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, 2017 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, 2017. 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, 2017, 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.
|
(2)
|
SIGNIFICANT
ACCOUNTING POLICIES
|
The Company uses the
accrual method of accounting for financial statement and tax return purposes.
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, bank acceptance notes from customers, inventories,
current prepayments, other current assets, accounts payable and bank acceptance notes to vendors, short term bank loans, deposits
received from customers, current portion of long term loans, deferred income, income tax payable, accrued expenses 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.
Restricted cash consists of bank deposits
used to pledge bank acceptance notes and short term bank loans, deposits for obtaining letters of credit from a local bank and
bank deposits used as down payment secured on behalf of a related party for potential acquisition.
The Company entered
into credit agreements with commercial banks in China (“endorsing banks”) which agree to provide credit within stipulated
limits. Within the stipulated credit limits, the Company can issue bank acceptance notes to its suppliers as payments for the purchases.
In order to issue bank acceptance notes, the Company is generally required to make initial deposits or pledge notes receivable
to the endorsing banks in amounts of certain percentage of the face amount of the bank acceptance notes to be issued by the Company.
The cash in such accounts is restricted for use over the terms of the bank acceptance notes, which are normally three to six months.
As of June 30, 2018 and December 31, 2017, restricted cash of $36,766,952 and $0, respectively, was used to pledge the bank acceptance
notes.
During the six months ended June 30, 2018,
the Company obtained a short term bank loan in the amount of $2,824,538 from Industrial and Commercial Bank of China, which required
a pledge with bank deposits of $2,872,412. As of June 30, 2018, the bank deposits remained as the pledge for the loan. Also see
Note K for details.
The Company also
obtained letters of credit from Industrial Bank Co., Ltd. and China Zheshang Bank, which agreed to provide guarantee that the
Company would make timely payment to its suppliers for any purchases. Deposits of $3,899,284 and $275,474, respectively,
were required for this purpose as of June 30, 2018 and December 31, 2017.
As of June 30, 2018, the Company had a
bank deposit of $5,297,090(RMB 35,048,725), representing an advance to Ruili Group. The Company also had a bank deposit of $3,022,700
(RMB 20,000,000) as a security deposit of loans obtained by Wenzhou Lichuang Automobile Parts Co., Ltd., a related party, from
China Merchant Bank. Also see Note E for details.
|
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.
|
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 or repayments from related parties. Bank acceptance notes do not bear interest. As
of June 30, 2018 and December 31, 2017, bank acceptance notes receivable in the amount of $95,528,975 and $95,914,724, respectively,
were pledged to 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 for cash before the maturity of the notes and such discount fees are
included in interest expenses in the accompanying unaudited consolidated statements of income and comprehensive income (loss).
The Company has adopted
Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“ASC 606”) effective
as of January 1, 2018. The Company has chosen to use the full retrospective transition method, under which it is required to revise
its consolidated financial statements for the year ended December 31, 2017 as well as any applicable interim periods within the
year ended December 31, 2017, as if ASC 606 had been effective for those periods. Under ASC 606, the Company recognizes revenue
when a customer obtains control of promised goods, in an amount that reflects the consideration which the Company expects to receive
in exchange for the goods. To determine revenue recognition for arrangements within the scope of ASC 606, the Company performs
the following five steps: (1) identify the contracts with a customer; (2) identify the performance obligations in the contract;
(3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5)
recognize revenue when or as the entity satisfies a performance obligation. The Company only applies the five-step model to contracts
when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods it transfers to
the customer. See Note C for assessment on the impact of adopting ASC 606, and Note M for details on revenues from contracts with
customers.
|
h
.
|
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.
NOTE C – RECENTLY ISSUED ACCOUNTING
PRONOUNCEMENTS
In May 2014, the FASB issued ASC 606. ASC
606 outlines a single set of comprehensive principles for recognizing revenue under U.S. GAAP and supersedes the revenue recognition
guidance existed at the time. The main principle of ASC 606 is that revenue should be recognized to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange
for those goods or services. The Company applied the ASC and its related updates on a full retrospective basis as of January 1,
2018. The adoption of ASC 606 did not impact the previously reported financial statements in any prior period nor did it result
in a cumulative effect adjustment to retained earnings. See Note M for additional information.
