SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
quarterly period ended September 30, 2008
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
transition period from _________ to _________
Commission
file number 000-11991
SORL
AUTO PARTS, INC.
(Exact
name of registrant as specified in its charter)
|
DELAWARE
|
|
30-0091294
|
|
(State
or other jurisdiction of incorporation or organization)
|
|
(IRS
Employer Identification No.)
|
No.
1169
Yumeng Road
Ruian
Economic Development District
Ruian
City, Zhejiang Province, Zip: 325200
People’s
Republic Of China
(Address
of principal executive offices)
86-577-6581-7720
(Registrant’s
telephone number)
Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
Yes
x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company.
See
definition of “accelerated filer”, “large accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
Accelerated Filer
o
|
Accelerated
Filer
o
|
Non-Accelerated
Filer
o
Smaller
Reporting Company
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act):
Yes
o
No
x
As
of
September 30, 2008 there were
18,279,254
shares
of
the Company’scommon stock, par value $0.002 per share, outstanding.
SORL
AUTO
PARTS, INC.
FORM
10-Q
For
the
Quarter Ended September 30, 2008
INDEX
|
|
|
Page
|
|
|
|
|
|
PART
I.
|
FINANCIAL
INFORMATION (Unaudited)
|
|
|
|
|
|
|
Item
1.
|
Financial
Statements:
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets as of September 30, 2008 (Unaudited)
and
December 31, 2007 (Audited)
|
2
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Income and Comprehensive Income (Unaudited)
for
the Three Months and Nine months Ended September 30, 2008 and 2007
|
3
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows (Unaudited) for the Three Months
and
Nine months Ended September 30, 2008 and 2007
|
4
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Shareholders’ Equity (Unaudited) for the Three
months and Nine months Ended September 30, 2008 and 2007
|
5
|
|
|
|
|
|
|
Notes
to the Condensed Consolidated Financial Statements (Unaudited)
|
6
|
|
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis or Financial Condition and Results of Operations
|
16
|
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
26
|
|
|
|
|
|
Item
4T.
|
Controls
and Procedures
|
27
|
|
|
|
|
|
PART
II.
|
OTHER
INFORMATION
|
27
|
|
|
|
|
|
Item
4.
|
Submission
of Matters To a Vote of Security Holders
|
27
|
|
|
|
|
|
Item
6.
|
Exhibits
|
28
|
|
|
|
|
|
SIGNATURES
|
|
29
|
SORL
Auto Parts, Inc. and Subsidiaries
Condensed
Consolidated Balance Sheets
September
30, 2008(unaudited) and December 31, 2007
|
|
|
September 30,
2008
|
|
December 31,
2007
|
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
US$
|
5,950,987
|
|
US$
|
4,340,211
|
|
|
Accounts
Receivable, Net of Provision
|
|
|
36,210,887
|
|
|
30,586,239
|
|
|
Notes
Receivable
|
|
|
6,809,907
|
|
|
9,410,385
|
|
|
Inventory
|
|
|
20,831,986
|
|
|
8,220,373
|
|
|
Prepayments
|
|
|
2,730,862
|
|
|
1,336,212
|
|
|
Other
Current Assets
|
|
|
3,614,446
|
|
|
4,275,294
|
|
|
Total
Current Assets
|
|
|
76,149,075
|
|
|
58,168,714
|
|
|
Fixed
Assets
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment
|
|
|
32,545,735
|
|
|
27,889,182
|
|
|
Less:
Accumulated Depreciation
|
|
|
(8,325,938
|
)
|
|
(6,094,229
|
)
|
|
Property,
Plant and Equipment, Net
|
|
|
24,219,797
|
|
|
21,794,953
|
|
|
|
|
|
|
|
|
|
|
|
Land
Use Rights, Net
|
|
|
14,632,351
|
|
|
13,889,705
|
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
Deferred
Compensation Cost-Stock Options
|
|
|
24,844
|
|
|
69,571
|
|
|
Intangible
Assets
|
|
|
161,733
|
|
|
76,150
|
|
|
Less:
Accumulated Amortization
|
|
|
(35,274
|
)
|
|
(25,116
|
)
|
|
Intangible
Assets, Net
|
|
|
126,459
|
|
|
51,034
|
|
|
Other
Non-current Assets
|
|
|
-
|
|
|
-
|
|
|
Total
Other Assets
|
|
|
151,303
|
|
|
120,605
|
|
|
Total
Assets
|
|
US$
|
115,152,526
|
|
US$
|
93,973,977
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders' Equity
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
Payable and Notes Payable
|
|
US$
|
5,093,924
|
|
US$
|
5,305,172
|
|
|
Deposit
Received from Customers
|
|
|
5,538,253
|
|
|
2,079,946
|
|
|
Short
Term Bank Loans
|
|
|
2,002,533
|
|
|
3,370,328
|
|
|
Income
Tax Payable
|
|
|
491,587
|
|
|
373,769
|
|
|
Accrued
Expenses
|
|
|
3,233,396
|
|
|
1,859,938
|
|
|
Other
Current Liabilities
|
|
|
429,628
|
|
|
463,563
|
|
|
Total
Current Liabilities
|
|
|
16,789,321
|
|
|
13,452,716
|
|
|
Minority
Interest
|
|
|
9,812,875
|
|
|
8,024,152
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
|
|
Common
Stock - $0.002 Par Value; 50,000,000 Authorized,
|
|
|
|
|
|
|
|
|
18,279,254
- Issued and Outstanding as of
|
|
|
|
|
|
|
|
|
June
30, 2008 and December 31, 2007 respectively
|
|
|
36,558
|
|
|
36,558
|
|
|
Additional
Paid In Capital
|
|
|
37,498,452
|
|
|
37,498,452
|
|
|
Reserves
|
|
|
2,897,555
|
|
|
1,882,979
|
|
|
Accumulated
Other Comprehensive Income
|
|
|
10,876,022
|
|
|
5,432,189
|
|
|
Retained
Earnings
|
|
|
37,241,743
|
|
|
27,646,931
|
|
|
|
|
|
88,550,330
|
|
|
72,497,109
|
|
|
Total
Liabilities and Shareholders' Equity
|
|
US$
|
115,152,526
|
|
US$
|
93,973,977
|
|
The
accompanying notes are an integral part of these financial
statements
SORL
Auto Parts, Inc. and Subsidiaries
Condensed
Consolidated Statements of Income and Comprehensive Income(unaudited)
For
The Three Months and Nine Months Ended on September 30, 2008 and
2007
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
US$
|
32,967,579
|
|
|
29,703,227
|
|
|
105,812,140
|
|
|
83,309,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales
|
|
|
24,550,613
|
|
|
23,064,724
|
|
|
77,343,967
|
|
|
64,620,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
8,416,966
|
|
|
6,638,503
|
|
|
28,468,173
|
|
|
18,689,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and Distribution Expenses
|
|
|
2,261,143
|
|
|
1,928,763
|
|
|
6,872,221
|
|
|
4,444,053
|
|
|
General
and Administrative Expenses
|
|
|
3,018,390
|
|
|
1,682,071
|
|
|
7,712,808
|
|
|
4,402,694
|
|
|
Financial
Expenses
|
|
|
221,694
|
|
|
349,056
|
|
|
974,690
|
|
|
606,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Expenses
|
|
|
5,501,227
|
|
|
3,959,890
|
|
|
15,559,719
|
|
|
9,453,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income
|
|
|
2,915,739
|
|
|
2,678,613
|
|
|
12,908,454
|
|
|
9,236,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income
|
|
|
276,752
|
|
|
118,334
|
|
|
610,592
|
|
|
502,606
|
|
|
Non-Operating
Expenses
|
|
|
(119,677
|
)
|
|
(10,357
|
)
|
|
(374,640
|
)
|
|
(94,996
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) Before Provision for Income Taxes
|
|
|
3,072,814
|
|
|
2,786,590
|
|
|
13,144,406
|
|
|
9,644,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for Income Taxes
|
|
|
468,935
|
|
|
434,139
|
|
|
1,351,166
|
|
|
373,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income Before Minority Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
&
Other Comprehensive Income
|
|
US$
|
2,603,879
|
|
|
2,352,451
|
|
|
11,793,240
|
|
|
9,270,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
Interest
|
|
|
261,904
|
|
|
239,867
|
|
|
1,183,852
|
|
|
936,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income Attributable to Shareholders
|
|
|
2,341,975
|
|
|
2,112,584
|
|
|
10,609,388
|
|
|
8,333,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency Translation Adjustment
|
|
|
578,065
|
|
|
1,025,919
|
|
|
6,048,704
|
|
|
2,723,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
Interest's Share
|
|
|
(57,807
|
)
|
|
(102,592
|
)
|
|
(604,871
|
)
|
|
(272,351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income (Loss)
|
|
|
2,862,233
|
|
|
3,035,911
|
|
|
16,053,221
|
|
|
10,784,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common share – Basic
|
|
|
18,279,254
|
|
|
18,278,805
|
|
|
18,279,254
|
|
|
18,276,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common share – Diluted
|
|
|
18,283,011
|
|
|
18,312,574
|
|
|
18,287,094
|
|
|
18,323,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS
- Basic
|
|
|
0.13
|
|
|
0.12
|
|
|
0.58
|
|
|
0.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS –
Diluted
|
|
|
0.13
|
|
|
0.12
|
|
|
0.58
|
|
|
0.45
|
|
The
accompanying notes are an integral part of these financial
statements
SORL
Auto Parts, Inc. and Subsidiaries
Condensed
Consolidated Statements of Cash Flows(unaudited)
For
The Three Months and Nine Months Ended on September 30, 2008 and
2007
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
US$
|
2,341,975
|
|
|
2,112,584
|
|
|
10,609,388
|
|
|
8,333,227
|
|
|
Adjustments
to reconcile net income (loss) to net cash from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
Interest
|
|
|
261,904
|
|
|
239,867
|
|
|
1,183,852
|
|
|
936,986
|
|
|
Bad
Debt Expense
|
|
|
666,231
|
|
|
(163,553
|
)
|
|
687,513
|
|
|
23,623
|
|
|
Depreciation
and Amortization
|
|
|
695,872
|
|
|
447,548
|
|
|
2,024,931
|
|
|
1,157,942
|
|
|
Stock-Based
Compensation Expense
|
|
|
14,909
|
|
|
46,117
|
|
|
44,727
|
|
|
99,136
|
|
|
Loss
on disposal of Fixed Assets
|
|
|
23,176
|
|
|
(1,870
|
)
|
|
25,695
|
|
|
(762
|
)
|
|
Changes
in Assets and Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account
Receivables
|
|
|
2,220,955
|
|
|
1,198,001
|
|
|
(3,871,416
|
)
|
|
(3,436,960
|
)
|
|
Notes
Receivables
|
|
|
6,053,775
|
|
|
3,449,736
|
|
|
3,322,456
|
|
|
(2,165,666
|
)
|
|
Other
Currents Assets
|
|
|
(1,347,718
|
)
|
|
(238,235
|
)
|
|
833,926
|
|
|
(1,150,292
|
)
|
|
Inventory
|
|
|
(7,198,208
|
)
|
|
(1,339,563
|
)
|
|
(11,840,607
|
)
|
|
(4,034,078
|
)
|
|
Prepayments
|
|
|
596,577
|
|
|
45,087
|
|
|
(1,232,259
|
)
|
|
3,377,736
|
|
|
Accounts
Payable and Notes Payable
