U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
þ
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Annual report pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31,
2012
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o
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Transition report pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
For the transition period from
to .
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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
incorporation or organization)
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(I.R.S. employer
identification number)
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16
th
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)
Securities registered under Section 12(b)
of the Exchange Act:
Title
of each class
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Name
of each exchange on which registered
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Ordinary Shares, $0.001
par value per share
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NASDAQ Capital Market
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Securities registered under Section 12(b)
of the Exchange Act: None
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
o
No
þ
Indicate by check
mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
o
No
þ
Indicate by check
mark whether the issuer (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 issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes
þ
No
o
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 (§232.45 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
þ
No
o
Indicate by check
mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
o
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
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o
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Accelerated filer
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o
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Non-accelerated filer
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o
(Do not
check if a smaller reporting company)
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Smaller reporting company
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þ
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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
o
No
þ
The aggregate market
value of the ordinary shares, $0.001 par value per share (“Shares”), of the registrant held by non-affiliates on June 30,
2012 was $19,707,152, based on a closing price of $4.00 per share and 4,926,788 shares held by non-affiliates on that date.
The Company is authorized
to issue 30,000,000 Shares. As of the date of this report, the Company has issued and outstanding 8,211,089 Shares, excluding
21,100 treasury Shares.
DOCUMENTS INCORPORATED BY REFERENCE
This Form 10-K incorporates
the registration statement on Form S-1 filed with the Commission on January 8, 2010, as amended (file no. 333-164273) (the “Registration
Statement”) and prospectus filed pursuant to Rule 424(b)(3) of the Securities Act of 1933 (the “Securities Act”)
on April 16, 2010 (the “Prospectus”). This Form 10-K also incorporates the registration statement on Form S-3 filed
with the Commission on July 28, 2011, as amended (file no. 333-175860) (the “Form S-3 Registration Statement”). The
Registration Statement, Prospectus and Form S-3 Registration Statement are incorporated by reference into Parts II and III of
this Form 10-K.
Portions of the definitive
Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held on May 6, 2013
are incorporated by reference into Part III.
TRI-TECH HOLDING INC.
FORM 10-K
INDEX
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PART
I
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Item 1.
Business
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I-1
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Item 1A.
Risk Factors.
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I-5
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Item 1B. Unresolved
Staff Comments.
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I-5
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Item 2.
Properties.
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I-5
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Item 3.
Legal Proceedings.
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I-5
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Item 4. Mine Safety
Disclosures.
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I-5
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PART
II
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Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
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II-1
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Item 6.
Selected Financial Data.
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II-1
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Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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II-1
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Item 7A.
Quantitative and Qualitative Disclosures about Market Risk.
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II-12
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Item 8.
Financial Statements and Supplementary Data.
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II-12
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Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
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II-12
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Item 9A.
Controls and Procedures
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II-12
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Item 9B.
Other Information.
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II-13
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PART
III
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Item 10.
Directors, Executive Officers and Corporate Governance.
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III-1
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Item 11.
Executive Compensation.
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III-1
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Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
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III-1
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Item 13.
Certain Relationships and Related Transactions, and Director Independence.
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III-1
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Item 14.
Principal Accountant Fees and Services.
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III-1
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Item 15.
Exhibits, Financial Statement Schedules.
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III-2
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SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
The Company has made
statements in this annual report that constitute forward-looking statements. Forward-looking statements involve risks and uncertainties,
such as statements about its plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking
statements by terminology such as “anticipate,” “estimate,” “plan,” “project,”
“continuing,” “ongoing,” “expect,” “we believe,” “we intend,” “may,”
“should,” “could” and similar expressions. These statements involve estimates, assumptions, known and
unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances
or achievements expressed or implied by the forward-looking statements.
Examples of forward-looking
statements include:
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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
and capacities of the company’s business operations;
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•
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statements of expected future
economic performance; and
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•
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assumptions underlying statements
regarding the company or its business.
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The ultimate correctness
of these forward-looking statements depends upon a number of known and unknown risks and events. Many factors could cause the
Company’s actual results to differ materially from those expressed or implied in its forward-looking statements. Consequently,
you should not place undue reliance on these forward-looking statements.
The forward-looking statements
speak only as of the date on which they are made, and, except as required by law, the Company undertakes no obligation to update
any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the
occurrence of unanticipated events.
In addition, the Company
cannot assess the impact of each factor on its business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any forward-looking statements.
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
Overview
Tri-Tech is an innovative
provider of consulting, engineering, procurement, construction and technical services. The Company supports government, state-owned
entities and commercial clients by providing water and wastewater treatment, water resource management, water-efficient irrigation,
and industrial emission and safety control solutions. With intellectual properties and capable employees in China, the U.S. and
India, Tri-Tech’s capabilities span the cycle of innovation from development through implementation and operation.
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
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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Our corporate structure
has grown to reflect the nature of the projects in which we are engaged, both domestically and internationally:
Macro-Economic
Overview
In 2013, the Chinese
economy is generally expected to recover with three major incentives according to
The Study of Chinese Strategy 2013: Recovery
and Revolution
by Deutsche Bank AG: 1) the growth rate of total financing stocks revealed a smooth increase since March 2012,
and through the end of November 2012, the growth rate reached at 19%; 2) Chinese government and industry efforts are underway
to reduce excess production capacity to encourage profit growth, which is expected to lead to investment; 3) Chinese exports are
expected to produce a positive turnover beginning in the second quarter of 2013. In 2012, China’s GDP growth rate was 7.8%,
and several investment institutes’ economic forecasts put the GDP growth rate at around 8.0% in 2013 (Table 1). These predictions
in Table 1 are generally higher than China’s official 2013 target GDP growth rate, announced as 7.5% in March 2013.
Table1. Forecast on GDP of China in
2013
International Investment
Banks
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Deutsche Bank AG
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1
st
half year: 8.0%; 2
nd
half
year: 8.5%
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Morgan Stanley
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Pessimistic: 7.5%; Neutral: 8.2%; Optimistic: 8.6%
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UBS
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8%
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Domestic Investment
Banks
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CITIC Securities*
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8%
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CICC*
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8.1%
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Guotai Junan Securities
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7.8%
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*CITIC refers to China International
Trust and Investment Corporation
CICC refers to China
International Capital Corporation Limited
Global demands for better
water efficiency are gradually increasing in the energy, mining and chemical industries of developed countries, such as the US,
Canada, Australia and the Gulf countries. Regarding to the industries mentioned above, our thermal technologies on industrial
wastewater treatment have competitive price quality, compared with well-known rivals. For the water market in India, the Indian
government stipulated 50,000 billion rupee (approximately as USD 920 billion) investment on water treatment market, especially
for desalination in accordance to India’s 12
th
Five-Year Plan (2012 – 2017), and during the next five years,
the desalination plants are expected to increase from 186 to 500 plants nationwide. Our thermal technologies are also applied
to the desalination market, and we hope to bring them to the Indian market.
Industry Overview
As a technical solution
and service provider with experience in consulting, engineering, procurement and construction, we address diversified demands
for water treatment, natural resources management, and industrial emission and safety controls in China, India, North America
and the Middle East. Our technical studies, engineering designs, construction, procurement and operation management services respond
to our clients’ evolving needs. Clients in our industry vary in size and capacity from municipal public agencies and commercial
entities to central governments and multi-national companies.
Our water market provides
solutions to government agencies responsible for managing water and wastewater treatment, irrigation and flash flood prevention.
In addition, our water market supports commercial clients that require industrial treatment and recycling of water and wastewater.
We help our clients develop action plans to comply with regulatory standards and industrial specifications while remaining cost
effective. Our emission and safety control services offer solutions to commercial clients responsible for enforcing workplace
safety regulations and complying with emission standards. We help our clients implement action plans to safeguard their workplaces
and to meet mandated emission standards.
Our industry responds
promptly to changes in public policies, competition for resources, challenges faced by infrastructure development and natural
forces. Studies on and public concerns over water quality and scarcity have been driving forces behind revised regulations, improved
standards and proposed changes in public policies and practices. With increased industrial outputs and growing population fueling
the competition for resources especially water, unprecedented focus has been put on implementation of conservation measures, retrofits
to existing structures and creative ways to allocate resources. Acts of nature, such as droughts and flooding, are driving concerns
over the reliability of water supplies and urgent needs to intervene.
Strategy
To strengthen our competitiveness
and enhance profitability, we have been undertaking the following strategies.
Focus on customer
needs
. We believe the best tailored solutions focus on our customers’ demands and needs, so we begin each project with
a client project evaluation. By doing this, we have been able to deliver our customers customized solutions. Our customers appreciate
our strong understanding of the entire project life cycle from project design, engineering, construction management, operating
and maintenance.
Diversify the financing
channels
. Our ability to participate in larger and more lucrative projects depends in great part on the availability of capital
to bid for and secure our performance under projects. In 2012, we issued $7.89 million in corporate bonds, which allowed us additional
flexibility without diluting shareholders. To continue to grow in the best interests of our shareholders, we remain open to explore
opportunities to collaborate with different funding sources.
Effectively control
costs
. Given increased competition in our industry and shifts in the scope and scale of our business, we have redoubled our
efforts to control costs in 2013. We believe these efforts to rigorously evaluate organizational efficiency and conduct periodic
business plan reviews will position us to improve profitability and return on invested capital.
Build up a positive
corporate culture with a group of talents
. Tri-Tech has been successfully publicly listed for three years, and our corporate
culture both attracts talented workers from outside and also offers current employees opportunities for career development within
the company. We demand a great deal of our team, and we provide them a platform to enhance themselves and our company while receiving
the benefits they deserve.
Develop international
markets
. Our international business is mainly developing through our subsidiaries in the US and India, and we expect these
teams will play the major role in exploring international markets. We are augmenting our US team with additional technological
expertise to be more competitive. We plan to focus on our advantages in technical design to expand our worldwide customer base
in the industrial wastewater treatment market, focusing on the American and Middle-East markets. As to our Indian team, we intend
to continue focusing on completion of current projects while looking for new opportunities in municipal water market and desalination
market.
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
(“BT”) 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.
Revenues by Segment
Revenues across segments
were relatively even in 2012. Segment 1 contributed 33.9% of the total revenues; Segment 2 contributed 31.6%; and Segment 3 contributed
the remaining 34.5%.
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For 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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25,969,685
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100.0
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%
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$
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19,145,989
|
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85.8
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%
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$
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22,845,524
|
|
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93.8
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%
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$
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67,961,198
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93.6
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%
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Hardware Products
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$
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11,039
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0.0
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%
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$
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3,160,055
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14.2
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%
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$
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1,497,260
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6.2
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%
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$
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4,668,354
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6.4
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%
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Total Revenues
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$
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25,980,724
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|
|
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100.0
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%
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$
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22,306,044
|
|
|
|
100.0
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%
|
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$
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24,342,784
|
|
|
|
100.0
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%
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$
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72,629,552
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100.0
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%
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Competition
The Company operates
in a highly competitive industry characterized by rapid technological development and evolving industrial standards. The Company
competes primarily on the basis of technical qualification, customer recognition, product innovation and pricing structure. The
Company offers services and products of technological advancement when competing with domestic rivals. The Company competes with
multinational competitors by offering a competitive price and a local delivery and distribution. To maintain a competitive edge,
the Company provides a comprehensive set of products. If competition in the industry increases, the Company could see these advantages
decrease or disappear.
Backlog and Pipeline
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.
The following table
provides backlog by segment as of December 31, 2012, in comparison to that of December 31, 2011. The percentage of change shows
how much of our backlog became revenue in 2012. Backlog decreased significantly in Segments 1 and 2 and moderately in Segment
3. This reflects both (i) the recognition of revenue in projects in Segments 1 and 2 in 2012 and (ii) that such recognized revenues
were not replaced with an equivalent amount of new projects in such Segments. Based on remaining backlog, we expect much higher
revenues in Segment 1 than in Segments 2 or 3 in 2013.
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December 31, 2012
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|
|
December 31, 2011
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|
|
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USD Million
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|
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% of Total
Backlog
|
|
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USD Million
|
|
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% of Total
Backlog
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|
Segment 1:
|
|
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38.7
|
|
|
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64.4
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%
|
|
|
63.1
|
|
|
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66.8
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%
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Segment 2:
|
|
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6.7
|
|
|
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11.1
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%
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|
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16.1
|
|
|
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17.0
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%
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Segment 3:
|
|
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14.7
|
|
|
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24.5
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%
|
|
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15.3
|
|
|
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16.2
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%
|
Total
|
|
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60.1
|
|
|
|
100.0
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%
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|
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94.5
|
|
|
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100.0
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%
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Pipeline represents the
values of projects we have been actively pursuing. Our pipeline as of December 31, 2012 was $50.7 million in Segment 1, $2.5 million
in Segment 2 and $34.8 million in Segment 3.
Having a dynamic nature,
the value of projects moves from pipeline into backlog when we secure the project and from backlog to revenue based on percentage
of completion.
Patents and Proprietary Rights
As of December 31, 2012,
the Company owned 15 product patents, and 26 software copyrights.
Government Regulation and Approvals
As described in greater
detail above in the Company’s discussion of business segments, government policies and initiatives in the various industries
it serves have a considerable impact on the Company’s potential for growth. The Company generally undertakes projects for
government entities and enterprises and must complete the projects in accordance with the terms of the contracts in which it enters
with those entities.
Employees
By the end of 2012, the
Company employed 456 employees, 65 of which focused on projects. Of all employees, 46% were in technical, 18% were in sales, 7%
were in manufacture, 10% were in accounting and finance, and 19% were in administration. There are no part-time employees.
Enforceability of Civil Liabilities
We are incorporated as
an exempted company limited by shares under the laws of Cayman Islands. In addition, some of our directors and officers reside
outside the United States, and all or a substantial portion of their assets and our assets are or may be located in jurisdictions
outside the United States. Therefore, it may be difficult for investors to effect service of process within the United States
upon our non-U.S. directors and officers or to recover against our company, or our non-U.S. directors and officers on judgments
of U.S. courts, including judgments predicated upon the civil liability provisions of the U.S. federal securities laws. However,
we may be served with process in the United States with respect to actions against us arising out of or in connection with violations
of U.S. federal securities laws relating to transactions covered by this prospectus by serving Phil Fan, 6501 Chaucer Road Willowbrook,
IL 60527, Tel (630) 468-2361, our U.S. agent irrevocably appointed for that purpose.