In November 2016,
the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. These amendments require that
a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described
as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash
equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total
amounts shown on the statement of cash flows. The amendments do not provide a definition of restricted cash or restricted cash
equivalents. The Company adopted ASU 2016-18 effective January 1, 2018. As a result of the adoption, net cash used in investing
activities was adjusted to exclude the change in restricted cash, resulting in an increase of $5,198,792 in net cash used in investing
activities in the amount previously reported for the six months ended June 30, 2017. Restricted cash was included with cash and
cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the consolidated statements
of cash flows.
In July 2018, the FASB issued ASU 2018-09,
“Codification Improvements”, which affects a wide variety of Topics in the Codification and applies to all reporting
entities within the scope of the affected accounting guidance. These amendments represent changes to clarify, correct errors in,
or make minor improvements to the Codification, eliminating inconsistencies and providing clarifications in current guidance. Some
of the amendments do not require transition guidance and will be effective upon issuance. However, many of the amendments do have
transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities. The
Company is currently evaluating the impact of the adoption of ASU No. 2018-09 on its consolidated financial statements.
In July 2018, the FASB issued ASU 2018-10,
“Codification Improvements to Topic 842, Leases”. These amendments affect narrow aspects of the guidance issued in
the amendments in ASU 2016-02 including those regarding residual value guarantees, rate implicit in the lease, lessee reassessment
of lease classification, lessor reassessment of lease term and purchase option, variable lease payments that depend on an index
or a rate, investment tax credits, lease term and purchase option, transition guidance for amounts previously recognized in business
combinations, certain transition adjustments, transition guidance for leases previously classified as capital leases under Topic
840, transition guidance for modifications to leases previously classified as direct financing or sales-type leases under Topic
840, transition guidance for sale and leaseback transactions, impairment of net investment in the lease, unguaranteed residual
asset, effect of initial direct costs on rate implicit in the lease, and failed sale and leaseback transactions. For entities that
early adopted Topic 842, the amendments are effective upon issuance of ASU 2018-10, and the transition requirements are the same
as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the
same as the effective date and transition requirements in Topic 842. The Company is currently evaluating the impact of the adoption
of ASU No. 2018-10 on its consolidated financial statements.
In July 2018, the FASB issued ASU 2018-11,
“Leases (Topic 842): Targeted Improvements”. The amendments in this ASU affect the guidance issued in ASU 2016-02,
Leases (Topic 842), which is not yet effective. The amendments provide entities with an additional (and optional) transition method
to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the
adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.
The amendments also provide lessors with a practical expedient to not separate non-lease components from the associated lease component
and, instead, to account for those components as a single component in certain circumstances. For the entities that have not adopted
Topic 842,the effective date for this ASU are the same as those for ASU 2016-02, which is effective for fiscal years beginning
after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption
of ASU No. 2018-11 on its consolidated financial statements.
NOTE D – RECLASSIFICATIONS
Certain prior
period amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net
earnings or financial position.
NOTE E - RELATED PARTY TRANSACTIONS
Related
parties with whom the Company conducted business 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 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
|
|
|
|
Shanghai Dachao Electric Technology Co., Ltd. ("Shanghai Dachao")
|
|
Ruili
Group holds 66% 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
|
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 and Ningbo Ruili. As of June
30, 2018, the Company did not receive any materials from Ningbo Ruili purchased during the three and six months then ended. The
unreceived purchases from the relate party are recorded as prepayments, current on the accompanying consolidated balance sheets.
The Company sells certain
automotive products to the Ruili Group. The Company also sells parts to Guangzhou Kormee, Shanghai Tabouk, Ruian Kormee and Ruili
Meilian.
The following related
party transactions occurred for the three and six months ended June 30, 2018 and 2017:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
PURCHASES FROM:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guangzhou Ruili Kormee Automotive Electronic Co., Ltd.
|
|
$
|
1,744,095
|
|
|
$
|
989,679
|
|
|
$
|
1,744,095
|
|
|
$
|
1,325,606
|
|
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd.
|
|
|
1,057,603
|
|
|
|
401,132
|
|
|
|
1,413,096
|
|
|
|
756,803
|
|
Shanghai Dachao Electric Technology Co., Ltd.
|
|
|
231,069
|
|
|
|
—
|
|
|
|
376,687
|
|
|
|
55,230
|
|
Ruili MeiLian Air Management System (LangFang) Co., Ltd.
|
|
|
2,503,163
|
|
|
|
1,373,241
|
|
|
|
4,974,406
|
|
|
|
2,156,311
|
|
Ruili Group Co., Ltd.