|
|
|
(2,958,382
|
)
|
|
(252,806
|
)
|
|
(681,802
|
)
|
|
738,224
|
|
|
Income
Tax Payable
|
|
|
(240,729
|
)
|
|
774,165
|
|
|
117,818
|
|
|
358,547
|
|
|
Deposits
Received from Customers
|
|
|
1,953,771
|
|
|
56,601
|
|
|
3,265,122
|
|
|
338,953
|
|
|
Other
Current Liabilities and Accrued Expenses
|
|
|
(85,437
|
)
|
|
(459,064
|
)
|
|
1,118,500
|
|
|
(356,077
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Flows from Operating Activities
|
|
|
2,998,671
|
|
|
5,914,615
|
|
|
5,607,844
|
|
|
4,220,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of Property and Equipment
|
|
|
(1,559,786
|
)
|
|
(5,521,198
|
)
|
|
(2,669,214
|
)
|
|
(10,856,559
|
)
|
|
Acquisition
of Land Use Rights
|
|
|
-
|
|
|
(7,377,271
|
)
|
|
|
|
|
(7,377,271
|
)
|
|
Investment
in Intangible Assets
|
|
|
|
|
|
(5,818
|
)
|
|
(78,737
|
)
|
|
(25,733
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Flows from Investing Activities
|
|
|
(1,559,786
|
)
|
|
(12,904,287
|
)
|
|
(2,747,951
|
)
|
|
(18,259,563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from (Repayment of) Bank Loans
|
|
|
|
|
|
3,159,176
|
|
|
(1,502,107
|
)
|
|
4,652,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash flows from Financing Activities
|
|
|
|
|
|
3,159,176
|
|
|
(1,502,107
|
)
|
|
4,652,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects
on changes in foreign exchange rate
|
|
|
30,925
|
|
|
51,979
|
|
|
252,990
|
|
|
222,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Change in Cash and Cash Equivalents
|
|
|
1,469,810
|
|
|
(3,778,517
|
)
|
|
1,610,776
|
|
|
(9,164,676
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents- Beginning of the year
|
|
|
4,481,177
|
|
|
5,751,342
|
|
|
4,340,211
|
|
|
11,137,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash Equivalents - End of the year
|
|
US$
|
5,950,987
|
|
|
1,972,825
|
|
|
5,950,987
|
|
|
1,972,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Paid
|
|
|
33,564
|
|
|
105,363
|
|
|
136,689
|
|
|
118,277
|
|
|
Tax
Paid
|
|
|
512,562
|
|
|
331,779
|
|
|
2,901,083
|
|
|
1,185,215
|
|
The
accompanying notes are an integral part of these financial
statements
Condensed
Consolidated Statements of Changes in Shareholders' Equity
|
Three
Months Ended September 30, 2008 and 2007
|
|
|
|
|
Number
|
|
Common
|
|
Additional
|
|
Reserves
|
|
Retained
|
|
Accumu. Other
|
|
|
|
|
|
|
|
|
of Share
|
|
Stock
|
|
Paid-in
|
|
|
|
Earnings
|
|
Comprehensive
|
|
Shareholders'
|
|
Minority
|
|
|
|
|
|
|
|
|
Capital
|
|
|
|
(Deficit)
|
|
Income
|
|
Equity
|
|
Interest
|
|
|
Beginning
Balance - July 1, 2007
|
|
|
18,275,126
|
|
|
36,550
|
|
|
37,467,252
|
|
|
1,424,523
|
|
|
23,581,999
|
|
|
2,630,299
|
|
|
65,140,623
|
|
|
7,203,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,112,584
|
|
|
-
|
|
|
2,112,584
|
|
|
239,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
923,327
|
|
|
923,327
|
|
|
102,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
to reserve
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
215,880
|
|
|
(215,880
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock issued to previous employees
|
|
|
4,128.00
|
|
|
8.00
|
|
|
31,200
|
|
|
|
|
|
-
|
|
|
-
|
|
|
31,208
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
Balance - September 30, 2007
|
|
|
18,279,254
|
|
|
36,558
|
|
|
37,498,452
|
|
|
1,640,403
|
|
|
25,478,703
|
|
|
3,553,626
|
|
|
68,207,742
|
|
|
7,545,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance - July 1, 2008
|
|
|
18,279,254
|
|
|
36,558
|
|
|
37,498,452
|
|
|
2,661,841
|
|
|
35,135,482
|
|
|
10,355,764
|
|
|
85,688,097
|
|
|
9,493,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,341,975
|
|
|
-
|
|
|
2,341,975
|
|
|
261,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
520,258
|
|
|
520,258
|
|
|
57,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
to reserve
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
235,714
|
|
|
(235,714
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
Balance - September 30, 2008
|
|
|
18,279,254
|
|
|
36,558
|
|
|
37,498,452
|
|
|
2,897,555
|
|
|
37,241,743
|
|
|
10,876,022
|
|
|
88,550,330
|
|
|
9,812,875
|
|
Nine
Months Ended September 30, 2008 and 2007
|
|
|
Number
|
|
Common
|
|
Additional
|
|
Reserves
|
|
Retained
|
|
Accumu. Other
|
|
|
|
|
|
|
|
|
of Share
|
|
Stock
|
|
Paid-in
|
|
|
|
Earnings
|
|
Comprehensive
|
|
Shareholders'
|
|
Minority
|
|
|
|
|
|
|
|
|
Capital
|
|
|
|
(Deficit)
|
|
Income
|
|
Equity
|
|
Interest
|
|
|
Beginning
Balance - January 1, 2007
|
|
|
18,275,126
|
|
|
36,550
|
|
|
37,444,051
|
|
|
797,116
|
|
|
17,988,763
|
|
|
1,102,469
|
|
|
57,368,949
|
|
|
6,336,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8,333,227
|
|
|
-
|
|
|
8,333,227
|
|
|
936,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,451,157
|
|
|
2,451,157
|
|
|
272,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
to reserve
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
843,287
|
|
|
(843,287
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,128
options issued
|
|
|
-
|
|
|
-
|
|
|
23,201
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
23,201
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock issued to previous employees
|
|
|
4,128.00
|
|
|
8.00
|
|
|
31,200
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
31,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
Balance - September 30, 2007
|
|
|
18,279,254
|
|
|
36,558
|
|
|
37,498,452
|
|
|
1,640,403
|
|
|
25,478,703
|
|
|
3,553,626
|
|
|
68,207,742
|
|
|
7,545,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance - January 1, 2008
|
|
|
18,279,254
|
|
|
36,558
|
|
|
37,498,452
|
|
|
1,882,979
|
|
|
27,646,931
|
|
|
5,432,189
|
|
|
72,497,109
|
|
|
8,024,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
10,609,388
|
|
|
-
|
|
|
10,609,388
|
|
|
1,183,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,443,833
|
|
|
5,443,833
|
|
|
604,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
to reserve
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,014,576
|
|
|
(1,014,576
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
Balance - September 30, 2008
|
|
|
18,279,254
|
|
|
36,558
|
|
|
37,498,452
|
|
|
2,897,555
|
|
|
37,241,743
|
|
|
10,876,022
|
|
|
88,550,330
|
|
|
9,812,875
|
|
The
accompanying notes are an integral part of these financial
statements
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
A - DESCRIPTION OF BUSINESS
SORL
Auto
Parts, Inc. (the “Company”) is principally engaged in the manufacture and
distribution of automotive air brake valves and related components for
commercial vehicles weighing more than three tons, such as trucks and buses,
through its 90% ownership of Ruili Group Ruian Auto Parts Company Limited (the
“Joint Venture”) in the People’s Republic of China (“PRC” or “China”). The
Company distributes products both in China and internationally under the SORL
trademarks. The Company’s product range includes approximately 40 categories of
brake valves with over 1000 different specifications.
NOTE
B - BASIS OF PRESENTATION
The
condensed consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. All significant 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, although the Company believes that the
disclosures contained in this report are adequate to make the information
presented not misleading. These condensed consolidated financial statements
should be read in conjunction with the annual audited consolidated financial
statements and the notes thereto included in the Company’s annual report on Form
10-K and other reports filed with the SEC.
The
accompanying condensed 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.
NOTE
C - RECENTLY ISSUED FINANCIAL STANDARDS
In
September 2006, the FASB issued Statement of Financial Accounting Standard
(“SFAS”) No.157, “Fair Value Measurements”, which defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles (GAAP), and expands disclosures about fair value
measurements. On February 12, 2008, the FASB issued FASB Staff Position (FSP)
No.157-2, which deferred the effective date for certain portions of SFAS No.157
related to nonrecurring measurements of nonfinancial assets and liabilities.
The
provision of SFAS No.157 will be effective for the Company’s fiscal year 2009.
The Company is currently evaluating the impact of SFAS No.157 on its
consolidated financial statements but does not expect it to have a material
effect.
In
February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
159, "The Fair Value Option for Financial Assets and Financial
Liabilities-Including an Amendment of SFAS No.115", which allows for the option
to measure financial instruments and certain other items at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected are reported in earnings. The adoption of SFAS No. 159 is not expected
to have a material impact on the Company's consolidated results of operations
or
financial position.
In
December 2007, the FASB issued FASB 141(R), "Business Combinations" the
objective of which is to improve the relevance, representational faithfulness,
and comparability of the information that a reporting entity provides in its
financial reports about a business combination and its effects. The new standard
requires the acquiring entity in a business combination to recognize all (and
only) the assets acquired and liabilities assumed in the transaction;
establishes the acquisition-date fair value as the measurement objective for
all
assets acquired and liabilities assumed; and requires the acquirer to disclose
to investors and other users all of the information they need to evaluate and
understand the nature and financial effect of the business combination.
