Attached files
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EXCEL - IDEA: XBRL DOCUMENT - THT Heat Transfer Technology, Inc. | Financial_Report.xls |
EX-32.2 - EXHIBIT 32.2 - THT Heat Transfer Technology, Inc. | exhibit32-2.htm |
EX-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-31.2 - EXHIBIT 31.2 - THT Heat Transfer Technology, Inc. | exhibit31-2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10−Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended:
March 31, 2012
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
from ____________to _____________
Commission File Number: 001-34812
THT HEAT TRANSFER TECHNOLOGY,
INC.
(Exact Name of Registrant as Specified in Its
Charter)
Nevada | 20-5463509 |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) |
incorporation or organization) |
THT Industrial Park
No. 5 Nanhuan Road, Tiexi
District
Siping, Jilin Province 136000
Peoples Republic of
China
(Address of principal executive offices, Zip Code)
86-434-3265241
(Registrants telephone number,
including area code)
_____________________________________________________
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] | Accelerated filer [ ] |
Non-accelerated filer [ ] (Do not check if a smaller reporting company) | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The number of shares outstanding of each of the issuers classes of common stock, as of May 14, 2012 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, 2012 |
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 | 6 |
Item 4. | Controls and Procedures | 7 |
PART II
OTHER INFORMATION
Item 1. | Legal Proceedings | 7 |
Item 1A. | Risk Factors | 7 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 7 |
Item 3. | Defaults Upon Senior Securities | 8 |
Item 4. | Mine Safety Disclosures | 8 |
Item 5. | Other Information | 8 |
Item 6. | Exhibits | 8 |
i
PART I
FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS. |
THT HEAT TRANSFER TECHNOLOGY, INC.
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31,
2012 AND 2011
Contents | Page(s) |
Condensed Consolidated Statements of Income and Comprehensive Income | 2 |
Condensed Consolidated Balance Sheets | 3 |
Condensed Consolidated Statements of Cash Flows | 4 |
Notes to Condensed Consolidated Financial Statements | 5-22 |
1
THT Heat Transfer Technology, Inc.
Condensed Consolidated Financial Statements
For the three months ended
March
31, 2012 and 2011
(Stated in US dollars)
THT Heat Transfer Technology, Inc.
Condensed
Consolidated Financial Statements
Three months ended March 31, 2012
and 2011
Index to Condensed Consolidated Financial Statements
Pages | |
Condensed Consolidated Statements of Income and Comprehensive Income | F-1 |
Condensed Consolidated Balance Sheets | F-2 - F-3 |
Condensed Consolidated Statements of Cash Flows | F-4 |
Notes to Condensed Consolidated Financial Statements | F-5 - F-22 |
THT Heat Transfer Technology, Inc.
Condensed
Consolidated Statements of Income and Comprehensive Income
For the
three months ended March 31, 2012 and 2011
(Unaudited)
(Stated in US Dollars)
Three months ended | ||||||
March 31, | ||||||
2012 | 2011 | |||||
Sales revenue |
$ | 11,449,425 | $ | 14,052,920 | ||
Cost of sales |
(6,843,635 | ) | (8,010,229 | ) | ||
|
||||||
Gross profit |
4,605,790 | 6,042,691 | ||||
|
||||||
Operating expenses |
||||||
Administrative expenses |
1,252,829 | 712,931 | ||||
Research and development expenses |
253,983 | 347,489 | ||||
Selling expenses |
2,254,597 | 1,699,863 | ||||
|
||||||
|
3,761,409 | 2,760,283 | ||||
|
||||||
Income from operations |
844,381 | 3,282,408 | ||||
Interest income |
8,278 | 13,886 | ||||
Other income - Note 15 |
229,461 | 4,757 | ||||
Finance costs - Note 16 |
(401,450 | ) | (192,597 | ) | ||
|
||||||
Income before income taxes |
680,670 | 3,108,454 | ||||
Income taxes - Note 8 |
(75,964 | ) | (424,466 | ) | ||
|
||||||
Net income before noncontrolling interests |
604,706 | 2,683,988 | ||||
Net income attributable to noncontrolling interests |
(47,527 | ) | (27,410 | ) | ||
|
||||||
Net income attributable to THT Heat Transfer Technology, Inc. common stockholders |
$ | 557,179 | $ | 2,656,578 | ||
|
||||||
Net income before noncontrolling interests |
$ | 604,706 | $ | 2,683,988 | ||
Other comprehensive income |
||||||
Foreign currency translation adjustments |
349,747 | 164,525 | ||||
|
||||||
Comprehensive income |
954,453 | 2,848,513 | ||||
Comprehensive income attributable to noncontrolling interests |
(43,960 | ) | (27,282 | ) | ||
|
||||||
Comprehensive income attributable to THT Heat Transfer Technology, Inc. common stockholders |
$ | 910,493 | $ | 2,821,231 | ||
|
||||||
Earnings per share attributable to THT Heat Transfer Technology, Inc. common stockholders - Note 17 |
||||||
- Basic and diluted |
$ | 0.03 | $ | 0.13 | ||
|
||||||
Weighted average number of shares outstanding |
||||||
- Basic and diluted |
20,453,500 | 20,453,500 |
See the accompanying notes to condensed consolidated financial statements
F-1
THT Heat Transfer Technology Inc.
