China XD Plastics Announces Fourth Quarter and Fiscal Year 2010 Results

Mar 31, 2011, 16:30 ET from China XD Plastics Company Limited

HARBIN, China, March 31, 2011 /PRNewswire-Asia-FirstCall/ --  

Full year revenue of $249.8 million, exceeding guidance

Full year adjusted net income of $47.1 million, exceeding guidance

Fourth Quarter revenue grew 75.6% year-over-year to $72.4 million

Fourth Quarter adjusted net income* increased to $17.2 million

* Adjusted net income excludes non-cash charges associated with stock based compensation, change in fair value of derivative liability and deferred income tax. For a detailed reconciliation of adjusted net income, a non-GAAP measure, to net income, please see the financial tables at the end of this release.

China XD Plastics Company Limited ("China XD Plastics" or the "Company"), (Nasdaq: CXDC), one of the leading Chinese manufacturers engaged in the development, manufacture, and distribution of modified plastics primarily for use in automotive applications in China, today announced financial results for the fourth quarter and fiscal year ended December 31, 2010.

Fourth Quarter Fiscal 2010 Highlights

  • Revenue was a record $72.4 million, an increase of 75.6% from the fourth quarter of fiscal 2009
  • Gross profit was $18.6 million, an increase of 90.5% from the fourth quarter of fiscal 2009
  • Gross profit margin was 25.6%, compared to 23.6% in the fourth quarter of fiscal 2009
  • Net income attributable to common shareholders was $6.5 million, compared to net loss of $6.0 million in the fourth quarter of fiscal 2009. Earnings per common share were $0.14 on a fully diluted basis  
  • Adjusted net income was $17.2 million or $0.36 per fully diluted share
  • Total volume shipped was 29,907 metric tons, up 26.6% from 23,619 metric tons in the fourth quarter of fiscal 2009

Fiscal Year 2010 Highlights

Compared to the fiscal year 2009 results,

  • Revenue was a record $249.8 million, representing an 84.0% increase
  • Gross profit increased 101.2% to $61.5 million
  • Gross profit margin was 24.6%, compared to 22.5% for fiscal year 2009
  • Net income attributable to common shareholders was $26.2 million, compared to net loss of $9.9 million for fiscal year 2009
  • Earnings per common share were $0.59 on a fully diluted basis, compared to a loss of $0.36 for fiscal year 2009
  • Adjusted net income was $47.1 million or $1.05 per fully diluted share, compared to $24.2 million or $0.58 per fully diluted share for fiscal year 2009
  • Total volume shipped increased 54.1% to 113,721 metric tons

Mr. Jie Han, Chairman and Chief Executive Officer of China XD Plastics, commented; "We are pleased to report record results for the year, with both revenue and adjusted net income exceeding our guidance. We also delivered a healthy margin improvement, as we continued to increase sales of higher value and higher margin products. Our results were supported by the continuing robust demand for automobiles in China, with both production and sales of automobiles reaching record levels. Along with the positive industry background and continuing strong demand from our end customers, our total volume shipped in 2010 reached 113,721 metric tons, up from 73,796 metric tons in 2009.

"We continued to execute on a number of strategic initiatives throughout 2010, highlighted by the launch of our newly expanded production lines designated for alternative energy vehicles and other high-end applications. In addition to increasing our production capacity from 120,000 metric tons to 165,000 metric tons, we believe that the new production lines strengthen our position as a leading supplier of high value-added modified plastics for use in alternative energy vehicles, a rapidly expanding segment of the Chinese automobile market. We expanded our customer base in this segment in the fourth quarter with having started delivering our products to Hafei Dongyang and with the signing of an agreement with Ningbo Huazhong, a certified automotive parts supplier for a number of leading automotive OEMs in China, to develop and supply modified plastics for use in electric vehicles. We believe the environmental benefits and strong government support for the alternative energy vehicles industry will help support our continued penetration of this market in the year ahead.

