China XD Plastics Co Ltd - FORM 10-Q

Attached files

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EX-32.2 - EXHIBIT 32.2 - China XD Plastics Co Ltd	ex32x2.htm
EX-32.1 - EXHIBIT 32.1 - China XD Plastics Co Ltd	ex32x1.htm
EX-31.2 - EXHIBIT 31.2 - China XD Plastics Co Ltd	ex31x2.htm
EX-31.1 - EXHIBIT 31.1 - China XD Plastics Co Ltd	ex31x1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to _____

Commission File Number: 000-53131

CHINA XD PLASTICS COMPANY LIMITED

(Exact name of registrant as specified in its charter)

Nevada	04-3836208
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

No. 9 Dalian North Road, Haping Road Centralized Industrial Park,

Harbin Development Zone, Heilongjiang Province, PRC 150060

(Address of principal executive offices) (Zip Code)

86-451-84346600

(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐ (Do not check if a smaller reporting company)	Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 3, 2017, the registrant had 49,727,731 shares of common stock, par value US$0.0001 per share, outstanding.

TABLE OF CONTENTS

		PAGE
PART I. FINANCIAL INFORMATION		2

Item 1. Financial Statements		2

	Unaudited Condensed Consolidated Balance Sheets	2

	Unaudited Condensed Consolidated Statements of Comprehensive Income	3

	Unaudited Condensed Consolidated Statements of Cash Flows	4

	Notes to the Unaudited Condensed Consolidated Financial Statements	5

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		21

Item 3. Quantitative and Qualitative Disclosures About Market Risk		35

Item 4. Controls and Procedures		36

PART II. OTHER INFORMATION		36

Item 1. Legal Proceedings		36

Item 1A. Risk Factors		37

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		37

Item 3. Defaults Upon Senior Securities		37

Item 4. Mine Safety Disclosures		37

Item 5. Other Information		37

Item 6. Exhibits		37

Signatures		38

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2017			2016
	US$			US$
ASSETS
Current assets:
Cash and cash equivalents		46,767,025			168,086,445
Restricted cash		140,553,482			103,489,402
Time deposits		343,835,224			184,806,112
Accounts receivable, net of allowance for doubtful accounts		139,932,158			410,049,559
Amounts due from a related party		-			229,624
Inventories		408,738,341			280,939,008
Prepaid expenses and other current assets		317,442,321			125,310,309
Total current assets		1,397,268,551			1,272,910,459
Property, plant and equipment, net		832,164,655			806,363,692
Land use rights, net		26,449,565			22,536,397
Long-term prepayments to equipment and construction suppliers		62,641,904			14,167,702
Other non-current assets		660,952			10,521,949
Total assets		2,319,185,627			2,126,500,199

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCKS AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term loans, including current portion of long-term bank loans		727,089,616			444,757,476
Bills payable		213,225,439			148,392,677
Accounts payable		100,965,200			320,013,040
Amounts due to related parties		282,348			11,548
Income taxes payable		3,170,970			897,625
Accrued expenses and other current liabilities		224,330,573			119,339,366
Total current liabilities		1,269,064,146			1,033,411,732
Long-term bank loans, excluding current portion		111,497,838			249,520,615
Deferred income		76,189,771			69,311,102
Other non-current liabilities		44,470,279			42,420,619
Total liabilities		1,501,222,034			1,394,664,068

Redeemable Series D convertible preferred stocks (redemption amount of US$219,653,000 and US$212,212,300 as of September 30, 2017 and December 31, 2016, respectively)		97,576,465			97,576,465
Stockholders' equity:
Series B preferred stock		100			100
Common stock, US$0.0001 par value, 500,000,000 shares authorized, 49,748,731 shares and 49,532,541 shares issued, 49,727,731 shares and 49,511,541 shares outstanding as of September 30, 2017 and December 31, 2016, respectively		4,974			4,952
Treasury stock, 21,000 shares at cost		(92,694	)		(92,694	)
Additional paid-in capital		83,075,318			82,606,404
Retained earnings		669,270,174			617,168,735
Accumulated other comprehensive loss		(31,870,744	)		(65,427,831	)
Total stockholders' equity		720,387,128			634,259,666
Commitments and contingencies		-			-
Total liabilities, redeemable convertible preferred stocks and stockholders' equity		2,319,185,627			2,126,500,199

See accompanying notes to unaudited condensed consolidated financial statements.

CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three-Month Period Ended September 30,						Nine-Month Period Ended September 30,
	2017			2016			2017			2016
	US$			US$			US$			US$

Revenues		311,418,943			331,847,567			862,814,803			824,017,387
Cost of revenues		(264,099,790	)		(262,206,936	)		(717,614,278	)		(659,218,624	)
Gross profit		47,319,153			69,640,631			145,200,525			164,798,763

Selling expenses		(858,739	)		(338,466	)		(2,082,889	)		(1,005,640	)
General and administrative expenses		(10,403,187	)		(8,369,224	)		(26,301,440	)		(20,034,920	)
Research and development expenses		(9,857,475	)		(7,864,732	)		(25,255,497	)		(18,681,018	)
Total operating expenses		(21,119,401	)		(16,572,422	)		(53,639,826	)		(39,721,578	)

Operating income		26,199,752			53,068,209			91,560,699			125,077,185

Interest income		1,894,747			1,242,484			4,028,299			4,472,475
Interest expense		(10,892,112	)		(10,870,903	)		(32,865,939	)		(32,403,784	)
Foreign currency exchange gains (losses)		(2,372,361	)		(14,902	)		(4,719,423	)		356,672
Losses on foreign currency option contracts		(584,724	)		-			(584,724	)		-
Loss on debt extinguishment		-			(18,963,834	)		-			(18,963,834	)
Government grant		2,955,045			1,011,870			5,418,498			1,438,589
Total non-operating expense, net		(8,999,405	)		(27,595,285	)		(28,723,289	)		(45,099,882	)

Income before income taxes		17,200,347			25,472,924			62,837,410			79,977,303

Income tax expense		(3,063,889	)		(5,296,118	)		(10,735,971	)		(15,087,372	)

Net income		14,136,458			20,176,806			52,101,439			64,889,931

Earnings per common share:
Basic and diluted		0.21			0.31			0.79			0.98

Net Income		14,136,458			20,176,806			52,101,439			64,889,931

Other comprehensive income (loss)
Foreign currency translation adjustment, net of nil income taxes		15,887,423			(4,953,926	)		33,557,087			(18,467,228	)

Comprehensive income		30,023,881			15,222,880			85,658,526			46,422,703

See accompanying notes to unaudited condensed consolidated financial statements.

CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine-Month Period Ended September 30,
	2017			2016
	US$			US$
Cash flows from operating activities:
Net cash provided by (used in) operating activities		117,785,202			(145,259,464	)

Cash flows from investing activities:
Proceeds from maturity of time deposits		249,029,754			389,418,762
Purchase of time deposits		(396,036,693	)		(286,739,987	)
Purchase of land use rights		(3,203,611	)		-
Purchase of and deposits for property, plant and equipment		(338,711,968	)		(140,826,457	)
Refund of deposit from an equipment supplier		122,322,463			-
Government grant related to the construction of Sichuan plant		7,207,612			10,117,282
Net cash used in investing activities		(359,392,443	)		(28,030,400	)

Cash flows from financing activities:
Proceeds from bank borrowings		571,141,361			762,880,805
Repayments of bank borrowings		(450,252,497	)		(424,933,705	)
Redemption of notes payable		-			(165,366,000	)
Release of restricted cash as collateral for bank borrowings		57,055,743			46,891,495
Placement of restricted cash as collateral for bank borrowings		(61,566,506	)		(64,058,775	)
Net cash provided by financing activities		116,378,101			155,413,820

Effect of foreign currency exchange rate changes on cash and cash equivalents		3,909,720			(1,907,442	)
Net decrease in cash and cash equivalents		(121,319,420	)		(19,783,486	)

Cash and cash equivalents at beginning of period		168,086,445			119,928,485
Cash and cash equivalents at end of period		46,767,025			100,144,999

Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest		28,035,022			37,645,235
Income taxes paid		9,098,388			14,880,461
Non-cash investing activities:
Accrual for purchase of equipment and construction included in accrued expenses and other current liabilities		6,851,777			97,201,202

See accompanying notes to unaudited condensed consolidated financial statements.

CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES

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, 2016 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, 2016, and the related consolidated statements of comprehensive income, changes in equity and cash flows and related notes to the condensed consolidated financial statements for the year then ended, included in the Company's Annual Report on Form 10-K filed with the SEC on March 16, 2017.

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 September 30, 2017, the results of operations and cash flows for the nine-month periods ended September 30, 2017 and 2016, 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 an overseas customer in the Republic of Korea (the "ROK"). The Company's sales are highly concentrated. Sales to distributors and end customer individually exceeded 10% of the Company's revenues for the three-month and nine-month periods ended September 30, 2017 and 2016, are as follows:

	Three-Month Period Ended September 30,
	2017					2016
	US$		%			US$		%
Distributor A, located in PRC		45,073,914		14.5	%		47,992,568		14.4	%
Distributor B, located in PRC		34,507,661		11.1	%		39,173,767		11.8	%
Distributor C, located in PRC		23,839,509		7.7	%		34,149,286		10.3	%
Direct Customer D, located in ROK		14,117,640		4.5	%		37,008,440		11.2	%
Total		117,538,724		37.8	%		158,324,061		47.7	%

	Nine-Month Period Ended September 30,
	2017					2016
	US$		%			US$		%
Distributor A, located in PRC		129,108,116		15.0	%		122,731,035		14.9	%
Distributor B, located in PRC		98,428,711		11.4	%		106,653,182		12.9	%
Distributor C, located in PRC		75,521,449		8.8	%		91,437,791		11.1	%
Distributor E, located in PRC		63,132,381		7.3	%		85,542,045		10.4	%
Total		366,190,657		42.5	%		406,364,053		49.3	%

The Company expects revenues from these distributors and 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 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 its raw materials through a limited number of distributors, which individually exceeded 10% of the Company's total raw material purchases, accounted for approximately 44.5% (four distributors) and 62.5% (five distributors) of the Company's total raw materials purchases for the three-month periods ended September 30, 2017 and 2016, respectively, and 47.0% (four distributors) and 68.1% (five distributors) of the Company's total raw materials purchases for the nine-month periods ended September 30, 2017 and 2016, 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 major equipment distributors, which accounted for 96.0% of the Company's total equipment purchases for the nine-month period ended September 30, 2016. The Company didn’t have equipment purchase from these two major equipment distributors for the three-month and nine-month periods ended September 30, 2017, or the three-month period ended September 30, 2016. Management believes that other suppliers could provide similar equipment 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 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:

	September 30, 2017		December 31, 2016
	US$		US$
RMB denominated bank deposits with:
Financial Institutions in the PRC		529,330,566		464,427,328
Financial Institutions in Hong Kong Special Administrative Region ("Hong Kong SAR")		8,205		7,946
Financial Institution in Dubai, United Arab Emirates ("UAE")		59		-
U.S. dollar denominated bank deposits with:
Financial Institution in the U.S.		28,416		20,192
Financial Institutions in the PRC		18,466		18,025
Financial Institution in Hong Kong SAR		1,753,363		1,629,199
Financial Institution in Macau Special Administrative Region ("Macau SAR")		2,117		1,810
Financial Institution in Dubai, UAE		2,675		139,201
Euro denominated bank deposits with:
Financial institution in Dubai, UAE		63		-
HK dollar denominated bank deposits with:
Financial institution in Hong Kong SAR		80		148
Dirham denominated bank deposits with:
Financial institution in Dubai, UAE		11,721		53,647

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 amounting to $1,569,885 and $1,207,996 are insured as of September 30, 2017 and December 31, 2016, 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 condensed consolidated balance sheets and excluded from cash and cash equivalents in the condensed consolidated statements of cash flows. Cash deposits of nil and US$9,917,832 as of September 30, 2017 and December 31, 2016 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 and also excluded from cash and cash equivalents in the condensed consolidated statements of cash flows.