|
|
|
2,249,962
|
|
|
|
1,382,956
|
|
|
|
3,966,750
|
|
|
|
2,509,674
|
|
Wenzhou Lichuang Automobile Parts Co., Ltd.
|
|
|
5,763,176
|
|
|
|
—
|
|
|
|
7,544,892
|
|
|
|
—
|
|
Total purchases
|
|
$
|
13,549,068
|
|
|
$
|
4,147,008
|
|
|
$
|
20,019,926
|
|
|
$
|
6,803,624
|
|
SALES TO:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guangzhou Ruili Kormee Automotive Electronic Co., Ltd.
|
|
$
|
3,461,778
|
|
|
$
|
972,084
|
|
|
$
|
5,814,806
|
|
|
$
|
1,749,441
|
|
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd.
|
|
|
54,470
|
|
|
|
12,187
|
|
|
|
54,470
|
|
|
|
12,187
|
|
Ruili MeiLian Air Management System (LangFang) Co., Ltd.
|
|
|
313,940
|
|
|
|
388,287
|
|
|
|
843,813
|
|
|
|
388,287
|
|
Ruili Group Co., Ltd.
|
|
|
1,664,885
|
|
|
|
900,859
|
|
|
|
6,076,172
|
|
|
|
3,927,783
|
|
Shanghai
Tabouk Auto Components
Co., Ltd.
|
|
|
467,454
|
|
|
|
429,156
|
|
|
|
874,320
|
|
|
|
633,559
|
|
Total sales
|
|
$
|
5,962,527
|
|
|
$
|
2,702,573
|
|
|
$
|
13,663,581
|
|
|
$
|
6,711,257
|
|
|
|
As of June 30, 2018
|
|
|
As of December 31, 2017
|
|
ADVANCES TO RELATED PARTIES
|
|
|
|
|
|
|
|
|
Ruili Group Co., Ltd.
|
|
$
|
31,194,813
|
|
|
$
|
5,711,605
|
|
Shanghai Ruili Real Estate Development Co., Ltd.
|
|
|
645,275
|
|
|
|
65,069,497
|
|
Kunshan Yuetu Real Estate Development Co., Ltd.
|
|
|
157,040
|
|
|
|
1,537,122
|
|
Total advances to related parties
|
|
$
|
31,997,128
|
|
|
$
|
72,318,224
|
|
|
|
|
|
|
|
|
|
|
ACCOUNTS RECEIVABLE
|
|
|
|
|
|
|
|
|
Shanghai Tabouk Auto Components Co., Ltd.
|
|
$
|
1,503,376
|
|
|
$
|
1,297,734
|
|
Total accounts receivable
|
|
$
|
1,503,376
|
|
|
$
|
1,297,734
|
|
|
|
|
|
|
|
|
|
|
PREPAYMENTS, CURRENT
|
|
|
|
|
|
|
|
|
Ningbo Ruili Equipment Co., Ltd.
|
|
$
|
3,440,141
|
|
|
$
|
999,527
|
|
Total prepayments, current
|
|
$
|
3,440,141
|
|
|
$
|
999,527
|
|
|
|
|
|
|
|
|
|
|
ACCOUNTS PAYABLE TO RELATED PARTIES
|
|
|
|
|
|
|
|
|
Guangzhou Ruili Kormee Automotive Electronic Control Technology Co., Ltd.
|
|
$
|
1,311,917
|
|
|
$
|
3,414,719
|
|
Shanghai Dachao Electric Technology Co., Ltd.
|
|
|
18,173
|
|
|
|
83,178
|
|
Ruili MeiLian Air Management System (LangFang) Co., Ltd.
|
|
|
3,731,822
|
|
|
|
1,993,787
|
|
Wenzhou Lichuang Automobile Parts Co., Ltd.
|
|
|
2,335,250
|
|
|
|
10,405,120
|
|
Total accounts payable to related parties
|
|
$
|
7,397,162
|
|
|
$
|
15,896,804
|
|
|
|
|
|
|
|
|
|
|
DUE TO RELATED PARTY
|
|
|
|
|
|
|
|
|
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd.
|
|
$
|
11,536,621
|
|
|
$
|
1,572,963
|
|
Total due to related party
|
|
$
|
11,536,621
|
|
|
$
|
1,572,963
|
|
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 are non-interest
bearing, unsecured, and due on demand and the advances to Shanghai Ruili and Kunshan Yuetu are due on demand, unsecured, and bear
an interest rate of 5.22% per annum. The advances to Shanghai Ruili and Kunshan Yuetu were fully repaid as of June 30, 2018.