"We believe that our strong financial and operational performance in 2010 positions us well to drive further growth in 2011. Despite recent government initiatives to manage the growth of automobile sales, the underlying demand in this environment remains healthy. Automobile sales in China are expected to grow approximately 10%-15% in 2011, and we expect the trend of increasing modified plastic content per vehicle to continue in China. In addition, we believe the continued expansion of the alternative energy vehicle market in China presents us with another key growth opportunity. Looking ahead, we will continue to leverage our leading market position, strong customer relationships and robust R&D capabilities to expand our market penetration and increase shareholder value."

Fiscal Fourth Quarter 2010 Results

Revenue for the fourth quarter of fiscal 2010 was $72.4 million, representing a year-over-year increase of 75.6% from $41.2 million in the fourth quarter of fiscal 2009. The increase in revenue is primarily attributable to increased average selling price and increased sales volume, driven by the shift of our product mix and the strong demand for the Company's automotive modified plastic products as a result of continued growth in automotive production and consumption in China.

Gross profit for the fourth quarter of fiscal 2010 was $18.6 million, up 90.5% from $9.7 million in the fourth quarter of fiscal year 2009. Gross margin was 25.6% compared to 23.6% in the same period last year. The year-over-year increase in gross margin was due to the continuing shift in the Company's product mix to higher value-added products as a result of the Company's successful research, development and marketing efforts.

Selling expenses for the fourth quarter of fiscal 2010 were $154,234. As a percentage of revenue, selling expenses were 0.2% of sales for the fourth quarter of fiscal 2010 compared to 0.4% for the same period in 2009. General and administrative ("G&A") expenses were $1.5 million, as compared to $2.4 million for the same period of last year. The decrease in G&A expenses was mainly attributed to reduced expenses in connection with share-based compensation during the fourth quarter of 2010. Research and development ("R&D") expenses were $2.2 million, or 3.1% of total revenue, compared to $0.5 million, or 1.1% of total revenue, in the same period last year. The increase in R&D expenses was associated with the Company's on-going R&D efforts to launch new products and obtain new product certifications.

Operating income for the fourth quarter of fiscal 2010 was $14.7 million, compared to an operating income of $6.7 million in the same period a year ago.

Total other income in the fourth quarter of fiscal 2010 was $12.9 million, including $296,623 of interest expense and a non-cash gain of $10.5 million to account for the change in fair value of warrants and derivative liabilities in connection with the securities issued in the private placement financings which closed in December 2009 and October 2010, respectively. Total other expense in the same period of fiscal 2009 was $12.6 million.

EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) for the fourth quarter of 2010 was $18.3 million, a significant increase from $9.0 million in the same period last year. For a detailed reconciliation of adjusted EBITDA, a Non-GAAP measure, to its nearest GAAP equivalent, please see the financial tables at the end of this release.

Net income for the fourth quarter of fiscal year 2010 was $6.4 million, compared to net loss of $5.9 million for the same period a year ago.

Net income attributable to common shareholders for the fourth quarter of fiscal 2010 was $6.5 million. Earnings per share attributable to common shareholders was $0.14 per basic and fully diluted share.

Adjusted net income, excluding non-cash charges associated with stock based compensation, change in fair value of derivative liability and preferred dividend was $17.2 million, or $0.36 per basic and fully diluted share. For a detailed reconciliation of adjusted net income, a non-GAAP measure, to net income, please see the financial tables at the end of this release.

Fiscal Year 2010 Results

Revenue increased by 84.0% to $249.8 million for the fiscal year 2010, from $135.7 million in the fiscal year 2009. The increase in revenue is primarily attributable to our increased sales volume and increased average selling price mainly due to the shift of our product mix towards environmental and engineering products with high added value and our increased market share in North China and East China.

