NOTES TO THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of presentation,
significant concentrations and risks
(a) Basis of presentation
The accompanying
unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America ("U.S. GAAP"). Certain information and footnote disclosures normally included in financial
statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by rules and regulations of the United
States Securities and Exchange Commission ("SEC"). The condensed consolidated balance sheet as of December 31, 2018
was derived from the audited consolidated financial statements of China XD Plastics Company Limited ("China XD") and
subsidiaries (collectively, the "Company"). The accompanying unaudited condensed consolidated financial statements should
be read in conjunction with the consolidated balance sheet of the Company as of December 31, 2018, and the related consolidated
statements of comprehensive income, changes in equity and cash flows for the year then ended, included in the Company's Annual
Report on Form 10-K filed with the SEC on April 15, 2019.
In the opinion
of the management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the financial
position as of September 30, 2019, the results of operations and cash flows for the nine-month periods ended September 30, 2019
and 2018, have been made.
The preparation
of condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of
the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the recoverability
of the carrying amounts of property, plant and equipment, the realizability of inventories, the useful lives of property, plant
and equipment, the collectability of accounts receivable, the fair values of stock-based compensation awards, the accruals for
tax uncertainties and other contingencies, and the discount rate used to determine the present value of the lease payments. The
current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.
(b) Accounting pronouncement
adopted in 2019
In February
2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02,
Leases (Topic 842) ("ASU 2016-02"). The new guidance requires the recognition of lease assets and liabilities for operating
leases with terms of more than 12 months, in addition to those currently recorded, on the Company’s consolidated balance
sheets. Presentation of leases within the consolidated statements of comprehensive income and consolidated statements of cash
flows will be generally consistent with the current lease accounting guidance. The Company has adopted this ASU on January 1,
2019 using a modified retrospective approach by recognizing a cumulative-effect adjustment to the opening balance of retained
earnings. This adoption approach resulted in a balance sheet presentation that was not be comparable to the prior period in the
first year of adoption. Additionally, the Company used the package of practical expedients that allowed the Company to not reassess:
(1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases
and (3) initial direct costs for any expired or existing leases. The Company also elected the hindsight practical expedient to
determine the reasonably certain lease term for existing leases. The adoption of the standard resulted in recognition of right-of-use
(“ROU”) assets and lease liabilities of approximately US$16.1 million and US$16.8 million, respectively, as of January
1, 2019. The difference between the initial operating right-of-use asset and operating lease liability of US$0.7 million was accrued
rent previously recognized under ASC 840. There was no cumulative effect on retained earnings as of January 1, 2019 as a result
of adoption.
In February
2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU
2018-02”). The new guidance allows a reclassification from accumulated other comprehensive income to retained earnings for
stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial
statement users. The Company has adopted the standard on January 1, 2019, and there was no material impact on its consolidated
financial statements as a result of the adoption.
In June 2018,
the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment
Accounting (“ASU 2018-07”). The new guidance largely aligns the accounting for share-based awards issued to employees
and nonemployees. Existing guidance for employee awards will apply to non-employee share-based transactions with limited exceptions.
The new guidance also clarifies that any share based payment awards issued to customers should be evaluated under ASC 606, Revenue
from Contracts with Customers. The Company has adopted the standard on January 1, 2019, and there was no material impact on its
consolidated financial statements as a result of the adoption.
(c) Significant
concentrations and risks
Sales concentration
The Company
sells its products primarily through approved distributors in the People's Republic of China (the "PRC"). The Company's
sales are highly concentrated. Sales to distributors individually exceeded 10% of the Company's revenues for the three-month
and nine-month periods ended September 30, 2019 and 2018, are as follows:
|
|
Three-Month
Period Ended September 30,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
%
|
|
US$
|
|
%
|
Distributor A, located in PRC
|
|
|
48,354,258
|
|
|
|
13.0
|
%
|
|
|
43,675,493
|
|
|
|
14.8
|
%
|
Distributor B, located in PRC
|
|
|
41,236,907
|
|
|
|
11.1
|
%
|
|
|
38,087,744
|
|
|
|
12.8
|
%
|
Distributor C, located in
PRC
|
|
|
31,224,911
|
|
|
|
8.4
|
%
|
|
|
34,620,819
|
|
|
|
11.6
|
%
|
Total
|
|
|
120,816,076
|
|
|
|
32.5
|
%
|
|
|
116,384,056
|
|
|
|
39.2
|
%
|
|
|
Nine-Month
Period Ended September 30,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
%
|
|
US$
|
|
%
|
Distributor A, located in PRC
|
|
|
163,355,649
|
|
|
|
14.4
|
%
|
|
|
136,172,680
|
|
|
|
14.7
|
%
|
Distributor B, located in PRC
|
|
|
115,842,572
|
|
|
|
10.2
|
%
|
|
|
114,870,175
|
|
|
|
12.4
|
%
|
Distributor C, located in
PRC
|
|
|
86,271,299
|
|
|
|
7.6
|
%
|
|
|
105,340,424
|
|
|
|
11.4
|
%
|
Total
|
|
|
365,469,520
|
|
|
|
32.2
|
%
|
|
|
356,383,279
|
|
|
|
38.5
|
%
|
The Company
expects revenues from these distributors to continue to represent a substantial portion of its revenue in the future. Any factor
adversely affecting the automobile industry in the PRC or the business operations of these customers will have a material effect
on the Company's business, financial position and results of operations.
Purchase concentration of raw
materials and equipment
The principal raw materials used for the Company's
production of modified plastics products are plastic resins, such as polypropylene, ABS and nylon. The Company purchases substantially
all of its raw materials through a limited number of distributors. Raw material purchases from these distributors, which
individually exceeded 10% of the Company's total raw material purchases, accounted for approximately 31.6% (three distributors)
and 43.2% (four distributors) for the three-month periods ended September 30, 2019 and 2018, respectively, and 32.6% (three distributors)
and 20.4% (two distributors) of the Company's total raw materials purchases for the nine-month periods ended September 30, 2019
and 2018, respectively. Management believes that other suppliers could provide similar raw materials on comparable terms. A change
in suppliers, however, could cause a delay in manufacturing and a possible loss of sales, which would adversely affect the Company's
business, financial position and results of operations.
Cash concentration
Cash and cash equivalents and short-term
restricted cash mentioned below maintained at banks consist of the following:
|
|
September
30,
2019
|
|
December
31,
2018
|
|
|
|
US$
|
|
|
|
US$
|
|
Renminbi (“RMB”)
denominated bank deposits with:
|
|
|
|
|
|
|
|
|
Financial Institutions in the PRC
|
|
|
235,011,468
|
|
|
|
366,773,172
|
|
Financial Institutions in Hong Kong Special Administrative
Region ("Hong Kong SAR")
|
|
|
—
|
|
|
|
8,134
|
|
United States (“U.S.”)
dollar denominated bank deposits with:
|
|
|
|
|
|
|
|
|
Financial Institution in the U.S.
|
|
|
16,730
|
|
|
|
40,390
|
|
Financial Institutions in the PRC
|
|
|
16,930
|
|
|
|
17,050
|
|
Financial Institution in Hong Kong SAR
|
|
|
78,930
|
|
|
|
131,892
|
|
Financial Institution in Macau Special Administrative
Region ("Macau SAR")
|
|
|
910
|
|
|
|
6,144
|
|
Financial Institution in Dubai, UAE
|
|
|
3,518
|
|
|
|
14,464
|
|
Hong Kong dollar denominated
bank deposits with:
|
|
|
|
|
|
|
|
|
Financial institution in Hong Kong SAR
|
|
|
8,290
|
|
|
|
156
|
|
Dirham denominated bank deposits
with:
|
|
|
|
|
|
|
|
|
Financial institution in Dubai, UAE
|
|
|
19,966
|
|
|
|
438
|
|
The
bank deposits with financial institutions in the PRC are insured by the government authority for up to RMB500,000. The bank
deposits with financial institutions in the Hong Kong SAR are insured by the government authority for up to HK$500,000. The
bank deposits with financial institutions in the Macau SAR are insured by the government authority for up to MOP$500,000. The
bank deposits with financial institutions in the Dubai, UAE are not insured by the government authority. Total bank deposits amounting
to US$1,372,734 and US$1,442,481 were insured as of September 30, 2019 and December 31, 2018, respectively. The Company has not experienced
any losses in uninsured bank deposits and does not believe that it is exposed to any significant risks on cash held in bank accounts.
To limit exposure to credit risk, the Company primarily places bank deposits with large financial institutions in the PRC, Hong
Kong SAR, Macau SAR and Dubai, UAE with acceptable credit rating.
Cash deposits
in bank that are restricted as to withdrawal or usage for up to 12 months are reported as restricted cash in the consolidated
balance sheets.
Short-term bank
deposits that are pledged as collateral for bills payable relating to purchases of raw materials are reported as restricted cash
and amounted to US$129,879,525 and US$202,568,664 as of September 30, 2019 and December 31, 2018, respectively. Upon maturity
and repayment of the bills payable, which is generally within 6 months, the cash becomes available for use by the Company.
Short-term bank
deposits that are related to government grant are reported as restricted cash and amounted to US$1,430,537 and US$1,469,935 as
of September 30, 2019 and December 31, 2018, respectively.
