UNITED
STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2012
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________to _____________
Commission File Number: 001-34134
CHINA TRANSINFO TECHNOLOGY
CORP.
(Exact Name of Registrant as Specified in Its
Charter)
Nevada
|
87-0616524
|
(State or other jurisdiction of
|
(I.R.S. Empl. Ident. No.)
|
incorporation or organization)
|
|
9th Floor, Vision Building,
No. 39 Xueyuanlu,
Haidian District,
Beijing, China 100191
(Address of
principal executive offices, Zip Code)
(86) 10-51691999
(Registrants
telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes [ X ] No [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer [ ]
|
Accelerated filer [ ]
|
Non-accelerated filer [ ]
(Do not check if a smaller reporting company)
|
Smaller reporting company [ X ]
|
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [ X ]
The number of shares outstanding of each of the issuers
classes of common equity, as of August 10, 2012 is as follows:
Class of Securities
|
Shares Outstanding
|
Common Stock, $0.001 par value
|
25,270,069
|
TABLE OF CONTENTS
|
PART I Financial
Information
|
Page
|
|
|
|
Item 1.
|
Financial Statements
|
2
|
Item 2.
|
Managements Discussion and Analysis of
Financial Condition and Results of Operations
|
16
|
Item 3.
|
Quantitative and Qualitative
Disclosures About Market Risk
|
22
|
Item 4.
|
Controls and Procedures
|
22
|
|
|
|
|
PART II Other Information
|
|
|
|
|
Item 1.
|
Legal Proceedings
|
24
|
Item 1A.
|
Risk Factors
|
24
|
Item 2.
|
Unregistered Sales of Equity Securities and Use
of Proceeds
|
24
|
Item 3.
|
Defaults Upon Senior Securities
|
24
|
Item 4.
|
Mine Safety Disclosures
|
24
|
Item 5.
|
Other Information
|
24
|
Item 6.
|
Exhibits
|
25
|
1
PART I
FINANCIAL
INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CHINA
TRANSINFO TECHNOLOGY CORP.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited)
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
26,933,703
|
|
$
|
45,032,637
|
|
Restricted cash
|
|
4,935,448
|
|
|
3,560,246
|
|
Accounts receivable, net of allowance
for doubtful accounts of $171,938 and $169,060,
respectively
|
|
45,673,081
|
|
|
36,902,155
|
|
Inventories
|
|
4,934,799
|
|
|
5,993,121
|
|
Costs and estimated earnings in excess of billings on
uncompleted contracts
|
|
58,945,007
|
|
|
42,917,900
|
|
Prepaid expenses and other current assets
|
|
12,871,862
|
|
|
8,828,290
|
|
Other receivables
|
|
22,574,993
|
|
|
15,636,967
|
|
Deferred tax assets
|
|
26,652
|
|
|
26,467
|
|
Total current assets
|
|
176,895,545
|
|
|
158,897,783
|
|
|
|
|
|
|
|
|
Long-term
investments
|
|
11,076,931
|
|
|
10,638,712
|
|
Property and equipment,
net
|
|
10,990,199
|
|
|
10,848,345
|
|
Long-term
prepayment for land use right
|
|
3,720,312
|
|
|
3,694,493
|
|
Intangible assets, net
|
|
17,934,563
|
|
|
16,383,300
|
|
Goodwill
|
|
10,782,355
|
|
|
10,707,525
|
|
Other assets
|
|
397,497
|
|
|
337,258
|
|
Total
assets
|
$
|
231,797,402
|
|
$
|
211,507,416
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
Accounts payable
|
$
|
43,692,235
|
|
$
|
29,010,462
|
|
Short-term borrowings from banks
|
|
7,433,539
|
|
|
7,791,300
|
|
Billings in excess of costs and
estimated earnings on uncompleted contracts
|
|
11,790,011
|
|
|
12,760,278
|
|
Accrued liabilities and other current
liabilities
|
|
10,109,118
|
|
|
12,043,530
|
|
Total
current liabilities
|
|
73,024,903
|
|
|
61,605,570
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
27,104
|
|
|
-
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
73,052,007
|
|
|
61,605,570
|
|
|
|
|
|
|
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity :
|
|
|
|
|
|
|
Common stock, par value $0.001 per
share, 150,000,000 shares authorized,
25,270,069 and 25,270,069 issued
and outstanding as of
June 30, 2012 and
December 31, 2011, respectively
|
|
25,270
|
|
|
25,270
|
|
Additional paid-in capital
|
|
53,463,342
|
|
|
51,484,878
|
|
Retained earnings
|
|
66,157,126
|
|
|
61,384,633
|
|
Accumulated other comprehensive income
|
|
10,538,273
|
|
|
9,618,689
|
|
Total China TransInfo Technology Corp
Stockholders' equity
|
|
130,184,011
|
|
|
122,513,470
|
|
Non-controlling interests
|
|
28,561,384
|
|
|
27,388,376
|
|
|
|
|
|
|
|
|
Total stockholders'
equity
|
|
158,745,395
|
|
|
149,901,846
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$
|
231,797,402
|
|
$
|
211,507,416
|
|
See accompanying notes to condensed consolidated financial
statements
2
CHINA TRANSINFO TECHNOLOGY
CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Three Months Ended June 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
60,336,018
|
|
$
|
73,373,897
|
|
$
|
31,407,301
|
|
$
|
36,874,738
|
|
Cost of sales
|
|
(40,938,036
|
)
|
|
(52,404,305
|
)
|
|
(21,591,924
|
)
|
|
(26,298,267
|
)
|
Gross profit
|
|
19,397,982
|
|
|
20,969,592
|
|
|
9,815,377
|
|
|
10,576,471
|
|
Total operating expenses
|
|
(14,382,315
|
)
|
|
(13,718,623
|
)
|
|
(7,445,269
|
)
|
|
(7,397,564
|
)
|
Income from operations
|
|
5,015,667
|
|
|
7,250,969
|
|
|
2,370,108
|
|
|
3,178,907
|
|
Non-operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
232,450
|
|
|
86,343
|
|
|
197,562
|
|
|
46,617
|
|
Interest expense
|
|
(221,160
|
)
|
|
(487,329
|
)
|
|
(111,696
|
)
|
|
(236,756
|
)
|
Subsidy income
|
|
1,426,963
|
|
|
260,962
|
|
|
780,962
|
|
|
65,336
|
|
Other income, net
|
|
378,137
|
|
|
113,881
|
|
|
225,129
|
|
|
38,405
|
|
Total non-operating income
|
|
1,816,390
|
|
|
(26,143
|
)
|
|
1,091,957
|
|
|
(86,398
|
)
|
Income before income taxes, non-controlling interests, and
gain on equity investments in affiliates net income
|
|
6,832,057
|
|
|
7,224,826
|
|
|
3,462,065
|
|
|
3,092,509
|
|
Income taxes
|
|
(1,140,449
|
)
|
|
(862,935
|
)
|
|
(562,181
|
)
|
|
(361,810
|
)
|
Net income before non-controlling interests and gain on
equity investments in affiliates net income
|
|
5,691,608
|
|
|
6,361,891
|
|
|
2,899,884
|
|
|
2,730,699
|
|
Gain on equity investments in affiliates
due to proportional shares of the affiliates net income
|
|
734,443
|
|
|
1,355,985
|
|
|
355,190
|
|
|
1,023,349
|
|
Net income before non-controlling interests
|
|
6,426,051
|
|
|
7,717,876
|
|
|
3,255,074
|
|
|
3,754,048
|
|
Non-controlling interests in net income of
subsidiary
|
|
(1,653,558
|
)
|
|
(1,961,204
|
)
|
|
(901,877
|
)
|
|
(964,652
|
)
|
Net income
|
$
|
4,772,493
|
|
$
|
5,756,672
|
|
$
|
2,353,197
|
|
$
|
2,789,396
|
|
Weighted average number of shares of
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
25,270,069
|
|
|
25,270,069
|
|
|
25,270,069
|
|
|
25,270,069
|
|
Diluted
|
|
25,295,931
|
|
|
25,273,317
|
|
|
25,320,592
|
|
|
25,273,195
|
|
Earnings per share -
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.19
|
|
$
|
0.23
|
|
$
|
0.09
|
|
$
|
0.11
|
|
Diluted
|
$
|
0.19
|
|
$
|
0.23
|
|
$
|
0.09
|
|
$
|
0.11
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
including non-controlling interests
|
$
|
6,426,051
|
|
$
|
7,717,876
|
|
$
|
3,255,074
|
|
$
|
3,754,048
|
|
Translation adjustments
|
|
919,584
|
|
|
2,117,495
|
|
|
84,051
|
|
|
1,483,308
|
|
Comprehensive income
|
$
|
7,345,635
|
|
$
|
9,835,371
|
|
$
|
3,339,125
|
|
$
|
5,237,356
|
|
Comprehensive income attributable to non-controlling interests
|
$
|
1,653,558
|
|
$
|
1,961,204
|
|
$
|
901,877
|
|
$
|
964,652
|
|
Comprehensive
income attributable to CTFO
|
$
|
5,692,077
|
|
$
|
7,874,167
|
|
$
|
2,437,248
|
|
$
|
4,272,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed
consolidated financial statements
|
3
CHINA TRANSINFO TECHNOLOGY
CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
Six Months Ended June 30,
|
|
|
|
2012
|
|
|
2011
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income
|
$
|
4,772,493
|
|
$
|
5,756,672
|
|
Adjustments to reconcile net income to net
cash used in operating activities:
|
|
|
|
|
|
|
Non-controlling interests
|
|
1,653,558
|
|
|
1,961,204
|
|
Depreciation and
amortization expenses
|
|
1,488,050
|
|
|
1,350,497
|
|
Stock-based compensation
|
|
545,468
|
|
|
634,040
|
|
Gain on equity
investments in affiliates due to proportional shares of the affiliates net
income
|
|
(734,443
|
)
|
|
(1,355,985
|
)
|
Gain on disposal of portion equity of
subsidiary to non-controlling interests
|
|
-
|
|
|
(40,479
|
)
|
Dividends income
|
|
(18,689
|
)
|
|
(14,782
|
)
|
Loss on disposal of property and equipment
|
|
13,764
|
|
|
20,283
|
|
Allowance for doubtful accounts
|
|
1,698
|
|
|
-
|
|
Decrease (Increase) in assets:
|
|
|
|
|
|
|
Restricted cash
|
|
(1,351,684
|
)
|
|
1,210,652
|
|
Accounts receivable
|
|
(8,523,325
|
)
|
|
(8,272,988
|
)
|
Inventories
|
|
1,101,317
|
|
|
(1,738,309
|
)
|
Prepaid expenses and other
current assets
|
|
(3,986,142
|
)
|
|
731,880
|
|
Other receivables
|
|
(6,523,218
|
)
|
|
(1,720,024
|
)
|
Costs and estimated earnings
in excess of billings on uncompleted contracts
|
|
(15,743,049
|
)
|
|
(3,942,025
|
)
|
Other assets
|
|
(57,944
|
)
|
|
(56,498
|
)
|
Increase (Decrease) in liabilities:
|
|
|
|
|
|
|
Accounts payable
|
|
14,493,648
|
|
|
(2,270,555
