10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended March 31, 2018

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

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

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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “accelerated filer”, “large accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ¨	Accelerated Filer ¨	Non-Accelerated Filer ¨	Smaller Reporting Company x
Emerging Growth Company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes ¨ No x

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer classes of common stock, as of the latest practicable date:

As of May 15, 2018 there were 19,304,921 shares of common stock outstanding

SORL AUTO PARTS, INC.

FORM 10-Q

For the Three Months Ended March 31, 2018

INDEX

		Page
PART I.	FINANCIAL INFORMATION (Unaudited)
Item 1.	Financial Statements:
	Consolidated Balance Sheets as of March 31, 2018 (Unaudited) and December 31, 2017	3
	Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 31, 2018 and 2017 (Unaudited)	4
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017 (Unaudited)	5
	Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2018 (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis or Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
PART II.	OTHER INFORMATION	31
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Mine Safety Disclosures	31
Item 5.	Other Information	31
Item 6.	Exhibits	31
SIGNATURES		32

2

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Balance Sheets

March 31, 2018 and December 31, 2017

	March 31, 2018			December 31, 2017
	(Unaudited)
Assets
Current Assets
Cash and cash equivalents	US$	22,682,734		US$	4,221,940
Accounts receivable, net, including $1,369,846 and   $1,297,734 from related party at March 31, 2018 and December 31, 2017, respectively		173,176,607			134,384,961
Bank acceptance notes from customers		141,418,791			116,040,688
Inventories		117,758,209			114,300,564
Prepayments, current, including $9,690,080 and $999,527 to related parties at March 31, 2018 and December 31, 2017, respectively		24,451,933			8,826,004
Restricted cash		46,602,834			376,236
Advances to related parties		138,038,517			72,318,224
Other current assets, net		7,637,869			5,555,568
Total Current Assets		671,767,494			456,024,185
Property, plant and equipment, net		83,500,305			79,828,006
Land use rights, net		15,360,639			14,912,134
Intangible assets, net		-			3,341
Deposits on loan agreements		11,132,138			10,712,865
Prepayments, non-current		33,401,173			16,594,987
Deferred tax assets		3,487,908			4,240,424
Total Non-current Assets		146,882,163			126,291,757
Total Assets	US$	818,649,657		US$	582,315,942
Liabilities and Equity
Current Liabilities
Accounts payable and bank acceptance notes to vendors, including $10,104,627 and $15,896,804 due to related parties at March 31, 2018 and December 31, 2017, respectively	US$	192,341,749		US$	118,051,633
Deposits received from customers		49,997,137			43,087,473
Short term bank loans		239,625,661			125,380,899
Current portion of long term loans		26,141,459			24,266,031
Income tax payable		1,709,222			3,249,727
Accrued expenses		17,651,012			25,154,658
Due to related parties		36,939,943			1,572,963
Deferred income		927,678			1,020,273
Other current liabilities		4,013,302			2,857,130
Total Current Liabilities		569,347,163			344,640,787
Long term loans, less current portion and net of unamortized debt issuance costs		31,773,249			37,383,224
Total Non-current Liabilities		31,773,249			37,383,224
Total Liabilities		601,120,412			382,024,011
Equity
Preferred stock - no par value; 1,000,000 authorized; none issued and outstanding as of March 31, 2018 and December 31, 2017		-			-
Common stock - $0.002 par value; 50,000,000 authorized, 19,304,921 issued and outstanding as of March 31, 2018 and December 31, 2017		38,609			38,609
Additional paid-in capital		(28,582,654	)		(28,582,654	)
Reserves		18,389,707			17,562,357
Accumulated other comprehensive income		23,143,269			15,903,188
Retained earnings		175,690,481			168,244,329
Total SORL Auto Parts, Inc. Stockholders' Equity		188,679,412			173,165,829
Noncontrolling Interest In Subsidiaries		28,849,833			27,126,102
Total Equity		217,529,245			200,291,931
Total Liabilities and Equity	US$	818,649,657		US$	582,315,942

The accompanying notes are an integral part of these unaudited consolidated financial statements

3

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Statements of Income and Comprehensive Income

For the Three Months Ended March 31, 2018 and 2017 (Unaudited)

	Three Months Ended March 31,
	2018			2017
Sales	US$	107,726,682		US$	74,746,394
Include: sales to related parties		7,701,054			4,008,684
Cost of sales		77,527,196			53,700,458
Gross profit		30,199,486			21,045,936
Expenses:
Selling and distribution expenses		10,037,861			5,608,623
General and administrative expenses		4,773,778			4,044,913
Research and development expenses		3,590,402			2,055,096
Total operating expenses		18,402,041			11,708,632
Other operating income, net		2,197,324			290,237
Income from operations		13,994,769			9,627,541
Interest income		1,488,264			10,550
Government grants		133,933			28,909
Other income		27,066			664
Interest expenses		(3,353,711	)		(481,160	)
Exchange differences		(601,286	)		(92,732	)
Other expenses		(890,814	)		(114,799	)
Income before income taxes provision		10,798,221			8,978,973
Provision for income taxes		1,605,441			1,286,174
Net income	US$	9,192,780		US$	7,692,799
Net income attributable to noncontrolling interest in subsidiaries		919,278			769,280
Net income attributable to common stockholders	US$	8,273,502		US$	6,923,519
Comprehensive income:
Net income	US$	9,192,780		US$	7,692,799
Foreign currency translation adjustments		8,044,534			911,432
Comprehensive income		17,237,314			8,604,231
Comprehensive income attributable to noncontrolling interest in subsidiaries		1,723,731			860,423
Comprehensive income attributable to common stockholders	US$	15,513,583		US$	7,743,808
Weighted average common share - basic		19,304,921			19,304,921
Weighted average common share - diluted		19,304,921			19,304,921
EPS - basic	US$	0.43		US$	0.36
EPS - diluted	US$	0.43		US$	0.36

The accompanying notes are an integral part of these unaudited consolidated financial statements

4

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2018 and 2017 (Unaudited)

	Three Months Ended March 31,
	2018			2017
Cash Flows From Operating Activities
Net income	US$	9,192,780		US$	7,692,799
Adjustments to reconcile net income to net cash  provided by (used in) operating activities:
Allowance for doubtful accounts		278,397			-
Depreciation and amortization		2,847,303			2,017,224
Amortization of debt issuance costs		372,025			-
Deferred income tax		900,839			8,453
Changes in assets and liabilities:
Account receivable		(32,888,322	)		(2,151,307	)
Bank acceptance notes from customers		12,354,888			(2,700,239	)
Other currents assets		(1,890,438	)		(638,653	)
Inventories		996,280			(5,594,100	)
Prepayments, current		(14,987,105	)		1,142,387
Accounts payable and bank acceptance notes to vendors		63,073,488			(4,434,657	)
Income tax payable		(1,635,670	)		265,518
Deposits received from customers		5,123,039			3,033,848
Deferred income		(129,981	)		-
Other current liabilities and accrued expenses		(7,302,268	)		(2,133,534	)
Net Cash Flows Provided By (Used In) Operating Activities		36,305,255			(3,492,261	)
Cash Flows From Investing Activities
Acquisition of property, equipment and land use rights		(19,682,775	)		(14,320,981	)
Advances to related parties		(67,694,035	)		-
Repayments of advances to related parties		5,821,183			-
Net Cash Flows Used In Investing Activities		(81,555,627	)		(14,320,981	)
Cash Flows From Financing Activities
Proceeds from short term bank loans		222,636,613			21,247,576
Repayments of short term bank loans		(115,398,302	)		-
Proceeds from related parties		264,565,400			-
Repayments to related parties		(256,883,171	)		-
Repayments of long term loans		(6,401,331	)		-
Net Cash Flows Provided By Financing Activities		108,519,209			21,247,576
Effects on changes in foreign exchange rate		1,418,555			83,361
Net change in cash, cash equivalents, and restricted cash		64,687,392			3,517,695
Cash, cash equivalents, and restricted cash - beginning of the period		4,598,176			13,533,776
Cash, cash equivalents, and restricted cash - end of the period	US$	69,285,568		US$	17,051,471
Supplemental Cash Flow Disclosures:
Interest paid	US$	2,278,298		US$	250,601
Income taxes paid	US$	2,340,272		US$	1,012,203
Non-cash Investing and Financing Transactions
Repayments to related party in the form of bank acceptance notes	US$	5,846,083		US$	-
Loans from related party in the form of bank acceptance notes	US$	32,791,380		US$	-
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets
Cash and cash equivalents	US$	22,682,734		US$	11,455,214
Restricted cash		46,602,834			5,596,257
Total cash, cash equivalents, and restricted cash at end of period	US$	69,285,568		US$	17,051,471

The accompanying notes are an integral part of these unaudited consolidated financial statements

5

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Statements of Changes in Equity

For the Three Months Ended March 31, 2018 (Unaudited)

													Accumulated		Total SORL Auto
	Number		Common		Additional Paid-in					Retained			Other Comprehensive		Parts, Inc. Stockholders'		Noncontrolling
	of Share		Stock		Capital			Reserves		Earnings			Income		Equity		Interest		Total Equity
Balance as of December 31, 2017		19,304,921	$	38,609	$	(28,582,654	)	$	17,562,357	$	168,244,329		$	15,903,188	$	173,165,829	$	27,126,102	$	200,291,931
Net income		-		-		-			-		8,273,502			-		8,273,502		919,278		9,192,780
Foreign currency translation adjustment		-		-		-			-		-			7,240,081		7,240,081		804,453		8,044,534
Transfer to reserve		-		-		-			827,350		(827,350	)		-		-		-		-
Balance as of March 31, 2018		19,304,921	$	38,609	$	(28,582,654	)	$	18,389,707	$	175,690,481		$	23,143,269	$	188,679,412	$	28,849,833	$	217,529,245

The accompanying notes are an integral part of these unaudited consolidated financial statements

6

SORL Auto Parts, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 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 65 categories and over 2,000 different specifications.

The Joint Venture was formed in the People’s Republic of China (“PRC” or “China”) as a Sino-Foreign joint venture on January 17, 2004, pursuant to the terms of a Joint Venture Agreement between the Ruili Group Co., Ltd. (the “Ruili Group”), a related party under common control, and Fairford Holdings Limited (“Fairford”), a wholly owned subsidiary of the Company. The Ruili Group was incorporated in China in 1987 and specializes in the development, production and sale of various kinds of automotive parts. Fairford and the Ruili Group contributed 90% and 10%, respectively, of the paid-in capital of the Joint Venture.

On November 11, 2009, the Company, through its wholly owned subsidiary, Fairford, entered into a joint venture agreement with MGR Hong Kong Limited (“MGR”), a Hong Kong-based global auto parts distribution specialist firm and an unaffiliated Taiwanese 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.

7

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.

8

(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 periods. Management makes its best estimate of the outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management. Actual results could differ from those estimates.

c. FAIR VALUE OF FINANCIAL INSTRUMENTS

For certain of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable and payable, bank acceptance notes from customers and to vendors, inventories, current prepayments, other current assets, short term bank loans, current portion of long term loans, deposits received from customers, deferred income and other payables and accruals, 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.

9

d. RESTRICTED CASH

Restricted cash consists of bank deposits used to pledge the bank acceptance notes and short term bank loan, deposits for obtaining letters of credit from a local bank and bank deposits used as down payment secured on behalf of a related party for potential acquisition.

The Company entered into credit agreements with commercial banks in China (“endorsing banks”) which agree to provide credit within stipulated limits. Within the stipulated credit limits, the Company can issue bank acceptance notes to its suppliers as payments for the purchases. In order to issue bank acceptance notes, the Company is generally required to make initial deposits or pledge note receivables to the endorsing banks in amounts of certain percentage of the face amount of the bank acceptance notes to be issued by the Company. The cash in such accounts is restricted for use over the terms of the bank acceptance notes, which are normally three to six months. As of March 31, 2018 and December 31, 2017, restricted cash of $37,728,039 and $0, respectively, was used to pledge the bank acceptance notes.

During the three months ended March 31, 2018, the Company obtained a short term bank loan in the amount of $2,972,096 from Industrial and Commercial Bank of China, which required a pledge with bank deposits of $3,022,471. As of March 31, 2018, the bank deposits remained as the pledge for the loan. Also see Note K for details.

The Company also obtained letters of credit from Industrial Bank Co., Ltd., which agreed to provide guarantee that the Company would make timely payment to its sellers for any purchases. Deposits of $286,255 and $275,474, respectively, were required for this purpose as of March 31, 2018 and December 31, 2017.

As of March 31, 2018, the Company had a bank deposit of $5,566,069, representing an advance to Ruili Group. 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.

10

f. BANK ACCEPTANCE NOTES RECEIVABLE

Bank acceptance notes receivable generally due within six months and with specific payment terms and definitive due dates, are comprised of the notes issued by some customers to pay certain outstanding receivable balances to the Company, and the notes issued by the customers of related parties and transferred to the Company as loans from related parties. Bank acceptance notes do not bear interest. As of March 31, 2018 and December 31, 2017, bank acceptance notes from customers in the amount of $135,919,194 and $95,914,724, respectively, were pledged to endorsing 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 from customers for cash before the maturity of the notes and such discount fees are included in interest expenses on the accompanying unaudited consolidated statements of income and comprehensive income.

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.

11

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 existing revenue recognition guidance. 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 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 $89,465 in net cash used in investing activities in the amount previously reported for the three months ended March 31, 2017. Restricted cash was included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the consolidated statements of cash flows.

NOTE D – RECLASSIFICATIONS

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings or financial position.

NOTE E - RELATED PARTY TRANSACTIONS

Related parties with whom the Company conducted business consist of the following:

Name of Related Party	Nature of Relationship
Xiao Ping Zhang	Principal shareholder, Chairman of the Board and Chief Executive Officer
Shu Ping Chi	Shareholder, member of the Board, wife of Xiao Ping Zhang
Xiao Feng Zhang	Shareholder, member of the Board, brother of Xiao Ping Zhang
Ruili Group Co., Ltd. ("Ruili Group")	10% shareholder of Joint Venture and is collectively controlled by Xiao Ping Zhang, Shu Ping Chi, and Xiao Feng Zhang
Guangzhou Ruili Kormee Automotive Electronic 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 March 31, 2018, the Company did not receive all the materials from Ruili Meilian or any materials from Ningbo Ruili purchased during the three months then ended. The unreceived purchases from those two related parties 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 and Ruili Meilian. 

