See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of presentation, significant concentrations and risks
(a) Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by rules and regulations of the United States Securities and Exchange Commission (“SEC”). The condensed consolidated balance sheet as of December 31, 2015 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, 2015, 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 March 15, 2016.
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, 2016, the results of operations and cash flows for the three-month periods ended March 31, 2016 and 2015, have been made.
The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the recoverability of the carrying amounts of property, plant and equipment, the realizability of inventories, the useful lives of property, plant and equipment, the collectability of accounts receivable, the fair values of stock-based compensation awards, and the accruals for tax uncertainties and other contingencies. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.
(b) Significant concentrations and risks
Sales concentration
The Company sells its products primarily through approved distributors in the People’s Republic of China (the “PRC”). To a lesser extent, the Company also sells its products to two overseas customers in the Republic of Korea (the “ROK”). The Company’s sales are highly concentrated. Sales to distributors and an end customer, which individually exceeded 10% of the Company’s revenues for the three month periods ended March 31, 2016 and 2015, are as follows:
|
|
For the Three-Month Period Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
US$
|
|
|
%
|
|
|
US$
|
|
|
%
|
|
Distributor A, located in PRC
|
|
|
35,809,554
|
|
|
|
16.7
|
%
|
|
|
32,811,834
|
|
|
|
14.8
|
%
|
Distributor B, located in PRC
|
|
|
35,105,615
|
|
|
|
16.3
|
%
|
|
|
35,012,896
|
|
|
|
15.8
|
%
|
Distributor C, located in PRC
|
|
|
28,460,900
|
|
|
|
13.2
|
%
|
|
|
26,205,294
|
|
|
|
11.8
|
%
|
Distributor D, located in PRC
|
|
|
25,485,848
|
|
|
|
11.9
|
%
|
|
|
22,287,867
|
|
|
|
10.0
|
%
|
Distributor E, located in PRC
|
|
|
22,202,126
|
|
|
|
10.3
|
%
|
|
|
22,658,046
|
|
|
|
10.2
|
%
|
Distributor F, located in PRC
|
|
|
21,908,999
|
|
|
|
10.2
|
%
|
|
|
16,199,648
|
|
|
|
7.3
|
%
|
Direct customer, located in the ROK
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
34,946,900
|
|
|
|
15.7
|
%
|
Total
|
|
|
168,973,042
|
|
|
|
78.6
|
%
|
|
|
190,122,485
|
|
|
|
85.6
|
%
|
The Company expects revenues from these distributors and the end customer to continue to represent a substantial portion of its revenue in the future. Any factor adversely affecting the automobile industry in the PRC, electronic application industry in the ROK 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. During the three-month periods ended March 31, 2016 and 2015, the Company purchased its raw materials through a limited number of distributors, which individually exceeded 10% of the Company’s total raw material purchases, accounted for approximately 76.9% (five distributors) and 73.8% (six distributors), 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.
The Company purchased equipment from two equipment distributors, which accounted for 99.9% and 99.8% of the Company’s total equipment purchases for the three-month periods ended March 31, 2016 and 2015, respectively. Management believes that other suppliers could provide similar equipment on comparable terms. A change of the supplier could cause a delay in manufacturing and a possible loss of sales, which could adversely affect the Company’s business, financial position and results of operations. The majority owner of one of the major equipment distributors, is also the majority owner of Distributor D presented above.
Cash concentration
Cash and cash equivalents, short-term restricted cash, time deposits and long-term restricted cash included in other non-current assets mentioned below maintained at banks consist of the following:
|
|
March 31, 2016,
|
|
|
December 31, 2015
|
|
|
|
US$
|
|
|
US$
|
|
RMB denominated bank deposits with:
|
|
|
|
|
|
|
Financial Institutions in the PRC
|
|
|
411,357,298
|
|
|
|
417,430,412
|
|
Financial Institutions in Hong Kong Special Administrative Region ("Hong Kong SAR")
|
|
|
13,692
|
|
|
|
13,778
|
|
Financial Institution in Dubai, United Arab Emirates ("UAE")
|
|
|
28,649
|
|
|
|
3,023
|
|
U.S. dollar denominated bank deposits with:
|
|
|
|
|
|
|
|
|
Financial Institution in the U.S.
