Attached files
file | filename |
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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-31.2 - EXHIBIT 31.2 - THT Heat Transfer Technology, Inc. | exhibit31-2.htm |
EX-31.1 - EXHIBIT 31.1 - THT Heat Transfer Technology, Inc. | exhibit31-1.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: June 30, 2016
[ ] 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 August 15, 2016 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 June
30, 2016
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS. |
THT HEAT TRANSFER TECHNOLOGY, INC.
CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2015
1
THT Heat Transfer Technology, Inc.
Consolidated Balance
Sheets
(Stated in US dollars)
June 30, | December 31, | |||||
2016 | 2015 | |||||
(Unaudited) | ||||||
ASSETS |
||||||
Current assets |
||||||
Cash and cash equivalents |
$ | 5,081,670 | $ | 9,680,293 | ||
Restricted cash |
325,976 | 517,073 | ||||
Trade receivables, net |
33,478,282 | 38,058,713 | ||||
Bills receivable |
1,527,056 | 726,224 | ||||
Other receivables, prepayments and deposits, net |
14,184,183 | 10,088,586 | ||||
Due from related parties |
29,428 | 39,552 | ||||
Inventories, net |
20,589,482 | 19,830,029 | ||||
Deferred tax assets |
403,293 | 159,960 | ||||
Total Current Assets |
75,619,370 | 79,100,430 | ||||
|
||||||
Restricted cash, non-current |
643,130 | 369,263 | ||||
Retention receivable |
549,052 | 1,589,313 | ||||
Property, plant and equipment, net |
8,862,521 | 9,666,773 | ||||
Land use rights, net |
5,394,607 | 5,582,690 | ||||
TOTAL ASSETS |
$ | 91,068,680 | $ | 96,308,469 | ||
|
||||||
LIABILITIES & SHAREHOLDERS EQUITY |
||||||
Current Liabilities |
||||||
Accounts payable |
7,122,248 | 7,095,303 | ||||
Other payables and accrued liabilities |
19,136,773 | 19,745,852 | ||||
Income tax payable |
19,808 | 20,097 | ||||
Short-term loans |
4,816,811 | 6,176,529 | ||||
Current maturity of long-term loan |
526,839 | 539,233 | ||||
Due to related parties |
485,283 | 415,980 | ||||
Total Current Liabilities |
32,107,762 | 33,992,994 | ||||
|
||||||
TOTAL LIABILITIES |
32,107,762 | 33,992,994 | ||||
|
||||||
SHAREHOLDERS EQUITY |
||||||
Preferred stock, $.001 par value, 10,000,000
shares authorized, |
||||||
Common stock, $.001 par
value, 190,000,000 shares authorized, |
20,454 | 20,454 | ||||
Additional paid-in capital |
26,524,324 | 26,524,324 | ||||
Statutory reserve |
3,943,474 | 3,943,474 | ||||
Retained earnings |
27,478,560 | 29,446,126 | ||||
Accumulated other comprehensive income |
994,106 | 2,381,097 | ||||
TOTAL SHAREHOLDERS EQUITY |
58,960,918 | 62,315,475 | ||||
|
||||||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
$ | 91,068,680 | $ | 96,308,469 |
The accompanying notes are an integrated part of these unaudited consolidated financial statements
F-1
THT Heat Transfer Technology, Inc.
Consolidated
Statements of Income and Comprehensive Income (Loss)
(Stated in US dollars)
(Unaudited)
For the Six Months Ended June 30, | For the Three Months Ended June 30, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
Sales revenue | $ | 11,917,585 | $ | 15,304,833 | $ | 7,816,759 | $ | 7,130,943 | ||||
Cost of revenue | (7,464,516 | ) | (11,081,229 | ) | (4,491,790 | ) | (5,312,819 | ) | ||||
Gross Profit | 4,453,069 | 4,223,604 | 3,324,969 | 1,818,124 | ||||||||
Operating expenses | ||||||||||||
General and administrative expenses | 2,510,597 | 1,030,196 | 1,057,606 | 728,178 | ||||||||
Research and development expenses | 531,901 | 710,754 | 112,044 | 499,429 | ||||||||
Selling expenses | 3,704,436 | 1,737,923 | 1,808,455 | 925,366 | ||||||||
Total Operating Expenses | 6,746,934 | 3,478,873 | 2,978,105 | 2,152,973 | ||||||||
Income (loss) from operations | (2,293,865 | ) | 744,731 | 346,864 | (334,849 | ) | ||||||
Other Income (Expenses) | ||||||||||||
Interest income | 9,328 | 5,857 | 5,767 | 2,501 | ||||||||
Finance costs | (34,722 | ) | (41,805 | ) | (16,148 | ) | (3,197 | ) | ||||
Investment income | 8,793 | - | 5,932 | - | ||||||||
Other income | 91,809 | 75,278 | 99,455 | 45,647 | ||||||||
Total Other Income | 75,208 | 39,330 | 95,006 | 44,951 | ||||||||
Income (loss) before income taxes | (2,218,657 | ) | 784,061 | 441,870 | (289,898 | ) | ||||||
Income tax benefits (expense) | 251,091 | (143,531 | ) | (94,028 | ) | 16,519 | ||||||
Net Income (Loss) | (1,967,566 | ) | 640,530 | 347,842 | (273,379 | ) | ||||||
Comprehensive Income | ||||||||||||
Net Income (Loss) | (1,967,566 | ) | 640,530 | 347,842 | (273,379 | ) | ||||||
Other Comprehensive Income | ||||||||||||
Foreign currency translation adjustments | (1,386,991 | ) | 605,356 | (1,761,306 | ) | 340,399 | ||||||
Comprehensive Income (Loss) | (3,354,557 | ) | 1,245,886 | (1,413,464 | ) | 67,020 | ||||||
Earnings (loss) per common share | ||||||||||||
Basic and Diluted | $ | (0.10 | ) | $ | 0.03 | $ | 0.02 | $ | (0.01 | ) | ||
Weighted average number of shares outstanding | ||||||||||||
Basic and diluted | 20,453,500 | 20,453,500 | 20,453,500 | 20,453,500 |
The accompanying notes are an integrated part of these unaudited consolidated financial statements
F-2
THT Heat Transfer Technology, Inc.
