Company Quick10K Filing
Quick10K
Sorl Auto Parts
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$3.61 19 $70
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-08 Regulation FD, Exhibits
8-K 2019-07-01 Other Events
8-K 2019-06-30 Officers
8-K 2019-06-18 Other Events
8-K 2019-05-24 Officers, Other Events, Exhibits
8-K 2019-05-15 Regulation FD, Exhibits
8-K 2019-04-25 Regulation FD, Exhibits
8-K 2019-04-01 Regulation FD, Exhibits
8-K 2018-11-14 Regulation FD, Exhibits
8-K 2018-08-14 Regulation FD, Exhibits
8-K 2018-05-15 Regulation FD, Exhibits
8-K 2018-04-02 Regulation FD, Exhibits
WFC Wells Fargo & Company 210,070
HPE Hewlett Packard 20,860
MOMO Momo 6,680
SBRA Sabra Health Care REIT 3,460
MTRN Materion 1,400
WSR Pillarstone Capital REIT 503
ARDS Aridis Pharmaceuticals 75
FKWL Franklin Wireless 0
SVBL Silver Bull Resources 0
DPDW Deep Down 0
SORL 2019-03-31
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits
EX-31.1 f10q0319ex31-1_sorlauto.htm
EX-31.2 f10q0319ex31-2_sorlauto.htm
EX-32 f10q0319ex32_sorlauto.htm

Sorl Auto Parts Earnings 2019-03-31

SORL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 f10q0319_sorlautoparts.htm QUARTERLY REPORT

 

  

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

 

for the quarterly period ended March 31, 2019

 

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

 

For the transition period from _________ to _________

 

Commission file number 000-11991

 

SORL AUTO PARTS, INC.

(Exact name of registrant as specified in its charter)

 

DELAWARE   30-0091294
(State or other jurisdiction of
incorporation or organization)
  (IRS Employer
Identification No.)

 

No. 1169 Yumeng Road

Ruian Economic Development District

Ruian City, Zhejiang Province

People’s Republic of China

(Address of principal executive offices)

 

86-577-6581-7720

(Registrant’s telephone number)

 

Indicate by check mark whether the registrant (1) 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, a smaller reporting company, or an emerging growth company. See definition of “accelerated filer”, “large accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer ☐ Accelerated Filer ☐ Non-Accelerated Filer ☒ 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 ☒

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
         

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Indicate the number of shares outstanding of each of the issuer classes of common stock, as of the latest practicable date:

 

As of May 15, 2019 there were 19,304,921 shares of common stock outstanding

 

 

 

 

 

 

SORL AUTO PARTS, INC.

 

FORM 10-Q

 

For the Three Months Ended March 31, 2019

 

INDEX

 

    Page
     
PART I. FINANCIAL INFORMATION (Unaudited)  
     
Item 1. Financial Statements: 1
     
  Consolidated Balance Sheets as of March 31, 2019 (Unaudited) and December 31, 2018 1
     
  Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 31, 2019 and 2018 (Unaudited) 2
     
  Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018 (Unaudited) 3
     
  Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2019 and 2018 (Unaudited) 4
     
  Notes to Consolidated Financial Statements (Unaudited) 5
     
Item 2. Management’s Discussion and Analysis or Financial Condition and Results of Operations 20
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
     
Item 4. Controls and Procedures 25
     
PART II. OTHER INFORMATION 26
     
Item 1. Legal Proceedings 26
     
Item 1A. Risk Factors 26
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
     
Item 3. Defaults Upon Senior Securities 26
     
Item 4. Mine Safety Disclosures 26
     
Item 5. Other Information 26
     
Item 6. Exhibits 26
     
SIGNATURES 27

 

i

 

 

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Balance Sheets

March 31, 2019 and December 31, 2018

 

   March 31,
2019
   December 31,
2018
 
Assets   (Unaudited)     
Current Assets        
Cash and cash equivalents  US$8,024,006   US$73,588,229 
Accounts receivable, net, including $341,110 and $261,889 from related parties as of March 31, 2019 and December 31, 2018, respectively   178,871,527    150,047,797 
Bank acceptance notes from customers   73,404,114    62,052,225 
Inventories, net   

187,384,139

    204,285,427 
Prepayments, current, including $5,129,110 and $3,670,573 to related party at March 31, 2019 and December 31, 2018, respectively   17,350,867    7,776,591 
Restricted cash, current   16,804,852    19,307,003 
Advances to related parties   98,136,035    79,739,417 
Deposits on loan agreements, current   5,197,891    - 
Other current assets, net   11,566,191    15,697,448 
Total Current Assets   

596,739,622

    612,494,137 
           
Property, plant and equipment, net   107,063,204    96,053,386 
Land use rights, net   21,355,991    21,124,455 
Intangible assets, net   132,294    220,232 
Deposits on loan agreements, non-current   5,197,891    10,199,324 
Prepayments, non-current   33,069,906    31,575,238 
Other assets, non-current   574,397    563,542 
Restricted cash, non-current   18,415,386    18,067,374 
Operating lease right of use assets   1,222,064    - 
Deferred tax assets   

3,566,545

    4,073,838 
Total Non-current Assets   

190,597,678

    181,877,389 
Total Assets  US$787,337,300   US$794,371,526 
           
Liabilities and Equity          
Current Liabilities          
Accounts payable and bank acceptance notes to vendors, including $30,167,916 and $23,805,200 due to related parties as of March 31, 2019 and December 31, 2018, respectively  US$226,765,213   US$236,433,718 
Deposits received from customers   53,150,261    51,529,795 
Short term bank loans   212,363,818    217,940,471 
Current portion of long term loans, net of unamortized debt issuance costs   25,086,705    21,141,029 
Income tax payable, current   3,229,510    3,421,486 
Accrued expenses   19,499,647    24,045,902 
Due to related party   6,820,963    5,959,752 
Deferred income   1,259,842    1,453,282 
Operating lease liabilities, current   

492,494

    - 
Other current liabilities   3,452,129    3,288,344 
Total Current Liabilities   

552,120,582

    565,213,779 
           
Long term loans, less current portion and net of unamortized debt issuance costs   5,426,193    14,429,404 
Operating lease liabilities, non-current   797,107    - 
Income tax payable, non-current   9,259,307    9,259,307 
Total Non-current Liabilities   15,482,607    23,688,711 
Total Liabilities   567,603,189    588,902,490 
           
Equity          
Preferred stock - no par value; 1,000,000 authorized; none issued and outstanding as of March 31, 2019 and December 31, 2018   -    - 
Common stock - $0.002 par value; 50,000,000 authorized, 19,304,921 issued and outstanding as of March 31, 2019 and December 31, 2018   38,609    38,609 
Additional paid-in capital   (28,582,654)   (28,582,654)
Reserves   

20,911,801

    20,007,007 
Accumulated other comprehensive income   10,516,102    6,655,803 
Retained earnings   186,601,111    178,535,378 
Total SORL Auto Parts, Inc. Stockholders’ Equity   

189,484,969

    176,654,143 
Noncontrolling Interest In Subsidiaries   30,249,142    28,814,893 
Total Equity   219,734,111    205,469,036 
Total Liabilities and Equity  US$

787,337,300

   US$794,371,526 

  

The accompanying notes are an integral part of these unaudited consolidated financial statements

1

 

  

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Statements of Income and Comprehensive Income

For The Three months Ended March 31, 2019 and 2018 (Unaudited)

 

   Three months ended
March 31,
 
   2019   2018 
         
Sales  US$136,219,924   US$107,726,682 
Include: sales to related parties   10,646,746    7,701,054 
Cost of sales   99,699,354    77,527,196 
Gross profit   36,520,570    30,199,486 
           
Expenses:          
Selling and distribution expenses   12,884,567    10,037,861 
General and administrative expenses   7,374,893    4,773,778 
Research and development expenses   4,951,536    3,590,402 
Total operating expenses   25,210,996    18,402,041 
           
Other operating income, net   2,462,602    2,197,324 
           
Income from operations   13,772,176    13,994,769 
           
Interest income   1,736,775    1,488,264 
Government grants   1,792,412    133,933 
Other income   54,680    27,066 
Interest expenses   (3,972,498)   (3,353,711)
Exchange differences   

(1,061,005

)   

(601,286

)
Other expenses   (477,919)   (890,814)
           