12

The following related party transactions occurred for the three months ended March 31, 2018 and 2017:

Three Months Ended March 31,
	2018		2017
PURCHASES FROM:
Guangzhou Ruili Kormee Automotive Eletronic Control Technology Co., Ltd.	$	-	$	335,927
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd.		355,493		355,671
Shanghai Dachao Electric Technology Co., Ltd.		145,618		55,230
Ruili MeiLian Air Management System (LangFang) Co., Ltd.		2,471,243		783,070
Ruili Group Co., Ltd.		1,716,788		1,126,718
Wenzhou Lichuang Automobile Parts Co., Ltd.		1,781,716		-
Total purchases	$	6,470,858	$	2,656,616
SALES TO:
Guangzhou Ruili Kormee Automotive Eletronic Control Technology Co., Ltd.	$	2,353,028	$	777,357
Ruili MeiLian Air Management System (LangFang) Co., Ltd.		529,873		-
Ruili Group Co., Ltd.		4,411,287		3,026,924
Shanghai Tabouk Auto Components Co., Ltd.		406,866		204,403
Total sales	$	7,701,054	$	4,008,684

	As of March 31, 2018		As of December 31, 2017
ADVANCES TO RELATED PARTIES
Ruili Group Co., Ltd.	$	-	$	5,711,605
Shanghai Ruili Real Estate Development Co., Ltd.		120,227,095		65,069,497
Kunshan Yuetu Real Estate Development Co., Ltd.		17,811,422		1,537,122
Total advances to related parties	$	138,038,517	$	72,318,224
ACCOUNTS RECEIVABLE
Shanghai Tabouk Auto Components Co., Ltd.	$	1,369,846	$	1,297,734
Total accounts receivable	$	1,369,846	$	1,297,734
PREPAYMENTS, CURRENT
Ruili MeiLian Air Management System (LangFang) Co., Ltd.	$	7,753,831	$	-
Ningbo Ruili Equipment Co., Ltd.		1,936,249		999,527
Total prepayments, current	$	9,690,080	$	999,527
ACCOUNTS PAYABLE
Guangzhou Ruili Kormee Automotive Electronic Control Technology  Co., Ltd.	$	1,845,566	$	3,414,719
Shanghai Dachao Electric Technology Co., Ltd.		13,644		83,178
Ruili MeiLian Air Management System (LangFang) Co., Ltd.		7,753,831		1,993,787
Wenzhou Lichuang Automobile Parts Co., Ltd.		491,586		10,405,120
Total accounts payable	$	10,104,627	$	15,896,804
DUE TO RELATED PARTIES
Ruili Group Co., Ltd.	$	26,953,199	$	-
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd.		9,986,744		1,572,963
Total due to related parties	$	36,939,943	$	1,572,963

13

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.

During the three months ended March 31, 2018, the Company obtained loans of $264,565,400 in cash and $32,791,380 in the form of bank acceptance notes. Repayments in cash and bank acceptance notes to related parties totaled $256,883,171 and $5,846,083, respectively. In the same period, the Company advanced to its related parties in the total amount of $67,694,035 and received cash repayments from Ruili Group amounted to $5,821,183. The cash repayments from Shanghai Ruili and Kunshan Yuetu totaled $1,378,876 during the three months ended March 31, 2018, and approximately $53,434,000 during subsequent period. Also see Note S.

The Company entered into a lease agreement with Ruili Group. See Note O for more details.

During the three months ended March 31, 2018, the Company made a bank deposit of $5,566,069 (RMB 35,000,000) as down payment to secure a potential acquisition. Initially, the Company had the intention to acquire the target company and deposited $5,566,069 into a trust account restricted for the use in the potential acquisition. After a few rounds of discussion, the Company gave up and Ruili Group decided to do the acquisition. As the Company and Ruili Group are under common control, the restricted deposit represented an advance to Ruili Group, non-interest bearing, due on demand and non-secured. Also See Note B.

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 into 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 March 31, 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.

14

NOTE F - ACCOUNTS RECEIVABLE, NET

Accounts receivable, net, consisted of the following:

	March 31, 2018			December 31, 2017
Accounts receivable	$	187,648,836		$	148,312,117
Less: allowance for doubtful accounts		(14,472,229	)		(13,927,156	)
Account receivable balance, net	$	173,176,607		$	134,384,961

No customer individually accounted for more than 10% of the Company’s revenues or accounts receivable for the three months ended March 31, 2018 and 2017. The changes in the allowance for doubtful accounts at March 31, 2018 and December 31, 2017 are summarized as follows:

	March 31,		December 31,
	2018		2017
Beginning balance	$	13,927,156	$	11,686,417
Add: increase to allowance		-		1,474,872
Less: accounts written off		-		-
Effects on changes in foreign exchange rate		545,073		765,867
Ending balance	$	14,472,229	$	13,927,156

NOTE G - INVENTORIES

At March 31, 2018 and December 31, 2017, inventories consisted of the following:

	March 31,		December 31,
	2018		2017
Raw materials	$	20,308,610	$	27,657,266
Work-in-process		34,233,690		40,805,434
Finished goods		63,215,909		45,837,864
Less: write-down of inventories		-		-
Total inventories	$	117,758,209	$	114,300,564

15

NOTE H - PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net, consisted of the following at March 31, 2018 and December 31, 2017:

	March 31,			December 31,
	2018			2017
Machinery	$	126,899,893		$	119,296,564
Molds		1,391,314			1,338,912
Office equipment		3,131,313			2,998,443
Vehicles		4,159,140			3,681,194
Buildings		20,943,601			20,127,148
Leasehold improvements		505,887			486,834
Sub-total		157,031,148			147,929,095
Less: accumulated depreciation		(73,530,843	)		(68,101,089	)
Property, plant and equipment, net	$	83,500,305		$	79,828,006

Depreciation expense charged to operations was $2,711,374 and $1,944,565 for the three months ended March 31, 2018 and 2017, respectively.

16

NOTE I – LAND USE RIGHTS, NET

The balances for land use rights, net, as of March 31, 2018 and December 31, 2017 are as the following:

	March 31, 2018			December 31, 2017
Cost	$	16,082,814		$	15,477,081
Less: accumulated amortization		(722,175	)		(564,947	)
Land use rights, net	$	15,360,639		$	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 payment was included as prepayment, non-current as of March 31, 2018 on the accompanying consolidated balance sheets. The Company obtained the title to the land use rights in April 2018. Also See Note S.

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 three months ended March 31, 2018, the Company paid additional amount of RMB 57.62 million (approximately $8.99 million). As of March 31, 2018, the purchase price of RMB 72.02 (approximately $11.13 million) was fully paid. As of the filing date, the title to the land use rights has not been transferred. The payments were included as prepayment, non-current as of March 31, 2018 on the accompanying consolidated balance sheets.

Amortization expenses were $132,523 and $70,489 for the three months ended March 31, 2018 and 2017, respectively.

NOTE J - DEFERRED TAX ASSETS

Deferred tax assets consisted of the following as of March 31, 2018 and December 31, 2017:

	March 31, 2018		December 31, 2017
Deferred tax assets – non-current
Allowance for doubtful accounts	$	2,264,083	$	2,137,837
Revenue (net of cost)		67,513		160,766
Unpaid accrued expenses		69,913		955,287
Warranty		1,086,399		986,534
Deferred tax assets		3,487,908		4,240,424
Valuation allowance		-		-
Net deferred tax assets – non-current	$	3,487,908	$	4,240,424

17

Deferred taxation is calculated under the liability method in respect of taxation effect arising from all timing differences, which are expected with reasonable probability to realize in the foreseeable future. The Company and its subsidiaries do not have income tax liabilities in U.S. as the Company had no taxable income for the reporting period. The Company’s subsidiary registered in the PRC is subject to income taxes within the PRC at the applicable tax rate.

NOTE K - SHORT-TERM BANK LOANS

Bank loans represented the following as of March 31, 2018 and December 31, 2017:

	March 31,		December 31,
	2018		2017
Secured	$	239,625,661	$	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 Minsheng Bank, Industrial Bank Co., Ltd., Oversea-Chinese Banking Corporation Limited, China CITIC Bank, 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 three months ended March 31, 2018 ranged from 0.90% to 5.51% per annum. The maturity dates of the loans existing as of March 31, 2018 ranged from April 2, 2018 to March 25, 2019. As of March 31, 2018 and December 31, 2017, the Company’s accounts receivable of $11,112,596 and $5,472,169, respectively, were pledged as collateral under loan arrangements. The interest expenses for short term loans, including discount fees, were $2,294,328 and $460,912 for the three months ended March 31, 2018 and 2017, respectively.

As of March 31, 2018, corporate or personal guarantees provided for those bank loans were as follows:

$	34,639,600	Pledged by Ruili Group, a related party, with its land use rights and properties.
$	69,178,290	Pledged by Shanghai Ruili, a related party, with its buildings. Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.
$	19,067,881	Guaranteed by Ruili Group, a related party, Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.
$	6,079,940	Guaranteed by Ruili Group, a related party.
$	28,625,499	Pledged by Hangzhou Ruili Property Development Ltd., a related party under common control of Ruili Group, with its properties. Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.
$	68,987,452	Pledged by the Company with its bank acceptance notes.
$	10,074,903	Pledged by Shanghai Ruili, a related party, with its properties. Guaranteed by Ruili Group, a related party. Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.
$	2,972,096	Pledged by the Company with bank deposits of $3,022,471, which was included as restricted cash on the accompanying unaudited consolidated balance sheets. Also see Note B “RESTRICTED CASH” section.

18

NOTE L - LONG TERM LOANS

	March 31, 2018			December 31, 2017
Aggregate outstanding principal balance	$	59,428,763		$	63,471,308
Less: unamortized debt issuance costs		(1,514,055	)		(1,822,053	)
Less: current portion		(26,141,459	)		(24,266,031	)
Non-current portion	$	31,773,249		$	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 three months ended March 31, 2018, the repayments of principal totaled $3,857,306.

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 three months ended March 31, 2018, the repayments of principal totaled $2,544,025.

The interest expenses for long term loans, including the amortization of debt issuance costs, were $1,059,383 for the three months ended March 31, 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.

19

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 customer.

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 March 31, 2018 and December 31, 2017, the Company recorded a deferred revenue liability of $49,997,137 and $43,087,473, respectively, which was presented as “Deposits received from customers” on the accompanying consolidated balance sheets. During the three months March 31, 2018 and 2017, the Company recognized $12,855,707 and $4,395,837, respectively, of deferred revenue included in the opening balances of deposits received from customers. The amounts were included in sales on the accompanying consolidated statements of income and comprehensive income.

NOTE 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 Act. The Company is required to recognize the effect of the 2017 Tax Act in the period of enactment. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), Income Tax Accounting Implications of the 2017 Tax Act, which allows the Company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. The Company is evaluating the impact of the 2017 Tax Act, however, as of the filing date, the Company was unable to determine a reasonable provision of the tax effects of the 2017 Tax Act. Therefore, no provisional amounts have been recorded on the consolidated financial statements as of December 31, 2017 and for the three months ended March 31, 2018 in accordance with SAB 118.

The Joint Venture is registered in the PRC, and is therefore subject to state and local income taxes within the PRC at the applicable tax rate on the taxable income as reported in the PRC statutory financial statements in accordance with relevant income tax laws.

20

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 three months ended March 31, 2018.

The reconciliation of the effective income tax rate of the Company to the statutory income tax rate in the PRC for the three months ended March 31, 2018 and 2017 is as follows:

	Three Months Ended March 31, 2018			Three Months Ended March 31, 2017
US statutory income tax rate		21.00	%		35.00	%
Valuation allowance recognized with respect to the loss in the US company		-21.00	%		-35.00	%
China statutory income tax rate		25.00	%		25.00	%
Effects of income tax exemptions and reliefs		-10.00	%		-10.00	%
Effects of additional deduction allowed for R&D expenses		-2.51	%		-2.14	%
Expenses not deductible for tax purpose		0.52	%		0.62	%
Other items		1.86	%		0.84	%
Effective tax rate		14.87	%		14.32	%

Income taxes are calculated on a separate entity basis. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In the three months ended March 31, 2018 and 2017, there were no penalties and interest, which generally are recorded in the general and administrative expenses or in the tax expenses. The provisions for income taxes for the three months ended March 31, 2018 and 2017, respectively, are summarized as follows:

21

	Three Months Ended March 31, 2018		Three Months Ended March 31, 2017
Current	$	704,603	$	1,294,627
Deferred		900,838		(8,453	)
Total	$	1,605,441	$	1,286,174

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 lease term is from January 2013 to December 2016. This lease was amended in 2013 with a new lease term from January 1, 2013 to December 31, 2022. The annual lease expense is RMB 2,100,000 (approximately $333,688).

The lease expenses were $148,785 and $75,887 for the three months ended March 31, 2018 and 2017, respectively.

NOTE P - WARRANTY CLAIMS

Warranty claims were $833,684 and $637,874 for the three months ended March 31, 2018 and 2017, respectively. Warranty claims are included in selling and distribution expenses on the accompanying consolidated statements of income and comprehensive income. Accrued warranty expenses are included in the balances of accrued expenses on the accompanying consolidated balance sheets. The movement of accrued warranty expenses for the three months ended March 31, 2018 was as follows:

22

Beginning balance at January 1, 2018	$	6,576,895
Aggregate increase for new warranties issued during current period		833,684
Aggregate reduction for payments made and effect of exchange rate fluctuation		(440,703	)
Ending balance at March 31, 2018	$	6,969,876

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, and purchased, a segment of the passenger vehicle auto parts business (“Passenger Vehicle Brake Systems”) of Ruili Group. As a result of this acquisition, the Company's product offerings were expanded to both commercial and passenger vehicles' brake systems and other key safety-related auto parts.

The Company has two operating segments: Commercial Vehicle Brake Systems and Passenger Vehicle Brake Systems.

For the reporting periods, all of the Company’s long-lived assets are located in the PRC. The Company and its subsidiaries do not have long-lived assets in the United States for the reporting periods.

23

	Three Months Ended March 31,
	2018			2017
NET SALES TO EXTERNAL CUSTOMERS
Commercial vehicles brake systems	$	91,615,325		$	61,374,264
Passenger vehicles brake systems		16,111,357			13,372,130
Net sales	$	107,726,682		$	74,746,394
INTERSEGMENT SALES
Commercial vehicles brake systems	$	-		$	-
Passenger vehicles brake systems		-			-
Intersegment sales	$	-		$	-
GROSS PROFIT
Commercial vehicles brake systems	$	25,769,805		$	17,280,818
Passenger vehicles brake systems		4,429,681			3,765,118
Gross profit	$	30,199,486		$	21,045,936
Selling and distribution expenses		10,037,861			5,608,623
General and administrative expenses		4,773,778			4,044,913
Research and development expenses		3,590,402			2,055,096
Other operating income, net		2,197,324			290,237
Income from operations		13,994,769			9,627,541
Interest income		1,488,264			10,550
Government grants		133,933			28,909
Other income		27,066			664
Interest expenses		(3,353,711	)		(481,160	)
Exchange loss		(601,286	)		(92,732	)
Other expenses		(890,814	)		(114,799	)
Income before income tax expense	$	10,798,221		$	8,978,973
CAPITAL EXPENDITURE
Commercial vehicles brake systems	$	16,738,232		$	11,758,957
Passenger vehicles brake systems		2,944,543			2,562,024
Total	$	19,682,775		$	14,320,981
DEPRECIATION AND AMORTIZATION
Commercial vehicles brake systems	$	2,421,346		$	1,656,343
Passenger vehicles brake systems		425,957			360,881
Total	$	2,847,303		$	2,017,224

		March 31, 2018		December 31, 2017
TOTAL ASSETS
Commercial vehicles brake systems	$	696,179,668	$	492,348,129
Passenger vehicles brake systems		122,469,989		89,967,813
Total	$	818,649,657	$	582,315,942

		March 31, 2018		December 31, 2017
LONG LIVED ASSETS
Commercial vehicles brake systems	$	124,908,591	$	106,779,681
Passenger vehicles brake systems		21,973,572		19,512,076
Total	$	146,882,163	$	126,291,757

24

NOTE R – CONTINGENCIES

(1) In May 2016, the Company, through its principal operating subsidiary, entered into a Purchase Agreement with Ruili Group, pursuant to which the Company agreed to exchange the land use rights and factory facilities located at No. 1169 Yumeng Road, Ruian Economic Development Zone, Ruian City, Zhejiang Province, China (the “Dongshan Facility”), purchased in 2007 from Ruili Group, plus RMB 501.00 million (approximately $76.50 million) in cash for the land use rights and factory facilities located at No. 2666 Kaifaqu Avenue, Ruian Economic Development Zone, Ruian City, Zhejiang Province, China (the “Development Zone Facility”). As of the filing date, the Company hasn’t obtained the land use rights certificate or the property ownership certificate for the building of the Development Zone Facility. The Company reserved the relevant tax amount of RMB 15,030,000 (approximately $2,300,205). This amount was determined based on a 3% tax rate on the consideration paid for the Development Zone Facility, which the Company considered as the most probable amount of tax liability.

