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 140 categories and over 2,000 different specifications.
The
Joint Venture was formed in the People’s Republic of China (“PRC” or “China”) as a Sino-Foreign
joint venture on January 17, 2004, pursuant to the terms of a Joint Venture Agreement between the Ruili Group Co., Ltd. (the “Ruili
Group”), a related party under common control, and Fairford Holdings Limited (“Fairford”), a wholly owned subsidiary
of the Company. The Ruili Group was, incorporated in China in 1987 and specializes in the development, production and sale of
various kinds of automotive parts. Fairford and the Ruili Group contributed 90% and 10%, respectively, of the paid-in capital
of the Joint Venture.
On
November 11, 2009, the Company, through its wholly owned subsidiary, Fairford, entered into a joint venture agreement with MGR
Hong Kong Limited (“MGR”), a Hong Kong-based global auto parts distribution specialist firm and an unaffiliated Taiwanese
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, bank acceptance
notes from customers, inventories, 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, 2018.
|
|
|
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 2018 ranged from 1.92% to 5.72% 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 6.16% 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.
Restricted cash, current consists of bank
deposits used to pledge bank acceptance notes, deposits for obtaining letters of credit from a local bank, and bank deposit held
as a guarantee for the loans obtained by Wenzhou Lichuang Automobile Parts Co., Ltd., a related party, from the bank. Also see
Note 4 for details on the guarantee provided to related party.
Restricted cash, non-current consists of
deposits guaranteed for construction projects and the non-current portion of some bank deposits used to pledge for bank acceptance
notes.
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.
|
j
.
|
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.
|
l
.
|
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.
|
m
.
|
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.
|
n
.
|
BANK ACCEPTANCE NOTES FROM CUSTOMERS
|
Bank acceptance notes from customers, 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 December 31, 2018 and 2017, notes receivables in the amount of $58,458,890 and $95,914,724, 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 $1,463,837 and $37,177 for
the years ended December 31, 2018 and 2017, respectively, which were included in interest expenses.
The Company has adopted Accounting Standards
Codification Topic 606, “Revenue from Contracts with Customers” (“ASC 606”) effective 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 14
for details on revenues from contracts with customers.
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.
|
q
.
|
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.
|
s
.
|
RESEARCH
AND DEVELOPMENT EXPENSES
|
Research and development costs are expensed
as incurred. Research and development expenses were $16,366,393 for the year ended December 31, 2018, as compared with $11,004,560
for the year ended December 31, 2017.
|
t
.
|
SHIPPING
AND HANDLING COSTS
|
Shipping and handling cost are classified
as selling expenses and are expensed as incurred. Shipping and handling costs were $11,358,223 and $7,094,863 for the years ended
December 31, 2018 and 2017, respectively.
Advertising
costs are classified as selling expenses and are expensed as incurred. Advertising costs were $737,530 and $440,582 for the years ended
December 31, 2018 and 2017, 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 $3,113,913 and $1,570,290
for the years ended December 31, 2018 and 2017, 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, 2018 and 2017, the Company operated
in two reportable business segments: (1) commercial vehicles brake systems (2) passenger vehicles brake systems.
|
bb.
|
RECENTLY
ISSUED FINANCIAL STANDARDS
|
In May 2014, the FASB ASU 2014-9, “Revenue from Contracts with Customers (Topic 606)”, which
was further updated by ASU 2016-08 in March 2016, ASU 2016-10 in April 2016, ASU 2016-11 in May 2016, ASU 2016-12 in May 2016 and
ASU 2016-20 in December 2016. 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 14 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 $5,275,390 in net cash used in investing activities in the amount previously
reported for the year ended December 31, 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 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 adopted this standard and evaluated the impact from the Tax Cut and Jobs Act pursuant to SAB 118, see Note 16 for further
disclosures.
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
adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases
(Topic 842)”. Under ASU 2016-02, lessees will be required to recognize all leases (with the exception of short-term leases)
at the commencement date including a lease liability, which is a lessee’s obligation to make lease payments arising from
a lease, measured on a discounted basis; and a right-of-use (ROU) asset, which is an asset that represents the lessee’s right
to use, or control the use of, a specified asset for the lease term. Leases with a term of twelve months or less will be accounted
for similar to existing guidance for operating leases. In December 2017, January 2018, July 2018 and December 2018, the FASB issued
ASU 2017-13, ASU 2018-01, ASU 2018-10, ASU 2018-11 and ASU 2018-20 respectively, which contain modifications and improvements to
ASU 2016-02. ASU 2018-11 provides another transition method in addition to the existing transition method by allowing entities
to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance
of retained earnings in the period of adoption. This ASU also provides lessors with a practical expedient, by class of underlying
asset, to not separate non-lease components from the associated lease component, similar to the expedient provided for lessees.
However, the lessor practical expedient is limited to circumstances in which the non-lease component or components otherwise would
be accounted for under the new revenue guidance and both (1) the timing and pattern of transfer are the same for the non-lease
component(s) and associated lease component and (2) the lease component, if accounted for separately, would be classified as an
operating lease. The Company will adopt this new guidance for the year ending December 31, 2019 and interim periods in the year
ending December 31, 2019. The Company estimates that approximately $1,163,000 would be recognized as total right-of-use assets
and total lease liabilities on our consolidated balance sheet as of January 1, 2019. Other than as disclosed above, the Company
does not expect the new standard to have a material impact on its remaining consolidated financial statements.