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$48,305,685 and US$33,673,057 as of September 30, 2017 and December 31, 2016, 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 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$87,962,754 and US$69,816,345 as of September 30, 2017 and December 31, 2016, 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 nil and US$9,917,832 as of September 30, 2017 and December 31, 2016, 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 US$1,512,665 and nil as of September 30, 2017 and December 31, 2016, respectively. On February 11, 2017, the Company entered into a fund support agreement with the People's Government of Shunqing District, Nanchong City, Sichuan Province, pursuant to which the Company was granted RMB10 million (equivalent to US$1.5 million) to support the construction of the Sichuan plant. Such amount has been received in full in the Company’s bank account with reimbursement be subject to the Government’s preapproval and will be released by the Government when the construction progress of the plant is 60%. Such balance is reported as restricted cash.

Short-term bank deposits that are pledged as collateral for foreign currency option contract are reported as restricted cash and amounted to US$2,772,378 and nil as of September 30, 2017 and December 31, 2016, respectively. The cash flows from such bank deposits are reported within operating activities in the condensed consolidated statements of cash flows.

Note 2 - Accounts receivable

Accounts receivable consists of the following:

	September 30, 2017			December 31, 2016
	US$			US$

Accounts receivable		139,971,988			410,087,666
Allowance for doubtful accounts		(39,830	)		(38,107	)
Accounts receivable, net		139,932,158			410,049,559

As of September 30, 2017 and December 31, 2016, the accounts receivable balances also include notes receivable in the amount of US$253,258 and US$374,296, respectively. As of September 30, 2017 and December 31, 2016, US$97,983,300 and US$63,301,966 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 and nine-month periods ended September 30, 2017 and 2016.

The following table provides an analysis of the aging of accounts receivable as of September 30, 2017 and December 31, 2016:

	September 30, 2017		December 31, 2016
	US$		US$
Aging:
– current		93,655,150		373,108,359
– 1-3 months past due		34,281,278		36,941,200
– 4-6 months past due		4,393,947		-
– 7-12 months past due		7,601,783		-
– greater than one year past due		39,830		38,107
Total accounts receivable		139,971,988		410,087,666

Note 3 - Inventories

Inventories consist of the following:

		September 30, 2017			December 31, 2016
	US$			US$

Raw materials			315,665,762			270,605,823
Work in progress			54,517			157,953
Finished goods			93,018,062			10,175,232
Total inventories			408,738,341			280,939,008

There were no write down of inventories for the three-month and nine-month periods ended September 30, 2017 and 2016.

Note 4 – Prepaid expenses and other current assets

Prepaid expenses and other current assets consist of the following:

	September 30, 2017		December 31, 2016
	US$		US$

Receivables from Hailezi (i)		256,892,209		88,286,651
Receivables from Jiamu (ii)		-		20,628,987
Advances to suppliers		45,330,431		3,365,930
Value added taxes receivable (iii)		8,083,669		4,814,920
Interest receivable (iv)		2,465,875		3,231,763
Others (v)		4,670,137		4,982,058
Total prepaid expenses and other current assets		317,442,321		125,310,309

(i) In September 2016, the Company's two subsidiaries, Heilongjiang Xinda Enterprise Group Company Limited ("HLJ Xinda Group") and Sichuan Xinda Enterprise Group Co., Ltd ("Sichuan Xinda") each entered into equipment purchase contracts with Harbin Hailezi Science and Technology Co., Ltd. ("Hailezi") to purchase production equipment, testing equipment and storage facility. Pursuant to the contracts with Hailezi, HLJ Xinda Group and Sichuan Xinda have prepaid RMB612.5 million (equivalent to US$88.3 million) as of December 31, 2016, which was recognized in investing activities in the statements of cash flows. In November 2016, the three parties agreed to terminate the contracts and Hailezi agreed to refund all the prepayment. As of September 30, 2017, Hailezi has refunded the abovementioned prepayment to HLJ Xinda Group and Sichuan Xinda.

In March 2017, Sichuan Xinda signed a series of contracts with Hailezi to purchase production equipment, and prepaid RMB1,728.9 million (equivalent to US$260.5 million ) to Hailezi, which was recognized in investing activities in the statements of cash flows. In June 2017, the two parties agreed to partially terminate the contracts and Hailezi agreed to refund the prepayment amounting to RMB1,704.9 million (equivalent to US$256.9 million) by the end of March 2018. For details, please refer to Note 6.

(ii) Sichuan Xinda prepaid RMB143.1 million (equivalent to US$20.6 million) to purchase equipment from Harbin Jiamu Import and Export Co., Ltd. in November 2016. As Harbin Jiamu Import and Export Co., Ltd. had cancelled its registration and transferred its business to Harbin Jiamu Science and Technology Co., Ltd., Harbin Jiamu Import and Export Co., Ltd. agreed to refund the prepayment. As of September 30, 2017, Harbin Jiamu Import and Export Co., Ltd. has refunded all the prepayment. The prepayments and refund were recognized in operating activities in the statements of cash flows.

The majority owner of Hailezi is also the majority owner of Harbin Jiamu Import and Export Co., Ltd and Harbin Jiamu Science and Technology Co., Ltd. (collectedly "Jiamu"), which is one of the major equipment distributors.

(iii) Value added taxes receivables mainly represent the input taxes on purchasing equipment by Sichuan Xinda, which are to be net off with output taxes. Value added taxes receivables were recognized in operating activities in condensed consolidated statements of cash flows.

(iv) Interest receivable mainly represents interest income accrued from time deposits and 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:

	September 30, 2017			December 31, 2016
	US$			US$

Machinery, equipment and furniture		407,915,827			391,149,907
Motor vehicles		2,797,973			2,640,477
Workshops and buildings		144,816,614			119,503,091
Construction in progress		430,033,881			409,257,584
Total property, plant and equipment		985,564,295			922,551,059
Less accumulated depreciation		(153,399,640	)		(116,187,367	)
Property, plant and equipment, net		832,164,655			806,363,692

For the three-month and nine-month periods ended September 30, 2017 and 2016, the Company capitalized US$704,165 and US$627,819, and US$2,073,132and US$1,854,251 of interest costs as a component of the cost of construction in progress, respectively. Depreciation expense on property, plant and equipment was allocated to the following expense items:

		Three-Month Period Ended September 30,
	2017			2016
	US$			US$

Cost of revenues			9,022,402		8,181,737
General and administrative expenses			733,090		487,639
Research and development expenses			1,031,697		923,963
Selling expense			958		815
Total depreciation expense			10,788,147		9,594,154

	Nine-Month Period Ended September 30,
	2017		2016
	US$		US$

Cost of revenues		26,657,211		19,543,468
General and administrative expenses		1,938,938		1,325,965
Research and development expenses		3,021,553		2,812,167
Selling expense		2,599		1,705
Total depreciation expense		31,620,301		23,683,305

Note 6 - Prepayments to equipment and construction suppliers

	September 30, 2017		December 31, 2016
	US$		US$
Hailezi (i)		41,648,013		-
Beijin Construction (ii)		14,712,547		4,324,636
Samim Group FZE (iii)		-		5,308,737
Peaceful (iv)		5,105,320		-
Sichuan Construction		753,228		907,024
Sports City (v)		-		2,859,952
Others		422,796		767,353
Total Prepayments to equipment and construction suppliers		62,641,904		14,167,702

(i)

On September 26, 2016 and February 28, 2017, HLJ Xinda Group entered into two equipment purchase contracts with Hailezi for a total consideration of RMB782.2 million (equivalent to US$117.9 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 contract with Hailezi, HLJ Xinda Group has prepaid RMB621.6 million (equivalent to US$93.7 million) as of September 30, 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 contracts amounts to RMB283.7 million (equivalent to US$42.7 million). Hailezi refunded RMB369.1 million (equivalent to US$55.6 million) to HLJ Xinda Group on June 22, 2017. The prepayment and refund were recognized in investing activities in the statements of cash flows.

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 (estimated to be US$376.7 million) with anticipated completion by the end of December 2018.

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 has prepaid RMB1,728.9 million (equivalent to US$260.5 million) as of September 30, 2017. By the end of June 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$256.9 million) by the end of March 2018 and that part of prepayment has been reclassified as prepaid expenses and other current assets as of September 30, 2017.

(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$39.8 million). Pursuant to the contract with Beijin Construction, Sichuan Xinda has prepaid RMB117.3 million (equivalent to US$17.6 million) as of September 30, 2017, in which RMB18.4 million (equivalent to US$2.9 million) was transferred to construction in progress. The prepayment was recognized in investing activities in the statements of cash flows.

(iii)

On September 21, 2016, AL Composites Materials FZE ("Dubai Xinda") entered into a purchase contract with Samim Group FZE pertaining approximately 22,324 square meters property in JAFZA in Dubai, UAE with constructed building including a warehouse, office and service block for a total consideration of AED55.3 million (equivalent to US$15.0 million). As of September 30, 2017, the Company has prepaid the full amount of the contract, which was recognized in investing activities in the statements of cash flow. As of September 30 2017, the building has been delivered, and the amount has been transferred to property, plant and equipment.

(iv)

On October 20, 2016, Sichuan Xinda entered into an equipment purchase contract with Peaceful Treasure Limited ("Peaceful") for a total consideration of US$13.5 million to purchase certain production and testing equipment. Pursuant to the contract with Peaceful, the Company prepaid RMB33.9 million (equivalent to US$5.1 million) as of September 30, 2017, which was recognized in investing activities in the statements of cash flows.

(v)

In September 2016, Dubai Xinda entered into apartments purchase contracts with Dubai Sports City LLC ("Sports City") for a total consideration of AED14.0 million (equivalent to US$3.8 million), which was recognized in investing activities in the statements of cash flows. As of September 30, 2017, the apartments have been occupied by the Company, and the amount has been transferred to property, plant and equipment.

Note 7 -Foreign currency option contracts

On February 24, 2017, the Company entered into two foreign currency option contracts with Bank of China ("BOC"), Harbin Branch, pursuant to which the Company and BOC both have different options to excise the foreign currency contracts depending on the future currency fluctuation, and the nominal values are US$5.0 million and US$10.0 million respectively, with the defined exchange rates for settlement on March 15, 2018. Changes in fair value of the above foreign currency options amounted to US$0.2 million and US$0.4 million, respectively, from the date of its inception to September 30, 2017 and were recognized in earnings because they did not qualify or was designated for hedge accounting.

Note 8 – 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

	September 30, 2017		December 31, 2016
	US$		US$
Unsecured loans		373,668,429		273,147,455
Loans secured by accounts receivable		67,802,739		50,454,086
Loans secured by restricted cash		55,000,000		32,474,300
Current portion of long-term bank loans (note b)		230,618,448		88,681,635
Total short-term loans, including current portion of long-term bank loans		727,089,616		444,757,476

As of September 30, 2017 and December 31, 2016, the Company's short-term bank loans (including the current portion of long-term bank loans) bear a weighted average interest rate of 4.0% and 4.0% per annum, respectively. All short-term bank loans mature at various times within one year.

