The accompanying notes are an integral part
of these consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - 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 65 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 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 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, the Middle East 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
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
uses the accrual method of accounting for financial statement and tax return purposes.
|
b.
|
PRINCIPLES OF CONSOLIDATION
|
The consolidated financial statements include
the accounts of SORL Auto Parts, Inc. and its majority owned subsidiaries. All inter-company balances and transactions have been
eliminated in the consolidation. The results of subsidiaries acquired or disposed of during the respective periods are included
in the consolidated statements of income and comprehensive income from the effective date of acquisition or up to the effective
date of disposal, as appropriate. The portion of the income or loss applicable to non-controlling interests in subsidiary undertakings
is reflected in the consolidated statements of income and comprehensive income.
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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
period. 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.
|
d.
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
|
For certain of the Company’s financial
instruments, including cash and cash equivalents, restricted cash, accounts receivables and payables, prepaid expenses, other current
assets, short term bank loans, current portion of long term loans, deposits received from customers and other payables and accruals,
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.
|
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.
|
f.
|
FINANCIAL RISK FACTORS AND FINANCIAL RISK MANAGEMENT
|
The Company
is exposed to the following risk factors:
|
i)
|
Credit risks – Financial instruments that potentially subject the Company to concentrations of credit risk
are cash and cash equivalents and accounts receivable arising from its normal business activities. The Company places its cash
and cash equivalents in what it believes to be credit-worthy financial institutions. The Company has policies in place to ensure
that sales of products are made to customers with an appropriate credit history. The Company performs ongoing credit evaluations
with respect to the financial condition of its creditors, but does not require collateral. In order to determine the value of the
Company’s accounts receivable, the Company records a provision for doubtful accounts to cover probable credit losses. Management
reviews and adjusts this allowance periodically based on historical experience and its evaluation of the collection of outstanding
accounts receivable. The Company has a concentration of credit risk due to geographic sales as a majority of its products are marketed
and sold in the PRC. The Company has no customer that accounts for more than 10.00% of its total revenues for the year ended December
31, 2017.
|
|
ii)
|
Liquidity risks - Prudent liquidity risk management implies maintaining sufficient cash, the availability
of funding through an adequate amount of committed credit facilities and ability to close out market positions.
|
|
iii)
|
Interest rate risk - The interest rate of short term bank borrowings obtained in 2017 ranged
from 1.35% to 5.22% and the term ranged from approximately one month to one year. The Company also obtained long term loans
from non-financial institutions for effective interest rates ranging from 4.31% to 8.50%. The Company’s income and
cash flows are substantially independent of changes in
market interest rates.
|
|
g.
|
CASH AND CASH EQUIVALENTS
|
The Company considers all highly liquid
instruments purchased with an original maturity of three months or less to be cash equivalents.
|
h.
|
SHORT TERM INVESTMENTS
|
The Company’s short term investments
include term deposits with an original maturity from three months to one year with financial institutions.
Term deposits in the amount of $21,667,802
(RMB 140,000,000) were pledged for the credit line granted to Ruili Group, a related party, by Bank of Ningbo for the period from
March 24, 2015 to March 24, 2016. As of December 31, 2016, the term deposits matured and the pledge was released as the credit
line was fully paid off by Ruili Group.
Term deposit in the amount of $6,190,800
(RMB 40,000,000) was pledged as security interest for the bank acceptance notes issued to Hangzhou Xiangwei Wuzi Co., Ltd, a related
party controlled by the relative of Ms. Shu Ping Chi, by Zhejiang Chouzhou Commercial Bank for the period from December 17, 2015
to June 17, 2016. As of December 31, 2016, the term deposit matured and the pledge was released as the bank acceptance notes were
paid off by Hangzhou Xiangwei Wuzi Co., Ltd.
Term deposit in the amount of $3,317,650
(RMB 22,000,000) was pledged for the credit line granted to Ruili Group, a related party, by Bank of Ningbo for the period from
January 13, 2016 to July 13, 2016. As of December 31, 2016, the term deposit matured and the pledge was released as the credit
line was fully paid off by Ruili Group.
In 2016, the restricted cash mainly represents
bank deposits used to pledge the bank acceptance notes. 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 note receivables 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. In 2017, with the change of the issuing
banks, the Company is no longer required to make initial deposits for issuing bank acceptance notes. The restricted cash was mainly
required as a deposit for obtaining a letter of credit from Industrial Bank Co., Ltd., which agreed to provide guarantee that
the Company would pay on time to the sellers in the case of any purchases.
Inventories are stated at the lower of
cost or net realizable value, with cost computed on a weighted-average basis. Cost includes all costs of purchase, cost of conversion
and other costs incurred in bringing the inventories to their present location and condition. Net realizable value is the estimated
selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make
the sale.
|
k.
|
PROPERTY, PLANT AND EQUIPMENT
|
Property, plant and equipment are stated
at cost less accumulated depreciation and impairment losses. The initial cost of the asset comprises its purchase price and any
directly attributable costs of bringing the asset to its working condition and location for its intended use. Depreciation is calculated
using the straight-line method over the estimated useful life of the respective assets as follows:
Category
|
|
Estimated Useful Life (Years)
|
Buildings
|
|
10-20
|
Machinery and equipment
|
|
5-10
|
Electronic equipment
|
|
5
|
Motor vehicles
|
|
5-10
|
Leasehold improvements
|
|
The lesser of remaining lease term or 10
|
Significant improvements are capitalized
when it is probable that the expenditure resulted in an increase in the future economic benefits expected to be obtained from the
use of the asset beyond its originally assessed standard of performance. When improvements are made to real property and those
improvements are permanently affixed to the property, the title to those improvements automatically transfers to the owner of the
property. The lessee’s interest in the improvements is not a direct ownership interest but rather it is an intangible right
to use and benefit from the improvements during the term of the lease.
Routine
repairs and maintenance are expensed when incurred. Gains and losses on disposal of fixed assets are recognized in the income statement
based on the net disposal proceeds less the carrying amount of the assets.
According to the law of China, the government
owns all the land in China. Companies or individuals are authorized to possess and use the land only through land use rights granted
by the Chinese government. Land use rights are being amortized using the straight-line method over the estimated useful life of
40 years.
|
m.
|
IMPAIRMENT OF LONG-LIVED ASSETS
|
Long-lived assets, such as property, plant
and equipment and other non-current assets, including intangible assets, are reviewed periodically for impairment whenever events
or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss is recognized
when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value. If
impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between
the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal
and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable
value.
|
n.
|
ACCOUNTS RECEIVABLES AND ALLOWANCE FOR BAD DEBTS
|
The Company presents accounts receivables,
net of allowances for doubtful accounts and returns, to ensure accounts receivable are not overstated due to being uncollectible.