|
|
|
259,127
|
|
|
|
226,010
|
|
Financial Institutions in the PRC
|
|
|
222,413
|
|
|
|
17,109
|
|
Financial Institution in Hong Kong SAR
|
|
|
241,765
|
|
|
|
63,854
|
|
Financial Institution in Macau Special Administrative Region ("Macau SAR")
|
|
|
95,654
|
|
|
|
37,120
|
|
Financial Institution in Dubai, UAE
|
|
|
296,009
|
|
|
|
7,474,960
|
|
Euro denominated bank deposits with:
|
|
|
|
|
|
|
|
|
Financial institution in Dubai, UAE
|
|
|
3,156
|
|
|
|
3,011
|
|
HK dollar denominated bank deposits with:
|
|
|
|
|
|
|
|
|
Financial institution in Hong Kong SAR
|
|
|
259
|
|
|
|
336
|
|
Dirham denominated bank deposits with:
|
|
|
|
|
|
|
|
|
Financial institution in Dubai, UAE
|
|
|
140,527
|
|
|
|
37,278
|
|
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 HK 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. Total bank deposits amounted to $1,669,556 and $1,690,764 are insured as of March 31, 2016 and December 31, 2015, 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, HK 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 condensed consolidated balance sheets and excluded from cash in the condensed consolidated statements of cash flows. Cash deposits of US$17,024,701 and US$16,907,470 as of March 31, 2016 and December 31, 2015 that are restricted for period beyond 12 months from the balance sheet date are included in other non-current assets in the condensed 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$8,017,087 and US$8,069,475 as of March 31, 2016 and December 31, 2015, respectively. Upon maturity and repayment of the bills payable, which is generally within 6 months, the cash becomes available for use by the Company. The cash will be available for use by the Company 90 days from the issuance of the letter of credit. The cash flows from the pledged bank deposits, which relate to purchases of raw materials, are reported within cash flows from operating activities in the condensed consolidated statements of cash flows.
Short-term bank deposits that are pledged as collateral for short-term and long-term bank borrowings are reported as restricted cash and amounted to US$32,850,861 and US$32,010,452 as of March 31, 2016 and December 31, 2015, respectively. Long-term bank deposits that are pledged as collateral for issuance of letter of guarantee are reported as other non-current assets and amounted to US$17,024,701 and US$16,907,470 as of March 31, 2016 and December 31, 2015, respectively. The cash flows from such bank deposits are reported within cash flows from financing activities in the condensed consolidated statements of cash flows.
Short-term bank deposits that are related to government grant are reported as restricted cash and amounted to U$10,855,250 and US$10,772,400 as March 31, 2016 and December 31, 2015, respectively. The amount is reported as non-cash investing and financing activities in the condensed consolidated statements of cash flows.
Note 2 - Accounts receivable
Accounts receivable consists of the following:
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
Accounts receivable
|
|
|
179,639,603
|
|
|
|
234,583,370
|
|
Allowance for doubtful accounts
|
|
|
(40,913
|
)
|
|
|
(40,631
|
)
|
Accounts receivable, net
|
|
|
179,598,690
|
|
|
|
234,542,739
|
|
As of March 31, 2016 and December 31, 2015, the accounts receivable balances also include notes receivable in the amount of US$1,382,383 and US$2,048,186, respectively. As of March 31, 2016 and December 31, 2015, US$12,157,403 and US$54,664,219 of accounts receivable are pledged for the short-term bank loans, respectively.
There was no accrual of additional provision or write-off of accounts receivable for the three-month periods ended March 31, 2016 and 2015.
