Company Quick10K Filing
THt Heat Transfer Technology
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 20 $6
10-Q 2018-11-19 Quarter: 2018-09-30
10-Q 2018-08-14 Quarter: 2018-06-30
10-Q 2018-05-21 Quarter: 2018-03-31
10-K 2018-04-17 Annual: 2017-12-31
10-Q 2017-11-14 Quarter: 2017-09-30
10-Q 2017-08-15 Quarter: 2017-06-30
10-Q 2017-05-15 Quarter: 2017-03-31
10-K 2017-04-17 Annual: 2016-12-31
10-Q 2016-11-14 Quarter: 2016-09-30
10-Q 2016-08-15 Quarter: 2016-06-30
10-Q 2016-05-16 Quarter: 2016-03-31
10-K 2016-03-30 Annual: 2015-12-31
10-Q 2015-11-16 Quarter: 2015-09-30
10-Q 2015-08-14 Quarter: 2015-06-30
10-Q 2015-05-15 Quarter: 2015-03-31
10-K 2015-03-31 Annual: 2014-12-31
10-Q 2014-11-13 Quarter: 2014-09-30
10-Q 2014-08-14 Quarter: 2014-06-30
10-Q 2014-05-15 Quarter: 2014-03-31
10-K 2014-03-31 Annual: 2013-12-31
10-Q 2013-11-13 Quarter: 2013-09-30
10-Q 2013-08-14 Quarter: 2013-06-30
10-Q 2013-05-14 Quarter: 2013-03-31
10-K 2013-04-01 Annual: 2012-12-31
10-Q 2012-11-14 Quarter: 2012-09-30
10-Q 2012-08-14 Quarter: 2012-06-30
10-Q 2012-05-14 Quarter: 2012-03-31
10-K 2012-03-30 Annual: 2011-12-31
10-Q 2011-11-21 Quarter: 2011-09-30
10-Q 2011-08-15 Quarter: 2011-06-30
10-Q 2011-05-16 Quarter: 2011-03-31
10-K 2011-03-28 Annual: 2010-12-31
10-Q 2010-11-15 Quarter: 2010-09-30
10-Q 2010-08-16 Quarter: 2010-06-30
10-Q 2010-05-17 Quarter: 2010-03-31
10-K 2010-03-31 Annual: 2009-12-31
8-K 2018-11-30 Officers
THTI 2018-09-30
Part I Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 exhibit31-1.htm
EX-31.2 exhibit31-2.htm
EX-32.1 exhibit32-1.htm
EX-32.2 exhibit32-2.htm

THt Heat Transfer Technology Earnings 2018-09-30

THTI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
FHRT 6 249 244 80 21 6 18 -3 26% -0.2 2%
NAUH 6 38 46 52 0 -25 -22 -3 0% 0.1 -66%
WSCO 6 0 0 0 0 0 0 6 0% 242.1 260%
XCO 6 1,033 2,059 304 0 -183 -90 -57 0% 0.6 -18%
JRVS 6 0 1 0 0 -2 -2 6 -4.0 -72,547%
AGTK 5 1 9 0 0 -9 -7 7 -1.1 -647%
THTI 6 109 49 33 26 9 11 2 80% 0.1 8%
LRDC 5 0 2 9 0 -0 -0 5 1% -29.9 -42%
ITRK 6 0 0 0 0 -0 -0 6 0% -169.0 -786%
AUSI 14 0 22 0 0 -6 -4 19 86% -4.3 -1,414%

10-Q 1 form10q.htm FORM 10-Q THT Heat Transfer Technology, Inc.: Form 10-Q - Filed by newsfilecorp.com

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, 2018

[  ]      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 16, 2018 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, 2018

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

12

  ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

19
  ITEM 4.

CONTROLS AND PROCEDURES.

19
PART II  
OTHER INFORMATION 20
  ITEM 1.

LEGAL PROCEEDINGS.

20
  ITEM 1A.

RISK FACTORS.

20
  ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

20
  ITEM 4.

MINE SAFETY DISCLOSURES.

20
  ITEM 5.

OTHER INFORMATION.

20
  ITEM 6.

EXHIBITS.

20

i


PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

THT HEAT TRANSFER TECHNOLOGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

  Pages
   
Consolidated Balance Sheets (Unaudited) 2
   
Consolidated Statements of Income and Comprehensive Loss (Unaudited) 3
   
Consolidated Statements of Cash Flows (Unaudited) 4
   
Notes to Unaudited Consolidated Financial Statements 5-11

1


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

 

  September 30,     December 31,  

 

  2018     2017  

 

  (Unaudited)        

ASSETS

           

Current assets

           

   Cash and cash equivalents

$  3,241,750   $  6,297,546  

   Restricted cash, current

  569,519     571,918  

   Trade receivables, net

  34,300,914     46,311,537  

   Trade receivables - related party

  -     27,676  

   Bills receivable

  3,184,665     394,242  

   Other receivables, prepayments and deposits, net

  10,022,882     7,371,301  

   Due from related parties

  363,752     2,192,446  

   Inventories, net

  40,870,746     28,521,552  

Total Current Assets

  92,554,228     91,688,218  

 

           

   Restricted cash, non-current

  1,067,919     1,112,408  

   Retention receivables

  1,440,169     3,200,117  

   Property, plant and equipment, net

  8,575,567     8,825,346  

   Land use rights, net

  4,959,127     5,325,127  

   Deferred tax assets

  3,297     159,574  

 

           

TOTAL ASSETS

$  108,600,307   $  110,310,790  

 

           

LIABILITIES AND EQUITY

           

Current Liabilities

           

   Accounts payable

$  10,811,126   $  8,954,475  

   Other payables and accrued liabilities

  27,450,551     25,305,594  

   Advance from customers - related parties

  4,679,141     -  

   Income tax payable

  144,763     55,756  

   Short-term loan

  2,912,692     4,918,234  

   Due to related parties

  2,391,591     7,207,603  

Total Current Liabilities

  48,389,864     46,441,662  

 

           

   Long-term loan

  873,808     -  

 

           

TOTAL LIABILITIES

  49,263,672     46,441,662  

 

           

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, 2018 and December 31, 2017

  20,454     20,454  

   Additional paid-in capital

  27,136,310     27,136,310  

   Statutory reserve

  4,270,861     4,270,861  

   Retained earnings

  28,364,651     29,486,561  

   Accumulated other comprehensive income (loss)

