NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
(Unaudited)
NOTE A - DESCRIPTION OF BUSINESS
SORL Auto Parts, Inc.
(together with its subsidiaries, “we,” “us,” “our” or the “Company” or “SORL”),
a Delaware corporation incorporated on March 24, 1982, is principally engaged in the manufacture and distribution of vehicle brake
systems and other key safety-related components, through its 90% ownership of Ruili Group Ruian Auto Parts Co., Ltd. (the “Joint
Venture” or “Ruian”). The Company distributes products both in China and internationally under SORL trademarks.
The Company’s product range includes 140 categories and over 2,000 different specifications.
The Joint Venture was
formed in the People’s Republic of China (“PRC” or “China”) as a Sino-Foreign joint venture on January
17, 2004, pursuant to the terms of a Joint Venture Agreement between the Ruili Group Co., Ltd. (the “Ruili Group”),
a related party under common control, and Fairford Holdings Limited (“Fairford”), a wholly owned subsidiary of the
Company. The Ruili Group was incorporated in China in 1987 and specializes in the development, production and sale of various kinds
of automotive parts. Fairford and the Ruili Group contributed 90% and 10%, respectively, of the paid-in capital of the Joint Venture.
On November 11, 2009,
the Company, through its wholly owned subsidiary, Fairford, entered into a joint venture agreement with MGR Hong Kong Limited (“MGR”),
a Hong Kong-based global auto parts distribution specialist firm and an unaffiliated Taiwanese individual investor. The joint venture
was named SORL International Holding, Ltd. (“SIH”) based in Hong Kong. SORL held a 60% interest in the joint venture,
MGR held a 30% interest, and the Taiwanese individual investor held a 10% interest. SIH was primarily devoted to expanding SORL's
international sales network in Asia-Pacific and creating a larger footprint in Europe and Africa with a target to create a truly
global distribution network. In December 2015, due to poor financial performance of SIH, Fairfold sold all of its interest in SIH
to the Taiwanese investor. After this transaction, SIH ceased to be a distributor of SORL in the international market.
NOTE B - BASIS OF PRESENTATION AND SIGNIFICANT
ACCOUNTING POLICIES
|
(1)
|
BASIS OF PRESENTATION
|
The consolidated financial
statements include the accounts of the Company and its majority owned subsidiaries. All intercompany balances and transactions
have been eliminated in the consolidation. Certain information and footnote disclosures normally included in financial statements
prepared in conjunction with generally accepted accounting principles have been condensed or omitted as permitted by the rules
and regulations of the United States Securities and Exchange Commission (“SEC”), although the Company believes that
the disclosures contained in this report are adequate to make the information presented not misleading. The consolidated balance
sheet information as of December 31, 2017 was derived from the consolidated audited financial statements included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2017. These consolidated financial statements should be read in conjunction
with the annual consolidated audited financial statements and the notes thereto included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2017, and other reports filed with the SEC.
The accompanying unaudited
interim consolidated financial statements reflect all adjustments of a normal and recurring nature which are, in the opinion of
management, necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim
periods presented. The results of operations for these periods are not necessarily comparable to, or indicative of, results of
any other interim period or for the fiscal year taken as a whole.
|
(2)
|
SIGNIFICANT ACCOUNTING POLICIES
|
a. ACCOUNTING
METHOD
The Company uses the accrual
method of accounting for financial statement and tax return purposes.
b. USE OF ESTIMATES
The preparation of financial
statements in conformity with U.S generally accepted accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting 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.
c. FAIR VALUE OF FINANCIAL INSTRUMENTS
For certain of the Company’s
financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, bank acceptance notes from customers,
inventories, current prepayments, other current assets, accounts payable and bank acceptance notes to vendors, short term bank
loans, deposits received from customers, current portion of long term loans, deferred income, income tax payable, accrued expenses
and other current liabilities, the carrying amounts approximate fair values due to their short maturities.
Transactions involving
related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free
market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related
party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations
can be substantiated. It is not, however, practical to determine the fair value of amounts due from/to related parties due to their
related party nature.
d. RESTRICTED CASH
Restricted cash, current
consists of bank deposits used to pledge bank acceptance notes and deposits for obtaining letters of credit from a local bank.
Restricted cash, non-current
represents deposits guaranteed for construction projects.
The Company entered
into credit agreements with commercial banks in China (“endorsing banks”) which agree to provide credit within stipulated
limits. Within the stipulated credit limits, the Company can issue bank acceptance notes to its suppliers as payments for the purchases.
In order to issue bank acceptance notes, the Company is generally required to make initial deposits or pledge notes receivable
to the endorsing banks in amounts of certain percentage of the face amount of the bank acceptance notes to be issued by the Company.
The cash in such accounts is restricted for use over the terms of the bank acceptance notes, which are normally three to six months.
As of September 30, 2018 and December 31, 2017, restricted cash of $15,995,561 and $0, respectively, was used to pledge the bank
acceptance notes.
The Company obtained
letters of credit from Industrial Bank Co., Ltd., which agreed to provide guarantee that the Company would make timely payment
to its sellers for any purchases. Deposits of $159,902 and $275,474, respectively, were required for this purpose as of September
30, 2018 and December 31, 2017.
