The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the section titled "Selected
Consolidated Financial and Other Data" and the consolidated financial statements
and related notes thereto included elsewhere in this Annual Report on Form 10-K.
This discussion contains forward-looking statements that involve risks and
uncertainties. Factors that could cause or contribute to such differences
include those identified below and those discussed in the section titled "Risk
Factors" and other parts of this Annual Report on Form 10-K. Our historical
results are not necessarily indicative of the results that may be expected

for
any period in the future.



General



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
688 certifications from manufacturers in the automobile industry as of December
31, 2020. 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 127 professionals and 7 consultants. As
a result of the integration of our academic and technological expertise, we have
a portfolio of 647 patents, 63 of which we have obtained the patent rights and
the remaining 584 of which we have applications pending in China as of December
31, 2020.



Our products include twelve 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), Poly Ether Ether Ketone (PEEK),
and Polyethylene (PE).



The Company's products are primarily used in the production of exterior and
interior trim and functional components of 29 automobile brands and 111
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. Prior to December 2012, we had approximately
255,000 metric tons of annual production capacity across 58 automatic production
lines utilizing German twin-screw extruding systems, automatic weighing systems
and Taiwan conveyer systems. In December 2012, we further expanded our third
production base in Harbin with additional 135,000 metric tons of annual
production capacity, bringing total installed production capacity in our three
production bases to 390,000 metric tons with additional 30 new production lines.
In July 2017, our Harbin campus launched a new industrial project for upgrading
existing equipment for 100,000 metric tons of engineering plastics. As a result,
our production capacity in Harbin, Heilongjiang was downgraded to 290,000 MT. In
2019, our Harbin campus started two equipment projects in Qinling Road Factory
("Qinling Road Project") and Jiangnan Road Factory ("Jiangnan Road Project") for
equipment upgrade and overhaul progress, which further downgraded our production
capacity to 135,000 MT. The industrial project for upgrading existing equipment
for 100,000 metric tons of engineering plastics was expected to be completed by
the end of 2020, Qinling Road Project and Jiangnan Road Project was expected to
be completed by the end of 2020, thus bringing the production capacity in Harbin
Campus back to 390,000 MT. Also, in July 2017, HLJ Xinda Group started an
industrial project for 300,000 metric tons of biological composite materials, an
industrial project for a 3D printing intelligent manufacture demonstration
factory and a 3D printing display and experience cloud factory. This project
with four workshops was formally broken ground in December 2019. The Company
expects the gradual trial out by the end of 2022 and put into production by

the
end of 2023.



91







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, which we expect will bring total domestic installed
production capacity to 590,000 metric tons with the addition of 70 new
production lines upon the completion of the construction of our fourth
production plant. Sichuan Xinda has been supplying to its customers since 2013.
We installed 50 production lines in the second half of 2016 in our Sichuan plant
with production capacity of 216,000 metric tons during the year of 2017 and an
additional 10 production lines in July 2018, bringing the total capacity to
259,200 metric tons. As of December 31, 2020, there is still construction
ongoing on the site of our Sichuan plant which is expected to be completed by
the end of the third quarter of 2022 .



In order 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
completed installing 45 production lines with 11,250 metric tons of annual
production capacity by the end of November 2018, and an additional 30 production
lines with 7,500 metric tons of annual production capacity. The Company
previously estimated 22 production lines to be put into production in the fourth
quarter of 2021, and 8 production lines in the second quarter of 2022. Due to
the negative impact of COVID-19, this project was suspended and the Company
plans to resume the installation process by the first half of 2022 . The new
completion timeline is estimated by the end of 2022, thus bringing total
installed production capacity in Dubai Xinda to 21,250 metric tons, targeting
high-end products for the overseas market.



Due to the COVID-19 pandemic, the Company's manufacturing facilities in Harbin
and Sichuan was temporarily shut down from early February 2020 to early March
2020 while our Dubai facilities was suspended operation from early February 2020
till current in accordance with the requirement of the local governments. The
Company's business was negatively impacted and generated lower revenue and net
income during the period from February to April 2020. The extent of the impact
of COVID-19 on the Company's results of operations and financial condition will
depend on the virus' future developments, including the duration and spread of
the outbreak and the impact on the Company's customers, which are still
uncertain and cannot be reasonably estimated at this point of time.



Critical Accounting Policies



We prepare our consolidated financial statements in accordance with U.S. GAAP,
which requires us to make judgments, estimates and assumptions that affect (1)
the reported amounts of our assets and liabilities; (2) the disclosure of our
contingent assets and liabilities at the end of each reporting period; and (3)
the reported amounts of revenues and expenses during each reporting period. We
continually evaluate these judgments, estimates and assumptions based on our own
historical experience, knowledge and assessment of current business and other
conditions and our expectations regarding the future based on available
information which together form our basis for making judgments about matters
that are not readily apparent from other sources. Since the use of estimates is
an integral component of the financial reporting process, our actual results
could differ from those estimates. Some of our accounting policies require a
higher degree of judgment than others in their application.



92







When reading our consolidated financial statements, you should consider our
selection of critical accounting policies, the judgment and other uncertainties
affecting the application of such policies, and the sensitivity of reported
results to changes in conditions and assumptions. We believe the following
accounting policies involve the most significant judgments and estimates used in
the preparation of our consolidated financial statements.



Long-Lived Assets


Our long-lived assets include property, plant and equipment and land use rights.





We depreciate and amortize our property, plant and equipment and land use
rights, using the straight-line method of accounting over the estimated useful
lives of the assets. We make estimates of the useful lives of property, plant
and equipment, including the salvage values, and land use rights in order to
determine the amount of depreciation and amortization expense to be recorded
during each reporting period. The estimated useful life is the period over which
the long-lived assets are expected to contribute directly or indirectly to the
future cash flows of the Company.



