Attached files
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EX-32.1 - EXHIBIT 32.1 - THT Heat Transfer Technology, Inc. | exhibit32-1.htm |
EX-31.2 - EXHIBIT 31.2 - THT Heat Transfer Technology, Inc. | exhibit31-2.htm |
EX-32.2 - EXHIBIT 32.2 - THT Heat Transfer Technology, Inc. | exhibit32-2.htm |
EX-31.1 - EXHIBIT 31.1 - THT Heat Transfer Technology, Inc. | exhibit31-1.htm |
EXCEL - IDEA: XBRL DOCUMENT - THT Heat Transfer Technology, Inc. | Financial_Report.xls |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10−Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2011
[ ] 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] | Accelerated filer [ ] | |
Non-accelerated filer (Do not check if a smaller reporting company) | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The number of shares outstanding of each of the issuers classes of common stock, as of November 15, 2011 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 |
Three and Nine Months Ended September 30, 2011 |
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 | 11 |
Item 4. | Controls and Procedures | 11 |
PART II
OTHER INFORMATION
Item 1. | Legal Proceedings | 12 |
Item 1A. | Risk Factors | 12 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 12 |
Item 3. | Defaults Upon Senior Securities | 12 |
Item 4. | (Removed and Reserved) | 12 |
Item 5. | Other Information | 12 |
Item 6. | Exhibits | 12 |
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THT Heat Transfer Technology, Inc.
Condensed
Consolidated Financial Statements
For the three and nine months
ended
September 30, 2011 and 2010
(Stated in US dollars)
THT Heat Transfer Technology, Inc.
Condensed
Consolidated Financial Statements
Three and nine months ended
September 30, 2011 and 2010
Index to Condensed Consolidated Financial Statements
THT Heat Transfer Technology, Inc.
Condensed
Consolidated Statements of Income and Comprehensive Income
For the
three and nine months ended September 30, 2011 and
2010
(Unaudited)
(Stated in US Dollars)
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
(unaudited) | (unaudited) | |||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||
Sales revenue | $ | 10,309,768 | $ | 12,776,866 | $ | 38,542,434 | $ | 35,082,829 | ||||
Cost of sales | (5,799,160 | ) | (7,212,523 | ) | (21,911,721 | ) | (19,928,407 | ) | ||||
Gross profit | 4,510,608 | 5,564,343 | 16,630,713 | 15,154,422 | ||||||||
Operating expenses | ||||||||||||
Administrative expenses | 1,645,904 | 1,641,745 | 3,386,046 | 3,426,380 | ||||||||
Research and development expenses | 365,037 | 301,465 | 1,149,699 | 663,499 | ||||||||
Selling expenses | 2,300,748 | 1,814,635 | 5,524,796 | 4,653,774 | ||||||||
4,311,689 | 3,757,845 | 10,060,541 | 8,743,653 | |||||||||
Income from operations | 198,919 | 1,806,498 | 6,570,172 | 6,410,769 | ||||||||
Interest income | 10,568 | 3,473 | 34,484 | 10,709 | ||||||||
Other income - Note 16 | 62,275 | 137,066 | 914,962 | 301,317 | ||||||||
Finance costs - Note 17 | (360,702 | ) | (170,089 | ) | (762,688 | ) | (430,731 | ) | ||||
(Loss)/ income before income taxes | (88,940 | ) | 1,776,948 | 6,756,930 | 6,292,064 | |||||||
Income taxes - Note 8 | (89,283 | ) | (324,299 | ) | (1,006,821 | ) | (1,049,398 | ) | ||||
Net (loss)/ income before noncontrolling interests | (178,223 | ) | 1,452,649 | 5,750,109 | 5,242,666 | |||||||
Net loss attributable to noncontrolling interests | 300,336 | 106,186 | 341,986 | 207,145 | ||||||||
Net income attributable to THT Heat Transfer Technology, Inc. common stockholders | $ | 122,113 | $ | 1,558,835 | $ | 6,092,095 | $ | 5,449,811 | ||||
Net (loss)/ income before noncontrolling interests | $ | (178,223 | ) | $ | 1,452,649 | $ | 5,750,109 | $ | 5,242,666 | |||
Other comprehensive income | ||||||||||||
Foreign currency translation adjustments | 466,534 | 471,314 | 1,451,520 | 584,232 | ||||||||
Comprehensive income | 288,311 | 1,923,963 | 7,201,629 | 5,826,898 | ||||||||
Comprehensive loss attributable to noncontrolling interests | 306,588 | 105,460 | 350,011 | 205,793 | ||||||||
Comprehensive income attributable to THT Heat Transfer Technology, Inc. common stockholders | $ | 594,899 | $ | 2,029,423 | $ | 7,551,640 | $ | 6,032,691 | ||||
Earnings per share attributable to THT Heat Transfer Technology, Inc. common stockholders - Note 18 | ||||||||||||
- Basic and diluted | $ | 0.01 | $ | 0.10 | $ | 0.30 | $ | 0.34 | ||||
Weighted average number of shares outstanding | ||||||||||||
- Basic and diluted | 20,453,500 | 16,000,000 | 20,453,500 | 16,000,000 |
See the accompanying notes to condensed consolidated financial statements
F- 1
THT Heat Transfer Technology, Inc.
Condensed
Consolidated Balance Sheets
As of September 30, 2011 and December 31,
2010
(Stated in US Dollars)
September 30, | December 31, | |||||
2011 | 2010 | |||||
(Unaudited) | ||||||
ASSETS | ||||||
Current assets | ||||||
Cash and cash equivalents | $ | 3,304,397 | $ | 18,438,430 | ||
Restricted cash - Note 4 | 3,074,119 | 1,677,566 | ||||
Trade receivables, net - Note 5 | 32,182,855 | 25,651,880 | ||||
Counter guarantee receivable - Note 14 | - | 212,372 | ||||
Bills receivable | 932,202 | 469,161 | ||||
Other receivables, prepayments and deposits, net - Note 6 | 14,655,589 | 6,197,565 | ||||
Inventories, net - Note 7 | 22,494,102 | 13,705,690 | ||||
Deferred tax assets | 204,991 | 163,239 | ||||
Total current assets | 76,848,255 | 66,515,903 | ||||
Retention receivable | 1,341,201 | 1,409,057 | ||||
Counter guarantee receivable - Note 13 | 234,300 | - | ||||
Property, plant and equipment, net - Note 9 | 7,094,221 | 6,797,947 | ||||
Deposit for acquisition of property, plant and equipment | 543,888 | - | ||||
Land use rights - Note 10 | 1,018,646 | 1,005,428 | ||||
Prepayment for land use rights - Note 10 | 4,344,210 | - | ||||
TOTAL ASSETS | $ | 91,424,721 | $ | 75,728,335 |
See the accompanying notes to condensed consolidated financial statements.