Short-term bank
deposits that are pledged as collateral for issuance of letter of guarantee are reported as restricted cash amounted to US$42,575,237
and US$70,885,301 as of September 30, 2019 and December 31, 2018, respectively.
Short-term bank
deposits that are pledged as repayment to settle US$45.0 million of syndicated loans obtained from Standard Chartered Bank are
reported as restricted cash and amounted to US$49,348,194 and US$50,766,123 as of September 30, 2019 and December 31, 2018,
respectively.
Short-term
bank deposits that are pledged as collateral to settle US$14.9 million of short-term bank loans obtained from Postal Savings Bank
of China are reported as restricted cash and amounted to US$1,413,847 and nil as of September 30, 2019 and December 31, 2018,
respectively.
Note 2 –
Accounts receivable
Accounts receivable consists of the
following:
|
|
September
30,
2019
|
|
December
31,
2018
|
|
|
|
US$
|
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
326,868,747
|
|
|
|
294,726,804
|
|
Allowance for doubtful accounts
|
|
|
(37,374
|
)
|
|
|
(38,516
|
)
|
Accounts
receivable, net
|
|
|
326,831,373
|
|
|
|
294,688,288
|
|
As of September
30, 2019 and December 31, 2018, the accounts receivable balances also include notes receivable in the amount of US$335,142 and
US$27,392, respectively. As of September 30, 2019 and December 31, 2018, US$37,431,712 and US$94,581,170,
respectively, of accounts receivable are pledged for the short-term bank loans.
There was no accrual of additional
provision or write-off of accounts receivable for the three-month and nine-month periods ended September 30, 2019 and 2018.
The following
table provides an analysis of the aging of accounts receivable as of September 30, 2019 and December 31, 2018:
|
|
September
30,
2019
|
|
December
31,
2018
|
|
|
|
US$
|
|
|
|
US$
|
|
Aging:
|
|
|
|
|
|
|
|
|
– current
|
|
|
270,927,987
|
|
|
|
218,458,862
|
|
– 1-3 months past due
|
|
|
34,349,372
|
|
|
|
31,386,341
|
|
– 4-6 months past due
|
|
|
5,753,489
|
|
|
|
109,412
|
|
– 7-12 months past due
|
|
|
15,124,228
|
|
|
|
42,532,170
|
|
– greater than one
year past due
|
|
|
713,671
|
|
|
|
2,240,019
|
|
Total
accounts receivable
|
|
|
326,868,747
|
|
|
|
294,726,804
|
|
Note 3 – Inventories
Inventories consist of the following:
|
|
September
30,
2019
|
|
|
December
31,
2018
|
|
|
US$
|
|
US$
|
|
|
|
|
|
|
Raw materials and work in progress
|
|
|
690,531,879
|
|
|
|
612,701,274
|
|
Finished goods
|
|
|
8,470,679
|
|
|
|
7,331,921
|
|
Total inventories
|
|
|
699,002,558
|
|
|
|
620,033,195
|
|
There were no
write down of inventories for the three-month and nine-month periods ended September 30, 2019 and 2018.
Note 4 – Prepaid expenses
and other current assets
Prepaid expenses and other current
assets consist of the following:
|
|
September
30,
2019
|
|
|
December
31,
2018
|
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
|
|
Value added taxes receivables (i)
|
|
|
1,911,502
|
|
|
|
4,700,702
|
|
Advances to suppliers (ii)
|
|
|
131,089,782
|
|
|
|
104,469,023
|
|
Interest receivable (iii)
|
|
|
939,962
|
|
|
|
826,729
|
|
Consideration for sales of Shanghai Sales (iv)
|
|
|
-
|
|
|
|
7,285,231
|
|
Receivables from Hong Kong Grand Royal Trading Co., Ltd.(v)
|
|
|
42,566,949
|
|
|
|
-
|
|
Receivables from Harbin Xinda High-Tech Co., Ltd. (vi)
|
|
|
50,096,218
|
|
|
|
-
|
|
Others (vii)
|
|
|
7,903,006
|
|
|
|
14,936,843
|
|
Total prepaid expenses and other current assets
|
|
|
234,507,419
|
|
|
|
132,218,528
|
|
(i) Value added taxes receivables mainly represent the input taxes on purchasing equipment by Heilongjiang Xinda
Enterprise Group Company Limited (“HLJ Xinda Group”) and Sichuan Xinda Enterprise Group Company Limited (“Sichuan
Xinda”), which are to be net off with output taxes. Value added taxes receivables were recognized in operating activities
in consolidated statements of cash flows.
(ii) Advances
to suppliers are the advances to purchase raw materials.
(iii) Interest
receivable mainly represents interest income accrued from restricted cash.
(iv) On December 18, 2018, HLJ Xinda Group
entered into an agreement with Mr. Xiaohui Gao, General Manager of Heilongjiang Xinda Enterprise Group Shanghai New Materials Sales
Company Limited (“Shanghai Sales”), to transfer Shanghai Sales from HLJ Xinda Group to Mr. Gao for a total consideration
of RMB50.0 million (equivalent to US$7.3 million). Pursuant to the contract, the Company completed the legal transfer on December
19, 2018 and the full consideration of US$7.3 million was received on April 11, 2019. The cash received was included in the cash
flows from investing activities for the nine-month period ended September 30, 2019.
(v) Hong Kong
Grand Royal Trading Co., Ltd. (“Hong Kong Grand Royal”) is a raw material supplier of Dubai Xinda. Dubai Xinda has
prepaid US$48.2 million to Hong Kong Grand Royal in 2017 for purchase of raw materials. Due to the price fluctuation of raw materials,
Hong Kong Grand Royal could not purchase and deliver the raw materials to Dubai Xinda. In July 2019, both parties entered into
a supplemental agreement to cancel the original purchase agreements and Hong Kong Grand Royal shall refund US$14.0 million by
September 30, 2019 and US$34.2 million by October 30, 2019. As of September 30, 2019, Hong Kong Grand Royal has refunded US$5.6
million. On October 25, 2019, both parties entered into another supplemental agreement, pursuant to which, the remaining refund
shall be paid by December 30, 2019.
(vi) During
the nine-month period ended September 30, 2019, the Company transferred US$50.1 million to Harbin Xinda High-Tech Co., Ltd. The
amount was subsequently settled in November 2019.
(vii) Others
mainly include prepaid miscellaneous service fee and staff advance.
Note 5 –
Property, plant and equipment, net
Property, plant and equipment consist
of the following:
|
|
September
30,
2019
|
|
December
31,
2018
|
|
|
|
US$
|
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
Machinery, equipment and furniture
|
|
|
570,806,401
|
|
|
|
580,735,482
|
|
Motor vehicles
|
|
|
2,270,465
|
|
|
|
2,658,487
|
|
Workshops and buildings
|
|
|
154,524,398
|
|
|
|
157,976,839
|
|
Construction in progress
|
|
|
292,003,986
|
|
|
|
217,194,285
|
|
Total
property, plant and equipment
|
|
|
1,019,605,250
|
|
|
|
958,565,093
|
|
Less accumulated depreciation
|
|
|
(221,499,762
|
)
|
|
|
(182,623,813
|
)
|
Property,
plant and equipment, net
|
|
|
798,105,488
|
|
|
|
775,941,280
|
|
For the three-month
and nine-month periods ended September 30, 2019 and 2018, the Company capitalized US$1,581,827 and US$568,444, and US$2,326,326
and US$1,829,388 of interest costs as a component of the cost of construction in progress. Depreciation expense on property, plant
and equipment was allocated to the following expense items:
|
|
Three-Month
Period Ended
September
30,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
Cost of revenues
|
|
|
13,251,745
|
|
|
|
9,219,288
|
|
General and administrative expenses
|
|
|
524,249
|
|
|
|
804,011
|
|
Research and development expenses
|
|
|
887,462
|
|
|
|
978,117
|
|
Selling expenses
|
|
|
1,107
|
|
|
|
1,332
|
|
Total
depreciation expense
|
|
|
14,664,563
|
|
|
|
11,002,748
|
|
|
|
Nine-Month
Period Ended
September
30,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
Cost of revenues
|
|
|
40,232,815
|
|
|
|
28,098,227
|
|
General and administrative expenses
|
|
|
1,730,020
|
|
|
|
2,405,381
|
|
Research and development expenses
|
|
|
2,855,749
|
|
|
|
2,954,445
|
|
Selling expenses
|
|
|
3,384
|
|
|
|
4,162
|
|
Total
depreciation expense
|
|
|
44,821,968
|
|
|
|
33,462,215
|
|
Note 6 - Prepayments to equipment
and construction suppliers
|
|
September
30,
2019
|
|
December
31,
2018
|
|
|
|
US$
|
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
Hailezi (i)
|
|
|
412,405,158
|
|
|
|
502,087,116
|
|
Green River (ii)
|
|
|
—
|
|
|
|
15,778,057
|
|
Beijin Construction (iii)
|
|
|
6,670,735
|
|
|
|
6,867,269
|
|
Peaceful Treasure Limited(iv)
|
|
|
16,860,609
|
|
|
|
4,936,983
|
|
Others
|
|
|
390,460
|
|
|
|
966,894
|
|
Total
Prepayments to equipment and construction suppliers
|
|
|
436,326,962
|
|
|
|
530,636,319
|
|
(i) On September
26, 2016 and February 28, 2017, HLJ Xinda Group entered into equipment purchase contracts with Hailezi for a total consideration
of RMB782.2 million (equivalent to US$110.6 million) to purchase storage facility and other equipment, which will be used for
upgrading the storage system of warehouse located in Harbin, China. Pursuant to the contract with Hailezi, HLJ Xinda Group prepaid
RMB621.6 million (equivalent to US$87.9 million) during the first quarter of 2017. Due to a redesign of outdoor storage
facility in June 2017, HLJ Xinda Group entered into a supplementary agreement with Hailezi, which decreased the original contract
amount to RMB283.7 million (equivalent to US$40.1 million). Hailezi refunded RMB369.1 million (equivalent to US$52.2 million)
to HLJ Xinda Group on June 22, 2017. In May 2019, HLJ Xinda Group has prepaid another RMB1.0 million (equivalent to US$0.1 million).