Consolidated
Statements of Cash Flows
(Stated in US dollars)
(Unaudited)
For the Six Months Ended June 30, | ||||||
2016 | 2015 | |||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||
Net income (loss) |
$ | (1,967,566 | ) | $ | 640,530 | |
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
||||||
Depreciation and amortization |
710,398 | 648,180 | ||||
Loss on disposal of property, plant and equipment |
- | 22,337 | ||||
Deferred tax assets |
(251,091 | ) | - | |||
Allowance for doubtful accounts |
680,808 | (939,772 | ) | |||
Changes in operating assets and liabilities: |
||||||
Trade receivables |
3,090,853 | 5,543,386 | ||||
Bills receivable |
(831,034 | ) | 443,034 | |||
Other receivables, prepayments and deposits |
(3,783,730 | ) | (1,693,790 | ) | ||
Due from related parties |
9,368 | (4,503 | ) | |||
Inventories |
(1,235,333 | ) | 3,169,812 | |||
Retention receivable |
1,020,317 | 919,821 | ||||
Accounts payable |
156,860 | (5,031,135 | ) | |||
Other payables and accrued expenses |
(157,782 | ) | (6,560,191 | ) | ||
Income tax payable |
176 | (299,370 | ) | |||
NET CASH USED IN OPERATING ACTIVITIES |
(2,557,756 | ) | (3,141,661 | ) | ||
|
||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||
Change in restricted cash |
(104,847 | ) | (7,840 | ) | ||
Loan made to third party |
(619,704 | ) | - | |||
Payments to acquire property, plant and equipment |
(26,020 | ) | (58,306 | ) | ||
NET CASH FLOWS USED IN INVESTING ACTIVITIES |
(750,571 | ) | (66,146 | ) | ||
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||
Proceeds from short-term loans |
11,571,429 | 3,778,110 | ||||
Repayment of short-term loans |
(12,729,135 | ) | (9,994,574 | ) | ||
Repayment to related parties |
- | (294,464 | ) | |||
NET CASH FLOWS USED IN FINANCING ACTIVITIES |
(1,157,706 | ) | (6,510,928 | ) | ||
|
||||||
Effect of foreign currency translation on cash and cash equivalents |
(132,590 | ) | 47,472 | |||
|
||||||
NET DECREASE IN CASH AND CASH EQUIVALENTS |
(4,598,623 | ) | (9,671,263 | ) | ||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
$ | 9,680,293 | $ | 12,247,508 | ||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 5,081,670 | $ | 2,576,245 | ||
|
||||||
Supplementary Disclosures for Cash Flow Information: |
||||||
Interest paid |
$ | 29,733 | $ | 35,826 | ||
Income taxes paid |
$ | 21,494 | $ | 435,422 | ||
|
||||||
Non-cash investing and financing activities: |
||||||
Liabilities assumed in connection with purchase of property, plant and equipment |
$ | 31,949 | $ | - |
The accompanying notes are an integrated part of these unaudited consolidated financial statements
F-3
THT Heat Transfer Technology, Inc.
Notes to
Unaudited Consolidated Financial Statements
(Unaudited)
(Stated in US
Dollars)
1. Corporate information
THT Heat Transfer Technology, Inc. (the Company or THT or the Surviving Corporation) is a Nevada corporation with major operations in China.
2. Description of business
The Company is a holding company whose primary business are conducted through its subsidiaries, namely SipingJuyuan which is located in the Jilin Province and Beijing Juyuan which is located in Beijing City of the PRC. The Company is engaged in the manufacturing and trading of plate heat exchangers and various related products.
SipingJuyuan was established in the PRC on May 31, 2006 following the division (the Division) of Siping City Juyuan Heat Exchange Equipment Co., Ltd. (Old Juyuan Company) into three companies, namely SipingJuyuan, Siping City Juyuan Heat Exchange Equipment Co., Ltd. (New Juyuan Company) and Siping City JuyuanHanyang Pressure Vessels Co., Ltd (JuyuanHanyang Pressure Vessels).
3. Summary of significant accounting policies
Basis of presentation and consolidation
The accompanying unaudited consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the SEC) including the instructions to Form 10-Q and Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been or omitted from these statements pursuant to such rules and regulations and, accordingly, they do not include all the information and notes necessary for comprehensive consolidated financial statements and should be read in conjunction with the Companys consolidated financial statements and accompanying notes thereto for the year ended December 31, 2015 filed with the SEC in the Companys Form 10-K on March 30, 2016.
