Attached files
file | filename |
---|---|
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 |
EX-10.1 - EXHIBIT 10.1 - THT Heat Transfer Technology, Inc. | exhibit10-1.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, 2017
[ ] 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 ] |
Emerging Growth Company [ ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
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, 2017 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, 2017 |
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, 2017 AND 2016
1
THT Heat Transfer Technology, Inc.
Consolidated
Balance Sheet
(Stated in US dollars)
June 30, | December 31, | |||||
2017 | 2016 | |||||
(Unaudited) | ||||||
ASSETS | ||||||
Current assets | ||||||
Cash and cash equivalents | $ | 4,211,863 | $ | 6,609,680 | ||
Restricted cash, current | 817,637 | 974,749 | ||||
Trade receivables, net | 33,849,248 | 37,074,481 | ||||
Trade receivables - related party | 245,065 | 1,358,399 | ||||
Bills receivable | 1,810,137 | 398,374 | ||||
Other receivables, prepayments and deposits, net | 8,545,563 | 8,904,968 | ||||
Due from related parties | 2,007,804 | 1,839,932 | ||||
Inventories, net | 25,202,002 | 21,087,301 | ||||
Total Current Assets | 76,689,319 | 78,247,884 | ||||
Restricted cash, non-current | 1,042,139 | 514,201 | ||||
Retention receivable | 834,768 | 1,653,956 | ||||
Property, plant and equipment, net | 8,559,875 | 8,437,632 | ||||
Land use rights, net | 5,171,162 | 5,104,121 | ||||
Deferred tax assets | 633,925 | 149,525 | ||||
TOTAL ASSETS | $ | 92,931,188 | $ | 94,107,319 | ||
LIABILITIES & SHAREHOLDERS EQUITY | ||||||
Current Liabilities | ||||||
Accounts payable | $ | 5,619,442 | $ | 6,727,206 | ||
Other payables and accrued liabilities | 21,486,356 | 20,525,878 | ||||
Income tax payable | - | 511,314 | ||||
Short-term loans | 4,721,923 | 4,608,494 | ||||
Due to related parties | 1,380,881 | 383,232 | ||||
Total Current Liabilities | 33,208,602 | 32,756,124 | ||||
TOTAL LIABILITIES | 33,208,602 | 32,756,124 | ||||
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 June 30, 2017 and December 31, 2016 |
20,454 | 20,454 | ||||
Additional paid-in capital | 26,524,324 | 26,524,324 | ||||
Statutory reserve | 4,270,861 | 4,270,861 | ||||
Retained earnings | 29,297,188 | 32,366,400 | ||||
Accumulated other comprehensive loss | (390,241 | ) | (1,830,844 | ) | ||
TOTAL SHAREHOLDERS EQUITY | 59,722,586 | 61,351,195 | ||||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY | $ | 92,931,188 | $ | 94,107,319 |
The accompanying notes are an integrated part of these unaudited consolidated financial statements
2
THT Heat Transfer Technology, Inc.
Consolidated
Statements of Income and Comprehensive Loss
(Stated in US dollars)
(Unaudited)
For the six months ended June 30, | For the three months ended June 30, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Revenues: | ||||||||||||
Sales revenue | $ | 11,540,890 | $ | 11,914,496 | $ | 7,542,784 | $ | 7,813,670 | ||||
Sales revenue - related party | 8,232 | 3,089 | - | 3,089 | ||||||||
Total Revenues | 11,549,122 | 11,917,585 | 7,542,784 | 7,816,759 | ||||||||
Cost of Revenues | (6,854,567 | ) | (7,464,516 | ) | (4,686,741 | ) | (4,491,790 | ) | ||||
Gross Profit | 4,694,555 | 4,453,069 | 2,856,043 | 3,324,969 | ||||||||
Operating Expenses | ||||||||||||
General and Administrative expenses | 2,677,819 | 2,510,597 | 1,855,218 | 1,057,606 | ||||||||
Research and development expenses | 732,575 | 531,901 | 414,577 | 112,044 | ||||||||
Selling expenses | 4,774,451 | 3,704,436 | 2,552,403 | 1,808,455 | ||||||||
Total Operating Expenses | 8,184,845 | 6,746,934 | 4,822,198 | 2,978,105 | ||||||||
Income (Loss) from Operations | (3,490,290 | ) | (2,293,865 | ) | (1,966,155 | ) | 346,864 | |||||
Other Income (Expenses) | ||||||||||||
Interest income | 6,509 | 9,328 | 3,239 | 5,767 | ||||||||
Other income | 50,345 | 91,809 | 7,360 | 99,455 | ||||||||
Finance costs | (119,564 | ) | (34,722 | ) | (61,352 | ) | (16,148 | ) | ||||
Investment income | 28,943 | 8,793 | 5,469 | 5,932 | ||||||||
Other expense | (18,526 | ) | - | (18,526 | ) | - | ||||||
Total Other Income (Expenses) | (52,293 | ) | 75,208 | (63,810 | ) | 95,006 | ||||||
Income (Loss) before Income Taxes | (3,542,583 | ) | (2,218,657 | ) | (2,029,965 | ) | 441,870 | |||||
Income Tax Benefit (Expense) | 473,371 | 251,091 | 321,949 | (94,028 | ) | |||||||
Net Income (Loss) | $ | (3,069,212 | ) | $ | (1,967,566 | ) | $ | (1,708,016 | ) | $ | 347,842 | |
Comprehensive Loss | ||||||||||||
Net Income (Loss) | $ | (3,069,212 | ) | $ | (1,967,566 | ) | $ | (1,708,016 | ) | $ | 347,842 | |
Other Comprehensive Income (Loss) | ||||||||||||
Foreign currency translation adjustments | 1,440,603 | (1,386,991 | ) | 975,020 | (1,761,306 | ) | ||||||
Comprehensive Loss | $ | (1,628,609 | ) | $ | (3,354,557 | ) | $ | (732,996 | ) | $ | (1,413,464 | ) |
Earnings (Loss) per common share | ||||||||||||
Basic and diluted | $ | (0.15 | ) | $ | (0.10 | ) | $ | (0.08 | ) | $ | 0.02 | |
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
3
THT Heat Transfer Technology, Inc.
