PART I
ITEM 1. BUSINESS.
Our Business
China XD
Plastics Company Limited ("China XD", "we", and the "Company", and "us" or "our"
shall be interpreted accordingly) is one of the leading specialty chemical companies engaged in the research, development, manufacture
and sale of modified plastics primarily for automotive applications in China and to a lesser extent, in Dubai, United Arab Emirates
("UAE"). Through our wholly-owned subsidiaries Heilongjiang Xinda Enterprise Group Company Limited ("HLJ
Xinda Group"), Sichuan Xinda Enterprise Group Company Limited ("Sichuan Xinda"), and AL Composites Materials FZE
("Dubai Xinda"), we manufacture and sell polymer composite materials (a broader category including modified plastics),
primarily for automotive applications. We develop our products using our proprietary technology through our wholly-owned research
laboratory owned by HLJ Xinda Group. We had 633 certifications from manufacturers in the automobile industry as of December 31,
2019. We are the only company certified as a National Enterprise Technology Center in modified plastics industry in Heilongjiang Province.
Our research and development (the "R&D") team consisted of 131 professionals and 6 consultants as
of December 31, 2019. As a result of the combination of our academic and technological expertise, we had a portfolio of 509
patents, among which we have obtained 32 patent registrations in China, and the applications for the remaining 477 were pending
in China as of December 31, 2019.
Modified
plastics are produced by changing the physical and/or chemical characteristics of ordinary resin materials. In order for plastics
to be used to produce automobile parts and components, they must satisfy certain physical criteria in terms of mechanical functionality,
stability under light and heat, durability, flame resistance, and environmental friendliness. Our unique proprietary formulas
and processing techniques enable us to produce low-cost high-quality modified plastic materials, which have been certified by
many of the major domestic and international automobile manufacturers in China. In addition, we also provide specially engineered
plastics and environment-friendly plastics for use in oil-field equipment, mining equipment, vessel-propulsion systems and power
station equipment.
China
XD's primary end-market is the Chinese automotive industry that has been rapidly growing for the past few years where our modified
plastics are used by our customers to fabricate the following auto components: exteriors (automobile bumpers, rearview and sideview
mirrors, license plate parts), interiors (door panels, dashboard, steering wheel, glove compartment and safety belt components),
and functional components (air conditioner casing, heating and ventilation casing, engine covers, and air ducts). Our specialized
plastics are utilized in more than 31 automobile brands manufactured in China, including leading brands such as Audi, Mercedes
Benz, BMW, Toyota, Buick, Chevrolet, Mazda, Volvo, Ford, Citroen, Jinbei, VW Passat, Golf, Jetta, etc. As of December
31, 2019, 633 of HLJ Xinda Group's automotive-specific modified plastic products were certified by one or more of the automobile
manufacturers in China and are in commercial production. As of December 31, 2019, 357 of our products were in the process
of product certification by automobile manufacturers. After a successful trial production at our production base in Dubai
in November 2018, we have established business relationships with new customers in UAE and India, and shipped products to
the end users in Europe and Southeast Asia. We are optimistic about the prospect of our business expansion overseas.
We operate
three manufacturing bases in Harbin, Heilongjiang and one manufacturing base in Nanchong, Sichuan Province, in the People's Republic
of China (the "PRC"), as well as a manufacturing base in Dubai, UAE. As of December 31, 2019, in domestic market, we
had approximately 394,200 metric tons of production capacity across 91 automatic production lines utilizing German twin-screw
extruding systems, automatic weighing systems and Taiwanese conveyer systems. Prior to December 2012, we had approximately 255,000
metric tons of annual production capacity across 58 automatic production lines utilizing German twin-screw extruding systems,
automatic weighing systems and Taiwan conveyer systems. In December 2012,
we further expanded our third production base in Harbin with additional 135,000 metric tons of annual production capacity, bringing
total installed production capacity in our three production bases to 390,000 metric tons with additional 30 new production lines.
In July
2017, our Harbin campus launched a new industrial project for upgrading existing equipment for 100,000 metric tons of engineering
plastics. As a result, the production capacity in Harbin, Heilongjiang was downgraded to 290,000 MT. In 2019, our Harbin
campus started another two equipment projects totaling 155,000 MT in Qinling Road Factory (“Qinling Road Project”)
and Jiangnan Road Factory (“Jiangnan Road Project”) for equipment upgrade and overhaul progress, which further downgraded
our production capacity to 135,000 MT. The industrial project for upgrading existing equipment for 100,000 metric tons of engineering
plastics is expected to be completed by the end of second quarter of 2020, and Qinling Road Project and Jiangnan Road Project
is expected be completed by the end of the third quarter of 2020, bringing the production capacity back to 390,000 MT. In addition, in
July 2017, HLJ Xinda Group also started an industrial project for 300,000 metric tons of biological composite materials,
an industrial project for a 3D printing intelligent manufacture demonstration factory and a 3D printing display and experience
cloud factory, which was broken ground in December 2019 with four workshops. The Company expects the gradual trial out by the
end of 2022 and put into production by the end of 2023, thus expanding the total production capacity to 590,000 MT.
In December
2013, we broke ground on the construction of our fourth production plant in Nanchong City, Sichuan Province, with additional 300,000
metric tons of annual production capacity, which we expect will bring total domestic installed production capacity to 590,000
metric tons with the addition of 70 new production lines upon the completion of the construction of our fourth production plant.
Sichuan Xinda has been supplying to its customers since 2013. We installed 50 production lines in the second half of 2016 in our
Sichuan plant with production capacity of 216,000 metric tons during the year of 2017 and an additional 10 production lines in
July 2018, bringing the total capacity to 259,200 metric tons. Due to the installation of equipment, there is still construction
ongoing on the site of our Sichuan plant as of December 31, 2019. The company estimates putting into production by the end of
the fourth quarter of 2020.
In order
to develop potential overseas markets, Dubai Xinda obtained one leased property and two purchased properties, approximately 52,530
square meters in total, including one leased property of 10,000 square meters, and two purchased two properties of 20,206 and
22,324 square meters on January 25, 2015, June 28, 2016 and September 21, 2016, respectively, from Jebel Ali Free Zone Authority
("JAFZA") in Dubai, UAE, with constructed building comprising warehouses, offices and service blocks. In addition to
the earlier 10 trial production lines in Dubai Xinda, we completed installing 45 production lines with 11,250 metric tons of annual
production capacity by the end of November 2018. As of December 31, 2019, an additional 30 production lines with 7,500 metric
tons of annual production capacity mainly targeted for ABS products, were still in the progress of redesigning upgrading and further
equipment testing. The Company estimates 22 production lines will be put into production in the fourth quarter of 2021, 8 production
lines will be put into production in the second quarter of 2022, and will then increase the total production capacity in Dubai
Xinda to 21,250 metric tons, targeting high-end products for the overseas market.
Our History
China XD,
formerly known as NB Payphones Ltd. and NB Telecom, Inc., was originally incorporated under the laws of the state of Pennsylvania
on November 16, 1999. On December 27, 2005, we migrated to the state of Nevada.
On December
24, 2008, we acquired Favor Sea Limited ("Favor Sea (BVI)"), a British Virgin Islands corporation, which is the holding
company for Harbin Xinda Macromolecule Material Co., Ltd. ("Harbin Xinda") and Harbin Xinda's wholly-owned subsidiary,
Harbin Xinda Macromolecule Material Research Institute ("Research Institute"). Harbin Xinda is a high-tech manufacturer
and developer of modified plastics, which was established in September 2004 under the laws of the PRC. In December 2010, our management
determined that the Research Institute could not meet the Company's development needs, including meeting the criteria to be a
National Enterprise Technology Center. As a result, the Research Institute was deregistered.
On October
14, 2010, Harbin Xinda established Heilongjiang Xinda Software Development Company Limited ("Xinda Software") to develop
software applications that provide certain standard and programmable technical services remotely. Xinda Software was deregistered
on December 5, 2016.
On March
31, 2011, Harbin Xinda established a wholly-owned subsidiary, Harbin Xinda Macromolecule Material Testing Technical Co., Ltd.
("Xinda Testing"), to develop a nationally recognized testing laboratory and provide testing services of macromolecule
materials, engineering plastics and other products.
In response
to our rapid business expansion and in order to be eligible for certain beneficial tax policies for certain regions in China,
we undertook a group restructuring plan.
From August
2011 to December of 2012, Harbin Xinda established (i) Harbin Meiyuan Enterprise Management Service Company Limited ("Meiyuan
Training") in Harbin to provide all year round training to both our existing and new employees, accommodate our customers
and business partners as well as host industry conferences; and (ii) Heilongjiang Xinda Enterprise Group Technology Center Company
Limited ("Xinda Group Technology Center") in Harbin to focus on long-term research and development projects. Meiyuan
Training ceased business in the third quarter of 2016 and Xinda Group Technology Center was deregistered in 2016.
HLJ Xinda
Group, a wholly-owned subsidiary of Xinda HK Company Limited and the proposed direct parent company of all of our PRC-based
operating subsidiaries after the group restructuring was established in December 2011. Harbin Xinda Plastics Material Research
Center Company Limited ("Xinda Material Research Center") was established in December 2011 to focus on research and
development of products close to commercialization phase.
Xinda Group
Material Research was established in December 2012.
During the
year ended December 31, 2013, following the overall reorganization plan, the Company completed the deregistration of Haikou New
Materials, Haikou Technical Center and Haikou Software and merged Xinda Testing and Xinda Material Research Center into Heilongjiang
Xinda Enterprise Group Macromolecule Material Research Center Co., Ltd. ("Xinda Group Material Research") in 2013, whose
major functions included technical support for our production bases, research and development of modified plastic products for
applications in areas such as automotive, high-speed rail, aircraft and others, customer post-sales support, and collaboration
with industry leading universities and institutions. Xinda Group Material Research was deregistered in 2016 as a result of group
restructuring.
On March
19, 2013, HLJ Xinda Group established Sichuan Xinda, which subsequently established Sichuan Xinda Enterprise Group Meiyuan Training
Center Co., Ltd. ("Sichuan Meiyuan"), Sichuan Xinda Enterprise Group Software Development Co., Ltd. ("Sichuan Software"),
and Sichuan Xinda Enterprise Group Sales Co., Ltd ("Sichuan Sales") in April 2013, in order to expand our business in
Southwest China. In 2016, Sichuan Meiyuan and Sichuan Software were deregistered and Sichuan Sales merged into Sichuan Xinda
as a result of group restructuring.
On April
23, 2013, Xinda Holding (HK) Co, Ltd. ("Xinda Holding (HK)"), formerly known as Hong Kong Engineering Plastics Co.,
Ltd., set up Xinda (HK) International Trading Company Ltd ("Xinda (HK) Int'l Trading") for import and export business
through Hong Kong. In February 2015, Xinda (HK) Int'l Trading was deregistered.
Heilongjiang Xinda Composite
Material Co., Ltd. ("Xinda Composite") was established on November 27, 2013.
On January
8, 2014, Xinda Holding (HK) set up AL Composites Materials FZE ("Dubai Xinda") for international expansion business.
On March
5, 2014, Xinda Holding (HK) set up Xinda (HK) Trade Co., Ltd ("Xinda (HK) Trading") for import and export business through
Hong Kong.
On June
17, 2014, Xinda Holding (HK) set up Xinda (Heilongjiang) Investment Co., Ltd. ("Heilongjiang Investment") for its domestic
investment activities in PRC. On October 19, 2016, Heilongjiang Investment was deregistered.
On August
1, 2014, Heilongjiang Investment set up Nanchong Xinda Composite Materials Co., Ltd ("Nanchong Composite Materials")
in order to expand our business in Southwest China and other regions in its proximity. In July 2015, Nanchong Composite Materials
merged into Sichuan Xinda as part of the efforts to streamline the Company's management in Sichuan.
On November
12, 2014, Heilongjiang Investment set up Heilongjiang Xinda Meiyuan Tennis Club Co., Ltd. ("Meiyuan Tennis Club") in
order to replace the Meiyuan Training.
On October
16, 2015, Xinda Holding (HK) set up Xinda CI (Beijing) Investment Holding Co., Ltd. ("Xinda Beijing Investment") in
order to manage domestic companies in mainland China. Pursuant to the agreement of shareholders of Xinda Beijing Investment signed
on December 1, 2017, 100% equity of Xinda Beijing Investment was transferred to HLJ Xinda Group at the cost of RMB1.00 (equivalent
to US$0.15). On December 27, 2017, Xinda Beijing Investment was renamed as Xinda CI (Beijing) Enterprise Management Co., Ltd.
("Xinda CI (Beijing)").
In 2016,
as a result of group restructuring, Heilongjiang Investment and Meiyuan Tennis Club were dissolved.
On August 29, 2016, Xinda Holding
US, a subsidiary of Xinda Holding (HK), was dissolved in New York.
Harbin Xinda
Plastics New Materials Co., Ltd. ("Xinda Plastics New Materials") ceased business in the third quarter of 2016 and dissolved
in 2018.
On September 5, 2016, Sichuan Xinda set up Chongqing Wanshengxiang Macromolecule Materials Co., Ltd. ("Chongqing Wanshengxiang")
in order to engage in import and export business in the free-trade zone in Chongqing and to expand our business in Southwest China.
In August 2018, Chongqing Wanshengxiang was dissolved.
On February
16, 2017, the Board received a preliminary nonbinding proposal letter from Mr. Jie Han ("Mr. Han"), the Chairman and
Chief Executive Officer, XD. Engineering Plastics Company Limited, a company incorporated in the British Virgin Islands and wholly
owned by Mr. Han, and MSPEA Modified Plastics Holding Limited, an affiliate of Morgan Stanley Private Equity Asia III, Inc. (collectively,
the "Buyer Consortium"), to acquire all of the outstanding shares of common stock of the Company not already beneficially
owned by the Buyer Consortium in a "going-private" transaction for US$5.21 per share of common stock of the Company
in cash. The proposal letter states that the Buyer Consortium expects that the Board will appoint a special committee of independent
directors to consider the proposal and make a recommendation to the Board. The proposal letter also states that the Buyer Consortium
will not move forward with the proposed Transaction unless it is approved by such a special committee, and the proposed transaction
will be subject to a nonwaivable condition requiring approval by majority shareholder vote of shareholders other than the Buyer
Consortium members. A special committee was previously established by the Board; however, the proposed transaction did not proceed.
In June
2017, HLJ Xinda Group set up Xinda (Hong Kong) Macromolecule Material Ltd. (HK Macromolecule) and Xinda Deluxe Faith Ltd. (Xinda
Faith) in order to expand the international business in Hong Kong.
In December
2017, HLJ Xinda Group set up (i) Heilongjiang Xinda Enterprise Group Shanghai New Materials Sales Co., Ltd. ("Shanghai
Sales"); (ii) Heilongjiang Xinda Enterprise Group (Shanghai) New Materials Research and Development Co., Ltd. ("Shanghai
New Materials R&D"); (iii) Heilongjiang Xinda Enterprise Group (Daqing) New Materials Industry and Trade Co., Ltd.
("Daqing New Materials); and (iv) Sichuan Xinda Composite Materials Co., Ltd. ("Sichuan Composite Materials"),
in order to promote sales, engage in & research & development in new materials such as biological composite materials,
ships, airplanes, high-speed rail, 3D printing materials, biodegradable plastics, and medical devices. In January 2019, Sichuan
Composite Materials was dissolved.
In December
2018, Shanghai Sales was disposed as a result of group restructuring to streamline resources and improve operating efficiency.
In February
2019, Shanghai New Materials R&D was disposed as a result of group restructuring to streamline resources and improve operating
efficiency.
In September
2019, HLJ Xinda Group set up Nanchong Municipal Xinxin Macromolecular Composite Materials Company Ltd. ("Nanchong Xinxin")
in order to promote sales, engage in & research & development in engineering plastics and macromolecular materials.
In December
2019, HLJ Xinda Group set up Heilongjiang Xinda New Materials Co., Ltd. in order to engage in sales, research and development
in bio-based materials, composite materials, engineering materials and synthetic resins in domestic markets.
On May 8,
2020, the Board received a preliminary nonbinding proposal letter from Mr. Han, the Chairman and Chief Executive Officer, XD.
Engineering Plastics Company Limited (together with Mr. Han, the “Buyer Group”), a company incorporated in the British
Virgin Islands and wholly owned by Mr. Han, proposing to acquire all of the outstanding shares of common stock of the Company
not already beneficially owned by the Buyer Group in a “going-private” transaction for US$1.1 per share of common
stock of the Company in cash, subject to certain conditions. The proposal letter states that the Buyer Group expects that the
Board will appoint a special committee of independent and disinterested directors
to consider the proposal and make a recommendation to the Board. As of the date of the proposal letter, the Buyer Group beneficially
owns the Shares representing approximately 70% of the voting power and approximately 50.1% of the share capital of the Company.
The Board has established a special committee (the “Special Committee”), consisting of the following independent directors
of the Company: Mr. Linyuan Zhai, Mr. Huiyi Chen and Mr. Guanbao Huang, with Mr. Huiyi Chen serving as chairperson of the Special
Committee. The Special Committee will be responsible for evaluating, negotiating and recommending to the Board any proposals involving
a strategic transaction by the Company with one or more third parties. On May 15, 2020, the Special Committee has retained Duff
& Phelps, LLC as its financial advisor and Hogan Lovells as its legal counsel to assist it in its review and evaluation of
the proposed transaction. There can be no assurance that any definitive offer will be made, that any agreement will be executed
or that a transaction with the Buyer Group or any other transaction will be approved or consummated.
Corporate
Structure
The
following table sets forth our group structure as of December 31, 2019:
Our Industry
According
to a research report prepared exclusively for the Company and issued by Frost & Sullivan in 2020, China is estimated to have
consumed approximately 25.3 million Metric Tons ("MT") of modified plastic products in 2019, representing an increase
of 6.3% compared to 2018. With China being the world's leading manufacturing center and with rising domestic individual consumption,
we believe that demand for modified plastics from China will continue to increase in the foreseeable future. As shown in Figure
1, the market demand for modified plastics will reach 33.2 million MT in 2023, representing compound annual growth rates ("CAGR")
of 7.0% and 6.0% by sales volume and revenues from 2019 to 2023. Currently, demand for our products is primarily driven by the
Chinese automotive industry. In order for plastics to be used in automobile parts and components, they must satisfy specific physical
criteria in terms of mechanical functionality, stability under light and heat, durability, flame resistance, and environmental
friendliness. Modified plastics are usually found in interior materials, door panels, dashboards, mud flaps, chassis, bumpers,
oil tanks, gas valves, grilles, unit heater shells, air conditioner shells, heat dissipating grids, wheel covers, and other components.
Figure 1: Analysis
of Chinese Modified Plastics Market: Sales Volume and Revenue, China 2013-2023E
According
to Frost & Sullivan's report, stimulated by the development of China's automotive industry, the Chinese automotive modified
plastics market has gained solid development from 2013 to 2018, with a CAGR of 10.7% in sales volume and 8.4% in sales revenue
during this period. In 2019, given the slow-down of China’s automotive production, sales volume of modified plastics will
be negatively affected. Going onwards, considering the lightweight trend of automotive development and demand on using modified
plastics to replace steel, the market is expected to maintain a moderate increase in terms of both sales volume and sales revenue,
with CAGRs of 7.0% and 6.0% from 2019 to 2023, respectively.
The production
capacity is expected to reach 7.3 million MT in 2023, with a growth of 27.4% from 5.8 million MT in 2018. In terms of different
manufacturer types, domestic manufacturers expanded their production more rapidly than non-local manufacturers, which accounted
for 75.3% of the total production capacity in 2018 and is expected to take up to 78.3% by the end of 2023.
Due to the
drop of crude oil price since the latter half of 2014, market price of modified plastics has experienced an obvious decrease,
which undulates sales revenue of the market in 2015. Since the growth of China’s automotive industry is slowing down, automotive
modified plastics manufacturers has also decreased the expansion rate of their production capacities. Overall, the total production
capacity of Chinese automotive modified plastics industry increased significantly in the past and will keep growing in the future.
As illustrated
in Figure 2, the Chinese automotive modified plastics market is expected to maintain the decent increase, with CAGR of 7.0% and
6.0% in terms of both sales volume and sales revenue from 2019 to 2023, respectively. In terms of different manufacturer types,
domestic manufacturers expanded their production more rapidly than non-local manufacturers, which accounted for 75.3% of the total
production capacity in 2018 and is expected to take up to 78.3% by the end of 2023. We believe that the demand for automotive
modified plastic in China will grow continuously due to the fast growing Chinese automotive market, the increasing use per unit
of plastic content in automobiles and favorable government incentives and regulations. Moreover, domestic producers will likely
gain larger market share from imports as they are able to manufacture products with comparable quality at highly competitive prices
and close proximity to their customers. We believe that the following are the key drivers for the automotive modified plastic
industry in China.
Figure
2: Analysis of Chinese Automotive Modified Plastics Market: Sales Volume and Revenue (China), 2013-2023E
Source:
Frost & Sullivan
According
to the statistics by the China Association of Automobile Manufacturers ("CAAM") in 2018, the production volume of automobiles
in China increased from 22,116.8 thousand units in 2013 to 27,809.2 thousand units in 2018. Decline in automotive production is
noted in 2018 and 2019 due to the weakened market demand as well as the reducing incentives granted by Chinese government to automotive
manufacturers especially for EV manufacturers. The outbreak of COVID-19 in early 2020 creates future disturbance to the market,
and affects normal business operation of automotive manufacturers. Production volume is anticipated to recover from second quarter
of 2020 as the disease gradually becomes under control. The growth of Chinese automotive industry is expected to slow down after
several years’ rapid development and the CAGR of automotive production will be around 2.2% during the period from 2019 to
2023. Passenger cars accounted for 85% of the total production volume in 2018. The production volume of passenger cars and commercial
cars will grow at a CAGR of 2.1% and 2.2% respectively during the period from 2019 to 2023. China
has exceeded the United States to become the world's largest auto market as measured by the number of automobiles sold. We believe
the growth momentum in China's auto sales will remain strong over the next four years. The automotive industry in China is still
in its infancy with passenger car ownership of 166 vehicles per 1,000 inhabitants in 2018, which is significantly below Europe's
average of 526 and United States' average of 781 according to National Bureau of Statistics, US Department of Energy,
Eurosta, Frost & Sullivan.
From 2013
to 2018, the number of vehicles per 1,000 people in China has experienced a significant growth from 93 to 166, with the highest
CAGR of 12.2% among China, United States and Europe. The significant gap of automobiles ownership per 1,000 people among China,
United States and Europe indicates that the Chinese auto industry is still of huge growth potential. The gap is expected to be
further narrowed with China’s vehicle per 1,000 people growing to 220 in 2023.
Figure 3:
Overview of Chinese Macro Economy:
Vehicle
Per 1000 People Comparison (Units per 1,000 people), 2013-2023E
Source:
National Bureau of Statistics , US Department of Energy, Eurostat, Frost & Sullivan
According to the National Bureau
of Statistics, the total number of Chinese automobile parts has experienced a rapid growth because of the economic development
and the incentive policies issued by the government. With the continuous development of Chinese auto manufacturing industry and
expansion of auto consumption market, the parc of automobiles increased from 126,830.0 thousand units in 2013 to to 231,220.0
thousand units in 2018 at a CAGR of 12.8%. It is expected that the number will keep growing and hit a record of 311,593.4 thousand
units in 2023, with a CAGR of 5.7% during the period from 2019 to 2023.
Figure
4: Overview of Chinese Macro Economy: Growth of Automotive Parts(China), 2013-2023E
Overview of Chinese Macro
Economy:
Growth of Parc of Automobiles,
China, 2013-2023E
Rising
personal income in China is one of the key drivers for the rapid growth of the Chinese automobile industry. As shown in Figure
5, China has achieved long-term economic growth and the nominal GDP per capita increased from RMB 43,871.1 in 2013 to RMB
63,382.4 in 2018. There are several undergoing structural adjustments in China’s economy. It is expected that China will
be able to maintain a relatively solid economic growth and nominal GDP per capita will keep growing during the period from 2019
to 2023.
Chinese
government is attempting to stimulate the domestic consumption and has introduced a series of related incentive policies. Given
that the income level of residents in China keeps increasing, the per capita consumption expenditure of urban household in China
increased from RMB 18,023.0 in 2013 to RMB 26,112.0 in 2018 and is expected to reach RMB 37,427.4 in 2023.
Moreover,
cars have become more affordable in China as local or joint venture automobile manufacturers continuously expand their production
to achieve economies of scale to lower production cost and source cheaper auto parts locally. Growing income and decreasing vehicle
prices will continue to make car ownership more affordable for China's rising middle class.
Figure
5: Overview of Chinese Macro Economy and Chinese Auto Market: Growth of Nominal GDP and Per Capita Consumption Expenditure
of Urban Household (China), 2013-2023E
Source: National Bureau of
Statistics, International Monetary Fund, and Frost & Sullivan
Benefit and Increasing Use
of Plastics in Automobiles
(1) Cost
Reduction: The primary demand driver for modified automotive plastics arises out of the cost-reduction characteristics evidenced
by the plastics material inclusion in the automobile manufacturing process. Modified plastics can deliver the same performance
as metallic materials at approximately a tenth of the cost. In addition, modified plastics can substitute some kinds of more expensive
engineering plastics. This benefit of modified plastics will become more significant with the increasing competition in automobile
manufacturing industry to improve efficiency and reduce costs.
(2) Vehicle
Emissions Reduction: Plastic components impact fuel efficiency by saving approximately 2.5 liters of fuel per kilograms ("kg")
used (equivalent to 6 kg of CO2 emissions) over the lifetime of the vehicle. Automobile manufacturers have been reducing vehicle
weights in an attempt to reduce emissions and increase efficiencies. Modified plastics reduce the weight of components by 40%
compared with traditional metallic materials.
(3) Performance
and Safety Improvement: The development of advanced plastics applications lead to the improvement in performance through reducing
the number and weight of the vehicle parts, causing the fuel consumption per vehicle to drop significantly. In addition, the lower
net weight of the vehicles improves handling performance and thereby eliminates the likelihood of losing control in case of emergency
stops. The involvement of modified plastics in automotive applications results in significant improvement of the safety features
of the vehicle parts, like seat belts, air bags, and air bag containers in the recent years.
(4) New
Applications: Plastics reduce the number of the required parts used in automobile manufacturing and introduce new design
possibilities. Conventional materials struggle to compete against this open innovation platform associated with the plastics industry.
In addition, the performance benefits associated with plastic materials continue to create a competitive advantage for the plastics
industry.
(5) Increasing
Use of Plastics per Vehicle: Weight of modified plastics per vehicle in China continually increased from 2008 to 2012, and
is forecasted to reach 169.8 kg by the end of 2017, with a growth rate of 40.2% according to Frost & Sullivan's Report. Although
the weight of modified plastics per vehicle in China will still be less than that in North America and Europe, the highest growth
rate indicates the huge potential for market growth. In 2012, plastic use in China is estimated to be about 128.6 kg per vehicle,
whereas models imported from Europe contain on average as much as 219 kg per vehicle. In addition, the Chinese government's goals
regarding electric and hybrid vehicles may also push the market further as weight concerns are more important for these vehicles
than for traditional passenger cars.
Production
volume of electric vehicle (EV) in China grew from 14.1 thousand units in 2012 to 794.2 thousand units in 2017 dramatically, with
a CAGR of 123.9%. China is leading the development of EV industry and the largest market of EV in the world in 2017. Guided by
the supportive policies, the EV industry will continue to be a development focus of auto industry in China.
The development of EV is a strong
driver of auto modified plastics market since the production of battery packs for EV brings the demand for automotive modified
plastics and the level of light-weight designs for EV is high.
Increasing Substitution of
Imports
Though China's
automotive plastic market has been dominated by foreign or joint venture ("JV") companies, Chinese suppliers are continually
gaining market share. It is estimated that automotive plastics imported and manufactured by multinational and JV companies accounted
for 24.9% of the total China automotive plastic supply in 2017, decreasing from 30.5% in 2012 according to a report by Frost &
Sullivan. Compared to foreign competitors including JV companies, local manufacturers can largely benefit from the lower cost
and geographical convenience in China and their product sales can be customized with time-efficient after sales services and technical
supports. As the local production capacity of both domestic and foreign companies has been expanding, share of imports and multiple
national companies is expected to decrease to 22.4% by the end of 2022, while the share of domestic manufacturers is forecast
to rise to 77.6% in 2022 as they expand at a greater rate than MNC and JV in China.
The financial
crisis beginning in 2008 and the European debt crisis beginning in 2011 forced global automakers and suppliers to concentrate
on their cost structure and pricing mechanisms. Many automakers accelerated cost reduction initiatives. Moving manufacturing
operations to and sourcing raw materials from low cost regions have emerged as key measures to save costs. With its huge consumer
market, low labor costs and high-quality manufacturing and logistics infrastructure, China is a location favored by global auto
and component makers who source parts and components not only for their local operations in China but also for their global operations.
As a result, we believe that China's local plastic suppliers will benefit from such global outsourcing trends and increasingly
become a good substitute for expensive imported plastic products. JV manufacturers based in China in automotive plastics
sector have been slow to invest and expand in China.
Favorable National Government
Policies
In the past decade, the
Chinese government has adopted a number of policies and initiatives intended to encourage the development of the Chinese modified
plastics industry and stimulate the growth of the Chinese automobile industry.
Since 2000,
modified plastics, including engineering plastics, have been categorized as a prioritized industrialization area by a series of
government guidelines or development plans. Some of these policies include:
●
Guiding Catalogue for Key Products and Services in Strategic Emerging Industries (2016) was announced by the National Development
and Reform Commission of the People's Republic in January 2017, which categorized new engineering plastics, plastic alloy, fire-retardant
modified plastics, ABS, HIPS, high performance carbon fiber, etc.. as prior development fields in new material industry.
●
The 13th Five Year Plan for Development of Strategic Emerging Industries in China
launched in 2016 included favorable policies toward advanced technologies in developing new aviation and space materials, encouraging
the application of biodegradable plastics and the development of high-performance plastics used for additive manufacturing, as
well as encouraging the development of new material industries
● The "Made
in China 2025" initiative launched on May 8, 2015 by State Council, encouraged development of new materials, energy-saving
and new energy vehicles, power equipment, aerospace and aeronautical equipment, marine engineering and high-tech ships, modern
railway equipment and agricultural machinery.
● The "Development
Plan of Additive Manufacturing (2015-2016)" initiative promulgated by the National Development and Reform Commission, Ministry
of Industry and Information Technology and Ministry of Finance of People's Republic of China on February 28, 2015, advocated domestic
production of several types of plastics with high heat resistance and high strength for additive manufacturing industry .
● It was stated in
the "Outline of China's Twelfth Five-year Plan (2011)" that new functional materials, advanced structural materials,
common base materials, fiber of high performance and its compounded material are key development directions of new material industry.
●
It was stated in the "Catalogue for Guidance on Adjustment of Industrial Structure (2011)" promulgated by the
National Development and Reform Commission on March 27, 2011, that the country is currently promoting (i) the development of production
equipment of polycarbonate by the use of non-phosgene method, with annual output of 60000t/year and above, (ii) the production
of engineering plastic including liquid crystalline polymer (LCP) and development and application of bleeding modification and
alloying; (iii) the development and production of water – absorbed resin, conductible resin and biodegradable polymers;
(iv) the development and production of new polyamide including nylon 11, nylon 1414 and nylon 46, nylon with long carbon chain
and heat resistant nylon.
●
It was stated in the "Guidance on Key Areas of Industrialization of High Technology with Current Priority in Development
(2011)" jointly promulgated by the National Development and Reform Commission, the Ministry of Science and Technology, the
Ministry of Commerce and the State Intellectual Property Office on June 23, 2011 that modified technologies applied to general
plastics, including new engineering plastics and plastic alloy, new special engineering plastics, fire resistant modified plastics,
and modified technology of general plastics, are currently prioritized areas to develop and industrialize in China's macromolecule
materials sector.
It was stated
in the "Investment Guide for Industrial Transforming and Upgrading" (2011) promulgated by Ministry of Industry
and Information Technology of ghd People's Republic of China promoted the modification of waste plastics via the comprehensive
utilization of related technologies and suggested the future trend of the application of new materials in the industrial area,
including biodegradable plastics, engineering plastics, etc.
●
A series of modified plastics technologies have been listed in the "National Support for Key High-tech Fields"
as stated in the Circular on the Issuance of the Administrative Measure for the Recognition of High-tech Enterprise jointly promulgated
by the Ministry of Science and Technology, Ministry of Finance, the State Administration of Taxation in April 2008. These technologies
include special engineering plastics, macromolecular compound or new synthetic modified, etc.
●
Determining the detailed standards for average fuel consumption for passenger car manufacturers: 1) In 2015 average fuel
consumption for passenger car reach 0.069L per kilometer; 2) In 2020 average fuel consumption for passenger car reach 0.05L per
kilometer. It will accelerate the automobile weight reduction progress.
In addition,
with the Chinese government strongly encouraging the production of more fuel-efficient and environmentally friendly vehicles,
as one means to help resolve the nation's worsening air pollution problem, especially in big cities, opportunities abound for
suppliers of plastics materials and auto components.
We believe
that the above government measures and programs will continue to accelerate the demand for automotive modified plastics in China.
Tightening
Trend and Local Government Policies
Despite
the favorable national government policies as set forth above, in the past couple of years, the Chinese government has implemented
certain measures to control the pace of economic growth and discontinued certain stimulus measures implemented to deal with the
recent global financial crisis, including incentives for consumers to purchase automobiles.
Since 2011,
in order to resolve the extreme traffic congestion, Beijing government has been implementing a vehicle purchase quota policy,
which limits the maximum vehicles sold in Beijing per month to 20,000. Other cities which have begun to show signs of traffic
congestion have also begun to implement similar measures to control traffic congestion, including the limited automobile licenses
policy implemented in Shanghai and Tianjin and the imposition of congestion charges in Shenzhen. The termination of
nation-wide preferential policies can negatively affect consumer demand for new vehicles, and local restrictive measures over
automobile purchases in major cities may result in the reduction in the sale of vehicles nationwide.
Our Products
Modified
plastic is processed by adding chemical agents and other additives to basic plastic resins to generate or improve certain physical
and/or chemical characteristics of plastic, such as heat resistance, hardness, tensile strength, wear resistance, and flame retardance.
Based on the type of materials, our products include twelve categories: Modified Polypropylene (PP), Modified Acrylonitrile Butadiene
Styrene (ABS), Modified Polyamide 66 (PA66), Modified Polyamide 6 (PA6), Modified Polyoxymethylenes (POM), Modified Polyphenylene
Oxide (PPO), Plastic Alloy, Modified Polyphenylene Sulfide (PPS), Modified Polyimide (PI), Modified Polylactic acid (PLA), Poly
Ether Ether Ketone (PEEK), and Polyethylene (PE).
Our products
are organized into twelve product groups, based on their physical characteristics, as set forth below:
Product Group
|
|
Number of Products
Certified
|
|
Characteristics
|
Automotive or Other Application
|
Modified Polyamide 66 (PA66)
|
|
|
59
|
|
Abrasive resistance, self-lubrication, high strength, high temperature
resistance, and flame resistance
|
Roof handles, door knobs, transmission connection plates, fan shrouds,
glovebox assembles, engine hoods, stents baffle blocks, trajectory, fasteners, etc.
|
|
|
|
|
|
|
|
Modified Polyamide 6 (PA6)
|
|
|
53
|
|
High temperature resistance, weather resistance, high strength
|
Inner door knobs, door knobs, hand shanks, transmission connection plates, visor bases,
etc.
|
|
|
|
|
|
|
|
Plastic Alloy
|
|
|
185
|
|
High impact resistance, high temperature resistance, flame resistance, palatable
|
Instrument panels, instrument frames, shields, automotive center stacks, speaker covers,
grids, fog light shells, battery bases, seat armrests, luggage holders, etc.
|
|
|
|
|
|
|
|
Modified Polypropylene (PP)
|
|
|
305
|
|
Non-toxic, odorless, low density, insulated, and low moisture uptake
|
Instrument panels, inner panels, columns, bumpers, air conditioner shells, door knobs, mudguards,
etc.
|
|
|
|
|
|
|
|
Modified Acrylonitrile butadiene styrene (ABS)
|
|
|
28
|
|
High rigidity, low density, rigidity toughness balance, slow burn, and corrosion resistance
|
Heat dissipating grids, steering wheel shells, cup holders, seal banks, instrument panels,
inner door knobs, wheel covers, etc.
|
|
|
|
|
|
|
|
Polyoxymethylene (POM)
|
|
|
1
|
|
High strength, low moisture uptake, size stability, high glass, high temperature resistance,
fatigue resistance
|
Heater fans, signal lamps switches, gas reservoir covers, door knobs, hand shanks, fuel
pumps, dynamic valves, accelerator pedals, rampetior elements, etc.
|
|
|
|
|
|
|
|
Polyphenylene Oxide (PPO)
|
|
|
1
|
|
High rigidity, flame retardant, abrasive resistance, pollution resistance, high temperature
resistance
|
Battery plants, lamp holder insulation parts, anti-freezer grids, booms, instrument panels,
window frames, tool cabinet covers, handwheel boxes, heater holders, heater baffles, cooling system connections, pump strainer
nets, ammeter frameworks, rearview, etc.
|
|
|
|
|
|
|
|
Modified Polyphenylene Sulfide (PPS)
|
|
|
1
|
|
High temperature resistance, corrosion resistance, radiation resistance, flame resistance,
size stability
|
Air bleed control valves, pneumatic signal conditioners, sparks plug wire insulation covers,
tachometer sensor covers, electrical pumps, fuel pump impellers and covers, air cylinder covers, water pump impellers, etc.
|
|
|
|
|
|
|
|
Modified Polylactic Acid (PLA)
|
|
|
-
|
|
Reproducible, good biological compatibility and totally degraded
|
Glove box handle, seat cover, rearview mirror shell, etc.
|
|
|
|
|
|
|
|
Modified Polyimide (PI)
|
|
|
-
|
|
Flame resistance, high strength, high temperature resistance, corrosion resistance
|
Compressor blade, piston ring, sealing washer, bushing, gear, brake block, etc.
|
|
|
|
|
|
|
|
PEEK*
|
|
|
N/A
|
|
Excellent mechanical and chemical resistance and temperature tolerance
|
Used in communications and transport electronics and electrical appliances, machinery, medical
and analytical equipment
|
|
|
|
|
|
|
|
Polyethylene
|
|
|
-
|
|
Resistance to shock, low temperature resistance, excellent electrical insulation,
corrosion resistance
|
Agricultural film, screw cap, water pipe, gear, food package
|
|
|
|
|
|
|
|
Total
|
|
|
633
|
|
|
|
*PEEK is primarily used in applications
that are unrelated to automotive applications, which does not require certifications and is in the product development stage.
For the
years ended December 31, 2019 and 2018, the Company had below product categories accounted for 10 percent or more of consolidated
revenue as below:
|
|
Years
Ended December 31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
%
|
|
US$
|
|
%
|
|
|
(in
millions, except percentage)
|
Modified Polyamide 66 (PA66)
|
|
|
427.0
|
|
|
|
29.5
|
%
|
|
|
316.6
|
|
|
|
24.8
|
%
|
Modified Polyamide 6 (PA6)
|
|
|
338.3
|
|
|
|
23.4
|
%
|
|
|
243.9
|
|
|
|
19.1
|
%
|
Plastic Alloy
|
|
|
245.3
|
|
|
|
16.9
|
%
|
|
|
335.7
|
|
|
|
26.3
|
%
|
Modified Polypropylene (PP)
|
|
|
126.5
|
|
|
|
8.7
|
%
|
|
|
223.4
|
|
|
|
17.5
|
%
|
Semi-finished goods
|
|
|
144.4
|
|
|
|
10.0
|
%
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
1,281.5
|
|
|
|
88.5
|
%
|
|
|
1,119.7
|
|
|
|
87.8
|
%
|
We are exposed
to risks inherent in any foreign operation, including foreign exchange rate fluctuations. For more details, please see “Item
1A Risk Factors - The fluctuation of the exchange rate of the Renminbi against the dollar could reduce the value of your investment”.
Raw Materials
The principal
raw materials used for the production of our modified plastic products are plastic resins such as polypropylene, ABS and nylon.
Polypropylene is a chemical compound manufactured from petroleum. ABS is a common thermoplastic used to make light,
rigid, molded products such as automotive body parts and wheel covers. Nylon is a thermoplastic silky material. Approximately
1.6% of our total raw materials purchased by volume are sourced from overseas petrochemical enterprises and 98.4% from domestic
petrochemical enterprises during the year ended December 31, 2019.
The Company
has one-year renewable contracts with its major suppliers, which are distributors of petrochemical enterprises. Because the raw
materials used in our products are primarily petroleum products, the rise or fall in oil prices directly affects the cost of the
raw materials. We attempt to mitigate the increase or decrease in our raw materials prices by appropriately raising or lowering
the price for our products to pass the cost or savings to our customers as part of our pricing policy.
Because
raw materials constitute a substantial part of the cost of our products, we seek to reduce costs by dealing with major suppliers.
During the year ended December 31, 2019, the Company purchased approximately 14.7% of the Company's raw materials from one major
supplier. By dealing in large quantities with these major suppliers, we obtain reduced prices for raw materials, therefore reducing
the cost of our products. If we were unable to purchase from these suppliers, we believe we would still have adequate sources
of raw materials from other petrochemical distributors without material impact on the cost of our products.
