Item 1. Financial Statements
See accompanying notes to unaudited condensed
consolidated financial statements.
See accompanying notes to unaudited condensed
consolidated financial statements.
The following table shows a reconciliation of cash, cash equivalents
and restricted cash on the condensed consolidated balance sheets to that presented in the above condensed consolidated statements
of cash flows.
See accompanying notes to unaudited condensed
consolidated financial statements
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 1 – Basis of presentation and significant concentrations
and risks
(a) Basis of presentation
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
("U.S. GAAP"). Certain information and footnote disclosures normally included in financial statements prepared in accordance
with U.S. GAAP have been condensed or omitted as permitted by rules and regulations of the United States Securities and Exchange
Commission ("SEC"). The condensed consolidated balance sheet as of December 31, 2019 was derived from the audited consolidated
financial statements of China XD Plastics Company Limited ("China XD") and subsidiaries (collectively, the "Company").
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated balance
sheet of the Company as of December 31, 2019, and the related consolidated statements of comprehensive income, changes in equity
and cash flows for the year then ended, included in the Company's Annual Report on Form 10-K filed with the SEC on June 1, 2020.
In the opinion of the management, all adjustments
(which include normal recurring adjustments) necessary to present a fair statement of the financial position as of March 31, 2020,
the results of operations and cash flows for the three-month periods ended March 31, 2020 and 2019, have been made.
The preparation of condensed consolidated financial
statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates. Significant items subject to such estimates and assumptions include the recoverability of the carrying amounts of property,
plant and equipment, the realizability of inventories, the useful lives of property, plant and equipment, the collectability of
accounts receivable, the accruals for tax uncertainties and other contingencies, and the discount rate used to determine the present
value of the lease payments. The current economic environment has increased the degree of uncertainty inherent in those estimates
and assumptions.
(b) Accounting pronouncement adopted
in 2020
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 has adopted the standard on
January 1, 2020 and there was no material impact on its consolidated financial statements as a result of the adoption.
(c) Significant concentrations and risks
Sales concentration
The Company sells its products primarily through
approved distributors in the People's Republic of China (the "PRC"). The Company's sales are highly concentrated. Sales
to distributors individually exceeded 10% of the Company's revenues for the three-month periods ended March 31, 2020 and 2019,
are as follows:
|
|
For the Three-Month Period Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
US$
|
|
%
|
|
US$
|
|
%
|
Distributor A, located in PRC
|
|
|
25,912,864
|
|
|
|
17.9
|
%
|
|
|
56,499,732
|
|
|
|
18.7
|
%
|
Distributor B, located in PRC
|
|
|
16,906,023
|
|
|
|
11.7
|
%
|
|
|
22,368,237
|
|
|
|
*
|
|
Distributor C, located in PRC
|
|
|
15,442,017
|
|
|
|
10.7
|
%
|
|
|
27,324,588
|
|
|
|
*
|
|
Distributor D, located in PRC
|
|
|
13,985,186
|
|
|
|
*
|
|
|
|
32,491,923
|
|
|
|
10.8
|
%
|
Distributor E, located in PRC
|
|
|
—
|
|
|
|
—
|
|
|
|
33,931,975
|
|
|
|
11.3
|
%
|
* 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 and equipment
The principal raw materials used for the Company's
production of modified plastics products are plastic resins, such as polypropylene, ABS and nylon. The Company purchases substantially
all of its raw materials through a limited number of distributors. Raw material purchases from these distributors, which
individually exceeded 10% of the Company's total raw material purchases, accounted for approximately 15.4% (one distributor) and
37.8% (three distributors), of the Company's total raw material purchases for the three-month periods ended March 31, 2020 and 2019,
respectively. Management believes that other suppliers could provide similar raw materials on comparable terms. A change in suppliers,
however, could cause a delay in manufacturing and a possible loss of sales, which would adversely affect the Company's business,
financial position and results of operations.
Cash concentration
Cash and short-term restricted cash mentioned below maintained at
banks consist of the following:
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
|
US$
|
|
|
|
US$
|
|
Renminbi (“RMB”) denominated bank deposits with:
|
|
|
|
|
|
|
|
|
Financial Institutions in the PRC
|
|
|
187,852,350
|
|
|
|
226,488,069
|
|
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.