Consolidated
Statements of Cash Flows
(Stated in US dollars)
(Unaudited)
For the Six Months ended June 30, | ||||||
2017 | 2016 | |||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
Net loss | $ | (3,069,212 | ) | $ | (1,967,566 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||
Loss on sales of property, plant and equipment | 336 | - | ||||
Depreciation and amortization | 585,382 | 710,398 | ||||
Deferred tax assets | (473,908 | ) | (251,091 | ) | ||
Allowance for doubtful accounts | 652,766 | 680,808 | ||||
Changes in operating assets and liabilities: | ||||||
Trade receivables, net | 3,564,582 | 3,090,853 | ||||
Trade receivables - related party | 1,130,521 | - | ||||
Bills receivable | (1,382,093 | ) | (831,034 | ) | ||
Other receivables, prepayments and deposits | 65,317 | 1,194,637 | ||||
Inventories, net | (3,544,733 | ) | (1,235,333 | ) | ||
Retention receivable | 847,713 | 1,020,317 | ||||
Due from related parties | 30,225 | (4,887,120 | ) | |||
Accounts payable | (1,262,249 | ) | 156,860 | |||
Other payables and accrued expenses | 462,912 | (157,782 | ) | |||
Income taxes payable | (516,476 | ) | 176 | |||
NET CASH USED IN OPERATING ACTIVITIES | (2,908,917 | ) | (2,475,877 | ) | ||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||
Change in restricted cash | (329,443 | ) | (104,847 | ) | ||
Proceeds from disposal of property, plant and equipment | 324 | - | ||||
Payments to acquire property, plant and equipment | (437,112 | ) | (26,020 | ) | ||
Loans made to others | (1,742,110 | ) | (619,704 | ) | ||
Loans made to related party | (383,825 | ) | (204,289 | ) | ||
Repayments from others | 2,112,475 | - | ||||
Repayments from related party | 232,751 | 122,410 | ||||
NET CASH FLOWS USED IN INVESTING ACTIVITIES | (546,940 | ) | (832,450 | ) | ||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||
Proceed from bank loan | 4,710,080 | 11,571,429 | ||||
Repayment to bank loan | (4,664,845 | ) | (12,729,135 | ) | ||
Proceeds from related parties | 1,839,765 | - | ||||
Repayments to related parties | (879,638 | ) | - | |||
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES | 1,005,362 | (1,157,706 | ) | |||
Effect of foreign currency translation on cash and cash equivalents | 52,678 | (132,590 | ) | |||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (2,397,817 | ) | (4,598,623 | ) | ||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 6,609,680 | 9,680,293 | ||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 4,211,863 | $ | 5,081,670 | ||
Supplementary Disclosures for Cash Flow Information: | ||||||
Interest paid | $ | 111,376 | $ | 29,733 | ||
Income taxes paid | $ | 538,176 | $ | 21,494 | ||
Non-cash investing and financing activities: | ||||||
Operating expense paid by related party | $ | 14,088 | $ | - | ||
Liabilities assumed in connection with purchase of property, plant and equipment | $ | 6,936 | $ | 31,949 |
The accompanying notes are an integrated part of these unaudited consolidated financial statements
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 the People's Republic of China (the "PRC").
2. Description of business
The Company is a holding company whose primary business are conducted through its subsidiaries, namely Siping Juyuan which is located in the Jilin Province and Beijing Juyuan which is located in Beijing City of the PRC. The Company is engaged in the manufacturing and trading of plate heat exchangers and various related products.
Siping Juyuan was established in the PRC on May 31, 2006 following the division (the Division) of Siping City Juyuan Heat Exchange Equipment Co., Ltd. (Old Juyuan Company) into three companies, namely Siping Juyuan, Siping City Juyuan Heat Exchange Equipment Co., Ltd. (New Juyuan Company) and Siping City 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, 2016 filed with the SEC in the Companys Form 10-K on April 17, 2017.
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.
Certain amounts from prior year have been reclassified to conform to the current year presentation. The reclassification has resulted in no change to the Companys retained earnings or net income presented.
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.
5
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, 2017 and December 31, 2016, 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 January 2017, the FASB issued ASU 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323). This pronouncement amends the SEC's reporting requirements for public filers in regard to new accounting pronouncements or existing pronouncements that have not yet been adopted. Companies are to provide qualitative disclosures if they have not yet implemented an accounting standards update. Companies should disclose if they are unable to estimate the impact of a specific pronouncement, and provide disclosures including a description of the effect on accounting policies that the registrant expects to apply. These provisions apply to all pronouncements that have not yet been implemented by registrants. There are additional provisions that relate to corrections to several other prior FASB pronouncements. The Company has incorporated language into other recently issued accounting pronouncement notes, where relevant for the corrections in FASB ASU 2017-03. The Company is implementing the updated SEC requirements on not yet adopted accounting pronouncements with these consolidated financial statements.