Condensed
Consolidated Balance Sheets
As of March 31, 2012 and December 31,
2011
(Stated in US Dollars)
March 31, | December 31, | |||||
2012 | 2011 | |||||
(Unaudited) | ||||||
|
||||||
ASSETS |
||||||
Current assets |
||||||
Cash and cash equivalents |
$ | 1,863,165 | $ | 7,340,068 | ||
Restricted cash - Note 4 |
2,077,770 | 1,725,546 | ||||
Trade receivables, net - Note 5 |
33,881,215 | 33,573,223 | ||||
Counter guarantee receivable - Note 12 |
237,150 | 235,676 | ||||
Bills receivable |
1,612,130 | 1,415,890 | ||||
Other receivables, prepayments and deposits, net - Note 6 |
10,215,693 | 7,859,563 | ||||
Inventories, net - Note 7 |
32,209,168 | 32,531,053 | ||||
Deferred tax assets |
253,135 | 251,561 | ||||
|
||||||
Total current assets |
82,349,426 | 84,932,580 | ||||
Retention receivable |
1,215,416 | 1,184,382 | ||||
Counter guarantee receivable - Note 13 |
237,150 | 235,676 | ||||
Property, plant and equipment, net - Note 9 |
7,820,350 | 7,703,607 | ||||
Deposit for acquisition of property, plant and equipment |
- | 345,658 | ||||
Land use rights - Note 10 |
1,019,804 | 1,019,045 | ||||
Deposits for land use rights Note 10 |
4,416,792 | 4,389,330 | ||||
|
||||||
TOTAL ASSETS |
$ | 97,058,938 | $ | 99,810,278 |
See the accompanying notes to condensed consolidated financial statements.
F-2
THT Heat Transfer Technology Inc.
Condensed
Consolidated Balance Sheets (Contd)
As of March 31, 2012 and
December 31, 2011
(Stated in US Dollars)
March 31, | December 31, | |||||
2012 | 2011 | |||||
(Unaudited) | ||||||
|
||||||
LIABILITIES AND EQUITY |
||||||
|
||||||
LIABILITIES |
||||||
Current liabilities |
||||||
Trade payables |
$ | 3,965,214 | $ | 6,619,676 | ||
Other payables and accrued expenses - Note 11 |
14,711,710 | 15,853,810 | ||||
Income tax payable |
1,349,170 | 1,389,140 | ||||
Short-term bank loans - Note 12 |
16,284,300 | 16,183,051 | ||||
Current maturities of long-term loan - Note 13 |
1,897,200 | 1,885,404 | ||||
|
||||||
Total current liabilities |
38,207,594 | 41,931,081 | ||||
Long-term loan - Note 13 |
2,845,800 | 2,828,106 | ||||
|
||||||
TOTAL LIABILITIES |
41,053,394 | 44,759,187 | ||||
|
||||||
COMMITMENTS AND CONTINGENCIES - Note 20 |
||||||
|
||||||
STOCKHOLDERS EQUITY |
||||||
Preferred
stock : par value of $0.001 per share |
||||||
Common stock : par value
$0.001 per share - Note 14 |
20,454 | 20,454 | ||||
Additional paid-in capital |
27,396,455 | 27,396,455 | ||||
Statutory reserve |
3,058,933 | 2,979,827 | ||||
Accumulated other comprehensive income |
4,075,191 | 3,721,877 | ||||
Retained earnings |
21,975,916 | 21,497,843 | ||||
|
||||||
Total THT Heat Transfer Technology Inc. stockholders equity |
56,526,949 | 55,616,456 | ||||
Noncontrolling interests |
(521,405 | ) | (565,365 | ) | ||
|
||||||
TOTAL EQUITY |
56,005,544 | 55,051,091 | ||||
|
||||||
TOTAL LIABILITIES AND EQUITY |
$ | 97,058,938 | $ | 99,810,278 |
See the accompanying notes to condensed consolidated financial statements
F-3
THT Heat Transfer Technology, Inc.
Condensed
Consolidated Statements of Cash Flows
For the three months ended
March 31, 2012 and 2011
(Unaudited)
(Stated in US Dollars)
Three months ended | ||||||
March 31, | ||||||
(unaudited) | ||||||
2012 | 2011 | |||||
|
||||||
Cash flows from operating activities |
||||||
Net income before noncontrolling interest |
$ | 604,706 | $ | 2,683,988 | ||
Adjustments to reconcile net income before noncontrolling interest to net cash used in operating activities :- |
||||||
Depreciation and amortization |
303,818 | 225,807 | ||||
Deferred taxes |
- | (8,143 | ) | |||
Provision (reversal of) for doubtful debts |
158,200 | (269,514 | ) | |||
Changes in operating assets and liabilities :- |
||||||
Trade receivables |
(256,204 | ) | (3,754,520 | ) | ||
Bills receivable |
(187,499 | ) | (84,024 | ) | ||
Other receivables, prepayments and deposits |
(2,308,416 | ) | (4,606,434 | ) | ||
Inventories |
525,748 | 3,064,062 | ||||
Retention receivable |
(23,639 | ) | (401,462 | ) | ||
Trade payables |
(2,697,582 | ) | (966,606 | ) | ||
Other payables and accrued expenses |
(1,242,193 | ) | (2,195,230 | ) | ||
Income tax payable |
(48,693 | ) | (176,189 | ) | ||
|
||||||
Net cash flows used in operating activities |
(5,171,754 | ) | (6,488,265 | ) | ||
|
||||||
Cash flows from investing activities |
||||||
Prepayment for land use rights |
- | (1,161,745 | ) | |||
Payments to acquire property, plant and equipment |
(18,748 | ) | (164,961 | ) | ||
|
||||||
Net cash flows used in investing activities |
(18,748 | ) | (1,326,706 | ) | ||
|
||||||
Cash flows from financing activities |
||||||
Proceeds from bank loans |
- | 3,035,178 | ||||
Repayment of bank loans |
- | (3,035,178 | ) | |||
Restricted cash |
(341,644 | ) | (815,701 | ) | ||
|
||||||
Net cash flows used in financing activities |
(341,644 | ) | (815,701 | ) | ||
|
||||||
Effect of foreign currency translation on cash and cash equivalents |
55,243 | 38,943 | ||||
|
||||||
Net decrease in cash and cash equivalents |
(5,476,903 | ) | (8,591,729 | ) | ||
Cash and cash equivalents - beginning of period |
7,340,068 | 18,438,430 | ||||
|
||||||
Cash and cash equivalents - end of period |
$ | 1,863,165 | $ | 9,846,701 | ||
|
||||||
Supplemental disclosures for cash flow information |
||||||
Cash paid for :- |
||||||
Interest |
$ | 396,049 | $ | 165,341 | ||
Income taxes |
$ | 124,657 | $ | 608,798 |
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 Company’s 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 BTHCs 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 BTHCs debts and liabilities became the debts and liabilities of THT; (iii) BTHCs existing Board of Directors and officers became the Board of Directors and officers of the Surviving Corporation; and (iv) the Articles of Incorporation and By-laws 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 BTHCs common stock, par value $0.001 per share, was automatically converted into one share of THTs common stock, par value $0.001 per share. Each outstanding certificate representing shares of BTHCs common stock is deemed, without any action by BTHCs stockholders, to represent the same number of shares of THTs 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 Companys common stock, which, after giving effect to the Cancellation Agreement disclosed below, constituted 92.5% of the Company’s 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 (Cont’d) |
Reorganization (cont’d) |
|
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 People’s 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 Company’s 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 Company’s common stock owned by him. |
|
Mr. Zhao was appointed as the Company’s director and chief executive officer effective upon the closing of the above reverse acquisition. In addition, the Company’s 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 expires on June 30, 2011. On May 16, 2011, an amendment was signed by both parties extending the exercise period until June 20, 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 Company’s common stock owned by Wisetop at total exercise price of $7,291,440. The stockholders exercised these options on December 17, 2010. |
|