Income before income taxes provision   11,844,621    10,798,221 
           
Provision for income taxes   1,868,767    1,605,441 
           
Net income  US$9,975,854   US$9,192,780 
           
Net income attributable to noncontrolling interest in subsidiaries   1,005,327    919,278 
           
Net income attributable to common stockholders  US$8,970,527   US$8,273,502 
           
Comprehensive income:          
           
Net income  US$9,975,854   US$9,192,780 
Foreign currency translation adjustments   4,289,221    8,044,534 
Comprehensive income   14,265,075    17,237,314 
Comprehensive income attributable to noncontrolling interest in subsidiaries   1,434,249    1,723,731 
Comprehensive income attributable to common stockholders  US$12,830,826   US$15,513,583 
           
Weighted average common share - basic   19,304,921    19,304,921 
           
Weighted average common share - diluted   19,304,921    19,304,921 
           
EPS - basic  US$0.46   US$0.43 
           
EPS - diluted  US$0.46   US$0.43 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements 

 

2

 

 

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2019 and 2018 (Unaudited)

 

   Three Months Ended
March 31,
 
   2019   2018 
Cash Flows From Operating Activities        
Net income  US$9,975,854   US$9,192,780 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:          
Allowance for doubtful accounts   (79,426)   278,397 
Depreciation and amortization   3,382,629    2,847,303 
Deferred income tax   580,171    900,839 
Gain on disposal of property and equipment   (29,768)   - 
Amortization of debt issuance costs   181,333    372,025 
Changes in assets and liabilities:          
Accounts receivable   (25,606,528)   (32,888,322)
Bank acceptance notes from customers   (10,059,686)   12,354,888 
Inventories, net   20,637,304    996,280 
Prepayments   (9,630,754)   (14,987,105)
Other currents assets, net   3,162,436    (1,890,438)
Operating lease right of use assets   125,799   - 
Accounts payable and bank acceptance notes to vendors   (13,728,060)   63,073,488 
Deposits received from customers   621,908    5,123,039 
Income tax payable   (207,909)   (1,635,670)
Deferred income   (219,320)   (129,981)
Operating lease liabilities   (326,476)   - 
Other current liabilities and accrued expenses   (4,598,818)   (7,302,268)
Net Cash Flows Provided By (Used In) Operating Activities   (25,819,311)   36,305,255 
           
Cash Flows From Investing Activities          
Acquisition of property, equipment, plant and land use rights   (13,252,877)   (19,682,775)
Advances to related parties   (15,305,460)   (67,694,035)
Repayment of advances to related parties   -    5,821,183 
Net Cash Flows Used In Investing Activities   (28,558,337)   (81,555,627)
           
Cash Flows From Financing Activities          
Proceeds from short term bank loans   113,629,530    222,636,613 
Repayment of short term bank loans   (123,310,819)   (115,398,302)
Proceeds from related parties   739,289    264,565,400 
Repayments to related parties   -    (256,883,171)
Repayment of long term loans   (5,869,199)   (6,401,331)
Net Cash Flows Provided By (Used In) Financing Activities   (14,811,199)   108,519,209 
           
Effects on changes in foreign exchange rate   1,470,485    1,418,555 
Net change in cash, cash equivalents and restricted cash   (67,718,362)   64,687,392 
Cash, cash equivalents, and restricted cash - beginning of the period   110,962,606    4,598,176 
Cash, cash equivalents, and restricted cash - end of the period  US$43,244,244   US$69,285,568 
           
Supplemental Cash Flow Disclosures:          
Interest paid  US$2,903,589   US$2,278,298 
Income taxes paid  US$1,471,174   US$2,340,272 
           
Non-cash Investing and Financing Transactions          
Loans from related party in the form of bank acceptance notes  US$-   US$32,791,380 
Repayments to related party in the form of bank acceptance notes  US$-   US$5,846,083 
           
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets          
Cash and cash equivalents  US$8,024,006   US$22,682,734 
Restricted cash, current   16,804,852    46,602,834 
Restricted cash, non-current   18,415,386    - 
Total cash, cash equivalents, and restricted cash at end of the period  US$43,244,244   US$69,285,568 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements

 

3

 

  

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Statements of Changes in Equity

For The Three Months Ended March 31, 2019 and 2018 (Unaudited) 

 

                       Accumulated   Total SORL Auto         
           Additional           Other   Parts, Inc.         
   Number of   Common   Paid-in       Retained   Comprehensive   Stockholders’   Noncontrolling   Total 
   Share   Stock   Capital   Reserves   Earnings   Income   Equity   Interest   Equity 
Balance as of December 31, 2018   19,304,921   $38,609   $(28,582,654)  $20,007,007   $178,535,378   $6,655,803   $176,654,143   $28,814,893   $205,469,036 
                                              
Net income   -    -    -    -    

8,970,527

    -    

8,970,527

    

1,005,327

    9,975,854 
                                              
Foreign currency translation adjustment   -    -    -    -    -    3,860,299    3,860,299    428,922    4,289,221 
                                              
Transfer to reserve   -    -    -    904,794    (904,794)   -    -    -    - 
                                              
Balance as of March 31, 2019   19,304,921   $38,609   $(28,582,654)  $20,911,801   $186,601,111   $

10,516,102

   $189,484,969   $30,249,142   $219,734,111 
                                              
                       Accumulated   Total SORL Auto         
           Additional           Other   Parts, Inc.         
   Number of   Common   Paid-in       Retained   Comprehensive   Stockholders’   Noncontrolling   Total 
   Share   Stock   Capital   Reserves   Earnings   Income   Equity   Interest   Equity 
Balance as of December 31, 2017   19,304,921   $38,609   $(28,582,654)  $17,562,357   $168,244,329   $15,903,188   $173,165,829   $27,126,102   $200,291,931 
                                              
Net income   -    -    -    -    8,273,502    -    8,273,502    919,278    9,192,780 
                                              
Foreign currency translation adjustment   -    -    -    -    -    7,240,081    7,240,081    804,453    8,044,534 
                                              
Transfer to reserve   -    -    -    827,350    (827,350)   -    -    -    - 
                                              
Balance as of March 31, 2018   19,304,921   $38,609   $(28,582,654)  $18,389,707   $175,690,481   $23,143,269   $188,679,412   $28,849,833   $217,529,245 

   

The accompanying notes are an integral part of these unaudited consolidated financial statements

 

4

 

 

SORL Auto Parts, Inc. and Subsidiaries

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

 

(Unaudited)

 

NOTE A - DESCRIPTION OF BUSINESS

 

SORL Auto Parts, Inc. (together with its subsidiaries, “we,” “us,” “our” or the “Company” or “SORL”), a Delaware corporation incorporated on March 24, 1982, is principally engaged in the manufacture and distribution of vehicle brake systems and other key safety-related components, through its 90% ownership of Ruili Group Ruian Auto Parts Co., Ltd. (the “Joint Venture” or “Ruian”). The Company distributes products both in China and internationally under SORL trademarks. The Company’s product range includes 140 categories and over 2,000 different specifications.

 

The Joint Venture was formed in the People’s Republic of China (“PRC” or “China”) as a Sino-Foreign joint venture on January 17, 2004, pursuant to the terms of a Joint Venture Agreement between the Ruili Group Co., Ltd. (the “Ruili Group”), a related party under common control, and Fairford Holdings Limited (“Fairford”), a wholly owned subsidiary of the Company. The Ruili Group was incorporated in China in 1987 and specializes in the development, production and sale of various kinds of automotive parts. Fairford and the Ruili Group contributed 90% and 10%, respectively, of the paid-in capital of the Joint Venture.

  

On November 11, 2009, the Company, through its wholly owned subsidiary, Fairford, entered into a joint venture agreement with MGR Hong Kong Limited (“MGR”), a Hong Kong-based global auto parts distribution specialist firm and an unaffiliated Taiwanese individual investor. The joint venture was named SORL International Holding, Ltd. (“SIH”) based in Hong Kong. SORL held a 60% interest in the joint venture, MGR held a 30% interest, and the Taiwanese individual investor held a 10% interest. SIH was primarily devoted to expanding SORL’s international sales network in Asia-Pacific and creating a larger footprint in Europe and Africa with a target to create a truly global distribution network. In December 2015, due to poor financial performance of SIH, Fairfold sold all of its interest in SIH to the Taiwanese investor. After this transaction, SIH ceased to be a distributor of SORL in the international market.

