Attached files
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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-31.1 - EXHIBIT 31.1 - THT Heat Transfer Technology, Inc. | exhibit31-1.htm |
EX-32.2 - EXHIBIT 32.2 - THT Heat Transfer Technology, Inc. | exhibit32-2.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 10Q
(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, 2015
[ ] 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 May14, 2015 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, 2015 |
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 | 2 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 7 |
Item 4. | Controls and Procedures | 7 |
PART II
OTHER INFORMATION
Item 1. | Legal Proceedings | 8 |
Item 1A. | Risk Factors | 8 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 8 |
Item 3. | Defaults Upon Senior Securities | 8 |
Item 4. | Mine Safety Disclosures | 8 |
Item 5. | Other Information | 8 |
Item 6. | Exhibits | 8 |
PART I
FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS. |
THT HEAT TRANSFER TECHNOLOGY, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND
2014
Contents | Page(s) |
Consolidated Balance Sheets | F-1 |
Consolidated Statements of Income and Comprehensive Income | F-2 |
Consolidated Statements of Cash Flows | F-3 |
Notes to Consolidated Financial Statements | F-4 - F-9 |
1
THT Heat Transfer Technology, Inc.
Consolidated
Balance Sheets
(Stated in US dollars)
|
March 31, | December 31, | ||||
|
2015 | 2014 | ||||
|
(Unaudited) | |||||
ASSETS |
||||||
Current assets |
||||||
Cash and cash equivalents |
$ | 9,155,299 | $ | 12,247,508 | ||
Restricted cash |
678,026 | 550,206 | ||||
Trade receivables, net |
37,315,956 | 42,882,993 | ||||
Bills receivable |
3,064,115 | 2,016,646 | ||||
Other receivables, prepayments and deposits, net |
10,499,215 | 9,855,913 | ||||
Due from related parties |
29,262 | 24,663 | ||||
Inventories, net |
25,702,925 | 27,926,555 | ||||
Deferred tax assets |
169,633 | 168,932 | ||||
Total Current Assets |
86,614,431 | 95,673,416 | ||||
|
||||||
Restricted cash, non-current |
604,608 | 738,168 | ||||
Retention receivable |
2,197,395 | 1,909,731 | ||||
Property, plant and equipment, net |
8,871,986 | 8,890,946 | ||||
Land use rights, net |
6,017,569 | 6,025,000 | ||||
TOTAL ASSETS |
$ | 104,305,989 | $ | 113,237,261 | ||
|
||||||
LIABILITIES & SHAREHOLDERS EQUITY |
||||||
Current Liabilities |
||||||
Accounts payable |
5,028,311 | 8,903,510 | ||||
Other payables and accrued liabilities |
20,427,623 | 24,362,343 | ||||
Income tax payable |
729,480 | 652,859 | ||||
Short-term loans |
10,308,602 | 12,691,181 | ||||
Due to related parties |
816,913 | 813,537 | ||||
Total Current Liabilities |
37,310,929 | 47,423,430 | ||||
|
||||||
Non-current liabilities |
||||||
Long-term loans |
571,839 | 569,476 | ||||
Total Long-term Liabilities |
571,839 | 569,476 | ||||
|
||||||
TOTAL LIABILITIES |
37,882,768 | 47,992,906 | ||||
|
||||||
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, 2015 and |
||||||
December 31, 2014 |
20,454 | 20,454 | ||||
Additional paid-in capital |
26,524,324 | 26,524,324 | ||||
Statutory reserve |
3,970,259 | 3,879,564 | ||||
Retained earnings |
29,767,749 | 28,944,535 | ||||
Accumulated other comprehensive income |
6,140,435 | 5,875,478 | ||||
TOTAL SHAREHOLDERS EQUITY |
66,423,221 | 65,244,355 | ||||
|
||||||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
$ | 104,305,989 | $ | 113,237,261 |
The accompanying notes are an integrated part of these unaudited consolidated financial statements
F-1
THT Heat Transfer Technology, Inc.
