x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
|
Nevada
|
04-3836208
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification Number)
|
No.
9 Qinling Road, Yingbin Road Centralized Industrial Park
Harbin
Development Zone, Heilongjiang, the People’s Republic of China
150078
|
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer o | Smaller reporting company x |
PART
I— FINANCIAL INFORMATION
|
Page
|
|
Item
1.
|
Condensed
Consolidated Financial Statements (Unaudited)
|
2
|
Notes
to the Condensed Consolidated Financial Statements
(Unaudited)
|
5
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
35
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
40
|
Item
4T.
|
Controls
and Procedures
|
40
|
PART
II— OTHER INFORMATION
|
||
Item
1.
|
Legal
Proceedings
|
41
|
Item
1A.
|
Risk
Factors
|
41
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
41
|
Item
3.
|
Defaults
Upon Senior Securities
|
41
|
Item
4.
|
Other
Information
|
41
|
Item
5.
|
Exhibits
|
42
|
SIGNATURES
|
March
31, 2010
|
December
31, 2009
|
||||||||||
Note
|
(Unaudited)
|
||||||||||
ASSETS
|
|||||||||||
Current
assets:
|
|||||||||||
Cash and cash equivalents
|
$ | 5,128,234 | $ | 6,850,784 | |||||||
Restricted cash
|
3 | 8,790,075 | - | ||||||||
Notes receivable
|
449,747 | 407,487 | |||||||||
Accounts receivable - net of allowance for doubtful receivables
of
|
|||||||||||
$166,123
and $166,095, respectively
|
4 | 14,218,223 | 8,558,172 | ||||||||
Prepaid expenses and other receivables
|
238,083 | 253,172 | |||||||||
Inventories
|
5 | 21,713,157 | 18,371,485 | ||||||||
Advances to employees
|
6 | 541,558 | 512,745 | ||||||||
Advances to suppliers
|
20,308,122 | 20,245,861 | |||||||||
Taxes receivable
|
- | 406,755 | |||||||||
Total current assets
|
71,387,199 | 55,606,461 | |||||||||
Property,
plant and equipment, net
|
7 | 30,253,614 | 31,083,389 | ||||||||
Other
assets:
|
|||||||||||
Intangible assets, net
|
8 | 240,592 | 241,945 | ||||||||
Total assets
|
$ | 101,881,405 | $ | 86,931,795 | |||||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||||||
Current
liabilities:
|
|||||||||||
Short term loans
|
10 | $ | 21,242,682 | $ | 21,678,565 | ||||||
Bank acceptance notes payable
|
11 | 5,860,050 | - | ||||||||
Accounts payable
|
4,509,532 | 1,258,459 | |||||||||
Other payables
|
342,241 | 714,504 | |||||||||
Accrued expenses
|
306,797 | 648,358 | |||||||||
Taxes payable
|
19,912 | 4,134 | |||||||||
Due to related parties
|
9 | 100,394 | 148,397 | ||||||||
Deferred revenue
|
174,641 | 300,296 | |||||||||
Dividends payable
|
983,250 | 77,396 | |||||||||
Total current liabilities
|
33,539,499 | 24,830,109 | |||||||||
Other
liabilities
|
|||||||||||
Common stock warrant purchase liabilities
|
13 | 6,183,046 | 7,892,513 | ||||||||
Embedded conversion feature liabilities
|
13 | 712,915 | 18,798,059 | ||||||||
Total
other liabilities
|
6,895,961 | 26,690,572 | |||||||||
Total
liabilities
|
40,435,460 | 51,520,681 | |||||||||
Series
C convertible redeemable preferred stock: 752 and 15,188 shares issued and
outstanding
|
|||||||||||
as
of March 31, 2010 and December 31, 2009, respectively
|
13 | 687,821 | 13,891,477 | ||||||||
Commitments
and contingencies
|
18 | ||||||||||
Stockholders'
equity
|
|||||||||||
Series B Preferred Stock, $0.0001 par value, 50,000,000 shares
authorized,
|
|||||||||||
1,000,000 shares issued and outstanding as of March 31, 2010
and December 31, 2009
|
15 | 100 | 100 | ||||||||
Common Stock, $0.0001 par value, 500,000,000 shares authorized, 44,007,589
and 40,867,050
|
|||||||||||
shares issued and outstanding as of March 31, 2010 and December 31, 2009,
respectively
|
15 | 4,401 | 4,087 | ||||||||