The allowances are calculated based on
a detailed review of certain individual customer accounts, historical collectability rates, a general provision based on aging
and an estimation of the overall economic conditions affecting the Company’s customer base. The Company reviews a customer’s
credit history before extending credit. If the financial condition of its customers were to deteriorate, resulting in an impairment
of their ability to make payments, additional allowances may be required.
The Company will write off the uncollectible
receivables once any customers are bankrupt or there is a remote possibility that the Company will collect the outstanding balance.
The write-off must be reported to the local tax authorities and the Company must receive official approval from them. To date,
the Company has not written off any account receivables.
Notes receivable, generally due within
twelve months, are issued by some customers to pay certain outstanding receivable balances to the Company with specific payment
terms and definitive due dates. Notes receivable do not bear interest. As of December 31, 2017 and 2016, notes receivables in the
amount of $95,914,724 and $32,916,198, respectively, were pledged to endorsing banks to issue bank acceptance notes or short term
bank loans. The banks charge discount fees if the Company chooses to discount the notes receivables for cash before the maturity
of the notes. The Company incurred discount fees of $37,177 and $135,329 for the years ended December 31, 2017 and 2016, respectively,
which were included in interest expenses.
Revenue from the sale of goods is recognized
when the risks and rewards of ownership of the goods have transferred to the buyer including factors such as when persuasive evidence
of an arrangement exits, delivery has occurred, the sales price is fixed and determinable, and collection is probable. Revenue
consists of the invoice value for the sale of goods and services net of value-added tax (“VAT”), rebates and discounts
and returns. The Company nets sales return in gross revenue, i.e., the revenue shown in the income statement is the net sales.
The Company accounts for income taxes under
the provision of FASB ASC 740-10,
Income Taxes
, or ASC 740-10, whereby deferred income tax assets and liabilities are computed
for differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible
amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary; to reduce deferred income tax assets to the amount expected
to be realized.
|
r.
|
FOREIGN CURRENCY TRANSLATION
|
The Company maintains its books and accounting
records in RMB, the currency of the PRC, The Company’s functional currency is also RMB. The Company has adopted FASB ASC
830-30 in translating financial statement amounts from RMB to the Company’s reporting currency, U.S. dollars (“US$”).
All assets and liabilities are translated at the current rate. The stockholders’ equity accounts are translated at appropriate
historical rate. Revenue and expenses are translated at average exchange rates during the period.
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 include in the results of operations as incurred.
Mandatory contributions are made to government’s
health, retirement benefit and unemployment schemes at the statutory rates in force during the period, based on gross salary payments.
The cost of these payments is charged to the statement of income in the same period as the related salary costs.
|
t.
|
RESEARCH AND DEVELOPMENT EXPENSES
|
Research and development costs are classified
as general and administrative expenses and are expensed as incurred. Research and development expenses were $11,004,560 for the
year ended December 31, 2017, as compared with $7,709,533 for the year ended December 31, 2016.
|
u.
|
SHIPPING AND HANDLING COSTS
|
Shipping and handling cost are classified
as selling expenses and are expensed as incurred. Shipping and handling costs were $7,094,863 and $6,529,999 for the years ended
December 31, 2017 and 2016, respectively.
Advertising costs are classified as selling
expenses and are expensed as incurred. Advertising costs were $440,582 and $239,301 for the years ended December 31, 2017 and 2016,
respectively.
The Company provides for the estimated
cost of product warranties when the products are sold. Such estimates of product warranties were based on, among other things,
historical experience, product changes, material expenses, and service and transportation expenses arising from the manufactured
product. Estimates will be adjusted on the basis of actual claims and circumstances. Warranty claims were $1,570,290 and $2,503,950
for the years ended December 31, 2017 and 2016, respectively.
Purchase discounts represent discounts
received from vendors for purchasing raw materials and are netted in the cost of goods sold, if applicable.
The Company has adopted FASB Accounting
Standard Codification, or ASC 840,
Lease
. If the lease terms meet one or all of the following four criteria, it will be
classified as a capital lease, otherwise, it is an operating lease: (1) The lease transfers the title to the lessee at the end
of the term; (2) the lease contains a bargain purchase option; (3) the lease term is equal to 75% of the estimated economic life
of the leased property or more; (4) the present value of the minimum lease payment in the term equals or exceeds 90% of the fair
value of the leased property.
Cost of sales consists primarily of materials
costs, applicable local government levies, freight charges, purchasing and receiving costs, inspection costs, employee compensation,
depreciation and related costs, which are directly attributable to production. Write-down of inventories to lower of cost or market
is also recorded in cost of sales, if any.
Government grants include cash subsidies
as well as other subsidies received from the PRC government by the Joint Venture. Such subsidies are generally provided as incentives
from the local government to encourage the expansion of local business. Government grants are recognized when received and all
the conditions specified in the grant have been met. Capital grants received in advance of the acquisition of equipment are recorded
initially in deferred income and then offset against the cost of the related equipment upon acquisition.
ASC Topic 280 requires use of the “management
approach” model for segment reporting. The management approach model is based on the way a company’s management organizes
segments within the company for making operating decisions and assessing performance. Reportable segments are based on products
and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.
During the years ended December 31, 2017 and 2016, the Company operated in two reportable business segments: (1) commercial vehicles
brake systems (2) passenger vehicles brake systems.
|
cc.
|
RECENTLY ISSUED FINANCIAL STANDARDS
|
In May 2014, the FASB issued ASU 2014-09,
“Revenue from Contracts with Customers (ASC 606)”. Under ASU 2014-09, revenue is recognized when a customer obtains
control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to
receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and
uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for fiscal years and interim
periods within those years beginning after December 15, 2017, and early adoption is permitted for periods beginning after December
15, 2016. The Company elected to adopt the new standard effective January 1, 2018.
The guidance permits two methods of adoption:
retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect
of initially applying the guidance recognized at the date of initial application (modified retrospective method). The Company elected
adopting the standard using the full retrospective method to restate prior reporting period presented. The Company has identified
its revenue streams and assessed each for the impacts. The Company expects the adoption of Topic 606 will not have a material impact
in the timing or amount of revenue recognized, including the presentation of revenues in the Company’s consolidated statements
of income.
In November 2015, the FASB issued ASU 2015-17,
“Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”. The amendments in ASU 2015-17 eliminates
the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified
balance sheet. Instead, organizations will be required to classify all deferred tax assets and liabilities as noncurrent. The amendments
in this ASU are effective for public business entities for financial statements issued for annual periods beginning after December
15, 2016, and interim periods within those annual periods. The amendments may be applied prospectively to all deferred tax liabilities
and assets or retrospectively to all periods presented. The Company adopted this amendment from January 1, 2017. The adoption did
not have an impact on our consolidated financial statements and related disclosures other than for reclassification.