|
|
|
5,939
|
|
|
|
3,057
|
|
Financial Institutions in the PRC
|
|
|
16,825
|
|
|
|
16,868
|
|
Financial Institution in Hong Kong SAR
|
|
|
524,067
|
|
|
|
590,131
|
|
Financial Institution in Macau Special Administrative Region ("Macau SAR")
|
|
|
1,290,068
|
|
|
|
1,288,792
|
|
Financial Institution in Dubai, UAE
|
|
|
646,923
|
|
|
|
4,549
|
|
HK dollar denominated bank deposits with:
|
|
|
|
|
|
|
|
|
Financial institution in Hong Kong SAR
|
|
|
156
|
|
|
|
156
|
|
Dirham denominated bank deposits with:
|
|
|
|
|
|
|
|
|
Financial institution in Dubai, UAE
|
|
|
89,392
|
|
|
|
33,263
|
|
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 $1,137,148
and $1,063,709 are insured as of March 31, 2020 and December 31, 2019, respectively. The Company has not experienced any losses
in uninsured bank deposits and does not believe that it is exposed to any significant risks on cash held in bank accounts. To limit
exposure to credit risk, the Company primarily places bank deposits with large financial institutions in the PRC, Hong Kong SAR,
Macau SAR and Dubai, UAE with acceptable credit rating.
Cash deposits in bank that are restricted as
to withdrawal or usage for up to 12 months are reported as restricted cash in the consolidated balance sheets.
Short-term bank deposits that are pledged
as collateral for bills payable relating to purchases of raw materials are reported as restricted cash and amounted to US$119,376,139
and US$151,498,873 as of March 31, 2020 and December 31, 2019, 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$68,805 and US$69,879 as of March 31, 2020 and December 31,
2019, 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$57,370,173 and US$58,229,047 as of March 31, 2020 and December 31, 2019,
respectively, for details of the syndicated loans please refer to note 7.
Short-term bank deposits
that are pledged as collateral to settle US$14.1 million of short-term bank loans obtained from Postal Savings Bank of China are
reported as restricted cash and amounted to US$1,411,413 and US$1,433,445 as of March 31, 2020 and December 31, 2019, respectively.
Note 2 – Accounts receivable
Accounts receivable consists of the following:
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
|
US$
|
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
302,971,312
|
|
|
|
284,921,071
|
|
Allowance for doubtful accounts
|
|
|
(62,848,435
|
)
|
|
|
(62,849,018
|
)
|
Accounts receivable, net
|
|
|
240,122,877
|
|
|
|
222,072,053
|
|
As of March
31, 2020 and December 31, 2019, the accounts receivable balances also include notes receivable in the amount of US$623,313 and
US$107,845, respectively. As of March 31, 2020 and December 31, 2019, US$80,726,025 and
US$92,198,221, respectively, of accounts receivable are pledged for the short-term bank loans.
There was no accrual of additional provision
or write-off of accounts receivable for the three-month periods ended March 31, 2020 and 2019.
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$62.8 million for the year ended December 31, 2019.
The following table provides an analysis of
the aging of accounts receivable as of March 31, 2020 and December 31, 2019:
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
|
US$
|
|
|
|
US$
|
|
Aging:
|
|
|
|
|
|
|
|
|
– current
|
|
|
170,086,977
|
|
|
|
189,180,366
|
|
– 1-3 months past due
|
|
|
67,773,417
|
|
|
|
45,363,405
|
|
– 4-6 months past due
|
|
|
32,377,186
|
|
|
|
28,865,350
|
|
– 7-12 months past due
|
|
|
21,381,387
|
|
|
|
5,703,612
|
|
– greater than one year past due
|
|
|
11,352,345
|
|
|
|
15,808,338
|
|
Total accounts receivable
|
|
|
302,971,312
|
|
|
|
284,921,071
|
|
Note 3 – Inventories
Inventories consist of the following:
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
|
US$
|
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
Raw materials and semi-finished goods
|
|
|
624,098,715
|
|
|
|
637,278,817
|
|
Finished goods
|
|
|
6,014,755
|
|
|
|
5,230,717
|
|
Total inventories
|
|
|
630,113,470
|
|
|
|
642,509,534
|
|
As of March 31, 2020 and December 31,
2019, the Company pledged inventories in amount of approximately US$39.5 million and US$40.1 million, respectively, for a
one-year short-term loan and bills payable, details refer to Note 7.
There were no write down of inventories for
the three-month periods ended March 31, 2020 and 2019.
Note 4 – Prepaid expenses and other current assets
Prepaid expenses and other current assets consist of the following:
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
|
US$
|
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
Advances to suppliers (i)
|
|
|
230,107,855
|
|
|
|
118,166,925
|
|
Value added taxes receivables (ii)
|
|
|
3,016,226
|
|
|
|
6,239,719
|
|
Receivables from Hong Kong Grand Royal Trading Co., Ltd.(iii)
|
|
|
—
|
|
|
|
42,566,949
|
|
Interest receivable (iv)
|
|
|
592,696
|
|
|
|
615,049
|
|
Others (v)
|
|
|
8,030,174
|
|
|
|
4,259,480
|
|
Total prepaid expenses and other current assets
|
|
|
241,746,951
|
|
|
|
171,848,122
|
|
(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 AL Composites Materials FZE ("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$42.6 million advance payment as of December 31, 2019 was settled during the three-month period ended March 31,
2020.
