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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: September 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
People’s Republic of China
(Address of principal executive offices, Zip Code)

86-434-3265241
(Registrant’s 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 issuer’s classes of common stock, as of November 14, 2015 is as follows:

Class of Securities Shares Outstanding
Common Stock, $0.001 par value 20,453,500


THT HEAT TRANSFER TECHNOLOGY, INC.

Quarterly Report on Form 10-Q
Period Ended September 30, 2016

TABLE OF CONTENTS

PART I
FINANCIAL INFORMATION

1
       
  ITEM 1. FINANCIAL STATEMENTS. 1
  ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 10
  ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 17
  ITEM 4. CONTROLS AND PROCEDURES. 20
       
PART II
OTHER INFORMATION


18
       
  ITEM 1. LEGAL PROCEEDINGS. 18
  ITEM 1A. RISK FACTORS. 18
  ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 18
  ITEM 4. MINE SAFETY DISCLOSURES. 21
  ITEM 5. OTHER INFORMATION. 21
  ITEM 6. EXHIBITS. 21

i


PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

THT HEAT TRANSFER TECHNOLOGY, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

Contents Pages(s)
                 Consolidated Balance Sheets F-1
                 Consolidated Statements of Income and Comprehensive Income (Loss) F-2
                 Consolidated Statements of Cash Flows F-3
                 Notes to Consolidated Financial Statements F-5


THT Heat Transfer Technology, Inc.
Consolidated Balance Sheets
(Stated in US dollars)

    September 30,     December 31,  
    2016     2015  
    (Unaudited)      
ASSETS                        
Current assets            
  Cash and cash equivalents $  5,018,981   $  9,680,293  
  Restricted cash   639,134     517,073  
  Trade receivables, net   31,759,744     38,058,713  
  Bills receivable   1,992,752     726,224  
  Other receivables, prepayments and deposits, net   12,750,074     10,088,586  
  Due from related parties   53,490     39,552  
  Inventories, net   28,811,594     19,830,029  
  Deferred tax assets   426,454     159,960  
Total Current Assets   81,452,223     79,100,430  
             
  Restricted cash, non-current   338,917     369,263  
  Retention receivable   869,878     1,589,313  
  Property, plant and equipment, net   9,006,824     9,666,773  
  Land use rights, net   5,343,810     5,582,690  
TOTAL ASSETS $  97,011,652   $  96,308,469  
             
LIABILITIES & SHAREHOLDERS’ EQUITY            
Current Liabilities            
  Accounts payable   10,338,222     7,095,303  
  Other payables and accrued liabilities   22,117,406     19,745,852  
  Income tax payable   19,731     20,097  
  Short-term loans   4,798,033     6,176,529  
  Current maturity of long-term loan   524,785     539,233  
  Due to related parties   374,846     415,980  
Total Current Liabilities   38,173,023     33,992,994  
             
TOTAL LIABILITIES   38,173,023     33,992,994  
             
SHAREHOLDERS’ EQUITY            
Preferred stock, $.001 par value, 10,000,000 shares authorized,
no shares issued and outstanding
Common stock, $.001 par value, 190,000,000 shares authorized,
20,453,500 shares issued and outstanding at September 30, 2016 and December 31, 2015
  20,454     20,454  
Additional paid-in capital   26,524,324     26,524,324  
Statutory reserve   3,943,474     3,943,474  
Retained earnings   27,618,336     29,446,126  
Accumulated other comprehensive income   732,041     2,381,097  
TOTAL SHAREHOLDERS’ EQUITY   58,838,629     62,315,475  
             
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $  97,011,652   $  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 Nine Months Ended     For the Three Months Ended  
                                      September 30,     September 30,  
  2016      2015      2016      2015   
Sales revenue $  20,762,886   $  27,946,302   $  8,845,301   $  12,641,469  
Cost of revenue   (13,066,894 )   (21,160,627 )   (5,602,378 )   (10,079,398 )
Gross Profit   7,695,992     6,785,675     3,242,923     2,562,071  
                         