In February 2016, the FASB issued ASU 2016-02,
“Leases (Topic 842)”. ASU 2016-02 specifies the accounting for leases. For operating leases, ASU 2016-02 requires a
lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments,
on its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the
lease is allocated over the lease term, generally on a straight-line basis. In addition, this standard requires both lessees and
lessors to disclose certain key information about lease transactions. ASU 2016-02 is effective for publicly-traded companies for
annual reporting periods, and interim periods within those years, beginning after December 15, 2018. Lessees (for capital and operating
leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach
for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.
The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative
period presented. Lessees may not apply a full retrospective transition approach. The Company plans to adopt the standard effective
January 1, 2019. The Company anticipates this standard will not have a material impact on the Company’s consolidated financial
statements.
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 amendments in
this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within
those fiscal years. Early adoption is permitted. The Company elected to adopt the standard effective January 1, 2018 and anticipates
this standard will not have a material impact on the Company’s consolidated statements of cash flows.
In January 2017, the FASB issued ASU 2017-03,
“Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323)”.
This pronouncement amends the SEC’s reporting requirements for public filers in regard to new accounting pronouncements or
existing pronouncements that have not yet been adopted. Companies are to provide qualitative disclosures if they have not yet implemented
an accounting standards update. Companies should disclose if they are unable to estimate the impact of a specific pronouncement,
and provide disclosures including a description of the effect on accounting policies that the registrant expects to apply. These
provisions apply to all pronouncements that have not yet been implemented by registrants. There are additional provisions that
relate to corrections to several other prior FASB pronouncements. The Company has incorporated language into other recently issued
accounting pronouncement notes, where relevant for the corrections in ASU 2017-03. The Company is implementing the updated
SEC requirements on not yet adopted accounting pronouncements with these consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02,
“Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated
Other Comprehensive Income”. These amendments provide financial statement preparers with an option to reclassify stranded
tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change
in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The amendments in
this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal
years. Early adoption of ASU 2018-02 is permitted, including adoption in any interim period for the public business entities for
reporting periods for which financial statements have not yet been issued. The amendments in this ASU should be applied either
in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal
corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company is currently evaluating the impact of the adoption
of ASU No. 2018-02 on its consolidated financial statements.
In March 2018, the FASB issued ASU 2018-05,
“Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118”. The amendments
in this ASU add SEC paragraphs pursuant to the SEC Staff Accounting Bulletin No. 118, which expresses the view of the staff regarding
application of Topic 740, Income Taxes, in the reporting period that includes December 22, 2017 - the date on which the Tax Cuts
and Jobs Act was signed into law. The amendments are effective upon addition to the FASB Accounting Standards Codification. The
Company is currently evaluating the impact of the adoption of this guidance on the Consolidated Financial Statements.
NOTE 3 - RECLASSIFICATIONS
Certain prior year amounts have been reclassified
to conform to the current period presentation. These reclassifications had no impact on net earnings and financial position.
NOTE 4 - 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 Control Technology Co., Ltd. ("Guangzhou Kormee")
|
|
Controlled by Ruili Group
|
|
|
|
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd. (formerly known as “Ruian Kormee Automobile Braking Co., Ltd.”, "Ruian Kormee")
|
|
Wholly 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 controlled 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 five other related parties,
Guangzhou Kormee, Ruian Kormee, Ruili Meilian, Shanghai Dachao and Wenzhou Lichuang. The Company also purchases 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 and Ruili Meilian.
The following related party transactions occurred
for the years ended December 31, 2017 and 2016:
For the Years Ended December 31,
|
|
|
2017
|
|
|
2016
|
|
PURCHASES FROM:
|
|
|
|
|
|
|
|
|
Guangzhou Ruili Kormee Automative Eletronic Control Technology Co., Ltd.
|
|
$
|
4,487,457
|
|
|
$
|
793,861
|
|
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd.
|
|
|
1,357,612
|
|
|
|
1,329,135
|
|
Shanghai Dachao Electric Technology Co., Ltd.
|
|
|
188,899
|
|
|
|
1,787,921
|
|
Ruili MeiLian Air Management System (LangFang) Co., Ltd.
|
|
|
4,106,986
|
|
|
|
110,446
|
|
Ruili Group Co., Ltd.
|
|
|
5,478,853
|
|
|
|
4,011,206
|
|
Wenzhou Lichuang Auto Parts Co., Ltd.
|
|
|
5,446,212
|
|
|
|
—
|
|
Total Purchases
|
|
$
|
21,066,019
|
|
|
$
|
8,032,569
|
|
|
|
|
|
|
|
|
|
|
SALES TO:
|
|
|
|
|
|
|
|
|
Guangzhou Ruili Kormee Automative Eletronic Control Technology Co., Ltd.
|
|
$
|
7,467,661
|
|
|
$
|
5,781,501
|
|
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd.
|
|
|
135,911
|
|
|
|
37,325
|
|
Ruili MeiLian Air Management System (LangFang) Co., Ltd.
|
|
|
1,253,664
|
|
|
|
—
|
|
Ruili Group Co., Ltd.
|
|
|
14,108,062
|
|
|
|
13,436,421
|
|
Shanghai Tabouk Auto Components Co., Ltd.
|
|
|
1,411,324
|
|
|
|
1,034,124
|
|
Total Sales
|
|
$
|
24,376,622
|
|
|
$
|
20,289,371
|
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
ACCOUNTS RECEIVABLE
|
|
|
|
|
|
|
|
|
Ruili Group Co., Ltd.
|
|
$
|
—
|
|
|
$
|
4,361,010
|
|
Guangzhou Ruili Kormee Automotive Electronic Control Technology Co., Ltd.
|
|
|
—
|
|
|
|
664,499
|
|
Shanghai Tabouk Auto Components Co., Ltd.
|
|
|
1,297,734
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,297,734
|
|
|
$
|
5,025,509
|
|
|
|
|
|
|
|
|
|
|
ACCOUNTS PREPAYMENT
|
|
|
|
|
|
|
|
|
Ningbo Ruili Equipment Co., Ltd.
|
|
$
|
999,527
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
999,527
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
ADVANCES TO RELATED PARTIES
|
|
|
|
|
|
|
|
|
Ruili Group Co., Ltd.
|
|
$
|
5,711,605
|
|
|
$
|
—
|
|
Shanghai Ruili Real Estate Development Co., Ltd.