The following table provides an analysis of the aging of accounts receivable as of March 31, 2016 and December 31, 2015:
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
US$
|
|
|
US$
|
|
Aging:
|
|
|
|
|
|
|
– current
|
|
|
179,598,670
|
|
|
|
234,396,244
|
|
– 1-3 months past due
|
|
|
20
|
|
|
|
146,495
|
|
– 4-6 months past due
|
|
|
-
|
|
|
|
-
|
|
– 7-12 months past due
|
|
|
-
|
|
|
|
-
|
|
– greater than one year past due
|
|
|
40,913
|
|
|
|
40,631
|
|
Total accounts receivable
|
|
|
179,639,603
|
|
|
|
234,583,370
|
|
Note 3 - Inventories
Inventories consist of the following:
|
|
|
March 31, 2016
|
|
|
|
December 31, 2015
|
|
|
US$
|
|
US$
|
|
|
|
|
|
|
Raw materials
|
|
|
366,536,552
|
|
|
|
287,995,933
|
|
Work in progress
|
|
|
193,778
|
|
|
|
164,034
|
|
Finished goods
|
|
|
24,818,618
|
|
|
|
6,505,228
|
|
Total inventories
|
|
|
391,548,948
|
|
|
|
294,665,195
|
|
There were no write down of inventories for the three-month periods ended March 31, 2016 and 2015.
Note 4 – Prepaid expenses and other current assets
Prepaid expenses and other current assets consist of the following:
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
|
|
Receivables due from a customer in the ROK (i)
|
|
|
8,171,130
|
|
|
|
9,471,222
|
|
Interest receivable (ii)
|
|
|
3,188,363
|
|
|
|
3,306,974
|
|
Value added taxes receivables
|
|
|
34,425,876
|
|
|
|
698,286
|
|
Advances to suppliers
|
|
|
1,854,417
|
|
|
|
68,354
|
|
Others (iii)
|
|
|
3,021,290
|
|
|
|
2,131,012
|
|
Total prepaid expenses and other current assets
|
|
|
50,661,076
|
|
|
|
15,675,848
|
|
|
(i)
|
As of March 31, 2016, receivables due from a customer in the ROK represent the amount the Company paid to purchase raw materials on behalf of the customer in the ROK.
|
|
(ii)
|
Interest receivable mainly represents interest income accrued from time deposits and restricted cash.
|
|
(iii)
|
Others mainly include prepaid miscellaneous service fees, staff advances and prepaid rental fee.
|
Note 5 – Property, plant and equipment, net
Property, plant and equipment consist of the following:
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
|
|
Machinery, equipment and furniture
|
|
|
259,528,017
|
|
|
|
258,173,175
|
|
Motor vehicles
|
|
|
2,157,932
|
|
|
|
2,009,440
|
|
Workshops and buildings
|
|
|
77,316,839
|
|
|
|
76,924,199
|
|
Construction in progress
|
|
|
564,945,155
|
|
|
|
323,955,531
|
|
Total property, plant and equipment
|
|
|
903,947,943
|
|
|
|
661,062,345
|
|
Less accumulated depreciation
|
|
|
(96,900,279
|
)
|
|
|
(89,315,838
|
)
|
Property, plant and equipment, net
|
|
|
807,047,664
|
|
|
|
571,746,507
|
|
All of the property, plant and equipment, net as of March 31, 2016 and December 31, 2015 were located in the PRC, except for US$347.4 million and US$83.8 million of property, plant and equipment, net were located in Dubai, UAE.
For the three-month periods ended March 31, 2016 and 2015, the Company capitalized US$601,107, and US$168,306 of interest costs as a component of the cost of construction in progress. Depreciation expense on property, plant and equipment was allocated to the following expense items:
|
|
Three-Month Period Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
5,680,494
|
|
|
|
4,779,588
|
|
General and administrative expenses
|
|
|
403,184
|
|
|
|
375,128
|
|
Research and development expenses
|
|
|
945,817
|
|
|
|
795,719
|
|
Selling expenses
|
|
|
384
|
|
|
|
-
|
|
Total depreciation expense
|
|
|
7,029,879
|
|
|
|
5,950,435
|
|
Note 6 - Prepayments to equipment suppliers
|
March 31, 2016
|
|
December 31, 2015
|
|
|
US$
|
|
US$
|
|
|
|
|
|
|
Jiamu (i)
|
|
|
11,841,901
|
|
|
|
11,712,843
|
|
Peaceful (ii)
|
|
|
-
|
|
|
|
170,009,200
|
|
Huayuan Zhiye (iii)
|
|
|
18,323,996
|
|
|
|
-
|
|
Others
|
|
|
1,445,244
|
|
|
|
1,503,963
|
|
Total Prepayments to equipment and construction suppliers
|
|
|
31,611,141
|
|
|
|
183,226,006
|
|
(i)
|
In December 2013, the Company entered into an equipment purchase contract with Harbin Jiamu Import & Export Trading Co., Ltd ("Jiamu Trading") for a consideration of RMB1,629.3 million to purchase 70 production lines and for a consideration of RMB89.7 million to purchase testing equipment. In August 2015, the Company signed a supplemental contract with Harbin Jiamu Science and Technology Co., Ltd. (together with Jiamu Trading as "Jiamu") to purchase testing equipment for a consideration of RMB16.3 million (equivalent to US$2.5 million). The balance of Jiamu as of March 31, 2016 and December 31, 2015 mainly represents the prepayment for testing equipment.