Operating expenses                        
General and administrative expenses   4,153,756     1,879,139     1,643,159     848,943  
Research and development expenses   1,139,973     1,166,870     608,072     456,116  
Selling expenses   4,498,080     2,819,841     793,644     1,081,918  
Total Operating Expenses   9,791,809     5,865,850     3,044,875     2,386,977  
                         
Income (loss) from operations   (2,095,817 )   919,825     198,048     175,094  
                         
Other Income (Expenses)                        
Interest income   13,335     8,113     4,007     2,256  
Finance costs   (97,217 )   (44,459 )   (62,495 )   (2,654 )
Other expense   (72,904 )   (72,649 )   (65,253 )   (72,649 )
Investment income   20,972     52,404     12,179     1,397  
Other income   129,349     45,542     29,889     21,271  
Total Other Expenses   (6,465 )   (11,049 )   (81,673 )   (50,379 )
                         
Income (loss) before income taxes   (2,102,282 )   908,776     116,375     124,715  
Income tax benefits (expense)   274,492     (139,733 )   23,401     3,798  
Net Income (Loss)   (1,827,790 )   769,043     139,776     128,513  
                         
Comprehensive Income                        
Net Income (Loss)   (1,827,790 )   769,043     139,776     128,513  
Other Comprehensive Income                
Foreign currency translation adjustments   (1,649,056 )   (2,163,407 )   (262,065 )   (2,768,763 )
Comprehensive Loss   (3,476,846 )   (1,394,364 )   (122,289 )   (2,640,250 )
                         
Earnings (loss) per common share                
Basic and diluted $  (0.09 ) $  0.04   $  0.01   $  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 Nine Months Ended September 30,  
    2016     2015  
CASH FLOWS FROM OPERATING ACTIVITIES            
Net income (loss) $  (1,827,790 ) $  769,043  
Adjustments to reconcile net income (loss) to net cash used in operating activities:   -        
  Depreciation and amortization   1,026,090     940,683  
  Deferred tax assets   (274,492 )   -  
Allowance for doubtful accounts   810,583     (1,141,001 )
  Loss on disposal of property, plant and equipment   -     16,391  
Changes in operating assets and liabilities:            
  Trade receivables, net   4,625,691     2,479,712  
  Bills receivable   (1,303,617 )   324,956  
  Other receivables, prepayments and deposits   (2,080,927 )   (1,916,398 )
  Inventories, net   (9,643,311 )   1,951,154  
  Retention receivable   686,131     620,371  
  Due from related parties   (15,202 )   (4,467 )
  Accounts payable   2,997,828     (4,417,224 )
  Other payables and accrued expenses   2,940,391     (4,739,867 )
  Income tax payable   175     (513,601 )
NET CASH USED IN OPERATING ACTIVITIES   (2,058,450 )   (5,630,248 )
             
CASH FLOWS FROM INVESTING ACTIVITIES            
  Change in restricted cash   (117,046 )   260,431  
  Loans made to others   (975,743 )   -  
  Proceed from disposal of property, plant, and equipment   724     -  
  Payments to acquire property, plant and equipment   (47,589 )   (23,932 )
NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES   (1,139,654 )   236,499  
             
CASH FLOWS FROM FINANCING ACTIVITIES            
  Proceeds from short-term loans   12,781,187     11,504,112  
  Repayment of short-term loans   (14,010,820 )   (9,994,574 )
  Proceeds from related parties   45,598        
  Repayment to related parties   (75,997 )   (373,340 )
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES   (1,260,032 )   1,136,198  
             
Effect of foreign currency translation on cash and cash equivalents   (203,176 )   147,687  
             
NET DECREASE IN CASH AND CASH EQUIVALENTS   (4,661,312 )   (4,109,864 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD $  9,680,293   $  12,247,508  
CASH AND CASH EQUIVALENTS AT END OF PERIOD $  5,018,981   $  8,137,644  
             