F- 2
THT Heat Transfer Technology, Inc.
Condensed
Consolidated Balance Sheets (Contd)
As of September 30, 2011 and
December 31, 2010
(Stated in US Dollars)
September 30, | December 31, | |||||
2011 | 2010 | |||||
(Unaudited) | ||||||
LIABILITIES AND EQUITY | ||||||
LIABILITIES | ||||||
Current liabilities | ||||||
Trade payables | $ | 3,224,080 | $ | 2,803,874 | ||
Other payables and accrued expenses - Note 11 | 15,871,756 | 13,364,671 | ||||
Income tax payable | 842,430 | 1,380,979 | ||||
Short-term bank loans - Note 12 | 13,745,600 | 10,618,610 | ||||
Current maturities of long-term bank loan - Note 13 | 937,200 | - | ||||
Current maturities of other long-term loan - Note 14 | - | 1,668,639 | ||||
Total current liabilities | 34,621,066 | 29,836,773 | ||||
Long-term bank loan - Note 13 | 3,748,800 | - | ||||
TOTAL LIABILITIES | 38,369,866 | 29,836,773 | ||||
COMMITMENTS AND CONTINGENCIES - Note 21 | ||||||
STOCKHOLDERS EQUITY | ||||||
Preferred stock : par value of $0.001 per share | ||||||
Authorized 10,000,000 shares; none issued and outstanding | ||||||
Common stock : par value $0.001 per share - Note 15 | ||||||
Authorized 190,000,000 shares; issued and outstanding | ||||||
20,453,500 shares as of September 30, 2011 and | ||||||
December 31, 2010 | 20,454 | 20,454 | ||||
Additional paid-in capital | 27,396,455 | 27,396,455 | ||||
Statutory reserve | 2,734,693 | 1,902,632 | ||||
Accumulated other comprehensive income | 3,421,495 | 1,961,950 | ||||
Retained earnings | 19,931,996 | 14,671,962 | ||||
Total THT Heat Transfer Technology, Inc. stockholders equity | 53,505,093 | 45,953,453 | ||||
Noncontrolling interests | (450,238 | ) | (61,891 | ) | ||
TOTAL EQUITY | 53,054,855 | 45,891,562 | ||||
TOTAL LIABILITIES AND EQUITY | $ | 91,424,721 | $ | 75,728,335 |
See the accompanying notes to condensed consolidated financial statements
F- 3
THT Heat Transfer Technology, Inc.
Condensed
Consolidated Statements of Cash Flows
For the nine months ended September
30, 2011 and 2010
(Unaudited)
(Stated in US Dollars)
Nine months ended | ||||||
September 30, | ||||||
(unaudited) | ||||||
2011 | 2010 | |||||
Cash flows from operating activities | ||||||
Net income attributable to THT Heat Transfer Technology, Inc. common stockholders | $ | 6,092,095 | $ | 5,449,811 | ||
Adjustments to reconcile net income
attributable to THT Heat Transfer Technology,
Inc. common stockholders to net cash used in operating activities :- |
||||||
Depreciation and amortization | 700,559 | 628,463 | ||||
Deferred taxes | (36,313 | ) | (97,095 | ) | ||
Gain on disposal of property, plant and equipment | - | (750 | ) | |||
(Reversal of)/provision for doubtful debts | (107,156 | ) | 942,092 | |||
Noncontrolling interests | (380,322 | ) | (207,145 | ) | ||
Changes in operating assets and liabilities :- | ||||||
Trade receivables | (5,569,580 | ) | (10,381,628 | ) | ||
Bills receivable | (441,918 | ) | 297,761 | |||
Other receivables, prepayments and deposits | (8,086,432 | ) | (2,321,298 | ) | ||
Inventories | (8,247,187 | ) | (1,507,684 | ) | ||
Retention receivable | 107,951 | 192,528 | ||||
Counter guarantee receivable | (15,370 | ) | - | |||
Trade payables | 331,533 | 228,367 | ||||
Other payables and accrued expenses | 2,021,271 | 1,395,201 | ||||
Income tax payable | (570,290 | ) | 601,300 | |||
Net cash flows used in operating activities | (14,201,159 | ) | (4,780,077 | ) | ||
Cash flows from investing activities | ||||||
Prepayment for land use rights | (4,274,681 | ) | - | |||
Deposit for acquisition of property, plant and equipment | (535,183 | ) | - | |||
Payments to acquire property, plant and equipment | (777,035 | ) | (775,109 | ) | ||
Proceeds from sale of property, plant and equipment | - | 10,270 | ||||
Net cash flows used in investing activities | (5,586,899 | ) | (764,839 | ) | ||
Cash flows from financing activities | ||||||
Proceeds from bank loans | 22,142,022 | 5,868,200 | ||||
Repayment of bank loans | (14,764,422 | ) | (2,934,100 | ) | ||
Repayment of long-term loan | (1,690,700 | ) | (880,230 | ) | ||
Restricted cash | (1,325,172 | ) | (244,315 | ) | ||
Net cash flows provided by financing activities | 4,361,728 | 1,809,555 | ||||
Effect of foreign currency translation on cash and cash equivalents | 292,297 | 63,082 | ||||
Net decrease in cash and cash equivalents | (15,134,033 | ) | (3,672,279 | ) | ||
Cash and cash equivalents - beginning of period | 18,438,430 | 5,379,627 | ||||
Cash and cash equivalents - end of period | $ | 3,304,397 | $ | 1,707,348 | ||
Supplemental disclosures for cash flow information | ||||||
Cash paid for :- | ||||||
Interest | $ | 643,909 | $ | 384,787 | ||
Income taxes | $ | 1,630,578 | $ | 658,930 |
See the accompanying notes to condensed consolidated financial statements
F- 4
THT Heat Transfer Technology, Inc.