4. Trade receivables, net
June 30, | December 31, | |||||
2017 | 2016 | |||||
(Unaudited) | ||||||
Trade receivables | $ | 42,543,934 | $ | 45,050,908 | ||
Less: Allowance for doubtful accounts | (8,694,686 | ) | (7,976,427 | ) | ||
$ | 33,849,248 | $ | 37,074,481 |
An analysis of the allowance for doubtful accounts for the six months ended June 30, 2017 and 2016 is as follows:
Six months ended | ||||||
June 30, | ||||||
(Unaudited) | ||||||
2017 | 2016 | |||||
Balance at beginning of period | $ | 7,976,427 | $ | 7,689,089 | ||
Adjustment of bad debt expense | 514,540 | 676,027 | ||||
Translation adjustments | 203,719 | (187,725 | ) | |||
Balance at end of period | $ | 8,694,686 | $ | 8,177,391 |
6
5. Inventories, net
June 30, | December 31, | |||||
2017 | 2016 | |||||
(Unaudited) | ||||||
Raw materials | $ | 7,410,684 | $ | 7,626,337 | ||
Work-in-progress | 5,189,730 | 2,831,115 | ||||
Finished goods | 12,619,593 | 10,647,422 | ||||
25,220,007 | 21,104,874 | |||||
Allowance for obsolete inventories | (18,005 | ) | (17,573 | ) | ||
$ | 25,202,002 | $ | 21,087,301 |
No allowance for obsolete inventories was recognized during the six months ended June 30, 2017 and 2016.
6. Income tax
The effective tax rate was -16% and 21% for the three-month period ended June 30, 2017 and 2016, respectively. The effective tax rate was -13% and -11% for the six-month period ended June 30, 2017 and 2016, respectively.
7. Property, plant and equipment, net
As of June 30, 2017 and December 31, 2016, property, plant and equipment with net book values of $4,904,412 and $4,949,198, respectively, were pledged as collateral under certain loan arrangements (see Note 9).
8. Land use rights, net
As of June 30, 2017 and December 31, 2016, land use rights with net book values of $5,171,162 and $5,104,121, respectively, were pledged as collateral under certain loan arrangements (see Note 9).
During the six months ended June 30, 2017 and 2016, amount recognized for amortization of land use rights was $57,757 and $60,752, respectively.
7
9. Short-term loans
Short-term bank loans
On May 31, 2016, the Company entered into a one-year loan agreement with Agricultural Bank of China, pursuant to which the Company obtained a loan in the amount of RMB32,000,000, or $4,664,845, payable on May 30, 2017. The loan carries an interest rate of 4.785% per annum and the interest is payable monthly. The loan was repaid in full on May 26, 2017. On June 6, 2017, the Company entered into another one-year loan agreement with Agricultural Bank of China to obtain a loan in the amount of RMB32,000,000, or $4,710,080, payable on June 6, 2018 with the same interest rate payable monthly.
The bank loans discussed above were secured by the following assets of the Company:
June 30, | December 31, | |||||
2017 | 2016 | |||||
(Unaudited) | ||||||
Property, plant and equipment (Note 7) | $ | 4,904,412 | $ | 4,949,198 | ||
Land use rights (Note 8) | 5,171,162 | 5,104,121 | ||||
$ | 10,075,574 | $ | 10,053,319 |
Short-term loans from unrelated party
During the year ended December 31, 2016, the Company borrowed funds from a third party individual in the amount of RMB53,487,813 (approximately $8,052,000) and repaid RMB93,577,813 (approximately $14,087,000). As of December 31, 2016, the balance of loan from unrelated party was $nil. The Company also advanced RMB2,521,787 (approximately $380,000) to this individual during the year ended December 31, 2016. The advance bears no interest and is due on demand. The advance was included in other receivables, prepayments and deposits, net.
During the six months ended June 30, 2017, the Company advanced additional funds to this third party individual in the amount of RMB12,000,000, or $1,742,110 and received RMB14,521,787, or $2,112,475 as repayment for all outstanding advances.
For the six months ended June 30, 2017 and 2016, the Company included interest expense related to short-term loans of $111,376 and $29,733, respectively in finance costs.
8
10. 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, 2017 and 2016 were as follows:
Six months ended June 30, | ||||||||||||
2017 | % | 2016 | % | |||||||||
(Unaudited) | (Unaudited) | |||||||||||
Plate heat exchanger | $ | 5,818,987 | 50 | $ | 5,075,804 | 43 | ||||||
Heat exchange unit | 2,840,480 | 25 | 4,336,349 | 36 | ||||||||
Air-cooled heat exchanger | 89,905 | 1 | - | - | ||||||||
Shell-and-tube heat exchanger | 2,823 | - | 272,023 | 2 | ||||||||
Others | 2,796,927 | 24 | 2,233,409 | 19 | ||||||||
$ | 11,549,122 | 100 | $ | 11,917,585 | 100 |
All of the Companys long-lived assets and revenues classified based on the customers are located in the PRC.