Gross profit increased by 101.2% to $61.5 million for the fiscal year 2010 from $30.6 million in the fiscal year 2009. Gross margin for the fiscal year 2010 was 24.6%, up from 22.5% in the fiscal year 2009. The year-over-year increase in gross margin was due to our efforts at shifting our product mix, including the development and sale of more high value-added automotive modified plastics.

For the fiscal year 2010, selling expenses increased by 17.5% to $470,727 from $400,731 in the fiscal year 2009. As a percentage of revenue, selling expenses were 0.2% of sales for the fiscal year 2010 compared to 0.3% for the fiscal year 2009 as our distribution model becomes more efficient in managing and obtaining customers. General and administrative ("G&A") expenses for the fiscal year 2010 were $20.0 million, as compared to $11.2 million for the fiscal year 2009. The increase in G&A expenses was mainly attributed to the increase in a non-cash expense principally due to a non-cash expense of $13.3 million in connection with the option agreement between two major shareholders compared to $3.1 million in fiscal year 2009. For the fiscal year 2010, research and development ("R&D") expenses were $7.4 million, or 3.0% of total revenue, compared to $1.3 million, or 1% of total revenue, in the fiscal year 2009. The increase in R&D expenses was associated with increasing number of product certifications for automotive applications, increasing R&D efforts in alternative energy vehicle materials and high value-added products in non-automotive applications such as high speed trains, airplanes and ocean-going vessels.

For the fiscal year 2010, operating income increased by 91.2% to $33.7 million, compared to an operating income of $17.6 million in the fiscal year 2009.

Total other income was $16.4 million for the fiscal year 2010, including $1.3 million of interest expense and a non-cash gain of $15.0 million to account for the change in fair value of warrants and derivative liabilities in connection with the securities issued in the private placement financings which closed in December 2009 and October 2010, respectively. Total other expense in the fiscal year 2009 was $13.5 million.

EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) was $54.6 million for the fiscal year 2010, an increase from $27.7 million in the fiscal year 2009. For a detailed reconciliation of adjusted EBITDA, a Non-GAAP measure, to its nearest GAAP equivalent, please see the financial tables at the end of this release.

For the fiscal year 2010, net income was $28.8 million, compared to net income of $4.0 million for the fiscal year 2009.

Net income attributable to common shareholders for the fiscal year 2010 was $26.2 million. Earnings per share attributable to common shareholders was $0.59 per basic and fully diluted share.

For the fiscal year 2010, adjusted net income, excluding non-cash charges associated with stock based compensation, change in fair value of derivative liabilities, and deferred income tax was $47.1 million, or $1.06 and $1.05 per basic and fully diluted share, respectively. For a detailed reconciliation of adjusted net income, a non-GAAP measure, to net income, please see the financial tables at the end of this release.

Financial Condition

As of December 31, 2010, China XD Plastics had $22.7 million in cash and cash equivalents, $82.3 million in working capital and a current ratio of 4.0. Shareholder's equity as of December 31, 2010 was $104.3 million compared to $21.5 million at the end of 2009.

Recent Events

On December 6, 2010, the Company announced that in conjunction with its first investor day in Harbin for institutional investors and analysts held on December 3, 2010, the one year anniversary of the Company's listing on Nasdaq, the Company held a ceremony to commemorate the official opening of its newly installed production lines designated for alternative energy vehicle applications and the designation of Heilongjiang Enterprise Academy Member Workstation. The new production lines became fully operational in January 2011, ahead of the originally scheduled launch date.

On December 3, 2010, China XD Plastics announced the successful completion of its 3rd annual seminar on the development of the macromolecular materials industry. The seminar is an annual forum for leading Chinese experts in the field of macromolecular materials research and development ("R&D") to present the latest trends in the industry and to interact with China XD Plastics' senior management and product development teams. In addition to their insights on the industry, the visiting experts provided a comprehensive evaluation of 21 projects which constitute the Company's proposed R&D initiatives for fiscal 2011.

