Through contractual arrangements with each of Beijing Yanyu Water Tech Co., Ltd. and Tranhold Environmental (Beijing) Co., Ltd., our two variable interest entities (“VIEs”) in China, we provide self-manufactured, proprietary or third-party products, system integration and other services in the fields of environmental protection, and water resource monitoring, development, utilization and protection. We design customized sewage treatment and odor control systems for China’s municipalities and larger cities. These systems combine software, information management systems, resource planning and local and distant networking hardware that includes sensors, control systems, programmable logic controllers, supervisory control and data acquisition systems. We also design systems that track natural waterway levels for drought control, monitor groundwater quality and assist the government in managing its water resources.
For the nine months ended September 30, 2008 and 2009, our total revenues amounted to approximately $5.6 million and $10.9 million, respectively. Our revenues are subject to VAT, business tax, urban maintenance and construction tax and additional education fees. We deduct these amounts from our gross revenues to arrive at our total revenues. Our net incomes for the same periods ended September 30, 2008 and 2009 were $1.3 million and $2.5 million, respectively.
Our total revenues come from services we provide in our two operating segments, (i) wastewater and tail gas treatment and (ii) water resource management. In these segments, we provide system integration services and sell hardware and software products.
System integration is the integration of the component subsystems into one system and monitoring of subsystems to ensure they function together as a system. Based upon our customers’ requirements and needs, we provide them turn-key solutions, including engineering design, procurements, manufacturing, software, installation, commissioning, training, and final acceptance. We realize the revenues from system integration sales based on percentage of completion.
Hardware product sales are based on our customers’ requirements and needs. We specify the right hardware equipment and components and sell hardware to the customers “as is” without providing software or other value-adding to the customers’ systems.
We sell our software products by providing customers with proprietary software with or without adding some standard interface software. Other than our operational expenses, we incur a few additional costs in connection with software product sales.
We generally require customers to pay minimum payments of 30% of a project’s total cost in advance and bill them the balance within 30 days after the transactions are completed. Sometimes, customers require 5-10% retainage for a 12-month warranty period. In such cases, we realize the retainage fee revenue when the warranty period expires and we receive the retainage fee payment.