In August 2018, the FASB
issued ASU 2018-13, “Fair Value Measurement (Topic 820), – Disclosure Framework – Changes to the Disclosure
Requirements for Fair Value Measurement”, which makes a number of changes meant to add, modify or remove certain disclosure
requirements associated with the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements.
The amendments in this Update modify the disclosure requirements on fair value measurements based on the concepts in FASB Concepts
Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements, including the consideration
of costs and benefits. The amendments on changes in unrealized gains and losses, the range and weighted average of significant
unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty
should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption.
All other amendments should be applied retrospectively to all periods presented upon their effective date. The amendments are
effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years,
with early adoption permitted. The Company is currently evaluating the potential impacts of ASU 2018-13 on its 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. (“Ruian Kormee” and formerly known as “Ruian Kormee Automobile Braking Co., Ltd.”)
|
|
Wholly controlled by Guangzhou Kormee
|
|
|
|
Chuangchun Kormee Auto Electric Co., Ltd. (“Chuangchun Kormee”)
|
|
Wholley controlled by Guangzhou Kormee
|
|
|
|
Shanghai Dachao Electric Technology Co., Ltd. (“Shanghai Dachao”)
|
|
Ruili Group holds 49% of the equity interests in Shanghai Dachao
|
|
|
|
Ruili MeiLian Air Management System (LangFang) Co., Ltd. (“Ruili Meilian”)
|
|
Controlled by Ruili Group
|
|
|
|
Wenzhou Lichuang Automobile Parts Co., Ltd. (“Wenzhou Lichuang”)
|
|
Controlled by Ruili Group
|
|
|
|
Ningbo Ruili Equipment Co., Ltd. (“Ningbo Ruili”)
|
|
Controlled by Ruili Group
|
|
|
|
Shanghai Ruili Real Estate Development Co., Ltd. (“Shanghai Ruili”)
|
|
Wholly owned by Ruili Group
|
|
|
|
Kunshan Yuetu Real Estate Development Co., Ltd. (“Kunshan Yuetu”)
|
|
Collectively owned by Ruili Group and Shu Ping Chi
|
|
|
|
Shanghai Tabouk Auto Components Co., Ltd. (“Shanghai Tabouk”)
|
|
Collectively owned by Xiao Feng Zhang and Xiao Ping Zhang
|
|
|
|
Hangzhou Ruili Property Development Co., Ltd.
|
|
Collectively owned by Ruili Group and Xiao Ping Zhang
|
|
|
|
Hangzhou Hangcheng Friction Material Co., Ltd. (“Hangzhou Hangcheng”)
|
|
Controlled by Ruili Group
|
|
|
|
Hangzhou Ruili Binkang Real Estate Development Co. Ltd.
|
|
Controlled by Hangzhou Ruili Property Development Co., Ltd.
|
|
|
|
Hangzhou Ruili Real Estate Group Co. Ltd.
|
|
Controlled by Ruili Group
|
The Company continues to purchase primarily
packaging materials from Ruili Group. In addition, the Company purchases automotive components from other related parties, including
Guangzhou Kormee, Ruian Kormee, Ruili Meilian, Shanghai Dachao, Wenzhou Lichuang, Hangzhou Hangcheng, Changchun Kormee, and molds
from Ningbo Ruili used in its production.
The Company sells certain automotive products
to the Ruili Group. The Company also sells parts to Guangzhou Kormee, Ruian Kormee, Shanghai Tabouk, Ruili Meilian and Changchun
Kormee.
The
following related party transactions occurred for the years ended December 31, 2018 and 2017:
|
|
For the Years Ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
PURCHASES FROM:
|
|
|
|
|
|
|
Guangzhou Ruili Kormee Automative Eletronic Control Technology Co., Ltd.
|
|
$
|
6,279,500
|
|
|
$
|
4,487,457
|
|
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd.
|
|
|
3,371,361
|
|
|
|
1,357,612
|
|
Shanghai Dachao Electric Technology Co., Ltd.
|
|
|
720,489
|
|
|
|
188,899
|
|
Ruili MeiLian Air Management System (LangFang) Co., Ltd.
|
|
|
8,438,181
|
|
|
|
4,106,986
|
|
Ruili Group Co., Ltd.
|
|
|
7,909,463
|
|
|
|
5,478,853
|
|
Chuangchun Kormee Auto Electric Co., Ltd.
|
|
|
20,045
|
|
|
|
—
|
|
Ningbo Ruili Equipment Co., Ltd.
|
|
|
4,093,773
|
|
|
|
—
|
|
Hangzhou Hangcheng Friction Material Co., Ltd.
|
|
|
1,056,860
|
|
|
|
—
|
|
Wenzhou Lichuang Auto Parts Co., Ltd.
|
|
|
15,933,012
|
|
|
|
5,446,212
|
|
Total Purchases
|
|
$
|
47,822,684
|
|
|
$
|
21,066,019
|
|
SALES TO:
|
|
|
|
|
|
|
|
|
Guangzhou Ruili Kormee Automative Eletronic Control Technology Co., Ltd.
|
|
$
|
10,020,480
|
|
|
$
|
7,467,661
|
|
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd.
|
|
|
61,172
|
|
|
|
135,911
|
|
Ruili MeiLian Air Management System (LangFang) Co., Ltd.
|
|
|
1,315,649
|
|
|
|
1,253,664
|
|
Ruili Group Co., Ltd.
|
|
|
17,140,343
|
|
|
|
14,108,062
|
|
Chuangchun Kormee Auto Electric Co., Ltd.