In January 2016, 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 (1.2350% as of September 30, 2017) plus 1.8%. This loan was secured by restricted cash of RMB25.5 million (equivalent to US$3.8 million) in the HSBC Bank in Harbin, China. The company repaid the loan on January 23, 2017.

In August 2016, the Company obtained ten six-month secured loans in a total amount of RMB350 million (equivalent to US$52.7 million) by accounts receivables of RMB439.2 million (equivalent to US$66.2 million) at an annual interest rate of 4.350% from Harbin Longjiang Bank. The Company repaid the loans in January 2017 and obtained another twenty nine secured loans in a total amount of RMB800 million (equivalent to US$120.5 million) by accounts receivables of RMB1,096.6 million (equivalent to US$165.2 million) at an annual interest rate of 4.350%. The Company repaid ten loans in total RMB350 million (equivalent to US$52.7 million) between June 2017 to September 2017, and retrieved accounts receivables of RMB446.3 million (equivalent to US$67.2 million).

In August 2016, the Company obtained a one-year secured loan of US$13.9 million from Industrial and Commercial Bank of China (Abu Dhabi Branch) at an interest of three-month LIBOR (1.3328% as of September 30, 2017) plus 2.0%. This loan was secured by restricted cash of RMB100.0 million (equivalent to US$15.1 million) in the Industrial and Commercial Bank of China in Harbin, China. The interest rate is reset every three months. The company repaid the loan in August, 2017.

On October 7, 2016, the Company obtained a one-year secured loan of US$2.0 million from Bank of China (Macau Branch) at an annual interest rate of 1.8%. The loan was secured by restricted cash of RMB15.0 million (equivalent to US$2.3 million) in Bank of China in Harbin, China. The Company repaid the loan in September 2017 in advance, with the restricted cash remained restricted until October 2017.

In January 2017, 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 (1.2350% as of September 30, 2017) plus 1.8%. This loan was secured by restricted cash of RMB18.5 million (equivalent to US$2.8 million) in the HSBC Bank in Harbin, China.

In January, 2017, the Company obtained a one-year secured loan of US$12.0 million from Bank of China (Macau Branch) at an annual interest rate of 2.3%. The loan was secured by restricted cash of RMB94.0 million (equivalent to US$14.1 million) in Bank of China in Harbin, China.

In February, 2017, the Company obtained a one-year secured loan of US$17.0 million from Bank of China (Abu Dhabi Branch) at an annual interest rate of 2.3%. The loan was secured by restricted cash of RMB136.0 million (equivalent to US$20.5 million) in Bank of China in Harbin, China.

In July, 2017, the Company obtained a one-year secured loan of US$14.0 million from Bank of China (Macau Branch) at an annual interest rate of 2.5%. The loan was secured by restricted cash of RMB107.0 million (equivalent to US$16.1 million) in Bank of China in Harbin, China.

(b) Non-current

	September 30, 2017		December 31, 2016
	US$		US$
Secured loans		44,170,000		90,170,000

Unsecured loans		121,291,567		73,518,812

Syndicate loan facility		176,654,719		174,513,438
Less: current portion		230,618,448		88,681,635
Total long-term bank loans, excluding current portion		111,497,838		249,520,615

On June 12, 2014, the Company obtained a three-year secured loan of US$70 million from Bank of China Paris Branch at interest rate of three-month LIBOR (1.3328% as of September 30, 2017). The loan is secured by restricted cash of RMB110 million (equivalent to US$16.6 million). In accordance with the requirements of the bank, additional RMB109 million (equivalent to US$16.4 million) is pledged as restricted cash for this long-term bank loan on July 22, 2016. The Company repaid US$4 million in 2015, US$5 million on June 9, 2016, US$15 million on December 9, 2016, and US$46 million on June 9, 2017.

On January 23, 2015, the Company obtained two two-year unsecured loans in the total amount of RMB100 million (equivalent to US$15.1 million) from Agriculture Bank of China at an annual interest rate of 6.0%. Both loans were due and repaid by the Company in January 2017.

On April 22, 2015, the Company obtained a two-year unsecured loan of RMB40 million (equivalent to US$6.0 million) from Agriculture Bank of China at an annual interest rate of 5.75%. The Company repaid the loan on April 20, 2017.

In October and November, 2015, the Company obtained three long term unsecured loans of RMB260 million (equivalent to US$39.1 million) from Bank of China at an annual interest rate of 4.75%. In January 2016, the Company obtained a long term unsecured loan of RMB80 million (equivalent to US$12.1 million) from Bank of China at an annual interest rate of 4.75%. On December 9, 2016, the Company obtained a long term unsecured loan of RMB30 million (equivalent to US$4.5 million) from Bank of China at an annual interest rate of 4.75%. On March 23, 2017, the Company obtained a long term unsecured loan of RMB25.0 million (equivalent to US$3.8 million) from Bank of China at an annual interest rate of 4.75%. The Company repaid RMB10 million (equivalent to US$1.5 million) on April 28, 2017. RMB40 million (equivalent to US$6.0 million), RMB25 million (equivalent to US$3.8 million), RMB100 million (equivalent to US$15.1 million), RMB25 million (equivalent to US$3.8 million), RMB100 million (equivalent to US$15.1 million), RMB20 million (equivalent to US$3.0 million), and RMB75 million (equivalent to US$11.2 million) will be repaid on October 28, 2017, April 28, 2018, October 28, 2018, April 28, 2019, October 28, 2019, April 28, 2020 and October 28, 2020, respectively.

On May 13, 2016, the Company obtained two two-year secured loans of US$14.3 million from China Construction Bank (Dubai) at an interest of three-month LIBOR (1.3328% as of September 30, 2017) plus 1.6%. On May 17, 2016, the Company obtained two two-year secured loans of US$12.3 million from China Construction Bank (Dubai) at an interest of three-month LIBOR (1.3328% as of September 30, 2017) plus 1.6%. On May 22, 2016, the Company obtained a two-year secured loan of US$3.8 million from China Construction Bank (Dubai) at an interest of three-month LIBOR (1.3328% as of September 30, 2017) plus 1.6%. The interest rate is reset every three months. These loans are secured by restricted cash of RMB68.8 million (equivalent to US$10.3 million). All of these loans will be due on March 22, 2018.

On August 22, 2016, Xinda Holding (HK) Company Limited ("Xinda Holding (HK)") a wholly owned subsidiary of the Company, entered into a facility agreement for a loan facility in an aggregate amount of US$180 million with a consortium of banks and financial institutions led by Standard Chartered Bank (Hong Kong) Limited. The Company paid arrangement fees and legal fees in the amount of US$6.77 million of which the unamortized balance is US$3.3 million as of September 30, 2017 for the related loan. Debt 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 5.935% as of September 30, 2017. US$22.5 million, US$22.5 million, US$45.0 million and US$90.0 million of the principal amount will be repaid on November 22, 2017, February 22, 2018, May 22, 2018 and August 22, 2018, respectively.

On November 7, 2016, the Company obtained a fifteen-month secured loan of US$3.3 million from Industrial and Commercial Bank of China (Abu Dhabi Branch) at an annual interest rate of 2.2%. The loan is secured by restricted cash of RMB25 million (equivalent to US$3.8 million). The loan will be due on February 7, 2018.

On November 30, 2016, the Company obtained a fifteen-month secured loan of US$10.5 million from Industrial and Commercial Bank of China (Abu Dhabi Branch) at an annual interest rate of 2.2%. The loan is secured by restricted cash of RMB80 million (equivalent to US$12.1 million). The loan will be due on February 28, 2018.

In January 2017, the Company obtained three short-term unsecured loans of RMB420 million (equivalent to US$63.3 million) from Nanchong Shuntou Development Group Co., Ltd. at an annual interest rate of 4.35%. In accordance with the renewal agreements in June 2017, the repayment terms were extended and the loans will be due on December 31, 2018.

As of September 30, 2017, the Company had total lines of credit of RMB6,806.8 million (US$1,025.6 million) including unused lines of credit of RMB2,398.6 million (US$361.4 million) with remaining terms less than 12 months and RMB5.0 million (US$0.8 million) with remaining terms beyond 12 months.

Certain lines of credit contain financial covenants such as total stockholders' equity, debt asset ratio, contingent liability ratio and net profit. As of September 30, 2017, the Company has met these financial covenants.

Maturities on long-term bank loans (including current portion) are as follows:

	September 30, 2017
	US$
2017		28,526,910
2018		280,441,370
2019		18,834,094
2020		14,313,912
after 2020		-
Total		342,116,286

Note 9 - Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consist of the following:

	September 30, 2017		December 31, 2016
	US$		US$
Payables for purchase of property, plant and equipment		100,460,840		98,472,641
Accrued freight expenses		7,724,318		7,972,067
Accrued interest expenses		4,570,645		885,290
Advance from customers (i)		94,929,456		93,066
Non income tax payables		4,070,887		4,499,161
Others (ii)		12,574,427		7,417,141
Total accrued expenses and other current liabilities		224,330,573		119,339,366

(i) Advance from customers mainly represents the advance received from four customers in the PRC for the raw material purchases during the nine-month period ended September 30, 2017.

(ii) Others mainly represent accrued payroll and employee benefits, accrued audit and consulting fees, electricity fee 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 September 30,				Nine-Month Period Ended September 30,
	2017		2016		2017		2016
	US$		US$		US$		US$
Costs and expenses resulting from transactions with related parties:
Rental expenses for plant and office spaces		160,886		179,962		428,253		549,023

The related party balances are summarized as follows:

		September 30, 2017			December 31, 2016
	US$			US$
Amounts due from a related party:
Prepaid rent expenses to Xinda High-Tech			-			229,624

	September 30, 2017		December 31, 2016
	US$		US$
Amounts due to related parties
Rental payable to Xinda High-Tech		270,278		-
Rental payable to Mr Han's son		12,070		11,548
Total		282,348		11,548

The Company rents the following plant and office buildings in Harbin, Heilongjiang Province from Xinda High-Tech:

Premise Leased	Area (M²)				Annual Rental Fee (US$)				Period of Lease
Office building			23,894				702,503		Between January 1, 2014 and December 31, 2018

The Company rented the following facilities in Harbin, Heilongjiang Province from Mr. Han's son:

Premise Leased		Area (M²)				Annual Rental Fee (US$)			Period of Lease
Facility			200				5,880		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, 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 nine-month periods ended September 30, 2017 and 2016 were 17.1% and 18.9%, respectively. The effective income tax rate reduced from 18.9% for the nine-month period ended September 30, 2016 to 17.1% for the nine-month period ended September 30, 2017, primarily due to a greater portion of the profit generated by Sichuan Xinda which enjoys preferential tax rate and the increase of 50% additional deduction of R&D expense. The effective income tax rate for the nine-month period ended September 30, 2017 differs from the PRC statutory income tax rate of 25% primarily due to Sichuan Xinda's preferential income tax rate and R&D 50% additional deduction of the major PRC operating entities.

As of September 30, 2017, the unrecognized tax benefits were US$30,901,693 and the interest relating to unrecognized tax benefits was US$9,023,166, of which the unrecognized tax benefits in 2012 amounting to US$2,889,439 and related accrued interest amounting to US$2,265,320 was classified as current liabilities as the five-year tax assessment period will expire on May 31, 2018. 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, extended to the Company RMB350 million (equivalent to US$52.7 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 RMB159.8 million (equivalent to US$24.1 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 and RMB2.2 million (equivalent to US$0.3 million) special funds of ministerial key research projects from Ministry of Science and Technology of PRC as of September 30, 2017.