|
)
|
Billings in excess
of costs and estimated earnings on uncompleted contracts
|
|
(1,060,512
|
)
|
|
(4,461,510
|
)
|
Accrued liabilities
and other current liabilities
|
|
(734,239
|
)
|
|
(794,710
|
)
|
Other long-term liabilities
|
|
27,131
|
|
|
15,311
|
|
Net cash used in operating activities
|
$
|
(14,636,118
|
)
|
$
|
(12,987,326
|
)
|
|
|
|
|
|
|
|
See accompanying notes to
condensed consolidated financial statements
|
4
CHINA TRANSINFO TECHNOLOGY CORP.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Six Months Ended June 30,
|
|
|
|
2012
|
|
|
2011
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Proceeds from disposal of
property and equipment
|
$
|
6,070
|
|
$
|
19,114
|
|
Purchases of
property and equipment
|
|
(1,280,019
|
)
|
|
(1,597,311
|
)
|
Purchases of intangible assets
|
|
(1,740,114
|
)
|
|
(651,593
|
)
|
Payments for
acquisition of companies
|
|
(209,907
|
)
|
|
(202,565
|
)
|
Payments for land use right
|
|
-
|
|
|
(3,593,798
|
)
|
Dividends from
equity or cost investees
|
|
-
|
|
|
14,782
|
|
Net cash used in investing activities
|
|
(3,223,970
|
)
|
|
(6,011,371
|
)
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Proceeds from
short-term borrowings
|
|
6,727,073
|
|
|
6,889,950
|
|
Payments of short-term
borrowings
|
|
(7,139,700
|
)
|
|
(9,263,155
|
)
|
Non-controlling
interests' capital contribution
|
|
79,330
|
|
|
6,698,563
|
|
Payment of dividends to
non-controlling interests from subsidiaries
|
|
(237,990
|
)
|
|
-
|
|
Net cash (used in)/provided by financing
activities
|
|
(571,287
|
)
|
|
4,325,358
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange
translation
|
|
332,441
|
|
|
706,563
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
(18,098,934
|
)
|
|
(13,966,776
|
)
|
|
|
|
|
|
|
|
Cash and cash equivalents - beginning
|
|
45,032,637
|
|
|
43,916,597
|
|
Cash and cash equivalents - ending
|
$
|
26,933,703
|
|
$
|
29,949,821
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
Interest paid
|
$
|
228,095
|
|
$
|
390,693
|
|
Income taxes paid
|
$
|
1,056,027
|
|
$
|
1,103,885
|
|
See accompanying notes to condensed consolidated financial
statements
5
CHINA TRANSINFO TECHNOLOGY CORP.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1.
ORGANIZATION AND BUSINESS OPERATIONS
China TransInfo Technology Corp. is a leading provider of end-to-end intelligent transportation systems (ITS) and related comprehensive technology solutions servicing the transportation industry in China. The goal of the Company is to
become the largest provider of intelligent transportation system products and related comprehensive technology solutions in China, as well as a major operator and provider of value-added ITS and location based services (LBS) to
commercial clients and consumers in China. Substantially all of its operations is conducted through its Variable Interest Entities (VIE) that are PRC domestic companies owned principally or entirely by its PRC affiliates. Through its
VIE, the Company is involved in developing multiple applications in highway ITS, urban ITS, commercial vehicles ITS plus LBS, and to a lesser degree, in digital city, and land and resource filling systems based on Geographic Information Systems
(GIS), technologies which are used to service both the public and private sector.
China TransInfo Technology Corp., its subsidiaries and VIE hereinafter are collectively referred as the Company.
The Companys primary focus is on providing end-to-end ITS solutions and related services to the transportation industry. The major products and services of the Company include:
Intelligent Transportation System
-
Transportation Planning Information System
-
Electronic Toll Collection(ETC)
-
Passenger Flow Statistic, Detecting and Analysis System (TransPLE)
-
Traffic Information Integration and Exchange Platform
-
Traffic Emergency Command Center
-
Transportation Hub Comprehensive Management Information System
-
Intelligent Traffic Management Platform
-
Intelligent Parking System
-
Traffic Flow Surveying Solutions
-
GIS-T (Transportation) Middleware
-
Highway Electronics & Machinery (E&M) System Solution
-
UNISITS Highway Lighting and Energy Saving Product (UNIS-LCS)
-
UNISITS Weigh-in-Motion System
Commercial Vehicle ITS plus LBS
-
Commercial Vehicles Monitoring and Public Service Platform
-
Commercial Vehicles Comprehensive Information Service Operation Platform
-
Commercial Vehicles Terminal Products
-
Taxi LED Advertisement Dynamic Display System
-
Taxi LED GPS Monitoring and Coordinating System
6
CHINA TRANSINFO TECHNOLOGY CORP.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Other Vehicle and Consumer ITS Applications
-
Palmcity Telematics Service Platform
-
Palmcity Real-Time Traffic Information Terminal Software
-
Plamcity Smart Phone Public Transport Information Service System
-
Palmcity Website (http://www.palmcity.cn)
-
Auto Energy-saving Analysis Service System
-
D-TIPS Dynamic Transportation Information Processing and Prediction Service System
The Company also offers comprehensive solutions for transportation oriented GIS (GIS-T), covering transportation planning, design, construction, maintenance and operation.
On June 8, 2012, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with TransCloud Company Limited, a Cayman Islands exempted company with limited liability and indirectly wholly owned by Mr. Shudong Xia ("Parent"),
TransCloud Acquisition, Inc., a Nevada corporation and a wholly owned, direct subsidiary of Parent ("Merger Sub"). Under the Merger Agreement, Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation
and a wholly owned subsidiary of Parent.
According to the Merger Agreement, at the effective time of the Merger, each outstanding share of the Companys common stock will be converted automatically into the right to receive $5.80 in cash, without interest, excluding certain shares
as provided in the Merger Agreement. The Merger remains subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, including obtaining approval of the existing stockholders of the Company.
The foregoing description of the Merger Agreement is qualified in its entirety by reference to the full text of the Merger Agreement, copy of which has been filed as an Exhibit to our current report on Form 8-K dated June 8, 2012, and which is
incorporated herein by reference.
2.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying interim unaudited condensed consolidated financial statements (Interim Financial Statements) of the Company, its subsidiaries and VIEs have been prepared in accordance with accounting principles generally accepted in the
United States of America (GAAP) for interim financial information and are presented in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these Interim Financial Statements do not include all of
the information and notes required by GAAP for complete financial statements. These Interim Financial Statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended December 31, 2011
included in the Companys Form 10-K.
Principles of Consolidation
The Companys unaudited condensed consolidated financial statements include the accounts of the holding company, its subsidiaries, VIEs and VIEs majority owned subsidiaries, which are approximately 3% to 70% owned by non-controlling
interests. In the opinion of management, the Interim Financial Statements included herein contain all adjustments, including normal recurring adjustments considered necessary to present fairly the Companys financial position, the results of
operations and cash flows for the periods presented. The operating results and cash flows for the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year.
The Companys unaudited condensed consolidated financial statements are prepared in accordance with GAAP. These accounting principles require the Company to make certain estimates, judgments 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 revenues and expenses during the reporting period. The Company believe that the estimates, judgments and
assumptions are reasonable, based on information available at the time they are made. Actual results could differ materially from those estimates.
7
CHINA TRANSINFO TECHNOLOGY CORP.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Recently Issued Accounting Guidance
In December 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-11, Disclosures about Offsetting Assets and Liabilities (ASU 2011-11). The amendments in this ASU require an
entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. An entity is required to apply the amendments for annual
reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The adoption of
ASU 2011-11 is not expected to have a significant impact on the Companys consolidated financial statements.
The Company has considered all new accounting pronouncements and has concluded that there are no new pronouncements that may have a material impact on results of operations, financial condition, or cash flows, based on current information.
3.