Consolidated
Statements of Income and Comprehensive Income
(Stated in US
dollars)
|
For Three Months Ended March 31, | |||||
|
2015 | 2014 | ||||
|
(Unaudited) | (Unaudited) | ||||
Sales revenue |
$ | 8,173,890 | $ | 8,288,912 | ||
Cost of revenues |
(5,768,410 | ) | (5,765,029 | ) | ||
Gross Profit |
2,405,480 | 2,523,883 | ||||
|
||||||
Operating expenses |
||||||
General and administrative expenses |
302,018 | 545,051 | ||||
Research and development expenses |
211,325 | 340,074 | ||||
Selling expenses |
812,557 | 969,951 | ||||
Total Operating Expenses |
1,325,900 | 1,855,076 | ||||
|
||||||
Income from operations |
1,079,580 | 668,807 | ||||
|
||||||
Other Income (Expenses) |
||||||
Interest income |
3,356 | 4,359 | ||||
Other income |
50,745 | 224,181 | ||||
Finance costs |
(38,608 | ) | (331,458 | ) | ||
Other expense |
(21,114 | ) | 474 | |||
Total Other Expense |
(5,621 | ) | (102,444 | ) | ||
|
||||||
Income before income taxes |
1,073,959 | 566,363 | ||||
Income tax expenses |
(160,050 | ) | (84,954 | ) | ||
Net Income |
913,909 | 481,409 | ||||
|
||||||
Net Income |
913,909 | 481,409 | ||||
Other Comprehensive Income |
||||||
Foreign currency translation adjustments |
264,957 | (570,200 | ) | |||
Comprehensive Income |
1,178,866 | (88,791 | ) | |||
|
||||||
Earnings per share |
||||||
Basic and diluted |
$ | 0.04 | $ | 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
Statements of Cash Flows
(Stated in US dollars)
|
For the Three Months Ended March 31, | |||||
|
2015 | 2014 | ||||
|
(Unaudited) | (Unaudited) | ||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||
|
||||||
Net income |
$ | 913,909 | $ | 481,409 | ||
Adjustments to reconcile net income to net cash used in operating activities: |
||||||
Depreciation and amortization |
274,455 | 257,864 | ||||
Loss on disposal of property, plant and equipment |
16,211 | - | ||||
Allowance for doubtful accounts |
(819,888 | ) | (454,653 | ) | ||
Changes in operating assets and liabilities: |
||||||
Trade receivables |
6,542,633 | 3,894,115 | ||||
Bills receivable |
(1,035,075 | ) | (1,893,375 | ) | ||
Other receivables, prepayments and deposits |
(600,067 | ) | (858,646 | ) | ||
Due from shareholders |
(4,479 | ) | - | |||
Inventories |
2,330,461 | 1,258,391 | ||||
Retention receivable |
(278,655 | ) | 37,909 | |||
Accounts payable |
(4,059,758 | ) | (3,451,802 | ) | ||
Other payables and accrued expenses |
(4,045,304 | ) | (852,747 | ) | ||
Income tax payable |
73,625 | (321,872 | ) | |||
NET CASH USED IN OPERATING ACTIVITIES |
(691,932 | ) | (1,903,407 | ) | ||
|
||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||
Change in restricted cash |
11,044 | 217,977 | ||||
Payments to acquire property, plant and equipment |
(14,819 | ) | (6,914 | ) | ||
NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES |
(3,775 | ) | 211,063 | |||
|
||||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||
Proceeds from short-term loans |
3,758,679 | 8,172,873 | ||||
Repayment of short-term loans |
(6,184,493 | ) | (9,807,447 | ) | ||
Repayment of long-term loans |
- | (980,745 | ) | |||
Refund of counter guarantee receivable |
- | 245,186 | ||||
NET CASH FLOWS USED IN FINANCING ACTIVITIES |
(2,425,814 | ) | (2,370,133 | ) | ||
|
||||||
|
||||||
Effect of foreign currency translation on cash and cash equivalents |
29,312 | (70,790 | ) | |||
|
||||||
NET DECREASE IN CASH AND CASH EQUIVALENTS |
(3,092,209 | ) | (4,133,267 | ) | ||
|
||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
$ | 12,247,508 | $ | 9,082,137 | ||
|
||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 9,155,299 | $ | 4,948,870 | ||
|
||||||
Supplementary Disclosures for Cash Flow Information: |
||||||
Interest paid |
$ | 36,013 | $ | 246,382 | ||
Income taxes paid |
$ | 65,265 | $ | 599,101 |
The accompanying notes are an integrated part of these unaudited consolidated financial statements
F-3
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 SipingJuyuan 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.