11. Related party transactions
The related parties consist of the following:
Name of Related Party | Nature of Relationship |
Guohong Zhao | Chairman, Chief Executive Officer and President |
Zhigang Xu | Interim Chief Financial Officer, Treasurer and Secretary |
Fucai Zhan | Vice President of R&D and Director |
Kai Liu | Chief Engineer, Manager of Market development |
Jilin Tongda Heat Transfer System Integration, Ltd. (Tongda) | The Company has significant influence on Tongda |
Liaoning Hongsheng Heat Energy Technology, Ltd. (Hongsheng) | The Company has significant influence on Hongsheng |
9
Trade receivables related party
During the six months ended June 30, 2017 and 2016, the Company sold products to Tongda in the amount of $8,232 and $3,089, respectively. The corresponding costs of the related party sales were $3,750 and $1,731, respectively. As of June 30, 2017 and December 31, 2016, the Company had trade receivables from Tongda in the amount of $245,065 and $1,358,399, respectively.
Due from related parties
As of June 30, 2017 and December 31, 2016, respectively, the Company advanced $nil and $31,978 to Guohong Zhao for handling selling and logistic activities for the Company in the ordinary course of business.
As of June 30, 2017 and December 31, 2016, respectively, the Company advanced $11,274 and $11,003 to Kai Liu for handling selling and logistic activities for the Company in the ordinary course of business.
As of June 30, 2017 and December 31, 2016, respectively, the Company advanced $2,030 and $nil to Zhijun Ma for handling selling and logistic activities for the Company in the ordinary course of business.
As of June 30, 2017 and December 31, 2016, respectively, the Company had advance to Hongsheng in the amount of $230,133 and $224,532 for inventory purchase prepayment. The amounts were included in due from related parties in the accompanying consolidation balance sheets.
During the six months ended June 30, 2017 and 2016, the Company made loans to Tongda in the amount of $383,825 and $204,289, and Tongda repaid to the Company in the amount of $232,751 and $122,410, respectively. The loans were non-secured, non-interest bearing and due on demand. As of June 30, 2017 and December 31, 2016, the Company had loans to Tongda in the amount of $1,764,367 and $1,572,419, respectively, which were included in due from related parties in the accompanying consolidation balance sheets.
Due to related parties
Due to related parties consist of the following:
June 30, | December 31, | |||||
2017 | 2016 | |||||
(Unaudited) | ||||||
Zhigang Xu | $ | 73,780 | $ | 72,008 | ||
Fucai Zhan | 147,632 | 148,498 | ||||
Kai Liu | 147,560 | 144,015 | ||||
Others | 1,009,531 | 18,711 | ||||
Guohong Zhao | 2,378 | - | ||||
$ | 1,380,881 | $ | 383,232 |
Amounts owed by the Company represent non-secured and non-interest bearing loans obtained from related parties which are due on demand.
The Company received loans from office managers and an individual who has significant influence over the Company (collectively the Others). During the six months ended June 30, 2017, the Company was advanced $1,783,724 from the individual and made repayment of $814,628.
12. Subsequent events
In November 2016, the Company entered into an capital injection agreement with Jilin Science and Technology Fund Operation Service Center (the Center), an organization controlled by local government, pursuant to which the Center will invest RMB9,000,000 ($1,335,495) in Siping Juyuan in order to obtain 1.18% of the ownership interest in Siping Juyuan. Based on the agreement, the Center is entitled to the ownership interest after completion of registration process with the local administrative department and the investment. The Company completed the registration on July 20, 2017 and received the investment proceed from the Center on July 27, 2017. The transaction was then consummated.
10
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, 2016, 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; | |
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Siping Juyuan are to Siping City Juyuan Hanyang Plate Heat Exchanger Co. Ltd., a PRC company; | |
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Beijing Juyuan are to Beijing Juyuan Hanyang Heat Exchange Equipment Co., Ltd., a PRC company; | |
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BVI are to the British Virgin Islands; | |
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Hong Kong are to the Hong Kong Special Administrative Region of the Peoples Republic of China; | |
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PRC and China are to the Peoples Republic of China; | |
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SEC are to the Securities and Exchange Commission; | |
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Exchange Act are to the Securities Exchange Act of 1934, as amended; | |
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Securities Act are to the Securities Act of 1933, as amended; | |
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Renminbi and RMB are to the legal currency of China; and | |
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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 exchange 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.
Recent Development
In November 2016, the Company entered into an capital injection agreement with Jilin Science and Technology Fund Operation Service Center (the Center), an organization controlled by local government, pursuant to which the Center will invest RMB9,000,000 ($1,335,495) in Siping Juyuan in order to obtain 1.18% of the ownership interest in Siping Juyuan. Based on the agreement, the Center is entitled to the ownership interest after completion of registration process with the local administrative department and the investment. The Company completed the registration on July 20, 2017 and received the investment proceed from the Center on July 27, 2017. The transaction was then consummated.
