Attached files
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EXCEL - IDEA: XBRL DOCUMENT - THT Heat Transfer Technology, Inc. | Financial_Report.xls |
EX-32.2 - EXHIBIT 32.2 - THT Heat Transfer Technology, Inc. | exhibit32-2.htm |
EX-31.1 - EXHIBIT 31.1 - THT Heat Transfer Technology, Inc. | exhibit31-1.htm |
EX-32.1 - EXHIBIT 32.1 - THT Heat Transfer Technology, Inc. | exhibit32-1.htm |
EX-31.2 - EXHIBIT 31.2 - THT Heat Transfer Technology, Inc. | exhibit31-2.htm |
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: September 30, 2013
[ ] 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: 001-34812
THT HEAT TRANSFER TECHNOLOGY,
INC.
(Exact Name of Registrant as Specified in Its
Charter)
Nevada | 20-5463509 |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) |
incorporation or organization) |
THT Industrial Park
No. 5 Nanhuan Road, Tiexi
District
Siping, Jilin Province 136000
Peoples Republic of
China
(Address of principal executive offices, Zip Code)
86-434-3265241
(Registrants telephone number,
including area code)
_____________________________________________________
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T 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.
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 stock, as of November 14, 2013 is as follows:
Class of Securities | Shares Outstanding |
Common Stock, $0.001 par value | 20,453,500 |
THT HEAT TRANSFER TECHNOLOGY, INC.
Quarterly Report on Form 10-Q |
Period Ended September 30, 2013 |
TABLE OF CONTENTS
PART I | 1 | ||
FINANCIAL INFORMATION | 1 | ||
ITEM 1. | FINANCIAL STATEMENTS. | 1 | |
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. | 13 | |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. | 20 | |
ITEM 4. | CONTROLS AND PROCEDURES. | 20 | |
PART II | 21 | ||
OTHER INFORMATION | 21 | ||
ITEM 1. | LEGAL PROCEEDINGS. | 21 | |
ITEM 1A. | RISK FACTORS. | 21 | |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. | 21 | |
ITEM 4. | MINE SAFETY DISCLOSURES. | 21 | |
ITEM 5. | OTHER INFORMATION. | 21 | |
ITEM 6. | EXHIBITS. | 21 |
PART I
FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS. |
THT HEAT TRANSFER TECHNOLOGY, INC.
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2013 AND 2012
Pages(s) | |
Consolidated Statements of Income and Comprehensive Income | 2 |
Consolidated Balance Sheets | 3 |
Consolidated Statement of Shareholders’ Equity | 4 |
Consolidated Statements of Cash Flows | 5 |
Notes to Consolidated Financial Statements | 6-12 |
1
THT Heat Transfer Technology, Inc.
Consolidated
Statements of Income and Comprehensive Income
(Stated in US
dollars)
(Unaudited)
For Nine Months Ended September 30, | For Three Months Ended September 30, | |||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||
Sales revenue | $ | 32,584,283 | $ | 35,152,955 | 13,761,475 | 12,508,183 | ||||||
Cost of revenue | (21,314,593 | ) | (20,549,861 | ) | (9,494,611 | ) | (7,325,961 | ) | ||||
Gross Profit | 11,269,690 | 14,603,094 | 4,266,864 | 5,182,222 | ||||||||
Operating expenses | ||||||||||||
Administrative expenses | 3,852,670 | 4,423,011 | 1,348,042 | 2,382,820 | ||||||||
Research and development expenses | 1,191,079 | 814,509 | 557,003 | 315,229 | ||||||||
Selling expenses | 4,063,539 | 5,845,212 | 1,565,837 | 1,637,436 | ||||||||
Total Operating Expenses | 9,107,288 | 11,082,732 | 3,470,882 | 4,335,485 | ||||||||
Income from operations | 2,162,402 | 3,520,362 | 795,982 | 846,737 | ||||||||
Other Income (Expenses) | ||||||||||||
Interest income | 19,069 | 19,796 | 4,295 | 7,055 | ||||||||
Other income | 560,670 | 649,987 | 267,742 | 282,791 | ||||||||
Finance costs | (946,662 | ) | (1,377,799 | ) | (277,355 | ) | (474,587 | ) | ||||
Other expense | (621 | ) | - | (17 | ) | - | ||||||
Total Other Expense | (367,544 | ) | (708,016 | ) | (5,335 | ) | (184,741 | ) | ||||
Income before income taxes and noncontrolling interests | 1,794,858 | 2,812,346 | 790,647 | 661,996 | ||||||||
Income tax expenses | (376,841 | ) | (234,630 | ) | (93,365 | ) | (123,732 | ) | ||||
Net Income | 1,418,017 | 2,577,716 | 697,282 | 538,264 | ||||||||
Net loss (income) attributable to noncontrolling interests | (53,092 | ) | (76,833 | ) | - | (34,270 | ) | |||||
Net income attributable to THT Heat Transfer | $ | |||||||||||
Technology, Inc. common stockholders | $ | 1,364,925 | 2,500,883 | 697,282 | 503,994 | |||||||
Net Income | 1,418,017 | 2,577,716 | 697,282 | 538,264 | ||||||||
Other Comprehensive Income | ||||||||||||
Foreign currency translation adjustments | 1,597,429 | 278,253 | 367,094 | (108,319 | ) | |||||||
Comprehensive Income | 3,015,446 | 2,855,969 | 1,064,376 | 429,945 | ||||||||
Comprehensive (income) loss attributable to noncontrolling interests | (25,690 | ) | (73,967 | ) | - | (35,274 | ) | |||||
Comprehensive income attributable to THT Heat | ||||||||||||
Transfer Technology, Inc. common stockholders | $ | 2,989,756 | $ | 2,782,002 | 1,064,376 | 394,671 | ||||||
Earnings per share attributable to THT Heat Transfer | ||||||||||||
Technology, Inc. common stockholders | ||||||||||||
Basic and diluted | $ | 0.07 | $ | 0.12 | 0.03 | 0.02 | ||||||
Weighted average number of shares outstanding | ||||||||||||
Basic and diluted | 20,453,500 | 20,453,500 | 20,453,500 | 20,453,500 |
The accompanying notes are an integrated part of these unaudited consolidated financial statements
2
THT Heat Transfer Technology, Inc.