(iv) Interest receivable mainly represents
interest income accrued from restricted cash.
(v) Others mainly include prepaid miscellaneous
service fee, staff advance and prepaid rental fee.
Note 5 – Property, plant and equipment,
net
Property, plant and equipment consist of the following:
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
|
US$
|
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
Machinery, equipment and furniture
|
|
|
515,367,118
|
|
|
|
575,317,840
|
|
Motor vehicles
|
|
|
1,826,586
|
|
|
|
1,709,182
|
|
Workshops and buildings
|
|
|
154,460,932
|
|
|
|
156,256,761
|
|
Construction in progress
|
|
|
358,948,653
|
|
|
|
335,245,525
|
|
Total property, plant and equipment
|
|
|
1,030,603,289
|
|
|
|
1,068,529,308
|
|
Less accumulated depreciation
|
|
|
(209,684,297
|
)
|
|
|
(238,209,592
|
)
|
Property, plant and equipment, net
|
|
|
820,918,992
|
|
|
|
830,319,716
|
|
For the three-month periods ended March 31,
2020 and 2019, the Company capitalized US$1,337,039 and US$387,324 of interest costs as a component of the cost of construction
in progress. Depreciation expense on property, plant and equipment was allocated to the following expense items:
|
|
Three-Month
Period Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
US$
|
|
US$
|
Cost of revenues
|
|
|
12,256,776
|
|
|
|
13,458,983
|
|
Selling expenses
|
|
|
4,496
|
|
|
|
1,823
|
|
General and administrative expenses
|
|
|
610,603
|
|
|
|
686,523
|
|
Research and development expenses
|
|
|
712,729
|
|
|
|
1,022,123
|
|
Total
depreciation expense
|
|
|
13,584,604
|
|
|
|
15,169,452
|
|
|
|
|
|
|
|
|
|
|
Note 6 - Prepayments to equipment and construction suppliers
|
|
March
31,
2020
|
|
December
31,
2019
|
|
|
|
US$
|
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
Hailezi (i)
|
|
|
455,556,448
|
|
|
|
468,529,714
|
|
Beijin Construction (ii)
|
|
|
6,858,385
|
|
|
|
6,795,439
|
|
Peaceful Treasure Limited(iii)
|
|
|
21,472,360
|
|
|
|
19,967,014
|
|
Xinda High-Tech (iv)
|
|
|
16,979,295
|
|
|
|
—
|
|
Others
|
|
|
640,168
|
|
|
|
278,254
|
|
Total
prepayments to equipment and construction suppliers
|
|
|
501,506,656
|
|
|
|
495,570,421
|
|
(i) On September 26, 2016 and February 28, 2017, HLJ Xinda Group entered
into equipment purchase contracts with Hailezi for a total consideration of RMB782.2 million (equivalent to US$110.4 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$87.7 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$40.0 million). Hailezi
refunded RMB369.1 million (equivalent to US$52.1 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$46.9 million). As of March 31, 2020, HLJ Xinda Group has prepaid RMB255.0 million (equivalent to US$36.1
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$132.6 million). Pursuant to the contract with Hailezi, HLJ Xinda Group has prepaid RMB920.9 million (equivalent to US$130.0
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$135.3 million). As of March 31, 2020, all equipment
has been delivered and the prepayment was transferred to construction in progress.
In connection with
the HLJ project, in June and July 2018, HLJ Xinda Group entered into two equipment purchase contracts with Hailezi to purchase
production equipment, which will be used for 300,000 metric tons of biological based composite material, located in Harbin, for
a consideration of RMB1,906.8 million (equivalent to US$269.1 million). Pursuant to the contracts with Hailezi, HLJ Xinda Group
has prepaid RMB540.0 million (equivalent to US$76.2 million) as of March 31, 2020.
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$352.9 million).
In connection with the Nanchong Project, Sichuan
Xinda entered into equipment purchase contracts with Hailezi to purchase production equipment and testing equipment. Pursuant to
the contracts with Hailezi, Sichuan Xinda prepaid RMB1,728.9 million (equivalent to US$244.0 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$240.6 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 March
31, 2020 was RMB20.8 million (equivalent to US$2.9 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$268.2 million). Pursuant to the contract with Hailezi,
Sichuan Xinda has prepaid RMB1,710 million (equivalent to US$241.4 million) as of March 31, 2020.
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$22.9 million) and RMB713.6 million (equivalent to US$100.7 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$18.3
million) and RMB570.9 million (equivalent to US$80.7 million) respectively for Qinling Road Project and Jiangnan Road Project as
of March 31, 2020.