|
|
|
59,525
|
|
|
|
—
|
|
Shanghai Tabouk Auto Components Co., Ltd.
|
|
|
1,676,791
|
|
|
|
1,411,324
|
|
Total Sales
|
|
$
|
30,273,960
|
|
|
$
|
24,376,622
|
|
|
|
As of
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
ADVANCES TO RELATED PARTIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruili Group Co., Ltd.
|
|
|
79,739,417
|
|
|
|
5,711,605
|
|
Shanghai Ruili Real Estate Development Co., Ltd.
|
|
|
—
|
|
|
|
65,069,497
|
|
Kunshan Yuetu Real Estate Development Co., Ltd.
|
|
$
|
—
|
|
|
$
|
1,537,122
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
79,739,417
|
|
|
$
|
72,318,224
|
|
|
|
As of Ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
ACCOUNTS RECEIVABLE FROM RELATED PARTY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shanghai Tabouk Auto Components Co., Ltd
|
|
$
|
261,889
|
|
|
$
|
1,297,734
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
261,889
|
|
|
$
|
1,297,734
|
|
|
|
|
|
|
|
|
|
|
ACCOUNTS PREPAYMENT TO RELATED PARTY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ningbo Ruili Equipment Co., Ltd.
|
|
$
|
3,670,573
|
|
|
$
|
999,527
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,670,573
|
|
|
$
|
999,527
|
|
|
|
|
|
|
|
|
|
|
ACCOUNTS PAYABLE TO RELATED PARTIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guangzhou Ruili Kormee Automotive Electronic Control Technology Co., Ltd.
|
|
|
7,877,485
|
|
|
|
3,414,719
|
|
Shanghai Dachao Electric Technology Co., Ltd.
|
|
|
56,883
|
|
|
|
83,178
|
|
Ruili MeiLian Air Management System (LangFang) Co., Ltd.
|
|
|
5,628,155
|
|
|
|
1,993,787
|
|
Wenzhou Lichuang Auto Parts Co., Ltd.
|
|
|
9,898,777
|
|
|
|
10,405,120
|
|
Chuangchun Kormee Auto Electric Co., Ltd.
|
|
|
9,206
|
|
|
|
—
|
|
Hangzhou HangCheng Friction Material Co., Ltd.
|
|
|
334,694
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,805,200
|
|
|
$
|
15,896,804
|
|
|
|
For the Years Ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
DUE TO RELATED PARTY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd.
|
|
$
|
5,959,752
|
|
|
$
|
1,572,963
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,959,752
|
|
|
$
|
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, usually in a
short term. All the loans borrowed from related parties are non-interest bearing, unsecured and due on demand. The advances to
Shanghai Ruili and Kunshan Yuetu are due on demand, unsecured, and bear an interest rate of 5.22% per annum. In May 2018 the Company
received repayments from Shanghai Ruili and Kunshan Yuetu in full. The interests received from these two related parties amount
to $741,254 and $182,270 for the years ended December 31, 2018 and 2017, respectively.
The advances to Ruili Group were due on
demand, unsecured, and bear no interest during the year ended December 31, 2017. In year 2018, the Company charged Ruili Group
an interest on the average balance advanced to them. The Company received interests of $ 2,361,866 from Ruili Group during the
year ended December 31, 2018, representing an effective interest rate of approximately 8.40% per annum.
During the year ended December 31, 2018,
the Company obtained net proceeds of $9,669,326 in cash from related parties. Repayments in bank acceptance notes to related parties
totaled $5,097,556. In the same period, the Company provided Ruili Group net proceeds of $146,944,697, and received repayment in
the form of bank acceptance notes amounted to $70,818,463. The Company also advanced to Shanghai Ruili and Kunshan Yuetu in the
amounts of $49,561,855 and $15,226,835, respectively, and collected cash repayment from them in the amounts of $112,857,719 and
$16,719,662, respectively.
During the year ended December 31, 2017,
the Company obtained loans in a total amount of $103,775,545, of which $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. 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
Company, Ruian Kormee, and Ruili Group also agreed that Ruili Group would transfer $3,711,622 in 2017 to Ruian Kormee by adjusting
their corresponding balances with the Company.
The Company entered into a lease agreement
with Ruili Group. See Note 18 for more details.
The Company provided a guarantee for the
credit line granted to Ruili Group by the China Merchants Bank in the amount of RMB 40,000,000 (approximately $5,828,185) for a
period of 12 months starting on October 24, 2016. The credit line was renewed on October 19, 2017 for 6 months. On April 13, 2018,
Ruili Group and the bank reached another extension agreement and the guarantee will be provided by the Company until April 12,
2019.
The
Company provided a guarantee for the credit line granted to Ruili Group by Bank of Ningbo in a maximum amount of RMB 210,000,000
(approximately $30,597,972) for the period from July 20, 2018 to July 20, 2028.
In year 2018, the Company also has a bank deposit in the amount of RMB 20,000,000 (approximately $2,914,093)
used as a guarantee for loans obtained by Wenzhou Lichuang from China Merchant Bank. The amount was included in restricted cash,
current. Also see Note 2.
The Company has short term bank loans guaranteed
or pledged by related parties. See Note 11 for more details.