The Company obtained
letters of credit from China Zheshang Bank, which agreed to provide guarantee for the Company’s construction projects on
land use rights at the intersection of Xianghe Road and North Wansong Road, Binhai New District, Ruian City, Zhejiang Province,
China. Deposits of $3,488,778 and $0, respectively, were required by China Zheshang Bank for this purpose during the construction
period as of September 30, 2018 and December 31, 2017, and were included in restricted cash, non-current.
As of September 30,
2018, the Company had a bank deposit of $2,907,315 held as a guarantee for the loans obtained by Wenzhou Lichuang Automobile Parts
Co., Ltd., a related party, from China Merchant Bank. Also see Note E for details.
e. RELATED PARTY TRANSACTIONS
A related party is generally
defined as (i) any person that holds 10% or more of the Company’s securities and their immediate families, (ii) the Company’s
management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or
(iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to
be a related party transaction when there is a transfer of resources or obligations between related parties. The Company conducts
business with its related parties in the ordinary course of business.
f. BANK ACCEPTANCE NOTES 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 September 30, 2018 and December 31, 2017, bank acceptance notes from customers in the amount
of $91,703,928 and $95,914,724, respectively, were pledged to banks to issue either short term bank loans or bank acceptance notes
to vendors. The banks charge discount fees if the Company chooses to discount the bank acceptance notes for cash before the maturity
of the notes and such discount fees are included in interest expenses in the accompanying unaudited consolidated statements of
income (loss) and comprehensive income (loss).
g. REVENUE RECOGNITION
The Company has adopted
Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“ASC 606”) effective
as of January 1, 2018. The Company has chosen to use the full retrospective transition method, under which it is required to revise
its consolidated financial statements for the year ended December 31, 2017 as well as any applicable interim periods within the
year ended December 31, 2017, as if ASC 606 had been effective for those periods. Under ASC 606, the Company recognizes revenue
when a customer obtains control of promised goods, in an amount that reflects the consideration which the Company expects to receive
in exchange for the goods. To determine revenue recognition for arrangements within the scope of ASC 606, the Company performs
the following five steps: (1) identify the contracts with a customer; (2) identify the performance obligations in the contract;
(3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5)
recognize revenue when or as the entity satisfies a performance obligation. The Company only applies the five-step model to contracts
when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods it transfers to
the customer. See Note C for assessment on the impact of adopting ASC 606, and Note M for details on revenues from contracts with
customers.
h. FOREIGN CURRENCY TRANSLATION
The Company maintains
its books and accounting records in RMB, the currency of the PRC. The Company’s functional currency is also RMB. The Company
has adopted FASB ASC 830-30 in translating financial statement amounts from RMB to the Company’s reporting currency, United
States dollars (“US$”). All assets and liabilities are translated at the current rate. The stockholders’ equity
accounts are translated at the appropriate historical rate. Revenue and expenses are translated at the weighted average rates in
effect on the transaction dates.
Translation adjustments
resulting from this process are included in accumulated other comprehensive income in the statement of stockholders’ equity.
Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the
functional currency are included in the results of operations as incurred.
NOTE C – RECENTLY ISSUED ACCOUNTING
PRONOUNCEMENTS
In May 2014, the FASB
issued ASC 606. ASC 606 outlines a single set of comprehensive principles for recognizing revenue under U.S. GAAP and supersedes
the revenue recognition guidance existed at the time. The main principle of ASC 606 is that revenue should be recognized to depict
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects
to be entitled to in exchange for those goods or services. The Company applied the ASC and its related updates on a full retrospective
basis as of January 1, 2018. The adoption of ASC 606 did not impact the previously reported financial statements in any prior period
nor did it result in a cumulative effect adjustment to retained earnings. See Note M for additional information.
In November 2016, the
FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. These amendments require that a statement
of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted
cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents
should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown
on the statement of cash flows. The amendments do not provide a definition of restricted cash or restricted cash equivalents. The
Company adopted ASU 2016-18 effective January 1, 2018. As a result of the adoption, net cash used in investing activities was adjusted
to exclude the change in restricted cash, resulting in a decrease of $4,871,113 in net cash used in investing activities in the
amount previously reported for the nine months ended September 30, 2017. Restricted cash was included with cash and cash equivalents
when reconciling the beginning-of-period and end-of-period total amounts shown on the consolidated statements of cash flows.
In 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 N 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 Company is currently evaluating the impact of the adoption of ASU No. 2018-09 on its consolidated financial
statements.
In July 2018, the FASB
issued ASU 2018-10, “Codification Improvements to Topic 842, Leases”. These amendments affect narrow aspects of the
guidance issued in the amendments in ASU 2016-02 including those regarding residual value guarantees, rate implicit in the lease,
lessee reassessment of lease classification, lessor reassessment of lease term and purchase option, variable lease payments that
depend on an index or a rate, investment tax credits, lease term and purchase option, transition guidance for amounts previously
recognized in business combinations, certain transition adjustments, transition guidance for leases previously classified as capital
leases under Topic 840, transition guidance for modifications to leases previously classified as direct financing or sales-type
leases under Topic 840, transition guidance for sale and leaseback transactions, impairment of net investment in the lease, unguaranteed
residual asset, effect of initial direct costs on rate implicit in the lease, and failed sale and leaseback transactions. For entities
that early adopted Topic 842, the amendments are effective upon issuance of ASU 2018-10, and the transition requirements are the
same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be
the same as the effective date and transition requirements in Topic 842. The Company is currently evaluating the impact of the
adoption of ASU 2018-10 on its consolidated financial statements.