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.

The Sichuan factory has been operational since July 2016. A cumulative RMB32.3 million (equivalent to US$4.9 million) government grants have been amortized as other income proportionate to the depreciation of the related assets, of which RMB22.8 million (equivalent to US$3.4 million) was amortized in the nine-month period ended September 30, 2017.

The Company also received RMB36 million (equivalent to US$5.4 million) from Shunqing Government with respect to interest subsidy for future bank loan. A cumulative RMB16.4 million (equivalent to US$2.4 million) government grants have been amortized as other income in line with the amount of related loan interest paid, of which RMB1.4 million (equivalent to US$0.2 million) was amortized in the nine-month period ended September 30, 2017.

Note 13 – Other non-current liabilities


		September 30, 2017			December 31, 2016
	US$			US$

Income tax payable-noncurrent (i)			34,770,100			31,602,314
Deferred income tax liabilities			9,700,179			10,818,305
Total other non-current liabilities			44,470,279			42,420,619

(i) Income tax payable-noncurrent represents the cumulative balance of unrecognized tax benefits since 2013 and related accrued interest. As the five-year tax assessment period for unrecognized tax benefits occurred in 2012 will expire on May 31, 2018, the unrecognized tax benefits occurred in 2012 and related accrued interest amounting to RMB19.2 million (equivalent to US$2.9 million) and RMB15.0 million (equivalent to US$2.3 million), respectively, were classified as current liabilities.

Note 14 – Stockholders' equity

The changes of each caption of stockholders' equity for the nine-month period ended September 30, 2017 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, 2017		1,000,000		100		49,511,541		4,952		(92,694	)		82,606,404			617,168,735		(65,427,831	)		634,259,666
Net income		-		-		-		-		-			-			52,101,439		-			52,101,439
Other comprehensive income		-		-		-		-		-			-			-		33,557,087			33,557,087
Stock based compensation		-		-		-		-		-			468,936			-		-			468,936
Vesting of nonvested shares		-		-		216,190		22		-			(22	)		-		-			-
Balance as of September 30, 2017		1,000,000		100		49,727,731		4,974		(92,694	)		83,075,318			669,270,174		(31,870,744	)		720,387,128

Note 15 – Stock based compensation

Nonvested shares

A summary of the nonvested shares activity for the nine-month period ended September 30, 2017 is as follows:

	Number of Nonvested Shares			Weighted Average Grant date Fair Value
				US$
Outstanding as of December 31, 2016		402,210			6.10
Vested		(216,190	)		5.12
Forfeited		(24,910	)		5.60
Outstanding as of September 30, 2017		161,110			7.48

The Company recognized US$121,890 and US$195,536 of share-based compensation expense in general and administration expenses relating to nonvested shares for the three-month periods ended September 30, 2017 and 2016, respectively, and US$468,936 and US$665,962 of share-based compensation expense in general and administration expenses relating to nonvested shares for the nine-month periods ended September 30, 2017 and 2016, respectively. As of September 30, 2017, there was US$280,811 total unrecognized compensation cost relating to nonvested shares, which is to be recognized over a weighted average period of 0.85 years.

Note 16 - Earnings per share

Basic and diluted earnings per share are calculated as follows:

	Three-Month Period Ended September 30,						Nine-Month Period Ended September 30,
	2017			2016			2017			2016
	US$			US$			US$			US$
Net income		14,136,458			20,176,806			52,101,439			64,889,931
Less:
Earnings allocated to participating Series D convertible preferred stock		(3,432,680	)		(4,895,398	)		(12,651,945	)		(15,736,883	)
Earnings allocated to participating nonvested shares		(53,723	)		(137,471	)		(263,972	)		(539,108	)
Net income for basic and diluted earnings per share		10,650,055			15,143,937			39,185,522			48,613,940

Denominator
Denominator for basic and diluted earnings per share		49,640,785			49,496,074			49,555,096			49,426,752

Earnings per share:
Basic and diluted		0.21			0.31			0.79			0.98

The following table summarizes potentially dilutive securities excluded from the calculation of diluted earnings per share for the three-month periods and nine-month periods ended September 30, 2017 and 2016 because their effects are anti-dilutive:

	Three-Month Period Ended September 30,				Nine-Month Period Ended September 30,
	2017		2016		2017		2016

Shares issuable upon conversion of Series D convertible preferred stock		16,000,000		16,000,000		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 September 30, 2017 were as follows.

	US$
Period from October 1, 2017 to December 31, 2017		381,096
Years ending December 31,
2018		1,081,624
2019		222,638
2020		131,043
2021		65,617
2022 and thereafter		508,532

Rental expenses incurred for operating leases of plant and office spaces were US$640,731 and US$667,375 for the three-month periods ended September 30, 2017 and 2016, respectively, and US$1,909,315 and US$1,511,433 for the nine-month periods ended September 30, 2017 and 2016, 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 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 September 30, 2017, the Company has a remaining commitment of RMB54.9 million (equivalent to US$8.3 million) mainly for facility construction.

In September 2016, Sichuan Xinda entered into equipment purchase contracts with Hailezi for a consideration of RMB17.0 million (equivalent to US$2.5 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 September 30, 2017, Sichuan Xinda prepaid RMB6.0 million (equivalent to US$0.9 million) and has a remaining commitment of RMB9.4 million (equivalent to US$1.4 million).

On October 20, 2016, Sichuan Xinda entered into an equipment purchase agreement purchase contract with Peaceful for a total consideration of RMB89.8 million (equivalent to US$13.5 million) to purchase certain production and testing equipment. As of September 30, 2017, the Company has a commitment of RMB55.9 million (equivalent to US$8.4 million).

On November 15, 2016, Sichuan Xinda entered into decoration contract with Beijin Construction to perform indoor and outdoor decoration work for a consideration of RMB237.6 million (equivalent to US$35.8 million). On February 20, 2017, Sichuan Xinda entered into another decoration contract with Beijin Construction to perform outdoor decoration work for a consideration of RMB2.9 million (equivalent to US$0.4 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$3.6 million). As of September 30, 2017, Sichuan Xinda prepaid RMB117.3 million (equivalent to US$17.6 million) of which RMB18.4 million (equivalent to US$2.9 million) was transferred to construction in progress and has a remaining commitment of RMB147.0 million (equivalent to US$22.2 million).

In connection with 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$337.9 million) to purchase production equipment and testing equipment in March 2017. By the end of June 2017, 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. Thus the original contracts have been terminated with the amount of RMB2,222.9 million (equivalent to US$334.9 million), and Hailezi agreed to refund the prepayment in the amount of RMB1,704.9 million (equivalent to US$256.9 million) by the end of March 2018, out of the total prepayment made by Sichuan Xinda of RMB1,722.9 million (equivalent to US$259.6 million). As of September 30, 2017, Sichuan Xinda prepaid RMB18.0 million (equivalent to US$2.7 million) and has a remaining commitment of RMB1.9 million (equivalent to US$0.3 million).

(3) Heilongjiang plant construction and equipment purchase

On September 26, 2016 and February 28, 2017, HLJ Xinda Group entered into two equipment purchase contracts with Hailezi for a total consideration of RMB782.2 million (equivalent to US$117.9 million) to purchase storage facility and other equipment. 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 contracts amounts to RMB283.7 million (equivalent to US$42.7 million). Hailezi refunded RMB369.1 million (equivalent to US$55.6 million) to HLJ Xinda Group on June 22, 2017. As of September 30, 2017, HLJ Xinda Group has a remaining commitment of RMB31.2 million (equivalent to US$4.6 million).

On July 21, 2017, Heilongjiang Xinda Enterprise Group Company Limited (“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"). Pursuant to three investment agreements, the project total capital expenditure will be RMB4,015 million (equivalent to be US$605.0 million), among which the investment in fixed assets shall be no less than RMB3,295 million (equivalent to US$496.5 million) in total.

(4) Dubai plant construction and equipment

On April 28, 2015, Dubai Xinda 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 September 30, 2017, the Company has a remaining commitment of AED2.1 million (equivalent to US$0.6 million).

(5) Xinda Beijing Investment 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$0.9 million) to decorate office building. As of September 30, 2017, the decoration work in the amount of RMB1.4 million (equivalent to US$0.2 million) was recorded in construction in progress. As of September 30, 2017, the Company has a remaining commitment of RMB4.4 million (equivalent to US$0.7 million).

On June 9, 2017, Xinda Beijing Investment 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 September 30, 2017, the decoration work in the amount of RMB0.6 million (equivalent to US$0.1 million) was recorded in construction in progress. As of September 30, 2017, the Company has a remaining commitment of RMB0.6 million (equivalent to US$0.1 million).

(6) 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 Consolidated Class Action Complaint without prejudice. On May 6, 2016, the lead plaintiffs moved the Court for leave to amend the Consolidated Class Action Complaint. On June 24, 2016, the Company filed its opposition to the lead plaintiffs’ motion. On August 8, 2016, in conjunction with filing the reply brief in support of their motion, the lead plaintiffs moved to strike certain documents referred to in the Company’s opposition. The Company filed its opposition to the lead plaintiffs’ motion to strike on September 16, 2016. On March 8, 2017, the Court entered an Order in the Company’s favor denying the lead plaintiffs’ motion for leave to amend and denying the lead plaintiffs’ motion to strike. The time for the lead plaintiffs to appeal the dismissal of their lawsuits has expired. In accordance with ASC Topic 450, no loss contingency was accrued as of September 30, 2017 since the lawsuit has been dismissed.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

We make forward-looking statements in this report, in other materials we file with the Securities and Exchange Commission (the "SEC") or otherwise release to the public, and on our website. In addition, our senior management might make forward-looking statements orally to analysts, investors, the media and others. Statements concerning our future operations, prospects, strategies, financial condition, future economic performance (including growth and earnings) and demand for our products and services, and other statements of our plans, beliefs, or expectations, including the statements contained in this Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operation," regarding our future plans, strategies and expectations are forward-looking statements. In some cases these statements are identifiable through the use of words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project," "target," "can," "could," "may," "should," "will," "would" and similar expressions. We intend such forward-looking statements to be covered by the safe harbor provisions contained in Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and in Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). You are cautioned not to place undue reliance on these forward-looking statements because these forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks, and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Thus, our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to, changes in: economic conditions generally and the automotive modified plastics market specifically, legislative or regulatory changes that affect our business, including changes in regulation, the availability of working capital, the introduction of competing products, and other risk factors described herein. These risks and uncertainties, together with the other risks described from time-to-time in reports and documents that we filed with the SEC should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Indeed, it is likely that some of our assumptions will prove to be incorrect. Our actual results and financial position will vary from those projected or implied in the forward-looking statements and the variances may be material. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Overview

China XD is one of the leading specialty chemical companies engaged in the research, development, manufacture and sale of modified plastics primarily for automotive applications in China, and to a lesser extent, in Dubai, UAE. Through our wholly-owned operating subsidiaries in China and UAE we develop modified plastics using our proprietary technology, manufacture and sell our products primarily for use in the fabrication of automobile parts and components. We have 432 certifications from manufacturers in the automobile industry as of September 30, 2017. We are the only company certified as a National Enterprise Technology Center in modified plastics industry in Heilongjiang Province. Our Research and Development (the "R&D") team consists of 491 professionals and 8 consultants. As a result of the integration of our academic and technological expertise, we have a portfolio of 456 patents, 33 of which we have obtained the patent rights and the remaining 423 of which we have applications pending in China as of September 30, 2017.