NOTE
5 - ACCOUNTS RECEIVABLE, NET
Accounts
receivable, net consisted of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Accounts receivable
|
|
$
|
163,903,305
|
|
|
$
|
148,312,117
|
|
Less: allowance for doubtful accounts
|
|
|
(13,855,508
|
)
|
|
|
(13,927,156
|
)
|
Accounts receivable, net
|
|
$
|
150,047,797
|
|
|
$
|
134,384,961
|
|
No customer individually accounted for more than 10% of our revenues or accounts receivable for the years
ended December 31, 2018 and 2017. The changes in the allowance for doubtful accounts for the years ended December 31, 2018 and
2017 were summarized as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Beginning balance
|
|
$
|
13,927,156
|
|
|
$
|
11,686,417
|
|
Add: Increase (Decrease) to allowance
|
|
|
610,610
|
|
|
|
1,474,872
|
|
Effects on changes in foreign exchange rate
|
|
|
(682,258
|
)
|
|
|
765,867
|
|
Ending balance
|
|
$
|
13,855,508
|
|
|
$
|
13,927,156
|
|
NOTE
6 - INVENTORIES
On
December 31, 2018 and December 31, 2017, inventories consisted of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Raw Materials
|
|
$
|
53,821,973
|
|
|
$
|
27,657,266
|
|
Work in process
|
|
|
89,516,949
|
|
|
|
40,805,434
|
|
Finished Goods
|
|
|
62,674,252
|
|
|
|
45,837,864
|
|
Less: Write-down of inventories
|
|
|
(1,727,747
|
)
|
|
|
—
|
|
Total Inventory
|
|
$
|
204,285,427
|
|
|
$
|
114,300,564
|
|
The
Company recorded write-down of potentially obsolete or slow-moving inventories of $808,789 and lower of cost or market adjustment
of $918,958 for the year ended December 31, 2018.
NOTE
7 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net, consisted
of the following, on December 31, 2018 and 2017:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Machinery
|
|
$
|
130,912,861
|
|
|
$
|
119,296,564
|
|
Molds
|
|
|
1,274,729
|
|
|
|
1,338,912
|
|
Office equipment
|
|
|
3,566,772
|
|
|
|
2,998,443
|
|
Vehicles
|
|
|
5,956,822
|
|
|
|
3,681,194
|
|
Buildings
|
|
|
20,610,137
|
|
|
|
20,127,148
|
|
Construction in progress
|
|
|
8,641,271
|
|
|
|
—
|
|
Leasehold improvements
|
|
|
463,497
|
|
|
|
486,834
|
|
Sub-Total
|
|
|
171,426,089
|
|
|
|
147,929,095
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation
|
|
|
(75,372,703
|
)
|
|
|
(68,101,089
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
96,053,386
|
|
|
$
|
79,828,006
|
|
Depreciation expense charged to operations
was $11,198,717 and $8,871,856 for the years ended December 31, 2018 and 2017, respectively.
In July 2017, Ruian, a subsidiary of the Company,
purchased plants and the associated land use rights from Yunding Holding Group Co., Ltd. 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 to the Company 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,
2018
|
|
|
December 31,
2017
|
|
Cost
|
|
$
|
22,283,776
|
|
|
$
|
15,477,081
|
|
Less: Accumulated amortization
|
|
|
(1,159,321
|
)
|
|
|
(564,947
|
)
|
Land use rights, net
|
|
$
|
21,124,455
|
|
|
$
|
14,912,134
|
|
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 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.
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 with a total area of 17,029
square meters (the “Wansong Land”). 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. As of December 31, 2017, the deposit
was refunded to the Company and the prepayment was included in prepayments, non-current in the consolidated balance sheets. The
Company obtained the title to the land use rights in April 2018.
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 year ended December 31, 2018, the Company paid additional amount of
RMB 57.62 million (approximately $8.99 million). As of December 31, 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 to the Company. The payments
were included in prepayment, non-current as of December 31, 2018 on the accompanying consolidated balance sheets.
In April 2018, the Company entered into
an agreement with the Ministry of Land and Resources, Ruian, to purchase the land use rights for the land located at the intersection
of Tengda Road and Wanghai Road, Economic Development District, Ruian City, Zhejiang Province, China. Prepayment of RMB 42.54 million
(approximately $6.43 million) was made during the year ended December 31, 2018. As of the filing date, the title to the land use
rights has not been transferred to the Company. The payments were included in prepayment, non-current as of December 31, 2018 on
the accompanying consolidated balance sheets.
Amortization
expenses were $636,717 and $379,121 for the years ended December 31, 2018 and 2017, respectively.
NOTE
9 - PREPAYMENTS
Prepayments consisted of the following
as of December 31, 2018 and 2017:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Raw material suppliers
|
|
$
|
7,776,591
|
|
|
$
|
8,826,004
|
|
Equipment and land use rights purchases
|
|
|
31,575,238
|
|
|
|
16,594,987
|
|
|
|
|
|
|
|
|
|
|
Total prepayments
|
|
$
|
39,351,829
|
|
|
$
|
25,420,991
|
|
As of December 31, 2018, prepayments to
raw material suppliers totaled $7,776,591, including prepayments to Ningbo Ruili, a related party under common control, in the
amount of $3,670,573. Also see Note 4 for details.
As of December 31, 2018 and 2017, the Company
has prepayments of RMB 100.16 million (approximately $15.42 million) and RMB 66.21 million (approximately $10.07 million), respectively,
for the land use rights as described in Note 8.