Notes to
Condensed 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 the surviving corporation pursuant to the Reincorporation Merger as detailed below. The Companys shares are quoted for trading on the Nasdaq Global Market in the United States. | |
Reincorporation Merger | |
On November 24, 2009, BTHC VIII, Inc. ("BTHC") entered into an Agreement and Plan of Merger (the "Merger Agreement") with THT, a Nevada corporation and wholly-owned subsidiary of BTHC. Pursuant to the Merger Agreement, BTHC agreed to merge with and into THT, with THT continuing as the surviving entity (the "Reincorporation Merger"). The Reincorporation Merger became effective on November 30, 2009 (the "Effective Time"). | |
As a result of the Reincorporation Merger, the legal domicile of the Surviving Corporation is now Nevada. The Merger Agreement and Reincorporation Merger were duly approved by the written consent of stockholders of BTHC owning at least a majority of the outstanding shares of BTHC's common stock, dated September 16, 2009. | |
Pursuant to the terms of the Merger Agreement, (i) BTHC merged into THT, with THT being the surviving corporation, and BTHC thereby changed its name to THT Heat Transfer Technology, Inc.; (ii) from and after the Effective Time, THT possesses all of the rights, privileges, powers, and franchises of BTHC, and BTHC's debts and liabilities became the debts and liabilities of THT; (iii) BTHC's existing Board of Directors and officers became the Board of Directors and officers of the Surviving Corporation; and (iv) the Articles of Incorporation and Bylaws of THT now govern the Surviving Corporation. | |
The Reincorporation Merger did not result in any change in headquarters, business, jobs, management, location of any of offices or facilities, number of employees, assets, liabilities or net worth (other than as a result of the costs incident to the Reincorporation Merger, which are immaterial). Management, including all directors and officers, remain the same in connection with the Reincorporation Merger. There were no substantive changes in the employment agreements for executive officers or in other direct or indirect interests of the current directors or executive officers as a result of the Reincorporation Merger. | |
As a result of the Reincorporation Merger, each outstanding share of BTHC's common stock, par value $0.001 per share, was automatically converted into one share of THT's common stock, par value $0.001 per share. Each outstanding certificate representing shares of BTHC's common stock is deemed, without any action by BTHC's stockholders, to represent the same number of shares of THT's common stock. | |
Reorganization | |
Before the Reincorporation Merger and on June 30, 2009, BTHC entered into a Share Exchange Agreement (the Share Exchange Agreement) with Megaway International Holdings Limited, a British Virgin Islands corporation ("Megaway"), and its sole shareholder, Wisetop International Holdings Limited, a British Virgin Islands corporation ("Wisetop"). Pursuant to the Share Exchange Agreement, Megaway became a wholly-owned subsidiary of the Company and Wisetop was issued 14,800,000 shares of the Company's common stock, which, after giving effect to the Cancellation Agreement disclosed below, constituted 92.5% of the Companys issued and outstanding capital stock on a fully-diluted basis as of and immediately after the consummation of the transactions contemplated by the Share Exchange Agreement, in exchange for 100% of the issued and outstanding shares of Megaway. |
F- 5
THT Heat Transfer Technology, Inc.
Notes to
Condensed Consolidated Financial
Statements
(Unaudited)
(Stated in US Dollars)
1. |
Corporate information (Contd) |
Reorganization (contd) | |
Megaway was dormant since its incorporation until it acquired 100% of the outstanding capital stock of Star Wealth International Holdings Limited ("Star Wealth"), a Hong Kong corporation on May 5, 2009. Star Wealth was also dormant since its incorporation until it acquired 100% of the equity interest of Siping City Juyuan Hanyang Plate Heat Exchanger Co., Ltd. (Siping Juyuan), a PRC corporation, on May 10, 2009. | |
On May 10, 2009, Star Wealth entered into an equity transfer agreement with all of the shareholders of Siping Juyuan to acquire their entire interests in Siping Juyuan at a total cash consideration of RMB60,000,000 ($8,795,075). The equity transfer agreement was approved by the local government of the Peoples Republic of China (the PRC) on May 31, 2009. | |
Siping Juyuan has a 75% directly owned subsidiary, Beijing Juyuan Hanyang Heat Exchange Equipment Co. Ltd (Beijing Juyuan). | |
As a condition precedent to the consummation of the Share Exchange Agreement, on June 30, 2009, the Company entered into a cancellation agreement, or the Cancellation Agreement, with Mr. Gerald Pascale, who was the major stockholder of the Company immediately before the Share Exchange Agreement and served as the Companys sole director and officer from February 12, 2009 until June 30, 2009 when he was replaced by Guohong Zhao (Mr. Zhao), a founder of Siping Juyuan, whereby Mr. Pascale agreed to the cancellation of 4,805,387 shares of the Companys common stock owned by him. | |
Mr. Zhao was appointed as the Companys director and chief executive officer effective upon the closing of the above reverse acquisition. In addition, the Companys executive officers were replaced by the executive officers of Siping Juyuan upon the closing of the reverse acquisition. | |
On June 30, 2009, Mr. Zhao entered into an option agreement with Ms. Jinghua Zhao, the sole shareholder of Wisetop, pursuant to which Mr. Zhao was granted an option, exercisable after 180 days, to acquire all of the equity interests of Wisetop owned by Ms. Jinghua Zhao at an exercise price of $3,246,160. This option expired on June 30, 2011. On May 16, 2011, an amendment to the option agreement was signed by both parties extending the exercise period until June 30, 2012. | |
Also on June 30, 2009, Wisetop entered into separate option agreements with the other original stockholders of Siping Juyuan, pursuant to which such stockholders were granted options, exercisable after 90 days, to purchase an aggregate of 10,240,786 shares of the Companys common stock owned by Wisetop at total exercise price of $7,291,440. The stockholders exercised these options on December 17, 2010. | |
After Mr. Zhao exercises the above option, he together with the other original stockholders will be the Companys controlling stockholders holding 92.5% equity interest. | |
On November 30, 2010, Juyuan Heat Equipment (Tianjin) Co., Ltd. (Tianjin Juyuan) was established in the PRC, of which Siping Juyuan and Mr. Zhao contributed $1,467,555 and $37,630 respectively to its registered capital, representing 99.5% and 0.5% equity interest in Tianjin Juyuan respectively. On September 22, 2011, Tianjin Juyuan was formally dissolved with the approval of the Tianjin Industrial and Commercial Administrative Bureau Baodi Branch. |
F- 6
THT Heat Transfer Technology, Inc.
