Attached files
file | filename |
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EX-31.1 - EXHIBIT 31.1 - THT Heat Transfer Technology, Inc. | exhibit31-1.htm |
EX-31.2 - EXHIBIT 31.2 - THT Heat Transfer Technology, Inc. | exhibit31-2.htm |
EXCEL - IDEA: XBRL DOCUMENT - THT Heat Transfer Technology, Inc. | Financial_Report.xls |
EX-32.1 - EXHIBIT 32.1 - THT Heat Transfer Technology, Inc. | exhibit32-1.htm |
EX-32.2 - EXHIBIT 32.2 - THT Heat Transfer Technology, Inc. | exhibit32-2.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: March 31, 2014
[ ] 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 May 14, 2014 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 March
31, 2014
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Item 1. | Financial Statements | 1 |
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations | 3 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 8 |
Item 4. | Controls and Procedures | 8 |
PART II
OTHER INFORMATION
Item 1. | Legal Proceedings | 9 |
Item 1A. | Risk Factors | 9 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 9 |
Item 3. | Defaults Upon Senior Securities | 9 |
Item 4. | Mine Safety Disclosures | 9 |
Item 5. | Other Information | 9 |
Item 6. | Exhibits | 9 |
i
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THT HEAT TRANSFER TECHNOLOGY, INC.
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND
2013
Contents | Page(s) |
Condensed Consolidated Statements of Income and Comprehensive Income | F-2 |
Condensed Consolidated Balance Sheets | F-3 |
Consolidated Statements of Changes in Shareholders Equity | F-4 |
Condensed Consolidated Statements of Cash Flows | F-5 |
Notes to Condensed Consolidated Financial Statements | F-6 - F-11 |
F-1
THT Heat Transfer Technology, Inc.
Consolidated
Statements of Income and Comprehensive Income
(Stated in US
dollars)
(Unaudited)
For the Three Months Ended March 31, | ||||||
2014 | 2013 | |||||
Sales revenue | $ | 8,288,912 | $ | 7,910,435 | ||
Cost of revenue | (5,765,029 | ) | (4,919,837 | ) | ||
Gross Profit | 2,523,883 | 2,990,598 | ||||
Operating expenses | ||||||
Administrative expenses | 545,051 | 1,031,114 | ||||
Research and development expenses | 340,074 | 208,786 | ||||
Selling expenses | 969,951 | 1,042,664 | ||||
Total Operating Expenses | 1,855,076 | 2,282,564 | ||||
Income from operations | 668,807 | 708,034 | ||||
Other Income (Expenses) | ||||||
Interest income | 4,359 | 9,593 | ||||
Other income | 224,181 | 131,231 | ||||
Finance costs | (331,458 | ) | (452,423 | ) | ||
Other expense | 474 | (565 | ) | |||
Total Other Expense | (102,444 | ) | (312,164 | ) | ||
Income before income taxes and noncontrolling interests | 566,363 | 395,870 | ||||
Income tax expenses | (84,954 | ) | (60,388 | ) | ||
Net Income | 481,409 | 335,482 | ||||
Net loss (income) attributable to noncontrolling interests | - | (21,819 | ) | |||
Net income attributable to THT Heat Transfer Technology, Inc. common stockholders | $ | 481,409 | $ | 313,663 | ||
Net Income | 481,409 | 335,482 | ||||
Other Comprehensive Income | ||||||
Foreign currency translation adjustments | (570,200 | ) | 324,844 | |||
Comprehensive Income | (88,791 | ) | 660,326 | |||
Comprehensive (income) loss attributable to noncontrolling interests | - | 5,583 | ||||
Comprehensive income attributable to THT Heat Transfer Technology, Inc. common stockholders | $ | (88,791 | ) | $ | 665,909 | |
Earnings per share attributable to THT Heat Transfer | ||||||
Technology, Inc. common stockholders | ||||||
Basic and diluted | $ | 0.02 | $ | 0.02 | ||
Weighted average number of shares outstanding | ||||||
Basic and diluted | 20,453,500 | 20,453,500 |
The accompanying notes are an integrated part of these unaudited consolidated financial statements
F-2
THT Heat Transfer Technology, Inc.