Additional paid-in-capital
|
43,982,642 | 15,360,949 | |||||||||
Retained earnings
|
12,759,456 | 2,160,621 | |||||||||
Statutory surplus reserve fund
|
2,471,007 | 2,471,007 | |||||||||
Accumulated other comprehensive income
|
1,540,518 | 1,522,873 | |||||||||
Total stockholders' equity
|
60,758,124 | 21,519,637 | |||||||||
Total liabilities and stockholders' equity
|
$ | 101,881,405 | $ | 86,931,795 |
For
the Three Months Ended March 31,
|
|||||||||||
Note
|
2010
|
2009
|
|||||||||
Sales
|
$ | 50,036,431 | $ | 26,391,889 | |||||||
Cost
of sales
|
(38,139,725 | ) | (20,635,575 | ) | |||||||
Gross
profit
|
11,896,706 | 5,756,314 | |||||||||
Operating
expenses
|
|||||||||||
Research and development expenses
|
1,505,172 | 289,155 | |||||||||
Selling expenses
|
91,379 | 45,651 | |||||||||
General and administrative expenses
|
1,901,006 | 1,045,929 | |||||||||
Total
operating expenses
|
3,497,557 | 1,380,735 | |||||||||
Operating
income
|
8,399,149 | 4,375,579 | |||||||||
Other
income (expenses)
|
|||||||||||
Interest income (expenses)
|
(406,039 | ) | (355,606 | ) | |||||||
Other income
|
6,561 | - | |||||||||
Other expense
|
(16,237 | ) | (644 | ) | |||||||
Changes in fair value of warrants and embedded derivatives
|
13 | 5,121,654 | - | ||||||||
Total
other income (expense)
|
4,705,939 | (356,250 | ) | ||||||||
Income
before income taxes
|
13,105,088 | 4,019,329 | |||||||||
Provision
for income taxes
|
12 | (22,732 | ) | (2,685 | ) | ||||||
Net
income
|
$ | 13,082,356 | $ | 4,016,644 | |||||||
Other
comprehensive income (loss)
|
|||||||||||
Foreign
currency translation adjustment
|
17,645 | (37,617 | ) | ||||||||
Comprehensive
income
|
$ | 13,100,001 | $ | 3,979,027 | |||||||
Net
income
|
$ | 13,082,356 | $ | 4,016,644 | |||||||
Dividend
to Series C preferred stockholders
|
$ | (2,560,916 | ) | $ | - | ||||||
Net
income attributable to common shareholders
|
10,521,440 | 4,016,644 | |||||||||
Basic
and diluted earnings per common share
|
|||||||||||
Basic
|
17 | $ | 0.26 | $ | 4.98 | ||||||
Diluted
|
17 | $ | 0.25 | $ | 0.10 | ||||||
Weighted
average common share outstanding
|
|||||||||||
Basic
|
17 | 41,178,249 | 805,802 | ||||||||
Diluted
|
17 | 41,612,074 | 38,999,874 |
|
||||||||
|
||||||||
For
the Three Months ended
|
||||||||
March
31,
|
||||||||
2010
|
2009
|
|||||||
Cash
flows from operating activities
|
||||||||
Net income
|
$ | 13,082,356 | $ | 4,016,644 | ||||
Adjustments to reconcile net income to net cash provided
by
|
||||||||
(used in) operating activities:
|
||||||||
Depreciation and amortization
|
830,162 | 445,890 | ||||||
Stock-based compensation expense
|
745,394 | - | ||||||
Change in fair value of warrants and derivative
liabilities
|
(5,121,654 | ) | - | |||||
Allowance for doubtful receivables
|
28 | - | ||||||
Loss on disposals of property, plant and equipment
|
14,836 | - | ||||||
Changes in assets and liabilities:
|
||||||||
(Increase)decrease in -
|
||||||||
Restricted cash | (8,788,043 | ) | (702,135 | ) | ||||
Notes receivables
|
(42,183 | ) | 251,150 | |||||
Accounts receivable and other receivables | (5,657,496 | ) | 5,352,875 | |||||
Prepaid expenses
|
106,643 | - | ||||||
Inventories
|
(3,337,831 | ) | (3,130,573 | ) | ||||
Advances to employees
|
(120,090 | ) | (125,875 | ) | ||||
Advances to suppliers
|
(58,867 | ) | 2,743,624 | |||||
Taxes receivable
|
406,729 | - | ||||||
Deferred charge
|
- | (68,873 | ) | |||||
Increase (decrease) in -
|
||||||||
Accounts payable and other payables
|
2,877,856 | 277,662 | ||||||
Accrued expenses
|
(341,577 | ) | (423,476 | ) | ||||
Taxes payable
|
15,774 | 114,212 | ||||||
Deferred revenue
|
(125,675 | ) | (3,183,553 | ) | ||||