Supplementary Disclosures for Cash Flow Information:            
  Interest paid $  97,114   $  35,548  
  Income taxes paid $  21,494   $  632,230  
Non-cash investing and financing activities:            
Liabilities assumed in connection with purchase of property, plant and equipment $  482,269   $  -  
Construction in progress transferred into property, plant and equipment $  -   $  2,158,950  

The accompanying notes are an integrated part of these unaudited consolidated financial statements
F-4


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 Company’s consolidated financial statements and accompanying notes thereto for the year ended December 31, 2015 filed with the SEC in the Company’s 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 nine-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 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 September 30, 2016 and December 31, 2015, the carrying amounts of the Company’s financial assets and liabilities approximated their fair values due to short maturities or the applicable interest rates approximated the current market rates.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings and financial position.

F-5


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 collectability 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.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”. These amendments provide cash flow statement classification guidance for: 1. Debt Prepayment or Debt Extinguishment Costs; 2. Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing; 3. Contingent Consideration Payments Made after a Business Combination; 4. Proceeds from the Settlement of Insurance Claims; 5. Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned Life Insurance Policies; 6. Distributions Received from Equity Method Investees; 7. Beneficial Interests in Securitization Transactions; and 8. Separately Identifiable Cash Flows and Application of the Predominance Principle. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early application is permitted, including adoption in an interim period. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.

In September 2016, the FASB issued ASU 2016-17, “Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control”. These amendments change the evaluation of whether a reporting entity is the primary beneficiary of a variable interest entity by changing how a reporting entity that is a single decision maker of a variable interest entity treats indirect interests in the entity held through related parties that are under common control with the reporting entity. If a reporting entity satisfies the first characteristic of a primary beneficiary (such that it is the single decision maker of a variable interest entity), the amendments require that reporting entity, in determining whether it satisfies the second characteristic of a primary beneficiary, to include all of its direct variable interests in a variable interest entity and, on a proportionate basis, its indirect variable interests in a variable interest entity held through related parties, including related parties that are under common control with the reporting entity. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity adopts the pending content that links to this paragraph in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.

F-6


4. Trade receivables, net

    September 30,     December 31,  
    2016     2015  
    (Unaudited)        
Trade receivables $  39,946,199   $  45,747,802  
Less: Allowance for doubtful accounts   (8,186,455 )   (7,689,089 )
  $  31,759,744   $  38,058,713  

An analysis of the change in allowance for doubtful accounts for the nine months ended September 30, 2016 and 2015 is as follows:

    Nine months ended  
    September 30,  
    (Unaudited)  
    2016     2015  
Balance at beginning of period $  7,689,089   $  8,512,850  
Adjustment of bad debt expense   725,909     (1,106,307 )
Translation adjustments   (228,543 )   (278,411 )
Balance at end of period $  8,186,455   $  7,128,132  

5. Inventories, net

    September 30,     December 31,  
    2016     2015  
  (Unaudited)         
             
Raw materials $  11,085,930   $  7,920,917  
Work-in-progress   1,504,659     1,224,069  
Finished goods   16,239,300     10,703,842  
    28,829,889     19,848,828  
Allowance for obsolete inventories   (18,295 )   (18,799 )
  $  28,811,594   $  19,830,029  

No further allowance for obsolete inventories was recognized during the nine months ended September 30, 2016 and 2015.

6. Income taxes

The effective tax rate is -20% and -3% for the three months period ended September 30, 2016 and 2015, respectively. The effective tax rate is 13% and 15% for the nine months period ended on September 30, 2016 and 2015, respectively.

7. Property, plant and equipment, net

As of September 30, 2016 and December 31, 2015, property, plant and equipment with net book values of $5,237,409 and $5,642,506, respectively, were pledged as collateral under certain loan arrangements (see Note 9).

8. Land use rights

As of September 30, 2016 and December 31, 2015, land use rights with net book values of $5,343,810 and 5,582,690 were pledged as collateral under certain loan arrangements (see Note 9).

During the nine months ended September 30, 2016 and 2015, amortization amounted to $90,522 and $96,673, respectively.