RESTRICTED CASH
The Companys restricted cash balance on June 30, 2012 and December 31, 2011 was $4,935,448 and $3,560,246, respectively. Restricted cash normally consists of cash deposited into third party banks with certain period of time
restrictions for various business purposes, which may include contract performance bonds and registered capital bonds required by governmental authorities. The restrictions expire when the related obligations are fulfilled.
8
CHINA TRANSINFO TECHNOLOGY CORP.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
4.
COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED
CONTRACTS
The costs and estimated earnings on uncompleted
contracts were as follows:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Costs incurred on uncompleted contracts
|
$
|
225,554,886
|
|
$
|
202,676,181
|
|
Estimated earnings on uncompleted contracts
|
|
82,680,551
|
|
|
78,913,748
|
|
Total
|
|
308,235,437
|
|
|
281,589,929
|
|
Less billings to date
|
|
(261,080,441
|
)
|
|
(251,432,307
|
)
|
Costs and estimated earnings on uncompleted
contracts, net of billings in excess
|
|
|
|
|
|
|
of costs and estimated earnings on
uncompleted contracts
|
$
|
47,154,996
|
|
$
|
30,157,622
|
|
The costs and estimated earnings on uncompleted contracts are
included in the accompanying balance sheets under the following captions:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Costs incurred on estimated earnings in
excess of billings on uncompleted contracts
|
$
|
58,945,007
|
|
$
|
42,917,900
|
|
Billings in excess of costs and estimated earnings on
uncompleted contracts
|
|
(11,790,011
|
)
|
|
(12,760,278
|
)
|
Total
|
$
|
47,154,996
|
|
$
|
30,157,622
|
|
5.
NON-CONTROLLING INTERESTS
On July 12, 2011, a non-controlling interest, Zhongguancun
Development Group (Zhongguancun), agreed to contribute RMB 50 million
(approximately $7.69 million) in cash to Beijing Transwiseway Information
Technology Company (Beijing Transwiseway), a VIE, in exchange for a 10% equity
interest in Beijing Transwiseway. The first installment of RMB 10 million
(approximately $1.54 million) was paid by Zhongguancun on August 1, 2011. As a
result, China TransInfo Technology Group Co., Ltd. (the Group Company)
retained a 53.80% equity interest in Beijing Transwiseway. The second
installment of RMB 20 million (approximately $3.17 million) was completed on
January 12, 2012 and the Group Company retains a 51.56% majority ownership of
Beijing Transwiseway.
With the effect of the subsidiary equity transaction, the
Company recognized $1,735,006 increase in non-controlling interest in Beijing
Transwiseway and the remaining $1,432,995 increase in additional paid-in capital
for the six months ended June 30, 2012.
On April 27, 2012, Beijing UNISITS Technology Co. Ltd.
(UNISITS) approved a RMB 42,678,402 (approximately $6,800,000) dividend
distribution to the shareholders. As a result, the Company recognized $2,294,431
decrease in non-controlling interest in UNISITS.
On June 5, 2012, Beijing Transwiseway formed a majority owned
subsidiary, Hubei Transwiseway Information Technology Company (Hubei
Transwiseway), and the non-controlling shareholder contributed RMB 500,000
(approximately $79,500). As a result, the Company recognized $79,500 increase in
non-controlling interest in Beijing Transwiseway.
CHINA TRANSINFO TECHNOLOGY CORP.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
6. LONG-TERM INVESTMENTS
The Company had the following long-term investments accounted
under the equity method and cost method:
Equity and cost investments in affiliates consisted of the
following:
Type
|
|
|
Equity Investee
|
|
|
Equity Investment Ownership
|
|
|
June 30, 2012
|
|
|
December 31, 2011
|
|
Equity
|
|
|
GanSu Ziguang
Intelligent Transportation and Control
|
|
|
33.33%
|
|
$
|
10,538,172
|
|
$
|
9,989,657
|
|
Equity
|
|
|
ShanXi Ziguang Trans Technology
Co., Ltd.
|
|
|
49.00%
|
|
|
84,163
|
|
|
122,214
|
|
Equity
|
|
|
Beijing
Chinacommunications Unisplendour Technology Co. , Ltd.
|
|
|
30.00%
|
|
|
85,798
|
|
|
160,603
|
|
Sub-total
|
|
|
|
|
|
|
|
|
10,708,133
|
|
|
10,272,474
|
|
Cost
|
|
|
Wuhan Optic Times Technology
Co., Ltd.
|
|
|
1.04%
|
|
|
226,148
|
|
|
224,578
|
|
Cost
|
|
|
ShanDong
Hi-speed Information Engineering Co., Ltd.
|
|
|
5.00%
|
|
|
118,875
|
|
|
118,050
|
|
Cost
|
|
|
BeijingZiguang Youma Technology Co., Ltd.
|
|
|
15.00%
|
|
|
23,775
|
|
|
23,610
|
|
Sub-total
|
|
|
|
|
|
|
|
|
368,798
|
|
|
366,238
|
|
Total
|
|
|
|
|
|
|
|
$
|
11,076,931
|
|
$
|
10,638,712
|
|
Summarized income statement information of equity investment in
affiliates is as follows:
GanSu Ziguang Intelligent Transportation and
Control
|
|
Three months
|
|
|
Six months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2012
|
|
|
June 30, 2012
|
|
Net sales
|
$
|
9,077,213
|
|
$
|
18,510,885
|
|
Gross Profit
|
|
2,277,469
|
|
|
4,332,935
|
|
Income from operations
|
|
2,073,200
|
|
|
3,709,426
|
|
Net income
|
$
|
1,434,558
|
|
$
|
2,549,398
|
|
|
|
|
|
|
|
|
ShanXi Ziguang Trans
Technology Co., Ltd.
|
|
|
Three months
|
|
|
Six months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2012
|
|
|
June 30, 2012
|
|
Net sales
|
$
|
4,615
|
|
$
|
15,831
|
|
Gross Profit
|
|
4,371
|
|
|
1,878
|
|
Income from operations
|
|
4,439
|
|
|
1,580
|
|
Net income
|
$
|
1,231
|
|
$
|
103
|
|
Beijing Chinacommunications Unisplendour Technology Co. ,
Ltd.
|
|
Three months
|
|
|
Six months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2012
|
|
|
June 30, 2012
|
|
Net sales
|
$
|
33,346
|
|
$
|
426,446
|
|
Gross Profit
|
|
(220,373
|
)
|
|
(94,048
|
)
|
Income from operations
|
|
(234,923
|
)
|
|
(235,054
|
)
|
Net income
|
$
|
(235,002
|
)
|
$
|
(234,463
|
)
|
10
CHINA TRANSINFO TECHNOLOGY
CORP.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
|
|
|
|
|
|
7. INTANGIBLE ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012
|
|
|
December 31, 2011
|
|
Intangible assets
|
$
|
18,933,673
|
|
$
|
17,084,194
|
|
Less: accumulated amortization
|
|
(999,110
|
)
|
|
(700,894
|
)
|
Intangible assets, net
|
$
|
17,934,563
|
|
$
|
16,383,300
|
|
|
|
|
|
|
|
|
Intangible assets as of June 30,
2012 and December 31, 2011 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Net intangible assets
|
|
June 30, 2012
|
|
|
December 31, 2011
|
|
Internal-use software
|
$
|
8,125,542
|
|
$
|
6,603,210
|
|
Purchased software
|
|
2,436,967
|
|
|
2,436,847
|
|
Software from acquisition
|
|
299,023
|
|
|
319,299
|
|
Software from investment
|
|
7,073,031
|
|
|
7,023,944
|
|
Total
|
$
|
17,934,563
|
|
$
|
16,383,300
|
|
The amortization expense was $201,019 and $144,007 for the
three months ended June 30, 2012 and 2011, respectively. For the six months
ended June 30, 2012 and June 30, 2011 was $293,972 and $281,897, respectively.
8.
SHORT-TERM BORROWINGS FROM
BANKS
On June 21, 2012, UNISITS entered into a short-term loan
agreement with Qinghuayuan Branch of Bank of Beijing (Qinghuayuan Branch),
pursuant to which Qinghuayuan Branch agreed to loan UNISITS a sum of RMB 10
million (approximately $1.60 million). The loan has an annual interest rate
equal to 1% above the benchmark interest rate, a standard rate announced by the
People's Bank of China, as of the date of the first
withdrawal of the principal, with the interest to be paid on a quarterly basis.
The loan expires within 6 months from the first withdrawal date of June 25, 2012
to December 24, 2012. As of June 30, 2012, a principal amount of approximately
$0.79 million was outstanding.
On May 30, 2012, UNISITS entered into a short-term loan
agreement with Dayuncun Branch of Merchants Bank (Dayuncun Branch), pursuant
to which Dayuncun Branch agreed to loan UNISITS a sum of RMB 10 million
(approximately $1.60 million). The loan has an annual interest rate equal to 5%
above the benchmark interest rate, a standard rate announced by the People's
Bank of China, with the interest to be paid on a quarterly
basis. The loan expires on December 23, 2012. As of June 30, 2012, a principal
amount of approximately $1.59 million was outstanding.
On April 1, 2012, Beijing PKU Chinafront High Technology Co.,
Ltd.(PKU) entered into a short-term loan agreement with Bank of Beijing,
Haidianyuan Branch (Haidianyuan Branch), pursuant to which Haidianyuan Branch
agreed to loan PKU an aggregate of RMB 15 million (approximately $2.40 million)
as working capital. The loan has an annual interest rate equal to 20% above the
benchmark interest rate, a standard rate announced by the People's Bank of
China, as of the first withdrawal date, with the interest to be
paid on a monthly basis. The loan expires within 12 months after the date of the
first withdrawal but may be renewed upon the written consent by Haidianyuan
Branch. As of June 30, 2012, a principal amount of approximately $2.22 million
was outstanding.