Intellectual Property
Patents
As a result of our collection
of academic and technological expertise, as of December 31, 2019, we had 32 approved patents and 477 pending patent applications
in China, as set forth in the following table:
No
|
Patent
Name
|
Application
No
|
Date
|
Status
|
1
|
A preparation method of polylactic acid
used in auto dashboard
|
201110035716.1
|
February
11, 2011
|
Authorized
|
|
|
|
|
|
2
|
A high impact and high heat-resistant
flame retardant ABS composite material reinforce by glass fiber and its preparation process
|
201110268625.2
|
September
13, 2011
|
Authorized
|
|
|
|
|
|
3
|
Supercritical fluid rapid diffusion synthesis
of nano calcium carbonate enhanced microcrystalline polypropylene composites
|
200910073402.3
|
December
11, 2009
|
Authorized
|
|
|
|
|
|
4
|
A rapid detection method of the tensile
propertie of modified PP used in auto specially by non-standard situation
|
201110094454.6
|
April
15, 2011
|
Authorized
|
|
|
|
|
|
5
|
A high toughness,low warpage and high-mobility
PET/PBT/PC alloy renforced by glass fiber and its preparation method
|
201110235189.9
|
August
17, 2011
|
Authorized
|
|
|
|
|
|
6
|
A preparation method of polypropylene
resin foam particles with supercritical CO2 act
|
201110230302.4
|
August
12, 2011
|
Authorized
|
|
|
|
|
|
7
|
A high-powered aircraft tail composite
material and its preparation process
|
201110196209.6
|
July
13,2011
|
Authorized
|
|
|
|
|
|
8
|
A method for automotive interior low odor,
low VOC, high performance polypropylene composites
|
201010258937.0
|
August
20, 2010
|
Authorized
|
|
|
|
|
|
9
|
A high-strength carbon fiber reinforced
polyetheretherketone composite material and its preparation method
|
201210114931.5
|
April
20, 2012
|
Authorized
|
|
|
|
|
|
10
|
High performance halogen-free flame-retardant
PC / ABS composite material and its preparation method
|
201210201826.5
|
June
19, 2012
|
Authorized
|
|
|
|
|
|
11
|
Graphene / polymer conductive composites
|
201210411231.2
|
October
25, 2012
|
Authorized
|
|
|
|
|
|
12
|
A high temperature conductive PPO/PA6
alloy material and its preparation method
|
201210241856.9
|
July
13, 2012
|
Authorized
|
|
|
|
|
|
13
|
High-performance, green flame retardant
reinforced PA66 composites technology
|
201210260160.0
|
July
26, 2012
|
Authorized
|
|
|
|
|
|
14
|
An antistatic LSOH flame retardant PC
/ ABS alloy material and its preparation method
|
201210296750.9
|
August
20, 2012
|
Authorized
|
|
|
|
|
|
15
|
A free primer and sprayed directly
on the bumper composites
|
201210306240.5
|
August
27, 2012
|
Authorized
|
|
|
|
|
|
16
|
A long glass fiber reinforced polypropylene
material and its preparation method
|
201210362626.8
|
September
26, 2012
|
Authorized
|
|
|
|
|
|
17
|
A modified Kevlar fiber reinforced PA66
material and its preparation method
|
201210369747.5
|
September
29, 2012
|
Authorized
|
|
|
|
|
|
18
|
A high toughness wear-resistant fiberglass
/PA6 composites for rail transit fasteners
|
201210396122.8
|
October
18, 2012
|
Authorized
|
|
|
|
|
|
19
|
A glass fiber reinforced poly (ethylene
terephthalate) / polycarbonate alloy
|
201210403197.4
|
October
22, 2012
|
Authorized
|
|
|
|
|
|
20
|
A production method of antimicrobial,
hydrophilic polypropylene particle
|
201210411680.7
|
October
25, 2012
|
Authorized
|
|
|
|
|
|
21
|
A glass fiber, SiO2 enhanced toughening
polyphenylene sulfide material and its preparation method
|
201210439116.6
|
November
7, 2012
|
Authorized
|
|
|
|
|
|
22
|
A high mobility of polyvinyl alcohol /
lignin WPC
|
201310203047.3
|
May
28, 2013
|
Authorized
|
|
|
|
|
|
23
|
A applied to electrostatic spraying PPO/PA6
alloy material and its preparation method
|
201310367459.0
|
August
22, 2013
|
Authorized
|
|
|
|
|
|
24
|
Preparation method of impact-resistant
strain of modified polylactic acid material
|
201310468059.9
|
October
10, 2013
|
Authorized
|
|
|
|
|
|
25
|
A free spray paint bumper with modified
material and preparation method
|
201310468057.X
|
October
10, 2013
|
Authorized
|
|
|
|
|
|
26
|
A stereoscopic word based on 3D printing
|
201520229477.7
|
April
16, 2015
|
Authorized
|
|
|
|
|
|
27
|
A medical chest straps based on 3D printing
technology and its preparation method
|
201510290769.6
|
June
1, 2015
|
Authorized
|
|
|
|
|
|
28
|
A 3D printing withABS composite material
and its preparation method
|
201610073934.7
|
February
3, 2016
|
Authorized
|
|
|
|
|
|
29
|
A kind of starch based biodegradable plastics
and its preparation method
|
201610078670.4
|
February
5, 2016
|
Authorized
|
|
|
|
|
|
30
|
A kind of high-toughness full-degradation
polylactic acid-based composite material and its preparation method
|
201610073925.8
|
February
5, 2016
|
Authorized
|
|
|
|
|
|
31
|
A high heat-resistant PC / ASA alloy material
and its preparation method
|
201010508149.2
|
October
15, 2010
|
Authorized
|
|
|
|
|
|
32
|
An extrusion grade sisal fiber reinforced
polypropylene composite material and its preparation process
|
201210357867.3
|
September
25, 2012
|
Authorized
|
|
|
|
|
|
33
|
A molding method suitable PEEK
|
201010173663.5
|
May
17, 2010
|
Pending
|
|
|
|
|
|
34
|
A high notched impact PA / ASA alloy material
and its preparation method
|
201010230061.9
|
July
19, 2010
|
Pending
|
|
|
|
|
|
35
|
A method for automotive interior matte,
anti-scratch modified polypropylene composites
|
201010230064.2
|
July
19, 2010
|
Pending
|
|
|
|
|
|
36
|
A lower mold shrinkage ratio method of
calcium carbonate / polypropylene nanocomposites
|
201010230088.8
|
July
19, 2010
|
Pending
|
|
|
|
|
|
37
|
Nano-ZnO filled with modified PEEK film
and its preparation method
|
201010258955.9
|
August
20, 2010
|
Pending
|
|
|
|
|
|
38
|
A high impact and high flow PC / ASA alloy
material and its preparation method
|
201010258950.6
|
August
20, 2010
|
Pending
|
|
|
|
|
|
39
|
A preparation method of SiO2/CaCO3 nano-composite
particles modified polypropylene
|
201010282042.0
|
September
15, 2010
|
Pending
|
|
|
|
|
|
40
|
A microporous zeolite materials modified
PEEK and its preparation method
|
201010282022.3
|
September
15, 2010
|
Pending
|
|
|
|
|
|
41
|
An anti-aging, anti-yellowing, low odor
polypropylene composite material and its preparation method
|
201010508177.4
|
October
15, 2010
|
Pending
|
|
|
|
|
|
42
|
A alloy material of high-impact, high-brightness
ASA
|
201010543439.0
|
November
15, 2010
|
Pending
|
|
|
|
|
|
43
|
A high heat-resistant and high wear-resistant
PEEX composite material and its preperation process
|
201110347338.0
|
January
10, 2011
|
Pending
|
|
|
|
|
|
44
|
A preperation process of high weathering colour
ASA resin
|
201110347336.1
|
February
11, 2011
|
Pending
|
|
|
|
|
|
45
|
A preparation method of polymer composites
with high toughness
|
201110035736.9
|
February
11, 2011
|
Pending
|
|
|
|
|
|
46
|
A special material of cooling grille with
high heat resistance and high weather resistance
|
201110094466.9
|
April
15, 2011
|
Pending
|
|
|
|
|
|
47
|
Apreparation process of ABS alloy with
high impact performance and high heat resistance
|
201110122586.5
|
May
12, 2011
|
Pending
|
|
|
|
|
|
48
|
A preparation process of centralized control
method used in plastic production line
|
201110122566.8
|
May
12, 2011
|
Pending
|
|
|
|
|
|
49
|
A preparation method of easily dispersed
and easily processimg polyprolene composite material
|
201110158511.2
|
June
14, 2011
|
Pending
|
|
|
|
|
|
50
|
A preparation method of high heat-resistant
and high rigid PLA composite material reinforced by fully biodegrdable natural fiber
|
201110158512.7
|
June
14, 2011
|
Pending
|
|
|
|
|
|
51
|
A preparation process of the premixed
screening system
|
201110158488.7
|
June
14, 2011
|
Pending
|
|
|
|
|
|
52
|
A rapid detection method of the impact
propertie of midfide plastics used in automobile specially
|
201110158528.8
|
June
14, 2011
|
Pending
|
|
|
|
|
|
53
|
A high impact PA6 composite material with
core-shell toughening and its preparation method
|
201110196226.X
|
July
13, 2011
|
Pending
|
|
|
|
|
|
54
|
A preparation methed of the plastic production
line with high performance and high honogeneity
|
201110233488.9
|
August
16, 2011
|
Pending
|
|
|
|
|
|
55
|
A preparation method of polylactic acid
used composite material modified by hydroxyapatite with supercritical water act
|
201110268687.3
|
September
13, 2011
|
Pending
|
|
|
|
|
|
56
|
A polypropylene composite material used
in battery tank of new source of energy automobile and its preperation method
|
201110347320.0
|
November
7, 2011
|
Pending
|
|
|
|
|
|
57
|
A high toughnees,low warpage and low mold
temperature PET/PA6 alloy reinfoced by glass fiber and preperation method
|
201110347339.5
|
November
7, 2011
|
Pending
|
|
|
|
|
|
58
|
A preparation method of glass fiber reinforced
polyether ether ketone with high strength and high heat resestance
|
201110399890.4
|
December
5, 2011
|
Pending
|
|
|
|
|
|
59
|
A high toughness of polycarbonate blends
material and its preparation method
|
201110319832.6
|
December
20, 2011
|
Pending
|
|
|
|
|
|
60
|
A high-impact, green flame retardant PC
/ ABS alloy material and its preparation process
|
201210122281.9
|
April
25, 2012
|
Pending
|
|
|
|
|
|
61
|
A preparation method for heat-resistant
and easy processing of natural fiber reinforced polylactic acid composites
|
201210147444.9
|
May
14, 2012
|
Pending
|
|
|
|
|
|
62
|
A preparation method of high encapsulation
efficiency and stable release polylactic lysozyme drug microsphere
|
201210295154.9
|
August
20, 2012
|
Pending
|
|
|
|
|
|
63
|
A Supercritical carbon dioxide reactor
pressure method for preparating polypropylene foamed material
|
201210298694.2
|
August
22, 2012
|
Pending
|
|
|
|
|
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64
|
An antimicrobial, dust suppression, halogen-free
flame retardant ABS and its preparation process
|
201210305824.0
|
August
27, 2012
|
Pending
|
|
|
|
|
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65
|
A preparation methods of ultra-hydrophobic
microporous polymer film
|
201210358122.9
|
September
25, 2012
|
Pending
|
|
|
|
|
|
66
|
A flame-retardant glass fiber reinforced
PA66 and its preparation method
|
201210370558.X
|
September
29, 2012
|
Pending
|
|
|
|
|
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67
|
The chest protected belts
|
201220526299.0
|
October
15, 2012
|
Pending
|
|
|
|
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68
|
A non-asbestos and non-metal materials
brake pads composite material and its preparation method
|
201210395921.3
|
October
18, 2012
|
Pending
|
|
|
|
|
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69
|
A wear-resistant, anti-static, flame retardant
ultra-high molecular weight polyethylene composite material
|
201210402814.9
|
October
22, 2012
|
Pending
|
|
|
|
|
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70
|
A high impact, high heat-resistant PC
/ PBT alloy material and its preparation process
|
201210403095.2
|
October
22, 2012
|
Pending
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|
|
|
|
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71
|
A continuous aramid fiber reinforced POM
materials and preparation methods
|
201210411967.X
|
October
25, 2012
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Pending
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|
|
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|
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72
|
An alcohol solution PA66 material special
for intake manifold and its preparation method
|
201210442251.6
|
November
8, 2012
|
Pending
|
|
|
|
|
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73
|
An environmentally friendly self- aromatic
polypropylene material and its preparation process
|
201210457403.X
|
November
15, 2012
|
Pending
|
|
|
|
|
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74
|
A mechanical strength polypropylene power
lithium battery separator and its preparation method
|
201210472283.0
|
November
21, 2012
|
Pending
|
|
|
|
|
|
75
|
A multilayer hot pressing method for preparating
hydroxyapatite / polylactide composite
|
201210474211.X
|
November
21, 2012
|
Pending
|
|
|
|
|
|
76
|
Preparation of a glass fiber reinforced
nylon 66 / nylon 6 Composites
|
201310185041.8
|
May
20, 2013
|
Pending
|
|
|
|
|
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77
|
An environmentally friendly foam polypropylene
material and preparation method
|
201310185228.8
|
May
20, 2013
|
Pending
|
|
|
|
|
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78
|
An ramie fiber reinforced polypropylene
composite material and its preparation process
|
201310185514.4
|
May
20, 2013
|
Pending
|
|
|
|
|
|
79
|
One kind of resistance to warpage reinforced
polyamide 6 material and preparation method
|
201310250426.8
|
June
24, 2013
|
Pending
|
|
|
|
|
|
80
|
Preparing a polyamide material reinforced
with continuous glass fibers
|
201310250967.0
|
June
24, 2013
|
Pending
|
|
|
|
|
|
81
|
A low-cost method for preparing hydrophobic
material of polypropylene
|
201310250185.7
|
June
24, 2013
|
Pending
|
|
|
|
|
|
82
|
A polypropylene self-luminous material
and preparation method
|
201310250047.9
|
June
24, 2013
|
Pending
|
|
|
|
|
|
83
|
A preparation method of reinforced,
flame-retardant ABS material
|
201310367420.9
|
August
22, 2013
|
Pending
|
|
|
|
|
|
84
|
One kind of aramid pulp-reinforced PA66
composite material and preparation method
|
201310367404.X
|
August
22, 2013
|
Pending
|
|
|
|
|
|
85
|
Preparation of a high-performance fiber-reinforced
polyphenylene sulfide composites
|
201310372289.5
|
August
24, 2013
|
Pending
|
|
|
|
|
|
86
|
One kind of anti-alcohol solution, low
warpage reinforced nylon66 composite material and preparation method
|
201310372282.3
|
August
24, 2013
|
Pending
|
|
|
|
|
|
87
|
A high-gloss, free paint, scratch-resistant
alloy material and preparation method
|
201310372789.9
|
August
26, 2013
|
Pending
|
|
|
|
|
|
88
|
A preparation process of heat-stable flame
retardant reinforced nylon composite material
|
201310413691.3
|
September
12, 2013
|
Pending
|
|
|
|
|
|
89
|
An anti-oxidation, high flow, flame retardant
ABS and preparation process
|
201310413270.0
|
September
12, 2013
|
Pending
|
|
|
|
|
|
90
|
An flax noil fiber reinforced polypropylene
composite material and its preparation process
|
201310413287.6
|
September
12, 2013
|
Pending
|
|
|
|
|
|
91
|
A Preparation of appling to charging pile
casing PC / ABS alloy compound
|
201310414007.3
|
September
12, 2013
|
Pending
|
|
|
|
|
|
92
|
A no-spray, high durability, scratch-resistant,
flame retardant ABS Preparation and Process
|
201310414024.7
|
September
12, 2013
|
Pending
|
|
|
|
|
|
93
|
An antistatic, low smoke, flame retardant
PC / ABS alloy materials and preparing process
|
201310414847.X
|
September
13, 2013
|
Pending
|
|
|
|
|
|
94
|
A method for preparing an enhanced flame
retardant rigid polyurethane composites
|
201310467797.1
|
October
10, 2013
|
Pending
|
|
|
|
|
|
95
|
A MARINE with wear-resistant ultra high
molecular weight polyethylene composites
|
201310468060.1
|
October
10, 2013
|
Pending
|
|
|
|
|
|
96
|
A method for preparing low temperature
resistance, scratch-resistant zipper jacket compound for cars
|
201310468076.2
|
October
10, 2013
|
Pending
|
|
|
|
|
|
97
|
An environmentally friendly fire-retardant,
high-performance EVA composite material and preparation method
|
201310467812.2
|
October
10, 2013
|
Pending
|
|
|
|
|
|
98
|
A direct line of long glass fiber reinforced
thermoplastic composite material and its preparation method
|
201310471859.6
|
October
12, 2013
|
Pending
|
|
|
|
|
|
99
|
A toughening wear-resistant alloy material
and preparation method
|
201310556261.7
|
November
12, 2013
|
Pending
|
|
|
|
|
|
100
|
A high resistance temperature reinforced
polyamide 6 material and preparation method
|
201310556569.1
|
November
12, 2013
|
Pending
|
|
|
|
|
|
101
|
Preparation of an aircraft engine surrounding
high temperature polyimide composites
|
201310555389.1
|
November
12, 2013
|
Pending
|
|
|
|
|
|
102
|
Preparation of a high strength of continuous
glass fiber reinforced nylon 6 material
|
201310555451.7
|
November
12, 2013
|
Pending
|
|
|
|
|
|
103
|
A highly weather-resistant polypropylene
self-luminous material and preparation method
|
201310555483.7
|
November
12, 2013
|
Pending
|
|
|
|
|
|
104
|
Method for preparing porous polymer composite
superhydrophobic films
|
201310559589.4
|
November
13, 2013
|
Pending
|
|
|
|
|
|
105
|
A polypropylene foam material and preparation
method
|
201310559024.6
|
November
13, 2013
|
Pending
|
|
|
|
|
|
106
|
One kind of aramid fiber / polyimide composite
material and preparation method
|
201310559294.7
|
November
13, 2013
|
Pending
|
|
|
|
|
|
107
|
An alloy NiMoB modified talc enhanced
Bumper material and its preparation method
|
201310559588.X
|
November
13, 2013
|
Pending
|
|
|
|
|
|
108
|
A silicone toughening polyphenylene sulfide
material and its preparation method
|
201310560625.9
|
November
13, 2013
|
Pending
|
|
|
|
|
|
109
|
A high toughness, wear-resistant rail
fasteners with glass / nylon 6 Composites
|
201310646768.1
|
December
6, 2013
|
Pending
|
|
|
|
|
|
110
|
A high-gloss, avoid spraying PTT / PMMA
rearview mirror Compound and its production process
|
201310652729.2
|
December
6, 2013
|
Pending
|
|
|
|
|
|
111
|
A keyboard and mouse with anti-bacterial
perspiration modified plastics and its preparation method
|
201310676101.6
|
December
13, 2013
|
Pending
|
|
|
|
|
|
112
|
A high-strength lightweight hollow glass
microspheres toughening PP material and preparation method
|
201310721731.0
|
December
25, 2013
|
Pending
|
|
|
|
|
|
113
|
a method for producing a heatproof polyimide
composite used for aircraft engine periphery
|
201410144739.X
|
April
12, 2014
|
Pending
|
|
|
|
|
|
114
|
a method for producing a heatproof polyimide
composite
|
201410205669.4
|
May
16, 2014
|
Pending
|
|
|
|
|
|
115
|
An advantage of specially coupling treated
carbon fibers reinforced PEEK
|
201410262651.8
|
June
13, 2014
|
Pending
|
|
|
|
|
|
116
|
A high dimensional stability、excellent
abrasion resistance PEEK valve composite
|
201410262638.2
|
June
13, 2014
|
Pending
|
|
|
|
|
|
117
|
The preparation method of a high-strength
PEEK composites
|
201410262746.X
|
June
13, 2014
|
Pending
|
|
|
|
|
|
118
|
A Method for preparing high performance
PEEK/long glass fiber composites
|
201410263606.4
|
June
16, 2014
|
Pending
|
|
|
|
|
|
119
|
a method for producing a polyimide composite
|
201410326840.7
|
July
10, 2014
|
Pending
|
|
|
|
|
|
120
|
Preparation of Carbon Fiber Reinforced
PI Composite Material
|
201410326641.6
|
July
10, 2014
|
Pending
|
|
|
|
|
|
121
|
Preparation of a high tensile
strength of PEEK composites
|
201410326616.8
|
July
10, 2014
|
Pending
|
|
|
|
|
|
122
|
The prepatation of a high-strength ,high-temperature
polyimide composites
|
201410413832.6
|
August
21, 2014
|
Pending
|
|
|
|
|
|
123
|
A high-heat-resistant,excellent in abrasion
resistance sheet composite PEEK valve
|
201410413379.9
|
August
21, 2014
|
Pending
|
|
|
|
|
|
124
|
Preparation of PI composite
material by coupling agent treated glass fiber
|
201410481809.0
|
September
22, 2014
|
Pending
|
|
|
|
|
|
125
|
A kind of 3D printing poly lactic acid/leather
powder composite materials and its preparation method
|
201410690528.6
|
November
27, 2014
|
Pending
|
|
|
|
|
|
126
|
A kind of biodegradable polymer-docetaxel
bonding medicine and its preparation method
|
201410690529.0
|
November
27, 2014
|
Pending
|
|
|
|
|
|
127
|
A prepatation method of polyimide composite
material
|
201410691532.4
|
November
27, 2014
|
Pending
|
|
|
|
|
|
128
|
A prepatation method of high toughness
biodegradable polylactic acid foam plastics
|
201410691587.5
|
November
27, 2014
|
Pending
|
|
|
|
|
|
129
|
A preparation of antibacterial
polylactic acid fiber
|
201410691901.X
|
November
27, 2014
|
Pending
|
|
|
|
|
|
130
|
A kind of poly lactic acid preparation
method of lactide ring-opening polymerization
|
201410697015.8
|
November
28, 2014
|
Pending
|
|
|
|
|
|
131
|
A modification of PLA material and its
preparation method
|
201410697822.X
|
November
28, 2014
|
Pending
|
|
|
|
|
|
132
|
A method of preparing high strenght PLA
composites
|
201410697790.3
|
November
28, 2014
|
Pending
|
|
|
|
|
|
133
|
A kind of twin screw reactive
extrusion method ring opening polymerization preparation of PLA
|
201410697838.0
|
November
28, 2014
|
Pending
|
|
|
|
|
|
134
|
A method of preparing high toughness PLA
composites
|
201410697801.8
|
November
28, 2014
|
Pending
|
|
|
|
|
|
135
|
A kind of organic molecule
catalytic method for preparation of poly lactic acid
|
201410703493.5
|
November
30, 2014
|
Pending
|
|
|
|
|
|
136
|
A surface treatment of carbon fiber reinforced
thermoplastic polyimide composites
|
201410703815.6
|
November
30, 2014
|
Pending
|
|
|
|
|
|
137
|
A carbon fiber-reinforced thermoplastic
polyimide composites
|
201410703816.0
|
November
30, 2014
|
Pending
|
|
|
|
|
|
138
|
A preparation method of the
high toughness,high mobility PLA/PP Alloy
|
201410704664.6
|
December
4, 2014
|
Pending
|
|
|
|
|
|
139
|
A preparation method of the
natural fiber/polylactic acidbased composite materials
|
201410704612.9
|
December
4, 2014
|
Pending
|
|
|
|
|
|
140
|
A preparation method of the
high toughness ABS/PLA-based alloys
|
201410704588.9
|
December
4, 2014
|
Pending
|
|
|
|
|
|
141
|
Nanoparticles/CF hybrid reinforced PEEK
composite material and its preparation method
|
201410729719.9
|
December
5, 2014
|
Pending
|
|
|
|
|
|
142
|
Method for preparing thermoplastic polyimide
composites
|
201410730324.0
|
December
5, 2014
|
Pending
|
|
|
|
|
|
143
|
Boron fiber reinforced polyimide
|
201410730235.6
|
December
5, 2014
|
Pending
|
|
|
|
|
|
144
|
A method of preparation of carbon fiber
prepreg reinforced skis
|
201410729635.5
|
December
5, 2014
|
Pending
|
|
|
|
|
|
145
|
High mobility TLCP/PES/PEEK composite
material and its preparation method
|
201410729614.3
|
December
5, 2014
|
Pending
|
|
|
|
|
|
146
|
An PEEK/BaSo4 composite material and
its preparation method
|
201410730260.4
|
December
5, 2014
|
Pending
|
|
|
|
|
|
147
|
Foamed PP and graphite fiber composites
preparation methods of enhancement of skis
|
201410729634.0
|
December
5, 2014
|
Pending
|
|
|
|
|
|
148
|
Method for increasing the compatibility
of PPS/PEEK composite materials
|
201410730258.7
|
December
5, 2014
|
Pending
|
|
|
|
|
|
149
|
A compressor valve plate with a modified
material and the method
|
201410733902.6
|
December
8, 2014
|
Pending
|
|
|
|
|
|
150
|
An automobile air conditioner drive gear
with the modified materials and the method
|
201410733905.X
|
December
8, 2014
|
Pending
|
|
|
|
|
|
151
|
Method for preparing high toughness of
polycarbonate/polylactic acid-bassed alloys
|
201410733882.2
|
December
8, 2014
|
Pending
|
|
|
|
|
|
152
|
A modified high-performance carbon fiber
composite materials
|
201410747395.1
|
December
10, 2014
|
Pending
|
|
|
|
|
|
153
|
A prepatation method of high performance
PEEK/carbon fiber composite material
|
201410747379.2
|
December
10, 2014
|
Pending
|
|
|
|
|
|
154
|
A prepatation method of PEEK composite
material
|
201410746978.2
|
December
10, 2014
|
Pending
|
|
|
|
|
|
155
|
A ternary no return toughening copolymer
of polylactic acid composite material and its preparation method
|
201410747386.2
|
December
10, 2014
|
Pending
|
|
|
|
|
|
156
|
Sensor with high-performance fiber-reinforced
PPS composites
|
201410747061.4
|
December
10, 2014
|
Pending
|
|
|
|
|
|
157
|
Glass fiber modified wearable Polyimide
|
201410747053.X
|
December
10, 2014
|
Pending
|
|
|
|
|
|
158
|
An advantage of specially prepared by
coupling treatment sio2 reinforced PEEK
|
201410747062.9
|
December
10, 2014
|
Pending
|
|
|
|
|
|
159
|
A high-mobility PVA/wood flour composite
biomass
|
201410747054.4
|
December
10, 2014
|
Pending
|
|
|
|
|
|
160
|
One kind of thermal evaporation method
graphene Gec
|
201410746877.5
|
December
10, 2014
|
Pending
|
|
|
|
|
|
161
|
A highly heat-resistant polylactic acid/Wood
Flour Composites
|
201410747097.2
|
December
10, 2014
|
Pending
|
|
|
|
|
|
162
|
Preparation of an enhanced
flame retardant polyurethane composites
|
201410747055.9
|
December
10, 2014
|
Pending
|
|
|
|
|
|
163
|
A process for producing fiber reinforced
PA6 dedicated 3D printing materials processing using a special method
|
201410747082.6
|
December
10, 2014
|
Pending
|
|
|
|
|
|
164
|
A preparation method of low
warpage ABS special 3D printing materials
|
201410746979.7
|
December
10, 2014
|
Pending
|
|
|
|
|
|
165
|
A preparation method of impact-resistant
strain of modified polylactic acid materials
|
201410747377.3
|
December
10, 2014
|
Pending
|
|
|
|
|
|
166
|
A preparation method of chemical
vapor deposition method graphene films
|
201410747180.X
|
December
10, 2014
|
Pending
|
|
|
|
|
|
167
|
A process for producing acrylic polyurethane
high-solids coatings
|
201410747079.4
|
December
10, 2014
|
Pending
|
|
|
|
|
|
168
|
The use of core-shell particles toughening
PC and PBT resin
|
201410747406.6
|
December
10, 2014
|
Pending
|
|
|
|
|
|
169
|
A high strength,high modulus of PEEK composite
material and preparation method
|
201410747376.9
|
December
10, 2014
|
Pending
|
|
|
|
|
|
170
|
A kind of microfluids device prepared
by the technology of 3D-printing
|
201410747264.3
|
December
10, 2014
|
Pending
|
|
|
|
|
|
171
|
A high-retardant polyvinyl alcohol/Wood
Flour Composites biomass
|
201410746938.8
|
December
10, 2014
|
Pending
|
|
|
|
|
|
172
|
A method of processing aids (ACR) improved
PVC materials
|
201410746804.6
|
December
10, 2014
|
Pending
|
|
|
|
|
|
173
|
A preparation method of polylactic
acid film
|
201410746939.2
|
December
10, 2014
|
Pending
|
|
|
|
|
|
174
|
A kind of suitable for 3D printing chest
straps of polylactic acid materials and its preparation method
|
201510089885.1
|
February
28, 2015
|
Pending
|
|
|
|
|
|
175
|
A kind of alloy material for 3D printing
|
201510179994.2
|
April
16, 2015
|
Pending
|
|
|
|
|
|
176
|
A method of preparation of water-soluble
PLA support material for 3D printing
|
201510180141.0
|
April
17, 2015
|
Pending
|
|
|
|
|
|
177
|
A kind of high performance
PEEK/chopped carbon fiber composite material and the preparation method
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201510180750.6
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April
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178
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The prepatation method of a
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201510180761.4
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April
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179
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A nylon base composite material for medical
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April
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180
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A preparation method of 3D
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201510342646.2
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June
19, 2015
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181
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A preparation method of ASA
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201510342647.7
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June
19, 2015
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182
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A kind of PBT/carbon fiber composite material
and its preparation method
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201510343448.8
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June
20, 2015
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183
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A kind of anionic catalytic method for
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201510343470.2
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June
20, 2015
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184
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A kind of suitable for 3D printing flexible
material and its preparation method
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201510343479.3
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June
20, 2015
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Pending
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185
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A gear assembly line pen container
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July
1, 2015
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186
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A 3D printing PA-12 composite materials
and preparation methods
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201510425924.0
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July
21, 2015
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187
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A kind Of PC/ABS alloy for
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201510425922.1
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July
21, 2015
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188
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A kind Of chitosan fill the
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July
21, 2015
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189
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A preparation methods of PA-12
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201510425925.5
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July
21, 2015
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190
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A preparation methods of ASA
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201510426034.1
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July
21, 2015
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191
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A PCL materials for 3D printing
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201510426518.6
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July
21, 2015
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Pending
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192
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A PLA/carbon fiber composite materials
for 3D printing
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201510444970.5
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July
27, 2015
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Pending
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193
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A ABS/carbon fiber composite materials
for 3D printing
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201510444857.7
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July
27, 2015
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194
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A low-cost PEEK composite materials
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201510442250.5
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July
27, 2015
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Pending
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195
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A kind of flame retardant PEK-C composite
materials
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201510442249.2
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July
27, 2015
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196
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The preparation method of PLA
composites with higher strength
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201510513220.9
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August
20, 2015
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197
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High flexibility and heat resistance of
modified PLA material and its preparation method
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201510513331.X
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August
20, 2015
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Pending
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198
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The preparation method of high toughness
PLA composites
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201510513381.8
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August
21, 2015
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199
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A low hardness material for 3D printing
and its preparation method
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201510513507.1
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August
21, 2015
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200
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A kind of high toughness ABS/PLA base
alloy and its preparation method
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201510513987.1
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August
21, 2015
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Pending
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201
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A preparation methods of PLA/carbon
fiber composite cable
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201510513965.5
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August
21, 2015
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Pending
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202
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A kind of high toughness PC/PLA base alloy
and its preparation method
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201510513964.0
|
August
21, 2015
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Pending
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203
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A PLA/PCL materials for 3D printing
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201510513963.6
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August
21, 2015
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Pending
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204
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A preparation methods of biodegradable
PP composite materials
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201510516595.0
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August
21, 2015
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Pending
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205
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A kind of twin screw reactive extrusion
method ring opening polymerization preparation of PLA
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201510516697.2
|
August
21, 2015
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206
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A 3D printing with PLA wood plastic composite
material and its preparation method
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201510516892.5
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August
22, 2015
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Pending
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207
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A kind of biodegradable plastic material
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201510516891.0
|
August
22, 2015
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Pending
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208
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A water-soluble 3D printing support material
and its preparation method
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201510517574.0
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August
22, 2015
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Pending
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209
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A kind of modified carbon fiber reinforced
PEK-C composite materials
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201510518210.4
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August
24, 2015
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210
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The preparation method of PLA
by catalytic organic molecules
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201510529386.x
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August
26, 2015
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Pending
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211
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A kind of alloy material for 3D printing
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201510529324.9
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August
26, 2015
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Pending
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212
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The preparation method of PLA
by glue lactide ring-opening polymerization
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201510529229.9
|
August
26, 2015
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Pending
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213
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A PLA/PCLbased materials for 3D printing
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201510596497.2
|
September
19, 2015
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Pending
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214
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A kind of PC/PLA alloy for
3D printing
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201510596496.8
|
September
19, 2015
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Pending
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215
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A preparation methods of PA-12
composite materials for 3D printing
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201510596494.9
|
September
19, 2015
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Pending
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216
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A straw filling masterbatch for car and
its preparation method
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201510596493.4
|
September
19, 2015
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Pending
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217
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A kind of flame retardant straw man-made
composite panels and its preparation method
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201510598097.5
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September
21, 2015
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Pending
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218
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A kind of injection molding with straw
powder/PP composite wood plastic material
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201510598151.6
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September
21, 2015
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Pending
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219
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A free aldehyde a two-component straw
green adhesive and its preparation method
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201510598096.0
|
September
21, 2015
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Pending
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220
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A radiation-hardened PEK-C composite materials
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201510598127.2
|
September
21, 2015
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Pending
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221
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A highly transparent and heat resistant
PLA based composite materials and preparation methods
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201510605550.0
|
September
22, 2015
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222
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A long natural fiber/PLA based composite
materials and preparation methods
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201510605549.8
|
September
22, 2015
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Pending
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223
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A high toughness,high liquidity PLA/PP
alloy and its preparation method
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201510605551.5
|
September
22, 2015
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Pending
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224
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A kind of chemical modification of two-component
straw without adhesive and its preparation method
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201510606502.3
|
September
23, 2015
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Pending
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225
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A filler masterbatch containing straw
fiber and its preparation method
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201510620223.2
|
September
26, 2015
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Pending
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226
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A kind of high toughness of polyolefin/PLA
based alloy material and its preparation method
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201510620222.8
|
September
26, 2015
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Pending
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227
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A straw in organic resin environmental
protection plastic masterbatch and preparation method
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201510620187.X
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September
26, 2015
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Pending
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228
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A straw combined with compound wood plastic
material and its preparation method
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201510621223.4
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September
28, 2015
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Pending
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229
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A kind of SEBS compound materials for
3D printing and preparation methods
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201510625700.4
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September
29, 2015
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230
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A 3D printing in toughenning PLA material
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201510678609.9
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October
21, 2015
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Pending
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231
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A 3D printing with imitation wood material
and its preparation method
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201510678582.3
|
October
21, 2015
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Pending
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|
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232
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A shock profile ASA modification and preparation
metgod
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201510678508.1
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October
21, 2015
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Pending
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233
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A kind of suitable for 3D printing PP/SEBS
composite materials
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201510678417.8
|
October
21, 2015
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Pending
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234
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A werther resistance type ASA material
preparation method
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201510682952.0
|
October
21, 2015
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Pending
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235
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A 3D printing with PA-12/carbon fiber
composite material preparation method
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201510774246.9
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November
14, 2015
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Pending
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236
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A PEEK composites used for 3D printing
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201510776191.5
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November
16, 2015
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237
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A 3D printing use environmental protection
material and its preparation method
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201510781986.5
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November
17, 2015
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238
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A 3D printing to atrengthen PLA material
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201510781729.1
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November
17, 2015
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239
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A 3D printing for PVA/PLA composite materials
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201510781822.2
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November
17, 2015
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Pending
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240
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Carbon fiber reinforced polylactic acid/hydroxyapatite
composite material preparation method
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201510781758.8
|
November
17, 2015
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Pending
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241
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A PLA/PCL composite materials for 3D printing
fixed with chest photo
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201510781757.3
|
November
17, 2015
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Pending
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242
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A kind of plant fiber modified PP composite
material and its preparation process
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201510801217.7
|
November
20, 2015
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Pending
|
|
|
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|
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243
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A carbon fiber thermoplastic composites
material and its preparation method
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201510802664.4
|
November
20, 2015
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Pending
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244
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A straw biodegradable green tableware
and its preparation method
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201510800686.7
|
November
20, 2015
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Pending
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245
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A straw packaging products and its preparation
method
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201510800422.1
|
November
20, 2015
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Pending
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246
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A long natural fiber/polylactic acid based
composite material preparation method
|
201510807808.5
|
November
23, 2015
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Pending
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247
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A synthetic PLA composite and its preparation
method
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201510994685.0
|
December
30, 2015
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Pending
|
|
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248
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The preparation method of high
toughness PLA composites
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201510994684.6
|
December
30, 2015
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Pending
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249
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A kind of high strength polypropylene
fiber and its manufacturing method
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201510994680.8
|
December
30, 2015
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Pending
|
|
|
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250
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The method of preparation
of polypropylene fiber
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201510994693.5
|
December
30, 2015
|
Pending
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251
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The preparation method of the
high toughness PP composites
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201510994695.4
|
December
30, 2015
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Pending
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252
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Carbon fiber reinforced polylactic acid/hydroxyapatite
composite material preparation method
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201510994697.3
|
December
30, 2015
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Pending
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253
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The preparation method of PLA/PP
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201510994720.9
|
December
30, 2015
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Pending
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254
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A kind of carbon fiber reinforced halogen-free
flame retardant PA66 composite materials and preparation methods
|
201510995630.1
|
December
30, 2015
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Pending
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255
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A kind of high toughness polylactic acid
based composite material preparation method
|
201510995642.4
|
December
30, 2015
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Pending
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256
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Carbon fiber reinforced halogen-free flame
retardant PBT composite material and its preparation method
|
201510995644.3
|
December
30, 2015
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Pending
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257
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A kind of starch based biodegradable plastics
and its preparation method
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201510995643.9
|
December
30, 2015
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Pending
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258
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A highly transparent heat-proof PLA based
composite material preparation method
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201510995641.X
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December
30, 2015
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259
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A kind of human pipeline support for controllable
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February
2, 2016
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Pending
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260
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A kind of wood material for 3D printing
and its preparation method
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201610068060.6
|
February
2, 2016
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Pending
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261
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A kind of PBS/PHB material for 3D pringting
and its preparation method
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201610068519.2
|
February
2, 2016
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Pending
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262
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A preparation method of high toughness
PP wood plastic composite materials
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201610068969.1
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February
2, 2016
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Pending
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263
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A kind of glass fiber reinforced polyetheretheketone
3D printing supplies and preparation method thereof
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201610069556.5
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February
2, 2016
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264
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A kind of biodegradable polylactic acid
protection film and its preparation method
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201610070678.6
|
February
2, 2016
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Pending
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265
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A kind of straw degradable plastic film
and its preparation method
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201610070677.1
|
February
2, 2016
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266
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A poly lactic acid/starch/straw powder
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201610070676.7
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February
2, 2016
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267
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A kind of modified PET material and its
preparation method
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201610071902.3
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February
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268
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A kind of environmental protection type
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February
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269
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The medical adjustable chest abdomen fixing
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February
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270
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An enhanced impact modification of polylactic
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February
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271
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A preparation method of the thermoplastic
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February
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272
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A shape of thermotropic polymers material
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March
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273
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A kind of low cost straw polyethylene
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201610117151.4
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March
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274
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Preparation method of wood plastic composite
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March
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275
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A kind of degradable plastic film and
its preparation method
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201610117087.X
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March
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276
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A kind of biodegradable thoughening heat-resistant
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201610117085.0
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March
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277
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A preparation method and application of
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201610117084.6
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March
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278
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A kind of automobile sheet witn the 3D
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March
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279
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A kind of environmental protection engineering
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March
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280
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A kind of environmental protection engineering
plastics for automobile
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March
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281
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A kind of preparation of the 3D printing
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201610117080.8
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March
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282
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A kind of PA-12 wood plastic composite
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201610117079.5
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March
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283
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A kind of PBS/carbon material composite
wire used for 3D printing and its preparation method
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201610117815.7
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March
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284
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A kind of Environment friendly type poly
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April
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285
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A kind of shape memory polymer material
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April
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286
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Method for preparing poly lactic acid
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201610205122.3
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April
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287
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A kind of degradable straw polyethylene
film and the preparation method thereof
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201610206640.7
|
April
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288
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A kind of high transparent heat-resistant
polylactic acid composite material preparation method
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201610206661.9
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April
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289
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A starch based degradable biological plastic
PP and the preparation method thereof
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201610208232.5
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April
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290
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A kind of heat resistant PEEK composite
material
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April
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291
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A kind of PA12/PA6 alloy material powder
for 3D printing
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201610208432.0
|
April
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292
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A preparation of the 3D printing technology
of medical equipment based on the elbow
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201610208548.4
|
April
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293
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A kind of PBS/PBC printing 3D material
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294
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295
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296
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297
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298
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299
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300
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302
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304
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311
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314
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315
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345
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347
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352
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Toughening endurance of biodegradable
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A preparation method of PLA by the lactide
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A long glass fiber reinforced nylon material
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A multi-segmented polyurethane shape memory
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A Method of Preparation of High-rigidity
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A Method of Preparation of Abrasion resistance
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A PBT heat conduction and heat resisting
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|
December
25, 2017
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Pending
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|
|
|
|
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410
|
A kind of mattefree-spraying plastic alloy
material and its preparation method
|
201711417027.0
|
December
25, 2017
|
Pending
|
|
|
|
|
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411
|
A hybrid fiber reinforced PBT composite
and its preparation method
|
201711417028.5
|
December
25, 2017
|
Pending
|
|
|
|
|
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412
|
A kind of environment-friendly fire retardant
PC engineering plastic material
|
201711417029.X
|
December
25, 2017
|
Pending
|
|
|
|
|
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413
|
A kind of scratch resistant PP material
and its preparation method
|
201711417052.9
|
December
25, 2017
|
Pending
|
|
|
|
|
|
414
|
A high strength PC/PET/PBT composite and
preparation method
|
201711416491.8
|
December
25, 2017
|
Pending
|
|
|
|
|
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415
|
A high-heat, high-resistant nylon composite
|
201711417482.0
|
December
25, 2017
|
Pending
|
|
|
|
|
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416
|
A high strength long fiber reinforced
nylon composite material and its preparation method
|
201711417479.9
|
December
25, 2017
|
Pending
|
|
|
|
|
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417
|
A kind of special material for high -
cold charging pile housing and its preparation process
|
201711417484.x
|
December
25, 2017
|
Pending
|
|
|
|
|
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418
|
A kind of dried fruit shell powder modified
composite material and its preparation method
|
201711418376.4
|
December
25, 2017
|
Pending
|
|
|
|
|
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419
|
A preparation method of high strength
straw fiber composite material
|
201711426425.9
|
December
26, 2017
|
Pending
|
|
|
|
|
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420
|
A straw powder modified polypropylene
and its preparation method
|
201711426589.1
|
December
26, 2017
|
Pending
|
|
|
|
|
|
421
|
A kind of plant straw powder filled polypropylene
polyethylene foamed composite material
|
201711427565.8
|
December
26, 2017
|
Pending
|
|
|
|
|
|
422
|
A preparation method of plant fiber polypropylene
composite
|
201711428470.8
|
December
26, 2017
|
Pending
|
|
|
|
|
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423
|
A business card with polylactic acid composite
material and its preparation method
|
201711439395.5
|
December
27, 2017
|
Pending
|
|
|
|
|
|
424
|
A kind of heat-resistant polylactic acid
composite material and its preparation method
|
201711439422.9
|
December
27, 2017
|
Pending
|
|
|
|
|
|
425
|
Preparation of a biodegradable express
bag and its method
|
201711491600.2
|
December
30, 2017
|
Pending
|
|
|
|
|
|
426
|
The preparation of a polylactic acid composite
material
|
201711491814.X
|
December
30, 2017
|
Pending
|
|
|
|
|
|
427
|
A kind of plant fiber reinforced modified
PLA composite material and its preparation method
|
201711491978.2
|
December
30, 2017
|
Pending
|
|
|
|
|
|
428
|
A kind of flame retardant reinforced PLA
composite and its preparation method
|
201711492033.2
|
December
30, 2017
|
Pending
|
|
|
|
|
|
429
|
SLS3D printing PA12/GB high fill composite
powder
|
201711492102.X
|
December
30, 2017
|
Pending
|
|
|
|
|
|
430
|
A selective laser sintered polyamide material
powder and its preparation method
|
201711492403.2
|
December
30, 2017
|
Pending
|
|
|
|
|
|
431
|
Preparation method of toughened polylactic
acid composite material
|
201711493458.5
|
December
31, 2017
|
Pending
|
|
|
|
|
|
432
|
SLS3D printing PA12 coated PA6 alloy material
powder
|
201711493547.X
|
December
31, 2017
|
Pending
|
|
|
|
|
|
433
|
A selective laser sintering PA12 / PS
alloy powder material
|
201711493557.3
|
December
31, 2017
|
Pending
|
|
|
|
|
|
434
|
A selective laser sintering PA6 alloy
powder material and its preparation method
|
201711493575.1
|
December
31, 2017
|
Pending
|
|
|
|
|
|
435
|
High toughness PC/ABS alloy material for
3D printing
|
201711496409.7
|
December
31, 2017
|
Pending
|
|
|
|
|
|
436
|
Preparation method of ABS modified material
for 3D printing
|
201711496441.5
|
December
31, 2017
|
Pending
|
|
|
|
|
|
437
|
Preparation method of PETG
modified material for 3D printing
|
201711496488.1
|
December
31, 2017
|
Pending
|
|
|
|
|
|
438
|
High-toughness PLA material for 3D printing
|
201711496532.9
|
December
31, 2017
|
Pending
|
|
|
|
|
|
439
|
A PLA/PCL 3D printing composite material
|
201711496564.9
|
December
31, 2017
|
Pending
|
|
|
|
|
|
440
|
HIPS composite material for 3D printing
and preparation method
|
201711496595.4
|
December
31, 2017
|
Pending
|
|
|
|
|
|
441
|
PC/ABS material for 3D printing and preparation
method
|
201711496639.3
|
December
31, 2017
|
Pending
|
|
|
|
|
|
442
|
A modified ABS Resin for 3D Printing and
Preparation Method
|
201711496689.1
|
December
31, 2017
|
Pending
|
|
|
|
|
|
443
|
Light curing device for preparing 3D printing
portrait and preparation method thereof
|
201711496762.5
|
December
31, 2017
|
Pending
|
|
|
|
|
|
444
|
A nylon-based composite material suitable
for 3D printed leg protectors
|
201711496788.X
|
December
31, 2017
|
Pending
|
|
|
|
|
|
445
|
A low hardness composite material for
Rapid prototyping and the preparation method
|
201711496822.3
|
December
31, 2017
|
Pending
|
|
|
|
|
|
446
|
Toughened and water resistant starch plastic
and preparation method thereof
|
201810003570.4
|
January
3, 2018
|
Pending
|
|
|
|
|
|
447
|
Preparation method of enhanced polylactic
acid composite material
|
201810288664.0
|
April
3, 2018
|
Pending
|
|
|
|
|
|
448
|
ABS/PP alloy material for 3D printing
and preparation method
|
201810292551.8
|
April
4, 2018
|
Pending
|
|
|
|
|
|
449
|
An impact resistant PC/PET/PBT composite
|
201810399099.5
|
April
28, 2018
|
Pending
|
|
|
|
|
|
450
|
A low moulding shrinkage PC composite
material for 3D printing and preparation method thereof
|
201910921954.9
|
September
27, 2019
|
Pending
|
|
|
|
|
|
451
|
A high resistant PC/ASA alloy materrial
for 3D printing and its preparation method
|
201910921871.X
|
September
27, 2019
|
Pending
|
|
|
|
|
|
452
|
A High melt index PC composite material
for 3D printing and preparation method
|
201910921807.1
|
September
27, 2019
|
Pending
|
|
|
|
|
|
453
|
A high modulus, high impact and high flow
polypropylene composite material and its preparation method
|
201910921795.2
|
September
27, 2019
|
Pending
|
|
|
|
|
|
454
|
A High performance PLA/fibrilia composite
material
and its preparation method
|
201910921708.3
|
September
27, 2019
|
Pending
|
|
|
|
|
|
455
|
A Low Temperature Resistance and Enhanced
PA56/PA6 Composite and Its Preparation Method
|
201910986845.5
|
October
17, 2019
|
Pending
|
|
|
|
|
|
456
|
A high impact , flame-retardant and high
strength polycarbonate composite material and its preparation method
|
201910986844.0
|
October
17, 2019
|
Pending
|
|
|
|
|
|
457
|
A high modulus, high flow and high impact
polypropylene glass fiber toughened composite material and its preparation method
|
201910985944.1
|
October
17, 2019
|
Pending
|
|
|
|
|
|
458
|
A Nylon 6 Composite Material with High
Toughness, High Heat Resistance and Easy Demoulding Toughening and Its Preparation Method
|
201910985942.2
|
October
17, 2019
|
Pending
|
|
|
|
|
|
459
|
A graphene modified polypropylene composite
material for automobile bumper and its preparation method
|
201910985943.7
|
October
17, 2019
|
Pending
|
|
|
|
|
|
460
|
A high gloss and high impact PC / ASA
alloy material and its preparation method
|
201911036467.0
|
October
29, 2019
|
Pending
|
|
|
|
|
|
461
|
A high-gloss, reinforced polypropylene
composite material and its preparation method
|
201911036473.6
|
October
29, 2019
|
Pending
|
|
|
|
|
|
462
|
A PP and PA6 blend modified composite
and its preparation method
|
201911036493.3
|
October
29, 2019
|
Pending
|
|
|
|
|
|
463
|
A Polypropylene Composite With High Gloss
And Toughness And Its Preparation Method
|
201911036986.7
|
October
29, 2019
|
Pending
|
|
|
|
|
|
464
|
A low VOC, scratch-resistant polypropylene
composite material and its preparation method
|
201911036987.1
|
October
29, 2019
|
Pending
|
|
|
|
|
|
465
|
A High performance PLA/mineral composite
material
and its preparation method
|
201911322324.6
|
December
20, 2019
|
Pending
|
|
|
|
|
|
466
|
A high modulus, high impact and high flow
polypropylene composite material and its preparation method
|
201911322069.5
|
December
20, 2019
|
Pending
|
|
|
|
|
|
467
|
A high modulus, high flow nylon glass
fiber toughened composite material and its preparation method
|
201911322091.X
|
December
20, 2019
|
Pending
|
|
|
|
|
|
468
|
A Low-odor and Low-VOC Polypropylene Composite
and Its Preparation Method
|
201911322073.1
|
December
20, 2019
|
Pending
|
|
|
|
|
|
469
|
Low warpage, precipitation resisitance
halogen-free flame retardant Acrylonitrile Butadiene Styrene composite material and its preparation method
|
201911322086.9
|
December
20, 2019
|
Pending
|
|
|
|
|
|
470
|
A high impact and high modulus nylon composite
and its preparation method
|
201911322075.0
|
December
20, 2019
|
Pending
|
|
|
|
|
|
471
|
Halogen-free flame retardant, low floating
fiber reinforced polypropylene composite material and its preparation method
|
201911322074.6
|
December
20, 2019
|
Pending
|
|
|
|
|
|
472
|
A High Wear Resistant Bio-Based PA56 Composite
and Its Preparation Method
|
201911322092.4
|
December
20, 2019
|
Pending
|
|
|
|
|
|
473
|
Light weight,environmental protection,flame
retardant and aging resistant polypropylene composite material and its preparation method
|
201911322125.5
|
December
20, 2019
|
Pending
|
|
|
|
|
|
474
|
A low temperature impact resistant PC/ABS
composite material and its preparation method
|
201911322124.0
|
December
20, 2019
|
Pending
|
|
|
|
|
|
475
|
A high toughness pcabs alloy material
resistant to automobile paint and its preparation method
|
201911322087.3
|
December
20, 2019
|
Pending
|
|
|
|
|
|
476
|
A Low Temperature Resistance and Fall-resistant
Box Body Material And Its Preparation Method
|
201911322088.8
|
December
20, 2019
|
Pending
|
|
|
|
|
|
477
|
High performance PBS/mineral composite
material
and its preparation method
|
201911322127.4
|
December
20, 2019
|
Pending
|
|
|
|
|
|
478
|
The high impact, high flow3D-printed PS
material and its preparation method
|
201911322128.9
|
December
20, 2019
|
Pending
|
|
|
|
|
|
479
|
A high impact, flame-retardant and high
strength PC/ABS composite material and its preparation method
|
201911322322.7
|
December
20, 2019
|
Pending
|
|
|
|
|
|
480
|
A Method of Preparation Of Glass Fiber
And Talc Reinforced Nylon With Low Shrinkage And Water Absorption
|
201911322321.2
|
December
20, 2019
|
Pending
|
|
|
|
|
|
481
|
The invention relates to a graphene
modified antistaic polypropylene composite material and its preparation method thereof
|
201911322323.1
|
December
20, 2019
|
Pending
|
|
|
|
|
|
482
|
A high modulus, flame-retardant and high
strength nylon composite material and its preparation method
|
201911322331.6
|
December
20, 2019
|
Pending
|
|
|
|
|
|
483
|
An impact-resistance PC/PBT composite
material and its preparation method
|
201911345326.7
|
December
24, 2019
|
Pending
|
|
|
|
|
|
484
|
A high modulus, high impact and high flow
polypropylene composite material and its preparation method
|
201911347542.5
|
December
24, 2019
|
Pending
|
|
|
|
|
|
485
|
An easy separation and environmental protection
film is used for absorbing the hollow type tableware and the preparation method
|
201611149005.6
|
December
14, 2016
|
Pending
|
|
|
|
|
|
486
|
A kind of low odor PP material and its
preparation method
|
201711379459.7
|
December
20, 2017
|
Pending
|
|
|
|
|
|
487
|
A preparation method of poly(lacticacid)/starch
composite foams
|
201410489544.9
|
September
22, 2014
|
Pending
|
|
|
|
|
|
488
|
A catalyst with double function activation
properties of PLA and preparation method
|
201510949309.x
|
December
20, 2015
|
Pending
|
|
|
|
|
|
489
|
A preparation method of high strength
and biodegradable PLA composite material
|
201510949307.0
|
December
20, 2015
|
Pending
|
|
|
|
|
|
490
|
A high-performance PLA and its preparation
method
|
201510949312.1
|
December
20, 2015
|
Pending
|
|
|
|
|
|
491
|
A kind of biodegradable recycling PLA
material and its preparation method
|
201510949306.6
|
December
20, 2015
|
Pending
|
|
|
|
|
|
492
|
A high flexibility and heat resistance
of PLA modified material and its preparation method
|
201510949313.6
|
December
20, 2015
|
Pending
|
|
|
|
|
|
493
|
A kind of inorganic filler biodegradable
3D printing consumables and its preparation method
|
201510949636.5
|
December
20, 2015
|
Pending
|
|
|
|
|
|
494
|
A kind of biodegradable 3D printing toughening
material and its preparation method
|
201510949638.4
|
December
20, 2015
|
Pending
|
|
|
|
|
|
495
|
A low-cost biodegradable 3D printing consumables
and its preparation method
|
201510949637.x
|
December
20, 2015
|
Pending
|
|
|
|
|
|
496
|
A kind of biodegradable 3D printing reinforced
material and its preparation method
|
201510949653.9
|
December
20, 2015
|
Pending
|
|
|
|
|
|
497
|
A biodegradable 3D printing alloy material
and its preparation method
|
201510949651.x
|
December
20, 2015
|
Pending
|
|
|
|
|
|
498
|
A kind of preparation method of rice husk
powder / Talc Composite Reinforced starch based degradable plastics
|
201610293135.0
|
June
05, 2016
|
Pending
|
|
|
|
|
|
499
|
A kind of nylon reinforced 3D material
special material and the preparation method thereof
|
201610293621.2
|
June
05, 2016
|
Pending
|
|
|
|
|
|
500
|
A kind of preparation method of straw
powder filled PP composite material
|
201610294471.7
|
June
05, 2016
|
Pending
|
|
|
|
|
|
501
|
A kind of special material for 3D ABS/PC
consumable material and the preparation method thereof
|
201610443577.9
|
August
06, 2016
|
Pending
|
|
|
|
|
|
502
|
A kind of special material of modified
nylon 3D consumable material and the preparation method thereof
|
201610442209.2
|
August
06, 2016
|
Pending
|
|
|
|
|
|
503
|
An application on starch based biodegradable
plastic food packaging
|
201610442190.1
|
August
06, 2016
|
Pending
|
|
|
|
|
|
504
|
A kind of can be used for 3D printing
enhanced toughenting nylon material and the preparation method thereof
|
201610593945.8
|
July
27, 2016
|
Pending
|
|
|
|
|
|
505
|
A kind of plant fiber filling modified
polypropylene composite material and the preparation method thereof
|
201610591739.3
|
July
26, 2016
|
Pending
|
|
|
|
|
|
506
|
A material can be used to increase manufacturing
preparation methods of toughening nylon materials
|
201610829480.1
|
September
19, 2016
|
Pending
|
|
|
|
|
|
507
|
A KT-1 as compatibilizer modified
polypropylene composite material
|
201610827269.6
|
September
18, 2016
|
Pending
|
|
|
|
|
|
508
|
A kind of material can be used to
increase manufacturing ASA/PC alloy and the preparation method thereof
|
201610875348.4
|
October
08, 2016
|
Pending
|
|
|
|
|
|
509
|
A high modulus fibeer/polypropylene
composite material preparation method
|
201610874802.4
|
October
08, 2016
|
Pending
|
Trademark
We own the
trademarks for our graphic logo and Chinese characters of "Xinda", which we use in packaging our products and marketing.
Certification Process
To meet
the requirements of an automobile manufacturer, products used as component parts must pass a rigorous certification process by
the manufacturer's technological quality assurance department before they can be approved for and used in production. The certification
process consists of three stages.
First, the
automobile manufacturer reviews the manufacturer of modified plastics. The examination involves assessment of the operation
history of the modified plastics manufacturer, their experience in providing component services, the specialization of their factory
equipment, their research and development capacity and quality assurance systems. The manufacturer's operations need to meet the
requirements of the automobile manufacturer. Once the initial review is passed, the modified plastics manufacturer will obtain
a qualification as an automobile component manufacturer. This initial stage takes approximately sixteen to twenty-two months to
complete.
Second,
the automobile manufacturer and the manufacturer of modified plastics reach an understanding about a product specification. The
modified plastics manufacturer provides product research and development materials to the automobile manufacturer for inspection.
The automobile manufacturer tests the product specification according to its standards and, if results are satisfactory, the modified
plastics manufacturer obtains a product specification certification and enters the product certification stage. The second stage
takes approximately eight months to complete.
Third, the
parties complete technology R&D tests and perform automobile component finished parts tests. The product undergoes
additional testing by the automobile manufacturer and is used in road tests. This stage takes approximately five to fifteen months
depending on whether the car model is an existing model or a new model. At the conclusion of the third stage, the modified plastics
manufacturer receives a product certification from the automobile manufacturer.
We believe
that the necessity, rigorousness, complexity and duration of the certification process make it difficult for outside competitors
to enter the field in a short period of time. We had 633 certifications from automobile manufacturers as of December 31, 2019,
which we believe is currently one of the largest portfolios of product certifications in the Chinese automobile modified plastics
industry.
Sales and Marketing
Currently,
our sales network focuses on the northeastern, northern, eastern and southwestern regions of China. We primarily sell to end customers
through our approved distributors. To a less extent, we also sell directly to end customers. A typical customer
development cycle starts when our R&D staff develops customized products for new end customers and obtains product certifications.