F-7


9. Short-term bank loans

    September 30,     December 31,  
    2016     2015  
  (Unaudited)         
             
Loan from unrelated party $  -   $  6,176,529  
Secured bank loan   4,798,033     -  
  $  4,798,033   $  6,176,529  

Short-term loans from unrelated party

The Company had a loan balance of $6,176,529 borrowed from an individual as of December 31, 2015. The loan is unsecured, bearing no interest rate and due on demand. During the nine months ended on September 30, 2016, the Company borrowed additional funds in the amount of RMB52,089,989 (approximately $7,917,374) and repaid RMB92,179,989 (approximately $14,010,820). The loan was repaid in full as of September 30, 2016. The Company also made a loan of RMB6,419,611 (approximately $975,743) to this individual during the nine months ended on September 30, 2016. The loan bears no interest and is due on demand, which was included in other receivables, prepayments and deposits, net as of September 30, 2016.

Short-term bank loans

On May 31, 2016, the Company obtained a secured bank loan in the amount of RMB32,000,000 (approximately $4,798,033) 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:

    September 30,     December 31,  
    2016     2015  
    (Unaudited)        
             
Property, plant and equipment (Note 7)   5,237,409     5,642,506  
Land use rights (Note 8)   5,343,810     5,582,690  
$ 10,581,219   $  11,225,196  

10. Current maturity of long-term loans

Long-term loans include the following:

    September 30,     December 31,  
    2016     2015  
    (Unaudited)        
Unsecured loan   524,785     539,233  
Total $  524,785   $  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-8


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 Company’s sales revenues by products for the nine months ended September 30, 2016 and 2015 were as follows:

    Nine months ended September 30,  
    2016     %     2015     %  
    (Unaudited)           (Unaudited)        
                         
Plate heat exchanger $  9,867,781     47.52   $  9,977,223     35.70  
Heat exchange unit   6,929,784     33.38     9,017,471     32.27  
Shell-and-tube heat exchanger   270,212     1.30     2,250,253     8.05  
Air-cooled heat exchanger         0.00     514,685     1.84  
Others   3,695,109     17.80     6,186,670     22.14  
  $  20,762,886     100   $  27,946,302     100  

All of the Company’s 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 Zhan Chief Technology Officer
Kai Liu Chief Engineer, Manager of Market development
Yongfu Tian Heat & Electricity Department Manager

Due from related parties

Due from related parties consist of following

    September 30,     December 31,  
    2016     2015  
    (Unaudited)        
Guohong Zhao   41,285     26,896  
Fucai Zhan   750     886  
Kai Liu   11,455     11,770  
$ 53,490   $  39,552  

Amounts owed to the Company represent Company advances for handling selling and logistic activities in the ordinary course of business.

Due to related parties

Due to related parties consist of following:

    September 30,     December 31,  
    2016     2015  
    (Unaudited)        
Zhigang Xu   74,969     77,033  
Fucai Zhan   149,939     107,847  
Kai Liu   149,938     154,067  
Yongfu Tian   -     77,033  
$ 374,846   $  415,980  

Amounts owed to the Company represent Company advances for handling selling and logistic activities in the ordinary course of business.

F-9


ITEM 2.    MANAGEMENT’S 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 People’s Republic of China;
  • “PRC” and “China” are to the People’s 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” are 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.

Third Quarter Financial Performance Highlights

The following summarizes certain key financial information for the third quarter of 2016:

  • Sales revenue: Sales revenue decreased by $3.80 million, or 30.03%, to $8.85 million for the three months ended September 30, 2016, from $12.64 million for the same period in 2015.

  • Gross profit: Gross profit increased by $0.68 million, or 26.57%, to $3.24 million for the three months ended September 30, 2016, from $2.56 million for the same period in 2015. As a percentage of sales revenue, gross profit increased by 16.39% to 36.66% for the three months ended September 30, 2016, from 20.27% for the same period in 2015.

  • Net income attributable to stockholders: Net income attributable to our stockholders increased by $0.014 million, or 11.10%, to $0.143 million for the three months ended September 30, 2016, from $0.129 million for the same period in 2015.