On December 22, 2011, Beijing Transwiseway, entered into a
short-term loan agreement with Haidianyuan Branch, pursuant to which Haidianyuan
Branch agreed to loan Beijing Transwiseway a sum of RMB 30 million
(approximately $4.72 million). The loan has an annual interest rate equal to 10%
above the benchmark interest rate, a standard rate announced by the People's
Bank of China, as of the date of the first withdrawal of the
principal, with the interest to be paid on a quarterly basis. The loan expires
within 12 months after the date of the first withdrawal but may be renewed upon
the written consent by Haidianyuan Branch. As of June 30, 2012, a principal
amount of approximately $2.83 million was outstanding.
The interest expenses were $111,696 and $236,756 for the
three months ended June 30, 2012 and 2011, respectively, and the average
interest rate was 7.24% and 6.00%, respectively. For the six months ended June
30, 2012 and 2011, interest expenses totaled $221,160 and $487,329,
respectively, and the average interest rate was 7.15% and 5.84%, respectively.
11
CHINA TRANSINFO TECHNOLOGY CORP.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
9.
STOCK-BASED COMPENSATION
Stock Warrants
The Company issued warrants to Anteaus Capital, Inc., in
aggregate, to purchase 277,778 shares of the Companys common stock in
connection with merger related services on May 14, 2007, with an exercise price
of $1.80 per share. These warrants will expire on May 13, 2014. As of June 30,
2012, warrants to purchase 5,555 shares were outstanding with the aggregate
intrinsic value of $20,831 and the weighted-average remaining contractual term
of 22 months.
Stock Options
There were no stock options granted during the six-month period
ended June 30, 2012.
The Company recorded compensation expense of $271,719 and
$323,502 for the three months ended June 30, 2012 and 2011, respectively. For
the six months ended June 30, 2012 and 2011, compensation expenses totaled
$545,468 and $634,040, respectively, in connection with the stock options
disclosed below.
A summary of stock options transactions for the six months
ended June 30, 2012 is as follows:
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
Exercise
|
|
|
Contractual Term
|
|
|
Intrinsic
|
|
Stock Options
|
|
Shares
|
|
|
Price
|
|
|
(Months)
|
|
|
Value
|
|
Outstanding at January 1, 2012
|
|
1,870,801
|
|
$
|
6.2
|
|
|
40
|
|
|
-
|
|
Granted
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Exercised or converted
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Forfeited or expired
|
|
(57,000
|
)
|
|
6.32
|
|
|
-
|
|
|
-
|
|
Outstanding at June 30, 2012
|
|
1,813,801
|
|
$
|
6.20
|
|
|
34
|
|
$
|
671,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at June 30, 2012
|
|
1,061,319
|
|
$
|
6.04
|
|
|
36
|
|
$
|
455,484
|
|
Exercisable at June 30, 2012
|
|
752,482
|
|
$
|
6.43
|
|
|
31
|
|
$
|
216,247
|
|
The aggregate intrinsic value in the preceding table represents
the total pretax intrinsic value, based upon the Companys closing stock price
of $5.55 as of June 30, 2012, which would have been received by the option
holders had all option holders exercised their option awards as of that date. No
options were exercised during the six months ended June 30, 2012.
During the six months ended June 30, 2012, stock options to
purchase 78,113 shares were vested. Total unrecognized compensation costs
related to unvested stock options were approximately $1,800,000 as of June 30,
2012. Unvested stock options are expected to be recognized over a weighted
average period of 2.01 years.
10.
FAIR VALUE MEASURMENT
FASB ASC 820, Fair Value Measurement, defines fair value,
establishes a framework for measuring fair value in accordance with generally
accepted accounting principles and requires certain disclosures about fair value
measurement. FASB ASC topic 820 also establishes a fair value hierarchy that
requires the use of observable market data, when available, and prioritizes the
inputs to valuation techniques used to measure fair value in the following
categories:
Level 1 Quoted unadjusted prices for identical instruments in
active markets.
Level 2 Quoted prices for similar instruments in active
markets, quoted prices for identical or similar instruments in market that are
not active, and model-derived valuations in which all observable inputs and
significant value drivers are observable in active markets.
12
CHINA TRANSINFO TECHNOLOGY CORP.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
Level 3 Model-derived valuations in which one or more
significant inputs or significant value drivers are unobservable, including
assumptions developed by the Company.
Classification within the hierarchy is determined based on the
lowest level of input that is significant to the fair value measurement.
The carrying value of financial instruments of the Company,
included, cash and cash equivalents, restricted cash, accounts receivable, costs
and estimated earnings in excess of billings on uncompleted contracts, other
receivable, other current assets, short-term borrowings from banks, accounts
payable, billings in excess of costs and estimated earnings on uncompleted
contracts and other current liabilities, approximate their fair values due to
their short-term nature and are classified within Level 1 of the fair value
hierarchy. The Company did not have any financial instruments classified at
Level 2 or Level 3 of the fair value hierarchy as at June 30, 2012.
11.
INCOME TAXES
For the three months and six months ended June 30, 2012 and 2011, income tax
expenses were as follows:
|
|
Three Months Ended June 30,
|
|
|
2012
|
|
2011
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
Domestic
|
|
|
Foreign
|
|
|
|
Federal
|
|
|
State
|
|
|
China
|
|
|
Federal
|
|
|
State
|
|
|
China
|
|
Current
|
$
|
-
|
|
$
|
-
|
|
$
|
562,181
|
|
$
|
-
|
|
$
|
-
|
|
$
|
361,810
|
|
Deferred
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
$
|
-
|
|
$
|
-
|
|
$
|
562,181
|
|
$
|
-
|
|
$
|
-
|
|
$
|
361,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended June 30,
|
|
|
2012
|
|
2011
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
Domestic
|
|
|
Foreign
|
|
|
|
Federal
|
|
|
State
|
|
|
China
|
|
|
Federal
|
|
|
State
|
|
|
China
|
|
Current
|
$
|
-
|
|
$
|
-
|
|
$
|
1,140,449
|
|
$
|
-
|
|
$
|
-
|
|
$
|
862,935
|
|
Deferred
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,140,449
|
|
$
|
-
|
|
$
|
-
|
|
$
|
862,935
|
|
The Company, through its VIE and VIEs subsidiaries and
affiliates, is governed by the Income Tax Laws of the PRC. The PRC government
has provided various incentives to domestic companies in the software industry
in China in order to encourage development and growth of the industry. For the
six months ended June 30, 2012, the Company enjoyed the same tax holidays as of
last year.
The Company recognizes deferred tax assets and liabilities for
temporary differences between the financial reporting and tax bases of its
assets and liabilities. Deferred assets are reduced by a valuation allowance
when deemed appropriate. Operations in the United States of America have
incurred net accumulated operating losses of $15,000,000 as of June 30, 2012 and
December 31, 2011 for income tax purposes. However, a valuation allowance has
been established for the full amount of the deferred tax asset due to
uncertainty of its realization.
The effective tax rate was estimated by the Company to be 16.24%
and 11.70% for the three months ended June 30, 2012 and 2011, respectively.
During the six months ended June 30, 2012 and 2011, the effective income tax
rate was estimated by the Company to be 16.69% and 11.94%, respectively.
13
CHINA TRANSINFO TECHNOLOGY CORP.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
12.
EARNINGS PER SHARE
For the three months and six months ended June 30, 2012 and
2011, basic and diluted net income per share are calculated as follows:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Net income
|
$
|
2,353,197
|
|
$
|
2,789,396
|
|
$
|
4,772,493
|
|
$
|
5,756,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock
outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
25,270,069
|
|
|
25,270,069
|
|
|
25,270,069
|
|
|
25,270,069
|
|
Dilutive effect of warrants and stock options
|
|
50,523
|
|
|
3,126
|
|
|
25,862
|
|
|
3,248
|
|
Diluted
|
|
25,320,592
|
|
|
25,273,195
|
|
|
25,295,931
|
|
|
25,273,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
$
|
0.09
|
|
$
|
0.11
|
|
$
|
0.19
|
|
$
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
$
|
0.09
|
|
$
|
0.11
|
|
$
|
0.19
|
|
$
|
0.23
|
|
13. CONCENTRATION OF RISK
Cash
The Company places its temporary cash investments in reputable
financial institutions in the PRC and the United States. All funds in US are in
a non-interest-bearing transaction account which are insured in full by the
United States Federal Deposit Insurance Corporation (FDIC) from December 31,
2010 through December 31, 2012. Although it is generally understood that the PRC
central government stands behind all of the banks in China in the event of bank
failure, there is no deposit insurance system in China that is similar to the
protection provided by the Federal Deposit Insurance Corporation (FDIC) of the
United States. This temporary unlimited coverage on US bank accounts is in
addition to, and separate from, the coverage of up to $250,000 available to
depositors under the FDIC's general deposit insurance rules. As of June 30, 2012
and December 31, 2011, the Companys U.S. bank accounts are fully covered by the
FDIC insurance.
Major Customers
The Company had one major customer that individually
represented 10% or more of the Companys total net sales during the three months
ended June 30, 2012 and 2011, respectively. The Company had nil and one major
customer that individually represented 10% or more of the Companys total net
sales during the six months ended June 30, 2012 and 2011, respectively. No
customer represented 10% or more of the Companys accounts receivable balance as
of June 30, 2012 and 2011.