NOTE
10- DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIES
Deferred
tax assets as of December 31, 2018 and 2017 comprise of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Deferred tax assets
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
2,205,048
|
|
|
$
|
2,137,837
|
|
Revenue (net of cost)
|
|
|
308,046
|
|
|
|
160,766
|
|
Unpaid accrued expenses
|
|
|
501,276
|
|
|
|
955,287
|
|
Warranty
|
|
|
1,059,468
|
|
|
|
986,534
|
|
Deferred tax assets
|
|
|
4,073,838
|
|
|
|
4,240,424
|
|
Valuation allowance
|
|
|
―
|
|
|
|
―
|
|
Net deferred tax assets
|
|
$
|
4,073,838
|
|
|
$
|
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.
In December 2017, the Tax Cuts and Jobs Act
(the “2017 Tax Act”) was enacted into law. The 2017 Tax Act includes provisions for a new tax on global intangible
low-taxed income (“GILTI”) effective for tax years beginning after December 31, 2017. The GILTI provision imposes
a tax to U.S. companies on the foreign income in excess of a deemed return on tangible assets of controlled foreign corporations,
subject to certain deductions and limitations. The Company will report the tax impact of GILTI as a period cost when incurred.
Accordingly, the Company is not providing deferred taxes for basis differences expected to reverse as GILTI in the future, as
applicable. See Note 16 for more discussion. Prior to the enactment of the 2017 Tax Act, the Company’s U.S. subsidiary did
not have income tax liability.
NOTE
11 - SHORT TERM BANK LOANS
Bank loans represented the following as
of December 31, 2018 and 2017:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Secured
|
|
$
|
217,940,471
|
|
|
$
|
125,380,899
|
|
Total short term bank loan
|
|
$
|
217,940,471
|
|
|
$
|
125,380,899
|
|
The Company obtained those short term
loans from Bank of China, Bank of Ningbo, Agricultural Bank of China, China Minsheng Bank, Industrial Bank, China Citic bank and
China Construction Bank, respectively, to finance general working capital as well as new equipment acquisition. Interest rate
for the loans outstanding during the year ended December 31, 2018 ranged from 1.35% to 5.44% per annum. The maturity dates of
the loans existing as of December 31, 2018 ranged from January 22, 2019 to December 28, 2019. As of December 31, 2018 and 2017,
the Company’s accounts receivables of $0 and $5,472,169, respectively, were pledged as collateral under loan arrangements.
The interest expenses, including discount fees, were $9,780,598 and $2,752,579 for the years ended December 31, 2018 and 2017,
respectively.
As
of December 31, 2018, corporate or personal guarantees provided for those bank loans were as follows:
$5,602,601
|
Guaranteed by Ruili Group, a related party
|
$31,445,575
|
Pledged by Ruili Group, a related party, with its plant and land use rights
|
$14,570,463
|
Pledged by Hangzhou Ruili Property Development Co., Ltd., a related party, with its properties; Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders
|
$5,099,662
|
Pledged by Hangzhou Ruili Property Development Co., Ltd., 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
|
$2,914,093
|
Pledged by the Company with its bank acceptance notes
|
$8,742,278
|
Pledged by the Company with its plant; Guaranteed by Hangzhou Ruili Property Development Co., Ltd., a related party; Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders
|
$2,112,717
|
Pledged by Hangzhou Ruili Binkang Real Estate Development Co. Ltd., a related party, with its properties; Guaranteed by Hangzhou Ruili Property Development Co., Ltd., a related party; Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders
|
$41,525,819
|
Guaranteed by Ruili Group, a related party; Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders; Pledged by Hangzhou Ruili Property Development Co., Ltd., a related party, with its properties; Pledged by Hangzhou Ruili Real Estate Group Ltd., a related party, with stocks rights
|
$2,914,093
|
Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders; Pledged by Shanghai Ruili Real Estate, a related party, with its properties
|
$32,055,018
|
Pledged by Shanghai Ruili Real Estate, a related party, with its properties; Guaranteed by Shanghai Ruili Real Estate, a related party; Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders
|
$7,065,217
|
Guaranteed by Ruili Group, a related party; Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders
|
$2,405,583
|
Guaranteed by Ruili Group, a related party; Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.; Pledged by Ruili Group, a related party, with its properties
|
$2,404,126
|
Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders; Pledged by Ruili Group, a related party, with its properties
|
$801,375
|
Guaranteed by Ruili Group, a related party; Guaranteed by Hangzhou Ruili Property Development Co., Ltd., a related party; Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders
|
$58,281,851
|
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
12 - ACCRUED EXPENSES
Accrued expenses consisted of the following
as of December 31, 2018 and 2017:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Accrued payroll
|
|
$
|
11,679,870
|
|
|
$
|
11,063,726
|
|
Accrued warranty expenses
|
|
|
7,063,122
|
|
|
|
6,576,895
|
|
Other accrued expenses
|
|
|
5,302,910
|
|
|
|
7,514,037
|
|
Total accrued expenses
|
|
$
|
24,045,902
|
|
|
$
|
25,154,658
|
|
NOTE
13 - LONG TERM LOANS
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Aggregate outstanding principal balance
|
|
$
|
36,165,550
|
|
|
$
|
63,471,308
|
|
Less: unamortized debt issuance costs
|
|
|
(595,117
|
)
|
|
|
(1,822,053
|
)
|
Less: current portion
|
|
|
(21,141,029
|
)
|
|
|
(24,266,031
|
)
|
Non-current portion
|
|
$
|
14,429,404
|
|
|
$
|
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). 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
(approximately $14,846,488) and bank acceptance notes in the amount of RMB 100,000,000 (approximately $14,846,487). The Company
also paid debt issuance costs in cash of RMB 5,000,000 (approximately $742,324). The repayments of principal totaled RMB 66,524,366
(approximately $9,931,000) and RMB 10,776,491 (approximately $1,599,930) for the years ended December 31, 2018 and 2017, respectively.