  (1,159,629 )   2,202,886  

Total THT Heat Transfer Technology, Inc. shareholders’ equity

  58,632,647     63,117,072  

Non-controlling interest

  703,988     752,056  

Total Equity

  59,336,635     63,869,128  

TOTAL LIABILITIES AND EQUITY

$  108,600,307   $  110,310,790  

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 nine months ended
September 30,
    For the three months ended
September 30,
 

 

  2018     2017     2018     2017  

REVENUES

                       

     Sales revenue

$  32,459,614   $  24,861,019   $  14,428,365   $  13,320,129  

     Sales revenue - related party

  167,217     8,232     59,559     -  

          Total Revenues

  32,626,831     24,869,251     14,487,924     13,320,129  

 

                       

COST OF REVENUES

  (21,938,230 )   (20,572,238 )   (9,133,004 )   (13,717,671 )

 

                       

 

                       

Gross Profit

  10,688,601     4,297,013     5,354,920     (397,542 )

 

                       

Operating Expenses

                       

     General and administrative expenses

  5,507,631     5,047,734     2,694,781     2,369,915  

     Research and development expenses

  1,282,615     1,144,441     312,842     411,866  

     Selling expenses

  4,366,228     6,136,642     1,613,039     1,362,191  

Total Operating Expenses

  11,156,474     12,328,817     4,620,662     4,143,972  

 

                       

Income (Loss) from Operations

  (467,873 )   (8,031,804 )   734,258     (4,541,514 )

 

                       

Other Income (Expenses)

                       

     Interest income

  8,460     9,742     2,520     3,233  

     Other income

  116,150     119,475     1,223     69,130  

     Finance costs

  (172,617 )   (178,942 )   (46,230 )   (59,378 )

     Investment income

  23,714     29,235     2,426     292  

     Other expense

  (386,009 )   (483,087 )   (375,206 )   (464,561 )

Total Other Expenses

  (410,302 )   (503,577 )   (415,267 )   (451,284 )

 

                       

Income (Loss) before Income Taxes

  (878,175 )   (8,535,381 )   318,991     (4,992,798 )

Income tax benefit (expense)

  (252,830 )   363,587     (103,583 )   (109,784 )

Net Income (Loss)

  (1,131,005 )   (8,171,794 )   215,408     (5,102,582 )

Net income (loss) attributable to non-controlling interest

  (9,095 )   (60,209 )   6,791     (60,209 )

Net Income (Loss) Attributable to THT Heat Transfer Technology, Inc. Common Shareholders

$  (1,121,910 ) $  (8,111,585 ) $  208,617   $  (5,042,373 )

 

                       

Comprehensive Loss

                       

Net income (loss)

$  (1,131,005 ) $  (8,171,794 ) $  215,408   $  (5,102,582 )

Other Comprehensive Income (Loss)

                       

     Foreign currency translation adjustments

  (3,401,488 )   2,488,178     (2,275,900 )   1,047,592  

Comprehensive Loss

  (4,532,493 )   (5,683,616 )   (2,060,492 )   (4,054,990 )

Less: comprehensive loss attributable to non-controlling interest

  (48,068 )   (60,209 )   (19,983 )   (60,209 )

Comprehensive Loss Attributable to THT Heat Transfer Technology, Inc. Common Shareholders

$  (4,484,425 ) $  (5,623,407 ) $  (2,040,509 ) $  (3,994,781 )

 

                       

Earnings (loss) per share attributable to THT Heat Transfer Technology, Inc. common shareholders

               

Basic and diluted

$  (0.05 ) $  (0.40 ) $  0.01   $  (0.25 )

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 Nine Months ended September 30,  

 

  2018     2017  

CASH FLOWS FROM OPERATING ACTIVITIES

           

Net loss

$  (1,131,005 ) $  (8,171,794 )

Adjustments to reconcile net loss to net cash used in operating activities:

           

Loss on sales of property, plant and equipment

  -     340  

Depreciation and amortization

  951,503     890,456  

Deferred tax assets

  155,920     (364,130 )

Allowance for doubtful accounts

  2,645,778     2,190,140  

Inventory write-down

  178,929     4,717,317  

Changes in operating assets and liabilities:

           

Trade receivables, net

  7,555,445     6,670,507  

Trade receivables - related party

  27,645     1,385,944  

Bills receivable

  (2,963,356 )   (1,036,480 )

Other receivables, prepayments and deposits, net

  (3,229,028 )   (5,577,630 )

Inventories, net

  (14,773,761 )   (20,324,121 )

Retention receivables

  1,678,359     473,758  

Due from related parties

  -     30,083  

Advance from customers - related parties

  4,932,577     -  

Accounts payable

  2,180,704     6,153,971  

Other payables and accrued liabilities

  3,546,962     2,761,179  

Income tax payable

  96,910     (472,448 )

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

  1,853,582     (10,672,908 )

 

           

CASH FLOWS FROM INVESTING ACTIVITIES

           

Proceeds from disposal of property, plant and equipment

  1,370,150     61,221  

Payments to acquire property, plant and equipment

  (887,135 )   (483,803 )

Loans made to others

  -     (1,742,110 )

Loans made to related party

  (147,995 )   (782,941 )

Repayments from others

  -     2,112,475  

Repayments from related parties

  628,632     481,072  

NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES

  963,652     (354,086 )

 

           

CASH FLOWS FROM FINANCING ACTIVITIES

           

Proceed from bank loan

  2,892,431     9,516,833  

Repayment to bank loan

  (4,673,034 )   (9,465,974 )

Proceed from long-term loan

  885,021     -  

Proceeds from related parties

  1,208,751     6,959,146  

Contribution from non-controlling investor

  -     1,335,490  

Repayments to related parties

  (5,906,580 )   (1,236,399 )

NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES

  (5,593,411 )   7,109,096  

 

           

Effect of foreign currency translation on cash, cash equivalents, and restricted cash

  (326,507 )   198,611  

 

           

NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

  (3,102,684 )   (3,719,287 )

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD

$  7,981,872   $  8,098,630  

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD

$  4,879,188   $  4,379,343  

 

           

Supplementary Disclosures for Cash Flow Information:

           

Interest paid

$  159,411   $  166,617  

Income taxes paid

$  -   $  543,601  

 

           

Non-cash investing and financing activities:

           

Operating expense paid by related party

$  -   $  64,460  

Liabilities assumed in connection with purchase of property, plant and equipment

$  271,542   $  107,581  

Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets   As of September
30,
2018
    As of September
30,
2017
 
Cash and cash equivalents $  3,241,750   $  2,631,367  
Restricted cash, current   569,519     633,427  
Restricted cash, non-current   1,067,919     1,114,549  
Total cash, cash equivalents, and restricted cash at end of period $  4,879,188   $  4,379,343  

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 and going concern

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, 2017 filed with the SEC in the Company’s Form 10-K on April 17, 2018.