Major Suppliers
The Company did not have any suppliers represented 10% of more
of the Companys total net purchases during both the three months ended and the
six months ended June 30, 2012 and 2011. No concentration risk is noted on the
suppliers of the Company.
14
CHINA TRANSINFO TECHNOLOGY CORP.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
14.
COMMITMENTS AND CONTINGENCIES
Capital commitment
On April 15, 2011, the Group Company entered into a Land
Development Compensation Framework Agreement (the Framework Agreement) with
Beijing Strong Science Park Development Co., Ltd. ("Beijing Strong"), pursuant
to which Beijing Strong agreed to complete the development of the land block
with a site area of 48,900 square meters, located at Zhongguancun Innovation
Park (the C6-04 Land). In exchange, the Group Company agreed to pay an
aggregate of RMB 117,360,000 (approximately $18,000,000) to Beijing Strong,
among which RMB 23,472,000 (approximately $3,700,000) was required be paid on or
before April 25, 2011. The Group Company intends to construct office buildings
on the C6-04 Land for its own and its subsidiaries use to reduce its rental
expenses over the long term. The contract is cancellable, and, as of June 30,
2012, the Group Company has paid RMB 23,472,000 (approximately $3,700,000) for
deposit.
Operating Lease
The rental expense was $361,231 and $388,690 for the three
months ended June 30, 2012 and 2011 respectively. For the six months ended June
30, 2012 and 2011 were $759,123 and $777,221, respectively, under the lease
agreements to lease office spaces for the Group Company, its subsidiary and VIEs
at various locations in the PRC.
The aggregate future minimum payments under these lease
agreements are as follows:
Year ending December 31,
|
|
Lease Commitments
|
|
2012
|
$
|
822,842
|
|
2013
|
|
204,876
|
|
2014
|
|
11,406
|
|
Total
|
$
|
1,039,124
|
|
Pending Litigation
The Company and the members of its board of directors are named
as defendants in purported class action lawsuits (the Stockholder Actions)
brought in the Eighth Judicial District Court, Clark County, Nevada by several
stockholders: Oswald Velz v. China TransInfo Technology Corp. et al., Case No.
A-12-657022-C (filed February 24, 2012) and Tim Valles v. Shudong Xia et al.
Case No. A-12-657443-C (filed March 1 , 2012) and Carl M. Domitrovich v. Shudong
Xia et al. Case No. A-12-657740-C (filed March 6, 2012). The Stockholder Actions
generally allege that the Company and all of its directors breached their
fiduciary duties in connection with the receipt by the Company of a preliminary,
non-binding proposal from Shudong Xia, the Companys Chairman and Chief
Executive Officer, to acquire all of the outstanding shares of our common stock
not currently owned by him in a going private transaction at a proposed price of
$5.65 per share in cash (the Proposed Transaction). The Stockholder Actions
seek, among other things, to declare that the Proposed Transaction is unfair,
unjust and inequitable, to enjoin the Company from taking any steps necessary to
accomplish or implement the Proposed Transaction, and damages in the event the
Proposed Transaction is consummated.
On July 13, 2012, these three class action complaints were
consolidated into one amended class action complaint, In Re China TransInfo
Technology Corp. Shareholders Litigation, Consolidated Case No. A-12-657022-B,
filed in the Eighth Judicial District Court and against the members of the board
of directors of the Company and certain other parties to the Proposed
Transaction. Nevertheless, at this stage of the proceedings, management cannot
opine that a favorable outcome for the Company is probable or that an
unfavorable outcome to the Company is remote. There is no reasonable estimate of
any impact of the outcome of the litigation or related legal fees on the
financial statements can be made as of the date of this statement.
15
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Special Note Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q, including the following Managements Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements that are based on the beliefs of our management,
and involve risks and uncertainties, as well as assumptions, that, if they ever materialize or prove incorrect, could cause actual results to differ materially from those expressed or implied by such forward-looking statements. The words
believe, expect, anticipate, project, targets, optimistic, intend, aim, will or similar expressions are intended to identify forward-looking
statements. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including statements regarding new and existing products, technologies and opportunities; statements regarding
market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future
operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China; and any statements of belief or intention. As such, they are subject to risks and uncertainties that could cause
our results to differ materially from those expressed or implied by such forward looking statements. Such risks and uncertainties include any of the factors and risks mentioned in the Risk Factors sections of our Annual Report on Form
10-K for the year ended December 31, 2011 and subsequent SEC filings, and any statements of assumptions underlying any of the foregoing. All forward-looking statements included in this report are based on information available to us on the date of
this report. We assume no obligation and do not intend to update these forward-looking statements, except as required by law.
Certain Terms
Except where the context otherwise requires and for the purposes of this report only:
-
BVI refers to the British Virgin Islands;
-
China, Chinese and PRC refer to the Peoples Republic of China and do not include Taiwan and special administrative regions of Hong Kong and Macao;
-
China TransInfo, the Company, we, us, and our refer to China TransInfo Technology Corp., its subsidiaries, and, in the context of describing our operations and business, and consolidated
financial information, include our VIE;
-
Exchange Act refers to the Securities Exchange Act of 1934, as amended;
-
RMB refers to Renminbi, the legal currency of China;
-
SEC refers to the United States Securities and Exchange Commission;
-
Securities Act refers to the Securities Act of 1933, as amended;
-
U.S. dollar, $ and US$ refer to the legal currency of the United States; and
-
VIE means our consolidated variable interest entities, including China TransInfo and its subsidiaries as depicted in our organization chart included in our Annual Report on Form 10-K for the year ended December 31, 2011.
The following discussion and analysis of our financial condition and results of operations includes information with respect to our plans and strategies for our business and should be read in conjunction with our interim unaudited condensed
consolidated financial statements and related notes included herein and our consolidated financial statements and related notes, and Managements Discussion and Analysis of Financial Condition and Results of Operations contained in our Form
10-K for the year ended December 31, 2011.
Overview of Our Business
We are a leading provider of end-to-end intelligent transportation systems (ITS) and related comprehensive technology solutions servicing the transportation industry in China. Our goal is to become the largest provider of intelligent
transportation system products and related comprehensive technology solutions in China, as well as a major operator and provider of value-added ITS and location based services (LBS) to commercial clients and consumers in China.
Substantially all of our operations are conducted through our VIEs that are PRC domestic companies owned principally or entirely by our PRC affiliates. Through our VIEs, we are involved in developing multiple applications in highway ITS, urban ITS,
commercial vehicles ITS plus LBS, and to a lesser degree, in digital city, and land and resource filling systems based on Geographic Information Systems (GIS) technologies which are used to service both the public and private sector.
Our primary focus is on providing end-to-end ITS solutions and related services to the transportation industry. We also offer comprehensive solutions for transportation oriented GIS, encompassing transportation planning, design, construction,
maintenance and operation.
16
Second Quarter Financial Performance Highlights
We continued to experience consistent demand for our products
and services during the second quarter of 2012, which resulted in sustained
growth in our project backlog. In the second quarter of 2012, the Company won
new contracts worth $53.97 million, compared to $35.53 million in the same
period prior year. The transportation information industry in China is
experiencing a continued development along with a sustained increase in the
Chinese government and public demand for advanced transportation information
products and services to support more effective and efficient transportation
networks within China. This trend is supported by steady governmental spending
in the transportation sector. We believe this trend will continue to benefit our
business operations.
The following are some financial highlights for the second
quarter of 2012:
-
Net sales
Our net sales were approximately $31.41 million
for the second quarter of 2012, a decrease of 14.83% for the same quarter of
the previous year.
-
Gross Margin
Gross margin was 31.25% for the second
quarter of 2012, as compared to 28.68% for the same period in 2011.
-
Operating Profit
Operating profit was approximately $2.37
million for the second quarter of 2012, a decrease of 25.44% from $3.18
million for the same quarter of the previous year.
-
Net Income
Net income was approximately $2.35 million for
the second quarter of 2012, a decrease of 15.64% from $2.79 million for the
same quarter of the previous year.
Critical Accounting Estimates
As discussed in Part II, Item 7, Managements Discussion and
Analysis of Financial Condition and Results of Operations, of our Annual Report
on Form 10-K for the fiscal year ended December 31, 2011, we consider our
estimates on revenue recognition, vendor allowances and amortization of
intangibles to be the most critical in understanding the judgments that are
involved in preparing our consolidated financial statements. There have been no
significant changes to these estimates in the three months ended June 30,
2012.