Consolidated
Balance Sheets
(Stated in US dollars)
March 31, |
December 31, |
|||||
2014 |
2013 |
|||||
Unaudited | ||||||
ASSETS | ||||||
Current assets | ||||||
Cash and cash equivalents | $ | 4,948,870 | $ | 9,082,137 | ||
Restricted cash-current | 1,106,414 | 1,728,355 | ||||
Counter guarantee receivable | - | 245,483 | ||||
Trade receivables, net | 40,522,661 | 44,316,445 | ||||
Bills receivable | 3,580,948 | 1,716,223 | ||||
Other receivables, prepayments and deposits, net | 14,971,660 | 14,489,152 | ||||
Inventories, net | 23,837,813 | 25,303,711 | ||||
Deferred tax assets | 168,460 | 169,916 | ||||
Total Current Assets | 89,136,826 | 97,051,422 | ||||
Restricted cash, non-current | 390,763 | - | ||||
Retention receivable | 2,152,199 | 2,208,751 | ||||
Property, plant and equipment, net | 7,472,297 | 7,371,951 | ||||
Land use rights, net | 6,104,818 | 6,190,059 | ||||
TOTAL ASSETS | $ | 105,256,903 | $ | 112,822,183 | ||
LIABILITIES & SHAREHOLDERS EQUITY | ||||||
Current Liabilities | ||||||
Accounts payable | 5,409,502 | 8,912,229 | ||||
Other payables and accrued liabilities | 21,428,395 | 22,330,746 | ||||
Income tax payable | 275,142 | 599,781 | ||||
Short-term bank loans | 14,278,297 | 16,038,230 | ||||
Current maturities of long-term loans | - | 981,932 | ||||
Total Current Liabilities | 41,391,336 | 48,862,918 | ||||
Non-current liabilities | ||||||
Long-term loans |
567,887 | 572,794 | ||||
Total Long-term Liabilities |
567,887 | 572,794 | ||||
|
||||||
Total Liabilities |
41,959,223 | 49,435,712 | ||||
|
||||||
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 March 31, 2014 and December 31, 2013 |
20,454 | 20,454 | ||||
Additional paid-in capital |
26,524,324 | 26,524,324 | ||||
Statutory reserve |
3,701,624 | 3,652,538 | ||||
Retained earnings | 27,475,961 |
27,043,638 |
||||
Accumulated other comprehensive income | 5,575,317 | 6,145,517 | ||||
Total THT Heat Transfer Technology Inc. stockholders equity | 63,297,680 | 63,386,471 | ||||
Noncontrolling interests | - | - | ||||
TOTAL SHAREHOLDERS EQUITY | 63,297,680 | 63,386,471 | ||||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY | $ | 105,256,903 | 112,822,183 |
The accompanying notes are an integrated part of these unaudited consolidated financial statements
F-3
THT Heat Transfer Technology, Inc.
Consolidated Statements
of Changes in Shareholders Equity
(Stated in US dollars)
THT Heat Transfer Technology, Inc. | ||||||||||||||||||||||||
Common Stock | Accumulated Other | Total | ||||||||||||||||||||||
Additional Paid-in | Comprehensive | Noncontrolling | Shareholders' | |||||||||||||||||||||
No. of Shares | Amount | Capital | Statutory Reserve | Income | Retained Earnings | Interests | Equity | |||||||||||||||||
Balance, December 31, 2013 |
20,453,500 | $ | 20,454 | $ | 26,524,324 |
$ |
3,652,538 | $ | 6,145,517 | $ | 27,043,638 | - | $ | 63,386,471 | ||||||||||
|
||||||||||||||||||||||||
Net income |
481,409 | - | 481,409 | |||||||||||||||||||||
Foreign currency translation adjustment |
(570,200 | ) | (570,200) | |||||||||||||||||||||
Appropriation to reserve |
49,086 | (49,086 | ) | - | ||||||||||||||||||||
|
||||||||||||||||||||||||
Balance, March 31, 2014 (Unaudited) |
20,453,500 | $ | 20,454 | $ | 26,524,324 |
$ |
3,701,624 | $ | 5,575,317 | $ | 27,475,961 | - | $ | 63,297,680 |
The accompanying notes are an integrated part of these unaudited consolidated financial statements
F-4
THT Heat Transfer Technology,
Inc.
