxar, Begusarai, Hajipur and WOS 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 $4,891,220
and $5,086,827 as of March 31, 2013 and December 31, 2012, respectively. The Company translated balance sheet amounts with the
exception of equity at March 31, 2013 at RMB6.2689 to US$1.00 and INR54.5050 to US$1.00 as compared to RMB6.3011 to US$1.00 and
INR54.8390 to US$1.00 as of December 31, 2012. The Company stated equity accounts at their historical rate. The average translation
rates applied to income statement accounts for the three-month period ended March 31, 2013 were RMB6.2785 and INR54.2041 to US$1.00,
respectively. The average translation rates applied to income statement accounts for the three-month period ended March 31, 2012
were RMB6.3074.
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 March 31, 2013 and December 31, 2012. The Company did not have any significant unrecognized uncertain
tax positions as of March 31, 2013 and December 31, 2012.
The Company’s operations are subject
to income and transaction taxes in China since most of the business activities take place in China. 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 185,000 warrants
to the placement agent in our IPO and to our investor relations consultant. 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 an exercise price per share of $20.30. These
warrants have an 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 an ordinary share during the quarter ended March 31, 2013. 170,000
warrants had been exercised at a price equal to $8.10 per share as of March 31, 2013. As of March 31, 2013, the Company has granted
1,008,516 options to our key employees, and 93,700 options had been exercised at a price equal to $6.75 per share.
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
the chief operating decision maker uses to make operating decisions and assess performance.
Recently Issued Accounting Pronouncements
In February 2013, the Financial Accounting
Standards Board ("FASB") issued amendments under ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated
Other Comprehensive Income (Topic 220). The amendments require an entity to provide information about the amounts reclassified
out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face
of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive
income by the respective line items of net income, but only if the amount reclassified is required under U.S. GAAP to be reclassified
to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified
in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide
additional detail about those amounts. We will adopt these amendments in the fourth quarter of 2013.
The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position
or results of operations.
In connection with an acquisition made in
2011, the fair value of the contingent consideration as
of March 31, 2013 and December 31, 2012 was estimated at $582,966 and $582,966, respectively.
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4.
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Variable Interest Entities
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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 2012 and 2011 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.
The Company reports VIEs’ portion
of consolidated net income and shareholders’ equity as noncontrolling interests in the consolidated financial statements.
The total assets and liabilities of our
consolidated VIEs as of March 31, 2013 and December 31, 2012 are shown as below, which exclude intercompany balances that are
eliminated among the VIEs.
|
|
March 31,
2013
|
|
|
December
31, 2012
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,531,083
|
|
|
$
|
2,346,543
|
|
Restricted cash
|
|
|
565,162
|
|
|
|
521,302
|
|
Accounts and notes receivable, net
|
|
|
20,299,096
|
|
|
|
18,171,800
|
|
Unbilled revenue
|
|
|
7,335,229
|
|
|
|
8,568,681
|
|
Other receivables
|
|
|
16,021,313
|
|
|
|
17,210,742
|
|
Inventories
|
|
|
7,455,968
|
|
|
|
6,741,246
|
|
Deposits on projects
|
|
|
1,103,564
|
|
|
|
1,296,163
|
|
Prepayments to suppliers and subcontractors
|
|
|
12,690,992
|
|
|
|
9,506,484
|
|
Total current assets
|
|
|
67,002,407
|
|
|
|
64,362,961
|
|
Long-term unbilled revenue
|
|
|
1,045,710
|
|
|
|
1,040,367
|
|
Plant and equipment, net
|
|
|
615,482
|
|
|
|
684,067
|
|
Intangible assets, net
|
|
|
3,761,374
|
|
|
|
3,848,986
|
|
Total Assets
|
|
$
|
72,424,973
|
|
|
$
|
69,936,381
|
|
LIABITILITES
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
6,094,274
|
|
|
|
7,844,856
|
|
Costs accrual on projects
|
|
|
9,528,118
|
|
|
|
10,192,513
|
|
Advance from customers
|
|
|
12,066,961
|
|
|
|
8,650,053
|
|
Loan from third party companies and individual
|
|
|
292,265
|
|
|
|
1,781,717
|
|
Other payables
|
|
|
22,153,895
|
|
|
|
21,317,295
|
|
Income taxes payable
|
|
|
31,690
|
|
|
|
87,189
|
|
Deferred income taxes
|
|
|
329,899
|
|
|
|
329,899
|
|
Short-term bank borrowing
|
|
|
6,221,064
|
|
|
|
2,754,158
|
|
Total current liabilities
|
|
|
56,718,166
|
|
|
|
52,957,680
|
|
Total Liabilities
|
|
$
|
56,718,166
|
|
|
$
|
52,957,680
|
|
For the three-month period ended March
31, 2013, the financial performance of the VIEs reported in the consolidated statements of operations and comprehensive income/(loss)
includes sales of approximately US$6,507,812, cost of sales of approximately US$5,153,378, operating expenses of approximately
US$2,062,223 and net loss of approximately US$813,249.