In July 2018, the FASB
issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. The amendments in this ASU affect the guidance issued in ASU 2016-02,
Leases (Topic 842), which is not yet effective. The amendments provide entities with an additional (and optional) transition method
to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the
adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.
The amendments also provide lessors with a practical expedient to not separate non-lease components from the associated lease component
and, instead, to account for those components as a single component in certain circumstances. For the entities that have not adopted
Topic 842,the effective date for this ASU are the same as those for ASU 2016-02, which is effective for fiscal years beginning
after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption
of ASU No. 2018-11 on its consolidated financial statements.
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 D – RECLASSIFICATIONS
Certain prior period amounts have been
reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings and financial
position.
NOTE E - RELATED PARTY TRANSACTIONS
Related parties with whom the Company conducted
business consist of the following:
Name of Related Party
|
|
Nature of Relationship
|
Xiao Ping Zhang
|
|
Principal shareholder, Chairman of the Board and Chief Executive Officer
|
|
|
|
Shu Ping Chi
|
|
Shareholder, member of the Board, wife of Xiao Ping Zhang
|
|
|
|
Xiao Feng Zhang
|
|
Shareholder, member of the Board, brother of Xiao Ping Zhang
|
|
|
|
Ruili Group Co., Ltd. ("Ruili Group")
|
|
10% shareholder of Joint Venture and is collectively controlled by Xiao Ping Zhang, Shu Ping Chi, and Xiao Feng Zhang
|
|
|
|
Guangzhou Ruili Kormee Automotive Electronic 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
|
|
|
|
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
|
The Company continues
to purchase primarily packaging materials from Ruili Group. In addition, the Company purchases automotive components from other
related parties, including Guangzhou Kormee, Ruian Kormee, Ruili Meilian, Shanghai Dachao, Wenzhou Lichuang and Ningbo Ruili. As
of September 30, 2018, the Company did not receive all the materials from Ningbo Ruili purchased during the three and nine months
then ended. The unreceived purchases from the relate party are recorded as prepayments, current on the accompanying consolidated
balance sheets.
The Company sells certain
automotive products to the Ruili Group. The Company also sells parts to Guangzhou Kormee, Shanghai Tabouk, Ruian Kormee and Ruili
Meilian.
The following related
party transactions occurred during the three and nine months ended September 30, 2018 and 2017:
|
|
Nine Months Ended September 30,
|
|
|
Three Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
PURCHASES FROM:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guangzhou Ruili Kormee Automotive Electronic Control Technology Co., Ltd.
|
|
$
|
2,343,015
|
|
|
$
|
1,449,946
|
|
|
$
|
598,920
|
|
|
$
|
989,679
|
|
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd.
|
|
|
1,996,094
|
|
|
|
1,085,483
|
|
|
|
582,998
|
|
|
|
401,132
|
|
Shanghai Dachao Electric Technology Co., Ltd.
|
|
|
866,382
|
|
|
|
55,230
|
|
|
|
489,695
|
|
|
|
-
|
|
Ruili MeiLian Air Management System (LangFang) Co., Ltd
|
|
|
5,786,608
|
|
|
|
3,613,415
|
|
|
|
812,202
|
|
|
|
1,373,241
|
|
Ruili Group Co., Ltd.
|
|
|
5,991,237
|
|
|
|
3,845,123
|
|
|
|
2,024,487
|
|
|
|
1,382,956
|
|
Ningbo Ruili Equipment Co., Ltd.
|
|
|
2,044,168
|
|
|
|
-
|
|
|
|
2,044,168
|
|
|
|
-
|
|
Wenzhou Lichuang Automobile Parts Co., Ltd.
|
|
|
11,251,687
|
|
|
|
-
|
|
|
|
3,706,795
|
|
|
|
-
|
|
Total purchases
|
|
$
|
30,279,191
|
|
|
$
|
10,049,197
|
|
|
$
|
10,259,265
|
|
|
$
|
4,147,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SALES TO:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guangzhou Ruili Kormee Automotive Electronic Control Technology Co., Ltd.
|
|
$
|
8,086,219
|
|
|
$
|
4,874,568
|
|
|
$
|
2,271,413
|
|
|
$
|
972,084
|
|
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd.
|
|
|
63,112
|
|
|
|
115,429
|
|
|
|
8,641
|
|
|
|
12,187
|
|
Ruili MeiLian Air Management System (LangFang) Co., Ltd
|
|
|
1,048,005
|
|
|
|
634,022
|
|
|
|
204,192
|
|
|
|
388,287
|
|
Ruili Group Co., Ltd.
|
|
|
12,570,554
|
|
|
|
7,855,143
|
|
|
|
6,494,382
|
|
|
|
900,859
|
|
Shanghai Tabouk Auto Components Co., Ltd.
|
|
|
1,229,651
|
|
|
|
-
|
|
|
|
355,331
|
|
|
|
-
|
|
Total sales
|
|
$
|
22,997,541
|
|
|
$
|
13,479,162
|
|
|
$
|
9,333,959
|
|
|
$
|
2,273,417
|
|
|
|
As of September 30, 2018
|
|
|
As of December 31, 2017
|
|
|
|
2018
|
|
|
2017
|
|
ADVANCES TO RELATED PARTIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruili Group Co., Ltd.