Consolidated Statements of Cash
Flows
(Stated in US
dollars)
(Unaudited)
For the Three Months Ended March 31, | ||||||
2014 | 2013 | |||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||
|
||||||
Net income |
$ | 481,409 | $ | 335,482 | ||
Adjustments to reconcile net income to net cash provided by (used in) operating |
||||||
Depreciation and amortization |
257,864 | 296,595 | ||||
Allowance for doubtful accounts |
(454,653 | ) | (40,660 | ) | ||
Changes in operating assets and liabilities: |
||||||
Trade receivables |
3,894,115 | 4,497,607 | ||||
Bills receivable |
(1,893,375 | ) | (1,693,125 | ) | ||
Other receivables, prepayments and deposits |
(858,646 | ) | (2,799,274 | ) | ||
Inventories |
1,258,391 | (2,967,206 | ) | |||
Retention receivable |
37,909 | 244,176 | ||||
Trade payables |
(3,451,802 | ) | (576,296 | ) | ||
Other payables and accrued expenses |
(852,747 | ) | 173,486 | |||
Tax payable |
(321,872 | ) | (91,445 | ) | ||
NET CASH USED IN OPERATING ACTIVITIES |
(1,903,407 | ) | (2,620,660 | ) | ||
|
||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||
Change in restricted cash |
217,977 | 244,806 | ||||
Payments to acquire property, plant and equipment |
(6,914 | ) | (4,992 | ) | ||
NET CASH FLOWS PROVIDED BY INVESTING ACTIVITIES |
211,063 | 239,814 | ||||
|
||||||
Cash flows from financing Activities |
||||||
Proceeds from bank loans |
8,172,873 | - | ||||
Repayment of bank loans |
(9,807,447 | ) | - | |||
Repayment of long-term loans |
(980,745 | ) | - | |||
Refund of Counter guarantee receivable |
245,186 | - | ||||
NET CASH FLOWS USED IN FINANCING ACTIVITIES |
(2,370,133 | ) | - | |||
|
||||||
|
||||||
Effect of foreign currency translation on cash and cash equivalents |
(70,790 | ) | 57,585 | |||
NET DECREASE IN CASH AND CASH EQUIVALENTS |
(4,133,267 | ) | (2,323,261 | ) | ||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
$ | 9,082,137 | $ | 10,703,199 | ||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 4,948,870 | $ | 8,379,938 | ||
Supplementary Disclosures for Cash Flow Information: |
||||||
Interest paid |
$ | 246,382 | $ | 354,332 | ||
Income taxes paid |
$ | 599,101 | $ | 138,804 |
The accompanying notes are an integrated part of these unaudited consolidated financial statements
F-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, 2013 filed with the SEC in the Companys Form 10-K on March 31, 2014. | |
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. |
F-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 March 31, 2014 and December 31, 2013, 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 April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in the ASU change the criteria for reporting discontinued operations while enhancing disclosures in this area. It also addresses sources of confusion and inconsistent application related to financial reporting of discontinued operations guidance in U.S. GAAP. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The amendments in the ASU are effective in the first quarter of 2015 for public organizations with calendar year ends. Early adoption is permitted. The Company does not expect the adoption to have a significant impact on its consolidated financial statements.
4. |
Trade receivables, net |
March 31, | December 31, | ||||||
2014 | 2013 | ||||||
(Unaudited) | |||||||
Trade receivables | $ | 47,116,823 | $ | 51,422,790 | |||
Less: Allowance for doubtful accounts | (6,594,162 | ) | (7,106,345 | ) | |||
$ | 40,522,661 | $ | 44,316,445 |
F-7
As of March 31, 2014 and December 31, 2013, the Companys trade receivables of $321,605 and $501,536, respectively, were pledged as collateral under certain loan and guarantee arrangements (see Note 9).