|
|
|
65,069,497
|
|
|
|
—
|
|
Kunshan Yuetu Real Estate Development Co., Ltd.
|
|
|
1,537,122
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
72,318,224
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
ACCOUNTS PAYABLE TO RELATED PARTIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd.
|
|
$
|
—
|
|
|
$
|
628,310
|
|
Guangzhou Ruili Kormee Automotive Electronic Control Technology Co., Ltd.
|
|
|
3,414,719
|
|
|
|
—
|
|
Shanghai Dachao Electric Technology Co., Ltd.
|
|
|
83,178
|
|
|
|
100,441
|
|
Ruili MeiLian Air Management System (LangFang) Co., Ltd.
|
|
|
1,993,787
|
|
|
|
1,224,956
|
|
Wenzhou Lichuang Auto Parts Co., Ltd.
|
|
|
10,405,120
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,896,804
|
|
|
$
|
1,953,707
|
|
|
|
|
|
|
|
|
|
|
DUE TO RELATED PARTY
|
|
|
|
|
|
|
|
|
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd.
|
|
$
|
1,572,963
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,572,963
|
|
|
$
|
—
|
|
During the year ended December 31, 2017,
the Company advanced to its related parties in the amount of $186,885,309, including $117,296,565 to Ruili Group, $2,185,691 to
Ruian Kormee, $65,918,404 to Shanghai Ruili and $1,484,649 to Kunshan Yuetu. Cash repayments received from related parties amounted
to $118,436,661, including $115,467,364 from Ruili Group and $2,969,297 from Shanghai Ruili. The effect of changes in foreign exchange
rate is $2,109,754. The Company, Ruian Kormee, and Ruili Group agreed that Ruili Group would transfer $3,711,622 in 2017 to Ruian
Kormee by adjusting their corresponding balances with the Company, as a result the Company owed $1,572,963 to Ruian Kormee
and had advance balance of $5,711,605 from Ruili Group as of December 31, 2017.
The advances to Ruili Group and Ruian Kormee
are non-interest bearing, unsecured and due on demand. Those advances are usually repaid within 3 months and are in return for
their constant financing support provided to the Company. The advances to Shanghai Ruili and Kunshan Yuetu, bearing an interest
rate of 5.22% per annum. During the year ended December 31, 2017, the interest income from advances to related parties amounted
to $181,272, which has not been paid as of the filing date. During the year ended December 31, 2016, the Company provided an interest-free
borrowing of $18,247,384 to Ruili Group. The borrowing was fully repaid as of December 31, 2016.
Subsequent to December 31, 2017, the Company
continued to provide loans to related parties. See Note 21 for more details.
During the year ended December 31, 2017,
the Company obtained loans from related parties for working capital purposes. Of the total cash borrowings of $103,775,545, $88,197,285
was obtained from Ruili Group and $15,578,260 from Ruian Kormee. The Company also borrowed the amount of $35,706,576 in the form
of bank acceptance notes from Ruili Group. Cash repayments to related parties totaled $139,482,122, including $123,903,862 to Ruili
Group and $15,578,260 to Ruian Kormee.
As of December 31, 2017, the Company
prepaid Ningbo Ruili in the amount of $999,527 for the purchase of molds which are used in production for 2018.
The Company also entered into several
lease agreements with related parties. See Note 17 for more details.
The Company provided a guarantee for the
credit line granted to Ruili Group by Bank of Ningbo in the amount of RMB 150,000,000 (approximately $21,623,180) for the period
from May 30, 2016 to May 14, 2017. As of December 31, 2017, the guarantee was released as the credit line was fully paid off by
Ruili Group.
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, and the guarantee was accordingly extended by the Company as of December 31, 2017 and will expire on April 18, 2018.
The Company provided a guarantee for the
credit line granted to Ruili Group by China Guangfa Bank in the amount of RMB 200,000,000 (approximately $28,830,907) for the period
from May 22, 2016 to May 22, 2017. As of December 31, 2017, the guarantee was released as the credit line was fully paid off by
Ruili Group.
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 December 31, 2017 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 11 for more details.
In May 2016, the Company, through its principal
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, Rui’an Economic Development Zone, Rui’an City, Zhejiang Province,
China, purchased from Ruili Group in 2007. See Note 7 for more details.
NOTE 5 - ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consisted of the
following:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Accounts receivable
|
|
$
|
148,312,117
|
|
|
$
|
113,815,711
|
|
Less: allowance for doubtful accounts
|
|
|
(13,927,156
|
)
|
|
|
(11,686,417
|
)
|
|
|
|
|
|
|
|
|
|
Account receivable balance, net
|
|
$
|
134,384,961
|
|
|
$
|
102,129,294
|
|
No customer individually accounted for
more than 10% of our revenues or accounts receivable for the years ended December 31, 2017 and 2016. The changes in the allowance
for doubtful accounts at December 31, 2017 and December 31, 2016 were summarized as follows:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Beginning balance
|
|
$
|
11,686,417
|
|
|
$
|
12,075,402
|
|
Add: Increase to allowance
|
|
|
1,474,872
|
|
|
|
395,491
|
|
Less: Accounts written off
|
|
|
—
|
|
|
|
—
|
|
Effects on changes in foreign exchange rate
|
|
|
765,867
|
|
|
|
(784,476
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
13,927,156
|
|
|
$
|
11,686,417
|
|
NOTE 6 – INVENTORIES
On December 31, 2017
and December 31, 2016, inventories consisted of the following:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Raw materials
|
|
$
|
27,657,266
|
|
|
$
|
20,121,513
|
|
Work-in-process
|
|
|
40,805,434
|
|
|
|
14,843,653
|
|
Finished goods
|
|
|
45,837,864
|
|
|
|
30,811,351
|
|
|
|
|
|
|
|
|
|
|
Less: Write-down of inventories
|
|
|
—
|
|
|
|
—
|
|
Total inventories
|
|
$
|
114,300,564
|
|
|
$
|
65,776,517
|
|
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT,
NET
Property, plant and equipment, net, consisted
of the following, on December 31, 2017 and December 31, 2016:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Machinery
|
|
$
|
119,296,564
|
|
|
$
|
87,694,677
|
|
Molds
|
|
|
1,338,912
|
|
|
|
1,257,841
|
|
Office equipment
|
|
|
2,998,443
|
|
|
|
2,021,982
|
|
Vehicles
|
|
|
3,681,194
|
|
|
|
2,246,203
|
|
Buildings
|
|
|
20,127,148
|
|
|
|
15,826,738
|
|
Leasehold improvements
|
|
|
486,834
|
|
|
|
458,566
|
|
Sub-total
|
|
|
147,929,095
|
|
|
|
109,506,007
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation
|
|
|
(68,101,089
|
)
|
|
|
(55,768,301
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
79,828,006
|
|
|
$
|
53,737,706
|
|
Depreciation expense charged to operations
was $8,871,856 and $6,943,941 for the years ended December 31, 2017 and 2016, respectively.