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 are conducted through its subsidiaries, namely Siping Juyuan which is located in the Jilin Province and Beijing Juyuan which is located in Beijing City of the PRC. The Company is engaged in the manufacturing and trading of plate heat exchangers and various related products. |
|
Siping Juyuan was established in the PRC on May 31, 2006 following the division (the “Division”) of Siping City Juyuan Heat Exchange Equipment Co., Ltd. (“Old Juyuan Company”) into three companies, namely Siping Juyuan, Siping City Juyuan Heat Exchange Equipment Co., Ltd. (“New Juyuan Company”) and Siping City Juyuan Hanyang Pressure Vessels Co., Ltd (“Juyuan Hanyang Pressure Vessels”). |
|
3. |
Summary of significant accounting policies |
Basis of presentation and consolidation |
|
The accompanying unaudited 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 Company’s consolidated financial statements and accompanying notes thereto for the year ended December 31, 2011 filed with the SEC in the Company’s Form 10-K on March 30, 2012. |
|
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. |
|
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 March 31, 2012 and December 31, 2011, substantially all of the Company’s 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 customer’s financial condition. The Company generally does not require collateral for trade receivables and maintains an allowance for doubtful accounts of trade and other receivables. |
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 (contd) | |
During the three-month periods ended March 31, 2012 and 2011, the customers represented 10% or more of the Companys condensed consolidated sales revenue are as follows: |
Three months ended | |||||||
March 31 | |||||||
(Unaudited) | |||||||
2012 | 2011 | ||||||
Customer A | $ | 1,617,000 | - | ||||
Customer B | - | $ | 1,569,000 |
As of March 31, 2012 and December 31, 2011, 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 | As of | ||||||||||||
March 31, 2012 | December 31, 2011 | ||||||||||||
(Unaudited) | |||||||||||||
Carrying | Fair value | Carrying | Fair value | ||||||||||
amount | amount | ||||||||||||
Long terms loans | $ | 4,743,000 | $ | 4,780,762 | $ | 4,713,000 | $ | 4,755,538 |
Noncontrolling interests
As at March 31, 2012, noncontrolling interest on the condensed consolidated balance sheets resulted from the consolidation of 75% owned subsidiaries, Beijing Juyuan.
The schedule below illustrates the movements in the noncontrolling interests:
Three months ended | |||||||
March 31 | |||||||
(Unaudited) | |||||||
2012 | 2011 | ||||||
Balance at beginning of period | $ | (565,365 | ) | $ | (61,891 | ) | |
Net income attributable to noncontrolling interests | 47,527 | 27,410 | |||||
Foreign currency translation adjustments | (3,567 | ) | (128 | ) | |||
Balance at end of period | $ | (521,405 | ) | $ | (34,609 | ) |
F-8
THT Heat Transfer Technology, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Stated in US Dollars)
3. |
Summary of significant accounting policies (Cont’d) |
Recently issued accounting pronouncements |
|
In April 2011, the FASB issued ASU 2011-03, “Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements”. The amendments in this ASU remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. The guidance in this ASU is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The adoption of ASU 2011-03 has no material impact on the Company’s condensed consolidated financial statements. |
|
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 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 update 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 update 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 update 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 adoption of ASU 2011-04 has no material impact on the Company’s condensed consolidated financial statements. |
|
In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”. In this ASU updated, 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 update 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. In December 2011, ASU 2011-12 “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” was issued. The amendments in this Update supersede certain pending paragraphs in Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, to effectively defer only those changes in Update 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The amendments will be temporary to allow the Board time to re-deliberate the presentation requirements for reclassifications out of accumulated other comprehensive income for annual and interim financial statements for public, private, and non-profit entities. The amendments in this ASU update 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 adoption of ASU 2011-05 has no material impact on the Company’s condensed consolidated 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 (Cont’d) |
Recently issued accounting pronouncements (Cont’d) |
|
In September 2011, the FASB issued ASU 2011-08, “Intangibles - Goodwill and Other (Topic 350)”. The amendments in this update will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The adoption of this ASU update has no material impact on the Company’s condensed consolidated financial statements |
|
In September 2011, the FASB issued ASU 2011-09, “Compensation - Retirement Benefits - Multiemployer Plans (Subtopic 715 –80)”. The amendments in this update require additional disclosures about an employers participation in a multiemployer plan. ASU 2011-09 is effective for annual periods for fiscal years ending after December 15, 2011, and early adoption is permitted. ASU 2011-09 should be applied retrospectively for all prior periods presented. The adoption of this ASU update has no material impact on the Company’s condensed consolidated financial statements. |
|
In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210)”. The objective of this ASU is to provide enhanced disclosures that will enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. This includes the effect or potential effect of rights of setoff associated with an entity’s recognized assets and recognized liabilities within the scope of this Update. The amendments require enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either Section 210-20-45 or Section 815-10-45. An entity is required to apply the amendments retrospectively for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The management is assessing the impact of this ASU on the Company’s condensed consolidated financial statements. |
F-10
THT Heat Transfer Technology, Inc.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
(Stated in US Dollars)
4. |
Restricted cash |
March 31, | December 31, | ||||||
2012 | 2011 | ||||||
(Unaudited) | |||||||
Bank deposits held as collateral for performance bonds issued by the banks to customers | $ | 2,077,770 | $ | 1,725,546 |
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 |
March 31, | December 31, | ||||||
2012 | 2011 | ||||||
(Unaudited) | |||||||
Trade receivables | $ | 36,078,805 | $ | 35,600,032 | |||
Less : Allowance for doubtful accounts | (2,197,590 | ) | (2,026,809 | ) | |||
$ | 33,881,215 | $ | 33,573,223 |
As of March 31, 2012 and December 31, 2011, the Companys trade receivables of $5,074,087 and $5,421,295, respectively, were pledged as collateral under certain loan and guarantee arrangements (Note 12).