  • Fully diluted net income per share: Fully diluted net income per share was $0.01 for the three months ended September 30, 2016, as compared to $0.01 for the same period in 2015.

Results of Operations

Comparison of Three Months Ended September 30, 2016 and 2015

The following table sets forth key components of our results of operations for the periods indicated.

    Three Months Ended              
    September 30,     $     %  
    2016     2015     Change     Change  
Sales revenue $  8,845,301   $  12,641,469   $ (3,796,168 )   -30.03  
Cost of sales   (5,602,378 )   (10,079,398 )   4,477,020     -44.42  
Gross profit   3,242,923     2,562,071     680,852     26.57  
Operating expenses:                        
           General and Administrative expenses   1,643,159     848,943     794,216     93.55  
           Research and development expenses   608,072     456,116     151,956     33.32  
           Selling expenses   793,644     1,081,918     (288,274 )   -26.64  
Total operating expenses   3,044,875     2,386,977     657,898     27.56  
Income from operations   198,048     175,094     22,954     13.11  
Interest income   4,007     2,256     1,751     77.62  
Finance costs   (62,495 )   (2,654 )   (59,841 )   2254.75  
Other expense   (65,253 )   (72,649 )   7,396     -10.18  
Investment income   12,179     1,397     10,782     771.80  
Other income   29,889     21,271     8,618     40.52  
Total other expenses   (81,673 )   (50,379 )   (31,294 )   62.12  
Income before income taxes   116,375     124,715     (8,340 )   -4.28  
Income taxes benefit   23,401     3,798     19,603     516.14  
Net income   139,776     128,513     11,263     8.76  

Sales revenue. Our sales revenue is generated from sales of heat exchange products. Sales revenue decreased by $3.8 million, or 30.03%, to $8.85 million for the three months ended September 30, 2016, from $12.64 million for the same period in 2015. Our sales volume in the three months ended September 30, 2016 amounted to 554 units, a decrease of 578 units, from 1,132 units for the same period in 2015. Such decrease was mainly due to the decreased sales revenue from plate heat exchanger, heat exchanger unit, shell-and-tube heat exchanger and other products in the three months ended September 30, 2016 as compared with the same period in 2015. Sales revenue from plate heat exchangers decreased by $0.91 million, or 15.91%, to $4.80 million for the three months ended September 30, 2016, from $5.70 million for the same period in 2015. Sales revenue from heat exchange units decreased by $0.76 million, or 22.67%, to $2.59 million for the three months ended September 30, 2016, from $3.35 million for the same period in 2015. Revenue from air-cooled heat exchanger decreased by $0.51 million, or 100%, to $0 for the three months ended September 30, 2016, from $0.51 million for the same period in 2015. Revenue from shell-and-tube heat exchanger decreased by $1.33 million, or 100%, to $0 for the three months ended September 30, 2016, from $1.33 million for the same period in 2015. Sales revenue from other products decreased by $0.29 million, or 16.38% to $1.46 million for the three months ended September 30, 2016, from $1.75 million for the same period in 2015. The decrease was caused by decreased demand of our products as a result of an overall slowdown in China’s economy. China’s economic slowdown in the first three quarters in 2016 affected several industries we serve, especially the emission reduction policies adopted in China, many projects in petrochemical industry were suspended and delayed with less orders in the first three quarters of 2016. Many orders from shipbuilding industry also declined drastically.

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The following table shows our sales revenue by product for the three months ended September 30, 2016 and 2015:

    Three Months Ended September 30,  
    2016     2015  
    $     %     $     %  
Plate heat exchanger $  4,791,977     54.18   $  5,698,728     45.08  
Heat exchange unit   2,593,435     29.32     3,353,890     26.53  
Air-cooled heat exchanger   -     0.00     514,685     4.07  
Shell-and-tube heat exchanger   -     0.00     1,328,326     10.51  
Others   1,459,889     16.50     1,745,840     13.81  
TOTAL $  8,845,301     100.00   $  12,641,469     100.00  