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 Company has suffered from recurring losses from operations since 2017. The Company needs to secure additional funds to meet future cash flow requirements given the Company’s current cash position and amount of short-term borrowings outstanding. The Company has taken various actions to conserve cash, procure additional financing and improve the liquidity, including reducing capital spending. The Company’s ability in meeting future cash flow requirements is dependent on many events outside of its direct control, including, among other things, successful renewal of bank borrowings and additional financing from banks and related parties.

The accompanying consolidated financial statements have been prepared assuming a substantial doubt about the Company's ability to continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business.

Certain amounts from prior year have been reclassified to conform to the current year presentation. The reclassification has resulted in no change to the Company’s 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 September 30, 2018 and December 31, 2017, 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.

Recent accounting pronouncements

In July 2018, the FASB issued ASU 2018-09, “Codification Improvements”, which affects a wide variety of Topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. These amendments represent changes to clarify, correct errors in, or make minor improvements to the Codification, eliminating inconsistencies and providing clarifications in current guidance. Some of the amendments do not require transition guidance and will be effective upon issuance. However, many of the amendments do have transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities. The Company is currently evaluating the impact of the adoption of ASU 2018-09 on its consolidated financial statements.

In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases”. These amendments affect narrow aspects of the guidance issued in the amendments in ASU 2016-02 including those regarding residual value guarantees, rate implicit in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase option, variable lease payments that depend on an index or a rate, investment tax credits, lease term and purchase option, transition guidance for amounts previously recognized in business combinations, certain transition adjustments, transition guidance for leases previously classified as capital leases under Topic 840, transition guidance for modifications to leases previously classified as direct financing or sales-type leases under Topic 840, transition guidance for sale and leaseback transactions, impairment of net investment in the lease, unguaranteed residual asset, effect of initial direct costs on rate implicit in the lease, and failed sale and leaseback transactions. For entities that early adopted Topic 842, the amendments are effective upon issuance of ASU 2018-10, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. The Company is currently evaluating the impact of the adoption of ASU 2018-10 on its consolidated financial statements.

In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements”. The amendments in this ASU affect the guidance issued in ASU 2016-02, “Leases (Topic 842)”, which is not yet effective. The amendments provide entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The amendments also provide lessors with a practical expedient to not separate non-lease components from the associated lease component and, instead, to account for those components as a single component in certain circumstances. For the entities that have not adopted Topic 842, the effective date for this ASU are the same as those for ASU 2016-02, which is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of ASU 2018-11 on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820), – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements. The amendments in this Update modify the disclosure requirements on fair value measurements based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The amendments are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the potential impacts of ASU 2018-13 on its consolidated financial statements.

Recently adopted accounting pronouncements

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (ASC 606)” and issued subsequent amendments to the initial guidance or implementation guidance between August 2015 and November 2017 within ASU 2015-04, ASU 2016-08, ASU 2016-10, ASU 2016-12, ASU 2016-20, ASU 2017-13, and ASU 2017-14 (collectively, including ASU 2014-09, “ASC 606”). Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Effective January 1, 2018, the Company adopted the standard using the modified retrospective method, which result in an immaterial impact. See Note – 4 Revenue Recognition for further details.

6


In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (ASC 230): Restricted Cash” update on the presentation of restricted cash in the statement of cash flows. The new guidance requires an entity to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows, and an entity will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The Company adopted this new accounting standard retrospectively during the nine months ended September 30, 2018. As a result of the adoption, net cash provided by investing activities was adjusted to exclude the changes in restricted cash, resulting in a decrease of $189,999 in net cash used in investing activities in the previously-reported amount for the nine months ended September 30, 2017. The Company's restricted cash represents cash deposits in bank to pledge the performance bonds issued by the banks when requested by the Company’s customers under their sales contracts, separately from cash and cash equivalents.

4. Revenue Recognition

Adoption of ASU 2014-09 "Revenue from Contracts with Customers (ASC 606)"

On January 1, 2018, the Company adopted ASC 606 using the modified retrospective method applied to those contracts that were not completed or substantially complete as of January 1, 2018. Results for the reporting period beginning after January 1, 2018 are presented under ASC 606, while prior period amounts have not been adjusted and continue to be reported in accordance with the Company's historic accounting under Topic 605.

Management has determined that the impact of the transition to the new standard is immaterial to the Company’s revenue recognition model since the Company’s revenue recognition is based on point in time transfer of control. Accordingly, the Company has not made any adjustment to the opening retained earnings.

Revenue for sale of products is derived from contracts with customers, which primarily include the sale of heat exchanger products. The Company’s sales arrangements do not contain variable consideration and are short-term in nature. The Company recognizes revenue at a point in time based on management’s evaluation of when all performance obligations under the terms of a contract with the customer are satisfied and control of the products has been transferred to the customer. For vast majority of the Company’s product sales, the performance obligations and control of the products transfer to the customer when products are delivered and customer acceptance is made.

Management has determined after-sale expense was immaterial to the Company’s operations. Accordingly, the Company does not establish provision for estimated warranty liabilities.

Disaggregation of Revenue

In accordance with ASC 606, the Company disaggregates revenue from contracts with customers by products. The Company determined that disaggregating revenue into these categories meets the disclosure objective in ASC 606 which is to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by regional economic factors. Refer to Note 11 for information regarding revenue disaggregation by product.

Contract Assets and Liabilities

Contract assets, such as costs to obtain or fulfill contracts, are an insignificant component of the Company’s revenue recognition process.

Contract liabilities are mainly receipt in advance from customers. As of September 30, 2018, receipt in advance from customers was $24.6 million, which includes advance from related parties for product purchases of $4.7 million, refer to Note 12 for more information. $5.2 million was recognized as net revenues in the nine months ended September 30, 2018 that was included in the balance of receipt in advance from customers as of December 31, 2017. Receipt in advance from customers is included in other payables and accrued liabilities and advance from customers - related parties, based on the customer categories, in the consolidated balance sheets.