An analysis of the allowance for doubtful accounts for the three months ended March 31, 2012 and 2011 is as follows :-
Three months ended | |||||||
March 31, | |||||||
(Unaudited) | |||||||
2012 | 2011 | ||||||
Balance at beginning of period | $ | 2,026,809 | $ | 1,353,375 | |||
Provision for/(reversal of) doubtful accounts | 158,200 | (269,514 | ) | ||||
Translation adjustments | 12,581 | 3,761 | |||||
Balance at end of period | $ | 2,197,590 | $ | 1,087,622 |
F-11
THT Heat Transfer Technology, Inc.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
(Stated in US Dollars)
6. |
Other receivables, prepayments and deposits, net |
March 31, | December 31, | ||||||
2012 | 2011 | ||||||
(Unaudited) | |||||||
Advances to staff | $ | 3,392,139 | $ | 2,201,875 | |||
Deposits for public bid | 1,231,012 | 953,444 | |||||
Prepayments to suppliers | 5,043,432 | 3,284,002 | |||||
VAT receivable | 428,200 | 1,199,778 | |||||
Other receivables | 194,125 | 293,224 | |||||
10,288,908 | 7,932,323 | ||||||
Less : Allowance for doubtful accounts | (73,215 | ) | (72,760 | ) | |||
$ | 10,215,693 | $ | 7,859,563 |
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 three months ended March 31, 2012 and 2011.
7. |
Inventories, net |
March 31, | December 31, | ||||||
2012 | 2011 | ||||||
(Unaudited) | |||||||
Raw materials | $ | 5,922,029 | $ | 6,198,179 | |||
Work-in-progress | 26,287,849 | 25,791,085 | |||||
Finished goods | 18,580 | 560,959 | |||||
32,228,458 | 32,550,223 | ||||||
Allowance for obsolete inventories | (19,290 | ) | (19,170 | ) | |||
$ | 32,209,168 | $ | 32,531,053 |
No further allowance for obsolete inventories was recognized during the three months ended March 31, 2012 and 2011.
As of March 31, 2012 and December 31, 2011, the inventories of $3,478,200 and $3,456,574, respectively, were pledged under floating charge for certain loan agreements (Note 13).
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 March 31, 2012 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, and Beijing 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 March 31, 2012 and 2011 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. |
F-13
THT Heat Transfer Technology, Inc.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
(Stated in US Dollars)
9. |
Property, plant and equipment, net |
March 31, | December 31, | ||||||
2012 | 2011 | ||||||
(Unaudited) | |||||||
Cost | |||||||
Buildings | $ | 6,171,968 | $ | 6,133,593 | |||
Plant and machinery | 4,655,179 | 4,275,088 | |||||
Office equipment | 732,839 | 715,153 | |||||
Motor vehicles | 390,480 | 388,052 | |||||
11,950,466 | 11,511,886 | ||||||
Accumulated depreciation | (4,130,116 | ) | (3,808,279 | ) | |||
Net | $ | 7,820,350 | $ | 7,703,607 |
During the reporting periods, depreciation is included in :-
Three months ended | |||||||
March 31 | |||||||
(Unaudited) | |||||||
2012 | 2011 | ||||||
Cost of sales and overheads of inventories | $ | 78,060 | $ | 103,059 | |||
Research and development expenses | 134,772 | 59,139 | |||||
Administrative expenses | 85,367 | 58,218 | |||||
$ | 298,199 | $ | 220,416 |
As of March 31, 2012 and December 31, 2011, plant and equipment with net book values $623,185 and $706,695 (note 13), and buildings with net book values $4,941,476 and $4,972,769 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 |
March 31, | December 31, | ||||||
2012 | 2011 | ||||||
(Unaudited) | |||||||
Land use rights | $ | 1,113,712 | $ | 1,106,788 | |||
Accumulated amortization | (93,908 | ) | (87,743 | ) | |||
$ | 1,019,804 | $ | 1,019,045 |
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 March 31, 2012 and December 31, 2011, the land use rights were pledged as collateral under certain loan arrangements (Note 12).
During the three months ended March 31, 2012 and 2011, amortization amounted to $5,619 and $5,391 respectively. The estimated amortization expense for each of the five succeeding years from 2011 is approximately $22,000 each year.
The Company had paid the deposits for land use rights of RMB27.8 million (approximately $4.4 million) as of March 31, 2012. The area is approximately 152,246 square meters and is intended for future manufacturing facilities expansion.