We evaluate long-lived assets, including property, plant and equipment, and land
use rights for impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable. We assess
recoverability by comparing carrying amount of a long-lived asset or asset group
to estimated undiscounted future cash flows expected to be generated by the
asset or asset group. If the carrying amount of an asset or asset group exceeds
its estimated undiscounted future cash flows, we recognize an impairment charge
based on the amount by which the carrying amount exceeds the estimated fair
value of the asset or asset group. We estimate the fair value of the asset or
asset group through various valuation techniques, including discounted cash flow
models, quoted market values and third-party independent appraisals, as
considered necessary. Assets to be disposed are reported at the lower of
carrying amount or fair value less costs to sell, and are no longer depreciated.



Impairment charges of US$165.3 million was recognized for long-lived assets during the year ended December 31, 2020 (See Note 26 to Consolidated Financial Statements).

Allowance for Doubtful Accounts





We maintain an allowance for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. In establishing
the required allowance, we consider historical losses adjusted to take into
account current market conditions, the amount of receivables in dispute, and the
current receivables aging and current payment patterns. Account balances are
charged off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote. We do not have
any off-balance-sheet credit exposure related to our customers.



93







We extend unsecured credit to customers with good credit history. We review our
accounts receivable on a regular basis to determine if the bad debt allowance is
adequate at each year-end.



Valuation of Inventories



Our inventories are stated at the lower of cost or net realizable value (NRV).
We routinely evaluate quantities and value of our inventories in light of
current market conditions and market trends, and record a write-down against the
cost of inventories for net realizable value below cost. Expected demand and
anticipated sales price are the key factors affecting our inventory valuation
analysis. For purposes of our inventory valuation analysis, we develop expected
demand and anticipated sales prices primarily based on sales orders as well as
industry trends and individual customer analysis. We also consider sales and
sales orders after each reporting period-end but before the issuance of our
financial statements to assess the accuracy of our inventory valuation
estimates. Historically, actual demand and sales price have generally been
consistent with or greater than expected demand and anticipated sales price used
for purposes of our inventory valuation analysis. The evaluation also takes into
consideration new product development schedules, the effect that new products
might have on the sale of existing products, product obsolescence, customer
concentrations, product merchantability and other factors. Market conditions are
subject to change and actual consumption of inventories could differ from
forecasted demand. Our products have a long life cycle and obsolescence has not
historically been a significant factor in the valuation of inventories. We have
not experienced any material inventory write-downs before.



Income Tax Uncertainties and Realization of Deferred Income Tax Assets





Our income tax provision, deferred income tax assets and deferred income tax
liabilities are recognized and measured primarily based on actual and expected
future income, PRC statutory income tax rates, PRC tax regulations and tax
planning strategies.



Significant judgment is required in interpreting tax regulations in the PRC,
evaluating uncertain tax positions, and assessing the realizability of deferred
income tax assets. Actual results could differ materially from those judgments,
and changes in judgments could materially affect our consolidated financial
statements. As of December 31, 2020 and 2019, we had total gross deferred income
tax assets of US$33,524,819 and US$14,313,575, respectively. We record a
valuation allowance to reduce our deferred income tax assets if, based on the
weight of available evidence, we believe expected future taxable income is not
likely to support the use of a deduction or credit in that jurisdiction. We
evaluate the level of our valuation allowances quarterly, and more frequently if
actual operating results differ significantly from forecasted results. As of
December 31, 2020 and 2019, our valuation allowance against deferred income

tax
assets was US$33,524,819  and US$14,313,575, respectively.



We recognize the impact of a tax position if we determine the position is more
likely than not to be sustained upon examination, including resolution of any
related appeals or litigation processes, based solely on the technical merits of
the position. In evaluating whether a tax position has met the
more-likely-than-not recognition threshold, it is presumed that the position
will be examined by the appropriate tax authority that has full knowledge of all
relevant information. In addition, a tax position that meets the
more-likely-than-not recognition threshold is measured to determine the amount
of benefit to recognize in the financial statements. The tax position is
measured at the largest amount of benefit that is greater than fifty percent
(50%) likely of being realized upon settlement. The tax positions are regularly
re-evaluated based on the results of the examination of income tax filings,
statute of limitations expirations and changes in tax law that would either
increase or decrease the technical merits of a position relative to the
more-likely-than-not recognition threshold. In the normal course of business, we
are regularly audited by the PRC tax authorities. The settlement of any
particular issue with the applicable tax authority could have a material impact
on our consolidated financial statements.



94







Stock Based Compensation



We measure the cost of employee services received in exchange for an award of
equity instruments based on the grant date fair value of the award and recognize
the cost over the period the employee is required to provide service in exchange
for the award, which generally is the vesting period. We have elected to
recognize the compensation cost for an award with only service conditions and a
graded vesting schedule on a straight-line basis over the requisite service
period for the entire award. However, the cumulative amount of compensation cost
recognized at any date equals at least the portion of the grant date value of
such award that is vested at that date.



We estimated the fair value of our share options using the Black-Scholes Option
Pricing model. The model incorporates subjective assumptions. The expected
volatility was based on implied volatilities from traded options and historical
volatility of the Company's common stock. The risk-free interest rate assumption
is determined using the Federal Reserve nominal rates for U.S. Treasury
zero-coupon bonds with maturities similar to those of the expected term of the
award being valued. There is no expected dividend yield, as the Company has not
paid dividend and does not anticipate paying dividend over the term of the

grants.