Our products include eleven categories: Modified Polypropylene (PP), Modified Acrylonitrile Butadiene Styrene (ABS), Modified Polyamide 66 (PA66), Modified Polyamide 6 (PA6), Modified Polyoxymethylenes (POM), Modified Polyphenylene Oxide (PPO), Plastic Alloy, Modified Polyphenylene Sulfide (PPS), Modified Polyimide (PI), Modified Polylactic acid (PLA) and Poly Ether Ether Ketone (PEEK).

The Company's products are primarily used in the production of exterior and interior trim and functional components of 30 automobile brands and 92 automobile models manufactured in China, including Audi, Mercedes Benz, BMW, Toyota, Buick, Chevrolet, Mazda, Volvo, Ford, Citroen, Jinbei, VW Passat, Golf, Jetta, etc. Our research center is dedicated to the research and development of modified plastics, and benefits from its cooperation with well-known scientists from prestigious universities in China. We operate three manufacturing plants in Harbin, Heilongjiang in the PRC. As of September 30, 2017, HLJ Xinda Group had approximately 390,000 metric tons of production capacity across 84 automatic production lines utilizing German twin-screw extruding systems, automatic weighing systems and Taiwanese conveyer systems. In December 2013, we broke ground on the construction of our fourth production plant in Nanchong City, Sichuan Province, with additional 300,000 metric tons of annual production capacity, expecting to bring total domestic installed production annual capacity to 690,000 metric tons with additional 70 new production lines at the completion of the construction of our fourth production plant. Sichuan Xinda has supplied to its customers since 2013, mainly backed by production capacity in our Harbin production plant till we installed 50 production lines with production capacity of 216,000 metric tons in the second half year of 2016 in our Sichuan plant. As of September 30, 2017, there is still construction ongoing on the site of our Sichuan plant which is to be expected to be completed by the end of the first quarter of 2018. In order to meet the increasing demand from our customer in the ROK and to develop potential overseas markets, Dubai Xinda obtained one leased property and two purchased properties, approximately 52,530 square meters in total, including one leased 10,000 square meters, and two purchased 20,206 and 22,324 square meters on January 25, 2015, June 28, 2016 and September 21, 2016, respectively, from Jebel Ali Free Zone Authority ("JAFZA") in Dubai, UAE, with constructed building comprising warehouses, offices and service blocks. In addition to the earlier 10 trial production lines in Dubai Xinda, the Company is planning to complete installing 45 production lines with 12,000 metric tons of annual production capacity by first quarter of 2018, and an additional 50 production lines with 13,000 metric tons of annual production capacity by end of 2018, bringing total installed production capacity in Dubai Xinda to 25,000 metric tons, targeting high-end products for the overseas market.

Highlights for the three months ended September 30, 2017 include:

● Revenues were $311.4 million, a decrease of 6.1% from $331.8 million in the third quarter of 2016

● Gross profit was $47.3 million, a decrease of 32.0% from $69.6 million in the third quarter of 2016

● Gross profit margin was 15.2%, compared to 21.0% in the third quarter of 2016

● Net income was $14.1 million, compared to $20.2 million in the third quarter of 2016

● Total volume shipped was 111,852 metric tons, a slightly up 3.0% from 108,633 metric tons in the third quarter of 2016

Results of Operations

The following table sets forth, for the periods indicated, statements of income data in millions of USD:

	Three-Month Period Ended									Nine-Month Period Ended
	September 30,						Change			September 30,						Change
(in millions, except percentage)	2017			2016			%			2017			2016			%
Revenues		311.4			331.8			(6.1	)%		862.8			824.0			4.7	%
Cost of revenues		(264.1	)		(262.2	)		0.7	%		(717.6	)		(659.2	)		8.9	%
Gross profit		47.3			69.6			(32.0	)%		145.2			164.8			(11.9	)%
Total operating expenses		(21.1	)		(16.5	)		27.9	%		(53.6	)		(39.7	)		35.0	%
Operating income		26.2			53.1			(50.7	)%		91.6			125.1			(26.8	)%
Income before income taxes		17.2			25.5			(32.5	)%		62.8			80.0			(21.5	)%
Income tax expense		(3.1	)		(5.3	)		(41.5	)%		(10.7	)		(15.1	)		(29.1	)%
Net income		14.1			20.2			(30.2	)%		52.1			64.9			(19.7	)%

Three months ended September 30, 2017 compared to three months ended September 30, 2016

Revenues

Revenues were US$311.4 million in the third quarter ended September 30, 2017, a decrease of US$20.4 million, or 6.1%, compared to US$331.8 million in the same period of last year, as a result of a decrease of 8.3% in the average RMB selling price of our products offset by a slightly increase of 3.0% in sales volume, and 0.6% negative impact from exchange rate due to weakening RMB against US dollars, as compared with those of last year.

According to the China Association of Automobile Manufacturers, Automobile production in China increased by 5.5% for the first nine months of 2017 as compared to the same period of 2016. An improvement in macroeconomic conditions since 2016 has improved business conditions. Driven by increased growth of 42.8% in Central China, 61.1% in Southwest China, 0.5% in North China and offset by decrease of 5.1% in South China, 5.2% in East China, and 6.8% in Northeast China, domestic sales during the third quarter of 2017 increased by 0.8% as compared to the same period of the prior year.

As for the RMB selling price, the decrease was mainly due to more sales of lower-end product of modified PP in China.

Overseas sales were US$14.1 million in the third quarter of 2017 compared to US$37.0 million in the same period of the prior year. As of September 30, 2017, the ROK customer has an outstanding balance of US$59.0 million, among which balance of US$44.9 million was overdue. The Company has experienced a delay in cash collection from the ROK customer mainly due to the customer's tight funding. To better manage the financial risk and take the long-term cooperation into consideration, the Company has signed an addendum with the ROK customer on September 30, 2017 in accordance with its risk management policy while both parties actively defined the payment term, negotiated the pricing associated with the Company's sales of high-end products.

The ROK customer has made payments of US$62.6 million for the first three quarters of 2017 and expects to pay off the overdue outstanding balance in the fourth quarter of 2017.

The following table summarizes the breakdown of revenues by categories in millions of US$:

(in millions, except percentage)	Revenues For the Three-Month Period Ended September 30,
	2017					2016					Change in			Change in
	Amount		%			Amount		%			Amount			%
Plastic Alloy		83.3		26.7	%		114.2		34.4	%		(30.9	)		(27.1	)%

Modified Polypropylene (PP)		65.6		21.1	%		45.4		13.7	%		20.2			44.5	%

Modified Polyamide 66 (PA66)		60.0		19.3	%		70.1		21.1	%		(10.1	)		(14.4	)%

Modified Polyamide 6 (PA6)		47.1		15.1	%		78.8		23.7	%		(31.7	)		(40.2	)%

Modified Polylactic acid (PLA)		35.0		11.2	%		1.2		0.4	%		33.8			2,816.7	%

Modified Acrylonitrile butadiene styrene (ABS)		12.4		4.0	%		10.5		3.1	%		1.9			18.1	%

Polyphenylene Oxide (PPO)		4.0		1.3	%		5.2		1.6	%		(1.2	)		(23.1	)%

Polyoxymethylenes (POM)		3.7		1.2	%		5.2		1.6	%		(1.5	)		(28.8	)%

Raw Materials		0.3		0.1	%		1.2		0.4	%		(0.9	)		(75.0	)%

Total Revenues		311.4		100	%		331.8		100	%		(20.4	)		(6.1	)%

The following table summarizes the breakdown of metric tons (MT) by product mix:

(in MTs, except percentage)	Sales Volume For the Three-Month Period Ended September 30,
	2017					2016					Change in			Change in
	MT		%			MT		%			MT			%
Modified Polypropylene (PP)		43,530		38.9	%		26,319		24.2	%		17,211			65.4	%

Plastic Alloy		25,968		23.2	%		33,450		30.8	%		(7,482	)		(22.4	)%

Modified Polyamide 6 (PA6)		16,680		14.9	%		23,603		21.7	%		(6,923	)		(29.3	)%

Modified Polyamide 66 (PA66)		14,128		12.6	%		17,527		16.1	%		(3,399	)		(19.4	)%

Modified Acrylonitrile butadiene styrene (ABS)		6,051		5.4	%		4,299		4.0	%		1,752			40.8	%

Modified Polylactic acid (PLA)		3,750		3.4	%		209		0.2	%		3,541			1,694.3	%

Polyphenylene Oxide (PPO)		690		0.6	%		810		0.7	%		(120	)		(14.8	)%

Polyoxymethylenes (POM)		1,055		1.0	%		1,695		1.6	%		(640	)		(37.8	)%

Raw Materials		0.0		0.0	%		721		0.7	%		(721	)		(100	)%

Total Sales Volume		111,852		100	%		108,633		100	%		3,219			3.0	%

The Company continued to shift production mix from traditional lower-end products to higher-end products such as PLA primarily due to (i) greater growth potential of advanced modified plastics in luxury automobile models in China, (ii) the stronger demand as a result of promotion by the Chinese government for clean energy vehicles and (iii) better quality from end consumer recognition of higher-end cars made by automotive manufacturers from Chinese and Germany joint ventures, and U.S. and Japanese joint ventures, which manufacturers tend to use more and higher-end modified plastics in quantity per vehicle in China.

During the third quarter of 2017, the Company also implemented a marketing strategy of offering lower-end products with lower RMB pricing to enter the new regional markets in Central China and Southwest China.

Gross Profit and Gross Profit Margin

	Three-Month Period Ended September 30,								Change
(in millions, except percentage)	2017				2016				Amount				%
Gross Profit		$	47.3			$	69.6			$	(22.3	)	(32.0	)%
Gross Profit Margin			15.2	%			21.0	%					(5.8	)%

Gross profit was US$47.3 million in the third quarter ended September 30, 2017, compared to US$69.6 million in the same period of 2016. Our gross margin decreased to 15.2% during the third quarter ended September 30, 2017 from 21.0% during the same quarter of 2016 primarily due to (i) the usage of higher-pricing PA raw materials inventory during the third quarter of 2017 leading to higher cost of goods sold, (ii) lower sales of higher-end products in Dubai Xinda; and (iii) implementing a marketing strategy of offering lower-end products with lower RMB pricing to enter the new regional markets in Central China and Southwest China, for the third quarter ended September 30, 2017 as compared to that of the prior year.

General and Administrative Expenses

	Three-Month Period Ended September 30,								Change
(in millions, except percentage)	2017				2016				Amount			%
General and Administrative Expenses		$	10.4			$	8.4			$	2.0	23.8	%
as a percentage of revenues			3.3	%			2.5	%				0.8	%

General and administrative (G&A) expenses were US$10.4 million for the quarter ended September 30, 2017 compared to US$8.4 million in the same period in 2016, representing an increase of 23.8%, or US$2.0 million. This increase is primarily due to the increase of (i) US$2.2 million in salary and welfare which was resulted from the increase in the number of management and general staff from supporting departments and in the average salary and bonus; (ii) US$0.3 million in depreciation and amortization; and partially offset by the decrease of (iii) US$0.3 million in professional fee; (iv) US$0.2 million in travelling and transportation.