An analysis of the allowance for doubtful accounts for the three months ended March 31, 2014 and 2013 is as follows:
Three months ended | |||||||
March 31, | |||||||
(Unaudited) | |||||||
2014 | 2013 | ||||||
Balance at beginning of period | $ | 7,106,345 | $ | 4,127,640 | |||
Adjustment of bad debt expense | (454,653 | ) | (40,660 | ) | |||
Translation adjustments | (57,530 | ) | 22,650 | ||||
Balance at end of period | $ | 6,594,162 | $ | 4,109,629 |
5. |
Inventories, net |
March 31, | December 31, | ||||||
2014 | 2013 | ||||||
(Unaudited) | |||||||
Raw materials | $ | 5,620,066 | $ | 5,412,793 | |||
Work-in-progress | 17,993,555 | 18,966,311 | |||||
Finished goods | 243,989 | 944,576 | |||||
23,857,610 | 25,323,680 | ||||||
Allowance for obsolete inventories | (19,797 | ) | (19,969 | ) | |||
$ | 23,837,813 | $ | 25,303,711 |
No further allowance for obsolete inventories was recognized during the three months ended March 31, 2014 and 2013. | |
As of March 31, 2014 and December 31, 2013, respectively, the inventory of $0 and $3,600,419 were pledged under certain loan agreements (see Note 10). | |
6. |
Income tax |
The effective tax rate is 15% and 15% for the three months periods ended March 31, 2014 and March 31, 2013, respectively. |
F-8
7. |
Property, plant and equipment, net |
As of March 31, 2014 and December 31, 2013, property, plant and equipment with net book values of $4,836,287 and $4,954,744, respectively, were pledged as collateral under certain loan arrangements (see Note 9). | |
8. |
Land use rights |
As of March 31, 2014 and December 31, 2013, certain land use rights were pledged as collateral under certain loan arrangements (see Note 9). | |
During the three months ended March 31, 2014 and 2013, amortization amounted to $32,450 and $31,604, respectively. | |
9. |
Short-term bank loans |
March 31, | December 31, | ||||||
2014 | 2013 | ||||||
(Unaudited) | |||||||
Secured bank loans | $ | 14,278,297 | $ | 16,038,230 | |||
$ | 14,278,297 | $ | 16,038,230 |
The Companys bank loans 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:
March 31, | December 31, | ||||||
2014 | 2013 | ||||||
(Unaudited) | |||||||
Trade receivables (Note 4) | $ | 321,605 $ | 501,536 | ||||
Property, plant and equipment (Note 7) | 4,836,287 | 4,954,744 | |||||
Land use rights (Note 8) | 1,000,489 | 1,014,947 | |||||
$ | 6,158,381 $ | 6,471,227 |
F-9
10. |
Long-term loans |
Long-term Loans includes the following:
March 31, | December 31, | ||||||
2014 | 2013 | ||||||
(Unaudited) | |||||||
Secured loan | $ | - | $ | 981,932 | |||
Unsecured loan | 567,887 | 572,394 | |||||
Total | 567,887 | $ | 1,554,726 |
The secured loan borrowed from China Development Bank Company bears interest at an annual rate of 15% over of the benchmark rate of the PBOC for three-year long-term loans and guaranteed by a third party. On January 6, 2014, the Company repaid the loan balance of 981,932 in full.
The loan was secured by the following assets of the Company:
March 31, | December 31,, | ||||||
2014 | 2013 | ||||||
(Unaudited) | |||||||
Inventories (Note 5) | $ | - | $ | 3,600,419 | |||
$ | - | $ | 3,600,419 |
As a condition of 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 $245,483 as of December 31, 2013. As of March 31, 2014, the deposits have been refunded to the Company upon the Companys settlement of the loan on January 6, 2014.
In December 2013, the Company also obtained a 3-year entrusted loan from a non-financial institution bearing interest at 3% per annum granted by local government.
11. |
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. |
F-10
12. |
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 three months ended March 31, 2014 and 2013 were as follows:
Three months ended March 31, | |||||||||||||
2014 | % | 2013 | % | ||||||||||
(Unaudited) | (Unaudited) | ||||||||||||
Plate heat exchanger | $ | 2,868,569 | 35 | $ | 3,775,087 | 48 | |||||||
Heat exchange unit | 3,183,217 | 38 | 2,256,561 | 28 | |||||||||
Air-cooled heat exchanger | - | - | 701,003 | 9 | |||||||||
Shell-and-tube heat exchanger | 1,109,444 | 13 | 42,671 | 1 | |||||||||
Others | 1,127,682 | 14 | 1,135,113 | 14 | |||||||||
$ | 8,288,912 | 100 | $ | 7,910,435 | 100 |
All of the Companys long-lived assets and revenues classified based on the customers are located in the PRC.