(2) The Company purchased the Dongshan Facility from Ruili Group in 2007 and subsequently transferred the plants and land use right to Ruili Group. The Company has never obtained the land use right certificate nor the property ownership certificate of the building for the Dongshan Facility. The Company reserved the relevant tax amount of RMB 4,560,000 (approximately $745,220). This amount was determined based on a 3% tax rate on the consideration paid for the Dongshan Facility in the transaction, which the Company considered as the most probable amount of tax liability. The Dongshan Facility was transferred back to Ruili Group on May 5, 2016.

(3) The information of lease commitments is provided in Note O.

(4) The information of guarantees and assets pledged is provided in Note E.

NOTE S – SUBSEQUENT EVENTS

During the subsequent period, the Company obtained short term loans in the total amount of approximately $47,582,000 from Agricultural Bank of China, China CITIC Bank, China Zheshang Bank, Huaxia Bank, and Industrial and Commercial Bank of China. Interest rates for those loans ranged from 4.60% to 5.72% per annum. The maturity dates of the loans existing as of the filing date ranged from April 29, 2018 to May 1, 2019. The Company continuously pledged bank acceptance notes to obtain loans from Agricultural Bank of China. In the same period, the Company sold accounts receivable from Ruili Group of approximately $6,361,000 to China Merchants Bank without recourse and received payment of approximately $6,108,000, net of bank charges and expenses.

In the same period, the Company repaid loan principals and interest expenses in the total amount of approximately $16,829,000 to Bank of China, China Construction Bank, and Agricultural Bank of China.

During the subsequent period, the Company received repayments from Shanghai Ruili, a related party, in the total amount of approximately $53,434,000 (RMB 336,000,000).

In April 2018, the Company obtained the title of the land use rights for the Wansong Land. The expiration date of the land use rights is October 19, 2057. The Wansong Land has a total area of 17,029 square meters. Also see Note I for details.

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 on the accompanying consolidated unaudited financial statements, as well as information relating to the plans of our current management. The following discussion and analysis should be read in conjunction with our consolidated unaudited financial statements and the related notes thereto and other financial information contained elsewhere in this Form 10-Q.

FORWARD-LOOKING STATEMENTS

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 “believe,” “anticipate,” “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 SEC from time to time, which could cause actual results or outcomes to differ materially from those anticipated. Some of the factors that could cause actual results to differ include: our ability to effectively implement our business strategy; our ability to handle downward pricing pressures on our products; and our ability to accurately or effectively plan our production or supply needs. For a discussion of these and all other known risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which is available on the SEC’s website at www.sec.gov. Undue reliance should not be placed on these forward-looking statements that speak only as of the date hereof. We undertake no obligation to revise or update these forward-looking statements.

OVERVIEW

The Company manufactures and distributes automotive brake systems and other key safety-related components to automotive original equipment manufacturers, or OEMs, and the related aftermarket both in China and internationally for use primarily in different types of commercial vehicles, such as trucks and buses, and in passenger vehicles. Management believes that it is the largest manufacturer of automotive brake systems in China for commercial vehicles such as trucks and buses.

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 Year ended December 31, 2017.

25

See Note N to the attached Unaudited Consolidated Financial Statements for the information regarding changes in taxation by the government of China.

RESULTS OF OPERATIONS

The following statements are about results of operations for the three months ended March 31, 2018 as compared to the three months ended March 31, 2017.

Sales

	Three Months Ended				Three Months Ended
	March 31, 2018				March 31, 2017
	(U.S. dollars in millions)
Commercial vehicle brake systems	$	91.6	85	%	$	61.3	82	%
Passenger vehicle brake systems	$	16.1	15	%	$	13.4	18	%
Total	$	107.7	100	%	$	74.7	100	%

The sales were $107.7 million and $74.7 million for the three months ended March 31, 2018 and 2017, respectively, an increase of $33.0 million or 44.1%. The increase was mainly due to the increased sales of commercial vehicle brake systems to China OEM and aftermarket market.

The sales from commercial vehicle brake systems increased by $30.3 million or 49.3%, to $91.6 million for the first fiscal quarter of 2018, compared to $61.3 million for the same period of 2017. Our high quality, low cost products continued to generate higher sales and further penetrated into the commercial vehicle market, which impacted the sales of the commercial vehicle brake systems.

The sales from passenger vehicle brake systems increased by $2.7 million or 20.5%, to $16.1 million for the first fiscal quarter of 2018, compared to $13.4 million for the same period of 2017. The increase was mainly due to the increase of passenger vehicle market in the first fiscal quarter of 2018.

A breakdown of net sales revenue for these markets for the first fiscal quarter of the 2018 and 2017, respectively, is set forth below:

	Three Months		Percent			Three Months		Percent
	Ended		of			Ended		of			Percentage
	March 31, 2018		Total Sales			March 31, 2017		Total Sales			Change
	(U.S. dollars in millions)
China OEM market	$	51.8		48.1	%	$	38.7		51.9	%		33.5	%
China aftermarket	$	38.0		35.3	%	$	22.0		29.4	%		73.2	%
International market	$	17.9		16.6	%	$	14.0		18.7	%		27.9	%
Total	$	107.7		100.0	%	$	74.7		100.0	%		44.1	%

Considering the increase of the production and sales of the trucks for the first fiscal quarter of 2018 in the automobile industry, our sales to the Chinese OEM Market increased by 33.5% from the first fiscal quarter of 2017, to $51.8 million for the first fiscal quarter of 2018.

26

Our sales to the China aftermarket increased by $16.0 million or 73.2%, to $38.0 million for the first fiscal quarter of 2018, compared to $22.0 million for the same period of 2017. The increased new vehicle sales in China and the expiration of OEM warranties helped to drive our aftermarket business. Sales of our new model products, applicable to both the Chinese OEM Market and Chinese Aftermarket, also increased during the three months ended March 31, 2018. We will continue with our strategies to further optimize our sales network and to help further penetrate into new markets. Accelerated urbanization and the Chinese government’s increased support for public transportation favor our expansion in the bus aftermarket.

Our export sales increased by $3.9 million or 27.9%, to $17.9 million for the first fiscal quarter of 2018, as compared to $14.0 million for the same period of 2017. The increase in export sales was mainly due to our broadened customer base.

Cost of Sales and Gross Profit

Cost of sales for the three months ended March 31, 2018 were $77.5 million, an increase of $23.8 million or 44.4%, from $53.7 million for the same period last year. Our gross profit increased by 43.5% from $21.0 million for the first fiscal quarter of 2017 to $30.2 million for the first fiscal quarter of 2018.

Gross margin changed to 28.0% for the three months ended March 31, 2018 from 28.2% for the three months ended March 31, 2017. The change was mainly due to change of sales of larger quantity and varieties of products in the first fiscal quarter of 2018. We intend to focus in 2018 on increasing production efficiency, improving the technologies of products, and improving our product portfolio, to help us to maintain or increase our gross profit margins.

Cost of sales from commercial vehicle brake systems for the three months ended March 31, 2018 was $65.8 million, an increase of $21.8 million or 49.3% from $44.1 million for the same period last year. The gross profit from commercial vehicle brake systems increased by 49.1% from $17.3 million for the first fiscal quarter of 2017 to $25.8 million for the first fiscal quarter of 2018. Gross margin from commercial vehicle brake systems decreased to 28.1% from 28.2% for the three months ended March 31, 2018 compared with 2017. To strengthen our competitiveness and increase our market share, we continued the price promotion in the aftermarket and international market for the three months ended March 31, 2018. The increased labor cost also decreased our gross margin for the three months ended March 31, 2018.

Cost of sales from passenger vehicle brake systems for the three months ended March 31, 2018 was $11.7 million, an increase of $2.1 million or 21.6% from $9.6 million for the same period last year. The gross profit from passenger vehicle brake systems increased by17.7% from $3.8 million for the first fiscal quarter of 2017 to $4.8 million for the first fiscal quarter of 2018. Gross margin from passenger vehicle brake systems changed to 27.5% from 28.2% for the three months ended March 31, 2018 compared with 2017. The change was mainly due to the stronger price promotion in the first fiscal quarter of 2018.

Selling and Distribution Expenses

Selling and distribution expenses were $10.0 million for the three months ended March 31, 2018, as compared to $5.6 million for the same period of 2017, an increase of $4.4 million or 79.0%.

The increase was mainly due to increased freight expense, packaging expense and labor costs. As the percentage of sales revenue, selling expenses percentage increased to 9.3% for the three months ended March 31, 2018, as compared to 7.6% for the same period of 2017.

General and Administrative Expenses

General and administrative expenses were $4.7 million for the three months ended March 31, 2018, as compared to $4.0 million for the same period of 2017, an increase of $0.7 million or 18.0%. The increase was mainly due to the increase in allowance for doubtful accounts during this quarter. As a percentage of sales revenue, general and administrative expenses decreased to 4.4% for the three months ended March 31, 2018, as compared to 5.5% for the same period of 2017.

27

Research and Development Expenses

Research and development expenses include payroll, employee benefits, and other headcount-related expenses associated with product development. Research and development expenses also include first-party development costs. For the three months ended March 31, 2018, research and development expenses were $3.6 million, as compared to $2.1 million for the same period of 2017, an increase of $1.5 million. 

Other Operating Income

Other operating income was $2.2 million for the three months ended March 31, 2018, as compared to $0.3 million for the three months ended March 31, 2017, an increase of $1.9 million. The increase was mainly due to an increase in sales of raw material scraps for the three months ended March 31, 2018.

Depreciation and Amortization

Depreciation and amortization expense increased to $2.8 million for the three months ended March 31, 2018, as compared to that of $2.0 million for the same period of 2017, an increase of $0.8 million. The increase was mainly due to some new addition in PPE and the purchase of land in the third quarter of 2017.

Interest Income

Interest income for the three months ended March 31, 2018 increased by $1.5 million to $1.5 million from $0.01 million for the same period of 2017, mainly due to increased interest income from advances to related parties during the period.

Interest Expenses

The interest expenses for the three months ended March 31, 2018 increased by $2.9 million to $3.4 million from $0.5 million for the same period of 2017, mainly due to increased amount of average loans outstanding during the period.

Income Tax

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 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 Cuts and Jobs Act, which allows the Company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. The Company is proactively evaluating the impact of the Tax Act, however, as of the filing date, the Company was unable to determine a reasonable provision of the tax effects of the Tax Act. Therefore, no provisional amounts have been recorded on the consolidated financial statements as of December 31, 2017 and for the three months ended March 31, 2018 in accordance with SAB 118.

The Joint Venture is registered in the PRC, and is therefore subject to state and local income taxes within the PRC at the applicable tax rate on the taxable income as reported in the PRC statutory financial statements in accordance with relevant income tax laws.

In 2009, the Joint Venture was awarded the Chinese government's "High-Tech Enterprise" designation. The High-Tech Enterprise certificate is valid for three years and provides for a reduced tax rate for years 2009 through 2011. In December 2012, the Joint Venture passed the re-assessment of the High-Tech Enterprise certificate by the government, according to the relevant PRC income tax laws. Accordingly, it continued to be taxed at a 15% rate in 2012 through 2014. The Company used a tax rate of 25% for the first three quarters of 2015. In the fourth quarter of 2015, the Joint Venture passed the re-assessment by the government, based on PRC income tax laws. Accordingly, it continues to be taxed at the 15% tax rate in 2015, 2016 and 2017. The Company is required to re-apply for the certificate in 2018. The current income tax rate used by the Company for the three months ended March 31, 2018 is 15%.

Income tax expenses of $1.6 million and $1.3 million were recorded for the fiscal quarter ended March 31, 2018 and 2017, respectively. 

28

Net Income Attributable to Non-Controlling Interest in Subsidiaries

Non-controlling interest in subsidiaries represents a 10% non-controlling interest in Ruian and 40% non-controlling interest in SIH, in each case held by our joint venture partners. On December 15, 2015, the Company disposed of its entire 60% equity interest in SIH. Net income attributable to non-controlling interest in subsidiaries amounted to $0.9 million and $0.8 million for the first fiscal quarter ended March 31, 2018 and 2017, respectively.

Net Income Attributable to Stockholders

The net income attributable to stockholders for the fiscal quarter ended March 31, 2018 increased by $1.4 million, to $8.3 million from $6.9 million for the fiscal quarter ended March 31, 2017 due to the increased sales and change in gross profit. Earnings per share (“EPS”), both basic and diluted, for the fiscal quarter ended March 31, 2018 and 2017, were $0.43 and $0.36.

Liquidity and Capital Resources

CASH FLOWS

As of March 31, 2018, the Company had cash, cash equivalents, and restricted cash of $69.3 million, as compared to cash, cash equivalents, and restricted cash of $4.6 million as of December 31, 2017. The Company had working capital of $102.4 million at March 31, 2018, as compared to working capital of $111.4 million at December 31, 2017, reflecting current ratios of 1.2:1 and 1.3:1, respectively.

OPERATING - Net cash provided by operating activities was $36.3 million for the three months ended March 31, 2018 compared with $3.5 million of net cash used in operating activities in the same period of 2017, an increase of $39.8 million, primarily due to the increased cash inflow resulted by changes in bank acceptance notes receivable and accounts payable and bank acceptance notes to vendors.

INVESTING - During the three months ended March 31, 2018, the Company expended net cash of $81.6 million in investing activities, mainly for acquisition of new equipment and land use rights to support the growth of the business and advances to related parties. For the three months ended March 31, 2017, the Company expended net cash of $14.3 million in investing activities.

FINANCING - During the three months ended March 31, 2018, the cash provided by financing activities was $108.5 million. The cash provided by financing activities was $21.2 million for the three months ended March 31, 2017. The increase was due to the increased short term bank loans obtained from local commercial banks and advances from related parties.

The Company has taken a number of steps to improve the management of our cash flow. We place more emphasis on collection of accounts receivable from our customers, and we maintain 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 in the foreseeable future.

OFF-BALANCE SHEET ARRANGEMENTS

As of March 31, 2018, 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.

29

According to the laws of China, the government owns all the land in China. Companies and individuals are authorized to possess and use the land only through land use rights granted by the Chinese government. In 2007, the Company purchased the land use rights from the Ruili Group, a related party. The Company also purchased the buildings on the land in the same transaction. The purchase price of land use right and building amounted to approximately $20 million. On May 5, 2016, the Company entered into a Purchase Agreement with the Ruili Group through Ruian, pursuant to which the Company agreed to exchange the Dongshan Facility plus RMB501 million (approximately $76.5 million) in cash for Development Zone Facility. The value of the Dongshan Facility and Development Zone Facility was appraised to be RMB 125 million (approximately $19.1 million) and RMB 626 million (approximately $95.6 million), respectively. As of March 31, 2018, total amount of RMB481 million (approximately $73.5 million) was paid to the Ruili Group in installments, and the remaining RMB20 million (approximately $3.0 million) will be paid within 10 days of completion of the required procedures for transferring the title of the facilities and the land use right as specified in the Purchase Agreement.

Even if the Company is unable to timely resolve obtain the land use right certificate for the land and related building, the Company believes that there will be no potential adverse implication on the Company for the following reasons.