These end customers are usually major automobile parts manufacturers who can only source from suppliers like China XD with product
certifications granted by major automobile manufacturers. After we established relationships with these end customers
and began to have large volume of transactions with them, we assign end customers to our approved distributors according to our
internal policies. We also acquired end customers with our existing certifications from time to time. In 2019, approximately
82.9% of our sales were generated from approved distributors.
We enter
into distribution agreements with local distributors in areas where large automobile manufacturers are located. The distribution
agreements usually have a term of one year, during which period we can enter into distribution agreements with other distributors
for our products. The distributors are responsible for marketing and distributing our products. Through the established sales
channels, we can quickly respond to local market demand, address customer needs, enhance our ability to provide technical support
and after-sales services, and lower our marketing expenses. Our general credit term with our distributors is three months and
our collection of payment from distributors is not contingent upon their cash collection from end customers. We manufacture products
according to orders received from our distributors and maintain a certain quantity of raw materials based on our experience and
the distributors order patterns. By doing this we hope to ensure the smooth implementation of the production plan of major automobile
manufacturers and avoid risks of inventory shortage. We do not provide the distributors nor end customers with the
right of return, price protection or any other concessions. We allow for an exchange of products or return only if
the products are defective.
We have
been actively engaging our distribution network with twelve distributors in 2019 and we believe we have good relationships with
our distributors. We believe that we have been able to secure and maintain strong relationships with end customers
due to our existing certifications, advanced technologies and high product quality, which establish a higher barrier to entry
for others. Most of the end customer relationships will be developed through our own R&D and sales force and maintained by
our R&D and sales professionals and our distributors. According to our distribution contracts, our distributors
are prohibited from selling our competitors' products and required to use the product certificate, brand name and package standards
set by us during the distribution period. After the expiration of the distribution contracts in absence of renewal, we retain
the customer relationships with end customers.
While the
pricing volatility of our raw materials is a primary cause of cost variations in our products, we are generally able to pass the
cost of price changes in our raw materials to our customers, although there are timing delays of varying lengths depending upon
volatility of raw material prices, the type of products, competitive conditions and individual customer arrangements.
We sell
our products substantially through approved distributors in the PRC. Our sales to our distributors are highly
concentrated but have been gradually diversified in recent years. Sales to major distributors and direct customer, which
individually exceeded 10% of our revenues, accounted for approximately 13.9% and 38.3% of our revenues for the years ended
December 31, 2019 and 2018, respectively. We expect to reduce our distributor concentration over time, although revenues from
these distributors are expected to continue to represent a substantial portion of our revenue in the future. Further
information about our major distributors and the director customer, which individually exceeded 10% of our revenues, for the
years ended December 31, 2019 and 2018, is set forth in Note 1 of the notes to the consolidated financial statements
included elsewhere in this Annual Report on Form 10-K.
We have
initiated our marketing efforts to develop new customers outside of China, in particular those in the UAE market. We have started
offering certain high-end products, such as PA66 and long-chain Plastic Alloy, most manufactured in Heilongjiang plants and a
small portion manufactured in Dubai plant since the second quarter of 2014. In January 2015, we completed and run the trial production
in the plant in Dubai, UAE with additional 2,500 metric tons targeting high-end products for the overseas markets. We plan
to serve customers in oversea markets from our Dubai Xinda plant. In order to develop potential overseas markets, Dubai Xinda
obtained one leased property and two purchased properties, approximately 52,530 square meters in total, including one leased 10,000
square meters, and two purchased 20,206 and 22,324 square meters on January 25, 2015, June 28, 2016 and September 21, 2016, respectively, from
Jebel Ali Free Zone Authority ("JAFZA") in Dubai, UAE, with constructed building comprising warehouses, offices and
service blocks. In addition to the earlier 10 trial production lines in Dubai Xinda, we completed installing 45 production lines
with 11,250 metric tons of annual production capacity by the end of November 2018. As of December 31, 2019, an additional 30 production
lines with 7,500 metric tons of annual production capacity mainly targeted for ABS products, were still in the progress of redesigning
upgrading and further equipment testing. The Company estimates 22 production lines will be put into production in the fourth quarter
of 2021, 8 production lines will be put into production in the second quarter of 2022, and will then increase the total production
capacity in Dubai Xinda to 21,250 metric tons, targeting high-end products for the overseas market.
After a
successful trial production at our production base in Dubai in November 2018, we have established business relationships
with new customers in UAE and India, and shipped products to the end users in Europe and Southeast Asia. We are optimistic
about the prospect of our business expansion overseas.
Information
about geographic revenue is set forth in Note 24 of the notes to the consolidated financial statements included elsewhere in
this Annual Report on Form 10-K.
Competition
The PRC
automotive modified plastics industry is growing rapidly and highly fragmented with the top four domestic producers occupying
less than approximately 28.8% of the market shares in 2018 according to Frost & Sullivan's report. According to Frost &
Sullivan's report, in terms of sales volume and production capacity, we are one of the leading domestic specialized manufacturers
of modified plastic for automobile parts in China, with a market share of approximately 8.0% in 2018 and 8.8% in 2017. In 2019,
our sales volume of automotive plastics was approximately 360,072 MT. As of December 31, 2019, our annual production capacity
of automotive plastics was 405,450 MT.
Due to our
high quality standard and competitive pricing, we are able to compete in and penetrate markets outside of China.
After
a successful trial production at our production base in Dubai in November 2018, the Company has established business relationships
with new customers in UAE and India, and shipped products to the end users in Europe and Southeast Asia. We are optimistic
about the prospect of our business expansion overseas.
Currently,
the Company's primary Chinese competitor in the automobile industry is Guangzhou Kingfa Science & Technology Co., Ltd.
("Guangzhou Kingfa"). Guangzhou Kingfa entered the automotive modified plastics market in 2006 and had a sales
volume of 523,000 MT in 2018 with a market share of 11.0% in 2018, according to Frost & Sullivan’s report. Guangzhou
Kingfa has the largest capacity expansion with 1.29 million MT annual production capacity, including 1.26 million MT annual
modified plastics at the end of 2019 based on Guangzhou Kingfa's public disclosure, but its utilization rate of production
capacity is expected to be lower than that of China XD based on Frost & Sullivan's report. Guangzhou Kingfa has much larger
financial resources than HLJ Xinda Group and Sichuan Xinda. However, we believe that it is less focused in automotive sector and
currently holds fewer number of product certifications for automotive modified plastic to the automobile industry compared to
HLJ Xinda Group and Sichuan Xinda. Another top domestic manufacturer of modified plastic is Shanghai Pret Composites Co., Ltd.
("Shanghai Pret"), which focuses on the production of automotive plastics. It had a sales volume of 206,200 MT
with a market share of 4.3% in 2018, according to Frost & Sullivan’s report.
Historically,
the Chinese auto market predominantly used modified plastics manufactured overseas or in factories controlled by foreign companies,
such as manufacturers from Germany, the US, the Netherlands and Japan. Although China's automotive plastic market has been dominated
by foreign or JV players, Chinese suppliers are continuing to gain market share. It is estimated that automotive plastics imported
or manufactured by multinational and JV companies accounted for approximately 24.7% of the total China automotive plastic supply
in 2018, decreased from 30.5% in 2012. JV manufacturers based in China in automotive plastics sector have been slow to invest
and expand in China. Compared to non-domestic competitors including JV manufacturers, domestic manufacturers can benefit from
the lower costs and geographical proximity in China. As local players continue to invest in research and development, enhance
product quality and improve management skills, we believe that domestic production of automotive plastics will compete very favorably
with the foreign competitors in terms of price, quality, services and delivery times and continue to replace imported plastics.
Our Competitive Strengths
We believe
that the following competitive strengths continue to enable us to compete effectively in the automotive modified plastics market
in the PRC:
●
|
Leading
Market Position in an Industry with High Barrier to Entry. We believe that we are one of the China's leading
specialized manufacturers of modified plastic for automobile parts in terms of sales volume and production capacity, with
a market share of approximately 8.0% in 2018. The PRC automotive modified plastics industry is growing rapidly and is
highly fragmented with the top three domestic producers occupying less than approximately 23.3% of the market shares in
2018.
We
installed 50 new product lines in 2012 and 2013, which are utilized primarily for the manufacture of higher value-added
modified plastics products. The lines increased the Company's total production capacity by 135,000 MT to 390,000 MT per
annum. In July 2017, the Company launched a new industrial project for upgrading existing equipment for 100,000
metric tons of engineering plastics, which is expected to be completed by the end of the second quarter of 2020. The reason
for such delay is due to additional time for equipment’s installation and test. As a result, our production
capacity in Harbin, Heilongjiang was downgraded to 290,000 MT as of December 31, 2018. Due to the need for equipment upgrade
and overhaul, our Harbin campus further downgraded its production capacity to 135,000 MT as of December 31, 2019, in Qinling
Road Factory (“Qinling Road Project”) and Jiangnan Road Factory (“Jiangnan Road Project”), which
will be completed by end of the third quarter of 2020, bring the production capacity in Harbin campus back to 390,000
MT. Simultaneously, our Harbin campus also included an industrial project for 300,000 metric tons of biological composite
materials, an industrial project for a 3D printing intelligent manufacture demonstration factory and a 3D printing display
and experience cloud factory,, which was broken ground in December 2019 with four workshop. We expect a gradual trial
out by the end of 2022 and put into production by the end of 2023.
|
In December
2013, we broke ground on the construction of our fourth production plant in Nanchong City, Sichuan Province, with additional 300,000
metric tons of annual production capacity, which is expected to bring total domestic installed production annual capacity to 690,000
metric tons with the addition of 70 new production lines upon the completion of the construction of our fourth production plant.
Sichuan Xinda has been supplying to its customers since 2013, mainly backed by production capacity in our Harbin production plant
until we installed 50 production lines in the second half of 2016 at our Sichuan plant with production capacity of 216,000 metric
tons during 2017. We installed an additional 10 production lines in July 2018, bringing the total capacity to 259,200 metric tons.
As of December 31, 2019, there is still construction ongoing on the site of our Sichuan plant for equipment installation, and
we expect to put into production by the end of the fourth quarter of 2020.
In addition,
we completed and run the trial production in the plant in Dubai, UAE with additional 2,500 metric tons targeting high-end products
for the overseas markets. In order to develop potential overseas markets, Dubai Xinda obtained one leased property and two purchased
properties, approximately 52,530 square meters in total, including one leased 10,000 square meters, and two purchased 20,206 and
22,324 square meters on January 25, 2015, June 28, 2016, and September 21, 2016, respectively, from Jebel Ali Free Zone Authority
("JAFZA") in Dubai, UAE, with constructed building comprising warehouses, offices and service blocks.
As
of December 31, 2019, our annual production capacity of automotive plastics totaled 405,450 MT, including 394,200 MT in domestic
production bases and 11,250 in Dubai campus. In 2019, our sales volume of automotive plastics was approximately 360,072 MT,
representing a decrease of 18.8% compared to that in 2018, primarily because the overall weakening in macroeconomic conditions
since summer of 2018, though our sales in Northeast, South, Central, and North China has grown. We also had overseas sales
of US$61.2 million in the year ended December 31, 2019 as compared to US$15.0 million in prior year.
We believe
our leading market position allows us to successfully compete with other foreign and domestic modified plastic manufacturers in
the market. Being one of the leading specialized manufacturers of automotive modified plastics in China, we believe we are well-positioned
to not only grow with the increasing market demand but increase market share by replacing smaller and less efficient modified
plastic manufacturer.
In addition,
as a result of our consistent research and development efforts, we had 633 product certifications from major automotive manufacturers
in the PRC as of December 31, 2019, which we believe is among the largest numbers of product certifications by any domestic player
in China's automotive plastics industry. Strict certification requirements and long certification periods result in high barriers
to entry. Our current or potential competitors are required to obtain relevant product certifications from automotive manufacturers
in order to compete with us. Each certification normally takes over two years to complete, and as a result, automotive manufacturers
are reluctant to replace suppliers like us who have already received necessary certifications and proven consistent product quality.
We believe that having one of the largest portfolios of product certifications in China allows us to strengthen our competitive
position.
●
|
Long-Term Relationships with Reputable End Users. Our
senior management has been involved in the business of modified plastics since 1985. We benefit from the industry connections
and experience of our senior management, which have enabled us to establish long-term customer relationships and strong industry
recognition. We are a qualified provider of high-quality automotive plastics, and have sold our products through plastic auto
part manufacturers to many leading automotive manufacturers in China. Currently, our modified plastics are utilized in more
than 31 automobile brands and 111 automobile models manufactured in China, including Audi, Mercedes Benz, BMW, Toyota,
Buick, Chevrolet, Mazda, Volvo, Ford, Citroen, Jinbei, VW Passat, Golf, Jetta, etc. We believe that our brand and our
products are well recognized and respected in China's automotive modified plastics market.
|
●
|
Manufacturing facilities critical to the quality
of products. We have in the past invested substantial time and resources in building state-of-the-art production lines
to enhance our product quality. Our facilities have maintained ISO/TS16949, a certification of quality management systems
specific to the automotive industry.
|
●
|
Strong Customer-Oriented R&D Capabilities.
The modified plastics industry is characterized by rapid development and increasing demand for high quality products. We have
strong R&D capabilities that allow us to successfully pass OEM automakers' certification processes in the past and continually
introduce new and high quality products to the market. Compared to international plastic supply models, which target larger
scale applications of common plastics and involve less customization and specialization, we provide customer-oriented product
development through our certification process. By working closely with our customers, we are able to adjust our
product features to better satisfy the specific needs of each customer. To achieve this, we have staffed our R&D team
with professionals, 24 of whom have Ph.D. and/or Master's degrees. On average, our R&D employees have worked with us for
more than three years, and some key experts have more than 10 years of experience in our industry. We have also cooperated
with a number of the leading technology centers in China. Besides providing specialized research and development skills, these
relationships help us formulate cutting edge research programs aimed at developing new technologies and applications in plastics
engineering. We currently have 32 approved patents and 477 pending patent applications with the State Intellectual
Property Office of the PRC, or SIPO.
|
●
|
Established Distribution Model. Through
twelve distributors across China, we have established distribution networks that cover Northeast, North, Southwest and
East China, with a current focus on Northeast China. We enter into distribution agreements with local distributors in areas
where large automobile manufacturers are located. By leveraging the proximity of our distributors to the automobile
manufacturers, we can enhance our relationships with our customers. Through the established sales channels, we can quickly
respond to local market demand, address customer needs, enhance our ability to provide superior technological support and
after-sales services, and lower our marketing expenses. At the same time, our distributors are responsible for
the payments to us which is not contingent upon their cash collection from end customers. By actively managing our distribution
network, we are also able to accelerate local market penetration and increase sales opportunities. For example, we entered
the north China market in 2009 through a local distributor, one year earlier than we planned, and in 2013, we entered into
the Southwest China market, and in 2014, we entered into South China and Central China market. For the year ended December
31, 2019, Northeast, East, North, Southwest, Central and South accounted for approximately 32.2%, 26.4%, 15.7%, 9.2%, 6.3%
and 6.0% of our revenues, respectively.
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●
|
Stable Presence to Overseas Market. The
Company has tried to develop new overseas customers and has established a business relationship with an overseas customer
in Ras Al Khaimah, UAE in fourth quarter of 2018. After a successful trial production at our production base in Dubai in November
2018, the Company has established business relationships with new customers in UAE and India, and shipped products to
the end users in Europe and Southeast Asia. US$61.2 million products have been sold to overseas market, accounting for
4.2% of the total revenues for the year ended December 31, 2019.
|
●
|
Seasoned Management Team. Our senior
management team and key personnel have extensive operating and industry experience. Mr. Han, our chief executive officer and
president, founded our former affiliate Harbin Xinda Nylon Factory in 1985. With 30 years of industry experience, Mr. Han
has in-depth knowledge and expertise in China's modified plastics industry. Our chief executive officer, chief technology
officer and chief operating officer have over 50 years combined experience in the modified plastics industry and we believe
their extensive expertise and knowledge can well serve our customers.
|
Our Strategies
Our goal
is to capitalize on China's modified plastics growth trend, with a specific focus on applications in the auto sector, and to eventually
be the leading modified plastics manufacturer in China. We are committed to enhancing our sales and profitability and achieving
our goals through the following strategies:
●
Continue to Expand/Upgrade Production Capacity. Over the past five years, we have consistently
increased production capacity to meet the rising demands of the automotive industry in the PRC. As of December 31, 2019, we
have an installed annual production capacity of 394,200 metric tons in domestic production bases, and we have been operating
at near full capacity since 2007. With the expected strong growth in the automotive modified plastics market of China, we
expect that we will continue to experience strong demand from our customers. Therefore, we intend to continue to
strategically increase our production capacity to meet customer demands from both expanded geographical locations and future
downstream sector growth. In 2013, we commenced to construct our fourth production base with 300,000 MT new material
production capacity and the affiliated research and development center and training center in Nanchong City of Sichuan
Province (the "Project"). We installed 50 production lines with production capacity of 216,000 metric tons in
the second half of 2016 in our Sichuan plant and additional 10 production lines in July 2018, bringing the total capacity to
259,200 metric tons. As of December 31, 2019, there was still construction ongoing on the site of our Sichuan plant which is
expected to be completed by the end of the fourth quarter of 2020.
The Company
completed and started the trial production in the plant in Dubai, UAE with additional 2,500 metric tons targeting high-end products
for the overseas markets. The Company completed installing 45 production lines with 11,250 metric tons of annual production
capacity by the end of November 2018. As of December 31, 2019, an additional 30 production lines with 7,500 metric tons of annual
production capacity mainly targeted for ABS products, were still in the progress of redesigning upgrading and further equipment
testing. The Company estimates 22 production lines will be put into production in the fourth quarter of 2021, 8 production lines
will be put into production in the second quarter of 2022, then, bringing total installed production capacity in Dubai Xinda to
21,250 metric tons, targeting high-end products for the overseas market.
Since 2013,
the HLJ Xinda Group had approximately 390,000 metric tons of annual production capacity across 88 automatic production lines utilizing
German twin-screw extruding systems, automatic weighing systems and Taiwan conveyer systems. In July 2017, the HLJ Xinda Group launched a new industrial project for upgrading existing equipment for 100,000 metric
tons of engineering plastics, which we expect to be completed by the end of the second quarter of 2020. The reason for such delay
is due to additional time for equipment’s installation and test. In 2019, HLJ Xinda Group started another two equipment
projects totaling 155,000 MT in Qinling Road Factory (“Qinling Road Project”) and Jiangnan Road Factory (“Jiangnan
Road Project”) for equipment upgrade and overhaul progress, which is expected be completed by the end of the third quarter
of 2020. Also included is an industrial project for 300,000 metric tons of biological composite materials, an industrial project
for a 3D printing intelligent manufacture demonstration factory and a 3D printing display and experience cloud factory, all of
which we expect to be completed by the end of 2023.
● Focus
on R&D and Develop New Product Offerings. We are currently utilizing our R&D capabilities to obtain further product
certifications, develop new products, applications and technologies. Approximately 90% of our automotive plastics product
certification applications are currently undergoing trial manufacturing periods to obtain the necessary certifications. In addition,
we are developing new products for automotive applications to expand our product portfolio, including initiating R&D on modified
plastic for use in electric vehicles. We also have increased efforts directed towards applications
in new electrical equipment and electronics, alternative energy applications, power devices, aviation equipment and
ocean engineering, in addition to other new products primarily for advanced industrialized applications in the
automobile sector and in new verticals such as ships, airplanes, high-speed rail, 3D printing materials, biodegradable plastics,
and medical devices. We are the first non-State-Owned-Enterprise awarded National Level Enterprise Technology Center,
in Heilongjiang Province. In addition, we have Postdoctoral and Academy Member Workstation in Heilongjiang Province enhancing
our research and development capabilities.
● Expand
Customer Base Domestically and Internationally. The automotive plastics market in the PRC is highly fragmented
with significant barriers to entry. In 2016, we had 8.0% of the market share with our customer coverage was originally concentrated
in the northeast regions of the PRC. We seek to steadily enhance our market share in Northeast China, and also expand our reach
to East China, Central China, Southwest China and South China. In addition, we have conducted sales in overseas markets and exported
our products including non-auto sectors since 2014. In 2018, we had 8.0% of the market share, ranking the second in terms
of sales volume of automotive modified plastics in China. We plan to implement such strategies through further expanding our distribution
network by working with local distributors who have contacts and networks overseas and directly establishing strategic alliances
with certain of our non-PRC customers. Although the entry barrier of some non-auto sectors might not generally be as high as that
of the auto sector, our focus is to target high-value-added products by leveraging our technology, expertise and know-how accumulated
in the auto sector over the course of our operational history.
●
Pursue Selective Strategic Acquisitions. While we have experienced substantial organic growth,
we plan to pursue a disciplined and targeted acquisition strategy to accelerate our growth. Our strategy will focus on strengthening
presence in certain geographies, improving our penetration in attractive markets, enhancing research and development capabilities
and acquiring new markets or customers.
● Increase
Efficiency by Corporate Restructuring. We completed our corporate restructuring plan at the end of 2014 and further optimized
our management structure and enhancing efficiency in 2018, with the aim of establishing a more efficient company group structure,
as a result of which our subsidiaries are more easily accessible to our end customers and our operations are able to respond to
the market changes in a more efficient manner.
Environmental Laws
The cost
of compliance with Chinese environmental regulations currently is minimal. Most of the waste produced from our production process
is water, which we circulate in our enclosed water treatment system.
Employees
China XD's
operations are organized into several operational departments including manufacturing, R&D, management, finance, sales, purchasing
and marketing and others. As of December 31, 2019, there were 972 employees, including 319 in manufacturing, 133 in R&D, 206
in management, 54 in finance, 145 in sales, purchasing and marketing and 115 in other departments.
Available
Information
We file
our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and registration
statements, and any amendments thereto, with the Securities and Exchange Commission (“SEC”). All such filings are
available online through the SEC's website at http://www.sec.gov or on our corporate website at http://www.chinaxd.net. We make
available free of charge, on or through our corporate website, our annual, quarterly and current reports, and any amendments to
those reports, as soon as reasonably practicable after electronically filing such reports with the SEC. In addition, copies of
the written charters for the committees of our board of directors and our Code of Business Conduct are also available on our website,
and can be found under the Investor Relations-Corporate Governance links. Our website address is intended to be an inactive textual
reference only, and none of the information contained on our website is part of this report or is incorporated in this report
by reference.
ITEM
1A. RISK FACTORS
In addition
to the other information in this Form 10-K, readers should carefully consider the following important factors. These factors,
among others, in some cases have affected, and in the future could affect, our financial condition and results of operations and
could cause our future results to differ materially from those expressed or implied in any forward-looking statements that appear
in this on Form 10-K or that we have made or will make elsewhere.
The
global economic uncertainty could further impair the automotive industry thereby limiting demand for our products.
The
continuation or intensification of the recent global economic uncertainty arising from the Brexit crisis, the worldwide
disruption and negative impact on the macro-economic environment caused by the outbreak of COVID-19 and the economic
slowdown in Asia may adversely impact our business and the businesses of our customers. Our specialized plastics are sold to
automobile parts manufacturers and distributors. The recent global economic uncertainty has harmed most industries and is
detrimental to the automotive industry. Since virtually all of our sales are made to auto industry participants, our sales
and business operations are dependent on the financial health of the automotive industry and could suffer if our customers
experience, or continue to experience, a downturn in their business. Presently, it is unclear whether and to what extent the
economic stimulus measures facilitated by the European Union and other governments throughout the world will mitigate the
effects of the crisis on the automotive industry and other industries that affect our business.
We
concentrate our operations primarily in the automotive industry; therefore, the fluctuations in automotive sales and production
could have a material adverse effect on our results of operations and liquidity.
We develop,
manufacture, and distribute modified plastic, primarily for use in automobiles. Automotive sales and production are highly cyclical
and depend, among other things, on general economic conditions and consumer spending and preferences (which can be affected by
a number of issues including fuel costs and the availability of consumer financing). As the volume of automotive production fluctuates,
the demand for our products also fluctuates. According to China Association of Automobile Manufacturers, for the year ended December
31, 2019, automobile production and sales in China decreased by 7.5% and 8.2%, respectively as compared to the same period
of 2018. A weakening in macroeconomic conditions since summer of 2018 has deteriorated business conditions. There can be no assurance
that the market conditions, government policies and other factors will help the growth rate in the future. Any contraction
in automotive sales and production will harm our results of operations and financial condition. Consequently, we are exposed to
the risks of adverse developments affecting the auto industry to a greater extent than if our operations were dispersed over a
variety of industries.
Our financial performance
may be affected by the prospects of our Dubai facility and the associated expansion into Middle East, Europe and other parts of
Asia.
In 2014, we embarked
our entry into the international market by primarily marketing long carbon chain PA plastic alloy and high-performance modified
PA66 products. After a successful trial production at our production base in Dubai in November 2018, we have established business
relationships with new customers in UAE and India, and shipped products to the end users in Europe and Southeast Asia. We
have experienced a delay in cash collection from a major customer in UAE. As of December 31, 2019, we provided an allowance
of US$62.8 million for the overdue accounts receivable from the major customer in UAE, as the customer failed to make payments
under the agreed extended repayment plan.
The Company has been putting efforts into
ramping up its production. In addition to the 10 trial production lines at Dubai Xinda, the Company completed installing
45 production lines with 11,250 metric tons of annual production capacity at the end of November 2018, and an additional 30
production lines with 7,500 metric tons of annual production capacity are under construction. The Company estimates 22 production
lines will be put into production in the fourth quarter of 2021, 8 production lines will be put into production in the second quarter
of 2022, bringing total installed production capacity at Dubai Xinda to 21,250 metric tons, targeting high-end products for the
overseas market. If we are unable to expand our Dubai facility and the associated expansion in other areas, our financial performance
may be affected.
The
occurrence of the COVID-19 pandemic may negatively affect our business, financial condition, and results of operations.
We currently
operate a substantial portion of our manufacturing facilities in China, and our corporate headquarters are located at Harbin,
Heilongjiang Province in China. Since January 2020, the rapid spread of COVID-19 has resulted in increased travel restrictions
and disruption and shutdown of businesses in China. In early 2020, we temporarily closed our manufacturing facilities and corporate
offices in accordance with the requirement of the Chinese government, and requested our employees to work remotely. As a result,
our business, financial condition, and results of operations may be adversely affected by the disruption of our business and limited
access to our manufacturing facilities caused by the outbreak of COVID-19 in the PRC.
The overall
impact of the outbreak of COVID-19 on our operations and financial results for the year of 2020 remains to be seen. Currently,
given the effective COVID-19 containment measures implemented in China, approximately 50% of employees of our administrative offices
had returned to work by the end of March 2020 and 90% returned to work by end of April. Our factories in Heilongjiang and Sichuan
provinces were running at 20% capacity utilization at the end of March, and approximately around 70% capacity utilization by the
end of April, and normal utilization rate by the end of May 2020. Our factory in Dubai was not impacted by the outbreak of COVID-19
during January and February but only 20% employees from private sectors are now allowed to go to work due to the recent rise of
COVID-19 cases in UAE.
We may further
experience impacts from quarantines, market downturns and changes in customer behavior related to fears of the pandemic if the
coronavirus becomes widespread in any of our markets. Furthermore, if the coronavirus were to affect a significant number of our
workforce employed in our manufacturing facilities or corporate offices, we may experience delays or the inability to develop,
produce and deliver our products on a timely basis. In addition, one or more of our customers, distributors, service providers
or suppliers may experience financial distress, file for bankruptcy protection, go out of business, or suffer disruptions in their
businesses due to the COVID-19 outbreak, which may in turn adversely affect our business operations and financial condition. The
extent to which the COVID-19 pandemic or any other health epidemic may affect our business and operations will depend on future
developments, including new information which may emerge concerning the severity of COVID-19 and the actions taken by governments
and private businesses to contain the COVID-19 pandemic, among others, which are highly uncertain and cannot be predicted at this
moment. As a result, the occurrence of the COVID-19 pandemic may have a material adverse effect on our business, financial condition
and results of operations.
The
withdrawal of preferential government policies and the tightening control over the Chinese automotive industry and automobile
purchase restrictions imposed in certain major cities may limit market demand for our products.
In 2011,
Chinese government terminated two preferential policies for its automotive industry: (1) vehicles with 1.6L or lower air displacement
were given a 50% discount in purchase tax and (2) vehicles sold in rural area were given a government subsidy. Since 2011, in
order to resolve the extreme traffic congestion, the Beijing government has been implementing the vehicle purchase quota policy,
which limits the maximum vehicles sold in Beijing per month to 20,000. Other cities which have begun to show signs of traffic
congestion have also begun to implement similar measures to control traffic congestion, including the limited automobile licenses
policy implemented in Shanghai and Tianjin and the imposition of congestion charges in Shenzhen. The termination of two nation-wide
preferential policies negatively affected consumer demand for new vehicles, and local restrictive measures over automobile purchases
in major cities has resulted in slower growth of sales for many years prior to the reintroduction of the preferential policies
in September 2015. The national and local policies over the Chinese automotive industry may continue to impact market demand for
automobiles in 2019 and any future withdrawal of preferential government policies and the further tightening of control and restrictions
may eventually result in a reduction in our product sales.
The
Chinese automotive industry's growth is slowing after the rapid growth since 2000 and such slowdown may adversely affect the market
demand for our products.
There is
a direct correlation between our business and automobile production volume and sales, which are dependent on economic policies
and market sentiment. The Chinese automotive industry had been rapidly growing for a decade prior to 2011. However, inflation,
higher interest rates, tighter bank lending, lifting of consumer subsidies and buying restrictions in congested cities all contributed
to a more modest environment since 2011. In order to stimulate the growth of the auto industry, on September 29, 2015, the
Chinese government implemented a tax incentive policy of 50% reduction of the sales tax for eligible purchase of vehicles with
engines of 1.6 liters and less. This helped the recovery of vehicle sales in China since the fourth quarter of 2015 and automobile
sales volume growth rate reached to 13.7% in 2016. However, following the automobile sales in China with a lower growth
rate of 3.0% in 2017, Chinese government suspended the above tax incentive policy and resumed vehicle purchase tax at a statutory
rate of 10% effective from January 1, 2018. Furthermore, since summer of 2018, Chinese macroeconomic conditions signaled
weakening and deteriorated business conditions, automobile production and sales in China further decreased by 7.5% and 8.2%, respectively,
for twelve months of 2019 as compared to the same period of 2018, according to China Association of Automobile Manufacturers.
In March 2019, the Chinese government decided to reduce the financial subsidy policy for the promotion and application of New
Energy Vehicles with subsidies fallen more than 50%. There can be no assurance that the market conditions, government policies
and other factors leading to the current growth in demand for automobiles continue. Any significant decline in demand for automobiles
would directly and adversely affect demand for our products and hence our business, financial condition and results of operations.
A large percentage of our
sales revenue is derived from sales to a limited number of distributors and a limited number of customers, and our business
will suffer if sales to these customers decline.
In 2014, we embarked
our entry into the international market by primarily marketing long carbon chain PA plastic alloy and high-performance modified
PA66 products. After a successful trial production at our production base in Dubai in November 2018, we have established business
relationships with new customers in UAE and India, and shipped products to the end users in Europe and Southeast Asia. We
have experienced a delay in cash collection from a major customer in UAE. As of December 31, 2019, we provided an allowance
of US$62.8 million for the overdue accounts receivable from the major customer in UAE, as the customer failed to make payments
under the agreed extended repayment plan.
We
may not be able to manage our business expansion effectively, which could harm our business.
We have expanded rapidly by making substantial
investments in new markets and geographic regions. For example, on March 17, 2017, we entered into a definitive agreement with
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. 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. We
anticipate continuous expansion in our business by entering into new markets serving different industries and geographic regions.
Such business expansion requires significant local management resources and personnel, knowledges and expertise in new markets
and geographies and building relationship with local suppliers and clients. In order to manage the planned business expansion,
we will be required to expand, train and manage our growing employee base. Furthermore, our management will be required to learn
new markets and geographies and build relationship with local suppliers and clients. We cannot assure you that our current resources,
knowledges and business relationships will be adequate to support our current expansion plans. If we are not successful in expanding
our personnel, acquiring knowledge and expertise in the new markets and geographies and building relationship with local suppliers
and clients, our business may be materially and adversely affected.
We
are dependent on a limited number of suppliers. While we have identified alternative sources for the materials and equipment we
use, a temporary disruption in our ability to procure necessary materials and equipment could adversely impact our sales in future
periods.
Materials
constitute a substantial part of the cost of our products. We seek to reduce the cost of raw materials by dealing with
major suppliers. During the year ended December 31, 2019, we purchased approximately 14.7% of our raw materials from one major
supplier. We believe the relationship with our suppliers is satisfactory and that alternative suppliers are available if relationships
falter or existing suppliers should become unable to keep up with our requirements. However, there can be no assurance that our
current or future suppliers will be able to meet our requirements on commercially reasonable terms or within scheduled delivery
times. An interruption of our arrangements with suppliers could cause a delay in the production of our products for timely delivery
to distributors and customers, which could result in a loss of sales in future periods.
If
we are subject to product quality or liability claims relating to our products, we may incur significant litigation expenses and
management may have to devote significant time defending such claims, which if determined adversely to us, could require us to
pay significant damage awards.
Although
we have adopted certain internal measures to supervise and examine the quality of our products, we may be subject to legal proceedings
and claims from time to time relating to our product quality. Consistent with rapid growth and expansion in many businesses, there
are risks associated with quality of newly developed products, especially during the initial stage and time and efforts needed
to improve our technology and techniques in order to supply quality and batch consistency to our new customers, in particular,
high-end products to overseas customers. The defense of these proceedings and claims could be both costly and time-consuming and
significantly divert the efforts and resources of our management. An adverse determination in any such proceedings could subject
us to significant liability. In addition, any such proceeding, even if ultimately determined in our favor, could damage our market
reputation and prevent us from maintaining or increasing sales and market share. Protracted litigation could also result in our
customers or potential customers deferring or limiting their purchase of our products.
We have limited insurance
coverage on our assets in China and any uninsured loss or damage to our property, business disruption or litigation may result
in our incurring substantial costs and have a material adverse effect on our results of operations, financial condition and/or
liquidity.
The insurance
industry in China is still at an early stage of development. Insurance companies in China offer limited insurance products. Other
than automobile insurance on certain vehicles and property and casualty insurance for some of our assets such as factories and
equipment we do not have insurance coverage on our other assets or inventories, nor do we have any business interruption, product
liability or litigation insurance for our operations in China. We have determined that the costs of insuring for these risks and
the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have
such insurance. Any uninsured loss or damage to property, business disruption or litigation may result in our incurring substantial
costs and the diversion of our resources, which may have a material adverse effect on our results of operations, financial condition
and/or liquidity.
SAFE
regulations relating to offshore investment activities by PRC individuals may increase our administrative burden and restrict
our overseas and cross-border investment activity. If our shareholders and beneficial owners who are PRC individuals fail to make
any required applications, registrations and filings under such regulations, we may be unable to distribute profits or become
subject to liability under PRC laws, and our ability to compensate our staff through equity compensation may be hindered and business
operation may be adversely affected.
The State
Administration of Foreign Exchange ("SAFE"), has promulgated several regulations, including the Circular on Relevant
Issues Relating to Domestic Resident's Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or
SAFE Circular No. 37, in July 2014 that requires PRC residents or entities to register with SAFE or its local branch in connection
with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. In
addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes
material events relating to any change of basic information (including change of such PRC citizens or residents, name and operation
term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. SAFE Circular
37 is issued to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in
Financing and Roundtrip Investments via Overseas Special Purpose Vehicles, or SAFE Circular No. 75.
We have
requested our shareholders and beneficial owners who are PRC residents to make the necessary applications and filings as required
under these regulations and under any implementation rules or approval practices that may be established under these regulations.
As of the date of this Annual Report on Form 10-K, Mr. Han, our Chief Executive Officer, has registered his beneficial ownerships
in China XD and XD Engineering Plastics Company Limited ("XD Engineering Plastics") respectively with local SAFE
in accordance with Circular No. 37. However, we cannot assure you that the rest of our shareholders and beneficial owners who
are PRC individuals have timely updated their registrations with SAFE in accordance with SAFE regulations. The failure or inability
of our PRC shareholders and beneficial owners make any required registrations may subject us to fines and legal sanctions, restrict
our overseas or cross-border investment activities, limit our PRC subsidiaries' ability to make distributions or pay dividends
or affect our ownership structure, as a result of which our acquisition strategy and business operations and our ability to distribute
profits to you could be materially and adversely affected.
On December
25, 2006, the People's Bank of China issued the Administration Measures of Foreign Exchange Matters for Individuals, which set
forth the respective requirements for foreign exchange transactions by individuals (both PRC and non-PRC citizens) under the current
account or the capital account, and the corresponding Implementing Rules were issued by SAFE on January 5, 2007, both of these
regulations became effective on February 1, 2007. According to these regulations, all foreign exchange matters relating to employee
stock holding plans, share option plans or similar plans of an overseas publicly-listed company in which PRC citizens will participate
require approval from SAFE or its authorized branch.
In February
2012, SAFE promulgated the Notice on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating
in Stock Incentive Plan of Overseas Publicly-Listed Company, or the New Stock Option Rules, which replaced and substituted the
Application Procedure of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Holding Plan
or Stock Option Plan of Overseas-Listed Company, or the Stock Option Rule. According to the New Stock Option Rules, if a PRC resident
participates in any stock incentive plan of an overseas publicly-listed company, a qualified PRC domestic agent, which could be
a PRC subsidiary of such overseas publicly-listed company or another qualified institution selected by such PRC subsidiary, among
other things, must file on behalf of such participant an application with SAFE to conduct the SAFE registration with respect to
such stock incentive plan and obtain approval for an annual allowance with respect to the purchase of foreign exchange in connection
with the exercise or sale of stock options or stock such participant holds. Such participants must also retain an overseas entrusted
institution to handle matters in connection with their exercise of stock options, the purchase and sale of corresponding stocks
or interests and fund transfers. In addition, the qualified PRC domestic agent is required to amend the SAFE registration with
respect to the stock incentive plan if there is any material change to the stock incentive plan, the qualified PRC domestic agent
or the overseas entrusted institution or other material changes. Such participant's foreign exchange income received from the
sale of stock and dividends distributed by the overseas publicly-listed company must be fully remitted into a specific domestic
foreign currency account opened and managed by such qualified PRC domestic agent first, before distribution to such participants.
We are an
offshore listed company and, as a result, any Chinese employee or foreign employee of our PRC subsidiaries, who resides in PRC
more than one year consecutively, including without limitation, directors, supervisors and other senior management staffs of our
PRC subsidiaries, who have been granted share options or shares under our existing share incentive plan, are subject to the New
Stock Option Rules. We completed the application with local SAFE in Heilongjiang on December 16, 2013, obtaining a
registration in respect of our 2009 Stock Option/Stock Issuance Plan in accordance with the New Stock Option Rules and are in
the process of applying relevant registration for our 2020 Stock Option/Stock Issuance Plan. If our PRC subsidiaries
or their qualified employees fail to comply with these regulations, including the New Stock Option Rules, they may be subject
to fines or other legal sanctions imposed by SAFE or other Chinese government authorities. In that case, our ability to compensate
our employees, directors, supervisors and other senior management staffs through equity compensations may be hindered and our
business operations may be adversely affected.
Under
the PRC EIT Law, we and/or Favor Sea (BVI) may be classified as a "resident enterprise" of the PRC. Such classification
could result in tax consequences to us, our non-PRC resident shareholders and Favor Sea (BVI).
On March
16, 2007, the National People's Congress approved and promulgated the PRC Enterprise Income Tax Law ("EIT Law"), which
took effect on January 1, 2008. Under the EIT Law, enterprises are classified as resident enterprises and non-resident enterprises.
An enterprise established outside of China with "de facto management bodies" within China is considered a "resident
enterprise," and subject to the uniform 25% enterprise income tax rate on global income. The implementing rules of the EIT
Law define "de facto management bodies" as a managing body that in practice exercises "substantial and overall
management and control over the production and operations, personnel, accounting, and properties" of the enterprise; however,
due to the short history of the EIT Law and lack of applicable legal precedents, it remains unclear whether the PRC tax authorities
would deem our managing body as being located within China, or whether we or our non-PRC subsidiaries would be deemed as resident
enterprises of the PRC.
If the PRC
tax authorities determine that we, Favor Sea Limited, a British Virgin Islands corporation ("Favor Sea (BVI)") and/or
Xinda Holding (HK) Company Limited, a Hong Kong corporation ("Xinda HK"), are "resident enterprises" for PRC
enterprise income tax purposes, a number of PRC tax consequences could follow. We, Favor Sea (BVI) and/or Xinda HK
may be subject to enterprise income tax at a rate of 25% on our, Favor Sea (BVI)'s and/or Xinda HK's worldwide taxable income,
as well as PRC enterprise income tax reporting obligations. However, under the EIT Law and its implementing rules, dividends paid
between "qualified resident enterprises" are exempt from enterprise income tax. As a result, if we, Favor Sea (BVI)
and Xinda HK are treated as PRC "qualified resident enterprises," all dividends paid from HLJ Xinda Group to Xinda HK,
from Xinda HK to Favor Sea (BVI) and from Favor Sea (BVI) to us may be exempt from PRC tax. Otherwise, all dividends paid
from HLJ Xinda Group to Xinda HK, from Xinda HK to Favor Sea (BVI) and from Favor Sea (BVI) to us may be subject to withholding
tax under the EIT Law and its implementing rules.
On April
22, 2009, State Administration of Taxation ("SAT") enacted "Circular of the State Administration of Taxation on
Issues Concerning the Identification of Chinese-Controlled Overseas Registered Enterprises as Resident Enterprises in Accordance
With the Actual Standards of Organizational Management". On July 27, 2011, SAT enacted "Announcement of the State Administration
of Taxation on Printing and Distributing the Administrative Measures for Income Tax on Chinese-controlled Resident Enterprises
Incorporated Overseas (Trial Implementation)". Under those two rules, either the enterprises may request the PRC tax authorities
to determine their "resident enterprises" identity or the tax authority may investigate and determine an enterprise's
identity. The target enterprises under those two rules are foreign registered companies controlled by the PRC companies,
however, the PRC tax authority may determine if a foreign registered company controlled by the PRC individual(s) is a "resident
enterprise" or not by reference to those two rules.
Under the
EIT Law and its implementation rules, dividends payable by a foreign-invested enterprise in China to its shareholders that are
"non-resident enterprises" are subject to a 10% withholding tax, unless such shareholders' jurisdiction of incorporation
has a tax treaty with China that provides for a preferential arrangement. Pursuant to the Notice of the SAT on Issuing the Table
of Tax Rates on Dividends in Treatises, or Notice 112, which was issued on January 29, 2008, the Arrangement between the
PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion, or the
Double Taxation Arrangement (Hong Kong), which became effective on December 8, 2006, such withholding tax may be lowered
to 5% if the PRC enterprise is at least 25% directly held by a Hong Kong enterprise. In October 2009, the SAT further issued the
Notice on How to Understand and Determine the "Beneficial Owners" in Tax Treaties, or Circular 601. According to Circular
601, non-resident enterprises that cannot provide valid supporting documents as "beneficial owners" may not be approved
to enjoy tax treaty benefits, and "beneficial owners" refer to individuals, companies or other organizations which are
normally engaged in substantive operations. These rules also set forth certain adverse factors on the recognition of a "beneficial
owner." Specifically, they expressly exclude a "conduit company" that is usually established for the purposes of
avoiding or reducing tax obligations or transferring or accumulating profits and not engaged in substantive operations such as
manufacturing, sales or management, from being a "beneficial owner." As a result, if we are treated as PRC "non-resident
enterprises" under the EIT Law, then dividends from HLJ Xinda Group (assuming such dividends were considered sourced within
the PRC) paid to us through Xinda HK may be subject to a reduced withholding tax at a rate of 5% if Xinda HK is determined to
be Hong Kong tax residents and are considered to be "beneficial owners" that are generally engaged in substantive business
activities and entitled to treaty benefits under the Double Taxation Arrangement (Hong Kong). Otherwise, we may not be able to
enjoy the preferential withholding tax rate of 5% under the tax arrangement and therefore be subject to withholding tax at a rate
of 10% with respect to dividends to be paid by HLJ Xinda Group (assuming such dividends were considered sourced within the PRC)
to us through Xinda HK. Any such taxes on dividends could materially reduce the amount of dividends, if any, we could pay to our
shareholders.
However,
if we are deemed as a "resident enterprise," the new "resident enterprise" classification could result in
a situation in which an up to 10% PRC tax is imposed on dividends we pay to our non-PRC shareholders that are not PRC tax "resident
enterprises". In such event, we may be required to withhold an up to 10% PRC tax on any dividends paid to non-PRC resident
enterprise shareholders. Our non-PRC resident enterprise shareholders also may be responsible for paying PRC tax at a rate
of 10% on any gain realized from the sale or transfer of our ordinary shares in certain circumstances if such income is considered
PRC-sourced income by relevant tax authorities. We would not, however, have an obligation to withhold PRC tax with respect to
such gain.
We
(or a foreign investor) may become at risk of being taxed or imposed a penalty under Announcement 7 and may be required to expend
valuable resources to comply with Announcement 7 or to establish that we (or such foreign investor) should not be taxed under
Announcement 7, which could have a material adverse effect on our financial condition and results of operations (or such foreign
investor's investment in us).
On December
15, 2009, the State Administration of Taxation ("SAT") released the Notice on Strengthening Administration of Enterprise
Income Tax for Share Transfers by Non-PRC Resident Enterprises ("Circular 698") that reinforces the taxation of non-listed
equity transfers by non-resident enterprises through overseas holding vehicles. Circular 698 is retroactively effective from January
1, 2008. Subsequently SAT also released the Announcement on Several Issues Related to Enterprise Income Tax for Indirect
Asset Transfer by Non-PRC Resident Enterprises ("Announcement 7"), effective from February 3, 2015, which in part supersedes
Circular 698.
Announcement
7 addresses indirect share transfer as well as other issues. According to Announcement 7, if a non-PRC resident enterprise
transfers the equity interests of or similar rights or interests in overseas companies which directly or indirectly own PRC taxable
assets through an arrangement without a reasonable commercial purpose, but rather to avoid PRC corporate income tax, the transaction
will be re-characterized and treated as a direct transfer of PRC taxable assets subject to PRC corporate income tax. Announcement
7 specifies certain factors that should be considered in determining whether an indirect transfer has a reasonable commercial
purpose. Since Announcement 7 has a short history, there is uncertainty as to its application and in particular, the interpretation
of the term "reasonable commercial purpose."
Announcement
7 further provides that, the entity which has the obligation to pay the consideration for the transfer to the transferring shareholders
has the obligation to withhold any PRC corporate income tax that is due. If the transferring shareholders do not pay corporate
income tax that is due for a transfer and the entity which has the obligation to pay the consideration does not withhold the tax
due, the PRC tax authorities may impose a penalty on the entity that so fails to withhold, which may be relieved or exempted from
the withholding obligation and any resulting penalty under certain circumstances if it reports such transfer to the PRC tax authorities.
PRC
regulations relating to mergers and acquisitions of domestic enterprises by foreign investors may increase the administrative
burden we face and create regulatory uncertainties.
On August
8, 2006, six PRC regulatory agencies, namely, the PRC Ministry of Commerce, or MOFCOM, the State Assets Supervision and Administration
Commission, or SASAC, the State Administration for Taxation, the State Administration for Industry and Commerce, the China Securities
Regulatory Commission, or CSRC, and SAFE, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises
by Foreign Investors, or the M&A Rule, which became effective on September 8, 2006. The M&A Rule purports, among other
things, (i) to require any PRC company, enterprise or individual that intends to merge or acquire its domestic affiliated company
in the name of an overseas company which it lawfully established or controls, to apply for MOFCOM's examination on and approval
for the proposed merger or acquisition; and (ii) to require SPVs, formed for overseas listing purposes through acquisitions
of PRC domestic companies and controlled directly or indirectly by PRC companies or individuals, to obtain the approval of CSRC
prior to publicly listing their securities on an overseas stock exchange. However, there are substantial uncertainties regarding
the interpretation, application and enforcement of these rules, and CSRC has yet to promulgate any written provisions or formally
to declare or state whether the overseas listing of a PRC-related company structured similar to ours is subject to the approval
of CSRC. As a result, we are not sure whether the M&A Rule would require us or our entities in China to obtain the approval
from either MOFCOM or CSRC or any other regulatory agencies in connection with the transaction contemplated by the share transfer
contracts which were entered into between Mr. Jie Han, Mr. Qingwei Ma and Xinda Holding (HK) Company Limited on June 26, 2008,
the transaction contemplated in the Agreement and Plan of Merger entered into by and among NB Telecom, Favor Sea (BVI) and the
shareholders of Favor Sea (BVI) on December 24, 2008 (detailed description of both of the two aforesaid transactions and relevant
contracts can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, filed on April 14, 2010)
the adoption and performance of the option agreement dated May 16, 2008 between Ms. Piao and Mr. Han.
Further,
in the event MOFCOM or CSRC deems it necessary for us to obtain its approval prior to our entry into the aforesaid agreements,
we could be subject to severe penalties. The M&A Rule does not stipulate the specific penalty terms, therefore, we are unable
to determine what penalties we may face, and how such penalties may affect our business operations or future strategy.
Our
business will suffer if we cannot obtain or maintain necessary permits or approvals.
Under PRC
laws, we are required to obtain from various PRC governmental authorities certain permits and licenses in relation to the operation
of our business. These permits and licenses are subject to periodic renewal and/or reassessment by the relevant PRC government
authorities and the standards of compliance required in relation thereto may from time to time be subject to change. We cannot
assure you that we can always obtain, maintain or renew all the permits and licenses in a timely manner. Additionally, any changes
in compliance standards, or any new laws or regulations that may prohibit or render it more restrictive for us to conduct our
business or increase our compliance costs may adversely affect our operations or profitability. Any failure by us to obtain, maintain
or renew necessary licenses, permits and approvals, could subject us to fines and other penalties and limit the business we could
conduct, which could have a material adverse effect on the operation of our business. In addition, we may not be able to carry
on business without such permits and licenses being renewed and/or reassessed.