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 $4.48 million, or 44.42%, to $5.60 million for the three months ended September 30, 2016, from $10.08 million for the three months ended September 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 63.34% and 79.73% for the three months ended September 30, 2016 and 2015, respectively, a decrease of 16.39 percentage points. The decrease was mainly attributable to the decrease in the 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 increased by $0.68 million, or 26.57%, to $3.24 million for the three months ended September 30, 2016, from $2.56 million 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 $0.79 million, or 93.55%%, to $1.64 million for the three months ended September 30, 2016, from $0.85 million for the same period in 2015. As a percentage of sales revenue, administrative expenses increased to 18.58% for the three months ended September 30, 2016, as compared to 6.72% for the same period in 2015. The increase in administrative expenses was primarily due to the recognition of more bad debt expense for the three months ended September 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 increased by $0.15 million, or 33.32%, to $0.61 million for the three months ended September 30, 2016, from $0.46 million for the same period in 2015. The increase in research and development expenses was mainly attributable to more new products in the process of research and development during the three months period ended September 30, 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 decreased by $0.29 million, or 26.64%%, to $0.79 million for the three months ended September 30, 2016, from $1.08 million for the same period in 2015. As a percentage of sales revenue, selling expenses increased to 8.97% for the three months ended September 30, 2016, as compared to 8.56% for the same period in 2015. The decrease was mainly attributable to the Company’s decrease in involvement of market expansion in three month ended September 30, 2016, as much expansion effort was made in the same period in 2015.

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Income before income taxes. Income before income taxes decreased by $83,000, or 4.28%, to $0.116 million for the three months ended September 30, 2016, from $0.125 million for the same period in 2015. Such decrease was mainly attributable to the decrease in sales revenue.

Income tax benefit. Our income tax benefit increased by $0.019 million, or 516.14%, to $0.023 million for the three months ended September 30, 2016, from $40,000 for the same period in 2015, as a result of the increased net loss before income tax.

Net income attributable to common stockholders. As a result of the cumulative effect of the foregoing factors, our net income attributable to common stockholders increased by $0.01 million, or 8.76%, to $0.14 million for the three months ended September 30, 2016, from $0.13 million for the same period in 2015. As a percentage of sales revenue, our net income attributable to common stockholders was 1.58% and 1.02% for the three months ended September 30, 2016 and 2015, respectively.

Comparison of Nine Months Ended September 30, 2016 and September 30, 2015

The following table sets forth key components of our results of operations for the periods indicated.

    Nine months Ended              
    September 30,     $     %  
    2016     2015     Change     Change  
Sales revenue $  20,762,886   $  27,946,302   $ (7,183,416 )   -25.70  
Cost of sales   (13,066,894 )   (21,160,627 )   8,093,733     -38.25  
Gross profit   7,695,992     6,785,675     910,317     13.42  
Operating expenses:                        
           Administrative expenses   4,153,756     1,879,139     2,274,617     121.05  
           Research and development expenses   1,139,973     1,166,870     (26,897 )   -2.31  
           Selling expenses   4,498,080     2,819,841     1,678,239     59.52  
Total operating expenses   9,791,809     5,865,850     3,925,959     66.93  
Income from operations   (2,095,817 )   919,825     (3,015,642 )   -327.85  
Interest income   13,335     8,113     5,222     64.37  
Finance costs   (97,217 )   (44,459 )   (52,758 )   118.67  
Other expense   (72,904 )   (72,649 )   (255 )   0.35  
Investment income   20,972     52,404     (31,432 )   -59.98  
Other income   129,349     45,542     83,807     184.02  
Total other expenses   (6,465 )   (11,049 )   4,584     -41.49  
Income (loss) before income taxes   (2,102,282 )   908,776     (3,011,058 )   -331.33  
Income taxes benefit (expense)   274,492     (139,733 )   414,225     -296.44  
Net income (loss)   (1,827,790 )   769,043     (2,596,833 )   -337.67  

Sales revenue. Our sales revenue decreased by $7.18 million, or 25.70%, to $20.76 million for the nine months ended September 30, 2016, from $27.95 million for the same period in 2015. Our sales volume in the nine months ended September 30, 2016 amounted to 1,389 units, a decrease of 594 units, from 1,983 units for the same period in 2015. Such decrease was mainly due to decreased demand of our products in consequence of less projects and economic slowdown in the first three quarters of 2016 compared with the same period in 2015.