Second Quarter Financial Performance Highlights
The following summarizes certain key financial information for the second quarter of 2017:
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Sales revenue: Sales revenue decreased by $0.27 million, or 3.50%, to $7.54 million for the three months ended June 30, 2017, from $7.81 million for the same period in 2016. | |
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Gross profit: Gross profit decreased by $0.46 million, or 14.10%, to $2.86 million for the three months ended June 30, 2017, from $3.32 million for the same period in 2016. As a percentage of sales revenue, gross profit decreased by 4.68% to 37.86 % for the three months ended June 30, 2017, from 42.54% for the same period in 2016. | |
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Net loss: Net loss increased by $2.06 million, or 591.03%, to $1.71 million for the three months ended June 30, 2017, from net income of $0.35 million for the same period in 2016. | |
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Fully diluted net loss per share: Fully diluted net loss per share was $0.08 for the three months ended June 30, 2017, as compared to fully diluted net income per share of $0.02 for the same period in 2016. |
Results of Operations
Comparison of Three Months Ended June 30, 2017 and June 30, 2016
The following table sets forth key components of our results of operations for the periods indicated.
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Three Months Ended | |||||||||||
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June 30, | $ | % | |||||||||
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2017 | 2016 | Change | Change | ||||||||
Sales revenue-third parties |
$ | 7,542,784 | $ | 7,813,670 | $ | (270,886 | ) | (3.47 | ) | |||
Sales revenue-related party |
- | 3,089 | (3,089 | ) | (100.00 | ) | ||||||
Total sales revenues |
7,542,784 | 7,816,759 | (273,975 | ) | (3.50 | ) | ||||||
Total cost of revenues |
(4,686,741 | ) | (4,491,790 | ) | (194,951 | ) | (4.34 | ) | ||||
Gross profit |
2,856,043 | 3,324,969 | (468,926 | ) | (14.10 | ) | ||||||
Operating expenses: |
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General and administrative expenses |
1,855,218 | 1,057,606 | 797,612 | 75.42 | ||||||||
Research and development expenses |
414,577 | 112,044 | 302,533 | 270.01 | ||||||||
Selling expenses |
2,552,403 | 1,808,455 | 743,948 | 41.14 | ||||||||
Total operating expenses |
4,822,198 | 2,978,105 | 1,844,093 | 61.92 | ||||||||
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Income (loss) from operations |
(1,966,155 | ) | 346,864 | (2,313,019 | ) | (666.84 | ) | |||||
Interest income |
3,239 | 5,767 | (2,528 | ) | (43.84 | ) | ||||||
Other income |
7,360 | 99,455 | (92,095 | ) | (92.60 | ) | ||||||
Finance costs |
(61,352 | ) | (16,148 | ) | (45,204 | ) | (279.94 | ) | ||||
Investment income |
5,469 | 5,932 | (463 | ) | (7.81 | ) | ||||||
Other expenses |
(18,526 | ) | - | (18,526 | ) | (100.00 | ) | |||||
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Income (loss) before income taxes |
(2,029,965 | ) | 441,870 | (2,471,835 | ) | (559.40 | ) | |||||
Income tax benefits (expense) |
321,949 | (94,028 | ) | 415,977 | (442.40 | ) | ||||||
Net income (loss) |
$ | (1,708,016 | ) | $ | 347,842 | $ | (2,055,858 | ) | (591.03 | ) |
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Sales revenue. Our sales revenue is generated from sales of heat exchange products. Sales revenue decreased by $0.27 million, or 3.50%, to $7.54 million for the three months ended June 30, 2017, from $7.81 million for the same period in 2016. Our sales volume in the three months ended June 30, 2017 amounted to 493 units, a decrease of 10 units, from 503 units for the same period in 2016. Such decrease was mainly due to decreased sales revenue from heat exchange unit and shell-and-tube heat exchanger, offset by increase in sales from plate heat exchanger, air-cooled heat exchanger, and other products in the three months ended June 30, 2017 as compared with the same period in 2016. Sales revenue from plate heat exchangers increased by $0.28 million, or 9.06%, to $3.42 million for the three months ended June 30, 2017, from $3.14 million for the same period in 2016. Sales revenues from heat exchange unit decreased by $0.83 million, or 29.50%, to $1.99 million for the three months ended June 30, 2017, from $2.82 million for the same period in 2016. Sales revenues from air-cooled heat exchanger increased by $0.09 million, or 100%, to $0.09 million for the three months ended June 30, 2017, from $nil for the same period in 2016. Sales revenues from shell-and-tube heat exchanger decreased by $0.27 million, or 100%, to $nil for the three months ended June 30, 2017, from $0.27 million for the same period in 2016. Sales revenues from other products increased by $0.46 million, or 28.59%, to $2.05 million for the three months ended June 30, 2017 from $1.59 million for the same period in 2016. We sold more heat exchange unit for the three-month period ended June 30, 2016 because the sales of heat exchange units in this period also contains orders made in 2015, which were produced and sold in 2016. We generated more revenue from selling other products. This increase concentrates in the second quarter when production phase has begun.
The following table shows our sales revenue by product for the three months ended June 30, 2017 and 2016:
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Three Months Ended June 30, | |||||||||||
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2017 | 2016 | ||||||||||
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$ | % | $ | % | ||||||||
Plate heat exchanger |
$ | 3,419,733 | 46 | $ | 3,135,726 | 40 | ||||||
Heat exchange unit |
1,986,238 | 26 | 2,817,176 | 36 | ||||||||
Air-cooled heat exchanger |
89,905 | 1 | - | - | ||||||||
Shell-and-tube heat exchanger |
- | - | 272,023 | 4 | ||||||||
Others |
2,046,908 | 27 | 1,591,834 | 20 | ||||||||
TOTAL |
$ | 7,542,784 | 100 | $ | 7,816,759 | 100 |
Cost of revenues. Our cost of revenues is primarily comprised of the costs of our raw materials, labor and factory overhead. Our cost of revenues increased by $0.20 million, or 4.34%, to $4.69 million for the three months ended June 30, 2017, from $4.49 million for the three months ended June 30, 2016. The increase of cost of revenues is mainly due to increase in sale of other products in which we yield less profit. Cost of revenues as a percentage of sales revenue were 62.14% and 57.46% for the three months ended June 30, 2017 and 2016, respectively, an increase of 4.68 percentage points. The increase was mainly attributable to increase in percentage of sale of less profitable products in the three months ended June 30, 2017, compared to same period in 2016.