The table below summarized the balance of prepayments
to Hailezi for each of the projects as of March 31, 2020 and December 31, 2019, and the movements of the prepayments:
(in millions US$)
|
Year
|
|
Projects
|
|
Balance as of
December 31, 2019
|
|
Prepaid in 2020
|
|
Transfer to CIP in 2020
|
|
Effect of foreign currency exchange rate changes
|
|
Balance as of
March 31, 2020
|
|
2017
|
|
|
Storage system
|
|
|
36.7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.6
|
)
|
|
|
36.1
|
|
|
2017
|
|
|
HLJ Project
|
|
|
5.9
|
|
|
|
-
|
|
|
|
(5.9
|
)
|
|
|
-
|
|
|
|
-
|
|
|
2018
|
|
|
HLJ Project
|
|
|
77.4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1.2
|
)
|
|
|
76.2
|
|
|
2017
|
|
|
Nanchong Project
|
|
|
3.0
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.1
|
)
|
|
|
2.9
|
|
|
2018
|
|
|
Nanchong Project
|
|
|
245.1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3.7
|
)
|
|
|
241.4
|
|
|
2019
|
|
|
Qinling Road Project
|
|
|
18.6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.3
|
)
|
|
|
18.3
|
|
|
2019
|
|
|
Jiangnan Road Project
|
|
|
81.8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1.1
|
)
|
|
|
80.7
|
|
|
Total
|
|
|
|
|
|
468.5
|
|
|
|
-
|
|
|
|
(5.9
|
)
|
|
|
(7.0
|
)
|
|
|
455.6
|
|
(ii) 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$37.3 million). Pursuant
to the contracts with Beijin Construction, Sichuan Xinda has prepaid RMB122.6 million (equivalent to US$17.3 million) as of March
31, 2020, of which RMB74.0 million (equivalent to US$10.4 million) was transferred to construction in progress.
(iii) On October 20, 2016, Sichuan Xinda entered
into an equipment purchase contract with Peaceful Treasure Limited ("Peaceful") for a total consideration of RMB89.8
million (equivalent to US$12.7 million) to purchase certain production and testing equipment. The Company prepaid RMB33.9 million
(equivalent to US$4.8 million) as of March 31, 2020.
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$16.7 million as of March 31, 2020.
(iv) On January 10, 2020, Heilongjiang Xinda
New Materials Co., Ltd. (“HLJ New Materials”), a subsidiary of the Company, entered into a purchase agreement with
Harbin Xinda High-Tech Co., Ltd. (“Xinda High-Tech”) to purchase the land use right, buildings and facilities of Dalian
Road Factory from Xinda High-Tech for a consideration of RMB120.3 million (equivalent to USD17.0 million). On January 23, 2020,
HLJ New Materials has paid the consideration to Xinda High-Tech. As of March 31, 2020, the transfer procedures were not completed
and were expected to be completed in the fourth quarter of 2020.
Note 7 – Borrowings
The Company has credit facilities with several
banks under which they draw short-term and long-term bank loans as described below.
(a) Current
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
|
US$
|
|
|
|
US$
|
|
Unsecured loans (i)
|
|
|
401,395,816
|
|
|
|
407,657,464
|
|
Loans secured by accounts receivable (ii)
|
|
|
63,513,571
|
|
|
|
64,505,031
|
|
Loans secured by restricted cash (iii)
|
|
|
14,114,127
|
|
|
|
14,334,451
|
|
Syndicated loan facility (iv)
|
|
|
124,815,432
|
|
|
|
128,020,559
|
|
Loan secured by inventories (v)
|
|
|
5,645,651
|
|
|
|
5,733,781
|
|
Current portion of long-term bank loans (note b)
|
|
|
63,243,416
|
|
|
|
59,923,573
|
|
Total short-term loans, including current portion of long-term bank loans
|
|
|
672,728,013
|
|
|
|
680,174,859
|
|
As of March 31, 2020 and December 31,
2019, 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 5.0% 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$14.1 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 March 31, 2020, 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
17.
(ii) As of March 31, 2020 and December
31, 2019, the Company had US$63.5 million and US$64.5 million of short-term bank loans secured by accounts receivables of US$80.7
million and US$92.2 million, respectively.
(iii) As of March 31, 2020 and December
31, 2019, the Company had US$14.1 million and US$14.3 million of short-term bank loans secured by restricted cash of US$1.4 million
and US$1.4 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$5.2 million as of March 31, 2020. 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 10.10% as of March 31, 2020. Xinda Holding (HK) prepaid US$5.0 million loan in March 2020.
As of March 31, 2020, the loan was secured
by US$57.4 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.
(v) In November 2019, the Company obtained
a one-year short-term loan of RMB40.0 million (equivalent to US$5.6 million) from Bank of Inner Mongolia. As of March 31, 2020,
the Company pledged inventories in amount of approximately US$39.5 million for the above loan and bills payable in amount of RMB142.0
million (equivalent to US$20.0 million) issued by Bank of Inner Mongolia.