During the six months ended June 30, 2018,
the Company obtained loans of $311,026,410 in cash and $33,721,267 in the form of bank acceptance notes from related parties.
Repayments in cash and bank acceptance notes to related parties totaled $328,443,191 and $5,846,083, respectively. In the same
period, the Company advanced to its related parties in the total amount of $190,438,634 and received cash repayments from related
parties amounted to $222,337,244. Amount due from Shanghai Ruili and Kunshan Yuetu as of June 30, 2018 represented the interest
receivable from the two related parties, which was paid as of the filing date. During the six months ended June 30, 2017, the
Company obtained loans of $62,786,671 in cash and $14,375,855 in the form of bank acceptance notes from related parties. Repayments
in cash to related parties amounted to $54,076,148.
The Company entered
into a lease agreement with Ruili Group. See Note O for more details.
During the six months ended June 30, 2018,
the Company made a bank deposit of $5,297,090 (RMB 35,048,725) as down payment to secure a potential acquisition. Initially, the
Company had the intention to acquire the target company and deposited $5,297,090 (RMB 35,048,725) into a trust account restricted
for the use in the potential acquisition. After a few rounds of discussion, the Company gave up and Ruili Group decided to do
the acquisition. As the Company and Ruili Group are under common control, the restricted deposit represented an advance to Ruili
Group, non-interest bearing, due on demand and non-secured. Also see Note B.
During the six months ended June 30, 2018,
the Company made a bank deposit of $3,022,700 (RMB 20,000,000) as security deposit for loans obtained by Wenzhou Lichuang from
China Merchant Bank. Also see Note B.
The Company provided a guarantee for the
credit line granted to Ruili Group by the China Merchants Bank in the amount of RMB 50,000,000 (approximately $7,699,889) for
a period from July 29, 2015 until two years after the due date of each loan withdrawn by Ruili Group under the credit line. The
credit line was replaced by the one issued by the same bank in the amount of RMB 40,000,000 (approximately $5,766,181) 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 23, 2018, Ruili
Group and the bank reached another extension agreement and the guarantee will be provided by the Company until April 23, 2021.
The Company provided
a guarantee for the credit line granted to Ruili Group by China Guangfa Bank in a maximum amount of RMB 69,000,000 (approximately
$10,092,000) for the period from November 16, 2016 to January 16, 2018. The credit line was renewed on December 21, 2017 for a
period of 12 months, and the guarantee was accordingly extended by the Company as of June 30, 2018 and will expire on December
20, 2018.
The Company provided
a guarantee for the credit line granted to Ruili Group by Bank of Ningbo in a maximum amount of RMB 180,000,000 (approximately
$26,328,000) for the period from June 30, 2017 to June 30, 2020.
The Company has
short term bank loans guaranteed or pledged by related parties. See Note K for more details.
NOTE F - ACCOUNTS RECEIVABLE, NET
Accounts receivable, net
consisted of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
197,964,158
|
|
|
$
|
148,312,117
|
|
Less: allowance for doubtful accounts
|
|
|
(14,891,710
|
)
|
|
|
(13,927,156
|
)
|
Accounts receivable, net
|
|
$
|
183,072,448
|
|
|
$
|
134,384,961
|
|
No customer individually
accounted for more than 10% of our revenues or accounts receivable for the six months ended June 30, 2018 and 2017. The changes
in the allowance for doubtful accounts at June 30, 2018 and December 31, 2017 are summarized as follows:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Beginning balance
|
|
$
|
13,927,156
|
|
|
$
|
11,686,417
|
|
Add: increase to allowance
|
|
|
1,445,353
|
|
|
|
1,474,872
|
|
Less: accounts written off
|
|
|
-
|
|
|
|
-
|
|
Effects on changes in foreign exchange rate
|
|
|
(480,799
|
)
|
|
|
765,867
|
|
Ending balance
|
|
$
|
14,891,710
|
|
|
$
|
13,927,156
|
|
NOTE G - INVENTORIES
At June 30,
2018 and December 31, 2017, inventories consisted of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Raw materials
|
|
$
|
32,018,882
|
|
|
$
|
27,657,266
|
|
Work-in-process
|
|
|
29,346,093
|
|
|
|
40,805,434
|
|
Finished goods
|
|
|
75,549,156
|
|
|
|
45,837,864
|
|
Less: write-down of inventories
|
|
|
-
|
|
|
|
-
|
|
Total inventories
|
|
$
|
136,914,131
|
|
|
$
|
114,300,564
|
|
NOTE H - PROPERTY, PLANT AND EQUIPMENT,
NET
Property, plant
and equipment consisted of the following at June 30, 2018 and December 31, 2017:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Machinery
|
|
$
|
126,872,185
|
|
|
$
|
119,296,564
|
|
Molds
|
|
|
1,322,238
|
|
|
|
1,338,912
|
|
Office equipment
|
|
|
3,260,035
|
|
|
|
2,998,443
|
|
Vehicles
|
|
|
4,337,091
|
|
|
|
3,681,194
|
|
Buildings
|
|
|
20,199,324
|
|
|
|
20,127,148
|
|
Leasehold improvements
|
|
|
480,771
|
|
|
|
486,834
|
|
Sub-total
|
|
|
156,471,644
|
|
|
|
147,929,095
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation
|
|
|
(72,190,332
|
)
|
|
|
(68,101,089
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
84,281,312
|
|
|
$
|
79,828,006
|
|
Depreciation expense
charged to operations was $5,531,002 and $4,041,628 for the six months ended June 30, 2018 and 2017, respectively.