In
December 2007, the FASB issued FASB 160 "Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No.51" of which the
objective is to improve the relevance, comparability, and transparency of the
financial information that a reporting entity provides in its consolidated
financial statements by establishing accounting and reporting standards by
requiring all entities to report noncontrolling (minority) interests in
subsidiaries in the same way - as an entity in the consolidated financial
statements. Moreover, Statement 160 eliminates the diversity that currently
exists in accounting for transactions between an entity and noncontrolling
interests by requiring that they be treated as equity transactions.
Both
FASB
141(R) and FASB 160 are effective for fiscal years beginning after December
15,
2008. The Company does not believe that the adoption of these standards will
have any impact on its financial statements.
In
December 2007, the SEC issued Staff Accounting Bulletin No. 110 (“SAB 110”). SAB
110 permits companies to continue to use the simplified method, under certain
circumstances, in estimating the expected term of “plain vanilla” options beyond
December 31, 2007. SAB 110 updates guidance provided in SAB 107 that previously
stated that the Staff would not expect a company to use the simplified method
for share option grants after December 31, 2007. Adoption of SAB 110 is not
expected to have a material impact on the Company’s consolidated financial
statements.
In
March
2008, the FASB issued SFAS No.161, Disclosures about Derivative Instruments
and
Hedging Activities- an amendment of FASB statement No.133.SFAS No.161 requires
enhanced disclosures about an entity’s derivative and hedging activities and
thereby improves the transparency of financial reporting. SFAS No.161 is
effective for fiscal years, and interim periods within those fiscal years,
beginning after November 15, 2008, with early application encouraged. As such,
the Company is required to adopt these provisions at the beginning of the fiscal
year ending December 31, 2009. The Company is currently evaluating the impact
of
SFAS No. 161 on its financial statements.
In
May
2008, the FASB issued SFAS No. 162, "
The
Hierarchy of Generally Accepted Accounting Principles
.”
SFAS
162 identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with GAAP in the
United States. SFAS 162 is effective 60 days following the SEC’s approval of the
Public Company Accounting Oversight Board amendments to AU Section 411, The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles. The Company is currently evaluating the impact of SFAS 162 on its
consolidated financial statements but does not expect it to have a material
effect.
Also
in
May 2008, the FASB issued SFAS No. 163, "Accounting for Financial Guarantee
Insurance Contracts—an interpretation of FASB Statement No. 60" (“SFAS 163”).
SFAS 163 interprets Statement 60 and amends existing accounting pronouncements
to clarify their application to the financial guarantee insurance contracts
included within the scope of that Statement. SFAS 163 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and all
interim periods within those fiscal years. As such, the Company is required
to
adopt these provisions at the beginning of the fiscal year ended December 31,
2009. The Company is currently evaluating the impact of SFAS 163 on its
consolidated financial statements but does not expect it to have a material
effect.
NOTE
D - RELATED PARTY TRANSACTIONS
The
Company continued to purchase non-valve automotive components and packaging
materials from the Ruili Group Co., Ltd. The Ruili Group Co., Ltd., is the
minority shareholder of the Joint Venture and is controlled by the Zhang family,
who is also the controlling party of the Company.
The
following related party transactions are reported for the three months and
nine
months ended September 30, 2008 and 2007:
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
PURCHASES
PRODUCT AND PACKAGING MATERIAL FROM:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruili
Group Co., Ltd.
|
|
$
|
9,295,010
|
|
$
|
7,577,793
|
|
$
|
28,448,919
|
|
$
|
20,256,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,295,010
|
|
$
|
7,577,793
|
|
$
|
28,448,919
|
|
$
|
20,256,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PURCHASES
PLANT AND LAND USE RIGHTS FROM :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruili
Group Co., Ltd.
|
|
$
|
—
|
|
$
|
20,237,525
|
|
$
|
—
|
|
$
|
20,237,525
|
|
|
|
|
$
|
—
|
|
$
|
20,237,525
|
|
$
|
—
|
|
$
|
20,237,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SALES
TO:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruili
Group Co., Ltd.
|
|
$
|
540,304
|
|
$
|
—
|
|
$
|
2,362,453
|
|
$
|
914,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
540,304
|
|
$
|
—
|
|
$
|
2,362,453
|
|
$
|
914,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.
The
total purchases from Ruili Group during the three months ended September 30,
2008 consisted of
approximately
$8.0
million
finished products of non-valve auto parts, $1.0 million of components for valve
auto parts and approximately $0.3 million of packaging materials
.
During
the nine months ended September 30, 2008, the breakdown was
$24.3
million of finished products of non-valve auto parts, $3.2 million of components
for valve auto parts and approximately $0.9 million of packaging
materials.
2.
On
September 28, 2007, the Company purchased land rights, a manufacturing plant,
and an office building from Ruili Group for an aggregate purchase price of
approximately 152 million
Renminbi
(“RMB”)
(approximately $20.2 million translated with an exchange rate of 7.5108 RMB
to $1.00 at September 28, 2007). DTZ Debenham Tie Leung Ltd., an
internationally recognized appraiser, appraised the total asset value at RMB154
million (approximately $20.5 million based on with an exchange rate of 7.5108
RMB to $1.00 at September 28, 2007). The purchase price was paid by the
Company by transferring to Ruili Group the Company’s $9 million investment in an
existing project that includes a construction-in-progress and prepayment of
land
use rights. The remaining balance of $11 million was paid by the cash generated
from operations and a bank credit line.
|
|
|
September 30,
|
|
December 31,
|
|
|
|
|
2008
|
|
2007
|
|
|
ACCOUNTS
PAYABLE
|
|
|
|
|
|
|
|
|
Ruili
Group Co., Ltd.
|
|
$
|
—
|
|
$
|
97,503
|
|
|
Total
|
|
$
|
—
|
|
$
|
97,503
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment
|
|
|
|
|
|
|
|
|
Ruili
Group Co., Ltd.
|
|
$
|
905,913
|
|
$
|
—
|
|
|
Total
|
|
$
|
905,913
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Ruili
Group Co., Ltd.
|
|
$
|
—
|
|
$
|
1,761,007
|
|
|
Total
|
|
$
|
—
|
|
$
|
1,761,007
|
|
NOTE
E - ACCOUNTS RECEIVABLE
The
changes in the allowance for doubtful accounts at September 30, 2008 and
December 31, 2007 were summarized as follows:
|
|
|
September 30,
|
|
December 31,
|
|
|
|
|
2008
|
|
2007
|
|
|
Beginning
balance
|
|
$
|
31,296
|
|
$
|
8,769
|
|
|
Add:
Increase to allowance
|
|
|
657,235
|
|
|
19,218
|
|
|
Less:
Accounts written off
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
688,531
|
|
$
|
27,987
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
|
|
2008
|
|
2007
|
|
|
Accounts
receivable
|
|
$
|
36,899,418
|
|
$
|
30,614,226
|
|
|
Less:
allowance for doubtful accounts
|
|
|
(688,531
|
)
|
|
(27,987
|
)
|
|
Account
receivable balance, net
|
|
$
|
36,210,887
|
|
$
|
30,586,239
|
|
NOTE
F - INVENTORIES
On
September 30, 2008 and December 31, 2007, inventories consisted of the
following:
|
|
|
September 30,
|
|
December 31,
|
|
|
|
|
2008
|
|
2007
|
|
|
Raw
Material
|
|
$
|
4,282,310
|
|
$
|
2,354,637
|
|
|
Work
in process
|
|
|
3,987,574
|
|
|
4,157,643
|
|
|
Finished
Goods
|
|
|
12,562,102
|
|
|
1,708,093
|
|
|
Total
Inventory
|
|
$
|
20,831,986
|
|
$
|
8,220,373
|
|
NOTE
G - PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment consisted of the following, on September 30, 2008 and
December 31, 2007:
|
|
|
September
30,
|
|
December
31,
|
|
|
|
|
2008
|
|
2007
|
|
|
Machinery
|
|
$
|
21,736,946
|
|
$
|
18,118,125
|
|
|
Molds
|
|
|
1,278,611
|
|
|
1,193,488
|
|
|
Office
equipment
|
|
|
561,119
|
|
|
358,163
|
|
|
Vehicle
|
|
|
974,746
|
|
|
757,311
|
|
|
Building
|
|
|
7,994,313
|
|
|
7,462,096
|
|
|
Construction
In Progress
|
|
|
|
|
|
|
|
|
Sub-Total
|
|
|
32,545,734
|
|
|
27,889,182
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Accumulated depreciation
|
|
|
(8,325,938
|
)
|
|
(6,094,229
|
)
|
|
|
|
|
|
|
|
|
|
|
Fixed
Assets, net
|
|
$
|
24,219,797
|
|
$
|
21,794,953
|
|
Depreciation
expense charged to operations was $1,774,361 and $1,153,615 for the nine months
ended September 30, 2008 and 2007, respectively.
NOTE
H- LAND USE RIGHTS
|
|
|
September
30,
|
|
December
31,
|
|
|
|
|
2008
|
|
2007
|
|
|
Cost:
|
|
$
|
14,963,026
|
|
$
|
13,966,870
|
|
|
Less:
Accumulated amortization:
|
|
|
330,675
|
|
|
77,165
|
|
|
Land
use rights, net
|
|
$
|
14,632,351
|
|
$
|
13,889,705
|
|
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. The Company purchased the land use
rights from Ruili Group for approximately $13.9 million on September 28, 2007.
The Company has not yet obtained the land use right certificate in the Company’s
name, from the Chinese government. The Company is in the process of applying
to
obtain the land use right certificate. Amortization expenses were $242,356
for
the nine months ended September 30, 2008.
NOTE
I - INTANGIBLE ASSETS
Intangible
assets owned by the Company included patent technology and management software
licenses. Gross intangible assets were $161,733, less accumulated amortization
of $35,274 for net intangible assets of $126,459 as of September 30, 2008.