5. Trade receivables, net

    September 30,     December 31,  
    2018     2017  
    (Unaudited)        
             
Trade receivables $  47,657,579   $  57,859,135  
Less: Allowance for doubtful accounts   (13,356,665 )   (11,547,598 )
  $  34,300,914   $  46,311,537  

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An analysis of the allowance for doubtful accounts for the nine months ended September 30, 2018 and 2017 is as follows:

    Nine months ended  
    September 30,  
    (Unaudited)  
    2018     2017  
             
Balance at beginning of period $  11,547,598   $  7,976,427  
Adjustment of bad debt expense   2,545,443     2,050,522  
Translation adjustments   (736,376 )   393,240  
Balance at end of period $  13,356,665   $  10,420,189  

6. Inventories, net

    September 30,     December 31,  
    2018     2017  
    (Unaudited)        
             
Raw materials $  12,574,608   $  9,368,647  
Work-in-progress   8,494,870     4,229,841  
Finished goods   21,457,985     16,492,343  
    42,527,463     30,090,831  
Allowance for obsolete inventories   (1,656,717 )   (1,569,279 )
  $  40,870,746   $  28,521,552  

The Company recognized inventory write-down of $178,929 and $4,717,317, net of utilization of obsolete inventory for the amount of $210,257 and $nil for the nine months ended September 30, 2018 and 2017, respectively.

7. Income tax

The effective tax rate was -32% and 2% for the three-month period ended September 30, 2018 and 2017, respectively. The effective tax rate was 29% and -4% for the nine-month period ended September 30, 2018 and 2017, respectively.

The Company assesses the need for any deferred tax asset valuation allowance at the end of each reporting period. The determination of whether a valuation allowance for deferred tax assets is needed is subject to considerable judgment and requires an evaluation of all available positive and negative evidence. The Company’s assessment concluded that maintaining valuation allowance on deferred tax assets was appropriate, as the Company currently believes that it is more likely than not that the deferred tax assets resulted from net operating losses will not be realized.

During the nine months ended September 30, 2018, the Company adopted a new tax regulation released by the State Administration of Taxation and Ministry of Finance of the PRC on May 7, 2018, pursuant to which the Company is allowed to deduct the proceeds spent on property, plant and equipment, excluding building, purchased from January 1, 2018 to December 31, 2020 for tax purpose, given the value of each qualified purchase is below RMB5 million. As a result, the Company recorded $147,909 of deferred tax liability under the new tax regulation for the nine months ended September 30, 2018.

For the purpose of presentation of the consolidated balance sheets, certain deferred income tax assets and liability have been offset. As of September 30, 2018 and December 31, 2017, the balance of deferred tax assets was $3,297 and $159,574, respectively.

In December 2017, the Tax Cuts and Jobs Act (the “2017 Act”) was enacted into law and the new legislation contains several key tax provisions that affected the Company, including, among others, a reduction of the federal corporate income tax rate to 21% effective January 1, 2018, and a recognition of the U.S. corporate income tax based on the deemed repatriation to the United States of the Company’s share of previously deferred earnings of certain non-U.S. subsidiaries of the Company upon enactment of the 2017 Act. The Company is required to recognize the effect of the 2017 Act in the period of enactment. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the 2017 Act, which allows the Company to recognize the provisional amounts during a measurement period not to extend beyond one year of the enactment date.

The Company’s management is in the process of gathering information and evaluating the amount of the one-time transition tax mandated by the 2017 Act, and a reasonable estimate cannot be determined at this point in time. The Company expects to finalize its calculation of the one-time transition tax in the fourth quarter of fiscal year ended December 31, 2018.

Tax Contingencies

The Company has not completed the measurement of the one-time transition tax and is in the process of gathering information and evaluating the impact of the one-time transition tax as of the date of this interim report due to the size and length of operating history of the Company. The Company might be subject to possible interest and penalty in relation to the late filing of tax return and reports.

8. Property, plant and equipment, net

As of September 30, 2018 and December 31, 2017, property, plant and equipment with net book values of $2,772,356 and $3,112,380, respectively, were pledged as collateral under certain loan arrangements (see Note 10).

During the nine months ended September, 2018 and 2017, amount recognized for depreciation of property, plant and equipment was $860,071 and $802,947, respectively.

8


9. Land use rights, net

As of September 30, 2018 and December 31, 2017, land use rights with net book values of $804,900 and $865,825, respectively, were pledged as collateral under certain loan arrangements (see Note 10).

During the nine months ended September 30, 2018 and 2017, amount recognized for amortization of land use rights was $91,432 and $87,509, respectively.

10. Short-term loans and long-term loan

Short-term bank loans

On August 10, 2017, the Company entered into a one-year loan agreement with Industrial and Commercial Bank of China, pursuant to which the Company obtained a loan in the amount of RMB32,000,000 (approximately $4,806,000), payable on August 9, 2018. The loan carries an interest rate of 4.611% per annum and the interest is payable monthly. The loan was repaid in full on August 3, 2018.

On August 15, 2018, the Company entered into another one-year loan agreement with Industrial and Commercial Bank of China, pursuant to which the Company obtained a loan in the amount of RMB20,000,000 (approximately $2,892,000), payable on August 14, 2019. The loan carries an interest rate of 4.611% per annum and the interest is payable monthly. The loan was repaid in full on October 24, 2018 (See Note 13)

The bank loans discussed above were secured by the following assets of the Company:

    September 30,     December 31,  
    2018     2017  
    (Unaudited)        
             
Property, plant and equipment (Note 8) $  2,772,356   $  3,112,380  
Land use rights (Note 9)   804,900     865,825  
  $  3,577,256   $  3,978,205  

Long-term loan

On July 26, 2018, the Company obtained a three-year entrusted loan from a non-financial institution in the amount of RMB6,000,000 (approximately $885,000). The loan is non-secured, carries a preferential interest rate of 2.25%, and matures on July 25, 2021. Interest is payable quarterly.

For the nine months ended September 30, 2018 and 2017, the Company included interest expense related to short-term loans of $159,411 and $166,617, respectively, in finance costs in the consolidated statements of income and comprehensive loss.