|
|
|
49,372,965
|
|
|
|
5,711,605
|
|
Shanghai Ruili Real Estate Development Co., Ltd.
|
|
|
-
|
|
|
|
65,069,497
|
|
Kunshan Yuetu Real Estate Development Co., Ltd.
|
|
$
|
-
|
|
|
$
|
1,537,122
|
|
|
|
|
|
|
|
|
|
|
Total advances to related parties
|
|
$
|
49,372,965
|
|
|
$
|
72,318,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
2017
|
|
ACCOUNTS RECEIVABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shanghai Tabouk Auto Components Co., Ltd
|
|
$
|
1,506,254
|
|
|
$
|
1,297,734
|
|
Total accounts receivable
|
|
$
|
1,506,254
|
|
|
$
|
1,297,734
|
|
|
|
|
|
|
|
|
|
|
PREPAYMENTS, CURRENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ningbo Ruili Equipment Co., Ltd.
|
|
$
|
3,094,333
|
|
|
$
|
999,527
|
|
Total prepayments, current
|
|
$
|
3,094,333
|
|
|
$
|
999,527
|
|
|
|
|
|
|
|
|
|
|
ACCOUNTS PAYABLE TO RELATED PARTIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guangzhou Ruili Kormee Automotive Electronic Control Technology Co., Ltd.
|
|
|
10,651,384
|
|
|
|
3,414,719
|
|
Shanghai Dachao Electric Technology Co., Ltd.
|
|
|
111,574
|
|
|
|
83,178
|
|
Ruili MeiLian Air Management System(LangFang)Co.,Ltd
|
|
|
2,682,174
|
|
|
|
1,993,787
|
|
Wenzhou Lichuang Automobile Parts Co., Ltd.
|
|
|
9,336,927
|
|
|
|
10,405,120
|
|
Total accounts payable to related parties
|
|
$
|
22,782,059
|
|
|
$
|
15,896,804
|
|
|
|
|
|
|
|
|
|
|
DUE TO RELATED PARTY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd.
|
|
$
|
4,481,484
|
|
|
$
|
1,572,963
|
|
Total due to related party
|
|
$
|
4,481,484
|
|
|
$
|
1,572,963
|
|
From time to
time,
the Company borrows from Ruili Group and its controlled companies for working capital purposes. In order to obtain the loans and
mutually benefit both the debtor and creditor of the arrangement, the Company also advances to Ruili Group and its controlled
companies in a short term. All the loans from related parties are non-interest bearing, unsecured and due on demand. The advances
to Ruili Group are non-interest bearing, unsecured, and due on demand and the advances to Shanghai Ruili and Kunshan Yuetu are
due on demand, unsecured, and bear an interest rate of 5.22% per annum. The advances to Shanghai Ruili and Kunshan Yuetu were
fully repaid as of September 30, 2018.
During the nine months
ended September 30, 2018, the Company obtained loans of $311,692,664 in cash and $33,721,267 in the form of bank acceptance notes
from related parties. Repayments in cash and bank acceptance notes to related parties totaled $334,470,193 and $5,846,083, respectively.
In the same period, the Company advanced to its related parties in the total amount of $214,800,362 and received cash repayments
from related parties amounted to $222,337,244. During the nine months ended September 30, 2017, the Company obtained loans of $93,191,843
in cash and $23,515,527 in the form of bank acceptance notes from related parties. Repayments in cash to related parties amounted
to $113,071,629.
The Company entered
into a lease agreement with Ruili Group. See Note O for more details.
During the nine months
ended September 30, 2018, the Company made a bank deposit of $2,907,315 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 B.
The Company provided a
guarantee for the credit line granted to Ruili Group by the China Merchants Bank in the amount of RMB 50,000,000 (approximately
$7,699,889) for a period from July 29, 2015 until two years after the due date of each loan withdrawn by Ruili Group under the
credit line. The credit line was replaced by the one issued by the same bank in the amount of RMB 40,000,000 (approximately $5,766,181)
for a period of 12 months starting on October 24, 2016. The credit line was renewed on October 19, 2017 for 6 months. On April
23, 2018, Ruili Group and the bank reached another extension agreement and the guarantee will be provided by the Company until
April 23, 2021.
The Company provided a
guarantee for the credit line granted to Ruili Group by China Guangfa Bank in a maximum amount of RMB 69,000,000 (approximately
$10,092,000) for the period from November 16, 2016 to January 16, 2018. The credit line was renewed on December 21, 2017 for a
period of 12 months, and the guarantee was accordingly extended by the Company as of September 30, 2018 and will expire on December
20, 2018.
The Company provided a
guarantee for the credit line granted to Ruili Group by Bank of Ningbo in a maximum amount of RMB 180,000,000 (approximately $26,328,000)
for the period from June 30, 2017 to June 30, 2020.
The Company has short term
bank loans guaranteed or pledged by related parties. See Note K for more details.