For the three-month period ended March
31, 2012, the financial performance of the VIEs reported in the consolidated statements of income and comprehensive income includes
sales of approximately US$10,770,629, cost of sales of approximately US$8,428,174, operating expenses of approximately US$1,900,044
and net income of approximately US$244,380.
As of March 31, 2013, the Company has made
deposits totaling $7,523,965 as collateral in exchange of the issuance of letters of credit. Among these letters of credit, a
total of $4,977,526 is with expiration dates within the next 12 months. The remaining balance of $2,546,439 is to expire after
March 2014, and is classified under long-term restricted cash.
|
6.
|
Accounts and Notes Receivable,
Net
|
Based on the Company’s assessment, management believes the net balance on each balance sheet date
herein was collectable. The gross balances and bad debt provisions as of March 31, 2013 and December 31, 2012 are as the following:
|
|
March 31,
2013
(Unaudited)
|
|
|
December
31, 2012
|
|
Accounts receivable,
gross
|
|
$
|
21,183,222
|
|
|
$
|
20,073,881
|
|
Less: allowance for bad debts
|
|
|
(1,549,227
|
)
|
|
|
(1,475,771
|
)
|
Notes receivable
|
|
|
55,831
|
|
|
|
—
|
|
Accounts and notes receivable, net
|
|
$
|
19,689,826
|
|
|
$
|
18,598,110
|
|
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:
|
|
March 31, 2013
|
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
|
2012
|
|
Balance at beginning of the period
|
|
$
|
1,475,771
|
|
|
$
|
619,062
|
|
Increase in allowances during the period
|
|
|
73,456
|
|
|
|
950,302
|
|
Write-offs during the period
|
|
|
—
|
|
|
|
(93,593
|
)
|
Balance at the end of the period
|
|
$
|
1,549,227
|
|
|
$
|
1,475,771
|
|
For revenues accounted for under this account,
we expect the amounts to be billed and collected within one year. For those with a bill period longer than one year, we
classify them under “Long-term unbilled revenue” on the consolidated balance sheets.
The unbilled revenue as of March 31, 2013
and December 31, 2012 are as the following:
|
|
March 31, 2013
|
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
|
2012
|
|
Current unbilled revenue
|
|
$
|
28,267,776
|
|
|
$
|
27,954,525
|
|
Long-term unbilled revenue
|
|
|
42,624,081
|
|
|
|
51,219,694
|
|
Total
|
|
$
|
70,891,857
|
|
|
$
|
79,174,219
|
|
As of March 31, 2013, $7,975,881 of the
current unbilled revenue, and $30,688,674 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:
|
|
March 31, 2013
|
|
|
December 31, 2012
|
|
|
|
(Unaudited)
|
|
|
|
|
Advances to staff
|
|
$
|
1,412,993
|
|
|
$
|
1,343,985
|
|
Loan to third-party companies
|
|
|
716,803
|
|
|
|
678,511
|
|
Amount due from related parties
|
|
|
90,355
|
|
|
|
231,843
|
|
Rental deposit
|
|
|
398,982
|
|
|
|
362,308
|
|
Prepaid expenses
|
|
|
437,779
|
|
|
|
397,550
|
|
Others
|
|
|
561,714
|
|
|
|
811,573
|
|
Total
|
|
$
|
3,618,626
|
|
|
$
|
3,825,770
|
|
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
for working capital purposes. $500,000 is for short-term of six months with 6% annualized interest rate,
and $160,953 is for one year with no interest
.