1.        The Company acquired the land use rights in a transaction between the Company and the Ruili Group, a related party. The Ruili Group, as the original land use right owner, has granted the land use right to the Company by contract which is supported by valid consideration.

2.        No third party would oppose the Company’s use of the land, because no third party has any interest in the land use right or property ownership right, other than the Ruili Group and the government.

a)        The Ruili Group promised that the Company has the right to use the land and related building, even before the land use certificate is transferred.

b)        According to the laws of China, the government owns all the land and the buildings attached to the land in China. Once the land use right is granted to Ruili Group, Ruili Group has the right to assign its land use rights to any third parties, including the Company, without interference from the government. Therefore, it is unlikely that the government will oppose the Company’s right to use the land and related building.

c)       The Company has reserved tax payables in the amount of RMB 19,590,000 (approximately US$2,891,580) on its consolidated balance sheets under the line item “accrued expenses” as if no reduction or exemption of tax is approved. This amount was determined based on a 3% tax rate on the consideration paid for the land use right in the transaction, which the Company considered as the most probable amount of tax liability. This amount also represented the maximum amount of tax the Company expects to pay if the negotiation with the local government ultimately is not successful.

CONTRACTUAL OBLIGATIONS

As of March 31, 2018, we had no material changes outside the ordinary course of business in our contractual obligations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures:

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports pursuant to the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs. As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of March 31, 2018 was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(b) and 15d-15(b) of the Exchange Act). Based on this evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures, as of March 31, 2018, were effective, in all material respects, for the purpose stated above.

Changes in Internal Control over Financial Reporting:

There were no changes in the Company’s internal control over financial reporting during the three months ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

30

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 1A. RISK FACTORS.

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS

3.1	Amended and Restated Articles of Incorporation, as further amended (approved May 27, 2010). (1)
3.2	Amended and Restated Bylaws effective as of March 14, 2009. (2)
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (3)

101.1NS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definitions Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

(1) Incorporated herein by reference from the Registrant’s Form 8-K Current Report filed with the Securities and Exchange Commission, on June 1, 2010.

(2) Incorporated herein by reference from the Registrant’s Form 8-K Current Report as filed with the Securities and Exchange Commission, on March 17, 2009.

(3) Furnished 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.

31

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated : May 15, 2018	SORL AUTO PARTS, INC.
	By: /s/ Xiao Ping Zhang
	Name: Xiao Ping Zhang
	Title: Chief Executive Officer
	(Principal Executive Officer)
	By: /s/ Zong Yun Zhou
	Name: Zong Yun Zhou
	Title: Chief Financial Officer
	(Principal Accounting Officer)

32

EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer

pursuant to Section 302

of the Sarbanes-Oxley Act of 2002

I, Xiao Ping Zhang, certify that:

1. I have reviewed this quarterly report on Form 10-Q of SORL AUTO PARTS, INC.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May 15, 2018

/s/ Xiao Ping Zhang

Xiao Ping Zhang

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer

pursuant to Section 302

of the Sarbanes-Oxley Act of 2002

I, Zong Yun Zhou, certify that:

1. I have reviewed this quarterly report on Form 10-Q of SORL AUTO PARTS, INC.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May 15, 2018

/s/ Zong Yun Zhou

Zong Yun Zhou

Chief Financial Officer

(Principal Accounting Officer)

EX-32

EXHIBIT 32

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Xiao Ping Zhang, Chief Executive Officer of SORL AUTO PARTS, INC., and Zong Yun Zhou, Chief Financial Officer of SORL AUTO PARTS, INC., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of SORL AUTO PARTS, INC. on Form 10-Q for the period ended March 31, 2018 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of SORL AUTO PARTS, INC.

Dated: May 15, 2018

/s/ Xiao Ping Zhang

Xiao Ping Zhang

Chief Executive Officer

(Principal Executive Officer) 

/s/ Zong Yun Zhou

Zong Yun Zhou

Chief Financial Officer

(Principal Accounting Officer)

The foregoing certification is being furnished with the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2018 pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general information language in such filing, except to the extent that the Company specifically incorporates by reference.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2018	May 15, 2018
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q1
Entity Registrant Name	SORL Auto Parts Inc
Entity Central Index Key	0000714284
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Trading Symbol	SORL
Entity Common Stock, Shares Outstanding		19,304,921

XML

Consolidated Balance Sheets - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Current Assets
Cash and cash equivalents	$ 22,682,734	$ 4,221,940
Accounts receivable, net, including $1,369,846 and $1,297,734 from related party at March 31, 2018 and December 31, 2017, respectively	173,176,607	134,384,961
Bank acceptance notes from customers	141,418,791	116,040,688
Inventories	117,758,209	114,300,564
Prepayments, current, including $9,690,080 and $999,527 to related parties at March 31, 2018 and December 31, 2017, respectively	24,451,933	8,826,004
Restricted cash	46,602,834	376,236
Advances to related parties	138,038,517	72,318,224
Other current assets, net	7,637,869	5,555,568
Total Current Assets	671,767,494	456,024,185
Property, plant and equipment, net	83,500,305	79,828,006
Land use rights, net	15,360,639	14,912,134
Intangible assets, net	0	3,341
Deposits on loan agreements	11,132,138	10,712,865
Prepayments, non-current	33,401,173	16,594,987
Deferred tax assets	3,487,908	4,240,424
Total Non-current Assets	146,882,163	126,291,757
Total Assets	818,649,657	582,315,942
Current Liabilities
Accounts payable and bank acceptance notes to vendors, including $10,104,627 and $15,896,804 due to related parties at March 31, 2018 and December 31, 2017, respectively	192,341,749	118,051,633
Deposits received from customers	49,997,137	43,087,473
Short term bank loans	239,625,661	125,380,899
Current portion of long term loans	26,141,459	24,266,031
Income tax payable	1,709,222	3,249,727
Accrued expenses	17,651,012	25,154,658
Due to related parties	36,939,943	1,572,963
Deferred income	927,678	1,020,273
Other current liabilities	4,013,302	2,857,130
Total Current Liabilities	569,347,163	344,640,787
Long term loans, less current portion and net of unamortized debt issuance costs	31,773,249	37,383,224
Total Non-current Liabilities	31,773,249	37,383,224
Total Liabilities	601,120,412	382,024,011
Equity
Preferred stock - no par value; 1,000,000 authorized; none issued and outstanding as of March 31, 2018 and December 31, 2017	0	0
Common stock - $0.002 par value; 50,000,000 authorized, 19,304,921 issued and outstanding as of March 31, 2018 and December 31, 2017	38,609	38,609
Additional paid-in capital	(28,582,654)	(28,582,654)
Reserves	18,389,707	17,562,357
Accumulated other comprehensive income	23,143,269	15,903,188
Retained earnings	175,690,481	168,244,329
Total SORL Auto Parts, Inc. Stockholders' Equity	188,679,412	173,165,829
Noncontrolling Interest In Subsidiaries	28,849,833	27,126,102
Total Equity	217,529,245	200,291,931
Total Liabilities and Equity	$ 818,649,657	$ 582,315,942

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Consolidated Balance Sheets (Parenthetical) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Accounts receivable, related party	$ 1,369,846	$ 1,297,734
Prepayments, related party	9,690,080	999,527
Accounts payable, related party	$ 10,104,627	$ 15,896,804
Preferred stock, par or stated value per share	$ 0	$ 0
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value per share	$ 0.002	$ 0.002
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	19,304,921	19,304,921
Common stock, shares outstanding	19,304,921	19,304,921

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Consolidated Statements of Income and Comprehensive Income - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Sales	$ 107,726,682	$ 74,746,394
Include: sales to related parties	7,701,054	4,008,684
Cost of sales	77,527,196	53,700,458
Gross profit	30,199,486	21,045,936
Expenses:
Selling and distribution expenses	10,037,861	5,608,623
General and administrative expenses	4,773,778	4,044,913
Research and development expenses	3,590,402	2,055,096
Total operating expenses	18,402,041	11,708,632
Other operating income, net	2,197,324	290,237
Income from operations	13,994,769	9,627,541
Interest income	1,488,264	10,550
Government grants	133,933	28,909
Other income	27,066	664
Interest expenses	(3,353,711)	(481,160)
Exchange differences	(601,286)	(92,732)
Other expenses	(890,814)	(114,799)
Income before income taxes provision	10,798,221	8,978,973
Provision for income taxes	1,605,441	1,286,174
Net income	9,192,780	7,692,799
Net income attributable to noncontrolling interest in subsidiaries	919,278	769,280
Net income attributable to common stockholders	8,273,502	6,923,519
Comprehensive income:
Net income	9,192,780	7,692,799
Foreign currency translation adjustments	8,044,534	911,432
Comprehensive income	17,237,314	8,604,231
Comprehensive income attributable to noncontrolling interest in subsidiaries	1,723,731	860,423
Comprehensive income attributable to common stockholders	$ 15,513,583	$ 7,743,808
Weighted average common share - basic	19,304,921	19,304,921
Weighted average common share - diluted	19,304,921	19,304,921
EPS - basic	$ 0.43	$ 0.36
EPS - diluted	$ 0.43	$ 0.36

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Consolidated Statements of Cash Flows - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Cash Flows From Operating Activities
Net income	$ 9,192,780	$ 7,692,799
Adjustments to reconcile net income to net cash provided by (used in ) operating activities:
Allowance for doubtful accounts	278,397	0
Depreciation and amortization	2,847,303	2,017,224
Amortization of debt issuance costs	372,025	0
Deferred income tax	900,839	8,453
Changes in assets and liabilities:
Account receivable	(32,888,322)	(2,151,307)
Bank acceptance notes from customers	12,354,888	(2,700,239)
Other currents assets	(1,890,438)	(638,653)
Inventories	996,280	(5,594,100)
Prepayments, current	(14,987,105)	1,142,387
Accounts payable and bank acceptance notes to vendors	63,073,488	(4,434,657)
Income tax payable	(1,635,670)	265,518
Deposits received from customers	5,123,039	3,033,848
Deferred income	(129,981)	0
Other current liabilities and accrued expenses	(7,302,268)	(2,133,534)
Net Cash Flows Provided By (Used In) Operating Activities	36,305,255	(3,492,261)
Cash Flows From Investing Activities
Acquisition of property, equipment and land use rights	(19,682,775)	(14,320,981)
Advances to related parties	(67,694,035)	0
Repayments of advances to related parties	5,821,183	0
Net Cash Flows Used In Investing Activities	(81,555,627)	(14,320,981)
Cash Flows From Financing Activities
Proceeds from short term bank loans	222,636,613	21,247,576
Repayments of short term bank loans	(115,398,302)	0
Proceeds from related parties	264,565,400	0
Repayments to related parties	(256,883,171)	0
Repayments of long term loans	(6,401,331)	0
Net Cash Flows Provided By Financing Activities	108,519,209	21,247,576
Effects on changes in foreign exchange rate	1,418,555	83,361
Net change in cash, cash equivalents, and restricted cash	64,687,392	3,517,695
Cash, cash equivalents, and restricted cash - beginning of the period	4,598,176	13,533,776
Cash, cash equivalents, and restricted cash - end of the period	69,285,568	17,051,471
Supplemental Cash Flow Disclosures:
Interest paid	2,278,298	250,601
Income taxes paid	2,340,272	1,012,203
Non-cash Investing and Financing Transactions
Repayments to related party in the form of bank acceptance notes	5,846,083	0
Loans from related party in the form of bank acceptance notes	32,791,380	0
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets
Total cash, cash equivalents, and restricted cash at end of period	$ 69,285,568	$ 17,051,471

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Consolidated Statements of Changes in Equity - 3 months ended Mar. 31, 2018 - USD ($)	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Reserves [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income [Member]	Stockholders' Equity [Member]	Noncontrolling Interest [Member]
Balance at Dec. 31, 2017	$ 200,291,931	$ 38,609	$ (28,582,654)	$ 17,562,357	$ 168,244,329	$ 15,903,188	$ 173,165,829	$ 27,126,102
Balance, shares at Dec. 31, 2017		19,304,921
Net income	9,192,780	$ 0	0	0	8,273,502	0	8,273,502	919,278
Foreign currency translation adjustment	8,044,534	0	0	0	0	7,240,081	7,240,081	804,453
Transfer to reserve	0	0	0	827,350	(827,350)	0	0	0
Balance at Mar. 31, 2018	$ 217,529,245	$ 38,609	$ (28,582,654)	$ 18,389,707	$ 175,690,481	$ 23,143,269	$ 188,679,412	$ 28,849,833
Balance, shares at Mar. 31, 2018		19,304,921

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DESCRIPTION OF BUSINESS

3 Months Ended

Mar. 31, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

DESCRIPTION OF BUSINESS

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 65 categories and over 2,000 different specifications.

The Joint Venture was formed in the People’s Republic of China (“PRC” or “China”) as a Sino-Foreign joint venture on January 17, 2004, pursuant to the terms of a Joint Venture Agreement between the Ruili Group Co., Ltd. (the “Ruili Group”), a related party under common control, and Fairford Holdings Limited (“Fairford”), a wholly owned subsidiary of the Company. The Ruili Group was incorporated in China in 1987 and specializes in the development, production and sale of various kinds of automotive parts. Fairford and the Ruili Group contributed 90% and 10%, respectively, of the paid-in capital of the Joint Venture.

On November 11, 2009, the Company, through its wholly owned subsidiary, Fairford, entered into a joint venture agreement with MGR Hong Kong Limited (“MGR”), a Hong Kong-based global auto parts distribution specialist firm and an unaffiliated Taiwanese 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.

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BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2018

Accounting Policies [Abstract]

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

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 periods. Management makes its best estimate of the outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management. Actual results could differ from those estimates.

c. FAIR VALUE OF FINANCIAL INSTRUMENTS

For certain of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable and payable, bank acceptance notes from customers and to vendors, inventories, current prepayments, other current assets, short term bank loans, current portion of long term loans, deposits received from customers, deferred income and other payables and accruals, 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 consists of bank deposits used to pledge the bank acceptance notes and short term bank loan, deposits for obtaining letters of credit from a local bank and bank deposits used as down payment secured on behalf of a related party for potential acquisition.

The Company entered into credit agreements with commercial banks in China (“endorsing banks”) which agree to provide credit within stipulated limits. Within the stipulated credit limits, the Company can issue bank acceptance notes to its suppliers as payments for the purchases. In order to issue bank acceptance notes, the Company is generally required to make initial deposits or pledge note receivables to the endorsing banks in amounts of certain percentage of the face amount of the bank acceptance notes to be issued by the Company. The cash in such accounts is restricted for use over the terms of the bank acceptance notes, which are normally three to six months. As of March 31, 2018 and December 31, 2017, restricted cash of $37,728,039 and $0, respectively, was used to pledge the bank acceptance notes.

During the three months ended March 31, 2018, the Company obtained a short term bank loan in the amount of $2,972,096 from Industrial and Commercial Bank of China, which required a pledge with bank deposits of $3,022,471. As of March 31, 2018, the bank deposits remained as the pledge for the loan. Also see Note K for details.

The Company also obtained letters of credit from Industrial Bank Co., Ltd., which agreed to provide guarantee that the Company would make timely payment to its sellers for any purchases. Deposits of $286,255 and $275,474, respectively, were required for this purpose as of March 31, 2018 and December 31, 2017.