NOTE F - ACCOUNTS RECEIVABLE, NET
Accounts receivable, net,
consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Accounts receivable
|
|
$
|
176,566,068
|
|
|
$
|
148,312,117
|
|
Less: allowance for doubtful accounts
|
|
|
(12,816,673
|
)
|
|
|
(13,927,156
|
)
|
Accounts receivable, net
|
|
$
|
163,749,395
|
|
|
$
|
134,384,961
|
|
No customer individually
accounted for more than 10% of our revenues or accounts receivable for the nine months ended September 30, 2018 and 2017. The changes
in the allowance for doubtful accounts on September 30, 2018 and December 31, 2017 are summarized as follows:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Beginning balance
|
|
$
|
13,927,156
|
|
|
$
|
11,686,417
|
|
Add: Increase (Decrease) to allowance
|
|
|
(420,037
|
)
|
|
|
1,474,872
|
|
Effects on changes in foreign exchange rate
|
|
|
(690,446
|
)
|
|
|
765,867
|
|
Ending balance
|
|
$
|
12,816,673
|
|
|
$
|
13,927,156
|
|
NOTE G - INVENTORIES
On September 30, 2018 and December 31, 2017,
inventories were consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Raw materials
|
|
$
|
46,744,244
|
|
|
$
|
27,657,266
|
|
Work-in-process
|
|
|
46,420,898
|
|
|
|
40,805,434
|
|
Finished goods
|
|
|
65,958,328
|
|
|
|
45,837,864
|
|
Less: write-down of inventories
|
|
|
-
|
|
|
|
-
|
|
Total inventories
|
|
$
|
159,123,470
|
|
|
$
|
114,300,564
|
|
NOTE H - PROPERTY, PLANT AND EQUIPMENT,
NET
Property, plant and
equipment were consisted of the following on September 30, 2018 and December 31, 2017:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Machinery
|
|
$
|
127,444,462
|
|
|
$
|
119,296,564
|
|
Molds
|
|
|
1,271,764
|
|
|
|
1,338,912
|
|
Office equipment
|
|
|
3,831,723
|
|
|
|
2,998,443
|
|
Vehicles
|
|
|
4,684,074
|
|
|
|
3,681,194
|
|
Buildings
|
|
|
18,573,731
|
|
|
|
20,127,148
|
|
Construction in progress
|
|
|
2,928,101
|
|
|
|
-
|
|
Leasehold improvements
|
|
|
462,419
|
|
|
|
486,834
|
|
Sub-Total
|
|
|
159,196,274
|
|
|
|
147,929,095
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation
|
|
|
(72,247,221
|
)
|
|
|
(68,101,089
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
86,949,053
|
|
|
$
|
79,828,006
|
|
Depreciation expense
charged to operations was $8,399,291 and $6,353,494 for the nine months ended September 30, 2018 and 2017, respectively.
NOTE I – LAND USE RIGHTS, NET
The balances for land
use rights, net as of September 30, 2018 and December 31, 2017 are as the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Cost
|
|
$
|
22,231,948
|
|
|
$
|
15,477,081
|
|
Less: accumulated amortization
|
|
|
(986,049
|
)
|
|
|
(564,947
|
)
|
|
|
|
|
|
|
|
|
|
Land use rights, net
|
|
$
|
21,245,899
|
|
|
$
|
14,912,134
|
|
In September 2017, the Company entered into
an agreement with the Ministry of Land and Resources, Ruian, to purchase the land use rights for the land located at the intersection
of Xianghe Road and North Wansong Road, Binhai New District, Ruian City, Zhejiang Province, China (the “Wansong Land”).
Full payment of RMB 51.81 million (approximately $7.93 million) was made as of December 31, 2017. The Company obtained the title
to the land use rights in April 2018. The Wansong Land has a total area of 17,029 square meters.
In December 2017, the Company entered into
an agreement with the Ministry of Land and Resources, Ruian, to purchase the land use rights for the land located at the intersection
of Fengjin Road and Wenhua Road, Binhai New District, Ruian City, Zhejiang Province, China. Prepayment of RMB 14.40 million (approximately
$2.14 million) was made as down payment in 2017. During the nine months ended September 30, 2018, the Company paid additional amount
of RMB 57.62 million (approximately $8.99 million). As of September 30, 2018, the purchase price of RMB 72.02 (approximately $11.13
million) was fully paid. As of the filing date, the title to the land use rights has not been transferred. The payments were included
in prepayment, non-current as of September 30, 2018 on the accompanying consolidated balance sheets.
In April 2018, the Company entered into an
agreement with the Ministry of Land and Resources, Ruian, to purchase the land use rights for the land located at the intersection
of Tengda Road and Wanghai Road, Economic Development District, Ruian City, Zhejiang Province, China. Prepayment of RMB 42.54 million
(approximately $6.43 million) was made during the nine months ended September 30, 2018. As of the filing date, the title to the
land use rights has not been transferred. The payments were included in prepayment, non-current as of September 30, 2018 on the
accompanying consolidated balance sheets.
Amortization expenses were $458,179 and $141,816
for the nine months ended September 30, 2018 and 2017, respectively.
NOTE J - DEFERRED TAX ASSETS
Deferred tax assets
consisted of the following as of September 30, 2018 and December 31, 2017:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Deferred tax assets – non-current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
2,047,506
|
|
|
$
|
2,137,837
|
|
Revenue (net of cost)
|
|
|
414,571
|
|
|
|
160,766
|
|
Unpaid accrued expenses
|
|
|
(16,874
|
)
|
|
|
955,287
|
|
Warranty
|
|
|
1,104,744
|
|
|
|
986,534
|
|
Deferred tax assets
|
|
|
3,549,947
|
|
|
|
4,240,424
|
|
Valuation allowance
|
|
|
―
|
|
|
|
―
|
|
Net deferred tax assets – non-current
|
|
$
|
3,549,947
|
|
|
$
|
4,240,424
|
|
Deferred taxation is calculated under the
liability method in respect of taxation effect arising from all timing differences, which are expected with reasonable probability
to realize in the foreseeable future. The Company’s subsidiary registered in the PRC is subject to income taxes within the
PRC at the applicable tax rate.