  

NOTE B - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

 

(1)BASIS OF PRESENTATION

 

The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All intercompany balances and transactions have been eliminated in the consolidation. Certain information and footnote disclosures normally included in financial statements prepared in conjunction with generally accepted accounting principles have been condensed or omitted as permitted by the rules and regulations of the United States Securities and Exchange Commission (“SEC”), although the Company believes that the disclosures contained in this report are adequate to make the information presented not misleading. The consolidated balance sheet information as of December 31, 2018 was derived from the consolidated audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. These consolidated financial statements should be read in conjunction with the annual consolidated audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, and other reports filed with the SEC.

 

The accompanying unaudited interim consolidated financial statements reflect all adjustments of a normal and recurring nature which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year taken as a whole.

 

5

 

  

(2)SIGNIFICANT ACCOUNTING POLICIES

 

a.ACCOUNTING METHOD

 

The Company uses the accrual method of accounting for financial statement and tax return purposes.

 

b.USE OF ESTIMATES

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes its best estimate of the outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management. Actual results could differ from those estimates.

 

c.FAIR VALUE OF FINANCIAL INSTRUMENTS

 

For certain of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable and payable, bank acceptance notes from customers and to vendors, inventories, current prepayments, current deposits on loan agreements, other current assets, short term bank loans, current portion of long term loans, deposits received from customers, deferred income, current income tax payable, accrued expenses, current operating lease liabilities, and other current liabilities, the carrying amounts approximate fair values due to their short maturities.

 

Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated. It is not, however, practical to determine the fair value of amounts due from/to related parties due to their related party nature.

  

d.RESTRICTED CASH

 

Restricted cash, current consists of bank deposits used to pledge bank acceptance notes, deposits for obtaining letters of credit from a local bank, and bank deposit held as a guarantee for the loans obtained by Wenzhou Lichuang Automobile Parts Co., Ltd., a related party, from the bank. Also see Note D for details on the guarantee provided to related party.

 

Restricted cash, non-current consists of deposits guaranteed for construction projects and the non-current portion of certain bank deposits used to pledge for bank acceptance notes.

  

e.RELATED PARTY TRANSACTIONS

 

A related party is generally defined as (i) any person that holds 10% or more of the Company’s securities and their immediate families, (ii) the Company’s management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. The Company conducts business with its related parties in the ordinary course of business.

 

6

 

 

f.BANK ACCEPTANCE NOTES RECEIVABLE

 

Bank acceptance notes receivable generally due within six months and with specific payment terms and definitive due dates, are comprised of the notes issued by some customers to pay certain outstanding receivable balances to the Company, and the notes issued by the customers of related parties and transferred to the Company as loans from related parties. Bank acceptance notes do not bear interest. As of March 31, 2019 and December 31, 2018, bank acceptance notes from customers in the amount of $65,408,481 and $58,458,890, respectively, were pledged to endorsing banks to issue either short term bank loans or bank acceptance notes to vendors. The banks charge discount fees if the Company chooses to discount the bank acceptance notes from customers for cash before the maturity of the notes and such discount fees are included in interest expenses on the accompanying unaudited consolidated statements of income and comprehensive income.

 

g.FOREIGN CURRENCY TRANSLATION

 

The Company maintains its books and accounting records in RMB, the currency of the PRC. The Company’s functional currency is also RMB. The Company has adopted FASB ASC 830-30 in translating financial statement amounts from RMB to the Company’s reporting currency, United States dollars (“US$”). All assets and liabilities are translated at the current rate. The stockholders’ equity accounts are translated at the appropriate historical rate. Revenue and expenses are translated at the weighted average rates in effect on the transaction dates.

 

Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of stockholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

 

7

 

 

NOTE C - RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

 

On January 1, 2019, the Company adopted Accounting Standards Update (ASU) 2016-02, Leases (as amended by ASU 2018-01, 2018-10, 2018-11, 2018-20, and 2019-01, collectively ASC Topic 842), using the modified retrospective method. The Company elected the transition method which allows entities to initially apply the requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. As a result of electing this transition method, previously reported financial information has not been restated to reflect the application of the new standard to the comparative periods presented. The Company elected the package of practical expedients permitted under the transition guidance within ASC 842, which among other things, allows the Company to carry forward certain historical conclusions reached under ASC Topic 840 regarding lease identification, classification, and the accounting treatment of initial direct costs. The Company elected not to record assets and liabilities on its consolidated balance sheet for new or existing lease arrangements with terms of 12 months or less. The Company recognizes lease expenses for such leases on a straight-line basis over the lease term. In addition, the Company elected the land easement transition practical expedient and did not reassess whether an existing or expired land easement is a lease or contains a lease if it has not historically been accounted for as a lease.

 

The primary impact of applying ASC Topic 842 is the initial recognition of $1.6 million of lease liabilities and corresponding right-of-use assets on the Company’s consolidated balance sheet as of January 1, 2019, for leases classified as operating leases under ASC Topic 840, as well as enhanced disclosure of the Company’s leasing arrangements. There is no cumulative effect to retained earnings or other components of equity recognized as of January 1, 2019 and the adoption of this standard did not impact the consolidated statement of income and comprehensive income or consolidated statement of cash flows of the Company. The Company does not have finance lease arrangements as of March 31, 2019. See Note N for further discussion.

 

8

 

 

NOTE D - RELATED PARTY TRANSACTIONS

 

Related parties with whom the Company conducted business during the reporting periods consist of the following:

 

Name of Related Party   Nature of Relationship
Xiao Ping Zhang   Principal shareholder, Chairman of the Board and Chief Executive Officer
     
Shu Ping Chi   Shareholder, member of the Board, wife of Xiao Ping Zhang
     
Xiao Feng Zhang   Shareholder, member of the Board, brother of Xiao Ping Zhang
     
Ruili Group Co., Ltd. (“Ruili Group”)   10% shareholder of Joint Venture and is collectively controlled by Xiao Ping Zhang, Shu Ping Chi, and Xiao Feng Zhang
     
Guangzhou Ruili Kormee Automotive Electronic Control Technology Co., Ltd. (“Guangzhou Kormee”)   Controlled by Ruili Group
     
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd. (“Ruian Kormee” and formerly known as “Ruian Kormee Automobile Braking Co., Ltd.”)   Wholly controlled by Guangzhou Kormee
     
Changchun Kormee Auto Electric Co., Ltd. (“Changchun Kormee”)   Wholley controlled by Guangzhou Kormee
     
Shanghai Dachao Electric Technology Co., Ltd. (“Shanghai Dachao”)   Ruili Group holds 49% of the equity interests in Shanghai Dachao
     
Ruili MeiLian Air Management System (LangFang) Co., Ltd. (“Ruili Meilian”)   Controlled by Ruili Group
     
Wenzhou Lichuang Automobile Parts Co., Ltd. (“Wenzhou Lichuang”)   Controlled by Ruili Group
     
Ningbo Ruili Equipment Co., Ltd. (“Ningbo Ruili”)   Controlled by Ruili Group
     
Shanghai Ruili Real Estate Development Co., Ltd. (“Shanghai Ruili”)   Wholly owned by Ruili Group
     
Kunshan Yuetu Real Estate Development Co., Ltd. (“Kunshan Yuetu”)   Collectively owned by Ruili Group and Shu Ping Chi
     
Shanghai Tabouk Auto Components Co., Ltd. (“Shanghai Tabouk”)   Collectively owned by Xiao Feng Zhang and Xiao Ping Zhang
     
Hangzhou Ruili Property Development Co., Ltd.   Collectively owned by Ruili Group and Xiao Ping Zhang
     
Hangzhou Hangcheng Friction Material Co., Ltd. (“Hangzhou Hangcheng”)   Controlled by Ruili Group
     
Hangzhou Ruili Binkang Real Estate Development Co. Ltd.   Controlled by Hangzhou Ruili Property Development Co., Ltd.
     
Hangzhou Ruili Real Estate Group Co. Ltd.   Controlled by Ruili Group

 

The Company continues to purchase primarily packaging materials from Ruili Group. In addition, the Company purchases automotive components from other related parties, including Guangzhou Kormee, Ruian Kormee, Ruili Meilian, Shanghai Dachao, Wenzhou Lichuang, Hangzhou Hangcheng, Changchun Kormee, and molds from Ningbo Ruili used in its production.