Inventories consisted of the following:
|
|
March 31, 2013
|
|
|
December 31, 2012
|
|
|
|
(Unaudited)
|
|
|
|
|
Raw materials
|
|
$
|
2,877,338
|
|
|
$
|
2,752,199
|
|
Finished goods
|
|
|
1,231,004
|
|
|
|
910,003
|
|
Project work-in-progress
|
|
|
5,568,678
|
|
|
|
4,796,871
|
|
Total
|
|
$
|
9,677,020
|
|
|
$
|
8,459,073
|
|
The Company reviews its inventory periodically
for possible obsolete goods and to determine if any reserves are necessary for potential obsolescence. As of March 31, 2013 and
December 31, 2012, the Company determined that no reserves were necessary.
Deposits on Projects consisted of the following:
|
|
March 31, 2013
|
|
|
December 31, 2012
|
|
|
|
(Unaudited)
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Contract deposit
|
|
$
|
840,075
|
|
|
$
|
867,835
|
|
Bidding deposit
|
|
|
445,754
|
|
|
|
601,715
|
|
Total
|
|
$
|
1,285,829
|
|
|
$
|
1,469,550
|
|
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:
|
|
March 31, 2013
|
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
|
2012
|
|
Buildings
|
|
$
|
272,902
|
|
|
$
|
271,507
|
|
Machinery and equipment
|
|
|
164,645
|
|
|
|
159,678
|
|
Transportation equipment
|
|
|
1,007,638
|
|
|
|
1,016,529
|
|
Office equipment
|
|
|
652,439
|
|
|
|
646,920
|
|
Furniture
|
|
|
446,705
|
|
|
|
445,740
|
|
Leasehold improvements
|
|
|
235,154
|
|
|
|
233,952
|
|
Total plant and equipment
|
|
|
2,779,483
|
|
|
|
2,774,326
|
|
Less accumulated depreciation
|
|
|
(1,107,191
|
)
|
|
|
(1,009,542
|
)
|
Plant and equipment, net
|
|
$
|
1,672,292
|
|
|
$
|
1,764,784
|
|
The depreciation expense for the
quarter ended March 31, 2013 and 2012 amounted to $
87,172
and $
71,543
,
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. As of March 31 2013, the construction in progress of the Baoding facility totaled at $5,537,946
.
|
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 March 31, 2013 and December 31, 2012 are as follows:
|
|
March 31, 2013
|
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
|
2012
|
|
Patents
|
|
$
|
2,161,251
|
|
|
$
|
2,150,207
|
|
Software
|
|
|
2,893,650
|
|
|
|
2,878,862
|
|
Customer list
|
|
|
1,283,902
|
|
|
|
1,280,356
|
|
Land use right
|
|
|
5,753,402
|
|
|
|
5,724,001
|
|
Know-how
|
|
|
1,221,194
|
|
|
|
1,218,479
|
|
Contract backlog
|
|
|
59,021
|
|
|
|
58,719
|
|
Total intangible assets
|
|
|
13,372,420
|
|
|
|
13,310,624
|
|
Less accumulated amortization
|
|
|
(2,621,986
|
)
|
|
|
(2,407,692
|
)
|
Intangible assets, net
|
|
$
|
10,750,434
|
|
|
$
|
10,902,932
|
|
The amortization expense for the
quarter ended March 31, 2013 and 2012 amounted to $222,773 and $213,939, respectively.
The amortization expense for the following
five years and thereafter is expected to be as follows:
For the Years Ended December
31,
|
|
Amount
|
|
Remainder of 2013
|
|
$
|
611,019
|
|
2014
|
|
|
814,464
|
|
2015
|
|
|
814,464
|
|
2016
|
|
|
606,529
|
|
2017
|
|
|
557,362
|
|
Thereafter
|
|
|
7,346,596
|
|
Total
|
|
$
|
10,750,434
|
|
|
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:
|
|
March 31, 2013
|
|
|
December 31, 2012
|
|
|
|
(Unaudited)
|
|
|
|
|
Accounts payable
|
|
$
|
4,732,420
|
|
|
$
|
5,890,511
|
|
Costs accrual on projects
|
|
|
22,165,069
|
|
|
|
23,637,751
|
|
Total
|
|
$
|
26,897,489
|
|
|
$
|
29,528,262
|
|
Of the total costs accrual on projects, $8,390,186 was related to the India projects, which contributed
the most to the ending balance. The remaining balance was for various other on-going projects.
|
16.