In May 2016, the Company, through its principal
operating subsidiary, entered into a Purchase Agreement (the “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, Rui'an Economic Development
Zone, Rui'an 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, Rui’an Economic Development Zone, Rui’an City, Zhejiang Province, China (the “Development Zone Facility”).
As of the filing date, the Company has not obtained the property ownership certificate or land use right certificate of the Development
Zone Facility. The Company reserved the relevant tax amount of RMB 4.56 million (approximately $0.75 million) for the Dongshan
Facility and RMB 15.00 million (approximately $2.30 million) for the Development Zone Facility. These amounts were determined based
on a 3% tax rate on the consideration paid for the Dongshan Facility and the Development Zone Facility in the transactions, which
the Company considered as the most probable amount of tax liability.
In July 2017, Ruian, a subsidiary of the
Company, purchased plants and the associated land use rights from Yunding Holding Group Co., Ltd. in cash at the purchase price
of RMB 60.06 million (approximately $8.87 million). The total cost including related deed tax and stamp duty is RMB 58.95 million
(approximately $8.88 million) net of value-added input tax in association with the purchase, which has been fully paid in cash
as of December 31, 2017. The title of the plants and the associated land use rights was transferred in July 2017. The allocated
costs for the land use rights and the plants are RMB 42.35 million (approximately $6.38 million) and RMB 16.60 million (approximately
$2.50 million), respectively. The plants and associated land use rights will be used to meet Ruian’s growing operational
needs and is located in the east side of the International Auto Parts District, Tangxia Town, Ruian City, Zhejiang Province, China
with a land use area of 33,141 square meters and a building floor area of 25,016 square meters.
NOTE 8 – LAND USE RIGHTS, NET
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Cost
|
|
$
|
15,477,081
|
|
|
$
|
8,473,362
|
|
Less: Accumulated amortization
|
|
|
(564,947
|
)
|
|
|
(164,029
|
)
|
Land use rights, net
|
|
$
|
14,912,134
|
|
|
$
|
8,309,333
|
|
According to the law 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 connection with the execution of the
Purchase Agreement in May 2016, the Company exchanged the Dongshan Facility plus RMB 501.00 million (approximately $76.50 million)
in cash for Development Zone Facility, including land use rights with historical value of approximately $8.50 million. As of the
filing date, the Company has not obtained the land use right certificate of the Development Zone Facility. Also see Note 7 for
more details.
In July 2017, Ruian, a subsidiary of the
Company, purchased plants and the associated land use rights from Yunding Holding Group Co., Ltd. in cash at the purchase price
of RMB 60.06 million (approximately $8.87 million). The title of the plants and land use rights was transferred in July 2017. The
allocated cost for the land use rights is RMB 42.35 million (approximately $6.38 million). Also see Note 7 for more details.
During the year ended December 31, 2017,
the Company prepaid the amount of RMB 51.81 million (approximately $7.93 million) as full payment and RMB 20.00 million (approximately
$3.01 million) as a refundable deposit to purchase the land use rights for the land located at the intersection of Xianghe Road
and North Wansong Road, Binhai New District, Rui’an City, Zhejiang Province, China. The deposit was refunded to the Company
as of December 31, 2017. As of the filing date, the title to the land use rights has not been transferred. The payment was included
in prepayments, non-current in the consolidated balance sheets. Also see Note 9 for details.
During the year ended December 31, 2017,
the Company prepaid the amount of RMB 14.40 million (approximately $2.14 million) as down payment to purchase the land use rights
for the land located at the intersection of Fengjin Road and Wenhua Road, Binhai New District, Rui’an City, Zhejiang Province,
China. As of the filing date, the total purchase price of RMB72.02 million (approximately $11.02 million) including the value-added
tax has been made, but the title to the land use rights has not been transferred. The down payment was included in prepayments,
non-current in the consolidated balance sheets. Also see Note 9 for details.
Amortization expenses were $379,121 and
$284,717 for the years ended December 31, 2017 and 2016, respectively.
NOTE 9 - PREPAYMENTS
Prepayments consisted of the following
as of December 31, 2017 and December 31, 2016:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Raw material suppliers
|
|
$
|
8,826,004
|
|
|
$
|
10,797,601
|
|
Equipment and land use rights purchases
|
|
|
16,594,987
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total prepayments
|
|
$
|
25,420,991
|
|
|
$
|
10,797,601
|
|
As of December 31, 2017, prepayments to
raw material suppliers totaled $8,826,004, including prepayments to Ningbo Ruili, a related party under common control, in the
amount of $999,527. Also see Note 4 for details.
During the year ended December 31, 2017,
the Company prepaid the amount of RMB 51.81 million (approximately $7.93 million) to purchase land use rights for the land located
at the intersection of Xianghe Road and North Wansong Road, Binhai New District, Rui’an City, Zhejiang Province, China. The
Company also prepaid the amount of RMB 14.40 million (approximately $2.14 million) as down payment to purchase the land use rights
for the land located at the intersection of Fengjin Road and Wenhua Road, Binhai New District, Rui’an City, Zhejiang Province,
China. As of the filing date, neither of the titles to the land use rights mentioned above has been transferred. Also see Note
8 for details.
NOTE 10- DEFERRED TAX ASSETS AND DEFERRED
TAX LIABILITIES
Deferred tax assets as of December 31,
2017 and December 31, 2016 comprise of the following:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Deferred tax assets - noncurrent
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
2,137,837
|
|
|
$
|
1,798,894
|
|
Revenue (net of cost)
|
|
|
160,766
|
|
|
|
76,719
|
|
Unpaid accrued expenses
|
|
|
955,287
|
|
|
|
357,352
|
|
Warranty
|
|
|
986,534
|
|
|
|
977,610
|
|
Deferred tax assets
|
|
|
4,240,424
|
|
|
|
3,210,575
|
|
Valuation allowance
|
|
|
―
|
|
|
|
―
|
|
Net deferred tax assets - noncurrent
|
|
$
|
4,240,424
|
|
|
$
|
3,210,575
|
|
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 and its subsidiaries do not have income tax liabilities in U.S. as the Company
had no U.S. taxable income for the reporting period. The Company’s subsidiary registered in the PRC is subject to income
taxes within the PRC at the applicable tax rate.