Pursuant
to PRC laws and regulations, construction or expansion of a building or a production facility is subject to various permits and
approvals from different government authorities. In connection with the construction of HLJ Xinda Group's factory and production
facilities, which has already been completed and put into operation, we obtained a project approval from Administration Committee
of Harbin Economic and Technological & High-tech Development Zone and an approval for the environmental impact assessment
report on the construction project of HLJ Xinda Group in 2003. In connection with the construction of Sichuan Xinda Group's factory
and production facilities which has been partially completed in the second half of 2016, we obtained the project approvals from
Bureau of Development and Reform of Shunqing District, Nanchong City in 2013 and 2015, respectively. In connection with
the Phase II construction of AL Composites which has been completed by the middle of 2016, we obtained the project approval from
Engineering & Project Management Department, UAE region Economic Zones World ("EZW") in June 2015, and the
building permit from Department of Planning & Development, Ports, Customs & Free Zone Corporation, Government of
Dubai in September 2015. In July 2017, HLJ Xinda Group launched new industrial development project with the Management Committee
of Harbin Economic - Technological Development Zone for upgrading existing equipment for 100,000 metric tons of engineering plastics
and building 300,000 metric tons of biological composite materials, an industrial project for a 3D printing intelligent manufacture
demonstration factory and a 3D printing display and experience cloud factory. On December 21, 2017 and February 7, 2018, we got
building and planning permit from Harbin Municipal Urban and Rural Bureau, respectively. Failure to obtain all necessary
approvals/permits may subject us to various penalties, such as fines or being required to vacate from the facilities where we
currently operate our business.
Increased environmental
regulation in China could increase our costs of operation.
Certain
processes utilized in the production of modified plastics result in toxic by-products. To date, the Chinese government has imposed
only limited regulation on the production of these by-products, and enforcement of the regulations has been sparse. Recently,
however, there is a substantial increase in focus on the Chinese environment, which has inspired considerable new regulation.
Because we plan to export plastics to the U.S. and Europe in coming years, we have developed certain safeguards in our manufacturing
processes to assure compliance with the environmental protection standard ISO/TS16949 Quality Assurance Standard, the European
Union's RoHS Standards and Germany's PAHs Standards. Furthermore, have applied for the U.S.'s UL Safety Certification, ISO14001
Environmental Management System Certification and OHSAS18001 Occupational Health Management System Certification This compliance
regimen brings us into compliance with all Chinese environmental regulations. Additional regulation, however, could increase our
cost of doing business, which would impair our profitability.
Our independent registered
public accounting firm's audit documentation related to their audit reports included in our annual report is located in China.
The PCAOB currently cannot inspect audit documentation located in China and, as such, you may be deprived of the benefits of such
inspection.
Our independent
registered public accounting firm issued an audit opinion on the financial statements included in our annual reports filed with
the SEC. Our independent registered public accounting firm's audit documentation related to their audit reports included in our
annual reports is located in China, and audit procedures take place within China's borders. As auditors of companies that are
traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board, or the PCAOB, our
auditor is required by the laws of the United States to undergo regular inspections by the PCAOB. However, work papers located
in China are not currently inspected by the PCAOB because the PCAOB is currently unable to conduct inspections without the approval
of the PRC authorities.
Inspections
of certain other firms that the PCAOB has conducted outside of China have identified deficiencies in those firms' audit procedures
and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. However,
the PCAOB is currently unable to inspect an auditor's audit work related to a company's operations in China and where such documentation
of the audit work is located in China. As a result, our investors may be deprived of the benefits of the PCAOB's oversight of
auditors that are located in China through such inspections.
On December
7, 2018, the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by the U.S. regulators in their
oversight of financial statement audits of U.S.-listed companies with significant operations outside United States, especially
in China. On April 21, 2020, the SEC and the PCAOB issued another joint statement highlighting the significant disclosure, financial
reporting and other risks associated with emerging market investments, including the PCAOB’s continued inability to inspect
audit work papers in China. These joint statements reflect a heightened interest in an issue that has vexed U.S. regulators in
recent years. However, it remains unclear what further actions the SEC and the PCAOB will take to address the problem and its
impact on Chinese companies listed in the United States.
The inability
of the PCAOB to conduct inspections of an auditor's work papers in China makes it more difficult to evaluate the effectiveness
of any of our auditor's audit procedures or quality control procedures that may be located in China as compared to auditors outside
of China that are subject to PCAOB inspections. Investors may consequently lose confidence in our reported financial information
and procedures and the quality of our financial statements.
In
June 2019, a bipartisan group of lawmakers introduced bills in both houses of the U.S. Congress, and passed requiring the SEC
to maintain a list of issuers for which the PCAOB is not able to inspect or investigate an auditor report issued by a foreign
public accounting firm. The proposed Ensuring Quality Information and Transparency for Abroad-Based Listings on our Exchanges
(EQUITABLE) Act prescribes increased disclosure requirements for these issuers and, beginning in 2025, the delisting from
U.S. national securities exchanges of issuers included on the SEC’s list for three consecutive years. On May 20,
2020, the U.S. Senate passed the Holding Foreign Companies Accountable Act, which in effect would prohibit securities of any
registrant from being listed on any of the U.S. securities exchanges or traded “over-the-counter” if
registrant’s financial statements have, for a period of three years, been audited by an accounting firm branch or
office that is not subject to PCAOB inspection. Enactment of any of such legislations or other efforts to increase U.S.
regulatory access to audit information could cause investor uncertainty for affected issuers, including us, and the stock
price could be adversely affected. There is uncertainty as to whether and when these bills or legislations will
be enacted in the proposed form, or at all.
The
disclosures in our reports and other filings with the SEC and our other public pronouncements are not subject to the scrutiny
of any regulatory bodies in China. Accordingly, our public disclosure should be reviewed in light of the fact that no governmental
agency that is located in China where substantially all of our operations and business are located has conducted any due diligence
on our operations or reviewed or cleared any of our disclosure.
We are regulated
by the SEC and our reports and other filings with the SEC are subject to SEC review in accordance with the rules and regulations
promulgated by the SEC under the Securities Act of 1933, as amended (the “Securities Act”) and the Exchange Act of
1934, as amended (the “Exchange Act”). Unlike public reporting companies whose operations are located primarily in
the United States, however, substantially all of our operations are located in China. Since substantially all of our operations
and business takes place in China, it may be more difficult for the Staff of the SEC to overcome the geographic and cultural obstacles
that are present when reviewing our disclosure. These same obstacles are not present for similar companies whose operations or
business take place entirely or primarily in the United States. Furthermore, our SEC reports and other disclosure and public pronouncements
are not subject to the review or scrutiny of any PRC regulatory authority. For example, the disclosure in our SEC reports and
other filings are not subject to the review of the CSRC, a PRC regulator that is tasked with oversight of the capital markets
in China. Accordingly, you should review our SEC reports, filings and our other public pronouncements with the understanding that
no local regulator has done any due diligence on our company and with the understanding that none of our SEC reports, other filings
or any of our other public pronouncements has been reviewed or otherwise scrutinized by any local regulator.
Our
independent registered public accounting firm may be temporarily suspended from practicing before the SEC if unable to continue
to satisfy SEC investigation requests in the future. If a delay in completion of our audit process occurs as a result, we could
be unable to timely file certain reports with the SEC, which may lead to the delisting of our stock.
The vast
majority of our sales are to customers in China, and we have all of our operations in China. Like many U.S. companies with significant
operations in China, our independent registered public accounting firm is located in China.
On January
22, 2014, Judge Cameron Elliot, an SEC administrative law judge, issued an initial decision suspending the Chinese member firms
of the "Big Four" accounting firms, including our independent registered public accounting firm, from practicing before
the SEC for six months. In February 2014, the initial decision was appealed. While under appeal and in February 2015, the Chinese
member firms of "Big Four" accounting firms reached a settlement with the SEC. As part of the settlement, each of the
Chinese member firms of "Big Four" accounting firms agreed to settlement terms that include a censure, undertakings
to make a payment to the SEC, procedures and undertakings as to future requests for documents by the SEC, and possible additional
proceedings and remedies should those undertakings not be adhered to.
If the settlement
terms are not adhered to, Chinese member firms of "Big four" accounting firms may be suspended from practicing before
the SEC which could in turn delay the timely filing of our financial statements with the SEC. In addition, it could be difficult
for us to timely identify and engage another qualified independent auditor to replace our independent registered public accounting
firm. A delinquency in our filings with the SEC may result in NASDAQ initiating procedures, which could adversely harm our reputation
and have other material adverse effects on our overall growth and prospects.
We
may fail to develop and maintain an effective system of internal controls over financial reporting. As a result, we
may not be able to accurately report our financial results or prevent fraud and current and potential shareholders could lose
confidence in the integrity of our financial reports, which could harm our business and the trading price of our common stock.
Prior to
our listing on the US stock exchange, we were a private company with all business operations within China. Our accounting and
reporting system was designed to satisfy local statutory requirements and internal management needs. Since we became a public
company, our business has grown significantly over the years. Management concluded that our internal controls over financial
reporting were ineffective as of December 31, 2019, due to one material weakness which relates to the lack of sufficient
accounting and financial reporting personnel to formalize certain key controls over the financial reporting process and report
financial information based on US GAAP and SEC reporting requirements.
Our management
is committed to strengthening our internal controls and complying with Section 404 of the Sarbanes-Oxley Act of 2002 ("SOX
404"). Since 2014, when we were required to comply with SOX 404, our efforts to improve our internal control over financial
reporting include: (1) our accounting staff obtained external training of U.S. GAAP and SEC reporting by qualified entities,
(2) having hired two third-party SOX 404 compliance consultants to help us improve our internal control system, (3) continuing
to seek senior qualified people with requisite expertise and knowledge to help improve our internal control procedures, (4) having
adopted internal policies and approval and supervision procedures governing financial reporting, (5) having adopted procedures
to evaluate and assess performance of directors, officers and employees of the Company, and (6) continuing to hold internal
meetings, discussions and seminars periodically to review and improve our internal control procedures.
However,
we cannot be certain that these measures we have undertaken will ensure that we will develop and maintain adequate controls over
our financial processes and reporting in the future. Furthermore, if we are able to rapidly grow our business, the internal controls
that we will need may become more complex, and significantly more resources may be required to ensure our internal controls remain
effective. Failure to implement required controls, or difficulties encountered in their implementation, could harm our operating
results or cause us to fail to meet our reporting obligations. If we fail to develop and maintain an effective internal control
system, our stockholders and other potential investors may lose confidence in our business operations and the integrity of our
financial statements, and may be discouraged from future investments in our company, which may delay or hinder any future business
development or expansion plans if we are unable to raise funds in future financings, and our current stockholders may choose to
dispose of the shares of common stock they own in our company, which could have a negative impact on our stock price. In addition,
non-compliance with SOX 404 could subject us to a variety of administrative sanctions, including the suspension of trading of
our stock on the NASDAQ Global Market, ineligibility for listing on other national securities exchanges, and the inability of
registered broker-dealers to make a market in our common stock, which could further reduce our stock price.
We may be subject to or
be liable for U.S. taxes, interest and penalties.
On December
22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the "Act"), which significantly changed U.S. tax law. The Act
lowered the Company's U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018, while
also imposing a tax on deemed repatriation of deferred foreign income. The Act also created a new minimum tax on certain future
foreign earnings.
The Company
recorded a charge of approximately $71.0 million for the tax on deemed repatriation to the United States based on accumulated
earnings in the Company’s consolidated statement of comprehensive income for the year ended December 31, 2017. As of
December 31, 2018, the Company finalized the calculations and tax positions used in the analysis of the impact of the Tax Act
in consideration of proposed regulations and other guidance issued during 2018, and no adjustment was made to the provisional
amount. The charge for deemed repatriation was payable by the Company over an eight-year period commencing April 2018.
As of December
31, 2019, for U.S. federal income tax purposes, the Company owed U.S. federal income taxes of US$428,523 other than the above
repatriation tax. There can be no assurance that the Internal Revenue Service (“IRS”) will not assess additional U.S.
federal income taxes, interest and penalties on us.
Our
inability or failure to protect our intellectual property rights may significantly and materially impact our business, financial
condition and results of operations.
Protection
of our proprietary processes, methods and other technology is important to our business. We generally rely on a combination of
the patent, trademark and copyright laws of the PRC and laws protecting trade secret in the PRC, as well as licenses and non-disclosure
and confidentiality agreements, to protect our intellectual property rights. The patent, trademark and copyright laws of the PRC,
as well as laws protecting trade secret in the PRC, may not protect our intellectual property rights to the same extent as the
laws of the U.S.
Failure
to protect our intellectual property rights may result in the loss of valuable proprietary technologies. Additionally, some of
our technologies are not covered by any patent or patent application and, even if a patent application has been filed, it may
not result in an issued patent. If patents are issued to us, those patents may not provide meaningful protection against competitors
or against competitive technologies. In addition, upon the expiration of patents issued to us, we will be unable to prevent our
competitors from using or introducing products using the formerly-patented technology. As a result, we may be faced with increased
competition and our results of operations may be adversely affected. We cannot assure you that our intellectual property rights
will not be challenged, invalidated, circumvented or rendered unenforceable.
We also
rely upon unpatented proprietary manufacturing expertise, continuing technological innovation and other trade secrets to develop
and maintain our competitive position. While we generally enter into confidentiality/non-disclosure agreements with our employees
and third parties to protect our intellectual property, we cannot assure you that our confidentiality/non-disclosure agreements
will not be breached, that they will provide meaningful protection for our trade secrets and proprietary manufacturing expertise
or that adequate remedies will be available in the event of an unauthorized use or disclosure of our trade secrets or manufacturing
expertise.
Our intellectual
property rights may be challenged or infringed upon by third parties or we may be unable to maintain, renew or enter into new
license agreements that are important to our business with third-party owners of intellectual property on reasonable terms. We
could also face patent infringement claims from our competitors or others alleging that our processes or products infringe on
their proprietary technologies. If we are found to be infringing on the proprietary technology of others, we may be liable for
damages, and we may be required to change our processes, to redesign our products partially or completely, to pay to use the technology
of others or to stop using certain technologies or producing the infringing product(s) entirely. Even if we ultimately prevail
in an infringement suit, the existence of the suit could prompt customers to switch to products that are not the subject of infringement
suits. We may not prevail in any intellectual property litigation and such litigation may result in significant legal costs or
otherwise impede our ability to produce and distribute key products.
We
may be unable to renew the leases for our factories on acceptable terms or these leases may be terminated.
As of December 31, 2019, HLJ Xinda Group
operated three separate factories located at 9 Qinling Road (the "Qinling Road Factory"), 9 North Dalian Road (the "Dalian
Road Factory") and 9 Jiangnan First Road (the "Jiangnan Road Factory"), respectively. HLJ Xinda Group owns
the titles to the land and premises of the Qinling Road Factory. HLJ Xinda Group leases the land and premises of the Dalian
Road Factory from Harbin Xinda High-Tech Co., Ltd (“Xinda High-Tech”). HLJ Xinda Group is in the process of acquiring
the titles to the land and premises at Jiangnan Road Factory. The Company expects the title transfer to be completed by the end
of third quarter of 2021. HLJ Xinda Group's leases was renewed to be expired on December 31, 2020. If we are unable to renew
our lease on acceptable terms in due course or acquire the titles to the land and premises at Jiangnan Road Factory or if our lease
is terminated by the lessor unilaterally for the Dalian Road Factory:
●
we may be unable to find a new property with the amenities and in the location we require for our factories, which
may result in a factory closure;
●
we may have to relocate to a less desirable location;
●
we may have to relocate to a location with facilities that do not meet our requirements;
●
our factories may experience significant disruption in operations and, as a result, we may be unable to produce products
during the period of disruption.
Any of these
events may materially and adversely affect our business, prospects, results of operations and financial condition.
Our
ability to sell our products at current profit margin is subject to a number of risks and uncertainties, which are beyond our
control; in particular, we may not be able to reflect raw material cost increases in the price of our products.
Our ability
to sell our products at current profit margin is subject to a number of risks and uncertainties, which are beyond our control.
For example, general slow-down in the Chinese or world economy may lessen the demand for our products, and we may be forced to
sell our products at a lower price.
Particularly,
we may not be able to pass through raw material cost increases to our customers on a timely basis and reflect such increases in
the price of our products. We purchase various plastic resins, which are derived from petroleum or natural gas, to produce our
modified plastics products. Cost of raw materials made up a vast majority of our cost of revenues in 2019 and 2018. The market
prices of plastic resins may fluctuate due to changes in supply and demand conditions in that industry. Any shortage in supply
of or significant increase in demand for plastic resins and additives may result in higher market prices and thereby increase
our cost of revenues, and we may not be able to pass on increases in the prices of raw materials to our customers. Under the terms
of our distributor agreements, we will only be able to increase the sales prices for our products if the cost of our raw materials
increases by more than 5% on a cumulative basis. As a result, we may not be able to adjust our selling prices in a timely manner,
and our inability to increase the selling prices of our products sold during the period in which the cumulative increases of the
cost of our raw materials is less than 5% may reduce our profitability. Furthermore, other adverse developments such as increased
competition may not allow us to pass through cost increases to our distributors at all. Any of the foregoing could have a material
adverse effect on our margins, results of operations and financial condition. When expanding into new regions, we have taken and
may continue to take marketing initiatives from time to time to offer sales incentives, including discounts, to increase market
share. Such initiatives and measures have put and may continue to put pressure on our margins.
Our
assets are primarily located in China. So any dividends or proceeds from liquidation are subject to the approval of the relevant
Chinese government agencies, and you may face difficulties in protecting your interests.
Our assets
are primarily located inside China. Under the laws governing foreign investment entities in China, dividend distribution and liquidation
are allowed but subject to respective administrative procedures under the Foreign Investment Law and relevant laws and rules.
Any dividend payment will be subject to the decision of the Board of Directors and be subject to foreign exchange rules governing
such repatriation. Any liquidation is subject to the decision of the highest authority of the company, the relevant government
agency's approval and supervision (including but not limited to the local branch of MOFCOM), as well as the whole process of liquidation
under PRC laws and regulations, including without limitation personnel resettlement, assets disposition, settlement of debts and
creditor's rights as well as deregistration, which process could be very time-consuming and complex. Since the dividend distribution
procedure is subject to foreign exchange rules governing such repatriation, risks may arise for our investors when HLJ Xinda Group
pays dividend to us through Xinda HK. Furthermore, the liquidation procedure is a complex and time consuming procedures subject
to government approvals, additional risks and costs may arise for our investors in the process.
In addition,
we conduct substantially all of our business operations in China, and substantially all of our directors and senior management
are based in China. The SEC, U.S. Department of Justice and other authorities often have substantial difficulties in bringing
and enforcing actions against non-U.S. companies and non-U.S. persons, including company directors and officers, in certain emerging
markets, including China. Additionally, our public shareholders may have limited rights and few practical remedies in emerging
markets where we operate, as shareholder claims that are common in the United States, including class action securities law and
fraud claims, generally are difficult or impossible to pursue as a matter of law or practicality in many emerging markets, including
China.
As a result
of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken
by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company
operated in the United States.
Governmental
control of currency conversions may affect the value of your investment.
A majority
of our revenue are earned in Renminbi. Any future restrictions on currency conversions may limit our ability to use
revenue generated in Renminbi to make dividend or other payments in U.S. dollars. Although the PRC government introduced regulations
in 1996 to allow greater convertibility of the Renminbi for current account transactions, significant restrictions still remain,
including primarily the restriction that foreign-invested enterprises like us may buy, sell or remit foreign currencies only after
providing valid commercial documents at a PRC banks specifically authorized to conduct foreign-exchange business.
In addition,
conversion of Renminbi for capital account items, including direct investment and loans, is subject to governmental approval in
the PRC, and companies are required to open and maintain separate foreign-exchange accounts for capital account items. There is
no guarantee that PRC regulatory authorities will not impose additional restrictions on the convertibility of the Renminbi. Such
restrictions could prevent us from distributing dividends and thereby reduce the value of our stock.
The
fluctuation of the exchange rate of the Renminbi against the dollar could reduce the value of your investment.
The value
of our common stock will be affected by the foreign exchange rate between U.S. dollars and Renminbi. For example, to the extent
that we need to convert U.S. dollars we receive from an offering of our securities into Renminbi for our operations, appreciation
of the Renminbi against the U.S. Dollar could reduce the value in Renminbi of our funds. Conversely, if we decide to convert our
Renminbi into U.S. dollars for the purpose of declaring dividends on our common stock or for other business purposes and the U.S.
dollar appreciates against the Renminbi, the U.S. dollar equivalent of our earnings from our subsidiaries in China would be reduced.
On July
21, 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. Dollar. Under the
2005 policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies.
Renminbi appreciated by more than 20% against the U.S. dollar between July 2005 and July 2008. Between July 2008 and June 2010,
this appreciation halted and the exchange rate between the Renminbi and the U.S. dollar remained within a narrow band. Between
July 2008 and June 2010, this appreciation halted and the exchange rate between the Renminbi and the U.S. dollar remained
within a narrow band. On June 19, 2010, the People's Bank of China decided to further promote the reform of the Renminbi exchange
rate formation mechanism, and improve the flexibility of Renminbi exchange rate. The Company and its subsidiaries
(both domestic and overseas) have debts denominated in foreign currencies, fluctuations in the exchange rates of Renminbi and
Singapore dollar into foreign currencies creates exchange risk for the Company. With the internationalization process and RMB
joining the SDR, RMB exchange rate may continue to fluctuate in the future. In August 2015, the People's Bank of China perfected
its midpoint rate determination mechanism, which led to a 2% depreciation of Renminbi against the U.S. dollar. However,
it is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and
the U.S. dollar in the future. There remains significant international pressure on the PRC Government to further liberalize its
currency policy, which could result in further fluctuations in the value of the Renminbi against the U.S. dollar. However,
there is no assurance that there will not be a devaluation of Renminbi in the future. If there is such devaluation,
our debt servicing cost will increase and the return to our overseas investors may decrease.
The PRC
government imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of
currency out of the China. Shortages in the availability of foreign currency may restrict our ability to remit sufficient foreign
currency to pay dividends, or otherwise satisfy foreign currency denominated obligations. Under existing PRC foreign exchange
regulations, payments of current account items, including profit distributions, interest payments and expenditures from the transaction,
can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However,
approval from appropriate governmental authorities is required where Renminbi are to be converted into foreign currency and remitted
out of the PRC to pay capital expenses, such as the repayment of bank loans denominated in foreign currencies.
The PRC
government could also restrict access in the future to foreign currencies for current account transactions. If the foreign exchange
control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay
certain expenses as they become due.
The consummation of the
proposed going-private transaction is uncertain, and the announcement and pendency of such transaction could adversely affect
our business, results of operations and financial condition.
On
February 16, 2017, the Board received a preliminary nonbinding proposal letter from Mr. Han, the Chairman and Chief Executive
Officer, XD. Engineering Plastics Company Limited, a company incorporated in the British Virgin Islands and wholly owned by Mr.
Han, and MSPEA Modified Plastics Holding Limited, an affiliate of Morgan Stanley Private Equity Asia III, Inc. (collectively,
the "Buyer Consortium"), to acquire all of the outstanding shares of common stock of the Company not already beneficially
owned by the Buyer Consortium in a "going-private" transaction for US$5.21 per share of common stock of the Company
in cash. The proposal letter states that the Buyer Consortium expects that the Board will appoint a special committee of independent
directors to consider the proposal and make a recommendation to the Board. The proposal letter also states that the Buyer Consortium
will not move forward with the proposed Transaction unless it is approved by such a special committee, and the proposed transaction
will be subject to a nonwaivable condition requiring approval by majority shareholder vote of shareholders other than the Buyer
Consortium members. A special committee was previously established by the Board; however, the proposed transaction did not proceed.
On May 8,
2020, the Board received a preliminary nonbinding proposal letter from Mr. Han, the Chairman and Chief Executive Officer, XD.
Engineering Plastics Company Limited (together with Mr. Han, the “Buyer Group”), a company incorporated in the British
Virgin Islands and wholly owned by Mr. Han, proposing to acquire all of the outstanding shares of common stock of the Company
not already beneficially owned by the Buyer Group in a “going-private” transaction for US$1.1 per share of common
stock of the Company in cash, subject to certain conditions. The proposal letter states that the Buyer Group expects that the
Board will appoint a special committee of independent and disinterested directors to consider the proposal and make a recommendation
to the Board. As of the date of the proposal letter, the Buyer Group beneficially owns the Shares representing approximately 70%
of the voting power and approximately 50.1% of the share capital of the Company. On May 15, 2020, the Board has established
a special committee (the “Special Committee”), consisting of the following independent directors of the Company: Mr.
Linyuan Zhai, Mr. Huiyi Chen and Mr. Guanbao Huang, with Mr. Huiyi Chen serving as chairperson of the Special Committee. The Special
Committee will be responsible for evaluating, negotiating and recommending to the Board any proposals involving a strategic transaction
by the Company with one or more third parties. On May 15, 2020, the Special Committee has retained Duff & Phelps, LLC as its
financial advisor and Hogan Lovells as its legal counsel to assist it in its review and evaluation of the proposed transaction.
There can
be no assurance that any definitive offer will be made, that any agreement will be executed or that a transaction with the Buyer
Group or any other transaction will be approved or consummated. The process of consummating the proposed transaction or any other
significant strategic transaction involving our company could cause disruptions in our business and divert our management's attention
and other resources from day-to-day operations, which could have an adverse effect on our business, results of operations and
financial condition. Additionally, current and prospective employees and members of management could become uncertain about their
future roles with us in the event the Transaction is completed. This uncertainty could adversely affect our ability to retain
and hire employees and members of management.
Recent international trade
tensions could materially and adversely affect our business, financial condition, and results of operations.
Economic
conditions in China are sensitive to global economic conditions. The global financial markets have experienced significant disruptions
in the past, including the recent international trade disputes and tariff actions announced by the United States, the PRC and
certain other countries. The U.S. administration has imposed significant amount of tariffs on Chinese goods, and the PRC government
has imposed tariffs on certain goods manufactured in the United States. There is no assurance that the list of goods impacted
by additional tariffs will not be expanded or the tariffs will not be increased materially. It is difficult to predict how PRC
or U.S. government policy, in particular, the outbreak of a trade war between the PRC and the United States and the imposition
in 2018 of additional tariffs on bilateral imports, may continue to impact the PRC. If the list of goods is further expanded or
the tariff is further increased, the volume of China-U.S. import and export trade would drop significantly, which will lead to
deterioration in economic conditions of both countries and decrease of business and official activities between both countries.
If any new tariffs, legislation and/or regulations are implemented, or if existing trade agreements are renegotiated or, in particular,
if the U.S. government takes retaliatory trade actions due to the recent U.S.-China trade tension, such changes could negatively
affect the demand for our products, which may in turn have an adverse effect our business, financial condition and results of
operations.
We
face risks related to health epidemics, natural disasters and other calamities.
Our business
could be adversely affected by the effects of health epidemics and natural disasters. In recent years, there have been breakouts
of epidemics in China and globally. Our business operations could be disrupted if any of our employees is suspected of having
the novel coronavirus, H1N1 flu, avian flu or another epidemic, which would require our employees to be quarantined and/or the
facilities used for our operations to be disinfected, and may cause the suspension of manufacturing of our products. In addition,
our results of operations could be adversely affected to the extent that such outbreak harms the Chinese economy in general and
the automotive industry in particular. The recent outbreak of coronavirus (COVID-19) has endangered the health of many people
residing in China and significantly disrupted travel and business activities, and economic conditions in China. These events could
also significantly impact our industry and cause a temporary shutdown of the facilities we use for our operations, which would
have a material adverse effect on our business, financial condition and results of operations.
We are also
vulnerable to natural disasters and other calamities. We cannot assure you that our infrastructure will be adequate to protect
us from the effects of fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist
attacks or similar events. Any of the foregoing events may disrupt our research and development and manufacturer processes, disrupt
our business operations, and have a material adverse effect on our business, financial condition and results of operations.
PART II
ITEM
5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Prior to
November 27, 2009, our common stock was quoted on the OTC Bulletin Board ("OTCBB") under the symbol "CXDC".
On November 27, 2009, we terminated our listing on OTCBB and listed our common stock on NASDAQ Global Market under the same symbol.
Number of Holders
As of May 25, 2020, there were
611 record holders of our common stock.
Issuer Direct
Corporation is the registrar and transfer agent for our common stock. Its address is 1981 Murray Holladay Road, Suite 100, Salt
Lake City, UT 84117 USA, telephone: (801) 272-9294.
Dividend
Policy
We have
not paid any cash dividends since our inception and do not anticipate paying any cash dividends on our common stock in the foreseeable
future. We expect to retain our earnings, if any, to provide funds for the expansion of our business. Future dividend policy will
be determined periodically by the Board of Directors based upon conditions then existing, including our earnings and financial
condition, capital requirements and other relevant factors.
Under current
PRC regulations, wholly foreign-owned enterprises and Sino-foreign equity joint ventures in the PRC may pay dividends only out
of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. Additionally, these
foreign-invested enterprises are required to set aside certain amounts of their accumulated profits each year, if any, to fund
certain reserve funds. These reserves are not distributable as cash dividends. Payment of future dividends, if any, will be at
the discretion of our Board of Directors after taking into account various factors, including current financial condition, operating
results and current and anticipated cash needs.
Stockholder
Return Performance Graph
The following
Performance Graph and related information shall not be deemed "soliciting material" or deemed to be "filed"
with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933,
as amended, or the Exchange Act except to the extent that we specifically incorporate such information by reference into such
filing.
The
following graph compares the change in cumulative total stockholders' return on our common stock with (a) NASDAQ Composite Index
and (b) Russell Small Cap Completeness Index, for each year from December 31, 2014 through December 31, 2019. The graph assumes
an initial investment of $100 at the closing price on December 31, 2013 and assumes all dividends (if any) were reinvested. The
figures for the chart and graph set forth below have been calculated based on the closing prices on the last trading day on the
NASDAQ Global Market for each period indicated.
Adjusted
Closing Stock Price Cumulative Change
|
|
12/31/2019
|
|
|
12/31/2018
|
|
|
12/31/2017
|
|
|
12/31/2016
|
|
|
12/31/2015
|
|
|
12/31/2014
|
|
China XD Plastics Co. Ltd.
|
|
$
|
33
|
|
|
$
|
33
|
|
|
$
|
87
|
|
|
$
|
76
|
|
|
$
|
84
|
|
|
$
|
100
|
|
Nasdaq Composite Index
|
|
$
|
189
|
|
|
$
|
159
|
|
|
$
|
165
|
|
|
$
|
129
|
|
|
$
|
120
|
|
|
$
|
100
|
|
Russell Small Cap Completeness Index
|
|
$
|
144
|
|
|
$
|
121
|
|
|
$
|
142
|
|
|
$
|
116
|
|
|
$
|
101
|
|
|
$
|
100
|
|
*$100
invested on 12/31/2014 in stock or index, including reinvestment of dividends. Data points are the last day of each fiscal year
for the Company's common stock and December 31 of each year for indexes.
Recent
Sale of Unregistered Securities and Use of Proceeds
None.
Issuer
Purchases of Equity Securities
None.
ITEM 6. SELECTED FINANCIAL DATA
The tables below
set forth selected historical financial information of the Company that has been derived from the audited financial statements
as of December 31, 2015, 2016, 2017, 2018 and 2019, and for the last five years in the period ended December 31, 2019. The selected
historical financial data should be read in conjunction with the consolidated financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations", included elsewhere in this Form 10-K.
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
2015
|
|
|
(in millions, except number of shares and per share amounts)
|
Revenues
|
|
$
|
1,448.2
|
|
|
$
|
1,274.8
|
|
|
$
|
1,290.4
|
|
|
$
|
1,201.7
|
|
|
$
|
999.2
|
|
Net income
|
|
$
|
3.1
|
|
|
$
|
68.3
|
|
|
$
|
31.6
|
|
|
$
|
101.6
|
|
|
$
|
83.7
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- basic
|
|
$
|
0.05
|
|
|
$
|
1.03
|
|
|
$
|
0.48
|
|
|
$
|
1.54
|
|
|
$
|
1.27
|
|
- diluted
|
|
$
|
0.05
|
|
|
$
|
1.03
|
|
|
$
|
0.48
|
|
|
$
|
1.54
|
|
|
$
|
1.27
|
|
Shares used in computing earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- basic
|
|
|
55,200,896
|
|
|
|
50,290,425
|
|
|
|
49,598,609
|
|
|
|
49,418,188
|
|
|
|
49,225,566
|
|
- diluted
|
|
|
55,200,896
|
|
|
|
50,290,425
|
|
|
|
49,598,609
|
|
|
|
49,419,197
|
|
|
|
49,229,460
|
|
Total cash, cash equivalents, restricted cash and time deposits
|
|
|
228.4
|
|
|
|
367.0
|
|
|
|
608.1
|
|
|
|
456.4
|
|
|
|
408.4
|
|
Total assets
|
|
|
2,635.9
|
|
|
|
2,753.5
|
|
|
|
2,544.1
|
|
|
|
2,126.5
|
|
|
|
1,752.0
|
|
Long term bank loans
|
|
|
322.5
|
|
|
|
111.8
|
|
|
|
114.2
|
|
|
|
249.5
|
|
|
|
107.5
|
|
Notes payable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
145.6
|
|
Total liabilities
|
|
|
1,799.5
|
|
|
|
1,907.0
|
|
|
|
1,733.7
|
|
|
|
1,394.7
|
|
|
|
1,076.4
|
|
Redeemable Series D Convertible Preferred Stock
|
|
|
—
|
|
|
|
97.6
|
|
|
|
97.6
|
|
|
|
97.6
|
|
|
|
97.6
|
|
Total stockholders’ equities
|
|
|
836.4
|
|
|
|
748.9
|
|
|
|
712.8
|
|
|
|
634.3
|
|
|
|
578.0
|
|
ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis
of our financial condition and results of operations should be read in conjunction with the section titled “Selected Consolidated
Financial and Other Data” and the consolidated financial statements and related notes thereto included elsewhere in this
Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Factors that
could cause or contribute to such differences include those identified below and those discussed in the section titled “Risk
Factors” and other parts of this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the
results that may be expected for any period in the future.
General
China
XD is one of the leading specialty chemical companies engaged in the research, development, manufacture and sale of modified
plastics primarily for automotive applications in China, and to a lesser extent, in Dubai, UAE. Through our wholly-owned operating
subsidiaries in China and UAE, we develop modified plastics using our proprietary technology, manufacture and sell our products
primarily for use in the fabrication of automobile parts and components. We have 633 certifications from manufacturers in the automobile
industry as of December 31, 2019. We are the only company certified as a National Enterprise Technology Center in modified plastics
industry in Heilongjiang province. Our Research and Development (the "R&D") team consists of 131 professionals
and 6 consultants. As a result of the integration of our academic and technological
expertise, we have a portfolio of 509 patents, 32 of which we have obtained the patent rights and the remaining 477 of which we
have applications pending in China as of December 31, 2019.
Our products include twelve categories: Modified
Polypropylene (PP), Modified Acrylonitrile Butadiene Styrene (ABS), Modified Polyamide 66 (PA66), Modified Polyamide 6 (PA6), Modified
Polyoxymethylenes (POM), Modified Polyphenylene Oxide (PPO), Plastic Alloy, Modified Polyphenylene Sulfide (PPS), Modified Polyimide
(PI), Modified Polylactic acid (PLA), Poly Ether Ether Ketone (PEEK), and Polyethylene (PE).
The Company's products are primarily used
in the production of exterior and interior trim and functional components of 31 automobile brands and 111 automobile models manufactured
in China, including Audi, Mercedes Benz, BMW, Toyota, Buick, Chevrolet, Mazda, Volvo, Ford, Citroen, Jinbei, VW Passat, Golf,
Jetta, etc. Our research center is dedicated to the research and development of modified plastics, and benefits from its
cooperation with well-known scientists from prestigious universities in China. We operate three manufacturing plants in Harbin,
Heilongjiang in the PRC. Prior to December 2012, we had approximately 255,000 metric tons of annual production capacity across
58 automatic production lines utilizing German twin-screw extruding systems, automatic weighing systems and Taiwan conveyer systems.
In December 2012, we further expanded our third production base in Harbin with
additional 135,000 metric tons of annual production capacity, bringing total installed production capacity in our three production
bases to 390,000 metric tons with additional 30 new production lines. In July 2017, our Harbin campus launched a new industrial
project for upgrading existing equipment for 100,000 metric tons of engineering plastics. As a result, our production capacity
in Harbin, Heilongjiang was downgraded to 290,000 MT. In 2019, our Harbin campus started two equipment projects in Qinling Road
Factory (“Qinling Road Project”) and Jiangnan Road Factory (“Jiangnan Road Project”) for equipment upgrade
and overhaul progress, which further downgraded our production capacity to 135,000 MT. The industrial project for upgrading existing
equipment for 100,000 metric tons of engineering plastics was expected to be completed by the end of second quarter of 2020, Qinling
Road Project and Jiangnan Road Project was expected to be completed by the end of the third quarter of 2020, thus bringing the
production capacity in Harbin Campus back to 390,000 MT. Also, in July 2017, HLJ Xinda Group started an industrial project
for 300,000 metric tons of biological composite materials, an industrial project for a 3D printing intelligent manufacture demonstration
factory and a 3D printing display and experience cloud factory. This project with four workshops was formally broken ground in
December 2019. The Company expects the gradual trial out by the end of 2022 and put into production by the end of 2023.
In December 2013, we broke ground on the construction
of our fourth production plant in Nanchong City, Sichuan Province, with additional 300,000 metric tons of annual production capacity,
which we expect will bring total domestic installed production capacity to 590,000 metric tons with the addition of 70 new production
lines upon the completion of the construction of our fourth production plant. Sichuan Xinda has been supplying to its customers
since 2013. We installed 50 production lines in the second half of 2016 in our Sichuan plant with production capacity of 216,000
metric tons during the year of 2017 and an additional 10 production lines in July 2018, bringing the total capacity to 259,200
metric tons. As of December 31, 2019, there is still construction ongoing on the site of our Sichuan plant which is expected to
be completed by the end of the fourth quarter of 2020.
In order to develop potential overseas markets,
Dubai Xinda obtained one leased property and two purchased properties, approximately 52,530 square meters in total, including one
leased 10,000 square meters, and two purchased 20,206 and 22,324 square meters on January 25, 2015, June 28, 2016 and September
21, 2016, respectively, from Jebel Ali Free Zone Authority ("JAFZA") in Dubai, UAE, with constructed building comprising
warehouses, offices and service blocks. In addition to the earlier 10 trial production lines in Dubai Xinda, the Company completed
installing 45 production lines with 11,250 metric tons of annual production capacity by the end of November 2018, and an additional
30 production lines with 7,500 metric tons of annual production capacity. The Company estimates 22 production lines will be put
into production in the fourth quarter of 2021, 8 production lines will be put into production in the second quarter of 2022, bringing
total installed production capacity in Dubai Xinda to 21,250 metric tons, targeting high-end products for the overseas market.
Critical Accounting Policies
We
prepare our consolidated financial statements in accordance with U.S. GAAP, which requires us to make judgments, estimates and
assumptions that affect (1) the reported amounts of our assets and liabilities; (2) the disclosure of our contingent assets and
liabilities at the end of each reporting period; and (3) the reported amounts of revenues and expenses during each reporting period.
We continually evaluate these judgments, estimates and assumptions based on our own historical experience, knowledge and assessment
of current business and other conditions and our expectations regarding the future based on available information which together
form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates
is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our
accounting policies require a higher degree of judgment than others in their application.
When
reading our consolidated financial statements, you should consider our selection of critical accounting policies, the judgment
and other uncertainties affecting the application of such policies, and the sensitivity of reported results to changes in conditions
and assumptions. We believe the following accounting policies involve the most significant judgments and estimates used in the
preparation of our consolidated financial statements.
Long-Lived Assets
Our long-lived assets include property,
plant and equipment and land use rights.
We
depreciate and amortize our property, plant and equipment and land use rights, using the straight-line method of accounting over
the estimated useful lives of the assets. We make estimates of the useful lives of property, plant and equipment, including the
salvage values, and land use rights in order to determine the amount of depreciation and amortization expense to be recorded during
each reporting period. The estimated useful life is the period over which the long-lived assets are expected to contribute directly
or indirectly to the future cash flows of the Company.
We
evaluate long-lived assets, including property, plant and equipment, and land use rights for impairment whenever events or changes
in circumstances indicate that the carrying amount of such assets may not be recoverable. We assess recoverability by comparing
carrying amount of a long-lived asset or asset group to estimated undiscounted future cash flows expected to be generated by the
asset or asset group. If the carrying amount of an asset or asset group exceeds its estimated undiscounted future cash flows, we
recognize an impairment charge based on the amount by which the carrying amount exceeds the estimated fair value of the asset or
asset group. We estimate the fair value of the asset or asset group through various valuation techniques, including discounted
cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Assets to be disposed
are reported at the lower of carrying amount or fair value less costs to sell, and are no longer depreciated.
No impairment on our long-lived assets was recognized in 2019
and 2018.
Allowance for Doubtful Accounts
We
maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required
payments. In establishing the required allowance, we consider historical losses adjusted to take into account current market conditions,
the amount of receivables in dispute, and the current receivables aging and current payment patterns. Account balances are charged
off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
We do not have any off-balance-sheet credit exposure related to our customers.
We
extend unsecured credit to customers with good credit history. We review our accounts receivable on a regular basis to determine
if the bad debt allowance is adequate at each year-end.
Valuation of Inventories
Our
inventories are stated at the lower of cost or net realizable value (NRV). We routinely evaluate quantities and value of our inventories
in light of current market conditions and market trends, and record a write-down against the cost of inventories for net realizable
value below cost. Expected demand and anticipated sales price are the key factors affecting our inventory valuation analysis. For
purposes of our inventory valuation analysis, we develop expected demand and anticipated sales prices primarily based on sales
orders as well as industry trends and individual customer analysis. We also consider sales and sales orders after each reporting
period-end but before the issuance of our financial statements to assess the accuracy of our inventory valuation estimates. Historically,
actual demand and sales price have generally been consistent with or greater than expected demand and anticipated sales price used
for purposes of our inventory valuation analysis. The evaluation also takes into consideration new product development schedules,
the effect that new products might have on the sale of existing products, product obsolescence, customer concentrations, product
merchantability and other factors. Market conditions are subject to change and actual consumption of inventories could differ from
forecasted demand. Our products have a long life cycle and obsolescence has not historically been a significant factor in the valuation
of inventories. We have not experienced any material inventory write-downs before.
Income Tax Uncertainties and Realization
of Deferred Income Tax Assets
Our
income tax provision, deferred income tax assets and deferred income tax liabilities are recognized and measured primarily based
on actual and expected future income, PRC statutory income tax rates, PRC tax regulations and tax planning strategies.
Significant judgment is required in interpreting
tax regulations in the PRC, evaluating uncertain tax positions, and assessing the realizability of deferred income tax assets.
Actual results could differ materially from those judgments, and changes in judgments could materially affect our consolidated
financial statements. As of December 31, 2019 and 2018, we had total gross deferred income tax assets of US$14,313,575 and US$10,559,911,
respectively. We record a valuation allowance to reduce our deferred income tax assets if, based on the weight of available evidence,
we believe expected future taxable income is not likely to support the use of a deduction or credit in that jurisdiction. We evaluate
the level of our valuation allowances quarterly, and more frequently if actual operating results differ significantly from forecasted
results. As of December 31, 2019 and 2018, our valuation allowance against deferred income tax assets was US$14,313,575 and US$10,559,911,
respectively.
We
recognize the impact of a tax position if we determine the position is more likely than not to be sustained upon examination, including
resolution of any related appeals or litigation processes, based solely on the technical merits of the position. In evaluating
whether a tax position has met the more-likely-than-not recognition threshold, it is presumed that the position will be examined
by the appropriate tax authority that has full knowledge of all relevant information. In addition, a tax position that meets the
more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements.
The tax position is measured at the largest amount of benefit that is greater than fifty percent (50%) likely of being realized
upon settlement. The tax positions are regularly re-evaluated based on the results of the examination of income tax filings, statute
of limitations expirations and changes in tax law that would either increase or decrease the technical merits of a position relative
to the more-likely-than-not recognition threshold. In the normal course of business, we are regularly audited by the PRC tax authorities.
The settlement of any particular issue with the applicable tax authority could have a material impact on our consolidated financial
statements.
Stock Based Compensation
We
measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value
of the award and recognize the cost over the period the employee is required to provide service in exchange for the award, which
generally is the vesting period. We have elected to recognize the compensation cost for an award with only service conditions and
a graded vesting schedule on a straight-line basis over the requisite service period for the entire award. However, the cumulative
amount of compensation cost recognized at any date equals at least the portion of the grant date value of such award that is vested
at that date.
We
estimated the fair value of our share options using the Black-Scholes Option Pricing model. The model incorporates subjective assumptions.
The expected volatility was based on implied volatilities from traded options and historical volatility of the Company's common
stock. The risk-free interest rate assumption is determined using the Federal Reserve nominal rates for U.S. Treasury zero-coupon
bonds with maturities similar to those of the expected term of the award being valued. There is no expected dividend yield, as
the Company has not paid dividend and does not anticipate paying dividend over the term of the grants.
Recently Issued Accounting Standards
In February 2016, the Financial Accounting
Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) ("ASC
842"). 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 (loss) 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. 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 following table summarizes the effect on the consolidated balance sheets as a result of adopting
ASC842.
|
|
December 31,
|
|
Effect of
|
|
January 1,
|
|
|
2018
|
|
Adoption
|
|
2019
|
|
|
|
US$
|
|
|
|
US$
|
|
|
|
US$
|
|
Land use rights, net
|
|
|
29,796,795
|
|
|
|
(29,796,795
|
)
|
|
|
—
|
|
Operating lease right-of-use assets, net
|
|
|
—
|
|
|
|
45,872,008
|
|
|
|
45,872,008
|
|
Accrued expenses and other liabilities
|
|
|
(126,926,898
|
)
|
|
|
752,795
|
|
|
|
(126,174,103
|
)
|
Operating lease liabilities, current
|
|
|
—
|
|
|
|
(2,086,529
|
)
|
|
|
(2,086,529
|
)
|
Operating lease liabilities, non-current
|
|
|
—
|
|
|
|
(14,741,479
|
)
|
|
|
(14,741,479
|
)
|
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. ASU 2018-02 is effective for public companies for fiscal years beginning after December 15, 2018,
including interim periods within that fiscal year, with early adoption permitted. 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. ASU 2018-07 is effective for public companies for fiscal years beginning after December
15, 2018, including interim periods within that fiscal year, with early adoption permitted. 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 2016, the FASB issued ASU 2016-13,
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”),
which replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses for financial
assets. In October 2019, the FASB issued ASU 2019-10, which amended the effective dates that were originally required by ASU 2016-13
for certain entities. The Company determined it was eligible as a smaller reporting company (SRC) under the SEC’s definition
based on an its most recent SRC determination as of November 15, 2019 in accordance with SEC regulations and will adopt ASU 2016-13
on January 1, 2023. The Company is currently evaluating the impact of adopting the standard 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 (“ASU
2018-13”), which modifies the disclosure requirements on fair value measurements. The Company will adopt the standard on
January 1, 2020, and does not expect the adoption of this standard to have a material impact on its financial statements.
In December 2019, the FASB issued ASU 2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12). The new guidance simplifies the accounting
for income taxes by removing certain exceptions related to the approach for intraperiod tax allocation, the recognition of deferred
tax liabilities for outside basis differences and the methodology for calculating income taxes in an interim period. It also simplifies
other aspects of accounting for income taxes. The new guidance is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2020, and early adoption is permitted. The Company is currently evaluating the impact of adopting
ASU 2019-12 on its consolidated financial statements.
The
following table sets forth statements of comprehensive income (loss) data for the years ended December 31, 2019 and 2018 in
millions of US$:
|
|
For the Years Ended December 31,
|
|
|
2019
|
|
|
|
2018
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
Amount
|
|
%
|
|
%
|
|
Amount
|
|
%
|
|
|
(US$ in millions, except the percentage)
|
Revenues
|
|
|
1,448.2
|
|
|
|
100
|
%
|
|
|
13.6
|
%
|
|
|
1,274.8
|
|
|
|
100
|
%
|
Cost of revenues
|
|
|
(1,228.8
|
)
|
|
|
(84.9
|
)%
|
|
|
16.5
|
%
|
|
|
(1,055.2
|
)
|
|
|
(82.8
|
)%
|
Gross profit
|
|
|
219.4
|
|
|
|
15.1
|
%
|
|
|
(0.1
|
)%
|
|
|
219.6
|
|
|
|
17.2
|
%
|
Total operating expenses
|
|
|
(150.0
|
)
|
|
|
(10.4
|
)%
|
|
|
39.4
|
%
|
|
|
(107.6
|
)
|
|
|
(8.4
|
)%
|
Operating income
|
|
|
69.4
|
|
|
|
4.8
|
%
|
|
|
(38.0
|
)%
|
|
|
112.0
|
|
|
|
8.8
|
%
|
Income before income taxes
|
|
|
17.1
|
|
|
|
1.2
|
%
|
|
|
(77.5
|
)%
|
|
|
76.0
|
|
|
|
6.0
|
%
|
Income tax expense
|
|
|
(14.0
|
)
|
|
|
(1.0
|
)%
|
|
|
81.8
|
%
|
|
|
(7.7
|
)
|
|
|
(0.6
|
)%
|
Net income
|
|
|
3.1
|
|
|
|
0.2
|
%
|
|
|
(95.5
|
)%
|
|
|
68.3
|
|
|
|
5.4
|
%
|
Revenues
Revenues
increased by 13.6%, or US$173.4 million, in 2019 as compared to 2018. This was due to the combined
result of: (i) an increase of 45.9% in the average RMB selling price of our products, partially offset by (ii) the decrease of
18.8% in the sales volume; and (iii) a depreciation of RMB against US dollars by 6.0%, as compared with those of last year.
(1) Domestic market
For the year ended December 31, 2019, revenue
from domestic market increased by 10.1% or US$127.2 million, as a result of (i) an increase of 43.6% in the average
RMB selling price of our products; and partially offset by (ii) a decrease of 20.0% in sales volume; and (iii) a depreciation
of RMB against US dollars by 6.0% as compared with those of last year.
According to the China
Association of Automobile Manufacturers, automobile production and sales in China decreased by 7.5% and 8.2%, respectively, for
twelve months of 2019 as compared to the same period of 2018. The weakening in macroeconomic conditions since summer of 2018 continued
to exacerbate automobile business environment, but thanks to our positive efforts to expand our marketing areas and customer bases
and to meet their new requirements, the Company has achieved sales growth of 30.2% in Northeast China, 22.0% in South China, 18.0%
in Central China, and 9.0% in North China, partially offset by the sales decrease of 6.4% in East China and 2.4% in Southwest China.
As for the RMB
selling price, the increase of 43.6% was mainly due to: (i) increased sales of new categories of higher-end products of
PA66 and PA6 produced with high-priced raw materials with higher selling price in domestic market; and (ii) sales of
high-priced semi-finished goods in domestic market during the year ended December 31, 2019.
(2) Overseas market
Overseas sales were
US$61.2 million in the year ended December 31, 2019 as compared to US$15.0 million in prior year.