Notes to
Condensed Consolidated Financial
Statements
(Unaudited)
(Stated in US Dollars)
2. |
Description of business |
The Company is a holding company whose primary business is 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 | |
After the consummation of the reorganization detailed in note 1 above, Mr. Zhao and the other original stockholders of Siping Juyuan maintain control over Siping Juyuan by virtue of the option agreements. Accordingly, accounting for recapitalization is adopted for the preparation of these condensed consolidated financial statements. These financial statements, issued under the name of the Company, represent the continuation of the financial statements of Siping Juyuan. | |
The accompanying unaudited condensed 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 condensed 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, 2010 filed with the SEC in the Companys Form 10-K on March 28, 2011. | |
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. | |
The condensed 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. |
F- 7
THT Heat Transfer Technology, Inc.
Notes to
Condensed Consolidated Financial
Statements
(Unaudited)
(Stated in US Dollars)
3. |
Summary of significant accounting policies (Contd) |
Concentration of credit risk | |
Financial instruments that potentially subject the Company to significant concentration of credit risk consist principally of cash and cash equivalents, restricted cash, trade receivables and other receivables. As of September 30, 2011 and December 31, 2010, substantially all of the Companys cash and cash equivalents and restricted cash were held by major financial institutions located in the PRC, which management believes are of high credit quality. With respect to trade receivables, the Company extends credit based on an evaluation of the customers financial condition. The Company generally does not require collateral for trade receivables and maintains an allowance for doubtful accounts of trade and other receivables. | |
During the three-month and nine-month periods ended September 30, 2011 and 2010, the Company did not have any customers which represented 10% or more of the Company's condensed consolidated sales revenue. | |
As of September 30, 2011 and December 31, 2010, the Company did not have any balance of gross trade receivable due from individual customer that represented 10% or more of the Companys gross trade receivables. | |
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. Except for long-term loan disclosed as below, the carrying amounts of other financial assets and liabilities approximated their fair values due to short maturities or the applicable interest rates approximated the current market rates: |
As of September 30, 2011 |
As of December 31, 2010 | ||||||||||
Carrying | Fair value | Carrying | Fair value | ||||||||
amount | amount | ||||||||||
$ | 4,686,000 | $ | 4,758,032 | $ | - | $ | - |
Noncontrolling interests | |
Noncontrolling interest on the condensed consolidated balance sheets resulted from the consolidation of 75% and 99.5% owned subsidiaries, Beijing Juyuan and Tianjin Juyuan, respectively. Upon dissolution of Tianjin Juyuan, noncontrolling interest of $89 was reversed during the nine months ended September 30, 2011. The schedule below illustrates the movements in the noncontrolling interests: |
Nine months ended | |||||||
September 30, | |||||||
(Unaudited) | |||||||
2011 | 2010 | ||||||
Balance at beginning of period | $ | (61,891 | ) | $ | 241,279 | ||
Net loss attributable to noncontrolling interests | (341,986 | ) | (207,145 | ) | |||
Dissolution of subsidiary - Note 23 | (38,336 | ) | - | ||||
Foreign currency translation adjustments | (8,025 | ) | 1,352 | ||||
Balance at end of period | $ | (450,238 | ) | $ | 35,486 |
F- 8
THT Heat Transfer Technology, Inc.
Notes to
Condensed Consolidated Financial
Statements
(Unaudited)
(Stated in US Dollars)
3. |
Summary of significant accounting policies (Contd) |
Recently issued accounting pronouncements | |
In July 2010, the FASB issued ASU 2010-20 Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The objective of ASU 2010-20 is to provide financial statement users with greater transparency about an entitys allowance for credit losses and the credit quality of its financing receivables. Under ASU 2010-20, an entity is required to provide disclosures so that financial statement users can evaluate the nature of the credit risk inherent in the entitys portfolio of financing receivables, how that risk is analyzed and assessed to arrive at the allowance for credit losses, and the changes and reasons for those changes in the allowance for credit losses. ASU 2010-20 is applicable to all entities, both public and non-public and is effective for interim and annual reporting periods ending on or after December 15, 2010. Comparative disclosure for earlier reporting periods that ended before initial adoption is encouraged but not required. However, comparative disclosures are required to be disclosed for those reporting periods ending after initial adoption. | |
The FASB issued Accounting Standards Update (ASU) No. 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. The amendments in this Update temporarily delay the effective date of the disclosure about troubled debt restructurings in ASU 2010-20 for public entities. The delay is intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructuring for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. Currently, that guidance is effective for interim and annual periods ending after June 15, 2011. The adoption of this ASU has no material impact on the Companys financial statements. | |
The FASB issued ASU 2011-02, Receivables (Topic 310): A Creditors Determination of Whether a Restructuring is a Troubled Debt Restructuring. The amendments to Topic 310 clarify the guidance on a creditors evaluation of whether a debtor is experiencing financial difficulties. A creditor should evaluate whether it is probable that the debtor would be in payment default on any of its debts in foreseeable future without the modification. In addition, the amendments to Topic 310 clarify that a creditor is precluded from using the effective interest rate test in the debtors guidance on restructuring of payables (paragraph 470-60-55-10) when evaluating whether a restructuring constitutes a troubled debt restructuring. An entity should disclose the total amount of receivables and the allowance for credit losses as of the end of the period of adoption related to those receivables that are newly considered impaired under Section 310-10-35 for which impairment was previously measured under Subtopic 450-20, Contingencies Loss Contingencies. The ASU is effective for interim and annual periods beginning on or after June 15, 2011. The adoption of this ASU has no material impact on the Companys financial statements. |
F- 9
THT Heat Transfer Technology, Inc.