As of September 30, 2019, HLJ Xinda Group has prepaid RMB253.5 million (equivalent to US$35.8 million).
On July 21,
2017, HLJ Xinda Group entered into three investment agreements with the Management Committee of Harbin Economic- Technological
Development Zone with respect to the industrial project for 300,000 metric tons of biological composite materials, the industrial
project for upgrading existing equipment for 100,000 metric tons of engineering plastics and the industrial project for a 3D printing
intelligent manufacture demonstration factory and a 3D printing display and experience cloud factory (the "HLJ Project").
In order to fulfill the agreements, HLJ Xinda Group entered into an equipment purchase contract with Hailezi to purchase production
equipment in November 2017, which will be used for 100,000 metric tons of engineering plastics located in Harbin, for a consideration
of RMB939.7 million (equivalent to US$132.9million). Pursuant to the contract with Hailezi, HLJ Xinda Group has prepaid RMB920.9
million (equivalent to US$130.2 million) in total as of June 30, 2019. RMB530.8 million (equivalent to US$75.0 million) of the
equipment was delivered in June 2019 and the prepayment was transferred to construction in progress. As of September 30, 2019,
the amount of the remaining prepayment was RMB390.1 million (equivalent to US$55.2 million).
In
connection with the HLJ project, in June and July 2018, HLJ Xinda Group entered into two equipment purchase contracts with Hailezi
to purchase production equipment, which will be used for 300,000 metric tons of biological based composite material, located in
Harbin, for a consideration of RMB1,906.8 million (equivalent to US$269.6 million). Pursuant to the contracts with Hailezi, HLJ
Xinda Group has prepaid RMB541.5 million (equivalent to US$76.6 million) as of September 30, 2019.
On
March 17, 2017, Sichuan Xinda entered into a definitive agreement with the People's Government of Shunqing District, Nanchong
City of Sichuan Province for the production of 300,000 metric tons of bio-composite materials and additive manufacturing and 20,000
metric tons of functional masterbatch, a high-end color additive process in plastics manufacturing (the "Nanchong Project").
The Nanchong Project will be located in a land area of 250 mu (equivalent to 41.2 acres), with 215 mu designated for bio-composite
materials and additive manufacturing production and 35 mu to be designated for functional masterbatch production. The projected
total capital expenditures for the project is approximately RMB2.5 billion (equivalent to US$353.5 million).
In
connection with the Nanchong Project, Sichuan Xinda entered into equipment purchase contracts with Hailezi to purchase
production equipment and testing equipment. Pursuant to the contracts with Hailezi, Sichuan Xinda prepaid RMB1,728.9 million
(equivalent to US$244.4 million) in the first quarter of year 2017. In 2017, in order to ensure the traceability of the
product and management of supply chain, Sichuan Xinda expected to launch an integrated ERP system, which resulted in the
equipment to be purchased under the original contracts with Hailezi not meeting the production requirements. Hailezi agreed
to refund the prepayment in the amount of RMB1,704.9 million (equivalent to US$241.0 million) by the end of March 2018, the
remaining uncancelled amount is RMB24.0 million (equivalent to US$3.4 million). As of December 31, 2017, Sichuan Xinda signed
a supplementary agreement with Hailezi, pursuant to the agreement, Sichuan Xinda agreed to pay RMB12.4 million (equivalent to
US$1.8 million) to Hailezi for the compensation of Hailezi due to the termination of the purchase contracts. In January
2018, Hailezi refunded the above-mentioned prepayment. The Company received the testing equipment in the amount of
RMB3.2 million (equivalent to US$0.5 million) in November 2018, the remaining balance of the uncancelled prepayment as of
September 30, 2019 was RMB20.8 million (equivalent to US$3.0 million).
In connection with the Nanchong Project,
on June 21, 2018, Sichuan Xinda entered into another equipment purchase contract with Hailezi to purchase production equipment
and testing equipment for a consideration of RMB1,900.1 million (equivalent to US$268.7 million). Pursuant to the contracts with
Hailezi, Sichuan Xinda has prepaid RMB1,710.1 million (equivalent to US$241.8 million) as of September 30, 2019.
The table below
summarized the balance of prepayments to Hailezi for each of the projects as of September 30, 2019 and December 31, 2018, and
the movements of the prepayments:
(in millions US$)
|
Year
|
|
Projects
|
|
Balance as of
December 31, 2018
|
|
Prepaid in 2019
|
|
Transfer to CIP in 2019
|
|
Effect of foreign currency exchange rate changes
|
|
Balance as of
September 30, 2019
|
|
2017
|
|
|
Storage system
|
|
|
36.8
|
|
|
|
0.1
|
|
|
|
—
|
|
|
|
(1.1
|
)
|
|
|
35.8
|
|
|
2017
|
|
|
HLJ project
|
|
|
134.2
|
|
|
|
—
|
|
|
|
(75.0
|
)
|
|
|
(4.0
|
)
|
|
|
55.2
|
|
|
2018
|
|
|
HLJ project
|
|
|
78.9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2.3
|
)
|
|
|
76.6
|
|
|
2017
|
|
|
Nanchong project
|
|
|
3.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3.0
|
|
|
2018
|
|
|
Nanchong project
|
|
|
249.2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(7.4
|
)
|
|
|
241.8
|
|
|
Total
|
|
|
|
|
|
502.1
|
|
|
|
0.1
|
|
|
|
(75.0
|
)
|
|
|
(14.8
|
)
|
|
|
412.4
|
|
(ii) In December 2017, HLJ Xinda Group entered
into a building purchase contract with Shanghai Caohejing Kangqiao Science & Green River Construction & Development Co.,
Ltd. for a total consideration of RMB216.6 million (equivalent to US$31.6 million), with a total area of 13,972.64 square meters
with a prepaid RMB108.3 million (equivalent to US$15.8 million).
During the six-month period ended June 30,
2019, HLJ Xinda Group entered into an agreement with Green River and Shanghai Sales, to transfer the rights and obligations of
HLJ Xinda Group under the original purchase agreement to Shanghai Sales. Pursuant to the agreement, Shanghai Sales shall pay the
RMB108.3 million (equivalent to US$15.8 million) to HLJ Xinda Group. As a result, the prepayment was reclassified as prepaid expenses
and other current assets during the six-month period ended June 30, 2019. HLJ Xinda Group received the RMB108.3 million on August
6, 2019, which was included in the cash flows from investing activities for the nine-month period ended September 30, 2019.
(iii) Since
November 15, 2016, Sichuan Xinda entered into decoration contracts with Sichuan Beijin Construction Engineering Company Limited
("Beijin Construction") to perform indoor and outdoor decoration work for a consideration of RMB264.3 million (equivalent
to US$37.4 million). Pursuant to the contracts with Beijin Construction, Sichuan Xinda has prepaid RMB120.9 million (equivalent
to US$17.1 million) as of September 30, 2019, of which RMB74.0 million (equivalent to US$10.4 million) was transferred to construction
in progress.
(iv) On October
20, 2016, Sichuan Xinda entered into an equipment purchase contract with Peaceful Treasure Limited ("Peaceful") for
a total consideration of RMB89.8 million (equivalent to US$12.7 million) to purchase certain production and testing equipment.
The Company prepaid RMB33.9 million (equivalent to US$4.8 million) as of September 30, 2019.
On May 31, 2019,
Dubai Xinda entered into an equipment purchase contract with Peaceful for a total consideration of US$18.8 million to purchase
storage and testing equipment. The Company prepaid US$12.1 million as of September 30, 2019.
Note 7 –
Losses on foreign currency option contracts
On February
24, 2017, the Company entered into two foreign currency option contracts with Bank of China ("BOC"), Harbin Branch,
pursuant to which the Company and BOC both have options to excise the foreign currency contracts depending on the future currency
fluctuation, and the nominal values are US$5.0 million and US$10.0 million, respectively, with the defined exchange rates for
settlement on March 15, 2018. The Company recognized losses on the above foreign currency option contracts amounting to US$0.5
million in the nine-month period ended September 30, 2018.
Note 8 –
Borrowings
The Company
has credit facilities with several banks under which they draw short-term and long-term bank loans as described below.