Campbells, our Cayman
Islands counsel, has advised us that although there is no statutory enforcement in the Cayman Islands of judgments obtained in
the United States, the courts of the Cayman Islands will recognize and enforce a foreign judgment of a court of competent jurisdiction
if such judgment is final, for a liquidated sum, provided it is not in respect of taxes or a fine or penalty, is not inconsistent
with a Cayman Islands judgment in respect of the same matters, and was not obtained in a manner which is contrary to the public
policy of the Cayman Islands. It is doubtful the courts of the Cayman Islands will, in an original action in the Cayman Islands,
recognize or enforce judgments of U.S. courts predicated upon the civil liability provisions of the securities laws of the United
States or any state of the United States on the grounds that such provisions are penal in nature.
A Cayman Islands court
may stay proceedings if concurrent proceedings are being brought elsewhere.
Not Applicable.
Item 1B.
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Unresolved Staff Comments.
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None.
Our primary office location
is the 15th and 16th Floor of Tower B, Renji Plaza, 101 Jingshun Road, Chaoyang District, Beijing. The rental space for the two
floors is 908 square meters for the 15th floor and 986 square meters for the 16th floor. The lease contract for this location
is from September 1, 2010 to August 31, 2013. We also have a 1,300 square meter rental office in Tianjin, located at 4th Floor,
Kaide A Complex, 7 Rongyuan Road, Huayuan Property Management Zone, Tianjin, with a rental term that runs until December 2014.
In April 2012, we rented a 1,139 square meter office in Beijing to relocate our subsidiary Yanyu, located at 10th Floor of Tower
B, Baoneng Center, Futong East Road, Chaoyang District, Beijing, with a rental term that runs until March 2015. In addition, we
have three other rental office locations in various areas of Beijing, for which the lease contracts are to expire at different
points in time during the third quarter.
Baoding, one of the Company’s
subsidiaries, is located at West Tianbao Road, Baodi Economic Development Zone in Tianjin. The subsidiary occupies an area of
158,954 square meters and has a 50-year land use right starting on January 18, 2011.
Item 3.
|
Legal Proceedings.
|
From time to time, we
may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject
to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
Other than as described in the next paragraph, we are currently not aware of any such legal proceedings or claims that we believe
will have a material adverse affect on our business, financial condition or operating results.
Item 4.
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Mine Safety Disclosures.
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Not applicable.
PART II
Item 5.
|
Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.
|
(a)
None
.
(b)
The section entitled “Use of Proceeds” from 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”). In 2012, we determined that our needs for working capital, in light of decreased revenues and increased
expenses, required us to use offering proceeds to address these needs. Accordingly, we reallocated funds previously earmarked
for mergers and acquisitions and new product development to such working capital purposes. As of December 31, 2012, the Company
has spent all the proceeds from the Offering in accordance with the following chart:
Description of Use
|
|
Proposed Expenditures
|
|
|
Actual Expenditures
Through December 31, 2012
|
|
|
Percentage Used
|
|
Working Capital
|
|
$
|
18,973,000
|
|
|
$
|
22,105,136
|
|
|
|
116.51
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%
|
Mergers & Acquisitions
|
|
|
6,120,000
|
|
|
|
3,520,858
|
|
|
|
57.53
|
%
|
New Product Development
|
|
|
3,366,000
|
|
|
|
2,833,006
|
|
|
|
84.17
|
%
|
Sales & Marketing
|
|
|
2,142,000
|
|
|
|
2,142,000
|
|
|
|
100.00
|
%
|
Total
|
|
$
|
30,601,000
|
|
|
$
|
30,601,000
|
|
|
|
100.00
|
%
|
(c) None.
Item 6.
|
Selected Financial Data.
|
The Company is not required
to provide the information required by this Item because the Company is a smaller reporting company.
Item 7.
|
Management’s Discussion and Analysis of Financial Condition
and Results of Operations.
|
The following discussion
contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those described herein.
Factors Affecting
the Company’s Results of Operations – Generally
The Company believes
the most significant factors that directly or indirectly affect its sales revenues and net income include:
|
•
|
the changes in the macro-economic
environment, government strategies and policies, industrial
development and planning in the countries and regions where
the Company has business presence;
|
|
•
|
the amount of spending by
Chinese and foreign governments in water resource management,
including surface and groundwater monitoring, flood control
and mitigation, flood forecasting, water quality monitoring
and assessment, and water resource management decision making
systems;
|
|
•
|
the amount of investment by
Chinese and foreign governments in municipal wastewater management,
including sewer pipelines and sewage treatment, water reuse
and odor control;
|
|
•
|
the approved and promoted
new environmental laws and regulations by Chinese and foreign
governments which require investment in pollution control
by the private sector companies;
|
|
•
|
the Company’s capabilities
and competencies including innovative technologies and applications,
industrial experience and customer base, core competitive
advantages, market shares and revenues;
|
|
•
|
the availability and required
terms of funding for the Company’s working capital;
|
|
•
|
restrictions on foreign ownership
and investments and stringent foreign exchange controls;
|
|
•
|
import and export requirements;
|
|
•
|
currency exchange rate fluctuations;
and
|
|
•
|
different employee/employer
relationships in the jurisdictions within which we conduct
our business, existence of and regulation on workers’
councils and labor unions.
|
Historically, the Company’s
business growth has been driven primarily by an increase in the number of customers and projects. The complexity and scale of
the projects have grown from those involving single pieces of equipment to projects involving comprehensive systems as well as
general contracting for complete solutions. The Company now undertakes projects to design and build entire treatment plants and
complicated flood monitoring and forecasting systems for river basins. Due to China’s increasing urbanization and growing
economy, the Company expects that it will continue to earn a substantial majority of revenues from its products and services in
water resource management and municipal wastewater treatment.
The Company plans to
continuously focus its resources on expanding its business to areas outside of its current base of operation in China and on increasing
its market share in the regions it serves. In addition, the Company will allocate its resources to innovate its technology, to
develop applications, to improve its larger project execution capabilities and to advocate its brand to customers. Through accretive
acquisitions, the Company intends to acquire key technologies and qualifications.
Significant 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, the Company believes that these estimates used
in preparing its financial statements are based on its 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, business combination, the allowance for doubtful accounts, long term contract collectability,
impairment of fixed assets and intangible assets, and income tax. The Company evaluates all of these estimates and judgments on
an on-going basis. Below are the most critical estimates and assumptions the Company makes in preparing the consolidated financial
statements.
Revenue Recognition
The Company’s revenues
consist primarily of three categories: (i) system integration, (ii) hardware products and (iii) software products. 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 prices. 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 milestones in accordance
with ASC 605-35, “Construction-Type and Production-Type Contracts.” Only if the actual implementation status meets
the established milestone 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 hardware product
sales, the Company recognizes 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.
If unapproved change
orders or claims occur in the future, in accounting for contracts, the Company follows 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. To date, the Company has not experienced any unapproved change orders in its ordinary
business operation.
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 revenues
in excess of billings as “unbilled revenue.” For revenues accounted for under this account, the Company expects the
amounts to be collected within one year. For those with collection periods in excess of one year, the Company classifies 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.
Business Combination
The Company completed
one business acquisition in 2012, which was accounted for using the purchase method of accounting in accordance with USGAAP regarding
business combinations. The fair value of net assets acquired and the results of the acquired businesses are included in the Consolidated
Financial Statements from the acquisition dates forward. This guidance required the Company to make estimates and assumptions
that affect the reported amounts of assets and liabilities and results of operations during the reporting period. Estimates were
used in accounting for, among other things, the fair value of acquired net operating assets, property and equipment, intangible
assets and related deferred tax assets and liabilities, useful lives of plant and equipment and amortizable lives for acquired
intangible assets. Any excess of the purchase consideration over the identified fair value of the assets and liabilities acquired
was recognized as goodwill. Future adjustments to the estimates used in determining the fair values of the Company’s acquired
assets and assumed liabilities could impact its consolidated operating results or financial condition.
Deferred tax liability
and asset were recognized for the deferred tax consequences of differences between the tax bases and the recognized values of
assets acquired and liabilities assumed in a business combination in accordance with guidance regarding accounting for income
taxes.
Accounts Receivable
Being a project-based
company with long lead time periods of 6 months to 2 or even 3 years, the Company’s accounts receivable period is 102 days.
Given the characteristics of the clientele, the Company is confident that its accounts receivable are of good quality even though
its accounts receivable days are relatively long compared with companies in other industries. In case of any event that indicates
accounts receivable quality deterioration, management will reassess the bad debt provision within the period such event occurs.
The Company recognizes
accounts receivable initially at fair value less an allowance for doubtful accounts. It makes an allowance for doubtful accounts
based on aging of accounts receivable and on any specifically identified accounts receivable that may become uncollectible. The
Company maintains allowances for doubtful accounts for estimated losses resulting from the failure of customers to make required
payments in the relevant time periods. It reviews 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, the Company considers 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.”
Impairment of Assets
and Intangible Assets
The Company monitors
the carrying value of its 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, 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 loss was recorded
in the prior or current periods.
The Company evaluates
the periods of depreciation and amortization to determine whether subsequent events and circumstances warrant revised estimates
of useful lives. Estimating future cash flows requires significant judgment, and projections may vary from the cash flows eventually
realized which could impact the Company’s ability to accurately assess whether an asset has been impaired.
For goodwill, 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 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. The Company believes 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 the Company’s business.
PRC Value-Added Tax
The Company’s 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 it pays on raw materials and other materials included in the cost of producing its 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
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. The Company pays business tax on gross revenues minus the costs of services, which
are paid on behalf of its customers.
Income Taxes
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 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 assessable profits arising in or derived from the United States and intends to reinvest accumulated earnings in its PRC operations.
The Company’s revenues
are subject to VAT, sales tax, urban maintenance and construction tax and additional education fees. Among the above taxes, VAT
has already been deducted from the calculation of revenue.
Results of Operations
Overview for 2012 and 20
1
1
Our operating revenues
are primarily derived from system design and integration, hardware product design and manufacturing and sales. Our revenues declined
from 2011 to 2012. Key metrics for 2012 include the following:
|
·
|
Total
revenues decreased
to $72,629,552
in 2012, a decrease
of 15.4%, from
the same period
of 2011. This decrease
is primarily attributable
to the progress
of the Ordos and
India projects.
The Ordos project
is nearly complete,
resulting in lower
revenues from the
project in 2012.
The India projects,
on the other hand,
received later-than-anticipated
Indian government
approvals, which
led to slower progress
and, as a result,
lower revenues,
than expected.
|
|
·
|
Total
cost of revenues
decreased by 13.9%
from 2011 to 2012.
This decrease is
due to the decrease
of related revenue.
|
|
·
|
Total
operating expenses
were $18,310,880
for 2012, an increase
of 64.7%, compared
with the amount
in 2011. We expanded
the headcount of
sales and administration
in 2012, actively
pursuing new projects.
This expansion
caused the increase
of operating expenses.
|
|
·
|
Operating
loss
was
$
810,846
in
2012,
comparing
with
operating
income
of
$10,739,264
in
2011.
The
decrease
was
due
to
the
decreased
revenue
and
significantly
increased
operating
expenses
mentioned
above.
|
|
·
|
Net
loss attributable
to TRIT was $2,264,074
for 2012.
|
The following are the
operating results for 2012 and 2011:
|
|
2012
($)
|
|
|
% of
Sales
|
|
|
2011
($)
|
|
|
% of
Sales
|
|
|
Change ($)
|
|
|
Change
%
|
|
Revenue
|
|
|
72,629,552
|
|
|
|
100.0
|
%
|
|
|
85,872,921
|
|
|
|
100.0
|
%
|
|
|
(13,243,369
|
)
|
|
|
(15.4
|
)%
|
Cost of Revenues
|
|
|
55,129,518
|
|
|
|
75.9
|
%
|
|
|
64,017,452
|
|
|
|
74.5
|
%
|
|
|
(8,887,934
|
)
|
|
|
(13.9
|
)%
|
Selling and Marketing Expenses
|
|
|
4,148,861
|
|
|
|
5.7
|
%
|
|
|
2,164,363
|
|
|
|
2.5
|
%
|
|
|
1,984,498
|
|
|
|
91.7
|
%
|
General and Administrative Expenses
|
|
|
13,987,293
|
|
|
|
19.3
|
%
|
|
|
8,772,446
|
|
|
|
10.2
|
%
|
|
|
5,214,847
|
|
|
|
59.4
|
%
|
Research and Development
|
|
|
174,726
|
|
|
|
0.2
|
%
|
|
|
179,396
|
|
|
|
0.2
|
%
|
|
|
(4,670
|
)
|
|
|
(2.6
|
)%
|
Total Operating Expenses
|
|
|
18,310,880
|
|
|
|
25.2
|
%
|
|
|
11,116,205
|
|
|
|
12.9
|
%
|
|
|
7,194,675
|
|
|
|
64.7
|
%
|
Operating (Loss) Income
|
|
|
(810,846
|
)
|
|
|
(1.1
|
)%
|
|
|
10,739,264
|
|
|
|
12.5
|
%
|
|
|
(11,550,110
|
)
|
|
|
(107.6
|
)%
|
Other (expenses) Income, net
|
|
|
(132,612
|
)
|
|
|
(0.2
|
)%
|
|
|
(9,836
|
)
|
|
|
(0.0
|
)%
|
|
|
(122,776
|
)
|
|
|
1,248.2
|
%
|
(Loss) Income before Provision for Income Taxes
|
|
|
(943,458
|
)
|
|
|
(1.3
|
)%
|
|
|
10,729,428
|
|
|
|
12.5
|
%
|
|
|
(11,672,886
|
)
|
|
|
(108.8
|
)%
|
Provision for Income Taxes
|
|
|
1,808,415
|
|
|
|
2.5
|
%
|
|
|
1,958,864
|
|
|
|
2.3
|
%
|
|
|
(150,449
|
)
|
|
|
(7.7
|
)%
|
Net (Loss) Income
|
|
|
(2,751,873
|
)
|
|
|
(3.8
|
)%
|
|
|
8,770,564
|
|
|
|
10.2
|
%
|
|
|
(11,522,437
|
)
|
|
|
(131.4
|
)%
|
Less: Net (Loss) Income Attributable to Noncontrolling Interests
|
|
|
(487,799
|
)
|
|
|
(0.7
|
)%
|
|
|
682,190
|
|
|
|
0.8
|
%
|
|
|
(1,169,989
|
)
|
|
|
(171.5
|
)%
|
Net (Loss) Income Attributable to TRIT
|
|
|
(2,264,074
|
)
|
|
|
(3.1
|
)%
|
|
|
8,088,374
|
|
|
|
9.4
|
%
|
|
|
(10,352,448
|
)
|
|
|
(128.0
|
)%
|
Revenue
The
Company’s revenue for the year ended December 31, 2012 was $72,629,552, a decrease of 15.4%, compared with $85,872,921 in
2011. This decrease is primarily attributable to the decrease in the system integration category revenue, which decreased from
$82,401,473 for the year ended December 31, 2011 to $67,961,198 in 2012.