Consolidated Balance
Sheets
(Stated in US dollars)
(Unaudited)
Septemer 30, | December 31, | |||||
2013 | 2012 | |||||
Unaudited | ||||||
ASSETS | ||||||
Current assets | ||||||
Cash and cash equivalents | $ | 1,754,832 | $ | 10,703,199 | ||
Restricted cash | 2,034,554 | 1,837,593 | ||||
Counter guarantee receivable | - | 237,771 | ||||
Trade receivables, net | 36,103,008 | 37,683,275 | ||||
Bills receivable | 813,642 | 2,452,478 | ||||
Other receivables, prepayments and deposits, net | 17,923,884 | 11,193,541 | ||||
Inventories, net | 43,212,291 | 31,892,204 | ||||
Deferred tax assets | 168,989 | 164,577 | ||||
Total Current Assets | 102,011,200 | 96,164,638 | ||||
Retention receivable | 1,149,116 | 1,237,473 | ||||
Counter guarantee receivable | 244,145 | 237,771 | ||||
Property, plant and equipment, net | 7,444,709 | 7,707,564 | ||||
Land use rights, net | 6,188,619 | 6,121,456 | ||||
TOTAL ASSETS | $ | 117,037,789 | $ | 111,468,902 | ||
LIABILITIES & SHAREHOLDERS EQUITY | ||||||
Current Liabilities | ||||||
Accounts payable | 10,783,628 | 7,721,067 | ||||
Other payables and accrued liabilities | 26,994,934 | 22,841,489 | ||||
Income tax payable | 11,656 | 615,800 | ||||
Short-term bank loans | 15,950,780 | 18,704,625 | ||||
Current maturities of long-term loan | 1,953,157 | 1,902,165 | ||||
Total Current Liabilities | 55,694,155 | 51,785,146 | ||||
Non-current liabilities | ||||||
Long-term loan | - | 951,083 | ||||
Total Long-term Liabilities | - | 951,083 | ||||
Total Liabilities | 55,694,155 | 52,736,229 | ||||
SHAREHOLDERS EQUITY | ||||||
Preferred stock, $.001 par value,
10,000,000 shares authorized, no shares issued and outstanding Common stock, $.001 par value, 190,000,000 shares authorized, 20,453,500 shares issued and outstanding at September 30, 2013 and December 31, 2012 |
20,454 | 20,454 | ||||
Additional paid-in capital | 26,524,324 | 27,396,455 | ||||
Statutory reserve | 3,429,032 | 3,295,014 | ||||
Retained earnings | 25,576,588 | 24,345,681 | ||||
Accumulated other comprehensive income | 5,793,236 | 4,253,693 | ||||
Total THT Heat Transfer Technology Inc. stockholders equity | 61,343,634 | 59,311,297 | ||||
Noncontrolling interests | - | (578,624 | ) | |||
TOTAL SHAREHOLDERS EQUITY | 61,343,634 | 58,732,673 | ||||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY | $ | 117,037,789 | $ | 111,468,902 |
The accompanying notes are an integrated part of these unaudited consolidated financial statements
3
THT Heat Transfer Technology, Inc.
Consolidated
Statement of Shareholders Equity
(Stated in US
dollars)
(Unaudited)
THT Heat Transfer Technology, Inc. | ||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||
Common Stock | Additional | Other | Total | |||||||||||||||||||||
Paid-in | Statutory | Comprehensive | Retained | Noncontrolling | Shareholders' | |||||||||||||||||||
No. of Shares | Amount | Capital | Reserve | Income | Earnings | Interest | Equity | |||||||||||||||||
Balance, December 31, 2012 | 20,453,500 | $ | 20,454 | $ | 27,396,455 | $ | 3,295,014 | $ | 4,253,693 | $ | 24,345,681 | (578,624 | ) | $ | 58,732,673 | |||||||||
Net income | 1,364,925 | 53,092 | 1,418,017 | |||||||||||||||||||||
Foreign currency translation adjustment | 1,624,831 | (27,402 | ) | 1,597,429 | ||||||||||||||||||||
Appropriation to reserve | 134,018 | (134,018 | ) | - | ||||||||||||||||||||
Decrease of non-controlling interest | (872,131 | ) | (85,288 | ) | 552,934 | (404,485 | ) | |||||||||||||||||
Balance, September 30, 2013 (Unaudited) | 20,453,500 | $ | 20,454 | $ | 26,524,324 | $ | 3,429,032 | $ | 5,793,236 | $ | 25,576,588 | - | $ | 61,343,634 |
The accompanying notes are an integrated part of these unaudited consolidated financial statements
4
THT Heat Transfer Technology, Inc.
Consolidated
Statements of Cash Flows
(Stated in US
dollars)
(Unaudited)
For the Nine Months Ended September 30, | ||||||
2013 | 2012 | |||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
Net income | $ | 1,418,017 | $ | 2,577,716 | ||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||
Depreciation and amortization | 898,337 | 864,702 | ||||
Deferred taxes assets | - | (6,564 | ) | |||
Allowance for doubtful accounts | 363,698 | 1,472,714 | ||||
Reversal of doubtful debts of other receivables, prepayment and deposits | - | (8,657 | ) | |||
Changes in operating assets and liabilities: | ||||||
Trade receivables | 2,196,165 | (1,821,741 | ) | |||
Bills receivable | 1,684,456 | (320,195 | ) | |||
Other receivables, prepayments and deposits | (6,478,549 | ) | (7,903,709 | ) | ||
Inventories | (10,341,601 | ) | (5,668,056 | ) | ||
Retention receivable | 120,095 | 455,217 | ||||
Trade payables | 3,432,449 | 488,863 | ||||
Other payables and accrued expenses | 2,790,539 | 6,662,467 | ||||
Tax payable | (613,325 | ) | (1,130,912 | ) | ||
NET CASH USED IN OPERATING ACTIVITIES | (4,529,719 | ) | (4,338,155 | ) | ||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||
Prepayments to land use right | - | (736,801 | ) | |||
Change in restricted cash | (145,957 | ) | - | |||
Payments to acquire property, plant and equipment | (116,217 | ) | (384,492 | ) | ||
NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES | (262,174 | ) | (1,121,293 | ) | ||
Cash flows from financing Activities | ||||||
Proceeds from bank loans | 25,412,961 | 17,237,800 | ||||
Repayment of bank loans | (28,629,791 | ) | (11,060,000 | ) | ||
Repayment of long-term loan | (960,969 | ) | (948,000 | ) | ||
Refund of Counter guarantee receivable | 240,243 | 80,792 | ||||
Cash paid for acquisition of non-controlling interest | (404,485 | ) | - | |||
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES | (4,342,041 | ) | 5,310,592 | |||
Effect of foreign currency translation on cash and cash equivalents | 185,567 | 42,366 | ||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (8,948,367 | ) | (106,490 | ) | ||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | $ | 10,703,199 | $ | 7,340,068 | ||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 1,754,832 | $ | 7,233,578 | ||
Supplementary Disclosures for Cash Flow Information: | ||||||
Interest paid | $ | 944,751 | $ | 1,365,126 | ||
Income taxes paid | $ | 891,947 | $ | 1,380,855 |
The accompanying notes are an integrated part of these unaudited consolidated financial statements
5
THT Heat Transfer Technology, Inc.