Recent Development
On November 5, 2020, the Company held a special meeting of stockholders, at
which the Company's stockholders voted, among other things, in favor of the
proposal to adopt the previously announced agreement and plan of merger (the
"Merger Agreement"), dated as of June 15, 2020, by and among the Company, Faith
Dawn Limited, an exempted company with limited liability incorporated under the
laws of the Cayman Islands ("Parent"), and Faith Horizon Inc., a Nevada
corporation and wholly owned subsidiary of Parent ("Merger Sub"), providing for
the merger of the Merger Sub with and into the Company, with the Company
continuing as the surviving corporation and as a wholly-owned subsidiary of
Parent (the "Merger").



On December 13, 2020, the Company entered into an amendment No.1 (the
"Amendment") to that certain Agreement and Plan of Merger dated June 15, 2020
(as so amended, the "Merger Agreement") by and among the Company, Faith Dawn
Limited ("Parent"), and Faith Horizon Inc. ("Merger Sub"), a Nevada corporation
and a wholly-owned subsidiary of Parent. The Amendment extends the Termination
Date (as defined in the Merger Agreement) to February 7, 2021. The special
committee of the board of directors of the Company and the board of directors of
the Company both approved the Amendment to permit additional time for the
parties to the Merger Agreement to complete the merger. The parties to the
Merger Agreement are currently working on the logistics to complete the Merger.
Other than as described herein, the Amendment does not amend any other provision
of the Merger Agreement.



On February 7, 2021, the Company entered into an amendment No.2 (the "Second
Amendment") to that certain Agreement and Plan of Merger dated June 15, 2020, as
amended on December 13, 2020 (as so amended, the "Merger Agreement") by and
among the Company, Faith Dawn Limited ("Parent"), and Faith Horizon Inc.
("Merger Sub"), a Nevada corporation and a wholly-owned subsidiary of Parent.
The Second Amendment extends the Termination Date (as defined in the Merger
Agreement) to May 10, 2021.The special committee of the board of directors of
the Company and the board of directors of the Company both approved the Second
Amendment to permit additional time for the parties to the Merger Agreement to
complete the merger. The parties to the Merger Agreement are currently working
on the logistics to complete the Merger. Other than as described herein, the
Second Amendment does not amend any other provision of the Merger Agreement.



95







On May 8, 2021, the Company issued a notice of termination to Parent (the
"Notice of Termination") notifying Parent that the Company terminated the merger
agreement pursuant to Section 9.1(c)(i) of the merger agreement, based on Parent
and Merger Sub's breaches of the merger agreement, which have given rise to the
failure of several conditions set forth in Section 8.1 and Section 8.3 of the
merger agreement. These breaches are not capable of being cured prior to the
termination date of the merger agreement. Pursuant to the Notice of Termination,
as a result of such termination, the Parent Termination Fee becomes due and
payable to the Company by Parent. On May 12, 2021, Parent sent a response
letter, dated May 11, 2021 (the "Response Letter"), to the Company that while it
disagrees with the allegations made in the Notice of Termination, Parent
acknowledges that the Company may terminate the merger agreement pursuant to
Section 9.1(c)(iii) of the merger agreement and thus agrees to pay the Parent
Termination Fee pursuant to Section 9.3(b) of the merger agreement under that
basis. As a result of the termination of the merger agreement, the merger will
not be completed.


The following table sets forth statements of comprehensive income (loss) data for the years ended December 31, 2020 and 2019 in millions of US$:





                                                       For the Years Ended December 31,
                                              2020                  Change                  2019
                                      Amount           %              %             Amount           %
                                                   (US$ in millions, except the percentage)
Revenues                               1,311.9           100 %          (9.4 )%      1,448.2           100 %
Cost of revenues                      (1,168.2 )       (89.0 )%         (4.9 )%     (1,228.8 )       (84.9 )%
Gross profit                             143.7          11.0 %         (34.5 )%        219.4          15.1 %
Impairment of long-lived assets         (165.3 )       (12.6 )%          N/A               -             -
Total operating expenses                (245.8 )       (18.7 )%        (63.9 )%       (150.0 )       (10.4 )%
Operating income (loss)                 (102.0 )        (7.8 )%       (247.0 )%         69.4           4.8 %
Income (loss) before income taxes       (175.9 )       (13.4 )%     (1,128.6 )%         17.1           1.2 %
Income tax expense                        (5.8 )        (0.4 )%        (58.6 )%        (14.0 )        (1.0 )%
Net income (loss)                       (181.7 )       (13.8 )%     (5,961.3 )%          3.1           0.2 %




Revenues



Revenues decreased by 9.4%, or US$136.3 million, in 2020 as compared to 2019.
This was due to a decrease of 7.8% in sales volume, and a decrease of 1.6% in
the average  RMB selling price of our products, as compared with those of the
same period of last year.



(1) Domestic market



For the year ended December 31, 2020, revenue from domestic market decreased by
5.5% or US$75.6 million, as a result of a decrease of 6.4% in sales volume, and
partially offset by an increase of 1.0% in the average RMB selling price of our
products, as compared with those of the same period of last year.



96







According to the China Association of Automobile Manufacturers, automobile
production and sales in China decreased by 2.0% and 1.9 %, respectively, for
twelve months of 2020 as compared to the same period of 2019. The weakening in
macroeconomic conditions since the outbreak of COVID-19 pandemic in January 2020
continued to exacerbate auto business environment throughout year of 2020. The
Company's business was negatively impacted and has generated lower revenue
during the period from February to April 2020. Thanks to our positive efforts to
expand our customer bases and to meet their new requirements, including
producing raw materials for PPE such as goggles and masks, to help alleviate the
pandemic to our communities and mitigate the negative impact of world pandemic
on Chinese auto industry, the Company has begun to recover slowly after May
2020. We achieved sales increase by 75.7% in Southwest China, 35.3% in East
China and 7.5% in South China, although our sales decreased by 62.1% in
Northeast China, 21.9% in Central China and 15.2% in North China, for the year
ended December 31, 2020 as compared to the same period of 2019.