9


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, 2018 and 2017 were as follows:

    Nine months ended September 30,  
    2018     %     2017     %  
    (Unaudited)           (Unaudited)        
                         
Plate heat exchanger $  15,743,254     48   $  10,694,395     43  
Heat exchange unit   9,248,163     28     7,463,516     30  
Air-cooled heat exchanger   211,574     1     133,511     1  
Shell-and-tube heat exchanger   44,264     -     185,818     1  
Others   7,379,576     23     6,392,011     25  
  $  32,626,831     100   $  24,869,251     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 the following:

Name of Related Party Nature of Relationship
Guohong Zhao Chairman, Chief Executive Officer and President
Fucai Zhan Vice President of R&D and Director
Kai Liu Chief Engineer, Manager of Market development
Others Individuals who have significant influence on the Company
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
Siping Juyuan Heat Exchange Service Technology, Co., Ltd. (“Fuwu”) The Company has significant influence on Fuwu

10


Trade receivables – related party

During the nine months ended September 30, 2018 and 2017, the Company sold products and provided rent service to Tongda in the amount of $167,217 and $8,232, respectively. The corresponding costs of the related party sales were $81,955 and $3,750, respectively. As of September 30, 2018 and December 31, 2017, the Company had trade receivables from Tongda in the amount of $nil and $27,676, respectively.

Advance from customers - related parties

The Company received prepayment from Tongda and Hongsheng pursuant to sales agreements signed in the nine months ended September 30, 2018. As of September 30, 2018 and December 31, 2017, the Company had advance from customers – related parties in the amount of $4,679,141 and $nil, respectively.

Due from related parties

As of September 30, 2018 and December 31, 2017, respectively, the Company had advance to Guohong Zhao in the amount of $13,337 and $14,075 for handling selling and logistic activities for the Company in the ordinary course of business.

During the nine months ended September 30, 2018 and 2017, Kai Liu paid back $10,654 and $nil to the Company, respectively. As of September 30, 2018 and December 31, 2017, respectively, the Company had advance to Kai Liu in the amount of $1,019 and $11,742 for handling selling and logistic activities for the Company in the ordinary course of business.

During the nine months ended September 30, 2018 and 2017, Hongsheng repaid to the Company in the amount of $244,965 and $nil, respectively. As of September 30, 2018 and December 31, 2017, the Company had advance to Hongsheng in the amount of $nil and $239,701, respectively, included in due from related parties in the consolidated balance sheets.

During the nine months ended September 30, 2018 and 2017, the Company made loans to Tongda in the amount of $145,635 and $440,679, and Tongda repaid to the Company in the amount of $273,392 and $235,097, respectively. The loans were non-secured, non-interest bearing and due on demand. On December 28, 2016, the Company sold certain used equipment with original cost and net book value of $977,650 and $121,307, respectively, to Tongda in exchange for $1,315,958 including VAT. During the nine months ended September 30, 2018, the Company collected $1,370,150 from Tongda for the equipment sold. As of September 30, 2018 and December 31, 2017, the Company had loans to Tongda in the amount of $349,396 and $488,737, respectively, and receivable from Tongda regarding sale of equipment in the amount of $nil and $1,340,710, respectively, both of which were included in due from related parties in the consolidated balance sheets.

During the nine months ended September 30, 2018 and 2017, the Company advanced $nil and $342,262 and received repayment of $99,622 and $248,321, respectively, from Fuwu. In addition, Fuwu paid operating expense on behalf of the Company in the amount of $nil and $37,185, respectively, during the nine months ended September 30, 2018 and 2017. As of September 30, 2018 and December 31, 2017, the amount due from Fuwu was $nil and $97,481, respectively, which were included in due from related parties in the consolidated balance sheets.

Due to related parties

Due to related parties consist of the following:

    September 30,     December 31,  
    2018     2017  
    (Unaudited)        
Others $  2,347,901   $  7,050,268  
Fucai Zhan   43,690     138,325  
Guohong Zhao   -     19,010  
  $  2,391,591   $  7,207,603  

Amounts owed by the Company represent non-secured and non-interest bearing loans obtained from related parties which are due on demand.

During the nine months ended September 30, 2018 and 2017, the Company was advanced $1,208,751 and $6,959,146 from, and made repayment of $5,795,477 and $1,236,399 to, a related party, respectively. During the nine months ended September 30, 2018 and 2017, Guohong Zhao paid $nil and $27,275 operating expense on behalf of the Company, respectively.

13. Subsequent Events

On October 24, 2018, the Company repaid the loan borrowed from ICBC on August 15, 2018 in full of RMB20,000,000 (approximately $2,882,000).

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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, 2017, 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.

  •  

“Center” or “Investor” are to Jilin Province Technology Fund Operation and Service Center, a non-controlling interest that holds 1.18% ownership interest in SipingJuyuan.

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 2018:

  •  

Sales revenue: Sales revenue increased by $1.17 million, or 8.77%, to $14.49 million for the three months ended September 30, 2018, from $13.32 million for the same period in 2017.

   

  •  

Gross profit: Gross profit increased by $5.75 million, to $5.35 million for the three months ended September 30, 2018, from ($0.40) million for the same period in 2017. As a percentage of sales revenue, gross profit increased by 39.95% to 36.96% for the three months ended September 30, 2018, from (2.98)% for the same period in 2017.

   

  •  

Net income (loss) attributable to THT Heat Transfer Technology, Inc. common shareholders: Net income attributable to THT Heat Transfer Technology, Inc. common shareholders increased by $5.25 million, to $0.21 million for the three months ended September 30, 2018, from net loss attributable to THT Heat Transfer Technology, Inc. common shareholders of $5.04 million for the same period in 2017.

   

  •  

Net income (loss) attributable to non-controlling interest: As of September 30, 2018 and 2017, we had a 98.82% controlling economic interest and 100% voting interest in SipingJuyuan. We consolidate SipingJuyuan’s operating results for financial statement purposes. Net income attributable to non-controlling interest represents the portion of net income attributable to the Center.

   

  •  

Fully diluted net income (loss) per share attributable to THT Heat Transfer Technology, Inc. common shareholders: Fully diluted net income per share attributable to THT Heat Transfer Technology, Inc. common shareholders was $0.01 for the three months ended September 30, 2018, as compared to fully diluted net loss per share attributable to THT Heat Transfer Technology, Inc. common shareholders of $0.25 for the same period in 2017.