|
Loans from Third-party Companies
and Individual
|
The loans from third-party companies and
individual as of March 31, 2013 and December 31, 2012 were:
|
|
March 31, 2013
|
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
|
2012
|
|
Nuwell Asia Limited
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
Lin Bin
|
|
|
1,150,000
|
|
|
|
1,150,000
|
|
Beijing Liyuanshida Technology Co., LTD
|
|
|
2,677,386
|
|
|
|
2,968,941
|
|
Xuzhou Weisi Water Technology Co., LTD
|
|
|
—
|
|
|
|
643,697
|
|
Beijing Sridi Technology Co., LTD
|
|
|
49,680
|
|
|
|
325,584
|
|
China Automation Control Co., LTD
|
|
|
242,585
|
|
|
|
241,345
|
|
Other
|
|
|
—
|
|
|
|
571,092
|
|
Total
|
|
$
|
4,619,651
|
|
|
$
|
6,400,659
|
|
. The interest rate ranged from 0.5% to
2.0% per month. The interest expense was $25,523 and $29,305 for the three-month periods ended March 31, 2013 and 2012, respectively.
All of the loans are payable on demand.
|
17.
|
Amounts Due to Related Party
|
Amounts due to related party as of March
31, 2013 and December 31, 2012 were:
|
|
March 31, 2013
|
|
|
December 31, 2012
|
|
|
|
(Unaudited)
|
|
|
|
|
Gavin Cheng (Shareholder / CEO)
|
|
$
|
510,850
|
|
|
$
|
510,850
|
|
Warren Zhao (Shareholder)
|
|
|
966,677
|
|
|
|
955,500
|
|
Peter Dong (Shareholder / COO)
|
|
|
159,518
|
|
|
|
158,702
|
|
Others
|
|
|
31,559
|
|
|
|
31,368
|
|
Total
|
|
$
|
1,668,604
|
|
|
$
|
1,656,420
|
|
The amounts due to shareholders, originally
due in November 2012, were extended to May 31, 2013. The monthly interest rate was 1%.
|
18.
|
Amount Due to Noncontrolling
Interest Investor
|
The amount due to noncontrolling interest
investor as of March 31, 2013 and December 31, 2012 were:
|
|
March 31, 2013
|
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
|
2012
|
|
Principal
|
|
$
|
4,345,260
|
|
|
$
|
7,354,271
|
|
Interest payable to noncontrolling interest investor
|
|
|
2,180,491
|
|
|
|
1,692,797
|
|
Total
|
|
$
|
6,525,751
|
|
|
$
|
9,047,068
|
|
The amount due to noncontrolling interest
investor, $4,345,260, was the principal amount for short-term loan from the minority interest investor from TTA. The monthly interest
rate is 1.5%, with terms ranging from 1 month to 12 months,. The accrued interest expense was $2,180,491 and $1,692,797 as of
March 31, 2013 and December 31, 2012, respectively. The purpose of this short-term loan was mainly to reduce temporary operational
cash pressure.
Other payables were non-project related
as shown below:
|
|
March 31, 2013
|
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
|
2012
|
|
Corporate bond interest payable
|
|
$
|
253,349
|
|
|
$
|
130,745
|
|
Others
|
|
|
327,859
|
|
|
|
330,513
|
|
Total
|
|
$
|
581,208
|
|
|
$
|
461,258
|
|
|
|
March 31,
2013
(Unaudited)
|
|
|
December
31,
2012
|
|
Value-added tax payable
|
|
$
|
3,985,544
|
|
|
$
|
3,539,608
|
|
Business tax payable
|
|
|
1,563,907
|
|
|
|
1,493,704
|
|
Individual income tax payable
|
|
|
22,013
|
|
|
|
19,753
|
|
Income tax payable
|
|
|
—
|
|
|
|
87,189
|
|
Other
|
|
|
450,445
|
|
|
|
437,279
|
|
Total
|
|
$
|
6,021,909
|
|
|
$
|
5,577,533
|
|
The amount others includes various taxes
and surcharges charged from local Tax Bureau.
On September 26, 2012, TTB issued Bonds
worth an aggregate of RMB 50 million (approximately $7.94 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%. Interest is paid annually on September 21. Principal on the Bonds will be repaid at maturity on September
26, 2015.
The table below presents the bank borrowing
interest rates and the amount borrowed as of March 31, 2013 and December 31, 2012.