NOTE 11 – SHORT TERM BANK LOANS
Bank loans represented the following as
of December 31, 2017 and December 31, 2016:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Secured
|
|
$
|
125,380,899
|
|
|
$
|
27,416,376
|
|
The Company obtained those short term
loans from Bank of China, Bank of Ningbo, Agricultural Bank of China, China Zheshang Bank, China Minsheng Bank, Industrial Bank
Co., Ltd., Oversea-Chinese Banking Corporation Limited and China Construction Bank, respectively, to finance general working capital
and acquire long-lived assets. Interest rate for the loans outstanding as of December 31, 2017 ranged from 0.9% to 5.22% per annum.
The maturity dates of the loans existing as of December 31, 2017 ranged from January 4, 2018 to December 19, 2018. As of December
31, 2017 and 2016, the Company’s accounts receivables of $5,472,169 and $4,484,755, respectively, were pledged as collateral
under loan arrangements. The interest expenses, including discount fees, were $2,752,579 and $887,097 for the years ended December
31, 2017 and 2016, respectively.
As of December 31, 2017, corporate or personal guarantees provided
for those bank loans were as follows:
|
56,564,323
|
|
|
Pledged with the Company’s bank acceptance notes.
|
|
|
|
|
|
|
16,594,227
|
|
|
Guaranteed by Ruili Group., a related party, Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.
|
|
|
|
|
|
|
11,478,069
|
|
|
Pledged by Shanghai Ruili, a related party, with its property. Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.
|
|
|
|
|
|
|
5,850,950
|
|
|
Guaranteed by Ruili Group.
|
|
|
|
|
|
|
7,345,964
|
|
|
Pledged by the Company with its land use rights and property. Guaranteed by Ruili Group, a related party and Ms. Xiao Ping Zhang, the Company’s principal stockholders.
|
|
|
|
|
|
|
27,547,366
|
|
|
Pledged by HangZhou Ruili Property Development Co., Ltd., a related party, with its property. Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.
|
NOTE 12 - ACCRUED EXPENSES
Accrued expenses consisted of the following
as of December 31, 2017 and December 31, 2016:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Accrued payroll
|
|
$
|
11,063,726
|
|
|
$
|
6,267,794
|
|
Accrued warranty expenses
|
|
|
6,576,895
|
|
|
|
6,517,402
|
|
Other accrued expenses
|
|
|
7,514,037
|
|
|
|
7,318,196
|
|
Total accrued expenses
|
|
$
|
25,154,658
|
|
|
$
|
20,103,392
|
|
NOTE 13 – LONG TERM LOANS
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Aggregate
outstanding principal balance
|
|
$
|
63,471,308
|
|
|
$
|
―
|
|
Less:
unamortized debt issuance costs
|
|
|
(1,822,053
|
)
|
|
|
―
|
|
Less:
current portion
|
|
|
(24,266,031
|
)
|
|
|
―
|
|
Non-current
portion
|
|
$
|
37,383,224
|
|
|
$
|
―
|
|
On November 16, 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). In connection with the loan
agreements, the Company paid deposits in cash for an aggregated amount of RMB 35,000,000 (approximately $5,196,271), with an
annual interest of 7% for 42 months to be received from Far Eastern. During the year ended December 31, 2017, the total
proceeds of long term loans included cash of RMB 100,000,000 or $14,846,488 and bank acceptance notes in the amount of RMB 100,000,000 or $14,846,487. Repayment of
principal totaled $1,599,930 for the year ended December 31, 2017. The Company also paid debt issuance costs in cash of
$742,324 for the year ended December 31, 2017.
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). Total proceeds under
these loan agreements, net of deposits on loan agreements of $5,196,271 which was deducted by COSCO, totaled $29,692,975, including
cash of RMB 100,000,000 or $14,846,487 and bank acceptance notes in the amount of RMB 100,000,000 or $14,846,488. For the year ended December 31, 2017, repayment of
principal for these loan agreements was in the amount of $1,408,826. The Company also paid debt issuance costs in cash in the amount
of $1,025,248 for the year ended December 31, 2017.
The interest expense for long term
loans was in the amount of $347,817 for the year ended December 31, 2017.
The following table summarizes the aggregate
required repayments of principal amounts of the Company’s long term loans in the succeeding five years and thereafter:
|
|
Amount
|
|
For the years ending December 31,
|
|
|
|
|
2018
|
|
$
|
24,266,031
|
|
2019
|
|
|
21,638,468
|
|
2020
|
|
|
15,744,756
|
|
Thereafter
|
|
|
―
|
|
|
|
|
|
|
Total
|
|
$
|
61,649,255
|
|
NOTE 14 – RESERVE
The reserve funds were comprised of the
following:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Statutory surplus reserve fund
|
|
$
|
17,562,357
|
|
|
$
|
15,129,935
|
|
Total
|
|
$
|
17,562,357
|
|
|
$
|
15,129,935
|
|
Pursuant to the relevant laws and regulations
of Sino-Foreign joint venture enterprises, the profits of the Company's subsidiary, which are based on their PRC statutory financial
statements, are available for distribution in the form of cash dividends after they have satisfied all the PRC tax liabilities,
provided for losses in previous years, and made appropriations to reserve funds, as determined at the discretion of the board of
directors in accordance with PRC accounting standards and regulations.
As stipulated by the relevant laws and
regulations for enterprises operating in the PRC, Ruian is required to make annual appropriations to the statutory surplus funds.
In accordance with the relevant PRC regulations and the articles of association of the respective companies, Ruian is required
to allocate a certain percentage of its profits after taxation, as determined in accordance with PRC accounting standards applicable
to the Company, to the statutory surplus reserve until such reserve reaches 50% of the registered capital of the Company.
Net income as reported in the U.S. GAAP
financial statements differs from that as reported in the PRC statutory financial statements. In accordance with the relevant laws
and regulations in the PRC, the profits available for distribution are based on the statutory financial statements. If Ruian has
foreign currency available after meeting its operational needs, Ruian may make its profit distributions in foreign currency to
the extent foreign currency is available. Otherwise, it is necessary to obtain approval and convert such distributions at an authorized
bank. The reserve fund consists of retained earnings which have been allocated to the statutory reserve fund.
NOTE 15 - INCOME TAXES
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 2009, the Joint Venture was awarded
the Chinese government's "High-Tech Enterprise" designation. The High-Tech Enterprise certificate is valid for three
years and provided for a reduced tax rate of 15% for years 2009 through 2011. The Company used a tax rate of 25% for the first
three quarters of 2012. In December 2012, the Joint Venture passed the re-assessment of “High-Tech Enterprise” designation
by the government, according to relevant PRC income tax laws. The High-Tech Enterprise certificate is valid for three years and
provides for a reduced tax rate for years 2012 through 2014. 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.