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 six-month period have been made. Results for the interim periods presented are not necessarily indicative of the results that might be expected for the entire fiscal year.
F-4
The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter- company balances and transactions have been eliminated on consolidation.
Fair value of financial instruments
Accounting Standards Codification (ASC) Topic 820 requires the disclosure of the estimated fair value of financial instruments including those financial instruments for which fair value option was not elected. As of June 30, 2016 and December 31, 2015, the carrying amounts of the Companys financial assets and liabilities approximated their fair values due to short maturities or the applicable interest rates approximated the current market rates.
Recently issued accounting pronouncements
In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments in this ASU add further guidance on identifying performance obligations and also to improve the operability and understandability of the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606. Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein. Early application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.
In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The amendments in this ASU, among other things: (1) clarify the objective of the collectibility criterion for applying paragraph 606-10-25-7; (2) permit an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specify that the measurement date for noncash consideration is contract inception; (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarify that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. The effective date of these amendments is at the same date that Topic 606 is effective. Topic 606 is effective for public entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.
4. Trade receivables, net
June 30, | December 31, | |||||
2016 | 2015 | |||||
(Unaudited) | ||||||
Trade receivables | $ | 41,655,673 | $ | 45,747,802 | ||
Less: Allowance for doubtful accounts | (8,177,391 | ) | (7,689,089 | ) | ||
$ | 33,478,282 | $ | 38,058,713 |
An analysis of the change in allowance for doubtful accounts for the six months ended June 30, 2016 and 2015 is as follows:
Six months ended | ||||||
June 30, | ||||||
(Unaudited) | ||||||
2016 | 2015 | |||||
Balance at beginning of period | $ | 7,689,089 | $ | 8,512,850 | ||
Adjustment of bad debt expense | 676,027 | (939,772 | ) | |||
Translation adjustments | (187,725 | ) | 79,973 | |||
Balance at end of period | $ | 8,177,391 | $ | 7,653,051 |
F-5
5. Inventories, net
June 30, | December 31, | |||||
2016 | 2015 | |||||
(Unaudited) | ||||||
Raw materials | $ | 8,711,228 | $ | 7,920,917 | ||
Work-in-progress | 1,434,906 | 1,224,069 | ||||
Finished goods | 10,461,714 | 10,703,842 | ||||
20,607,848 | 19,848,828 | |||||
Allowance for obsolete inventories | (18,366 | ) | (18,799 | ) | ||
$ | 20,589,482 | $ | 19,830,029 |
No further allowance for obsolete inventories was recognized during the six months ended June 30, 2016 and 2015.
6. Income tax
The effective tax rate is 21% and -6% for the three months period ended June 30, 2016 and 2015, respectively. The effective tax rate is -11% and 18% for the six months period ended on June 30, 2016 and 2015, respectively.
7. Property, plant and equipment, net
As of June 30, 2016 and December 31, 2015, property, plant and equipment with net book values of $5,342,905 and $5,642,506, respectively, were pledged as collateral under certain loan arrangements (see Note 9).
8. Land use rights
As of June 30, 2016 and December 31, 2015, land use rights with net book values of $5,394,737 and $5,582,690 were pledged as collateral under certain loan arrangements (see Note 9).
During the six months ended June 30, 2016 and 2015, amortization amounted to $60,752 and $64,952, respectively.
9. Short-term bank loans
June 30, | December 31, | |||||
2016 | 2015 | |||||
(Unaudited) | ||||||
Loan from unrelated party | $ | - | $ | 6,176,529 | ||
Secured bank loan | 4,816,811 | - | ||||
$ | 4,816,811 | $ | 6,176,529 |
F-6
Short-term loans from unrelated party
The Company had a loan balance of $6,176,529 borrowed from a third party individual as of December 31. 2015. The loan is unsecured, bearing no interest rate and due on demand. During the six months ended June 30, 2016, the Company borrowed an additional RMB $43,099,989 (approximately $6,595,000) and repaid RMB 87,240,000 (approximately $13,350,000) to this individual. The excessive repayment of RMB 4,050,011 (approximately $620,000) represents a loan to this person, with no interest and due on demand, which was included in other receivables, prepayments and deposits, net as of June 30, 2016.
Short-term bank loans
On May 31, 2016, the Company obtained a secured bank loan in the amount of RMB 32,000,000 (approximately $4,817,000) from Agricultural Bank of China. The interest rate is fixed at one year Loan Prime Rate (LPR) on the date immediately prior to the date of loan withdrawal plus 0.485% . The loan will be due in one year.
The secured bank loans were secured by the following assets of the Company:
June 30, | December 31, | |||||
2016 | 2015 | |||||
(Unaudited) | ||||||
Property, plant and equipment (Note 7) | 5,342,905 | 5,642,506 | ||||
Land use rights (Note 8) | 5,394,737 | 5,582,690 | ||||
$ | 10,737,642 | $ | 11,225,196 |
10. Current maturity of long-term loans
Long-term loans include the following:
June 30, | December 31, | |||||
2016 | 2015 | |||||
(Unaudited) | ||||||
Unsecured loan | 526,839 | 539,233 | ||||
Total | $ | 526,839 | $ | 539,233 |
In December 2013, the Company obtained a 3-year entrusted loan from a non-financial institution bearing interest at 3% per annum granted by local government. The entrusted unsecured loan will be matured on December 24, 2016.