|
(ii)
|
On January 5, 2015, AL Composites Materials FZE ("AL Composites") entered into an equipment purchase contract with Peaceful Treasure Limited ("Peaceful") for a total consideration of US$271.2 million to purchase certain production and testing equipment. As of March 31, 2016, all production equipment for a total amount of US$264.7 were delivered to the Company.
|
(iii)
|
On February 4, 2016, Xinda CI (Beijing) Investment Holding Company Limited (“Xinda Beijing Investment”) (the "Buyer") entered into a contract with Beijing Xiaoyun Huayuan Property Co., Ltd. ("the Seller") to purchase the two-floor office space (2,331.90 square meters) and 5-parking-lot spaces (288.17 square meters) for a total consideration of RMB118.40 million (equivalent to US$18.32 million). The titles transfer of such office space and parking spaces are still pending as of March 31, 2016.
|
Note 7 – Fair value measurement
Short-term financial instruments, including cash and cash equivalents, restricted cash, time deposits, accounts receivable, amounts due from a related party, short-term bank loans, bills payable, accounts payable, amounts due to a related party, income taxes payable and accrued expenses and other current liabilities - carrying amounts approximate fair values because of the short maturity of these instruments.
Long-term bank loans-fair value is based on the amount of future cash flows associated with each loan discounted at the Company's current borrowing rate for similar debt instruments of comparable terms. The carrying value of the long-term bank loans approximate their fair values as the long-term bank loans carry interest rates which approximate rates currently offered by the Company's banks for similar debt instruments of comparable maturities.
Notes payable - fair values of the Company’s notes payable are estimated based on quoted market prices which are categorized as Level 1 measurement in the fair value hierarchy. As of March 31, 2016, the carrying amount and estimated fair value of the notes payable were US$ 145,926,833 and US$ 118,425,000, respectively.
Note 8 – Borrowings
(a) Current
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
US$
|
|
|
US$
|
|
Unsecured loans
|
|
|
117,962,608
|
|
|
|
64,555,795
|
|
Loans secured by accounts receivable
|
|
|
9,286,200
|
|
|
|
43,037,196
|
|
Loans secured by restricted cash
|
|
|
39,100,000
|
|
|
|
27,100,000
|
|
Current portion of long-term bank loans (note b)
|
|
|
157,648,902
|
|
|
|
149,646,098
|
|
|
|
|
|
|
|
|
|
|
Total short-term loans, including current portion of long-term bank loans
|
|
|
323,997,710
|
|
|
|
284,339,089
|
|
As of March 31, 2016 and December 31, 2015, the Company's short-term bank loans (including the current portion of long-term bank loans) bear a weighted average interest rate of 4.5% and 4.2% per annum, respectively. All short-term bank loans mature at various times within one year and contain no renewal terms.
In January 2016, the Company obtained a one-year secured loan of US$12.0 million from HSBC Middle East at an annual interest rate of one-month LIBOR (0.4340% as of March 31, 2016) plus 1.8%. These loans were secured by restricted cash of RMB17.8 million (equivalent to US$2.8 million) by the HSBC Bank in Harbin, China.
In February 2015, the Company obtained a one-year secured loan of US$16.6 million from HSBC Middle East at an annual interest rate of one-month LIBOR (0.4340% as of March 31, 2016) plus 1.8%. These loans were secured by restricted cash of RMB25.5 million (equivalent to US$3.9 million) by the HSBC Bank in Harbin, China.