Results of Operations

Comparison of Three Months Ended September 30, 2018 and September 30, 2017

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

 

  Three Months Ended              

 

  September 30,    $     %  

 

  2018     2017     Change     Change  

 

                       

Sales revenue

$  14,428,365   $  13,320,129   $  1,108,236     8.32  

Sales revenue-related party

  59,559     -     59,559     100.00  

Total sales revenues

  14,487,924     13,320,129     1,167,795     8.77  

Cost of revenues

  (9,133,004 )   (13,717,671 )   4,584,667     (33.42 )

Gross profit

  5,354,920     (397,542 )   5,752,462     (1447.01 )

Operating expenses:

                       

General and administrative expenses

  2,694,781     2,369,915     324,866     13.71  

Research and development expenses

  312,842     411,866     (99,024 )   (24.04 )

Selling expenses

  1,613,039     1,362,191     250,848     18.42  

Total operating expenses

  4,620,662     4,143,972     476,690     11.50  

 

                       

Income (loss) from operations

  734,258     (4,541,514 )   5,275,772     (116.17 )

Interest income

  2,520     3,233     (713 )   (22.05 )

Other income

  1,223     69,130     (67,907 )   (98.23 )

Finance costs

  (46,230 )   (59,378 )   13,148     (22.14 )

Investment income

  2,426     292     2,134     730.82  

Other expenses

  (375,206 )   (464,561 )   89,355     (19.23 )

Income (loss) before income taxes

  318,991     (4,992,798 )   5,311,789     (106.39 )

Income tax expense

  (103,583 )   (109,784 )   6,201     (5.65 )

Net income (loss)

  215,408     (5,102,582 )   5,317,990     (104.22 )

Net income (loss) attributable to non-controlling interest

  6,791     (60,209 )   67,000     (111.28 )

Net income (loss) attributable to THT Heat Transfer
Technology, Inc. common shareholders

$  208,617   $  (5,042,373 ) $  5,250,990     (104.14 )

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Sales revenue. Our sales revenue is generated from sales of heat exchange products. Sales revenue increased by $1.17 million, or 8.77%, to $14.49 million for the three months ended September 30, 2018, from $13.32 million for the same period in 2017. Our sales volume in the three months ended September 30, 2018 amounted to 839 units, a decrease of 6 units, from 845 units for the same period in 2017. Such increase was mainly due to increased revenue from sales of plate heat exchanger. Sales revenue from plate heat exchanger increased by $1.56 million, or 32.01%, to $6.44 million for the three months ended September 30, 2018, from $4.88 million for the same period in 2017. We sold more plate heat exchangers for the three-month period ended September 30, 2018 due to a rise in demand and market expansion as a result of our marketing effort in the year ended December 31, 2017.

The following table shows our sales revenue by product for the three months ended September 30, 2018 and 2017:

    Three Months Ended September 30,  
    2018     2017  
   $     %    $     %  
Plate heat exchanger $  6,435,960     44   $  4,875,408     37  
Heat exchange unit   4,977,238     35     4,623,036     35  
Air-cooled heat exchanger   -     0     43,606     0  
Others   3,074,726     21     3,595,084     27  
Shell-and-tube exchange   -     0     182,995     1  
TOTAL $  14,487,924     100   $  13,320,129     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 decreased by $4.58 million, or 33.42%, to $9.13 million for the three months ended September 30, 2018, from $13.72 million for the three months ended September 30, 2017. The decrease of cost of revenues is mainly due to decrease in write-down of inventory recorded for the three months ended September 30, 2018, compared to same period in 2017.

Gross profit. Our gross profit is equal to the difference between our sales revenue and our cost of revenues. Our gross profit increased by $5.75 million, to $5.35 million for the three months ended September 30, 2018, from ($0.40) million for the same period in 2017. The average unit selling price of our products increased by 9.55%, to $17,268 for the three months ended September 30, 2018 in comparison with $15,763 for the same period of 2017. The average unit cost decreased by 32.94%, to $10,886 for the three months ended September 30, 2018 in comparison with $16,234 for the same period of 2017. The increase was mainly due to decrease in inventory write-downs recorded. Our gross profit margin for the three months ended September 30, 2018 increased to 36.96% from (2.98)% for the same period of 2017.

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 $0.32 million, or 13.71%, to $2.69 million for the three months ended September 30, 2018, from $2.37 million for the same period in 2017. As a percentage of sales revenue, general and administrative expenses remains relatively consistent at 18.60% for the three months ended September 30, 2018, as compared to 17.79% for the same period in 2017.

Research and development expenses. Our research and development expenses consist of the costs associated with research and development personnel and expense in research and development projects. Our research and development expenses decreased by $0.10 million, or 24.04%, to $0.31 million for the three months ended September 30, 2018, from $0.41 million for the same period in 2017. The decrease in research and development expenses was mainly attributable to less product research and development to accommodate purchase orders for different products we have received for the three months ended September 30, 2018, compared to same period in 2017.

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 $0.25 million, or 18.42%, to $1.61 million for the three months ended September 30, 2018, from $1.36 million for the same period in 2017. As a percentage of sales revenue, selling expenses remains relatively consistent at 11.13% for the three months ended September 30, 2018, as compared to 10.23% for the same period in 2017.

14


Income (loss) before income taxes. Income before income taxes increased by $5.32 million, to $0.32 million for the three months ended September 30, 2018, from loss before income taxes of $5.00 million for the same period in 2017. Such increase was mainly attributable to the decrease in cost of revenue.

Income tax expense. Our income taxes expense decreased to $0.10 million for the three months ended September 30, 2018, from $0.11 million for the same period in 2017.

Net income (loss) attributable to THT Heat Transfer Technology, Inc. common shareholders: As a result of the cumulative effect of the foregoing factors, our net income attributable to THT Heat Transfer, Inc. common shareholders increased by $5.25 million, to $0.21 million for the three months ended September 30, 2018, from net loss attributable to THT Heat Transfer, Inc. common shareholders of $5.04 million for the same period in 2017. As a percentage of sales revenues, our net income (loss) attributable to THT Heat Transfer, Inc. common shareholders was 1.44% and (37.86)% for the three months ended September 30, 2018 and 2017, respectively.

Net income (loss) attributable to non-controlling interest. Non-controlling interest represents the ownership interests the Center holds in SipingJuyuan and the amount recorded as non-controlling interest in our consolidated statements of income and comprehensive loss is computed by multiplying after-tax income for the three months ended September 30, 2018 by the percentage ownership in SipingJuyuan not directly attributable to us. For the three months ended September 30, 2018 and 2017, the weighted average non-controlling interest attributable to ownership interests in SipingJuyuan not directly attributable to us was 1.18% and 0.85%, respectively.