Research and Development Expenses

	Three-Month Period Ended September 30,								Change
(in millions, except percentage)	2017				2016				Amount			%
Research and Development Expenses		$	9.8			$	7.9			$	1.9	24.1	%
as a percentage of revenues			3.2	%			2.4	%				0.8	%

Research and development (R&D) expenses were US$9.8 million during the quarter ended September 30, 2017 compared with US$7.9 million during the same period in 2016, an increase of US$1.9 million, or 24.1%. This increase was primarily due to (i) elevated R&D activities to meet the higher quality requirements of potential customers from Europe mainly engaged in automobile accessories industry; and (ii) increased efforts directed towards applications in new electrical equipment and electronics, alternative energy applications, power devices, aviation equipment and ocean engineering, in addition to other new products primarily for advanced industrialized applications in the automobile sector and in new verticals such as ships, airplanes, high-speed rail, 3D printing materials, biodegradable plastics, and medical devices.

As of September 30, 2017, the number of ongoing research and development projects was 366. We expect to complete and commence to realize economic benefits on approximately 25% of the projects in the near term. The remaining projects are expected to be carried out for a longer period.

Operating Income

Total operating income was US$26.2 million in the third quarter ended September 30, 2017 compared to $53.1 million in the same period of 2016, representing a decrease of 50.7% or US$26.9 million. This decrease is primarily due to lower gross margin, higher G&A expenses and higher R&D expenses.

Interest Income (Expenses)

	Three-Month Period Ended September 30,						Change
(in millions, except percentage)	2017			2016			Amount			%
Interest Income	$	1.9		$	1.2		$	0.7			58.3	%
Interest Expenses		(10.9	)		(10.9	)		0.0			0.0	%
Net Interest Expenses	$	(9.0	)	$	(9.7	)	$	(0.7	)		7.2	%
as a percentage of revenues		(2.9	)%		(2.9	)%					0.0	%

Net interest expenses were US$9.0 million for the three-month period ended September 30, 2017, compared to $9.7 million in the same period of 2016, representing a decrease of 7.2% or US$0.7 million, primarily due to the increase of interest income resulting from the increase of average deposit balance in the amount of US$503.1 million for the three-month period ended September 30, 2017 compared to US$355.8 million for the same period in 2016, and an increase of the average interest rate to 1.5% for the three-month period ended September 30, 2017 compared to 1.4 % of the same period in 2016.

Income Taxes

	Three-Month Period Ended September 30,								Change
(in millions, except percentage)	2017				2016				Amount				%
Income before Income Taxes		$	17.2			$	25.5			$	(8.3	)		(32.5	)%
Income Tax Expense			(3.1	)			(5.3	)			2.2			(41.5	)%
Effective income tax rate			17.8	%			20.8	%						(3.0	)%

The effective income tax rates for the three-month periods ended September 30, 2017 and 2016 were 17.8% and 20.8%, respectively. The decrease of effective income tax rate was primarily due to a greater portion of the profit generated by Sichuan Xinda which enjoys preferential tax rate and the increase of 50% additional deduction of R&D expense. The effective income tax rate for the three-month ended September 30, 2017 differs from the PRC statutory income tax rate of 25% primarily due to Sichuan Xinda's preferential income tax rate and R&D 50% additional deduction of the major PRC operating entities.

Our PRC and Dubai subsidiaries have US$529.4 million of cash and cash equivalents, restricted cash and time deposits as of September 30, 2017, which are planned to be indefinitely reinvested in the PRC and Dubai. The distributions from our PRC and Dubai subsidiaries are subject to the U.S. federal income tax at 34%, less any applicable foreign tax credits. Due to our policy of indefinitely reinvesting our earnings in our PRC business, we have not provided for deferred income tax liabilities related to PRC withholding income tax on undistributed earnings of our PRC subsidiaries. In addition, due to our policy of indefinitely reinvesting our earnings in Dubai, UAE, we have not provided for deferred income tax liabilities related to Dubai Xinda in Dubai, UAE, on undistributed earnings.

Net Income

As a result of the above factors, we had a net income of US$14.1 million in the third quarter of 2017 compared to a net income of US$20.2 million in the same quarter of 2016.

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

Revenues

Revenues were US$862.8 million in the nine-month period ended September 30, 2017, an increase of US$38.8 million, or 4.7%, compared with US$824.0 million in the same period of last year, due to approximately 9.8% increase in sales volume, offset by the 1.3% decrease in the average RMB selling price of our products, and 3.3% negative impact from exchange rate due to weakening RMB against US dollars, as compared with those of last year.

According to the China Association of Automobile Manufacturers, automobile production in China increased by 5.5% for the first nine months of 2017 as compared to the same period of 2016. An improvement in macroeconomic conditions since 2016 has improved business conditions. Driven by increased growth of 72.5% in Central China, 31.9% in South China, 56.4% in Southwest China and 11.5% in North China, and 1.7% in Northeast China, PRC domestic sales during the nine-month period ended September 30, 2017 increased by 8.6% as compared to the same period of the prior year.

As for the RMB selling price, the decrease was mainly due to more sales of lower-end products of PP in China.

Overseas sales were US$47.1 million compared to US$72.7 million in the same period of the prior year. The ROK customer has an outstanding balance of US$59.0 million, among which balance of US$44.9 million was overdue as of September 30, 2017. The Company has experienced a delay in cash collection from the ROK customer mainly due to the customer's tight funding. To better manage the financial risk and take the long-term cooperation into consideration, the Company has signed an addendum with the ROK customer on September 30, 2017 in accordance with its risk management policy while both parties actively defined the payment term, negotiated the pricing associated with the Company's sales of high-end products.

The ROK customer has made payments of US$62.6 million in the first three quarters of 2017 and expects to pay off the overdue outstanding balance in the fourth quarter of 2017.

The following table summarizes the breakdown of revenues by categories in millions of US$:

(in millions, except percentage)	Revenues For the Nine-month Period Ended September 30,
	2017					2016					Change in			Change in
	Amount		%			Amount		%			Amount			%
Plastic Alloy		247.8		28.8	%		274.0		33.3	%		(26.2	)		(9.6	)%

Modified Polyamide 66 (PA66)		200.2		23.2	%		181.4		22.0	%		18.8			10.4	%

Modified Polyamide 6 (PA6)		164.1		19.0	%		189.4		23.0	%		(25.3	)		(13.4	)%

Modified Polypropylene (PP)		153.4		17.8	%		128.4		15.6	%		25.0			19.5	%

Modified Polylactic acid (PLA)		47.0		5.4	%		1.3		0.2	%		45.7			3,515.4	%

Modified Acrylonitrile butadiene styrene (ABS)		26.9		3.1	%		29.1		3.5	%		(2.2	)		(7.6	)%

Polyphenylene Oxide (PPO)		14.7		1.7	%		11.4		1.4	%		3.3			28.9	%

Polyoxymethylenes (POM)		8.4		1.0	%		6.9		0.8	%		1.5			21.7	%

Raw Materials		0.3		0.0	%		2.1		0.2	%		(1.8	)		(85.7	)%
Total Revenues		862.8		100	%		824.0		100	%		38.8			4.7	%

The following table summarizes the breakdown of metric tons (MT) by product mix:

(in MTs, except percentage)	Sales Volume For the Nine-month Period Ended September 30,
	2017					2016
	MT		%			MT		%			Change in MT			Change in %
Modified Polypropylene (PP)		97,850		32.4	%		72,738		26.5	%		25,112			34.5	%

Plastic Alloy		80,971		26.9	%		84,365		30.7	%		(3,394	)		(4.0	)%

Modified Polyamide 6 (PA6)		53,504		17.7	%		55,376		20.2	%		(1,872	)		(3.4	)%

Modified Polyamide 66 (PA66)		46,718		15.5	%		44,571		16.2	%		2,147			4.8	%

Modified Acrylonitrile butadiene styrene (ABS)		12,653		4.2	%		11,936		4.3	%		717			6.0	%

Modified Polylactic acid (PLA)		4,944		1.6	%		220		0.1	%		4,724			2,147.3	%

Polyoxymethylenes (POM)		2,669		0.9	%		2,245		0.8	%		424			18.9	%

Polyphenylene Oxide (PPO)		2,360		0.8	%		1,740		0.6	%		620			35.6	%

Raw Materials		-		0.0	%		1,600		0.6	%		(1,600	)		(100.0	)%
Total Sales Volume		301,669		100	%		274,791		100	%		26,878			9.8	%

The Company continued to shift production mix from traditional ABS to higher-end products such as PA66, PLA, POM and PPO, primarily due to (i) greater growth potential of advanced modified plastics in luxury automobile models in China, (ii) the stronger demand as a result of promotion by the Chinese government for clean energy vehicles and (iii) better quality from and consumer recognition of higher-end cars made by automotive manufacturers from Chinese and Germany joint ventures, and U.S. and Japanese joint ventures, which manufacturers tend to use more and higher-end modified plastics in quantity per vehicle in China.

Gross Profit and Gross Profit Margin

	Nine-month Period Ended September 30,								Change
(in millions, except percentage)	2017				2016				Amount				%
Gross Profit		$	145.2			$	164.8			$	(19.6	)	(11.9	)%
Gross Profit Margin			16.8	%			20.0	%					(3.2	)%

Gross profit was US$145.2 million during the nine months ended September 30, 2017, as compared to US$164.8 million in the same period of 2016. Our gross margin decreased to 16.8% during the nine months ended September 30, 2017 from 20.0% during the same period of 2016 primarily due to (i) the usage of higher-pricing PA raw materials inventory during the third quarter of 2017 leading to higher cost of goods sold, (ii) lower sales of higher-end products in Dubai Xinda for the nine-month ended September 30, 2017; and (iii) implementing a marketing strategy of lower-end products with lower RMB pricing to enter the new region in Central China and Southwest China, for the nine-month ended September 30, 2017 as compared to that of the prior year.

General and Administrative Expenses

	Nine-month Period Ended September 30,								Change
(in millions, except percentage)	2017				2016				Amount			%
General and Administrative Expenses		$	26.3			$	20.0			$	6.3	31.5	%
as a percentage of revenues			3.0	%			2.4	%				0.6	%

General and administrative (G&A) expenses were US$26.3 million in the nine-month period ended September 30, 2017 compared to US$20.0 million in the same period in 2016, representing an increase of 31.5%, or US$6.3 million. This increase is primarily due to the increase of (i) US$6.0 million in salary and welfare which was due to the increase in the number of management and general staff from supporting departments and in the average salary; (ii) US$0.6 million in depreciation and amortization; (iii) US$0.5 million in taxation and partially offset by the decrease of (iv) US$0.5 million in travelling and transportation; (v) US$0.3 million in professional fee.

Research and Development Expenses

	Nine-month Period Ended September 30,								Change
(in millions, except percentage)	2017				2016				Amount			%
Research and Development Expenses		$	25.2			$	18.7			$	6.5	34.8	%
as a percentage of revenues			2.9	%			2.3	%				0.6	%

Research and development (R&D) expenses were US$25.2 million during for the nine months ended September 30, 2017 compared with US$18.7 million during the same period in 2016, an increase of US$6.5 million, or 34.8%. This increase was primarily due to (i) elevated research and development activities to meet the higher quality requirements of potential customers from Europe mainly engaged in automobile accessories industry; and (ii) increased efforts directed towards applications in new electrical equipment and electronics, alternative energy applications, power devices, aviation equipment and ocean engineering, in addition to other new products primarily for advanced industrialized applications in the automobile sector and in new verticals such as ships, airplanes, high-speed rail, 3D printing materials, biodegradable plastics, and medical devices.

