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RELATED PARTY TRANSACTIONS AND BALANCES
 12 Months Ended
Dec. 31, 2011
RELATED PARTY TRANSACTIONS AND BALANCES

14. RELATED PARTY TRANSACTIONS AND BALANCES

 

(1)   The relationships between the Group and related party are as follows:

 

Name of the related party

   

Relationship
Daqo Group    An affiliated company representing the parent company of Daqo New Material holding 100% equity ownership of Daqo New Material. Daqo Group and the Company are controlled by same group of shareholders.
Zhengjiang Daqo Solar Co. Ltd(“Zhenjiang Daqo) *    An affiliated company which is 100% held by Daqo Group
Daqo Solar Co. Ltd (“Daqo Solar”) **    An affiliated company which is 100% held by Daqo Group

 

*   Zhenjiang Daqo is primarily engaged in solar cell manufacturing.
**   Daqo Solar is currently dormant, but was initially established to engage in wafer production, and succeeded by the Company.

 

(2)   Related party balances:

 

The balance with Daqo Group and its subsidiaries was as follows:

 

The balances due from related parties include prepayments to Zhenjiang Daqo for purchase of cells and receivable from Zhenjiang Daqo for sale of wafer. The balances due from Daqo Group represent loans for short-term financing. Such balances are unsecured, interest-free, and are payable on demand. The balances are as follows:

 

     December 31,  
     2010      2011  
Amount due from related party      

Daqo Solar

    $ 886,055       $ —   

Daqo Group

      —         2,294,988   

Zhenjiang Daqo

      —         7,462,697   

Other subsidiaries of Daqo Group

      17,561         129,625   
  

 

 

     

 

 

  

Total

    $ 903,616       $ 9,887,310   
  

 

 

     

 

 

  

 

Subsequent to December 31, 2011, Daqo Group has repaid all the amounts due to Chongqing Daqo, and Zhengjiang Daqo has repaid $679,191 to Chongqing Daqo.

 

Amount due to related parties include payables for equipment and material procurement from Daqo Group and other subsidiaries under Daqo group and interest expense payable to Daqo Solar. The balances are as follows:

 

     December 31,  
     2010      2011  
Amount due to related party      

Daqo Group

    $ 44,414       $ —   

Daqo Solar

      20,084         1,552,126   

Others

      332,743         1,607,230   
  

 

 

     

 

 

  

Total

    $ 397,241       $ 3,159,356   
  

 

 

     

 

 

  
(3)   The transactions with Daqo Group and its subsidiaries were as follows:

 

     Transaction    Year Ended December 31,  

Name of Related parties

   

Nature

    2009      2010      2011  

Daqo Group

    Sales    $ —       $ —       $ 1,971   
   Purchase-Fixed asset      —         —         15,787,658   
   Financing-cash in      —         —         3,095,120   
   Financing-cash out      —         —         3,095,120   
   Capital conversion      79,884,026         —         —   

Zhenjiang Daqo

    Sales of wafers      —         —         6,958,317   
   Purchase of cells      —         —         3,314,115   
   Processing fee      —         —         1,209,769   

Daqo Solar

    Purchase-Fixed asset      —         12,942,750         20,562,272   
   Financing-cash in      —         —         72,199,600   
   Financing-cash out      —         —         72,199,600   
   Interest charged      —         —         1,552,126   
   Short-term interest free loan extended to Daqo Solar      —         —         9,898,458   

Others subsidiaries under Daqo Group

    Sales      —         —         427,302   
   Purchase-Fixed asset      —         989,235         2,027,001   
   Purchase-Raw material            300,574   
   Rental expense      —         32,136         612,856   
   Service expense      —         —         71,426   
     

 

 

     

 

 

     

 

 

  

Total

    Sales    $ —       $ —       $ 7,387,590   
     

 

 

     

 

 

     

 

 

  
   Purchase-Fixed asset    $ —       $ 13,931,985       $ 38,376,931   
     

 

 

     

 

 

     

 

 

  
   Purchase-Raw material    $ —       $ —       $ 3,614,689   
     

 

 

     

 

 

     

 

 

  
   Processing fee    $ —       $ —       $ 1,209,769   
     

 

 

     

 

 

     

 

 

  
   Rental expense    $ —       $ 32,136       $ 612,856   
     

 

 

     

 

 

     

 

 

  
   Service expense    $ —       $ —       $ 71,426   
     

 

 

     

 

 

     

 

 

  
   Interest expense    $ —       $ —       $ 1,552,126   
     

 

 

     

 

 

     

 

 

  
   Cash received    $ —       $ —       $ 75,294,720   
     

 

 

     

 

 

     

 

 

  
   Cash paid    $ —       $ —       $ 85,193,178   
     

 

 

     

 

 

     

 

 

  
   Capital conversion    $ 79,884,026       $ —       $ —   
     

 

 

     

 

 

     

 

 

  

Related party transactions with Daqo Group

 

In September, 2009, the Daqo Group converted $79,884,026 due from Daqo New Material, into equity. This amount was recorded by the Company as a noncontrolling interest.

 

In 2011, the Group purchased auxiliary electricity transmission and system equipment totaling $15.8 million from Daqo Group. Daqo Group and its subsidiaries are mainly engaged in High-Low-voltage Electrical System, Components, Environmental Protection, and High-speed Railway Equipment.

 

In 2011, the Company received an interest fee loan of $3,095,120 from Daqo Group, which was fully repaid during the year.

 

Related party transactions with Zhenjiang Daqo

 

In 2011, the Company sold $6,958,317 wafers, and purchased cells of $3,314,115, and paid processing fees of $1,209,769 to Zhenjiang Daqo for tolling arrangements of cells.

 

Related party transactions with Daqo Solar

 

In July 2010, the Company entered into an equipment purchase contract with Daqo Group to assign Daqo Solar to import $32.8 million of equipment on behalf of the Company. During the years ended December 31, 2010 and 2011, equipment of $12.9 million and $20.6 million has been received by the Group, respectively. As of December 31, 2011, the contract has been fully executed.

 

In 2011, the Company received loans of $72,199,600 from Daqo Solar, which were fully repaid during the year and accrued interest of $1,552,126. As of December 31, 2011, the Company provided an interest free loan of $9,898,458 to Daqo Solar.

 

Related party transactions with other subsidiaries of Daqo Group

 

In 2010, the Group purchased auxiliary electricity transmission and system equipment of $1.0 million from other Daqo Group subsidiaries. In 2011, the Group purchased auxiliary electricity transmission and system equipment of $2.0 million from Daqo Group subsidiaries. The Group also sold modules of $427,302 to, purchased raw materials of $300,574 from and paid service fees of $71,426 to other subsidiaries of Daqo Group.

 

Year-end balance netting-off

 

On December 31, 2011, the Company, Daqo Group and Daqo Solar signed a balance netting agreement, pursuant to which a legal right of offset was established. Under this agreement, the amount due to Daqo Group and the amount due from Daqo Solar of $11,729,514 have been netted in the Company’s balance sheet as of December 31, 2011, resulting in an amount due from Daqo Group of $2,294,988 and an amount due to Daqo Solar of $1,552,126 .