11. |
Other payables and accrued expenses |
March 31, | December 31, | ||||||
2012 | 2011 | ||||||
(Unaudited) | |||||||
Accrued audit fee | $ | 51,955 | $ | 105,000 | |||
Receipt in advance from customers | 9,599,687 | 11,003,379 | |||||
Pension payable | 635,631 | 631,506 | |||||
Salaries payable | 334,121 | 417,726 | |||||
Other payables and accrued expenses | 4,090,316 | 3,696,199 | |||||
$ | 14,711,710 | $ | 15,853,810 |
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 March 31, 2012 and December 31, 2011 was an amount of $3,258,441 and $3,237,831 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 |
March 31, | December 31, | ||||||
2012 | 2011 | ||||||
(Unaudited) | |||||||
Secured bank loans | $ | 13,912,800 | $ | 13,826,296 | |||
Unsecured bank loans | 2,371,500 | 2,356,755 | |||||
$ | 16,284,300 | $ | 16,183,051 |
All bank loans are repayable within one year and carry annual interest from 100% to 120% of the benchmark interest rate published by the Peoples Bank of China (the PBOC).
The secured bank loans were secured by the following assets of the Company :-
March 31, | December 31, | ||||||
2012 | 2011 | ||||||
(Unaudited) | |||||||
Trade receivables (Note 5) | $ | 5,074,087 | $ | 5,421,295 | |||
Property, plant and equipment (Note 9) | 4,941,476 | 4,972,769 | |||||
Land use rights (Note 10) | 1,019,804 | 1,019,045 | |||||
$ | 11,035,367 | $ | 11,413,109 |
The unsecured bank loans as of March 31, 2012 and December 31, 2011 were guaranteed by Mr. Zhao and certain third parties who received 2% of the loan balance as compensation for acting as guarantors for the Company. The Company also made the counter guarantee deposits to the guarantors of $237,150 and $235,676 as of March 31, 2012 and December 31, 2011, respectively. These deposits will be returned to the Company upon the Companys settlement of the loans.
13. |
Long-term loan |
The loan is borrowed from a financial institution, bearing interest at an annual rate of 15% over the benchmark rate of the PBOC for the three-year long-term loans and guaranteed by a third party. | |
The secured loan was secured by the following assets of the Company :- |
March 31, | December 31, | ||||||
2012 | 2011 | ||||||
(Unaudited) | |||||||
Property, plant and equipment (Note 9) | $ | 623,185 | $ | 706,695 | |||
Inventories (Note 7) | 3,478,200 | 3,456,574 | |||||
$ | 4,101,385 | $ | 4,163,269 |
F-16
THT Heat Transfer Technology, Inc.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
(Stated in US Dollars)
13. |
Long-term loan (Contd) |
As a condition the guarantees for the loans the Company paid 2.5% of the loan balance to the third party as compensation for acting as guarantor for the Company and made the counter guarantee deposits to the guarantor of $237,150 and $235,676 as of March 31, 2012 and December 31, 2011, respectively. These deposits will be returned to the Company upon the Companys settlement of the loans. | |
During the three months ended March 31, 2012, there was no other covenant requirement under the bank loans granted to the Company except that the inventory level cannot be lower than RMB 22 million (approximately $3.5 million) during the loan period. | |
There was no other covenant requirement under the bank loans agreement for the three months ended March 31, 2011. | |
Maturities of the loans as of March 31, 2012 are as follow :- |
Year | ||||
2012 | $ | 1,897,200 | ||
2013 | 1,897,200 | |||
2014 | 948,600 | |||
$ | 4,743,000 |
14. |
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 18), 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 was $396,939 as of grant date. At March 31, 2012, 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 18 to the condensed consolidated financial statements. |
F-17
THT Heat Transfer Technology, Inc.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
(Stated in US Dollars)
15. |
Other income |
Three months ended | |||||||
March 31, | |||||||
(Unaudited) | |||||||
2012 | 2011 | ||||||
Government grants | $ | - | $ | 607 | |||
Service income for installation of equipment | 229,461 | - | |||||
Others, net | - | 4,150 | |||||
$ | 229,461 | $ | 4,757 |
16. |
Finance costs |
Three months ended | |||||||
March 31, | |||||||
(Unaudited) | |||||||
2012 | 2011 | ||||||
Interest expense | $ | 396,049 | $ | 165,341 | |||
Bank charges and net exchange loss | 5,401 | 27,256 | |||||
$ | 401,450 | $ | 192,597 |
17. |
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. | |
18. |
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. |
F-18
THT Heat Transfer Technology, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Stated in US Dollars)
18. |
Make good escrow agreement (Cont’d) |
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. |
|
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. |
F-19
THT Heat Transfer Technology, Inc.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
(Stated in US Dollars)
18. |
Make good escrow agreement (Contd) |
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 in 2011. As the Company did not meet the 2011 Guaranteed ATNI, the pledgor is required to transfer the 2011 Make Good Shares to the investors on a pro-rata basis. | |
19. |
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 $56,975 and $58,800 for the three months ended March 31, 2012 and 2011, respectively. | |
20. |
Commitments and contingencies |
As of March 31, 2012 and December 31, 2011, the Company had the following commitments that were contracted for but not provided in the condensed consolidated financial statements. |
March 31, | December 31, | ||||||
2012 | 2011 | ||||||
(Unaudited) | |||||||
Plant and machineries | $ | - | $ | 317,342 |
F-20
THT Heat Transfer Technology, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Stated in US Dollars)
20. |
Commitments and contingencies (Cont’d) |
Contingencies |
|
As of March 31, 2012 and December 31, 2011, 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 Company’s loss in respect of this undertaking is possible but not known or probable. Accordingly, no liability was recognized as of March 31, 2012 and December 31, 2011 respectively. The Company believes that a reasonable estimate of the possible loss range from $Nil to approximately $1,731,000 as of March 31, 2012 (December 31, 2011: from $Nil to approximately $1,741,000). |
|
In accordance with the PRC tax regulations, the Company’s 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. |
|
The Company’s operations are subject to the laws and regulations in the PRC relating to the generation, storage, handling, emission, transportation and discharge of certain materials, substances and waste into the environment, and various other health and safety matters. Governmental authorizes have the power to enforce compliance with their regulations, and violators may be subject to fines, injunctions or both. The Company must devote substantial financial resources to ensure compliance and believes that it is in substantial compliance with all the applicable laws and regulations. |
|
The Company is currently not involved in any environmental remediation and has not accrued any amounts for environmental remediation relating to its operations. Under existing legislation, management believes that there are no probable liabilities that will have a material adverse effect on the financial position, operating results or cash flows of the Company. |
F-21
THT Heat Transfer Technology, Inc.