NOTE I – LAND USE RIGHTS, NET
The balances
for land use rights, net, as of June 30, 2018 and December 31, 2017 are as the following:
|
|
June 30, 2018
|
|
|
December
31, 2017
|
|
Cost
|
|
$
|
23,114,290
|
|
|
$
|
15,477,081
|
|
Less: accumulated amortization
|
|
|
(847,837
|
)
|
|
|
(564,947
|
)
|
Land use rights, net
|
|
$
|
22,266,453
|
|
|
$
|
14,912,134
|
|
In September 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 Xianghe Road and North Wansong Road, Binhai New District, Ruian City, Zhejiang Province, China (the “Wansong Land”).
Full payment of RMB 51.81 million (approximately $7.93 million) was made as of December 31, 2017. The Company obtained the title
to the land use rights in April 2018. The Wansong Land has a total area of 17,029 square meters.
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. Prepayment of RMB 14.40 million (approximately
$2.14 million) was made as down payment in 2017. During the six months ended June 30, 2018, the Company paid additional amount
of RMB 57.62 million (approximately $8.99 million). As of June 30, 2018, the purchase price of RMB 72.02 (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
in prepayment, non-current as of June 30, 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 six months ended June 30, 2018. As of the filing date, the title to
the land use rights has not been transferred. The payments were included in prepayment, non-current as of June 30, 2018 on the
accompanying consolidated balance sheets.
Amortization expenses were
$301,556 and $141,816 for the six months ended June 30, 2018 and 2017, respectively.
NOTE J - DEFERRED TAX ASSETS
Deferred tax assets
consisted of the following as of June 30, 2018 and December 31, 2017:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Deferred tax assets – non-current
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
2,322,376
|
|
|
$
|
2,137,837
|
|
Revenue (net of cost)
|
|
|
100,389
|
|
|
|
160,766
|
|
Unpaid accrued expenses
|
|
|
21,558
|
|
|
|
955,287
|
|
Warranty
|
|
|
1,122,497
|
|
|
|
986,534
|
|
Deferred tax assets
|
|
|
3,566,820
|
|
|
|
4,240,424
|
|
Valuation allowance
|
|
|
-
|
|
|
|
-
|
|
Net deferred tax assets – non-current
|
|
$
|
3,566,820
|
|
|
$
|
4,240,424
|
|
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 K – SHORT TERM BANK LOANS
Bank loans represented
the following as of June 30, 2018 and December 31, 2017:
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Secured
|
|
$
|
159,452,631
|
|
|
$
|
125,380,899
|
|
Unsecured
|
|
|
2,720,431
|
|
|
|
-
|
|
Total short term bank loans
|
|
$
|
162,173,062
|
|
|
$
|
125,380,899
|
|
The Company obtained those short term loans
from Bank of China, Bank of Ningbo, Agricultural Bank of China, China Zheshang Bank, China CITIC Bank, China Minsheng Bank, Industrial
Bank Co., Ltd., Oversea-Chinese Banking Corporation Limited, Industrial and Commercial Bank of China, Huaxia Bank and China Construction
Bank, respectively, to finance general working capital and acquire long-lived assets. Interest rate for the loans outstanding
during the six months ended June 30, 2018 ranged from 0.90% to 5.72% per annum. The maturity dates of the loans existing as of
June 30, 2018 ranged from July 16, 2018 to June 12, 2019. As of June 30, 2018 and December 31, 2017, the Company’s accounts
receivable of $659,619 and $5,472,169, respectively, were pledged as collateral under loan arrangements. The interest expenses
for short term bank loans, including discount fees, were $2,590,729 and $542,176 for the three months ended June 30, 2018 and
2017, respectively. The interest expenses for short term bank loans, including discount fees, were $4,885,057 and $1,003,088 for
the six months ended June 30, 2018 and 2017, respectively.