(b) Non-current
|
|
March 31,
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
US$
|
|
US$
|
Secured loans (i)
|
|
|
1,742,389
|
|
|
|
1,742,389
|
|
Unsecured loans (ii)
|
|
|
406,656,787
|
|
|
|
380,637,597
|
|
Less: current portion
|
|
|
(63,243,416
|
)
|
|
|
(59,923,573
|
)
|
Total long-term bank loans, excluding current portion
|
|
|
345,155,760
|
|
|
|
322,456,413
|
|
As of March 31, 2020
and December 31, 2019, the Company's long-term bank loans (excluding the current portion of long-term bank loans) bear a weighted
average interest rate of 5.3% and 5.4% 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 (1.73% as of March 31, 2020) 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.
(ii) As of March 31,
2020 and December 31, 2019, the Company's long-term unsecured bank loans (excluding the current portion of long-term bank loans)
bear a weighted average interest rate of 5.3% and 5.5% 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$19.1 million) from Bank of China at an annual
interest rate of 4.75%, and the loan balance as of March 31, 2020 was RMB95.0 million (equivalent to US$13.4 million), which will
be due in 2020. As of March 31, 2020, the Company was providing external guarantees without the bank’s consent, in addition,
inventory turnover and accounts receivable turnover for the three-month period ended March 31, 2020 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 17. The loan balance of RMB95.0 million (equivalent to US$13.4 million) was classified as short-term bank loans in the condensed
consolidated balance sheets as of March 31, 2020.
Maturities on long-term bank loans
(including current portion) are as follows:
|
|
March 31, 2020
|
|
|
|
|
|
US$
|
|
|
Nine
months ended December 31, 2020
|
|
|
|
56,186,353
|
|
|
2021
|
|
|
|
55,480,707
|
|
|
2022
|
|
|
|
74,647,691
|
|
|
2023
|
|
|
|
54,069,295
|
|
|
2024
|
|
|
|
40,987,989
|
|
|
After 2024
|
|
|
|
127,027,141
|
|
|
Total
|
|
|
|
408,399,176
|
|
Note 8 – Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following:
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
|
US$
|
|
|
|
US$
|
|
Payables for purchase of property, plant and equipment
|
|
|
16,126,373
|
|
|
|
12,445,494
|
|
Accrued freight expenses
|
|
|
23,792,993
|
|
|
|
17,665,998
|
|
Accrued interest expenses
|
|
|
15,964,018
|
|
|
|
15,650,965
|
|
Contract liabilities (i)
|
|
|
45,886,133
|
|
|
|
17,922,160
|
|
Non income tax payables
|
|
|
9,655,452
|
|
|
|
6,056,024
|
|
Others (ii)
|
|
|
10,230,314
|
|
|
|
16,809,747
|
|
Total accrued expenses and other current liabilities
|
|
|
121,655,283
|
|
|
|
86,550,388
|
|
(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 9 – Related party transactions
The related party transactions are summarized
as follows:
|
|
Three-Month Period Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
US$
|
|
US$
|
Transactions with related parties:
|
|
|
|
|
|
|
|
|
Interest-free advances from a senior management employee in HLJ Xinda Group
|
|
|
—
|
|
|
|
289,298
|
|
The related party balances are summarized
as follows:
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
|
US$
|
|
|
|
US$
|
|
Amounts due to related parties:
|
|
|
|
|
|
|
|
|
Mr. Jie Han (the Chairman and Chief Executive Officer)
|
|
|
12,307,519
|
|
|
|
12,499,642
|
|
Mr. Jie Han’s wife
|
|
|
3,096,999
|
|
|
|
3,137,539
|
|
Mr. Jie Han’s son
|
|
|
9,174,182
|
|
|
|
9,317,393
|
|
Senior management employee in HLJ Xinda Group
|
|
|
148,275
|
|
|
|
150,589
|
|
Mr. Qingwei Ma (Chief Operating Officer)
|
|
|
1,129,130
|
|
|
|
1,146,756
|
|
Total amounts due to related parties
|
|
|
25,856,105
|
|
|
|
26,251,919
|
|
Note 10 – Income
tax
Pursuant to an approval
from the local tax authority in July 2013, Sichuan Xinda, a subsidiary of China XD, became a qualified enterprise located in the
western region of the PRC, which entitled it to a preferential income tax rate of 15% from January 1, 2013 to December 31, 2020.
Under the current laws of Dubai, Dubai Xinda, a subsidiary of China XD, is exempted from income taxes.
The effective income tax rates for the three-month
periods ended March 31, 2020 and 2019 were negative 8.8% and 24.9%, respectively. The effective income tax rate decreased
from 24.9% for the three-month period ended March 31, 2019 to negative 8.8% for the three-month period ended March 31, 2020, primarily
due to the operating loss incurred as a result of the COVID-19 pandemic.