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
(Stated in US Dollars)
21. |
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, 2012 and 2011 were as follows :- |
Three months ended March 31, | |||||||||||||
2012 | % | 2011 | % | ||||||||||
(Unaudited) | (Unaudited) | ||||||||||||
Plate heat exchanger | $ | 5,114,689 | 45 | $ | 5,618,101 | 40 | |||||||
Heat exchange unit | 3,670,921 | 32 | 4,252,966 | 30 | |||||||||
Air-cooled heat exchanger | 482,240 | 4 | 427,817 | 3 | |||||||||
Shell-and-tube heat exchanger | 837,704 | 7 | 2,864,725 | 20 | |||||||||
Others | 1,343,871 | 12 | 889,311 | 7 | |||||||||
$ | 11,449,425 | 100 | $ | 14,052,920 | 100 |
All of the Company’s long-lived assets and revenues classified based on the customers are located in the PRC. | |
22. |
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. | |
23. |
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 recognizable subsequent events or transactions which would require recognition or disclosure in the condensed consolidated financial statements. |
F-22
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, 2011, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements.
Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.
Use of Terms
Except where the context otherwise requires and for the purposes of this report only:
- THT, Company, we, us, or our are to the combined business of THT Heat Transfer Technology, Inc., a Nevada corporation, and its consolidated subsidiaries: Megaway, Star Wealth, Siping Juyuan and Beijing Juyuan;
- Megaway are to Megaway International Holdings Limited, a BVI company;
- Star Wealth are to Star Wealth International Holdings Limited, a Hong Kong company;
- Siping Juyuan are to Siping City Juyuan Hanyang Plate Heat Exchanger Co. Ltd., a PRC company;
- Beijing Juyuan are to Beijing Juyuan Hanyang Heat Exchange Equipment Co., Ltd., a PRC company;
- BVI are to the British Virgin Islands;
- Hong Kong are to the Hong Kong Special Administrative Region of the Peoples Republic of China;
- PRC and China are to the Peoples Republic of China;
- SEC are to the Securities and Exchange Commission;
- Exchange Act are to the Securities Exchange Act of 1934, as amended;
- Securities Act re to the Securities Act of 1933, as amended;
- Renminbi and RMB are to the legal currency of China; and
- U.S. dollars, dollars and $ are to the legal currency of the United States.
Overview of our Business
We are a leading total solution provider in the heat exchange industry. Our major products are plate heat exchangers, heat exchanger units, air-cooled heat exchangers and shell-and-tube heat exchangers. Unlike most other heat exchanger manufacturers in China, we not only provide heat exchange products, but also provide total solutions to our customers. As a total solutions provider, we analyze the working condition of our customers, provide optimized designs based on analysis and simulation, offer high quality heat exchange products, and continuously assist our customers in improving the heat exchange process.
Over the past ten years, we have successfully completed over 3,000 projects in more than 15 industries, including metallurgy, heat and power, petrochemical, food and beverage, pharmaceutical and shipbuilding. We have provided heat exchange solutions to Fortune 500 companies, including Shell, BP, BASF, LG, Sinopec and China Shenhua. We have also provided heat exchange products for important Chinese and international projects such as the Beijing 2008 Olympics Wukesong Sports Center, Guangdong Linao nuclear plant and BASF Chemical plant in Germany.
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Our operations are headquartered in Siping, Jilin Province, PRC. Our primary Chinese operating subsidiaries are Siping Juyuan and Beijing Juyuan.
First Quarter Financial Performance Highlights
The following summarizes certain key financial information for the first quarter of 2012:
- Sales revenue: Sales revenue decreased by $2.60 million, or 18.53%, to $11.45 million for the three months ended March 31, 2012, from $14.05 million for the same period in 2011.
- Gross profit: Gross profit decreased by $1.44 million, or 23.78%, to $4.61 million for the three months ended March 31, 2012, from $6.04 million for the same period in 2011. As a percentage of sales revenue, gross profit decreased by 2.77% to 40.23% for the three months ended March 31, 2012, from 43.00% for the same period in 2011.
- Net income attributable to stockholders: Net income attributable to our stockholders decreased by $2.10 million, or 79.03%, to $0.56 million for the three months ended March 31, 2012, from $2.66 million for the same period in 2011.
- Fully diluted net income per share: Fully diluted net income per share was $0.03 for the three months ended March 31, 2012, as compared $0.13 for the same period in 2011.
Results of Operations
The following table sets forth key components of our results of operations for the periods indicated.