In June 2015, the Company obtained a one-year secured loan of US$7.0 million from Bank of China Luxemburg Branch at an annual interest rate of one-year LIBOR (1.2142% as of March 31, 2016) plus 0.8%. These loans were secured by restricted cash of RMB45.9 million (equivalent to US$7.1 million) by the Bank of China in Harbin, China.
In July 2015, the Company obtained a one-year secured loan of US$3.5 million from Bank of China Luxemburg Branch at an annual interest rate of one-year LIBOR (1.2142% as of March 31, 2016) plus 0.75%. These loans were secured by restricted cash of RMB23.0 million (equivalent to US$3.5 million) by the Bank of China in Harbin, China.
On December 7, 2015, the Company obtained a six-month secured loan of RMB30 million (equivalent to US$4.6 million) by accounts receivables of RMB39.4 million (equivalent to US$6.1 million) at an annual interest rate of 4.79% from ICBC in Harbin. ICBC in Harbin. On February 18, 2016, the Company obtained a six-month secured loan of RMB30 million (equivalent to US$4.6 million) by accounts receivables of RMB39.2 million (equivalent to US$6.1 million) at an annual interest rate of 4.300% from ICBC in Harbin.
(b) Non-current
|
|
March 31,2016
|
|
|
December 31, 2015
|
|
|
|
US$
|
|
|
US$
|
|
Secured loans
|
|
|
81,164,800
|
|
|
|
81,164,800
|
|
Unsecured loans
|
|
|
181,296,706
|
|
|
|
175,963,007
|
|
Less: current portion
|
|
|
157,648,902
|
|
|
|
149,646,098
|
|
Total long-term bank loans, excluding current portion
|
|
|
104,812,604
|
|
|
|
107,481,709
|
|
On December 11, 2014, the Company obtained a two-year unsecured loan of RMB199 million (equivalent to US$30.5 million) from Bank of Communications at an annual interest rate of 6.60%.
On December 16, 2014, the Company obtained a one and a half-year unsecured loan of US$76.4 million from Bank of China Macau Branch at an interest rate of three-month LIBOR (0.6251% as of March 31, 2016) plus 1.7%. The interest rate is reset every three months.
On June 12, 2014, the Company obtained a three-year secured loan of US$70 million from Bank of China Paris Branch at an interest rate of three-month LIBOR (0.6251% as of March 31, 2016). The loan is secured by restricted cash of RMB 110 million (equivalent to US$16.9 million, which was recorded in other non-current assets). The Company has repaid US$2 million on June 9, 2015 and US$2 million December 9, 2015.
On January 23, 2015, the Company obtained a two-year unsecured loan of RMB100 million (equivalent to US$15.5 million) at an annual interest rate of 6.0% from Agriculture Bank of China.
On January 27, 2015, the Company obtained a one and half year secured loan of US$15.2 million from Bank of China Macau Branch, at an interest rate of three-month LIBOR (0.6251% as of March 31, 2016) plus 1.5%. The interest rate is reset every three months. The loan is secured by restricted cash of RMB100 million (equivalent to US$15.4 million).
On April 22, 2015, the Company obtained a two-year unsecured loan of RMB40 million (equivalent to US$6.2 million) at an annual interest rate of 5.75% from Agriculture Bank of China.
In October and November, 2015, the Company obtained three five-year unsecured loans of RMB260 million (equivalent to US$40.0 million) at an annual interest rate of 4.75% from Bank of China. In January 2016, the Company obtained one four-year unsecured loans of RMB80 million (equivalent to US$12.6 million) at an annual interest rate of 4.75% from Bank of China.
As of March 31, 2016, the Company had total lines of credit of RMB5,005.7 million (US$774.9 million) including unused lines of credit of RMB2,009.9 million (US$311.0 million) with remaining terms less than 12 months and RMB325.2 million (US$50.3 million) with remaining terms beyond 12 months.
Certain lines of credit contain financial covenants such as total stockholders' equity, debt asset ratio, current ratio, contingent liability ratio and net profit. As of March 31, 2016, the Company has met these financial covenants.