The reconciliation of the effective income
tax rate of the Joint Venture to the statutory income tax rate in the PRC for the years ended December 31, 2017 and 2016 is as
follows:
|
|
Years Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
US statutory income tax rate
|
|
|
35.00
|
%
|
|
|
35.00
|
%
|
Valuation allowance recognized with respect to the loss in the US company
|
|
|
-35.00
|
%
|
|
|
-35.00
|
%
|
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
|
|
|
-2.34
|
%
|
|
|
-2.88
|
%
|
Effects of expenses not deductible for tax purposes
|
|
|
0.79
|
%
|
|
|
0.61
|
%
|
Other items
|
|
|
1.41
|
%
|
|
|
0.54
|
%
|
Effective tax rate
|
|
|
14.86
|
%
|
|
|
13.27
|
%
|
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. There currently is no tax benefit
or burden recorded for the entity located in U.S. The tax authority may examine the tax returns of the Company three years after
the year ended. The provisions for income taxes for the years ended December 31, 2017 and
2016, respectively, are summarized as follows:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
5,524,868
|
|
|
$
|
3,769,316
|
|
Deferred
|
|
|
(807,058
|
)
|
|
|
(502,903
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,717,810
|
|
|
$
|
3,266,413
|
|
ASC 740-10 requires recognition and measurement
of uncertain income tax positions using a “more-likely-than-not” approach. The management evaluated the Company’s
tax positions and considered that no provision for uncertainty in income taxes was necessary as of December 31, 2017 and 2016.
NOTE 16 – NON-CONTROLLING INTEREST
IN SUBSIDIARIES
Non-controlling interest in subsidiaries
represents a 10% non-controlling interest, owned by Ruili Group Co., Ltd., in Ruian.
Net income attributable to non-controlling
interest in subsidiaries amounted to $2,702,691 and $2,135,516 for the years ended December 31, 2017 and 2016, respectively.
|
|
2017
|
|
|
2016
|
|
10% non-controlling interest in Ruian
|
|
$
|
2,702,691
|
|
|
$
|
2,135,516
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,702,691
|
|
|
$
|
2,135,516
|
|
NOTE 17 – OPERATING LEASES WITH
RELATED PARTIES
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 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
$311,776).
In May 2009, Ruian entered into a lease
agreement with Ruili Group for the lease of a manufacturing plant. The lease was from September 2009 to May 2017. In August 2010,
a new lease agreement was signed between Ruian and Ruili Group, under which Ruian leased 89,229 square meters manufacturing plant
for its new purchased passenger vehicles brake systems business. The lease term was from September 2009 to August 2020. This lease
was amended in 2013. The amended lease term was from January 1, 2013 to December 31, 2017. The annual lease expense was RMB 8,137,680
(approximately $1,293,070). The lease was terminated in May 2016 when the Developed Zone Facility was purchased by the Company.
Also see Note 7 for more details.
The lease expenses were $311,776 and $716,656
for the years ended December 31, 2017 and 2016, respectively. As of December 31, 2017, future minimum rental payments are as follows:
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Lease Commitments
|
|
$
|
321,386
|
|
|
$
|
321,386
|
|
|
$
|
321,386
|
|
|
$
|
321,386
|
|
|
$
|
321,386
|
|
|
$
|
—
|
|
NOTE 18 – WARRANTY CLAIMS
Warranty claims were $1,570,290 and $2,503,950
for the years ended December 31, 2017 and 2016, respectively. Warranty claims are classified as accrued expenses on the consolidated
balance sheets. The movement of accrued warranty expenses for the year ended December 31, 2017 is as follows:
Beginning balance at January 1, 2017
|
|
$
|
6,517,402
|
|
Aggregate increase for new warranties issued during current period
|
|
|
1,570,290
|
|
Aggregate reduction for payments made and effect of exchange rate fluctuation
|
|
|
(1,510,797
|
)
|
Ending balance at December 31, 2017
|
|
$
|
6,576,895
|
|
NOTE 19 – 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, and purchased, 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.
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.
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
NET SALES TO EXTERNAL CUSTOMERS
|
|
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
330,201,227
|
|
|
$
|
224,213,063
|
|
Passenger vehicles brake systems
|
|
|
60,321,342
|
|
|
|
54,530,059
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
390,522,569
|
|
|
$
|
278,743,122
|
|
INTERSEGMENT SALES
|
|
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
—
|
|
|
$
|
—
|
|
Passenger vehicles brake systems
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales
|
|
$
|
—
|
|
|
$
|
—
|
|
GROSS PROFIT
|
|
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
89,355,410
|
|
|
$
|
63,051,542
|
|
Passenger vehicles brake systems
|
|
|
14,830,792
|
|
|
|
12,338,494
|
|
Gross profit
|
|
$
|
104,186,202
|
|
|
$
|
75,390,036
|
|
Selling and distribution expenses
|
|
|
39,067,566
|
|
|
|
29,837,757
|
|
General and administrative expenses
|
|
|
22,023,338
|
|
|
|
15,206,423
|
|
Research and development expenses
|
|
|
11,004,560
|
|
|
|
7,709,533
|
|
|
|
|
|
|
|
|
|
|
Other operating income, net
|
|
|
3,039,824
|
|
|
|
555,946
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
35,130,562
|
|
|
|
23,192,269
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
232,466
|
|
|
|
1,047,667
|
|
Government grants
|
|
|
2,264,055
|
|
|
|
832,264
|
|
Other income
|
|
|
101,475
|
|
|
|
1,244,078
|
|
Interest expenses
|
|
|
(3,100,396
|
)
|
|
|
(887,097
|
)
|
Other expenses
|
|
|
(2,883,440
|
)
|
|
|
(807,858
|
)
|
Income before income tax expense
|
|
$
|
31,744,722
|
|
|
$
|
24,621,323
|
|
CAPITAL EXPENDITURE
|
|
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
44,185,254
|
|
|
$
|
13,078,806
|
|
Passenger vehicles brake systems
|
|
|
8,074,065
|
|
|
|
2,810,887
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
52,259,319
|
|
|
$
|
15,889,693
|
|
DEPRECIATION AND AMORTIZATION
|
|
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
7,828,921
|
|
|
$
|
5,959,168
|
|
Passenger vehicles brake systems
|
|
|
1,430,595
|
|
|
|
1,280,740
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,259,516
|
|
|
$
|
7,239,908
|
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
492,348,129
|
|
|
$
|
248,023,179
|
|
Passenger vehicles brake systems
|
|
|
89,967,813
|
|
|
|
53,304,945
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
582,315,942
|
|
|
$
|
301,328,124
|
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
LONG LIVED ASSETS
|
|
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
106,779,681
|
|
|
$
|
53,520,623
|
|
Passenger vehicles brake systems
|
|
|
19,512,076
|
|
|
|
11,748,429
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
126,291,757
|
|
|
$
|
65,269,052
|
|
NOTE 20 – COMMITMENTS AND CONTINGENCIES
(1) As described in Note 7, 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) As described in Note 7, the Company
purchased the Development Zone Facility from Ruili Group on May 5, 2016. 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.