(a) Current
|
|
September 30,
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
|
|
US$
|
|
|
|
US$
|
|
Unsecured loans
|
|
|
310,183,942
|
|
|
|
418,198,508
|
|
Loans secured by accounts receivable
|
|
|
63,623,125
|
|
|
|
65,567,082
|
|
Loans secured by restricted cash
|
|
|
59,138,472
|
|
|
|
69,500,000
|
|
Current portion of long-term
bank loans (note b)
|
|
|
186,577,210
|
|
|
|
176,401,330
|
|
Total
short-term loans, including current portion of long-term bank loans
|
|
|
619,522,749
|
|
|
|
729,666,920
|
|
As of September 30, 2019 and December 31, 2018,
the Company's short-term bank loans (including the current portion of long-term bank loans) bear a weighted average interest rate
of 4.8% and 4.7% per annum, respectively. All short-term bank loans mature at various times within one year and contain no renewal
terms.
During the nine-month
period ended September 30, 2019, the Company repaid thirteen loans in a total amount of RMB450.0 million (equivalent to US$63.6
million), and obtained thirteen loans in a total amount of RMB450.0 million (equivalent to US$63.6 million) at an annual interest
rate of 4.350% secured by accounts receivables of RMB264.8 million (equivalent to US$37.4 million).
In July 2017,
the Company obtained a one-year secured loan of US$14.0 million from Bank of China (Paris Branch) at an annual interest rate of
2.5%. The loan was secured by restricted cash of RMB107.0 million (equivalent to US$15.6 million) in Bank of China in Harbin,
China. In accordance with the renewal agreement on July 19, 2018, the repayment term of the loan was extended and the loan was
repaid in April 2019.
In October 2017,
the Company obtained a one-year secured loan of US$5.0 million from Bank of China (Paris Branch) at an annual interest rate of
2.5%. The loan was secured by restricted cash of RMB37.5 million (equivalent to US$5.5 million) in Bank of China in Harbin, China.
In accordance with the renewal agreement on July 19, 2018, the repayment term of the loan was extended and the loan was repaid
in April 2019.
In October 2017,
the Company obtained a one-year secured loan of US$5.5 million from Bank of China (Paris Branch) at an annual interest rate of
2.5%. The loan was secured by restricted cash of RMB42.0 million (equivalent to US$6.1 million) in Bank of China in Harbin, China.
In accordance with the renewal agreement on July 19, 2018, the repayment term of the loan was extended and the loan was repaid
in April 2019.
In May 2018, the Company
obtained a three-month secured short-term loan of US$45.0 million from Standard Chartered Bank with the interest rate at 1.5% per
annum over LIBOR payable on the last day of its interest period. The loan was secured by restricted cash of RMB300.0 million (equivalent
to US$42.6 million) in Standard Chartered Bank in Harbin, China. The Company did not repay the loan on time which is due on August
17, 2018 due to the stricter foreign exchange control in the PRC. In accordance with the renewal agreements dated October 30, 2019,
the repayment term of the loan was extended and the loan will be due on November 29, 2019. The loan will be repaid when the Company
receive the US$135.0 million loan from the consortium of banks and financial institutions led by Industrial and Commercial Bank
of China (Macau) Limited pursuant to the facility agreement dated October 2, 2019, details please refer to Note 22.
In
January 2019, the Company obtained a nine-month secured short-term loan of RMB100.0 million (equivalent to US$14.1 million) from
Postal Savings Bank of China at an annual interest rate of 4.35%. The loan was secured by restricted cash of RMB10.0 million (equivalent
to US$1.4 million) in Postal Savings Bank of China.
(b) Non-current
|
|
September
30,
2019
|
|
December
31,
2018
|
|
|
|
US$
|
|
|
|
US$
|
|
Secured loans
|
|
|
72,652,556
|
|
|
|
2,177,985
|
|
Unsecured loans
|
|
|
300,443,100
|
|
|
|
196,031,589
|
|
Syndicate loan facility
|
|
|
90,000,000
|
|
|
|
90,000,000
|
|
Less: current portion
|
|
|
(186,577,210
|
)
|
|
|
(176,401,330
|
)
|
Total
long-term bank loans, excluding current portion
|
|
|
276,518,446
|
|
|
|
111,808,244
|
|
In October and November
2015, the Company obtained three long term unsecured loans of RMB260.0 million (equivalent to US$36.8 million) from Bank of China
at an annual interest rate of 4.75%. In January 2016, the Company obtained a long term unsecured loan of RMB80.0 million (equivalent
to US$11.3 million) from Bank of China at an annual interest rate of 4.75%. On December 9, 2016, the Company obtained a long term
unsecured loan of RMB30.0 million (equivalent to US$4.2 million) from Bank of China at an annual interest rate of 4.75%. On March
23, 2017, the Company obtained a long term unsecured loan of RMB25.0 million (equivalent to US$3.5 million) from Bank of China
at an annual interest rate of 4.75%. The Company repaid RMB175.0 million (equivalent to US$24.7 million) during 2017 and 2018,
and RMB25.0 million (equivalent to US$3.5 million) on April 28, 2019. RMB100.0 million (equivalent to US$14.1 million), RMB20.0
million (equivalent to US$2.8 million), and RMB75.0 million (equivalent to US$10.6 million) will be repaid on October 28, 2019,
April 28, 2020 and October 28, 2020, respectively. As of September 30, 2019, the Company was providing external guarantees without
the bank’s consent, which was in violation of a provision of the loan contract. According to the loan contract, Bank of China
has the right to declare the above loans be immediately due and payable. As a result, the loan amounting to RMB75.0 million (equivalent
to US$10.6 million) due on October 28, 2020 was callable and classified as short-term loans. For details of the guarantee, please
refer to note 18.
On August 22, 2016,
Xinda Holding (HK) Company Limited ("Xinda Holding (HK)") a wholly owned subsidiary of the Company, entered into a facility
agreement for a loan facility in an aggregate amount of US$180.0 million with a consortium of banks and financial institutions
led by Standard Chartered Bank (Hong Kong) Limited. The Company repaid US$90.0 million in 2017 and 2018. US$90.0 million of the
principal amount should be repaid on August 22, 2018. The loans were not repaid on time due to the stricter foreign exchange control
in the PRC. As of September 30, 2019, the Company totally pledged RMB349.0 million (equivalent to US$49.3 million) restricted cash
to secure the repayment of the above loan. In accordance with the renewal agreements dated October 30, 2019, the repayment term
of the loan was extended and the loan will be due on November 29, 2019. The loan will be repaid when the Company receive the US$135.0
million loan from the consortium of banks and financial institutions led by Industrial and Commercial Bank of China (Macau) Limited
pursuant to the facility agreement dated October 2, 2019, details please refer to Note 22.
During 2017, the
Company obtained four long-term unsecured loans of RMB430.0 million (equivalent to US$60.8 million) from Nanchong Shuntou Development
Group Co., Ltd. at an annual interest rate of 4.35%. In accordance with the renewal agreements on April 2, 2019, the repayment
terms of the four loans were extended and the loans would be due on September 30, 2019. As of September 30, 2019, the loans were
due and repayment terms have not been extended. The Company is currently negotiating with Nanchong Shuntou Development Group Co.,
Ltd for the extension.
On December 1, 2017,
the Company obtained a seven-year unsecured loan of RMB526.3 million (equivalent to US$74.4 million) from Longjiang Bank, Harbin
Branch at an annual interest rate of 4.9%. The Company borrowed another long-term loan in amount of RMB169.1 million (equivalent
to US$23.9 million) in January 2018 at an annual interest rate of 4.9%. The Company repaid RMB15.0 million (equivalent to US$2.1
million) on June 30, 2019. RMB20.0 million (equivalent to US$2.8 million), RMB35.0 million (equivalent to US$5.0 million),
RMB35.0 million (equivalent to US$5.0 million), RMB70.0 million (equivalent to US$9.9 million), RMB70.0 million (equivalent to
US$9.9 million), RMB90.0 million (equivalent to US$12.7 million), RMB90.0 million (equivalent to US$12.7 million) and RMB270.4
million (equivalent to US$38.2 million) will be repaid on December 30, 2019, June 30, 2020, December 30, 2020, June 30, 2021, December
30, 2021, June 30, 2022, December 30, 2022 and after 2022, respectively.
On June 17, 2019,
the Company obtained a long-term loan of RMB600.0 million (equivalent to US$84.8 million) from Longjiang Bank, Harbin Branch at
an annual interest rate of 5.635%. RMB100.0 million (equivalent to US$14.2 million), RMB100.0 million (equivalent to US$14.2 million),
RMB200.0 million (equivalent to US$28.2 million), RMB200.0 million (equivalent to US$28.2 million), will be repaid in 2021, 2022,
2023, and 2024, respectively. In September 2019, the Company obtained another long-term loan of RMB219.6 million (equivalent to
US$31.1 million) from Longjiang Bank, Harbin Branch at an annual interest rate of 5.635%, and the loan will be repaid in 2025.
On December 26, 2018,
the Company obtained a five-year secured loan of AED8.0 million (equivalent to US$2.2 million) from National Bank of Umm Al Qaiwain
at an interest rate of three-month EBOR (2.35% as of September 30, 2019) plus 3.75%. The long-term loan was secured by an undated
cheque of AED8.8 million (equivalent to US$2.4 million) favouring the bank provided by Dubai Xinda. The cheque would not be cashed
by the bank unless Dubai Xinda defaults. Principal will be repaid in ten half-yearly installments of AED0.8 million (equivalent
to US$0.2 million) each. The Company repaid AED0.8 million (equivalent to US$0.2 million) on June 30, 2019.