Gross
intangible assets were $76,150, less accumulated amortization of $25,116 for
net
intangible assets of $51,034 as of December 31, 2007. Amortization expenses
were
$8,215 and $4,325 for
the
nine
months
ended
September 30, 2008 and 2007 respectively. Future estimated amortization expense
is as follows:
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
Thereafter
|
|
|
$
3,791
|
|
$
|
15,231
|
|
$
|
15,231
|
|
$
|
15,231
|
|
$
|
15,231
|
|
$
|
64,715
|
|
NOTE
J - PREPAYMENT
Prepayment
consisted of the following as of September 30, 2008 and December 31,
2007:
|
|
|
September 30,
|
|
December 31,
|
|
|
|
|
2008
|
|
2007
|
|
|
Raw
material suppliers
|
|
$
|
2,050,367
|
|
$
|
929,178
|
|
|
Equipment
purchase
|
|
|
680,495
|
|
|
407,035
|
|
|
Total
prepayment
|
|
$
|
2,730,862
|
|
$
|
1,336,212
|
|
NOTE
K - BANK LOANS
Bank
loans represented the following as of September 30, 2008 and December 31,
2007:
|
|
|
September
30,
|
|
December
31,
|
|
|
|
|
2008
|
|
2007
|
|
|
Secured
|
|
$
|
2,002,533
|
|
$
|
3,370,328
|
|
|
Less:
Current portion
|
|
$
|
(2,002,533
|
)
|
$
|
(3,370,328
|
)
|
|
Non-current
portion
|
|
$
|
—
|
|
$
|
—
|
|
NOTE
L - ACCRUED EXPENSES
Accrued
expenses consisted of the following as of September 30, 2008 and December 31,
2007:
|
|
|
September 30,
|
|
December 31,
|
|
|
|
|
2008
|
|
2007
|
|
|
Accrued
payroll
|
|
$
|
958,938
|
|
$
|
601,733
|
|
|
Other
accrued expenses
|
|
|
2,274,458
|
|
|
1,258,205
|
|
|
Total
accrued expenses
|
|
$
|
3,233,396
|
|
$
|
1,859,938
|
|
NOTE
M – RESERVE
The
reserve funds are comprised of the following:
|
|
|
September
30,
|
|
December
31,
|
|
|
|
|
2008
|
|
2007
|
|
|
Statutory
surplus reserve fund
|
|
$
|
2,897,555
|
|
$
|
1,882,979
|
|
|
Total
|
|
$
|
2,897,555
|
|
$
|
1,882,979
|
|
Pursuant
to the relevant laws and regulations of Sino-foreign joint venture enterprises,
the profits of the Company's subsidiary, which are based on the subsidiary’s 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 subsidiary’s 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, the Company's Sino-foreign joint venture 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,
the
Joint Venture 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 US GAAP financial statements differs from that as
reported in the PRC statutory financial statements. Under the relevant laws
and
regulations in the PRC, the profits available for distribution are based on
the
statutory financial statements. If the Joint Venture has foreign currency
available after meeting its operational needs, the Joint Venture 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.
NOTE
N - INCOME TAXES
There
was
no income tax expense for the fiscal year ended December 31, 2005 and 2004.
As a
result of the Joint Venture obtaining its Sino-foreign joint venture status
in
2004, in accordance with applicable PRC tax regulations, the Joint Venture
was
exempted from PRC income tax in both fiscal 2004 and 2005. Thereafter, the
Joint
Venture is entitled to a tax concession of 50% of the applicable income tax
rate
for the three years ended December 31, 2006, 2007, and 2008. With the new PRC
Enterprise Income Tax Law, taking effect on January 1, 2008, the Company is
generally subject to a PRC income tax rate of 12.5%.
The
reconciliation of the effective income tax rate of the Joint Venture to the
statutory income tax rate in the PRC for the nine months ended September 30,
2008 is as follows:
|
Statutory
tax rate
|
|
|
25.0
|
%
|
|
Tax
holidays and concessions
|
|
|
-12.5
|
%
|
|
|
|
|
|
|
|
Effective
tax rate
|
|
|
12.5
|
%
|
No
provision for deferred tax liabilities has been made, since the Joint Venture
had no material temporary differences between the tax bases of assets and
liabilities and their carrying amounts.
NOTE
O - LEASES
In
December 2006, the Joint Venture entered into a lease agreement with Ruili
Group
Co., Ltd. for the lease of two apartment buildings. These two apartment
buildings are for the Joint Venture’s management personnel and staff,
respectively. The lease term is from January 2007 to December 2011 for one
of
the apartment buildings and from January 2007 to December 2012 for the other.
Future
minimum rental payments for the years ending December 31 are as follows:
|
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
Thereafter
|
|
|
Buildings
|
|
$
|
69,832
|
|
$
|
280,163
|
|
$
|
280,163
|
|
$
|
280,163
|
|
$
|
67,975
|
|
$
|
—
|
|
|
Total
|
|
$
|
69,832
|
|
$
|
280,163
|
|
$
|
280,163
|
|
$
|
280,163
|
|
$
|
67,975
|
|
$
|
—
|
|
NOTE
P - ADVERTISING COSTS
Advertising
costs were $4,261 and $107,023 for the nine months ended September 30, 2008
and
2007, respectively.
NOTE
Q - RESEARCH AND DEVELOPMENT EXPENSE
Research
and development costs are expensed as incurred and were $2,458,859
and
$
953,174
for the
nine
months
ended
September 30, 2008 and 2007, respectively.
NOTE
R - WARRANTY CLAIMS
Warranty
claims were $1,539, 396 and $
912,623
for the
nine months ended September 30, 2008 and 2007, respectively. The movement of
accrued warranty expenses
for
the
nine months
ended
September 30, 2008 was as follows:
|
Beginning
balance at Jan 01, 2008
|
|
$
|
863,428
|
|
|
Accrued
during the nine months ended September 30, 2008:
|
|
$
|
1,539,
396
|
|
|
Less:
Actual Paid during the nine months ended September 30, 2008:
|
|
$
|
1,172,880
|
|
|
Ending
balance at September 30, 2008
|
|
$
|
1,229,944
|
|
NOTE
S - STOCK COMPENSATION PLAN
(1)
The
Company’s 2005 Stock Compensation Plan (the Plan) permits the grant of share
options and shares to its employees for up to 1,700,000 shares of common stock.
The Company believes that such awards better align the interests of its
employees with those of its shareholders. Option awards are generally granted
with an exercise price equal to the market price of the Company’s stock at the
date of grant.
Pursuant
to the Plan, the Company issued 60,000 options with an exercise price of $4.79
per share on March 1, 2006. In accordance with the vesting provisions of the
grants, the options will become vested and exercisable under the following
schedule.
|
Number
of Shares
|
|
%
of Shares Issued
|
|
Initial
Vesting Date
|
|
|
|
|
|
|
|
60,000
|
|
100%
|
|
March
1, 2009
|
The
Company accounts for stock-based compensation in accordance with SFAS No. 123R,
“Share-Based Payment.” The fair value of each option award is estimated on the
date of grant using the Black-Scholes-Merton option-pricing model that uses
the
assumptions noted in the following table.
|
Dividend
Yield
|
|
|
0.00
|
%
|
|
Expected
Volatility
|
|
|
75.75
|
%
|
|
Risk-Free
Interest Rate
|
|
|
4.59
|
%
|
|
Contractual
Term
|
|
|
3
years
|
|
|
Stock
Price at Date of Grant
|
|
$
|
4.79
|
|
|
Exercise
Price
|
|
$
|
4.79
|
|
The
amortization of deferred stock-based compensation for these equity arrangements
was $ 44,727 for the nine months ended September 30, 2008. As of September
30,
2008, there was $24,844 of total unrecognized compensation cost related to
non-vested share-based compensation arrangements granted under the plan. The
cost is expected to be recognized over a period of 0.4 years.
A
summary
of option activity under the Plan as of September 30, 2008 and changes during
the nine months ended September 30, 2008 is as follows:
|
|
|
Options
|
|
Weighted
Average
Exercise Price
|
|
Weighted
Average
Remaining
Contractual Term
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
1, 2006
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
$
|
—
|
|
|
Granted
|
|
|
60,000
|
|
|
4.79
|
|
|
3
Years
|
|
|
—
|
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Forfeited
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2008
|
|
|
60,000
|
|
$
|
4.79
|
|
|
0.4
Years
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at September 30, 2008
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
(2)
Subject to all the terms and provisions of the 2005 Stock Compensation Plan,
on
June 20, 2007, the Company granted to its previous senior manager of investor
relations, David Ming He options to purchase 4,128 shares of its common stocks
with an exercise price of $7.25 per share. The options became vested and
exercisable immediately on the date thereof.
|
Number
of Shares
|
|
%
of Shares Issued
|
|
Initial
Vesting Date
|
|
|
|
|
|
|
|
4,128
|
|
100%
|
|
June
20, 2007
|
The
Company accounts for stock-based compensation in accordance with SFAS No. 123R,
“Share-Based Payment.” The fair value of each warrant is estimated on the date
of grant using the Black-Scholes-Merton option-pricing model that uses the
assumptions noted in the following table.
|
Dividend
Yield
|
|
|
0.00
|
%
|
|
Expected
Volatility
|
|
|
66.70
|
%
|
|
Risk-Free
Interest Rate
|
|
|
5.14
|
%
|
|
Contractual
Term
|
|
|
3
years
|
|
|
Stock
Price at Date of Grant
|
|
$
|
7.09
|
|
|
Exercise
Price
|
|
$
|
7.25
|
|
Total
stock-based compensation expenses related to the 4,128 stock options granted
amounted to $23,201. This amount is charged to general and administrative
expenses during fiscal year 2007.
A
summary
of option activity under the Plan as of September 30, 2008 and changes during
the nine months ended September 30, 2008 is as follows:
|
|
|
Options
|
|
Weighted
Average
Exercise Price
|
|
Weighted
Average
Remaining
Contractual Term
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
1, 2007
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
$
|
—
|
|
|
Granted
|
|
|
4,128
|
|
$
|
7.25
|
|
|
3
Years
|
|
|
—
|
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Forfeited
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2008
|
|
|
4,128
|
|
$
|
7.25
|
|
|
1.8
Years
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at September 30, 2008
|
|
|
4,128
|
|
$
|
7.25
|
|
|
1.8
Years
|
|
$
|
—
|
|
(3)
On
January 5, 2006, the Company issued 100,000 warrants which can purchase 100,000
shares of common stock for financial services to be provided by Maxim Group
LLC
and Chardan Capital Markets, LLC, with an exercise price of $6.25 per share.