As of March 31, 2018, the Company had a bank deposit of $5,566,069, representing an advance to Ruili Group. Also see Note E for details.

e. RELATED PARTY TRANSACTIONS

A related party is generally defined as (i) any person that holds 10% or more of the Company’s securities and their immediate families, (ii) the Company’s management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. The Company conducts business with its related parties in the ordinary course of business.

f. BANK ACCEPTANCE NOTES RECEIVABLE

Bank acceptance notes receivable generally due within six months and with specific payment terms and definitive due dates, are comprised of the notes issued by some customers to pay certain outstanding receivable balances to the Company, and the notes issued by the customers of related parties and transferred to the Company as loans from related parties. Bank acceptance notes do not bear interest. As of March 31, 2018 and December 31, 2017, bank acceptance notes from customers in the amount of $135,919,194 and $95,914,724, respectively, were pledged to endorsing 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 from customers for cash before the maturity of the notes and such discount fees are included in interest expenses on the accompanying unaudited consolidated statements of income and comprehensive income.

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.

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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

3 Months Ended

Mar. 31, 2018

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS [Abstract]

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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 existing revenue recognition guidance. 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 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 $89,465 in net cash used in investing activities in the amount previously reported for the three months ended March 31, 2017. Restricted cash was included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the consolidated statements of cash flows.

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RECLASSIFICATIONS

3 Months Ended

Mar. 31, 2018

Prior Period Adjustment [Abstract]

RECLASSIFICATIONS

NOTE D – RECLASSIFICATIONS

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings or financial position.

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RELATED PARTY TRANSACTIONS

3 Months Ended

Mar. 31, 2018

RELATED PARTY TRANSACTIONS [Abstract]

RELATED PARTY TRANSACTIONS

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 March 31, 2018, the Company did not receive all the materials from Ruili Meilian or any materials from Ningbo Ruili purchased during the three months then ended. The unreceived purchases from those two related parties 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 and Ruili Meilian. 

The following related party transactions occurred for the three months ended March 31, 2018 and 2017: 

Three Months Ended March 31,
	2018		2017
PURCHASES FROM:
Guangzhou Ruili Kormee Automotive Eletronic Control Technology Co., Ltd.	$	-	$	335,927
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd.		355,493		355,671
Shanghai Dachao Electric Technology Co., Ltd.		145,618		55,230
Ruili MeiLian Air Management System (LangFang) Co., Ltd.		2,471,243		783,070
Ruili Group Co., Ltd.		1,716,788		1,126,718
Wenzhou Lichuang Automobile Parts Co., Ltd.		1,781,716		-
Total purchases	$	6,470,858	$	2,656,616
SALES TO:
Guangzhou Ruili Kormee Automotive Eletronic Control Technology Co., Ltd.	$	2,353,028	$	777,357
Ruili MeiLian Air Management System (LangFang) Co., Ltd.		529,873		-
Ruili Group Co., Ltd.		4,411,287		3,026,924
Shanghai Tabouk Auto Components Co., Ltd.		406,866		204,403
Total sales	$	7,701,054	$	4,008,684

	As of March 31, 2018		As of December 31, 2017
ADVANCES TO RELATED PARTIES
Ruili Group Co., Ltd.	$	-	$	5,711,605
Shanghai Ruili Real Estate Development Co., Ltd.		120,227,095		65,069,497
Kunshan Yuetu Real Estate Development Co., Ltd.		17,811,422		1,537,122
Total advances to related parties	$	138,038,517	$	72,318,224
ACCOUNTS RECEIVABLE
Shanghai Tabouk Auto Components Co., Ltd.	$	1,369,846	$	1,297,734
Total accounts receivable	$	1,369,846	$	1,297,734
PREPAYMENTS, CURRENT
Ruili MeiLian Air Management System (LangFang) Co., Ltd.	$	7,753,831	$	-
Ningbo Ruili Equipment Co., Ltd.		1,936,249		999,527
Total prepayments, current	$	9,690,080	$	999,527
ACCOUNTS PAYABLE
Guangzhou Ruili Kormee Automotive Electronic Control Technology  Co., Ltd.	$	1,845,566	$	3,414,719
Shanghai Dachao Electric Technology Co., Ltd.		13,644		83,178
Ruili MeiLian Air Management System (LangFang) Co., Ltd.		7,753,831		1,993,787
Wenzhou Lichuang Automobile Parts Co., Ltd.		491,586		10,405,120
Total accounts payable	$	10,104,627	$	15,896,804
DUE TO RELATED PARTIES
Ruili Group Co., Ltd.	$	26,953,199	$	-
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd.		9,986,744		1,572,963
Total due to related parties	$	36,939,943	$	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.

During the three months ended March 31, 2018, the Company obtained loans of $264,565,400 in cash and $32,791,380 in the form of bank acceptance notes. Repayments in cash and bank acceptance notes to related parties totaled $256,883,171 and $5,846,083, respectively. In the same period, the Company advanced to its related parties in the total amount of $67,694,035 and received cash repayments from Ruili Group amounted to $5,821,183. The cash repayments from Shanghai Ruili and Kunshan Yuetu totaled $1,378,876 during the three months ended March 31, 2018, and approximately $53,434,000 during subsequent period. Also see Note S.

The Company entered into a lease agreement with Ruili Group. See Note O for more details.

During the three months ended March 31, 2018, the Company made a bank deposit of $5,566,069 (RMB 35,000,000) as down payment to secure a potential acquisition. Initially, the Company had the intention to acquire the target company and deposited $5,566,069 into a trust account restricted for the use in the potential acquisition. After a few rounds of discussion, the Company gave up and Ruili Group decided to do the acquisition. As the Company and Ruili Group are under common control, the restricted deposit represented an advance to Ruili Group, non-interest bearing, due on demand and non-secured. Also See Note B.

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 into 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 March 31, 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.

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ACCOUNTS RECEIVABLE, NET

3 Months Ended

Mar. 31, 2018

Receivables [Abstract]

ACCOUNTS RECEIVABLE, NET

NOTE F - ACCOUNTS RECEIVABLE, NET

Accounts receivable, net, consisted of the following:

	March 31, 2018		December 31, 2017
Accounts receivable	$	187,648,836	$	148,312,117
Less: allowance for doubtful accounts		(14,472,229)		(13,927,156)
Account receivable balance, net	$	173,176,607	$	134,384,961

No customer individually accounted for more than 10% of the Company’s revenues or accounts receivable for the three months ended March 31, 2018 and 2017. The changes in the allowance for doubtful accounts at March 31, 2018 and December 31, 2017 are summarized as follows:

	March 31,  2018		December 31, 2017
Beginning balance	$	13,927,156	$	11,686,417
Add: increase to allowance		-		1,474,872
Less: accounts written off		-		-
Effects on changes in foreign exchange rate		545,073		765,867
Ending balance	$	14,472,229	$	13,927,156

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INVENTORIES

3 Months Ended

Mar. 31, 2018

INVENTORIES [Abstract]

INVENTORIES

NOTE G - INVENTORIES

At March 31, 2018 and December 31, 2017, inventories consisted of the following:

	March 31,  2018		December 31, 2017
Raw materials	$	20,308,610	$	27,657,266
Work-in-process		34,233,690		40,805,434
Finished goods		63,215,909		45,837,864
Less: write-down of inventories		-		-
Total inventories	$	117,758,209	$	114,300,564

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PROPERTY, PLANT AND EQUIPMENT, NET

3 Months Ended

Mar. 31, 2018

PROPERTY, PLANT AND EQUIPMENT [Abstract]

PROPERTY, PLANT AND EQUIPMENT

NOTE H - PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net, consisted of the following at March 31, 2018 and December 31, 2017:

	March 31,  2018		December 31, 2017
Machinery	$	126,899,893	$	119,296,564
Molds		1,391,314		1,338,912
Office equipment		3,131,313		2,998,443
Vehicles		4,159,140		3,681,194
Buildings		20,943,601		20,127,148
Leasehold improvements		505,887		486,834
Sub-total		157,031,148		147,929,095
Less: accumulated depreciation		(73,530,843)		(68,101,089)
Property, plant and equipment, net	$	83,500,305	$	79,828,006

Depreciation expense charged to operations was $2,711,374 and $1,944,565 for the three months ended March 31, 2018 and 2017, respectively.

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LAND USE RIGHTS, NET

3 Months Ended

Mar. 31, 2018

Land Use Rights [Abstract]

LAND USE RIGHTS, NET

NOTE I – LAND USE RIGHTS, NET

The balances for land use rights, net, as of March 31, 2018 and December 31, 2017 are as the following:

	March 31, 2018		December 31, 2017
Cost	$	16,082,814	$	15,477,081
Less: accumulated amortization		(722,175)		(564,947)
Land use rights, net	$	15,360,639	$	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 payment was included as prepayment, non-current as of March 31, 2018 on the accompanying consolidated balance sheets. The Company obtained the title to the land use rights in April 2018. Also See Note S.

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 three months ended March 31, 2018, the Company paid additional amount of RMB 57.62 million (approximately $8.99 million). As of March 31, 2018, the purchase price of RMB 72.02 (approximately $11.13 million) was fully paid. As of the filing date, the title to the land use rights has not been transferred. The payments were included as prepayment, non-current as of March 31, 2018 on the accompanying consolidated balance sheets.

Amortization expenses were $132,523 and $70,489 for the three months ended March 31, 2018 and 2017, respectively.

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DEFERRED TAX ASSETS

3 Months Ended

Mar. 31, 2018

Components of Deferred Tax Assets and Liabilities [Abstract]

DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIES

NOTE J - DEFERRED TAX ASSETS

Deferred tax assets consisted of the following as of March 31, 2018 and December 31, 2017:

	March 31, 2018		December 31, 2017
Deferred tax assets – non-current
Allowance for doubtful accounts	$	2,264,083	$	2,137,837
Revenue (net of cost)		67,513		160,766
Unpaid accrued expenses		69,913		955,287
Warranty		1,086,399		986,534
Deferred tax assets		3,487,908		4,240,424
Valuation allowance		-		-
Net deferred tax assets – non-current	$	3,487,908	$	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 and its subsidiaries do not have income tax liabilities in U.S. as the Company had no taxable income for the reporting period. The Company’s subsidiary registered in the PRC is subject to income taxes within the PRC at the applicable tax rate.

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SHORT-TERM BANK LOANS

3 Months Ended

Mar. 31, 2018

Debt Disclosure [Abstract]

SHORT-TERM BANK LOANS

NOTE K - SHORT-TERM BANK LOANS

Bank loans represented the following as of March 31, 2018 and December 31, 2017:

	March 31,  2018		December 31, 2017
Secured	$	239,625,661	$	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 Minsheng Bank, Industrial Bank Co., Ltd., Oversea-Chinese Banking Corporation Limited, China CITIC Bank, 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 three months ended March 31, 2018 ranged from 0.90% to 5.51% per annum. The maturity dates of the loans existing as of March 31, 2018 ranged from April 2, 2018 to March 25, 2019. As of March 31, 2018 and December 31, 2017, the Company’s accounts receivable of $11,112,596 and $5,472,169, respectively, were pledged as collateral under loan arrangements. The interest expenses for short term loans, including discount fees, were $2,294,328 and $460,912 for the three months ended March 31, 2018 and 2017, respectively.

 

As of March 31, 2018, corporate or personal guarantees provided for those bank loans were as follows:

$	34,639,600	Pledged by Ruili Group, a related party, with its land use rights and properties.
$	69,178,290	Pledged by Shanghai Ruili, a related party, with its buildings. Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.
$	19,067,881	Guaranteed by Ruili Group, a related party, Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.
$	6,079,940	Guaranteed by Ruili Group, a related party.
$	28,625,499	Pledged by Hangzhou Ruili Property Development Ltd., a related party under common control of Ruili Group, with its properties. Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.
$	68,987,452	Pledged by the Company with its bank acceptance notes.
$	10,074,903	Pledged by Shanghai Ruili, a related party, with its properties. Guaranteed by Ruili Group, a related party. Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.
$	2,972,096	Pledged by the Company with bank deposits of $3,022,471, which was included as restricted cash on the accompanying unaudited consolidated balance sheets. Also see Note B “RESTRICTED CASH” section.

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LONG TERM LOANS

3 Months Ended

Mar. 31, 2018

Debt Disclosure [Abstract]

LONG TERM LOANS

NOTE L - LONG TERM LOANS

	March 31, 2018		December 31, 2017
Aggregate outstanding principal balance	$	59,428,763	$	63,471,308
Less: unamortized debt issuance costs		(1,514,055)		(1,822,053)
Less: current portion		(26,141,459)		(24,266,031)
Non-current portion	$	31,773,249	$	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 three months ended March 31, 2018, the repayments of principal totaled $3,857,306.

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 three months ended March 31, 2018, the repayments of principal totaled $2,544,025.

The interest expenses for long term loans, including the amortization of debt issuance costs, were $1,059,383 for the three months ended March 31, 2018.

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REVENUES FROM CONTRACTS WITH CUSTOMERS

3 Months Ended

Mar. 31, 2018

Revenue from Contract with Customer [Abstract]

REVENUES FROM CONTRACTS WITH CUSTOMERS

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 customer.

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 March 31, 2018 and December 31, 2017, the Company recorded a deferred revenue liability of $49,997,137 and $43,087,473, respectively, which was presented as “Deposits received from customers” on the accompanying consolidated balance sheets. During the three months March 31, 2018 and 2017, the Company recognized $12,855,707 and $4,395,837, respectively, of deferred revenue included in the opening balances of deposits received from customers. The amounts were included in sales on the accompanying consolidated statements of income and comprehensive income.

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INCOME TAXES

3 Months Ended

Mar. 31, 2018

Income Tax Disclosure [Abstract]

INCOME TAXES

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 Act. The Company is required to recognize the effect of the 2017 Tax Act in the period of enactment. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), Income Tax Accounting Implications of the 2017 Tax Act, which allows the Company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. The Company is evaluating the impact of the 2017 Tax Act, however, as of the filing date, the Company was unable to determine a reasonable provision of the tax effects of the 2017 Tax Act. Therefore, no provisional amounts have been recorded on the consolidated financial statements as of December 31, 2017 and for the three months ended March 31, 2018 in accordance with SAB 118.

The Joint Venture is registered in the PRC, and is therefore subject to state and local income taxes within the PRC at the applicable tax rate on the taxable income as reported in the PRC statutory financial statements in accordance with relevant income tax laws.

In 2015, the Joint Venture was awarded the Chinese government's "High-Tech Enterprise" designation for a third time, which is valid for three years and it continues to be taxed at the 15% tax rate in 2015, 2016 and 2017. As the “High-Tech Enterprise” designation expired in 2018, the Joint Venture is undergoing the re-assessment by the government and the Company estimates it is highly probable that the designation will be awarded and therefore the 15% tax rate is used for the three months ended March 31, 2018.

The reconciliation of the effective income tax rate of the Company to the statutory income tax rate in the PRC for the three months ended March 31, 2018 and 2017 is as follows:

	Three Months Ended March 31, 2018			Three Months Ended March 31, 2017
US statutory income tax rate		21.00	%		35.00	%
Valuation allowance recognized with respect to the loss in the US company		-21.00	%		-35.00	%
China statutory income tax rate		25.00	%		25.00	%
Effects of income tax exemptions and reliefs		-10.00	%		-10.00	%
Effects of additional deduction allowed for R&D expenses		-2.51	%		-2.14	%
Expenses not deductible for tax purpose		0.52	%		0.62	%
Other items		1.86	%		0.84	%
Effective tax rate		14.87	%		14.32	%

Income taxes are calculated on a separate entity basis. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In the three months ended March 31, 2018 and 2017, there were no penalties and interest, which generally are recorded in the general and administrative expenses or in the tax expenses. The provisions for income taxes for the three months ended March 31, 2018 and 2017, respectively, are summarized as follows:

	Three Months Ended March 31, 2018		Three Months Ended March 31, 2017
Current	$	704,603	$	1,294,627
Deferred		900,838		(8,453)
Total	$	1,605,441	$	1,286,174

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OPERATING LEASES WITH RELATED PARTY

3 Months Ended

Mar. 31, 2018

Leases, Operating [Abstract]

OPERATING LEASE WITH RELATED PARTY

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 lease term is from January 2013 to December 2016. This lease was amended in 2013 with a new lease term from January 1, 2013 to December 31, 2022. The annual lease expense is RMB 2,100,000 (approximately $333,688).