Gross profit. Our gross profit is equal to the difference between our sales revenue and our cost of revenues. Our gross profit decreased by $0.46 million, or 14.10%, to $2.86 million for the three months ended June 30, 2017, from $3.32 million for the same period in 2016. Gross profit margin for the three months ended June 30, 2017 decreased to 37.86% from 42.54% for the same period in 2016. The decrease in our gross profit was mainly attributable to increase in percentage of sale of less profitable products in the three months ended June 30, 2017, compared to same period in 2016. Due to the same reason, the average unit selling price of our products decreased by 1.54% to $15,300 in the three months ended June 30, 2017 in comparison with $15,540 in the same period in 2016, and the average unit cost increased by 6.46% to $9,507 in the three months ended June 30, 2017 in comparison with $8,930 in the same period in 2016. As a result of these factors, our gross profit margin for the three months ended June 30, 2017 decreased to 37.86% from 42.54% for the same period in 2016.
General and administrative expenses. Our general and administrative expenses consist of the costs associated with staff and support personnel who manage our business activities. Our general and administrative expenses increased by $0.80 million, or 75.42%, to $1.86 million for the three months ended June 30, 2017, from $1.06 million for the same period in 2016. As a percentage of sales revenue, general and administrative expenses increased to 24.60% for the three months ended June 30, 2017, as compared to 13.53% for the same period in 2016. The increase in general and administrative expenses was primarily due to recognition of more bad debt expense for the three months ended on June 30, 2017 as the economy became worse for the industry.
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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 $0.30 million, or 270.01%, to $0.41 million for the three months ended June 30, 2017, from $0.11 million for the same period in 2016. The increase in research and development expenses was mainly attributable to more product research and development to accommodate purchase orders for different products we have received for the three months ended June 30, 2017, compared to same period in 2016.
Selling expenses. Our selling expenses include sales commissions, travel cost, 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 $0.74 million, or 41.14%, to $2.55 million for the three months ended June 30, 2017, from $1.81 million for the same period in 2016. As a percentage of sales revenue, selling expenses increased to 33.84% for the three months ended June 30, 2017, as compared to 23.14% for the same period in 2016. The increase was mainly attributable to the Companys effort to develop new customers, which lead to more travelling and other marketing activities.
Loss before income taxes. Loss before income taxes increased by $2.47 million, or 559.40%, to $2.03 million for the three months ended June 30, 2017, from income before income taxes of $0.44 million for the same period in 2016. Such increase was mainly attributable to the increase in our selling and operating expenses.
Income taxes benefits. Our income taxes benefits increased to $0.32 million for the three months ended June 30, 2017, from income taxes expenses of $0.09 million for the same period in 2016, as we resulted in a net loss position in the three months ended June 30, 2017, compared to a net income in the same period in 2016.
Net loss: As a result of the cumulative effect of the foregoing factors, our net loss increased by $2.06 million, or 591.03%, to $1.71 million for the three months ended June 30, 2017, from net income of $0.35 million for the same period in 2016. As a percentage of sales revenue, our net income (loss) was (22.64%) and 4.45% for the three months ended June 30, 2017 and 2016, respectively.
Comparison of Six Months Ended June 30, 2017 and June 30, 2016
The following table sets forth key components of our results of operations for the periods indicated.