Notes to
Condensed Consolidated Financial
Statements
(Unaudited)
(Stated in US Dollars)
3. |
Summary of significant accounting policies (Contd) |
Recently issued accounting pronouncements (contd) | |
In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (IFRSs). The FASB and the International Accounting Standard Board (IASB) works together to ensure that fair value has the same meaning in U.S. GAAP and IFRSs and that their respective fair value measurement and disclosure requirements are the same (except for minor differences in wording and style). The Boards concluded that the amendments in this ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs. The amendments in this ASU explain how to measure fair value. They do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. The amendments in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted. The management is assessing the impact of this ASU on the Companys financial statements. | |
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. In this ASU, the entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This Update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments in this ASU are to be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early application by public entities is permitted. The management is assessing the impact of this ASU on the Companys financial statements. |
F- 10
THT Heat Transfer Technology, Inc.
Notes to
Condensed Consolidated Financial
Statements
(Unaudited)
(Stated in US Dollars)
4. | Restricted cash |
September 30, | December 31, | ||||||
2011 | 2010 | ||||||
(Unaudited) | |||||||
Bank deposits held as collateral for performance bonds issued by the banks to customers | $ | 3,074,119 | $ | 1,677,566 |
When the Companys customers request to receive performance bonds issued by the banks in relation to the Companys performance under the sales contracts, the Company has to place deposits with banks equal to 100% of the bonds amount at the time of issuance. | |
5. |
Trade receivables, net |
September 30, | December 31, | ||||||
2011 | 2010 | ||||||
(Unaudited) | |||||||
Trade receivables | $ | 33,467,528 | $ | 27,005,255 | |||
Less : Allowance for doubtful accounts | (1,284,673 | ) | (1,353,375 | ) | |||
$ | 32,182,855 | $ | 25,651,880 |
As of September 30, 2011 and December 31, 2010, the Companys trade receivables of $15,802,167 and $5,922,542, respectively, were pledged as collateral under certain loan and guarantee arrangements (Note 12).
An analysis of the allowance for doubtful accounts for the nine months ended September 30, 2011 and 2010 is as follows :-
Nine months ended | |||||||
September 30, | |||||||
(Unaudited) | |||||||
2011 | 2010 | ||||||
Balance at beginning of period | $ | 1,353,375 | $ | 598,215 | |||
(Reversal of)/provision for doubtful accounts | (107,157 | ) | 942,092 | ||||
Translation adjustments | 38,455 | 29,062 | |||||
Balance at end of period | $ | 1,284,673 | $ | 1,569,369 |
F- 11
THT Heat Transfer Technology, Inc.
Notes to
Condensed Consolidated Financial
Statements
(Unaudited)
(Stated in US Dollars)
6. | Other receivables, prepayments and deposits |
September 30, | December 31, | ||||||
2011 | 2010 | ||||||
(Unaudited) | |||||||
Advances to staff | $ | 2,759,903 | $ | 689,392 | |||
Deposits for public bid | 1,315,375 | 897,729 | |||||
Prepayments to suppliers | 10,266,888 | 4,511,729 | |||||
Other receivables | 385,758 | 168,964 | |||||
14,727,924 | 6,267,814 | ||||||
Less : Allowance for doubtful accounts | (72,335 | ) | (70,249 | ) | |||
$ | 14,655,589 | $ | 6,197,565 |
The advances to staff mainly represent staff drawings for handling selling and logistic activities for the Company in the ordinary course of business. | |
No further allowance for doubtful accounts was recognized during the nine months ended September 30, 2011 and 2010. | |
7. |
Inventories |
September 30, | December 31, | ||||||
2011 | 2010 | ||||||
(Unaudited) | |||||||
Raw materials | $ | 5,412,920 | $ | 3,065,946 | |||
Work-in-progress | 17,079,656 | 10,658,253 | |||||
Finished goods | 20,585 | - | |||||
22,513,161 | 13,724,199 | ||||||
Allowance for obsolete inventories | (19,059 | ) | (18,509 | ) | |||
$ | 22,494,102 | $ | 13,705,690 |
No further allowance for obsolete inventories was recognized during the nine months ended September 30, 2011 and 2010.
F- 12
THT Heat Transfer Technology, Inc.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
(Stated in US
Dollars)
8. |
Income tax |
United States | |
The Company is subject to the United States Federal and state income tax at a statutory rate of 34%. No provision for the U.S. Federal income taxes has been made as the Company had no taxable income in this jurisdiction for the reporting periods. | |
The Company has not recognized a deferred tax liability for the undistributed earnings of its non-U.S. subsidiaries as of September 30, 2011 because the Company currently does not expect those unremitted earnings to reverse and become taxable to the Company in the foreseeable future. A deferred tax liability will be recognized when the Company no longer plans to permanently reinvest undistributed earnings. Calculation of related unrecognized deferred tax liability is not practicable. | |
BVI | |
Megaway was incorporated in the BVI and, under the current laws of the BVI, is not subject to income taxes. | |
HK | |
Star Wealth was incorporated in Hong Kong and is subject to Hong Kong profits tax at a tax rate of 16.5%. No provision for Hong Kong profits tax has been made as Star Wealth had no taxable income during the reporting periods. | |
PRC | |
Siping Juyuan, Beijing Juyuan and Tianjin Juyuan are subject to PRC enterprise income tax (EIT) at the statutory rate of 25%. As Siping Juyuan was qualified as a High-tech Enterprise, it was entitled to a preferential EIT rate of 15% during the reporting periods. Beijing Juyuan, being a Sino-foreign joint venture enterprise, is entitled to two years EIT exemption from the first profit making calendar year of operations after offset of accumulated taxable losses, followed by a 50% tax reduction for the immediate next three calendar years (Tax Holiday). The Tax Holiday commenced in the fiscal year 2008 and Beijing Juyuan was subject to EIT at the rate of 12.5% for both the periods ended September 30, 2011 and 2010 respectively. | |
Siping Juyuan was also entitled to a special tax concession (Tax Concession) because it employed the required number of handicapped staff according to the relevant PRC tax rules. In particular, this Tax Concession entitled Siping Juyuan a refund of value-added tax paid during the reporting periods (Note 16). |
F- 13
THT Heat Transfer Technology, Inc.