Notes to
Unaudited Consolidated Financial Statements
(Unaudited)
(Stated in US Dollars)
1. |
Corporate information |
THT Heat Transfer Technology, Inc. (the Company or THT or the Surviving Corporation) is a Nevada corporation with major operations in China. The Companys shares are quoted for trading on the Nasdaq Global Market in the United States. | |
2. |
Description of business |
The Company is a holding company whose primary business are conducted through its subsidiaries, namely Siping Juyuan which is located in the Jilin Province and Beijing Juyuan which is located in Beijing City of the PRC. The Company is engaged in the manufacturing and trading of plate heat exchangers and various related products. | |
Siping Juyuan was established in the PRC on May 31, 2006 following the division (the Division) of Siping City Juyuan Heat Exchange Equipment Co., Ltd. (Old Juyuan Company) into three companies, namely Siping Juyuan, Siping City Juyuan Heat Exchange Equipment Co., Ltd. (New Juyuan Company) and Siping City Juyuan Hanyang Pressure Vessels Co., Ltd (Juyuan Hanyang Pressure Vessels). | |
3. |
Summary of significant accounting policies |
Basis of presentation and consolidation | |
The accompanying unaudited consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the SEC) including the instructions to Form 10-Q and Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been or omitted from these statements pursuant to such rules and regulations and, accordingly, they do not include all the information and notes necessary for comprehensive consolidated financial statements and should be read in conjunction with the Companys consolidated financial statements and accompanying notes thereto for the year ended December 31, 2012 filed with the SEC in the Companys Form 10-K on April 1, 2013. | |
In the opinion of the management of the Company, all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the three-month period have been made. Results for the interim periods presented are not necessarily indicative of the results that might be expected for the entire fiscal year. |
6
The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter- company balances and transactions have been eliminated on consolidation.
Fair value of financial instruments
Accounting Standards Codification (ASC) Topic 820 requires the disclosure of the estimated fair value of financial instruments including those financial instruments for which fair value option was not elected. As of September 30, 2013 and December 31, 2012, the carrying amounts of the Companys financial assets and liabilities approximated their fair values due to short maturities or the applicable interest rates approximated the current market rates.
Reclassifications
Certain amounts in the consolidated financial statements for the prior period have been reclassified to conform to the presentation of the current period for the comparative purposes.
Recently issued accounting pronouncements
In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income (ASU 2013-02). Under ASU 2013-02, an entity is required to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in the financial statements. The amendments in this update will be effective for fiscal years and interim periods within those years beginning after December 15, 2012. The Company adopted this pronouncement effective January 1, 2013 and the adoption did not have a material impact on the Companys consolidated financial statements.
In March 2013, the FASB issued ASU 2013-05, Foreign Currency Matters (Topic 830)Parents Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. These amendments provide guidance on releasing Cumulative Translation Adjustments when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. In addition, these amendments provide guidance on the release of CTA in partial sales of equity method investments and in step acquisitions. For public entities, the amendments are effective on a prospective basis for fiscal years and interim reporting periods within those years, beginning after December 15, 2013. The amendments should be applied prospectively to derecognition events occurring after the effective date. Prior periods should not be adjusted. The Company does not expect the adoption to have a significant impact on its consolidated financial statements.
7
In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. These amendments provide that an unrecognized tax benefit, or a portion thereof, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from disallowance of a tax position, or the tax law does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, then the unrecognized tax benefit should be presented as a liability. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of ASU 2013-11 is not expected to have a material impact on the Companys consolidated financial statements. | |
4. |
Trade receivables, net |
September 30, | December 31, | ||||||
2013 | 2012 | ||||||
|
(Unaudited) | ||||||
|
|||||||
Trade receivables |
$ | 40,709,341 | $ | 41,810,915 | |||
Less: Allowance for doubtful accounts |
(4,606,333 | ) | (4,127,640 | ) | |||
|
|||||||
|
$ | 36,103,008 | $ | 37,683,275 |
As of September 30, 2013 and December 31, 2012, the Companys trade receivables of $558,228 and $9,510,826, respectively, were pledged as collateral under certain loan and guarantee arrangements (see Note 9).
An analysis of the allowance for doubtful accounts for the nine months ended September 30, 2013 and 2012 is as follows:
Nine months ended | |||||||
September 30, | |||||||
(Unaudited) | |||||||
2013 | 2012 | ||||||
|
|||||||
Balance at beginning of period |
$ | 4,127,640 | $ | 2,026,809 | |||
Provision for doubtful accounts |
363,698 | 1,472,714 | |||||
Translation adjustments |
114,995 | 9,169 | |||||
|
|||||||
Balance at end of period |
$ | 4,606,333 | $ | 3,508,692 |
8
5. |
Inventories, net |
September 30, | December 31, | ||||||
2013 | 2012 | ||||||
(Unaudited) | |||||||
|
|||||||
Raw materials |
$ | 9,336,697 | $ | 4,434,338 | |||
Work-in-progress |
33,358,221 | 26,912,452 | |||||
Finished goods |
537,232 | 564,755 | |||||
|
|||||||
|
43,232,150 | 31,911,545 | |||||
Allowance for obsolete inventories |
(19,859 | ) | (19,341 | ) | |||
|
|||||||
|
$ | 43,212,291 | $ | 31,892,204 |
No further allowance for obsolete inventories was recognized during the nine months ended September 30, 2013 and 2012.
As of September 30, 2013 and December 31, 2012, the inventory of $3,580,787 was pledged under certain loan agreements (see Note 10).
6. |
Income tax |
The effective tax rate is 12% and 19% for the three months periods ended September 30, 2013 and September 30, 2012, respectively. The effective tax rate is 21% and 8% for the nine months periods ended September 30, 2013 and September 30, 2012, respectively. | |
7. |
Property, plant and equipment, net |
As of September 30, 2013 and December 31, 2012, property, plant and equipment with net book values $5,003,976 and $5,096,108, respectively, were pledged as collateral under certain loan arrangements (Note 9). | |
8. |
Land use rights |
As of September 30, 2013 and December 31, 2012, certain land use rights were pledged as collateral under certain loan arrangements (Note 9). | |
During the nine months ended September 30, 2013 and 2012, amortization amounted to $95,798 and $42,591, respectively. |
9
9. |
Short-term bank loans |
September 30, | December 31, | ||||||
2013 | 2012 | ||||||
(Unaudited) | |||||||
Secured bank loans | $ | 15,950,780 | $ | 15,534,350 | |||
Unsecured bank loans | - | 3,170,275 | |||||
$ | 15,950,780 | $ | 18,704,625 |
All bank loans are repayable within one year and carry annual interest from 100% to 120% of the benchmark interest rate published by the Peoples Bank of China (the PBOC).