Operating Income

Total operating income was US$91.6 million for the nine months ended September 30, 2017 compared to US$125.1 million in the same period of 2016, representing a decrease of 26.8% or US$33.5 million. This decrease is primarily due to lower gross margin, higher G&A expenses and higher research and development expenses.

Interest Income (Expenses)

	Nine-Month Period Ended September 30,						Change
(in millions, except percentage)	2017			2016			Amount			%
Interest Income	$	4.0		$	4.5		$	(0.5	)		(11.1	)%
Interest Expenses		(32.9	)		(32.4	)		(0.5	)		1.5	%
Net Interest Expenses	$	(28.9	)	$	(27.9	)	$	(1.0	)		3.6	%
as a percentage of revenues		(3.3	)%		(3.4	)%					0.1	%

Net interest expenses were US$28.9 million for the nine-month period ended September 30, 2017, compared to $27.9 million in the same period of 2016, representing an increase of 3.6% or US$1.0 million, primarily due to (i) the increase of interest expense due to the increase of average short-term and long-term loan balance in amount of US$813.5 million for the nine-month period ended September 30, 2017 compared to US$543.5 million for the same period in 2016, and the increase of interest rate to 4.75% for the nine-month period of 2017 from 4.69% of the same period of 2016, and (ii) the decrease of interest income resulting from the average interest rate for deposits decreased to 1.39% for the nine-month period ended September 30, 2017 compared to 1.54% of the same period in 2016, which was partially offset by the increase of average deposit balance in the amount of US$412.2 million for the nine-month period ended September 30, 2017 compared to US$379.6 million for the same period in 2016.

Income Taxes

	Nine-Month Period Ended September 30,								Change
(in millions, except percentage)	2017				2016				Amount				%
Income before Income Taxes		$	62.8			$	80.0			$	(17.2	)		(21.5	)%
Income Tax Expense			(10.7	)			(15.1	)			4.4			(29.1	)%
Effective income tax rate			17.1	%			18.9	%						(1.8	)%

The effective income tax rate for the nine-month period ended September 30, 2017 and 2016 were 17.1% and 18.9%, respectively. The decrease of effective income tax rate was primarily due to a greater portion of the profit generated by Sichuan Xinda which enjoys preferential tax rate and the increase of 50% additional deduction of R&D expense. The effective income tax rate for the nine-month ended September 30, 2017 differs from the PRC statutory income tax rate of 25% primarily due to Sichuan Xinda's preferential income tax rate and R&D 50% additional deduction of the major PRC operating entities.

Net Income

As a result of the above factors, we had a net income of US$52.1 million for the nine months ended September 30, 2017 compared to net income of US$64.9 million in the same period of 2016.

Selected Balance Sheet Data as of September 30, 2017 and December 31, 2016:

	September 30, 2017		December 31, 2016		Change
(in millions, except percentage)					Amount			%
Cash and cash equivalents		46.8		168.1		(121.3	)		(72.2	)%
Restricted cash		140.6		103.5		37.1			35.8	%
Time deposits		343.8		184.8		159.0			86.0	%
Accounts receivable, net of allowance for doubtful accounts		139.9		410.0		(270.1	)		(65.9	)%
Inventories		408.7		280.9		127.8			45.5	%
Prepaid expenses and other current assets		317.5		125.3		192.1			153.2	%
Property, plant and equipment, net		832.2		806.4		25.8			3.2	%
Land use rights, net		26.4		22.5		3.9			17.3	%
Prepayments to equipment and construction suppliers		62.6		14.2		48.4			340.8	%
Other non-current assets		0.7		10.5		(9.8	)		(93.3	)%
Total assets		2,319.2		2,126.5		192.7			9.1	%
Short-term bank loans, including current portion of long-term bank loans		727.1		444.8		282.3			63.5	%
Bills payable		213.2		148.4		64.8			43.7	%
Accounts payable		101.0		320.0		(219.0	)		(68.4	)%
Income taxes payable, including noncurrent portion		31.2		26.7		4.5			16.9	%
Accrued expenses and other current liabilities		224.3		119.3		105.0			88.0	%
Long-term bank loans, excluding current portion		111.5		249.5		(138.0	)		(55.3	)%
Deferred income		76.2		69.3		6.9			10.0	%
Redeemable Series D convertible preferred stocks		97.6		97.6		-			-
Stockholders' equity		720.4		634.3		86.1			13.6	%

Our financial condition continued to improve as measured by an increase of 13.6% in stockholders' equity as of September 30, 2017 as compared to that of December 31, 2016. Cash and cash equivalents, restricted cash and time deposits increased by 16.4% or US$74.8 million due to the operating cash inflows. Accounts receivable decreased by 65.9% or US$270.1 million due to the management efforts to collect outstanding balances due from the overseas customer. Inventories increased by 45.5% as a result of more purchases of the raw materials and the Company's strategy to stock up the finished goods for the upcoming orders. Prepaid expenses and other current assets increased by 153.2% or US$192.1 since HLJ Xinda group, Sichuan Xinda and Hailezi agreed to terminate the contracts and Hailezi agreed to refund almost of the prepayment. Prepayment to equipment and construction suppliers increased by 340.8% mainly because advance to purchases for the storage facility and other equipment of HLJ Xinda group. The aggregate short-term and long-term bank loans increased by 20.8% are due to the utilization of existing lines of credit. We define the manageable debt level as the sum of aggregate short-term and long-term loans, and notes payable over total assets.

LIQUIDITY AND CAPITAL RESOURCES

Historically, our primary uses of cash have been to finance working capital needs and capital expenditures for new production lines. We have financed these requirements primarily from cash generated from operations, bank borrowings and the issuance of our convertible preferred stocks and debt financings. As of September 30, 2017 and December 31, 2016, we had US$46.8 million and US$168.1 million, respectively, cash and cash equivalents which were primarily deposited with banks in China (including Hong Kong and Macau SAR), UAE and U.S. As of September 30, 2017, we had US$727.1 million outstanding short-term bank loans (including the current portion of long-term bank loans), including US$373.7 million unsecured loan, US$67.8 million loans secured by accounts receivable, US$55.0 million loans secured by restricted cash, and US$230.6 long-term bank loans that due in one year. We also had US$111.5 million long-term bank loans (excluding the current portion), including US$111.5 million unsecured loan. Short-term and long-term bank loans in total bear a weighted average interest rate of 4.1% per annum. We have historically been able to make repayments when due. As of September 30, 2017, our current ratio was 1.1 as compared to 1.2 as of December 31, 2016.

A summary of lines of credit for the nine-month period ended September 30, 2017 and the remaining line of credit as of September 30, 2017 is as below:

(in millions)	September 30, 2017
	Lines of Credit, Obtained					Remaining Available
Name of Financial Institution	Date of Approval	RMB		USD		USD
Bank of Longjiang, Heilongjiang	September 12, 2017		500.0		75.3		-
China Everbright Bank	July 21, 2016		100.0		15.1		15.1
China CITIC Bank	May 19, 2016		100.0		15.1		15.1
Bank of China	July 28, 2017		1,419.0		213.8		129.4
HSBC	August 16, 2015		79.6		12.0		-
Agriculture Bank of China	March 17, 2017		400.0		60.3		30.1
China Construction Bank	January 8, 2016		741.8		111.8		58.8
ICBC	September 18, 2017		1,441.4		217.1		52.6
Kunlun Bank	August 23, 2017		20.0		3.0		-
Export-Import Bank of China	September 2, 2017		500.0		75.3		45.2
Bank of Communications	January 13, 2017		300.0		45.2		-
Postal Savings Bank of China	March 30, 2017		400.0		60.3		15.1
Sichuan Tianfu Bank			50.0		7.5		-
Subtotal (credit term<=1 year)			6,051.8		911.8		361.4
Bank of China	July 28, 2016		335.0		50.5		0.8
Nanchong Shuntou Development Group Ltc.	January 5, 2017		420.0		63.3		-
Subtotal (credit term>1 year)			755.0		113.8		0.8
Total			6,806.8		1,025.6		362.2

We have historically been able to make repayments when due. As of September 30, 2017, we have contractual obligations to pay (i) lease commitments in the amount of US$2.4 million, including US$1.2 million due in one year; (ii) equipment acquisition and facility construction in the amount of US$46.6 million; and (iii) long-term bank loan in the amount of US$359.1 million (including principals and interests).

We expect that we will be able to meet our needs to fund operations, capital expenditures and other commitments in the next 12 months primarily with our cash and cash equivalents, operating cash flows and bank borrowings.

We may, however, require additional cash resources due to changes in business conditions or other future developments. If these sources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity or equity-linked securities could result in additional dilution to stockholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financial covenants that would restrict operations. Financing may not be available in amounts or on terms acceptable to us, or at all.

The following table sets forth a summary of our cash flows for the periods indicated.

	Nine-month Period Ended September 30,
(in millions US$)	2017			2016
Net cash provided by (used in) operating activities		117.8			(145.3	)
Net cash used in investing activities		(359.4	)		(28.0	)
Net cash provided by financing activities		116.4			155.4
Effect of foreign currency exchange rate changes on cash and cash equivalents		3.9			(1.9	)
Net decrease in cash and cash equivalents		(121.3	)		(19.8	)
Cash and cash equivalents at the beginning of period		168.1			119.9
Cash and cash equivalents at the end of period		46.8			100.1

Operating Activities

Net cash provided by operating activities increased to US$117.8 million for the nine-month period ended September 30, 2017 from net cash outflow by operating activities of US$145.3 million for the nine-month period ended September 30, 2016, primarily due to (i) approximately US$342.8 million more cash collected from our customers, (ii) the decrease of US$9.6 million in interest payments, (iii) the decrease of US$5.7 million in income tax payments for the nine-month period ended September 30, 2017, (iv) the increase of approximately US$0.2 million in interest income received, and partially offset by (v) the increase of US$67.0 million in cash operating payments, including raw material purchases, rental and personnel costs, (vi) the decrease of approximately US$27.8 million released from restricted cash, and (vii) the decrease of US$0.4 million received from government grant.

Investing Activities

Net cash used in the investing activities was US$359.4 million for the nine-month period ended September 30, 2017 as compared to US$28.0 million for the same period of last year, mainly due to (i) the increase of US$197.9 million purchase of property, plant and equipment, (ii) the decrease of US$140.4 million proceeds from maturity of time deposits, and (iii) the increase of US$109.3 million purchase of time deposits, (iv) the increase of US$3.2 million acquisition of land use right, and (v) the decrease of US$2.9 million government grant related to the construction of Sichuan plant for the nine-month period ended September 30, 2017, and partially offset by the increase of US$122.3 million refund of deposit from an equipment supplier.

Financing Activities

Net cash provided by the financing activities was US$116.4 million for the nine-month period ended September 30, 2017, as compared to US$155.4 million for the same period of last year, primarily as a result of (i) the decrease of US$191.7 million borrowings of bank loans, (ii) the increase of US$25.4 million repayments of bank borrowings, and partially offset by(iii) the decrease of US$2.5 million payment for restricted cash as collateral for bank borrowings , (iv) the decrease of US$165.4 million payment for notes redemption, and (v) the increase of US$10.2 million of release from restricted cash as collateral for bank borrowings for the nine-month period ended September 30, 2017.

As of September 30, 2017, our cash and cash equivalents balance was US$46.8 million, compared to US$168.1 million at December 31, 2016.