Comparison of Nine Months Ended September 30, 2018 and September 30, 2017

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

 

  Nine Months Ended              

 

  September 30,    $     %  

 

  2018     2017     Change     Change  

 

                       

Sales revenue

$  32,459,614   $   24,861,019   $   7,598,595     30.56  

Sales revenue-related party

  167,217     8,232     158,985     1931.30  

Total sales revenues

  32,626,831     24,869,251     7,757,580     31.19  

Cost of revenues

  (21,938,230 )   (20,572,238 )   (1,365,992 )   6.64  

Gross profit

  10,688,601     4,297,013     6,391,588     148.74  

 

                       

Operating expenses:

                       

General and administrative expenses

  5,507,631     5,047,734     459,897     9.11  

Research and development expenses

  1,282,615     1,144,441     138,174     12.07  

Selling expenses

  4,366,228     6,136,642     (1,770,414 )   (28.85 )

Total operating expenses

  11,156,474     12,328,817     (1,172,343 )   (9.51 )

 

                       

Loss from operations

  (467,873 )   (8,031,804 )   7,563,931     94.17  

 

                       

Interest income

  8,460     9,742     (1,282 )   (13.16 )

Other income

  116,150     119,475     (3,325 )   (2.78 )

Finance costs

  (172,617 )   (178,942 )   6,325     (3.53 )

Investment income

  23,714     29,235     (5,521 )   (18.88 )

Other expenses

  (386,009 )   (483,087 )   97,078     (20.10 )

 

                       

Loss before income taxes

  (878,175 )   (8,535,381 )   7,657,206     89.71  

Income tax benefits (expense)

  (252,830 )   363,587     (616,417 )   (169.54 )

Net loss

  (1,131,005 )   (8,171,794 )   7,040,789     86.16  

Net loss attributable to non-controlling interest

  (9,095 )   (60,209 )   51,114     84.89  

Net loss attributable to THT Heat Transfer Technology, Inc. common shareholders

$  (1,121,910 ) $   (8,111,585 ) $   6,989,675     86.17  

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Sales revenue. Our sales revenue increased by $7.76 million, or 31.19%, to $32.63 million for the nine months ended September 30, 2018, from $24.87 million for the same period in 2017. Our sales volume in the nine months ended September 30, 2018 amounted to 2,176 units, an increase of 533 units, from 1,643 units for the same period in 2017. Such increase was mainly due to increased sales revenue from plate heat exchanger, heat exchange unit, and other products in the nine months ended September 30, 2018 as compared with the same period in 2017. Sales revenue from plate heat exchangers increased by $5.05 million, or 47.21%, to $15.74 million for the nine months ended September 30, 2018, from $10.69 million for the same period in 2017. Sales revenues from heat exchange unit increased by $1.78 million, or 23.91%, to $9.25 million for the nine months ended September 30, 2018, from $7.46 million for the same period in 2017. Sales revenues from other products increased by $0.99 million, or 15.45%, to $7.38 million for the nine months ended September 30, 2018 from $6.39 million for the same period in 2017. We sold more plate heat exchanger, heat exchange unit and other products for the nine-month period ended September 30, 2018 due to a rise in demand and market expansion as a result of our marketing effort in the year ended December 31, 2017.

The following table shows our sales revenue by product for the nine months ended September 30, 2018 and 2017:

    Nine Months Ended September 30,  
    2018     2017  
   $     %    $     %  
Plate heat exchanger $  15,743,254     48   $  10,694,395     43  
Heat exchange unit   9,248,163     28     7,463,516     30  
Air-cooled heat exchanger   211,574     1     133,511     -  
Shell-and-tube heat exchanger   44,264     -     185,818     -  
Others   7,379,576     23     6,392,011     27  
TOTAL $  32,626,831     100   $  24,869,251     100  

Cost of revenues. Our cost of revenues increased by $1.37 million, or 6.64%, to $21.94 million for the nine months ended September 30, 2018, from $20.57 million for the nine months ended September 30, 2017. Cost of revenues as a percentage of sales revenue were 67.24% and 82.72% for the nine months ended September 30, 2018 and 2017, respectively, a decrease of 15.48 percentage points. Our increase in sales has led to a corresponding increase in cost of revenues. On the other hand, we did not record as much inventory write-down in the nine months ended September 30, 2018, as opposed to the same period in 2017, resulting an overall increase in cost of revenue in a smaller scale as compared to increase in revenues.

Gross profit. Our gross profit increased by $6.39 million, or 148.74%, to $10.69 million for the nine months ended September 30, 2018, from $4.30 million for the same period in 2017. The average unit selling price of our products decreased by 0.94%, to $14,994 for the nine months ended September 30, 2018 in comparison with $15,136 for the same period of 2017. The average unit cost decreased by 19.48%, to $10,082 for the nine months ended September 30, 2018 in comparison with $12,521 for the same period of 2017. As a result of these factors, our gross profit margin for the nine months ended September 30, 2018 increased to 32.76% from 17.28% for the same period in 2017.

General and administrative expenses. Our general and administrative expenses increased by $0.46 million, or 9.11%, to $5.51 million for the nine months ended September 30, 2018, from $5.05 million for the same period in 2017. As a percentage of sales revenue, general and administrative expenses decreased to 16.88% for the nine months ended September 30, 2018, as compared to 20.30% for the same period in 2017.

Research and development expenses. Our research and development expenses increased by $0.14 million, or 12.07%, to $1.28 million for the nine months ended September 30, 2018, from $1.14 million for the same period in 2017. 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 nine months ended September 30, 2018, compared to same period in 2017.

Selling expenses. Our selling expenses decreased by $1.77 million, or 28.85%, to $4.37 million for the nine months ended September 30, 2018, from $6.14 million for the same period in 2017. As a percentage of sales revenue, selling expenses decreased to 13.38% for the nine months ended September 30, 2018, as compared to 24.68% for the same period in 2017. The decrease was mainly attributable to the decreased marketing activities in the nine months ended September 30, 2018, as compared to the same period in 2017.

Loss before income taxes. Loss before income taxes decreased by $7.66 million, or 89.71%, to $0.88 million for the nine months ended September 30, 2018, from $8.54 million for the same period in 2017. Such decrease was mainly attributable to increase in revenue and decrease of cost of revenues

16


Income tax benefit (expense). Our income tax expense increased to $0.25 million for the nine months ended September 30, 2018, from income tax benefits of $0.36 million for the same period in 2017. The increase of income tax expense was mainly attributable to the recognition of income taxes expense in relation to deferred tax liability from tax deduction of property, plant and equipment purchases pursuant to the new tax regulation released by the State Administration of Taxation and Ministry of Finance of the PRC on May 7, 2018.