Bank Name
|
|
Annual
Interest Rate
|
|
|
Terms
|
|
|
March 31, 2013
(Unaudited)
|
|
|
December
31,
2012
|
|
Bank of Hangzhou
|
|
|
7.872
|
%
|
|
|
2012-3-20
|
|
|
|
2013-3-19
|
|
|
$
|
—
|
|
|
$
|
634,810
|
|
Bank of Hangzhou
|
|
|
7.872
|
%
|
|
|
2012-4-19
|
|
|
|
2013-4-18
|
|
|
|
36,593
|
|
|
|
36,406
|
|
Bank of Hangzhou
|
|
|
7.216
|
%
|
|
|
2012-4-28
|
|
|
|
2013-4-26
|
|
|
|
338,948
|
|
|
|
337,216
|
|
China Merchants Bank
|
|
|
7.200
|
%
|
|
|
2012-8-31
|
|
|
|
2013-8-31
|
|
|
|
1,159,077
|
|
|
|
1,946,666
|
|
China Merchants Bank
|
|
|
7.200
|
%
|
|
|
2012-8-31
|
|
|
|
2013-8-30
|
|
|
|
436,099
|
|
|
|
433,870
|
|
Citic Bank
|
|
|
7.800
|
%
|
|
|
2012-12-6
|
|
|
|
2013-12-6
|
|
|
|
4,785,529
|
|
|
|
4,761,073
|
|
Bank of Hangzhou
|
|
|
6.442
|
%
|
|
|
2013-1-3
|
|
|
|
2014-1-4
|
|
|
|
581,442
|
|
|
|
—
|
|
Industrial and Commercial Bank of China
|
|
|
6.420
|
%
|
|
|
2013-1-31
|
|
|
|
2013-7-30
|
|
|
|
1,914,211
|
|
|
|
—
|
|
Industrial and Commercial Bank of China
|
|
|
5.880
|
%
|
|
|
2013-3-15
|
|
|
|
2013-9-13
|
|
|
|
957,106
|
|
|
|
—
|
|
China Merchants Bank
|
|
|
7.135
|
%
|
|
|
2013-3-16
|
|
|
|
2014-2-15
|
|
|
|
797,588
|
|
|
|
—
|
|
Short-term
bank borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,006,593
|
|
|
$
|
8,150,041
|
|
ICICI BANK LTD. (Scorpio)
|
|
|
11.990
|
%
|
|
|
2012-5-1
|
|
|
|
2016-4-30
|
|
|
|
8,928
|
|
|
|
9,460
|
|
ICICI BANK LTD. (VENTO)
|
|
|
12.250
|
%
|
|
|
2012-1-15
|
|
|
|
2015-1-14
|
|
|
|
7,547
|
|
|
|
8,516
|
|
Long-term
bank borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,475
|
|
|
$
|
17,976
|
|
The Company repaid $1,435,083 of the bank
borrowings during the three-month period ended March 31, 2013. The bank loan from Citic Bank in the amount RMB30 million (US$
4,785,529
)
was guaranteed by Mr. Peter Dong, and secured by pledging of accounts receivable from the Ordos Project. All of the remaining
bank borrowings are credit loans. $375,541 of the borrowings was due and repaid in April 2013.
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, the 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 effective income tax rate for the three-month
period ended March 31, 2013 was -5%.
The applicable statutory tax rate for our
subsidiaries in India is 42.024%. The Company has not recorded tax provision for U.S. tax purposes as it has no 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 March 31, (Unaudited)
|
|
|
|
2013
|
|
|
2012
|
|
TTB
|
|
|
15
|
%
|
|
|
15
|
%
|
BSST
|
|
|
15
|
%
|
|
|
15
|
%
|
Yanyu
|
|
|
15
|
%
|
|
|
15
|
%
|
Tranhold
|
|
|
25
|
%
|
|
|
25
|
%
|
TTA
|
|
|
25
|
%
|
|
|
25
|
%
|
Baoding
|
|
|
15
|
%
|
|
|
15
|
%
|
Yuanjie
|
|
|
15
|
%
|
|
|
15
|
%
|
Buerjin
|
|
|
25
|
%
|
|
|
25
|
%
|
Xushui
|
|
|
25
|
%
|
|
|
25
|
%
|
Consolidated
Effective Income Tax Rate
|
|
|
-5
|
%
|
|
|
18
|
%
|
The provision for income tax expense (benefit)
from operations consists of the following:
|
|
Three Months Ended March 31, (Unaudited)
|
|
|
|
2013
|
|
|
2012
|
|
Current:
|
|
|
|
|
|
|
|
|
Overseas
|
|
$
|
—
|
|
|
$
|
—
|
|
PRC
|
|
|
—
|
|
|
|
—
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Overseas
|
|
|
(14,025
|
)
|
|
|
—
|
|
PRC
|
|
|
68,774
|
|
|
|
314,493
|
|
Total
|
|
$
|
54,749
|
|
|
$
|
314,493
|
|
Significant components of the Company’s
deferred tax liabilities are as follows:
|
|
March 31, 2013
(Unaudited)
|
|
|
December
31, 2012
|
|
Current:
|
|
|
|
|
|
|
|
|
Deferred income taxes:
|
|
|
|
|
|
|
|
|
Revenue recognition based on percentage of completion
|
|
$
|
2,040,315
|
|
|
$
|
1,782,786
|
|