F-7
11. 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 six months ended June 30, 2016 and 2015 were as follows:
Six months ended June 30, | ||||||||||||
2016 | % | 2015 | % | |||||||||
(Unaudited) | (Unaudited) | |||||||||||
Plate heat exchanger | $ | 5,075,804 | 43 | $ | 4,278,495 | 28 | ||||||
Heat exchange unit | 4,336,349 | 36 | 5,663,581 | 37 | ||||||||
Shell-and-tube heat exchanger | 272,023 | 2 | 921,927 | 6 | ||||||||
Others | 2,233,409 | 19 | 4,440,830 | 29 | ||||||||
$ | 11,917,585 | 100 | $ | 15,304,833 | 100 |
All of the Companys long-lived assets and revenues classified based on the customers are located in the PRC.
12. Related party transactions
The related parties consist of as following:
Name of Related Party | Nature of Relationship |
Guohong Zhao | Chairman, Chief Executive Officer and President |
Zhigang Xu | Chief Financial Officer, Treasurer and Secretary |
Fucai Zan | Chief Technology Officer |
Kai Liu | Chief Engineer, Manager of Market development |
Yongfu Tian | Heat & Electricity Department Manager |
F-8
Due from related parties
As of June 30, 2016 and December 31, 2015, respectively, the Company advanced $17,928 and $26,896 to Guohong Zhao for handling selling and logistic activities for the Company in the ordinary course of business.
As of June 30, 2016 and December 31, 2015, respectively, the Company advanced $0 and $886 to Fucai Zan for handling selling and logistic activities for the Company in the ordinary course of business.
As of June 30, 2016 and December 31, 2015, respectively, the Company advanced $11,500 and $11,770 to Kai Liu for handling selling and logistic activities for the Company in the ordinary course of business.
Due to related parties
Due to related parties consist of following:
June 30, | December 31, | |||||
2016 | 2015 | |||||
(Unaudited) | ||||||
Zhigang Xu | 184,232 | 77,033 | ||||
Fucai Zan | 150,525 | 107,847 | ||||
Kai Liu | 75,263 | 154,067 | ||||
Yongfu Tian | 75,263 | 77,033 | ||||
$ | 485,283 | $ | 415,980 |
Amounts owed by the Company represent non-secured and non-interest bearing loans obtained from related parties which are due on demand.
F-9
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Special Note Regarding Forward Looking Statements
In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as believe, expect, anticipate, project, target, plan, optimistic, intend, aim, will or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those identified in Item 1A Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2015, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements.
Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.
Use of Terms
Except where the context otherwise requires and for the purposes of this report only:
|
THT, Company, we, us, or our are to the combined business of THT Heat Transfer Technology, Inc., a Nevada corporation, and its consolidated subsidiaries: Megaway, Star Wealth, Siping Juyuan and Beijing Juyuan; | |
|
Megaway are to Megaway International Holdings Limited, a BVI company; | |
|
Star Wealth are to Star Wealth International Holdings Limited, a Hong Kong company; | |
|
Siping Juyuan are to Siping City Juyuan Hanyang Plate Heat Exchanger Co. Ltd., a PRC company; | |
|
Beijing Juyuan are to Beijing Juyuan Hanyang Heat Exchange Equipment Co., Ltd., a PRC company; | |
|
BVI are to the British Virgin Islands; | |
|
Hong Kong are to the Hong Kong Special Administrative Region of the Peoples Republic of China; | |
|
PRC and China are to the Peoples Republic of China; | |
|
SEC are to the Securities and Exchange Commission; | |
|
Exchange Act are to the Securities Exchange Act of 1934, as amended; | |
|
Securities Act re to the Securities Act of 1933, as amended; | |
|
Renminbi and RMB are to the legal currency of China; and | |
|
U.S. dollars, dollars and $ are to the legal currency of the United States. |
Overview of our Business
We are a leading total solution provider in the heat exchange industry. Our major products are plate heat exchangers, heat exchanger units, air-cooled heat exchangers and shell-and-tube heat exchangers. Unlike most other heat exchanger manufacturers in China, we not only provide heat exchange products, but also provide total solutions to our customers. As a total solutions provider, we analyze the working condition of our customers, provide optimized designs based on analysis and simulation, offer high quality heat exchange products, and continuously assist our customers in improving the heat exchange process.
Over the past ten years, we have successfully completed over 3,000 projects in more than 15 industries, including metallurgy, heat and power, petrochemical, food and beverage, pharmaceutical and shipbuilding. We have provided heat exchange solutions to Fortune 500 companies, including Shell, BP, BASF, LG, Sinopec and China Shenhua. We have also provided heat exchange products for important Chinese and international projects such as the Beijing 2008 Olympics Wukesong Sports Center, Guangdong Linao nuclear plant and BASF Chemical plant in Germany.
3
Our operations are headquartered in Siping, Jilin Province, PRC. Our primary Chinese operating subsidiaries are Siping Juyuan and Beijing Juyuan.