The secured bank loans were secured by the following assets of the Company:
September 30, | December 31, | ||||||
2013 | 2012 | ||||||
(Unaudited) | |||||||
|
|||||||
Trade receivables (Note 4) |
$ | 558,228 | $ | 9,510,826 | |||
Property, plant and equipment (Note 7) |
5,003,976 | 5,096,108 | |||||
Land use rights (Note 8) |
1,015,195 | 1,452,441 | |||||
|
|||||||
|
$ | 6,577,399 | $ | 16,059,375 |
The unsecured bank loans were guaranteed by Mr. Zhao and certain third parties who received 2% to 2.5% of the loan balance as compensation for acting as guarantors for the Company. The Company also made the counter guarantee deposits of RMB 1.5 million ($237,771) to the guarantors as of December 31, 2012. The unsecured bank loans were fully repaid in April 2013 and the guarantee deposits were refunded to the Company as of September 30, 2013.
10. |
Long-term loan |
The loan is borrowed from a financial institution, bearing interest at an annual rate of 15% over the benchmark rate of the PBOC for the three-year long-term loans and guaranteed by a third party. | |
The secured bank loans were secured by the following assets of the Company: |
September 30, | December 31, | ||||||
2013 | 2012 | ||||||
(Unaudited) | |||||||
Inventories (Note 5) | $ | 3,580,787 | $ | 3,487,303 | |||
$ | 3,580,787 | $ | 3,487,303 |
10
As a condition the guarantees for the loans the Company paid 2.5% of the loan balance to the third party as compensation for acting as guarantor for the Company and made the counter guarantee deposits to the guarantor of $244,145 and $237,771 as of September 30, 2013 and December 31, 2012, respectively. These deposits will be returned to the Company upon the Companys settlement of the loans. | |
During the nine months ended September 30, 2013 and 2012, there was no other covenant requirement under the bank loans granted to the Company except that the inventory level cannot be lower than RMB 22 million (approximately $3.6 million) and RMB 22 million (approximately $3.5 million) during the loan period, respectively. | |
11. |
Common stock warrants |
As of September 30, 2013 and December 31, 2012, there were 222,675 warrants with an exercise price of $3.84 per share outstanding. No warrants were issued or cancelled during the nine months ended September 30, 2013. | |
12. |
Earnings per share |
The basic earnings per share is calculated using the net income attributable to the Companys common stockholders and the weighted average number of shares outstanding during the reporting periods. During the reporting periods, certain share-based awards were not included in the computation of diluted earnings per share because they were anti-dilutive. Accordingly, the basic and diluted earnings per share are the same. | |
13. |
Segment information |
The Company is solely engaged in the manufacturing and trading of plate heat exchangers and various related products. Since the nature of the products, their production processes, and their distribution methods are substantially similar, they are considered as a single reportable segment under ASC 280 Segment Reporting. | |
The Companys sales revenues by products for the nine months ended September 30, 2013 and 2012 were as follows: |
Nine months ended September 30, | |||||||||||||
2013 | % | 2012 | % | ||||||||||
(Unaudited) | (Unaudited) | ||||||||||||
Plate heat exchanger | $ | 13,189,394 | 41 | $ | 13,393,408 | 38 | |||||||
Heat exchange unit | 10,199,904 | 31 | 11,837,940 | 34 | |||||||||
Air-cooled heat exchanger | 1,898,115 | 6 | 1,117,187 | 3 | |||||||||
Shell-and-tube heat exchanger | 1,928,460 | 6 | 4,271,045 | 12 | |||||||||
Others | 5,368,410 | 16 | 4,533,375 | 13 | |||||||||
$ | 32,584,283 | 100 | $ | 35,152,955 | 100 |
11
All of the Companys long-lived assets and revenues classified based on the customers are located in the PRC. | |
14. |
Related party transactions |
As of September 30, 2013 and December 31, 2012, the Company advanced $16,532 and $159,158 to Mr. Zhao for handling selling and logistic activities for the Company in the ordinary course of business, which was included in "Other receivables, prepayments and deposits, net". | |
15. |
Acquisition of noncontrolling interests |
Siping Juyuan entered into a share transfer agreement dated May 10, 2012 (the "Share Transfer Agreement") relating to the acquisition of the remaining 25% equity ownership interest in Beijing Juyuan from Hanyang International GmbH (Hanyang). The purchase price for this 25% equity interest is RMB 2.5 million (approximately $404,485). The acquisition transaction is completed in May 2013. | |
The following schedule discloses the changes in the Companys ownership interest in Beijing Juyuan on the Companys equity: |
Nine months ended | |||||||
September 30, | |||||||
(Unaudited) | |||||||
|
2013 | 2012 | |||||
|
|||||||
Net income attributable to THT Heat Transfer Technology, Inc. |
$ | 1,364,925 | $ | 2,500,883 | |||
Transfers to the noncontrolling interests |
|||||||
Decrease in THT Heat Transfer Technology, Inc.'s paid-in capital for acquisition of equity interest |
(872,131 | ) | - | ||||
Net transfers to noncontrolling interests |
(872,131 | ) | - | ||||
|
|||||||
Change from net income attributable to THT Heat Transfer Technology, Inc. and transfers (to) from noncontrolling interests$ |
492,794 | $ | 2,500,883 |
12
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
Special Note Regarding Forward Looking Statements
In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as believe, expect, anticipate, project, target, plan, optimistic, intend, aim, will or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning 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; as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those identified in Item 1A Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2012, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements.
Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.
Use of Terms
Except where the context otherwise requires and for the purposes of this report only:
- THT, Company, we, us, or our are to the combined business of THT Heat Transfer Technology, Inc., a Nevada corporation, and its consolidated subsidiaries: Megaway, Star Wealth, Siping Juyuan and Beijing Juyuan;
- Megaway are to Megaway International Holdings Limited, a BVI company;
- Star Wealth are to Star Wealth International Holdings Limited, a Hong Kong company;
- Siping Juyuan are to Siping City Juyuan Hanyang Plate Heat Exchanger Co. Ltd., a PRC company;
- Beijing Juyuan are to Beijing Juyuan Hanyang Heat Exchange Equipment Co., Ltd., a PRC company;
- BVI are to the British Virgin Islands;
- Hong Kong are to the Hong Kong Special Administrative Region of the Peoples Republic of China;
- PRC and China are to the Peoples Republic of China;
- SEC are to the Securities and Exchange Commission;
- Exchange Act are to the Securities Exchange Act of 1934, as amended;
- Securities Act are to the Securities Act of 1933, as amended;
- Renminbi and RMB are to the legal currency of China; and
- U.S. dollars, dollars and $ are to the legal currency of the United States.