In
January 2019, the Company obtained a two-year secured loan of RMB500.0 million (equivalent to US$70.7 million) from China Construction
Bank. The long-term loan was secured by the right of equity income of Sichuan Xinda, which was previously held by the Company.
The registration of pledge was completed in January 2019.
Maturities
on long-term bank loans (including current portion) are as follows:
|
|
September
30, 2019
|
|
|
|
|
|
US$
|
|
|
2019
|
|
|
|
181,410,945
|
|
|
2020
|
|
|
|
10,332,528
|
|
|
2021
|
|
|
|
105,060,291
|
|
|
2022
|
|
|
|
40,023,319
|
|
|
After
2022
|
|
|
|
126,268,573
|
|
|
Total
|
|
|
|
463,095,656
|
|
Note 9 – Accrued expenses
and other current liabilities
Accrued expenses and other current
liabilities consist of the following:
|
|
September
30,
2019
|
|
December
31,
2018
|
|
|
|
US$
|
|
|
|
US$
|
|
Payables for purchase of property,
plant and equipment
|
|
|
14,038,643
|
|
|
|
53,059,897
|
|
Accrued freight expenses
|
|
|
14,341,777
|
|
|
|
25,908,990
|
|
Accrued interest expenses
|
|
|
10,012,097
|
|
|
|
8,873,532
|
|
Contract liabilities (i)
|
|
|
16,248,016
|
|
|
|
16,105,245
|
|
Non income tax payables
|
|
|
4,617,298
|
|
|
|
6,425,236
|
|
Payables to Macromolecule Composite Materials
(ii)
|
|
|
19,422,453
|
|
|
|
—
|
|
Others (iii)
|
|
|
19,822,979
|
|
|
|
16,553,998
|
|
Total
accrued expenses and other current liabilities
|
|
|
98,503,263
|
|
|
|
126,926,898
|
|
(i) Contract
liabilities mainly represent the advance received from customers in the PRC for the finished goods and raw materials purchases
as of September 30, 2019. The change in contract liabilities primarily represents the cash received, less amounts recognized as
revenues during the period.
(ii)
As of September 30, 2019, the Company owed Heilongjiang Xinda Macromolecule Composite Materials Company Limited (“Macromolecule
Composite Materials”) US$19.4 million, which was subsequently settled in October 2019.
(iii)
Others mainly represent accrued payroll and employee benefits, accrued audit and consulting fees, electricity fee and other
accrued miscellaneous operating expenses.
Note
10 – Related Party Transactions
The related
party transactions are summarized as follows:
|
|
Three-Month Period Ended September 30,
|
|
Nine-Month Period Ended September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
|
US$
|
|
US$
|
Transactions with related parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues resulting from transactions with a related party:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to Macromolecule Composite Materials (v)
|
|
|
734,895
|
|
|
|
—
|
|
|
|
1,040,485
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing transactions with related parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment received in advance from Changmu (i)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
75,567,512
|
|
Refund of investment received in advance to Changmu (i)
|
|
|
—
|
|
|
|
(75,567,512
|
)
|
|
|
—
|
|
|
|
(75,567,512
|
)
|
Proceeds of interest-free advances from Changmu (i)
|
|
|
—
|
|
|
|
3,779,509
|
|
|
|
—
|
|
|
|
3,779,509
|
|
Interest-free advances from Mr. Jie Han (ii)
|
|
|
—
|
|
|
|
1,162,926
|
|
|
|
2,920,049
|
|
|
|
1,162,926
|
|
Repayment of interest-free advances from Mr. Jie Han (ii)
|
|
|
(116,802
|
)
|
|
|
—
|
|
|
|
(116,802
|
)
|
|
|
—
|
|
Interest-free advances from Mr. Jie Han’s son(ii)
|
|
|
8,760,147
|
|
|
|
726,830
|
|
|
|
8,760,147
|
|
|
|
726,830
|
|
Interest-free advances from senior management employee in HLJ Xinda Group and Sichuan Xinda (iii)
|
|
|
—
|
|
|
|
8,587,164
|
|
|
|
275,234
|
|
|
|
8,587,164
|
|
Repayment of interest-free advances from senior management employees in HLJ Xinda Group and Sichuan Xinda (iii)
|
|
|
(292,005
|
)
|
|
|
—
|
|
|
|
(4,679,484
|
)
|
|
|
—
|
|
Interest-free advances from Mr. Qingwei Ma (iv)
|
|
|
4,526,076
|
|
|
|
—
|
|
|
|
4,526,076
|
|
|
|
—
|
|
Repayment of interest-free advances from Mr. Qingwei Ma (iv)
|
|
|
(730,012
|
)
|
|
|
—
|
|
|
|
(730,012
|
)
|
|
|
—
|
|
Interest-free advances from Macromolecule Composite Materials (v)
|
|
|
—
|
|
|
|
—
|
|
|
|
63,488,212
|
|
|
|
—
|
|
Repayment of interest-free advances from Macromolecule Composite Materials (v)
|
|
|
(2,935,570
|
)
|
|
|
—
|
|
|
|
(63,017,445
|
)
|
|
|
—
|
|
Total financing transactions with related parties
|
|
|
9,211,834
|
|
|
|
(61,311,083
|
)
|
|
|
11,425,975
|
|
|
|
14,256,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The related
party balances are summarized as follows:
|
|
September
30,
2019
|
|
December
31,
2018
|
|
|
|
US$
|
|
|
|
US$
|
|
Amounts due to related parties:
|
|
|
|
|
|
|
|
|
Mr. Jie Han
|
|
|
12,328,748
|
|
|
|
9,907,915
|
|
Mr. Jie Han’s wife
|
|
|
3,101,479
|
|
|
|
3,180,965
|
|
Mr. Jie Han’s son
|
|
|
9,190,007
|
|
|
|
728,523
|
|
Senior management employees in HLJ Xinda Group
and Sichuan Xinda
|
|
|
148,530
|
|
|
|
4,548,335
|
|
Mr. Qingwei Ma
|
|
|
3,676,003
|
|
|
|
—
|
|
Total
amounts due to related parties
|
|
|
28,444,767
|
|
|
|
18,365,738
|
|
(i)
On July 14, 2018, Xinda Holding (HK) entered into a subscription intent agreement with Changmu Investment (Beijing) Company Limited
(“Changmu”), a company wholly controlled by Mr. Tiexin Han, the son of Mr. Jie Han, the Chief Executive Officer and
Chairman of the Company. Pursuant to the terms of the agreement, HLJ Xinda Group received RMB500.0 million (equivalent to US$75.6
million) from Changmu on June 29, 2018 as deposits in order to subscribe newly authorized registered capital of HLJ Xinda Group
subject to further negotiations. Due to the inability to reach agreement on the terms, both parties agreed not to proceed with
any definitive agreement. Therefore, HLJ Xinda Group refunded the investment received in advance from Changmu in September 2018.
During
the nine-month period ended September 30, 2018, the Company also received RMB26.0 million (equivalent to US$3.8 million) from
Changmu as interest-free advances.
(ii) During the nine-month ended September 30, 2018, the Company received RMB8.0 million (equivalent to US$1.2
million) from Mr. Jie Han, the Chairman of the Company, and RMB5.0 million (equivalent to US$0.7 million) from Mr. Tiexin Han,
the son of Mr. Jie Han, as interest-free advances to the Company.
During
the nine-month period ended September 30, 2019, the Company received another RMB20.0 million (equivalent to US$2.9 million) from
Mr. Jie Han as interest-free advances and repaid RMB0.8 million (equivalent to US$0.1 million). As of September 30, 2019, the
amounts due to Mr. Jie Han was RMB87.2 million (equivalent to US$12.3 million).
During
the nine-month period ended September 30, 2019, the Company received another RMB60.0 million (equivalent to US$8.8 million) from
Mr. Tiexin Han as interest-free advances. As of September 30, 2019, the amounts due to Mr. Tiexin Han was RMB65.0 million (equivalent
to US$9.2 million).
(iii)
In August 2018, the Company received RMB10.0 million (equivalent to US$1.5 million) each from three senior management employees
(Messers Junjie Ma, Yuchong Jia, Guangjun Jiao) of Sichuan Xinda as interest-free advances to Sichuan Xinda. During the nine-month
period ended September 30, 2018, the Company also received RMB29.1 million (equivalent to US$4.2 million) from a senior management
employee (Mr. Rujun Dai) of HLJ Xinda Group as interest-free advances to HLJ Xinda Group.
In
April 2019, the Company repaid the RMB30.0 million (equivalent to US$4.4 million) to the senior management employees in Sichuan
Xinda. During the nine-month period ended September 30, 2019, the Company received another RMB1.9 million (equivalent to US$0.3
million) from Mr. Rujun Dai and repaid RMB2.0 million (equivalent to US$0.3 million) to Mr. Rujun Dai. As of September 30, 2019,
the amounts due to Mr. Rujun Dai was RMB1.1 million (equivalent to US$0.1 million).