As of March 31, 2020, the unrecognized tax
benefits were US$35,810,265 and the interest relating to unrecognized tax benefits was US$14,783,500, of which the
unrecognized tax benefits in year 2014 amounting to US$5,568,785 and related accrued interest amounting to US$4,847,628 were classified
as current liabilities as the five-year tax assessment period will expire on May 31, 2020. No penalties expense related
to unrecognized tax benefits were recorded. The Company is currently unable to provide an estimate of a range of the total amount
of unrecognized tax benefits that is reasonably possible to change significantly within the next twelve months.
Note 11 – Deferred income
On January 26, 2015, the Company entered into
a memorandum and a fund support agreement (the "Agreement") with the People's Government of Shunqing District, Nanchong
City, Sichuan Province ("Shunqing Government") pursuant to which Shunqing Government, through its investment vehicle,
extended to the Company RMB350 million (equivalent to US$49.4 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$46.9 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 March 31, 2020.
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 March 31, 2020.
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 RMB123.9 million (equivalent to US$17.5 million) government grants have been
amortized as other income proportionate to the depreciation of the related assets, of which RMB8.3 million (equivalent to US$1.2
million) was amortized in the three-month period ended March 31, 2020.
The Company also received
RMB36.0 million (equivalent to US$5.1 million) from Shunqing Government with respect to interest subsidy for bank loans. A cumulative
RMB16.4 million (equivalent to US$2.3 million) government grants have been amortized as other income in line with the amount of
related loan interest accrued.
Note 12 – Other non-current liabilities
|
|
March 31,
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
|
US$
|
|
|
|
US$
|
|
Income tax payable-noncurrent (i)
|
|
|
88,433,652
|
|
|
|
86,414,852
|
|
Deferred income tax liabilities
|
|
|
4,110,728
|
|
|
|
4,613,524
|
|
Total other non-current liabilities
|
|
|
92,544,380
|
|
|
|
91,028,376
|
|
(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 13 – Mandatorily redeemable noncontrolling interests
On January 22, 2020, a third party investor
acquired 36.21% and 38.08% of the equity interest of the Company’s two wholly owned PRC subsidiaries at a consideration of
RMB325.0 million (equivalent to US$45.9 million). The Company shall redeem 50% of the equity interest owned by the noncontrolling
shareholder on January 21, 2024 and the remaining 50% on January 21, 2025 at a total redemption value of RMB325.0 million. The noncontrolling
shareholder is also entitled to an interest at 1.5% per annum. The Company has pledged its 63.79% and 61.92% equity interest of
the two subsidiaries to the noncontrolling shareholder as a guarantee for its obligation on the redemption.
The mandatorily redeemable noncontrolling
interests were recorded as a liability on the unaudited condensed consolidated balance sheet and initially recorded at the
fair value of US$45.9 million and are subsequently carried at the present value of the redemption value.
Note 14 – Stockholders' equity
The changes of each caption of stockholders' equity for the three-month
period ended March 31, 2020 are as follows:
|
|
Series
B
Preferred
Stock
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Number
of
Shares
|
|
|
Amount
|
|
|
Number
of
Shares
|
|
|
Amount
|
|
|
Treasury Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Retained
Earnings
|
|
|
Other
Comprehensive
Loss
|
|
|
Total
Stockholders'
Equity
|
|
|
|
|
|
|
US$
|
|
|
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2020
|
|
|
1,000,000
|
|
|
|
100
|
|
|
|
66,948,841
|
|
|
|
6,697
|
|
|
|
(92,694
|
)
|
|
|
184,208,447
|
|
|
|
720,159,368
|
|
|
|
(67,907,807
|
)
|
|
|
836,374,111
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,038,494
|
)
|
|
|
-
|
|
|
|
(11,038,494)
|
|
Other comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,583,410
|
)
|
|
|
(12,583,410)
|
|
Balance as of March 31, 2020
|
|
|
1,000,000
|
|
|
|
100
|
|
|
|
66,948,841
|
|
|
|
6,697
|
|
|
|
(92,694
|
)
|
|
|
184,208,447
|
|
|
|
709,120,874
|
|
|
|
(80,491,217
|
)
|
|
|
812,752,207
|
|
Note 15 – Stock based compensation
On January 10, 2020,
the Board of Directors approved the adoption of 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 stock options and stock issuances
to employees, directors and independent contractors who provide services to the Company and/or its affiliates.
Non-vested shares
On February 20, 2020,
the Company's Board of Directors approved the grant of 3,000,000 non-vested shares to Mr. Jie Han and an employee with a performance
condition that the Company or its subsidiaries receive certain amount of bank credit prior to April 30, 2020 and complete certain
amount of drawdown from such credit line prior to June 30, 2020. The awards will be forfeited if the performance condition is not
met. As of March 31, 2020, the Company assessed that the achievement of above performance condition was not probable, and no share-based
compensation expense related to the non-vested shares was recognized for the three-month periods ended March 31, 2020.