As of June 30, 2018,
corporate or personal guarantees provided for those bank loans were as follows:
$
|
5,778,084
|
|
|
Guaranteed by Ruili Group, a related party
|
$
|
12,589,079
|
|
|
Guaranteed by Ruili Group, a related party; Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders
|
$
|
27,204,304
|
|
|
Pledged by Hangzhou Ruili Property Development Ltd., a related party under common control, with its properties; Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders
|
$
|
19,015,396
|
|
|
Pledged by Ruili Group, a related party, with its land use rights and properties
|
$
|
2,824,538
|
|
|
Pledged by the Company with a bank deposit of $2,872,412, which was included in restricted cash on the accompanying unaudited consolidated balance sheets. Also see Note B “RESTRICTED CASH” section
|
$
|
26,297,494
|
|
|
Pledged by the Company with its bank acceptance notes
|
$
|
5,289,726
|
|
|
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; Guaranteed by Ruili Group, a related party
|
$
|
60,454,010
|
|
|
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
|
NOTE L - LONG TERM LOANS
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Aggregate outstanding principal balance
|
|
$
|
50,237,609
|
|
|
$
|
63,471,308
|
|
Less: unamortized debt issuance costs
|
|
|
(1,121,359
|
)
|
|
|
(1,822,053
|
)
|
Less: current portion
|
|
|
(23,938,329
|
)
|
|
|
(24,266,031
|
)
|
Non-current portion
|
|
$
|
25,177,921
|
|
|
$
|
37,383,224
|
|
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
$742,324. For the six months ended June 30, 2018, the repayments of principal totaled $5,083,153.
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 in the amount of $1,025,248. For the six months ended June 30, 2018, the repayments of principal totaled
$7,717,633.
The interest expenses
for long term loans, including the amortization of debt issuance costs, were $938,687 for the three months ended June 30, 2018.
The interest expenses for long term loans, including the amortization of debt issuance costs, were $1,998,070 for the six months
ended June 30, 2018.
NOTE M – REVENUES FROM CONTRACTS
WITH CUSTOMERS
The Company accounted
for revenue in accordance with ASC 606, which was adopted on January 1, 2018, using full retrospective method. The adoption of
the standard did not impact the Company’s revenue recognition.
The Company provides
a variety of standard products to its customers. The Company’s contracts with its customers consist of a single, distinct
performance obligation or promise to transfer auto parts to the customers. Generally, the Company’s performance obligations
are satisfied when the customers take possession of the products, which normally occurs at the shipping point or destination depending
on the terms of the contracts. All sales are recorded net of value-added taxes. The Company does not recognize revenue related
to product warranties. See Note P for details concerning the expected costs associated with the Company’s assurance warranty
obligations.
In accordance with
ASC 606, the Company disaggregates revenue from contracts with customers by product type. See Note Q for information regarding
revenue disaggregation by product type.
Revenues from contracts
with customers are recognized at a point in time when the merchandises are delivered to the customer in accordance with the shipping
terms stated in the contracts, which is the point when the legal title, physical possession and the risks and rewards of ownership
are transferred to the customers.
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 June 30, 2018 and December 31, 2017, the Company recorded a deferred revenue liability of $62,481,147 and $43,087,473,
respectively, which was presented as “Deposits received from customers” on the accompanying consolidated balance sheets.
During the six months ended June 30, 2018 and 2017, the Company recognized $14,254,794 and $6,617,003, respectively, of deferred
revenue included in the opening balances of deposits received from customers. The amounts were included in sales on the accompanying
consolidated statements of income and comprehensive income (loss).