Note 9 - Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following:
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
US$
|
|
|
US$
|
|
Payables for purchase of property, plant and equipment
|
|
|
136,633,861
|
|
|
|
42,524,903
|
|
Accrued freight expenses
|
|
|
2,557,056
|
|
|
|
1,579,936
|
|
Accrued interest expenses
|
|
|
3,461,380
|
|
|
|
7,800,481
|
|
Advance from customers (i)
|
|
|
82,875,638
|
|
|
|
82,009,002
|
|
Non income tax payables
|
|
|
3,897,566
|
|
|
|
4,353,730
|
|
Others(ii)
|
|
|
2,098,323
|
|
|
|
2,720,660
|
|
Total accrued expenses and other current liabilities
|
|
|
231,523,824
|
|
|
|
140,988,712
|
|
(i) Advance from customers mainly represent the advance received from two customers in the PRC for the raw material purchases during the 4th quarter of 2015.
(ii) Others mainly represent accrued payroll and employee benefits and other accrued miscellaneous operating expenses.
Note 10 – Related party transactions
The Company entered into related party transactions with Harbin Xinda High-Tech Co., Ltd. ("Xinda High-Tech"), an entity controlled by the wife of Mr. Han, the chief executive officer and controlling stockholder of the Company and Mr. Han's son. The significant related party transactions are summarized as follows:
|
Three-Month Period Ended March 31,
|
|
|
2016
|
|
2015
|
|
|
US$
|
|
US$
|
|
Costs and expenses resulting from transactions with related parties:
|
|
|
|
|
Rental expenses for plant and office spaces
|
|
|
184,536
|
|
|
|
195,213
|
|
The related party balances are summarized as follows:
|
|
|
March 31, 2016
|
|
|
|
December 31, 2015
|
|
|
US$
|
|
US$
|
|
Amounts due from a related party:
|
|
|
|
|
Prepaid rent expenses to Xinda High-Tech
|
|
|
61,633
|
|
|
|
244,836
|
|
Total
|
|
|
61,633
|
|
|
|
244,836
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
US$
|
|
US$
|
|
Amounts due to a related party
|
|
|
|
|
Rental payable to Mr Han's son
|
|
|
10,041
|
|
|
|
8,439
|
|
The Company rents the following plant and office buildings in Harbin, Heilongjiang province from Xinda High-Tech:
Premise Leased
|
Area (M
2
)
|
|
Annual Rental Fee (US$)
|
|
Period of Lease
|
Office building
|
|
|
23,894
|
|
|
|
732,032
|
|
Between January 1, 2014 and December 31, 2018
|
The Company rents the following facility in Harbin, Heilongjiang province from Mr. Han's son:
Premise Leased
|
Area (M
2
)
|
|
Annual Rental Fee (US$)
|
|
Period of Lease
|
Facility
|
|
|
200
|
|
|
|
6,127
|
|
Between August 17, 2014 and August 16, 2016
|
Note 11– Income tax
Pursuant to an approval from the local tax authority in July 2013, Sichuan Xinda Enterprise Group Co., Ltd. ("Sichuan Xinda Group"), 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, AL Composites Materials FZE ("Al Composites"), a subsidiary of China XD, is exempted from income taxes.
The effective income tax rates for the three-month periods ended March 31, 2016 and 2015 were 28.5% and 14.3%, respectively. The effective income tax rate increased from 14.3% as of March 31, 2015 to 28.5% as of March 31, 2016, primarily due to less profit generated by Dubai Composites for the three-month period ended March 31, 2016, which was exempted from income taxes. The effective income tax rate for the three-month period ended March 31, 2016 differs from the PRC statutory income tax rate of 25% primarily due to the effect of tax rate differential on entities not subject to PRC income tax and the effect of non-deductible expenses.
As of March 31, 2016, the unrecognized tax benefits were US$22,655,464 and the interest relating to unrecognized tax benefits was US$3,695,917. No penalties expense related to unrecognized tax benefits were recorded. The Company is currently unable to provide an estimate of a range of the total amount of unrecognized tax benefits that is reasonably possible to change significantly within the next twelve months.