 

The Company sells certain automotive products to the Ruili Group. The Company also sells parts to Guangzhou Kormee, Ruian Kormee, Shanghai Tabouk, Changchun Kormee and Ruili Meilian.

 

9

 

  

The following related party transactions occurred for the three months ended March 31, 2019 and 2018:

  

  

Three Months Ended

March 31,

 
   2019   2018 
PURCHASES FROM:        
Guangzhou Ruili Kormee Automotive Electronic Control Technology Co., Ltd.  $3,087,121   $- 
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd.   662,454    355,493 
Shanghai Dachao Electric Technology Co., Ltd.   235,170    145,618 
Ruili MeiLian Air Management System (LangFang) Co., Ltd.   76,802    2,471,243 
Ruili Group Co., Ltd.   1,855,637    1,716,788 
Hangzhou HangCheng Friction Material Co., Ltd.   14,792    - 
Ningbo Ruili Equipment Co., Ltd.   537,301    - 
Changchun Kormee Auto Electric Co., Ltd.   35,943    - 
Wenzhou Lichuang Automobile Parts Co., Ltd.   2,096,145    1,781,716 
Total purchases  $8,601,365   $6,470,858 
SALES TO:          
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd.  $25,136   $- 
Guangzhou Ruili Kormee Automotive Electronic Control Technology Co., Ltd.   2,757,243    2,353,028 
Ruili MeiLian Air Management System (LangFang) Co., Ltd.   638,902    529,873 
Ruili Group Co., Ltd.   6,842,914    4,411,287 
Changchun Kormee Auto Electric Co., Ltd.   35,943    - 
Shanghai Tabouk Auto Components Co., Ltd.   346,608    406,866 
Total sales  $10,646,746   $7,701,054 

 

  

As of

March 31,

2019

  

As of

December 31,

2018

 
ADVANCES TO RELATED PARTY        
         
Ruili Group Co., Ltd.  $98,136,035   $79,739,417 
           
Total  $98,136,035   $79,739,417 
           
ACCOUNTS RECEIVABLE FROM RELATED PARTY        
         
Shanghai Tabouk Auto Components Co., Ltd  $341,110   $261,889 
           
Total  $341,110   $261,889 
           
PREPAYMENT TO RELATED PARTY          
           
Ningbo Ruili Equipment Co., Ltd.  $5,129,110   $3,670,573 
           
 Total  $5,129,110   $3,670,573 
           
ACCOUNTS PAYABLE TO RELATED PARTIES          
           
Guangzhou Ruili Kormee Automotive Electronic Control Technology Co., Ltd.   24,562,350    7,877,485 
Shanghai Dachao Electric Technology Co., Ltd.   28,958    56,883 
Ruili MeiLian Air Management System (LangFang) Co., Ltd.   622,908    5,628,155 
Wenzhou Lichuang Auto Parts Co., Ltd.   4,953,700    9,898,777 
Changchun Kormee Auto Electric Co., Ltd.   -    9,206 
Hangzhou HangCheng Friction Material Co., Ltd.   -    334,694 
           
Total  $30,167,916   $23,805,200 

 

10

 

 

  

As of

March 31,

2019

  

As of

December 31,

2018

 
DUE TO RELATED PARTY        
         
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd.  $6,820,963   $5,959,752 
           
   $6,820,963   $5,959,752 

 

From time to time, the Company borrows from Ruili Group and its controlled companies for working capital purposes. In order to obtain the loans and mutually benefit both the debtor and creditor of the arrangement, the Company also advances to Ruili Group and its controlled companies in a short term. All the loans from related parties are non-interest bearing, unsecured and due on demand. The advances to Ruili Group were due on demand, unsecured, and bear no interest during the year ended December 31, 2017. In year 2018, the Company charged Ruili Group an interest on the average balance advanced to them. The Company recorded interests of $1,394,267 with Ruili Group during the three months ended March 31, 2019, representing an effective interest rate of approximately 6.33% per annum.

 

During the three months ended March 31, 2019, the Company obtained net proceeds of $739,289 in cash from related parties. In the same period, the Company provided Ruili Group net proceeds of $15,305,460.

 

The Company entered into a lease agreement with Ruili Group. See Note N for more details. 

 

The Company provided a guarantee for the credit line granted to Ruili Group by the China Merchants Bank in the amount of RMB 40,000,000 (approximately $ 5,828,185) for a period of 12 months starting on October 24, 2016. The credit line was renewed on October 19, 2017 for 6 months. On April 13, 2018, Ruili Group and the bank reached another extension agreement and the guarantee will be provided by the Company until April 12, 2019.

 

The Company provided a guarantee for the credit line granted to Ruili Group by Bank of Ningbo in a maximum amount of RMB 210,000,000 (approximately $ 30,597,972) for the period from July 20, 2018 to July 20, 2028.

 

The Company provided a guarantee for the credit line granted to Ruili Group by China Guangfa Bank in a maximum amount of RMB 71,000,000 (approximately $10,345,029) for the period from February 12, 2019 to January 16, 2020.

 

 The Company also has a bank deposit in the amount of RMB 20,000,000 (approximately $2,914,093) used as a guarantee for loans obtained by Wenzhou Lichuang from China Merchant Bank. The amount was included in restricted cash, current.

 

The Company has short term bank loans guaranteed or pledged by related parties. See Note J for more details.

 

11

 

 

NOTE E - ACCOUNTS RECEIVABLE, NET

 

Accounts receivable, net, consisted of the following:

 

   March 31,   December 31, 
   2019   2018 
Accounts receivable  $192,913,727   $163,903,305 
Less: allowance for doubtful accounts   (14,042,200)   (13,855,508)
Accounts receivable, net  $178,871,527   $150,047,797 

 

No customer individually accounted for more than 10% of the Company’s revenues or accounts receivable for the three months ended March 31, 2019 and 2018. The changes in the allowance for doubtful accounts at March 31, 2019 and December 31, 2018 are summarized as follows:

 

   March 31,   December 31, 
   2019   2018 
Beginning balance  $13,855,508   $13,927,156 
Add: Increase (Decrease) to allowance   (79,426)   610,610 
Effects on changes in foreign exchange rate   266,118    (682,258)
Ending balance  $14,042,200   $13,855,508 

 

NOTE F - INVENTORIES, NET

 

At March 31, 2019 and December 31, 2018, inventories consisted of the following:

 

   March 31,   December 31, 
   2019   2018 
Raw Materials  $43,083,794   $53,821,973 
Work in process   78,087,090    89,516,949 
Finished Goods   68,229,467    62,674,252 
Less: Write-down of inventories   (2,016,212)   (1,727,747)
Total Inventory  $187,384,139   $204,285,427 

   

The write-down of inventories amounted to $691,570 and $nil for the three months ended March 31, 2019 and 2018, respectively.

 

NOTE G - PROPERTY, PLANT AND EQUIPMENT, NET

 

Property, plant and equipment, net, consisted of the following at March 31, 2019 and December 31, 2018:

 

   March 31,   December 31, 
   2019   2018 
Machinery  $138,421,155   $130,912,861 
Molds   1,299,283    1,274,729 
Office equipment   4,013,170    3,566,772 
Vehicles   6,322,725    5,956,822 
Buildings   21,007,127    20,610,137 
Construction in progress   15,458,570    8,641,271 
Leasehold improvements   472,424    463,497 
Sub-Total   186,994,454    171,426,089 
           
Less: Accumulated depreciation   (79,931,250)   (75,372,703)
           
Property, plant and equipment, net  $107,063,204   $96,053,386 

 

Depreciation expense charged to operations was $3,117,643 and $2,711,374 for the three months ended March 31, 2019 and 2018, respectively.

 

12

 

 

 

NOTE H - LAND USE RIGHTS, NET

 

The balances for land use rights, net, as of March 31, 2019 and December 31, 2018 are as the following:

 

   March 31,   December 31, 
   2019   2018 
Cost  $22,713,004   $22,283,776 
Less: Accumulated amortization   (1,357,013)   (1,159,321)
Land use rights, net  $21,355,991   $21,124,455 

 

In December 2017, the Company entered into an agreement with the Ministry of Land and Resources, Ruian, to purchase the land use rights for the land located at the intersection of Fengjin Road and Wenhua Road, Binhai New District, Ruian City, Zhejiang Province, China. As of December 31, 2018, the purchase price of RMB 72.02 million (approximately $11.13 million ) was fully paid. As of the filing date, the title to the land use rights has not been transferred. The payments were included as prepayment, non-current as of  March 31, 2019 and December 31, 2018 on the accompanying consolidated balance sheets.