Three Months Ended March 31, | ||||||||||||
$ | % | |||||||||||
|
2012 | 2011 | Change | Change | ||||||||
Sales revenue |
$ | 11,449,425 | $ | 14,052,920 | $ | (2,603,495 | ) | (18.53 | ) | |||
Cost of sales |
(6,843,635 | ) | (8,010,229 | ) | 1,166,594 | (14.56 | ) | |||||
Gross profit |
4,605,790 | 6,042,691 | (1,436,901 | ) | (23.78 | ) | ||||||
Operating expenses: |
||||||||||||
Administrative expenses |
1,252,829 | 712,931 | 539,898 | 75.73 | ||||||||
Research and development expenses |
253,983 | 347,489 | (93,506 | ) | (26.91 | ) | ||||||
Selling expenses |
2,254,597 | 1,699,863 | 554,734 | 32.63 | ||||||||
Total operating expenses |
3,761,409 | 2,760,283 | 1,001,126 | 36.27 | ||||||||
Income from operations |
844,381 | 3,282,408 | (2,438,027 | ) | (74.28 | ) | ||||||
Interest income |
8,278 | 13,886 | (5,608 | ) | (40.39 | ) | ||||||
Other income |
229,461 | 4,757 | 224,704 | 4723.65 | ||||||||
Finance costs |
(401,450 | ) | (192,597 | ) | (208,853 | ) | 108.44 | |||||
Income before income taxes and noncontrolling interests |
680,670 | 3,108,454 | (2,427,784 | ) | (78.10 | ) | ||||||
Income taxes |
(75,964 | ) | (424,466 | ) | 348,502 | (82.10 | ) | |||||
Net income before noncontrolling interests |
604,706 | 2,683,988 | (2,079,282 | ) | (77.47 | ) | ||||||
Net loss attributable to noncontrolling interests |
(47,527 | ) | (27,410 | ) | (20,117 | ) | 73.39 | |||||
Net income attributable to THT common stockholders |
$ | 557,179 | $ | 2,656,578 | $ | (2,099,399 | ) | (79.03 | ) |
3
Sales revenue. Our sales revenue is generated from sales of heat exchange products. Sales revenue decreased by $2.60 million, or 18.53%, to $11.45 million for the three months ended March 31, 2012, from $14.05 million for the same period in 2011. Our sales volume in the three months ended March 31, 2012 amounted to 660 units, a decrease of 268 units, from 928 units for the same period in 2011. Such decrease was mainly due to the decreased sales revenue from plate heat exchangers, shell-and- tube heat exchangers and heat exchange unit in the 2012 period as compared with the 2011 period. Sales revenue from shell-and- tube heat exchangers decreased by $2.02 million, or 70.76%, to $0.84 million for the three months ended March 31, 2012, from $2.86 million in the same period in 2011. The decrease was caused by decreased demand of our products as a result of fewer projects around the Chinese spring festival and overall slowdown of Chinas economy.
The following table shows our sales revenue by product for the three months ended March 31, 2012 and 2011:
Three Months Ended March 31, | ||||||||||||
2012 | 2011 | |||||||||||
$ | % | $ | % | |||||||||
Plate heat exchanger | $ | 5,114,689 | 44.70% | $ | 5,618,101 | 40% | ||||||
Heat exchange unit | 3,670,921 | 32.06% | 4,252,966 | 30% | ||||||||
Air-cooled heat exchanger | 482,240 | 4.21% | 427,817 | 3% | ||||||||
Shell-and-tube heat exchanger | 837,704 | 7.32% | 2,864,725 | 20% | ||||||||
Others | 1,343,871 | 11.71% | 889,311 | 7% | ||||||||
TOTAL | $ | 11,449,425 | 100% | $ | 14,052,920 | 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 decreased by $1.17 million, or 14.56%, to $6.84 million for the three months ended March 31, 2012, from $8.01 million for the three months ended March 31, 2011. The decrease in the cost of sales was generally in line with the decrease in our sales revenue. Cost of sales as a percentage of sales revenue were 59.77% and 57.01% for the three months ended March 31, 2012 and 2011, respectively, an increase of 2.76 percentage points. The increase was mainly attributable to the increase in labor costs and raw material costs.
Gross profit. Our gross profit is equal to the difference between our sales revenue and our cost of sales. Our gross profit decreased by $1.44 million, or 23.78%, to $4.61 million for the three months ended March 31, 2012, from $6.04 million for the same period in 2011. The decrease in our gross profit was mainly attributable to decreased sales revenue from plate heat exchangers, shell-and- tube heat exchangers and heat exchange unit. Although the average unit selling price of our products increased in the three months ended March 31, 2012 in comparison with the same period in 2011, gross profit margin for the three months ended March 31, 2012 dropped to 40.23% from 43.00% for the same period in 2011. The decrease in our gross profit margin was mainly attributable to the increase in labor costs and raw material costs as noted above.
Administrative expenses. Our administrative expenses consist of the costs associated with staff and support personnel who manage our business activities. Our administrative expenses increased by $0.54 million, or 75.73%, to $1.25 million for the three months ended March 31, 2012, from $0.71 million for the same period in 2011. As a percentage of sales revenue, administrative expenses increased to 10.94% for the three months ended March 31, 2012, as compared to 5.07% for the same period in 2011. The increase in administrative expenses was primarily due to an increase of allowance for doubtful accounts. Allowance for doubtful accounts increased by approximately $0.43 million, to approximately $0.16 million in the three months ended March 31, 2012 compared with a reversal of allowance for doubtful accounts of $0.27 million for the same period in 2011. The increase in the allowance for doubtful accounts was mainly due to our policies for bad debt reserves. 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 $0.10 million, or 26.91%, to $0.25 million for the three months ended March 31, 2012, from $0.35 million for the same period in 2011. The decrease in reseach and development expenses was mainly attributable to we only have a few new products are in the process of research and development.
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 increased by $0.55 million, or 32.63%, to $2.25 million for the three months ended March 31, 2012, from $1.70 million for the same period in 2011. As a percentage of sales revenue, selling expenses increased to 19.69% for the three months ended March 31, 2012, as compared to 12.10% for the same period in 2011. The increase was mainly attributable to the increased travelling expenses of our sales personnel. Traveling expense increased by $0.35 million, or 30.17%, to $1.51 million for the three months ended March 31, 2012, from $1.16 million for the same period in 2011. The increase in travelling expenses was mainly due to we expand our sales team to expand our market shares.