Net cash provided by (used in) operating activities
|
(5,513,638 | ) | 5,567,572 | |||||
Cash
flows from investing activities
|
||||||||
Purchase of property, plant and equipment
|
(24,561 | ) | (29,175 | ) | ||||
Proceeds from sales of property, plant and equipment
|
15,722 | - | ||||||
Repayment to related party
|
- | (10,616 | ) | |||||
Net cash used in investing activities
|
(8,839 | ) | (39,791 | ) | ||||
Cash
flows from financing activities
|
||||||||
Dividends paid
|
(1,577,666 | ) | - | |||||
Repayment of short term loans
|
(439,402 | ) | (2,194,173 | ) | ||||
Proceeds from bank acceptance notes
|
5,858,695 | 1,755,338 | ||||||
Repayment of related party loans
|
(142,722 | ) | (7,098,504 | ) | ||||
Proceeds from related party loan
|
100,394 | - | ||||||
Net cash provided by (used in) financing activities
|
3,799,299 | (7,537,339 | ) | |||||
Effect
of exchange rate changes on cash and cash equivalents
|
628 | (6,945 | ) | |||||
Net
decrease in cash and cash equivalents
|
(1,722,550 | ) | (2,016,503 | ) | ||||
Cash
and cash equivalents, beginning of period
|
6,850,784 | 3,869,035 | ||||||
Cash
and cash equivalents, end of period
|
$ | 5,128,234 | $ | 1,852,532 | ||||
Supplemental
disclosures of cash flow information:
|
||||||||
Interest paid
|
$ | 387,372 | $ | 356,188 | ||||
Income taxes paid
|
$ | 66,227 | $ | 8,864 | ||||
Non-cash
investing and financing activities:
|
||||||||
Embedded conversion feature reclassified to equity upon
conversion
|
$ | 14,672,957 | $ | - | ||||
Preferred stock converted to common stock
|
$ | 13,203,656 | $ | - |
·
|
In
connection with the acquisition, the following transactions took
place:
|
·
|
The
record date for the Reverse Split was set for December 31, 2008. The
record holders of NB Telecom’s common stock on the date of December 31,
2008 should be subject to a 124.1:1 reverse split with fractional shares
to be rounded up to one hundred round lot, with the round-up shares to be
deducted from certain designated shareholders by NB
Telecom.
|
·
|
In
connection with the acquisition of Favor Sea (BVI), former officers and
directors of NB Telecom resigned and executive officers of Favor Sea (BVI)
were appointed as China XD Plastic’s new officers and
directors.
|
·
|
As
part of the Merger, the name of the company was changed from NB Telecom to
China XD Plastics.
|
Plant and buildings | 39 years | |
Machinery, equipment and automobiles | 5-10 years |
As
of
|
||||||||
March
31, 2010
|
December
31, 2009
|
|||||||
US$
|
US$
|
|||||||
Beginning
balance
|
166,095 | 99,669 | ||||||
Additions
|
28 | 66,426 | ||||||
Ending
balance
|
166,123 | 166,095 |
As of | ||||||||
March
31, 2010
|
December
31, 2009
|
|||||||
US$
|
US$
|
|||||||
Raw
materials
|
7,846,216 | 5,760,957 | ||||||
Work-in-progress
|
578,724 | 12,030,860 | ||||||
Finished
goods
|
13,273,665 | 570,701 | ||||||
Packing
supplies
|
14,552 | 8,967 | ||||||
Total
|
21,713,157 | 18,371,485 |
As of | ||||||||
March
31, 2010
|
December
31, 2009
|
|||||||
US$
|
US$
|
|||||||
Machinery
and equipment
|
30,444,269 | 30,455,968 | ||||||
Automobiles
|
401,796 | 402,690 | ||||||
Plant
and buildings
|
3,893,340 | 3,863,746 | ||||||
Total
|
34,739,405 | 34,722,404 | ||||||
Less:
accumulated depreciation
|
(4,485,791 | ) | (3,667,959 | ) | ||||
Construction
in progress
|
- | 28,944 | ||||||
Total
|
30,253,614 | 31,083,389 |
As of | ||||||||
March
31, 2010
|
December
31, 2009
|
|||||||
US$
|
US$
|
|||||||
Land
use right
|
267,531 | 267,486 | ||||||
Less:
accumulated amortization
|
(26,939 | ) | (25,541 | ) | ||||
Total
|
240,592 | 241,945 |
As of | ||||||||
March
31, 2010
|
December
31, 2009
|
|||||||
US$
|
US$
|
|||||||
Harbin
Xinda High-Tech Co., Ltd.