Second Quarter Financial Performance Highlights
The following summarizes certain key financial information for the second quarter of 2016:
| Sales revenue: Sales revenue increased by $0.69 million, or 9.62%, to $7.82 million for the three months ended June 30, 2016, from $7.13 million for the same period in 2015. | |
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Gross profit: Gross profit increased by $1.51 million, or 82.88%, to $3.32 million for the three months ended June 30, 2016, from $1.82 million for the same period in 2015. As a percentage of sales revenue, gross profit increased by 17.04% to 42.54% for the three months ended June 30, 2016, from 25.50% for the same period in 2015. | |
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Net income attributable to stockholders: Net income attributable to our stockholders increased by $0.62 million, or 227.24%, to a net income of $0.35 million for the three months ended June 30, 2016, from a net loss of $0.27 million for the same period in 2015. | |
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Fully diluted net income per share: Fully diluted net income per share was $0.02 for the three months ended June 30, 2016, as compared to fully diluted net loss per share of $0.01 for the same period in 2015. |
Results of Operations
Comparison of Three Months Ended June 30, 2016 and 2015
The following table sets forth key components of our results of operations for the periods indicated.
Three Months Ended | ||||||||||||
June 30, | $ | % | ||||||||||
2016 | 2015 | Change | Change | |||||||||
Sales revenue | $ | 7,816,759 | $ | 7,130,943 | $ | 685,816 | 9.62 | |||||
Cost of sales | (4,491,790 | ) | (5,312,819 | ) | (821,029 | ) | (15.45 | ) | ||||
Gross profit | 3,324,969 | 1,818,124 | 1,506,845 | 82.88 | ||||||||
Operating expenses: | ||||||||||||
Administrative expenses | 1,057,606 | 728,178 | 329,428 | 45.24 | ||||||||
Research and development expenses | 112,044 | 499,429 | (387,385 | ) | (77.57 | ) | ||||||
Selling expenses | 1,808,455 | 925,366 | 883,089 | 95.43 | ||||||||
Total operating expenses | 2,978,105 | 2,152,973 | 825,132 | 38.33 | ||||||||
Income (loss) from operations | 346,864 | (334,849 | ) | 681,713 | 203.59 | |||||||
Interest income | 5,767 | 2,501 | 3,266 | 130.59 | ||||||||
Investment income | 5,932 | - | 5,932 | 100.00 | ||||||||
Other income | 99,455 | 45,647 | 53,808 | 117.88 | ||||||||
Finance costs | (16,148 | ) | (3,197 | ) | 12,951 | 405.10 | ||||||
Income (loss) before income taxes | 441,870 | (289,898 | ) | 731,768 | 252.42 | |||||||
Income taxes benefits (expense) | (94,028 | ) | 16,519 | (110,547 | ) | (669.21 | ) | |||||
Net income (loss) | 347,842 | (273,379 | ) | 621,221 | (227.24 | ) |
Sales revenue. Our sales revenue is generated from sales of heat exchange products. Sales revenue increased by $0.69 million, or 9.62%, to $7.82 million for the three months ended June 30, 2016, from $7.13 million for the same period in 2015. Our sales volume in the three months ended June 30, 2016 amounted to 503 units, an increase of 14 units, from 489 units for the same period in 2015. Sales revenue from plate heat exchangers increased by $0.65 million, or 26.14%, to $3.14 million for the three months ended June 30, 2016, from $2.49 million for the same period in 2015. Sales revenue from heat exchange unit increased $1.09 million as compared with the same period in 2015. We have made great efforts to develop more customers around the country in the quarter, though the sales of shell-and-tube heat exchanger and other products did no improve, the sales of our main products - plate heat exchanger and heat exchange units increased which led to the improved total sales.
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The following table shows our sales revenue by product for the three months ended June 30, 2016 and 2015:
Three Months Ended June 30, | ||||||||||||
2016 | 2015 | |||||||||||
$ | % | $ | % | |||||||||
Plate heat exchanger | $ | 3,135,726 | 40.12 | $ | 2,485,862 | 34.86 | ||||||
Heat exchange unit | 2,817,176 | 36.04 | 1,729,624 | 24.26 | ||||||||
Shell-and-tube heat exchanger | 272,023 | 3.48 | 938,619 | 13.16 | ||||||||
Others | 1,591,834 | 20.36 | 1,976,838 | 27.72 | ||||||||
TOTAL | $ | 7,816,759 | 100 | $ | 7,130,943 | 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 $0.82 million, or 15.45%, to $4.49 million for the three months ended June 30, 2016, from $5.31 million for the three months ended June 30, 2015. The decrease in the cost of sales was caused by the following reasons: (1) a reduction in number of factory employees has led to lower labor cost, and (2) we disassembled some old finished goods and used the parts on the latest one, which led to lower material cost. Cost of sales as a percentage of sales revenue were 57.46% and 74.50% for the three months ended June 30, 2016 and 2015, respectively, a decrease of 17.04 percentage points. The decrease was mainly attributable to the increase in revenue and decrease in the labor cost and material cost.