The Ordos project decreased from $48,247,984 for
the year ended December 31, 2011 to $6,838,176in 2012 because the project was primarily completed at the end of 2011. Revenue
of the India projects increased by $7,654,110 from 2011 to 2012.
In order to reduce cash flow pressures,
we evaluated the projects we planned to bid on and elected not to bid on domestic BT projects, which typically require significant
investments and feature slower client payment periods.
Cost of Revenue
Cost of revenue is based
on total actual costs incurred plus estimated costs to completion applied to 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 revenue also includes freight charges, purchasing and receiving costs and inspection costs when they are
incurred.
Cost of revenue was $55,129,518
in the year ended December 31, 2012, a decrease of 13.9%, from $64,017,452 in the same period of 2011. The system integration
category, which was the largest contributor to the revenue decrease, decreased by 16.0%, from $61,677,449 for the year ended December
31, 2011 to $51,800,856 in the same period of 2012. Based on the moderate decline of the gross margin from 2011 to 2012, the decrease
of cost was mainly caused by the decrease of revenue.
Gross Margin
The Company’s gross
margin decreased from 25.5% in 2011 to 24.1% in 2012. This decrease was largely a result of increases in material and equipment
costs and labor subcontracting costs. The rapid expansion into overseas markets also directly affected the increase of cost of
sales, contributing to lower gross margins.
Operating Expenses
The Company’s
total operating expenses increased to $18,310,880 in the year ended December 31, 2012 from $11,116,205 in the same period of 2011,
an increase of 64.7%. The increase was attributed to growth in selling and marketing expenses; general and administration expenses;
research and development expenses decreased from $179,396 in 2011 to $174,726 in 2012.
Selling and Marketing
Expenses
Selling and marketing
expenses increased from $2,164,363 in the year ended December 31, 2011 to $4,148,861 in the same period of 2012, an increase of
91.7%. Increased headcounts of sales elevated the total amount of every related expense such as travel expenses, compensation-related
expenses and entertainments.
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 from $8,772,446 in 2011 to $13,987,293 in 2012, an increase of 59.4%.
Of the total increase
of general and administrative expenses $575,944 was for officers’ salaries, which increased by 73.7% from $780,962 in 2011
to $1,356,906 in 2012. Given noteworthy performance in both WRME and IPSC segments, officers were rewarded accordingly. Declines
in WWTM were partially attributed to the deviation from BT projects required to ease constraints on our cash position. After the
headcount expansion in the first half of 2012, small size layoff and structure adjustments were given in the end of 2012, aggregate
salaries for mid-level management, technical support team, and other office staff increased by 16.6% from $2,239,001 in 2011 to
$2,611,053 in 2012. Of other human resource expenses, endowment and other social insurance increased by 106.6% and 58.8%, respectively,
to $404,205 and $568,234, in 2012. Rent increased by 51.3%, from $714,023 in 2011 to $1,080,036 in 2012 due to office relocation.
Professional fees increased by 184.1%, from $865,579 to $2,458,774, which was mainly for multinational operation and legal consulting,
also some finance services due to the expansion of overseas business. Amortization expense of intangible assets and software increased
by 33.9%, from $677,825 in 2011 to $907,548 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
27.8%, from $242,057 in 2011 to $309,387 in 2012. Other general and administrative expenses increased by 59.0%, from $2,699,596
to $4,291,150 in 2012, including mainly office expenses, utilities, travel, communication and other services support. Increased
headcounts will raise the total amount of related expense such as salaries, insurance, travel expenses etc. We had a $1,045,477
non-cash option expense as a part of other general and administrative expense in 2012, and the bad debt expenses of $856,709 also
attributed to the increase of general and administrative expense from $619,062 in 2011 to $1,475,771 in 2012.
General and administrative
expenses for 2012 and 2011was approximately 19.3% and 10.2% of total revenues, respectively.
Provision for Income
Tax
The Company provides
for deferred income taxes using the asset and liability method. Under this method, it recognizes deferred income taxes for tax
credits, 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’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 law or regulations, as well as the prediction on future changes on these law and 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.
The Company and its subsidiaries
and VIEs are subject to income taxes on an entity basis on 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 (“EIT”) rate is 25%. However, five of its subsidiaries and VIEs are certified high-tech companies and are taxed
based on certain favorable tax policies.
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 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:
|
|
Enterprise Income Tax Rate
For the years ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
%
|
|
|
%
|
|
TTB
|
|
|
15
|
|
|
|
7.5
|
(1)
|
BSST
|
|
|
15
|
|
|
|
15
|
|
Yanyu
|
|
|
15
|
(2)
|
|
|
25
|
|
Tranhold
|
|
|
25
|
|
|
|
25
|
|
TTA
|
|
|
25
|
|
|
|
25
|
|
Baoding
|
|
|
15
|
|
|
|
25
|
|
Yuanjie
|
|
|
15
|
|
|
|
15
|
|
Buerjin
|
|
|
25
|
|
|
|
—
|
(3)
|
Xushui
|
|
|
25
|
|
|
|
—
|
(3)
|
Consolidated effective enterprise income tax rate
|
|
|
-192
|
(4)
|
|
|
18
|
|
|
(1)
|
The favorable income tax
treatment for TTB of 7.5% expired at the end of 2011.
Afterwards, the EIT rate is 15% since TTB was certified
as a high-tech company.
|
|
(2)
|
Yanyu became a certified
high-tech company in 2012.
|
|
(3)
|
These entities were not part of the Company in 2011.
|
|
(4)
|
Despite the overall loss after consolidation, a few companies
were still profitable during 2012, and income tax was accrued. Therefore, the calculation of consolidated effective enterprise
income tax rate is based on the following:
|
Consolidated
effective enterprise income tax rate = provision for income tax (sum of accrued tax for profitable companies) / loss before income
tax and non-controlling interests.
The Company’s provision
for income tax expense from continuing operations for 2012 and 2011 were $1,808,415 and $1,958,864, respectively.
The Company’s total
net deferred tax liabilities were $5,482,576 and $3,814,342 as of December 31, 2012 and 2011, respectively.
(Loss) Income before
Income Taxes
In the year ended December 31,
2012, the Company’s net loss before provision for income taxes was $943,457, a decrease of 108.8% compared to net income
$10,729,428 in 2011. The Company’s provision for income taxes decreased by 7.7%, from $1,958,864 in 2011 to $1,808,415 in
2012. Some of the entities were income tax free in 2012 because of loss while the others were taxable, so the total income taxes
in 2012 showed a slight decrease. In the year ended December 31, 2012, net loss attributable to the shareholders of TRIT was $2,264,074,
a decrease of 128.0%, from net income of $8,088,374 for the year ended December 31, 2011.
Segment Information
The Company has three
reportable operating segments. The segments are grouped based on the types of services provided and the types of clients that
use those services. Total sales and costs are divided among these three segments. The Company’s Chief Executive Officer
is the chief operating decision-maker. He assesses each segment’s performance based on net revenue and gross profit on contribution
margin.
Segment 1: Water,
Wastewater Treatment and Municipal Infrastructure
For Segment 1, revenue
and cost declined by 55.3% and 52.8%, respectively, from 2011 to 2012; total operating expenses increased by 43.3% from 2011 to
2012; and there was a significant decrease for profit before income tax. The following are the operating results in 2012 and 2011
for Segment 1:
|
|
2012 ($)
|
|
|
2011($)
|
|
|
Change ($)
|
|
|
Change (%)
|
|
Revenues
|
|
|
25,980,724
|
|
|
|
58,123,939
|
|
|
|
(32,143,215
|
)
|
|
|
(55.3
|
)%
|
Cost of Revenues
|
|
|
20,448,709
|
|
|
|
43,367,917
|
|
|
|
(22,919,208
|
)
|
|
|
(52.8
|
)%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and Marketing Expenses
|
|
|
1,346,688
|
|
|
|
594,780
|
|
|
|
751,908
|
|
|
|
126.4
|
%
|
General and Administrative Expenses
|
|
|
7,274,903
|
|
|
|
5,366,170
|
|
|
|
1,908,733
|
|
|
|
35.6
|
%
|
Research and Development Expenses
|
|
|
104,648
|
|
|
|
129,918
|
|
|
|
(25,270
|
)
|
|
|
(19.5
|
)%
|
Total Operating Expenses
|
|
|
8,726,239
|
|
|
|
6,090,868
|
|
|
|
2,635,371
|
|
|
|
43.3
|
%
|
Other Income (Expenses)
|
|
|
120,686
|
|
|
|
(107,632
|
)
|
|
|
228,318
|
|
|
|
(212.1
|
)%
|
(Loss) Income before Provision for Income Taxes
|
|
|
(3,073,538
|
)
|
|
|
8,557,522
|
|
|
|
(11,631,060
|
)
|
|
|
(135.9
|
)%
|
Segment 2: Water Resource
Management System and Engineering Service
For Segment 2, revenue
and cost increased by72.6% and 77.1%, respectively, from 2011 to 2012; total operating expenses increased by 93.3% from 2011 to
2012; and there was a slightly decrease for profit before income tax. The following are the operating results in 2012 and 2011
for Segment 2
|
|
2012 ($)
|
|
|
2011($)
|
|
|
Change($)
|
|
|
Change (%)
|
|
Revenues
|
|
|
22,306,044
|
|
|
|
12,922,405
|
|
|
|
9,383,639
|
|
|
|
72.6
|
%
|
Cost of Revenues
|
|
|
16,487,906
|
|
|
|
9,309,362
|
|
|
|
7,178,544
|
|
|
|
77.1
|
%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and Marketing Expenses
|
|
|
1,903,564
|
|
|
|
1,131,134
|
|
|
|
772,430
|
|
|
|
68.3
|
%
|
General and Administrative Expenses
|
|
|
2,840,874
|
|
|
|
1,310,332
|
|
|
|
1,530,542
|
|
|
|
116.8
|
%
|
Research and Development Expenses
|
|
|
70,078
|
|
|
|
49,478
|
|
|
|
20,600
|
|
|
|
41.6
|
%
|
Total Operating Expenses
|
|
|
4,814,516
|
|
|
|
2,490,944
|
|
|
|
2,323,572
|
|
|
|
93.3
|
%
|
Other Income (Expenses)
|
|
|
(232,095
|
)
|
|
|
(99,581
|
)
|
|
|
(132,514
|
)
|
|
|
133.1
|
%
|
(Loss) Income before Provision for Income Taxes
|
|
|
771,527
|
|
|
|
1,022,518
|
|
|
|
(250,991
|
)
|
|
|
(24.5
|
)%
|
Segment 3: Industrial
Pollution Control and Safety
For
Segment 3, revenue and cost increased by 64.2% and 60.4%, respectively, from 2011 to 2012; total operating expenses increased
by 88.2% from 2011 to 2012; and there was a
moderate
increase for profit before income tax.
The following are the operating results in 2012 and 2011 for Segment 2
|
|
2012 ($)
|
|
|
2011($)
|
|
|
Change ($)
|
|
|
Change (%)
|
|
Revenues
|
|
|
24,342,784
|
|
|
|
14,826,577
|
|
|
|
9,516,207
|
|
|
|
64.2
|
%
|
Cost of Revenues
|
|
|
18,192,903
|
|
|
|
11,340,173
|
|
|
|
6,852,730
|
|
|
|
60.4
|
%
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
Selling and Marketing Expenses
|
|
|
898,609
|
|
|
|
438,449
|
|
|
|
460,160
|
|
|
|
105.0
|
%
|
General and Administrative Expenses
|
|
|
3,871,516
|
|
|
|
2,095,943
|
|
|
|
1,775,573
|
|
|
|
84.7
|
%
|
Research and Development Expenses
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
-
|
%
|
Total Operating Expenses
|
|
|
4,770,125
|
|
|
|
2,534,392
|
|
|
|
2,235,733
|
|
|
|
88.2
|
%
|
Other Income (Expenses)
|
|
|
(21,203
|
)
|
|
|
197,377
|
|
|
|
(218,580
|
)
|
|
|
(110.7
|
)%
|
(Loss) Income before Provision for Income Taxes
|
|
|
1,358,553
|
|
|
|
1,149,389
|
|
|
|
209,164
|
|
|
|
18.2
|
%
|
Assets attributable to
each segment as of December 31, 2012 and 2011 are shown below:
Segment Assets
|
|
Segment 1
|
|
|
Segment 2
|
|
|
Segment 3
|
|
|
Total
|
|
As of December 31, 2012
|
|
$
|
89,062,709
|
|
|
$
|
30,058,569
|
|
|
$
|
37,556,788
|
|
|
$
|
156,678,066
|
|
As of December 31, 2011
|
|
$
|
84,910,147
|
|
|
$
|
26,081,474
|
|
|
$
|
27,659,057
|
|
|
$
|
138,650,678
|
|
Liquidity and Capital Resources
As highlighted in the
consolidated statements of cash flows, the Company’s 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.