 

In April 2018, the Company entered into an agreement with the Ministry of Land and Resources, Ruian, to purchase the land use rights for the land located at the intersection of Tengda Road and Wanghai Road, Economic Development District, Ruian City, Zhejiang Province, China. Prepayment of RMB 42.54 million (approximately $6.43 million) was made during the year ended December 31, 2018. As of the filing date, the title to the land use rights has not been transferred to the Company. The payments were included in prepayment, non-current as of March 31, 2019 and December 31, 2018 on the accompanying consolidated balance sheets.

 

Amortization expenses were $173,687 and $132,523 for the three months ended March 31, 2019 and 2018, respectively.

 

NOTE I - DEFERRED TAX ASSETS

 

Deferred tax assets consisted of the following as of March 31, 2019 and December 31, 2018:

 

   March 31,   December 31, 
   2019   2018 
Deferred tax assets        
Allowance for doubtful accounts  $2,235,493   $2,205,048 
Revenue (net of cost)   331,492    308,046 
Unpaid accrued expenses   (87,797)   501,276 
Warranty   1,087,357    1,059,468 
Deferred tax assets   3,566,545    4,073,838 
Valuation allowance   -    - 
Net deferred tax assets  $3,566,545   $4,073,838 

 

13

 

  

Deferred taxation is calculated under the liability method in respect of taxation effect arising from all timing differences, which are expected with reasonable probability to realize in the foreseeable future. The Company’s subsidiary registered in the PRC is subject to income taxes within the PRC at the applicable tax rate.

   

NOTE J - SHORT TERM BANK LOANS

 

Bank loans represented the following as of March 31, 2019 and December 31, 2018:

 

   March 31,   December 31, 
   2019   2018 
Secured  $212,363,818   $217,940,471 
Total short term bank loan  $212,363,818   $217,940,471 

 

The Company obtained those short term loans from Bank of China, Bank of Ningbo, Agricultural Bank of China, China Minsheng Bank, Industrial Bank and China Construction Bank to finance general working capital as well as new acquisition of property, plant, and equipment. Interest rate for the loans outstanding during the three months ended March 31, 2019 ranged from 1.35% to 5.44% per annum. The maturity dates of the loans existing as of March 31, 2019 ranged from June 6, 2019 to March 20, 2020. The interest expenses, including discount fees, were $3,435,416 and $2,294,328 for the three months ended March 31, 2019 and 2018, respectively.

 

As of March 31, 2019, corporate or personal guarantees provided for those bank loans were as follows:

 

$32,672,459   Pledged by Ruili Group, a related party, with its land use rights and properties.
      
$66,830,027   Pledged by Shanghai Ruili, a related party, with its properties. Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.
      
$7,201,307   Guaranteed by Ruili Group, a related party, Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.
      
$5,710,518   Guaranteed by Ruili Group, a related party.
      
$38,612,906   Pledged by Hangzhou Ruili Property Development Ltd., a related party, with its properties. Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.
      
$37,127,794   Pledged by Shanghai Ruili, a related party, with its properties. Guaranteed by Shanghai Ruili, a related party. Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.
      
$7,425,559   Pledged by the Company with bank deposits.
      
$4,455,335   Pledged by Hangzhou Ruili Binkang Real Estate Development Co. Ltd., a related party, with its properties; Guaranteed by Hangzhou Ruili Property Development Ltd., a related party; Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.
      
$2,451,920   Guaranteed by Ruili Group, a related party; Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders; Pledged by Ruili Group, a related party, with its properties.
      
$2,450,434   Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders; Pledged by Ruili Group, a related party, with its properties.
      
$7,425,559   Pledged by the Company; Guaranteed by Hangzhou Ruili Property Development Ltd., a related party; Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.

  

14

 

 

NOTE K - LONG TERM LOANS

 

   March 31,   December 31, 
   2019   2018 
Aggregate outstanding principal balance  $30,936,398   $36,165,550 
Less: unamortized debt issuance costs, non-current portion   (423,500)   (595,117)
Less: current portion, net of unamortized debt issuance costs   (25,086,705)   (21,141,029)
Non-current portion  $5,426,193   $14,429,404 

  

In November 2017, the Company entered into two identical but independent loan agreements with Far Eastern Horizon Co., Ltd. (“Far Eastern”), each for a term of 36 months and with an effective interest rate of 8.38% per annum, payable monthly in arrears. The total long term obligations under the two agreements amounted to RMB 200,000,000 (approximately $30,608,185), pledged by the Company’s equipment in the original cost of RMB 205,690,574 (approximately $31,479,075). The Company paid debt issuance costs in cash of RMB 5,000,000 (approximately $742,324). The repayments of principal totaled $2,467,526 and $2,593,828 for the three months ended March 31, 2019 and 2018, respectively.  

  

In November 2017, the Company entered into four independent loan agreements with COSCO Shipping Leasing Co., Ltd. (“COSCO”) for a term of 36 months each. Two of the agreements were signed on November 30, 2017 with an effective interest rate of 8.50% per annum, payable monthly in arrears. The other two agreements were entered into on November 15, 2017, with an effective interest rate of 4.31% per annum, payable monthly in arrears. The total long term obligations under the four agreements amounted to RMB 235,000,000 (approximately $35,964,617), pledged by the Company’s equipment in the original cost of RMB 238,333,639 (approximately $36,474,800). The Company paid debt issuance costs in cash of RMB7,320,000 (approximately $1,025,248). The repayments of principal totaled $3,401,673 and $3,932,820 for the three months ended March 31, 2019 and 2018, respectively. 

 

The interest expenses for long term loans, including the amortization of debt issuance costs, were $537,082 and $1,059,383 for the three months ended March 31, 2019 and 2018, respectively. 

 

15

 

 

NOTE L - REVENUES FROM CONTRACTS WITH CUSTOMERS

 

In accordance with ASC 606, the Company disaggregates revenue from contracts with customers by product type. See Note P for information regarding revenue disaggregation by product type.

 

Deferred revenue is recorded when consideration is received from a customer prior to transferring goods to the customer under the terms of a sales contract. As of March 31, 2019 and December 31, 2018, the Company recorded a deferred revenue liability of $53,150,261 and $51,529,795, respectively, which was presented as “Deposits received from customers” on the accompanying consolidated balance sheets. During the three months ended March 31, 2019, the Company recognized $12,667,148 of deferred revenue included in the opening balance of deposits received from customers. The amount was included in sales on the accompanying consolidated statement of income and comprehensive income.

 

NOTE M - INCOME TAXES

   

During the year ended December 31, 2018, the Company recognized a one-time transition tax of $11,022,985 that represented management’s estimate of the amount of U.S. corporate income tax based on the deemed repatriation to the United States of the Company’s share of previously deferred earnings of certain non-U.S. subsidiaries of the Company mandated by the U.S. Tax Reform. The Company also recognized related interest and penalty of $587,821 in the year ended December 31, 2018. The Company recognized additional interest and penalty of $77,415 in the three months ended March 31, 2019. The Company elected to pay the one-time transition tax over eight years commencing in 2018. The actual impact of the U.S. Tax Reform on the Company may differ from management’s estimates, and management may update its judgments based on future regulations or guidance issued or changes in the interpretations taken that would adjust the provisional amounts recorded. As of March 31, 2019, $2,528,913 was included in income tax payable as a current liability which the Company believes will be paid within one year and the remaining balance was included in income tax payable, non-current.

  

The 2017 Tax Act also created a new requirement that, for the periods beginning after January 1, 2018, certain income (referred to as global intangible low-taxed income or “GILTI”) earned by foreign subsidiaries in excess of a deemed return on tangible assets of foreign corporations must be included in U.S. taxable income. The Company elected to account for GILTI tax in the period the tax is incurred, and therefore included it in estimating the annual effective tax rate.

 

The Joint Venture is registered in the PRC, and is therefore subject to state and local income taxes within the PRC at the applicable tax rate on the taxable income as reported in the PRC statutory financial statements in accordance with relevant income tax laws.

  

In 2018, the Joint Venture was awarded the Chinese government’s “High-Tech Enterprise” designation for a fourth time, which is valid for three years and it continues to be taxed at the 15% tax rate in 2018, 2019 and 2020.