The lease expenses were $148,785 and $75,887 for the three months ended March 31, 2018 and 2017, respectively.

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WARRANTY CLAIMS

3 Months Ended

Mar. 31, 2018

WARRANTY CLAIMS [Abstract]

WARRANTY CLAIMS

NOTE P - WARRANTY CLAIMS

Warranty claims were $833,684 and $637,874 for the three months ended March 31, 2018 and 2017, respectively. Warranty claims are included in selling and distribution expenses on the accompanying consolidated statements of income and comprehensive income. Accrued warranty expenses are included in the balances of accrued expenses on the accompanying consolidated balance sheets. The movement of accrued warranty expenses for the three months ended March 31, 2018 was as follows:

Beginning balance at January 1, 2018	$	6,576,895
Aggregate increase for new warranties issued during current period		833,684
Aggregate reduction for payments made and effect of exchange rate fluctuation		(440,703)
Ending balance at March 31, 2018	$	6,969,876

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SEGMENT INFORMATION

3 Months Ended

Mar. 31, 2018

SEGMENT INFORMATION [Abstract]

SEGMENT INFORMATION

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, and purchased, a segment of the passenger vehicle auto parts business (“Passenger Vehicle Brake Systems”) of Ruili Group. As a result of this acquisition, the Company's product offerings were expanded to both commercial and passenger vehicles' brake systems and other key safety-related auto parts.

The Company has two operating segments: Commercial Vehicle Brake Systems and Passenger Vehicle Brake Systems.

For the reporting periods, all of the Company’s long-lived assets are located in the PRC. The Company and its subsidiaries do not have long-lived assets in the United States for the reporting periods.

	Three Months Ended March 31,
	2018		2017
NET SALES TO EXTERNAL CUSTOMERS
Commercial vehicles brake systems	$	91,615,325	$	61,374,264
Passenger vehicles brake systems		16,111,357		13,372,130
Net sales	$	107,726,682	$	74,746,394
INTERSEGMENT SALES
Commercial vehicles brake systems	$	-	$	-
Passenger vehicles brake systems		-		-
Intersegment sales	$	-	$	-
GROSS PROFIT
Commercial vehicles brake systems	$	25,769,805	$	17,280,818
Passenger vehicles brake systems		4,429,681		3,765,118
Gross profit	$	30,199,486	$	21,045,936
Selling and distribution expenses		10,037,861		5,608,623
General and administrative expenses		4,773,778		4,044,913
Research and development expenses		3,590,402		2,055,096
Other operating income, net		2,197,324		290,237
Income from operations		13,994,769		9,627,541
Interest income		1,488,264		10,550
Government grants		133,933		28,909
Other income		27,066		664
Interest expenses		(3,353,711)		(481,160)
Exchange loss		(601,286)		(92,732)
Other expenses		(890,814)		(114,799)
Income before income tax expense	$	10,798,221	$	8,978,973
CAPITAL EXPENDITURE
Commercial vehicles brake systems	$	16,738,232	$	11,758,957
Passenger vehicles brake systems		2,944,543		2,562,024
Total	$	19,682,775	$	14,320,981
DEPRECIATION AND AMORTIZATION
Commercial vehicles brake systems	$	2,421,346	$	1,656,343
Passenger vehicles brake systems		425,957		360,881
Total	$	2,847,303	$	2,017,224

	March 31, 2018		December 31, 2017
TOTAL ASSETS
Commercial vehicles brake systems	$	696,179,668	$	492,348,129
Passenger vehicles brake systems		122,469,989		89,967,813
Total	$	818,649,657	$	582,315,942

	March 31, 2018		December 31, 2017
LONG LIVED ASSETS
Commercial vehicles brake systems	$	124,908,591	$	106,779,681
Passenger vehicles brake systems		21,973,572		19,512,076
Total	$	146,882,163	$	126,291,757

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CONTINGENCIES

3 Months Ended

Mar. 31, 2018

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

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.

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SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2018

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE S – SUBSEQUENT  EVENTS

During the subsequent period, the Company obtained short term loans in the total amount of approximately $47,582,000 from Agricultural Bank of China, China CITIC Bank, China Zheshang Bank, Huaxia Bank, and Industrial and Commercial Bank of China. Interest rates for those loans ranged from 4.60% to 5.72% per annum. The maturity dates of the loans existing as of the filing date ranged from April 29, 2018 to May 1, 2019. The Company continuously pledged bank acceptance notes to obtain loans from Agricultural Bank of China. In the same period, the Company sold accounts receivable from Ruili Group of approximately $6,361,000 to China Merchants Bank without recourse and received payment of approximately $6,108,000, net of bank charges and expenses.

In the same period, the Company repaid loan principals and interest expenses in the total amount of approximately $16,829,000 to Bank of China, China Construction Bank, and Agricultural Bank of China.

During the subsequent period, the Company received repayments from Shanghai Ruili, a related party, in the total amount of approximately $53,434,000 (RMB 336,000,000).

In April 2018, the Company obtained the title of the land use rights for the Wansong Land. The expiration date of the land use rights is October 19, 2057. The Wansong Land has a total area of 17,029 square meters. Also see Note I for details.

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BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2018

Accounting Policies [Abstract]

ACCOUNTING METHOD

a. ACCOUNTING METHOD

The Company uses the accrual method of accounting for financial statement and tax return purposes.

USE OF ESTIMATES

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 periods. Management makes its best estimate of the outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management. Actual results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

c. FAIR VALUE OF FINANCIAL INSTRUMENTS

For certain of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable and payable, bank acceptance notes from customers and to vendors, inventories, current prepayments, other current assets, short term bank loans, current portion of long term loans, deposits received from customers, deferred income and other payables and accruals, income tax payable, accrued expenses, and other current liabilities, the carrying amounts approximate fair values due to their short maturities.

Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated. It is not, however, practical to determine the fair value of amounts due from/to related parties due to their related party nature.

RESTRICTED CASH

d. RESTRICTED CASH

Restricted cash consists of bank deposits used to pledge the bank acceptance notes and short term bank loan, deposits for obtaining letters of credit from a local bank and bank deposits used as down payment secured on behalf of a related party for potential acquisition.

The Company entered into credit agreements with commercial banks in China (“endorsing banks”) which agree to provide credit within stipulated limits. Within the stipulated credit limits, the Company can issue bank acceptance notes to its suppliers as payments for the purchases. In order to issue bank acceptance notes, the Company is generally required to make initial deposits or pledge note receivables to the endorsing banks in amounts of certain percentage of the face amount of the bank acceptance notes to be issued by the Company. The cash in such accounts is restricted for use over the terms of the bank acceptance notes, which are normally three to six months. As of March 31, 2018 and December 31, 2017, restricted cash of $37,728,039 and $0, respectively, was used to pledge the bank acceptance notes.

During the three months ended March 31, 2018, the Company obtained a short term bank loan in the amount of $2,972,096 from Industrial and Commercial Bank of China, which required a pledge with bank deposits of $3,022,471. As of March 31, 2018, the bank deposits remained as the pledge for the loan. Also see Note K for details.

The Company also obtained letters of credit from Industrial Bank Co., Ltd., which agreed to provide guarantee that the Company would make timely payment to its sellers for any purchases. Deposits of $286,255 and $275,474, respectively, were required for this purpose as of March 31, 2018 and December 31, 2017.

As of March 31, 2018, the Company had a bank deposit of $5,566,069, representing an advance to Ruili Group. Also see Note E for details.

RELATED PARTY TRANSACTIONS

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.

BANK ACCEPTANCE NOTES FROM CUSTOMERS

f. BANK ACCEPTANCE NOTES RECEIVABLE

Bank acceptance notes receivable generally due within six months and with specific payment terms and definitive due dates, are comprised of the notes issued by some customers to pay certain outstanding receivable balances to the Company, and the notes issued by the customers of related parties and transferred to the Company as loans from related parties. Bank acceptance notes do not bear interest. As of March 31, 2018 and December 31, 2017, bank acceptance notes from customers in the amount of $135,919,194 and $95,914,724, respectively, were pledged to endorsing 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 from customers for cash before the maturity of the notes and such discount fees are included in interest expenses on the accompanying unaudited consolidated statements of income and comprehensive income.

REVENUE RECOGNITION

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.

FOREIGN CURRENCY TRANSLATION

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.

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RELATED PARTY TRANSACTIONS (Tables)

3 Months Ended

Mar. 31, 2018

RELATED PARTY TRANSACTIONS [Abstract]

Schedule of Nature of Relationship under 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

Schedule of Related Party Transactions

The following related party transactions occurred for the three months ended March 31, 2018 and 2017: 

Three Months Ended March 31,
	2018		2017
PURCHASES FROM:
Guangzhou Ruili Kormee Automotive Eletronic Control Technology Co., Ltd.	$	-	$	335,927
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd.		355,493		355,671
Shanghai Dachao Electric Technology Co., Ltd.		145,618		55,230
Ruili MeiLian Air Management System (LangFang) Co., Ltd.		2,471,243		783,070
Ruili Group Co., Ltd.		1,716,788		1,126,718
Wenzhou Lichuang Automobile Parts Co., Ltd.		1,781,716		-
Total purchases	$	6,470,858	$	2,656,616
SALES TO:
Guangzhou Ruili Kormee Automotive Eletronic Control Technology Co., Ltd.	$	2,353,028	$	777,357
Ruili MeiLian Air Management System (LangFang) Co., Ltd.		529,873		-
Ruili Group Co., Ltd.		4,411,287		3,026,924
Shanghai Tabouk Auto Components Co., Ltd.		406,866		204,403
Total sales	$	7,701,054	$	4,008,684

	As of March 31, 2018		As of December 31, 2017
ADVANCES TO RELATED PARTIES
Ruili Group Co., Ltd.	$	-	$	5,711,605
Shanghai Ruili Real Estate Development Co., Ltd.		120,227,095		65,069,497
Kunshan Yuetu Real Estate Development Co., Ltd.		17,811,422		1,537,122
Total advances to related parties	$	138,038,517	$	72,318,224
ACCOUNTS RECEIVABLE
Shanghai Tabouk Auto Components Co., Ltd.	$	1,369,846	$	1,297,734
Total accounts receivable	$	1,369,846	$	1,297,734
PREPAYMENTS, CURRENT
Ruili MeiLian Air Management System (LangFang) Co., Ltd.	$	7,753,831	$	-
Ningbo Ruili Equipment Co., Ltd.		1,936,249		999,527
Total prepayments, current	$	9,690,080	$	999,527
ACCOUNTS PAYABLE
Guangzhou Ruili Kormee Automotive Electronic Control Technology  Co., Ltd.	$	1,845,566	$	3,414,719
Shanghai Dachao Electric Technology Co., Ltd.		13,644		83,178
Ruili MeiLian Air Management System (LangFang) Co., Ltd.		7,753,831		1,993,787
Wenzhou Lichuang Automobile Parts Co., Ltd.		491,586		10,405,120
Total accounts payable	$	10,104,627	$	15,896,804
DUE TO RELATED PARTIES
Ruili Group Co., Ltd.	$	26,953,199	$	-
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd.		9,986,744		1,572,963
Total due to related parties	$	36,939,943	$	1,572,963

XML

ACCOUNTS RECEIVABLE, NET (Tables)

3 Months Ended

Mar. 31, 2018

ACCOUNTS RECEIVABLE [Abstract]

Schedule of Allowance for Doubtful Accounts

Accounts receivable, net, consisted of the following:

	March 31, 2018		December 31, 2017
Accounts receivable	$	187,648,836	$	148,312,117
Less: allowance for doubtful accounts		(14,472,229)		(13,927,156)
Account receivable balance, net	$	173,176,607	$	134,384,961

No customer individually accounted for more than 10% of the Company’s revenues or accounts receivable for the three months ended March 31, 2018 and 2017. The changes in the allowance for doubtful accounts at March 31, 2018 and December 31, 2017 are summarized as follows:

	March 31,  2018		December 31, 2017
Beginning balance	$	13,927,156	$	11,686,417
Add: increase to allowance		-		1,474,872
Less: accounts written off		-		-
Effects on changes in foreign exchange rate		545,073		765,867
Ending balance	$	14,472,229	$	13,927,156

XML

INVENTORIES (Tables)

3 Months Ended

Mar. 31, 2018

INVENTORIES [Abstract]

Schedule of Inventories

At March 31, 2018 and December 31, 2017, inventories consisted of the following:

	March 31,  2018		December 31, 2017
Raw materials	$	20,308,610	$	27,657,266
Work-in-process		34,233,690		40,805,434
Finished goods		63,215,909		45,837,864
Less: write-down of inventories		-		-
Total inventories	$	117,758,209	$	114,300,564

XML

PROPERTY, PLANT AND EQUIPMENT, NET (Tables)

3 Months Ended

Mar. 31, 2018

PROPERTY, PLANT AND EQUIPMENT [Abstract]

Schedule of Property, Plant and Equipment

Property, plant and equipment, net, consisted of the following at March 31, 2018 and December 31, 2017:

	March 31,  2018		December 31, 2017
Machinery	$	126,899,893	$	119,296,564
Molds		1,391,314		1,338,912
Office equipment		3,131,313		2,998,443
Vehicles		4,159,140		3,681,194
Buildings		20,943,601		20,127,148
Leasehold improvements		505,887		486,834
Sub-total		157,031,148		147,929,095
Less: accumulated depreciation		(73,530,843)		(68,101,089)
Property, plant and equipment, net	$	83,500,305	$	79,828,006

XML

LAND USE RIGHTS, NET (Tables)

3 Months Ended

Mar. 31, 2018

Land Use Rights [Abstract]

Schedule Of Land Rights

The balances for land use rights, net, as of March 31, 2018 and December 31, 2017 are as the following:

	March 31, 2018		December 31, 2017
Cost	$	16,082,814	$	15,477,081
Less: accumulated amortization		(722,175)		(564,947)
Land use rights, net	$	15,360,639	$	14,912,134

XML

DEFERRED TAX ASSETS (Tables)

3 Months Ended

Mar. 31, 2018

Components of Deferred Tax Assets and Liabilities [Abstract]

Schedule of Deferred Tax Assets and Liabilities

Deferred tax assets consisted of the following as of March 31, 2018 and December 31, 2017:

	March 31, 2018		December 31, 2017
Deferred tax assets – non-current
Allowance for doubtful accounts	$	2,264,083	$	2,137,837
Revenue (net of cost)		67,513		160,766
Unpaid accrued expenses		69,913		955,287
Warranty		1,086,399		986,534
Deferred tax assets		3,487,908		4,240,424
Valuation allowance		-		-
Net deferred tax assets – non-current	$	3,487,908	$	4,240,424

XML

SHORT-TERM BANK LOANS (Tables)

3 Months Ended

Mar. 31, 2018

Debt Disclosure [Abstract]

Schedule of Bank Loans

Bank loans represented the following as of March 31, 2018 and December 31, 2017:

	March 31,  2018		December 31, 2017
Secured	$	239,625,661	$	125,380,899

Schedule of Personal or Corporate Guarantees

As of March 31, 2018, corporate or personal guarantees provided for those bank loans were as follows:

$	34,639,600	Pledged by Ruili Group, a related party, with its land use rights and properties.
$	69,178,290	Pledged by Shanghai Ruili, a related party, with its buildings. Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.
$	19,067,881	Guaranteed by Ruili Group, a related party, Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.
$	6,079,940	Guaranteed by Ruili Group, a related party.
$	28,625,499	Pledged by Hangzhou Ruili Property Development Ltd., a related party under common control of Ruili Group, with its properties. Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.
$	68,987,452	Pledged by the Company with its bank acceptance notes.
$	10,074,903	Pledged by Shanghai Ruili, a related party, with its properties. Guaranteed by Ruili Group, a related party. Guaranteed by Mr. Xiao Ping Zhang and Ms. Shu Ping Chi, both the Company’s principal stockholders.
$	2,972,096	Pledged by the Company with bank deposits of $3,022,471, which was included as restricted cash on the accompanying unaudited consolidated balance sheets. Also see Note B “RESTRICTED CASH” section.