Statement of Consolidated
Cash Flows as of December 31, 2012 and 2011 is as follows:
|
|
For the Years Ended December
31,
|
|
|
|
|
|
Change
|
|
|
|
2012 ($)
|
|
|
2011 ($)
|
|
|
Change ($)
|
|
|
(%)
|
|
Net Cash Used in Operating Activities
|
|
|
20,254,517
|
|
|
|
24,418,947
|
|
|
|
(4,164,430
|
)
|
|
|
(17.1
|
)%
|
Net Cash Used in Investing Activities
|
|
|
1,381,911
|
|
|
|
3,563,836
|
|
|
|
(2,181,925
|
)
|
|
|
(61.2
|
)%
|
Net Cash Provided by Financing Activities
|
|
|
18,138,246
|
|
|
|
17,152,767
|
|
|
|
985,479
|
|
|
|
5.7
|
%
|
Effects of Exchange Rate Changes on Cash and Cash Equivalents
|
|
|
338,907
|
|
|
|
629,233
|
|
|
|
(290,327
|
)
|
|
|
(46.1
|
)%
|
Net (Decrease) Increase in Cash and Cash Equivalents
|
|
|
(3,837,089
|
)
|
|
|
(11,459,249
|
)
|
|
|
7,622,161
|
|
|
|
66.5
|
%
|
Cash and Cash Equivalents, Beginning of Period
|
|
|
11,935,746
|
|
|
|
23,394,995
|
|
|
|
(11,459,249
|
)
|
|
|
(49.0
|
)%
|
Cash and Cash Equivalents, End of Period
|
|
|
8,098,657
|
|
|
|
11,935,746
|
|
|
|
(3,837,089
|
)
|
|
|
(32.1
|
)%
|
Cash and Cash Equivalents
At December 31, 2012,
the Company’s cash and cash equivalents amounted to $8,098,657. It decreased by 32.1%, from $11,935,746 on December 31,
2011, mainly due to rapid overseas expansion and the implementation of the current projects. The current portion of restricted
cash as of December 31, 2012 and 2011 amounted to $5,283,541 and $2,087,920, respectively, which is not included in the total
of cash and cash equivalents. The restricted cash was on deposit as collateral for the issuance of letters of credit on projects
purpose. Our subsidiaries that own the deposits do not have material cash obligations to any third parties. Therefore, the restriction
does not impact the liquidity of the Company.
Operating Activities
Net cash used in operating
activities decreased of 17.1% to $
20,254,517
in the year ended December 31, 2012, from $24,418,947
in the same period of 2011. Net accounts receivable increased from $19,888,084 on December 31, 2011 to $18,598,110 on December
31, 2012, a decrease of 6.5%. Allowance for doubtful accounts increased by 138.4% from December 31, 2011 to December 31, 2012
due to the accelerated method of allowance calculation. Current unbilled receivables increased from $
7,254,830
on December 31, 2011 to $27,954,525 on December 31, 2012, an increase of 285.3%, which mainly came from the Company’s
increasing BT projects and some of the overseas projects. The remaining was mainly due to the decreased inventory and prepayments
to suppliers, due to the total revenue decline.
|
|
For the Years Ended
December 31,
|
|
|
|
|
|
|
|
|
|
2012 ($)
|
|
|
2011 ($)
|
|
|
Change ($)
|
|
|
Change (%)
|
|
Cash
|
|
|
8,098,657
|
|
|
|
11,935,746
|
|
|
|
(3,837,089
|
)
|
|
|
(32.1
|
)%
|
Restricted cash
(1)
|
|
|
5,283,541
|
|
|
|
2,087,920
|
|
|
|
3,195,621
|
|
|
|
153.1
|
%
|
Accounts receivable third parties
|
|
|
20,073,881
|
|
|
|
20,507,146
|
|
|
|
(433,265
|
)
|
|
|
(2.1
|
)%
|
Allowance for doubtful accounts
|
|
|
(1,475,771
|
)
|
|
|
(619,062
|
)
|
|
|
(856,709
|
)
|
|
|
138.4
|
%
|
Net Accounts receivable
|
|
|
18,598,110
|
|
|
|
19,888,084
|
|
|
|
(1,289,974
|
)
|
|
|
(6.5
|
)%
|
Unbilled revenue
|
|
|
27,954,525
|
|
|
|
7,254,830
|
|
|
|
20,699,695
|
|
|
|
285.3
|
%
|
(1)
Consists of bank deposits
serving as project guarantees.
Investing Activities
Net
cash used for investing activities was $1,381,911 in the year ended December 31, 2012, compared to $3,563,836 in the same period
of 2011.
Comparing to which needed in 2011, much less invest required in 2012, and at the
end of 2012, our capital expenditure had reached such point that no further investing was required.
Financing Activities
The cash provided by
financing activities was $18,138,246 in 2012, compared to $17,152,767 in the same period of 2011. For the year ended December
31, 2012, the Company repaid $18,693,584 bank loans and further raised $18,831,078 bank loans. We also issued corporate bonds
in September 2012 that provided $8,052,449 cash. In addition of bank loans and corporate bonds, we borrowed loan from third party
companies and our non-controlling shareholders for an aggregated amount of $9,736,952.
Effect of Change in
Exchange Rate Changes on Cash and Cash Equivalents
Net cash loss due to
currency exchange was $
338,906
in the year ended December 31, 2012, compared to a loss of $629,233
in the same period of 2011.
Restricted Net Assets
Although we do not anticipate
paying dividends in the foreseeable future, our ability to pay dividends is primarily dependent on our receiving distributions
of funds from our subsidiaries and VIEs, which is restricted by certain regulatory requirements. Relevant PRC statutory laws and
regulations permit payments of dividends by our PRC subsidiaries and VIEs only out of their retained earnings, if any, as determined
in accordance with PRC accounting standards and regulations. In addition, our PRC Subsidiaries and VIEs 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
its general reserves until the accumulative amount of such reserves reach 50% of its registered capital. These reserves are not
distributable as cash dividends. Our off-shore subsidiaries, including TIS and TTII do not have material cash obligations to third
parties. Therefore, the dividend restriction does not impact the liquidity of the companies. There is no significant difference
between accumulated profit calculated pursuant to PRC accounting standards and those reflected in the financial statements prepared
in accordance with U.S. GAAP. As of December 31, 2012 and 2011, restricted retained earnings were $2,246,910 and $1,866,994, respectively,
and restricted net assets were $4,878,975 and $4,553,729, respectively. The unrestricted retained earnings as of December 31,
2012 and 2011 were $17,038,396 and $19,682,386, respectively, which were the amounts ultimately available for distribution if
we were to pay dividends.
Working Capital and
Cash Flow Management
As
of December 31, 2012, the Company’s working capital was $17,923,637, with current assets totaling $83,042,716 and current
liabilities totaling $65,119,079. Of the current assets, cash and cash equivalents was $13,382,198.
We believe our cash
and cash equivalents will be sufficient to operate our business in the ordinary course for 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.
|
|
·
|
We
may deviate from
Build & Transfer
projects with whose
nature of constraining
our cash in the
future. We expect
to receive a payment
of $7.9 million
from Ordos project
in the second quarter
of 2013, which
will ease our cash
flow pressure to
some extent.
|
Contractual Obligations and Commercial
Commitments
Operating Leases
As of December 31, 2012,
the Company had commitments under certain operating leases, which require annual minimum rental payments as follows:
For the Years Ended December 31,
|
|
Amount
|
|
2013
|
|
$
|
849,866
|
|
2014
|
|
|
542,698
|
|
2015
|
|
|
104,473
|
|
Total
|
|
$
|
1,497,037
|
|
The Company’s 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 lease terms, when the contracts expire, the Company has the
right to extend them with new negotiated prices. The leases are renewable subject to negotiation. Rental expenses were $1,080,036
and $714,023 for the years ended December 31, 2012 and 2011, respectively.
Product Warranties
The Company’s 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 or workmanship has not been significant. The Company has not incurred any material unexpected
costs associated with servicing warranties. It 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.
Capital Expenditures
In the past, the Company’s
capital expenditures were mainly on purchases of computers and other office equipment to support its daily business activities.
The Company spent $1,586,581 and $2,753,181 on such capital expenditures during the years ended December 31, 2012 and 2011, respectively.
The decrease was due to the Company’s slowdown in expansion and operating adjustments. As of December 31, 2012, the Company
did not have any capital expenditure commitments. The Company identified and collected Chengdu Xingrong Investment Co., LTD as
our partner together to develop the India market by increasing the paid up capital to $1 million according to Xingrong 60%, TTB
39% and TIS 1% to WOS. The Company’s total capital expenditure in connection with this cooperation will be $400,000, which
is to be funded from working capital.
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 its business extended to the civil construction activities, 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. The operating results for the first quarter often reflect the business slowdown for the Chinese traditional holidays,
the Spring Festival, which could last anywhere from 7 days up to one month.
Off-Balance Sheet Arrangements
The Company does not
have any off-balance sheet arrangements for either year 2012 or 2011.
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%. According to an approval from the Beijing State Tax Bureau of Xicheng District,
TTB received a preferential income tax rate of 7.5% from January 1, 2009 to December 31, 2011. Its income tax rate is
15% from 2012 onwards, for so long as it retains high technology certification and the applicable rate remains 15%.
Sales tax varies from
3% to 5% depending on the nature of the revenue, and VAT is 17%. For revenues generated from those parts of the Company’s
software solutions which are recognized by and registered with government authorities and meet government authorities’ requirements
to be treated as software products, the Company is 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, the Company is 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, the Company needs to maintain a certain
amount of revenue that is taxable by VAT. As such, the Company may have to refuse some of the tax exemption benefits in its 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.
Item 7A.
|
Quantitative and Qualitative Disclosures about Market Risk.
|
The Company is not required
to provide the information required by this Item because the Company is a smaller reporting company.
Item 8.
|
Financial Statements and Supplementary Data.
|
The Company’s financial
statements and the related notes, together with the report of Marcum Bernstein & Pinchuk LLP are set forth following the signature
pages of this report.
Item 9.
|
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
|
Not applicable.
Item 9A.
|
Controls and Procedures.
|
Regulations under the
Securities Exchange Act of 1934, as amended, (the “Exchange Act”) require public companies to maintain “disclosure
controls and procedures,” which are defined as controls and other procedures that are designed to ensure that information
required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be
disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s
management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate
to allow timely decisions regarding required disclosure.
The Company conducted
an evaluation, with the participation of its Chief Executive Officer and its Chief Financial Officer, of the effectiveness of
its disclosure controls and procedures as of December 31, 2012. Based on such evaluation, its Chief Executive Officer and
Chief Financial Officer concluded that, as of December 31, 2012, the Company’s disclosure controls and procedures were effective.
Management’s
Report on Internal Control over Financial Reporting
The Company’s management
is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over
financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or
under the supervision of, the issuer’s principal executive and principal financial officers and effected by the issuer’s
board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with the U.S. generally accepted accounting principles
(“U.S. GAAP”).
All internal control
systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent
limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis
by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting
process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
As of December 31, 2012,
the Company carried out an evaluation based on the criteria for effective internal control over financial reporting established
in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) and SEC guidance. Based on such assessment, management concluded that its internal control over
financial reporting was effective.
Changes in Internal
Control over Financial Reporting
There have been no changes
to its internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the
Exchange Act) during the period ended December 31, 2012 that have materially affected, or are reasonably likely to materially
affect, its internal control over financial reporting.
Item 9B.
|
Other Information.
|
None.
PART III
Item 10.
|
Directors, Executive Officers and Corporate Governance.
|
A list of our executive
officers and directors and their biographical information may be found under the respective captions “Executive Officers”
and “Directors” in our Proxy Statement for the annual shareholder meeting to be held on May 6, 2013 (the “Proxy
Statement”). Information about our Board of Directors and its duties, liabilities and policies may be found under the caption
“Board of Directors” Information about our Audit Committee may be found under the caption “Audit Committee.”
That information is incorporated herein by reference.
Code of Ethics
The
Company
has
adopted a code of ethics and has filed a copy of the Code of Ethics with the Commission
in its registration statement on Form S-1, File no. 333-158393, filed on April 3, 2009, as amended.
The code of ethics
is publicly available on
our website at
http://www.tri-tech.cn/ir/governance/charters
. If we
make any substantive amendments to the Code of Ethics or grant any waiver, including any implicit waiver, from a provision of
the Code of Ethics to our Chief Executive Officer or Chief Financial Officer, we will disclose the nature of the amendment or
waiver on that website or in a report on Form 8-K.
Item 11.
|
Executive Compensation.
|
The information in the
Proxy Statement set forth under the captions “Director Compensation,” “Named Executive Officer Compensation,”
and “Compensation Committee Report” is incorporated herein by reference.
Item 12.
|
Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.
|
The information in the
Proxy Statement set forth under the captions “Information Regarding Beneficial Ownership of Principal Shareholders, Directors,
and Management” and “Equity Compensation Plan Information” is incorporated herein by reference.
Item 13.
|
Certain Relationships and Related Transactions, and Director
Independence.
|
The information set forth
in the Proxy Statement under the captions “Director Independence” and “Certain Relationships and Related Transactions”
is incorporated herein by reference.
Item 14.
|
Principal Accountant Fees and Services.
|
Marcum Bernstein &
Pinchuk LLP was appointed by the Company to serve as its independent registered public accounting firm for fiscal year 2012 and
2011. Audit services provided by Marcum Bernstein & Pinchuk LLP for 2012 and 2011 included the examination of the consolidated
financial statements of the Company and services related to periodic filings made with the SEC.
Fees Paid To
Independent Registered Public Accounting Firm
Audit Fees
During fiscal year 2012,
Marcum Bernstein & Pinchuk LLP’s fees for the annual audit of the financial statements and the quarterly reviews of
the financial statements were $200,000. During fiscal year 2011, Marcum Bernstein & Pinchuk LLP’s fees for the annual
audit of the Company’s financial statements and the quarterly reviews of the financial statements were $170,000.
Audit Related Fees
The Company did not pay
Marcum Bernstein & Pinchuk LLP for audit-related services in fiscal years 2012 and 2011.
Tax Fees
The Company did not pay
Marcum Bernstein & Pinchuk LLP for tax services in fiscal years 2012 and 2011.
All Other Fees
The Company did not pay
Marcum Bernstein & Pinchuk LLP for other services in fiscal year 2012. In fiscal year 2011, the Company paid Marcum Bernstein
& Pinchuk LLP $2,000 in fees for its work in relation to the Company’s filing of registration statement on Form S-8
and $6,400 for its work in relation to the Company’s filing of registration statement on Form S-3 and amendments, collectively.
.
Audit Committee
Pre-Approval Policies
Before Marcum Bernstein
& Pinchuk LLP was engaged by the Company to render audit or non-audit services, the engagement was approved by the Company’s
audit committee. All services rendered by Marcum Bernstein & Pinchuk LLP have been so approved.