The following table shows our sales revenue by product for the nine months ended September 30, 2016 and 2015:

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    Nine months Ended September 30,  
    2016     2015  
    $     %     $     %  
Plate heat exchanger $  9,867,781     47.53   $  9,977,223     35.70  
Heat exchange unit   6,929,784     33.37     9,017,471     32.27  
Air-cooled heat exchanger   -     0.00     514,685     1.84  
Shell-and-tube heat exchanger   270,212     1.30     2,250,253     8.05  
Others   3,695,109     17.80     6,186,670     22.14  
TOTAL $  20,762,886     100.00   $  27,946,302     100.00  

Cost of sales. Our cost of sales decreased by $8.09 million, or 38.25%, to $13.07 million for the nine months ended September 30, 2016, from $21.16 million for the nine months ended September 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 62.93% and 75.72% for the nine months ended September 30, 2016 and 2015, respectively, an decrease of 12.79 percentage points. The decrease was mainly attributable to the decrease in labor costs and raw material costs.

Gross profit. Our gross profit increased by $0.91 million, or 13.42%, to $7.70 million for the nine months ended September 30, 2016, from $6.79 million for the same period in 2015. The increase in our gross profit was mainly attributable to the decrease in cost of sales noted above.

Administrative expenses. Our administrative expenses increased by $2.27 million, or 121.05%, to $4.15 million for the nine months ended September 30, 2016, from $1.88 million for the same period in 2015. As a percentage of sales revenue, administrative expenses increased to 20.01% for the nine months ended September 30, 2016, as compared to 6.72% for the same period in 2015. The increase in administrative expenses was primarily due to the following reasons: (1) bad debt expense increased 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 during the nine months ended September 30, 2016.

Research and development expenses. Our research and development expenses decreased by $0.03 million, or 2.31%, to $1.14 million for the nine months ended September 30, 2016, from $1.17 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 $1.68 million, or 59.52%, to $4.50 million for the nine months ended September 30, 2016, from $2.82 million for the same period in 2015. As a percentage of sales revenue, selling expenses increased to 21.66% for the nine months ended September 30, 2016, as compared to 10.09% for the same period in 2015. The increase was mainly attributable to the Company’s efforts to develop new customers during the nine month ended September 30, 2016, especially in the first half of 2016.

Income (loss) before income taxes. Income before income taxes decreased by $3.01 million, or 331.33%, to a loss of $2.10 million for the nine months ended September 30, 2016, from an income of $0.91 million for the same period in 2015. Such decrease was mainly attributable to decrease in sales revenues and increased total expenses.

Income tax benefit (expense). Our income taxes benefit increased by $0.41 million, or 296.44%, to $0.27 million for the nine months ended September 30, 2016, from $0.14 million income tax expense for the same period in 2015, as a result of decreased taxable income.

Net income (loss) attributable to common stockholders. As a result of the cumulative effect of the foregoing factors, our net income decreased by $2.60 million, or 337.67%, to $1.83 million net loss for the nine months ended September 30, 2016, from $0.77 million net income for the same period in 2015. As a percentage of sales revenue, our net income attributable to common stockholders was -8.80% and 2.75% for the nine months ended September 30, 2016 and 2015, respectively.

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Liquidity and Capital Resources

As of September 30, 2016, we had cash and cash equivalents of $5.02 million, primarily consisting of cash on hand and demand deposits. We anticipate that cash on hand 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 China’s 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 a reversal of allowance of $-0.09 million in the nine months ended September 30, 2015 to $0.50 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.

Our allowance of obsolete inventory is also appropriate because we purchase raw materials after we receive purchase orders. Although our customers may delay their payment or delivery schedules, which increase our inventories, they do not cancel their orders so as to cause us to classify the delayed inventories as obsolete inventories.