Recently Issued Accounting Guidance
See Note 2 to condensed consolidated financial statements
included in Item 1, Financial Information, of this Quarterly Report on Form
10-Q.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2012 Compared to Three Months
Ended June 30, 2011
The following table sets forth selected items from our
unaudited condensed consolidated statements of income by dollar and as a
percentage of our net sales for the periods indicated:
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30, 2012
|
|
|
June 30, 2011
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
Amount
|
|
|
Net
Sales
|
|
|
Amount
|
|
|
Net
Sales
|
|
Net sales
|
$
|
31,407,301
|
|
|
100.00%
|
|
$
|
36,874,738
|
|
|
100.00%
|
|
Cost of sales
|
|
(21,591,924
|
)
|
|
(68.75%
|
)
|
|
(26,298,267
|
)
|
|
(71.32%
|
)
|
Gross profit
|
|
9,815,377
|
|
|
31.25%
|
|
|
10,576,471
|
|
|
28.68%
|
|
Total operating expenses
|
|
(7,445,269
|
)
|
|
(23.71%
|
)
|
|
(7,397,564
|
)
|
|
(20.06%
|
)
|
Income from operations
|
|
2,370,108
|
|
|
7.54%
|
|
|
3,178,907
|
|
|
8.62%
|
|
Non-operating income (expenses)
|
|
1,091,957
|
|
|
3.48%
|
|
|
(86,398
|
)
|
|
(0.23%
|
)
|
Income before income taxes, non-controlling
interests, and
|
|
|
|
|
|
|
|
|
|
|
|
|
gain on equity investment in affiliates net income
|
|
3,462,065
|
|
|
11.02%
|
|
|
3,092,509
|
|
|
8.39%
|
|
Income taxes
|
|
(562,181
|
)
|
|
(1.79%
|
)
|
|
(361,810
|
)
|
|
(0.98%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before non-controlling interests
and gain on equity investments in affiliates net income
|
|
2,899,884
|
|
|
9.23%
|
|
|
2,730,699
|
|
|
7.41%
|
|
Gain on equity investments in affiliates
due to proportional
|
|
|
|
|
|
|
|
|
|
|
|
|
shares of the affiliates net income
|
|
355,190
|
|
|
1.13%
|
|
|
1,023,349
|
|
|
2.78%
|
|
Net income before non-controlling interests
|
|
3,255,074
|
|
|
10.36%
|
|
|
3,754,048
|
|
|
10.19%
|
|
Non-controlling interests in net income of
subsidiary
|
|
(901,877
|
)
|
|
(2.87%
|
)
|
|
(964,652
|
)
|
|
(2.62%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
2,353,197
|
|
|
7.49%
|
|
$
|
2,789,396
|
|
|
7.57%
|
|
17
Net Sales
Net sales decreased by $5.47 million, or
14.83%, to $31.41 million for the three months ended June 30, 2012, from $36.87
million during the same period of 2011. Approximately 82.76% of this decrease is
attributable to the decrease of our transportation business in the second
quarter of 2012. As compared to the same period of 2011, net sales of our
transportation business decreased by approximately 13.18% . Such a decrease
predominantly resulted from a temporary fluctuation of the execution process of
existing contracts in our ITS business. Because our ITS business is conducted on
a contract-by-contract basis, progress towards contract completion could vary
from quarter to quarter, which would affect our revenue recognition. However, we
expect the demand for our products and services to be generally steady and
consistent over the years.
The following table illustrates the revenues from the major
Chinese government sectors and regulated industries in which we sell our
products and services for the periods indicated. The table also provides the
percentage of total revenues represented by each listed sector.
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30, 2012
|
|
|
June 30, 2011
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
|
Net
Sales
|
|
|
Sales
|
|
|
Net
Sales
|
|
|
Sales
|
|
Transportation
|
$
|
29,815,718
|
|
|
94.93%
|
|
$
|
34,340,629
|
|
|
93.12%
|
|
Digital City
|
|
1,144,867
|
|
|
3.65%
|
|
|
1,293,403
|
|
|
3.51%
|
|
Land and resources
|
|
4,863
|
|
|
0.02%
|
|
|
44,010
|
|
|
0.12%
|
|
Other
|
|
441,853
|
|
|
1.40%
|
|
|
1,196,696
|
|
|
3.25%
|
|
Net sales
|
$
|
31,407,301
|
|
|
100.00%
|
|
$
|
36,874,738
|
|
|
100.00%
|
|
Gross Profit
Our gross profit decreased approximately
$0.76 million, or 7.20%, to approximately $9.82 million for the three months
ended June 30, 2012, from approximately $10.58 million during the same period of
2011. Our gross profit decrease was mainly attributable to the decrease in net
sales of our ITS business. However, our gross profit decrease was proportionally
less than our revenue decrease from the same period of 2011 to 2012 and our
gross profit as a percentage of net sales increased 2.57% from 28.68% during the
same period of 2011 to 31.25% for the three months ended June 30, 2012. The
increase in gross margin was mainly due to the transportation projects we
carried out were more cost effective as a result of improvements in hardware
purchasing practice and labor management in these projects.
Total Operating Expenses
We sell most of our services and
products to the domestic Chinese market through contracts commissioned
by the Chinese government. Various government entities and agencies either
invite us to bid for a specific contract or award a contract to us on a non-bid
basis. We are often invited to bid on contracts through our professional
relationships and are awarded recurring businesses. Historically, we did not
incur high costs in our sales and marketing activities. We promoted our products
through developments of professional contacts with various agencies and
municipalities and through participation in industry trade exhibitions.
Our marketing expenses therefore were relatively low in
comparison to our competitors who do not have a record of performance and brand
recognition or well-established government contacts. Since 2011, we have
enhanced our marketing efforts by organizing various industry trade exhibitions
and conferences in order to further promote our corporate image and brand
recognition within the transportation information industry in China.
Total operating expenses increased by $0.05 million, or 0.64%,
to $7.45 million for the three months ended June 30, 2012, from $7.40 million
during the same period of 2011. The increase is due to the following:
-
Our selling expenses including sales representative commissions, promotion
fees and marketing expenses, increased approximately $0.35 million, or 36.49%,
to $1.30 million for the three months ended June 30, 2012, from $0.96 million
during the same period of 2011. The increase in selling expenses was mainly
attributable to our enhanced efforts in bidding for new contracts. Combined
with our lower net sales recognized for the three months ended June 30, 2012,
selling expenses as a percentage of net sales for the three months ended June
30, 2012 increased to 4.15% from 2.59% during the same period of 2011.
-
Our general and administrative expenses were approximately $6.14 million
(19.55% of total sales) and approximately $6.44 million (17.47% of total
sales) for the three months ended June 30, 2012 and 2011, respectively. The
decrease in administrative expenses was mainly attributable to the fact that
we incurred less sales related bonus payment for the three months ended June
30, 2012, compared to the same period of prior year.
Income Taxes
For the three months ended June 30, 2012,
we recognized income tax expense of $0.56 million and effective tax rate of
16.24% while in the same period of 2011, we recognized income tax expense of
$0.36 million and effective tax rate of 11.70% . The increase in the income tax
expense was mainly due to some VIEs with relatively higher tax rates contributed
more to the income before taxes than other VIEs with lower tax rates, which also
resulted in higher effective tax rate as compared to the same period of last
year.
18
Six Months Ended June 30, 2012 Compared to Six Months
Ended June 30, 2011
The following table sets forth selected items from our
unaudited condensed consolidated statements of income by dollar and as a
percentage of our net sales for the periods indicated:
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2012
|
|
|
June 30, 2011
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
Amount
|
|
|
Net
Sales
|
|
|
Amount
|
|
|
Net
Sales
|
|
Net sales
|
$
|
60,336,018
|
|
|
100.00%
|
|
$
|
73,373,897
|
|
|
100.00%
|
|
Cost of sales
|
|
(40,938,036
|
)
|
|
(67.85%
|
)
|
|
(52,404,305
|
)
|
|
(71.42%
|
)
|
Gross profit
|
|
19,397,982
|
|
|
32.15%
|
|
|
20,969,592
|
|
|
28.58%
|
|
Total operating expenses
|
|
(14,382,315
|
)
|
|
(23.84%
|
)
|
|
(13,718,623
|
)
|
|
(18.70%
|
)
|
Income from operations
|
|
5,015,667
|
|
|
8.31%
|
|
|
7,250,969
|
|
|
9.88%
|
|
Non-operating income (expenses)
|
|
1,816,390
|
|
|
3.01%
|
|
|
(26,143
|
)
|
|
(0.04%
|
)
|
Income before income taxes, non-controlling
interests, and gain on equity investments in affiliates net income
|
|
6,832,057
|
|
|
11.32%
|
|
|
7,224,826
|
|
|
9.84%
|
|
Income taxes
|
|
(1,140,449
|
)
|
|
(1.89%
|
)
|
|
(862,935
|
)
|
|
(1.18%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before non-controlling interests and gain on
equity investments in affiliates net income
|
|
5,691,608
|
|
|
9.43%
|
|
|
6,361,891
|
|
|
8.66%
|
|
Gain on equity investments in affiliates
due to proportional shares of the affiliates net income
|
|
734,443
|
|
|
1.22%
|
|
|
1,355,985
|
|
|
1.85%
|
|
Net income before non-controlling interests
|
|
6,426,051
|
|
|
10.65%
|
|
|
7,717,876
|
|
|
10.51%
|
|
Non-controlling interests in net income of
subsidiary
|
|
(1,653,558
|
)
|
|
(2.74%
|
)
|
|
(1,961,204
|
)
|
|
(2.67%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
4,772,493
|
|
|
7.91%
|
|
$
|
5,756,672
|
|
|
7.84%
|
|
Net Sales
Net sales decreased by $13.04 million, or
17.77%, to $60.34 million for the six months ended June 30, 2012, from $73.37
million during the same period of 2011. Approximately 90.01% of this decrease is
attributable to the decrease of our transportation business for the six months
ended June 30, 2012. As compared to the same period of 2011, net sales of our
transportation business decreased by approximately 16.89% . Such a decrease
predominantly resulted from a temporary fluctuation of the execution process of
existing contracts in our ITS business. Because our ITS business is conducted by
contract basis, progress towards contract completion could vary from quarter to
quarter, which would affect our revenue recognition. However, we expect the
demand for our products and services to be generally steady and consistent over
the years.
The following table illustrates the revenues from the major
Chinese government sectors and regulated industries in which we sell our
products and services for the periods indicated. The table also provides the
percentage of total revenues represented by each listed sector.