The Company also received interest of RMB 1,986,849 (approximately $296,600) from Far Eastern during the year ended December 31,
2018.
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 (approximately $14,846,487) and bank acceptance notes in the amount of RMB 100,000,000 (approximately
$14,846,488). The Company also paid debt issuance costs in cash of RMB7,320,000 (approximately $1,025,248). The repayments of
principal totaled RMB 99,998,463 (approximately $14,928,000) and RMB 9,489,290 (approximately $$1,408,826) for the years ended
December 31, 2018 and 2017, respectively.
The interest expense for long term loans
was in the amount of $3,267,868 and $347,817 for the years ended December 31, 2018 and 2017, respectively.
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,
|
|
|
|
2019
|
|
$
|
21,647,158
|
|
2020
|
|
|
14,518,392
|
|
|
|
|
|
|
Total
|
|
$
|
36,165,550
|
|
NOTE
14 - 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 at a
point in time when the control of the products is transferred to the customs, which normally occurs upon the delivery of products
at shipping point or destination depending on the terms of the contracts. Payment term with our customers are established based
on industry and regional practices and vary by customers. The Company elected to treat shipping and handling activities as fulfillment
activities, and the related costs are recorded as selling expenses. The Company provides assurance type warranties, which are
not separate performance obligations. See Note 19 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 20 for information regarding revenue disaggregation
by product type.
Deferred revenue is recorded when consideration is received
from a customer prior to transferring goods to the customer under the terms of a sales contract. As of the years ended December
31, 2018 and 2017, the Company recorded a deferred revenue liability of $51,529,795 and $43,087,473, respectively, which was presented
as “Deposits received from customers” on the accompanying consolidated balance sheets. During the years ended December
31, 2018 and 2017, the Company recognized $24,659,985 and $13,719,045, 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.
NOTE
15 - RESERVE
The
reserve funds were comprised of the following:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Statutory surplus reserve fund
|
|
$
|
20,007,007
|
|
|
$
|
17,562,357
|
|
Total
|
|
$
|
20,007,007
|
|
|
$
|
17,562,357
|
|
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
16 - 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.
During the three months ended September 30,
2018, the Company recognized a one-time transition tax of $11,022,985 that represented management’s estimate of the amount
of U.S. corporate income tax based on the deemed repatriation to the United States of the Company’s share of previously
deferred earnings of certain non-U.S. subsidiaries of the Company mandated by the U.S. Tax Reform. The Company also recognized
related interest and penalty in the amount of $587,821. The Company elected to pay the one-time transition tax over eight years
commencing in 2018. The actual impact of the U.S. Tax Reform on the Company may differ from management’s estimates, and
management may update its judgments based on future regulations or guidance issued or changes in the interpretations taken that
would adjust the provisional amounts recorded. As of December 31, 2018, $2,451,499 was included in income tax payable as a current
liability which the Company believes will be paid within one year and the remaining balance was included in income tax payable,
non-current. As of the filing date, no transition tax payment has been made.
The 2017 Tax Act also created a new requirement
that, for the periods beginning after January 1, 2018, certain income (referred to as global intangible low-taxed income or “GILTI”)
earned by foreign subsidiaries in excess of a deemed return on tangible assets of foreign corporations must be included in U.S.
taxable income. The GILTI income is eligible for a deduction, which lowers the effective tax rate to 10.5% for calendar years 2018
through 2025 and 13.125% after 2025. Under U.S. GAAP, companies are allowed to make an accounting policy election to either (i)
account for GILTI as a component of tax expense in the period in which a company is subject to the rules – the period cost
method, or (ii) account for GILTI in a company’s measurement of deferred taxes – the deferred method. The Company elected
to account for GILTI in the period the tax is incurred. The Company did not generate any GILTI during the year ended December 31,
2018.
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 years ended
December 31, 2018.
The reconciliation of the effective income tax rate of the Company to the respective statutory income
tax rates in the United States and the PRC for the years ended December 31, 2018 and 2017 is as follows:
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
|
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
|
%
|
Impact of Tax Cuts and Jobs Act
|
|
|
37.45
|
%
|
|
|
-
|
|
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
|
|
|
-4.42
|
%
|
|
|
-2.34
|
%
|
Effects of expenses not deductible for tax purposes
|
|
|
2.32
|
%
|
|
|
0.79
|
%
|
Other items
|
|
|
0.22
|
%
|
|
|
1.41
|
%
|
Effective tax rate
|
|
|
50.58
|
%
|
|
|
14.86
|
%
|
Income taxes are calculated on a separate
entity basis. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income tax purposes. The provisions for income taxes
for the years ended December 31, 2018 and 2017, respectively, are summarized as follows:
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Current
|
|
$
|
15,852,188
|
|
|
$
|
5,524,868
|
|
Deferred
|
|
|
(37,588
|
)
|
|
|
(807,058
|
)
|
Total
|
|
$
|
15,814,600
|
|
|
$
|
4,717,810
|
|
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, 2018 and 2017.
NOTE
17 - 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 $2,716,278 and $2,702,691 for the years ended December 31, 2018 and 2017, respectively.
|
|
2018
|
|
|
2017
|
|
10% non-controlling interest in Ruian
|
|
$
|
2,716,278
|
|
|
$
|
2,702,691
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,716,278
|
|
|
$
|
2,702,691
|
|
NOTE 18 - OPERATING LEASES
In December 2006, Ruian entered into a
lease agreement with Ruili Group Co., Ltd., a related party, 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 $305,980).