In
accordance with the common stock purchase warrant agreement, the warrants became
vested and exercisable immediately on the date thereof. The Company’s agreements
with Maxim Group LLC and Chardan Capital Markets, LLC have been terminated.
|
Number
of Shares
|
|
%
of Shares Issued
|
|
Initial
Vesting Date
|
|
|
|
|
|
|
|
100,000
|
|
100%
|
|
January
5, 2006
|
The
Company accounts for these warrants in accordance with SFAS No. 123R,
“Share-Based Payment.” The fair value of each warrant is estimated on the date
of grant using the Black-Scholes-Merton option-pricing model that uses the
assumptions noted in the following table.
|
Dividend
Yield
|
|
|
0.00
|
%
|
|
Expected
Volatility
|
|
|
77.62
|
%
|
|
Risk-Free
Interest Rate
|
|
|
4.36
|
%
|
|
Contractual
Term
|
|
|
4
years
|
|
|
Stock
Price at Date of Grant
|
|
$
|
4.70
|
|
|
Exercise
Price
|
|
$
|
6.25
|
|
Total
deferred stock-based compensation expenses related to the 100,000 warrants
which
can purchase 100,000 shares of common stock granted amounted to $299,052. This
amount is amortized over one year in a manner consistent with Financial
Accounting Standards Board Interpretation No. 123 (R). The amortization of
deferred stock-based compensation for these equity arrangements was $299,052
for
the fiscal year ended December 31, 2006.
A
summary
of option activity with respect to the warrants as of September 30, 2008 and
changes during the nine months ended September 30, 2008 is as follows:
|
|
|
Warrants
|
|
Weighted
Average
Exercise Price
|
|
Weighted
Average
Remaining
Contractual Term
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
1, 2006
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
$
|
—
|
|
|
Granted
|
|
|
100,000
|
|
$
|
6.25
|
|
|
4
Years
|
|
|
—
|
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Forfeited
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2008
|
|
|
100,000
|
|
$
|
6.25
|
|
|
1.3
Years
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at September 30, 2008
|
|
|
100,000
|
|
$
|
6.25
|
|
|
1.3
Years
|
|
$
|
—
|
|
NOTE
T- COMMITMENTS AND CONTINGENCIES
Information
regarding land use rights and lease commitments is provided in Notes H and
O.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following is management’s discussion and analysis of certain significant factors
that have affected our financial position and operating results during the
periods included in the accompanying condensed consolidated financial
statements, as well as information relating to the plans of our current
management. This quarterly report on Form 10-Q includes forward-looking
statements.
Any
statements contained in this report that are not statements of historical fact
may be deemed to be forward-looking statements.
Generally,
the words “believes,” “anticipates,” “may,” “will,” “should,” “expect,”
“intend,” “estimate,” “continue,” and similar expressions or the negative
thereof or comparable terminology are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties,
including the matters set forth in this report or other reports or documents
we
file with the Securities and Exchange Commission from time to time, which could
cause actual results or outcomes to differ materially from those anticipated.
Undue reliance should not be placed on these forward-looking statements that
speak only as of the date hereof. We undertake no obligation to update these
forward-looking statements.
The
following discussion and analysis should be read in conjunction with our
condensed consolidated financial statements and the related notes thereto and
other financial information contained elsewhere in this Form 10-Q.
OVERVIEW
The
Company manufactures and distributes automotive air brake valves and related
components in China and internationally for use primarily in vehicles weighing
over three tons, such as trucks and buses. There are forty categories of valves
with over one thousand different specifications. Management believes that it
is
the largest manufacturer of automotive brake valves in China.
OUTLOOK
Looking
to the future, management recognizes that the current condition of the global
economy may present us with significant challenges to our financial condition
and results of operations. The credit crisis that started in the US has spread
throughout the global economy and now appears to be having an impact on the
real
economy. The US seems likely to experience negative economic growth over the
coming year, and vehicle sales in the US have fallen off dramatically. We are
seeing indications that similar trends will be felt throughout the global
economy, including the automobile market of China. In September 2008, China
recorded its lowest level of GDP growth in two years. We have made and are
continuing to make adjustments to our business in response to the developing
financial crisis. We are seeking to continue to develop the high potential
market of buses and agricultural vehicles, to enhance productivity with regard
to development and production of patented products and to expand our sales
of
systems, which have better margins than components. Meanwhile, we are also
working to strengthen sales management and customer relations to help reduce
risk. We will seek to consolidate our relationships with our best customers,
stop selling to customers that pose significant credit risk, and develop new
customers cautiously. We believe that a closer focus on risk management, cost
control and improved internal management efficiency offers SORL its best
opportunity to weather the anticipated market conditions and preserve
profitability
.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
For
a
summary of our accounting policies and estimates, see Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations—Critical Accounting Policies and Estimates” in our Annual Report on
Form 10-K for the Fiscal Year ended December 31, 2007.
There
have been no material changes to the critical accounting policies and estimates
since December 31, 2007.
See
Note
N to the attached Condensed Unaudited Consolidated Financial Statements for
information regarding changes in taxation by the government of
China.
Results
of Operations
(1)
Results of operations for the three months ended September 30, 2008 as compared
to the three months ended September 30, 2007.
SALES
|
|
|
Three
Months ended
|
|
Three
Months ended
|
|
|
|
|
30-Sep-08
|
|
30-Sep-07
|
|
|
|
|
(U.S.
dollars in millions)
|
|
|
Air
brake valves & related components
|
|
$
|
24.5
|
|
|
74
|
%
|
$
|
22.4
|
|
|
75
|
%
|
|
Non-valve
products
|
|
$
|
8.5
|
|
|
26
|
%
|
$
|
7.3
|
|
|
25
|
%
|
|
Total
|
|
$
|
33.0
|
|
|
100
|
%
|
$
|
29.7
|
|
|
100
|
%
|
Sales
consist of air brake valves and related components manufactured by SORL and
sold
to domestic original equipment manufacturers (OEM), aftermarket customers and
export market as well as distribution of non-valve auto parts sourced from
the
Ruili Group.
Net
sales
were $32,967,579 and $ 29,703,227 for the three months ended September 30,
2008
and 2007, respectively. Compared with the same period of 2007, net sales for
the
three months ended September 30, 2008 increased by $3.3 million, or 11.0%,
to $
33.0 million. Although the impact of the U.S. financial crisis and weakening
macroeconomic enlarged, the Company took efforts to reduce the impact and to
maintain the increase of its sales. The increase in sales was a result of the
increased demand for commercial vehicle parts in China and continued expansion
of our export sales.
A
breakdown of net sales revenue for these markets for the third quarter of the
2008 and 2007 fiscal years, respectively, is set forth below:
|
|
|
Three
Months
|
|
|
|
Three
Months
|
|
|
|
|
|
|
ended
|
|
|
|
ended
|
|
|
|
|
|
|
30-Sep-08%
|
|
|
|
30-Sep-07%
|
|
|
|
|
|
|
(U.S.
dollars in millions)
|
|
|
China
OEM market
|
|
$
|
10.4
|
|
|
32
|
%
|
$
|
9.2
|
|
|
31
|
%
|
|
China
Aftermarket
|
|
$
|
8.4
|
|
|
26
|
%
|
$
|
7.7
|
|
|
26
|
%
|
|
International
market
|
|
$
|
14.1
|
|
|
42
|
%
|
$
|
12.8
|
|
|
43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
33.0
|
|
|
100
|
%
|
$
|
29.7
|
|
|
100
|
%
|
National
transportation in China was heavily affected by significant snow storms in
central and east China in the first two months of 2008, our OEM customers’
demands were sharply decreased in the first quarter. During the second quarter,
the national transportation system in China was recovering from the impact
caused by the significant snow storms. With the approaching of implementation
of
the China III emission standard beginning July 1, 2008, the consumption of
trucks equipped with China II engines was significantly spurred before the
policy was enforced, which in turn boosted the output and sales volume of
vehicles made in China. As a result, our Chinese OEM sales achieved a strong
growth in the second quarter of 2008.
Further,
the additional costs required to achieve China III compliance will lead to
higher vehicle prices, which will likely discourage demand for various vehicles.
During the 2008 Beijing Olympic Games, our major customers, such as FAW
Qiongdao, Beiqi Foton Zhucheng and Beiqi Foton Aumen halted production due
to
the traffic control in the regions around Beijing. Consequently, our OEM sales
in the third quarter of 2008 were sharply decreased compared to the second
quarter of 2008. However, our Chinese OEM sales achieved 13.0% growth,
increasing from $9.2 million in the third quarter of 2007 to $10.4 million
in
the third quarter of 2008.
Due
to
our established sales networks and our increased production capacity, the
Company achieved total revenue of $8.4 million in the Chinese aftermarket sales
for the three months ended September 30, 2008, an increase of $0.7 million,
or
9.1% compared to the same period of last year.
Our
export sales grew by $ 1.3 million, or approximately 10.2%, to $14.1 million
for
the three months ended September 30, 2008, as compared to $12.8 million for
the
same period of 2007. This increase reflects the introduction of new products,
the improvement in technological support, the expansion of the contract sales
force and the attendance at more international trade shows.
COST
OF SALES
Cost
of
sales for the three months ended September 30, 2008 increased to $ 24,550,613
from $ 23,064,724 for the same period of 2007, which was a $ 1,485,889, or
6.4%
increase. The Company experienced total sales growth of 11.0% for the
period.
GROSS
PROFIT
Our
gross
profit grew by 26.8%, exceeding our revenue growth rate
,
from
$6,638,503 for the third quarter of 2007 to $8,416,966 for the third quarter
of
2008. Therefore, gross
margin
increased 3.2% for the three months ended September 30, 2008 to 25.5% from
22.3
% for the same period of 2007.
The
higher gross margin was the result of raising prices and cutting production
costs. The Joint Venture continued to improve production methods in its
manufacturing process, which has resulted in reducing the manufacturing cycle,
reducing waste, and thereby reducing production cost. Also, favorable changes
in
product and market mix helped raise the average selling price of our products.
For the Chinese OEM market, we have sold more system products as opposed to
individual components. For the Chinese and the international aftermarkets,
we
have been able to pass part of our cost increases to the end users, largely
due
to an uptrend in the prices for truck parts from China. The successful expansion
of our sales into the higher margin municipal bus market has also contributed
to
the gross margin improvement of the Joint Venture since the last quarter of
2007.
SELLING
AND DISTRIBUTION EXPENSES
Selling
and distribution expenses were $2,261,143 for the three months ended September
30, 2008, as compared to $ 1,928,763 for the same period of 2007, which was
an
increase of $ 332,380 or 17.2%.