Notes to
Condensed Consolidated Financial
Statements
(Unaudited)
(Stated in US Dollars)
9. | Property, plant and equipment, net |
September 30, | December 31, | ||||||
2011 | 2010 | ||||||
(Unaudited) | |||||||
Cost | |||||||
Buildings | $ | 3,961,311 | $ | 3,847,047 | |||
Plant and machinery | 3,740,030 | 3,239,819 | |||||
Office equipment | 704,799 | 612,154 | |||||
Motor vehicles | 385,787 | 318,934 | |||||
8,791,927 | 8,017,954 | ||||||
Accumulated depreciation | (3,538,688 | ) | (2,761,361 | ) | |||
Construction in progress | 1,840,982 | 1,541,354 | |||||
Net | $ | 7,094,221 | $ | 6,797,947 | |||
During the reporting periods, depreciation is included in :- | |||||||
Nine months ended | |||||||
September 30, | |||||||
(Unaudited) | |||||||
2011 | 2010 | ||||||
Cost of sales and overheads of inventories | $ | 324,592 | $ | 184,899 | |||
Research and development expenses | 179,339 | 86,067 | |||||
Administrative expenses | 180,249 | 132,629 | |||||
$ | 684,180 | $ | 403,595 |
As of September 30, 2011 and December 31, 2010, property, plant and equipment with net book values $3,225,468 and $2,931,629, respectively, were pledged as collateral under certain loan arrangements (Note 12).
F- 14
THT Heat Transfer Technology, Inc.
Notes to
Condensed Consolidated Financial
Statements
(Unaudited)
(Stated in US Dollars)
10. | Land use rights |
September 30, | December 31, | ||||||
2011 | 2010 | ||||||
(Unaudited) | |||||||
Land use rights | $ | 1,100,328 | $ | 1,068,589 | |||
Accumulated amortization | (81,682 | ) | (63,161 | ) | |||
$ | 1,018,646 | $ | 1,005,428 |
The Company obtained the right from the relevant PRC land authority for a period of fifty years to use the land on which the Companys office premises, production facilities and warehouse are situated. As of September 30, 2011 and December 31, 2010, the land use rights were pledged as collateral under certain loan arrangements (Note 12). | |
During the nine months ended September 30, 2011 and 2010, amortization amounted to $16,379 and $15,633 respectively. The estimated amortization expense for each of the five succeeding years from 2010 is approximately $22,000 each year. | |
The Company made a prepayment for land use rights of RMB27.8million (approximately $4.3 million) during the nine months ended September 30, 2011, which has been reflected on the accompanying condensed consolidated balance sheet as of September 30, 2011. The area is approximately 152,246 square meters and is intended for future manufacturing facilities expansion. | |
11. |
Other payables and accrued expenses |
September 30, | December 31, | ||||||
2011 | 2010 | ||||||
(Unaudited) | |||||||
Accrued audit fee | $ | 8,000 | $ | 71,840 | |||
Receipt in advance from customers | 11,915,087 | 7,896,814 | |||||
Pension payable | 810,680 | 546,436 | |||||
Salaries payable | 565,181 | 283,300 | |||||
Other payables and accrued expenses | 2,572,808 | 4,566,281 | |||||
$ | 15,871,756 | $ | 13,364,671 |
Pension payable represents accrued staff medical, industry injury claims, labor and unemployment insurances, all of which are third parties insurance and the insurance premiums are based on certain percentage of salaries. The obligations of the Company are limited to those premiums contributed by the Company.
Included in other payables as of September 30, 2011 and December 31, 2010 was an amount of $2,404,699 and $2,243,561 respectively, representing governmental financial support received for the Companys efficient heat exchange equipment manufacture project (the Project). The Project will be subject to the governments inspection and whether the government support is repayable or not is subject to the inspection results.
F- 15
THT Heat Transfer Technology, Inc.
Notes to
Condensed Consolidated Financial
Statements
(Unaudited)
(Stated in US Dollars)
12. | Short-term bank loans |
September 30, | December 31, | ||||||
2011 | 2010 | ||||||
(Unaudited) | |||||||
Secured bank loans | $ | 13,745,600 | $ | 7,584,721 | |||
Unsecured bank loans | - | 3,033,889 | |||||
$ | 13,745,600 | $ | 10,618,610 |
All bank loans are repayable within one year and carry annual interest at 100% of the benchmark interest rate published by the Peoples Bank of China (the PBOC) or at a fixed rate of 5.56% per annum.
The secured bank loans were secured by the following assets of the Company :-
September 30, |
December 31, |
||||||
2011 |
2010 |
||||||
(Unaudited) |
|||||||
Trade receivables (Note 5) | $ | 15,802,167 | $ | 5,922,542 | |||
Property, plant and equipment (Note 9) | 3,225,468 | 2,931,629 | |||||
Land use rights (Note 10) | 1,018,646 | 1,005,428 | |||||
$ | 20,046,281 | $ | 9,859,599 |
The unsecured bank loans as of December 31, 2010 were guaranteed by Mr. Zhao and a non-related party who did not receive any compensation for acting as guarantors for the Company. | |
During the reporting periods, there was no covenant requirement under the bank loans granted to the Company. | |
13. |
Long-term bank loan |
The loan is interest bearing at an annual rate of 115% of the benchmark rate of the PBOC for one-year to three-year long-term loans and guaranteed by a third party, who received $115,275 from the Company for acting as guarantor. The Company paid a counter guarantee of $234,300 as of September 30, 2011, to the third party. | |
Maturities of the bank loan as of September 30, 2011 are as follow :- |
Year | ||||
2012 | $ | 937,200 | ||
2013 | 1,874,400 | |||
2014 | 1,874,400 | |||
$ | 4,686,000 |
F- 16
THT Heat Transfer Technology, Inc.