On November 22, 2010, the Company announced it had signed an exclusive agreement with Ningbo Huazhong Plastic Products Company Limited ("Ningbo Huazhong") to develop and supply modified plastics for use in electric vehicles. As part of the agreement, China XD Plastics maintains the right to develop products for other automotive plastic manufacturers. The Company believes that this alliance further validates its leading position in the developing market for plastic materials for use in electric vehicles, while demonstrating its continuing R&D capability.

Business Outlook and Guidance

In light of continued favorable trends in the Chinese automotive industry, increasing modified plastics content per vehicle in China, a healthy macroeconomic environment and the continued execution of its growth strategy, the Company expects its fiscal year 2011 revenue to be in the range of $280 million and $310 million and it expects its fiscal year 2011 non-GAAP adjusted net income to be in the range of $48 million and $51 million, excluding any non-cash charges related to stock based compensation and the change in fair value of the existing derivative liabilities and stock-based compensation. This forecast reflects the Company's current and preliminary view, which is subject to change.

Conference Call

China XD Plastics management will host a conference call at 8:30 a.m. ET on Friday, April 1, 2011, to discuss its 2010 fourth quarter and fiscal year financial results and recent business activity. The conference call may be accessed by calling +1-877-353-4923 (for callers in the U.S.) or +1-702-894-2405 (for international callers) and entering pass code 46091181. Please dial in approximately 10 minutes before the scheduled time of the call.

A recording of the conference call will be available through April 8, 2011, by calling +1-800-642-1687 (for callers in the U.S.) or +1-706-645-9291 (for callers outside the U.S.) and entering pass code 46091181.

A live webcast and replay of the conference call will be available on the investor relations page of the Company's website at http://www.chinaxd.net.

About China XD Plastics Company Limited

China XD Plastics Company Limited, through its wholly owned subsidiary, Harbin Xinda Macromolecule Material ("Xinda"), develops, manufactures, and distributes modified plastics, primarily for automotive applications. The Company's specialized plastics are used in the exterior and interior trim and in the functional components of more than 60 automobile brands manufactured in China including Audi, Red Flag, Volkswagen and Mazda. The Company's wholly-owned research center is dedicated to the research and development of modified plastics, and benefits from the cooperation with well-known scientists from prestigious universities in China. As of December 31, 2010, 177 of Xinda's products have been certified for use by one or more of the automobile manufacturers in China. For more information please visit http://www.chinaxd.net.

Safe Harbor Statement

This announcement contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact in this announcement are forward-looking statements, including but not limited to, the Company's ability to raise additional capital to finance the Company's activities; the effectiveness, profitability, and the marketability of its products; legal and regulatory risks associated with the share exchange; the Company's ability to successfully expand its production capacity; the future trading of the common stock of the Company; the Company's ability to operate as a public company; the period of time for which its current liquidity will enable the Company to fund its operations; the Company's ability to protect its proprietary information; general economic and business conditions; the volatility of the Company's operating results and financial condition; the Company's ability to attract or retain qualified senior management personnel and research and development staff; and other risks detailed in the Company's filings with the Securities and Exchange Commission and available on its website at http://www.sec.gov. These forward-looking statements involve known and unknown risks and uncertainties and are based on current expectations, assumptions, estimates and projections about the Company and the industry. The Company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or to changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward looking statements are reasonable, it cannot assure you that its expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results.

Contacts:

China XD Plastics Company Limited

Mr. Taylor Zhang, CFO

Phone: +1-212-747-1118 (New York)

Mr. Tienan Han, IR Manager

Phone: +86-451-8434-6600 (Harbin)

Email: cxdc@chinaxd.net

Taylor Rafferty (US):

Bryan Degnan

+1-212-889-4350

ChinaXD@ Taylor-Rafferty.com

Taylor Rafferty (HK):

Mahmoud Siddig, Managing Director

+852-3196-3712

ChinaXD@Taylor-Rafferty.com

-Financial Tables Follow-

CHINA XD PLASTICS COMPANY LIMITED

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

2010

2009

Sales

$ 249,822,934

$ 135,745,329

Cost of sales

(188,294,026)