As for the RMB selling price, the increase of 1.0% was mainly due to increased
sales of new categories of higher-end products of PA66 and PA6 produced with
high-priced raw materials with higher selling price in domestic markets during
the year ended December 31, 2020.



(2) Overseas market


Overseas sales were nil for the year ended December 31, 2020 as compared to US$61.2 million in prior year.





The Dubai facility was temporarily shut down since late February and has not
resumed its operation till the current period, which has negatively impacted
operations in Dubai facility.



We have experienced a delay in cash collection from a major customer in UAE. As
of December 31, 2020 and 2019, we provided an allowance of US$64.8million and
US$62.8 million, respectively, for the overdue accounts receivable from the
major customer in UAE, as the customer failed to make payments under the agreed
extended repayment plan.



The following table summarizes the breakdown of revenues by categories for the
periods indicated.



                                                                   Revenues
                                                       For the Years Ended December 31,
                                           2020                      2019               Change      Change
                                    Amount          %         Amount          %         Amount         %
                                                   (US$ in millions, except the percentage)

Modified Polyamide 66 (PA66)           605.2        46.1 %       427.0        29.5 %      178.2        41.7 %
Modified Polyamide 6 (PA6 )            393.9        30.0 %       338.3        23.4 %       55.6        16.4 %
Plastic Alloy                           78.4         6.0 %       245.3        16.9 %     (166.9 )     (68.0 )%
Modified Polypropylene (PP)             74.6         5.7 %       126.5         8.7 %      (51.9 )     (41.0 )%
Polyethylene (PE)                       64.6         4.9 %        11.5         0.8 %       53.1       461.7 %
Modified Acrylonitrile butadiene
styrene (ABS)                           24.3         1.8 %        50.1         3.5 %      (25.8 )     (51.5 )%
Polyoxymethylenes (POM)                  4.8         0.4 %         6.9         0.5 %       (2.1 )     (30.4 )%
Modified Polylactic acid (PLA)           3.5         0.3 %        65.1         4.5 %      (61.6 )     (94.6 )%
Polyphenylene Oxide (PPO)                0.0         0.0 %        32.4     

   2.2 %      (32.4 )      (0.0 )%
Semi-finished goods                     58.8         4.5 %       144.4        10.0 %      (85.6 )     (59.3 )%
Others                                   3.8         0.3 %         0.7         0.0 %        3.1       442.9 %
Total Revenues                       1,311.9       100.0 %     1,448.2       100.0 %     (136.3 )      (9.4 )%




97







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



                                                                 Sales Volume
                                                       For the Years Ended December 31,
                                           2020                      2019               Change       Change
                                      MT            %           MT            %           MT            %
                                                          (in MTs, except percentage)

Modified Polyamide 66 (PA66) 76,415 23.4 % 72,196

   20.0 %       4,219         5.8 %
Modified Polyamide 6 (PA6 )           55,470        17.0 %      64,004        17.8 %      (8,534 )     (13.3 )%
Plastic Alloy                         47,930        14.7 %      71,268        19.8 %     (23,338 )     (48.7 )%
Modified Polypropylene (PP)           57,016        17.5 %      87,343        24.2 %     (30,327 )     (34.7 )%
Polyethylene (PE)                     71,691        22.0 %      10,459         2.9 %      61,232       585.4 %
Modified Acrylonitrile butadiene
styrene (ABS)                         12,955         4.0 %      23,997         6.7 %     (11,042 )     (46.0 )%
Polyoxymethylenes (POM)                1,370         0.4 %       2,042         0.6 %        (672 )     (32.9 )%
Modified Polylactic acid (PLA)         2,363         0.7 %       6,209     

   1.7 %      (3,846 )     (61.9 )%
Polyphenylene Oxide (PPO)                  -           - %       6,455         1.8 %      (6,455 )      (0.0 )%
Semi-finished goods                    6,780         2.0 %      16,099         4.5 %      (9,319 )     (57.9 )%
Total Sales Volume                   331,990       100.0 %     360,072       100.0 %     (28,082 )      (7.8 )%




The Company continued to shift production mix from traditional lower-end
products such as PP to higher-end products such as PA66, PA6, and PE, 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 demand
from and consumer recognition of higher-end cars made by automotive
manufacturers from Chinese and Germany joint ventures, Sino-U.S. and
Sino-Japanese joint ventures, which manufacturers tend to use more and
higher-end modified plastics in quantity per vehicle in China.



Gross Profit and Gross Margin



                                         For the Years Ended December 31,
                                                                   Change
(in millions, except percentage)     2020         2019       Amount         %
Gross Profit                       $   143.7     $ 219.4     $ (75.7 )     (34.5 )%
Gross Margin                            11.0 %      15.1 %                  (4.1 )%



Gross profit was US$143.7 million in 2020, as compared to US$219.4 million in 2019. Our gross margin decreased to 11.0% during 2020 from 15.1% in 2019, primarily due to the increased cost for idle capacity as a result of shutdown.





98






General and Administrative Expenses





                                             For the Years Ended December 31,
                                                                        Change

(in millions, except percentage)        2020           2019       Amount   

%

General and Administrative Expenses $ 32.5 $ 35.4 $ (2.9 )


    (8.2 )%
as a percentage of revenues                2.4 %          2.4 %                  0.0 %




General and administrative (G&A) expenses were US$32.5 million in 2020 compared
to US$35.4 million in 2019, representing a decrease of US$2.9 million. The
decrease was primarily due to our approach to optimize management structure and
enhancing efficiency, and partially offset share based compensation cost
recognized in the year of 2020.



On a percentage basis, G&A expenses in 2020 were flat at 2.4%, compared to that of the same period of 2019.