Days Sales Outstanding ("DSO") has decreased from 96 days for the year ended December 31, 2016 to 86 days for nine-month ended September 30, 2017 as a result of the management efforts to improve receivables collection of the customer in ROK.

We believe that our DSO is still well below industry average Industry Standard Customer and Supplier Payment Terms (days) as below:

	Nine-month period ended September 30, 2017	Year ended December 31, 2016
Customer Payment Term	Payment in advance/up to 90 days	Payment in advance/up to 90 days
Supplier Payment Term	Payment in advance/up to 90 days	Payment in advance/up to 90 days

Inventory turnover days have increased from 109 days for the year ended December 31, 2016 to 130 days for nine-month ended September 30, 2017. Turnover days of payables have decreased from 109 days for the year ended December 31, 2016 to 79 days for nine-month ended September 30, 2017.

Based on past performance and current expectations, we believe our cash and cash equivalents provided by operating activities and financing activities will satisfy our working capital needs, capital expenditures and other liquidity requirements associated with our operations for at least the next 12 months.

The majority of the Company's revenues and expenses were denominated primarily in Renminbi ("RMB"), the currency of the People's Republic of China. There is no assurance that exchange rates between the RMB and the U.S. Dollar will remain stable. Inflation has not had a material impact on the Company's business.

COMMITMENTS AND CONTINGENCIES

Contractual Obligations

Our contractual obligations as of September 30, 2017 are as follows:

Contractual obligations	Total		Payment due less than 1 year		1 – 3 years		3-5 years		More than 5 years
Lease commitments		2,390,550		1,205,058		594,939		131,234		459,319
Purchase of land use rights, plant equipment, and construction in progress (2)		46,576,893		46,218,901		357,992		-		-
Long-term bank loans (1)		359,100,389		244,597,006		103,161,178		11,342,205		-
Total		408,067,832		292,020,965		104,114,109		11,473,439		459,319

(1) Includes interest of US$13.6 million accrued at the interest rate under the loan agreements. For borrowings with a floating rate, the most recent rate as of September 30, 2017 was applied.

(2) Plant construction and equipment purchase

(i) Sichuan Xinda

(ii) Heilongjiang Xinda Group

On September 26, 2016 and February 28, 2017, HLJ Xinda Group entered into two equipment purchase contracts with Hailezi for a total consideration of RMB782.2 million (equivalent to US$117.9 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 contract with Hailezi, HLJ Xinda Group has prepaid RMB621.6 million (equivalent to US$93.7 million) as of September 30, 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 contracts amounts to RMB 283.7 million (equivalent to US$42.7 million). Hailezi refunded RMB369.1 million (equivalent to US$55.6 million) to HLJ Xinda Group on June 22, 2017. As of September 30, 2017, HLJ Xinda Group had a remaining commitment of US$4.6 million.

On July 21, 2017, Heilongjiang Xinda Enterprise Group Company Limited (“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"). Pursuant to three investment agreements, the project total capital expenditure will be RMB 4,015 million (equivalent to be US$605.0 million), among which the investment in fixed assets shall be no less than RMB3,295 million (equivalent to US$496.5 million) in total.

(iii) Dubai Xinda

(iv) Xinda Beijing Investment office building decoration

Legal Proceedings

The Company and certain of its officers and directors were named as defendants in two putative securities class action lawsuits filed in the United States District Court for the Southern District of New York. These actions, which alleged violations of Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934, were filed on July 15, 2014 and July 16, 2014 and are captioned Yang v. Han, et al., No. 14-cv-5308 (GBD) and Tompkins v. China XD Plastics Company Ltd., et al., No. 14-cv-5359 (GBD), respectively. On November 21, 2014, the Court consolidated the actions and appointed lead plaintiffs. On February 17, 2015, the lead plaintiffs filed a Consolidated Class Action Complaint on behalf of a class of all persons other than the defendants who purchased the common stock of China XD Plastics Company Limited between March 25, 2014 and July 10, 2014, both dates inclusive. Specifically, the lead plaintiffs alleged that the Company and two of its officers made false or misleading statements and/or omitted material facts in the Company's Form 10-K for the year ended December 31, 2013 and the Company's Form 10-Q for the first quarter ended March 31, 2014. They also asserted that the individual defendants are liable because they allegedly controlled the Company during the time the allegedly false and misleading statements and omissions were made. The lead plaintiffs sought damages in unspecified amounts. On April 3, 2015, the Company moved to dismiss the Consolidated Class Action Complaint. On March 23, 2016, the Court entered an Opinion and Order dismissing the Consolidated Class Action Complaint without prejudice. On May 6, 2016, the lead plaintiffs moved the Court for leave to amend the Consolidated Class Action Complaint. On June 24, 2016, the Company filed its opposition to the lead plaintiffs’ motion. On August 8, 2016, in conjunction with filing the reply brief in support of their motion, the lead plaintiffs moved to strike certain documents referred to in the Company’s opposition. The Company filed its opposition to the lead plaintiffs’ motion to strike on September 16, 2016. The lead plaintiffs filed their reply on October 7, 2016. On March 8, 2017, the Court entered an Order in the Company’s favor denying the lead plaintiffs’ motion for leave to amend and denying the lead plaintiffs’ motion to strike. The time for the lead plaintiffs to appeal the dismissal of their lawsuits has expired.

Off-Balance Sheet Arrangements

We have not engaged in any off-balance sheet transactions.

Item 3. Quantitative and Qualitative Disclosures about Market Risks

Interest Rate Risk

We are exposed to interest rate risk primarily with respect to our short-term loans, long-term bank loans, notes payable, cash and cash equivalents, restricted cash and time deposits. Although the interest rates, which are based on the banks' prime rates are fixed for the terms of the loans and deposits, increase in interest rates will increase our interest expense.

A hypothetical 1.0% increase in the annual interest rate for all of our credit facilities under which we had outstanding borrowings as of September 30, 2017 would decrease income before income taxes by approximately US$6.3 million for the nine-month periods ended September 30, 2017. Management monitors the banks' prime rates in conjunction with our cash requirements to determine the appropriate level of debt balances relative to other sources of funds. We have not entered into any hedging transactions in an effort to reduce our exposure to interest rate risk.

Foreign Currency Exchange Rates

The majority of our revenues are collected in and our expenses are paid in RMB. We face foreign currency rate translation risks when our results are translated to U.S. dollars.

The RMB was relatively stable against the U.S. dollar at approximately 8.28 RMB to the US$1.00 until July 21, 2005 when the Chinese currency regime was altered resulting in a 2.1% revaluation versus the U.S. dollar. From July 21, 2005 to June 30, 2010, the RMB exchange rate was no longer linked to the U.S. dollar but rather to a basket of currencies with a 0.3% margin of fluctuation resulting in further appreciation of the RMB against the U.S. dollar. Since June 30, 2009, the exchange rate had remained stable at 6.8307 RMB to 1.00 U.S. dollar until June 30, 2010 when the People's Bank of China allowed a further appreciation of the RMB by 0.43% to 6.798 RMB to 1.00 U.S. dollar. The People's Bank of China allowed the RMB and U.S. dollar exchange rate to fluctuate within 1% on April 16, 2012 and 2% on March 17, 2014, respectively. On September 30, 2017, the RMB traded at 6.6369 RMB to 1.00 U.S. dollar.

There remains international pressure on the Chinese government to adopt an even more flexible currency policy and the exchange rate of RMB is subject to changes in China's government policies which are, to a large extent, dependent on the economic and political development both internationally and locally and the demand and supply of RMB in the domestic market. There can be no assurance that such exchange rate will continue to remain stable in the future amongst the volatility of currencies, globalization and the unstable economies in recent years. Since (i) our revenues and net income of our PRC operating entities are denominated in RMB, and (ii) the payment of dividends, if any, will be in U.S. dollars, any decrease in the value of RMB against U.S. dollars would adversely affect the value of the shares and dividends payable to shareholders, in U.S. dollars.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

The Company's management has evaluated, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operations of the Company's disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-15(e)), as of the end of the period covered by this report. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective because of material weakness in our internal control over financial reporting as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

Notwithstanding management's assessment that our internal control over financial reporting was ineffective as of March 31, 2017. We believe that our unaudited condensed consolidated financial statements included in this Quarterly Report present fairly our financial position, results of operations and cash flows for the three months ended March 31, 2017 in all material respects.

(b) Changes in internal controls.

During the nine-month ended September 30, 2017, our efforts to improve our internal controls over financial reporting include (1) adopting procedures to evaluate and assess performance of directors, officers and employees of the Company, (2) internal meetings, discussions, trainings and seminars periodically to review and improve our internal control procedures; (3) recruiting qualified accounting staff in Xinda Beijing Investment with requisite expertise and knowledge to help improve our internal control procedures. We plan to improve on the above-referenced weakness by the end of the fiscal year ending December 31, 2017.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

"Part I. Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 includes a detailed discussion of risks and uncertainties which could adversely affect our future results. We operate in a changing environment that involves numerous known and unknown risks and uncertainties that could materially affect our operations. The risks, uncertainties and other factors set forth in our Annual Report on Form 10-K may cause our actual results, performances and achievements to be materially different from those expressed or implied by our forward-looking statements. If any of these risks or events occurs, our business, financial condition or results of operations may be adversely affected. Except as set forth below, during the nine months ended September 30, 2017, there have been no material changes to the Risk Factors disclosed in "Part I. Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

We may not be able to manage our business expansion effectively, which could harm our business.

We have expanded rapidly by making substantial investments in new markets and geographic regions. For example, on March 17, 2017, we entered into a definitive agreement with People's Government of Shunqing District, Nanchong City of Sichuan Province for the production of 300,000 metric tons of bio-composite materials and additive manufacturing and 20,000 metric tons of functional masterbatch, a high-end color additive process in plastics manufacturing. On July 21, 2017, Heilongjiang Xinda Enterprise Group Company Limited (“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. For details, see "Item 1. Financial Statements – Notes to the Unaudited Condensed Consolidated Financial Statements - Note 6 – Prepayments to equipment and construction suppliers and Note 17 Commitments and contingencies." We anticipate continuous expansion in our business by entering into new markets serving different industries and geographic regions. Such business expansion requires significant local management resources and personnel, knowledges and expertise in new markets and geographies and building relationship with local suppliers and clients. In order to manage the planned business expansion, we will be required to expand, train and manage our growing employee base. Furthermore, our management will be required to learn new markets and geographies and build relationship with local suppliers and clients. We cannot assure you that our current resources, knowledges and business relationships will be adequate to support our current expansion plans. If we are not successful in expanding our personnel, acquiring knowledge and expertise in the new markets and geographies and building relationship with local suppliers and clients, our business may be materially and adversely affected.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No.		Document Description

31.1		Certification of the Chief Executive Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Chief Financial Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
101		Interactive Data Files Pursuant to Rule 405 of Regulation S-T.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	China XD Plastics Company Limited

Date: November 9, 2017	By:	/s/ Jie Han
		Name: Jie Han
		Title: Chief Executive Officer (Principal Executive Officer)


Date: November 9, 2017	By:	/s/ Taylor Zhang
		Name: Taylor Zhang
		Title: Chief Financial Officer

Exhibit Index

Exhibit No.		Document Description

31.1		Certification of the Chief Executive Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Chief Financial Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
101		Interactive Data Files Pursuant to Rule 405 of Regulation S-T.

China XD Plastics Co Ltd - FORM 10-Q - November 9, 2017

Attached files

China XD Plastics Co Ltd Reports