Selling
and distribution expenses include salaries and wages, transportation expense,
packaging expense, warranty expense, expenses associated with traveling,
advertising, promotions, trade shows and seminars, and other expenses. Selling
and distribution expenses for the three months ended September 30, 2008
increased primarily
due
to
the following factors:
|
|
(1)
|
Increased
transportation expense for domestic and export sales:
During
the third quarter of 2008, transportation costs increased by $132,201
as
compared to $552,453 for the same period of 2007. The increase in
transportation expense was mainly due to increased sales and the
rise in
the transportation cost resulted from the increased price of oil
and the
strict restrictions on overloading implemented by the Chinese government
since the third quarter of 2007.
|
|
|
(2)
|
Increased
packaging expense: Packaging costs were $658,168 for the three months
ended September 30, 2008, which was an increase of $173,629 as compared
with the same period of 2007 and was consistent with the revenue
growth.
The increase in packaging expense was mainly due to the increased
sales,
the increased price of packing materials and the higher standard
for
packaging materials with the increased international sales in the
third
quarter of 2008.
|
|
|
(3)
|
Increased
product warranty expense: The Company recorded $479,042 of product
warranty expenses for the three months ended September 30, 2008,
as
compared to $
326,735
for the three months ended September 30, 2007, which was an increase
of
$152,307.
The
increase was mainly due to increased
sales.
|
GENERAL
AND ADMINISTRATIVE EXPENSES
General
and administrative expenses were $ 3,018,390 for the three months ended
September 30, 2008, as compared to $ 1,682,071 for the same period of 2007,
which was an increase of $ 1,336,319, or 79.4 %, mainly due to the following
factors:
(1)
The
expansion of economic activities, facilities and workforce resulted in increased
depreciation, office expenses, staff salary, work insurance and welfare, travel
expenses and other miscellaneous fees totaling an increase of $ 182,662 as
compared to the same period of 2007.
(2)
Research
and development (“
R&D
”)
expense,
which is included in general and administrative expenses, increased by $340,395,
as compared to $381,502 of R&D expense for the same period of 2007, as
discussed below.
(3)
Because
of the impact of the U.S. financial crisis and weakening international
macroeconomic, the Company extended the payment term accordingly for accounts
receivable for our international distributors. As a result, t
he
Company
recorded
more allowance for doubtful accounts.
During
the three months ended September 30, 2008, the bad debt provision was $666,231,
as compared to negative $163,553 for the same period of 2007.
RESEARCH
AND DEVELOPMENT EXPENSE
Research
and development expenses include payroll, employee benefits, and other
headcount-related expenses associated with product development and third-party
development costs. For the three months ended September 30, 2008, research
and
development expense was $ 721,897, as compared to $ 381,502 for the same period
of 2007, for an increase of $ 340,395. The increase in R&D expenses was a
result of the Company’s enhanced research and development activities on truck
electronics.
DEPRECIATION
AND AMORTIZATION
Depreciation
and amortization expense increased to $695,872 for the three months ended
September 30, 2008, compared with that of $ 447,548 for the same period of
2007,
an increase of $ 248,324. The increase in depreciation and amortization expense
was primarily due to the purchase of plant and land use rights, and additional
production equipment in the second half of 2007.
FINANCIAL
EXPENSE
Financial
expense mainly consists of interest expense and exchange loss. The financial
expense for the three months ended September 30, 2008 decreased by $127,362
to
$221,694 from $ 349,056 for the same period of 2007, which was mainly attributed
to the lower outstanding average debt balance during current period and
accelerated appreciation of Chinese currency against the U.S. dollar. Management
is studying alternative methods for managing the risks associated with currency
translation, such as the diversification of currencies used in export sales.
OTHER
INCOME
Other
income increased $158,418 to $276,752 for the three months ended September
30,
2008, as compared to $ 118,334 for the three months ended September 30, 2007.
The increase was mainly due to $ 183,149 of subsidy income from local
governments for the three months ended September 30, 2008. These subsidies
were
provided to the Company as economic incentives to secure business commitments
and no repayment by the Company is required.
INCOME
TAX
There
was
no income tax expense for the fiscal year ended December 31, 2005 and 2004.
As a
result of the Joint Venture obtaining its Sino-foreign joint venture status
in
2004, in accordance with applicable PRC tax regulations, the Joint Venture
was
exempted from PRC income tax in both fiscal 2004 and 2005. Thereafter, the
Joint
Venture is entitled to a tax concession of 50% of the applicable income tax
rate
for the three years ended December 31, 2006, 2007, and 2008. With the new PRC
Enterprise Income Tax Law, effective on 1st January 2008, the Company is
generally subject to a PRC income tax rate of 12.5%. In accordance with China's
relevant regulations of income taxes, the Joint Venture has a benefit of a
refund of 40% of domestic equipment purchases from increased income taxes for
the purchasing year over those of the previous year. Income tax expense of
$468,935 and $434,139 was recorded for the third quarter ended September 30,
2007 and 2006, respectively.
STOCK-BASED
COMPENSATION
On
March
1, 2006, the Board of Directors approved a total of 60,000 options to be issued
to the four independent members of the Board of Directors. The contractual
term
of the options is three years. Total deferred stock-based compensation expenses
related to stock options amounted to $178,904. This amount is amortized over
the
three-year vesting period in a manner consistent with Financial Accounting
Standards Board Interpretation No. 123R.
The
amortization of deferred stock-based compensation for these equity arrangements
was both $14,909 for the three months ended September 30, 2008 and
2007.
Although
the Company anticipates future issuances of stock awards to have a material
impact on reported net income, we do not expect these awards to have a material
impact on future cash flow.
MINORITY
INTEREST
Minority
interest represents a 10% non-controlling interest in the Joint Venture.
Minority interest in income amounted to $261,904 and $
239,867
for the
quarters ended September 30, 2008 and 2007, respectively.
FINANCIAL
CONDITION
Liquidity
and Capital Resources
OPERATING
- Net cash provided in operating activities was $2, 998,671 for the three months
ended September 30, 2008 compared with $
5,914,615
of net
cash provided in operating activities in the same period in 2007, which was
a
decrease of $2,915,944.
The
decrease was mainly due to
the
increased cash outflow of operation activities, which was associated with
inventory and accounts payable.
First,
in
accordance with the increase in sales orders during the three months ended
September 30, 2008, the Company maintained a higher level inventory to meet
the
demands
of sales
and production. Additionally,
the
Company established more distribution warehouses close to major OEM customers
and maintained some
stock
in
those warehouses to
ensure
timely deliveries at the request of major OEM customers. Second, the decreased
accounts
payable
led to
an increased cash outflow of about $2.7 million, mainly due to more payments
in
the third quarter of 2008and these payments were on normal credit
terms.
As
of
September 30, 2008, the Company had cash and cash equivalents of $ 5, 950,987
as
compared to cash and cash equivalents of
$4,340,211
as of
December 31, 2007. The Company had working capital of $ 59,359,754
as
of
September 30, 2008, as compared to working capital of
44,715,988
as of
December 31, 2007, reflecting current ratios of 4.54:1 and
4.32:
1,
respectively.
INVESTING
- During the three months ended September 30, 2008, the Company expended net
cash of $1,599,786 in investing activities for acquisition of property and
equipment to support the growth of the business. For the three months ended
September 30, 2007, the Company utilized $
12,904,287
in
investing activities, mainly for acquisition of a plant, land use rights and
new
equipments to support the growth of the business.
FINANCING
-
In the
third quarter of 2007, the cash inflows were mainly attributable to a $3,159,176
increase in proceeds from borrowing due to one new secured loan for new
equipment purchases and working capital.
The
Company’s management has taken a number of steps to restructure its customer
base and phase out accounts which had failed to make prompt payments. The
Company also placed more emphasis on receivable collection. In addition, the
Company maintains good relationships with local banks. We believe that our
current cash and cash equivalents and anticipated cash flow generated from
operations and our bank lines of credit will be sufficient to finance our
working capital requirements for the foreseeable future.
CURRENCY
RISK AND FINANCIAL INSTRUMENTS - Although our reporting currency is the U.S.
dollar, the functional currency of Joint Venture is RMB. As a result, we are
exposed to foreign exchange risk as our revenues and results of operations
may
be affected by fluctuations in the exchange rate between U.S. dollars and RMB.
If the RMB depreciates against the U.S. dollar, the value of our RMB revenues,
earnings and assets as expressed in our U.S. dollar financial statements will
decline. In recent years, the RMB has been appreciating against the U.S. dollar.
Assets
and liabilities of our operating subsidiaries are translated into U.S. dollars
at the exchange rate at the balance sheet date, their equity accounts are
translated at historical exchange rate and their income and expenses items
are
translated using the average rate for the period. Any resulting exchange
differences are recorded in accumulated other comprehensive income or loss.
Because of the approximately 2.3 % appreciation of the RMB against the USD
during the quarter ended on September 30, 2008, (i) we recorded an exchange
loss
of $109,578 from export sales for which the payments to us were in USD,
meanwhile, (ii) we also recorded a foreign currency translation adjustment
of
$578,065 for the quarter, a positive number due to our functional currency
in
RMB and the appreciation of the RMB against the USD. The Company is taking
steps
such as the diversification of currencies used in export sales, and the
negotiation of export contracts with fixed exchange rates.
As
the
Company’s historical debt obligations are primarily short-term in nature, with
fixed interest rates, the Company does not have any risk from an increase in
market interest rates. However, to the extent that the Company arranges new
borrowings in the future, an increase in market interest rate would cause a
commensurate increase in the interest expense related to such
borrowings.
(
2) Results of operations for the nine months ended September 30, 2008 as
compared to the nine months ended September 30, 2007.
SALES
|
|
|
Nine
months ended
|
|
Nine
months ended
|
|
|
|
|
30-Sep-08
|
|
30-Sep-07
|
|
|
|
|
(U.S.
dollars in millions)
|
|
|
Air
brake valves & related components
|
|
$
|
80.2
|
|
|
76
|
%
|
$
|
63.7
|
|
|
76
|
%
|
|
Non-valve
products
|
|
$
|
25.6
|
|
|
24
|
%
|
$
|
19.6
|
|
|
24
|
%
|
|
Total
|
|
$
|
105.8
|
|
|
100
|
%
|
$
|
83.3
|
|
|
100
|
%
|
Sales
consist of air brake valves and related components manufactured by SORL and
sold
to domestic original equipment manufacturers (OEM), aftermarket customers and
export market as well as distribution of non-valve auto parts sourced from
the
Ruili Group.
Net
sales
were $ 105,812,140 and $ 83,309,788 for the nine months ended September 30,
2008
and 2007,
respectively
.