Gross profit. Our gross profit is equal to the difference between our sales revenue and our cost of sales. Our gross profit increased by $1.51 million, or 82.88%, to $3.32 million for the three months ended June 30, 2016, from $1.82 million for the same period in 2015. The increase in our gross profit was mainly attributable to increase in sales revenues and decrease in cost of sales. As the average unit selling price of our products increased by 6.57% in the three months ended June 30, 2016 in comparison with the same period in 2015, gross profit margin for the three months ended June 30, 2016 increased to 42.54% from 25.50% for the same period in 2015. The increase in our gross profit margin was mainly attributable to the decrease 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 $0.33 million, or 45.24%, to $1.06 million for the three months ended June 30, 2016, from $0.73 million for the same period in 2015. As a percentage of sales revenue, administrative expenses increased to 13.53% for the three months ended June 30, 2016, as compared to 10.21% for the same period in 2015. The increase in administrative expenses was resulted from recognition of more bad debt expense for the six months ended on June 30, 2016 as the economy became worse for the industry. The increase due to bad debt recognition was offset by a decrease of wage expenses, as we have laid off some employees during the period.
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 $0.39 million, or 77.57%, to $0.11 million for the three months ended June 30, 2016, from $0.50 million for the same period in 2015. The decrease in research and development expenses was mainly attributable to fewer new products in the process of research and development during the three month period in 2016.
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 $0.88 million, or 95.43%, to $1.81 million for the three months ended June 30, 2016, from $0.93 million for the same period in 2015. As a percentage of sales revenue, selling expenses increased to 23.14% for the three months ended June 30, 2016, as compared to 12.98% for the same period in 2015. The increase was mainly attributable to the Companys effort to develop new customers, as such, more travelling expense has been incurred.
Income before income taxes. Income before income taxes increased by $0.73 million, or 252.42%, to $0.44 million for the three months ended June 30, 2016, from loss before taxes of $0.29 million for the same period in 2015. Such increase was mainly attributable to the increase in sales revenues.
Income taxes. Our income tax expense increased to $0.09 million for the three months ended June 30, 2016, from income tax benefit of $0.02 million for the same period in 2015, as a result of the increased taxable income.
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Net income. As a result of the cumulative effect of the foregoing factors, our net income increased by $0.62 million, or 227.24%, to an income of $0.35 million for the three months ended June 30, 2016, from a loss of $0.27 million for the same period in 2015. As a percentage of sales revenue, our net income (loss) was 4.45 % and (3.83) % for the three months ended June 30, 2016 and 2015, respectively.
Comparison of Six Months Ended June 30, 2016 and June 30, 2015
The following table sets forth key components of our results of operations for the periods indicated.
Six Months Ended | ||||||||||||
June 30, | $ | % | ||||||||||
2016 | 2015 | Change | Change | |||||||||
Sales revenue | $ | 11,917,585 | $ | 15,304,833 | $ | (3,387,248 | ) | (22.13 | ) | |||
Cost of sales | (7,464,516 | ) | (11,081,229 | ) | (3,616,713 | ) | (32.64 | ) | ||||
Gross profit | 4,453,069 | 4,223,604 | 229,465 | 5.43 | ||||||||
Operating expenses: | ||||||||||||
Administrative expenses | 2,510,597 | 1,030,196 | 1,480,401 | 143.70 | ||||||||
Research and development expenses | 531,901 | 710,754 | (178,853 | ) | (25.16 | ) | ||||||
Selling expenses | 3,704,436 | 1,737,923 | 1,966,513 | 113.15 | ||||||||
Total operating expenses | 6,746,934 | 3,478,873 | 3,268,061 | 93.94 | ||||||||
Income (loss) from operations | (2,293,865 | ) | 744,731 | (3,038,596 | ) | (408.01 | ) | |||||
Interest income | 9,328 | 5,857 | 3,471 | 59.26 | ||||||||
Other income | 91,809 | 75,278 | 16,531 | 21.96 | ||||||||
Investment income | 8,793 | - | 8,793 | 100.00 | ||||||||
Finance costs | (34,722 | ) | (41,805 | ) | (7,083 | ) | (16.94 | ) | ||||
Income (loss) before income taxes | (2,218,657 | ) | 784,061 | (3,002,718 | ) | (382.97 | ) | |||||
Income taxes benefits (expense) | 251,091 | (143,531 | ) | 394,622 | 274.94 | |||||||
Net income (loss) | (1,967,566 | ) | 640,530 | (2,608,096 | ) | (407.18 | ) |
Sales revenue. Our sales revenue decreased by $3.39 million, or 22.13%, to $11.92 million for the six months ended June 30, 2016, from $15.30 million for the same period in 2015. Our sales volume in the six months ended June 30, 2016 amounted to 835 units, a decrease of 16 units, from 851 units for the same period in 2015. Sales revenue from plate heat shorexchangers increased by $0.80 million, or 18.64%, to $5.08 million for the six months ended June 30, 2016, from $4.28 million for the same period in 2015. Sales revenue from heat exchange unit decreased $1.33 million as compared with the same period in 2015. Chinas economic slowdown in 2015 and first half year of 2016 affected several industries we serve, especially the industries with excessive capacity such as petrochemical, metallurgical and shipbuilding industries. Because of the energy conservation and emission reduction policies adopted in China, many projects in petrochemical industry were suspended and delayed with less orders in the first half of 2016. Many orders from shipbuilding industry also declined drastically. Although sales revenue from plate heat exchanger increased, the increase was not enough to offset the decreased sales revenue from heat exchange unit, and other products.