Provision for Doubtful Accounts





                                         For the Years Ended December 31,
                                                                   Change
(in millions, except percentage)    2020          2019       Amount         %
Provision for Doubtful Accounts    $   2.4       $  62.8     $ (60.4 )
(96.2 )%
as a percentage of revenues            0.2 %         4.3 %                  (4.1 )%



Provision for doubtful accounts was US$2.4 million in 2020 compared to 62.8 million in 2019.





As of December 31, 2020, accounts receivable of US$2.2 million from the
Company's two customers in UAE and US$0.4 million from the Company's one
customer in PRC were overdue for more than 12 months. Based on assessment of the
collectability of the amounts due from the customers, the Company provided an
allowance for doubtful accounts of US$2.4 million for the period ended December
31, 2020.



As of December 31, 2019, our main UAE customer had US$62.8 million of overdue
accounts receivable and the customer failed to make payments under the agreed
extended repayment plan. Based on its assessment of the collectability of the
amounts due from the customer, the Company provided an allowance for doubtful
accounts of US$62.8 million for the year ended December 31, 2019.



Impairment of Long-Term Prepayments to Equipment and Construction Suppliers




                                             For the Years Ended
                                                December 31,                          Change

(in millions, except percentage)          2020                 2019        

  Amount            %
Impairment of l Long-Term
Prepayments to Equipment and
Construction Suppliers                $        21.9         $         -     $      21.9            N/A
as a percentage of revenues                     1.7 %                 -                            1.7 %




Impairment of Long-Term Prepayments to Equipment and Construction Suppliers was
US$21.9 million during the year ended December 31, 2020 compared to nil in the
same period of 2019. 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$13.0  million), and on May
31, 2019, Dubai Xinda entered into an equipment purchase contract with Peaceful
for a total consideration of US$18.8 million to purchase production and testing
equipment. As of December 31, 2020, Peaceful failed to deliver the equipments
under the purchase agreements. Based on the assessment of the recoverability of
the prepayments, the Company recognized an impairment charges of US$21.9 million
for the year ended December 31, 2020.



99






Impairment of Long-Lived Assets





                                      For the Years Ended
                                         December 31,                  Change

(in millions, except percentage)       2020            2019      Amount    

%

Impairment of Long-Lived Assets $ 165.3 $ - $ 165.3

    N/A
as a percentage of revenues                 12.6 %         -                   12.6 %




Impairment loss was US$165.3 million during the year ended December 31, 2020
compared to nil in the same period of 2019. The Dubai facility was temporarily
shut down since late February, 2020 and has not resumed its operation till the
current period, which has negatively impacted operations in Dubai facility. The
Company has assessed the situation of non operational and made an impairment
charges of US$165.3 million, primarily related to workshops, machinery and
construction in progress (See Note 26 to Consolidated Financial Statements).



Research and Development Expenses





                                          For the Years Ended December 31,
                                                                    Change

(in millions, except percentage) 2020 2019 Amount

%

Research and Development Expenses $ 22.5 $ 50.3 $ (27.8 ) (55.3 )% as a percentage of revenues

              1.7 %        3.5 %                  (1.8 )%




Research and development expenses were US$22.5 million in 2020 compared with
US$50.3 million in 2019, representing a decrease of US$27.8 million, or 55.3%.
This decrease was due to (i) a decrease of US$14.9 million in raw materials
consumption, (ii) a decrease of US$0.4 million in depreciation, and (iii) a
decrease of US$0.2 million in salary and welfare for R&D personnel.



As of December 31, 2020, the number of ongoing research and development projects
was 347. We expect to complete and commence to realize economic benefits from
approximately 25% of the projects in the near term. The majority of the projects
are in the field of modified plastics in automotive applications and the rest
are in advanced fields such as ships, airplanes, high-speed rail, medical
devices, etc.



Operating Income (loss)


Total operating loss was US$102.0 million in 2020 compared to an operating income of US$69.4 million in 2019, representing a decrease of 250.6% or US$171.4 million. This decrease is primarily due to the lower gross profit, the impairment charges of US$165.3 million, and the higher operating expenses.





Interest Income (Expenses)



                                          For the Years Ended December 31
                                                                    Change
(in millions, except percentage)     2020          2019       Amount        %
Interest Income                    $     1.7      $   1.4     $   0.3       21.4 %
Interest Expenses                      (71.2 )      (67.2 )      (4.0 )      6.0 %
Net Interest Expenses                  (69.5 )      (65.8 )      (3.7 )      5.6 %
as a percentage of revenues              5.3 %        4.5 %                  0.8 %




100







Net interest expense was US$69.5 million in 2020, compared to net interest
expense of US$65.8 million in 2019, representing an increase of 5.6% or US$3.7
million, primarily due to (i) the increase of average loan interest rate from
5.5% of the same period in 2019 to 5.6% for the year ended December 31, 2020 and
(ii) the increase of average short-term and long-term loan balance in the amount
of US$889.7  million for the year ended December 31, 2020 compared to US$912.8
million of the same period in 2019, partially offset by the iii) increase of
interest income resulting from the average interest rate decreased to 0.60% for
the year ended December 31, 2019 compared to 0.65% of the same period in 2020,
and (iv) the increase of average deposit balance in the amount of US$222.1
million for the year ended December 31, 2019 compared to US$ compared to
US$223.0 million for the same period in 2020.



Foreign Currency Exchange Gains (losses)





                                                 For the Years Ended December 31,
                                                                           Change

(in millions, except percentage)             2020         2019      Amount 

%

Foreign currency exchange gains (losses) $ (12.6 ) $ 2.9 $ (15.5 ) (534.5 )% as a percentage of revenues

                     (1.0 )%     0.2 %                   (1.2 )%




Foreign currency exchange losses were US$12.6 million in 2020, compared to gains
of US$2.9 million in 2019, which was due to the fluctuation of the exchange

rate
of RMB again US Dollar.