Total current net deferred tax liabilities
|
|
$
|
2,040,315
|
|
|
$
|
1,782,786
|
|
Long-term:
|
|
|
|
|
|
|
|
|
Noncurrent deferred income taxes:
|
|
|
|
|
|
|
|
|
Revenue recognition based on percentage of completion
|
|
$
|
3,074,845
|
|
|
$
|
3,264,476
|
|
Intangible assets valuation in business combination
|
|
|
414,902
|
|
|
|
435,314
|
|
Total noncurrent net deferred tax liabilities
|
|
$
|
3,489,747
|
|
|
$
|
3,699,790
|
|
Income tax reconciliation for the three
months ended March 31, 2013 and 2012 are as follows:
|
|
Three Months
Ended March 31, (Unaudited)
|
|
|
|
2013
|
|
|
2012
|
|
PRC federal statutory tax rate
|
|
|
25%
|
|
|
|
25%
|
|
Taxable (loss) income
|
|
$
|
(1,192,508
|
)
|
|
$
|
1,747,182
|
|
Computed expected income tax expense
|
|
|
(298,127
|
)
|
|
|
436,796
|
|
Effect of different tax rates
|
|
|
(39,947
|
)
|
|
|
(174,561
|
)
|
Effect of operation loss
|
|
|
366,781
|
|
|
|
52,258
|
|
Nondeductible items
|
|
|
26,042
|
|
|
|
—
|
|
Income tax expense
|
|
$
|
54,749
|
|
|
$
|
314,493
|
|
As of March 31, 2013 and December 31, 2012,
the Company has 229,274 warrants outstanding for ordinary shares. None of these warrants were exercised by March 31, 2013. During
the quarter ended March 31, 2013 and 2012, the Company recorded no warrant expenses as general and administrative expenses.
|
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 March 31, 2013 and December 31, 2012, respectively. 93,700
and 93,700 options were exercised as of March 31, 2013 and December 31, 2012, respectively. A total of 9,000 and 9,000 options
were forfeited as of March 31, 2013 and December 31, 2012, respectively.
TRIT’s 2011 Share Incentive Plan
(the “2011 Plan”) approved by its shareholders permits the Company to offer up to 474,008 shares, options and other
securities to its employees and directors. In connection with the 2011 Plan, on June 5, 2012, TRIT granted 450,016 share options
to its senior management and directors, out of which 225,008 share options have an exercise price equal to $7.63, the exercise
price for the remaining 225,008 share options equals to the closing price of the Company’s ordinary shares on January 1,
2013, which was $2.75. 225,008 share options were vested immediately at the grant date, the remaining 225,008 share options were
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 using the 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 225,008 options vested on January 1, 2013 was $1.20 per share, which was
estimated by using the Binominal Model. Valuation assumptions used in the Binominal option-pricing model for options issued include
(1) discount rate of 2.5% based upon China Sovereign Bonds yields in effect at the time of the grant, (2) expected volatility
of 47%, (3) life of options of 9.2 years, and (4) zero expected dividends. The total fair value of the remaining options was $270,010.
Also in connection with the 2011 Plan,
on June 4, 2012, TRIT granted 23,000 share options with an exercise price equal to $4.45 to its senior management, out of which
half was vested on December 31, 2012 and 2013, respectively. The fair value of options per share on the grant-date of June 4,
2012 was $2.07, estimated by using the Binominal Model. Valuation assumptions used in the Binominal optionpricing model for options
issued include (1) discount rate of 3.15% based upon China Sovereign Bonds yields in effect at the time of the grant, (2) expected
volatility of 45%, (3) life of options of 10.6 years, and (4) zero expected dividends. The total fair value of the options was
$47,610.