(105,160,568)

Gross profit

61,528,908

30,584,761

Operating expenses

Research and development expenses

7,382,507

1,329,656

Selling expenses

470,727

400,731

General and administrative expenses

19,960,153

11,220,406

Total operating expenses

27,813,387

12,950,793

Operating income

33,715,521

17,633,968

Other income (expenses)

Interest income (expenses)

(1,290,440)

(1,418,395)

Other income

87,244,057

107,999

Other expense

(84,515,972)

(11,085)

Changes in fair value of warrants and embedded derivatives

14,990,776

(12,221,972)

Total other income (expense)

16,428,421

(13,543,453)

Income before income taxes

50,143,942

4,090,515

Provision for income taxes

(21,307,153)

(67,249)

Net income

$   28,836,789

$     4,023,266

Other comprehensive income (loss)

Foreign currency translation adjustment

1,948,757

(4,301)

Comprehensive income

$   30,785,546

$     4,018,965

Net income from ordinary activities

$   28,836,789

$     4,023,266

Dividend to Series C preferred stockholders

$    (2,646,061)

$         (77,396)

Deemed dividends (Beneficial conversion feature of series C preferred stock)

-

(13,891,477)

Net income attributable to common shareholders

26,190,728

(9,945,607)

Basic and diluted earnings per common share

Basic

$              0.59

$             (0.36)

Diluted

$              0.59

$             (0.36)

Weighted average common share outstanding

Basic

44,252,571

27,789,044

Diluted

44,733,515

27,789,044

Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income

GAAP results for the three months ended December 31, 2010 and fiscal year 2010 include non-cash charges. To supplement the Company's consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP financial information excluding the impact of those items in this release. The Company's management believes that this non-GAAP measure provides investors with a better understanding of how the results relate to the Company's historical performance. A reconciliation of the adjustments to GAAP results appears in the table accompanying this press release. This additional non-GAAP information is not meant to be considered in isolation or as a substitute for GAAP financials. The non-GAAP financial information that the Company provides also may differ from the non-GAAP information provided by other companies.

Years Ended December 31

2010

2009

Adjusted Net Income - Non GAAP

47,051,837

24,153,127

Change in fair value of warrants and derivative liabilities

(14,990,776)

12,221,972

Non-Cash Deferred Income Tax

20,997,685

-

Non-Cash Stock-based compensation

1,498,368

4,919,897

Option Arrangement Between Shareholders

13,355,832

3,065,388

Dividends (series C preferred stock)

(2,646,061)

(77,396)

Net Income - GAAP

28,836,789

4,023,266

Weighted average number of shares outstanding

Basic

44,252,571

27,766,751

Diluted

44,733,515

41,351,753

Basic

1.06

0.87

Diluted

1.05

0.58

Three Months Ended December 31

2010

2009

Adjusted Net Income - Non GAAP

17,152,907

7,992,025

Change in fair value of warrants and derivative liabilities

(10,493,826)

12,221,972

Non-Cash Deferred Income Tax

20,997,685

Non-Cash Stock-based compensation

123,987

1,728,467

Option Arrangement Between Shareholders

-

-

Dividends (series C preferred stock)

77,336

(77,396)

Net Income - GAAP

6,447,726

(5,881,018)

Weighted average number of shares outstanding

Basic

47,374,744

39,544,474

Diluted

47,650,548

44,583,620

Basic

0.36

0.20

Diluted

0.36

0.18

Reconciliation of Net Income to Adjusted EBITDA

Adjusted EBITDA is a financial measure that is not defined by US GAAP. Adjusted EBITDA was derived by calculating earnings before interest, taxes, depreciation, stock-based compensation and amortization. The Company's management believes that the presentation of Adjusted EBITDA provides useful information regarding China XD Plastics' results of operations because it assists in analyzing and benchmarking the performance and value of China XD Plastics' business. The Company's calculation of Adjusted EBITDA may not be consistent with similarly titled measures of other companies. The table below provides a reconciliation of EBITDA to net income, the most comparable GAAP measure.