Six Months Ended | ||||||||||||
June 30, | $ | % | ||||||||||
2017 | 2016 | Change | Change | |||||||||
Sales revenue-third parties | $ | 11,540,890 | $ | 11,914,496 | $ | (373,606 | ) | (3.14 | ) | |||
Sales revenue-related party | 8,232 | 3,089 | 5,143 | 166.49 | ||||||||
Total sales revenues | 11,549,122 | 11,917,585 | (368,463 | ) | (3.09 | ) | ||||||
Cost of revenues | (6,854,567 | ) | (7,464,516 | ) | 609,949 | 8.17 | ||||||
Gross profit | 4,694,555 | 4,453,069 | 241,486 | 5.42 | ||||||||
Operating expenses: | ||||||||||||
General and administrative expenses | 2,677,819 | 2,510,597 | 167,222 | 6.66 | ||||||||
Research and development expenses | 732,575 | 531,901 | 200,674 | 37.73 | ||||||||
Selling expenses | 4,774,451 | 3,704,436 | 1,070,015 | 28.88 | ||||||||
Total operating expenses | 8,184,845 | 6,746,934 | 1,437,911 | 21.31 | ||||||||
Loss from operations | (3,490,290 | ) | (2,293,865 | ) | (1,196,425 | ) | (52.16 | ) | ||||
Interest income | 6,509 | 9,328 | (2,819 | ) | (30.22 | ) | ||||||
Other income | 50,345 | 91,809 | (41,464 | ) | (45.16 | ) | ||||||
Finance costs | (119,564 | ) | (34,722 | ) | (84,842 | ) | (244.35 | ) | ||||
Investment income | 28,943 | 8,793 | 20,150 | 229.16 | ||||||||
Other expenses | (18,526 | ) | - | (18,526 | ) | (100.00 | ) | |||||
Loss before income taxes | (3,542,583 | ) | (2,218,657 | ) | (1,323,926 | ) | (59.67 | ) | ||||
Income tax benefits | 473,371 | 251,091 | 222,280 | 88.53 | ||||||||
Net Loss | $ | (3,069,212 | ) | $ | (1,967,566 | ) | $ | (1,101,646 | ) | (55.99 | ) |
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Sales revenue. Our sales revenue decreased by $0.37 million, or 3.09%, to $11.55 million for the six months ended June 30, 2017, from $11.92 million for the same period in 2016. Our sales volume in the six months ended June 30, 2017 amounted to 798 units, a decrease of 37 units, from 835 units for the same period in 2016. Such decrease was mainly due to decreased sales revenue from heat exchange unit and shell-and-tube heat exchanger, offset by increase in sales from plate heat exchange and other products in the six months ended June 30, 2017 as compared with the same period in 2016. Sales revenue from plate heat exchangers increased by $0.74 million, or 14.64%, to $5.82 million for the six months ended June 30, 2017, from $5.08 million for the same period in 2016. Sales revenues from heat exchange unit decreased by $1.50 million, or 34.50%, to $2.84 million for the six months ended June 30, 2017, from $4.34 million for the same period in 2016. Sales revenues from shell-and-tube heat exchanger decreased by $0.27 million, or 98.96%, to $2,823 for the six months ended June 30, 2017, from $0.27 million for the same period in 2016. Sales revenues from other products increased by $0.57 million, or 25.23%, to $2.80 million for the six months ended June 30, 2017 from $2.23 million for the same period in 2016. We sold more heat exchange unit for the six-month period ended June 30, 2016 because the sales of heat exchange units in this period also contains orders made in 2015, which were produced and sold in 2016. We sold more plate heat exchangers due to a rise in demand for the six-month period ended June 30, 2017. We generated more revenue from selling other products. This increase concentrates in the second quarter when production phase has begun.
The following table shows our sales revenue by product for the six months ended June 30, 2017 and 2016:
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Six Months Ended June 30, | |||||||||||
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2017 | 2016 | ||||||||||
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$ | % | $ | % | ||||||||
Plate heat exchanger |
$ | 5,818,987 | 50 | $ | 5,075,804 | 43 | ||||||
Heat exchange unit |
2,840,480 | 25 | 4,336,349 | 36 | ||||||||
Air-cooled heat exchanger |
89,905 | 1 | - | - | ||||||||
Shell-and-tube heat exchanger |
2,823 | - | 272,023 | 2 | ||||||||
Others |
2,796,927 | 24 | 2,233,409 | 19 | ||||||||
TOTAL |
$ | 11,549,122 | 100 | $ | 11,917,585 | 100 |
Cost of revenues. Our cost of revenues decreased by $0.61 million, or 8.17%, to $6.85 million for the six months ended June 30, 2017, from $7.46 million for the six months ended June 30, 2016. The decrease in the cost of revenues was generally in line with the decrease in our sales revenue. Cost of revenues as a percentage of sales revenue were 59.35% and 62.63% for the six months ended June 30, 2017 and 2016, respectively, a decrease of 3.28 percentage points. Comparing the six months ended in June 30, 2017 to same period in 2016, we sold less heat exchange unit, a product that require more material and labor to assemble compared to the rest of our products.
Gross profit. Our gross profit increased by $0.24 million, or 5.42%, to $4.69 million for the six months ended June 30, 2017, from $4.45 million for the same period in 2016. The increase in our gross profit was mainly attributable to decrease in cost of revenues. The average unit selling price of our products increased by 1.40% to $14,473 in the six months ended June 30, 2017 in comparison with $14,273 in the same period in 2016, and the average unit cost decreased by 3.91% to $8,590 in the six months ended June 30, 2017 in comparison with $8,940 in the same period in 2016. As a result of these factors, our gross profit margin for the six months ended June 30, 2017 increased to 40.65% from 37.37% for the same period in 2016.
General and administrative expenses. Our general and administrative expenses increased by $0.17 million, or 6.66%, to $2.68 million for the six months ended June 30, 2017, from $2.51 million for the same period in 2016. As a percentage of sales revenue, general and administrative expenses increased to 23.19% for the six months ended June 30, 2017, as compared to 21.07% for the same period in 2016.
Research and development expenses. Our research and development expenses increased by $0.20 million, or 37.73%, to $0.73 million for the six months ended June 30, 2017, from $0.53 million for the same period in 2016. The increase in research and development expenses was mainly attributable to more product research and development due to different purchase order we have received for the six months ended June 30, 2017, compared to same period in 2016.
Selling expenses. Our selling expenses increased by $1.07 million, or 28.88%, to $4.77 million for the six months ended June 30, 2017, from $3.70 million for the same period in 2016. As a percentage of sales revenue, selling expenses increased to 41.43% for the six months ended June 30, 2017, as compared to 31.08% for the same period in 2016. The increase was mainly attributable to the Companys effort to develop new customers, which lead to more travelling and other marketing activities.