NOTE K – SHORT-TERM BANK LOANS
Bank loans represented
the following as of September 30, 2018 and December 31, 2017:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Secured
|
|
$
|
141,375,325
|
|
|
$
|
125,380,899
|
|
Unsecured
|
|
|
2,616,584
|
|
|
|
-
|
|
Total short term bank loans
|
|
$
|
143,991,909
|
|
|
$
|
125,380,899
|
|
The Company obtained those short term loans
from Bank of China, Bank of Ningbo, Agricultural Bank of China, China Zheshang Bank, China CITIC Bank, China Minsheng Bank, Industrial
Bank Co., Ltd., Oversea-Chinese Banking Corporation Limited, Industrial and Commercial Bank of China, Huaxia Bank and China Construction
Bank, respectively, to finance general working capital and acquire long-lived assets. Interest rate for the loans outstanding during
the nine months ended September 30, 2018 ranged from 1.35% to 5.22% per annum. The maturity dates of the loans existing as of September
30, 2018 ranged from August 8, 2018 to November 16, 2019. As of September 30, 2018 and December 31, 2017, the Company’s accounts
receivable of $76,540 and $5,472,169, respectively, were pledged as collateral under loan arrangements. The interest expenses for
short-term bank loans, including discount fees, were $2,543,723 and $804,499 for the three months ended September 30, 2018 and
2017, respectively. The interest expenses for short-term bank loans, including discount fees, were $7,428,780 and $1,827,835 for
the nine months ended September 30, 2018 and 2017, respectively.
As of September 30, 2018, corporate or personal
guarantees provided for those bank loans were as follows:
$
|
5,557,517
|
|
|
Guaranteed by Ruili Group, a related party
|
$
|
7,195,691
|
|
|
Guaranteed by Ruili Group, a related party; Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders
|
$
|
26,165,833
|
|
|
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.
|
$
|
22,650,493
|
|
|
Pledged by Ruili Group, a related party, with its land use rights and properties
|
$
|
16,571,694
|
|
|
Pledged by the Company with its bank acceptance notes
|
$
|
58,146,296
|
|
|
Pledged by Shanghai Ruili, a related party, with its properties; Guaranteed by Xiaoping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders
|
$
|
5,087,801
|
|
|
Pledged by Shanghai Ruili, a related party, with its properties; Guaranteed by Xiaoping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders; Guaranteed by Ruili Group, a related party
|
NOTE L - LONG TERM LOANS
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Aggregate outstanding principal balance
|
|
$
|
42,280,413
|
|
|
$
|
63,471,308
|
|
Less: unamortized debt issuance costs
|
|
|
(814,770
|
)
|
|
|
(1,822,053
|
)
|
Less: current portion
|
|
|
(22,147,109
|
)
|
|
|
(24,266,031
|
)
|
Non-current portion
|
|
$
|
19,318,534
|
|
|
$
|
37,383,224
|
|
In November 2017, the
Company entered into two identical but independent loan agreements with Far Eastern Horizon Co., Ltd. (“Far Eastern”),
each for a term of 36 months and with an effective interest rate of 8.38% per annum, payable monthly in arrears. The total long
term obligations under the two agreements amounted to RMB 200,000,000 (approximately $30,608,185), pledged by the Company’s
equipment in the original cost of RMB 205,690,574 (approximately $31,479,075). The Company paid debt issuance costs in cash of
$742,324. For the nine months ended September 30, 2018, the repayments of principal totaled $7,522,125.
In November 2017, the
Company entered into four independent loan agreements with COSCO Shipping Leasing Co., Ltd. (“COSCO”) for a term of
36 months each. Two of the agreements were signed on November 30, 2017 with an effective interest rate of 8.50% per annum, payable
monthly in arrears. The other two agreements were entered into on November 15, 2017, with an effective interest rate of 4.31% per
annum, payable monthly in arrears. The total long term obligations under the four agreements amounted to RMB 235,000,000 (approximately
$35,964,617), pledged by the Company’s equipment in the original cost of RMB 238,333,639 (approximately $36,474,800). The
Company paid debt issuance costs in cash in the amount of $1,025,248. For the nine months ended September 30, 2018, the repayments
of principal totaled $11,435,650.
The interest expenses
for long term loans, including the amortization of debt issuance costs, were $787,831 for the three months ended September 30,
2018. The interest expenses for long term loans, including the amortization of debt issuance costs, were $2,785,901 for the nine
months ended September 30, 2018.
NOTE M – REVENUES FROM CONTRACTS WITH CUSTOMERS
The Company accounted for revenue in accordance
with ASC 606, which was adopted on January 1, 2018, using full retrospective method. The adoption of the standard did not impact
the Company’s revenue recognition.
The Company provides a variety of standard
products to its customers. The Company’s contracts with its customers consist of a single, distinct performance obligation
or promise to transfer auto parts to the customers. Generally, the Company’s performance obligations are satisfied when the
customers take possession of the products, which normally occurs at the shipping point or destination depending on the terms of
the contracts. All sales are recorded net of value-added taxes. The Company does not recognize revenue related to product warranties.