4
Income before income taxes and noncontrolling interest. Income before income taxes and noncontrolling interest decreased by $2.43 million, or 78.10%, to $0.68 million for the three months ended March 31, 2012, from $3.11 million for the same period in 2011. Such decrease was mainly attributable to the increase in our total expenses.
Income taxes. Our income taxes decreased to $0.08 million for the three months ended March 31, 2012, from $0.42 million for the same period in 2011, as a result of the decreased taxable income.
Net income attributable to common stockholders. As a result of the cumulative effect of the foregoing factors, our net income attributable to common stockholders decreased by $2.10 million, or 79.03%, to $0.56 million for the three months ended March 31, 2012, from $2.66 million for the same period in 2011. As a percentage of sales revenue, our net income attributable to common stockholders was 4.87% and 18.90% for the three months ended March 31, 2012 and 2011, respectively.
Liquidity and Capital Resources
As of March 31, 2012, we had cash and cash equivalents of $1.86 million, primarily consisting of cash on hand and demand deposits. We anticipate that cash on hand and borrowing capacity under our bank loans will be sufficient to satisfy our ongoing obligations.
The following table provides a summary of our net cash flows from operating, investing, and financing activities.
Cash Flow
Three Months Ended March 31, | ||||||
2012 | 2011 | |||||
Net cash used in operating activities | $ | (5,171,754 | ) | $ | (6,488,265 | ) |
Net cash used in investing activities | (18,748 | ) | (1,326,706 | ) | ||
Net cash used in financing activities | (341,644 | ) | (815,701 | ) | ||
Effects of exchange rate change in cash | 55,243 | 38,943 | ||||
Net decrease in cash and cash equivalents | (5,476,903 | ) | (8,591,729 | ) | ||
Cash and cash equivalents at beginning of the period | 7,340,068 | 18,438,430 | ||||
Cash and cash equivalent at end of the period | $ | 1,863,165 | $ | 9,846,701 |
Operating Activities
Net cash used in operating activities was $5.17 million for the three months ended March 31, 2012, compared with $6.49 million for the same period in 2011. The decrease in net cash used in operating activities was mainly due to (1) Cash used in operating activities in the three months period ended 2012 decreased comparing to the same the period in 2011 because collection from trade customers were relatively high in 2012 and credit sales granted to customers reduced due to turnover decreased in 2012;and (2) other receivables prepayment and deposits for the three months period ended 2012 decreased comparing the same period in 2011 because cash advance to staff and prepayment to trade suppliers decreased in 2012.
Investing Activities
Net cash used in investing activities was $0.02 million for the three months ended March 31, 2012, compared with $1.33 million in the same period in 2011. The net cash used in investing activities during the period ended March 31, 2012 was primarily used for the purchase of equipment.
5
Financing Activities
Net cash used in financing activities was $0.34 million for the three months ended March 31, 2012, compared with $0.82 million for the same period in 2011. The decrease in net cash used in financing activities resulted from a decrease in restricted cash in the amount of $0.47 million.
Capital Expenditures
Our capital expenditures were used primarily for the purchase of equipment to expand our production capacity and deposits for land use rights. The table below sets forth the breakdown of our capital expenditures by use for the periods indicated.
Three Months Ended March 31, | ||||||
2012 | 2011 | |||||
(in thousands) | ||||||
Construction costs | $ | - | $ | 76 | ||
Purchase of equipment | 19 | 84 | ||||
Prepayment for land use right | - | 1,167 | ||||
Total capital expenditures | $ | 19 | $ | 1,327 |
We estimate that our total capital expenditures in fiscal year 2012 will be approximately $3 million to buy the equipment for necessary products used in the nuclear power industry.
Obligations Under Material Contracts
Except with respect to the loan obligations disclosed above, we have no material obligations to pay cash or deliver cash to any other party.
Seasonality
Our operating results and operating cash flows historically have been subject to seasonal variations. Our revenues usually increase over each quarter of the calendar year with the first quarter usually the slowest quarter because fewer projects are undertaken during and around the Chinese spring festival.
Inflation
Inflation and changing prices have not had a material effect on our business, and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor price changes in the Chinese economy and our industry and continually maintain effective cost controls in operations.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, sales or expenses, results of operations, liquidity or capital expenditures, or capital resources that are material to an investment in our securities.
Critical Accounting Policies
Critical accounting policies are those we believe are most important to portraying our financial conditions and results of operations and also require the greatest amount of subjective or complex judgments by management. Judgments and uncertainties regarding the application of these policies may result in materially different amounts being reported under various conditions or using different assumptions. There have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.
Recent Accounting Pronouncements
See Note 3 to our unaudited condensed consolidated financial statements included elsewhere in this report.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Not Applicable.
6
ITEM 4. | CONTROLS AND PROCEDURES. |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15(e), our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer, Mr. Guohong Zhao, and Chief Financial Officer, Mr. Jianjun He, of the effectiveness of the design and operation of our disclosure controls and procedures, as of March 31, 2012. Based upon, and as of the date of this evaluation, Messrs. Zhao and He determined that because of the material weaknesses described in Item 9A Controls and Procedures of our Annual Report on Form 10-K for the year ended December 31, 2011, which we are still in the process of remediating as of March 31, 2012, 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, 2011 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, 2011, 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, 2011, our management has identified the steps necessary to address the material weaknesses, and in the first quarter of 2012, 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 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS. |
From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition 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 2012 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.
7
No repurchases of our common stock were made during the first quarter of 2012.
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 2012, 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.
8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 15, 2012 | THT HEAT TRANSFER TECHNOLOGY, INC. | |
By: | /s/ Guohong Zhao | |
Guohong Zhao, Chief Executive Officer | ||
(Principal Executive Officer) | ||
By: | /s/ Jianjun He | |
Jianjun He, Chief Financial Officer | ||
(Principal Financial Officer and Principal | ||
Accounting Officer) |
EXHIBIT INDEX