Net Loss attributable to THT Heat Transfer Technology, Inc. common shareholders. As a result of the cumulative effect of the foregoing factors, our net loss attributable to THT Heat Transfer, Inc. common shareholders decreased by $6.99 million, or 86.17%, to $1.12 million for the nine months ended September 30, 2018, from net loss attributable to THT Heat Transfer, Inc. common shareholders of $8.11 million for the same period in 2017. As a percentage of sales revenues, our net loss attributable to THT Heat Transfer, Inc. common shareholders was 3.44% and 32.62% for the nine months ended September 30, 2018 and 2017, respectively.

Net loss attributable to non-controlling interest. Non-controlling interest represents the ownership interests the Center holds in SipingJuyuan and the amount recorded as non-controlling interest in our consolidated statements of income and comprehensive income (loss) is computed by multiplying after-tax income for the nine months ended September 30, 2018 by the percentage ownership in SipingJuyuan not directly attributable to us. For the nine months ended September 30, 2018 and 2017, the weighted average non-controlling interest attributable to ownership interests in SipingJuyuan not directly attributable to us was 1.18% and 0.29%, respectively.

Uncertainties

In December 2017, the Tax Cuts and Jobs Act (the “2017 Act”) was enacted into law and the new legislation contains several key tax provisions that affected the Company, including, among others, a reduction of the federal corporate income tax rate to 21% effective January 1, 2018, and a recognition of the U.S. corporate income tax based on the deemed repatriation to the United States of the Company’s share of previously deferred earnings of certain non-U.S. subsidiaries of the Company upon enactment of the 2017 Act. The Company is required to recognize the effect of the 2017 Act in the period of enactment. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the 2017 Act, which allows the Company to recognize the provisional amounts during a measurement period not to extend beyond one year of the enactment date.

The Company has not completed the measurement of the one-time transition tax and is in the process of gathering information and evaluating the impact of the one-time transition tax as of the date of this interim report due to the size and length of operating history of the Company. The Company might be subject to possible interest and penalty in relation to the late filing of tax return and reports.

Liquidity and Capital Resources

As of September 30, 2018, we had cash and cash equivalents of $3.24 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 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 $10.42 million in the nine months ended September 30, 2017 to $13.36 million in the same period in 2018. 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.

17


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,  

 

  2018     2017  

Net cash provided by (used in) operating activities

$  1,853,582   $  (10,672,908 )

Net cash provided by (used in) investing activities

  963,652     (354,086 )

Net cash provided by (used in) financing activities

  (5,593,411 )   7,109,096  

Effect of foreign currency translation on cash, cash equivalents, and restricted cash

  (326,507 )   198,611  

Net decrease in cash, cash equivalents, and restricted cash

  (3,102,684 )   (3,719,287 )

Cash, cash equivalents, and restricted cash at beginning of the period

$  7,981,872   $  8,098,630  

Cash, cash equivalents, and restricted cash at end of the period

$  4,879,188   $  4,379,343  

Operating Activities

Net cash provided by operating activities was $1.85 million for the nine months ended September 30, 2018, compared to cash used in operating activities $10.67 million for the same period in 2017. The increase in net cash provided by operating activities was mainly due to the decrease in net loss of $7.04 million, outflow of other receivables, prepayments and deposits of $2.35 million, inventories, net of $5.55 million, and increase in cash inflow in advance from customers - related parties of $4.93 million and retention receivable of $1.20 million, offset by the decrease of inventory write-down of $4.54 million and inflow of accounts payable of $3.97 million.

Investing Activities

Net cash provided by investing activities was $0.96 million for the nine months ended September 30, 2018, compared with net cash used in by investing activities of $0.35 million in the same period in 2017. The increase in net cash provided by investing activities during the nine months ended September 30, 2018 was primarily due to increase in proceeds from disposal of property, plant and equipment of $1.31 million, decrease in loans made to others of $1.74 million and loans made to related party of $0.63 million, offset by decrease in repayment from others of $2.11 million.

Financing Activities

Net cash used in financing activities was $5.59 million for the nine months ended September 30, 2018, compared with $7.11 million net cash provided by financing activities for the same period in 2017. The increase in net cash used in financing resulted from a decrease in proceeds from bank loans of $6.62 million, proceeds from related parties of $5.75 million, and increase in repayment to related parties of $4.67 million and contribution from non-controlling investor, offset by decrease in repayment to bank loans of $4.79 million and increase in proceeds from long-term loan of $0.89 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.

    Nine Months Ended September 30,  
    2018     2017  
    (Unaudited)  
Purchase of equipment $  887,135   $  483,803  
Total capital expenditures $  887,135   $  483,803  

18


We estimate that our total capital expenditures in fiscal year 2018 will reach approximately $0.91 million to buy the equipment for necessary products used in the nuclear power industry.

Obligations under Material Contracts

Except with respect to the loan obligations disclosed above, we have no material obligations to pay cash or deliver cash to any other party.

Seasonality

Our operating results and operating cash flows historically have been subject to seasonal variations. Our revenues usually increase over each quarter of the calendar year with the second quarter usually the slowest quarter because fewer projects are undertaken during and around the Chinese spring festival.

Inflation

Inflation and changing prices have not had a material effect on our business, and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor price changes in the Chinese economy and our industry and continually maintain effective cost controls in operations.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, sales or expenses, results of operations, liquidity or capital expenditures, or capital resources that are material to an investment in our securities.

Critical Accounting Policies

Critical accounting policies are those we believe are most important to portraying our financial conditions and results of operations and also require the greatest amount of subjective or complex judgments by management. Judgments and uncertainties regarding the application of these policies may result in materially different amounts being reported under various conditions or using different assumptions. There have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

Recent Accounting Pronouncements

See Note 3 to our unaudited 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, 2018. 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, 2017, which we are still in the process of remediating as of September 30, 2018, 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, 2017 for the description of these weaknesses.

19


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, 2017, 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, 2017, our management has identified the steps necessary to address the material weaknesses, and in the third quarter of 2018, 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 2018 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.

We have no information to disclose that was required to be in a report on Form 8-K during the third quarter of 2018, 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.

20


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 19, 2018 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