Notes to
Condensed Consolidated Financial
Statements
(Unaudited)
(Stated in US Dollars)
14. |
Other long-term loan |
The loan is borrowed from a non-financial institution, bearing interest at an annual rate of 106% of the benchmark rate of the PBOC for three-year to five-year long-term loans and guaranteed by a third party. | |
The Company paid a counter guarantee of $212,372 as of December 31, 2010, to the third party. Due to maturity of loan, the counter guarantee was released as at September 30, 2011. | |
The outstanding principal balance of the long-term loan as of September 30, 2011 became due and was settled by September 30, 2011. | |
15. |
Common stock |
On November 2, 2010, the Company entered into a securities purchase agreement (the Securities Purchase Agreement) with several accredited investors (the Investors) pursuant to which the Company agreed to issue and sell to the Investors 4,453,500 shares of the Companys common stock, representing approximately 21.8% of the issued and outstanding capital stock of the Company on a fully-diluted basis as of and immediately after consummation of the transactions contemplated by the Securities Purchase Agreement, for an aggregate purchase price of approximately $14,251,200, or $3.20 per share (the Placement Price). Before the deduction of fair value of the escrow arrangement (Note 19), the Company received approximately $13,390,000 in net proceeds after deducting the issuance costs. | |
In connection with the offering of shares under the private placement, 222,675 warrants were issued to the financial advisor on December 7, 2010, as partial compensation for services, to purchase an aggregate of 222,675 shares of common stock of the Company, representing 5% of the offered shares. The warrants have a term of three years and are exercisable from the first anniversary of the issuance and have an exercise price of $3.84. The fair value of the warrants at date of issue was $396,939 as appraised by an independent qualified valuer. At September 30, 2011, all the issued share warrants were still outstanding. | |
In connection with its entry into the Securities Purchase Agreement, the Company also entered into a make good escrow arrangement with Wisetop, the Investors and other parties, details of which are set out in note 19 to the condensed consolidated financial statements. | |
16. |
Other income |
Three months ended | Nine months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||
Refund of value-added tax under tax Concession | $ | 57,684 | $ | 66,743 | $ | 205,103 | $ | 222,931 | |||||
Government grants | 3,554 | - | 546,250 | - | |||||||||
Sales of scrap materials | 1,037 | - | 159,388 | - | |||||||||
Others, net | - | 70,323 | 4,221 | 78,386 | |||||||||
$ | 62,275 | $ | 137,066 | $ | 914,962 | $ | 301,317 |
F- 17
THT Heat Transfer Technology, Inc.
Notes to
Condensed Consolidated Financial
Statements
(Unaudited)
(Stated in US Dollars)
17. | Finance costs |
Three months ended | Nine months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||
Interest expense | $ | 315,910 | $ | 124,119 | $ | 643,909 | $ | 384,761 | |||||
Bank charges and net exchange loss | 44,792 | 45,970 | 118,779 | 45,970 | |||||||||
$ | 360,702 | $ | 170,089 | $ | 762,688 | $ | 430,731 |
18. |
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. | |
19. |
Make good escrow agreement |
In connection with its entry into the Securities Purchase Agreement, on November 2, 2010, the Company entered into a make good escrow agreement (the Make Good Escrow Agreement) with Wisetop (the Pledgor), the Investors, Infinity I-China Fund (Cayman) L.P. and the escrow agent, pursuant to which the Pledgor agreed to certain make good provisions in the event that the Company does not meet certain income thresholds for fiscal years 2010 and/or 2011. Pursuant to the Make Good Escrow Agreement, the Pledgor established an escrow account and delivered to the escrow agent certificates evidencing 2,000,000 shares of the Companys common stock held by the Pledgor (the Escrow Shares) along with blank stock powers, to be held for the benefit of the Investors. | |
If the Company fails to report After Tax Net Income (ATNI) in the Annual Report of at least $8 million (the 2010 Guaranteed ATNI) under U.S. GAAP for the fiscal year ended December 31, 2010, as filed with the Securities Exchange Commission (the SEC) on Form 10-K, the escrow agent shall transfer the 2010 Make Good Shares to the Investors on a pro rata basis for no consideration other than payment of their respective investment amount paid to the Company at the closing of the private placement (the Closing) and without any need for action or notice by or on behalf of any investor. The 2010 Make Good Shares are calculated based on the following formula, as equitably adjusted for any stock splits, stock combinations, stock dividends or similar transactions: ((2010 Guaranteed ATNI - 2010 audited ATNI)/$8 million) multiplied by 50% of the Escrow Shares. |
F- 18
THT Heat Transfer Technology, Inc.
Notes to
Condensed Consolidated Financial
Statements
(Unaudited)
(Stated in US Dollars)
19. |
Make good escrow agreement (Contd) |
If the Company fails to report ATNI in the Annual Report of at least $12 million (the 2011 Guaranteed ATNI) under U.S. GAAP for the fiscal year ending December 31, 2011, as filed with the SEC on Form 10-K, the escrow agent shall transfer the 2011 Make Good Shares to the Investors on a pro rata basis for no consideration other than payment of their respective investment amount paid to the Company at the Closing and without any need for action or notice by or on behalf of any investor. The 2011 Make Good Shares are calculated based on the following formula, as equitably adjusted for any stock splits, stock combinations, stock dividends or similar transactions: ((2011 Guaranteed ATNI - 2011 audited ATNI)/$12 million) multiplied by 50% of the Escrow Shares. | |
If prior to the second anniversary of the filing of either of the 2010 Annual Report or 2011 Annual Report (as applicable), the Company or their auditors report or recognize that the financial statements contained in such report are subject to amendment or restatement such that the Company would recognize or report adjusted ATNI of less than either of the 2010 Guaranteed ATNI or the 2011 Guaranteed ATNI (as applicable), then notwithstanding any prior return of 2010 Make Good Shares and 2011 Make Good Shares to the Pledgor, the Pledgor shall , within 10 business days following the earlier of the filing of such amendment or restatement or recognition, deliver the relevant 2010 Make Good Shares and 2011 Make Good Shares to the Investors without any further action on the part of the Investors. | |
If the 2010 audited ATNI is equal to or greater than the 2010 Guaranteed ATNI, no transfer of the 2010 Make Good Shares shall be required by the Pledgor to the Investors and 50% of the Escrow Shares shall be promptly returned to the Pledgor without the need of any approval or consent thereto by any investor. The remaining 50% of the Escrow Shares shall continue to be held in escrow by the escrow agent. If the 2011 audited ATNI is equal to or greater than the 2011 Guaranteed ATNI, no transfer of the 2011 Make Good Shares shall be required by the Pledgor to the Investors and the remaining 50% of the Escrow Shares shall be promptly returned to the Pledgor without the need of any approval or consent thereto by any investor. | |
Pursuant to ASC 718-10-S99-2, the SEC staff generally believes that escrow arrangement, which is in substance an inducement made to facilitate the transaction on behalf of the issuer, should be recognized and measured according to its nature and reflected as a reduction of the proceeds allocated to the newly-issued securities. The Company considers the aforementioned escrow arrangement as an inducement to facilitate the private placement on behalf of the Company rather than as compensatory and accordingly, adopted ASC 718-10-S99-2 to recognize this arrangement. The management estimated the probability of the Company not achieving the 2010 Guaranteed ATNI and 2011 Guaranteed ATNI to be 10% (the Probability %) and calculated the fair value of the escrow arrangement with reference to the Probability % and the Placement Price. The calculated fair value of $640,000 was deducted from the placement proceeds with a corresponding credit in additional paid-in capital, resulting in no net change in the Companys equity. | |
As the target was met for 2010 Guaranteed ATNI, 50% of the Escrow Shares or 1,000,000 shares were returned to stockholders during the three months ended March 31, 2011. The remaining 50% of the Escrow Shares will be released in the following year if the 2011 Guaranteed ATNI is also met. |
F- 19
THT Heat Transfer Technology, Inc.