Income Taxes



                                            For the Years Ended December 31,
                                                                      Change

(in millions, except percentage) 2020 2019 Amount

%

Income (loss) before Income Taxes $ (175.9 ) $ 17.1 $ (193.0 )

 (1,128.7 )%
Income tax expense                      (5.8 )      (14.0 )        8.2          (58.6 )%
Effective income tax rate               (3.3 )%      82.1 %                     (85.4 )%



The effective income tax rate in 2020 and 2019 was negative 3.3% and 82.1%, respectively.

The decrease of effective income tax rate in 2020 was primarily due to the increased loss before income taxes from Dubai Xinda, and decreased income before taxes from HLJ Xinda Group and Sichuan Xinda.





Our PRC and Dubai subsidiaries had US$183.4 million of cash and cash equivalents
and restricted cash as of December 31, 2020, which are planned to be
indefinitely reinvested in PRC. The distributions from our PRC subsidiaries are
subject to the U.S. federal income tax at 21%, 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.



101







Net Income (loss)


As a result of the above factors, we had a net loss of US$181.7 million in 2020 as compared to net income of US$3.1 million in 2019.

Selected Balance Sheet Data as of December 31, 2020 and 2019:

December 31,       December 31,         

Change


(in millions, except percentage)        2020               2019           

Amount            %
Cash and cash equivalents                    78.3               17.2           61.1           355.2 %
Restricted cash                             105.1              211.2         (106.1 )         (50.3 )%
Accounts receivable, net of

allowance for doubtful accounts             423.9              222.1          201.8            90.9 %
Amounts due from related parties              0.9                  -       

    0.9             N/A
Inventories                                 577.9              642.5          (64.6 )         (10.0 )%
Prepaid expenses and other
current assets                              158.6              171.8          (13.2 )          (7.7 )%
Property, plant and equipment,
net                                         778.8              830.3          (51.5 )          (6.2 )%
Long-term prepayments to
equipment and construction
suppliers                                   512.0              495.6           16.4             3.3 %
Operating right of use assets,
net                                          44.9               44.1            0.8             1.8 %
Loans receivable-non current                242.1                  -          242.1             N/A
Deferred tax assets                           0.8                  -            0.8             N/A
Other non-current assets                      0.2                1.0           (0.8 )         (80.0 )%
Total assets                              2,923.9            2,635.9          288.0            10.9 %

Short-term bank loans, including
current portion of long-term
bank loans                                  643.6              680.2          (36.6 )          (5.4 )%
Bills payable                               344.1              400.7          (56.6 )         (14.1 )%
Accounts payable                             69.6               57.5           12.1            21.0 %

Amounts due to related parties               23.8               26.3           (2.5 )          (9.5 )%
Income taxes payable, including
noncurrent portion                          107.8              109.7           (1.9 )          (1.7 )%
Accrued expenses and other
current liabilities                         111.9               86.6           25.3            29.2 %
Long-term bank loans, excluding
current portion                             727.3              322.5          404.8           125.5 %
Deferred income                             106.9               92.6           13.3            14.3 %
Operating lease liabilities,
non-current                                  14.1               14.4           (0.3 )          (2.1 )%
Noncontrolling interests                     50.0                  -           50.0             N/A
Stockholders' equity                        767.2              836.4          (69.2 )          (8.3 )%




Stockholders' equity as of December 31, 2020 decreased by 8.3% as compared to
that of December 31, 2019 primarily due to the increase of impairment loss of
US$165.3 million for Dubai Xinda, offset by the increase of US$50.0 million
noncontrolling interests and the decrease of US$37.9 million accumulated other
comprehensive loss. Cash and cash equivalents and restricted cash decreased by
19.7% or US$45.1 million primarily due to the increase of US$45.1 million
operating activity cash outflows. The aggregate short-term and long-term bank
loans increased by 53.4% due to using the line of credits to support operating
and investing activities in HLJ Xinda Group and Sichuan Xinda. We define the
manageable debt level as the sum of aggregate short-term and long-term loans
over total assets.



102






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
December 31, 2020 and December 31, 2019, we had US$183.3 million and US$228.4
million, respectively, in the total amount of cash and cash equivalents and
restricted cash, which were primarily deposited with banks in China (including
Hong Kong and Macau SAR), UAE and U.S. As of December 31, 2020, we had US$643.6
million outstanding short-term bank loans (including the current portion of
long-term bank loans), including US$481.0 million unsecured loan, US$36.5
million guaranteed loan, US$15.3 million loans secured by restricted cash,
US$12.3 million loans secured by inventories, and US$98.5 million long-term bank
loans that due in one year. We also had US$727.3 million long-term loans
(excluding the current portion), including US$585.9 million loans secured by an
undated security cheque, and US$239.9 million unsecured loans. Short-term and
long-term bank loans in total bear a weighted average interest rate of 5.6% per
annum and do not contain any renewal terms. We have historically been able

to
make repayments when due.



However, as disclosed in Note 3 in the Company's financial statements, for the
year ended December 31, 2020, the Company had a significant loss of US$181.7
million primarily due to an impairment of long-lived assets of US$165.3 million
for Dubai Xinda and had recurring operating cash outflows of US$3.0 million.
These conditions raised substantial doubts about the Company's ability to
continue as a going concern.