Overview of our Business
We are a leading total solution provider in the heat exchange industry. Our major products are plate heat exchangers, heat exchanger units, air-cooled heat exchangers and shell-and-tube heat exchangers. Unlike most other heat exchanger manufacturers in China, we not only provide heat exchange products, but also provide total solutions to our customers. As a total solutions provider, we analyze the working condition of our customers, provide optimized designs based on analysis and simulation, offer high quality heat exchange products, and continuously assist our customers in improving the heat exchange process.
Over the past ten years, we have successfully completed over 3,000 projects in more than 15 industries, including metallurgy, heat and power, petrochemical, food and beverage, pharmaceutical and shipbuilding. We have provided heat exchange solutions to Fortune 500 companies, including Shell, BP, BASF, LG, Sinopec and China Shenhua. We have also provided heat exchange products for important Chinese and international projects such as the Beijing 2008 Olympics Wukesong Sports Center, Guangdong Linao nuclear plant and BASF Chemical plant in Germany.
13
Our operations are headquartered in Siping, Jilin Province, PRC. Our primary Chinese operating subsidiaries are Siping Juyuan and Beijing Juyuan.
Third Quarter Financial Performance Highlights
After quarters of revenue decline, the third quarter witnessed sales revenue increase. The following summarizes certain key financial information for the third quarter of 2013:
-
Sales revenue: Sales revenue increased by $1.25 million, or 10.02%, to $13.76 million for the three months ended September 30, 2013, from $12.51 million for the same period in 2012.
-
Gross profit: Gross profit decreased by $0.92 million, or 17.66%, to $4.27 million for the three months ended September 30, 2013, from $5.18 million for the same period in 2012. As a percentage of sales revenue, gross profit decreased by 10.42% to 31.01% for the three months ended September 30, 2013, from 41.43% for the same period in 2012.
-
Net income attributable to stockholders: Net income attributable to our stockholders increased by $0.19 million, or 38.35%, to $0.70 million for the three months ended September 30, 2013, from $0.50 million for the same period in 2012.
-
Fully diluted net income per share: Fully diluted net income per share was $0.03 for the three months ended September 30, 2013, as compared to $0.02 for the same period in 2012.
Results of Operations
Comparison of Three Months Ended September 30, 2013 and 2012
The following table sets forth key components of our results of operations for the periods indicated.
Three Months Ended | ||||||||||||
September 30, | $ | % | ||||||||||
2013 | 2012 | Change | Change | |||||||||
Sales revenue |
$ | 13,761,475 | $ | 12,508,183 | $ | 1,253,292 | 10.02 | |||||
Cost of sales |
(9,494,611 | ) | (7,325,961 | ) | (2,168,650 | ) | 29.60 | |||||
Gross profit |
4,266,864 | 5,182,222 | (915,358 | ) | (17.66 | ) | ||||||
Operating expenses: |
||||||||||||
Administrative expenses |
1,348,042 | 2,382,820 | (1,034,778 | ) | (43.43 | ) | ||||||
Research and development expenses |
557,003 | 315,229 | 241,774 | (76.70 | ) | |||||||
Selling expenses |
1,565,837 | 1,637,436 | (71,599 | ) | (4.37 | ) | ||||||
Total operating expenses |
3,470,882 | 4,335,485 | (864,603 | ) | (19.94 | ) | ||||||
Income from operations |
795,982 | 846,737 | (50,755 | ) | (5.99 | ) | ||||||
Interest income |
4,295 | 7,055 | (2,760 | ) | (39.12 | ) | ||||||
Other income |
267,742 | 282,791 | (15,049 | ) | (5.32 | ) | ||||||
Finance costs |
(277,355 | ) | (474,587 | ) | 197,232 | (41.56 | ) | |||||
Other expense |
(17 | ) | 0 | (17 | ) | 100 | ||||||
Income (loss) before income taxes and noncontrolling interests |
790,647 | 661,996 | 128,651 | 19.43 | ||||||||
Income taxes |
(93,365 | ) | (123,732 | ) | 30,367 | (24.54 | ) | |||||
Net income (loss) before noncontrolling interests |
697,282 | 538,264 | 159,018 | 29.54 | ||||||||
Net income(loss) attributable to noncontrolling interests |
0 | (34,270 | ) | 34,270 | (100 | ) | ||||||
Net income attributable to THT common stockholders |
697,282 | $ | 503,994 | $ | 193,288 | 38.35 |
14
Sales revenue. Our sales revenue is generated from sales of heat exchange products. Sales revenue increased by $1.25 million, or 10.02%, to $13.76 million for the three months ended September 30, 2013, from $12.51 million for the same period in 2012. Our sales volume in the three months ended September 30, 2013 amounted to 421 units, a decrease of 283 units, from 704 units for the same period in 2012. Unit price increased by $14,921, or 83.98%, to $32,688 for the three months ended September 30, 2013, from $17,767 for the same period in 2012. The increase in unit price was caused by we manufactured more special products with high price and high costs according to our customers higher requirements. Sales revenue increase was mainly due to the increased sales revenue from plate heat exchanger, heat exchange units and air-cooler in the 2013 period as compared with the 2012 period. Sales revenue from plate heat exchanger increased by $1.10 million, or 25.19%, to $5.48 million for the three months ended September 30, 2013, from $4.37 million for the same period in 2012. Heat exchange units increased by $0.66 million, or 14.51%, to $5.18 million for the three months ended September 30, 2013, from $4.52 million for the same period in 2012. Air-cooler increased by $0.30 million, or 241.74%, to $0.43 million for the three months ended September 30, 2013, from $0.13 million for the same period in 2012. Although sales revenue from shell-and-tube heat exchangers decreased, the decrease was not enough to offset the increased sales revenue from plate heat exchanger, heat exchange units and air-cooler.
The following table shows our sales revenue by product for the three months ended September 30, 2013 and 2012:
Three Months Ended September 30, | ||||||||||||
2013 | 2012 | |||||||||||
|
$ | % | $ | % | ||||||||
Plate heat exchanger |
$ | 5,475,911 | 39.79 | $ | 4,373,947 | 34.97 | ||||||
Heat exchange unit |
5,177,785 | 37.63 | 4,521,785 | 36.15 | ||||||||
Air-cooled heat exchanger |
434,576 | 3.16 | 127,165 | 1.02 | ||||||||
Shell-and-tube heat exchanger |
564,681 | 4.10 | 2,174,145 | 17.38 | ||||||||
Others |
2,108,522 | 15.32 | 1,311,141 | 10.48 | ||||||||
TOTAL |
$ | 13,761,475 | 100.00 | $ | 12,508,183 | 100.00 |
Cost of sales. Our cost of sales is primarily comprised of the costs of our raw materials, labor and factory overhead. Our cost of sales increased by $2.17 million, or 29.60%, to $9.49 million for the three months ended September 30, 2013, from $7.33 million for the three months ended September 30, 2012. We manufactured more special products with high price and high costs according to our customers higher requirements in the third quarter which led to increased cost of sales. Cost of sales as a percentage of sales revenue were 68.99% and 58.57% for the three months ended September 30, 2013 and 2012, respectively, an increase of 10.42 percentage points. The increase was mainly attributable to the costs of manufacturing the special products.