See Note P for details concerning the expected costs associated with the Company’s assurance warranty obligations.
In accordance with ASC 606, the Company disaggregates
revenue from contracts with customers by product type. See Note Q for information regarding revenue disaggregation by product type.
Revenues from contracts with customers are
recognized at a point in time when the merchandises are delivered to the customer in accordance with the shipping terms stated
in the contracts, which is the point when the legal title, physical possession and the risks and rewards of ownership are transferred
to the customers.
Deferred revenue is recorded when consideration
is received from a customer prior to transferring goods to the customer under the terms of a sales contract. As of September 30,
2018 and December 31, 2017, the Company recorded a deferred revenue liability of $63,615,939 and $43,087,473, respectively, which
was presented as “Deposits received from customers” on the accompanying consolidated balance sheets. During the nine
months ended September 30, 2018 and 2017, the Company recognized $18,252,438 and $7,994,579, 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 (loss) and comprehensive income (loss).
NOTE N - INCOME TAXES
In December 2017, the
Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted into law and the new legislation contains several key tax provisions
that affected the Company, including, among others, a reduction of the federal corporate income tax rate to 21% effective January
1, 2018, and a recognition of the U.S. corporate income tax based on the deemed repatriation to the United States of the Company’s
share of previously deferred earnings of certain non-U.S. subsidiaries of the Company upon enactment of the 2017 Tax Act. The Company
is required to recognize the effect of the 2017 Tax Act in the period of enactment. In December 2017, the SEC staff issued Staff
Accounting Bulletin No. 118 (“SAB 118”), Income Tax Accounting Implications of the 2017 Tax Act, which allows the Company
to record provisional amounts during a measurement period not to extend beyond one year of the enactment date.
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 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 September 30, 2018, $1,763,678
was included in taxes payable as a current liability which the Company believes will be paid within one year and the remaining
balance was included in long-term taxes payable. As of the filing date, no transition tax payment has been made.
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 nine months ended September 30, 2018.
The reconciliation of
the effective income tax rate of the Company to the statutory income tax rate in the US and the PRC for the nine months ended September
30, 2018 and 2017 is as follows:
|
|
Nine Months Ended September 30
|
|
|
|
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
|
|
|
41.71
|
%
|
|
|
-
|
|
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
|
|
|
-3.77
|
%
|
|
|
-1.90
|
%
|
Effects of expenses not deductible for tax purposes
|
|
|
2.30
|
%
|
|
|
0.63
|
%
|
Other items
|
|
|
0.92
|
%
|
|
|
1.66
|
%
|
Effective tax rate
|
|
|
56.15
|
%
|
|
|
15.39
|
%
|
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 recorded for the United States. In the nine months ended September 30, 2018, there were late filing penalties of $100,000
that are recorded in the tax expenses. The provisions for income taxes for the nine months ended September 30, 2018 and 2017, respectively,
are summarized as follows:
|
|
Nine Months Ended September 30
|
|
|
|
2018
|
|
|
2017
|
|
Current
|
|
$
|
14,454,243
|
|
|
$
|
4,199,727
|
|
Deferred
|
|
|
520,739
|
|
|
|
25,677
|
|
Total
|
|
$
|
14,974,982
|
|
|
$
|
4,225,404
|
|
NOTE O – OPERATING LEASES WITH RELATED
PARTY
In December 2006, Ruian
entered into a lease agreement with Ruili Group Co., Ltd. for the lease of two apartment buildings. These two apartment buildings
are for Ruian’s management personnel and staff, respectively. The 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 $333,688).
The lease expenses were
$1,304,292 and $684,252 for the nine months ended September 30, 2018 and 2017, respectively.
NOTE P - WARRANTY CLAIMS
Warranty claims were
$2,507,487 and $2,261,311 for the nine months ended September 30, 2018 and 2017, respectively. Warranty claims are included in
selling and distribution expenses on the accompanying consolidated statements of income (loss) and comprehensive income (loss).
Accrued warranty expenses are included in the balances of accrued expenses on the accompanying consolidated balance sheet. The
movement of accrued warranty expenses for the nine months ended September 30, 2018 was as follows:
Beginning balance at January 1, 2018
|
|
$
|
6,576,895
|
|
Aggregate increase for new warranties issued during current period
|
|
|
2,507,487
|
|
Aggregate reduction for payments made and effect of exchange rate fluctuation
|
|
|
(1,719,421
|
)
|
Ending balance at September 30, 2018
|
|
$
|
7,364,961
|
|
NOTE Q – SEGMENT INFORMATION
The Company produces
brake systems and other related components for different types of commercial vehicles (“Commercial Vehicle Brake Systems”).
On August 31, 2010, the Company through Ruian, executed an Asset Purchase Agreement to acquire a segment of the passenger vehicle
auto parts business (“Passenger Vehicle Brake Systems”) of Ruili Group. As a result of this acquisition, the Company's
product offerings were expanded to both commercial and passenger vehicles' brake systems and other key safety-related auto parts.
The Company has two
operating segments: Commercial Vehicle Brake Systems and Passenger Vehicle Brake Systems.
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.