Compared with the same period of 2007, net sales for the nine months ended
September 30, 2008 increased by $22.5 million, or 27.0%, to $105.8 million.
Although the impact of the U.S. financial crisis and weakening macroeconomic
enlarged, the Company took efforts to reduce the impact and to maintain the
increase of its sales. The increase in sales was a result of the increased
demand for commercial vehicle parts in China and continued expansion of our
export sales.
A
breakdown of net sales revenue for these markets for the nine months ended
on
September 30, 2008 and 2007, respectively, is set forth below:
|
|
|
Nine
months
|
|
|
|
Nine
months
|
|
|
|
|
|
|
ended
|
|
|
|
Ended
|
|
|
|
|
|
|
30-Sep-08
|
|
%
|
|
30-Sep-07
|
|
%
|
|
|
|
|
(U.S.
dollars in million)
|
|
|
China
OEM market
|
|
$
|
38.6
|
|
|
36
|
%
|
$
|
30.1
|
|
|
36
|
%
|
|
China
Aftermarket
|
|
$
|
28.8
|
|
|
28
|
%
|
$
|
21.1
|
|
|
25
|
%
|
|
International
market
|
|
$
|
38.3
|
|
|
36
|
%
|
$
|
32.1
|
|
|
39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
105.8
|
|
|
100
|
%
|
$
|
83.3
|
|
|
100
|
%
|
National
transportation in China was heavily affected by significant snow storms in
central and east China in the first two months of 2008, our OEM customers’
demands were sharply decreased in the first quarter. During the second quarter,
the national transportation system in China was recovering from the impact
caused by the significant snow storms. With the approaching of implementation
of
the China III emission standard beginning July 1, 2008, the consumption of
trucks equipped with China II engines was significantly spurred before the
policy was enforced, which in turn boosted the output and sales volume of
vehicles made in China. As a result, our Chinese OEM sales achieved a strong
growth in the second quarter of 2008.
Further,
the additional costs required to achieve China III compliance will lead to
higher vehicle prices, which will likely discourage demand for various vehicles.
During the 2008 Beijing Olympic Games, our major customers, such as FAW
Qiongdao, Beiqi Foton Zhucheng and Beiqi Foton Aumen halted production due
to
the traffic control in the regions around Beijing. Consequently, our OEM sales
in the third quarter of 2008 were sharply decreased compared to the second
quarter of 2008. However our Chinese OEM sales achieved 28.0% growth, increasing
from $30.1 million in the third quarter of 2007 to $38.6 million in the third
quarter of 2008.
Due
to
our established sales networks and our increased production capacity, the
Company achieved total revenue of $28.8 million in Chinese aftermarket sales
for
the nine months ended September 30, 2008, an increase of $7.7 million, or 36.5%
as compared to the same period of last year.
Our
export sales grew by $6.24 million, or approximately 19.4% to $38.3 million
for
the nine months ended September 30, 2008, as compared to $32.1 million for
the
same period of 2007. This increase reflects the introduction of new products,
the improvement in technological support, the expansion of the contract sales
force and attendance at more international trade shows..
COST
OF SALES
Cost
of
sales for the nine months ended September 30, 2008 increased to $77,343,967
from
$ 64,620,063 for the same period of 2007, which was a $12,723,904, or 19.7%
increase. The Company experienced total sales growth of 35.9% for the
period.
GROSS
PROFIT
Our
gross
profit grew by 52.3%, exceeding our revenue growth rate
,
from
$18,689,725 for the nine months of 2007 to $ 28,468,173 for the nine months
of
2008. Therefore, gross margin
increased 4.5% for the nine months ended September 30, 2008 to 26.9% from 22.4
%
for the same period of 2007.
The
higher gross margin was the result of raising prices and cutting production
costs. The Joint Venture continued to improve production methods in its
manufacturing
process
which has resulted in reducing the manufacturing cycle, reducing waste, and
thereby reducing production cost. Also, favorable changes in product and market
mix helped raise the average selling price of our products. For the Chinese
OEM
market, we have sold more system products as opposed to individual components.
For the Chinese and the international aftermarkets, we have been able to pass
part of our cost increases to the end users, largely due to an uptrend in the
prices for truck parts from China. The successful expansion of our sales into
the higher margin municipal bus market has also contributed to the gross margin
improvement of the Joint Venture since the last quarter of 2007.
SELLING
AND DISTRIBUTION EXPENSES
Selling
and distribution expenses were $
6,872,221
for the nine months ended September 30, 2008, as compared to $ 4,444,053 for
the
same period of 2007, which was an increase of $ 2,428,168 or 54.6%.
Selling
and distribution expenses include salaries and wages, transportation expense,
packaging expense, warranty expense, expenses associated with traveling,
advertising, promotions, trade shows and seminars, and other expenses. Selling
and distribution expenses for the nine months ended September 30, 2008 increased
primarily
due
to
the following factors:
|
(1)
|
Increased
transportation expense for domestic and export sales: During
the
nine months
of
2008, transportation costs increased by $ 997,719 as compared to
$1,136,850 for the same period of 2007. The increase in transportation
expense was mainly due to increased sales and the rise in the
transportation cost resulted from the increased price of oil and
the
strict restriction on overloading implemented by the Chinese government
since the third quarter of 2007.
|
|
(2)
|
Increased
packaging expense: Packaging costs were $1,969,191 for
the
nine months
ended September 30, 2008, which was an increase of $ 583,088 as compared
with the same period of 2007 and was consistent with the revenue
growth.
The increase in packaging expense was mainly due to the increased
sales,
the increased price of packing materials and the higher standard
for
packaging materials with the increased international sales in the
third
quarter of 2008.
|
|
(3)
|
Increased
product warranty expense: The Company recorded $1,539,396 of product
warranty expenses for the nine months ended September 30, 2008, as
compared to $
912,623
for the nine months ended September 30, 2007, an increase of $626,773.
The
increase was mainly due to increased
sales.
|
GENERAL
AND ADMINISTRATIVE EXPENSES
General
and administrative expenses were $ 7,712,808 for the nine months ended September
30, 2008, as compared to $4,402,694 for the same period of 2007, which was
an
increase of $ 3,310,114 or 75.2% mainly due to the following
factors:
(1)
The
expansion of economic activities, facilities and workforce resulted in increased
depreciation, office expenses, staff salary, work insurance and welfare, travel
expenses and other miscellaneous fees totaling an increase of $922,286 as
compared to the same period of 2007.
(2)
Research
and development (“
R&D
”)
expense,
which is included in general and administrative expenses, increased by
$1,523,685, as compared to $935,174 of R&D expense for the same period of
2007, as discussed below.
(3)
With
the
impact of the U.S. financial crisis and weakening international macroeconomic,
the Company extended the payment term accordingly for accounts receivable for
our international distributors. As a result, t
he
Company
recorded
more allowance for doubtful accounts. During the nine months ended September
30,
2008, the bad debt provision was $ 687,513, as compared to $ 23,623 for the
same
period of 2007.
RESEARCH
AND DEVELOPMENT EXPENSE
Research
and development expenses include payroll, employee benefits, and other
headcount-related expenses associated with product development and third-party
development costs. For the nine months ended September 30, 2008, research and
development expense was $2,458,859, as compared to $ 935,174 for the same period
of 2007, for increase of
$1,523,685
.
The
increase in R&D expenses was a result of the Company’s enhanced research and
development activities on truck electronics.
DEPRECIATION
AND AMORTIZATION
Depreciation
and amortization expense increased to $2,024,931 for the nine months ended
September 30, 2008, compared with that of $1,157,942 for the same period of
2007, which was an increase of $ 866,989. The increase in depreciation and
amortization expense was primarily due to the purchase of plant and land use
rights, and additional production equipment in the second half of 2007.
FINANCIAL
EXPENSE
Financial
expense mainly consists of interest expense and exchange loss. The financial
expense for the nine months ended September 30, 2008 increased by $368,198
to
$974,690 from $ 606,492 for the same period of 2007.The increased interest
expense was mainly attributed to the higher outstanding average debt balance
during current period, which was largely offset by exchange loss owing to
accelerating appreciation of Chinese currency against the U.S. dollar.
Management is studying alternative methods for managing the risks associated
with currency translation, such as the diversification of currencies used in
export sales.
OTHER
INCOME
Other
income was $610,592 for the nine months ended September 30, 2008, as compared
to
$ 502,606 for the nine months ended September 30, 2007, which was an increase
of
$107,986. The increase was mainly due to the sales of raw material scraps.
INCOME
TAX
There
was
no income tax expense for the fiscal year ended December 31, 2005 and 2004.
As a
result of the Joint Venture obtaining its Sino-foreign joint venture status
in
2004, in accordance with applicable PRC tax regulations, the Joint Venture
was
exempted from PRC income tax in both fiscal 2004 and 2005. Thereafter, the
Joint
Venture is entitled to a tax concession of 50% of the applicable income tax
rate
for the three years ended December 31, 2006, 2007, and 2008.
With
the
new PRC Enterprise Income Tax Law, effective on 1st January 2008, the Company
is
generally subject to a PRC income tax rate of 12.5%. In accordance with China's
relevant regulations of income taxes, the Joint Venture has a benefit of a
refund of 40% of domestic equipment purchases from increased income taxes for
the purchasing year over those of the previous year. During the nine months
ended September 30, 2007 and 2008, the Joint Venture received an income tax
benefit of $991,133 and 384,342 for purchase of domestic equipment,
respectively, which has been reflected as a reduction to current income tax
expense. As a result, income tax expense was $1,351,166 for the nine months
ended September 30, 2008 compared with $373,883 for the nine months ended
September 30, 2007, an increase of $977,283.
STOCK-BASED
COMPENSATION
On
March
1, 2006, the Board of Directors approved a total of 60,000 options to be issued
to the four independent members of the Board of Directors. The contractual
term
of the options is three years. Total deferred stock-based compensation expenses
related to stock options amounted to $178,904. This amount is amortized over
the
three-year vesting period in a manner consistent with Financial Accounting
Standards Board Interpretation No. 123R.
The
amortization of deferred stock-based compensation for these equity arrangements
was both $ 44,727 for the nine months ended September 30, 2008 and
2007.
Although
the Company anticipates future issuances of stock awards to have a material
impact on reported net income, we do not expect these awards to have a material
impact on future cash flow.
MINORITY
INTEREST
Minority
interest represents a 10% non-controlling interest in the Joint Venture.