Item 15.
|
Exhibits, Financial Statement Schedules.
|
The following documents
are filed herewith:
Exhibit
Number
|
|
Document
|
|
|
|
3(i).1
|
|
Articles of Association of
the Registrant
(1)
|
|
|
|
3(i).2
|
|
Amended and Restated Articles
of Association of the Registrant
(1)
|
|
|
|
3(ii).1
|
|
Memorandum of Association of
the Registrant
(1)
|
|
|
|
3(ii).2
|
|
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
|
|
2011 Share Incentive Plan
(2)
|
|
|
|
21.1
|
|
Subsidiaries of the Registrant
(3)
|
|
|
|
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
(3)
|
|
|
|
|
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
(3)
|
|
|
32.1
|
|
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(4)
|
|
|
32.2
|
|
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(4)
|
|
|
|
101.INS
|
|
XBRL Instance Document
(4)
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document
(4)
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
(4)
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
(4)
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
(4)
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
(4)
|
(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 annual report
on Form 10-K, SEC Accession No. 0001144204-12-017170, filed on March 26, 2012.
|
(3)
|
Filed herewith.
|
(4)
|
Furnished herewith.
|
SIGNATURES
Pursuant to the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned; thereunto duly authorized, in Beijing, China, on April 1, 2013.
|
|
TRI-TECH HOLDING INC.
|
|
|
|
April
1, 2013
|
|
By:
|
|
/s/ GAVIN
CHENG
|
|
|
|
|
Gavin Cheng
|
|
|
|
|
Chief Executive Officer
|
|
|
|
|
(Principal Executive Officer)
|
Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Registrant and
in the capacities indicated on April 1, 2013.
Signature
|
|
Title
|
|
|
/s/ GAVIN CHENG
|
|
Chief Executive Officer and Director
|
Gavin Cheng
|
|
(Principal Executive Officer)
|
|
|
/s/ PHIL FAN
|
|
Chief Financial Officer and Director
|
Phil Fan
|
|
(Principal Accounting and Financial Officer and Authorized
Representative in the United States)
|
|
|
/s/ WARREN ZHAO
|
|
Chairman of Board of Directors and Director
|
Warren Zhao
|
|
|
|
|
/s/ PETER DONG
|
|
Chief Operating Officer and Director
|
Peter Dong
|
|
(Principal Operating Officer)
|
|
|
/s/ DA-ZHUANG GUO
|
|
Director
|
Da-Zhuang Guo
|
|
|
|
|
/s/ PEIYAO ZHANG
|
|
Director
|
Peiyao Zhang
|
|
|
|
|
/s/ PETER ZHUO
|
|
Director
|
Peter Zhuo
|
|
|
|
|
/s/ MING ZHU
|
|
Director
|
Ming Zhu
|
|
|
|
|
/s/ JOHN MCAULIFFE
|
|
Director
|
John McAuliffe
|
|
|
TRI-TECH HOLDING INC. AND SUBSIDIARIES
Financial Statements
For the years
ended December 31, 2012 and 2011
TRI-TECH HOLDING INC. AND SUBSIDIARIES
Index to Financial Statements
|
Page
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-2
|
|
|
CONSOLIDATED BALANCE SHEETS
|
F-3
|
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
|
F-4
|
|
|
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
|
F-5
|
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
F-6
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
F-7 – F-34
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Audit Committee of the
Board of Directors and Shareholders of
Tri-Tech Holding Inc.
We have audited the accompanying consolidated
balance sheets of Tri-Tech Holding, Inc. and Subsidiaries (the “Company”) as of December 31, 2012 and 2011, and the
related consolidated statements of operations and comprehensive income/(loss), changes in equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion,
the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the
Company, as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America
.
/s/ Marcum Bernstein & Pinchuk
llp
New York, New York
April 1, 2013
TRI-TECH HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
8,098,657
|
|
|
$
|
11,935,746
|
|
Restricted cash
|
|
|
4,352,443
|
|
|
|
2,087,920
|
|
Accounts and notes receivable, net of allowance for doubtful accounts of $1,475,771 and $619,062 as of December 31, 2012 and 2011, respectively
|
|
|
18,598,110
|
|
|
|
19,888,084
|
|
Unbilled revenue
|
|
|
27,954,525
|
|
|
|
7,254,830
|
|
Other receivables
|
|
|
3,825,770
|
|
|
|
2,761,548
|
|
Inventories
|
|
|
8,459,073
|
|
|
|
7,705,752
|
|
Deposits on projects
|
|
|
1,469,550
|
|
|
|
1,212,691
|
|
Prepayments to suppliers and subcontractors
|
|
|
9,353,490
|
|
|
|
4,908,697
|
|
Total current assets
|
|
|
82,111,618
|
|
|
|
57,755,268
|
|
Long-term unbilled revenue
|
|
|
51,219,694
|
|
|
|
59,298,740
|
|
Long-term accounts receivables
|
|
|
413,770
|
|
|
|
-
|
|
Plant and equipment, net
|
|
|
1,764,784
|
|
|
|
1,436,838
|
|
Construction in progress
|
|
|
5,359,466
|
|
|
|
4,566,934
|
|
Intangible assets, net
|
|
|
10,902,932
|
|
|
|
11,609,662
|
|
Long-term restricted cash
|
|
|
3,464,524
|
|
|
|
2,541,958
|
|
Goodwill
|
|
|
1,441,278
|
|
|
|
1,441,278
|
|
Total Assets
|
|
$
|
156,678,066
|
|
|
$
|
138,650,678
|
|
LIABILITIES AND SHAREHOLDER’S EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,890,511
|
|
|
$
|
11,401,187
|
|
Notes payable
|
|
|
-
|
|
|
|
1,176,197
|
|
Costs accrual on projects
|
|
|
23,637,751
|
|
|
|
19,402,047
|
|
Advance from customers
|
|
|
1,157,247
|
|
|
|
1,886,607
|
|
Loans from third party companies and individual
|
|
|
6,400,659
|
|
|
|
972,196
|
|
Amount due to related party
|
|
|
1,656,420
|
|
|
|
0
|
|
Amount due to noncontrolling interest investor
|
|
|
9,047,068
|
|
|
|
6,557,548
|
|
Other payables
|
|
|
461,258
|
|
|
|
187,038
|
|
Tax payable
|
|
|
5,577,533
|
|
|
|
3,221,869
|
|
Accrued liabilities
|
|
|
485,354
|
|
|
|
379,357
|
|
Payable on investment consideration
|
|
|
582,966
|
|
|
|
895,000
|
|
Deferred income taxes
|
|
|
1,782,786
|
|
|
|
358,519
|
|
Deferred revenue
|
|
|
289,485
|
|
|
|
|
|
Short-term bank borrowing (including VIE short-term borrowing of the consolidated VIEs without recourse to Tri-Tech Holdings of $2,754,158 and $2,296,895 as of December 31, 2012 and 2011, respectively)
|
|
|
8,150,041
|
|
|
|
8,010,365
|
|
Total current liabilities
|
|
|
65,119,079
|
|
|
|
54,447,930
|
|
Long-term bank borrowing
|
|
|
17,976
|
|
|
|
-
|
|
Corporate Bond
|
|
|
7,935,122
|
|
|
|
-
|
|
Noncurrent deferred income taxes
|
|
|
3,699,790
|
|
|
|
3,455,823
|
|
Total Liabilities
|
|
|
76,771,967
|
|
|
|
57,903,753
|
|
Shareholders' equity
|
|
|
|
|
|
|
|
|
Tri-Tech Holding Inc. shareholders' equity
|
|
|
|
|
|
|
|
|
Ordinary shares ($0.001 par value, 30,000,000 shares authorized; 8,259,506 and 8,203,299 shares issued as of December 31, 2012 and 2011, respectively)
|
|
|
8,259
|
|
|
|
8,203
|
|
Additional paid-in-capital
|
|
|
50,119,428
|
|
|
|
48,772,307
|
|
Statutory reserves
|
|
|
2,246,910
|
|
|
|
1,866,994
|
|
Retained earnings
|
|
|
17,038,396
|
|
|
|
19,682,386
|
|
Treasury shares (21,100 shares in treasury as of December 31, 2012 and 2011, respectively)
|
|
|
(193,750
|
)
|
|
|
(193,750
|
)
|
Accumulated other comprehensive income
|
|
|
5,086,827
|
|
|
|
4,593,046
|
|
Total Tri-Tech Holding Inc. shareholders' equity
|
|
|
74,306,070
|
|
|
|
74,729,186
|
|
Noncontrolling interests
|
|
|
5,600,029
|
|
|
|
6,017,739
|
|
Total shareholders' equity
|
|
|
79,906,099
|
|
|
|
80,746,925
|
|
Total liabilities and shareholders’ equity
|
|
$
|
156,678,066
|
|
|
$
|
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 Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
System integration
|
|
|
67,961,198
|
|
|
|
82,401,473
|
|
Hardware products
|
|
|
4,668,354
|
|
|
|
3,460,610
|
|
Software products
|
|
|
-
|
|
|
|
10,838
|
|
Total revenues
|
|
|
72,629,552
|
|
|
|
85,872,921
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
System integration
|
|
|
51,800,856
|
|
|
|
61,677,449
|
|
Hardware products
|
|
|
3,328,662
|
|
|
|
2,338,269
|
|
Software products
|
|
|
-
|
|
|
|
1,734
|
|
Total cost of revenues
|
|
|
55,129,518
|
|
|
|
64,017,452
|
|
Gross profit
|
|
|
17,500,034
|
|
|
|
21,855,469
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Selling and marketing expenses
|
|
|
4,148,861
|
|
|
|
2,164,363
|
|
General and administrative expenses
|
|
|
13,987,293
|
|
|
|
8,772,446
|
|
Research and development expenses
|
|
|
174,726
|
|
|
|
179,396
|
|
Total operating expenses
|
|
|
18,310,880
|
|
|
|
11,116,205
|
|
(Loss) Income from operations
|
|
|
(810,846
|
)
|
|
|
10,739,264
|
|
Other expense:
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
1,958,119
|
|
|
|
607,674
|
|
Interest income
|
|
|
230,920
|
|
|
|
284,950
|
|
Interest expense
|
|
|
(2,407,209
|
)
|
|
|
(695,475
|
)
|
Investment gain
|
|
|
-
|
|
|
|
(6,985
|
)
|
Fair Value change on contingent investment consideration
|
|
|
85,558
|
|
|
|
(200,000
|
)
|
Total other expenses
|
|
|
(132,612
|
)
|
|
|
(9,836
|
)
|
(Loss) Income before provision for income taxes
|
|
|
(943,458
|
)
|
|
|
10,729,428
|
|
Provision for income taxes
|
|
|
1,808,415
|
|
|
|
1,958,864
|
|
Net (loss) income
|
|
|
(2,751,873
|
)
|
|
|
8,770,564
|
|
Less: Net (loss) income attributable to noncontrolling interests
|
|
|
(487,799
|
)
|
|
|
682,190
|
|
Net (loss) income attributable to Tri-Tech Holding Inc. shareholders
|
|
$
|
(2,264,074
|
)
|
|
$
|
8,088,374
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(2,751,873
|
)
|
|
|
8,770,564
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
527,672
|
|
|
|
3,052,049
|
|
Comprehensive (loss) income
|
|
|
(2,224,201
|
)
|
|
|
11,822,613
|
|
Less: Comprehensive (loss) income attributable to noncontrolling interests
|
|
|
(487,799
|
)
|
|
|
880,992
|
|
Comprehensive (loss) income attributable to Tri-Tech Holding Inc.
|
|
$
|
(1,736,402
|
)
|
|
$
|
10,941,621
|
|
Net (loss) income attributable to Tri-Tech Holding Inc. shareholders per share are:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.28
|
)
|
|
$
|
0.99
|
|
Diluted
|
|
$
|
(0.28
|
)
|
|
$
|
0.98
|
|
Weighted average number of ordinary shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
8,211,089
|
|
|
|
8,142,867
|
|
Diluted
|
|
|
8,211,089
|
|
|
|
8,238,291
|
|
See notes to consolidated
financial statements
TRI-TECH HOLDING INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN EQUITY
|
|
Ordinary
Share
|
|
|
|
|
|
Retained
earnings
|
|
|
|
|
|
Acc.