13. |
Related party transactions |
As of March 31, 2014 and December 31, 2013, respectively, the Company advanced $14,859 and $14,987 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".
F-11
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, 2013, 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 re 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.
3
Our operations are headquartered in Siping, Jilin Province, PRC. Our primary Chinese operating subsidiaries are Siping Juyuan and Beijing Juyuan.
First Quarter Financial Performance Highlights
The following summarizes certain key financial information for the first quarter of 2014:
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Sales revenue: Sales revenue increased by $0.38 million, or 4.78%, to $8.29 million for the three months ended March 31, 2014, from $7.91 million for the same period in 2013.
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Gross profit: Gross profit decreased by $0.47million, or 15.61%, to $2.52 million for the three months ended March 31, 2014, from $2.99 million for the same period in 2013. As a percentage of sales revenue, gross profit decreased by 7.36%, to 30.45% for the three months ended March 31, 2014, from 37.81% for the same period in 2013.
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Net income attributable to stockholders: Net income attributable to our stockholders increased by $0.17 million, or 53.48%, to $0.48 million for the three months ended March 31, 2014, from $0.31 million for the same period in 2013.
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Fully diluted net income per share: Fully diluted net income per share was $0.02 for the three months ended March 31, 2014, as compared $0.02 for the same period in 2013.
Results of Operations
The following table sets forth key components of our results of operations for the periods indicated.
Three Months Ended March 31, | $ | % | ||||||||||
2014 | 2013 | Change | Change | |||||||||
Sales revenue | $ | 8,288,912 | $ | 7,910,435 | $ | 378,477 | 4.78 | |||||
Cost of sales | (5,765,029 | ) | (4,919,837 | ) | (845,192 | ) | 17.18 | |||||
Gross profit | 2,523,883 | 2,990,598 | (466,715 | ) | (15.61 | ) | ||||||
Operating expenses: | ||||||||||||
Administrative expenses | 545,051 | 1,031,114 | (486,063 | ) | (47.14 | ) | ||||||
Research and development expenses | 340,074 | 208,786 | 131,288 | 62.88 | ||||||||
Selling expenses | 969,951 | 1,042,664 | (72,713 | ) | (6.97 | ) | ||||||
Total operating expenses | 1,855,076 | 2,282,564 | (427,488 | ) | (18.73 | ) | ||||||
Income from operations | 668,807 | 708,034 | (39,227 | ) | (5.54 | ) | ||||||
Interest income | 4,359 | 9,593 | (5,234 | ) | (54.56 | ) | ||||||
Other income | 224,181 | 131,231 | 92,950 | 70.83 | ||||||||
Other expenses | 474 | (565 | ) | 1,039 | (183.89 | ) | ||||||
Finance costs | (331,458 | ) | (452,423 | ) | 120,965 | (26.74 | ) | |||||
Income before income taxes and | ||||||||||||
noncontrolling interests | 566,363 | 395,870 | 170,493 | 43.07 | ||||||||
Income taxes | (84,954 | ) | (60,388 | ) | (24,566 | ) | 40.68 | |||||
Net income before noncontrolling interests | 481,409 | 335,482 | 145,927 | 43.50 | ||||||||
Net income attributable to noncontrolling interests | - | (21,819 | ) | 21,819 | (100 | ) | ||||||
Net income attributable to THT common stockholders | $ | (481,409 | ) | $ | 313,663 | $ | 167,746 | 53.48 |
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Sales revenue. Our sales revenue is generated from sales of heat exchange products. Sales revenue increased by $0.38 million, or 4.78%, to $8.29 million for the three months ended March 31, 2014, from $7.91 million for the same period in 2013. Our sales volume in the three months ended March 31, 2014 amounted to 496 units, an increase of 113 units, from 383 units for the same period in 2013. Such increase was mainly due to the increased sales revenue from heat exchange units and shell-and-tube heat exchanger. Sales revenue from heat exchanger units increased by $0.93 million, or 41.06%, to $3.18 million for the three months ended March 31, 2014, from $2.26 million in the same period in 2013. Sales revenue from shell-and- tube heat exchangers increased by $1.07 million, or 2500.00%, to $1.11million for the three months ended March 31, 2014, from $0.04 million in the same period in 2013. The increase was caused by increased demand of our products as a result of more projects and economy recovery of China in the first quarter of 2014 compared with previous years.