CHINA XD PLASTICS COMPANY LIMITED.

Reconciliation of Net Income to EBITDA

(Amounts expressed in United States dollars)

Years Ended December 31

2010

2009

Net Income (loss)

$28,836,789

$4,023,266

Interest Expense

1,290,440

1,418,395

Provision for Income Taxes

21,307,153

67,249

Stock-based compensation

1,498,368

4,919,897

Option arrangement between shareholders

13,355,832

3,065,388

Change in fair value of warrants and derivative liabilities

(14,990,776)

12,221,972

Depreciation and amortization

3,327,755

2,009,533

EBITDA

$54,625,561

$27,725,700

CHINA XD PLASTICS COMPANY LIMITED.

Reconciliation of Net Income to EBITDA

(Amounts expressed in United States dollars)

Three Months Ended December 31

2010

2009

Net Income (loss)

$                  6,447,726

$                       (5,881,018)

Interest Expense

296,623

385,212

Provision for Income Taxes

21,122,253

36,608

Stock-based compensation

123,987

1,728,467

Option arrangement between shareholders

-

-

Change in fair value of warrants and derivative liabilities

(10,493,826)

12,221,972

Depreciation and amortization

845,611

551,550

EBITDA

$18,342,373

$9,042,791

CHINA XD PLASTICS COMPANY LIMITED

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2010 AND 2009

2010

2009

ASSETS

Current assets:

Cash and cash equivalents

$           22,720,766

$            6,850,784

Notes receivable

                 402,405

                 407,487

Accounts receivable - net of allowance for doubtful receivables of $33,136 and $166,095, respectively  

            28,615,995

              8,558,172

Prepaid expenses and other receivables

                 431,074

                 253,172

Inventories

            25,257,083

            18,371,485

Due from related parties

                  75,732

                         -  

Advances to employees

                 559,546

                 512,745

Advances to suppliers

            31,937,098

            20,245,861

Taxes receivable

                 116,882

                 406,755

Total current assets

           110,116,581

            55,606,461

Property, plant and equipment, net

            49,038,103

            31,083,389

Other assets:

Intangible assets, net

                 244,417

                 241,945

Total assets

$         159,399,101

$           86,931,795

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Short term loans

$           21,204,700

$           21,678,565

Accounts payable

                 736,667

              1,258,459

Other payables

              2,314,966

                 714,504

Accrued expenses

                 522,304

                 648,358

Taxes payable

                  72,289

                    4,134

Due to an employee

                 360,000

                         -  

Due to related parties

              1,769,145

                 148,397

Deferred revenue

                  77,397

                 300,296

Dividends payable

                 792,120

                  77,396

Total current liabilities

            27,849,588

            24,830,109

Other liabilities

Deferred tax liabilities - Non-current

            21,525,274

                         -  

Common stock warrant purchase liabilities

              5,719,130

              7,892,513

Embedded conversion feature liabilities

                       905

            18,798,059

Total other liabilities

            27,245,309

            26,690,572

Total liabilities

            55,094,897

            51,520,681

Series C convertible redeemable preferred stock: 2 and 15,188 shares issued and outstanding as of  December 31, 2010 and 2009, respectively

                    1,829

            13,891,477

Commitments and contingencies

Stockholders' equity

Series B Preferred Stock, $0.0001 par value, 50,000,000 shares authorized, 1,000,000  shares issued and outstanding as of  December 31, 2010 and 2009

                       100

                       100

Common Stock, $0.0001 par value, 500,000,000 shares authorized, 47,628,367 and 40,867,050 shares issued and outstanding as of  December 31, 2010 and 2009, respectively