After a successful
trial production at our production base in Dubai in November 2018, the Company has established business relationships with
new customers in UAE and India, and shipped products to the end users in Europe and Southeast Asia.
We have experienced
a delay in cash collection from a major customer in UAE. As of December 31, 2019, we provided an allowance of US$62.8 million for
the overdue accounts receivable from the major customer in UAE, as the customer failed to make payments under the agreed extended
repayment plan.
The following table summarizes the breakdown
of revenues by categories for the periods indicated.
|
|
Revenues
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
Change
|
|
Change
|
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
|
(US$ in millions, except the percentage)
|
Modified Polyamide 66 (PA66)
|
|
|
427.0
|
|
|
|
29.5
|
%
|
|
|
316.6
|
|
|
|
24.8
|
%
|
|
|
110.4
|
|
|
|
34.9
|
%
|
Modified Polyamide 6 (PA6)
|
|
|
338.3
|
|
|
|
23.4
|
%
|
|
|
243.9
|
|
|
|
19.1
|
%
|
|
|
94.4
|
|
|
|
38.7
|
%
|
Plastic Alloy
|
|
|
245.3
|
|
|
|
16.9
|
%
|
|
|
324.7
|
|
|
|
25.6
|
%
|
|
|
(79.4
|
)
|
|
|
(24.5
|
)%
|
Modified Polypropylene (PP)
|
|
|
126.5
|
|
|
|
8.7
|
%
|
|
|
223.4
|
|
|
|
17.5
|
%
|
|
|
(96.9
|
)
|
|
|
(43.4
|
)%
|
Modified Acrylonitrile butadiene styrene (ABS)
|
|
|
50.1
|
|
|
|
3.5
|
%
|
|
|
32.2
|
|
|
|
2.5
|
%
|
|
|
17.9
|
|
|
|
55.6
|
%
|
Polyoxymethylenes (POM)
|
|
|
6.9
|
|
|
|
0.5
|
%
|
|
|
10.6
|
|
|
|
0.8
|
%
|
|
|
(3.7
|
)
|
|
|
(34.9
|
)%
|
Polyphenylene Oxide (PPO)
|
|
|
32.4
|
|
|
|
2.2
|
%
|
|
|
17.1
|
|
|
|
1.3
|
%
|
|
|
15.3
|
|
|
|
89.5
|
%
|
Modified Polylactic acid (PLA)
|
|
|
65.1
|
|
|
|
4.5
|
%
|
|
|
94.5
|
|
|
|
7.4
|
%
|
|
|
(29.4
|
)
|
|
|
(31.1
|
)%
|
Polyethylene (PE)
|
|
|
11.5
|
|
|
|
0.8
|
%
|
|
|
11.0
|
|
|
|
0.9
|
%
|
|
|
0.5
|
|
|
|
4.5
|
%
|
Semi-finished goods
|
|
|
144.4
|
|
|
|
10.0
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
144.4
|
|
|
|
N/A
|
|
Raw Materials
|
|
|
0.7
|
|
|
|
0.0
|
%
|
|
|
0.8
|
|
|
|
0.1
|
%
|
|
|
(0.1
|
)
|
|
|
(12.5
|
)%
|
Total Revenues
|
|
|
1,448.2
|
|
|
|
100.0
|
%
|
|
|
1,274.8
|
|
|
|
100.0
|
%
|
|
|
173.4
|
|
|
|
13.6
|
%
|
The following table summarizes the breakdown
of metric tons (MT) by product mix for the periods indicated:
|
|
Sales Volume
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
Change
|
|
Change
|
|
|
MT
|
|
%
|
|
MT
|
|
%
|
|
MT
|
|
%
|
|
|
|
(in MTs, except percentage)
|
Modified Polyamide 66 (PA66)
|
|
|
72,196
|
|
|
|
20.0
|
%
|
|
|
77,883
|
|
|
|
17.6
|
%
|
|
|
(5,687
|
)
|
|
|
(7.3
|
)%
|
Modified Polyamide 6 (PA6)
|
|
|
64,004
|
|
|
|
17.8
|
%
|
|
|
78,829
|
|
|
|
17.8
|
%
|
|
|
(14,825
|
)
|
|
|
(18.8
|
)%
|
Plastic Alloy
|
|
|
71,268
|
|
|
|
19.8
|
%
|
|
|
104,199
|
|
|
|
23.5
|
%
|
|
|
(32,931
|
)
|
|
|
(31.6
|
)%
|
Modified Polypropylene (PP)
|
|
|
87,343
|
|
|
|
24.2
|
%
|
|
|
143,343
|
|
|
|
32.4
|
%
|
|
|
(56,000
|
)
|
|
|
(39.1
|
)%
|
Modified Acrylonitrile butadiene styrene (ABS)
|
|
|
23,997
|
|
|
|
6.7
|
%
|
|
|
15,105
|
|
|
|
3.4
|
%
|
|
|
8,892
|
|
|
|
58.9
|
%
|
Polyoxymethylenes (POM)
|
|
|
2,042
|
|
|
|
0.6
|
%
|
|
|
3,155
|
|
|
|
0.7
|
%
|
|
|
(1,113
|
)
|
|
|
(35.3
|
)%
|
Polyphenylene Oxide (PPO)
|
|
|
6,455
|
|
|
|
1.8
|
%
|
|
|
2,815
|
|
|
|
0.6
|
%
|
|
|
3,640
|
|
|
|
129.3
|
%
|
Modified Polylactic acid (PLA)
|
|
|
6,209
|
|
|
|
1.7
|
%
|
|
|
9,936
|
|
|
|
2.2
|
%
|
|
|
(3,727
|
)
|
|
|
(37.5
|
)%
|
Polyethylene (PE)
|
|
|
10,459
|
|
|
|
2.9
|
%
|
|
|
8,178
|
|
|
|
1.8
|
%
|
|
|
2,281
|
|
|
|
27.9
|
%
|
Semi-finished goods
|
|
|
16,099
|
|
|
|
4.5
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
16,099
|
|
|
|
N/A
|
|
Total Sales Volume
|
|
|
360,072
|
|
|
|
100.0
|
%
|
|
|
443,443
|
|
|
|
100.0
|
%
|
|
|
(83,371
|
)
|
|
|
(18.8
|
)%
|
The Company
continued to shift production mix from traditional lower-end products such as PP to higher-end products such as PA66, PA6, and
PPO, primarily due to (i) greater growth potential of advanced modified plastics in luxury automobile models in China, (ii) the
stronger demand as a result of promotion by the Chinese government for clean energy vehicles and (iii) better quality demand
from and consumer recognition of higher-end cars made by automotive manufacturers from Chinese and Germany joint ventures, Sino-U.S.
and Sino-Japanese joint ventures, which manufacturers tend to use more and higher-end modified plastics in quantity per vehicle
in China.
The
Company also sold semi-finished goods with discounted price in domestic markets during the year ended December
31, 2019 in order to accelerate inventory turnover and replenish operating funds.
Gross Profit and Gross Margin
|
|
For the Years Ended December 31,
|
|
|
|
|
Change
|
(in millions, except percentage)
|
|
2019
|
|
2018
|
|
Amount
|
|
%
|
Gross Profit
|
|
$
|
219.4
|
|
|
$
|
219.6
|
|
|
$
|
(0.2
|
)
|
|
|
(0.1
|
)%
|
Gross Margin
|
|
|
15.1
|
%
|
|
|
17.2
|
%
|
|
|
|
|
|
|
(2.1
|
)%
|
Gross profit
was US$219.4 million in 2019, as compared to US$219.6 million in 2018. Our gross margin decreased to 15.1% during 2019
from 17.2% in 2018, primarily due to the adoption of discounted-priced strategy on sales of semi-finished goods in domestic
market in order to accelerate inventory turnover and replenish operating funds for the year ended December 31, 2019.
General and Administrative Expenses
|
|
For the Years Ended December 31,
|
|
|
|
|
Change
|
(in millions, except percentage)
|
|
2019
|
|
2018
|
|
Amount
|
|
%
|
General and Administrative Expenses
|
|
$
|
35.4
|
|
|
$
|
37.0
|
|
|
$
|
(1.6
|
)
|
|
|
(4.3
|
)%
|
as a percentage of revenues
|
|
|
2.4
|
%
|
|
|
2.9
|
%
|
|
|
|
|
|
|
(0.5
|
)%
|
General and administrative
(G&A) expenses were US$35.4 million in 2019 compared to US$37.0 million in 2018, representing a decrease of 4.3%, or US$1.6
million. The decrease was primarily due to our approach to optimize management structure and enhancing efficiency, and partially
offset by the increase of professional fee.
On a percentage basis, G&A
expenses in 2019 were 2.4%, compared to 2.9% of the same period of 2018.
Provision for Doubtful Accounts
|
|
For the Years Ended December 31,
|
|
|
|
|
Change
|
(in millions, except percentage)
|
|
2019
|
|
2018
|
|
Amount
|
|
%
|
Provision for Doubtful Accounts
|
|
$
|
62.8
|
|
|
$
|
—
|
|
|
$
|
62.8
|
|
|
|
N/A
|
|
as a percentage of revenues
|
|
|
4.3
|
%
|
|
|
—
|
|
|
|
|
|
|
|
4.3
|
%
|
Provision
for doubtful accounts was US$62.8 million in 2019 compared to nil in 2018. As of December 31, 2019, our main UAE customer had US$62.8
million of overdue accounts receivable and the customer failed to make payments under the agreed extended repayment plan. Based
on its assessment of the collectability of the amounts due from the customer, the Company provided an allowance for doubtful accounts
of US$62.8 million for the year ended December 31, 2019.
Research and Development Expenses
|
|
For the Years Ended December 31,
|
|
|
|
|
Change
|
(in millions, except percentage)
|
|
2019
|
|
2018
|
|
Amount
|
|
%
|
Research and Development Expenses
|
|
$
|
50.3
|
|
|
$
|
60.6
|
|
|
$
|
(10.3
|
)
|
|
|
(17.0
|
)%
|
as a percentage of revenues
|
|
|
3.5
|
%
|
|
|
4.8
|
%
|
|
|
|
|
|
|
(1.3
|
)%
|
Research and development
expenses were US$50.3 million in 2019 compared with US$60.6 million in 2018, representing a decrease of US$10.3 million, or 17.0%.
This decrease was due to (i) a decrease of US$6.5 million in raw materials consumption, (ii)
a decrease of US$3.6 million in salary and welfare for R&D personnel, and (iii) a decrease of US$0.2 million in depreciation.
As of December
31, 2019, the number of ongoing research and development projects was 357. We
expect to complete and commence to realize economic benefits from approximately 25% of the projects in the near term. The majority
of the projects are in the field of modified plastics in automotive applications and the rest are in advanced fields such as ships,
airplanes, high-speed rail, medical devices, etc.
Operating Income
Total
operating income was US$69.4 million in 2019 compared to US$112.0 million in 2018, representing a decrease of 38.0% or
US$42.6 million. The decrease in 2019 was primarily due to the provision for doubtful accounts of $62.8 million made for a
UAE customer, the slightly lower gross profit for the year ended December 31, 2019, and partially offset by the lower selling
expenses, G&A expenses and R&D expenses.
Interest Income
(Expenses)
|
|
For the Years Ended December 31
|
|
|
|
|
Change
|
(in millions, except percentage)
|
|
2019
|
|
2018
|
|
Amount
|
|
%
|
Interest Income
|
|
$
|
1.4
|
|
|
$
|
4.0
|
|
|
$
|
(2.6
|
)
|
|
|
(65.0
|
)%
|
Interest Expenses
|
|
|
(67.2
|
)
|
|
|
(51.0
|
)
|
|
|
(16.2
|
)
|
|
|
31.8
|
%
|
Net Interest Expenses
|
|
|
(65.8
|
)
|
|
|
(47.0
|
)
|
|
|
(18.8
|
)
|
|
|
40.0
|
%
|
as a percentage of revenues
|
|
|
4.5
|
%
|
|
|
3.7
|
%
|
|
|
|
|
|
|
0.8
|
%
|
Net interest expense
was US$65.8 million in 2019, compared to net interest expense of US$47.0 million in 2018, representing an increase of 40.0% or
US$18.8 million, primarily due to (i) the increase of the average short-term and long-term loan balance in the amount
of US$912.8 million for the year ended December 31, 2019, compared to US$861.0 million of the same period in 2018; (ii) the increase
of the average loan interest rate of 5.5% for the year ended December 31, 2019 compared to 4.6% of the same period in 2018; (iii)
the decrease of interest income resulting from the average interest rate decreased to 0.6% for the year ended December 31, 2019
compared to 0.9% of the same period in 2018, and (iv) the decrease of average deposit balance in the amount of US$222.1 million
for the year ended December 31, 2019 compared to US$449.5 million for the same period in 2018.
Foreign Currency Exchange Gains
|
|
For the Years Ended December 31,
|
|
|
|
|
Change
|
(in millions, except percentage)
|
|
2019
|
|
2018
|
|
Amount
|
|
%
|
Foreign currency exchange gains
|
|
$
|
2.9
|
|
|
$
|
5.7
|
|
|
$
|
(2.8
|
)
|
|
|
(49.1
|
)%
|
as a percentage of revenues
|
|
|
0.2
|
%
|
|
|
0.4
|
%
|
|
|
|
|
|
|
(0.2
|
)%
|
Foreign currency
exchange gains were US$2.9 million in 2019, compared to US$5.7 in the same period of 2018, which was due to the fluctuation
of the exchange rate of RMB again US Dollar.
Income Taxes
|
|
For the Years Ended December 31,
|
|
|
|
|
Change
|
(in millions, except percentage)
|
|
2019
|
|
2018
|
|
Amount
|
|
%
|
Income before Income Taxes
|
|
$
|
17.1
|
|
|
$
|
76.0
|
|
|
$
|
(58.9
|
)
|
|
|
(77.5
|
)%
|
Income tax expense
|
|
|
(14.0
|
)
|
|
|
(7.7
|
)
|
|
|
(6.3
|
)
|
|
|
81.8
|
%
|
Effective income tax rate
|
|
|
82.1
|
%
|
|
|
10.1
|
%
|
|
|
|
|
|
|
72.0
|
%
|
The effective income
tax rate in 2019 and 2018 was 82.1% and 10.1%, respectively.
The increase of effective income tax rate
in 2019 was primarily due to the increased operating loss in Dubai Xinda. The effective income tax rate for the year ended December
31, 2019 differs from the PRC statutory income tax rate of 25% primarily due to the continuous operating loss occurred in overseas
subsidiaries such as Dubai Xinda and Xinda Holding (HK), and partially offset by the R&D expenses additional deduction of
the major PRC operating entities, the reversal of the unrecognized tax benefits accrued in 2013, and Sichuan Xinda’s preferential
income tax rate.
Our PRC and Dubai
subsidiaries had US$226.5 million of cash and cash equivalents and restricted cash as of December 31, 2019, which are planned to
be indefinitely reinvested in PRC and Dubai. The distributions from our PRC and Dubai subsidiaries are subject to the U.S. federal
income tax at 21%, less any applicable foreign tax credits. Due to our policy of indefinitely reinvesting our earnings in our PRC
business, we have not provided for deferred income tax liabilities related to PRC withholding income tax on undistributed earnings
of our PRC subsidiaries. In addition, due to our policy of indefinitely reinvesting our earnings in Dubai, UAE, we have not provided
for deferred income tax liabilities related to Dubai Xinda in Dubai, UAE, on undistributed earnings.
Net Income
As a result of the above factors, we had
a net income of US$3.1 million in 2019, as compared to US$68.3 million in 2018.
Selected Balance Sheet Data as of December 31, 2019 and 2018:
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
Change
|
(in millions, except percentage)
|
|
|
|
|
|
Amount
|
|
%
|
Cash and cash equivalents
|
|
|
17.2
|
|
|
|
41.3
|
|
|
|
(24.1
|
)
|
|
|
(58.4
|
)%
|
Restricted cash
|
|
|
211.2
|
|
|
|
325.7
|
|
|
|
(114.5
|
)
|
|
|
(35.2
|
)%
|
Accounts receivable, net of allowance for doubtful accounts
|
|
|
222.1
|
|
|
|
294.7
|
|
|
|
(72.6
|
)
|
|
|
(24.6
|
)%
|
Inventories
|
|
|
642.5
|
|
|
|
620.0
|
|
|
|
22.5
|
|
|
|
3.6
|
%
|
Prepaid expenses and other current assets
|
|
|
171.8
|
|
|
|
132.2
|
|
|
|
39.6
|
|
|
|
30.0
|
%
|
Property, plant and equipment, net
|
|
|
830.3
|
|
|
|
775.9
|
|
|
|
54.4
|
|
|
|
7.0
|
%
|
Land use rights, net
|
|
|
—
|
|
|
|
29.8
|
|
|
|
(29.8
|
)
|
|
|
(100.0
|
)%
|
Long-term prepayments to equipment and construction suppliers
|
|
|
495.6
|
|
|
|
530.6
|
|
|
|
(35.0
|
)
|
|
|
(6.6
|
)%
|
Operating right of use assets, net
|
|
|
44.1
|
|
|
|
—
|
|
|
|
44.1
|
|
|
|
N/A
|
|
Other non-current assets
|
|
|
1.0
|
|
|
|
3.2
|
|
|
|
(2.2
|
)
|
|
|
(68.8
|
)%
|
Total assets
|
|
|
2,635.9
|
|
|
|
2,753.5
|
|
|
|
(117.6
|
)
|
|
|
(4.3
|
)%
|
Short-term bank loans, including current portion of long-term bank loans
|
|
|
680.2
|
|
|
|
729.7
|
|
|
|
(49.5
|
)
|
|
|
(6.8
|
)%
|
Bills payable
|
|
|
400.7
|
|
|
|
618.2
|
|
|
|
(217.5
|
)
|
|
|
(35.2
|
)%
|
Accounts payable
|
|
|
57.5
|
|
|
|
85.0
|
|
|
|
(27.5
|
)
|
|
|
(32.4
|
)%
|
Amounts due to related parties
|
|
|
26.3
|
|
|
|
18.4
|
|
|
|
7.9
|
|
|
|
42.9
|
%
|
Income taxes payable, including noncurrent portion
|
|
|
109.7
|
|
|
|
99.2
|
|
|
|
10.5
|
|
|
|
10.6
|
%
|
Accrued expenses and other current liabilities
|
|
|
86.6
|
|
|
|
126.9
|
|
|
|
(40.3
|
)
|
|
|
(31.8
|
)%
|
Long-term bank loans, excluding current portion
|
|
|
322.5
|
|
|
|
111.8
|
|
|
|
210.7
|
|
|
|
188.5
|
%
|
Deferred income
|
|
|
92.6
|
|
|
|
99.6
|
|
|
|
(7.0
|
)
|
|
|
(7.0
|
)%
|
Operating lease liabilities, non-current
|
|
|
14.4
|
|
|
|
—
|
|
|
|
14.4
|
|
|
|
N/A
|
|
Redeemable Series D convertible preferred stock
|
|
|
—
|
|
|
|
97.6
|
|
|
|
(97.6
|
)
|
|
|
(100.0
|
)%
|
Stockholders' equity
|
|
|
836.4
|
|
|
|
748.9
|
|
|
|
87.5
|
|
|
|
11.7
|
%
|
Stockholders' equity as of December 31, 2019
increased by 11.7% as compared to that of December 31, 2018 primarily due to the conversion of Series
D Preferred Stock into common stock on September 26, 2019. Cash, cash equivalents and restricted cash decreased by 37.8%
or US$138.6 million due to the operating cash outflows. Inventories increased by 3.6% as a result of more purchases of the raw
materials for the upcoming orders. Accounts receivable decreased by 24.6% mainly due to the provision of doubtful accounts of US$62.8
million for a UAE customer as a result of estimated probable collection issue. Prepaid expenses and other current assets increased
by 30.0% or US$39.6 million primarily because (i) advances to suppliers for purchasing raw materials increased by US$61.9 million;
(ii) value added taxes receivables increased by US$1.5 million, partially offset by (iii) other prepaid expenses decreased by US$10.8
million, which mainly included prepaid miscellaneous service fee, staff advance and interest receivable, and (iv) consideration
for sales of Shanghai Sales decreased by US$7.3 million. Property, plant and equipment increased by 7.0% as the equipment for upgrading
existing 100,000 metric tons of engineering plastics facilities was partially delivered in 2019. The aggregate short-term and long-term
bank loans increased by 19.2% due to using the line of credits to support operating and investing activities in HLJ Xinda Group
and Sichuan Xinda. We define the manageable debt level as the sum of aggregate short-term and long-term loans over total assets.
LIQUIDITY AND CAPITAL RESOURCES
Historically,
our primary uses of cash have been to finance working capital needs and capital expenditures for new production lines. We have
financed these requirements primarily from cash generated from operations, bank borrowings and the issuance of our convertible
preferred stocks and debt financings. As of December 31, 2019 and 2018, we had US$228.4 million and US$367.0 million, respectively,
in the total amount of cash, cash equivalents and restricted cash, which were primarily deposited with banks in China (including
Hong Kong and Macau SAR), UAE and U.S. As of December 31, 2019, we had US$680.2 million outstanding short-term bank loans (including
the current portion of long-term bank loans), including US$407.8 million unsecured loan and US$64.5 million loans secured by accounts
receivable, US$14.3 million loans secured by restricted cash, US$5.7 million loans secured by inventories, US$128.0 syndicated
loans, and US$59.9 million long-term bank loans that due in one year. We also had US$322.5 million long-term loans (excluding the
current portion), including US$1.3 million loans secured by an undated security cheque, and US$321.2 million unsecured loans. Short-term
and long-term bank loans in total bear a weighted average interest rate of 5.1% per annum and do not contain any renewal terms.
We have historically been able to make repayments when due.
A summary of lines of credit and the remaining
line of credits as of as of December 31, 2019 is as below:
(in millions)
|
|
December 31, 2019
|
|
|
Lines of Credit, Obtained
|
|
Remaining
Available
|
Name of Financial Institution
|
|
Date of Approval
|
|
RMB
|
|
USD
|
|
USD
|
Bank of China
|
|
July 28, 2017
|
|
|
194.9
|
|
|
|
28.1
|
|
|
|
—
|
|
Bank of Longjiang, Heilongjiang
|
|
October 14, 2019
|
|
|
1,020.1
|
|
|
|
146.2
|
|
|
|
—
|
|
Industrial and Commercial Bank of China
|
|
March 19, 2019
|
|
|
694.0
|
|
|
|
99.5
|
|
|
|
—
|
|
Agricultural Bank of China
|
|
September 11, 2019
|
|
|
400.0
|
|
|
|
57.3
|
|
|
|
—
|
|
Postal Savings Bank of China
|
|
October 21, 2019
|
|
|
100.0
|
|
|
|
14.3
|
|
|
|
—
|
|
Sichuan Tianfu Bank
|
|
April 17, 2019
|
|
|
50.0
|
|
|
|
7.2
|
|
|
|
—
|
|
Nanchong Shuntou Development Group Co., Ltd.
|
|
January 30, 2018
|
|
|
250.0
|
|
|
|
35.8
|
|
|
|
—
|
|
Industrial and Commercial Bank of China (Macau) Limited
|
|
December 18, 2019
|
|
|
893.1
|
|
|
|
128.0
|
|
|
|
—
|
|
Nanchong Rural Commercial Bank
|
|
January 31, 2019
|
|
|
250.0
|
|
|
|
35.8
|
|
|
|
—
|
|
Bank of Inner Mongolia
|
|
November 7, 2019
|
|
|
40.0
|
|
|
|
5.7
|
|
|
|
—
|
|
Harbin Rural Commercial Bank
|
|
January 31, 2019
|
|
|
350.0
|
|
|
|
50.2
|
|
|
|
—
|
|
Jianxin Financial Asset Investment Co., Ltd.
|
|
March 29, 2019
|
|
|
500.0
|
|
|
|
71.7
|
|
|
|
—
|
|
National Bank of Umm Al Qaiwain
|
|
December 26, 2018
|
|
|
3.0
|
|
|
|
0.4
|
|
|
|
—
|
|
Subtotal (credit term<=1 year)
|
|
|
|
|
4,745.1
|
|
|
|
680.2
|
|
|
|
—
|
|
Bank of Longjiang, Heilongjiang
|
|
June 17, 2019
|
|
|
2,090.4
|
|
|
|
299.7
|
|
|
|
—
|
|
National Bank of Umm Al Qaiwain
|
|
December 26, 2018
|
|
|
9.1
|
|
|
|
1.3
|
|
|
|
—
|
|
Nanchong Shuntou Development Group Co., Ltd
|
|
January 30, 2018
|
|
|
150.0
|
|
|
|
21.5
|
|
|
|
—
|
|
Subtotal (credit term>1 year)
|
|
|
|
|
2,249.5
|
|
|
|
322.5
|
|
|
|
—
|
|
Total
|
|
|
|
|
6,994.6
|
|
|
|
1,002.7
|
|
|
|
—
|
|
As of December 31, 2019, we have contractual
obligations to pay (i) lease commitments in the amount of US$27.7 million, including US$1.4 million due in one year; (ii) equipment
acquisition and facility construction in the amount of US$307.1 million; (iii) long-term bank loan in the amount of US$458.6 million
(including principals and interests).
We expect that we will be able to meet our
needs to fund operations, capital expenditures and other commitments in the next 12 months primarily with our cash and cash equivalents,
operating cash flows and bank borrowings.
We may, however, require additional cash resources
due to changes in business conditions or other future developments. If these sources are insufficient to satisfy our cash requirements,
we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity or equity-linked
securities could result in additional dilution to stockholders. The incurrence of indebtedness would result in increased debt service
obligations and could result in operating and financial covenants that would restrict operations. Financing may not be available
in amounts or on terms acceptable to us, or at all.
The following table sets forth a summary of our cash flows
for years ended December 31, 2019 and 2018.
|
|
For the Years Ended December 31,
|
(in millions US$)
|
|
2019
|
|
2018
|
Net cash (used in) provided by operating activities
|
|
|
(189.9
|
)
|
|
|
61.4
|
|
Net cash used in investing activities
|
|
|
(130.1
|
)
|
|
|
(1.7
|
)
|
Net cash provided by financing activities
|
|
|
185.9
|
|
|
|
2.2
|
|
Effect of foreign currency exchange rate changes on cash, cash equivalents and restricted cash
|
|
|
(4.5
|
)
|
|
|
(15.0
|
)
|
Net (decrease) increase in cash, cash equivalents, and restricted cash
|
|
|
(138.6
|
)
|
|
|
46.9
|
|
Cash, cash equivalents, and restricted cash at the beginning of period
|
|
|
367.0
|
|
|
|
320.1
|
|
Cash, cash equivalents, and restricted cash at the end of period
|
|
|
228.4
|
|
|
|
367.0
|
|
Operating Activities
Net cash used in operating activities was US$189.9
million for the year ended December 31, 2019, as compared to US$61.4 million provided by operating activities for the year ended
December 31, 2018, due to (i) the increase of approximately US$424.1 million in operating payments, including raw material purchases,
rental and personnel costs; (ii) the increase of US$21.0 million interest payments, (iii) the decrease of US$3.8 million interest
income and partially offset by (iv) the increase of approximately US$186.0 million in cash collected from our customers for the
year ended December 31, 2019, (v) the decrease of US$7.5 million income tax payments, (vi) the increase of US$2.5 million received
from government grant, and (vii) the decrease of US$1.6 million option contract loss.
Investing Activities
Net cash used in the investing activities
was US$130.1 million for the year ended December 31, 2019 compared to US$1.7 million for the same period of last year, mainly
due to (i) the decrease of US$540.0 million proceeds from maturity of time deposits, (ii) the decrease of US$104.8 million refund
of prepayment for property and equipment purchase, (iii) the decrease of US$15.3 million refund of deposits for acquisition of
equity, (iv) the decrease of US$9.3 million government grant, (v) the decrease of US$0.4 million proceeds from disposal of equipment,
partially offset by (vi) the decrease of US$275.1 million purchase of property, plant and equipment, (vii) the decrease of US$255.5
million purchase of time deposits, (viii) the increase of US$7.3 million net proceeds from sales of a subsidiary and (ix) the
decrease of US$3.5 million deposits for acquisition of equity.
Financing
Activities
Net cash provided by financing activities
was US$185.9 million for the year ended December 31, 2019, as compared to US$2.2 million for the same period of last year,
primarily as a result of (i) the increase of US$991.0 million from bank borrowings, (ii) the increase of US$62.7 million interest-free
advances from related parties, partially offset by (iii) the increase of US$793.3 million repayments of bank borrowings, (iv)
the increase of US$72.3 million repayments of interest-free advances to related parties and (v) the increase of US$4.4 million
of payments of issuance cost for syndicated loans.
As of December
31, 2019, our cash, cash equivalents and restricted cash balance was US$228.4 million, compared to US$367.0 million at December
31, 2018.
Days Sales Outstanding ("DSO")
has decreased from 84 days for the year ended December 31, 2018 to 72 days for the year ended December 31, 2019 as a result of
cash collection of overdue accounts receivable from an overseas customer in ROK in 2019.
It takes shorter to collect from our customers.
We believe that our DSO is still below industry average. Industry Standard Customer and Supplier Payment Terms (days) as below:
|
Year ended December 31, 2019
|
|
Year ended December 31, 2018
|
Customer Payment Term
|
Payment in advance/up to 90 days
|
|
Payment in advance/up to 90 days
|
Purchase Credit Term
|
Payment in advance/up to 90 days
|
|
Payment in advance/up to 90 days
|
Inventory turnover days increased from 178 days for the year ended December 31, 2018 to
185 days for the year ended December 31, 2019.
Turnover days of payables have decreased
from 53 days for the year ended December 31, 2018 to 21 days for the year ended December 31, 2019.
Based on past
performance and current expectations, we believe that our current cash and cash equivalents and anticipated cash flows from operating
activities will satisfy our working capital needs, capital expenditures and other liquidity requirements associated with our operations
for at least the next 12 months.
The majority of
the Company's revenues and expenses were denominated primarily in Renminbi ("RMB"), the currency of the People's Republic
of China. There is no assurance that exchange rates between the RMB and the U.S. Dollar will remain stable. Inflation has
not had a material impact on the Company's business.
COMMITMENTS AND CONTINGENCIES
Contractual Obligations
Our contractual obligations as of December 31, 2019 are as follows:
Contractual obligations
|
|
Total
|
|
Payment due
less than 1 year
|
|
1 – 3 years
|
|
3-5 years
|
|
More than 5
years
|
Commitments for purchase of equipments and construction in progress (2)(3)(4)(5)
|
|
|
307,111,861
|
|
|
|
284,467,075
|
|
|
|
22,644,786
|
|
|
|
—
|
|
|
|
—
|
|
Long-term bank loans (1)
|
|
|
458,577,127
|
|
|
|
98,746,902
|
|
|
|
105,644,787
|
|
|
|
118,511,468
|
|
|
|
135,673,970
|
|
Operating leases
|
|
|
27,651,673
|
|
|
|
1,386,090
|
|
|
|
2,817,506
|
|
|
|
2,868,955
|
|
|
|
20,579,122
|
|
Total
|
|
|
793,340,661
|
|
|
|
384,600,067
|
|
|
|
131,107,079
|
|
|
|
121,380,423
|
|
|
|
156,253,092
|
|
(1) Includes interest of US$76.2 million
accrued at the interest rate under the loan agreements. For borrowings with a floating rate, the most recent rate as of December
31, 2019 was applied.
(2) 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
RMB1.8 billion in property, plant and equipment and approximately RMB0.6 billion in working capital, for the construction of Sichuan
plant. As of December 31, 2019, the Company has a remaining commitment of RMB54.8 million (equivalent to US$7.9 million) mainly
for facility construction.
In September 2016,
Sichuan Xinda entered into equipment purchase contracts with Harbin Hailezi Science and Technology Co., Ltd. ("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
December 31, 2019, Sichuan Xinda 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 agreement purchase contract with Peaceful Treasure Limited ("Peaceful")
for a total consideration of RMB89.8 million (equivalent to US$12.9 million) to purchase certain production and testing equipment.
As of December 31, 2019, the Company has a commitment of RMB55.9 million (equivalent to US$8.0 million).
On November 15, 2016
and February 20, 2017, Sichuan Xinda entered into decoration contracts with Beijin Construction to perform indoor and outdoor decoration
work for a consideration of RMB240.5 million (equivalent to US$34.5 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 December 31, 2019, the Company has a remaining commitment of RMB142.9 million (equivalent to US$20.5
million).
Pursuant to the Nanchong Project mentioned
in Note 7 (i), Sichuan Xinda entered into equipment purchase contracts with Hailezi for a consideration of RMB2,242.8 million (equivalent
to US$321.5 million) to purchase production equipment and testing equipment in March 2017. By the end of June 2017, Sichuan Xinda
was about to launch a system including MES, SAP, ERP and CRM which caused the equipment of original contracts with Hailezi cannot
meet the production requirement. Thus the original contracts have been partially terminated with the uncancelled contract amount
to be RMB19.9 million (equivalent to US$2.9 million). As of December 31, 2019, Sichuan Xinda 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 RMB1.9 billion (equivalent to US$272.4 million). Pursuant to the contracts with Hailezi,
Sichuan Xinda has a remaining commitment of RMB190.0 million (equivalent to US$27.3 million) as of December 31, 2019.
(3) Heilongjiang plant construction and
equipment purchase
In connection with the equipment purchase contracts
with Hailezi signed On September 26, 2016 and February 28, 2017 and September 25, 2019 to purchase storage facility and other equipment
mentioned in Note 7 (i), HLJ Xinda Group has a remaining commitment of RMB77.5 million (equivalent to US$11.1 million) as of December
31, 2019.
In connection with the
"HLJ Project" mentioned in Note 7 (i), pursuant to the three investment agreements, the project total capital expenditure
will be RMB4,015.0 million (equivalent to be US$575.5 million), among which the investment in fixed assets shall be no less than
RMB3,295.0 million (equivalent to US$472.3 million) in total. Pursuant to the contracts with Hailezi signed in November 2017 and
2019 for 100,000 metric tons of engineering plastics located in Harbin mentioned in Note 7 (i), HLJ Xinda Group has a remaining
commitment of RMB37.8 million (equivalent to US$5.4 million) as of December 31, 2019.
In connection with the
HLJ project, on June 25, 2018 and July 12, 2018, HLJ Xinda Group entered into two equipment purchase contracts with Hailezi to
purchase production equipment, which will be used for 300,000 metrics tons of biological based composite material, located in Harbin,
for a consideration of RMB1,906.8 million (equivalent to US$273.3 million). Pursuant to the contracts with Hailezi, HLJ Xinda Group
has a remaining commitment of RMB1,366.8 million (equivalent to US$195.9 million) as of December 31, 2019.
In connection with the
equipment purchase contracts with Hailezi for Qinling Road Project and Jiangnan Road Project mentioned in Note 7 (i), the Company
has remaining commitments of RMB32.4 million (equivalent to US$4.6 million) and RMB142.7 million (equivalent to US$20.5 million)
for Qinling Road Project and Jiangnan Road Project respectively.
(4) Dubai equipment purchase
On May 31, 2019, Dubai Xinda entered into an
equipment purchase contract with Peaceful for a total consideration of US$18.8 million. As of December 31, 2019, the Company has
a remaining commitment of US$3.7 million.
(5) 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, 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, 2019, the Company has a remaining commitment of RMB0.6 million
(equivalent to US$0.1 million).
Off-Balance Sheet Arrangements
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$71.7)
from Longjiang Bank, Harbin Branch with an annual interest rate of 6.09% from December 25, 2018 to December 24, 2019. On December
24, 2019, the loan was extended October 23, 2020. 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. The loan was subsequently repaid early by Shanghai Sales
in April 2020.
On April 15, 2019, Sichuan Xinda provided guarantee
to Shanghai Sales obtaining a one-year loan of RMB800.0 million (equivalent to US$114.7 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. The loan was subsequently repaid by Shanghai Sales in April
2020.
On December 3, 2019, HLJ Xinda Group provided
guarantee to Heilongjiang Xinda Macromolecule Composite Materials Company Limited (“Macromolecule Composite Materials”)
obtaining a one-year loan of RMB612.2 million (equivalent to US$87.8 million) from Longjiang Bank, Harbin Branch with an annual
interest rate of 6.25%. If Macromolecule Composite Materials does not repay the above loan when due, HLJ Xinda Group shall be obliged
to repay the RMB612.2 million loan. The loan was subsequently repaid early by Shanghai Sales in April 2020.
In the event of Shanghai Sales and Macromolecule
Composite Materials defaults on the loans, the Company’s material loss contingency would be RMB1,951.0 million (equivalent
to US$279.7 million), including estimated interest expenses of RMB38.8 million (equivalent to US$5.6 million) as of December 31,
2019. As the Company estimated that the potential material loss contingency was not probable, no accrual for a loss contingency
was recognized for the year ended December 31, 2019.
Neither us, nor any of
our subsidiaries has any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on
their financial condition or results of operations.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest
Rate Risk
We
are exposed to interest rate risk primarily with respect to our short-term and long-term bank loans. Although the interest rates
of our short-term and long-term bank loans, which are based on the prime rates set by People's Bank of China, are fixed during
the terms of the loans, increase in interest rates will increase the cost of new borrowings and our interest expense.
A
hypothetical 1.0% increase in the annual interest rate for all of our credit facilities under which we had outstanding borrowings
as of December 31, 2019 would decrease income before income taxes by approximately US$10.0 million for the year ended December
31, 2019. Management monitors the banks' prime rates in conjunction with our cash requirements to determine the appropriate level
of debt balances relative to other sources of funds. We have not entered into any hedging transactions in an effort to reduce
our exposure to interest rate risk.
Foreign
Currency Exchange Rates
Majority
of our revenues are collected in and our expenses are paid in RMB. We face foreign currency rate translation risks when our results
are translated to U.S. dollars.
The
RMB was relatively stable against the U.S. dollar at approximately 8.28 RMB to the US$1.00 until July 21, 2005 when the Chinese
currency regime was altered resulting in a 2.1% revaluation versus the U.S. dollar. From July 21, 2005 to June 30, 2010, the RMB
exchange rate was no longer linked to the U.S. dollar but rather to a basket of currencies with a 0.3% margin of fluctuation resulting
in further appreciation of the RMB against the U.S. dollar. Since June 30, 2009, the exchange rate had remained stable at 6.8307
RMB to 1.00 U.S. dollar until June 30, 2010 when the People's Bank of China allowed a further appreciation of the RMB by 0.43%
to 6.798 RMB to 1.00 U.S. dollar. The People's Bank of China allowed the RMB and U.S. dollar exchange rate to fluctuate within
1% on April 16, 2012 and 2% on March 17, 2014 respectively. On December 31, 2019, the RMB traded at 6.9762 RMB to 1.00 U.S. dollar.
There
remains international pressure on the Chinese government to adopt an even more flexible currency policy and the exchange rate
of RMB is subject to changes in China's government policies which are, to a large extent, dependent on the economic and political
development both internationally and locally and the demand and supply of RMB in the domestic market. There can be no assurance
that such exchange rate will continue to remain stable in the future amongst the volatility of currencies, globalization and the
unstable economies in recent years. Since (i) our revenues and net income of our PRC operating entities are denominated in RMB,
and (ii) the payment of dividends, if any, will be in U.S. dollars, any decrease in the value of RMB against U.S. dollars would
adversely affect the value of the shares and dividends payable to shareholders, in U.S. dollars.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated
financial statements and supplementary financial information of the Company and its subsidiaries, including the notes thereto,
together with the report of our independent registered public accounting firm, are presented beginning on page F-1 of this report
and are incorporated into this Item 8.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls
and Procedures
Under the
supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we
evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Disclosure controls and procedures are controls and procedures that are
designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act
is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's
rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management,
including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding
required disclosure. Based on our assessment, the Chief Executive Officer and the Chief Financial Officer determined that, as
of December 31, 2019, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was
completed, because of the material weakness in our internal control over financial reporting described below, our disclosure controls
and procedures were not effective to satisfy the objectives for which they are intended.
Notwithstanding
management's assessment that our internal control over financial reporting was ineffective as of December 31, 2019 due to the
material weakness described below under Management's Annual Report on Internal Control Over Financial Reporting, we believe that
the consolidated financial statements included in this Annual Report on Form 10-K correctly present our financial condition, results
of operations and cash flows for the fiscal years covered thereby in all material respects.
(a) Management's Annual
Report on Internal Control Over Financial Reporting
Our management
is responsible for establishing and maintaining adequate internal control over the Company's financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's internal control over financial reporting is a process that
is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with accounting principles generally accepted in the United States and includes
those policies and procedures that:
(1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of our assets;
(2)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with accounting principles generally accepted in the United States and that our receipts and expenditures are being made only
in accordance with the authorization of our management and directors; and
(3)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets
that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the
supervision and with the participation of our management, including our principal executive officer and principal financial officer,
we conducted an evaluation of the effectiveness of our internal control over financial reporting based on a framework established
in Internal Control- Integrated Framework (2013) issued by the committee of Sponsoring Organizations of the Treadway Commission
(COSO) as of December 31, 2019. Based on such evaluation, our management, including the Chief Executive Officer and Chief Financial
Officer, has concluded that the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
of the Exchange Act) as of December 31, 2019 was ineffective. This assessment identified one material weakness related to lack
of sufficient accounting and financial reporting personnel to formalize certain key controls over the financial reporting process
and report financial reporting information based on generally accepted accounting principles and SEC reporting requirements.
Our internal control over financial
reporting is not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC
that permit the Company to provide only management’s report.
Changes in Internal Control
Over Financial Reporting
During
the twelve months ended December 31, 2019, our efforts to improve our internal controls over financial reporting included (1)
hiring additional qualified financial staff; (2) adopting procedures to evaluate and assess performance of directors, officers
and employees of the Company, (3) internal meetings, discussions, trainings and seminars periodically to review and improve our
internal control procedures. We plan to improve on the above-referenced weakness by the end of the fiscal year ending December
31, 2020.
Other than
the foregoing, there has been no other changes in our internal control over financial reporting (as such term is defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our fourth fiscal quarter ended December 31, 2019 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM
9B. OTHER INFORMATION
None.
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive
Officers
The following
table sets forth the names and ages of our current directors and executive officers, their age, their principal offices and positions
and the date each such person became a director or executive officer. Executive officers are appointed at the discretion of the
Board of Directors. Directors are elected annually by our stockholders at our annual meeting of stockholders. Each director holds
his office until his successor is elected and qualified or his earlier resignation or removal.
Our current directors and executive
officers are as follows:
Name(4)
|
|
Age
|
|
Title
|
|
Date of Initial Appointment
|
Jie Han
|
|
|
54
|
|
Chief Executive Officer and
Chairman of the Board of Directors
|
|
December 31, 2008
|
Taylor Zhang
|
|
|
41
|
|
Chief Financial Officer and Director
|
|
May
14, 2009
|
Linyuan Zhai (1)(2)(3)
|
|
|
70
|
|
Independent Director
|
|
May 14, 2009
|
Huiyi Chen (1)(3)
|
|
|
60
|
|
Independent Director
|
|
January 2, 2020
|
Guanbao Huang (1)(2)
|
|
|
57
|
|
Independent Director
|
|
January 2, 2020
|
Qingwei Ma
|
|
|
45
|
|
Chief Operating Officer and
Chief Technology Officer
|
|
December 31, 2008
|
(1) Serves as a member
of the Audit Committee.
(2) Serves as a member
of the Compensation Committee.
(3) Serves as a member
of the Nominating Committee.
(4) On March 6, 2019, Mr. Joseph
Chow resigned from the Board of Directors, and Mr. Xin Li was appointed by the Board as a director of the Company. On April 23,
2019, Mr. Jun Xu resigned from the Board of Directors, and Ryan Law was appointed by the stockholder holding all of the issued
and outstanding series D junior convertible preferred stock to serve as a director of the Company. As a result of the mandatory
conversion (by reason of the terms of the Series D Preferred Stock) on September 26, 2019, the term of office of Series D Director
nominees on the Board, namely Homer Sun and Ryan Law, was automatically terminated. On January 1, 2020, Xin Li, Feng Li, and Qingwei
Ma resigned from the Board of Directors. Huiyi Chen and Guanbao Huang were appointed by the Board as directors of the Company,
effective from January 2, 2020.
Jie Han.
Mr. Han co-founded Harbin Xinda Macromolecule Material Co., Ltd. ("Harbin Xinda"), the Company's wholly owned subsidiary,
has been employed by Harbin Xinda since 2004. In January 2008, Mr. Han was appointed Chairman and Chief Executive Officer of Harbin
Xinda. Prior to organizing Xinda High-Tech Co., Ltd ("Xinda High-Tech"), which was founded in 2003, Mr. Han had been
associated with the Harbin Xinda Nylon Factory, which he founded in 1985. With 31 years of experiences in the industry, Mr. Han
is an expert in the management and financial aspects of the manufacture and distribution of modified plastic products. Mr. Han
contributes to our Board of Directors strong leadership and vision for the development of our Company. Based on the above-described
expertise, background and experience, we believe that Mr. Han is qualified to serve as a member of our Board.
Mr. Han
currently serves as an executive director of China Plastic Processing Industry Association and is also a director of the Heilongjiang
Industry and Commerce Association. In addition, Mr. Han serves as a deputy to the Harbin Municipal People's Congress. Mr. Han
received a business management degree from the Heilongjiang Provincial Party School.
Taylor
Zhang. Mr. Zhang has over 15 years of experience in finance and operation in a broad range of industries. Mr. Zhang has been
employed as a Chief Financial Officer of the Company since May 2009. From May 2008 to March 2009, Mr. Zhang served as Chief Financial
Officer of Advanced Battery Technologies, Inc. From 2007 to 2008, he served as the Executive Vice President of Finance of China
Natural Gas, Inc. From 2005 to 2007, Mr. Zhang worked as a research analyst in New York Private Equity. From 2000 to 2002, he
was employed as Finance Manager by Datong Thermal Power Limited. Mr. Zhang contributes to our Board of Directors with extensive
experience in finance and operations. He holds an MBA from University of Florida and a Bachelor's Degree in mechanical and electronic
engineering from Beijing Technology and Business University. Based on the above-described expertise, background and experience,
we believe that Mr. Zhang is qualified to serve as a member of our Board.
Linyuan
Zhai. Mr. Zhai worked for China FAW Group Corporation for 37 years and has contributed to our Board of Directors with extensive
experience in terms of technology, production, and business management. He is one of the pioneers and outstanding contributors
of FAW Group's success. Since 2000, Mr. Zhai has served as general manager of FAW Sihuan Products Co., Ltd., an automobile manufacturing
company. From August 1998 to December 2000, Mr. Zhai was the manufacturing section chief at FAW Sihuan Head Office. From August
1992 to August 1998, Mr. Zhai was the factory manager at FAW Sihuan Auto Warm Air Blower Factory. In 2000, as deputy general manager,
Mr. Zhai successfully led the initial public offering of Four Ring Company, a subsidiary of FAW Group, a leader in the vehicle
manufacturing industry based in China. Mr. Zhai received his business management degree from Changchun University. Based on the
above-described expertise, background and experience, we believe that Mr. Zhai is qualified to serve as a member of our Board.
Huiyi
Chen. Mr. Chen has extensive experience in financial management in the banking industry. He has held supervisory and management
positions in the Industrial and Commercial Bank of China Limited, the People’s Bank of China, and the Bank of Communication,
respectively. From 2000 to 2016, Mr. Chen served as a credit officer and vice president of the Heilongjiang Branch of the Bank
of Communication. He was the president of the Harbin Branch of the Bank of Communication from 1999 to 2000. From 1986 to 1999,
Mr. Chen worked in the People’s Bank of China and served as the deputy director for the Heilongjiang Branch and the Shenyang
Branch, the vice president for the Qiqihar Center Branch, and the vice president and the president of the Fuyu County Branch.
From 1984 to 1986, Mr. Chen served as the vice president for the Industrial and Commercial Bank of China’s Fuyu County Branch.
Mr. Chen graduated from Heilongjiang Banking Professional School in 1983. Based on the above-described expertise, background and
experience, we believe that Mr. Chen is qualified to serve as a member of our Board.
Guanbao
Huang. Mr. Huang has been engaged in the teaching and research of polymer materials for more than twenty years. His research
areas include polyester synthesis and modification, resin-based fiber reinforced materials, and cellulose processing. Mr. Huang
has published more than 50 academic papers and co-authored or translated three books, and has been the associate professor of
Beijing Institute of Fashion Technology since 1994. Mr. Huang’s project on “High Viscosity Polyester Chip” won
the third prize of National Science and Technology Progress Award in 1993, and his project on “Disperse Dyes Atmospheric
Pressure Dyeable Copolyether Ester (EDDP-1) and Fiber” won the second prize of Beijing Municipal Science and Technology
Progress in 1999. In 1997, Mr. Huang received the first prize of the first Hong Kong Sang Ma Foundation Science and Technology
Award. He currently served as the deputy chairman of Beijing Chaoyang District Committee, China Democratic National Construction
Association, and the director for Liyang Huajing Polyester Green Catalyst Co., Ltd. and the director of Shaanxi Zhongxin Biodegradable
Materials Co., Ltd. Based on the above-described expertise, background and experience, we believe that Mr. Huang is qualified
to serve as a member of our Board.
Qingwei
Ma. Mr. Ma has been employed as General Manager of Harbin Xinda since it was founded in 2004. In 2008, he was promoted to
Chief Operating Officer and appointed to the Board of Directors. Prior to joining Harbin Xinda, Mr. Ma was employed for six years
by Harbin Xinda Nylon Factory as Manager of Quality Assurance, then as Manager of Research and Development, and finally as Production
Manager. In 1997, Mr. Ma was awarded a bachelor's degree by the Northern China Technology University, where he specialized in
the chemical engineering of high polymers. Mr. Ma has 18 years of experiences in the modified plastics industry and contributes
to our Board of Directors with such extensive experience. He also published two articles in China's key journals in the areas
of modified plastic industry. In 2001, Mr. Ma was selected as "Harbin Quality Work Advanced Enterprise and Advanced Worker"
and in 2004, he was awarded the Heilongjiang First Professional Manager Qualification Certificate. One of his inventions, "compound
nano modified materials dedicated to the automobile bumper," won the "Science and Technology Progress Awards" issued
by Harbin Municipality. Based on the above-described expertise, background and experience, we believe that Mr. Ma is qualified
to serve as chief operating officer and chief technology oficer.
Family
Relationships
There are
no family relationships between or among any of the executive officers or directors of the Company.
Board
Leadership Structure
The Board
of Directors believes that Jie Han's service as both Chairman of the Board of Directors and Chief Executive Officer is in the
best interest of the Company and its stockholders. Mr. Han possesses detailed and in-depth knowledge of the issues, opportunities,
and challenges facing the Company, and is thus best positioned to develop agendas that ensure that the time and attention of our
Board of Directors are focused on the most critical matters. His combined role enables decisive leadership, ensures clear accountability,
and enhances the Company's ability to communicate its message and strategy clearly and consistently to the Company's stockholders,
employees and customers.