  

The reconciliation of the effective income tax rate of the Company to the statutory income tax rate in the PRC for the three months ended March 31, 2019 and 2018 is as follows:

 

   Three Months Ended
March 31,
2019
   Three Months Ended
March 31,
2018
 
US statutory income tax rate   21.00%   21.00%
Valuation allowance recognized with respect to the loss in the US company   -21.00%   -21.00%
China statutory income tax rate   25.00%   25.00%
Effects of income tax exemptions and reliefs   -10.00%   -10.00%
Effects of additional deduction allowed for R&D expenses   -1.79%   -2.51%
Effects of expenses not deductible for tax purposes   1.91%   0.52%
Other items   0.65%   1.86%
Effective tax rate   15.78%   14.87%

  

16

 

 

Income taxes are calculated on a separate entity basis. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The provisions for income taxes for the three months ended March 31, 2019 and 2018, respectively, are summarized as follows:

 

   Three Months Ended
March 31,
2019
   Three Months Ended
March 31,
2018
 
Current  $1,288,596   $704,603 
Deferred   580,171    900,838 
Total  $1,868,767   $1,605,441 

  

NOTE N - OPERATING LEASES

 

The Company entered into various operating lease agreements for certain of its staff dormitories including a lease agreement with its related party.

 

In December 2006, Ruian entered into a lease agreement with Ruili Group Co., Ltd., a related party, for the lease of two apartment buildings for Ruian’s management personnel and staff. The initial lease term was from January 2013 to December 2016. This lease was amended in 2013, with a new lease term from January 1, 2013 to December 31, 2022. The annual lease expense is RMB 2,100,000 (approximately $305,980).

  

Balance sheet information related to operating leases is as follows:

 

   March 31,
2019
 
Operating lease right of use assets  $1,222,064 
      
Operating lease liabilities, current  $492,494 
Operating lease liabilities, non-current   797,107 
Total operating lease liabilities  $1,289,601 

   

For the three months ended March 31, 2019, the Company had operating lease costs of $144,117 and the reduction in operating lease right of use assets was $125,799. Cash paid for amounts included in the measurement of operating lease liabilities was $344,794 during the three months ended March 31, 2019. 

 

The weighted-average remaining lease term and the weighted-average discount rate of our leases are as follows:

 

   March 31,
2019
 
Weighted-average remaining lease term   3 years 
      
Weighted-average discount rate   5.24%

 

The following table summarizes the maturity of our operating lease liabilities as of March 31, 2019:

 

2019 (remaining)  $470,285 
2020   311,873 
2021   311,873 
2022   311,873 
2023 and thereafter   - 
Total lease payment   1,405,904 
  Less imputed interest   (116,303)
Total lease liabilities  $1,289,601 

  

NOTE O - WARRANTY CLAIMS

 

Warranty claims were $1,008,084 and $833,684 for the three months ended March 31, 2019 and 2018, respectively. Warranty claims are included in selling and distribution expenses on the accompanying consolidated statements of income and comprehensive income. Accrued warranty expenses are included in the balances of accrued expenses on the accompanying consolidated balance sheets. The movement of accrued warranty expenses for the three months ended March 31, 2019 was as follows:

 

Beginning balance at January 1, 2019  $7,063,122 
Aggregate increase for new warranties issued during current period   1,008,084 
Aggregate reduction for payments made and effect of exchange rate fluctuation   (822,156)
Ending balance at March 31, 2019  $7,249,050 

 

17

 

 

NOTE P - SEGMENT INFORMATION

  

The Company has two operating segments: Commercial Vehicle Brake Systems and Passenger Vehicle Brake Systems.

 

For the reporting periods, all of the Company’s long-lived assets are located in the PRC. The Company and its subsidiaries do not have long-lived assets in the United States for the reporting periods.

 

   Three Months Ended
March 31,
2019
   Three Months Ended
March 31,
2018
 
         
NET SALES TO EXTERNAL CUSTOMERS        
Commercial vehicles brake systems  $108,381,809   $91,615,325 
Passenger vehicles brake systems   27,838,115    16,111,357 
           
Net sales  $136,219,924   $107,726,682 
INTERSEGMENT SALES          
Commercial vehicles brake systems  $   $ 
Passenger vehicles brake systems        
           
Intersegment sales  $   $ 
GROSS PROFIT          
Commercial vehicles brake systems  $31,419,163   $25,769,805 
Passenger vehicles brake systems   5,101,407    4,429,681 
Gross profit  $36,520,570   $30,199,486 
Selling and distribution expenses   12,884,567    10,037,861 
General and administrative expenses   7,374,893    4,773,778 
Research and development expenses   4,951,536    3,590,402 
           
Other operating income, net   2,462,602    2,197,324 
           
Income from operations   13,772,176    13,994,769 
           
Interest income   1,736,775    1,488,264 
Government grants   1,792,412    133,933 
Other income   54,680    27,066 
Interest expenses   (3,972,498)   (3,353,711)
Exchange differences   (1,061,005)   (601,286)
Other expenses   (477,919)   (890,814)
Income before income tax expense  $11,844,621   $10,798,221 
CAPITAL EXPENDITURE          
Commercial vehicles brake systems  $10,543,989   $16,738,232 
Passenger vehicles brake systems   2,708,888    2,944,543 
           
Total  $13,252,877   $19,682,775 
DEPRECIATION AND AMORTIZATION          
Commercial vehicles brake systems  $2,691,220   $2,421,346 
Passenger vehicles brake systems   691,409    425,957 
           
Total  $3,382,629   $2,847,303 

  

18

 

 

   March 31,
2019
   December 31,
2018
 
         
TOTAL ASSETS        
Commercial vehicles brake systems  $626,405,556   $492,348,129 
Passenger vehicles brake systems   160,931,744    89,967,813 
           
Total  $787,337,300   $582,315,942 

 

   March 31,
2019
   December 31,
2018
 
         
LONG LIVED ASSETS        
Commercial vehicles brake systems  $151,639,513   $106,779,681 
Passenger vehicles brake systems   38,958,165    19,512,076 
           
Total  $190,597,678   $126,291,757 

     

NOTE Q - CONTINGENCIES

 

(1)The Company purchased the Dongshan Facility from Ruili Group in 2007 and subsequently transferred the plants and land use right to Ruili Group. The Company has never obtained the land use rights certificate nor the property ownership certificate of the building for the Dongshan Facility. The Company reserved the relevant tax amount of RMB 4,560,000 (approximately $745,220). This amount was determined based on a 3% tax rate on the consideration paid for the Dongshan Facility in the transaction, which the Company considered as the most probable amount of tax liability. The Dongshan Facility was transferred back to Ruili Group on May 5, 2016.

  

(2)The Company purchased the Development Zone Facility from Ruili Group on May 5, 2016. As of the filing date, the Company has not yet obtained the land use rights certificate or the property ownership certificate for the building of the Development Zone Facility. The Company reserved the relevant tax amount of RMB 15,030,000 (approximately $2,300,205). This amount was determined based on a 3% tax rate on the consideration paid for the Development Zone Facility, which the Company considered as the most probable amount of tax liability.

 

(3)The information of lease commitments is provided in Note N.

 

(4)The information of guarantees and assets pledged is provided in Note D.

 

NOTE R - SUBSEQUENT EVENTS

 

During the subsequent period, the Company obtained short term loans in an aggregate amount of approximately $14.3 million from Industrial Bank Co., Ltd. and China Zheshang Bank. Interest rate for those loans range from 4.57% to 5.22% per annum. The maturity date of the loans existing as of the filing date is April 17, 2020. The Company continuously pledged bank acceptance notes to obtain loans from China Zheshang Bank.

 

In the same period, the Company repaid loan principals and interest expenses in the total amount of approximately $7.3 million to China Zheshang Bank.

  

19

 

  

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following is management’s discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included on the accompanying consolidated unaudited financial statements, as well as information relating to the plans of our current management. The following discussion and analysis should be read in conjunction with our consolidated unaudited financial statements and the related notes thereto and other financial information contained elsewhere in this Form 10-Q.

 

FORWARD-LOOKING STATEMENTS

 

This quarterly report on Form 10-Q includes forward-looking statements. Any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Generally, the words “believe,” “anticipate,” “may,” “will,” “should,” “expect,” “intend,” “estimate,” “continue,” and similar expressions, or the negative thereof, or comparable terminology, are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with SEC from time to time, which could cause actual results or outcomes to differ materially from those anticipated. Some of the factors that could cause actual results to differ include: our ability to effectively implement our business strategy; our ability to handle downward pricing pressures on our products; and our ability to accurately or effectively plan our production or supply needs. For a discussion of these and all other known risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which is available on the SEC’s website at www.sec.gov. Undue reliance should not be placed on these forward-looking statements that speak only as of the date hereof. We undertake no obligation to revise or update these forward-looking statements.