The following table shows our sales revenue by product for the three months ended March 31, 2014 and 2013:
Three Months Ended March 31, | ||||||||||||
2014 | 2013 | |||||||||||
$ | % | $ | % | |||||||||
Plate heat exchanger | $ | 2,868,569 | 35 | $ | 3,775,087 | 48 | ||||||
Heat exchange unit | 3,183,217 | 38 | 2,256,561 | 28 | ||||||||
Air-cooled heat exchanger | - | - | 701,003 | 9 | ||||||||
Shell-and-tube heat exchanger | 1,109,444 | 13 | 42,671 | 1 | ||||||||
Others | 1,127,682 | 14 | 1,135,113 | 14 | ||||||||
TOTAL | $ | 8,288,912 | 100 | $ | 7,910,435 | 100 |
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 $0.85 million, or 17.18%, to $5.77 million for the three months ended March 31, 2014, from $4.92 million for the three months ended March 31, 2013. The increase in the cost of sales was generally in line with the higher costs of manufacturing the custom-made products. Cost of sales as a percentage of sales revenue were 69.55% and 62.19% for the three months ended March 31, 2014 and 2013, respectively, an increase of 7.36 percentage points. The increase was mainly attributable to the increase in labor costs and raw material costs.
Gross profit. Our gross profit is equal to the difference between our sales revenue and our cost of sales. Our gross profit decreased by $0.47 million, or 15.61%, to $2.52 million for the three months ended March 31, 2014, from $2.99 million for the same period in 2013. The decrease in our gross profit was mainly attributable to increased cost of sales. As the average unit selling price of our products decreased $3,943 in the three months ended March 31, 2014 in comparison with the same period in 2013, gross profit margin for the three months ended March 31, 2014 dropped to 30.45% from 37.81% for the same period in 2013. The decrease in our gross profit margin was mainly attributable to the increase in labor costs and raw material costs as noted above.
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 $0.49 million, or 47.14%, to $0.55 million for the three months ended March 31, 2014, from $1.03 million for the same period in 2013. As a percentage of sales revenue, administrative expenses decreased to 6.58% for the three months ended March 31, 2014, as compared to 13.03% for the same period in 2013. The decrease in administrative expenses was primarily due to the increase in reversal of allowance for doubtful accounts. The reversal of allowance for doubtful accounts increased by approximately $0.41 million, to approximately $0.45 million in the three months ended March 31, 2014 compared with a reversal of allowance for doubtful accounts of $0.04 million for the same period in 2013. The decrease in the allowance for doubtful accounts was mainly because we adopted some methods to improve the collection of overdue receivable. 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.
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 $0.13 million, or 62.88%, to $0.34 million for the three months ended March 31, 2014, from $0.21 million for the same period in 2013. The increase in research and development expenses was mainly attributable to our research and development of new products.
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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 6.97%, to $0.97 million for the three months ended March 31, 2014, from $1.04 million for the same period in 2013. As a percentage of sales revenue, selling expenses decreased to 11.70% for the three months ended March 31, 2014, as compared to 13.18% for the same period in 2013. The decrease was mainly attributable to the decreased salary of our sales personnel. The salary of our sales personnel decreased by $0.09 million, or 27.27%, to $0.24 million for the three months ended March 31, 2014, from $0.33 million for the same period in 2013. The decrease in salary of our sales personnel was one of the Companys measures to control selling expenses.
Income before income taxes. Income before income taxes increased by $0.17 million, or 43.07%, to $0.57 million for the three months ended March 31, 2014, from $0.40 million for the same period in 2013. Such increase was mainly attributable to the decrease in our total expenses.
Income taxes. Our income taxes increased to 0.08 million for the three months ended March 31, 2014, from $0.06 million for the same period in 2013, as a result of the increase in income before income taxes.
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 $0.17 million, or 53.48%, to $0.48 million for the three months ended March 31, 2014, from $0.31 million for the same period in 2013. As a percentage of sales revenue, our net income attributable to common stockholders was 5.81% and 3.97% for the three months ended March 31, 2014 and 2013, respectively.