(“Xinda
High-tech)
|
- | 148,397 | ||||||
Ms.
Piao
|
100,394 | - | ||||||
Total
|
100,394 | 148,397 |
As of | ||||||||
March
31, 2010
|
December
31, 2009
|
|||||||
US$
|
US$
|
|||||||
a) Loan
payable to Bank of Communications
one
year term from December 8, 2009 to December 8, 2010 bears interest of 10%
above the prime rate* set by Central Bank of China
|
4,395,038 | 4,394,304 | ||||||
b) Loan
payable to Bank of Communications
one
year term from December 8, 2009 to December 8, 2010 bears interest of 10%
above the prime rate* set by Central Bank of China
|
1,465,012 | 1,464,768 | ||||||
c) Loan
payable to Harbin Bank
one
year term from February 24, 2009 to February 23, 2010 bears a fixed
interest rate of 7.124% per year
|
- | 4,394,304 | ||||||
d) Loan
payable to Harbin Bank
one
year term from April 3, 2009 to April 2, 2010 bears a fixed interest rate
of 7.124% per year
|
- | 10,692,805 | ||||||
e) Loan
payable to Harbin Bank
three
months term from March 30, 2010 to June 30, 2010 bears a fixed interest
rate of 5.265% per year
|
732,506 | - | ||||||
f) Loan
payable to Harbin Bank
three
months term from December 25, 2009 to March 24, 2010 bears a fixed
interest rate of 6.504% per year
|
- | 732,384 | ||||||
g) Loan
payable to Longjiang Bank
one
year term from February 22, 2010 to February 21, 2011 bears a fixed
interest rate of 5.441% per year
|
4,395,038 | - | ||||||
h) Loan
payable to Longjiang Bank
one
year term from February 22, 2010 to February 21, 2011 bears a fixed
interest rate of 5.441% per year
|
4,395,038 | - | ||||||
i) Loan
payable to Longjiang Bank
three
months term from March 15, 2010 to June 14, 2010 bears a fixed interest
rate of 4.970% per year
|
5,860,050 | - | ||||||
Total
|
21,242,682 | 21,678,565 |
March
31, 2010
|
March
31, 2009
|
|||||||
US
statutory rates
|
34.00% | 34.00% | ||||||
Effect
of tax rates in different jurisdiction
|
(6.18% | ) | (9.00% | ) | ||||
Effect
of non-deductible expenses
|
(11.53% | ) | - | |||||
Changes
in valuation allowance
|
0.99% | - | ||||||
Effect
of tax exemption of PRC subsidiaries
|
(17.11% | ) | (24.94% | ) | ||||
Effective
income tax rate
|
0.17% | 0.06% |
March
31, 2010
|
||||
US$
|
||||
Net
operating loss carry forwards
|
1,239,116 | |||
Less:
valuation allowance
|
(1,239,116 | ) | ||
Net | - |
·
|
risk
free rate of return of 1.60%
|
·
|
volatility
of 156.16%
|
·
|
dividend
yield of 6.0%
|
·
|
expected
term of 2.67 years
|
US$
|
||||
Issuance
of preferred stock on December 1, 2009
|
16,812,682 | |||
Adjustment
to fair value change
|
1,985,377 | |||
Balance
as of December 31, 2009 and January 1, 2010
|
18,798,059 | |||
Conversion
of preferred stock to common shares
|
(14,672,957 | ) | ||
Adjustment
to fair value change upon conversion
|
( 3,194,337 | ) | ||
Balance
as of March 31, 2010
|
712,915 | |||
·
|
risk
free rate of return of 2.55%
|
·
|
volatility
of 156.16%
|
·
|
dividend
yield of 6.0%
|
·
|
expected
term of 4.67 years
|
Series
A
warrants
|
Placement
Agent
warrants
|
Total
|
||||||||||
US$
|
US$
|
US$
|
||||||||||
Issuance
of common stock warrants on December
1, 2009
|
6,500,059 | 577,123 | 7,077,182 | |||||||||
Adjustment
to fair value change
|
748,844 | 66,487 | 815,331 | |||||||||
Balance
as of December 31, 2009 and January 1, 2010
|
7,248,903 | 643,610 | 7,892,513 | |||||||||
Adjustment
to fair value change
|
(1,570,066 | ) | (139,401 | ) | (1,709,467 | ) | ||||||
Balance
as of March 31, 2010
|
5,678,837 | 504,209 | 6,183,046 | |||||||||
i)
|
the
Company recorded a deemed preferred stock dividend of $13,891,477;
and
|
ii)
|
the
excess of the fair values of the embedded conversion feature and warrants
over the net proceeds received of $9,421,264 was charged to changes in
fair value of warrants and embedded derivatives in the statement of
income.