(iv)
During the nine-month period ended September 30, 2019, the Company received RMB31.0 million (equivalent to US$4.5 million) from
Qingwei Ma, the Chief Operating Officer of the Company, as interest-free advances to the Company, and repaid RMB5.0 million (equivalent
to US$0.7 million). As of September 30, 2019, the amounts due to Mr. Qingwei Ma was RMB26.0 million (equivalent to US$3.7 million).
(v)
On December 26, 2018, Shanghai Sales set up Heilongjiang Xinda Macromolecule Composite Materials Company Limited. On April 22, 2019, Shanghai Sales transferred 97.5% equity interest in Macromolecule
Composite Materials to Harbin Shengtong Engineering Plastics Co. Ltd. ("Harbin Shengtong"). Mr. Xigang Chen, who was
the general manager of Sichuan Xinda, is the general manager and also the principal shareholder of Harbin Shengtong.
Since
Mr. Xigang Chen resigned from Sichuan Xinda on August 5, 2019, Macromolecule Composite Materials was no longer a related party
of the Company.
During
the period from April 22, 2019 through August 5, 2019, the Company sold products to Macromolecule Composite Materials in US$1.0
million.
During
the period from April 22, 2019 through August 5, 2019, the Company received RMB434.4 million (equivalent to US$63.5 million) of
interest-free advances from Macromolecule Composite Materials and repaid RMB431.6 million (equivalent to US$63.0 million).
Note
11– Income tax
Pursuant
to an approval from the local tax authority in July 2013, Sichuan Xinda, a subsidiary of China XD, became a qualified enterprise
located in the western region of the PRC, which entitled it to a preferential income tax rate of 15% from January 1, 2013 to December
31, 2020. Under the current laws of Dubai, Dubai Xinda, a subsidiary of China XD, is exempted from income taxes.
The
effective income tax rates for the nine-month periods ended September 30, 2019 and 2018 were 14.8% and 12.9%, respectively. The
effective income tax rate increased from 12.9% for the nine-month period ended September 30, 2018 to 14.8% for the nine-month
period ended September 30, 2019, primarily due to the decrease of Sichuan Xinda’s profit before tax (“PBT”)
percentage within the consolidating entities. The effective income tax rate for the nine-month period ended September 30, 2019
differs from the PRC statutory income tax rate of 25% primarily due to Sichuan Xinda's preferential income tax rate, the reversal
of the unrecognized tax benefits accrued in year 2013 and 75% additional deduction of R&D expenses of the major
PRC operating entities.
US$3,572,637
previously unrecognized tax benefits accrued in year 2013 and the related accrued interest amounting to US$3,116,216 were reversed
due to the expiration of five-year tax assessment period on May 31, 2019. As of September 30, 2019, the unrecognized tax benefits
were US$33,663,442 and the interest relating to unrecognized tax benefits was US$12,376,126, of which the
unrecognized tax benefits in year 2014 amounting to US$5,578,390 and related accrued interest amounting to US$4,351,145 were classified
as current liabilities as the five-year tax assessment period will expire on May 31, 2020. No penalties expense related
to unrecognized tax benefits were recorded. The Company is currently unable to provide an estimate of a range of the total amount
of unrecognized tax benefits that is reasonably possible to change significantly within the next twelve months.
Note 12 – Deferred Income
On January 26,
2015, the Company entered into a memorandum and a fund support agreement (the "Agreement") with the People's Government
of Shunqing District, Nanchong City, Sichuan Province ("Shunqing Government") pursuant to which Shunqing Government,
through its investment vehicle, extended to the Company RMB350 million (equivalent to US$49.5 million) to support the construction
of the Sichuan plant, which has been received in full in the form of government repayment of bank loans on behalf of the Company.
In addition,
the Company has received RMB333.2 million (equivalent to US$47.1 million) from Shunqing Government and RMB6.4 million (equivalent
to US$0.9 million) from Ministry of Finance of the People's Republic of China to support the construction and RMB2.2 million (equivalent
to US$0.3 million) special funds of ministerial key research projects from Ministry of Science and Technology of PRC as of September
30, 2019.
The Company
has also received RMB45.0 million (equivalent to US$6.4 million) from Harbin Bureau of Finance for Biomedical composites project
as of September 30, 2019.
Since the funding
is related to the construction of long-term assets, the amounts were recognized as government grant, which is included in deferred
income on the consolidated balance sheets, and to be recognized as other income in the consolidated statements of comprehensive
income over the periods and in the proportions in which depreciation expense on the long-term assets is recognized.
The Sichuan
factory has been operational since July 2016. A cumulative RMB97.1 million (equivalent to US$13.8 million) government grants have
been amortized as other income proportionate to the depreciation of the related assets, of which RMB25.5 million (equivalent to
US$3.6 million) was amortized in the nine-month period ended September 30, 2019.
The Company
also received RMB36.0 million (equivalent to US$5.1 million) from Shunqing Government with respect to interest subsidy for bank
loans. A cumulative RMB16.4 million (equivalent to US$2.3 million) government grants have been amortized as other income in line
with the amount of related loan interest accrued.
Note
13 – Other non-current liabilities
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
|
|
US$
|
|
|
|
US$
|
|
Income tax payable-noncurrent (i)
|
|
|
89,976,096
|
|
|
|
92,461,068
|
|
Deferred income tax liabilities
|
|
|
5,062,698
|
|
|
|
6,716,921
|
|
Others
|
|
|
—
|
|
|
|
2,395,783
|
|
Total
other non-current liabilities
|
|
|
95,038,794
|
|
|
|
101,573,772
|
|
(i) Income tax
payable-noncurrent represents the repatriation tax, the accumulative balance of unrecognized tax benefits since 2015 and related
accrued interest. According to the Tax Cuts and Jobs Act enacted on December 22, 2017, the management recognized the amount
of U.S. tax corporate income tax is US$70,965,148 based on the deemed repatriation to the United States of accumulated earnings
mandated by the U.S. tax reform, US$17,031,636 of which due payable in 2018 and 2019 was classified as current liabilities.
Note 14 – Redeemable Series
D convertible preferred stock
On September
26, 2019, the Company delivered an irrevocable notice pursuant to Section 6(C)(ii) of the Amended and Restated Certificate of
Designation, Preferences and Rights of Series D Junior Convertible Preferred Stock (the “Certificate of Designation”),
to MSPEA Modified Plastics Holding Limited (“MSPEA”), and exercised its right set forth in Section 6(C)(i) of the
Certificate of Designation for the mandatory conversion of each outstanding share of the redeemable Series D convertible preferred
stock (“Series D Preferred Stock”) into 16,000,000 fully paid and nonassessable shares of common stock. As of September
26, 2019, 16,000,000 shares of Series D Preferred Stock were thus converted into 16,000,000 shares of common stock.
Note 15 – Stockholders'
equity
The changes of each caption of stockholders'
equity for the nine-month period ended September 30, 2019 are as follows:
|
|
Series B Preferred
Stock
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Number
of
Shares
|
|
|
Amount
|
|
|
Number
of
Shares
|
|
|
Amount
|
|
|
Treasury
Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Retained
Earnings
|
|
|
Other
Comprehensive
Loss
|
|
|
Total
Stockholders'
Equity
|
|
|
|
|
|
|
US$
|
|
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Balance at January 1, 2019
|
|
|
1,000,000
|
|
|
|
100
|
|
|
|
50,948,841
|
|
|
|
5,097
|
|
|
|
(92,694
|
)
|
|
|
86,633,582
|
|
|
|
717,103,890
|
|
|
|
(54,732,547
|
)
|
|
|
748,917,428
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
68,057,245
|
|
|
|
-
|
|
|
|
68,057,245
|
|
Series D Preferred Stock converted to common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
16,000,000
|
|
|
|
1,600
|
|
|
|
-
|
|
|
|
97,574,865
|
|
|
|
-
|
|
|
|
-
|
|
|
|
97,576,465
|
|
Other comprehensive income - Foreign currency translation
adjustment, net of nil income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(24,732,543
|
)
|
|
|
(24,732,543
|
)
|
Balance as of September 30, 2019
|
|
|
1,000,000
|
|
|
|
100
|
|
|
|
66,948,841
|
|
|
|
6,697
|
|
|
|
(92,694
|
)
|
|
|
184,208,447
|
|
|
|
785,161,135
|
|
|
|
(79,465,090
|
)
|
|
|
889,818,595
|
|
Note 16– Stock based compensation
Non-vested
shares
The Company
recognized nil and US$45,339 of compensation expense in general and administrative expenses relating to non-vested shares for
the three-month periods ended September 30, 2019 and 2018, respectively, and nil and US$2,675,115 for the nine-month periods ended
September 30, 2019 and 2018, respectively. As of September 30, 2019, there was no unrecognized compensation cost relating to non-vested
shares.
Stock options
The Company recognized
nil and US$595,044 of share-based compensation expense in general and administrative expenses relating to stock options for the
three-month and nine-month periods ended September 30, 2019 and 2018, respectively.