SipingJuyuan 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 SipingJuyuan, Siping City Juyuan Heat Exchange Equipment Co., Ltd. (New Juyuan Company) and Siping City JuyuanHanyang Pressure Vessels Co., Ltd (JuyuanHanyang 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, 2014 filed with the SEC in the Companys Form 10-K on March 31, 2015.
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-4
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, 2015 and December 31, 2014, 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.
4. Trade receivables, net
March 31, | December 31, | |||||
2015 | 2014 | |||||
|
(Unaudited) | |||||
|
||||||
Trade receivables |
$ | 45,044,245 | $ | 51,395,843 | ||
Less: Allowance for doubtful accounts |
(7,728,289 | ) | (8,512,850 | ) | ||
|
||||||
|
$ | 37,315,956 | $ | 42,882,993 |
An analysis of the allowance for doubtful accounts for the three months ended March 31, 2015 and 2014 is as follows:
Three months ended | ||||||
March 31, | ||||||
(Unaudited) | ||||||
2015 | 2014 | |||||
|
||||||
Balance at beginning of period |
$ | 8,512,850 | $ | 7,106,345 | ||
Adjustment of bad debt expense |
(819,888 | ) | (454,653 | ) | ||
Translation adjustments |
35,327 | (57,530 | ) | |||
|
||||||
Balance at end of period |
$ | 7,728,289 | $ | 6,594,162 |
F-5
5. Inventories, net
March 31, | December 31, | |||||
2015 | 2014 | |||||
|
(Unaudited) | |||||
|
||||||
Raw materials |
$ | 4,795,165 | $ | 4,874,061 | ||
Work-in-progress |
10,253,477 | 22,887,134 | ||||
Finished goods |
10,674,218 | 185,212 | ||||
|
25,722,860 | 27,946,407 | ||||
Allowance for obsolete inventories |
(19,935 | ) | (19,852 | ) | ||
|
$ | 25,702,925 | $ | 27,926,555 |
No further allowance for obsolete inventories was recognized during the three months ended March 31, 2015 and 2014.
6. Income tax
The effective tax rate is 15% and 15% for the three months periods ended March 31, 2015 and March 31, 2014, respectively.
7. Property, plant and equipment, net
As of March 31, 2015 and December 31, 2014, property, plant and equipment with net book values of $nil and $4,621,156, respectively, were pledged as collateral under certain loan arrangements (see Note 9).
8. Land use rights
As of March 31, 2015 and December 31, 2014, land use rights with net book values of $nil and 986,145 were pledged as collateral under certain loan arrangements (see Note 9).
During the three months ended March 31, 2015 and 2014, amortization amounted to $32,309 and $32,450, respectively.
9. Short-term bank loans
March 31, | December 31, | |||||
2015 | 2014 | |||||
|
(Unaudited) | |||||
|
||||||
Loan from unrelated party |
$ | 10,308,602 | $ | 6,508,298 | ||
Secured bank loans |
- | 6,182,883 | ||||
|
||||||
|
$ | 10,308,602 | $ | 12,691,181 |
F-6
Short-term loans from unrelated party
In April 2014, the Company obtained a loan in the amount of $6,508,298 from a third party individual. The Company borrowed an additional $3,758,679 from the same person in March 2015. The loan is unsecured, bearing no interest rate and due on demand.
Short-term bank loans
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, | |||||
2015 | 2014 | |||||
(Unaudited) | ||||||
|
||||||
Property, plant and equipment (Note 7) |
- | 4,621,156 | ||||
Land use rights (Note 8) |
- | 986,145 | ||||
|
||||||
$ | - | $ | 5,607,301 |
As of March 31, 2015, the Company has repaid the secured short-term bank loan in full.
10. Long-term loans
Long-term loans include the following:
March 31, | December 31, | |||||
2015 | 2014 | |||||
|
(Unaudited) | |||||
Unsecured loan |
571,839 | 569,476 | ||||
|
||||||
Total |
$ | 571,839 | $ | 569,476 |
In December 2013, the Company obtained a 3-year entrusted loan from a non-financial institution bearing interest at 3% per annum granted by local government.
F-7
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.