 

OVERVIEW

 

The Company manufactures and distributes automotive brake systems and other key safety-related components to automotive original equipment manufacturers, or OEMs, and the related aftermarket both in China and internationally for use primarily in different types of commercial vehicles, such as trucks and buses, and in passenger vehicles. Management believes that it is the largest manufacturer of automotive brake systems in China for commercial vehicles such as trucks and buses.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

For a summary of our accounting policies and estimates, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the Year ended December 31, 2018.

 

See Note M to the attached Unaudited Consolidated Financial Statements for the information regarding changes in taxation by the government of China.

 

20

 

 

RESULTS OF OPERATIONS

 

The following statements are about results of operations for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018.

 

Sales

 

   Three Months Ended   Three Months Ended 
   March 31,
2019
   March 31,
2018
 
   (U.S. dollars in millions) 
Commercial vehicle brake systems  $108.4    80%  $91.6    85%
                     
Passenger vehicle brake systems  $27.8    20%  $16.1    15%
                     
Total  $136.2    100%  $107.7    100%

 

The sales were $136.2 million and $107.7 million for the three months ended March 31, 2019 and 2018, respectively, an increase of $28.5 million or 26.5%. The increase was mainly due to the increased sales of commercial vehicle brake systems to China OEM and aftermarket market.

 

The sales from commercial vehicle brake systems increased by $16.8 million or 18.3%, to $108.4 million for the first fiscal quarter of 2019, compared to $91.6 million for the same period of 2018. Our high quality, low cost products continued to generate higher sales and further penetrated into the commercial vehicle market, which impacted the sales of the commercial vehicle brake systems.

 

The sales from passenger vehicle brake systems increased by $11.7 million or 72.7%, to $27.8 million for the first fiscal quarter of 2019, compared to $16.1 million for the same period of 2018. The increase was mainly due to the increase of passenger vehicle market in the first fiscal quarter of 2018.

 

A breakdown of net sales revenue for these markets for the first fiscal quarter of the 2019 and 2018, respectively, is set forth below:

 

    Three Months     Percent     Three Months     Percent        
    Ended     of     Ended     of        
    March 31,
2019
    Total
Sales
    March 31,
2018
    Total
Sales
    Percentage
Change
 
    (U.S. dollars in millions)        
China OEM market   $ 74.9       55.0 %   $ 51.8       48.1 %     44.6 %
China aftermarket   $ 43.3       31.8 %   $ 38.0       35.3 %     13.9 %
International market   $ 18.0       13.2 %   $ 17.9       16.6 %     0.6 %
Total   $ 136.2       100.0 %   $ 107.7       100.0 %     26.5 %

 

Considering the increase of the production and sales of the trucks for the first fiscal quarter of 2019 in the automobile industry, our sales to the Chinese OEM Market increased by 23.1 million or 44.6%, to $74.9 million for the first fiscal quarter of 2019, compared to $51.8 million for the same period of 2018.

 

21

 

 

Our sales to the China aftermarket increased by $5.3 million or 13.9%, to $43.3 million for the first fiscal quarter of 2019, compared to $38.0 million for the same period of 2018. The increased new vehicle sales in China and the expiration of OEM warranties helped to drive our aftermarket business. Sales of our new model products, applicable to both the Chinese OEM Market and Chinese Aftermarket, also increased during the three months ended March 31, 2019. We will continue with our strategies to further optimize our sales network and to help further penetrate into new markets. Accelerated urbanization and the Chinese government’s increased support for public transportation favor our expansion in the bus aftermarket.

 

Our export sales increased by $0.1 million or 0.6%, to $18.0 million for the first fiscal quarter of 2019, as compared to $17.9 million for the same period of 2018. The increase in export sales was mainly due to our broadened customer base.

 

Cost of Sales and Gross Profit

 

Cost of sales for the three months ended March 31, 2019 were $99.7 million, an increase of $22.1 million or 28.6%, from $77.5 million for the same period last year. Our gross profit increased by 20.9% from $30.2 million for the first fiscal quarter of 2018 to $36.5 million for the first fiscal quarter of 2019.

 

Gross margin changed to 26.8% for the three months ended March 31, 2019 from 28.0% for the three months ended March 31, 2018. The decrease was mainly due to our further price promotion to strengthen our competitiveness and increase our market share in the first fiscal quarter of 2019. We intend to focus in 2019 on increasing production efficiency, improving the technologies of products, and improving our product portfolio, to help us to maintain or increase our gross profit margins.

 

Cost of sales from commercial vehicle brake systems for the three months ended March 31, 2019 was $77.0 million, an increase of $11.2 million or 17.0% from $65.8 million for the same period last year. The gross profit from commercial vehicle brake systems increased by 21.7% from $25.8 million for the first fiscal quarter of 2018 to $31.4 million for the first fiscal quarter of 2019. Gross margin from commercial vehicle brake systems increased to 29.0% from 28.1% for the three months ended March 31, 2019 compared with 2018. We intend to focus in 2019 on increasing production efficiency, improving the technologies of products, and improving our product portfolio, to help us to maintain or increase our gross profit margins.

 

Cost of sales from passenger vehicle brake systems for the three months ended March 31, 2019 was $22.7 million, an increase of $11.0 million or 94.0% from $11.7 million for the same period last year. The gross profit from passenger vehicle brake systems increased by 15.9% from $4.4 million for the first fiscal quarter of 2018 to $5.1 million for the first fiscal quarter of 2019. Gross margin from passenger vehicle brake systems changed to 18.3% from 27.5% for the three months ended March 31, 2019 compared with 2018. The decrease was mainly due to our further price promotion to strengthen our competitiveness and increase our market share in the first fiscal quarter of 2019.

 

Selling and Distribution Expenses

 

Selling and distribution expenses were $12.9 million for the three months ended March 31, 2019, as compared to $10.0 million for the same period of 2018, an increase of $2.8 million or 28.4%.

 

The increase was mainly due to increased freight expense, packaging expense and labor costs. As the percentage of sales revenue, selling expenses percentage increased to 9.5% for the three months ended March 31, 2019, as compared to 9.3% for the same period of 2018.

 

General and Administrative Expenses

 

General and administrative expenses were $7.3 million for the three months ended March 31, 2019, as compared to $4.7 million for the same period of 2018, an increase of $2.6 million or 54.5%. The increase was mainly due to the increase in allowance for doubtful accounts and labor costs during this quarter. As a percentage of sales revenue, general and administrative expenses increased to 5.4% for the three months ended March 31, 2019, as compared to 4.4% for the same period of 2018.

 

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Research and Development Expenses

 

Research and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development. Research and development expenses also include first-party development costs. For the three months ended March 31, 2019, research and development expenses were $5.0 million, as compared to $3.6 million for the same period of 2018, an increase of $1.4 million. 

 

Other Operating Income

 

Other operating income was $2.5 million for the three months ended March 31, 2019, as compared to $2.2 million for the three months ended March 31, 2018, an increase of $0.3 million. The increase was mainly due to an increase in sales of raw material scraps for the three months ended March 31, 2019.

 

Depreciation and Amortization

 

Depreciation and amortization expense increased to $3.4 million for the three months ended March 31, 2019, as compared to that of $2.8 million for the same period of 2018, an increase of $0.6 million. The increase was mainly due to some new addition in PPE and the purchase of land for the three months ended March 31, 2019.

 

Interest Income

 

Interest income for the three months ended March 31, 2019 increased by $0.2 million to $1.7 million from $1.5 million for the same period of 2018, mainly due to increased interest income from advances to related parties during the period.

 

Interest Expenses

 

The interest expenses for the three months ended March 31, 2019 increased by $0.6 million to $4.0 million from $3.4 million for the same period of 2018, mainly due to increased amount of average loans outstanding during the period.