Note 17 -
Earnings per share
Basic and diluted earnings per share
are calculated as follows:
|
|
Three-Month
Period Ended
September
30,
|
|
Nine-Month
Period Ended
September
30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
|
US$
|
|
US$
|
Net
income
|
|
|
16,965,213
|
|
|
|
8,964,941
|
|
|
|
68,057,245
|
|
|
|
55,288,920
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings allocated to participating
Series D convertible preferred stock
|
|
|
(3,834,137
|
)
|
|
|
(2,140,971
|
)
|
|
|
(15,967,004
|
)
|
|
|
(13,257,752
|
)
|
Earnings
allocated to participating nonvested shares
|
|
|
—
|
|
|
|
(8,904
|
)
|
|
|
—
|
|
|
|
(106,113
|
)
|
Net
income for basic and diluted earnings per share
|
|
|
13,131,076
|
|
|
|
6,815,066
|
|
|
|
52,090,241
|
|
|
|
41,925,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share
|
|
|
51,818,406
|
|
|
|
50,930,653
|
|
|
|
51,241,881
|
|
|
|
50,596,880
|
|
Dilutive effect of outstanding share options
|
|
|
—
|
|
|
|
32,944
|
|
|
|
—
|
|
|
|
32,944
|
|
Denominator for diluted earnings per share
|
|
|
51,818,406
|
|
|
|
50,963,597
|
|
|
|
51,241,881
|
|
|
|
50,629,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
0.25
|
|
|
|
0.13
|
|
|
|
1.02
|
|
|
|
0.83
|
|
The following
table summarizes potentially dilutive securities excluded from the calculation of diluted earnings per share for the three-month
periods and nine-month periods ended September 30, 2019 and 2018 because their effects are anti-dilutive:
|
Three-Month
Period Ended
September
30,
|
|
Nine-Month
Period Ended
September
30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Shares issuable upon conversion of Series D convertible preferred
stock
|
|
|
15,130,435
|
|
|
|
16,000,000
|
|
|
|
15,706,960
|
|
|
|
16,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 18 - Commitments and contingencies
(1) Sichuan
plant construction and equipment purchase.
On
March 8, 2013, Xinda Holding (HK) entered into an investment agreement with Shunqing Government, pursuant to which Xinda Holding
(HK) will invest RMB1,800 million (equivalent to US$254.5 million) in property, plant and equipment and approximately RMB600 million
(equivalent to US$84.8 million) in working capital, for the construction of Sichuan plant. As of September 30, 2019, the
Company has a remaining commitment of RMB54.8 million (equivalent to US$7.7 million) mainly for facility construction.
In
September 2016, Sichuan Xinda entered into equipment purchase contracts with Hailezi for a consideration of RMB17.0 million (equivalent
to US$2.4 million) to purchase storage facility and testing equipment. Afterward, Sichuan Xinda cancelled two contracts with Hailezi
for a consideration of RMB1.6 million (equivalent to US$0.2 million). As of September 30, 2019, Sichuan Xinda prepaid RMB6.0 million
(equivalent to US$0.9 million) and has a remaining commitment of RMB9.4 million (equivalent to US$1.3 million).
On
October 20, 2016, Sichuan Xinda entered into an equipment purchase contract with Peaceful
Treasure Limited ("Peaceful") for a total consideration of RMB89.8 million (equivalent to US$12.7 million) to
purchase certain production and testing equipment. As of September 30, 2019, the Company has a commitment of RMB55.9 million (equivalent
to US$7.9 million).
On
November 15, 2016, Sichuan Xinda entered into decoration contract with Beijin Construction to perform indoor and outdoor
decoration work for a consideration of RMB237.6 million (equivalent to US$33.6 million). On February 20, 2017, Sichuan Xinda
entered into another decoration contract with Beijin Construction to perform outdoor decoration work for a consideration of RMB2.9
million (equivalent to US$0.4 million). On June 10, 2017, Sichuan Xinda entered into another decoration contract with Beijin Construction
to perform ground decoration work for a consideration of RMB23.8 million (equivalent to US$3.4 million). As of September 30, 2019,
Sichuan Xinda prepaid RMB120.9 million (equivalent to US$17.1 million) of which RMB74.0 million (equivalent to US$10.4 million)
was transferred to construction in progress and has a remaining commitment of RMB143.4 million (equivalent to US$20.3 million).
In connection
with the Nanchong Project mentioned in Note 6 (i), Sichuan Xinda entered into equipment purchase contracts with Hailezi for
a consideration of RMB2,242.8 million (equivalent to US$317.1 million) to purchase production equipment and testing equipment
in March 2017. By the end of June 2017, Sichuan Xinda expected to launch an integrated ERP system, which resulted in the
equipment to be purchased under the original contracts with Hailezi not meeting the production requirements. Thus the original
contracts have been terminated with the amount of RMB2,222.9 million (equivalent to US$314.3 million), and Hailezi agreed
to refund the prepayment in the amount of RMB1,704.9 million (equivalent to US$241.0 million) by the end of March 2018, out of
the total prepayment made by Sichuan Xinda of RMB1,722.9 million (equivalent to US$243.5 million). As of June 30, 2018, Hailezi
has refunded the prepayment in the amount of RMB1,704.9 million (equivalent to US$241.0 million). As of September 30, 2019, Sichuan
Xinda prepaid RMB18.0 million (equivalent to US$2.5 million) and has a remaining commitment of RMB1.9 million (equivalent to US$0.3
million).
In connection with the Nanchong Project, on
June 21, 2018, Sichuan Xinda entered into another equipment purchase contracts with Hailezi to purchase production equipment and
testing equipment for a consideration of RMB1,900.1 million (equivalent to US$268.7 million). Pursuant to the contracts with Hailezi,
Sichuan Xinda has prepaid RMB1,710.1 million (equivalent to US$241.8 million) as of September 30, 2019, and has a remaining commitment
of RMB190.0 million (equivalent to US$26.9 million).
(2) Heilongjiang
plant construction and equipment purchase
In connection
with the equipment purchase contracts with Hailezi signed on September 26, 2016 and February 28, 2017 mentioned in Note 6 (i),
HLJ Xinda Group has a remaining commitment of RMB30.2 million (equivalent to US$4.3 million) as of September 30, 2019.
In connection
with the "HLJ Project" mentioned in Note 6 (i), pursuant to the three investment agreements, the project total capital
expenditure will be RMB4,015.0 million (equivalent to be US$567.7 million), among which the investment in fixed assets shall be
no less than RMB3,295.0 million (equivalent to US$465.9 million) in total. Pursuant to the contracts with Hailezi signed in November
2017 mentioned in Note 6 (i), HLJ Xinda Group has a remaining commitment of RMB18.8 million (equivalent to US$2.7 million) as
of September 30, 2019.
In connection
with the HLJ project, on June 25, 2018, HLJ Xinda Group entered into another equipment purchase contract with Hailezi to purchase
production equipment, which will be used for 300,000 metric tons of biological based composite material, located in Harbin, for
a consideration of RMB749.8 million (equivalent to US$106.0 million). Pursuant to the contract with Hailezi, HLJ Xinda Group has
prepaid RMB300.7 million (equivalent to US$42.5 million) as of September 30, 2019, and has a remaining commitment of RMB449.1
million (equivalent to US$63.5 million).
In connection
with the HLJ Project, on July 12, 2018, HLJ Xinda Group entered into an equipment purchase contract with Hailezi to purchase production
equipment, which will be used for 300,000 metric tons of biological based composite material, located in Harbin, for a consideration
of RMB1,157.0 million (equivalent to US$163.6 million). Pursuant to the contract with Hailezi, HLJ Xinda has prepaid RMB240.8
million (equivalent to US$34.0 million) as of September 30, 2019, and has a remaining commitment of RMB916.2 million (equivalent
to US$129.6 million).
(3) Dubai
plant construction and equipment
On April 28, 2015, Dubai Xinda entered
into a warehouse construction contract with Falcon Red Eye Contracting Co. L.L.C. for a total consideration of AED6.7 million
(equivalent to US$1.8 million). As of September 30, 2019, the Company has a remaining commitment of AED1.6 million (equivalent
to US$0.4 million).
On May 31, 2019, Dubai Xinda entered into a
warehouse construction contract with Peaceful for a total consideration of US$18.8 million. As of September 30, 2019, the Company
has a remaining commitment of US$6.7 million.
(4) Xinda CI (Beijing)
office building decoration
On March 30,
2017, Xinda CI (Beijing) Investment Holding Co., Ltd. ("Xinda Beijing Investment") entered into a decoration contract
with Beijing Fangyuan Decoration Engineering Co., Ltd. for a total consideration of RMB5.8 million (equivalent to US$0.8 million)
to decorate office building. As of December 31, 2018, the decoration work in the amount of RMB2.0 million (equivalent to US$0.3
million) was recorded in construction in progress. As of September 30, 2019, the Company has a remaining commitment of RMB3.8
million (equivalent to US$0.5 million).
On June 9, 2017,
Xinda CI (Beijing) entered into a decoration contract with Beijing Zhonghongwufang Stone Co., Ltd for a total consideration of
RMB1.2 million (equivalent to US$0.2 million) to decorate office building. As of December 31, 2018, the decoration work in the
amount of RMB0.6 million (equivalent to US$0.1 million) was recorded in construction in progress. As of September 30, 2019, the
Company has a remaining commitment of RMB0.6 million (equivalent to US$0.1 million).