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
NET SALES TO EXTERNAL CUSTOMERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
276,593,442
|
|
|
$
|
223,937,534
|
|
Passenger vehicles brake systems
|
|
|
68,222,523
|
|
|
|
43,652,419
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
344,815,965
|
|
|
$
|
267,589,953
|
|
|
|
|
|
|
|
|
|
|
INTERSEGMENT SALES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
—
|
|
|
$
|
—
|
|
Passenger vehicles brake systems
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
61,974,537
|
|
|
$
|
61,485,066
|
|
Passenger vehicles brake systems
|
|
|
28,990,094
|
|
|
|
11,401,597
|
|
Gross profit
|
|
$
|
90,964,631
|
|
|
$
|
72,886,663
|
|
|
|
|
|
|
|
|
|
|
Selling and distribution expenses
|
|
|
37,154,745
|
|
|
|
22,877,889
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
17,519,873
|
|
|
|
13,517,222
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
13,400,656
|
|
|
|
7,477,902
|
|
|
|
|
|
|
|
|
|
|
Other operating income, net
|
|
|
7,535,820
|
|
|
|
1,185,958
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
30,425,177
|
|
|
|
30,199,608
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
2,847,299
|
|
|
|
38,175
|
|
Government grants
|
|
|
2,982,775
|
|
|
|
1,119,337
|
|
Other income
|
|
|
432,213
|
|
|
|
47,976
|
|
Interest expenses
|
|
|
(10,214,681
|
)
|
|
|
(1,827,835
|
)
|
|
|
|
|
|
|
|
|
|
Exchange differences
|
|
|
1,396,460
|
|
|
|
(1,193,897
|
)
|
Other expenses
|
|
|
(1,200,920
|
)
|
|
|
(343,024
|
)
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
$
|
26,668,323
|
|
|
$
|
28,040,340
|
|
|
|
|
|
|
|
|
|
|
CAPITAL EXPENDITURE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
32,788,350
|
|
|
$
|
30,791,780
|
|
Passenger vehicles brake systems
|
|
|
7,721,848
|
|
|
|
6,090,790
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
40,510,198
|
|
|
$
|
36,882,570
|
|
|
|
|
|
|
|
|
|
|
DEPRECIATION AND AMORTIZATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
7,187,308
|
|
|
$
|
5,538,902
|
|
Passenger vehicles brake systems
|
|
|
1,739,387
|
|
|
|
1,084,180
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,926,695
|
|
|
$
|
6,623,082
|
|
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
573,980,044
|
|
|
$
|
492,348,129
|
|
Passenger vehicles brake systems
|
|
|
126,166,387
|
|
|
|
89,967,813
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
700,146,431
|
|
|
$
|
582,315,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
LONG LIVED ASSETS
|
|
|
|
|
|
|
|
|
Commercial vehicles brake systems
|
|
$
|
118,210,297
|
|
|
$
|
106,779,681
|
|
Passenger vehicles brake systems
|
|
|
25,983,771
|
|
|
|
19,512,076
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
144,194,068
|
|
|
$
|
126,291,757
|
|
NOTE R – CONTINGENCIES
|
(1)
|
In May 2016, the Company, through its principal operating subsidiary, entered into a Purchase Agreement with Ruili Group, pursuant to which the Company agreed to exchange the land use rights and factory facilities located at No. 1169 Yumeng Road, Ruian Economic Development Zone, Ruian City, Zhejiang Province, China (the “Dongshan Facility”), purchased in 2007 from Ruili Group, plus RMB 501.00 million (approximately $76.50 million) in cash for the land use rights and factory facilities located at No. 2666 Kaifaqu Avenue, Ruian Economic Development Zone, Ruian City, Zhejiang Province, China (the “Development Zone Facility”). As of the filing date, the Company hasn’t obtained the land use rights certificate or the property ownership certificate for the building of the Development Zone Facility. The Company reserved the relevant tax amount of RMB 15,030,000 (approximately $2,300,205). This amount was determined based on a 3% tax rate on the consideration paid for the Development Zone Facility, which the Company considered as the most probable amount of tax liability.
|
|
(2)
|
The Company purchased the Dongshan Facility from Ruili Group in 2007 and subsequently transferred the plants and land use right to Ruili Group. The Company has never obtained the land use right certificate nor the property ownership certificate of the building for the Dongshan Facility. The Company reserved the relevant tax amount of RMB 4,560,000 (approximately $745,220). This amount was determined based on a 3% tax rate on the consideration paid for the Dongshan Facility in the transaction, which the Company considered as the most probable amount of tax liability. The Dongshan Facility was transferred back to Ruili Group on May 5, 2016.
|
|
(3)
|
The information of lease commitments is provided in Note O.
|
|
(4)
|
The information of guarantees and assets pledged is provided in Note E.
|
NOTE S – SUBSEQUENT EVENTS
During the subsequent
period, the Company obtained short term loans in an aggregate amount of $119,273,000 from Bank of China, Industrial Bank Co., Ltd.,
China CITIC Bank, China Minsheng Bank, Agricultural Bank of China, and China Zheshang Bank. Interest rate for those loans range
from 4.39% to 5.44% per annum. The maturity dates of the loans existing as of the filing date ranged from October 22, 2018 to November
6, 2019. The Company continuously pledged bank acceptance notes to obtain loans from China Zheshang Bank.
In the same period,
the Company repaid loan principals and interest expenses in the total amount of approximately $70,297,000 to Bank of China, Agricultural
Bank of China, China Minsheng Bank, and China Zheshang Bank.