Note 12 – Deferred Income
On January 26, 2015, the Company entered into a memorandum and a fund support agreement (the "Agreement") with the People's Government of Shunqing District, Nanchong City, Sichuan Province ("Shunqing Government") pursuant to which Shunqing Government, through its investment vehicle, will extend to the Company RMB350 million (equivalent to US$54.2 million) to support the construction of the Sichuan plant. As of March 31, 2016, the Company has received RMB280 million (equivalent to US$43.4 million) in total from Shunqing Government in the form of government repayment of bank loans on behalf of the Company. The Company also received RMB70 million (equivalent to US$10.8 million) pursuant to the Agreement for which the amount was restricted to use subject to the progress of the construction, which has been recorded as restricted cash as of March 31, 2016.
In addition, the Company has received RMB45.9 million (equivalent to US$7.1 million) from Shunqing Government and RMB6.4 million (equivalent to US$1.0 million) from Ministry of Finance of the People's Republic of China to support the construction as of March 31, 2016.
Since the funding is related to construction of long-term assets, the amounts were recognized as government grant, which is included in deferred income on the condensed consolidated balance sheets, and to be recognized as other income in the condensed consolidated statements of comprehensive income over the periods and in the proportions in which depreciation expense on the long-term assets is recognized.
In addition, the Company also received RMB36 million (equivalent to US$5.6 million) from Shunqing Government as of March 31, 2016, among which RMB8.5 million (equivalent to US$ 1.4 million) have been recognized as other income when related interest expense was recognized as of March 31, 2016.
Note 13 – Other non-current liabilities
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
US$
|
|
US$
|
|
|
|
|
|
|
Income tax payable-noncurrent (i)
|
|
|
26,351,381
|
|
|
|
24,172,693
|
|
Deferred income tax liabilities
|
|
|
13,395,630
|
|
|
|
13,874,224
|
|
Total other non-current liabilities
|
|
|
39,747,011
|
|
|
|
38,046,917
|
|
(i) Income tax payable-noncurrent represents the accumulative balance of unrecognized tax benefits and related accrued interest.
Note 14 – Stockholders’ equity
The changes of each caption of stockholders’ equity for the three-month period ended March 31, 2016 are as follows:
|
|
Series B Preferred Stock
|
|
|
Common Stock
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Accumulated
Other
|
|
|
Total
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Treasury Stock
|
|
|
Paid-in
Capital
|
|
|
Retained
Earnings
|
|
|
Comprehensive
Income
|
|
|
Stockholders’
Equity
|
|
|
|
|
|
|
US$
|
|
|
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2016
|
|
|
1,000,000
|
|
|
|
100
|
|
|
|
49,323,284
|
|
|
|
4,933
|
|
|
|
(92,694
|
)
|
|
|
81,919,932
|
|
|
|
515,555,985
|
|
|
|
(19,342,658
|
)
|
|
|
578,045,598
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,357,350
|
|
|
|
-
|
|
|
|
11,357,350
|
|
Other comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,927,024
|
|
|
|
4,927,024
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
222,180
|
|
|
|
-
|
|
|
|
-
|
|
|
|
222,180
|
|
Vesting of nonvested shares
|
|
|
-
|
|
|
|
-
|
|
|
|
82,907
|
|
|
|
8
|
|
|
|
-
|
|
|
|
(8
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance as of March 31, 2016
|
|
|
1,000,000
|
|
|
|
100
|
|
|
|
49,406,191
|
|
|
|
4,941
|
|
|
|
(92,694
|
)
|
|
|
82,142,104
|
|
|
|
526,913,335
|
|
|
|
(14,415,634
|
)
|
|
|
594,552,152
|
|
Note 15 – Stock based compensation
Nonvested shares
A summary of the nonvested shares activity for the three-month ended March 31, 2016 is as follows:
|
|
Number of Nonvested
Shares
|
|
|
Weighted Average
Grant date Fair Value
|
|
|
|
|
|
|
US$
|
|
Outstanding as of December 31, 2015
|
|
|
614,727
|
|
|
|
5.54
|
|
Vested
|
|
|
(10,907
|
)
|
|
|
3.08
|
|
Forfeited
|
|
|
(22,210
|
)
|
|
|
4.93
|
|
Outstanding as of March 31, 2016
|
|
|
581,610
|
|
|
|
5.60
|
|
The Company recognized US$243,123 and US$255,726 of compensation expense in general and administrative expenses relating to nonvested shares for the three-month periods ended March 31, 2016 and 2015, respectively. As of March 31, 2016, there was US$1,566,746 of total unrecognized compensation cost relating to nonvested shares, which is to be recognized over a weighted average period of 1.42 years.