Liquidity and Capital Resources
As of March 31, 2014, we had cash and cash equivalents of $4.95 million, primarily consisting of cash on hand and demand deposits. We can use our land as collateral to borrow approximately $4.76 million. In addition, we have an approximately $32.13 million credit line from Industrial and Commercial Bank of China, China Construction Bank and the Agricultural 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. 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 $4.11 million in the three months ended March 31, 2013 to $6.6 million in the same period in 2014. 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; and 3) file law suits. As a result, the Company collected $13.9 million in the three months ended March 31, 2014.
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.
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The following table provides a summary of our net cash flows from operating, investing, and financing activities.
Cash Flow
Three Months Ended March 31, | ||||||
2014 | 2013 | |||||
Net cash used in operating activities | $ | (1,903,407 | ) | $ | (2,620,660 | ) |
Net cash provided by investing activities | 211,063 | 239,814 | ||||
Net cash used in financing activities | (2,370,133 | ) | - | |||
Effects of exchange rate change in cash | (70,790 | ) | 57,585 | |||
Net decrease in cash and cash equivalents | (4,133,267 | ) | (2,323,261 | ) | ||
Cash and cash equivalents at beginning of the period | 9,082,137 | 10,703,199 | ||||
Cash and cash equivalent at end of the period | $ | 4,948,870 | $ | 8,379,938 |
Operating Activities
Net cash used in operating activities was $1.90 million for the three months ended March 31, 2014, compared with $2.62 million for the same period in 2013. The decrease in net cash used in operating activities was mainly due to increased net income, less increase of other receivables, prepayments and deposits, less money used to purchase inventory, offset by more decrease of trade payables, more decrease of other payables and accrued expenses, and less decrease of trade receivables.
Investing Activities
Net cash provided by investing activities was $0.21 million for the three months ended March 31, 2014, compared with $0.24 million in the same period in 2013. The net cash provided by investing activities during the period ended March 31, 2014 was primarily used for the purchase of equipment.
Financing Activities
Net cash used in financing activities was $2.37 million for the three months ended March 31, 2014, compared with $0 million for the same period in 2013. The increase in net cash used in financing activities resulted from increased payments to bank loans, offset by proceeds from bank loans.
Capital Expenditures
Our capital expenditures were used primarily for the purchase of equipment to expand our production capacity. The table below sets forth the breakdown of our capital expenditures by use for the periods indicated.
Three Months Ended March 31, | ||||||
2014 | 2013 | |||||
(in thousands) | ||||||
Purchase of equipment | 6,914 | 5 | ||||
Total capital expenditures | $ | 6,914 | $ | 5 |
We estimate that our total capital expenditures in fiscal year 2014 will reach approximately $3.00 million to buy the equipment for necessary products used in the nuclear power industry.
Obligations Under Material Contracts
Except with respect to the loan obligations disclosed above, we have no material obligations to pay cash or deliver cash to any other party.
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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. There have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
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 Interim Chief Financial Officer, Mr. Zhigang Xu, of the effectiveness of the design and operation of our disclosure controls and procedures, as of March 31, 2014. Based upon, and as of the date of this evaluation, Messrs. Zhao and Xu 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, 2013, which we are still in the process of remediating as of March 31, 2014, 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, 2013 for the description of these weaknesses.
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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. 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, 2013, 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, 2013, our management has identified the steps necessary to address the material weaknesses, and in the first quarter of 2014, 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 first quarter of 2014 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, financial condition, cash flow or operating results.
ITEM 1A. RISK FACTORS.
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
We have not sold any equity securities during the first quarter of 2014 that were not previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K that was filed during the quarter.
No repurchases of our common stock were made during the first quarter of 2014.
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 first quarter of 2014, 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: May 15, 2014 | THT HEAT TRANSFER TECHNOLOGY, INC. | |
By: | /s/ Guohong Zhao | |
Guohong Zhao, Chief Executive Officer | ||
(Principal Executive Officer) | ||
By: | /s/ Zhigang Xu | |
Zhigang Xu, Interim Chief Financial Officer | ||
(Principal Financial Officer and Principal | ||
Accounting Officer) |
EXHIBIT INDEX