Also in connection with the 2011 Plan,
on September 17, 2012, TRIT granted 10,000 share options with an exercise price equal to $3.77 to its directors, out of which
half was vested on September 18, 2012 and 2013, respectively. The fair value of options per share on the grant-date of September
17, 2012 was $1.68, estimated by using the Binominal Model. Valuation assumptions used in the Binominal optionpricing model for
options issued include (1) discount rate of 2.41% based upon China Sovereign Bonds yields in effect at the time of the grant,
(2) expected volatility of 46%, (3) life of options of 10 years, and (4) zero expected dividends. The total fair value of the
options was $16,800.
The option compensation expenses recognized
were $138,205 and $90,913 for three months ended March 31, 2013 and 2012, respectively.
The following table summarizes the outstanding
options, related weighted average fair value and life information as of March 31, 2013.
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of
Exercise
Price Per
Share
|
|
|
Number
outstanding as of
March 31, 2013
|
|
|
Weighted
Average Fair
Value
|
|
|
Weighted
average
Remaining Life
(Years)
|
|
|
Number
Exercisable as of
March 31, 2013
|
|
|
Weighted
Average
Exercise Price
|
|
$
|
2.75
– 7.63
|
|
|
|
893,312
|
|
|
$
|
2.32
|
|
|
|
6.16
|
|
|
|
686,316
|
|
|
$
|
5.93
|
|
A summary of option activity under the
employee share option plan as of March 31, 2013 and 2012, 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 1, 2013
|
|
|
893,312
|
|
|
$
|
5.93
|
|
|
|
6.41
|
|
|
$
|
—
|
|
Granted during the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised during the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited during the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding as of March 31, 2013
|
|
|
893,312
|
|
|
$
|
5.93
|
|
|
|
6.16
|
|
|
$
|
—
|
|
Options
|
|
Number of
shares
|
|
|
Exercise
Price
|
|
|
Remaining
Life (Years)
|
|
|
Aggregated
Intrinsic Value
|
|
Outstanding as of January 1, 2012
|
|
|
426,400
|
|
|
$
|
6.75
|
|
|
|
2.69
|
|
|
$
|
—
|
|
Granted during the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised during the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited during the period
|
|
|
(3,600
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding as of March 31, 2012
|
|
|
422,800
|
|
|
$
|
6.75
|
|
|
|
2.44
|
|
|
$
|
219,856
|
|
A summary of unvested options under the
employee share option plan as of March 31, 2013 and 2012, and changes during the periods then ended is presented below:
Options
|
|
Number of Shares
|
|
|
Weighted Average Fair Value
|
|
Unvested as of January 1, 2013
|
|
|
437,004
|
|
|
$
|
2.32
|
|
Granted during the period
|
|
|
—
|
|
|
|
—
|
|
Vested during the period
|
|
|
—
|
|
|
|
—
|
|
Forfeited during the period
|
|
|
—
|
|
|
|
—
|
|
Unvested as of March 31, 2013
|
|
|
437,004
|
|
|
$
|
2.32
|
|
|
|
|
|
|
|
|
|
|
Expected to vest thereafter
|
|
|
437,004
|
|
|
$
|
2.32
|
|
Options
|
|
Number of Shares
|
|
|
Weighted Average Fair Value
|
|
Unvested as of January 1, 2012
|
|
|
309,900
|
|
|
$
|
3.53
|
|
Granted during the period
|
|
|
—
|
|
|
|
—
|
|
Vested during the period
|
|
|
—
|
|
|
|
—
|
|
Forfeited during the period
|
|
|
(3,600
|
)
|
|
|
—
|
|
Unvested as of March 31, 2012
|
|
|
306,300
|
|
|
$
|
3.53
|
|
|
|
|
|
|
|
|
|
|
Expected to vest thereafter
|
|
|
306,300
|
|
|
$
|
3.53
|
|
|
26.
|
Net (Loss) Income per Ordinary
Share
|
The following table presents a reconciliation
of basic and diluted net (loss) income per share:
|
|
For the period ended March 31,
|
|
|
|
2013
(Unaudited)
|
|
|
2012
(Unaudited)
|
|
Net (loss) income attributable to Tri-Tech Holding Inc.