(5) Guarantees
On December
25, 2018, HLJ Xinda Group, Sichuan Xinda and Mr. Jie Han provided guarantee to Shanghai Sales obtaining a one-year loan of RMB500.0
million (equivalent to US$70.7) from Longjiang Bank, Harbin Branch with an annual interest rate of 6.09% from December 25, 2018
to December 24, 2019. If Shanghai Sales does not repay the above loan when due, HLJ Xinda Group, Sichuan Xinda and Mr. Jie Han
shall be obliged to repay the RMB500.0 million loan.
On April 15,
2019, Sichuan Xinda provided guarantee to Shanghai Sales obtaining a one-year loan of RMB800.0 million (equivalent to US$113.1
million) from Longjiang Bank, Harbin Branch with an annual interest rate of 6.09% from April 15, 2019 to April 14, 2020. If Shanghai
Sales does not repay the above loan when due, Sichuan Xinda shall be obliged to repay the RMB800.0 million loan.
In the event
of Shanghai Sales defaults on the loans, the Company’s material loss contingency would be RMB1.379 billion (equivalent to
US$195.0 million), including estimated interest expenses of RMB79.2 million (equivalent to US$11.2 million) as of September 30,
2019. As the Company estimated that the potential material loss contingency was not probable, no accrual for a loss contingency
was recognized for the nine-month period ended September 30, 2019.
Note 19 -
Revenues
Revenues consist of the following:
|
|
Three-Month
Period Ended
September
30,
|
|
Nine-Month
Period Ended
September
30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
|
US$
|
|
US$
|
Modified Polyamide 66 (PA66)
|
|
|
120,234,670
|
|
|
|
72,832,370
|
|
|
|
296,372,085
|
|
|
|
242,690,994
|
|
Modified Polyamide 6 (PA6)
|
|
|
78,940,503
|
|
|
|
54,018,912
|
|
|
|
250,529,646
|
|
|
|
180,317,333
|
|
Plastic Alloy
|
|
|
66,353,485
|
|
|
|
76,511,378
|
|
|
|
200,901,936
|
|
|
|
234,487,071
|
|
Modified Polypropylene (PP)
|
|
|
32,666,069
|
|
|
|
60,923,190
|
|
|
|
110,518,373
|
|
|
|
158,280,180
|
|
Modified Acrylonitrile Butadiene Styrene (ABS)
|
|
|
12,437,078
|
|
|
|
6,299,771
|
|
|
|
40,662,342
|
|
|
|
23,128,606
|
|
Polyoxymethylenes (POM)
|
|
|
2,053,799
|
|
|
|
2,881,985
|
|
|
|
6,953,161
|
|
|
|
7,753,725
|
|
Polyphenylene Oxide (PPO)
|
|
|
5,490,232
|
|
|
|
2,425,361
|
|
|
|
31,482,628
|
|
|
|
13,215,599
|
|
Polylactide (PLA)
|
|
|
17,525,906
|
|
|
|
20,854,274
|
|
|
|
46,789,233
|
|
|
|
64,583,387
|
|
Polyethylene (PE)
|
|
|
4,103,483
|
|
|
|
—
|
|
|
|
7,707,560
|
|
|
|
—
|
|
Work in progress
|
|
|
33,062,822
|
|
|
|
—
|
|
|
|
145,362,837
|
|
|
|
—
|
|
Raw materials
|
|
|
291,044
|
|
|
|
477,499
|
|
|
|
419,177
|
|
|
|
550,398
|
|
Total
Revenue
|
|
|
373,159,091
|
|
|
|
297,224,740
|
|
|
|
1,137,698,978
|
|
|
|
925,007,293
|
|
The following
table provides sales by major customer group for the three-month and nine-month periods
ended September 30, 2019 and 2018:
|
|
Three-month
Period Ended
September
30,
|
|
Nine-month
Period Ended
September
30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
|
US$
|
|
US$
|
Distributor
|
|
|
312,919,940
|
|
|
|
292,507,429
|
|
|
|
918,602,515
|
|
|
|
911,068,381
|
|
Direct customers
|
|
|
59,948,107
|
|
|
|
4,239,812
|
|
|
|
218,677,286
|
|
|
|
13,388,514
|
|
Others
|
|
|
291,044
|
|
|
|
477,499
|
|
|
|
419,177
|
|
|
|
550,398
|
|
Total
|
|
|
373,159,091
|
|
|
|
297,224,740
|
|
|
|
1,137,698,978
|
|
|
|
925,007,293
|
|
Note 20 - Gains on disposal of
a subsidiary
On November
13, 2018, HLJ Xinda Group entered into an agreement with Shanghai Sales, to transfer the wholly owned equity of Heilongjiang Xinda
Enterprise Group (Shanghai) New Materials Research and Development Co., Ltd. ("Shanghai New Materials R&D") from
HLJ Xinda Group to Shanghai Sales with no consideration as a result of group restructuring to streamline resources and improve
operating efficiency.
The legal transfer
was completed on February 1, 2019 and the Company recorded gains of US$0.5 million on disposal of Shanghai New Materials R&D
for the nine-month period ended September 30, 2019.
Note 21 - Leases
As discussed
in Note 1, effective January 1, 2019, the Company adopted Topic 842. At the inception of a contract, the Company determines if
the arrangement is, or contains, a lease. ROU assets represent the Company’s right to use an underlying asset for the lease
term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets
and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Rent expense
is recognized on a straight-line basis over the lease term.
The Company
has made certain accounting policy elections whereby it does not recognize ROU assets or lease liabilities for short-term leases
(those with original terms of 12-months or less). All of the Company’s existing leases as of September 30, 2019 were classified
as operating leases. As of September 30, 2019, the Company had operating leases for land and office with remaining terms expiring
from 2022 through 2037 and a weighted average remaining lease term of 17.5 years. Weighted average discount rate used in the calculation
of the lease liabilities was 6.7%. The discount rate reflects the estimated incremental borrowing rate, which includes an assessment
of the credit rating to determine the rate that the Company would have to pay to borrow, on a collateralized basis for a similar
term, an amount equal to the lease payments in a similar economic environment.
Lease cost for
the nine-month period ended September 30, 2019 is as follows:
|
|
Nine-Month Period Ended September 30,
|
|
|
2019
|
|
|
|
US$
|
|
Operating lease cost
|
|
|
1,271,455
|
|
Short-term lease cost
|
|
|
432,124
|
|
Total lease cost
|
|
|
1,703,579
|
|
As
of September 30, 2019, the maturities of the operating lease liabilities are as follows:
|
|
|
Remaining Lease Payments
US$
|
|
|
2019
|
|
|
346,192
|
|
2020
|
|
|
1,386,124
|
|
2021
|
|
|
1,408,598
|
|
2022
|
|
|
1,408,979
|
|
2023
|
|
|
1,424,857
|
|
Thereafter
|
|
|
22,023,858
|
|
Total remaining lease payments
|
|
|
27,998,608
|
|
Less: imputed interest
|
|
|
(12,094,615
|
)
|
Total operating lease liabilities
|
|
|
15,903,993
|
|
Less: current portion
|
|
|
(1,390,531
|
)
|
Non-current operating lease liabilities
|
|
|
14,513,462
|
|
Weighted-average remaining lease term
|
|
|
17.5 years
|
|
Weighted-average discount rate
|
|
|
6.7
|
%
|
Supplemental
cash flow information related to leases is as follows:
|
|
Nine-Month Period Ended September 30,
|
Supplemental disclosure of cash flow information:
|
|
2019
|
|
|
|
US$
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
|
|
1,707,618
|
|
Right-of-use assets obtained in exchange for new lease liabilities:
|
|
|
|
|
Operating lease
|
|
|
16,075,213
|
|
As previously disclosed in the consolidated
financial statement for the year ended December 31, 2018 and under the previous lease standard (Topic 840), future minimum annual
lease payments for the years subsequent to December 31, 2018 and in aggregate are as follows:
|
|
US$
|
|
Years ended December 31,
|
|
|
|
|
|
|
2019
|
|
|
|
2,174,439
|
|
|
2020
|
|
|
|
1,486,007
|
|
|
2021
|
|
|
|
1,486,007
|
|
|
2022
|
|
|
|
1,446,251
|
|
|
2023
|
|
|
|
1,482,593
|
|
|
Thereafter
|
|
|
|
21,176,139
|
|
Rental expenses
incurred for operating leases of plant and equipment and office spaces were US$2,455,509 in 2018.
Note 22 - Subsequent Event
(i) Xinda Holding
(HK) Company Limited, a wholly owned subsidiary of the Company, entered into a facility agreement on October 2, 2019 for a loan
facility in an aggregate amount of US$135,000,000 with a consortium of banks and financial institutions led by Industrial and
Commercial Bank of China (Macau) Limited.
(ii) As a
result of the Mandatory Conversion (see Note 14), the term of office of MSPEA’s two designees on the Board, Homer Sun
and Ryan Law, was automatically terminated. On October 14, 2019, MSPEA sent a letter (the
"Proposal Withdrawal Letter") to the Board informing the Board that it no longer intended to participate in the
consortium consisting of XD Engineering Plastics Company Limited, Mr. Han and MSPEA (the “Consortium”) and no
longer intended to participate in the going-private transaction (the “Transaction”). Concurrently with
sending the Proposal Withdrawal Letter, MSPEA sent a letter (the "Consortium Withdrawal Letter") to the other
members of the Consortium informing them that it no longer intended to participate in the Consortium and no longer intended
to participate in the Transaction.