(3) The information of lease commitments
is provided in Note 17.
(4) The information of guarantees and
assets pledged is provided in Note 4.
NOTE 21 – SUBSEQUENT EVENTS
During the subsequent period, the Company
obtained short term loans in the total amount of approximately $126,041,000 from Bank of China, Agricultural Bank of China, China
Minsheng Bank, China Zheshang Bank, Huaxia Bank and Industrial and Commercial Bank of China. Interest rates for those loans ranged
from 3.00% to 5.72% per annum. The maturity dates of the loans existing as of the filing date ranged from January 30, 2018 to March
15, 2019. As of the filing date, the Company pledged accounts receivable of approximately $3,731,000, as collateral under the loan
arrangements with Bank of China. The Company continuously pledged bank acceptance notes to obtain loans from Agricultural Bank
of China.
In the same period, the Company repaid
loan principals and interest expenses in the total amount of approximately $68,525,000 to Bank of China, China Construction Bank,
China Zheshang Bank, and Agricultural Bank of China.
During the subsequent period, the Company
continued to provide loans to Shanghai Ruili and Kunshan Yuetu, two related parties under common control, in the amounts of RMB
332,000,000 (approximately $50,810,000) and RMB 97,000,000 (approximately $14,845,000), respectively, with an interest rate of
5.22% per annum payable quarterly in arrears.
ADDITIONAL INFORMATION─FINANCIAL
STATEMENT SCHEDULE I
This financial statements schedule has
been prepared in conformity with U.S. GAAP.
SORL AUTO PARTS, INC.
This financial statements schedule has
been prepared in conformity with U.S. GAAP. The parent company financial statements have been prepared using the same accounting
principles and policies described in the notes to the consolidated financial statements, with the only exception being that the
Company accounts for its subsidiaries using the equity method. Please refer to the notes to the consolidated financial statements
presented above for additional information and disclosures with respect to these financial statements.
Financial Information of Parent Company
BALANCE SHEETS
December 31, 2017 and 2016
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
86,828
|
|
|
$
|
86,828
|
|
Total Current Assets
|
|
|
-
|
|
|
|
86,828
|
|
|
|
|
|
|
|
|
|
|
Investments in subsidiaries
|
|
|
160,185,796
|
|
|
|
135,861,575
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
160,272,624
|
|
|
$
|
135,948,403
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
$
|
2,921,411
|
|
|
$
|
2,921,411
|
|
Total Current Liabilities
|
|
|
2,921,411
|
|
|
|
2,921,411
|
|
Total Liabilities
|
|
|
2,921,411
|
|
|
|
2,921,411
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity:
|
|
|
|
|
|
|
|
|
Preferred stock - no par value; 1,000,000 authorized; none issued and outstanding as of December 31, 2017 and 2016
|
|
|
-
|
|
|
|
-
|
|
Common stock - $0.002 par value; 50,000,000 authorized, 19,304,921 issued and outstanding as of December 31, 2017 and 2016
|
|
|
38,609
|
|
|
|
38,609
|
|
Additional paid-in capital
|
|
|
(28,582,654
|
)
|
|
|
(28,582,654
|
)
|
Retained earnings
|
|
|
185,895,258
|
|
|
|
161,571,037
|
|
Total Stockholders' Equity
|
|
|
157,351,213
|
|
|
|
133,026,992
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
160,272,624
|
|
|
$
|
135,948,403
|
|
Financial Information of Parent Company
STATEMENTS OF INCOME
For the Years Ended December 31, 2017
and 2016
|
|
For Years Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Investment income
|
|
$
|
24,324,221
|
|
|
$
|
19,219,637
|
|
Financial expenses
|
|
|
-
|
|
|
|
243
|
|
Net income attributable to stockholders
|
|
$
|
24,324,221
|
|
|
$
|
19,219,394
|
|
|
|
|
|
|
|
|
|
|
Weighted average common share - Basic
|
|
|
19,304,921
|
|
|
|
19,304,921
|
|
|
|
|
|
|
|
|
|
|
Weighted average common share - Diluted
|
|
|
19,304,921
|
|
|
|
19,304,921
|
|
|
|
|
|
|
|
|
|
|
EPS - Basic
|
|
$
|
1.26
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
EPS - Diluted
|
|
$
|
1.26
|
|
|
$
|
1.00
|
|
Financial Information of Parent Company
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2017
and 2016
|
|
For Years Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,324,221
|
|
|
$
|
19,219,394
|
|
Adjustments to reconcile net income to net cash used in operating activities :
|
|
|
|
|
|
|
|
|
Investment in subsidiaries
|
|
|
(24,324,221
|
)
|
|
|
(19,219,394
|
)
|
Other current liabilities
|
|
|
-
|
|
|
|
(80,667
|
)
|
Net cash used in operating activities
|
|
|
-
|
|
|
|
(80,910
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
-
|
|
|
|
(80,910
|
)
|
Cash and cash equivalents, beginning of the year
|
|
|
-
|
|
|
|
80,910
|
|
Cash and cash equivalents, end of the year
|
|
$
|
-
|
|
|
$
|
-
|
|
Financial Information of Parent Company
STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
For the Years Ended December 31, 2017
and 2016
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Shareholders'
|
|
|
|
of Share
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Equity
|
|
Balance - December 31, 2015
|
|
|
19,304,921
|
|
|
$
|
38,609
|
|
|
$
|
42,199,014
|
|
|
$
|
142,351,643
|
|
|
$
|
184,589,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,219,394
|
|
|
|
19,219,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution to controlling shareholders in connection with plant and land use rights exchange with entity under common control
|
|
|
-
|
|
|
|
-
|
|
|
|
(70,781,668
|
)
|
|
|
-
|
|
|
|
(70,781,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2016
|
|
|
19,304,921
|
|
|
$
|
38,609
|
|
|
$
|
(28,582,654
|
)
|
|
$
|
161,571,037
|
|
|
$
|
133,026,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,324,221
|
|
|
|
24,324,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – December 31, 2017
|
|
|
19,304,921
|
|
|
$
|
38,609
|
|
|
$
|
(28,582,654
|
)
|
|
$
|
185,895,258
|
|
|
$
|
157,351,213
|
|