On February 20, 2020,
the Company's Board of Directors approved the grant of 1,000,000 non-vested shares to two nonemployee consultants providing certain
financing advisory service for the Company. As of March 31, 2020, the service has not been rendered and no share-based compensation
expense related to the non-vested shares was recognized for the three-month periods ended March 31, 2020.
A summary of the non-vested shares activity
for the three-month period ended March 31, 2020 is as follows:
|
|
Number of Nonvested
Shares
|
|
Weighted Average
Grant date Fair Value
|
|
|
|
|
|
|
|
|
|
US$
|
|
|
Outstanding as of December 31, 2019
|
|
|
|
—
|
|
|
|
—
|
|
|
Granted
|
|
|
|
4,000,000
|
|
|
|
1.5
|
|
|
Outstanding as of March 31, 2020
|
|
|
|
4,000,000
|
|
|
|
1.5
|
|
As of March 31, 2020,
there was US$6.0 million unrecognized compensation cost relating to the nonvested shares.
Note 16 - Earnings per share
Basic and diluted earnings per share are calculated as follows:
|
|
Three-Month
Period Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
US$
|
|
US$
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
(11,038,494
|
)
|
|
|
10,980,715
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Earnings
allocated to participating Series D convertible preferred stock
|
|
|
—
|
|
|
|
(2,624,264
|
)
|
Net income (loss) for basic
and dilutive earnings per share
|
|
|
(11,038,494
|
)
|
|
|
8,356,451
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic and
diluted earnings per share
|
|
|
66,948,841
|
|
|
|
50,948,841
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per
share:
|
|
|
|
|
|
|
|
|
Basic and
diluted
|
|
|
(0.16
|
)
|
|
|
0.16
|
|
The following table summarizes potentially dilutive securities excluded
from the calculation of diluted earnings per share for the three-month periods ended March 31, 2020 and 2019 because their effects
are anti-dilutive:
|
Three-Month Period Ended
March 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
Shares issuable upon conversion of Series D convertible preferred stock
|
|
|
-
|
|
|
|
16,000,000
|
|
|
|
|
|
|
|
|
|
|
Note 17 - 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 March 31, 2020, the Company has a remaining commitment of RMB38.5 million (equivalent to US$5.5 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
March 31, 2020, 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$12.7 million) to purchase certain production and testing equipment.
As of March 31, 2020, Sichuan Xinda has a commitment of RMB55.9 million (equivalent to US$7.9 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$33.9 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 March 31, 2020, Sichuan Xinda has a remaining commitment of RMB141.7 million (equivalent to US$20.0 million).
Pursuant to the Nanchong Project mentioned
in Note 6 (i), Sichuan Xinda entered into equipment purchase contracts with Hailezi for a consideration of RMB2,242.8 million (equivalent
to US$316.6 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 RMB18.0 million (equivalent to US$2.5 million). As of March 31, 2020, 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$268.2 million). As of March 31, 2020, Sichuan Xinda has
a remaining commitment of RMB190.0 million (equivalent to US$26.8 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 6 (i), HLJ Xinda Group has a remaining commitment of RMB77.6 million (equivalent to US$11.0 million) as of March
31, 2020.
In connection with the
HLJ Project mentioned in Note 6 (i), pursuant to the three investment agreements, the project total capital expenditure will be
RMB4,015.0 million (equivalent to be US$566.7 million), among which the investment in fixed assets shall be no less than RMB3,295.0
million (equivalent to US$465.1 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 6 (i), HLJ Xinda Group has a remaining commitment
of RMB37.8 million (equivalent to US$5.3 million) as of March 31, 2020.
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$269.1 million). Pursuant to the contracts with Hailezi, HLJ
Xinda Group has a remaining commitment of RMB1,366.8 million (equivalent to US$192.9 million) as of March 31, 2020.
In connection with the
equipment purchase contracts with Hailezi for Qinling Road Project and Jiangnan Road Project mentioned in Note 6 (i), as of March
31, 2020, the Company has remaining commitments of RMB32.4 million (equivalent to US$4.6 million) and RMB142.7 million (equivalent
to US$20.1 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 March 31, 2020, the Company has a
remaining commitment of US$2.1 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 March 31, 2020, 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 March 31, 2020, 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 Heilongjiang Xinda Enterprise Group Shanghai New Materials Sales Company Limited (“Shanghai
Sales”) obtaining a one-year loan of RMB500.0 million (equivalent to US$70.6) 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$112.9 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$86.4 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 RMB1,980.6 million (equivalent
to US$279.5 million), including estimated interest expenses of RMB68.4 million (equivalent to US$9.6 million) as of March 31, 2020.