Each of
the directors other than Jie Han and Taylor Zhang is independent (see "Director Independence" below), and the Board
of Directors believes that the independent directors provide effective oversight of management. The Board of Directors has not
designated a lead director. Our independent directors call and plan their executive sessions collaboratively and, between
Board of Directors meetings, communicate with management and one another directly. In the circumstances, the directors
believe that formalizing in a lead director functions in which they all participate might detract from rather than enhance performance
of their responsibilities as directors.
Director
Qualifications
We seek
directors with established strong professional reputations and experience in areas relevant to the strategy and operations of
our businesses. We also seek directors who possess the qualities of integrity and candor, who have strong analytical
skills and who are willing to engage management and each other in a constructive and collaborative fashion, in addition to the
ability and commitment to devote significant time and energy to service on the Board of Directors and its committees. We
believe that all of our directors meet the foregoing qualifications.
The Nominating
Committee and the Board of Directors believe that the leadership skills and other experiences of the members of its Board of Directors,
as described "Item 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE – Directors and Executive Officers",
provide the Company with a range of perspectives and judgment necessary to guide our strategies and monitor their execution.
Board
of Directors Practices
Our business
and affairs are managed under the direction of our Board of Directors. The primary responsibilities of our Board of Directors
are to provide oversight, strategic guidance, counseling and direction to our management. It is our expectation that the Board
of Directors will meet regularly on a quarterly basis and additionally as required.
Board
of Directors' Role in Risk Oversight
The Board
of Directors as a whole has responsibility for risk oversight, with reviews of certain areas being conducted by the relevant Board
of Directors committees. These committees then provide reports to the full Board of Directors. The oversight responsibility
of the Board of Directors and its committees is enabled by management reporting processes that are designed to provide visibility
to the Board of Directors about the identification, assessment, and management of critical risks. These areas of focus
include strategic, operational, financial and reporting, succession and compensation, compliance, and other risks. The
Board of Directors and its committees oversee risks associated with their respective areas of responsibility, as summarized below.
Meetings
of the Board of Directors
The Board
of Directors held eight meetings during 2019. No director attended fewer than 75% of the meetings of the Board of Directors.
No director attended less than 75% of any meeting of a committee of which the director was a member in fiscal year 2019.
Involvement
in Certain Legal Proceedings
None of
our directors and officers has been involved in any of the legal proceedings specified in Item 401(f) of Regulation S-K in the
past 10 years.
Committees
of the Board of Directors
Our Board
of Directors has an Audit Committee, a Nominating Committee, and a Compensation Committee. Our Board of Directors has determined
that Linyuan Zhai, Huiyi Chen and Guanbao Huang, the members of these committees, are "independent" under the current
independence standards of NASDAQ Marketplace Rule 5605(a)(2) and meet the criteria for independence set forth in Rule 10A-3(b)(1)
under the Exchange Act. Our Board of Directors has also determined that these persons have no material relationships with us —
either directly or as a partner, stockholder or officer of any entity — which could be inconsistent with a finding of their
independence as members of our Board of Directors.
Audit
Committee
The Audit
Committee was established on May 26, 2009. The Audit Committee operates under a written charter. The Audit
Committee Charter can be found on our website at www.cxdc.net and can be made available in print free of charge to any shareholder
who requests it.
The Audit
Committee's charter states that the responsibilities of the Audit Committee shall include, among other things:
●
|
reviewing the Audit Committee's charter, annual
report to stockholders and reports submitted to the SEC;
|
●
|
appointing the Company's independent auditors, confirming
and reviewing their independence, and approving their fees;
|
●
|
reviewing the independent auditors' performance;
|
●
|
discussing with the independent auditor and management
the independent auditor's judgment about the quality, not just the acceptability, of the Company's accounting principles;
|
●
|
following an audit, reviewing significant difficulties
encountered during the audit; and
|
●
|
reviewing significant disagreements among management
and the independent auditors in the preparation of the Company's financial statements.
|
In addition,
the Audit Committee reviews and approves all transactions with affiliates, related parties, directors and executive officers.
The Audit
Committee held four meetings in 2019. The members of the Audit Committee during 2019 were Feng Li (resigned on January 1, 2020), Linyuan
Zhai, Joseph Chow (resigned on March 6, 2019) and Xin Li (appointed on March 6, 2019 and resigned on January 1, 2020). Mr.
Chow served as the Chairman of the Audit Committee since November 16, 2017 until his resignation on March 6, 2019. Following Mr.
Chow’s resignation, Mr. Xin Li served as the Chairman of the Audit Committee from March 6, 2019 till his resignation on
January 1, 2020, and Mr. Huiyi Chen has served as the Chairman of the Audit Committee since January 2, 2020. Currently, our
Audit Committee consists of Huiyi Chen, Linyuan Zhai and Guanbao Huang. Each of the above-listed Audit Committee members were
or are considered "independent" under the current independence standards of NASDAQ Marketplace Rule 5605(a)(2) and meet
the criteria for independence set forth in Rule 10A-3(b)(1) of the Exchange Act, as determined by the Board of Directors.
Our Board
of Directors has determined that we have at least one audit committee financial expert, as defined in the Exchange Act, serving
on our Audit Committee. Joseph Chow (resigned on March 6, 2019) and Xin Li (appointed on March 6, 2019 and resigned on January
1, 2020) were the "audit committee financial expert" and were independent members of our Board of Directors during the
year ended December 31, 2019. Since January 2, 2020, Huiyi Chen has been determined by the Board as the “audit committee
financial expert” and is an independent member of our Board of Directors.
AUDIT
COMMITTEE REPORT
The Audit
Committee has reviewed and discussed our consolidated financial statements for the fiscal year ended December 31, 2019, including
significant accounting policies applied by the Company in its consolidated financial statements, as well as alternative treatments
with management and the Company's independent registered public accounting firm. The Committee has discussed with the
independent registered public accounting firm all matters required by the standards of the Public Company Accounting Oversight
Board (the "PCAOB"), including those described in Auditing Standard No. 16, Communications with Audit Committees.
In addition,
the Committee has received the letter from the independent registered public accounting firm required by the applicable PCAOB
requirements concerning auditor independence, and the Committee has discussed with the independent registered public accounting
firm their independence from the Company and its management. The Committee has also considered whether the independent registered
public accounting firm's provision of non-audit services to the Company could affect the accountant's independence. The Committee
has concluded that the independent registered public accounting firm is independent from the Company and its management. The Committee
has discussed with the Company's independent registered public accounting firm the overall scope and plans for its audit.
Based on
the Audit Committee's review of the matters noted above and its discussions with our independent registered public accounting
firm and our management, the Audit Committee recommended to the Board of Directors that the financial statements be included in
our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Respectfully
submitted by members of the Audit Committee:
Huiyi Chen, Chairman, from January
2, 2020
Linyuan Zhai
Guanbao
Huang, from January 2, 2020
Nominating
Committee
The Nominating
Committee was established on May 26, 2009. The purpose of the Nominating Committee is to assist the Board of Directors
in identifying qualified individuals to become members of the Board of Directors, in making recommendations to the Board of Directors
as to the independence of each director, in monitoring significant developments in the law and practice of corporate governance
and of the duties and responsibilities of directors of public companies, and in leading the Board of Directors in any annual performance
self-evaluation, including establishing criteria to be used in connection with such evaluation. The Nominating Committee
held four meetings during 2019.
The members
of the Nominating Committee during 2019 were Joseph Chow (resigned on March 6, 2019), Xin Li (appointed on March 6, 2019 and resigned
on January 1, 2020), Feng Li (resigned on January 1, 2020) and Linyuan Zhai. Mr. Zhai served as the Chairman of the Nominating
Committee. Currently, our Nominating Committee consists of Linyuan Zhai and Huiyi Chen. Each of the above-listed Nominating
Committee members is considered "independent" under the current independence standards of NASDAQ Marketplace Rule 5605(a)(2)
and meets the criteria for independence set forth in Rule 10A-3(b)(1) of the Exchange Act, as determined by the Board of Directors.
The Nominating
Committee operates under a written charter. The Nominating Committee Charter can be found on our website at www.chinaxd.net
and can be made available in print free of charge to any shareholder who requests it.
On September
28, 2011 the Company filed a Certificate of Designation with the Secretary of State of the State of Nevada (amended on January
24, 2014 and filed with the Secretary of State of the State of Nevada on January 27, 2014), which provides the holders of the
Series D Preferred Stock with the right to elect up to two (2) directors to the Company’s Board of Directors on the terms
and conditions set forth therein. On September 26, 2019, the Company amended the Certificate of Designation as a result of the
mandatory conversion (by reason of the terms of the Series D Preferred Stock), and the term of office of Series D Director nominees
on the Board, namely Homer Sun and Ryan Law, was automatically terminated. There have been no other changes to the procedures
by which the stockholders of the Company may recommend nominees to the Board of Directors since the filing of the Company's Definitive
Proxy Statement on November 19, 2009 for its Annual Meeting of Stockholders, which was held on December 1, 2009. The
Nominating Committee will consider director candidates recommended by any reasonable source, including current Board of Directors
members, stockholders, professional search firms or other persons. The directors will not evaluate candidates differently
based on who has made the recommendation. The Board of Directors does not have a formal policy on Board of Directors
candidate qualifications. The Board of Directors may consider those factors it deems appropriate in evaluating director
nominees made either by the Board of Directors or stockholders, including judgment, skill, strength of character, experience with
businesses and organizations comparable in size or scope to the Company, experience and skill relative to other Board of Directors
members, and specialized knowledge or experience in business or financial matters as would make such nominee an asset to the Board
of Directors and may, under certain circumstances, be required to be "independent," as such term is defined in the NASDAQ
Marketplace Rules and applicable SEC regulations. Depending upon the current needs of the Board of Directors, certain
factors may be weighed more or less heavily. In considering candidates for the Board of Directors, the directors evaluate
the entirety of each candidate's credentials and do not have any specific minimum qualifications that must be met.
Security
holders wishing to submit the name of a person as a potential nominee to the Board of Directors must send the name, address, and
a brief (no more than 500 words) biographical description of such potential nominee to the Nominating Committee at the following
address: Nominating Committee of the Board of Directors, c/o China XD Plastics Company Limited, 13620 38th Avenue, Suite 3A-1,
Room 105, Flushing, New York 11354. Potential director nominees will be evaluated by personal interview, such interview
to be conducted by one or more members of the Nominating Committee, and/or any other method the Nominating Committee deems appropriate,
which may, but need not, include a questionnaire. The Nominating Committee may solicit or receive information concerning
potential nominees from any source it deems appropriate. The Nominating Committee need not engage in an evaluation
process unless (i) there is a vacancy on the Board of Directors, (ii) a director is not standing for re-election, or (iii) the
Nominating Committee does not intend to recommend the nomination of a sitting director for re-election. A potential
director nominee recommended by a security holder will not be evaluated any differently than any other potential nominee. Although
it has not done so in the past, the Nominating Committee may retain search firms to assist in identifying suitable director candidates.
Compensation
Committee
The Compensation
Committee was established on May 26, 2009. The members of the Compensation Committee during 2019 were Feng Li (resigned on
January 1, 2020), Homer Sun (until September 30, 2019) and Linyuan Zhai. Mr. Li served as the Chairman of the Compensation
Committee. Currently, our Compensation Committee consists of Linyuan Zhai and Guanbao Huang. Each of these members was or is considered
"independent" under the current independence standards of NASDAQ Marketplace Rule 5605(a)(2) and meets the criteria
for independence set forth in Rule 10A-3(b)(1) of the Exchange Act, as determined by the Board of Directors.
The Compensation
Committee operates under a written charter. The Compensation Committee Charter can be found on our website at www.chinaxd.net
and can be made available in print free of charge to any shareholder who requests it.
The Compensation
Committee discharges the Board of Directors' responsibilities relating to compensation of the Company's executive officers and
administers our 2009 Stock Option/Stock Issuance Plan, supplemented by "Stock Award Grant Supplemental Provisions" in
July 2013 (collectively, the "2009 Plan") and the 2020 Stock Option/Stock Issuance Plan (the “2020 Plan”,
which was adopted on January 10, 2020). The Compensation Committee reviews and recommends to the Board of Directors the compensation
and benefits of all of the Company's officers and reviews general policy matters relating to compensation and benefits of the
Company's employees. The Committee has overall responsibility for approving and evaluating the executive officer compensation
plans, policies and programs of the Company. The Compensation Committee held two meetings during 2019.
The Compensation
Committee is composed solely of independent, non-employee directors. None of the members of the Compensation Committee have any
relationships requiring disclosure by the Registrant under Item 404 of SEC Regulation S-K. None of the Company’s executive
officers served as a director or a member of a compensation committee (or other committee serving an equivalent function) of any
other entity, an executive officer of which served as a director of the Company or member of the Compensation Committee during
2019.
Special
Committee
In May 2020,
our board of directors formed a Special Committee of independent directors consisting of Linyuan Zhai, Huiyi Chen and Mr. Guanbao
Huang, with Huiyi Chen serving as chairperson of the Special Committee, in response to a preliminary non-binding proposal letter
from the Buyer Group notifying our board of directors of their interest in acquiring all of our outstanding shares of common stock
not already beneficially owned by them in a proposed going-private transaction. See “Item 1. Business—Our History.”
Code
of Business Conduct
We have
adopted a code of business conduct that applies to our directors, officers and employees. A written copy of the code can be found
on our website at www.chinaxd.net and can be made available in print to any shareholder upon request at no charge by writing to
our Secretary, c/o China XD Plastics Company Limited, 13620 38th Avenue, Suite 3A-1, Room 105, Flushing, New York 11354. Our
code of business conduct is intended to be a codification of the business and ethical principles which guide us, and to deter
wrongdoing, to promote honest and ethical conduct, to avoid conflicts of interest, and to foster full, fair, accurate, timely
and understandable disclosures, compliance with applicable governmental laws, rules and regulations, the prompt internal reporting
of violations and accountability for adherence to the code.
Executive
Sessions
Under NASDAQ
Marketplace Rule 5605(b)(2), our independent directors are required to hold regular executive sessions. The chairperson of the
executive session will rotate at each session so that each non-management director shall have an opportunity to serve as chairperson.
Interested parties may communicate directly with the presiding director of the executive session or with the non-management directors
as a group, by directing such written communication to Linyuan Zhai at c/o China XD Plastics Company Limited, 13620 38th Avenue,
Suite 3A-1, Room 105, Flushing, New York 11354.
Process
for Sending Communications to the Board of Directors
The Board
of Directors maintains a process for stockholders to communicate with the Board of Directors. Stockholders wishing
to communicate with the Board of Directors or any individual director may send an email through our website at www.chinaxd.net
or mail a communication addressed to the Secretary of the Company, c/o China XD Plastics Company Limited, 13620 38th Avenue, Suite
3A-1, Room 105, Flushing, New York 11354. Any such communication must state the number of shares of common stock beneficially
owned by the stockholder making the communication. All of such communications will be forwarded to the full Board of
Directors or to any individual director or directors to whom communication is directed unless the communication is clearly of
a marketing nature or is inappropriate, in which case we have the authority to discard the communication or take appropriate legal
action regarding the communication.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act of 1934, requires the executive officers and directors of the Company and every person who is directly
or indirectly the beneficial owner of more than 10% of any class of security of the Company to file reports of ownership and changes
in ownership with the Securities and Exchange Commission. Such persons also are required to furnish our company with
copies of all Section 16(a) forms they file. Based solely on our review of copies of such forms received by us, we
believe that during the fiscal year 2019 all of the executive officers and directors of the Company and every person who is directly
or indirectly the beneficial owner of more than 10% of any class of security of the Company complied with the filing requirements
of Section 16(a) of the Exchange Act.
ITEM
11. EXECUTIVE COMPENSATION
Compensation
Discussion and Analysis
The following
is a discussion and analysis of our named executive officer compensation program for the year ended December 31, 2019 detailing
what we pay to our named executive officers and how our compensation objectives and policies help achieve our business objectives.
Overview
of Compensation Program
Our Compensation
Committee has responsibility for establishing, implementing and monitoring adherence to our compensation philosophy and objectives.
Our Compensation Committee is responsible for ensuring that the total compensation paid to our executive officers is fair, reasonable
and competitive. Our compensation decisions with respect to executive officer salaries, annual incentives and long-term incentive
opportunities are influenced by (a) the officer's level of responsibility and function; (b) our overall financial performance
and, in some cases, the officer's business unit; and (c) our assessment of the competitive marketplace, including other peer
companies.
Compensation
Philosophy and Objectives
All of our
compensation programs, including our executive compensation programs, are designed to attract and retain key employees in the
highly competitive modified plastic marketplace in China. Our executive compensation programs are also designed to motivate our
executives to achieve and reward them for superior performance in attaining corporate and individual objectives that create stockholder
value. Different programs, including both cash and stock-based compensation, are geared towards short-term and long-term performance,
respectively, with the goal of aligning employee interests with stockholder interests and increasing stockholder value over the
long term. Executive compensation programs impact all employees by setting general levels of compensation and creating an environment
of goals, reward and expectations. Finally, we endeavor to ensure that our compensation programs are viewed as fundamentally fair
to our stockholders.
During the
year ended December 31, 2019, the compensation packages for our executives mainly included cash compensation. No bonuses
or stock-based compensation were granted as performances were short of annual goal of revenues and net income due to
the weakening economic environment and industry declining trend.
Compensation
Programs and Process
Elements
of Compensation
Elements
of compensation for our named executive officers include base salary, non-equity incentive compensation, equity incentive awards,
pension plan, health, disability and life insurance and certain other perquisites. We use salary as the base amount necessary
to match our competitors for executive talent. We utilize cash incentive payments to reward performance achievements over the
course of a one-year horizon and we use equity incentive awards to reward long-term performance, with excellent corporate performance
and extended tenure producing potentially significant value for our named executive officers. We believe that this combination
of programs provides an appropriate mix of fixed and variable pay, balances short-term operational performance with long-term
stockholder value, and encourages executive recruitment and retention.
During the
year ended December 31, 2019 and 2018, the elements of compensation for our named executive officers include just cash salary
and a discretionary bonuses.
Compensation
Process
Our Compensation
Committee is responsible for establishing, implementing and monitoring the compensation of our named executive officers. When
making compensation decisions, our Compensation Committee analyzes the dollar amount of each component of the executive officer's
compensation, including current cash compensation (base salary and non-equity plan incentive compensation), long-term equity incentive
program compensation, and any other compensation.
Except as
set forth below, our Compensation Committee has not adopted any formal or informal policies or guidelines for allocating compensation
between long-term and currently paid out compensation, or between cash and non-cash compensation. However, our philosophy is to
pay our executive officers competitive levels of compensation that best reflect their individual responsibilities and contributions
to us.
We
choose to pay each element of compensation in order to attract and retain necessary talent, reward annual performance (on an individual,
business unit and enterprise-wide basis) and provide incentives for achieving long-term strategic goals as well as short-term
objectives. The amount of each element of compensation is determined by our Compensation Committee in consultation with our CEO
with respect to the other named executive officers, and, with respect to the CEO, by our Compensation Committee. Compensation
decisions for all named executive officers, on semi-annual and annual evaluations take into account of the following factors:
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•
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Performance against corporate and individual objectives
for the previous year;
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|
•
|
|
Value of skills and capabilities to support our
long-term performance;
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•
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Performance of general management responsibilities;
and
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•
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Contribution as a member of our executive management
team.
|
Base
Salary
Base
salary levels for our named executive officers are intended to compensate executives competitively within the modified plastic
marketplace in China. Base salary rewards core competence in an executive role relative to an officer's skills, experience and
contributions to our business. Base salaries are determined on an individual basis by evaluating each executive officer's scope
of responsibility, past performance, and data on prevailing compensation levels in an appropriate market comparison group. There
is no adjustment of base salary for our named executive officers given that each of them is under a five-year term agreement with
the Company.
In
2019, pursuant to the Company's 2010 Executive Compensation Program which sets forth cash and stock compensation of the Company's
executives and directors, including the Company's named executive officers, the executive officers are entitled to receive
compensation as follows:
Compensation
for Mr. Jie Han, the Company's Chief Executive Officer: For fiscal year ended December 31, 2019, Mr. Han is entitled to a
base salary of $43,003 (RMB 300,000) per month from January to December. In addition, Mr. Han did not receive a discretionary
bonus as determined by the Compensation Committee of the Board of Directors at the end of the fiscal year due to the company-wide
performance was short of annual goal of revenues and net income due to the weakening economic environment and auto industry declining
trend.
Compensation
for Mr. Taylor Zhang, the Company's Chief Financial Officer: For fiscal year ended December 31, 2019, Mr. Zhang
is entitled to a monthly base salary of US$21,518. On August 8, 2015, Mr. Zhang received 20,440 non-vested shares, under our 2009
Stock Option/Stock Issuance Plan. The restricted shares shall were on the third anniversary of the grant date. In addition,
Mr. Zhang did not receive a discretionary bonus as determined by the Compensation Committee of the Board of Directors at the end
of the fiscal year due to the company-wide performance was short of annual goal of revenues and net income due to the weakening
economic environment and auto industry declining trend.
Compensation
for Mr. Qingwei Ma, the Company's Chief Operating Officer: For fiscal year ended December 31, 2019, Mr. Ma is entitled
to a base salary of US$11,468 (RMB 80,000) per month from January to December. On August 7, 2015, Mr. Ma received 20,440 non-vested
shares, under our 2009 Stock Option/Stock Issuance Plan. The restricted shares shall vest on the third anniversary of the grant
date. In addition, Mr. Ma did not receive a discretionary bonus as determined by the Compensation Committee of the Board of Directors
at the end of the fiscal year due to the company-wide performance was short of annual goal of revenues and net income due to the
weakening economic environment and auto industry declining trend.
2009
Stock Option / Stock Issuance Plan
On
May 26, 2009, we adopted our 2009 Stock Option / Stock Issuance Plan, supplemented by "Stock Award Grant Supplemental Provisions"
in July 2013 (the "2009 Plan"), under which 7,800,000 shares of common stock are reserved for issuance. The 2009
Plan provides for the grant of the following types of incentive awards: (i) stock options and (ii) stock issuances. Each of these
is referred to individually as an "Award." Those who are eligible for Awards under the 2009 Plan include employees,
directors and independent contractors who provide services to the Company and/or its affiliates.
The Board
of Directors has reserved 7,800,000 shares of the common stock for issuance under the 2009 Plan. As of December 31, 2019, 4,349,376
stock awards and 1,170,500 options have been granted under the 2009 Plan. The 2009 Plan was terminated in accordance with
its terms on May 26, 2019, after which we are not allowed to grant equity awards thereunder.
2020
Stock Option / Stock Issuance Plan
On
January 10, 2020, we adopted our 2020 Stock Option / Stock Issuance Plan (the "2020 Plan"), under which 13,000,000 shares
of common stock are reserved for issuance. The 2020 Plan provides for the grant of the following types of incentive awards:
(i) stock options and (ii) stock issuances. Each of these is referred to individually as an "Award." Those who are eligible
for Awards under the 2020 Plan include employees, directors and independent contractors who provide services to the Company and/or
its affiliates.
Number
of Shares of Common Stock Available Under the 2020 Plan
The Board
of Directors has reserved 13,000,000 shares of the common stock for issuance under the 2020 Plan. Currently, approximately
45 employees and directors are eligible to participate in the 2020 Plan.
If the Company
declares a dividend or other distribution or engages in a recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of shares or other securities of the Company,
or other change in the corporate structure of the Company affecting the Company's common stock, the Board of Directors will adjust
the number and class of shares that may be delivered under the 2020 Plan, the number, class, and price of shares covered by each
outstanding Award, and the numerical per-person limits on Awards.
Shares of
common stock subject to outstanding options shall be available for subsequent issuance under the 2020 Plan to the extent (1) the
options expire or terminate for any reason prior to exercise in full or (2) the options are cancelled in accordance with the 2020
Plan. Unvested shares issued under the 2020 Plan and subsequently repurchased by the Company, at a price per share not greater
than the option exercise or direct issue price paid per share, pursuant to the Company's repurchase rights under the 2020 Plan
shall be added back to the number of shares of common stock reserved for issuance under the 2020 Plan and shall accordingly be
available for reissuance through one or more subsequent option grants or direct stock issuances under the 2020 Plan.
Administration
of the 2020 Plan
The Board
of Directors administers the 2020 Plan. However, any or all administrative functions otherwise exercisable by the Board of Directors
may be delegated to a committee of the Board of Directors (the "Committee"). Members of the Committee serve for such
period of time as the Board of Directors may determine and shall be subject to removal by the Board of Directors at any time.
The Board of Directors may also at any time terminate the functions of the Committee and reassume all powers and authority previously
delegated to the Committee. Subject to the terms of the 2020 Plan, the Board of Directors has the sole discretion to
select the employees, independent contractors, and directors who will receive Awards, determine the terms and conditions of Awards,
and to interpret the provisions of the 2020 Plan and outstanding Awards.
Options
The Board
of Directors is able to grant nonqualified stock options and incentive stock options under the 2020 Plan. The Board of Directors
determines the number of shares subject to each option. Incentive options may only be granted to employees. The aggregate
fair market value of the shares of common stock for which one or more options granted to any employee under the 2020 Plan may
for the first time become exercisable as incentive options during one calendar year may not exceed $100,000.
The Board
of Directors determines the exercise price of options granted under the 2020 Plan, provided the exercise price (i) of incentive
stock options must be at least equal to the fair market value of the common stock on the date of grant and (ii) of non-statutory
stock options must be at least equal to 85% of the fair market value of the common stock on the date of grant. In addition, the
exercise price of an incentive stock option granted to any participant who owns more than 10% of the total voting power of all
classes of the Company's outstanding stock must be at least 110% of the fair market value of the common stock on the grant date.
The term
of an option may not exceed ten years, except incentive stock options granted to an employee who is a 10% stockholder may not
exceed five years.
Unless otherwise
determined by the Board of Directors, after a termination of service with the Company, a participant will be able to exercise
the vested portion of his or her option for (i) 90 days following his or her termination (or within such other period of time
as may be specified by the Company, but in any event no later than the date of expiration of the option term) for reasons other
than death, disability or misconduct, (ii) one year following his or her termination (or within such other period of time as may
be specified by the Company, but in any event no later than the date of expiration of the option term) due to death or disability.
Unless otherwise determined by the Board of Directors, if a participant ceases to be employed by the Company on the account of
(i) termination by the Company for defined misconduct, any option held by the participant shall (A) terminate on the date on which
the participant ceases to be employed by, or provide service to, the Company, or the date on which such option would otherwise
expire, if earlier.
The administrator
of the 2020 Plan shall have the discretion to grant options that are exercisable for unvested shares. Should the optionee's
service cease while the shares issued upon the early exercise of the optionee's option are still unvested, the Company shall have
the right to repurchase any or all of the unvested shares in accordance with the 2020 Plan.
Stock
Issuance
The Board
of Directors may transfer shares of Company stock to a Plan participant pursuant to a stock issuance, either through the immediate
purchase of such shares or as a bonus for services rendered the Company. Stock issuances will vest in accordance with
the terms and conditions established by the Board of Directors in its sole discretion. The Board of Directors will determine the
number of shares granted pursuant to an Award of stock. Vesting conditions on stock issuances granted to non-officer
employees may not be more restrictive than 20% per year vesting, with the initial vesting to occur no later than one year after
the shares are issued.
The Board
of Directors shall fix the purchase price per share of stock issuance. Shares issued to 10% stockholders must not have
a purchase price per share less than 100% of the fair market value per share of common stock on the date of issuance. Shares
issued to other Plan participants shall not be less than 85% of the fair market value per share of common stock on the date of
issuance.
The participant
shall have full stockholder rights with respect to any shares of common stock issued to the participant under the 2020 Plan, whether
or not the participant's interest in those shares is vested. Accordingly, the participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
Should the
participant cease to remain in service while holding one or more unvested shares issued under the 2020 Plan or should the performance
objectives not be attained with respect to one or more such unvested shares, then the Company has the right to repurchase the
unvested shares at the lower of (a) the purchase price paid per share or by the participants (b) the fair market value per share
on the date participant's service ceased or the performance objective was not attained. The terms upon which such repurchase right
shall be exercisable shall be established by the Board of Directors and set forth in the document evidencing such repurchase right.
The Board
of Directors may in its discretion waive the surrender and cancellation of one or more unvested shares (or other assets attributable
thereto) which would otherwise occur upon the non-completion of the vesting schedule applicable to those shares. Such waiver shall
result in the immediate vesting of the participant's interest in the shares of common stock as to which the waiver applies. Such
waiver may be effectuated at any time, whether before or after the Participant's service ceases or he or she attains the applicable
performance objectives.
Transferability
of Awards
Except as
described below, Stock Option Awards granted under the 2020 Plan are generally not transferable, and all rights with respect to
a Stock Option Award granted to a participant generally will be available during a participant's lifetime only to the participant.
A participant may not transfer those rights except by will or by the laws of descent and distribution. Participant may transfer
non-statutory stock options to family members, or one or more trusts or other entities for the benefit of or owned by family members
or to a transferee's former spouse, consistent with applicable securities laws, provided that the participant receives no consideration
for the transfer of an option and the transferred option shall continue to be subject to the same terms and conditions as were
applicable to the option immediately before the transfer.
The Company
has the right of first refusal with respect to any proposed disposition by an optionee or a participant of any shares of common
stock issued under the 2020 Plan. Such right of first refusal shall be exercisable and lapse in accordance with the
terms established by the Board of Directors and set forth in the document evidencing such right.
Change
of Control
In the event
of a change of control, each outstanding option which is at the time outstanding will automatically become fully vested and exercisable
and be released from any restrictions on transfer and repurchase or forfeiture rights, and the restrictions and conditions on
all outstanding stock issuances will lapse immediately prior to the specified effective date of such change of control, for all
of the shares at the time represented by such option or stock issuance. An outstanding option shall not fully vest and be exercisable
and released from such limitations and a stock issuance will not be released from such restrictions and restrictions on stock
issuances if and to the extent: (i) such option or stock issuance is, in connection with the change in control, either to be assumed
by the successor corporation or parent thereof or to be replaced with a comparable option, stock appreciation right or stock issuance
with respect to shares of the capital stock of the successor corporation or parent thereof, or (ii) such option or stock issuance
is to be replaced with a cash incentive program of the successor corporation or parent thereof which preserves the compensation
element of such option or stock issuance existing at the time of the change in control and provides for subsequent payout in accordance
with the same vesting schedule applicable to such option or stock issuance. The determination of option or stock issuance comparability
under clause (i) above shall be made by the Board of Directors.
Effective
upon the consummation of the change of control, all outstanding options or stock issuances under the 2020 Plan will terminate
and cease to remain outstanding, except to the extent assumed by the successor company or its parent.
Amendment and Termination
of the 2020 Plan
The Board
of Directors has the authority to amend, alter, suspend or terminate the 2020 Plan, except that shareholder approval will be required
for any amendment to the 2020 Plan to the extent required by any applicable laws. No amendment, alteration, suspension or termination
of the 2020 Plan will impair the rights of any participant, unless mutually agreed otherwise between the participant and the Board
of Directors and which agreement must be in writing and signed by the participant and the Company. The 2020 Plan will terminate
on January 10, 2030, unless the Board of Directors terminates it earlier or it is extended by the Company with the approval of
the shareholders.
Although
there may be adverse accounting consequences to doing so, options may be granted and shares may be issued under the 2020 Plan
which are in each instance in excess of the number of shares of common stock then available for issuance under the 2020 Plan,
provided any excess shares actually issued under those programs shall be held in escrow until there is obtained stockholder approval
of an amendment sufficiently increasing the number of shares of common stock available for issuance under the 2020 Plan. If such
stockholder approval is not obtained within twelve months after the date the first such excess grants or issuances are made, then
(1) any unexercised options granted on the basis of such excess shares shall terminate and (2) the Company shall promptly refund
to the optionees and the participants the exercise or purchase price paid for any excess shares issued under the 2020 Plan and
held in escrow, together with interest (at the applicable Short Term Federal Rate) for the period the shares were held in escrow,
and such shares shall thereupon be automatically cancelled.
COMPENSATION
COMMITTEE REPORT
The Compensation
Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this filing on Form 10-K with management.
Based on the Compensation Committee's review of and the discussions with management with respect to the Compensation Discussion
and Analysis, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis
be included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 for filing with the SEC.
Respectfully submitted by the members of the Compensation
Committee:
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Guanbao Huang,
Chairman, from January 2, 2020
Linyuan Zhai
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The following
table is a summary of the compensation paid to our executive officers for the two years ended December 31, 2019 and 2018.
SUMMARY
COMPENSATION TABLE
Name and Principal
Position
|
|
Year
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|
Salary
($)
|
|
Bonus
($)
|
|
Total
($)
|
Jie Han,
|
|
|
2019
|
|
|
|
522,049
|
|
|
|
|
|
|
|
522,049
|
|
CEO
|
|
|
2018
|
|
|
|
544,300
|
|
|
|
—
|
|
|
|
544,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qingwei Ma,
|
|
|
2019
|
|
|
|
139,213
|
|
|
|
|
|
|
|
139,213
|
|
COO/CTO
|
|
|
2018
|
|
|
|
317,508
|
|
|
|
—
|
|
|
|
317,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Taylor Zhang,
|
|
|
2019
|
|
|
|
221,908
|
|
|
|
|
|
|
|
221,908
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CFO
|
|
|
2018
|
|
|
|
218,400
|
|
|
|
—
|
|
|
|
218,400
|
|
The Company granted no plan-based
awards to our named executive officers for the year ended December 31, 2019. None of our named executive officers held outstanding
equity awards as of December 31, 2019.
Options
Exercised and Stock Vested
There was no stock option exercised
by or vested for each of our named executive officers during two years ended December 31, 2019 and 2018.
Employment Agreements
All of our named executive officers
have entered into employment agreements with the Company.
On December
31, 2011, Jie Han and China XD's subsidiary, HLJ Xinda Group, entered into an employment agreement and an employment memorandum, pursuant
to which Mr. Han received a monthly salary of RMB250,000 (approximately US$35,836). Also, Mr. Han will receive an annual
bonus of RMB 3,000,000 (approximately US$430,003), which amount is subject to the Company's achievement of the corresponding year's
performance goals. The calculation of the annual performance-based salary is based on a method set forth in HLJ Xinda
Group's compensation management policy. On January 1, 2017, Jie Han and HLJ Xinda Group extended the term of employment for additional
five years beginning on January 1, 2017, pursuant to which Mr. Han was entitled to a monthly salary of RMB300,000 (equivalent
to US$43,003). The employer and employee may reach consent and terminate Mr. Han's employment with HLJ Xinda Group, and HLJ Xinda
Group may have the right to unilaterally terminate Mr. Han's employment prior to the expiration of the employment term under certain
circumstances, with a one-month prior notice.
On December
31, 2011, Taylor Zhang and HLJ Xinda Group entered into an employment agreement and an employment memorandum, pursuant to which
Mr. Zhang received a monthly salary of US$18,200 and awards of shares of China XD's common stock and options to purchase shares
of China XD's common stock, as determined by the Compensation Committee of the Board of Directors. The term of employment is five
years beginning on January 1, 2012, and extended on January 1, 2017 for another 5 years. The employer and employee may reach consent
to terminate Mr. Zhang's employment with HLJ Xinda Group at any time and HLJ Xinda Group has the right to unilaterally terminate
Mr. Zhang's employment prior to the expiration of the employment term under certain circumstances, with a one-month prior notice.
On December
31, 2011, Qingwei Ma and HLJ Xinda Group entered into an employment agreement and an employment memorandum, pursuant to which
Mr. Ma received a monthly salary of RMB168,000 (approximately US$24,082). Also, Mr. Ma will receive a performance based
bonus of RMB2,016,000 (approximately US$288,983), which amounts are subject to the Company's achievement of the corresponding
year's performance goals. The calculation of the annual performance-based salary is based on a method set forth in the HLJ
Xinda Group's compensation management policy. On January 1, 2017, Qingwei Ma and HLJ Xinda Group extended the term
of employment for additional five years beginning on January 1, 2017, pursuant to which Mr. Ma was entitled to a monthly salary
of RMB175,000 (equivalent to US$25,085). The employer and employee may reach consent to terminate Mr. Ma's employment
with HLJ Xinda Group at any time and HLJ Xinda Group has the right to unilaterally terminate Mr. Ma's employment prior
to the expiration of the employment term under certain circumstances, with a one-month prior notice.
Potential Payments Upon Termination
or Change in Control
We may be
required to make severance payments upon termination of employment pursuant to the laws of the PRC and other applicable jurisdictions.
Under the PRC Labor Contract Law, if an employment is terminated prior to the expiration of the employment term, unless the termination
resulted from such employee's certain fault, the employer shall pay a severance compensation for termination at an amount that
is usually the average monthly salary of the 12-month period prior to termination multiplied by the number of years for which
the terminated employee worked at the Company, subject to certain adjustment and restrictions if such employee's base salary is
sufficiently higher than that of the average in the municipal region. In addition, in the event that the employer terminates the
employment in violation of the PRC Labor Contract Law, the applicable severance compensation for termination should be two times
the aforementioned amount. Furthermore, certain non-compete payment obligation may also apply upon termination of an
employment, which payment amount pursuant to the Company's standard non-compete agreement, if so entered into with the said employee,
is one third the monthly base salary prior to the termination of such employee per month for 24 months following the termination.
Director
Compensation
On December
30, 2009, our Board of Directors approved 2010 Executive Compensation Program, which sets forth cash and stock compensation of
the Company's executives and directors. Under the 2010 Executive Compensation Program, the Company's employee directors
receive no additional compensation for their services to the Company as directors, including the Chairman of the Board of Directors. In
addition, for fiscal year 2015, all non-employee directors who reside in China received an annual cash compensation of RMB60,000
(approximately $8,601) after the first 18 months of continuous directorship and RMB36,000 (approximately $5,160) during the initial
18 months directorship. In addition, each non-employee director other than the two directors appointed by the Series D Preferred
Stockholder (until September 26, 2019) is entitled to an annual stock award equal to a number of shares of the Company's common
stock valued at $50,000 for those who reside outside of China, RMB50,000 (approximately $7,167) for Mr. Linyuan Zhai, who resides
in China, based on the market value of the common stock at the time of the stock award and such stock award shall vest six months
after the grant date. Mr. Feng Li will be eligible for an annual stock award equal to a number of shares of the Company's common
stock valued at RMB50,000 (approximately $7,167) after 18 months of continuous directorship. The Company also accrued and recorded
the stock award for the service rendered during the year ended December 31, 2020 as share base compensation expense. The
Company has repurchase rights on the unvested shares of the stock award. The Company did not issue this stock award the service
rendered during the year ended December 31, 2019 and 2018, respectively.
Pursuant
to the service agreement with Joseph Chow (resigned on March 6, 2019) dated November 16, 2017, Mr. Chow is entitled to receive
an annual cash compensation of US$60,000 (US$5,000 per month) and without stock award.
Pursuant
to the service agreement with Xin Li (appointed on March 6, 2019 and resigned on January 1, 2020) dated March 6, 2019, Mr. Li
is entitled to receive an annual cash compensation of US$60,000 (US$5,000 per month) and without stock award.
Pursuant
to the service agreement with Huiyi Chen (appointed on January 2, 2020) dated January 1, 2020, Mr. Chen is entitled to receive
an annual cash compensation of US$60,000 (US$5,000 per month) and without stock award.
Pursuant
to the service agreement with Guanbao Huang (appointed on January 2, 2020) dated January 1, 2020, Mr. Huang is entitled to receive
an annual cash compensation of RMB120,000 (RMB10,000 per month) and without stock award.
The
following is a summary of the compensation paid to our non-employee directors for the year ended December 31, 2019. Our employee
directors do not receive compensation for their services to the Company as directors.
DIRECTOR
COMPENSATION
Name (1) (2)
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|
Fees
earned or paid in cash ($)
|
|
Total
($)
|
Joseph Chow (3)
|
|
|
10,521
|
|
|
|
10,521
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Feng Li (4)
|
|
|
8,601
|
|
|
|
8,601
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Linyuan Zhai
|
|
|
8,601
|
|
|
|
8,601
|
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Xin Li (5)
|
|
|
49,479
|
|
|
|
49,479
|
|
(1)
|
Jie Han, Taylor Zhang and Qingwei Ma are not included
in this table as they are our executive officers and thus received no compensation for their services as a director. For disclosure
related to the compensation of Jie Han, Taylor Zhang and Qingwei Ma as an executive officer, see the "Summary Compensation
Table" above.
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(2)
|
Homer Sun, Jun Xu and Ryan Law are not included
in this table as they receive no compensation for serving on our Board.
|
(3)
|
Joseph Chow resigned on March 6, 2019.
|
(4)
|
Feng Li resigned on January 1, 2020.
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(5)
|
Xin Li was appointed on March 6, 2019 and resigned on January
1, 2020.
|
During the
year ended December 31, 2019, no stock or option was awarded to the executive directors and non-employee directors. And
no non-vested shares existed for executive directors and non-employee directors as of December 31, 2019.
Service Agreements
On January
1, 2020, the Company entered into a Service Agreement with Huiyi Chen. Pursuant to the terms of the Service Agreement, the Company
shall pay Mr. Chen a fee of US$5,000 per month (US$60,000 annually).
On January
1, 2020, the Company entered into a Service Agreement with Guanbao Huang. Pursuant to the terms of the Service Agreement, the
Company shall pay Mr. Huang a fee of RMB10,000 per month (RMB120,000 annually).
On March
6, 2019, the Company entered into a Service Agreement with Xin Li who was appointed on March 6, 2019 and resigned on January 1,
2020. Pursuant to the terms of the Service Agreement, the Company shall Mr. Li a fee of US$5,000 per month (US$60,000
annually).
On November
16, 2017, the Company entered into a Service Agreement with Joseph Chow, who was resigned on March 6, 2019. Pursuant
to the terms of the Service Agreement, the Company paid Mr. Chow a fee of $5,000 per month ($60,000 annually).
On November
14, 2010, the Company entered into a Service Agreement with Linyuan Zhai. Pursuant to the terms of the Service Agreement,
the Company shall (i) pay Mr. Zhai a fee of RMB5,000 per month (RMB60,000 annually); and (ii) award to Mr. Zhai under the Company's
2009 Equity Incentive Plan and pursuant to the terms of a restricted stock award agreement RMB50,000 in restricted shares of common
stock of the Company on an annual basis (the "Stock"), which shall vest in accordance with the terms of the restricted
stock award agreement. The Stock shall be valued at the average closing price for the ten trading days prior to November
14, 2010, the date of the execution of the Service Agreement, and prior to each anniversary thereof. The Stock shall vest after
twelve months of each year subject to Mr. Zhai's continued directorship with the Company, pursuant to such vesting schedule set
forth in the restricted stock award agreement.
On November
14, 2012, the Company entered into a Service Agreement with Feng Li. Pursuant to the terms of the Service Agreement,
the Company shall (i) pay Mr. Li a fee of RMB3,000 per month (RMB36,000 annually) for 18 months, and then RMB5, 000 per month
(RMB60,000 annually) starting from May 14, 2014; and (ii) award to Mr. Li under the Company's 2009 Equity Incentive Plan and pursuant
to the terms of a restricted stock award agreement RMB50,000 in restricted shares of common stock of the Company on an annual
basis (the "Stock"), which shall vest in accordance with the terms of the restricted stock award agreement. The
Stock shall be valued at the average closing price for the ten trading days prior to May 14, 2014, the date of the execution
of the Service Agreement, and prior to each anniversary thereof. The Stock shall vest after twelve months of each year subject
to Mr. Li's continued directorship with the Company, pursuant to such vesting schedule set forth in the restricted stock award
agreement.
ITEM 12. SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Securities
Authorized for Issuance under Equity Compensation Plans
The Company
adopted the 2009 Stock Option / Stock Issuance Plan (the "2009 Plan") on May 26, 2009, which reserved 7,800,000 shares
of common stock for issuance under the 2009 Plan. The 2009 Plan allows the Company to issue awards of stock options and stock
issuances to directors, officers, employees and consultants of the Company, which may be subject to restrictions. The 2009 Plan
was terminated in accordance with its terms on May 26, 2019.
The following table provides
certain information with respect to the Company's equity compensation plan in effect as of December 31, 2019.
Plan category
|
Number
of securities to be issued upon exercise of outstanding options and unvested shares
(a)
|
|
Weighted-average
exercise price of outstanding options and unvested options
(b)
|
|
Number
of securities remaining available for future issuance under equity compensation plan (excluding securities reflected in
column (a))
(c)
|
|
|
|
|
|
|
|
|
Equity compensation plan approved by security
holders – 2009 Stock Option / Stock Issuance Plan
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
The Company
adopted the 2020 Stock Option / Stock Issuance Plan (the "2020 Plan") on January 10, 2020 under which 13,000,000 shares
of common stock are reserved for issuance. On February 24, 2020, the Company's Board of Directors approved the
grant of 4,000,000 shares of common stock to certain executive officers and employees as incentive stock grant upon meeting certain
performance service target.
Security Ownership of Certain
Beneficial Owners and Management
The following
table sets forth certain information, as of May 25, 2020, with respect to the beneficial ownership of the outstanding
share capital of our Company by (i) any holder of more than five percent (5%) of any class of our voting securities; (ii) each
of our executive officers and directors; and (iii) our directors and executive officers as a group. Except
as otherwise indicated, each of the stockholders listed below has sole voting and investment power over the shares beneficially
owned. We have based our calculation of the percentage of beneficial ownership on 66,948,841 shares of Common Stock outstanding
and 1,000,000 shares of Series B Preferred Stock outstanding as of May 25, 2020.
Name and Address
|
Title of Class
|
|
Amount
and Nature of Beneficial Ownership(1)
|
|
|
Percent
of Class
|
|
Jie Han
|
Series B Preferred Stock
|
|
|
1,000,000
|
(2)
|
|
|
100.0
|
%
|
Jie Han
|
Common Stock
|
|
|
33,065,054
|
(2)
|
|
|
49.4
|
%
|
Linyuan Zhai
|
Common Stock
|
|
|
10,879
|
|
|
|
*
|
|
XD. Engineering Plastics Company Limited
|
Common Stock
|
|
|
5,960,788
|
(2)
|
|
|
8.9
|
%
|
XD. Engineering Plastics Company Limited
|
Series B Preferred Stock
|
|
|
1,000,000
|
(2)
|
|
|
100.0
|
%
|
MSPEA Modified Plastics Holding Limited
|
Common Stock
|
|
|
16,000,000
|
(3)
|
|
|
23.9
|
%
|
Total Ownership of Common Stock by All Directors and Executive Officers as a Group
|
|
|
|
33,075,933
|
|
|
|
49.4
|
%
|
* Represents
beneficial ownership of less than one percent (1%) of the outstanding shares of our common stock.
** Unless
otherwise indicated, the address of each beneficial owner listed in the table is c/o China XD Plastics Company Limited, 13620
38th Avenue, Suite 3A-1, Room 105, Flushing, New York 11354.
# The
1,000,000 shares of Series B Preferred Stock has a voting power equivalent to 40% of the total voting power of all Common Stock
of the Company. The Common Stock and Series B Preferred Stock vote together as a single class on all matters submitted to a vote
of our stockholders, except as may otherwise be required by law or our constitutional documents.
(1)
|
The amount
of beneficial ownership includes the number of shares of Common Stock and/or Series B Preferred Stock, plus, in the case of
each of the executive officer and directors and all officers and directors as a group, all shares issuable upon the exercise
of the options held by them, which were exercisable as of May 25, 2020 or within 60 days thereafter. Pursuant to Rule 13d-3
under the Securities Exchange Act of 1934, as amended, and the rules promulgated by the SEC, every person who has or shares
the power to vote or to dispose of shares of common stock are deemed to be the "beneficial owner" of all the shares
of common stock over which any such sole or shared power exists.
|
(2)
|
Represents
34,065,054 shares of the Company beneficially owned by Mr. Jie Han as reported in a Schedule 13D/A filed by Mr. Jie Han and
XD. Engineering Plastics Company Limited on May 11, 2020, including (i) 27,104,266 shares of Common Stock
directly owned by Mr. Han and (ii) 5,960,788 shares of Common Stock and 1,000,000 shares of Series B Preferred Stock
beneficially owned by Mr. Han through his 100% ownership of XD. Engineering Plastics Company Limited, representing 50.1% of
the share capital of Company. The 1,000,000 shares of Series B Preferred Stock has a voting power equivalent to 40% of the
total voting power of all Common Stock of the Company. The address of XD. Engineering Plastics Company Limited is c/o Palm
Grove House, P.O. Box 438, Road Town, Tortola, British Virgin Islands.
|
(3)
|
Represents 16,000,000
shares of Common Stock beneficially owned by MSPEA Modified Plastics Holding Limited as reported in a Schedule 13D/A filed
by it on October 15, 2019. The address of MSPEA Modified Plastics Holding Limited owns is c/o Walkers Corporate Services Limited,
Walker House, 87 Mary Street, George Town, Grand Cayman KY1-9005, Cayman Islands.
|
Changes in Control
There were
no arrangements, known to the Company, including any pledge by any person of securities of the Company the operation of which
may at a subsequent date result in a change in control of the Company.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related Party Transactions
Other than
as described below, there have been no other transactions since January 1, 2019, or any currently proposed transaction, or series
of similar transactions, to which the Company was or is to be a party, in which the amount involved exceeds $120,000 and in which
any current or former director of officer of the Company, any 5% or greater shareholder of the Company or any member of the immediate
family of any such persons had, or will have, a direct or indirect material interest other than as disclosed below.
(i) During
the year ended December 31, 2019, the Company received RMB20.0 million (equivalent to US$2.9 million) from Mr. Jie Han, the Chairman
and CEO of the Company, as interest-free advances and repaid RMB0.8 million (equivalent to US$0.1 million). As of December 31,
2019, the amounts due to Mr. Jie Han was RMB87.2 million (equivalent to US$12.5 million).
During
the year ended December 31, 2019, the Company received RMB60.0 million (equivalent to US$8.8 million) from Mr. Jie Han’s
son as interest-free advances. As of December 31, 2019, the amounts due to Mr. Jie Han’s son was RMB65.0 million (equivalent
to US$9.3 million).
(ii)
In April 2019, the Company repaid RMB30.0 million (equivalent to US$4.4 million) to the senior management employees in Sichuan
Xinda. During the year ended December 31, 2019, the Company received RMB1.9 million (equivalent to US$0.3 million) from a senior
management employee from HLJ Xinda Group and repaid RMB2.0 million (equivalent to US$0.3 million). As of December 31, 2019, the
amounts due to the senior management employee from HLJ Xinda Group was RMB1.1 million (equivalent to US$0.2 million).