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, 2015 and 2014 were as follows:
Three months ended March 31, | ||||||||||||
|
2015 | % | 2014 | % | ||||||||
|
(Unaudited) | (Unaudited) | ||||||||||
|
||||||||||||
Plate heat exchanger |
$ | 1,792,633 | 22 | $ | 2,868,569 | 35 | ||||||
Heat exchange unit |
3,933,957 | 48 | 3,183,217 | 38 | ||||||||
Shell-and-tube heat exchanger |
(16,692 | ) | - | 1,109,444 | 13 | |||||||
Others |
2,463,992 | 30 | 1,127,682 | 14 | ||||||||
|
$ | 8,173,890 | 100 | $ | 8,288,912 | 100 |
All of the Companys long-lived assets and revenues classified based on the customers are located in the PRC.
13. Related party transactions The related parties consist of as following:
Name of Related Party | Nature of Relationship |
Guohong Zhao | Chairman, Chief Executive Officer and President |
Zhigang Xu | Interim Chief Financial Officer, Treasurer and Secretary |
Fucai Zan | Vice President of R&D and Director |
Kai Liu | Chief Engineer, Manager of Market development |
Zhijun Ma | Sales Director |
Yongfu Tian | Vice Sales Director |
Feng Xu | Factory Director, Manager of production |
F-8
Due from related parties
As of March 31, 2015 and December 31, 2014, respectively, the Company advanced $29,262 and $24,663 to Guohong Zhao for handling selling and logistic activities for the Company in the ordinary course of business.
Due to related parties
Due to related parties consist of following:
March 31, | December 31, | |||||
2015 | 2014 | |||||
(Unaudited) | ||||||
Zhigang Xu | 81,691 | 81,354 | ||||
Fucai Zan | 163,383 | 162,708 | ||||
Kai Liu | 163,383 | 162,707 | ||||
Zhijun Ma | 163,383 | 162,707 | ||||
Yongfu Tian | 163,383 | 81,354 | ||||
Feng Xu | 81,690 | 81,354 | ||||
$ | 816,913 | $ | 813,537 |
Amounts owed by the Company represent non-secured and non-interest bearing loans obtained from related parties which are due on demand.
F-9
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, 2014, 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, SipingJuyuan 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;
- SipingJuyuan are to Siping City JuyuanHanyang Plate Heat Exchanger Co. Ltd., a PRC company;
- Beijing Juyuan are to Beijing JuyuanHanyang 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.
2
Our operations are headquartered in Siping, Jilin Province, PRC. Our primary Chinese operating subsidiaries are SipingJuyuan and Beijing Juyuan.
First Quarter Financial Performance Highlights
The following summarizes certain key financial information for the first quarter of 2015:
-
Sales revenue: Sales revenue decreased by $0.12 million, or 1.39%, to $8.17million for the three months ended March 31, 2015, from $8.29 million for the same period in 2014.
-
Gross profit: Gross profit decreased by $0.12million, or 4.69%, to $2.41 million for the three months ended March 31, 2015, from $2.52 million for the same period in 2014. As a percentage of sales revenue, gross profit decreased by 1.02% to 29.43% for the three months ended March 31, 2015, from 30.45% for the same period in 2014.
-
Net income attributable to stockholders: Net income attributable to our stockholders increased by $0.43 million, or 89.84%, to $0.91 million for the three months ended March 31, 2015, from $0.48 million for the same period in 2014.
-
Fully diluted net income per share: Fully diluted net income per share was $0.04 for the three months ended March 31, 2015, as compared $0.02 for the same period in 2014.
Results of Operations
The following table sets forth key components of our results of operations for the periods indicated.