 

Income Tax 

   

During the year ended December 31, 2018, the Company recognized a one-time transition tax of $11,022,985 that represented management’s estimate of the amount of U.S. corporate income tax based on the deemed repatriation to the United States of the Company’s share of previously deferred earnings of certain non-U.S. subsidiaries of the Company mandated by the U.S. Tax Reform. The Company also recognized related interest and penalty in the amount of $587,820 in the year ended December 31, 2018. The Company recognized additional interest and penalty of $77,415 in the three months ended March 31, 2019. The Company elected to pay the one-time transition tax over eight years commencing in 2018. The actual impact of the U.S. Tax Reform on the Company may differ from management’s estimates, and management may update its judgments based on future regulations or guidance issued or changes in the interpretations taken that would adjust the provisional amounts recorded. As of March 31, 2019, $2,528,913 was included in income tax payable as a current liability which the Company believes will be paid within one year and the remaining balance was included in income tax payable, non-current.

  

The 2017 Tax Act also created a new requirement that, for the periods beginning after January 1, 2018, certain income (referred to as global intangible low-taxed income or “GILTI”) earned by foreign subsidiaries in excess of a deemed return on tangible assets of foreign corporations must be included in U.S. taxable income. The Company elected to account for GILTI tax in the period the tax is incurred, and therefore included it in estimating the annual effective tax rate.

 

The Joint Venture is registered in the PRC, and is therefore subject to state and local income taxes within the PRC at the applicable tax rate on the taxable income as reported in the PRC statutory financial statements in accordance with relevant income tax laws.

 

In 2018, the Joint Venture was awarded the Chinese government’s “High-Tech Enterprise” designation for a fourth time, which is valid for three years and it continues to be taxed at the 15% tax rate in 2018, 2019 and 2020.

 

Income tax expenses of $1.9 million and $1.6 million were recorded for the fiscal quarter ended March 31, 2019 and 2018, respectively. 

 

23

 

 

Net Income Attributable to Non-Controlling Interest in Subsidiaries

 

Non-controlling interest in subsidiaries represents a 10% non-controlling interest in Ruian and 40% non-controlling interest in SIH, in each case held by our joint venture partners. On December 15, 2015, the Company disposed of its entire 60% equity interest in SIH. Net income attributable to non-controlling interest in subsidiaries amounted to $1.0 million and $0.9 million for the first fiscal quarter ended March 31, 2019 and 2018, respectively.

 

Net Income Attributable to Stockholders

  

The net income attributable to stockholders for the fiscal quarter ended March 31, 2019 increased by $0.7 million, to $9.0 million from $8.3 million for the fiscal quarter ended March 31, 2018 due to the increased sales and change in gross profit. Earnings per share (“EPS”), both basic and diluted, for the fiscal quarter ended March 31, 2019 and 2018, were $0.46 and $0.43.

 

Liquidity and Capital Resources

 

CASH FLOWS

 

As of March 31, 2019, the Company had cash and cash equivalents of $8.0 million, as compared to cash and cash equivalents, of $73.6 million as of December 31, 2018. The Company had working capital of $44.6 million at March 31, 2019, as compared to working capital of $47.3 million at December 31, 2018, reflecting current ratios of 1.1:1 and 1.1:1, respectively.

  

OPERATING - Net cash used in operating activities was $25.8 million for the three months ended March 31, 2019 compared with $36.3 million of net cash provided by operating activities in the same period of 2018, a decrease of $62.1 million, primarily due to the increased cash outflow resulted by changes in bank acceptance notes receivable and accounts payable and bank acceptance notes to vendors.

 

INVESTING - During the three months ended March 31, 2019, the Company expended net cash of $28.6 million in investing activities, mainly for acquisition of new equipment and land use rights to support the growth of the business and advances to related parties. For the three months ended March 31, 2018, the Company expended net cash of $81.6 million in investing activities.

  

FINANCING - During the three months ended March 31, 2019, the cash used in financing activities was $14.8 million. The cash provided by financing activities was $108.5 million for the three months ended March 31, 2018. The decrease was due to the decreased short term bank loans obtained from local commercial banks.

 

The Company has taken a number of steps to improve the management of our cash flow. We place more emphasis on collection of accounts receivable from our customers, and we maintain good relationships with local banks. We believe that our current cash and cash equivalents and anticipated cash flow generated from operations and our bank lines of credit will be sufficient to finance our working capital requirements in the foreseeable future.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

As of March 31, 2019, we did not have any material commitments for capital expenditures or have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.

 

According to the laws of China, the government owns all the land in China. Companies and individuals are authorized to possess and use the land only through land use rights granted by the Chinese government. In 2007, the Company purchased the land use rights from the Ruili Group, a related party. The Company also purchased the buildings on the land in the same transaction. The purchase price of land use right and building amounted to approximately $20 million. On May 5, 2016, the Company entered into a Purchase Agreement with the Ruili Group through Ruian, pursuant to which the Company agreed to exchange the Dongshan Facility plus RMB501 million (approximately $76.5 million) in cash for Development Zone Facility. The value of the Dongshan Facility and Development Zone Facility was appraised to be RMB 125 million (approximately $19.1 million) and RMB 626 million (approximately $95.6 million), respectively. As of March 31, 2019, total amount of RMB481 million (approximately $73.5 million) was paid to the Ruili Group in installments, and the remaining RMB20 million (approximately $3.0 million) will be paid within 10 days of completion of the required procedures for transferring the title of the facilities and the land use right as specified in the Purchase Agreement.

 

24

 

   

Even if the Company is unable to timely resolve obtain the land use right certificate for the land and related building, the Company believes that there will be no potential adverse implication on the Company for the following reasons.

 

1. The Company acquired the land use rights in a transaction between the Company and the Ruili Group, a related party. The Ruili Group, as the original land use right owner, has granted the land use right to the Company by contract which is supported by valid consideration.

 

2. No third party would oppose the Company’s use of the land, because no third party has any interest in the land use right or property ownership right, other than the Ruili Group and the government.

 

a) The Ruili Group promised that the Company has the right to use the land and related building, even before the land use certificate is transferred.

 

b) According to the laws of China, the government owns all the land and the buildings attached to the land in China. Once the land use right is granted to Ruili Group, Ruili Group has the right to assign its land use rights to any third parties, including the Company, without interference from the government. Therefore, it is unlikely that the government will oppose the Company’s right to use the land and related building.

 

c) The Company has reserved tax payables in the amount of RMB 19,590,000 (approximately US$2,891,580) on its consolidated balance sheets under the line item “accrued expenses” as if no reduction or exemption of tax is approved. This amount was determined based on a 3% tax rate on the consideration paid for the land use right in the transaction, which the Company considered as the most probable amount of tax liability. This amount also represented the maximum amount of tax the Company expects to pay if the negotiation with the local government ultimately is not successful.

 

CONTRACTUAL OBLIGATIONS

 

As of March 31, 2019, we had no material changes outside the ordinary course of business in our contractual obligations.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not Applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures:

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports pursuant to the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs. As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of March 31, 2019 was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(b) and 15d-15(b) of the Exchange Act). Based on this evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures, as of March 31, 2019, were effective, in all material respects, for the purpose stated above.

 

Changes in Internal Control over Financial Reporting:

 

There were no changes in the Company’s internal control over financial reporting during the three months ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

25

 

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

None.

 

ITEM 1A. RISK FACTORS.

 

Not applicable.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

ITEM 6. EXHIBITS

 

3.1 Amended and Restated Articles of Incorporation, as further amended (approved May 27, 2010). (1)
   
3.2 Amended and Restated Bylaws effective as of March 14, 2009. (2)
   
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (3)
   
101.1NS XBRL Instance Document
   
101.SCH XBRL Taxonomy Extension Schema Document
   
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF XBRL Taxonomy Extension Definitions Linkbase Document
   
101.LAB XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

  

(1)Incorporated herein by reference from the Registrant’s Form 8-K Current Report filed with the Securities and Exchange Commission, on June 1, 2010.

 

(2)Incorporated herein by reference from the Registrant’s Form 8-K Current Report as filed with the Securities and Exchange Commission, on March 17, 2009.

 

(3)Furnished in accordance with Item 601(b) (32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

 

26

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Dated : May 15, 2019 SORL AUTO PARTS, INC.
   
  By: /s/ Xiao Ping Zhang
   
  Name: Xiao Ping Zhang
  Title:   Chief Executive Officer
  (Principal Executive Officer)
   
  By: /s/ Zong Yun Zhou
   
  Name: Zong Yun Zhou
  Title:   Chief Financial Officer 
  (Principal Accounting Officer)

 

 

27