(iii)
During the year ended December 31, 2019, the Company received RMB65.0 million (equivalent to US$9.4 million) from Qingwei Ma,
the Chief Operating Officer of the Company, as interest-free advances to the Company, and repaid RMB57.0 million (equivalent to
US$8.3 million). As of December 31, 2019, the amounts due to Mr. Qingwei Ma was RMB8.0 million (equivalent to US$1.1 million).
(iv)
On December 26, 2018, Shanghai Sales set up Heilongjiang Xinda Macromolecule Composite Materials Company Limited (“Macromolecule
Composite Materials”). 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, revenues from products sold to Macromolecule Composite Materials was 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$63.0 million).
The related
party balances are summarized as follows:
|
|
December
31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
Amounts due to related parties:
|
|
|
|
|
|
|
|
|
Mr. Jie Han
|
|
|
12,499,642
|
|
|
|
9,907,915
|
|
Mr. Jie Han’s wife
|
|
|
3,137,539
|
|
|
|
3,180,965
|
|
Mr. Jie Han’s son
|
|
|
9,317,393
|
|
|
|
728,523
|
|
Senior management employees in HLJ Xinda Group
and Sichuan Xinda
|
|
|
150,589
|
|
|
|
4,548,335
|
|
Mr. Qingwei Ma
|
|
|
1,146,756
|
|
|
|
—
|
|
Total
amounts due to related parties
|
|
|
26,251,919
|
|
|
|
18,365,738
|
|
It is our
policy that we will not enter into any related party transactions unless the Audit Committee or another independent body of the
Board of Directors first reviews and approves such transaction over US$120,000.
Director
Independence
A majority
of the directors serving on our Board of Directors must be independent directors under Rule 5605(b)(1) of the Marketplace Rules
of The NASDAQ Stock Market ("NASDAQ"). The Board of Directors has a responsibility to make an affirmative determination
whether a director has a material relationships with the listed company through the application of Rule 5605(a)(2) of the Marketplace
Rules of NASDAQ, which provides the definition of an independent director.
The Board
of Directors has determined that each of the directors, except Jie Han and Taylor Zhang, has no relationship that, in the opinion
of the Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a
director and is an "independent director" as defined in the Marketplace Rules of NASDAQ. In determining the independence
of our directors, the Board of Directors has adopted independence standards that follow the criteria specified by applicable laws
and regulations of the SEC and the Marketplace Rules of NASDAQ. In determining the independence of our directors, the Board of
Directors considered all transactions in which the Company and any director had any interest, including those discussed under
"Certain Relationships and Related Transactions" above.
Based on
the application of the independence standards and the examination of all of the relevant facts and circumstances, the Board of
Directors has determined that none of Lingyuan Zhai, Huiyi Chen, and Guanbao Huang had any material relationship with the Company
and, thus, were independent under Rule 5605(a)(2) of the Marketplace Rules of NASDAQ. In accordance with the Marketplace Rules
of NASDAQ, a majority of our Board of Directors is independent.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our independent accountants for the audit
of our annual financial statements for the years ended December 31, 2019 and December 31, 2018 was KPMG Huazhen LLP. The following
table shows the fees paid and to be paid by us to our independent accountants.
|
|
2019
|
|
2018
|
Audit Fees
|
|
$
|
1,932,222
|
|
|
$
|
1,414,575
|
|
Audit-Related Fees
|
|
|
—
|
|
|
|
—
|
|
Tax Fees
|
|
|
—
|
|
|
|
—
|
|
Total paid to independent
public audit firms
|
|
$
|
1,932,222
|
|
|
$
|
1,414,575
|
|
Audit
Fees
Audit fees
were paid for professional services rendered for the audit of our annual financial statements and the review of our quarterly
financial statements and statutory audits. We paid or accrued expenses of US$1,932,222 and US$1,414,575, related to audits of
our annual financial statements, reviews of our quarterly financial statements and statutory audits for the years ended December
31, 2019 and 2018, respectively.
Audit-Related Fees
Fees for
audit-related services were nil and nil, respectively, for the years ended December 31, 2019 and 2018.
Tax Fees
During the years ended December 31, 2019
and 2018, we did not pay or accrue any fees to our auditors for tax services.
Pre-Approval
Policies and Procedures
The Audit Committee appoints
the independent auditor each year and approves the audit, audit related and permissible non-audit services and fees proposed by
the independent auditor. All services described under the caption services and fees of independent auditors were approved.
CHINA
XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
17,201,775
|
|
|
|
41,301,817
|
|
Restricted cash
|
|
|
211,231,244
|
|
|
|
325,690,023
|
|
Accounts receivable, net of allowance for doubtful accounts
|
|
|
222,072,053
|
|
|
|
294,688,288
|
|
Inventories
|
|
|
642,509,534
|
|
|
|
620,033,195
|
|
Prepaid expenses and other current assets
|
|
|
171,848,122
|
|
|
|
132,218,528
|
|
Total current assets
|
|
|
1,264,862,728
|
|
|
|
1,413,931,851
|
|
Property, plant and equipment, net
|
|
|
830,319,716
|
|
|
|
775,941,280
|
|
Land use rights, net
|
|
|
—
|
|
|
|
29,796,795
|
|
Long-term prepayments to equipment and construction suppliers
|
|
|
495,570,421
|
|
|
|
530,636,319
|
|
Operating lease right-of-use assets, net
|
|
|
44,149,955
|
|
|
|
—
|
|
Other non-current assets
|
|
|
979,428
|
|
|
|
3,212,986
|
|
Total assets
|
|
|
2,635,882,248
|
|
|
|
2,753,519,231
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term bank loans, including current portion of long-term bank loans
|
|
|
680,174,859
|
|
|
|
729,666,920
|
|
Bills payable
|
|
|
400,671,063
|
|
|
|
618,166,453
|
|
Accounts payable
|
|
|
57,458,673
|
|
|
|
84,958,469
|
|
Amounts due to related parties
|
|
|
26,251,919
|
|
|
|
18,365,738
|
|
Income taxes payable
|
|
|
26,458,837
|
|
|
|
15,975,367
|
|
Operating lease liabilities, current
|
|
|
1,388,555
|
|
|
|
—
|
|
Accrued expenses and other current liabilities
|
|
|
86,550,388
|
|
|
|
126,926,898
|
|
Total current liabilities
|
|
|
1,278,954,294
|
|
|
|
1,594,059,845
|
|
Long-term bank loans, excluding current portion
|
|
|
322,456,413
|
|
|
|
111,808,244
|
|
Deferred income
|
|
|
92,639,620
|
|
|
|
99,583,477
|
|
Operating lease liabilities, non-current
|
|
|
14,429,434
|
|
|
|
—
|
|
Other non-current liabilities
|
|
|
91,028,376
|
|
|
|
101,573,772
|
|
Total liabilities
|
|
|
1,799,508,137
|
|
|
|
1,907,025,338
|
|
|
|
|
|
|
|
|
|
|
Redeemable Series D convertible preferred stock (redemption amount of US$280,650,800 as of December 31, 2018)
|
|
|
—
|
|
|
|
97,576,465
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
Series B preferred stock
|
|
|
100
|
|
|
|
100
|
|
Common stock, US$0.0001 par value, 500,000,000 shares authorized, 66,969,841 and 50,969,841 shares issued, 66,948,841 and 50,948,841 shares outstanding as of December 31, 2019 and 2018, respectively
|
|
|
6,697
|
|
|
|
5,097
|
|
Treasury stock, 21,000 shares at cost
|
|
|
(92,694
|
)
|
|
|
(92,694
|
)
|
Additional paid-in capital
|
|
|
184,208,447
|
|
|
|
86,633,582
|
|
Retained earnings
|
|
|
720,159,368
|
|
|
|
717,103,890
|
|
Accumulated other comprehensive loss
|
|
|
(67,907,807
|
)
|
|
|
(54,732,547
|
)
|
Total stockholders' equity
|
|
|
836,374,111
|
|
|
|
748,917,428
|
|
Commitments and contingencies
|
|
|
—
|
|
|
|
—
|
|
Total liabilities, redeemable convertible preferred stock and stockholders' equity
|
|
|
2,635,882,248
|
|
|
|
2,753,519,231
|
|
See accompanying
notes to consolidated financial statements.
CHINA XD PLASTICS
COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
|
|
|
|
|
Revenues
|
|
|
1,448,204,826
|
|
|
|
1,274,833,282
|
|
Cost of revenues
|
|
|
(1,228,809,155
|
)
|
|
|
(1,055,220,493
|
)
|
Gross profit
|
|
|
219,395,671
|
|
|
|
219,612,789
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
(1,465,697
|
)
|
|
|
(10,068,971
|
)
|
General and administrative expenses
|
|
|
(35,370,445
|
)
|
|
|
(36,985,700
|
)
|
Provision for doubtful accounts
|
|
|
(62,811,125
|
)
|
|
|
—
|
|
Research and development expenses
|
|
|
(50,329,809
|
)
|
|
|
(60,576,574
|
)
|
Total operating expenses
|
|
|
(149,977,076
|
)
|
|
|
(107,631,245
|
)
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
69,418,595
|
|
|
|
111,981,544
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,377,040
|
|
|
|
3,977,116
|
|
Interest expense
|
|
|
(67,242,641
|
)
|
|
|
(51,031,735
|
)
|
Foreign currency exchange gains
|
|
|
2,887,336
|
|
|
|
5,710,754
|
|
Losses on foreign currency option contracts
|
|
|
—
|
|
|
|
(520,981
|
)
|
Gains (losses) on disposal of subsidiaries
|
|
|
518,491
|
|
|
|
(214,557
|
)
|
Government grant
|
|
|
10,133,355
|
|
|
|
6,124,393
|
|
Total non-operating expenses, net
|
|
|
(52,326,419
|
)
|
|
|
(35,955,010
|
)
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
17,092,176
|
|
|
|
76,026,534
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
(14,036,698
|
)
|
|
|
(7,713,113
|
)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
3,055,478
|
|
|
|
68,313,421
|
|
|
|
|
|
|
|
|
|
|
Earnings per common stock:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
0.05
|
|
|
|
1.03
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
3,055,478
|
|
|
|
68,313,421
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of nil income taxes
|
|
|
(13,175,260
|
)
|
|
|
(35,647,804
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
(10,119,782
|
)
|
|
|
32,665,617
|
|
See accompanying
notes to consolidated financial statements.
CHINA
XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
|
|
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 as of January 1, 2018
|
|
|
1,000,000
|
|
|
|
100
|
|
|
|
49,727,731
|
|
|
|
4,975
|
|
|
|
(92,694
|
)
|
|
|
83,159,893
|
|
|
|
648,790,469
|
|
|
|
(19,084,743
|
)
|
|
|
712,778,000
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
68,313,421
|
|
|
|
—
|
|
|
|
68,313,421
|
|
Other comprehensive loss - Foreign currency translation adjustment,
net of nil income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(35,647,804
|
)
|
|
|
(35,647,804
|
)
|
Stock based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,353,811
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,353,811
|
|
Exercise of stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
500,000
|
|
|
|
50
|
|
|
|
—
|
|
|
|
119,950
|
|
|
|
—
|
|
|
|
—
|
|
|
|
120,000
|
|
Vesting of unvested shares
|
|
|
—
|
|
|
|
—
|
|
|
|
721,110
|
|
|
|
72
|
|
|
|
—
|
|
|
|
(72
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance as of December 31, 2018
|
|
|
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
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
3,055,478
|
|
|
|
—
|
|
|
|
3,055,478
|
|
Conversion of Series D Preferred Stock to common
stock
|
|
|
—
|
|
|
|
—
|
|
|
|
16,000,000
|
|
|
|
1,600
|
|
|
|
—
|
|
|
|
97,574,865
|
|
|
|
—
|
|
|
|
—
|
|
|
|
97,576,465
|
|
Other comprehensive loss - Foreign currency translation adjustment,
net of nil income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(13,175,260
|
)
|
|
|
(13,175,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2019
|
|
|
1,000,000
|
|
|
|
100
|
|
|
|
66,948,841
|
|
|
|
6,697
|
|
|
|
(92,694
|
)
|
|
|
184,208,447
|
|
|
|
720,159,368
|
|
|
|
(67,907,807
|
)
|
|
|
836,374,111
|
|
See accompanying
notes to consolidated financial statements.
CHINA
XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
|
3,055,478
|
|
|
|
68,313,421
|
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
59,416,674
|
|
|
|
46,282,307
|
|
Amortization of ROU assets
|
|
|
1,246,459
|
|
|
|
—
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
3,353,811
|
|
Provision for doubtful accounts
|
|
|
62,811,125
|
|
|
|
—
|
|
Amortization of issuance cost for syndicated loans
|
|
|
244,505
|
|
|
|
1,736,535
|
|
Gains on foreign currency option contracts
|
|
|
—
|
|
|
|
(1,070,779
|
)
|
Foreign currency exchange gains
|
|
|
(2,959,910
|
)
|
|
|
(5,425,545
|
)
|
Losses (gains) on disposals of property, plant and equipment
|
|
|
(536,500
|
)
|
|
|
2,423,326
|
|
Losses (gains) on disposal of subsidiaries
|
|
|
(518,491
|
)
|
|
|
214,557
|
|
Deferred income tax benefit
|
|
|
(2,017,823
|
)
|
|
|
(1,917,993
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
9,267,736
|
|
|
|
(5,147,409
|
)
|
Inventories
|
|
|
(32,889,557
|
)
|
|
|
(228,481,188
|
)
|
Prepaid expenses and other current assets
|
|
|
(35,220,965
|
)
|
|
|
(39,949,682
|
)
|
Value added tax in long-term prepayments to equipment suppliers
|
|
|
(11,716,377
|
)
|
|
|
(50,794,483
|
)
|
Other non-current assets
|
|
|
(177,474
|
)
|
|
|
49,182
|
|
Bills payable
|
|
|
(209,898,423
|
)
|
|
|
391,738,736
|
|
Accounts payable
|
|
|
(26,818,422
|
)
|
|
|
(148,839,736
|
)
|
Income taxes payable
|
|
|
10,508,217
|
|
|
|
(1,701,689
|
)
|
Operating lease liabilities, current
|
|
|
(1,010,019
|
)
|
|
|
—
|
|
Accrued expenses and other current liabilities
|
|
|
(1,030,675
|
)
|
|
|
38,528,151
|
|
Deferred income
|
|
|
(6,400,297
|
)
|
|
|
(4,917,452
|
)
|
Other non-current liabilities
|
|
|
(5,283,500
|
)
|
|
|
(3,000,815
|
)
|
Net cash (used in) provided by operating activities
|
|
|
(189,928,239
|
)
|
|
|
61,393,255
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of and deposits for property, plant and equipment
|
|
|
(154,115,880
|
)
|
|
|
(429,205,807
|
)
|
Refund of prepayment for property and equipment purchase
|
|
|
15,703,238
|
|
|
|
120,532,191
|
|
Net proceeds from sales of subsidiaries
|
|
|
7,282,029
|
|
|
|
(41,631
|
)
|
Government grant related to construction of plant and equipment
|
|
|
1,007,410
|
|
|
|
10,281,222
|
|
Proceeds from maturity of time deposits
|
|
|
—
|
|
|
|
540,066,526
|
|
Purchase of time deposits
|
|
|
—
|
|
|
|
(255,518,597
|
)
|
Proceeds from disposal of property, plant and equipment
|
|
|
—
|
|
|
|
416,968
|
|
Deposits for acquisition of equity
|
|
|
—
|
|
|
|
(3,506,048
|
)
|
Refund of deposits for acquisition of equity
|
|
|
—
|
|
|
|
15,299,214
|
|
Net cash used in investing activities
|
|
|
(130,123,203
|
)
|
|
|
(1,675,962
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from bank borrowings
|
|
|
2,230,043,190
|
|
|
|
1,238,947,716
|
|
Repayment of bank borrowings
|
|
|
(2,048,519,876
|
)
|
|
|
(1,255,214,637
|
)
|
Proceeds from interest-free advances from related parties
|
|
|
84,869,533
|
|
|
|
22,145,247
|
|
Repayment of interest-free advances from related parties
|
|
|
(76,079,512
|
)
|
|
|
(3,779,509
|
)
|
Payments of issuance cost for syndicated loans
|
|
|
(4,443,946
|
)
|
|
|
—
|
|
Investment received in advance from a related party
|
|
|
—
|
|
|
|
75,567,512
|
|
Refund investment received in advance from a related party
|
|
|
—
|
|
|
|
(75,567,512
|
)
|
Proceeds from exercise of stock options
|
|
|
—
|
|
|
|
120,000
|
|
Net cash provided by financing activities
|
|
|
185,869,389
|
|
|
|
2,218,817
|
|
Effect of foreign currency exchange rate changes on cash and cash equivalents and restricted cash
|
|
|
(4,376,768
|
)
|
|
|
(15,035,935
|
)
|
Net (decrease) increase in cash, cash equivalents and restricted cash
|
|
|
(138,558,821
|
)
|
|
|
46,900,175
|
|
Cash, cash equivalents and restricted cash at beginning of year
|
|
|
366,991,840
|
|
|
|
320,091,665
|
|
Cash, cash equivalents and restricted cash at end of year
|
|
|
228,433,019
|
|
|
|
366,991,840
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid, net of US$3,751,573 and US$2,416,818 capitalized for the years ended December 31, 2019 and 2018, respectively
|
|
|
64,647,104
|
|
|
|
43,664,817
|
|
Income taxes paid
|
|
|
10,446,472
|
|
|
|
17,982,507
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Conversion of Series D preferred stock to common stock
|
|
|
97,576,465
|
|
|
|
—
|
|
Accrual for issuance cost for syndicated loans
|
|
|
2,780,000
|
|
|
|
—
|
|
Accrual for purchase of equipment and construction included in accrued expenses and other current liabilities
|
|
|
1,302,739
|
|
|
|
6,188,847
|
|
Receivable for disposal of property, plant and equipment
|
|
|
852,970
|
|
|
|
—
|
|
Consideration receivable for the disposal of a subsidiary
|
|
|
—
|
|
|
|
7,285,231
|
|
The following table shows a reconciliation of cash, cash
equivalents and restricted cash on the consolidated balance sheets to that presented in the above consolidated statements of cash
flows.
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
17,201,775
|
|
|
|
41,301,817
|
|
Restricted cash
|
|
|
211,231,244
|
|
|
|
325,690,023
|
|
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows
|
|
|
228,433,019
|
|
|
|
366,991,840
|
|
See accompanying
notes to consolidated financial statements.
Note 1 – Description
of business and significant concentrations and risks
China XD
Plastics Company Limited ("China XD") is a holding company that is incorporated in Nevada of the United States of America. China
XD and its subsidiaries (collectively referred to hereinafter as the "Company"), is primarily engaged in the research
and development, production and sales of modified plastics products. The plastics products, which are manufactured by the Company,
are primarily for use in the fabrication of automobile parts and components and secondarily for applications in high-speed railway,
airplanes, ships and electronic appliances and consist of the following major products categories: Polypropylene ("PP"),
Acrylonitrile Butadiene Styrene ("ABS"), Polyamid6 ("PA6"), Polyamid66 ("PA66"), Polyformaldehyde
("POM"), Polyphenylene Oxide ("PPO"), Plastic Alloy, Polyphenylene Sulfide ("PPS"), Poly Imide ("PI"),
Polylactide Acid ("PLA") , Poly Ether Ether Ketone ("PEEK") and Polyethylene ("PE") .
The Company's
operations are primarily conducted through its subsidiaries in the People's Republic of China ("PRC") and Dubai, United
Arab Emirates ("UAE"). The Company's other subsidiaries in the US, the British Virgin Islands ("BVI")
and Hong Kong Special Administrative Region ("SAR"), do not have significant operations.
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 years ended
December 31, 2019 and 2018, are as follows:
(in millions, except percentage)
|
|
Years
Ended December 31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
%
|
|
US$
|
|
%
|
Distributor A, located in PRC
|
|
|
201.5
|
|
|
|
13.9
|
%
|
|
|
195.2
|
|
|
|
15.3
|
%
|
Distributor B, located in PRC
|
|
|
132.5
|
|
|
|
*
|
|
|
|
152.4
|
|
|
|
12.0
|
%
|
Distributor C, located in PRC
|
|
|
116.9
|
|
|
|
*
|
|
|
|
139.8
|
|
|
|
11.0
|
%
|
* Less than 10%
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
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 14.7% (one distributor) and 21.3% (two distributors) of the Company's
total raw material purchases for the years ended December 31, 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, cash
equivalents and restricted cash mentioned below maintained at banks consist of the following:
|
|
December
31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
RMB denominated bank deposits
with:
|
|
|
|
|
|
|
|
|
Financial Institutions in the PRC
|
|
|
226,488,069
|
|
|
|
366,773,172
|
|
Financial Institutions in Hong Kong Special Administrative
Region ("Hong Kong SAR")
|
|
|
8,134
|
|
|
|
8,134
|
|
U.S. dollar denominated bank
deposits with:
|
|
|
|
|
|
|
|
|
Financial Institution in the U.S.
|
|
|
3,057
|
|
|
|
40,390
|
|
Financial Institutions in the PRC
|
|
|
16,868
|
|
|
|
17,050
|
|
Financial Institution in Hong Kong SAR
|
|
|
590,131
|
|
|
|
131,892
|
|
Financial Institution in Macau Special Administrative
Region ("Macau SAR")
|
|
|
1,288,792
|
|
|
|
6,144
|
|
Financial Institution in Dubai, UAE
|
|
|
4,549
|
|
|
|
14,464
|
|
HK dollar denominated bank
deposits with:
|
|
|
|
|
|
|
|
|
Financial institution in Hong Kong SAR
|
|
|
156
|
|
|
|
156
|
|
Dirham denominated bank deposits
with:
|
|
|
|
|
|
|
|
|
Financial institution in Dubai, UAE
|
|
|
33,263
|
|
|
|
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 amounted
to $1,063,709 and $1,442,481 are insured as of December 31, 2019 and 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.
Note 2 – Summary of
significant accounting policies
(a) Basis of Presentation
The accompanying consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
("U.S. GAAP").
(b) Consolidation
The accompanying consolidated
financial statements include the financial statements of China XD and its wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated upon consolidation.
(c) Use of Estimates
The preparation
of 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 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.
(d) Foreign Currency
The Company's
reporting currency is the U.S. dollar (US$). The functional currency of China XD Plastics and its subsidiaries in the United States,
BVI, Hong Kong and Dubai, UAE is the US$. The functional currency of China XD's subsidiaries in the PRC is Renminbi (RMB).
Transactions
denominated in currencies other than the functional currency are translated into the functional currency at the exchange
rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies
are translated into the functional currency using the applicable exchange rates at the balance sheet date. The
resulting exchange differences are recorded in foreign currency exchange gains in the consolidated statements of
comprehensive income (loss).
Assets and
liabilities of subsidiaries with functional currencies other than US$ are translated into US$ using the exchange rate on the balance
sheet date. Revenues and expenses are translated into US$ at average rates prevailing during the reporting period.
The differences resulting from such translation are recorded as a separate component of accumulated other comprehensive loss within
stockholders' equity.
Since the
RMB is not a fully convertible currency, all foreign exchange transactions involving RMB must take place either through the People's
Bank of China or other institutions authorized to buy and sell foreign exchange.
(e) Cash and cash equivalents,
time deposits and restricted cash
Cash and cash equivalents consist
of cash on hand, cash in bank and interest-bearing certificates of deposit with an initial term of three months or less when purchased.
Time deposits
represent certificates of deposit with initial terms of six or twelve months when purchased.
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$151,498,873 and US$202,568,664 as of December 31, 2019 and 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$69,879 and US$1,469,935
as of December 31, 2019 and 2018, respectively.
Short-term
bank deposits that are pledged as collateral for issuance of letter of guarantee are reported as restricted cash and amounted
to nil and US$70,885,301 as of December 31, 2019 and 2018, respectively.
Short-term bank
deposits that are pledged for the US$135.0 million syndicated loans obtained from a consortium of banks led by the Industrial
and Commercial Bank of China (Macau) Limited are reported as restricted cash and amounted to US$58,229,047 and nil as of December
31, 2019 and 2018, respectively, for details of the syndicated loans please refer to note 9.
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$1,433,445 and nil as of December 31, 2019 and 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 nil and US$50,766,123 as of December 31, 2019 and 2018, respectively.
(f) Accounts Receivable
Accounts
receivable are recorded at the invoiced amount and do not bear interest. The Company maintains an allowance for doubtful accounts
for estimated losses resulting from the inability of its customers to make required payments. In establishing the required allowance,
management considers historical losses, the amount of accounts receivables in dispute, the accounts receivables aging and the
customers' payment patterns. Account balances are written off against the allowance after all means of collection have
been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet
credit exposure related to its customers.
(g) Inventories
Inventories
are stated at the lower of cost or net realizable value. Cost is determined using the weighted average cost method. Work-in-progress
and finish goods comprise direct materials (including purchasing, receiving and inspection costs), direct labor and an allocation
of related manufacturing overhead based on normal operating capacity.
(h) Long-lived
Assets
Property, plant and equipment
Property, plant and equipment
are initially recorded at cost. Depreciation is calculated on the straight-line method over the estimated useful lives
of the assets. The estimated useful lives of property, plant and equipment are as follows:
|
Estimated
Useful Life
|
Workshops and buildings
|
39 years
|
Machinery, equipment and furniture
|
5-10 years
|
Motor vehicles
|
5 years
|
An appropriate
allocation of depreciation expense of property, plant and equipment attributable to manufacturing activities based on normal capacity
is capitalized as part of the cost of inventory, and expensed in cost of revenues when the inventory is sold. Costs
incurred in the construction of property, plant and equipment, including an allocation of interest expense incurred, are capitalized
and transferred into their respective asset category when the assets are ready for their intended use, at which time depreciation
commences. Ordinary maintenance and repairs are charged to expenses as incurred, while replacements and betterments are capitalized. When
items are retired or otherwise disposed of, income is charged or credited for the difference between net book value of the item
disposed and proceeds realized thereon.
Land Use Rights
A land use right in the PRC represents
an exclusive right to occupy, use and develop a piece of land during the contractual term of the land use right. The cost of a
land use right is usually paid in one lump sum at the date the right is granted. The prepayment usually covers the entire period
of the land use right. Prior to the adoption of ASC 842, the lump sum advance payment is capitalized and recorded as land use right
and then charged to expense on a straight-line basis over the period of the right, which is normally 50 years.
Upon the adoption of ASC 842 on January
1, 2019, the Company recognized US$29.8 million of right-of-use assets, which was previously recognized as land use rights under
ASC 840.
Amortization expense of land use rights
was US$638,773 for the year ended December 31, 2018, and is included in general and administrative expenses.
(i) Impairment of Long-lived
Assets
Long-lived
assets, such as property, plant and equipment, and land use rights, are reviewed for impairment when events or changes in circumstances
indicate that the carrying value of such assets may not be recoverable. Recoverability of a long-lived asset or asset
group to be held and used is measured by a comparison of the carrying amount of an asset or asset group to the estimated undiscounted
future cash flows expected to be generated by the asset or asset group. If the carrying value of an asset or asset
group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount that the carrying
value exceeds the estimated fair value of the asset or asset group. Fair value is determined through various valuation
techniques including discounted cash flow models, quoted market values and third party independent appraisals, as considered necessary. Assets
to be disposed are reported at the lower of carrying amount or fair value less costs to sell, and are no longer depreciated.
No impairment of long-lived assets
was recognized for any of the years presented.
(j) Derivative Financial Instruments
The Company
recognizes all derivative instruments as either assets or liabilities at their respective fair values. Changes in the fair value
of derivative instruments not designated for hedge accounting are recognized in earnings.
(k) Revenue Recognition
Effective
January 1, 2018, the Company adopted the new guidance of ASC Topic 606, Revenue from Contracts with Customers (Topic 606), which
supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition. Topic 606 requires the Company to recognize
revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services. The Company applies the following steps to recognize
revenues: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the
transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue
when, or as, the Company satisfies a performance obligation.
Products sales
The Company
recognizes revenue upon transfer of control of its products to the customers, which typically occurs upon delivery. The Company’s
main performance obligation to its customers is the delivery of products in accordance with purchase orders. Each purchase order
defines the transaction price for the products purchased under the arrangement. The Company sells its products primarily to the
distributors and to a lesser extent to the direct customers. For sales in the People’s Republic of China (“PRC”),
acceptance of delivery of the products by the distributors is evidenced by goods receipt notes signed by the distributors’
customers (or end users). The distributors accept the products at the time they are delivered to the distributors’ customers
(or end customers). Delivery acceptance is evidenced by signed goods receipt notes. The Company has no remaining obligations after
the distributors’ acceptance of the products. Under the terms of the contracts or purchase orders between the Company and
the distributors, the control of the products is transferred to the distributor upon the signing of the goods receipt notes and
the distributor has no rights to return the products (other than for defective products). For sales to the overseas customers,
delivery of the products occurs at the point in time the product is delivered to the named port of shipment, which is when the
control of the products is transferred to the customer.
The selling
price, which is specified in the purchase orders, is fixed. Under the terms of the purchase orders, upon the sale of the products
to the distributors and the signing of the good receipts notes, the Company has the legal enforceable right to receive full payment
of the sales price. The distributors’ obligation to pay the Company is not dependent on the distributors selling the products
or collecting cash from their customers (or end customers). The customer is required to pay under normal sales terms. The Company’s
normal payment terms in most cases are 90 days and its sales arrangements do not have any material financing components. In addition,
the Company’s customer arrangements do not produce contract assets or liabilities that are material to its consolidated
financial statements.
Incremental
costs to fulfill the Company’s customer arrangements are expensed as incurred, as the amortization period is less than one
year.
The Company’s
sales are net of value added tax (“VAT”) and business tax and surcharges collected on behalf of tax authorities in
respect of product sales. VAT and business tax and surcharges collected from customers, net of VAT paid for purchases, is recorded
as a liability in the consolidated balance sheets until it is paid to the tax authorities.
Outbound
freight and Handling costs:
The company
accounts for product outbound freight and handling costs as fulfillment activities and present the associated costs in costs of
goods sold in the period in which it sells the product.
Disaggregation
of Revenues:
The company
manufactures and sells modified plastics primarily for automotive applications in China and to a lesser extent, in Dubai, United
Arab Emirates (“UAE”). The Company disaggregates revenue based on its major customer grouping as this category represents
the most appropriate depiction of how the nature, amount, and timing of revenues and cash flows are affected by economic factors.
Sales by major customer group are as follows:
Distributors
– represents sales to the distributors, who re-sell our products to end customers.
Direct
customers – represents sales sold directly to customers in automotive applications and electrical appliances industry.
Others
– mainly represents agent fee of raw material trading.
The following tables provide
sales by major customer group for years ended December 31, 2019 and 2018:
|
|
Years
Ended December 31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
Distributors
|
|
|
1,200,582,840
|
|
|
|
1,241,373,690
|
|
Direct customers
|
|
|
246,881,535
|
|
|
|
32,679,238
|
|
Others
|
|
|
740,451
|
|
|
|
780,354
|
|
Total
|
|
|
1,448,204,826
|
|
|
|
1,274,833,282
|
|
(l) Cost of Revenues
Cost of
revenues represents costs of raw materials (including purchasing, receiving and inspection costs), packaging materials, labor,
utilities, depreciation and amortization of manufacturing facilities and warehouses, handling costs, outbound freight and inventory
write-down. Depreciation and amortization of manufacturing facilities and warehouses attributable to manufacturing activities
is capitalized as part of the cost of inventory, and expensed in costs of revenues when the inventory is sold.
(m) Selling, General and Administrative
Expenses
Selling
expenses represents primarily costs of payroll, benefits, commissions for sales representatives and advertising expenses.
General and administrative expenses represent primarily payroll and benefits costs for administrative employees, rent and operating
costs of office premises, depreciation and amortization of office facilities, and other administrative expenses.
(n) Research and Development
Expense
Research and development costs
are expensed as incurred.
(o) Government Grants
Government
grants are recognized when there is reasonable assurance that the Company will comply with the conditions attaching to them
and the grants will be received. Government grants for the purpose of giving immediate financial support to the Company with
no future related costs are recognized as other income in the Company's consolidated statements of comprehensive income
(loss). Government grants related to the acquisition of assets are recorded as deferred income on the consolidated
balance sheets when the grants become receivable, and recognized as other income in the consolidated statements of
comprehensive income (loss) on a straight-line basis over the estimated useful lives of those assets.
(p) Income Taxes
Income taxes are accounted for under
the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and tax operating loss and tax credit carryforwards. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the periods in which those temporary
differences are expected to be recovered or settled. The effect of a change in tax rates or tax laws on deferred
income tax assets and liabilities is recognized in the consolidated statements of comprehensive income (loss) in the period
the change in tax rates or tax laws is enacted. A valuation allowance is provided to reduce the carrying amount of deferred
income tax assets if it is considered more likely than not that some portion or all of the deferred income tax assets will
not be realized.
The Company recognizes in the consolidated
financial statements the impact of a tax position, if that position is more likely than not of being sustained upon examination,
based on the technical merits of the position. Recognized income tax positions are measured at the largest amount that
is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in
which the change in judgment occurs. The Company has elected to classify interest and penalties related to unrecognized
tax benefits, if and when required, as part of interest expense, and general and administration expenses, respectively in
the consolidated statements of comprehensive income (loss).
(q) Bills Payable
Bills payable
represent bills issued by financial institutions to the Company's raw material suppliers. The Company's suppliers receive payments
from the financial institutions upon maturity of the bills and the Company is obliged to repay the face value of the bills to
the financial institutions.
(r) Employee Benefit
Plans
Pursuant
to relevant PRC regulations, the Company is required to make contributions to various defined contribution plans organized by
municipal and provincial PRC governments. The contributions are made for each PRC employee at rate of approximately 40%
on a standard salary base as determined by local social security bureau. Contributions to the defined contribution plans are
charged to the consolidated statements of comprehensive income (loss) when the related service is provided. For the
years ended December 31, 2019 and 2018, the costs of the Company's contributions to the defined contribution plans amounted
to US$2,236,528 and US$6,451,997, respectively.
For the
years ended December 31, 2019 and 2018, 52% and 51% of costs of employee benefits were recorded in general and administration
expenses, respectively, with the remaining portion of costs of employee benefits in selling expenses, research and development
expenses and cost of revenues each year.
The Company
has no other obligation for the payment of employee benefits associated with these plans beyond the contributions described above.
(s) Stock Based Compensation
The Company
measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value
of the award and recognizes the cost over the period during which the employee is required to provide service in exchange for
the award, which generally is the vesting period. The amount of cost recognized is adjusted to reflect any expected forfeitures
prior to vesting. The Company recognizes compensation cost for an award with only service conditions that has a graded
vesting schedule on a straight-line basis over the requisite service period for the entire award, provided that the cumulative
amount of compensation cost recognized at any date at least equals the portion of the grant-date value of such award that is vested
at that date.
(t) Commitments and Contingencies
In the normal
course of business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out of its business,
that cover a wide range of matters, including, among others, government investigations, shareholder lawsuits, product and environmental
liability, and non-income tax matters. An accrual for a loss contingency is recognized when it is probable that a liability
has been incurred and the amount of loss can be reasonably estimated.
(u) Earnings per Share
Basic earnings
per share ("EPS") is computed by dividing net income attributable to common stockholders by the weighted average number
of common stock outstanding during the year using the two-class method. Under the two-class method, net income attributable
to common stockholders is allocated between common stock and other participating securities based on participating rights in undistributed
earnings. Nonvested shares and redeemable Series D convertible preferred stock are participating securities since the holders
of these securities participate in dividends on the same basis as common stockholders. Diluted EPS is calculated by
dividing net income attributable to common stockholders as adjusted for the effect of dilutive common stock equivalent, if any,
by the weighted average number of common stock and dilutive common stock equivalent outstanding during the year. Potential
dilutive securities are not included in the calculation of diluted earnings per share if the impact is anti-dilutive.
(v) Segment Reporting
The Company
uses the management approach in determining reportable operating segments. The management approach considers the internal
reporting used by the Company's chief operating decision maker for making operating decisions about the allocation of resources
of the segment and the assessment of its performance in determining the Company's reportable operating segments. Management
has determined that the Company has one operating segment, which is the modified plastics segment.
(w) Fair Value Measurements
The Company
utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent
possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability
in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the
following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following
levels:
- Level 1 Inputs:
Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement
date.
- Level 2 Inputs:
Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly,
for substantially the full term of the asset or liability.
- Level 3 Inputs:
Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available,
thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.
The level in the fair value hierarchy
within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair
value measurement in its entirety.
The Company
did not have any financial assets and liabilities or nonfinancial assets and liabilities that are measured and recognized at fair
value on a recurring or nonrecurring basis as of December 31, 2019 and 2018. Management used the following methods
and assumptions to estimate the fair values of financial instruments at the balance sheet dates:
- Short-term
financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, amounts due from a related
party, short-term bank loans, bills payable, accounts payable, amounts due to related parties and accrued expenses and other current
liabilities- carrying amounts approximate fair values because of the short maturity of these instruments.
- Long-term
bank loans-fair value is based on the amount of future cash flows associated with each loan discounted at the Company's current
borrowing rate for similar debt instruments of comparable terms. The carrying value of the long-term bank loans approximate their
fair values as the long-term bank loans carry interest rates which approximate rates currently offered by the Company's banks
for similar debt instruments of comparable maturities.
- Derivative
liabilities on foreign currency option contracts-fair values are determined using Black-Scholes model. It considers the following
significant inputs: risk-free rate, foreign exchange rate and volatility.
(x) Recently Issued Accounting
Standards
In February 2016, the Financial Accounting
Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) ("ASC
842"). 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 (loss) 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. 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 following table summarizes the effect on the consolidated balance sheets as a result of adopting
ASC842.
|
|
December 31,
|
|
Effect of
|
|
January 1,
|
|
|
2018
|
|
Adoption
|
|
2019
|
|
|
|
US$
|
|
|
|
US$
|
|
|
|
US$
|
|
Land use rights, net
|
|
|
29,796,795
|
|
|
|
(29,796,795
|
)
|
|
|
—
|
|
Operating lease right-of-use assets, net
|
|
|
—
|
|
|
|
45,872,008
|
|
|
|
45,872,008
|
|
Accrued expenses and other liabilities
|
|
|
(126,926,898
|
)
|
|
|
752,795
|
|
|
|
(126,174,103
|
)
|
Operating lease liabilities, current
|
|
|
—
|
|
|
|
(2,086,529
|
)
|
|
|
(2,086,529
|
)
|
Operating lease liabilities, non-current
|
|
|
—
|
|
|
|
(14,741,479
|
)
|
|
|
(14,741,479
|
)
|
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.
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments (“ASU 2016-13”), which replaces the current incurred loss impairment methodology with a methodology
that reflects expected credit losses for financial assets. In October 2019, the FASB issued ASU 2019-10, which amended the effective
dates that were originally required by ASU 2016-13 for certain entities. The Company determined it was eligible as a smaller reporting
company (SRC) under the SEC’s definition based on an its most recent SRC determination as of November 15, 2019 in accordance
with SEC regulations and will adopt ASU 2016-13 on January 1, 2023.
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 (“ASU 2018-13”), which modifies the disclosure requirements on fair value
measurements. The Company will adopt the standard on January 1, 2020 and does not expect the adoption of this standard to have
a material impact on its financial statements.
In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU
2019-12). The new guidance simplifies the accounting for income taxes by removing certain exceptions related to the approach for
intraperiod tax allocation, the recognition of deferred tax liabilities for outside basis differences and the methodology for
calculating income taxes in an interim period. It also simplifies other aspects of accounting for income taxes. The new guidance
is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020, and early adoption is
permitted. The Company is currently evaluating the impact of adopting ASU 2019-12 on its consolidated financial statements.
Note 3 – Accounts
receivable
Accounts receivable consists
of the following:
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
Accounts receivable
|
|
|
284,921,071
|
|
|
|
294,726,804
|
|
Allowance for doubtful accounts
|
|
|
(62,849,018
|
)
|
|
|
(38,516
|
)
|
Accounts receivable, net
|
|
|
222,072,053
|
|
|
|
294,688,288
|
|
As of December
31, 2019 and 2018, the accounts receivable balances also include notes receivable in the amount of US$107,845 and US$27,392, respectively. As
of December 31, 2019 and 2018, US$92,198,221 and US$94,581,170, respectively of accounts
receivable are pledged for the short-term bank loans.
The following table provides
an analysis of the aging of accounts receivable as of December 31, 2019 and 2018:
|
|
December
31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
Aging:
|
|
|
|
|
– current
|
|
|
189,180,366
|
|
|
|
218,458,862
|
|
– 1-3 months past due
|
|
|
45,363,405
|
|
|
|
31,386,341
|
|
– 4-6 months past due
|
|
|
28,865,350
|
|
|
|
109,412
|
|
– 7-12 months past due
|
|
|
5,703,612
|
|
|
|
42,532,170
|
|
– greater than one
year past due
|
|
|
15,808,338
|
|
|
|
2,240,019
|
|
Total
accounts receivable
|
|
|
284,921,071
|
|
|
|
294,726,804
|
|
The movements of the allowance
for doubtful accounts are as follows:
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
Balance at the beginning of the year
|
|
|
(38,516
|
)
|
|
|
(40,456
|
)
|
Provision
|
|
|
(62,811,125
|
)
|
|
|
—
|
|
Effect of foreign currency exchange rate changes
|
|
|
623
|
|
|
|
1,940
|
|
Balance at the end of the year
|
|
|
(62,849,018
|
)
|
|
|
(38,516
|
)
|
As of December 31, 2019, accounts receivable
of US$62.8 million from the Company’s customer in UAE was overdue and the customer failed to make payments under the agreed
extended repayment plan. Based on its assessment of the collectability of the amounts due from the customer, the Company provided
an allowance for doubtful accounts of US$62.8 million for the year ended December 31, 2019.
Note 4 – Inventories
Inventories consist of the following:
|
|
December
31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
Raw materials and semi-finished goods
|
|
|
637,278,817
|
|
|
|
612,701,274
|
|
Finished goods
|
|
|
5,230,717
|
|
|
|
7,331,921
|
|
Total
inventories
|
|
|
642,509,534
|
|
|
|
620,033,195
|
|
As of December 31, 2019, the
Company pledged inventories in amount of approximately US$40.1 million for a one-year short-term loan and bills payable, details
refer to Note 9.
There were no write down of inventories
during the years ended December 31, 2019 and 2018.
Note 5 – Prepaid expenses
and other current assets
Prepaid expenses and other current
assets consist of the following:
|
|
December
31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
Advances to suppliers (i)
|
|
|
118,166,925
|
|
|
|
56,232,074
|
|
Value added taxes receivables (ii)
|
|
|
6,239,719
|
|
|
|
4,700,702
|
|
Receivables from Hong Kong Grand Royal Trading
Co., Ltd.(iii)
|
|
|
42,566,949
|
|
|
|
48,236,949
|
|
Interest receivable (iv)
|
|
|
615,049
|
|
|
|
826,729
|
|
Consideration for sales of Shanghai Sales (v)
|
|
|
—
|
|
|
|
7,285,231
|
|
Others (vi)
|
|
|
4,259,480
|
|
|
|
14,936,843
|
|
Total
prepaid expenses and other current assets
|
|
|
171,848,122
|
|
|
|
132,218,528
|
|
(i) Advances
to suppliers are the advances to purchase raw materials.
(ii) 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.
(iii) 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 settle the advance payment.
The US$42.6 million advance payment as of December 31, 2019 was subsequently settled in the first quarter of 2020.
(iv) Interest
receivable mainly represents interest income accrued from restricted cash.
(v) 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$7.4 million was received on April 11, 2019.
The cash received was included in the cash flows from investing activities for the year ended December 31, 2019.
(vi) Others
mainly include prepaid miscellaneous service fee, staff advance and prepaid rental fee.
Note 6 – Property,
plant and equipment, net
Property, plant and equipment
consist of the following:
|
|
December
31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
Machinery, equipment and furniture
|
|
|
575,317,840
|
|
|
|
580,735,482
|
|
Motor vehicles
|
|
|
1,709,182
|
|
|
|
2,658,487
|
|
Workshops and buildings
|
|
|
156,256,761
|
|
|
|
157,976,839
|
|
Construction in progress
|
|
|
335,245,525
|
|
|
|
217,194,285
|
|
Total property, plant and equipment
|
|
|
1,068,529,308
|
|
|
|
958,565,093
|
|
Less: accumulated depreciation
|
|
|
(238,209,592
|
)
|
|
|
(182,623,813
|
)
|
Property,
plant and equipment, net
|
|
|
830,319,716
|
|
|
|
775,941,280
|
|
The Company
capitalized US$3,751,573 and US$2,416,818 of interest costs as a component of the cost of construction in progress for the years
ended December 31, 2019 and 2018 respectively.
Depreciation expense on property,
plant and equipment was allocated to the following expense items:
|
|
Years
Ended December 31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
|
|
|
|
|
Cost of revenues
|
|
|
52,691,430
|
|
|
|
38,999,223
|
|
General and administrative expenses
|
|
|
2,949,915
|
|
|
|
2,692,329
|
|
Research and development expenses
|
|
|
3,770,983
|
|
|
|
3,946,556
|
|
Selling expenses
|
|
|
4,346
|
|
|
|
5,426
|
|
Total depreciation expense
|
|
|
59,416,674
|
|
|
|
45,643,534
|
|
Note
7 – Prepayments to equipment and construction suppliers
|
|
December
31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
|
|
Hailezi (i)
|
|
|
468,529,714
|
|
|
|
502,087,116
|
|
|
Shanghai Green River (ii)
|
|
|
-
|
|
|
|
15,778,057
|
|
|
Beijin Construction (iii)
|
|
|
6,795,439
|
|
|
|
6,867,269
|
|
|
Peaceful Treasure Limited(iv)
|
|
|
19,967,014
|
|
|
|
5,539,471
|
|
|
Others
|
|
|
278,254
|
|
|
|
364,406
|
|
|
Total Prepayments to equipment and construction suppliers
|
|
|
495,570,421
|
|
|
|
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$112.1 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 contracts with Hailezi, HLJ Xinda Group prepaid
RMB621.6 million (equivalent to US$89.1 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$40.7 million). Hailezi refunded RMB369.1 million (equivalent to US$52.9 million)
to HLJ Xinda Group on June 22, 2017. On September 25, 2019, HLJ Xinda Group entered into a supplementary agreement with Hailezi,
pursuant to which the total contract amount was increased to RMB332.5 million (equivalent to US$47.7 million). As of December
31, 2019, HLJ Xinda Group has prepaid RMB255.0 million (equivalent to US$36.7 million) for the above contracts.
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$134.7million). Pursuant to the contract with Hailezi, HLJ Xinda Group has prepaid RMB920.9
million (equivalent to US$132.0 million) in total as of December 31, 2018. During 2019, HLJ Xinda Group entered into a supplementary
agreement with Hailezi, pursuant to which the contract amount was increased to RMB958.7 million (equivalent to US$137.4 million).
RMB880.1 million (equivalent to US$127.6 million) of the equipment was delivered in 2019 and the prepayment was transferred to
construction in progress. As of December 31, 2019, the amount of the remaining prepayment was RMB40.9 million (equivalent to US$5.9
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$273.3 million). Pursuant to the contracts with Hailezi, HLJ
Xinda Group has prepaid RMB540.0 million (equivalent to US$77.4 million) as of December 31, 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$358.4 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$247.8
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$244.4 million) by the end of March 2018, the remaining uncancelled amount is RMB24.0 (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 December 31, 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 million (equivalent to US$272.4 million).
Pursuant to the contract with Hailezi, Sichuan Xinda has prepaid RMB1,710 million (equivalent to US$245.1 million) as of December
31, 2019.
On December
3, 2019, HLJ Xinda Group entered into two equipment purchase contracts with Hailezi to purchase production equipment used to upgrade
Qinling Road Factory (“Qinling Road Project”) and Jiangnan Road Factory (“Jiangnan Road Project”) in Harbin.
Total consideration is RMB162.0 million (equivalent to US$23.2 million) and RMB713.6 million (equivalent to US$102.3 million)
for Qinling Road Project and Jiangnan Road Project respectively. Pursuant to the contracts with Hailezi, HLJ Xinda has prepaid
RMB129.6 million (equivalent to US$18.6 million) and RMB570.9 million (equivalent to US$81.8 million) respectively for Qinling
Road Project and Jiangnan Road Project as of December 31, 2019.
The table below
summarized the balance of prepayments to Hailezi for each of the projects as of December 31, 2019 and 2018, and the movements
of the prepayments:
(in millions US$)
|
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
December
31, 2019
|
|
2017
|
|
|
Storage system
|
|
|
36.8
|
|
|
|
0.4
|
|
|
|
—
|
|
|
|
(0.5
|
)
|
|
|
36.7
|
|
|
2017
|
|
|
HLJ project
|
|
|
134.2
|
|
|
|
—
|
|
|
|
(127.6
|
)
|
|
|
(0.7
|
)
|
|
|
5.9
|
|
|
2018
|
|
|
HLJ project
|
|
|
78.9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1.5
|
)
|
|
|
77.4
|
|
|
2017
|
|
|
Nanchong project
|
|
|
3.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3.0
|
|
|
2018
|
|
|
Nanchong project
|
|
|
249.2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4.1
|
)
|
|
|
245.1
|
|
|
2019
|
|
|
Qinling Road project
|
|
|
—
|
|
|
|
18.6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18.6
|
|
|
2019
|
|
|
Jiangnan Road project
|
|
|
—
|
|
|
|
81.8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
81.8
|
|
|
Total
|
|
|
|
|
|
502.1
|
|
|
|
100.8
|
|
|
|
(127.6
|
)
|
|
|
(6.8
|
)
|
|
|
468.5
|
|
(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 million), with a total area of
13,972.64 square meters with a prepaid RMB108.3 million (equivalent to US$15.7 million).
In
March 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$15.7 million) to HLJ Xinda Group. HLJ Xinda Group received the RMB108.3 million on August
6, 2019, which was included in the cash flows from investing activities for the year ended December 31, 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$37.9 million). Pursuant to the contracts with Beijin Construction, Sichuan Xinda has prepaid RMB121.4 million (equivalent
to US$17.4 million) as of December 31, 2019, of which RMB74.0 million (equivalent to US$10.6 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$12.9 million) to purchase certain production and testing equipment.
The Company prepaid RMB33.9 million (equivalent to US$4.9 million) as of December 31, 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 has prepaid US$15.1 million as of December 31, 2019.
Note
8 – 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$0.5
million in the year ended December 31, 2018.
Note 9 – Borrowings
The Company has credit facilities
with several banks under which they draw short-term and long-term bank loans as described below.