Gross profit. Our gross profit is equal to the difference between our sales revenue and our cost of sales. Our gross profit decreased by $0.92 million, or 17.66%, to $4.27 million for the three months ended September 30, 2013, from $5.18 million for the same period in 2012. The decrease in our gross profit was mainly attributable to we manufactured more special products with high price and high costs according to our customers higher requirements, so the cost of sales increased significantly. The average unit selling price of our products increased 83.98% in the three months ended September 30, 2013 in comparison with the same period in 2012. Gross profit margin for the three months ended September 30, 2013 decreased to 31.01% from 41.43% for the same period in 2012. The decrease in our gross profit margin was mainly attributable to the increase in labor costs and raw material costs associated with the special products as noted above.
15
Administrative expenses. Our administrative expenses consist of the costs associated with staff and support personnel who manage our business activities. Our administrative expenses decreased by $1.03 million, or 43.43%, to $1.35 million for the three months ended September 30, 2013, from $2.38 million for the same period in 2012. As a percentage of sales revenue, administrative expenses decreased to 9.80% for the three months ended September 30, 2013, as compared to 19.05% for the same period in 2012. The decrease in administrative expense was primarily due to the decrease in bad debt expense in the third quarter of 2013. Bad debt expense decreased by $0.95 million, or 85.47%, to $0.16 million for the three months ended September 30, 2013 compared with $1.1 million for the same period in 2012. The decrease in the bad debt expense was mainly due to the account receivables collection for the three months ended September 30, 2013 was much better than the same period in 2012. The decrease was mainly because we established special department to collect the bad debt in the third quarter in 2013.
Research and development expenses. Our research and development expenses consist of the costs associated with research and development personnel and expense in research and development projects. Our research and development expenses increased by $0.24 million, or 76.70%, to $0.56 million for the three months ended September 30, 2013, from $0.32 million for the same period in 2012. The increase in research and development expenses was mainly attributable to the increase in the costs of raw materials used in R&D.
Selling expenses. Our selling expenses include sales commissions, the cost of advertising and promotional materials, salaries and fringe benefits of sales personnel, after-sale support services and other sales-related costs. Our selling expenses decreased by $0.07 million, or 4.37%, to $1.57 million for the three months ended September 30, 2013, from $1.64 million for the same period in 2012. As a percentage of sales revenue, selling expenses decreased to 11.38% for the three months ended September 30, 2013, as compared to 13.09% for the same period in 2012. The decrease was mainly attributable to the decreased travelling expenses of our sales personnel. Traveling expense decreased by $0.33 million, or 41.93%, to $0.46 million for the three months ended September 30, 2013, from $0.79 million for the same period in 2012. The decrease in travelling expenses was mainly due to less orders received in the three months ended September 30, 2013 as compared to the same period in 2012.
Income before income taxes. Income before income taxes increased by $0.13million, or 19.43%, to $0.79 million for the three months ended September 30, 2013, from $0.66 million for the same period in 2012. Such increase was mainly attributable to the increase in our sales revenue.
Income taxes. Our income taxes decreased to $0.09 million for the three months ended September 30, 2013, from $0.12 million for the same period in 2012, as a result of the prepayment of income tax decreased in the third quarter in 2013.
Net income attributable to common stockholders. As a result of the cumulative effect of the foregoing factors, our net income attributable to common stockholders increased by $0.20 million, or 38.35%, to $0.70 million for the three months ended September 30, 2013, from $0.50 million for the same period in 2012. As a percentage of sales revenue, our net income attributable to common stockholders was 5.07% and 4.03% for the three months ended September 30, 2013 and 2012, respectively.
Comparison of Nine Months Ended September 30, 2013 and September 30, 2012
The following table sets forth key components of our results of operations for the periods indicated.
Nine months Ended | ||||||||||||
September 30, | $ | % | ||||||||||
2013 | 2012 | Change | Change | |||||||||
Sales revenue |
$ | 32,584,283 | $ | 35,152,955 | $ | (2,568,672 | ) | (7.31 | ) | |||
Cost of sales |
(21,314,593 | ) | (20,549,861 | ) | (764,732 | ) | 3.72 | |||||
Gross profit |
11,269,690 | 14,603,094 | (3,333,404 | ) | (22.83 | ) | ||||||
Operating expenses: |
||||||||||||
Administrative expenses |
3,852,670 | 4,423,011 | (570,341 | ) | (12.89 | ) | ||||||
Research and development expenses |
1,191,079 | 814,509 | 376,570 | 46.23 | ||||||||
Selling expenses |
4,063,539 | 5,845,212 | (1,781,673 | ) | (30.48 | ) | ||||||
Total operating expenses |
9,107,288 | 11,082,732 | (1,975,444 | ) | (17.82 | ) | ||||||
Income from operations |
2,162,402 | 3,520,362 | (1,357,960 | ) | (38.57 | ) | ||||||
Interest income |
19,069 | 19,796 | (727 | ) | (3.67 | ) | ||||||
Other income |
560,670 | 649,987 | (89,317 | ) | (13.74 | ) | ||||||
Finance costs |
(946,662 | ) | (1,377,799 | ) | 431,137 | (31.29 | ) | |||||
Other expense |
(621 | ) | (621 | ) | 100 | |||||||
Income before income taxes and noncontrolling interests |
1,794,858 | 2,812,346 | (1,017,488 | ) | (36.18 | ) | ||||||
Income taxes |
(376,841 | ) | (234,630 | ) | (142,211 | ) | 60.61 | |||||
Net income before noncontrolling interests |
1,418,017 | 2,577,716 | (1,159,699 | ) | (44.99 | ) | ||||||
Net loss attributable to noncontrolling interests |
(53,092 | ) | (76,833 | ) | 23,741 | (30.90 | ) | |||||
Net income attributable to THT common stockholders |
$ | 1,364,925 | $ | 2,500,883 | $ | (1,135,958 | ) | (45.42 | ) |
16
Sales revenue. Our sales revenue decreased by $2.57 million, or 7.31%, to $32.58 million for the nine months ended September 30, 2013, from $35.15 million for the same period in 2012. Our sales volume in the nine months ended September 30, 2013 amounted to 1,403 units, a decrease of 540 units, from 1,943 units for the same period in 2012. Unit price increased by $5,133, or 28.37%%, to $23,225 for the nine months ended September 30, 2013, from $18,092 for the same period in 2012. The increase in unit price was caused by we manufactured more special products with high price and high costs according to our customers higher requirements. Sales revenue decrease was mainly due to the decreased sales revenue from shell-and-tube heat exchangers and heat exchange units in the 2013 period as compared with the 2012 period. Sales revenue from shell-and-tube heat exchangers decreased by $2.34 million, or 54.85%, to $1.93 million for the nine months ended September 30, 2013, from $4.27 million for the same period in 2012. Sales revenue from heat exchange units decreased $1.64 million, or 13.84%, to $10.20 million for the nine months ended September 30, 2013 from $11.84 million for the same period in 2012. Although sales revenue from air coolers and other products increased, the increase was not enough to offset the decreased sales revenue from the products noted above.