XML

LONG TERM LOANS (Tables)

3 Months Ended

Mar. 31, 2018

Debt Disclosure [Abstract]

Schedule Of Longterm Loan [Table Text Block]

	March 31, 2018		December 31, 2017
Aggregate outstanding principal balance	$	59,428,763	$	63,471,308
Less: unamortized debt issuance costs		(1,514,055)		(1,822,053)
Less: current portion		(26,141,459)		(24,266,031)
Non-current portion	$	31,773,249	$	37,383,224

XML

INCOME TAXES (Tables)

3 Months Ended

Mar. 31, 2018

Income Tax Disclosure [Abstract]

Schedule of Effective Income Tax Rate Reconciliation

The reconciliation of the effective income tax rate of the Company to the statutory income tax rate in the PRC for the three months ended March 31, 2018 and 2017 is as follows:

	Three Months Ended March 31, 2018			Three Months Ended March 31, 2017
US statutory income tax rate		21.00	%		35.00	%
Valuation allowance recognized with respect to the loss in the US company		-21.00	%		-35.00	%
China statutory income tax rate		25.00	%		25.00	%
Effects of income tax exemptions and reliefs		-10.00	%		-10.00	%
Effects of additional deduction allowed for R&D expenses		-2.51	%		-2.14	%
Expenses not deductible for tax purpose		0.52	%		0.62	%
Other items		1.86	%		0.84	%
Effective tax rate		14.87	%		14.32	%

Schedule of Income Tax Provision

The provisions for income taxes for the three months ended March 31, 2018 and 2017, respectively, are summarized as follows:

	Three Months Ended March 31, 2018		Three Months Ended March 31, 2017
Current	$	704,603	$	1,294,627
Deferred		900,838		(8,453)
Total	$	1,605,441	$	1,286,174

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WARRANTY CLAIMS (Tables)

3 Months Ended

Mar. 31, 2018

WARRANTY CLAIMS [Abstract]

Schedule of Accrued Warranty Expenses

The movement of accrued warranty expenses for the three months ended March 31, 2018 was as follows:

Beginning balance at January 1, 2018	$	6,576,895
Aggregate increase for new warranties issued during current period		833,684
Aggregate reduction for payments made and effect of exchange rate fluctuation		(440,703)
Ending balance at March 31, 2018	$	6,969,876

XML

SEGMENT INFORMATION (Tables)

3 Months Ended

Mar. 31, 2018

SEGMENT INFORMATION [Abstract]

Schedule of Segment Information, by Segment

For the reporting periods, all of the Company’s long-lived assets are located in the PRC. The Company and its subsidiaries do not have long-lived assets in the United States for the reporting periods.

	Three Months Ended March 31,
	2018		2017
NET SALES TO EXTERNAL CUSTOMERS
Commercial vehicles brake systems	$	91,615,325	$	61,374,264
Passenger vehicles brake systems		16,111,357		13,372,130
Net sales	$	107,726,682	$	74,746,394
INTERSEGMENT SALES
Commercial vehicles brake systems	$	-	$	-
Passenger vehicles brake systems		-		-
Intersegment sales	$	-	$	-
GROSS PROFIT
Commercial vehicles brake systems	$	25,769,805	$	17,280,818
Passenger vehicles brake systems		4,429,681		3,765,118
Gross profit	$	30,199,486	$	21,045,936
Selling and distribution expenses		10,037,861		5,608,623
General and administrative expenses		4,773,778		4,044,913
Research and development expenses		3,590,402		2,055,096
Other operating income, net		2,197,324		290,237
Income from operations		13,994,769		9,627,541
Interest income		1,488,264		10,550
Government grants		133,933		28,909
Other income		27,066		664
Interest expenses		(3,353,711)		(481,160)
Exchange loss		(601,286)		(92,732)
Other expenses		(890,814)		(114,799)
Income before income tax expense	$	10,798,221	$	8,978,973
CAPITAL EXPENDITURE
Commercial vehicles brake systems	$	16,738,232	$	11,758,957
Passenger vehicles brake systems		2,944,543		2,562,024
Total	$	19,682,775	$	14,320,981
DEPRECIATION AND AMORTIZATION
Commercial vehicles brake systems	$	2,421,346	$	1,656,343
Passenger vehicles brake systems		425,957		360,881
Total	$	2,847,303	$	2,017,224

	March 31, 2018		December 31, 2017
TOTAL ASSETS
Commercial vehicles brake systems	$	696,179,668	$	492,348,129
Passenger vehicles brake systems		122,469,989		89,967,813
Total	$	818,649,657	$	582,315,942

	March 31, 2018		December 31, 2017
LONG LIVED ASSETS
Commercial vehicles brake systems	$	124,908,591	$	106,779,681
Passenger vehicles brake systems		21,973,572		19,512,076
Total	$	146,882,163	$	126,291,757

XML

DESCRIPTION OF BUSINESS (Details Textual)	Mar. 31, 2018	Nov. 11, 2009	Jan. 17, 2004
Ruian [Member]
Description Of Business [Line Items]
Ownership percentage	90.00%
Ruili Group, Co., Ltd. [Member]
Description Of Business [Line Items]
Ownership percentage			10.00%
SORL International Holding, Ltd. [Member]
Description Of Business [Line Items]
Ownership percentage		60.00%
MGR Hong Kong Limited [Member] | SIH [Member]
Description Of Business [Line Items]
Ownership percentage		30.00%
Taiwanese Investor [Member]
Description Of Business [Line Items]
Ownership percentage	10.00%	10.00%
Fairford [Member]
Description Of Business [Line Items]
Ownership percentage			90.00%

XML

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Details Textual)	3 Months Ended
	Mar. 31, 2018 USD ($)	Mar. 31, 2018 CNY (¥)	Dec. 31, 2017 USD ($)	Mar. 31, 2017 USD ($)	Nov. 11, 2009	Jan. 17, 2004
Summary of Significant Accounting Policy [Line Items]
Restricted Cash and Cash Equivalents	$ 46,602,834		$ 376,236	$ 5,596,257
Deposits For Long Term Loans	11,132,138		10,712,865
Industrial and Commercial Bank of China [Member]
Summary of Significant Accounting Policy [Line Items]
Pledged assets amount	3,022,471
Proceeds from Short-term Debt	2,972,096
Industrial Bank Co., Ltd., [Member]
Summary of Significant Accounting Policy [Line Items]
Deposits For Long Term Loans	286,255		275,474
Notes Receivable [Member]
Summary of Significant Accounting Policy [Line Items]
Pledged assets amount	135,919,194		95,914,724
Restricted Cash and Cash Equivalents	37,728,039		$ 0
Ruili Group Co Ltd [Member]
Summary of Significant Accounting Policy [Line Items]
Ownership percentage						10.00%
Restricted Cash and Cash Equivalents	5,566,069
Security Deposit	$ 5,566,069	¥ 35,000,000
Taiwanese Investor [Member]
Summary of Significant Accounting Policy [Line Items]
Ownership percentage	10.00%	10.00%			10.00%

XML

RELATED PARTY TRANSACTIONS (Details)	3 Months Ended
	Mar. 31, 2018
Xiao Ping Zhang [Member]
Nature of Common Ownership or Management Control Relationships	Principal shareholder, Chairman of the Board and Chief Executive Officer
Shu Ping Chi [Member]
Nature of Common Ownership or Management Control Relationships	Shareholder, member of the Board, wife of Xiao Ping Zhang
Xiao Feng Zhang [Member]
Nature of Common Ownership or Management Control Relationships	Shareholder, member of the Board, brother of Xiao Ping Zhang
Ruili Group [Member]
Nature of Common Ownership or Management Control Relationships	10% shareholder of Joint Venture and is collectively controlled by Xiao Ping Zhang, Shu Ping Chi, and Xiao Feng Zhang
Guangzhou Kormee [Member]
Nature of Common Ownership or Management Control Relationships	Controlled by Ruili Group
Ruian Kormee [Member]
Nature of Common Ownership or Management Control Relationships	Wholly controlled by Guangzhou Kormee
Shanghai Dachao [Member]
Nature of Common Ownership or Management Control Relationships	Ruili Group holds 49% of the equity interests in Shanghai Dachao
Ruili MeiLian [Member]
Nature of Common Ownership or Management Control Relationships	Controlled by Ruili Group
Wenzhou Lichuang [Member]
Nature of Common Ownership or Management Control Relationships	Controlled by Ruili Group
Ningbo Ruili [Member]
Nature of Common Ownership or Management Control Relationships	Controlled by Ruili Group
Shanghai Ruili [Member]
Nature of Common Ownership or Management Control Relationships	Wholly controlled by Ruili Group
Kunshan Yuetu [Member]
Nature of Common Ownership or Management Control Relationships	Collectively owned by Ruili Group and Shu Ping Chi
Shanghai Tabouk [Member]
Nature of Common Ownership or Management Control Relationships	Collectively owned by Xiao Feng Zhang and Xiao Ping Zhang
Hangzhou Ruili [Member]
Nature of Common Ownership or Management Control Relationships	Collectively owned by Ruili Group and Xiao Ping Zhang

XML

RELATED PARTY TRANSACTIONS (Details 1) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Related Party Transaction [Line Items]
PURCHASES FROM	$ 6,470,858	$ 2,656,616
SALES TO	7,701,054	4,008,684
Guangzhou Ruili Kormee Automotive Eletronic Control Technology Co., Ltd. [Member]
Related Party Transaction [Line Items]
PURCHASES FROM	0	335,927
SALES TO	2,353,028	777,357
Shanghai Dachao Electric Technology Co., Ltd. [Member]
Related Party Transaction [Line Items]
PURCHASES FROM	145,618	55,230
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd. [Member]
Related Party Transaction [Line Items]
PURCHASES FROM	355,493	355,671
Ruili MeiLian Air Management System (LangFang) Co., Ltd [Member]
Related Party Transaction [Line Items]
PURCHASES FROM	2,471,243	783,070
SALES TO	529,873	0
Ruili Group, Co., Ltd. [Member]
Related Party Transaction [Line Items]
PURCHASES FROM	1,716,788	1,126,718
SALES TO	4,411,287	3,026,924
Wenzhou Lichuang Automobile Parts Co., Ltd. [Member]
Related Party Transaction [Line Items]
PURCHASES FROM	1,781,716	0
Shanghai Tabouk Auto Components Co., Ltd. [Member]
Related Party Transaction [Line Items]
SALES TO	$ 406,866	$ 204,403

XML

RELATED PARTY TRANSACTIONS (Details 2) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Related Party Transaction [Line Items]
Advances to related parties	$ 138,038,517	$ 72,318,224
ACCOUNTS RECEIVABLE	1,369,846	1,297,734
ACCOUNTS PREPAYMENT	9,690,080	999,527
ACCOUNTS PAYABLE TO RELATED PARTIES	10,104,627	15,896,804
RELATED PARTIES	36,939,943	1,572,963
Guangzhou Kormee Automotive Electronic Control Technology Co., Ltd. [Member]
Related Party Transaction [Line Items]
ACCOUNTS PAYABLE TO RELATED PARTIES	1,845,566	3,414,719
Ruili Group Co Ltd [Member]
Related Party Transaction [Line Items]
Advances to related parties	0	5,711,605
RELATED PARTIES	26,953,199	0
Ruili MeiLian Air Management System (LangFang) Co., Ltd [Member]
Related Party Transaction [Line Items]
ACCOUNTS PREPAYMENT	7,753,831	0
ACCOUNTS PAYABLE TO RELATED PARTIES	7,753,831	1,993,787
Shanghai Dachao Electric Technology Co., Ltd. [Member]
Related Party Transaction [Line Items]
ACCOUNTS PAYABLE TO RELATED PARTIES	13,644	83,178
Shanghai Tabouk Auto Components Co., Ltd. [Member]
Related Party Transaction [Line Items]
ACCOUNTS RECEIVABLE	1,369,846	1,297,734
Ningbo Ruili Equipment Co., Ltd. [Member]
Related Party Transaction [Line Items]
ACCOUNTS PREPAYMENT	1,936,249	999,527
Wenzhou Lichuang Automobile Parts Co., Ltd. [Member]
Related Party Transaction [Line Items]
ACCOUNTS PAYABLE TO RELATED PARTIES	491,586	10,405,120
Shanghai Ruili Real Estate Development Co., Ltd. [Member]
Related Party Transaction [Line Items]
Advances to related parties	120,227,095	65,069,497
Kunshan Yuetu Real Estate Development Co., Ltd. [Member]
Related Party Transaction [Line Items]
Advances to related parties	17,811,422	1,537,122
Wenzhou Ruili Kormee Automotive Electronics Co., Ltd. [Member]
Related Party Transaction [Line Items]
RELATED PARTIES	$ 9,986,744	$ 1,572,963

XML

RELATED PARTY TRANSACTIONS (Details Textual)	1 Months Ended		3 Months Ended
	Apr. 30, 2018 USD ($)	Apr. 30, 2018 CNY (¥)	Mar. 31, 2018 USD ($)	Mar. 31, 2017 USD ($)	Mar. 31, 2018 CNY (¥)	Dec. 31, 2017 USD ($)
Related Party Transaction [Line Items]
Repayments of Related Party Debt			$ 256,883,171	$ 0
Proceeds from Related Party Debt			$ 264,565,400	0
Receivable with Imputed Interest, Effective Yield (Interest Rate)			5.22%
Restricted Cash and Cash Equivalents			$ 46,602,834	5,596,257		$ 376,236
Proceeds from Collection of Long-term Loans to Related Parties			5,821,183	$ 0
Subsequent Event [Member]
Related Party Transaction [Line Items]
Proceeds from Collection of Long-term Loans to Related Parties	$ 53,434,000	¥ 336,000,000
Ruili Group Co Ltd [Member]
Related Party Transaction [Line Items]
Guarantee amount			5,766,181		¥ 40,000,000
Restricted Cash and Cash Equivalents			5,566,069
Security Deposit			5,566,069		35,000,000
Ruili Group Co Ltd [Member] | Credit Line by China Guangfa Bank [Member]
Related Party Transaction [Line Items]
Guarantee amount			$ 10,092,000		69,000,000
Guarantee start date			Nov. 16, 2016
Guarantee end date			Jan. 16, 2018
Ruili Group Co Ltd [Member] | Credit Line by China Merchants Bank [Member]
Related Party Transaction [Line Items]
Guarantee amount			$ 7,699,889		50,000,000
Guarantee start date			Jul. 29, 2015
Ruili Group Co Ltd One [Member]
Related Party Transaction [Line Items]
Repayments of Related Party Debt			$ 67,694,035
Ruili Group Co Ltd One [Member] | Credit Line by Bank of Ningbo [Member]
Related Party Transaction [Line Items]
Guarantee amount			$ 26,328,000		¥ 180,000,000
Guarantee start date			Jun. 30, 2017
Guarantee end date			Jun. 30, 2020
Ruili Group Co Ltd Two [Member]
Related Party Transaction [Line Items]
Repayments of Related Party Debt			$ 5,821,183
Ruian Kormee [Member]
Related Party Transaction [Line Items]
Proceeds from Related Party Debt			32,791,380
Ruili Meilian [Member]
Related Party Transaction [Line Items]
Repayments of Related Party Debt			5,846,083
Shanghai Ruili and Kunshan Yuetu [Member]
Related Party Transaction [Line Items]
Repayments of Related Party Debt			$ 1,378,876