A summary of lines of credit and the remaining line of credit as of December 31,
2020 is as below:



(in millions)                                            December 31, 2020
                                                                                      Remaining
                                              Lines of Credit, Obtained               Available
Name of Financial Institution      Date of Approval       RMB            USD             USD
China Construction Bank            January 20, 2020         714.1          109.4            89.8
Longjiang Bank                     February 28, 2020      1,250.0          191.6               -
Industrial and Commercial Bank
of China                           May 9, 2020            1,335.0          204.6               -
Agricultural Bank of China         February 24, 2020        250.0           38.3               -
Postal Savings Bank of China       April 30, 2020           100.0           15.3               -
Sichuan Tianfu Bank                March 12, 2020           522.0           80.0               -

Nanchong Rural Commercial Bank     July 17, 2020            238.4          

36.5             1.8
Bank of Harbin                     August 10, 2020           70.0           10.7               -
Harbin Rural Commercial Bank       April 30, 2020           330.0           50.6               -
Jianxin Financial Asset
Investment Co., Ltd.               November 21, 2019        390.0           59.8               -

Subtotal (credit term<=1 year)                            5,199.5         

796.8            91.6
Agricultural Bank of China         December 7, 2020         400.0           61.3               -
Longjiang Bank                     June 17, 2019          4,172.2          639.4               -

National Bank of Umm Al Qaiwain    December 26, 2018         14.2            2.2               -
Industrial and Commercial Bank
of China                           February 17, 2020      1,029.8          157.8            15.4
Nanchong Shuntou Development
Group Co., Ltd                     January 6, 2017          350.0           53.6               -
Subtotal (credit term>1 year)                             5,966.2         

914.3            15.4
Total                                                    11,165.7        1,711.1           107.0




As of December 31, 2020, we have contractual obligations to pay (i) lease
commitments in the amount of US$26.3 million, including US$1.4 million due in
one year; (ii) equipment acquisition and facility construction in the amount of
US$250.2 million; (iii) long-term bank loan in the amount of US$727.3 million
(including principals and interests).



103







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 and contribution
from the principal shareholder.



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 years ended
December 31, 2020 and 2019.



                                                     For the Years Ended December 31,
(in millions US$)                                       2020                  2019
Net cash (used in) provided by operating
activities                                                    (3.0 )              (189.9 )
Net cash used in investing activities                       (431.1 )              (130.1 )
Net cash provided by financing activities                    387.3         

185.9


Effect of foreign currency exchange rate changes
on cash, cash equivalents and restricted cash                  1.7                  (4.5 )
Net (decrease) increase in cash, cash
equivalents, and restricted cash                             (45.1 )              (138.6 )
Cash, cash equivalents, and restricted cash at
the beginning of period                                      228.4         

367.0


Cash, cash equivalents, and restricted cash at
the end of period                                            183.3                 228.4




Operating Activities



Net cash used in operating activities was US$3.0 million for the year ended
December 31, 2020, as compared to US$189.9 million used in operating activities
for the year ended December 31, 2019, primarily due to  (i) the decrease of
approximately US$255.5 million in cash collected from our customers, (ii) the
increase of US$6.5 million interest payments, partially offset by (vi) the
decrease of approximately US$335.1 million in cash operating payments, including
raw material purchases, rental and personnel costs, (v) the increase of US$9.1
million received from government grant, and (vi) the decrease of US$4.8 million
in income tax payments, and (vii) the decrease of US$5.5 million interest
payment.



104







Investing Activities



Net cash used in the investing activities was US$431.1 million for the year
ended December 31, 2020 compared to US$130.1 million for the same period of last
year, mainly due to (i) the increase of US$51.3 million purchase of property,
plant and equipment, (ii) the increase of US$231.2 million of loans to third
parties, (iii) the decrease of US$7.3 million proceeds from sales of a
subsidiary, (iv) the decrease of $15.7 million refund of prepayment for property
and equipment purchase, and partially offset by (v) the increase of US$3.8
million Government grant related to the project construction and (vi) the
increase of US$0.7 million proceeds from disposal of property, plant and
equipment.



Financing Activities



Net cash provided by financing activities was US$387.3 million for the year
ended December 31, 2020, as compared to US$185.9 million for the same period of
last year, primarily as a result of the decrease of (i) the proceeds of
US$1,033.8 million from bank borrowings, (ii) the increase of US$47.2 million
capital injection from noncontrolling interests, (iii) the decrease of US$64.7
million repayment of interest-free advances from related parties, (iv) the
decrease of US$4.4 million payments of issuance cost of bank borrowings, (v) the
decrease of US$0.1 million payments of issuance costs for syndicated loans,
partially offset by (vi) the decrease of US$1,038.6 million proceeds from bank
borrowings, (vii) the decrease of US$77.2 million proceeds of interest-free
advances from related parties and (viii) the increase of US$0.1 million payments
of issuance costs for syndicated loans.



As of December 31, 2020, our cash, cash equivalents and restricted cash balance was US$183.3 million, compared to US$228.4 million at December 31, 2019.





Days Sales Outstanding ("DSO") has increased from 72 days for the year ended
December 31, 2019 to 89 days for the year ended December 31, 2020 as a result of
cash collection of overdue accounts receivable from customers in 2020.



It takes shorter to collect from our customers. We believe that our DSO is still
below industry average. Industry Standard Customer and Supplier Payment Terms
(days) as below:



                           Year ended December 31, 2020       Year ended December 31, 2019
Customer Payment Term    Payment in advance/up to 90 days   Payment in advance/up to 90 days
Purchase Credit Term     Payment in advance/up to 90 days   Payment in advance/up to 90 days



Inventory turnover days increased from 185 days for the year ended December 31, 2019 to 188 days for the year ended December 31, 2020.

Turnover days of payables have decreased from 21 days for the year ended December 31, 2019 to 20 days for the year ended December 31, 2020.





Based on past performance and current expectations, we believe that our current
cash and cash equivalents and anticipated cash flows from operating 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.