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Additional paid-in-
|
|
|
Statutory
|
|
|
|
|
|
|
|
|
comprehensive
|
|
|
Noncontrolling
|
|
|
shareholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
reserves
|
|
|
Unrestricted
|
|
|
Treasury share
|
|
|
Income
|
|
|
interests
|
|
|
equity
|
|
BALANCE, January 1,
2011
|
|
|
8,051,833
|
|
|
$
|
8,052
|
|
|
$
|
47,278,042
|
|
|
$
|
897,382
|
|
|
$
|
12,563,624
|
|
|
$
|
(193,750
|
)
|
|
$
|
1,739,799
|
|
|
$
|
2,027,917
|
|
|
$
|
64,321,066
|
|
Ordinary share issuance in business combination
|
|
|
57,766
|
|
|
|
57
|
|
|
|
429,919
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
429,976
|
|
Capital injection by noncontrolling interest shareholder
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,108,830
|
|
|
|
3,108,830
|
|
Warrants share-based payment to Hawk Association Inc
|
|
|
-
|
|
|
|
|
|
|
|
60,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,962
|
|
Share-based compensation on option issued to employees
|
|
|
-
|
|
|
|
-
|
|
|
|
371,003
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
371,003
|
|
Exercise of share-based compensation on option issued
to employees
|
|
|
93,700
|
|
|
|
94
|
|
|
|
632,381
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
632,475
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,088,374
|
|
|
|
-
|
|
|
|
-
|
|
|
|
682,190
|
|
|
|
8,770,564
|
|
Transfer to statutory reserve
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
969,612
|
|
|
|
(969,612
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Foreign currency translation Adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,853,247
|
|
|
|
198,802
|
|
|
|
3,052,049
|
|
BALANCE, January 1, 2012
|
|
|
8,203,299
|
|
|
$
|
8,203
|
|
|
$
|
48,772,307
|
|
|
$
|
1,866,994
|
|
|
$
|
19,682,386
|
|
|
$
|
(193,750
|
)
|
|
$
|
4,593,046
|
|
|
$
|
6,017,739
|
|
|
$
|
80,746,925
|
|
Capital injection by noncontrolling interest shareholder
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
36,198
|
|
|
|
36,198
|
|
Issuance of ordinary shares for business combination
|
|
|
30,207
|
|
|
|
30
|
|
|
|
229,845
|
|
|
|
-
|
|
|
|
-
|
|
|
|
—
|
|
|
|
-
|
|
|
|
-
|
|
|
|
229,875
|
|
Issuance of ordinary shares to employees
|
|
|
26,000
|
|
|
|
26
|
|
|
|
71,730
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
71,756
|
|
Share-based compensation on option issued to employees
|
|
|
|
|
|
|
|
|
|
|
1,045,546
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,045,546
|
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,264,074
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(487,799
|
)
|
|
|
(2,751,873
|
)
|
Transfer to statutory reserve
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
379,916
|
|
|
|
(379,916
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Foreign currency translation Adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
493,781
|
|
|
|
33,891
|
|
|
|
527,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2012
|
|
|
8,259,506
|
|
|
$
|
8,259
|
|
|
$
|
50,119,428
|
|
|
$
|
2,246,910
|
|
|
$
|
17,038,396
|
|
|
$
|
(193,750
|
)
|
|
$
|
5,086,827
|
|
|
$
|
5,600,029
|
|
|
$
|
79,906,099
|
|
See notes to consolidated financial statements
TRI-TECH HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
For the Years Ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(2,751,873
|
)
|
|
$
|
8,770,564
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Amortization of share-based compensation expense
|
|
|
1,117,227
|
|
|
|
371,003
|
|
Amortization of warrants
|
|
|
-
|
|
|
|
60,962
|
|
Depreciation and amortization
|
|
|
1,224,646
|
|
|
|
773,604
|
|
Provision for doubtful accounts
|
|
|
855,302
|
|
|
|
163,575
|
|
Fair value change on contingent investment consideration
|
|
|
(85,558
|
)
|
|
|
200,000
|
|
Loss on disposal of plant and equipment
|
|
|
9,756
|
|
|
|
8,645
|
|
Gain on investment in joint venture
|
|
|
-
|
|
|
|
6,985
|
|
Deferred income taxes
|
|
|
1,634,308
|
|
|
|
1,423,523
|
|
Changes in operating assets and liabilities::
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
22,835
|
|
|
|
(881,733
|
)
|
Unbilled revenue
|
|
|
(12,837,189
|
)
|
|
|
(45,295,256
|
)
|
Restricted cash
|
|
|
(3,174,767
|
)
|
|
|
(2,785,325
|
)
|
Other current assets
|
|
|
(1,022,956
|
)
|
|
|
(186,440
|
)
|
Inventories
|
|
|
(752,618
|
)
|
|
|
(1,021,897
|
)
|
Prepaid expenses
|
|
|
(203,302
|
)
|
|
|
(157,307
|
)
|
Prepayments
|
|
|
(4,723,440
|
)
|
|
|
(3,225,525
|
)
|
Accounts payable
|
|
|
(5,695,882
|
)
|
|
|
5,877,391
|
|
Notes payable
|
|
|
(1,174,203
|
)
|
|
|
1,147,442
|
|
Cost accrual on projects
|
|
|
4,440,666
|
|
|
|
9,484,981
|
|
Advance from customers
|
|
|
(756,745
|
)
|
|
|
(29,143
|
)
|
Other payables
|
|
|
1,568,225
|
|
|
|
565,736
|
|
Tax payable
|
|
|
1,739,367
|
|
|
|
204,546
|
|
Accrued liabilities
|
|
|
22,681
|
|
|
|
104,722
|
|
Deferred revenue
|
|
|
289,003
|
|
|
|
-
|
|
Net cash used in operating
activities
|
|
|
(20,254,517
|
)
|
|
|
(24,418,947
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Payment in business acquisition
|
|
|
(114,910
|
)
|
|
|
(488,000
|
)
|
Cash paid on investment consideration
|
|
|
-
|
|
|
|
829,802
|
|
Cash proceeds from disposal of PP&E
|
|
|
-
|
|
|
|
4,804
|
|
Payment to purchase plant and equipment
|
|
|
(643,607
|
)
|
|
|
(268,532
|
)
|
Payment in investment in joint venture
|
|
|
-
|
|
|
|
(6,985
|
)
|
Cash paid to acquire intangible asset
|
|
|
(128,681
|
)
|
|
|
(165,279
|
)
|
Cash paid for construction in progress
|
|
|
(814,293
|
)
|
|
|
(2,319,370
|
)
|
Payment of loan to third-party companies
|
|
|
(158,438
|
)
|
|
|
(1,150,276
|
)
|
Collection of loan to third-party companies
|
|
|
704,494
|
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(1,155,435
|
)
|
|
|
(3,563,836
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from the exercise of options into ordinary shares
|
|
|
-
|
|
|
|
454,009
|
|
Payment of installment of purchasing vehicle
|
|
|
-
|
|
|
|
(15,374
|
)
|
Proceeds from bank borrowings
|
|
|
18,831,078
|
|
|
|
7,814,533
|
|
Payment of bank borrowing
|
|
|
(18,693,584
|
)
|
|
|
-
|
|
Proceeds from the issuance of ordinary shares
|
|
|
230,937
|
|
|
|
-
|
|
Proceeds from the issuance of corporate bond
|
|
|
8,052,449
|
|
|
|
-
|
|
Capital injection by shareholders
|
|
|
477,247
|
|
|
|
-
|
|
Capital injection by noncontrolling shareholders
|
|
|
-
|
|
|
|
1,737,115
|
|
Proceeds from amount due from shareholder
|
|
|
31,373
|
|
|
|
-
|
|
Payment of amount due from shareholder
|
|
|
(52,891
|
)
|
|
|
-
|
|
Proceeds from loan from third-party companies
|
|
|
8,130,386
|
|
|
|
715,776
|
|
Payment of loan from third-party companies
|
|
|
-
|
|
|
|
-
|
|
Proceeds from loan from non-controlling shareholders
|
|
|
(475,315
|
)
|
|
|
6,446,708
|
|
Payment of loan from non-controlling shareholders
|
|
|
1,606,566
|
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
18,138,246
|
|
|
|
17,152,767
|
|
|
|
|
|
|
|
|
|
|
EFFECTS OF EXCHANGE RATE CHANGE IN CASH
|
|
|
(565,383
|
)
|
|
|
(629,233
|
)
|
NET DECREASE IN CASH
|
|
$
|
(3,837,089
|
)
|
|
$
|
(11,459,249
|
)
|
|
|
|
|
|
|
|
|
|
CASH, beginning of the period
|
|
|
11,935,746
|
|
|
|
23,394,995
|
|
CASH, end of the period
|
|
|
8,098,657
|
|
|
|
11,935,746
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure for cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
|
204,019
|
|
|
|
363,486
|
|
Interest paid on debt
|
|
|
1,029,602
|
|
|
|
189,609
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure for noncash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Addition in land use right by transferring from long-term prepayment
|
|
|
-
|
|
|
|
5,418,963
|
|
Addition in construction in progress by transferring from accounts payable
|
|
|
725,569
|
|
|
|
2,135,919
|
|
Addition in intangible assets by business acquisition with J&Y International Inc.
|
|
|
-
|
|
|
|
1,280,000
|
|
Contingent consideration payable on business acquisition with J&Y International Inc
|
|
|
-
|
|
|
|
(895,000
|
)
|
Addition in intangible assets by business acquisition with Huaxia Yuanjie Water Technology Co., Ltd
|
|
|
-
|
|
|
|
580.996
|
|
Issued 30,207 and 35,974 ordinary shares as one of the consideration in
business acquisition with J&Y International Inc. in 2012 & 2011, respectively
|
|
|
229,875
|
|
|
|
277,000
|
|
Addition in plant and equipment by business acquisition with Huaxia Yuanjie Water Technology Co., Ltd
|
|
|
-
|
|
|
|
256,278
|
|
Issued 21,792 ordinary shares as consideration of purchasing intangible assets
|
|
|
-
|
|
|
|
155,448
|
|
Addition in plant and equipment by transferring from construction in progress
|
|
|
40,740
|
|
|
|
150,864
|
|
Gain on long-term investment to India Joint Venture
|
|
|
78,558
|
|
|
|
-
|
|
See notes to consolidated
financial 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 2011, 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 hold 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.
|
2.
|
Summary of Significant Accounting Policies
|
Principles of consolidation and basis
of presentation
The consolidated financial
information as of December 31, 2012 and 2011 and for the years then ended are prepared in accordance with accounting principles
generally accepted in the United States of America (“US GAAP”). The consolidated financial information should be read
in conjunction with the Financial Statements and the notes thereto. All material inter-company transactions and balances have been
eliminated in the consolidation.
The accompanying consolidated
financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission
(“SEC”). The preparation of financial statements in conformity with these accounting principles requires us to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.
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 the US GAAP when reporting.
Reclassifications
Certain amounts have
been reclassified to conform to the current presentation.
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 December 31, 2012 and 2011 was $5,283,541 and $2,087,920, respectively. The long-term restricted cash balance at
December 31, 2012 and 2011 was $2,533,426 and $2,541,958, respectively. For details, refer to Note 5 of consolidated financial
statements.
Accounts Receivable
Accounts 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 ascribe 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 expenses as incurred, and capitalizes major additions and betterment 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 provision was made 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 were identified in prior and current years.
The Company evaluates
the periods of depreciation and amortization to determine whether subsequent events and circumstances revised estimates of useful
lives.
Intangible Assets
The
Company amortizes other acquired intangible assets with definite lives on a straight-line basis over their expected useful economic
lives. The Company does not amortize intangible assets with an indefinite useful life but subjects them to an impairment test annually
or more frequently if events or changes in circumstances indicate that the assets might be impaired.
Assets
|
|
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
|
Business combination
For a business combination
with an acquisition date on or after the beginning of the first annual reporting period beginning on or after December 15,
2008, the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree are recognized at the acquisition
date, measured at their fair values as of that date. In a business combination achieved in stages, the identifiable assets and
liabilities, as well as the non-controlling interest in the acquiree, are recognized at the full amounts of their fair values.
In a bargain purchase in which the total acquisition-date fair value of the identifiable net assets acquired exceeds the fair value
of the consideration transferred plus any non-controlling interest in the acquiree, that excess in earnings was recognized as a
gain attributable to the Company.
Deferred tax liability
and asset were recognized for the deferred tax consequences of differences between the tax bases and the recognized values of assets
acquired and liabilities assumed in a business combination in accordance with ASC Topic 740, “Income Taxes”.
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 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. The Company performed its impairment test at December 31, 2012
and 2011, and determined that there was no impairment of goodwill as of December 31, 2012 and 2011, respectively.
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 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 of 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.
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.
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 has been experienced in the ordinary business operation.
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.
Cost of Revenues
Cost of revenues is
based on total actual costs incurred plus estimated costs to completion applied to 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 services fees and other costs that directly relate to the execution of the services and delivery
of projects. Cost of revenues also includes inbound freight charges, purchasing and receiving costs and inspection costs when they
incur.
Operating Expenses
Operating expenses include,
among other items, salaries, bonuses, and employees’ social insurance, administrative and sales expenses, travel and entertainment
expenses, depreciation of equipment, amortization of intangible assets, office rental expenses, professional service fees, office
supplies, research and development expenses, bad debt provision, etc.
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, Bugusarai Hajipur and WOS is 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 $5,086,827 and $4,593,046 as of December 31, 2012 and December 31, 2011, respectively. The Company translated balance
sheet amounts with the exception of equity at December 31, 2012 at RMB6.3011 to US$1.00 and INR54.8390 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 years ended December 31, 2012
and 2011 were RMB6.3116 and RMB6.4588 to US$1.00, respectively. The average translation rates applied to income statement accounts
for the period from May 19, 2012 to December 31, 2012 was INR54.8301 to US$1.00.
The translation rates
between RMB and USD and 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 December 31, 2012 and 2011. The Company did not have any significant unrecognized
uncertain tax positions as of December 31, 2012 and 2011.
The Company’s
domestic operations are subject to income and transaction taxes in China, overseas operations are subject to local income and transaction
taxes, but 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 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 share (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 share. 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 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 ordinary share during the
years ended December 31, 2012 and 2011. 170,000 warrants had been exercised at a price equal to $8.10 per share as of
December 31, 2012. As of December 31, 2012, 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 approximates 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 Chief Operating
Decision Maker 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 2013.
|
|
3)
|
$335,000 payable based on the specific threshold of performance EBITDA generated in connection
with a specific contract. The performance of EBIDTA draft for 2012 didn’t reach the threshold by the specific contract, therefore,
this amount will not been paid before the date of issuing the financial statement. If there is any revision in the following months,
related revision will be made accordingly.
|
|
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 December 31, 2012 and December 31, 2011 was estimated at $582,966
and
$895,000.
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 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 from May 19 to Dec 31, 2012 generated from TII (Unaudited)
|
|
$
|
790,625
|
|
|
$
|
(259,108
|
)
|
|
|
|
|
|
|
|
|
|
Supplemental pro forma from January 1 to December 31, 2012 (Unaudited)
|
|
$
|
72,740,667
|
|
|
$
|
(2,652,032
|
)
|
|
|
|
|
|
|
|
|
|
Supplemental pro forma from January 1 to December 31, 2011 (Unaudited)
|
|
$
|
85,872,921
|
|
|
$
|
8,770,564
|
|
Supplemental pro forma
in revenue:
Revenue
|
|
India Co.
|
|
|
TRIT Group
|
|
|
Elimination
|
|
|
Combined
|
|
January 1, 2012 - December 31, 2012 (Unaudited)
|
|
$
|
1,348,665
|
|
|
$
|
72,629,552
|
|
|
$
|
(1,237,550
|
)
|
|
$
|
72,740,667
|
|
January 1, 2011 - December 31, 2011 (Unaudited)
|
|
$
|
-
|
|
|
$
|
85,872,921
|
|
|
$
|
-
|
|
|
$
|
85,872,921
|
|
Supplemental pro forma
in net (loss) income before allocation to noncontrolling interests:
Net (loss) income before allocation to
noncontrolling interests
|
|
India Co.
|
|
|
TRIT Group
|
|
|
Elimination
|
|
|
Combined
|
|
January 1, 2012 - December 31, 2012 (Unaudited)
|
|
$
|
(147,667
|
)
|
|
$
|
(2,751,873
|
)
|
|
$
|
247,510
|
|
|
$
|
(2,652,032
|
)
|
January 1, 2011 - December 31, 2011 (Unaudited)
|
|
$
|
-
|
|
|
$
|
8,770,564
|
|
|
$
|
-
|
|
|
$
|
8,770,564
|
|
|
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 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 December 31, 2012 and 2011 are shown as below, which exclude intercompany balances that are eliminated
among the VIEs.