NOTE N - INCOME TAXES
In December 2017, the Tax Cuts and Jobs
Act (the “2017 Tax Act”) was enacted into law and the new legislation contains several key tax provisions that affected
the Company, including, among others, a reduction of the federal corporate income tax rate to 21% effective January 1, 2018, and
a recognition of the 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 upon enactment of the 2017 Tax Act. The Company
is required to recognize the effect of the 2017 Tax Act in the period of enactment. In December 2017, the SEC staff issued Staff
Accounting Bulletin No. 118 (“SAB 118”), Income Tax Accounting Implications of the 2017 Tax Act, which allows the
Company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. The Company
is evaluating the impact of the 2017 Tax Act, however, as of the filing date, the Company was unable to determine a reasonable
provision of the tax effects of the 2017 Tax Act. Therefore, no provisional amounts have been recorded on the consolidated financial
statements as of December 31, 2017 and for the six months ended June 30, 2018 in accordance with SAB 118.
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 2015, the Joint
Venture was awarded the Chinese government's "High-Tech Enterprise" designation for a third time, which is valid
for three years and it continues to be taxed at the 15% tax rate in 2015, 2016 and 2017. As the “High-Tech Enterprise”
designation expired in 2018, the Joint Venture is undergoing the re-assessment by the government and the Company estimates it is
highly probable that the designation will be awarded and therefore the 15% tax rate is used for the six months ended June 30, 2018.
The reconciliation of
the effective income tax rate of the Company to the statutory income tax rate in the PRC for the six months ended June 30, 2018
and 2017 is as follows:
|
|
Six Months Ended
June 30, 2018
|
|
|
Six Months Ended
June 30, 2017
|
|
US statutory income tax rate
|
|
|
21.00
|
%
|
|
|
35.00
|
%
|
Valuation allowance recognized with respect to the loss in the US company
|
|
|
-21.00
|
%
|
|
|
-35.00
|
%
|
China statutory income tax rate
|
|
|
25.00
|
%
|
|
|
25.00
|
%
|
Effects of income tax exemptions and reliefs
|
|
|
-10.00
|
%
|
|
|
-10.0
|
%
|
Effects of additional deduction allowed for R&D expenses
|
|
|
-3.43
|
%
|
|
|
-3.16
|
%
|
Effects of expenses not deductible for tax purposes
|
|
|
2.18
|
%
|
|
|
0.51
|
%
|
Other items
|
|
|
0.81
|
%
|
|
|
0.37
|
%
|
Effective tax rate
|
|
|
14.56
|
%
|
|
|
12.72
|
%
|
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. In the six months ended
June 30, 2018 and 2017, there were no penalties and interest, which generally are recorded in the general and administrative expenses
or in the tax expenses. The provisions for income taxes for the six months ended June 30, 2018 and 2017, respectively, are summarized
as follows:
|
|
Six Months Ended
June 30, 2018
|
|
|
Six Months Ended
June 30, 2017
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
2,201,850
|
|
|
$
|
2,610,023
|
|
Deferred
|
|
|
642,343
|
|
|
|
(12,340
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,844,193
|
|
|
$
|
2,597,683
|
|
NOTE O – OPERATING LEASE WITH
RELATED PARTY
In December
2006, Ruian entered into a lease agreement with Ruili Group Co., Ltd. for the lease of two apartment buildings. These two apartment
buildings are for Ruian’s management personnel and staff, respectively. The lease term is 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 RMB2,100,000
(approximately $333,688).
The lease expenses were $825,704 and $487,794
for the six months ended June 30, 2018 and 2017, respectively.
NOTE P - WARRANTY CLAIMS
Warranty claims
were $1,828,168 and $1,416,614 for the six months ended June 30, 2018 and 2017, respectively. Warranty claims are included in selling
and distribution expenses on the accompanying consolidated statements of income and comprehensive income (loss). 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 six months ended June 30, 2018 was as follows:
Beginning balance at January 1, 2018
|
|
$
|
6,576,895
|
|
Aggregate increase for new warranties issued during current period
|
|
|
1,828,168
|
|
Aggregate reduction for payments made and effect of exchange rate fluctuation
|
|
|
(1,155,096
|
)
|
|
|
|
|
|
Ending balance at June 30, 2018
|
|
$
|
7,249,967
|
|
NOTE Q – SEGMENT INFORMATION
The Company produces brake systems and other
related components for different types of commercial vehicles (“Commercial Vehicle Brake Systems”). On August
31, 2010, the Company through Ruian executed an Asset Purchase Agreement to acquire a segment of the passenger vehicle auto parts
business (“Passenger Vehicle Brake Systems”) of Ruili Group. As a result of this acquisition, the Company's product
offerings were expanded to both commercial and passenger vehicles' brake systems and other key safety-related auto parts.