As the Company estimated that the potential material loss contingency was not probable, no accrual for a loss contingency was recognized
for the three-month ended March 31, 2020.
Note 18 - Revenues
Revenues consist of the following:
|
|
Three-Month Period Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
US$
|
|
US$
|
|
|
|
|
|
Modified Polyamide 66 (PA66)
|
|
|
49,233,101
|
|
|
|
83,878,245
|
|
Modified Polyamide 6 (PA6)
|
|
|
20,298,962
|
|
|
|
66,168,094
|
|
Plastic Alloy
|
|
|
10,547,399
|
|
|
|
63,136,625
|
|
Modified Polypropylene (PP)
|
|
|
4,340,775
|
|
|
|
37,057,054
|
|
Modified Acrylonitrile butadiene styrene (ABS)
|
|
|
993,228
|
|
|
|
13,447,629
|
|
Polyoxymethylenes (POM)
|
|
|
501,947
|
|
|
|
2,596,461
|
|
Polyphenylene Oxide (PPO)
|
|
|
—
|
|
|
|
16,859,150
|
|
Polylactide (PLA)
|
|
|
202,155
|
|
|
|
16,511,356
|
|
Polyethylene (PE)
|
|
|
585,245
|
|
|
|
1,772,744
|
|
Semi-finished goods
|
|
|
58,182,353
|
|
|
|
—
|
|
Raw materials
|
|
|
(47,487
|
)
|
|
|
38,649
|
|
Total Revenue
|
|
|
144,837,678
|
|
|
|
301,466,007
|
|
The following table provides sales by major
customer group for the three-month periods ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
Three-Month Period Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
US$
|
|
US$
|
Distributors
|
|
|
107,526,104
|
|
|
|
282,883,471
|
|
Direct customers
|
|
|
37,359,061
|
|
|
|
18,543,887
|
|
Others
|
|
|
(47,487
|
)
|
|
|
38,649
|
|
Total
|
|
|
144,837,678
|
|
|
|
301,466,007
|
|
Note 19 - Gains on disposal of a subsidiary
On November 13, 2018, HLJ Xinda Group entered
into an agreement with Shanghai Sales, to transfer the wholly owned equity of Heilongjiang Xinda Enterprise Group (Shanghai) New
Materials Research and Development Co., Ltd. ("Shanghai New Materials R&D") from HLJ Xinda Group to Shanghai Sales
with no consideration as a result of group restructuring to streamline resources and improve operating efficiency.
The legal transfer was completed on February
1, 2019 and the Company recorded gains of US$0.5 million on disposal of Shanghai New Materials R&D for the three-month period
ended March 31, 2019.
Note 20 - Leases
As of March 31, 2020, the Company had operating
leases for land use rights and office with remaining terms expiring from 2022 through 2085. The weighted average remaining lease
term excluding land use rights located in PRC as of March 31, 2020 was 17.1 years. Weighted average discount rate used in the calculation
of the lease liabilities was 6.7%. The discount rate reflects the estimated incremental borrowing rate, which includes an assessment
of the credit rating to determine the rate that the Company would have to pay to borrow, on a collateralized basis for a similar
term, an amount equal to the lease payments in a similar economic environment.
Lease cost for the three-month periods ended
March 31, 2020 and 2019 is as follows:
|
|
Three-Month Period Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Operating lease cost
|
|
|
575,097
|
|
|
|
423,571
|
|
Short-term lease cost
|
|
|
131,074
|
|
|
|
179,195
|
|
Total lease cost
|
|
|
706,171
|
|
|
|
602,766
|
|
As of March 31, 2020, the maturities of the
operating lease liabilities are as follows:
|
|
Remaining Lease Payments
US$
|
|
Nine months ended December 31, 2020
|
|
|
1,039,362
|
|
2021
|
|
|
1,407,825
|
|
2022
|
|
|
1,408,184
|
|
2023
|
|
|
1,424,003
|
|
2024
|
|
|
1,443,311
|
|
Thereafter
|
|
|
20,567,357
|
|
Total remaining lease payments
|
|
|
27,290,042
|
|
Less: imputed interest
|
|
|
(11,536,457
|
)
|
Total operating lease liabilities
|
|
|
15,753,585
|
|
Less: current portion
|
|
|
(1,417,224
|
)
|
Non-current operating lease liabilities
|
|
|
14,336,361
|
|
Weighted-average remaining lease term
|
|
17.1 years
|
|
Weighted-average discount rate
|
|
|
6.7
|
%
|
Supplemental cash flow information related
to leases is as follows:
|
|
Three-Month
Period Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
US$
|
|
US$
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
|
|
364,190
|
|
|
|
128,517
|
|
|
|
|
|
|
|
|
|
|