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,346,543
|
|
|
$
|
4,414,701
|
|
Restricted cash
|
|
|
521,302
|
|
|
|
1,192,134
|
|
Accounts and notes receivable, net
|
|
|
18,171,800
|
|
|
|
19,310,636
|
|
Unbilled revenue
|
|
|
8,568,681
|
|
|
|
4,361,317
|
|
Other receivables
|
|
|
17,210,742
|
|
|
|
8,790,816
|
|
Inventories
|
|
|
6,741,246
|
|
|
|
5,950,510
|
|
Deposits on projects
|
|
|
1,296,163
|
|
|
|
983,013
|
|
Prepayments to suppliers and subcontractors
|
|
|
9,506,484
|
|
|
|
1,387,119
|
|
Total current assets
|
|
|
64,362,961
|
|
|
|
46,390,246
|
|
Long-term unbilled revenue
|
|
|
1,040,367
|
|
|
|
2,154,667
|
|
Plant and equipment, net
|
|
|
684,067
|
|
|
|
511,160
|
|
Intangible assets, net
|
|
|
3,848,986
|
|
|
|
4,138,012
|
|
Long-term investment
|
|
|
-
|
|
|
|
5,855,566
|
|
Long-term restricted cash
|
|
|
-
|
|
|
|
26,834
|
|
Total Assets
|
|
$
|
69,936,381
|
|
|
$
|
59,076,485
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
7,844,856
|
|
|
|
1,394,883
|
|
Notes payable
|
|
|
-
|
|
|
|
1,176,197
|
|
Advance from customers
|
|
|
8,650,053
|
|
|
|
8,104,579
|
|
Customer deposits
|
|
|
10,192,513
|
|
|
|
1,920,597
|
|
Loan from third party companies and individual
|
|
|
1,781,717
|
|
|
|
-
|
|
Other payables
|
|
|
21,317,295
|
|
|
|
19,944,048
|
|
Accrued liabilities
|
|
|
-
|
|
|
|
-
|
|
Income taxes payable
|
|
|
87,189
|
|
|
|
10,096
|
|
Deferred income taxes
|
|
|
329,899
|
|
|
|
328,419
|
|
Short-term bank borrowing
|
|
|
2,754,158
|
|
|
|
2,296,895
|
|
Total current liabilities
|
|
|
52,957,680
|
|
|
|
35,175,714
|
|
Total Liabilities
|
|
$
|
52,957,680
|
|
|
$
|
35,175,714
|
|
For the year ended December 31, 2012, the
financial performance of the VIEs reported in the consolidated statements of sales revenue of approximately US$38,666,647, cost
of sales of approximately US$ 30,146,293, operating expenses of approximately US$9,961,179 and net loss before noncontrolling interest
of approximately US$1,788,241.
For the year ended December 31, 2011, the
financial performance of the VIEs reported in the consolidated statements of operations and comprehensive income/(loss) includes sales of
approximately US$62,537,400, cost of sales of approximately US$54,654,896, operating expenses of approximately US$7,325,526 and
net income of approximately US$385,755.
As of December 31, 2012, the Company has
made deposits totaling $7,816,967 as collateral in exchange of the issuance of letters of credit. Among these letters
of credit, a total of $4,352,443 is with expiration dates within the next 12 months. The remaining balance of $3,464,524 is to
expire in 2014 or later, which 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 at December 31, 2012 and 2011 are as the following:
|
|
December 31
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Accounts receivable, gross
|
|
$
|
20,073,881
|
|
|
$
|
20,507,146
|
|
Less bad debt provision
|
|
|
(1,475,771
|
)
|
|
|
(619,062
|
)
|
Accounts receivable, net
|
|
$
|
18,598,110
|
|
|
$
|
19,888,084
|
|
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:
|
|
December 31
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Balance at beginning of the year
|
|
$
|
619,062
|
|
|
|
427,020
|
|
Increase in allowances during the year
|
|
|
950,302
|
|
|
|
192,321
|
|
Write-offs during the year
|
|
|
(93,593
|
)
|
|
|
(279
|
)
|
Accounts receivable, net
|
|
$
|
1,475,771
|
|
|
$
|
619,062
|
|
For revenues accounted for under this account,
we expect the amounts to be billed and 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 December 31,
2012 and December 31, 2011 are as the following:
|
|
December 31
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Current unbilled revenue
|
|
$
|
27,954,525
|
|
|
$
|
7,254,830
|
|
Long-term unbilled revenue
|
|
|
51,219,694
|
|
|
|
59,298,740
|
|
Total unbilled revenue
|
|
$
|
79,174,219
|
|
|
$
|
66,553,570
|
|
As of December 31, 2012, 34% of the current
unbilled revenue, and none of the long-term unbilled revenue were related to the three India projects. The remaining balances were
for various other on-going projects. All of the balances are considered collectible.
Other receivables consisted of the following:
|
|
December 31
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Advances to staff
|
|
$
|
1,343,985
|
|
|
|
772,770
|
|
Loan to third-party companies
|
|
|
678,511
|
|
|
|
1,207,119
|
|
Amount due from related party
|
|
|
231,843
|
|
|
|
-
|
|
Rental deposit
|
|
|
362,308
|
|
|
|
186,710
|
|
Prepaid expense
|
|
|
397,550
|
|
|
|
191,845
|
|
Others
|
|
|
811,574
|
|
|
|
403,104
|
|
Total
|
|
$
|
3,825,770
|
|
|
$
|
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
for working capital purposes. $500,000 is for short-term of six months with 6% annualized interest rate,
and $158,702 is for one year with no interest
.
Inventories consisted of the following:
|
|
December 31
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Raw materials
|
|
$
|
2,752,199
|
|
|
$
|
1,835,715
|
|
Finished goods
|
|
|
910,003
|
|
|
|
589,887
|
|
Working in process
|
|
|
4,796,871
|
|
|
|
5,280,150
|
|
Total
|
|
$
|
8,459,073
|
|
|
$
|
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 December 31, 2012
and 2011, the Company determined that no reserves were necessary.
Deposits on Projects consisted of the following:
|
|
December 31
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Current:
|
|
|
|
|
|
|
|
|
Contract deposit
|
|
$
|
867,835
|
|
|
$
|
659,568
|
|
Bidding deposit
|
|
|
601,715
|
|
|
|
553,123
|
|
Total
|
|
$
|
1,469,550
|
|
|
$
|
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 involving
in the bidding process. All of the deposits will be utilized within one year.
|
11.
|
Plant and Equipment, Net
|
Plant and equipment consist of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Buildings
|
|
$
|
271,507
|
|
|
$
|
271,515
|
|
Machinery & equipment
|
|
|
159,678
|
|
|
|
137,217
|
|
Transportation equipment
|
|
|
1,016,529
|
|
|
|
857,812
|
|
Office equipment
|
|
|
646,920
|
|
|
|
435,952
|
|
Furniture
|
|
|
445,740
|
|
|
|
402,842
|
|
Leasehold improvements
|
|
|
233,952
|
|
|
|
-
|
|
Total plant and equipment
|
|
|
2,774,326
|
|
|
|
2,105,338
|
|
Less accumulated depreciation
|
|
|
(1,009,542
|
)
|
|
|
(668,500
|
)
|
Plant and equipment, net
|
|
$
|
1,764,784
|
|
|
$
|
1,436,838
|
|
The depreciation expense for the years
ended December 31, 2012 and 2011 amounted to $309,387 and $145,779 , 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 June 2011, and is expected to complete by end of year 2013. The construction in progress of the Baoding facility is
totaled at $
5,359,466 and $4,566,934
as of December 31 2012 and 2011, respectively
.
|
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 December
31, 2012 and 2011 are as follows:
|
|
December 31
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Patents
|
|
$
|
2,150,207
|
|
|
$
|
2,021,375
|
|
Software
|
|
|
2,878,862
|
|
|
|
2,878,954
|
|
Customer list
|
|
|
1,280,356
|
|
|
|
1,280,378
|
|
Land use right
|
|
|
5,724,001
|
|
|
|
5,724,181
|
|
Know-how
|
|
|
1,218,479
|
|
|
|
1,218,496
|
|
Contract backlog
|
|
|
58,719
|
|
|
|
58,722
|
|
Total intangible assets
|
|
|
13,310,624
|
|
|
|
13,182,106
|
|
Less accumulated amortization
|
|
|
(2,407,692
|
)
|
|
|
(1,572,444
|
)
|
Intangible assets, net
|
|
$
|
10,902,932
|
|
|
$
|
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, 2011.
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 years ended
December 31, 2012 and 2011 amounted to $907,548 and $627,825 , respectively.
The amortization expense for the five-year
period starting from December 31, 2012 is expected to be as follows:
For the Years Ended December 31,
|
|
Amount
|
|
2013
|
|
|
811,258
|
|
2014
|
|
|
811,258
|
|
2015
|
|
|
811,258
|
|
2016
|
|
|
604,034
|
|
2017
|
|
|
554,867
|
|
Thereafter
|
|
|
7,310,257
|
|
Total
|
|
|
10,902,932
|
|
|
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 India National Rupee (“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 takes 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:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Accounts payable
|
|
$
|
5,890,511
|
|
|
$
|
11,401,187
|
|
Costs accrual on projects
|
|
|
23,637,751
|
|
|
|
19,402,047
|
|
Total
|
|
$
|
29,528,262
|
|
|
$
|
30,803,234
|
|
Of the total costs accrual on projects,
37% or $8,725,834 was related to the India projects which contributed most of the ending balance in current year. The remaining
balance came from the Group’s various on-going projects.
|
16.
|
Amount due to noncontrolling interest investor
|
The amount due to noncontrolling
interest investor as of December 31, 2012 and December 31, 2011 were:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Principal
|
|
$
|
7,354,271
|
|
|
$
|
6,057,250
|
|
Interest payable investor
|
|
|
1,692,797
|
|
|
|
500,298
|
|
Total
|
|
$
|
9,047,068
|
|
|
$
|
6,557,548
|
|
The amount due to
noncontrolling interest investor, $7,354,271, was the principal amount for a short-term loan from the minority interest
investor from TTA, with interest of 1.5% per month. The loan is payable on demand. The accrued interest expense was
$1,195,898 and $459,257 as of December 31, 2012 and 2011, respectively, which was included in other payables. The purpose of
this short-term loan was mainly to reduce temporary operational cash pressure.
|
17.
|
Loan from Third-party Companies and Individual
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Nuwell Asia Limited
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
Beijing Liyuanshida Technology Co., Ltd
|
|
|
2,968,941
|
|
|
|
-
|
|
Xuzhou Weisi water technology co., LTD
|
|
|
643,697
|
|
|
|
-
|
|
Beijing Sridi Technology Co., Ltd
|
|
|
325,584
|
|
|
|
221,183
|
|
China automation control co., LTD
|
|
|
241,345
|
|
|
|
-
|
|
Lin Bin
|
|
|
1,150,000
|
|
|
|
-
|
|
Others
|
|
|
571,092
|
|
|
|
251,013
|
|
Total
|
|
$
|
6,400,659
|
|
|
$
|
972,196
|
|
The interest rates ranged from 0.5% to 2.0%
per month. Approximately 1.0 million was interest free and has been paid off in the first quarter of 2013. The interest expense
was $195,663 and nil for the years ended December 31, 2012 and 2011, respectively.
|
18.
|
Amounts due to related party
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Cheng Guang (Shareholder/CEO)
|
|
$
|
510,850
|
|
|
$
|
-
|
|
Warren Zhao (Shareholder)
|
|
|
955,500
|
|
|
|
-
|
|
Dong Pengyu (Shareholder)
|
|
|
158,702
|
|
|
|
-
|
|
Others
|
|
|
31,368
|
|
|
|
-
|
|
Total
|
|
$
|
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%.
Other payables were non-project
related as shown below:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Corporate bond interest payable
|
|
$
|
130,745
|
|
|
$
|
-
|
|
Others
|
|
|
330,513
|
|
|
|
187,038
|
|
Total
|
|
$
|
461,258
|
|
|
$
|
187,038
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Value-added tax payable
|
|
$
|
3,539,608
|
|
|
$
|
1,367,517
|
|
Business tax payable
|
|
|
1,493,704
|
|
|
|
1,228,441
|
|
Income tax payable
|
|
|
87,189
|
|
|
|
154,519
|
|
Individual income tax payable
|
|
|
19,753
|
|
|
|
13,871
|
|
Others
|
|
|
437,279
|
|
|
|
457,521
|
|
Total
|
|
$
|
5,577,533
|
|
|
$
|
3,221,869
|
|
The amount others includes various taxes and surcharges charged
from local Tax Bureau.
The table below presents the
short-term and long-term bank borrowing interest rates and the amount borrowed as of December 31, 2012 and 2011.
Bank Name
|
|
Annual interest
rate
|
|
Terms from
|
|
Terms to
|
|
As of December
31,2012
|
|
|
As of December
31,2011
|
|
|
|
|
|
|
|
|
|
USD
|
|
|
USD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Citic Bank
|
|
7.800%
|
|
2012-12-6
|
|
2013-12-6
|
|
|
4,761,073
|
|
|
|
-
|
|
Bank of Hangzhou
|
|
7.872%
|
|
2012-3-20
|
|
2013-3-19
|
|
|
634,810
|
|
|
|
-
|
|
Bank of Hangzhou
|
|
7.872%
|
|
2012-4-19
|
|
2013-4-18
|
|
|
36,406
|
|
|
|
-
|
|
Bank of Hangzhou
|
|
7.216%
|
|
2012-4-28
|
|
2013-4-26
|
|
|
337,216
|
|
|
|
-
|
|
CMB
|
|
7.200%
|
|
2012-8-31
|
|
2013-8-31
|
|
|
1,946,666
|
|
|
|
-
|
|
CMB
|
|
7.200%
|
|
2012-8-31
|
|
2013-8-30
|
|
|
433,870
|
|
|
|
-
|
|
Citic Bank
|
|
8.528%
|
|
2011-9-27
|
|
2012-9-27
|
|
|
-
|
|
|
|
4,761,225
|
|
Bank of Hangzhou
|
|
7.872%
|
|
2011-11-30
|
|
2012-11-29
|
|
|
-
|
|
|
|
952,245
|
|
Bank of Hangzhou
|
|
7.216%
|
|
2011-7-27
|
|
2012-7-26
|
|
|
-
|
|
|
|
789,173
|
|
Bank of Hangzhou
|
|
7.216%
|
|
2011-6-27
|
|
2012-6-26
|
|
|
-
|
|
|
|
952,245
|
|
Bank of Hangzhou
|
|
7.216%
|
|
2011-4-15
|
|
2012-4-14
|
|
|
-
|
|
|
|
555,477
|
|
Total short-term bank borrowings
|
|
|
|
|
|
|
|
|
8,150,041
|
|
|
|
8,010,365
|
|
Bank Name
|
|
Annual interest
rate
|
|
Terms from
|
|
Terms to
|
|
As of December
31,2012
|
|
|
As of December
31,2011
|
|
|
|
|
|
|
|
|
|
USD
|
|
|
USD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ICICI BANK LTD. (Scorpio)
|
|
11.990%
|
|
2012-5-1
|
|
2016-4-30
|
|
|
9,460
|
|
|
|
-
|
|
ICICI BANK LTD. (VENTO)
|
|
12.250%
|
|
2012-1-15
|
|
2015-1-14
|
|
|
8,516
|
|
|
|
-
|
|
Total long-term bank borrowings
|
|
|
|
|
|
|
|
|
17,976
|
|
|
|
-
|
|
$18,693,584 of
the short-term bank borrowings was repaid by the Company for the year ended December 31, 2012. The bank loan from Citic Bank
in the amount RMB30 million (US$ 4,761,073) 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.