|
Restricted
Stock
Units
|
Weighted-
Average Grant
Date
Price per
Share
|
Aggregated
Fair Market
Value
|
||||||||||
$ |
|
$ |
|
$
|
||||||||
Balance
at January 1, 2010 and December 31, 2009
|
942,024
|
3.06
|
2,883,541
|
|||||||||
Vested
|
(20,024)
|
5.87
|
117,541
|
|||||||||
Balance
at March 31, 2010 (granted but not yet vested)
|
922,000
|
3.00
|
2,766,000
|
March
31, 2010
|
March
31, 2009
|
|||||||
US$
|
US$
|
|||||||
Income
available to common stockholders
|
||||||||
Net
income
|
13,082,356 | 4,016,644 | ||||||
Less:
dividends to Series C preferred stockholder
|
( 2,560,916 | ) | - | |||||
Adjusted
income attributable to common stockholders
|
10,521,440 | 4,016,644 | ||||||
Weighted
average shares outstanding – Basic
|
41,178,249 | 805,802 | ||||||
Weighted
average shares outstanding – Basic
|
41,178,249 | 805,802 | ||||||
Effect
of diluted securities – Series A preferred stock
|
- | 38,194,072 | ||||||
Effect
of diluted securities – Series C preferred stock
|
47,565 | |||||||
Effect
of diluted securities – Warrants
|
386,260 | - | ||||||
Weighted
average shares outstanding – Diluted
|
41,612,074 | 38,999,874 | ||||||
Earnings
per share
|
||||||||
Basic
EPS
|
0.26 | 4.98 | ||||||
Diluted
EPS
|
0.25 | 0.10 |
Year ending December 31, | US$ | |||
2010 | 266,909 | |||
2011
|
293,003 | |||
2012
|
97,668 | |||
Total
|
657,580 |
Level 1
-
|
Quoted prices in active
markets for identical assets or
liabilities.
|
Level 2
-
|
Observable inputs other than
Level 1 prices such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for
substantially the full term of the assets or
liabilities.
|
Level 3
-
|
Unobservable inputs that are
supported by little or no market activity and that are significant to the
fair value of the assets or
liabilities.
|
Fair
Value Measurement as of March 31, 2010
|
||||||||||||||||
Description
|
Total
|
Level
1
|
Level
2
|
Level
3
|
||||||||||||
US$ | US$ | US$ | US$ | |||||||||||||
Common
stock warrant purchase liabilities
|
6,183,046 | - | 6,183,046 | - | ||||||||||||
Embedded
conversion feature liabilities
|
712,915 | - | 712,915 | - | ||||||||||||
Total
|
6,895,961 | - | 6,895,961 | - |
For
the Three Months Ended
March
31,
|
||||||||
2010
|
2009
|
|||||||
Sales
|
$
|
50,036,431
|
$
|
26,391,889
|
||||
Cost
of Sales
|
38,139,725
|
20,635,575
|
||||||
Gross
Profit
|
11,896,706
|
5,756,314
|
||||||
Operating
Expense
|
3,497,557
|
1,380,735
|
||||||
Operating
Income
|
8,399,149
|
4,375,579
|
||||||
Interest
Expense, net
|
406,039
|
355,606
|
||||||
Other
Expense, net
|
9,676
|
644
|
||||||
Net
Income
|
13,082,356
|
4,016,644
|
||||||
Comprehensive
Income
|
$
|
13,100,001
|
$
|
3,979,027
|
·
|
Cash
outflows from inventories amounted to $3,337,831 mainly due to the
increased purchases of raw materials for planned inventory
buildup.
|
·
|
Cash
outflow from accounts receivable and other receivables amounted to
$5,657,496 primarily attributed to the increased sales to customers on
credit from our newly added production
capacity.
|
Exhibit
No.
|
Description
|
|
China
XD Plastics Company Limited
|
|||
Date:
May 12, 2010
|
/s/
Jie
Han
|
||
Jie
Han
Chief
Executive Officer
(Principal
Executive Officer)
|
|||
Date:
May 12, 2010
|
/s/
Taylor Zhang
|
||
Taylor
Zhang
Chief
Financial Officer
|