The following table shows our sales revenue by product for the nine months ended September 30, 2013 and 2012:
Nine months Ended September 30, | ||||||||||||
2013 | 2012 | |||||||||||
|
$ | % | $ | % | ||||||||
Plate heat exchanger |
$ | 13,189,394 | 40.48 | $ | 13,393,408 | 38.10 | ||||||
Heat exchange unit |
10,199,904 | 31.30 | 11,837,940 | 33.68 | ||||||||
Air-cooled heat exchanger |
1,898,115 | 5.83 | 1,117,187 | 3.17 | ||||||||
Shell-and-tube heat exchanger |
1,928,460 | 5.92 | 4,271,045 | 12.15 | ||||||||
Others |
5,368,410 | 16.47 | 4,533,375 | 12.90 | ||||||||
TOTAL |
$ | 32,584,283 | 100.00 | $ | 35,152,955 | 100.00 |
Cost of sales. Our cost of sales increased by $0.76 million, or 3.72%, to $21.31 million for the nine months ended September 30, 2013, from $20.55 million for the nine months ended September 30, 2012. We manufactured more special products with high price and high costs according to our customers higher requirements in the third quarter which led to increased cost of sales. Cost of sales as a percentage of sales revenue were 65.41% and 58.46% for the nine months ended September 30, 2013 and 2012, respectively, an increase of 6.95 percentage points. The increase was mainly attributable to the costs of manufacturing the special products.
Gross profit. Our gross profit decreased by $3.33 million, or 22.83%, to $11.27 million for the nine months ended September 30, 2013, from $14.60 million for the same period in 2012. The decrease in our gross profit was mainly attributable to decreased sales revenue from shell-and-tube heat exchangers and heat exchange units. The average unit selling price of our products increased 28.37% in the nine months ended September 30, 2013 in comparison with the same period in 2012. Gross profit margin for the nine months ended September 30, 2013 dropped to 34.59% from 41.54% for the same period in 2012. The decrease in our gross profit margin was mainly attributable to the increase in labor costs and raw material costs associated with the special products as noted above.
Administrative expenses. Our administrative expenses decreased by $0.57 million, or 12.90%, to $3.85 million for the nine months ended September 30, 2013, from $4.42 million for the same period in 2012. As a percentage of sales revenue, administrative expenses decreased to 11.82% for the nine months ended September 30, 2013, as compared to 12.58% for the same period in 2012. The decrease in administrative expense was primarily due to the decrease in bad debt expense for the nine month ended September 30, 2013. Bad debt expense decreased by $1.11 million, or 75.30%, to $0.36 million for the nine months ended September 30, 2013 compared with $1.47 million for the same period in 2012. The decrease in the allowance for doubtful accounts was mainly due to the account receivables collection for the nine months ended September 30, 2013 is much better than the same period in 2012. The decrease was mainly because we established special department to collect the bad debt in the third quarter in 2013.
17
Research and development expenses. Our research and development expenses increased by $0.38 million, or 46.23%, to $1.19 million for the nine months ended September 30, 2013, from $0.81 million for the same period in 2012. The increase in research and development expenses was mainly attributable to the increase in the costs of raw materials used in R&D.
Selling expenses. Our selling expenses decreased by $1.78 million, or 30.48%, to $4.06 million for the nine months ended September 30, 2013, from $5.85 million for the same period in 2012. As a percentage of sales revenue, selling expenses decreased to 12.47% for the nine months ended September 30, 2013, as compared to 16.63% for the same period in 2012. The decrease was mainly attributable to the decreased travelling expenses of our sales personnel. Traveling expense decreased by $2.09 million, or 66.04%, to $1.07 million for the nine months ended September 30, 2013, from $3.16 million for the same period in 2012. The decrease in travelling expenses was mainly due to less orders received in the nine months ended September 30, 2013 as compared to the same period in 2012.
Income before income taxes. Income before income taxes decreased by $1.02 million, or 36.18%, to $1.79 million for the nine months ended September 30, 2013, from $2.81 million for the same period in 2012. Such decrease was mainly attributable to the decrease in our gross profit.
Income taxes. Our income taxes increased to $0.38 million for the nine months ended September 30, 2013, from $0.23 million for the same period in 2012, as a result of the adjustment of income taxes rebates which requested us to pay back adjusted amount of taxes from 2008 to 2012 in the second quarter of 2013.
Net income attributable to common stockholders. As a result of the cumulative effect of the foregoing factors, our net income attributable to common stockholders decreased by $1.14 million, or 45.43%, to $1.36 million for the nine months ended September 30, 2013, from $2.50 million for the same period in 2012. As a percentage of sales revenue, our net income attributable to common stockholders was 4.19% and 7.11% for the nine months ended September 30, 2013 and 2012, respectively.
Liquidity and Capital Resources
As of September 30, 2013, we had cash and cash equivalents of $1.75 million, primarily consisting of cash on hand and demand deposits. We can use our land as collateral to borrow approximately 6.18 million. In addition, we have an approximately $15.95 million credit line from Agriculture Bank and Construction Bank of China. We anticipate that cash on hand and borrowing capacity under our bank loans will be sufficient to satisfy our ongoing obligations.
We believe our allowance for doubtful accounts is appropriate. We have an installment payment arrangement with our customers. The current economic slowdown and Chinas tightened credit policy led to delayed payments and delayed delivery schedules by our customers, which in turn caused us to increase our allowance for doubtful accounts from a reversal of allowance of $1.47 million in the nine months ended September 30, 2012 to $0.36 million in the same period in 2013. To control inflation after a massive stimulus plan, the Chinese government tightened its credit policy. As a result, state-owned banks limited their lending to large state-owned corporations and privately held companies continue to have difficulty accessing capital. Most of our customers have been affected by the tightened credit policy and have limited access to capital. The Company records an allowance for doubtful accounts at a rate of 25% for receivables aged between 1 to 2 years, 50% for receivables aged between 2 to 3 years and 100% for receivables aged over 3 years.
Our allowance of obsolete inventory is also appropriate because we purchase raw materials after we receive purchase orders. Although our customers may delay their payment or delivery schedules, which increase our inventories, they do not cancel their orders so as to cause us to classify the delayed inventories as obsolete inventories.