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2012
|
|
|
June 30, 2011
|
|
|
|
|
|
|
% of Net
|
|
|
|
|
|
% of Net
|
|
|
|
Net
Sales
|
|
|
Sales
|
|
|
Net
Sales
|
|
|
Sales
|
|
Transportation
|
$
|
57,744,453
|
|
|
95.70%
|
|
$
|
69,479,956
|
|
|
94.69%
|
|
Digital City
|
|
1,223,609
|
|
|
2.03%
|
|
|
1,299,766
|
|
|
1.77%
|
|
Land and resources
|
|
4,863
|
|
|
0.01%
|
|
|
47,055
|
|
|
0.06%
|
|
Other
|
|
1,363,093
|
|
|
2.26%
|
|
|
2,547,120
|
|
|
3.48%
|
|
Net sales
|
$
|
60,336,018
|
|
|
100.00%
|
|
$
|
73,373,897
|
|
|
100.00%
|
|
Gross Profit
Our gross profit decreased approximately
$1.57 million, or 7.49%, to approximately $19.40 million for the six months
ended June 30, 2012, from approximately $20.97 million during the same period of
2011. Our gross profit decrease was mainly attributable to the decrease of sales
during the six months ended June 30, 2012. However, our gross profit decrease
was proportionally less than our revenue decrease from the same period of 2011
to 2012 and our gross profit as a percentage of net sales increased 3.57% from
28.58% to 32.15% . This increase in gross margin was mainly due to the
transportation projects that we carried out were more cost effective due to the
improvement in hardware purchase practice and labor management achieved in these
projects.
Total Operating Expenses
Total operating expenses
increased by $0.66 million, or 4.84%, to $14.38 million for the six months ended
June 30, 2012, from $13.72 million during the same period of 2011. The increase
is due to the following:
-
Our selling expenses increased approximately $0.59 million, or 33.28%, to
$2.37 million for the six months ended June 30, 2012, from $1.78 million
during the same period of 2011. The increase of selling expenses was mainly
attributable to our enhanced efforts in bidding for new contracts. Combined
with our lower net sales recognized for the six months ended June 30, 2012,
selling expenses as a percentage of net sales for the
six months ended June 30, 2012 increased to 3.93% from 2.42% during the same
period of 2011.
19
-
Our general and administrative expenses were approximately $12.01 million
(19.91% of total sales) and approximately $11.94 million (16.27% of total
sales) for the six months ended June 30, 2012 and 2011, respectively. Our general and administrative expenses for the six months ended June 31, 2012
were relatively stable compared to the same period of the prior year. However, the increase
of general and administrative expenses as a percentage of net sales was mainly
attributable to the lower net sales recognized for the six months ended June
30, 2012 compared to the same period of prior year.
Income Taxes
For the six months ended June 30, 2012,
we recognized income tax expense of $1.14 million and effective tax rate of
16.69% while in the same period of 2011, we recognized income tax expense of
$0.86 million and effective tax rate of 11.94% . The increase in the income tax
expense was mainly due to some VIEs with relatively higher tax rates contributed
more to the income before taxes than other VIEs with lower tax rates, which also
resulted in higher effective tax rate compared to the same period of last year.
Liquidity and Capital Resources
Our principal liquidity requirements are for working capital,
capital expenditures and cash dividends to non-controlling shareholders of
subsidiaries. We fund our liquidity requirements primarily through cash on hand,
cash flow from operations and borrowings from our revolving credit facility. We
believe our cash on hand, future funds generated from operations and borrowings
from our revolving credit facility will be sufficient to fund our cash
requirements for at least the next twelve months. There is no assurance,
however, that we will be able to generate sufficient cash flow or that we will
be able to maintain our ability to borrow under our revolving credit
facility.
As of June 30, 2012, we had cash and cash equivalents
(excluding restricted cash) of approximately $26.93 million and restricted cash
of approximately $4.94 million. The following table provides detailed
information about our net cash flow for all financial statements periods
presented in this report.
Cash Flow
|
Six Months Ended June 30,
|
|
2012
|
2011
|
Net cash used in operating activities
|
$(14,636,118)
|
$(12,987,326)
|
Net cash used in investing activities
|
(3,223,970)
|
(6,011,371)
|
Net cash (used in)
/ provided by financing
activities
|
(571,287)
|
4,325,358
|
Effect of foreign currency exchange translation
|
332,441
|
706,563
|
Net decrease in cash and cash equivalents
|
(18,098,934)
|
$(13,966,776)
|
Operating Activities
Net cash used in operating activities was approximately $14.64
million for the six-month period ended June 30, 2012, while for the same period
of 2011, we had approximately $12.99 million net cash used in operating
activities. The increase in cash used in operating activities was mainly
attributable to the reduction in net income of $0.98 million, the increase in
restricted cash of $2.56 million due to increased new contracts that require the
establishment of contracts performance bonds, the change in cash flow from
accounts receivable due to relatively slower collections of $0.25 million, the
increase in prepaid expenses and other current assets of $4.72 million, the
increase in other receivables of $4.80 million related to increased activities
in bidding for new contracts, the decrease in net billings of $8.4 million, that
is, the difference between costs and estimated earnings in excess of billings on
uncompleted contracts (when our work was performed ahead of customer payments in
some of our contracts per the contract payment terms) and billings in excess of
costs and estimated earnings on uncompleted contracts (when we receive payments
from clients ahead of cost and earnings realization), the decrease in accrued
liabilities and other current liabilities of $0.06 million, offset by the
decrease of gain on equity investments in affiliates of $0.62 million due to
less net income from these affiliates, the decrease of inventories of $2.84
million and the increase of accounts payable of $16.76 million.
20
Investing Activities
Our primary uses of cash for investing activities are payments for the acquisition of property, plant and equipment, as well as intangible assets.
Net cash used in investing activities for the six-month period ended June 30, 2012 was approximately $3.22 million, which is a decrease of approximately $2.79 million from net cash used in investing activities of approximately $6.01
million for the same period of 2011. The decrease of the cash used in investing activities was mainly due to the fact that for the six months ended June 30, 2011, we made a one-time payment of $3.59 million as down payment to acquire a land use
right while in the same period of 2012, we did not have such investing activity. In addition, compared with the same period of 2011, we had an increase in intangible assets related to the software development of $1.09 million in the first half
of 2012.
Financing Activities
Net cash used in financing activities for the six-month period ended June 30, 2012 was approximately $0.57 million, while for the same period of 2011 we had approximately $4.33 million net cash provided by financing activities. Such change
was mainly attributable to the fact that for the period ended June 30, 2012, the repayment of short term loans was $2.12 million less than the same period of prior year, and offset by the decrease of non-controlling interests capital
contribution of $6.62 million.
Financing Agreements
On May 25, May 30 and June 15, 2011, our VIE, Beijing PKU Chinafront High Technology Co., Ltd. (PKU) entered into three short-term loan agreements with Bank of Beijing, Zhongguancun Branch (Zhongguancun Branch), pursuant to
which Zhongguancun Branch agreed to loan PKU an aggregate of RMB 25 million (approximately $3.94 million). The loan has an annual interest rate equal to 10% above the benchmark interest rate as of the first withdrawal date. The interest is to be
paid in a quarterly basis. The loan matures within 12 months from the date of the first withdrawal, the loan may be renewed upon receipt of written consent from Zhongguancun Branch. Under the terms of the loan agreements, PKU is subject to customary
affirmative and negative covenants. The repayment of the loan may be accelerated. Zhongguancun Branch has the right to demand immediate repayment of the principal and accrued interests in an event of default which includes, among other things,
failure to make principal or interest payments, failure to comply with other covenants and certain events of liquidation or bankruptcy. A principal amount of RMB 5 million was paid off in 2011, RMB 15 million was paid off on May 29, 2012, and the
remaining was paid off on June 15, 2012.
On December 22, 2011, our VIE, Beijing Transwiseway Information Technology Co., Ltd. (Beijing Transwiseway) entered into a short-term loan agreement with Zhongguancun Haidianyuan Branch of Bank of Beijing ("Haidianyuan Branch"), pursuant
to which Haidianyuan Branch agreed to loan Beijing Transwiseway a sum of RMB 30 million (approximately $4.72 million). By February 26, 2012, we had withdrew RMB 17,885,400 (approximately $2.83 million). The loan has an annual interest rate
equal to 10% above the benchmark interest rate as of the date of the first withdrawal of the principal. The interest is to be paid on a quarterly basis. The loan matures within 12 months from the date of the first withdrawal. The loan can be renewed
upon the written consent by Haidianyuan Branch. Under the terms of the loan agreement, Beijing Transwiseway is subject to customary affirmative and negative covenants. The repayment of the loan may be accelerated. Haidianyuan Branch may also demand
immediate repayment of the principal and accrued interests in an event of default which includes, among other things, failure to make principal or interest payments timely, material breach of representations and warranties by Beijing Transwiseway,
and liquidation or bankruptcy. As of June 30, 2012, a principal amount of approximately $2.83 million was outstanding.
On April 1, 2012, PKU entered into a short-term loan agreement with Haidianyuan Branch, pursuant to which Haidianyuan Branch agreed to loan PKU an aggregate of RMB15 million (approximately $2.40 million). The loan has an annual interest rate
equal to 20% above the benchmark interest rate as of the first withdrawal date. The interest is to be paid on a monthly basis. The loan matures within 12 months from the date of the first withdrawal. The loan may be renewed upon the written consent
by Haidianyuan Branch. As of June 30, 2012, a principal amount of RMB 14,013,899 (approximately $2.22 million) was outstanding.