105






COMMITMENTS AND CONTINGENCIES





Contractual Obligations


Our contractual obligations as of December 31, 2020 are as follows:





                                                       Payment due                                              More than
Contractual obligations              Total           less than 1 year       1 - 3 years        3-5 years         5 years
Commitments for purchase of
equipment and construction in
progress (1)(2)(3)(4)               250,191,790            250,191,790                 -                 -                -
Long-term bank loans                727,293,417            316,483,751       247,409,851       163,399,815                -
Operating leases                     26,360,622              1,418,719     

   2,854,011         2,908,476       19,179,416
Total                             1,003,845,829            568,094,260       250,263,862       166,308,291       19,179,416



(1) Sichuan plant construction and equipment purchase





In September 2016, Sichuan Xinda Enterprise Group Co., Ltd. ("Sichuan Xinda")
entered into equipment purchase contracts with Harbin Hailezi Science and
Technology Co., Ltd. ("Hailezi") for a consideration of RMB17.0 million
(equivalent to US$2.6 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 December
31, 2020, Sichuan Xinda has a remaining commitment of RMB3.0 million (equivalent
to US$0.5 million).



On October 20, 2016, Sichuan Xinda entered into an equipment purchase agreement
purchase contract with Peaceful Treasure Limited ("Peaceful") for a total
consideration of RMB89.5 million (equivalent to US$13.7 million) to purchase
certain production and testing equipment. As of December 31, 2020, the Company
has a commitment of RMB55.6 million (equivalent to US$8.5 million).



On November 15, 2016 and February 20, 2017, Sichuan Xinda entered into
decoration contracts with Beijin Construction to perform indoor and outdoor
decoration work for a consideration of RMB240.5 million (equivalent to US$36.9
million). On June 10, 2017, Sichuan Xinda entered into another decoration
contract with Beijin Construction to perform ground decoration work for a
consideration of RMB23.8 million (equivalent to US$3.6 million). As of December
31, 2020, the Company has a remaining commitment of RMB144.7 million (equivalent
to US$22.2 million).


Pursuant to the Nanchong Project mentioned in Note 9 In connection with the Nanchong Project, on June 21, 2018, Sichuan Xinda entered into equipment purchase contracts with Hailezi to purchase production equipment for a consideration of RMB1,910.5 million (equivalent to US$292.8 million). Pursuant to the contract with Hailezi, Sichuan Xinda has a remaining commitment of RMB198.5 million (equivalent to US$30.4 million) as of December 31, 2020.





106






(2) Heilongjiang plant construction and equipment purchase





In connection with the HLJ project mentioned in Note 9, on June 25, 2018 and
July 12, 2018, HLJ Xinda Group entered into two equipment purchase contracts
with Hailezi to purchase production equipment, which will be used for 300,000
metrics tons of biological based composite material, located in Harbin, for a
consideration of RMB1,906.8 million (equivalent to US$282.2 million) and On
November 14, 2019, HLJ Xinda Group entered into a supplementary agreement with
Hailezi, which decreased the original contract amount to RMB1,780.9 million
(equivalent to US$272.9 million) with delivery schedule amended to December 31,
2021. Pursuant to the contracts with Hailezi, HLJ Xinda Group has a remaining
commitment of RMB1,214.1 million (equivalent to US$186.1 million) as of December
31, 2020



(3) Dubai equipment purchase



On May 31, 2019, Dubai Xinda entered into an equipment purchase contract with
Peaceful for a total consideration of US$18.8 million. As of December 31, 2020,
the Company has a remaining commitment of US$1.8 million.



(4) Xinda CI (Beijing) office building decoration


On March 30, 2017, Xinda CI (Beijing) Investment Holding Co., Ltd. ("Xinda
Beijing Investment") entered into a decoration contract with Beijing Fangyuan
Decoration Engineering Co., Ltd for a total consideration of RMB5.8 million
(equivalent to US$0.9 million) to decorate office building. As of December 3,
2020, the Company has a remaining commitment of RMB3.7 million (equivalent

to
US$0.6 million).


On June 9, 2017, Xinda CI (Beijing) entered into a decoration contract with Beijing Zhonghongwufang Stone Co., Ltd for a total consideration of RMB1.2 million (equivalent to US$0.2 million) to decorate office building. As of December 31, 2020, the Company has a remaining commitment of RMB0.6 million (equivalent to US$0.1 million).





107






Off-Balance Sheet Arrangements





On April 15, 2019, Sichuan Xinda provided guarantee to Shanghai Sales obtaining
a one-year loan of RMB800.0 million (equivalent to US$122.6 million) from
Longjiang Bank, Harbin Branch with an annual interest rate of 6.09% from April
15, 2019 to April 14, 2020. If Shanghai Sales does not repay the above loan when
due, Sichuan Xinda shall be obliged to repay the RMB800.0 million loan. The loan
was repaid by Shanghai Sales in April 2020.



On December 3, 2019, HLJ Xinda Group provided guarantee to Macromolecule
Composite Materials obtaining a one-year loan of RMB612.2 million (equivalent to
US$93.8 million) from Longjiang Bank, Harbin Branch with an annual interest rate
of 6.25%. If Macromolecule Composite Materials does not repay the above loan
when due, HLJ Xinda Group shall be obliged to repay the RMB612.2 million loan.
The loan was repaid early by to Macromolecule Composite Materials in April 2020.



On September 28, 2020, Sichuan Xinda provided guarantee to Macromolecule
Composite Materials obtaining a three-month loan of RMB700.0 million (equivalent
to US$107.3 million) from Longjiang Bank, Harbin Branch with an annual interest
rate of 5.95%. If Macromolecule Composite Materials does not repay the above
loan when due, Sichuan Xinda shall be obliged to repay the RMB700.0 million

loan.



108

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