We expect that the trend of delayed customer payments and delayed delivery schedules will continue in the future. We have been taking the following measures to mitigate the situation: 1) send the collection letters or call the customers to request payment; 2) appoint specialists to visit our customers to collect payment; 3) file law suits.
PRC legal restrictions permit payments of dividends by our PRC subsidiaries only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Our PRC subsidiaries are also required under PRC laws and regulations to allocate at least 10% of their 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 our registered capital. Allocations to these statutory reserve funds can only be used for specific purposes and are not transferable to us in the form of loans, advances, or cash dividends. Given that the Company and the PRC subsidiaries do not intend to pay dividends for the foreseeable future, we consider the impact of restrictions on our liquidity, financial condition and results of operations is not significant.
18
The following table provides a summary of our net cash flows from operating, investing, and financing activities.
Cash Flow
Nine months Ended September 30, | ||||||
|
2013 | 2012 | ||||
Net cash used in (provided by) operating activities |
$ | (4,529,719 | ) | $ | (4,338,155 | ) |
Net cash used in (provided by) investing activities |
(262,174 | ) | (1,121,293 | ) | ||
Net cash provided by(used in) financing activities |
(4,342,041 | ) | 5,310,592 | |||
Effects of exchange rate change in cash |
185,567 | 42,366 | ||||
Net decrease in cash and cash equivalents |
(8,948,367 | ) | (106,490 | ) | ||
Cash and cash equivalents at beginning of the period |
10,703,199 | 7,340,068 | ||||
Cash and cash equivalent at end of the period |
$ | 1,754,832 | $ | 7,233,578 |
Operating Activities
Net cash used in operating activities was $4.53 million for the nine months ended September 30, 2013, compared with $4.34 million for the same period in 2012, an increase of $0.19 million or 4.4% . The increase in net cash used in operating activities was mainly attributable to decrease of accounts receivable by $4.0 million, decrease of bills receivable by $2.0 million, decrease of other receivables, prepayments and deposits by $1.4 million, increase of accounts payable by $2.3 million, offset by decreased income of $1.2 million, payments made to acquire inventories of $4.7 million, and increase of other payables and accrued expenses of $3.3 million.
Investing Activities
Net cash provided by investing activities was $0.26 million for the nine months ended September 30, 2013, compared with $1.12 million in the same period in 2012, a decrease of $0.86 million or 77%. The decrease was mainly due to a cash payment of $0.74 million to acquire land use right during the nine months ended September 30, 2012. There was no such payment made during the nine months ended September 30, 2013.
Financing Activities
Net cash used in financing activities was $4.34 million for the nine months ended September 30, 2013, compared with $5.31 million provided by the financing activities for the same period in 2012, a 182% increase of cash used in financing activities by $9.65 million. The increase in net cash used in financing activities was mainly attributable to the increase of net repayment of short term loans by $9.40 million during the nine months ended September 30, 2013 as compared to the same period in 2012.
Capital Expenditures
Our capital expenditures were used primarily for the purchase of equipment to expand our production capacity and deposits for land use rights. The table below sets forth the breakdown of our capital expenditures by use for the periods indicated.
Nine months Ended September 30, | ||||||
2013 | 2012 | |||||
Construction costs |
$ | 144,681 | $ | - | ||
Purchase of equipment |
152,282 | 699,989 | ||||
Prepayment for land use right |
- | 1,675,667 | ||||
Total capital expenditures |
$ | 296,963 | $ | 2,375,656 |
We estimate that our total capital expenditures in fiscal year 2013 will reach approximately $0.5 million to buy equipment for necessary products.
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Seasonality
Our operating results and operating cash flows historically have been subject to seasonal variations. Our revenues usually increase over each quarter of the calendar year with the first quarter usually the slowest quarter because fewer projects are undertaken during and around the Chinese spring festival.
Inflation
Inflation and changing prices have not had a material effect on our business, and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor price changes in the Chinese economy and our industry and continually maintain effective cost controls in operations.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, sales or expenses, results of operations, liquidity or capital expenditures, or capital resources that are material to an investment in our securities.
Critical Accounting Policies
Critical accounting policies are those we believe are most important to portraying our financial conditions and results of operations and also require the greatest amount of subjective or complex judgments by management. Judgments and uncertainties regarding the application of these policies may result in materially different amounts being reported under various conditions or using different assumptions. See Note 3 to our unaudited condensed consolidated financial statements included elsewhere in this report.
Recent Accounting Pronouncements
See Note 3 to our unaudited condensed consolidated financial statements included elsewhere in this report.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Not Applicable.
ITEM 4. | CONTROLS AND PROCEDURES. |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15(e), our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer, Mr. Guohong Zhao, and Chief Financial Officer, Mr. Zhigang Xu, of the effectiveness of the design and operation of our disclosure controls and procedures, as of September 30, 2013. Based upon, and as of the date of this evaluation, Messrs. Zhao and He determined that because of the material weaknesses described in Item 9A Controls and Procedures of our Annual Report on Form 10-K for the year ended December 31, 2012, which we are still in the process of remediating as of September 30, 2013, our disclosure controls and procedures were not effective. Investors are directed to Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2012 for the description of these weaknesses.
Changes in Internal Control over Financial Reporting
We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment.
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Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.
During its evaluation of the effectiveness of internal control over financial reporting as of December 31, 2012, our management identified material weakness related to our lack of: (1) sufficient and adequately trained accounting and finance personnel; (2) qualified resources to perform the internal audit functions properly; and (3) an internal audit department which renders ineffective our ability to prevent and detect control lapses and errors in the accounting of certain key areas. As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012, our management has identified the steps necessary to address the material weaknesses, and in the third quarter of 2013, we continued to implement these remedial procedures.
Other than in connection with the implementation of the remedial measures described above, there were no changes in our internal controls over financial reporting during the third quarter of 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS. |
From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, 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. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, cash flows, financial condition or operating results.
ITEM 1A. | RISK FACTORS. |
Not applicable.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. |
None.
ITEM 4. | MINE SAFETY DISCLOSURES. |
Not applicable.
ITEM 5. | OTHER INFORMATION. |
We have no information to disclose that was required to be in a report on Form 8-K during the third quarter of 2013, but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.
ITEM 6. | EXHIBITS. |
The list of exhibits in the Exhibit Index to this report is incorporated herein by reference.
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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.
Date: November 14, 2013 | THT HEAT TRANSFER TECHNOLOGY, INC. | |
By: | /s/ Guohong Zhao | |
Guohong Zhao, Chief Executive Officer | ||
(Principal Executive Officer) | ||
By: | /s/ Zhigang Xu | |
Zhigang Xu, Chief Financial Officer | ||
(Principal Financial Officer and Principal Accounting Officer) |
EXHIBIT INDEX