In November 2016, Ruian entered into a
lease agreement with Rui’an Xinhua Auto Parts Co., Ltd. for the lease of four complex building. These buildings are used
as staff dormitories by Rui’an. The initial lease term was from November 15, 2016 to December 31, 2017. The lease was renewed
to December 31, 2019. The annual lease expense is RMB 1,910,000 (approximately $278,295).
The lease expenses were $668,088 and $311,776
for the years ended December 31, 2018 and 2017, respectively. As of December 31, 2018, future minimum rental payments are as follows:
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
Thereafter
|
|
Operating Lease Commitments
|
|
$
|
584,276
|
|
|
$
|
305,980
|
|
|
$
|
305,980
|
|
|
$
|
305,980
|
|
|
$
|
-
|
|
NOTE
19 - WARRANTY LIABILITY
Accrued warranty expenses are included in
accrued expenses on the accompanying consolidated balance sheets. The movements of accrued warranty expenses for the year ended
December 31, 2018 are as follows:
Beginning balance at January 1, 2018
|
|
$
|
6,576,895
|
|
Aggregate increase for new warranties issued during current period
|
|
|
3,113,913
|
|
Aggregate reduction for payments made and effect of exchange rate fluctuation
|
|
|
3,453,934
|
|
Ending balance at December 31, 2018
|
|
$
|
7,063,122
|
|
NOTE
20 - 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.
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
NET SALES TO EXTERNAL CUSTOMERS
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
386,181,206
|
|
|
$
|
330,201,227
|
|
Passenger vehicles brake systems
|
|
|
81,868,700
|
|
|
|
60,321,342
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
468,049,906
|
|
|
$
|
390,522,569
|
|
INTERSEGMENT SALES
|
|
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
—
|
|
|
$
|
—
|
|
Passenger vehicles brake systems
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales
|
|
$
|
—
|
|
|
$
|
—
|
|
GROSS PROFIT
|
|
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
96,475,100
|
|
|
$
|
89,355,410
|
|
Passenger vehicles brake systems
|
|
|
26,040,791
|
|
|
|
14,830,792
|
|
Gross profit
|
|
$
|
122,515,891
|
|
|
$
|
104,186,202
|
|
Selling and distribution expenses
|
|
|
55,158,703
|
|
|
|
39,067,566
|
|
General and administrative expenses
|
|
|
26,939,370
|
|
|
|
22,023,338
|
|
Research and development expenses
|
|
|
16,366,393
|
|
|
|
11,004,560
|
|
|
|
|
|
|
|
|
|
|
Other operating income, net
|
|
|
10,122,416
|
|
|
|
3,039,824
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
34,173,841
|
|
|
|
35,130,562
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
6,052,416
|
|
|
|
232,466
|
|
Government grants
|
|
|
4,307,609
|
|
|
|
2,264,055
|
|
Other income
|
|
|
260,448
|
|
|
|
101,475
|
|
Interest expenses
|
|
|
(13,570,956
|
)
|
|
|
(3,100,396
|
)
|
Other expenses
|
|
|
43,219
|
|
|
|
(2,883,440
|
)
|
Income before income tax expense
|
|
$
|
31,266,577
|
|
|
$
|
31,744,722
|
|
CAPITAL EXPENDITURE
|
|
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
45,877,053
|
|
|
$
|
44,185,254
|
|
Passenger vehicles brake systems
|
|
|
9,724,756
|
|
|
|
8,074,065
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
55,601,809
|
|
|
$
|
52,259,319
|
|
DEPRECIATION AND AMORTIZATION
|
|
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
9,768,105
|
|
|
$
|
7,828,921
|
|
Passenger vehicles brake systems
|
|
|
2,070,587
|
|
|
|
1,430,595
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,838,692
|
|
|
$
|
9,259,516
|
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
655,435,946
|
|
|
$
|
492,348,129
|
|
Passenger vehicles brake systems
|
|
|
138,935,580
|
|
|
|
89,967,813
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
794,371,526
|
|
|
$
|
582,315,942
|
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
LONG LIVED ASSETS
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
150,067,034
|
|
|
$
|
106,779,681
|
|
Passenger vehicles brake systems
|
|
|
31,810,355
|
|
|
|
19,512,076
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
181,877,389
|
|
|
$
|
126,291,757
|
|
NOTE
21 - COMMITMENTS AND CONTINGENCIES
(1) The Company purchased the Dongshan Facility
from Ruili Group in 2007 and subsequently transferred the plants and land use right to Ruili Group. The Company has never obtained
the land use rights certificate nor the property ownership certificate of the building for the Dongshan Facility. The Company reserved
the relevant tax amount of RMB 4,560,000 (approximately $745,220). This amount was determined based on a 3% tax rate on the consideration
paid for the Dongshan Facility in the transaction, which the Company considered as the most probable amount of tax liability. The
Dongshan Facility was transferred back to Ruili Group on May 5, 2016.
(2) The Company purchased the Development Zone
Facility from Ruili Group on May 5, 2016. As of the filing date, the Company has not yet obtained the land use rights certificate
or the property ownership certificate for the building of the Development Zone Facility. The Company reserved the relevant tax
amount of RMB 15,030,000 (approximately $2,300,205). This amount was determined based on a 3% tax rate on the consideration paid
for the Development Zone Facility, which the Company considered as the most probable amount of tax liability.