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. Interest expense was $823,836 for the year ended December 31, 2012,
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 effective income tax rate for the year
ended December 31, 2012 was -192%.
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 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:
|
|
For The Years Ended December31,
|
|
|
|
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
|
%
|
|
|
25
|
%
|
Xushui
|
|
|
25
|
%
|
|
|
-
|
|
Consolidated Effective Income Tax Rate
|
|
|
-192
|
%
|
|
|
18
|
%
|
The provision for income tax expense from
operations consists of the following:
|
|
For The Years Ended December 31
|
|
|
|
2012
|
|
|
2011
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overseas
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
PRC
|
|
|
87,045
|
|
|
|
502,541
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overseas
|
|
|
750,535
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
PRC
|
|
|
970,835
|
|
|
|
1,456,323
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
1,808,415
|
|
|
$
|
1,958,864
|
|
Significant components of the Company’s
deferred tax liabilities are as follows:
|
|
For the year ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Current:
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
-
|
|
|
|
-
|
|
Revenue recognition based on percentage of completion
|
|
$
|
1,782,786
|
|
|
$
|
358,519
|
|
Total current net deferred tax liabilities
|
|
$
|
1,782,786
|
|
|
$
|
358,519
|
|
Long-term:
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible assets valuation in business combination
|
|
$
|
435,314
|
|
|
$
|
525,396
|
|
Revenue recognized in completion percentage method
|
|
|
3,264,476
|
|
|
|
2,930,427
|
|
Total noncurrent net deferred tax liabilities
|
|
$
|
3,699,790
|
|
|
$
|
3,455,823
|
|
Income tax reconciliation for the years
ended December 31, 2012 and 2011 are as follows:
|
|
For the year ended December 31,
|
|
|
|
2012
|
|
|
2011
|
|
PRC federal statutory tax rate
|
|
|
25
|
%
|
|
|
25
|
%
|
Taxable income
|
|
|
(943,458
|
)
|
|
|
10,729,428
|
|
Computed expected income tax expense
|
|
|
(235,865
|
)
|
|
|
2,682,357
|
|
Effect of different tax rates
|
|
|
(11,943
|
)
|
|
|
(960,558
|
)
|
Effect of operation loss
|
|
|
1,841,275
|
|
|
|
193,713
|
|
Nondeductible items
|
|
|
214,948
|
|
|
|
43,352
|
|
Income tax expense
|
|
|
1,808,415
|
|
|
|
1,958,864
|
|
As of December 31, 2012 and December 31,
2011, the Company has 229,274 warrants outstanding for ordinary shares. None of these warrants were exercised by December 31, 2012.
For the years ended December 31, 2012 and 2011, the Company recorded warrant expenses as general and administrative expenses of
$0 and $ $60,962, 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. 210,200 and 105,100 options were vested as of December 31, 2011 and 2010, respectively. 93,700 and 0 options
were exercised as of December 31, 2011 and 2010, respectively. 5,400 and 0 options were forfeited during the years ended December
31, 2011 and 2010, 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
option-pricing 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 option-pricing 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 total option compensation expense
recognized was $1,045,546 and $371,003 for the years ended December 31, 2012 and 2011.
The following table summarizes the outstanding
options, related weighted average fair value and life information as of December 31, 2012.
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of Exercise
Price Per Share
|
|
Number outstanding as
of December 31, 2012
|
|
|
Weighted
Average Fair
Value
|
|
|
Weighted
average
Remaining
Life (Years)
|
|
|
Number
Exercisable as of
December 31, 2012
|
|
|
Weighted
Average Exercise
Price
|
|
$2.75 - $7.63
|
|
|
893,312
|
|
|
$
|
2.32
|
|
|
|
6.41
|
|
|
|
555,008
|
|
|
$
|
5.93
|
|
A summary of option activity under the employee
share option plan as of December 31, 2012 and 2011 and changes during the years then ended is presented below:
Options
|
|
Number of
shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining Life
(Years)
|
|
|
Aggregated
Intrinsic
Value
|
|
Outstanding as of January 01, 2012
|
|
|
426,400
|
|
|
$
|
6.75
|
|
|
|
2.69
|
|
|
|
-
|
|
Granted during the period
|
|
|
483,016
|
|
|
|
5.13
|
|
|
|
9.47
|
|
|
|
-
|
|
Exercised during the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited during the period
|
|
|
(16,104
|
)
|
|
|
7.43
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding as of December 31, 2012
|
|
|
893,312
|
|
|
$
|
5.93
|
|
|
|
6.41
|
|
|
|
-
|
|
Options
|
|
Number of
shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
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
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited during the period
|
|
|
(5,400
|
)
|
|
|
6.75
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding as of December 31, 2011
|
|
|
426,400
|
|
|
$
|
6.75
|
|
|
|
4.55
|
|
|
|
-
|
|
A summary of unvested options under the
employee share option plan as of December 31, 2011 and changes during the year 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
|
|
|
483,016
|
|
|
$
|
1.41
|
|
Vested during the period
|
|
|
(339,808
|
)
|
|
$
|
2.16
|
|
Forfeited during the period
|
|
|
(16,104
|
)
|
|
$
|
1.72
|
|
Unvested as of December 301, 2012
|
|
|
437,004
|
|
|
$
|
2.32
|
|
Expected to vest thereafter
|
|
|
437,004
|
|
|
$
|
2.32
|
|
Options
|
|
Number of shares
|
|
|
Weighted Average
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
|
|
|
(5,400
|
)
|
|
$
|
3.53
|
|
Unvested as of December 31, 2011
|
|
|
309,900
|
|
|
$
|
3.53
|
|
Expected to vest thereafter
|
|
|
309,900
|
|
|
$
|
3.53
|
|
|
26.
|
Net (loss) Income per Ordinary Share
|
The following table presents a reconciliation
of basic and diluted net income per share:
|
|
For the year ended Dec 31,
|
|
|
|
2012
|
|
|
2011
|
|
Net (loss) income attributable to Tri-tech Holding Inc
|
|
$
|
(2,264,074
|
)
|
|
$
|
8,088,374
|
|
Weighted-average shares of ordinary shares used to compute basic net income per share
|
|
|
8,211,089
|
|
|
|
8,142,867
|
|
Effect of dilutive ordinary shares equivalents:
|
|
|
|
|
|
|
|
|
Dilutive effect of employee stock options
|
|
|
-
|
|
|
|
83,832
|
|
Dilutive effect of issuable shares in business acquisition with J&Y International Inc.
|
|
|
-
|
|
|
|
11,592
|
|
Shares used in computing diluted net income per common share
|
|
|
8,211,089
|
|
|
|
8,238,291
|
|
Basic net (loss) income per common share
|
|
$
|
(0.28
|
)
|
|
$
|
0.99
|
|
Diluted net (loss) income per common share
|
|
$
|
(0.28
|
)
|
|
$
|
0.98
|
|
All warrants are having 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 shares during the year ended December 31, 2012.
|
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,
West Asia 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 also had operations in India
and the United States. These sales accounted for approximately 13.2% and 6.9% of the total revenue, respectively for the years
ended December 31, 2012.
The Company had sales to two and one customers
that accounted for approximately 27.0% and 56.2% of revenues during the years ended December 31, 2012 and 2011, respectively. These
customers accounted for approximately 22.8% and 78.9% of unbilled revenue balance as of December 31, 2012 and 2011, respectively.
The 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.
The Company’s subsidiaries and VIEs
in China are required to participate in the social security plan operated by the local municipal government. The Company is required
to contribute approximately 20% of its payroll costs, subject to certain caps with reference to average municipal salary, to the
employees’ social security fund. The Company charges contributions to its income statement as they become payable in accordance
with the local government requirements. The aggregate contributions of the Company to the employees’ social security plan
amounted to $972,439 and $553,403 for the years ended December 31, 2012 and 2011, respectively.
The laws and regulations of the PRC provide
that before a Chinese enterprise distributes profits to its shareholders, it must first satisfy all tax liabilities, provide for
losses in previous years, and make appropriation, in proportions determined at the discretion of the board of directors, to the
statutory reserves. The statutory reserves include the surplus reserve fund and the collective welfare fund. These statutory reserves
represent restricted retained earnings.
TTII’s subsidiary and VIEs in China
are required to transfer 10% of its net income, as determined in accordance with the PRC accounting rules and regulations, to a
statutory surplus reserve fund until such reserve balance reaches 50% of their respective registered capital.
The transfer to this reserve must be made
before distribution of any dividend to shareholders. The surplus reserve fund is non-distributable other than during liquidation
and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share
capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the
shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered
capital.
As stipulated by the relevant laws
and regulations applicable to PRC foreign-invested enterprises, the foreign invested PRC companies are required to make appropriations
from net income as determined under PRC GAAP to non-distributable reserves which include a general reserve, an enterprise expansion
reserve and an employee welfare and bonus reserve.
Wholly-foreign-owned PRC companies are not
required to make appropriations to the enterprise expansion reserve but appropriations to the general reserve are required to be
made at not less than 10% of the profit after tax as determined under PRC GAAP.
The employee welfare and bonus reserve is
determined by the respective company’s board of directors. The general reserve is used to offset future extraordinary losses.
The subsidiaries and VIEs may, upon a resolution passed by the shareholders, convert the general reserve into capital. The employee
welfare and bonus reserve is used for the collective welfare of the employees of the subsidiaries and VIEs. The enterprise expansion
reserve is used for the expansion of the subsidiaries’ operations and can be converted to capital subject to approval by
the relevant authorities. These reserves represent appropriations of retained earnings determined according to PRC law.
For the years ended December 31, 2012 and
2011, the Company made $379,916 and $969,612 appropriations to statutory reserves, respectively.
|
30.
|
Commitments and Contingencies
|
Operating Leases
As of December 31, 2012, the Company had
commitments under certain operating leases, requiring annual minimum rentals as follows:
For the Years Ended December 31,
|
|
Amount
|
|
2013
|
|
$
|
849,866
|
|
2014
|
|
|
542,698
|
|
2015
|
|
|
104,473
|
|
Total
|
|
$
|
1,497,037
|
|
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 $1,080,036 and $714,023 for the years ended December 31, 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 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 Years ended December 31, 2012 and 2011
|
|
|
Segment 1
|
|
|
Segment 2
|
|
|
Segment 3
|
|
|
Total
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Revenues
|
|
$
|
25,980,724
|
|
|
$
|
58,123,939
|
|
|
$
|
22,306,044
|
|
|
$
|
12,922,405
|
|
|
$
|
24,342,784
|
|
|
$
|
14,826,577
|
|
|
$
|
72,629,552
|
|
|
$
|
85,872,921
|
|
Cost of revenues
|
|
|
20,448,709
|
|
|
|
43,367,917
|
|
|
|
16,487,906
|
|
|
|
9,309,362
|
|
|
|
18,192,903
|
|
|
|
11,340,173
|
|
|
|
55,129,518
|
|
|
|
64,017,452
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and Marketing Expenses
|
|
|
1,346,688
|
|
|
|
594,780
|
|
|
|
1,903,564
|
|
|
|
1,131,134
|
|
|
|
898,609
|
|
|
|
438,449
|
|
|
|
4,148,861
|
|
|
|
2,164,363
|
|
General and Administrative Expenses
|
|
|
7,274,903
|
|
|
|
5,366,170
|
|
|
|
2,840,874
|
|
|
|
1,310,332
|
|
|
|
3,871,516
|
|
|
|
2,095,944
|
|
|
|
13,987,293
|
|
|
|
8,772,446
|
|
Research and Development
|
|
|
104,648
|
|
|
|
129,918
|
|
|
|
70,078
|
|
|
|
49,478
|
|
|
|
-
|
|
|
|
-
|
|
|
|
174,726
|
|
|
|
179,396
|
|
Total operating expenses
|
|
|
8,726,239
|
|
|
|
6,090,868
|
|
|
|
4,814,516
|
|
|
|
2,490,944
|
|
|
|
4,770,125
|
|
|
|
2,534,393
|
|
|
|
18,310,880
|
|
|
|
11,116,205
|
|
Other income (expenses), net
|
|
|
120,686
|
|
|
|
(107,632
|
)
|
|
|
(232,095
|
)
|
|
|
(99,581
|
)
|
|
|
(21,203
|
)
|
|
|
197,377
|
|
|
|
(132,612
|
)
|
|
|
(9,836
|
)
|
(Loss) income before income taxes
|
|
$
|
(3,073,538
|
)
|
|
$
|
8,557,522
|
|
|
$
|
771,527
|
|
|
$
|
1,022,518
|
|
|
$
|
1,358,553
|
|
|
$
|
1,149,388
|
|
|
$
|
(943,458
|
)
|
|
$
|
10,729,428
|
|
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 December 31, 2012
|
|
$
|
89,062,709
|
|
|
$
|
30,058,569
|
|
|
$
|
37,556,788
|
|
|
$
|
156,678,066
|
|
As of December 31, 2011
|
|
$
|
84,910,147
|
|
|
$
|
26,081,474
|
|
|
$
|
27,659,057
|
|
|
$
|
138,650,678
|
|
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