Three Months Ended March 31, | $ | % | ||||||||||
2015 | 2014 | Change | Change | |||||||||
Sales revenue |
$ | 8,173,890 | $ | 8,288,912 | $ | (115,022 | ) | (1.39 | ) | |||
Cost of sales |
(5,768,410 | ) | (5,765,029 | ) | (3,381 | ) | 0.06 | |||||
Gross profit |
2,405,480 | 2,523,883 | (118,403 | ) | (4.69 | ) | ||||||
Operating expenses: |
||||||||||||
Administrative expenses |
302,018 | 545,051 | (243,033 | ) | (44.59 | ) | ||||||
Research and development expenses |
211,325 | 340,074 | (128,749 | ) | (37.86 | ) | ||||||
Selling expenses |
812,557 | 969,951 | (157,394 | ) | (16.23 | ) | ||||||
Total operating expenses |
1,325,900 | 1,855,076 | (529,176 | ) | (28.53 | ) | ||||||
Income from operations |
1,079,580 | 668,807 | 410,773 | 61.42 | ||||||||
Interest income |
3,356 | 4,359 | (1,003 | ) | (23.01 | ) | ||||||
Other income |
50,745 | 224,181 | (173,436 | ) | (77.36 | ) | ||||||
Other expenses |
(21,114 | ) | 474 | (21,588 | ) | (4554.43 | ) | |||||
Finance costs |
(38,608 | ) | (331,458 | ) | 292,850 | (88.35 | ) | |||||
Income before income taxes |
||||||||||||
|
1,073,959 | 566,363 | 507,596 | 89.62 | ||||||||
Income taxes |
(160,050 | ) | (84,954 | ) | 75,096 | 88.40 | ||||||
Net income |
913,909 | 481,409 | 432,500 | 89.84 |
Sales revenue. Our sales revenue is generated from sales of heat exchange products. Sales revenue decreased by $0.12million, or 1.39%, to $8.17 million for the three months ended March 31, 2015, from $8.29 million for the same period in 2014. Our sales volume in the three months ended March 31, 2015 amounted to 362 units, a decrease of 134units, from 496 units for the same period in 2014. Such decrease was mainly due to the decreased sales revenue from plate heat exchangers and shell-and- tube heat exchangers in the three months ended March 31, 2015 as compared with the same period in 2014. Sales revenue from plate heat exchangers decreased by $1.08 million, or 37.51%, to $1.79 million for the three months ended March 31, 2015, from $2.87 million for the same period in 2014. Sales revenue from shell-and- tube heat exchangers decreased $1.13 million as compared with the same period in 2014. Chinas economic slowdown in 2015 affected several industries we serve, especially the industries with excessive capacity such as petrochemical, metallurgical and shipbuilding industries. Because of the energy conservation and emission reduction policies adopted in China, many projects in petrochemical industry were suspended and delayed with less order in 2015. Many orders from shipbuilding industry also declined drastically. Although sales revenue from heat exchange units and other products increased, the increase was not enough to offset the decreased sales revenue from plate heat exchangers, shell-and-tube heat exchangers and air coolers.
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The following table shows our sales revenue by product for the three months ended March 31, 2015 and 2014:
Three Months Ended March 31, | ||||||||||||
2015 | 2014 | |||||||||||
$ | % | $ | % | |||||||||
Plate heat exchanger |
$ | 1,792,633 | 21.93 | $ | 2,868,569 | 35 | ||||||
Heat exchange unit |
3,933,957 | 48.13 | 3,183,217 | 38 | ||||||||
Shell-and-tube heat exchanger |
(16,692 | ) | (0.20 | ) | 1,109,444 | 13 | ||||||
Others |
2,463,992 | 30.14 | 1,127,682 | 14 | ||||||||
TOTAL |
$ | 8,173,890 | 100 | $ | 8,288,912 | 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 slighty increased by $3,000, or 0.06%, to $5.768million for the three months ended March 31, 2015, from $5.765 million for the three months ended March 31, 2014. Cost of sales as a percentage of sales revenue were 70.57% and 69.55% for the three months ended March 31, 2015and 2014, respectively, an increase of 1.02 percentage points. The increase was mainly attributable to the decrease in our sales revenue.
Gross profit. Our gross profit is equal to the difference between our sales revenue and our cost of sales. Our gross profit decreased by $0.11million, or 4.69%, to $2.41 million for the three months ended March 31, 2015, from $2.52 million for the same period in 2014. The decrease in our gross profit was mainly attributable to the decrease in our sales revenue. As the average unit selling price of our products increased $5,868 in the three months ended March 31, 2015 in comparison with the same period in 2014, gross profit margin for the three months ended March 31, 2015 dropped to 29.43% from 30.45% for the same period in 2014. The decrease in our gross profit margin was mainly attributable to the decrease in our sales revenue 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 $0.24 million, or 44.59%, to $0.30 million for the three months ended March 31, 2015, from $0.55 million for the same period in 2014. As a percentage of sales revenue, administrative expenses decreased to 3.69% for the three months ended March 31, 2015, as compared to 6.58% for the same period in 2014. The decrease in administrative expenses was primarily due to the decrease of allowance for doubtful accounts. Bad debt expense decreased by $0.37 million in the three months ended March 31, 2015, compared with the same period in 2014. The decrease in bad debt expense 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 decreased by $0.13 million, or 37.86%, to $0.21 million for the three months ended March 31, 2015, from $0.34million for the same period in 2014. The decrease in research and development expenses was mainly attributable to fewer new products in the process of research and development in the first quarter of 2015.