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Loss before income taxes. Loss before income taxes increased by $1.32 million, or 59.67%, to $3.54 million for the six months ended June 30, 2017, from $2.22 million for the same period in 2016. Such increase was mainly attributable to increase in selling and operating expenses.
Income tax benefits. Our income tax benefits increased to $0.47 million for the six months ended June 30, 2016, from $0.25 million for the same period in 2016, as a result of more net loss was generated in the six months ended June 30, 2017 compared to the same period in 2016.
Net Loss. As a result of the cumulative effect of the foregoing factors, our net loss increased by $1.10 million, or 55.99%, to $3.07 million for the six months ended June 30, 2017, from $1.97 million for the same period in 2016. As a percentage of sales revenue, our net loss was 26.58% and 16.51% for the six months ended June 30, 2017 and 2016, respectively.
Liquidity and Capital Resources
As of June 30, 2017, we had cash and cash equivalents of $4.21 million. 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 $8.18 million in the six months ended June 30, 2016 to $8.69 million in the same period in 2017. 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
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Six Months Ended June 30, | |||||
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2017 | 2016 | ||||
Net cash used in operating activities |
$ | (2,908,917 | ) | $ | (2,475,877 | ) |
Net cash used in investing activities |
(546,940 | ) | (832,450 | ) | ||
Net cash provided by (used in) financing activities |
1,005,362 | (1,157,706 | ) | |||
Effects of exchange rate change in cash |
52,678 | (132,590 | ) | |||
Net decrease in cash and cash equivalents |
(2,397,817 | ) | (4,598,623 | ) | ||
Cash and cash equivalents at beginning of the period |
6,609,680 | 9,680,293 | ||||
Cash and cash equivalent at end of the period |
$ | 4,211,863 | $ | 5,081,670 |
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Operating Activities
Net cash used in operating activities was $2.91 million for the six months ended June 30, 2017, compared to $2.48 million for the same period in 2016. The increase in net cash used in operating activities was mainly due to the increase in change in net loss of $1.10 million, outflow of inventories, net of $2.31 million, accounts payable of $1.42 million, other receivables, prepayments and deposits of $1.13 million, income taxed payable of $0.52 million, offset by increase in inflow of trade receivables from a related party of $1.13 million, and due from related parties of $4.92 million.
Investing Activities
Net cash used in investing activities was $0.55 million for the six months ended June 30, 2017, compared with $0.83 million in the same period in 2016. The decrease of net cash used in investing activities during the six months ended June 30, 2017 was primarily due to increase in repayment from others of $2.11 million, offset by increase in loans made to others of $1.12 million, payments to acquire property, plant and equipment of $0.41 million, and change in restricted cash of $0.22 million.
Financing Activities
Net cash provided by financing activities was $1.01 million for the six months ended June 30, 2017, compared with $1.16 million net cash used in financing activities for the same period in 2016. The increase in net cash provided by financing activities resulted from an increase in proceeds from related parties of $1.84 million, decrease in repayment of short-term loans of $8.06 million, offset by decrease in proceeds from short-term loan of $6.86 million and increase in repayment to related parties of $0.88 million.
Capital Expenditures
Our capital expenditures were used primarily for the purchase of equipment to expand our production capacity and deposits for land use rights. The table below sets forth the breakdown of our capital expenditures by use for periods indicated.
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Six Months Ended June 30, | |||||
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2017 | 2016 | ||||
Construction costs |
$ | - | $ | 20,049 | ||
Purchase of equipment |
442,333 | 5,971 | ||||
Total capital expenditures |
$ | 442,333 | $ | 26,020 |
We estimate that our total capital expenditures in fiscal year 2017 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.
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Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, sales or expenses, results of operations, liquidity or capital expenditures, or capital resources that are material to an investment in our securities.
Critical Accounting Policies
Critical accounting policies are those we believe are most important to portraying our financial conditions and results of operations and also require the greatest amount of subjective or complex judgments by management. Judgments and uncertainties regarding the application of these policies may result in materially different amounts being reported under various conditions or using different assumptions. There have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
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 June 30, 2017. 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, 2016, which we are still in the process of remediating as of June 30, 2017, 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, 2016 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, 2016, our management identified material weakness related to inadequate segregation of duties relative to key financial reporting functions, and our lack of: (1) sufficient and adequately trained accounting and finance personnel; (2) qualified resources to perform the internal audit functions properly; (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; (4) skills and understanding to operate, review, and supervise the process of bookkeeping under newly implemented ERP system; and (5) well-established procedures to identify, approve, and report related party transactions. As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016, our management has identified the steps necessary to address the material weaknesses, and in the second quarter of 2017, we continued to implement these remedial procedures.
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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 2017 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, 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. |
In November 2016, the Company's subsidiary Siping Juyuan signed an agreement (the Investment Agreement) with Jilin Technology Fund Operation Service Center (the Center) to receive capital funding from the Center of RMB9,000,000, accounted for 1.18% of the ownership interest of Siping Juyuan post-investment. On July 27, 2017, Siping Juyuan received the RMB9,000,000 (approximately $1,335,495) and the transaction was completed.
The foregoing description of the terms of the Investment Agreement is qualified in its entirety by reference to the provisions of the document filed as Exhibit 10.1 to this report, which is incorporated by reference herein.
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, 2017 | 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