The following table shows our sales revenue by product for the six months ended June 30, 2016 and 2015:
Six Months Ended June 30, | ||||||||||||
2016 | 2015 | |||||||||||
$ | % | $ | % | |||||||||
Plate heat exchanger | $ | 5,075,804 | 42.59 | $ | 4,278,495 | 27.96 | ||||||
Heat exchange unit | 4,336,349 | 36.39 | 5,663,581 | 37.01 | ||||||||
Shell-and-tube heat exchanger | 272,023 | 2.28 | 921,927 | 6.02 | ||||||||
Others | 2,233,409 | 18.74 | 4,440,830 | 29.02 | ||||||||
TOTAL | $ | 11,917,585 | 100 | $ | 15,304,833 | 100 |
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Cost of sales. Our cost of sales decreased by $3.62 million, or 32.64%, to $7.46 million for the six months ended June 30, 2016, from $11.08 million for the six months ended June 30, 2015. 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 62.63% and 72.40% for the six months ended June 30, 2016 and 2015, respectively, a decrease of 9.77 percentage points. The decrease was mainly attributable to the decrease in labor costs and raw material costs.
Gross profit. Our gross profit increased by $0.23 million, or 5.43%, to $4.45 million for the six months ended June 30, 2016, from $4.22 million for the same period in 2015. The increase in our gross profit was mainly attributable to decrease in cost of revenues. As the average unit selling price of our products decreased by 20.64% in the six months ended June 30, 2016 in comparison with the same period in 2015, gross profit margin for the six months ended June 30, 2016 increased to 37.37% from 27.60% for the same period in 2015. The increase in our gross profit margin was mainly attributable to the decrease in labor costs and raw material costs as noted above.
Administrative expenses. Our administrative expenses increased by $1.48 million, or 143.70%, to $2.51 million for the six months ended June 30, 2016, from $1.03 million for the same period in 2015. As a percentage of sales revenue, administrative expenses increased to 21.07% for the six months ended June 30, 2016, as compared to 6.73% for the same period in 2015. The increase in administrative expenses was mainly due to the following reasons: (1) bad debt expense increased by $0.68 million resulting from the increase of uncollected accounts receivable with the slowdown of economy and (2) other general and administrative expenses, such as SAP system installation fees, increased by $1 million during the six months ended June 30, 2016.
Research and development expenses. Our research and development expenses decreased by $0.18 million, or 25.16%, to $0.53 million for the six months ended June 30, 2016, from $0.71 million for the same period in 2015. The decrease in research and development expenses was mainly attributable to fewer new products in the process of research and development.
Selling expenses. Our selling expenses increased by $1.97 million, or 113.15%, to $3.70 million for the six months ended June 30, 2016, from $1.74 million for the same period in 2015. As a percentage of sales revenue, selling expenses increased to 31.08% for the six months ended June 30, 2016, as compared to 11.36% for the same period in 2015. The increase was mainly attributable to the Companys efforts to develop new customers.
Income before income taxes. Income before income taxes decreased by $3.00 million, or 382.97%, to a loss of $2.22 million for the six months ended June 30, 2016, from an income of $0.78 million for the same period in 2015. Such decrease was mainly attributable to the decrease in sales revenues.
Income taxes. Our income taxes expense decreased by $0.39 million, to a tax benefit of $0.25 million for the six months ended June 30, 2016, from a tax expense of $0.14 million for the same period in 2015, as a result of the decreased taxable income.
Net income. As a result of the cumulative effect of the foregoing factors, our net income decreased by $2.61 million, or 407.18%, to a net loss of $1.97 million for the six months ended June 30, 2016, from a net income of $0.64 million for the same period in 2015. As a percentage of sales revenue, our net income (loss) was (16.51) % and 4.19% for the six months ended June 30, 2016 and 2015, respectively.
Liquidity and Capital Resources
As of June 30, 2016, we had cash and cash equivalents of $5.08 million, primarily consisting of cash on hand and demand deposits. In addition, we have an approximately $5.72 million credit line from Agriculture Bank of China. We anticipate that cash on hand and borrowing capacity under our bank loans will be sufficient to satisfy our ongoing obligations.
We believe our allowance for doubtful accounts is appropriate. We have an installment payment arrangement with our customers. The current economic slowdown and Chinas tightened credit policy led to delayed payments and delayed delivery schedules by our customers, which in turn caused us to increase our allowance for doubtful accounts from $7.65 million in the six months ended June 30, 2015 to $8.18 million in the same period in 2016. To control inflation after a massive stimulus plan, the Chinese government tightened its credit policy. As a result, state-owned banks limited their lending to large state-owned corporations and privately held companies continue to have difficulty accessing capital. Most of our customers have been affected by the tightened credit policy and have limited access to capital. The Company records an allowance for doubtful accounts at a rate of 25% for receivables aged between 1 to 2 years, 50% for receivables aged between 2 to 3 years and 100% for receivables aged over 3 years.
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Our allowance of obsolete inventory is also appropriate because we purchase raw materials after we receive purchase orders. Although our customers may delay their payment or delivery schedules, which increase our inventories, they do not cancel their orders so as to cause us to classify the delayed inventories as obsolete inventories.