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.
|
|
Six Month Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
NET SALES TO EXTERNAL CUSTOMERS
|
|
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
187,578,450
|
|
|
$
|
138,849,057
|
|
Passenger vehicles brake systems
|
|
|
48,653,184
|
|
|
|
27,626,905
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
236,231,634
|
|
|
$
|
166,475,962
|
|
INTERSEGMENT SALES
|
|
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
—
|
|
|
$
|
—
|
|
Passenger vehicles brake systems
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
42,734,721
|
|
|
$
|
38,696,045
|
|
Passenger vehicles brake systems
|
|
|
21,895,035
|
|
|
|
7,022,562
|
|
Gross profit
|
|
$
|
64,629,756
|
|
|
$
|
45,718,607
|
|
Selling and distribution expenses
|
|
|
23,993,870
|
|
|
|
14,594,185
|
|
General and administrative expenses
|
|
|
12,468,189
|
|
|
|
8,755,435
|
|
Research and development expenses
|
|
|
8,922,358
|
|
|
|
4,536,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating income, net
|
|
|
4,576,551
|
|
|
|
578,709
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
23,821,890
|
|
|
|
18,411,037
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
2,299,844
|
|
|
|
22,025
|
|
Government grants
|
|
|
743,525
|
|
|
|
113,304
|
|
Other income
|
|
|
202,693
|
|
|
|
714
|
|
Interest expenses
|
|
|
(6,883,127
|
)
|
|
|
(1,023,336
|
)
|
Exchange differences
|
|
|
489,922
|
|
|
|
(509,850
|
)
|
Other expenses
|
|
|
(1,145,085
|
)
|
|
|
(140,289
|
)
|
Income before income tax expense
|
|
$
|
19,529,662
|
|
|
$
|
16,873,605
|
|
CAPITAL EXPENDITURE
|
|
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
27,215,974
|
|
|
$
|
24,631,178
|
|
Passenger vehicles brake systems
|
|
|
6,496,986
|
|
|
|
4,930,415
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
33,712,960
|
|
|
$
|
29,561,593
|
|
DEPRECIATION AND AMORTIZATION
|
|
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
4,650,734
|
|
|
$
|
3,489,621
|
|
Passenger vehicles brake systems
|
|
|
1,181,824
|
|
|
|
698,190
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,832,558
|
|
|
$
|
4,187,811
|
|
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
557,314,122
|
|
|
$
|
492,348,129
|
|
Passenger vehicles brake systems
|
|
|
188,955,457
|
|
|
|
89,967,813
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
746,269,579
|
|
|
$
|
582,315,942
|
|
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
LONG LIVED ASSETS
|
|
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
113,323,019
|
|
|
$
|
106,779,681
|
|
Passenger vehicles brake systems
|
|
|
38,421,784
|
|
|
|
19,512,076
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
151,744,803
|
|
|
$
|
126,291,757
|
|
NOTE R – CONTINGENCIES
|
(1)
|
In
May 2016, the Company, through its principal operating subsidiary, entered into a Purchase Agreement with Ruili Group, pursuant
to which the Company agreed to exchange the land use rights and factory facilities located at No. 1169 Yumeng Road, Ruian Economic
Development Zone, Ruian City, Zhejiang Province, China (the “Dongshan Facility”), purchased in 2007 from Ruili Group,
plus RMB 501.00 million (approximately $76.50 million) in cash for the land use rights and factory facilities located at No. 2666
Kaifaqu Avenue, Ruian Economic Development Zone, Ruian City, Zhejiang Province, China (the “Development Zone Facility”).
As of the filing date, the Company hasn’t 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.
|
|
(2)
|
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 right 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.
|
|
(3)
|
The
information of lease commitments is provided in Note O.
|
|
(4)
|
The
information of guarantees and assets pledged is provided in Note E.
|
NOTE S
– SUBSEQUENT
EVENTS
During the subsequent period, the Company
obtained short term loans in the total amount of approximately $34,911,000 from Agricultural Bank of China and China Zheshang Bank.
Interest rates for those loans ranged from 3.73% to 4.52% per annum. The maturity dates of the loans existing as of the filing
date ranged from July 30, 2018 to July 3, 2019. The Company continuously pledged bank acceptance notes to obtain loans from Agricultural
Bank of China and China Zheshang Bank.
In the same period, the Company repaid loan
principals and interest expenses in the total amount of approximately $27,436,000 to Agricultural Bank of China, Bank of China
and China Zheshang Bank.