Minority interest in income amounted to $1,183,852 and $
936,986
for
the
nine months ended September 30, 2008 and 2007, respectively.
FINANCIAL
CONDITION
Liquidity
and Capital Resources
OPERATING
- Net cash provided in operating activities was $5,607,844 for the nine months
ended September 30, 2008 compared with $ 4,220,539 of net cash provided in
operating activities in the same period in 2007, for an increase of $ 1,387,305.
During
the nine months ended September 30, 2008, the main cash inflow was from notes
receivables,
deposits
received from customers
and
other
current assets and liability.
Cash
inflow was largely offset by the following factors:
First,
in
accordance with the increase in sales orders during the nine months ended
September 30, 2008, the Company maintained a higher level inventory to meet
the
demands
of sales
and production. Additionally,
the
Company established more distribution warehouses close to major OEM customers
and maintained some
stock
in
those warehouses to
ensure
timely deliveries at the request of major OEM customers. As a result, cash
outflow increased by about $ 7.8 million owing to increased inventory. Second,
China’s metal market is still experiencing price increases and more vendors were
requiring us to pay in advance, which has resulted in an increase in our level
of prepayments for metal raw materials. Thus, cash outflow increased by about
$
4.6 million owing to increased prepayments.
As
of
September 30, 2008, the Company had cash and cash equivalents of $ 5,950,987
as
compared to cash and cash equivalents of
$4,340,211
as of
December 31, 2007. The Company had working capital of $ 59,359,754
as
of
September 30, 2008, as compared to working capital of
44,715,988
as of
December 31, 2007, reflecting current ratios of 4.54:1 and
4.32:
1,
respectively.
INVESTING
- During the nine months ended September 30, 2008, the Company expended net
cash
of $
2,747,951
in
investing activities for acquisition of property and equipment to support the
growth of the business. For the nine months ended September 30, 2007, the
Company utilized $
18,259,563
in
investing activities.
FINANCING
-
During
the nine months ended September 30, 2007, the cash inflows were mainly
attributable to a $4,644,122 increase in proceeds from borrowing due to a short
term bank loan being secured for new equipment purchases and working capital
requirements. During
the
nine
months ended September 30, 2008
,
the
Company received aggregate bank loans in the amount of $1,967,686 under its
credit facilities; these cash inflows was offset by repayments of $3,469,793
on
its outstanding debt.
The
Company’s management has taken a number of steps to restructure its customer
base and phase out accounts which had failed to make prompt payments. The
Company also placed more emphasis on receivable collection. In addition, the
Company maintains good relationships with local banks. We believe that our
current cash and cash equivalents and anticipated cash flow generated from
operations and our bank lines of credit will be sufficient to finance our
working capital requirements for the foreseeable future.
CURRENCY
RISK AND FINANCIAL INSTRUMENTS - Although our reporting currency is the U.S.
dollar, the functional currency of Joint Venture is RMB. As a result, we are
exposed to foreign exchange risk as our revenues and results of operations
may
be affected by fluctuations in the exchange rate between U.S. dollars and RMB.
If the RMB depreciates against the U.S. dollar, the value of our RMB revenues,
earnings and assets as expressed in our U.S. dollar financial statements will
decline. In recent years, the RMB has been appreciating against the U.S. dollar.
Assets
and liabilities of our operating subsidiaries are translated into U.S. dollars
at the exchange rate at the balance sheet date, their equity accounts are
translated at historical exchange rate and their income and expenses items
are
translated using the average rate for the period. Any resulting exchange
differences are recorded in accumulated other comprehensive income or loss.
Because of the approximately 6.1 % appreciation of the RMB against the USD
during the nine months ended on September 30, 2008, (i) we recorded an exchange
loss of $693,556 from export sales for which the payments to us were in USD,
meanwhile, (ii) we also recorded a foreign currency translation adjustment
of
$6,048,704 for the nine-month period, a positive number due to our functional
currency in RMB and the appreciation of the RMB against the USD. The Company
is
taking steps such as the diversification of currencies used in export sales,
and
the negotiation of export contracts with fixed exchange rates.
As
the
Company’s historical debt obligations are primarily short-term in nature, with
fixed interest rates, the Company does not have any risk from an increase in
market interest rates. However, to the extent that the Company arranges new
borrowings in the future, an increase in market interest rate would cause a
commensurate increase in the interest expense related to such
borrowings.
OFF-BALANCE
SHEET AGREEMENTS
As
of
September 30, 2008, we did not have any material commitments for capital
expenditures or have any transactions, obligations or relationships that could
be considered off-balance sheet arrangements.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The
information is not required for smaller reporting companies.
ITEM
4T. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
As
required by Rule 13a-15(b) and Rule 15d-15(b) under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), our management, including our
Chief Executive Officer and Chief Financial Officer, evaluated, as of September
30, 2008, the effectiveness of our disclosure controls and procedures as defined
in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures, as of September 30, 2008, were
effective for the purpose of ensuring that information required to be disclosed
by us in this report is recorded, processed, summarized and reported within
the
time periods specified by the rules and forms of the Exchange Act and is
accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosures.
We
believe, however, that a controls system, no matter how well designed and
operated, cannot provide absolute assurance that the objectives of the controls
system are met, and no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud or error, if any, within a
company have been detected.
Changes
in Internal Control over Financial Reporting
There
was
no change in our internal controls over financial reporting during the fiscal
quarter ended September 30, 2008 covered by this Quarterly Report on Form 10-Q
that has materially affected, or is reasonably likely to materially affect,
our
internal control over financial reporting.
PART
II OTHER INFORMATION
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On
September 9, 2008, the Company held its Annual Meeting of Stockholders. At
the
Meeting, the stockholders elected Xiao Ping Zhang, Xiao Feng Zhang, Jung Kang
Chang, Li Min Zhang, Zhi Zhong Wang, Yi Guang Huo and Jiang Hua Feng as
directors and ratified the appointment of Rotenberg & LLP as the Company’s
independent registered public accounting firm for the fiscal year ending
December 31, 2008. The following table sets forth the votes for, against and
votes withheld with respect to each matter.
|
|
|
For
|
|
Withheld
|
|
|
Xiao
Ping Zhang
|
|
|
15,870,854
|
|
|
97,381
|
|
|
Xiao
Feng Zhang
|
|
|
15,870,554
|
|
|
97,681
|
|
|
Jung
Kang Chang
|
|
|
15,870,604
|
|
|
97,631
|
|
|
Li
Min Zhang
|
|
|
15,870,854
|
|
|
97,381
|
|
|
Zhi
Zhong Wang
|
|
|
15,870,544
|
|
|
97,691
|
|
|
Yi
Guang Huo
|
|
|
15,870,844
|
|
|
97,391
|
|
|
Jiang
Hua Feng
|
|
|
15,836,738
|
|
|
131,497
|
|
|
2.
|
Ratification
of Auditors
|
|
For
|
|
Against
|
|
Abstain
|
|
|
15,922,732
|
|
|
30,493
|
|
|
15,010
|
|
ITEM
6. EXHIBITS
|
EXHIBIT
NO.
|
|
DOCUMENT
DESCRIPTION
|
|
|
|
|
|
3.1
(1)
|
|
Certificate
of Incorporation, as amended
|
|
|
|
|
|
3.2
(1)
|
|
Amended
and Restated Bylaws
|
|
|
|
|
|
4.1
(2)
|
|
Form
of Underwriters’ Common Stock Purchase Warrants
|
|
|
|
|
|
4.2
(2)
|
|
Specimen
Common Stock Certificate
|
|
|
|
|
|
31.1
(1)
|
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a), promulgated under the Securities and Exchange Act of 1934,
as
amended.
|
|
|
|
|
|
31.2
(1)
|
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a), promulgated under the Securities and Exchange Act of 1934,
as
amended.
|
|
|
|
|
|
32.1
(3)
|
|
Certifications
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 (Chief Executive Officer and Chief
Financial Officer).
|
|
(1)
|
filed
herewith.
|
|
|
|
|
(2)
|
Incorporated
herein by reference from the Registrant’s Registration Statement on Form
S-1, Commission File No.333-137019, as filed with the Securities
and
Exchange Commission on August 31, 2006.
|
|
|
|
|
(3)
|
Furnished
herewith. In accordance with Item 601(b)(32) of Regulation S-K, this
Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange
Act or otherwise subject to the liabilities of that section. Such
certifications will not be deemed incorporated by reference into
any
filing under the Securities Act of 1933, as amended, or the Exchange
Act,
except to the extent that the registrant specifically incorporates
it by
reference.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
Dated
: November 12, 2008
|
SORL
AUTO PARTS, INC.
|
|
|
|
|
|
By:
/s/ Xiao Ping Zhang
|
|
|
|
|
|
Name:
Xiao Ping Zhang
|
|
|
Title:
Chief Executive Officer
|
|
By:
/s/ Zong Yun Zhou
|
|
|
|
Name:
Zong Yun Zhou
|
|
Title:
Chief Financial Officer
|
EXHIBIT
INDEX
|
EXHIBIT
NO.
|
|
DOCUMENT
DESCRIPTION
|
|
|
|
|
|
3.1
(1)
|
|
Certificate
of Incorporation, as amended
|
|
|
|
|
|
3.2
(1)
|
|
Amended
and Restated Bylaws
|
|
|
|
|
|
4.1
(2)
|
|
Form
of Underwriters’ Common Stock Purchase Warrants
|
|
|
|
|
|
4.2
(2)
|
|
Specimen
Common Stock Certificate
|
|
|
|
|
|
31.1
(1)
|
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a), promulgated under the Securities and Exchange Act of 1934,
as
amended.
|
|
|
|
|
|
31.2
(1)
|
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a), promulgated under the Securities and Exchange Act of 1934,
as
amended.
|
|
|
|
|
|
32.1
(3)
|
|
Certifications
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 (Chief Executive Officer and Chief
Financial Officer).
|
|
(1)
|
filed
herewith.
|
|
|
|
|
(2)
|
Incorporated
herein by reference from the Registrant’s Registration Statement on Form
S-1, Commission File No.333-137019, as filed with the Securities
and
Exchange Commission on August 31, 2006.
|
|
|
|
|
(3)
|
Furnished
herewith. In accordance with Item 601(b)(32) of Regulation S-K, this
Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange
Act or otherwise subject to the liabilities of that section. Such
certifications will not be deemed incorporated by reference into
any
filing under the Securities Act of 1933, as amended, or the Exchange
Act,
except to the extent that the registrant specifically incorporates
it by
reference.
|
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