XML

ACCOUNTS RECEIVABLE, NET (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Concentration Risk [Line Items]
Accounts receivable	$ 187,648,836	$ 148,312,117
Less: allowance for doubtful accounts	(14,472,229)	(13,927,156)
Account receivable balance, net	$ 173,176,607	$ 134,384,961

XML

ACCOUNTS RECEIVABLE, NET (Details 1) - USD ($)	3 Months Ended	12 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Concentration Risk [Line Items]
Beginning balance	$ 13,927,156	$ 11,686,417
Add: increase to allowance	0	1,474,872
Less: accounts written off	0	0
Effects on changes in foreign exchange rate	545,073	765,867
Ending balance	$ 14,472,229	$ 13,927,156

XML

INVENTORIES (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Inventory [Line Items]
Raw Materials	$ 20,308,610	$ 27,657,266
Work-in-process	34,233,690	40,805,434
Finished Goods	63,215,909	45,837,864
Less: write-down of inventories	0	0
Total inventories	$ 117,758,209	$ 114,300,564

XML

PROPERTY, PLANT AND EQUIPMENT, NET (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Property, Plant and Equipment [Line Items]
Property, plant and equipment, Sub-total	$ 157,031,148	$ 147,929,095
Less: Accumulated depreciation	(73,530,843)	(68,101,089)
Property, plant and equipment, net	83,500,305	79,828,006
Machinery [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, Sub-total	126,899,893	119,296,564
Molds [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, Sub-total	1,391,314	1,338,912
Office equipment [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, Sub-total	3,131,313	2,998,443
Vehicles [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, Sub-total	4,159,140	3,681,194
Buildings [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, Sub-total	20,943,601	20,127,148
Leasehold improvements [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, Sub-total	$ 505,887	$ 486,834

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PROPERTY, PLANT AND EQUIPMENT, NET (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Property, Plant and Equipment [Line Items]
Depreciation	$ 2,711,374	$ 1,944,565

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LAND USE RIGHTS, NET (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Cost	$ 16,082,814	$ 15,477,081
Less: accumulated amortization	(722,175)	(564,947)
Land use rights, net	$ 15,360,639	$ 14,912,134

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LAND USE RIGHTS, NET (Details Textual) ¥ in Thousands	3 Months Ended			12 Months Ended
	Mar. 31, 2018 USD ($)	Mar. 31, 2018 CNY (¥)	Mar. 31, 2017 USD ($)	Dec. 31, 2017 USD ($)	Dec. 31, 2017 CNY (¥)
Land Use Rights [Line Items]
Amortization expense, land use rights	$ 132,523		$ 70,489
Payments to Acquire Intangible Assets				$ 7,930,000	¥ 51,810
Use Rights [Member]
Land Use Rights [Line Items]
Payments to Acquire Intangible Assets	11,130,000	¥ 72,020
Additional payment to acquire intangible assets	$ 8,990,000	¥ 57,620
Development Zone Facility [Member] | Use Rights [Member]
Land Use Rights [Line Items]
Payments to Acquire Intangible Assets				$ 2,140,000	¥ 14,400

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DEFERRED TAX ASSETS (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Deferred tax assets - non-current
Allowance for doubtful accounts	$ 2,264,083	$ 2,137,837
Revenue (net of cost)	67,513	160,766
Unpaid accrued expenses	69,913	955,287
Warranty	1,086,399	986,534
Deferred tax assets	3,487,908	4,240,424
Valuation allowance	0	0
Deferred tax liabilities - current
Net deferred tax assets - non-current	$ 3,487,908	$ 4,240,424

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SHORT-TERM BANK LOANS (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Secured	$ 239,625,661	$ 125,380,899

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SHORT-TERM BANK LOANS (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Short-term Debt [Line Items]
Interest expenses	$ 1,059,383
Minimum [Member]
Short-term Debt [Line Items]
Debt Instrument, Interest Rate, Stated Percentage	4.60%
Maximum [Member]
Short-term Debt [Line Items]
Debt Instrument, Interest Rate, Stated Percentage	5.72%
Ruili Group, Co., Ltd. [Member]
Short-term Debt [Line Items]
Corporate or personal guarantees	$ 34,639,600
Ruili Group Co Ltd And Related Parties And Shareholders One [Member]
Short-term Debt [Line Items]
Corporate or personal guarantees	69,178,290
Ruili Group Co Ltd And Related Parties And Shareholders Two [Member]
Short-term Debt [Line Items]
Corporate or personal guarantees	19,067,881
Ruili Group Co Ltd And Related Parties And Shareholders Three [Member]
Short-term Debt [Line Items]
Corporate or personal guarantees	28,625,499
Ruili Group Co Ltd And Related Parties And Shareholders Four [Member]
Short-term Debt [Line Items]
Corporate or personal guarantees	10,074,903
Ruili Group Co Ltd And Related Party [Member]
Short-term Debt [Line Items]
Corporate or personal guarantees	6,079,940
Bank Acceptance Notes [Member]
Short-term Debt [Line Items]
Corporate or personal guarantees	68,987,452
Restricted Cash Related Party [Member]
Short-term Debt [Line Items]
Corporate or personal guarantees	$ 2,972,096
Short Term Bank Loans [Member]
Short-term Debt [Line Items]
Maturity date, Start	Apr. 02, 2018
Maturity date, End	Mar. 25, 2019
Collateral amount under loan arrangements	$ 3,022,471
Interest expenses	2,294,328	$ 460,912
Accounts receivable pledged as collateral	$ 11,112,596		$ 5,472,169
Short Term Bank Loans [Member] | Minimum [Member]
Short-term Debt [Line Items]
Debt Instrument, Interest Rate, Stated Percentage	0.90%
Short Term Bank Loans [Member] | Maximum [Member]
Short-term Debt [Line Items]
Debt Instrument, Interest Rate, Stated Percentage	5.51%

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LONG TERM LOANS (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Aggregate outstanding principal balance	$ 59,428,763	$ 63,471,308
Less: unamortized debt issuance costs	(1,514,055)	(1,822,053)
Less: current portion	(26,141,459)	(24,266,031)
Non-current portion	$ 31,773,249	$ 37,383,224

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LONG TERM LOANS (Details Textual)	1 Months Ended	3 Months Ended		13 Months Ended
	Nov. 30, 2017 USD ($)	Mar. 31, 2018 USD ($)	Mar. 31, 2017 USD ($)	Nov. 16, 2017 USD ($)	Dec. 31, 2017 USD ($)	Nov. 30, 2017 CNY (¥)	Nov. 16, 2017 CNY (¥)	Nov. 15, 2017
Long-term Debt, Gross		$ 59,428,763			$ 63,471,308
Repayments of Long-term Debt		6,401,331	$ 0
Interest Expense, Debt		1,059,383
Far Eastern Horizon Co Ltd [Member]
Repayments of Long-term Debt		3,857,306
Payments of Debt Issuance Costs	$ 742,324
Far Eastern Horizon Co Ltd [Member] | Longterm Loans [Member]
Debt Instrument, Term				36 months
Debt Instrument, Interest Rate, Stated Percentage				8.38%			8.38%
Long-term Debt, Gross				$ 30,608,185			¥ 200,000,000
Debt Instrument, Collateral Amount				$ 31,479,075			¥ 205,690,574
COSCO Shipping Leasing Co Ltd [Member]
Repayments of Long-term Debt		$ 2,544,025
Payments of Debt Issuance Costs	$ 1,025,248
COSCO Shipping Leasing Co Ltd [Member] | Longterm Loans [Member]
Debt Instrument, Term	36 months
Debt Instrument, Interest Rate, Stated Percentage	8.50%					8.50%		4.31%
Long-term Debt, Gross	$ 35,964,617					¥ 235,000,000
Debt Instrument, Collateral Amount	$ 36,474,800					¥ 238,333,639

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REVENUES FROM CONTRACTS WITH CUSTOMERS (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Customer Deposits, Current	$ 49,997,137		$ 43,087,473
Deferred Revenue, Revenue Recognized	$ 12,855,707	$ 4,395,837

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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Details Textual)	3 Months Ended
	Mar. 31, 2017 USD ($)
Increase (Decrease) in Restricted Cash and Investments	$ 89,465

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INCOME TAXES (Details)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Income Tax [Line Items]
US statutory income tax rate	21.00%	35.00%
Valuation allowance recognized with respect to the loss in the US company	(21.00%)	(35.00%)
China statutory income tax rate	25.00%	25.00%
Effect of income tax exemptions and reliefs	(10.00%)	(10.00%)
Effects of additional deduction allowed for R&D expenses	(2.51%)	(2.14%)
Expenses not deductible for tax purpose	0.52%	0.62%
Other items	1.86%	0.84%
Effective tax rate	14.87%	14.32%

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INCOME TAXES (Details 1) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
INCOME TAXES [Abstract]
Current	$ 704,603	$ 1,294,627
Deferred	900,838	(8,453)
Total	$ 1,605,441	$ 1,286,174

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INCOME TAXES (Details Textual)	3 Months Ended		12 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Income Taxes [Line Items]
High-Tech Enterprise income tax rate	15.00%			15.00%	15.00%	15.00%
US Statutory income tax rate	25.00%	25.00%
Scenario, Plan [Member]
Income Taxes [Line Items]
US Statutory income tax rate			21.00%

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OPERATING LEASES WITH RELATED PARTY (Details Textual)	3 Months Ended
	Mar. 31, 2018 USD ($)	Mar. 31, 2018 CNY (¥)	Mar. 31, 2017 USD ($)
Operating Leased Assets [Line Items]
Lease expenses	$ 148,785		$ 75,887
Apartment Buildings [Member] | Ruili Group [Member]
Operating Leased Assets [Line Items]
Annual lease expense	$ 333,688	¥ 2,100,000

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WARRANTY CLAIMS (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Beginning balance at January 1, 2018	$ 6,576,895
Aggregate increase for new warranties issued during current period	833,684	$ 637,874
Aggregate reduction for payments made and effect of exchange rate fluctuation	(440,703)
Ending balance at March 31, 2018	$ 6,969,876

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WARRANTY CLAIMS (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Standard and Extended Product Warranty Accrual, Increase for Warranties Issued	$ 833,684	$ 637,874

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SEGMENT INFORMATION (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Segment Reporting Information [Line Items]
Sales	$ 107,726,682	$ 74,746,394
Gross profit	30,199,486	21,045,936
OPERATING EXPENSES
Selling and distribution expenses	10,037,861	5,608,623
General and administrative expenses	4,773,778	4,044,913
Research and development expenses	3,590,402	2,055,096
Other operating income, net	2,197,324	290,237
Income from operations	13,994,769	9,627,541
Interest income	1,488,264	10,550
Government grants	133,933	28,909
Other income	27,066	664
Interest expenses	(3,353,711)	(481,160)
Exchange loss	(601,286)	(92,732)
Other expenses	(890,814)	(114,799)
Income before income tax expense	10,798,221	8,978,973
CAPITAL EXPENDITURE	19,682,775	14,320,981
DEPRECIATION AND AMORTIZATION	2,847,303	2,017,224
TOTAL ASSETS	818,649,657		$ 582,315,942
LONG LIVED ASSETS	146,882,163		126,291,757
INTERSEGMENT SALES [Member]
Segment Reporting Information [Line Items]
Sales	0	0
Commercial Vehicles Brake Systems [Member]
Segment Reporting Information [Line Items]
Sales	91,615,325	61,374,264
Gross profit	25,769,805	17,280,818
OPERATING EXPENSES
CAPITAL EXPENDITURE	16,738,232	11,758,957
DEPRECIATION AND AMORTIZATION	2,421,346	1,656,343
TOTAL ASSETS	696,179,668		492,348,129
LONG LIVED ASSETS	124,908,591		106,779,681
Commercial Vehicles Brake Systems [Member] | INTERSEGMENT SALES [Member]
Segment Reporting Information [Line Items]
Sales	0	0
Passenger Vehicles Brake Systems [Member]
Segment Reporting Information [Line Items]
Sales	16,111,357	13,372,130
Gross profit	4,429,681	3,765,118
OPERATING EXPENSES
CAPITAL EXPENDITURE	2,944,543	2,562,024
DEPRECIATION AND AMORTIZATION	425,957	360,881
TOTAL ASSETS	122,469,989		89,967,813
LONG LIVED ASSETS	21,973,572		$ 19,512,076
Passenger Vehicles Brake Systems [Member] | INTERSEGMENT SALES [Member]
Segment Reporting Information [Line Items]
Sales	$ 0	$ 0

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CONTINGENCIES (Details Textual)	12 Months Ended
	Dec. 31, 2017 USD ($)	Dec. 31, 2017 CNY (¥)	Mar. 31, 2018 USD ($)	Mar. 31, 2018 CNY (¥)
Contingencies [Line Items]
Relevant tax amount reserved			$ 2,300,205	¥ 15,030,000
Tax rate, land use right			3.00%	3.00%
Payments to Acquire Intangible Assets	$ 7,930,000	¥ 51,810,000
Development Zone Facility [Member]
Contingencies [Line Items]
Relevant tax amount reserved			$ 745,220	¥ 4,560,000
Tax rate, land use right			3.00%	3.00%
Development Zone Facility [Member] | Use Rights [Member]
Contingencies [Line Items]
Payments to Acquire Intangible Assets	$ 76,500,000	¥ 501,000,000

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SUBSEQUENT EVENTS (Details Textual)		1 Months Ended		3 Months Ended
	May 14, 2018 USD ($)	Apr. 30, 2018 USD ($) m²	Apr. 30, 2018 CNY (¥) m²	Mar. 31, 2018 USD ($)	Mar. 31, 2017 USD ($)
Subsequent Event [Line Items]
Repayments of Debt				$ 16,829,000
Short-term Debt				47,582,000
Proceeds from Collection of Long-term Loans to Related Parties				$ 5,821,183	$ 0
Minimum [Member]
Subsequent Event [Line Items]
Debt Instrument, Interest Rate, Stated Percentage				4.60%
Maximum [Member]
Subsequent Event [Line Items]
Debt Instrument, Interest Rate, Stated Percentage				5.72%
Subsequent Event [Member]
Subsequent Event [Line Items]
Area of Land | m²		17,029	17,029
Proceeds from Collection of Long-term Loans to Related Parties		$ 53,434,000	¥ 336,000,000
Land use rights expiration date		Oct. 19, 2057	Oct. 19, 2057
Proceeds from Collection of Accounts Receivable Held-for-sale	$ 6,108,000
Trade Receivables Held-for-sale, Amount	$ 6,361,000