We expect that the trend of delayed customer payments and delayed delivery schedules will continue in the future. We have been taking the following measures to mitigate the situation: 1) send the collection letters or call the customers to request payment; 2) appoint specialists to visit our customers to collect payment; 3) file law suits.

PRC legal restrictions permit payments of dividends by our PRC subsidiaries only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Our PRC subsidiaries are also required under PRC laws and regulations to allocate at least 10% of their annual after-tax profits determined in accordance with PRC GAAP to a statutory general reserve fund until the amounts in said fund reaches 50% of our registered capital. Allocations to these statutory reserve funds can only be used for specific purposes and are not transferable to us in the form of loans, advances, or cash dividends. Given that the Company and the PRC subsidiaries do not intend to pay dividends for the foreseeable future, we consider the impact of restrictions on our liquidity, financial condition and results of operations is not significant.

The following table provides a summary of our net cash flows from operating, investing, and financing activities.

Cash Flow

    Nine months Ended  
    September 30,  
    2016     2015  
Net cash used in operating activities $  (2,058,450 ) $  (5,630,248 )
Net cash provided by (used in) investing activities   (1,139,654 )   236,499  
Net cash provided by (used in) financing activities   (1,260,032 )   1,136,198  
Effects of exchange rate change in cash   (203,176 )   147,687  
Net decrease in cash and cash equivalents   (4,661,312 )   (4,109,864 )
Cash and cash equivalents at beginning of the period   9,680,293     12,247,508  
Cash and cash equivalent at end of the period $  5,018,981   $  8,137,644  

Operating Activities

Net cash used in operating activities was $2.06 million for the nine months ended September 30, 2016, compared with $5.63 million for the same period in 2015. The decrease in net cash used in operating activities was mainly attributable to the increase in cash inflow from allowance for doubtful accounts of $1.87 million, from net trade receivable of $2.15 million, from accounts payable, and other payables and accrued expenses of $7.42 million and $7.68 million, respectively. Such increase in cash inflow is then offset by increase in cash outflow from net loss of $2.60 million, from bills receivable of $1.63 million, and from net inventories of $11.60 million.

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Investing Activities

Net cash used in investing activities was $1.14 million for the nine months ended September 30, 2016, compared with net cash provided in investing activities of $0.24 million in the same period in 2015. The net cash used in investing activities during the nine months ended September 30, 2016 was primarily used for loan made to third party, payment to acquire property, plant and equipment, payment for construction in progress, and use of restricted cash.

Financing Activities

Net cash used in financing activities was $1.26 million for the nine months ended September 30, 2016, compared with net cash provided by financing activities of $1.14 million for the same period in 2015. The decrease in net cash used in financing activities resulted from repayment of short-term loans in the amount of $14.01 million and repayment to related parties in the amount of $0.76 million, offset by proceeds from short-term loans in the amount of $12.78 million and that from related party of $0.046 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.

    Nine months Ended September 30,  
    2016     2015  
Construction costs $  40,683   $    
Purchase of equipment   6,906     23,932  
             
Total capital expenditures $  47,589   $  23,932  

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.

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. See Note 3 to our unaudited condensed consolidated financial statements included elsewhere in this report.

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Recent Accounting Pronouncements

See Note 3 to our unaudited condensed consolidated financial statements included elsewhere in this report.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4.    CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and 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 September 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 September 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, 2012, 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 third quarter of 2015, we continued to implement these remedial procedures.

Other than in connection with the implementation of the remedial measures described above, there were no changes in our internal controls over financial reporting during the third quarter of 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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, cash flows, financial condition or operating results.

ITEM 1A. RISK FACTORS.

Not applicable.

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 third quarter of 2015, but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.

ITEM 6.    EXHIBITS.

The list of exhibits in the Exhibit Index to this report is incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 14, 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

31.1  

Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2  

Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1  

Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2  

Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101  

Interactive data files pursuant to Rule 405 of Regulation S-T (furnished herewith).