We expect that the trend of delayed customer payments and delayed delivery schedules will continue in the future. We have been taking the following measures to mitigate the situation: 1) send the collection letters or call the customers to request payment; 2) appoint specialists to visit our customers to collect payment; and 3) file law suits.
PRC legal restrictions permit payments of dividends by our PRC subsidiaries only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Our PRC subsidiaries are also required under PRC laws and regulations to allocate at least 10% of their annual after-tax profits determined in accordance with PRCGAAP to a statutory general reserve fund until the amounts in said fund reaches 50% of our registered capital. Allocations to these statutory reserve funds can only be used for specific purposes and are not transferable to us in the form of loans, advances, or cash dividends. Given that the Company and the PRC subsidiaries do not intend to pay dividends for the foreseeable future, we consider the impact of restrictions on our liquidity, financial condition and results of operations is not significant.
The following table provides a summary of our net cash flows from operating, investing, and financing activities.
Cash Flow
Six Months Ended June 30, | ||||||
2016 | 2015 | |||||
Net cash used in operating activities | $ | (2,557,756 | ) | $ | (3,141,661 | ) |
Net cash used in investing activities | (750,571 | ) | (66,146 | ) | ||
Net cash used in financing activities | (1,157,706 | ) | (6,510,928 | ) | ||
Effects of exchange rate change in cash | (132,590 | ) | 47,472 | |||
Net decrease in cash and cash equivalents | (4,598,623 | ) | (9,671,263 | ) | ||
Cash and cash equivalents at beginning of the period | 9,680,293 | 12,247,508 | ||||
Cash and cash equivalent at end of the period | $ | 5,081,670 | $ | 2,576,245 |
Operating Activities
Net cash used in operating activities was $2.56 million for the six months ended June 30, 2016, compared with $3.14 million used for the same period in 2015. The decrease in net cash used in operating activities was mainly due to the change of other payables and accrued expenses, from an outflow of $6.56 million for the six months ended June 30, 2015 to an outflow of $0.16 million in 2016 for the same period, and the change of accounts payable, from an outflow of $5.03 million for the six months period ended June 30, 2015 to an inflow of $0.16 million for the same period in 2016, offset by the change in other receivables, from an outflow of $1.69 million for the six months ended June 30, 2015, to an outflow of $3.78 million in 2016 for the same period, and the change of inventories, from an inflow of $3.17 million for the six months ended June 30, 2015, to an outflow of $1.24 million in 2016 for the same period.
Investing Activities
Net cash used in investing activities was $0.75 million for the six months ended June 30, 2016, compared with $0.66 million in the same period in 2015. The increase of net cash used in investing activities during the period ended June 30, 2016 was primarily due to the proceed paid to third parties and payment made for property, plant and equipment.
Financing Activities
Net cash used in financing activities was $1.16 million for the six months ended June 30, 2016, compared with $6.51 million for the same period in 2015. The decrease in net cash used in financing activities was primarily due to the increase of $7.79 million proceeds from short-term loans. We incurred $11.57 million borrowings of short-term loans for the six months ended June 30, 2016 compared to $3.78 million borrowings from short-term loans for the same period in 2015.
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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.
Six Months Ended June 30, | ||||||
2016 | 2015 | |||||
Construction costs | 20,049 | 350,000 | ||||
Prepayment for land use right | - | - | ||||
Purchase of equipment | 5,971 | 8,601 | ||||
Total capital expenditures | 26,020 | 358,601 |
We estimate that our total capital expenditures in fiscal year 2016 will reach approximately $0.85 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 second 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, 2015.
Recent Accounting Pronouncements
See Note 3 to our unaudited condensed consolidated financial statements included elsewhere in this report.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Not Applicable.
ITEM 4. | CONTROLS AND PROCEDURES. |
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Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15(e), our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer, Mr. Guohong Zhao, and Interim Chief Financial Officer, Mr. Zhigang Xu, of the effectiveness of the design and operation of our disclosure controls and procedures, as of June 30, 2016. Based upon, and as of the date of this evaluation, Messrs. Zhao and Xu determined that because of the material weaknesses described in Item 9A Controls and Procedures of our Annual Report on Form 10-K for the year ended December 31, 2015, which we are still in the process of remediating as of June 30, 2016, 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, 2015 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, 2015, 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, 2015, our management has identified the steps necessary to address the material weaknesses, and in the second quarter of 2016, 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 second quarter of 2016 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 effect on our business, financial condition, and cash flow or operating results.
ITEM 1A. | RISK FACTORS. |
Not applicable.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
We have not sold any equity securities during the second quarter of 2016 that were not previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K that was filed during the quarter.
No repurchases of our common stock were made during the second quarter of 2016.
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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 second quarter of 2016, but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.
ITEM 6. | EXHIBITS. |
The list of exhibits in the Exhibit Index to this report is incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 15, 2016 | THT HEAT TRANSFER TECHNOLOGY, INC. | |
By: | /s/ Guohong Zhao | |
Guohong Zhao, Chief Executive Officer | ||
(Principal Executive Officer) | ||
By: | /s/ Zhigang Xu | |
Zhigang Xu, Interim Chief Financial Officer | ||
(Principal Financial Officer and Principal | ||
Accounting Officer) |
EXHIBIT INDEX
Exhibit No. | Description | |
101 |
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Interactive data files pursuant to Rule 405 of Regulation S-T (furnished herewith). |