|
|
$
|
(1,098,773
|
)
|
|
$
|
1,438,125
|
|
Weighted-average shares of ordinary share used to compute basic net income per
share
|
|
|
8,238,406
|
|
|
|
8,208,480
|
|
Effect of dilutive ordinary share equivalents:
|
|
|
|
|
|
|
|
|
Dilutive effect of warrants
|
|
|
—
|
|
|
|
—
|
|
Dilutive effect of employee stock options
|
|
|
—
|
|
|
|
108,744
|
|
Shares used in computing diluted net income per ordinary
share
|
|
|
8,238,406
|
|
|
|
8,317,224
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per ordinary share
|
|
$
|
(0.13
|
)
|
|
$
|
0.18
|
|
Diluted net (loss) income per ordinary share
|
|
$
|
(0.13
|
)
|
|
$
|
0.17
|
|
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 period ended March 31, 2013.
|
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 no major customers who
collectively represented over 10% of the Company’s revenue for the quarter ended March 31, 2013.
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 March 31, 2013, the Company had commitments
under certain operating leases, requiring annual minimum rentals as follows:
For the Years Ended December 31,
|
|
Amount
|
|
Remainder of 2013
|
|
$
|
558,768
|
|
2014
|
|
|
838,156
|
|
2015
|
|
|
438,053
|
|
2016
|
|
|
233,698
|
|
Total
|
|
$
|
2,068,675
|
|
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 $296,951 and $247,511 for the quarter ended March 31, 2013 and 2012, 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 Water Resource
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 March 31, 2013 and 2012 (Unaudited)
|
|
|
Segment 1
|
|
|
Segment 2
|
|
|
Segment 3
|
|
|
Total
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Revenues
|
|
$
|
1,926,680
|
|
|
|
8,406,973
|
|
|
|
5,080,397
|
|
|
|
6,254,590
|
|
|
|
3,471,751
|
|
|
|
4,559,749
|
|
|
$
|
10,478,828
|
|
|
|
19,221,312
|
|
Cost of revenues
|
|
|
1,485,086
|
|
|
|
5,924,264
|
|
|
|
3,925,682
|
|
|
|
4,521,154
|
|
|
|
2,733,367
|
|
|
|
3,558,394
|
|
|
|
8,144,135
|
|
|
|
14,003,812
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and Marketing Expenses
|
|
|
295,723
|
|
|
|
225,626
|
|
|
|
482,059
|
|
|
|
426,290
|
|
|
|
266,744
|
|
|
|
187,077
|
|
|
|
1,044,526
|
|
|
|
838,993
|
|
General and Administrative Expenses
|
|
|
1,435,358
|
|
|
|
1,530,415
|
|
|
|
610,515
|
|
|
|
622,294
|
|
|
|
853,138
|
|
|
|
700,651
|
|
|
|
2,899,011
|
|
|
|
2,853,360
|
|
Research and Development
|
|
|
9,162
|
|
|
|
5,751
|
|
|
|
—
|
|
|
|
63,119
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,162
|
|
|
|
68,870
|
|
Total operating expenses
|
|
|
1,740,243
|
|
|
|
1,761,792
|
|
|
|
1,092,574
|
|
|
|
1,111,703
|
|
|
|
1,119,882
|
|
|
|
887,728
|
|
|
|
3,952,699
|
|
|
|
3,761,223
|
|
Other income (expenses), net
|
|
|
532,023
|
|
|
|
347,415
|
|
|
|
(74,746
|
)
|
|
|
(40,916
|
)
|
|
|
(31,779
|
)
|
|
|
(15,594
|
)
|
|
|
425,498
|
|
|
|
290,905
|
|
Income (loss) before income
taxes
|
|
$
|
(766,626
|
)
|
|
|
1,068,332
|
|
|
|
(12,605
|
)
|
|
|
580,817
|
|
|
|
(413,277
|
)
|
|
|
98,033
|
|
|
$
|
(1,192,508
|
)
|
|
|
1,747,182
|
|
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 March 31, 2013
|
|
$
|
81,142,618
|
|
|
$
|
30,549,921
|
|
|
$
|
39,912,032
|
|
|
$
|
151,604,571
|
|
As of December 31, 2012
|
|
$
|
89,062,709
|
|
|
$
|
30,058,569
|
|
|
$
|
37,556,788
|
|
|
$
|
156,678,066
|
|
We entered into a corporation agreement
on April 26, 2013, planning to sell our real property in Baoding, along with all construction including the costs of construction
and operation expended since acquisition for approximately $18 million. The sale is expected to close before the end of 2013.