(3)
The information of lease commitments is provided in Note 18.
(4)
The information of guarantees and assets pledged is provided in Note 4.
NOTE
22 - SUBSEQUENT EVENTS
During the subsequent period, the Company
obtained short term loans in the total amount of approximately $98.0 million from China Construction Bank, Agricultural Bank of
China, China Zheshang Bank and Industrial Bank. Interest rates for those loans ranged from 3.53% to 5.35% per annum. The maturity
dates of the loans existing as of the filing date ranged from January 2, 2019 to January 30, 2020. The Company continuously pledged
bank acceptance notes to obtain loans from China Zheshang Bank and Bank of Ningbo.
In the same period, the Company repaid
loan principals and interest expenses in the total amount of approximately $109.6 million to China Citic bank, China Construction
Bank, China Zheshang Bank, and Agricultural Bank of China.
On February 12, 2019 the Company entered into
a guarantee agreement with China Guangfa Bank, pursuant which the Company agreed to provide a maximum guarantee in the amount
of RMB 71,000,000 (approximately $10,345,029) for Ruili Group from February 12, 2019 to January 16, 2020.
During the subsequent period, the Company
continued to advance to Ruili Group. See Note 4 for detail arrangement between the Company and Ruili Group.
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, 2018 and 2017
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
-
|
|
|
$
|
-
|
|
Other current assets
|
|
|
86,828
|
|
|
|
86,828
|
|
Total Current Assets
|
|
|
86,828
|
|
|
|
86,828
|
|
|
|
|
|
|
|
|
|
|
Investments in subsidiaries
|
|
|
184,632,301
|
|
|
|
160,185,796
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
184,719,129
|
|
|
$
|
160,272,624
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Income tax payable – non-current
|
|
|
2,451,499
|
|
|
|
-
|
|
Other current liability
|
|
|
2,921,411
|
|
|
|
2,921,411
|
|
Total Current Liabilities
|
|
|
5,372,910
|
|
|
|
2,921,411
|
|
|
|
|
|
|
|
|
|
|
Income tax payable - noncurrent
|
|
|
9,259,307
|
|
|
|
-
|
|
Total Non-current Liabilities
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
14,632,217
|
|
|
|
2,921,411
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
Preferred stock - no par value; 1,000,000 authorized; none issued and outstanding as of December 31, 2018 and 2017
|
|
|
-
|
|
|
|
-
|
|
Common stock - $0.002 par value; 50,000,000 authorized, 19,304,921 issued and outstanding as of December 31, 2018 and 2017
|
|
|
38,609
|
|
|
|
38,609
|
|
Additional paid-in capital
|
|
|
(28,582,654
|
)
|
|
|
(28,582,654
|
)
|
Retained earnings
|
|
|
198,630,957
|
|
|
|
185,895,258
|
|
Total Stockholders’ Equity
|
|
|
170,086,910
|
|
|
|
157,351,213
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
184,719,129
|
|
|
$
|
160,272,624
|
|
Financial
Information of Parent Company
STATEMENTS
OF INCOME
For
the Years Ended December 31, 2018 and 2017
|
|
For Years Ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Investment income
|
|
$
|
24,446,505
|
|
|
$
|
24,324,221
|
|
Provision for income taxes
|
|
|
11,710,806
|
|
|
|
-
|
|
Net income attributable to stockholders
|
|
$
|
12,735,699
|
|
|
$
|
24,324,221
|
|
|
|
|
|
|
|
|
|
|
Weighted average common share - Basic
|
|
|
19,304,921
|
|
|
|
19,304,921
|
|
|
|
|
|
|
|
|
|
|
Weighted average common share - Diluted
|
|
|
19,304,921
|
|
|
|
19,304,921
|
|
|
|
|
|
|
|
|
|
|
EPS - Basic
|
|
$
|
0.66
|
|
|
$
|
1.26
|
|
|
|
|
|
|
|
|
|
|
EPS - Diluted
|
|
$
|
0.66
|
|
|
$
|
1.26
|
|
Financial
Information of Parent Company
STATEMENTS
OF CASH FLOWS
For
the Years Ended December 31, 2018 and 2017
|
|
For Years Ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,735,699
|
|
|
$
|
24,324,221
|
|
Adjustments to reconcile net income to net cash used in operating activities :
|
|
|
|
|
|
|
|
|
Investment in subsidiaries
|
|
|
(24,446,505
|
)
|
|
|
-24,324,221
|
|
Income tax payable
|
|
|
11,710,806
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
-
|
|
|
|
-
|
|
Cash and cash equivalents, beginning of the year
|
|
|
-
|
|
|
|
-
|
|
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, 2018 and 2017
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Shareholders’
|
|
|
|
of Share
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Equity
|
|
Balance - December 31, 2016
|
|
|
19,304,921
|
|
|
|
38,609
|
|
|
|
42,199,014
|
|
|
|
161,571,037
|
|
|
|
133,026,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,324,221
|
|
|
|
24,324,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2017
|
|
|
19,304,921
|
|
|
|
38,609
|
|
|
|
42,199,014
|
|
|
|
185,895,258
|
|
|
|
157,351,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
12,735,699
|
|
|
|
12,735,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2018
|
|
|
19,304,921
|
|
|
|
38,609
|
|
|
|
42,199,014
|
|
|
|
198,630,957
|
|
|
|
170,086,912
|
|