(a) Current
|
|
December
31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
Unsecured loans (i)
|
|
|
407,657,464
|
|
|
|
418,198,508
|
|
Loans secured by accounts receivable (ii)
|
|
|
64,505,031
|
|
|
|
65,567,082
|
|
Loans secured by restricted cash (iii)
|
|
|
14,334,451
|
|
|
|
69,500,000
|
|
Syndicated loan facility (iv)
|
|
|
128,020,559
|
|
|
|
—
|
|
Loan secured by inventories (v)
|
|
|
5,733,781
|
|
|
|
—
|
|
Current portion of long-term bank loans (note
b)
|
|
|
59,923,573
|
|
|
|
176,401,330
|
|
|
|
|
|
|
|
|
|
|
Total
short-term loans, including current portion of long-term bank loans
|
|
|
680,174,859
|
|
|
|
729,666,920
|
|
As of December
31, 2019 and 2018, the Company's short-term bank loans (including the current portion of long-term bank loans) bear a weighted
average interest rate of 5.0% and 4.7% per annum, respectively. All short-term bank loans mature at various times within one year
and contain no renewal terms.
(i)
In July 2019, HLJ Xinda Group obtained a one-year short-term bank loan of RMB99.9 million (equivalent to US$14.3 million)
from Bank of China. Pursuant to the loan contract, the amount of external guarantee provided by HLJ Xinda Group shall not exceed
20% of its net assets. As of December 31, 2019, the external guarantee amount was higher than 20% of its net assets, which resulted
in a breach of the loan covenants, and Bank of China has the right to declare the above loan be immediately due and payable. For
details of the guarantee, please refer to note 20.
(ii) As of December
31, 2019 and 2018, the Company had US$64.5 million and US$65.6 million of short-term bank loans secured by accounts receivables
of US$92.2 million and US$94.6 million, respectively.
(iii)
As of December 31, 2019 and 2018, the Company had US$14.3 million and US$69.5 million of short-term bank loans secured by restricted
cash of US$1.4 million and US$70.9 million, respectively.
(iv) On
October 2, 2019, Xinda Holding (HK) Company Limited ("Xinda Holding (HK)"), a wholly owned subsidiary of the
Company, entered into a facility agreement for a one-year loan facility in an aggregate amount of US$135.0 million with a
consortium of banks and financial institutions led by Industrial and Commercial Bank of China (Macau) Limited. The Company
made the drawdown on December 18, 2019. The interest rate of the loan is 2.0% plus three-month LIBOR. The Company incurred
agency fee and arrangement fee in the amount of US$7.2 million for the loan of which the unamortized balance was US$7.0
million as of December 31, 2019. Loan issuance costs are presented on the consolidated balance sheets as a direct deduction
from the carrying amount of the loan and amortized to interest expense using the effective interest rate of 9.92% as of
December 31, 2019. As of December 31, 2019, the loan was secured by US$58.2 million restricted cash. Covenants of the
syndicated loan facility included but not limited to: the consolidated tangible net worth of the Company shall not at any
time be less than US$650 million (or its equivalent), the ratio of the consolidated total liabilities to consolidated total
assets of the Company shall not at any time exceed 0.70:1.00, and interest cover in respect of each relevant period shall not
be less than 2.50:1.00. As of December 31, 2019, the Company was in compliance with the loan covenants.
(v)
In November 2019, the Company obtained a one-year short-term loan of RMB40.0 million (equivalent to US$5.7 million) from Bank
of Inner Mongolia. As of December 31, 2019, the Company pledged inventories in amount of approximately US$40.1 million
for the above loan and bills payable in amount of RMB142.0 million (equivalent to US$20.4 million) issued by Bank of Inner Mongolia.
(b) Non-current
|
|
December
31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
Secured loans (i)
|
|
|
1,742,389
|
|
|
|
2,177,985
|
|
Unsecured loans (ii)
|
|
|
380,637,597
|
|
|
|
196,031,589
|
|
Syndicated loan facility
|
|
|
—
|
|
|
|
90,000,000
|
|
Less: current portion
|
|
|
(59,923,573
|
)
|
|
|
(176,401,330
|
)
|
Total long-term bank loans,
excluding current portion
|
|
|
322,456,413
|
|
|
|
111,808,244
|
|
As
of December 31, 2019 and 2018, the Company's long-term bank loans (excluding the current portion of long-term bank loans) bear
a weighted average interest rate of 5.4% and 4.8% per annum, respectively.
(i)
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 (2.21% as of December 31, 2019) plus 3.75%. The long-term loan
was secured by an undated cheque of AED8.8 million (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 AED1.6 million (equivalent to US$0.5 million) during 2019.
In
January 2019, the Company obtained a two-year secured loan of RMB500.0 million (equivalent to US$71.7 million) from China Construction
Bank. The long-term loan was secured by the right of equity income of Sichuan Xinda.
The registration of pledge was completed in January 2019. The loan was repaid in November and December 2019 and the equity pledge
was terminated.
(ii)
As of December 31, 2019 and 2018, the Company's long-term unsecured bank loans (excluding the current portion of long-term bank
loans) bear a weighted average interest rate of 5.5% and 5.4% per annum, respectively. The Company’s long-term unsecured
bank loans (excluding the current portion of long-term bank loans) will mature serially from 2021 to 2027.
In 2016 and 2017,
the Company obtained long term unsecured loans of RMB135.0 million (equivalent to US$19.4 million) from Bank of China at an annual
interest rate of 4.75%, and the loan balance as of December 31, 2019 was RMB95.0 million (equivalent to US$13.6 million), which
will be due in 2020. As of December 31, 2019, the Company was providing external guarantees without the bank’s consent,
in addition, inventory turnover for the year ended December 31, 2019 was below requirement of the financial covenants in the loan
contract, which resulted in a breach of the loan covenants. According to the loan contract, Bank of China has the right to declare
the above loans be immediately due and payable. For details of the guarantee, please refer to note 20. The loan balance of RMB95.0
million (equivalent to US$13.6 million) was classified as short-term bank loans in the consolidated balance sheets as of December
31, 2019.
Maturities
on long-term bank loans (including current portion) are as follows:
|
|
December 31, 2019
|
|
|
US$
|
|
2020
|
|
|
|
59,923,573
|
|
|
2021
|
|
|
|
56,339,958
|
|
2022
|
|
|
|
40,572,061
|
|
2023
|
|
|
|
54,906,512
|
|
2024
|
|
|
|
41,627,819
|
|
After 2024
|
|
|
|
129,010,063
|
|
Total
|
|
|
|
382,379,986
|
Note 10 – Accrued expenses
and other current liabilities
|
|
As
of December 31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
Payables for purchase of property, plant and equipment
|
|
|
12,445,494
|
|
|
|
53,059,897
|
|
Accrued freight expenses
|
|
|
17,665,998
|
|
|
|
25,908,990
|
|
Accrued interest expenses
|
|
|
15,650,965
|
|
|
|
8,873,532
|
|
Contract liabilities (i)
|
|
|
17,922,160
|
|
|
|
16,105,245
|
|
Non income tax payables
|
|
|
6,056,024
|
|
|
|
6,425,236
|
|
Others (ii)
|
|
|
16,809,747
|
|
|
|
16,553,998
|
|
Total accrued expenses
and other current liabilities
|
|
|
86,550,388
|
|
|
|
126,926,898
|
|
(i) Contract
liabilities mainly represent the advance received from customers in the PRC for the finished goods and raw materials purchases.
The change in contract liabilities primarily represents the cash received, less amounts recognized as revenues during the period.
(ii)
Others mainly represent accrued payroll and employee benefits, accrued audit and consulting fees, electricity fee and other
accrued miscellaneous operating expenses.
Note 11 – Related party
transactions
The related
party transactions are summarized as follows:
|
|
Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
Transactions with related parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues resulting from transactions with a
related party:
|
|
|
|
|
|
|
|
|
Sales to Macromolecule Composite Materials (v)
|
|
|
1,040,485
|
|
|
|
—
|
|
Investing transactions with related parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consideration for sales of Shanghai Sales (i)
|
|
|
—
|
|
|
|
7,285,231
|
|
Financing transactions with related parties:
|
|
|
|
|
|
|
|
|
Investment received in advance from Changmu (ii)
|
|
|
—
|
|
|
|
75,567,512
|
|
Refund of investment received in advance to Changmu (ii)
|
|
|
—
|
|
|
|
(75,567,512
|
)
|
Proceeds of interest-free advances from Changmu
|
|
|
—
|
|
|
|
3,779,509
|
|
Repayment of interest-free loan to Changmu
|
|
|
—
|
|
|
|
(3,779,509
|
)
|
Interest-free advances from Mr. Jie Han (the Chairman and Chief
Executive Officer)
|
|
|
2,920,049
|
|
|
|
9,907,915
|
|
Interest-free advances from Mr. Jie Han’s wife
|
|
|
—
|
|
|
|
3,180,965
|
|
Interest-free advances from Mr. Jie Han’s son
|
|
|
8,760,147
|
|
|
|
728,523
|
|
Repayment of interest-free advances from Mr. Jie Han
|
|
|
(116,802
|
)
|
|
|
—
|
|
Interest-free advances from senior management employees of HLJ
Xinda Group and Sichuan Xinda
|
|
|
275,234
|
|
|
|
8,985,291
|
|
Repayment of interest-free advances from senior management employees in
HLJ Xinda Group and Sichuan Xinda
|
|
|
(4,679,484
|
)
|
|
|
(4,436,956
|
)
|
Interest-free advances from Mr. Qingwei Ma (Chief Operating Officer)
|
|
|
9,425,891
|
|
|
|
—
|
|
Repayment of interest-free advances from Mr. Qingwei Ma
|
|
|
(8,265,781
|
)
|
|
|
—
|
|
Interest-free advances from Macromolecule Composite Materials (iii)
|
|
|
63,488,212
|
|
|
|
—
|
|
Repayment of interest-free advances from Macromolecule Composite
Materials (iii)
|
|
|
(63,017,445
|
)
|
|
|
—
|
|
Total financing transactions with related parties
|
|
|
8,790,021
|
|
|
|
18,365,738
|
|
|
|
|
|
|
|
|
|
|
(i) On December
18, 2018, the Company 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 the wholly owned equity from HLJ Xinda Group to
Mr. Gao for a consideration of RMB50.0 million (equivalent to US$7.3 million). On December 19, 2018 the legal transfer was
completed and the Company received the full consideration of US$7.3 million on April 11, 2019. The consideration received was
included in cash flows from investing activities in the consolidated statements of cash flows for the year ended December 31,
2019.
(ii) 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$75.6
million) from Changmu on June 29, 2018 as deposits in order to subscribe newly authorized registered capital of HLJ Xinda Group
subject to further negotiations. Due to the inability to reach agreement on the terms, both parties agreed not to proceed
with any definitive agreement. Therefore, HLJ Xinda Group refunded the investment received in advance from Changmu in September
2018.
(iii)
On December 26, 2018, Shanghai Sales set up Heilongjiang Xinda Macromolecule Composite Materials Company Limited (“Macromolecule
Composite Materials”). On April 22, 2019, Shanghai Sales transferred 97.5% equity interest in Macromolecule Composite Materials
to Harbin Shengtong Engineering Plastics Co. Ltd. ("Harbin Shengtong"). Mr. Xigang Chen, who was the general manager
of Sichuan Xinda, was the general manager and principal shareholder of Harbin Shengtong.
Since
Mr. Xigang Chen resigned from Sichuan Xinda on August 5, 2019, Macromolecule Composite Materials had ceased to be a
related party of the Company.
The related
party balances are summarized as follows:
|
|
December
31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
Amounts due to related parties:
|
|
|
|
|
|
|
|
|
Mr. Jie Han
|
|
|
12,499,642
|
|
|
|
9,907,915
|
|
Mr. Jie Han’s wife
|
|
|
3,137,539
|
|
|
|
3,180,965
|
|
Mr. Jie Han’s son
|
|
|
9,317,393
|
|
|
|
728,523
|
|
Senior management employees in HLJ Xinda Group and Sichuan Xinda
|
|
|
150,589
|
|
|
|
4,548,335
|
|
Mr. Qingwei Ma
|
|
|
1,146,756
|
|
|
|
—
|
|
Total amounts due to
related parties
|
|
|
26,251,919
|
|
|
|
18,365,738
|
|
Note 12 – Income Taxes
China XD
is subject to a tax rate of 34% before 2018 and 21% per the new tax rules beginning 2018, and files a U.S. federal income tax
return.
On December
22, 2017, the Tax Cuts and Jobs Act (the "Tax Act") was enacted. The Tax Act has made significant changes to the U.S.
Internal Revenue Code, including the taxation of U.S. corporations, by, among other things, limiting interest deductions, reducing
the U.S. corporate income tax rate, disallowing certain deductions that had previously been allowed, altering the expensing of
capital expenditures, adopting elements of a territorial tax system, assessing a repatriation tax or "toll-charge" on
undistributed earnings and profits of U.S.-owned foreign corporations, and introducing certain anti-base erosion provisions.
The Company
recorded a charge of approximately $71.0 million as a provisional amount for the repatriation tax on deemed repatriation to the
United States of accumulated earnings in the Company’s consolidated statement of comprehensive income for the year ended
December 31, 2017. As of December 31, 2018, the Company finalized the calculations and tax positions used in the analysis of the
impact of the Tax Act in consideration of proposed regulations and other guidance issued during 2018, and no adjustment was made
to the provisional amount.
Under the
current laws of the British Virgin Island ("BVI"), Favor Sea (BVI) and Xinda Deluxe Faith Limited, subsidiaries of China
XD, these two are not subject to tax on its income or capital gains.
No provision
for Hong Kong Profits Tax was made for Xinda Holding (HK) Co., Ltd. ("Xinda Holding (HK) "), (formerly known as Hong
Kong Engineering Plastics Co., Ltd.), Xinda (HONGKONG) Macromolecule Material Limited and Xinda (HK) Trading as they did not have any assessable profits
arising in or derived from Hong Kong for any of the periods presented.
Under
the current laws of Dubai, AL Composites Materials FZE ("Dubai Xinda"), a subsidiary of China XD, is exempted from income
taxes.
The Company's
PRC subsidiaries file separate income tax returns in the PRC. Effective from January 1, 2008, the PRC statutory income
tax rate is 25% according to the Corporate Income Tax ("CIT") Law which was passed by the National People's Congress
on March 16, 2007.
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.
The CIT
Law and its implementation rules impose a withholding income tax at 10%, unless reduced by a tax treaty or arrangement, on the
amount of dividends distributed by a PRC-resident enterprise to its immediate holding company outside the PRC that are related
to earnings accumulated beginning on January 1, 2008. Dividends relating to undistributed earnings generated prior to January
1, 2008 are exempt from such withholding income tax.
China XD’s earnings from its subsidiaries
in PRC and Dubai are subject to the U.S. federal income tax at 21%, less any applicable foreign tax credits. Due to its plan to
indefinitely reinvest its earnings in the PRC, the Company has not provided for deferred income tax liabilities related to PRC
withholding income tax on undistributed earnings of US$799,118,243 and US$732,515,443 as of December 31, 2019 and 2018,
respectively. In addition, due to its plan to indefinitely reinvest its earnings in Dubai, the Company has not provided for deferred
income tax liabilities related to Dubai on undistributed earnings of US$149,014,511 and US$201,787,664 as of December 31, 2019
and 2018, respectively. The undistributed earnings as of December 31, 2017 were subject to the one-time repatriation tax under
the Tax Act as a deemed repatriation of accumulated undistributed earnings from the foreign subsidiaries. However, the Company
continues to plan to indefinitely reinvest its earnings in PRC and Dubai subsequent to the Tax Act. It is not practicable to estimate
the amounts of unrecognized deferred income tax liabilities thereof.
The components of income (loss)
before income taxes are as follows:
|
|
Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
US
|
|
|
(1,870,587
|
)
|
|
|
(4,499,127
|
)
|
BVI
|
|
|
(47
|
)
|
|
|
2,578
|
|
Hong Kong SAR
|
|
|
(16,295,949
|
)
|
|
|
(10,611,927
|
)
|
Dubai
|
|
|
(52,773,153
|
)
|
|
|
(4,340,642
|
)
|
PRC, excluding Hong Kong SAR
|
|
|
88,031,912
|
|
|
|
95,475,652
|
|
Total income before income taxes
|
|
|
17,092,176
|
|
|
|
76,026,534
|
|
The Company's income tax expense
(benefit) recognized in the consolidated statements of comprehensive income (loss) consists of the following:
|
|
Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
Current income tax expense-PRC
|
|
|
15,625,998
|
|
|
|
8,638,230
|
|
Current income tax expense-US
|
|
|
428,523
|
|
|
|
992,876
|
|
Deferred income tax benefit-PRC
|
|
|
(2,017,823
|
)
|
|
|
(1,917,993
|
)
|
Total income tax expense
|
|
|
14,036,698
|
|
|
|
7,713,113
|
|
The effective income tax rate based
on income tax expense and income before income taxes reported in the consolidated statements of comprehensive income (loss)
differs from the PRC statutory income tax rate of 25% due to the following:
|
|
Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
|
|
|
|
|
PRC statutory income tax rate
|
|
|
25
|
%
|
|
|
25
|
%
|
Increase (decrease) in effective income tax rate resulting from:
|
|
|
|
|
|
|
|
|
Tax rate differential on entities not subject to PRC income tax
|
|
|
85.0
|
%
|
|
|
2.3
|
%
|
Non-deductible expenses
|
|
|
10.0
|
%
|
|
|
1.2
|
%
|
Preferential tax rate
|
|
|
(16.7
|
)%
|
|
|
(6.6
|
)%
|
Change in valuation allowance
|
|
|
23.3
|
%
|
|
|
4.0
|
%
|
R&D additional deduction
|
|
|
(49.5
|
)%
|
|
|
(15.0
|
)%
|
Reversal of unrealized tax benefits
|
|
|
(21.4
|
)%
|
|
|
(3.8
|
)%
|
True-up prior year’s tax filing
|
|
|
16.2
|
%
|
|
|
0.3
|
%
|
Others
|
|
|
10.2
|
%
|
|
|
2.7
|
%
|
Effective income tax rate
|
|
|
82.1
|
%
|
|
|
10.1
|
%
|
The principal components of the
Company's deferred income tax assets and deferred income tax liabilities are as follows:
|
|
December
31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
|
|
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Tax loss carry forwards
|
|
|
14,313,575
|
|
|
|
10,559,911
|
|
Foreign currency contracts
|
|
|
—
|
|
|
|
—
|
|
Less: valuation allowance
|
|
|
(14,313,575
|
)
|
|
|
(10,559,911
|
)
|
Deferred income tax assets,
net (included in other non-current assets)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities (included in other non-current
liabilities):
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
4,613,524
|
|
|
|
6,716,921
|
|
The Research Institute was
established with a registered capital of approximately US$0.4 million in 2007. The Research Institute provided
research and development services to the Company's ultimate end customers. In December 2010, for tax purposes and
because the Research Institute could not meet the Company's development needs, the Company dissolved the Research Institute
and formed a new legal entity, Heilongjiang Xinda Enterprise Group Macromolecule Materials R&D Center Company Limited
("Research Center"). Based on applicable regulations promulgated by the local Civil Affairs Bureau, only the local
government has the authority for the distribution of the assets of the Research Institute upon
liquidation. Therefore, the Company dissolved the Research Institute by distributing the net assets of the
Research Institute in the amount of US$84.0 million to the local government. The difference between the net assets in the
amount of US$84.0 million and the amount of the initial registered capital of US$0.4 million represents undistributed
accumulated profit generated by the Research Institute from its inception date to its liquidation
date. Simultaneously, the local government granted the net assets back to the Research Center, the newly
established subsidiary of Harbin Xinda in December 2010. The Research Center was established with a registered capital of
approximately US$0.5 million funded by cash. A loss equal to the net assets of the Research Institute distributed
to the local government was recognized in other expenses and a government grant for the receipts of the same assets back from
the local government was recognized as other income in the consolidated statements of comprehensive income (loss). Pursuant to the
local tax regulations, the net assets granted to the Research Center are not subject to income tax to the extent the Research
Center spends a total of US$84.0 million in five years from the date of grant. The expenditures of US$84.0 million
will not be deductible for income tax purposes. As a result, the Company recognized a deferred income tax
liability in the amount of US$21.5 million in connection with the net assets granted to the Research Center as of December
31, 2010. To the extent that the Company has spent on research and development equipment during the five years
from the date of grant, deferred income tax liabilities relating to the net assets of Research Institute granted to Research
Center will be reclassified to deferred income tax liabilities relating to property, plant and equipment, and recognized in
profit or loss over the useful life of the asset. The Company spent a total of US$84.0 million on research and development
equipment by the end of December 31, 2015, and the deferred income tax liabilities was US$4,613,524 and US$6,716,921 as of
December 31, 2019 and 2018, respectively.
The movements
of the valuation allowance are as follows:
|
|
Years
Ended December 31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
10,559,911
|
|
|
|
7,818,069
|
|
Additions of valuation allowance
|
|
|
3,983,094
|
|
|
|
3,108,747
|
|
Reduction of valuation allowance
|
|
|
(229,430
|
)
|
|
|
(366,665
|
)
|
Expiration due to liquidation
|
|
|
—
|
|
|
|
(240
|
)
|
Balance at the end of
the year
|
|
|
14,313,575
|
|
|
|
10,559,911
|
|
The valuation
allowance as of December 31, 2019 and 2018 was primarily provided for the deferred income tax assets of certain entities, which
were at cumulative loss positions. As of December 31, 2019, for U.S. federal income tax purposes, the Company had tax loss
carry forwards of (i) US$29,413,035 from subsidiaries in the PRC, of which US$8,480,529, US$5,431,116 and US$5,177,047 would expire
by 2022, 2023 and 2024, respectively, if unused, and (ii) US$46,918,665 from subsidiaries in HK, which could be carried forward
indefinitely to be offset against future profits. In view of the cumulative losses for the entities concerned, 100% valuation
allowances were provided against their deferred income tax assets as of December 31, 2019 and 2018, which in the judgment of the
management, are not more likely than not to be realized.
A reconciliation of the beginning
and ending amount of total unrecognized tax benefits is as follows:
|
|
Years
Ended December 31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
|
|
|
|
|
Balance at the beginning of the year
|
|
|
33,048,639
|
|
|
|
34,197,070
|
|
Increase related to current year tax positions
|
|
|
5,279,589
|
|
|
|
1,645,734
|
|
Decrease related to prior year tax positions
|
|
|
(3,622,159
|
)
|
|
|
(2,794,165
|
)
|
Balance at the end of
the year
|
|
|
34,706,069
|
|
|
|
33,048,639
|
|
At December
31, 2019 and 2018, there are US$28,391,864 and US$26,882,183 of unrecognized tax benefits that if recognized, would affect the
annual effective tax rate.
The Company
recognizes interest accrued related to unrecognized tax benefits in interest expense and does not recognize penalties. During
the years ended December 31, 2019 and 2018, the Company recognized approximately US$1,819,859 and US$2,413,440 interest expense.
The Company had approximately US$13,774,161 and US$12,172,418 for the interest accrued related to unrecognized tax benefits amounting
to US$34,706,069 and US$32,981,190 as of December 31, 2019 and 2018, respectively. US$3,622,159 previously unrecognized tax benefits
accrued in year 2013 and the related accrued interest amounting to US$3,159,411 were reversed during the year ended December 31,
2019 due to the expiration of five-year tax assessment period on May 31, 2019. The unrecognized tax benefits in year 2014 amounting
to US$5,655,714 and related accrued interest amounting to US$4,665,964 were classified as current liabilities as the five-year
tax assessment period will expire on May 31, 2020. As of December 31, 2019 and 2018, nil and US$67,449 of unrecognized tax benefit
were presented as a reduction of the deferred income tax assets for tax loss carry forwards since the uncertain tax position would
reduce the tax loss carry forwards under the tax law. The unrecognized tax benefits represent the estimated income tax expenses
the Company would be required to pay, should the income tax rate used, taxable income and deductible expenses for tax purpose
recognized in accordance with tax laws and regulations. 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.
The PRC tax authorities, US tax authorities
and Hong Kong tax authorities have up to five years, three years and six years, respectively, to conduct examinations of the Company’s
tax filings. Accordingly, the PRC subsidiaries’ tax years 2015 through 2019, the US subsidiaries’ tax years 2017 through
2019 and the Hong Kong subsidiaries’ tax years 2014 through 2019 remain open to examination by the respective taxing jurisdictions.
Note 13 – 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$50.2 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$47.8 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 RMB7.5 million (equivalent
to US$1.1 million) special funds of ministerial key research projects from Ministry of Science and Technology of PRC as of December
31, 2019.
The Company
has also received RMB45.0 million (equivalent to US$6.4 million) from Harbin Bureau of Finance to support the construction of
the 300,000 metric tons of biological composite materials project in Heilongjiang as of December 31, 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 (loss) 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 RMB115.5 million (equivalent to US$16.6 million) government grants
have been amortized as other income proportionate to the depreciation of the related assets, of which RMB35.7 million (equivalent
to US$5.1 million) was amortized in the year ended December 31, 2019.
The Company
also received RMB36.0 million (equivalent to US$5.2 million) from Shunqing Government with respect to interest subsidy for bank
loans. A cumulative RMB16.4 million (equivalent to US$2.4 million) government grants have been amortized as other income in line
with the amount of related loan interest accrued.
Note 14 – Other non-current
liabilities
|
|
December
31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
|
|
|
|
|
Income tax payable-noncurrent (i)
|
|
|
86,414,852
|
|
|
|
92,461,068
|
|
Deferred income tax liabilities (Note 12)
|
|
|
4,613,524
|
|
|
|
6,716,921
|
|
Others
|
|
|
—
|
|
|
|
2,395,783
|
|
Total other non-current
liabilities
|
|
|
91,028,376
|
|
|
|
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$22,708,848 of which due payable within one year was classified as current liabilities.
Note 15 – Common Stock
Pursuant
to the amended Article of Incorporation dated March 12, 2009, the Company's authorized share capital is 550,000,000 shares, consisting
of 500,000,000 shares of common stock (US$0.0001 par value), and 50,000,000 shares of all classes of preferred stock (US$0.0001
par value).
Note 16 – Preferred
Stock
Series B preferred stock
The Company
issued 1,000,000 shares of Series B preferred stock to XD Engineering Plastics in December 2008. The Series B preferred
stock is not convertible or redeemable. The holder of Series B preferred stock has 40% of the total voting power of
the Company on a fully diluted basis. Holders of Series B preferred stock are not entitled to receive dividends. In
the event of any liquidation, dissolution or winding up, whether voluntary or involuntary, the holders of issued and outstanding
shares of Series B preferred stock shall be entitled to receive, prior and in preference to any distribution of any of the assets
of the Company to the common stockholders and any other series of preferred stock ranking junior to the Series B preferred stock
with respect to liquidation, US$1.00 per share in cash. The holders of Series B preferred stock will not be entitled to any
further participation in any distribution of assets by the Company.
Redeemable Series D convertible
preferred stock
On August
15, 2011, China XD entered into a securities purchase agreement (the "Securities Purchase Agreement") with MSPEA Modified
Plastics Holding Limited, a Cayman Islands company and an affiliate of Morgan Stanley Private Equity Asia III Holdings (Cayman)
Ltd, a Cayman Islands limited liability company ("MSPEA"), XD Engineering Plastics and Mr. Han, pursuant to which MSPEA
purchased 16,000,000 shares of the Company's Series D convertible preferred stock with par value of US$0.0001 per share (the "Series
D Preferred Stock"), for a total consideration of US$100 million or US$6.25 per share. On September 28, 2011, China XD issued
16,000,000 shares of Series D Preferred Stock and received total gross proceeds of US$100 million in cash. Net proceeds
after issuance cost were approximately US$99.1 million.
The significant terms of Series
D Preferred Stock are as follows:
(i) Conversion
The holders
of the Series D Preferred Stock have the right to convert all or any portion of their holdings into common stock at a price of
US$6.25 per share from January 1, 2012 through January 1, 2022, subject to adjustments for stock splits, combinations, dividends
or distributions of common stock, merger and reorganization. In addition, if the Company achieves net income as adjusted to exclude
(i) all extraordinary or non-recurring gains or losses for the relevant period, (ii) all gains or losses derived from any business
operation other than the principal business of the Company or otherwise derived outside the ordinary course of business of the
Company for the relevant period, and (iii) all gains or losses attributable to the Series D Preferred Stock ("Actual Profit"),
at least RMB360 million, RMB520 million and RMB800 million in 2011, 2012 and 2013, respectively, each outstanding Series D Preferred
Stock will be converted into common stock from September 28, 2014 upon the delivery of a written notice from the Company to the
holders of Series D Preferred Stock. The Company determined that there was no embedded beneficial conversion feature attributable
to the Series D Preferred Stock at the commitment date since the initial conversion price of the Series D Preferred Stock was
greater than the price of China XD's common stock.
(ii) Voting
The holders
of Series D Preferred Stock have the same voting rights as the common stockholders on an "if-converted" basis. In addition,
if 1,600,000 shares or more (adjusted for any dilutive corporate actions) of Series D Preferred Stock remain outstanding, holders
of Series D Preferred Stock have veto rights over certain material corporate actions of the Company.
(iii) Dividends
Each share
of Series D Preferred Stock shall be entitled to dividend or other distribution simultaneously with any dividend or distribution
on any shares of the Company's common stock as if each share of Series D Preferred Stock has been converted to common stock.
(iv) Liquidation preference
In the event
of the liquidation, dissolution or winding-up of the affairs of the Company, whether voluntary or involuntary (a "Liquidation"),
the holders of Series D Preferred Stock then outstanding shall be entitled to receive, out of the assets of the Company available
for distribution to its stockholders before any payment shall be made to the holders of shares of common stock by reason of their
ownership thereof, but after any payment shall be made to the holders of any Series B preferred stock by reason of their ownership
thereof, with respect to each share of Series D Preferred Stock, an amount equal to the greater of (i) an amount per share that
would yield a total internal rate of return of 15% on the Series D Original Issuance Price, taking into account all cash dividends
and/or distributions paid by the Company and received by the holder in respect of his or her share of Series D Preferred Stock
(the IRR Price); and (ii) an amount per share as would have been payable had all shares of Series D Preferred Stock been converted
into the Company's common stock pursuant to a voluntary conversion or a mandatory conversion immediately prior to such Liquidation
(without taking into account any limitations or restrictions on the convertibility of the shares of Series D Preferred Stock).
(v) Redemption
Upon the
occurrence of a triggering event as defined below, the holders of the Series D Preferred Stocks have the option to redeem the
Series D Preferred Stock at a price equal to the IRR Price (the "Redemption Price"), by delivery of written notice to
the Company (the "Redemption Request") at least 6 months prior to the proposed date of redemption (the "Redemption
Date").
A triggering
event means any of the following events: (I) the occurrence of any of the following: (i) the Actual Profit for the Financial Year
ended December 31, 2011 is less than RMB360 million, or (ii) the Actual Profit for the Financial Year ended December 31, 2012
is less than RMB468 million, or (iii) the Actual Profit for the Financial Year ending December 31, 2013 is less than RMB608 million,
which Actual Profit target has been removed pursuant to the Restated Certificate of Designation filed as of January 27, 2014 (such
targets under (I) collectively, the "Actual Profit Targets"); (II) any breach by any of the Company, XD Engineering
Plastics and Mr. Han (the "Principal Stockholders") of any representation, warranty, covenant or other agreement in
the Securities Purchase Agreement, the Certificate of Designation, the Registration Rights Agreement, the Stockholders' Agreement,
the Pledge Agreement and the Indemnification Agreements (collectively, the "Transaction Document") that (i) in the case
of a breach of a covenant or agreement that is curable, has remained uncured for 30 days after the holder of Series D Preferred
Stock has given written notice of such breach to the Company' Principal Stockholders and (ii) has had or could reasonably be expected
to have a material adverse impact on (a) the business, operations, properties, financial position (including any material increase
in provisions), earnings or condition of the Company, or (b) the value, marketability or liquidity of the Series D Preferred Stock
taking into account any remedies already sought and received in connection with such breach; or (III) the commencement by the
Company or any other member of the Company of any bankruptcy, insolvency, reorganization or of any other case or proceeding to
be adjudicated a bankruptcy or insolvency, or the consent by it to the entry of a decree or order for relief in respect of the
Company or any other member of the Company in an involuntary case; or the appointment of a custodian, receiver, liquidator, assignee,
trustee, sequestrator other similar officials of the Company or any other member of the Company for the winding up or liquidation
of its affairs.
On September 26, 2019, the Company delivered an irrevocable notice
to MSPEA Modified Plastics Holding Limited, and exercised its right for the mandatory conversion of each outstanding Series D Preferred
Stock into 16,000,000 fully paid and nonassessable shares of common stock. As a result, 16,000,000 shares of Series D Preferred
Stock were thus converted into 16,000,000 shares of common stock.
Note 17 – Stock based
compensation
Stock options issued to
employees, directors and consultants
On May 26,
2009, the Board of Directors approved the adoption of the 2009 Stock Incentive Plan (the "2009 Plan"), which provides
for the granting of stock options and other stock-based awards to key employees, directors and consultants of the Company. The
aggregate number of common stock which may be issued under the 2009 Plan may not exceed 7,800,000 shares.
Nonvested
shares
A summary of the nonvested shares
activity for the years ended December 31, 2019 and 2018 is as follows:
|
|
Number of Nonvested
Shares
|
|
Weighted Average
Grant date Fair Value
|
|
|
|
|
|
|
|
|
|
US$
|
|
|
Outstanding as of January 1, 2018
|
|
|
|
161,110
|
|
|
|
7.49
|
|
|
Granted
|
|
|
|
560,000
|
|
|
|
4.40
|
|
|
Vested
|
|
|
|
(721,110
|
)
|
|
|
4.76
|
|
|
Outstanding as of December 31, 2018 and 2019
|
|
|
|
—
|
|
|
|
—
|
|
The total
fair value of shares vested during the years ended December 31, 2019 and 2018 was nil and US$3,432,484, respectively.
The Company
recognized nil and US$2,678,811 of compensation expense in general and administrative expenses relating to nonvested shares for
the years ended December 31, 2019 and 2018, respectively.
As of December
31, 2019, there was nil unrecognized compensation cost relating to nonvested shares.
Stock
options
On June
30, 2018, the Company's Board of Directors approved the grant of stock options to purchase 500,000 shares of the Company's common
stock to a consultant at an exercise price of US$0.24. The options have a performance condition which requires the consultant
providing capital market advisory services to the company, including but not limited to financing for the going private transaction
during the service period of six month. The options can be vested at the end of the service period of six months if the performance
condition is met. The awards will be forfeited if such performance condition is not met at the end of the service period. General
and administrative expenses are recognized through the period of service as the service is performed and adjusted for changes
in fair value until performance is complete.
During the
year ended December 31, 2018, the performance condition was met and the options of 500,000 shares were vested. General and administrative
expenses were recorded for the year ended December 31, 2018.
A summary of
stock options activity for the years ended December 31, 2019 and 2018 is as follows.
|
|
Number of Options
Outstanding
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
US$
|
|
|
Outstanding as of January 1, 2018
|
|
|
|
—
|
|
|
|
—
|
|
|
Granted
|
|
|
|
500,000
|
|
|
|
0.24
|
|
|
Exercised
|
|
|
|
(500,000
|
)
|
|
|
0.24
|
|
|
Outstanding as of December 31, 2018 and 2019
|
|
|
|
—
|
|
|
|
—
|
|
The Company
recognized nil and US$675,000 of share-based compensation expense in general and administration expenses relating to stock options
for the years ended December 31, 2019 and 2018, respectively.
Note 18 – Earnings per
share
Basic and diluted earnings per
share are calculated as follows:
|
|
Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
Numerator:
|
|
|
|
|
Net income
|
|
|
3,055,478
|
|
|
|
68,313,421
|
|
Less:
|
|
|
|
|
|
|
|
|
Earnings allocated to participating Series D convertible preferred stock
|
|
|
(536,164
|
)
|
|
|
(16,459,431
|
)
|
Earnings allocated to participating nonvested shares
|
|
|
—
|
|
|
|
(119,506
|
)
|
Net income for basic and diluted earnings per share
|
|
|
2,519,314
|
|
|
|
51,734,484
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share
|
|
|
55,200,896
|
|
|
|
50,290,425
|
|
Denominator for diluted earnings per share
|
|
|
55,200,896
|
|
|
|
50,290,425
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per common share
|
|
|
0.05
|
|
|
|
1.03
|
|
The following
table summarizes potentially dilutive securities excluded from the calculation of diluted earnings per share for the years ended
December 31, 2019 and 2018, because their effects are anti-dilutive:
|
|
Years
Ended December 31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
Numerator:
|
|
|
|
|
Shares issuable upon conversion of Series D convertible
preferred stocks
|
|
|
11,747,945
|
|
|
|
16,000,000
|
|
Note 19 – Statutory
reserves
Under PRC
rules and regulations, all subsidiaries of China XD in the PRC are required to appropriate 10% of their net income, as determined
in accordance with PRC accounting rules and regulations, to a statutory surplus reserve until the reserve balance reaches 50%
of their registered capital. The appropriation to this statutory surplus reserve must be made before distribution of
dividends to China XD can be made. The statutory reserve is non-distributable, other than during liquidation, and can
be used to fund previous years losses, if any, and may be converted into share capital by issuing new shares to existing shareholders
in proportion to their shareholding or by increasing the par value of the shares currently outstanding, provided that the remaining
balance of the statutory reserve after such issue is not less than 25% of the registered capital.
For the
years ended December 31, 2019 and 2018, China XD's subsidiaries in the PRC made appropriations to the reserve fund of RMB26.0
million (equivalent to US$3.8 million) and RMB72.3 million (equivalent to US$10.9 million), respectively. As of December 31, 2019
and 2018, the accumulated balance of the statutory surplus reserve was RMB346.7 million (equivalent to US$53.4 million) and RMB320.7
million (equivalent to US$ 49.7 million), respectively.
Note 20 – 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 RMB1.8 billion in property, plant and equipment and approximately RMB0.6 billion in working capital, for the
construction of Sichuan plant. As of December 31, 2019, the Company has a remaining commitment of RMB54.8 million (equivalent
to US$7.9 million) mainly for facility construction.
In
September 2016, Sichuan Xinda Enterprise Group Co., Ltd. ("Sichuan Xinda") entered into equipment purchase contracts
with Harbin Hailezi Science and Technology Co., Ltd. ("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 December 31, 2019, Sichuan Xinda 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 agreement purchase contract with Peaceful Treasure Limited
("Peaceful") for a total consideration of RMB89.8 million (equivalent to US$12.9 million) to purchase certain production
and testing equipment. As of December 31, 2019, the Company has a commitment of RMB55.9 million (equivalent to US$8.0 million).
On
November 15, 2016 and February 20, 2017, Sichuan Xinda entered into decoration contracts with Beijin Construction to perform indoor
and outdoor decoration work for a consideration of RMB240.5 million (equivalent to US$34.5 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 December 31, 2019, the Company has a remaining commitment of RMB142.9
million (equivalent to US$20.5 million).
Pursuant to
the Nanchong Project mentioned in Note 7 (i), Sichuan Xinda entered into equipment purchase contracts with Hailezi for a consideration
of RMB2,242.8 million (equivalent to US$321.5 million) to purchase production equipment and testing equipment in March 2017. By
the end of June 2017, Sichuan Xinda was about to launch a system including MES, SAP, ERP and CRM which caused the equipment of
original contracts with Hailezi cannot meet the production requirement. Thus the original contracts have been partially terminated
with the uncancelled contract amount to be RMB19.9 million (equivalent to US$2.9 million). As of December 31, 2019, Sichuan Xinda
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 RMB1.9 billion (equivalent to US$272.4 million). Pursuant to
the contract with Hailezi, Sichuan Xinda
has a remaining commitment of RMB190.0 million (equivalent to US$27.3 million).
(2) Heilongjiang
plant construction and equipment purchase
In connection
with the equipment purchase contracts with Hailezi signed on September 26, 2016, February 28, 2017 and September 25, 2019 to purchase
storage facility and other equipment mentioned in Note 7 (i), HLJ Xinda Group has a remaining commitment of RMB77.5 million (equivalent
to US$11.1 million) as of December 31, 2019.
In
connection with the "HLJ Project" mentioned in Note 7 (i), pursuant to the three investment agreements, the project
total capital expenditure will be RMB4,015.0 million (equivalent to be US$575.5 million), among which the investment in fixed
assets shall be no less than RMB3,295.0 million (equivalent to US$472.3 million) in total. Pursuant to the contracts with Hailezi
signed in November 2017 and 2019 for 100,000 metric tons of engineering plastics located in Harbin mentioned in Note 7 (i), HLJ
Xinda Group has a remaining commitment of RMB37.8 million (equivalent to US$5.4 million) as of December 31, 2019.
In connection with the
HLJ project, on June 25, 2018 and July 12, 2018, HLJ Xinda Group entered into two equipment purchase contracts with Hailezi to
purchase production equipment, which will be used for 300,000 metrics tons of biological based composite material, located in Harbin,
for a consideration of RMB1,906.8 million (equivalent to US$273.3 million). Pursuant to the contracts with Hailezi, HLJ Xinda Group
has a remaining commitment of RMB1,366.8 million (equivalent to US$195.9 million) as of December 31, 2019.
In connection
with the equipment purchase contracts with Hailezi for Qinling Road Project and Jiangnan Road Project mentioned in Note 7 (i),
the Company has remaining commitments of RMB32.4 million (equivalent to US$4.6 million) and RMB142.7 million (equivalent to US$20.5
million) for Qinling Road Project and Jiangnan Road Project respectively.
(3) Dubai
equipment purchase
On May 31, 2019,
Dubai Xinda entered into an equipment purchase contract with Peaceful for a total consideration of US$18.8 million. As of December
31, 2019, the Company has a remaining commitment of US$3.7 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, 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, 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$71.7) from Longjiang Bank, Harbin Branch with an annual interest rate of 6.09% from December 25, 2018
to December 24, 2019. On December 24, 2019, the loan was extended to October 23, 2020. 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. The loan was
subsequently repaid early by Shanghai Sales in April 2020.
On April 15,
2019, Sichuan Xinda provided guarantee to Shanghai Sales obtaining a one-year loan of RMB800.0 million (equivalent to US$114.7
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. The loan was
subsequently repaid by Shanghai Sales in April 2020.
On December
3, 2019, HLJ Xinda Group provided guarantee to Macromolecule Composite Materials obtaining a one-year loan of RMB612.2 million
(equivalent to US$87.8 million) from Longjiang Bank, Harbin Branch with an annual interest rate of 6.25%. If Macromolecule Composite
Materials does not repay the above loan when due, HLJ Xinda Group shall be obliged to repay the RMB612.2 million loan. The loan
was subsequently repaid early in April 2020.
In the event
of Shanghai Sales and Macromolecule Composite Materials default on the loans, the Company’s material loss contingency would
be RMB1,951.0 million (equivalent to US$279.7 million), including estimated interest expenses of RMB38.8 million (equivalent to
US$5.6 million) as of December 31, 2019. As the Company estimated that the potential material loss contingency was not probable,
no accrual for a loss contingency was recognized for the year ended December 31, 2019.
Note 21 – Revenues
Revenues consist of the following:
|
|
Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
|
US$
|
|
US$
|
|
|
|
|
|
Modified Polyamide 66 (PA66)
|
|
|
426,970,992
|
|
|
|
316,646,777
|
|
Modified Polyamide 6 (PA6)
|
|
|
338,252,200
|
|
|
|
243,889,834
|
|
Plastic Alloy
|
|
|
245,295,838
|
|
|
|
324,741,846
|
|
Modified Polypropylene (PP)
|
|
|
126,535,244
|
|
|
|
223,388,535
|
|
Modified Acrylonitrile butadiene styrene (ABS)
|
|
|
50,053,441
|
|
|
|
32,232,757
|
|
Polyoxymethylenes (POM)
|
|
|
6,906,902
|
|
|
|
10,587,174
|
|
Polyphenylene Oxide (PPO)
|
|
|
32,383,107
|
|
|
|
17,070,145
|
|
Polylactide (PLA)
|
|
|
65,142,028
|
|
|
|
94,483,496
|
|
Polyethylene (PE)
|
|
|
11,546,204
|
|
|
|
11,012,364
|
|
Semi-finished goods
|
|
|
144,378,419
|
|
|
|
—
|
|
Raw materials
|
|
|
740,451
|
|
|
|
780,354
|
|
Total Revenue
|
|
|
1,448,204,826
|
|
|
|
1,274,833,282
|
|
Note 22 – Gains and
losses on disposal of subsidiaries
On December
18, 2018, HLJ Xinda Group entered into an agreement with Mr. Xiaohui Gao, the General Manager of Shanghai Sales, to transfer the
wholly owned equity of Shanghai Sales from HLJ Xinda Group to Mr. Gao for a cash consideration of RMB50.0 million (equivalent
to US$7.3 million) as a result of group restructuring to streamline resources and improve operating efficiency.
The legal transfer
was completed on December 19, 2018 and the Company recorded losses of US$0.2 million on disposal of Shanghai Sales for the year
ended December 31, 2018.
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 year ended December 31, 2019.
Note 23 – Selected Quarterly
Financial Information (Unaudited)
The following tables show a summary
of the Company's quarterly financial information for each of the four quarters of 2019 and 2018 (in millions, except gross margin
and per share amounts):
|
|
Fourth Quarter
|
|
Third Quarter
|
|
Second Quarter
|
|
First Quarter
|
2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
310.5
|
|
|
$
|
373.2
|
|
|
$
|
463.1
|
|
|
$
|
301.5
|
|
Gross profit
|
|
$
|
43.7
|
|
|
$
|
60.1
|
|
|
$
|
65.3
|
|
|
$
|
50.3
|
|
Net income
|
|
$
|
(65.0
|
)
|
|
$
|
17.0
|
|
|
$
|
40.1
|
|
|
$
|
11.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.97
|
)
|
|
$
|
0.25
|
|
|
$
|
0.60
|
|
|
$
|
0.16
|
|
Diluted
|
|
$
|
(0.97
|
)
|
|
$
|
0.25
|
|
|
$
|
0.60
|
|
|
$
|
0.16
|
|
|
|
Fourth Quarter
|
|
Third Quarter
|
|
Second Quarter
|
|
First Quarter
|
2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
349.8
|
|
|
$
|
297.2
|
|
|
$
|
317.3
|
|
|
$
|
310.5
|
|
Gross profit
|
|
$
|
62.4
|
|
|
$
|
47.2
|
|
|
$
|
56.1
|
|
|
$
|
53.9
|
|
Net income
|
|
$
|
13.0
|
|
|
$
|
9.0
|
|
|
$
|
27.2
|
|
|
$
|
19.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.20
|
|
|
$
|
0.13
|
|
|
$
|
0.41
|
|
|
$
|
0.29
|
|
Diluted
|
|
$
|
0.20
|
|
|
$
|
0.13
|
|
|
$
|
0.41
|
|
|
$
|
0.29
|
|
Note 24 – Geographic
Information
The following
summarizes the Company's revenues from the following geographic areas (based on the location of the operating units):
|
|
Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Revenues (in US$ millions)
|
|
|
|
|
|
|
|
|
PRC
|
|
|
1,387.0
|
|
|
|
1,259.8
|
|
Dubai, UAE
|
|
|
61.2
|
|
|
|
15.0
|
|
Total
|
|
|
1,448.2
|
|
|
|
1,274.8
|
|
The following
summarizes the Company's Long-lived assets (including property, plant and equipment, net, land use rights, net, long-term prepayments
to equipment and construction suppliers, other non-current assets and operating lease right-of-use assets, net) from the
following geographic areas (based on the location of the operating units):
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Long-lived assets (in US$ millions)
|
|
|
|
|
|
|
|
|
PRC
|
|
|
993.2
|
|
|
|
966.3
|
|
Dubai, UAE
|
|
|
377.8
|
|
|
|
373.3
|
|
Total
|
|
|
1,371.0
|
|
|
|
1,339.6
|
|
Note 25 - Leases
As discussed
in Note 2, 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 December 31, 2019 were classified as operating leases. As of December
31, 2019, the Company had operating leases for land use rights and office with remaining terms expiring from 2022 through 2085.
The weighted average remaining lease term excluding land use rights as of December 31, 2019 was 17.3 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 year ended December 31, 2019 is as follows:
|
|
Year ended December 31,
|
|
|
2019
|
|
|
|
US$
|
|
Operating lease cost
|
|
|
2,307,891
|
|
Short-term lease cost
|
|
|
846,060
|
|
Total lease cost
|
|
|
3,153,951
|
|
As of
December 31, 2019, the maturities of the operating lease liabilities are as follows:
|
|
Remaining Lease Payments
US$
|
2020
|
|
|
1,386,090
|
|
2021
|
|
|
1,408,563
|
|
2022
|
|
|
1,408,943
|
|
2023
|
|
|
1,424,818
|
|
2024
|
|
|
1,444,137
|
|
Thereafter
|
|
|
20,579,122
|
|
Total remaining lease payments
|
|
|
27,651,673
|
|
Less: imputed interest
|
|
|
(11,833,684
|
)
|
Total operating lease liabilities
|
|
|
15,817,989
|
|
Less: current portion
|
|
|
(1,388,555
|
)
|
Non-current operating lease liabilities
|
|
|
14,429,434
|
|
Weighted-average remaining lease term
|
|
|
17.3 years
|
|
Weighted-average discount rate
|
|
|
6.7
|
%
|
Supplemental
cash flow information related to leases is as follows:
|
|
Year ended December 31,
|
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
|
|
|
2,084,533
|
|
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 26 - Subsequent Event
Management has considered
subsequent events through June 1, 2020, which was the date the consolidated financial statements were issued.
In December 2019, a novel strain
of coronavirus was reported in Wuhan, China. On March 11, 2020, the World Health Organization categorized it as a pandemic.
Since January 2020, the rapid spread of COVID-19 has resulted in increased travel restrictions and disruption and shutdown of
businesses in the PRC. The Company has temporarily closed its manufacturing facilities and corporate offices in accordance
with the requirement of the PRC government, and requested its employees to work remotely. Due to difficulties resulting from
the COVID-19 outbreak, including, but not limited to, the temporary closure of the Company’s factory and operations
beginning in early February, limited support from the Company’s employees, delayed access to raw material supplies and
inability to deliver products to customers on a timely basis, the Company’s business was negatively impacted and is
expected to generate lower revenue and net income during the period from February to April 2020. The Company resumed
operations in early March 2020 and, as such, the extent of the impact of COVID-19 on the Company’s results of
operations and financial condition will depend on future developments, including the duration and spread of the outbreak and
the impact on the Company’s customers, which are still uncertain and cannot be reasonably estimated at this point of
time.
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