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 $0.16 million, or 16.23%, to $0.81 million for the three months ended March 31, 2015, from $0.97 million for the same period in 2014. As a percentage of sales revenue, selling expenses decreased to 9.94% for the three months ended March 31, 2015, as compared to 11.70% for the same period in 2014. The decrease in our selling expenses was mainly attributable to the decreased travelling expenses. Travelling expenses decreased by $0.20 million, or 49.31%, to $0.20 million for the three months ended March 31, 2015, from $0.40 million for the same period in 2014.
Income before income taxes. Income before income taxes increased by $0.51million, or 89.62%, to $1.07million for the three months ended March 31, 2015, from $0.57 million for the same period in 2014. Such increase was mainly attributable to the decrease in our total expenses.
4
Income taxes. Our income taxes increased to $0.16 million for the three months ended March 31, 2015, from $0.08 million for the same period in 2014, as a result of the increased income before income tax expense.
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 $0.43 million, or 89.84%, to $0.91 million for the three months ended March 31, 2015, from $0.48 million for the same period in 2014. As a percentage of sales revenue, our net income attributable to common stockholders was 11.18% and5.81% for the three months ended March 31, 2015 and 2014, respectively.
Liquidity and Capital Resources
As of March 31, 2015, we had cash and cash equivalents of $9.16 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 $27.66 million credit line from the China Construction Bank and Agricultural bank. 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. 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. Thanks to the efforts of our doubtful accounts department and resort to legal means for collection, our allowance for doubtful accounts has been steadily reduced in the past 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 PRCGAAP 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.
The following table provides a summary of our net cash flows from operating, investing, and financing activities.
Cash Flow
Three Months Ended March 31, | ||||||
2015 | 2014 | |||||
Net cash used in operating activities |
$ | (691,932 | ) | $ | (1,903,407 | ) |
Net cash provided by (used in) investing activities |
(3,775 | ) | 211,063 | |||
Net cash used in financing activities |
(2,425,814 | ) | (2,370,133 | ) | ||
Effects of exchange rate change in cash |
29,312 | (70,790 | ) | |||
Net decrease in cash and cash equivalents |
(3,092,209 | ) | (4,133,267 | ) | ||
Cash and cash equivalents at beginning of the period |
12,247,508 | 9,082,137 | ||||
Cash and cash equivalent at end of the period |
$ | 9,155,299 | $ | 4,948,870 |
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Operating Activities
Net cash used in operating activities was $0.69 million for the three months ended March 31, 2015, compared with $1.90 million in the same period last year. The decrease in net cash used in operating activities was mainly attributable to decrease in trade receivables, increased net income, offset by increase in other payables and accrued expenses.
Investing Activities
Net cash used in investing activities was $3,775 for the three months ended March 31, 2015, compared with $211,063 net cash provided by investing activities the same period in 2014. The decrease in net cash provided by investing activities was primarily due to less release of restricted cash.
Financing Activities
Net cash used in financing activities was $2.43 million for the three months ended March 31, 2015, compared with $2.37 million for the same period in 2014. The increase in net cash used in financing activities resulted from more net payments to repay 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, | ||||||
2015 | 2014 | |||||
Construction costs |
8,932 | - | ||||
Purchase of equipment |
5,887 | 6,914 | ||||
Total capital expenditures |
$ | 14,819 | $ | 6,914 |
We estimate that our total capital expenditures in fiscal year 2015 will reach approximately $3.0 million. Our capital expenditures will be primarily for the purchase of equipment.
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.
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.
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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, 2014.
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 Interim 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, 2015. 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, 2014, which we are still in the process of remediating as of March 31, 2015, 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, 2014 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. 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, 2014, 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, 2014, our management has identified the steps necessary to address the material weaknesses, and in the first quarter of 2015 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.
7
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 effect 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 2015 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 2015. | |
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 2015, 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: May15, 2015 | 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) |
9
EXHIBIT INDEX
10