On May 30, 2012, UNISITS entered into a short-term loan agreement with Dayuncun Branch of Merchants Bank (Dayuncun Branch), pursuant to which Dayuncun Branch agreed to loan UNISITS a sum of RMB 10 million (approximately $1.60
million). The loan has an annual interest rate equal to 5% above the benchmark interest rate. The interest is to be paid on a quarterly basis. The Loan matures on December 23, 2012. As of June 30, 2012, a principal amount of approximately $1.59
million was outstanding.
On June 21, 2012, UNISITS entered into a short-term loan agreement with Qinghuayuan Branch of Bank of Beijing (Qinghuayuan Branch), pursuant to which Qinghuayuan Branch agreed to loan UNISITS a sum of RMB 10 million (approximately
$1.60 million). The loan has an annual interest rate equal to 1% above the benchmark interest rate as of the date of the first withdrawal of the principal, with the interest to be paid on a quarterly basis. The loan matures in 6 months from the
first withdrawal date of June 25, 2012. As of June 30, 2012, the first withdrawal of RMB 5 million was completed and a principal amount of approximately $0.79 million was outstanding.
21
Future Capital Requirements
We believe that our current cash and cash equivalents and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and
capital expenditures for at least the next 12
months. We may, however, require additional cash due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. In addition, because substantially all of our revenues are
generated from our indirect PRC subsidiary, China TransInfo Technology Limited or China TransInfo Limited, after it receives payments from our VIE under various services and other arrangements, the ability of China TransInfo Limited to make
dividends and other payments to us is subject to the PRC dividend restrictions. Current PRC law permits payments of dividend by China TransInfo Limited only out of its accumulated after-tax profits, if any, determined in accordance with PRC
accounting standards and regulations. Oriental Intra-Asia is also required under PRC laws and regulations to allocate at least 10% of its annual after-tax profits determined in accordance with PRC GAAP to a statutory general reserve fund until the
amounts in said fund reaches 50% of China TransInfo Limiteds registered capital. Allocations to the statutory reserve fund can only be used for specific purposes and are not transferable to us in the form of loans, advances or cash dividends.
As a result, if our existing cash and amount available under existing bank loans are insufficient to meet our requirements, we may seek to sell additional equity securities, debt securities or borrow additional funds from lending institutions. We
can make no assurances that financing will be available in the amounts we need or on terms acceptable to us, if at all. The sale of additional equity securities, including convertible debt securities, would dilute the interests of our current
shareholders. The incurrence of debt would divert cash for working capital and capital expenditures to service debt obligations and could result in operating and financial covenants that restrict our operations and our ability to pay dividends to
our shareholders. If we are unable to obtain additional equity or debt financing as required, our business operations and prospects may suffer.
Off-Balance Sheet Arrangements and Contractual Obligations
As previously disclosed, on June 8, 2012, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with TransCloud Company Limited, a Cayman Islands exempted company with limited liability and indirectly wholly owned by Mr. Shudong
Xia ("Parent"), TransCloud Acquisition, Inc., a Nevada corporation and a wholly owned, direct subsidiary of Parent ("Merger Sub"). Under the Merger Agreement, Merger Sub will merge with and into the Company, with the Company continuing as the
surviving corporation and a wholly owned subsidiary of Parent.
According to the Merger Agreement, at the effective time of the Merger, each outstanding share of the Companys common stock will be converted automatically into the right to receive $5.80 in cash, without interest, excluding certain shares
as provided in the Merger Agreement. The Merger remains subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, including obtaining approval of the existing stockholders of the Company.
The foregoing description of the Merger Agreement is qualified in its entirety by reference to the full text of the Merger Agreement, copy of which has been filed as an Exhibit to our current report on Form 8-K dated June 8, 2012, and which is
incorporated herein by reference.
Seasonality
Our results of operations are affected by seasonality and we typically see lower sales as well as lower cash collection during the first half than the second half of a year. Such seasonality is mainly caused by governmental seasonal budgeting
activities and behaviors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Pursuant to Item 305(e) of Regulation S-K, the Company is not required to provide the information required by this Item as it is a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures.
Our management, with the participation of our chief executive officer and chief financial officer, Mr. Shudong Xia and Mr. Rong Zhang, respectively, evaluated the effectiveness of our disclosure controls and procedures. The term disclosure
controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports,
such as this report, that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the companys management, including
its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, Mr. Shudong Xia and Mr. Rong Zhang
concluded that as of June 30, 2012, our disclosure controls and procedures were effective at the reasonable assurance level.
22
Changes in Internal Control Over Financial Reporting.
During the fiscal quarter ended June 30, 2012, there were no changes in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
23
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may have disputes that arise in the ordinary course of our business. Currently, there are no material legal proceedings to which we are a party, or to which any of our property is subject, that we expect to have a material
adverse effect on our financial condition, except as follows:
The Company and the members of our board of directors are named as defendants in purported class action lawsuits (the Stockholder Actions) brought in the Eighth Judicial District Court, Clark County, Nevada (the Eighth Judicial
Districted Court) by several stockholders: Oswald Velz v. China TransInfo Technology Corp. et al., Case No. A-12-657022-C (filed February 24, 2012), Tim Valles v. Shudong Xia et al. Case No. A-12-657443-C (filed March 1, 2012) and Carl M.
Domitrovich v. Shudong Xia et al. Case No. A-12-657740-C (filed March 6, 2012). The Stockholder Actions generally allege that the Company and all of our directors breached their fiduciary duties in connection with the receipt by the Company of a
preliminary, non-binding proposal from Shudong Xia, the Companys Chairman and Chief Executive Officer, to acquire all of the outstanding shares of our common stock not currently owned by him in a going private transaction at a proposed price
of $5.65 per share in cash (the Proposed Transaction). The Stockholder Actions seek, among other things, to declare that the Proposed Transaction is unfair, unjust and inequitable, to enjoin the Company from taking any steps
necessary to accomplish or implement the Proposed Transaction, and damages in the event the Proposed Transaction is consummated.
On July 13, 2012, the above three class action complaints were consolidated into one amended class action complaint, In Re China TransInfo Technology Corp. Shareholders Litigation, Consolidated Case No. A-12-657022-B, filed in the Eighth
Judicial District Court and against our directors and some other parties to the Proposed Transaction.
ITEM 1A. RISK FACTORS
Our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 contains a detailed discussion of risk factors that could materially adversely affect our business, our operating results, or our financial condition. The following risk
factor should be read in conjunction with that discussion. Except for the addition of this risk factor, there are no material changes from the risk factors previously disclosed in Item 1A Risk Factors of our Annual Report on Form 10-K
for the year ended December 31, 2011.
Our auditor, like other independent registered public accounting firms operating in China, is not inspected by the U.S. Public Company Accounting Oversight Board (thePCAOB), and as such, our investors currently do not have the
benefits of PCAOB oversight.
Auditors of companies that are public in the U.S. must be registered with the PCAOB. US audit firms that are registered with the PCAOB are required by U.S. law to undergo regular inspection by the PCAOB to assess their compliance with professional
auditing standards in connection with their audits of public company. Because our auditor is located in China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, the audit work
and practices of our auditor, like other registered audit firms operating in China, is currently not inspected by the PCAOB.
The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditors audit procedures or quality control procedures as compared to auditors outside of China that are
subject to PCAOB inspections. As a result, investors may be deprived of the benefits of PCAOB inspections. Investors may also lose confidence in our reported financial information and procedures and the quality of our financial statements.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
We have not sold any unregistered equity securities during the fiscal quarter ended June 30, 2012 that were not previously disclosed in a current report on Form 8-K that was filed during that period.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None
24
ITEM 6. EXHIBITS.
EXHIBITS.
31.1
|
Certification of Principal Executive Officer filed
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
31.2
|
Certification of Principal Financial Officer filed
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
32.1
|
Certification of Principal Executive Officer furnished
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
32.2
|
Certification of Principal Financial Officer furnished
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
101
|
The following financial information from The China
TransInfo Technology Corp.'s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2012, formatted in XBRL (eXtensible Business Reporting
Language): (i) Condensed Consolidated Balance Sheets at June 30, 2012 and
December 31, 2011, (ii) Condensed Consolidated Statements of Income for
the three and six months ended June 30, 2012 and 2011, (iii) Condensed
Consolidated Statements of Cash Flows for the six months ended June 30,
2012 and 2011, and (iv) the Notes to Condensed Consolidated Financial
Statements (Unaudited).
|
25
SIGNATURES
Pursuant to the requirements 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.
DATED: August 14, 2012
CHINA TRANSINFO TECHNOLOGY CORP.
By: /s/ Shudong Xia
Shudong Xia
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Rong Zhang
Rong Zhang
Chief Financial Officer
(Principal Financial Officer)
EXHIBIT INDEX
Exhibit
Number
|
Description
|
31.1
|
Certification of Principal Executive Officer filed
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
31.2
|
Certification of Principal Financial Officer filed
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
32.1
|
Certification of Principal Executive Officer furnished
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
32.2
|
Certification of Principal Financial Officer furnished
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
101
|
The following financial information from The China
TransInfo Technology Corp.'s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2012, formatted in XBRL (eXtensible Business Reporting
Language): (i) Condensed Consolidated Balance Sheets at June 30, 2012 and
December 31, 2011, (ii) Condensed Consolidated Statements of Income for
the three and six months ended June 30, 2012 and 2011, (iii) Condensed
Consolidated Statements of Cash Flows for the six months ended June 30,
2012 and 2011, and (iv) the Notes to Condensed Consolidated Financial
Statements (Unaudited).
|
|
|
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