                    4,762

                    4,087

Additional paid-in-capital

            69,040,386

            15,360,949

Retained earnings

            24,866,352

              2,160,621

Statutory surplus reserve fund

              6,919,145

              2,471,007

Accumulated other comprehensive income

              3,471,630

              1,522,873

Total stockholders' equity

           104,302,375

            21,519,637

Total liabilities and stockholders' equity

$         159,399,101

$           86,931,795

CHINA XD PLASTICS COMPANY LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

2010

2009

Cash flows from operating activities

Net income

$         28,836,789

$           4,023,266

Adjustments to reconcile net income to net cash provided by

(used in)operating activities:

Depreciation and amortization

             3,327,755

             2,009,533

Stock-based compensation expense

           14,854,199

             7,985,285

Change in fair value of warrants and derivative liabilities

          (14,990,776)

           12,221,972

Government grant

          (83,990,741)

                       -  

Loss on liquidation

           83,990,741

                       -  

Allowance for doubtful receivables

                       -  

                 66,426

Loss on disposals of property, plant and equipment

               522,073

                   9,413

Deferred tax liabilities-non current

           20,997,685

                       -  

Changes in assets and liabilities:

(Increase) decrease in -

Restricted cash

                       -  

             3,659,730

Notes receivables

                 18,487

              (104,188)

Accounts receivable and other receivables

          (19,732,007)

             2,601,377

Prepaid expenses

                   2,691

              (231,652)

Inventories

            (6,106,915)

            (5,937,387)

Advances to employees

                (25,576)

              (420,249)

Advances to suppliers

          (10,732,560)

            (7,119,221)

Taxes receivable

               296,275

              (406,512)

Deferred charge

                       -  

               377,595

Increase (decrease) in -

Accounts payable and other payables

               646,236

             1,752,596

Due to an employee

               359,772

                       -  

Accrued expenses

              (136,968)

              (171,552)

Tax payable

                 66,610

                (13,621)

Deferred revenue

              (227,406)

            (3,165,309)

Net cash provided by operating activities

           17,976,364

           17,137,502

Cash flows from investing activities

Purchase of property, plant and equipment

          (20,051,120)

          (13,798,468)

Proceeds from sales of property, plant and equipment

               330,760

                 16,000

Net cash used in investing activities

          (19,720,360)

          (13,782,468)

Cash flows from financing activities

Dividends paid on Series C preferred stock

            (1,796,337)

                       -  

Proceeds from short term bank loan

           20,685,078

             1,171,113

Repayment of short term loans

          (21,867,082)

                       -  

Repayment of bank acceptance notes payable

                       -  

            (8,051,406)

Proceeds from issuance of Series C preferred stock

                       -  

           13,891,477

Proceeds from issuance of common stock

           18,821,504

                       -  

Repayment of related parties loan

              (221,626)

            (7,596,292)

Proceeds from related parties loan

             1,769,155

               206,628

Net cash provided by (used in) financing activities

           17,390,692

              (378,480)

Effect of exchange rate changes on cash and cash equivalents

               223,286

                   5,195

Net increase (decrease) in cash and cash equivalents

           15,869,982

             2,981,749

Cash and cash equivalents, beginning of year

             6,850,784

             3,869,035

Cash and cash equivalents, end of year

$         22,720,766

$           6,850,784

Supplemental disclosures of cash flow information:

Interest paid

$           1,241,615

$           1,402,661

Income taxes paid

$              288,061

$               61,943

Non-cash investing and financing activities:

Embedded conversion feature reclassified to equity upon conversion

$         10,150,473

$                        -

Preferred stock converted to common stock

$         13,889,648

$                        -

Warrants issued for consulting service

$                        -

$               46,260

Incentive options granted to a director

$         13,355,832

$           3,065,388

Common stock and options issued for services

$           1,498,367

$           4,296,514

Common stock issued as dividend

$              135,000

$                        -

Placement agent warrant

$                        -

$              577,123

SOURCE China XD Plastics Company Limited



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