Notes to
Condensed Consolidated Financial
Statements
(Unaudited)
(Stated in US Dollars)
20. |
Defined contribution plan |
Pursuant to the relevant PRC regulations, the Company is required to make contributions at a rate of 30.6% to 31.2% of employees salaries and wages to a defined contribution retirement scheme organized by a state-sponsored social insurance plan in respect of the retirement benefits for the Companys employees in the PRC. The only obligation of the Company with respect to the retirement scheme is to make the required contributions under the plan. No forfeited contribution is available to reduce the contribution payable in the future years. The defined contribution plan contributions were charged to the condensed consolidated statements of income and comprehensive income. The Company contributed $420,281 and $277,242 for the nine months ended September 30, 2011 and 2010, respectively. | |
21. |
Commitments and contingencies |
Capital commitment | September 30, | December 31, | |||||
2011 | 2010 | ||||||
(Unaudited) | |||||||
Land use rights | $ | 135,035 | $ | - | |||
Construction in progress | 357,772 | 447,210 | |||||
$ | 492,807 | $ | 447,210 |
As of September 30, 2011 and December 31, 2010, the Company had capital commitments in respect of acquisition of land use rights and the construction of the Companys campus and factory that were contracted for but not provided in the condensed consolidated financial statements.
Contingencies
As of September 30, 2011 and December 31, 2010, the Company had contingencies arising from the division of Old Juyuan Company into Siping Juyuan, New Juyuan Company and Juyuan Hanyang Pressure Vessels. According to the division agreement of Old Juyuan Company (Division Agreement), all parties to the Division Agreement undertook joint and several liabilities for the indebtedness of Old Juyuan Company.
In accordance with ASC 450 Contingencies, the Company records a liability in the condensed consolidated financial statements for these contingencies when a loss is known or considered probable and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss is possible but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is disclosed. In most cases, significant judgment is required to estimate the amount and timing of a loss to be recorded.
The Companys loss in respect of this undertaking is possible but not known or probable. Accordingly, no liability was recognized as of September 30, 2011 and December 31, 2010 respectively. The Company believes that a reasonable estimate of the possible loss ranges from $Nil to approximately $1,731,000 as of September 30, 2011 (December 31, 2010: from $Nil to approximately $1,681,000)
F- 20
THT Heat Transfer Technology, Inc.
Notes to
Condensed Consolidated Financial
Statements
(Unaudited)
(Stated in US Dollars)
21. |
Commitments and contingencies (Contd) |
Contingencies (Contd) | |
In accordance with the PRC tax regulations, the Companys sales are subject to value added tax (VAT) at 17% upon the issuance of VAT invoices to its customers. When preparing these financial statements, the Company recognized revenue when goods were delivered, and made full tax provision in accordance with relevant national and local laws and regulations of the PRC. | |
The Company follows the practice of reporting its revenue for PRC tax purposes when invoices are issued. In the local statutory financial statements prepared under the PRC GAAP, the Company recognized revenue on an invoice basis instead of when goods are delivered. Accordingly, despite the fact that the Company has made full tax provision in these condensed consolidated financial statements, the Company may be subject to a penalty for the deferred reporting of tax obligations. The exact amount of penalty cannot be estimated with any reasonable degree of certainty. The management considers it is very unlikely that the tax penalty will be imposed. | |
22. |
Segment information |
The Company is solely engaged in the manufacturing and trading of plate heat exchangers and various related products. Since the nature of the products, their production processes, and their distribution methods are substantially similar, they are considered as a single reportable segment under ASC 280 Segment Reporting. | |
The Companys sales revenues by products for the nine months ended September 30, 2011 and 2010 were as follows :- |
Nine months ended September 30, | |||||||||||||
2011 | % | 2010 | % | ||||||||||
(Unaudited) | (Unaudited) | ||||||||||||
Plate heat exchanger | $ | 20,009,468 | 52 | $ | 20,017,975 | 57 | |||||||
Heat exchange unit | 7,860,800 | 20 | 7,666,681 | 22 | |||||||||
Air-cooled heat exchanger | 2,640,027 | 7 | 3,688,726 | 11 | |||||||||
Shell-and-tube heat exchanger | 4,137,442 | 11 | 2,162,102 | 6 | |||||||||
Others | 3,894,697 | 10 | 1,547,345 | 4 | |||||||||
$ | 38,542,434 | 100 | $ | 35,082,829 | 100 |
All of the Companys long-lived assets and revenues classified based on the customers are located in the PRC. | |
23. |
Dissolution of Subsidiary |
As discussed in Note 1, on September 22, 2011, the subsidiary, Tianjin Juyuan was formally dissolved with the approval of the Tianjin Industrial and Commercial Administrative Bureau Baodi Branch. As Tianjin Juyuan did not commence business before its dissolution, there is no significant impact on the condensed consolidated financial statement. |
F- 21
THT Heat Transfer Technology, Inc.
Notes to
Condensed Consolidated Financial
Statements
(Unaudited)
(Stated in US Dollars)
24. |
Related party transactions |
Apart from the transactions as disclosed in note 12 to the condensed consolidated financial statements, the Company had no other material transactions carried out with its related parties during the reporting periods. | |
25. |
Subsequent events |
The Company has evaluated all events or transactions that occurred through the date the condensed consolidated financial statements were issued, and has determined that there were no material subsequent events or transactions which would require recognition or disclosure in the condensed consolidated financial statements. |
F- 22