Note 16 - Earnings per share
Basic and diluted earnings per share are calculated as follows:
|
|
Three-Month Period Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
Net income
|
|
|
11,357,350
|
|
|
|
25,404,026
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Earnings allocated to participating Series D convertible preferred stock
|
|
|
(2,754,663
|
)
|
|
|
(6,177,505
|
)
|
Earnings allocated to participating nonvested shares
|
|
|
(101,584
|
)
|
|
|
(247,148
|
)
|
Net income for basic and dilutive earnings per share
|
|
|
8,501,103
|
|
|
|
18,979,373
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted earnings per share
|
|
|
49,377,229
|
|
|
|
49,157,383
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
0.17
|
|
|
|
0.39
|
|
The following table summarizes potentially dilutive securities excluded from the calculation of diluted earnings per share for the three-month periods ended March 31, 2016 and 2015 because their effects are anti-dilutive:
|
Three-Month Period Ended March 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Shares issuable upon conversion of Series D convertible preferred stock
|
|
|
16,000,000
|
|
|
|
16,000,000
|
|
Note 17 - Commitments and contingencies
(1) Lease commitments
Future minimum lease payments under non-cancellable operating leases agreements as of March 31, 2016 were as follows.
|
|
US$
|
|
Period from April 1, 2016 to December 31, 2016
|
|
|
847,460
|
|
Years ending December 31,
|
|
|
|
|
2017
|
|
|
1,216,626
|
|
2018
|
|
|
936,080
|
|
2019
|
|
|
113,978
|
|
2020
|
|
|
113,978
|
|
2021 and thereafter
|
|
|
1,044,800
|
|
Rental expenses incurred for operating leases of plant and equipment and office spaces were US$214,789 and US$229,149 for the three-month periods ended March 31, 2016 and 2015, respectively. There are no step rent provisions, escalation clauses, capital improvement funding requirements, other lease concessions or contingent rent in the lease agreements. The Company has no legal or contractual asset retirement obligations at the end of leases. The company’s leases do not contain any contingent rent payments terms.
(2) Sichuan plant construction and equipment
On March 8, 2013, Xinda Holding (HK) Company Limited ("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, 2016, the Company has a remaining commitment of RMB100.9 million (equivalent to US$15.6 million) mainly for facility construction, and RMB17.9 million (equivalent to US$2.8 million) for the acquisition of equipment.
(3) Dubai plant construction and equipment
On January 5, 2015, AL Composites entered into an equipment purchase contract with Peaceful for a total consideration of US$271.2 million to purchase certain production and testing equipment. As of March 31, 2016, the Company has a remaining commitment of US$5.9 million for the remaining equipment acquisition. On April 28, 2015, AL Composites entered into a warehouse construction contract with Falcon Red Eye Contracting Co. L.L.C. for a total consideration of AED6.7 million (equivalent to US$1.8 million). As of March 31, 2016, the Company has a remaining commitment of US$0.9 million.
(4) Xinda Group equipment
As of March 31, 2016, Xinda Group has a remaining commitment of RMB8.7 million (equivalent to US$1.3 million) for the acquisition of equipment.
(5) Contingencies
The Company and certain of its officers were named as defendants in two putative securities class action lawsuits filed on July 15, 2014 and July 16, 2014 in the United States District Court for the Southern District of New York. On March 23, 2016, the Court issued an Opinion and Order dismissing the Complaint without prejudice. On May 6, 2016, plaintiffs moved the Court for leave to amend the Complaint. The Company, after consultation with its legal counsel, continues to believe that the lawsuits are without merit and will continue to vigorously defend against them. Nevertheless, there is a possibility that a loss may have been incurred. In accordance with ASC Topic 450, no loss contingency was accrued as of March 31, 2016 since the possible loss or range of loss cannot be reasonably estimated.